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Express Scripts 2014 Annual Report
3. Changes in business
Acquisitions.AsaresultoftheMergeronApril2,2012,MedcoandESIeachbecame100%ownedsubsidiariesof
ExpressScriptsandformerMedcoandESIstockholdersbecameownersofExpressScriptsstock,whichislistedonthe
NasdaqGlobalSelectMarket(“Nasdaq”).UponclosingoftheMerger,formerESIstockholdersownedapproximately59%of
ExpressScriptsandformerMedcostockholdersownedapproximately41%ofExpressScripts.PerthetermsoftheMerger
Agreement,uponconsummationoftheMergeronApril2,2012,eachshareofMedcocommonstockwasconvertedinto(i)the
righttoreceive$28.80incash,withoutinterestand(ii)0.81sharesofExpressScriptsstock.HoldersofMedcostockoptions,
restrictedstockunitsanddeferredstockunitsreceivedreplacementawardsatanexchangeratioof1.3474ExpressScriptsstock
awardsforeachMedcoawardowned,whichisequaltothesumof(i)0.81and(ii)thequotientobtainedbydividing(1)$28.80
(thecashcomponentoftheMergerconsideration)by(2)anamountequaltotheaverageoftheclosingpricesofESIcommon
stockontheNasdaqforeachofthe15consecutivetradingdaysendingwiththefourthcompletetradingdaypriortothe
completionoftheMerger.
BasedontheopeningpriceofExpressScripts’stockonApril2,2012,thepurchasepricewascomprisedofthe
following:
(in millions)
CashpaidtoMedcostockholders(1) $11,309.6
ValueofsharesofcommonstockissuedtoMedcostockholders(2) 17,963.8
ValueofstockoptionsissuedtoholdersofMedcostockoptions(3)(4) 706.1
ValueofrestrictedstockunitsissuedtoholdersofMedcorestrictedstockunits(3) 174.9
Totalconsideration $30,154.4
(1) EqualsMedcooutstandingsharesmultipliedby$28.80pershare.
(2) EqualsMedcooutstandingsharesimmediatelypriortotheMergermultipliedbytheexchangeratioof0.81,multiplied
bytheExpressScriptsopeningsharepriceonApril2,2012of$56.49.
(3) Thefairvalueofreplacementawardsattributabletopre-combinationserviceisrecordedaspartoftheconsideration
transferredintheMerger,whilethefairvalueofreplacementawardsattributabletopost-combinationserviceis
recordedseparatelyfromthebusinesscombinationandrecognizedascompensationcostinthepost-acquisitionperiod
overtheremainingserviceperiod.
(4) ThefairvalueoftheCompany’sequivalentstockoptionswasestimatedusingtheBlack-Scholesvaluationmodel
utilizingvariousassumptions.TheexpectedvolatilityoftheCompany’scommonstockpriceisablendedratebasedon
theaveragehistoricalvolatilityovertheexpectedtermbasedondailyclosingstockpricesofESIandMedcocommon
stock.TheexpectedtermoftheoptionisbasedonMedcohistoricalemployeestockoptionexercisebehavioraswellas
theremainingcontractualexerciseterm.
TheconsolidatedstatementofoperationsforExpressScriptsfortheyearendedDecember31,2012following
consummationoftheMergeronApril2,2012includesMedco’stotalrevenuesforcontinuingoperationsof$45,763.5million
andnetincomeof$290.7million,whichincludesintegrationexpenseandamortization.
ThefollowingunauditedproformainformationpresentsasummaryofExpressScripts’combinedresultsof
continuingoperationsfortheyearendedDecember31,2012asiftheMergerandrelatedfinancingtransactionshadoccurredat
January1,2012.Thefollowingproformafinancialinformationisnotnecessarilyindicativeoftheresultsofoperationsasit
wouldhavebeenhadthetransactionsbeeneffectedontheassumeddate,norisitnecessarilyanindicationoftrendsinfuture
resultsforanumberofreasons,including,butnotlimitedto,differencesbetweentheassumptionsusedtopreparethepro
formainformation,basicsharesoutstandinganddilutiveequivalents,costsavingsfromoperatingefficiencies,potential
synergiesandtheimpactofincrementalcostsincurredinintegratingthebusinesses:
(in millions, except per share data)
Year Ended
December 31,
2012
Totalrevenues $109,639.2
NetincomeattributabletoExpressScripts 1,345.5
Basicearningspersharefromcontinuingoperations 1.69
Dilutedearningspersharefromcontinuingoperations $1.66
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