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Express Scripts Announces 2nd Quarter Results; Narrows 2014 Guidance Range; Maintains Mid-Point

Companies mentioned in this article: Express Scripts Holding Company

ST. LOUIS, July 29, 2014 /PRNewswire/ -- Express Scripts Holding Company (Nasdaq: ESRX) announced 2014 second quarter net income attributable to Express Scripts stockholders of $515.2 million, or $0.67 per diluted share. Adjusted earnings per diluted share, as detailed in Table 4, was $1.23 for the second quarter.(1)

"We are well positioned to serve our clients with scale, alignment and innovative solutions to lower costs, manage trend and to improve the health outcomes of our members," stated George Paz, chairman and chief executive officer. "We are using our scale in formulary management, regulatory compliance and personalized care through our Therapeutic Resource Centers, to control cost and provide a safe, convenient pharmacy experience. Our focus on reducing patients' costs while improving their health outcomes, together with our business model, aligns our objectives with those of our clients."

Second Quarter 2014 Review

The expected roll-off of UnitedHealth Group ("UNH") claims was completed by the end of 2013. The following table compares the second quarter 2014 and 2013 operating results from continuing operations excluding and including UNH (also see Tables 7 and 8):

    (from continuing operations)            Q2 2014          Q2 2014 Change

                                    (in millions, except per
                                      share and claim data)   From Q2 2013
    ---                            -------------------------  ------------

             Excluding UNH               Including UNH
             -------------               -------------

    Adjusted claims (see Table 1)       324.5           (5%)          (12%)
    ----------------------------        -----            ---            ----

    Adjusted EBITDA (see Table 3)    $1,735.2             5%           (1%)
    ----------------------------     --------            ---             ---

    Adjusted EBITDA, per adjusted
     claim (see Table 3)                $5.35            10%            13%
    -----------------------------       -----            ---             ---

    GAAP net income                    $515.2             0%           (9%)
    ---------------                    ------            ---             ---

    Adjusted net income (see Table
     5)                                $939.4             6%             0%
    ------------------------------     ------            ---             ---

    GAAP diluted earnings per
     share                              $0.67             8%           (1%)
    -------------------------           -----            ---             ---

    Adjusted earnings per diluted
     share (see Table 4)                $1.23            15%             9%
    -----------------------------       -----            ---             ---

As expected and similar to the second quarter of last year, revenue of $129.4 million related to a large client contract was realized in the second quarter of 2014 due to the structure of the contract. Second quarter net cash flow provided by operating activities was $735.5 million and the Company repurchased 29.9 million shares of common stock for $2,191.6 million during the quarter, leaving 42.9 million shares available under the current repurchase program.

2014 Guidance

The Company narrowed its adjusted earnings per diluted share guidance from a range of $4.82 to $4.94 to a range of $4.84 to $4.92, which maintains the mid-point of $4.88. The new guidance range reflects year over year growth of 17% to 19% excluding UNH (see Table 8) or growth of 12% to 14% including UNH. Additional details on this guidance and items excluded from this range can be found in Table 6.

The Company expects the following for the third quarter of 2014 - (see Table 6):

    (from               Estimated Quarter Ending                             Year Over Year Growth
     continuing            September 30, 2014                                   (Including UNH)
     operations)                                    Year Over Year Growth

                     (in millions, except per share
                                  data)                (Excluding UNH)
    ---             -------------------------------    --------------

    Adjusted claims            315 to 335                (8%) - (2%)            (12%) - (6%)
    ---------------            ----------                ----------               -----------

    Adjusted
     earnings per
     diluted share                   $1.27 to $1.31                22% - 26%               18% - 21%
    --------------                   --------------                 --------                 --------

Future Business Outlook

The acquisition of Medco closed in April of 2012 and Express Scripts embarked on a journey to build one of the most consequential companies in healthcare. During the following two years, the Company has focused relentlessly on moving to a single platform in a complex and changing environment. This integration activity resulted in isolated challenges for some clients. In addition, when two large companies merge together, it creates changes to people, processes and systems. For example, certain account management teams experienced turnover; often these relationships are key to retaining clients.

Historically, the Company has a strong track record of successful acquisitions resulting in combining the best of both systems and processes, and building new leadership and solidifying account teams. Clients are naturally going to evaluate alternatives and test the market. Express Scripts took advantage of this dynamic in the past when competitors merged. Competitors are attempting to take advantage of this situation now. As Express Scripts exits two years of integration, the Company is emerging as a stronger PBM and is well-positioned for the future.

Due to the dynamics of the market, the retention rate for 2015 is expected to be in the range of 92-93%. This retention rate combined with strong organic growth and new sales will result in expected claims volume slightly down to down 1.5% in 2015. We expect that future organic earnings growth will come from several drivers, of which script volume is just one component. Other drivers include generic conversions, specialty pharmacy, formulary management, clinical programs and home delivery. All of these levers will drive EBITDA and earnings growth in the future.

