Health Net 2010 Annual Report Download - page 110

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Share-Based Compensation Expense
As of December 31, 2010, we had various long-term incentive plans that permit the grant of stock options
and other equity awards to certain employees, officers and non-employee directors, which are described more
fully in Note 8.
The compensation cost that has been charged against income under our various long-term incentive plans
was $33.1 million, $11.7 million and $24.1 million during the years ended December 31, 2010, 2009 and 2008,
respectively. The total income tax benefit recognized in the income statement for share-based compensation
arrangements was $12.8 million, $4.5 million and $9.3 million for the years ended December 31, 2010, 2009 and
2008, respectively.
Cash flows resulting from the tax deductions in excess of the compensation cost recognized for those
options (excess tax benefits) are classified as financing cash flows and such amounts are approximately $0.6
million, $23 thousand and $0.8 million for the years ended December 31, 2010, 2009 and 2008, respectively.
Forfeiture rates for share based awards are estimated up front and true-up adjustments are recorded for the
actual forfeitures.
Cash and Cash Equivalents
Cash equivalents include all highly liquid investments with maturity of three months or less when purchased. We
had checks outstanding, net of deposits of $45.9 million and $0 as of December 31, 2010 and 2009, respectively,
which were classified as Accounts payable and other liabilities in the Consolidated Balance Sheets and the
changes have been reflected as Net increase (decrease) in checks outstanding, net of deposits within the Cash
flows from financing activities in the Consolidated Statements of Cash Flows.
Investments
Investments classified as available-for-sale, which consist primarily of debt securities, are stated at fair
value. Unrealized gains and losses are excluded from earnings and reported as other comprehensive income, net
of income tax effects. The cost of investments sold is determined in accordance with the specific identification
method and realized gains and losses are included in net investment income. The Company analyzes all debt
investments that have unrealized losses for impairment consideration and assesses the intent to sell such
securities. If such intent exists, impaired securities are considered other-than-temporarily impaired. Management
also assesses if the Company may be required to sell the debt investments prior to the recovery of amortized cost,
which may also trigger an impairment charge. If securities are considered other-than-temporarily impaired based
on intent or ability, management assesses whether the amortized costs of the securities can be recovered. If
management anticipates recovering an amount less than its amortized cost, an impairment charge is calculated
based on the expected discounted cash flows of the securities. Any deficit between the amortized cost and the
expected cash flows is recorded through earnings as a charge. All other temporary impairment changes are
recorded through other comprehensive income. During the year ended December 31, 2010, we did not recognize
any losses from other-than-temporary impairments. During the years ended December 31, 2009 and 2008, we
recognized $60 thousand and $14.6 million, respectively, in losses from other-than-temporary impairments (see
Note 4 for additional information regarding our losses from other-than-temporary impairments).
Fair Value of Financial Instruments
The estimated fair value amounts of cash equivalents, investments available-for-sale, premiums and other
receivables, notes receivable and notes payable have been determined by using available market information and
appropriate valuation methodologies. The carrying amounts of cash equivalents approximate fair value due to the
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