10-Q 1 esrx-09302015x10q.htm 10-Q 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended September 30, 2015.
 
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  ☒  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  ☒  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
 
 
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 ☒
 
Common stock outstanding as of September 30, 2015:
 
676,276,000

 
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)
September 30, 2015
 
December 31, 2014
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
438.2

 
$
1,832.6

Receivables, net
7,391.1

 
5,979.8

Inventories
1,730.4

 
2,113.2

Deferred taxes
359.9

 
390.8

Prepaid expenses and other current assets
354.8

 
251.7

Total current assets
10,274.4

 
10,568.1

Property and equipment, net
1,343.1

 
1,584.0

Goodwill
29,277.9

 
29,280.9

Other intangible assets, net
10,961.5

 
12,255.2

Other assets
139.6

 
110.7

Total assets
$
51,996.5

 
$
53,798.9

 
 
 
 
Liabilities and stockholders’ equity
 
 
 
Current liabilities:
 
 
 
Claims and rebates payable
$
8,738.6

 
$
8,488.2

Accounts payable
3,273.0

 
3,137.3

Accrued expenses
2,353.0

 
2,836.1

Current maturities of long-term debt
1,649.2

 
2,555.3

Total current liabilities
16,013.8

 
17,016.9

Long-term debt
14,037.7

 
11,012.7

Deferred taxes
4,621.8

 
4,923.2

Other liabilities
777.0

 
782.1

Total liabilities
35,450.3

 
33,734.9

Commitments and contingencies (Note 8)


 


Stockholders’ equity:
 
 
 
Preferred stock, 15.0 shares authorized, $0.01 par value per share; no shares issued and outstanding

 

Common stock, 2,985.0 shares authorized, $0.01 par value; shares issued: 853.9 and 848.6, respectively; shares outstanding: 676.3 and 726.1, respectively
8.5

 
8.5

Additional paid-in capital
22,140.4

 
22,671.4

Accumulated other comprehensive (loss) income
(10.7
)
 
2.1

Retained earnings
7,623.3

 
5,920.4

 
29,761.5

 
28,602.4

Common stock in treasury at cost, 177.6 and 122.5 shares, respectively
(13,223.2
)
 
(8,548.2
)
Total Express Scripts stockholders’ equity
16,538.3

 
20,054.2

Non-controlling interest
7.9

 
9.8

Total stockholders’ equity
16,546.2

 
20,064.0

Total liabilities and stockholders’ equity
$
51,996.5

 
$
53,798.9

See accompanying Notes to Unaudited Consolidated Financial Statements

3


EXPRESS SCRIPTS HOLDING COMPANY
Unaudited Consolidated Statement of Operations
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
(in millions, except per share data)
2015
 
2014
 
2015
 
2014
Revenues(1)
$
25,222.6

 
$
25,778.5

 
$
75,576.4

 
$
74,574.5

Cost of revenues(1)
23,049.1

 
23,705.5

 
69,437.7

 
68,743.4

Gross profit
2,173.5

 
2,073.0

 
6,138.7

 
5,831.1

Selling, general and administrative
1,007.3

 
1,088.6

 
3,013.2

 
3,171.5

Operating income
1,166.2

 
984.4

 
3,125.5

 
2,659.6

Other (expense) income:
 
 
 
 
 
 
 
Interest income and other
7.8

 
15.5

 
19.1

 
36.9

Interest expense and other
(128.4
)
 
(201.6
)
 
(377.1
)
 
(460.8
)
 
(120.6
)
 
(186.1
)
 
(358.0
)
 
(423.9
)
Income before income taxes
1,045.6

 
798.3

 
2,767.5

 
2,235.7

Provision for income taxes
378.2

 
209.2

 
1,046.9

 
789.4

Net income
667.4

 
589.1

 
1,720.6

 
1,446.3

Less: Net income attributable to non-controlling interest
5.7

 
6.8

 
17.7

 
20.5

Net income attributable to Express Scripts
$
661.7

 
$
582.3

 
$
1,702.9

 
$
1,425.8

 
 
 
 
 
 
 
 
Weighted-average number of common shares outstanding during the period:
 
 
 
 
 
 
 
Basic
676.3

 
738.1

 
693.1

 
757.1

Diluted
682.2

 
746.0

 
699.5

 
766.1

Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.98

 
$
0.79

 
$
2.46

 
$
1.88

Diluted
$
0.97

 
$
0.78

 
$
2.43

 
$
1.86


1
Includes retail pharmacy co-payments of $2,161.5 million and $2,418.3 million for the three months ended September 30, 2015 and 2014, respectively, and $7,118.2 million and $7,894.7 million for the nine months ended September 30, 2015 and 2014, respectively.
See accompanying Notes to Unaudited Consolidated Financial Statements


4


EXPRESS SCRIPTS HOLDING COMPANY
Unaudited Consolidated Statement of Comprehensive Income
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
(in millions)
2015
 
2014
 
2015
 
2014
Net income
$
667.4

 
$
589.1

 
$
1,720.6

 
$
1,446.3

Other comprehensive loss:
 
 
 
 
 
 
 
Foreign currency translation adjustment
(7.3
)
 
(5.9
)
 
(12.8
)
 
(4.7
)
Comprehensive income
660.1

 
583.2

 
1,707.8

 
1,441.6

Less: Comprehensive income attributable to non-controlling interest
5.7

 
6.8

 
17.7

 
20.5

Comprehensive income attributable to Express Scripts
$
654.4

 
$
576.4

 
$
1,690.1

 
$
1,421.1

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
(Loss) Income
 
Retained
Earnings
 
Treasury
Stock
 
Non-
controlling
Interest
 
Total
Balance at December 31, 2014
848.6

 
$
8.5

 
$
22,671.4

 
$
2.1

 
$
5,920.4

 
$
(8,548.2
)
 
$
9.8

 
$
20,064.0

Net income

 

 

 

 
1,702.9

 

 
17.7

 
1,720.6

Other comprehensive loss

 

 

 
(12.8
)
 

 

 

 
(12.8
)
Treasury stock acquired

 

 
(825.0
)
 

 

 
(4,675.0
)
 

 
(5,500.0
)
Changes in stockholders’ equity related to employee stock plans
5.3

 

