For the quarterly period ended June 30, 2015 .

For the transition period from ____________ to _____________.

Commission File Number: 1-35490

(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code: (314) 996-0900

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   ☒   No   ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   ☒   No   ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ☐     No ☒

EXPRESS SCRIPTS HOLDING COMPANY

INDEX

PART I. FINANCIAL INFORMATION

See accompanying Notes to Unaudited Consolidated Financial Statements

See accompanying Notes to Unaudited Consolidated Financial Statements

See accompanying Notes to Unaudited Consolidated Financial Statements

See accompanying Notes to Unaudited Consolidated Financial Statements

EXPRESS SCRIPTS HOLDING COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Summary of significant accounting policies

Our significant accounting policies, normally included in financial statements prepared in conformity with generally accepted accounting principles, have been omitted from this Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). We believe the disclosures contained in this Form 10-Q are adequate to fairly state the information when read in conjunction with the Notes to the Consolidated Financial Statements included in our 2014 Annual Financial Statements for the year ended December 31, 2014 , included in Item 8 - Consolidated Financial Statements and Supplementary Data for the year ended December 31, 2014 , included on Form 10-K filed with the SEC on February 23, 2015 . For a description of our accounting policies, refer to the Notes to the Consolidated Financial Statements included therein.

We believe the accompanying unaudited consolidated financial statements reflect all adjustments (consisting of only normal recurring adjustments) necessary to state fairly the unaudited consolidated balance sheet as of June 30, 2015 , and the consolidated balance sheet as of December 31, 2014 , unaudited consolidated statement of operations and unaudited consolidated statement of comprehensive income for the three and six months ended June 30, 2015 and 2014 , the unaudited consolidated statement of changes in stockholders' equity for the six months ended June 30, 2015 , and the unaudited consolidated statement of cash flows for the six months ended June 30, 2015 and 2014 . Certain amounts in the prior year have been reclassified to conform to the current year presentation. Operating results for the three and six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015 .

New Accounting Guidance . In April 2015, the Financial Accounting Standards Board ("FASB") issued authoritative guidance containing changes to the balance sheet presentation of debt issuance costs. This statement is effective for financial statements issued for annual periods beginning after December 15, 2015. Adoption of the standard impacts the presentation of certain information within the consolidated financial statements, but will not impact our consolidated financial position, consolidated results of operations or consolidated cash flows.

In May 2014, the FASB issued Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers which supersedes ASC 605, Revenue Recognition. The new standard requires companies to recognize revenues upon transfer of goods or services to customers in amounts that reflect the consideration which the company expects to receive in exchange for those goods or services. In July 2015, the FASB delayed the effective date of the standard by one year. The new guidance is effective for financial statements issued for annual reporting periods beginning after December 15, 2017 and early application is not permitted before the original effective date of December 15, 2016. We are currently evaluating the impact of this standard on our consolidated financial statements.

Note 2 - Fair value measurements

Authoritative guidance regarding fair value measurement establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than quoted prices for similar assets and liabilities in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

Financial assets accounted for at fair value on a recurring basis include cash equivalents of $202.5 million and $427.8 million and trading securities (included in other assets) of $26.6 million and $25.3 million , at June 30, 2015 and December 31, 2014 , respectively. These assets are carried at fair value based on quoted prices in active markets for identical securities (Level 1). Cash equivalents include investments in AAA-rated money market mutual funds with maturities of less than 90 days .

The carrying values of cash and cash equivalents and investments (Level 1), accounts receivable, claims and rebates payable, and accounts payable approximated fair values due to the short-term maturities of these instruments. The fair values, which approximated the carrying values, of our 2015 two-year term loan , 2015 five-year term loan and 2011 term loan (Level 2) (as defined in Note 5 - Financing ) were estimated using the current rates offered to us for debt with similar maturities. The carrying values, net of unamortized discounts and premiums, and the fair values of our senior notes are shown in the following table:

The fair values of our senior notes were estimated based on observable market information (Level 2). In determining the fair values of liabilities, we took into consideration the risk of nonperformance. Nonperformance risk refers to the risk the obligation will not be fulfilled and affects the value at which the liability would be transferred to a market participant. This risk did not have a material impact on the fair values of our liabilities.

