Health Net 2014 Annual Report Download - page 165

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
F-55
in the future, subject to class action lawsuits brought against various managed care organizations and other class action
lawsuits.
We intend to vigorously defend ourselves against the miscellaneous legal and regulatory proceedings to which
we are currently a party; however, these proceedings are subject to many uncertainties. In some of the cases pending
against us, substantial non-economic or punitive damages are being sought.
Potential Settlements
We regularly evaluate legal proceedings and regulatory matters pending against us, including those described
above in this Note 13, to determine if settlement of such matters would be in the best interests of the Company and its
stockholders. The costs associated with any settlement of the various legal proceedings and regulatory matters to which
we are or may be subject from time to time, including those described above in this Note 13, could be substantial and,
in certain cases, could result in a significant earnings charge or impact on our cash flow in any particular quarter in
which we enter into a settlement agreement and could have a material adverse effect on our financial condition, results
of operations, cash flow and/or liquidity and may affect our reputation.
Operating Leases and Long-Term 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.
We lease office space in multiple locations in Shelton, Connecticut under operating lease agreements for
remaining terms ranging from two to three years. We began monitoring these leases for impairment after the Northeast
Sale in December 2009 although we remained in these sites to conduct related transition work. In December 2012 after
vacating these sites, we recorded a lease impairment totaling $7.4 million in our divested operations and services
expenses. The lease impairment amount represented the fair value of future lease obligations discounted using a credit
adjusted risk-free interest rate of 3.26%.
We lease an office space in Woodland Hills, California that is used for operations in our Western Region
Operations and Government Contracts reportable segments under an operating lease agreement. In 2014, we extended
the lease agreement through December 31, 2017 and it does not provide for complete cancellation rights. As of
December 31, 2014, the total future minimum lease commitments under the lease were approximately $8.8 million.
We lease an office space in Woodland Hills, California for our California health plan under an operating lease
agreement. The lease expires on December 31, 2021 and it contains provisions for full or partial termination under
certain circumstances with substantial consideration payable to the landlord. As of December 31, 2014, the total future
minimum lease commitments under this lease were approximately $83.9 million.
Long-Term Purchase Obligations
We have entered into long-term agreements to purchase various services, which may contain certain termination
provisions and have remaining terms in excess of one year as of December 31, 2014.
We have entered into long-term agreements to receive services related to disease management, case management,
wellness, pharmacy benefit management, pharmacy claims processing services and health quality/risk scoring
enhancement services with external third-party service providers. As of December 31, 2014, the remaining terms were
approximately from one to two years for these contracts, and termination of these agreements is subject to certain
termination provisions. As of December 31, 2014, the total estimated future commitments under these agreements were
$122.1 million.
We have entered into an agreement with International Business Machines Corporation ("IBM") to outsource our
IT infrastructure management services including data center services, IT security management and help desk support. In
2014, we extended the agreement, and as of December 31, 2014, the remaining term of this contract was approximately
one year, and the total estimated future commitments under the agreement were approximately $101.2 million.