Health Net 2010 Annual Report Download - page 111

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
short maturity of those instruments. Fair values for debt and equity securities are generally based upon quoted
market prices. Where quoted market prices were not readily available, fair values were estimated using valuation
methodologies based on available and observable market information. Such valuation methodologies include
reviewing the value ascribed to the most recent financing, comparing the security with securities of publicly
traded companies in a similar line of business, and reviewing the underlying financial performance including
estimating discounted cash flows. The carrying value of premiums and other receivables, long-term notes
receivable and nonmarketable securities approximates the fair value of such financial instruments. The fair value
of notes payable is estimated based on the quoted market prices for the same or similar issues or on the current
rates offered to us for debt with the same remaining maturities. The fair value of our fixed rate borrowings was
$401.2 million and $468.0 million as of December 31, 2010 and 2009, respectively. As of December 31, 2009,
our fixed rate borrowings included our senior notes and amortizing financing facility. In May 2010, we
terminated and repaid in full our amortizing financing facility (see Note 6 for information on the termination of
our amortizing financing facility). The fair value of our variable rate borrowings under our revolving credit
facility was $100.0 million as of December 31, 2009, which was equal to the carrying value because the interest
rates paid on these borrowings were based on prevailing market rates. There were no borrowings under our
revolving credit facility as of December 31, 2010. See Note 6 for additional information regarding our financing
arrangements.
Restricted Assets
We and our consolidated subsidiaries are required to set aside certain funds which may only be used for
certain purposes pursuant to state regulatory requirements. We have discretion as to whether we invest such
funds in cash and cash equivalents or other investments. As of December 31, 2010 and 2009, the restricted cash
and cash equivalents balances totaled $0.4 million and $5.6 million, respectively, and are included in other
noncurrent assets. Investment securities held by trustees or agencies were $25.8 million and $9.9 million as of
December 31, 2010 and 2009, respectively, and are included in investments available-for-sale.
Interest Rate Swap Contracts
On May 26, 2010, in connection with the termination of our amortizing financing facility (see Note 6), we
terminated the interest rate swap agreement we entered into in 2007 (2007 Swap). Under the 2007 Swap, we paid
an amount equal to the London Interbank Offered Rate, or LIBOR, times a notional principal amount and
received in return an amount equal to 4.294% times the same notional principal amount. We recognized a pretax
loss of $5.4 million in the three months ended June 30, 2010 in connection with the termination and settlement of
the 2007 Swap, which is included in our administrative services fees and other income for that period.
On June 30, 2010, we terminated the interest rate swap agreement that we entered into on March 12, 2009
(2009 Swap). The 2009 Swap was designed to reduce variability in our net income due to changes in variable
interest rates. We recognized a pretax loss of $0.2 million in the three months ended June 30, 2010 in connection
with the termination and settlement of the 2009 Swap, which is included in our administrative services fees and
other income for that period.
Property and Equipment
Property and equipment are stated at historical cost less accumulated depreciation. Depreciation is computed
using the straight-line method over the lesser of estimated useful lives of the various classes of assets or the
remaining lease term, in the case of leasehold improvements. The useful life for buildings and improvements is
estimated at 35 to 40 years, and the useful lives for furniture, equipment and software range from three to ten
years (see Note 5).
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