EXPRESS SCRIPTS HOLDING COMPANY (Exact name of registrant as - PDF document

Table of Contents 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 June 30, 2017. ☐ 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 (I.R.S. Employer incorporation or organization) 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. ☒ ☐ Large accelerated filer Accelerated filer ☐ (Do not check if a smaller reporting company) ☐ Non-accelerated filer Smaller reporting company ☐ Emerging growth company If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ 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 June 30, 2017: 577,549,000 Shares

Table of Contents EXPRESS SCRIPTS HOLDING COMPANY INDEX Part I Financial Information Item 1. Financial Statements (unaudited) 3 a) Unaudited Consolidated Balance Sheet 3 b) Unaudited Consolidated Statement of Operations 4 c) Unaudited Consolidated Statement of Comprehensive Income 5 d) Unaudited Consolidated Statement of Changes in Stockholders’ Equity 6 e) Unaudited Consolidated Statement of Cash Flows 7 f) Notes to Unaudited Consolidated Financial Statements 8 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 27 Item 3. Quantitative and Qualitative Disclosures About Market Risk 38 Item 4. Controls and Procedures 38 Part II Other Information Item 1. Legal Proceedings 39 Item 1A. Risk Factors 41 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 42 Item 3. Defaults Upon Senior Securities – (Not Applicable) — Item 4. Mine Safety Disclosures – (Not Applicable) — Item 5. Other Information – (Not Applicable) — Item 6. Exhibits 42 Signatures 43 Index to Exhibits 44 2

Table of Contents PART I. FINANCIAL INFORMATION Item 1. Financial Statements EXPRESS SCRIPTS HOLDING COMPANY Unaudited Consolidated Balance Sheet (in millions) June 30, 2017 December 31, 2016 Assets Current assets: Cash and cash equivalents $ 2,352.5 $ 3,077.2 Receivables, net 7,067.5 7,062.1 Inventories 1,918.7 1,959.0 Prepaid expenses and other current assets 298.1 265.1 Total current assets 11,636.8 12,363.4 Property and equipment, net 1,255.2 1,273.6 Goodwill 29,425.5 29,277.8 Other intangible assets, net 8,063.9 8,636.9 Other assets 132.0 193.2 Total assets $ 50,513.4 $ 51,744.9 Liabilities and stockholders’ equity Current liabilities: Claims and rebates payable $ 9,081.1 $ 8,836.9 Accounts payable 4,383.6 3,875.7 Accrued expenses 2,163.3 2,993.2 Current maturities of long-term debt 1,151.3 722.3 Total current liabilities 16,779.3 16,428.1 Long-term debt 13,835.2 14,846.0 Deferred taxes 3,471.2 3,603.3 Other liabilities 677.6 623.7 Total liabilities 34,763.3 35,501.1 Commitments and contingencies (Note 9) 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: 861.3 and 857.5, respectively; shares outstanding: 577.5 and 605.5, respectively 8.6 8.6 Additional paid-in capital 23,446.8 23,233.6 Accumulated other comprehensive loss (7.6) (12.3) Retained earnings 13,149.3 11,801.2 36,597.1 35,031.1 Common stock in treasury at cost, 283.8 and 252.0 shares, respectively (20,852.5) (18,795.1) Total Express Scripts stockholders’ equity 15,744.6 16,236.0 Non-controlling interest 5.5 7.8 Total stockholders’ equity 15,750.1 16,243.8 Total liabilities and stockholders’ equity $ 50,513.4 $ 51,744.9 See accompanying Notes to Unaudited Consolidated Financial Statements 3

Table of Contents EXPRESS SCRIPTS HOLDING COMPANY Unaudited Consolidated Statement of Operations Three Months Ended Six Months Ended June 30, June 30, (in millions, except per share data) 2017 2016 2017 2016 Revenues (1) $ 25,347.5 $ 25,222.3 $ 50,002.4 $ 50,014.1 Cost of revenues (1) 23,186.3 23,061.1 45,968.5 46,005.9 Gross profit 2,161.2 2,161.2 4,033.9 4,008.2 Selling, general and administrative 782.6 904.9 1,600.7 1,811.1 Operating income 1,378.6 1,256.3 2,433.2 2,197.1 Other (expense) income: Interest income and other 8.8 10.3 15.1 19.1 Interest expense and other (146.5) (136.8) (292.2) (275.4) (137.7) (126.5) (277.1) (256.3) Income before income taxes 1,240.9 1,129.8 2,156.1 1,940.8 Provision for income taxes 435.4 402.7 800.3 681.5 Net income 805.5 727.1 1,355.8 1,259.3 Less: Net income attributable to non-controlling interest 3.7 6.4 7.7 12.5 Net income attributable to Express Scripts $ 801.8 $ 720.7 $ 1,348.1 $ 1,246.8 Weighted-average number of common shares outstanding during the period: Basic 582.9 631.3 591.9 638.1 Diluted 585.6 635.7 595.4 642.7 Earnings per share: Basic $ 1.38 $ 1.14 $ 2.28 $ 1.95 Diluted $ 1.37 $ 1.13 $ 2.26 $ 1.94 (1) Includes retail pharmacy co-payments of $2,017.6 million and $2,136.4 million for the three months ended June 30, 2017 and 2016, respectively, and $4,483.9 million and $4,677.4 million for the six months ended June 30, 2017 and 2016, respectively. See accompanying Notes to Unaudited Consolidated Financial Statements 4

EXPRESS SCRIPTS HOLDING COMPANY Unaudited Consolidated Statement of Comprehensive Income Three Months Ended Six Months Ended June 30, June 30, (in millions) 2017 2016 2017 2016 Net income $ 805.5 $ 727.1 $ 1,355.8 $ 1,259.3 Other comprehensive income (loss): Foreign currency translation adjustment 3.5 (0.2) 4.7 6.1 Comprehensive income 809.0 726.9 1,360.5 1,265.4 Less: Comprehensive income attributable to non-controlling interest 3.7 6.4 7.7 12.5 Comprehensive income attributable to Express Scripts $ 805.3 $ 720.5 $ 1,352.8 $ 1,252.9 See accompanying Notes to Unaudited Consolidated Financial Statements 5

Table of Contents EXPRESS SCRIPTS HOLDING COMPANY Unaudited Consolidated Statement of Changes in Stockholders’ Equity Number of Shares Amount Common Common Additional Accumulated Other Retained Non-controlling Paid-in Capital Comprehensive Loss Treasury Stock (in millions) Stock Stock Earnings Interest Total Balance at December 31, 2016 857.5 $ 8.6 $ 23,233.6 $ (12.3) $ 11,801.2 $ (18,795.1) $ 7.8 $ 16,243.8 Net income — — — — 1,348.1 — 7.7 1,355.8 Other comprehensive income — — — 4.7 — — — 4.7 Treasury stock acquired — — — — — (2,057.4) — (2,057.4) Issuance of common shares in connection with acquisition 2.0 — 124.5 — — — — 124.5 Changes in stockholders’ equity related to employee stock plans 1.8 — 88.7 — — — — 88.7 Distributions to non- controlling interest, net of contributions — — — — — — (10.0) (10.0) Balance at June 30, 2017 861.3 $ 8.6 $ 23,446.8 $ (7.6) $ 13,149.3 $ (20,852.5) $ 5.5 $ 15,750.1 See accompanying Notes to Unaudited Consolidated Financial Statements 6