Health Net 2015 Annual Report Download - page 170

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
F-9
The completion of the Merger is not conditioned on receipt of financing by Centene. The Merger is expected to
close in the first quarter of 2016, subject to the receipt of the remaining required regulatory approvals and satisfaction
or waiver of other closing conditions.
Cognizant Transaction
On November 2, 2014, we entered into a master services agreement (as subsequently amended and restated, the
"Master Services Agreement") with Cognizant Healthcare Services, LLC to provide certain services to us. In
connection with the Master Services Agreement, we also entered into an asset purchase agreement (the "Asset Purchase
Agreement") pursuant to which we agreed to sell certain software assets and related intellectual property we own to
Cognizant (the "Asset Sale," and together with the transactions contemplated by the Master Services Agreement, the
"Cognizant Transaction"). The closing of the Cognizant Transaction and commencement of services under the Master
Services Agreement on the BPaaS Services Commencement Date (as defined in the Master Services Agreement), was
subject to receipt of required regulatory approvals, and the closing of the related Asset Sale was scheduled for the
BPaaS Services Commencement Date. However, in connection with the announcement of the Merger with Centene, we
agreed with Cognizant to suspend efforts toward, and defer the occurrence of, the BPaaS Services Commencement Date
to provide time for Health Net and Centene to work towards closing the Merger, and accordingly entered into an
amendment to the Master Services Agreement on July 1, 2015 (the "Cognizant Amendment"). The decision to suspend
efforts toward the BPaaS Services Commencement Date has similarly deferred the Asset Sale.
As of December 31, 2014 we had classified $50.0 million, at fair value less cost to sell, in assets as assets held
for sale. As a result of the Cognizant Amendment, we reclassified assets held for sale to property and equipment held-
for use and resumed depreciation of such assets due to the deferral of the Asset Sale during the three months ended
September 30, 2015. As of December 31, 2015, we had no assets held for sale. See Note 3 for additional information
about our agreement with Cognizant, the assets previously held for sale and our subsequent amendment to the Master
Services Agreement.
Note 2—Summary of Significant Accounting Policies
Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.
All intercompany transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with United States Generally Accepted Accounting
Principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities through the date of the issuance of the financial
statements, and the reported amounts of revenues and expenses during the reporting period. These estimates require the
Company to apply complex assumptions and judgments, and often the Company must make estimates about effects of
matters that are inherently uncertain and will likely change in subsequent periods. Actual results could differ materially
from those estimates. Principal areas requiring the use of estimates include revenue recognition, including rebates,
health care costs, including incurred but not yet reported ("IBNR") amounts, amounts receivable or payable under the
premium stabilization programs enacted by the ACA (see "Accounting for Certain Provisions of the ACA—3Rs:
Reinsurance, Risk Adjustment and Risk Corridor" section below), reserves for contingent liabilities, amounts receivable
or payable under government contracts, goodwill and other intangible assets, recoverability of long-lived assets and
investments, and income taxes.
Health Plan Services Revenue Recognition
Health plan services premium revenues generally include HMO, PPO, EPO and POS premiums from employer
groups and individuals and from Medicare recipients who have purchased supplemental benefit coverage, for which
premiums are based on a predetermined prepaid fee, Medicaid revenues based on multi-year contracts to provide care to
Medicaid recipients, revenue under Medicare risk contracts to provide care to enrolled Medicare recipients and revenue
from our dual eligible members who are participating in the California Coordinated Care Initiative or "CCI." Revenue