WASHINGTON, D.C. 20549

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2017 , OR

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

Securities registered pursuant to Section 12(b) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   x     No   ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes   ¨     No   x

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   x     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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     x

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐  

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

The aggregate market value of Registrant's voting stock held by non-affiliates as of June 30, 2017 , was $36,773,795,228 based on 576,030,627 shares held on such date by non-affiliates and a closing sale price for the Common Stock on such date of $63.84 as reported on the Nasdaq Global Select Market. Solely for purposes of this computation, the Registrant has assumed that all directors and executive officers of the Registrant are affiliates of the Registrant. The Registrant has no non-voting common equity.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates by reference portions of the definitive proxy statement for the Registrant's 2018 Annual Meeting of Stockholders, which is expected to be filed with the Securities and Exchange Commission not later than 120 days after the registrant's fiscal year ended December 31, 2017 .

TABLE OF CONTENTS

Information included in or incorporated by reference in this Annual Report on Form 10-K, other filings with the Securities and Exchange Commission (the "SEC") and our press releases or other public statements, contains or may contain forward-looking statements. Please refer to a discussion of our forward-looking statements and associated risks in "Part I - Item 1 - Business - Forward-Looking Statements and Associated Risks" and "Part I - Item 1A - Risk Factors" in this Annual Report on Form 10-K.

PART I

THE COMPANY

Item 1 - Business

Industry Overview

Prescription drugs play a significant role in healthcare today and constitute the first line of treatment for many medical conditions. For many, prescription drugs provide the hope of improved health and quality of life.

Total medical costs for employers continue to outpace the rate of overall inflation, in particular, the increase in high cost drugs to treat complex conditions such as cancer, hepatitis and multiple sclerosis. National health expenditures as a percentage of gross domestic product are expected to increase to 20% in 2026 from 18% in 2017 according to the Centers for Medicare & Medicaid Services ("CMS"). With increasing cost pressures being exerted on health benefit providers such as managed care organizations, health insurers, employers and unions, there is an increasing role for pharmacy benefit management ("PBM") companies to develop innovative strategies to put medicine within reach of patients by making better health more affordable and accessible.

PBM companies typically combine retail pharmacy claims processing and network management, formulary management, utilization management and home delivery pharmacy services to develop an integrated product offering to manage the prescription drug benefit for payors. Some PBMs also offer specialty medication services that deliver a more effective solution than many retail pharmacies in providing treatments for diseases that rely upon high-cost injectable, infused, oral or inhaled drugs. Some PBMs have also broadened their service offerings to include medication adherence programs, outcomes research, drug therapy management programs, sophisticated data analysis and distribution services.

Company Overview

We are the largest independent PBM company in the United States, offering a full range of services to our clients, which include managed care organizations, health insurers, third-party administrators, employers, union-sponsored benefit plans, workers' compensation plans, government health programs, providers, clinics, hospitals and others. We put medicine within reach of patients while helping health benefit providers improve access to prescription drugs by making them more affordable. We can improve patient outcomes and help control the cost of the drug benefit by:

We work with clients, manufacturers, pharmacists and physicians to improve members' health outcomes and satisfaction, increase efficiency in drug distribution and manage costs of the pharmacy benefit. We believe our clients can achieve the best financial and health outcomes when they use our comprehensive set of solutions to manage drug spend. For example, our management toward greater use of generic drugs and lower-cost brand drugs has resulted in significant reductions in spending for our health benefit plan clients and their members.

We have two business segments based on the products and services we offer: PBM and Other Business Operations. See further description of our segments within "Part I - Item 1 - Business - Segment Information."

Our revenues are generated primarily from the delivery of prescription drugs through our contracted network of retail pharmacies, our home delivery pharmacies and our specialty pharmacies. Revenues from the delivery of prescription drugs represented 98.2% of our revenues in 2017 , 98.3% in 2016 and 98.0% in 2015 . Revenues from services, such as fees for the

administration of formulary management processing for certain client contracts that do not include claims adjudication and the dispensing of prescription drugs, medical benefit management services, as well as, other fee-for-service arrangements, such as medication counseling services and certain specialty services accounted for the remainder of our revenues.

Prescription drugs are dispensed to members of the health plans we serve primarily through networks of retail pharmacies under non-exclusive contracts with us and through home delivery fulfillment pharmacies, specialty drug pharmacies and fertility pharmacies we operate. More than 68,000 retail pharmacies, which represent over 98% of all United States retail pharmacies, participated in one or more of our networks as of December 31, 2017 . The top ten retail pharmacy chains in the United States represent approximately 67% of the total number of stores in our largest network.

Express Scripts, Inc. ("ESI") was incorporated in Missouri in September 1986, and was reincorporated in Delaware in March 1992. Aristotle Holding, Inc. was incorporated in Delaware in July 2011. On April 2, 2012, ESI consummated a merger (the "Merger") with Medco Health Solutions, Inc. ("Medco") and both ESI and Medco became wholly-owned subsidiaries of Aristotle Holding, Inc. Aristotle Holding, Inc. was renamed Express Scripts Holding Company (the "Company" or "Express Scripts") concurrently with the consummation of the Merger. When we use the terms "Express Scripts," the "Company," "we," "us" or "our" in this Annual Report on Form 10-K, we mean Express Scripts Holding Company and its subsidiaries on a consolidated basis, unless we state or the context implies otherwise.

Our principal executive offices are located at One Express Way, Saint Louis, Missouri, 63121. Our telephone number is (314) 996-0900 and our website is www.express-scripts.com. Information included on our website is not incorporated into this annual report.

Segment Information

We report segments on the basis of the products and services we offer and have determined we have two reportable segments: PBM and Other Business Operations.

See "Part I - Item 1 - Products and Services" of this Annual Report on Form 10-K for further description of our products and services. See "Part II - Item 8 - Note 13 - Segment information " of this Annual Report on Form 10-K for further description of our segments.

Products and Services

Pharmacy Benefit Management Services

Overview.  Our PBM services involve management of prescription drug utilization and cost to drive high quality, cost-effective pharmaceutical care. We consult with clients to assist in the selection of plan design features that balance clients' requirements for cost control with member choice and convenience. We focus our solutions to enable better decisions in four important and interrelated areas: benefit choices, drug choices, pharmacy choices and health choices. As a result, we believe we deliver better outcomes, higher member satisfaction and a more affordable prescription drug benefit. During 2017 , 95.2% of our revenues were derived from our PBM operations, compared to 96.2% and 97.3% during 2016 and 2015 , respectively.

Clinical Solutions. We offer innovative clinical programs to drive better health outcomes at lower cost by identifying and addressing unsafe, ineffective and wasteful prescribing, dispensing and utilization of prescription drugs and intervening with, or supporting interventions with, physicians, pharmacies and patients. RationalMed ® evaluates medical, pharmacy and laboratory data to detect critical patient health and safety issues which are then addressed through timely notification to physicians, pharmacies, patients and case managers. ScreenRx ® uses proprietary predictive models to detect patients at risk for nonadherence and proactively addresses the problem through interventions tailored specifically for that patient. Express Alliance ® offers patient care coordination services that enable patient-authorized healthcare professionals to share a common view of a patient's health record and coordinate patient outreach and counseling. Advanced Opioid Management SM solution works comprehensively with patients, prescribers and pharmacies to minimize early exposure to opioids while helping prevent progression to overuse and abuse.

Express Scripts SafeGuardRx ® . We offer a suite of solutions targeting therapy classes that pose clinical challenges for patients and a significant budgetary threat to our clients. Our solutions focus on keeping our clients ahead of the cost curve while providing patients the care and access they need. These solutions include (but are not limited to): Pulmonary Care Value Program SM; Multiple Sclerosis Care Value Program SM ; Inflammatory Conditions Care Value Program SM ; Diabetes Care Value Program SM ; Hepatitis Cure Value Program ® ; Cholesterol Care Value Program ® ; Oncology Care Value Program ® ; Market Events Protection Program ® ; and Inflation Protection Program SM . These solutions are offered throughout our PBM services.

Through innovative programs such as Express Scripts SafeGuardRx, which combines utilization management controls with formulary management, the specialized care model of our Therapeutic Resource Center ® program (described below) and comprehensive guarantees, we are changing the market in key specialty categories. Our programs covering oncology and inflammatory conditions in particular have introduced a value-based contracting approach, with payments now tied to a product's effectiveness at the indication level rather than a single uniform reimbursement across multiple indications with varying degrees of product effectiveness.

Specialized Pharmacy Care. At the center of Express Scripts' condition-specific approach to care are Therapeutic Resource Center services, which are pharmacy practices that specialize in caring for members with the most complex and costly conditions, including cardiovascular disease, diabetes, cancer, HIV, asthma, depression and other rare and specialty conditions. Therapeutic Resource Center services are designed to optimize the safe and appropriate dispensing of therapeutic agents, minimize waste and improve clinical and financial outcomes. Through our Therapeutic Resource Center services, specialist pharmacists provide the expert, personalized care patients increasingly demand.

Home Delivery Pharmacy Services. We dispense prescription drugs from our four high-volume automated dispensing home delivery pharmacies and one non-automated dispensing home delivery pharmacy. In addition to the order processing that occurs at these home delivery pharmacies, we operate several non-dispensing order processing facilities and patient contact centers. Our pharmacies provide patients with convenient access to maintenance medications and enable us to manage our clients' drug costs through operating efficiencies and economies of scale, as well as provide greater safety and accuracy than retail pharmacies. Through our home delivery pharmacies, we are directly involved with the prescriber and patient and, as a result, our research shows we are generally able to achieve a higher level of generic substitutions, therapeutic interventions and better adherence than is achieved through the retail pharmacy networks.

Specialty Pharmacy Services. Specialty medications are used primarily for the treatment of complex diseases. These medications are broadly characterized to include those with frequent dosing adjustments, intensive clinical monitoring, the need for patient training, specialized product administration requirements and/or medications limited to certain specialty pharmacy networks by manufacturers. Through a combination of assets and capabilities, we provide an enhanced level of care and therapy management for patients taking specialty medications, increased visibility and improved outcomes for payors, as well as custom programs for biopharmaceutical manufacturers.

Our subsidiary Accredo Health Group ("Accredo") is focused on dispensing injectable, infused, oral or inhaled drugs that require a higher level of clinical service and support compared to what is typically available from traditional pharmacies. Accredo is able to achieve better outcomes for patients and reduced waste for clients through a disease-centric organization, specialty trained clinicians, a nationwide footprint, a network of in-home nursing services, reimbursement and patient assistance programs, and biopharmaceutical services.

Our subsidiary Freedom Fertility is a leading specialty pharmacy focused on the needs of fertility patients and providers. Through Freedom Fertility, we also provide insurance assistance and patient education and support.

We also provide medical benefit drug management services, which enable greater oversight of our clients' specialty spend billed through the medical benefit and are designed to ultimately make specialty drugs more affordable and accessible. Through our medical benefit drug management services, we offer a wide range of tools that span both the medical and pharmacy benefit in order to optimize the use of specialty medications through channel, network and utilization management. These tools include guaranteed savings programs, promoting the safe and appropriate use of high-cost specialty drugs, redirecting patients and medications to the lowest-cost and most appropriate channel, verifying claims are paid at the contracted rate, improving opportunities to achieve rebates and, where clinically appropriate, moving drug coverage from medical to pharmacy benefit and to lower-cost sites of care.

Retail Network Pharmacy Administration. We contract with retail pharmacies to provide prescription drugs to members of the pharmacy benefit plans we manage. In the United States, Puerto Rico and the Virgin Islands, we negotiate with pharmacies to discount the prices at which they provide drugs to members and manage national and regional networks responsive to client preferences related to cost containment, convenience of access for members and network performance. We also manage networks of pharmacies customized for or under direct contract with specific clients and have contracted with pharmacy provider networks to comply with CMS access requirements for the federal Medicare Part D Prescription Drug Program ("Medicare Part D").

All retail pharmacies in our pharmacy networks communicate with us online and in real time to process prescription drug claims. When a member of a plan presents his or her identification card at a network pharmacy, the network pharmacist sends certain specified member, prescriber and prescription information in an industry-standard format through our systems, which process the claim and send a response back to the pharmacy with relevant information to process the prescription.

Benefit Design Consultation. We consult with our clients on how best to structure and leverage the pharmacy benefit to meet plan objectives for providing affordable access to the prescription medications people need to stay healthy, and helping ensure the safe and effective use of those medications.

Drug Utilization Review. We review prescriptions for safety and effectiveness, in real-time, electronically and systematically, when presented to our pharmacies or submitted for coverage by network pharmacies, and alert the dispensing pharmacy to detected issues. Issues not adequately addressed at the time of dispensing may also be communicated to the prescriber retrospectively.

Drug Formulary Management. Formularies are lists of drugs with designations which may be used to determine drug coverage and member out-of-pocket costs, and communicate plan preferences in competitive drug categories. Our formulary management services support clients in establishing formularies that best meet plan objectives for access, safety and affordability, and assist patients and physicians in choosing clinically appropriate, cost-effective drugs.

We administer specific formularies on behalf of our clients, including standard formularies developed and offered by Express Scripts and custom formularies for which we play a more limited role. The majority of our clients select standard formularies, governed by our National Pharmacy & Therapeutics Committee (the "P&T Committee"), a panel of independent physicians and pharmacists in active clinical practice, representing a variety of specialties and practice settings and typically with major academic affiliations. In making formulary recommendations, the P&T Committee considers the drug's safety and efficacy, without any information on or consideration of the cost of the drug, including any discount or rebate arrangement we might negotiate with the manufacturer. This process is designed to ensure the clinical recommendation is not affected by our financial arrangements. We fully comply with the P&T Committee's clinical recommendations regarding drugs that must be included or excluded from the formulary based on their assessment of safety and efficacy.

Medicare, Medicaid and Health Insurance Marketplace ("Public Exchange") Offerings. We support our clients by providing several Medicare program options: the Retiree Drug Subsidy ("RDS") program, which is offered by CMS to reimburse municipalities, unions and private employers for a portion of their eligible expenses for retiree prescription drug benefits; the Employer-Sponsored Group Waiver Plan ("EGWP"), a group-enrolled Medicare Part D option for employers and labor groups; and the "PBM inside" service that offers claims adjudication and related patient services supporting Medicare drug benefits to a number of Medicare plan sponsors (i.e., health plans serving Medicare). As a PBM supporting Medicare plan sponsors, we provide prescription adjudication services in addition to a suite of required programmatic offerings such as a Medication Therapy Management program, an Explanation of Benefits for members using prescription services and a variety of member communications related to the prescription benefit. We also offer an individual prescription drug plan ("PDP") to beneficiaries in all 34 Medicare regions across the United States, as well as Puerto Rico.

Our revenues include premiums associated with these risk-based Medicare Part D PDP product offerings. The products involve underwriting the benefit, charging enrollees applicable premiums, providing covered prescription drugs and administering the benefit as filed with CMS. Our insurance company subsidiaries operate under various contracts with CMS. We provide three Medicare Part D PDP options for beneficiaries: a standard Medicare Part D benefit plan as mandated by statute and two enhanced coverage plans that offer additional options for coverage. We also offer numerous customized benefit plan designs to employer group retiree plans within our Medicare Part D PDP product offerings.

Our member website supports pre-enrollment and post-enrollment activities on behalf of our Medicare Part D PDP product offerings serving multiple clients. Prospective Medicare Part D participants and their caregivers can use the pre-enrollment site's Plan Compare tool to accurately project costs for medications. The post-enrollment site allows members who have signed up to receive a Medicare Part D benefit from either Express Scripts or one of our Medicare plan sponsor clients to securely manage all aspects of their prescription program.

We support health plans serving Medicaid populations by offering a pharmacy drug benefit. This business is driven by both federal and state requirements and we earn revenues based on claims-related activity. Common services include transitioning members' access to drugs as plan offerings change, generating data to states through encounter files and coordinating benefits between states and other payors. Medicaid populations have grown in states that chose to expand Medicaid eligibility. States choosing to use managed health care plans for Medicaid create additional opportunities for us to provide claims-related services.

We also support health plans serving insured Public Exchange members. This business is driven by both federal and state requirements and we earn revenues based on claims-related activity. We offer pharmacy benefit solutions that can be leveraged in plan design to align with any exchange strategy to achieve desired cost and clinical objectives.

Administration of a Group Purchasing Organization. We operate a group purchasing organization ("GPO") that negotiates pricing for the purchase of pharmaceuticals from pharmaceutical manufacturers and suppliers. We also provide

various administrative services to GPO participants including negotiation and management of the GPO purchasing contracts. In 2017, Express Scripts' GPO became a member of the GPO of Walgreens Boots Alliance Development GmbH ("WBAD"). Certain administrative services will transition to the WBAD GPO. There was no change to the legal structure of Express Scripts' GPO.

Inside Rx SM . The Inside Rx program provides affordable access to medication, especially for the uninsured and those navigating the changing healthcare landscape, by delivering broad access to more affordable medications for uninsured and underinsured individuals. Inside Rx partners with participating retail pharmacies and major pharmaceutical companies to provide discounts to patients who would otherwise pay full list price for prescription medications through the use of a discount card. This program works collaboratively across the pharmacy supply chain, with all parties sharing a singular focus: to ensure patients have affordable access to medication they need.

