Health Net 2000 Annual Report Download - page 41

Notes to Consolidated Financial Statements HEALTH NET 39
NOTE 3 –Acquisitions and Dispositions
The following summarizes acquisitions, strategic invest-
ments, and dispositions by the Company during the three
years ended December 31, 2000.
2000 Transactions
The Company sold a property in California and received
cash proceeds of $3.5 million and recognized a gain of
$1.1 million, before taxes.
As discussed in the “1999 Transactions,”the
Company completed the sale of its HMO operations in
Washington. As part of the final sales true-up adjustment,
the Company recorded a loss on the sale of its Washington
HMO operations of $1.5 million, before taxes.
In 1995, the Company entered into a five year tax
retention operating lease for the construction of various
health care centers and a corporate facility. Upon expira-
tion in May 2000, the lease was extended for four months
through September 2000 whereupon the Company set-
tled its obligations under the agreement and purchased the
leased properties which were comprised of three rental
health care centers and a corporate facility for $35.4 mil-
lion.The health care centers are held as investment rental
properties and are included in other noncurrent assets.
The corporate facility building is used in operations and
included in property and equipment.The buildings are
being depreciated over a remaining useful life of 35 years.
Throughout 2000 and the first quarter of 2001, the
Company has provided funding in the amount of approx-
imately $4.2 million in MedUnite, Inc., an independent
company, funded and organized by seven major managed
health care companies. MedUnite, Inc. is designed to pro-
vide on-line internet provider connectivity services
including eligibility information, referrals, authorizations,
claims submission and payment.The funded amounts are
included in other noncurrent assets.
During 2000, the Company secured an exclusive e-
business connectivity services contract from the
Connecticut State Medical Society IPA, Inc. (“CSMS-
IPA”) for $15.0 million. CSMS – IPA is an association of
medical doctors providing health care primarily in
Connecticut.The amounts paid to CSMS-IPA for this
agreement are included in other noncurrent assets.
1999 Transactions
In connection with its planned divestiture of non-core
operations, the Company completed the sale of certain
of its non-affiliate pharmacy benefits management
operations for net cash proceeds of $65.0 million and
recognized a net gain of $60.6 million. In addition, the
Company also completed the sale of its HMO operations
in Utah,Washington, New Mexico, Louisiana,Texas and
Oklahoma, as well as the sale of its two hospitals, a third-
party administrator subsidiary and a PPO network sub-
sidiary. For these businesses, the Company received an
aggregate of $60.5 million in net cash proceeds, $12.2
million in notes receivable, $10.7 million in stocks and
recognized a net loss of $9.1 million, before taxes. See
Note 15 for impairment charges recognized during 1998
on certain of these dispositions.
In connection with the disposition of the HMO
operations in Washington, the Company sold the
Medicaid and Basic Health Plan membership and
retained under a reinsurance and administrative agree-
ment the commercial membership. At the same time,
the Company entered into definitive agreements with
PacifiCare of Washington, Inc. and Premera Blue Cross
to transition the Company’s commercial membership
in Washington.The transition was completed as of
June 30, 2000.The Company also entered into a defini-
tive agreement with PacifiCare of Colorado, Inc. to tran-
sition the Company’s HMO membership in Colorado.
The transition was completed as of June 30, 2000.The
dispositions do not have a material effect on the consoli-
dated financial statements.
1998 Transactions
Call Center Operations —In December 1998, the
Company sold certain of its call center operations for
$36.3 million in cash, net of transaction costs, and
recorded a gain of $1.2 million. In addition, the
Company entered into a long-term services agreement
with the buyer to provide such services to its members
for a period of 10 years.
Workers’Compensation — In December 1997, the
Company adopted a formal plan to sell its workers’com-
pensation segment which was accounted for as discontin-
ued operations. On December 10, 1998, the Company
completed the sale of the workers’compensation seg-
ment.The net assets sold consisted primarily of invest-
ments, premiums and reinsurance receivables, and reserves
for claims.The selling price was $257.1 million in cash.
In December 1997, the Company estimated that the
loss on the disposal of the workers’compensation seg-
ment would approximate $99.0 million (net of income
tax benefit of $21.0 million) which included an antici-
pated loss from operations during the phase-out period
from December 1997 through the date of disposal.The
pre-tax loss in 1998 was an additional $30.2 million.This
was offset by an increase in the rate of the tax benefit of
the transaction. Accordingly, the accompanying statement
of operations for the year ended December 31, 1998
does not reflect any additional net gain or loss from the
disposition.