8-K

UNITED STATES

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 (Date of earliest event reported): October 26, 2005

EXPRESS SCRIPTS, INC.

(Exact Name of Registrant as Specified in its Charter)

DELAWARE	0-20199	43-1420563
(State or Other Jurisdiction of Incorporation or Organization	(Commission File Number)	(I.R.S. Employer Identification No.)

13900 Riverport Drive, Maryland Heights, MO (Address of Principal Executive Offices) 63043 (Zip Code)

Registrant’s telephone number including area code: 314-770-1666

No change since last report

(Former Name or Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition and Item 7.01 Regulation FD Disclosure.

The information contained in this Current Report on Form 8-K, including the accompanying Exhibit 99.1, is being furnished pursuant to Item 2.02 and Item 7.01 of Form 8-K and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section. The information contained in this Current Report on Form 8-K, including the accompanying Exhibit 99.1, shall not be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof, except as shall be expressly set forth by specific reference in such a filing.

On October 26, 2005 Express Scripts, Inc. (the “Company”) issued a press release with respect to its results of operations for the third quarter of 2005. The press release is attached hereto as Exhibit 99.1 and incorporated herein by reference.

Item 9.01.Financial Statements and Exhibits

(c)The following Exhibits are filed as part of this report on Form 8-K:

Exhibit 99.1 Press Release, dated October 26, 2005.

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 thereunto duly authorized.

	EXPRESS SCRIPTS, INC.
Date: October 26, 2005	By:      /s/ George Paz                                          George Paz President and Chief Executive Officer

EXHIBIT INDEX

Exhibit No.	Description
99.1	Press release, dated October 26, 2005

EX-99.1

Exhibit 99.1

Contact:

Edward Stiften, Chief Financial Officer

David Myers, Vice President Investor Relations 

(314) 702-7173

investor.relations@express-scripts.com

Express Scripts Reports Record Third Quarter Earnings

Earnings Guidance Increased for 2005

ST. LOUIS, October 26, 2005—Express Scripts, Inc.  (Nasdaq: ESRX) announced third quarter net income of $101.7 million, or $0.68 per diluted share, compared to $0.40 per diluted share reported for the same quarter last year.  Excluding non-recurring items in both quarters that are discussed below, diluted earnings per share in the third quarter was $0.67, a 34 percent increase over $0.50 per diluted share last year.  All per share amounts have been adjusted to reflect the Company’s 2-for-1 stock split, which was effective June 24, 2005.

The Company generated cash flow from operations of $214.7 million in the third quarter compared to $150.0 million last year.  During the quarter, the Company repurchased 4.0 million shares of common stock for $219.9 million.  To date, the Company has repurchased 29.9 million shares under its 38 million authorized share repurchase program.

“We enjoyed another very strong quarter, reporting record levels of earnings and cash flow,” stated George Paz, president and chief executive officer.  “Our performance was driven by increases in generic utilization and home delivery, including specialty injectables, and lower drug purchasing costs.  These outstanding results reflect the success of our business model, which is built around alignment - the more we are successful in helping our clients and patients save on prescription drugs, the better we perform.  I am pleased by the efforts of our nearly 13,000 employees who work hard everyday to make the use of prescription drugs safer and more affordable.”

Strong Third Quarter Operating Results

Revenues for the third quarter of 2005 were $3.8 billion, a 2% increase over the third quarter of 2004.  The use of lower-cost generic drugs reached approximately 55 percent of total prescriptions in the third quarter compared to 51 percent for the same period last year.  

Retail network claims processed in the third quarter were 105.6 million, an increase of 4 percent over the 101.8 million processed last year.  Revenues from the home delivery of specialty drugs increased 46 percent to $274.7 million in the third quarter from $187.6 million last year by continuing to capture an increased share of the specialty drug spend in the Express Scripts’ book of business.  “The acquisition of Priority Healthcare, which closed on October 14^th, will deliver a number of strategic benefits including enhancing our size, scale and service offering to provide greater affordability of specialty drug therapy for our clients and patients,” added Paz.  Overall, home delivery prescriptions increased 2 percent to 10.2 million during the quarter from 10.0 million last year.  Total adjusted claims were 137.4 million, a 4 percent increase over last year.

