Medco 2014 Annual Report Download - page 85

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Express Scripts 2014 Annual Report
Stock options and SSRs.ExpressScriptsmaygrantstockoptionsandSSRstocertainofficers,directorsand
employeestopurchasesharesofExpressScriptsHoldingCompanycommonstockatfairmarketvalueonthedateofgrant.
TheSSRsandstockoptionsgrantedunderthe2000LTIP,2011LTIPand2002StockIncentivePlangenerallyhavethree-year
gradedvesting.
Duetothenatureoftheawards,weusethesamevaluationmethodsandaccountingtreatmentsforSSRsandstock
options.AsofDecember31,2014and2013,unearnedcompensationrelatedtoSSRsandstockoptionswas$28.7millionand
$43.8million,respectively.Werecordedpre-taxcompensationexpenserelatedtoSSRsandstockoptionsof$48.0million,
$77.3millionand$220.0millionin2014,2013and2012,respectively.TheincreasefortheyearendedDecember31,2012
resultedfromstock-basedcompensationexpenseaccelerationassociatedwiththeterminationofcertainMedcoemployees.The
weighted-averageremainingrecognitionperiodforstockoptionsandSSRsis1.9years.
AsummaryofthestatusofstockoptionsandSSRsasofDecember31,2014,andchangesduringtheyearended
December31,2014,ispresentedbelow.
Shares
(in millions)
Weighted-
Average Exercise
Price Per Share
Weighted-
Average
Remaining
Contractual Life
(in years)
Aggregate
Intrinsic Value
(in millions)(1)
Outstandingatbeginningofyear 31.9 $43.56
Granted 3.1 76.93
Exercised (13.6)39.92
Forfeited/cancelled (0.8)63.33
Outstandingatendofperiod 20.6 50.26 4.9 $709.0
Awardsexercisableatperiodend 14.5 $44.15 4.5 $589.4
(1) Amountbywhichthemarketvalueoftheunderlyingstockexceedstheexercisepriceoftheoption.
FortheyearsendedDecember31,2014and2013,thewindfalltaxbenefitrelatedtostockoptionsexercisedduring
theyearwas$94.0millionand$42.7million,respectively,andisclassifiedasafinancingcashinflowontheconsolidated
statementofcashflows.
Thefairvalueofstock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:
2014 2013 2012
Expectedlifeofoption 3-5years 4-5years 2-5years
Risk-freeinterestrate 0.7%-1.8% 0.6%-1.7% 0.3%-0.9%
Expectedvolatilityofstock 21%-29% 27%-37% 29%-38%
Expecteddividendyield None None None
Weighted-averagevolatilityofstock 27.4% 34.1% 35.5%
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UnitedStates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,2014,2013and2012areprovidedinthefollowingtable:
(in millions, except per share data) 2014 2013 2012
Proceedsfromstockoptionsexercised $542.4 $524.0 $401.0
Intrinsicvalueofstockoptionsexercised 476.3 362.0 359.6
Weighted-averagefairvaluepershareofoptionsgrantedduringtheyear $17.98 $17.17 $15.13
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