Health Net 2005 Annual Report Download - page 63

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alleged underpayment of stop-loss claims. Included in the pretax charge was $158 million related to the health
care portion of the provider settlements and $11 million related to legal costs. Most of the settlements involved
California hospitals, and the claims at issue dated back to 2001. The remaining provider disputes liability balance
relating to this pretax charge was $35 million as of December 31, 2005. The cash payments for provider dispute
settlements have been funded by cash flows from operations. During the year ended December 31, 2005, no
significant modification was made to the original estimated provider dispute liability amount, as we believed that
the amount was adequate in all material respects to cover the outstanding estimated provider dispute settlements.
For additional information regarding the provider settlements, see “—Health Plan Services Segment Results—
Health Plan Services Costs—Year Ended December 31, 2005 Compared to Year Ended December 31, 2004” and
“Item 3. Legal Proceedings—Provider Disputes.”
Operating Cash Flows
Our operating cash flows for the years ended December 31, 2005, 2004 and 2003 are as follows:
2005 2004 2003
(Dollars in millions)
Net cash provided by (used in) operating activities ................. $191.4 $(54.9) $379.8
Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
Net cash from operating activities increased by $246.3 million for the year ended December 31, 2005
compared to the same period in 2004 primarily due to the following:
• Net increase in net income plus amortization, depreciation and other net non-cash charges of $180.4
million,
• Net increase in cash flows from amounts receivable/payable under government contracts of $146
million, primarily due to the transition to the TRICARE contract for the North Region, partially offset
by
• Increase in provider dispute payments of $109 million related to the provider dispute charge reserve
provided for in the fourth quarter of 2004.
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
Net cash from operating activities decreased by $434.7 million for the year ended December 31, 2004
compared to the same period in 2003 due to the following:
• Net decrease in net income plus amortization, depreciation and other net non-cash charges of $199.7
million,
• Net decrease in cash flows from amounts receivable/payable under government contracts of $175.3
million, primarily due to the transition to the new TRICARE contract for the North Region, and
• Delayed receipt of an expected Medicare payment of $66 million for our California and New York
health plans.
Investing Activities
Our cash flow from investing activities is primarily impacted by the sales, maturities and purchases of our
available-for-sale investment securities and restricted investments. Our investment objective is to maintain safety
and preservation of principal by investing in high-quality, investment grade securities while maintaining liquidity
in each portfolio sufficient to meet our cash flow requirements and attaining the highest total return on invested
funds.
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