Express Scripts Announces 2017 Third Quarter Results

Q3 2017

(Consolidated,
as reported)

Attributable to
Transitioning Clients¹

Q3 2017
Excluding
Transitioning Clients¹

Q3 2017 vs. Q3 2016
Change

Q3 2017

Excluding

Transitioning Clients

Adjusted claims

343.6

57.2

286.4

(0.6%)

Revenues²

$24,683.4

$4,665.7

$20,017.7

(3.6%)

Net Income

$841.7

N/A

N/A

N/A

Adjusted EBITDA/EBITDA³

$1,947.4

$607.9

$1,339.5

1.0%

Adjusted EBITDA/EBITDA per adjusted claim³

$5.67

N/A

$4.68

1.7%

See "Footnotes to Press Release," below.  See Table 7.

 EXPRESS SCRIPTS HOLDING COMPANY 

 Unaudited Consolidated Statement of Operations 

 Three Months Ended
September 30, 

 Nine Months Ended
September 30, 

  (in millions, except per share data) 

2017

2016

2017

2016

Revenues^*

$ 24,683.4

$ 25,410.1

$ 74,685.8

$ 75,424.2

Cost of revenues^*

22,445.7

23,136.0

68,414.2

69,141.9

    Gross profit 

2,237.7

2,274.1

6,271.6

6,282.3

Selling, general and administrative

759.3

858.1

2,360.0

2,669.2

Operating income

1,478.4

1,416.0

3,911.6

3,613.1

Other (expense) income:

    Interest income and other 

13.6

8.3

28.7

27.4

    Interest expense and other 

(147.7)

(273.4)

(439.9)

(548.8)

(134.1)

(265.1)

(411.2)

(521.4)

Income before income taxes

1,344.3

1,150.9

3,500.4

3,091.7

Provision for income taxes

499.3

422.4

1,299.6

1,103.9

Net income 

845.0

728.5

2,200.8

1,987.8

Less: Net income attributable to non-controlling interest

3.3

5.6

11.0

18.1

Net income attributable to Express Scripts

$      841.7

$      722.9

$   2,189.8

$   1,969.7

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

    Basic 

571.8

622.6

585.1

632.9

    Diluted 

574.7

627.1

588.4

637.4

Earnings per share attributable to Express Scripts:

     Basic

$        1.47

$        1.16

$        3.74

$        3.11

     Diluted

$        1.46

$        1.15

$        3.72

$        3.09

* Includes retail pharmacy co-payments of $1,925.8 million and $2,008.5 million for the three months ended September 30, 2017 and 2016, respectively, and $6,409.7 million and $6,685.9 million for the nine months ended September 30, 2017 and 2016, respectively.

 EXPRESS SCRIPTS HOLDING COMPANY 

 Unaudited Consolidated Balance Sheet 

 September 30,  

 December 31,  

 (in millions) 

2017

2016

 Assets 

 Current assets: 

 Cash and cash equivalents 

$             3,395.9

$            3,077.2

 Receivables, net 

6,871.5

7,062.1

 Inventories 

2,052.9

1,959.0

 Prepaid expenses and other current assets 

358.7

265.1

    Total current assets 

12,679.0

12,363.4

 Property and equipment, net 

1,266.6

1,273.6

 Goodwill 

29,424.8

29,277.8

 Other intangible assets, net 

7,697.8

8,636.9

 Other assets 

138.0

193.2

    Total assets 

$           51,206.2

$          51,744.9

 Liabilities and stockholders' equity 

 Current liabilities: 

 Claims and rebates payable 

$             9,483.5

$            8,836.9

 Accounts payable 

4,377.9

3,875.7

 Accrued expenses 

2,314.3

2,993.2

 Current maturities of long-term debt 

1,181.1

722.3

    Total current liabilities 

17,356.8

16,428.1

 Long-term debt 

13,726.7

14,846.0

 Deferred taxes 

3,401.9

3,603.3

 Other liabilities 

798.5

623.7

    Total liabilities 

35,283.9

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: 861.7 and 857.5, respectively; shares outstanding: 566.4 and 605.5, respectively  

8.6

8.6

 Additional paid-in capital

23,486.1

23,233.6

 Accumulated other comprehensive loss 

(3.9)

(12.3)

 Retained earnings 

13,991.0

11,801.2

37,481.8

35,031.1

 Common stock in treasury at cost, 295.3 and 252.0 shares, respectively  

(21,565.3)

(18,795.1)

