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 ADJUSTED1 FOURTH QUARTER 2009
NET INCOME OF $72.4 MILLION, OR $0.69 PER DILUTED SHARE
ADJUSTED1 NET INCOMEFORTHE FULL YEAR 2009WAS $235.1 MILLION,
OR $2.25PERDILUTEDSHARE
LOS ANGELES, February 3, 2010 – Health Net, Inc. (NYSE: HNT) today announced a fourth quarter 2009 net loss of $45.2 million, or $0.43 per share compared with fourth quarter 2008 net income of $35.5 million, or $0.34 per diluted share. Adjusted1 net income in the fourth quarter of 2009 was $72.4 million, or $0.69 per diluted share, compared with fourth quarter 2008 adjusted1net income of $63.1 million, or $0.61 per diluted share.
The fourth quarter 2009 results include the effect of two pretax charges:
| | 1. | $137.3 million in charges related to the Northeast businesses – $105.9 million for the loss on the sale of the Northeast businesses and $4.3 million in impairments on assets held for sale, both of which are noncash charges, as well as $27.0 million in cash charges, primarily for legal and regulatory costs, and fees and severance related to the Northeast sale; and |
| | 2. | $15.3 million in cash charges related to the company’s operations strategy and other expenses. |
For the full year 2009, Health Net reported a net loss of $49.0 million, or $0.47 per share compared with full year 2008 net income of $95.0 million, or $0.88 per diluted share. Adjusted1 net income for the full year 2009 was $235.1 million, or $2.25 per diluted share compared with adjusted1 net income for the full year 2008 of $199.1 million, or $1.85 per diluted share.
| 1 | Adjusted numbers are non-GAAP financial measures. Detailed explanations of the non-GAAP financial measures referred to in the press release and reconciliations to the comparable GAAP measures are included in the attached financial tables. |
Fourth Quarter and Full-Year 2009 Key Highlights:
| | 1. | The company completed the sale of its Northeast businesses on December 11, 2009, and received $350 million in cash at closing; |
| | 2. | The company’s pretax margin on an adjusted1 basis improved 70 basis points to 3.3 percent in the fourth quarter of 2009 compared with the fourth quarter of 2008, and 30 basis points year-over-year; |
| | 3. | Cost-effective, narrow network commercial products in California grew 14 percent in the fourth quarter of 2009 compared with the fourth quarter of 2008; and |
| | 4. | The company resumed its share repurchase program in December 2009, and has repurchased more than 2.7 million shares at an average price of $24.74, for a total cost of $67.3 million through January 29, 2010. |
“We are pleased with our fourth quarter and full-year 2009 results,” said Jay Gellert, president and chief executive officer of Health Net, Inc. “We completed our strategic review and closed the sale of the Northeast businesses. Also, as expected, our Medicare Advantage and Part D businesses returned to a solid level of performance after a difficult 2008.”
“We believe we are well-positioned to attract customers seeking value in these challenging economic times with our low-cost, narrow network products. We continue to believe that we can achieve our 2010 full-year earnings guidance,” continued Gellert.
“We are very pleased with our operating performance in 2009, especially in light of a challenging environment,” said James Woys, Health Net’s chief operating officer. “For example, commercial health care costs in the fourth quarter were adversely affected by higher utilization related to both the H1N1 flu and COBRA. Excluding these two effects, the commercial medical care ratio in the Western health plans improved both quarter-over-quarter and year-over-year.”
“Our balance sheet is solid, and the cash we received at the close of the Northeast sale gave us ample resources to resume our share repurchase program in December,” said Joseph Capezza, Health Net’s chief financial officer.
CONSOLIDATED RESULTS
Due to the sale of Health Net’s Northeast businesses on December 11, 2009, the company’s consolidated results exclude the results of Northeast businesses after that date through December 31, 2009.
Membership:
Total health plan enrollment in the company’s Western health plans was 3.0 million at December 31, 2009 compared with 3.1 million at December 31, 2008 and 3.0 million at September 30, 2009. The year-over-year decrease in membership is primarily due to higher unemployment as a result of economic pressures.
Total commercial risk enrollment at December 31, 2009 declined by 34,000 members, or 2.3 percent, from September 30, 2009. The Western region health plans produced commercial risk new sales of 35,000 members in the fourth quarter, with more than 9,400 of these new members in California’s low-cost, narrow network products.
2
Enrollment in the company’s Medicare Advantage plans at December 31, 2009 increased 2.3 percent to 227,000 members from December 31, 2008. Membership in the company’s Medicare Part D plans decreased by 5.5 percent to 460,000 members at December 31, 2009 compared with December 31, 2008.
Medi-Cal enrollment on December 31, 2009 was 857,000 members, an increase of 92,000 members, or 12.0 percent, from December 31, 2008. Sequentially, Medi-Cal membership increased 1.9 percent, or 16,000 members, from September 30, 2009. Both the year-over-year and the sequential increases were the result of the economic downturn that caused the Medicaid-eligible population to increase.
Revenues:
Health Net’s total revenues in the fourth quarter of 2009 were $3.8 billion. Total revenues in the fourth quarter of 2008 were $3.9 billion. Health plan services revenues were $3.0 billion in the fourth quarter of 2009 and $3.1 billion in the fourth quarter of 2008.
Government contracts revenues were $754.8 million in the fourth quarter of 2009 compared with $751.6 million in the fourth quarter of 2008.
Medical Care Ratios (MCR):
The health plan services MCR in the fourth quarter of 2009 increased 50 basis points to 85.8 percent from 85.3 percent in the fourth quarter of 2008.
The full-year 2009 health plan services MCR was 86.3 percent compared to 86.9 percent for the full year 2008.
The commercial MCR was 86.2 percent in the fourth quarter of 2009 compared with 84.1 percent in the fourth quarter of 2008. The majority of the MCR deterioration was due to higher than expected health care costs in the company’s Northeast businesses.
The commercial MCR in the company’s Western health plans was 86.4 percent in the fourth quarter of 2009 compared with 85.6 percent in the fourth quarter of 2008. For the full year of 2009, the Western health plan commercial MCR was 86.8 percent, while in 2008 it was 86.7 percent. The H1N1 flu and COBRA-related utilization impacted the Western health plan commercial MCR by 95 basis points in the fourth quarter of 2009 and by 55 basis points for the full year 2009.
Health Net’s Medicare Advantage and Part D plans continued to perform consistent with the company’s expectations in the fourth quarter of 2009 and for the full year of 2009.
The Government contracts ratio in the fourth quarter of 2009 was 93.2 percent compared with 95.6 percent in the fourth quarter of 2008 and 94.4 percent in the third quarter of 2009. The Government contracts ratio for the full year of 2009 was 94.6 percent compared with 95.3 percent for the full year of 2008. The improvement in the Government contracts ratio was due to an increase in volume in the company’s Military and Family Life Consultant (MFLC) contract and moderating health care cost trends.
Commercial Premium Yield and Health Care Cost Trends:
Commercial premium yields per member per month (PMPM) increased by 6.1 percent in the fourth quarter of 2009 compared with the fourth quarter of 2008. Total commercial health care costs PMPM increased 8.6 percent in the fourth quarter of 2009 compared with the fourth quarter of 2008.
