Express Scripts Announces 2017 Fourth Quarter and Full Year Results

 EXPRESS SCRIPTS HOLDING COMPANY 

 Unaudited Consolidated Statement of Operations 

 Three Months Ended
December 31, 

 Year Ended
December 31, 

  (in millions, except per share data) 

2017

2016

2017

2016

Revenues^*

$ 25,378.8

$ 24,863.3

$ 100,064.6

$ 100,287.5

Cost of revenues^*

22,888.3

22,525.1

91,302.5

91,667.0

    Gross profit 

2,490.5

2,338.2

8,762.1

8,620.5

Selling, general and administrative

908.1

863.5

3,268.1

3,532.7

Operating income

1,582.4

1,474.7

5,494.0

5,087.8

Other (expense) income:

    Interest income and other 

14.2

6.7

42.9

34.1

    Interest expense and other 

(168.0)

(146.0)

(607.9)

(694.8)

(153.8)

(139.3)

(565.0)

(660.7)

Income before income taxes

1,428.6

1,335.4

4,929.0

4,427.1

(Benefit) provision for income taxes

(902.3)

(104.4)

397.3

999.5

Net income 

2,330.9

1,439.8

4,531.7

3,427.6

Less: Net income attributable to non-controlling interest

3.3

5.1

14.3

23.2

Net income attributable to Express Scripts

$   2,327.6

$   1,434.7

$     4,517.4

$     3,404.4

Weighted-average number of common shares

 outstanding during the period: 

    Basic 

565.0

609.1

580.1

626.9

    Diluted 

568.4

613.5

583.4

631.4

Earnings per share attributable to Express Scripts:

     Basic

$        4.12

$        2.36

$          7.79

$          5.43

     Diluted

$        4.10

$        2.34

$          7.74

$          5.39

* Includes retail pharmacy co-payments of $1,831.6 million and $1,883.3 million for the three months ended December 31, 2017 and 2016, respectively, and $8,241.3 million and $8,569.2 million for the years ended December 31, 2017 and 2016, respectively.

 EXPRESS SCRIPTS HOLDING COMPANY 

 Unaudited Consolidated Balance Sheet 

 December 31,  

 December 31,  

 (in millions) 

2017

2016

 Assets 

 Current assets: 

 Cash and cash equivalents 

$            2,309.6

$            3,077.2

 Receivables, net 

7,056.3

7,062.1

 Inventories 

2,124.9

1,959.0

 Prepaid expenses and other current assets 

466.3

265.1

    Total current assets 

11,957.1

12,363.4

 Property and equipment, net 

551.3

607.0

 Computer software, net 

814.9

712.6

 Goodwill 

31,099.7

29,277.8

 Other intangible assets, net 

9,625.9

8,636.9

 Other assets 

206.9

147.2

    Total assets 

$          54,255.8

$          51,744.9

 Liabilities and stockholders' equity 

 Current liabilities: 

 Claims and rebates payable 

$          10,188.5

$            8,836.9

 Accounts payable 

3,755.7

3,875.7

 Accrued expenses 

2,869.3

2,993.2

 Short-term debt and current maturities of long-term debt 

1,032.9

722.3

    Total current liabilities 

17,846.4

16,428.1

 Long-term debt 

14,981.5

14,846.0

 Deferred taxes 

2,562.4

3,603.3

 Other liabilities 

740.2

623.7

    Total liabilities 

36,130.5

35,501.1

 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 per share; shares issued: 862.3 and 857.5, respectively; shares outstanding: 564.4 and 605.5, respectively 

8.6

8.6

 Additional paid-in capital 

23,537.8

23,233.6

 Accumulated other comprehensive loss 

(2.9)

(12.3)

 Retained earnings 

16,318.6

11,801.2

39,862.1

35,031.1

 Common stock in treasury at cost, 297.9 and 252.0 shares, respectively  

(21,742.5)

(18,795.1)