Gross profit for the third quarter increased 25 percent to a record $293.2 million from $235.4 million last year.  The increase reflects lower retail and home delivery drug purchasing costs, higher generic utilization, increased management of specialty drugs, and the growth in home delivery and retail prescriptions.  These increases were partially offset by costs incurred to open a new patient contact center in Pueblo, Colorado.  Gross profit per adjusted claim set a record at $2.13, a 20 percent increase over $1.77 for the same quarter last year.

Selling, general and administrative (“SG&A”) expenses for the quarter were $132.1 million compared to $130.8 million last year.  Last year's SG&A included a non-recurring charge of $25.0 million ($15.4 million net of tax), or $0.10 per diluted share to increase reserves for legal defense costs.  The increase in SG&A expenses, excluding this charge last year, is primarily due to higher management incentive compensation, which is based on corporate financial results, expenses incurred in preparing for Medicare Part D, and increased legal and other professional fees.

Operating income for the quarter increased 24 percent to a record $161.1 million from $129.6 million on an adjusted basis for the third quarter of 2004, while EBITDA increased 23 percent to a record $181.5 million from $147.3 million on an adjusted basis last year.  EBITDA per adjusted claim also set a record at $1.32, a 19 percent increase over $1.11 on an adjusted basis in the third quarter of 2004.

In the third quarter of 2005, the Company recorded a non-recurring tax benefit of $1.5 million resulting primarily from the recognition of the expected state tax benefits associated with subsidiaries' net operating losses generated in prior years.

2005 Earnings Guidance

Express Scripts expects that its financial performance will continue to benefit from growth in generic utilization and home delivery, including specialty pharmacy, lower retail and home delivery drug purchasing costs, increased productivity and other cost management initiatives, and capital structure improvements.  The Company expects to incur spending in the fourth quarter to complete the new patient care contact center in Pueblo, Colorado, and for costs to prepare for Medicare Part D and other long-term initiatives.

During the first nine months of 2005, the Company recorded non-recurring non-cash tax-related benefits of $14.0 million, or $0.09 per diluted share, which includes the $1.5 million tax benefit in the third quarter discussed above.  The Company will record a charge of $0.01 per diluted share in the fourth quarter to write-off deferred financing fees due to the refinancing of the Company’s credit facility in conjunction with the acquisition of Priority Healthcare.  These non-recurring items in 2005 result in a net benefit of $0.08 per diluted share.

Express Scripts believes that its 2005 reported diluted earnings per share will be in the range of $2.62 to $2.69, including the $0.08 of net non-recurring benefits discussed above, or in the range of $2.54 to $2.61 if the $0.08 of net non-recurring benefits are excluded.   Due to the strong year-to-date cash flow and continued focus on capital management, Express Scripts expects that cash flow from operations for 2005 will be in the range of $625 million to $675 million. 

Aetna Inc.  provided notice of its election to exercise its purchase option for Priority Healthcare's 60% ownership share of Aetna Specialty Pharmacy, LLC.  The transaction is subject to the satisfaction of certain contractual requirements and to the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act.  The early termination of the joint venture will not have a material effect on the Company's net income for 2006.

Express Scripts will provide 2006 earnings guidance in a separate release by mid to late November.

Express Scripts, Inc. is one of the largest PBM companies in North America, providing PBM services to over 50 million members.  Express Scripts serves thousands of client groups, including managed-care organizations, insurance carriers, employers, third-party administrators, public sector, and union-sponsored benefit plans.

Express Scripts provides integrated PBM services, including network-pharmacy claims processing, home delivery services, benefit-design consultation, drug-utilization review, formulary management, disease management, and medical- and drug-data analysis services.  The Company also distributes a full range of injectable and infusion biopharmaceutical products directly to patients or their physicians, and provides extensive cost-management and patient-care services.

