Health Net 2004 Annual Report Download - page 29

rating on our senior unsecured debt is below Baa3 and the S&P rating is below BBB-, we are currently prohibited under the terms of
our senior credit facility from making dividends, distributions or redemptions in respect of our capital stock in excess of $75 million
in any consecutive four-quarter period, are subject to a minimum borrower cash flow fixed charge coverage ratio rather than the
consolidated fixed charge coverage ratio, are subject to additional reporting requirements to the lenders, and are subject to increased
interest and fees applicable to any outstanding borrowings and any letters of credit secured under the credit facility. See “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” for
additional information regarding our senior credit facility.
If we do not comply with the restrictive covenants under our senior credit facility, it could have a material adverse effect on our
financial condition.
Changes in the value of our investment assets could have a negative effect on our results of operations and stockholders’
equity.
Substantially all of our investment assets are in interest-yielding debt securities of varying maturities or equity securities. The
value of fixed-income securities is highly sensitive to fluctuations in short- and long-term interest rates, with the value decreasing as
such rates increase and increasing as such rates decrease. In addition, our regulated subsidiaries are also subject to state laws and
regulations that govern the types of investments that are allowable and admissible in those subsidiaries’ portfolios. There can be no
assurance that our investment assets will produce total positive returns or that we will not sell investments at prices that are less than
the carrying value of these investments. Changes in the value of our investment assets, as a result of interest rate fluctuations or
otherwise, could have a negative affect our results of operations and stockholders’ equity.
Negative publicity regarding the managed health care industry could adversely affect our ability to market and sell our products
and services.
Managed health care companies have received and continue to receive negative publicity reflecting the public perception of the
industry. The managed health care industry has also recently experienced significant merger and acquisition activity, giving rise to
speculation and uncertainty regarding the status of companies in our industry. Our marketing efforts may be affected by the amount of
negative publicity to which the managed health care industry has been subject, as well as by speculation and uncertainty relating to
merger and acquisition activity among companies in our industry. Speculation, uncertainty or negative publicity about us, our industry
or our lines of business could adversely affect our ability to market and sell our products or services, require changes to our products
or services, or stimulate additional legislation, regulation, review of industry practices or private litigation that could adversely affect
us.
The failure to effectively maintain our management information systems could adversely affect our business.
Our business depends significantly on effective information systems. The information gathered and processed by our
management information systems assists us in, among other things, pricing our services, monitoring utilization and other cost factors,
processing provider claims, billing our customers on a timely basis and identifying accounts for collection. Our customers and
providers also depend upon our information systems for membership verification, claims status and other information. We have many
different information systems for our various businesses and these systems require continual maintenance, upgrading and
enhancement to meet our operational needs. Moreover, our merger, acquisition and divestiture activity requires frequent transitions to
or from, and the integration of, various information management systems. We are in the process of consolidating a significant number
of our core and surround systems as part of our Health Net One systems consolidation project. See “Additional Information
Concerning Our Business—Health Net One Systems Consolidation Project” for information regarding this consolidation project. We
believe that by consolidating our systems into one common nationwide set, we will gain operational and cost efficiencies. Any
difficulty or delay associated with
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