Health Net 2002 Annual Report Download - page 10

To our stockholders
One. One Company…One Vision…One Future. In 2002, more than 9,000 women and men
who work for Health Net began the journey to become One, devoted to serving our members,
in the words of our new Mission statement, by helping them be healthy, secure and comfortable.
This renewed commitment on the part of every person associated with Health Net capped a
year of continued progress on many fronts. We achieved our financial goals. We made a good
start to the process of establishing a single operating structure throughout the company.
We began the work that will bring us to a single information technology platform by the
middle of 2004.
We strengthened our management team by welcoming a number of new senior business
leaders – Marv Rich, who is responsible for Finance and Operations; Jeff Folick, who runs
our Northeast and Arizona health plans and our behavioral health subsidiary; and Chris
Wing, who oversees our health plans in California and Oregon. These experienced executives
have brought a renewed focus and drive to our company.
We confronted the challenge of rapidly rising health care costs with new benefits and innova-
tive product designs. In sum, 2002 was an eventful and successful year for Health Net and I
am proud of all that our associates accomplished.
FINANCIAL HIGHLIGHTS
As we emerged from our turnaround last year, we set five specific financial targets. We made
significant progress against each one in 2002. They are:
→Earnings per share growth greater than 15 percent – in 2002 we were well above target,
with earnings per share up by 24 percent, excluding one-time items;
→An expanding margin on earnings before interest, taxes, depreciation and amortization
(EBITDA) – in 2002 it was 4.6 percent, up substantially from the 4.0 percent achieved in
2001. This margin excludes investment income and one-time items;
→Cash flow consistent with earnings – in 2002 we produced operating cash flow of
$420 million, well in excess of net income plus depreciation and amortization;
→A stable debt-to-total capital ratio below 30 percent – at year-end 2002, the ratio was
23.4 percent, down from 33.8 percent at the end of 2001. In fact, we reduced debt on our
revolving line of credit to zero during 2002; and
→Return on equity above 20 percent – it was 21.8 percent at year-end 2002, compared with
20.2 percent at the end of last year, again excluding one-time items.
Our financial success depends on our ability to serve our members by providing them access
to health care that is affordable. Because we were able to do this more effectively and effi-
ciently than we had in past years, our earnings grew to $1.82 per diluted share from the $.69
per diluted share we earned in 2001. Both of these numbers incorporate several one-time items,
including severance and software write-downs, necessitated by our ongoing efforts to transform
8|HEALTH NET, INC.