Digital Consumer Health and Drug Information. We empower member decision-making through online and mobile tools that help guide members in making informed drug, pharmacy and health choices. Information included on our website and mobile app are not part of this annual report.

Other Business Operations Services

Overview. Through our Other Business Operations segment, two of our businesses service patients through multiple paths: CuraScript Specialty Distribution and CareCore National Group, LLC and its affiliates d/b/a eviCore healthcare ("eviCore"). We acquired eviCore during the fourth quarter of 2017 for approximately $3.6 billion. Prior to December 27, 2017, Other Business Operations also included United BioSource Holdings, Inc. ("UBC"). See "Acquisitions, Divestiture and Related Transactions" below for further description of the acquisition of eviCore and the sale of UBC. During 2017 , 4.8% of our revenues were derived from Other Business Operations services, compared to 3.8% and 2.7% during 2016 and 2015 , respectively.

Provider Services. CuraScript Specialty Distribution ("CSD") is a specialty distributor of pharmaceuticals and medical supplies (including injectable and infusible pharmaceuticals and medications to treat specialty and rare/orphan diseases) directly to healthcare providers, clinics and hospitals in the United States for office or clinic administration. CSD also operates Matrix GPO, a GPO focused on the purchase of products and services, including specialty pharmaceuticals, for practitioners, which is uniquely positioned to support the needs of its membership. Through our CSD business, we provide distribution services primarily to office and clinic-based physicians who treat patients with chronic diseases and regularly order costly specialty pharmaceuticals. CSD provides competitive pricing on pharmaceuticals and medical supplies, and operates three distribution centers and ships most products overnight within the United States, as well as providing distribution capabilities to Puerto Rico and Guam. CSD is a contracted supplier with most major group purchasing organizations and leverages our distribution platform to operate as a third-party logistics provider for several pharmaceutical companies.

Medical Benefit Management Services. eviCore is a leading provider of integrated medical benefit management solutions that focus on driving adherence to evidence-based guidelines and improve quality of patient outcomes and cost of care reductions for our clients. eviCore manages medical benefits in categories including radiology, cardiology, musculoskeletal disorders, sleep disorders, post-acute care, genetic lab, specialty pharmacy and medical oncology. eviCore contracts with health plans and other commercial and governmental payors to promote the appropriate use of healthcare services and contracts with health plan clients through, in certain instances, capitated risk arrangements where we assume the financial obligation for the cost of healthcare services provided to eligible members covered by its healthcare management programs.

Pharmaceutical Services. In December 2017, we sold our UBC business. UBC offered consulting services, including design, implementation and project management, for pharmaceutical and biotechnology manufacturers to collect evidence to guide the safe, effective and affordable use of medicines. See "Acquisitions, Divestiture and Related Transactions" below for further description of the sale of UBC.

Suppliers

We maintain inventory of brand name and generic pharmaceuticals in our home delivery and specialty pharmacies. Our specialty pharmacies also carry biopharmaceutical products, including pharmaceuticals for the treatment of rare or chronic diseases, to meet the needs of our patients. If a drug is not in our inventory, we can generally obtain it from a supplier within one business day. We purchase pharmaceuticals either directly from manufacturers or through authorized wholesalers. For the year ended December 31, 2017 , approximately 54% of the total dollar value of our pharmaceutical purchases were through one wholesaler, but we believe alternative sources are readily available. Generic pharmaceuticals are generally purchased directly from manufacturers.

Clients

We are a provider of services to managed care organizations, health insurers, third-party administrators, employers, union-sponsored benefit plans, workers' compensation plans, government health programs, providers, clinics, hospitals and others.

Express Scripts provides pharmacy network services and home delivery and specialty pharmacy services to the United States Department of Defense ("DoD"). The DoD's TRICARE Pharmacy Program is the military healthcare program serving active-duty service members, National Guard and Reserve members, and retirees, as well as their dependents. Under our DoD contract, we provide to the DoD online claims adjudication, home delivery services, specialty pharmacy clinical services, claims processing and contact center support and other services critical to managing pharmacy trend.

In December 2009, ESI completed the purchase of 100% of the shares and equity interests of certain subsidiaries of Anthem that provide pharmacy benefit management services ("NextRx"). Simultaneous with the purchase, ESI entered into a 10-year contract under which we provide pharmacy benefits management services to members of the affiliated health plans of Anthem. Subsequent to this acquisition, we integrated NextRx's PBM clients into our existing systems and operations. Our contract with Anthem expires at the end of 2019, with a one year transition period extending through 2020. Based on an announcement by Anthem on October 18, 2017, Anthem will not renew its contract with us. We continue to focus on providing exceptional service to Anthem and its clients in accordance with the terms of our contract. For further discussion of our Anthem relationship, see "Part II - Item 7 - Executive Summary and Trend Factors Affecting the Business."

Refer to Note 13 - Segment information to our consolidated financial statements included in "Part II - Item 8" of this Annual Report on Form 10-K for a description of client concentration, including clients that represent more than 10% of consolidated revenues, which note is incorporated by reference herein.

Medicare Prescription Drug Coverage

We support clients by providing several program options for retirees: the RDS program, which is offered by CMS to reimburse municipalities, unions and private employers for a portion of their eligible expenses for retiree prescription drug benefits; a commercial "wrap" EGWP offering, the "PBM inside" service that offers claims adjudication and related services supporting Medicare Part D drug benefits to a number of Medicare Part D sponsors; and our own risk-based Medicare Part D PDP product offerings.

Acquisitions, Divestiture and Related Transactions

In May 2017, we completed the acquisition of myMatrixx Holdings, Inc. ("myMatrixx") for approximately $250.0 million, which included both cash and the issuance of common stock. The acquisition is not material to our consolidated financial statements.

In December 2017, we completed the acquisition of eviCore for approximately $3.6 billion. Operations are included in our reported results beginning as of the date of acquisition and are not material to our consolidated financial results.

In December 2017, we sold UBC for approximately $150.0 million , the proceeds of which included both cash and a note receivable. We recorded a $17.7 million loss on disposal which is reported within "Interest expense and other" on our Consolidated Statement of Operations for the year ended December 31, 2017.

For further description of the acquisitions and divestiture noted above, see "Part II - Item 8 - Note 3 - Acquisitions and divestiture ."

We regularly review potential acquisitions and affiliation opportunities. We believe available cash resources, bank financing or the issuance of debt or equity could be used to finance future acquisitions or affiliations. There can be no assurance we will enter into new acquisitions or establish new affiliations in 2018 or thereafter.

Company Operations

General. As of December 31, 2017 , our United States PBM segment operated four high-volume automated dispensing home delivery pharmacies, one non-automated dispensing home delivery pharmacy, seven non-dispensing order processing centers, five patient contact centers, nine specialty home delivery pharmacies and 34 specialty branch pharmacies.

We also provide a home delivery service in Canada which dispenses maintenance prescription medications from four regional dispensing pharmacy locations. We provide a full range of integrated PBM services to insurers, third-party

administrators, plan sponsors and the public sector at our Canadian facilities. These services facilitate better health decisions and lower costs and include health claims adjudication and processing services, benefit design consultation, drug utilization review, formulary management and medical and drug data analysis services.

Sales and Account Management. Our sales and account management teams market and sell PBM solutions and are supported by client service representatives, clinical pharmacy managers, and benefit analysis consultants. These teams work with clients to develop innovative strategies to put medicine within reach of patients while helping health benefit providers improve access to prescription drugs and make them more affordable.

Supply Chain. Our supply chain contracting and strategy teams negotiate and manage pharmacy network contracts, pharmaceutical and wholesaler purchasing contracts and manufacturer rebate contracts. As our clients continue to experience increased cost trends, our supply chain teams are working to combat these price increases by developing new innovative solutions such as Express Scripts SafeGuardRx and narrow networks to deliver savings to our clients. In addition, our Formulary Consulting team, which consists of pharmacists and financial analysts, provides services to our clients in support of formulary decisions, benefit design consultation and utilization management programs.

Clinical Support. Our staff of highly trained healthcare professionals provides clinical support for our PBM and medical benefit management services including more specialized care for patients with select chronic and complex conditions. We operate condition-specific Therapeutic Resource Center facilities staffed with specialist pharmacists, nurses and other clinicians who provide personal and specialized patient care.

Our clinical solutions staff of pharmacists and physicians provides clinical development and operational support for our PBM services. These healthcare professionals are responsible for a wide range of activities including identifying emerging medication-related safety issues and contacting physicians, clients, and patients (as appropriate); providing drug information services; managing formulary; and developing utilization management, safety (concurrent and retrospective drug utilization review) and other clinical interventions.

Our research & analytics team conducts timely, rigorous and objective research that supports evidence-based pharmacy benefit management and evaluates the clinical, economic and member impact of pharmacy benefits. They also use predictive modeling, machine learning and other analytical tools in the development and improvement of our products and services. The team also produces the Express Scripts Drug Trend Report which examines trends in pharmaceutical utilization and cost, the factors triggering those trends and new solutions our clients can implement to control their pharmacy spend while improving the health of their members.

Technology. Our technology team supports our pharmacy and medical benefit claims processing systems, specialty pharmacy systems and other management information systems essential to our operations. We continually seek opportunities to optimize our technology solutions by consolidating and upgrading our technology platforms.

Uninterrupted point-of-sale electronic retail pharmacy claims processing is a significant operational requirement for our business. Claims in the United States are processed through systems managed and operated domestically by internal resources and an outsourced vendor. Canadian claims are processed through systems maintained and operated by a third party in Canada and managed by us. We believe we have substantial capacity for growth in our United States and Canadian claims processing facilities.

We leverage outsourced vendor services to provide certain disaster recovery services for systems located at our data centers. For systems not covered by a third-party vendor arrangement, such as our specialty pharmacy data centers, our corporate disaster recovery organization manages internal recovery services.

Competition

There are a number of other PBMs in the United States with which we compete. Some of these are independent PBMs, such as MedImpact and Navitus Health Solutions. Others are owned by managed care organizations such as Aetna Inc., Humana, OptumRx (owned by UnitedHealth Group ) and Prime Therapeutics (owned by a collection of Blue Cross Blue Shield Plans). Some are owned by retail pharmacies, such as CVS Caremark (owned by CVS Health) and Envision Rx (owned by Rite Aid). Wal-Mart Stores, Inc. engages in certain activities competitive with PBMs. We also compete against adjudicators, such as Argus. With the emergence of alternative benefit models through Private Exchanges, the competitive landscape also includes brokers, health plans and consultants. Some of these competitors may have greater financial, marketing and technological resources than we do and new market entrants, including strategic alliances aimed at modifying the current healthcare delivery models or entering the prescription drug sector from another sector of the healthcare industry, may increase competitiveness as barriers to entry are relatively low. In addition, the health care industry has undergone periods of substantial consolidation and may continue to consolidate in the future. We believe the primary competitive factors in the industry include the ability to:

negotiate with retail pharmacies to ensure our retail pharmacy networks meet the needs of our clients and their members; negotiate discounts and rebates on prescription drugs with drug manufacturers; navigate the complexities of governmental reimbursed business, including Medicare, Medicaid and the Public Exchanges; manage cost and quality of specialty drugs; utilize the information we obtain about drug utilization patterns and consumer behavior to reduce costs for our clients and members; and the level of service we provide.

Government Regulation and Compliance

Many aspects of our business are regulated by federal and state laws, rules and regulations. Accordingly, we maintain a comprehensive compliance program and we believe we operate our business in substantial compliance with all existing legal requirements material to the operation of our businesses. There are, however, significant uncertainties involving the application of various legal requirements, the violation of which could result in, among other things, sanctions. See "Part I - Item 1A - Risk Factors" for additional detail.

Federal Healthcare Reform . The Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 ("Health Reform Laws"), targets many aspects of the United States healthcare system, including, but not limited to, enforcement mechanisms and rules related to healthcare fraud and abuse enforcement activities, health plan coverage mandates, rules and obligations for health insurance providers, certain PBM transparency requirements related to the healthcare insurance exchanges and healthcare coverage for Americans in general. The Health Reform Laws impact our business in a variety of ways and long-term impacts remain unclear with respect to the implementation or revision of certain components of the Health Reform Laws and related regulatory guidance. Known impacts include an increase in utilization of the pharmacy and medical benefit by a newly enrolled population with an unknown risk profile, compliance obligations stemming from increased state and federal government involvement in the healthcare marketplace, shifting claims liability from plan sponsors to third-party administrators for certain women's preventive benefits, data reporting obligations to support health plan issuers and insurers operating in the healthcare exchanges and general market reforms prohibiting the use of many factors traditionally used to establish premiums and adjustments implemented by health plan sponsors and health insurance providers. The ultimate impact of the Health Reform Laws remains unclear as a result of repeal efforts since the 2016 elections, including the repeal of the individual mandate adopted in 2017.

Medicare Part D. We participate in various ways in Medicare Part D created under the Medicare Modernization Act ("MMA"), and its related regulations and sub-regulatory program guidance (the "Medicare Part D Rules") issued by CMS. Through our licensed insurance subsidiaries we sponsor Medicare Part D product offerings, Medicare prescription drug coverage and services to Medicare Part D beneficiaries. Through our PBM business, we also provide Medicare Part D-related products and services to other Medicare Part D sponsors, Medicare Advantage Prescription Drug Plans and other employers and clients offering Medicare Part D benefits to Medicare Part D eligible beneficiaries. On November 28, 2017, CMS released a proposed rule that would revise regulations with respect to Medicare Part C and Part D (the "Proposed Rule"). Among changes to the Medicare Part D program, in particular, the Proposed Rule sought information through a request for information about applying manufacturer rebates at the point of sale and calculating pharmacy price concessions at the point of sale. The ultimate impact of the Proposed Rule on our business may change as the suggested regulations undergo further revision through the comment process.

Medicare Part B and Medicaid. We participate in the Medicare Part B program, which covers certain costs for services provided by Medicare participating physicians and suppliers and for durable medical equipment. We also participate in many state Medicaid programs directly or indirectly through our clients who are Medicaid managed care contractors. We also perform certain Medicaid subrogation services and certain delegated services, including utilization management, for clients, which are regulated by federal and state laws.

Anti-Kickback and Referral Laws. Subject to certain exceptions and "safe harbors," the federal anti-kickback statute generally prohibits, among other things, knowingly and willfully paying, receiving or offering any payment or other remuneration to induce a person to purchase, lease, order or arrange for (or recommend purchasing, leasing, ordering or arranging) items (including prescription drugs) or services reimbursable in whole or in part under Medicare, Medicaid or another federal healthcare program. Several states also have similar laws, some of which apply similar anti-kickback prohibitions to items or services reimbursable by non-governmental payors. Sanctions for violating these federal and state anti-kickback laws may include criminal and civil fines and exclusion from participation in the federal and state healthcare programs.

The federal anti-kickback statute has been interpreted broadly by courts, the Office of Inspector General ("OIG") within the Department of Health and Human Services ("HHS"), and various administrative bodies. Because of the federal statute's broad scope, federal regulations establish certain "safe harbors" from liability. A practice that does not fall within a safe harbor is not necessarily unlawful, but may be subject to scrutiny and challenge. Anti-kickback laws have been cited as a

partial basis, along with state consumer protection laws described below, for investigations and multi-state settlements relating to financial incentives provided by drug manufacturers to pharmacies in connection with "product conversion" programs. Other anti-kickback laws may be applicable, such as the Public Contracts Anti-Kickback Act, the ERISA Health Plan Anti-Kickback Statute, the federal "Stark Law" and various state anti-kickback restrictions.

Federal Civil Monetary Penalties Law. The federal civil monetary penalty statute provides for civil monetary penalties against any person who gives something of value to a Medicare or Medicaid program beneficiary which the person knows or should know is likely to influence the beneficiary's selection of a particular provider for Medicare or Medicaid items or services. Under this law, our wholly-owned home delivery pharmacies, specialty pharmacies and home health providers are restricted from offering certain items of value to influence a Medicare or Medicaid patient's use of services. The Health Reform Laws also include several civil monetary provisions, such as penalties for the failure to report and return a known overpayment and failure to grant timely access to the OIG under certain circumstances.

Prompt Pay Laws. Under Medicare Part D and certain state laws, some of which also govern the Public Exchanges, PBMs and many of our health plan clients, we may be obligated to pay retail pharmacy and medical benefit providers within established time periods that may be shorter than existing contracted terms and/or via electronic transfer instead of by check. Changes that require faster payment may have a negative impact on our cash flow from operations.

