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: February 9, 2000
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
-----------------------------
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(Former name or former address, if changed since last report)
Item 5. Other Events
On February 9, 2000, 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 February 9, 2000, by Express Scripts,
Inc.
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: February 10, 2000 By: /s/ Barrett A. Toan
Barrett A. Toan
President and Chief Executive Officer
EXHIBIT INDEX
Exhibit No. Description
99.1 Press release, dated February 9, 2000, by Express Scripts, Inc.
EXPRESS SCRIPTS ANNOUNCES 65% INCREASE
IN FOURTH QUARTER PRO FORMA NET INCOME
ST. LOUIS, February 9, 2000--Express Scripts, Inc. (NASD: ESRX) announced
pro forma fourth quarter 1999 net income of $19.6 million, or 50 cents per
diluted share, and year-to-date 1999 pro forma net income of $67.3 million, or
$1.77 per diluted share. This compares with net income of $11.9 million, or 35
cents per diluted share, in the fourth quarter of 1998 and pro forma net income
of $43.7 million, or $1.30 per diluted share, in the year ended December 31,
1998. Pro forma net income in 1999 and 1998 excludes one-time, non-recurring or
extraordinary gains and charges. Pro forma net income in 1999 also assumes that
the Company's equity and debt offering occurred on April 1, 1999. Net income on
a reported basis was $119.3 million, or $3.03 per diluted share, for the fourth
quarter of 1999 and $150.2 million, or $4.06 per diluted share, for the year,
and includes a $182.9 million one-time pre-tax gain related to the PlanetRx.com,
Inc. (PlanetRx) transaction, compared to $42.7 million, or $1.27 per diluted
share, for 1998. Earnings before interest, taxes, depreciation and amortization
(EBITDA) for the fourth quarter 1999 on a pro forma basis totaled $69.7 million,
a 98 percent increase over the $35.2 million reported in the same quarter of
1998.
"We are very pleased with our fourth quarter and 1999 results, which are
our best ever. We are also very confident that recent events have put us in an
excellent position for continued strong financial performance. We are beginning
the new millennium having added a million new members, expanded services to
approximately 4.5 million existing membership, increased mail pharmacy volumes
significantly, and initiated work under an innovative distribution contract with
Bayer through our Specialty Distribution Services division," said Barrett Toan,
president and chief executive officer.
"In 2000, we believe our historical pro forma net income growth rate can be
sustained due to the underlying trends and opportunities inherent in the
business, including the addition of new members, increased utilization,
inflation and drug mix changes, cross-selling of services to existing clients,
expansion of other business lines such as specialty distribution and reductions
in interest expense," Toan said.
STRONG OPERATING RESULTS
In the fourth quarter of 1999, net revenues were $1.3 billion, a 56 percent
increase over $838.8 million in the same period of 1998. Gross profit increased
81 percent to $134.5 million in the fourth quarter of 1999 from $74.4 million
for the comparable period of 1998. The increase in gross profit better reflects
the impact of the DPS acquisition since DPS recognizes revenues and cost of
revenue on a net basis. This means that the ingredient cost of the drug is not
included in revenues or cost of revenues. Selling, general and administrative
expenses (SG&A), excluding depreciation and amortization, were $67.4 million, a
63 percent increase over the $41.4 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, planned integration costs, costs
associated with the Company's execution of its Internet strategy, the rollout of
the Company's new branding program and new product development. The strong
fourth quarter results are due to higher utilization by members in both the
network and mail services, a portion of which may have been attributable to
year-end buying motivated by members' concerns over potential Y2K problems.
On October 13, 1999, the Company acquired a 19.9% ownership stake in
PlanetRx in a noncash transaction, and PlanetRx assumed stock options granted to
certain yourPharmacy.com employees. In connection with this transaction, the
Company recorded a pre-tax gain of $182.9 million and pre-tax stock compensation
expense of $19.5 million. These amounts were determined using the $16 per share
PlanetRx initial offering price. During the fourth quarter of 1999, the Company
recorded $3.8 million of fees from PlanetRx. These fees were used to fund our
internet strategy.
In addition, in the fourth quarter of 1999 the Company recorded net
non-recurring charges of $1.3 million related to outsourcing the Company's
computer operations to EDS and restructuring the operations of its Practice
Patterns Science subsidiary. These charges were partially offset by the reversal
of a portion of the restructuring charge taken in the second quarter of 1999
related to the consolidation of the Company's two Minneapolis facilities.
