Health Net 2003 Annual Report Download - page 109

2003 Charges
During 2002, we recorded a pretax $2.4 million estimated loss on assets held for sale related to a corporate facility
building in Trumbull, Connecticut consisting entirely of non-cash write-downs of a building and building improvements.
On January 26, 2004, we sold these assets for $6.9 million in cash and recognized a pretax loss of $0.7 million as an asset
impairment charge in our consolidated statement of operations for the year ended December 31, 2003.
During 2003, we also recognized a pretax $1.9 million impairment on a corporate facility building in Carmichael,
California consisting entirely of non-cash write-downs of building and building improvements. The carrying value of this
facility was $1.1 million as of December 31, 2003.
During 2000, we secured an exclusive e-business connectivity services contract from the Connecticut State Medical
Society IPA, Inc. (CSMS-IPA) for $15.0 million that we expected to recover through future connectivity service
capabilities. CSMS-IPA is an association of medical doctors providing health care primarily in Connecticut. The amounts
paid to CSMS-IPA for this agreement are included in other noncurrent assets, and we periodically assess the
recoverability of such assets. During 2002, we entered into various agreements with external third parties in connection
with this service capability. We entered into marketing and stock issuance agreement with NaviMedix, Inc. (NaviMedix),
a provider of online solutions connecting health plans, physicians and hospitals. In exchange for providing general
assistance and advice to NaviMedix, we received 800,000 shares of NaviMedix common stock and the right to receive an
additional 100,000 earnout shares for each $1 million in certain NaviMedix gross revenues generated during an
annualized six-month measurement period. In March 2002, we entered into an assignment, assumption and bonus option
agreement with CSMS-IPA pursuant to which CSMS-IPA received 32,000 shares or 4% of the NaviMedix shares that we
received and the right to receive 4% of any of the earnout shares we may realize. Under the agreement, CSMS-IPA is also
entitled to receive up to an additional 8.2% of the earnout shares from us depending on the proportion of NaviMedix gross
revenue that is generated in Connecticut. In March 2002, we entered into a cooperation agreement with CSMS-IPA
pursuant to which we jointly designate and agree to evaluate connectivity vendors for CSMS-IPA members. NaviMedix
provides connectivity services to our subsidiary, Health Net of the Northeast, Inc. under a three-year term which expires
on April 1, 2004.
During the fourth quarter ended December 31, 2003, we assessed the probability and concluded it was unlikely that
we would realize any of the earnout shares to which we may be entitled under the marketing and stock issuance agreement
with NaviMedix. Also in December 2003, Health Net decided to not renew the agreement with NaviMedix under which
they provide connectivity services. However, we intend to enter into an agreement with NaviMedix under which they will
provide connectivity services to us for a four month period beginning April 1, 2004. Accordingly, we recognized an asset
impairment of $13.8 million on our $15 million asset related to the CSMS-IPA e-business connectivity services contract.
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 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 pretax $3.6 million write-down in the carrying value of these investments which was classified as asset
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