The provision for income tax from continuing operations was as follows:
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2013 | | 2012 | | 2011 |
| (In millions) |
Current: | | | | | |
Federal | $ | 85 |
| | $ | (29 | ) | | $ | (200 | ) |
State and local | 2 |
| | 6 |
| | (1 | ) |
Foreign | 422 |
| | 846 |
| | 614 |
|
Subtotal | 509 |
| | 823 |
| | 413 |
|
Deferred: | | | | | |
Federal | (250 | ) | | (244 | ) | | 2,241 |
|
State and local | (11 | ) | | (1 | ) | | (3 | ) |
Foreign | 413 |
| | (450 | ) | | 142 |
|
Subtotal | 152 |
| | (695 | ) | | 2,380 |
|
Provision for income tax expense (benefit) | $ | 661 |
| | $ | 128 |
| | $ | 2,793 |
|
The Company’s income (loss) from continuing operations before income tax expense (benefit) from domestic and foreign operations were as follows:
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2013 | | 2012 | | 2011 |
| (In millions) |
Income (loss) from continuing operations: | | | | | |
Domestic | $ | 1,186 |
| | $ | (1,496 | ) | | $ | 6,869 |
|
Foreign | 2,866 |
| | 2,938 |
| | 2,315 |
|
Total | $ | 4,052 |
| | $ | 1,442 |
| | $ | 9,184 |
|
The reconciliation of the income tax provision at the U.S. statutory rate to the provision for income tax as reported for continuing operations was as follows:
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2013 | | 2012 | | 2011 |
| (In millions) |
Tax provision at U.S. statutory rate | $ | 1,418 |
| | $ | 505 |
| | $ | 3,215 |
|
Tax effect of: | | | | | |
Dividend received deduction | (166 | ) | | (162 | ) | | (160 | ) |
Tax-exempt income | (96 | ) | | (94 | ) | | (86 | ) |
Prior year tax | 75 |
| | 23 |
| | (4 | ) |
Low income housing tax credits | (194 | ) | | (150 | ) | | (102 | ) |
Other tax credits | (54 | ) | | (28 | ) | | (36 | ) |
Foreign tax rate differential (1) | (340 | ) | | (45 | ) | | (41 | ) |
Change in valuation allowance | 30 |
| | 15 |
| | 16 |
|
Goodwill impairment | — |
| | 408 |
| | — |
|
Deferred tax effects of branch conversions | 4 |
| | (324 | ) | | — |
|
Other, net | (16 | ) | | (20 | ) | | (9 | ) |
Provision for income tax expense (benefit) | $ | 661 |
| | $ | 128 |
| | $ | 2,793 |
|
| |
(1) | For the year ended December 31, 2013, foreign tax rate differential includes one-time tax benefits of $119 million related to the receipt of a Japan tax refund, $69 million related to the estimated reversal of Japan temporary differences, and $65 million related to the change in repatriation assumptions for foreign earnings of certain European operations. |
Deferred income tax represents the tax effect of the differences between the book and tax basis of assets and liabilities. Net deferred income tax assets and liabilities consisted of the following at:
|
| | | | | | | |
| December 31, |
| 2013 | | 2012 |
| (In millions) |
Deferred income tax assets: | | | |
Policyholder liabilities and receivables | $ | 1,014 |
| | $ | 6,233 |
|
Investments, including derivatives | 86 |
| | — |
|
Net operating loss carryforwards | 1,808 |
| | 1,408 |
|
Employee benefits | 737 |
| | 1,234 |
|
Capital loss carryforwards | 32 |
| | 160 |
|
Tax credit carryforwards | 1,653 |
| | 545 |
|
Litigation-related and government mandated | 232 |
| | 197 |
|
Other | 471 |
| | 484 |
|
Total gross deferred income tax assets | 6,033 |
| | 10,261 |
|
Less: Valuation allowance | 357 |
| | 368 |
|
Total net deferred income tax assets | 5,676 |
| | 9,893 |
|
Deferred income tax liabilities: | | | |
Investments, including derivatives | — |
| | 3,149 |
|
Intangibles | 2,081 |
| | 2,668 |
|
Net unrealized investment gains | 4,883 |
| | 7,854 |
|
DAC | 5,133 |
| | 4,775 |
|
Other | 222 |
| | 140 |
|
Total deferred income tax liabilities | 12,319 |
| | 18,586 |
|
Net deferred income tax asset (liability) | $ | (6,643 | ) | | $ | (8,693 | ) |
The following table sets forth the domestic, state, and foreign net operating and capital loss carryforwards for tax purposes at December 31, 2013.
