Health Net 2004 Annual Report Download - page 125

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
services allegedly rendered to our members, but which allegedly were either underpaid or not paid. We are also subject to claims
relating to the performance of contractual obligations to providers, members and others, including the alleged failure to properly pay
claims and challenges to the manner in which we process claims.
These other legal proceedings are subject to many uncertainties, and, given their complexity and scope, their final outcome
cannot be predicted at this time. It is possible that in a particular quarter or annual period our results of operations and cash flow could
be materially affected by an ultimate unfavorable resolution of other legal proceedings, pending provider arbitrations and cases
depending, in part, upon the results of operations or cash flow for such period. However, at this time, management believes that the
ultimate outcome of all pending legal proceedings, after consideration of applicable reserves, should not have a material adverse
effect on our financial condition and liquidity.
Operating Leases and Other Commitments
Operating Leases
We lease administrative office space under various operating leases. Certain leases contain renewal options and rent escalation
clauses. Certain leases are cancelable with substantial penalties.
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, then expanded in May 2003. The new lease is for a term of 10 years and has provisions for space
reduction at specific times over the term of the lease, but it does not provide for complete cancellation rights. The total future
minimum lease commitments under the lease are approximately $75.7 million.
On December 23, 2003, Health Net, Inc. entered into an operating lease agreement to renew its leased office space in Woodland
Hills, California for its executive offices commencing on January 1, 2005. As part of the lease renewal, we amended our existing
lease, which was scheduled to expire on December 31, 2004, to provide for favorable reductions to our costs in the final year of the
lease. The new lease is for a term of 10 years and has provisions for space reduction at specific times over the term of the lease, but it
does not provide for complete cancellation rights. The total future minimum lease commitments under the lease are approximately
$27.4 million.
Other Commitments
Nurse Advice Line
On August 6, 2003, we entered into an amendment to modify an existing ten-year agreement for a nurse advice line and other
related services, which we entered into in December 1998 with an external third-party service provider. The effective date of the
amendment is April 1, 2003. The amendment changes the pricing schedule of this services agreement to a cost-per-call basis from the
per member per month basis of the original agreement. The amendment also provides for the modification of the exclusivity provision
under the original agreement. Under the terms of the amendment, exclusivity for the provision of nurse advice line and audio health
information services is not granted to the external third-party service provider.
Disease and Condition Management Services
On November 24, 2003, we entered into an agreement for disease and condition management programs and other related
services with an external third-party provider. The agreement is effective through December 31,
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