10-Q 1 esrx-03312014x10q.htm 10-Q ESRX - 03.31.2014 - 10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended March 31, 2014.
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from ____________ to _____________.
Commission File Number: 1-35490
 
 
EXPRESS SCRIPTS HOLDING COMPANY
(Exact name of registrant as specified in its charter)
 
 
Delaware
 
45-2884094
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
One Express Way, St. Louis, MO
 
63121
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (314) 996-0900
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý  No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
 
ý
 
Accelerated filer
 
¨
 
 
 
 
 
 
 
Non-accelerated filer
 
¨ (Do not check if a smaller reporting company)
 
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No ý
 
Common stock outstanding as of March 31, 2014:
 
773,580,000

 
Shares



EXPRESS SCRIPTS HOLDING COMPANY
INDEX
 
 
 
 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 

 

 

 
 

 
Item 1A.
Risk Factors – (Not Applicable)

 

 
Item 3.
Defaults Upon Senior Securities – (Not Applicable)

 
Item 4.
Mine Safety Disclosures – (Not Applicable)

 
Item 5.
Other Information – (Not Applicable)

 

 
 
 

 
 
 



2


PART I. FINANCIAL INFORMATION
 
Item 1.
Financial Statements
EXPRESS SCRIPTS HOLDING COMPANY
Unaudited Consolidated Balance Sheet
(in millions)
March 31, 2014
 
December 31, 2013
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,850.4

 
$
1,991.4

Restricted cash and investments
20.5

 
22.8

Receivables, net
3,907.3

 
4,022.9

Inventories
1,727.3

 
1,871.1

Deferred taxes
528.8

 
455.4

Prepaid expenses and other current assets
100.1

 
96.8

Current assets of discontinued operations

 
31.0

Total current assets
8,134.4

 
8,491.4

Property and equipment, net
1,659.4

 
1,658.9

Goodwill
29,304.6

 
29,305.4

Other intangible assets, net
13,570.7

 
14,015.6

Other assets
78.0

 
76.9

Total assets
$
52,747.1

 
$
53,548.2

 
 
 
 
Liabilities and stockholders’ equity
 
 
 
Current liabilities:
 
 
 
Claims and rebates payable
$
6,348.9

 
$
6,767.8

Accounts payable
2,830.4

 
2,900.0

Accrued expenses
1,760.4

 
1,982.2

Current maturities of long-term debt
2,635.2

 
1,584.0

Current liabilities of discontinued operations

 
1.3

Total current liabilities
13,574.9

 
13,235.3

Long-term debt
11,145.1

 
12,363.0

Deferred taxes
5,470.8

 
5,440.6

Other liabilities
671.0

 
664.4

Noncurrent liabilities of discontinued operations

 
0.1

Total liabilities
30,861.8

 
31,703.4

Commitments and contingencies (Note 9)


 


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; shares issued: 842.0 and 834.0, respectively; shares outstanding: 773.6 and 773.6, respectively
8.4

 
8.3

Additional paid-in capital
22,138.9

 
21,809.9

Accumulated other comprehensive income
9.4

 
11.7

Retained earnings
4,241.1

 
3,912.8

 
26,397.8

 
25,742.7

Common stock in treasury at cost, 68.4 and 60.4 shares, respectively
(4,523.5
)
 
(3,905.3
)
Total Express Scripts stockholders’ equity
21,874.3

 
21,837.4

Non-controlling interest
11.0

 
7.4

Total stockholders’ equity
21,885.3

 
21,844.8

Total liabilities and stockholders’ equity
$
52,747.1

 
$
53,548.2

See accompanying Notes to Unaudited Consolidated Financial Statements

3


EXPRESS SCRIPTS HOLDING COMPANY
Unaudited Consolidated Statement of Operations
 
Three Months Ended March 31,
(in millions, except per share data)
2014
 
2013
Revenues(1)
$
23,685.0

 
$
26,019.9

Cost of revenues(1)
21,934.6

 
24,057.8

Gross profit
1,750.4

 
1,962.1

Selling, general and administrative
1,041.2

 
1,119.0

Operating income
709.2

 
843.1

Other (expense) income:
 
 
 
Equity income from joint venture
1.7

 
9.8

Interest income
9.4

 
1.6

Interest expense and other
(124.5
)
 
(215.4
)
 
(113.4
)
 
(204.0
)
Income before income taxes
595.8

 
639.1

Provision for income taxes
261.3

 
259.1

Net income from continuing operations
334.5

 
380.0

Net loss from discontinued operations, net of tax

 
(1.9
)
Net income
334.5

 
378.1

Less: Net income attributable to non-controlling interest
6.2

 
5.1

Net income attributable to Express Scripts
$
328.3

 
$
373.0

 
 
 
 
Weighted-average number of common shares outstanding during the period:
 
 
 
Basic
775.4

 
818.7

Diluted
786.4

 
832.5

Basic earnings per share:
 
 
 
Continuing operations attributable to Express Scripts
$
0.42

 
$
0.46

Discontinued operations attributable to Express Scripts

 

Net earnings attributable to Express Scripts
$
0.42

 
$
0.46

Diluted earnings per share:
 
 
 
Continuing operations attributable to Express Scripts
$
0.42

 
$
0.45

Discontinued operations attributable to Express Scripts

 

Net earnings attributable to Express Scripts
$
0.42

 
$
0.45

Amounts attributable to Express Scripts shareholders:
 
 
 
Income from continuing operations, net of tax
$
328.3

 
$
374.9

Discontinued operations, net of tax

 
(1.9
)
Net income attributable to Express Scripts shareholders
$
328.3

 
$
373.0

1
Includes retail pharmacy co-payments of $2,897.9 and $3,674.4 for the three months ended March 31, 2014 and 2013, respectively.
See accompanying Notes to Unaudited Consolidated Financial Statements


4


EXPRESS SCRIPTS HOLDING COMPANY
Unaudited Consolidated Statement of Comprehensive Income
 
Three Months Ended March 31,
(in millions)
2014
 
2013
Net income
$
334.5

 
$
378.1

Other comprehensive loss:
 
 
 
Foreign currency translation adjustment
(2.3
)
 
(2.1
)
Comprehensive income
332.2

 
376.0

Less: Comprehensive income attributable to non-controlling interests
6.2

 
5.1

Comprehensive income attributable to Express Scripts
$
326.0

 
$
370.9

See accompanying Notes to Unaudited Consolidated Financial Statements


5


EXPRESS SCRIPTS HOLDING COMPANY
Unaudited Consolidated Statement of Changes in Stockholders’ Equity
 
Number
of Shares
 
Amount
(in millions)
Common
Stock
 
Common
Stock
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Income
 
Retained
Earnings
 
Treasury
Stock
 
Non-
controlling
Interest
 
Total
Balance at December 31, 2013
834.0

 
$
8.3

 
$
21,809.9

 
$
11.7

 
$
3,912.8

 
$
(3,905.3
)
 
