Health Net 2002 Annual Report Download - page 66

64 | HEALTH NET, INC.
In August 2001, the FASB issued SFAS No. 143,
“Accounting for Asset Retirement Obligations” (SFAS No.
143). SFAS No. 143 provides accounting standards for
closure or removal-type costs similar to the costs of nuclear
decommissioning, but it applies to other industries and
assets as well. The adoption of SFAS No. 143 on January
1, 2003 did not have a material effect on our consolidated
financial position or results of operations.
Taxes Based on Premiums
We provide services in certain states which require premium
taxes to be paid by us based on membership or billed
premiums. These taxes are paid in lieu of or in addition to
state income taxes and totaled $24.2 million in 2002,
$24.9 million in 2001 and $21.6 million in 2000. These
amounts are recorded in general and administrative
expenses on our consolidated statements of operations.
Income Taxes
We record deferred tax assets and liabilities based on
differences between the book and tax bases of assets and
liabilities. The deferred tax assets and liabilities are calculated
by applying enacted tax rates and laws to taxable years in
which such differences are expected to reverse (see Note 10).
NOTE 3—Assets Held for Sale, Acquisitions and
Divestitures
The following summarizes acquisitions, strategic invest-
ments, and dispositions made by us during the years ended
December 31, 2002, 2001 and 2000.
2002 Transactions
During the third quarter ended September 30, 2002, we
entered into an agreement, subject to certain contingency
provisions, to sell a corporate facility building in
Trumbull, Connecticut. Accordingly, pursuant to SFAS No.
144, we recorded a pretax $2.4 million estimated loss on
assets held for sale consisting entirely of non-cash write-
downs of building and building improvements. The
carrying value of these assets after the write-downs was
$7.7 million as of December 31, 2002. The effect of the
suspension of the depreciation on this corporate facility
building was immaterial for the year ended December 31,
2002. We expect the sale to close no later than September
30, 2003. This corporate facility building stopped being
used in our operations during 2001.
Recently Issued Accounting Pronouncements
In November 2002, the FASB issued Interpretation No. 45,
“Guarantor’s Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness
of Others.” This interpretation will significantly change
current practice in the accounting for, and disclosure of,
guarantees. This interpretation’s initial recognition and
initial measurement provisions are applicable on a prospec-
tive basis to guarantees issued or modified after December
31, 2002, irrespective of the guarantor’s fiscal year-end. See
Note 3 for indemnification guarantee disclosure on pending
and threatened litigation related to the sale of our Florida
health plan completed on August 1, 2001.
In July 2002, the FASB issued SFAS No. 146,
“Accounting for Costs Associated with Exit or Disposal
Activities” (SFAS No. 146). SFAS No. 146 addresses finan-
cial accounting and reporting for costs associated with exit
or disposal activities and nullifies EITF Issue No. 94-3,
“Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)” (Issue 94-3).
SFAS No. 146 requires that a liability for a cost associated
with an exit or disposal activity be recognized when the
liability is incurred. Under Issue 94-3, a liability for an exit
cost as generally defined in Issue 94-3 was recognized at
the date of an entity’s commitment to an exit plan. A
fundamental conclusion reached by the FASB in SFAS
No. 146 is that an entity’s commitment to a plan, by itself,
does not create an obligation that meets the definition of a
liability. Therefore, SFAS No. 146 eliminates the definition
and requirements for recognition of exit costs in
Issue 94-3. SFAS No. 146 also establishes that fair value is
the objective for initial measurement of any exit or
disposal liability. The provisions of SFAS No. 146 are
effective for exit or disposal activities that are initiated
after December 31, 2002.
Effective January 1, 2002, we adopted SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-Lived
Assets” (SFAS No. 144). SFAS No. 144 supersedes SFAS No.
121, “Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of,” and some
provisions of Accounting Principles Board (APB) Opinion
30, “Reporting the Results of Operations—Reporting the
Effects of Disposal of a Segment of a Business and
Extraordinary, Unusual and Infrequently Occurring Events
and Transactions.” SFAS No. 144 sets new criteria for deter-
mining when an asset can be classified as held-for-sale as well
as modifying the financial statement presentation require-
ments of operating losses from discontinued operations. See
Notes 3 and 14 for asset impairments recorded in 2002.