<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
---------------------- ---------------------
Commission file Number: 0-20199
EXPRESS SCRIPTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 43-1420563
(State of Incorporation) (I.R.S. employer identification no.)
14000 Riverport Dr., Maryland Heights, Missouri 63043
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 770-1666
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report(s), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Common stock outstanding as of April 30, 1996: 7,510,000 Shares Class B
8,706,597 Shares Class A
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<PAGE> 2
EXPRESS SCRIPTS, INC.
INDEX
Page Number
-----------
Part I Financial Information 3
Item 1 Financial Statements
a) Consolidated Balance Sheet 3
b) Consolidated Statement of Operations 5
c) Consolidated Statement of Changes in Stockholders'
Equity 6
d) Consolidated Statement of Cash Flows 7
e) Notes to Consolidated Financial Statements 8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II Other Information
Item 1. Legal Proceedings - (none)
Item 2. Changes in Securities - (none)
Item 3. Defaults Upon Senior Securities - (none)
Item 4. Submission of Matters to a Vote of
Security Holders - (none)
Item 5. Other Materially Important Events - (none)
Item 6. Exhibits 13
Signatures 14
<PAGE> 3
- - -------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION
- - -------------------------------------------------------------------------------
Item 1. Financial Statements
<TABLE>
EXPRESS SCRIPTS, INC.
Consolidated Balance Sheet
(Unaudited)
<CAPTION>
------------ ------------
March 31 December 31
1996 1995
------------ ------------
<S> <C> <C>
(in thousands, except share data)
Assets
Current assets:
Cash and cash equivalents $ 6,903 $ 11,506
Receivables, less allowance for doubtful
accounts of $1,700 and $2,274 respectively
Unrelated Parties 125,773 108,525
Related Parties 12,259 8,447
Inventories 18,120 13,853
Deferred taxes and prepaid expenses 1,727 2,084
------------ ------------
Total current assets 164,782 144,415
Property and equipment, less accumulated
depreciation and amortization 18,553 16,912
Other assets, net 3,526 2,761
------------ ------------
Total assets $186,861 $164,088
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Claims payable $ 74,971 $ 60,915
Accounts payable 12,105 12,963
Accrued expenses 15,528 11,884
------------ ------------
Total current liabilities 102,604 85,762
------------ ------------
Deferred rents and taxes 1,084 947
------------ ------------
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000
shares authorized, and no shares issued and
outstanding
Class A Common Stock, $.01 par value,
30,000,000 shares authorized, 4,546,000 and
4,539,000 shares issued and outstanding,
respectively 45 45
Class B Common Stock, $.01 par value,
22,000,000 shares authorized, 10,500,000 shares
issued and outstanding 105 105
<PAGE> 4
Additional paid-in capital 33,404 33,158
Foreign currency translation adjustments (32)
Retained earnings 49,651 44,071
------------ ------------
Total stockholders' equity 83,173 77,379
------------ ------------
Total liabilities and stockholders' equity $186,861 $164,088
============ ============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 5
<TABLE>
EXPRESS SCRIPTS, INC.
Consolidated Statement of Operations
(Unaudited)
<CAPTION>
Three Months Ended
March 31
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
(in thousands, except per share data)
Net revenues (including $33,312 in 1996
and $25,557 in 1995 from related parties) $168,389 $118,030
------------ ------------
Cost and expenses:
Cost of revenues 148,985 102,220
Selling, general & administrative 10,387 8,983
------------ ------------
159,372 111,203
------------ ------------
Operating income 9,017 6,827
------------ ------------
Other income (expense):
Interest income 235 169
Interest expense (13) (35)
------------ ------------
222 134
------------ ------------
Income before income taxes 9,239 6,961
Provision for income taxes 3,659 2,696
------------ ------------
Net income $ 5,580 $ 4,265
============ ============
Primary earnings per share $ 0.36 $ 0.28
============ ============
Weighted average number of common
shares outstanding during the period 15,483 15,242
============ ============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 6
<TABLE>
EXPRESS SCRIPTS, INC.
