Unum 2009 Annual Report Download - page 99

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Unum 2009 Annual Report
Income Tax: Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities
for financial statement purposes and the amounts used for income tax purposes. Deferred taxes have been measured using enacted statutory
income tax rates and laws that are currently in effect. We record deferred tax assets for tax positions taken in the U.S. and other tax jurisdictions
based on our assessment of whether a position is more likely than not to be sustained upon examination based solely on its technical
merits. A valuation allowance is established for deferred tax assets when it is more likely than not that an amount will not be realized.
Short-term and Long-term Debt: Short-term and long-term debt are carried at the unpaid principal balance, net of unamortized
discount or premium. Original issue discount or premium as well as debt issue costs are recognized as a component of interest expense
over the period the debt is expected to be outstanding. Short-term debt is debt due within the next twelve months, including that portion
of debt otherwise classified as long-term.
Deferred Gain or Loss on Reinsurance: Where applicable, gains or losses on reinsurance transactions are deferred and amortized into
earnings based upon expected future premium income for traditional insurance policies and estimated future gross profits for interest-sensitive
insurance policies. The deferred gain on reinsurance included in other liabilities in our consolidated balance sheets at December 31, 2009
and 2008 was $123.1 million and $150.0 million, respectively.
Treasury Stock: Treasury stock is reflected as a reduction of stockholders’ equity at cost.
Revenue Recognition: Traditional life and accident and health products are long-duration contracts, and premium income is recognized
as revenue when due from policyholders. If the contracts are experience rated, the estimated ultimate premium is recognized as revenue
over the period of the contract. The estimated ultimate premium, which is revised to reflect current experience, is based on estimated
claim costs, expenses, and profit margins.
For interest-sensitive products, the amounts collected from policyholders are considered deposits, and only the deductions during the
period for cost of insurance, policy administration, and surrenders are included in revenue. Policyholders’ funds represent funds deposited
by contract holders and are not included in revenue.
Premium Tax Expense: Premium tax expense is included in other operating expenses in the consolidated statements of income. For the
years ended December 31, 2009, 2008, and 2007, premium tax expense was $130.2 million, $133.2 million, and $130.8 million, respectively.
Stock-Based Compensation: The cost of stock-based compensation is measured based on the grant date fair value of the award. We
use the Black-Scholes options valuation model for estimating the fair value of stock options and stock purchased through participation in
our employee stock purchase plan and the Monte-Carlo model for estimating the fair value of our performance restricted stock units. All
other currently outstanding stock awards are valued based on the market value of common stock at the grant date. Stock-based awards
that do not require future service are expensed immediately, and stock-based awards that require future service are amortized over the
relevant service period, with an offsetting increase to additional paid-in capital in stockholders’ equity.
Earnings Per Share: We compute basic earnings per share by dividing net income by the weighted average number of common shares
outstanding for the period. Diluted earnings per share is computed by dividing net income by the weighted average number of shares
outstanding for the period plus the shares representing the dilutive effect of stock-based awards and adjustable conversion-rate equity
security units.
Translation of Foreign Currency: Revenues and expenses of our foreign operations are translated at average exchange rates. Assets
and liabilities are translated at the rate of exchange on the balance sheet dates. The translation gain or loss is generally reported in
accumulated other comprehensive income, net of deferred tax.
Accounting for Participating Individual Life Insurance: Participating policies issued by one of our subsidiaries prior to its 1986
conversion from a mutual to a stock life insurance company will remain participating as long as the policies remain in-force. A Participation
Fund Account (PFA) was established for the benefit of all such individual participating life and annuity policies and contracts. The assets of
the PFA provide for the benefit, dividend, and certain expense obligations of the participating individual life insurance policies and annuity