Express Scripts 2014 Annual Report Download - page 66

Express Scripts 2014 Annual Report
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Ourcostofrevenuesincludesthecostofdrugsdispensedbyourhomedeliverypharmaciesorretailnetworkfor
memberscoveredunderourMedicarePartDPDPproductofferings.Theseamountsarerecordedatcostasincurred.We
receiveacatastrophicreinsurancesubsidyfromCMSforapproximately80%ofcostsincurredbyindividualmembersinexcess
oftheindividualannualout-of-pocketmaximum.Thesubsidyisreflectedasanoffsettingcreditincostofrevenuestothe
extentcatastrophiccostsareincurred.Catastrophicreinsurancesubsidyamountsreceivedinadvancearedeferredandrecorded
inaccruedexpensesontheconsolidatedbalancesheet.IftherearecatastrophicreinsurancesubsidiesduefromCMS,the
amountisaccruedandrecordedinreceivables,net,ontheconsolidatedbalancesheet.Aftertheendofthecontractyearand
basedonactualannualdrugcostsincurred,catastrophicreinsuranceamountsarereconciledwithCMSandthecorresponding
receivableorpayableissettled.
Cost of revenues.Costofrevenuesincludesproductcosts,networkpharmacyclaimscosts,co-paymentsandother
directcostsassociatedwithdispensingprescriptions,includingshippingandhandling(seealso“Revenuerecognition”and
“Rebateaccounting”).
Equity income from joint venture.Surescriptsenablesphysicianstosecurelyaccesshealthinformationwhen
caringfortheirpatientsthroughafastandefficienthealthexchange.ESIandMedcoeachretainaone-sixthownershipin
Surescripts,resultinginacombinedone-thirdownershipinSurescripts.WeaccountfortheinvestmentinSurescriptsusingthe
equitymethod.SeeNote3-Changesinbusinessforfurtherinformation.
Income taxes.Deferredtaxassetsandliabilitiesarerecognizedbasedontemporarydifferencesbetweenfinancial
statementbasisandtaxbasisofassetsandliabilitiesusingpresentlyenactedtaxrates.Weaccountforuncertaintyinincome
taxesasdescribedinNote8-Incometaxes.
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
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 plan.ExpressScriptshaselectedtodeterminetheprojectedbenefitobligationforthecashbalance
pensionplanasthevalueofthebenefitstowhichemployeesparticipatingintheplan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.
SeeNote11-Pension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EPSiscomputedinthesamemannerasbasicEPS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.Followingisthereconciliationbetweenthenumberof
weighted-averagesharesusedinthebasicanddilutedEPScalculationforallperiods(inmillions):
2014 2013 2012
Weighted-averagenumberofcommonsharesoutstandingduringtheperiod
–basic 750.3 808.6 731.3
Dilutivecommonstockequivalents:
Outstandingstockoptions,“stock-settled”stockappreciationrights,
restrictedstockunitsandexecutivedeferredcompensationunits 8.8 13.0 16.0
Weighted-averagenumberofcommonsharesoutstandingduringtheperiod
–diluted(1) 759.1 821.6 747.3
(1) Excludesawardsof2.4million,3.5millionand5.9millionfortheyearsendedDecember31,2014,2013and2012,
respectively.Thesewereexcludedbecausetheireffectwasanti-dilutive.
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