Express Scripts 2013 Annual Report Download - page 91

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91 Express Scripts 2013 Annual Report
A summary of the status of stock options and SSRs as of December 31, 2013, and changes during the year ended
December 31, 2013, is presented below.
Shares (in
millions)
Weighted-
Average
Exercise
Price Per
Share
Weighted-
Average
Remaining
Contractual
Life
Aggregate
Intrinsic Value
(in millions)(1)
Outstanding at beginning of year 44.2 $ 40.71
Granted 3.3 58.34
Exercised (14.6) 37.56
Forfeited/cancelled (1.0) 54.11
Outstanding at end of period 31.9 43.56 5.3 $ 852.3
Awards exercisable at period end 23.7 $ 40.26 5.0 $ 709.8
(1) Amount by which the market value of the underlying stock exceeds the exercise price of the option.
For the year ended December 31, 2013, the windfall tax benefit related to stock options exercised during the year
was $42.7 million and is classified as a financing cash inflow on the consolidated statement of cash flows.
The fair value of options and SSRs granted is estimated on the date of grant using a Black-Scholes multiple option-
pricing model with the following weighted-average assumptions:
2013 2012 2011
Expected life of option 4-5 years 2-5 years 2-5 years
Risk-free interest rate 0.6%-1.7% 0.3%-0.9% 0.3%-2.2%
Expected volatility of stock 27%-37% 29%-38% 30%-39%
Expected dividend yield None None None
Weighted-average volatility of stock 34.1% 35.5% 36.6%
The Black-Scholes model requires subjective assumptions, including future stock price volatility and expected time
to exercise, which greatly affect the calculated values. The expected term and forfeiture rate of options granted is derived from
historical data on employee exercises and post-vesting employment termination behavior as well as expected behavior on
outstanding options. The risk-free rate is based on the U.S. Treasury rates in effect during the corresponding period of grant.
The expected volatility is based on the historical volatility of our stock price. These factors could change in the future, which
would affect the stock-based compensation expense in future periods.
Cash proceeds, intrinsic value related to total stock options exercised, and weighted-average fair value of stock
options granted during the years ended December 31, 2013, 2012 and 2011 are provided in the following table:
(in millions, except per share data) 2013 2012 2011
Proceeds from stock options exercised $ 524.0 $ 401.1 $ 35.9
Intrinsic value of stock options exercised 362.0 359.6 82.8
Weighted-average fair value per share of options granted during the year $ 17.17 $ 15.13 $ 14.74
11. Pension and other post-retirement benefits
Net pension and postretirement benefit cost. In connection with the Merger, Express Scripts assumed sponsorship
of Medco’s pension and other post-retirement benefit obligations, which were re-measured and recorded at fair value on the
date of the Merger.
For the pension plans, Express Scripts has elected to determine the projected benefit obligation as the value of the
benefits to which employees would be entitled if they separated from service immediately. Under this approach, the liability is
equal to the employee’s account value as of the measurement date. After re-measurement upon the Merger consummation, the
fair value of the projected benefit obligation was $291.3 million and the plan assets at fair value totaled $217.0 million,
representing an underfunded status and resulting in a balance sheet liability of $74.3 million.