False Claims Act and Related Criminal Provisions. The federal False Claims Act (the "False Claims Act") imposes civil penalties for knowingly making or causing to be made false claims or false records or statements with respect to governmental programs, such as Medicare and Medicaid, to obtain reimbursement or for failure to return overpayments. Private individuals may bring qui tam or "whistle blower" suits against providers under the False Claims Act, which authorizes the payment of a portion of any recovery to the individual bringing suit. The Health Reform Laws also amended the federal anti-kickback laws to state any claim submitted to a federal or state healthcare program which violates the anti-kickback laws is also a false claim under the False Claims Act. The False Claims Act generally provides for the imposition of civil penalties and for treble damages, resulting in the possibility of substantial financial liabilities. Criminal statutes similar to the False Claims Act provide that if a corporation is convicted of presenting a claim or making a statement it knows to be false, fictitious or fraudulent to any federal agency, the corporation may be fined. Conviction under these statutes may also result in exclusion from participation in federal and state healthcare programs. Many states have also enacted laws similar to the False Claims Act, some of which may include criminal penalties, substantial fines and treble damages.

Government Procurement Regulations. As described above, we have a contract with the DoD, which subjects us to all of the applicable Federal Acquisition Regulations ("FAR") and DoD FAR Supplement, which govern federal government contracts. Further, there are other federal and state laws applicable to our DoD arrangement and other clients that may be subject to government procurement regulations. In addition, certain of our clients participate as contracting carriers in the Federal Employees Health Benefits Program administered by the Office of Personnel Management, which includes various PBM standards.

ERISA Regulation. The Employee Retirement Income Security Act of 1974 ("ERISA") regulates certain aspects of employee pension and health benefit plans, including self-funded corporate health plans, with which we have agreements to provide PBM services. We believe the conduct of our business is not generally subject to the fiduciary obligations of ERISA. However, there can be no assurance the United States Department of Labor (the "DOL"), which is the agency that enforces ERISA, would not in the future assert the fiduciary obligations imposed by ERISA apply to certain aspects of our operations or courts would not reach such a ruling in private ERISA litigation.

In addition to its fiduciary provisions, ERISA has also been held to preempt state laws imposing transparency requirements on PBMs.

Federal law related to ERISA health plans also imposes civil and criminal liability on service providers to health plans and certain other persons if certain forms of illegal remuneration are made or received. These provisions of ERISA are similar, but not identical, to the healthcare anti-kickback statutes described above, although ERISA lacks the statutory and regulatory "safe harbor" exceptions incorporated into the healthcare statutes. Like the healthcare anti-kickback laws, the corresponding provisions of ERISA are broadly written and their application to particular cases is often uncertain.

Employee benefit plans subject to ERISA are subject to certain rules, published by the DOL, including certain reporting requirements for direct and indirect compensation received by plan service providers such as PBMs. However, a DOL frequently asked questions document stated discount and rebate revenue paid to PBMs by drug manufacturers generally need not be reported on a plan's Form 5500 as indirect compensation. Self-funded plans which are part of Section 125 "cafeteria plans" are also currently exempt from such compensation disclosure. At this time, we are unable to predict whether the DOL will issue additional regulations or which additional regulations, if any, may be proposed in formal rulemaking by the DOL.

State Fiduciary Legislation . From time to time, legislation is considered that would purport to declare a PBM a fiduciary with respect to its clients. While the validity of such laws is questionable and we do not believe any such laws are currently in effect, we cannot predict what effect, if any, such statutes, if enacted, may have on our business and financial results.

Consumer Protection Laws. Most states have consumer protection laws that have been the basis for investigations and multi-state settlements relating to financial incentives provided by drug manufacturers to retail pharmacies in connection with product conversion programs. Such statutes have also been cited as the basis for claims against PBMs either in civil litigation or pursuant to investigations by state Attorneys General.

Network Access Legislation. A majority of states now have some form of legislation affecting our ability, or our clients' ability, to limit access to a pharmacy provider network or remove a provider from the network. Such legislation may require us or our clients to admit any retail pharmacy or provider willing to meet the plan's price and other terms for network participation ("any willing provider" legislation) or may provide that a provider may not be removed from a network except in compliance with certain procedures ("due process" legislation). We have not been materially affected by these statutes.

Certain states have enacted legislation prohibiting certain PBM clients from imposing additional co-payments, deductibles, limitation on benefits, or other conditions ("Conditions") on covered individuals utilizing a retail pharmacy when the same Conditions are not otherwise imposed on covered individuals utilizing home delivery pharmacies. However, the legislation requires the retail pharmacy to agree to the same reimbursement amounts and terms and conditions as are imposed on the home delivery pharmacies. An increase in the number of prescriptions filled at retail pharmacies may have a negative impact on the number of prescriptions filled through home delivery. We anticipate additional states will consider similar legislation and we cannot predict which states will adopt such legislation or what effect it will have, if any.

Legislation Affecting Plan Design. Some states have enacted legislation that prohibits managed care plan sponsors from implementing certain restrictive benefit plan design features, and many states have introduced legislation to regulate various aspects of managed care plans, including provisions relating to the pharmacy benefit. For example, some states, under so-called "freedom of choice" legislation, provide members of the plan may not be required to use network providers, but must instead be provided with benefits even if they choose to use non-network providers. Some states have also enacted legislation, which, as described above, can negatively impact the use of cost-saving network configurations for plan sponsors. Other states have enacted legislation purporting to prohibit health plans from offering members financial incentives for use of home delivery pharmacies. Medicare and some states have issued guidance and regulations which limit our ability to fill or refill prescriptions electronically submitted by a physician to our home delivery pharmacy without first obtaining consent from the patient. Such restrictions generate additional costs and limit our ability to maximize efficiencies which could otherwise be gained through the electronic prescription and automatic refill processes. Legislation has been introduced in some states to prohibit or restrict therapeutic intervention, or to require coverage of all Food and Drug Administration ("FDA") approved drugs. Other states mandate coverage of certain benefits or conditions, and require health plan coverage of specific drugs if deemed medically necessary by the prescribing physician. States are also standardizing the process for, and restricting the use of, utilization management rules and shortening the time frames within which prescription drug prior authorization determinations must be made. Even where states do not regulate PBMs or utilization management companies directly, these laws will apply to many of our clients, including managed care organizations and health insurers. If such legislation were to become widely adopted and broad in scope, it could have the effect of limiting the economic benefits achievable through pharmacy benefit management.

Legislation and Regulation Affecting Drug Prices . Some states have adopted so-called "most favored nation" legislation providing a pharmacy participating in the state Medicaid program must give the state the best price the pharmacy makes available to any third-party plan. Such legislation may adversely affect our ability to negotiate discounts in the future from network pharmacies.

Some states have enacted statutes regulating the use of Maximum Allowable Cost ("MAC") pricing. These statutes, referred to as "MAC Transparency Laws," generally require PBMs to disclose specific information related to MAC pricing to pharmacies and provide certain appeal rights for pharmacies. MAC Transparency Laws also restrict the application of MAC and may require operational changes to maintain compliance with the law. Some states have also enacted laws regulating pharmacy pricing and protecting the profitability of pharmacies for dispensing certain drugs. These laws have the potential to negatively impact Express Scripts in a number of ways, including, but not limited to, increasing administrative burden and decreasing flexibility in setting and managing pricing, including MAC pricing.

The federal Medicaid rebate program requires participating drug manufacturers to provide rebates on all drugs reimbursed through state Medicaid programs, including through Medicaid managed care organizations. Manufacturers of brand name products must provide a rebate equivalent to the greater of (a) 23.1% of the average manufacturer price ("AMP") paid by

retail community pharmacies or by wholesalers for certain drugs distributed to retail community pharmacies, or (b) the difference between AMP and the "best price" available to essentially any customer other than the Medicaid program and certain other government programs, with certain exceptions. We negotiate rebates with drug manufacturers and, in certain circumstances, sell services to drug manufacturers. Investigations are being and have been conducted by certain governmental entities which call into question whether a drug's "best price" was properly calculated and reported with respect to rebates paid by the manufacturers to the Medicaid programs. We are not responsible for such calculations, reports or payments. There can be no assurance, however, our ability to negotiate rebates with, or sell services to, drug manufacturers will not be materially adversely affected by such investigations or regulations in the future.

Regulation of Financial Risk Plans. Fee-for-service prescription drug plans generally are not subject to financial regulation by the states. However, if we offer to provide prescription drug or medical benefit coverage on a capitated basis or otherwise accepts material financial risk in providing the benefit, various state and federal laws may regulate the Company or its subsidiaries. Such laws may require, among other things, the party at risk establish minimum capital adequacy reserves or otherwise demonstrate financial responsibility. Laws that may apply in such cases include insurance laws, managed care organization laws and limited prepaid health service plan laws. These may apply, for example, to our subsidiary insurance businesses which sponsor risk-based medical benefit management product offerings and Medicare Part D PDP product offerings or EGWP products pursuant to contracts with CMS. Our insurance subsidiaries are required to be licensed insurance companies, and are, therefore, regulated by various state departments of insurance. As such, to maintain licensure as an insurance company, these licensed subsidiaries are required to adhere to state insurance requirements related to, for example, enterprise risk management, beneficiary protections, asset management and financial reserves.

Pharmacy Regulation. Our home delivery and specialty pharmacies are licensed to do business as a pharmacy in the states in which they are located. Most of the states into which we deliver pharmaceuticals have laws that require out-of-state home delivery pharmacies to register with, or be licensed by, the board of pharmacy or similar regulatory body in the state. These states generally permit the pharmacy to follow the laws of the state in which the home delivery service is located, although some states require compliance with certain laws in that state. We believe we have registered each of our pharmacies in every state in which such registration is required and we comply in all material respects with all required laws and regulations. In addition, our pharmacists and nurses are licensed in those states where we believe their activity requires it. Our various pharmacy facilities also maintain certain Medicare and state Medicaid provider numbers as pharmacies providing services under these programs. Participation in these programs requires our pharmacies to comply with the applicable Medicare and Medicaid provider rules and regulations, and exposes the pharmacies to various changes the federal and state governments may impose regarding reimbursement methodologies and amounts to be paid to participating providers under these programs. In addition, several of our pharmacy facilities are participating providers under Medicare Part D and, as a condition to becoming a participating provider under Medicare Part D, the pharmacies are required to adhere to certain requirements applicable to Medicare Part D.

Other statutes and regulations affect our home delivery and specialty pharmacy operations, including the federal and state anti-kickback laws and the federal civil monetary penalty law described above. Federal and state statutes and regulations govern the labeling, packaging, advertising, adulteration and security of prescription drugs and the dispensing of controlled substances. The Federal Trade Commission requires mail order sellers of goods generally to engage in truthful advertising, to stock a reasonable supply of the product to be sold, to fill mail orders within thirty days and to provide clients with refunds when appropriate. The United States Postal Service also has significant statutory authority to restrict the delivery of drugs and medicines through the mail.

Other Licensure Laws. Many states have licensure or registration laws governing PBMs, medical benefit management companies, certain types of managed care organizations and insurance companies, including, but not limited to, preferred provider organizations, third-party administrators and companies that provide utilization review services. The scope of these laws differs from state to state, and the application of such laws to the activities of PBMs, medical benefit management companies and insurance companies is often unclear. We have registered under such laws in those states in which we have concluded such registration is required either due to our various PBM or medical benefit management services or the activities of our licensed insurance subsidiaries. Moreover, we have received full accreditation for Utilization Review Accreditation Commission Pharmacy Benefit Management version 2.2 Standards, which includes quality standards for drug utilization management, and select subsidiaries have received full accreditation for Utilization Review Accreditation Commission for Health Utilization Management version 7.2, which includes quality standards for medical utilization management. In addition, accreditation agencies' requirements for managed care organizations such as the National Committee on Quality Assurance and Medicare Part D regulations for Medicare Part D and Medicare Advantage Prescription Drug Plans may affect the services we provide to such organizations.

Legislation regulating PBM and medical benefit management activities in a comprehensive manner has been and continues to be considered in a number of states. In November 2017, the National Association of Insurance Commissioners

("NAIC"), an organization of state insurance regulators, published a preliminary draft of proposed changes to the Health Carrier Prescription Drug Benefit Management Model Act. The proposed changes would address issues relating to (i) transparency, accuracy and disclosure regarding prescription drug formularies and formulary changes during a policy year; (ii) accessibility of prescription drug benefits using a variety of pharmacy options; and (iii) tiered prescription drug formularies and discriminatory benefit design. It is anticipated the relevant NAIC committees will determine whether to adopt the revisions during the 2018 calendar year. While the actions of the NAIC would not have the force of law, they may influence states to adopt model legislation such organizations support. Certain states have adopted PBM registration and/or disclosure laws and we have registered under such laws and are complying with applicable disclosure requirements. In addition to registration laws, some states have adopted legislation mandating disclosure of various aspects of our financial practices, including those concerning pharmaceutical company revenue, as well as prescribing processes for prescription switching programs and client and provider audit terms. Other states are considering similar legislation, and as more states consider these bills, it will be difficult to manage the distinct requirements of each.

Antitrust. The antitrust laws generally prohibit competitors from fixing prices, dividing markets and boycotting competitors, regardless of the size or market power of the companies involved. Further, antitrust laws generally prohibit other conduct found to restrain competition unreasonably, such as certain attempts to tie or bundle services together and certain exclusive dealing arrangements.

FDA Regulations. The Health Reform Laws provide a regulatory approval pathway for biosimilars (alternatively known as generics) for biological products and provide an innovator biological product will be granted an exclusivity period of 12 years. At this time, we are unable to fully evaluate the impact of the regulatory changes regarding biosimilars on our business and financial results.

HIPAA and Other Data Privacy and Security Legislation. Many of our activities involve the receipt or use of confidential health and other personal information. In addition, we use aggregated and de-identified data for our own research and analysis purposes and, in some cases, provide access to such data to pharmaceutical manufacturers and third-party data aggregators. Various federal and state laws, including the Health Insurance Portability and Accountability Act of 1996 and the regulations issued thereunder (collectively "HIPAA"), regulate and restrict the use, disclosure and security of certain personal information, including health information, and similar legislation is proposed from time to time in various states.

The privacy regulations included as part of HIPAA impose restrictions on the use and disclosure of individually identifiable health information by certain entities. The HIPAA security regulations provide controls related to the access to and disclosure of protected health information when it is maintained or transmitted electronically. Other HIPAA requirements relate to (i) electronic transaction standards and code sets for processing of pharmacy claims, (ii) privacy and security requirements vis-à-vis business associates, (iii) breach analysis and notification requirements, (iv) limits on how information is used and disclosed for marketing and fundraising purposes, and (v) limits on the use of a patient's health information without his or her permission. As with many other companies subject to HIPAA and related laws, these laws may have significant operational and legal consequences for our business.

We believe we are in compliance in all material respects with HIPAA and other state privacy laws. To date, no patient privacy laws have been adopted that materially impact our ability to provide PBM and pharmacy services, but there can be no assurance federal or state governments will not enact legislation, impose restrictions or adopt interpretations of existing laws that could have a material adverse effect on our business and financial results.

Environmental and Safety Regulations. We are required to comply with certain federal, state and local laws and regulations regarding environmental protection, employee safety, and public health. Any failure to comply with these regulations could result in fines or other sanctions by governmental bodies or entities.

Other Business Operations Services. Many of the laws and regulations cited above with respect to our PBM activities also apply with respect to our various Other Business Operations services, including, without limitation, the federal and state anti-kickback laws, licensure laws and HIPAA. In addition, as a condition to conducting our wholesale business, we must maintain various permits and licenses with the appropriate state and federal agencies and we are subject to various wholesale distributor laws that regulate the conduct of wholesale distributors, including, but not limited to, maintaining pedigree papers in certain instances.

Intellectual Property Rights

We, and/or our subsidiaries, own and have registered certain trade and service marks with the United States Patent and Trademark Office. Examples of our marks include, but are not limited to, EXPRESS SCRIPTS ® , MEDCO ® , ACCREDO ® , CURASCRIPTSD ® , MYMATRIXX ® , EVICORE HEALTHCARE ® , CONSUMEROLOGY ® , MY RX CHOICES ® ,

RATIONALMED ® , SCREENRX ® , EXPRESSALLIANCE ® , EXPRESS SCRIPTS MEDICARE ® , EXPRESS ADVANTAGE NETWORK ® , HEALTH DECISION SCIENCE ® , THERAPEUTIC RESOURCE CENTER ® , CONSTELLATION ® , EXPRESSPATH ® , MEDICUBE ® , CHOLESTEROL CARE VALUE PROGRAM ® , HEPATITIS CURE VALUE PROGRAM ® , EXPRESS SCRIPTS SAFEGUARDRX ® , MARKET EVENTS PROTECTION PROGRAM ® , ONCOLOGY CARE VALUE PROGRAM ® , DIABETES CARE VALUE PROGRAM SM , INFLAMMATORY CONDITIONS CARE VALUE PROGRAM SM , INFLATION PROTECTION PROGRAM SM , PULMONARY CARE VALUE PROGRAM SM , MULTIPLE SCLEROSIS CARE VALUE PROGRAM SM and INSIDE RX SM .

We also hold a portfolio of patents and pending patent applications. We are not substantially dependent on any single patent or group of related patents.

We rely on our agreements with employees, clients, vendors, and other third parties to protect and maintain our confidential information and proprietary rights.

