Health Net 2011 Annual Report Download - page 147

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Significant components of our deferred tax assets and liabilities as of December 31 are as follows:
2011 2010
(Dollars in millions)
DEFERRED TAX ASSETS:
Accrued liabilities ............................................................. $ 71.2 $ 81.5
Accrued compensation and benefits ............................................... 79.6 75.7
Net operating and capital loss carryforwards ........................................ 75.2 41.9
Insurance loss reserves and unearned premiums ..................................... 17.4 18.1
Deferred gain and revenues ...................................................... 12.4 32.6
Other ....................................................................... 0.8 3.7
Deferred tax assets before valuation allowance ...................................... 256.6 253.5
Valuation allowance ........................................................... (63.7) (42.4)
Net deferred tax assets .......................................................... $192.9 $211.1
2011 2010
(Dollars in millions)
DEFERRED TAX LIABILITIES:
Depreciable and amortizable property .............................................. $51.0 $ 41.4
Prepaid expenses ............................................................... 23.4 6.4
Unrealized gains on investments ................................................... 11.6 3.5
Deferred revenue ............................................................... 8.3 61.1
Other ........................................................................ 2.3 2.3
Deferred tax liabilities ........................................................... $96.6 $114.7
On December 31, 2009, we completed the Northeast Sale (see Note 3). The Northeast Sale resulted in a total
federal and state income tax benefit of $60.6 million for 2009 plus additional tax benefits of $6.8 million and
$4.4 million for 2011 and 2010, respectively. The 2011 and 2010 adjustments in tax benefits arose due to a
change in our estimate of contingent sale price components.
The Northeast Sale also resulted in deferred tax assets for capital loss carryovers having a potential future
federal and state tax benefit of $25.1 million and $28.3 million as of December 31, 2011 and 2010, respectively.
A valuation allowance was established for the full amount of these deferred tax assets, as we determined that the
future realizability of these benefits could not be assumed.
During 2011, our total valuation allowance increased by a net $21.3 million, comprised of a $32.8 million
increase due primarily to the results of the AmCareco litigation judgment (see Note 13 for information on the
AmCareco litigation judgment), reduced by $11.5 million related to the impact of unrealized gains on
investments. The $32.8 million is attributed to deferred tax assets for capital loss carryovers generated as a result
of the AmCareco litigation judgment. Limitations apply to the use of capital loss carryovers, creating uncertainty
in the future realization of a portion of these deferred tax assets. The $11.5 million decrease is attributed to the
portion of deferred tax assets for capital loss carryovers expected to be realized. Realization is anticipated to the
extent of unrealized gains on investments, and the associated tax benefit is recorded net against unrealized gains
on investments in other comprehensive income in stockholders’ equity.
For 2011, 2010 and 2009 the income tax benefit realized from share-based award exercises was $8.7
million, $7.5 million and $2.2 million, respectively. Of the tax benefit (detriment) realized, $0.8 million, $(5.7)
million and $(4.9) million were allocated to stockholders’ equity in 2011, 2010 and 2009, respectively.
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