Prudential 2011 Annual Report Download - page 228

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
19. INCOME TAXES (continued)
Total income tax expense includes additional tax expense related to the utilization of deferred tax assets recorded in the Statement of
Financial Position as of the acquisition date for Prudential Gibraltar Financial Life Insurance Company, Ltd. (“PGFL”) and the Star and
Edison Businesses. The balance of additional tax expense to be recognized in the future related to the utilization of opening balance sheet
deferred tax assets is as follows:
PGFL
Star and
Edison
Businesses Total
(in millions)
Opening balance sheet deferred tax assets after valuation allowance that will result in additional tax expense ............. $42 $678 $720
Additional tax expense recognized in the Statement of Operations:
2009 ............................................................................................. 6 0 6
2010 ............................................................................................. 6 0 6
2011 ............................................................................................. (28) 283 255
Subtotal ........................................................................................ (16) 283 267
Additional tax expense (benefit) recognized in Other Comprehensive Income ..................................... 17 (47) (30)
Additional tax expense to be recognized in future periods ..................................................... $41 $442 $483
Deferred tax assets and liabilities at December 31, resulted from the items listed in the following table:
2011 2010
(in millions)
Deferred tax assets
Insurance reserves ......................................................................................... $ 1,883 $ 624
Policyholders’ dividends .................................................................................... 1,817 938
Net operating and capital loss carryforwards .................................................................... 1,108 719
Employee benefits ......................................................................................... 582 321
Other ................................................................................................... 871 239
Deferred tax assets before valuation allowance ................................................................... 6,261 2,841
Valuation allowance ....................................................................................... (393) (386)
Deferred tax assets after valuation allowance .................................................................... 5,868 2,455
Deferred tax liabilities
Net unrealized investment gains .............................................................................. 4,794 2,807
Deferred policy acquisition costs.............................................................................. 4,378 4,474
Investments .............................................................................................. 2,155 337
Unremitted foreign earnings ................................................................................. 1,368 579
Value of business acquired .................................................................................. 1,225 308
Deferred tax liabilities ...................................................................................... 13,920 8,505
Net deferred tax liability ........................................................................................ $(8,052) $(6,050)
The application of U.S. GAAP requires the Company to evaluate the recoverability of deferred tax assets and establish a valuation
allowance if necessary to reduce the deferred tax asset to an amount that is more likely than not expected to be realized. Considerable
judgment is required in determining whether a valuation allowance is necessary, and if so, the amount of such valuation allowance. In
evaluating the need for a valuation allowance the Company considers many factors, including: (1) the nature of the deferred tax assets and
liabilities; (2) whether they are ordinary or capital; (3) in which tax jurisdictions they were generated and the timing of their reversal;
(4) taxable income in prior carryback years as well as projected taxable earnings exclusive of reversing temporary differences and
carryforwards; (5) the length of time that carryovers can be utilized in the various taxing jurisdictions; (6) any unique tax rules that would
impact the utilization of the deferred tax assets; and (7) any tax planning strategies that the Company would employ to avoid a tax benefit
from expiring unused. Although realization is not assured, management believes it is more likely than not that the deferred tax assets, net of
valuation allowances, will be realized.
A valuation allowance has been recorded related to tax benefits associated with state and local and foreign deferred tax assets.
Adjustments to the valuation allowance are made to reflect changes in management’s assessment of the amount of the deferred tax asset
that is realizable. The valuation allowance includes amounts recorded in connection with deferred tax assets at December 31, as follows:
2011 2010
(in millions)
Valuation allowance related to state and local deferred tax assets .......................................................... $357 $297
Valuation allowance related to foreign operations deferred tax assets ....................................................... $ 36 $ 89
226 Prudential Financial, Inc. 2011 Annual Report