Express Scripts 2014 Annual Report Download - page 63

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Express Scripts 2014 Annual Report
compensationplans.Thenetgainrecognizedonthetradingportfoliowas$0.6million,$1.2millionand$1.0millionin2014,
2013and2012,respectively.
Securitiesnotclassifiedastradingorheld-to-maturityareclassifiedasavailable-for-salesecurities.Available-for-
salesecuritiesarereportedatfairvalue,whichisbaseduponquotedmarketprices,withunrealizedholdinggainsandlosses
reportedthroughothercomprehensiveincome,netofapplicabletaxes.Weheldnosecuritiesclassifiedasavailable-for-saleat
December31,2014or2013.
Impairment of long-lived assets.Weevaluatewhethereventsandcircumstanceshaveoccurredwhichindicatethe
remainingestimatedusefullifeoflong-livedassets,includingotherintangibleassets,maywarrantrevisionortheremaining
balanceofanassetmaynotberecoverable.Themeasurementofpossibleimpairmentisbasedonacomparisonofthefairvalue
oftherelatedassetstothecarryingvalueusingdiscountratesthatreflecttheinherentriskoftheunderlyingbusiness.
Impairmentlosses,ifany,wouldberecordedtotheextentthecarryingvalueoftheassetsexceedstheimpliedfairvalue
resultingfromthiscalculation.
During2012,werecordedimpairmentchargesofintangibleassetsasaresultofourplantodisposeofcertain
businesses.SeedescriptionoftheimpairmentchargesinNote6-Goodwillandotherintangibles.
Goodwill.Goodwillisevaluatedforimpairmentannuallyorwheneventsorcircumstancesoccurindicating
goodwillmightbeimpaired.Guidancerelatedtogoodwillimpairmenttestingprovidesanoptiontofirstassessqualitative
factorstodeterminewhetheritismorelikelythannotthefairvalueofareportingunitislessthanitscarryingamount.We
determinereportingunitsbasedoncomponentpartsofourbusinessonelevelbelowthesegmentlevel.Ourreportingunits
representbusinessesforwhichdiscretefinancialinformationisavailableandreviewedregularlybysegmentmanagement.If
weperformaqualitativeassessment,theCompanyconsidersvariouseventsandcircumstanceswhenevaluatingwhetheritis
morelikelythannotthefairvalueofareportingunitislessthanitscarryingamountandwhetherthefirststepofthegoodwill
impairmenttest(“Step1”)isnecessary.
IfweweretoperformStep1,themeasurementofpossibleimpairmentwouldbebasedonacomparisonofthefair
valueofeachreportingunittothecarryingvalueofthereportingunit’snetassets.Impairmentlosses,ifany,wouldbe
determinedbasedonthefairvalueoftheindividualassetsandliabilitiesofthereportingunit,usingdiscountratesthatreflect
theinherentriskoftheunderlyingbusiness.Wewouldrecordanimpairmentchargetotheextentthecarryingvalueofgoodwill
exceedstheimpliedfairvalueofgoodwillresultingfromthiscalculation.Thisvaluationprocessinvolvesassumptionsbased
uponmanagement’sbestestimatesandjudgmentsthatapproximatethemarketconditionsexperiencedforourreportingunitsat
thetimetheimpairmentassessmentismade.Actualresultsmaydifferfromtheseestimatesduetotheinherentuncertainty
involvedinsuchestimates.
Wedidnotperformaqualitativeassessmentforanyofourreportingunitsaspartofourimpairmenttest,and
insteadbeganwithStep1ofthegoodwillimpairmentanalysis.Noimpairmentexistedforanyofourreportingunitsat
December31,2014or2013.
During2013and2012,wewroteoffgoodwillbasedonareassessmentofthecarryingvaluesofcertain
discontinuedoperations.Seedescriptionofthewrite-offsinNote6-Goodwillandotherintangibles.
Other intangible assets.Otherintangibleassetsinclude,butarenotlimitedto,customercontractsand
relationships,deferredfinancingfeesandtradenames.Deferredfinancingfeesarerecordedatcost.Customercontractsand
relationshipsarevaluedatfairmarketvaluewhenacquiredusingtheincomemethod.Customercontractsrelatedtoour10-year
contractwithAnthem(formerlyknownasWellPoint)underwhichweprovidepharmacybenefitmanagementservicesto
Anthemanditsdesignatedaffiliates(“thePBMagreement”)arebeingamortizedusingamodifiedpatternofbenefitmethod
overanestimatedusefullifeof15years.Customercontractsandrelationshipsintangibleassetsrelatedtoouracquisitionof
Medcoarebeingamortizedusingamodifiedpatternofbenefitmethodoveranestimatedusefullifeof2to16years.The
customercontractrelatedtoourassetacquisitionoftheSmartDMedicarePrescriptionDrugPlanisbeingamortizedoveran
estimatedusefullifeof10years.Allotherintangibleassets,excludinglegacyESItradenameswhichhaveanindefinitelife,are
amortizedonastraight-linebasis,whichapproximatesthepatternofbenefit,overperiodsfrom5to20yearsforcustomer-
relatedintangibles,10yearsfortradenamesand3to30yearsforotherintangibleassets(seeNote6-Goodwillandother
intangibles).
Self-insurance accruals.Wemaintaininsurancecoverageforclaimsthatariseinthenormalcourseofbusiness.
Whereinsurancecoverageisnotavailable,or,inourjudgment,isnotcost-effective,wemaintainself-insuranceaccrualsto
reduceourexposuretofuturelegalcosts,settlementsandjudgments.Self-insuredlossesareaccruedbaseduponestimatesof
theaggregateliabilityforthecostsofuninsuredclaimsincurredusingcertainactuarialassumptionsfollowedintheinsurance
industryandourexperience(seeNote12-Commitmentsandcontingencies).Itisnotpossibletopredictwithcertaintythe
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