Express Scripts Holding Co. (NASDAQ:ESRX)

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Express Scripts Holding Co., effective income tax rate (EITR) reconciliation

	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
Statutory federal income tax rate	35.00%	35.00%	35.00%	35.00%	35.00%
State taxes, net of federal benefit	2.10%	0.40%	0.70%	2.00%	2.60%
Non-controlling interest	-0.10%	-0.20%	-0.20%	-0.30%	-0.30%
Impact of the Tax Act	-28.00%	0.00%	0.00%	0.00%	0.00%
Recognition of previously unrecognized PolyMedica Corporation (Liberty) tax benefit	0.00%	-11.60%	0.00%	0.00%	0.00%
Investment in foreign subsidiaries	0.00%	0.00%	0.00%	0.00%	-0.70%
Other, net	-0.90%	-1.00%	-0.20%	-3.10%	-0.20%
Effective tax rate	8.10%	22.60%	35.30%	33.60%	36.40%

Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).

The effective income tax rate (EITR) exhibited a significant downward trajectory over the five-year period ending December 31, 2017. While the statutory federal income tax rate remained constant at 35.00% throughout the period, the EITR decreased from a peak of 36.40% in 2013 to 8.10% in 2017. This divergence highlights the increasing impact of specific tax benefits and legislative changes over the baseline federal rate.

Effective Tax Rate Trend: From 2013 to 2015, the EITR remained relatively stable and closely aligned with the statutory rate, fluctuating between 33.60% and 36.40%. A marked shift occurred in 2016 and 2017, where the rate dropped sharply to 22.60% and 8.10%, respectively.
Primary Drivers of Rate Reduction: The substantial decline in the EITR during the latter two years was driven by non-recurring adjustments. In 2016, the recognition of previously unrecognized tax benefits from PolyMedica Corporation (Liberty) reduced the rate by 11.60%. In 2017, the Impact of the Tax Act provided the most significant reduction of 28.00%.
State and Secondary Adjustments: State taxes, net of federal benefit, showed volatility, starting at 2.60% in 2013, declining to a low of 0.40% in 2016, and returning to 2.10% in 2017. Non-controlling interests provided a consistent but marginal downward adjustment, ranging from -0.30% to -0.10% across all five years.
Miscellaneous Impacts: Other net adjustments fluctuated throughout the period, with the most notable impact occurring in 2014, where a -3.10% adjustment contributed to that year's EITR of 33.60%. An investment in foreign subsidiaries also provided a one-time reduction of 0.70% in 2013.

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Express Scripts Holding Co., components of deferred tax assets and liabilities

US$ in thousands

	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
Allowance for doubtful accounts	10,400)	11,100)	13,400)	41,800)	70,900)
Note premium	3,600)	24,700)	43,100)	61,900)	81,600)
Tax attributes	164,900)	72,600)	102,900)	99,800)	85,900)
Equity compensation	95,400)	148,500)	144,100)	166,300)	268,700)
Accrued expenses	149,600)	293,400)	327,300)	365,400)	406,000)
Benefit of uncertain tax positions	67,100)	132,400)	172,100)	203,500)	181,800)
Other	38,000)	47,800)	54,600)	42,000)	22,800)
Gross deferred tax assets	529,000)	730,500)	857,500)	980,700)	1,117,700)
Valuation allowance	(124,000)	(31,200)	(92,400)	(87,500)	(66,900)
Net deferred tax assets	405,000)	699,300)	765,100)	893,200)	1,050,800)
Depreciation, property and computer software differences	(187,400)	(278,600)	(257,400)	(356,500)	(434,300)
Goodwill and intangible assets	(2,365,400)	(3,945,600)	(4,534,700)	(5,044,400)	(5,585,900)
Outside basis difference in eviCore	(357,000)	—)	—)	—)	—)
Other	(27,500)	(47,300)	(42,800)	(24,700)	(15,800)
Gross deferred tax liabilities	(2,937,300)	(4,271,500)	(4,834,900)	(5,425,600)	(6,036,000)
Net deferred tax assets (liabilities)	(2,532,300)	(3,572,200)	(4,069,800)	(4,532,400)	(4,985,200)

Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).

The net deferred tax position shows a consistent reduction in net liabilities over the five-year period from 2013 to 2017. The net deferred tax liability decreased from US$ 4,985.2 million in 2013 to US$ 2,532.3 million by the end of 2017, representing a significant narrowing of the net liability balance.

