Health Net 2000 Annual Report Download - page 39

Notes to Consolidated Financial Statements HEALTH NET 37
Goodwill and other intangible assets consisted of the following at December 31, 2000 (amounts in thousands):
Accumulated Amortization
Cost Amortization Net Balance Period
Goodwill $ 972,707 $181,509 $791,198 9-40 years
Provider network 69,466 18,992 50,474 14-40 years
Employer group contracts 92,900 77,024 15,876 11-23 years
Other 27,002 21,131 5,871 5-7 years
Total $1,162,075 $298,656 $863,419
Goodwill and other intangible assets consisted of the following at December 31, 1999 (amounts in thousands):
Accumulated Amortization
Cost Amortization Net Balance Period
Goodwill $ 981,600 $157,924 $823,676 9-40 years
Provider network 69,466 15,515 53,951 14-40 years
Employer group contracts 92,900 68,874 24,026 11-23 years
Other 27,002 19,069 7,933 5-7 years
Total $1,170,968 $261,382 $909,586
Change in Accounting Principle
Effective January 1, 1999, the Company adopted
Statement of Position 98-5 “Reporting on the Costs of
Start-up Activities”and changed its method of account-
ing for start-up and organization costs.The change
involved expensing these costs as incurred, rather than the
Company’s previous accounting principle of capitalizing
and subsequently amortizing such costs.
The change in accounting principle resulted in the
write-off of the costs capitalized as of January 1, 1999.
The cumulative effect of the write-off was $5.4 million
(net of tax benefit of $3.7 million) and has been
expensed and reflected in the consolidated statement
of operations for the year ended December 31, 1999.
Concentrations of Credit Risk
Financial instruments that potentially subject the
Company to concentrations of credit risk consist primar-
ily of cash equivalents, investments and premiums receiv-
able. All cash equivalents and investments are managed
within established guidelines which limit the amounts
which may be invested with one issuer. Concentrations
of credit risk with respect to premiums receivable are
limited due to the large number of payers comprising
the Company’s customer base.The Company’s 10 largest
employer groups accounted for 36% and 32% of premi-
ums receivable and 16% and 15% of premium revenue
as of December 31, 2000 and 1999, respectively, and for
the years then ended.
Earnings Per Share
The Company adopted in 1997, SFAS No. 128,
“Earnings Per Share.”As required by SFAS No. 128, basic
EPS excludes dilution and reflects income divided by the
weighted average shares of common stock outstanding
during the periods presented. Diluted EPS is based upon
the weighted average shares of common stock and dilu-
tive common stock equivalents (stock options) outstand-
ing during the periods presented; no adjustment to
income is required.
Common stock equivalents arising from dilutive
stock options are computed using the treasury stock
method; in 2000 and 1999, this amounted to 982,000
and 54,000 shares. Such shares amounting to 207,000
were antidilutive in 1998.
Options to purchase an aggregate of 4.6 million,
11.4 million, and 13.4 million shares of common stock
during 2000, 1999, and 1998, respectively, were not
included in the computation of diluted EPS because the
options’exercise price was greater than the average mar-
ket price of the common stock.These options expire
through December 2010.
Use of Estimates
The preparation of financial statements in conformity
with accounting principles generally accepted in the
United States of America (“GAAP”) requires manage-
ment to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the date of the finan-
cial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates. Principal areas requiring the
use of estimates include the determination of allowances
for doubtful accounts, reserves for claims and other settle-
ments, reserves for professional and general liabilities,
amounts receivable or payable under government con-
tracts, remaining reserves for restructuring and other
charges, and net realizable values for assets where impair-
ment charges have been recorded.