    Total Express Scripts stockholders' equity 

18,119.6

16,236.0

 Non-controlling interest 

5.7

7.8

    Total stockholders' equity 

18,125.3

16,243.8

    Total liabilities and stockholders' equity 

$          54,255.8

$          51,744.9

 EXPRESS SCRIPTS HOLDING COMPANY 

 Unaudited Consolidated Statement of Cash Flows 

 Year Ended
December 31, 

 (in millions) 

2017

2016

 Cash flows from operating activities: 

 Net income 

$  4,531.7

$  3,427.6

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

 Depreciation and amortization 

1,802.0

2,154.6

 Deferred income taxes 

(1,678.9)

(497.4)

 Employee stock-based compensation expense 

99.6

107.0

 Other, net 

43.3

(36.2)

 Changes in operating assets and liabilities:  

 Receivables 

55.9

(374.0)

 Inventories 

(166.7)

64.1

 Other current and noncurrent assets 

(172.5)

(137.5)

 Claims and rebates payable 

1,114.9

(560.8)

 Accounts payable 

(126.8)

436.4

 Accrued expenses 

(241.7)

404.2

 Other current and noncurrent liabilities 

90.5

(68.6)

 Net cash flows provided by operating activities 

5,351.3

4,919.4

 Cash flows from investing activities: 

 Acquisitions, net of cash acquired 

(3,501.1)

-

 Capital expenditures for property and equipment and computer software 

(267.4)

(330.4)

 Net cash proceeds from the sale of business 

85.3

-

 Other, net 

(7.4)

(21.5)

 Net cash used in investing activities 

(3,690.6)

(351.9)

 Cash flows from financing activities: 

 Treasury stock acquired 

(2,938.0)

(4,746.9)

 Proceeds from long-term debt, net of discounts 

1,398.9

5,986.8

 Repayment of long-term debt 

(1,125.0)

(5,932.5)

 Commercial paper borrowings, net 

194.8

-

 Net proceeds from employee stock plans 

81.0

87.2

 Other, net 

(44.9)

(72.4)

 Net cash used in financing activities 

(2,433.2)

(4,677.8)

 Effect of foreign currency translation adjustment 

4.9

1.2

 Net decrease in cash and cash equivalents 

(767.6)

(109.1)

 Cash and cash equivalents at beginning of period 

3,077.2

3,186.3

 Cash and cash equivalents at end of period 

$  2,309.6

$  3,077.2

 Table 1 

  Express Scripts Holding Company Unaudited Consolidated Selected Information 

 (in millions) 

 Three Months Ended
December 31,  

 Year Ended
December 31, 

2017

2016

2017

2016

Claims Volume

Network

222.2

223.1

877.6

887.4

Home delivery and specialty⁽²⁾

29.4

30.4

116.7

120.2

   Total claims 

251.6

253.5

994.3

1,007.6

Adjusted network⁽³⁾

270.3

266.2

1,061.0

1,056.5

Adjusted home delivery and specialty⁽³⁾

85.5

88.7

340.1

351.1

   Total adjusted claims⁽³⁾

355.8

354.9

1,401.1

1,407.6

 Depreciation and Amortization (D&A):  

 Revenue amortization⁽⁴⁾

$   55.4

$   55.4

$    221.7

$    200.5

 Cost of revenues depreciation 

34.0

27.9

130.2

113.4

 Selling, general and administrative depreciation 

52.4

53.4

207.7

208.4

 Selling, general and administrative amortization⁽⁴⁾

316.1

406.7

1,242.4

1,632.3

      Total D&A  

$ 457.9

$ 543.4

$ 1,802.0

$ 2,154.6

 Generic Fill Rate** 

 Network 

86.0%

85.8%

86.7%

86.0%

 Home delivery 

83.5%

81.4%

83.0%

80.8%

 Overall 

85.7%

85.2%

86.2%

85.3%

See Footnotes to Press Release

**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

Express Scripts Holding Company Unaudited Adjusted Gross Profit and Adjusted SG&A Reconciliation

Provided below are reconciliations of adjusted gross profit and adjusted selling, general and administrative expenses, which are non-GAAP measures, to gross profit and selling, general and administrative expenses, respectively, which are the most directly comparable measures calculated in accordance with GAAP.

