Express Scripts Announces Record 4th Quarter Adjusted EPS of $1.12; Reported EPS of $0.64

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

2013

Excluding

Table 6

Change excluding

2013

UNH

UNH

2014 Guidance Range

UNH in 2013

Adjusted claims

Table 1

1,478

(89)

1,389

1,300

to

1,360

-2%

to

-6%

Adjusted SG&A

Table 2

$       2,190

$       (10)

$        2,180

$       2,000

to

$    2,075

-5%

to

-8%

Adjusted EBITDA

Table 3

$       6,664

$     (263)

$        6,401

$       6,850

to

$    7,050

7%

to

10%

Adjusted EBITDA/Adj Rx

Table 3

$         4.51

$      2.94

$          4.61

$         5.15

to

$      5.25

12%

to

14%

Weighted diluted shares

822

822

755

to

765

-7%

to

-8%

Adjusted Earnings per share

Table 4

$         4.33

$   (0.20)

$          4.13

$         4.88

to

$      5.00

18%

to

21%

 EXPRESS SCRIPTS HOLDING COMPANY 

 Unaudited Consolidated Statement of Operations 

 Three Months Ended
December 31, 

 Year Ended
December 31, 

  (in millions, except per share data) 

2013

2012

2013

2012

Revenues^(*)

$  25,781.4

$   27,365.1

$104,098.8

$  93,714.3

Cost of revenues^(*)

23,720.4

25,067.4

95,966.4

86,402.4

    Gross profit 

2,061.0

2,297.7

8,132.4

7,311.9

Selling, general and administrative

1,232.2

1,390.8

4,580.7

4,518.0

Operating income

828.8

906.9

3,551.7

2,793.9

Other (expense) income:

    Equity income from joint venture 

9.7

5.5

32.8

14.9

    Interest income  

13.5

4.6

41.9

10.6

    Interest expense and other 

(125.7)

(157.4)

(596.1)

(619.0)

(102.5)

(147.3)

(521.4)

(593.5)

Income before income taxes

726.3

759.6

3,030.3

2,200.4

Provision for income taxes

208.0

235.5

1,104.0

838.0

Net income from continuing operations

518.3

524.1

1,926.3

1,362.4

Net loss from discontinued operations, net of tax

(12.3)

(13.1)

(53.6)

(32.3)

Net income

506.0

511.0

1,872.7

1,330.1

Less: Net income attributable to non-controlling interest

4.1

6.9

28.1

17.2

Net income attributable to Express Scripts

$       501.9

$        504.1

$    1,844.6

$    1,312.9

Weighted average number of common shares

 outstanding during the period: 

    Basic 

790.7

817.3

808.6

731.3

    Diluted 

802.6

832.4

821.6

747.3

Basic earnings (loss) per share:

     Continuing operations attributable to Express Scripts

$         0.65

$          0.63

$         2.35

$         1.84

     Discontinued operations attributable to Express Scripts

(0.02)

(0.02)

(0.07)

(0.04)

     Net earnings attributable to Express Scripts

0.63

0.62

2.28

1.80

Diluted earnings (loss) per share:

     Continuing operations attributable to Express Scripts

$         0.64

$          0.62

$         2.31

$         1.80

     Discontinued operations attributable to Express Scripts

(0.02)

(0.02)

(0.07)

(0.04)

     Net earnings attributable to Express Scripts

0.63

0.61

2.25

1.76

Amounts attributable to Express Scripts shareholders:

     Income from continuing operations, net of tax

$       514.2

$        517.2

$    1,898.2

$    1,345.2

     Discontinued operations, net of tax

(12.3)

(13.1)

(53.6)

(32.3)

     Net income attributable to Express Scripts shareholders

$       501.9

$        504.1

$    1,844.6

$    1,312.9

^(*) Includes retail pharmacy co-payments of $2,775.1 million and $3,304.0 million for the three months ended December 31, 2013 and 2012, respectively, and $12,620.3 million and $11,668.6 million for the year ended December 31, 2013 and 2012, respectively.