$
7.4

 
$
21,844.8

Net income

 

 

 

 
328.3

 

 
6.2

 
334.5

Other comprehensive loss

 

 

 
(2.3
)
 

 

 

 
(2.3
)
Treasury stock acquired

 

 

 

 

 
(618.2
)
 

 
(618.2
)
Changes in stockholders’ equity related to employee stock plans
8.0

 
0.1

 
329.0

 

 

 

 

 
329.1

Distributions to non-controlling interest

 

 

 

 

 

 
(2.6
)
 
(2.6
)
Balance at March 31, 2014
842.0

 
$
8.4

 
$
22,138.9

 
$
9.4

 
$
4,241.1

 
$
(4,523.5
)
 
$
11.0

 
$
21,885.3

See accompanying Notes to Unaudited Consolidated Financial Statements


6


EXPRESS SCRIPTS HOLDING COMPANY
Unaudited Consolidated Statement of Cash Flows
 
Three Months Ended March 31,
(in millions)
2014
 
2013
Cash flows from operating activities:
 
 
 
Net income
$
334.5

 
$
378.1

Net loss from discontinued operations, net of tax

 
1.9

Net income from continuing operations
334.5

 
380.0

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
553.1

 
600.3

Deferred income taxes
(35.7
)
 
(138.7
)
Employee stock-based compensation expense
28.0

 
52.3

Other, net
(40.1
)
 
(2.0
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
124.6

 
1,173.7

Inventories
143.8

 
4.6

Other current and noncurrent assets
(2.6
)
 
9.7

Claims and rebates payable
(418.9
)
 
(794.3
)
Accounts payable
(58.0
)
 
(332.1
)
Other current and noncurrent liabilities
(174.7
)
 
10.5

Net cash provided by operating activities - continuing operations
454.0

 
964.0

Net cash used in operating activities - discontinued operations

 
(0.6
)
Net cash flows provided by operating activities
454.0

 
963.4

Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(117.1
)
 
(108.8
)
Other
2.0

 
(4.4
)
Net cash used in investing activities - continuing operations
(115.1
)
 
(113.2
)
Net cash used in investing activities - discontinued operations

 
(0.7
)
Net cash used in investing activities
(115.1
)
 
(113.9
)
Cash flows from financing activities:
 
 
 
Treasury stock acquired
(618.2
)
 
(300.0
)
Repayment of long-term debt
(158.0
)
 
(1,457.9
)
Net proceeds from employee stock plans
250.3

 
105.9

Excess tax benefit relating to employee stock compensation
52.9

 
2.2

Distributions paid to non-controlling interest

 
(4.3
)
Other
(4.4
)
 
2.0

Net cash used in financing activities
(477.4
)
 
(1,652.1
)
Effect of foreign currency translation adjustment
(2.5
)
 
(1.5
)
Less: cash increase attributable to discontinued operations

 
0.5

Net decrease in cash and cash equivalents
(141.0
)
 
(803.6
)
Cash and cash equivalents at beginning of period
1,991.4

 
2,793.1

Cash and cash equivalents at end of period
$
1,850.4

 
$
1,989.5

See accompanying Notes to Unaudited Consolidated Financial Statements

7


EXPRESS SCRIPTS HOLDING COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of significant accounting policies
On April 2, 2012, Express Scripts, Inc. (“ESI”) consummated a merger (the “Merger”) with Medco Health Solutions, Inc. (“Medco”) and both ESI and Medco became wholly-owned subsidiaries of Express Scripts Holding Company (the “Company” or “Express Scripts”). “We,” “our” or “us” refers to Express Scripts Holding Company and its subsidiaries.
Our significant accounting policies, normally included in financial statements prepared in conformity with generally accepted accounting principles, have been omitted from this Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Express Scripts believes the disclosures contained in this Form 10-Q are adequate to fairly state the information when read in conjunction with the Notes to the Consolidated Financial Statements included in Express Scripts’ Annual Report on Form 10-K for the year ended December 31, 2013. For a full description of our accounting policies, refer to the Notes to the Consolidated Financial Statements included in Express Scripts’ Annual Report on Form 10-K for the year ended December 31, 2013.
We believe the accompanying unaudited consolidated financial statements reflect all adjustments (consisting of only normal recurring adjustments) necessary to state fairly the unaudited consolidated balance sheet as of March 31, 2014 and the consolidated balance sheet as of December 31, 2013, unaudited consolidated statement of operations and unaudited consolidated statement of comprehensive income for the three months ended March 31, 2014 and 2013, the unaudited consolidated statement of changes in stockholders’ equity for the three months ended March 31, 2014, and the unaudited consolidated statement of cash flows for the three months ended March 31, 2014 and 2013. Certain amounts in the prior year have been reclassified to conform to the current year presentation. Operating results for the three months ended March 31, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.
Discontinued Operations. During 2012, we determined that various businesses acquired in the Merger were no longer core to our future operations and committed to a plan to dispose of these businesses. In the third quarter of 2013, we entered into an agreement for the sale of our acute infusion therapies line of business, which was included within our pharmacy benefit management (“PBM”) segment. As a result, these businesses are classified as discontinued operations. In accordance with applicable accounting guidance, the results of operations for these entities are reported as discontinued operations for all periods presented in the accompanying consolidated statement of operations. Additionally, for all periods presented, assets and liabilities of the discontinued operations are segregated in the accompanying consolidated balance sheet and cash flows of our discontinued operations are segregated in our accompanying consolidated statement of cash flows (see Note 3 - Dispositions).
New Accounting Guidance. In April 2014, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance containing changes to the criteria for determining which disposals can be presented as discontinued operations and modifying related disclosure requirements. This statement is effective for financial statements issued for annual periods beginning after December 15, 2014. Adoption of the standard is not expected to have a material impact our financial position, results of operations, or cash flows.
Note 2 - Fair value measurements
Accounting guidance regarding fair value measurement establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than quoted prices for similar assets and liabilities in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.
Financial assets accounted for at fair value on a recurring basis include cash equivalents of $685.1 million and $845.2 million, restricted cash and investments of $20.5 million and $22.8 million, and trading securities (included in other assets) of $19.0 million and $18.7 million, at March 31, 2014 and December 31, 2013, respectively. These assets are carried at fair value based on quoted prices in active markets for identical securities (Level 1 inputs). Cash equivalents include investments in AAA-rated money market mutual funds with maturities of less than 90 days.

