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 21, 1999
Express Scripts, Inc.
- -------------------------------------------------------------------------------
(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 No.)
corporation)
13900 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
-------------------------
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Item 5. Other Events
On July 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 July 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: August 2, 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 July 21, 1999, by Express Scripts, Inc.
EXHIBIT 99.1
EXPRESS SCRIPTS ANNOUNCES SECOND QUARTER RESULTS
ST. LOUIS, July 21, 1999--Express Scripts, Inc. (NASD: ESRX) announced
second quarter 1999 pro forma net income of $16.6 million, or 42 cents per
diluted share. The pro forma calculation is before one-time charges and assumes
that the company's equity and debt offering took place on April 1, 1999. This
compares with $10.6 million, or 31 cents per diluted share, before one-time
charges in the same period of 1998. Second quarter net income on a reported
basis, before one-time charges, was $12.8 million, or 37 cents per diluted
share. Including all one-time charges, reported net income for the second
quarter of 1999 was $421,000, or 1 cent per diluted share.
The one-time charges for the second quarter of 1999 included a debt
refinancing charge of $6.6 million (after-tax), or 19 cents per diluted share,
associated with the equity and debt offerings completed in June 1999; and a
restructuring charge of $5.8 million (after-tax), or 17 cents per diluted share,
related to the consolidation of the Minneapolis facilities.
"We accomplished two major goals in the second quarter: reducing the debt
incurred in connection with the strategic acquisitions of Diversified
Pharmaceutical Services, Inc. (DPS) and ValueRx and initiating the integration
of duplicate facilities," said Barrett Toan, Express Scripts' president and
chief executive officer. "Our consistently strong operating results and core
earnings demonstrate that we have remained on track with our strategic plan,
even as we have successfully met the challenges of integrating significant
acquisitions. We have improved our capital structure and laid the groundwork for
future economies of scale and operating efficiencies to position Express Scripts
for continued growth at the bottom line."
In the second quarter of 1999, net revenues were $996.7 million, a 24
percent increase over $807.4 million in the same period of 1998. Cost of
revenues for the second quarter of 1999 increased 17 percent to $870.0 million,
compared with $743.6 million in the same period of 1998. Revenues and cost of
revenues in the Diversified Pharmaceutical Services (DPS) book of business
during the quarter were recognized on a net basis, which means that the cost of
the drug is not included in revenues or cost of revenues. Gross profit margins
increased 99 percent to $126.8 million in the second quarter of 1999 from $63.8
million for the comparable period of 1998. Selling, general and administrative
expenses (SG&A), excluding depreciation and amortization, were $63.5 million, an
87 percent increase over the $34.0 million reported for the comparable period of
1998. The increase in SG&A expense is primarily due to the acquisition of DPS,
which was completed on April 1, 1999, and planned integration costs. In
addition, during the second quarter, the company generated strong positive cash
flows from operations of $56.2 million, an 18 percent increase over $47.8
million reported for the comparable period of 1998.
The company reported second quarter pharmacy network and mail pharmacy
claims of 58.2 million, excluding 20.6 million claims processed for UnitedHealth
Group (UHC), a 78 percent increase over 32.8 million reported for the comparable
period of 1998. Membership at June 30, 1999, calculated on a consistent basis,
was approximately 36 million members, excluding approximately 10 million members
from UHC, whose contract expires in May, 2000. For the second quarter, total
membership was relatively unchanged from the first quarter of 1999, reflecting
the company's focus on retention of accounts related to the acquisition.
For the first six months of 1999, Express Scripts reported pro forma net
income of $30.1 million, or 82 cents per diluted share, before one-time charges
and assuming the company's equity and debt offering took place on April 1, 1999.
This compares with $20.4 million, or 61 cents per diluted share, before one-time
charges in the same period of 1998. Net income for the first six months on a
reported basis, before one-time charges, was $26.4 million, or 76 cents per
diluted share. Including all one-time charges, reported net income for the first
six months of 1999 was $14.0 million, or 40 cents per diluted share. Net
revenues grew 61 percent to $1.9 billion, which includes net revenues of DPS for
the second quarter only. Gross profit margins increased to $202.2 million from
$96.7 million for the six months ended June 30, 1999, or 109 percent. SG&A
expenses, excluding depreciation and amortization, were $103.8 million, a 100
percent increase over the $51.8 million reported for the comparable period of
1998.