    Total Express Scripts stockholders' equity 

15,916.5

16,236.0

 Non-controlling interest 

5.8

7.8

    Total stockholders' equity 

15,922.3

16,243.8

    Total liabilities and stockholders' equity 

$           51,206.2

$          51,744.9

 EXPRESS SCRIPTS HOLDING COMPANY 

 Unaudited Consolidated Statement of Cash Flows 

 Nine Months Ended
September 30, 

 (in millions) 

2017

2016

 Cash flows from operating activities: 

 Net income 

$ 2,200.8

$ 1,987.8

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

 Depreciation and amortization 

1,344.2

1,611.2

 Deferred income taxes 

(247.5)

(334.0)

 Employee stock-based compensation expense 

78.0

81.9

 Other, net 

24.2

(19.1)

 Changes in operating assets and liabilities:  

 Receivables 

161.2

(270.7)

 Inventories 

(93.8)

345.7

 Other current and noncurrent assets 

(88.8)

(43.5)

 Claims and rebates payable 

642.6

(680.7)

 Accounts payable 

475.4

348.0

 Accrued expenses 

(659.3)

(327.4)

 Other current and noncurrent liabilities 

144.5

(28.7)

 Net cash flows provided by operating activities 

3,981.5

2,670.5

 Cash flows from investing activities: 

 Purchases of property and equipment 

(177.3)

(237.6)

 Acquisitions, net of cash acquired 

(122.7)

-

 Other, net 

(11.3)

(7.6)

 Net cash used in investing activities 

(311.3)

(245.2)

 Cash flows from financing activities: 

 Treasury stock acquired 

(2,735.7)

(3,892.7)

 Repayment of long-term debt 

(650.0)

(5,395.0)

 Net proceeds from employee stock plans 

51.3

56.0

 Proceeds from long-term debt, net of discounts 

-

5,986.8

 Excess tax benefit relating to employee stock-based compensation 

-

11.1

 Other, net 

(22.5)

(75.7)

 Net cash used in financing activities 

(3,356.9)

(3,309.5)

 Effect of foreign currency translation adjustment 

5.4

2.6

 Net increase (decrease) in cash and cash equivalents 

318.7

(881.6)

 Cash and cash equivalents at beginning of period 

3,077.2

3,186.3

 Cash and cash equivalents at end of period 

$ 3,395.9

$ 2,304.7

 Table 1 

  Express Scripts Holding Company Unaudited Consolidated Selected Information 

 (in millions) 

 Three Months Ended
September 30,  

 Nine Months Ended
September 30,  

2017

2016

2017

2016

Claims Volume

Network

213.5

217.0

655.4

664.3

Home delivery and specialty⁽⁴⁾

28.8

30.0

87.3

89.8

   Total claims 

242.3

247.0

742.7

754.1

Adjusted network⁽⁵⁾

259.5

259.4

790.7

790.3

Adjusted home delivery and specialty⁽⁵⁾

84.1

87.7

254.6

262.4

   Total adjusted claims⁽⁵⁾

343.6

347.1

1,045.3

1,052.7

 Depreciation and Amortization (D&A):  

