Health Net 2009 Annual Report Download - page 141

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
We have also entered into contracts with our health care providers and facilities, the federal government,
other 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, 2009, future minimum commitments for operating leases and long-term purchase
obligations for the years ending December 31 are as follows:
Operating
Leases
Long-Term
Purchase
Obligations
(Dollars in millions)
2010 .................................................. $ 64.2 $154.7
2011 .................................................. 53.0 147.1
2012 .................................................. 34.4 93.5
2013 .................................................. 27.5 69.2
2014 .................................................. 26.0 7.2
Thereafter ............................................. 34.5 0.1
Total minimum commitments .............................. $239.6 $471.8
Lease expense totaled $63.1 million, $71.1 million and $70.7 million for the years ended December 31,
2009, 2008 and 2007, respectively. Long-term purchase obligation expenses totaled $127.6 million, $33.9 million
and $39.3 million for the years ended December 31, 2009, 2008 and 2007, 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 $88.1 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, 2009 and 2008.
Note 14—Segment Information
During the year ended December 31, 2009, we reviewed our reportable segments following the execution of
the Stock Purchase Agreement to sell our Northeast business as discussed in Note 3. The sale was completed on
December 11, 2009. As a result of the Northeast Sale and the entry into the United Administrative Services
Agreements to provide administrative services post-closing, we operate the Northeast business in a manner that is
different than the rest of our health plans. Under the terms of the United Administrative Service Agreements, we
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