Health Net 2007 Annual Report Download - page 132

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note 10—Income Taxes
Significant components of the provision for income taxes are as follows for the years ended December 31:
2007 2006 2005
(Dollars in millions)
Current tax expense:
Federal ....................................................... $ 50.8 $ 79.7 $111.4
State ......................................................... 15.9 19.1 31.0
Total current tax expense ............................................. 66.7 98.8 142.4
Deferred tax expense ................................................ 98.6 51.3 2.1
Interest expense, gross of related tax effects .............................. (0.1) (0.6) 2.0
Total income tax provision ............................................ $165.2 $149.5 $146.5
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:
2007 2006 2005
Statutory federal income tax rate .......................................... 35.0% 35.0% 35.0%
State and local taxes, net of federal income tax effect .......................... 5.1 2.9 5.4
Tax exempt interest income .............................................. (1.4) (0.9) (0.5)
Goodwill and intangible assets amortization ................................. — — 0.1
Class action lawsuit expenses ............................................ 2.4 — —
Valuation allowance against net operating losses and tax credits ................. 5.3 — —
Sale of subsidiaries ..................................................... — (6.2) (0.6)
Other, net ............................................................ (0.4) 0.4 (0.5)
Effective income tax rate ................................................ 46.0% 31.2% 38.9%
Significant components of our deferred tax assets and liabilities as of December 31 are as follows:
2007 2006
(Dollars in millions)
DEFERRED TAX ASSETS:
Accrued liabilities ........................................................... $173.1 $ 57.6
Insurance loss reserves and unearned premiums ................................... 20.4 16.2
Tax credit carryforwards ...................................................... 7.2 1.6
Accrued compensation and benefits ............................................. 63.4 50.8
Deferred gain and revenues .................................................... 33.3 —
Net operating and capital loss carryforwards ...................................... 59.7 74.3
Other ..................................................................... 0.9 5.8
Deferred tax assets before valuation allowance .................................... 358.0 206.3
Valuation allowance ......................................................... (51.5) (21.2)
Net deferred tax assets ........................................................ $306.5 $185.1
DEFERRED TAX LIABILITIES:
Depreciable and amortizable property ........................................... $ 55.4 $ 57.4
Deferred revenue ............................................................ 34.7 27.3
Discount on notes ........................................................... 10.9 —
Other ..................................................................... 24.9 12.6
Deferred tax liabilities ........................................................ $125.9 $ 97.3
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