Express Scripts Announces 4th Quarter Results; Provides Initial 2015 Earnings Guidance

(from continuing operations)

Q4 2014

(in millions,
except per
share and per
claim data)

Q4 2014 Change

From Q4 2013

Excluding
UNH

Including
UNH

Total adjusted claims (see Table 1)

337.0

(4%)

(7%)

Adjusted EBITDA (see Table 3)

$       1,857.1

13%

11%

Adjusted EBITDA, per adjusted claim (see Table 3)

$            5.51

18%

19%

GAAP net income

$          581.8

17%

13%

Adjusted net income (see Table 5)

$       1,023.1

17%

14%

GAAP diluted earnings per share

$            0.79

27%

23%

Adjusted earnings per diluted share (see Table 4)

$            1.39

26%

24%

(from continuing operations)

2014

(in millions,
except per
share and per
claim data)

2014 Change

From 2013

Excluding
UNH

Including
UNH

Total adjusted claims (see Table 1)

1,309.8

(6%)

(11%)

Adjusted EBITDA (see Table 3)

$       6,802.5

6%

2%

Adjusted EBITDA, per adjusted claim (see Table 3)

$            5.19

13%

15%

GAAP net income

$       2,007.6

16%

6%

Adjusted net income (see Table 5)

$       3,704.2

9%

4%

GAAP diluted earnings per share

$            2.64

25%

14%

Adjusted earnings per diluted share (see Table 4)

$            4.88

18%

13%

2014

(in millions,
except per
share and per
claim data)

Table 6

2015 Range

(in millions,
except per share
and per claim
data)

Total adjusted claims

Table 1

1,309.8

1,280 to 1,320

(2%) to 1%

Adjusted SG&A

Table 2

$    2,067.2

$1,925 to $2,000

(7%) to (3%)

Adjusted EBITDA

Table 3

$    6,802.5

$6,925 to $7,125

2% to 5%

Adjusted EBITDA, per adjusted claim

Table 3

$         5.19

$5.25 to $5.45

1% to 5%

Diluted weighted average shares

759.1

695 to 715

(8%) to (6%)

Adjusted earnings per diluted share

Table 4

$         4.88

$5.35 to $5.49

10% to 13%

Estimated Quarter Ending

March 31, 2015

(in millions, except per share data)

Adjusted claims

295 to 325

(8%) to 2%

Adjusted earnings per diluted share

$1.07 to $1.11

8% to 12%

 EXPRESS SCRIPTS HOLDING COMPANY 

 Unaudited Consolidated Statement of Operations 

 Three Months Ended
December 31, 

 Year Ended
December 31, 

  (in millions, except per share data) 

2014

2013

2014

2013

Revenues^(*)

$ 26,312.6

$ 25,781.4

$ 100,887.1

$ 104,098.8

Cost of revenues^(*)

24,218.6

23,720.4

92,962.0

95,966.4

    Gross profit 

2,094.0

2,061.0

7,925.1

8,132.4

Selling, general and administrative

1,151.2

1,232.2

4,322.7

4,580.7

Operating income

942.8

828.8

3,602.4

3,551.7

Other (expense) income:

    Equity income from joint venture 

5.1

9.7

18.7

32.8

    Interest income  

4.7

13.5

28.0

41.9

    Interest expense and other 

(122.1)

(125.7)

(582.9)

(596.1)

(112.3)

(102.5)

(536.2)

(521.4)

Income before income taxes

830.5

726.3

3,066.2

3,030.3

Provision for income taxes

241.8

208.0

1,031.2

1,104.0

Net income from continuing operations

588.7

518.3

2,035.0

1,926.3

Net loss from discontinued operations, net of tax

-

(12.3)

-

(53.6)

Net income

588.7

506.0

2,035.0

1,872.7

Less: Net income attributable to non-controlling interest

6.9

4.1

27.4

28.1

Net income attributable to Express Scripts

$      581.8

$      501.9

$     2,007.6

$     1,844.6

Weighted-average number of common shares

 outstanding during the period: 

