Health Net 2009 Annual Report Download - page 151

SUPPLEMENTAL SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(PARENT COMPANY ONLY)
HEALTH NET, INC.
NOTE TO CONDENSED FINANCIAL STATEMENTS
Note 1—Basis of Presentation
Health Net, Inc.’s (HNT) investment in subsidiaries is stated at cost plus equity in undistributed earnings
(losses) of subsidiaries. HNT’s share of net income (loss) of its unconsolidated subsidiaries is included in
consolidated income using the equity method.
This condensed financial information of registrant (parent company only) should be read in conjunction
with the consolidated financial statements of Health Net, Inc. and subsidiaries.
Note 2—Restatement
Subsequent to the issuance of the 2008 condensed financial statements of HNT, management determined
that it had not accounted for the fair value of an interest rate swap. During 2008, HNT entered into an interest
rate swap contract with one of its wholly-owned subsidiaries where HNT receives an amount equal to LIBOR
times an indexed notional principal amount and pays an amount equal to 3.925% times the same notional
principal amount. The interest rate swap agreement does not qualify for hedge accounting. Accordingly, the
interest rate swap should have been reflected at fair value on the condensed balance sheet with an offset to net
investment income and equity in net income of subsidiaries. As a result, the accompanying condensed balance
sheet as of December 31, 2008 and the condensed statement of operations for the year ended December 31, 2008
has been restated to correct the accounting for this interest rate swap. This restatement has no impact on net
income nor on the condensed statement of cash flows as previously reported.
The following table summarizes the restatement adjustments and their impact on our condensed statement of
operations as previously reported for the year ended December 31, 2008 (in thousands):
Other income as previously reported .................................. $ 2,117
Interest rate swap fair value adjustment ................................ (53,989)
Other loss as restated .............................................. $ (51,872)
Total revenues as previously reported ................................. $442,975
Interest rate swap fair value adjustment ................................ (53,989)
Total revenues as restated ........................................... $388,986
Loss from operations before income tax benefit and equity in net income of
subsidiaries as previously reported .................................. $(124,636)
Interest rate swap fair value adjustment ................................ (53,989)
Loss from operations before income tax benefit and equity in net income of
subsidiaries as previously reported .................................. $(178,625)
Income tax benefit as previously reported .............................. $ 44,159
Interest rate swap fair value adjustment ................................ 19,129
Income tax benefit as restated ........................................ $ 63,288
Equity in net income of subsidiaries as previously reported ................ $175,480
Interest rate swap fair value adjustment ................................ 34,860
Equity in net income of subsidiaries as restated .......................... $210,340
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