Health Net 2003 Annual Report Download - page 56

• we must maintain our consolidated net worth at a level equal to at least $945 million (less the sum of a pretax
charge associated with our sale of the Florida Health Plan and specified pretax charges relating to the write-off of
goodwill) plus 50% of our consolidated net income and 100% of our net cash proceeds from equity issuances.
The other covenants in the credit agreements include, among other things, limitations on incurrence of indebtedness
by subsidiaries of Health Net, Inc. and on our ability to:
• incur liens;
• extend credit and make investments in non-affiliates;
• merge, consolidate, dispose of stock in subsidiaries, lease or otherwise dispose of assets and liquidate or dissolve;
• substantially alter the character or conduct of the business of Health Net, Inc. or any of its “significant
subsidiaries” within the meaning of Rule 1-02 under Regulation S-X promulgated by the SEC;
• make restricted payments, including dividends and other distributions on capital stock and redemptions of capital
stock if our debt is rated below investment grade by either Standard and Poor’s Rating Service or Moody’s
Investor Services; and
• become subject to other agreements or arrangements that restrict (1) the payment of dividends by any Health Net,
Inc. subsidiary, (2) the ability of Health Net, Inc. subsidiaries to make or repay loans or advances to lenders, (3)
the ability of any subsidiary of Health Net, Inc. to guarantee our indebtedness or (4) the creation of any lien on
property, provided that the foregoing shall not apply to (a) restrictions and conditions imposed by regulatory
authorities, or (b) restrictions imposed under either the 364-day revolving credit facility or the five-year
revolving credit facility.
As of December 31, 2003, we were in compliance with the covenants contained in the credit facilities.
Committed loans under the credit facilities bear interest at a rate equal to either (1) the greater of the federal funds
rate plus 0.5% and the applicable prime rate or (2) LIBOR plus a margin that depends on our senior unsecured credit
rating. Loans obtained through the bidding process bear interest at a rate determined in the bidding process. We pay fees
on outstanding letters of credit and a facility fee, computed as a percentage of the lenders’ commitments under the credit
facilities, which varies from 0.130% to 0.320% per annum for the 364-day credit facility and from 0.155% to 0.375% per
annum for the five-year credit facility, depending on our senior unsecured credit rating.
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
Class A 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.
Contractual Obligations
Our significant contractual obligations as of December 31, 2003 and their impact on our cash flows and liquidity are
summarized below for the years ending December 31 (amounts in millions):
Total 2004 2005 2006 2007 2008
There-
after
Long-term debt ...................................... $400.0 —————$400.0
Operating leases ..................................... 258.7 $40.9 $37.2 $32.7 $30.7 $24.3 92.9
Otherpurchaseobligations ............................. 43.5 23.0 9.2 10.2 1.1 — —
Deferred compensation ................................ 35.8 8.0 5.1 5.0 2.5 2.2 13.0
Estimated future payments for Pension and other benefits .... 15.0 1.0 1.2 1.2 1.3 1.3 9.0(a)
(a) Represents estimated future payments from 2009 through 2013.
Operating Leases
We lease office space under various operating leases. Certain leases are cancelable with substantial penalties. See
“Part I. Item 2. — Properties” for additional information regarding our leases.
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