Express Scripts has built the most advanced, best positioned PBM in the industry and service excellence has been a top priority. The Company has taken clear and specific steps to improve both the client and patient experience and continues to invest in people, processes and systems to enhance the services provided and optimize every patient touch point. Express Scripts' service metrics indicate that it is delivering at or above strong historical levels.

"Service is a very important component of the PBM offering," stated Tim Wentworth, president. "We believe that in addition to our size, scale and innovation, our investment in and commitment to client and patient service positions Express Scripts well for future growth."

About Express Scripts

Express Scripts manages more than a billion prescriptions each year for tens of millions of patients. On behalf of our clients - employers, health plans, unions and government health programs - we make the use of prescription drugs safer and more affordable. Express Scripts uniquely combines three capabilities - behavioral sciences, clinical specialization and actionable data - to create Health Decision Science(SM), our innovative approach to help individuals make the best drug choices, pharmacy choices and health choices. Better decisions mean healthier outcomes.

Headquartered in St. Louis, Express Scripts provides integrated pharmacy benefit management services, including network-pharmacy claims processing, home delivery, specialty benefit management, benefit-design consultation, drug-utilization review, formulary management, and medical and drug data analysis services. The company also distributes a full range of biopharmaceutical products and provides extensive cost-management and patient-care services.

For more information, visit Lab.Express-Scripts.com or follow @ExpressScripts on Twitter.

SAFE HARBOR STATEMENT

This press release contains forward-looking statements, including, but not limited to, our 2014 guidance and our statements related to the Company's plans, objectives, expectations (financial and otherwise) or intentions. Actual results may differ significantly from those projected or suggested in any forward-looking statements. Factors that may impact these forward-looking statements can be found in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of the Company's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission ("SEC") on July 29, 2014 and Item 1A - "Risk Factors" in the Company's Annual Report on Form 10-K filed with the SEC on February 20, 2014. A copy of these documents can be found at the Investor Information section of Express Scripts' web site at http://www.express-scripts.com/corporate.

We do not undertake any obligation to release publicly any revisions to such forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

(1) All subsequent net income, earnings per share, adjusted EBITDA, adjusted EBITDA per adjusted claims, adjusted net income and adjusted earnings per share amounts are presented as attributable to Express Scripts, excluding non-controlling interest representing the share allocated to members of our consolidated affiliates.


                                                          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)                                  2014                                   2013              2014       2013
                                              ----                                   ----              ----       ----


    Revenues(*)                          $25,111.0                              $26,381.9         $48,796.0  $52,401.8

    Cost of
     revenues(*)                          23,103.3                               24,266.8          45,037.9   48,324.6
                                          --------                               --------          --------   --------

        Gross profit                       2,007.7                                2,115.1           3,758.1    4,077.2

    Selling, general
     and
     administrative                        1,041.7                                1,110.8           2,082.9    2,229.8
                                           -------                                -------           -------    -------

    Operating income                         966.0                                1,004.3           1,675.2    1,847.4
                                             -----                                -------           -------    -------

    Other (expense)
     income:

        Equity income from
         joint venture                         4.7                                    7.0               6.4       16.8

        Interest income                        5.6                                    1.1              15.0        2.7

        Interest expense
         and other                         (134.7)                               (127.6)          (259.2)   (343.0)
                                            ------                                 ------            ------     ------

                                           (124.4)                               (119.5)          (237.8)   (323.5)
                                            ------                                 ------            ------     ------

    Income before
     income taxes                            841.6                                  884.8           1,437.4    1,523.9

    Provision for
     income taxes                            318.9                                  310.4             580.2      569.5
                                             -----                                  -----             -----      -----

    Net income from
     continuing
     operations                              522.7                                  574.4             857.2      954.4

    Net loss from
     discontinued
     operations, net
     of tax                                      -                                (23.9)                -    (25.8)
                                               ---                                 -----               ---     -----

    Net income                               522.7                                  550.5             857.2      928.6

    Less: Net income
     attributable to
     non-controlling
     interest                                  7.5                                    7.5              13.7       12.6
                                               ---                                    ---              ----       ----

    Net income
     attributable to
     Express Scripts                        $515.2                                 $543.0            $843.5     $916.0
                                            ======                                 ======            ======     ======


    Weighted-average
     number of common
     shares

     outstanding during
      the period:

        Basic                                758.1                                  815.2             766.7      816.9

        Diluted                              766.5                                  828.4             776.4      830.5


    Basic earnings per
     share:

         Continuing
          operations
          attributable to
          Express Scripts                    $0.68                                  $0.70             $1.10      $1.15

