Exhibit 99.1
| | |
 | | Health Net, Inc. 21650 Oxnard Street Woodland Hills, CA 91367 818.676.6000 800.291.6911 www.healthnet.com |
News Release
Contacts: David Olson
818.676.6978
david.w.olson@healthnet.com
Michael Engelhard
818.676.7620
michael.engelhard@healthnet.com
HEALTH NET’S CHARGES CAUSE
FOURTH QUARTER 2004 NET LOSS
OF $86 MILLION OR $.77 PER DILUTED SHARE
Settlement of Provider Claims Issues, Prior Period Reserve Increases
and Other Costs Result in $252 Million in Pretax Charges
Company Issues Guidance of Between $2.30 to $2.50 Earnings
Per Diluted Share for 2005
LOS ANGELES, February 8, 2005 – Health Net, Inc. (NYSE: HNT) today announced 2004 fourth quarter net loss per diluted share of $.77 compared with earnings of $.77 per diluted share in the fourth quarter of 2003 and earnings of $.64 per diluted share in the third quarter of 2004.
Included in the results for the fourth quarter of 2004 is the full effect of a $252 million pretax charge comprised of the following:
| | • | | $169 million of expenses associated with provider settlements relating to claims processing and payment issues that have been or are being resolved; |
| | • | | $65 million of expenses for prior period reserve developments; |
| | • | | $18 million in asset impairment and restructuring charges and other expenses. |
A table outlining the allocation of the $252 million in fourth quarter 2004 pretax charges to the fourth quarter 2004 income statement line items is attached to this release.
The provider settlement expenses, which reflect the majority of the charge, were recorded following a thorough review and management’s decision in the fourth quarter of 2004 to settle a large number of provider claims in the company’s California and Northeast health plans relating to claims issues from 2001 to 2004.
“In completing our review, we decided to address issues that restrained our performance in 2004 and put them in the past. We believe that pursuing resolution of the provider matters, including the completion of contract revisions, will assure ongoing network stability. We believe that our higher reserve levels reflect a higher cost trend related to changed payment practices seen in 2004 than was previously expected. As a result of our ongoing pricing discipline, we believe Health Net will be in a better position to achieve consistent and predictable performance in 2005,” said Jay Gellert, president and chief executive officer of Health Net.
Revenues
Health Net’s total revenues increased 3.2 percent in the fourth quarter of 2004 to $2,867,593,000 from $2,779,632,000 in the fourth quarter of 2003. Health plan services revenue climbed 3.0 percent to $2,363,786,000 in the fourth quarter of 2004 compared to $2,295,217,000 in the fourth quarter of 2003.
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The gains in Health plan services revenue resulted from higher commercial and Medicare premium yields across the company’s health plans. In the fourth quarter of 2004, the overall health plan revenue per member per month (PMPM), including commercial, Medicare and Medicaid enrollment, rose 9.0 percent compared to the same period in 2003. Commercial premium yields climbed 10.7 percent compared to the fourth quarter of 2003.
“We continue to achieve our pricing goals,” said Buddy Piszel, executive vice president and chief financial officer of Health Net. “The pricing we achieved in the second half of 2004 positions us well for 2005 when we expect to complete the repricing of the entire commercial book in the first half of this year.”
Commercial enrollment, including both at-risk and Administrative Services Only (ASO) membership, was down 3.3 percent in the fourth quarter of 2004 compared with the third quarter of 2004.
“As expected, our disciplined pricing continues to result in lower commercial enrollment. In the fourth quarter of 2004, enrollment in California declined somewhat more than earlier expectations. The decline, however, was the result of our ongoing adherence to premium pricing that accurately reflects cost trends,” Piszel added.
Countering the overall enrollment trend, Oregon commercial enrollment increased by more than 5,400 members in the fourth quarter of 2004 over the third quarter of 2004, a 4.1 percent gain.
In the fourth quarter of 2004, Health Net’s Government contracts revenue rose 5.1 percent from the fourth quarter of 2003, reaching $487,823,000. This increase was due in
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part to the overlap of the new TRICARE North region contract being fully implemented and the continued provision of services under the old TRICARE Region 6 contract for one month in the fourth quarter of 2004.
“We completed the transition from the last of the old TRICARE contracts on October 31, 2004, and now solely operate in the TRICARE North region. We are proud to be providing support for the families of our troops in these 23 states and the District of Columbia,” Piszel noted.
Other income decreased by $4,383,000 in the fourth quarter of 2004 compared with the fourth quarter of 2003, due to lower revenue resulting from the sale of the company’s Employer Services division in the fourth quarter of 2003.
Health Care Costs
The health plan Medical Care Ratio (MCR) increased from 81.7 percent in the fourth quarter of 2003 to 94.0 percent in the fourth quarter of 2004. This rise in the health plan MCR reflects the impact of approximately $229 million, the portion of the fourth quarter charges attributable to health care costs.
“When we look at health care costs without the charges, we believe overall commercial health care costs PMPM rose in line with industry cost trends year-over-year,” Piszel commented.
