Prudential 2012 Annual Report Download - page 129

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”) ....................................................................... 3,769
Goodwill .............................................................................................. 173
Other assets(1) ......................................................................................... 880
Total assets acquired ................................................................................. 50,086
Future policy benefits .................................................................................... 22,202
Policyholders’ account balances(2) ......................................................................... 22,785
Long-term debt ......................................................................................... 496
Other liabilities ......................................................................................... 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) Includes investment contracts reported at fair value, which exceeded the account value by $646 million.
Value of Business Acquired
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 is 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 include both actual experience as it arises and estimates of
gross profits for future periods. The Company regularly evaluates and adjusts 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, as of the acquisition date, was 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, assuming December 31, 2012 end of period
foreign currency exchange rates remain constant, relating to the Star and Edison Businesses for the periods indicated.
(in millions)
2013 .................................................................................................. $362
2014 .................................................................................................. $310
2015 .................................................................................................. $262
2016 .................................................................................................. $228
2017 .................................................................................................. $201
Information regarding the change in VOBA is as follows:
(in millions)
Balance as of Acquisition Date ............................................................................. $3,769
Amortization ....................................................................................... (491)
Interest ............................................................................................ 41
Foreign currency translation ........................................................................... 171
Balance as of December 31, 2011 ........................................................................... $3,490
Amortization ....................................................................................... (483)
Interest ............................................................................................ 42
Foreign currency translation ........................................................................... (184)
Balance as of December 31, 2012 ........................................................................... $2,865
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
Star and Edison Businesses amounted to $173 million. Based on the Company’s final calculation of the 338(g) election the Company
determined that none of the goodwill is tax deductible. In accordance with U.S. GAAP, goodwill is not amortized but rather is tested at
least annually for impairment. The test is performed at the reporting unit level which for this acquisition is the International Insurance
segment’s Gibraltar Life and Other operations.
Prudential Financial, Inc. 2012 Annual Report 127