 
294.0

 

 

 

 

 
294.0

Distributions to non-controlling interest

 

 

 

 

 

 
(19.6
)
 
(19.6
)
Balance at September 30, 2015
853.9

 
$
8.5

 
$
22,140.4

 
$
(10.7
)
 
$
7,623.3

 
$
(13,223.2
)
 
$
7.9

 
$
16,546.2

See accompanying Notes to Unaudited Consolidated Financial Statements

6


EXPRESS SCRIPTS HOLDING COMPANY
Unaudited Consolidated Statement of Cash Flows
 
Nine Months Ended September 30,
(in millions)
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income
$
1,720.6

 
$
1,446.3

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
1,727.7

 
1,658.2

Deferred income taxes
(270.5
)
 
(272.9
)
Employee stock-based compensation expense
86.8

 
82.3

Other, net
(45.3
)
 
(17.1
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(1,468.7
)
 
(2,420.3
)
Inventories
382.7

 
81.3

Other current and noncurrent assets
(139.7
)
 
(146.3
)
Claims and rebates payable
250.4

 
1,047.2

Accounts payable
172.2

 
93.1

Accrued expenses
(425.0
)
 
40.1

Other current and noncurrent liabilities
(16.9
)
 
32.7

Net cash flows provided by operating activities
1,974.3

 
1,624.6

Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(177.1
)
 
(327.0
)
Other, net
19.2

 
7.7

Net cash used in investing activities
(157.9
)
 
(319.3
)
Cash flows from financing activities:
 
 
 
Proceeds from long-term debt, net of discounts
5,500.0

 
2,490.1

Treasury stock acquired
(5,500.0
)
 
(3,673.5
)
Repayment of long-term debt
(3,353.3
)
 
(1,723.7
)
Net proceeds from employee stock plans
155.0

 
419.4

Excess tax benefit relating to employee stock compensation
53.0

 
75.4

Other
(58.8
)
 
(46.2
)
Net cash used in financing activities
(3,204.1
)
 
(2,458.5
)
Effect of foreign currency translation adjustment
(6.7
)
 
(3.4
)
Net decrease in cash and cash equivalents
(1,394.4
)
 
(1,156.6
)
Cash and cash equivalents at beginning of period
1,832.6

 
1,991.4

Cash and cash equivalents at end of period
$
438.2

 
$
834.8

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
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”). We believe 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 our 2014 Annual Financial Statements for the year ended December 31, 2014, included in Item 8 - Consolidated Financial Statements and Supplementary Data for the year ended December 31, 2014, included on Form 10-K filed with the SEC on February 23, 2015. For a description of our accounting policies, refer to the Notes to the Consolidated Financial Statements included therein.
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 September 30, 2015, and the consolidated balance sheet as of December 31, 2014, unaudited consolidated statement of operations and unaudited consolidated statement of comprehensive income for the three and nine months ended September 30, 2015 and 2014, the unaudited consolidated statement of changes in stockholders’ equity for the nine months ended September 30, 2015, and the unaudited consolidated statement of cash flows for the nine months ended September 30, 2015 and 2014. Certain amounts in the prior year have been reclassified to conform to the current year presentation. Operating results for the three and nine months ended September 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.
New Accounting Guidance. In April and August 2015, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance containing changes to the balance sheet presentation of debt issuance costs. This statement is effective for financial statements issued for annual periods beginning after December 15, 2015, with early adoption permitted. Adoption of the standard impacts the presentation of certain information within the consolidated financial statements, but will not impact our consolidated financial position, consolidated results of operations or consolidated cash flows.
In May 2014, the FASB issued Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers which supersedes ASC 605, Revenue Recognition. The new standard requires companies to recognize revenues upon transfer of goods or services to customers in amounts that reflect the consideration which the company expects to receive in exchange for those goods or services. In July 2015, the FASB delayed the effective date of the standard by one year. The new guidance is effective for financial statements issued for annual reporting periods beginning after December 15, 2017, and early application is not permitted before the original effective date of annual reporting periods beginning after December 15, 2016. We are currently evaluating the impact of this standard on our consolidated financial statements.
Note 2 - Fair value measurements
Authoritative 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 $125.8 million and $427.8 million and trading securities (included in other assets) of $25.8 million and $25.3 million, at September 30, 2015 and December 31, 2014, respectively. These assets are carried at fair value based on quoted prices in active markets for identical securities (Level 1). Cash equivalents include investments in AAA-rated money market mutual funds with maturities of less than 90 days.

8


The carrying values of cash and cash equivalents 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 values, which approximated the carrying values, of our 2015 two-year term loan, 2015 five-year term loan and 2011 term loan (Level 2) (as defined in Note 5 - Financing) were estimated using the current rates offered to us for debt with similar maturities. The carrying values, net of unamortized discounts and premiums, and the fair values of our senior notes are shown in the following table: 
 
September 30, 2015
 
December 31, 2014
(in millions)
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
March 2008 Senior Notes
 
 
 
 
 
 
 
7.125% senior notes due 2018
$
1,307.4

 
$
1,347.7

 
$
1,338.4

 
$
1,385.8

 
 
 
 
 
 
 
 
June 2009 Senior Notes
 
 
 
 
 
 
 
7.250% senior notes due 2019
498.5

 
581.1

 
498.2

 
599.4

 
 
 
 
 
 
 
 
September 2010 Senior Notes
 
 
 
 
 
 
 
4.125% senior notes due 2020
505.2

 
525.5

 
505.9

 
531.1

2.750% senior notes due 2015

 

 
502.9

 
506.8

 
505.2

 
525.5

 
1,008.8

 
1,037.9

May 2011 Senior Notes
 
 
 
 
 
 
 
3.125% senior notes due 2016
1,499.2

 
1,519.3

 
1,498.2

 
1,541.9

 
 
 
 
 
 
 
 
November 2011 Senior Notes
 
 
 
 
 
 
 
4.750% senior notes due 2021
1,242.9

 
1,343.4

 
1,242.1

 
1,374.9

6.125% senior notes due 2041
698.5

 
804.2

 
698.5

 
880.5

 
1,941.4

 
2,147.6

 
1,940.6

 
2,255.4

February 2012 Senior Notes
 
 
 
 
 
 
 