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:

• risks of integration of Priority Healthcare and CuraScript after closing

• costs of andadverse results in litigation, including a number of pending class action cases that challenge certain of our business practices

• 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, and by other regulatory agencies including the Department of Labor, and various state attorneys general

• risks anduncertainties regarding the implementation and the ultimate terms of the Medicare Part D prescription drug benefit, including financial risks to us if we participate in the program on a risk-bearing basis and risks of client or member losses to other providers under Medicare Part D

• risks associated with our acquisitions (including our acquisition of Priority Healthcare), which include integration risks and costs, risks of client retention and repricing of client contracts, and risks associated with the operations of acquired businesses

• risks associated with our ability to maintain growth rates, or to control operating or capital costs

• 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

• 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

• adverse results in regulatory matters, the adoption of new legislation or regulations (including increased costs associated with compliance with new laws and regulations), more aggressive enforcement of existing legislation or regulations, or a change in the interpretation of existing legislation or regulations

• increased compliance risks relating to our contracts with the DoD TRICARE Plan and various state governments and agencies

• the possible loss, or adverse modification of the terms, of relationships with pharmaceutical manufacturers, or changes in pricing, discount or other practices of pharmaceutical manufacturers

• risks associated with the possible loss, or adverse modification of the terms of, contracts with pharmacies in our retail pharmacy network

• risks associated with the use and protection of the intellectual property we use in our business

• risks associated with our leverage and debt service obligations, including the effect of certain covenants in our borrowing agreements

• risks associated with our ability to continue to develop new products, services and delivery channels

• 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

• increase in credit risk relative to our clients due to adverse economic trends

• risks associated with changes in average wholesale prices, which could reduce prices and margins

• risks associated with our inability to attract and retain qualified personnel

• other risks described from time to time in our filings with the SEC

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
	Three months ended September 30,						Nine months ended September 30,
(in thousands, except per share data)	2005			2004			2005			2004
Revenues (1)	$	3,847,642		$	3,767,690		$	11,631,018		$	11,175,010
Cost of revenues (1)		3,554,442			3,532,280			10,796,107			10,494,291
Gross profit		293,200			235,410			834,911			680,719
Selling, general and administrative		132,067			130,806			387,051			322,773
Operating income		161,133			104,604			447,860			357,946
Other (expense) income :
Undistributed loss from joint venture		(633	)		(954	)		(1,928	)		(3,754	)
Interest income		3,506			867			7,558			2,492
Interest expense		(5,102	)		(4,248	)		(14,532	)		(37,118	)
		(2,229	)		(4,335	)		(8,902	)		(38,380	)
Income before income taxes		158,904			100,269			438,958			319,566
Provision for income taxes		57,210			38,352			149,988			122,266
Net income	$	101,694		$	61,917		$	288,970		$	197,300
Basic earnings per share	$	0.70		$	0.41		$	1.96		$	1.28
Weighted average number of common shares
outstanding during the period - Basic EPS		146,312			152,252			147,285			153,804
Diluted earnings per share	$	0.68		$	0.40		$	1.93		$	1.26
Weighted average number of common shares
outstanding during the period – Diluted EPS		148,858			154,354			149,651			156,142
(1) Excludes estimated retail pharmacy co-payments of $1,413,332 and $1,363,991 for the three months ended September 30, 2005 and 2004, respectively, and $4,357,212 and $4,148,590 for the nine months ended September 30, 2005 and 2004, respectively.  These are amounts we instructed retail pharmacies to collect from members.  We have no information regarding actual co-payments collected.

EXPRESS SCRIPTS, INC. Unaudited Consolidated Balance Sheet
	September 30,			December 31,
(in thousands, except share data)	2005			2004
Assets
Current assets:
Cash and cash equivalents	$	405,027		$	166,054
Receivables, net		1,002,422			1,057,222
Inventories		144,027			158,775
Deferred taxes		41,185			33,074
Prepaid expenses and other current assets		23,870			27,892
Total current assets		1,616,531			1,443,017
Property and equipment, net		169,421			181,166
Goodwill, net		1,708,332			1,708,935
Other intangible assets, net		222,953			245,270
Other assets		25,954			21,698
Total assets	$	3,743,191		$	3,600,086
Liabilities and Stockholders' Equity
Current liabilities:
Claims and rebate payable	$	1,246,891		$	1,236,775
Accounts payable		350,343			322,885
Accrued expenses		255,417			231,695
Current maturities of long-term debt		22,056			22,056
Total current liabilities		1,874,707			1,813,411
Long-term debt		345,451			412,057
Other liabilities		189,889			178,304
Total liabilities		2,410,047			2,403,772
Stockholders' equity:
Preferred stock, $0.01 par value per share, 5,000,000 shares authorized,
and no shares issued and outstanding		-			-
Common stock, 275,000,000 shares authorized, $0.01 par value;
shares issued: 159,479,000 and 79,787,000, respectively;
shares outstanding: 145,634,000 and 73,858,000, respectively		1,595			798
Additional paid-in capital		465,722			467,353
Unearned compensation under employee compensation plans		(7,806	)		(18,177	)
Accumulated other comprehensive income		9,785			8,266
Retained earnings		1,431,727			1,142,757
		1,901,023			1,600,997
Common Stock in treasury at cost, 13,845,000 and
5,929,000 shares, respectively		(567,879	)		(404,683	)
Total stockholders' equity		1,333,144			1,196,314
Total liabilities and stockholders' equity	$	3,743,191		$	3,600,086

