Health Net 2003 Annual Report Download - page 50

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.
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
impairments and restructuring charges during the third quarter ended September 30, 2002.
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.
2001 Charges
As part of our ongoing general and administrative expense reduction efforts, during the third quarter of 2001, we
finalized a formal plan to reduce operating and administrative expenses for all business units within the Company (the
“2001 Plan”). In connection with the 2001 Plan, we decided on enterprise-wide staff reductions and consolidations of
certain administrative, financial and technology functions. We recorded pretax restructuring charges of $79.7 million
during the third quarter ended September 30, 2001. As of September 30, 2002, we had completed the 2001 Plan.
The 2001 Plan included the elimination of approximately 1,500 employee positions throughout all of our functional
groups, divisions and corporate offices and resulted in severance and benefit related costs of $43.3 million. As of
September 30, 2002, the termination of positions in connection with the 2001 Plan had been completed and we recorded a
modification of $1.5 million to reflect an increase in the severance and related benefits in connection with the 2001 Plan
from the initial amount of $43.3 million to a total of $44.8 million. Various information technology systems and
equipment, software development projects and leasehold improvements were affected by the 2001 Plan and resulted in
$27.9 million in asset impairment charges. The 2001 Plan also resulted in $5.1 million and $3.4 million of real estate lease
termination costs and other costs, respectively. No payments remain to be paid related to the 2001 Plan.
Net Gain (Loss) on Sale of Businesses and Properties and Assets Held for Sale
The divestitures of our employer services group subsidiary, dental plan, vision plan, claims services subsidiaries and
Florida health plan and our withdrawal from the Pennsylvania market during 2003, 2002 and 2001 are not expected to
have a material impact on our financial condition, results of operations or liquidity. The sales agreements for our
employer services group subsidiary and dental and vision subsidiaries included an indemnification obligation for certain
pending and threatened litigation as of the closing date and certain litigation arising from disputes prior to the closing
date. We have recorded liabilities of $1.2 million related to these obligations as of December 31, 2003.
Employer Services Group Subsidiary
On October 31, 2003, we consummated the sale of our workers’ compensation services subsidiary, Health Net
Employer Services, Inc. (“Health Net Employer Services”), along with its subsidiaries Health Net Plus Managed Care
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