Health Net 2007 Annual Report Download - page 110

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
agreement under which we pay an amount equal to LIBOR times a notional principal amount and receive in
return an amount equal to 4.3% times the same notional principal amount. The interest rate swap does not qualify
for hedge accounting. Accordingly, the interest rate swap is reflected at positive fair value of $1.1 million in our
consolidated balance sheet with an offset to net investment income in our consolidated statement of operations
for the year ended December 31, 2007.
On September 26, 2006, we terminated the interest rate swap contracts (Swap Contracts) that we had used as
a part of our hedging strategy to manage certain exposures related to the effect of changes in interest rates on our
8.375% senior notes due 2011 (Senior Notes), when we redeemed the entire $400 million in aggregate principal
amount of the Senior Notes on August 14, 2006. We recognized a pretax loss of $11.1 million in connection with
the termination and settlement of the Swap Contracts. See Note 6 for additional information regarding our Swap
Contracts and the redemption of our Senior Notes.
Property and Equipment
Property and equipment are stated at historical cost less accumulated depreciation. Property and equipment
that are held for sale are reported as part of current assets. 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
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).
We capitalize certain consulting costs, payroll and payroll-related costs for employees related to computer
software developed for internal use. We generally amortize such costs over a three to five-year period.
Expenditures for maintenance and repairs are expensed as incurred. Major improvements, which increase the
estimated useful life of an asset, are capitalized. Upon the sale or retirement of assets, the recorded cost and the
related accumulated depreciation are removed from the accounts, and any gain or loss on disposal is reflected in
operations.
We periodically assess long-lived assets or asset groups including property and equipment for recoverability
when events or changes in circumstances indicate that their carrying amount may not be recoverable. 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. Long-lived assets are classified as held for sale and included as part of current
assets when certain criteria are met. We measure long-lived assets to be disposed of by sale at the lower of
carrying amount or fair value less cost to sell. Fair value is determined using quoted market prices or the
anticipated cash flows discounted at a rate commensurate with the risk involved. During the years ended
December 31, 2007, 2006 and 2005, we recorded no impairment charges.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets arise primarily as a result of various business acquisitions and consist
of identifiable intangible assets acquired and the excess of the cost of the acquisitions over the tangible and
intangible assets acquired and liabilities assumed (goodwill). Identifiable intangible assets consist of the value of
employer group contracts, provider networks and customer relationships.
We perform our annual impairment test on our recorded goodwill and intangible assets not subject to
amortization as of June 30 or more frequently if events or changes in circumstances indicate that we might not
F-14