Health Net 1999 Annual Report Download - page 34

32 FOUNDATION HEALTH SYSTEMS, IN C.
Notes to Consolidated Financial Statements
Note 1 – Description of Business
The current operations of Foundation Health Systems, Inc.
(the “Company” or “FHS”) are a result of the April 1, 1997
merger transaction (the “FHS Combination”) involving
Health Systems International, Inc. (“HSI”) and Foundation
Health Corporation (“FHC”). Pursuant to the FHS Com-
bination, FH Acquisition Corp., a wholly-owned subsidiary
of HSI (“Merger Sub”), merged with and into FHC and
FHC survived as a wholly-owned subsidiary of HSI, which
changed its name to “Foundation Health Systems, Inc.” and
thereby became the Company. Pursuant to the Agreement
and Plan of Merger (the “Merger Agreement”) that evi-
denced the FHS Combination, FHC stockholders received
1.3 shares of the Company’s Class A Common Stock for
every share of FHC common stock held, resulting in the
issuance of approximately 76.7 million shares of the Com-
pany’s Class A Common Stock to FHC stockholders.The
shares of the Company’s Class A Common Stock issued to
FHC’s stockholders in the FHS Combination constituted
approximately 61% of the outstanding stock of the Com-
pany after the FHS Combination and the shares held by the
Company’s stockholders prior to the FHS Combination
(i.e. the prior stockholders of HSI) constituted approxi-
mately 39% of the outstanding stock of the Company after
the FHS Combination.
The FHS Combination was accounted for as a pooling
of interests for accounting and financial reporting purposes.
The pooling of interests method of accounting is intended to
present, as a single interest, two or more common stockholder
interests which were previously independent and assumes that
the combining companies have been merged from inception.
Consequently, the Company’s consolidated financial state-
ments have been prepared and/ or restated as though HSI and
FHC always had been combined. Although prior to the FHS
Combination FHC reported on a fiscal year ended June 30
basis, the consolidated financial statements have been restated
to reflect the Company’s calendar year basis.
The consolidated financial statements give retroactive
effect to the FHS Combination which was accounted for as
a pooling of interests and to the sale of the Company’s
workers’ compensation business which was accounted for as
discontinued operations (see Note 3).
Continuing Operations
The Company is an integrated managed care organization
which administers the delivery of managed health care ser-
vices. Continuing operations, excluding corporate functions,
consist of two segments: Health Plan Services and Govern-
ment Contracts/ Specialty Services.Through its subsidiaries,
the Company offers group, individual, Medicaid and Medi-
care health maintenance organization (“HMO”) and pre-
ferred provider organization (“PPO”) plans; government-
sponsored managed care plans; and managed care products
related to administration and cost containment, behavioral
health, dental, vision and pharmaceutical products and
other services.
The Company currently operates within two segments
of the managed health care industry: Health Plan Services and
Government Contracts/ Specialty Services. During 1999, the
Health Plan Services segment consisted of four regional divi-
sions:Arizona (Arizona and Utah), California (encompassing
only the State of California), Central (Colorado, Florida,
Idaho, Louisiana, New Mexico, O klahoma, Oregon,Texas and
Washington) and Northeast (Connecticut, New Jersey, New
York, Ohio, Pennsylvania and West Virginia). During 1999,
the Company divested its health plans or entered into
arrangements to transition the membership of its health plans
in the states of Colorado, Idaho, Louisiana, New Mexico,
Oklahoma,Texas, Utah and Washington. Effective January 1,
2000, as a result of such divestitures, the Company consoli-
dated and reorganized its Health Plan Services segment into
two regional divisions, the Eastern Division (Connecticut,
Florida, New Jersey, New York, O hio, Pennsylvania and West
Virginia) and the Western Division (Arizona, California and
Oregon).The Company is one of the largest managed health
care companies in the United States, with approximately
4 million at-risk and administrative services only (“ASO”)
members in its Health Plan Services segment. The Company
also owns health and life insurance companies licensed to sell
insurance in 33 states and the District of Columbia.
The Government Contracts/ Specialty Services segment
administers large, multi-year managed care government con-
tracts.This segment subcontracts to affiliated and unrelated
third parties the administration and health care risk of parts of
these contracts and currently administers health care programs
covering 1.5 million eligible individuals under TR ICARE
(formerly known as the Civilian Health and Medical Program
of the Uniformed Services (“CHAMPUS”)). Currently, there
are three TR ICAR E contracts that cover Alaska,Arkansas,
California, Hawaii, Oklahoma, O regon,Texas, and Washing-
ton, and parts of Arizona, Idaho and Louisiana.This segment
also offers behavioral health, dental, vision, and pharmaceutical
products and services as well as managed care products related
to bill review, administration and cost containment for hospi-
tals, health plans and other entities.
Discontinued Operations
Workers’ Compensation Insurance Segment – In December 1997,
the Company revised its strategy of maintaining a presence in
the workers’ compensation risk-assuming insurance business
and adopted a formal plan to discontinue and sell this seg-
ment through divestiture of its workers’ compensation insur-
ance subsidiaries.The Company completed its sale of this seg-
ment on December 10, 1998.The consolidated financial state-
ments give retroactive effect to the foregoing (see Note 3).