(in millions)

 Three Months Ended
December 31,  

 Year Ended
December 31,  

2017

2016

2017

2016

Gross profit, as reported

$ 2,490.5

$ 2,338.2

$ 8,762.1

$ 8,620.5

Amortization of intangible assets ⁽⁴⁾

55.4

55.4

221.7

200.5

Enterprise value initiative costs ⁽⁵⁾

2.7

-

5.0

-

Adjusted gross profit

$ 2,548.6

$ 2,393.6

$ 8,988.8

$ 8,821.0

Selling, general and administrative, as reported

$    908.1

$    863.5

$ 3,268.1

$ 3,532.7

Amortization of intangible assets ⁽⁴⁾

316.1

406.7

1,242.4

1,632.3

Enterprise value initiative costs ⁽⁵⁾

16.9

-

37.8

-

Transaction and integration costs ⁽⁶⁾

91.9

-

91.9

-

Other compensation costs ⁽⁷⁾

-

41.2

-

41.2

Adjusted selling, general and administrative

$    483.2

$    415.6

$ 1,896.0

$ 1,859.2

 See Footnotes to Press Release 

 Table 3 

 Express Scripts Holding Company Unaudited EBITDA and Adjusted EBITDA Reconciliation 

 (in millions, except per claim data) 

Provided below is a reconciliation of EBITDA and Adjusted EBITDA attributable to Express Scripts, which are non-GAAP financial measures, to net income attributable to Express Scripts.  The Company believes net income is the most directly comparable measure under GAAP.

 Three Months Ended
December 31,   

 Year Ended
December 31,  

2017

2016

2017

2016

Net income attributable to Express Scripts, as reported

$ 2,327.6

$ 1,434.7

$ 4,517.4

$ 3,404.4

  (Benefit) provision for income taxes ⁽⁸⁾

(902.3)

(104.4)

397.3

999.5

  Depreciation and amortization^(4),*

457.9

543.4

1,802.0

2,154.6

  Other expense (income), net

153.8

139.3

565.0

660.7

EBITDA attributable to Express Scripts

$ 2,037.0

$ 2,013.0

$ 7,281.7

$ 7,219.2

Adjustments to EBITDA

Transaction and integration costs ⁽⁶⁾

91.9

-

91.9

-

Enterprise value initiative costs^(5),*

19.0

-

41.9

-

Other compensation costs ⁽⁷⁾

-

41.2

-

41.2

Adjusted EBITDA attributable to Express Scripts

$ 2,147.9

$ 2,054.2

$ 7,415.5

$ 7,260.4

Total adjusted claims⁽³⁾

355.8

354.9

1,401.1

1,407.6

Adjusted EBITDA attributable to Express Scripts, per adjusted claim

$      6.04

$      5.79

$      5.29

$      5.16

 See Footnotes to Press Release 

*  Depreciation and amortization for the three months and year ended December 31, 2017, as presented above includes $0.6 million and $0.9 million, respectively, of accelerated depreciation in connection with the enterprise value initiative which is not otherwise included in enterprise value initiative costs.  

 Table 4 

 Express Scripts Holding Company Unaudited Adjusted Diluted EPS Reconciliation 

 Provided below is a reconciliation of Adjusted Diluted EPS attributable to Express Scripts, which is a non-GAAP measure, to diluted 

 EPS attributable to Express Scripts, which is its most directly comparable measure calculated in accordance with GAAP. 

