Unum 2007 Annual Report Download - page 31

Unum 2007 Annual Report 29
of the claim process changes being implemented; and the $8.0 million civil penalty. The charge decreased before-tax operating results
for the Unum US segment group disability line of business and supplemental and voluntary lines of business $37.4 million and $3.3 million,
respectively, and the Individual Disability — Closed Block segment $34.3 million. The ongoing costs of changes in the claims handling
process and governance improvements have subsequently been included in our operating expenses as incurred. See preceding “2007
Significant Transactions and Events” and “2006 Significant Transactions and Events” for a discussion of subsequent revisions to our initial
claim reassessment cost estimates.
Acquisitions and Dispositions
During 2005, GENEX acquired Independent Review Services, Inc., a provider of medical diagnostic networks and independent medical
examinations, at a price of $3.5 million.
During 2005, Unum UK completed the sale of its Netherlands branch. The gain on the sale was approximately $4.0 million after tax.
During 2005, we disposed of our remaining 40 percent ownership position in our Argentinean operation and recognized an after
tax gain of approximately $0.4 million.
Income Tax
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 accounts 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 management
considered the conditions under which such a tax would be paid to be remote. This will also allow us to engage in transactions in the
future without concern for triggering a tax liability related to distributions from the policyholders’ surplus accounts.
In April 2005, the Internal Revenue Service (IRS) completed its examination of tax years 1999 through 2001 and issued its revenue
agent’s report (RAR). Income tax liabilities of approximately $32.0 million that related primarily to interest on the timing of expense
deductions were released in the first quarter of 2005, all of which was reflected as a reduction to income tax expense. In the fourth
quarter of 2005, we paid the IRS proposed adjustments for its 1999 through 2001 tax years and subsequently filed claims for refund on
disputed issues.
In the third quarter of 2005, we recognized an income tax benefit of approximately $10.8 million related to the finalization of income
tax reviews of our U.K. subsidiaries.
During the fourth quarter of 2005, we repatriated $454.8 million in unremitted foreign earnings from our U.K. subsidiaries under the
Homeland Investment Act of 2004. In connection with the repatriation, we recorded current taxes payable on such previously unremitted
foreign earnings of approximately $15.3 million and recorded a tax benefit of approximately $18.6 million as a result of the reversal of the
deferred tax liability related to unremitted earnings of our foreign subsidiaries, both of which were included in the results reported for 2005.
Financing
During 2005, we repaid $227.0 million of maturing debt. In conjunction with the repatriation, in November 2005, we completed a long-term
debt offering, issuing $400.0 million of 6.85% senior notes due November 15, 2015.