Health Net 2003 Annual Report Download - page 101

Significant components of our deferred tax assets and liabilities as of December 31 are as follows:
2003 2002
(Amounts in thousands)
DEFERRED TAX ASSETS:
Accrued liabilities ................................................................ $ 67,473 $ 55,633
Insurance loss reserves and unearned premiums ......................................... 6,996 5,019
Tax credit carryforwards ........................................................... — 834
Accrued compensation and benefits .................................................. 33,105 29,548
Net operating loss carryforwards ..................................................... 45,471 42,492
Other .......................................................................... 361 13,513
Deferred tax assets before valuation allowance ......................................... 153,406 147,039
Valuation allowance .............................................................. (18,220) (16,664)
Net deferred tax assets ............................................................. $135,186 $130,375
DEFERRED TAX LIABILITIES:
Depreciable and amortizable property ................................................. $ 34,358 $ 40,840
Other .......................................................................... 13,051 14,389
Deferred tax liabilities ............................................................. $ 47,409 $ 55,229
In 2003, 2002 and 2001, income tax benefits attributable to employee stock option and restricted stock transactions
of $15.7 million, $18.2 million and $3.3 million, respectively, were allocated to stockholders’ equity.
As of December 31, 2003, we had federal and state net operating loss carryforwards of approximately $95.8 million
and $218.3 million, respectively. The net operating loss carryforwards expire between 2004 and 2024. Limitations on
utilization may apply to approximately $36.4 million and $89.6 million of the federal and state net operating loss
carryforwards, respectively. Accordingly, valuation allowances have been provided to account for the potential limitations
on utilization of these tax benefits.
Note 11—Regulatory Requirements
All of our health plans as well as our insurance subsidiaries are required to periodically file financial statements with
regulatory agencies in accordance with statutory accounting and reporting practices. Under the Knox-Keene Health Care
Service Plan Act of 1975, as amended, California plans must comply with certain minimum capital or tangible net equity
requirements. Our non-California health plans, as well as our health and life insurance companies, must comply with their
respective state’s minimum regulatory capital requirements and, in certain cases, maintain minimum investment amounts
for the restricted use of the regulators. We have discretion as to whether we invest such funds in cash and cash equivalents
or other investments. Restricted cash, as of December 31, 2003 and 2002, totaled $63.2 million and $5.6 million,
respectively. Short-term investments held by trustees or agencies pursuant to state regulatory requirements were $72.7
million and $109.1 million as of December 31, 2003 and 2002, respectively. Also, under certain government regulations,
certain subsidiaries are required to maintain a current ratio of 1:1 and to meet other financial standards.
As a result of the above requirements and other regulatory requirements, certain subsidiaries are subject to
restrictions on their ability to make dividend payments, loans or other transfers of cash to us. Such restrictions, unless
amended or waived, limit the use of any cash generated by these subsidiaries to pay our obligations. The maximum
amount of dividends which can be paid by the insurance company subsidiaries to us without prior approval of the
insurance departments is subject to restrictions relating to statutory surplus, statutory income and unassigned surplus.
Management believes that as of December 31, 2003, all of our health plans and insurance subsidiaries met their respective
regulatory requirements.
Note 12—Commitments and Contingencies
Legal Proceedings
Superior National Insurance Group, Inc.
We and our former wholly-owned subsidiary, Foundation Health Corporation (FHC), which merged into Health Net,
Inc. in January 2001, were named in an adversary proceeding, Superior National Insurance Group, Inc. v. Foundation
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