Aetna 2006 Annual Report Download - page 68

Income taxes were not materially different than the amount computed by applying the federal income tax rate to
income from continuing operations before income taxes in 2006, 2005 and 2004.
Significant components of our deferred tax assets, net of deferred tax liabilities, at December 31, 2006 and 2005
were as follows:
(Millions) 2006 2005
Deferred tax assets:
Reserve for anticipated future losses on discontinued products 286.1$ 219.1$
Employee and postretirement benefits 191.8 -
Deferred policy acquisition costs 51.8 49.2
Investments, net 101.5 97.6
Net operating loss carry forwards 54.5 28.2
Insurance reserves 62.5 66.2
Other 73.1 88.7
Total gross assets 821.3 549.0
Less: Valuation allowance 20.1 15.7
Assets, net of valuation allowance 801.2 533.3
Deferred tax liabilities:
Goodwill and other acquired intangible assets 171.4 166.8
Accumulated other comprehensive income 46.1 61.9
Depreciation and amortization 120.5 101.9
Employee and postretirement benefits - 121.5
Other - 22.9
Total gross liabilities 338.0 475.0
Net deferred tax asset
(1)
463.2$ 58.3$
(1) Includes $120.8 million and $(10.4) million classified as current assets (liabilities) at December 31, 2006 and 2005, respectively,
and $342.4 million and $68.7 million classified as noncurrent assets at December 31, 2006 and 2005, respectively.
Valuation allowances are provided when we estimate that it is more likely than not that deferred tax assets will not
be realized. A valuation allowance has been established on certain acquired net operating losses and state net
operating losses, which are subject to limitations as to future utilization. We base our estimates of the future
realization of deferred tax assets on historic and anticipated taxable income for each group. However, the amount
of the deferred tax asset considered realizable could be adjusted in the future if we revise our estimates of taxable
income.
In 2004, the IRS completed the audit of our former parent company’ s 1984 through 2000 (prior to December 13,
2000) tax returns and our 2000 (subsequent to December 13, 2000) through 2001 tax returns. In conjunction with
the completion of these audits, we were notified that the Congressional Joint Committee on Taxation (the “Joint
Committee”) approved a tax refund of approximately $740 million, including interest, relating to businesses that
our former parent company sold in the 1990s. Also in 2004, we filed for, and were approved for, a $35 million tax
refund related to businesses that our former parent company sold. As a result of the resolution of these audits, we
recorded favorable adjustments of approximately $255 million to existing tax liabilities for a total of $1.03 billion
of income from discontinued operations in 2004 and $16 million of income from discontinued operations in 2006.
We received approximately $666 million of the tax refunds in 2004, $69 million in 2005, and the remainder in 2006
(refer to Note 21 on page 88).
In 2006, the IRS commenced an audit of our 2004 and 2005 tax returns. We have received proposed adjustments
related to the audits, and we are currently reviewing them. The proposed adjustments are not material to our
financial position or results of operations.
In 2004, the IRS commenced an audit of our 2002 and 2003 tax returns and a limited examination of our 2001 life
insurance subsidiary tax return. In 2005, the IRS completed these audits. We agreed to the final audit results and
paid the related additional taxes and interest. We had established adequate reserves for the additional taxes and
interest that resulted from these recently completed audits. We are also subject to audits by state taxing authorities.
We believe we carry appropriate reserves for any exposure to state tax issues.
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