Health Net 2004 Annual Report Download - page 56

As part of the Settlement Agreements, all of our indemnification obligations under the stock purchase agreement were
terminated and the Florida Plan agreed to indemnify us against any current or future litigation relating to our prior ownership of the
Florida Plan. In addition, effective September 30, 2004, we entered into agreements to amend the two existing notes that we received
from the sale of the Florida Plan and the related corporate facility building. The amendments had no significant impact on our
financial position or results of operations. See Note 3 to our consolidated financial statements for more information on the sale of the
Florida Plan.
2003 Divestitures
On October 31, 2003, we completed the sales of our dental and vision subsidiaries, Health Net Dental and Health Net Vision, to
SafeGuard Health Enterprises, Inc. During the fourth quarter of 2004, we entered into a settlement agreement to settle the true-up
adjustments related to the sale of our dental and vision subsidiaries. In connection with these sales, we received approximately $14.8
million in cash.
On October 31, 2003, we consummated the sale of our workers’ compensation services subsidiary, Health Net Employer
Services, Inc., along with its subsidiaries Health Net Plus Managed Care Services, Inc. and Health Net CompAmerica, Inc.,
collectively known as our employer services group subsidiary, to First Health Group Corp. In connection with this sale, we received
$79.5 million in cash.
2002 Divestitures
Effective July 1, 2002, we sold our claims processing subsidiary, EOS Claims Services, Inc., to Tristar Insurance Group, Inc. In
connection with this sale, we received $500,000 in cash.
During 2002, we recorded an estimated pre-tax loss of $2.6 million 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.
The 2004, 2003 and 2002 divestitures described above did not have a material impact on our financial condition, results of
operations or liquidity. See Note 3 to our consolidated financial statements for more information on these divestitures.
Income Tax Provision
Our income tax expense and the effective income tax rate for the years ended December 31, 2004, 2003 and 2002 are as follows:
Loss on Settlement from Disposition of Discontinued Operations
2004 2003 2002
(Dollars in millions)
Income tax expense $24.8 $193.9 $117.4
Effective tax rate (1)
36.8% 37.5% 33.4%
(1) The effective income tax rate differs from the statutory federal tax rate of 35.0% in each year due primarily to state income
taxes, tax-exempt investment income, business divestitures and tax return examination settlements. The effective income tax rate
decreased from 2003 to 2004 due to an increase in the impact of tax benefits associated with tax return examination settlements.
The effective income tax rate increased from 2002 to 2003 primarily due to the reduction in the impact of tax benefits associated
with tax return examination settlements.
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
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