Express Scripts 2009 Annual Report Download - page 65

Express Scripts 2009 Annual Report
63
EXPRESS SCRIPTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies
Organization and operations. We are one of the largest full-service pharmacy benefit management
(“PBM”) companies in North America, providing health care management and administration services on behalf of
clients that include health maintenance organizations, health insurers, third-party administrators, employers, union-
sponsored benefit plans, workers’ compensation plans and government health programs. During the first quarter of
2009, we changed our reportable segments to PBM and Emerging Markets (“EM”). Segment disclosures for 2008
and 2007 have been reclassified to reflect the new structure where appropriate. Under the new structure, our
integrated PBM services include network claims processing, home delivery services, patient care and direct
specialty home delivery to patients, benefit design consultation, drug utilization review, formulary management,
drug data analysis services, distribution of injectable drugs to patient homes and physicians offices, bio-pharma
services, and fulfillment of prescriptions to low-income patients through manufacturer-sponsored patient assistance
programs and company-sponsored generic patient assistance programs. Through our EM segment, we provide
services including distribution of pharmaceuticals and medical supplies to providers and clinics, distribution of
sample units to physicians and verification of practitioner licensure; fertility services to providers and patients; and
healthcare administration and implementation of consumer-directed healthcare solutions.
As noted above, we report segments on the basis of services offered and have determined we have two
reportable segments: PBM and EM. Our domestic and Canadian PBM operating segments have similar
characteristics and as such have been aggregated into a single PBM reporting segment.
Basis of presentation. The consolidated financial statements include our accounts and those of our
wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Investments in affiliated companies, 20% to 50% owned, are accounted for under the equity method. Certain
amounts in prior years have been reclassified to conform to the current year presentation. The preparation of the
consolidated financial statements conforms to generally accepted accounting principles in the United States, and
requires us to make estimates and assumptions which affect the reported amounts of assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
amounts could differ from those estimates and assumptions.
Discontinued operations. On June 30, 2008, we completed the sale of CuraScript Infusion Pharmacy, Inc.
(“IP”), our infusion pharmacy line of business, for $27.5 million and recorded a pre-tax gain of approximately
$7.4 million. The gain is included in net loss from discontinued operations, net of tax in the consolidated statement
of operations for the year ended December 31, 2008. Rights to certain working capital balances related to IP were
not sold and are retained on the consolidated balance sheet as of December 31, 2009. For a period of time, we will
continue to generate cash flows and statement of operations activity on assets and liabilities of discontinued
operations as these working capital balances wind down, which are not expected to be material.
The results of operations for IP are reported as discontinued operations for all periods presented in the
accompanying consolidated statement of operations. Additionally, for all periods presented, assets and liabilities of
the discontinued operations are segregated in the accompanying consolidated balance sheet, and cash flows of our
discontinued operations are segregated in our accompanying consolidated statement of cash flow.
On April 4, 2008, we completed the sale of Custom Medical Products, Inc. (“CMP”) and recorded a pre-tax
loss of approximately $1.3 million which is included in net loss from discontinued operations, net of tax in the
consolidated statement of operations for the year ended December 31, 2008 (see Note 4).
Cash and cash equivalents. Cash and cash equivalents include cash on hand and investments with
original maturities of three months or less. We have banking relationships resulting in certain cash disbursement
accounts being maintained by banks not holding our cash concentration accounts. As a result, cash disbursement
accounts carrying negative book balances of $330.8 million and $254.3 million (representing outstanding checks not
yet presented for payment) have been reclassified to claims and rebates payable, accounts payable and accrued
expenses at December 31, 2009 and 2008, respectively. This reclassification restores balances to cash and current
liabilities for liabilities to our vendors which have not been settled. No overdraft or unsecured short-term loan exists
in relation to these negative balances.