 Revenue amortization⁽⁶⁾

$   55.4

$   55.4

$    166.2

$    145.1

 Cost of revenues depreciation 

32.0

27.5

96.3

85.5

 Selling, general and administrative depreciation 

51.3

46.5

155.3

155.0

 Selling, general and administrative amortization⁽⁶⁾

310.7

408.3

926.4

1,225.6

      Total D&A  

$ 449.4

$ 537.7

$ 1,344.2

$ 1,611.2

 Generic Fill Rate** 

 Network 

86.5%

86.0%

86.9%

86.1%

 Home delivery 

83.5%

81.3%

82.8%

80.6%

 Overall 

86.1%

85.4%

86.4%

85.4%

 See Footnotes to Tables 

**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
September 30,  

 Nine Months Ended
September 30,  

2017

2016

2017

2016

Gross profit, as reported

$ 2,237.7

$ 2,274.1

$ 6,271.6

$ 6,282.3

Amortization of intangible assets ⁽⁶⁾

55.4

55.4

166.2

145.1

Enterprise value initiative costs ⁽⁷⁾

2.4

-

2.4

-

Adjusted gross profit

$ 2,295.5

$ 2,329.5

$ 6,440.2

$ 6,427.4

Selling, general and administrative, as reported

$    759.3

$    858.1

$ 2,360.0

$ 2,669.2

Amortization of intangible assets ⁽⁶⁾

310.7

408.3

926.4

1,225.6

Enterprise value initiative costs ⁽⁷⁾

20.9

-

20.9

-

Adjusted selling, general and administrative

$    427.7

$    449.8

$ 1,412.7

$ 1,443.6

 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
September 30,   

 Nine Months Ended
September 30,  

2017

2016

2017

2016

Net income attributable to Express Scripts, as reported

$    841.7

$    722.9

$ 2,189.8

$ 1,969.7

  Provision for income taxes ⁽⁸⁾

499.3

422.4

1,299.6

1,103.9

  Depreciation and amortization^(6),*

449.4

537.7

1,344.2

1,611.2

  Interest expense, interest income and other 

134.1

265.1

411.2

521.4

EBITDA attributable to Express Scripts

$ 1,924.5

$ 1,948.1

$ 5,244.8

$ 5,206.2

Adjustments to EBITDA

Enterprise value initiative costs^(7),*

22.9

-

22.9

-

Adjusted EBITDA/EBITDA attributable to Express Scripts

$ 1,947.4

$ 1,948.1

$ 5,267.7

$ 5,206.2

Total adjusted claims⁽⁵⁾

343.6

347.1

1,045.3

1,052.7

Adjusted EBITDA/EBITDA attributable to Express Scripts, per adjusted claim

$      5.67

$      5.61

$      5.04

$      4.95

 See Footnotes to Press Release 

*  Depreciation and amortization for both the three months and nine months ended September 30, 2017 presented above includes $0.4 million of accelerated depreciation in connection with the enterprise value initiative which is not 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
September 30,  

 Nine Months Ended
September 30,  

2017

2016

2017

2016

Diluted EPS attributable to Express Scripts, as reported

$ 1.46

$ 1.15

$ 3.72

$ 3.09

Excluding items indicated: 

Debt redemption costs ^(9),*

-

0.20

-

0.21

Discrete tax items ⁽⁸⁾

0.01

-

0.03

(0.05)

Enterprise value initiative costs ⁽⁷⁾

0.04

-

0.04

-

Amortization of intangible assets ^(6),*

0.64

0.74

1.86

2.15

Tax impact of excluded items ⁽¹⁰⁾

(0.25)

(0.35)

(0.70)

(0.88)

Diluted EPS attributable to Express Scripts, adjusted

$ 1.90

$ 1.74

$ 4.95

$ 4.52

 See Footnotes to Press Release 

*Presented on a pre-tax basis.  A change to the presentation of this table was made to reflect the tax impact of non-GAAP excluded items as a single adjustment for the three and nine months ended September 30, 2017 and 2016.

 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
September 30, 2017 

 Nine Months Ended
September 30, 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

$ 1,344.3

$     499.3

$ 3,500.4

$  1,299.6

Net income attributable to non-controlling interest

(3.3)

-

(11.0)

-

Income before income taxes attributable to Express Scripts

1,341.0

499.3

37.2%

3,489.4

1,299.6

37.2%

Excluding items indicated: 

Discrete tax items⁽⁸⁾

-

(5.8)

-

(15.5)

Enterprise value initiative costs⁽⁷⁾

23.3

8.5

23.3

8.5

Amortization of intangible assets⁽⁶⁾

366.1

134.8

1,092.6

402.1

Income before income taxes attributable to Express Scripts, as adjusted

$ 1,730.4

$     636.8

36.8%

$ 4,605.3

$  1,694.7

36.8%

Adjusted net income attributable to Express Scripts

$ 1,093.6

$ 2,910.6

 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
September 30, 2016 

 Nine Months Ended
September 30, 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

$ 1,150.9

$     422.4

$ 3,091.7

$  1,103.9

Net income attributable to non-controlling interest

(5.6)

-

(18.1)

-

Income before income taxes attributable to Express Scripts

1,145.3

422.4

36.9%

3,073.6

1,103.9

35.9%

Excluding items indicated: 

Debt redemption costs ⁽⁹⁾

125.9

46.7

135.6

50.3

Discrete tax items⁽⁸⁾

-

2.2

-

35.7

Amortization of intangible assets⁽⁶⁾

463.7

172.0

1,370.7

508.3

Income before income taxes attributable to Express Scripts, as adjusted

$ 1,734.9

$     643.3

37.1%

$ 4,579.9

$  1,698.2

37.1%

Adjusted net income attributable to Express Scripts

$ 1,091.6

$ 2,881.7

 See Footnotes to Press Release 

 Table 6 

 Express Scripts Holding Company Unaudited 2017 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.

