Express Scripts 2013 Annual Report Download - page 69

69 Express Scripts 2013 Annual Report
Net income attributable to non-controlling interest. Net income attributable to non-controlling interest represents
the share of net income allocated to members of our consolidated affiliates.
Employee stock-based compensation. Grant-date fair values of stock options and “stock-settled” stock
appreciation rights (“SSRs”) are estimated using a Black-Scholes valuation model. Compensation expense is reduced based on
estimated forfeitures with adjustments recorded at the time of vesting for actual forfeitures. Forfeitures are estimated based on
historical experience. We use an accelerated method of recognizing compensation cost for awards with graded vesting, which
essentially treats the grant as three separate awards, with vesting periods of 12, 24 and 36 months for those grants that vest over
three years.
See Note 10 - Employee benefit plans and stock-based compensation plans for more information regarding stock-
based compensation plans.
Pension plans. Express Scripts has elected to determine the projected benefit obligation for cash balance pension
plans as the value of the benefits to which employees participating in the plans would be entitled if they separated from service
immediately. The amount by which the projected benefit obligation exceeds the fair value of the pension plan assets is recorded
in other liabilities on the consolidated balance sheet.
The determination of our expense for pension plans is based on management’s assumptions, which are developed
with the assistance of actuaries. We reassess the plan assumptions on a regular basis.
Net actuarial gains and losses reflect experience differentials relating to differences between expected and actual
demographic changes, differences between expected and actual healthcare cost increases, and the effects of changes in actuarial
assumptions. As allowed under applicable accounting guidance, actual gains and losses on invested assets and net actuarial
gains and losses are recorded into net income in the period incurred.
See Note 11 - Pension and other post-retirement 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):
2013(1) 2012 2011
Weighted-average number of common shares outstanding during the period – Basic 808.6 731.3 500.9
Dilutive common stock equivalents:(2)
Outstanding stock options, “stock-settled” stock appreciation rights, restricted stock units
and executive deferred compensation units 13.0 16.0 4.1
Weighted-average number of common shares outstanding during the period – Diluted(3) 821.6 747.3 505.0
(1) The increase in the weighted-average number of common shares outstanding for the year ended December 31, 2013
used for both Basic and Diluted EPS resulted primarily from the issuance of 318.0 million shares in connection with the
Merger and the issuance of 13.4 million shares from option exercises and restricted stock unit distributions related to
awards converted in the Merger, partially offset by the repurchase of 60.4 million of treasury shares for the year ended
December 31, 2013. The increase in the weighted-average number of common shares outstanding for the year ended
December 31, 2012 used for both Basic and Diluted EPS resulted primarily from the issuance of 318.0 million shares in
connection with the Merger and the issuance of 13.2 million shares from option exercises and restricted stock unit
distributions related to awards converted in the Merger.
(2) Dilutive common stock equivalents exclude the 2.3 million shares that we would receive if the 2013 Accelerated Share
Repurchase Agreement discussed in Note 9 - Common stock was settled as of December 31, 2013. These were excluded
because their effect was anti-dilutive.
(3) Excludes awards of 3.5 million, 5.9 million and 3.3 million for the years ended December 31, 2013, 2012 and 2011,
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 $11.7 million and $18.9 million at December 31, 2013 and 2012,
respectively) are recorded within the accumulated other comprehensive income component of stockholders’ equity.