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nies. PAGE 14
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T H E C O M M U N I T Y O F B U S I N E S STM
By JOEL RUSSELL Staff Writer
Cheap policies are adding up to higher
stock prices for one of the Valley’s most suc-
cessful public companies over the past year.
Shares of Health Net Inc. have jumped 15
percent since the insurer released first quarter
results this month – even though the numbers
fell short of analysts’ expectations.
The unusual market reaction stems from
the fact that the Woodland Hills company has
succeeded in signing up new buyers on the
By STEPHANIE FORSHEE Staff Reporter
On any given day of the week, an International
House of Pancakes restaurant is cooking up stacks of
flapjacks along with eggs, bacon and sausage.
But in the Middle East, it’s a different story, because
the chain must substitute its pork with Halal, or Islamic-
certified turkey hams, veal sausages and beef bacon in its
breakfast meals.
“With that whole Middle Eastern economy and
how they view thingsAmerican, it’s an understatement
to say that they love IHOP,” said Julia Stewart, chief
executive of DineEquity Inc., the Glendale parent of
the breakfast chain.
DineEquity has opened eight IHOP locations in the
Middle East since 2012, with plans to open a total of
40 by the end of 2017.
Also itsApplebee’s brand will add onto its 40 exist-
ing locations in the region by opening about five stores
annually over the next several years.
Then there’s Cheesecake Factory Inc. of
Calabasas, another local, publicly traded restaurant
chain that is making a footprint in the region. Other
chains opening stores there include Starbucks Corp.,
Yum Brands Inc.’s KFC, Denny’s and Brinker
International’s Chili’s.
Indeed, a fascination with America, coupled with a
growing middle class, and low startup and operational
Pricing Low,
Gains Large
Waiter: Pile On the Flapjacks but Hold the Bacon
Do twisted
sheets bend
your mind?
Unwind with
some fancy
linen. PAGE 4
HEALTH CARE: Health Net wins
with ObamaCare cost strategy.
RESTAURANTS: IHOP, rivals face
pitfalls with Mideast expansions.
By ELLIOT GOLAN Staff Reporter
Want to get a picture
of how a typical, highly
profitable company
might operate? Consider
Cherokee Inc.
The Van Nuys
apparel brand licensing
company has just 40 employees and doesn’t
own any plants or distribution warehouses. So
over three years its average return on equity
has topped an impressive 50 percent, making it
No. 2 on this year’s annual list of Most
Not Just Big;
Rolling In It
FINANCE: Some of largest area
firms are most profitable.
LOS ANGELES • GLENDALE • SANTA CLARITA • BURBANK • CONEJO VALLEY • SIMI VALLEY • SAN FERNANDO • CALABASAS • AGOURA HILLS • ANTELOPE VALLEY
By MARK R. MADLER Staff Reporter
T
hree miles separate the campuses of Walt
Disney Co. and DreamWorks Animation
SKG Inc., yet these leading Valley compa-
nies find themselves going head-to-head – in both
virtual reality and the other side of the globe.
Both Disney, in Burbank, and DreamWorks
Animation, in Glendale, have made acquisitions in
the online world of multi-channel networks. And
they are building themed entertainment attractions
in the same Chinese city of Shanghai, based on
their popular film characters and storylines.
But the approaches each is taking in these ven-
tures is reflective of their size and longevity – with
Disney the entrenched media and entertainment giant
run by Robert Iger, while DreamWorks Animation,
run by former Disney executive Jeffrey Katzenberg,
plays its hand as the scrappier player.
Deep-pocketed Disney shelled out $500 million
in March for Maker Studios Inc., a large Culver City-
basedYouTube network, and is splitting a $5 billion
price tag with its Chinese partners on the Shanghai
Disney Resort scheduled to open next year.
DreamWorks Animation acquired multi-channel
teen network AwesomenessTV last year for just
$33 million and has a joint venture for a Dream
Center entertainment complex in Shanghai where it
will spend far less than Disney.
Both companies, though, are facing the same
Please see FINANCE page 19Please see ENTERTAINMENT page 56
Please see RESTAURANTS page 57
Local studios square off in China, on YouTube
Please see HEALTH CARE page 57
NOW SHOWING
Stacked Up: IHOP grand opening in Jeddah.