Estimated
Year Ending
December 31, 2017 

Estimated
Year Ending
December 31, 2017 

  (in millions, except per share data) 

 Current Guidance 

 Previous Guidance 

Adjusted Diluted EPS attributable to Express Scripts

$6.97 to $7.05

$6.95 to $7.05

Year over year growth 

9%-10%

9%-10%

Total adjusted claims

1,392 to 1,408

1,385 to 1,415

Adjusted EBITDA attributable to Express Scripts

$7,350 to $7,470

$7,330 to $7,490

Diluted weighted average shares outstanding during the period

580 to 585

580 to 590

Net cash flow provided by operating activities

$4,700 to $5,200

$4,700 to $5,200

 Estimated
 Three Months Ending
 December 31, 2017 

  (in millions, except per share data) 

 Current Guidance 

Adjusted Diluted EPS attributable to Express Scripts

$2.03 to $2.11

Year over year growth 

8%-12%

Total adjusted claims

347 to 363

 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) 

 Q3 2017 

 Q3 2016 

 Q3 2017 Change 

Consolidated
As Reported
Q3 2017

Transitioning
Clients⁽¹⁾

Excluding
Transitioning
Clients⁽¹⁾

Consolidated
As Reported
Q3 2016

Transitioning
Clients⁽¹⁾
(Table 8)

Excluding
Transitioning
Clients⁽¹⁾

As Reported

Excluding
Transitioning
Clients⁽¹⁾

Adjusted claims

 Table 1 

343.6

57.2

286.4

347.1

58.9

288.2

-1.0%

-0.6%

Revenues⁽²⁾

$  24,683.4

$     4,665.7

$   20,017.7

$  25,410.1

$     4,654.5

$   20,755.6

-2.9%

-3.6%

Net income

$       841.7

 N/A 

 N/A 

$       722.9

 N/A 

 N/A 

16.4%

 N/A 

Adjusted EBITDA⁽³⁾

 Table 3 

$    1,947.4

$        607.9

$     1,339.5

$    1,948.1

$        621.4

$     1,326.7

0.0%

1.0%

Adjusted EBITDA/adjusted claim⁽³⁾

 Table 3 

$         5.67

 N/A 

$          4.68

$         5.61

 N/A 

$          4.60

1.1%

1.7%

 (Nine months ended) 

 Q3 2017 

 Q3 2016 

 Q3 2017 Change 

Consolidated
As Reported
Q3 2017

Transitioning
Clients⁽¹⁾

Excluding
Transitioning
Clients⁽¹⁾

Consolidated
As Reported
Q3 2016

Transitioning
Clients⁽¹⁾
(Table 8)

Excluding
Transitioning
Clients⁽¹⁾

As Reported

Excluding
Transitioning
Clients⁽¹⁾

Adjusted claims

 Table 1 

1,045.3

176.2

869.1

1,052.7

178.1

874.6

-0.7%

-0.6%

Revenues⁽²⁾

$  74,685.8

$   14,289.2

$   60,396.6

$  75,424.2

$   14,035.5

$   61,388.7

-1.0%

-1.6%

Net income

$    2,189.8

 N/A 

 N/A 

$    1,969.7

 N/A 

 N/A 

11.2%

 N/A 

EBITDA⁽³⁾

 Table 3 

$    5,267.7

$     1,810.5

$     3,457.2

$    5,206.2

$     1,833.5

$     3,372.7

1.2%

2.5%

EBITDA/adjusted claim⁽³⁾

 Table 3 

$         5.04

 N/A 

$          3.98

$         4.95

 N/A 

$          3.86

1.8%

3.1%

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),(3)

 Q1 2016 

 Q2 2016 

 Q3 2016 

 Q4 2016 

Adjusted Claims

54.5

54.2

54.3

56.6

Revenues⁽²⁾

$   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),(3)

 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),(3)

 Q1 2016 

 Q2 2016 

 Q3 2016 

 Q4 2016 

Adjusted Claims

60.1

59.1

58.9

60.5

Revenues⁽²⁾

$   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)^(1),(3)

 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

(*) Adjusted EBITDA with respect  to Q1, Q2 and Q3 2016 is equal to "EBITDA" as no adjustments to EBITDA were made for these periods and Q4 included an adjustment for other compensation costs of $41.2 million and is equal to "Adjusted EBITDA."

