Health Net 2002 Annual Report Download - page 36

34 | HEALTH NET, INC.
2001 Compared to 2000
The selling costs ratio increased to 2.2% for the year
ended December 31, 2001 compared to 2.1% for the same
period in 2000. This increase is due to our commercial
health plan mix shifting to small group with its higher
selling costs.
AMORTIZATION AND DEPRECIATION
2002 Compared to 2001
Amortization and depreciation expense decreased by
$28.5 million or 28.9% for the year ended December 31,
2002 compared to the same period in 2001. This decrease
is primarily due to the decrease in amortization expense of
$27.6 million due to the cessation of goodwill amortiza-
tion as a result of adopting Statement of Financial
Accounting Standards (SFAS) No. 142, “Goodwill and
Other Intangible Assets,” effective January 1, 2002.
There was an increase of $2.0 million in depreciation
expense due to accelerated depreciation of certain capital-
ized software based on revised useful lives as a result of
our systems consolidation project. This is offset by a
decrease of $1.3 million in depreciation primarily due to
asset impairments included in asset impairment and
restructuring charges recorded in September 2001.
2001 Compared to 2000
Amortization and depreciation expense decreased by $7.2
million or 6.8% for the year ended December 31, 2001
from the same period in 2000. This decrease was primarily
due to a $3.9 million decrease in depreciation expense
from asset impairments included in the restructuring
charges recorded in the third quarter of 2001 and the sale
of the Florida health plan also in the third quarter of
2001. The remaining decrease is primarily due to various
leasehold improvements, personal computer equipment
and software being completely depreciated prior to or
during 2001. The effect of the suspension of the deprecia-
tion on the corporate facility building in Florida was
immaterial for the year ended December 31, 2001.
INTEREST EXPENSE
2002 Compared to 2001
Interest expense decreased by $14.7 million or 26.8% for
the year ended December 31, 2002 compared to the same
period in 2001. This decrease resulted from the repayment
of the entire outstanding balance of $195.2 million on our
revolving credit facility in 2002.
2001 Compared to 2000
Interest expense decreased by $33.0 million or 37.5% for
the year ended December 31, 2001 from the same period
in 2000. This decrease in interest expense reflects a $172.6
million decrease in long-term debt from December 31,
2000 and a lower average borrowing rate of 7.1% in 2001
compared to the average borrowing rate of 7.6% in 2000.
ASSET IMPAIRMENT AND RESTRUCTURING CHARGES
This section should be read in conjunction with Note 14,
and the tables contained therein, to the consolidated
financial statements.
2002 Charges
During the fourth quarter ended December 31, 2002,
pursuant to SFAS No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets,” we recog-
nized $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 approxi-
mately $13 million in carrying value will be 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 $2.6 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.
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. has been consistently trading below
$1.00 per share since early September 2002 and is 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 invest-
ments was determined based on quotations available on a
securities exchange registered with the SEC as of
September 30, 2002. Accordingly, we recognized a pretax
$3.6 million write-down in the carrying value of these
investments which was classified as asset impairment and
restructuring charges during the third quarter ended
September 30, 2002. Subsequent to the write-down, our