Health Net 2006 Annual Report Download - page 126

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
2006. Included in the total repurchases are 2,689,538 shares repurchased at an initial purchase price of $47.22 per
share, or $127 million, under an accelerated share repurchase (ASR) agreement with JP Morgan executed on
December 14, 2006. Under the ASR agreement, JP Morgan is expected to purchase an equivalent number of
shares in the open market over a period of several months. The repurchased shares are subject to a future price
adjustment based on JP Morgan’s volume-weighted average purchase price for the shares. If JP Morgan’s
volume-weighted average purchase price for the shares is greater than $47.22 per share, we will be required to
pay JP Morgan an amount equal to the difference between the volume-weighted average purchase price and
$47.22 (True-Up). Under the ASR agreement, we may elect to settle the True-Up in shares of Health Net
common stock or cash.
We used net free cash available to fund the share repurchases. The remaining authorization under our stock
repurchase program as of December 31, 2006 was $200 million. As of December 31, 2006, we had repurchased
an aggregate of 25,448,793 shares of our common stock under our stock repurchase program at an average price
of $30.92 for aggregate consideration of approximately $787 million (which amount includes exercise proceeds
and tax benefits the Company had received from the exercise of employee stock options).
We may repurchase shares of our common stock under the stock repurchase program from time to time in
open market transactions, privately negotiated transactions, or through accelerated share repurchase programs, or
by any combination of such methods. The timing of any repurchases and the actual number of shares repurchased
will depend on a variety of factors, including our stock price, corporate and regulatory requirements, restrictions
under our debt obligations, and other market and economic conditions.
Our stock repurchase program does not have an expiration date. The stock purchase program may be
suspended or discontinued at any time. As of December 31, 2006, we have not terminated any repurchase
program prior to its expiration date.
Note 9—Employee Benefit Plans
Defined Contribution Retirement Plans
We and certain of our subsidiaries sponsor defined contribution retirement plans intended to qualify under
Section 401(a) and 401(k) of the Internal Revenue Code of 1986, as amended (the Code). Participation in the
plans is available to substantially all employees who meet certain eligibility requirements and elect to participate.
Employees may contribute up to the maximum limits allowed by Sections 401(k) and 415 of the Code, with
Company contributions based on matching or other formulas. Our expense under these plans totaled $16.0
million, $9.6 million and $9.8 million for the years ended December 31, 2006, 2005 and 2004, respectively, and
is included in general and administrative expense in our consolidated statement of operations.
Deferred Compensation Plans
Effective May 1, 1998, we adopted a voluntary deferred compensation plan pursuant to which certain
management and highly compensated employees are eligible to defer between 5% and 90% of their regular
compensation and between 5% and 100% of their bonuses, and non-employee members of the Board of Directors
(Board) are eligible to defer up to 100% of their directors compensation. The compensation deferred under this
plan is credited with earnings or losses measured by the mirrored rate of return on investments elected by plan
participants. This plan is unfunded. Each plan participant is fully vested in all deferred compensation and
earnings credited to his or her account. Certain employee deferrals were invested through a trust until November
2003. In January 2004, the Company adopted a new deferred compensation plan for non-employee members of
its Board of Directors. In connection therewith, the Company amended and restated its existing deferred
compensation plan to provide that, among other things, non-employee members of the Board are no longer
eligible participants under that plan.
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