Exhibit 99.1
| | |
 | | Health Net, Inc. 21650 Oxnard Street Woodland Hills, CA 91367 818.676.6000 800.291.6911 www.healthnet.com |
| | |
| Investor Contact | | Media Contact |
| Angie McCabe | | Margita Thompson |
| 818.676.8692 | | 818.676.7912 |
| angie.mccabe@healthnet.com | | margita.thompson@healthnet.com |
HEALTH NET REPORTS THIRD QUARTER 2008 EARNINGS
OF $0.17 PER DILUTED SHARE
OPERATING RESULTS ADVERSELY IMPACTEDBY
HIGHERTHAN EXPECTED HEALTH CARE COSTS
THE COMPANY RECORDED TWO CHARGESINTHE QUARTER:
$17.1 MILLION RELATEDTOTHE COMPANY’S OPERATIONS STRATEGYAND
$14.6 MILLION RELATEDTOTHE COMPANY’S INVESTMENT HOLDINGS
COMPANY REPURCHASED 3.7 MILLION SHARESINTHE THIRD QUARTERAND
IS SUSPENDING SHARE REPURCHASES UNTIL FURTHER NOTICE
LOS ANGELES, Nov. 4, 2008 – Health Net, Inc. (NYSE: HNT) today announced third quarter 2008 net income of $18.5 million, or $0.17 per diluted share. These results include the effects of two charges:
| | • | | A $17.1 million pretax charge for severance and other expenses relating to the company’s operations strategy that is designed to reduce general and administrative (G&A) expenses; and |
| | • | | A $14.6 million pretax charge for impairment of the company’s investment holdings as a result of recent adverse developments in the financial markets. |
Excluding these two charges, diluted earnings per share would have been $0.35 in the third quarter of 2008.1
The company reported a loss of $0.93 per share in the third quarter of 2007, which included the full effect of $296.8 million pretax in litigation and regulatory charges.2 Excluding the impact of these charges, diluted earnings per share were $0.99 in the third quarter of 2007.
1 | Diluted earnings per share, excluding the two charges, is a non-GAAP financial measure. Further explanation of this non-GAAP measure and reconciliation to the comparable GAAP measure is included in the attached reconciliation schedule. |
“We are disappointed by our third quarter results,” said Jay Gellert, president and chief executive officer of Health Net. “Our business and the market as a whole have been hit harder by the economy and related unit cost and utilization trends than we have experienced in the past. We are now assuming that these trends will continue into 2009.”
Revised Full-Year 2008 and Preliminary 2009 Guidance
The company announced that it is reducing full-year 2008 guidance on a GAAP basis to a range of $0.96 to $1.02 per diluted share. This reduction in guidance is based on third quarter results as well as fourth quarter earnings per share expectations of $0.41 to $0.47 per diluted share, which includes the impact of operations strategy-related expenses of $30 to $35 million pretax. Excluding these items, the company expects to earn between $0.60 to $0.64 per diluted share in the fourth quarter of 2008 and $1.85 to $1.89 per diluted share for the full-year 2008. Previous full-year 2008 guidance was $2.85 to $2.95 per diluted share, excluding the impact of any charges.
The revised full-year 2008 earnings per diluted share estimates are based on a projected weighted average share count for the full year of 2008 of approximately 108 million.
The following table outlines the changes in 2008 guidance, excluding the impact of investment impairment, litigation and operations strategy-related charges, compared to previously issued company guidance:
| | | | |
Previous midpoint of 2008 diluted EPS guidance range | | $ | 2.90 | |
Full-year commercial risk MLR (85.0% estimate, up 160 bps) | | ($ | 0.72 | ) |
Full-year Medicare Advantage (90.4% estimate, up 50 bps) | | ($ | 0.18 | ) |
Lower than expected commercial membership (2.5% greater decline) | | ($ | 0.06 | ) |
Investment income/interest expense ($12 million lower than expected) | | ($ | 0.07 | ) |
Current midpoint of 2008 EPS guidance range | | $ | 1.87 | |
A table at the end of this press release outlines the revised full-year 2008 guidance.
2 | Third quarter 2007 results include the impact of $296.8 million pretax, or $216.0 million after-tax, in charges as a result of Health Net reaching an agreement to settle three class action lawsuits (McCoy, Wachtel and Scharfman), of which $201.5 million was included in health plan services expenses, and $95.3 million in G&A expenses. Please refer to the company’s third quarter 2007 earnings press release for further details relating to these charges. |
2
The company believes that 2009 earnings per diluted share, excluding charges, will be in a range of $2.25 to $2.40, driven by improvement in Medicare margins and reduced general and administrative costs.
“This 2009 earnings guidance range approximates full-year 2008 run-rate earnings,” said Joseph Capezza, Health Net’s chief financial officer.
The company repurchased 3.7 million shares during the third quarter of 2008 for $100.1 million. As a result of the uncertain financial environment and the announcement by Health Net’s board of directors that Mr. Gellert will undertake a review of the company’s strategy, the company does not expect to resume share repurchase activity in the near term.
Higher than Expected Health Care Costs in Third Quarter 2008
Health Net’s health care costs in the third quarter of 2008 were significantly higher than expected and were driven primarily by adverse prior period development in commercial, Medicare and Medicaid costs from the first and second quarters of 2008 of approximately $55 million pretax. The adverse prior period development arose from higher than expected hospital costs from first and second quarter 2008 claims. Third quarter 2008 commercial and Medicare health care costs were higher than expected and were primarily driven by hospital inpatient and outpatient unit costs and utilization.
In the third quarter of 2008, the health plan medical care ratio (MCR) was 87.5 percent, and the commercial MCR was 86.7 percent. In the third quarter of 2007, on an adjusted basis, the health plan MCR was 82.9 percent and the commercial MCR was 82.7 percent.3 The higher commercial MCR in the third quarter of 2008 resulted from adverse prior period development and higher than expected third quarter health care costs, as noted above.
Medicare Advantage health care costs were also higher than expected. “We believe we have addressed these higher costs in our Medicare bids for 2009. Based on our review of the competitive bidding landscape, we expect very modest enrollment growth in 2009 but with significant margin expansion,” Capezza added.
The Government contracts cost ratio was 95.0 percent in the third quarter of 2008 compared to 92.9 percent in the third quarter of 2007. “We have always said that a contracts cost ratio of approximately 95.0 percent was a reasonable level for our TRICARE and other government contract businesses,” said James Woys, Health Net’s chief operating officer. “This quarter’s performance was on target, and we expect continued strong performance from TRICARE and our other government contracts businesses in the future.”
3 | In the third quarter of 2007, the company recorded a $201.5 million health plan services expenses charge. Including this charge, the health plan MCR was 89.8 percent and the commercial MCR was 93.2 percent in the third quarter of 2007. |
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Revenues
Health Net’s total revenues increased 5.1 percent in the third quarter of 2008 to $3.8 billion from $3.6 billion in the third quarter of 2007. Health plan services premium revenues increased 4.9 percent to approximately $3.1 billion in the third quarter of 2008 compared to $2.9 billion in the third quarter of 2007. The company’s Government contracts revenues increased 9.7 percent in the third quarter of 2008 to $724.3 million from $660.4 million in the third quarter of 2007.
