Health Net 2010 Annual Report Download - page 118

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In accordance with the provisions of the Stock Purchase Agreement, we expect to receive additional
consideration related to contingent membership renewal. This arrangement allows us to be paid additional
consideration based on how many commercial members renew with a legacy United entity after closing, and a
percentage of revenue for the specified twelve month periods for the Medicare and Medicaid lines of business
that are transferred to a legacy United entity. Because our accounting policy is to recognize contingent
consideration expected to be received in connection with a sale of a business when the contingencies have been
removed or resolved, upon the consummation of the sale we did not record a receivable for the additional
contingent membership consideration expected to be received and we did not include such contingent
membership consideration in our loss calculation related to the Northeast Sale. Therefore, the pretax loss related
to the Northeast Sale approximated the estimated fair value of the additional contingent membership
consideration expected to be received under the provisions of the Stock Purchase Agreement. As such members
renew and membership consideration is no longer contingent, it is realized and recognized as an adjustment to
the original pretax loss estimate recorded in 2009. During the year ended December 31, 2010, we recognized
$42.0 million in connection with membership renewals as an adjustment to loss on sale of the Northeast health
plan subsidiaries. See Note 2 for more information on contingent membership renewals. We expect that the
remaining membership renewal with United will occur within the first half of 2011. No portion of the loss is
related to the re-measurement of any retained investment in the former subsidiary to its fair value.
Effective upon the closing date of the Northeast Sale, we have deconsolidated the Acquired Companies
since we do not hold a controlling financial interest in those companies. We have not classified the operating
results of the Acquired Companies as discontinued operations due to our significant continuing involvement
created by our obligation to provide and be financially impacted by our performance under the United
Administrative Services Agreements, as well as our financial incentive based on members renewing with legacy
United entities.
Upon signing the Stock Purchase Agreement, we assessed the recoverability during the third quarter of 2009
of goodwill and our long-lived assets, including other intangible assets, property and equipment and other long-
term assets related to our Northeast Operations reporting unit. As a result, in the three months ended
September 30, 2009, we recorded $174.9 million in total asset impairments, including goodwill impairment of
$137.0 million, impairments of other intangible assets of $6.3 million and property and equipment of $31.6
million.
The Northeast Operations had approximately $258.3 million, $2,651.5 million and $2,847.2 million in total
revenues in the years ended December 31, 2010, 2009 and 2008, respectively, which represented 2%, 17% and
19% of our total revenues for the years ended December 31, 2010, 2009 and 2008, respectively. The Northeast
Operations had a combined pretax (loss) income of $(68.7) million, $(165.6) million and $10.4 million for the
years ended December 31, 2010, 2009 and 2008, respectively. Also, see Note 14 for Northeast Operations
reportable segment information.
Note 4—Investments
Investments classified as available-for-sale, which consist primarily of debt securities, are stated at fair
value. Unrealized gains and losses are excluded from earnings and reported as other comprehensive income, net
of income tax effects. The cost of investments sold is determined in accordance with the specific identification
method, and realized gains and losses are included in net investment income. We periodically assess our
available-for-sale investments for other-than-temporary impairment. Any such other-than-temporary impairment
loss is recognized as a realized loss, which is recorded through earnings, if related to credit losses.
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