2.650% senior notes due 2017
1,495.8

 
1,525.0

 
1,493.6

 
1,537.0

3.900% senior notes due 2022
985.3

 
1,029.7

 
983.8

 
1,044.8

2.100% senior notes due 2015

 

 
999.8

 
1,001.4

 
2,481.1

 
2,554.7

 
3,477.2

 
3,583.2

June 2014 Senior Notes
 
 
 
 
 
 
 
2.250% senior notes due 2019
998.2

 
997.9

 
997.9

 
989.3

3.500% senior notes due 2024
993.5

 
983.1

 
993.1

 
995.8

1.250% senior notes due 2017
499.9

 
497.9

 
499.8

 
495.7

 
2,491.6

 
2,478.9

 
2,490.8

 
2,480.8

Total senior notes
$
10,724.4

 
$
11,154.8

 
$
12,252.2

 
$
12,884.4

The fair values of our senior notes were estimated based on observable market information (Level 2). In determining the fair values of liabilities, we took into consideration the risk of nonperformance. Nonperformance risk refers to the risk 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 values of our liabilities.

9


Note 3 - Goodwill and other intangible assets
Following is a summary of our goodwill and other intangible assets for our two reportable segments, Pharmacy Benefit Management (“PBM”) and Other Business Operations.
 
September 30, 2015
 
December 31, 2014
(in millions)
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Goodwill
 
 
 
 
 
 
 
 
 
 
 
PBM
$
29,287.3

 
$
(106.8
)
 
$
29,180.5

 
$
29,290.6

 
$
(107.1
)
 
$
29,183.5

Other Business Operations
97.4

 

 
97.4

 
97.4

 

 
97.4

 
$
29,384.7

 
$
(106.8
)
 
$
29,277.9

 
$
29,388.0

 
$
(107.1
)
 
$
29,280.9

Other intangible assets
 
 
 
 
 
 
 
 
 
 
 
PBM
 
 
 
 
 
 
 
 
 
 
 
Customer contracts
$
17,570.5

 
$
(6,868.3
)
 
$
10,702.2

 
$
17,571.4

 
$
(5,603.2
)
 
$
11,968.2

Trade names
226.6

 
(78.0
)
 
148.6

 
226.6

 
(61.3
)
 
165.3

Miscellaneous(1)
101.9

 
(40.3
)
 
61.6

 
116.6

 
(58.4
)
 
58.2

 
17,899.0

 
(6,986.6
)
 
10,912.4

 
17,914.6

 
(5,722.9
)
 
12,191.7

Other Business Operations
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
120.2

 
(94.3
)
 
25.9

 
120.2

 
(82.6
)
 
37.6

Trade names
35.8

 
(12.6
)
 
23.2

 
35.8

 
(9.9
)
 
25.9

 
156.0

 
(106.9
)
 
49.1

 
156.0

 
(92.5
)
 
63.5

Total other intangible assets
$
18,055.0

 
$
(7,093.5
)
 
$
10,961.5

 
$
18,070.6

 
$
(5,815.4
)
 
$
12,255.2

(1)
Changes in the PBM miscellaneous balance as of September 30, 2015, include a decrease of $36.1 million of deferred financing fees related to the repayment of our 2011 term loan (see Note 5 - Financing), of which only $9.2 million had not previously been amortized and was written off during the second quarter, partially offset by an increase of $28.0 million due to the recognition of deferred financing fees related to the 2015 credit agreement (as defined in Note 5 - Financing), which are amortized over a weighted-average period of 4 years.
Following is a summary of the change in the net carrying value of goodwill by reportable segment: 
(in millions)
PBM
 
Other Business Operations
 
Total
Balance at December 31, 2014
$
29,183.5

 
$
97.4

 
$
29,280.9

Foreign currency translation
(3.0
)
 

 
(3.0
)
Balance at September 30, 2015
$
29,180.5

 
$
97.4

 
$
29,277.9


The aggregate amount of amortization expense of other intangible assets was $438.9 million and $446.5 million for the three months ended September 30, 2015 and 2014, respectively, and $1,321.5 million and $1,335.8 million for the nine months ended September 30, 2015 and 2014, respectively. Amortization of $23.8 million and $28.5 million for the three months ended September 30, 2015 and 2014, respectively, and $71.4 million and $85.5 million for the nine months ended September 30, 2015 and 2014, respectively, for customer contracts related to our agreement to provide PBM services to members of the affiliated health plans of Anthem (formerly known as WellPoint) has been included as an offset to revenues. The annual aggregate amount of amortization expense of other intangible assets is expected to be approximately $1,759.0 million for 2015, $1,743.0 million for 2016, $1,329.0 million for 2017, $1,317.0 million for 2018 and $1,311.0 million for 2019. The weighted-average amortization period of intangible assets subject to amortization is 16 years, and by major intangible asset class is 4 to 20 years for customer-related intangible assets, 10 years for trade names (excluding legacy Express Scripts, Inc. (“ESI”) trade names which have an indefinite life) and 2 to 30 years for other intangible assets.

10


Note 4 - Earnings per share
Basic earnings per share (“EPS”) is computed using the weighted-average number of common shares outstanding during the period. Diluted EPS is computed in the same manner as basic EPS, but adds the number of additional common shares that would have been outstanding for the period if the dilutive potential common shares had been issued. All shares are calculated under the “treasury stock” method. Following is the reconciliation between the number of weighted-average shares used in the basic and diluted EPS calculations:
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
(in millions)
2015
 
2014
 
2015
 
2014
Weighted-average number of common shares outstanding during the period—basic
676.3

 
738.1

 
693.1

 
757.1

Dilutive common stock equivalents:(1)(2)
 
 
 
 
 
 
 
Outstanding stock options, stock-settled stock appreciation rights, restricted stock units and executive deferred compensation units
5.9

 
7.9

 
6.4

 
9.0

Weighted-average number of common shares outstanding during the period—diluted
682.2

 
746.0

 
699.5

 
766.1

(1)
If the 2015 ASR Program (as defined in Note 6 - Common stock) had been settled as of September 30, 2015, based on the volume-weighted average price per share since the effective date of the 2015 ASR Agreement, the counterparty would have been required to deliver approximately 8.5 million additional shares to us. However, we cannot predict the final number of shares to be received under the 2015 ASR Agreement until the completion of the program which is expected to occur by the end of the second quarter of 2016. For both the three and nine months ended September 30, 2015, the 8.5 million shares are not included in the calculation of diluted weighted-average common shares outstanding because the effect is anti-dilutive. See Note 6 - Common stock for further description.
(2)
Excludes equity awards of 2.8 million and 2.9 million for the three months ended September 30, 2015 and 2014, respectively, and 2.2 million and 2.3 million for the nine months ended September 30, 2015 and 2014, respectively. These were excluded because the effect is anti-dilutive.

