Express Scripts 2012 Annual Report Download - page 26

Express Scripts 2012 Annual Report24
We may also incur other unanticipated integration costs as well as costs to maintain employee morale and to retain key
employees and additional costs related to formulating and revising integration plans.
If, among other things, we are unable to fully achieve the expected growth in earnings, or if our operational cost
savings estimates are not fully realized, or if the integration costs are greater than expected, the market price of our
common stock may decline. The market price also may decline if we do not fully achieve the perceived benefits of the
Merger as rapidly or to the extent anticipated by financial or industry analysts or if the financial results of the combined
company are not consistent with the expectations of financial or industry analysts.
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.
We currently have debt outstanding (see summary of indebtedness within Note 7 – Financing), including
indebtedness of ESI and Medco guaranteed by us. Our debt service obligations reduce the funds available for other business
purposes. Increases in interest rates on variable rate indebtedness would increase our interest expense and could materially
adversely affect our financial results. At December 31, 2012, we had $2,631.6 million of obligations which were subject to
variable rates of interest under our credit agreements. A hypothetical increase in interest rates of 1% would result in an
increase in annual interest expense of approximately $26.3 million (pre-tax), presuming that obligations subject to variable
interest rates remained constant. Note, however, that as of December 31, 2012, cash on hand exceeds our variable rate
obligations by $162.3 million.
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, certain of our
debt instruments contain covenants which include limitations on our ability to incur additional indebtedness, create or
permit liens on assets, and engage in mergers, consolidations or disposals. The covenants under our credit agreement also
include, among others, a minimum interest coverage ratio and a maximum leverage ratio. If we fail to satisfy one or more
of the covenants under our credit agreement or the senior notes indentures, we would be in default under the credit
agreement and/or the senior notes indentures, and may be required to repay such debt with capital from other sources or
otherwise 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 and results of operations.
We maintain, and are dependent on, a technology infrastructure platform that is essential for many aspects of our
business operations. We have many different information systems and have acquired additional information systems as a
result of the Merger. It is imperative that we securely store and transmit confidential data, including personal health
information, while maintaining the integrity of our confidential information. However, any failure to protect against a
security breach or a disruption in service could negatively impact our reputation and materially adversely impact our
business operations and our results of operations. Our technology infrastructure platform requires significant resources to
maintain and enhance systems in order to keep pace with continuing changes as well as evolving industry and regulatory
standards. Emerging and advanced security threats, including coordinated attacks, require additional layers of security
which may disrupt or impact efficiency of operations. From time to time, we may 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 or protect against a security breach or service disruption. In the event we or
our vendors experience:
Q a malfunction in business processes
Q security breaches (including from cyber- or phishing-attacks)
Q failure to maintain effective and up-to-date information systems or
Q otherwise experience unauthorized or non-compliant actions by any individual
We could incur disruptions to our business operations or negative impacts to patient safety, customer and member
disputes, damage to our reputation, exposures to risk of loss, litigation or regulatory violations, increased administrative
expenses or other adverse consequences.
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