Health Net 2002 Annual Report Download - page 43

HEALTH NET, INC. | 41
Throughout 2000, 2001 and the first quarter of 2002,
the Company provided funding in the amount of approxi-
mately $13.4 million in exchange for preferred stock in
MedUnite, Inc., an independent company, funded and orga-
nized by seven major managed health care companies.
MedUnite, Inc. provides online internet provider connec-
tivity services including eligibility information, referrals,
authorizations, claims submission and payment. The
funded amounts were included in other noncurrent assets.
Effective December 31, 2002, MedUnite, Inc. was sold. See
Note 3 to the consolidated financial statements.
During 2000, we secured an exclusive e-business
connectivity services contract from the Connecticut State
Medical Society IPA, Inc. (CSMS-IPA) for $15.0 million.
CSMS-IPA is an association of medical doctors providing
health care primarily in Connecticut. The amounts paid to
CSMS-IPA for this agreement are included in other
noncurrent assets, and we periodically assess the recover-
ability of such assets.
In 1995, the Company entered into a five-year tax
retention operating lease for the construction of various
health care centers and a corporate facility. Upon expira-
tion in May 2000, the lease was extended for four months
through September 2000 whereupon the Company settled
its obligations under the agreement and purchased the
leased properties which were comprised of three rental
health care centers and a corporate facility for $35.4
million. The health care centers are held as investment
rental properties and are included in other noncurrent
assets. The corporate facility building was used in opera-
tions and included in property and equipment prior to
being sold as part of the Florida sale. The buildings are
being depreciated over a remaining useful life of 35 years.
FINANCING ACTIVITIES
2002 Compared to 2001
Net cash used in financing activities was $305.6 million
during the year ended December 31, 2002 as compared to
$166.0 million during the same period in 2001. The
change was primarily due to the repurchase of 6,519,600
shares of our common stock during 2002 for $159.7
million offset by the increase of $39.1 million in proceeds
received from the exercise of stock options and employee
stock purchases. We also paid down our revolving credit
facility by an additional $18.9 million over 2001.
In April 2002, our Board of Directors authorized us
to repurchase up to $250 million (net of exercise proceeds
and tax benefits from the exercise of employee stock
options) of the Company’s Class A Common Stock.
During 2002, we received approximately $48 million in
cash and $18 million in tax benefits as a result of option
exercises. In 2003, we expect to receive approximately $58
million in cash and $17 million in tax benefits from esti-
mated option exercises during the year. As a result of the
$66 million (in 2002) and $75 million (in 2003) in realized
and estimated benefits, our total authority under our stock
repurchase program is estimated at $390 million based on
the authorization we received from our Board of Directors
to repurchase $250 million (net of exercise proceeds and
tax benefits from the exercise of employee stock options).
Share repurchases are made under this repurchase program
from time to time through open market purchases or
through privately negotiated transactions. We use cash
flows from operations to fund the share repurchases. As of
February 13, 2003, we repurchased 8,364,600 shares at an
average price of $24.83 per share pursuant to this program.
2001 Compared to 2000
Net cash used in financing activities was $166.0 million at
December 31, 2001 compared to $268.1 million at
December 31, 2000. This decrease in net cash used in
financing activities of $102.1 million was primarily due to
lower net repayment of funds previously drawn under the
Company’s credit facility in 2001 compared to 2000.
On April 12, 2001, we completed our offering of
$400 million aggregate principal amount of 8.375 percent
Senior Notes due in April 2011. The effective interest rate
on the notes when all offering costs are taken into account
and amortized over the term of the note is 8.54 percent
per annum. The net proceeds of $395.1 million from the
Senior Notes were used to repay outstanding borrowings
under our then-existing revolving credit facility. On
October 4, 2001, we completed an exchange offer for the
Senior Notes in which the outstanding Senior Notes were
exchanged for an equal aggregate principal amount of new
8.375 percent Senior Notes due 2011 that have been regis-
tered under the Securities Act of 1933, as amended.
Scheduled principal repayments on the senior notes payable for the next five years are as follows (amounts in
thousands):
Contractual Cash Obligations Total 2003 2004 2005 2006 2007 Thereafter
Senior notes $400,000 $400,000