The company originally financed the $700 million acquisition of DPS and
refinanced $360 million of existing debt on April 1, 1999 through a $1.05
billion senior credit facility, a $150 million bridge facility, and $48 million
of its own cash. During the quarter, the company issued 5.2 million shares of
Class A common stock and privately placed $250 million of 9 5/8% Senior Notes
due 2009, and used the net proceeds to pay off the bridge facility and pay down
$390.9 million of indebtedness under the credit facility. The company also used
approximately $23.9 million of its own cash to reduce indebtedness. As a result
of the refinancing and debt reduction, the company recognized an after-tax
charge from the fees associated with the refinanced debt.
After a comprehensive analysis, the company has decided to combine the
Plymouth, Minn., location acquired a year ago with the ValueRx acquisition with
the Bloomington, Minn., facility recently acquired as part of the DPS purchase.
"Consolidation of our two Minneapolis area facilities will be an important step
in the achievement not only of our financial integration objectives but also of
our staff integration objectives," said George Paz, senior vice president and
chief financial officer. "The decision to consolidate into the former DPS
facility in Bloomington turned out to be our most cost-effective option and
enables us to bring substantially all of the non-call center employees in the
Minneapolis area together under one roof by the end of 1999. The facility we
selected had space to house the combined workforce, and bringing these employees
together early in the process will help them achieve our other integration goals
on schedule," he noted.
Toan said, "This has been an exciting time of collaboration and team
building as many of the best people in pharmacy benefit management have come
together to create an organization unparalleled in the industry using the best
that DPS, ValueRx and Express Scripts have to offer."
Integration goals achieved in the second quarter include:
o High-quality service levels and continuity of service;
o Finalization of plans to integrate service delivery and site
operations for call center, mail service and account set-up
services;
o Combination of sales, clinical and corporate administrative
functions; and
o Completion of a detailed financial plan incorporating 1999
financial goals at the operating unit level.
Integration goals already under way for the third quarter include:
combining contracting procedures; consolidation of administrative and operation
functions in Minneapolis; completion of the financial systems integration;
marketing the strengths of the combined organization; combining the rebate
processing procedures and integrating the DPS mail order volume into the Express
Scripts mail pharmacy sites.
Fourth quarter integration goals, as previously announced, are to:
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; and consolidate benefit offerings for all
employees for January 1, 2000.
Express Scripts has introduced its two consumer Internet sites as planned,
through its wholly owned subsidiary, yourPharmacy.com, Inc. The e-commerce site,
yourPharmacy.com (http://www.yourpharmacy.com) opened in June 1999 to a select
group of Express Scripts clients and is currently preparing for its general
consumer launch. The site offers a convenient and economical means for ordering
prescription drugs, over-the-counter medications and personal care products for
consumers with Internet access. The company's other Internet site DrugDigest.org
(http://www.drugdigest.org), opened earlier in the second quarter, is a
non-commercial source of information about drugs, vitamins and herbs. DrugDigest
empowers consumers to take better care of themselves and their families by
providing one source of fact-based, consumer-friendly information. "Our
customers have been very enthusiastic about the Internet services, which add
tremendous value to the drug benefit available to their more than 36 million
health plan participants," Toan said.
Also during the second quarter, Express Scripts hosted the Third Annual
Drug Outcomes Conference, which was attended by over 800 representatives of
clients, pharmacy manufacturers and others involved with Express Scripts or the
pharmacy benefit management industry. At the conference, the third edition of
the Drug Trends Report was released, including analysis of the factors driving
the unmanaged drug cost trend. The study outlines some of the approaches
utilized by Express Scripts to develop a successful drug plan benefit focused on
a balance of cost and quality management and appropriate utilization.
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. More information can be found at
http://www.express-scripts.com, which includes expanded investor information and
resources.
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. 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 contracts 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
<PAGE>
EXPRESS SCRIPTS, INC.