 EXPRESS SCRIPTS HOLDING COMPANY 

 Unaudited Consolidated Balance Sheet 

 December 31,  

   December 31, 

 (in millions) 

2013

2012

 Assets 

 Current assets: 

 Cash and cash equivalents 

$             1,991.4

$             2,793.1

 Restricted cash and investments 

22.8

19.6

 Receivables, net 

4,022.9

5,425.8

 Inventories 

1,871.1

1,652.1

 Deferred taxes 

455.4

400.6

 Prepaid expenses and other current assets 

96.8

194.3

 Current assets of discontinued operations 

31.0

271.4

    Total current assets 

8,491.4

10,756.9

 Property and equipment, net 

1,658.9

1,632.1

 Goodwill 

29,305.4

29,320.4

 Other intangible assets, net 

14,015.6

16,037.9

 Other assets 

76.9

56.1

 Noncurrent assets of discontinued operations 

-

307.8

    Total assets 

$           53,548.2

$           58,111.2

 Liabilities and Stockholders' Equity 

 Current liabilities: 

 Claims and rebates payable 

$             6,767.8

$             7,440.0

 Accounts payable 

2,900.0

2,898.9

 Accrued expenses 

1,982.2

1,632.9

 Current maturities of long-term debt 

1,584.0

934.9

 Current liabilities of discontinued operations 

1.3

150.7

    Total current liabilities 

13,235.3

13,057.4

 Long-term debt 

12,363.0

14,980.1

 Deferred taxes 

5,440.6

5,936.5

 Other liabilities 

664.4

692.9

 Noncurrent liabilities of discontinued operations 

0.1

48.6

    Total liabilities 

31,703.4

34,715.5

 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: 834.0 and 818.1, respectively; 

 shares outstanding: 773.6 and 818.1, respectively 

8.3

8.2

 Additional paid-in capital 

21,809.9

21,289.7

 Accumulated other comprehensive income 

11.7

18.9

 Retained earnings 

3,912.8

2,068.2

25,742.7

23,385.0

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

(3,905.3)

-

    Total Express Scripts stockholders' equity 

21,837.4

23,385.0

 Non-controlling interest 

7.4

10.7

    Total stockholders' equity 

21,844.8

23,395.7

    Total liabilities and stockholders' equity 

$           53,548.2

$           58,111.2

 EXPRESS SCRIPTS HOLDING COMPANY 

 Unaudited Consolidated Statement of Cash Flows 

 Year Ended
December 31, 

 (in millions) 

2013

2012

 Cash flows from operating activities: 

 Net income 

$            1,872.7

$            1,330.1

 Net loss from discontinued operations, net of tax 

53.6

32.3

      Net income from continuing operations 

1,926.3

1,362.4

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

 Depreciation and amortization 

2,447.0

1,871.4

 Deferred income taxes 

(573.7)

(389.0)

 Employee stock-based compensation expense 

164.7

410.0

 Other, net 

29.2

70.5

       Changes in operating assets and liabilities:  

     Accounts receivable 

1,254.0

345.7

     Inventories 

(218.9)

(515.0)

     Other current and noncurrent assets 

94.2

303.2

     Claims and rebates payable 

(672.2)

82.8

     Accounts payable 

15.9

963.1

     Other current and noncurrent liabilities 

302.4

246.0

 Net cash provided by operating activities - continuing operations 

4,768.9

4,751.1

 Net cash (used in) provided by operating activities - discontinued operations 

(11.4)

30.5

 Net cash flows provided by operating activities 

4,757.5

4,781.6

 Cash flows from investing activities: 

 Purchases of property and equipment 

(423.0)

(160.2)

 Proceeds from sale of business 

356.9

61.5

 Acquisitions, net of cash acquired 

(14.5)

(10,326.0)

 Other 

10.6

(4.0)

 Net cash used in investing activities - continuing operations 

(70.0)

(10,428.7)

 Acquisitions, cash acquired - discontinued operations 

-

42.4

 Net cash used in investing activities - discontinued operations 

(2.1)

(5.4)

 Net cash used in investing activities 

(72.1)

(10,391.7)

 Cash flows from financing activities: 

 Treasury stock acquired 

(4,055.2)

-

 Repayment of long-term debt 

(1,931.6)

(3,868.5)

 Net proceeds from employee stock plans 

466.0

326.0

 Excess tax benefit relating to employee stock-based compensation 

42.7

45.3

 Distributions paid to non-controlling interest 

(31.7)

(8.1)

 Proceeds from long-term debt, net of discounts 

-

7,458.9

 Repayment of revolving credit line, net 

-

(1,000.0)

 Proceeds from accounts receivable financing facility 

-

600.0

 Repayment of accounts receivable financing facility 

-

(600.0)

 Deferred financing fees 

-

(103.2)

