Health Net 2009 Annual Report Download - page 86

or a forecast of continuing losses associated with the use of the asset and current expectation that the asset will
more likely than not be sold or disposed of significantly before the end of its estimated useful life.
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.
During the year ended December 31, 2009, we recorded such impairments totaling $35.1 million, including
$31.6 million in property and equipment in connection with the Northeast Sale (see Note 3 to our consolidated
financial statements), $3.4 million in connection with our operations strategy and an other-than-temporary
impairment of $60,000 of investment securities.
Income Taxes
We record deferred tax assets and liabilities based on differences between the book and tax bases of assets
and liabilities. The deferred tax assets and liabilities are calculated by applying enacted tax rates and laws to
taxable years in which such differences are expected to reverse. We establish a valuation allowance in
accordance with the provisions of the Income Taxes Topic of Financial Accounting Standards Board (FASB)
Accounting Standards Codification. We continually review the adequacy of the valuation allowance and
recognize the benefits from our deferred tax assets only when an analysis of both positive and negative factors
indicate that it is more likely than not that the benefits will be realized.
We file tax returns in many tax jurisdictions. Often, application of tax rules within the various jurisdictions
is subject to differing interpretation. Despite our belief that our tax return positions are fully supportable, we
believe that it is probable certain positions will be challenged by taxing authorities, and we may not prevail
on the positions as filed. Accordingly, we maintain a liability for the estimated amount of contingent tax
challenges by taxing authorities upon examination, in accordance with the Income Taxes Topic of the FASB
Accounting Standards Codification The interpretation requires us to analyze the amount at which each tax
position meets a “more likely than not” standard for sustainability upon examination by taxing authorities. Only
tax benefit amounts meeting or exceeding this standard will be reflected in tax provision expense and deferred
tax asset balances. The interpretation also requires that any differences between the amounts of tax benefits
reported on tax returns and tax benefits reported in the financial statements be recorded in a liability for
unrecognized tax benefits. The liability for unrecognized tax benefits is reported separately from deferred tax
assets and liabilities and classified as current or noncurrent based upon the expected period of payment.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to interest rate and market risk primarily due to our investing and borrowing activities.
Market risk generally represents the risk of loss that may result from the potential change in the value of a
financial instrument as a result of fluctuations in interest rates and in equity prices. Interest rate risk is a
consequence of maintaining variable interest rate earning investments and fixed rate liabilities or fixed income
investments and variable rate liabilities. We are exposed to interest rate risks arising from changes in the level or
volatility of interest rates, prepayment speeds and/or the shape and slope of the yield curve. In addition, we are
exposed to the risk of loss related to changes in credit spreads. Credit spread risk arises from the potential
changes in an issuer’s credit rating or credit perception that will affect the value of financial instruments.
We attempt to manage the interest rate risks related to our investment portfolios by actively managing the
asset duration of our investment portfolios. The overall goal for the investment portfolios is to provide a source
of liquidity and support the ongoing operations of our business units. Our philosophy is to actively manage assets
to maximize total return over a multiple-year time horizon, subject to appropriate levels of risk. Each business
unit has additional requirements with respect to liquidity, current income and contribution to surplus. We manage
84