SPECIAL ISSUE PUBLIC COMPANIES
THE LIST
Most Profitable
Public Companies
PAGE 19
Sanjay Sabnani
thinks it makes
sense to take
your cents.
PAGE 10

2. MAY 19, 2014 SAN FERNANDO VALLEY BUSINESS JOURNAL 57
Covered California online exchange established
to help people get coverage as required under the
Affordable CareAct, also known as ObamaCare.
New policies incur upfront costs – includ-
ing sales commissions and administrative time
to set up accounts – that depress near-term
profits. But Health Net investors are apparent-
ly focusing on the long term, where the com-
pany has emerged as low-cost leader for insur-
ance, especially in Southern California.
Brad Kieffer, a
spokesman for Health
Net, said most of the
new policies are for
CommunityCare, a
“tailored” HMO plan
with a limited network
of doctors, hospitals
and clinics that have
agreed to keep prices
low.
“CommunityCare is
consistently one of the most affordable plans
on the exchange,” he said. “It strikes the right
balance between affordability and quality.
What you are seeing is its acceptance in
Southern California, where we have roughly
one third of the market.”
Joseph France, an analyst at Cantor
Fitzgerald in New York, said Health Net’s
strategy of working with Covered California is
yielding dividends for investors in the form of
new customers.
“We believe that Health Net’s 2014 results
will continue to reflect heavy startup costs …
but we expect accelerating earnings growth
over the next two years as it achieves greater
scale and produces better margins,” France
wrote in a note to clients on May 7.
In its first-quarter filing, Health Net report-
ed net income of $28.8 million (36 cents a
share), up significantly from $19.8 million (25
cents) for the same quarter a year ago. Revenue
increased nearly 11 percent to $3 billion.
Analysts on average expected net income of 42
cents a share on revenue of $3.25 billion,
according to Thomson Financial Network.
But the numbers look good when combined
with data released in late April by Covered
California, which show Health Net sold 264,079
policies on the exchange during the first open
enrollment period, which ended April 15.
And Chief Executive Jay Gellert told ana-
lysts during a conference call that he expects to
sell another 90,000 to 100,000 new policies in
May, and more as the year progresses.
He even believes additional competitors in
the low-end of the market will expand the
number of consumers who want such policies.
“If the whole market moves there, it
expands the market so much that it works to
our benefit,” he said. “Our best dream is that
everyone gets in the pool with us and we
expand the pool to be an ocean.”
The stock closed at $39.14 on May
14. That’s 54 percent higher than a 52-
week low of $25.40 in early November
before ObamaCare rolled out.
Tough competition
Statewide, Health Net claimed
18.9 percent of the policies sold on the
Covered California exchange, which
placed it third. Thousand Oaks-based
Anthem, a unit of WellPoint Inc. in
Indianapolis, finished first with 30.5
percent of the market, followed by
Blue Shield with a 27.3 percent mar-
ket share.
However, figures from Covered California
show that Health Net fared much better in Los
Angeles County.
The exchange divides the state into geo-
graphical regions that reflect local differences in
health care pricing. In Region 15, which stretch-
es across northern L.A. County, Health Net sold
60,841 policies or 34.2 percent of the market to
place second behind Anthem. In the southern
part of the county, Health Net placed first with a
31.7 percent market share, or 70,774 policies.
The geographical dominance stems from the
insurer’s local provider network, said Sherrie
Zenter, senior vice president at Momentous
Insurance Brokerage in Van Nuys.
“They are doing extremely well in the L.A.
area because their network offers both Cedars-
Sinai and UCLA hospitals, while some of the
other carriers don’t,” she said. “Because of
that, we have transitioned a lot of clients into
Health Net.”
In fact, Zenter said that among
individual clients looking to buy
insurance under the health reform
mandates, she estimated 90 out of
every 100 went with Health Net,
largely because of the low premi-
ums.
“Their pricing is the most com-
petitive in the market,” she said.
For example, according to the
Covered California website, a
hypothetical four-person family
with household income of $60,000
in the San Fernando Valley could
buy a silver HMO Health Net plan for $371 a
month after federal subsidies. Anthem and
Molina Healthcare Inc. plans at the same
level cost $410, while Kaiser Permanente tops
out the options at $557.
Zenter said Health Net faces two chal-
lenges in the market. First, with its low premi-
ums and high-quality provider network, it
remains to be seen whether the model will hold
up once claims for coverage start piling up.