 Three Months Ended
December 31,  

 Year Ended
December 31,  

2017

2016

2017

2016

 (per diluted share) 

Diluted EPS attributable to Express Scripts, as reported

$  4.10

$  2.34

$  7.74

$  5.39

Excluding items indicated: 

Amortization of intangible assets ^(4),*

0.65

0.75

2.51

2.90

Enterprise value initiative costs ^(5),*

0.03

-

0.07

-

Discrete tax items ⁽⁸⁾

(2.49)

(0.97)

(2.40)

(1.00)

Debt redemption costs ^(9),*

-

-

-

0.22

Transaction and integration costs ^(6),*

0.16

-

0.16

-

Other compensation costs ^(7),*

-

0.06

-

0.06

Loss on disposal ^(10),*

0.03

-

0.03

-

Tax impact of excluded items ⁽¹¹⁾

(0.32)

(0.30)

(1.01)

(1.18)

Diluted EPS attributable to Express Scripts, adjusted

$  2.16

$  1.88

$  7.10

$  6.39

 See Footnotes to Press Release 

*Presented on a pre-tax basis.  

 Table 5 

 Express Scripts Holding Company Unaudited Adjusted Net Income and
Adjusted Effective Income Tax Rate Reconciliation 

 (in millions) 

 Presented below is a reconciliation of adjusted net income attributable to Express Scripts, which is a non-GAAP financial measure, to income before income taxes, which is its most directly comparable measure calculated in accordance with GAAP. 

 Three Months Ended
December 31, 2017 

 Year Ended
December 31, 2017 

Income
before
income
taxes

Provision
for income
taxes

Effective
income tax
rate

Income
before
income
taxes

Provision
for income
taxes

Effective
income tax
rate

Income before income taxes, as reported

$      1,428.6

$        (902.3)

$      4,929.0

$          397.3

Net income attributable to non-controlling interest

(3.3)

-

(14.3)

-

Income before income taxes attributable to Express Scripts

1,425.3

(902.3)

-63.3%

4,914.7

397.3

8.1%

Excluding items indicated: 

Discrete tax items⁽⁸⁾

-

1,417.9

-

1,402.4

Loss on disposal ⁽¹⁰⁾

17.7

6.5

17.7

6.5

Enterprise value initiative costs⁽⁵⁾

19.6

7.2

42.8

15.7

Transaction and integration costs ⁽⁶⁾

91.9

33.7

91.9

33.7

Amortization of intangible assets⁽⁴⁾

371.5

134.0

1,464.1

536.1

Income before income taxes attributable to Express Scripts, as adjusted

$      1,926.0

$          697.0

36.2%

$      6,531.2

$       2,391.7

36.6%

Adjusted net income attributable to Express Scripts

$      1,229.0

$      4,139.5

 See Footnotes to Press Release 

 Table 5A 

 Express Scripts Holding Company Unaudited Adjusted Net Income and
Adjusted Effective Income Tax Rate Reconciliation 

 (in millions) 

 Presented below is a reconciliation of adjusted net income attributable to Express Scripts, which is a non-GAAP financial measure, to income before income taxes, which is its most directly comparable measure calculated in accordance with GAAP. 

 Three Months Ended
December 31, 2016 

 Year Ended
December 31, 2016 

Income
before
income
taxes

Provision
for income
taxes

Effective
income tax
rate

Income
before
income
taxes

Provision
for income
taxes

Effective
income tax
rate

Income before income taxes, as reported

$      1,335.4

$        (104.4)

$      4,427.1

$          999.5

Net income attributable to non-controlling interest

(5.1)

-

(23.2)

-

Income before income taxes attributable to Express Scripts

1,330.3

(104.4)

-7.8%

4,403.9

999.5

22.7%

Excluding items indicated: 

