Health Net 2011 Annual Report Download - page 119

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Share-Based Compensation Expense
As of December 31, 2011, 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 $27.6 million, $33.1 million and $11.7 million during the years ended December 31, 2011, 2010 and 2009,
respectively. The total income tax benefit recognized in the income statement for share-based compensation
arrangements was $10.7 million, $12.8 million and $4.5 million for the years ended December 31, 2011, 2010
and 2009, 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 $1.3
million, $0.6 million and $23 thousand for the years ended December 31, 2011, 2010 and 2009, 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 $0 and $46.7 million as of December 31, 2011 and
2010, respectively, which were classified as accounts payable and other liabilities in the consolidated balance
sheets and the changes have been reflected in the line item 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 we 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, we assess 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 years ended December 31, 2011 and 2010, no losses were recognized
from other-than-temporary impairments. During the year ended December 31, 2009, we recognized $60 thousand
in 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
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