Consolidated Statement of Changes in Stockholders' Equity
(Unaudited)
<CAPTION>
Numbers of Shares Amount
---------------------- ----------------------------------------------------------
Foreign
Class A Class B Class A Class B Additional currency
Common Common Common Common paid-in translation Retained
Stock Stock Stock Stock capital adjustments Earnings
---------- ---------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(in thousands)
Balance at December 31,
1995 4,539 10,500 $45 $105 $33,158 $ 0 $44,071
Net income for three
months ended March 31,
1996 5,580
Foreign currency
translation adjustments (32)
Tax benefit relating to
employee stock options 92
Exercise of stock options 7 154
---------- ---------- ---------- ---------- ---------- ----------- ----------
Balance at March 31, 1996 4,546 10,500 $45 $105 $33,404 ($32) $49,651
========== ========== ========== ========== ========== =========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 7
<TABLE>
EXPRESS SCRIPTS, INC.
Consolidated Statement of Cash Flows
(Unaudited)
<CAPTION>
Three Months Ended
March 31
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
(in thousands)
Cash flows from operating activities:
Net income $ 5,580 $ 4,265
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,341 982
Tax benefit relating to employee stock options 92 --
Changes in operating assets and liabilities:
Receivables (21,060) (16,361)
Inventories (4,267) (1,649)
Prepaids expenses and other assets (512) 80
Claims payable 14,056 9,379
Accounts payable and accrued expenses 2,923 4,689
------------ ------------
Net cash provided by (used in) operating activities (1,847) 1,385
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (2,878) (1,893)
------------ ------------
Net cash (used in) investing activities (2,878) (1,893)
------------ ------------
Cash flows from financing activities:
Proceeds from line of credit 3,000
Exercise of stock options 154 350
------------ ------------
Net cash provided by financing activities 154 3,350
------------ ------------
Effect of foreign currency translation adjustments (32) --
------------ ------------
Net increase (decrease) in cash and cash equivalents (4,603) 2,842
Cash and cash equivalents at beginning of period 11,506 5,742
------------ ------------
Cash and cash equivalents at end of period $ 6,903 $ 8,584
============ ============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 8
EXPRESS SCRIPTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1- Summary of Significant Account Policies
- - -----------------------------------------------
Financial statement note disclosures, normally included in financial statements
prepared in conformity with generally accepted accounting principles, have been
omitted in this Form 10-Q pursuant to the Rules and Regulations of the
Securities and Exchange Commission. However, in the opinion of the Company,
the disclosures contained in this Form 10-Q are adequate to make the
information presented not misleading when read in conjunction with the notes to
consolidated financial statements as incorporated by reference in the Company's
Annual Report on Form 10-K for the Year ended December 31, 1995, dated
March 18, 1996, as filed with the Securities and Exchange Commission.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements reflect all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the Consolidated Balance
Sheet at March 31, 1996, the Consolidated Statement of Operations for the three
months ended March 31, 1996, and 1995, the Consolidated Statement of Changes in
Stockholders' Equity for the three months ended March 31, 1996, and the
Consolidated Statement of Cash Flows for the three months ended March 31, 1996,
and 1995.
Note 2 - Primary Earnings per Share
- - -----------------------------------
Primary earnings per share are computed by dividing net income by the weighted
average number of shares of common stock outstanding and common stock
equivalents. Common stock equivalents include shares issuable upon the assumed
exercise of all stock options having an exercise price less than the average
market price of the common stock using the treasury stock method.
Note 3 - Stock Offering
- - -----------------------
On April 16, 1996, the Company completed the issuance of 1,000,000 shares of
Class A Common Stock and received net proceeds of $46,320,000 before deducting
expenses incurred in connection with the stock offering. Subsequently, the
underwriters elected to exercise the over-allotment provision and sold an
additional 150,000 shares of Class A Common Stock and the Company received an
additional $6,948,000 in net proceeds. The funds will be used for general
corporate purposes.
