Ameriprise 2007 Annual Report Download - page 97

Ameriprise Financial 2007 Annual Report 95
The Company has also recorded derivative liabilities for the fair value
of call features embedded in certain fixed-rate corporate debt invest-
ments. These liabilities were $8 million and $7 million at
December 31, 2007 and 2006, respectively. The change in fair values
of these calls is reflected in net investment income.
22. Income Taxes
The components of income tax provision on income from contin-
uing operations were as follows:
Years Ended December 31,
2007 2006 2005
(in millions)
Current income tax:
Federal $ 137 $ 84 $121
State and local (5) 19 17
Foreign 45 39 15
Total current income tax 177 142 153
Deferred income tax:
Federal 34 51 36
State and local —(16) —
Foreign (9) (11) (2)
Total deferred income tax 25 24 34
Total income tax provision $202 $166 $187
The geographic sources of pretax income from continuing operations
were as follows:
Years Ended December 31,
2007 2006 2005
(in millions)
United States $ 888 $705 $687
Foreign 128 92 58
Total $1,016 $797 $745
The principal reasons that the aggregate income tax provision is
different from that computed by using the U.S. statutory rate of 35%
are as follows:
Years Ended December 31,
2007 2006 2005
Tax at U.S. statutory rate 35.0% 35.0% 35.0%
Changes in taxes resulting from:
Dividend exclusion (5.2) (5.4) (5.7)
Tax-exempt interest income (1.3) (1.5) (1.4)
Tax credits (6.6) (6.4) (8.3)
State taxes, net of federal benefit (0.3) 0.2 1.4
Taxes applicable to prior years —— 2.7
Other, net (1.7) (1.1) 1.4
Income tax provision 19.9% 20.8% 25.1%
The Company’s effective income tax rate decreased to 19.9% in 2007
from 20.8% in 2006 primarily due to the impact of a $16 million tax
benefit related to the finalization of certain income tax audits and a
$19 million tax benefit relating to the Company’s plan to begin
repatriating earnings of certain Threadneedle entities through
dividends partially offset by lower levels of tax advantaged items
relative to the level of pretax income.
Accumulated earnings of certain foreign subsidiaries, which totaled
$169 million at December 31, 2007, are intended to be permanently
reinvested outside the United States. Accordingly, U.S. federal taxes,
which would have aggregated $22 million, have not been provided
on those earnings.
Deferred income tax assets and liabilities result from temporary differ-
ences between the assets and liabilities measured for GAAP reporting
versus income tax return purposes. The significant components of the
Company’s deferred income tax assets and liabilities were as follows:
December 31,
2007 2006
(in millions)
Deferred income tax assets:
Liabilities for future policy benefits
and claims $1,212 $1,146
Investment impairments and write-downs 77 87
Deferred compensation 185 164
Unearned revenues 29 40
Net unrealized losses on Available-for-Sale
securities 83 104
Accrued liabilities 64 121
Investment related 119 154
Net operating loss and tax credit
carryforwards 182 —
Other 70 107
Gross deferred income tax assets 2,021 1,923
Deferred income tax liabilities:
Deferred acquisition costs 1,313 1,317
Deferred sales inducement costs 179 158
Depreciation expense 171 141
Intangible assets 104 105
Other 134 108
Gross deferred income tax liabilities 1,901 1,829
Net deferred income tax assets $ 120 $ 94
The Company is required to establish a valuation allowance for any
portion of the deferred tax assets that management believes will not
be realized. Included in deferred tax assets is a significant deferred tax
asset relating to capital losses that have been recognized for financial
statement purposes but not yet for tax return purposes. Under
current U.S. federal income tax law, capital losses generally must be
used against capital gain income within five years of the year in which
the capital losses are recognized for tax purposes. Based on analysis of
the Company’s tax position, management believes it is more likely
than not that the results of future operations and implementation of
tax planning strategies will generate sufficient taxable income to
enable the Company to utilize all of its deferred tax assets. Accord-
ingly, no valuation allowance for deferred tax assets has been
established as of December 31, 2007 and 2006.
Included in the Company’s deferred income tax assets are net
operating loss carryforwards of $53 million which will expire
December 31, 2025 and 2026 as well as tax credit carryforwards of
$129 million which will expire December 31, 2025, 2026 and 2027.
Effective January 1, 2007, the Company adopted the provisions of
FIN 48. As a result of the implementation of FIN 48 the Company