8


The carrying value of cash and cash equivalents (Level 1), restricted cash and investments (Level 1), accounts receivable, claims and rebates payable, and accounts payable approximated fair values due to the short-term maturities of these instruments. The fair value, which approximates the carrying value, of our bank credit facility (Level 2) was estimated using the current rates offered to us for debt with similar maturities. The carrying values and the fair values of our senior notes are shown, net of unamortized discounts and premiums, in the following table: 
 
March 31, 2014
 
December 31, 2013
(in millions)
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
March 2008 Senior Notes
 
 
 
 
 
 
 
7.125% senior notes due 2018
$
1,368.6

 
$
1,423.3

 
$
1,378.5

 
$
1,420.4

 
 
 
 
 
 
 
 
June 2009 Senior Notes
 
 
 
 
 
 
 
7.250% senior notes due 2019
498.0

 
609.0

 
497.9

 
607.8

 
 
 
 
 
 
 
 
September 2010 Senior Notes
 
 
 
 
 
 
 
2.750% senior notes due 2015
505.9

 
513.5

 
506.9

 
514.9

4.125% senior notes due 2020
506.5

 
527.8

 
506.8

 
519.7

 
1,012.4

 
1,041.3

 
1,013.7

 
1,034.6

May 2011 Senior Notes
 
 
 
 
 
 
 
3.125% senior notes due 2016
1,497.3

 
1,567.7

 
1,497.0

 
1,566.2

 
 
 
 
 
 
 
 
November 2011 Senior Notes
 
 
 
 
 
 
 
3.500% senior notes due 2016
1,249.8

 
1,325.1

 
1,249.8

 
1,324.4

4.750% senior notes due 2021
1,241.4

 
1,360.0

 
1,241.2

 
1,325.4

2.750% senior notes due 2014
899.8

 
913.0

 
899.7

 
917.1

6.125% senior notes due 2041
698.5

 
831.0

 
698.4

 
801.0

 
4,089.5

 
4,429.1

 
4,089.1

 
4,367.9

February 2012 Senior Notes
 
 
 
 
 
 
 
2.650% senior notes due 2017
1,491.4

 
1,553.0

 
1,490.7

 
1,548.0

2.100% senior notes due 2015
998.6

 
1,013.0

 
998.1

 
1,014.4

3.900% senior notes due 2022
982.4

 
1,029.0

 
981.9

 
1,003.4

 
3,472.4

 
3,595.0

 
3,470.7

 
3,565.8

Total
$
11,938.2

 
$
12,665.4

 
$
11,946.9

 
$
12,562.7

The fair values of our senior notes were estimated based on observable market information (Level 2 inputs). In determining the fair value of liabilities, we took into consideration the risk of nonperformance. Nonperformance risk refers to the risk that the obligation will not be fulfilled and affects the value at which the liability would be transferred to a market participant. This risk did not have a material impact on the fair value of our liabilities.
Note 3 - Dispositions
Sale of portions of UBC. On August 15, 2013, we completed the sale of the portion of our United BioSource LLC (“UBC”) business related to specialty services for pre-market trials located in Wayne, Pennsylvania. On July 1, 2013, we completed the sale of the portion of our UBC business related to providing health economics, outcomes research, data analytics and market access services located in Bethesda, Maryland. On June 7, 2013, we completed the sale of the portion of our UBC business which primarily provided technology solutions and publications for biopharmaceutical companies located in Horsham, United Kingdom. Our disposed UBC operations were included within our Other Business Operations segment before being classified as discontinued operations as of December 31, 2012.
Sale of our acute infusion therapies line of business. On November 1, 2013, we completed the sale of our acute infusion therapies line of business, which was included within our PBM segment before being classified as a discontinued operation as of September 30, 2013.

9


Disposition of Europe. During the fourth quarter of 2012, we determined that our operations in Europe, which were included within our Other Business Operations segment, were not core to our future operations and committed to a plan to dispose of this business. As a result, this business was classified as discontinued as of December 31, 2012. Our European operations primarily consisted of clinical and specialty pharmacy management services. As of March 31, 2014, our European operations are substantially shut down.
The results of the disposed portions of UBC, as defined above, our European operations and our acute infusion therapies line of business are reported as discontinued operations in the accompanying unaudited consolidated statements of operations for the three months ended March 31, 2013. Additionally cash flows of our discontinued operations are segregated in our accompanying unaudited consolidated statements of cash flows for the three months ended March 31, 2013. Finally, assets and liabilities of these businesses held were segregated in our accompanying consolidated balance sheet as of December 31, 2013. As of December 31, 2013, total assets of discontinued operations were $31.0 million and total liabilities of discontinued operations were $1.4 million. There were no assets or liabilities of discontinued operations as of March 31, 2014.
Certain information with respect to the discontinued operations, as defined above, for the three months ended March 31, 2013 is summarized below. There were no discontinued operations for the three months ended March 31, 2014.
(in millions)
March 31,
2013
Revenues
$
165.4

Operating loss
(1.9
)
Income tax expense from discontinued operations

Net loss from discontinued operations, net of tax
(1.9
)
Note 4 - Goodwill and other intangible assets
The following is a summary of our goodwill and other intangible assets for our two reportable segments: PBM and Other Business Operations.
 
March 31, 2014
 
December 31, 2013
(in millions)
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Goodwill
 
 
 
 
 
 
 
 
 
 
 
PBM
$
29,314.4

 
$
(107.2
)
 
$
29,207.2

 
$
29,315.4

 
$
(107.4
)
 
$
29,208.0

Other Business Operations
97.4

 

 
97.4

 
97.4

 

 
97.4

 
$
29,411.8

 
$
(107.2
)
 
$
29,304.6

 
$
29,412.8

 
$
(107.4
)
 
$
29,305.4

Other intangible assets
 
 
 
 
 
 
 
 
 
 
 
PBM
 
 
 
 
 
 
 
 
 
 
 
Customer contracts(1)
$
17,571.9

 
$
(4,324.9
)
 
$
13,247.0

 
$
17,602.3

 
$
(3,926.2
)
 
$
13,676.1

Trade names
226.6

 
(44.6
)
 
182.0

 
226.6

 
(39.0
)
 
187.6

Miscellaneous
111.6

 
(52.3
)
 
59.3

 
111.6

 
(47.4
)
 
64.2

 
17,910.1

 
(4,421.8
)
 
13,488.3

 
17,940.5

 
(4,012.6
)
 
13,927.9

Other Business Operations
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
127.3

 
(73.5
)
 
53.8

 
127.3

 
(69.2
)
 
58.1

Trade names
35.8

 
(7.2
)
 
28.6

 
35.8

 
(6.2
)
 
29.6

 
163.1

 
(80.7
)
 
82.4

 
163.1

 
(75.4
)
 
87.7

Total other intangible assets
$
18,073.2

 
$
(4,502.5
)
 
$
13,570.7

 
$
18,103.6

 
$
(4,088.0
)
 
$
14,015.6

(1)
PBM customer contracts balance as of March 31, 2014 reflects a decrease of $2.2 million due to the finalization of the purchase price related to the SmartD asset acquisition, as discussed below. Changes in gross PBM customer contracts and related accumulated amortization also reflect a decrease of $28.0 million related to the write-off of a fully amortized asset.

Our PBM gross customer contract balance as of December 31, 2013 includes $14.5 million related to our asset acquisition of the SmartD Medicare Prescription Drug Plan (“PDP”) on September 1, 2013. During the first quarter of 2014, we finalized the purchase price related to the customer contract, resulting in a reduction of the asset value by $2.2 million.

