Medco Health Solutions (MHS) 10-Q 28 Apr 10 2010 Q1 Quarterly report Financial data

Document Information

Document Information
	3 Months Ended Mar. 27, 2010
Document Information
Document Type	10-Q
Amendment Flag	false
Document Period End Date	2010-03-27

Entity Information

Entity Information (USD $)
	3 Months Ended Mar. 27, 2010	Apr. 19, 2010	Jun. 27, 2009
Entity Information
Entity Registrant Name	MEDCO HEALTH SOLUTIONS INC
Entity Central Index Key	0001170650
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Current Fiscal Year End Date	--12-25
Entity Filer Category	Large Accelerated Filer
Entity Well-known Seasoned Issuer	Yes
Entity Common Stock, Shares Outstanding		456,852,895
Entity Public Float			$21,559,406,368
Document Fiscal Year Focus	2,010
Document Fiscal Period Focus	Q1

Condensed Consolidated Balance

Condensed Consolidated Balance Sheets (Unaudited) (USD $)
In Millions	3 Months Ended Mar. 27, 2010	12 Months Ended Dec. 26, 2009
ASSETS
Cash and cash equivalents	1562.1	2528.2
Short-term Investments	18.2	20.1
Manufacturer accounts receivable, net	1874.5	1765.5
Client accounts receivable, net	1849.6	2063.3
Income taxes receivable	24.8	198.3
Inventories, net	1250.4	1285.3
Prepaid expenses and other current assets	73	67.1
Deferred tax assets	240.1	230.8
Total current assets	6892.7	8158.6
Property and equipment, net	910.6	912.5
Goodwill	6,352	6,333
Intangible assets, net	2,369	2428.8
Other noncurrent assets	91	82.6
Total assets	16615.3	17915.5
LIABILITIES AND STOCKHOLDERS' EQUITY
Claims and other accounts payable	2839.4	3506.4
Client rebates and guarantees payable	2273.2	2106.9
Accrued expenses and other current liabilities	789.3	718.6
Short-term debt	21.1	15.8
Total current liabilities	5,923	6347.7
Long-term debt, net	4000.7	4000.1
Deferred tax liabilities	918.4	958.8
Other noncurrent liabilities	243.9	221.7
Total liabilities	11,086	11528.3
Commitments and contingencies (See Note 10)
Stockholders' equity:
Preferred stock, par value $0.01-authorized: 10,000,000 shares; issued and outstanding: 0	0	0
Common stock, par value $0.01-authorized: 2,000,000,000 shares; issued: 663,118,602 shares at March 27, 2010 and 660,846,867 shares at December 26, 2009	6.6	6.6
Accumulated other comprehensive loss	-52.7	-44.2
Additional paid-in capital	8216.7	8156.7
Retained earnings	5530.1	5209.6
Stockholders' equity before treasury stock	13700.7	13328.7
Treasury stock, at cost: 205,823,049 shares at March 27, 2010 and 186,353,868 shares at December 26, 2009	-8171.4	-6941.5
Total stockholders' equity	5529.3	6387.2
Total liabilities and stockholders' equity	16615.3	17915.5

1_Condensed Consolidated Balanc

Condensed Consolidated Balance Sheets (Parenthetical) (Unaudited)
	Mar. 27, 2010	Dec. 26, 2009
Condensed Consolidated Balance Sheets
Preferred stock, par value	0.01	0.01
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	0.01	0.01
Common stock, shares authorized	2,000,000,000	2,000,000,000
Common stock, shares issued	663,118,602	660,846,867
Treasury stock, shares	205,823,049	186,353,868

