GOVERNMENT CONTRACTS SEGMENT

Government Contracts revenues in the third quarter of 2012 were $169.8 million compared with $175.8 million in the third quarter of 2011.

Government Contracts expenses in the third quarter of 2012 were $148.7 million compared with $127.7 million in the third quarter of 2011.

BALANCE SHEET

Cash and investments were approximately $2.0 billion as of September 30, 2012 and September 30, 2011.

Reserves for claims and other settlements as of September 30, 2012 were $1.0 billion compared with $873.0 million as of September 30, 2011 and $1.0 billion as of June 30, 2012.

Days claims payable (DCP) for the third quarter of 2012 was 41.6 days compared with 37.4 days in the third quarter of 2011 and 39.0 days in the second quarter of 2012.

On an adjusted 1 basis, DCP for the third quarter of 2012 was 57.7 days compared with 51.7 days in the third quarter of 2011 and 54.3 days in the second quarter of 2012.

“The year-over-year and sequential increase in DCP is primarily the result of higher reserves,” said Joseph Capezza, Health Net’s chief financial officer.

The company’s debt-to-total capital ratio was 24.4 percent as of September 30, 2012 compared with 27.4 percent as of September 30, 2011 and 24.1 percent as of June 30, 2012.

Interest expense was $8.0 million in the third quarter of 2012 compared with approximately $7.8 million in the third quarter of 2011.

CASH FLOW FROM OPERATIONS

Operating cash flow was negative $124.8 million in the third quarter of 2012, primarily as a result of receiving only two monthly Medicare payments from the Centers for Medicare & Medicaid Services (CMS) during the quarter.

“We continue to expect full-year 2012 operating cash flow to be approximately $10 million. This reflects the loss from discontinued operations. However, the cash benefit from the gain on sale associated with the sold Medicare PDP business is reflected in Cash Flow from Investing Activities,” said Capezza.

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