Insurance

We generally maintain insurance coverage for claims that arise in the normal course of business. Where insurance coverage is not available, or, in our judgment, is not cost-effective, we maintain self-insurance accruals to reduce our exposure to future claims, legal costs, settlements and judgments, once such costs become both probable and estimable. Self-insured losses are accrued based upon estimates of the aggregate liability for the costs of uninsured claims incurred.

There can be no assurance we will be able to maintain certain types of liability insurance coverage in the future or that such insurance coverage, together with our self-insurance accruals, will be adequate to cover potential future claims. A claim, or claims, not covered by insurance or in excess of our insurance coverage could have a material adverse effect on our consolidated results of operations, consolidated financial position and/or consolidated cash flow from operations.

Employees

As of December 31, 2017 and 2016 , we employed approximately 26,600 and 25,600 employees, respectively, worldwide. Approximately 7% of the employees are members of collective bargaining agreements at December 31, 2017 . Specifically, we employ members of the following unions:

Four collective bargaining agreements covering certain of these employees will expire at various dates through December 2018 .

Executive Officers of the Registrant

Our executive officers and their ages as of February 27, 2018 are as follows:

Mr. Wentworth assumed the role of Chief Executive Officer in May 2016 and has served as President of the Company since February 2014. Mr. Wentworth was elected a director of the Company in June 2015. From April 2012 to February 2014 he served as Senior Vice President and President, Sales and Account Management. Mr. Wentworth joined Express Scripts when the Company merged with Medco in April 2012. At Medco, he served as Group President, National and Key Accounts from October 2008 to April 2012, as Chief Executive Officer of Medco's Accredo Health Group subsidiary from March 2006 to October 2008 and as Group President - National Accounts from August 2003 to March 2006.

Mr. Havel was named Executive Vice President and Chief Financial Officer in October 2017 and previously served as the Company's Executive Vice President and interim Chief Financial Officer from January 2015 to September 2015, and then as Senior Vice President, Finance, through March 2016. Prior to re-joining Express Scripts, Mr. Havel served as Chief Operating Officer of Vatterott Education Centers, a privately held, post-secondary trade school from April 2016 through November 2016. From April 2012 to December 2014, he served as Chief Financial Officer of Major Brands Holdings, a privately held beverage distribution company. Mr. Havel owned and operated Havel Associates, LLC an independent financial consulting firm serving both private and public companies from July 2010 to April 2012, and again from December 2016 to September 2017. Mr. Havel also spent approximately 34 years with Ernst & Young LLP, beginning his career in 1976.

Dr. Sample was named Executive Vice President and Chief Operations Officer in January 2018 and previously served as Senior Vice President and Chief Information Officer from February 2016 to January 2018. Prior to joining Express Scripts, Dr. Sample served as President, Enterprise Growth at American Express, a global services, payments and travel company, from August 2014 to February 2016, and as Chief Information Officer, Enterprise Growth at American Express, from April 2012 to August 2014. He served in various roles of increasing responsibility at eBay Inc. from 2010 to 2012, and Yahoo! from 2004 to 2010.

Ms. Houston was named Executive Vice President and Chief Operations Officer in December 2016 and served as our Chief Operations Officer until January 2018, when the Company announced her retirement and plan to continue in her capacity as Executive Vice President for a period to be determined to conclude several key initiatives. Ms. Houston previously served as Senior Vice President, Operations from February 2014 to December 2016. From February 2012 to February 2014, she served as Senior Vice President, Pharma and Retail Relations, and from January 2009 to February 2012, she served as Vice President/General Manager, Operations. Ms. Houston joined Express Scripts in September 1997 and has served in various leadership positions in Information Technology and Operations.

Mr. Neville was named Executive Vice President, Strategy, Supply Chain & Specialty in January 2018 and previously served as Senior Vice President, Strategy, Supply Chain & Specialty from November 2016 to January 2018. From March 2015 to November 2016, he served as Senior Vice President, Supply Chain, and from March 2009 to March 2015 he served as Vice President, Pharma Strategy and Contracting. Mr. Neville has been with the Company for over 19 years. Prior to joining Express

Scripts, Mr. Neville served in multiple clinical settings, including hospital and managed care, as a benefit consultant, pharmacist and pharmacy director.

Mr. Akins was named Senior Vice President and General Counsel in October 2015 and has served as Corporate Secretary since May 2013. Mr. Akins also served as Vice President and Deputy General Counsel from February 2010 to October 2015 and as Vice President and Associate General Counsel from December 2008 to February 2010. Mr. Akins joined the Company in February 2001 as Associate General Counsel. Prior to joining Express Scripts, Mr. Akins was a Shareholder at Polsinelli PC.

Ms. Anderson was named the Company's Chief Marketing Officer in December 2013 and has also served as a Senior Vice President since October 2015. Prior to joining Express Scripts, Ms. Anderson served as Vice President, Marketing at Humana Insurance Company from March 2005 to October 2013. Ms. Anderson also served as Vice President, Strategic Initiatives - Consumer Real Estate at Bank of America and Director, Market Brand and Strategy at Duke Energy Corporation.

Mr. Arlotta joined the Company in December 2017, when the Company completed its acquisition of eviCore healthcare. Since July 2012, Mr. Arlotta has served as the Chief Executive Officer of eviCore, and has served as Chairman of eviCore since January 2014, when its predecessor was acquired by General Atlantic, LLC, a leading global growth equity firm. Prior to joining eviCore, he was a Special Healthcare Advisor to General Atlantic, LLC. Mr. Arlotta has more than 40 years of senior corporate leadership and board experience in the healthcare industry, including prior roles as Chairman and Chief Executive Officer of Coram Inc., a then privately held provider of home infusion and specialty pharmacy services, and NeighborCare Inc., a then publicly traded provider of pharmaceutical products and services to nursing homes. He also served as chairman of Novis Pharmaceuticals, and as a director of each of Apria Healthcare, MedExpress, and Baxa Corporation. He currently serves as a director of Option Care Enterprises, Inc., a privately held provider of home and alternate treatment site infusion services. Mr. Arlotta is a retired Captain in the U.S. Army Reserves.

Dr. Miller was named Senior Vice President and Chief Medical Officer in October 2007. Dr. Miller joined Express Scripts in April 2005 as Vice President, Research and Product.

Mr. Queller was named Senior Vice President, Sales and Account Management in July 2014. Prior to joining Express Scripts, he served in a number of senior leadership positions at Aetna, Inc., a healthcare benefits company, including Senior Vice President, National Accounts from January 2013 to June 2014 and President of various national regions from May 2005 to January 2013. Mr. Queller joined Aetna Inc. in October 2000.

Mr. Seiz was named Senior Vice President, Specialty, in January 2018, and has served as President of our Accredo specialty pharmacy since November 2016. From March 2015 to November 2016, he served as Vice President and General Manager of Accredo. From April 2012 to March 2015, he served as Vice President of Clinical and Trend Programs for Express Scripts.  Mr. Seiz has been with the Company for 13 years in diverse leadership positions in the areas of clinical product development, formulary and utilization management, specialty and Medicare. Prior to joining the Company, Mr. Seiz was Assistant Professor of Pharmacy Practice at St. Louis College of Pharmacy.

Dr. Stettin was named Chief Innovation Officer in October 2015 and has also served as Senior Vice President, Clinical Research and New Solutions since April 2012. Dr. Stettin joined Express Scripts when the Company merged with Medco in April 2012, where he previously served as Chief Medical Officer from December 2010 to April 2012 and as Senior Vice President from July 2003 to April 2012. After joining Medco in 1995, Dr. Stettin held a number of leadership positions in several functional areas, including product, technology, clinical and operations.

Ms. Wade was named Senior Vice President and Chief Human Resources Officer in December 2010 and previously served as Vice President, Compensation and Benefits from June 2009 to December 2010. Prior to joining Express Scripts, she served at Coca Cola Enterprises as Corporate Vice President, Compensation and Benefits from April 2008 to June 2009 and at Patriot Coal Corporation as Senior Vice President, Human Resources from November 2007 to April 2008.

Mr. Phillips was named Vice President, Controller and Chief Accounting Officer in July 2017. Prior to joining Express Scripts, Mr. Phillips served as Senior Vice President and Chief Accounting Officer at Peabody Energy, a private-sector coal company, from September 2015 to June 2017, as Senior Vice President of Finance - Americas from July 2013 to August 2015 and Senior Vice President Finance and Administration - Australia from January 2010 to June 2013. Prior to joining Peabody Energy, Mr. Phillips served as a Senior Accountant with KPMG.

Available Information

We make available through our website (www.express-scripts.com) access to our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, all amendments to those reports (when applicable) and other filings with the SEC. Such access is free of charge and is available as soon as reasonably practicable after such information is filed with the SEC. In addition, the SEC maintains an Internet site (www.sec.gov) containing reports, proxy and information statements, and other information regarding issuers filing electronically with the SEC (which includes us). Information included on our website is not part of this annual report.

Forward-Looking Statements and Associated Risks

Information we have included or incorporated by reference in this Annual Report on Form 10-K, and information which may be contained in our other filings with the Securities and Exchange Commission (the "SEC") and our press releases or other public statements, contains or may contain forward-looking statements. These forward-looking statements include, among other things, statements of our plans, objectives, expectations (financial or otherwise) or intentions.

Our forward-looking statements involve risks and uncertainties. Our actual results may differ materially from those projected or suggested in any forward-looking statements. We do not undertake any obligation to release publicly any revisions to such forward-looking statements to reflect events or circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Any number of factors could cause our actual results to differ materially from those contemplated by any forward-looking statements, including, but not limited to, the risks associated with the following:

You should carefully consider these and other relevant factors, including those risk factors in "Part I - Item 1A - Risk Factors" in this Annual Report and any other information included or incorporated by reference in this Report, and information which may be contained in our other filings with the SEC, when reviewing any forward-looking statement. We note these factors for investors as permitted under the Private Securities Litigation Reform Act of 1995. Investors should understand it is impossible to predict or identify all such factors or risks. As such, you should not consider either foregoing lists, or the risks identified in our SEC filings, to be a complete discussion of all potential risks or uncertainties.

Item 1A - Risk Factors

We operate in a very competitive industry, which could compress our margins and impair our ability to attract and retain clients. Our failure to effectively differentiate our products and services from those of our competitors could magnify the impact of the competitive environment.

We operate in a highly competitive environment and an industry subject to significant market pressures brought about by customer demands, legislative and regulatory developments and other market factors. We must remain competitive to attract new clients and retain and cross-sell additional products and services to our existing clients. Strong competition in the PBM marketplace has generated greater client demand for lower pricing, increased revenue sharing and enhanced product and service offerings. These competitive factors have historically applied pressure on our operating margins and caused many PBMs, including us, to reduce the prices charged for products and services while sharing with clients a greater portion of the formulary fees and related rebates received from pharmaceutical manufacturers. We cannot assume positive trends will offset these pressures in the future. Our inability to maintain positive trends, or failure to identify and implement new ways to mitigate pricing pressures, could negatively impact our ability to attract or retain clients or sell additional services, which could negatively impact our margins and have a material adverse effect on our business and results of operations.

In addition, our clients are well informed and organized and can easily move between our competitors and us as our client contracts generally have terms of three years. Many clients work through knowledgeable consultants and our larger clients typically seek competing bids from our competitors prior to contract expiration. These factors, together with the impact of competitive pressures, could make it difficult for us to attract new clients, retain existing clients and cross-sell additional services, which could materially and adversely affect our business and results of operations.

To succeed in the highly competitive PBM marketplace, it is imperative we maintain a strong reputation as well as differentiate our business offerings by innovating and delivering products and services that demonstrate enhanced value to our clients, particularly in response to market changes from public policy. The negative reputational impact of a significant event, including a failure to execute on client contracts or to successfully operate the complex structure of our business or otherwise innovate and deliver products and services that demonstrate greater value to our clients could, therefore, affect our ability to grow and retain profitable clients, which could have a material adverse effect on our business and results of operations.

The delivery of healthcare-related products and services is an evolving and rapidly changing industry. Our failure to anticipate or appropriately adapt to changes or trends within the industry could have a negative impact on our ability to compete and adversely affect our business and results of operations.

We have designed our business model to compete within the current industry structure. Our client contracts generally have terms of three years and our pharmaceutical manufacturers, retail contracts and medical benefit provider contracts are typically non-exclusive and terminable on relatively short notice by either party. Any significant shifts in the structure of the PBM industry or the healthcare products and services industry in general could alter the industry dynamics and adversely affect our ability to attract or retain clients. Such industry shifts could result from, among other things:

Our failure to anticipate or appropriately adapt to changes in the industry could negatively impact our competitive position and adversely affect our business and results of operations.

In addition, the healthcare industry has undergone periods of substantial consolidation and may continue to consolidate in the future. If one or more of our clients is acquired, and the acquiring entity is not a client, then we may be unable to retain all or a portion of the acquired business. If such consolidation activity, individually or in the aggregate, is material, it could have a material adverse effect on our business and results of operations.

Changes in our regulatory environment or failure to comply with applicable laws could require us to make significant changes to our business operations, spend significant resources or result in the imposition of fines or penalties.

Numerous state and federal laws, rules and regulations affect our business and operations and include, among other things, the following:

See "Part I - Item 1  - Business  - Government Regulation and Compliance" for more detailed description of certain items listed above.

We believe we operate our business in substantial compliance with all existing material legal requirements. However, significant uncertainties exist regarding the application of many of these laws, rules and regulations to our business. From time to time, state and federal law enforcement agencies and regulatory agencies have initiated investigations or litigation involving certain aspects of our business or our competitors' businesses and, consequently, we cannot provide any assurance one or more of these agencies will not interpret or apply these legal requirements in a manner adverse to our business, or, if there is an enforcement action brought against us, our interpretation would prevail. In addition, there are numerous proposed new laws, rules and regulations as well as proposed revisions to existing laws, rules and regulations at the federal and state levels, including significant changes to the Health Reform Laws, many of which could materially affect aspects of our business or adversely affect our results of operations. We are unable to predict whether additional federal or state legislation or regulatory initiatives relating to the matters described above or to our business or the healthcare industry in general will be enacted in the future or what effect, if any, such legislation or regulations may have on us. Due to these uncertainties, we may be required to spend significant resources in connection with any such investigation or litigation or to comply with new or existing laws and regulations.

In addition, the laws, rules and regulations to which we are subject, including those related to our financial statements and financial disclosure, are complex and require significant resources to remain compliant. Any substantial non-compliance with such legal and regulatory requirements could result in significant fines and penalties or a restatement of our financial statements, which could adversely affect our business and results of operations.

Various governmental agencies have conducted investigations and audits into certain PBM business practices. Many of these investigations and audits have resulted in other PBMs agreeing to civil penalties, including the payment of money and corporate integrity agreements. We cannot predict what effect, if any, such governmental investigations and audits may ultimately have on us or on the PBM industry in general (see "Part I - Item 3 - Legal Proceedings"). However, we may experience government scrutiny and audit activity which may result in the payment or offset of prior reimbursement from the government.

From time to time, legislation is considered that would purport to declare a PBM a fiduciary with respect to its clients. While the validity of such laws is questionable and we do not believe any such laws are currently in effect, we cannot predict what effect, if any, such statutes, if enacted, may have on our business and financial results.

From time to time, certain legislative and/or regulatory proposals are made which seek to manage the healthcare industry, including managing prescription drug cost, regulating drug distribution and managing health records. Such proposals include, but are not limited to, "single-payer" government funded healthcare, changes in reimbursement rates, restrictions on access or therapeutic substitution, limits on more efficient delivery channels, taxes on goods and services, price controls on prescription drugs, incentivizing the use of electronic health records, regulating the use of maximum allowable cost pricing and other significant healthcare reform proposals. In addition, changes to government policies not specifically targeted to the healthcare industry, such as a change in tax laws and the corporate tax rate or government spending cuts, could have significant impacts on the PBM or medical benefit management marketplace. We are unable to predict whether any such policies or proposals will be enacted, or the specific terms thereof. Certain of these policies or proposals could, if enacted, adversely impact our business and results of operations.

Our ability to conduct operations depends on the security and stability of our technology infrastructure as well as the effectiveness of, and our ability to execute, business continuity plans across our operations. A failure in the security of our technology infrastructure or a significant disruption in service within our operations could materially adversely affect our business and results of operations.

We maintain, and are dependent on, a technology infrastructure platform essential for many aspects of our business operations. We have many different information systems and it is imperative we securely store and transmit confidential data, including personal health information, while maintaining the integrity of our confidential information. Any failure to protect against a security breach or a disruption in service could negatively impact our reputation and materially adversely impact our business operations and results of operations. Our technology infrastructure platform requires significant resources to maintain and enhance systems to keep pace with rapid technological change as well as evolving industry and regulatory standards. Emerging and advanced security threats, including coordinated attacks, require additional layers of security which may disrupt or impact efficiency of operations. From time to time, we may obtain significant portions of our systems-related or other services or facilities from independent third parties, which may make our operations vulnerable to such third parties' failure to adequately perform or protect against a security breach or service disruption. In the event our vendors or we experience:

we could incur disruptions to our business operations or negative impacts to patient safety, customer and member disputes, damage to our reputation, exposures to risk of loss, litigation or regulatory violations, increased administrative expenses or other adverse consequences.

