Document and Company Informatio
Document and Company Information (USD $) | ||
9 Months Ended
Sep. 30, 2009 | Jun. 30, 2008
| |
Document And Company Information [Abstract] | ||
Entity Registrant Name | EXPRESS SCRIPTS INC | |
Entity Central Index Key | 0000885721 | |
Document Type | 10-Q | |
Document Period End Date | 2009-09-30 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Well-known Seasoned Issuer | Yes | |
Entity Voluntary Filers | No | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Large Accelerated Filer | |
Entity Public Float | $15,264,424,000 | |
Entity Common Stock, Shares Outstanding | 274,720,000 |
Consolidated Balance Sheet (Una
Consolidated Balance Sheet (Unaudited) (USD $) | ||
In Millions | Sep. 30, 2009
| Dec. 31, 2008
|
Assets | ||
Cash and cash equivalents | 3942.4 | 530.7 |
Restricted cash and investments | 8.1 | 4.8 |
Short-term investments | 1202.7 | 8.4 |
Receivables, net | 1249.8 | 1155.9 |
Inventories | 184.2 | 203 |
Deferred taxes | 126.2 | 118.2 |
Prepaid expenses and other current assets | 29.6 | 22.8 |
Total current assets | 6,743 | 2043.8 |
Property and equipment, net | 265.7 | 222.2 |
Goodwill | 2870.3 | 2881.1 |
Other intangible assets, net | 317.2 | 332.6 |
Other assets | 32.9 | 29.5 |
Total assets | 10229.1 | 5509.2 |
Liabilities and Stockholders' Equity | ||
Claims and rebates payable | 1400.9 | 1380.7 |
Accounts payable | 585.1 | 496.4 |
Accrued expenses | 524.2 | 420.5 |
Current maturities of long-term debt | 540.1 | 420 |
Current liabilities of discontinued operations | 5.6 | 4.1 |
Total current liabilities | 3055.9 | 2721.7 |
Long-term debt | 3472.2 | 1340.3 |
Other liabilities | 393.5 | 369 |
Total liabilities | 6921.6 | 4,431 |
Stockholders' Equity: | ||
Preferred stock, 5,000,000 shares authorized, $0.01 par value per share; and no shares issued and outstanding | 0 | 0 |
Common stock, 1,000,000,000 authorized, $0.01 par value; shares issued: 345,274,000 and 318,958,000, respectively; shares outstanding: 274,720,000 and 247,649,000, respectively | 3.5 | 3.2 |
Additional paid-in capital | 2,244 | 640.8 |
Accumulated other comprehensive income | 14.2 | 6.2 |
Retained earnings | 3965.3 | 3,361 |
Stockholders' equity before treasury stock | 6,227 | 4011.2 |
Common stock in treasury at cost, 70,554,000 and 71,309,000 shares, respectively | -2919.5 | (2,933) |
Total stockholders' equity | 3307.5 | 1078.2 |
Total liabilities and stockholders' equity | 10229.1 | 5509.2 |
Consolidated Balance Sheet (Par
Consolidated Balance Sheet (Parenthetical) (Unaudited) (USD $) | ||
Sep. 30, 2009
| Dec. 31, 2008
| |
Stockholders' Equity: | ||
Preferred stock, par value per share | 0.01 | 0.01 |
Preferred stock, shares authorized | 5,000,000 | 5,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common Stock, par value per share | 0.01 | 0.01 |
Common Stock, shares authorized | 1,000,000,000 | 1,000,000,000 |
Common Stock, shares issued | 345,274,000 | 318,958,000 |
Common Stock, shares outstanding | 274,720,000 | 247,649,000 |
Common stock in treasury at cost, shares | 70,554,000 | 71,309,000 |
Consolidated Statement of Opera
Consolidated Statement of Operations (Unaudited) (USD $) | |||||||||||||||||||
In Millions, except Per Share data | 3 Months Ended
Sep. 30, 2009 | 3 Months Ended
Sep. 30, 2008 | 9 Months Ended
Sep. 30, 2009 | 9 Months Ended
Sep. 30, 2008 | |||||||||||||||
Revenues | 5619.4 | [1] | 5450.5 | [1] | 16545.5 | [1] | 16472.1 | [1] | |||||||||||
Cost of revenues | 5006.8 | [1] | 4930.1 | [1] | 14804.8 | [1] | 14,983 | [1] | |||||||||||
Gross profit | 612.6 | 520.4 | 1740.7 | 1489.1 | |||||||||||||||
Selling, general and administrative | 254.1 | 189.7 | 646.7 | 547.1 | |||||||||||||||
Operating income | 358.5 | 330.7 | 1,094 | 942 | |||||||||||||||
Other (expense) income: | |||||||||||||||||||
Non-operating charges, net | 0 | (2) | 0 | (2) | |||||||||||||||
Undistributed loss from joint venture | 0 | 0 | 0 | -0.3 | |||||||||||||||
Interest income | 2 | 2.1 | 4.1 | 10.8 | |||||||||||||||
Interest expense | (48) | -15.7 | -142.7 | -56.1 | |||||||||||||||
Total other (expense) income | (46) | -15.6 | -138.6 | -47.6 | |||||||||||||||
Income before income taxes | 312.5 | 315.1 | 955.4 | 894.4 | |||||||||||||||
Provision for income taxes | 115.6 | 112.1 | 351.8 | 321.1 | |||||||||||||||
Net income from continuing operations | 196.9 | 203 | 603.6 | 573.3 | |||||||||||||||
