new employees, pursue new business, complete future acquisitions or operate our businesses effectively. We could also
trigger contractual credits to clients. Failure to properly integrate acquired operations with vendors' systems could result in
Government clients termination rights, audits and investigations. A substantial portion of our revenues are derived from
contracts with the United States government and its agencies and from contracts with state and local governments and their
agencies. Governments and their agencies may terminate most of these contracts at any time, without cause. Also, our
federal government contracts are subject to the approval of appropriations being made by the United States Congress to fund
the expenditures to be made by the federal government under these contracts. Additionally, government contracts are
generally subject to audits and investigations by government agencies. If the government finds that we improperly charged
any costs to a contract, the costs are not reimbursable or, if already reimbursed, the cost must be refunded to the government.
If the government discovers improper or illegal activities in the course of audits or investigations, the contractor may be
subject to various civil and criminal penalties and administrative sanctions, which may include termination of contracts,
forfeiture of profits, suspension of payments, fines and suspensions or debarment from doing business with the government.
Any resulting penalties or sanctions could have a material adverse effect on our business, financial results and cash flow.
Exercise of contract termination provisions and service level penalties. Most of our contracts with our clients permit
termination in the event our performance is not consistent with service levels specified in those contracts, or provide for
credits to our clients for failure to meet service levels. In addition, if clients are not satisfied with our level of performance,
our reputation in the industry may suffer, which could materially and adversely affect our business, financial condition,
results of operations, and cash flow.
Pricing risks. Some of our contracts contain provisions requiring that our services be priced based on a pre established
standard or benchmark regardless of the costs we incur in performing these services. Some of our contracts contain pricing
provisions that require the client to pay a set fee for our services regardless of whether our costs to perform these services
exceed the amount of the set fee. Some of our contracts contain re pricing provisions which can result in reductions of our
fees for performing our services. In such situations, we are exposed to the risk that we may be unable to price our services to
levels that will permit recovery of our costs, and may adversely affect our operating results and cash flow.
Loss of significant software vendor relationships. Our ability to service our clients depends to a large extent on our use of
various software programs that we license from a small number of primary software vendors. If our significant software
vendors were to terminate or refuse to renew our contracts with them, we might not be able to replace the related software
programs and would be unable to serve our clients, which could have a material adverse effect on our business, revenues,
profitability and cash flow.
Rapid technological changes. The markets for our information technology services are subject to rapid technological changes
and rapid changes in client requirements. We may be unable to timely and successfully customize products and services that
incorporate new technology or to deliver the services and products demanded by the marketplace.
Intellectual property infringement claims. We rely heavily on the use of intellectual property. We do not own the majority of
the software that we use to run our business; instead we license this software from a small number of primary vendors. If
these vendors assert claims that we or our clients are infringing on their software or related intellectual property, we could
incur substantial costs to defend these claims, which could have a material effect on our profitability and cash flow. In
addition, if any of our vendors' infringement claims are ultimately successful, our vendors could require us (1) to cease
selling or using products or services that incorporate the challenged software or technology, (2) to obtain a license or
additional licenses from our vendors, or (3) to redesign our products and services which rely on the challenged software or
technology. If we are unsuccessful in the defense of an infringement claim and our vendors require us to initiate any of the
above actions, then such actions could have a material adverse effect on our business, financial condition, results of
operations and cash flow.
Federal regulations relating to confidentiality of health data. In 1996, Congress passed the Health Insurance Portability and
Accountability Act ( HIPAA ) and as required therein, the Secretary of Health and Human Services ( HHS ) has established
standards for information sharing, security and confidentiality with regard to health information of individuals. We process
individually identifiable health information for many of our clients. We and our clients are required to comply with HIPAA
and we will be required to comply with HIPAA for individually identifiable health information which we maintain for our
employees. Health information privacy regulations promulgated under HIPAA took effect on April 14, 2003. On or prior to