    Basic 

730.0

790.7

750.3

808.6

    Diluted 

737.9

802.6

759.1

821.6

Basic earnings (loss) per share:

     Continuing operations attributable to Express Scripts

$        0.80

$        0.65

$          2.68

$          2.35

     Discontinued operations attributable to Express Scripts

-

(0.02)

-

(0.07)

     Net earnings attributable to Express Scripts

0.80

0.63

2.68

2.28

Diluted earnings (loss) per share:

     Continuing operations attributable to Express Scripts

$        0.79

$        0.64

$          2.64

$          2.31

     Discontinued operations attributable to Express Scripts

-

(0.02)

-

(0.07)

     Net earnings attributable to Express Scripts

0.79

0.63

2.64

2.25

Amounts attributable to Express Scripts:

     Income from continuing operations, net of tax

$      581.8

$      514.2

$     2,007.6

$     1,898.2

     Net loss from discontinued operations, net of tax

-

(12.3)

-

(53.6)

     Net income attributable to Express Scripts 

$      581.8

$      501.9

$     2,007.6

$     1,844.6

(*) Includes retail pharmacy co-payments of $2,378.0 million and $2,775.1 million for the three months ended December 31, 2014 and 2013, respectively, and $10,272.7 million and $12,620.3 million for the years ended December 31, 2014 and 2013, respectively.

 EXPRESS SCRIPTS HOLDING COMPANY 

 Unaudited Consolidated Balance Sheet 

 December 31,

 December 31,

 (in millions) 

2014

2013

 Assets 

 Current assets: 

 Cash and cash equivalents 

$           1,832.6

$           1,991.4

 Restricted cash and investments 

9.1

22.8

 Receivables, net 

5,979.8

4,022.9

 Inventories 

2,113.2

1,871.1

 Deferred taxes 

390.8

455.4

 Prepaid expenses and other current assets 

242.6

96.8

 Current assets of discontinued operations 

-

31.0

    Total current assets 

10,568.1

8,491.4

 Property and equipment, net 

1,584.0

1,658.9

 Goodwill 

29,280.9

29,305.4

 Other intangible assets, net 

12,255.2

14,015.6

 Other assets 

110.7

76.9

    Total assets 

$         53,798.9

$         53,548.2

 Liabilities and stockholders' equity 

 Current liabilities: 

 Claims and rebates payable 

$           8,488.2

$           6,767.8

 Accounts payable 

3,137.3

2,900.0

 Accrued expenses 

2,836.1

1,982.2

 Current maturities of long-term debt 

2,555.3

1,584.0

 Current liabilities of discontinued operations 

-

1.3

    Total current liabilities 

17,016.9

13,235.3

 Long-term debt 

11,012.7

12,363.0

 Deferred taxes 

4,923.2

5,440.6

 Other liabilities 

782.1

664.4

 Noncurrent liabilities of discontinued operations 

-

0.1

    Total liabilities 

33,734.9

31,703.4

 Stockholders' equity: 

 Preferred stock, 15.0 shares authorized, $0.01 par value per share;   

 and no shares issued and outstanding 

-

-

 Common stock, 2,985.0 shares authorized, $0.01 par value per share;  

 shares issued: 848.6 and 834.0, respectively; 

 shares outstanding: 726.1 and 773.6, respectively 

8.5

8.3

 Additional paid-in capital 

22,671.4

21,809.9

 Accumulated other comprehensive income 

2.1

11.7

 Retained earnings 

5,920.4

3,912.8

28,602.4

25,742.7

 Common stock in treasury at cost, 122.5 and 60.4 shares, respectively 

(8,548.2)

(3,905.3)

    Total Express Scripts stockholders' equity 

20,054.2

21,837.4

 Non-controlling interest 

9.8

7.4

    Total stockholders' equity 

20,064.0

21,844.8

    Total liabilities and stockholders' equity 

$         53,798.9

$         53,548.2

 EXPRESS SCRIPTS HOLDING COMPANY 

 Unaudited Consolidated Statement of Cash Flows 

Year Ended
December 31,

 (in millions) 