Net income (loss) from discontinued operations, net of tax | 0.7 | -1.1 | 0.7 | (4) | |||||||||||||||
Net income | 197.6 | 201.9 | 604.3 | 569.3 | |||||||||||||||
Weighted average number of common shares outstanding during the period: | |||||||||||||||||||
Basic | 274.5 | 247.1 | 259.7 | 249.3 | |||||||||||||||
Diluted | 277.2 | 250.3 | 262.1 | 252.7 | |||||||||||||||
Basic earnings per share: | |||||||||||||||||||
Continuing operations | 0.72 | 0.82 | 2.32 | 2.3 | |||||||||||||||
Discontinued operations | $0 | $0 | $0 | -0.02 | |||||||||||||||
Net earnings | 0.72 | 0.82 | 2.33 | 2.28 | |||||||||||||||
Diluted earnings per share: | |||||||||||||||||||
Continuing operations | 0.71 | 0.81 | 2.3 | 2.27 | |||||||||||||||
Discontinued operations | $0 | $0 | $0 | -0.02 | |||||||||||||||
Net earnings | 0.71 | 0.81 | 2.31 | 2.25 | |||||||||||||||
[1]Includes retail pharmacy co-payments of $708.4 million and $733.7 million for the three months ended September 30, 2009 and 2008, respectively and $2,252.2 million and $2,445.5 million for the nine months ended September 30, 2009 and 2008, respectively. |
Statement of Changes in Stockho
Statement of Changes in Stockholders Equity (Unaudited) (USD $) | ||||||
In Millions | Common Stock
| Additional Paid-in Capital
| Treasury Stock
| Retained Earnings
| Accumulated Other Comprehensive Income
| Total
|
Beginning Balance at Dec. 31, 2008 | 3.2 | 640.8 | ($2,933) | $3,361 | 6.2 | 1078.2 |
Beginning Balance, Shares at Dec. 31, 2008 | 318.9 | |||||
Comprehensive income: | ||||||
Net income | 604.3 | 604.3 | ||||
Other comprehensive income: | ||||||
Foreign currency translation adjustment | 8 | 8 | ||||
Comprehensive income | 604.3 | 8 | 612.3 | |||
Issuance of common stock, net of costs | 0.3 | 1568.8 | 1569.1 | |||
Issuance of common stock, net of costs, shares | 26.4 | |||||
Changes in stockholders' equity related to employee stock plans | 34.4 | 13.5 | 47.9 | |||
Ending Balance, Shares at Sep. 30, 2009 | 345.3 | |||||
Ending Balance at Sep. 30, 2009 | 3.5 | $2,244 | -2919.5 | 3965.3 | 14.2 | 3307.5 |
Consolidated Statement of Cash
Consolidated Statement of Cash Flows (Unaudited) (USD $) | ||
In Millions | 9 Months Ended
Sep. 30, 2009 | 9 Months Ended
Sep. 30, 2008 |
Cash flows from operating activities: | ||
Net income | 604.3 | 569.3 |
Net (income) loss from discontinued operations, net of tax | -0.7 | 4 |
Net income from continuing operations | 603.6 | 573.3 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation and amortization | 73.5 | 72.9 |
Deferred financing fees | 59 | 1.8 |
Non-cash adjustments to net income | 77.1 | 98.8 |
Changes in operating assets and liabilities: | ||
Claims and rebates payable | 20.2 | 33.7 |
Other net changes in operating assets and liabilities | 80 | -53.4 |
Net cash provided by operating activities-continuing operations | 913.4 | 727.1 |
Net cash provided by operating activities-discontinued operations | 13.1 | 1.9 |
Net cash flows provided by operating activities | 926.5 | 729 |
Cash flows from investing activities: | ||
Purchase of short-term investments | -1198.9 | 0 |
Purchases of property and equipment | -90.5 | -59.9 |
Acquisition, net of cash | 0 | -246.5 |
Short term investments transferred from cash | 0 | -49.3 |
Proceeds from the sale of businesses | 0 | 27.7 |
Other | 5.4 | -0.9 |
Net cash used in investing activities | (1,284) | -328.9 |
Cash flows from financing activities: | ||
Proceeds on long-term debt, net of discounts | 2491.6 | 0 |
Net proceeds from stock issuance | 1569.1 | 0 |
Deferred financing fees | -69.5 | 0 |
Repayment of long-term debt | -240.1 | -180.1 |
Tax benefit relating to employee stock compensation | 7.7 | 39.2 |
Treasury stock acquired | 0 | -494.4 |
Net proceeds from employee stock plans | 7.1 | 29.2 |
Net cash provided by (used in) financing activities | 3765.9 | -606.1 |
Effect of foreign currency translation adjustment | 3.3 | -1.6 |
Net increase (decrease) in cash and cash equivalents | 3411.7 | -207.6 |
Cash and cash equivalents at beginning of period | 530.7 | 434.7 |
Cash and cash equivalents at end of period | 3942.4 | 227.1 |
Summary of significant accounti
Summary of significant accounting policies | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Summary of significant accounting policies [Abstract] | |