Unaudited Statement of Operations
(in thousands, except per share and percentage data)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
Pro Forma
Actual Pro Forma Actual to Actual
1999 1999 (1) 1998 % Change % Change
<S> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------
Net revenues $996,749 $996,749 $807,406 23.5% 23.5%
--------- --------- ---------
Cost and expenses:
Cost of revenues (2) 869,989 869,989 743,557 17.0% 17.0%
Selling, general and administrative (3) 81,897 81,897 39,266 108.6% 108.6%
Corporate restructuring 9,400 - 1,651 469.4% nm
---------- --------- ---------
961,286 951,886 784,474 22.5% 21.3%
---------- --------- ---------
Operating income 35,463 44,863 22,932 54.6% 95.6%
---------- --------- ---------
Interest income (expense):
Interest income 1,444 1,444 1,751 (17.5%) (17.5%)
Interest expense (23,231) (17,070) (6,867) 238.3% 148.6%
---------- ---------- ----------
(21,787) (15,626) (5,116) 325.9% 205.4%
---------- ---------- ----------
Income before income taxes 13,676 29,237 17,816 (23.2%) 64.1%
Provision for income taxes 6,658 12,639 8,248 (19.3%) 53.2%
---------- ---------- ----------
Income before extraordinary item 7,018 16,598 9,568 (26.7%) 73.5%
Extraordinary loss on early retirement
of debt, net of taxes of $4,144 6,597 - - nm -
------------- ---------- ----------
Net income $421 $16,598 $9,568 (95.6%) 73.5%
============ ========== ==========
Basic earnings per share:
Before extraordinary item $0.20 $0.43 $0.29 (31.0%) 48.3%
Extraordinary loss on early retirement
of debt 0.19 - - nm -
------------ ----------- -----------
Net income $0.01 $0.43 $0.29 (96.6%) 48.3%
============ =========== ===========
Weighted average number of common shares
outstanding during the period - basic 34,055 38,436 33,100 2.9% 16.1%
============ =========== ==========
Diluted earnings per share:
Before extraordinary item $0.20 $0.42 $0.28 (28.6%) 50.0%
Extraordinary loss on early retirement
of debt 0.19 - - nm -
------------- ----------- -----------
Net income $0.01 $0.42 $0.28 (96.4%) 50.0%
============= =========== ===========
Weighted average number of common shares
outstanding during the period - diluted 34, 952 39,334 33,643 3.9% 16.9%
============= =========== ===========
EBITDA (4) $56,037 $65,437 $30,674 82.7% 113.3%
============= =========== ===========
nm - not meaningful
<FN>
(1) Pro Forma excludes non-recurring charges for the corporate
restructuring and the extraordinary loss on early retirement of debt. Also, the
Pro Forma assumes the Company's 5,175 common stock offering and $250,000 Senior
Notes offering occurred on April 1, 1999.
(2) Includes depreciation and amortization expense of $2,216, $2,216 and
$2,438, respectively.
(3) Includes depreciation and amortization expense of $18,358, $18,358 and
$5,304, respectively.
(4) 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.
</FN>
</TABLE>
<PAGE>
EXPRESS SCRIPTS, INC.
Unaudited Statement of Operations
(in thousands, except per share and percentage data)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
Pro Forma to
Actual Pro Forma Actual Actual
1999 1999 (1) 1998 % Change % Change
<S> <C> <C> <C> <C> <C>
--------------------------------------------- --------- --------
Net revenues $ 1,895,836 $1,895,836 $ 1,178,768 60.8% 60.8%
----------- ---------- -----------
Cost and expenses:
Cost of revenues (2) 1,693,636 1,693,636 1,082,049 56.5% 56.5%
Selling, general and administrative (3) 128,337 128,337 58,092 120.9% 120.9%
Corporate restructuring 9,400 - 1,651 469.4% nm
---------- ---------- -----------
1,831,373 1,821,973 1,141,792 60.4% 59.6%
---------- ---------- -----------
Operating income 64,463 73,863 36,976 74.3% 99.8%
---------- ---------- -----------
Interest income (expense):
Interest income 2,837 2,837 3,889 (27.1%) (27.1%)
Interest expense (29,453) (23,292) (6,881) 328.0% 238.5%
---------- ---------- ----------
(26,616) (20,455) (2,992) 789.6% 583.7%
---------- ---------- ----------
Income before income taxes 37,847 53,408 33,984 11.4% 57.2%
Provision for income taxes 17,286 23,267 14,537 18.9% 60.0%
---------- ---------- ----------
Income before extraordinary item 20,561 30,141 19,447 5.7% 55.0%
Extraordinary loss on early retirement
of debt, net of taxes of $4,144 6,597 - - nm -
----------- ---------- ----------
Net income $13,964 $30,141 $19,447 (28.2%) 55.0%
=========== ========== ==========
Basic earnings per share:
Before extraordinary item $0.61 $0.84 $0.59 3.4% 42.4%
Extraordinary loss on early retirement
of debt 0.19 - - nm -
----------- --------- ---------
Net income $0.42 $0.84 $0.59 (28.8%) 42.4%
=========== ========= =========
Weighted average number of common shares
outstanding during the period - basic 33,633 35,847 33,077 1.7% 8.4%
=========== ========= =========
Diluted earnings per share:
Before extraordinary item $0.59 $0.82 $0.58 1.7% 41.4%
Extraordinary loss on early retirement
of debt 0.19 - - nm -
----------- --------- ----------
Net income $0.40 $0.82 $0.58 (31.0%) 41.4%
=========== ========= ==========
Weighted average number of common shares
outstanding during the period - diluted 34,553 36,767 33,611 2.8% 9.4%
=========== ========= ==========
EBITDA (4) $93,524 $102,924 $47,114 98.5% 118.5%
=========== ========= ==========
nm - not meaningful
<FN>
(1) Pro Forma excludes non-recurring charges for the corporate
restructuring and the extraordinary loss on early retirement of debt. Also, the
Pro Forma assumes the Company's 5,175 common stock offering and $250,000 Senior
Notes offering occurred on April 1, 1999.
