Health Net 2003 Annual Report Download - page 28

attracting new customers, disputes with customers and providers, regulatory problems, significant increases in
administrative expenses and/or other adverse consequences. In addition, we may, from time-to-time, obtain significant
portions of our systems-related or other services or facilities from independent third parties which may make our
operations vulnerable to adverse effects if such third parties fail to perform adequately.
If we are unable to manage our general and administrative expenses, our business, results of operations and
financial condition could be harmed.
The level of our administrative expenses is a partial determinant of our profitability and administrative expense
increases are difficult to predict. While we attempt to effectively manage such expenses, including through the
development of online functionalities and other projects designed to create administrative efficiencies (such as the Health
Net One systems consolidation project), increases in staff- related and other administrative expenses may occur from time
to time due to business or product start-ups or expansions, growth, membership declines or changes in business,
difficulties or delays in projects designed to create administrative efficiencies, acquisitions, reliance on outsourced
services, regulatory requirements, including compliance with HIPAA regulations, or other reasons. In 2001, we initiated a
formal plan (the “2001 Plan”) to reduce operating and administrative expenses for all of our business units. In connection
with the 2001 Plan, we, among other things, consolidated certain administrative, financial and technology functions and
reduced staff throughout the enterprise. If we experience significant increases in our general and administrative expenses
in the future we may be required to consider taking actions similar to those taken in connection with the 2001 Plan. If we
are unable to manage our general and administrative expenses, our business, financial condition and results of operations
could be harmed.
We depend, in part, on independent sales agents to market our products and services and face intense competition
for their services and allegiance.
We market our products and services both through sales people employed by us and through independent sales
agents. Independent sales agents typically do not work with us on an exclusive basis and may market health care products
and services of our competitors. We face intense competition for the services and allegiance of independent sales agents
and we cannot assure you that these agents will continue to market our products at a reasonable cost. Although we have a
number of sales employees and agents, if key sales employees or agents or a large subset of these individuals were to
leave us, our ability to retain existing customers and members could be impaired.
The market price of our common stock is volatile.
The market price of our common stock is subject to volatility. In 2003, the HMO Index, an index comprised of 12
managed care organizations, recorded a 68% rise in its value, while the value of Health Net’s stock rose by approximately
24%. There can be no assurance that our common stock will trade at a pace equivalent to this index or to the Standard &
Poors’ 400 Mid-Cap Index of which Health Net common stock is also a component. The market prices of our common
stock and the securities of certain other publicly-traded companies in our industry have shown volatility and sensitivity in
response to many factors, including public communications regarding managed care, legislative or regulatory actions,
litigation or threatened litigation, health care cost trends, pricing trends, competition, earning or membership reports of
particular industry participants, and acquisition activity. There can be no assurances regarding the level or stability of our
share price at any time or the impact of these or any other factors on our stock price.
If we are unable to achieve greater profitability or strengthen our core operations as a result of the divestiture of
non-core assets, our business, financial conditions and results of operations could be materially and adversely affected.
In 1999, we substantially completed a program to divest certain non-core assets. There can be no assurance that,
having divested such non-core operations, we will be able to achieve greater profitability, strengthen our core operations
or compete more effectively in our existing markets. We continue to evaluate the profitability realized or likely to be
realized by our existing businesses and operations, and we are reviewing from a strategic standpoint which, if any, of our
businesses or operations should be divested. Entering into, evaluating or consummating divestiture transactions may entail
risks and uncertainties in addition to those which may result from the divestiture-related change in our business
operations, including but not limited to extraordinary transaction costs, unknown indemnification liabilities and
unforeseen administrative complications, any of which could result in reduced revenues, increased charges, or post-
transaction administrative costs or could otherwise have a material adverse effect on our business, financial condition or
results of operations.
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