Condensed Consolidated Statemen

Condensed Consolidated Statements of Income(Unaudited) (USD $)
In Millions, except Per Share data	3 Months Ended Mar. 27, 2010	3 Months Ended Mar. 28, 2009
Condensed Consolidated Statements of Income
Product net revenues (Includes retail co-payments of $2,471 for 2010, and $2,259 for 2009)	16083.7	14616.3
Service revenues	227.2	217.6
Total net revenues	16310.9	14833.9
Cost of operations:
Cost of product net revenues (Includes retail co-payments of $2,471 for 2010, and $2,259 for 2009)	15253.6	13,832
Cost of service revenues	64.6	57.8
Total cost of revenues	15318.2	13889.8
Selling, general and administrative expenses	350.6	340.3
Amortization of intangibles	70.5	75.9
Interest expense	40.7	45.1
Interest (income) and other (income) expense, net	-1.4	-3.5
Total costs and expenses	15778.6	14347.6
Income before provision for income taxes	532.3	486.3
Provision for income taxes	211.8	195.3
Net income	320.5	$291
Basic weighted average shares outstanding	467.7	492.2
Basic earnings per share	0.69	0.59
Diluted weighted average shares outstanding	478.2	501.2
Diluted earnings per share	0.67	0.58

2_Condensed Consolidated Statem

Condensed Consolidated Statements of Income (Parenthetical) (Unaudited) (USD $)
In Millions	3 Months Ended Mar. 27, 2010	3 Months Ended Mar. 28, 2009
Condensed Consolidated Statements of Income
Retail co-payment product net revenues	$2,471	$2,259
Retail co-payment cost of product net revenues	$2,471	$2,259

3_Condensed Consolidated Statem

Condensed Consolidated Statement of Stockholders' Equity (Unaudited) (USD $)
In Millions, except Share data in Thousands	Common Stock [Member]	Treasury Stock [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Total
Balances, value at Dec. 26, 2009	6.6	-6941.5	-44.2	8156.7	5209.6	6387.2
Shares balances at Dec. 26, 2009	660,847	186,354
Comprehensive income (loss):
Net income					320.5	320.5
Other comprehensive income (loss):
Foreign currency translation loss			-8.8			-8.8
Amortization of unrealized loss on cash flow hedge, net of tax of $(0.3)			0.5			0.5
Defined benefit plans, net of tax:
Amortization of prior service credit included in net periodic benefit cost, net of tax of $0.4			-0.6			-0.6
Net gains included in net periodic benefit cost, net of tax of $(0.2)			0.4			0.4
Other comprehensive income (loss)			-8.5			-8.5
Total comprehensive income (loss)			-8.5		320.5	312
Stock option activity, including tax benefit, value				61.3		61.3
Stock option activity, including tax benefit, shares	1,110
Issuance of common stock under employee stock purchase plan, value				5.4		5.4
Issuance of common stock under employee stock purchase plan, shares	86
Restricted stock unit activity, including tax benefit, value				-6.7		-6.7
Restricted stock unit activity, including tax benefit, shares	1,076
Treasury stock acquired, value		-1229.9				-1229.9
Treasury stock acquired, shares		19,469
Shares balances at Mar. 27, 2010	663,119	205,823
Balances, value at Mar. 27, 2010	6.6	-8171.4	-52.7	8216.7	5530.1	5529.3

4_Condensed Consolidated Statem

Condensed Consolidated Statement of Stockholders' Equity (Parenthetical) (Unaudited) (Accumulated Other Comprehensive Income (Loss) [Member], USD $)
In Millions	3 Months Ended Mar. 27, 2010
Tax portion on amortization of unrealized loss on cash flow hedge	-0.3
Tax Portion on amortization of prior service credit included in net periodic benefit cost	0.4
Tax portion on net gains included in net periodic benefit cost	-0.2

