Health Net Reports Second Quarter 2004 Net Income of $.36 Per Diluted Share; Results Include $17.4 Million Severance and Related Benefits Charge; Administrative Ratio Improves.LOS ANGELES Los Angeles (lôs ăn`jələs, lŏs, ăn`jəlēz'), city (1990 pop. 3,485,398), seat of Los Angeles co., S Calif.; inc. 1850. -- Health Net, Inc. (NYSE NYSE See: New York Stock Exchange :HNT HNT Hostage Negotiation Team ) today announced 2004 second quarter net income per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share of $.36 compared with $.63 in the second quarter of 2003. Included in these results is the full effect of a $17,402,000 pretax pre·tax adj. Existing before tax deductions: pretax income. pretax adj [profit] → vor (Abzug der) Steuern charge, or approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $.09 per diluted share after tax, for severance The act of dividing, or the state of being divided. The term severance has unique meanings in different branches of the law. Courts use the term in both civil and criminal litigation in two ways: first, when dividing a lawsuit into two or more parts, and second, when and related benefits associated with the workforce reduction commenced in the second quarter of 2004. Health Net reported net income of $41,366,000 in the second quarter of 2004 compared to net income of $74,784,000 in the second quarter of 2003 and $15,012,000 in the first quarter of 2004. The year-over-year decline in net income was primarily the result of higher health care costs. The sequential One after the other in some consecutive order such as by name or number. improvement in net income was primarily the result of lower reported health care costs. "This quarter demonstrated that we made significant progress as we strive to get back on track. We believe strengthened medical management practices and new provider contracting strategies are starting to have an impact on health care cost trends. We are especially pleased with the reduction in the administrative expense ratio, a result of our intense focus on these costs," said Jay Gellert Jay Gellert (born 1956 in New York City, New York) is the current CEO and President of Health Net, Inc. , president and chief executive officer of Health Net. "Achieving our goals in the quarter reinforces our confidence for the balance of the year. In addition, our Health Net One project is meeting the new deadlines established earlier this year and is on schedule for completion in the middle of 2005." Positive developments for the second quarter of 2004 included: --Health Net's Administrative Ratio was 9.4 percent, a 90 basis point improvement compared to the second quarter of 2003, and 60 basis points lower than the first quarter of 2004, its lowest level in the last 10 years. General, administrative and depreciation expenses fell by $16,800,000, or 7.0 percent, from the first quarter of 2004; --A Debt-to-Total Capital ratio of 22.6 percent, below the company's target of 30 percent and down from 23.9 percent at the end of the first quarter of 2004; --The Government contracts cost ratio improved by 40 basis points to 95.0 percent, compared with the first quarter of 2004, as the TRICARE program continues to perform well; and --Days claims payable increased by 1.4 days sequentially se·quen·tial adj. 1. Forming or characterized by a sequence, as of units or musical notes. 2. Sequent. se·quen to 46.6 days in the second quarter of 2004. The company noted that it paid $150 million more in claims in second quarter of 2004 compared with the second quarter of 2003. Revenues Health Net's total revenues rose 6.0 percent in the second quarter of 2004 to $2,918,815,000 from $2,752,662,000 in the second quarter of 2003. Health plan services revenue climbed 6.2 percent to $2,398,943,000 in the second quarter of 2004 compared to $2,259,867,000 in the second quarter of 2003. Health plan services revenue gains were the result of higher commercial and Medicare Medicare, national health insurance program in the United States for persons aged 65 and over and the disabled. It was established in 1965 with passage of the Social Security Amendments and is now run by the Centers for Medicare and Medicaid Services. premium yields across the company's health plans. The overall premium yield per member per month (PMPM PMPM Per Member Per Month PMPM Pilgrim Monument and Provincetown Museum (Massachusetts) ), including commercial, Medicare and Medicaid Medicare and Medicaid U.S. government programs in effect since 1966. Medicare covers most people 65 or older and those with long-term disabilities. Part A, a hospital insurance plan, also pays for home health visits and hospice care. enrollment, in the second quarter of 2004 rose 7.7 percent compared to the same period in 2003. "Premium yields on our commercial business in the major plans were up approximately 9 percent compared with the second quarter of 2003, when adjusted for benefit changes at a single large account in the Northeast “Northeastern” redirects here. For the Boston college, see Northeastern University, Boston. Northeast or north east is the ordinal direction halfway between north and east. It is the opposite of southwest. See boxing the compass. and product mix changes," Gellert Gellert (or Killhart) is a name shared by several people (and a dog):
