-----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, FAsKwh+cJ0+b4WAXvaqqjn/RTUcdeqjkzZkfT7uXXLSiXS9cJ6RBDFyCheCfnYDn oPs1PC8cqJixrgQPiHZvbg== 0000885721-02-000022.txt : 20020726 0000885721-02-000022.hdr.sgml : 20020726 20020726122210 ACCESSION NUMBER: 0000885721-02-000022 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020630 ITEM INFORMATION: Financial statements and exhibits ITEM INFORMATION: Change in fiscal year ITEM INFORMATION: FILED AS OF DATE: 20020726 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: 1202 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-20199 FILM NUMBER: 02711734 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 q28k02.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: July 26, 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 July 24, 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 July 24, 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 July 24, 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: July 26, 2002 By: /s/ Barrett A.Toan ----------------------------------------- Barrett A. Toan Chairman and Chief Executive Officer EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 99.1 Press release, dated July 24, 2002 99.2 Unaudited Financial Information, dated July 24, 2002 EX-99 3 prq202.txt PRESS RELEASE 2ND QTR 2002 EARNINGS 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 RECORD SECOND QUARTER EARNINGS BOARD EXPANDS STOCK REPURCHASE PROGRAM ST. LOUIS, JULY 24, 2002--Express Scripts, Inc. (Nasdaq: ESRX) announced second quarter net income of $48.7 million, or 61 cents per diluted share, an increase of 33 percent over the same quarter of 2001, excluding the amortization of goodwill. Express Scripts generated $170.7 million of cash flow from operations in the second quarter compared with $45.5 million in the same quarter last year. During the quarter, the company repurchased 400,000 shares of common stock for $22.3 million and repaid $65.0 million of debt. The Board of Directors authorized an increase in the company's previously announced stock repurchase program from 6.5 million shares to 10.0 million shares. Since the inception of the program, the company has repurchased approximately 4.4 million shares of its common stock. "We celebrated our tenth year anniversary as a public company in June by opening the trading at the Nasdaq MarketSite," stated Barrett Toan, chairman and chief executive officer. "While we are proud of our excellent ten-year track record of growth, we remain focused on making prescription drugs more affordable. Accomplishing our mission translates into value for health plan sponsors and their members. With this strong quarter behind us and the addition of NPA's clients and members, Express Scripts reaffirms its outlook for continued strong growth." NATIONAL PRESCRIPTION ADMINISTRATORS, INC. (NPA) ACQUISITION DELIVERING BENEFITS The acquisition of NPA was completed on April 12, 2002, and is providing immediate benefits. Express Scripts has rationalized the sales force, begun consolidating back-office administrative functions and started the initial planning to integrate operating platforms. "We are pleased by the expertise of NPA's staff and their values and commitment to outstanding service," added Toan. "NPA has developed a leading position serving labor organizations and the government sector, and we believe we are well-positioned for future growth in these important market segments. In addition, NPA helps solidify our market position in the northeast." An example of a new business win in the northeast is Group Health Incorporated ("GHI"), which recently announced it had selected Express Scripts to provide retail and mail pharmacy services to approximately 315,000 of its members under a five-year contract. The contract with GHI, a not-for-profit insurer servicing clients in the State of New York, will commence January 1, 2003. Express Scripts will use advanced clinical and financial modeling and consultative services to help GHI and its members manage the dynamics of the pharmacy benefit. STRONG OPERATING RESULTS Revenues for the second quarter of 2002 were $3.4 billion, a 51 percent increase over $2.2 billion for the same quarter last year. This year-to-year increase is due primarily to the acquisition of