         Discontinued
          operations
          attributable to
          Express Scripts                        -                                (0.03)                -    (0.03)

         Net earnings
          attributable to
          Express Scripts                     0.68                                   0.67              1.10       1.12


    Diluted earnings
     per share:

         Continuing
          operations
          attributable to
          Express Scripts                    $0.67                                  $0.68             $1.09      $1.13

         Discontinued
          operations
          attributable to
          Express Scripts                        -                                (0.03)                -    (0.03)

         Net earnings
          attributable to
          Express Scripts                     0.67                                   0.66              1.09       1.10


    Amounts
     attributable to
     Express Scripts
     shareholders:

         Income from
          continuing
          operations, net
          of tax                            $515.2                                 $566.9            $843.5     $941.8

         Discontinued
          operations, net
          of tax                                 -                                (23.9)                -    (25.8)
                                               ---                                 -----               ---     -----

         Net income
          attributable to
          Express Scripts
          shareholders                      $515.2                                 $543.0            $843.5     $916.0

     (*) Includes retail pharmacy co-payments of $2,578.5
      million and $3,204.3 million for the three months
      ended June 30, 2014 and 2013, respectively, and
      $5,476.4 million and $6,878.7 million for the six
      months ended June 30, 2014 and 2013, respectively.

                                     EXPRESS SCRIPTS HOLDING COMPANY

                                  Unaudited Consolidated Balance Sheet


                                             June 30,                      December 31,

     (in millions)                                           2014                             2013
                                                             ----                             ----

     Assets

     Current assets:

     Cash and cash
      equivalents                                        $2,835.2                         $1,991.4

     Restricted cash and
      investments                                            20.6                             22.8

     Receivables, net                                     5,178.2                          4,022.9

     Inventories                                          1,767.0                          1,871.1

     Deferred taxes                                         518.5                            455.4

     Prepaid expenses and
      other current assets                                  132.9                             96.8

     Current assets of
      discontinued
      operations                                                -                            31.0
                                                              ---                            ----

        Total current assets                             10,452.4                          8,491.4

     Property and equipment,
      net                                                 1,644.1                          1,658.9

     Goodwill                                            29,305.5                         29,305.4

     Other intangible
      assets, net                                        13,142.2                         14,015.6

     Other assets                                            89.6                             76.9

        Total assets                                    $54,633.8                        $53,548.2
                                                        =========                        =========


     Liabilities and
      stockholders' equity

     Current liabilities:

     Claims and rebates
      payable                                            $7,569.0                         $6,767.8

     Accounts payable                                     2,959.3                          2,900.0

     Accrued expenses                                     1,517.8                          1,982.2

     Current maturities of
      long-term debt                                      3,938.3                          1,584.0

     Current liabilities of
      discontinued
      operations                                                -                             1.3
                                                              ---                             ---

        Total current
         liabilities                                     15,984.4                         13,235.3

     Long-term debt                                      12,165.5                         12,363.0

     Deferred taxes                                       5,351.4                          5,440.6

     Other liabilities                                      673.9                            664.4

     Noncurrent liabilities
      of discontinued
      operations                                                -                             0.1

        Total liabilities                                34,175.2                         31,703.4
                                                         --------                         --------


     Stockholders' equity:

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

     and no shares issued
      and outstanding

                                -                                        -

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

     shares issued: 843.7
      and 834.0,
      respectively;

     shares outstanding:
      745.4 and 773.6,
      respectively


                              8.4                                      8.3

     Additional paid-in
      capital                                            22,389.4                         21,809.9

     Accumulated other
      comprehensive income                                   12.9                             11.7

     Retained earnings                                    4,756.3                          3,912.8
                                                          -------                          -------

                                                         27,167.0                         25,742.7


     Common stock in
      treasury at cost,
      98.3 and 60.4 shares,
      respectively                                      (6,715.1)                       (3,905.3)
                                                         --------                         --------

        Total Express Scripts
         stockholders' equity                            20,451.9                         21,837.4
                                                         --------                         --------

     Non-controlling
      interest                                                6.7                              7.4
                                                              ---                              ---

        Total stockholders'
         equity                                          20,458.6                         21,844.8
                                                         --------                         --------

        Total liabilities and
         stockholders' equity                           $54,633.8                        $53,548.2
                                                        =========                        =========

                     EXPRESS SCRIPTS HOLDING COMPANY

              Unaudited Consolidated Statement of Cash Flows

                                                    Six Months Ended
                                                        June 30,
                                                        --------

     (in millions)                                     2014                2013
                                                       ----                ----


     Cash flows from operating
      activities:

     Net income                                      $857.2              $928.6

     Net loss from discontinued
      operations, net of tax                              -               25.8
                                                        ---               ----