We operate dispensing pharmacies, call centers, data centers and corporate facilities that depend on the security and stability of our technology infrastructure. Our technology infrastructure could be disrupted by any number of events including a general failure of the technology, security breach, malfunction of business process or a disaster or other catastrophic event. Such disruptions could, temporarily or indefinitely, significantly reduce, or partially or totally eliminate our ability to process and dispense prescriptions and provide products and services to our clients and members. Any such service disruption at these facilities or to this infrastructure or our failure to implement adequate business continuity and disaster recovery strategies could have a material adverse effect on our business and results of operations.

A substantial portion of our business is concentrated in certain significant client contracts. The termination or renegotiation of a significant client contract or our failure to execute on or other issues arising under, such contracts or conditions or trends impacting certain of our key clients could adversely affect our business and results of operations.

As described in greater detail in the description of our business in Item 1 above (see "Part I - Item 1  - Business - Clients"), we have contracts with Anthem, Inc. ("Anthem") and the United States Department of Defense ("DoD") which represented 19% and 12% , respectively, of consolidated revenues for the year ended December 31, 2017 and 17% and 12% , respectively, of consolidated revenues for the year ended December 31, 2016 .

Our contract with Anthem expires at the end of 2019 with a one year transition period through 2020. Based on an announcement by Anthem on October 18, 2017, Anthem will not renew its contract with us. The timing and extent of our elimination of the direct and indirect costs of servicing Anthem will depend on a number of factors, including the extent to which we provide transition services after the current contract expires. We have launched a multi-year, enterprise-wide initiative intended, in part, to mitigate the impact of the expiration of the Anthem contract and to transform our organization by the end of 2021. Our inability to reduce our costs and otherwise mitigate the impact of the expiration of the Anthem contract could have a material adverse effect on our business, cash flows and results of operations. A failure or significant delay in the transformation process could have a material adverse effect on our client service or our business and results of operations. Further, there can be no assurance the transformation will result in the realization of the expected benefits of cost savings, innovation and operational efficiencies, or that any realized benefits will be achieved within the anticipated time frame. For a further description of our enterprise-wide value initiative, see "Part II - Item 7 - Executive Summary and Trend Factors Affecting the Business" and "Part II - Item 8 - Note 12 - Enterprise value initiative ."

If one or more of our large clients, including clients of our newly acquired eviCore business, either terminates or does not renew a contract for any reason or if the provisions of a contract with a large client are modified, renewed or otherwise changed with terms less favorable to us and if we are not able to replace lost business or revenue by generating new business that is comparably profitable to us or by executing other corporate strategies, our results of operations could be materially adversely affected and we could experience a negative reaction in the investment community resulting in stock price declines or other adverse effects.

In addition, if certain of our key clients are negatively impacted by business conditions or other economic trends, or if such clients are acquired, consolidated or otherwise fail to successfully maintain or grow their business, our business and results of operations could be adversely impacted.

If significant changes occur within the pharmacy provider marketplace, or if other issues arise with respect to our pharmacy networks, including the loss of or adverse change in our relationship with one or more key pharmacy providers, our business and financial results could be impaired.

More than 68,000 retail pharmacies, which represent over 98% of all United States retail pharmacies, participated in one or more of our networks at December 31, 2017 . The ten largest retail pharmacy chains represent approximately 67% of the total number of stores in our largest network. In certain geographic areas of the United States, our networks may be comprised of higher concentrations of one or more large pharmacy chains. Contracts with retail pharmacies are generally non-exclusive and are terminable on relatively short notice by either party. If one or more of the larger pharmacy chains terminates its relationship with us, or is able to renegotiate terms substantially less favorable to us, our members' access to retail pharmacies and/or our business could be materially adversely affected. In addition, the entry of one or more large pharmacy chains into the PBM business in addition to the current pharmacy chain competitors, the consolidation of existing pharmacy chains or increased leverage or market share by the largest pharmacy providers could increase the likelihood of negative changes in our relationship with such pharmacies. Changes in the overall composition of our pharmacy networks, or reduced pharmacy access under our networks, could have a negative impact on our claims volume and/or our competitiveness in the marketplace, which could cause us to fall short of certain guarantees in our contracts with clients or otherwise impair our business or results of operations.

A significant disruption in service within our operations or among our key suppliers or other third parties could materially adversely affect our business and results of operations.

Our business is dependent on a number of different operations, products and processes, many of which involve third parties. A disruption in our business operations could result from, among other things: contamination of drugs or a failure to maintain appropriate shipment and storage conditions (such as temperature); an error in mail order processing; the unavailability of services or products (including drugs) provided by suppliers, pharmaceutical manufacturers, vendors or shipping carriers; labor disruptions; or unanticipated disruptions at our mail order facilities, call centers, data centers or corporate facilities. Such disruptions or our failure to implement adequate business continuity and disaster recovery strategies could, temporarily or indefinitely, significantly reduce or, partially or totally, eliminate our ability to process and dispense prescriptions and provide products and services to our clients and members, which could have a material adverse effect on our business and results of operations.

Regulatory changes relating to Medicare Part D, our failure to comply with CMS regulatory requirements, our failure to comply with CMS contractual requirements applicable to us as a Medicare Part D sponsor or our failure to otherwise execute on our strategies related to Medicare Part D, could adversely impact our business and our results of operations.

Certain of our subsidiaries have been approved to function as a Medicare Part D sponsor for the purpose of making Medicare Part D EGWPs available for eligible clients, and certain of our subsidiaries have been approved by CMS to participate in Medicare Part D as national Medicare Part D sponsors that provide direct services to Medicare Part D eligible members. Accordingly, certain subsidiaries are required to comply with federal Medicare Part D laws and regulations and are also required to be licensed as insurers or may otherwise be subject to aspects of state laws regulating the business of insurance. The administration of Medicare Part D is complex and any failure to effectively execute the provisions of Medicare Part D may have an adverse effect on our business and our results of operations.

We also provide other products and services in support of our clients' Medicare Part D plans or federal Retiree Drug Subsidy plans. We have made, and may be required to make further, substantial investments in the personnel and technology necessary to administer our Medicare Part D strategy and operations. There are many uncertainties about the financial and regulatory risks of participating in Medicare Part D, and we can give no assurance these risks will not materially adversely impact our business and results of operations. The receipt of federal funds made available through Medicare Part D by our affiliates, our clients or us is subject to compliance with, among others, the Medicare regulations and established laws and regulations governing the federal government's payment for healthcare goods and services, including the anti-kickback laws and the federal False Claims Act. If we do not comply with material contractual or regulatory obligations, including, for example, during CMS audits or client audits in cases where we provide PBM services to client Medicare Part D sponsors, recoupment, monetary penalties and/or applicable sanctions, including suspension of enrollment and marketing or debarment from participation in Medicare programs, could be imposed. Further, the adoption or promulgation of new or more complex regulatory requirements or changes in the interpretation of existing regulatory requirements, in each case, associated with Medicare may require us to incur significant compliance-related costs which could adversely impact our business and our results of operations.

In addition, due to the availability of Medicare Part D, some of our employer clients may stop providing pharmacy benefit coverage to retirees, instead allowing retirees to choose their own Medicare Part D plans, which could cause a reduction in utilization for our services. Extensive competition among Medicare Part D plans could also result in the loss of Medicare members by our managed care customers, which would cause a decline in our membership base. Further, certain of our Medicare Part D product offerings require premium payment from members for the ongoing benefit, as well as amounts due from CMS, and as a result of demographics and the potential magnitude and timing of settlement for amounts due from CMS, these receivables are subject to billing and realization risk in excess of what is experienced in the core PBM business.

We have historically engaged in strategic transactions, including the acquisition of other companies or businesses, and may engage in similar transactions in the future. Our failure to effectively execute on such transactions or to integrate any acquired businesses could adversely impact our business and results of operations. The acquisition and integration of any such business typically generates significant transaction costs, requires significant resources and management attention and might not generate the anticipated benefits .

We have historically engaged in strategic transactions, including the acquisition of other companies and businesses. In 2017, we engaged in various strategic transactions, including the acquisitions of myMatrixx and eviCore. Acquisitions such as eviCore typically involve the integration of core business operations and technology infrastructure platforms that require significant resources and management attention and, among other things, risk client service disruption. Strategic transactions, including the pursuit of such transactions, often require us to incur significant up-front costs. These costs are typically non-recurring expenses related to the assessment, due diligence, negotiation and execution of the transaction. We may also incur additional costs to retain key employees as well as transaction fees and costs related to executing our integration plans. A failure or significant delay in the integration process could have a material adverse effect on our client service or our business and results of operations. In addition, such transactions may yield higher operating costs, greater customer attrition or more significant business disruption than anticipated. Further, even if the integration is successful, there can be no assurance a transaction will result in the realization of the expected benefits of synergies, cost savings, innovation and operational efficiencies, or that any realized benefits will be achieved within the anticipated time frame or an otherwise reasonable period of time. For a further description of our current year strategic transactions, see "Part II - Item 8 - Note 3 - Acquisitions and divestiture ."

Our business operations involve the receipt, use, storage and transmission of a substantial amount of confidential personal health and other personally identifiable information; as well as proprietary information relating to our business, employees, clients, vendors, and other third parties, which subjects us to substantial regulation and the risk of cyber-attacks or other privacy or data security incidents that could result in data security breaches. Any failure to maintain the security of the information relating to our business or to individuals or other third parties, whether as a result of cybersecurity attacks on our information systems or otherwise, could: (i) disrupt our operations, (ii) result in our violation of our client contracts, litigation, criminal penalties, civil sanctions, or other legal actions against us, and (iii) cause us to incur substantial additional costs, damage our reputation, and materially adversely affect our business and operating results.

Most of our activities involve the receipt, use, storage or transmission of a substantial amount of individuals' protected health information and personally identifiable information. We also use aggregated and anonymized data for research and analysis purposes, and in some cases, provide access to such data to pharmaceutical manufacturers and third-party data aggregators and analysts. There is substantial regulation at the federal and state levels addressing the use, disclosure and security of patient identifiable health information. HIPAA, federal and state data privacy statutes impose extensive requirements governing the transmission, use and disclosure of health information by all participants in the health care industry, including physicians, hospitals, insurers and other payors. Certain of our businesses are also subject to the Payment Card Industry Data Security Standard, which is designed to protect credit card account data as mandated by payment card industry entities. Failure to comply with standards issued pursuant to federal or state statutes or regulations may result in criminal penalties and civil sanctions. In addition to these statutes and regulations, future regulations and legislation that severely restrict or prohibit our use of patient identifiable or other information could limit our ability to use information critical to the operation of our business. Furthermore, if we violate a patient's privacy or are found to have violated any federal or state statute or regulation with regard to confidentiality or dissemination or use of protected health information, we could be liable for significant damages, fines or penalties and suffer reputational harm, any one of which could have a material adverse effect on our business and results of operations.

Cybersecurity threats are rapidly evolving and those threats and the means for obtaining access to our proprietary information systems are becoming increasingly sophisticated. Like most companies of our size, we regularly experience attempts by cyber-attackers to access the information stored in our information systems. We could experience a data security breach if we fail to maintain effective information security measures or anticipate, prevent or timely detect a cybersecurity attack, or if any of our third-party service providers fails to maintain such measures to protect information from our systems to which they have access. In the event that a cybersecurity incident results in a data breach, it could disrupt our operations and cause us to breach our contractual confidentiality obligations, violate applicable laws, incur significant litigation, regulatory

investigation and remediation costs, and sustain significant harm to our reputation and our competitive position, any or all of which could materially adversely affect our business and operating results.

If we lose our relationship with one or more key pharmaceutical manufacturers, or if the payments made or discounts provided by pharmaceutical manufacturers decline, our business and results of operations could be adversely affected.

We maintain contractual relationships with numerous pharmaceutical manufacturers, which provide us with, among other things:

The consolidation of pharmaceutical manufacturers, the termination or material alteration of our contractual relationships, or our failure to renew such contracts on favorable terms could have a material adverse effect on our business and results of operations. In addition, formulary fee programs have been the subject of debate in federal and state legislatures and various other public and governmental forums. Adoption of new laws, rules or regulations or changes in, or new interpretations of, existing laws, rules or regulations, relating to any of these programs could materially adversely affect our business and results of operations.

Pending and future litigation, government investigations, audits or other proceedings could subject us to significant monetary damages or penalties and/or require us to change our business practices, which could have a material adverse effect on our business and results of operations.

We are subject to risks relating to pending and future litigation, enforcement actions, regulatory proceedings, government inquiries and investigations, audits and other similar actions in connection with our business operations, including without limitation the dispensing of pharmaceutical products by our specialty and home delivery pharmacies, services rendered in connection with our disease management offerings, our pharmaceutical services operations, pharmacy benefit management services and mergers and acquisitions and other strategic activity. These proceedings often seek unspecified monetary damages and/or equitable relief. While we believe pending proceedings are without merit and intend to contest them vigorously, we cannot predict with certainty the outcome of any such proceedings. If one or more of these proceedings or any future proceeding has an unfavorable outcome, we cannot provide any assurance it would not have a material adverse effect on our business and results of operations, including our ability to attract and retain clients as a result of any negative reputational impact of such an outcome. Further, while certain costs are covered by insurance, we may incur uninsured costs that are material to our financial performance in the defense of such proceedings. See "Part I - Item 3 - Legal Proceedings" for a description of pending proceedings.

Commercial liability insurance coverage could be difficult to obtain for companies in our business sector, due to the volatility in premiums and/or retention requirements dictated by insurance carriers. We have established certain self-insurance accruals to cover anticipated losses within our retained liability for previously reported claims and the cost to defend these claims. However, there can be no assurance such accruals will cover actual losses or that general, professional, managed care errors and omissions, and/or other liability insurance coverage will be reasonably available in the future or such insurance coverage, together with our self-insurance accruals, will be adequate to cover future claims. A claim, or claims, in excess of our insurance coverage could have a material adverse effect on our business and results of operations.

Failure to appropriately estimate, price for and manage costs related to our risk-based medical benefit offerings in our medical benefit management business could have a material adverse effect on our Other Business Operations segment results of operations.

Our eviCore business contracts with health plan clients to promote appropriate use of healthcare services, in certain instances, through capitated risk arrangements where we assume the financial obligation for the cost of healthcare services provided to eligible members covered by our medical benefit management programs. Our inability to appropriately estimate the costs of services or utilization rates for these risk-based offerings in the negotiation of our capitated risk arrangements or to appropriately estimate the medical claims reserve for these risk-based offerings could have a material adverse effect on our Other Business Operations segment results of operations.

In capitated risk contracts, our cost of revenues related to our eviCore business includes the cost of medical claims incurred and paid, and an estimate of medical claims payable related to healthcare services provided to eligible members of the

health plans. Medical claims payable includes the ultimate net cost for medical claims reported but not yet paid, as well as a reserve for estimated incurred but not reported medical claims and related loss adjustment expenses. Because establishment of these reserves is an inherently uncertain process involving estimates of future losses, there can be no certainty that ultimate losses will not exceed existing medical claims reserves. Our inability to appropriately estimate the medical claims reserve for these risk-based offerings could have a material adverse effect on our business and Other Business Operations segment results of operations.

We face significant competition in attracting and retaining talented employees. Further, managing succession and retention for key executives is critical to our success, and our failure to do so could have an adverse impact on our future performance.

Our ability to attract and retain a qualified and experienced workforce is essential to meet current and future goals and objectives and there is no guarantee we will be able to attract and retain such employees or that competition among potential employers will not result in increased salaries or other benefits. An inability to retain existing employees or attract additional employees, or an unexpected loss of leadership, could have a material adverse effect on our business and results of operations.

In addition, our failure to adequately plan for succession of senior management and other key management roles or the failure of key employees to successfully transition into new roles, including the role of Chief Executive Officer, could have a material adverse effect on our business and results of operations. While we have succession plans in place and employment arrangements with certain key executives, these do not guarantee the services of these executives will continue to be available to us.

Changes in drug pricing or industry pricing benchmarks could materially impact our financial performance.

Contracts in the prescription drug industry, including our contracts with retail pharmacy networks and with PBM and specialty pharmacy clients, generally use "average wholesale price" or "AWP," which is published by a third party, as a benchmark to establish pricing for prescription drugs. In the event AWP is no longer published by third parties, we adopt other pricing benchmarks for establishing prices within the industry, or future changes in drug prices substantially deviate from our expectations, we can give no assurance the short- or long-term impact of such changes to industry pricing benchmarks or drug prices will not have a material adverse effect on our business and results of operations.

Legislation and other regulations affecting drug prices are described in more detail under "Part I - Item 1  - Business  - Government Regulation and Compliance - Legislation and Regulation Affecting Drug Prices" above.

Our debt service obligations reduce the funds available for other business purposes, and the terms and covenants relating to our indebtedness could adversely impact our financial performance and liquidity. Our inability to access the credit markets for any reason could have a material adverse effect on our business and results of operations.