Summary of significant accounting policies | Note 1 Summary of significant accounting policies Our significant accounting policies, normally included in financial statements prepared in conformity with generally accepted accounting principles, have been omitted from this Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). However, we believe 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 the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December31, 2008, as revised and filed with the SEC on Form 8-K on June2, 2009 to reflect the change in segment reporting as described in Note 10 to the accompanying consolidated financial statements. We changed our reportable segments to Pharmacy Benefit Management (PBM) and Emerging Markets (EM) during the first quarter of 2009 (see Note 10). For a full description of our accounting policies, refer to the Notes to Consolidated Financial Statements included in our Current Report on Form 8-K dated June2, 2009. We believe the accompanying unaudited consolidated financial statements reflect all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the Unaudited Consolidated Balance Sheet at September30, 2009, the Unaudited Consolidated Statement of Operations for the three months and nine months ended September30, 2009 and 2008, the Unaudited Consolidated Statement of Changes in Stockholders Equity for the nine months ended September30, 2009, and the Unaudited Consolidated Statement of Cash Flows for the nine months ended September 30, 2009 and 2008. Operating results for the three months and nine months ended September30, 2009 are not necessarily indicative of the results that may be expected for the year ending December31, 2009. New Accounting Guidance. In December2007, the Financial Accounting Standards Board (FASB) revised the authoritative guidance for business combinations. The guidance changes the definitions of a business and a business combination, and will result in more transactions recorded as business combinations. Certain acquired contingencies will be recorded initially at fair value on the acquisition date, transaction and restructuring costs generally will be expensed as incurred and in partial acquisitions, companies generally will record 100percent of the assets and liabilities at fair value, including goodwill. In April2009, the FASB amended guidance which clarifies the accounting for assets acquired and liabilities assumed in a business combination that arise from contingencies. The guidance is effective as of the start of the first quarter 2009. We will account for all business combinations in 2009 and beyond under the guidance. In April2008, the FASB issued authoritative guidance which intends to improve the consistency between the useful life of an intangible asset and the period of expected cash flows used to measure the fair value of the asset. The guidance is effective for fiscal years beginning after December15, 2008. These provisions will be applied to future intangible assets acqui |
Fair value measurements
Fair value measurements | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Fair value measurements [Abstract] | |
Fair value measurements | Note 2 Fair value measurements In September2006, the FASB issued authoritative guidance which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. This guidance applies whenever another standard requires (or permits) assets or liabilities to be measured at fair value. This guidance does not expand the use of fair value to any new circumstances. Our adoption of the guidance did not have a material impact on our consolidated financial position, results of operations, or cash flows. The guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than quoted prices for similar assets and liabilities in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. Financial assets accounted for at fair value on a recurring basis at September30, 2009 include cash equivalents of $3,855.6million, restricted cash and investments of $8.1million, short-term investments of $1,199.5million and trading securities of $16.4million (included in other assets). These assets are carried at fair value based on quoted market prices for identical securities (Level 1 inputs). Short-term investments represent investments in U.S. treasury bills with maturities over three months. Cash equivalents include investments in AAA-rated money market mutual funds with weighted average maturities of less than 90days. As of September30, 2009, short-term investments includes our investment in the Reserve Primary Fund (the Primary Fund), which is a money