Health Net 2002 Annual Report Download - page 42

40 | HEALTH NET, INC.
As part of our ongoing general and administrative
expense reduction efforts, during the third quarter of
2001, we finalized a formal plan to reduce operating and
administrative expenses for all business units within the
Company (the 2001 Plan). In connection with the 2001
Plan, we decided on enterprise-wide staff reductions and
consolidations of certain administrative, financial and tech-
nology functions. As of December 31, 2002, we had
completed the 2001 Plan and recorded a $1.5 million true-
up adjustment in severance and related benefit costs.
During 2002, we paid out $26.4 million in total for the
2001 Plan.
2001 Compared to 2000
Net cash provided by operating activities was $546.5
million at December 31, 2001 compared to $366.2 million
at December 31, 2000. The $180.3 million increase in
operating cash flows was due primarily to the increase in
cash collection on the outstanding TRICARE receivables
as part of our global settlement, partially offset by a
decrease in unearned premiums due to timing of cash
receipts, primarily from Medicaid and Medicare, of
approximately $84.7 million net of the effects of the
Florida health plan disposition. In December 2000, our
subsidiary, Health Net Federal Services, Inc., and the
Department of Defense agreed to a settlement of approxi-
mately $389 million for outstanding receivables related to
our three TRICARE contracts and for the completed
contract for the CHAMPUS Reform Initiative.
Approximately $60 million of the settlement amount was
received in December 2000. The majority of the remaining
settlement was received on January 5, 2001, reducing the
amounts receivable under government contracts on the
Company’s balance sheets. The receivable items settled by
this payment included change orders, bid price adjustments,
equitable adjustments and claims. These receivables devel-
oped as a result of TRICARE health care costs rising faster
than the forecasted health care cost trends used in the orig-
inal contract bids, data revisions on formal contract
adjustments, and routine contract changes for benefits.
The net settlement amount of $284 million, after paying
vendors, providers and amounts owed back to the govern-
ment, was applied to the continuing operating needs of the
three TRICARE contracts and to reducing the outstanding
balance of debt on the revolving credit facility.
INVESTING ACTIVITIES
2002 Compared to 2001
Net cash used in investing activities was $182.9 million
during the year ended December 31, 2002 as compared to
net cash used in investing activities of $517.6 million
during the same period in 2001. The $334.7 million
decrease in cash flows used in investing activities is
primarily due to the following:
■A decrease of $252.6 million in net purchases of invest-
ments. During 2001, we repositioned a portion of our
investable assets into investment vehicles with longer
durations within our regulated health plans in order to
increase investment income,
■A decrease of $53.5 million in cash disposed in the sale
of businesses, net of cash received, and
■A decrease of $24.2 million in net purchases of property
and equipment.
2001 Compared to 2000
Net cash used in investing activities was $517.6 million for
December 31, 2001 compared to net cash used in investing
activities of $61.9 million for December 31, 2000. This
increase in cash used in investing activities of $455.7 million
is primarily due to $422.5 million increase in net purchases
of investments. During the fourth quarter of 2001, we
started to reposition our investments within our regulated
plans to increase investment income which resulted in
increased purchases of investments with longer durations.
Effective August 1, 2001, we completed the sale of
our Florida health plan, known as Foundation Health, a
Florida Health Plan, Inc., to Florida Health Plan Holdings
II, L.L.C. In connection with the sale, we received approxi-
mately $49 million which consisted of $23 million in cash,
before net cash sold of $83.1 million, and approximately
$26 million in a secured six-year note bearing eight
percent interest per annum. We also sold the corporate
facility building used by our former Florida health plan to
DGE Properties, L.L.C. for $15 million, payable by a
secured five-year note bearing eight percent interest per
annum. We recorded a $76.1 million pretax loss on the
sales of our Florida health plan and the related corporate
facility building during the second quarter ended
June 30, 2001.
As part of the Florida sale agreement, there will be a
series of true-up processes that will take place during
2003 that could result in additional loss or gain. The true-up
process has not been finalized and we do not have sufficient
information regarding the true-up adjustments to assess
probability or to estimate any adjustment to the recorded
loss on the sale of the Plan as of December 31, 2002.