2014

2013

 Cash flows from operating activities: 

 Net income 

$ 2,035.0

$ 1,872.7

 Net loss from discontinued operations, net of tax 

-

53.6

      Net income from continuing operations 

2,035.0

1,926.3

 Adjustments to reconcile net income to net cash provided by operating activities: 

 Depreciation and amortization 

2,242.9

2,447.0

 Deferred income taxes 

(430.5)

(573.7)

 Employee stock-based compensation expense 

111.0

164.7

 Other, net 

(8.3)

29.2

 Changes in operating assets and liabilities:  

 Accounts receivable 

(2,042.4)

1,254.0

 Inventories 

(242.1)

(218.9)

 Other current and noncurrent assets 

(170.0)

94.2

 Claims and rebates payable 

1,720.4

(672.2)

 Accounts payable 

271.7

15.9

 Accrued expenses 

948.9

450.8

 Other current and noncurrent liabilities 

112.4

(148.4)

 Net cash provided by operating activities - continuing operations 

4,549.0

4,768.9

 Net cash used in operating activities - discontinued operations 

-

(11.4)

 Net cash flows provided by operating activities 

4,549.0

4,757.5

 Cash flows from investing activities: 

 Purchases of property and equipment 

(436.6)

(423.0)

 Acquisitions, net of cash acquired 

2.2

(14.5)

 Proceeds from the sale of business 

-

356.9

 Other 

22.5

10.6

 Net cash used in investing activities - continuing operations 

(411.9)

(70.0)

 Net cash used in investing activities - discontinued operations 

-

(2.1)

 Net cash used in investing activities 

(411.9)

(72.1)

 Cash flows from financing activities: 

 Treasury stock acquired 

(4,493.0)

(4,055.2)

 Repayment of long-term debt 

(2,834.3)

(1,931.6)

 Proceeds from long-term debt, net of discounts 

2,490.1

-

 Net proceeds from employee stock plans 

510.5

466.0

 Excess tax benefit relating to employee stock-based compensation 

94.0

42.7

 Distributions paid to non-controlling interest 

(24.8)

(31.7)

 Deferred financing fees 

(18.6)

-

 Other 

(13.6)

15.0

 Net cash used in financing activities 

(4,289.7)

(5,494.8)

 Effect of foreign currency translation adjustment 

(6.2)

(5.7)

 Less: cash decrease attributable to discontinued operations 

-

13.4

 Net decrease in cash and cash equivalents 

(158.8)

(801.7)

 Cash and cash equivalents at beginning of period 

1,991.4

2,793.1

 Cash and cash equivalents at end of period 

$ 1,832.6

$ 1,991.4

 Table 1 

  Express Scripts Holding Company Unaudited Consolidated Selected Information 

 (in millions) 

 Three Months Ended
December 31,  

 Year Ended
December 31,

2014

2013

2014

2013

Claims Volume

Continuing operations:

Network

240.6

259.4

933.6

1,065.3

Home delivery and specialty⁽¹⁾

32.9

34.6

128.5

141.2

   Total claims 

273.5

294.0

1,062.1

1,206.5

Total adjusted claims - continuing operations⁽²⁾

337.0

360.7

1,309.8

1,478.0

 Depreciation and Amortization (D&A):  

 Revenue amortization⁽³⁾

$   26.9

$   28.5

$    112.4

$    114.0

 Cost of revenues depreciation 

34.2

30.8

130.1

119.5

 Selling, general and administrative depreciation 

114.6

86.6

359.3

309.3

 Selling, general and administrative amortization⁽³⁾

409.0

477.1

1,641.1

1,904.2

      Total D&A - continuing operations 

$ 584.7

$ 623.0

$ 2,242.9

$ 2,447.0

 Generic Fill Rate* 

 Network 

83.5%

81.7%

83.7%

81.6%

 Home delivery 

78.0%

75.1%

77.2%

74.6%

 Overall 

82.8%

80.9%

82.9%

80.8%

 Note: See Appendix for Footnotes 

*The home delivery generic fill rate is currently lower than the network generic fill rate as fewer generic substitutions are available among maintenance medications (e.g. therapies for chronic conditions) commonly dispensed from home delivery pharmacies compared to acute medications which are primarily dispensed by pharmacies in our retail networks.