market fund. The estimated fair value of our investment in the Primary Fund was $2.9million as of September30, 2009. We recognized an unrealized loss of $2.0million in the third quarter of 2008, when the net asset value of the Primary Fund decreased below $1 per share. Our investment in the Primary Fund is included in short-term investments in the unaudited consolidated balance sheet. We received cash distributions from the Primary Fund of $38.9million during 2008, $5.5million during the nine months ended September30, 2009, and $1.0million subsequent to September30, 2009. We assessed the fair value of the underlying collateral for the Primary Fund through evaluation of the liquidation value of assets held by the Primary Fund, which is classified within Level 3 of the fair value hierarchy. There were no assets or liabilities classified as Level 3 prior to the third quarter of 2008. In April2009, the FASB issued (1)guidance on determining fair value when market activity has decreased, (2)guidance which addresses other-than-temporary impairments for debt securities; and (3)guidance which discusses fair value disclosures for financial instruments in interim periods. The guidance is effective for interim and annual periods ending after June15, 2009 and the adoption did not h |
Acquisition
Acquisition | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Acquisition [Abstract] | |
Acquisition | Note 3 Acquisition On April9, 2009, we entered into a Stock and Interest Purchase Agreement (the Acquisition Agreement) with WellPoint, Inc., an Indiana corporation (WellPoint). The Acquisition Agreement provides that, upon the terms and subject to the conditions set forth in the Acquisition Agreement, we will purchase all of the shares and equity interests of three WellPoint subsidiaries, NextRx, Inc., NextRx Services, Inc., and NextRx, LLC (collectively, NextRx), that provide pharmacy benefit management services (the PBM Business), in exchange for total consideration of $4.675 billion. We may, in our discretion, deliver up to $1.4billion of the purchase price in the form of common stock (valued based on average closing price over the 60days preceding the closing of the acquisition) in lieu of cash, although we do not currently intend to do so. Additionally, the parties have agreed to make an election under Section338(h)(10) of the Internal Revenue Code with respect to the transaction which results in any goodwill generated being tax deductible over 15 years. We estimate the value of such election to us to be between $800million and $1.2billion dependent upon the discount factor and tax rate assumed. At the closing of the acquisition, we will begin integrating NextRxs PBM clients into our existing systems and operations. We will also enter into a 10-year contract with WellPoint under which we will provide pharmacy benefits management services to WellPoint and its designated affiliates (the PBM Agreement). This contract is renewable upon agreement of both parties. We anticipate that the transaction will close in the fourth quarter of 2009 subject to certain closing conditions. We intend to use the net proceeds from recent debt and equity offerings to finance a portion of the $4.675billion purchase price for the acquisition (see Note 6 and Note 7). Our obligation to consummate the acquisition is subject to certain additional conditions, including (i)the receipt of all necessary government approvals (except for those which would not be material to NextRx as a whole) and the receipt of any state insurance law approvals; and (ii) the completion of certain transition and integration projects to our reasonable satisfaction (this condition will be deemed to be satisfied from and after December31, 2009). WellPoints obligation to consummate the acquisition is subject to certain other conditions, including the receipt of all necessary government consents and approvals (except for those which would not materially affect WellPoints non-PBM business) without the imposition of a burdensome term or condition on WellPoints post-closing operations. The waiting period under the Hart-Scott-Rodino Antitrust Improvements Act in connection with the acquisition expired on May27, 2009. On July22, 2008, we completed the acquisition of the Pharmacy Services Division of MSC Medical Services Company (MSC), a privately held PBM, for a purchase price of $251.0million, which includes a purchase price adjustment for working capital and transaction costs. MSC is a leader in providing PBM services to clients providing workers compensation benefits. The purchas |
