Health Net 2004 Annual Report Download - page 129

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HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
2002 Charges
As part of our ongoing G&A expense reduction efforts, we implemented an enterprise-wide staff reduction in 2001. This formal
plan was completed as of September 30, 2002 and we recorded a modification of $1.5 million to reflect an increase in the severance
and related benefits in connection with this plan.
During the fourth quarter ended December 31, 2002, pursuant to SFAS No. 144, we recognized $35.8 million of impairment
charges stemming from purchased and internally developed software that were rendered obsolete as a result of our operations and
systems consolidation process. In addition, beginning in the first quarter of 2003, internally developed software of approximately $13
million in carrying value was subject to accelerated depreciation to reflect their revised useful lives as a result of our operations and
systems consolidation.
Effective December 31, 2002, MedUnite, Inc., a health care information technology company, in which we had invested $13.4
million, was sold. As a result of the sale, our original investments were exchanged for $1 million in cash and $1.6 million in notes.
Accordingly, we wrote off the original investments of $13.4 million less the $1 million cash received and recognized an impairment
charge of $12.4 million on December 31, 2002 which included an allowance against the full value of the notes received in exchange.
During the third quarter ended September 30, 2002, pursuant to SFAS No. 115, “Accounting for Certain Investments in Debt
and Equity Securities” (SFAS No. 115), we evaluated the carrying value of our investments available for sale in CareScience, Inc.
The common stock of CareScience, Inc. had been consistently trading below $1.00 per share since early September 2002 and was at
risk of being delisted. As a result, we determined that the decline in the fair value of CareScience’s common stock was other than
temporary. The fair value of these investments was determined based on quotations available on a securities exchange registered with
the SEC as of September 30, 2002. Accordingly, we recognized a pre-tax $3.6 million write-down in the carrying value of these
investments which was classified as asset impairments and restructuring charges during the third quarter ended September 30, 2002.
Subsequent to the write-down, our new cost basis in our investment in CareScience, Inc. was $2.6 million as of September 30, 2002.
Our remaining holdings in CareScience, Inc. had been included in investments-available for sale on the accompanying consolidated
balance sheets and were subsequently sold.
Pursuant to SFAS No. 115 and SFAS No. 118, “Accounting by Creditors for Impairment of a Loan—Income Recognition and
Disclosures,” we evaluated the carrying value of our investments in convertible preferred stock and subordinated notes of AmCareco,
Inc. arising from a previous divestiture of health plans in Louisiana, Oklahoma and Texas in 1999. Since August 2002, authorities in
these states had taken various actions, including license denials and liquidation-related processes, that caused us to determine that the
carrying value of these assets was no longer recoverable. Accordingly, we wrote off the total carrying value of our investment of $7.1
million which was included as a charge in asset impairments and restructuring charges during the third quarter ended September 30,
2002. Our investment in AmCareco had been included in other noncurrent assets on the consolidated balance sheets.
Note 15—Segment Information
We currently operate within two reportable segments: Health Plan Services and Government Contracts. Our current Health Plan
Services reportable segment includes the operations of our health plans in the states of Arizona, California, Connecticut, New Jersey,
New York and Oregon, the operations of our health and life insurance companies and our behavioral health and pharmaceutical
services subsidiaries.
Our Government Contracts reportable segment includes government-sponsored multi-year managed care plans through the
TRICARE program and other government contracts.
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