Small Group and Individual enrollment was up 3.1 percent in the second quarter of 2004 compared with the second quarter of 2003. The rate of growth in this segment is slowing as a result of disciplined pricing. Overall commercial enrollment, excluding Pennsylvania Pennsylvania (pĕnsəlvā`nyə), one of the Middle Atlantic states of the United States. It is bordered by New Jersey, across the Delaware River (E), Delaware (SE), Maryland (S), West Virginia (SW), Ohio (W), and Lake Erie and New York -- a market that the company exited in the fourth quarter of 2003 -- increased by more than 9,600 members compared with the second quarter of 2003. Medicare enrollment was flat while Medicaid Medicaid, national health insurance program in the United States for low-income persons; established in 1965 with passage of the Social Security Amendments and now run by the Centers for Medicare and Medicaid Services. enrollment declined as a result of tightened eligibility requirements in California California (kăl'ĭfôr`nyə), most populous state in the United States, located in the Far West; bordered by Oregon (N), Nevada and, across the Colorado River, Arizona (E), Mexico (S), and the Pacific Ocean (W). . The company noted that it began a new Medicaid contract for Kern Kern, river, 155 mi (249 km) long, rising in the S Sierra Nevada Mts., E Calif., and flowing south, then southwest to a reservoir in the extreme southern part of the San Joaquin valley. The river has Isabella Dam as its chief facility. County in California on July July: see month. 1, which will add approximately 30,000 Medicaid members in the third quarter of 2004. In the second quarter of 2004, Health Net's Government contracts revenue rose 8.3 percent from the second quarter of 2003, reaching $504,317,000. This increase was due to the effects on the TRICARE program from the nation's ongoing heightened military activity. "Our TRICARE operations continue to perform well. The implementation work on our new TRICARE contract for the North region is on schedule. We began health care delivery in a portion of the new North region on July 1. We will begin delivery on the remainder of the contract on September September: see month. 1," Gellert noted. Other income decreased by $10,967,000 in the second quarter of 2004 compared to the second quarter of 2003, primarily due to lost revenue from the sale of the company's Employer Services division in the third quarter of 2003. In the second quarter of 2004, net investment income was $13,818,000, a decrease of $546,000 from the second quarter of 2003. Health Care Costs Overall PMPM health plan health care costs rose by 10.7 percent in the second quarter of 2004 compared with the second quarter of 2003. "Our physician and pharmacy pharmacy, art of compounding and dispensing drugs and medication. The term is also applied to an establishment used for such purposes. Until modern times medication was prepared and dispensed by the physician himself. In the 18th cent. cost increases were very modest and consistent with our expectations. Inpatient inpatient /in·pa·tient/ (in´pa-shent) a patient who comes to a hospital or other health care facility for diagnosis or treatment that requires an overnight stay. in·pa·tient n. and outpatient outpatient /out·pa·tient/ (-pa-shent) a patient who comes to the hospital, clinic, or dispensary for diagnosis and/or treatment but does not occupy a bed. out·pa·tient n. hospital costs rose year-over-year and, while they remain the number one health care cost issue, there are encouraging signs that the rate of growth is slowing," Gellert said. The Government contracts cost ratio improved by 20 basis points to 95.0 percent for the second quarter of 2004 compared to the second quarter of 2003. Administrative Expenses In the second quarter of 2004, Health Net's administrative ratio (G&A plus depreciation) was 9.4 percent, a 90 basis point improvement compared to the second quarter of 2003. Total general, administrative and depreciation expenses were $224,668,000 in the second quarter of 2004. The administrative ratio was lower in the second quarter of 2004 as compared to the second quarter of 2003 due to ongoing efficiency improvements and the divestiture The breakup of AT&T. By federal court order, AT&T divested itself on January 1, 1984 of its 23 operating companies, which became known as the Regional Bell Operating Companies (RBOCs). of the company's Employer Services division in October October: see month. 