Table 2

Calculation of Express Scripts Holding Company Adjusted Gross Profit and SG&A - Continuing Operations

(in millions)

 Three Months Ended
December 31,  

 Year Ended
December 31,  

2014

2013

2014

2013

Gross profit, as reported

$ 2,094.0

$ 2,061.0

$ 7,925.1

$ 8,132.4

Amortization of intangible assets ⁽³⁾

26.9

28.5

112.4

114.0

Transaction and integration costs ⁽⁴⁾

180.9

100.4

462.3

238.3

Adjusted gross profit

$ 2,301.8

$ 2,189.9

$ 8,499.8

$ 8,484.7

Selling, general and administrative, as reported

$ 1,151.2

$ 1,232.2

$ 4,322.7

$ 4,580.7

Amortization of intangible assets ⁽³⁾

409.0

477.1

1,641.1

1,904.2

Transaction and integration costs ⁽⁴⁾

201.6

140.7

614.4

486.9

Adjusted selling, general and administrative

$    540.6

$    614.4

$ 2,067.2

$ 2,189.6

 Note: See Appendix for Footnotes 

The Company is providing adjusted gross profit and adjusted selling, general and administrative expenses (both of which are non-GAAP financial measures), in each case, excluding the impact of amortization of intangible assets and transaction and integration costs in order to compare the underlying financial performance to prior periods.

 Table 3 

 Express Scripts Holding Company EBITDA and Adjusted EBITDA Reconciliation 

 (in millions, except per claim data) 

The following is a reconciliation of net income from continuing operations attributable to Express Scripts to EBITDA and Adjusted EBITDA from continuing operations attributable to Express Scripts.  The Company believes net income is the most directly comparable measure calculated under U.S. GAAP.  

 Three Months Ended
December 31,   

 Year Ended
December 31,  

2014

2013

2014

2013

Net income from continuing operations, attributable to Express Scripts, as reported

$    581.8

$    514.2

$ 2,007.6

$ 1,898.2

  Provision for income taxes

241.8

208.0

1,031.2

1,104.0

  Depreciation and amortization*

584.7

623.0

2,242.9

2,447.0

  Interest expense, net

117.4

112.2

554.9

554.2

  Equity income from joint venture

(5.1)

(9.7)

(18.7)

(32.8)

EBITDA from continuing operations, attributable to Express Scripts, as reported

1,520.6

1,447.7

5,817.9

5,970.6

Transaction and integration costs ^(4)*

336.5

220.6

984.6

693.6

Adjusted EBITDA from continuing operations, attributable to Express Scripts

$ 1,857.1

$ 1,668.3

$ 6,802.5

$ 6,664.2

Total adjusted claims - continuing operations

337.0

360.7

1,309.8

1,478.0

Adjusted EBITDA from continuing operations, attributable to Express Scripts, per adjusted claim

$      5.51

$      4.63

$      5.19

$      4.51

 Note: See Appendix for Footnotes 

The Company is providing EBITDA and adjusted EBITDA excluding the impact of certain charges (both of which are non-GAAP financial measures) in order to compare the underlying financial performance to prior periods. 

EBITDA from continuing operations is earnings before interest income (expense), income taxes, depreciation and amortization, and equity income from joint venture, or alternatively calculated as operating income plus depreciation and amortization.  EBITDA from continuing operations is presented because it is a widely accepted indicator of a company's ability to service indebtedness and is frequently used to evaluate a company's performance.  EBITDA from continuing operations, however, should not be considered as an alternative to net income from continuing operations, as a measure of operating performance, as an alternative to cash flow, as a measure of liquidity or as a substitute for any other measure computed in accordance with accounting principles generally accepted in the United States.  In addition, our definition and calculation of EBITDA from continuing operations may not be comparable to that used by other companies.