Deferred Tax Asset Analysis: Gross deferred tax assets exhibited a steady downward trend, declining from US$ 1,117.7 million in 2013 to US$ 529.0 million in 2017. This contraction was largely driven by significant reductions in accrued expenses, which fell from US$ 406.0 million to US$ 149.6 million, and equity compensation, which decreased from US$ 268.7 million to US$ 95.4 million. The allowance for doubtful accounts also declined sharply from US$ 70.9 million to US$ 10.4 million. In contrast, tax attributes remained volatile, experiencing a notable increase to US$ 164.9 million in 2017 after having dipped to US$ 72.6 million in 2016.
Deferred Tax Liability Analysis: Gross deferred tax liabilities decreased substantially from US$ 6,036.0 million in 2013 to US$ 2,937.3 million in 2017. The primary driver of this reduction was the amortization or adjustment of goodwill and intangible assets, which saw liabilities drop from US$ 5,585.9 million to US$ 2,365.4 million. Additionally, liabilities related to depreciation, property, and computer software differences decreased from US$ 434.3 million to US$ 187.4 million. A new liability concerning the outside basis difference in eviCore was introduced in 2017, totaling US$ 357.0 million.
Valuation Allowance and Net Impact: The valuation allowance against deferred tax assets fluctuated over the period, reaching its peak negative impact of US$ 124.0 million in 2017, compared to a low of US$ 31.2 million in 2016. While both gross assets and gross liabilities declined, the reduction in liabilities was more pronounced, leading to the overall improvement in the net deferred tax liability position.

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Express Scripts Holding Co., deferred tax assets and liabilities, classification

US$ in thousands

	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
Current deferred tax assets	—)	—)	—)	390,800)	455,400)
Noncurrent deferred tax assets (included in Other assets)	30,100)	31,100)	—)	—)	—)
Noncurrent deferred tax liabilities	2,562,400)	3,603,300)	4,069,800)	4,923,200)	5,440,600)

Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).

The financial data reveals a consistent and significant reduction in the company's net deferred tax liability position between 2013 and 2017. The most prominent trend is the steady decline in noncurrent deferred tax liabilities, which suggests a systematic settlement of future tax obligations or a significant change in the temporary differences between accounting and tax reporting.

Noncurrent Deferred Tax Liabilities: A persistent downward trend is observed in noncurrent deferred tax liabilities, which decreased from 5,440,600 thousand US dollars in 2013 to 2,562,400 thousand US dollars by 2017. This represents a total reduction of approximately 53% over the five-year period. The decrease occurred annually, with the most significant drops occurring between 2014 and 2015, and again between 2016 and 2017.
Deferred Tax Assets: Current deferred tax assets experienced a decline in the early part of the period, falling from 455,400 thousand US dollars in 2013 to 390,800 thousand US dollars in 2014. In later years, noncurrent deferred tax assets emerged as a minor component of the tax position, remaining relatively stable at 31,100 thousand US dollars in 2016 and 30,100 thousand US dollars in 2017.
Net Tax Position Analysis: Throughout the analyzed period, the company maintained a substantial net deferred tax liability position, as liabilities heavily outweighed assets. However, the net liability exposure decreased significantly over time. The gap between the noncurrent liabilities and the combined deferred tax assets narrowed substantially, indicating a reduction in the future tax burden relative to the company's available tax assets.

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Express Scripts Holding Co., Financial Data: Reported vs. Adjusted