          Net income from continuing
           operations                                 857.2               954.4

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

     Depreciation and amortization                  1,111.2             1,209.7

     Deferred income taxes                          (212.2)            (262.6)

     Employee stock-based
      compensation expense                             54.4                87.0

     Other, net                                      (35.1)             (49.1)

     Changes in operating assets and
      liabilities:

     Accounts receivable                          (1,163.0)              867.7

     Inventories                                      104.1              (12.0)

     Other current and noncurrent
      assets                                         (44.8)               15.5

     Claims and rebates payable                       801.2           (1,616.6)

     Accounts payable                                  65.2             (265.1)

     Other current and noncurrent
      liabilities                                   (348.7)            (121.0)
                                                     ------              ------

     Net cash provided by operating
      activities -continuing
      operations                                    1,189.5               807.9

     Net cash used in operating
      activities -discontinued
      operations                                          -             (25.4)
                                                        ---              -----

     Net cash flows provided by
      operating activities                          1,189.5               782.5
                                                    -------               -----


     Cash flows from investing
      activities:

     Purchases of property and
      equipment                                     (208.8)            (194.9)

     Proceeds from sale of business                       -               77.9

     Other                                              6.7                 1.3

     Net cash used in investing
      activities -continuing
      operations                                    (202.1)            (115.7)

     Net cash used in investing
      activities -discontinued
      operations                                          -              (2.1)
                                                        ---               ----

     Net cash used in investing
      activities                                    (202.1)            (117.8)
                                                     ------              ------


     Cash flows from financing
      activities:

     Treasury stock acquired                      (2,659.9)            (801.0)

     Proceeds from long-term debt,
      net of discounts                              2,490.1                   -

     Repayment of long-term debt                    (315.8)          (1,615.8)

     Net proceeds from employee stock
      plans                                           312.1               271.0

     Excess tax benefit relating to
      employee stock compensation                      65.9                14.8

     Distributions paid to non-
      controlling interest                           (14.2)             (13.4)

     Other                                           (21.6)                6.3
                                                      -----                 ---

     Net cash used in financing
      activities                                    (143.4)          (2,138.1)
                                                     ------            --------


     Effect of foreign currency
      translation adjustment                          (0.2)              (5.2)


     Less: cash decrease attributable
      to discontinued operations                          -               27.4


     Net increase (decrease) in cash
      and cash equivalents                            843.8           (1,451.2)

     Cash and cash equivalents at
      beginning of period                           1,991.4             2,793.1
                                                    -------             -------

     Cash and cash equivalents at end
      of period                                    $2,835.2            $1,341.9
                                                   ========            ========


                                                         Table 1

                        Express Scripts Holding Company Unaudited Consolidated Selected Information

                                                      (in millions)


                                                 Three Months Ended                        Six Months Ended
                                                      June 30,                                June 30,
                                                      --------                                --------

                                                   2014                       2013                         2014     2013
                                                   ----                       ----                         ----     ----

    Claims Volume

    Continuing operations:

    Network                                       231.0                      266.2                        461.7    549.0

    Home delivery and
     specialty(1)                                  32.0                       35.3                         62.5     72.0

       Total claims                               263.0                      301.5                        524.2    621.0
                                                  -----                      -----                        -----    -----


    Total adjusted
     claims -continuing
     operations(2)                                324.5                      369.3                        644.5    759.2
                                                  =====                      =====                        =====    =====


     Depreciation and Amortization (D&A):

     Revenue
      amortization(3)                             $28.5                      $28.5                        $57.0    $57.0

     Cost of revenues
      depreciation                                 32.1                       29.8                         62.7     57.3

     Selling, general and
      administrative
      depreciation                                 88.2                       74.0                        172.6    145.4

     Selling, general and
      administrative
      amortization(3)                             409.3                      477.1                        818.9    950.0

          Total D&A -
           continuing
           operations                            $558.1                     $609.4                     $1,111.2 $1,209.7
                                                 ======                     ======                     ======== ========


     Generic Fill Rate*

     Network                                      83.9%                     81.7%                       83.6%   81.5%

     Home delivery                                76.9%                     74.6%                       76.7%   74.3%

     Overall                                      83.0%                     80.9%                       82.7%   80.7%


     Note: See Appendix for Footnotes

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


                                                  Table 2

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

                                               (in millions)


                                            Three Months Ended                    Six Months Ended
                                                 June 30,                             June 30,
                                                 --------                             --------

                                                2014                    2013                    2014          2013
                                                ----                    ----                    ----          ----

    Gross profit, as
     reported                               $2,007.7                $2,115.1                $3,758.1      $4,077.2

    Amortization of
     intangible assets
     (3)                                       28.5                    28.5                    57.0          57.0