NPA, increased membership and member utilization, and higher average drug cost per prescription. Mail pharmacy prescriptions increased to 7.0 million during the second quarter of 2002, a 43 percent increase compared with the same quarter last year. In addition, specialty distribution claims in the second quarter increased to 0.8 million, a 74 percent increase over last year's second quarter. Network pharmacy claims processed in the second quarter were 91.6 million, a 28 percent increase over the second quarter of 2001. Increased mail penetration and higher levels of generic utilization have had a positive impact on the profitability per claim. EBITDA per adjusted claim was $1.01 for the second quarter of 2002, a 7 percent increase over the first quarter of 2002 and 13 percent over the second quarter of 2001. INCREASED EARNINGS GUIDANCE Due to continued sales growth and strong business fundamentals, Express Scripts believes its 2002 diluted earnings per share will be between $2.43 and $2.45. The company also believes it can grow 2003 earnings in the 25 percent range. SPECIALTY DISTRIBUTION EXPANDS INTO NEW MARKET Express Scripts was selected by medical device manufacturer Deltec, Inc. to manage the launch of Deltec's new insulin pump later in 2002. The company's Specialty Distribution Services ("SDS") subsidiary will initially provide clinical support for physicians and patients. After product launch, SDS will expand its services to include comprehensive administrative support, including product distribution, billing and gathering of clinical, insurance and referral information. SYSTEM INTEGRATION ON TRACK Consolidating and streamlining computer systems from acquisitions is an important part of the integration process. Express Scripts eliminated three claims processing platforms in previous years, and at the end of June transferred the next-to-last tier of clients from its remaining legacy system to the company's Anchor adjudication platform. The remaining tier of clients is scheduled to be transferred later this summer. As previously mentioned, the company has started the initial planning to integrate NPA's operating platform. "To our knowledge, what we have completed is the largest system integration ever attempted by a pharmacy benefit manager," noted Toan. "Our focus and commitment to deliver service excellence was demonstrated by individuals and teams from nearly every department across the organization in moving clients to the Express Scripts' Anchor system with minimal impact." OUTCOMES CONFERENCE DEMONSTRATES THOUGHT LEADERSHIP The company's sixth annual DRUG TREND report, one of the most thorough analyses of U.S. drug patterns and costs, was released during the second quarter at the company's 2002 Outcomes Conference. For the past 6 years, Express Scripts' Outcomes Conference has presented the most advanced thinking in pharmacy benefit management - examining drug trend to understand more completely its dynamics and its implications, probing public policy issues that impact consumers and plan sponsors nationwide, and identifying the signposts that should direct the company's course for the future. "Express Scripts is committed to providing the best insight into the dynamics underlying prescription drug cost trends," noted Toan. "The Outcomes Conference and DRUG TREND report provide an exceptional opportunity for all stakeholders in the pharmacy benefit to explore industry trends, the challenges they present and potential solutions for making high quality medications both accessible and affordable." From an investor point of view, Express Scripts believes that DRUG TREND report indicates its commitment to providing an objective, comprehensive description of the market in which PBMs operate and a useful forecast of this environment. "We believe that few companies in America have attempted to describe their marketplace as Express Scripts has done," added Toan. "Investors are provided the size, trends and factors influencing the pharmacy market. By publishing DRUG TREND report annually, investors can get up-to-date understanding of our marketplace." Express Scripts, Inc. is one of the largest pharmacy benefit management (PBM) companies in North America providing 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 and sampling services through its Phoenix Marketing Group 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 Marketing Group (Holdings), Inc. 