11


Note 5 - Financing
Our debt, net of unamortized discounts and premiums, consists of: 
(in millions)
September 30, 2015
 
December 31, 2014
March 2008 Senior Notes
 
 
 
7.125% senior notes due 2018
$
1,307.4

 
$
1,338.4

 
 
 
 
June 2009 Senior Notes
 
 
 
7.250% senior notes due 2019
498.5

 
498.2

 
 
 
 
September 2010 Senior Notes
 
 
 
4.125% senior notes due 2020
505.2

 
505.9

2.750% senior notes due 2015

 
502.9

 
505.2

 
1,008.8

May 2011 Senior Notes
 
 
 
3.125% senior notes due 2016
1,499.2

 
1,498.2

 
 
 
 
November 2011 Senior Notes
 
 
 
4.750% senior notes due 2021
1,242.9

 
1,242.1

6.125% senior notes due 2041
698.5

 
698.5

 
1,941.4

 
1,940.6

February 2012 Senior Notes
 
 
 
2.650% senior notes due 2017
1,495.8

 
1,493.6

3.900% senior notes due 2022
985.3

 
983.8

2.100% senior notes due 2015

 
999.8

 
2,481.1

 
3,477.2

June 2014 Senior Notes
 
 
 
2.250% senior notes due 2019
998.2

 
997.9

3.500% senior notes due 2024
993.5

 
993.1

1.250% senior notes due 2017
499.9

 
499.8

 
2,491.6

 
2,490.8

Term loans
 
 
 
2015 five-year term loan(1)
2,962.5

 

2015 two-year term loan(1)
2,000.0

 

2011 term loan(1)

 
1,315.8

Total debt
15,686.9

 
13,568.0

Less: Current maturities of long-term debt
1,649.2

 
2,555.3

Total long-term debt
$
14,037.7

 
$
11,012.7

(1)
The 2015 five-year term loan and 2015 two-year term loan had average interest rates of 1.44% and 1.32%, respectively, as of September 30, 2015. The 2011 term loan had an average interest rate of 1.90% as of December 31, 2014.

Bank credit facilities. In April 2015, we entered into a credit agreement (the “2015 credit agreement”) providing for a five-year $2,000.0 million revolving credit facility (the “2015 revolving facility”), a two-year $2,500.0 million term loan (the “2015 two-year term loan”) and a five-year $3,000.0 million term loan (the “2015 five-year term loan”). We used the proceeds, which included $1,100.0 million drawn on the 2015 revolving facility in addition to the 2015 two-year term loan and the 2015 five-year term loan, to repay our 2011 term loan (reflected in the table above), terminate the commitments under our 2011 revolving facility, enter into an accelerated share repurchase program and for other general corporate purposes. At September 30, 2015, no amounts were outstanding under the 2015 revolving facility. In the three months ended September 30, 2015, we repaid $500.0 million under the 2015 two-year term loan. We make quarterly principal payments on the 2015 five-

12


year term loan. At September 30, 2015, $150.0 million of the 2015 credit agreement was considered current maturities of long-term debt.
The 2015 credit agreement requires interest to be paid, at our option, at LIBOR or an adjusted base rate, plus applicable margin. Depending on our consolidated leverage ratio, the applicable margin over LIBOR ranges from 0.900% to 1.300% for the 2015 revolving facility, 0.875% to 1.375% for the 2015 two-year term loan and 1.000% to 1.500% for the 2015 five-year term loan. The applicable margin over the adjusted base rate ranges from 0.000% to 0.300% for the 2015 revolving facility, 0.000% to 0.375% for the 2015 two-year term loan and 0.000% to 0.500% for the 2015 five-year term loan. We are required to pay commitment fees on the 2015 revolving facility, which range from 0.100% to 0.200% of the revolving loan commitments, depending on our consolidated leverage ratio.
In August 2015, we entered into a one-year credit agreement, providing for an uncommitted $150.0 million revolving credit facility (the “2015 credit facility”). In December 2014, we entered into three separate one-year credit agreements, each providing for an uncommitted $150.0 million revolving credit facility (the “2014 credit facilities”). During the second quarter of 2015, two of the three 2014 credit facilities were terminated. At September 30, 2015, no amounts were drawn under the 2015 credit facility or the one remaining 2014 credit facility.
Covenants. Our bank financing arrangements and senior notes contain certain 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 other things, a maximum leverage ratio. The March 2008 Senior Notes (as defined in the table above) are also subject to an interest rate adjustment in the event of a downgrade in our credit ratings to below investment grade. At September 30, 2015, we were in compliance with all covenants associated with our debt instruments.
Following is a schedule of current maturities, excluding unamortized discounts and premiums, for our long-term debt as of September 30, 2015 (in millions):
Year Ended December 31,
 