Membership
Total health plan enrollment as of September 30, 2008 was more than 3.7 million members, a 4,000 member decrease from September 30, 2007 and a 35,000 member decrease since June 30, 2008.
Commercial risk enrollment as of September 30, 2008 decreased to approximately 2.1 million, or by 145,000 members, compared to September 30, 2007. Sequentially, commercial risk enrollment decreased by 63,000 members, or 2.9 percent, since June 30, 2008.
“The decrease in our commercial membership is a result of the continued competitiveness in the commercial market combined with the current economic environment,” Capezza said.
Enrollment in the company’s Medicare Advantage plans grew by 54,000 members, or 22.6 percent, to 293,000 members at the end of the third quarter of 2008 compared to the end of the third quarter of 2007. Sequentially, Medicare Advantage membership grew by 8,000 members, or 2.8 percent, from June 30, 2008. Membership in the company’s Medicare PDP plans was 538,000 at the end of the third quarter of 2008, an increase of 173,000 members, or 47.4 percent, compared to the end of the third quarter of 2007. Sequentially, PDP membership grew by 12,000 members, or 2.3 percent, from June 30, 2008.
Medicaid enrollment at September 30, 2008 was 788,000 members, a decrease of 41,000 members, or 4.9 percent, from September 30, 2007. Sequentially, Medicaid membership increased by 7,000 members, or 0.9 percent, from June 30, 2008. The decline in Medicaid membership from September 30, 2007 primarily was due to the company’s exit from the Connecticut Medicaid business in April 2008.
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SG&A Expenses
Total G&A expenses were $294.2 million in the third quarter of 2008. Total adjusted G&A expenses in the third quarter of 2008 were $277.0 million and $301.9 million in the third quarter of 2007.4
“On an adjusted basis, the G&A ratio in the third quarter of 2008 improved 130 basis points compared to the third quarter of 2007 as we continue to focus on expense management,” said Capezza.
Selling expenses in the third quarter of 2008 were $93.2 million compared to $91.5 million in the third quarter of 2007.
Balance Sheet
As of September 30, 2008, the company had cash, cash equivalents and investments available for sale of approximately $2.2 billion compared with $2.2 billion as of September 30, 2007. In the third quarter of 2008, the company recorded other-than-temporary impairment charges of $14.6 million, or $0.08 per share. This amount includes $8.3 million for investments in Lehman Brothers Holdings Inc. as well as $6.3 million in other financial sector securities including investments in Federal Home Loan Mortgage Association (Freddie Mac) and Federal National Mortgage Association (Fannie Mae).
In the third quarter of 2008, the company reclassified approximately $372 million in estimated net asset value, which had been invested in The Reserve money market funds, from cash equivalents to investments available for sale as of September 30, 2008. This was a result of The Reserve’s announcement in September 2008 of its intention to liquidate all of its money market funds and freeze all redemptions until an orderly liquidation process could be implemented. As of October 31, 2008, the company received approximately $130 million of this investment.
After the company recognized the impairment charge of $14.6 million, the gross unrealized loss was $47 million, or approximately 2.5 percent of the investment portfolio’s fair value as of September 30, 2008.
Investment income for third quarter 2008 was $10.2 million compared to $29.3 million in the third quarter of 2007. Excluding the impact of the impairment charge, investment income would have been $24.8 million for the quarter. “Due to the recent turmoil in the financial markets and the continued decline in interest rates, investment income in the fourth quarter could be adversely affected,” said Capezza.
4 | Total adjusted G&A expenses in the third quarter 2008 exclude $17.1 million in operations strategy-related charges. Total adjusted G&A expenses in the third quarter of 2007 exclude $95.3 million in litigation and regulatory-related charges. Further explanation of this non-GAAP measure and reconciliation to the comparable GAAP measure is included in the attached reconciliation table. |
5
Reserves for claims and other settlements as of September 30, 2008 were $1.3 billion compared with $1.3 billion as of December 31, 2007.
Days claims payable (DCP), including provider and other claims settlements, capitation payments and Medicare Part D expenses, for the third quarter of 2008 increased by 4.4 days to 46.3 days compared to 41.9 days in the third quarter of 2007, and decreased sequentially by 1.5 days compared to the second quarter of 2008.
Excluding provider and other claim settlements, capitation payments and Medicare Part D, DCP in the third quarter of 2008 decreased by 2.0 days to 52.7 days compared to the third quarter of 2007, and decreased by 3.3 days sequentially.5
The company’s debt-to-total capital ratio was 27.6 percent as of September 30, 2008 compared to 27.8 percent as of June 30, 2008 and 18.5 percent as of September 30, 2007.
Interest expense increased by $3.0 million in the third quarter of 2008 compared to the third quarter of 2007 due to higher debt levels.
Cash Flow
Operating cash flow was $92.4 million in the third quarter of 2008 and was greater than net income plus depreciation and amortization.
Full-Year 2008 Guidance Table
The table on the following page updates previously issued full-year 2008 guidance on a number of operating metrics.
5 | See footnote (a) in the Notes to Consolidated Financial Statements in the financial schedules attached to this release for a reconciliation of this information to the comparable GAAP financial measure. |
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Full-Year 2008 Guidance Table
| | | | |
| | | 2008 Revised Guidance | | Comment |
Year-end Membership | | Commercial Risk: -8% to -9% Medicaid: +4% Medicare Advantage: +20% to 25% PDP: +40% to 45% | | Previously: -6% to -7% Previously: Flat Unchanged Unchanged |
| | | |
Consolidated Revenues | | $15 to $15.5 billion | | Unchanged |
| | | |
Commercial Yields | | ~8.3% | | Previously: 8.0% |
| | | |
Commercial Health Care Cost Trends* | | ~10.9% | | Previously: 8.4% |
| | | |
Selling Cost Ratio Government Contracts Ratio G&A Expense Ratio* | | ~2.8% ~95.0% ~9.5% | | Unchanged Previously: 94.5% Previously: ~ 9.8% |
| | | |
Tax Rate* | | ~38.3% | | Previously: ~39.5% |
| | | |
Weighted-average Fully Diluted Shares Outstanding | | 108 million | | Previously: 105.5 to 107 million |
| | | |
EPS* | | $1.85 to $1.89 | | Previously: $2.85 to $2.95 |
| * | Excludes the impact of investment impairment, litigation and operations strategy-related charges. |
Conference Call
As previously announced, Health Net will discuss the company’s third quarter 2008 results during a conference call on Tuesday, November 4, 2008, beginning at approximately 11:30 a.m. Eastern time. The conference call should be accessed at least 15 minutes prior to its start with the following numbers:
| | |
| 877.681.3377 (Domestic) | | 888.203.1112 (Replay – Domestic) |
| |
| 719.325.4765 (International) | | 719.457.0820 (Replay – International) |
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The access code for both the live conference call and the replay is 6834557. A replay of the conference call will be available through November 8, 2008. A live webcast and replay of the conference call also will be available atwww.healthnet.com under “Investor Relations.” The conference call webcast is open to all interested parties. 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, 2007, Quarterly Reports on Form 10-Q for the quarters ended March 31, 2008, and June 30, 2008, 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 health plans and government contracts subsidiaries provide health benefits to approximately 6.7 million individuals across the country through group, individual, Medicare, Medicaid and TRICARE and Veterans Affairs programs. Health Net’s behavioral health subsidiary, MHN, provides mental health benefits to approximately 7.0 million individuals in all 50 states. The company’s subsidiaries also offer managed health care products related to 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
All statements in this press release, other than statements of historical information provided herein, including but not limited to the guidance for future periods included herein and the assumptions underlying such projections, may be deemed to be forward-looking statements and as such are subject to a number of risks and uncertainties. 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 guidance as to expected future period results and statements including 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, additional investment portfolio impairment charges, changes in the economy, volatility in the financial markets, trends in medical care ratios, unexpected utilization patterns or unexpectedly severe or widespread illnesses, membership declines, rate cuts affecting our Medicare or Medicaid business, issues relating to provider contracts, litigation costs, regulatory issues, operational issues, health care
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reform and general business and market 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 and subsequent quarterly reports on Form 10-Q filed with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements. The company undertakes no obligation to publicly revise its guidance, the assessment of the underlying assumptions or any of its forward-looking statements to reflect events or circumstances that arise after the date of this release.