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 lower prices, enhanced service offerings and/or higher service levels, and the possible termination of, or unfavorable modification to, contracts with key clients or providers o competition in the PBM industry, 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 risks arising from investigations of certain PBM practices and pharmaceutical pricing, marketing and distribution practices currently being conducted by the U.S. Attorney offices in Philadelphia and Boston o the possible loss, or adverse modification of the terms, of our relationships with pharmaceutical manufacturers, or changes in pricing, discount or other practices of pharmaceutical manufacturers o adverse results in litigation, including a pending case which purports to be a class action, challenging Express Scripts' business practices under the Employee Retirement Income Security Act (ERISA) o risks associated with the use and protection of the intellectual property we use in our business 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 risks associated with our our inability to attract and retain qualified personnel 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, INC. UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS (in thousands, except per share data)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------------------------------------------ 2002 2001 2002 2001 ----------------------------------------------------------- Revenues $ 3,402,638 $ 2,247,343 $ 6,151,707 $ 4,337,883 Cost of revenues 3,190,534 2,097,059 5,764,946 4,042,700 --------- --------- --------- --------- Gross profit (1) 212,104 150,284 386,761 295,183 Selling, general and administrative (1) 121,311 92,590 217,698 182,388 --------- --------- --------- --------- Operating income 90,793 57,694 169,063 112,795 --------- --------- --------- --------- Other (expense) income : Undistributed loss from joint venture (1,033) (658) (2,070) (658) Interest income 1,319 2,274 2,379 3,684 Interest expense (11,654) (8,629) (19,782) (17,773) --------- --------- --------- --------- (11,368) (7,013) (19,473) (14,747) --------- --------- --------- --------- Income before income taxes 79,425 50,681 149,590 98,048 Provision for income taxes 30,725 20,437 56,921 39,725 --------- --------- --------- --------- Net income $ 48,700 $ 30,244 $ 92,669 $ 58,323 ========= ========= ========= ========= Basic earnings per share (2): $ 0.62 $ 0.39 $ 1.19 $ 0.75 ========= ========= ========= ========= Weighted average number of common shares outstanding during the period - basic (2) 78,367 78,010 78,029 77,777 ========= ========= ========= ========= Diluted earnings per share (2) $ 0.61 $ 0.38 $ 1.16 $ 0.73 ========= ========= ========= ========= Weighted average number of common shares outstanding during the period - diluted (2) 80,277 80,128 79,941 79,909 ========= ========= ========= ========= Reconciliation of prior year under FAS 142 Goodwill amortization, net of tax $ 6,571 $ 13,082 Net income $ 36,815 $ 71,405 Net income per share: Basic $ 0.47 $ 0.92 Diluted $ 0.46 $ 0.89 EBITDA (3) $ 114,773 $ 76,893 $ 222,338 $ 150,995 ========= ========= ========= ========= SEE NOTES TO UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
EXPRESS SCRIPTS, INC. NOTES TO UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS (in thousands) General: Certain reclassifications have been made to prior years financial statements to conform with the current quarter's presentation. (1) Includes depreciation and amortization expense of: 3 MONTHS ENDED 6 MONTHS ENDED JUNE 30, JUNE 30, -------------------------------------------- 2002 2001 2002 2001 -------- -------- -------- -------- Gross profit $ 9,647 $ 3,691 $16,972 $ 7,051 Selling, general and administrative $14,333 $15,508 $36,303 $31,149 (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. EXPRESS SCRIPTS, INC. UNAUDITED CONSOLIDATED BALANCE SHEET (in thousands) JUNE 30, DECEMBER 31, 2002 2001 ----------- ----------- ASSETS Current assets Cash and cash equivalents $ 167,548 $ 177,715 Receivables, net 1,032,390 883,827 Inventories 131,053 122,375 Other current