Health Net 2009 Annual Report Download - page 124

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
document; and a change of control. If an event of default occurs and is continuing under the revolving credit
facility, the lenders thereunder may, among other things, terminate their obligations under the facility and require
us to repay all amounts owed thereunder.
Letters of Credit
We can obtain letters of credit in an aggregate amount of $400 million under our revolving credit facility.
The maximum amount available for borrowing under our revolving credit facility is reduced by the dollar amount
of any outstanding letters of credit. As of December 31, 2009 and 2008, we had outstanding letters of credit for
$321.3 million and $322.9 million, respectively, resulting in the maximum amount available for borrowing under
the revolving credit facility of $478.7 million and $427.1 million, respectively. As of December 31, 2009 and
2008, no amounts have been drawn on any of these letters of credit.
Note 7—Fair Value Measurements
We record assets and liabilities at fair value in the consolidated balance sheets and categorize them based
upon the level of judgment associated with the inputs used to measure their fair value and the level of market
price observability. We also estimate fair value when the volume and level of activity for the asset or liability
have significantly decreased or in those circumstances that indicate when a transaction is not orderly.
Investments measured and reported at fair value using Level inputs, as defined in the Fair Value
Measurements and Disclosures Topic of the FASB Accounting Standards Codification, are classified and
disclosed in one of the following categories:
Level 1—Quoted prices are available in active markets for identical investments as of the reporting
date. The type of investments included in Level I include U.S. treasury securities and listed equities. As
required by the Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards
Codification, we do not adjust the quoted price for these investments, even in situations where we hold a
large position and a sale could reasonably impact the quoted price.
Level 2—Pricing inputs are other than quoted prices in active markets, which are either directly or
indirectly observable as of the reporting date, and fair value is determined through the use of models or
other valuation methodologies. Investments that are generally included in this category include asset-backed
securities, corporate bonds and loans, municipal bonds, auction rate securities and interest rate swap asset.
Level 3—Pricing inputs are unobservable for the investment and include situations where there is little,
if any, market activity for the investment. The inputs into the determination of fair value require significant
management judgment or estimation.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value
hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of
input that is significant to the fair value measurement. Our assessment of the significance of a particular input to
the fair value measurement in its entirety requires judgment and considers factors specific to the investment.
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