Health Net 2009 Annual Report Download - page 108

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
accounting. Accordingly, the 2007 Swap is reflected at fair value of $5.8 million as of December 31, 2009 in
other current assets in our consolidated balance sheet with an offset included in net investment income in our
consolidated statement of operations of $1.1 million which reflect the interest and change in value during the
year ended December 31, 2009.
On March 12, 2009, we entered into an interest rate swap agreement (2009 Swap) under which we pay an
amount equal to 2.245% times a notional principal amount and in return we receive an amount equal to LIBOR
times the same notional principal amount. The 2009 Swap is designed to reduce variability in our net income due
to changes in variable interest rates. The 2009 Swap does not qualify for hedge accounting. Accordingly, the
2009 Swap is reflected at a fair value of $(1.3) million in other noncurrent liabilities in our consolidated balance
sheet with an offset included in net investment income in our consolidated statement of operations of $(2.3)
million which reflect the interest and change in value during the year ended December 31, 2009.
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).
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 year ended
December 31, 2009, we recorded $35.0 million in impairment charges, including $31.6 million in connection
with the Northeast Sale (see Note 3) and $3.4 million in connection with our operations strategy recorded in
general and administrative expenses. During the years ended December 31, 2008 and 2007, we recorded $26.9
million and $0, respectively, in 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 primarily consist of
the value of employer group contracts, provider networks and customer relationships, which are all subject to
amortization.
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