Health Net 2004 Annual Report Download - page 41

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Year Ended December 31,
2004 2003 2002 2001 2000
BASIC EARNINGS (LOSS) PER SHARE:
Income from continuing operations $ 0.38 $ 2.79 $ 1.89 $0.66 $1.34
Loss on settlement from disposition of discontinued
operations, net of tax
— (0.77) — — —
Cumulative effect of changes in accounting principle
—
—
(0.07)
—
—
Net $0.38 $2.02 $1.82 $0.66 $1.34
DILUTED EARNINGS (LOSS) PER SHARE:
Income from continuing operations $ 0.38 $ 2.73 $ 1.86 $0.65 $1.33
Loss on settlement from disposition of discontinued
operations, net of tax
—
(0.75)
—
—
—
Cumulative effect of changes in accounting principle
— — (0.07) — —
Net $0.38 $1.98 $1.79 $0.65 $1.33
Weighted average shares outstanding:
Basic 111,859 115,999 124,221 123,192 122,471
Dilute
d
113,038 118,278 126,004 125,186 123,453
BALANCE SHEET DATA (2):
Cash and cash equivalents and investments available for
sale
$1,782,102 $1,943,660 $1,841,768 $1,764,289 $1,533,637
Total assets
3,653,194 3,549,276 3,460,751 3,566,841 3,670,116
Senior credit facility and capital leases — — — 195,182 766,450
Senior notes payable
397,760 398,963 398,821 398,678
—
Stockholders’ equity 1,272,880 1,294,225 1,300,416 1,159,925 1,061,131
OPERATING CASH FLOW
$ (54,912) $ 379,772 $ 413,517 $ 544,619 $ 366,163
(1) See Note 3 to the consolidated financial statements for discussion of divestitures during 2004, 2003, 2002 and 2001 impacting
the comparability of information.
(2) No cash dividends were declared in each of the years presented.
The following discussion of our financial condition and results of operations should be read in conjunction with our
consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. The following
discussion contains forward-looking statements that involve known and unknown risks and uncertainties, including those set forth in
the section entitled “Risk Factors” in this Annual Report on Form 10-K. This Management’s Discussion and Analysis of Financial
Condition and Results of Operations should be read in its entirety, since it contains detailed information that is important to
understanding Health Net, Inc. and its subsidiaries’ results and financial condition.
Overview
In 2004, our overall financial results did not meet our expectations. Earnings per share fell by 81% to $0.38 per basic and diluted
share for 2004, compared with $2.02 per basic share and $1.98 per diluted share in 2003, primarily as a result of higher than
anticipated commercial health care costs and lower enrollment. In addition, as described below, we recorded a $252 million pre-tax
earnings charge in the fourth quarter ended December 31, 2004, which had a significant impact on our overall 2004 financial results.
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