United Healthcare 2007 Annual Report Download - page 60

Income Taxes
Deferred income tax assets and liabilities are recognized for the differences between the financial and income tax
reporting bases of assets and liabilities based on enacted tax rates and laws. The deferred income tax provision or
benefit generally reflects the net change in deferred income tax assets and liabilities during the year, excluding
any deferred income tax assets and liabilities of acquired businesses. The current income tax provision reflects
the tax consequences of revenues and expenses currently taxable or deductible on various income tax returns for
the year reported.
Future Policy Benefits for Life and Annuity Contracts and Reinsurance Receivables
Future policy benefits for life insurance and annuity contracts represent account balances that accrue to the
benefit of the policyholders, excluding surrender charges, for universal life and investment annuity products. As
a result of the October 2005 sale of the life and annuity business within our subsidiary Golden Rule Financial
Corporation (Golden Rule) under an indemnity reinsurance arrangement, we have maintained a liability
associated with the reinsured contracts, as we remain primarily liable to the policyholders, and have recorded a
corresponding reinsurance receivable due from the purchaser in Other Assets in the Consolidated Balance Sheets.
We evaluate the financial condition of the reinsurer and only record the reinsurance receivable to the extent of
probable recovery.
Policy Acquisition Costs
Our commercial health insurance contracts typically have a one-year term and may be cancelled upon 30 days
notice by either the Company or the customer. Costs related to the acquisition and renewal of customer contracts
are charged to expense as incurred.
Share-Based Compensation
In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards (FAS) No. 123 (revised 2004), “Share-Based Payment” (FAS 123R). FAS 123R supersedes APB
Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25). Under APB 25, no compensation
expense was recognized for employee stock option grants if the exercise price of the Company’s stock option
was at least equal to the quoted market price of the underlying stock on the measurement date. FAS 123R
requires the determination of the fair value of the share-based compensation at the grant date and the recognition
of the related expense over the period in which the share-based compensation vests. The Company adopted
FAS 123R effective January 1, 2006, using the modified retrospective method. All prior periods have been
restated to give effect to the fair-value-based method of accounting for awards granted in fiscal years beginning
on or after January 1, 1995.
Net Earnings Per Common Share
We compute basic net earnings per common share by dividing net earnings by the weighted-average number of
common shares outstanding during the period. We determine diluted net earnings per common share using the
weighted-average number of common shares outstanding during the period, adjusted for potentially dilutive
shares associated with the exercise of common stock options, stock-settled stock appreciation rights (SARs) and
the conversion of convertible subordinated debentures.
Derivative Financial Instruments
As part of our risk management strategy, we enter into interest rate swap agreements to manage our exposure to
interest rate risk. The differential between fixed and variable rates to be paid or received is accrued and
recognized over the life of the agreements as an adjustment to interest expense in the Consolidated Statements of
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