(**) For presentation purposes, Table 8 is consistent with the Q1 2017 Press Release presentation.  As noted above, Anthem financial results were combined with each of the Transitioning Clients in Q3 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)  Amounts attributable 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)  Consolidated revenues and Transitioning Clients revenues include intangible amortization related to the customer contract with Anthem of $55.4 million for the three months ended September 30, 2017 and 2016, respectively.  Consolidated revenues and Transitioning Clients revenues include intangible amortization related to the customer contract with Anthem of $166.2 million and $145.1 million for the nine months ended September 30, 2017 and 2016, respectively.   

(3)  EBITDA, Adjusted EBITDA, EBITDA per adjusted claim and adjusted EBITDA per adjusted claim are non-GAAP financial measures. For a discussion of the financial measures presented herein that are not calculated or presented in accordance with U.S. generally accepted accounting principles ("GAAP"), see "Supplemental Information Regarding Non-GAAP Financial Measures" above.

(4)  Includes home delivery, specialty and other including:  (i) drugs distributed through patient assistance programs, (ii) drugs distributed to clients of other PBMs under limited distribution contracts with pharmaceutical manufacturers and (iii) Freedom Fertility claims. 

(5)  Total adjusted network claims includes an adjustment to reflect non-specialty network claims filled through our 90-day programs.  These claims are now 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 Footnotes to Press Release - Schedule A below.

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

Amortization of legacy Express Scripts, Inc. ("ESI") intangible assets include amounts in both revenues and selling, general and administrative expense.

Revenue amortization is related to the customer contract with Anthem, which commenced upon closing of 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 ($34.9 million net of tax) is included as a reduction to revenue for the three months ended September 30, 2017 and 2016.  Intangible amortization of $166.2 million ($105.0 million net of tax) and $145.1 million ($91.3 million net of tax) is included as a reduction to revenue for the nine months ended September 30, 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 $31.7 million of revenue amortization recognized for both the three months ended September 30, 2017 and 2016, respectively, and an additional $95.1 million and $73.9 million of revenue amortization recognized for the nine months ended September 30, 2017 and 2016, respectively.  

Other legacy ESI intangible amortization of $17.6 million ($11.2 million net of tax) and $9.4 million ($5.9 million net of tax) for the three months ended September 30, 2017 and 2016, respectively, is included in selling, general and administrative expense.  Other legacy ESI intangible amortization of $46.6 million ($29.5 million net of tax) and $28.3 million ($17.8 million net of tax) for the nine months ended September, 2017 and 2016, respectively, is included in selling, general and administrative expense.  

Amortization of intangible assets related to the acquisition of Medco of $293.1 million ($185.2 million net of tax) and $398.9 million ($250.9 million net of tax) for the three months ended September 30, 2017 and 2016, respectively, is included in selling, general and administrative expense.  Amortization of intangible assets related to the acquisition of Medco of $879.8 million ($556.0 million net of tax) and $1,197.3 million ($753.3 million net of tax) for the nine months ended September 30, 2017 and 2016, respectively, is included in selling, general and administrative expense.

(7) Costs primarily comprised of professional fees, severance and other business activity charges in connection with the enterprise value initiative of $23.3 million ($14.8 million net of tax) are included in selling, general and administrative expense and cost of revenues for the three months and nine months ended September 30, 2017, respectively.  

(8) Provision for income taxes includes discrete tax charges of $5.8 million and  $15.5 million for the three months and nine months ended September 30, 2017, respectively, related primarily to changes in our unrecognized tax benefits and a revaluation of net deferred tax attributes.  Provision for income taxes includes discrete tax benefits of $2.2 million and $35.7 million for the three months and nine months ended September 30, 2016, respectively, related primarily to changes in unrecognized tax benefits. 

(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 $125.9 million ($79.2 million net of tax) and $135.6 million ($85.3 million net of tax) and are included in interest expense for the three and nine months ended September 30, 2016, respectively. 

(10)  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.  

 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⁽⁴⁾

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⁽⁵⁾

234.7

32.8

267.5

229.4

34.0

263.4

224.5

34.9

259.4

Adjusted home delivery and specialty⁽⁵⁾

88.8

-

88.8

85.9

-

85.9

87.7

-

87.7

   Total adjusted claims⁽⁵⁾

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⁽⁴⁾

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⁽⁵⁾

219.1

33.0

252.1

232.9

35.6

268.5

240.8

36.9

277.7

Adjusted home delivery and specialty⁽⁵⁾

88.5

-

88.5

88.3

-

88.3

87.5

-

87.5

   Total adjusted claims⁽⁵⁾

307.6

33.0

340.6

321.2

35.6

356.8

328.3

36.9

365.2