 Other 

15.0

-

 Net cash (used in) provided by financing activities - continuing operations 

(5,494.8)

2,850.4

 Net cash used in financing activities - discontinued operations 

-

(26.8)

 Net cash (used in) provided by financing activities 

(5,494.8)

2,823.6

 Effect of foreign currency translation adjustment 

(5.7)

2.0

 Less cash decrease (increase) attributable to discontinued operations 

13.4

(42.5)

 Net decrease in cash and cash equivalents 

(801.7)

(2,827.0)

 Cash and cash equivalents at beginning of year 

2,793.1

5,620.1

 Cash and cash equivalents at end of year 

$            1,991.4

$            2,793.1

 Table 1 

  Express Scripts Holding Company Unaudited Consolidated Selected Information 

 (in millions) 

 Three Months Ended
December 31,  

 Year Ended
December 31,  

2013

2012

2013

2012

Claims Volume

Continuing operations:

Network

259.4

299.2

1,065.3

1,020.7

Home delivery and specialty⁽¹⁾

34.6

38.2

141.2

128.7

   Total claims 

294.0

337.4

1,206.5

1,149.4

Total adjusted claims - continuing operations⁽²⁾

360.7

410.7

1,478.0

1,395.3

 Depreciation and Amortization (D&A):  

 Revenue amortization⁽³⁾

$           28.5

$           28.5

$         114.0

$         114.0

 Cost of revenues depreciation 

30.8

31.5

119.5

104.2

 Selling, general and administrative depreciation 

86.6

58.3

309.3

178.8

 Selling, general and administrative amortization⁽³⁾

477.1

483.1

1,904.2

1,474.4

      Total D&A - continuing operations 

$         623.0

$         601.4

$      2,447.0

$      1,871.4

 Generic Fill Rate 

 Network 

81.7%

80.6%

81.6%

79.4%

 Home delivery 

75.1%

73.7%

74.6%

71.5%

 Overall 

80.9%

79.8%

80.8%

78.5%

 Note: See Appendix for Footnotes 

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,  

2013

2012

2013

2012

Gross profit, as reported

$      2,061.0

$      2,297.7

$      8,132.4

$      7,311.9

Amortization of intangible assets ⁽³⁾

28.5

28.5

114.0

114.0

Non-recurring transaction and integration costs ⁽⁴⁾

100.4

16.0

238.3

49.7

Adjusted gross profit

$      2,189.9

$      2,342.2

$      8,484.7

$      7,475.6

Selling, general and administrative, as reported

$      1,232.2

$      1,390.8

$      4,580.7

$      4,518.0

Amortization of intangible assets ⁽³⁾

477.1

483.1

1,904.2

1,474.4

Non-recurring transaction and integration costs ⁽⁴⁾

140.7

130.8

486.9

705.4

Adjusted selling, general and administrative

$         614.4

$         776.9

$      2,189.6

$      2,338.2

 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 non-recurring charges and amortization of intangible assets 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, and adjusted EBITDA from continuing operations attributable to Express Scripts per adjusted claim.  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,  

2013

2012

2013

2012

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

$         514.2

$         517.2

$      1,898.2

$      1,345.2

  Provision for income taxes

208.0

235.5

1,104.0

838.0

  Depreciation and amortization

623.0

601.4

2,447.0

1,871.4

  Interest expense, net

112.2

152.8

554.2

608.4

  Equity income from joint venture

(9.7)

(5.5)

(32.8)

(14.9)

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

1,447.7

1,501.4

5,970.6

4,648.1

Non-recurring transaction and integration costs ^(4)(*)

220.6

146.8

693.6

755.1

Adjusted EBITDA from continuing operations, attributable to Express Scripts

$      1,668.3

$      1,648.2

$      6,664.2

$      5,403.2

Total adjusted claims - continuing operations

360.7

410.7

1,478.0

1,395.3

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

$           4.63

$           4.01

$           4.51

$           3.87

 Note: See Appendix for Footnotes 

The Company is providing EBITDA and adjusted EBITDA from continuing operations attributable to Express Scripts excluding the impact of non-recurring charges (both of which are non-GAAP financial measures) in order to compare the underlying financial performance to prior periods.

EBITDA from continuing operations attributable to Express Scripts is earnings before other income (expense), interest, taxes, depreciation and amortization, or alternatively calculated as operating income from continuing operations plus depreciation and amortization less non-controlling interest.  EBITDA from continuing operations attributable to Express Scripts 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 attributable to Express Scripts, 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 attributable to Express Scripts may not be comparable to that used by other companies.

