Health Net 1999 Annual Report Download - page 51

FOUNDATION HEALTH SYSTEMS, IN C. 49
estimate of the net realizable values, the Company recorded
charges totaling approximately $84.1 million.These charges
were comprised of $63.0 million for real estate asset
impairments, $10.0 million impairment adjustment of a
note received as consideration in connection with the 1996
sale of the Company’s physician practice management busi-
ness and $11.1 million for other items.These other items
included payments made to Arizona physician specialists
totaling $3.4 million for certain obligations that FPA had
assumed but was unable to pay due to its bankruptcy,
advances to FPA to fund certain operating expenses totaling
$3.0 million, and other various costs totaling $4.7 million.
The carrying value of the assets held for disposal totaled
$11.3 million at December 31, 1999.There have been no
further adjustments to the carrying value of these assets
held for disposal. As of December 31, 1999, 12 properties
have been sold which has resulted in net gains of $5.0 mil-
lion during 1999 and $3.6 million in 1998 which are
included in net gains on sale of businesses and buildings.
The remaining properties are expected to be sold during
2000.The suspension of real estate depreciation has an
annual impact of approximately $2.0 million.The results of
operations attributable to FPA real estate assets were imma-
terial during 1998 and 1999.
ASSET IMPAIRMEN T A N D OTHER CHARGES -
During the fourth quarter ended December 31, 1998, the
Company recorded impairment and other charges totaling
$118.4 million. Of this amount, $112.4 million related to
impairment of certain long-lived assets held for disposal (see
Note 15) and $6 million related to the FPA bankruptcy.
OTHER COSTS - The Company recorded other
costs of $22.4 million which included the adjustment of
amounts due from a third-party hospital system that filed
for bankruptcy which were not related to the normal busi-
ness of the Company totaling $18.6 million, and $3.8 mil-
lion related to other items such as fees for consulting ser-
vices from one of the Company’s prior executives and costs
related to exiting certain rural Medicare markets.
During 1999, modifications of $12.6 million to the ini-
tial estimates were recorded.These credits to the 1998 charges
included: $10.7 million from reductions to asset impairment
costs and $1.9 million from reductions to initially anticipated
involuntary severance costs and other adjustments.
In addition, other charges totaling $103.3 million were
recorded in the third quarter ended September 30, 1998.
These charges mostly related to contractual adjustments,
equitable adjustments relating to government contracts,
payment disputes with contracted provider groups and pre-
mium deficiency reserves and were primarily included in
health care costs within the consolidated statement of oper-
ations.The Company also recorded in the fourth quarter
ended December 31, 1998, $67.5 million of other charges
primarily related to litigation in the normal course of busi-
ness for non-core operations totaling $18.6 million and
other charges totaling $48.9 million primarily related to
bad debts, claims and premium deficiency reserves for cer-
tain health plans whose health care costs exceeded the con-
tractual premiums.These charges are included as part of
health plan services and SG&A expenses within the consol-
idated statement of operations.
1997 Charges
The following tables summarize the 1997 charges by quarter and by type (amounts in millions):
Activity during Expected
1997 Net 1997 and 1998 Balance at 1999 Activity 1999 Balance at Future
Modifications 1997 Cash Dec. 31, Cash Modifications Dec.31, Cash
1997 Charges to Estimate Charges Payments Non-Cash 1998 Payments Non-Cash to Estimate 1999 Outlays
Severance and benefit
related costs $ 71.1 $ (9.7) $ 61.4 $ (51.9) $ (6.6) $ 2.9 $ (2.4) $ – $(0.5) $ – $ –
Provider network
consolidation costs 44.3 (8.1) 36.2 (27.7) – 8.5 (7.0) (0.7) (0.8) – –
Asset impairment
costs 46.0 (2.0) 44.0 (5.4) (35.2) 3.4 – (3.3) (0.1) – –
R eal estate lease
termination costs 30.1 (22.2) 7.9 (5.0) – 2.9 (2.7) – (0.2) – –
Total restructuring
costs 191.5 (42.0) 149.5 (90.0) (41.8) 17.7 (12.1) (4.0) (1.6) – –
Merger related costs73.2(3.6)69.6(64.8)(4.8)––––––
Gem costs 57.5–57.5(54.0)(3.5)––––––
Other costs 12.6–12.6–(12.6)––––––
Total $334.8 $(45.6) $289.2 $(208.8) $(62.7) $17.7 $(12.1) $(4.0) $(1.6) $ – $ –
Second Quarter
1997 Charge $328.8 $(45.6) $283.2 $(205.0) $(60.5) $17.7 $(12.1) $(4.0) $(1.6) $ – $ –
Fourth Quarter
1997 Charge 6.0 – 6.0 (3.8) (2.2) ––––––
Total $334.8 $(45.6) $289.2 $(208.8) $(62.7) $17.7 $(12.1) $(4.0) $(1.6) $ – $ –