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Health Net reports net earnings of $16.1M in 2010 first quarter

June 11, 2019

Cash and investments as of March 31, 2010 were $2.0 billion compared with $2.1 billion as of March 31, 2009.

Reserves for claims and other settlements as of March 31, 2010 were $995.6 million compared with $1.3 billion as of March 31, 2009. The decline is due to the divestiture of the Northeast businesses. Compared with reserves at December 31, 2009, reserves for claims and other settlements rose sequentially by more than $43 million.

Days claims payable (DCP) for the first quarter of 2010 was 40.5 days compared with 43.9 days in the first quarter of 2009 and 34.2 days in the fourth quarter of 2009.

On an adjusted basis, DCP in the first quarter of 2010 was 55.8 days compared with 58.0 days in the first quarter of 2009 and 56.8 days in the fourth quarter of 2009. The sequential decline in adjusted1 DCP was primarily due to an approximate 7 percent decline in commercial and Medicare claims inventories on a dollar basis from December 31, 2009 to March 31, 2010.

The company's debt-to-total capital ratio was 23.5 percent as of March 31, 2010 compared with 26.2 percent as of December 31, 2009 and 26.3 percent as of March 31, 2009. Both the quarter-over-quarter and sequential decreases were the result of a $100 million paydown of the company's revolving credit facility in the first quarter of 2010.

Interest expense was $9.9 million in the first quarter of 2010 compared with $9.6 million in the first quarter of 2009.

CASH FLOW

Operating cash flow was $127.4 million in the first quarter of 2010 and included the December 2009 payment of approximately $44 million received in January 2010 for California Medicaid.

"Excluding the additional monthly Medi-Cal payment, cash flow was more than three-and-one-half times net income plus depreciation and amortization. This performance sets the stage for what we believe will be a strong year for operating cash flow," said Joe Capezza, chief financial officer for Health Net, Inc.

NORTHEAST OPERATIONS SEGMENT

Health Net continues to serve the members of the sold Northeast companies under administrative services agreements (ASAs) that the company entered into with UnitedHealthcare and its affiliates on the closing date of the transaction. Health Net will serve these members until they are either transitioned to other UnitedHealthcare products or not renewed. The company expects the ASAs to remain in effect through 2011.

The revenues and expenses associated with providing services under the ASAs in the first quarter of 2010 were $50.4 million and $81.9 million, respectively, and they are shown separately in the accompanying consolidated statement of operations.

"This performance is consistent with our expectations and reflects the expected timing of payments from the transaction," said Capezza. "We are maintaining our full year 2010 guidance for total Northeast-related costs of approximately $53 million. We also continue to expect to receive approximately $25 million in net cash proceeds from the Northeast in 2010."

SHARE REPURCHASE UPDATE

Health Net resumed its share repurchase program in December 2009. On March 18, 2010, Health Net's board of directors approved a new $300 million share repurchase program. In the first quarter of 2010, Health Net repurchased 3.3 million shares for approximately $81.2 million at an average price of $24.37 per share. At March 31, 2010, approximately $298.2 million of authorization under the new program remained.

"The board's action underscores its confidence about our future, and we remain committed to increasing shareholder value," said Gellert.

2010 GUIDANCE

Health Net is increasing its 2010 annual guidance for GAAP earnings per diluted share to a range of $1.97 to $2.07, or $2.37 to $2.47 per diluted share for the combined Western Region Operations and Government Contracts segments.

Source: Health Net, Inc.