Adjusted EBITDA from continuing operations attributable to Express Scripts 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 attributable to Express Scripts excluding certain charges recorded each year, as these charges are not considered an indicator of ongoing company performance.  Adjusted EBITDA from continuing operations attributable to Express Scripts per adjusted claim is calculated by dividing adjusted EBITDA from continuing operations attributable to Express Scripts by the adjusted claim volume for the period.  This measure is used as an indicator of adjusted EBITDA attributable to Express Scripts performance on a per-unit basis.  Adjusted EBITDA from continuing operations attributable to Express Scripts, and as a result, adjusted EBITDA from continuing operations attributable to Express Scripts per adjusted claim, are each affected by the changes in claim volumes between network and home delivery and specialty, the relative representation of brand-name, generic and specialty pharmacy drugs, as well as the level of efficiency in the business.

 *  Non-recurring transaction and integration costs presented in this table exclude $20.5 million for the three months and $31.6 million for year ended December 31, 2013 related to depreciation which does not impact the calculation of EBITDA.  

 Table 4 

 Calculation of Express Scripts Holding Company Adjusted EPS from Continuing Operations 

 Three Months Ended
December 31,  

 Year Ended
December 31, 

2013

2012

2013

2012

 (per diluted share) 

EPS from continuing operations attributable to Express Scripts, as reported

$        0.64

$        0.62

$        2.31

$        1.80

Non-recurring items: 

Transaction and integration costs ⁽⁴⁾

0.19

0.11

0.55

0.61

Interest income⁽⁵⁾

(0.01)

-

(0.03)

-

Debt redemption costs ⁽⁶⁾

-

-

0.05

-

Pre-close financing costs ⁽⁷⁾

-

-

0.07

Discrete tax items ⁽⁸⁾

(0.10)

(0.06)

(0.06)

(0.01)

Amortization of intangible assets ⁽³⁾

0.40

0.38

1.51

1.28

EPS from continuing operations attributable to Express Scripts, adjusted

$        1.12

$        1.05

$        4.33

$        3.75

 Note: See Appendix for Footnotes 

The Company is providing EPS and adjusted EPS, which excludes the impact of certain non-recurring items and amortization of intangible assets (which is a non-GAAP financial measure) in order to compare the underlying financial performance to prior periods.

 Table 5 

 Calculation of Express Scripts Holding Company Adjusted Effective Income Tax Rate for Continuing Operations 

 (in millions) 

 Three Months Ended
December 31, 2013 

 Year Ended
December 31, 2013 

Income before income taxes

Provision for income taxes

Adjusted effective income tax rate

Income before income taxes

Provision for income taxes

Adjusted effective income tax rate

Income from continuing operations, as reported

726.3

208.0

3,030.3

1,104.0

Non-controlling interest

(4.1)

-

(28.1)

-

Total continuing  operations attributable to Express Scripts, as reported

722.2

208.0

3,002.2

1,104.0

Non-recurring items: 

Transaction and integration costs⁽⁴⁾

241.1

90.3

725.2

279.1

Interest income ⁽⁵⁾

(11.6)

(4.3)

(36.5)

(14.0)

Debt redemption costs⁽⁶⁾

-

-

68.5

26.4

Discrete tax items⁽⁸⁾

80.9

51.2

Amortization of intangible assets⁽³⁾

505.6

186.4

2,018.2

776.5

Total continuing operations attributable to Express Scripts, as adjusted

1,457.3

561.3

38.5%

5,777.6

2,223.2

38.5%

 Note: See Appendix for Footnotes. 

The Company is providing adjusted effective income tax rate for continuing operations attributable to Express Scripts excluding the impact of non-recurring items and amortization of intangible assets (which is a non-GAAP financial measure) in order to compare the underlying financial performance to prior periods.