2003. Sequentially, there was a 60 basis point improvement compared with the first quarter of 2004, reflecting a continued focus on administrative expense control and modest benefits from the workforce reduction. The company recorded a $17,402,000 pretax charge in the second quarter of 2004 for severance and related benefits expenses. "We believe that the reduction in force that began in the second quarter of 2004 will produce benefits in ongoing administrative expense reductions for the next several quarters," Gellert said. Health Net's selling expenses increased by $3,193,000 to $59,993,000 in the second quarter of 2004 compared with $56,800,000 in the same period in 2003, consistent with the growth in broker-driven segments such as Small Group. The selling costs ratio was 2.5 percent for the second quarter of 2004, equal to the same period last year. Balance Sheet Highlights Cash and investments as of June June: see month. 30, 2004 were $1,620,787,000 compared with $1,726,803,000 as of March 31, 2004. The TRICARE receivable increased by $7,923,000 from the end of the first quarter of 2004 to $128,960,000 as of June 30, 2004, consistent with expectations surrounding sur·round tr.v. sur·round·ed, sur·round·ing, sur·rounds 1. To extend on all sides of simultaneously; encircle. 2. To enclose or confine on all sides so as to bar escape or outside communication. n. the contract transitions. Debt decreased by $22,383,000 from March 31, 2004, primarily as a result of the company entering into an interest rate swap Interest Rate Swap A deal between banks or companies where borrowers switch floating-rate loans for fixed rate loans in another country. These can be either the same or different currencies. contract in February February: see month. of 2004 that caused a corresponding increase in noncurrent liabilities Noncurrent liability A liability due in one year. noncurrent liability A liability not due to be paid within one year during the normal course of business. A long-term debt issue is a noncurrent liability. . Interest expense was $1,134,000 lower in the second quarter of 2004 compared to the first quarter of 2004 as a result of the swap arrangement. Reserves for claims and other settlements decreased by $26,416,000 to $1,042,831,000 as of the end of the second quarter of 2004 versus the end of the first quarter of 2004. This lower reserve level reflects lower enrollment levels and faster claims payments. The company paid approximately $150 million more in claims in the second quarter of 2004 than it did in the second quarter of 2003. Days claims payable increased to 46.6 days for the second quarter of 2004, compared with 45.2 days for the first quarter of 2004, but declined by 6 days compared to the second quarter of 2003, a direct result of the substantially higher level of paid claims. The amount of Incurred But Not Reported Incurred but not reported (IBNR) is a term in common use in general insurance. When a policy of general insurance is written it will typically cover a 12 month period from inception of the policy. (IBNR IBNR Incurred But Not Reported IBNR Interesting But Not Relevant ) reserves at the end of the second quarter of 2004 per member remained equal to the levels recorded as of the end of the first quarter of 2004. "We are maintaining a cautious reserving posture posture /pos·ture/ (pos´choor) the attitude of the body.pos´tural pos·ture n. 1. A position of the body or of body parts. 2. until we are absolutely certain that the increase in claims payments reflect faster payment cycles we instituted earlier this year," Gellert added. "Based on the second quarter's results, we believe that the claims processing acceleration acceleration, change in the velocity of a body with respect to time. Since velocity is a vector quantity, involving both magnitude and direction, acceleration is also a vector. In order to produce an acceleration, a force must be applied to the body. is the underlying cause of the higher level of paid claims." Cash Flow Cash flow provided by operations in the second quarter of 2004 amounted to $12,514,000 compared to cash flow provided by operations of $29,944,000 in the second quarter of 2003. As noted in previous releases, cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses for 2004 is expected to be down from prior years due to the effects of the transition to the new TRICARE contract. Health Net repurchased 127,800 shares of its common stock in the second quarter of 2004 under its stock repurchase Stock repurchase A firm's repurchase of outstanding shares of its common stock. program announced in May 2002. Health Net has repurchased 17,807,155 shares under the stock repurchase program at an average price of $27.20 through June 30, 2004. Outlook The company continues to believe that earnings within a range of $2.15 to $2.50 per diluted share for the full year of 2004 are achievable, excluding the effects of the severance and other benefits charges. Further, Health Net believes that earnings between $.67 to $.77 per diluted share in the third quarter of 2004, excluding the effects of severance and other benefits charges, are achievable. The company's outlook described in this paragraph is based on