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          <NonNumbericText>&lt;div&gt;&lt;!-- 2.0.3575.42229 --&gt;&lt;div&gt;&lt;!-- body --&gt;&lt;h1 style="margin-top: 0in; margin-right: 0in; margin-bottom: 11.0pt; margin-left: 0in; text-indent: 0in; font-size: 11.0pt; font-family: 'Times New Roman','serif'; text-transform: uppercase; letter-spacing: -.15pt; font-weight: bold;"&gt;&lt;a name="_AUC63fff1f6609c41afbd43eac5c20391c8"&gt;&lt;/a&gt;&lt;a name="_Toc96255582"&gt;&lt;font class="_mt"&gt;&lt;font style="text-transform: none;" class="_mt"&gt;1.&lt;font class="_mt"&gt;&amp;#160;&amp;#160; BACKGROUND AND BASIS OF PRESENTATION&lt;/font&gt;&lt;/font&gt;&lt;/font&gt;&lt;/a&gt;&lt;/h1&gt; &lt;p style="margin-top: 5.0pt; margin-right: 0in; margin-bottom: .0001pt; margin-left: 0in; font-size: 12.0pt; font-family: 'Times New Roman','serif'; margin: 0in; text-indent: .25in;"&gt;&lt;font class="_mt"&gt;&lt;font style="font-size: 11.0pt;" class="_mt"&gt;Medco Health Solutions, Inc., (&amp;#8220;Medco&amp;#8221; or the &amp;#8220;Company&amp;#8221;) is a leading healthcare company that is pioneering &lt;i&gt;the world&amp;#8217;s most advanced pharmacy&lt;/i&gt;&lt;sup&gt;&amp;#174;&lt;/sup&gt; and its clinical research and innovations are part of &lt;i&gt;Medco making medicine smarter&lt;/i&gt;&amp;#8482; for approximately 65 million members.&amp;nbsp; Medco provides clinically-driven pharmacy services designed to improve the quality of care and lower total healthcare costs for private and public employers, health plans, labor unions and government agencies of all sizes, and for individuals served by Medicare Part D Prescription Drug Plans.&amp;nbsp; The Company&amp;#8217;s unique Medco Therapeutic Resource Centers&lt;sup&gt;&amp;#174;&lt;/sup&gt;, which conduct therapy management programs using &lt;font class="_mt"&gt;Medco specialist pharmacists &lt;font class="_mt"&gt;who have expertise in the medications used to treat certain chronic conditions, and Accredo Health Group, Medco&amp;#8217;s Specialty Pharmacy, represent innovative models for the care of patients with chronic and complex conditions.&lt;/font&gt;&lt;/font&gt;&lt;/font&gt;&lt;/font&gt;&lt;/p&gt; &lt;p style="margin-top: 0in; margin-right: 0in; margin-bottom: .0001pt; margin-left: .25in; font-size: 12.0pt; font-family: 'Times New Roman','serif';"&gt;&lt;font class="_mt"&gt;&lt;font style="font-size: 11.0pt;" class="_mt"&gt;&amp;nbsp;&lt;/font&gt;&lt;/font&gt;&lt;/p&gt; &lt;p class="MsoNormal" style="margin-top: 5.0pt; margin-right: 0in; margin-bottom: .0001pt; margin-left: 0in; font-size: 10.0pt; font-family: 'Times New Roman','serif'; margin: 0in; text-indent: .25in;"&gt;&lt;font class="_mt"&gt;&lt;font style="font-size: 11.0pt;" class="_mt"&gt;The Company&amp;#8217;s business model requires collaboration with retail pharmacies, physicians, the &lt;font class="_mt"&gt;&lt;font style="font-size: 11.0pt;" class="_mt"&gt;Centers for Medicare &amp;amp; Medicaid Services (&amp;#8220;CMS&amp;#8221;) for &lt;font class="_mt"&gt;&lt;font style="font-size: 11.0pt;" class="_mt"&gt;Medicare, pharmaceutical manufacturers, and particularly in Specialty Pharmacy, collaboration with state Medicaid agencies, and other third-party &lt;font class="_mt"&gt;&amp;#160;payors such as health insurers. The Company&amp;#8217;s programs and services help control the cost and enhance the quality of prescription drug benefits. The Company accomplishes this by providing pharmacy benefit management (&amp;#8220;PBM&amp;#8221;) services through its national networks of retail pharmacies and its own mail-order pharmacies, as well as through&amp;nbsp;Accredo Health Group, which the Company believes is the nation&amp;#8217;s largest specialty pharmacy based on revenues.