For the year ended December 31, 1999, net revenues increased 52 percent to
$4.3 billion, which includes net revenues of DPS since April 1, 1999. Gross
profit increased to $461.2 million from $239.9 million for the year ended
December 31, 1999, or 92 percent. SG&A expenses, excluding depreciation and
amortization, were $231.5 million, a 78 percent increase over the $130.1 million
reported for 1998. EBITDA, on a pro forma basis, increased 104 percent from
$117.3 million in the year ended December 31, 1998 to $238.9 million in the year
ended December 31, 1999.
CLAIMS AND MEMBERS
As of January 1, 2000, Express Scripts served 38.5 million members, up from
37.5 million members in the third quarter, excluding about 9.5 million members
served under the United Healthcare (UHC) contract. The Company is implementing a
transition program leading to the UHC contract expiration in May 2000. New
members added during the first quarter 2000 will be larger than usual because a
number of new groups will be implemented in the first quarter due to certain
clients postponing implementations until after January 1, due to Y2K concerns.
"The service expansion to 4.5 million additional members testifies to the
success of our integration efforts following the April 1999 acquisition of DPS,"
said Toan. The service expansion includes programs that provide for more
advanced formulary management. Also included is the addition of mail or network
service where only one or the other had been used previously.
The Specialty Distribution Services division contract with Bayer involves
the development and implementation of an innovative distribution system for
Prolastin(R), for which demand is greater than supply. Working closely with
patient support groups to ensure fairness in distribution, Express Scripts
fulfills the role of the sole service, distribution and reimbursement agent for
Bayer.
CASH FLOW
For the year ended, cash flow from operations was $214.1 million. Due to
new banking relationships, the Company recorded a one-time increase in the cash
balance of $113.7 million. On a comparable basis, assuming the one-time increase
in cash occurred in the third quarter of 1999, cash flow from operations for the
fourth quarter of 1999 was $33.9 million. The fourth quarter cash flow from
operations was reduced by an increase of approximately $30 million in the
inventory balance which the Company made to address potential higher year-end
demand in its mail pharmacies due to members' Y2K concerns. The Company expects
to reduce the inventory balances during the first half of 2000.
As a result of strong operating cash flows, the Company reduced the
outstanding balance of its revolving credit agreement using $40 million of cash
in the fourth quarter of 1999 and $30 million of cash in January 2000.
The Company expects continued positive cash flow and no material effect on
earnings during transition of the approximately 9.5 million members of UHC to
another pharmacy benefit management company during 2000. Express Scripts has
negotiated an orderly, phased transition to begin in June and continue for the
balance of 2000. This will allow for both uninterrupted services for UHC members
and a reduction in the impact on cash flow from operations for Express Scripts.
Due to the timing of cash receipts and payments under the UHC contract,
cash flow from operations will be reduced temporarily by an estimated $20
million during the third quarter and will return to normal levels during the
fourth quarter of 2000. As announced at the time of the DPS acquisition, a
portion of the purchase price of DPS was allocated to the UHC contract and has
been amortized during the life of the UHC contract.
Express Scripts, Inc. is the nation's leading independent full-service
pharmacy benefit management (PBM) 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.
Express Scripts 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 the 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.
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:
(i) risks associated with successfully completing its Internet strategy; (ii)
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; (iii) risks associated with obtaining financing
and capital; (iv) risks associated with our ability to manage growth; (v)
competition, including price competition, competition in the bidding and
proposal process and our ability to consummate contract negotiations with
prospective clients; (vi) the possible termination of contracts with certain key
clients or providers; (vii) the possible termination of contracts with certain
pharmaceutical manufacturers, changes in pricing, discount, rebate or other
practices of pharmaceutical manufacturers; (viii) adverse results in litigation;
(ix) 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; (x) developments in the healthcare industry, including the impact
of increases in healthcare costs, changes in drug utilization patterns and
introductions of new drugs; (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
Express Scripts Reports Fourth Quarter Earnings
<TABLE>
<CAPTION>
EXPRESS SCRIPTS, INC.
