Health Net 2003 Annual Report Download - page 37

Year Ended December 31,
2003 2002 2001 2000 1999
DILUTED EARNINGS (LOSS) PER SHARE:
Income from continuing operations ..................................... $ 2.73 $ 1.86 $ 0.65 $ 1.33 $ 1.21
Loss on settlement from disposition of discontinued operations,
netoftax ....................................................... (0.75) ————
Cumulative effect of changes in accounting principle ....................... — (0.07) — — (0.05)
Net .............................................................. $ 1.98 $ 1.79 $ 0.65 $ 1.33 $ 1.16
Weighted average shares outstanding:
Basic ............................................................. 115,999 124,221 123,192 122,471 122,289
Diluted ........................................................... 118,278 126,004 125,186 123,453 122,343
BALANCE SHEET DATA (2):
Cash and cash equivalents and investments available for sale ................ $1,943,660 $1,841,768 $1,764,289 $1,533,637 $1,467,142
Total assets ........................................................ 3,549,276 3,460,751 3,566,841 3,670,116 3,696,481
Revolving credit facilities and capital leases .............................. — — 195,182 766,450 1,039,352
Seniornotespayable ................................................ 398,963 398,821 398,678 — —
Stockholders’ equity ................................................ 1,294,225 1,300,416 1,159,925 1,061,131 891,199
OPERATING CASH FLOW ........................................ $ 379,772 $ 413,517 $ 544,619 $ 366,163 $ 297,128
(1) See Note 3 to the Consolidated Financial Statements for discussion of dispositions during 2003, 2002 and 2001 impacting the comparability of
information. In addition, we sold our non-affiliate pharmacy benefits management operations, our health plans in Utah, Washington, New Mexico,
Louisiana, Texas and Oklahoma, our two hospitals, a third-party administrator subsidiary and a PPO network subsidiary in 1999.
(2) No cash dividends were declared in each of the years presented.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion of our financial condition and results of operations should be read in conjunction with our
consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. The
following discussion contains forward-looking statements that involve known and unknown risks and uncertainties,
including those set forth in the section entitled “Risk Factors” in this Annual Report on Form 10-K. This Management’s
Discussion and Analysis of Financial Condition and Results of Operations should be read in its entirety, since it contains
detailed information that is important to understanding Health Net, Inc. and its subsidiaries’ results and financial
condition. The Executive Summary below is qualified in its entirety by the full Management’s Discussion and Analysis of
Financial Condition and Results of Operations and the information contained in the Executive Summary is as of
March 15, 2004.
Executive Summary
We are an integrated managed care organization that delivers managed health care services through health plans and
government sponsored managed care plans. Our health plans and government contracts subsidiaries provide health
benefits through our HMOs, PPOs and POS plans to approximately 5.3 million individuals in 14 states. We also offer
managed health care products related to behavioral health and prescription drugs. In addition, we own health and life
insurance companies licensed to sell EPO, PPO, POS and indemnity products, as well as auxiliary non-health products in
36 states and the District of Columbia.
We operate health plans in six states (Arizona, California, Connecticut, New Jersey, New York and Oregon) and
offer our products to commercial, Medicare and Medicaid members. We have sold or otherwise disposed of a number of
health plans over the past several years to focus our sales and marketing efforts on these six plans in populous and
contiguous markets, most notably Southern California and the New York metropolitan area, which we believe offer
sustained growth opportunities.
Operating Highlights and Outlook for 2004
Over the past several years, our overall operating performance has improved. Our Health Plan Medical Care Ratio
(“MCR”) was 82.7% for 2003, an 80 basis point decline from 2002. Our goal is to achieve a modest improvement of
approximately 20 to 50 basis points in our MCR each year. We exceeded this range in 2003 as health care costs rose more
slowly than expected. Our Government contracts cost ratio, which includes both health care and administrative costs, has
remained relatively stable in the past three years and we expect it to continue to remain stable over the next several years.
At the end of 2003, our debt-to-capital ratio was 23.5%, well below our stated target of 30%. Our administrative ratio
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