Adjusted EBITDA from continuing operations per adjusted claim is a supplemental measurement used by analysts and investors to help evaluate overall operating performance.  We have calculated adjusted EBITDA from continuing operations excluding transaction and integration costs recorded each year, as these charges are not considered an indicator of ongoing company performance.  Adjusted EBITDA from continuing operations per adjusted claim is calculated by dividing adjusted EBITDA from continuing operations by the adjusted claim volume for the period.  This measure is used as an indicator of EBITDA performance on a per-unit basis.  Adjusted EBITDA from continuing operations, and as a result, adjusted EBITDA from continuing operations per adjusted claim, are each affected by the changes in claim volumes between retail and home delivery, the relative representation of brand-name, generic and specialty pharmacy drugs, as well as the level of efficiency in the business.

*  Depreciation and amortization for the three months and year ended December 31, 2014 presented above includes $46.0 million and $92.1 million, respectively, of depreciation related to the integration of Medco Health Solutions, Inc. ("Medco") which is not included in transaction and integration costs.  Depreciation and amortization for the three months and year ended December 31, 2013 presented above includes $20.5 million and $31.6 million, respectively, of depreciation related to the integration of Medco, which is not included in transaction and integration costs.  

 Table 4 

 Calculation of Express Scripts Holding Company Adjusted Diluted EPS  

 Three Months Ended
December 31,  

 Year Ended
December 31,  

2014

2013

2014

2013

 (per diluted share) 

Diluted EPS from continuing operations attributable to Express Scripts, as reported

$ 0.79

$ 0.64

$ 2.64

$ 2.31

Excluding items indicated: 

Transaction and integration costs ⁽⁴⁾

0.32

0.19

0.89

0.55

Debt redemption costs ⁽⁵⁾

-

-

0.06

0.05

Discrete tax items ⁽⁶⁾

(0.09)

(0.10)

(0.15)

(0.06)

Interest income⁽⁷⁾

-

(0.01)

-

(0.03)

Amortization of intangible assets ⁽³⁾

0.37

0.40

1.44

1.51

Diluted EPS from continuing operations attributable to Express Scripts, adjusted

$ 1.39

$ 1.12

$ 4.88

$ 4.33

 Note: See Appendix for Footnotes 

The Company is providing diluted EPS from continuing operations attributable to Express Scripts and adjusted diluted EPS from continuing operations attributable to Express Scripts excluding the impact of transaction, integration and certain other costs and amortization of intangible assets (which are non-GAAP financial measures) in order to compare the underlying financial performance to prior periods.

 Table 5 

 Calculation of Express Scripts Holding Company Adjusted Net Income and Adjusted Effective Income Tax Rate 

 (in millions) 

 Three Months Ended
December 31, 2014 

 Year Ended
December 31, 2014 

Income
before
income
taxes

Provision
for income
taxes

Effective
income tax
rate

Income
before
income
taxes

Provision
for income
taxes

Effective
income tax
rate

Net income attributable to Express Scripts, as reported

$    830.5

$     241.8

$ 3,066.2

$  1,031.2

Non-controlling interest

(6.9)

-

(27.4)

-

Total income attributable to Express Scripts, as reported

823.6

241.8

29.4%

3,038.8

1,031.2

33.9%

Excluding items indicated: 

Transaction and integration costs⁽⁴⁾

382.5

144.3

1,076.7

405.9

Debt redemption costs⁽⁵⁾

-

-

75.9

28.6

Discrete tax items⁽⁶⁾

-

68.3

-

113.9

Amortization of intangible assets⁽³⁾

435.9

164.5

1,753.5

661.1

Total net income attributable to Express Scripts, as adjusted

$ 1,642.0

$     618.9

37.7%

$ 5,944.9

$  2,240.7

37.7%

Adjusted net income attributable to Express Scripts

$  1,023.1

$  3,704.2

 Note: See Appendix for Footnotes. 

