Health Net 2006 Annual Report Download - page 46

Stock Repurchase Program
In September 2004, we placed our stock repurchase program on hold, primarily as a result of Moody’s and
S&P having downgraded our non-credit-enhanced, senior unsecured long-term debt rating to below investment
grade. Our Board of Directors had previously authorized us to repurchase up to $450 million of our common
stock under the stock repurchase program.
On October 14, 2006, the Board of Directors authorized the resumption of repurchases of our common stock
under the stock repurchase program. At that time, the available amount under the stock repurchase program was
$215 million (which amount includes exercise proceeds and tax benefits the Company had received to date from
the exercise of employee stock options). The Board of Directors also increased the size of the stock repurchase
program by $235 million. As a result, the Company was then authorized under the stock repurchase program to
acquire shares of its common stock in an aggregate amount of up to $450 million. Although we are currently
limited to repurchases of our common stock in amounts not to exceed $450 million, additional amounts may be
added to the program based on exercise proceeds and tax benefits the Company receives from the exercise of
employee stock options. However, these additional amounts may not be used to purchase additional shares of our
common stock without further approval of the Board of Directors.
On November 9, 2006, we resumed repurchases of our common stock under our stock repurchase program
and repurchased 5,470,138 shares for approximately $250 million during the fourth quarter of 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 (the “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.
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