Second, the company needs the infrastructure
and staff to service the new customers.
“The challenge would be staying on top of
good service to handle the flow,” she said.
“Their billing needs to have a good turn-
around, with premiums coming in and pay-
ments out on time to keep the system running.
But that’s not just true for Health Net – all the
insurance companies are working on overload
with not a lot of manpower.”
Kieffer, the Health Net spokesman, said the
company has a successful track record running
tailored HMO networks, and it has been con-
servative in calculating utilization rates, or how
much people will use their new insurance.
“Health Net is the pioneer in tailored net-
works,” he said. “It’s a tried and true approach
for us. We’ll strive to continue our efforts to
develop programs that preserve affordability in
a way that allows access to quality care.”
Next: SHOP
As for the service challenge, Kieffer said
the company is analyzing the mad rush this
year to help it prepare for the fall, when open
enrollment starts again.
He noted that the statistics about sales
includes only individual and family policies.
Covered California’s market for small business
insurance, called the Small Business Health
Options Program or SHOP, wasn’t a factor this
year because in February the federal govern-
ment announced an extension that allowed
companies to keep their health policies, even if
not compliant with reform’s minimum cover-
age requirements, for one more year.
In the fall, “SHOP is going to ramp up,”
Kieffer said. “For next year, we are taking les-
sons learned from this year.”
France, the analyst at Cantor Fitzgerald, said
he expects a clearer idea of Health Net’s future
by the second half of this year. For now, he main-
tains a “hold” rating on the stock and a target
price of $35 as investors take greater interest.
“If this performance is sustained as (health
reform) is rolled out through 2016, we believe
the stock’s traditional discount could narrow,”
France wrote in his note to investors. “The
company’s longer-term earnings power is
greater than what it has been in recent years.”
Health Care: Tailored Networks Draw Patients
Continued from page 1
costs explains why a slew of popular U.S.
restaurateurs are expanding there.
“The Middle East is the new frontier for
global expansion. Opening a new business
there is easier for these brands that have over-
saturated the U.S.,” said California Restaurant
Association spokeswoman Angie Pappas.
“They have a strong coffee, mall and shopping
culture there. Brands that do well in malls here
are likely to expand there.”
‘Volcano sauce’
DineEquity’s earliest presence in the
Middle East stems from its acquisition of
Applebee’s in 2007; the casual dining chain
had already entered the region in 2000. Today,
it has locations in Qatar, Kuwait and United
Arab Emirates (UAE), with its largest presence
in Saudi Arabia with 15 stores.
“Many of the other brands are still in the
early stages of international growth. That’s put
us way ahead of the others,” said Daniel del
Olmo, a DineEquity executive overseeing the
international expansion.
IHOP is among the recent arrivals into the
area. It opened its first of eight locations in
August 2012 in the Mall of the Emirates in
Dubai, UAE and has an agreement with M. H.
Alshaya Co. to open a total of 40 stores.
Alshaya is one of the largest franchisees in
the region. It has deals with more than 70
major companies, including Cheesecake
Factory, H&M and Victoria’s Secret who
have entered the Middle East.
DineEquity, as of the end of last year, was
about 99 percent franchised. So it already has
experience with a U.S. business model that
assists franchisees while letting them run the
restaurants.
“This helps us understand what our busi-
ness partners overseas want,” del Olmo said.
“In the Middle East, they have these multi-bil-
lion dollar malls. People want to shop and dine
when it’s 120 degrees outside. They all want to
be inside an air-conditioned environment.”
Much like in the U.S., Applebee’s and
IHOP franchisees abroad bring their own
financing for restaurant development, while
DineEquity helps with site planning, training,
operations, supply chain and marketing.
Del Olmo was appointed to his position last
December and just returned from his second
visit to the Middle East where he met with
franchise partners, including Alshaya. “Every
single country is different, with cultures, mar-
ket realities and approaches on how to execute
relationships,” he said. “It’s all about relation-
ships.”
Alshaya declined comment for this story,
but the company has paved the way for fran-
chisors as they try to navigate the complex cul-
tural peculiarities, legal systems and bureau-
cracies in the region. The company specifical-
ly helps companies manage human resources,
lease and buy property, work out their supply
chain and accounting, as well as customer
service and other functions, according to the
company website.
