Health Net 2009 Annual Report Download - page 135

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:
2009 2008 2007
Statutory federal income tax rate .......................................... (35.0)% 35.0% 35.0%
State and local taxes, net of federal income tax effect ......................... 14.0 4.8 5.1
Tax exempt interest income .............................................. (18.8) (4.1) (1.4)
Goodwill impairment ................................................... 194.2 — —
Fines and penalties ..................................................... 3.6 1.1 0.2
Class action lawsuit expenses ............................................ — (3.0) 2.4
Valuation allowance against net operating losses and tax credits ................. 8.3 — 5.3
Sale of subsidiaries .................................................... (67.9) — —
Interest .............................................................. (6.8) — —
Other, net ............................................................ 2.6 1.6 (0.6)
Effective income tax rate ................................................ 94.2% 35.4% 46.0%
Significant components of our deferred tax assets and liabilities as of December 31 are as follows:
2009 2008
(Dollars in millions)
DEFERRED TAX ASSETS:
Accrued liabilities ............................................................. $118.4 $138.0
Insurance loss reserves and unearned premiums ..................................... 16.4 22.5
Tax credit carryforwards ....................................................... 0.2 4.4
Accrued compensation and benefits ............................................... 68.8 72.0
Deferred gain and revenues ..................................................... 81.0 31.3
Net operating and capital loss carryforwards ........................................ 50.9 57.6
Other ....................................................................... 1.1 5.4
Deferred tax assets before valuation allowance ...................................... 336.8 331.2
Valuation allowance ........................................................... (60.1) (50.4)
Net deferred tax assets ......................................................... $276.7 $280.8
DEFERRED TAX LIABILITIES:
Depreciable and amortizable property ............................................. $ 37.8 $ 27.2
Deferred revenue ............................................................. 86.2 45.1
Discount on notes ............................................................. 3.9 6.9
Other ....................................................................... 12.8 32.1
Deferred tax liabilities ......................................................... $140.7 $111.3
On December 11, 2009, we completed the Northeast Sale (see Note 3). The Northeast Sale resulted in a total
federal and state income tax benefit of $60.6 million. In connection with this sale during the third quarter of
2009, we assessed the recoverability of goodwill and long-lived assets related to the Northeast Operations
reporting unit that included the Acquired Companies. We recorded goodwill impairment of $137.0 million as a
result of our assessment. This impairment of goodwill was treated as a nondeductible expense.
The Northeast Sale also resulted in deferred tax assets for capital loss carryovers having a potential future
federal and state tax benefit of $35.6 million. A valuation allowance was established for the full amount of these
deferred tax assets, as we determined that the future realizability of these benefits could not be assumed.
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