Unaudited Statement of Operations
(in thousands, except per share and percentage data)
Three Months Ended
December 31
Pro Forma to
Actual Pro Forma Actual Actual
1999 1999 (1) 1998 % Change % Change
<S> <C> <C> <C> <C> <C>
------------ ---------- ---------- --------- --------
Net revenues $1,308,772 $1,308,772 $838,784 56.0% 56.0%
------------ ---------- ---------
Cost and expenses:
Cost of revenues (2) 1,174,282 1,174,282 764,403 53.6% 53.6%
Selling, general and administrative (3) 87,096 87,096 47,745 82.4% 82.4%
Non-recurring charges 20,821 - - nm nm
----------- ----------- ----------
1,282,199 1,261,378 812,148 57.9% 55.3%
----------- ----------- ----------
Operating income 26,573 47,394 26,636 (0.2%) 77.9%
----------- ----------- ----------
Other income (expense):
Gain on sale of assets 182,930 - - nm nm
Interest income 1,861 1,861 1,553 19.8% 19.8%
Interest expense (14,764) (14,764) (6,437) 129.4% 129.4%
------------- ---------- ----------
170,027 (12,903) (4,884) 3,581.3% 164.2%
------------- ---------- ----------
Income before income taxes 196,600 34,491 21,752 803.8% 58.6%
Provision for income taxes 77,341 14,856 9,828 686.9% 51.2%
------------- ---------- ----------
Net income $119,259 $19,635 $11,924 900.2% 64.7%
============= ========== ==========
Basic earnings per share $3.10 $0.51 $0.36 761.1% 41.7%
============= ========== ==========
Weighted average number of common shares
outstanding during the period - basic 38,532 38,532 33,145 16.3% 16.3%
============= ========== ==========
Diluted earnings per share $3.03 $0.50 $0.35 765.7% 42.9%
============= ========== ==========
Weighted average number of common shares
outstanding during the period - diluted 39,403 39,403 33,887 16.3% 16.3%
============= ========== ==========
EBITDA (4) $48,925 $69,746 $35,237 38.8% 97.9%
============= ========== ==========
nm - not meaningful
<FN>
(1) Pro Forma excludes non-recurring charges and gain on sale of assets.
(2) Includes depreciation and amortization expense of $2,675, $2,675 and
$2,238, respectively.
(3) Includes depreciation and amortization expense of $19,677, $19,677 and
$6,363, 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>
<TABLE>
<CAPTION>
EXPRESS SCRIPTS, INC.
Unaudited Statement of Operations
(in thousands, except per share and percentage data)
Year Ended
December 31
Pro Forma to
Actual Pro Forma Actual Actual
1999 1999 (1) 1998 % Change % Change
<S> <C> <C> <C> <C> <C>
---------- ----------- ---------- --------- --------
Net revenues $4,288,104 $4,288,104 $2,824,872 51.8% 51.8%
---------- ----------- ----------
Cost and expenses:
Cost of revenues (2) 3,826,905 3,826,905 2,584,997 48.0% 48.0%
Selling, general and administrative (3) 294,194 294,194 148,990 97.4% 97.4%
Non-recurring charges 30,221 - 1,651 1,730.5% nm
---------- ----------- ----------
4,151,320 4,121,099 2,735,638 51.7% 50.6%
---------- ----------- ----------
Operating income 136,784 167,005 89,234 53.3% 87.2%
---------- ----------- ----------
Other income (expense):
Gain on sale of assets 182,930 - - nm nm
Interest income 5,762 5,762 7,236 (20.4%) (20.4%)
Interest expense (60,010) (53,849) (20,230) 196.6% 166.2%
---------- ----------- -----------
128,682 (48,087) (12,994) 1,090.3% 270.1%
---------- ----------- -----------
Income before income taxes 265,466 118,918 76,240 248.2% 56.0%
Provision for income taxes 108,098 51,592 33,566 222.0% 53.7%
---------- ----------- -----------
Income before extraordinary item 157,368 67,326 42,674 268.8% 57.8%
Extraordinary loss on early retirement
of debt, net of taxes of $4,492 7,150 - - nm -
----------- ----------- -----------
Net income $150,218 $67,326 $42,674 252.0% 57.8%
=========== =========== ===========
Basic earnings per share:
Before extraordinary item $4.36 $1.81 $1.29 238.0% 40.3%
Extraordinary loss on early retirement
of debt 0.20 - - nm -
----------- ----------- ------------
Net income $4.16 $1.81 $1.29 222.5% 40.3%
=========== =========== ============
Weighted average number of common shares
outstanding during the period - basic 36,095 37,187 33,105 9.0% 12.3%
=========== ============ ============
Diluted earnings per share:
Before extraordinary item $4.25 $1.77 $1.27 234.6% 39.4%
Extraordinary loss on early retirement
of debt 0.19 - - nm -
----------- ------------ ------------
Net income $4.06 $1.77 $1.27 219.7% 39.4%
=========== ============ ============
Weighted average number of common shares
outstanding during the period - diluted 37,033 38,125 33,698 9.9% 13.1%
============ ============ ===========
EBITDA (4) $208,651 $238,872 $115,683 80.4% 106.5%
============ ============ ===========
nm - not meaningful
<FN>
(1) Pro Forma excludes non-recurring charges, gain on sale of assets 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 $9,216, $9,216 and
$7,575, respectively.
