UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: September 30, 2004
or
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 1-12718
HEALTH NET, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 95-4288333 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 21650 Oxnard Street, Woodland Hills, CA | 91367 | |
| (Address of principal executive offices) | (Zip Code) | |
(818) 676-6000
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). x Yes ¨ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:
The number of shares outstanding of the registrant’s Common Stock as of November 3, 2004 was 111,031,260 (excluding 23,173,029 shares held as treasury stock).
INDEX TO FORM 10-Q
2
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
| September 30, 2004 |
December 31, 2003 |
|||||||
| ASSETS |
||||||||
| Current Assets: |
||||||||
| Cash and cash equivalents |
$ | 622,903 | $ | 860,871 | ||||
| Investments—available for sale |
1,082,969 | 1,082,789 | ||||||
| Premiums receivable, net |
118,201 | 144,968 | ||||||
| Amounts receivable under government contracts |
136,335 | 90,928 | ||||||
| Incurred but not reported (IBNR) health care costs receivable under TRICARE North contract |
114,618 | — | ||||||
| Reinsurance and other receivables |
102,494 | 105,074 | ||||||
| Deferred taxes |
41,162 | 43,008 | ||||||
| Other assets |
99,578 | 84,842 | ||||||
| Total current assets |
2,318,260 | 2,412,480 | ||||||
| Property and equipment, net |
185,291 | 190,900 | ||||||
| Goodwill, net |
723,595 | 729,506 | ||||||
| Other intangible assets, net |
22,716 | 19,918 | ||||||
| Deferred taxes |
18,327 | 44,769 | ||||||
| Other noncurrent assets |
249,912 | 151,703 | ||||||
| Total Assets |
$ | 3,518,101 | $ | 3,549,276 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current Liabilities: |
||||||||
| Reserves for claims and other settlements |
$ | 990,240 | $ | 1,024,550 | ||||
| Health care and other costs payable under government contracts |
201,494 | 256,009 | ||||||
| IBNR health care costs payable under TRICARE North contract |
114,618 | — | ||||||
| Unearned premiums |
78,832 | 178,115 | ||||||
| Accounts payable and other liabilities |
296,782 | 315,031 | ||||||
| Total current liabilities |
1,681,966 | 1,773,705 | ||||||
| Senior notes |
401,750 | 398,963 | ||||||
| Other noncurrent liabilities |
81,657 | 82,383 | ||||||
| Total Liabilities |
2,165,373 | 2,255,051 | ||||||
| Commitments and contingencies |
||||||||
| Stockholders’ Equity: |
||||||||
| Common stock and additional paid-in capital |
805,426 | 789,392 | ||||||
| Restricted common stock |
6,483 | 5,885 | ||||||
| Unearned compensation |
(3,999 | ) | (3,995 | ) | ||||
| Treasury common stock, at cost |
(632,926 | ) | (549,102 | ) | ||||
| Retained earnings |
1,180,009 | 1,051,776 | ||||||
| Accumulated other comprehensive (loss) income |
(2,265 | ) | 269 | |||||
| Total Stockholders’ Equity |
1,352,728 | 1,294,225 | ||||||
| Total Liabilities and Stockholders’ Equity |
$ | 3,518,101 | $ | 3,549,276 | ||||
See accompanying notes to condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
(Unaudited)
| Three Months Ended September 30, |
|||||||
| 2004 |
2003 |
||||||
| REVENUES |
|||||||
| Health plan services premiums |
$ | 2,393,160 | $ | 2,300,807 | |||
| Government contracts |
525,783 | 482,276 | |||||
| Net investment income |
14,750 | 17,777 | |||||
| Other income |
1,540 | 15,863 | |||||
| Total revenues |
2,935,233 | 2,816,723 | |||||
| EXPENSES |
|||||||
| Health plan services |
2,022,870 | 1,890,408 | |||||
| Government contracts |
501,628 | 464,295 | |||||
| General and administrative |
207,187 | 236,723 | |||||
| Selling |
60,410 | 62,562 | |||||
| Depreciation |
10,487 | 13,561 | |||||
| Amortization |
789 | 669 | |||||
