Humana 2007 Annual Report Download - page 91

Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Deferred income tax balances reflect the impact of temporary differences between the tax bases of assets or
liabilities and their reported amounts in our consolidated financial statements, and are stated at enacted tax rates
expected to be in effect when the reported amounts are actually recovered or settled. Principal components of our
net deferred tax balances at December 31, 2007 and 2006 were as follows:
Assets (Liabilities)
2007 2006
(in thousands)
Compensation and other ................................. $115,518 $ 92,797
Future policy benefits payable ............................ 65,919 29,010
Net operating loss carryforwards .......................... 39,842 10,810
Unearned premiums .................................... 20,452 11,381
Professional liability risks ............................... 13,235 13,866
Benefits payable ....................................... — 8,959
Investment securities ................................... — 5,891
Total deferred income tax assets .................. 254,966 172,714
Depreciable property and intangible assets .................. (186,673) (138,131)
Prepaid expenses and other ............................... (80,312) (83,169)
Investment securities ................................... (8,096) —
Benefits payable ....................................... (605) —
Total deferred income tax liabilities ................ (275,686) (221,300)
Total net deferred income tax liabilities ......... $ (20,720) $ (48,586)
Amounts recognized in the consolidated balance sheets:
Other current assets ................................ $ 14,986 $ 457
Other long-term liabilities ........................... (35,706) (49,043)
Total net deferred income tax liabilities ......... $ (20,720) $ (48,586)
At December 31, 2007, we had approximately $107.8 million of net operating losses to carryforward related
to prior acquisitions. These net operating loss carryforwards, if not used to offset future taxable income, will
expire from 2008 through 2022. Based on our historical record of producing taxable income and profitability, we
have concluded that future operating income will be sufficient to give rise to tax expense to recover all deferred
tax assets.
We file income tax returns in the United States and certain foreign jurisdictions. In 2007, the Internal
Revenue Service (IRS) completed its examination of our U.S. income tax returns for 2003 and 2004 which did
not result in a material adjustment. With few exceptions, which are immaterial in the aggregate, we are no longer
subject to state, local and foreign tax examinations by tax authorities for years before 2004. The IRS commenced
an examination of our U.S. income tax returns for 2005 and 2006 during 2007 that is anticipated to be completed
in 2009. As of December 31, 2007, we are not aware of any significant adjustments the IRS may propose.
We adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes,on
January 1, 2007. The liability for unrecognized tax benefits was $14.6 million at December 31, 2007 and 2006,
all of which would affect the effective tax rate if recognized. There were no changes in the liability during the
twelve months ended December 31, 2007, and there are no positions for which it is reasonably possible that the
total amounts of unrecognized tax benefits will significantly increase or decrease within the next twelve months.
We recognize interest accrued related to unrecognized tax benefits and penalties in tax expense.
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