currently available information. Conference Call As previously announced, Health Net will discuss the company's second quarter results during a conference call with investors on Tuesday Tuesday: see week. , August 3, 2004, at approximately 11:00 a.m. EDT EDT abbr. Eastern Daylight Time EDT Eastern Daylight Time EDT n abbr (US) (= Eastern Daylight Time) → hora de verano de Nueva York EDT . To listen to the call, please dial 719-457-2692, code 563724. A live webcast and replay of the conference call also will be available at www.healthnet.com. The conference call webcast is open to all interested parties. The replay of the conference call will be available following the call on Tuesday, August 3, 2004 through Saturday Saturday: see week; Sabbath. , August 7, 2004, by dialing 719-457-0820, code 563724. Anyone listening to the company's conference call will be presumed to have read Health Net's Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the year ended December December: see month. 31, 2003, Quarterly Report on Form 10-Q Form 10-Q See 10-Q. for the first quarter ended March 31, 2004, and other reports filed by the company from time to time with the Securities and Exchange Commission. About Health Net Health Net, Inc. is among the nation's largest publicly traded managed health care companies. Its mission is to help people be healthy, secure and comfortable. The company's HMO HMO health maintenance organization. HMO n. A corporation that is financed by insurance premiums and has member physicians and professional staff who provide curative and preventive medicine within certain financial, , POS (1) See point of sale and packet over SONET. (2) "Parent over shoulder." See digispeak. POS - point of sale , insured The person who obtains or is otherwise covered by insurance on his or her health, life, or property. The insured in a policy is not limited to the insured named in the policy but applies to anyone who is insured under the policy. insured n. PPO PPO abbr. preferred provider organization PPO Managed care Preferred provider organization, see there Infectious disease Pleuropneumonia-like organism, see there and government contracts subsidiaries provide health benefits to approximately 5.2 million individuals in 14 states through group, individual, Medicare, Medicaid and TRICARE programs. Health Net's subsidiaries also offer managed health care products related to behavioral health Behavioral health was first used in the 1980's to name the combination of the fields mental health and substance abuse. As an example, an organization serving both mental health and substance abuse clients might refer to its practice as behavioral health or and prescription drugs prescription drug Prescription medication Pharmacology An FDA-approved drug which must, by federal law or regulation, be dispensed only pursuant to a prescription–eg, finished dose form and active ingredients subject to the provisos of the Federal Food, Drug, , and offer managed health care product coordination coordination /co·or·di·na·tion/ (ko-or?di-na´shun) the harmonious functioning of interrelated organs and parts. co·or·di·na·tion n. 1. The harmonious adjustment or interaction of parts. for multi-region employers and administrative services for medical groups and self-funded benefits programs. For more information on Health Net, Inc., please visit the company's Web site at www.healthnet.com. Cautionary Statements Certain matters discussed in this release contain forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. , and Section 27A of the Securities Act of 1933, as amended, that involve risks and uncertainties. All statements, other than statements of historical information provided herein, may be deemed to be forward-looking statements. These statements are based on management's analysis, judgment, belief and expectation only as of the date hereof here·of adv. Of this. hereof Adverb Formal or law of or concerning this Adv. 1. hereof - of or concerning this; "the twigs hereof are physic" , and are subject to uncertainty and changes in circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or . Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," "may," "should," "could," "estimate," "intend" and other similar expressions are intended to identify forward-looking statements. Actual results could differ materially due to, among other things, rising health care costs, trends in medical care ratios, operational issues, health care reform and general business conditions. Additional factors that could cause actual results to differ materially from those reflected in the forward-looking statements include, but are not limited to, the risks discussed in the "Risk Factors" section included within the company's most recent Annual Report on Form 10-K filed with the SEC and the risks discussed in the company's other periodic filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements. The company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date of this release.
