Travelers 2001 Annual Report Download - page 58

The St. Paul Companies 2001 Annual Report56
10
Income Taxes
Method for Computing Income Tax Expense (Benefit) — We compute
our income tax expense under the liability method. This means
deferred income taxes reflect what we estimate we will pay or
receive in future years. A current tax liability, or asset, is recognized
for the estimated taxes payable, or recoverable, for the current year.
Income Tax Expense (Benefit) — Income tax expense or benefits are
recorded in various places in our financial statements. A summary
of the amounts and places follows.
Year ended December 31 2001 2000 1999
(In millions)
statements of operations
Expense (benefit) on continuing
operations $ (422) $ 431 $ 219
Benefit on operating loss
of discontinued operations —10 15
Expense (benefit) on gain or loss on
disposal of discontinued operations 37 (6) 90
Total income tax expense (benefit)
included in statements of operations (385) 435 324
common shareholders’ equity
Expense (benefit) relating to stock-
based compensation and the
change in unrealized appreciation
and unrealized foreign exchange (218) 86 (253)
Total income tax expense (benefit)
included in financial statements $(603) $ 521 $ 71
Components of Income Tax Expense (Benefit) — The components of
income tax expense (benefit) on continuing operations are as follows.
Year ended December 31 2001 2000 1999
(In millions)
Federal current tax expense (benefit) $(303) $19$104
Federal deferred tax expense (benefit) (81) 372 102
Total federal income tax
expense (benefit) (384) 391 206
Foreign income tax expense (benefit) (48) 26 2
State income tax expense 10 14 11
Total income tax expense (benefit)
on continuing operations $ (422) $ 431 $ 219
Our Tax Rate is Different from the Statutory Rate — Our total income
tax expense on income from continuing operations differs from the
statutory rate of 35% of income from continuing operations before
income taxes as shown in the following table.
Year ended December 31 2001 2000 1999
(In millions)
Federal income tax expense (benefit)
at statutory rate $ (501) $ 490 $ 333
Increase (decrease) attributable to:
Nontaxable investment income (85) (95) (103)
Valuation allowance 74 —2
Foreign underwriting operations 44 18 4
Goodwill 30 45
Other 16 14 (22)
Total income tax expense (benefit)
on continuing operations $ (422) $ 431 $ 219
Effective tax rate on continuing
operations 29.5% 30.7% 23.0%
Major Components of Deferred Income Taxes on Our Balance Sheet —
Differences between the tax basis of assets and liabilities and their
reported amounts in the financial statements that will result in
taxable or deductible amounts in future years are called temporary
differences. The tax effects of temporary differences that give rise
to the deferred tax assets and deferred tax liabilities are presented
in the following table.
December 31 2001 2000
(In millions)
deferred tax assets
Loss reserves $792 $ 800
Unearned premium reserves 193 160
Alternative minimum tax credit carryforwards 124 265
Net operating loss carryforwards 496 136
Deferred compensation 113 121
Other 612 549
Total gross deferred tax assets 2,330 2,031
Less valuation allowance (106) (32)
Net deferred tax assets 2,224 1,999
deferred tax liabilities
Unrealized appreciation of investments 218 426
Deferred acquisition costs 218 183
Real estate 132 123
Prepaid compensation 92 88
Other 316 249
Total gross deferred tax liabilities 976 1,069
Deferred income taxes $ 1,248 $ 930