5_Condensed Consolidated Statem

Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)
In Millions	3 Months Ended Mar. 27, 2010	3 Months Ended Mar. 28, 2009
Cash flows from operating activities:
Net income	320.5	$291
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	44.4	43.2
Amortization of intangibles	70.5	75.9
Deferred income taxes	-74.3	-40.5
Stock-based compensation on employee stock plans	37.3	35.5
Tax benefit on employee stock plans	52.7	30.5
Excess tax benefits from stock-based compensation arrangements	-27.5	-11.6
Other	32.1	33.5
Net changes in assets and liabilities (net of acquisition effects for 2010):
Manufacturer accounts receivable, net	(109)	-107.4
Client accounts receivable, net	183.2	0.9
Inventories, net	34.3	180.6
Prepaid expenses and other current assets	-5.8	254.3
Income taxes receivable	173.5	-1.3
Other noncurrent assets	-7.9	2.6
Claims and other accounts payable	-666.2	-88.3
Client rebates and guarantees payable	166.3	413.1
Accrued expenses and other current and noncurrent liabilities	76.2	58.3
Net cash provided by operating activities	300.3	1170.3
Cash flows from investing activities:
Capital expenditures	-42.6	-35.4
Purchase of securities and other assets	-19.5	-105.6
Acquisitions of businesses, net of cash acquired	-19.4	0
Proceeds from sale of securities and other investments	16.7	44.1
Net cash used by investing activities	-64.8	-96.9
Cash flows from financing activities:
Proceeds from short-term debt	5.3	0
Purchases of treasury stock	-1229.9	-215.6
Excess tax benefits from stock-based compensation arrangements	27.5	11.6
Net payments from employee stock plans	-4.5	-8.3
Net cash used by financing activities	-1201.6	-212.3
Net (decrease) increase in cash and cash equivalents	-966.1	861.1
Cash and cash equivalents at beginning of period	2528.2	938.4
Cash and cash equivalents at end of period	1562.1	1799.5

Basis of Presentation

Basis of Presentation (Unaudited)
	3 Months Ended Mar. 27, 2010
Basis of Presentation [Abstract]
Basis of Presentation	1. Basis OF PRESENTATION The accompanying unaudited interim condensed consolidated financial statements of Medco Health Solutions, Inc. and its subsidiaries (Medco or the Company) have been prepared pursuant to the Securities and Exchange Commissions rules and regulations for reporting on Form 10-Q. Accordingly, certain information and disclosures required by accounting principles generally accepted in the United States for complete consolidated financial statements are not included herein. In the opinion of the Companys management, all adjustments, which include adjustments of a normal recurring nature necessary for a fair statement of the financial position, results of operations and cash flows at the dates and for the periods presented, have been included. The results of operations for any interim period are not necessarily indicative of the results of operations for the full year. The unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the fiscal year ended December 26, 2009. The Companys first fiscal quarters for 2010 and 2009 each consisted of 13 weeks and ended on March 27, 2010 and March 28, 2009, respectively. On January 29, 2010, the Company acquired DNA Direct, Inc., a leader in providing guidance and decision support to payors, physicians and patients, on a range of complex issues related to genomic medicine.The acquisitiondid not have a material impact onthe unaudited interim condensed consolidated financial statements included in this Quarterly Report.

Recently Adopted Financial Acco

Recently Adopted Financial Accounting Standards (Unaudited)
	3 Months Ended Mar. 27, 2010
Recently Adopted Financial Accounting Standards [Abstract]
Recently Adopted Financial Accounting Standards	2. RECENTLY ADOPTED FINANCIAL ACCOUNTING STANDARDs Subsequent Events. In May 2009, the Financial Accounting Standards Board (FASB) issued a standard which established general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It required the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date; that is, whether that date represents the date the financial statements were issued or were available to be issued. This guidance was subsequently amended in February 2010 for SEC filers and no longer requires disclosure of the date through which an entity has evaluated subsequent events. The Companys adoption of the standard had no impact on the unaudited interim condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. Improving Disclosures about Fair Value Measurements. In January 2010, the FASB issued a standard which requires additional disclosure about the amounts of, and reasons for, significant transfers in and out of Level1 and Level2 fair value measurements. This standard also clarifies existing disclosure requirements related to the level of disaggregation of fair value measurements for each class of assets and liabilities and disclosures about inputs and valuation techniques used to measure fair value for both recurring and nonrecurring Level2 and Level3 measurements. The new disclosures are effective for interim and annual reporting periods beginning after December 15, 2009. In addition, effective for interim and annual periods beginning after December15, 2010, this standard will require disaggregated information about activity in Level3 fair value measurements on a gross basis, rather than as one net amount. The Companys adoption of the standard in 2010 did not have a material impact on its unaudited interim condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Fair Value Disclosures

