Travelers 2005 Annual Report Download - page 192

THE ST. PAUL TRAVELERS COMPANIES, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
180
11. INCOME TAXES (Continued)
The net deferred tax asset comprises the tax effects of temporary differences related to the following
assets and liabilities:
(at December 31, in millions) 2005 2004
Deferred tax assets
Claims and claim adjustment expense reserves ................... $1,615 $1,666
Unearned premium reserves.................................. 647 651
Alternative minimum tax credit carryforward.................... 376 89
Net operating loss carryforward. ............................... 40 731
Other...................................................... 661 730
Total gross deferred tax assets ................................. 3,339 3,867
Less valuation allowance. ................................... 98 128
Net deferred tax assets ................................... 3,241 3,739
Deferred tax liabilities
Deferred acquisition costs. .................................... 488 493
Investments................................................. 352 634
Intangible assets ............................................. 88 174
Other...................................................... 251 240
Total gross deferred tax liabilities .......................... 1,179 1,541
Total deferred income taxes............................... $2,062 $2,198
If the Company determines that any of its deferred tax assets will not result in future tax benefits, a
valuation allowance must be established for the portion of these assets that are not expected to be realized.
The net change in the valuation allowance for deferred tax assets was a decrease of $30 million and an
increase of $128 million for December 31, 2005 and 2004, respectively, in each year relating to foreign
operations. Based predominantly upon a review of the Company’s anticipated future taxable income, and
also including all other available evidence, both positiveand negative, the Company’s management
concluded that it is more likely than not that the net deferred tax assets will be realized.
For tax return purposes, as of December 31, 2005, the Company had a net operation loss (NOL)
carryforward that expires, if unused, in 2017-2018. The amount and timing of realizing the benefit of NOL
carryforwards depends on future taxable income and limitations imposed by tax laws. The approximate
amounts of those NOLs on a regular tax basis and an alternative minimum tax (AMT) basis were $114
million and $81 million, respectively. The benefit of the NOL carryforward has been recognized in the
consolidated financial statements.
The Company’s intercompany tax sharing agreement was amended to include the SPC companies
effective with their acquisition on April 1, 2004.
U.S. income taxes have not been provided on $83 million of the Company’s foreign operations’
undistributed earnings as of December 31, 2005, as such earnings are intended to be permanently
reinvested in those operations. Furthermore, any taxes paid to foreigngovernments on these earnings may
be used as credits against the U.S. tax on any dividend distributions from such earnings.