For the full year 2009, commercial premium yields PMPM increased 7.6 percent. Including the impact of $4.8 million in favorable litigation reserve true-ups recorded in the second and third quarters of 2009, health care costs PMPM increased 7.8 percent. Excluding the impact of the favorable litigation reserve true-up, commercial health care costs PMPM increased by 8.4 percent.
3
The commercial premium yield PMPM for the Western health plans increased 8.5 percent in the fourth quarter of 2009 compared with the fourth quarter of 2008. Commercial health care costs PMPM for the Western health plans increased 9.5 percent in the fourth quarter of 2009 compared with the fourth quarter of 2008. For the full year 2009, commercial premium yields PMPM in the Western health plans increased 9.2 percent while commercial health care costs PMPM increased 9.4 percent in the Western health plans and included the negative impact of H1N1 and COBRA-related utilization.
General & Administrative (G&A) Expenses:
G&A expense was $359.0 million in the fourth quarter of 2009 compared with $347.1 million in the fourth quarter of 2008 and $319.5 million in the third quarter of 2009. On an adjusted1 basis, G&A expense was $299.7 million in the fourth quarter of 2009 compared with $293.6 million in the fourth quarter of 2008 and $300.0 million in the third quarter of 2009.
Operating Cash Flow:
Operating cash flow was $153.2 million in the fourth quarter of 2009. For the full year 2009, operating cash flow was $247.5 million. The full year amount was less than the company expected due to the following items:
| | 1. | The delay of a $45 million payment from the California Department of Health Services for Medi-Cal. The payment was received in January 2010; |
| | 2. | A $16 million net increase in the Government contracts receivable due to payment timing issues; and |
| | 3. | $10 million in legal costs and settlements not included in the company’s cash flow guidance. |
Balance Sheet Items:
Due to the sale of the Northeast businesses, the 2009 balance sheet amounts exclude the Northeast. Cash and investments at December 31, 2009 were approximately $2.1 billion compared with $1.8 billion at September 30, 2009 and $2.2 billion at December 31, 2008. Reserves for claims and other settlements as of December 31, 2009 were $951.7 million compared with $951.8 million at September 30, 2009 and $1.3 billion at December 31, 2008.
The company’s debt-to-total capital ratio was 26.2 percent on December 31, 2009 compared with 25.8 percent on September 30, 2009 and 27.9 percent on December 31, 2008.
Days Claims Payable (DCP):
DCP for the fourth quarter of 2009 was 38.6 days compared with 41.0 days in the third quarter of 2009. On a reported basis, days claims payable was calculated using year-end reserves that exclude the Northeast businesses compared to health plan expenses that include expenses related to the Northeast businesses through December 11, 2009. Excluding the fourth quarter Northeast health plan expenses, DCP would have been higher by 1.0 day sequentially.
On an adjusted2 basis, DCP in the fourth quarter of 2009 was 55.7 days compared with 55.4 days in the third quarter of 2009. Adjusted2 DCP was calculated by excluding the Northeast fourth quarter 2009 health plan expenses, provider and other claims settlements and charges, capitation payments and Medicare and Part D expenses from health plan expenses.
| 2 | See footnote (a) in the Notes to Consolidated Financial Statements in the financial schedules attached to this press release for a reconciliation of this information to the comparable GAAP financial measure. |
4
2010 Guidance:
| | |
Metric | | 2010 Guidance |
| Year-end membership | | Health Plan enrollment vs. 2009: flat |
| |
| Consolidated revenues | | $13.0 billion to $13.5 billion |
| |
| Investment income | | ~ $62 million to $68 million |
| |
| Tax rate(a) | | ~ 39% |
| |
Weighted-average diluted shares outstanding | | 103 million to 104 million (previously 104 million to 105 million) |
| |
GAAP EPS Non-GAAP EPS(a) | | $1.92 to $2.02 (previously $1.90 to $2.00) $2.32 to $2.42 (previously $2.30 to $2.40) |
| (a) | Excludes approximately $69 million in pretax charges, of which approximately $53 million are related to the wind-down of the company’s Northeast businesses and approximately $16 million are related to the company’s operations strategy. Health Net currently expects these charges to impact general & administrative expenses. |
Conference Call:
As previously announced, Health Net will discuss the company’s fourth quarter and year-end 2009 results during a conference call on Wednesday, February 3, 2010, beginning at approximately 11:00 a.m. Eastern time. The conference call should be accessed at least 15 minutes prior to its start with the following numbers:
| | |
| 866.393.1637 (Domestic) | | 800.642.1687 (Replay – Domestic) |
| 706.643.5711 (International) | | 706.645.9291 (Replay – International) |
An access code is required for both the live conference call and the replay. The access code is 46847009. A replay of the conference call will be available through 12:00 a.m. Eastern time on February 8, 2010. A live webcast and replay of the conference call also will be available at www.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, 2008, Quarterly Reports on Form 10-Q for the quarters ended March 31, 2009, June 30, 2009, and September 30, 2009, 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 health plans and government contracts subsidiaries provide health benefits to approximately 6.1 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 6.5 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 at www.healthnet.com.
Cautionary Statements:
All statements in this press release, other than statements of historical information provided herein, 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, 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, costs, fees and expenses related to the post-closing administrative services to be provided under the administrative services agreements entered into in connection with the sale of our Northeast business; potential termination of the administrative services agreements by the service recipients should we breach such agreements or fail to perform all or a material part of the services required thereunder; any liabilities of the Northeast business that were incurred prior to the closing of its sale as well as those liabilities incurred through the winding-up and running-out period of the Northeast business; potential termination of our TRICARE North operations; rising health care costs; a continued decline in the economy; negative prior period claims reserve developments; investment portfolio impairment charges; 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 businesses; litigation costs; regulatory issues; operational issues; health care 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, subsequent quarterly reports on Form 10-Q, and the risks discussed in the company’s other filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements. The company undertakes no obligation to publicly revise any of its forward-looking statements to reflect events or circumstances that arise after the date of this release.
The financial information presented in this press release is unaudited and is subject to change as a result of subsequent events or adjustments, if any, arising prior to the filing of the company’s Form 10-K for the year ended December 31, 2009.
# # #
[Eight pages of tables follow]
6
Health Net, Inc.