| Interest |
8,044 | 9,763 | |||||
| Severance and related benefits |
5,172 | — | |||||
| Loss on sale of business |
400 | — | |||||
| Total expenses |
2,816,987 | 2,677,981 | |||||
| Income from continuing operations before income taxes |
118,246 | 138,742 | |||||
| Income tax provision |
46,391 | 51,930 | |||||
| Income from continuing operations |
71,855 | 86,812 | |||||
| Discontinued operations: |
|||||||
| Loss on settlement from disposition, net of tax |
— | (89,050 | ) | ||||
| Net income (loss) |
$ | 71,855 | $ | (2,238 | ) | ||
| Basic earnings (loss) per share: |
|||||||
| Income from continuing operations |
$ | 0.64 | $ | 0.75 | |||
| Loss on settlement from disposition of discontinued operations, net of tax |
— | (0.77 | ) | ||||
| Net |
$ | 0.64 | $ | (0.02 | ) | ||
| Diluted earnings (loss) per share: |
|||||||
| Income from continuing operations |
$ | 0.64 | $ | 0.74 | |||
| Loss on settlement from disposition of discontinued operations, net of tax |
— | (0.76 | ) | ||||
| Net |
$ | 0.64 | $ | (0.02 | ) | ||
| Weighted average shares outstanding: |
|||||||
| Basic |
111,440 | 115,122 | |||||
| Diluted |
112,397 | 117,827 | |||||
See accompanying notes to condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
(Unaudited)
| Nine Months Ended September 30, |
||||||||
| 2004 |
2003 |
|||||||
| REVENUES |
||||||||
| Health plan services premiums |
$ | 7,196,458 | $ | 6,798,002 | ||||
| Government contracts |
1,534,048 | 1,401,559 | ||||||
| Net investment income |
43,769 | 45,120 | ||||||
| Other income |
4,525 | 40,389 | ||||||
| Total revenues |
8,778,800 | 8,285,070 | ||||||
| EXPENSES |
||||||||
| Health plan services |
6,192,234 | 5,640,564 | ||||||
| Government contracts |
1,461,460 | 1,341,361 | ||||||
| General and administrative |
652,916 | 680,717 | ||||||
| Selling |
183,980 | 174,498 | ||||||
| Depreciation |
30,894 | 43,025 | ||||||
| Amortization |
2,001 | 2,007 | ||||||
| Interest |
23,786 | 29,294 | ||||||
| Severance and related benefits |
22,574 | — | ||||||
| Net gain on sale of businesses |
(1,475 | ) | — | |||||
| Total expenses |
8,568,370 | 7,911,466 | ||||||
| Income from continuing operations before income taxes |
210,430 | 373,604 | ||||||
| Income tax provision |
82,197 | 139,873 | ||||||
| Income from continuing operations |
128,233 | 233,731 | ||||||
| Discontinued operations: |
||||||||
| Loss on settlement from disposition, net of tax |
— | (89,050 | ) | |||||
| Net income |
$ | 128,233 | $ | 144,681 | ||||
| Basic earnings per share: |
||||||||
| Income from continuing operations |
$ | 1.14 | $ | 2.00 | ||||
| Loss on settlement from disposition of discontinued operations, net of tax |
— | (0.76 | ) | |||||
| Net |
$ | 1.14 | $ | 1.24 | ||||
| Diluted earnings per share: |
||||||||
| Income from continuing operations |
$ | 1.13 | $ | 1.96 | ||||
| Loss on settlement from disposition of discontinued operations, net of tax |
— | (0.75 | ) | |||||
| Net |
$ | 1.13 | $ | 1.21 | ||||
| Weighted average shares outstanding: |
||||||||
| Basic |
112,199 | 116,833 | ||||||
| Diluted |
113,348 | 119,036 | ||||||
See accompanying notes to condensed consolidated financial statements.
5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
| Nine Months Ended September 30, |
||||||||
| 2004 |
2003 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Net income |
$ | 128,233 | $ | 144,681 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Amortization and depreciation |
32,895 | 45,032 | ||||||
| Net gain on sale of businesses |
(1,475 | ) | — | |||||
| Loss on settlement from disposition of discontinued operations |
— | 89,050 | ||||||
| Other changes |
1,166 | 4,868 | ||||||
| Changes in assets and liabilities, net of effects of dispositions: | ||||||||