-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TGK2xqH0/foNo44D57dEgn0nyzmLGXT3hC3VoGUcajd3dcdXrnpgGOd1ugb7nmhw Hn/vfaS+cwsF9O5vpISSfg== 0000885721-02-000010.txt : 20020422 0000885721-02-000010.hdr.sgml : 20020422 ACCESSION NUMBER: 0000885721-02-000010 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020331 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits ITEM INFORMATION: FILED AS OF DATE: 20020422 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EXPRESS SCRIPTS INC CENTRAL INDEX KEY: 0000885721 STANDARD INDUSTRIAL CLASSIFICATION: INSURANCE AGENTS BROKERS & SERVICES [6411] IRS NUMBER: 431420563 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-20199 FILM NUMBER: 02617018 BUSINESS ADDRESS: STREET 1: 13900 REIVERPORT DRIVE CITY: MARYLAND HEIGHTS STATE: MO ZIP: 63043 BUSINESS PHONE: 3147701666 MAIL ADDRESS: STREET 1: 13900 REIVERPORT DRIVE CITY: MARYLAND HEIGHTS STATE: MO ZIP: 63043 8-K 1 q18k02.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K Current Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Date of Report: April 22, 2002 Express Scripts, Inc. - -------------------------------------------------------------------------------- (Exact Name of Registrant as specified in its Charter) Delaware 0-20199 43-1420563 - ---------------------------- -------------------- ------------------- (State or other jurisdiction (Commission File No.) (I.R.S. Employer of corporation) Identification No.) 13900 Riverport Drive, Maryland Heights, Missouri 63043 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (314) 770-1666 ----------------------------- - -------------------------------------------------------------------------------- (Former name or former address, if changed since last report) Item 5. Other Events On April 17, 2002, Express Scripts, Inc. (the "Company") issued a press release, selected portions of which are attached hereto as Exhibit 99.1, and incorporated herein by reference. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits (c) The following Exhibit is filed as part of this report on Form 8-K: Exhibit 99.1 Press Release, dated April 17, 2002, by the Company Item 9. Regulation FD Disclosure The following information is furnished pursuant to Regulation FD. Selected unaudited financial information included in the Company's April 17, 2002 press release is attached hereto as Exhibit 99.2 and incorporated herein by reference. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. EXPRESS SCRIPTS, INC. Date: April 22, 2002 By: ------------------------------------------------- Barrett A. Toan Chairman and Chief Executive Officer EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 99.1 Press release, dated April 17, 2002 99.2 Unaudited Financial Information, dated April 17, 2002 EX-99 3 prq18k02.txt PRESS RELEASE EXHIBIT 99.1 Contact: George Paz, Chief Financial Officer David Myers, Director Investor Relations (314) 702-7173 INVESTOR.RELATIONS@EXPRESS-SCRIPTS.COM EXPRESS SCRIPTS REPORTS FIRST QUARTER EARNINGS EARNINGS GUIDANCE INCREASED FOR 2002 AND 2003 ST. LOUIS, APRIL 17, 2002--Express Scripts, Inc. (Nasdaq: ESRX) announced first quarter net income of $44.0 million, or 55 cents per diluted share, an increase of 28 percent over the same quarter of 2001. All per share amounts reflect the 2-for-1 stock split which was effective June 22, 2001. In addition, the 2001 earnings have been adjusted to eliminate the amortization of goodwill. "Our strong earnings reflect our success in executing all phases of our strategic business plan, and this growth translates to our increased earnings outlook for this year and next," stated Barrett Toan, chairman and chief executive officer. "In addition to this strong performance, we recently completed two strategic acquisitions and are continuing to enjoy a successful selling season. We continue to position Express Scripts to penetrate new and existing markets by offering sophisticated plan designs that help health plan sponsors and members make cost-effective healthcare choices." STRONG OPERATING RESULTS Revenues for the first quarter of 2002 were $2.7 billion, a 32 percent increase over $2.1 billion for the same quarter last year. This year-to-year increase is due primarily to new membership and higher per member utilization and higher average drug cost per prescription. Mail pharmacy prescriptions increased to 6.0 million during the first quarter of 2002, a 34 percent increase compared with the same