Health Net 1999 Annual Report Download - page 24

Project - The Company addressed its Year 2000 issues in
several ways. Selected systems were retired with the business
functions being converted to Year 2000 compliant systems.
The Company closely monitored its systems that utilized
packaged software from large vendors to ensure that these
systems were Year 2000 compliant.The Company also took
advantage of certain updates made available by vendors to
ensure Year 2000 compliance of certain software used by
the Company.The remaining systems’ compliance was
addressed by internal technical staff. In addition, the Com-
pany completed an assessment of third-party relationships
and sought to obtain assurances from all delegated authori-
ties and strategically important providers as to their Year
2000 readiness.
As of March 15, 2000, the Company has not identified
any significant disruptions or operational problems resulting
from Year 2000 issues. In addition, the Company is not
aware of any significant problems experienced by delegated
authorities or strategically important third parties that would
have a material adverse impact on the Company’s opera-
tions.There can be no assurance, however, that the Com-
pany will not still experience significant disruptions or oper-
ational problems related to Year 2000 issues, including as a
result of Year 2000 problems experienced by third parties.
Costs - The total cost for the Company’s Year 2000
project was approximately $33.4 million, excluding the
costs to accelerate the replacement of hardware or software
otherwise required to be purchased by the Company.The
percentages of the Company’s total expenditures for Year
2000 issues were approximately as follows: 38% for internal
costs, 29% for outside consultants and contractors, and 33%
for software-related and hardware-related costs.The operat-
ing subsidiaries for each line of business of the Company
paid for the costs of assessment, planning, remediation, test-
ing and certification of Year 2000 issues for their respective
operations.
Contingency Planning - An important part of the Com-
pany’s Year 2000 project involved identifying worst case sce-
narios and developing contingency plans.The Company
continues to keep the contingency plans in place in the
event a significant Year 2000 problem should occur.There
can be no assurance, however, that the contingency plans of
the Company, if implemented, will adequately address prob-
lems that may arise or prevent such problems from having a
material adverse effect on the Company’s operations.
The information contained herein is intended to be a
“Year 2000 Readiness Disclosure” as defined in the Year
2000 Information and R eadiness Disclosure Act of 1998
enacted on October 19, 1998.
Forward-looking statements contained in this Year
2000 section should be read in connection with the Com-
pany’s cautionary statements identifying important risk fac-
tors 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’s Annual R eport on Form 10-K for the year
ended December 31, 1999.
Liquidity and Capital Resources
Certain of the Company’s subsidiaries must comply with
minimum capital and surplus requirements under applicable
state laws and regulations, and must have adequate reserves
for claims. Certain subsidiaries must maintain ratios of cur-
rent assets to current liabilities of 1:1 pursuant to certain
government contracts.The Company believes it is in com-
pliance with these contractual and regulatory requirements
in all material respects.
The Company believes that cash from operations,
existing working capital and lines of credit are adequate to
fund existing obligations, introduce new products and ser-
vices, and continue to develop health care-related busi-
nesses.The Company regularly evaluates 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 investment
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 government audit and negoti-
ation, amounts ultimately collected may vary significantly
from current estimates. Additionally, the timely collection of
such receivables is also impacted by government audit and
negotiation and could extend for periods beyond a year.
For the year ended December 31, 1999, cash provided
by operating activities was $297.1 million compared to cash
provided by operating activities of $100.9 million in the
prior year.This change was due primarily to the collection
of premiums receivable and timing of payments related to
reserves for claims. Net cash provided by investing activities
was $163.4 million during 1999 as compared to cash pro-
vided by investing activities of $147.0 million during 1998.
This increase during 1999 was primarily due to a decrease
in the net purchases of fixed assets offset by a decrease in
net proceeds from the sale of businesses and buildings. Net
cash used in financing activities was $213.9 million in 1999
as compared to cash used in financing activities of $43.3
million during the same period in 1998.The increase in
22 FOUNDATION HEALTH SYSTEMS, INC.