Note 3 - Goodwill and other intangible assets

Following is a summary of our goodwill and other intangible assets for our two reportable segments, Pharmacy Benefit Management ("PBM") and Other Business Operations.

The aggregate amount of amortization expense of other intangible assets was $445.7 million and $446.7 million for the three months ended June 30, 2015 and 2014 , respectively, and $882.6 million and $889.3 million for the six months ended June 30, 2015 and 2014 , respectively. Amortization of $23.8 million and $28.5 million for the three months ended June 30, 2015 and 2014 , respectively, and $47.6 million and $57.0 million for the six months ended June 30, 2015 and 2014 , respectively, for customer contracts related to our agreement to provide PBM services to members of the affiliated health plans of Anthem (formerly known as WellPoint) has been included as an offset to revenues. The annual aggregate amount of amortization expense of other intangible assets is expected to be approximately $1,757.0 million for 2015 , $1,744.0 million for 2016 , $1,329.0 million for 2017 , $1,317.0 million for 2018 and $1,311.0 million for 2019 . The weighted-average amortization period of intangible assets subject to amortization is 16 years, and by major intangible asset class is 4 to 20 years for customer-related intangible assets, 10 years for trade names (excluding legacy Express Scripts, Inc. trade names which have an indefinite life) and 2 to 30 years for other intangible assets.

Following is a summary of the change in the net carrying value of goodwill by reportable segment:

Note 4 - Earnings per share

Basic earnings per share ("EPS") is computed using the weighted-average number of common shares outstanding during the period. Diluted EPS is computed in the same manner as basic EPS, but adds the number of additional common shares that would have been outstanding for the period if the dilutive potential common shares had been issued. All shares are calculated under the "treasury stock" method. Following is the reconciliation between the number of weighted-average shares used in the basic and diluted EPS calculations:

Note 5 - Financing

Our debt, net of unamortized discounts and premiums, consists of:

Bank credit facilities. In April 2015, we entered into a credit agreement (the " 2015 credit agreement ") providing for a five -year $2,000.0 million revolving credit facility (the " 2015 revolving facility "), a two -year $2,500.0 million term loan (the " 2015 two-year term loan ") and a five -year $3,000.0 million term loan (the " 2015 five-year term loan "). We used the proceeds, which included $1,100.0 million drawn on the 2015 revolving facility in addition to the 2015 two-year term loan and the 2015 five-year term loan , to repay our 2011 term loan (reflected in the table above), terminate the commitments under our 2011 revolving facility , enter into an accelerated share repurchase program and for other general corporate purposes. At June 30, 2015 , no amounts were outstanding under the 2015 revolving facility . We begin making quarterly principal payments on the 2015 five-year term loan in the third quarter of 2015. At June 30, 2015 , $150.0 million of the 2015 credit agreement was considered current maturities of long-term debt.

The 2015 credit agreement requires interest to be paid, at our option, at LIBOR or an adjusted base rate, plus applicable margin. Depending on our consolidated leverage ratio, the applicable margin over LIBOR ranges from 0.900% to 1.300% for the 2015 revolving facility , 0.875% to 1.375% for the 2015 two-year term loan and 1.000% to 1.500% for the 2015 five-year term loan . The applicable margin over the adjusted base rate ranges from 0.000% to 0.300% for the 2015 revolving facility , 0.000% to 0.375% for the 2015 two-year term loan and 0.000% to 0.500% for the 2015 five-year term loan . We are required to pay commitment fees on the 2015 revolving facility , which range from 0.100% to 0.200% of the revolving loan commitments, depending on our consolidated leverage ratio.

In December 2014, we entered into three separate one -year credit agreements, each providing for an uncommitted $150.0 million revolving credit facility (the "2014 credit facilities"). During the second quarter 2015, two of the three 2014 credit facilities were terminated. At June 30, 2015 , no amounts were drawn under the one remaining 2014 credit facility.