10


The aggregate amount of amortization expense of other intangible assets for our continuing operations was $442.6 million and $507.6 million for the three months ended March 31, 2014 and 2013, respectively. In accordance with applicable accounting guidance, amortization for customer contracts related to our agreement to provide PBM services to members of the affiliated health plans of WellPoint has been included as an offset to revenues in the amount of $28.5 million for the three months ended March 31, 2014 and 2013. The aggregate amount of amortization expense of other intangible assets for our continuing operations is expected to be approximately $1,767.0 million for 2014, $1,746.5 million for 2015, $1,740.2 million for 2016, $1,321.8 million for 2017 and $1,311.1 million for 2018. The weighted-average amortization period of intangible assets subject to amortization is 16 years, and by major intangible asset class is 5 to 20 years for customer-related intangible assets and 2 to 30 years for other intangible assets.
A summary of the change in the net carrying value of goodwill by business segment is shown in the following table: 
(in millions)
PBM
 
Other Business Operations
 
Total
Balance at December 31, 2013
$
29,208.0

 
$
97.4

 
$
29,305.4

Foreign currency translation
(0.8
)
 

 
(0.8
)
Balance at March 31, 2014
$
29,207.2

 
$
97.4

 
$
29,304.6

Note 5 - 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. The following is the reconciliation between the number of weighted average shares used in the basic and diluted EPS calculations for all periods:
 
Three Months Ended March 31,
(in millions)
2014(1)
 
2013
Weighted-average number of common shares outstanding during the period—Basic
775.4

 
818.7

Dilutive common stock equivalents:(2)
 
 
 
Outstanding stock options, “stock-settled” stock appreciation rights, restricted stock units and executive deferred compensation units
11.0

 
13.8

Weighted-average number of common shares outstanding during the period—Diluted(3)
786.4

 
832.5

(1)
The decrease in the weighted-average number of common shares outstanding for the three months ended March 31, 2014 used for both Basic and Diluted EPS is primarily due to a total of 68.4 million shares held in treasury for the three months ended March 31, 2014 as compared to 5.1 million shares held in treasury for the three months ended March 31, 2013.
(2)
Dilutive common stock equivalents exclude the 0.6 million shares that we would receive if the ASR Agreement (discussed in Note 7 - Common stock) was settled as of March 31, 2014. These were excluded because their effect was anti-dilutive.
(3)
Excludes awards of 1.0 million and 6.6 million for the three months ended March 31, 2014 and 2013, respectively. These were excluded because their effect was anti-dilutive.

11


Note 6 - Financing
Our total debt, net of unamortized discounts and premiums, consists of: 
(in millions)
March 31,
2014
 
December 31,
2013
Long-term debt:
 
 
 
March 2008 Senior Notes
 
 
 
7.125% senior notes due 2018
$
1,368.6

 
$
1,378.5

 
 
 
 
June 2009 Senior Notes
 
 
 
7.250% senior notes due 2019
498.0

 
497.9

 
 
 
 
September 2010 Senior Notes
 
 
 
2.750% senior notes due 2015
505.9

 
506.9

4.125% senior notes due 2020
506.5

 
506.8

 
1,012.4

 
1,013.7

May 2011 Senior Notes
 
 
 
3.125% senior notes due 2016
1,497.3

 
1,497.0

 
 
 
 
November 2011 Senior Notes
 
 
 
3.500% senior notes due 2016
1,249.8

 
1,249.8

4.750% senior notes due 2021
1,241.4

 
1,241.2

2.750% senior notes due 2014
899.8

 
899.7

6.125% senior notes due 2041
698.5

 
698.4

 
4,089.5

 
4,089.1

February 2012 Senior Notes
 
 
 
2.650% senior notes due 2017
1,491.4

 
1,490.7

2.100% senior notes due 2015
998.6

 
998.1

3.900% senior notes due 2022
982.4

 
981.9

 
3,472.4

 
3,470.7

Term facility due August 29, 2016 with an average interest rate of 1.87% at March 31, 2014 and 1.92% at December 31, 2013
1,842.1

 
2,000.0

Other

 
0.1

Total debt
13,780.3

 
13,947.0

Less: Current maturities of long-term debt
2,635.2

 
1,584.0

Total long-term debt
$
11,145.1

 
$
12,363.0

BANK CREDIT FACILITIES
On August 29, 2011, ESI entered into a credit agreement (the “credit agreement”) with a commercial bank syndicate providing for a five-year $4,000.0 million term loan facility (the “term facility”) and a $1,500.0 million revolving loan facility (the “revolving facility”). The term facility was used to pay a portion of the cash consideration in connection with the Merger, to repay existing indebtedness and to pay related fees and expenses. Upon consummation of the Merger, Express Scripts assumed the obligations of ESI and became the borrower under the credit agreement and revolving facility. Subsequent to consummation of the Merger on April 2, 2012, the revolving facility has been available for general corporate purposes. The term facility and the revolving facility both mature on August 29, 2016. As of March 31, 2014, no amounts were drawn under the revolving facility. We make quarterly principal payments on the term facility. As of March 31, 2014, $736.8 million of this facility was considered current maturities of long-term debt.

