Health Net 2011 Annual Report Download - page 127

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Companies, and (ii) $290 million representing a portion of the adjusted tangible net equity of the Acquired
Companies at closing. This payment was subject to certain post-closing adjustments. On December 10, 2010,
United paid to us $80 million, representing one-half of the remaining amount of the closing adjusted tangible net
equity pursuant to the Stock Purchase Agreement and the final $80 million payment was received in December
2011.
Under the Stock Purchase Agreement, United was required to pay us additional consideration for the value
of the Transitioning HNL Members and the members of the Acquired Companies that transitioned to other
United products based upon a formula set forth in the Stock Purchase Agreement to the extent such amounts
exceed the initial minimum payment of $60 million that United made to us at closing (referred to as contingent
membership renewals). This membership transition was completed on July 1, 2011. We recognized a pretax loss
of $106 million related to the sale of the Acquired Companies, which is reported as a separate line item on our
consolidated statement of operations for the year ended December 31, 2009. During the years ended
December 31, 2011 and 2010, we recognized $40.8 million and $42.0 million, respectively, in connection with
contingent membership renewals, as an adjustment to loss on sale of Northeast health plan subsidiaries. See Note
2 for more information on contingent membership renewals. 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 $36.9 million, $258.3 million and $2,651.5 million in total
revenues in the years ended December 31, 2011, 2010 and 2009, respectively, which represented less than 1%,
2% and 17% of our total revenues for the years ended December 31, 2011, 2010 and 2009, respectively. The
Northeast Operations had a combined pretax loss of $(71.2) million, $(68.7) million and $(165.6) million for the
years ended December 31, 2011, 2010 and 2009, 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.
During the years ended December 31, 2011 and 2010, we recognized no losses from other-than-temporary
impairments of our cash equivalents and available-for-sale investments.
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