The Company is providing adjusted net income attributable to Express Scripts, net of tax and adjusted effective income tax rate attributable to Express Scripts excluding the impact of certain items and amortization of intangible assets (which are non-GAAP financial measures) in order to compare the underlying financial performance to prior periods.

 Table 5A 

 Calculation of Express Scripts Holding Company Adjusted Net Income and Adjusted Effective Income Tax Rate from Continuing Operations 

 (in millions) 

 Three Months Ended
December 31, 2013 

 Year Ended
December 31, 2013 

Income
before
income
taxes

Provision
for income
taxes

Effective
income tax
rate

Income
before
income
taxes

Provision
for income
taxes

Effective
income tax
rate

Net income from continuing operations attributable to Express Scripts, as reported

$    726.3

$     208.0

$ 3,030.3

$  1,104.0

Non-controlling interest

(4.1)

-

(28.1)

-

Total income from continuing operations attributable to Express Scripts, as reported

722.2

208.0

28.8%

3,002.2

1,104.0

36.8%

Excluding items indicated: 

Transaction and integration costs⁽⁴⁾

241.1

90.3

725.2

279.1

Debt redemption costs⁽⁵⁾

-

-

68.5

26.4

Discrete tax items⁽⁶⁾

-

80.9

-

51.2

Interest income ⁽⁷⁾

(11.6)

(4.3)

(36.5)

(14.0)

Amortization of intangible assets⁽³⁾

505.6

186.4

2,018.2

776.5

Total net income from continuing operations attributable to Express Scripts, as adjusted

$ 1,457.3

$     561.3

38.5%

$ 5,777.6

$  2,223.2

38.5%

Adjusted net income from continuing operations attributable to Express

    Scripts, net of tax

$     896.0

$  3,554.4

 Note: See Appendix for Footnotes. 

The Company is providing adjusted net income from continuing operations attributable to Express Scripts, net of tax and adjusted effective income tax rate from continuing operations attributable to Express Scripts excluding the impact of certain items and amortization of intangible assets (which are non-GAAP financial measures) in order to compare the underlying financial performance to prior periods.

 Table 6 

 Express Scripts Holding Company 2015 Guidance Information 

Estimated
Year Ending
December 31, 2015 

  (in millions, except per share and per claim data) 

Adjusted earnings per diluted share attributable to Express Scripts*

$5.35 to $5.49

Year over year growth 

10%-13%

Total adjusted claims

1,280 to 1,320

Adjusted selling, general and administrative*

$1,925 to $2,000

Depreciation**

$420 to $460

Effective income tax rate 

37.3% to 37.7%

Adjusted EBITDA*

$6,925 to $7,125

Adjusted EBITDA per adjusted claim*

$5.25 to $5.45

Diluted weighted average shares outstanding during the period

695 to 715

Cash flow from operations

$4,500 to $5,000

Capital expenditures

$300 to $400

GAAP items not included in guidance (*) 

The Company anticipates full-year 2015 integration costs to be approximately $250 million, but the exact amount is indeterminable.  Accordingly, the Company is unable to include these charges in the list of GAAP items not included in guidance for 2015 full-year earnings per diluted share attributable to Express Scripts, adjusted selling, general and administrative, adjusted EBITDA and adjusted EBITDA per adjusted claim or to provide a reconciliation to the corresponding GAAP measure.  2015 Adjusted EPS will exclude amortization of intangible assets per diluted share in the range of $1.51 to $1.55.

**  Approximately $305 to $325 million of this depreciation guidance is included in the guidance for adjusted selling, general and administrative expenses.  The remainder of the depreciation guidance is reported in cost of goods sold.

