Aflac 2009 Annual Report Download - page 85

Aflac Annual Report for 2009 81
Income tax expense in the accompanying statements of
earnings varies from the amount computed by applying
the expected U.S. tax rate of 35% to pretax earnings. The
principal reasons for the differences and the related tax
effects for the years ended December 31 were as follows:
(In millions) 2009 2008 2007
Income taxes based on U.S. statutory rates $ 782 $ 670 $ 875
Utilization of foreign tax credit (29) (27) (23)
Nondeductible expenses 11 11 11
Other, net (26) 6 2
Income tax expense $ 738 $ 660 $ 865
Total income tax expense for the years ended December 31
was allocated as follows:
(In millions) 2009 2008 2007
Statements of earnings $ 738 $ 660 $ 865
Other comprehensive income:
Change in unrealized foreign currency
translation gains (losses) during period 39 (457) (82)
Unrealized gains (losses) on investment securities:
Unrealized holding gains (losses) on investment
securities during period 728 (716) (291)
Reclassification adjustment for realized (gains) losses
on investment securities included in net earnings (424) (353) (10)
Pension liability adjustment during period 8 (29) 5
Total income tax expense ( benefit) allocated
to other comprehensive income 351 (1,555) (378)
Additional paid-in capital (exercise of stock options) (3) (16) (51)
Total income taxes $ 1,086 $ (911) $ 436
Changes in unrealized foreign currency translation gains/
losses included a deferred income tax expense of $14
million in 2009, compared with a deferred income tax
benet of $329 million in 2008 and $55 million in 2007.
The income tax effects of the temporary differences that
gave rise to deferred income tax assets and liabilities as
of December 31 appear in the table at the top of the next
column:
(In millions) 2009 2008
Deferred income tax liabilities:
Deferred policy acquisition costs $ 2,422 $ 2,356
Difference in tax basis of investment in Aflac Japan 369 –
Other basis differences in investment securities – 112
Premiums receivable 149 155
Policy benefit reserves 751 735
Total deferred income tax liabilities 3,691 3,358
Deferred income tax assets:
Depreciation 109 128
Policyholder protection corporation obligation 27 48
Difference in tax basis of investment in Aflac Japan – 172
Other basis differences in investment securities 426 –
Unfunded retirement benefits 44 44
Other accrued expenses 64 65
Unrealized losses on investment securities 700 1,189
Policy and contract claims 83 106
Unrealized exchange loss on yen-denominated notes payable 124 184
Deferred compensation 118 131
Capital loss carryforwards 188 76
Other 505 229
Total deferred income tax assets 2,388 2,372
Net deferred income tax liability 1,303 986
Current income tax liability 350 215
Total income tax liability $ 1,653 $ 1,201
A valuation allowance is provided when it is more likely
than not that deferred tax assets will not be realized. In
prior years, we established valuation allowances primarily
for alternative minimum tax credit and non-life operating
loss carryforwards that exceeded projected future offsets.
As of December 31, 2009, no valuation allowances were
required. Under U.S. income tax rules, only 35% of non-life
operating losses can be offset against life insurance taxable
income each year. For current U.S. income tax purposes,
there were non-life operating loss carryforwards of $17
million expiring in 2029 and no tax credit carryforwards
available at December 31, 2009. The Company has capital
loss carryforwards of $537 million available to offset capital
gains, of which $7 million expires in 2011, $213 million
expires in 2013 and $317 million expires in 2014.
We le federal income tax returns in the United States and
Japan as well as state or prefecture income tax returns
in various jurisdictions in the two countries. U.S. federal
and state income tax returns for years before 2006 are no
longer subject to examination. During the year, we settled
an examination by the IRS in the U.S. for tax years 2006
and 2007. In Japan, the National Tax Agency (NTA) has
completed exams through tax year 2007.
A reconciliation of the beginning and ending amount of
unrecognized tax benets for the years ended December 31
appear in the table at the top of the next page.