12


The credit agreement requires interest to be paid at the LIBOR or adjusted base rate options, plus a margin. The margin over LIBOR ranges from 1.25% to 1.75% for the term facility and 1.10% to 1.55% for the revolving facility, and the margin over the base rate options ranges from 0.25% to 0.75% for the term facility and 0.10% to 0.55% for the revolving facility, depending on our consolidated leverage ratio. Under the credit agreement, we are required to pay commitment fees on the unused portion of the $1,500.0 million revolving facility. The commitment fee ranges from 0.15% to 0.20% depending on our consolidated leverage ratio.
COVENANTS
Our bank financing arrangements and senior notes contain customary covenants that restrict our ability to incur additional indebtedness, create or permit liens on assets and engage in mergers or consolidations. The covenants related to bank financing arrangements also include, among others, minimum interest coverage ratios and maximum leverage ratios. The March 2008 Senior Notes are also subject to an interest rate adjustment in the event of a downgrade in the ratings to below investment grade. At March 31, 2014, we believe we were in compliance with all covenants associated with our debt instruments, including the credit agreement and our senior notes.
Note 7 - Common stock
On December 9, 2013, as part of our Share Repurchase Program discussed below, we entered into an agreement to repurchase shares of our common stock for an aggregate purchase price of $1,500.0 million (the “ASR Program”) under an Accelerated Share Repurchase agreement (the “ASR Agreement”). Under the terms of the ASR Agreement, upon payment of the purchase price, we received an initial delivery of 20.1 million shares of our common stock at a price of $67.16 per share, which represents, based on the closing share price of our common stock on NASDAQ on December 9, 2013, approximately 90% of the $1,500.0 million amount of the ASR Program. The final purchase price per share (the “forward price”) and the final number of shares received is determined using the arithmetic mean of the daily volume-weighted average price of the Company’s common stock (the “VWAP”) over the term of the ASR Program less a discount granted under the ASR Agreement. The ASR Program was completed on April 16, 2014. See Note 12 - Subsequent event for additional details.
Under the terms of the ASR Agreement, upon settlement of the ASR Program we would receive additional shares, including for the remaining 10% of the $1,500.0 million amount of the ASR Program, or we would be required to pay additional cash for the initial shares received or re-deliver shares (at our option), based on the forward price beginning after the effective date of the ASR Agreement and ending on or about May 5, 2014, subject to the right of the investment bank to accelerate settlement of the ASR Agreement. As mentioned above, the investment bank exercised their right to accelerate and settled the ASR Agreement.
Under the terms of the ASR Agreement, we could have been required to deliver a maximum of 44.7 million shares. If the ASR Program had been settled as of March 31, 2014, based on the VWAP since the effective date of the agreement, the investment bank would have been required to deliver an additional 0.6 million shares to us. These shares are not included in the calculation of diluted weighted-average common shares outstanding during the three months ended March 31, 2014 because their effect was anti-dilutive.
The ASR Agreement was accounted for as an initial treasury stock transaction and a forward stock purchase contract. We recorded this transaction as an increase to treasury stock of $1,350.1 million, and recorded the remaining $149.9 million as a decrease to additional paid-in capital in the consolidated balance sheet at December 31, 2013. The $149.9 million recorded in additional paid-in capital was reclassified to treasury stock upon completion of the ASR Program on April 16, 2014 (see Note 12 - Subsequent event). The forward stock purchase contract was classified as an equity instrument under applicable accounting guidance and was deemed to have a fair value of zero at the effective date of the ASR Agreement. The initial delivery of shares resulted in an immediate reduction of the outstanding shares used to calculate the weighted-average common shares outstanding for basic and diluted net income per share on the effective date of the ASR Agreement.
During the three months ended March 31, 2014 and 2013, we repurchased 8.0 million and 5.1 million shares for $618.2 million and $300.0 million, respectively, under our existing share repurchase program (the “Share Repurchase Program”) originally announced on March 6, 2013. On March 5, 2014, the Board of Directors of Express Scripts approved an increase in the authorized number of shares that may be repurchased under the Share Repurchase Program by an additional 65.0 million shares, for a total authorization of 140.0 million shares (including shares previously purchased, as adjusted for any subsequent stock split, stock dividend or similar transaction), of the Company’s common stock. There is no limit on the duration of the Share Repurchase Program. As of March 31, 2014, there were 72.8 million shares remaining under the Share Repurchase Program. Additional share repurchases, if any, will be made in such amounts and at such times as we deem appropriate based upon prevailing market and business conditions and other factors. Current year repurchases were funded through internally generated cash.

13


Note 8 - Stock-based compensation plans
In March 2011, ESI’s Board of Directors adopted the ESI 2011 Long-Term Incentive Plan (the “2011 LTIP”), which provides for the grant of various equity awards with various terms to our officers, directors and key employees selected by the Compensation Committee of the Board of Directors. The 2011 LTIP was approved by ESI’s stockholders in May 2011 and became effective June 1, 2011. Upon consummation of the Merger, the Company assumed sponsorship of the 2011 LTIP. Under the 2011 LTIP, we may issue stock options, stock-settled stock appreciation rights (“SSRs”), restricted stock units, restricted stock awards, performance share awards and other types of awards. Subsequent to the effective date of the 2011 LTIP, no additional awards have been or will be granted under the 2000 Long-Term Incentive Plan (“2000 LTIP”), which provided for the grant of various equity awards with various terms to our officers, directors and key employees selected by the Compensation Committee.
Effective upon the closing of the Merger, the Company assumed sponsorship of the Medco Health Solutions, Inc. 2002 Stock Incentive Plan (the “2002 Stock Incentive Plan”), allowing Express Scripts to issue awards under this plan. Under the 2002 Stock Incentive Plan, Medco granted, and, following the Merger, Express Scripts has granted and may continue to grant, stock options, restricted stock units and other types of awards to officers, employees and directors.
Awards granted under the 2000 LTIP, the 2011 LTIP and the 2002 Stock Incentive Plan are subject to accelerated vesting under certain specified circumstances resulting from a change in control and termination. The maximum term of stock options, SSRs, restricted stock and performance shares granted under the 2000 LTIP, the 2011 LTIP and the 2002 Stock Incentive Plan is 10 years.
Under our stock-based compensation plans, we have issued stock options, SSRs, restricted stock awards, restricted stock units and performance share awards. Subsequent to the Merger, all awards are settled by issuance of new shares. During the three months ended March 31, 2014, we granted 3.0 million stock options with a weighted-average fair market value of $18.05. 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.
The fair value of 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:
 
Three Months Ended March 31,
 
2014
 
2013
Expected life of option
3-5 years
 
4-5 years
Risk-free interest rate
0.7%-1.6%
 
0.6%-0.9%
Expected volatility of stock
27%-29%
 
30%-37%
Expected dividend yield
None
 
None
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 U.S. 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.
During the three months ended March 31, 2014, we granted to certain officers and employees approximately 0.9 million restricted stock units and performance shares with a weighted-average fair market value of $77.15. Restricted stock units and performance shares granted under the 2000 LTIP, 2011 LTIP and 2002 Stock Incentive Plan generally vest over three years. Restricted stock units granted under the 2011 LTIP and the 2002 Stock Incentive Plan subsequent to the Merger generally vest on a graded schedule. Performance shares, as well as Medco’s restricted stock units granted under the 2002 Stock Incentive Plan prior to the Merger, cliff vest at the end of the vesting period. The number of performance shares that ultimately vest is dependent upon achieving specific performance metrics. Prior to vesting, performance shares are subject to forfeiture without consideration upon termination of employment under certain circumstances. The original grant of performance shares is subject to a multiplier of up to 2.5 based on the achievement of certain performance metrics. During the three months ended March 31, 2014, approximately 0.1 million additional performance shares were settled, and common shares were issued to certain officers for achieving certain performance metrics.