2015(1)
$
37.5

2016
1,650.0

2017
4,225.0

2018
1,575.0

2019
2,700.0

Thereafter
5,425.0

Total
$
15,612.5

(1)
Represents payments for the three months ended December 31, 2015.
Note 6 - Common stock
Accelerated share repurchases. In April 2015, as part of our previously announced share repurchase program (the “Share Repurchase Agreement”), we entered into an agreement to repurchase shares of our common stock for an aggregate initial payment (the “prepayment amount”) of $5,500.0 million (the “2015 ASR Program”) under an accelerated share repurchase agreement (the “2015 ASR Agreement”). Under the terms of the 2015 ASR Agreement, upon payment of the prepayment amount, we received an initial delivery of 55.1 million shares of our common stock at a price of $84.79 per share, which represented, based on the closing share price of our common stock on Nasdaq on April 29, 2015, approximately 85% of the prepayment amount. The final purchase price per share (the “forward price”) and the final number of shares received will be determined using the arithmetic mean of the daily volume-weighted average price per share of our common stock (the “VWAP”) over the term of the 2015 ASR Program, less a discount and subject to adjustments pursuant to the terms of the 2015 ASR Agreement (including a cap on the forward price). The 2015 ASR Program is expected to occur by the end of the second quarter of 2016, subject to the right of the counterparty to the 2015 ASR Agreement to accelerate the settlement of the 2015 ASR Program.
Upon settlement of the 2015 ASR Program, we may receive additional shares or we may be required to either pay additional cash or deliver shares of our common stock (at our option), based on the forward price. Under the terms of the 2015 ASR Agreement, the maximum number of shares that could be delivered by us is 129.7 million. If the 2015 ASR Program had been settled as of September 30, 2015, based on the VWAP since the effective date of the 2015 ASR Agreement, the counterparty would have been required to deliver approximately 8.5 million additional shares to us. However, we cannot predict the final number of shares to be received under the 2015 ASR Agreement, which is expected to occur by the end of the

13


second quarter of 2016. These shares are not included in the calculation of diluted weighted-average common shares outstanding during the period because the effect is anti-dilutive.
The 2015 ASR Agreement was accounted for as an initial treasury stock transaction and a forward stock purchase contract. We recorded an increase to treasury stock of $4,675.0 million and a decrease to additional paid-in capital of $825.0 million in the unaudited consolidated balance sheet. The $825.0 million recorded in additional paid-in capital will be reclassified to treasury stock upon completion of the 2015 ASR Program. The forward stock purchase contract was classified as an equity instrument and was deemed to have a fair value of zero at the effective date of the 2015 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 2015 ASR Agreement.
Treasury share repurchases. There were no repurchases of the Company’s common stock during the third quarter of 2015. We repurchased 55.1 million shares for $4,675.0 million during the nine months ended September 30, 2015 and 14.1 million and 52.0 million shares for $1,013.6 million and $3,823.4 million, respectively, during the three and nine months ended September 30, 2014. As of September 30, 2015, there were 28.6 million shares remaining under our 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.
Note 7 - Stock-based compensation plans
Under our stock-based compensation plans described below, we have issued stock options, stock-settled stock appreciation rights (“SSRs”), restricted stock units, restricted stock awards and performance shares. All awards are settled by issuance of new shares.
Awards granted under the incentive stock plans are subject to accelerated vesting under certain specified circumstances, including upon a change in control and termination, and are also subject to forfeiture without consideration upon termination of employment under certain circumstances. The maximum term of stock options, restricted stock units and performance shares is generally 10 years.
We recognized stock-based compensation expense of $32.4 million and $27.9 million in the three months ended September 30, 2015 and 2014, respectively, and $86.8 million and $82.3 million in the nine months ended September 30, 2015 and 2014, respectively. Unamortized stock-based compensation as of September 30, 2015 was $41.8 million for stock options and $63.8 million for restricted stock units and performance shares.
Stock options. During the nine months ended September 30, 2015, we granted 3.0 million stock options with a weighted-average fair market value of $18.06 per share. Stock options granted generally have three-year graded vesting.
The fair value of stock options granted was estimated on the date of grant using a Black-Scholes multiple option-pricing model with the following weighted-average assumptions:
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2015
 
2014
 
2015
 
2014
Expected life of option
3-5 years
 
3-5 years
 
3-5 years
 
3-5 years
Risk-free interest rate
1.0%-1.6%
 
1.0%-1.8%
 
1.0%-1.7%
 
0.7%-1.8%
Expected volatility of stock
20%-25%
 
25%-27%
 
20%-26%
 
25%-29%
Expected dividend yield
None
 
None
 
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 United States Treasury rates in effect during the corresponding period of grant. The expected volatility is based on the historical volatility of our stock price. These factors could change in the future, which would affect the stock-based compensation expense recognized in future periods.
Restricted stock units and performance shares. During the nine months ended September 30, 2015, we granted to certain officers and key employees 0.8 million restricted stock units and performance shares with a weighted-average fair market value of $84.76 per share. Restricted stock units generally have three-year graded vesting. Performance shares generally have three-year cliff vesting. The number of performance shares that ultimately vest is dependent upon the achievement of specific performance metrics. The original grant of performance shares is subject to a multiplier of up to 2.5 based on the

14


achievement of the performance metrics. Due to the achievement of certain performance metrics, during the nine months ended September 30, 2015, 0.1 million additional performance shares were settled and common shares were issued to certain officers and key employees.
Note 8 - Commitments and contingencies
Various legal proceedings, investigations, government inquiries and claims pending against us or our subsidiaries have arisen in the ordinary course of business, including, but not limited to, those relating to regulatory, commercial, employment and employee benefits. We record accruals for certain of our outstanding legal proceedings, investigations and claims when we believe it is probable a liability will be incurred and the amount of loss can be reasonably estimated. On a quarterly basis, we evaluate developments in legal proceedings, investigations and claims that could affect the amount of any accrual, as well as any developments that would make a loss both probable and reasonably estimable.
We record self-insurance accruals based upon estimates of the aggregate liability of claim costs (including defense costs) in excess of our insurance coverage. 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. If the range of possible loss is broad, the liability accrual is based on the low end of the range.
When a loss contingency is not believed to be 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 believed to be 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 an estimate cannot be made.
The legal proceedings, investigations, government inquires and claims pending against us or our subsidiaries include multi-district litigation, class action lawsuits, antitrust allegations, qui tam lawsuits (“whistleblower” actions) and various governmental inquiries and informational subpoenas.
The assessment of whether a loss is probable and reasonably estimable involves a series of complex judgments about future events. We are often unable to estimate a range of loss due to significant uncertainties, particularly where (i) the damages sought are unspecified or indeterminate; (ii) the proceedings are in the early stages; (iii) the matters involve novel or unsettled legal theories or a large number of parties; (iv) class action status may be sought and certified; (v) it is questionable whether asserted claims or allegations will survive dispositive motion practice; (vi) the impact of discovery on the legal process is unknown; (vii) the settlement posture of the parties is not determined and/or (viii) in the case of certain government agency investigations, whether a sealed qui tam lawsuit has been filed and whether the government agency makes a decision to intervene in the lawsuit following investigation. 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 such matters, individually and in the aggregate, when finally resolved, are not reasonably likely to have a material adverse effect on our cash flow or financial condition. We also believe any amount that could be reasonably estimated in excess of accruals, if any, for such proceedings is not material. However, an unexpected 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.
Subsequent to the acquisition of Medco Health Solutions, Inc. (“Medco”), we have experienced an increase in the number of inquiries, subpoenas and qui tam lawsuits and in the volume of information requested related thereto. Certain data requests have included several years of information from legacy acquired systems that in some cases may not be readily available. The process of locating the data requested is time consuming and labor intensive, but is required to be responsive and cooperate with the various inquiries.
We cannot predict the timing or outcome of the matters described below:
Jerry Beeman, et al. v. Caremark, et al. Plaintiffs allege that ESI and the other defendants failed to comply with statutory obligations to provide California clients with the results of a bi-annual survey of retail drug prices. In March 2014, the Ninth Circuit Court of Appeals remanded the case to the district court for further proceedings.
(i) Brady Enterprises, Inc., et al. v. Medco Health Solutions, Inc. (ii) North Jackson Pharmacy, Inc., et al. v. Express Scripts, Inc., et al. (iii) Mike’s Medical Center Pharmacy, et al. v. Medco Health Solutions, Inc., et al. Plaintiffs assert claims for violation of the Sherman Antitrust Act. Currently, ESI’s motion to decertify the class in the Brady Enterprises case is pending. Oral arguments were held in January 2012. Mike’s Medical Center Pharmacy agreed to voluntarily dismiss its claims against Medco Health Solutions, Inc. in July 2015.