Express Scripts Holding Co., adjustments to financial statements

US$ in thousands

	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
Adjustment to Current Assets
Current assets (as reported)	11,957,100)	12,363,400)	12,059,500)	10,568,100)	8,491,400)
Less: Current deferred tax assets, net	—)	—)	—)	390,800)	455,400)
Current assets (adjusted)	11,957,100)	12,363,400)	12,059,500)	10,177,300)	8,036,000)
Adjustment to Total Assets
Total assets (as reported)	54,255,800)	51,744,900)	53,243,300)	53,798,900)	53,548,200)
Less: Current deferred tax assets, net	—)	—)	—)	390,800)	455,400)
Less: Noncurrent deferred tax assets, net	30,100)	31,100)	—)	—)	—)
Total assets (adjusted)	54,225,700)	51,713,800)	53,243,300)	53,408,100)	53,092,800)
Adjustment to Total Liabilities
Total liabilities (as reported)	36,130,500)	35,501,100)	35,862,800)	33,734,900)	31,703,400)
Less: Noncurrent deferred tax liabilities, net	2,562,400)	3,603,300)	4,069,800)	4,923,200)	5,440,600)
Total liabilities (adjusted)	33,568,100)	31,897,800)	31,793,000)	28,811,700)	26,262,800)
Adjustment to Total Express Scripts Stockholders’ Equity
Total Express Scripts stockholders’ equity (as reported)	18,119,600)	16,236,000)	17,372,800)	20,054,200)	21,837,400)
Less: Net deferred tax assets (liabilities)	(2,532,300)	(3,572,200)	(4,069,800)	(4,532,400)	(4,985,200)
Total Express Scripts stockholders’ equity (adjusted)	20,651,900)	19,808,200)	21,442,600)	24,586,600)	26,822,600)
Adjustment to Net Income Attributable To Express Scripts
Net income attributable to Express Scripts (as reported)	4,517,400)	3,404,400)	2,476,400)	2,007,600)	1,844,600)
Add: Deferred income tax expense (benefit)	(1,678,900)	(497,400)	(462,100)	(430,500)	(573,700)
Net income attributable to Express Scripts (adjusted)	2,838,500)	2,907,000)	2,014,300)	1,577,100)	1,270,900)

Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).

The removal of deferred taxes results in significant adjustments to the financial position and performance metrics between 2013 and 2017. The most substantial impact is observed in the balance sheet, specifically regarding the reduction of total liabilities and the corresponding increase in stockholders' equity.

Asset Adjustments: Adjustments to current assets were present in 2013 and 2014, where adjusted values were lower than reported values by approximately 455 million and 391 million USD, respectively. From 2015 through 2017, reported and adjusted current assets converged, showing no variance. Total assets remained relatively stable across the period, with adjusted total assets consistently remaining slightly below reported figures, although the variance became negligible by 2015.
Liability and Equity Reclassification: A consistent and significant downward adjustment is observed in total liabilities. In 2013, adjusted liabilities were 5.44 billion USD lower than reported liabilities. While this gap narrowed over the five-year period, adjusted liabilities remained substantially lower than reported figures, ending at 2.56 billion USD lower in 2017. Consequently, adjusted stockholders' equity is consistently higher than reported equity. The equity boost was most pronounced in 2013, with adjusted equity exceeding reported equity by approximately 4.98 billion USD, though this premium decreased to 2.53 billion USD by 2017.
Net Income Divergence: Adjusted net income is consistently lower than reported net income throughout the analyzed period. While reported net income exhibited a strong upward trajectory, growing from 1.84 billion USD in 2013 to 4.52 billion USD in 2017, the adjusted net income followed a different pattern. Adjusted net income grew from 2013 to 2016 but experienced a decline in 2017, falling to 2.84 billion USD. The variance between reported and adjusted net income widened dramatically in 2017, reaching approximately 1.68 billion USD.

Overall, the removal of deferred taxes presents a balance sheet with lower leverage and higher equity than reported. However, it also reveals a more conservative net income trend, particularly in the final year of the analysis, where the reported growth in profitability is not mirrored in the adjusted figures.

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Express Scripts Holding Co., Financial Ratios: Reported vs. Adjusted

Express Scripts Holding Co., adjusted financial ratios

	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
Current Ratio
Reported current ratio	0.67	0.75	0.70	0.62	0.64
Adjusted current ratio	0.67	0.75	0.70	0.60	0.61
Net Profit Margin
Reported net profit margin	4.51%	3.39%	2.43%	1.99%	1.77%
Adjusted net profit margin	2.84%	2.90%	1.98%	1.56%	1.22%
Total Asset Turnover
Reported total asset turnover	1.84	1.94	1.91	1.88	1.94
Adjusted total asset turnover	1.85	1.94	1.91	1.89	1.96
Financial Leverage
Reported financial leverage	2.99	3.19	3.06	2.68	2.45
Adjusted financial leverage	2.63	2.61	2.48	2.17	1.98
Return on Equity (ROE)
Reported ROE	24.93%	20.97%	14.25%	10.01%	8.45%
Adjusted ROE	13.74%	14.68%	9.39%	6.41%	4.74%
Return on Assets (ROA)
Reported ROA	8.33%	6.58%	4.65%	3.73%	3.44%
Adjusted ROA	5.23%	5.62%	3.78%	2.95%	2.39%

Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).