“We’re working well together, and they’ve
got a very strong commitment to grow for us
IHOP in the Middle East,” Stewart said.
Alshaya helped DineEquity on menu devel-
opment and locating new sites, del Olmo said.
For instance, although IHOP does not serve
alcohol, Applebee’s had to remove all liquor
from its menu. As substitutes, Applebee’s sells
fresh juices and places an emphasis on seafood
to accommodate the flavor palette of choice in
that region.
Applebee’s also created a “volcano sauce”
exclusively for the Middle East. “It is a propri-
etary sauce that gives a spicy, tangy taste, and
the Middle Eastern audience seems to appreci-
ate it,” del Olmo said.
Operational adjustments by the chains
include the stipulation that Saudi Arabia
requires all male staffing, and restaurants are
required to have separate family and singles
seating areas with separate entrances.
And although it’s known for its breakfasts,
IHOP is actually more popular during lunch
and dinner hours in the Middle East. Most peo-
ple don’t dine out for breakfast, del Olmo
explained, and most malls and mini-malls
don’t open until about 10 a.m.
Restaurants: Menus, Service Need Serious Tweaks
Continued from page 1
Health Net Inc.
Woodland Hills
CEO: Jay Gellert
Employees: 7,565
Market Cap: $3 billion
P/E: 17.9
EPS: $2.12
Source: Yahoo Finance
(NYSE: HNT)
FRI. CLOSE, PAST 5 WKS
4/11 4/17 4/25 5/2 5/9
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May 14: $39.14
Gellert
Look Familiar?: Crowded Cheesecake Factory outlet at Dubai Mall, Dubai.
Please see DINING page 58
SPECIAL
ISSUE
PUBLIC
COMPANIES

3. Jerry Prendergast, restaurant consult-
ant and founder of Prendergast & Asso-
ciates in Culver City, said the Middle East
represents a huge market for American
products. For food providers, the region has
a high disposable income with people who
eat out frequently.
“There’s a lot of money to be spent,” he
said. “The government has issues with pork
and alcohol, and you have to change your
menu to fit Islamic food laws, but a lot of peo-
ple are willing to do it. You can’t look at a bil-
lion people and say, ‘We’re not going to be part
of that market.’”
Cheesecake Factory opened the doors to
its first store about 15 minutes away from
IHOP in the very same month at the Dubai
Mall, making its debut into any international
territory.
It later opened a second location in Dubai
last year at the Mall of the Emirates next door
to the famous Ski Dubai slope inside the mall.
The 22,800-square-foot storefront seats 526
guests, making it the world’s largest
Cheesecake Factory.
The chain has so far opened four locations
in the Middle East, making its most recent ven-
ture into Saudi Arabia last December. The
other location is in Kuwait, and all are situated
within malls.
Aside from its largest in Dubai, Cheesecake’s
other stores are somewhat comparable to the size
of U.S. stores, although they skew on the larger
scale seating 300 to 475 guests.
The company has not revealed how many
locations it plans to open in the region, but it
stated its agreement with Alshaya also pro-
vides for development in Bahrain and Qatar, as
well as North Africa, Russia, Turkey and
Europe.
Its latest earnings report stated that the
chain could open as many as three to five new
locations within the Middle East and Mexico
this year. Cheesecake declined a request for an
interview.
It is unclear how much profit DineEquity and
Cheesecake Factory make in the Middle East,
because in quarterly filings the companies don’t
break down their operations geographically.
But restaurant economist John A. Gordon
with Pacific Management Consulting Group
in San Diego thinks the chains are doing very
well financially. Cheesecake’s sales at individ-
ual restaurants there could either be at or could
top the $15 million minimum for a U.S. outlet.
The same goes for Applebee’s and IHOP out-
lets, though they gross much less, closer to $2
million.
He also pointed out that although many
U.S. restaurants are expanding in the region,
the competition is much less than in the U.S.,
giving existing outlets a nearly captive market.
“There’s an opportunity to make a lot of
money,” he said. “You need to have strong
franchisees. That’s the bottom line.”
Dining: Alshaya Has Multiple Franchise Deals
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the San Fernando Valley for their ongoing efforts as outstanding financial stewards. Given the economic times and ever-changing climate, CFOs
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58 SAN FERNANDO VALLEY BUSINESS JOURNAL MAY 19, 2014
Continued from page 57