Fair Value Disclosures (Unaudited)
	3 Months Ended Mar. 27, 2010
Fair Value Disclosures [Abstract]
Fair Value Disclosures	3. fair vALUE Disclosures The Company accounts for and reports the fair value of certain assets and liabilities in accordance with FASB standards. Fair Value Measurements Fair Value Hierarchy. The inputs used to measure fair value fall into the following hierarchy: Level 1: Quoted market prices in active markets for identical assets or liabilities. Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data. Level 3: Unobservable inputs reflecting the reporting entitys own assumptions. The Company utilizes the best available information in measuring fair value. The following tables set forth, by level within the fair value hierarchy, the Companys financial assets recorded at fair value on a recurring basis ($ in millions): Medco Fair Value Measurements at Reporting Date Description March 27, 2010 Level 1 Level 2 Money market mutual funds...................................... $ 1,049.0(1) $ 1,049.0 $ Fair value of interest rate swap agreements............. 14.1(2) 14.1 (1) Reported in cash and cash equivalents on the unaudited interim condensed consolidated balance sheet. (2) Reported in other noncurrent assets on the unaudited interim condensed consolidated balance sheet. Medco Fair Value Measurements at Reporting Date Description December 26, 2009 Level 1 Level 2 Money market mutual funds...................................... $ 1,959.0(1) $ 1,959.0 $ Fair value of interest rate swap agreements.............. 14.0(2) 14.0 (1) Reported in cash and cash equivalents on the unaudited interim condensed consolidated balance sheet. (2) Reported in other noncurrent assets on the unaudited interim condensed consolidated balance sheet. The Companys money market mutual funds are invested in funds that seek to preserve principal, are highly liquid, and therefore are recorded on the consolidated balance sheets at the principal amounts deposited, which equals the asset values quoted by the money market fund custodians. The fair value of the Companys obligation under its interest rate swap agreements, which hedge interest costs on the senior notes, is based upon observable market-based inputs that reflect the present values of the difference between estimated future fixed rate payments and future variable rate receipts, and therefore are classified within Level 2. Historically, there have not been significant fluctuations in the fair value of the Companys financial assets. Fair Value of Financial Instruments The carrying amount of the term loan and revolving credit obligations under the Companys senior unsecured bank credit facilities, short-term and long-term investments approximated fair values as of March 27, 2010 and December 26, 2009. The Company estimates fair market value for these assets and liabilities based on their market values or estimates of the present value of their future cash flows. The carrying values and the fair values of the Companys senior notes are shown in the fol

Stock-Based Compensation

Stock-Based Compensation (Unaudited)
	3 Months Ended Mar. 27, 2010
Stock-Based Compensation [Abstract]
Stock-Based Compensation	4. Stock-based compensation Stock Option Plans. The Company grants options to employees and directors to purchase shares of Medco common stock at the fair market value on the date of grant. The options generally vest over three years (director options vest in one year) and expire within 10 years from the date of the grant. The fair value of options granted is estimated on the date of grant using the Black-Scholes option-pricing model. The Company typically grants annual stock awards in February. Summarized information related to stock options held by the Companys employees and directors is as follows: Number of Shares (in thousands) Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value (in millions) Outstanding at December 26, 2009............................... 26,317.8 $ 34.14 Granted............................................................................... 5,653.4 63.24 Exercised............................................................................. (1,083.4) 30.61 Forfeited.............................................................................. (70.6) 42.86 Outstanding at March 27, 2010..................................... 30,817.2 $ 39.58 7.17 $ 783.9 Exercisable at March 27, 2010....................................... 18,642.0 $ 30.92 5.99 $ 635.7 As of March 27, 2010 there was $150.3 million of total unrecognized compensation cost related to outstanding stock options. That cost is expected to be recognized over a weighted average period of 2.3 years. Restricted Stock Units. The Company grants restricted stock units to employees and directors. Restricted stock units generally vest after three years (director restricted stock units vest in one year). The fair value of restricted stock units granted is determined by the product of the number of shares granted and the grant-date market price of the Companys common stock. Upon vesting, certain employees and directors may defer conversion of the restricted stock units to common stock. Restricted stock units granted to directors are required to be deferred until their service on the Board of Directors ends. Summarized information related to restricted stock units held by the Companys employees and directors is as follows: Restricted Stock Units Number of Shares (in thousands) Aggregate Intrinsic Value (in millions) Outstanding at December 26, 2009.................. 5,781.4 Granted.................................................................. 1,393.5 Converted.............................................................. (1,756.8) Forfeited................................................................. (24.4) Outstanding at March 27, 2010........................ 5,393.7 $ 350.7 Vested and deferred at March 27, 2010.......... 729.4 $ 47.4 The weighted average grant-date fair value of restricted stock units granted during the quarter ended March 27, 2010