Amortization of intangible assets⁽⁴⁾

462.1

171.5

1,832.8

679.8

Discrete tax items⁽⁸⁾

-

598.2

-

633.9

Debt redemption costs ⁽⁹⁾

-

-

135.6

50.3

Other compensation costs ⁽⁷⁾

41.2

15.3

41.2

15.3

Income before income taxes attributable to Express Scripts, as adjusted

$      1,833.6

$          680.6

37.1%

$      6,413.5

$       2,378.8

37.1%

Adjusted net income attributable to Express Scripts

$      1,153.0

$      4,034.7

 See Footnotes to Press Release 

 Table 6 

 Express Scripts Holding Company Unaudited 2018 Guidance Information 

Adjusted diluted EPS and adjusted EBITDA are non-GAAP financial measures.  For a discussion of the financial measures presented herein that are not calculated or presented in accordance with GAAP, see "Supplemental Information Regarding Non-GAAP Financial Measures" above.

Consolidated Guidance  

                 Estimated
              Year Ending
         December 31, 2018 

                 Estimated
              Year Ending
         December 31, 2018 

(in millions, except per share data)

 Current Guidance 

 Previous Guidance* 

Adjusted Diluted EPS attributable to Express Scripts

$9.27 to $9.47

$9.27 to $9.47

Year over year growth 

31%-33%

31%-33%

Total adjusted claims

1,345 to 1,395

1,345 to 1,395

Revenue

$99,000 to $102,000

$99,000 to $102,000

Adjusted EBITDA attributable to Express Scripts

$7,600 to $7,800

$7,600 to $7,800

Diluted weighted average shares outstanding during the period

540 to 560

540 to 560

Net cash flow provided by operating activities

$5,775 to $6,275

$5,775 to $6,275

  (in millions, except per share data) 

 Estimated
 Three Months Ending
 March 31, 2018 

Adjusted Diluted EPS attributable to Express Scripts

$1.73 to $1.78

Year over year growth 

30%-34%

Total adjusted claims

335 to 345

Core Business Guidance  

                 Estimated
              Year Ending
         December 31, 2018 

                 Estimated
              Year Ending
         December 31, 2018 

(in millions, except per share data)

 Current Guidance 

 Previous Guidance 

Total adjusted claims

1,125 to 1,165

1,125 to 1,165

Revenue

$80,500 to $83,000

$80,500 to $83,000

Adjusted EBITDA attributable to Express Scripts

$5,250 to $5,400

$5,250 to $5,400

Core Business Guidance  (in millions, except per share data)

 Estimated
 Three Months Ending
 March 31, 2018 

Total adjusted claims

280 to 290

 *Updated 2018 guidance was provided in January 2018 to reflect the effects of the Tax Act, enacted in December 2017. 

 Table 7 

 Express Scripts Holding Company Operating Results Excluding Estimate of Contribution related to Transitioning Clients 

 (amounts in millions except per claim figures) 

 (Three months ended) 

December 31, 2017

December 31, 2016

 Change 

Consolidated
As Reported

Transitioning
Clients⁽¹⁾

Core business⁽¹⁾

Consolidated
As Reported

Transitioning
Clients⁽¹⁾
(Table 8)

Core business⁽¹⁾

As Reported

Core business⁽¹⁾

Adjusted claims

 Table 1 

355.8

60.1

295.7

354.9

60.5

294.4

0.3%

0.4%

Revenues⁽¹²⁾

$     25,378.8

$       4,863.7

$          20,515.1

$     24,863.3

$       4,737.3

$       20,126.0

2.1%

1.9%

Net income

$       2,327.6

 N/A 

 N/A 

$       1,434.7

 N/A 

 N/A 

62.2%

 N/A 

Adjusted EBITDA

 Table 3 

$       2,147.9

$          661.6

$            1,486.3

$       2,054.2

$          636.9

$         1,417.3

4.6%

4.9%

Adjusted EBITDA/adjusted claim

 Table 3 

$            6.04

 N/A 

$                 5.03

$            5.79

 N/A 

$              4.81

4.3%

4.6%

 (Year ended) 

