Income Taxes

12 Months Ended

Dec. 31, 2014

Income Taxes [Abstract]

Income Taxes

Note 19 — Income Taxes

A. Income Tax Expense

The components of income taxes for the years ended December 31 were as follows:

(In millions)	2014		2013		2012
Current taxes
U.S. income taxes	$	1,068	$	382	$	604
Foreign income taxes		115		77		72
State income taxes		49		42		43
		1,232		501		719
Deferred taxes (benefits)
U.S. income taxes		10		152		131
Foreign income taxes		(22)		46		4
State income taxes		(10)		(1)		(1)
		(22)		197		134
Total income taxes	$	1,210	$	698	$	853

Total income taxes for the years ended December 31 were different from the amount computed using the nominal federal income tax rate of 35% for the following reasons:

(In millions)	2014		2013		2012
Tax expense at nominal rate	$	1,156	$	761	$	867
Effect of undistributed foreign earnings		(74)		(42)		(37)
Health insurance industry tax		83		-		-
State income tax (net of federal income tax benefit)		25		27		28
Other		20		(48)		(5)
Total income taxes	$	1,210	$	698	$	853

Consolidated pre-tax income from the Company's foreign operations was approximately 10% in 2014, 12% in 2013 and 8% in 2012.

Effective Tax Rates

The consolidated effective tax rate of 36.6% in 2014 has increased from historical levels due to the health insurance industry tax that took effect in 2014 and that is not deductible for federal income tax purposes. Other matters having a significant impact on the effective tax rate included:

• Undistributedforeign earnings. As part of its global capital management strategy, the Company's foreign operations retaina significant portion of theirearnings overseas. These undistributed earnings are deployed outside of the U.S. in support of the liquidity and capital needs of our foreign operations. The Company does not intend to repatriate these earnings to the U.S. and as a result, income taxes are provided using the respective foreign jurisdictions' tax rate. The Company has accumulated undistributed foreign earnings of $1.8billion as of December 31, 2014. If the Company intended to repatriate these foreign earnings to the U.S., the Company's consolidated balance sheet would have included an additional $218 million of deferred tax liabilities as ofDecember 31, 2014.

• Completion of IRS examinations/other 2013 impacts. In 2013, the Internal Revenue Service (“IRS”) completed its examination of the Company's 2009 and 2010 tax years, resulting in an increase to shareholders' net income of $18 million. In addition, income tax expense was reduced in 2013 due to certain other tax benefits related to the Company's foreign operations.

B. Deferred Income Taxes

Deferred income tax assets and liabilities as of December 31 are as follows:

(In millions)	2014		2013
Deferred tax assets
Employee and retiree benefit plans	$	594	$	422
Other insurance and contractholder liabilities		415		407
Policy acquisition expenses		141		142
Other accrued liabilities		204		157
Other		98		128
Deferred tax assets before valuation allowance		1,452		1,256
Valuation allowance for deferred tax assets		(49)		(49)
Deferred tax assets, net of valuation allowance		1,403		1,207
Deferred tax liabilities
Depreciation and amortization		688		700
Foreign operations, net		120		162
Unrealized appreciation on investments and foreign currency translation		302		253
Total deferred tax liabilities		1,110		1,115
Net deferred income tax assets	$	293	$	92

Management believes that future results will be sufficient to realize the Company's deferred tax assets. Substantially all of the Company's deferred tax benefits may be carried forward indefinitely. As of December 31, 2014, net operating loss related benefits were $71 million, the majority of which relate to foreign jurisdictions and do not expire. The Company establishes a valuation allowance when it determines that realization of a deferred tax asset does not meet the more likely than not standard. Valuation allowances have been established against certain federal, foreign and state deferred tax assets, generally due to the requirement toassess themon a separate entity basis.

C. Uncertain Tax Positions

A reconciliation of unrecognized tax benefits for the years ended December 31 is as follows:

(In millions)	2014		2013		2012
Balance at January 1,	$	17	$	51	$	52
Decrease due to prior year positions		-		(35)		(5)
Increase due to current year positions		12		6		7
Reduction related to lapse of applicable statute of limitations		(3)		(5)		(3)
Balance at December 31,	$	26	$	17	$	51

Unrecognized tax benefits increased $9 million in 2014 of which $6 million impacted shareholders' net income. The prior year decrease was primarily attributable to completion of an IRS examination.

The Company classifies net interest expense on uncertain tax positions as a component of income tax expense, but excludes this amount from the liability for uncertain tax positions. The Company's liability for net interest was immaterial at December 31, 2014, 2013 and 2012.

D. Other Tax Matters

In 2013, the IRScompleted its examination of the Company's 2009 and 2010 tax years, resulting in two issues that could not be resolved at the examination level. The Company subsequently filed a formal protest challenging the IRS positions on the two disputed matters. The IRS previously withdrew its challenge relating to the first of these matters, and the parties have since agreed on a resolution of the second matter. The resolution of these matters did not materially impact shareholders' net income.

The IRS began its examination of the Company's 2011 and 2012 tax years in the third quarter of 2014 thatis expected to continue through 2015.

The Company conducts business in numerous state and foreign jurisdictions, and may be engaged in multiple audit proceedings at any given time. Generally, no further state audit activity is expected for tax years prior to 2010, and prior to 2008 for foreign audit activity.