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 21, 1999
Express Scripts, Inc.
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(Exact Name of Registrant as specified in its Charter)
Delaware 0-20199 43-1420563
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(State or other (Commission File No.) (I.R.S. Employer
jurisdiction of Identification
corporation) No.)
14000 Riverport Drive, Maryland Heights, Missouri 63043
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (314) 770-1666
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(Former name or former address, if changed since last report)
<PAGE>
Item 5. Other Events
On April 21, 1999, Express Scripts, Inc. issued a press release, a copy of
which is 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 21, 1999, by Express
Scripts, Inc.
<PAGE>
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: May 13, 1999 By: /s/ Barrett A. Toan
Barrett A. Toan
President and Chief Executive Officer
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
99.1 Press release, dated April 21, 1999, by Express Scripts, Inc.
EXHIBIT 99.1
EXPRESS SCRIPTS' FIRST QUARTER EPS INCREASES 38 PERCENT
Acquisitions and Effective Integration Efforts Continue to Fuel Earnings Growth
ST. LOUIS, April 21, 1999--Express Scripts, Inc. (NASD: ESRX) today
reported net income of $13.5 million for the three months ended March 31, 1999,
a 37 percent increase over $9.9 million in the same period of 1998. The company
earned 40 cents per share on a diluted basis, a 38 percent increase compared
with 29 cents per share on a diluted basis in the same period of 1998.
In the first quarter of 1999, net revenues were $899.1 million, a 142
percent increase over $371.4 million in the same period of 1998. Cost and
expenses for the first quarter of 1999 increased 144 percent to $870.1 million,
compared with $357.3 million in the same period of 1998. Operating income
increased by 107 percent to $29.0 million from $14.0 million in the same period
of 1998. Growth in both revenues and expenses was due to the acquisition of
ValueRx on April 1, 1998, and internal growth, offset to a degree by planned
integration costs.
"We are pleased to announce 38 percent growth in net income per share on a
diluted basis for the first quarter, which demonstrates our ability to manage
our core business effectively," said Barrett Toan, Express Scripts president and
chief executive officer. "At the same time, we have advanced a number of
important strategic initiatives, reinforcing our commitment to leverage our
expertise and maximize new opportunities.
"The growth in revenue and our earnings improvement reflect the successful
progress of the integration of ValueRx into Express Scripts. We will be focused
toward driving the benefits of top line revenue growth to earnings through
economies of scale and operating synergies."
During the first quarter of 1999, Express Scripts successfully converted
600,000 lives from its Tandem claims processing system to its Vnet system. This
systems conversion is part of the plan to reduce the number of claims processing
systems from the three platforms ValueRx had to one system by year-end.
The number of pharmacy benefit covered lives at March 31, 1999, was
approximately 23 million compared with approximately 12 million at the end of
the first quarter of 1998, immediately prior to the acquisition of ValueRx, and
approximately 23 million at year-end 1998.
On April 1, 1999, the company completed the acquisition of Diversified
Pharmaceutical Services, Inc. (DPS), a subsidiary of SmithKline Beecham (NYSE:
SBH). Express Scripts paid SmithKline $700 million in cash in the transaction,
which was accounted for as a purchase. The acquisition, including transaction
costs and the refinancing of the company's existing debt, was funded with $48
million from the company's cash, a $150 million bridge facility and $890 million
from a $1.05 billion senior credit facility. The acquisition is anticipated to
be non-dilutive to Express Scripts' recurring operating earnings in 1999.
Express Scripts plans to use the net proceeds of its pending stock offering to
reduce indebtedness incurred in connection with the acquisition.
"Completing the acquisition of DPS - exactly one year after the acquisition
of ValueRx - solidly positions Express Scripts at the forefront of the
industry," Toan stated. "Our integration plan for DPS will follow a systematic
process similar to our approach with ValueRx, allowing us to leverage the
strengths of our combined organization to benefit our customers."