We currently have debt outstanding, including indebtedness of ESI and Medco guaranteed by us. Our debt service obligations reduce the funds available for other business purposes. Increases in interest rates on variable rate indebtedness would increase our interest expense and could materially adversely affect our financial results. At December 31, 2017 , we had $2,550.0 million of gross obligations under our credit agreement and our floating rate senior note which were subject to variable rates of interest. A hypothetical increase in interest rates of 1% would result in an increase in annual interest expense of approximately $25.5 million (pre-tax), assuming obligations subject to variable interest rates remained constant.

We are subject to risks normally associated with debt financing, such as the insufficiency of cash flow to meet required debt service payment obligations and the inability to refinance existing indebtedness. In addition, certain of our debt instruments contain covenants which include limitations or qualifications on our ability to incur additional indebtedness, initiate or permit liens on assets, and engage in mergers, consolidations or disposals. The covenants under our credit agreement also include, among other things, a maximum leverage ratio. If we fail to satisfy one or more of these debt covenants, we would be in default and may be required to repay such debt with capital from other sources or otherwise not be able to draw down against our revolving credit facility. Under such circumstances, other sources of capital may not be available to us, or be available only on unattractive terms. Our inability to refinance existing indebtedness or otherwise access the credit markets for any reason, whether due to market conditions or otherwise, could have a material adverse effect on our business and results of operations. See "Part II - Item 8 - Note 7 - Financing " for further description.

Delays, reductions, suspensions or cancellations of government spending or appropriations could have a material adverse effect on our business and results of operations.

Certain of our revenues are ultimately sourced from government spending and appropriated funds. The failure to provide for continued appropriations or regular ongoing scheduled payments to us could have a material adverse effect on our business and results of operations.

We face risks associated with general economic conditions.

The state of the economy and various economic factors, including inflation, can have a significant impact on our business and results of operations. An unfavorable or uncertain economic environment could significantly and adversely affect our businesses and profitability and generate the following risks to our business:

Unfavorable and uncertain economic conditions may also cause disruptions in the credit markets, which could increase our cost of borrowing or make credit unavailable on acceptable terms to the extent we need additional funds. Such developments may adversely affect our business and results of operations.

Item 1B - Unresolved Staff Comments

There are no unresolved written comments received from the SEC Staff 180 days or more before the end of our fiscal year relating to our periodic or current reports under the Securities Exchange Act of 1934.

Item 2 - Properties

Our existing facilities comprise approximately 5.8 million square feet of space in aggregate.

Our St. Louis, Missouri facility houses our corporate headquarters and accommodates our executive and corporate functions. Our PBM home delivery pharmacy operations consist of seven non-dispensing order processing pharmacies, five contact centers and five mail order dispensing pharmacies located throughout the United States. Our mail order dispensing pharmacies are located in Arizona, Indiana, Missouri, New Jersey and Ohio. We also have nine specialty home delivery pharmacies and 34 specialty branch pharmacies. We believe our facilities generally have been well maintained, are in good operating condition and have adequate capacity to meet our current business needs.

Item 3 – Legal Proceedings

We and/or our subsidiaries are defendants in a number of lawsuits. We cannot ascertain with any certainty at this time the monetary damages or injunctive relief that any of the plaintiffs may recover. We also cannot provide any assurance the outcome of any of these matters, or some number of them in the aggregate, will not be materially adverse to our financial condition, results of operations, cash flows or business prospects. In addition, the expenses of defending these cases may have a material adverse effect on our financial results. See further description at "Part II - Item 8 - Note 11 - Commitments and contingencies ."

These matters are:

this Item 3, "Medco") and several other pharmacy benefit management companies by several California pharmacies as a putative class action, alleging rights to sue as a private attorney general under California law. Plaintiffs allege ESI and the other defendants failed to comply with statutory obligations under California Civil Code Section 2527 to provide California clients with the results of a bi-annual survey of retail drug prices, and seek money damages. In July 2004, the case was dismissed with prejudice due to lack of standing. In June 2006, the United States Court of Appeals for the Ninth Circuit reversed the district court's opinion on standing and remanded the case. The defendants then filed a motion to dismiss on first amendment constitutionality grounds and following the district court's denial of the motion, defendants appealed to the Ninth Circuit. In March 2014, following a determination by the California Supreme Court that California Civil Code Section 2527 does not infringe upon state constitutional free speech protections, the Ninth Circuit remanded the case to the district court for further proceedings. Defendants' objections based on plaintiffs' lack of standing and the unconstitutionality of the California law due to defendants' first amendment rights were rejected by the courts and appeals were exhausted. Plaintiffs also filed a motion for class certification in 2007 that was not fully briefed until August 2016. On August 26, 2016, defendants filed a motion to deny class certification. On November 14, 2016, the district court denied plaintiffs' motion for class certification, holding that the proposed class representatives and counsel were inadequate to represent a class. On October 6, 2017, defendants moved for sanctions against plaintiffs for destroying evidence and requested the case be dismissed with prejudice. On January 4, 2018, the district court granted defendants' motion for case terminating sanctions against plaintiffs for spoliation of evidence and the case was dismissed with prejudice. On February 9, 2018, plaintiffs filed a notice of appeal.

Anthem Litigation

dealing under the agreement by disregarding the terms of the transaction in which it negotiated and accepted a $4.675 billion cash payment in 2009; (3) ESI is entitled to a declaratory judgment that Anthem does not have a contractual right to any change in pricing under the agreement, that ESI has no contractual obligation to ensure that Anthem is receiving any specific level of pricing, and that ESI's sole obligation is to negotiate in good faith over any pricing terms proposed by Anthem; (4) ESI is entitled to a declaratory judgment regarding the timing of when the periodic pricing review ripened under the agreement, such that the process begins on the dates provided in the agreement; (5) ESI is entitled to a declaratory judgment that Anthem does not have the right to terminate the agreement; and (6) in the alternative, Anthem has been unjustly enriched by the $4,675.0 million payment made by ESI in connection with the transaction in which ESI acquired Anthem in-house pharmacy benefits manager NextRx and entered into the contract at issue in this matter. On July 8, 2016, Anthem filed a motion to dismiss two counts of ESI's counterclaims (items 2 and 6 as described above), which was granted on March 23, 2017.

Anthem-related Securities Putative Class Action

Anthem-related Shareholder Derivative Litigation

2016, and on April 13, 2017 plaintiffs filed a consolidated amended complaint alleging that certain current and former officers and directors of the Company breached fiduciary duties and were unjustly enriched, and that certain defendants engaged in "insider selling." Plaintiffs adopt many of Anthem's Allegations in support of their claims that the individual defendants breached fiduciary duties of loyalty, good faith, candor, and due care, which caused the Company to issue false and misleading statements regarding the Company's relationship with Anthem. Plaintiffs seek damages on behalf of the Company from the individual defendants, equitable relief, and attorneys' fees and costs. On August 11, 2017, the court stayed this action until resolution of the Carpenters derivative action in the United States District Court for the Southern District of New York described in the preceding bullet.

Anthem-related ERISA Litigation

Insulin and Epinephrine Drug Pricing Putative Class Action Litigation

violations, common law fraud and unjust enrichment. Plaintiffs seek treble damages, equitable relief and attorneys' fees and costs. On January 19, 2018, plaintiffs voluntarily dismissed this case.

insulin product in return for higher rebate payments to the PBM Defendants. The original complaint further alleged that these agreements had the effect of driving up analog insulin costs for the putative class members. Plaintiffs alleged that by undertaking these agreements, defendants violated Sections 1 and 3 of the Sherman Act, RICO and the state competition and consumer protection laws of various states, U.S. territories, and the District of Columbia. Plaintiffs sought treble damages, equitable relief and attorneys' fees and costs. This action has been consolidated with the related Boss and Christensen actions (described below) and a third related action In re Insulin Pricing Litigation , No. 17-cv-699 (D.N.J.). On December 26, 2017, interim class counsel filed a consolidated amended complaint under the In re Insulin Pricing Litigation docket that no longer names the PBM Defendants as defendants.

Acthar Pricing Putative Class Action Litigation

Act and various state antitrust statutes, as well as a claim for unjust enrichment. Plaintiffs seek treble damages, equitable relief, and attorneys' fees and costs. On January 17, 2018, the court granted defendants' motion to transfer the case from the Central District of California to the Northern District of Illinois, where the Rockford case is pending. On February 23, 2018, UBC filed a motion to dismiss the complaint.

Other Matters

Investigations under the federal False Claims Act and most state false claims acts may be initiated by the applicable government investigative body or by a qui tam relator's filing a complaint under court seal. If a qui tam relator's complaint remained under seal, applicable law would restrict our ability to disclose such a fact.

In addition to the foregoing matters, in the ordinary course of our business, there have arisen various legal proceedings, government investigations, inquiries and audits or claims now pending against us or our subsidiaries. The effect of these actions on future financial results is not subject to reasonable estimation because the proceedings are in early stages and/or considerable uncertainty exists about the outcomes. Where insurance coverage is not available for such claims, or in our judgment, is not cost-effective, we maintain self-insurance accruals to reduce our exposure to future claims, legal costs, settlements and judgments related to uninsured claims. Our self-insured accruals are based upon estimates of the aggregate liability of the cost of uninsured claims incurred and the retained portion of insured claims using certain actuarial assumptions followed in the insurance industry and our experience. It is not possible to predict with certainty the outcome of these claims, and we can give no assurance any losses in excess of our insurance and any self-insurance accruals will not be material.

Item 4 - Mine Safety Disclosures

Not applicable.

PART II

Item 5 - Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters

Market Information. Our common stock is traded on the Nasdaq Global Select Market ("Nasdaq") under the symbol "ESRX." The high and low prices, as reported by the Nasdaq, are set forth below for the periods indicated.

Holders. As of February 15, 2018, there were 43,857 stockholders of record of our common stock. We estimate there are approximately 501,033 beneficial owners of our common stock.

Dividends. The Board of Directors has not declared any cash dividends on our common stock since our initial public offering and does not currently intend to declare any cash dividends.

Recent Sales of Unregistered Securities

None.

Issuer Purchases of Equity Securities

The repurchases disclosed in this table were made pursuant to the share repurchase program, originally announced in 2013. In each of December 2017 and 2016, the Board of Directors of the Company approved an increase in the authorized number of shares that may be purchased under the share repurchase program, originally announced in 2013, by 45.0 million and 65.0 million shares, respectively, for a total authorization of 375.0 million shares (including shares previously purchased) of our common stock, as adjusted for any subsequent stock split, stock dividend or similar transaction. As of December 31, 2017 , there were 78.3 million shares remaining under the share repurchase program. There is no limit on the duration of the share repurchase program as authorized by the Board of Directors of the Company. Additional share repurchases, if any, will be made through open market purchases, Rule 10b5-1 plans, accelerated share repurchases, privately negotiated transactions or other transactions in such amounts and at such times as we deem appropriate based upon prevailing market and business conditions and other factors.

Item 6 - Selected Financial Data

The following selected financial data should be read in conjunction with our consolidated financial statements, including the related notes, and "Part II - Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations."

Provided below is a reconciliation of each of EBITDA from continuing operations attributable to Express Scripts and adjusted EBITDA from continuing operations attributable to Express Scripts ("Adjusted EBITDA") to net income attributable to Express Scripts, which is the most directly comparable measure calculated under GAAP:

Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

As the largest independent pharmacy benefit management ("PBM") company in the United States, we provide a full range of services to our clients, which include managed care organizations, health insurers, third-party administrators, employers, union-sponsored benefit plans, workers' compensation plans, government health programs, providers, clinics, hospitals and others. We report segments on the basis of the products and services we offer and have determined we have two reportable segments: PBM and Other Business Operations. Our integrated PBM services include clinical solutions, Express Scripts SafeGuardRx, specialized pharmacy care, home delivery pharmacy services, specialty pharmacy services, retail network pharmacy administration, benefit design consultation, drug utilization review, drug formulary management, Medicare, Medicaid and Public Exchange offerings, administration of a group purchasing organization, Inside Rx and digital consumer health and drug information.

Through our Other Business Operations segment, we provide specialty pharmaceuticals and medical supplies distribution services to providers, clients and hospitals, and medical benefit management services that drive cost reductions and improved quality care outcomes. Medical benefit management services are provided by CareCore National Group, LLC and its affiliates d/b/a eviCore healthcare ("eviCore"), which was acquired on December 15, 2017. Prior to December 27, 2017, our Other Business Operations segment also included consulting services for pharmaceutical and biotechnology manufacturers to collect scientific evidence to guide the safe, effective and affordable use of medicines. These services were provided by United BioSource Holdings, Inc. ("UBC") which was sold during the fourth quarter 2017.

Revenues generated by our segments can be classified as either tangible product revenues or service revenues. We earn tangible product revenues from the sale of prescription drugs by retail pharmacies in our retail pharmacy networks and from dispensing prescription drugs from our home delivery and specialty pharmacies. Service revenues include fees for the administration of formulary management processing for certain client contracts that do not include claims adjudication and the dispensing of prescription drugs, medical benefit management services, as well as other fee-for-service arrangements, such as medication counseling services and certain specialty services. Tangible product revenues generated by our PBM and Other Business Operations segments represented 98.2% of revenues for the year ended December 31, 2017 , as compared to 98.3% and 98.0% for the years ended December 31, 2016 and 2015 , respectively.

Our PBM revenues are primarily comprised of:

(1) total prescription price, which includes a negotiated price with the client and a fee related to dispensing at retail pharmacies;

(2) member co-payments;

(3) offsets to revenues we consider client discounts, which include manufacturer rebates and administrative fees payable to clients, obligations under financial and service guarantees to clients, and pricing discounts; and

(4) fees-for-services.

Cost of revenues of our PBM business are primarily comprised of:

(1) ingredient cost;

(2) a dispensing fee to retail pharmacies;

(3) direct costs associated with dispensing prescriptions, including direct processing labor and shipping and handling costs;

(4) member co-payments to retail pharmacies; and

(5) purchase discounts, which are an offset to cost of revenues and include volume discounts and rebates and administrative fees received from manufacturers.

We believe the key drivers that impact PBM revenues and cost of revenues are claims volume, claims mix and price.

generic fill rate. Generally, higher generic fill rates reduce PBM revenues, as generic drugs are typically priced lower than the branded drugs they replace. However, as ingredient cost paid to pharmacies on generic drugs is incrementally lower than the price charged to our clients, higher generic fill rates generally have a favorable impact on our gross profit. 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 as compared to acute medications, which are primarily dispensed by pharmacies in our retail networks.

EXECUTIVE SUMMARY AND TREND FACTORS AFFECTING THE BUSINESS

We operate in a dynamic environment influenced by a number of marketplace forces including healthcare legislation, increased regulation, macroeconomic factors and competition. We recognize continued consolidation within the broad healthcare sector could shift claims volume within the PBM industry, although the direction and degree of any impact remain unclear. Our claims volume has been impacted by certain in-group attrition and client losses. We also recognize as the regulatory environment evolves, it may be necessary to make significant investments to prepare for and adapt to regulatory changes. We continue to execute our successful business model, which emphasizes the alignment of our financial interests with those of our clients and patients through greater use of generics and lower-cost brands delivered through home delivery, specialty and retail pharmacies as well as the adoption of new cost saving product programs and solutions. We also continue to benefit from better management of ingredient costs through negotiation of supplier contracts, increased competition among generic manufacturers and a higher generic fill rate ( 86.2% in 2017 compared to 85.3% in 2016 and 84.4% in 2015 ). We have achieved higher generic fill rates as we continue to provide our clients with additional tools designed to proactively manage total drug spend by increasing lower cost alternatives. We expect these ongoing positive trends in our business will continue to offset the negative factors described above.

As of result of federal tax reform legislation enacted in the fourth quarter of 2017, we have revalued our deferred tax assets and liabilities to reflect the reduction in the federal tax rate from 35% to 21%. This revaluation caused a decrease in our "Provision for income taxes" line item on our consolidated statement of operations of approximately $1,381.0 million . In future periods, we anticipate a reduction in our effective income tax rate excluding discrete income tax items slightly below the 14 percentage point reduction in our statutory federal tax rate. The rate reduction will result in substantial tax savings. As part of these savings, we intend to support our employees and the local philanthropic needs of the communities in which we operate by making significant charitable contributions and an increase in non-executive bonuses in 2018.

In the third quarter of 2017, we launched a multi-year, enterprise-wide initiative to transform our organization, in part due to the decision by Anthem not to renew its contract with us (described below), by the end of 2021. We are investing to deliver an improved experience with better engagement and greater efficiency and evolve the way we do business with patients, providers and our clients. Our enterprise value initiative is currently estimated to incur a cost of approximately $600.0 million to $650.0 million which is expected to be incurred through 2021. We have and will continue to incur incremental costs in order to achieve the future benefit of our enterprise-wide initiative. These costs are not expected to be ongoing after 2021. See "Item 8 - Note 12 - Enterprise value initiative " for quantification and description of costs incurred to date.