As a part of the stock offering, NYLIFE HealthCare Management, Inc. converted
2,990,000 shares of Class B Common Stock (including 390,000 shares for the
over-allotment provision) to Class A Common Stock and sold those shares in same
stock offering. The Company will not receive any proceeds from the sale of
these shares. After giving effect to the above transactions, there were
8,688,277 shares of Class A Common Stock and 7,510,000 shares of Class B Common
Stock outstanding, respectively.
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- - ------------------------------------------------------------------------
Information included or incorporated by reference in this Quarterly Report
on Form 10-Q, and information that may be contained in other filings by the
Company with the Securities and Exchange Commission and releases issued or
statements made by the Company, contain or may contain forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ significantly from those projected or suggested in the forward-
looking statements. Factors that might cause such a difference to occur
include, but are not limited to, heightened competition, including specifically
increased price competition in the pharmacy benefit management market; the
termination of the Company's contracts with certain key clients; adverse
results in certain litigation and regulatory matters; and the adoption of
adverse legislation or regulations or a change in the interpretation of
existing legislation or regulations.
Company Overview
- - ----------------
The Company derives its revenues from the sale of network pharmacy services
through its nationwide networks of retail pharmacies and from the sale of
pharmaceuticals by its mail pharmacies and infusion therapy pharmacies to
members of health benefit plans sponsored by the Company's clients. Net
revenue of the Company includes the ingredient cost of pharmaceuticals
dispensed by the mail pharmacies and pharmacies in the networks, except where
the Company's mail service pharmacies dispense pharmaceuticals supplied by the
Company's clients, or where the Company merely administers contracts for the
client's pharmacy network. In these situations the Company records only
dispensing and administrative fees as net revenue. The Company's vision care
program derives its revenues from administrative fees and from the sale of
eyeglasses and contact lenses to members. The Company also derives revenue
from medical information management services, including disease management
support services and provider profiling services.
<PAGE> 10
Results of Operations
- - ---------------------
The following table sets forth certain financial data of the Company for the
periods presented as a percentage of net revenues and the percentage change in
the dollar amounts of such financial data for the three months ended March 31,
1996 compared to 1995.
<TABLE>
<CAPTION>
Percentage of Net Revenues Percentage Increase
-------------------------- -------------------
Three Months Ended
March 31 Three Months Ended
------------ ------------ March 31, 1996
1996 1995 Over 1995
------------ ------------ -------------------
<S> <C> <C> <C>
Net revenues:
Unrelated clients 80.2% 78.3% 46.1%
Related clients 19.8 21.7 30.3
------------ ------------
Total net revenues 100.0 100.0 42.7
------------ ------------
Cost and expenses:
Cost of revenues 88.4 86.6 45.7
Selling general &
administrative 6.2 7.6 15.6
------------ ------------
94.6 94.2 43.3
------------ ------------
Operating income 5.4 5.8 32.1
Other income, net 0.1 0.1 65.7
------------ ------------
Income before income taxes 5.5 5.9 32.7
Provision for income taxes 2.2 2.3 35.7
------------ ------------
Net income 3.3% 3.6% 30.8
============ ============
</TABLE>
First Quarter Ended March 31, 1996, Compared to 1995
- - ----------------------------------------------------
Net Revenues. Net revenues for the first quarter of 1996 increased
$50,359,000, or 42.7%, compared to the first quarter of 1995. Net revenues
from the Company's claims processing services and mail pharmacy services
increased 42.2% in 1996, compared to 1995. The primary reason for this
increase was a $33,947,000, or 44.7%, increase in revenues from pharmacy claims
processed reflecting a 43.0% increase in the number of claims processed, and a
1.2% increase in average revenue per claim compared to 1995. Revenue from the
Company's mail pharmacy services increased $13,933,000, or 37.2%, reflecting a
31.1% increase in the number of prescriptions dispensed, and a 4.7% increase in
<PAGE> 11
the average revenue per prescription dispensed. The increase in average
revenue per claim and per prescription dispensed is primarily due to increases
in drug costs for customers utilizing pharmacy networks established by the
Company, partially offset by continued competitive pressures and further price
reductions due to the amendment of the Company's agreements with NYLCare Health
Plans, Inc. ("NYLCare") and its affiliates, which became effective January
1995.
