Health Net 2007 Annual Report Download - page 34

relatively easily and customers enjoy significant flexibility in moving between competitors. There is a risk that
our customers may decide to perform for themselves functions or services currently provided by us, which could
result in a decrease in our revenues. In addition, our providers and suppliers may decide to market products and
services to our customers in competition with us.
In recent years, there has been significant merger and acquisition activity in our industry and in industries
that act as our suppliers, such as the hospital, physician, pharmaceutical and medical device industries. This
activity may create stronger competitors and/or result in higher health care costs. In addition, our contracts with
government agencies are frequently up for re-bid and the loss of any significant government contract to a
competitor could have an adverse effect on our financial condition and results of operations. To the extent that
there is strong competition or that competition intensifies in any market, our ability to retain or increase
customers, our revenue growth, our pricing flexibility, our control over medical cost trends and our marketing
expenses may all be adversely affected.
Nearly every major managed care organization has launched, announced or is developing HSA-compatible
high-deductible health plans. We have launched HSA programs in our Northeast, Arizona, California and Oregon
health plans. Our HSA programs represented a very small percentage of our total revenue in 2007. Some of our
large competitors, such as Aetna and Blue Cross Blue Shield plans, have made large investments in, and heavily
marketed, their consumer-directed health plans and have gained more enrollment in many markets across the
country. If their enrollment trend continues, it may widen the competitive gap between us over the next several
years. If we fail to design, maintain and effectively market consumer-directed health care programs that are
attractive to consumers and, as a result, are unable to achieve a competitive market share in the consumer-directed
care category, it could have a material adverse effect on our business, financial condition or results of operations.
We have historically experienced significant turnover in senior management and are in the process of
reorganizing our management structure. If we are unable to manage the succession of our key executives, it
could adversely affect our business.
We have experienced a high turnover in our senior management team in recent years and are in the process
of reorganizing our management structure. Although we have succession plans in place and have employment
arrangements with our key executives, these do not guarantee that the services of these key executives will
continue to be available to us. We would be adversely affected if we fail to adequately plan for future turnover of
our senior management team.
We have a material amount of indebtedness and may incur additional indebtedness, or need to refinance
existing indebtedness, in the future, which may adversely affect our operations.
Our indebtedness includes $400 million in aggregate principal amount of 6.375% Senior Notes due 2017
and $175 million in borrowings under our financing facility which will amortize over a period ending December
2012. For a description of our Senior Notes and our financing facility, see “Liquidity and Capital Resources—
Capital Structure.” In addition, to provide liquidity, we have a $900 million five-year revolving credit facility
that expires in June 2012. As of December 31, 2007, no borrowings were outstanding under our revolving credit
facility. We may incur additional debt in the future. Our existing indebtedness, and any additional debt we incur
in the future through drawings on our revolving credit facility or otherwise could have an adverse effect on our
business and future operations. For example, it could:
• require us to dedicate a substantial portion of cash flow from operations to pay principal and interest on
our debt, which would reduce funds available to fund future working capital, capital expenditures and
other general operating requirements;
• increase our vulnerability to general adverse economic and industry conditions or a downturn in our
business; and
• place us at a competitive disadvantage compared to our competitors that have less debt.
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