Health Net, Inc.
Condensed Consolidated Statements of Operations
(Amounts in thousands, except per share and ratio data)
Second Third Fourth
Quarter Quarter Quarter
Ended Ended Ended
June 30, Sept. 30, Dec. 31,
REVENUES: 2003 2003 2003
----------------------- -----------
Health plan services premiums $2,259,867 $2,300,807 $2,295,217
Government contracts 465,727 482,276 464,214
Net investment income 14,364 17,777 14,212
Other income 12,704 15,863 5,989
----------------------- -----------
Total revenues 2,752,662 2,816,723 2,779,632
----------------------- -----------
EXPENSES:
Health plan services 1,888,966 1,890,408 1,876,274
Government contracts 443,549 464,295 448,162
General and administrative 219,942 236,723 231,814
Selling 56,800 62,562 59,021
Depreciation 14,453 13,561 12,878
Amortization 669 669 767
Interest 9,769 9,763 9,841
----------------------- -----------
2,634,148 2,677,981 2,638,757
Asset impairments - - 16,409(b)
Severance and related benefits - - -
Gain on sale of businesses - - (18,901)(c)
----------------------- -----------
Total expenses 2,634,148 2,677,981 2,636,265
----------------------- -----------
Income from continuing operations
before income taxes 118,514 138,742 143,367
Income tax provision 43,730 51,930 54,018
----------------------- -----------
Income from continuing operations 74,784 86,812 89,349
Discontinued operations:
Loss on settlement from
disposition, net of tax - (89,050)(a) -
----------------------- -----------
Net income (loss) $74,784 $(2,238) $89,349
======================= ===========
Basic earnings (loss) per share:
Income from continuing operations $0.64 $0.75 $0.79
Loss on settlement from
disposition, net of tax - (0.77) -
----------------------- -----------
Net $0.64 $(0.02) $0.79
======================= ===========
Diluted earnings (loss) per share:
Income from continuing operations $0.63 $0.74 $0.77
Loss on settlement from
disposition, net of tax - (0.76) -
----------------------- -----------
Net $0.63 $(0.02) $0.77
======================= ===========
Weighted average shares
outstanding:
Basic 116,446 115,122 113,515
Diluted 118,631 117,827 115,943
Ratios:
Health plan services MCR 83.6% 82.2% 81.7%
Government contracts cost ratio 95.2% 96.3% 96.5%
Administrative ratio ((G&A+Dep) /
(HP serv rev + Other income)) 10.3% 10.8% 10.6%
Selling costs ratio (Selling costs
/ HP serv rev) 2.5% 2.7% 2.6%
Days claims payable 52.6 50.4 49.4
First Second
Quarter Quarter
Ended Ended
March 31, June 30,
REVENUES: 2004 2004
----------- -----------
Health plan services premiums $2,404,355 $2,398,943
Government contracts 503,948 504,317
Net investment income 15,201 13,818
Other income 1,248 1,737
----------- -----------
Total revenues 2,924,752 2,918,815
----------- -----------
EXPENSES:
Health plan services 2,107,087 2,062,277
Government contracts 480,905 478,927
General and administrative 231,485 214,244
Selling 63,577 59,993
Depreciation 9,983 10,424
Amortization 606 606
Interest 8,438 7,304
----------- -----------
2,902,081 2,833,775
Asset impairments - -
Severance and related benefits - 17,402(e)
Gain on sale of businesses (1,875)(d) -
----------- -----------
Total expenses 2,900,206 2,851,177
----------- -----------
Income from continuing operations before
income taxes 24,546 67,638
Income tax provision 9,534 26,272
----------- -----------
Income from continuing operations 15,012 41,366
Discontinued operations:
Loss on settlement from disposition, net of
tax - -
-----------
Net income (loss) $15,012 $41,366
=========== ===========
Basic earnings (loss) per share:
Income from continuing operations $0.13 $0.37
Loss on settlement from disposition, net of
tax - -
----------- -----------
Net $0.13 $0.37
=========== ===========
Diluted earnings (loss) per share:
Income from continuing operations $0.13 $0.36
Loss on settlement from disposition, net of
tax - -
----------- -----------
Net $0.13 $0.36
=========== ===========
Weighted average shares outstanding:
Basic 112,600 112,574
Diluted 114,342 113,460
Ratios:
Health plan services MCR 87.6% 86.0%
Government contracts cost ratio 95.4% 95.0%
Administrative ratio ((G&A+Dep) / (HP serv rev
+ Other income)) 10.0% 9.4%
Selling costs ratio (Selling costs / HP serv
rev) 2.6% 2.5%
Days claims payable 45.2 46.6
Health Net, Inc.
