Prudential 2012 Annual Report Download - page 52

Income Taxes
Shown below is our income tax provision for the years ended December 31, 2012, 2011 and 2010, 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,
2012 2011 2010
(in millions)
Tax provision ....................................................................................... $204 $1,488 $1,243
Impact of:
Reversal of acquisition opening balance sheet deferred tax items ........................................... (384) (221) (6)
Non-taxable investment income ..................................................................... 302 247 214
Low income housing and other tax credits ............................................................. 78 80 58
Foreign taxes at other than U.S. rate .................................................................. 41 30 46
Minority interest ................................................................................. 27 24 4
State and local taxes .............................................................................. (16) 2 (4)
Uncertain tax positions and interest .................................................................. (8) 57 (9)
Non-deductible expenses .......................................................................... (7) (17) (10)
Change in tax rate ................................................................................ (1) (18) (91)
Repatriation assumption change ..................................................................... (6) 11 0
Change in valuation allowance ...................................................................... 1 (8) (29)
Other .......................................................................................... 6 43 33
Tax provision excluding these items ...................................................................... $237 $1,718 $1,449
Tax provision at statutory rate .......................................................................... $237 $1,718 $1,449
Our income tax provision amounted to an income tax expense of $204 million in 2012 compared to $1,488 million in 2011. Our
income tax provision for 2012 and 2011 includes $333 million and $214 million, respectively, of an additional U.S. tax related to the
realization of a portion of the local deferred tax assets existing on the opening day balance sheet for the Star and Edison Businesses. The
increase in the additional U.S. tax is a result of the merger of Star and Edison Businesses into the Gibraltar Life Insurance Company, Ltd. It
represents the recomputed U.S. tax liability on Gibraltar’s prior earnings as a result of the repatriation assumption and the merger of the
entities. The local utilization of the deferred tax asset coupled with the repatriation assumption with respect to the applicable earnings of
our Japanese entities creates the effect of a “double tax” for U.S. GAAP purposes, whereas only one incidence of tax will ever be paid. In
addition, 2011 income tax expense includes a $42 million tax benefit from the release of a valuation allowance related to a foreign
subsidiary. Excluding the impact of the “double tax” and the release of the valuation allowance, the income tax expense decreased
primarily due to the decrease in pre-tax income from continuing operations before income taxes and equity in earnings of operating joint
ventures and increase in non-taxable investment income for the year ended December 31, 2012.
Our income tax provision related to foreign operations amounted to an income tax benefit of $90 million in 2012 compared to income
tax expense of $644 million in 2011. Our foreign operations income tax provision for 2012 and 2011 includes $73 million of an additional
tax expense and $435 million of an additional tax benefit, respectively, from the re-measurement of deferred tax liabilities resulting from
the Japan corporate income tax rate reduction. However, since we assume repatriation of earnings from our Japanese operations, our
domestic tax provision in 2012 and 2011 includes $73 million of an additional tax benefit and $435 million of an additional tax expense,
respectively, resulting from the increase or decrease in the future foreign tax credit benefit and, as a result, the reduction in the Japan
corporate tax rate had no impact on our overall income tax provision. Excluding the impact from the Japan corporate income tax rate
reduction, the foreign operations income tax provision decreased primarily due to the decrease in foreign operations pre-tax income from
continuing operations before income taxes and equity in earnings of operating joint ventures.
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 $15 million, $35 million and $33 million for the years ended December 31, 2012,
2011 and 2010, respectively.
For additional information regarding discontinued operations see Note 3 to the Consolidated Financial Statements.
Divested Businesses
Our income from continuing operations includes results from several businesses that have been or will be sold or exited, including
businesses that have been placed in wind down, but that do not qualify for “discontinued operations” accounting treatment under U.S.
GAAP. The results of these divested businesses are reflected in our Corporate and Other operations, but are excluded from adjusted
operating income. For a further description of these divested businesses, see “Business—Corporate and Other” included in Prudential
Financial’s 2012 Annual Report on Form 10-K. A summary of the results of these divested businesses that have been excluded from
adjusted operating income is as follows for the periods indicated:
Year ended December 31,
2012 2011 2010
(in millions)
Long-Term Care ..................................................................................... $(608) $ 47 $ 43
Real Estate and Relocation Services ...................................................................... 26 81 47
Property and Casualty Insurance ........................................................................ (10) (8) (33)
Individual Health Insurance ............................................................................ (6) (15) (17)
Financial Advisory ................................................................................... (5) (7) (19)
Other .............................................................................................. 6 3 (3)
Total divested businesses excluded from adjusted operating income ......................................... $(597) $101 $ 18
50 Prudential Financial, Inc. 2012 Annual Report