An analysis of the financial ratios from 2013 to 2017 reveals a consistent divergence between reported figures and adjusted figures following the removal of deferred taxes. This adjustment primarily impacts profitability and solvency metrics, while liquidity and operational efficiency ratios remain largely unaffected.

Profitability and Returns: A significant gap is observed between reported and adjusted profitability metrics. The reported net profit margin experienced a steady upward trend, rising from 1.77% in 2013 to 4.51% in 2017. In contrast, the adjusted net profit margin grew more modestly, starting at 1.22% and peaking at 2.90% in 2016 before declining to 2.84% in 2017. This pattern is mirrored in the Return on Equity (ROE) and Return on Assets (ROA). Reported ROE surged from 8.45% to 24.93%, whereas adjusted ROE reached a peak of 14.68% in 2016 and subsequently dropped to 13.74% in 2017. This indicates that deferred tax accounting significantly inflated reported earnings and return metrics over the period.
Financial Leverage and Solvency: Financial leverage ratios show a substantial difference between reported and adjusted values. Reported financial leverage increased from 2.45 in 2013 to 2.99 in 2017. However, the adjusted leverage figures are consistently lower, moving from 1.98 in 2013 to 2.63 in 2017. The persistent gap suggests that deferred tax liabilities contribute meaningfully to the reported total liabilities, thereby elevating the perceived financial risk.
Liquidity and Operational Efficiency: The impact of deferred tax adjustments on liquidity and efficiency is negligible. The current ratio remained relatively stable, with reported and adjusted values converging to 0.67 by 2017. Similarly, the total asset turnover showed minimal variance, with reported figures moving from 1.94 to 1.84 and adjusted figures moving from 1.96 to 1.85 over the five-year period. These results indicate that deferred tax accounts do not materially influence the company's short-term liquidity position or its ability to generate revenue from its asset base.

Overall, the removal of deferred taxes reveals a more conservative financial profile. While the company demonstrated growth in both reported and adjusted terms, the adjusted metrics indicate that the actual growth in profitability and the increase in financial leverage were less aggressive than the reported figures suggested.

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	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
As Reported
Selected Financial Data (US$ in thousands)
Current assets	11,957,100)	12,363,400)	12,059,500)	10,568,100)	8,491,400)
Current liabilities	17,846,400)	16,428,100)	17,155,300)	17,016,900)	13,235,300)
Liquidity Ratio
Current ratio¹	0.67	0.75	0.70	0.62	0.64
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Adjusted current assets	11,957,100)	12,363,400)	12,059,500)	10,177,300)	8,036,000)
Current liabilities	17,846,400)	16,428,100)	17,155,300)	17,016,900)	13,235,300)
Liquidity Ratio
Adjusted current ratio²	0.67	0.75	0.70	0.60	0.61

Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).

2017 Calculations

¹ Current ratio = Current assets ÷ Current liabilities
= 11,957,100 ÷ 17,846,400 = 0.67

² Adjusted current ratio = Adjusted current assets ÷ Current liabilities
= 11,957,100 ÷ 17,846,400 = 0.67

An analysis of the short-term liquidity position reveals that current assets experienced a general upward trajectory from 2013 through 2016, followed by a slight contraction in 2017. Throughout the entire five-year period, both reported and adjusted current ratios remained below 1.0, indicating that current liabilities consistently exceeded current assets.

Current Asset Trends: Reported current assets grew steadily from 8,491,400 thousand USD in 2013 to a peak of 12,363,400 thousand USD in 2016. This growth phase was followed by a moderate decrease to 11,957,100 thousand USD by the end of 2017.
Adjusted Current Ratio Performance: The adjusted current ratio demonstrated a gradual improvement in liquidity from 2013 to 2016, rising from 0.61 to 0.75. However, this trend reversed in 2017, with the ratio declining to 0.67, mirroring the decrease observed in total current assets for that year.
Impact of Asset Adjustments: Discrepancies between reported and adjusted current assets were present only in 2013 and 2014, where adjustments resulted in lower asset valuations and a corresponding decrease in the current ratio. Starting in 2015, adjusted and reported values converged and remained identical through 2017, suggesting that the factors requiring adjustment in the earlier period were no longer applicable.