14


We recognized stock-based compensation expense of $28.0 million and $47.2 million in the three months ended March 31, 2014 and 2013, respectively. Unamortized stock-based compensation as of March 31, 2014 was $72.4 million for stock options and SSRs and $93.2 million for restricted stock units and performance shares.
Note 9 - Commitments and contingencies
In the ordinary course of business there have arisen various legal proceedings, investigations, recoupment demands or claims now pending against us or our subsidiaries. In accordance with applicable accounting guidance, we record accruals for certain of our outstanding legal proceedings, investigations or claims when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. We evaluate, on a quarterly basis, developments in legal proceedings, investigations or claims that could affect the amount of any accrual, as well as any developments that would make a loss contingency both probable and reasonably estimable. We disclose the amount of the accrual if the financial statements would be otherwise misleading, which was not the case for any such accruals for the three months ended March 31, 2014 or the year ended December 31, 2013.
We record self-insurance accruals based upon estimates of the aggregate liability of claim costs in excess of our insurance coverage. Accruals are estimated using certain actuarial assumptions followed in the insurance industry and our historical experience. The majority of these claims are legal claims and our liability estimate is primarily related to the cost to defend these claims. We do not accrue for settlements, judgments, monetary fines or penalties until such amounts are probable and estimable. Under authoritative accounting guidance, if the range of probable loss is broad, the liability accrued should be based on the low end of the range.
When a loss contingency is not both probable and estimable, we do not establish an accrued liability. However, if the loss (or an additional loss in excess of the accrual) is at least a reasonable possibility and material, then we disclose an estimate of the possible loss or range of loss, if such estimate can be made, or disclose that an estimate cannot be made.
The assessments of whether a loss is probable or a reasonable possibility, and whether the loss or a range of loss is estimable, often involve a series of complex judgments about future events. We are often unable to estimate a range of reasonably possible losses, particularly where (i) the damages sought are substantial or indeterminate, (ii) the proceedings are in the early stages, or (iii) the matters involve novel or unsettled legal theories or a large number of parties. In such cases, there is considerable uncertainty regarding the timing or ultimate resolution of such matters, including a possible eventual loss, fine, penalty or business impact. Accordingly, for many proceedings, we are currently unable to estimate the loss or a range of possible loss. For a limited number of proceedings, we may be able to reasonably estimate the possible range of loss in excess of any accruals. However, we believe that such matters, individually and in the aggregate, when finally resolved, are not reasonably likely to have a material adverse effect on our consolidated cash flow or financial condition. We also believe that any amount that could be reasonably estimated in excess of accruals, if any, for such proceedings is not material. However, an adverse resolution of one or more of such matters could have a material adverse effect on our results of operations in a particular quarter or fiscal year.
While we believe our services and business practices are in compliance with applicable laws, rules and regulations in all material respects, we cannot predict the outcome of these claims at this time. An unfavorable outcome in one or more of these matters could result in the imposition of judgments, monetary fines or penalties, or injunctive or administrative remedies. We can give no assurance that such judgments, fines and remedies, and future costs associated with any such matters, would not have a material adverse effect on our financial condition, our consolidated results of operations or our consolidated cash flows.
Note 10 - Segment information
We report segments on the basis of services offered and have determined we have two reportable segments: PBM and Other Business Operations. During the first quarter of 2014, we reorganized our business primarily related to pharmaceutical and biotechnology client patient access programs, including patient assistance programs, reimbursement, alternate funding and compliance services from our PBM segment into our Other Business Operations segment. All related segment disclosures for the period ended March 31, 2013 have been reclassified in the table below and throughout the financial statements, where appropriate, to reflect the new segment structure.
Operating income is the measure used by our chief operating decision maker to assess the performance of each of our operating segments. The following table presents information about our reportable segments, including a reconciliation of operating income from continuing operations to income before income taxes from continuing operations, for the three months ended March 31, 2014 and 2013.


15


During 2013, we determined that a business acquired in the Merger that was previously included within our PBM segment was no longer core to our future operations and committed to a plan to dispose of this business. In accordance with applicable accounting guidance, the results of operations for this business are reported as discontinued operations for all periods presented in the accompanying information.
(in millions)
PBM
 
Other Business
Operations(1)
 
Total
For the three months ended March 31, 2014
 
 
 
 
 
Product revenues:
 
 
 
 
 
Network revenues(2)
$
13,912.3

 
$

 
$
13,912.3

Home delivery and specialty revenues(3)
8,913.6

 

 
8,913.6

Other revenues(4)

 
506.3

 
506.3

Service revenues
282.3

 
70.5

 
352.8

Total revenues
23,108.2

 
576.8

 
23,685.0

Depreciation and amortization expense
546.0

 
7.1

 
553.1

Operating income
694.6

 
14.6

 
709.2

Equity income from joint venture
 
 
 
 
1.7

Interest income
 
 
 
 
9.4

Interest expense and other
 
 
 
 
(124.5
)
Income before income taxes
 
 
 
 
595.8

Capital expenditures
111.6

 
5.5

 
117.1

For the three months ended March 31, 2013
 
 
 
 
 
Product revenues:
 
 
 
 
 
Network revenues(2)
$
16,097.8

 
$

 
$
16,097.8

Home delivery and specialty revenues(3)
9,171.8

 

 
9,171.8

Other revenues(4)

 
463.1

 
463.1

Service revenues
222.1

 
65.1

 
287.2

Total revenues
25,491.7

 
528.2

 
26,019.9

Depreciation and amortization expense
593.5

 
6.8

 
600.3

Operating income
828.1

 
15.0

 
843.1

Equity income from joint venture
 
 
 
 
9.8

Interest income
 
 
 
 
1.6

Interest expense and other
 
 
 
 
(215.4
)
Income before income taxes
 
 
 
 
639.1

Capital expenditures
106.6

 
2.2

 
108.8

(1)
Other Business Operations operating income for the three months ended March 31, 2013 includes the $3.5 million gain associated with the settlement of working capital balances for ConnectYourCare (“CYC”).
(2)
Includes retail pharmacy co-payments of $2,897.9 million and $3,674.4 million for the three months ended March 31, 2014 and 2013, respectively.
(3)
Includes home delivery, specialty and other, including drugs we distribute to other PBMs’ clients under limited distribution contracts with pharmaceutical manufacturers and FreedomFP claims.
(4)
Includes claims related to drugs distributed through patient assistance programs.


16


The following table presents balance sheet information about our reportable segments, including the discontinued operations of Europe: 
(in millions)
PBM
 
Other Business Operations
 
Discontinued
Operations
 
Total
As of March 31, 2014
 
 
 
 
 
 
 
Total assets
$
51,761.2

 
$
985.9

 
$

 
$
52,747.1

Investment in equity method investees
$
31.9

 
$

 
$

 
$
31.9

 
 
 
 
 
 
 
 
As of December 31, 2013
 
 
 
 
 
 
 
Total assets
$
52,560.1

 
$
957.1

 
$
31.0

 
$
53,548.2

Investment in equity method investees
$
30.2

 
$

 
$

 
$
30.2

PBM product revenues consist of revenues from the sale of prescription drugs by retail pharmacies in our retail pharmacy networks, revenues from the dispensing of prescription drugs from our home delivery pharmacies and revenues from the sale of certain fertility and specialty drugs. Other Business Operations product revenues consist of specialty distribution activities and development of scientific evidence to guide the safe, effective and affordable use of medicines. PBM service revenues include administrative fees associated with the administration of retail pharmacy networks contracted by certain clients, informed decision counseling services and specialty pharmacy services. Other Business Operations service revenues include revenues related to data analytics and research associated with our UBC business.
The top five clients in the aggregate represent 36.8% of our consolidated revenue for the three months ended March 31, 2014. None of these clients on an individual basis exceed 15.0% of consolidated revenues for the three months ended March 31, 2014.
Revenues earned by our continuing operations international businesses totaled $22.0 million and $18.4 million for the three months ended March 31, 2014 and 2013, respectively. All other continuing operations revenues were earned in the United States. Long-lived assets of our continuing operations international businesses (consisting primarily of fixed assets) totaled $54.0 million and $58.6 million as of March 31, 2014 and December 31, 2013, respectively. All other continuing operations long-lived assets are domiciled in the United States.