Covenants. Our bank financing arrangements and senior notes contain certain customary covenants that restrict our ability to incur additional indebtedness, create or permit liens on assets and engage in mergers or consolidations. The covenants related to bank financing arrangements also include, among other things, a maximum leverage ratio. The March 2008 Senior Notes (as defined in the table above) are also subject to an interest rate adjustment in the event of a downgrade in our credit ratings to below investment grade. At June 30, 2015 , we were in compliance with all covenants associated with our debt instruments.

Following is a schedule of current maturities, excluding unamortized discounts and premiums, for our long-term debt as of June 30, 2015 (in millions):

Note 6 - Common stock

Accelerated share repurchases. In April 2015, as part of our previously announced share repurchase program (the "Share Repurchase Agreement"), we entered into an agreement to repurchase shares of our common stock for an aggregate initial payment (the " prepayment amount ") of $5,500.0 million (the " 2015 ASR Program ") under an accelerated share repurchase agreement (the " 2015 ASR Agreement "). Under the terms of the 2015 ASR Agreement , upon payment of the prepayment amount , we received an initial delivery of 55.1 million shares of our common stock at a price of $84.79 per share, which represented, based on the closing share price of our common stock on Nasdaq on April 29, 2015, approximately 85% of the prepayment amount . The final purchase price per share (the "forward price") and the final number of shares received will be determined using the arithmetic mean of the daily volume-weighted average price of our common stock (the "VWAP") over the term of the 2015 ASR Program , less a discount and subject to adjustments pursuant to the terms of the 2015 ASR Agreement (including a cap on the forward price). The 2015 ASR Program will be completed in the first half of 2016, subject to the right of the counterparty to the 2015 ASR Agreement to accelerate the settlement of the 2015 ASR Program .

Upon settlement of the 2015 ASR Program , we may receive additional shares or we may be required to either pay additional cash or deliver shares of our common stock (at our option), based on the forward price. Under the terms of the 2015 ASR Agreement , the maximum number of shares that could be delivered by us is 129.7 million . If the 2015 ASR Program had been settled as of June 30, 2015 , based on the VWAP since the effective date of the 2015 ASR Agreement , the counterparty would have been required to deliver an additional 8.2 million shares to us. However, we cannot predict the final number of shares to be received under the 2015 ASR Agreement , which cannot occur until the first half of 2016. These shares are not included in the calculation of diluted weighted-average common shares outstanding during the period because the effect is anti-dilutive.

The 2015 ASR Agreement was accounted for as an initial treasury stock transaction and a forward stock purchase contract. We recorded an increase to treasury stock of $4,675.0 million and a decrease to additional paid-in capital of $825.0 million in the unaudited consolidated balance sheet at June 30, 2015. The $825.0 million recorded in additional paid-in capital will be reclassified to treasury stock upon completion of the 2015 ASR Program . The forward stock purchase contract was

classified as an equity instrument and was deemed to have a fair value of zero at the effective date of the 2015 ASR Agreement . The initial delivery of shares resulted in an immediate reduction of the outstanding shares used to calculate the weighted-average common shares outstanding for basic and diluted net income per share on the effective date of the 2015 ASR Agreement .

Treasury share repurchases. We repurchased 55.1 million and 29.9 million shares for $4,675.0 million and $2,191.6 million during the three months ended June 30, 2015 and 2014 , respectively, and 55.1 million and 37.9 million shares for $4,675.0 million and $2,809.8 million during the six months ended June 30, 2015 and 2014 , respectively. As of June 30, 2015 , there were 28.6 million shares remaining under our Share Repurchase Program. Additional share repurchases, if any, will be made in such amounts and at such times as we deem appropriate based upon prevailing market and business conditions and other factors.

Note 7 - Stock-based compensation plans

Under our stock-based compensation plans described below, we have issued stock options, stock-settled stock appreciation rights ("SSRs"), restricted stock units, restricted stock awards and performance shares. All awards are settled by issuance of new shares.

