Prudential 2011 Annual Report Download - page 164

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
3. ACQUISITIONS AND DISPOSITIONS (continued)
Net Assets Acquired
The following table presents an allocation of the purchase price to assets acquired and liabilities assumed at February 1, 2011 (the
“Acquisition Date”):
(in millions)
Total invested assets at fair value(1) ......................................................................... $43,103
Cash and cash equivalents ................................................................................ 1,813
Accrued investment income ............................................................................... 348
Value of business acquired (“VOBA”)(2) .................................................................... 3,769
Goodwill(2) ............................................................................................ 173
Other assets(1)(2) ....................................................................................... 880
Total assets acquired ................................................................................. 50,086
Future policy benefits(2)(3) ............................................................................... 22,202
Policyholders’ account balances(2)(3)(4) ..................................................................... 22,785
Long-term debt ......................................................................................... 496
Other liabilities(2) ....................................................................................... 390
Total liabilities assumed .............................................................................. 45,873
Net assets acquired .............................................................................. $ 4,213
(1) Total invested assets, at fair value, include $55 million of related party assets. Other assets include $86 million of related party assets.
(2) Reflects revisions to prior period presentation for correction of treatment of certain acquired policies and refinements to certain data.
(3) Reflects reclassifications to prior period presentation for correction of classification of certain acquired policies.
(4) Includes investment contracts reported at fair value, which exceeded the account value by $646 million.
VOBA
Value of business acquired (“VOBA”), which is established in accordance with purchase accounting guidance, is an intangible asset
associated with the acquired in force insurance contracts representing the difference between the fair value and carrying value of the
liabilities, determined as of the acquisition date. The fair value of the liabilities, and hence VOBA, reflects the cost of the capital
attributable to the acquired insurance contracts. VOBA will be amortized over the expected life of the contracts in proportion to either gross
premiums or gross profits, depending on the type of contract. Total gross profits will include both actual experience as it arises and
estimates of gross profits for future periods. The Company will regularly evaluate and adjust the VOBA balance with a corresponding
charge or credit to earnings for the effects of actual gross profits and changes in assumptions regarding estimated future gross profits.
VOBA is reported as a component of “Other assets” and the amortization of VOBA is reported in “General and administrative expenses.”
The proportion of the VOBA balance attributable to each of the product groups associated with this acquisition are as follows: 48% related
to accident and health insurance products, 45% related to individual life insurance, and 7% related to fixed annuities.
The following table provides estimated future amortization of VOBA, net of interest, relating to the Star and Edison Businesses for the
periods indicated.
(in millions)
2012 .................................................................................................. $ 413
2013 .................................................................................................. $ 360
2014 .................................................................................................. $ 313
2015 .................................................................................................. $ 270
2016 .................................................................................................. $ 238
2017 and thereafter ...................................................................................... $1,896
Information regarding the change in VOBA is as follows:
(in millions)
Balance as of February 1, 2011 ............................................................................. $3,769
Amortization ....................................................................................... (491)
Interest ............................................................................................ 41
Foreign currency translation ........................................................................... 171
Balance as of December 31, 2011 ........................................................................... $3,490
Goodwill
As a result of the acquisition of the Star and Edison Businesses, the Company recognized an asset for goodwill representing the excess
of the acquisition cost over the net fair value of the assets acquired and liabilities assumed. Goodwill resulting from the acquisition of the
162 Prudential Financial, Inc. 2011 Annual Report