quarter last year. Specialty distribution claims in the first quarter increased to 0.7 million, an 80 percent increase over last year's first quarter. Network pharmacy claims processed in the first quarter were 80.1 million, an 11 percent increase over the first quarter of 2001. EBITDA per adjusted claim, excluding non-recurring items discussed below, was $0.94 for the first quarter of 2002, an increase of 8 percent from the fourth quarter of 2001 and 9 percent over the first quarter of 2001. In April 2002, ESI Canada completed the development and testing of its dental application and began adjudicating dental claims. This is part of ESI Canada's strategy to provide a complete health benefit solution to the Canadian marketplace on one integrated platform. Express Scripts generated $24.8 million in cash flow from operations in the first quarter compared with $50.1 million in the same quarter last year. This decrease mainly results from the increase in inventory levels due to strategic purchasing opportunities. During the quarter, the company repurchased 260,000 shares of common stock for $13.6 million. Results for the first quarter of 2002 included two significant non-recurring non-cash charges. First, as a result of renegotiation of the contract with a large client, Express Scripts eliminated a contract pricing reserve resulting in a one-time increase in gross profit of $15 million. Second, Express Scripts made substantial progress in the integration of the company's legacy systems into its primary claims adjudication system. Because the company now is approaching the complete integration of these systems, the company recognized $14 million of accelerated depreciation attributable to its legacy systems. EARNINGS GUIDANCE FOR 2002 AND 2003 Express Scripts continues to generate strong sales growth. As previously announced, the company was selected to provide pharmacy benefits management services to the Public Employees Insurance Agency ("PEIA") and the Pharmacy RFP Issuing States ("RXIS") workgroup. This and other new sales wins are encouraging as the company looks ahead. Due to the strong start in 2002, Express Scripts increased its earnings guidance for 2002 and provided initial guidance for 2003. The company believes its 2002 diluted earnings per share will be between $2.39 and $2.41. In addition, the company believes it can grow 2003 earnings in the 25 percent range. "Our increased earnings guidance for the year reflects our strong business fundamentals," added Toan. "Compelling demographic and economic forces point to our continued strong growth as we offer sophisticated clinical tools and efficient mail pharmacies that will help our clients reduce their drug trend." STRATEGIC ACQUISITIONS COMPLETED On February 25, 2002, Express Scripts completed the acquisition of the assets of Phoenix Marketing Group (Holdings), Inc. ("Phoenix") for $33 million in cash. Phoenix is one of the largest prescription drug sample fulfillment companies in the United States, shipping approximately 95 million individual sample units in 2001. Phoenix is well positioned to assume a greater share of the expanding market for pharmaceutical sampling. On April 12, 2002, Express Scripts completed the acquisition of National Prescription Administrators, Inc. ("NPA") for $450 million. The company will file an Internal Revenue Code ss.338(h)(10) election, making amortization expense of intangible assets, including goodwill, tax deductible, which will provide a tax benefit to Express Scripts of approximately $85 million on a present value basis. "We are pleased to have NPA become a part of Express Scripts," stated Toan. "We believe that NPA's clients and members will benefit from our combined expertise, commitment to excellent service and strong values in helping to manage the prescription process." S&P UPGRADE During the quarter, Standard & Poor's (S&P) raised the credit ratings on the company's debt to an investment grade BBB- from BB+, and noted the outlook remains stable. S&P indicated the upgrade reflects Express Scripts' strong position in the expanding pharmaceutical benefit management industry, continued solid operating performance, and growing cash flows. EXPRESS SCRIPTS CLIMBS IN FORTUNE 500 RANKING Express Scripts was ranked 210 in Fortune Magazine's Fortune 500 list, which was published this month. The ranking, which is based on revenues, was a significant increase over last year's position of 