&lt;font class="_mt"&gt;&amp;#160; Medco&amp;#8217;s Therapeutic Resource Center focused on diabetes was augmented with the 2007 acquisition of PolyMedica Corporation (&amp;#8220;PolyMedica&amp;#8221;), through which the Company believes it became the largest diabetes pharmacy care practice based on covered patients. In 2008, the Company also extended its capabilities abroad when it acquired a majority interest in Europa Apotheek Venlo B.V. (&amp;#8220;Europa Apotheek&amp;#8221;), a privately held company based in the Netherlands that primarily provides mail-order pharmacy services in Germany. See Note 3, &amp;#8220;Acquisitions of Businesses,&amp;#8221; &lt;font class="_mt"&gt;&lt;font style="font-size: 11.0pt;" class="_mt"&gt;for more information. &lt;font class="_mt"&gt;&lt;font style="font-size: 11.0pt;" class="_mt"&gt;In 2009, Medco advanced its European healthcare initiatives through a joint venture with United Drug plc, a pan-European healthcare leader, to provide home-based pharmacy care services in the United Kingdom for patients covered by the country&amp;#8217;s National Health Service. &lt;font class="_mt"&gt;&lt;font style="font-size: 11.0pt;" class="_mt"&gt;&lt;font class="_mt"&gt;&lt;font style="font-size: 11.0pt;" class="_mt"&gt;&lt;font class="_mt"&gt;&amp;#160;Additionally, the Company&amp;#8217;s commitment to advancing the science of personalized medicine is further demonstrated by its January 2010 acquisition of 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. When the term &amp;#8220;mail order&amp;#8221; is used, Medco means inventory dispensed through Medco&amp;#8217;s mail-order pharmacy operations.&lt;/font&gt;&lt;/font&gt;&lt;/font&gt;&lt;/font&gt;&lt;/font&gt;&lt;/font&gt;&lt;/font&gt;&lt;/font&gt;&lt;/font&gt;&lt;/font&gt;&lt;/font&gt;&lt;/font&gt;&lt;/font&gt;&lt;/font&gt;&lt;/font&gt;&lt;/font&gt;&lt;/font&gt;&lt;/p&gt; &lt;p class="MsoNormal" style="margin-top: 5.0pt; margin-right: 0in; margin-bottom: .0001pt; margin-left: 0in; font-size: 10.0pt; font-family: 'Times New Roman','serif'; margin: 0in; text-indent: .25in;"&gt;&lt;font class="_mt"&gt;&lt;font style="font-size: 11.0pt;" class="_mt"&gt;&amp;nbsp;&lt;/font&gt;&lt;/font&gt;&lt;/p&gt; &lt;p class="MsoNormal" style="margin-top: 5.0pt; margin-right: 0in; margin-bottom: .0001pt; margin-left: 0in; font-size: 10.0pt; font-family: 'Times New Roman','serif'; margin: 0in; text-indent: .25in;"&gt;&lt;font class="_mt"&gt;&lt;font style="font-size: 11.0pt;" class="_mt"&gt;On November&amp;nbsp;29, 2007, the Company announced that its Board of Directors approved a two-for-one stock split, which was effected in the form of a 100% stock dividend and distributed on January&amp;nbsp;24, 2008, to shareholders of record at the close of business on January 10, 2008. The&amp;nbsp;Company's total authorized common stock increased from 1,000,000,000 shares to 2,000,000,000 shares. The par value&amp;nbsp;of the common stock was unchanged by this action. All share and per share amounts have been retrospectively adjusted for the increase in&amp;nbsp;issued and outstanding shares&amp;nbsp;after giving effect to the stock split. Stockholders' equity has also been restated to&amp;nbsp;retroactively apply the effects of the&amp;nbsp;stock split. For all periods presented, the par value of the additional shares resulting from the&amp;nbsp;stock split has been reclassified from additional paid-in capital to common stock.&lt;/font&gt;&lt;/font&gt;&lt;/p&gt; &lt;!--EndFragment--&gt;&lt;!-- body --&gt;&lt;/div&gt;&lt;/div&gt;</NonNumbericText>
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