Express Scripts 2012 Annual Report Download - page 60

Express Scripts 2012 Annual Report58
EXPRESS SCRIPTS HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies
Organization and operations. On July 20, 2011, Express Scripts, Inc. (“ESI”) entered into a definitive
merger agreement (the “Merger Agreement”) with Medco Health Solutions, Inc. (“Medco”), which was amended by
Amendment No. 1 thereto on November 7, 2011, providing for the combination of ESI and Medco under a new
holding company named Aristotle Holding, Inc. The transactions contemplated by the Merger Agreement (the
“Merger”) were consummated on April 2, 2012. Aristotle Holding, Inc. was renamed Express Scripts Holding
Company (the “Company” or “Express Scripts”) concurrently with the consummation of the Merger. “We,” “our” or
“us” refers to Express Scripts Holding Company and its subsidiaries for periods following the Merger and ESI and
its subsidiaries for periods prior to the Merger, unless otherwise noted. For financial reporting and accounting
purposes, ESI was the acquirer of Medco. The consolidated financial statements reflect the results of operations and
financial position of ESI for the years ended December 31, 2011 and 2010 and for the period beginning January 1,
2012 through April 1, 2012. References to amounts for periods after the closing of the Merger on April 2, 2012
relate to Express Scripts.
We are the largest full-service pharmacy benefit management (“PBM”) company, providing healthcare
management and administration services on behalf of clients that include managed care organizations, health
insurers, third-party administrators, employers, union-sponsored benefit plans, workers’ compensation plans and
government health programs. We report segments on the basis of services offered and have determined we have two
reportable segments: PBM and Other Business Operations. Our integrated PBM services include domestic and
Canadian network claims processing, home delivery pharmacy services, benefit design consultation, drug utilization
review, drug formulary management, compliance and therapy management programs, Medicare Part D and
Medicaid products, distribution of injectable drugs to patient homes and physician offices, fertility services to
providers and patients, bio-pharma services, administration of a group purchasing organization, consumer health and
drug information, improved health outcomes through personalized medicine and application of pharmacogenomics.
Through our Other Business Operations segment, we provide services including distribution of pharmaceuticals and
medical supplies to providers and clinics and scientific evidence to guide the safe, effective and affordable use of
medicines. During the second quarter of 2012, we reorganized our international retail network pharmacy
management business (which has been substantially shut down as of December 31, 2012) from our PBM segment
into our Other Business Operations segment. During the third quarter of 2011, we reorganized our FreedomFP line
of business from our Other Business Operations segment into our PBM segment. Segment disclosures for all years
presented have been revised for comparability (see Note 13 – Segment information).
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 that 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.
The accompanying financial statements have been revised to reflect net income attributable to members of
our consolidated affiliates. This revision results in a $1.6 million adjustment from the “Other liabilities” line item to
the “Stockholder’s equity” line item within the consolidated balance sheet as of December 31, 2011 and a $2.7
million adjustment from the “Selling, general and administrative” (“SG&A”) line item to the “Net income
attributable to non-controlling interest” line item within the consolidated statement of operations for the year ended
December 31, 2011 which also affects net income included in cash flow from operating activities in the consolidated
statement of cash flows for the year ended December 31. 2011. Additionally, within the consolidated statement of
cash flows, “Other current and noncurrent liabilities” within the “Changes in operating assets and liabilities, net of
effects of acquisition” line item decreased $1.6 million and a $1.1 million cash outflow is now reflected within the
“Distributions paid to non-controlling interest” line item.