Health Net 2002 Annual Report Download - page 83

HEALTH NET, INC. | 81
NOTE 14—Asset Impairment and Restructuring Charges
The following sets forth the principal components of asset impairment and restructuring charges for the years ended
December 31:
(Amounts in millions) 2002 2001 2000
Severance and benefit related costs $– $43.3 $ –
Asset impairment costs 35.8 27.9 –
Investment write-offs 23.0 ––
Real estate lease termination costs –5.1 –
Other costs –3.4 –
58.8 79.7 –
Modifications to prior year restructuring plans 1.5 ––
Total $60.3 $79.7 $ –
2002 CHARGES
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 inter-
nally 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, inter-
nally developed software of approximately $13 million in
carrying value will be subject to accelerated depreciation to
reflect their revised useful lives as a result of our opera-
tions 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
new cost basis in our investment in CareScience, Inc. was
$2.6 million as of September 30, 2002. Our remaining
holdings in CareScience, Inc. are included in investments-
available for sale on the consolidated balance sheets.
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, authori-
ties in these states have 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 impair-
ment 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.