Enrollment Data - By State
(In thousands)
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | Change from | |
| | | | | | | | | September 30, 2009 | | | December 31, 2008 | |
| | | Dec 31,
2009 | | Sept 30,
2009 | | Dec 31,
2008 | | Increase/
(Decrease) | | | %
Change | | | Increase/
(Decrease) | | | %
Change | |
California | | | | | | | | | | | | | | | | | | |
Large Group | | 870 | | 888 | | 938 | | (18 | ) | | (2.0 | )% | | (68 | ) | | (7.2 | )% |
Small Group and Individual | | 357 | | 365 | | 414 | | (8 | ) | | (2.2 | )% | | (57 | ) | | (13.8 | )% |
| | | | | | | | | | | | | | | | | | |
Commercial Risk | | 1,227 | | 1,253 | | 1,352 | | (26 | ) | | (2.1 | )% | | (125 | ) | | (9.2 | )% |
ASO | | 5 | | 5 | | 5 | | 0 | | | 0.0 | % | | 0 | | | 0.0 | % |
| | | | | | | | | | | | | | | | | | |
Total Commercial | | 1,232 | | 1,258 | | 1,357 | | (26 | ) | | (2.1 | )% | | (125 | ) | | (9.2 | )% |
Medicare Advantage | | 137 | | 136 | | 133 | | 1 | | | 0.7 | % | | 4 | | | 3.0 | % |
Medi-Cal | | 857 | | 841 | | 765 | | 16 | | | 1.9 | % | | 92 | | | 12.0 | % |
| | | | | | | | | | | | | | | | | | |
Total California | | 2,226 | | 2,235 | | 2,255 | | (9 | ) | | (0.4 | )% | | (29 | ) | | (1.3 | )% |
| | | | | | | | | | | | | | | | | | |
| | | | | | | |
Arizona | | | | | | | | | | | | | | | | | | |
Large Group | | 59 | | 59 | | 77 | | 0 | | | 0.0 | % | | (18 | ) | | (23.4 | )% |
Small Group and Individual | | 37 | | 38 | | 46 | | (1 | ) | | (2.6 | )% | | (9 | ) | | (19.6 | )% |
| | | | | | | | | | | | | | | | | | |
Commercial Risk | | 96 | | 97 | | 123 | | (1 | ) | | (1.0 | )% | | (27 | ) | | (22.0 | )% |
Medicare Advantage | | 65 | | 65 | | 67 | | 0 | | | 0.0 | % | | (2 | ) | | (3.0 | )% |
| | | | | | | | | | | | | | | | | | |
Total Arizona | | 161 | | 162 | | 190 | | (1 | ) | | (0.6 | )% | | (29 | ) | | (15.3 | )% |
| | | | | | | | | | | | | | | | | | |
| | | | | | | |
Oregon | | | | | | | | | | | | | | | | | | |
Large Group | | 72 | | 78 | | 93 | | (6 | ) | | (7.7 | )% | | (21 | ) | | (22.6 | )% |
Small Group and Individual | | 46 | | 47 | | 40 | | (1 | ) | | (2.1 | )% | | 6 | | | 15.0 | % |
| | | | | | | | | | | | | | | | | | |
Commercial Risk | | 118 | | 125 | | 133 | | (7 | ) | | (5.6 | )% | | (15 | ) | | (11.3 | )% |
Medicare Advantage | | 25 | | 24 | | 22 | | 1 | | | 4.2 | % | | 3 | | | 13.6 | % |
| | | | | | | | | | | | | | | | | | |
Total Oregon | | 143 | | 149 | | 155 | | (6 | ) | | (4.0 | )% | | (12 | ) | | (7.7 | )% |
| | | | | | | | | | | | | | | | | | |
| | | | | | | |
Total Health Plan Enrollment | | | | | | | | | | | | | | | | | | |
Large Group | | 1,001 | | 1,025 | | 1,108 | | (24 | ) | | (2.3 | )% | | (107 | ) | | (9.7 | )% |
Small Group and Individual | | 440 | | 450 | | 500 | | (10 | ) | | (2.2 | )% | | (60 | ) | | (12.0 | )% |
| | | | | | | | | | | | | | | | | | |
Commercial Risk | | 1,441 | | 1,475 | | 1,608 | | (34 | ) | | (2.3 | )% | | (167 | ) | | (10.4 | )% |
ASO | | 5 | | 5 | | 5 | | 0 | | | 0.0 | % | | 0 | | | 0.0 | % |
| | | | | | | | | | | | | | | | | | |
Total Commercial | | 1,446 | | 1,480 | | 1,613 | | (34 | ) | | (2.3 | )% | | (167 | ) | | (10.4 | )% |
Medicare Advantage | | 227 | | 225 | | 222 | | 2 | | | 0.9 | % | | 5 | | | 2.3 | % |
Medicare PDP (stand-alone) | | 460 | | 453 | | 487 | | 7 | | | 1.5 | % | | (27 | ) | | (5.5 | )% |
Medi-Cal/Medicaid | | 857 | | 841 | | 765 | | 16 | | | 1.9 | % | | 92 | | | 12.0 | % |
| | | | | | | | | | | | | | | | | | |
| | 2,990 | | 2,999 | | 3,087 | | (9 | ) | | (0.3 | )% | | (97 | ) | | (3.1 | )% |
All Other States | | 28 | | 599 | | 633 | | (571 | ) | | (95.3 | )% | | (605 | ) | | (95.6 | )% |
| | | | | | | | | | | | | | | | | | |
| | 3,018 | | 3,598 | | 3,720 | | (580 | ) | | (16.1 | )% | | (702 | ) | | (18.9 | )% |
| | | | | | | | | | | | | | | | | | |
| | | | | | | |
TRICARE - North Contract Eligibles | | 3,067 | | 3,040 | | 3,004 | | 27 | | | 0.9 | % | | 63 | | | 2.1 | % |
| | | | | | | | | | | | | | | | | | |
Page 7
Health Net, Inc.
Enrollment Data - Line of Business
(In thousands)
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | Change from | |
| | | | | | | | | September 30, 2009 | | | December 31, 2008 | |
| | | Dec 31,
2009 | | Sept 30,
2009 | | Dec 31,
2008 | | Increase/
(Decrease) | | | %
Change | | | Increase/
(Decrease) | | | %
Change | |
Large Group | | | | | | | | | | | | | | | | | | |
California | | 870 | | 888 | | 938 | | (18 | ) | | (2.0 | )% | | (68 | ) | | (7.2 | )% |
Arizona | | 59 | | 59 | | 77 | | 0 | | | 0.0 | % | | (18 | ) | | (23.4 | )% |
Oregon | | 72 | | 78 | | 93 | | (6 | ) | | (7.7 | )% | | (21 | ) | | (22.6 | )% |
| | | | | | | | | | | | | | | | | | |
| | 1,001 | | 1,025 | | 1,108 | | (24 | ) | | (2.3 | )% | | (107 | ) | | (9.7 | )% |
| | | | | | | | | | | | | | | | | | |
| | | | | | | |
Small Group and Individual | | | | | | | | | | | | | | | | | | |
California | | 357 | | 365 | | 414 | | (8 | ) | | (2.2 | )% | | (57 | ) | | (13.8 | )% |
Arizona | | 37 | | 38 | | 46 | | (1 | ) | | (2.6 | )% | | (9 | ) | | (19.6 | )% |
Oregon | | 46 | | 47 | | 40 | | (1 | ) | | (2.1 | )% | | 6 | | | 15.0 | % |
| | | | | | | | | | | | | | | | | | |
| | 440 | | 450 | | 500 | | (10 | ) | | (2.2 | )% | | (60 | ) | | (12.0 | )% |
| | | | | | | | | | | | | | | | | | |
| | | | | | | |
Commercial Risk | | | | | | | | | | | | | | | | | | |
California | | 1,227 | | 1,253 | | 1,352 | | (26 | ) | | (2.1 | )% | | (125 | ) | | (9.2 | )% |
Arizona | | 96 | | 97 | | 123 | | (1 | ) | | (1.0 | )% | | (27 | ) | | (22.0 | )% |
Oregon | | 118 | | 125 | | 133 | | (7 | ) | | (5.6 | )% | | (15 | ) | | (11.3 | )% |
| | | | | | | | | | | | | | | | | | |
| | 1,441 | | 1,475 | | 1,608 | | (34 | ) | | (2.3 | )% | | (167 | ) | | (10.4 | )% |
| | | | | | | | | | | | | | | | | | |
| | | | | | | |
ASO | | 5 | | 5 | | 5 | | 0 | | | 0.0 | % | | 0 | | | 0.0 | % |
| | | | | | | |
Total Commercial | | | | | | | | | | | | | | | | | | |
California | | 1,232 | | 1,258 | | 1,357 | | (26 | ) | | (2.1 | )% | | (125 | ) | | (9.2 | )% |
Arizona | | 96 | | 97 | | 123 | | (1 | ) | | (1.0 | )% | | (27 | ) | | (22.0 | )% |
Oregon | | 118 | | 125 | | 133 | | (7 | ) | | (5.6 | )% | | (15 | ) | | (11.3 | )% |
