Health Net 2003 Annual Report Download - page 52

$26 million in a secured six-year note bearing 8% interest per annum for which we recorded a full reserve. We also sold
the corporate facility building used by our Florida health plan to DGE Properties, LLC for $15 million, payable by a
secured five-year note bearing 8% interest per annum. We estimated and recorded a $72.4 million pretax loss on the sales
of our Florida health plan and the related corporate facility building during the second quarter ended June 30, 2001.
Assets Held for Sale
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.
Income Tax Provision
2003 Compared to 2002
The effective income tax rate was 37.5% for the year ended December 31, 2003 compared with 33.4% for the same
period in 2002. The increase of 410 basis points in the effective tax rate is primarily due to the reduction in the tax benefit
associated with tax return examination settlements.
The effective tax rates differed from the statutory federal tax rate of 35.0% due primarily to state income taxes, tax-
exempt investment income, business divestitures and tax return examination settlements.
2002 Compared to 2001
The effective income tax rate was 33.4% for the year ended December 31, 2002 compared with 37.0% for the same
period in 2001. The decrease of 360 basis points in the effective tax rates is primarily due to the following:
• The adoption of SFAS No. 142 and the cessation of goodwill amortization caused the tax rate to decrease by 210
basis points. The majority of our goodwill amortization has historically been treated as a permanent difference
that was not deductible for tax purposes and that increased the effective tax rate, and
• A decrease of 110 basis points related to the tax benefit arising from the sales of a claims processing subsidiary
and MedUnite, Inc.
The effective tax rate for the year ended December 31, 2002 differed from the statutory federal tax rate of 35.0% due
primarily to state income taxes, tax-exempt investment income, business divestitures and tax return examination
settlements.
Loss on Settlement from Disposition of Discontinued Operations
During the third quarter ended September 30, 2003, we recognized an $89.1 million loss on settlement from
disposition of discontinued operations, net of tax of $47.9 million, or $0.77 per basic share and $0.75 per diluted share, as
a result of our settlement agreement with SNTL Litigation Trust, successor-in-interest to Superior National Insurance
Group, Inc., to settle all outstanding claims under the Superior National Insurance Group, Inc v. Foundation Health
Corporation, et. al. litigation. See Note 12 to the consolidated financial statements and “Part I – Item 3. Legal
Proceedings” for additional information regarding the Superior Litigation.
Cumulative Effect of a Change in Accounting Principle
A description of the cumulative effect of a change in accounting principle from adopting SFAS No. 142 is contained
in Note 2 to the consolidated financial statements contained elsewhere in this Annual Report on Form 10-K.
Liquidity and Capital Resources
We believe that cash flow from operating activities, existing working capital, lines of credit, and funds from any
potential divestitures of business are adequate to allow us to fund existing obligations, introduce new products and
services, and continue to develop health care-related businesses. We regularly evaluate cash requirements for current
operations and commitments, and for capital acquisitions and other strategic transactions. We may elect to raise additional
funds for these purposes, either through issuance of debt or equity, the sale of investment securities or otherwise, as
appropriate.
50