The increase in the number of claims processed and the number of mail
service pharmacy prescriptions dispensed reflects a 28.6% increase in the
number of members served from approximately 7.0 million members served at
March 31, 1995 to almost 9.0 million members served at March 31, 1996. The
percentage increase in claims processing revenue continues to exceed the
percentage increase in mail service revenues, as the price difference between
mail pharmacy prescriptions and network pharmacy prescriptions decreases.
Management believes this trend will at least continue during the remainder of
1996. Net revenues from the Company's vision and infusion therapy services
increased 43.9%, compared to 1995, primarily as a result of the growth in the
number of members who receive these services.
Cost of Revenues. Cost of revenues for the first quarter of 1996 increased
$46,765,000, or 45.7%, compared to the first quarter of 1995. The percentage
increase in cost of revenues was 3.0 percentage points greater than the
increase in revenues, thus gross profit margins decreased. For claims
processing services, the cost of revenue as a percentage of net revenues
increased slightly, offset by additional economies scale in claims processing
operations. The main reason for the percentage increase in the cost of
revenues was the lower mail pharmacy gross margins as a result of competitive
pressures and price reductions due to the amendment of the Company's agreements
with NYLCare and its affiliates. Also, the Company experienced a reduction as
a percentage of net revenues in the fees received from drug manufacturers in
connection with the Company's drug purchasing and formulary management
programs. The cost of revenue for vision and infusion therapy services
increased 66.7%, principally due to costs related to the continued expansion of
vision and infusion therapy service operations.
Selling, General and Administrative. Selling, general and administrative
expenses increased $1,404,000, or 15.6%, for the first quarter of 1996 compared
to 1995. The primary reason for the increase was the additional expenditures
incurred to expand the Company's marketing capabilities, together with
increases in expenses for information systems and additional clinical programs
to enhance management of the pharmacy benefit. The Company is continuing its
commitment to expand its capability to provide for future growth and enhance
the level of service for its members. However, in spite of the increase,
selling, general and administrative expenses as a percent of net revenues
decreased from 7.6% in the first quarter of 1995 to 6.2% in the comparable
quarter of 1996 reflecting overall economies of scale in this area.
Other Income, Net. Other income, net was $222,000 for the first quarter of
1996 compared to $134,000 for 1995, primarily as a result of higher interest
received due to higher interest rates on higher invested cash balances in 1996.
In addition, the Company had no borrowings in the first quarter of 1996, and
consequently there was no interest expense related to any borrowings in 1996,
while there was interest expense related to borrowings in the first quarter of
1995.
<PAGE> 12
Provision for Income Taxes. The provision for income taxes for the quarter
ended March 31, 1996, was $3,659,000 compared to $2,696,000 in the prior year.
The effective tax rate was 39.6% in 1996 compared to 38.7% for 1995.
Net Income. As a result of the foregoing, net income for the first quarter
ended March 31, 1996, increased $1,315,000, or 30.8%, compared to 1995.
Liquidity and Capital Resources. The Company added approximately 900,000
lives during the first quarter of 1996, reaching a total of almost 9.0 million
members utilizing the Company's services by March 31, 1996. As in the past,
the sizable growth in new members served during the first quarter resulted in a
significant growth in receivables. In the first quarter of 1996, receivables
increased $21,060,000. This increase was primarily financed by a combined
increase in current liabilities of $16,842,000. Management expects to
continue to fund a substantial portion of its future anticipated capital
expenditures and net increases in non-cash working capital with operating cash
flow, and will also have available bank loans and the proceeds from the sale of
certain shares of the Company's Class A Common Stock that the Company sold in a
public offering during the second quarter of 1996.
The Company maintains a $25 million line of credit with the Mercantile Bank
of St. Louis, N.A. ("Mercantile") which the Company has extended to May 29,
1996. The Company also has a $25 million one-year line of credit with the
First National Bank of Chicago expiring October 31, 1996, with the same terms
and conditions as the existing line with Mercantile. At March 31, 1996, there
were no borrowings outstanding on either of these lines of credit.
