Health Net 2011 Annual Report Download - page 50

to reduce our general and administrative or other functions for our remaining operations, this could have an
adverse impact on our business and financial condition.
The value of our intangible assets may become impaired.
Goodwill and other intangible assets represent a significant portion of our assets. Goodwill and other
intangible assets were approximately $627 million as of December 31, 2011, representing approximately 17
percent of our total assets and 43 percent of our consolidated stockholders’ equity at December 31, 2011.
In accordance with applicable accounting standards, we periodically evaluate our goodwill and other
intangible assets to determine whether all or a portion of their carrying values may be impaired, in which case a
charge to income may be necessary. This impairment testing requires us to make assumptions and judgments
regarding estimated fair value including assumptions and estimates related to future earnings and membership
levels based on current and future plans and initiatives, long-term strategies and our annual planning and
forecasting processes, as well as the expected weighted average cost of capital used in the discount process. If
estimated fair values are less than the carrying values of goodwill and other intangible assets with indefinite lives
in future impairment tests, or if significant impairment indicators are noted relative to other intangible assets
subject to amortization, we may be required to record impairment losses against income. Any future evaluations
requiring an impairment of our goodwill and other intangible assets could materially impact our results of
operations and stockholders’ equity in the period in which the impairment occurs. A material decrease in
stockholders’ equity could, in turn, negatively impact our debt ratings or potentially impact our compliance with
existing debt covenants.
From time to time, we divest businesses that we believe are less of a strategic fit for the company or do not
produce an adequate return. Any such divestiture could result in significant asset impairment charges, including
those related to goodwill and other intangible assets, which could have a material adverse effect on our financial
condition and results of operations.
The value of our investment portfolio and our goodwill could be adversely impacted by varying economic and
market conditions which could, in turn, have a negative effect on our results of operations and stockholders’
equity.
Our investment portfolio is comprised primarily of available-for-sale investment securities such as interest-
yielding debt securities of varying maturities. As of December 31, 2011, our available-for-sale investment
securities were approximately $1.6 billion. The value of fixed-income securities is highly sensitive to fluctuations
in short- and long-term interest rates, with the value decreasing as such rates increase and increasing as such rates
decrease. These securities may also be negatively impacted by illiquidity in the market. We closely monitor the
fair values of our investment securities and regularly evaluate them for any other-than-temporary impairments.
We have the intent and ability to hold our investments for a sufficient period of time to allow for recovery of the
principal amount invested.
The current economic environment and uncertainty in the U.S. and global capital markets have negatively
impacted the liquidity of investments, such as the debt securities we hold, and a worsening in these markets could
have additional negative effects on the liquidity and value of our investment assets. In addition, such uncertainty
has increased the difficulty of assessing investment impairment and the same influences tend to increase the risk
of potential impairment of these assets.
Over time, the economic and capital market environment may further decline or provide additional insight
regarding the fair value of certain securities, which could change our judgment regarding the impairment of
certain investments. This could result in realized losses relating to other-than-temporary declines being charged
against future income. There is continuing risk that declines in fair value may occur and material other-than-
temporary impairments may result in realized losses in future periods, which could have an adverse effect on our
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