Express Scripts 2011 Annual Report Download - page 28

Express Scripts 2011 Annual Report
26
We have historically engaged in strategic transactions, including the acquisition of other companies or businesses, and will
likely engage in similar transactions in the future. Our failure to effectively execute on such transactions or to integrate any
acquired businesses could adversely impact our operating results, and any such transactions will likely cause us to incur
significant transaction costs and require significant resources and management attention.
We have historically engaged in strategic transactions, including the acquisition of other companies and
businesses. These transactions typically involve the integration of core business operations and technology infrastructure
platforms that require significant management attention and resources. A failure or delay in the integration process could
have a material adverse affect on our financial results. In addition, such transactions may yield higher operating costs,
greater customer attrition or more significant business disruption than may have been anticipated. Further, even if we are
able to integrate the business operations successfully, there can be no assurance that such transactions will result in the
realization of the expected benefits of synergies, cost savings, innovation and operational efficiencies, or that any realized
benefits will be achieved within a reasonable period of time.
Strategic transactions, including the pursuit of such transactions, require us to incur significant costs. These costs
are typically non-recurring expenses related to the assessment, due diligence, negotiation and execution of the transaction.
We may incur additional costs to retain key employees as well as transaction fees and costs related to executing integration
plans. Although we would generally expect the realization of efficiencies related to the integration of businesses to offset
incremental transaction and acquisition-related costs over time, this net benefit may not be achieved in the near term, or at
all.
Our debt service obligations reduce the funds available for other business purposes, and the terms and covenants relating
to our indebtedness could adversely impact our financial performance and liquidity.
As described in greater detail in the discussion of our business in Item 7 below, we had $8.1 billion of senior notes
outstanding as of December 31, 2011, and in February 2012 we issued an additional $3.5 billion of senior notes,
(collectively, the ―senior notes‖). We also have a $750.0 million revolving credit facility (―revolving credit facility‖), none
of which was outstanding at December 31, 2011. Our debt service obligations for the senior notes and the revolving credit
facility reduce the funds available for other business purposes. The senior notes require us to pay interest semi-annually on
various dates throughout the year at a fixed rate of interest. The revolving credit facility requires us to pay interest
periodically at a variable rate of interest. Increases in interest rates on variable rate indebtedness would increase our interest
expense and could materially adversely affect our financial results. As of December 31, 2011, we had no outstanding
indebtedness impacted by variable interest rates.
We are subject to risks normally associated with debt financing, such as the insufficiency of cash flow to meet
required debt service payment obligations and the inability to refinance existing indebtedness. In addition, the senior notes
and revolving credit agreement contain covenants which limit our ability to incur additional indebtedness, create or permit
liens on assets, and engage in mergers, consolidations, or disposals. The covenants under the revolving credit facility also
include a minimum interest coverage ratio and a maximum leverage ratio. If we fail to satisfy these covenants, we would be
in default under the revolving credit facility and/or the senior notes indentures, and may be required to repay such debt with
capital from other sources or not be able to draw down against our revolving credit facility. Under such circumstances,
other sources of capital may not be available to us, or be available only on unattractive terms. See Note 7 – Financing to our
consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Our ability to conduct operations depends on the security and stability of our technology infrastructure as well as the
effectiveness of, and our ability to execute, business continuity plans across our operations. A failure in the security of our
technology infrastructure or a significant disruption in service within our operations could materially adversely affect our
business, the results of our operations and our financial position.
We maintain, and are dependent on, a technology infrastructure platform that is essential for many aspects of our
business operations. It is imperative that we securely store and transmit confidential data, including personal health
information, while maintaining the integrity of our confidential information. We have designed our technology
infrastructure platform to protect against failures in security and service disruption. However, any failure to protect against
a security breach or a disruption in service could materially adversely impact our business operations and our financial
results. Our technology infrastructure platform requires an ongoing commitment of significant resources to maintain and
enhance systems in order to keep pace with continuing changes as well as evolving industry and regulatory standards. 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 such third parties’ failure to adequately perform. In
the event we or our vendors experience malfunctions in business processes, breaches of information systems, failure to
maintain effective and up-to-date information systems or unauthorized or non-compliant actions by any individual, this