December 31, 2017

December 31, 2016

 Change 

Consolidated
As Reported

Transitioning
Clients⁽¹⁾

Core business⁽¹⁾

Consolidated
As Reported
Q4 2016

Transitioning
Clients⁽¹⁾
(Table 8)

Core business⁽¹⁾

As Reported

Core business⁽¹⁾

Adjusted claims

 Table 1 

1,401.1

236.3

1,164.8

1,407.6

238.6

1,169.0

-0.5%

-0.4%

Revenues⁽¹²⁾

$   100,064.6

19,152.9

$          80,911.7

$   100,287.5

$     18,772.8

$       81,514.7

-0.2%

-0.7%

Net income

$       4,517.4

 N/A 

 N/A 

$       3,404.4

 N/A 

 N/A 

32.7%

 N/A 

Adjusted EBITDA

 Table 3 

$       7,415.5

$       2,472.1

$            4,943.4

$       7,260.4

$       2,470.4

$         4,790.0

2.1%

3.2%

Adjusted EBITDA/adjusted claim

 Table 3 

$            5.29

 N/A 

$                 4.24

$            5.16

 N/A 

$              4.10

2.5%

3.4%

See Footnotes to Press Release.

 Table 8** 

 Express Scripts Holding Company - Estimate of Transitioning Clients
Contribution by Quarter 

 (amounts in millions except per claim figures) 

Anthem** ^,(1)

 Q1 2016 

 Q2 2016 

 Q3 2016 

 Q4 2016 

Adjusted Claims

54.5

54.2

54.3

56.6

Revenues⁽¹²⁾

$   4,096.7

$   4,354.9

$   4,243.0

$   4,381.3

Adjusted EBITDA*

$      467.9

$      644.7

$      572.1

$      563.3

Adjusted EBITDA/adjusted claim*

$        8.59

$      11.89

$      10.54

$        9.95

Transitioning Clients⁽¹⁾

 Q1 2016 

 Q2 2016 

 Q3 2016 

 Q4 2016 

Adjusted Claims

5.6

4.9

4.6

3.9

Revenues

$      457.5

$      471.9

$      411.5

$      356.0

Adjusted EBITDA*

$        50.0

$        49.5

$        49.3

$        73.6

Combined Contribution⁽¹⁾

 Q1 2016 

 Q2 2016 

 Q3 2016 

 Q4 2016 

Adjusted Claims

60.1

59.1

58.9

60.5

Revenues⁽¹²⁾

$   4,554.2

$   4,826.8

$   4,654.5

$   4,737.3

Adjusted EBITDA*

$      517.9

$      694.2

$      621.4

$      636.9

Core (Excluding Transitioning Clients)⁽¹²⁾

 Q1 2016 

 Q2 2016 

 Q3 2016 

 Q4 2016 

Adjusted Claims

296.2

290.2

288.2

294.4

Revenues

$ 20,237.6

$ 20,395.5

$ 20,755.6

$ 20,126.0

Adjusted EBITDA*

$      942.1

$   1,103.9

$   1,326.7

$   1,417.3

Adjusted EBITDA/adjusted claim*

$        3.18

$        3.80

$        4.60

$        4.81

* Q4 2016 Adjusted EBITDA includes an adjustment for other compensation costs of $41.2 million.

** For presentation purposes, Table 8 is consistent with the Q1 2017 Press Release presentation.  As noted in footnote 1, Anthem financial results were combined with each of the Transitioning Clients in Q3 and Q4 2017 upon announcement by Anthem on October 18, 2017, of its intention not to renew its contract with the Company.  

See Footnotes to Press Release

 Footnotes to Press Release 

(1)  The Company's core business excludes the contributions from Coventry and Catamaran, both of which were acquired and are transitioning off the Company's book of business, as well as Anthem, to which we refer together as the "Transitioning Clients."  Amounts attributable to each of the Transitioning Clients are based on management's estimates regarding, among other items, cost allocation and may not be indicative of costs actually incurred as a result of servicing each of the Transitioning Clients. Both direct and indirect costs were allocated based on management's best estimates of costs attributable to servicing each of the Transitioning Clients, and, where appropriate, are based on actual cost or adjusted claims attributable to each of the Transitioning Clients.  

