Health Net 2005 Annual Report Download - page 120

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
A reconciliation of the statutory federal income tax rate and the effective income tax rate on income is as
follows for the years ended December 31:
2005 2004 2003
Statutory federal income tax rate ..................................... 35.0% 35.0% 35.0%
State and local taxes, net of federal income tax effect ..................... 5.4 4.1 3.6
Tax exempt interest income ......................................... (0.5) (0.3) (0.1)
Goodwill and intangible assets amortization ............................ 0.1 0.5 0.1
Examination settlements ........................................... — (2.7) (1.9)
Other, net ....................................................... (1.1) 0.2 0.8
Effective income tax rate ........................................... 38.9% 36.8% 37.5%
Significant components of our deferred tax assets and liabilities as of December 31 are as follows:
2005 2004
(Dollars in millions)
DEFERRED TAX ASSETS:
Accrued liabilities ................................................. $100.9 $101.0
Insurance loss reserves and unearned premiums .......................... 16.9 18.9
Tax credit carryforwards ............................................ 0.5 0.8
Accrued compensation and benefits ................................... 38.1 32.6
Net operating loss carryforwards ...................................... 57.8 54.6
Other ........................................................... 9.1 2.9
Deferred tax assets before valuation allowance .......................... 223.3 210.8
Valuation allowance ............................................... (19.7) (19.8)
Net deferred tax assets .............................................. $203.6 $191.0
DEFERRED TAX LIABILITIES:
Depreciable and amortizable property .................................. $ 45.5 $ 44.1
Deferred revenue .................................................. 19.0 15.1
Other ........................................................... 14.2 9.4
Deferred tax liabilities .............................................. $ 78.7 $ 68.6
The net deferred tax assets and liabilities are reported as current and noncurrent deferred tax assets in our
consolidated balance sheets for the years ended December 31, 2005 and 2004 based on when the amounts are
expected to be realized.
In 2005, 2004 and 2003, income tax benefits attributable to employee stock option and restricted stock
transactions of $21.3 million, $2.5 million and $15.7 million, respectively, were allocated to stockholders’
equity.
As of December 31, 2005, we had federal and state net operating loss carryforwards of approximately
$119.4 million and $282.0 million, respectively. The net operating loss carryforwards expire between 2007 and
2026. Limitations on utilization may apply to approximately $36.4 million and $126.0 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.
Our tax returns for 2003 and 2004 are currently undergoing an examination by the Internal Revenue Service.
No assessments have been proposed to date for these tax years. In 2004, the Internal Revenue Service completed
an examination of our tax returns for tax years 2000 through 2002. Resulting examination adjustments were not
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