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	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
As Reported
Selected Financial Data (US$ in thousands)
Net income attributable to Express Scripts	4,517,400)	3,404,400)	2,476,400)	2,007,600)	1,844,600)
Revenues	100,064,600)	100,287,500)	101,751,800)	100,887,100)	104,098,800)
Profitability Ratio
Net profit margin¹	4.51%	3.39%	2.43%	1.99%	1.77%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Adjusted net income attributable to Express Scripts	2,838,500)	2,907,000)	2,014,300)	1,577,100)	1,270,900)
Revenues	100,064,600)	100,287,500)	101,751,800)	100,887,100)	104,098,800)
Profitability Ratio
Adjusted net profit margin²	2.84%	2.90%	1.98%	1.56%	1.22%

Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).

2017 Calculations

¹ Net profit margin = 100 × Net income attributable to Express Scripts ÷ Revenues
= 100 × 4,517,400 ÷ 100,064,600 = 4.51%

² Adjusted net profit margin = 100 × Adjusted net income attributable to Express Scripts ÷ Revenues
= 100 × 2,838,500 ÷ 100,064,600 = 2.84%

An analysis of the financial performance from 2013 to 2017 reveals a general upward trajectory in net income and profit margins, although a notable divergence occurs between reported and adjusted figures in the final year of the period.

Reported Profitability Trends: Reported net income exhibited consistent year-over-year growth, rising from 1,844,600 thousand US dollars in 2013 to 4,517,400 thousand US dollars in 2017. This expansion is mirrored in the reported net profit margin, which increased steadily from 1.77% to 4.51% over the five-year period, indicating a continuous improvement in the ability to convert revenue into bottom-line profit.
Adjusted Profitability Trends: Adjusted net income demonstrated strong growth between 2013 and 2016, increasing from 1,270,900 thousand US dollars to 2,907,000 thousand US dollars. However, a slight contraction occurred in 2017, with adjusted net income declining to 2,838,500 thousand US dollars. Correspondingly, the adjusted net profit margin peaked in 2016 at 2.90% before decreasing to 2.84% in 2017.
Divergence Between Reported and Adjusted Metrics: While reported metrics grew linearly throughout the period, adjusted metrics plateaued and slightly declined in 2017. The gap between reported net income and adjusted net income widened significantly in the final year; reported net income reached its highest point of 4,517,400 thousand US dollars, while adjusted net income fell. This suggests that the reported results in 2017 were positively influenced by non-recurring items, tax adjustments, or one-time gains that were excluded from the adjusted figures to present a view of core operational performance.

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	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
As Reported
Selected Financial Data (US$ in thousands)
Revenues	100,064,600)	100,287,500)	101,751,800)	100,887,100)	104,098,800)
Total assets	54,255,800)	51,744,900)	53,243,300)	53,798,900)	53,548,200)
Activity Ratio
Total asset turnover¹	1.84	1.94	1.91	1.88	1.94
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Revenues	100,064,600)	100,287,500)	101,751,800)	100,887,100)	104,098,800)
Adjusted total assets	54,225,700)	51,713,800)	53,243,300)	53,408,100)	53,092,800)
Activity Ratio
Adjusted total asset turnover²	1.85	1.94	1.91	1.89	1.96

Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).

2017 Calculations

¹ Total asset turnover = Revenues ÷ Total assets
= 100,064,600 ÷ 54,255,800 = 1.84

² Adjusted total asset turnover = Revenues ÷ Adjusted total assets
= 100,064,600 ÷ 54,225,700 = 1.85

The financial period from 2013 to 2017 is characterized by a relatively stable asset base and consistent asset utilization efficiency. Total assets remained within a narrow range, with a slight contraction observed through 2016 followed by a recovery in 2017. The asset turnover ratios exhibit a similar pattern of stability, with minor fluctuations indicating a steady ability to generate revenue from the asset base.

