Health Net 2005 Annual Report Download - page 131

Download and view the complete annual report

Please find page 131 of the 2005 Health Net annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 145

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 are secured by $90.1 million of irrevocable standby letters of credit (the “LC”) issued
under the Company’s senior credit facility in favor of the issuers of the surety bonds.
Under the surety bond and LC arrangement, if the Company were to fail to pay the amount, if any, of a final
judgment in connection with the AmCareco litigation following appeal, the issuers of the surety bonds would
make payment in satisfaction of the judgment. The Company would, in turn, be responsible for reimbursing the
issuing bank under the LC to the extent that the issuers of the surety bonds were to draw on the LC. To the extent
the Company incurs liabilities as a result of the arrangements under the surety bonds or the LC, such liabilities
would be included on the Company’s consolidated balance sheet.
We will recognize a liability for any amounts actually funded to these surety bonds or drawn down from the
letters of credit. At this time, the Company does not believe it will be required to fund or draw down any amounts
related to the surety bonds or the LC. Accordingly, no liability related to the surety bonds or the LC has been
recognized in the Company’s financial statements as of December 31, 2005.
Note 13—Related Parties
One current executive officer of the Company is a director of an industry-related association, of which the
Company is a member and we paid dues of $1.0 million, $1.0 million and $1.1 million in 2005, 2004 and 2003,
respectively. The same executive officer was a director of an internet health services company to which we paid
$250,000 in 2003 and in which the Company also had an investment of $0 and $2.3 million as of December 31,
2005 and 2004, respectively. No such amount was paid in 2004 or 2005.
During 1999, three executive officers of the Company, in connection with their hire or relocation, received
one-time loans from the Company aggregating $550,000 which ranged from $100,000 to $300,000 each. All the
loans made during 1999 were repaid or forgiven as of December 31, 2004. During 2001, two executive officers
of the Company, in connection with their hire or relocation, received one-time loans from the Company
aggregating $200,000. All of the loans made during 2001 were repaid or forgiven as of December 31, 2003. As
of December 31, 2005, there were no employee loans outstanding.
Note 14—Litigation, Severance and Related Benefits and Asset Impairments
The following sets forth the principal components of litigation, severance and related benefits and asset
impairments for the years ended December 31:
2005 2004 2003
(Dollars in millions)
Litigation ............................................ $81.6 $ — $ —
Severance and related benefit costs ........................ 1.7 25.3 —
Asset impairment charges ............................... — 5.9 16.4
Real estate lease termination costs ......................... — 1.7 —
Total ................................................ $83.3 $32.9 $16.4
F-43