United Healthcare 2012 Annual Report Download - page 64

factors may differ from expectations and estimates or we may ultimately sell a security we previously intended to
hold. Our assessment of the financial condition and near-term prospects of the issuer may ultimately prove to be
inaccurate as time passes and new information becomes available including current facts and circumstances
changing, or as unknown or estimated unlikely trends develop.
As discussed further in Item 7A “Quantitative and Qualitative Disclosures About Market Risk” a 1% increase in
market interest rates has the effect of decreasing the fair value of our investment portfolio by $656 million.
Income Taxes
Our provision for income taxes, deferred tax assets and liabilities, and uncertain tax positions reflect our
assessment of estimated future taxes to be paid on items in the consolidated financial statements.
Deferred income taxes arise from temporary differences between financial reporting and tax reporting bases of
assets and liabilities, as well as net operating loss and tax credit carryforwards for tax purposes. We have
established a valuation allowance against certain deferred tax assets based on the weight of available evidence
(both positive and negative) for which it is more-likely-than-not that some portion, or all, of the deferred tax asset
will not be realized.
An uncertain tax position is recognized when it is more likely than not that the position will be sustained upon
examination, including resolutions of any related appeals or litigation processes, based on the technical merits.
We prepare and file tax returns based on our interpretation of tax laws and regulations and record estimates based
on these judgments and interpretations. In the normal course of business, our tax returns are subject to
examination by various taxing authorities. Such examinations may result in future tax and interest assessments by
these taxing authorities. Inherent uncertainties exist in estimates of tax positions due to changes in tax law
resulting from legislation, regulation and/or as concluded through the various jurisdictions’ tax court systems.
The significant assumptions and estimates described above are important contributors to our ultimate effective
tax rate in each year. A hypothetical increase or decrease in our effective tax rate by 1% on our 2012 earnings
before income taxes would have caused the provision for income taxes and net earnings to change by $86
million.
Contingent Liabilities
Because of the nature of our businesses, we are routinely involved in various disputes, legal proceedings and
governmental audits and investigations. We record liabilities for our estimates of the probable costs resulting
from these matters where appropriate. Our estimates are developed in consultation with legal counsel, if
appropriate, and are based upon an analysis of potential results, assuming a combination of litigation and
settlement strategies and considering our insurance coverage, if any, for such matters.
Estimates of costs resulting from legal and regulatory matters involving us are inherently difficult to predict,
particularly where the matters: involve indeterminate claims for monetary damages or may involve fines,
penalties or punitive damages; present novel legal theories or represent a shift in regulatory policy; involve a
large number of claimants or regulatory bodies; are in the early stages of the proceedings; or could result in a
change in business practices. Accordingly, in many cases, we are unable to estimate the losses or ranges of losses
for those matters where there is a reasonable possibility or it is probable that a loss may be incurred. Similarly,
the assessment of the likelihood of assertion of unasserted claims involves significant judgment.
Given this inherent uncertainty, it is possible that future results of operations for any particular quarterly or
annual period could be materially affected by changes in our estimates or assumptions. We evaluate our related
disclosures each reporting period. See Note 12 of Notes to the Consolidated Financial Statements included in
Item 8, “Financial Statements” for discussion of specific legal proceedings including an assessment of whether a
reasonable estimate of the losses or range of loss could be determined.
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