EXPRESS SCRIPTS, INC. Unaudited Condensed Consolidated Statement of Cash Flows
	Nine months ended September 30,
(in thousands)	2005			2004
Cash flow from operating activities:
Net income	$	288,970		$	197,300
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization		59,625			50,477
Non-cash adjustments to net income		55,902			57,081
Net changes in operating assets and liabilities		126,565			(1,582	)
Net cash provided by operating activities		531,062			303,276
Cash flows from investing activities:
Purchases of property and equipment		(34,211	)		(33,387	)
Acquisitions, net of cash acquired, and
investment in joint venture		(2,150	)		(331,136	)
Loan repayment from (loan to) Pharmacy Care Alliance		2,188			(14,050	)
Other		(294	)		103
Net cash used in investing activities		(34,467	)		(378,470	)
Cash flows from financing activities:
Proceeds from long-term debt		-			675,564
Repayment of long-term debt		(16,556	)		(740,455	)
(Repayments of) Proceeds from revolving credit line, net		(50,000	)		50,000
Treasury stock acquired		(219,949	)		(160,286	)
Deferred financing fees		-			(6,036	)
Net proceeds from employee stock plans		28,531			21,256
Net cash used in financing activities		(257,974	)		(159,957	)
Effect of foreign currency translation adjustment		352			272
Net increase (decrease) in cash and cash equivalents		238,973			(234,879	)
Cash and cash equivalents at beginning of period		166,054			396,040
Cash and cash equivalents at end of period	$	405,027		$	161,161

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
	9/30/2005		6/30/2005		3/31/2005		12/31/2004		9/30/2004
Claims Detail
Network (1)		105,606		109,488		111,167		107,726		101,784
Home delivery		10,188		10,273		9,978		10,090		9,972
Total PBM claims		115,794		119,761		121,145		117,816		111,756
Non-PBM claims (2)		1,237		1,005		947		955		929
Total claims		117,031		120,766		122,092		118,771		112,685
Adjusted claims (3)		137,407		141,312		142,048		138,951		132,629
Per Adjusted Claim
Gross profit	$	2.13	$	1.96	$	1.87	$	1.90	$	1.77
EBITDA (4)	$	1.32	$	1.19	$	1.11	$	1.11	$	1.11	(5	)

Selected Ratio Analysis Table 2
	As of	As of	As of	As of	As of
	9/30/2005	6/30/2005	3/31/2005	12/31/2004	9/30/2004
Debt to EBITDA ratio (6)	0.6x	0.6x	0.7x	0.8x	0.8x
EBITDA interest coverage (7)	34.7x	33.0x	17.2x	13.5x	11.9x
Operating cash flow interest coverage (8)	37.9x	36.2x	16.0x	11.9x	10.6x
Debt to capitalization (9)	21.6%	20.8%	22.5%	26.6%	25.7%
See Notes to Unaudited Operating Statistics and Selected Ratio Analysis

Reconciliation of EBITDA (4) to Adjusted EBITDA Table 3			Reconciliation of Operating Income to Adjusted Operating Income Table 4
	3 months			3 months
	ended			ended
	9/30/2004			9/30/2004
EBITDA(4)	$	122,256	Operating Income	$	104,604
Add: charge for legal defense costs		25,000	Add: charge for legal defense costs		25,000
Adjusted EBITDA	$	147,256	Adjusted Operating Income	$	129,604
The Company uses adjusted EBITDA and adjusted Operating Income to provide a better understanding of the underlying financial performance and to improve the comparability of current performance with prior periods.  See note (4) regarding the Company's use of EBITDA.