| | | | | | | | | | | | | | | | | | |
| | 1,446 | | 1,480 | | 1,613 | | (34 | ) | | (2.3 | )% | | (167 | ) | | (10.4 | )% |
| | | | | | | |
Medicare Advantage | | | | | | | | | | | | | | | | | | |
California | | 137 | | 136 | | 133 | | 1 | | | 0.7 | % | | 4 | | | 3.0 | % |
Arizona | | 65 | | 65 | | 67 | | 0 | | | 0.0 | % | | (2 | ) | | (3.0 | )% |
Oregon | | 25 | | 24 | | 22 | | 1 | | | 4.2 | % | | 3 | | | 13.6 | % |
| | | | | | | | | | | | | | | | | | |
| | 227 | | 225 | | 222 | | 2 | | | 0.9 | % | | 5 | | | 2.3 | % |
| | | | | | | |
Medi-Cal/Medicaid | | | | | | | | | | | | | | | | | | |
California | | 857 | | 841 | | 765 | | 16 | | | 1.9 | % | | 92 | | | 12.0 | % |
| | | | | | | |
Total Health Plan Enrollment | | | | | | | | | | | | | | | | | | |
Large Group | | 1,001 | | 1,025 | | 1,108 | | (24 | ) | | (2.3 | )% | | (107 | ) | | (9.7 | )% |
Small Group and Individual | | 440 | | 450 | | 500 | | (10 | ) | | (2.2 | )% | | (60 | ) | | (12.0 | )% |
| | | | | | | | | | | | | | | | | | |
Commercial Risk | | 1,441 | | 1,475 | | 1,608 | | (34 | ) | | (2.3 | )% | | (167 | ) | | (10.4 | )% |
ASO | | 5 | | 5 | | 5 | | 0 | | | 0.0 | % | | 0 | | | 0.0 | % |
| | | | | | | | | | | | | | | | | | |
Total Commercial | | 1,446 | | 1,480 | | 1,613 | | (34 | ) | | (2.3 | )% | | (167 | ) | | (10.4 | )% |
Medicare Advantage | | 227 | | 225 | | 222 | | 2 | | | 0.9 | % | | 5 | | | 2.3 | % |
Medicare PDP (stand-alone) | | 460 | | 453 | | 487 | | 7 | | | 1.5 | % | | (27 | ) | | (5.5 | )% |
Medi-Cal/Medicaid | | 857 | | 841 | | 765 | | 16 | | | 1.9 | % | | 92 | | | 12.0 | % |
| | | | | | | | | | | | | | | | | | |
| | 2,990 | | 2,999 | | 3,087 | | (9 | ) | | (0.3 | )% | | (97 | ) | | (3.1 | )% |
All Other States | | 28 | | 599 | | 633 | | (571 | ) | | (95.3 | )% | | (605 | ) | | (95.6 | )% |
| | | | | | | | | | | | | | | | | | |
| | 3,018 | | 3,598 | | 3,720 | | (580 | ) | | (16.1 | )% | | (702 | ) | | (18.9 | )% |
| | | | | | | | | | | | | | | | | | |
| | | | | | | |
TRICARE - North Contract Eligibles | | 3,067 | | 3,040 | | 3,004 | | 27 | | | 0.9 | % | | 63 | | | 2.1 | % |
| | | | | | | | | | | | | | | | | | |
Page 8
Health Net, Inc.
Consolidated Statements of Operations
(Amounts in thousands, except per share, PMPM and ratio data)
| | | | | | | | | | | | | | | | | | | | |
| | | Quarter Ended
December 31,
2008 | | | Year Ended
December 31,
2008 | | | Quarter Ended
September 30,
2009 | | | Quarter Ended
December 31,
2009 | | | Year Ended
December 31,
2009 | |
REVENUES: | | | | | | | | | | | | | | | | | | | | |
Health plan services premiums | | $ | 3,082,133 | | | | 12,392,006 | | | $ | 3,166,877 | | | $ | 2,981,678 | | | $ | 12,440,589 | |
Government contracts | | | 751,604 | | | | 2,835,261 | | | | 758,507 | | | | 754,766 | | | | 3,104,700 | |
Net investment income | | | 24,536 | | | | 91,042 | | | | 27,691 | | | | 33,486 | | | | 105,930 | |
Administrative services fees and other income | | | 11,209 | | | | 48,280 | | | | 15,578 | | | | 28,165 | | | | 62,022 | |
| | | | | | | | | | | | | | | | | | | | |
| | | 3,869,482 | | | | 15,366,589 | | | | 3,968,653 | | | | 3,798,095 | | | | 15,713,241 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
EXPENSES: | | | | | | | | | | | | | | | | | | | | |
Health plan services | | | 2,629,398 | | | | 10,762,657 | | | | 2,734,984 | | | | 2,557,149 | | | | 10,731,951 | |
Government contracts | | | 718,893 | | | | 2,702,573 | | | | 716,323 | | | | 703,721 | | | | 2,936,090 | |
General and administrative | | | 347,128 | | | | 1,291,059 | | | | 319,451 | | | | 359,039 | | | | 1,365,586 | |
Selling | | | 92,314 | | | | 360,381 | | | | 83,275 | | | | 84,068 | | | | 330,112 | |
Depreciation and amortization | | | 17,271 | | | | 59,878 | | | | 12,689 | | | | 8,605 | | | | 53,044 | |
Interest | | | 10,523 | | | | 42,909 | | | | 10,264 | | | | 9,538 | | | | 40,887 | |
Asset impairments | | | — | | | | — | | | | 170,570 | | | | 4,309 | | | | 174,879 | |
Loss on sale of businesses | | | — | | | | — | | | | — | | | | 105,931 | | | | 105,931 | |
| | | | | | | | | | | | | | | | | | | | |
| | | 3,815,527 | | | | 15,219,457 | | | | 4,047,556 | | | | 3,832,360 | | | | 15,738,480 | |
| | | | | |
Income (loss) from operations before income taxes | | | 53,955 | | | | 147,132 | | | | (78,903 | ) | | | (34,265 | ) | | | (25,239 | ) |
Income tax provision (benefit) | | | 18,420 | | | | 52,129 | | | | (12,881 | ) | | | 10,892 | | | | 23,765 | |
| | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 35,535 | | | $ | 95,003 | | | $ | (66,022 | ) | | $ | (45,157 | ) | | $ | (49,004 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
Basic earnings (loss) per share | | $ | 0.34 | | | $ | 0.89 | | | $ | (0.64 | ) | | $ | (0.43 | ) | | $ | (0.47 | ) |
| | | | | |
Diluted earnings (loss) per share | | $ | 0.34 | | | $ | 0.88 | | | $ | (0.64 | ) | | $ | (0.43 | ) | | $ | (0.47 | ) |
| | | | | |
Weighted average shares outstanding: | | | | | | | | | | | | | | | | | | | | |
Basic | | | 103,694 | | | | 106,532 | | | | 103,873 | | | | 103,902 | | | | 103,849 | |
Diluted | | | 104,063 | | | | 107,610 | | | | 103,873 | | | | 103,902 | | | | 103,849 | |
| | | | | |
Pretax margin | | | 1.4 | % | | | 1.0 | % | | | -2.0 | % | | | -0.9 | % | | | -0.2 | % |
Health plan services MCR | | | 85.3 | % | | | 86.9 | % | | | 86.4 | % | | | 85.8 | % | | | 86.3 | % |
Government contracts cost ratio | | | 95.6 | % | | | 95.3 | % | | | 94.4 | % | | | 93.2 | % | | | 94.6 | % |
G&A expense ratio | | | 11.2 | % | | | 10.4 | % | | | 10.0 | % | | | 11.9 | % | | | 10.9 | % |
Selling costs ratio | | | 3.0 | % | | | 2.9 | % | | | 2.6 | % | | | 2.8 | % | | | 2.7 | % |
Days claims payable (a) | | | 47.0 | | | | 44.9 | | | | 41.0 | | | | 38.6 | | | | 38.9 | |
Days claims payable - adjusted (a) | | | 59.9 | | | | 56.5 | | | | 55.4 | | | | 55.7 | | | | 57.7 | |
Effective tax rate | | | 34.1 | % | | | 35.4 | % | | | 16.3 | % | | | -31.8 | % | | | -94.2 | % |
Health plan services premiums PMPM | | $ | 279.47 | | | $ | 277.79 | | | $ | 296.16 | | | $ | 289.15 | | | $ | 294.12 | |
Health plan services costs PMPM | | $ | 238.42 | | | $ | 241.27 | | | $ | 255.77 | | | $ | 247.90 | | | $ | 253.71 | |
Page 9
Health Net, Inc.
