Health Net 2006 Annual Report Download - page 117

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note 5—Property and Equipment
Property and equipment is comprised of the following as of December 31:
2006 2005
(Dollars in millions)
Land ............................................................. $ 3.4 $ 8.9
Leasehold improvements under development ............................. 5.2 2.2
Buildings and improvements .......................................... 45.9 64.7
Furniture, equipment and software ..................................... 195.3 198.5
249.8 274.3
Less accumulated depreciation ........................................ (98.6) (148.5)
Property and equipment, net .......................................... $151.2 $ 125.8
Our depreciation expense was $21.5 million, $30.3 million and $41.4 million for the years ended
December 31, 2006, 2005 and 2004, respectively. The property and equipment and related accumulated
depreciation balances as of December 31, 2006 reflect write-offs of fully depreciated assets and reclassification
of certain properties held for sale of $21.8 million (see Note 18).
Note 6—Financing Arrangements
Redemption of Senior Notes
Our Senior Notes payable balance was $0 and $388.0 million as of December 31, 2006 and 2005,
respectively.
On August 14, 2006, we redeemed all $400 million in aggregate principal amount of our Senior Notes,
which were scheduled to mature in April 2011. The redemption followed a series of preparatory transactions that
we undertook beginning in June 2006 to refinance the Senior Notes.
On June 23, 2006, we obtained a $200 million bridge loan and a $300 million term loan. See “—Bridge
Loan Agreement” and “—Term Loan Agreement,” below. We used the net proceeds from the Bridge Loan
Agreement and the Term Loan Agreement to purchase approximately $500 million in U.S. Treasury securities,
which we pledged (the Pledged Securities) as collateral to secure the Senior Notes pursuant to a Security and
Control Agreement, dated as of June 23, 2006, by and among us, the Trustee for the registered holders of our
Senior Notes, and U.S. Bank National Association, as securities intermediary. The U.S. Treasury securities
provided sufficient funds to make all of the remaining principal and interest payments on the Senior Notes. We
granted to the trustee for the Senior Notes, for the benefit of the holders of the Senior Notes, a lien on and
security interest in the Pledged Securities until the Senior Notes were redeemed in accordance with the terms of
the indenture governing the Senior Notes. The Pledged Securities, originally purchased for $497 million, together
with approximately $9 million in investment gains and interest income earned thereon, represented funds in the
aggregate amount of approximately $506 million at August 14, 2006, the date of redemption of the Senior Notes.
These funds were sufficient to redeem the Senior Notes for approximately $451 million, including a redemption
premium of approximately $51 million, and to pay the accrued interest on the Senior Notes to the redemption
date in the aggregate amount of $12 million. A portion of the remaining $43 million provided by the sale of the
Pledged Securities was used to cover $11.1 million in costs for the termination and settlement of our Swap
Contracts and to pay approximately $3 million of professional fees and other expenses related to the refinancing
of the Senior Notes. The remaining $29 million of the proceeds from the sale of the Pledged Securities was
returned to the Company’s general operating fund to be used for general working capital purposes.
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