|
| | | | | | | | | | | |
| Net Operating Loss Carryforwards | | Capital Loss Carryforwards |
| Amount | | Expiration | | Amount | | Expiration |
| (In millions) | | | | (In millions) | | |
Domestic | $ | 4,153 |
| | Beginning in 2018 | | $ | 52 |
| | Beginning in 2018 |
State | $ | 153 |
| | Beginning in 2014 | | $ | — |
| | N/A |
Foreign | $ | 1,576 |
| | Beginning in 2014 | | $ | 40 |
| | Beginning in 2014 |
Foreign tax credit carryforwards of $991 million at December 31, 2013 will expire beginning in 2015, of which $12 million will expire before 2020. General business credits of $662 million will expire beginning in 2025.
The Company also has recorded valuation allowance charges of $36 million related to certain state and foreign net operating loss carryforwards, $4 million related to branch restructuring and a benefit of $6 million related to certain foreign capital loss carryforwards. In addition a $45 million reduction was recorded as a balance sheet reclassification with other deferred tax assets primarily related to branch restructuring. The valuation allowance reflects management’s assessment, based on available information, that it is more likely than not that the deferred income tax asset for certain foreign net operating and capital loss carryforwards, certain state net operating loss carryforwards, certain foreign unrealized losses and certain foreign other assets will not be realized. The tax benefit will be recognized when management believes that it is more likely than not that these deferred income tax assets are realizable.
In accordance with the Closing Agreement, the Company completed its plan to transfer foreign branch assets to various MetLife foreign subsidiaries during 2013.
As a result of these asset transfers and the filing of various foreign branch and U.S. income tax returns, the Company revised the estimate of the valuation allowance required for U.S. deferred tax assets relating to the restructuring of American Life’s non-U.S. branches. The net reduction in the valuation allowance was primarily due to the following factors:
| |
• | Additional U.S. deferred tax assets that more likely than not will not be realizable; |
| |
• | A reduction in both the gross deferred tax asset and the valuation allowance related to the completion of the Company’s transfer of its foreign branch assets to wholly-owned subsidiaries. |
The following table provides a rollforward of the deferred tax asset valuation allowance associated with the 2013 branch restructurings: |
| | | |
| Amount |
| (In millions) |
Balance at January 1, 2012 | $ | 23 |
|
Income tax expense (benefit) | 12 |
|
Deferred income tax expense (benefit) related to unrealized investment gains (losses) | (10 | ) |
Offsetting reduction in gross deferred tax asset related to the branch transfer of assets to foreign subsidies | — |
|
Balance at December 31, 2012 | 25 |
|
Income tax expense (benefit) | 4 |
|
Deferred income tax expense (benefit) related to unrealized investment gains (losses) | 2 |
|
Offsetting reduction in gross deferred tax asset related to the branch transfer of assets to foreign subsidies | (31 | ) |
Balance at December 31, 2013 | $ | — |
|
See Note 3 for a discussion of branch restructuring in accordance with the Closing Agreement. In December 2012, the Tokyo District Court ruled in favor of the Japan branch of American Life in a tax case related to the deduction of unrealized foreign exchange losses on certain securities held by American Life prior to its acquisition by MetLife. During the first quarter of 2013, American Life received a refund of ¥16 billion ($176 million) related to income tax, interest and penalties. Under the indemnification provisions of the stock purchase agreement dated March 7, 2010, as amended, by and among MetLife, Inc., AIG and AM Holdings, MetLife, Inc. has remitted the refund to AIG, net of certain amounts it can retain as a counter claim. The receipt of the refund, net of obligations to AIG with related foreign currency exchange impact and corresponding U.S. tax effects, resulted in a net charge of $16 million in the consolidated statements of operations for the year ended December 31, 2013, which was comprised of a $154 million charge included in other expenses, a $19 million gain included in other net investment gains (losses) and a $119 million benefit included in provision for income tax expense (benefit).