Awards granted under the incentive stock plans are subject to accelerated vesting under certain specified circumstances, including upon a change in control and termination, and are also subject to forfeiture without consideration upon termination of employment under certain circumstances. The maximum term of stock options, restricted stock units and performance shares is generally 10  years.     

We recognized stock-based compensation expense of $27.5 million and $26.4 million in the three months ended June 30, 2015 and 2014 , respectively, and $54.4 million and $54.4 million in the six months ended June 30, 2015 and 2014 , respectively. Unamortized stock-based compensation as of June 30, 2015 was $52.4 million for stock options and $76.1 million for restricted stock units and performance shares.

Stock options. During the six months ended June 30, 2015 , we granted 3.0 million stock options with a weighted-average fair market value of $18.08 per share. Stock options granted generally have three -year graded vesting.

The fair value of stock options granted was estimated on the date of grant using a Black-Scholes multiple option-pricing model with the following weighted-average assumptions:

The Black-Scholes model requires subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The expected term and forfeiture rate of options granted is derived from historical data on employee exercises and post-vesting employment termination behavior as well as expected behavior on outstanding options. The risk-free rate is based on the United States Treasury rates in effect during the corresponding period of grant. The expected volatility is based on the historical volatility of our stock price. These factors could change in the future, which would affect the stock-based compensation expense recognized in future periods.

Restricted stock units and performance shares. During the six months ended June 30, 2015 , we granted to certain officers and key employees 0.8 million restricted stock units and performance shares with a weighted-average fair market value of $84.81 per share. Restricted stock units generally have three -year graded vesting. Performance shares generally have three -year cliff vesting. The number of performance shares that ultimately vest is dependent upon the achievement of specific performance metrics. The original grant of performance shares is subject to a multiplier of up to 2.5 based on the achievement of the performance metrics. Due to the achievement of certain performance metrics, during the six months ended June 30, 2015 , 0.1 million additional performance shares were settled and common shares were issued to certain officers and key employees.

Note 8 - Commitments and contingencies

Various legal proceedings, investigations, government inquiries and claims pending against us or our subsidiaries have arisen in the ordinary course of business, including, but not limited to, those relating to regulatory, commercial, employment and employee benefits. We record accruals for certain of our outstanding legal proceedings, investigations and claims when we believe it is probable a liability will be incurred and the amount of loss can be reasonably estimated. On a quarterly basis, we evaluate developments in legal proceedings, investigations and claims that could affect the amount of any accrual, as well as any developments that would make a loss both probable and reasonably estimable.

We record self-insurance accruals based upon estimates of the aggregate liability of claim costs (including defense costs) in excess of our insurance coverage. The majority of these claims are legal claims and our liability estimate is primarily related to the cost to defend these claims. We do not accrue for settlements, judgments, monetary fines or penalties until such amounts are probable and estimable. If the range of possible loss is broad, the liability accrual is based on the low end of the range.

When a loss contingency is not believed to be both probable and estimable, we do not establish an accrued liability. However, if the loss (or an additional loss in excess of the accrual) is believed to be at least a reasonable possibility and material, then we disclose an estimate of the possible loss or range of loss, if such estimate can be made, or disclose an estimate cannot be made.

The legal proceedings, investigations, government inquires and claims pending against us or our subsidiaries include multi-district litigation, class action lawsuits, antitrust allegations, qui tam lawsuits ("whistleblower" actions) and various governmental inquiries and informational subpoenas.

The assessment of whether a loss is probable and reasonably estimable involves a series of complex judgments about future events. We are often unable to estimate a range of loss due to significant uncertainties, particularly where (i) the damages sought are unspecified or indeterminate; (ii) the proceedings are in the early stages; (iii) the matters involve novel or unsettled legal theories or a large number of parties; (iv) class action status may be sought and certified; (v) it is questionable whether asserted claims or allegations will survive dispositive motion practice; (vi) the impact of discovery on the legal process is unknown; (vii) the settlement posture of the parties is not determined and/ or (viii) in the case of certain government agency investigations, whether a sealed qui tam lawsuit has been filed and whether the government agency makes a decision to intervene in the lawsuit following investigation. Accordingly, for many proceedings, we are currently unable to estimate the loss or a range of possible loss.