Reconciliation of Non-GAAP Financial Measures
Operating Results Excluding Charges
(Amounts in thousands, except per share, PMPM and ratio data)
This table presents the company’s consolidated operations for the periods presented below and the charges recorded in the consolidated statement of operations for such periods. Information for the quarter and year-ended December 31, 2009 also includes the financial impact from the December 11, 2009 sale of our Northeast health plans. Management believes that the presentation of certain financial information in the attached press release, excluding the charges that were recorded and excluding the impact from the divestiture of our Northeast health plans, all of which is non-GAAP financial information, is important to investors as it excludes special items that are not indicative of our core operating results. Non-GAAP financial information presented below should be considered in addition to, not as a substitute for, financial information prepared in accordance with GAAP.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Quarter Ended
December 31, 2008 | | | Year Ended December 31, 2008 | | | Quarter Ended September 30,
2009 | |
| | | As
Reported | | | Impact
of
Charge1 | | | Excluding
Impact of
Charge1
(Non-
GAAP) | | | As
Reported | | | Impact
of
Charges2 | | | Excluding
Impact of
Charges2
(Non-
GAAP) | | | As
Reported | | | Impact
of
Charge3 | | | Excluding
Impact of
Charge3
(Non-
GAAP) | |
REVENUES: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Health plan services premiums | | $ | 3,082,133 | | | | | | | $ | 3,082,133 | | | $ | 12,392,006 | | | | | | | $ | 12,392,006 | | | $ | 3,166,877 | | | | | | | $ | 3,166,877 | |
Government contracts | | | 751,604 | | | | | | | | 751,604 | | | | 2,835,261 | | | | | | | | 2,835,261 | | | | 758,507 | | | | | | | | 758,507 | |
Net investment income | | | 24,536 | | | | | | | | 24,536 | | | | 91,042 | | | | (14,642 | ) | | | 105,684 | | | | 27,691 | | | | | | | | 27,691 | |
Administrative services fees and other income | | | 11,209 | | | | | | | | 11,209 | | | | 48,280 | | | | (3,400 | ) | | | 51,680 | | | | 15,578 | | | | | | | | 15,578 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 3,869,482 | | | | — | | | | 3,869,482 | | | | 15,366,589 | | | | (18,042 | ) | | | 15,384,631 | | | | 3,968,653 | | | | — | | | | 3,968,653 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
EXPENSES: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Health plan services | | | 2,629,398 | | | | (5,700 | ) | | | 2,635,098 | | | | 10,762,657 | | | | 37,496 | | | | 10,725,161 | | | | 2,734,984 | | | | (571 | ) | | | 2,735,555 | |
Government contracts | | | 718,893 | | | | | | | | 718,893 | | | | 2,702,573 | | | | | | | | 2,702,573 | | | | 716,323 | | | | | | | | 716,323 | |
General and administrative | | | 347,128 | | | | 53,535 | | | | 293,593 | | | | 1,291,059 | | | | 119,540 | | | | 1,171,519 | | | | 319,451 | | | | 19,495 | | | | 299,956 | |
Selling | | | 92,314 | | | | | | | | 92,314 | | | | 360,381 | | | | | | | | 360,381 | | | | 83,275 | | | | | | | | 83,275 | |
Depreciation and amortization | | | 17,271 | | | | | | | | 17,271 | | | | 59,878 | | | | | | | | 59,878 | | | | 12,689 | | | | | | | | 12,689 | |
Interest | | | 10,523 | | | | | | | | 10,523 | | | | 42,909 | | | | | | | | 42,909 | | | | 10,264 | | | | | | | | 10,264 | |
Asset impairments | | | — | | | | | | | | — | | | | — | | | | | | | | — | | | | 170,570 | | | | 170,570 | | | | — | |
Loss on sale of businesses | | | — | | | | | | | | — | | | | — | | | | | | | | — | | | | — | | | | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 3,815,527 | | | | 47,835 | | | | 3,767,692 | | | | 15,219,457 | | | | 157,036 | | | | 15,062,421 | | | | 4,047,556 | | | | 189,494 | | | | 3,858,062 | |
| | | | | | | | | |
Income (loss) from operations before income taxes | | | 53,955 | | | | (47,835 | ) | | | 101,790 | | | | 147,132 | | | | (175,078 | ) | | | 322,210 | | | | (78,903 | ) | | | (189,494 | ) | | | 110,591 | |
Income tax provision (benefit) | | | 18,420 | | | | (20,227 | ) | | | 38,647 | | | | 52,129 | | | | (70,951 | ) | | | 123,080 | | | | (12,881 | ) | | | (53,890 | ) | | | 41,009 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 35,535 | | | $ | (27,608 | ) | | $ | 63,143 | | | $ | 95,003 | | | $ | (104,127 | ) | | $ | 199,130 | | | $ | (66,022 | ) | | $ | (135,604 | ) | | $ | 69,582 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
Basic earnings (loss) per share | | $ | 0.34 | | | | | | | $ | 0.61 | | | $ | 0.89 | | | | | | | $ | 1.87 | | | $ | (0.64 | ) | | | | | | $ | 0.67 | |
Diluted earnings (loss) per share | | $ | 0.34 | | | | | | | $ | 0.61 | | | $ | 0.88 | | | | | | | $ | 1.85 | | | $ | (0.64 | ) | | | | | | $ | 0.67 | |
| | | | | | | | | |
Weighted average shares outstanding: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | | 103,694 | | | | | | | | 103,694 | | | | 106,532 | | | | | | | | 106,532 | | | | 103,873 | | | | | | | | 103,873 | |
Diluted | | | 104,063 | | | | | | | | 104,063 | | | | 107,610 | | | | | | | | 107,610 | | | | 103,873 | | | | | | | | 104,432 | |
| | | | | | | | | |
Pretax margin | | | 1.4 | % | | | | | | | 2.6 | % | | | 1.0 | % | | | | | | | 2.1 | % | | | -2.0 | % | | | | | | | 2.8 | % |
Health plan services MCR | | | 85.3 | % | | | | | | | 85.5 | % | | | 86.9 | % | | | | | | | 86.5 | % | | | 86.4 | % | | | | | | | 86.4 | % |
Government contracts cost ratio | | | 95.6 | % | | | | | | | 95.6 | % | | | 95.3 | % | | | | | | | 95.3 | % | | | 94.4 | % | | | | | | | 94.4 | % |
G&A expense ratio | | | 11.2 | % | | | | | | | 9.5 | % | | | 10.4 | % | | | | | | | 9.4 | % | | | 10.0 | % | | | | | | | 9.4 | % |
Selling costs ratio | | | 3.0 | % | | | | | | | 3.0 | % | | | 2.9 | % | | | | | | | 2.9 | % | | | 2.6 | % | | | | | | | 2.6 | % |
Effective tax rate | | | 34.1 | % | | | | | | | 38.0 | % | | | 35.4 | % | | | | | | | 38.2 | % | | | 16.3 | % | | | | | | | 37.1 | % |
| 1 | Includes a $5.7 million pretax benefit for a litigation reserve true-up included in health plan services expenses and a $53.5 million pretax charge primarily for severance and other expenses related to the company’s operations strategy and included in G&A. |
| 2 | Includes a $175.1 million pretax charge in total of which: |
(a) $119.6 million was primarily related to severance and other expenses associated with the company’s operations strategy and included in G&A expenses
