Health Net 2004 Annual Report Download - page 119

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:
In 2004, 2003 and 2002, income tax benefits attributable to employee stock option and restricted stock transactions of $2.5
million, $15.7 million and $18.2 million, respectively, were allocated to stockholders’ equity.
As of December 31, 2004, we had federal and state net operating loss carryforwards of approximately $115.2 million and $258.5
million, respectively. The net operating loss carryforwards expire between 2007 and 2025. Limitations on utilization may apply to
approximately $36.4 million and $127.3 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
2004 2003
(Amounts in thousands)
DEFERRED TAX ASSETS:
Accrued liabilities $100,987 $67,473
Insurance loss reserves and unearned premiums 18,948 6,996
Tax credit carryforwards 769
—
Accrued compensation and benefits 32,582 33,105
Net operating loss carryforwards 54,631 45,471
Other 2,900 361
Deferred tax assets before valuation allowance 210,817 153,406
Valuation allowance (19,789) (18,220)
Net deferred tax assets $191,028 $135,186
DEFERRED TAX LIABILITIES:
Depreciable and amortizable property $ 44,128 $34,358
Deferred Revenue 15,063
—
Other 9,441 13,051
Deferred tax liabilities $68,632 $47,409
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.
Within the scope of state statutes and/or other parameters established by the regulators, we have discretion as to whether we invest
such funds in cash and cash equivalents or other investments. Restricted cash and cash equivalents, as of December 31, 2004 and
2003, totaled $18.1 million and $62.4 million, respectively. Investment securities held by trustees or agencies pursuant to state
regulatory requirements were $124.1 million and $73.5 million as of December 31, 2004 and 2003, respectively. See “Restricted
Assets” section in Note 2 for additional information. 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,
F-33