Total Asset Analysis: Reported total assets peaked in 2017 at 54,255,800 thousand US dollars, following a period of slight decline that reached a low of 51,744,900 thousand US dollars in 2016. The adjusted total assets closely mirror the reported figures, with the variance being negligible across all five years. This indicates that the adjustments applied to the asset base did not materially impact the scale of the company's resources.
Asset Turnover Performance: The reported total asset turnover ratio fluctuated between a high of 1.94 in 2013 and 2016 and a low of 1.84 in 2017. A corresponding trend is seen in the adjusted total asset turnover, which peaked at 1.96 in 2013 and reached its lowest point of 1.85 in 2017. The adjusted ratio is consistently equal to or slightly higher than the reported ratio, suggesting that the adjustments marginally enhance the perceived efficiency of asset utilization.
Efficiency Trends: A period of relative efficiency stability is observed between 2013 and 2016, where the adjusted turnover ratio remained at or above 1.89. However, a decline in efficiency is evident in 2017, where the ratio dropped to 1.85 despite the increase in total assets. This suggests that the growth in the asset base in 2017 did not yield a proportional increase in revenue generation.

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	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
As Reported
Selected Financial Data (US$ in thousands)
Total assets	54,255,800)	51,744,900)	53,243,300)	53,798,900)	53,548,200)
Total Express Scripts stockholders’ equity	18,119,600)	16,236,000)	17,372,800)	20,054,200)	21,837,400)
Solvency Ratio
Financial leverage¹	2.99	3.19	3.06	2.68	2.45
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Adjusted total assets	54,225,700)	51,713,800)	53,243,300)	53,408,100)	53,092,800)
Adjusted total Express Scripts stockholders’ equity	20,651,900)	19,808,200)	21,442,600)	24,586,600)	26,822,600)
Solvency Ratio
Adjusted financial leverage²	2.63	2.61	2.48	2.17	1.98

Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).

2017 Calculations

¹ Financial leverage = Total assets ÷ Total Express Scripts stockholders’ equity
= 54,255,800 ÷ 18,119,600 = 2.99

² Adjusted financial leverage = Adjusted total assets ÷ Adjusted total Express Scripts stockholders’ equity
= 54,225,700 ÷ 20,651,900 = 2.63

Between 2013 and 2017, the financial structure of the organization was characterized by relative stability in total assets contrasted with a notable decline and subsequent partial recovery in stockholders' equity, which drove a general increase in financial leverage ratios.

Total Asset Trends: Reported total assets remained relatively stable over the five-year period, fluctuating between a low of 51.7 billion USD in 2016 and a high of 54.3 billion USD in 2017. The variance between reported and adjusted total assets is marginal, indicating that the adjustments applied to the asset base had a negligible impact on the overall scale of the balance sheet.
Stockholders' Equity Dynamics: A consistent downward trend in equity was observed from 2013 through 2016. Reported stockholders' equity decreased from 21.8 billion USD to 16.2 billion USD, while adjusted equity fell from 26.8 billion USD to 19.8 billion USD. A reversal of this trend occurred in 2017, with reported equity rising to 18.1 billion USD and adjusted equity increasing to 20.7 billion USD. Adjusted equity remained consistently higher than reported equity throughout the entire period, suggesting significant positive adjustments to the equity base.
Financial Leverage Analysis: The reported financial leverage ratio increased from 2.45 in 2013 to a peak of 3.19 in 2016, before moderating to 2.99 in 2017. The adjusted financial leverage ratio followed a similar upward trajectory, rising from 1.98 in 2013 to 2.63 in 2017. The adjusted ratio remained consistently lower than the reported ratio, demonstrating that the adjustments to stockholders' equity effectively reduced the calculated financial leverage and presented a more favorable risk profile compared to the reported figures.

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	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
As Reported
Selected Financial Data (US$ in thousands)
Net income attributable to Express Scripts	4,517,400)	3,404,400)	2,476,400)	2,007,600)	1,844,600)
Total Express Scripts stockholders’ equity	18,119,600)	16,236,000)	17,372,800)	20,054,200)	21,837,400)
Profitability Ratio
ROE¹	24.93%	20.97%	14.25%	10.01%	8.45%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Adjusted net income attributable to Express Scripts	2,838,500)	2,907,000)	2,014,300)	1,577,100)	1,270,900)
Adjusted total Express Scripts stockholders’ equity	20,651,900)	19,808,200)	21,442,600)	24,586,600)	26,822,600)
Profitability Ratio
Adjusted ROE²	13.74%	14.68%	9.39%	6.41%	4.74%

Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).

2017 Calculations

¹ ROE = 100 × Net income attributable to Express Scripts ÷ Total Express Scripts stockholders’ equity
= 100 × 4,517,400 ÷ 18,119,600 = 24.93%

² Adjusted ROE = 100 × Adjusted net income attributable to Express Scripts ÷ Adjusted total Express Scripts stockholders’ equity
= 100 × 2,838,500 ÷ 20,651,900 = 13.74%

Between 2013 and 2017, a consistent increase in profitability is evident, although a notable divergence exists between reported and adjusted financial metrics.