Earnings Per Share (EPS)

Earnings Per Share (EPS) (Unaudited)
	3 Months Ended Mar. 27, 2010
Earnings Per Share (EPS) [Abstract]
Earnings Per Share (EPS)	5. earnings per share (eps) The following is a reconciliation of the number of weighted average shares used in the basic and diluted EPS calculations (amounts in millions): Quarters Ended March 27, 2010 March 28, 2009 Basic weighted average shares outstanding............... 467.7 492.2 Dilutive common stock equivalents: Outstanding stock options, restricted stock units and restricted stock............. 10.5 9.0 Diluted weighted average shares outstanding ........... 478.2 501.2 The FASBs earnings per share standard requires that stock options and restricted stock units granted by the Company be treated as potential common shares outstanding in computing diluted earnings per share. Under the treasury stock method on a grant by grant basis, the amount the employee or director must pay for exercising the award, the amount of compensation cost for future service that the Company has not yet recognized, and the amount of tax benefit that would be recorded in additional paid-in capital when the award becomes deductible, are assumed to be used to repurchase shares at the average market price during the period. For the quarters ended March 27, 2010 and March 28, 2009, there were outstanding options to purchase 5.9million and 11.6million shares of Medco stock, respectively, which were not dilutive to the EPS calculations when applying the treasury stock method. These outstanding options may be dilutive to future EPS calculations. The decreases in the weighted average shares outstanding and diluted weighted average shares outstanding for the quarter ended March 27, 2010 compared to the same period in 2009 result from the repurchase of approximately 205.7 million shares of stock in connection with the Companys share repurchase programs since inception in 2005 through the first quarter of 2010, compared to an equivalent amount of 164.3 million shares repurchased inception-to-date through the end of the first quarter of 2009. The Company repurchased approximately 19.5 million shares of stock in the first quarter of 2010 compared to approximately 5.3 million shares in the first quarter of 2009. In accordance with the standard, weighted average treasury sharesare not considered part of the basic or diluted shares outstanding.

Accounts Receivable

Accounts Receivable (Unaudited)
	3 Months Ended Mar. 27, 2010
Accounts Receivable [Abstract]
Accounts Receivable	6. accounts receivable The Company separately reports accounts receivable due from manufacturers and accounts receivable due from clients. Client accounts receivable are presented net of allowance for doubtful accounts and include a reduction for rebates and guarantees payable to clients when these payables are settled on a net basis in the form of an invoice credit. As of March 27, 2010 and December 26, 2009, identified net Specialty Pharmacy accounts receivable, primarily due from payors and patients, amounted to $485.7 million and $483.1 million, respectively. The Companys allowance for doubtful accounts as of March 27, 2010 and December 26, 2009 of $143.3 million and $133.3 million, respectively, includes $94.1 million and $86.1 million, respectively, related to the Specialty Pharmacy segment. The relatively higher allowance for the Specialty Pharmacy segment reflects a different credit risk profile than the pharmacy benefit management (PBM) business, and is characterized by reimbursement through medical coverage, including government agencies, and higher patient co-payments. See Note 9, Segment and Geographic Data, to the unaudited interim condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for more information on the Specialty Pharmacy segment. The Companys allowance for doubtful accounts as of March 27, 2010 and December 26, 2009 also includes $38.6 million and $37.4 million, respectively, related to PolyMedica Corporation (PolyMedica) for diabetes supplies, which are primarily reimbursed by government agencies and insurance companies. In addition, the Companys allowance for doubtful accounts reflects amounts associated with member premiums for the Companys Medicare Part D product offerings.