# # #
[Eight pages of tables follow]
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Health Net, Inc.
Enrollment Data—By State
(In thousands)
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | Change from | |
| | | | | | | | | June 30, 2008 | | | September 30, 2007 | |
| | | Sept 30,
2008 | | June 30,
2008 | | Sept 30,
2007 | | Increase/
(Decrease) | | | %
Change | | | Increase/
(Decrease) | | | %
Change | |
California | | | | | | | | | | | | | | | | | | |
Large Group | | 954 | | 971 | | 992 | | (17 | ) | | (1.8 | )% | | (38 | ) | | (3.8 | )% |
Small Group and Individual | | 431 | | 453 | | 477 | | (22 | ) | | (4.9 | )% | | (46 | ) | | (9.6 | )% |
| | | | | | | | | | | | | | | | | | |
Commercial Risk | | 1,385 | | 1,424 | | 1,469 | | (39 | ) | | (2.7 | )% | | (84 | ) | | (5.7 | )% |
ASO | | 5 | | 5 | | 5 | | 0 | | | 0.0 | % | | 0 | | | 0.0 | % |
| | | | | | | | | | | | | | | | | | |
Total Commercial | | 1,390 | | 1,429 | | 1,474 | | (39 | ) | | (2.7 | )% | | (84 | ) | | (5.7 | )% |
Medicare Advantage | | 131 | | 126 | | 112 | | 5 | | | 4.0 | % | | 19 | | | 17.0 | % |
Medi-Cal | | 742 | | 737 | | 698 | | 5 | | | 0.7 | % | | 44 | | | 6.3 | % |
| | | | | | | | | | | | | | | | | | |
Total California | | 2,263 | | 2,292 | | 2,284 | | (29 | ) | | (1.3 | )% | | (21 | ) | | (0.9 | )% |
| | | | | | | | | | | | | | | | | | |
Connecticut | | | | | | | | | | | | | | | | | | |
Large Group | | 117 | | 124 | | 138 | | (7 | ) | | (5.6 | )% | | (21 | ) | | (15.2 | )% |
Small Group and Individual | | 26 | | 25 | | 26 | | 1 | | | 4.0 | % | | 0 | | | 0.0 | % |
| | | | | | | | | | | | | | | | | | |
Commercial Risk | | 143 | | 149 | | 164 | | (6 | ) | | (4.0 | )% | | (21 | ) | | (12.8 | )% |
ASO | | 25 | | 25 | | 54 | | 0 | | | 0.0 | % | | (29 | ) | | (53.7 | )% |
| | | | | | | | | | | | | | | | | | |
Total Commercial | | 168 | | 174 | | 218 | | (6 | ) | | (3.4 | )% | | (50 | ) | | (22.9 | )% |
Medicare Advantage | | 57 | | 57 | | 44 | | 0 | | | 0.0 | % | | 13 | | | 29.5 | % |
Medicaid | | 0 | | 0 | | 87 | | 0 | | | 0.0 | % | | (87 | ) | | (100.0 | )% |
| | | | | | | | | | | | | | | | | | |
Total Connecticut | | 225 | | 231 | | 349 | | (6 | ) | | (2.6 | )% | | (124 | ) | | (35.5 | )% |
| | | | | | | | | | | | | | | | | | |
New York | | | | | | | | | | | | | | | | | | |
Large Group | | 101 | | 104 | | 114 | | (3 | ) | | (2.9 | )% | | (13 | ) | | (11.4 | )% |
Small Group and Individual | | 107 | | 109 | | 117 | | (2 | ) | | (1.8 | )% | | (10 | ) | | (8.5 | )% |
| | | | | | | | | | | | | | | | | | |
Commercial Risk | | 208 | | 213 | | 231 | | (5 | ) | | (2.3 | )% | | (23 | ) | | (10.0 | )% |
ASO | | 11 | | 11 | | 13 | | 0 | | | 0.0 | % | | (2 | ) | | (15.4 | )% |
| | | | | | | | | | | | | | | | | | |
Total Commercial | | 219 | | 224 | | 244 | | (5 | ) | | (2.2 | )% | | (25 | ) | | (10.2 | )% |
Medicare Advantage | | 6 | | 6 | | 9 | | 0 | | | 0.0 | % | | (3 | ) | | (33.3 | )% |
| | | | | | | | | | | | | | | | | | |
Total New York | | 225 | | 230 | | 253 | | (5 | ) | | (2.2 | )% | | (28 | ) | | (11.1 | )% |
| | | | | | | | | | | | | | | | | | |
New Jersey | | | | | | | | | | | | | | | | | | |
Large Group | | 20 | | 22 | | 30 | | (2 | ) | | (9.1 | )% | | (10 | ) | | (33.3 | )% |
Small Group and Individual | | 55 | | 56 | | 60 | | (1 | ) | | (1.8 | )% | | (5 | ) | | (8.3 | )% |
| | | | | | | | | | | | | | | | | | |
Commercial Risk | | 75 | | 78 | | 90 | | (3 | ) | | (3.8 | )% | | (15 | ) | | (16.7 | )% |
ASO | | 4 | | 3 | | 18 | | 1 | | | 33.3 | % | | (14 | ) | | (77.8 | )% |
| | | | | | | | | | | | | | | | | | |
Total Commercial | | 79 | | 81 | | 108 | | (2 | ) | | (2.5 | )% | | (29 | ) | | (26.9 | )% |
Medicaid | | 46 | | 44 | | 44 | | 2 | | | 4.5 | % | | 2 | | | 4.5 | % |
| | | | | | | | | | | | | | | | | | |
Total New Jersey | | 125 | | 125 | | 152 | | 0 | | | 0.0 | % | | (27 | ) | | (17.8 | )% |
| | | | | | | | | | | | | | | | | | |
Arizona | | | | | | | | | | | | | | | | | | |
Large Group | | 80 | | 84 | | 81 | | (4 | ) | | (4.8 | )% | | (1 | ) | | (1.2 | )% |
Small Group and Individual | | 50 | | 54 | | 55 | | (4 | ) | | (7.4 | )% | | (5 | ) | | (9.1 | )% |
| | | | | | | | | | | | | | | | | | |
Commercial Risk | | 130 | | 138 | | 136 | | (8 | ) | | (5.8 | )% | | (6 | ) | | (4.4 | )% |