17


Note 11 - Condensed consolidating financial information
The senior notes issued by the Company, ESI and Medco are jointly and severally and fully and unconditionally (subject to certain customary release provisions, including sale, exchange, transfer or liquidation of the guarantor subsidiary) guaranteed by our 100% owned domestic subsidiaries, other than certain regulated subsidiaries, and, with respect to notes issued by ESI and Medco, by us. The following condensed consolidating financial information has been prepared in accordance with the requirements for presentation of such information. The condensed consolidating financial information presented below is not indicative of what the financial position, results of operations, or cash flows would have been had each of the entities operated as an independent company during the period for various reasons, including, but not limited to, intercompany transactions and integration of systems.
In June 2013 we sold the portion of our UBC business which primarily provided technology solutions and publications to biopharmaceutical companies, and in the third quarter of 2013 we sold the remaining portions of our UBC business that were classified as discontinued. In the fourth quarter of 2013, we sold our acute infusion therapies line of business. Consequently, the operations of our European operations, the portions of UBC operations that were sold, and our acute infusion therapies line of business are included as discontinued operations of the non-guarantors as of and for the three months ended March 31, 2013, and as of December 31, 2013 (through their respective dates of sale, as applicable). Results for the three months ended March 31, 2013 include the operations of our European operations, UBC, and our acute infusion therapies line of business (revised to reflect the operations as discontinued operations as applicable). The following presentation reflects the structure that exists as of the most recent balance sheet date. The condensed consolidating financial information is presented separately for:
(i)
Express Scripts (the Parent Company), the issuer of certain guaranteed obligations;
(ii)
ESI, guarantor, the issuer of additional guaranteed obligations;
(iii)
Medco, guarantor, the issuer of additional guaranteed obligations;
(iv)
Guarantor subsidiaries, on a combined basis (but excluding ESI and Medco), as specified in the indentures related to Express Scripts’, ESI’s and Medco’s obligations under the notes;
(v)
Non-guarantor subsidiaries, on a combined basis;
(vi)
Consolidating entries and eliminations representing adjustments to (a) eliminate intercompany transactions between or among Express Scripts, ESI, Medco, the guarantor subsidiaries and the non-guarantor subsidiaries, (b) eliminate the investments in our subsidiaries and (c) record consolidating entries; and
(vii)
Express Scripts and its subsidiaries on a consolidated basis.
In the first quarter of 2014, we revised our condensed consolidating statements of operations. Correcting adjustments were made to the condensed consolidating statement of operations for the three months ended March 31, 2013 to reflect amounts related to certain intercompany revenues and operating expenses that were previously reported on a net basis in the Non-Guarantors column. The effect of the adjustment is an increase in revenue and operating expenses in the Non-Guarantors column by $401.3 million for the three months ended March 31, 2013 (and the same effect for all year to date periods during 2013). The adjustment resulted in corresponding offsets in the Eliminations column for each period. There was no impact to net income in either the Non-Guarantors column or the Eliminations column. As prior period financial information is presented in future filings, we will similarly revise the condensed consolidating statements of operations.


18


Condensed Consolidating Balance Sheet
(in millions)
Express
Scripts
Holding
Company
 
Express
Scripts, 
Inc.
 
Medco Health
Solutions, 
Inc.
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
As of March 31, 2014
Cash and cash equivalents
$

 
$
1,055.4

 
$
16.0

 
$
16.4

 
$
762.6

 
$

 
$
1,850.4

Restricted cash and investments

 

 

 

 
20.5

 

 
20.5

Receivables, net

 
1,524.1

 
362.6

 
1,820.4

 
200.2

 

 
3,907.3

Other current assets

 
98.0

 
353.1

 
1,878.8

 
26.3

 

 
2,356.2

Total current assets

 
2,677.5

 
731.7

 
3,715.6

 
1,009.6

 

 
8,134.4

Property and equipment, net

 
583.1

 
6.2

 
1,050.2

 
19.9

 

 
1,659.4

Investments in subsidiaries
36,442.8

 
9,311.5

 
12,172.8

 

 

 
(57,927.1
)
 

Intercompany

 

 

 
14,596.3

 

 
(14,596.3
)
 

Goodwill

 
2,921.4

 
22,608.1

 
3,750.3

 
24.8

 

 
29,304.6

Other intangible assets, net
47.9

 
1,042.0

 
10,611.5

 
1,852.9

 
16.4

 

 
13,570.7

Other assets

 
69.6

 
18.2

 
3.6

 
12.3

 
(25.7
)
 
78.0

Total assets
$
36,490.7

 
$
16,605.1

 
$
46,148.5

 
$
24,968.9

 
$
1,083.0

 
$
(72,549.1
)
 
$
52,747.1

Claims and rebates payable
$

 
$
3,323.9

 
$
3,025.0

 
$

 
$

 
$

 
$
6,348.9

Accounts payable

 
837.2

 
50.7

 
1,847.4

 
95.1

 

 
2,830.4

Accrued expenses
64.2

 
267.5

 
420.6

 
607.1

 
401.0

 

 
1,760.4

Current maturities of long-term debt
2,635.2

 

 

 

 

 

 
2,635.2

Total current liabilities
2,699.4

 
4,428.6

 
3,496.3

 
2,454.5

 
496.1

 

 
13,574.9

Long-term debt
6,768.7

 
1,995.3

 
2,381.1

 

 

 

 
11,145.1

Intercompany
5,148.3

 
6,993.8

 
2,402.0

 

 
52.2

 
(14,596.3
)
 

Deferred taxes

 

 
3,985.0

 
1,476.6

 
9.2

 

 
5,470.8

Other liabilities

 
204.1

 
424.6

 
67.1

 
0.9

 
(25.7
)
 
671.0

Non-controlling interest

 

 

 

 
11.0

 

 
11.0

Express Scripts stockholders’ equity
21,874.3

 
2,983.3

 
33,459.5

 
20,970.7

 
513.6

 
(57,927.1
)
 
21,874.3

Total liabilities and stockholders’ equity
$
36,490.7

 
$
16,605.1

 
$
46,148.5

 
$
24,968.9

 
$
1,083.0

 
$
(72,549.1
)
 
$
52,747.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 

19


Condensed Consolidating Balance Sheet
(in millions)
Express
Scripts
Holding
Company
 
Express
Scripts, 
Inc.
 
