Health Net 2010 Annual Report Download - page 142

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
two operating segments: Western Region Operations and Northeast Operations. Within each of these two
operating segments, the operating components have similar economic characteristics and they meet the additional
following five aggregation criteria:
• Similar managed health care products and services including HMO, PPO and POS,
• Similar production process as they support similar customer groups and products,
• Same type of customers, individuals within large and small employer groups and senior and
commercial individuals,
• Similar distribution channels primarily consisting of insurance brokers, and
• Similar regulatory environment in that the health care industry is highly regulated at both the federal
and state levels.
We evaluate performance and allocate resources based on segment pretax income. Our assets are managed
centrally and viewed by our CODM on consolidated basis; therefore, they are not allocated to our segments and
our segments are not evaluated for performance based on assets. The accounting policies of the reportable
segments are the same as those described in the summary of significant accounting policies (see Note 2), except
that intersegment transactions are not eliminated. We include investment income, administrative services fees
and other income and expenses associated with our corporate shared services and other costs in determining our
Western Region Operations and Northeast Operations segments’ pretax income to reflect the fact that these
revenues and expenses are primarily used to support our Western Region Operations and Northeast Operations.
Our Corporate/Other segment is not a business operating segment. It is added to our reportable segments to
reconcile to our consolidated results. The Corporate/Other segment includes costs that are excluded from the
calculation of segment pretax income because they are not managed within the segments and are not directly
identified with a particular operating segment. Accordingly, these costs are not included in the performance
evaluation of the segments by our CODM. Effective 2010, certain charges, including those related to our
operations strategy and corporate overhead cost reduction efforts as well as asset impairments are reported as part
of Corporate/Other. All prior period segment disclosures have been updated to reflect this change in the
measurement of our reportable segment profit and loss.
Presented below are segment data for the three years ended December 31, 2010, 2009 and 2008.
2010
Western Region
Operations
Government
Contracts
Northeast
Operations
Corporate/Other/
Eliminations Total
(Dollars in millions)
Revenues from external sources ........ $9,925.7 $3,344.5 $ 71.2 $ 0 $13,341.4
Intersegment revenues ............... 54.2 0.1 0 (54.3) 0
Net investment income ............... 70.3 0 0.9 0 71.2
Administrative services fees and other
income .......................... 26.6 0 0 (5.5) 21.1
Northeast administrative services fees and
other ........................... 0 0 186.2 0 186.2
Interest expense .................... 34.9 0 0 0 34.9
Depreciation and amortization ......... 34.6 0 0.2 0 34.8
Share-based compensation expense ..... 26.0 4.1 3.0 0 33.1
Segment pretax income (loss) .......... 244.5 178.8 (68.7) (23.7) 330.9
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