Health Net 2004 Annual Report Download - page 53

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2003 Compared to 2002
G&A costs increased by $56.4 million, or 6.6%, for the year ended December 31, 2003 compared to the same period in 2002
due to continued investment in our operations and systems consolidation projects. Our administrative expense ratio remained at
10.6% for the year ended December 31, 2003 as compared to the same period in 2002.
The selling costs ratio increased to 2.6% for the year ended December 31, 2003 from 2.3% for the same period in 2002. This
increase reflects the continued shift of our commercial health plan mix to small group with its higher selling costs.
Amortization and depreciation expense decreased $10.2 million, or 14.8%, for the year ended December 31, 2003 as compared
to the same period in 2002. This decrease was primarily due to certain intangible assets (primarily comprised of employer groups)
reaching the end of their useful lives in July 2002 and thus becoming fully amortized as well as from asset impairments recorded
during the fourth quarter ended December 31, 2002 as a result of our systems consolidation project.
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 due to lower average balance outstanding from repayment of the entire balance of $120 million on our revolving credit facility
balance as of June 30, 2002.
Severance, Asset Impairments and Restructuring Costs
We recorded severance and related benefits, asset impairments and restructuring costs for the years ended December 31, 2004,
2003 and 2002. Set forth below, is a chart summarizing these charges and details regarding the summary information contained in the
chart.
2004 Charges
2004 Charges
2003 Charges
2002 Charges
(Dollars in millions)
Severance and related benefit costs
$25.3
$
—
$
—
Modification to 2001 restructuring plan
—
—
1.5
Asset impairment charge
5.9
16.4
58.8
Real estate lease termination costs
1.7
—
—
Total
$32.9
$16.4
$60.3
On May 4, 2004, we announced that, in order to enhance efficiency and reduce administrative costs, we would commence an
involuntary workforce reduction of approximately 500 positions, which included reductions resulting from an intensified performance
review process, throughout many of our functional groups and divisions, most notably in the Northeast. We recorded pre-tax
severance and related benefit costs of $17.4 million, $5.2 million and $2.7 million in the second, third and fourth quarters of 2004,
respectively, associated with the workforce reduction. We currently anticipate that we will record additional severance and benefit
related costs of $3 million during the year ended December 31, 2005, and that an additional $12.6 million will be paid out during the
year ending December 31, 2005. We plan to use cash flows from operations to fund these payments.
We recorded a $3.0 million pre-tax 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 recorded a pre-tax $2.9 million
impairment on investments in other companies in the fourth quarter of 2004.
We recorded a $1.7 million pre-tax charge for lease termination expenses associated with the exit of certain properties as part of
the transition from our old TRICARE contracts to the new TRICARE contract for the North Region.
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