Medicare Advantage | | 67 | | 64 | | 49 | | 3 | | | 4.7 | % | | 18 | | | 36.7 | % |
| | | | | | | | | | | | | | | | | | |
Total Arizona | | 197 | | 202 | | 185 | | (5 | ) | | (2.5 | )% | | 12 | | | 6.5 | % |
| | | | | | | | | | | | | | | | | | |
Oregon | | | | | | | | | | | | | | | | | | |
Large Group | | 99 | | 103 | | 98 | | (4 | ) | | (3.9 | )% | | 1 | | | 1.0 | % |
Small Group and Individual | | 38 | | 36 | | 35 | | 2 | | | 5.6 | % | | 3 | | | 8.6 | % |
| | | | | | | | | | | | | | | | | | |
Commercial Risk | | 137 | | 139 | | 133 | | (2 | ) | | (1.4 | )% | | 4 | | | 3.0 | % |
Medicare Advantage | | 22 | | 22 | | 21 | | 0 | | | 0.0 | % | | 1 | | | 4.8 | % |
| | | | | | | | | | | | | | | | | | |
Total Oregon | | 159 | | 161 | | 154 | | (2 | ) | | (1.2 | )% | | 5 | | | 3.2 | % |
| | | | | | | | | | | | | | | | | | |
Other States | | | | | | | | | | | | | | | | | | |
Medicare Advantage | | 10 | | 10 | | 4 | | 0 | | | 0.0 | % | | 6 | | | 150.0 | % |
| | | | | | | | | | | | | | | | | | |
Medicare PDP (stand-alone) | | 538 | | 526 | | 365 | | 12 | | | 2.3 | % | | 173 | | | 47.4 | % |
| | | | | | | | | | | | | | | | | | |
Total Health Plan Enrollment | | | | | | | | | | | | | | | | | | |
Large Group | | 1,371 | | 1,408 | | 1,453 | | (37 | ) | | (2.6 | )% | | (82 | ) | | (5.6 | )% |
Small Group and Individual | | 707 | | 733 | | 770 | | (26 | ) | | (3.5 | )% | | (63 | ) | | (8.2 | )% |
| | | | | | | | | | | | | | | | | | |
Commercial Risk | | 2,078 | | 2,141 | | 2,223 | | (63 | ) | | (2.9 | )% | | (145 | ) | | (6.5 | )% |
ASO | | 45 | | 44 | | 90 | | 1 | | | 2.3 | % | | (45 | ) | | (50.0 | )% |
| | | | | | | | | | | | | | | | | | |
Total Commercial | | 2,123 | | 2,185 | | 2,313 | | (62 | ) | | (2.8 | )% | | (190 | ) | | (8.2 | )% |
Medicare Advantage | | 293 | | 285 | | 239 | | 8 | | | 2.8 | % | | 54 | | | 22.6 | % |
Medicare PDP (stand-alone) | | 538 | | 526 | | 365 | | 12 | | | 2.3 | % | | 173 | | | 47.4 | % |
Medi-Cal/Medicaid | | 788 | | 781 | | 829 | | 7 | | | 0.9 | % | | (41 | ) | | (4.9 | )% |
| | | | | | | | | | | | | | | | | | |
Total Health Plans | | 3,742 | | 3,777 | | 3,746 | | (35 | ) | | (0.9 | )% | | (4 | ) | | (0.1 | )% |
| | | | | | | | | | | | | | | | | | |
TRICARE—North Contract Eligibles | | 2,951 | | 2,951 | | 2,913 | | 0 | | | 0.0 | % | | 38 | | | 1.3 | % |
Health Net, Inc.
Enrollment Data—Line of Business
(In thousands)
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | Change from | |
| | | | | | | | | June 30, 2008 | | | September 30, 2007 | |
| | | Sept 30,
2008 | | June 30,
2008 | | Sept 30,
2007 | | Increase/
(Decrease) | | | %
Change | | | Increase/
(Decrease) | | | %
Change | |
Large Group | | | | | | | | | | | | | | | | | | |
California | | 954 | | 971 | | 992 | | (17 | ) | | (1.8 | )% | | (38 | ) | | (3.8 | )% |
Connecticut | | 117 | | 124 | | 138 | | (7 | ) | | (5.6 | )% | | (21 | ) | | (15.2 | )% |
New York | | 101 | | 104 | | 114 | | (3 | ) | | (2.9 | )% | | (13 | ) | | (11.4 | )% |
New Jersey | | 20 | | 22 | | 30 | | (2 | ) | | (9.1 | )% | | (10 | ) | | (33.3 | )% |
Arizona | | 80 | | 84 | | 81 | | (4 | ) | | (4.8 | )% | | (1 | ) | | (1.2 | )% |
Oregon | | 99 | | 103 | | 98 | | (4 | ) | | (3.9 | )% | | 1 | | | 1.0 | % |
| | | | | | | | | | | | | | | | | | |
| | 1,371 | | 1,408 | | 1,453 | | (37 | ) | | (2.6 | )% | | (82 | ) | | (5.6 | )% |
| | | | | | | | | | | | | | | | | | |
Small Group and Individual | | | | | | | | | | | | | | | | | | |
California | | 431 | | 453 | | 477 | | (22 | ) | | (4.9 | )% | | (46 | ) | | (9.6 | )% |
Connecticut | | 26 | | 25 | | 26 | | 1 | | | 4.0 | % | | 0 | | | 0.0 | % |
New York | | 107 | | 109 | | 117 | | (2 | ) | | (1.8 | )% | | (10 | ) | | (8.5 | )% |
New Jersey | | 55 | | 56 | | 60 | | (1 | ) | | (1.8 | )% | | (5 | ) | | (8.3 | )% |
Arizona | | 50 | | 54 | | 55 | | (4 | ) | | (7.4 | )% | | (5 | ) | | (9.1 | )% |
Oregon | | 38 | | 36 | | 35 | | 2 | | | 5.6 | % | | 3 | | | 8.6 | % |
| | | | | | | | | | | | | | | | | | |
| | 707 | | 733 | | 770 | | (26 | ) | | (3.5 | )% | | (63 | ) | | (8.2 | )% |
| | | | | | | | | | | | | | | | | | |
Commercial Risk | | | | | | | | | | | | | | | | | | |
