Health Net 2003 Annual Report Download - page 88

Taxes Based on Premiums
We provide services in certain states which require premium taxes to be paid by us based on membership or billed
premiums. These taxes are paid in lieu of or in addition to state income taxes and totaled $31.8 million in 2003, $24.2
million in 2002 and $24.9 million in 2001. These amounts are recorded in general and administrative expenses on our
consolidated statements of operations.
Income Taxes
We record deferred tax assets and liabilities based on differences between the book and tax bases of assets and
liabilities (see Note 10). The deferred tax assets and liabilities are calculated by applying enacted tax rates and laws to
taxable years in which such differences are expected to reverse. We establish a valuation allowance in accordance with the
provisions of SFAS No. 109, “Accounting for Income Taxes.” We continually review the adequacy of the valuation
allowance and recognize the benefits from our deferred tax assets only when an analysis of both positive and negative
factors indicate that it is more likely than not that the benefits will be realized.
Recently Issued Accounting Pronouncements
In December 2003, the FASB issued SFAS No. 132 (revised 2003), “Employers’ Disclosures about Pensions and
Other Postretirement Benefits” (SFAS No. 132R). SFAS No. 132R revises employers’ disclosures about pension plans
and other postretirement benefit plans. This statement retains the disclosure requirements contained in SFAS No. 132,”
Employers’ Disclosures about Pensions and Other Postretirement Benefits” (SFAS No. 132) and requires additional
disclosures to those in SFAS No. 132, including interim-period disclosures. The provisions of SFAS No. 132R are
effective for financial statements with fiscal years ending after December 15, 2003, and the interim-period disclosures
requirements are effective for interim periods beginning after December 15, 2003. See Note 9 for Pension and Other
Postretirement Benefit Plans disclosures.
In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity” (SFAS No. 150). SFAS No. 150 addresses the issuer’s accounting for certain freestanding
financial instruments. The provisions of SFAS No. 150 are effective for financial instruments entered into or modified
after May 31, 2003 and pre-existing instruments as of the beginning of the first interim period that commences after June
15, 2003. The adoption of SFAS No. 150 had no impact on our financial position or results of operations as the Company
has no pre-existing instruments that are impacted by SFAS No. 150.
In May 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and
Hedging Activities” (SFAS No. 149). SFAS No. 149 amends and clarifies accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133, “Accounting
for Derivative Instruments and Hedging Activities” (SFAS No. 133). SFAS No. 149 is effective for contracts entered into
or modified after June 30, 2003, except as stated as follows, and for hedging relationships designated after June 30, 2003.
The guidance shall be applied prospectively. The provisions of SFAS No. 149 that relate to SFAS No. 133
Implementation Issues that have been effective for fiscal quarters that began prior to June 15, 2003 shall continue to be
applied in accordance with their respective effective dates. In addition, certain provisions relating to forward purchases or
sales of when-issued securities or other securities that do not yet exist, shall be applied to existing contracts as well as new
contracts entered into after June 30, 2003. As of December 31, 2003, the adoption of SFAS No. 149 has had no impact on
our consolidated financial position or results of operations.
In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities,” and
subsequently revised the interpretation in December 2003 (FIN 46R). FIN 46R requires an investor with a majority of the
variable interests in a variable interest entity to consolidate the entity and also requires majority and significant variable
interest investors to provide certain disclosures. A variable interest entity is an entity in which the equity investors do not
have a controlling interest or the equity investment at risk is insufficient to finance the entity’s activities without receiving
additional subordinated financial support from the other parties. The maximum exposure of any investment that may be
determined to be a variable interest entity is limited to the amount invested. As revised, FIN 46R in now generally
effective for financial statements for interim or annual periods ending after March 31, 2004. The Company believes the
effect of the adoption of FIN 46R will not have any effect on its consolidated financial position or results of operations.
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