For a limited number of proceedings, we may be able to reasonably estimate the possible range of loss in excess of any accruals. However, we believe such matters, individually and in the aggregate, when finally resolved, are not reasonably likely to have a material adverse effect on our cash flow or financial condition. We also believe that any amount that could be reasonably estimated in excess of accruals, if any, for such proceedings is not material. However, an unexpected adverse resolution of one or more of such matters could have a material adverse effect on our results of operations in a particular quarter or fiscal year.

Subsequent to the acquisition of Medco, we have experienced an increase in the number of inquiries, subpoenas and qui tam lawsuits and in the volume of information requested related thereto. Certain data requests have included several years of information from legacy acquired systems that in some cases may not be readily available. The process of locating the data requested is time consuming and labor intensive, but is required to be responsive and cooperate with the various inquiries.

We cannot predict the timing or outcome of the matters described below:

While we believe our services and business practices are in substantial compliance with applicable laws, rules and regulations in all material respects, we cannot predict the outcome of these actions at this time. An unfavorable outcome in one or more of these matters could result in the imposition of judgments, monetary fines or penalties or injunctive or administrative remedies.

Note 9 - Segment information

We report segments on the basis of products and services offered and have determined we have two reportable segments: PBM and Other Business Operations. Within the Other Business Operations segment, we have aggregated two operating segments that do not meet the quantitative and qualitative criteria to be separately reported.

Operating income is the measure used by our chief operating decision maker to assess the performance of each of our operating segments. Following is information about our reportable segments, including a reconciliation of operating income to income before income taxes for the three and six months ended June 30, 2015 and 2014 .

PBM product revenues consist of revenues from the sale of prescription drugs by retail pharmacies in our retail pharmacy networks, revenues from the dispensing of prescription drugs from our home delivery pharmacies, and revenues from the sale of certain fertility and specialty drugs. Other Business Operations product revenues consist of distribution services of pharmaceuticals and medical supplies to providers, clinics and hospitals and consulting services for pharmaceutical manufacturers to collect scientific evidence to guide the safe, effective and affordable use of medicines. PBM service revenues include administrative fees associated with the administration of retail pharmacy networks contracted by certain clients, informed decision counseling services and specialty pharmacy services. Other Business Operations service revenues include revenues related to data analytics and research associated with our United BioSource business.

Following is balance sheet information about our reportable segments:

Two clients on an individual basis represent 10% or greater of our consolidated revenues for the three and six months ended June 30, 2015 and in the aggregate represent 30.2% and 30.0% of consolidated revenues for the three and six months ended June 30, 2015 , respectively.

Revenues earned by our international businesses totaled $20.7 million and $21.9 million for the three months ended June 30, 2015 and 2014 , respectively, and $41.3 million and $43.9 million for the six months ended June 30, 2015 and 2014 , respectively. All other revenues were earned in the United States. Long-lived assets of our international businesses (consisting primarily of fixed assets) totaled $50.0 million and $56.0 million as of June 30, 2015 and December 31, 2014 , respectively. All other long-lived assets are domiciled in the United States.

Note 10 - Condensed consolidating financial information

The senior notes issued by ESI, Medco and us are jointly and severally and fully and unconditionally (subject to certain customary release provisions, including sale, exchange, transfer or liquidation of the guarantor subsidiary) guaranteed by certain of our 100% owned domestic subsidiaries, other than certain regulated subsidiaries, and, with respect to notes issued by ESI and Medco, by us. The following condensed consolidating financial information has been prepared in accordance with the requirements for presentation of such information. The condensed consolidating financial information presented below is not indicative of what the financial position, results of operations or cash flows would have been had each of the entities operated as an independent company during the period for various reasons, including, but not limited to, intercompany transactions and integration of systems.

The following presentation reflects the structure that exists as of the most recent balance sheet date. The condensed consolidating financial information is presented separately for: