Humana 2008 Annual Report Download - page 96

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, 2008 and 2007 were as follows:
Assets (Liabilities)
2008 2007
(in thousands)
Compensation and other accrued expenses .................... $117,037 $ 98,852
Future policy benefits payable .............................. 121,259 65,919
Investment securities ..................................... 113,854 7,739
Net operating loss carryforward ............................. 60,342 39,842
Unearned premiums ...................................... 25,203 22,894
Professional liability risks ................................. 10,331 13,235
Capital loss carryforward .................................. 9,272 —
Benefits payable ......................................... 1,543 —
Total deferred income tax assets .................... 458,841 248,481
Valuation allowance .............................. (28,063) —
Total deferred income tax assets, net of valuation
allowance .................................... 430,778 248,481
Depreciable property and intangible assets .................... (211,012) (186,673)
Prepaid expenses and other ................................. (68,612) (75,029)
Investment securities ..................................... — (6,894)
Benefits payable ......................................... — (605)
Total deferred income tax liabilities .................. (279,624) (269,201)
Total net deferred income tax assets (liabilities) .... $151,154 $ (20,720)
Amounts recognized in the consolidated balance sheets:
Other current assets .................................. $ 96,349 $ 14,986
Other long-term assets ................................ 54,805 (35,706)
Total net deferred income tax assets ............. $151,154 $ (20,720)
At December 31, 2008, we had approximately $164.7 million of net operating losses to carry forward
related to prior acquisitions. These net operating loss carryforwards, if not used to offset future taxable income,
will expire from 2009 through 2026. Due to limitations and uncertainty regarding our ability to use some of the
carryforwards, a valuation allowance was established on $76.6 million of net operating loss carryforwards
(“SRLY NOLs”) related to our 2007 acquisition of KMG. For the remainder of the net operating loss
carryforwards, 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 any material adjustments. 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 2005. 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, 2008, we are not aware of any material adjustments the IRS may
propose.
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