Unum 2007 Annual Report Download - page 113

Unum 2007 Annual Report 111
A reconciliation of the income tax expense (benefit) attributable to income from continuing operations before income tax, computed
at U.S. federal statutory tax rates, to the income tax expense (benefit) as included in the consolidated statements of income, is as follows:
Year Ended December 31
2007 2006 2005
Statutory Income Tax 35.0)% 35.0)% 35.0)%
Prior Year Taxes and FIN 48 (0.2) (2.1) (6.6)
Tax-exempt Investment Income (1.0) (1.6) (0.8)
Foreign Net Operating Losses 0.1 (17.9) (0.2)
Other Items, Net (1.3) (0.1) —
Effective Tax 32.6)% 13.3)% 27.4)%
The net deferred income tax liability consists of the following:
December 31
(in millions of dollars) 2007 2006
Deferred Tax Liability from Continuing Operations
Deferred Acquisition Costs $ 284.9 $ 542.9
Invested Assets 62.1 144.5
Policy Reserves 9.0 76.0
Other 75.0 75.0
Gross Deferred Tax Liability 431.0 838.4
Deferred Tax Asset from Continuing Operations
Employee Benefits 148.3 188.1
Other 36.6 89.4
Gross Deferred Tax Asset 184.9 277.5
Less Valuation Allowance 5.6 6.4
Net Deferred Tax Asset 179.3 271.1
Net Deferred Tax Liability from Continuing Operations 251.7 567.3
Net Deferred Tax Liability from Discontinued Operations — 8.4
Total Net Deferred Tax Liability $ 251.7 $ 575.7
Under the Life Insurance Company Tax Act of 1959, U.S. stock life insurance companies were required to maintain a policyholders’
surplus account containing the accumulated portion of income which had not been subjected to income tax in the year earned. The Deficit
Reduction Act of 1984 required that no future amounts be added after 1983 to the policyholders’ surplus account and that any future
distributions to shareholders from the account would become subject to federal income tax at the general corporate federal income tax
rate then in effect. During 2004, the Homeland Investment Act of 2004 was enacted. The Homeland Investment Act of 2004 provided,
in part, that distributions from policyholders’ surplus accounts during 2005 and 2006 would not be taxed.
The amount of the policyholders’ surplus accounts of our U.S. insurance subsidiaries at December 31, 2004, was approximately
$228.8 million. Distributions made during 2005 by these life insurance subsidiaries, including dividend distributions, were deemed to
occur first from the policyholders’ surplus accounts. As a result, our U.S. life insurance subsidiaries distributed as dividends the remaining
balance of their policyholders’ surplus account to the holding company during 2005. This resulted in the elimination of a future potential
tax of approximately $80.1 million which had not previously been provided for in current or deferred taxes because we considered the
conditions under which such a tax would be paid to be remote.