Prudential 2011 Annual Report Download - page 149

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
1. BUSINESS AND BASIS OF PRESENTATION
Prudential Financial, Inc. (“Prudential Financial”) and its subsidiaries (collectively, “Prudential” or the “Company”) provide a wide
range of insurance, investment management, and other financial products and services to both individual and institutional customers
throughout the United States and in many other countries. Principal products and services provided include life insurance, annuities,
retirement-related services, mutual funds, and investment management. The Company has organized its principal operations into the
Financial Services Businesses and the Closed Block Business. The Financial Services Businesses operate through three operating divisions:
U.S. Retirement Solutions and Investment Management, U.S. Individual Life and Group Insurance, and International Insurance. The
Company’s businesses that are not sufficiently material to warrant separate disclosure and divested businesses, are included in Corporate
and Other operations within the Financial Services Businesses. The Closed Block Business, which includes the Closed Block (see Note 12),
is managed separately from the Financial Services Businesses. The Closed Block Business was established on the date of demutualization
and includes the Company’s in force participating insurance and annuity products and assets that are used for the payment of benefits and
policyholders’ dividends on these products, as well as other assets and equity that support these products and related liabilities. In
connection with the demutualization, the Company ceased offering these participating products.
Demutualization
On December 18, 2001 (the “date of demutualization”), The Prudential Insurance Company of America (“Prudential Insurance”)
converted from a mutual life insurance company to a stock life insurance company and became an indirect, wholly-owned subsidiary of
Prudential Financial. At the time of demutualization Prudential Financial issued two classes of common stock, both of which remain
outstanding. The Common Stock, which is publicly traded, reflects the performance of the Financial Services Businesses, and the Class B
Stock, which was issued through a private placement, reflects the performance of the Closed Block Business.
Basis of Presentation
The Consolidated Financial Statements include the accounts of Prudential Financial, entities over which the Company exercises control,
including majority-owned subsidiaries and minority-owned entities such as limited partnerships in which the Company is the general partner,
and variable interest entities in which the Company is considered the primary beneficiary. See Note 5 for more information on the
Company’s consolidated variable interest entities. The Consolidated Financial Statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (“U.S. GAAP”). Intercompany balances and transactions have been eliminated.
The Company’s Gibraltar Life Insurance Company, Ltd. (“Gibraltar Life”) consolidated operations and the recently acquired AIG Star
Life Insurance Co., Ltd., AIG Edison Life Insurance Company, AIG Financial Assurance Japan K.K., and AIG Edison Service Co., Ltd.
(collectively the “Star and Edison Businesses”) use a November 30 fiscal year end for purposes of inclusion in the Company’s Consolidated
Financial Statements. Therefore, the Consolidated Financial Statements as of December 31, 2011 and 2010 include the assets and liabilities
of Gibraltar Life as of November 30, 2011 and 2010, respectively, and for the years ended December 31, 2011, 2010 and 2009, include
Gibraltar Life’s results of operations for the twelve months ended November 30, 2011, 2010 and 2009, respectively. The Consolidated
Financial Statements as of December 31, 2011, include the assets and liabilities of the Star and Edison Businesses as of November 30, 2011
and the results of operations for the Star and Edison Businesses from February 1, 2011, the acquisition date, through November 30, 2011.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The most significant estimates include those used in determining deferred policy acquisition costs and related amortization; value of
business acquired and its amortization; amortization of sales inducements; measurement of goodwill and any related impairment; valuation
of investments including derivatives and the recognition of other-than-temporary impairments; future policy benefits including guarantees;
pension and other postretirement benefits; provision for income taxes and valuation of deferred tax assets; and reserves for contingent
liabilities, including reserves for losses in connection with unresolved legal matters.
Reclassifications
Certain amounts in prior years have been reclassified to conform to the current year presentation.
2. SIGNIFICANT ACCOUNTING POLICIES AND PRONOUNCEMENTS
Share-Based Payments
The Company recognizes the cost resulting from all share-based payments in accordance with the authoritative guidance on accounting for
stock based compensation and applies the fair value-based measurement method in accounting for share-based payment transactions with
employees except for equity instruments held by employee share ownership plans. The Company accounts for excess tax benefits in additional
paid-in capital as a single “pool” available to all share-based compensation awards. The Company does not recognize excess tax benefits in
additional paid-in capital until the benefits result in a reduction in taxes payable. The Company has elected the “tax-law ordering methodology”
and has adopted a convention that considers excess tax benefits to be the last portion of a net operating loss carryforward to be utilized.
Prudential Financial, Inc. 2011 Annual Report 147