Net Income Trends: Reported net income attributable to stockholders demonstrated steady annual growth, rising from 1,844,600 thousand USD in 2013 to 4,517,400 thousand USD in 2017. Adjusted net income followed a growth trajectory from 2013 through 2016, peaking at 2,907,000 thousand USD before experiencing a slight contraction to 2,838,500 thousand USD in 2017.
Equity Position: A general decline in stockholders' equity was observed from 2013 to 2016. Reported equity decreased from 21,837,400 thousand USD to 16,236,000 thousand USD during this period, before recovering to 18,119,600 thousand USD in 2017. Adjusted equity mirrored this pattern, falling from 26,822,600 thousand USD in 2013 to 19,808,200 thousand USD in 2016, and ending the period at 20,651,900 thousand USD.
Return on Equity (ROE) Analysis: Reported ROE exhibited a strong and continuous upward trend, increasing from 8.45% in 2013 to 24.93% in 2017. This growth was driven by the simultaneous increase in net income and the overall reduction in the equity base through 2016. Adjusted ROE also improved significantly, rising from 4.74% in 2013 to a peak of 14.68% in 2016, followed by a slight decline to 13.74% in 2017. The consistent gap between reported and adjusted ROE suggests that significant non-GAAP adjustments influenced the reported performance metrics throughout the five-year period.

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	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
As Reported
Selected Financial Data (US$ in thousands)
Net income attributable to Express Scripts	4,517,400)	3,404,400)	2,476,400)	2,007,600)	1,844,600)
Total assets	54,255,800)	51,744,900)	53,243,300)	53,798,900)	53,548,200)
Profitability Ratio
ROA¹	8.33%	6.58%	4.65%	3.73%	3.44%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Adjusted net income attributable to Express Scripts	2,838,500)	2,907,000)	2,014,300)	1,577,100)	1,270,900)
Adjusted total assets	54,225,700)	51,713,800)	53,243,300)	53,408,100)	53,092,800)
Profitability Ratio
Adjusted ROA²	5.23%	5.62%	3.78%	2.95%	2.39%

Based on: 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31).

2017 Calculations

¹ ROA = 100 × Net income attributable to Express Scripts ÷ Total assets
= 100 × 4,517,400 ÷ 54,255,800 = 8.33%

² Adjusted ROA = 100 × Adjusted net income attributable to Express Scripts ÷ Adjusted total assets
= 100 × 2,838,500 ÷ 54,225,700 = 5.23%

A consistent upward trajectory in profitability is evident from 2013 to 2017, characterized by significant growth in net income against a relatively stagnant asset base. This dynamic resulted in a general expansion of both reported and adjusted return on assets (ROA) throughout the majority of the period.

Net Income Trends: Reported net income attributable to the company demonstrated uninterrupted growth, increasing from 1.84 billion USD in 2013 to 4.52 billion USD in 2017. Adjusted net income followed a similar upward trend for most of the period, rising from 1.27 billion USD in 2013 to a peak of 2.91 billion USD in 2016, before experiencing a slight contraction to 2.84 billion USD in 2017.
Asset Base Stability: Total assets remained remarkably stable over the five-year horizon. Reported total assets fluctuated within a narrow range, starting at 53.55 billion USD in 2013 and ending at 54.26 billion USD in 2017. Adjusted total assets mirrored this stability, indicating that the growth in earnings was not driven by aggressive asset expansion or significant capital investment.
Return on Assets (ROA) Performance: Reported ROA exhibited a steady and strong increase, rising from 3.44% in 2013 to 8.33% in 2017, reflecting enhanced operational efficiency in generating profit from available assets. Adjusted ROA also improved significantly from 2.39% in 2013 to 5.62% in 2016; however, a reversal occurred in 2017, with the ratio declining to 5.23%. This divergence in 2017 suggests that while reported earnings continued to climb, the adjusted figures—which strip out specific non-recurring or accounting items—indicated a slight decrease in underlying asset productivity.

The widening gap between reported and adjusted ROA by 2017 indicates that non-adjusted components of net income played an increasingly dominant role in the overall reported profitability of the organization.

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