Discontinued operations
Discontinued operations | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Discontinued operations [Abstract] | |
Discontinued operations | Note 4 Discontinued operations On June30, 2008, we completed the sale of CuraScript Infusion Pharmacy, Inc. (IP), our infusion pharmacy line of business, for $27.5million which includes a pre-tax gain of approximately $7.4million in 2008. Rights to certain working capital balances related to IP were not sold and are retained on the balance sheet as of September30, 2009. In the third quarter of 2009, discontinued operations realized net cash flows from operations of $13.1million, primarily due to the utilization of a tax benefit in the third quarter of 2009. For a period of time, we will continue to generate cash flows and statement of operations activity on assets and liabilities of discontinued operations as these working capital balances wind down, which are not expected to be material. The results of operations for IP are reported as discontinued operations for all periods presented in the accompanying unaudited consolidated statement of operations. Additionally, for all periods presented, assets and liabilities of the discontinued operations are segregated in the accompanying unaudited consolidated balance sheet, and cash flows of our discontinued operations are segregated in our accompanying unaudited consolidated statement of cash flows. On April4, 2008, we completed the sale of Custom Medical Products, Inc. and recorded a pre-tax loss of approximately $1.3million in the second quarter of 2008. Certain information with respect to the discontinued operations for the three months and nine months ended September30, 2009 and 2008 is summarized as follows: Three Months Ended Nine Months Ended September 30, September 30, (in millions) 2009 2008 2009 2008 Revenues $ $ $ $ 44.7 Net income (loss)from discontinued operations, net of tax 0.7 (1.1 ) 0.7 (4.0 ) Income tax expense from discontinued operations 0.4 0.7 0.4 0.7 |
Earnings per share
Earnings per share | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Earnings per share [Abstract] | |
Earnings per share | Note 5 Earnings per share Basic earnings per share (EPS) is computed using the weighted average number of common shares outstanding during the period. Diluted EPS is computed in the same manner as basic earnings per share but adds the number of additional common shares that would have been outstanding for the period if the dilutive potential common shares had been issued. The following is the reconciliation between the number of weighted average shares used in the basic and diluted EPS calculations for all periods: Three Months Ended Nine Months Ended September 30, September 30, (in millions) 2009(1) 2008 2009(1) 2008 Weighted average number of common shares outstanding during the period Basic EPS(2) 274.5 247.1 259.7 249.3 Dilutive common stock equivalents: Outstanding stock options, stock-settled stock appreciation rights (SSRs), restricted stock units, and executive deferred compensation units(2) 2.7 3.2 2.4 3.4 Weighted average number of common shares outstanding during the period Diluted EPS(2) 277.2 250.3 262.1 252.7 (1) The increase in weighted average number of common shares outstanding for the three months and nine months ended September30, 2009 for Basic and Diluted EPS resulted from the 26.45million shares issued in the common stock offering on June10, 2009 (see Note 7). (2) Excludes awards of 0.5million and 1.7million for the three months ended September 30, 2009 and 2008, respectively, and 2.1million and 1.9million for the nine months ended September30, 2009 and 2008, respectively. These were excluded because their effect was anti-dilutive. The above shares are all calculated under the treasury stock method. |
Financing
Financing | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Financing [Abstract] | |
