CVS 2014 Annual Report Download - page 68

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CVS Health
66
Notes to Consolidated Financial Statements
Cardinal is required to pay the Company 39 quarterly payments of $25.6 million which commenced in October 2014
and, if certain milestones are achieved, it will pay additional predetermined quarterly amounts to the Company
beginning in the third quarter of 2015. The payments will reduce the Company’s carrying cost of inventory and will
be recognized in cost of revenues when the related inventory is sold.
Related party transactions — The Company has an equity method investment in SureScripts, LLC (“SureScripts”),
which operates a clinical health information network. The Pharmacy Services and Retail Pharmacy segments utilize
this clinical health information network in providing services to its client plan members and retail customers. The
Company expensed fees of approximately $50 million, $48 million and $32 million in the years ended December 31,
2014, 2013 and 2012, respectively, for the use of this network.
The Company’s investment in and equity in earnings in SureScripts for all periods presented is immaterial.
In September 2014, the Company made a charitable contribution of $25 million to the CVS Foundation (formerly
CVS Caremark Charitable Trust, Inc.) (the “Foundation”) to fund future giving. The Foundation is a non-profit entity
that focuses on health, education and community involvement programs. The charitable contribution was recorded
as an operating expense in the consolidated statement of income for the year ended December 31, 2014.
Income taxes — The Company provides for income taxes currently payable, as well as for those deferred because
of timing differences between reported income and expenses for financial statement purposes versus income tax
return purposes. Income tax credits are recorded as a reduction of income taxes. Deferred income tax assets and
liabilities are recognized for the future tax consequences attributable to differences between the carrying amount of
assets and liabilities for financial reporting purposes and the amounts used for income tax return purposes. Deferred
income tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be recoverable or settled. The effect of a change in
income tax rates is recognized as income or expense in the period of the change.
Discontinued operations — In connection with certain business dispositions completed between 1991 and
1997, the Company retained guarantees on store lease obligations for a number of former subsidiaries, including
Linens ‘n Things which filed for bankruptcy in 2008. The Company’s loss from discontinued operations includes
lease-related costs which the Company believes it will likely be required to satisfy pursuant to its Linens ‘n Things
lease guarantees.
Below is a summary of the results of discontinued operations for the years ended December 31:
IN MILLIONS 2014 2013 2012
Loss on disposal
$ (1)
$ (12) $ (12)
Income tax benefit
—
4 5
Loss from discontinued operations, net of tax
$ (1)
$ (8) $ (7)
Earnings per common share — Earnings per share is computed using the two-class method. Options to pur-
chase 2.1 million, 6.2 million and 5.9 million shares of common stock were outstanding as of December 31, 2014,
2013 and 2012, respectively, but were not included in the calculation of diluted earnings per share because the
options’ exercise prices were greater than the average market price of the common shares and, therefore, the effect
would be antidilutive.