Health Net 2013 Annual Report Download - page 51

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Operations—Liquidity and Capital Resources—Critical Accounting Estimates—Goodwill and Other Intangible Assets”
for further discussion of our procedures related to goodwill and other intangible assets.
The value of our investment portfolio and our goodwill could be adversely impacted by varying economic and market
conditions which could, in turn, have a negative effect on our results of operations and stockholders' equity.
Our investment portfolio is comprised primarily of available-for-sale investment securities such as interest-
yielding debt securities of varying maturities. As of December 31, 2013, our available-for-sale investment securities
were approximately $1.63 billion. 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. These
securities may also be negatively impacted by illiquidity in the market. We closely monitor the fair values of our
investment securities and regularly evaluate them for any other-than-temporary impairments. We have the intent and
ability to hold our investments for a sufficient period of time to allow for recovery of the principal amount invested.
The current economic environment and the volatility of capital markets could negatively impact the liquidity of
investments, such as the debt securities we hold, and a worsening in these markets could have additional negative
effects on the liquidity and value of our investment assets. In addition, such uncertainty has increased the difficulty of
assessing investment impairment and the same influences tend to increase the risk of potential impairment of these
assets.
Over time, the economic and capital market environment may further decline or provide additional insight
regarding the fair value of certain securities, which could change our judgment regarding the impairment of certain
investments. This could result in realized losses relating to other-than-temporary declines being charged against future
income. There is continuing risk that declines in fair value may occur and material other-than-temporary impairments
may result in realized losses in future periods, which could have an adverse effect on our results of operations, liquidity
and financial condition. See “Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations—Liquidity and Capital Resources” for additional information regarding our investment portfolio.
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, illiquidity or otherwise, could have a negative effect on our stockholders' equity. In addition, if it became
necessary for us to liquidate our investment portfolio on an accelerated basis, it could have an adverse effect on our
results of operations.
If our stock price experiences significant fluctuations or if our market capitalization materially declines, we could
be required to take an impairment charge to reduce the carrying amount of our goodwill. If we were required to take
such a charge, it would be non-cash and would not affect our liquidity or financial condition, but could have a
significant adverse effect on our results of operations in the period in which the charge was taken.
The market price of our common stock is volatile.
The market price of our common stock is subject to volatility. In 2012, the per share value of our common stock
decreased by 20.1% and in 2013, the per share value of our common stock increased by 22%. There can be no
assurance that the trading price of our common stock will vary in a manner consistent with the variation in the
Standard & Poor's 400 Mid-Cap Index of which our common stock is a component. The market prices of our common
stock and the securities of certain other publicly-traded companies in our industry have shown significant volatility and
sensitivity in response to many factors, including the ACA and health care reform generally, public communications
regarding managed care, legislative or regulatory actions, political developments, litigation or threatened litigation,
health care cost trends, proposed premium increases, pricing trends, reductions in government reimbursement,
competition, earnings, proposed changes in or the introduction of new government programs or initiatives,
developments with respect to the CCI, receivable collections or membership reports of particular industry participants,
and market speculation about or actual merger and acquisition activity. Additionally, adverse developments affecting
any one of the companies in our sector could cause the price of our common stock to weaken, even if those adverse
developments do not otherwise affect us. 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.
Securities class action lawsuits are often brought against companies after periods of volatility in the market price
of their securities. If we were to become involved in securities litigation, it could subject us to substantial costs, divert
resources and the attention of management from our business, and otherwise adversely affect our business.