Health Net 2006 Annual Report Download - page 64

Debt Refinancing
On June 23, 2006, we began a series of transactions for the purpose of refinancing our 8.375% Senior Notes
due 2011 (Senior Notes). In connection with the refinancing, we incurred $70.1 million in costs, including a
$51.0 million redemption premium with respect to our Senior Notes and $11.1 million for the settlement of four
interest rate swap contracts (Swap Contracts). We also paid $3.0 million for professional fees and incurred $5.0
million of other non-cash expenses related to such refinancing. The Senior Notes were redeemed on August 14,
2006. See “—Liquidity and Capital Resources” and Note 6 to our consolidated financial statements for additional
information on our refinancing activities.
Litigation, Severance and Related Benefit Costs and Asset Impairments
We recorded litigation, severance and related benefit costs and asset impairments for the years ended
December 31, 2006, 2005 and 2004 as detailed below:
2006 Charges 2005 Charges 2004 Charges
(Dollars in millions)
Litigation ...................................... $37.1 $81.6 $ —
Severance and related benefit costs .................. — 1.7 25.3
Asset impairment charge .......................... — — 5.9
Real estate lease termination costs .................. — — 1.7
Total .......................................... $37.1 $83.3 $32.9
2006 Charges
During the three months ended December 31, 2006, we recorded a pretax charge of approximately $37.1
million in connection with two consolidated lawsuits, McCoy v. Health Net, Inc. et al., and Wachtel v. Health
Net, Inc., et al (McCoy/Wachtel).See Notes 12 and 14 to our consolidated financial statements for additional
information on this litigation matter. We intend to fund any payments required in connection with this matter
with operating cash flows.
2005 Charges
Class Action Settlement. On May 3, 2005, we announced that we signed a settlement agreement with the
representatives of approximately 900,000 physicians and state and other medical societies settling the lead
physician provider track action in the multidistrict class action lawsuit. During the three months ended March 31,
2005, we recorded a pretax charge in our consolidated statement of operations of $65.6 million to account for the
settlement agreement, legal expenses and other expenses related to the physician class action litigation. On
July 6, 2006, we paid the general settlement and plaintiffs’ legal fees, including interest, of $61.9 million funded
by cash flows from operations. The payment had no material impact to our results of operations for the year
ended December 31, 2006, as the cost had been fully accrued in the prior year. See Note 12 to the consolidated
financial statements for additional information regarding the physician class action lawsuit.
AmCareco litigation. On August 2, 2005 and November 4, 2005, a total of three separate judgments were
entered against us in connection with a lawsuit arising from the 1999 sale of three of our health plan subsidiaries
to Amcareco, Inc. The aggregate amount of the judgments was $108.7 million. During the three months ended
June 30, 2005, we recorded a pretax charge of $15.9 million representing total estimated legal defense costs
related to this litigation. As of December 31, 2006, no modifications have been made to the original estimated
cost. We did not accrue any amount for the compensatory or punitive damages awards as of December 31, 2005,
and we intend to vigorously appeal this judgment. See Notes 12 and 14 to the consolidated financial statements
for additional information on this litigation.
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