Health Net 2010 Annual Report Download - page 89

implied value of the Northeast Operations’ goodwill to the carrying amount of such goodwill. Based on the
results of our Step 2 test, we concluded that the implied value of the Northeast Operations’ goodwill was zero,
which resulted in an impairment charge for the total carrying value of $6 million.
We also re-evaluated the useful lives of our other intangible assets and determined that the estimated useful
lives of our other intangible assets properly reflected the current estimated useful lives.
In connection with the then pending Northeast Sale, we previously assessed the recoverability of goodwill
and our long-lived assets, including other intangible assets, property and equipment and other long-term assets
related to our Northeast Operations reporting unit. We also classified the Acquired Companies’ assets and
liabilities as held for sale; therefore, we were required to measure these assets and liabilities at the lower of
carrying value or fair value less cost to sell. As a result, in the year ended December 31, 2009, we recorded
goodwill impairment of $137.0 million, impairments of other intangible assets of $6.3 million and impairments
of property and equipment of $31.6 million.
Recoverability of Long-Lived Assets and Investments
We periodically assess the recoverability of our long-lived assets including property and equipment and
other long-term assets and investments where events and changes in circumstances would indicate that we might
not recover the carrying value as follows:
Long-lived Assets Held and Used
We test long-lived assets or asset groups for recoverability when events or changes in circumstances
indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include,
but are not limited to: significant decreases in the market price of the asset, significant adverse changes in the
business climate or legal factors, current period cash flow or operating losses combined with a history of losses
or a forecast of continuing losses associated with the use of the asset and current expectation that the asset will
more likely than not be sold or disposed of significantly before the end of its estimated useful life.
If we identify an indicator of impairment, we assess recoverability by comparing the carrying amount of the
asset to the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the
asset. An impairment loss is recognized when the carrying amount is not recoverable and is measured as the
excess of carrying value over fair value.
During the year ended December 31, 2010, we recorded $1.4 million in impairment charges to general and
administrative expenses for software under development, cabling and leasehold improvements.
Income Taxes
We record deferred tax assets and liabilities based on differences between the book and tax bases of assets
and liabilities. The deferred tax assets and liabilities are calculated by applying enacted tax rates and laws to
taxable years in which such differences are expected to reverse. We establish a valuation allowance in
accordance with the provisions of the Income Taxes Topic of Financial Accounting Standards Board (FASB)
Accounting Standards Codification. We continually review the adequacy of the valuation allowance and
recognize the benefits from our deferred tax assets only when an analysis of both positive and negative factors
indicate that it is more likely than not that the benefits will be realized.
We file tax returns in many tax jurisdictions. Often, application of tax rules within the various jurisdictions
is subject to differing interpretation. Despite our belief that our tax return positions are fully supportable, we
believe that it is probable certain positions will be challenged by taxing authorities, and we may not prevail
on the positions as filed. Accordingly, we maintain a liability for the estimated amount of contingent tax
challenges by taxing authorities upon examination, in accordance with the Income Taxes Topic of the FASB
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