The Government contracts cost ratio improved by 90 basis points to 95.6 percent for the fourth quarter of 2004 compared to the fourth quarter of 2003. This improvement is due in part to bid price adjustment and change order activity in the fourth quarter of 2004 associated with the old TRICARE contracts.
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Administrative Expenses
In the fourth quarter of 2004, total general, administrative and depreciation expenses increased by $1,404,000 to $246,096,000 compared to expenses of $244,692,000 in the fourth quarter of 2003. Compared to the third quarter of 2004, total general, administrative and depreciation expenses in the fourth quarter of 2004 increased by $28,422,000. The increase was driven by approximately $12 million of fourth quarter charges related to provider settlement legal costs and by higher consulting and open enrollment-related expenses.
The $10,319,000 in asset impairment and restructuring charges in the fourth quarter of 2004 compare to asset impairment and restructuring charges of $16,409,000 in the fourth quarter of 2003. Impairment expenses associated with investments and fixed assets totaled $5,900,000 in the fourth quarter of 2004. The company also recorded $2,700,000 in the fourth quarter of 2004 related to severance and related benefits expenses. Lastly, the company recorded $1,700,000 for lease termination expenses associated with the exit of certain properties as part of the TRICARE contract transition.
Health Net’s selling expenses decreased by $2,884,000 to $56,137,000 in the fourth quarter of 2004 compared with $59,021,000 in the same period in 2003, consistent with the decline in Small Group and Individual enrollment in 2004. The selling costs ratio was 2.4 percent for the fourth quarter of 2004, compared with 2.6 percent in the same period last year.
The company noted that its comprehensive systems consolidation project, known as Health Net One, continues to achieve key milestones. The company has decided to accelerate medical management system enhancements in 2005 and to defer the claims conversion in California and Oregon until 2006.
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“In order to ensure a full year of claims payment stability in California, we have decided to postpone until 2006 the conversion of the California and Oregon claims systems,” Piszel explained.
Balance Sheet Highlights
Cash and investments as of December 31, 2004 were $1,782,102,000 compared with $1,705,872,000 as of September 30, 2004.
The TRICARE receivable decreased by $18,168,000 from the end of the third quarter of 2004 to $118,167,000 as of December 31, 2004, consistent with expectations surrounding the contract transitions and seasonal patterns.
Debt decreased by $3,990,000 from September 30, 2004 to $397,760,000 as of December 31, 2004, primarily due to the mark-to-market adjustment of the interest rate swap contracts the company uses to hedge against interest rate risk associated with the company’s outstanding fixed rate senior notes.
The company’s debt-to-total capital ratio was 23.8 percent as of December 31, 2004 compared to 22.9 percent as of September 30, 2004. The increase of the ratio was a result of the net loss recorded in the fourth quarter of 2004, which reduced stockholders’ equity.
The provider settlement expenses and the expenses recorded for prior period reserve developments resulted in an increase of $179,057,000, or 18 percent, to the balance sheet account, “Reserves for claims and other settlements,” compared with the amount recorded at September 30, 2004.
Interest expense was $1,303,000 higher in the fourth quarter of 2004 compared to the third quarter of 2004. This was due to higher floating interest rates and additional interest expense incurred on the senior notes following the downgrade of the company’s senior unsecured debt rating in September 2004.
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Days claims payable decreased to 44.7 days for the fourth quarter of 2004 compared with 46.2 days for the third quarter of 2004, and declined by 4.7 days compared to the fourth quarter of 2003, a direct result of the substantially higher level of paid claims in 2004 compared to 2003.
Cash Flow
Cash flow provided by operations in the fourth quarter of 2004 amounted to $2,597,000 compared to cash flow provided by operations of $179,986,000 in the fourth quarter of 2003. The company did not receive its December Medicare payment until January 2005. This caused cash flow to be lower by approximately $72 million in the fourth quarter of 2004.
On September 13, 2004, the company announced that it would not repurchase shares of common stock under its share repurchase program through the end of 2004. The share repurchase program remains on hold. The company will continue to reevaluate its position on share repurchase as 2005 progresses.
Medicare
The company noted that it is engaged in a comprehensive review of its Medicare strategies to prepare for implementation of the Medicare Modernization Act of 2003 and its Part D Drug Benefit in January of next year.
“We have a team examining all potential Medicare opportunities for Health Net. With more than 170,000 members, we have been and we intend to continue to be a major Medicare participant,” Piszel added.
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Outlook
Health Net believes its earnings per diluted share for the full year 2005 will be between $2.30 and $2.50. The company believes that its earnings per diluted share in the first quarter of 2005 will be between $.50 and $.55.
“Our initial commercial pricing and enrollment results for 2005 are encouraging. We believe yields will increase by more than 11 percent for customers renewing in the first quarter. Enrollment is coming in somewhat better than we had planned,” Piszel commented.
“For the full year, we now believe that commercial enrollment will be down modestly overall; however, we expect to gain membership in several markets in the second half of the year,” he added.
Conference Call
As previously announced, Health Net will discuss the company’s fourth quarter and year-end 2004 results during a conference call with investors on Tuesday, February 8, 2005, at approximately 11:00 a.m. EST. To listen to the call, please dial 719.457.2658, code 5594984. A live webcast and replay of the conference call also will be available atwww.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, February 8, 2005 through February 12, 2005, by dialing 719.457.0820, code 5594984. Anyone listening to the company’s conference call will be presumed to have read Health Net’s Annual Report on Form 10-K for the year ended December 31, 2003, Quarterly Reports on Form 10-Q for the first, second and third quarters ended March 31, 2004, June 30, 2004 and September 30, 2004, respectively, and other reports filed by the company from time to time with the Securities and Exchange Commission.
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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, POS, insured PPO and government contracts subsidiaries provide health benefits to approximately 6.5 million individuals in 27 states and the District of Columbia through group, individual, Medicare, Medicaid and TRICARE programs. Health Net’s subsidiaries also offer managed health care products related to behavioral health and prescription drugs, and offer managed health care product coordination 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 atwww.healthnet.com.
Cautionary Statements
Certain matters discussed in this release contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, that involve a number of 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, and are subject to uncertainty and changes in circumstances. 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, negative prior period claims reserve developments, trends in medical care ratios, issues relating to provider contracts, operational issues, health care
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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.
# # #
[Eight pages of tables follow]
10
Health Net, Inc.
Consolidated Statements of Operations
(Amounts in thousands, except per share and ratio data)
| | | | | | | | |
| | | Year Ended December 31,
| |
| | | 2003
| | | 2004
| |
| REVENUES: | | | | | | | | |
Health plan services premiums | | $ | 9,093,219 | | | $ | 9,560,244 | |
Government contracts | | | 1,865,773 | | | | 2,021,871 | |
Net investment income | | | 59,332 | | | | 58,147 | |
Other income | | | 46,378 | | | | 6,131 | |
| | |
|
|
| |
|
|
|
Total revenues | | | 11,064,702 | | | | 11,646,393 | |
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|
|
| |
|
|
|
| EXPENSES: | | | | | | | | |
Health plan services | | | 7,516,838 | | | | 8,413,638 | |
Government contracts | | | 1,789,523 | | | | 1,927,598 | |
General and administrative | | | 912,531 | | | | 888,480 | |
Selling | | | 233,519 | | | | 240,117 | |
Depreciation | | | 55,903 | | | | 41,426 | |
Amortization | | | 2,774 | | | | 2,862 | |
Interest | | | 39,135 | | | | 33,133 | |
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|
|
| |
|
|
|
| | | | 10,550,223 | | | | 11,547,254 | |
| | |
Asset impairments and restructuring charges | | | 16,409 | | | | 32,893 | |
Gain on sale of businesses | | | (18,901 | ) | | | (1,170 | ) |
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|
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Total expenses | | | 10,547,731 | | | | 11,578,977 | |
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|
|
| |
|
|
|
| Income from continuing operations before income taxes | | | 516,971 | | | | 67,416 | |
| Income tax provision | | | 193,891 | | | | 24,812 | |
| | |
|
|
| |
|
|
|
| Income from continuing operations | | | 323,080 | | | | 42,604 | |
| | |
| Discontinued operations: | | | | | | | | |
| Loss on settlement from disposition, net of tax | | | (89,050 | ) | | | — | |
| | |
|
|
| |
|
|
|
| Net income | | $ | 234,030 | | | $ | 42,604 | |
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|
|
| |
|
|
|
| Basic earnings per share | | $ | 2.02 | | | $ | 0.38 | |
| | |
| Diluted earnings per share | | $ | 1.98 | | | $ | 0.38 | |
| | |
Basic | | | 115,999 | | | | 111,859 | |
Diluted | | | 118,278 | | | | 113,038 | |
| Ratios: | | | | | | | | |
| Health plan services MCR | | | 82.7 | % | | | 88.0 | % |
| Government contracts cost ratio | | | 95.9 | % | | | 95.3 | % |
| Administrative ratio ((G&A+Dep) / (HP serv rev + Other income)) | | | 10.6 | % | | | 9.7 | % |
| Selling costs ratio (Selling costs / HP serv rev) | | | 2.6 | % | | | 2.5 | % |
| Days claims payable | | | 49.8 | | | | 47.7 | |
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Health Net, Inc.
Consolidated Statements of Cash Flows
(Amounts in thousands)
| | | | | | | | |
| | | Year Ended December 31,
| |
| | | 2003
| | | 2004
| |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | |
Net income | | $ | 234,030 | | | $ | 42,604 | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | | | | | | |
Amortization and depreciation | | | 58,677 | | | | 44,288 | |
Gain on sale of businesses | | | (18,901 | ) | | | (1,170 | ) |
Asset impairments | | | 16,409 | | | | 5,916 | |
Other changes | | | 5,138 | | | | 3,969 | |
Changes in assets and liabilities, net of the effects of dispositions: | | | | | | | | |
Premiums receivable and unearned premiums | | | 20,163 | | | | (29,718 | ) |
Other assets | | | 35,915 | | | | (86,499 | ) |
Amounts receivable/payable under government contracts | | | 23,596 | | | | (164,029 | ) |
Reserves for claims and other settlements | | | 2,737 | | | | 143,012 | |
Accounts payable and other liabilities | | | 2,008 | | | | (13,285 | ) |
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Net cash provided by (used in) operating activities | | | 379,772 | | | | (54,912 | ) |
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CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | |
Sales of investments | | | 294,976 | | | | 282,524 | |
Maturities of investments | | | 572,245 | | | | 274,250 | |
Purchases of investments | | | (977,266 | ) | | | (498,355 | ) |
Purchases of property and equipment | | | (54,915 | ) | | | (37,946 | ) |
Cash received from the sale of businesses | | | 90,316 | | | | 11,112 | |
Sales and purchases of restricted investments and other | | | (30,878 | ) | | | (45,827 | ) |
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Net cash used in investing activities | | | (105,522 | ) | | | (14,242 | ) |
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CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | |
Proceeds from exercise of stock options and employee stock purchases | | | 42,330 | | | | 19,091 | |
Proceeds from the issuance of notes payable and other financing arrangements | | | 5,680 | | | | — | |
Repayment of debt and other noncurrent liabilities | | | (5,864 | ) | | | — | |
Repurchases of common stock | | | (288,318 | ) | | | (88,706 | ) |
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Net cash used in financing activities | | | (246,172 | ) | | | (69,615 | ) |
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Net increase (decrease) in cash and cash equivalents | | | 28,078 | | | | (138,769 | ) |
| | |
Cash and cash equivalents, beginning of period | | | 832,793 | | | | 860,871 | |
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Cash and cash equivalents, end of period | | $ | 860,871 | | | $ | 722,102 | |
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Health Net, Inc.
Consolidated Statements of Operations
(Amounts in thousands, except per share and ratio data)
| | | | | | | | | | | | | | | | | | | | |
| | | Fourth Quarter Ended December 31,
2003
| | | First Quarter Ended March 31,
2004
| | | Second Quarter Ended June 30, 2004
| | | Third Quarter Ended September 30,
2004
| | | Fourth Quarter Ended December 31,
2004
| |
REVENUES: | | | | | | | | | | | | | | | | | | | | |
Health plan services premiums | | $ | 2,295,217 | | | $ | 2,404,355 | | | $ | 2,398,943 | | | $ | 2,393,160 | | | $ | 2,363,786 | |
Government contracts | | | 464,214 | | | | 503,948 | | | | 504,317 | | | | 525,783 | | | | 487,823 | |
Net investment income | | | 14,212 | | | | 15,201 | | | | 13,818 | | | | 14,750 | | | | 14,378 | |
Other income | | | 5,989 | | | | 1,248 | | | | 1,737 | | | | 1,540 | | | | 1,606 | |
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Total revenues | | | 2,779,632 | | | | 2,924,752 | | | | 2,918,815 | | | | 2,935,233 | | | | 2,867,593 | |
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EXPENSES: | | | | | | | | | | | | | | | | | | | | |
Health plan services | | | 1,876,274 | | | | 2,107,087 | | | | 2,062,277 | | | | 2,022,870 | | | | 2,221,404 | |
Government contracts | | | 448,162 | | | | 480,905 | | | | 478,927 | | | | 501,628 | | | | 466,138 | |
General and administrative | | | 231,814 | | | | 231,485 | | | | 214,244 | | | | 207,187 | | | | 235,564 | |
Selling | | | 59,021 | | | | 63,577 | | | | 59,993 | | | | 60,410 | | | | 56,137 | |
Depreciation | | | 12,878 | | | | 9,983 | | | | 10,424 | | | | 10,487 | | | | 10,532 | |
Amortization | | | 767 | | | | 606 | | | | 606 | | | | 789 | | | | 861 | |