 Table 7 

 Express Scripts Holding Company Operating Results Excluding UnitedHealth Group ("UNH") 

(Amounts in millions except per share and per claim data)

Q4 2013

UNH

Excluding

Q4 2014 Change

(Three Months Ended)

Q4 2014

Q4 2013

(Table 8)

UNH

Including UNH

Excluding UNH

Adjusted claims

Table 1

337.0

360.7

(8)

352.5

-7%

-4%

Adjusted SG&A

Table 2

$    540.6

$    614.4

(2)

$    611.9

-12%

-12%

Adjusted EBITDA

Table 3

$ 1,857.1

$ 1,668.3

(29)

$ 1,639.5

11%

13%

Adjusted EBITDA, per adjusted claim

Table 3

$      5.51

$      4.63

3.52

$      4.65

19%

18%

GAAP net income

$    581.8

$    514.2

(18)

$    496.2

13%

17%

Adjusted net income

Table 5

$ 1,023.1

$    896.0

(18)

$    878.0

14%

17%

GAAP diluted earnings per share

$      0.79

$      0.64

(0.02)

$      0.62

23%

27%

Adjusted diluted earnings per share

Table 4

$      1.39

$      1.12

(0.02)

$      1.10

24%

26%

UNH

Excluding

2014 Change

(Year Ended)

2014

2013

(Table 8)

UNH

Including UNH

Excluding UNH

Adjusted claims

Table 1

1,309.8

1,478.0

(89)

1,388.6

-11%

-6%

Adjusted SG&A

Table 2

$ 2,067.2

$ 2,189.6

(10)

$ 2,179.7

-6%

-5%

Adjusted EBITDA

Table 3

$ 6,802.5

$ 6,664.2

(263)

$ 6,401.6

2%

6%

Adjusted EBITDA, per adjusted claim

Table 3

$      5.19

$      4.51

2.94

$      4.61

15%

13%

GAAP net income

$ 2,007.6

$ 1,898.2

(162)

$ 1,736.7

6%

16%

Adjusted net income

Table 5

$ 3,704.2

$ 3,554.4

(162)

$ 3,392.9

4%

9%

GAAP diluted earnings per share

$      2.64

$      2.31

(0.20)

$      2.11

14%

25%

Adjusted diluted earnings per share

Table 4

$      4.88

$      4.33

(0.20)

$      4.13

13%

18%

The Company is providing operating results excluding UNH (which are non-GAAP financial measures) in order to compare the underlying financial performance to prior periods.

Amounts presented as continuing operations.  

 Table 8 

 Express Scripts Holding Company - UnitedHealth Group ("UNH")  Contribution by Quarter 

(Amounts in millions except per share and per claim data)

Full Year

Q1 2013

Q2 2013

Q3 2013

Q4 2013

2013

Adjusted claims

37

28

16

8

89

Adjusted SG&A

$          2

$        2

$           2

$          2

$              10

Adjusted EBITDA

$        94

$      87

$         53

$        29

$            263

Adjusted EBITDA, per adjusted claim

$     2.51

$   3.10

$      3.36

$     3.52

$           2.94

Adjusted net income

$        57

$      54

$         33

$        18

$            162

Adjusted diluted earnings per share

$     0.07

$   0.06

$      0.04

$     0.02

$           0.20

Adjusted diluted earnings per share

as reported:

$     0.99

$   1.13

$      1.08

$     1.12

$           4.33

Adjusted diluted earnings per share

excluding UNH:

$     0.92

$   1.07

$      1.04

$     1.10

$           4.13

The Company is providing UNH 2013 operating results by quarter and adjusted diluted earnings per share excluding UNH (both of which are non-GAAP financial measures) in order to compare the underlying financial performance to prior periods.

Amounts presented as continuing operations.  

 Appendix 

 Footnotes 

⁽¹⁾Includes home delivery, specialty and other including:  (a) drugs distributed through patient assistance programs (b) drugs distributed to clients of other PBMs under limited distribution contracts with pharmaceutical manufacturers and (c) FreedomFP claims. 

⁽²⁾ Total adjusted claims reflect home delivery claims multiplied by 3, as home delivery claims typically cover a time period 3 times longer than network claims. 

⁽³⁾Amortization of intangible assets includes the following items:

Amortization of legacy Express Scripts intangible assets include amounts in both revenues and selling, general and administrative expense.