    Transaction and
     integration costs
     (4)                                      108.6                    36.6                   216.4          81.1

    Adjusted gross
     profit                                 $2,144.8                $2,180.2                $4,031.5      $4,215.3
                                            ========                ========                ========      ========


    Selling, general
     and
     administrative, as
     reported                               $1,041.7                $1,110.8                $2,082.9      $2,229.8

    Amortization of
     intangible assets
     (3)                                      409.3                   477.1                   818.9         950.0

    Transaction and
     integration costs
     (4)                                      129.8                   105.3                   255.1         215.4

    Adjusted selling,
     general and
     administrative                           $502.6                  $528.4                $1,008.9      $1,064.4
                                              ======                  ======                ========      ========


     Note: See Appendix for Footnotes

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

                                                         Table 3

                                  Express Scripts Holding Company EBITDA Reconciliation

                                           (in millions, except per claim data)

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

                                            Three Months Ended                      Six Months Ended
                                               June 30,                            June 30,
                                               --------                            --------

                                               2014                      2013                      2014                     2013
                                               ----                      ----                      ----                     ----

    Net income from
     continuing
     operations,
     attributable
     to Express
     Scripts, as
     reported                                $515.2                    $566.9                    $843.5                   $941.8

      Provision for
       income taxes                           318.9                     310.4                     580.2                    569.5

      Depreciation
       and
       amortization                           558.1                     609.4                   1,111.2                  1,209.7

      Interest
       expense, net                           129.1                     126.5                     244.2                    340.3

      Equity income
       from joint
       venture                                (4.7)                    (7.0)                    (6.4)                  (16.8)
                                               ----                      ----                      ----                    -----

    EBITDA from
     continuing
     operations,
     attributable
     to Express
     Scripts, as
     reported                               1,516.6                   1,606.2                   2,772.7                  3,044.5

    Transaction and
     integration
     costs (4)*                               218.6                     139.9                     433.5                    294.5
                                              -----                     -----                     -----                    -----

    Adjusted EBITDA
     from
     continuing
     operations,
     attributable
     to Express
     Scripts                               $1,735.2                  $1,746.1                  $3,206.2                 $3,339.0


    Total adjusted
     claims -
     continuing
     operations                               324.5                     369.3                     644.5                    759.2


    Adjusted EBITDA
     from
     continuing
     operations,
     attributable
     to Express
     Scripts, per
     adjusted claim                           $5.35                     $4.73                     $4.97                    $4.40


     Note: See Appendix for Footnotes

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


    EBITDA from continuing operations is earnings before other income
     (expense), interest, taxes, depreciation and amortization, or
     alternatively calculated as operating income from continuing
     operations plus depreciation and amortization less non-controlling
     interest.  EBITDA from continuing operations is presented because it
     is a widely accepted indicator of a company's ability to service
     indebtedness and is frequently used to evaluate a company's
     performance.  EBITDA from continuing operations, however, should not
     be considered as an alternative to net income from continuing
     operations, as a measure of operating performance, as an alternative
     to cash flow, as a measure of liquidity or as a substitute for any


    Adjusted EBITDA from continuing operations per adjusted claim is a
     supplemental measurement used by analysts and investors to help
     evaluate overall operating performance.  We have calculated adjusted
     EBITDA from continuing operations excluding transaction and
     integration costs recorded each year, as these charges are not
     considered an indicator of ongoing company performance.  Adjusted
     EBITDA from continuing operations per adjusted claim is calculated by
     dividing adjusted EBITDA from continuing operations by the adjusted
     claim volume for the period.  This measure is used as an indicator of
     EBITDA performance on a per-unit basis.  Adjusted EBITDA from
     continuing operations, and as a result, adjusted EBITDA from


    *  Transaction and integration costs for the three and six months
     ended June 30, 2014 presented above excludes $19.8 million and $38.0
     million, respectively, of depreciation related to the integration of
     Medco which does not impact EBITDA.  Transaction and integration
     costs for the three and six months ended June 30, 2013 presented
     above excludes $2.0 million, respectively, of depreciation related to
     the integration of Medco which does not impact EBITDA.


