Health Net 2005 Annual Report Download - page 107

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Our dental and vision subsidiaries had $48.0 million and $55.5 million of total combined revenues and
income (loss) from operations before income taxes of $1.9 million and $(0.7) million for the years ended
December 31, 2003 and 2002, respectively. As of the date of sales, our dental and vision subsidiaries had net
equity of $4.3 million.
American VitalCare and Managed Alternative Care Subsidiaries
On March 1, 2004, we completed the sale of two subsidiaries, American VitalCare, Inc. and Managed
Alternative Care, Inc., to a subsidiary of Rehabcare Group, Inc. We received a payment of approximately $11
million, subject to certain post-closing adjustments, and a $3 million subordinated promissory note for which we
recorded a full reserve. We retained an interest in certain accounts receivable of the subsidiaries. As of
December 31, 2004, we had fully reserved for these receivables at $5.5 million. These subsidiaries were reported
as part of our Government Contracts reportable segment. We recorded a pretax gain of $1.9 million related to the
sale of these subsidiaries during the three months ended March 31, 2004.
These subsidiaries had $2.3 million, $14.7 million and $11.5 million of total revenues for the years ended
December 31, 2004, 2003 and 2002, respectively. These subsidiaries had $0.2 million, $3.4 million and $1.3
million of income before income taxes for the years ended December 31, 2004, 2003 and 2002, respectively. As
of the date of sale, these subsidiaries had a combined total of approximately $2.3 million in net equity which we
fully recovered through the sales proceeds.
Hospital Subsidiaries
In 1999, we sold our two hospital subsidiaries to Health Plus, Inc. As part of the sale, we received cash and
a note for $12 million due on August 31, 2003 including any unpaid interest. Prior to August 31, 2003, we had
established an $8.2 million allowance on the note. On August 31, 2003, Health Plus defaulted on the note. As a
result, we increased the allowance on the note by $3.4 million and recorded it in G&A expenses in our
consolidated statements of operations for the three months ended September 30, 2003. The note was fully
reserved as of September 30, 2003. On June 16, 2004, we and Health Plus restructured and settled all outstanding
issues relating to the note default for $4 million in cash. We recorded the $4 million settlement as a reduction in
G&A expense in our consolidated statements of operations for the year ended December 31, 2004.
Pennsylvania Health Plan
Effective September 30, 2003, we withdrew our commercial health plan from the commercial market in the
Commonwealth of Pennsylvania. Coverage for our members enrolled in the Federal Employee Health Benefit
Plan was discontinued on January 11, 2004; however, we have maintained our network of providers in
Pennsylvania to service our New Jersey members. As of December 31, 2005, we had no members enrolled in our
commercial health plan in Pennsylvania. Our Pennsylvania health plan is reported as part of our Health Plan
Services reportable segment.
Our Pennsylvania health plan had $0, $0.7 million and $56.6 million of total revenues and (losses) from
operations before income taxes of $(0.7) million, $(3.0) million and $(8.4) million for the years ended
December 31, 2005, 2004 and 2003, respectively. As of December 31, 2005 and 2004, our Pennsylvania health
plan had net equity of $4.8 million and $3.9 million, respectively. The net equity is comprised of cash, cash
equivalents and investments available for sale and is required by the Pennsylvania Department of Insurance to
meet minimum capital requirements until all claims have been paid or discharged.
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