Revenue amortization is related to the customer contract with Anthem (formerly known as WellPoint) which commenced upon closing of the NextRx acquisition in 2009. Amortization of intangibles that arises in connection with consideration given to a customer by a vendor is characterized as a reduction of revenues. Intangible amortization of $26.9 million ($16.7 million net of tax) and $28.5 million ($18.0 million net of tax) is included as a reduction to revenue for the three months ended December 31, 2014 and 2013, respectively. Intangible amortization of $112.4 million ($70.0 million net of tax) and $114.0 million ($70.1 million net of tax) is included as a reduction to revenue for the year ended December 31, 2014 and 2013, respectively.

Other legacy Express Scripts intangible amortization of $9.5 million ($5.9 million net of tax) and $10.2 million ($6.5 million net of tax) for the three months ended December 31, 2014 and 2013, respectively, is included in selling, general and administrative expense.   Other legacy Express Scripts intangible amortization of $37.8 million ($23.5 million net of tax) and $40.7 million ($25.1 million net of tax) for the year ended December 31, 2014 and 2013, respectively, is included in selling, general and administrative expense.

Amortization of intangible assets related to the acquisition of Medco Health Solutions, Inc. ("Medco") of $399.5million ($248.8 million net of tax) and $466.9 million ($294.7 million net of tax) for the three months ended December 31, 2014  and 2013, respectively, is included in selling, general and administrative expense.  Amortization of intangible assets related to the acquisition of Medco of $1,603.3 million ($998.9 million net of tax) and $1,863.5 million ($1,146.5 million net of tax) for the year ended December 31, 2014  and 2013, respectively, is included in selling, general and administrative expense.

⁽⁴⁾Transaction and integration costs include those costs directly related to the acquisition of Medco. 

Costs of $180.9 million ($112.6 million net of tax) and $100.4 million ($62.5 million net of tax) primarily composed of integration-related activities, are included in gross profit for the three months ended December 31, 2014 and 2013, respectively.  Costs of $462.3 million ($288.0 million net of tax) and $238.3 million ($146.6 million net of tax) primarily composed of integration-related activities, are included in gross profit for the year ended December 31, 2014 and 2013, respectively.

Costs of $201.6 million ($125.6 million net of tax) and $140.7 million ($88.3 million net of tax) primarily composed of professional fees, integration-related activities and severance costs, including stock compensation, are included in selling, general and administrative expense for the three months ended December 31, 2014 and 2013, respectively.  Costs of $614.4 million ($382.8 million net of tax) and $490.4 million ($301.7 million net of tax) primarily composed of professional fees, integration-related activities and severance costs, including stock compensation, are included in selling, general and administrative expense for the year ended December 31, 2014 and 2013, respectively.

The Company recorded a net benefit of $3.5 million ($2.1 million net of tax) within selling, general and administrative expenses for the year ended December 31, 2013 in conjunction with a final settlement related to the strategic decision to exit various businesses.

⁽⁵⁾Debt redemption costs, which includes write-off of deferred financing fees incurred for the early redemption of senior notes, totaled $75.9 million ($47.3 million net of tax) and $68.5 million ($42.1 million net of tax) is included in interest expense for the year ended December 31, 2014 and 2013, respectively.

⁽⁶⁾ Provision for income taxes includes discrete tax benefits for continuing operations of $68.3 million and $113.9 million for the three months and year ended December 31, 2014, primarily attributable to a change in estimate resulting in the recognition of tax benefits for a permanent deduction related to our domestic production activities, offset by charges related to interest on and changes in our unrecognized tax benefits.  Provision for income taxes includes discrete tax benefits for continuing operations of $80.9 million and $51.2 million for the three months and year ended December 31, 2013 primarily attributable to investments in certain foreign subsidiaries which the  Company recognized as a result of various divesture, deferred tax implications of newly enacted state laws and income not recognized for tax purposes. 

⁽⁷⁾Interest income includes a contractual interest payment received from a client of $11.6 million ($7.3 million net of tax) and $36.5 million ($22.5 million net of tax) for the three months and year ended December 31, 2013, respectively.