Health Net 2010 Annual Report Download - page 123

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Our depreciation expense was $31.3 million, $42.9 million and $40.8 million for the years ended
December 31, 2010, 2009 and 2008, respectively.
Note 6—Financing Arrangements
Termination of Amortizing Financing Facility
On May 26, 2010, we terminated our five-year non-interest bearing, $175 million amortizing financing
facility with a non-U.S. lender that we entered into on December 19, 2007 by exercising our option to call the
facility. In connection with the call, during the three months ended June 30, 2010, we recorded a $3.5 million
pretax early debt extinguishment charge, which includes $7.7 million of unamortized imputed discount, an
offsetting $7.7 million of unamortized deferred participation fee, a $3.0 million call premium and a $0.5 million
write-off of remaining debt issuance costs. We also recognized a pretax loss of $5.4 million for the termination
and settlement of the 2007 Swap (see Note 2), which is included in our administrative services fees and other
income for the year ended December 31, 2010. We paid a total of $116.8 million, including the $3.0 million call
premium, to retire the total outstanding debt. We used a combination of a $100 million draw on our revolving
credit facility and operating cash to repay the amortizing financing facility.
Senior Notes
In 2007 we issued $400 million in aggregate principal amount of 6.375% Senior Notes due 2017 (Senior
Notes). The indenture governing the Senior Notes limits our ability to incur certain liens, or consolidate, merge
or sell all or substantially all of our assets. In the event of the occurrence of both (1) a change of control of Health
Net, Inc. and (2) a below investment grade rating by any two of Fitch, Inc., Moody’s Investors Service, Inc. and
Standard & Poor’s Ratings Services within a specified period, we will be required to make an offer to purchase
the Senior Notes at a price equal to 101% of the principal amount of the Senior Notes plus accrued and unpaid
interest to the date of repurchase. As of December 31, 2010, no default or event of default had occurred under the
indenture governing the Senior Notes.
The Senior Notes may be redeemed in whole at any time or in part from time to time, prior to maturity at
our option, at a redemption price equal to the greater of:
• 100% of the principal amount of the Senior Notes then outstanding to be redeemed; or
• the sum of the present values of the remaining scheduled payments of principal and interest on the
Senior Notes to be redeemed (not including any portion of such payments of interest accrued to the
date of redemption) discounted to the date of redemption on a semiannual basis (assuming a 360-day
year consisting of twelve 30-day months) at the applicable treasury rate plus 30 basis points
plus, in each case, accrued and unpaid interest on the principal amount being redeemed to the redemption date.
Each of the following will be an Event of Default under the indenture governing the Senior Notes:
• failure to pay interest for 30 days after the date payment is due and payable; provided that an extension
of an interest payment period by us in accordance with the terms of the Senior Notes shall not
constitute a failure to pay interest;
• failure to pay principal or premium, if any, on any note when due, either at maturity, upon any
redemption, by declaration or otherwise;
• failure to perform any other covenant or agreement in the notes or indenture for a period of 60 days
after notice that performance was required;
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