Health Net 2005 Annual Report Download - page 106

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Florida Health Plan
Effective August 1, 2001, we sold our Florida health plan, known as Foundation Health, a Florida Health
Plan, Inc. (the Florida Plan), to Florida Health Plan Holdings II, L.L.C. In connection with the sale, we received
$23 million in cash and approximately $26 million in a secured six-year note bearing 8% interest per annum for
which we recorded a full reserve. We also sold the corporate facility building used by our Florida health plan to
DGE Properties, LLC for $15 million, payable by a secured five-year note bearing 8% interest per annum. We
estimated and recorded a $72.4 million pretax loss on the sales of our Florida Plan and the related corporate
facility building during the three months ended June 30, 2001.
Under the Stock Purchase Agreement that evidenced the sale (as amended, the SPA), we, through our
subsidiary FH Assurance Company (FH Assurance), entered into a reinsurance agreement (the Reinsurance
Agreement) with the Florida Plan. Under the terms of the Reinsurance Agreement, FH Assurance must reimburse
the Florida Plan for certain medical and hospital expenses arising after the sale of the Florida Plan. As of
September 30, 2004, we had paid the maximum amount of $28 million under the Reinsurance Agreement.
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 pretax 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. These 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 pretax gain of $7.8
million. In the fourth quarter of 2004, we recorded a pretax $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.
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