15


Jason Berk v. Express Scripts, Inc. and Express Scripts Pharmacy, Inc. A complaint was filed by named employee, Jason Berk, a current Pharmacy Benefit Specialist employee, alleging: (1) a collective action under the federal Fair Labor Standards Act for failure to pay wages and overtime; and (2) a class action for breach of contract. In April 2015, the parties reached an agreement to settle outstanding claims for an immaterial amount. In October 2015, the case was dismissed with the Company receiving a release of all claims.
We are the subject of various qui tam matters:
United States of America ex. rel. Lucas W. Matheny and Deborah Loveland v. Medco Health Solutions, Inc., et al. (Medco’s former subsidiary PolyMedica). The complaint alleges PolyMedica violated the False Claims Act. In February 2014, the bankruptcy court, presiding over PolyMedica’s Chapter 11 case, granted ATLS Acquisition LLC’s and PolyMedica’s motion for summary judgment on all relators’ claims in full, but the case remains stayed with respect to Medco. On July 15, 2015, the bankruptcy court entered its findings of fact, conclusions of law, and order confirming Debtors’ plan of liquidation. The order contains an injunction against the relators from pursuing further litigation against Medco and the relators did not exercise their right to appeal.
United States ex. rel. Steve Greenfield, et al. v. Medco Health Solutions, Inc., Accredo Health Group, Inc., and Hemophilia Health Services, Inc. The complaint alleges defendants violated the federal False Claims Act, the Anti-Kickback Statute, the Civil Monetary Penalty Statute and various state and local false claims statutes. Greenfield filed an amended complaint in October 2014, and the Company filed an answer and affirmative defenses in November 2014.
United States of America ex. rel. Shane Lager v. CSL Behring, LLC, CSL Limited, Accredo Health, Inc., and Coram LLC. The complaint, received on June 23, 2015, alleges Accredo violated the federal False Claims Act. On August 21, 2015, the Company filed a motion to dismiss the complaint under the public disclosure bar, for failure to state a claim, and for failure to plead fraud with particularity. Relator filed a response to the motion on October 21, 2015 and the Company’s deadline to file a reply is November 12, 2015.
United States ex. rel. David M. Kester, et al. v. Novartis Pharmaceuticals Corp., Accredo Health Group, Inc., BioScrip Corp., CuraScript, Inc., CVS Caremark Corp. The complaint alleges defendants violated the Anti-Kickback Statute, the federal False Claims Act, and the false claims acts of twenty-seven states. In March 2015, we recorded an accrual of $60.0 million in selling, general and administrative expense in the unaudited consolidated statement of operations. During the second quarter, the parties settled the case for approximately $60.0 million. The Exjade program giving rise to this settlement agreement predates the acquisition of Medco Health Solutions, Inc. by Express Scripts Holding Company.
We have received and intend to cooperate with various subpoenas from government agencies requesting information
While we believe our services and business practices are in substantial compliance with applicable laws, rules and regulations in all material respects, we cannot predict the outcome of these actions 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.
Note 9 - Segment information
We report segments on the basis of products and services offered and have determined we have two reportable segments: PBM and Other Business Operations. Within the Other Business Operations segment, we have aggregated two operating segments that do not meet the quantitative and qualitative criteria to be separately reported.

16


Operating income is the measure used by our chief operating decision maker to assess the performance of each of our operating segments. Following is information about our reportable segments, including a reconciliation of operating income to income before income taxes for the three and nine months ended September 30, 2015 and 2014.
(in millions)
PBM(1)
 
Other Business
Operations
 
Total
For the three months ended September 30, 2015
 
 
 
 
 
Product revenues:
 
 
 
 
 
Network revenues(2)
$
13,747.2

 
$

 
$
13,747.2

Home delivery and specialty revenues(3)
10,331.8

 

 
10,331.8

Other revenues(4)

 
624.3

 
624.3

Service revenues
432.4

 
86.9

 
519.3

Total revenues
24,511.4

 
711.2

 
25,222.6

Depreciation and amortization expense
575.2

 
7.6

 
582.8

Operating income
1,150.8

 
15.4

 
1,166.2

Interest income and other
 
 
 
 
7.8

Interest expense and other
 
 
 
 
(128.4
)
Income before income taxes
 
 
 
 
1,045.6

Capital expenditures
64.8

 
5.2

 
70.0

For the three months ended September 30, 2014
 
 
 
 
 
Product revenues:
 
 
 
 
 
Network revenues(2)
$
14,722.0

 
$

 
$
14,722.0

Home delivery and specialty revenues(3)
10,072.1

 

