Express Scripts 2012 Annual Report Download - page 67

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Express Scripts 2012 Annual Report 65
64
benefits included in the benefit obligation are to be paid. The expected return on plan assets is determined by
multiplying the expected long-term rate of return by the fair value of the plan assets and contributions, offset by
expected return on expected benefit payments. In developing the expected rate of return, we consider long-term
compounded annualized returns of historical market data, as well as historical actual returns on our plan assets.
Using this reference information, we develop forward-looking return expectations for each asset class and a
weighted-average expected long-term rate of return for a targeted portfolio allocated across these investment
categories.
As allowed under applicable accounting guidance, net actuarial gains and losses reflect experience
differentials relating to differences between expected and actual returns on plan assets, differences between expected
and actual demographic changes, differences between expected and actual healthcare cost increases, and the effects
of changes in actuarial assumptions. Net actuarial gains and losses are recorded into net income in the period
incurred.
See Note 11 – Pension and other postretirement benefits for more information regarding pension plans.
Earnings per share. Basic earnings per share (“EPS”) is computed using the weighted-average number of
common shares outstanding during the period. Diluted earnings per share is computed in the same manner as basic
earnings per share but adds the number of additional common shares that would have been outstanding for the
period if the dilutive potential common shares had been issued. All shares are calculated under the “treasury stock”
method. The following is the reconciliation between the number of weighted-average shares used in the basic and
diluted earnings per share calculation for all periods (amounts are in millions):
2012
2011
2010
Weighted-average number of common shares
outstanding during the period – Basic EPS(1)
731.3
500.9
538.5
Dilutive common stock equivalents:
Outstanding stock options, SSRs, restricted stock
units and executive deferred compensation units
(2)
16.0
4.1
5.5
Weighted-average number of common shares
outstanding during the period – Diluted EPS(1)
747.3
505.0
544.0
(1) The increase in the weighted-average number of common shares outstanding for the year ended December 31, 2012 for Basic and
Diluted EPS is primarily due to the issuance of 318.0 million shares in connection with the Merger. The decrease in weighted-average
number of common shares outstanding for the year ended December 31, 2011 for Basic and Diluted EPS resulted from the repurchase
of 46.4 million treasury shares during the year ended December 31, 2011.
(2) Excludes awards of 5.9 million, 3.3 million and 2.8 million for the years ended December 31, 2012, 2011 and 2010, respectively.
These were excluded because their effect was anti-dilutive.
Foreign currency translation. The financial statements of our foreign subsidiaries are translated into U.S.
dollars using the exchange rate at each balance sheet date for assets and liabilities and a weighted-average exchange
rate for each period for revenues, expenses, gains and losses. The functional currency for our foreign subsidiaries is
the local currency and cumulative translation adjustments (credit balances of $18.9 million and $17.0 million at
December 31, 2012 and 2011, respectively) are recorded within the accumulated other comprehensive income
component of stockholders’ equity.
Comprehensive income. In addition to net income, comprehensive income (net of taxes) includes foreign
currency translation adjustments. We recognized foreign currency translation adjustments of $1.9 million, $(2.8)
million and $5.7 million for the years ending December 31, 2012, 2011 and 2010, respectively.
New accounting guidance. In May 2011, the FASB issued authoritative guidance containing changes to
certain aspects of the measurement of fair value of assets and liabilities and requiring additional disclosures around
assets and liabilities measured at fair value using Level 3 inputs (see Note 2 – Fair value measurements) as well as
disclosures about the use of nonfinancial assets measured or disclosed at fair value if their use differs from their
highest and best use. This statement was effective for financial statements issued for annual periods beginning on or
after December 15, 2011. Adoption of the standard had no impact on our financial position, results of operations or
cash flows.
In June 2011, the FASB issued authoritative guidance eliminating the option to report other comprehensive
income and its components in the statement of changes in equity. Under the new guidance, an entity can elect to