(b) $37.5 million was included in health plan services expenses for estimated litigation liability and regulatory actions for the company’s rescission practices in Arizona and California and for the execution of the settlement agreement for the McCoy,et al., lawsuits
(c) $14.6 million investment impairment charge taken in the third quarter of 2008 and included in net investment income
(d) $3.4 million pretax charge related to the estimated loss on the sale of the assets of a subsidiary taken in the first quarter of 2008 and included in other income
| 3 | Includes a $0.6 million pretax benefit for a litigation reserve true-up included in health care costs, a $19.5 million pretax charge primarily for IT systems and other expenses related to the company’s operations strategy and included in G&A expenses and a $170.6 million pretax asset impairment charge for goodwill, intangible and IT-related assets related to the sale of our Northeast health plans. |
Page 10
Health Net, Inc.
Reconciliation of Non-GAAP Financial Measures
Operating Results Excluding Charges
(Amounts in thousands, except per share, PMPM and ratio data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Quarter Ended December 31, 2009 | | | Year Ended December 31, 2009 | |
| | | As
Reported | | | Impact
of
Charges4 | | | Divested
Operations5 | | | Excluding
Impact of
Charges and
Divestiture4,5
(Non-
GAAP) | | | As
Reported | | | Impact
of
Charge6 | | | Divested
Operations5 | | | Excluding
Impact of
Charge and
Divestiture5,6
(Non-
GAAP) | |
REVENUES: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Health plan services premiums | | $ | 2,981,678 | | | | | | | $ | 5,483 | | | $ | 2,976,195 | | | $ | 12,440,589 | | | | | | | $ | 5,483 | | | $ | 12,435,106 | |
Government contracts | | | 754,766 | | | | | | | | | | | | 754,766 | | | | 3,104,700 | | | | | | | | | | | | 3,104,700 | |
Net investment income | | | 33,486 | | | | | | | | 1,126 | | | | 32,360 | | | | 105,930 | | | | | | | | 1,126 | | | | 104,804 | |
Administrative services fees and other income | | | 28,165 | | | | | | | | 15,113 | | | | 13,052 | | | | 62,022 | | | | | | | | 15,113 | | | | 46,909 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 3,798,095 | | | | — | | | | 21,722 | | | | 3,776,373 | | | | 15,713,241 | | | | — | | | | 21,722 | | | | 15,691,519 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
EXPENSES: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Health plan services | | | 2,557,149 | | | | | | | | 5,508 | | | | 2,551,641 | | | | 10,731,951 | | | | (4,805 | ) | | | 5,508 | | | | 10,731,248 | |
Government contracts | | | 703,721 | | | | 3,632 | | | | | | | | 700,089 | | | | 2,936,090 | | | | 3,632 | | | | | | | | 2,932,458 | |
General and administrative | | | 359,039 | | | | 38,723 | | | | 20,588 | | | | 299,728 | | | | 1,365,586 | | | | 124,799 | | | | 20,588 | | | | 1,220,199 | |
Selling | | | 84,068 | | | | | | | | 249 | | | | 83,819 | | | | 330,112 | | | | | | | | 249 | | | | 329,863 | |
Depreciation and amortization | | | 8,605 | | | | | | | | 589 | | | | 8,016 | | | | 53,044 | | | | | | | | 589 | | | | 52,455 | |
Interest | | | 9,538 | | | | | | | | | | | | 9,538 | | | | 40,887 | | | | | | | | | | | | 40,887 | |
Asset impairments | | | 4,309 | | | | 4,309 | | | | | | | | — | | | | 174,879 | | | | 174,879 | | | | | | | | — | |
Loss on sale of businesses | | | 105,931 | | | | 105,931 | | | | | | | | — | | | | 105,931 | | | | 105,931 | | | | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 3,832,360 | | | | 152,595 | | | | 26,934 | | | | 3,652,831 | | | | 15,738,480 | | | | 404,436 | | | | 26,934 | | | | 15,307,110 | |
| | | | | | | | |
Income (loss) from operations before income taxes | | | (34,265 | ) | | | (152,595 | ) | | | (5,212 | ) | | | 123,542 | | | | (25,239 | ) | | | (404,436 | ) | | | (5,212 | ) | | | 384,409 | |
Income tax provision (benefit) | | | 10,892 | | | | (38,149 | ) | | | (2,059 | ) | | | 51,100 | | | | 23,765 | | | | (123,533 | ) | | | (2,059 | ) | | | 149,357 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | (45,157 | ) | | $ | (114,446 | ) | | $ | (3,153 | ) | | $ | 72,442 | | | $ | (49,004 | ) | | $ | (280,903 | ) | | $ | (3,153 | ) | | $ | 235,052 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
Basic earnings (loss) per share | | $ | (0.43 | ) | | | | | | | | | | $ | 0.70 | | | $ | (0.47 | ) | | | | | | | | | | $ | 2.26 | |
Diluted earnings (loss) per share | | $ | (0.43 | ) | | | | | | | | | | $ | 0.69 | | | $ | (0.47 | ) | | | | | | | | | | $ | 2.25 | |
| | | | | | | | |
Weighted average shares outstanding: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | | 103,902 | | | | | | | | | | | | 103,902 | | | | 103,849 | | | | | | | | | | | | 103,849 | |
Diluted | | | 103,902 | | | | | | | | | | | | 104,626 | | | | 103,849 | | | | | | | | | | | | 104,412 | |
| | | | | | | | |
Pretax margin | | | -0.9 | % | | | | | | | | | | | 3.3 | % | | | -0.2 | % | | | | | | | | | | | 2.4 | % |
Health plan services MCR | | | 85.8 | % | | | | | | | | | | | 85.7 | % | | | 86.3 | % | | | | | | | | | | | 86.3 | % |
Government contracts cost ratio | | | 93.2 | % | | | | | | | | | | | 92.8 | % | | | 94.6 | % | | | | | | | | | | | 94.5 | % |
G&A expense ratio | | | 11.9 | % | | | | | | | | | | | 10.0 | % | | | 10.9 | % | | | | | | | | | | | 9.8 | % |
Selling costs ratio | | | 2.8 | % | | | | | | | | | | | 2.8 | % | | | 2.7 | % | | | | | | | | | | | 2.7 | % |
Effective tax rate | | | -31.8 | % | | | | | | | | | | | 41.4 | % | | | -94.2 | % | | | | | | | | | | | 38.9 | % |
| 4 | Includes a $3.6 million charge for TRICARE contract procurement costs included in government contracts expenses and a $38.7 million operations strategy charge and Northeast divestiture related expenses, each of which are included in G&A expenses, and an asset impairment and loss on the sale of Northeast health plans recorded in 2009. |
| 5 | Represents revenues and expenses related to the run-off of the Northeast health plans divested on December 11, 2009. |
| 6 | Includes a $4.8 million pretax benefit for a litigation reserve true-up included in health care costs, $3.6 million charge for TRICARE contract procurement costs included in government contracts expenses, and $124.8 million of operations strategy and Northeast sale related expenses included in G&A expenses, and an asset impairment and loss on the sale of Northeast health plans recorded in 2009. |
Page 11
Health Net, Inc.
