Health Net 2006 Annual Report Download - page 73

risk and other factors, generates the authorized control level (ACL), which represents the minimum amount of
net worth believed to be required to support the regulated entity’s business. For states in which the RBC
requirements have been adopted, the regulated entity typically must maintain the greater of the Company Action
Level RBC, calculated as 200% of the ACL, or the minimum statutory net worth requirement calculated pursuant
to pre-RBC guidelines. Because our regulated subsidiaries are also subject to their state regulators’ overall
oversight authority, some of our subsidiaries are required to maintain minimum capital and surplus in excess of
the RBC requirement, even though RBC has been adopted in their states of domicile. We generally manage our
aggregate regulated subsidiary capital above 300% of ACL, although RBC standards are not yet applicable to all
of our regulated subsidiaries. At December 31, 2006, we had sufficient capital to exceed this level. In addition to
the foregoing requirements, our regulated subsidiaries are subject to restrictions on their ability to make dividend
payments, loans and other transfers of cash or other assets to the parent company.
As necessary, we make contributions to and issue standby letters of credit on behalf of our subsidiaries to
meet RBC or other statutory capital requirements under state laws and regulations. Health Net, Inc. did not make
any capital contributions to its subsidiaries to meet RBC or other statutory capital requirements under state laws
and regulations during the year ended December 31, 2006 or thereafter through February 28, 2007.
Legislation has been or may be enacted in certain states in which our subsidiaries operate imposing
substantially increased minimum capital and/or statutory deposit requirements for HMOs in such states. Such
statutory deposits may only be drawn upon under limited circumstances relating to the protection of
policyholders.
As a result of the above requirements and other regulatory requirements, certain subsidiaries are subject to
restrictions on their ability to make dividend payments, loans or other transfers of cash to their parent companies.
Such restrictions, unless amended or waived or unless regulatory approval is granted, limit the use of any cash
generated by these subsidiaries to pay our obligations. The maximum amount of dividends that can be paid by
our insurance company subsidiaries without prior approval of the applicable state insurance departments is
subject to restrictions relating to statutory surplus, statutory income and unassigned surplus.
Contractual Obligations
Our significant contractual obligations as of December 31, 2006 are summarized below for the years ending
December 31:
Total 2007 2008 2009 2010 2011 Thereafter
(Dollars in Millions)
Long-term debt principal ................... $300.0 $ — $ — $ — $ — $300.0 $ —
Long-term debt interest .................... 96.3 21.6 22.2 21.4 20.8 10.3 —
Short-term debt principal ................... 200.0 200.0 — — — — —
Short-term debt interest .................... 7.0 7.0 — — — — —
Operating leases .......................... 359.7 74.9 97.1 48.4 38.7 36.7 63.9
Other purchase obligations .................. 57.0 35.5 9.7 8.0 2.9 0.4 0.5
Deferred compensation ..................... 44.4 3.7 3.2 3.1 2.4 1.4 30.6
Estimated future payments for pension and other
benefits ............................... 25.1 1.3 1.4 1.5 1.7 2.0 17.2(a)
(a) Represents estimated future payments from 2012 through 2016.
Operating Leases
We lease office space under various operating leases. Certain leases are cancelable with substantial
penalties. See “Item 2. Properties” for additional information regarding our leases.
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