Goodwill and Intangible Assets,

Goodwill and Intangible Assets, Net (Unaudited)
	3 Months Ended Mar. 27, 2010
Goodwill and Intangible Assets [Abstract]
Goodwill and Intangible Assets	7. goodwill and INTANGIBLE ASSETS, net The changes in the Companys carrying amount of goodwill for the quarter ended March 27, 2010 are as follows ($ in millions): PBM Specialty Pharmacy Total Balances as of December 26, 2009............... $ 4,417.1 $ 1,915.9 $ 6,333.0 Goodwill acquired............................................. 26.5 26.5 Translation adjustment and other................. (7.4) (0.1) (7.5) Balances as of March 27, 2010 $ 4,436.2 $ 1,915.8 $ 6,352.0 The following is a summary of the Companys intangible assets ($ in millions): March 27, 2010 December 26, 2009 Gross Carrying Value Accumulated Amortization Net Gross Carrying Value Accumulated Amortization Net Client relationships......................................................... $ 3,447.6 $ 2,025.2 $ 1,422.4 $ 3,446.1 $ 1,977.2 $ 1,468.9 Trade name..................................................................... 569.9 52.2 517.7 569.3 47.6 521.7 Manufacturer relationships............................................. 357.5 82.0 275.5 357.5 77.5 280.0 Patient relationships........................................................ 282.9 138.8 144.1 280.1 127.8 152.3 Other intangible assets.................................................... 39.0 29.7 9.3 33.7 27.8 5.9 Total......................................................................... $ 4,696.9 $ 2,327.9 $ 2,369.0 $ 4,686.7 $ 2,257.9 $ 2,428.8 For intangible assets existing as of March 27, 2010, aggregate intangible asset amortization expense in each of the five succeeding fiscal years is estimated as follows ($ in millions): Fiscal Years Ending December 2010 (remaining)................................................................................................ $ 210.7 2011...................................................................................................................... 262.3 2012...................................................................................................................... 253.4 2013...................................................................................................................... 248.6 2014...................................................................................................................... 245.8 Total..................................................................................................................... $ 1,220.8 The weighted average useful life of intangible assets subject to amortization is 23 years in total. The weighted average useful life is approximately 23 years for the PBM client relationships and approximately 21 years for the Specialty Pharmacy segment-acquired intangible assets. The Companyexpenses the costs to renew or extend contract

Pension and Other Postretiremen

Pension and Other Postretirement Benefits (Unaudited)
	3 Months Ended Mar. 27, 2010
Pension and Other Postretirement Benefits [Abstract]
Pension and Other Postretirement Benefits	8. pension and other postretirement benefits Net Pension and Postretirement Benefit Cost. The Company has various plans covering the majority of its employees. The net cost for the Companys pension plans consisted of the following components ($ in millions): Quarters Ended March 27, 2010 March 28, 2009 Service cost....................................................................... $ 6.6 $ 6.5 Interest cost...................................................................... 3.3 2.8 Expected return on plan assets..................................... (3.0) (2.4) Amortization of prior service cost................................ 0.1 0.1 Net amortization of actuarial losses ........................... 0.5 1.1 Net pension cost............................................................... $ 7.5 $ 8.1 The Company maintains an unfunded postretirement healthcare benefit plan covering the majority of its employees. The net credit for these postretirement benefits consisted of the following components ($ in millions): Quarters Ended March 27, 2010 March 28, 2009 Service cost....................................................................... $ 0.3 $ 0.3 Interest cost...................................................................... 0.2 0.2 Amortization of prior service credit.............................. (1.0) (1.0) Net amortization of actuarial losses............................ 0.1 0.1 Net postretirement benefit credit.................................. $ (0.4) $ (0.4) The Company amended the postretirement healthcare benefit plan in 2003, which reduced and capped benefit obligations, the effect of which is reflected in the amortization of the prior service credit component of the net postretirement benefit credit.