In December 2017, we completed the acquisition of eviCore for approximately $3.6 billion . eviCore offers a broad range of integrated medical benefit management solutions that drive cost reductions and improved quality care outcomes. eviCore manages benefits in categories including radiology, cardiology, musculoskeletal disorders, post-acute care and medical oncology. eviCore contracts with health plans and commercial clients to promote the appropriate use of healthcare services. Operations are included in our reported results beginning as of the date of acquisition and are not material to our consolidated financial results.

Our contract with Anthem expires at the end of 2019 with a one year transition period through 2020. Based on an announcement by Anthem on October 18, 2017, Anthem will not renew its contract with us. We continue to focus on providing exceptional service to Anthem and its clients in accordance with the terms of our contract.

As a result of acquisitions of their businesses, Catamaran Corporation's ("Catamaran") contract ended on December 31, 2017 and Coventry Health Care, Inc.'s ("Coventry") contract began terminating in 2015; however, we will retain small portions of Coventry's business through 2019. We include Anthem, Coventry and Catamaran in our definition of "Transitioning Clients."

Anthem generated approximately 19% and 17% of our total consolidated revenues for the years ended December 31, 2017 and 2016 , respectively, and 31% of our total Adjusted EBITDA for both years ended December 31, 2017 and 2016 . Under the terms of our contract, Anthem's contribution to our profitability has grown and we expect it will continue to exceed its proportional contribution to our revenues.

On March 21, 2016, Anthem filed a lawsuit setting forth certain allegations and claims for relief with respect to our pharmacy benefit management agreement with them (see "Part I - Item 3 - Legal Proceedings"). We are confident in the strength of our legal position and believe we have consistently acted in good faith and in accordance with the terms of the agreement and have a number of valid defenses to the claims asserted. We further believe Anthem's lawsuit is without merit. However, litigation and the potential outcome cannot be accurately or effectively predicted and at this time we are unable to provide a timetable or an estimate as to the potential outcome of this matter, which could result in a material adverse effect on our business and results of operations.

Due to the structure of the Anthem contract, certain additional revenues related to Anthem were realized in the second quarters of each of 2017, 2016 and 2015. Quarterly performance trends may vary from historical periods as a result of variability, including timing, of our Anthem-related contractual revenue streams.

RESULTS OF OPERATIONS

OPERATING INCOME

We report segments on the basis of the products and services we offer and have determined we have two reportable segments: PBM and Other Business Operations. Our PBM segment includes our integrated PBM operations, including delivery of prescription drugs through our contracted network of retail pharmacies, our home delivery pharmacies and our specialty pharmacies. Our Other Business Operations segment includes our specialty distribution operations, our integrated medical benefit management business (eviCore) acquired on December 15, 2017 and United BioSource Holdings, Inc. ("UBC") which was sold on December 27, 2017.

To better reflect utilization patterns that have developed over time as we align our products and services to deliver greater value through both the network and home delivery channels, the Company revised its methodology for reporting adjusted     network claims for the year ending December 31, 2016. The change was made retrospectively for the year ending December 31, 2015. The revised methodology 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. All other network and specialty claims are counted as one claim.

PBM Operating Income

PBM Operating Income for the Year Ended December 31, 2017 vs. 2016 . Network revenues decrease d $1,840.3 million , or 4% , in 2017 from 2016 . This 4% decrease in network revenues is comprised of the following:

Home delivery and specialty revenues increase d $648.6 million , or 1% , in 2017 from 2016 . This 1% increase in home delivery and specialty revenues is comprised of the following:

Cost of PBM revenues decrease d $1,282.6 million , or 1% , in 2017 from 2016 . This 1% decrease in cost of PBM revenues is comprised of the following:

PBM gross profit increase d $33.1 million , or less than 1%, in 2017 from 2016 . Cost of PBM revenues changes were in line with overall PBM revenues changes, which were not significant for the year ended December 31, 2017 . This gross profit increase is also partially offset by a decline in certain additional revenues related to our Anthem contract of $52.6 million for the year ended December 31, 2017 and $106.6 million for the year ended December 31, 2016 .

Selling, general and administrative expense ("SG&A") for our PBM segment decrease d $293.9 million , or 9% , in 2017 from 2016 . This decrease relates primarily to a decrease in amortization expense of other intangible assets of $370.8 million , as well as other non-recurring compensation costs of $41.2 million incurred in 2016 with no similar costs in 2017. This decrease is partially offset by $37.8 million of costs incurred related to our enterprise value initiative and the remaining decrease is attributable to transaction and integration costs related to the eviCore and myMatrixx acquisitions and the sale of UBC in 2017 with no similar costs in 2016 .

PBM operating income increase d $327.0 million , or 6% , in 2017 from 2016 , based on the various factors described above.

PBM Operating Income for the Year Ended December 31, 2016 vs. 2015 . Network revenues decrease d $5,070.1 million , or 9% , in 2016 from 2015 . This 9% decrease in network revenues is comprised of the following:

Home delivery and specialty revenues increase d $2,855.5 million , or 7% , in 2016 from 2015 . This 7% increase in home delivery and specialty revenues is comprised of the following:

Cost of PBM revenues decrease d $2,759.1 million , or 3% , in 2016 from 2015 . This 3% decrease in cost of PBM revenues is comprised of the following:

PBM gross profit increase d $308.3 million , or 4% , in 2016 from 2015 . This increase is primarily due to $218.0 million of transaction and integration costs incurred during 2015 with no similar costs for 2016 , as well as better management of supply chain and cost savings from the increase in the aggregate generic fill rate. This gross profit increase is also partially offset by a decline in certain additional revenues related to our Anthem contract of $106.6 million for the year ended December 31, 2016 and $141.7 million for the year ended December 31, 2015.

SG&A for our PBM segment decrease d $509.5 million , or 13% , in 2016 from 2015 . This decrease relates primarily to $298.8 million of transaction and integration costs, $108.1 million of additional depreciation and amortization costs (related to certain retired assets) and a $60.0 million legal settlement incurred during 2015 with no similar costs for 2016 . This decrease is also due to a decrease in incentive compensation of $62.0 million , which is net of $41.2 million of other compensation costs incurred during 2016.

PBM operating income increased $817.8 million , or 19% , in 2016 from 2015 , based on the various factors described above.

Other Business Operations Operating Income

Other Business Operations Operating Income for the Year Ended December 31, 2017 vs. 2016 . Other Business Operations product revenues increase d $823.4 million , or 23% , in 2017 from 2016 . This increase is primarily driven from an increase in volume across the non-claims producing lines of business.

Other Business Operations service revenues increase d $203.2 million , or 85% , in 2017 from 2016 . This increase is driven primarily by the acquisition of eviCore on December 15, 2017, but also partially as a result of an adjustment made in 2016 to decrease revenues by $86.1 million related to years prior to 2016. This adjustment was not considered material to any prior period presented.

Other Business Operations operating income increase d $79.2 million , or 1,015% , in 2017 from 2016 . This increase is partially due to an adjustment made in 2016 to decrease operating income by $86.1 million related to years prior to 2016, the acquisition of eviCore on December 15, 2017, as well as an increase in volume across the non-claims producing lines of business.

Other Business Operations Operating Income for the Year Ended December 31, 2016 vs. 2015 . Other Business Operations product revenues increase d $1,084.7 million , or 44% , in 2016 from 2015 . This increase is primarily driven from an increase in volume across the non-claims producing lines of business.

Other Business Operations service revenues decrease d $98.2 million , or 29% , in 2016 from 2015 . This decrease is primarily driven by an adjustment made in 2016 to decrease revenues by $86.1 million related to years prior to 2016.

Other Business Operations operating income decrease d $69.3 million , or 90% , in 2016 from 2015 . This decrease is due primarily to an adjustment made in 2016 to decrease operating income by $86.1 million related to years prior to 2016, offset by an increase in volume across the non-claims producing lines of business.

OTHER (EXPENSE) INCOME, NET

Net other expense decrease d $95.7 million , or 14% , in 2017 from 2016 . This decrease is primarily due to $142.7 million of costs incurred related to the early repayment of debt in 2016, as well as decreased interest expense related to the repayment of debt during the years ended December 31, 2017 and 2016 , partially offset by additional interest expense related to

the issuance of $1.4 billion of senior notes in November 2017. This decrease is partially offset by a $17.7 million loss on the sale of UBC compared with no similar costs in 2016.

Net other expense increase d $185.2 million , or 39% , in 2016 from 2015 . This increase is primarily due to $142.7 million of costs incurred related to the early repayment of debt and increased interest expense related to the credit agreement (as defined below), the issuance of $2.0 billion of senior notes in February 2016, and the issuance of $4.0 billion of senior notes in July 2016. This increase is partially offset by decreased interest expense related to the repayment of debt during the years ended December 31, 2016 and 2015 .

PROVISION FOR INCOME TAXES

Our effective tax rate was 8.1% for the year ended December 31, 2017 , compared to 22.6% and 35.3% for 2016 and 2015 , respectively.

During 2017 , we recognized a net discrete benefit of $1,402.4 million primarily attributable to revaluing our deferred tax assets and liabilities as a result of the federal tax reform enacted in December 2017. During 2016 , we recognized a net discrete benefit of $633.9 million , $511.0 million of which was attributable to recognition of our successful resolution of the previously unrecognized PolyMedica Corporation (Liberty) tax benefit. It is reasonably possible our unrecognized tax benefits could decrease by approximately $170.7 million within the next twelve months due to the conclusion of various examinations as well as lapses in various statutes of limitations.

NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTEREST

Net income attributable to non-controlling interest represents the share of net income allocated to members in our consolidated affiliates. Changes in these amounts are directly impacted by profitability of our consolidated affiliates.

NET INCOME AND EARNINGS PER SHARE ATTRIBUTABLE TO EXPRESS SCRIPTS FOR THE YEAR ENDED DECEMBER 31, 2017 vs. 2016

Net income attributable to Express Scripts increase d $1,113.0 million , or 33% , for the year ended December 31, 2017 from 2016 . This increase is due to increased operating income and reduced tax expense (primarily due to the discrete tax benefit attributable to the revaluation of deferred taxes described above).

Basic and diluted earnings per share attributable to Express Scripts increase d 43% and 44% , respectively, for the year ended December 31, 2017 from 2016 . These increase s are primarily due to reduced shares outstanding (a total of 297.9 million shares held in treasury on December 31, 2017 , compared to 252.0 million shares held in treasury on December 31, 2016 ) as well as increased operating income and reduced tax expense based on the various factors described above.

NET INCOME AND EARNINGS PER SHARE ATTRIBUTABLE TO EXPRESS SCRIPTS FOR THE YEAR ENDED DECEMBER 31, 2016 vs. 2015

Net income attributable to Express Scripts increase d $928.0 million , or 37% , for the year ended December 31, 2016 from 2015 . This increase is due to increased operating income and reduced tax expense (primarily due to the approximate $511.0 million net tax benefit related to the divestiture of PolyMedica Corporation (Liberty) described above).

Basic and diluted earnings per share attributable to Express Scripts both increase d 51% for the year ended December 31, 2016 from 2015 . These increase s are primarily due to reduced shares outstanding (a total of 252.0 million shares held in treasury on December 31, 2016 , compared to 177.6 million shares held in treasury on December 31, 2015 ) as well as increased operating income and reduced tax expense based on the various factors described above.

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOW AND CAPITAL EXPENDITURES FOR THE YEAR ENDED DECEMBER 31, 2017 vs. 2016

Net cash provided by operating activities in 2017 increase d $431.9 million to $5,351.3 million . Changes in net cash provided by operating activities were impacted by the following factors:

Net cash used in investing activities in 2017 increase d $3,338.7 million to $3,690.6 million , due primarily to cash utilized for acquisitions in 2017 of $3,501.1 million compared to no such outflows during 2016 . These cash outflows are partially offset by cash inflows of $85.3 million related to net cash proceeds from the sale of UBC compared to no such inflows during 2016 . Capital expenditures for property, equipment and computer software decrease d $63.0 million in 2017 compared to 2016 . We intend to continue to invest in infrastructure and technology, which we believe will provide efficiencies in operations, facilitate growth and enhance the service we provide to our clients. Anticipated capital expenditures will be funded primarily from operating cash flow or, to the extent necessary, with borrowings under our available credit sources, described below.

Net cash used in financing activities in 2017 decrease d $2,244.6 million to $2,433.2 million . Cash inflows for 2017 include $1,398.9 million related to the issuance of the November 2017 Senior Notes (defined below) and $194.8 million related to net commercial paper activity compared to inflows during 2016 of $5,986.8 million related to the issuance of the February 2016 Senior Notes and the July 2016 Senior Notes (defined below) and no such comparable commercial paper activity. Cash outflows for 2017 include $1,125.0 million related to the repayment of debt and $2,938.0 million of treasury share repurchases, compared to outflows during 2016 of $5,932.5 million related to the repayment of debt and $4,746.9 million of treasury share repurchases.

At December 31, 2017 , our available sources of capital include a $3.5 billion revolving facility (defined below as the 2022 revolving facility ) and commercial paper program, a $150.0 million uncommitted revolving credit facility and a $130.0 million uncommitted revolving credit facility. As of December 31, 2017 , only the commercial paper program had amounts outstanding of $194.8 million at December 31, 2017 . In February 2018, we terminated our $130.0 million uncommitted revolving credit facility.

Our short-term debt and current maturities of long-term debt at December 31, 2017 , excluding unamortized discounts, premiums and financing costs, include $195.0 million of outstanding commercial paper borrowings and $831.4 million of senior notes.

We anticipate our current cash balances, cash flows from operations and our available credit sources will be sufficient to meet our cash needs and make scheduled payments for our contractual obligations and current capital commitments over the next 12 months. However, if needs arise, we may decide to secure external capital to provide additional liquidity. New sources of liquidity may include additional lines of credit, term loans, or issuances of notes or common stock, all of which are allowable, with certain limitations, under our credit agreements and other debt instruments. While our ability to secure debt financing in the short term at rates favorable to us may be moderated due to various factors, including existing debt levels, market conditions or other factors, we believe our liquidity options described above are sufficient to meet our cash flow needs.

CASH FLOW AND CAPITAL EXPENDITURES FOR THE YEAR ENDED DECEMBER 31, 2016 vs. 2015

Net cash provided by operating activities in 2016 increase d $71.1 million to $4,919.4 million . Changes in net cash provided by operating activities were impacted by the following factors:

Net cash used in investing activities in 2016 increase d $83.4 million to $351.9 million . Capital expenditures for property, equipment and computer software increase d $34.5 million in 2016 compared to 2015 .

Net cash used in financing activities in 2016 increase d $1,460.8 million to $4,677.8 million . Cash inflows for 2016 include $5,986.8 million related to the issuance of the February 2016 Senior Notes and the July 2016 Senior Notes (defined below) compared to inflows during 2015 of $5,500.0 million related to the 2015 credit agreement (as defined below). Cash outflows for 2016 include $5,932.5 million related to the repayment of debt and $4,746.9 million of treasury share repurchases, compared to outflows during 2015 of $3,390.8 million related to the repayment of debt and $5,500.0 million of treasury share repurchases.

ACQUISITIONS, DIVESTITURE AND RELATED TRANSACTIONS

In May 2017, we completed the acquisition of myMatrixx Holdings, Inc. for approximately $250.0 million , which included both cash and the issuance of common stock. The acquisition is not material to our consolidated financial statements.

In December 2017, we completed the acquisition of eviCore for approximately $3.6 billion , which was funded through cash on hand, as well as issuance of senior notes and commercial paper. Operations are included in our reported results beginning as of the date of acquisition and are not material to our consolidated financial results. See "Item 8 - Note 3 - Acquisitions and divestiture " for further description of this acquisition.

We regularly review potential acquisitions and affiliation opportunities. We believe available cash resources, bank financing or the issuance of debt or equity could be used to finance future acquisitions or affiliations. There can be no assurance we will enter into new acquisitions or establish new affiliations in the future.

In December 2017, we sold UBC for approximately $150.0 million , the proceeds of which included both cash and a note receivable. We recorded a $17.7 million loss on disposal which is reported within "Interest expense and other" on our Consolidated Statement of Operations for the year ended December 31, 2017.

SHARE REPURCHASE PROGRAM

Including the shares received under the 2016 and 2015 ASR Agreements (described below), we repurchased 45.9 million , 74.4 million and 55.1 million shares for $2,947.4 million , $5,571.9 million and $4,675 million during the years ended December 31, 2017 , 2016 and 2015 , respectively. Shares repurchased during the year ended December 31, 2017 , include 0.1 million shares purchased for $9.4 million not yet settled as of December 31, 2017 . In each of December 2017 and 2016, the Board of Directors of the Company approved an increase in the authorized number of shares that may be purchased under our share repurchase program, originally announced in 2013, by 45.0 million and 65.0 million shares, respectively, for a total authorization of 375.0 million shares (including shares previously purchased) of our common stock, as adjusted for any subsequent stock split, stock dividend or similar transaction. As of December 31, 2017 , there were 78.3 million shares remaining under our share repurchase program. Share repurchases during 2017 were made pursuant to Rule 10b5-1 plans implemented on February 15, 2017 (the "February 2017 Rule 10b5-1 plan"), July 26, 2017 (the "July 2017 Rule 10b5-1 plan") and November 28, 2017 (the "November 2017 Rule 10b5-1 plan"), as well as through open market purchases. The February 2017 Rule 10b5-1 plan was completed on June 30, 2017, the July 2017 Rule 10b5-1 plan was completed on October 9, 2017 and the November 2017 Rule 10b5-1 plan remained active as of December 31, 2017 . There is no limit on the duration of the share repurchase program as authorized by the Board of Directors of the Company. Additional share repurchases, if any, will be made through open market purchases, Rule 10b5-1 plans, accelerated share repurchases, privately negotiated transactions or other transactions in such amounts and at such times as we deem appropriate based upon prevailing market and business conditions and other factors.