(2)  Includes home delivery, specialty and other including:  (i) drugs distributed through patient assistance programs administered through UBC, which were disposed of as part of the sale of UBC on December 27, 2017; (ii) drugs distributed to clients of other PBMs under limited distribution contracts with pharmaceutical manufacturers; and (iii) Freedom Fertility claims. 

(3)  Total adjusted network claims includes an adjustment to reflect non-specialty network claims filled through our 90-day programs.  These claims are multiplied by three, as these claims, on average, typically cover a time period three times longer than other network claims.  Home delivery claims are also multiplied by three, consistent with prior practice, as home delivery claims typically cover a time period three times longer than unadjusted network claims.  See Schedule A below.

(4) Amortization of intangible assets includes amounts in both revenues and selling, general and administrative expense.

Revenue amortization is related to the customer contract with Anthem, which commenced upon closing the NextRx acquisition in 2009.  Amortization of intangibles that arises in connection with consideration given to a customer by a vendor is characterized as a reduction of revenues.  Intangible amortization of $55.4 million ($35.6 million net of tax) and $55.4 million ($34.8 million net of tax) is included as a reduction to revenue for the three months ended December 31, 2017 and 2016.  Intangible amortization of $221.7 million ($140.5 million net of tax) and $200.5 million ($126.1 million net of tax) is included as a reduction to revenue for the years ended December 31, 2017 and 2016, respectively.  The Company's 10-year agreement with Anthem under which we provide pharmacy benefit management services to Anthem and its designated affiliates was previously amortized using a modified pattern of benefit method over an estimated useful life of 15 years.  Beginning in March 2016, we began amortizing our agreement with Anthem over the remaining term of the contract (i.e., using a modified pattern of benefit over an estimated useful life of 10 years from the time the agreement was executed in 2009), which resulted in an additional $126.7 million and $105.6 million of revenue amortization recognized for the years ended December 31, 2017 and 2016, respectively.  

Selling, general, and administrative expense includes the amortization of other intangible assets and computer software acquired through business combinations, of $316.1 million ($201.9 million net of tax) and $406.7 million ($255.8 million net of tax) for the three months ended December 31, 2017 and 2016, and for the years ended December 31, 2017 and 2016 of $1,242.4 million ($787.5 million net of tax) and $1,632.3 million ($1,026.9 million net of tax), respectively.  

(5) Costs included in cost of revenues (gross profit), primarily comprised of professional fees, severance and other business activity charges in connection with the enterprise value initiative, are $2.7 million ($1.6 million net of tax) for the three months ended December 31, 2017 and $5.0 million ($3.1 million net of tax) for the year ended December 31, 2017.

Costs included in selling, general and administrative, primarily comprised of professional fees, severance and other business activity charges in connection with the enterprise value initiative, are $16.9 million ($10.8 million net of tax) for the three months ended December 31, 2017 and $37.8 million ($24.0 million net of tax) for the year ended December 31, 2017.

(6) Transaction and integration costs include those costs directly related to the acquisition of eviCore and myMatrixx Holdings, Inc. and the sale of UBC. Costs of $91.9 million ($58.2 million net of tax) are primarily composed of professional fees, integration-related activities and severance costs, and are included in selling, general and administrative expense for the three months and year ended December 31, 2017.  

(7)  Costs of $41.2 million ($25.9 million net of tax) for the three months and year ended December 31, 2016, are related to compensation in connection with the net tax benefit of approximately $511.0 million related to the divestiture of PolyMedica Corporation (Liberty).  Following receipt of the tax benefit proceeds, the Board of Directors authorized the use of $41.2 million, approximately 8%, or $0.06 per share ($0.04 per share net of tax), of the PolyMedica tax benefit proceeds to reward employees for the significant contribution this multi-year effort provided the Company and its shareholders.