assets 81,488 29,286 ----------- ----------- Total current assets 1,412,479 1,213,203 Property and equipment, net 155,778 165,263 Goodwill, net 1,358,385 942,280 Other intangible assets, net 251,031 165,349 Other assets 18,043 14,150 ----------- ----------- Total assets $ 3,195,716 $ 2,500,245 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Claims and rebate payable $ 1,060,999 $ 910,360 Other current liabilities 407,222 335,257 ----------- ----------- Total current liabilities 1,468,221 1,245,617 Long-term debt 705,962 346,119 Other long-term liabilities 78,106 76,512 ----------- ----------- Total liabilities 2,252,289 1,668,248 Total stockholders' equity 943,427 831,997 ----------- ----------- Total liabilities and stockholders' equity $ 3,195,716 $ 2,500,245 =========== =========== EXPRESS SCRIPTS, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) 6 MONTHS ENDED JUNE 30, -------------------------- 2002 2001 ---------- ---------- Cash flow from operating activities: Net income $ 92,669 $ 58,323 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 53,275 38,200 Other 49,570 (979) ---------- ---------- Net cash provided by operating activities: 195,514 95,544 ---------- ---------- Cash flows from investing and financing activities: Purchases of property and equipment (23,001) (18,963) Acquisitions and joint venture (520,940) (18,499) Treasury stock acquired (35,904) - Repayment of long-term debt (65,000) - Proceeds from long-term debt 425,000 - Other 14,164 9,657 ---------- ---------- Net cash used in investing and financing activities (205,681) (27,805) ---------- ---------- Net (decrease) increase in cash and cash equivalents (10,167) 67,739 Cash and cash equivalents at beginning of period 177,715 53,204 ---------- ---------- Cash and cash equivalents at end of period $ 167,548 $ 120,943 ========== ========== EX-99 4 fin-q202.txt FINANCIALS 2ND QTR, 2002 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 06/30/2002 03/31/2002 12/31/2001 09/30/2001 06/30/2001 ---------- ---------- ---------- ---------- ---------- DRUG SPENDING PBM $ 5,633,480 $ 4,693,670 $ 4,486,130 $ 3,914,546 $ 3,856,119 Specialty Dist. (SDS) 328,938 290,081 251,746 183,299 172,918 ---------- ----------- ----------- ----------- ----------- Total $ 5,962,418 $ 4,983,751 $ 4,737,876 $ 4,097,845 $ 4,029,037 ========== =========== =========== =========== =========== REVENUE DETAIL PBM revenues (1) $ 3,360,382 $ 2,720,200 $ 2,590,515 $ 2,367,019 $ 2,228,852 (2) Non-PBM revenues 42,256 28,869 19,132 14,233 18,491 ---------- ----------- ----------- ----------- ----------- Total revenues $ 3,402,638 $ 2,749,069 $ 2,609,647 $ 2,381,252 $ 2,247,343 ========== =========== =========== =========== =========== PER CLAIM Network revenue/claim $ 26.05 $ 23.95 $ 23.40 $ 24.01 $ 22.46 Mail revenue/claim $ 137.87 $ 130.91 $ 123.75 $ 122.37 $ 126.06 CLAIMS DETAIL Network 91,610 80,112 79,967 70,373 71,311 SDS 759 666 581 500 436 Mail 6,967 6,039 5,714 5,404 4,879 ------ ------ ------ ------ ------ Total claims 99,336 86,817 86,262 76,277 76,626 ======= ======= ======= ======= ======= Adjusted claims (3) 113,270 98,895 97,690 87,085 86,384 ======= ======= ======= ======= ======= MARGIN ANALYSIS Gross profit margin 6.2% 5.8% 6.0% 6.1% 6.7% (4) EBITDA margin 3.4% 3.4% 3.3% 3.4% 3.4% (4) PER ADJUSTED CLAIM Drug spend $ 52.64 $ 50.39 $ 48.50 $ 47.06 $ 46.64 Gross profit $ 1.87 $ 1.62 $ 1.60 $ 1.66 $ 1.74 EBITDA $ 1.01 $ 0.94 $ 0.87 $ 0.93 $ 0.89
SEE NOTES TO UNAUDITED OPERATING STATISTICS SELECTED RATIO ANALYSIS TABLE 2
AS OF AS OF AS OF AS OF AS OF 06/30/2002 03/31/2002 12/31/2001 09/30/2001 06/30/2000 ---------- ---------- ---------- ---------- ---------- Debt to EBITDA ratio (1) 1.8x 1.0x 1.1x 1.1x 1.4x Interest coverage ratio (1) 10.7x 10.2x 9.3x 8.4x 7.5x Debt to enterprise value 15.2% 7.2% 8.7% 7.4% 8.4% Debt to capitalization 42.8% 28.3% 29.4% 29.8% 33.3%
(1) Uses financial information for the twelve months ended 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 NPA acquisition, increased membership and member utilization, higher average drug costs per prescription and the transfer of clients to pharmacy networks managed by us (Gross Basis -- see footnote 1). (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. -----END PRIVACY-ENHANCED MESSAGE-----