                                                             Table 4

                               Calculation of Express Scripts Holding Company Adjusted Diluted EPS


                      Three Months Ended                   Six Months Ended
                           June 30,                            June 30,
                           --------                            --------

                                     2014                                 2013                       2014     2013

                                                          (per diluted share)

    EPS from
     continuing
     operations
     attributable to
     Express Scripts,
     as reported                    $0.67                                $0.68                      $1.09    $1.13


    Excluding items
     indicated:

    Transaction and
     integration
     costs (4)                       0.20                                 0.10                       0.37     0.21

    Debt redemption
     costs (5)                          -                                   -                         -    0.05

    Discrete tax
     items (6)                          -                              (0.02)                      0.05   (0.01)

    Amortization of
     intangible
     assets (3)                      0.36                                 0.37                       0.70     0.74


    EPS from
     continuing
     operations
     attributable to
     Express Scripts,
     adjusted                       $1.23                                $1.13                      $2.21    $2.12
                                    -----                                -----                      -----    -----



     Note: See
      Appendix for
      Footnotes

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


                                                                                                                            Table 5

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

                                                                                                                         (in millions)

                                                   Three Months Ended                                           Six Months Ended
                                                     June 30, 2014                                               June 30, 2014
                                                     -------------                                               -------------

                                                 Income                  Provision                                      Effective                                       Income                 Provision              Effective

                                                 before               for income taxes                                  income tax                                      before              for income taxes          income tax

                                              income taxes                                                                 rate                                      income taxes                                       rate
                                              ------------                                                                 ----                                      ------------                                       ----

    Income, as
     reported                                               $841.6                     $318.9                                                                                      $1,437.4                    $580.2

    Non-
     controlling
     interest                                                (7.5)                         -                                                                                       (13.7)                        -
                                                              ----                        ---                                                                                        -----                       ---

    Total
     attributable
     to Express
     Scripts, as
     reported                                                834.1                      318.9                                            38.2%                                      1,423.7                     580.2            40.8%


    Excluding items indicated:

    Transaction and
     integration
     costs(4)                                                238.4                       90.5                                                                                         471.5                     179.5

    Debt redemption
     costs(5)                                                  4.4                        1.7                                                                                           4.4                       1.7

    Discrete tax items(6)                                                            (1.9)                                                                                                                (38.0)

    Amortization of
     intangible
     assets(3)                                               437.8                      166.1                                                                                         875.9                     333.5
                                                             -----                      -----                                                                                         -----                     -----


    Total
     attributable
     to Express
     Scripts, as
     adjusted                                             $1,514.7                     $575.3                                            38.0%                                     $2,775.5                  $1,056.9            38.1%


    Adjusted net income attributable to Express
     Scripts, net of tax

                                                                                    $939.4                                                                                                               $1,718.6


     Note: See Appendix for Footnotes.

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



                                                                                                                                    Table 5A

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

                                                                                                                                 (in millions)

                                                   Three Months Ended                                                    Six Months Ended
                                                     June 30, 2013                                                        June 30, 2013
                                                     -------------                                                        -------------

                                                 Income                            Provision                                      Effective                                      Income                    Provision               Effective

                                                 before                           for income                                     income tax                                      before                   for income              income tax

                                                 income                              taxes                                          rate                                         income                      taxes                   rate

                                                  taxes                                                                                                                          taxes
                                                  -----                                                                                                                          -----

    Income from
     continuing
     operations, as
     reported                                               $884.8                               $310.4                                                                                     $1,523.9                       $569.5

    Non-
     controlling
     interest                                                (7.5)                                   -                                                                                      (12.6)                           -
                                                              ----                                  ---                                                                                       -----                          ---

    Total
     continuing
     operations
     attributable
     to Express
     Scripts, as
     reported                                                877.3                                310.4                                           35.4%                                      1,511.3                        569.5            37.7%


    Excluding items indicated:

    Transaction and
     integration
     costs(4)                                                141.9                                 55.8                                                                                        296.5                        116.6

    Debt redemption costs(5)                                                                                                                                                                68.5                         26.9

    Discrete tax items(6)                                                                       19.6                                                                                                                      9.0

    Amortization of
     intangible
     assets(3)                                               505.6                                198.7                                                                                      1,007.0                        395.8
                                                             -----                                -----                                                                                      -------                        -----


    Total
     continuing
     operations
     attributable
     to Express
     Scripts, as
     adjusted                                             $1,524.8                               $584.5                                           38.3%                                     $2,883.3                     $1,117.8            38.8%


    Adjusted net income from continuing
     operations attributable to Express Scripts,
     net of tax                                                                               $940.3                                                                                                                 $1,765.5


     Note: See Appendix for Footnotes.