Integration goals for the DPS acquisition include:
o Second quarter - Ensure service continuity and client satisfaction
through the retention of employees and client communication;
finalize plans to integrate service delivery and site operations,
including call center, mail service, and account set-up; combine
the sales, clinical and corporate administrative functions, and
produce a detailed financial plan incorporating 1999 financial
goals at the operating unit level.
o Third quarter - Combine existing contracts and contracting
procedures related to both suppliers and providers; begin
consolidation of administrative and operations functions between
the former ValueRx and DPS staff in Minneapolis and complete the
integration of the financial reporting systems; market the
strengths of the combined organization; combine the rebate
processing information systems; and integrate the DPS mail order
volume into current mail order locations.
o Fourth quarter - Establish a combined enterprise-wide data
warehouse and add enhancements to the claims processing system;
expand virtual call center connectivity to improve response time
and service among call center sites; introduce best practices for
business processes and operations; consolidate benefit offerings
for all employees for January 1, 2000, and expand the virtual call
center to include the two DPS call centers.
On March 29, 1999, the company announced the formation of a subsidiary,
YourPharmacy.com, Inc., to launch two Internet sites that will offer consumers
reliable drug information and convenient online shopping. Express Scripts will
use its expertise to deliver these services through DrugDigest.org. and
YourPharmacy.com, which the company plans to launch this summer.
"These Internet initiatives are consistent with Express Scripts' approach
with customers as a consultative partner, applying our industry leading clinical
pharmacy expertise and customer service technology in new markets to help
clients and members meet the challenges of rising drug costs and usage," Toan
said. "In addition, the Express Scripts Internet strategy will help reduce
operating costs by using Internet transactions, such as mail order refills, to
replace more expensive manual activity."
Express Scripts, Inc., is the nation's leading independent full-service
pharmacy benefit management (PBM) and specialty managed care company. Through
facilities in seven states and Canada, the company serves thousands of clients
throughout North America, including managed care organizations, insurance
carriers, third-party administrators, employers and union-sponsored benefit
plans.
The company provides fully-integrated PBM services, including network
claims processing, mail-order pharmacy services, benefit design consultation,
drug utilization review, formulary management, disease management, medical and
drug data analysis services, medical information management services, which
include provider profiling and outcome assessments, through its Practice
Patterns Science, Inc. subsidiary, and informed decision counseling services
through its Express Health Line SM division. The company also provides non-PBM
services, including infusion therapy services through its IVTx subsidiary and
distribution services through its Specialty Distribution division.
Express Scripts is headquartered in St. Louis, Missouri and has additional
major sites in Minneapolis, Minnesota; Bensalem, Pennsylvania; Albuquerque, New
Mexico; Tempe, Arizona; and Troy, New York. More information can be found at
http://www.express-scripts.com.
A registration statement relating to the sale of 4,500,000 shares of Class
A Common Stock of Express Scripts has been filed with the Securities and
Exchange Commission but has not yet become effective. These securities may not
be sold nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This news release shall not constitute an offer to
sell or the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State.
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. The company's actual results may differ
significantly from those projected or suggested in any forward-looking
statements. Certain factors relating to the acquisition of DPS discussed in this
press release that might cause such a difference to occur include, but are not
limited to, the loss of major clients of DPS, including UnitedHealth Group,
whose contract expires in May, 2000 and which accounts for approximately 44
percent of DPS's total membership; higher than expected costs in integrating and
operating the combined company; risks inherent in refinancing a bridge loan
facility used to finance a portion of the acquisition price; and the failure to
consummate the proposed common stock offering.