California | | 1,385 | | 1,424 | | 1,469 | | (39 | ) | | (2.7 | )% | | (84 | ) | | (5.7 | )% |
Connecticut | | 143 | | 149 | | 164 | | (6 | ) | | (4.0 | )% | | (21 | ) | | (12.8 | )% |
New York | | 208 | | 213 | | 231 | | (5 | ) | | (2.3 | )% | | (23 | ) | | (10.0 | )% |
New Jersey | | 75 | | 78 | | 90 | | (3 | ) | | (3.8 | )% | | (15 | ) | | (16.7 | )% |
Arizona | | 130 | | 138 | | 136 | | (8 | ) | | (5.8 | )% | | (6 | ) | | (4.4 | )% |
Oregon | | 137 | | 139 | | 133 | | (2 | ) | | (1.4 | )% | | 4 | | | 3.0 | % |
| | | | | | | | | | | | | | | | | | |
| | 2,078 | | 2,141 | | 2,223 | | (63 | ) | | (2.9 | )% | | (145 | ) | | (6.5 | )% |
| | | | | | | | | | | | | | | | | | |
ASO | | | | | | | | | | | | | | | | | | |
California | | 5 | | 5 | | 5 | | 0 | | | 0.0 | % | | 0 | | | 0.0 | % |
Connecticut | | 25 | | 25 | | 54 | | 0 | | | 0.0 | % | | (29 | ) | | (53.7 | )% |
New York | | 11 | | 11 | | 13 | | 0 | | | 0.0 | % | | (2 | ) | | (15.4 | )% |
New Jersey | | 4 | | 3 | | 18 | | 1 | | | 33.3 | % | | (14 | ) | | (77.8 | )% |
| | | | | | | | | | | | | | | | | | |
| | 45 | | 44 | | 90 | | 1 | | | 2.3 | % | | (45 | ) | | (50.0 | )% |
Total Commercial | | | | | | | | | | | | | | | | | | |
California | | 1,390 | | 1,429 | | 1,474 | | (39 | ) | | (2.7 | )% | | (84 | ) | | (5.7 | )% |
Connecticut | | 168 | | 174 | | 218 | | (6 | ) | | (3.4 | )% | | (50 | ) | | (22.9 | )% |
New York | | 219 | | 224 | | 244 | | (5 | ) | | (2.2 | )% | | (25 | ) | | (10.2 | )% |
New Jersey | | 79 | | 81 | | 108 | | (2 | ) | | (2.5 | )% | | (29 | ) | | (26.9 | )% |
Arizona | | 130 | | 138 | | 136 | | (8 | ) | | (5.8 | )% | | (6 | ) | | (4.4 | )% |
Oregon | | 137 | | 139 | | 133 | | (2 | ) | | (1.4 | )% | | 4 | | | 3.0 | % |
| | | | | | | | | | | | | | | | | | |
| | 2,123 | | 2,185 | | 2,313 | | (62 | ) | | (2.8 | )% | | (190 | ) | | (8.2 | )% |
Medicare Advantage | | | | | | | | | | | | | | | | | | |
California | | 131 | | 126 | | 112 | | 5 | | | 4.0 | % | | 19 | | | 17.0 | % |
Connecticut | | 57 | | 57 | | 44 | | 0 | | | 0.0 | % | | 13 | | | 29.5 | % |
New York | | 6 | | 6 | | 9 | | 0 | | | 0.0 | % | | (3 | ) | | (33.3 | )% |
Arizona | | 67 | | 64 | | 49 | | 3 | | | 4.7 | % | | 18 | | | 36.7 | % |
Oregon | | 22 | | 22 | | 21 | | 0 | | | 0.0 | % | | 1 | | | 4.8 | % |
Other States | | 10 | | 10 | | 4 | | 0 | | | 0.0 | % | | 6 | | | 150.0 | % |
| | | | | | | | | | | | | | | | | | |
| | 293 | | 285 | | 239 | | 8 | | | 2.8 | % | | 54 | | | 22.6 | % |
Medi-Cal/Medicaid | | | | | | | | | | | | | | | | | | |
California | | 742 | | 737 | | 698 | | 5 | | | 0.7 | % | | 44 | | | 6.3 | % |
Connecticut | | 0 | | 0 | | 87 | | 0 | | | 0.0 | % | | (87 | ) | | (100.0 | )% |
New Jersey | | 46 | | 44 | | 44 | | 2 | | | 4.5 | % | | 2 | | | 4.5 | % |
| | | | | | | | | | | | | | | | | | |
| | 788 | | 781 | | 829 | | 7 | | | 0.9 | % | | (41 | ) | | (4.9 | )% |
| | | | | | | |
Medicare PDP (stand-alone) | | 538 | | 526 | | 365 | | 12 | | | 2.3 | % | | 173 | | | 47.4 | % |
| | | | | | | | | | | | | | | | | | |
|
| | |
Total Health Plan Enrollment | | | | | | | | | | | | | | | | | | |
Large Group | | 1,371 | | 1,408 | | 1,453 | | (37 | ) | | (2.6 | )% | | (82 | ) | | (5.6 | )% |
Small Group and Individual | | 707 | | 733 | | 770 | | (26 | ) | | (3.5 | )% | | (63 | ) | | (8.2 | )% |
| | | | | | | | | | | | | | | | | | |
Commercial Risk | | 2,078 | | 2,141 | | 2,223 | | (63 | ) | | (2.9 | )% | | (145 | ) | | (6.5 | )% |
ASO | | 45 | | 44 | | 90 | | 1 | | | 2.3 | % | | (45 | ) | | (50.0 | )% |
| | | | | | | | | | | | | | | | | | |
Total Commercial | | 2,123 | | 2,185 | | 2,313 | | (62 | ) | | (2.8 | )% | | (190 | ) | | (8.2 | )% |
Medicare Advantage | | 293 | | 285 | | 239 | | 8 | | | 2.8 | % | | 54 | | | 22.6 | % |
Medicare PDP (stand-alone) | | 538 | | 526 | | 365 | | 12 | | | 2.3 | % | | 173 | | | 47.4 | % |
Medi-Cal/Medicaid | | 788 | | 781 | | 829 | | 7 | | | 0.9 | % | | (41 | ) | | (4.9 | )% |
| | | | | | | | | | | | | | | | | | |
Total Health Plans | | 3,742 | | 3,777 | | 3,746 | | (35 | ) | | (0.9 | )% | | (4 | ) | | (0.1 | )% |
| | | | | | | | | | | | | | | | | | |
TRICARE—North Contract Eligibles | | 2,951 | | 2,951 | | 2,913 | | 0 | | | 0.0 | % | | 38 | | | 1.3 | % |
| | | | | | | | | | | | | | | | | | |
Health Net, Inc.