Unaudited Earnings Excluding Non-recurring Items Table 5 (in thousands, except per share data)
	3 months		3 months			9 months		9 months
	ended		ended			ended		ended
	9/30/2005		9/30/2004			9/30/2005		9/30/2004
Reported income before taxes	$	158,904	$	100,269		$	438,958	$	319,566
Charge for early retirement of debt		-		-			-		12,300
Charge for early retirement of debt		-		-			-		3,600
Termination payment received		-		-			-		(5,500	)
Charge for legal defense costs		-		25,000			-		25,000
Income before tax excluding net charges		158,904		125,269			438,958		354,966
Provision for income taxes		57,210		47,914			149,988		135,810
Tax benefit from subsidiary losses		1,520		-			3,820		-
Prior periods' tax benefit from state tax planning strategies		-		-			10,200		-
Adjusted provision for income taxes		58,730		47,914			164,008		135,810
Net income	$	100,174	$	77,355		$	274,950	$	219,156
Weighted average number of shares
outstanding during period - diluted		148,858		154,354			149,651		156,142
Diluted earnings per share excluding
net charges	$	0.67	$	0.50		$	1.84	$	1.40
Diluted earnings per share as reported	$	0.68	$	0.40		$	1.93	$	1.26
Impact of non-recurring items	$	0.01	$	(0.10	)	$	0.09	$	(0.14	)
The Company is providing diluted earnings per share excluding the impact of certain charges in order to compare the underlying financial performance to prior periods.

EXPRESS SCRIPTS, INC.

Notes to Unaudited Operating Statistics and Selected Ratio Analysis

(in thousands)

(1)  Network claims exclude drug formulary only claims where we only administer the clients formulary and approximately 0.5 million manual claims per quarter.

(2)  Non-PBM claims represent the distribution of pharmaceuticals through Patient Assistance Programs and the distribution of pharmaceuticals where we have been selected by the pharmaceutical manufacturer as part of a limited distribution network.

(3)  Adjusted claims represent network claims and specialty distribution claims plus mail claims, which are multiplied by 3, as mail claims are typically 90 day claims and network claims are generally 30 day claims.

(4)  The following is a reconciliation of EBITDA to net income and to net cash provided by operating activities as the Company believes they are the most directly comparable measures calculated under Generally Accepted Accounting Principles:

	3 months ended September 30,						9 months ended September 30,
	2005			2004			2005			2004
Net income	$	101,694		$	61,917		$	288,970		$	197,300
Income taxes		57,210			38,352			149,988			122,266
Depreciation and amortization *		20,322			17,652			59,625			50,477
Interest expense, net		1,596			3,381			6,974			34,626
Undistributed loss from joint venture		633			954			1,928			3,754
EBITDA		181,455			122,256			507,485			408,423
Current income taxes		(53,280	)		(22,928	)		(144,904	)		(91,418	)
Interest expense less amortization		(1,346	)		(3,124	)		(6,225	)		(27,271	)
Undistributed loss from joint venture		(633	)		(954	)		(1,928	)		(3,754	)
Other adjustments to reconcile net income
to net cash provided by operating activities		88,462			54,715			176,634			17,296
Net cash provided by operating activities	$	214,658		$	149,965		$	531,062		$	303,276

EBITDA is earnings before other income (expense), interest, 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 service indebtedness and is frequently used to evaluate a company's performance.  EBITDA, however, should not be considered as an alternative to net income, as a measure of operating performance, as an alternative to cash flow, as a measure of liquidity or as a substitute for any other measure computed in accordance with accounting principles generally accepted in the United States.  In addition, our definition and calculation of EBITDA may not be comparable to that used by other companies.

* Includes depreciation and amortization expense of:
Gross profit	$	9,737	$	7,176	$	26,984	$	20,017
Selling, general and administrative		10,585		10,476		32,641		30,460
	$	20,322	$	17,652	$	59,625	$	50,477

(5) Reflects adjusted EBITDA -- see Table 3.

(6) Represents debt as of the balance sheet date divided by EBITDA for the twelve months ended.

(7) Represents EBITDA for the twelve months ended divided by interest for the twelve months ended.

(8) Represents Operating Cash Flow for the twelve months ended divided by interest for the twelve months ended.

(9) Represents debt divided by the total of debt and stockholders equity.