Other general factors that may impact these forward-looking statements
include but are not limited to: (i) risks associated with the consummation and
financing of acquisitions, including the ability to successfully integrate the
operations of acquired businesses with our existing operations, client retention
issues, and risks inherent in the acquired entities operations; (ii) risks
associated with obtaining financing and capital; (iii) risks associated with our
ability to manage growth; (iv) competition, including price competition,
competition in the bidding and proposal process and our ability to consummate
contract negotiations with prospective clients; (v) the possible termination of
contacts with certain key clients or providers; (vi) the possible termination of
contracts with certain pharmaceutical manufacturers, changes in pricing,
discount, rebate or other practices of pharmaceutical manufacturers; (vii)
adverse results in litigation; (viii) adverse results in regulatory matters, the
adoption of adverse legislation or regulations, more aggressive enforcement of
existing legislation or regulations, or a change in the interpretation of
existing legislation or regulations; (ix) developments in the healthcare
industry, including the impact of increases in healthcare costs, changes in drug
utilization patterns and introductions of new drugs; (x) risks associated with
the "Year 2000" issue; (xi) dependence on key members of management; (xii) our
relationship with New York Life Insurance Company, which possesses voting
control of the Company; (xiii) other risks described from time to time in our
filings with the Securities and Exchange Commission. The company does 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
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EXPRESS SCRIPTS, INC.
Unaudited Statement of Operations
(in thousands, except per share and percentage data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998 % Change
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<S> <C> <C> <C>
Net revenues $ 899,087 $ 371,362 142.1%
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Cost and expenses:
Cost of revenues 823,647 338,492 143.3%
Selling, general and administrative 46,440 18,826 146.7%
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870,087 357,318 143.5%
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Operating income 29,000 14,044 106.5%
Interest income (expense):
Interest income 1,393 2,138 -34.8%
Interest expense (6,222) (14) nm
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(4,829) 2,124 -327.4%
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Income before income taxes 24,171 16,168 49.5%
Provision for income taxes 10,628 6,290 69.0%
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Net income $13,543 $9,878 37.1%
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Basic earnings per share $0.41 $0.30 36.7%
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Weighted average number of common shares
outstanding during the period - basic 33,211 33,053 0.5%
=========== ============
Diluted earnings per share $0.40 $0.29 37.9%
============ =============
Weighted average number of common shares
outstanding during the period - diluted 34,154 33,579 1.7%
=========== ============
</TABLE>
nm - not meaningful
<PAGE>
EXPRESS SCRIPTS, INC.
Unaudited Balance Sheet
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1999 1998 1998
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<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 115,838 $ 122,589 $ 84,556
Short-term investments 59,272
Receivables, net 446,453 433,006 199,959
Inventories 55,234 55,634 26,721
Deferred taxes 41,841 41,011 2,303
Prepaid expenses 3,761 4,667 1,545
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Total current assets 663,127 656,907 374,356
Property and equipment, net 73,346 77,499 27,850
Goodwill, net 268,081 282,163 251
Other assets 92,396 78,892 12,287
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Total assets $1,096,950 $1,095,461 $ 414,744
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 54,000 $ 54,000 $ -
Claims and rebate payable 331,525 338,251 153,551
Accounts payable 65,715 60,247 23,849
Accrued expenses 71,666 86,798 21,724
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Total current liabilities 522,906 539,296 199,124
Long-term debt 306,000 306,000 -
Other long-term liabilities 502 471 690
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Total liabilities 829,408 845,767 199,814
Total stockholders' equity 267,542 249,694 214,930
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Total liabilities and stockholders' equity $1,096,950 $1,095,461 $ 414,744
========== ========== =========
</TABLE>
<PAGE>
EXPRESS SCRIPTS, INC.
Unaudited Non-Financial Data
(in thousands, except percentage data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
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1999 1998 % Change
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<S> <C> <C> <C>
Drug spending $1,450,481 $ 678,263 113.9%
Pharmacy network claims processed 36,028 19,028 89.3%
Mail pharmacy prescriptions filled 2,279 1,069 113.2%
EBITDA (1) $ 37,520 $ 16,440 128.2%
</TABLE>
Selected Ratio Analysis
Debt to EBITDA ratio 2.4 (2)
Interest coverage ratio 6.0 (2)
Debt to enterprise value 11.1% (3)
Cash value per share $3.43 (3)
Book value per share $7.93 (3)
(1) EBITDA is earnings before interest, taxes, depreciation and amortization
(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 or an
alternative to cash flow as a measure of liquidity. In addition, our definition
of EBITDA may not be comparable to that reported by other companies.
(2) Annualized.
(3) Based on financial information as of March 31, 1999.