Interest | | | 9,841 | | | | 8,438 | | | | 7,304 | | | | 8,044 | | | | 9,347 | |
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| | | | 2,638,757 | | | | 2,902,081 | | | | 2,833,775 | | | | 2,811,415 | | | | 2,999,983 | |
| | | | | |
Asset impairments and restructuring charges | | | 16,409 | (a) | | | — | | | | 17,402 | (d) | | | 5,172 | (d) | | | 10,319 | (g) |
(Gain) loss on sale of businesses | | | (18,901 | )(b) | | | (1,875 | )(c) | | | — | | | | 400 | (e) | | | 305 | (f) |
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|
|
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|
|
| |
|
|
| |
|
|
| |
|
|
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Total expenses | | | 2,636,265 | | | | 2,900,206 | | | | 2,851,177 | | | | 2,816,987 | | | | 3,010,607 | |
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|
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|
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Income (loss) from continuing operations before income taxes | | | 143,367 | | | | 24,546 | | | | 67,638 | | | | 118,246 | | | | (143,014 | ) |
Income tax provision (benefit) | | | 54,018 | | | | 9,534 | | | | 26,272 | | | | 46,391 | | | | (57,385 | ) |
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|
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Net income (loss) | | $ | 89,349 | | | $ | 15,012 | | | $ | 41,366 | | | $ | 71,855 | | | $ | (85,629 | ) |
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Basic earnings (loss) per share | | $ | 0.79 | | | $ | 0.13 | | | $ | 0.37 | | | $ | 0.64 | | | $ | (0.77 | ) |
| | | | | |
Diluted earnings (loss) per share | | $ | 0.77 | | | $ | 0.13 | | | $ | 0.36 | | | $ | 0.64 | | | $ | (0.77 | ) |
| | | | | |
Weighted average shares outstanding: | | | | | | | | | | | | | | | | | | | | |
Basic | | | 113,515 | | | | 112,600 | | | | 112,574 | | | | 111,440 | | | | 110,844 | |
Diluted | | | 115,943 | | | | 114,342 | | | | 113,460 | | | | 112,397 | | | | 110,844 | |
Ratios: | | | | | | | | | | | | | | | | | | | | |
Health plan services MCR | | | 81.7 | % | | | 87.6 | % | | | 86.0 | % | | | 84.5 | % | | | 94.0 | % |
Government contracts cost ratio | | | 96.5 | % | | | 95.4 | % | | | 95.0 | % | | | 95.4 | % | | | 95.6 | % |
Administrative ratio ((G&A+Dep) / (HP serv rev + Other income)) | | | 10.6 | % | | | 10.0 | % | | | 9.4 | % | | | 9.1 | % | | | 10.4 | % |
Selling costs ratio (Selling costs / HP serv rev) | | | 2.6 | % | | | 2.6 | % | | | 2.5 | % | | | 2.5 | % | | | 2.4 | % |
Days claims payable | | | 49.4 | | | | 45.2 | | | | 46.6 | | | | 46.2 | | | | 44.7 | |
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Health Net, Inc.
Consolidated Balance Sheets
(Amounts in thousands, except ratio data)
| | | | | | | | | | | | | | | | | | | | |
| | | December 31,
2003
| | | March 31,
2004
| | | June 30,
2004
| | | September 30,
2004
| | | December 31, 2004
| |
ASSETS | | | | | | | | | | | | | | | | | | | | |
Current Assets | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 860,871 | | | $ | 684,782 | | | $ | 467,565 | | | $ | 622,903 | | | $ | 722,102 | |
Investments - available for sale | | | 1,082,789 | | | | 1,042,021 | | | | 1,153,222 | | | | 1,082,969 | | | | 1,060,000 | |
Premiums receivable, net | | | 144,968 | | | | 186,178 | | | | 151,619 | | | | 118,201 | | | | 118,521 | |
Amounts receivable under government contracts | | | 90,928 | | | | 121,037 | | | | 128,960 | | | | 136,335 | | | | 118,167 | |
Incurred but not reported (IBNR) health care costs receivable under TRICARE North contract | | | — | | | | — | | | | — | | | | 114,618 | | | | 173,951 | |
Reinsurance and other receivables | | | 105,074 | | | | 94,469 | | | | 93,920 | | | | 102,494 | | | | 92,435 | |
Deferred taxes | | | 43,008 | | | | 40,827 | | | | 40,652 | | | | 41,162 | | | | 98,659 | |
Other assets | | | 84,842 | | | | 92,404 | | | | 103,907 | | | | 99,578 | | | | 97,163 | |
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Total current assets | | | 2,412,480 | | | | 2,261,718 | | | | 2,139,845 | | | | 2,318,260 | | | | 2,480,998 | |
| | | | | |
Property and equipment, net | | | 190,900 | | | | 186,700 | | | | 186,570 | | | | 185,291 | | | | 184,643 | |
Goodwill, net | | | 729,506 | | | | 723,595 | | | | 723,595 | | | | 723,595 | | | | 723,595 | |
Other intangible assets, net | | | 19,918 | | | | 19,313 | | | | 21,505 | | | | 22,716 | | | | 21,855 | |
Deferred taxes | | | 44,769 | | | | 41,409 | | | | 41,868 | | | | 18,327 | | | | 23,737 | |
