Health Net 2009 Annual Report Download - page 121

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Our depreciation expense was $42.9 million, $40.8 million and $30.3 million for the years ended
December 31, 2009, 2008 and 2007, respectively.
Note 6—Financing Arrangements
Amortizing Financing Facility
On December 19, 2007, we entered into a five-year, non-interest bearing, $175 million amortizing financing
facility with a non-U.S. lender, and on April 29, 2008, and November 10, 2008, we entered into amendments to
the financing facility, which were administrative in nature. On March 9, 2009, we amended certain terms of the
documentation relating to the financing facility to, among other things, (i) eliminate the requirement that we
maintain certain minimum public debt ratings throughout the term of the financing facility and (ii) provide that
the financing facility may be terminated at any time at the option of one of our wholly-owned subsidiaries or the
non-U.S. lender.
As amended, the financing facility requires one of our subsidiaries to pay semi-annual distributions, in the
amount of $17.5 million, to a participant in the financing facility. Unless terminated earlier, the final payment
under the facility is scheduled to be made on December 19, 2012.
In conjunction with this financing arrangement, we formed certain entities for the purpose of facilitating this
financing. We act as managing general partner of these entities. As of December 31, 2009, our net investment in
these entities totaled $1.2 billion. The entities’ net obligations are not required to be collateralized. In connection
with the financing facility, we guaranteed the payment of the semi-annual distributions and any other amounts
payable by one of our subsidiaries to the financing facility participants under certain circumstances. The creditors
of the entities have no recourse to our general credit, and the assets of the entities are not available to satisfy any
obligations to our general creditors. We consolidated these entities, since they are variable interest entities and
we are their primary beneficiary.
The financing facility includes limitations (subject to specified exclusions) on certain of our subsidiaries’
ability to incur debt; create liens; engage in certain mergers, consolidations and acquisitions; engage in
transactions with affiliates; enter into agreements which will restrict the ability of our subsidiaries to pay
dividends or other distributions with respect to any shares of capital stock or the ability to make or repay loans or
advances; make dividends; and alter the character of the business we and our subsidiaries conducted on the
closing date of the financing facility. In addition, the financing facility also requires that we maintain a specified
consolidated leverage ratio and consolidated fixed charge coverage ratio throughout the term of the financing
facility. As of December 31, 2009, we were in compliance with all of the covenants under the financing facility.
The financing facility provides that it may be terminated through a series of put and call transactions (1) at
the option of one of our wholly-owned subsidiaries or the non-U.S. lender at any time, or (2) upon the occurrence
of certain defined early termination events. These early termination events, include, but are not limited to:
• nonpayment of certain amounts due by us or certain of our subsidiaries under the financing facility
(if not cured within the related time period set forth therein);
• a change of control (as defined in the financing facility);
• cross-acceleration and cross-default to other indebtedness of the Company in excess of $50 million,
including our revolving credit facility;
• certain ERISA-related events;
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