Prudential 2011 Annual Report Download - page 65

primarily due to the impact of the decline in premiums, partially offset by an increase in reserves for estimated payments arising from use
of new Social Security Master Death File matching criteria to identify deceased policy and contract holders, as discussed above. Also,
amortization of deferred policy acquisition costs decreased $13 million reflecting the impact of lower investment gains in the calculation of
actual gross profits for the period compared to the prior period.
2010 to 2009 Annual Comparison. Benefits and expenses, as shown in the table above under “—Operating Results,” increased $636
million, from $5,725 million in 2009 to $6,361 million in 2010. This increase included an $849 million increase in dividends to
policyholders reflecting an increase in the cumulative earnings policyholder dividend obligation expense of $977 million, representing an
$851 million reduction in the cumulative earnings policyholder dividend obligation in 2009, compared to a $126 million increase in the
cumulative earnings policyholder dividend obligation in 2010. This increase was partially offset by a decrease in dividends paid and
accrued to policyholders of $128 million, primarily due to a decrease in the 2010 dividend scale. Policyholders’ benefits, including changes
in reserves, decreased $250 million driven by a decline in premiums, as discussed above.
Income Taxes
Shown below is our income tax provision for the years ended December 31, 2011, 2010 and 2009, separately reflecting the impact of
certain significant items. Also presented below is the income tax provision that would have resulted from application of the statutory 35%
federal income tax rate in each of these periods.
Year ended December 31,
2011 2010 2009
(in millions)
Tax provision ......................................................................................... $1,599 $1,303 $ (62)
Impact of:
Reversal of acquisition opening balance sheet deferred tax items ............................................. (252) (6) (6)
Non-taxable investment income ....................................................................... 247 214 177
Uncertain tax positions and interest .................................................................... 57 (9) 286
Low income housing and other tax credits .............................................................. 45 58 68
Foreign taxes at other than U.S. rate ................................................................... 34 51 15
Change in tax rate ................................................................................. (29) (69) 0
Non-deductible expenses ............................................................................ (17) (10) 3
Change in valuation allowance ....................................................................... (8) (29) 0
Other ........................................................................................... 115 34 52
Tax provision excluding these items ....................................................................... $1,791 $1,537 $533
Tax provision at statutory rate ............................................................................ $1,791 $1,537 $533
Our income tax provision amounted to an income tax expense of $1,599 million in 2011 compared to $1,303 million in 2010. The
increase in income tax expense reflects the increase in pre-tax income from continuing operations before income taxes and equity in
earnings of operating joint ventures for the year ended December 31, 2011. In addition, our 2011 income tax expense includes an additional
U.S. tax expense of $246 million related to the realization of a portion of the local deferred tax assets existing on the opening balance sheet
for the Star and Edison Businesses. The local utilization of the deferred tax asset coupled with the repatriation assumption for the
applicable earnings of our Japanese entities, creates the effect of a “double tax” for U.S. GAAP purposes. In addition, 2011 income tax
expense includes a charge for the remeasurement of the deferred tax liabilities in the amount of $28 million related to a tax rate increase in
Korea. These increases in annual tax expense were partially offset by a 2011 tax benefit of $42 million for the reversal of the valuation
allowance against deferred tax assets for loss carryforwards of a Japanese insurance subsidiary and a $70 million tax benefit for the release
of a liability for unrecognized tax benefits related to the conclusion of the federal tax audit for tax years 2004 through 2006. Furthermore,
income tax expense for 2010 included a charge for the reduction of deferred tax assets in the amount of $94 million related to the Medicare
Part D subsidy. In 2010, the Company recognized a higher tax expense of $21 million reflecting an increased valuation allowance against
the state and local deferred tax assets of certain non-insurance subsidiaries.
We employ various tax strategies, including strategies to minimize the amount of taxes resulting from realized capital gains.
For additional information regarding income taxes, see Note 19 to the Consolidated Financial Statements.
Discontinued Operations
Included within net income are the results of businesses which are reflected as discontinued operations under U.S. GAAP. Income
(loss) from discontinued operations, net of taxes, was $35 million, $33 million and $(19) million for the years ended December 31, 2011,
2010 and 2009, respectively.
For additional information regarding discontinued operations see Note 3 to the Consolidated Financial Statements.
Prudential Financial, Inc. 2011 Annual Report 63