Other noncurrent assets | | | 151,703 | | | | 214,894 | | | | 282,258 | | | | 249,912 | | | | 207,050 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Total Assets | | $ | 3,549,276 | | | $ | 3,447,629 | | | $ | 3,395,641 | | | $ | 3,518,101 | | | $ | 3,641,878 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | | | | | | | | | | |
Current Liabilities | | | | | | | | | | | | | | | | | | | | |
Reserves for claims and other settlements | | $ | 1,024,550 | | | $ | 1,069,247 | | | $ | 1,042,831 | | | $ | 990,240 | | | $ | 1,169,297 | |
Health care and other costs payable under government contracts | | | 256,009 | | | | 233,331 | | | | 216,816 | | | | 201,494 | | | | 119,219 | |
IBNR health care costs payable under TRICARE North contract | | | — | | | | — | | | | — | | | | 114,618 | | | | 173,951 | |
Unearned premiums | | | 178,115 | | | | 95,614 | | | | 85,894 | | | | 78,832 | | | | 128,450 | |
Accounts payable and other liabilities | | | 315,031 | | | | 272,000 | | | | 254,453 | | | | 296,782 | | | | 258,923 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Total current liabilities | | | 1,773,705 | | | | 1,670,192 | | | | 1,599,994 | | | | 1,681,966 | | | | 1,849,840 | |
Senior notes payable | | | 398,963 | | | | 406,603 | | | | 384,220 | | | | 401,750 | | | | 397,760 | |
Other noncurrent liabilities | | | 82,383 | | | | 78,958 | | | | 95,243 | | | | 81,657 | | | | 121,398 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Total Liabilities | | | 2,255,051 | | | | 2,155,753 | | | | 2,079,457 | | | | 2,165,373 | | | | 2,368,998 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Stockholders’ Equity | | | | | | | | | | | | | | | | | | | | |
Common stock and additional paid-in capital | | | 789,392 | | | | 794,602 | | | | 798,432 | | | | 805,426 | | | | 811,426 | |
Restricted common stock | | | 5,885 | | | | 6,027 | | | | 5,855 | | | | 6,483 | | | | 7,188 | |
Unearned compensation | | | (3,995 | ) | | | (3,624 | ) | | | (3,121 | ) | | | (3,999 | ) | | | (4,110 | ) |
Treasury common stock, at cost | | | (549,102 | ) | | | (577,484 | ) | | | (580,634 | ) | | | (632,926 | ) | | | (632,926 | ) |
Retained earnings | | | 1,051,776 | | | | 1,066,788 | | | | 1,108,154 | | | | 1,180,009 | | | | 1,094,380 | |
Accumulated other comprehensive income (loss) | | | 269 | | | | 5,567 | | | | (12,502 | ) | | | (2,265 | ) | | | (3,078 | ) |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Total Stockholders’ Equity | | | 1,294,225 | | | | 1,291,876 | | | | 1,316,184 | | | | 1,352,728 | | | | 1,272,880 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Total Liabilities and Stockholders’ Equity | | $ | 3,549,276 | | | $ | 3,447,629 | | | $ | 3,395,641 | | | $ | 3,518,101 | | | $ | 3,641,878 | |
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|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Debt-to-Total Capital Ratio | | | 23.6 | % | | | 23.9 | % | | | 22.6 | % | | | 22.9 | % | | | 23.8 | % |
14
Health Net, Inc.
Consolidated Statements of Cash Flows
(Amounts in thousands)
| | | | | | | | | | | | | | | | | | | | |
| | | Fourth Quarter Ended December 31,
2003
| | | First Quarter Ended March 31,
2004
| | | Second Quarter Ended June 30, 2004
| | | Third Quarter Ended September 30,
2004
| | | Fourth Quarter Ended December 31,
2004
| |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 89,349 | | | $ | 15,012 | | | $ | 41,366 | | | $ | 71,855 | | | $ | (85,629 | ) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | | | | | | | | | | | | | | | | | |
Amortization and depreciation | | | 13,645 | | | | 10,589 | | | | 11,030 | | | | 11,276 | | | | 11,393 | |
(Gain) loss on sale of businesses | | | (18,901 | ) | | | (1,875 | ) | | | — | | | | 400 | | | | 305 | |
Asset impairments | | | 16,409 | | | | — | | | | — | | | | — | | | | 5,916 | |
Other changes | | | 270 | | | | (898 | ) | | | 1,518 | | | | 546 | | | | 2,803 | |
Changes in assets and liabilities, net of the effects of dispositions: | | | | | | | | | | | | | | | | | | | | |
Premiums receivable and unearned premiums | | | 87,769 | | | | (130,211 | ) | | | 24,839 | | | | 26,356 | | | | 49,298 | |
Other assets | | | 27,944 | | | | 4,718 | | | | 515 | | | | 5,140 | | | | (96,872 | ) |
Amounts receivable/payable under government contracts | | | 43,603 | | | | (52,787 | ) | | | (24,438 | ) | | | (22,697 | ) | | | (64,107 | ) |
Reserves for claims and other settlements | | | 37,154 | | | | 42,962 | | | | (26,416 | ) | | | (52,591 | ) | | | 179,057 | |
Accounts payable and other liabilities | | | (117,256 | ) | | | (42,085 | ) | | | (15,900 | ) | | | 44,267 | | | | 433 | |
