Health Net 2006 Annual Report Download - page 142

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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, or expected to be, 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, 2006 and 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 $1.1 million, $1.0 million and $1.0 million in 2006, 2005 and 2004,
respectively. The same executive officer was a director of an Internet health services company in which the
Company had an investment of $0, $0 and $2.3 million as of December 31, 2006, 2005 and 2004, respectively.
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. As of December 31, 2006, 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:
2006 2005 2004
(Dollars in millions)
Litigation .................................................... $37.1 $81.6 $ —
Severance and related benefit costs ................................ — 1.7 25.3
Asset impairment charges ....................................... — — 5.9
Real estate lease termination costs ................................. — — 1.7
Total ........................................................ $37.1 $83.3 $32.9
2006 Charges
We recorded the $37.1 million litigation charge in the fourth quarter of 2006 in connection with recent
developments in the Wachtel v. Health Net, Inc. et al. and McCoy v. Health Net, Inc. et al. cases. These two
lawsuits are styled as nationwide class actions and are pending in the United States District Court for the District
of New Jersey on behalf of a class of subscribers in a number of our large and small employer group plans. The
recent developments in the fourth quarter of 2006 include the order and opinion filed on December 6, 2006 by
the United States District Court for the District of New Jersey that ruled on a number of pending motions relating
to various discovery issues on the McCoy/Wachtel litigation as well as actions taken in the Third Circuit Court of
Appeals related to class certification. The litigation charge was recorded in anticipation of the Company’s
on-going litigation defense expenses in these matters. See Note 12 for additional information on this litigation
matter.
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