276. Express Scripts, Inc. is one of the largest pharmacy benefit management (PBM) companies in North America. Together with NPA, the company provides PBM services to over 50 million members through facilities in eight states and Canada. Express Scripts serves thousands of client groups, including managed care organizations, insurance carriers, third-party administrators, employers and union-sponsored benefit plans. Express Scripts provides integrated PBM services, including network pharmacy claims processing, mail pharmacy services, benefit design consultation, drug utilization review, formulary management, disease management, medical and drug data analysis services, medical information management services and informed decision counseling services through its Express Health Line SM division. The company also provides distribution services for specialty pharmaceuticals through its Specialty Distribution subsidiary. Express Scripts is headquartered in St. Louis, Missouri. More information can be found at HTTP://WWW.EXPRESS-SCRIPTS.COM, which includes expanded investor information and resources. SAFE HARBOR STATEMENT This press release contains forward-looking statements, including, but not limited to, statements related to the company's plans, objectives, expectations (financial and otherwise) or intentions. Actual results may differ significantly from those projected or suggested in any forward-looking statements. Factors that may impact these forward-looking statements include but are not limited to: o risks associated with our acquisitions of Phoenix and NPA, including integration risks and costs, risks of client retention, and risks associated with the operations of acquired businesses o risks associated with our ability to maintain internal growth rates, or to control operating or capital costs o continued pressure on margins resulting from client demands for enhanced service offerings and higher service levels, and the possible termination of, or unfavorable modification to, contracts with key clients or providers o competition, including price competition, and our ability to consummate contract negotiations with prospective clients, as well as competition from new competitors offering services that may in whole or in part replace services that we now provide to our customers o adverse results in regulatory matters, the adoption of new legislation or regulations (including increased costs associated with compliance with new laws and regulations, such as privacy regulations under the Health Insurance Portability and Accountability Act (HIPAA)), more aggressive enforcement of existing legislation or regulations, or a change in the interpretation of existing legislation or regulations o the possible loss of relationships with pharmaceutical manufacturers, or changes in pricing, discount or other practices of pharmaceutical manufacturers o adverse results in litigation, including a pending case challenging Express Scripts' business practices under the Employee Retirement Income Security Act (ERISA) o risks associated with our leverage and debt service obligations, including the effect of certain covenants in our borrowing agreements o risks associated with our ability to continue to develop new products, services and delivery channels o general developments in the health care industry, including the impact of increases in health care costs, changes in drug utilization and cost patterns and introductions of new drugs o uncertainties regarding the implementation and the ultimate terms of proposed government initiatives, including a Medicare prescription drug benefit o increase in credit risk relative to our clients due to adverse economic trends o other risks described from time to time in our filings with The Securities and Exchange Commission We do not undertake any obligation to release publicly any revisions to such forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. FINANCIAL TABLES FOLLOW EXPRESS SCRIPTS REPORTS FIRST QUARTER EARNINGS - ADD 4 EXPRESS SCRIPTS, INC. UNAUDITED STATEMENT OF OPERATIONS (in thousands, except per share data) 3 MONTHS ENDED MARCH 31, ------------------------------ 2002 2001 ------------- -------------- Revenues $ 2,749,069 $ 2,090,540 Cost of revenues 2,574,412 1,945,641 ------------- -------------- Gross Profit (1) 174,657 144,899 Selling, general and administrative (1) 96,387 89,798 ------------- -------------- Operating income 78,270 