Table 5A

Calculation of Express Scripts Holding Company Adjusted Effective Income Tax Rate for Continuing Operations

(in millions)

Three Months Ended
December 31, 2012

Year Ended
December 31, 2012

Income before income taxes

Provision for income taxes

Adjusted effective income tax rate

Income before income taxes

Provision for income taxes

Adjusted effective income tax rate

Income from continuing operations, as reported

759.6

235.5

2,200.4

838.0

Non-controlling interest

(6.9)

-

(17.2)

-

Total continuing operations attributable to Express Scripts, as reported

752.7

235.5

2,183.2

838.0

Non-recurring items:

Transaction and integration costs⁽⁴⁾

146.8

51.8

755.1

299.5

Pre-financing cost ⁽⁷⁾

85.2

32.9

Discrete tax items⁽⁸⁾

51.7

8.2

Amortization of intangible assets⁽³⁾

511.6

198.8

1,588.4

629.9

Total continuing operations attributable to Express Scripts, as adjusted

1,411.1

537.8

38.1%

4,611.9

1,808.5

39.2%

Note: See Appendix for Footnotes.

The Company is providing adjusted effective income tax rate for continuing operations attributable to Express Scripts excluding the impact of non-recurring items and amortization of intangible assets (which is a non-GAAP financial measure) in order to compare the underlying financial performance to prior periods.

 Table 6 

 Express Scripts Holding Company 2014 Guidance Information 

Estimated
Year Ending
December 31, 2014 

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

Adjusted EPS from continuing operations attributable to Express Scripts*

$4.88 to $5.00

Year over year growth

13%-15%

Total adjusted claims

1,300 to 1,360

Adjusted selling, general and administrative

$2,000 to $2,075

Depreciation

$400 to $420

Effective income tax rate on continuing operations

38.0% to 38.5%

Adjusted EBITDA

$6,850 to $7,050

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

$5.15 to $5.25

Diluted weighted average shares outstanding during the period

755 to 765

Cash flow from continuing operations

$4,700 to $5,300

Capital expenditures

$400 to $450

(*) GAAP items not included in guidance:

Amortization of intangible assets per diluted share ⁽⁹⁾

$1.60 to $1.64

Transaction, integration and other non-recurring costs⁽¹⁰⁾

To be determined

*The full-year impact of integration and other non-recurring costs have yet to be determined.  Accordingly, the Company is unable to include these charges in the list of GAAP items not included in guidance for 2014 adjusted EPS from continuing operations or to provide a reconciliation to the corresponding GAAP measure.

 Note: See Appendix for Footnotes 

 Table 7 

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

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

Q4 2012

Q4 2013

Adjusted

Excluding

Adjusted

Excluding

Q4 2013 Change

Q4 2012

UNH

UNH

Q4 2013

UNH

UNH

Adjusted

Excluding UNH

Adjusted claims

Table 1

410.7

(40.3)

370.4

360.7

(8.2)

352.5

-12%

-5%

Adjusted SG&A

Table 2

$     777

$     (3)

$      774

$     614

$     (2)

$      612

-21%

-21%

Adjusted EBITDA

Table 3

$  1,648

$   (96)

$   1,552

$  1,668

$   (29)

$   1,639

1%

6%

Adjusted EBITDA/Adj Rx

Table 3

$    4.01

$ 2.38

$     4.19

$    4.63

$ 3.52

$     4.65

15%

11%

Adjusted Net Income

Table 5

$     873

$   (59)

$      814

$     896

$   (18)

$      878

3%

8%

Adjusted Earnings per share

Table 4

$    1.05

$(0.07)

$     0.98

$    1.12

$(0.02)

$     1.10

7%

12%

2012

2013

Adjusted

Excluding

Adjusted

Excluding

2013 Change

2012

UNH

UNH

2013

UNH

UNH

Adjusted

Adjusted claims

Table 1

1,395.3

(118.0)

1,277.3

1,478.0

(89.4)

1,388.6

6%

9%

Adjusted SG&A

Table 2

$  2,338

$     (9)

$   2,329

$  2,190

$   (10)

$   2,180

-6%

-6%

Adjusted EBITDA

Table 3

$  5,403

$ (267)

$   5,136

$  6,664

$ (263)

$   6,401

23%

25%

Adjusted EBITDA/Adj Rx

Table 3

$    3.87

$ 2.27

$     4.02

$    4.51

$ 2.94

$     4.61

17%

15%

Adjusted Net Income

Table 5

$  2,803

$ (163)

$   2,641

$  3,554

$ (162)

$   3,393

27%

28%

Adjusted Earnings per share

Table 4

$    3.75

$(0.22)

$     3.53

$    4.33

$(0.20)

$     4.13

15.5%

17%

 Table 8 

 Express Scripts Holding Company - UnitedHealth Group 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/Adj Rx

