Health Net 1998 Annual Report Download - page 28

2 6 F O U N D ATIO N H EALT H SYST EMS, I N C.
problem,resulting in part from the uncertainty of
the readiness of third party providers and customers,
the Company is not able at this time to determine
whether the Year 2000 problems will have a material
a d ve rse effect on the Company ’s results of operations,
liquidity or financial condition.The Company’s
Year 2000 project is expected to reduce significantly
the Company’s level of uncertainty and the possibil-
ity of significant or long-lasting interruptions of
the Company’s business operations;however, the
Company believes that it is impossible to predict all
of the areas in which material problems may arise.
The Company has initiated formal commu-
nications with others with whom it does significant
business to determine their Year 2000 issues.The
C o m p a ny is currently projecting to complete its
assessment of third party risks by the end of the
second quarter of 1999.There can be no assurances
that the systems of other companies on which the
Company’s systems rely will be timely converted,
or that the failure to convert by another company
would not have a material adverse effect on the
Company.
Forward-looking statements contained in
this Year 2000 section should be read in connection
with the Company’s cautionary statements identify-
ing important risk factors that could cause the
Company’s actual results to differ materially from
those projected in these forward-looking statements,
which cautionary statements are contained in the
Company’sAnnual Report on Form 10-K for the
year ended December 31, 1998.
Liquidit y a nd Ca pital Resourc e s
Certain of the Company’s subsidiaries must comply
with minimum capital and surplus requirements
under applicable state laws and regulations,and must
h ave adequate re s e rves for claims. C e rtain subsidiari e s
must maintain ratios of current assets to current
liabilities of 1:1 pursuant to certain government
contracts.The Company believes it is in compliance
with these contractual and regulatory requirements
in all material respects.
The Company believes that cash from opera-
tions,existing working capital,lines of credit, and
funds from planned divestitures of business are ade-
quate to fund existing obligations,introduce new
p r oducts and serv i c e s , and continue to develop health
care-related businesses.The Company regularly eval-
uates cash requirements for current operations and
commitments, and for capital acquisitions and other
strategic transactions.The Company may elect
to raise additional funds for these purposes,either
through additional debt or equity, the sale of invest-
ment securities or otherwise, as appropriate.
Government health care receivables are best
estimates of payments that are ultimately collectible
or payable. Since these amounts are subject to gov-
ernment audit and negotiation, amounts ultimately
collected may vary from current estimates.Addition-
ally, the timely collection of such receivables is also
impacted by government audit and negotiation.
For the year ended December 31,1998, cash
provided by operating activities was $100.9 million
compared to cash used in operating activities of
$125.9 million in the prior year.This change was
due primarily to the timing of payments of accounts
p aya bl e and other liabilities, including payments for
merger, restructuring and other costs associated with
the 1998 Charges. Net cash provided by investing
a c t i vities was $147.0 million during 1998 as compare d
to cash used in investing activities of $134.8 million
d u ring 1997.This increase during 1998 was pri m a ri l y
due to cash received from the sale of the workers’
compensation segment.Net cash used in financing
activities was $43.3 million in 1998 as compared to
cash provided by financing activities of $332.1 mil-
lion during the same period in 1997.The decrease
in 1998 was due to the re p ayment of funds draw n
under the Company’s Credit Facility (as defined
below), which were partially offset by additional
drawings under the Credit Facility.
The Company has a $1.5 billion credit fa c i l i t y
(the “ C redit Facility”), with Bank of A m e rica as
A d m i n i s t r a t i ve Agent for the Lenders there t o,w h i c h
was amended by Amendments in A p ri l , Ju l y, N o ve m-
ber 1998 and March 1999 with the Lenders (the
“ A m e n d m e n t s ” ) .All previous revolving credit fa c i l i -
ties we r e terminated and rolled into the Credit Facil-
ity on Ju l y 8 ,1 9 9 7 .At the election of the Company,
and subject to customary cove n a n t s , loans are initiated
on a bid or committed basis and carry interest at
o f f s h o re or domestic rates, at the applicable LIBOR
rate plus margin or the bank re f e rence rate.A c t u a l
rates on borrowings under the Credit Facility va ry,
based on competitive bids and the Company ’s unse-
c u r ed credit rating at the time of the borrow i n g .A s
of December 31, 1 9 9 8 , the Company was in compli-
ance with the financial covenants of the Credit Facil-
i t y, as amended by the A m e n d m e n t s .The Cre d i t