(8) (Benefit) provision for income taxes includes discrete tax benefits of $1,417.9 million and $1,402.4 million for the three months and year ended December 31, 2017, respectively, related primarily to the deferred tax implications of the Tax Act.  (Benefit) provision for income taxes includes discrete tax benefits of $598.2 million and $633.9 million for the three months and year ended December 31, 2016, respectively, related primarily to changes in unrecognized tax benefits.  In October 2016, we recognized a net tax benefit of approximately $511.0 million related to the divestiture of Liberty.   

(9) Debt redemption costs, which include write-off of discounts, premiums, deferred financing costs and other costs incurred for the early redemption of senior notes, totaled $135.6 million ($85.3 million net of tax) and are included in interest expense for the year ended December 31, 2016.

(10)  In December 2017, the Company sold UBC for approximately $150.0 million, which included both cash and a note receivable. We recorded a $17.7 million ($11.2 million net of tax) loss on disposal, which is reported within interest expense and other for the three months and year ended December 31, 2017.

(11)  Represents adjustment for the tax impact related to non-GAAP items excluded from adjusted diluted EPS.  See Table 5 and 5A for calculation of adjusted effective income tax rate.  

(12)  Consolidated revenues and Transitioning Clients revenues include intangible amortization related to the customer contract with Anthem of $55.4 million for each of the three months ended December 31, 2017 and 2016.  Consolidated revenues and Transitioning Clients revenues include intangible amortization related to the customer contract with Anthem of $221.7 million and $200.5 million for the years ended December 31, 2017 and 2016, respectively.   

 Footnotes to Press Release:  Schedule A 

 Express Scripts Holding Company Unaudited 2016 and 2015 Claims Recast 

As previously reported in our February 14, 2017, press release and explained in footnote (5), we changed our methodology for calculating network claims retrospectively for 2016 and 2015.  Provided below are recasts of the revised methodology for reporting network claims.

 (in millions) 

As reported
Q1 2016

Revision

Revised Q1
2016

As reported
Q2 2016

Revision

Revised Q2
2016

As reported
Q3 2016

Revision

Revised Q3
2016

Claims Volume

Network

226.1

-

226.1

221.2

-

221.2

217.0

-

217.0

Home delivery and specialty⁽²⁾

30.3

-

30.3

29.5

-

29.5

30.0

-

30.0

   Total claims 

256.4

-

256.4

250.7

-

250.7

247.0

-

247.0

Adjusted network⁽³⁾

234.7

32.8

267.5

229.4

34.0

263.4

224.5

34.9

259.4

Adjusted home delivery and specialty⁽³⁾

88.8

-

88.8

85.9

-

85.9

87.7

-

87.7

   Total adjusted claims⁽³⁾

323.5

32.8

356.3

315.3

34.0

349.3

312.2

34.9

347.1

As reported
Q1 2015

Revision

Revised Q1
2015

As reported
Q2 2015

Revision

Revised
Q2 2015

As reported
Q3 2015

Revision

Revised Q3
2015

Claims Volume

Network

219.1

-

219.1

228.2

-

228.2

232.8

-

232.8

Home delivery and specialty⁽²⁾

30.2

-

30.2

30.2

-

30.2

30.0

-

30.0

   Total claims 

249.3

-

249.3

258.4

-

258.4

262.8

-

262.8

Adjusted network⁽³⁾

219.1

33.0

252.1

232.9

35.6

268.5

240.8

36.9

277.7

Adjusted home delivery and specialty⁽³⁾

88.5

-

88.5

88.3

-

88.3

87.5

-

87.5

   Total adjusted claims⁽³⁾

307.6

33.0

340.6

321.2

35.6

356.8

328.3

36.9

365.2