Consolidated Statements of Operations
(Amounts in thousands, except per share, PMPM and ratio data)
| | | | | | | | | | | | |
| | | Quarter Ended
September 30,
2007 | | | Quarter Ended
June 30,
2008 | | | Quarter Ended
September 30,
2008 | |
REVENUES: | | | | | | | | | | | | |
Health plan services premiums | | $ | 2,930,151 | | | $ | 3,114,168 | | | $ | 3,072,717 | |
Government contracts | | | 660,394 | | | | 694,885 | | | | 724,323 | |
Net investment income | | | 29,298 | | | | 20,931 | | | | 10,204 | |
Administrative services fees and other income | | | 12,085 | | | | 11,516 | | | | 11,607 | |
| | | | | | | | | | | | |
| | | 3,631,928 | | | | 3,841,500 | | | | 3,818,851 | |
| | | | | | | | | | | | |
EXPENSES: | | | | | | | | | | | | |
Health plan services | | | 2,631,211 | | | | 2,655,066 | | | | 2,689,790 | |
Government contracts | | | 613,345 | | | | 658,255 | | | | 687,848 | |
General and administrative | | | 397,168 | | | | 297,475 | | | | 294,178 | |
Selling | | | 91,524 | | | | 88,243 | | | | 93,232 | |
Depreciation and amortization | | | 12,738 | | | | 13,073 | | | | 17,255 | |
Interest | | | 7,401 | | | | 11,316 | | | | 10,413 | |
| | | | | | | | | | | | |
| | | 3,753,387 | | | | 3,723,428 | | | | 3,792,716 | |
(Loss) income from operations before income taxes | | | (121,459 | ) | | | 118,072 | | | | 26,135 | |
Income tax (benefit) provision | | | (17,614 | ) | | | 41,394 | | | | 7,665 | |
| | | | | | | | | | | | |
Net (loss) income | | $ | (103,845 | ) | | $ | 76,678 | | | $ | 18,470 | |
| | | | | | | | | | | | |
Basic (loss) earnings per share | | $ | (0.93 | ) | | $ | 0.71 | | | $ | 0.17 | |
Diluted (loss) earnings per share | | $ | (0.93 | ) | | $ | 0.71 | | | $ | 0.17 | |
Weighted average shares outstanding: | | | | | | | | | | | | |
Basic | | | 111,111 | | | | 107,308 | | | | 105,915 | |
Diluted | | | 111,111 | | | | 108,338 | | | | 106,869 | |
Pretax margin | | | -3.3 | % | | | 3.1 | % | | | 0.7 | % |
Health plan services MCR | | | 89.8 | % | | | 85.3 | % | | | 87.5 | % |
Government contracts cost ratio | | | 92.9 | % | | | 94.7 | % | | | 95.0 | % |
G&A expense ratio | | | 13.5 | % | | | 9.5 | % | | | 9.5 | % |
Selling costs ratio | | | 3.1 | % | | | 2.8 | % | | | 3.0 | % |
Days claims payable (a) | | | 41.9 | | | | 47.8 | | | | 46.3 | |
Days claims payable—adjusted (a) | | | 54.7 | | | | 56.0 | | | | 52.7 | |
Effective tax rate | | | 14.5 | % | | | 35.1 | % | | | 29.3 | % |
Health plan services premiums PMPM | | $ | 267.64 | | | $ | 278.25 | | | $ | 276.29 | |
Health plan services costs PMPM | | $ | 240.33 | | | $ | 237.23 | | | $ | 241.86 | |
Health Net, Inc.
Reconciliation of Non-GAAP Financial Measures
Operating Results Excluding Charges
(Amounts in thousands, except per share, PMPM and ratio data)
| Note: | This table presents the company's consolidated operations for the periods presented below and the charges recorded in the consolidated statement of operations. Management believes that the presentation of certain financial information in the attached press release (such as Net investment income, Health plan services expense, General and administrative expense, Income before income taxes, Income tax provision, Net income, Basic and diluted earnings per share, Pretax margin, MCR, G&A expense ratio, and effective tax rate), excluding the charges that were recorded, all of which are non-GAAP financial information, are important to investors as they exclude special items that are not indicative of our core operating results. This non-GAAP financial information should be considered in addition to, not as a substitute for, financial information prepared in accordance with GAAP. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Quarter Ended September 30, 2007 | | | Quarter Ended June 30, 2008 | | | Quarter Ended September 30, 2008 | |
| | | As Reported | | | Impact of
Charge1 | | | Excluding
Impact of
Charge1 | | | As Reported | | | Impact of
Charge2 | | | Excluding
Impact of
Charge2 | | | As Reported | | | Impact of
Charge2, 3 | | | Excluding
Impact of
Charge2, 3 | |
REVENUES: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Health plan services premiums | | $ | 2,930,151 | | | | | | | $ | 2,930,151 | | | $ | 3,114,168 | | | | | | | $ | 3,114,168 | | | $ | 3,072,717 | | | | | | | $ | 3,072,717 | |
Government contracts | | | 660,394 | | | | | | | | 660,394 | | | | 694,885 | | | | | | | | 694,885 | | | | 724,323 | | | | | | | | 724,323 | |
Net investment income | | | 29,298 | | | | | | | | 29,298 | | | | 20,931 | | | | | | | | 20,931 | | | | 10,204 | | | | (14,642 | ) | | | 24,846 | |
Administrative services fees and other income | | | 12,085 | | | | | | | | 12,085 | | | | 11,516 | | | | | | | | 11,516 | | | | 11,607 | | | | | | | | 11,607 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 3,631,928 | | | | — | | | | 3,631,928 | | | | 3,841,500 | | | | — | | | | 3,841,500 | | | | 3,818,851 | | | | (14,642 | ) | | | 3,833,493 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
EXPENSES: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Health plan services | | | 2,631,211 | | | $ | 201,449 | | | | 2,429,762 | | | | 2,655,066 | | | | | | | | 2,655,066 | | | | 2,689,790 | | | | | | | | 2,689,790 | |
Government contracts | | | 613,345 | | | | | | | | 613,345 | | | | 658,255 | | | | | | | | 658,255 | | | | 687,848 | | | | | | | | 687,848 | |
General and administrative | | | 397,168 | | | | 95,308 | | | | 301,860 | | | | 297,475 | | | | 13,037 | | | | 284,438 | | | | 294,178 | | | | 17,145 | | | | 277,033 | |
Selling | | | 91,524 | | | | | | | | 91,524 | | | | 88,243 | | | | | | | | 88,243 | | | | 93,232 | | | | | | | | 93,232 | |
Depreciation and amortization | | | 12,738 | | | | | | | | 12,738 | | | | 13,073 | | | | | | | | 13,073 | | | | 17,255 | | | | | | | | 17,255 | |
Interest | | | 7,401 | | | | | | | | 7,401 | | | | 11,316 | | | | | | | | 11,316 | | | | 10,413 | | | | | | | | 10,413 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 3,753,387 | | | | 296,757 | | | | 3,456,630 | | | | 3,723,428 | | | | 13,037 | | | | 3,710,391 | | | | 3,792,716 | | | | 17,145 | | | | 3,775,571 | |
(Loss) income from operations before income taxes | | | (121,459 | ) | | | (296,757 | ) | | | 175,298 | | | | 118,072 | | | | (13,037 | ) | | | 131,109 | | | | 26,135 | | | | (31,787 | ) | | | 57,922 | |
Income tax (benefit) provision | | | (17,614 | ) | | | (80,777 | ) | | | 63,163 | | | | 41,394 | | | | (9,739 | ) | | | 51,133 | | | | 7,665 | | | | (12,498 | ) | | | 20,163 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net (loss) income | | $ | (103,845 | ) | | $ | (215,980 | ) | | $ | 112,135 | | | $ | 76,678 | | | $ | (3,298 | ) | | $ | 79,976 | | | $ | 18,470 | | | $ | (19,289 | ) | | $ | 37,759 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic (loss) earnings per share | | $ | (0.93 | ) | | $ | (1.94 | ) | | $ | 1.01 | | | $ | 0.71 | | | $ | (0.04 | ) | | $ | 0.75 | | | $ | 0.17 | | | $ | (0.19 | ) | | $ | 0.36 | |
Diluted (loss) earnings per share | | $ | (0.93 | ) | | $ | (1.92 | ) | | $ | 0.99 | | | $ | 0.71 | | | $ | (0.03 | ) | | $ | 0.74 | | | $ | 0.17 | | | $ | (0.18 | ) | | $ | 0.35 | |
Weighted average shares outstanding: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | | 111,111 | | | | | | | | 111,111 | | | | 107,308 | | | | | | | | 107,308 | | | | 105,915 | | | | | | | | 105,915 | |
Diluted | | | 111,111 | | | | | | | | 113,519 | | | | 108,338 | | | | | | | | 108,338 | | | | 106,869 | | | | | | | | 106,869 | |
Pretax margin | | | -3.3 | % | | | -8.2 | % | | | 4.8 | % | | | 3.1 | % | | | -0.3 | % | | | 3.4 | % | | | 0.7 | % | | | -0.8 | % | | | 1.5 | % |
Health plan services MCR | | | 89.8 | % | | | 6.9 | % | | | 82.9 | % | | | 85.3 | % | | | — | | | | 85.3 | % | | | 87.5 | % | | | — | | | | 87.5 | % |
Government contracts cost ratio | | | 92.9 | % | | | — | | | | 92.9 | % | | | 94.7 | % | | | — | | | | 94.7 | % | | | 95.0 | % | | | — | | | | 95.0 | % |
G&A expense ratio | | | 13.5 | % | | | 3.2 | % | | | 10.3 | % | | | 9.5 | % | | | 0.4 | % | | | 9.1 | % | | | 9.5 | % | | | 0.5 | % | | | 9.0 | % |
Selling costs ratio | | | 3.1 | % | | | — | | | | 3.1 | % | | | 2.8 | % | | | — | | | | 2.8 | % | | | 3.0 | % | | | — | | | | 3.0 | % |
Effective tax rate | | | 14.5 | % | | | -21.5 | % | | | 36.0 | % | | | 35.1 | % | | | -3.9 | % | | | 39.0 | % | | | 29.3 | % | | | -5.5 | % | | | 34.8 | % |
| 1 | Class action litigation settlement, regulatory matters and other litigation expenses. |
| 2 | Operations strategy costs designed to reduce general and administrative expenses. |
| 3 | Realized losses from other-than-temporary impairments of investment securities. |
Health Net, Inc.
