Health Net 2004 Annual Report Download - page 54

See Note 14 to our consolidated financial statements for further information on the severance and related benefits, asset
impairments and lease termination costs.
2003 Charges
During 2002, we recorded a $2.4 million pre-tax estimated loss on assets held for sale related to a corporate facility building
located in Trumbull, Connecticut consisting entirely of non-cash write-downs of building and building improvements. On January 26,
2004, we sold this asset 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 recorded a $1.9 million pre-tax impairment on a corporate facility building located in Carmichael, California
consisting entirely of non-cash write-downs of building and building improvements. On April 12, 2004, we sold this asset 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.
2002 Charges
As part of our ongoing G&A expense reduction efforts, we implemented an enterprise-wide staff reduction in 2001. This formal
plan was completed as of September 30, 2002 and we recorded a modification of $1.5 million to reflect an increase in the severance
and related benefits in connection with this staff reduction.
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
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