Health Net 2005 Annual Report Download - page 102

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HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” the intangible assets that
continue to be subject to amortization using the straight-line method over their estimated lives are as follows:
Gross
Carrying
Amount
Accumulated
Amortization
Net
Balance
Amortization
Period (in
years)
(Dollars in millions)
As of December 31, 2004:
Provider networks ...................... $ 40.5 $ (19.7) $20.8 4-40
Employer groups ....................... 92.9 (91.8) 1.1 11-23
$133.4 $(111.5) $21.9
As of December 31, 2005:
Provider networks ...................... $ 40.5 $ (22.5) $18.0 4-40
Employer groups ....................... 92.9 (92.5) 0.4 11-23
$133.4 $(115.0) $18.4
The amortization expense was $3.4 million, $2.9 million and $2.8 million for the years ended December 31,
2005, 2004 and 2003, respectively.
Estimated annual pretax amortization expense for other intangible assets for each of the next five years
ending December 31 is as follows (dollars in millions):
Year Amount
2006 .............................................. $3.0
2007 .............................................. 2.6
2008 .............................................. 2.6
2009 .............................................. 1.8
2010 .............................................. 1.6
Insurance Programs
The Company is insured for our general and legal liability risks. The amounts in excess of the insured levels
are reserved for based on claims filed and an estimate for significant claims incurred but not reported.
Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash
equivalents, investments and premiums receivable. 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 our customer
base. Our 10 largest employer group premiums receivable balances within each of our plans accounted for 47%
and 54% of our total premiums receivable as of December 31, 2005 and 2004, respectively. Our 10 largest
employer group premiums within each of our plans accounted for 21%, 19% and 19% of our health plan services
premiums for the years then ended December 31, 2005, 2004 and 2003, respectively.
Earnings Per Share
Basic earnings per share excludes dilution and reflects net income divided by the weighted average shares of
common stock outstanding during the periods presented. Diluted earnings per share is based upon the weighted
average shares of common stock and dilutive common stock equivalents (this reflects the potential dilution that
could occur if stock options were exercised and restricted stocks were vested) outstanding during the periods
presented.
F-14