The Company has reviewed and currently intends to review potential
acquisitions and affiliation opportunities. The Company believes that
available cash resources including the proceeds of the offering of the
Company's common stock referred to above, bank financings and the issuance of
additional common stock would be used to finance such acquisitions or
affiliations. There can be no assurance the Company will make an acquisition
or affiliation in 1996.
Other Matters. On April 16, 1996, the Company completed the issuance of
1,000,000 shares of Class A Common Stock and received net proceeds of
$46,320,000 before deducting expenses incurred in connection with the stock
offering. Subsequently, the underwriters elected to exercise the over-
allotment provision and sold an additional 150,000 shares of Class A Common
Stock and the Company received an additional $6,948,000 in net proceeds. The
funds will be used for general corporate purposes.
As a part of the stock offering, NYLIFE HealthCare Management, Inc.
converted 2,990,000 shares of Class B Common Stock (including 390,000 shares
for the over-allotment provision) to Class A Common Stock and sold those shares
in same stock offering. The Company will not receive any proceeds from the
sale of these shares. After giving effect to the above transactions, there
were 8,688,277 shares of Class A Common Stock and 7,510,000 shares of Class B
Common Stock outstanding.
Impact of Inflation. Changes in prices charged by manufacturers and
wholesalers for pharmaceuticals affect the Company's net revenue and cost of
revenues. To date the Company has been able to recover price increases from
its clients under the terms of its agreements. As a result, changes in
pharmaceutical prices have not adversely affected the Company.
<PAGE> 13
- - -------------------------------------------------------------------------------
PART II. OTHER INFORMATION
- - -------------------------------------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K
- - -----------------------------------------
(a) Exhibits.
See Exhibit Index on page 15.
(b) Reports on Form 8-K.
None.
<PAGE> 14
SIGNATURES
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.
(Registrant)
Date: May 9, 1996 By: /s/ Barrett A. Toan
-------------------------------------
Barrett A. Toan, President and
Chief Executive Officer
Date: May 9, 1996 By: /s/ Stuart L. Bascomb
-------------------------------------
Stuart L. Bascomb, Executive Vice
President and Chief Financial Officer
<PAGE> 15
INDEX TO EXHIBITS
Exhibit Number Exhibit
- - -------------- -------
3.1 Certificate of Incorporation incorporated by reference to
Exhibit No. 3.1 to the Company's Registration Statement on
Form S-1 filed June 9, 1992 (No. 33-46974) (the "Registration
Statement").
3.2 Certificate of Amendment of the Certificate of Incorporation
of the Company, incorporated by reference to Exhibit No. 10.6
to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994.
3.3 Second Amended and Restated By-Laws, incorporated by reference
to Exhibit No. 3.2 to the Company's Annual Report on Form 10-K
for the year ending 1993.
4.1 Form of Certificate for Class A Common Stock, incorporated by
reference to Exhibit No. 4.1 to the Registration Statement.
27 Financial Data Schedule (provided for the information of the
U.S. Securities and Exchange Commission only)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR EXPRESS SCRIPTS, INC. AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000885721
<NAME> EXPRESS SCRIPTS, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 6,903
<SECURITIES> 0
<RECEIVABLES> 139,732
<ALLOWANCES> 1,700
<INVENTORY> 18,120
<CURRENT-ASSETS> 164,782
<PP&E> 18,553
<DEPRECIATION> 0
<TOTAL-ASSETS> 186,861
<CURRENT-LIABILITIES> 102,604
<BONDS> 0
0
0
<COMMON> 150
<OTHER-SE> 83,023
<TOTAL-LIABILITY-AND-EQUITY> 186,861
<SALES> 168,389
<TOTAL-REVENUES> 168,389
<CGS> 148,985
<TOTAL-COSTS> 148,985
<OTHER-EXPENSES> 10,387
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13
<INCOME-PRETAX> 9,239
<INCOME-TAX> 3,659
<INCOME-CONTINUING> 5,580
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,580
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0
</TABLE>