Financing | Note 6 Financing Long-term debt consists of: September 30, December 31, (in millions) 2009 2008 Term A loans due October14, 2010 with an average interest rate of 1.2% at September 30, 2009 $ 720.0 $ 960.0 Term-1 loans due October14, 2010 with an average interest rate of 1.6% at September 30, 2009 800.0 800.0 5.25% senior notes due 2012, net of unamortized discount 999.3 6.25% senior notes due 2014, net of unamortized discount 996.0 7.25% senior notes due 2019, net of unamortized discount 496.7 Revolving credit facility due October14, 2010 Other 0.3 0.3 Total debt 4,012.3 1,760.3 Less current maturities 540.1 420.0 Long-term debt $ 3,472.2 $ 1,340.3 At September30, 2009, our credit facility includes $720.0million of Term A loans, $800.0 million of Term-1 loans and a $600.0million revolving credit facility. The revolving credit facility (none of which was outstanding as of September30, 2009) is available for general corporate purposes. During the first nine months of 2009, we made scheduled payments of $240.0 million on the Term A loan. While we cannot provide any assurances that cash flow from operations will be sufficient to make our scheduled payments, we anticipate that we will continue making scheduled payments under the terms of the credit agreement until the loan is repaid in full on or before the maturity date of October14, 2010. We do not believe we will need to secure external sources of capital in order to meet these obligations; however, we may decide to secure external capital for operating activities or for other business needs. In the event future cash flows are insufficient to meet our scheduled payments, we believe it will be possible to amend, extend, and/or refinance the Term loans prior to their maturity. The credit facility requires us to pay interest periodically on the London Interbank Offered Rates (LIBOR) or base rate options, plus a margin. The margin over LIBOR will range from 0.50% to 1.125%, depending on our consolidated leverage ratio or our credit rating. Under the credit facility we are required to pay commitment fees on the unused portion of the $600.0million revolving credit facility. The commitment fee will range from 0.10% to 0.25% depending on our consolidated leverage ratio or our credit rating. At September30, 2009, the weighted average interest rate on the facility was 1.4%. The credit facility contains covenants which limit the indebtedness we may incur, the common shares we may repurchase, and dividends we may pay. The repurchase and dividend covenant applies if certain leverage thresholds are exceeded. The covenants also include a minimum interest coverage ratio and a maximum leverage ratio. At September30, 2009, we believe we were in compliance in all material respects with all covenants associated with our credit facility. On June9, 2009, we issued $2.5billion of Senior Notes, including $1.0billion aggregate principal amount of 5.250% Senior Notes due 2012; $1.0billion aggrega |
Common stock
Common stock | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Common stock [Abstract] | |
Common stock | Note 7 Common stock On June10, 2009, we completed a public offering of 26.45million shares of common stock, which includes 3.45million shares sold as a result of the underwriters exercise of their overallotment option in full at closing, at a price of $61.00 per share. The sale resulted in net proceeds of $1,569.1million after giving effect to the underwriting discount and issuance costs of $44.4million. We intend to use the net proceeds for the acquisition of WellPoints NextRx PBM Business (see Note 3). |
Stock based compensation plans
Stock based compensation plans | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Stock-based compensation plans [Abstract] | |
Stock-based compensation plans | Note 8 Stock-based compensation plans Under our stock-based compensation plans, we have issued stock options, SSRs, restricted stock awards, restricted stock units, and performance share awards. Awards are typically settled using treasury shares. The maximum contractual term of stock options and SSRs granted under the 2000 Long Term Incentive Plan (LTIP) is 10years. Due to the nature of the awards, we use the same valuation methods and accounting treatments for SSRs and stock options. During the first nine months of 2009, we granted 2,409,000 stock options with a weighted average fair market value of $14.50. The SSRs and stock options have three-year graded vesting. During the first nine months of 2009, we granted to certain officers and employees approximately 287,000 restricted stock units and performance shares with a weighted average fair market value of $46.43. The restricted stock units have three-year graded vesting and the performance shares cliff vest