In February 2016, we entered into an accelerated share repurchase agreement (the "2016 ASR Agreement") to repurchase shares of our common stock for an initial payment of $2,800.0 million . We initially recorded an increase to treasury stock of $2,240.0 million and a decrease to additional paid-in capital of $560.0 million. In August 2016, we settled the 2016 ASR Agreement and received 6.2 million additional shares, resulting in a total of 38.3 million shares received under the 2016 ASR Agreement. The $560.0 million recorded as additional paid-in capital was reclassified to treasury stock upon settlement of the 2016 ASR Agreement in August 2016.

In April 2015, we entered into an agreement to repurchase shares of our common stock for an aggregate purchase price of $5,500.0 million under an accelerated share repurchase agreement (the "2015 ASR Agreement" ). 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 consolidated balance sheet at December 31, 2015. In January 2016, we settled the 2015 ASR Agreement and received 9.1 million additional shares, resulting in a total of 64.2 million shares received under the 2015 ASR Agreement . The $825.0 million that had previously been

recorded as additional paid-in capital in respect of the 2015 ASR Agreement was reclassified to treasury stock upon settlement of the 2015 ASR Agreement . See "Item 8 - Note 9 - Common stock " for additional details.

SENIOR NOTES

The following description reflects our financing activity for the years ended December 31, 2017 and 2016 . See "Item 8 - Note 7 - Financing " for a complete summary of outstanding senior notes.

In November 2017, we issued senior notes (the "November 2017 Senior Notes") consisting of:

We used the net proceeds from the sale of the November 2017 Senior Notes to (i) repay $400.0 million in outstanding principal amount of the 2015 five-year term loan , (ii) fund a portion of the purchase price of the Company's acquisition of eviCore and (iii) for general corporate purposes.

In July 2016, we issued senior notes (the "July 2016 Senior Notes") consisting of:

We used the net proceeds from the sale of the July 2016 Senior Notes to (i) repay a portion of our 2015 two-year term loan, (ii) complete a tender offer and follow-on redemption for our 2.650% senior notes due February 2017, (iii) complete a tender offer for a portion of each of our 7.125% senior notes due March 2018, our 7.250% senior notes due June 2019 and our 6.125% senior notes due November 2041 and (iv) for general corporate purposes.

In February 2016, we issued senior notes (the "February 2016 Senior Notes") consisting of:

We used the net proceeds from the sale of the February 2016 Senior Notes to (i) complete a tender offer and follow-on redemption of our 3.125% senior notes due May 2016 (which were fully redeemed in April 2016), (ii) enter into an accelerated share repurchase agreement and (iii) for general corporate purposes.

OTHER LIQUIDITY INFORMATION

In April 2015, we entered into a credit agreement (the " credit agreement ") providing for a five -year $2.0 billion revolving credit facility (the " 2015 revolving facility "), a two -year $2.5 billion term loan (the " 2015 two-year term loan ") and a five -year $3.0 billion term loan (the " 2015 five-year term loan "). In 2016, we completed the repayment of the 2015 two-year term loan .

In October 2017, we modified our existing credit agreement to increase our 2015 revolving facility to $3.5 billion and extended the termination date to October 2022 (the " 2022 revolving facility "). In conjunction with modifying our existing credit agreement , we established a commercial paper program, under which we may issue short-term, unsecured commercial paper notes from time to time on a private placement basis up to a maximum aggregate amount outstanding at any time of $3.5 billion . The commercial paper program does not increase our borrowing capacity as it is fully backed by our 2022 revolving credit facility. The commercial paper notes will be jointly and severally and fully and unconditionally guaranteed on a senior unsecured basis by ESI, Medco and us. The proceeds of the commercial paper notes are expected to be used for general corporate purposes, including, among other items, the repayment of indebtedness and other short-term liquidity needs. There were $194.8 million in commercial paper borrowings outstanding as of December 31, 2017 . At December 31, 2017 , no amounts were drawn under the 2022 revolving facility .

In November 2017, we repaid $400.0 million under the 2015 five-year term loan . We make quarterly principal payments on the 2015 five-year term loan . The existing 2015 five-year term loan remains substantially unchanged, except for the modification of subsidiary guarantors, as described in "Item 8 - Note 15 - Condensed consolidating financial information ."

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 7.125% senior notes due March 2018 are also subject to an interest rate adjustment in the event of a downgrade in our credit ratings to below investment grade. At December 31, 2017 , we were in compliance with all covenants associated with our debt instruments. See "Item 8 - Note 7 - Financing " for more information.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

Following is a schedule of short-term debt and the current maturities of our long-term debt including interest, future minimum lease payments and purchase commitments (in millions) as of December 31, 2017 :

The gross liability for uncertain tax positions which could result in future payments is $493.5 million and $466.7 million as of December 31, 2017 and 2016 , respectively. We are not able to provide a reasonably reliable estimate of the timing of future payments relating to the noncurrent obligations. Our long-term deferred tax liability is $2,562.4 million and $3,603.3 million as of December 31, 2017 and 2016 , respectively. Scheduling payments for deferred tax liabilities could be misleading since future settlements of these amounts are not the sole determining factor of taxes to be paid in future periods.

IMPACT OF INFLATION

Most of our contracts provide we bill clients and pay pharmacies based on a generally recognized price index for pharmaceuticals and, accordingly, the rate of inflation with respect to prescription drugs and our efforts to manage the impact of inflation for our clients can affect our revenues and cost of revenues.

OTHER MATTERS

As described in "Item 8 - Note 1 - Summary of significant accounting policies ," certain new accounting pronouncements have been issued which either have already been reflected in the accompanying consolidated financial statements or will become effective for our financial statements at various dates in the future. See "Item 8 - Note 1 - Summary of significant accounting policies " for further description of the specific accounting pronouncements.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("GAAP") in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our estimates and assumptions are based upon a combination of historical information and various other assumptions believed to be reasonable under the particular circumstances. Actual results may differ from our estimates. The accounting policies described below represent those policies management believes most impact our consolidated financial statements, are important for an understanding of our results of operations or require management to make difficult, subjective

or complex judgments. This should be read in conjunction with "Item 8 - Note 1 - Summary of significant accounting policies " and with the other notes to our consolidated financial statements.

GOODWILL AND INTANGIBLE ASSETS

ACCOUNTING POLICY

Goodwill and intangible asset balances arise primarily from the allocation of the purchase price of businesses acquired based on the fair market value of assets acquired and liabilities assumed on the date of the acquisition. Goodwill is evaluated for impairment annually during the fourth quarter or when events or circumstances occur indicating goodwill might be impaired. We determine reporting units for the purpose of evaluating goodwill valuation based on component parts of our business one level below the segment level. Our reporting units represent businesses for which discrete financial information is available and reviewed regularly by segment management.

Goodwill impairment testing guidance provides an option to first assess qualitative factors to determine whether it is more likely than not the fair value of a reporting unit is less than its carrying amount. If we perform a qualitative assessment, we consider various events and circumstances when evaluating whether it is more likely than not the fair value of a reporting unit is less than its carrying amount and whether the quantitative impairment test is necessary. In 2017 , we performed a qualitative assessment for approximately 99% of our goodwill as of December 31, 2017 .

If we perform a quantitative impairment test, the measurement of impairment would be based on a comparison of the fair value of each reporting unit to the carrying value of each reporting unit's net assets. This valuation process involves assumptions based upon management's best estimates and judgments, which approximate the market conditions experienced for our reporting units at the time the impairment assessment is made. Actual results may differ from these estimates due to the inherent uncertainty involved in such estimates.

As of December 31, 2017 , we do not believe any reporting units are at risk of failing the quantitative impairment test. No goodwill impairment charges were recorded for any of our reporting units for 2017 , 2016 or 2015 .

In January 2017, the FASB issued Accounting Standards Update ("ASU") 2017-04, Simplifying the Accounting for Goodwill Impairment. The ASU simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be determined by Step 1, comparing the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. We have elected to early adopt this guidance in 2017. This standard does not have a material impact on our consolidated financial statements.

Other intangible assets include customer contracts, customer relationships and trade names. Customer contracts and relationships are valued at fair market value when acquired using the income method and amortized over the estimated useful life. Trade names, excluding legacy Express Scripts, Inc. ("ESI") trade names which have an indefinite life, are valued at fair market value when acquired using the income approach and amortized over the estimated useful life. We evaluate the recoverability of intangible assets with finite lives whenever events or changes in circumstances indicate the carrying value of an intangible may not be recoverable. In the event this occurs, an impairment loss is recognized to the extent the carrying value exceeds fair value based on undiscounted cash flows.

FACTORS AFFECTING ESTIMATE

The fair values of reporting units, asset groups or acquired businesses are measured based on market prices, when available. When market prices are not available, we estimate fair value using the income approach and/or the market approach. The income approach uses cash flow projections which require inputs and assumptions that reflect current market conditions as well as management judgment. We base our fair values on projected financial information which we believe to be reasonable. However, actual results may differ from those projections and those differences may be material.

The key assumptions included in our income approach include, but are not limited to, earnings growth rates, discount rates and inflation rates. Assessment of these factors could be impacted by internal factors and/or external economic conditions. We performed various sensitivity analysis on the key assumptions, which did not indicate any potential impairment.

RECEIVABLE RESERVES

ACCOUNTING POLICY

The receivables balance primarily includes amounts due from clients, pharmaceutical manufacturers, third-party payors and members. We provide an allowance for doubtful accounts equal to estimated uncollectible receivables. These estimates are based on the current status of each customer's receivable balance. We provide a contractual allowance for certain receivables from third-party payors and pharmaceutical manufacturers based on our contract terms and historical payment experience. We provide an estimated reserve for customer discounts and claims adjustments issued to customers in the form of client credits.

FACTORS AFFECTING ESTIMATE

We record allowances for doubtful accounts based on a variety of factors including the length of time the receivables are past due, the financial health of the customer and experience. Our estimate could be impacted by changes in economic and market conditions as well as changes to our customers' financial condition. Contractual allowances for certain receivables from third-party payors are recorded at the time a claim is processed and revenue is recognized. Contractual allowances with respect to third-party payors are determined based on contract terms and historical payment experience. Contractual allowances for certain rebates receivables from pharmaceutical manufacturers are recorded at the time a claim is processed and cost of revenues is recognized. For manufacturers, we bill based on management's interpretation of the terms of our contract with the manufacturer and estimate a contractual allowance for uncertainty, at the time a claim is processed, around adjustments to claims to determine what we are entitled to collect. We determine these contractual allowances by reviewing the manufacturer's payment experience and specific known items that may later require an adjustment under the terms of the contract. We record reserves for clients based on known adjustments to adjudicated claims and historical discounts issued as a percentage of revenue.

SELF-INSURANCE ACCRUALS

ACCOUNTING POLICY

We record self-insurance accruals based on estimates of the aggregate liability to defend and pay claims within our self-insured retentions net of anticipated insurance recovery for those claims that are insured. Accruals are estimated based upon our experience with such claims. 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. Under GAAP, if the range of possible loss is broad, and no amount within the range is more likely than any other, the liability accrual is based on the low end of the range.

FACTORS AFFECTING ESTIMATE

Self-insurance accruals are based on management's estimates of the costs to defend and pay legal claims. We do not have significant experience with certain types of cases and claim outcomes can vary significantly. As such, differences between actual costs and management's estimates could be significant. Changes to assumptions used in the development of these accruals can affect operating results in a given period. In addition, changes in the legal environment and the number and nature of claims could impact our estimate.

INCOME TAXES

ACCOUNTING POLICY

Deferred tax assets and liabilities are recorded based on temporary differences between the financial statement basis and the tax basis of assets and liabilities using presently enacted tax rates. We evaluate tax positions to determine whether the benefits of tax positions are more likely than not of being sustained upon audit based on the technical merits of the tax position.

FACTORS AFFECTING ESTIMATE

The factors that could impact our estimates of uncertain tax positions include the likelihood of being sustained upon audit based on the technical merits of the tax position and the assumed interest and penalties associated with uncertain tax positions.

OTHER ACCOUNTING POLICIES

We consider the following information about revenue recognition policies important for an understanding of our results of operations:

PRESCRIPTION DRUG REVENUES

Revenues from the sale of prescription drugs by retail pharmacies are recognized when the claim is processed. When we independently have a contractual obligation to pay our network pharmacy providers for benefits provided to our clients' members, we act as a principal in the arrangement and we include the total prescription price (ingredient cost plus dispensing fee) we have contracted with these clients as revenue, including member co-payments to pharmacies.

When we merely administer a client's network pharmacy contracts to which we are not a party and under which we do not assume credit risk, we earn a fee for collecting payments from the client and remitting the corresponding amount to the pharmacies in the client's network. In these transactions, drug ingredient cost is not included in our revenues or in our cost of revenues.

Revenues from dispensing prescriptions from our home delivery and specialty pharmacies are recorded when prescriptions are shipped. These revenues include the co-payment received from members of the health plans we serve. At the time of shipment, we have performed substantially all of our obligations under the customer contracts and do not experience a significant level of reshipments or returns.

We operate specialty pharmacies, which dispense medications for the treatment of complex and potentially life threatening diseases. Many of the products are covered under a medical benefit which results in a more complicated adjudication process and coverage review, often involving primary, secondary or tertiary coverage. As a result, certain revenues are estimated based on historical payment rates. Amounts received from our clients may be greater than or less than originally estimated. Differences may affect the amount and timing of revenues for any period if actual pricing varies from estimates. Allowances for returns are estimated based on historical return trends. The discounts, contractual allowances, allowances for returns and any differences between estimates and actual amounts do not have a material effect on our consolidated financial statements.

REBATES AND ADMINISTRATIVE FEES

Gross rebates and administrative fees earned for the administration of our rebate programs, performed in conjunction with claims processing services provided to clients, are recorded as a reduction of cost of revenues and the portion of the rebate payable to customers is treated as a reduction of revenues.

When we earn rebates and administrative fees in conjunction with formulary management services, but do not process the underlying claims, we record rebates received from manufacturers, net of the portion payable to customers, in revenues.

MEDICARE PRESCRIPTION DRUG PROGRAM

Our revenues include premiums associated with our Medicare Part D prescription drug plan ("PDP") risk-based product offerings. These products involve prescription drug dispensing for beneficiaries enrolled in Medicare Part D plans sponsored by us pursuant to our contracts with the Centers for Medicare & Medicaid Services ("CMS"). In addition to Medicare Part D PDP premiums, there are certain co-payments and deductibles due from members based on prescription orders by those members, some of which are subsidized by CMS in cases of low-income membership. Our cost of revenues includes the cost of drugs dispensed by our home delivery pharmacies or retail network for members covered under our Medicare Part D PDP product offerings and is recorded at cost as incurred.

Item 7A - Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk from changes in interest rates related to variable rate debt outstanding under the credit agreement and our variable rate senior note. Our earnings are subject to change as a result of movements in market interest rates. At December 31, 2017 , we had $2,550.0 million of gross obligations under our credit agreement and our floating rate senior note which were subject to variable rates of interest. A hypothetical increase in interest rates of 1% would result in an increase in annual interest expense of approximately $25.5 million (pre-tax), assuming obligations subject to variable interest rates remained constant.

Item 8 - Consolidated Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Express Scripts Holding Company

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheet of Express Scripts Holding Company and its subsidiaries as of December 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive income, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2017, including the related notes and schedule of valuation and qualifying accounts and reserves for each of the three years in the period ended December 31, 2017 appearing under Item 15(a)(2) (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of December 31, 2017 , based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016 , and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017 , based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company's consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As described in Management's Report on Internal Control Over Financial Reporting, management has excluded eviCore healthcare from its assessment of internal control over financial reporting as of December 31, 2017 because it was acquired by the Company in a purchase business combination during 2017 . We have also excluded eviCore healthcare from our audit of internal control over financial reporting. eviCore healthcare is a wholly-owned subsidiary whose total assets and total revenues excluded from management's assessment and our audit of internal control over financial reporting represent less than 1% of the related consolidated financial statement amounts as of and for the year ended December 31, 2017 .

Definition and Limitations of Internal Control over Financial Reporting

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and

dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

St. Louis, Missouri

February 27, 2018

We have served as the Company's auditor since 1991.

See accompanying Notes to Consolidated Financial Statements