Estimating medical benefits expense and medical benefits payable. The cost of medical benefits is recognized in the period in which services are provided and includes an estimate of the cost of medical benefits that have been incurred but not yet reported. We contract with various healthcare providers for the provision of certain medical care services to our members and generally compensate those providers on a fee-for-service or capitated basis or pursuant to certain risk-sharing arrangements. Capitation represents fixed payments on a per member per month basis to participating physicians and other medical specialists as compensation for providing comprehensive healthcare services. Participating physician capitation payments for the years ended December 31, 2004, December 31, 2003 and five-month period ended December 31, 2002, and the Predecessor
Net income. Net income for the year ended December 31, 2003 was $23.5 million compared to $32.6 million for the combined year ended December 31, 2002.
In July 2004, we received $112.3 million of net proceeds from our initial public offering. Additionally, in December 2004, we received $44.9 million of net proceeds from a secondary offering. From time to time, we may need to raise additional capital or draw on our credit facility to fund planned geographic and product expansion or acquire healthcare businesses.
Cash From Financing Activities. The change in cash from financing activities is primarily due to the public offerings which generated net proceeds of $157.5 million. Additionally, the Company obtained $159.2 million from the proceeds of a new debt issuance. These proceeds were partially offset by payments made on existing debt facilities totaling approximately $108.8 million.
Debt and Credit Facilities. As part of the consideration for the acquisition of the WellCare group of companies, we issued a senior subordinated non-negotiable promissory note in the original principal amount of $53.0 million to the stockholder representative on behalf of the stockholders of the Florida business, including Rupesh Shah, our Senior Vice President, Market Expansion, and his spouse. In February 2004, we entered into a settlement agreement with the selling stockholders that fixed the remaining amount of the seller note at $119.7 million. In May 2004, we entered into a further agreement with the selling stockholders, pursuant to which we prepaid $85.0 million of the principal balance of the note, using proceeds from the senior secured term loan facility described below, and $3.0 million of the principal balance was forgiven in consideration of that prepayment. In August 2004, we prepaid an additional $3.2 million of the principal balance of the note. The remaining balance of the note, $25.0 million, is due on September 15, 2006, and would be due immediately upon a sale of our business. Interest on the principal amount of the note accrues at the rate of 5.25% per year.
In May 2004, we entered into a credit agreement pursuant to which we obtained two senior secured credit facilities, consisting of a term loan facility in an amount of $160.0 million and a revolving credit facility in the amount of $50.0 million, of which $10.0 million is available for short-term borrowings on a swingline basis. These facilities are provided by a group of banks and other financial institutions led by Credit Suisse First Boston and Morgan Stanley Senior Funding, Inc. We used the proceeds from the term loan to prepay $85.0 million of the principal balance of the seller note discussed above, to prepay in full, for $18.3 million, certain senior discount notes previously issued by one of our subsidiaries, to pay the $50.3 million purchase price for the Harmony acquisition, and to pay approximately $4.3 million in transaction fees and expenses. No amounts had been drawn on the $50.0 million revolving credit facility since its inception.