Express Scripts 2013 Annual Report Download - page 49

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49 Express Scripts 2013 Annual Report
Other Business Operations operating income decreased $33.0 million in 2012 over 2011. This decrease is due
primarily to the inclusion of amounts related to Medco, the impact of impairment charges, less the gain upon sale associated
with Liberty, netting to a loss of $22.5 million, and losses attributed to other international businesses. Offsetting these losses is
a $14.3 million gain associated with the sale of CYC for the year ended December 31, 2012.
OTHER (EXPENSE) INCOME, NET
Net other expense decreased $72.1 million, or 12.1%, in 2013 as compared to 2012. This decrease is primarily due
to reduced interest for the year ended December 31, 2013 due to the early redemption of ESI’s $1,000.0 million aggregate
principal amount of 6.250% senior notes due 2014, and a $35.4 million contractual interest payment received from a client. In
addition, this decrease was partially due to greater undistributed gains from our joint venture of $32.8 million for the year
ended 2013 compared to $14.9 million for the year ended 2012, which we began recording under the equity method due to our
increased consolidated ownership following the Merger as discussed in Note 3 - Changes in business. These net decreases are
partially offset by the acquisition of Medco and inclusion of its interest expense for the three months ended March 31, 2013
related to the senior notes acquired in the Merger, as well as $68.5 million of redemption costs and write-off of deferred
financing fees incurred for early redemption of debt as discussed below for the year ended December 31, 2013.
Net other expense increased $306.2 million, or 106.6%, in 2012 as compared to 2011 due to the following items:
$85.2 million of financing fees related to the bridge facility (defined below) and senior note interest incurred in 2012 prior to
the Merger; $12.4 million of financing fees related to the credit agreement (defined below) entered into upon consummation of
the Merger; and interest expense incurred subsequent to the Merger related to the credit agreement, February 2012 Senior
Notes, November 2011 Senior Notes, May 2011 Senior Notes, and senior notes acquired from Medco on April 2, 2012. These
increases were partially offset by the redemption of Medco’s $500.0 million aggregate principal amount of 7.250% senior notes
due 2013, the redemption of ESI’s $1,000.0 million aggregate principal amount of 5.250% senior notes due 2012, early
repayment of $1,000.0 million associated with the credit agreement and termination of the bridge facility. Other net expense
includes equity income of $14.9 million attributable to our joint venture, Surescripts, which is accounted for using the equity
method due to our increased consolidated ownership following the Merger.
For the definitions of the agreements and senior notes referenced above, see “Part II — Item 7 — Management’s
Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”
PROVISION FOR INCOME TAXES
Our effective tax rate from continuing operations attributable to Express Scripts was 36.4% for the year ended
December 31, 2013, compared to 38.1% and 37.0% for 2012 and 2011, respectively.
During 2013, we recorded a discrete benefit of $51.2 million primarily attributable to investments in certain foreign
subsidiaries for which we recognized as a result of various divestitures, deferred tax implications of newly enacted state laws
and income not recognized for tax purposes. We recorded a discrete benefit of $8.2 million in 2012 primarily attributable to an
income tax contingency related to prior year income tax return filings and investments in certain foreign subsidiaries for which
we expected to realize in the foreseeable future.
As of December 31, 2013, management intends to pursue a $544.9 million potential tax benefit related to the
disposition of Liberty. Based on information currently available, no net benefit has been recognized. Pending the resolution of
certain matters, including but not limited to examinations by taxing authorities, all or a part of the deduction may become
realizable in the future. We cannot predict with any certainty the exact amount.
We believe that it is reasonably possible that our unrecognized tax benefits could significantly change within the
next twelve months due to the anticipated conclusion of various examinations. At this time, an estimate of the range of the
reasonably possible change in the next 12 months cannot be made.