at the end of the three years. The number of performance shares that ultimately vest is dependent upon achieving specific performance targets. Prior to vesting, these shares are subject to forfeiture to us without consideration upon termination of employment under certain circumstances. The total number of non-vested restricted stock and performance share awards was 603,000 at September30, 2009 and 518,000 at December31, 2008. We recognized stock-based compensation expense of $11.2million and $9.4million in the three months ended September30, 2009 and 2008, respectively, and $33.5million and $29.2million in the nine months ended September30, 2009 and 2008. Unamortized stock-based compensation as of September30, 2009 was $28.9million for stock options and SSRs and $20.6million for restricted stock and performance shares. The fair value of options and SSRs granted is estimated on the date of grant using a Black-Scholes multiple option-pricing model with the following weighted average assumptions: Three Months Ended Nine Months Ended September 30, September 30, 2009(1) 2008 2009 2008 Expected life of option 3-5 years 3-5 years 3-5 years Risk-free interest rate 2.8%-3.2% 1.3%-2.4% 1.9%-3.4% Expected volatility of stock 30%-31% 35%-39% 30%-31% Expected dividend yield None None None (1) No options or SSRs were granted during the three months ended September30, 2009. |
Contingencies
Contingencies | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Contingencies [Abstract] | |
Contingencies | Note 9 Contingencies We accrue self-insurance reserves based upon estimates of the aggregate liability of claim costs in excess of our insurance coverage. Reserves are estimated using certain actuarial assumptions followed in the insurance industry and our historical experience. The majority of these claims are legal claims and our liability estimate is primarily related to the cost to defend these claims. We do not accrue for settlements, judgments, monetary fines or penalties until such amounts are probable and estimable. Under authoritative FASB guidance, if the range of possible loss is broad, the liability accrued should be based on the lower end of the range. While we believe our services and business practices are in compliance with applicable laws, rules and regulations in all material respects, we cannot predict the outcome of these matters at this time. An unfavorable outcome in one or more of these matters could result in the imposition of judgments, monetary fines or penalties, or injunctive or administrative remedies. We can give no assurance that such judgments, fines and remedies, and future costs associated with legal matters, would not have a material adverse effect on our financial condition, our consolidated results of operations or our consolidated cash flows. We received a $15.0 million insurance recovery in second quarter of 2009 for previously incurred litigation costs. We accrued $35.0 million in the third quarter of 2009 related to the settlement of a lawsuit brought against us and one of our subsidiaries by Aetna, Inc., which settlement resulted in the dismissal of the case by the court on October 22, 2009. |
Segment information
Segment information | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Segment Information [Abstract] | |
Segment information | Note 10 Segment information During the first quarter of 2009, we changed our organizational structure with new strategic business segments: PBM and EM. Previously, we had reported segments of PBM and Specialty and Ancillary Services (SAAS). Our chief operating decision maker began assessing performance under this new structure during the first quarter of 2009. Specialty Pharmacy operations, which were previously in our SAAS segment, have been operationally integrated with our PBM operations in order to maximize its growth and improve efficiency. Additionally, the following services which were previously in SAAS were operationally integrated into the PBM: bio-pharma services including reimbursement and customized logistics solutions and fulfillment of prescriptions to low-income patients through pharmaceutical manufacturer-sponsored and company-sponsored generic patient assistance programs. The EM segment primarily consists of the following services: distribution of pharmaceuticals and medicals supplies to providers and clinics, distribution of fertility pharmaceuticals requiring special