Condensed Consolidated Balance Sheets
(Amounts in thousands, except ratio data)
June 30, Sept. 30, Dec. 31,
2003 2003 2003
-----------------------------------
ASSETS
Current Assets
Cash and cash equivalents $788,296 $727,377 $860,871
Investments - available for sale 955,401 1,001,840 1,082,789
Premiums receivable, net 184,239 137,485 144,968
Amounts receivable under
government contracts 92,982 135,570 90,928
Reinsurance and other receivables 114,327 127,562 105,074
Deferred taxes 60,081 89,367 43,008
Other assets 95,654 80,963 84,842
-----------------------------------
Total current assets 2,290,980 2,300,164 2,412,480
Property and equipment, net 198,502 198,848 190,900
Goodwill, net 762,066 762,066 729,506
Other intangible assets, net 21,129 20,524 19,918
Deferred taxes 15,270 21,289 44,769
Other noncurrent assets 168,077 148,067 151,703
-----------------------------------
Total Assets $3,456,024 $3,450,958 $3,549,276
===================================
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities
Reserves for claims and other
settlements $1,079,748 $990,333 $1,024,550
Health care and other costs
payable under government
contracts 236,935 257,048 256,009
Unearned premiums 73,905 81,682 178,115
Accounts payable and other
liabilities 281,732 435,176 315,031
-----------------------------------
Total current liabilities 1,672,320 1,764,239 1,773,705
Senior notes payable 398,892 398,928 398,963
Other noncurrent liabilities 63,246 65,893 82,383
-----------------------------------
Total Liabilities 2,134,458 2,229,060 2,255,051
-----------------------------------
Stockholders' Equity
Common stock and additional paid-
in capital 760,430 770,514 789,392
Restricted common stock 6,229 5,885 5,885
Unearned compensation (5,278) (4,507) (3,995)
Treasury common stock, at cost (413,918) (517,064) (549,102)
Retained earnings 964,665 962,427 1,051,776
Accumulated other comprehensive
income (loss) 9,438 4,643 269
-----------------------------------
Total Stockholders' Equity 1,321,566 1,221,898 1,294,225
-----------------------------------
Total Liabilities and
Stockholders' Equity $3,456,024 $3,450,958 $3,549,276
===================================
Debt-to-Total Capital Ratio 23.2% 24.6% 23.6%
March 31, June 30,
2004 2004
-----------------------
ASSETS
Current Assets
Cash and cash equivalents $684,782 $467,565
Investments - available for sale 1,042,021 1,153,222
Premiums receivable, net 186,178 151,619
Amounts receivable under government contracts 121,037 128,960
Reinsurance and other receivables 94,469 93,920
Deferred taxes 40,827 40,652
Other assets 92,404 103,907
-----------------------
Total current assets 2,261,718 2,139,845
Property and equipment, net 186,700 186,570
Goodwill, net 723,595 723,595
Other intangible assets, net 19,313 21,505
Deferred taxes 41,409 41,868
Other noncurrent assets 214,894 282,258
-----------------------
Total Assets $3,447,629 $3,395,641
=======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Reserves for claims and other settlements $1,069,247 $1,042,831
Health care and other costs payable under
government contracts 233,331 216,816
Unearned premiums 95,614 85,894
Accounts payable and other liabilities 272,000 254,453
-----------------------
Total current liabilities 1,670,192 1,599,994
Senior notes payable 406,603 384,220
Other noncurrent liabilities 78,958 95,243
-----------------------
Total Liabilities 2,155,753 2,079,457
-----------------------
Stockholders' Equity
Common stock and additional paid-in capital 794,602 798,432
Restricted common stock 6,027 5,855
Unearned compensation (3,624) (3,121)
Treasury common stock, at cost (577,484) (580,634)
Retained earnings 1,066,788 1,108,154
Accumulated other comprehensive income (loss) 5,567 (12,502)
-----------------------
Total Stockholders' Equity 1,291,876 1,316,184
-----------------------
Total Liabilities and Stockholders' Equity $3,447,629 $3,395,641
=======================
Debt-to-Total Capital Ratio 23.9% 22.6%
Health Net, Inc.
