Health Net 2007 Annual Report Download - page 143

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
three years for pharmacy benefit management. The total future minimum commitments under these agreements
are $25.9 million and are included in the table below. We have also entered into a three-year contract agreement
with an external third party service provider for it to provide outsourcing services such as enrollment and
member billing services as well as claims processing services for our Prescription Drug Plan and Private Fee for
Service products. Termination of this agreement is subject to certain termination provisions. The remaining term
for this contract is eighteen months. The total future commitment under the agreement is approximately $9.5
million.
We have also entered into contracts with our health care providers and facilities, the federal government, IT
service companies and other parties within the normal course of our business for the purpose of providing health
care services. Certain of these contracts are cancelable with substantial penalties.
As of December 31, 2007, future minimum commitments for operating leases and other purchase
obligations for the years ending December 31 are as follows:
Operating
Leases
Other
Purchase
Obligations
(Dollars in millions)
2008 .................................................. $107.0 $44.6
2009 .................................................. 56.6 10.7
2010 .................................................. 46.4 3.2
2011 .................................................. 43.8 1.7
2012 .................................................. 27.3 0.8
Thereafter ............................................. 72.5 —
Total minimum commitments .............................. $353.6 $61.0
Lease expense totaled $70.7 million, $69.3 million and $54.1 million for the years ended December 31,
2007, 2006 and 2005, respectively. Other purchase obligation expenses totaled $39.3 million, $33.8 million and
$29.9 million for the years ended December 31, 2007, 2006 and 2005, respectively.
Surety Bonds
During December 2005, the Company elected to post $114.7 million of surety bonds to suspend the effect,
and secure appeal, of the final judgment entered against the Company in connection with the AmCareco
litigation. The surety bonds are secured by $90.1 million of irrevocable standby letters of credit (the “LC”) issued
under the Company’s revolving credit facility in favor of the issuers of the surety bonds.
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, 2007 and 2006.
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