Condensed Consolidated Balance Sheets
(Amounts in thousands, except ratio data)
| | | | | | | | | | | | |
| | | December 31,
2008 | | | September 30,
2009 | | | December 31,
2009 | |
ASSETS | | | | | | | | | | | | |
Current Assets | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 668,201 | | | $ | 463,311 | | | $ | 682,803 | |
Investments - available for sale | | | 1,504,658 | | | | 1,309,864 | | | | 1,376,142 | |
Premiums receivable, net | | | 307,529 | | | | 307,488 | | | | 288,719 | |
Amounts receivable under government contracts | | | 241,269 | | | | 224,495 | | | | 270,810 | |
Incurred but not reported (IBNR) health care costs receivable under TRICARE North contract | | | 302,022 | | | | 323,207 | | | | 281,140 | |
Other receivables | | | 254,026 | | | | 183,258 | | | | 111,608 | |
Deferred taxes | | | 87,712 | | | | 101,043 | | | | 46,527 | |
Assets held for sale | | | — | | | | 848,601 | | | | — | |
Other assets | | | 179,649 | | | | 195,799 | | | | 187,086 | |
| | | | | | | | | | | | |
Total current assets | | | 3,545,066 | | | | 3,957,066 | | | | 3,244,835 | |
Property and equipment, net | | | 202,356 | | | | 136,819 | | | | 131,480 | |
Goodwill, net | | | 751,949 | | | | 611,886 | | | | 611,886 | |
Other intangible assets, net | | | 91,289 | | | | 29,478 | | | | 28,108 | |
Deferred taxes | | | 81,771 | | | | 44,119 | | | | 89,479 | |
Investments - available for sale-noncurrent | | | — | | | | 11,435 | | | | 20,870 | |
Other noncurrent assets | | | 143,919 | | | | 103,093 | | | | 155,993 | |
| | | | | | | | | | | | |
Total Assets | | $ | 4,816,350 | | | $ | 4,893,896 | | | $ | 4,282,651 | |
| | | | | | | | | | | | |
| | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | | |
Current Liabilities | | | | | | | | | | | | |
Reserves for claims and other settlements | | $ | 1,338,149 | | | $ | 951,778 | | | $ | 951,655 | |
Health care and other costs payable under government contracts | | | 69,876 | | | | 61,037 | | | | 90,815 | |
IBNR health care costs payable under TRICARE North contract | | | 302,022 | | | | 323,207 | | | | 281,140 | |
Unearned premiums | | | 180,548 | | | | 124,828 | | | | 135,772 | |
Borrowings under amortizing financing facility | | | 27,335 | | | | 119,915 | | | | 104,007 | |
Liabilities held for sale | | | — | | | | 355,530 | | | | — | |
Accounts payable and other liabilities | | | 294,840 | | | | 529,740 | | | | 366,125 | |
| | | | | | | | | | | | |
Total current liabilities | | | 2,212,770 | | | | 2,466,035 | | | | 1,929,514 | |
Senior notes payable | | | 398,276 | | | | 398,429 | | | | 398,480 | |
Borrowings under amortizing financing facility | | | 103,992 | | | | — | | | | — | |
Borrowings under revolving credit facility | | | 150,000 | | | | 100,000 | | | | 100,000 | |
Other noncurrent liabilities | | | 199,186 | | | | 154,087 | | | | 158,874 | |
| | | | | | | | | | | | |
Total Liabilities | | | 3,064,224 | | | | 3,118,551 | | | | 2,586,868 | |
| | | | | | | | | | | | |
| | | |
Stockholders’ Equity | | | | | | | | | | | | |
Common stock | | | 144 | | | | 144 | | | | 154 | |
Additional paid-in capital | | | 1,182,067 | | | | 1,184,761 | | | | 1,190,203 | |
Treasury common stock, at cost | | | (1,367,319 | ) | | | (1,368,854 | ) | | | (1,389,722 | ) |
Retained earnings | | | 1,944,100 | | | | 1,940,253 | | | | 1,895,096 | |
Accumulated other comprehensive (loss) income | | | (6,866 | ) | | | 19,041 | | | | 52 | |
| | | | | | | | | | | | |
Total Stockholders’ Equity | | | 1,752,126 | | | | 1,775,345 | | | | 1,695,783 | |
| | | | | | | | | | | | |
Total Liabilities and Stockholders’ Equity | | $ | 4,816,350 | | | $ | 4,893,896 | | | $ | 4,282,651 | |
| | | | | | | | | | | | |
Debt-to-Total Capital Ratio | | | 27.9 | % | | | 25.8 | % | | | 26.2 | % |
Page 12
Health Net, Inc.