 
10,072.1

Other revenues(4)

 
571.9

 
571.9

Service revenues
339.0

 
73.5

 
412.5

Total revenues
25,133.1

 
645.4

 
25,778.5

Depreciation and amortization expense
535.4

 
11.6

 
547.0

Operating income
971.8

 
12.6

 
984.4

Interest income and other
 
 
 
 
15.5

Interest expense and other
 
 
 
 
(201.6
)
Income before income taxes
 
 
 
 
798.3

Capital expenditures
113.4

 
4.8

 
118.2

For the nine months ended September 30, 2015
 
 
 
 
 
Product revenues:
 
 
 
 
 
Network revenues(2)
$
42,266.2

 
$

 
$
42,266.2

Home delivery and specialty revenues(3)
30,041.9

 

 
30,041.9

Other revenues(4)

 
1,809.7

 
1,809.7

Service revenues
1,213.9

 
244.7

 
1,458.6

Total revenues
73,522.0

 
2,054.4

 
75,576.4

Depreciation and amortization expense
1,705.2

 
22.5

 
1,727.7

Operating income
3,070.9

 
54.6

 
3,125.5

Interest income and other
 
 
 
 
19.1

Interest expense and other
 
 
 
 
(377.1
)
Income before income taxes
 
 
 
 
2,767.5

Capital expenditures
158.0

 
19.1

 
177.1


17


(in millions)
PBM(1)
 
Other Business
Operations
 
Total
For the nine months ended September 30, 2014
 
 
 
 
 
Product revenues:
 
 
 
 
 
Network revenues(2)
$
43,239.3

 
$

 
$
43,239.3

Home delivery and specialty revenues(3)
28,545.4

 

 
28,545.4

Other revenues(4)

 
1,637.8

 
1,637.8

Service revenues
933.0

 
219.0

 
1,152.0

Total revenues
72,717.7

 
1,856.8

 
74,574.5

Depreciation and amortization expense
1,632.2

 
26.0

 
1,658.2

Operating income
2,619.3

 
40.3

 
2,659.6

Interest income and other
 
 
 
 
36.9

Interest expense and other
 
 
 
 
(460.8
)
Income before income taxes
 
 
 
 
2,235.7

Capital expenditures
311.6

 
15.4

 
327.0

(1)
PBM total revenues and operating income for the nine months ended September 30, 2015 and 2014 include $141.7 million and $129.4 million, respectively, related to a large client. These amounts were realized in the second quarters of each of 2015 and 2014 due to the structure of the contract.
(2)
Includes retail pharmacy co-payments of $2,161.5 million and $2,418.3 million for the three months ended September 30, 2015 and 2014, respectively, and $7,118.2 million and $7,894.7 million for the nine months ended September 30, 2015 and 2014, respectively.
(3)
Includes home delivery and specialty, including drugs we distribute to other PBMs’ clients under limited distribution contracts with pharmaceutical manufacturers and FreedomFP claims.
(4)
Includes other revenues related to drugs distributed through patient assistance programs.
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 distribution services of pharmaceuticals and medical supplies to providers, clinics and hospitals and consulting services for pharmaceutical manufacturers to collect 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 United BioSource business.
Following is balance sheet information about our reportable segments:
(in millions)
PBM
 
Other Business Operations
 
Total
As of September 30, 2015
 
 
 
 
 
Total assets
$
50,938.3

 
$
1,058.2

 
$
51,996.5

Investment in equity method investee
$
44.7

 
$

 
$
44.7

 
 
 
 
 
 
As of December 31, 2014
 
 
 
 
 
Total assets
$
52,891.6

 
$
907.3

 
$
53,798.9

Investment in equity method investee
$
40.3

 
$

 
$
40.3

Two clients on an individual basis represent 10% or greater of our consolidated revenues for the three and nine months ended September 30, 2015 and in the aggregate represent 28.7% and 29.6% of consolidated revenues for the three and nine months ended September 30, 2015, respectively.
Revenues earned by our international businesses totaled $19.8 million and $21.6 million for the three months ended September 30, 2015 and 2014, respectively, and $61.1 million and $65.5 million for the nine months ended September 30, 2015 and 2014, respectively. All other revenues were earned in the United States. Long-lived assets of our international businesses (consisting primarily of fixed assets) totaled $52.2 million and $56.0 million as of September 30, 2015 and December 31, 2014, respectively. All other long-lived assets are domiciled in the United States.

18


Note 10 - Condensed consolidating financial information
The senior notes issued by ESI, Medco and us 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 certain of 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.
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 Holding Company (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 Holding Company’s, 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 Holding Company, 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 Holding Company and its subsidiaries on a consolidated basis.


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 September 30, 2015
Cash and cash equivalents
$

 
$
183.4

 
$

 
$
17.4

 
$
237.4

 
$

 
$
438.2

Receivables, net

 
3,571.9

 
1,278.3

 
1,864.7

 
676.2

 

 
7,391.1

Other current assets
2.4

 
415.0

 
219.5

 
1,788.4

 
45.7

 
(25.9
)
 
2,445.1

Total current assets
2.4

 
4,170.3

 
1,497.8

 
3,670.5

 
959.3

 
(25.9
)
 
10,274.4

Property and equipment, net

 
674.2

 
3.9

 
646.7

 
18.3

 

 
1,343.1

Investments in subsidiaries
39,919.9

 
11,831.4

 
9,297.6

 

 

 
(61,048.9
)
 

Intercompany

 

 

 
15,005.1

 
330.9

 
(15,336.0
)
 

Goodwill

 
2,912.9

 
22,609.9

 
3,734.5

 
20.6

 

 
29,277.9

Other intangible assets, net
56.4

 
879.4

 
8,600.5

 
1,412.6

 
12.6

 

 
10,961.5

Other assets

 
123.6

 
22.4

 
7.3

 
3.6

 
(17.3
)
 
139.6

Total assets
$
39,978.7

 
$
20,591.8

 
$
42,032.1

 
$
24,476.7

 
$
1,345.3

 
$
(76,428.1
)
 
$
51,996.5

Claims and rebates payable
$

 
$
5,048.7

 
$
3,689.9

 
$

 
$

 
$

 
$
8,738.6

Accounts payable

 
734.5

 
129.5

 
2,319.3

 
89.7

 