Segment and Geographic Data

Segment and Geographic Data (Unaudited)
	3 Months Ended Mar. 27, 2010
Segment and Geographic Data [Abstract]
Segment and Geographic Data	9. SEGment and geographic data Reportable Segments. The Company has two reportable segments, PBM and Specialty Pharmacy. The PBM segment involves sales of traditional prescription drugs and supplies to the Companys clients and members, either through the Companys networks of contractually affiliated retail pharmacies or the Companys mail-order pharmacies. The PBM segment also includes the operating results of PolyMedica, a provider of diabetes testing supplies and related products, as well as majority-owned Europa Apotheek Venlo B.V., which primarily provides mail-order pharmacy services in Germany. The Specialty Pharmacy segment includes the sale of higher-margin specialty pharmacy products and services for the treatment of chronic and complex (potentially life-threatening) diseases including specialty infusion services. The Company defines the Specialty Pharmacy segment based on a product set and associated services, broadly characterized to include drugs that are usually high-cost, developed by biotechnology companies and often injectable or infusible, and may require elevated levels of patient support. When dispensed, these products frequently require ancillary administration equipment, special packaging, and a higher degree of patient-oriented customer service, including in-home nursing services and administration. Specialty pharmacy products and services are often covered through client PBM contracts. Specialty pharmacy products and services are also covered through medical benefit programs with the primary payors being insurance companies and government programs. Additionally, payors include patients, for co-payments and deductibles. Selected Segment Income and Asset Information. Total net revenues and operating income are measures used by the chief operating decision maker to assess the performance of each of the Companys operating segments. The following tables present selected financial information about the Companys reportable segments, including a reconciliation of operating income to income before provision for income taxes ($ in millions): Quarter Ended March 27, 2010 Quarter Ended March 28, 2009 PBM Specialty Pharmacy Total PBM Specialty Pharmacy Total Product net revenues.......................................................... $ 13,430.4 $ 2,653.3 $ 16,083.7 $ 12,352.4 $ 2,263.9 $ 14,616.3 Service revenues................................................................ 204.2 23.0 227.2 195.2 22.4 217.6 Total net revenues.............................................................. 13,634.6 2,676.3 16,310.9 12,547.6 2,286.3 14,833.9 Total cost of revenues........................................................ 12,831.0 2,487.2 15,318.2 11,781.0 2,108.8 13,889.8 Selling, general and administrative expenses...................... 278.7 71.9 350.6 265.5 74.8 340.3 Amortization of intangibles................................................ 59.8 10.7 70.5 64.5 11.4 75.9 O

Commitments and Contingencies

Commitments and Contingencies (Unaudited)
	3 Months Ended Mar. 27, 2010
Commitments and Contingencies [Abstract]
Commitments and Contingencies	10. Commitments and contingencies Legal Proceedings In the ordinary course of business, the Company is involved in litigation, claims, government inquiries, investigations, charges and proceedings, including, but not limited to, those relating to regulatory, commercial, employment, employee benefits and securities matters. The significant matters are described below. There is uncertainty regarding the possible course and outcome of the proceedings discussed below. Although it is not feasible to predict or determine the final outcome of any proceedings with certainty, the Company believes there is no litigation pending against the Company that could have, individually or in the aggregate, a material adverse effect on the Companys business, financial condition, liquidity and operating results. However, there can be no assurances that an adverse outcome in any of the proceedings described below will not result in material fines, penalties and damages, changes to the Companys business practices, loss of (or litigation with) clients or a material adverse effect on the Companys business, financial condition, liquidity and operating results. It is also possible that future results of operations for any particular quarterly or annual period could be materially adversely affected by the ultimate resolution of one or more of these matters, or changes in the Companys assumptions or its strategies related to these proceedings. The Company continues to believe that its business practices comply in all material respects with applicable laws and regulations and is vigorously defending itself in the actions described below. The Company believes that most of the claims made in these proceedings would not likely be covered by insurance. In accordance with the FASBs standard on accounting for contingencies, the Company records accruals for contingencies when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. These assessments can involve a series of complex judgments about future events and may rely heavily on estimates and assumptions that have been deemed reasonable by management. Government Proceedings and Requests for Information. The Company is aware of the existence of three qui tam matterstwo are sealed and in the third, the government has declined to intervene and the complaint has been unsealed. The sealed first action is filed in the Eastern District of Pennsylvania and it appears to allege that the Company billed government payors using invalid or out-of-date national drug codes (NDCs). The sealed second action is filed in the District of New Jersey and appears to allege that the Company charged government payors a different rate than it reimbursed pharmacies; engaged in duplicate billing; refilled prescriptions too soon; and billed government payors for prescriptions written by unlicensed physicians and physicians with invalid Drug Enforcement Agency authorizations. The Department of Justice has not yet made any decision as to whether it will intervene in either of these matters. The matters are under seal and U.S. District Court orders prohibit the Company from answering inquiries a