handling or packaging, distribution of sample units to physicians and verification of practitioner licensure and healthcare account administration and implementation of consumer-directed healthcare solutions. EM services represent opportunity for growth and aligning them together under strong leadership is expected to benefit these key investments. As noted previously, we report segments on the basis of services offered and have determined we have two reportable segments: PBM and EM. Our domestic and Canadian PBM operating segments have similar characteristics and as such have been aggregated into a single PBM reporting segment. Operating income is the measure used by our chief operating decision maker to assess the performance of each of our operating segments. The following table presents information about our reportable segments for the three months and nine months ended September30, 2009 and 2008. The 2008 segment disclosures have been reclassified in the table below to reflect the new segment structure. The discontinued operations described in Note 4 have been excluded from the table. (in millions) PBM EM Total For the three months ended September30, 2009 Product revenue: Network revenues(1) $ 3,288.8 $ $ 3,288.8 Home delivery and specialty revenues 1,892.7 1,892.7 Other revenues 22.4 339.5 361.9 Service revenues 67.1 8.9 76.0 Total revenues 5,271.0 348.4 5,619.4 Depreciation and amortization expense 21.0 2.8 23.8 Operating income 354.8 3.7 358.5 Interest income 2.0 Interest expense (48.0 ) Income before income taxes 312.5 Capital expenditures 57.3 1.2 58.5 For the three months ended September30, 2008 Product re |
Condensed consolidating financi
Condensed consolidating financial information | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Condensed consolidating financial information [Abstract] | |
Condensed consolidating financial information | Note 11 Condensed consolidating financial information Our Senior Notes are jointly and severally and fully and unconditionally guaranteed by our 100% owned domestic subsidiaries, other than certain regulated subsidiaries including Express Scripts Insurance Company. The following condensed consolidating financial information has been prepared in accordance with the requirements for presentation of such information. Effective June 30, 2008, CuraScript Infusion Pharmacy, Inc. was sold and effective April4, 2008, Custom Medical Products, Inc. was sold. The assets, liabilities, and operations from these former subsidiaries are included as discontinued operations in those of the non-guarantors. Subsequent to the acquisition of Pharmacy Services Division of MSC Medical Services Company (MSC) on July22, 2008 and Connect Your Care, LLC (CYC) on October10, 2007, the assets, liabilities and operations of the 100% owned domestic subsidiaries have been included in those of the guarantors. The following presents the condensed consolidating financial information separately for: (i) Express Scripts, Inc. (the Parent Company), the issuer of the guaranteed obligations; (ii) Guarantor subsidiaries, on a combined basis, as specified in the indentures related to Express Scripts obligations under the notes; (iii) Non-guarantor subsidiaries, on a combined basis; (iv) Consolidating entries and eliminations representing adjustments to (a)eliminate intercompany transactions between or among the Parent Company, the guarantor subsidiaries and the non-guarantor subsidiaries, (b)eliminate the investments in our subsidiaries and (c)record consolidating entries; and (v) Express Scripts, Inc. and subsidiaries on a consolidated basis. Condensed Consolidating Balance Sheet Express Non- (in millions) Scripts, Inc. Guarantors Guarantors Eliminations Consolidated As of September30, 2009 Cash and cash equivalents $ 3,889.4 $ 9.4 $ 43.6 $ $ 3,942.4 Short-term investments 1,202.7 1,202.7 Receivables, net 817.1 423.6 9.1 1,249.8 Other current assets 90.1 252.1 5.9 348.1 Current assets 5,999.3 685.1 58.6 6,743.0 Property and equipment, net 210.2 49.0 6.5 265.7 Investments in subsidiaries 3,874.6 (3,874.6 ) Intercompany (844.4 ) 910.2 (65.8 ) Goodwill 252.5 2,593.8 24.0 2,870.3 Other intangible assets, net 35.3 277.7 4.2 317.2 Other assets 26.3 4.7 1.9 32.9 Total assets $ 9,553.8 $ 4,520.5 $ 29.4 $ (3,874.6 ) $ 10,229.1 Claims and rebates payable $ 1,400.3 $ 0.6 $ $ $ 1,400.9 Accounts payable 568.4 14.5 2.2 585.1 Accrued expenses 194.8 324.9 4.5 |