Health Net 2011 Annual Report Download - page 154

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Lease expense totaled $52.1 million, $61.4 million and $63.1 million for the years ended
December 31, 2011, 2010 and 2009, respectively. Long-term purchase obligation expenses totaled $188.7
million, $184.1 million and $127.6 million for the years ended December 31, 2011, 2010 and 2009, respectively.
Surety Bonds
During December 2005, the Company elected to post $114.7 million of surety bonds to suspend the effect,
and secure appeal, of the final judgment entered against the Company in connection with the AmCareco
litigation. The surety bonds were secured by $88.1 million of irrevocable standby letters of credit issued under
the Company’s revolving credit facility in favor of the issuers of the surety bonds. Due to our satisfaction of the
entirety of AmCareco litigation judgment, these standby letters of credit were released during the three months
ended June 30, 2011.
Note 14—Segment Information
We operate within three reportable segments, Western Region Operations, Government Contracts and
Northeast Operations. Our Western Region Operations reportable segment includes the operations of our
commercial, Medicare and Medicaid health plans, our health and life insurance companies, and our behavioral
health and pharmaceutical services subsidiaries. These operations are conducted primarily in California, Arizona,
Oregon and Washington. Our Government Contracts reportable segment includes government-sponsored
managed care and administrative services plans through the TRICARE program, MFLC program and other
health care-related government contracts. For the year ended December 31, 2011, our Northeast Operations
reportable segment included the operations of our businesses that provided administrative services to United and
its affiliates pursuant to the United Administrative Services Agreements prior to their termination on July 1, 2011
and the operations of Health Net Life in Connecticut and New Jersey prior to the renewal dates of the
Transitioning HNL Members. Beginning July 1, 2011, our Northeast Operations reportable segment includes the
operations of our businesses that are adjudicating run out claims and providing limited other administrative
services to United and its affiliates pursuant to the Claims Servicing Agreements.
As a result of the Northeast Sale, we operate the Northeast business in a manner that is different than the
rest of our health plans. For additional information on the Northeast Sale, the United Administrative Services
Agreements and the Claims Servicing Agreements, see Notes 2 and 3. The rest of our health plans are operated as
continuing core health plans.
The financial results of our reportable segments are reviewed on a monthly basis by our chief operating
decision maker (CODM). We continuously monitor our reportable segments to ensure that they reflect how our
CODM manages our company.
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.
We also have a Corporate/Other segment that is not a business operating segment. It is added to our
reportable segments to provide a reconciliation to our consolidated results. The Corporate/Other segment
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