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|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Net cash provided by (used in) operating activities | | | 179,986 | | | | (154,575 | ) | | | 12,514 | | | | 84,552 | | | | 2,597 | |
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|
|
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|
|
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|
|
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|
|
| |
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | |
Sales of investments | | | 32,243 | | | | 125,015 | | | | 65,320 | | | | 79,438 | | | | 12,751 | |
Maturities of investments | | | 121,944 | | | | 112,345 | | | | 84,102 | | | | 30,632 | | | | 47,171 | |
Purchases of investments | | | (259,912 | ) | | | (186,289 | ) | | | (284,446 | ) | | | (22,774 | ) | | | (4,846 | ) |
Purchases of property and equipment | | | (12,435 | ) | | | (5,853 | ) | | | (10,045 | ) | | | (9,178 | ) | | | (12,870 | ) |
Cash received (paid) from the sale of businesses | | | 90,316 | | | | 11,026 | | | | — | | | | (400 | ) | | | 486 | |
Sales and purchases of restricted investments and other | | | (4,685 | ) | | | (49,279 | ) | | | (84,552 | ) | | | 39,307 | | | | 48,697 | |
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Net cash (used in) provided by investing activities | | | (32,529 | ) | | | 6,965 | | | | (229,621 | ) | | | 117,025 | | | | 91,389 | |
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|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | |
Proceeds from exercise of stock options and employee stock purchases | | | 12,798 | | | | 4,785 | | | | 3,040 | | | | 6,053 | | | | 5,213 | |
Repurchases of common stock | | | (26,761 | ) | | | (33,264 | ) | | | (3,150 | ) | | | (52,292 | ) | | | — | |
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|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
Net cash (used in) provided by financing activities | | | (13,963 | ) | | | (28,479 | ) | | | (110 | ) | | | (46,239 | ) | | | 5,213 | |
| | |
|
|
| |
|
|
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|
|
| |
|
|
| |
|
|
|
Net increase (decrease) in cash and cash equivalents | | | 133,494 | | | | (176,089 | ) | | | (217,217 | ) | | | 155,338 | | | | 99,199 | |
| | | | | |
Cash and cash equivalents, beginning of period | | | 727,377 | | | | 860,871 | | | | 684,782 | | | | 467,565 | | | | 622,903 | |
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|
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|
|
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|
|
Cash and cash equivalents, end of period | | $ | 860,871 | | | $ | 684,782 | | | $ | 467,565 | | | $ | 622,903 | | | $ | 722,102 | |
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|
15
Health Net, Inc.
Notes to Consolidated Statements of Operations
Notes:
| (a) | Pretax impairment charges for buildings held for sale of $2.6 million and our investment in a connectivity services company of $13.8 million. |
| (b) | Pretax $18.9 million gain on the sales of our Employers Services, Dental and Vision subsidiaries. |
| (c) | Pretax $1.9 million gain on the sales of our Subacute subsidiaries. |
| (d) | Pretax severance and related benefit costs related to our workforce reduction announced in May 2004. |
| (e) | Pretax $0.4 million additional loss on the sale of our Florida health plan resulting from the stock purchase and reinsurance settlement agreements dated September 30, 2004. |
| (f) | Pretax $0.3 million additional loss on the sale of Denticare and Vision. |
| (g) | Pretax $10.3 million asset impairments and restructuring charges due to the following: |
$5.9 million asset impairment charge taken on certain investments and fixed assets
$2.7 million for severance and related benefit costs related to our workforce reduction announced in May 2004
$1.7 million for lease termination costs
16
HEALTH NET, INC.
Medical Covered Lives at December 31, 2004
(in Thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Commercial - Large Group*
| | Commercial - Small Group & Individual
| | Commercial Risk Subtotal
| | ASO
| | Commercial Subtotal
|
| | | 12/04
| | 09/04
| | 12/03
| | 12/04
| | 09/04
| | 12/03
| | 12/04
| | 09/04
| | 12/03
| | 12/04
| | 09/04
| | 12/03
| | 12/04
| | 09/04
| | 12/03
|
Arizona | | 74 | | 74 | | 67 | | 55 | | 55 | | 52 | | 129 | | 129 | | 119 | | — | | — | | — | | 129 | | 129 | | 119 |