Medco Health
Solutions, 
Inc.
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
As of December 31, 2013
Cash and cash equivalents
$

 
$
1,145.9

 
$
3.6

 
$
44.0

 
$
797.9

 
$

 
$
1,991.4

Restricted cash and investments

 

 
1.0

 

 
21.8

 

 
22.8

Receivables, net

 
1,381.3

 
750.5

 
1,557.1

 
334.0

 

 
4,022.9

Other current assets

 
99.8

 
286.4

 
2,010.4

 
26.7

 

 
2,423.3

Current assets of discontinued operations

 

 

 

 
31.0

 

 
31.0

Total current assets

 
2,627.0

 
1,041.5

 
3,611.5

 
1,211.4

 

 
8,491.4

Property and equipment, net

 
550.3

 
5.4

 
1,082.7

 
20.5

 

 
1,658.9

Investments in subsidiaries
36,060.9

 
9,096.2

 
12,089.8

 

 

 
(57,246.9
)
 

Intercompany

 

 

 
14,247.9

 

 
(14,247.9
)
 

Goodwill

 
2,921.4

 
22,608.1

 
3,750.3

 
25.6

 

 
29,305.4

Other intangible assets, net
51.7

 
1,071.7

 
10,946.8

 
1,926.0

 
19.4

 

 
14,015.6

Other assets

 
79.9

 
16.5

 
3.9

 
12.2

 
(35.6
)
 
76.9

Total assets
$
36,112.6

 
$
16,346.5

 
$
46,708.1

 
$
24,622.3

 
$
1,289.1

 
$
(71,530.4
)
 
$
53,548.2

Claims and rebates payable
$

 
$
3,866.2

 
$
2,901.6

 
$

 
$

 
$

 
$
6,767.8

Accounts payable

 
875.1

 
62.7

 
1,834.9

 
127.3

 

 
2,900.0

Accrued expenses
45.3

 
455.9

 
241.0

 
615.5

 
624.5

 

 
1,982.2

Current maturities of long-term debt
1,583.9

 
0.1

 

 

 

 

 
1,584.0

Current liabilities of discontinued operations

 

 

 

 
1.3

 

 
1.3

Total current liabilities
1,629.2

 
5,197.3

 
3,205.3

 
2,450.4

 
753.1

 

 
13,235.3

Long-term debt
7,975.9

 
1,994.9

 
2,392.2

 

 

 

 
12,363.0

Intercompany
4,670.1

 
6,328.1

 
3,222.2

 

 
27.5

 
(14,247.9
)
 

Deferred taxes

 

 
4,034.7

 
1,386.4

 
19.5

 

 
5,440.6

Other liabilities

 
199.1

 
419.9

 
79.0

 
2.0

 
(35.6
)
 
664.4

Noncurrent liabilities of discontinued operations

 

 

 

 
0.1

 

 
0.1

Non-controlling interest

 

 

 

 
7.4

 

 
7.4

Express Scripts stockholders’ equity
21,837.4

 
2,627.1

 
33,433.8

 
20,706.5

 
479.5

 
(57,246.9
)
 
21,837.4

Total liabilities and stockholders’ equity
$
36,112.6

 
$
16,346.5

 
$
46,708.1

 
$
24,622.3

 
$
1,289.1

 
$
(71,530.4
)
 
$
53,548.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 

20


Condensed Consolidating Statement of Operations
(in millions)
Express
Scripts
Holding
Company
 
Express
Scripts, 
Inc.
 
Medco 
Health
Solutions, 
Inc.
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
For the three months ended March 31, 2014
Revenues
$

 
$
8,556.7

 
$
11,041.5

 
$
4,631.8

 
$
610.6

 
$
(1,155.6
)
 
$
23,685.0

Operating expenses

 
8,262.9

 
11,120.2

 
4,189.4

 
558.9

 
(1,155.6
)
 
22,975.8

Operating income (loss)

 
293.8

 
(78.7
)
 
442.4

 
51.7

 

 
709.2

Other (expense) income, net
(84.1
)
 
(18.6
)
 
(9.1
)
 
1.0

 
(2.6
)
 

 
(113.4
)
Income (loss) before income taxes
(84.1
)
 
275.2

 
(87.8
)
 
443.4

 
49.1

 

 
595.8

Provision (benefit) for income taxes
(30.5
)
 
134.2

 
(30.4
)
 
184.0

 
4.0

 

 
261.3

Net (loss) income from continuing operations
(53.6
)
 
141.0

 
(57.4
)
 
259.4

 
45.1

 

 
334.5

Equity in earnings of subsidiaries
381.9

 
215.3

 
83.0

 

 

 
(680.2
)
 

Net income
328.3

 
356.3

 
25.6

 
259.4

 
45.1

 
(680.2
)
 
334.5

Less: Net income attributable to non-controlling interest

 

 

 

 
6.2

 

 
6.2

Net income attributable to Express Scripts
328.3

 
356.3

 
25.6

 
259.4

 
38.9

 
(680.2
)
 
328.3

Other comprehensive loss
(2.3
)
 
(2.3
)
 

 

 
(2.3
)
 
4.6

 
(2.3
)
Comprehensive income attributable to Express Scripts
$
326.0

 
$
354.0

 
$
25.6

 
$
259.4

 
$
36.6

 
$
(675.6
)
 
$
326.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the three months ended March 31, 2013
Revenues
$

 
$
6,979.4

 
$
14,038.9

 
$
5,398.5

 
$
499.2

 
$
(896.1
)
 
$
26,019.9

Operating expenses

 
6,663.1

 
13,848.8

 
5,117.2

 
443.8

 
(896.1
)
 
25,176.8

Operating income

 
316.3

 
190.1

 
281.3

 
55.4

 

 
843.1

Other (expense) income, net
(87.0
)
 
(100.5
)
 
(15.2
)
 
1.3

 
(2.6
)
 

 
(204.0
)
Income (loss) before income taxes
(87.0
)
 
215.8

 
174.9

 
282.6

 
52.8

 

 
639.1

Provision (benefit) for income taxes
(31.5
)
 
112.5

 
65.7

 
111.0

 
1.4

 

 
259.1

Net income (loss) from continuing operations
(55.5
)
 
103.3

 
109.2

 
171.6

 
51.4

 

 
380.0

Net loss from discontinued operations, net of tax

 

 

 

 
(1.9
)
 

 
(1.9
)
Equity in earnings of subsidiaries
428.5

 
176.6

 
39.4

 

 

 
(644.5
)
 

Net income
373.0

 
279.9

 
148.6

 
171.6

 
49.5

 
(644.5
)
 
378.1

Less: Net income attributable to non-controlling interest

 

 

 

 
5.1

 

 
5.1

Net income attributable to Express Scripts
373.0

 
279.9

 
148.6

 
171.6

 
44.4

 
(644.5
)
 
373.0

Other comprehensive loss
(2.1
)
 
(2.1
)