$    2.51

$    3.10

$      3.36

$   3.52

$  2.94

Adjusted Net Income

$       57

$      54

$        33

$      18

$   162

Adjusted Earnings per share

$    0.07

$    0.06

$      0.04

$   0.02

$  0.20

 Appendix 

 Footnotes 

⁽¹⁾ Includes home delivery, specialty and other including:  (a) drugs distributed through patient assistance programs (b) drugs we distribute to other PBMs' clients 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 WellPoint which consummated upon closing of the NextRx acquisition in 2009.  Under U.S. GAAP standards, amortization of intangibles that arise in connection with consideration given to a customer by a vendor is characterized as a reduction of revenues.  Intangible amortization of $28.5 million ($18.0 million and $17.1 million net of tax in 2013 and 2012, respectively) is included as a reduction to revenue for the three months ended December 31, 2013 and 2012.   Intangible amortization of $114.0 million ($70.1 million and $68.8 million net of tax in 2013 and 2012, respectively) is included as a reduction to revenue for the year ended December 31, 2013 and 2012.

Other legacy Express Scripts intangible amortization of $10.2 million ($6.5 million and $6.1 million net of tax in 2013 and 2012, respectively) is included in selling, general and administrative expense for the three months ended December 31, 2013 and 2012, respectively.  Other legacy Express Scripts intangible amortization of $40.7 million ($25.1 million and $24.5 million net of tax in 2013 and 2012, respectively) is included in selling, general and administrative expense for the year ended December 31, 2013 and 2012, respectively. 

Amortization of intangible assets related to the acquisition of Medco Health Solutions, Inc. ("Medco") of $466.9million ($294.7 million net of tax) and $472.9 million ($289.6 million net of tax) for the three months ended December 31, 2013  and 2012, respectively, is included in selling, general and administrative expense. Amortization of intangible assets related to the acquisition of Medco of $1,863.5 million ($1,146.5 million net of tax) and $1,433.7 million ($865.2 million net of tax) for the year ended December 31, 2013 and 2012, respectively, is included in selling, general and administrative expense.

⁽⁴⁾ Non-recurring transaction and integration costs include those costs directly related to the acquisition of Medco.

Costs of $100.4 million ($62.5 million net of tax) and $16.0 million ($10.4 million net of tax) primarily composed of integration-related activities, are included in gross profit for the three months ended December 31, 2013 and 2012, respectively.  Costs of $238.3 million ($146.6 million net of tax) and $49.7 million ($30.0 million net of tax) primarily composed of integration-related activities, are included in gross profit for the year ended December 31, 2013 and 2012, respectively. 

Costs of $140.7 million ($88.3 million net of tax) and $131.3 million ($85.0 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, 2013 and 2012, respectively.  Costs of $490.4 million ($301.7 million net of tax) and $697.2 million ($420.7 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, 2013 and 2012, respectively.

The Company recorded a net benefit of $3.5 million ($2.2 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.

The Company recorded a net benefit of $0.5 million ($0.4 million net of tax) and net charges of $8.2 million ($4.9 million net of tax) within selling, general and administrative expenses for the three months and year ended December 31, 2012 in conjunction with the strategic decision to exit various businesses.  

⁽⁵⁾ 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. 

⁽⁶⁾ Debt redemption costs and write-off of deferred financing fees incurred for the early redemption of senior notes totaled $68.5 million ($42.1 million net of tax) and is included in interest expense for the year ended December 31, 2013. 

⁽⁷⁾ Financing costs include fees related to the amortization of fees relating to the August 2011 bridge loan, commitment fees related to the August 2011 credit agreement and interest and fees on the senior notes issued in conjunction with the acquisition of Medco.  Costs of $85.2 million ($52.3 million net of tax) are included in interest expense for the year ended December 31, 2012.    

(8) 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 for which the Company recognized as a result of various divestitures, deferred tax implications of newly enacted state laws and income not includible for tax purposes.  Provision for income taxes includes discrete tax benefits of $51.7 million and $8.2 million for the three months and year ended December 31, 2012 primarily attributable to an income tax contingency related to prior year income tax return filings and investments in certain foreign subsidiaries which the  Company expected to realize in the foreseeable future. 

⁽⁹⁾ 2014 Adjusted EPS will exclude amortization of intangible assets.  

⁽¹⁰⁾ 2014 Adjusted EPS will exclude integration and other non-recurring costs, which are expected to end in the second half of 2014. The full-year impact of these costs have yet to be determined.