Health Net 2010 Annual Report Download - page 115

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash
equivalents, investments and premiums receivable. All cash equivalents and investments are managed within
established guidelines, which provide us diversity among issuers. Concentrations of credit risk with respect to
premiums receivable are limited due to the large number of payers comprising our customer base. Our 10 largest
employer group premiums receivable balances within each of our plans accounted for 17% and 20% of our total
premiums receivable as of December 31, 2010 and 2009, respectively. Our Medicare receivable from CMS
represented 28% of total receivables as of December 31, 2010, compared with 26% as of December 31, 2009.
Our 10 largest employer group premiums within each of our plans accounted for 17%, 17% and 18% of our
health plan services premium revenues for the years ended December 31, 2010, 2009 and 2008, respectively. The
federal government is the only customer of our Government Contracts segment representing 100% of our
Government Contracts revenue. In addition, the federal government is a significant customer of the Company’s
Western Region Operations segment as a result of its contract with CMS for coverage of Medicare-eligible
individuals. Medicare revenues accounted for 30%, 30% and 28% of our health plan premium revenues in 2010,
2009 and 2008, respectively. These amounts include revenues from our Northeast business through the closing
date of the Northeast Sale for 2009 and 2008.
Earnings Per Share
Basic earnings per share excludes dilution and reflects net income divided by the weighted average shares of
common stock outstanding during the periods presented. Diluted earnings per share is based upon the weighted
average shares of common stock and dilutive common stock equivalents (this reflects the potential dilution that
could occur if stock options were exercised and restricted stock units (RSUs) and restricted shares were vested)
outstanding during the periods presented.
Common stock equivalents arising from dilutive stock options, restricted common stock and RSUs are
computed using the treasury stock method. For the year ended December 31, 2010, this amounted to 1,000,000
shares, which included 516,000 aggregate common stock equivalents from dilutive RSUs. For the year ended
December 31, 2009, 563,000 shares of common stock equivalents, including 513,000 common stock equivalents
from dilutive RSUs were excluded from the computation of loss per share due to their anti-dilutive effect. For the
year ended December 31, 2008, common stock equivalents amounted to 1,078,000 shares, which included
299,000 aggregate common stock equivalents from dilutive RSUs and restricted common stock.
RSUs and options to purchase an aggregate of 2,563,000 and 3,051,000 shares of common stock were
considered anti-dilutive during 2010 and 2008, respectively, and were not included in the computation of diluted
earnings per share. Options expire at various times through April 2019 (see Note 8).
We completed our $700 million stock repurchase program (the Completed Stock Repurchase Program) in
February 2010. On March 18, 2010, our Board of Directors authorized a new $300 million stock repurchase
program (the New Stock Repurchase Program). The remaining authorization under our New Stock Repurchase
Program as of December 31, 2010 was $149.8 million. See Note 9 for more information regarding these stock
repurchase programs.
Comprehensive Income
Comprehensive income includes all changes in stockholders’ equity (except those arising from transactions
with stockholders) and includes net income, net unrealized appreciation (depreciation), after tax, on investments
available-for-sale and prior service cost and net loss related to our defined benefit pension plan (see Note 10).
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