Health Net 2006 Annual Report Download - page 68

Financing Activities
Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
Net cash used in financing activities increased by $203.7 million primarily due to $254 million used to
repurchase our common stock as discussed in the “—Capital Structure” below.
We received $497 million net proceeds under our bridge and term loan agreements in June 2006 of which
$465 million was used to redeem our Senior Notes in August 2006 and settle our Swap Contracts in September
2006. See “—Capital Structure—Bridge Loan Agreement and—Term Loan Agreement” below.
Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
Net cash provided by financing activities increased by $142.6 million due to a decrease of $88.3 million in
repurchases of our common stock combined with an increase in cash proceeds of $54.4 million from the exercise
of stock options and employee stock purchases when compared to the prior year.
Capital Structure
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 outstanding 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 the $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 approximately 5.5 million shares for $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 (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).
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