Medco 2014 Annual Report Download - page 30

Express Scripts 2014 Annual Report
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delivery,includingphysicians,hospitals,insurersandotherpayors.ManyoftheseobligationswereexpandedundertheHealth
InformationandTechnologyforEconomicandClinicalHealthAct(the“HITECHAct”),passedaspartoftheAmerican
RecoveryandReinvestmentActof2009.Failuretocomplywithstandardsissuedpursuanttofederalorstatestatutesor
regulationsmayresultincriminalpenaltiesandcivilsanctions.Inadditiontotheseregulations,futureregulationsand
legislationthatseverelyrestrictsorprohibitsouruseofpatientidentifiableorotherinformationcouldlimitourabilitytouse
informationcriticaltotheoperationofourbusiness.Furthermore,ifweviolateapatient’sprivacyorarefoundtohaveviolated
anyfederalorstatestatuteorregulationwithregardtoconfidentialityordisseminationoruseofprotectedhealthinformation,
wecouldbeliableforsignificantdamages,finesorpenaltiesandsufferreputationalharm,anyoneofwhichcouldhavea
materialadverseeffectonourbusinessandresultsofoperations.
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. Our inability to access the credit markets for
any reason could have a material adverse effect on our business and results of operations.
Wecurrentlyhavedebtoutstanding,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,2014,wehad
$1,315.8millionofgrossobligationswhichweresubjecttovariableratesofinterestunderourcreditagreement.Ahypothetical
increaseininterestratesof1%wouldresultinanincreaseinannualinterestexpenseofapproximately$13.2million(pre-tax),
assumingobligationssubjecttovariableinterestratesremainedconstant.
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orqualificationsonourabilitytoincuradditionalindebtedness,
initiateorpermitliensonassets,andengageinmergers,consolidationsordisposals.Thecovenantsunderourcreditagreement
alsoinclude,amongotherthings,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.Ourinabilitytorefinanceexistingindebtednessor
otherwiseaccessthecreditmarketsforanyreason,whetherduetomarketconditionsorotherwise,couldhaveamaterial
adverseeffectonourbusinessandresultsofoperations.SeeNote7-Financingtoourconsolidatedfinancialstatements
includedin“PartII—Item8”ofthisAnnualReportonForm10-K.
A delay, reduction, suspension or cancellation of government spending or appropriations could have a material adverse effect
on our business and results of operations.
Certainofourrevenuesareultimatelysourcedfromgovernmentspendingandappropriatedfunds.Thefailureto
provideforcontinuedappropriationsorregularongoingscheduledpaymentstouscouldhaveamaterialadverseeffectonour
businessandresultsofoperations.
If we lose our relationship with one or more key pharmaceutical manufacturers, or if the payments made or discounts provided
by pharmaceutical manufacturers decline, our business and results of operations could be adversely affected.
Wemaintaincontractualrelationshipswithnumerouspharmaceuticalmanufacturerswhichprovideuswith,among
otherthings:
• discountsfordrugswepurchasetobedispensedfromourhomedeliverypharmacies
• rebatesbasedondistributionsofdrugsfromourhomedeliverypharmaciesandthroughpharmaciesinour
retailnetworks
• administrativefeesformanagingrebateprograms,includingthedevelopmentandmaintenanceofformularies
whichincludetheparticularmanufacturer’sproducts
• accesstolimiteddistributionspecialtypharmaceuticals
Theconsolidationofpharmaceuticalmanufacturers,theterminationormaterialalterationofourcontractual
relationships,orourfailuretorenewsuchcontractsonfavorabletermscouldhaveamaterialadverseeffectonourbusinessand
resultsofoperations.Inaddition,formularyfeeprogramshavebeenthesubjectofdebateinfederalandstatelegislaturesand
variousotherpublicandgovernmentalforums.Adoptionofnewlaws,rulesorregulationsorchangesin,ornewinterpretations
of,existinglaws,rulesorregulations,relatingtoanyoftheseprogramscouldmateriallyadverselyaffectourbusinessand
resultsofoperations.
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