55,101 ------------- -------------- Other income (expense): Undistributed loss from joint venture (1,037) - Interest income 1,060 1,410 Interest expense (8,128) (9,144) ------------- -------------- (8,105) (7,734) ------------- -------------- Income before income taxes 70,165 47,367 Provision for income taxes 26,196 19,288 ------------- -------------- Net income $ 43,969 $ 28,079 ============= ============== ------------- -------------- Basic earnings per share (2): $ 0.57 $ 0.36 ============= ============== Weighted average number of common shares outstanding during the period - basic (2) 77,686 77,540 ============= ============== ------------- -------------- Diluted earnings per share (2) $ 0.55 $ 0.35 ============= ============== Weighted average number of common shares outstanding during the period - diluted (2) 79,575 79,634 ============= ============== Reconciliation of prior year under FAS 142 Amortization, net of tax $ 6,511 Net income $ 34,590 Net income per share: Basic $ 0.45 Diluted $ 0.43 EBITDA (3) $ 107,565 $ 74,102 ============= ============== SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS EXPRESS SCRIPTS, INC. UNAUDITED BALANCE SHEET (in thousands) MARCH 31, DECEMBER 31, 2002 2001 ------------ ------------ ASSETS Current assets Cash and cash equivalents $ 158,684 $ 177,715 Receivables, net 858,777 883,827 Inventories 154,072 122,375 Other current assets 30,907 29,286 ------------ ------------ Total current assets 1,202,440 1,213,203 Property and equipment, net 150,808 165,263 Goodwill, net 967,263 942,280 Other intangible assets, net 169,674 165,349 Other assets 17,327 14,150 ------------ ------------ Total assets $ 2,507,512 $ 2,500,245 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Claims and rebate payable $ 867,585 $ 910,360 Other current liabilities 350,610 335,257 ------------ ------------ Total current liabilities 1,218,195 1,245,617 Long-term debt 346,040 346,119 Other long-term liabilities 64,612 76,512 ------------ ------------ Total liabilities 1,628,847 1,668,248 Total stockholders' equity 878,665 831,997 ------------ ------------ Total liabilities and stockholders' equity $ 2,507,512 $ 2,500,245 ============ ============ EXPRESS SCRIPTS, INC. Unaudited Statement of Cash Flows (in thousands) 3 MONTHS ENDED MARCH 31, --------------------------- 2002 2001 ------------ ----------- Cash flow from operating activities: Net income (loss) $ 43,969 $ 28,079 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 29,295 19,001 Other (4) 16,330 22,963 Changes in working capital (64,795) (19,980) ------------ ----------- Net cash provided by operating activities: 24,799 50,063 ------------ ----------- Cash flows from investing and financing activities: Purchases of property and equipment (9,262) (10,442) Acquisitions and joint venture (32,934) (17,733) Treasury stock acquired (13,598) - Other 11,964 10,008 ------------ ----------- Net cash used in investing and financing activities (43,830) (18,167) ------------ ----------- Net (decrease) increase in cash and cash equivalents (19,031) 31,896 Cash and cash equivalents at beginning of period 177,715 53,204 ------------ ----------- Cash and cash equivalents at end of period $ 158,684 $ 85,100 ============ =========== SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS EXPRESS SCRIPTS, INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS (in thousands) General: Certain reclassifications have been made to prior year's and prior quarter's financial statements to conform with the current quarter's presentation. (1) Includes depreciation and amortization expense of: 3 MONTHS ENDED MARCH 31, --------------------------------- 2002 2001 --------------- --------------- Gross Profit $ 7,325 $ 3,360 Selling, general and administrative $ 21,970 $ 15,641 (2) Earnings per share and weighted average shares outstanding have been restated to reflect the two-for-one stock split effective June 22, 2001. (3) EBITDA is earnings before other income (expense), taxes, depreciation and amortization, or operating income plus depreciation and amortization. EBITDA is presented because it is a widely accepted indicator of a company's ability to incur and service indebtedness. EBITDA, however, should not be considered as an alternative to net income as a measure of operating performance, as an alternative to cash flow or a measure of liquidity. In addition, our calculation of EBITDA may not be identical to that used by other companies. (4) Primarily includes deferred income taxes, bad debt expense and tax benefits relating to employee stock options. Classification is consistent with our audited 10-K filing. EX-99 4 fin-q18k02.txt FINANCIALS EXHIBIT 99.2 EXPRESS SCRIPTS, INC. Table 1 Unaudited Operating Statistics (in thousands, except per claim)
