Express Scripts 2014 Annual Report Download - page 51

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Express Scripts 2014 Annual Report
CRITICAL ACCOUNTING POLICIES
ThepreparationoffinancialstatementsinconformitywithaccountingprinciplesgenerallyacceptedintheUnited
Statesrequiresmanagement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.Ourestimates
andassumptionsarebaseduponacombinationofhistoricalinformationandvariousotherassumptionsbelievedtobe
reasonableundertheparticularcircumstances.Actualresultsmaydifferfromourestimates.Theaccountingpoliciesdescribed
belowrepresentthosepoliciesthatmanagementbelievesmostimpactourconsolidatedfinancialstatements,areimportantfor
anunderstandingofourresultsofoperationsorrequiremanagementtomakedifficult,subjectiveorcomplexjudgments.This
shouldbereadinconjunctionwithNote1-Summaryofsignificantaccountingpoliciesandwiththeothernotestothe
consolidatedfinancialstatements.
GOODWILL AND INTANGIBLE ASSETS
ACCOUNTINGPOLICY
Goodwillandintangibleassetbalancesariseprimarilyfromtheallocationofthepurchasepriceofbusinesses
acquiredbasedonthefairmarketvalueofassetsacquiredandliabilitiesassumedonthedateoftheacquisition.Goodwillis
evaluatedforimpairmentannuallyorwheneventsorcircumstancesoccurindicatingthatgoodwillmightbeimpaired.We
determinereportingunitsbasedoncomponentpartsofourbusinessonelevelbelowthesegmentlevel.Ourreportingunits
representbusinessesforwhichdiscretefinancialinformationisavailableandreviewedregularlybysegmentmanagement.
Guidancerelatedtogoodwillimpairmenttestingprovidesanoptiontofirstassessqualitativefactorstodetermine
whetheritismorelikelythannotthatthefairvalueofareportingunitislessthanitscarryingamount.Ifweperforma
qualitativeassessment,theCompanyconsidersvariouseventsandcircumstanceswhenevaluatingwhetheritismorelikely
thannotthatthefairvalueofareportingunitislessthanitscarryingamountandwhetherthefirststepofthegoodwill
impairmenttest(“Step1”)isnecessary.
IfweperformStep1,themeasurementofpossibleimpairmentwouldbebasedonacomparisonofthefairvalueof
eachreportingunittothecarryingvalueofthereportingunit’snetassets.Impairmentlosses,ifany,wouldbedeterminedbased
onthefairvalueoftheindividualassetsandliabilitiesofthereportingunit,usingdiscountratesthatreflecttheinherentriskof
theunderlyingbusiness.Wewouldrecordanimpairmentchargetotheextentthecarryingvalueofgoodwillexceedsthe
impliedfairvalueofgoodwillresultingfromthiscalculation.Thisvaluationprocessinvolvesassumptionsbasedupon
management’sbestestimatesandjudgmentsthatapproximatethemarketconditionsexperiencedforourreportingunitsatthe
timetheimpairmentassessmentismade.Actualresultsmaydifferfromtheseestimatesduetotheinherentuncertainty
involvedinsuchestimates.
Forour2014impairmenttest,wedidnotperformaqualitativeassessmentforanyofourreportingunits,and
insteadbeganwithStep1ofthegoodwillimpairmentanalysis,asallowedunderauthoritativeFinancialAccountingStandards
Board(“FASB”)guidance.Noimpairmentchargeswererecordedasaresultofourannualimpairmenttest.AsofDecember31,
2014,theCompanydoesnotbelieveanyreportingunitsareatriskoffailingStep1.Animpairmentchargeof$32.9million
wasrecordedin2013basedonthecontractedsalespriceofthebusiness(Level2)associatedwithouracuteinfusiontherapies
lineofbusinessduetoenteringintoanagreementforthesaleofthebusiness,whichwassubsequentlysoldinNovember2013.
Animpairmentchargeof$2.0millionwasrecordedin2012associatedwithoursubsidiaryEAV,basedonachangeinbusiness
environmentrelatedtoanadversecourtrulingbytheGermanhighcourtinAugust2012andtheexpecteddisposalofEAVasa
resultoftheruling(Level2).EAVwassubsequentlysoldinDecember2012.Noothergoodwillimpairmentchargeswere
recordedforanyofourotherreportingunitsfortheyearsendedDecember31,2014or2013.
Otherintangibleassetsinclude,butarenotlimitedto,customercontractsandrelationships,deferredfinancingfees
andtradenames.Deferredfinancingfeesarerecordedatcost.Customercontractsandrelationshipsarevaluedatfairmarket
valuewhenacquiredusingtheincomemethod.Customercontractsandrelationshipsrelatedtoour10-yearcontractwith
Anthem(formerlyknownasWellPoint)underwhichweprovidepharmacybenefitmanagementservicestoAnthemandits
designatedaffiliatesarebeingamortizedusingamodifiedpatternofbenefitmethodoveranestimatedusefullifeof15years.
CustomercontractsandrelationshipsintangibleassetsrelatedtoouracquisitionofMedcoarebeingamortizedusingamodified
patternofbenefitmethodoveranestimatedusefullifeof2to16years.Thecustomercontractrelatedtoourassetacquisitionof
theSmartDMedicarePrescriptionDrugPlanisbeingamortizedoveranestimatedusefullifeof10years.Allotherintangible
assets,excludinglegacyESItradenameswhichhaveanindefinitelife,areamortizedonastraight-linebasis,which
approximatesthepatternofbenefit,overperiodsfrom5to20yearsforcustomer-relatedintangibles,10yearsfortradenames
and3to30yearsforotherintangibleassets.
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