Health Net 2013 Annual Report Download - page 49

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putative class action lawsuits brought in federal and state courts on behalf of individuals who claim to have been
affected by this incident and the matter remains under review by certain regulatory agencies. See “Item 3. Legal
Proceedings” and “—We face risks related to litigation, which, if resolved unfavorably, could result in substantial
penalties and/or monetary damages, including punitive damages. In addition, we incur material expenses in the defense
of litigation and our financial condition, results of operations, cash flow and/or liquidity could be adversely affected if
litigation expenses are greater than we project” for additional information.
A party, whether internal or external, that is able to circumvent our security systems could, among other things,
misappropriate or misuse sensitive or confidential information (including but not limited to PHI and other member
information), user information or other proprietary information, cause significant interruptions in our operations and
cause all or portions of our website to be unavailable. Internal or external parties may attempt to circumvent our
security systems, and we have experienced external attacks on our network, such as, for example, reconnaissance
probes, denial of service attempts, malicious software injection attacks and phishing attacks in the past. We have
expended significant resources to protect against such attacks, detect if and when attacks occur, respond to these
attempted attacks and recover the enterprise to regular operations, and we expect to continue to do so in the future. Any
reductions in the availability of our website could impair our ability to conduct our business and adversely impact our
members during the occurrence of any such incident. Because the techniques used to circumvent security systems can
be highly sophisticated and change frequently, often are not recognized until launched against a target and may
originate from less regulated and remote areas around the world, we may be unable to proactively address all possible
techniques or implement adequate preventive measures for all situations.
Noncompliance with any privacy laws or data security laws or any security incident or breach involving the
misappropriation, loss or other unauthorized use or disclosure of sensitive or confidential member information, whether
by us, one of our business associates or another third party, could have a material adverse effect on our business,
reputation, financial condition and results of operations, including but not limited to: material fines and penalties;
compensatory, special, punitive, and statutory damages; litigation; consent orders regarding our privacy and security
practices; requirements that we provide notices, credit monitoring services and/or credit restoration services or other
relevant services to impacted individuals; adverse actions against our licenses to do business; and injunctive relief.
Additionally, the costs incurred to remediate any data security or privacy incident could be substantial.
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. Our
Senior Notes payable balance was $399.3 million as of December 31, 2013. In addition, we have a $600 million five-
year revolving credit facility that expires in October 2016. As of December 31, 2013, we had $100.0 million
outstanding under our revolving credit facility. For a description of our Senior Notes and our revolving credit facility,
see “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and
Capital Resources-Capital Structure.” 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 stock repurchases, 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.
We continually evaluate options to refinance our outstanding indebtedness. Our ability to obtain any financing,
whether through the issuance of new debt securities or otherwise, and the terms of any such financing are dependent on,
among other things, our financial condition, financial market conditions within our industry and generally, credit ratings
and numerous other factors. In the event we need to access the credit markets, including to refinance our debt, there can
be no assurance that we will be able to obtain financing on acceptable terms or within an acceptable time, if at all. If we
are unable to obtain financing on terms and within a time acceptable to us it could, in addition to other negative effects,
have a material adverse effect on our operations, financial condition, ability to compete or ability to comply with
regulatory requirements.