California | | 1,101 | | 1,130 | | 1,148 | | 459 | | 489 | | 523 | | 1,560 | | 1,619 | | 1,671 | | 3 | | 3 | | 2 | | 1,564 | | 1,622 | | 1,673 |
Connecticut | | 192 | | 194 | | 208 | | 41 | | 43 | | 46 | | 233 | | 238 | | 254 | | 51 | | 51 | | 57 | | 284 | | 289 | | 311 |
New Jersey | | 98 | | 109 | | 141 | | 111 | | 123 | | 154 | | 210 | | 232 | | 294 | | 18 | | 18 | | 19 | | 228 | | 250 | | 313 |
New York | | 144 | | 153 | | 155 | | 108 | | 110 | | 116 | | 252 | | 262 | | 271 | | 7 | | 7 | | 10 | | 259 | | 269 | | 281 |
Oregon | | 105 | | 100 | | 93 | | 33 | | 33 | | 27 | | 138 | | 133 | | 120 | | 1 | | 1 | | — | | 139 | | 134 | | 120 |
Pennsylvania | | — | | — | | 4 | | — | | — | | — | | — | | — | | 4 | | — | | — | | — | | — | | — | | 4 |
| | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
|
Total | | 1,714 | | 1,760 | | 1,816 | | 808 | | 853 | | 917 | | 2,523 | | 2,613 | | 2,733 | | 81 | | 80 | | 88 | | 2,603 | | 2,693 | | 2,821 |
| | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
|
Year over Year | | | | (6)% | | | | | | (12)% | | | | | | (8)% | | | | | | (8)% | | | | | | (8)% | | |
Sequential | | | | (3)% | | | | | | (5)% | | | | | | (3)% | | | | | | 0% | | | | | | (3)% | | |
| | | | | | | | | | | | | | | | | | |
| | | Medicare Risk
| | Medicaid
| | Health Plan Total
|
| | | 12/04
| | 09/04
| | 12/03
| | 12/04
| | 09/04
| | 12/03
| | 12/04
| | 09/04
| | 12/03
|
Arizona | | 35 | | 36 | | 36 | | — | | — | | — | | 164 | | 164 | | 156 |
California | | 95 | | 97 | | 99 | | 696 | | 695 | | 702 | | 2,355 | | 2,414 | | 2,475 |
Connecticut | | 27 | | 27 | | 27 | | 94 | | 95 | | 98 | | 405 | | 411 | | 436 |
New Jersey | | — | | — | | — | | 42 | | 43 | | 45 | | 270 | | 293 | | 358 |
New York | | 6 | | 6 | | 6 | | — | | — | | — | | 265 | | 275 | | 287 |
Oregon | | 9 | | 6 | | 0 | | — | | — | | — | | 148 | | 140 | | 121 |
Pennsylvania | | — | | — | | — | | — | | — | | — | | — | | — | | 4 |
| | |
| |
| |
| |
| |
| |
| |
| |
| |
|
Total | | 171 | | 171 | | 169 | | 831 | | 833 | | 846 | | 3,605 | | 3,696 | | 3,836 |
| | |
| |
| |
| |
| |
| |
| |
| |
| |
|
Year over Year | | | | 1% | | | | | | (2)% | | | | | | (6)% | | |
Sequential | | | | 0% | | | | | | (0)% | | | | | | (2)% | | |
| | | | | | |
| | | 12/04
| | 09/04
| | 12/03
|
TRICARE | | | | | | |
Previous TRICARE Contracts ** | | — | | 642 | | 1,491 |
North Contract *** | | 2,929 | | 2,929 | | — |
| | |
| |
| |
|
Total TRICARE | | 2,929 | | 3,571 | | 1,491 |
| * | Commercial Large Group includes Medicare Supplement |
| ** | Includes only TRICARE eligible for which we have health care risk |
| *** | Includes TRICARE eligible for which we have health care risk, and those for which we provide Administrative Services Only (ASO), primarily active duty |
17
Health Net, Inc.(a)
Consolidated Statements of Operations
(Amounts in thousands)
| | | | | | | |
| | | Fourth Quarter
Ended
December 31,
2004
| | | Impact of
Selected Costs
Recorded in the
Fourth Quarter
Ended
December 31,
2004
| |
REVENUES | | | | | | | |
Health plan services premiums | | $ | 2,363,786 | | | | |
Government contracts | | | 487,823 | | | | |
Investment income | | | 14,378 | | | | |
Other income | | | 1,606 | | | | |
| | |
|
|
| |
|
|
Total revenues | | | 2,867,593 | | | — | |
| | |
|
|
| |
|
|
EXPENSES | | | | | | | |
Health plan services | | | 2,221,404 | | | (229,400 | ) |
Government contracts | | | 466,138 | | | | |
General and administrative | | | 235,564 | | | (12,000 | ) |
Selling | | | 56,137 | | | | |
Depreciation | | | 10,532 | | | | |
Amortization | | | 861 | | | | |
Interest | | | 9,347 | | | | |
| | |
Asset impairment and restructuring charges | | | 10,319 | | | (10,319 | ) |
Net (gain) loss on sale of businesses and properties | | | 305 | | | (305 | ) |
| | |
|
|
| |
|
|
Total expenses | | | 3,010,607 | | | (252,024 | ) |
| | |
|
|
| |
|
|
Income before income taxes and cumulative effect of a change in accounting principle | | | (143,014 | ) | | 252,024 | |
Income tax provision | | | (57,385 | ) | | | |
| | |
|
|
| |
|
|
Net income | | $ | (85,629 | ) | | | |
| | |
|
|
| |
|
|
Basic earnings (loss) per share | | $ | (0.77 | ) | | | |
| | |
Diluted earnings (loss) per share | | $ | (0.77 | ) | | | |
| | |
Weighted average shares outstanding | | | | | | | |
Basic | | | 110,844 | | | | |
Diluted Shares | | | 110,844 | | | | |
| (a) | This table presents the company’s consolidated operations for the fourth quarter of 2004 and the allocation of $252 million in pretax charges for the fourth quarter of 2004 to the Consolidated Statement of Operations. |
18
