Health Net 2010 Annual Report Download - page 144

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
We are required to reconsider the initial determination of whether an entity is a VIE if certain types of
events (“reconsideration events”) occur. If one or more reconsideration events occur, the holder of a variable
interest in a previously determined VIE must reconsider whether that entity continues to be a VIE. Likewise, the
holder of a variable interest in an entity that previously was not a VIE must reconsider whether the entity has
become a VIE. The Company performs ongoing qualitative analyses of its involvement with these variable
interest entities to determine if consolidation is required.
The adoption of these new rules had no impact on our previous accounting for the variable interest entities
as described below.
Northeast Sale
Effective upon the closing date of the Northeast Sale (see Notes 1, 2 and 3), in accordance with the
consolidation rules in effect as of December 31, 2009, we determined that the Acquired Companies were variable
interest entities of which we were not the primary beneficiary and we did not hold a controlling financial interest
in those companies. Accordingly, we deconsolidated the Acquired Companies as of December 31, 2009. We
re-evaluated the consolidation of these variable interest entities upon adoption of the new accounting rules and
have determined that we are not the primary beneficiary and we do not hold a controlling financial interest in
those companies. Accordingly, these variable interest entities continued to be deconsolidated from our financial
results as of September 30, 2010. We noted no reconsideration events during the three months ended
December 31, 2010; accordingly, the Acquired Companies continue to be deconsolidated from our financial
results as of December 31, 2010. Factors considered in determining deconsolidation include our loss of effective
control over the Acquired Companies given their sale and our concurrent entry into the United Administrative
Service Agreements, which provided United the power to direct significant activities of the Acquired Companies.
Also, both the Company and United share in the exposure from obligations to absorb losses, however, United is
the primary obligor of these obligations. We retained certain financial responsibilities for the Acquired
Companies for the period beginning on the closing date and ending on the earlier of the second anniversary of the
closing date and the date that the last United Administrative Services Agreement is terminated. Under the United
Administrative Services Agreements, we provide claims processing, customer services, medical management,
provider network access and other administrative services to United and certain of its affiliates. As part of the
transaction, we have provided a guarantee to United to perform under the provisions of the United Administrative
Service Agreements and have entered into a covenant-not-to-compete.
The total revenues were $2,083.1 million, $2,676.9 million and $2,712.3 million related to the Acquired
Companies for the years ended December 31, 2010, 2009 and 2008, respectively. Net losses (income) were
$101.8 million, $184.0 million and $(20.0) million related to the Acquired Companies for the years ended
December 31, 2010, 2009 and 2008, respectively. There are no assets or liabilities from these variable interest
entities recorded on our consolidated financial statements as of December 31, 2010 or December 31, 2009,
except for the net balances due to the purchaser of $8.1 million, as of December 31, 2010.
Amortizing Financing Facility
In conjunction with our entrance into the amortizing financing facility (see Note 6), we formed certain
entities for the purpose of facilitating the financing facility. We act as managing general partner, sole member or
sole shareholder of these entities, as the case may be, and the non-U.S. lender acted as a limited partner of one of
these entities until we terminated our amortizing financing facility in May 2010 (see Note 6). These entities were
primarily funded with the initial financing from the non-U.S. lender of $175 million and inter-company
borrowings that have been repaid as of December 31, 2010. The inter-company borrowings are fully eliminated
in our consolidated financial statements. The entities’ net obligation is not required to be collateralized. We had
F-47