Health Net 2004 Annual Report Download - page 128

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Asset Impairment Charge
During the fourth quarter ended December 31, 2004, we recognized a pre-tax $3.0 million impairment on internally developed
software and purchased computer hardware that were rendered obsolete as a result of changes to our operations and systems
consolidation process. We also recognized a pre-tax $2.9 million impairment on investments in other companies in the fourth quarter
of 2004.
Real Estate Lease Termination Costs
We recognized a pre-tax $1.7 million in lease termination expenses associated with the exit of certain properties as part of the
TRICARE contract transition during the fourth quarter ended December 31, 2004.
2003 Charges
During 2002, we recorded a pre-tax $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 pre-tax 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 pre-tax $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. On April 12, 2004, we sold these assets for $1.3 million in cash and recognized a pre-tax gain of
$0.2 million in our consolidated statement of operations for the year ended December 31, 2004.
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 had periodically assessed 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 service contract which expires on June 1, 2005.
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.
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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