Consolidated Statements of Cash Flows
(Amounts in thousands)
| | | | | | | | | | | | |
| | | Quarter Ended
September 30,
2007 | | | Quarter Ended
June 30,
2008 | | | Quarter Ended
September 30,
2008 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | | | |
Net (loss) income | | $ | (103,845 | ) | | $ | 76,678 | | | $ | 18,470 | |
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: | | | | | | | | | | | | |
Amortization and depreciation | | | 12,738 | | | | 13,073 | | | | 17,255 | |
Share-based compensation expense | | | 6,072 | | | | 7,888 | | | | 8,216 | |
Deferred income taxes | | | 39,051 | | | | 1,975 | | | | 52,249 | |
Excess tax benefits from share-based compensation | | | (3,312 | ) | | | (6 | ) | | | (35 | ) |
Other changes | | | 120 | | | | 5,637 | | | | 10,748 | |
Changes in assets and liabilities, net of the effects of dispositions/acquisitions: | | | | | | | | | | | | |
Premiums receivable and unearned premiums | | | (320,490 | ) | | | (58,723 | ) | | | 112,741 | |
Other receivables, deferred taxes and other assets | | | (105,198 | ) | | | 35,652 | | | | (61,547 | ) |
Amounts receivable/payable under government contracts | | | 53,431 | | | | 8,196 | | | | 5,977 | |
Reserves for claims and other settlements | | | 228,643 | | | | (72,974 | ) | | | (9,075 | ) |
Accounts payable and other liabilities | | | 61,622 | | | | (97,888 | ) | | | (62,558 | ) |
| | | | | | | | | | | | |
Net cash (used in) provided by operating activities | | | (131,168 | ) | | | (80,492 | ) | | | 92,441 | |
| | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | |
Sales of investments | | | 94,682 | | | | 209,569 | | | | 154,478 | |
Maturities of investments | | | 41,493 | | | | 89,812 | | | | 58,400 | |
Purchases of investments | | | (173,198 | ) | | | (296,988 | ) | | | (580,780 | ) |
Purchases of property and equipment | | | (14,485 | ) | | | (60,078 | ) | | | (7,887 | ) |
Net sales and purchases of restricted investments and other | | | 9,991 | | | | 1,959 | | | | 7,661 | |
| | | | | | | | | | | | |
Net cash used in investing activities | | | (41,517 | ) | | | (55,726 | ) | | | (368,128 | ) |
| | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | |
Proceeds from exercise of stock options and employee stock purchases | | | 27,496 | | | | 842 | | | | 235 | |
Repurchases of common stock | | | (135,384 | ) | | | (67 | ) | | | (100,110 | ) |
Excess tax benefits from share-based compensation | | | 3,312 | | | | 6 | | | | 35 | |
Borrowings under financing arrangements | | | — | | | | 45,000 | | | | 200,000 | |
Repayment of borrowings under financing arrangements | | | — | | | | (8,722 | ) | | | (245,000 | ) |
| | | | | | | | | | | | |
Net cash (used in) provided by financing activities | | | (104,576 | ) | | | 37,059 | | | | (144,840 | ) |
| | | | | | | | | | | | |
Net decrease in cash and cash equivalents | | | (277,261 | ) | | | (99,159 | ) | | | (420,527 | ) |
Cash and cash equivalents, beginning of period | | | 976,150 | | | | 859,807 | | | | 760,648 | |
| | | | | | | | | | | | |
Cash and cash equivalents, end of period | | $ | 698,889 | | | $ | 760,648 | | | $ | 340,121 | |
| | | | | | | | | | | | |
Health Net, Inc.
Consolidated Balance Sheet
(Amounts in thousands, except ratio data)
| | | | | | | | | | | | |
| | | September 30,
2007 | | | June 30,
2008 | | | September 30,
2008 | |
ASSETS | | | | | | | | | | | | |
Current Assets | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 698,889 | | | $ | 760,648 | | | $ | 340,121 | |
Investments—available for sale | | | 1,472,717 | | | | 1,514,421 | | | | 1,838,951 | |
Premiums receivable, net | | | 299,705 | | | | 400,918 | | | | 295,854 | |
Amounts receivable under government contracts | | | 174,647 | | | | 262,877 | | | | 235,064 | |
Incurred but not reported (IBNR) health care costs receivable under TRICARE North contract | | | 295,241 | | | | 280,801 | | | | 307,970 | |
Other receivables | | | 100,528 | | | | 92,310 | | | | 107,032 | |
Deferred taxes | | | 148,990 | | | | 107,478 | | | | 111,266 | |
Other assets | | | 203,928 | | | | 223,326 | | | | 238,615 | |
| | | | | | | | | | | | |
Total current assets | | | 3,394,645 | | | | 3,642,779 | | | | 3,474,873 | |
Property and equipment, net | | | 170,353 | | | | 234,423 | | | | 228,256 | |
Goodwill, net | | | 751,949 | | | | 751,949 | | | | 751,949 | |
Other intangible assets, net | | | 114,424 | | | | 101,216 | | | | 96,122 | |
Deferred taxes | | | 45,223 | | | | 55,096 | | | | 58,555 | |
Other noncurrent assets | | | 143,639 | | | | 135,896 | | | | 132,427 | |
| | | | | | | | | | | | |
Total Assets | | $ | 4,620,233 | | | $ | 4,921,359 | | | $ | 4,742,182 | |
| | | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | | |
Current Liabilities | | | | | | | | | | | | |
Reserves for claims and other settlements | | $ | 1,313,104 | | | $ | 1,357,756 | | | $ | 1,348,681 | |
Health care and other costs payable under government contracts | | | 52,472 | | | | 78,341 | | | | 56,505 | |
IBNR health care costs payable under TRICARE North contract | | | 295,241 | | | | 280,801 | | | | 307,970 | |
Unearned premiums | | | 187,958 | | | | 190,204 | | | | 197,881 | |
Borrowings under amortizing financing facility | | | — | | | | 26,028 | | | | 26,693 | |
Accounts payable and other liabilities | | | 400,878 | | | | 327,782 | | | | 285,016 | |
| | | | | | | | | | | | |
Total current liabilities | | | 2,249,653 | | | | 2,260,912 | | | | 2,222,746 | |
Senior notes payable | | | 398,020 | | | | 398,173 | | | | 398,224 | |
Borrowings under amortizing financing facility | | | — | | | | 117,984 | | | | 119,900 | |
Borrowings under revolving credit facility | | | — | | | | 145,000 | | | | 100,000 | |
Other noncurrent liabilities | | | 213,376 | | | | 215,199 | | | | 206,187 | |
| | | | | | | | | | | | |
Total Liabilities | | | 2,861,049 | | | | 3,137,268 | | | | 3,047,057 | |
| | | | | | | | | | | | |
Stockholders’ Equity | | | | | | | | | | | | |
Common stock and additional paid-in capital | | | 1,141,432 | | | | 1,173,132 | | | | 1,181,481 | |
Treasury common stock, at cost | | | (1,104,904 | ) | | | (1,267,192 | ) | | | (1,367,302 | ) |
Retained earnings | | | 1,732,170 | | | | 1,890,095 | | | | 1,908,565 | |
Accumulated other comprehensive (loss) income | | | (9,514 | ) | | | (11,944 | ) | | | (27,619 | ) |
| | | | | | | | | | | | |
Total Stockholders’ Equity | | | 1,759,184 | | | | 1,784,091 | | | | 1,695,125 | |
| | | | | | | | | | | | |
Total Liabilities and Stockholders’ Equity | | $ | 4,620,233 | | | $ | 4,921,359 | | | $ | 4,742,182 | |
| | | | | | | | | | | | |
Debt-to-Total Capital Ratio | | | 18.5% | | | | 27.8% | | | | 27.6% | |
Health Net, Inc.
