Health Net 2004 Annual Report Download - page 104

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Effective September 30, 2004, we entered into agreements (Settlement Agreements) to settle the true-up adjustments under the
SPA and the Reinsurance Agreement and to recover certain legal fees and legal settlements that we had paid on behalf of the Florida
Plan. In connection with the Settlement Agreements, we received $5.5 million in cash on September 30, 2004. In allocating these
settlement proceeds, we recorded $5.9 million in legal fees and settlements as contra-G&A expenses in our consolidated statements of
operations in 2004. We had previously recorded such legal fees and settlements as G&A expenses. We also recorded $0.4 million in
additional pre-tax loss on sale of the Florida Plan related to the other true-up adjustments in our consolidated statements of operations
in 2004. As part of the Settlement Agreements, all of our indemnification obligations under the SPA were terminated and the Florida
Plan agreed to indemnify us against any current or future litigation relating to our prior ownership of the Florida Plan. In addition,
effective September 30, 2004, we entered into agreements to amend the two existing notes that we received from the sale of the
Florida Plan and the related corporate facility building. The amendments had no significant impact on our financial position or results
of operations.
Dental and Vision Subsidiaries
On October 31, 2003, we consummated the sales of our dental and vision subsidiaries, Health Net Dental, Inc. (Health Net
Dental) and Health Net Vision, Inc. (Health Net Vision) to SafeGuard Health Enterprises, Inc. (SafeGuard). In addition, we entered
into an assumption reinsurance agreement to transfer the full responsibility for the stand alone dental and vision policies of Health Net
Life Insurance Company to SafeHealth Life Insurance Company (SafeHealth Life). As a result of the sales, we no longer underwrite
or administer stand alone dental and vision products. However, we continue to make available private label dental products through a
strategic relationship with SafeGuard, and private label vision products through a strategic relationship with EyeMed Vision Care,
LLC (EyeMed) to our current and prospective members. The stand alone dental products are underwritten and administered by
SafeGuard companies. The stand alone vision products are underwritten by Fidelity Security Life Insurance Company and
administered by EyeMed. In connection with these sales, we received approximately $14.8 million in cash. We also transferred $2.1
million in cash and $2.1 million in liabilities to SafeHealth Life under the assumption reinsurance agreement and recognized a pre-tax
gain of $7.8 million. In the fourth quarter of 2004, we recorded a pre-tax $0.3 million reduction to the gain as a result of a final
settlement on the sale. Our dental and vision subsidiaries had been reported as part of our Health Plan Services reportable segment.
Our dental and vision subsidiaries had $48.0 million and $55.5 million of total combined revenues and income (loss) from
operations before income taxes of $1.9 million and $(0.7) million for the years ended December 31, 2003 and 2002, respectively. As
of the date of sales, our dental and vision subsidiaries had net equity of $4.3 million.
American VitalCare and Managed Alternative Care Subsidiaries
On March 1, 2004, we completed the sale of two subsidiaries, American VitalCare, Inc. and Managed Alternative Care, Inc., to
a subsidiary of Rehabcare Group, Inc. We received a payment of approximately $11 million, subject to certain post-closing
adjustments, and a $3 million subordinated promissory note for which we recorded a full reserve. We retained an interest in certain
accounts receivable of the subsidiaries. As of December 31, 2004, we have fully reserved for these receivables at $5.5 million. These
subsidiaries were reported as part of our Government Contracts reportable segment. We recorded a pre-tax gain of $1.9 million
related to the sale of these subsidiaries during the three months ended March 31, 2004.
These subsidiaries had $2.3 million, $14.7 million and $11.5 million of total revenues for the years ended December 31, 2004,
2003 and 2002, respectively. These subsidiaries had $0.2 million, $3.4 million and $1.3
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