Health Net 2003 Annual Report Download - page 49

There was an increase of $2.0 million in depreciation expense due to accelerated depreciation of certain capitalized
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.
Interest Expense
2003 Compared to 2002
Interest expense decreased by $1.1 million or 2.7% for the year ended December 31, 2003 as compared to the same
period in 2002. During the third quarter ended September 30, 2002, we repaid the entire balance of $120 million on our
revolving credit facility balance outstanding as of June 30, 2002. This repayment has resulted in the decreases in our
interest expense for the year ended December 31, 2003 as compared to the same period in 2002.
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. During 2002, we repaid the entire balance of $195 million on our revolving credit facility balance
outstanding as of December 31, 2001. This repayment has resulted in the decreases in our interest expense for the year
ended December 31, 2002 as compared to the same period in 2001.
Asset Impairments and Restructuring Charges
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. 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.
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