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
| | | | | | | | | | | | |
| | | Fourth Quarter
Ended
December 31,
2008 | | | Third Quarter
Ended
September 30,
2009 | | | Fourth Quarter
Ended
December 31,
2009 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | | | |
Net Income (loss) | | $ | 35,535 | | | $ | (66,022 | ) | | $ | (45,157 | ) |
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: | | | | | | | | | | | | |
Amortization and depreciation | | | 17,271 | | | | 12,689 | | | | 8,605 | |
Share-based compensation | | | 1,294 | | | | (5,025 | ) | | | 4,914 | |
Deferred income taxes | | | (11,942 | ) | | | (45,976 | ) | | | 52,629 | |
Excess tax benefits from share-based compensation | | | — | | | | — | | | | (23 | ) |
Loss on sale of business | | | — | | | | — | | | | 105,931 | |
Asset and investment impairment charges | | | 27,895 | | | | 170,570 | | | | 4,309 | |
Other changes | | | (671 | ) | | | (5,362 | ) | | | (11,688 | ) |
Changes in assets and liabilities, net of the effects of dispositions: | | | | | | | | | | | | |
Premiums receivable and unearned premiums | | | (29,008 | ) | | | 48,341 | | | | 27,352 | |
Other current assets, receivables and noncurrent assets | | | (110,750 | ) | | | (30,470 | ) | | | 90,372 | |
Amounts receivable/payable under government contracts | | | 7,166 | | | | 39,123 | | | | (16,537 | ) |
Reserves for claims and other settlements | | | (10,532 | ) | | | (48,570 | ) | | | (19,533 | ) |
Accounts payable and other liabilities | | | 20,164 | | | | 85,055 | | | | (48,002 | ) |
| | | | | | | | | | | | |
Net cash (used in) provided by operating activities | | | (53,578 | ) | | | 154,353 | | | | 153,172 | |
| | | | | | | | | | | | |
| | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | |
Sales of investments | | | 514,047 | | | | 465,732 | | | | 680,676 | |
Maturities of investments | | | 62,117 | | | | 37,355 | | | | 48,194 | |
Purchases of investments | | | (218,258 | ) | | | (520,733 | ) | | | (689,740 | ) |
Proceeds from sale of property and equipment | | | — | | | | 12 | | | | — | |
Purchases of property and equipment | | | (12,911 | ) | | | (8,018 | ) | | | (7,461 | ) |
Net cash impact from sale of businesses | | | — | | | | — | | | | (173,422 | ) |
Sales and purchases of restricted investments and other | | | 4,220 | | | | 6,558 | | | | (924 | ) |
| | | | | | | | | | | | |
Net cash provided by (used in) investing activities | | | 349,215 | | | | (19,094 | ) | | | (142,677 | ) |
| | | | | | | | | | | | |
| | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | |
Proceeds from exercise of stock options and employee stock purchases | | | — | | | | 485 | | | | 869 | |
Repurchases of common stock | | | (17 | ) | | | (29 | ) | | | (12,615 | ) |
Excess tax benefits from share-based compensation | | | — | | | | — | | | | 23 | |
Borrowings under financing arrangements | | | 175,000 | | | | — | | | | 55,000 | |
Repayment of borrowings under financing arrangements | | | (142,540 | ) | | | — | | | | (72,540 | ) |
| | | | | | | | | | | | |
Net cash provided by (used in) financing activities | | | 32,443 | | | | 456 | | | | (29,263 | ) |
| | | | | | | | | | | | |
| | | |
Net increase (decrease) in cash and cash equivalents | | | 328,080 | | | | 135,715 | | | | (18,768 | ) |
Net change in cash and cash equivalents classified as assets held for sale | | | — | | | | (238,260 | ) | | | 238,260 | |
| | | |
Cash and cash equivalents, beginning of period | | | 340,121 | | | | 565,856 | | | | 463,311 | |
| | | | | | | | | | | | |
| | | |
Cash and cash equivalents, end of period | | $ | 668,201 | | | $ | 463,311 | | | $ | 682,803 | |
| | | | | | | | | | | | |
Page 13
Health Net, Inc.
Notes to Consolidated Financial Statements
Notes:
| (a) | Management believes that days claims payable (adjusting for divested businesses, 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 (adjusting for divested businesses, 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 2009 | | | Q4 2009 | | | FY 2009 | |
| | | | | (Dollars in millions) | |
| | Reserve for Claims and Other Settlements | | $ | 1,195.0 | | | $ | 951.7 | | | $ | 951.7 | |
| | Less: Reserve for Claims and Other Settlements for Divested Businesses | | | (243.2 | ) | | | — | | | | — | |
| | Less: Capitation Payable, Provider and Other Claim Settlements and Medicare Part D | | | (159.2 | ) | | | (198.0 | ) | | | (198.0 | ) |
| | | | | | | | | | | | | | |
| | Reserve for Claims and Other Settlements - Adjusted | | | 792.6 | | | | 753.7 | | | | 753.7 | |
| | | | |
(1) | | Average Reserve for Claims and Other Settlements | | | 1,219.3 | | | | 1,073.4 | | | | 1,144.9 | |
| | | | |
(2) | | Average Reserve for Claims and Other Settlements - Adjusted | | | 788.1 | | | | 773.2 | | | | 808.9 | |
| | | | |
(3) | | Health Plan Services Cost | | | 2,735.0 | | | | 2,557.1 | | | | 10,732.0 | |
| | Less: Health Plan Services Cost for Divested Businesses | | | (589.9 | ) | | | (460.7 | ) | | | (2,176.6 | ) |
| | Less: Capitation Payable, Provider and Other Claim Settlements and Medicare Part D | | | (837.3 | ) | | | (818.4 | ) | | | (3,438.9 | ) |
| | | | | | | | | | | | | | |
(4) | | Health Plan Services Cost - Adjusted | | | 1,307.8 | | | | 1,278.0 | | | | 5,116.5 | |
| | | | |
(5) | | Number of Days in Period | | | 92 | | | | 92 | | | | 365 | |
= (1) / (3) * (5) Days Claims Payable | | | 41.0 | | | | 38.6 | | | | 38.9 | |
= (2) / (4) * (5) Days Claims Payable - Adjusted | | | 55.4 | | | | 55.7 | | | | 57.7 | |
Page 14
Health Net, Inc.
Reconciliation of Reserves for Claims and Other Settlements
(In millions)
| | | | | | | | | | | |
| | | Health Plan Services |
| | | Year 2009 | | | Year 2008 | | | Year 2007 |
Reserve for claims (a), beginning of period | | $ | 957.1 | | | $ | 838.7 | | | $ | 754.2 |
| | | |
Incurred claims related to: | | | | | | | | | | | |
Current Year | | | 6,422.8 | | | | 6,372.2 | | | | 5,790.7 |
Prior Years (c) | | | (80.0 | ) | | | (8.3 | ) | | | 0.6 |
| | | | | | | | | | | |
Total Incurred (b) | | | 6,342.8 | | | | 6,363.9 | | | | 5,791.3 |
| | | |
Paid claims related to: | | | | | | | | | | | |
Current Year | | | 5,572.2 | | | | 5,443.2 | | | | 4,972.3 |
Prior Years | | | 857.8 | | | | 802.3 | | | | 734.5 |
| | | | | | | | | | | |
| | | |
Total Paid (b) | | | 6,430.0 | | | | 6,245.5 | | | | 5,706.8 |
| | | |
Less: Divested businesses | | | (177.7 | ) | | | — | | | | — |
| | | | | | | | | | | |
| | | |
Reserve for claims (a), end of period | | | 692.2 | | | | 957.1 | | | | 838.7 |
Add: | | | | | | | | | | | |
Claims Payable (d) | | | 165.6 | | | | 284.8 | | | | 365.6 |
Other (e) | | | 93.9 | | | | 96.2 | | | | 96.1 |
| | | | | | | | | | | |
| | | |
Reserves for claims and other settlements, end of period | | $ | 951.7 | | | $ | 1,338.1 | | | $ | 1,300.4 |
| | | | | | | | | | | |
| (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. |
Page 15