3 MONTHS 3 MONTHS 3 MONTHS 3 MONTHS 3 MONTHS ENDED ENDED ENDED ENDED ENDED 03/31/2002 12/31/2001 09/30/2001 06/30/2001 03/31/2001 ---------- ---------- ---------- ---------- ---------- DRUG SPENDING Drug spend - PBM $ 4,693,670 $ 4,486,130 $ 3,914,546 $ 3,856,119 $ 3,652,074 Specialty Dist. (SDS) 290,081 251,746 183,299 172,918 166,692 ------------ ------------ ------------ ------------ ----------- Total $ 4,983,751 $ 4,737,876 $ 4,097,845 $ 4,029,037 $ 3,818,766 ============ ============ ============ ============ =========== REVENUE DETAIL PBM revenues (1) $ 2,722,559 $ 2,590,515 $ 2,367,019 $ 2,228,852 $ 2,068,128 (2) Non-PBM revenues 26,510 19,132 14,233 18,491 22,412 ------------ ------------ ------------ ------------ ----------- Total revenues $ 2,749,069 $ 2,609,647 $ 2,381,252 $ 2,247,343 $ 2,090,540 ============ ============ ============ ============ =========== PER CLAIM Network revenue/claim $ 23.95 $ 23.40 $ 24 $ 22.46 $ 20.70 Mail revenue/claim $ 130.91 $ 123.75 $ 122.37 $ 126.06 $ 124.65 CLAIMS DETAIL Network 80,112 79,967 70,373 71,311 72,345 SDS 666 581 500 436 371 Mail 6,039 5,714 5,404 4,879 4,496 ------------ ------------ ------------ ------------ ----------- Total claims 86,817 86,262 76,277 76,626 77,212 ============ ============ ============ ============ =========== Adjusted claims (3) 98,895 97,690 87,085 86,384 86,204 ============ ============ ============ ============ =========== MARGIN ANALYSIS Gross profit margin (5) 5.8% 6.0% 6.1% 6.7% 6.9% (4) EBITDA margin (5) 3.4% 3.3% 3.4% 3.4% 3.5% (4) PER ADJUSTED CLAIM Drug spend $ 50.39 $ 48.50 $ 47.06 $ 46.64 $ 44.30 Gross profit (5) $ 1.62 $ 1.60 $ 1.66 $ 1.74 $ 1.68 EBITDA (5) $ 0.94 $ 0.87 $ 0.93 $ 0.89 $ 0.86 SEE NOTES TO UNAUDITED OPERATING STATISTICS SELECTED RATIO ANALYSIS TABLE 2 AS OF AS OF AS OF AS OF AS OF 03/31/2002 12/31/2001 09/30/2001 06/30/2000 03/31/2001 ---------- ---------- ---------- ---------- ---------- Debt to EBITDA ratio (5) 1.0x 1.1x 1.1x 1.4x 1.4x Interest coverage ratio 10.2x 9.3x 8.4x 7.5x 6.6x Debt to enterprise value 7.2% 8.7% 7.4% 8.4% 10.5% Debt to capitalization 28.3% 29.4% 29.8% 33.3% 34.5%
EXPRESS SCRIPTS, INC. Notes UNAUDITED OPERATING STATISTICS (excludes non-recurring items) General: Certain reclassifications have been made to prior years and prior quarter's financial statements to conform with the current quarter's presentation (1) Our PBM revenues generally include administrative fees, dispensing fees and ingredient costs of pharmaceuticals dispensed from retail pharmacies included in one of our networks or from one of our mail pharmacies, and the associated costs are recorded in cost of revenues (the Gross Basis). Where we only administer the contracts between our clients and the clients' retail pharmacy networks we record as revenues only the administrative fee we received from our activities (the Net Basis). (2) This increase primarily reflects the transfer of clients to pharmacy networks managed by us (Gross Basis -- see footnote 1); higher utilization and drug costs; and new membership. (3) Adjusted claims represent network claims plus mail claims, which are multiplied by 3, as mail claims are typically 90 day scripts and network claims are generally 30 day scripts. (4) Margin analysis is not indicative of profitability -- margins are greatly impacted by the transfer of clients to pharmacy networks managed by us (Gross Basis) from the clients' network (Net Basis). When we process claims for a client's pharmacy network, all we record as revenue is an administrative fee (Net Basis). When a client is transferred to one of our networks, we charge the administrative fee and a fee for managing the pharmacy network. In addition, we gross up revenues and cost of revenues to include the ingredient cost (Gross Basis). Thus, while the margin percentage appears to decline because revenues are grossed up for the ingredient cost, our actual profit per claim and net income improves due to the fee we receive for managing the pharmacy network. (5) Excludes non-recurring items in the first quarter of 2002. -----END PRIVACY-ENHANCED MESSAGE-----