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
Second Third Fourth First Second
Quarter Quarter Quarter Quarter Quarter
Ended Ended Ended Ended Ended
June 30, Sept. 30, Dec. 31, March 31, June 30,
2003 2003 2003 2004 2004
-------------------------------------------------
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss) $74,784 $(2,238) $89,349 $15,012 $41,366
Adjustments to
reconcile net
income (loss) to
net cash provided
by (used in)
operating
activities:
Amortization and
depreciation 15,122 14,230 13,645 10,589 11,030
Gain on sale of
businesses - - (18,901) (1,875) -
Asset impairments - - 16,409 - -
Other changes 1,842 1,351 270 (898) 1,518
Changes in assets
and liabilities,
net of the effects
of dispositions:
Premiums
receivable and
unearned premiums (59,631) 54,531 87,769 (130,211) 24,839
Other assets (28,065) 16,942 27,944 4,718 515
Amounts
receivable/
payable under
government
contracts 51,000 (22,475) 43,603 (52,787) (24,438)
Reserves for
claims and other
settlements (24,974) (89,415) 37,154 42,962 (26,416)
Accounts payable
and other
liabilities (134) 106,722 (117,256) (42,085) (15,900)
-------------------------------------------------
Net cash provided by
(used in) operating
activities 29,944 79,648 179,986 (154,575) 12,514
-------------------------------------------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Sales of investments 107,591 127,622 32,243 125,015 65,320
Maturities of
investments 113,105 143,532 121,944 112,345 84,102
Purchases of
investments (249,283) (306,732) (259,912) (186,289) (284,446)
Purchases of
property and
equipment (15,060) (13,891) (12,435) (5,853) (10,045)
Cash received from
the sale of
businesses - - 90,316 11,026 -
Purchases of
restricted
investments and
other (14,317) 4,650 (4,685) (49,279) (84,552)
-------------------------------------------------
Net cash (used in)
provided by
investing
activities (57,964) (44,819) (32,529) 6,965 (229,621)
-------------------------------------------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from
exercise of stock
options and
employee stock
purchases 15,187 7,414 12,798 4,785 3,040
Proceeds from other
financing
arrangements 5,680 - - - -
Repurchases of
common stock (68,092) (103,146) (26,761) (33,264) (3,150)
Repayment of debt
and other
noncurrent
liabilities (5,799) (16) - - -
-------------------------------------------------
Net cash used in
financing
activities (53,024) (95,748) (13,963) (28,479) (110)
-------------------------------------------------
Net (decrease)
increase in cash
and cash
equivalents (81,044) (60,919) 133,494 (176,089) (217,217)
Cash and cash
equivalents,
beginning of period 869,340 788,296 727,377 860,871 684,782
-------------------------------------------------
Cash and cash
equivalents, end of
period $788,296 $727,377 $860,871 $684,782 $467,565
=================================================
Health Net, Inc.