Notes to Consolidated Financial Statements
Notes:
| (a) | Management believes that days claims payable (excluding capitation, provider and other claim settlements and Medicare Part D), a non-GAAP financial measure, provides useful information to investors because, in excluding those health care costs for which no or minimal reserves are maintained, it is a more accurate reflection of days claims payable calculated from claims-based reserves than is days claims payable, which does not exclude such costs. This non-GAAP financial information should be considered in addition to, not as a substitute for, financial information prepared in accordance with GAAP. The following table provides a reconciliation of the differences between days claims payable (excluding capitation, provider and other claim settlements and Medicare Part D) and days claims payable, the most directly comparable financial measure calculated and presented in accordance with GAAP: |
| | | | | | | | | | | | | | |
| | | | | Q3 2007 | | | Q2 2008 | | | Q3 2008 | |
| | | | | (Dollars in millions) | |
| | Reserve for Claims and Other Settlements | | $ | 1,313.1 | | | $ | 1,357.8 | | | $ | 1,348.7 | |
| | Less: Capitation Payable, Provider and Other Claim Settlements and Medicare Part D | | | (290.7 | ) | | | (293.1 | ) | | | (245.3 | ) |
| | | | | | | | | | | | | | |
| | Adjusted Reserve for Claims and Other Settlements | | | 1,022.4 | | | | 1,064.7 | | | | 1,103.4 | |
(1) | | Average Reserve for Claims and Other Settlements | | | 1,198.8 | | | | 1,394.3 | | | | 1,353.2 | |
(2) | | Average Adjusted Reserve for Claims and Other Settlements | | | 1,004.0 | | | | 1,104.5 | | | | 1,084.0 | |
(3) | | Health Plan Services Cost | | | 2,631.2 | | | | 2,655.1 | | | | 2,689.8 | |
| | Less: Capitation Payable, Provider and Other Claim Settlements and Medicare Part D | | | (942.0 | ) | | | (860.8 | ) | | | (796.5 | ) |
| | | | | | | | | | | | | | |
(4) | | Adjusted Health Plan Services Cost | | | 1,689.2 | | | | 1,794.3 | | | | 1,893.3 | |
(5) | | Number of Days in Period | | | 92 | | | | 91 | | | | 92 | |
= (1) / (3) * (5) Days Claims Payable | | | 41.9 | | | | 47.8 | | | | 46.3 | |
| = (2) / (4) * (5) Days Claims Payable—Adjusted | | | 54.7 | | | | 56.0 | | | | 52.7 | |
Health Net, Inc.
Reconciliation of Reserves for Claims and Other Settlements
(In millions)
| | | | | | | | | | | |
| | | Health Plan Services | |
| | | YTD 9/2008 | | | Year 2007 | | Year 2006 | |
Reserve for claims (a), beginning of period | | $ | 838.7 | | | $ | 754.2 | | $ | 768.7 | |
Incurred claims related to: | | | | | | | | | | | |
Current Year | | | 4,784.6 | | | | 5,790.7 | | | 5,222.0 | |
Prior Years (c) | | | (7.0 | ) | | | 0.6 | | | (77.3 | ) |
| | | | | | | | | | | |
Total Incurred (b) | | | 4,777.6 | | | | 5,791.3 | | | 5,144.7 | |
Paid claims related to: | | | | | | | | | | | |
Current Year | | | 3,902.3 | | | | 4,972.3 | | | 4,485.7 | |
Prior Years | | | 790.4 | | | | 734.5 | | | 673.5 | |
| | | | | | | | | | | |
Total Paid (b) | | | 4,692.7 | | | | 5,706.8 | | | 5,159.2 | |
| | | |
Reserve for claims (a), end of period | | | 923.6 | | | | 838.7 | | | 754.2 | |
Add: | | | | | | | | | | | |
Claims Payable (d) | | | 326.9 | | | | 365.6 | | | 203.9 | |
Other (e) | | | 98.2 | | | | 96.1 | | | 90.7 | |
| | | | | | | | | | | |
Reserves for claims and other settlements, end of period | | $ | 1,348.7 | | | $ | 1,300.4 | | $ | 1,048.8 | |
| | | | | | | | | | | |
| (a) | Consists of incurred but not reported claims and received but unprocessed claims and reserves for loss adjustment expenses. |
| (b) | Includes medical claims only. Capitation, pharmacy and other payments including provider settlements are not included. |
| (c) | This line represents the change in reserves attributable to the difference between the original estimate of incurred claims for prior years and the revised estimate. In developing the revised estimate, there have been no changes in the approach used to determine the key actuarial assumptions, which are the completion factor and medical cost trend. Claims liabilities are estimated under actuarial standards of practice and generally accepted accounting principles. The majority of the reserve balance held at each quarter-end is associated with the most recent months’ incurred services because these are the services for which the fewest claims have been paid. The majority of the adjustments to reserves relate to variables and uncertainties associated with actuarial assumptions. The degree of uncertainty in the estimates of incurred claims is greater for the most recent months’ incurred services. Revised estimates for prior years are determined in each quarter based on the most recent updates of paid claims for prior years. |
| (d) | Includes amount accrued for litigation and regulatory-related expenses. |
| (e) | Includes accrued capitation, shared risk settlements, provider incentives and other reserve items. |