(2) Includes depreciation and amortization expense of $4,481, $4,481 and
$3,851, respectively.
(3) Includes depreciation and amortization expense of $24,580, $24,580 and
$6,287, respectively.
(4) 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.
</FN>
</TABLE>
<PAGE>
EXPRESS SCRIPTS, INC.
Unaudited Balance Sheet
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1999 1998 1998
<S> <C> <C> <C>
------------------- ------------------- -------------------
ASSETS
Current assets
Cash and cash equivalents $ 82,283 $ 122,589 $ 81,944
Receivables, net 561,247 433,006 364,603
Inventories 45,028 55,634 41,567
Deferred taxes 41,545 41,011 50,401
Prepaid expenses 6,190 4,667 -
---------- ---------- ----------
Total current assets 736,293 656,907 538,515
Property and equipment, net 88,073 77,499 69,794
Goodwill, net 993,624 282,163 310,487
Other intangible assets, net 174,017 53,333 56,213
Other assets 48,157 25,559 36,076
---------- ---------- ----------
Total assets $2,040,164 $1,095,461 $1,011,085
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ - $ 54,000 $ 27,000
Claims and rebate payable 555,039 338,251 222,312
Accounts payable 71,692 60,247 55,913
Accrued expenses 120,924 86,798 146,707
---------- ---------- -----------
Total current liabilities 747,655 539,296 451,932
Long-term debt 724,048 306,000 333,000
Other long-term liabilities 484 471 827
---------- ---------- -----------
Total liabilities 1,472,187 845,767 785,759
Total stockholders' equity 567,977 249,694 225,326
---------- ---------- ------------
Total liabilities and stockholders' equity $2,040,164 $1,095,461 $1,011,085
========== ========== ==========
</TABLE>
<PAGE>
EXPRESS SCRIPTS, INC.
Unaudited Non-Financial Data
(in thousands, except percentage data)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
_____________________________
1999 (1) 1998 % Change
<S> <C> <C> <C>
-------------- ----------- ---------
Drug spending $2,302,757 $1,197,600 92.3%
Pharmacy network claims processed 55,909 30,642 82.5%
Mail pharmacy prescriptions filled 2,304 2,108 9.3%
Six Months Ended
June 30,
1999 (1) 1998 % Change
--------------- ----------- ---------
Drug spending $3,753,239 $1,875,900 100.1%
Pharmacy network claims processed 91,936 49,670 85.1%
Mail pharmacy prescriptions filled 4,583 3,177 44.3%
</TABLE>
<TABLE>
<CAPTION>
Selected Ratio Analysis
Actual Pro Forma
<S> <C> <C> <C>
Net debt to EBITDA ratio (2) 3.2 2.8
Interest coverage ratio (2) 2.4 3.8
Debt to enterprise value (3) 23.6% 23.6%
Cash value per share (3) $2.11 $2.11
Book value per share (3) $14.59 $14.59
<FN>
(1) Drug spending and pharmacy network claims processed excludes United
Healthcare Group. For the three months and six months ended June 30, 1999, drug
spending and pharmacy network claims processed for United Healthcare Group was
$778,768 and 20,578, respectively.
(2) Annualized using financial information for the three months ended June
30, 1999.
(3) Based on financial information as of June 30, 1999.
</FN>
</TABLE>