Notes to Condensed Consolidated Statements of Operations
Notes:
(a) Loss on settlement from disposition of discontinued operations of
$89.1 million, net of tax of $47.9 million, related to the
settlement of a lawsuit arising from our 1998 sale of certain of
our workers' compensation subsidiaries.
(b) Pretax impairment charges for buildings held for sale of $2.6
million and our investment in CSMS IPA connectivity services of
$13.8 million.
(c) Pretax $18.9 million gain on the sales of our Employers Services,
Dental and Vision subsidiaries.
(d) Pretax $1.9 million gain on the sales of our Subacute
subsidiaries.
(e) Pretax severance and related benefit costs of $17.4 million
related to involuntary workforce reduction announced in May 2004.
HEALTH NET, INC.
Medical Covered Lives at June 30, 2004
(in Thousands)
Commercial - Large Commercial - Small
Group(1) Group & Individual
-------------------- --------------------
06/04 03/04 06/03 06/04 03/04 06/03
------ ------ ------ ------ ------ ------
Arizona 71 70 72 54 52 46
California 1,170 1,194 1,145 515 524 494
Connecticut 200 202 227 44 44 49
New Jersey 122 133 147 135 147 144
New York 156 157 157 112 114 114
Oregon 95 91 83 33 31 18
Pennsylvania - - 28 - - -
------ ------ ------ ------ ------ ------
Total 1,815 1,846 1,859 893 912 866
====== ====== ====== ====== ====== ======
Year over Year (2)% 3%
Sequential (2)% (2)%
------ ------ ------ ------ ------ ------
Commercial Risk ASO
Subtotal
-------------------- --------------------
06/04 03/04 06/03 06/04 03/04 06/03
------ ------ ------ ------ ------ ------
Arizona 125 122 119 - - -
California 1,685 1,718 1,639 3 3 2
Connecticut 244 246 276 51 52 58
New Jersey 257 279 291 18 18 19
New York 268 271 272 6 7 10
Oregon 128 121 101 - - -
Pennsylvania - - 28 - - -
------ ------ ------ ------ ------ ------
Total 2,707 2,758 2,725 79 79 89
====== ====== ====== ====== ====== ======
Year over Year (1)% (11)%
Sequential (2)% (1)%
------ ------ ------ ------ ------ ------
Commercial Subtotal
--------------------
06/04 03/04 06/03
------ ------ ------
Arizona 125 122 119
California 1,688 1,721 1,641
Connecticut 296 298 334
New Jersey 274 297 309
New York 274 277 281
Oregon 128 121 101
Pennsylvania - - 28
------ ------ ------
Total 2,786 2,837 2,814
====== ====== ======
Year over Year (1)%
Sequential (2)%
------ ------ ------
Medicare Risk Medicaid
-------------------- --------------------
06/04 03/04 06/03 06/04 03/04 06/03
------ ------ ------ ------ ------ ------
Arizona 36 36 37 - - -
California 97 98 101 662 691 726
Connecticut 27 27 28 96 98 106
New Jersey - - - 44 44 48
New York 5 5 6 - - -
Oregon 5 3 0 - - -
Pennsylvania - - - - - -
------ ------ ------ ------ ------ ------
Total 170 169 172 803 833 880
====== ====== ====== ====== ====== ======
Year over Year (1)% (9)%
Sequential 0% (4)%
------ ------ ------ ------ ------ ------
Health Plan Total
--------------------
06/04 03/04 06/03
------ ------ ------
Arizona 161 158 156
California 2,447 2,510 2,468
Connecticut 419 423 468
New Jersey 318 341 357
New York 280 283 287
Oregon 133 124 101
Pennsylvania - - 28
------ ------ ------
Total 3,758 3,840 3,865
====== ====== ======
Year over Year (3)%
Sequential (2)%
------ ------ ------
-------- -------- ------------
Year Over
06/04 06/03 Year
-------- -------- ------------
TRICARE(2)
Active Duty Dependents 664 671 (1)%
Retirees 813 807 1%
-------- -------- ------------
Total TRICARE 1,477 1,478 (0)%
(1) Commercial Large Group includes Medicare Supplement
(2) Best estimate based on available government data
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