(3) Includes depreciation and amortization expense of $62,651, $62,651 and
$18,874, 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>
<TABLE>
<CAPTION>
EXPRESS SCRIPTS, INC.
Unaudited Balance Sheet
(in thousands)
December 31, December 31,
1999 1998
<S> <C> <C>
-------------- ---------------
ASSETS
Current assets
Cash and cash equivalents $132,630 $122,589
Receivables, net 783,086 433,006
Inventories 113,248 55,634
Deferred taxes 32,248 41,011
Prepaid expenses 5,143 4,667
------------ -------------
Total current assets 1,066,355 656,907
Property and equipment, net 97,573 77,499
Investment in PlanetRx 150,365
Goodwill, net 982,496 282,163
Other intangible assets, net 183,420 65,765
Other assets 7,102 13,127
------------ -------------
Total assets $2,487,311 $1,095,461
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ - $54,000
Claims and rebate payable 850,630 338,251
Accounts payable 112,731 60,247
Accrued expenses 136,997 86,798
------------ ------------
Total current liabilities 1,100,358 539,296
Long-term debt 635,873 306,000
Other long-term liabilities 51,598 471
------------ ------------
Total liabilities 1,787,829 845,767
Total stockholders' equity 699,482 249,694
------------ ------------
Total liabilities and stockholders' equity $2,487,311 $1,095,461
============ ============
</TABLE>
<TABLE>
<CAPTION>
EXPRESS SCRIPTS, INC.
Unaudited Non-Financial Data
(in thousands, except percentage data)
Three Months Ended
December 31
----------------------------------------
1999 (1) 1998 % Change
<S> <C> <C> <C>
------------------- ------------------- ----------
Drug spending $2,663,853 $1,357,824 96.2%
Pharmacy network claims processed 63,759 32,951 93.5%
Mail pharmacy prescriptions filled 3,180 2,159 47.3%
</TABLE>
<TABLE>
<CAPTION>
Year Ended
December 31
---------------------------------------
1999 (1) 1998 % Change
---------------- ---------------- ----------
<S> <C> <C> <C>
Drug spending $8,738,648 $4,495,088 94.4%
Pharmacy network claims processed 211,808 113,177 87.1%
Mail pharmacy prescriptions filled 10,608 7,426 42.8%
</TABLE>
<TABLE>
<CAPTION>
Selected Ratio Analysis
Actual Pro Forma
<S> <C> <C>
Net debt to EBITDA ratio (2) (7) 2.2x 1.9x
Interest coverage ratio (2) (4) (7) 3.2x 4.2x
Debt to enterprise value (3) 20.5% 20.5%
Net debt to net capitalization (3) 41.8% 41.8%
Cash value per share (5) $3.44 $3.44
Book value per share (6) $18.15 $18.15
<FN>
(1) Drug spending and pharmacy network claims processed excludes UHC. For
the three months and year ended December 31, 1999, drug spending and pharmacy
network claims processed for UHC were $866,004 and $2,421,741, respectively, and
21,546 and 62,101, respectively.
(2) Annualized using financial information for the nine months ended
December 31, 1999.
(3) Based on financial information as of December 31, 1999.
(4) Represent EBITDA divided by interest expense.
(5) Represents cash divided by 38,536 shares outstanding at December 31,
1999
(6) Represents stockholders' equity divided by 38,536 shares outstanding at
December 31, 1999.
(7) Pro Forma excludes non-recurring charges, the gain on the sale of
assets 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.
</FN>
</TABLE>
