The Woodland Hills facility, with approximately 300,000 square feet, is leased pursuant to a ten year base lease expiring in 2001 on an anchor full-service gross basis with annual rent in 1997 of approximately $8.6 million.
Management believes that its ownership and rental costs are consistent with those available for similar space in the applicable local area. The Company's properties are well maintained, considered adequate and are being utilized for their intended purposes.
the new acquisitions during 1997. While SG&A expenses increased by $202.7 million during 1996 as a result of new acquisitions, additional administrative expenses associated with CHAMPUS government contracts, and general growth in the commercial business, SG&A as a percentage of total revenue was essentially flat for the year ended 1996 as compared to 1995.
Restructuring costs of $149.4 million, $27.4 million and $12.2 million were recorded for the years ended December 31, 1997, 1996 and 1995, respectively. The 1997 charge was primarily the result of a restructuring plan adopted in connection with the FHS Combination, and included costs related to severance and benefits, provider network consolidation, asset impairments and real estate lease terminations. Of the $149.4 million, $61.7 million resulted in cash payments as of December 31, 1997, with $45.2 million expected in future cash payments. The 1996 restructuring costs included severance, asset impairments and lease termination costs and required cash outlays of approximately $7.3 million. The 1995 restructuring costs represented severance payments.
The tax benefit on losses from continuing operations for the year ended December 31, 1997 of 24.0% differs from the tax provision rate of 26.7% on income from continuing operations for the year ended 1996 due primarily to nondeductible merger transaction costs associated with the FHS Combination during 1997 and a reduction in tax exempt interest income.
On June 28, 1996 the Company executed a Stock and Note Purchase Agreement with FPA for the purchase by FPA of the Company's Medical Practices. The transaction was consummated in November 1996 and the Company recognized a net of tax gain on sale of $20.3 million, net of $17.6 million of taxes, in 1996. In 1997, the Company recognized an additional $10.1 million gain on the sale, net of $2.8 million of taxes, as a result of the final settlement of certain contractual provisions. The income and loss on discontinued operations, net of taxes, for the Medical Practices was $2.9 million during 1996 and $48.9 million during 1995. The results in both years were primarily due to insufficient patient volume being served by the Medical Practices. In 1996, the loss was reduced by a gain of $10.8 million related to the sale of various independent practice associations.
The Company believes that cash from operations, existing working capital, lines of credit, and funds from planned divestitures of business are adequate to fund existing obligations, introduce new products and services, and continue to develop health care-related businesses. 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.
FOUNDATION HEALTH SYSTEMS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (AMOUNTS IN THOUSANDS)
The Company's health plans provide a wide range of managed health care services throughout the United States with more than 4.3 million at-risk and administrative services only members. The Company provides a comprehensive range of health care services through HMOs organized into three operational divisions located in the following geographic regions: the California Division which includes Health Net, a California health maintenance organization, the Eastern Division (Connecticut, Florida, New Jersey, New York, Ohio, Pennsylvania and West Virginia) and the Western Division (Arizona, Colorado, Idaho, Louisiana, New Mexico, Oklahoma, Oregon, Texas, Utah and Washington). The Company's commercial HMO subsidiaries contract to provide medical care services to a defined, enrolled population for a predetermined, prepaid monthly fee for group, Medicaid, individual and Medicare HMO plans throughout their respective service areas. All of the HMOs are state licensed and some are also federally qualified. The Company also operates PPO networks which provide access to health care services and owns six health and life insurance companies licensed to sell insurance throughout the United States.
PHYSICIAN PRACTICE MANAGEMENT SEGMENT--On June 28, 1996 the Company executed a Stock and Note Purchase Agreement with FPA Medical Management, Inc. ("FPA"), a national health care management services organization, for the purchase by FPA of the Company's physician practice management subsidiary and affiliated physician-owned medical practices (collectively, the "Medical Practices"). The transaction was consummated in November 1996. The consolidated financial statements report this segment as discontinued operations (see Note 15).
The following table reflects unaudited pro forma combined results of operations of the Company and Advantage Health, PACC, FOHP, PHS, and CGIC on the basis that the acquisitions had taken place at the beginning of each year ended December 31 (in thousands, except per share data):
Notes payable, capital leases and other financing arrangements comprised the following at December 31 (in thousands):
On June 27, 1997, the Company redeemed 4,550,000 shares of Class B Common Stock from the CWF at a price of $24.47 per share. The Company provided its consent to permit the CWF to sell 3,000,000 shares of Class B Common Stock to an unrelated third party in June of 1997 and to sell 450,000 shares of Class B Common Stock to unrelated third parties throughout August of 1997. On November 6, 1997, the Company also provided its consent to permit the CWF to sell 1,000,000 shares of Class B Common Stock to an unrelated third party. Pursuant to the Company's Certificate of Incorporation, such 3,000,000 shares,
During the first quarter of 1996, the Company repurchased 303,879 shares of its Class A Common Stock from certain current and former management employees of the Company and HN Management Holdings, Inc., a predecessor to the Company. The repurchased shares were held pursuant to the Amended and Restated Health Net Associate Trust Agreement dated as of May 1, 1994 on behalf of certain founding stockholders of the Company at the date of the conversion of Health Net to for-profit status. The repurchased shares, having an aggregate value of $9.6 million, were immediately canceled and netted against Class A Common Stock, additional paid-in-capital, and retained earnings.
NOTE 15--DISCONTINUED OPERATIONS (CONTINUED) Activity in the reserves for losses and loss adjustment expenses related to the workers' compensation insurance companies, for the years ended December 31, 1997 and 1996 are summarized as follows (in thousands):
NOTE 15--DISCONTINUED OPERATIONS (CONTINUED) assets. During the year ended December 31, 1997, the FPA common stock was sold and the notes receivable were repaid by FPA.
The transaction was consummated in November 1996 and the Company recognized a gain on sale of $20.3 million, net of $17.6 million of taxes, during the quarter ended December 31, 1996. During the year ended December 31, 1997, the Company recognized an additional $10.1 million gain on sale, net of $2.8 million of taxes, based on the final settlement of certain contractual provisions related to the disposition of the Medical Practices.