 
3,273.0

Accrued expenses
31.4

 
1,145.2

 
568.6

 
342.4

 
291.3

 
(25.9
)
 
2,353.0

Current maturities of long-term debt
150.0

 
1,499.2

 

 

 

 

 
1,649.2

Total current liabilities
181.4

 
8,427.6

 
4,388.0

 
2,661.7

 
381.0

 
(25.9
)
 
16,013.8

Long-term debt
11,726.6

 
498.5

 
1,812.6

 

 

 

 
14,037.7

Intercompany
11,532.4

 
3,740.5

 
63.1

 

 

 
(15,336.0
)
 

Deferred taxes

 

 
3,051.0

 
1,588.1

 

 
(17.3
)
 
4,621.8

Other liabilities

 
350.8

 
371.9

 
46.5

 
7.8

 

 
777.0

Non-controlling interest

 

 

 

 
7.9

 

 
7.9

Express Scripts stockholders’ equity
16,538.3

 
7,574.4

 
32,345.5

 
20,180.4

 
948.6

 
(61,048.9
)
 
16,538.3

Total liabilities and stockholders’ equity
$
39,978.7

 
$
20,591.8

 
$
42,032.1

 
$
24,476.7

 
$
1,345.3

 
$
(76,428.1
)
 
$
51,996.5

 
 
 
 
 
 
 
 
 
 
 
 
 
 

20


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, 2014
Cash and cash equivalents
$

 
$
956.0

 
$
0.5

 
$
13.7

 
$
862.4

 
$

 
$
1,832.6

Receivables, net

 
3,127.3

 
592.4

 
1,717.7

 
542.4

 

 
5,979.8

Other current assets

 
364.1

 
228.7

 
2,147.4

 
38.9

 
(23.4
)
 
2,755.7

Total current assets

 
4,447.4

 
821.6

 
3,878.8

 
1,443.7

 
(23.4
)
 
10,568.1

Property and equipment, net

 
712.3

 
5.0

 
847.9

 
18.8

 

 
1,584.0

Investments in subsidiaries
38,191.4

 
10,792.4

 
9,895.1

 

 

 
(58,878.9
)
 

Intercompany

 

 
412.5

 
13,957.9

 
282.4

 
(14,652.8
)
 

Goodwill

 
2,912.9

 
22,609.9

 
3,734.5

 
23.6

 

 
29,280.9

Other intangible assets, net
49.6

 
954.7

 
9,606.0

 
1,630.4

 
14.5

 

 
12,255.2

Other assets

 
95.3

 
20.1

 
7.6

 
4.4

 
(16.7
)
 
110.7

Total assets
$
38,241.0

 
$
19,915.0

 
$
43,370.2

 
$
24,057.1

 
$
1,787.4

 
$
(73,571.8
)
 
$
53,798.9

Claims and rebates payable
$

 
$
4,680.1

 
$
3,808.1

 
$

 
$

 
$

 
$
8,488.2

Accounts payable

 
847.5

 
39.5

 
2,167.1

 
83.2

 

 
3,137.3

Accrued expenses
15.3

 
976.7

 
562.2

 
362.2

 
943.1

 
(23.4
)
 
2,836.1

Current maturities of long-term debt
2,052.4

 

 
502.9

 

 

 

 
2,555.3

Total current liabilities
2,067.7

 
6,504.3

 
4,912.7

 
2,529.3

 
1,026.3

 
(23.4
)
 
17,016.9

Long-term debt
7,172.0

 
1,996.5

 
1,844.2

 

 

 

 
11,012.7

Intercompany
8,947.1

 
5,705.7

 

 

 

 
(14,652.8
)
 

Deferred taxes

 

 
3,389.9

 
1,545.9

 
4.1

 
(16.7
)
 
4,923.2

Other liabilities

 
315.4

 
425.1

 
37.1

 
4.5

 

 
782.1

Non-controlling interest

 

 

 

 
9.8

 

 
9.8

Express Scripts stockholders’ equity
20,054.2

 
5,393.1

 
32,798.3

 
19,944.8

 
742.7

 
(58,878.9
)
 
20,054.2

Total liabilities and stockholders’ equity
$
38,241.0

 
$
19,915.0

 
$
43,370.2

 
$
24,057.1

 
$
1,787.4

 
$
(73,571.8
)
 
$
53,798.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 

21


<
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 September 30, 2015
Revenues
$

 
$
9,930.6

 
$
7,123.5

 
$
8,960.9

 
$
482.1

 
$
(1,274.5
)
 
$
25,222.6

Operating expenses

 
9,173.4

 
7,060.2

 
8,719.2

 
378.1

 
(1,274.5
)
 
24,056.4

Operating income

 
757.2

 
63.3

 
241.7

 
104.0

 

 
1,166.2

Other (expense) income:
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest (expense) income and other, net
(90.5
)
 
(17.5
)
 
(12.5
)
 
2.0

 
(2.1
)
 

 
(120.6
)
Intercompany interest income (expense)
64.8

 
(32.4
)
 

 
(32.4
)
 

 

 

Other expense, net
(25.7
)
 
(49.9
)
 
(12.5
)
 
(30.4
)
 
(2.1
)
 

 
(120.6
)
Income (loss) before income taxes
(25.7
)
 
707.3

 
50.8

 
211.3

 
101.9

 

 
1,045.6

Provision (benefit) for income taxes
(9.1
)
 
265.0

 
37.9

 
69.6

 
14.8

 

 
378.2

Income (loss) before equity in earnings of subsidiaries
(16.6
)
 
442.3

 
12.9

 
141.7

 
87.1

 

 
667.4

Equity in earnings (loss) of subsidiaries
678.3

 
287.9

 
(64.8
)
 

 

 
(901.4
)
 

Net income (loss)
661.7

 
730.2

 
(51.9
)
 
141.7

 
87.1

 
(901.4
)
 
667.4

Less: Net income attributable to non-controlling interest

 

 

 

 
5.7

 

 
5.7

Net income (loss) attributable to Express Scripts
661.7

 
730.2

 
(51.9
)
 
141.7

 
81.4

 
(901.4
)
 
661.7

Other comprehensive loss
(7.3