Health Net 1999 Annual Report Download - page 50

48 FOUNDATION HEALTH SYSTEMS, IN C.
The Company initiated during the fourth quarter of
1998 a formal plan to dispose of certain Central Division
health plans included in the Company’s Health Plan Ser-
vices segment in accordance with its anticipated divestitures
program. In this connection, the Company announced in
1999 its plan to close the Colorado regional processing
center, terminate employees and transfer its operations to
the Company’s other administrative facilities. In addition,
the Company also announced its plans to consolidate cer-
tain administrative functions in its Northwest health plan
operations. During the first and fourth quarters ended
March 31, 1999 and December 31, 1999, the Company
recorded pretax charges for restructuring and other charges
of $21.1 million (the “1999 Charges”) and $6.2 million,
respectively.
SEVERAN CE A ND BENEFIT RELAT ED COST S -
The 1999 Charges included $18.5 million for severance
and benefit costs related to executives and operations
employees at the Colorado regional processing center and
operations employees at the Northwest health plans.The
operations functions include premium accounting, claims,
medical management, customer service, sales and other
related departments.The 1999 Charges included the termi-
nation of a total of 773 employees. As of December 31,
1999, 457 employees had been terminated and $8.6 million
had been paid.Termination of the remaining 316 employ-
ees is expected to be completed during the first half of
2000. Modifications to the initial estimate of $1.3 million
were recorded during 1999.
ASSET IMPAIRMEN T COSTS - During the fourth
quarter ended December 31, 1999, the Company recorded
asset impairment costs totaling $6.2 million related to
impairment of certain long-lived assets held for disposal
(see Note 15).
REAL ESTAT E LEA SE T ERMIN AT ION AN D
OTHER COSTS - The 1999 Charges included $2.6 mil-
lion related to termination of real estate obligations and
other costs to close the Colorado regional processing center.
1998 Charges
The following tables summarize the 1998 charges by quarter and by type (amounts in millions):
Expected
Activity during 1998 Balance at 1999 Activity 1999 Balance at Future
1998 Cash Dec. 31, Cash Modifications Dec.31, Cash
Charges Payments Non-Cash 1998 Payments Non-Cash to Estimate 1999 Outlays
Severance and benefit related costs $ 21.2 $(13.2) $ (1.9) $ 6.1 $ (5.0) $ – $ (1.0) $ 0.1 $ 0.1
Asset impairment and other
charges related to FPA 84.1 (11.0) (63.5) 9.6 (5.6) (3.4) (0.6) – –
Asset impairment and other 112.4 – (97.8) 14.6 (0.8) (3.1) (10.7) – –
Other costs 22.4 (2.1) (9.6) 10.7 (1.4) (9.0) (0.3) – –
Total $240.1 $(26.3) $(172.8) $41.0 $(12.8) $(15.5) $(12.6) $ 0.1 $ 0.1
Second Quarter 1998 Charge $ 50.0 $ (4.5) $ (41.1) $ 4.4 $ (4.4) $ – $ – $ – $ –
Third Q uarter 1998 Charge 71.7 (17.1) (33.9) 20.7 (6.6) (12.1) (1.9) 0.1 0.1
Fourth Quarter 1998 Charge 118.4 (4.7) (97.8) 15.9 (1.8) (3.4) (10.7) – –
Total $240.1 $(26.3) $(172.8) $41.0 $(12.8) $(15.5) $(12.6) $ 0.1 $ 0.1
SEVERAN CE A ND BENEFIT RELAT ED COST S -
During the third quarter ended September 30, 1998, the
Company recorded severance costs of $21.2 million related
to staff reductions in selected health plans and the corporate
centralization and consolidation.This plan includes the ter-
mination of 683 employees in seven geographic locations
primarily relating to corporate finance and human
resources functions and California operations. As of
December 31, 1999, termination of employees had been
completed and $20.1 million had been recorded as sever-
ance under this plan.
FPA MEDICAL MAN AGEMENT - On July 19,
1998, FPA Medical Management, Inc. (“FPA”) filed for
bankruptcy protection under Chapter 11 of the Federal
Bankruptcy Code. FPA, through its affiliated medical
groups, provided services to approximately 190,000 of the
Company’s affiliated members in Arizona and California
and also leased health care facilities from the Company. FPA
has discontinued its medical group operations in these mar-
kets and the Company has made other arrangements for
health care services to the Company’s affiliated members.
The FPA bankruptcy and related events and circumstances
caused management to re-evaluate the decision to continue
to operate the facilities and management determined to sell
the 14 properties, subject to bankruptcy court approval.
Management immediately commenced the sale process
upon such determination.The estimated fair value of the
assets held for disposal was determined based on the esti-
mated sales prices less the related costs to sell the assets.
Management believed that the net proceeds from a sale of
the facilities would be inadequate to enable the Company
to recover their carrying value. Based on management’s best