Health Net 2002 Annual Report Download - page 82

80 | HEALTH NET, INC.
Operating Leases and Other Commitments
We lease administrative office space under various oper-
ating leases. Certain leases contain renewal options and
rent escalation clauses.
On September 30, 2000, Health Net of California,
Inc. entered into an operating lease agreement to lease
office space in Woodland Hills, California for substantially
all of its operations. As of December 31, 2001, Health Net
of California, Inc. completed its relocation into the new
facilities. The new lease is for a term of 10 years. The total
future minimum lease commitments under the lease are
approximately $80.3 million.
In February 1999, we entered into a long-term service
agreement for 10 years with an external third-party to
receive mail order, network claims processing and other
pharmacy benefit management services. Future minimum
commitments are approximately $24 million and are
included in the table below.
In December 1998, we entered into a long-term
services agreement with an external third-party to provide
call center operation services to our members for a period
of 10 years. Future minimum commitments are approxi-
mately $37 million and are included in the table below.
These leases and service agreements are cancelable
with substantial penalties.
Future minimum commitments for operating leases
and service agreements as of December 31, 2002 are
as follows:
(Amounts in thousands)
2003 $ 61,614
2004 54,286
2005 38,594
2006 32,930
2007 30,836
Thereafter 90,140
Total minimum commitments $308,400
Rent expense totaled $52.7 million, $56.0 million and
$49.8 million in 2002, 2001 and 2000, respectively.
Service expense totaled $18.8 million, $17.4 million and
$14.1 million in 2002, 2001 and 2000, respectively.
NOTE 13—Related Parties
One current director of the Company was a partner in a
law firm which received legal fees totaling $0.2 million,
$0.4 million and $0.3 million in 2002, 2001 and 2000,
respectively. Such law firm is also an employer group of
the Company from which the Company receives premium
revenues at standard rates. This director retired from the
law firm in 2000. One current director was an officer of
IBM which the Company paid $6.9 million, $7.0 million
and $16.7 million for products and services in 2002, 2001
and 2000, respectively. This director retired from IBM in
2000. This director is also a director of a temporary
staffing company which the Company paid $1.9 million in
2000. Another current director is also a director of
another temporary staffing company which the Company
paid $11,000 in 2001. Another current director is also a
director of a travel services company which the company
paid $16,000 in 2002.
A director of the Company was paid $70,000 in
consulting fees in 2000 due to various services provided to
the Company in connection with the closing of its opera-
tions in Pueblo, Colorado.
During 1998, three executive officers of the Company,
in connection with their hire or relocation, received one-
time loans from the Company aggregating $775,000 which
ranged from $125,000 to $400,000 each. The loans accrue
interest at the prime rate and each is payable upon demand
by the Company in the event of a voluntary termination of
employment of the respective officer or termination for
cause. Of the loans made in 1998, $283,333, $283,334
and $125,000 were forgiven in 2000, 2001 and 2002,
respectively. During 1999, three executive officers of the
Company, in connection with their hire or relocation,
received one-time loans from the Company aggregating
$550,000 which ranged from $100,000 to $300,000 each.
Two of the loans totaling $250,000 and a $60,000 portion
of a third loan made during 1999 were forgiven by the
Company in 2000, and $60,000 was forgiven by the
Company in 2002. During 2001, two executive officers of
the Company, in connection with their hire or relocation,
received one-time loans from the Company aggregating
$200,000. One of the loans totaling $150,000 was
forgiven by the Company in 2002. The loans accrue
interest at the prime rate and each is payable upon demand
by the Company in the event of a voluntary termination
of employment of the respective officer or termination
for cause.
The principal and interest of the loans will be forgiven
by the Company at varying times between one and five
years after the date of hire or relocation of the respective
officers. As of December 31, 2002, the aggregate
outstanding principal balance of the remaining two loans
was $230,000.