Health Net 2007 Annual Report Download - page 142

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
of any or all of these other regulatory and legal proceedings depending, in part, upon the results of operations or
cash flow for such period. However, at this time, management believes that the ultimate outcome of all of these
other regulatory and legal proceedings that are pending, after consideration of applicable reserves and potentially
available insurance coverage benefits, should not have a material adverse effect on our financial condition and
liquidity.
Potential Settlements
We regularly evaluate litigation matters pending against us, including those described above, to determine if
settlement of such matters would be in the best interests of the Company and its stockholders. The costs
associated with any such settlement could be substantial and, in certain cases, could result in a significant
earnings charge in any particular quarter in which we enter into a settlement agreement. We have recorded
reserves and accrued costs for future legal costs for certain significant matters described above. These reserves
and accrued costs represent our best estimate of probable loss, including related future legal costs for such
matters, both known and incurred but not reported, although our recorded amounts might ultimately be
inadequate to cover such costs. Therefore, the costs associated with the various litigation matters to which we are
subject and any earnings charge recorded in connection with a settlement agreement could have a material
adverse effect on our financial condition or results of operations. As noted above under “Class Action Litigation
—McCoy v. Health Net, Inc. et al, Wachtel v. Health Net, Inc., et al,and Scharfman, et al v. Health Net, Inc., et
al” we are in the process of finalizing an agreement to settle the McCoy, Wachtel and Scharfman cases.
Operating Leases and Other Purchase Obligations
Operating Leases
We lease administrative office space throughout the country under various operating leases. Certain leases
contain renewal options and rent escalation clauses. Certain leases are cancelable with substantial penalties.
On March 29, 2007, we sold our 68-acre commercial campus in Shelton, Connecticut (the “Shelton
Property”) to The Dacourt Group, Inc. (“Dacourt”) and leased it back from Dacourt under an operating lease
agreement for an initial term of ten years with an option to extend for two additional terms of ten years each. The
total future minimum lease commitments under the lease are approximately $77.1 million.
Effective January 1, 2005, we entered into an operating lease agreement to renew our leased office space in
Woodland Hills, California for our corporate headquarters. The new lease is for a term of 10 years and has
provisions for space reduction at specific times over the term of the lease, but it does not provide for complete
cancellation rights. The total future minimum lease commitments under the lease are approximately $23.8 million.
On June 30, 2005, we entered into a Master Lease Financing Agreement (Lease Agreement) with an
independent third party (Lessor). Pursuant to the terms of the Lease Agreement, we sold certain of our non-real
estate fixed assets with a net book value of $76.5 million as of June 30, 2005 to Lessor for the sale price of $80
million (less approximately $1.0 million in certain costs and expenses) and simultaneously leased such assets
from Lessor under an operating lease for an initial term of three years, which term may be extended at our option
for an additional term of four quarters subject to the terms of the Lease Agreement. The total future minimum
lease commitments under the lease are approximately $41.3 million.
Other Purchase Obligations
We have entered into long-term agreements to receive services related to a nurse advice line and other
related services, disease and condition management and pharmacy benefit management. The remaining terms are
one year for nurse advice line and other related services, one year for disease and condition management and
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