Sun Life 2010 Annual Report Download - page 145

We record interest and penalties related to income taxes as a component of other expense in our Consolidated Statements of
Operations. We have $24 of net interest and penalties accrued related to UTBs as at December 31, 2010 ($39 as at December 31,
2009). During 2010, we recorded a decrease of gross interest and penalties of $13 ($17 decrease in 2009) in our Consolidated
Statements of Operations. The foreign exchange effect of the accrued interest is recorded in the currency translation account.
While the final outcome of the ongoing tax examinations is not yet determinable, we believe that an increase or decrease of the total
amount of UTBs within the next 12 months would not materially impact our effective tax rate.
The following table summarizes, by major tax jurisdiction, the tax years that remain subject to examination by the relevant taxing
authorities:
Tax Jurisdiction
Years Subject
to Examination
Canada 2005 – forward
U.S. 2001 – forward
U.K. 2003 – forward
26.D.xvi Involvement in VIEs:
We are involved with various special purpose entities and other entities that are deemed to be VIEs primarily as a collateral manager
and as an investor through normal investment activities, or as a means of accessing capital. A VIE is an entity that either has investors
that lack certain essential characteristics of a controlling financial interest or lacks sufficient funds to finance its own activities without
financial support provided by other entities.
We perform ongoing qualitative assessments of our VIEs to determine whether we have a controlling financial interest in the VIE and
therefore are the primary beneficiary. We are deemed to have a controlling financial interest when we have both the ability to direct the
activities that most significantly impact the economic performance of the VIE and the obligation to absorb losses or the right to receive
benefits from the VIE that could potentially be significant to the VIE. Based on our assessment, if we determine we are the primary
beneficiary, we consolidate the VIE in our Consolidated Financial Statements.
Consolidated VIEs
The following table presents the carrying value of assets and liabilities, and the maximum exposure to loss relating to the VIEs for
which we are the primary beneficiary. Creditors have no recourse against us in the event of default by the VIEs, nor do we have any
implied or unfunded commitments to these VIEs. Our financial or other support provided to these VIEs is limited to our investment
management services and original investment.
As a result of the amended consolidation guidance adopted on January 1, 2010 (see Section C of this note), a synthetic CDO VIE and
CLO VIEs were consolidated in 2010 and are included in the following table, along with a synthetic CDO that was consolidated prior to
the adoption of the amended guidance in 2010. Two CDOs reported in Section C of this note as part of the impact on our Consolidated
Balance Sheet of adopting the amended consolidation guidance as at January 1, 2010, are not included in the following table because
we divested of our original investment during the year and no longer have a controlling financial interest in these VIEs. These CDOs
are included with the non-consolidated VIE disclosure that follows.
As at December 31, 2010 Total Assets Total Liabilities Maximum Exposure to Loss(1)
Synthetic CDO(2) $ 61 $ 42 $ 62
CLOs(3) 283 247 61
Total $ 344 $ 289 $ 123
(1) The maximum exposure to loss represents the maximum loss amount that we could recognize as a reduction in net investment income or as a realized capital loss and is the
cost basis of our investment.
(2) Total Assets are included in Bonds – held-for-trading and Cash and cash equivalents, Total Liabilities are included in Other liabilities and Derivative liabilities in our
Consolidated Balance Sheet.
(3) Total Assets are included in Mortgages and corporate loans and Derivative assets and Total Liabilities are included in Other liabilities and Derivative liabilities in our
Consolidated Balance Sheet.
The synthetic CDOs represent structured investment vehicles for which we have a controlling financial interest as we provide collateral
management services, earn a fee for those services and hold investments in the securities issued by the vehicles. CLOs represent
structured investment vehicles for which we have a controlling financial interest as we provide investment management services, earn
a fee for those services and hold investments in the securities issued by the vehicles.
In addition to the VIEs included in the preceding table, we have also used VIEs as a means of obtaining financing. These include the
VIE that issued the senior financing described in Note 12D, which was consolidated prior to the amended consolidation guidance in
2010, and the SL Capital Trusts that issued the trust capital securities that are described in Note 11, which were consolidated on
January 1, 2010 as a result of the adoption of the amended consolidation guidance. The consolidation of these VIEs resulted in the
recognition of liabilities in our Consolidated Balance Sheets for the amounts borrowed through these VIEs.
Notes to the Consolidated Financial Statements Sun Life Financial Inc. Annual Report 2010 141