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


                                                        Table 6

                               Express Scripts Holding Company 2014 Guidance Information

                                                  Estimated                                  Estimated
                                                Year Ending                                 Year Ending
                                             December 31, 2014                           December 31, 2014

      (in millions, except per
       share and per claim
       data)                                  Current Guidance                           Previous Guidance
                                             ----------------                            -----------------


    Adjusted EPS attributable
     to Express Scripts*                              $4.84 to $4.92                              $4.82 to $4.94

    Year over year growth
     excluding UNH -See
     Table 8                                                 17%-19%                                    17%-20%


    Total adjusted claims                     1,275 to 1,325                              1,270 to 1,330


    Adjusted selling, general
     and administrative*                            $1,950 to $2,025                            $1,950 to $2,025


    Depreciation**                                      $400 to $420                                $400 to $420


    Effective income tax rate                         38.0% to 38.2%                             38.0% to 38.5%


    Adjusted EBITDA*                                $6,775 to $6,925                            $6,775 to $6,975


    Adjusted EBITDA per
     adjusted claim*                                  $5.20 to $5.30                              $5.20 to $5.30


    Diluted weighted average
     shares outstanding
     during the period                          750 to 760                                  755 to 765


    Cash flow from operations                       $4,550 to $5,150                            $4,550 to $5,150


    Capital expenditures                                $400 to $450                                $400 to $450

    GAAP items not included in
     guidance (*)

    The full-year impact of integration and
     certain other costs has yet to be determined.
      Accordingly, the Company is unable to
      include these charges in the list of GAAP
     items not included in guidance for 2014 full-
     year and third quarter adjusted EPS, adjusted
     selling, general and administrative, adjusted
     EBITDA and adjusted EBITDA per adjusted claim
     or to provide a reconciliation to the
     corresponding GAAP measure.  These
     integration expenses are expected to end in



    **  Approximately $280 to $300 million of this
     depreciation guidance is included in the
     guidance for adjusted selling, general and
     administrative expenses.  The remainder of
     the depreciation guidance is reported in
     costs of goods sold.


                                                                       Table 7

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

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

                                                                                                Q2 2013

                                                                                    UNH       Excluding                  Q2 2014 Change

    (Three Months Ended)             Q2 2014                         Q2 2013     (Table 8)        UNH                    Including UNH         Excluding UNH
                                     -------                         -------      --------        ---                    -------------         -------------


    Adjusted
     claims                   Table 1                      324.5                       369.3        (28.1)         341.2                   -12%                 -5%


    Adjusted
     SG&A                     Table 2                     $502.6                      $528.4        $(2.5)        $525.9                    -5%                 -4%


    Adjusted
     EBITDA                   Table 3                   $1,735.2                    $1,746.1       $(87.2)      $1,658.9                    -1%                  5%


    Adjusted
     EBITDA,
     per
     adjusted
     claim                    Table 3                      $5.35                       $4.73         $3.10          $4.86                    13%                 10%


    GAAP net income                         $515.2                      $566.9        $(53.7)       $513.2                             -9%                   0%


    Adjusted
     net
     income                   Table 5                     $939.4                      $940.3       $(53.7)        $886.6                     0%                  6%


    GAAP diluted earnings per
     share                                   $0.67                       $0.68        $(0.06)        $0.62                             -1%                   8%


    Adjusted
     diluted
     earnings
     per
     share                    Table 4                      $1.23                       $1.13       $(0.06)         $1.07                     9%                 15%


                                                                                                Q2 2013

                                                                                    UNH       Excluding                  Q2 2014 Change

    (Six Months Ended)               Q2 2014                         Q2 2013     (Table 8)        UNH                    Including UNH         Excluding UNH
                                     -------                         -------      --------        ---                    -------------         -------------


    Adjusted
     claims                   Table 1                      644.5                       759.2        (65.4)         693.8                   -15%                 -7%


    Adjusted
     SG&A                     Table 2                   $1,008.9                    $1,064.4        $(5.0)      $1,059.4                    -5%                 -5%


    Adjusted
     EBITDA                   Table 3                   $3,206.2                    $3,339.0      $(180.7)      $3,158.3                    -4%                  2%


    Adjusted
     EBITDA,
     per
     adjusted
     claim                    Table 3                      $4.97                       $4.40         $2.76          $4.55                    13%                  9%


    GAAP net income                         $843.5                      $941.8       $(110.6)       $831.2                            -10%                   1%


    Adjusted
     net
     income                   Table 5                   $1,718.6                    $1,765.5      $(110.6)      $1,654.9                    -3%                  4%


    GAAP diluted earnings per
     share                                   $1.09                       $1.13        $(0.13)        $1.00                             -4%                   9%


    Adjusted
     diluted
     earnings
     per
     share                    Table 4                      $2.21                       $2.12       $(0.13)         $1.99                     4%                 11%

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


    Amounts presented as continuing operations.


