Special Charges

9 Months Ended

Sep. 30, 2020

Special Charges

Special Charges

NOTE F—Special Charges

In 2020, the Company established a transformation office which has an initiative (the “Transformation Initiative”) to lower our operating costs and reinvest in our business by improving and automating processes, leveraging technology, consolidating platforms and reducing any friction our customers, providers and members experience when doing business with us. As part of the Transformation Initiative, the Company is in the process of restructuring certain operating activities which has resulted in the Company recording severance of $2.0 million for the three and nine months ended September 30, 2020, within special charges in the consolidated statement of operations.

In addition, the Company is reevaluating its current office lease footprint. Recoverability of existing operating right-of-use lease assets, and the related fixed assets held at the office locations, to be held and used are measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. Any lease terminations or abandonments initiated as a result of the Transformation Initiative that result in an impairment of such right-of-use assets and the location’s related fixtures will be reported as special charges. For the three and nine months ended September 30, 2020, lease terminations and abandonments resulted in the recognition of non-cash pre-tax impairment of $14.2 million and $22.4 million, respectively, within special charges in the consolidated statement of operations. The impairment charge reduced the carrying value of these assets to their estimated fair value. In the future, if events or market conditions affect the estimated fair value to the extent that a long-lived asset is impaired, the Company will adjust the carrying value of these long-lived assets in the period in which the impairment occurs. In addition, the Company accrued various lease shutdown costs of $0.4 million and $0.5 million in the three and nine months ended September 30, 2020, respectively, within special charges in the consolidated statement of operations.

The Company anticipates it will incur a total of approximately $35 million in special charges in relation to the Transformation Initiative, primarily to be incurred in 2020. The following table summarizes the components of special charges that are included in the Company’s consolidated income statements for the three and nine months ended September 30, 2019 and 2020 (in thousands):

	Three Months Ended		Nine Months Ended
	September 30, 2020		September 30, 2020
Non-cash related special charges
Right-of-use assets	$	1,519	$	7,758
Fixed assets		12,656		14,643
Total non-cash related special charges		14,175		22,401
Cash related special charges
Employee severance and termination benefits		2,001		2,001
Lease shutdown costs		423		506
Total cash related special charges		2,424		2,507
Total special charges	$	16,599	$	24,908

A roll-forward of the Transformation Initiative liabilities is as follows (in thousands):

	Balance						Balance
	December 31,						September 30,
	2019		Additions		Payments		2020
Employee severance and termination benefits	$	—	$	2,001	$	(88)	$	1,913
Lease shutdown costs		—		506		—		506
	$	—	$	2,507	$	(88)	$	2,419