The Company has not provided U.S. deferred taxes on cumulative earnings of certain non-U.S. affiliates and associated companies that have been reinvested indefinitely. These earnings relate to ongoing operations and have been reinvested in active non-U.S. business operations. The Company does not intend to repatriate these earnings to fund U.S. operations. Deferred taxes are provided for earnings of non-U.S. affiliates and associated companies when the Company plans to remit those earnings. At December 31, 2013, the Company had not made a provision for U.S. taxes on approximately $3.3 billion of the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that are essentially permanent in duration. It is not practicable to estimate the amount of deferred tax liability related to investments in these foreign subsidiaries.
The Company considers the earnings of Japan, Argentina and the Middle East (excluding Turkey) to be available for repatriation. Earnings from the remaining foreign countries are considered to be permanently reinvested. In 2013, the Company changed its repatriation assumptions related to certain of its European operations and now considers these foreign earnings to be permanently reinvested.
The Company files income tax returns with the U.S. federal government and various state and local jurisdictions, as well as foreign jurisdictions. The Company is under continuous examination by the IRS and other tax authorities in jurisdictions in which the Company has significant business operations. The income tax years under examination vary by jurisdiction and subsidiary. The Company is no longer subject to U.S. federal, state, or local income tax examinations for years prior to 2003, except for 2000 through 2002 where the IRS has disallowed certain tax credits claimed and the Company continues to protest. The IRS audit cycle for the years 2003 through 2006, which began in April 2010, is expected to conclude in 2014. In material foreign jurisdictions, the Company is no longer subject to income tax examination for years prior to 2008.
The Company’s liability for unrecognized tax benefits may increase or decrease in the next 12 months. A reasonable estimate of the increase or decrease cannot be made at this time. However, the Company continues to believe that the ultimate resolution of the pending issues will not result in a material change to its consolidated financial statements, although the resolution of income tax matters could impact the Company’s effective tax rate for a particular future period.
A reconciliation of the beginning and ending amount of unrecognized tax benefits was as follows:
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2013 | | 2012 | | 2011 |
| (In millions) |
Balance at January 1, | $ | 708 |
| | $ | 679 |
| | $ | 810 |
|
Additions for tax positions of prior years | 117 |
| | 105 |
| | 30 |
|
Reductions for tax positions of prior years | (37 | ) | | (82 | ) | | (161 | ) |
Additions for tax positions of current year | 39 |
| | 32 |
| | 13 |
|
Reductions for tax positions of current year | (1 | ) | | (9 | ) | | (8 | ) |
Settlements with tax authorities | (52 | ) | | (15 | ) | | (5 | ) |
Lapses of statutes of limitations | — |
| | (2 | ) | | — |
|
Balance at December 31, | $ | 774 |
| | $ | 708 |
| | $ | 679 |
|
Unrecognized tax benefits that, if recognized would impact the effective rate | $ | 661 |
| | $ | 566 |
| | $ | 527 |
|
The Company classifies interest accrued related to unrecognized tax benefits in interest expense, included within other expenses, while penalties are included in income tax expense.
Interest was as follows:
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2013 | | 2012 | | 2011 |
| (In millions) |
Interest recognized in the consolidated statements of operations | $ | 20 |
| | $ | 2 |
| | $ | 31 |
|
| | | | | |
| | | December 31, |
| | | 2013 | | 2012 |
| | | (In millions) |
Interest included in other liabilities in the consolidated balance sheets | | | $ | 257 |
| | $ | 237 |
|
The Company had penalties of $3 million which were included in the unrecognized tax benefits for the year ended December 31, 2013. The Company had no penalties for the years ended December 31, 2012 and 2011.
The U.S. Treasury Department and the IRS have indicated that they intend to address through regulations the methodology to be followed in determining the dividends received deduction (“DRD”), related to variable life insurance and annuity contracts. The DRD reduces the amount of dividend income subject to tax and is a significant component of the difference between the actual tax expense and expected amount determined using the federal statutory tax rate of 35%. Any regulations that the IRS ultimately proposes for issuance in this area will be subject to public notice and comment, at which time insurance companies and other interested parties will have the opportunity to raise legal and practical questions about the content, scope and application of such regulations. As a result, the ultimate timing and substance of any such regulations are unknown at this time. For the years ended December 31, 2013 and 2012, the Company recognized an income tax benefit of $164 million and $152 million, respectively, related to the separate account DRD. The 2013 benefit included a benefit of $6 million related to a true-up of the 2012 tax return. The 2012 benefit included a benefit of less than $1 million related to a true-up of the 2011 tax return.