                                                                               Table 8

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

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


                                                                                                                                        Full Year

                                            Q1 2013                  Q2 2013                   Q3 2013                    Q4 2013                2013
                                            -------                  -------                   -------                    -------                ----


    Adjusted claims                                      37                       28                           16                     8                89


    Adjusted SG&A                                        $2                       $2                           $2                    $2               $10


    Adjusted EBITDA                                     $94                      $87                          $53                   $29              $263


    Adjusted EBITDA,
     per adjusted
     claim                                            $2.51                    $3.10                        $3.36                 $3.52             $2.94


    Adjusted net
     income                                             $57                      $54                          $33                   $18              $162


    Adjusted diluted
     earnings per
     share                                            $0.07                    $0.06                        $0.04                 $0.02             $0.20



    Adjusted diluted earnings per share

    as reported:                                      $0.99                    $1.13                        $1.08                 $1.12             $4.33


    Adjusted diluted earnings per share

    excluding UNH:                                    $0.92                    $1.07                        $1.04                 $1.10             $4.13

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


    Amounts presented as continuing operations.

                  Appendix

                  Footnotes


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


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


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

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

    Revenue amortization is related to
     the customer contract with
     WellPoint which commenced upon
     closing of the NextRx acquisition
     in 2009.  Under U.S. GAAP,
     amortization of intangibles that
     arise in connection with
     consideration given to a customer
     by a vendor is characterized as a
     reduction of revenues.  Intangible
     amortization of $28.5 million
     ($17.7 million and $17.3 million
     net of tax in 2014 and 2013,
     respectively) is included as a
     reduction to revenue for the three
     months ended June 30, 2014 and
     2013.  Intangible amortization of
     $57.0 million ($35.3 million and
     $34.6 million net of tax in 2014
     and 2013, respectively) is
     included as a reduction to revenue
     for the six months ended June 30,
     2014 and 2013.


    Other legacy Express Scripts
     intangible amortization of $9.4
     million ($5.9 million net of tax)
     and $10.2 million ($6.2 million
     net of tax) for the three months
     ended June 30, 2014 and 2013,
     respectively, is included in
     selling, general and
     administrative expense.   Other
     legacy Express Scripts intangible
     amortization of $18.8 million
     ($11.7 million net of tax) and
     $20.3 million ($12.3 million net
     of tax) for the six months ended
     June 30, 2014 and 2013,
     respectively, is included in
     selling, general and
     administrative expense.


    Amortization of intangible assets
     related to the acquisition of
     Medco Health Solutions, Inc.
     ("Medco") of $399.9 million
     ($248.1 million net of tax) and
     $466.9 million ($283.4 million net
     of tax) for the three months ended
     June 30, 2014  and 2013,
     respectively, is included in
     selling, general and
     administrative expense.
     Amortization of intangible assets
     related to the acquisition of
     Medco of $800.1 million ($495.4
     million net of tax) and $929.7
     million ($564.3 million net of
     tax) for the six months ended June
     30, 2014  and 2013, respectively,
     is included in selling, general
     and administrative expense.


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


    Costs of $108.6 million ($67.4
     million net of tax) and $36.6
     million ($22.2 million net of tax)
     primarily composed of integration-
     related activities, are included
     in gross profit for the three
     months ended June 30, 2014 and
     2013, respectively.  Costs of
     $216.4 million ($134.0 million net
     of tax) and $81.1 million ($49.2
     million net of tax) primarily
     composed of integration-related
     activities, are included in gross
     profit for the six months ended
     June 30, 2014 and 2013,
     respectively.


    Costs of $129.8 million ($80.5
     million net of tax) and $105.3
     million ($63.9 million net of tax)
     primarily composed of professional
     fees, integration-related
     activities and severance costs,
     including stock compensation, are
     included in selling, general and
     administrative expense for the
     three months ended June 30, 2014
     and 2013, respectively.  Costs of
     $255.1 million ($158.0 million net
     of tax) and $218.9 million ($132.8
     million net of tax) primarily
     composed of professional fees,
     integration-related activities
     and severance costs, including
     stock compensation, are included
     in selling, general and
     administrative expense for the six
     months ended June 30, 2014 and
     2013, respectively.


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


    (5)Debt redemption costs, which
     includes write-off of deferred
     financing fees incurred for the
     early redemption of senior notes,
     totaled $4.4 million ($2.7 million
     net of tax) and included in
     interest expense for the three
     months ended June 30, 2014  and
     $68.5 million ($41.6 million net
     of tax) is included in interest
     expense for the six months ended
     June 30, 2013.


    (6) Provision for income taxes
     includes discrete tax charges for
     continuing operations of $1.9
     million and $38.0 million for the
     three and six months ended June
     30, 2014 primarily attributable to
     changes in unrecognized tax
     benefits and deferred tax
     implications of newly enacted
     state laws.  Provision for income
     taxes includes discrete tax
     benefits for continuing operations
     of $19.6 million and $9.0 million
     for the three and six months ended
     June 30, 2013 primarily
     attributable to changes in
     unrecognized tax benefits and the
     deferred tax implications related
     to investments in certain foreign
     subsidiaries for which the Company
     expects to realize in the
     foreseeable future.

SOURCE Express Scripts Holding Company