Document and Entity Information
Document and Entity Information (USD $) | ||
3 Months Ended
Mar. 31, 2010 | Jun. 30, 2009
| |
Document and Entity Information [Abstract] | ||
Entity Registrant Name | EXPRESS SCRIPTS INC | |
Entity Central Index Key | 0000885721 | |
Document Type | 10-Q | |
Document Period End Date | 2010-03-31 | |
Amendment Flag | false | |
Document Fiscal Year Focus | 2,010 | |
Document Fiscal Period Focus | Q1 | |
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 | $18,660,280,000 | |
Entity Common Stock, Shares Outstanding | 274,048,000 |
Consolidated Balance Sheet (Una
Consolidated Balance Sheet (Unaudited) (USD $) | ||
In Millions | Mar. 31, 2010
| Dec. 31, 2009
|
Current assets: | ||
Cash and cash equivalents | 1443.1 | 1070.4 |
Restricted cash and investments | 10 | 9.1 |
Receivables, net | 2121.3 | 2521.2 |
Inventories | 297 | 313 |
Deferred taxes | 141 | 135 |
Prepaid expenses and other current assets | 27.2 | 94.8 |
Total current assets | 4039.6 | 4143.5 |
Property and equipment, net | 362.9 | 354.1 |
Goodwill | 5521.4 | 5519.2 |
Other intangible assets, net | 1842.5 | 1882.6 |
Other assets | 32.5 | 31.8 |
Total assets | 11798.9 | 11931.2 |
Current liabilities: | ||
Claims and rebates payable | 2,647 | 2850.7 |
Accounts payable | 736.8 | 706.9 |
Accrued expenses | 645.6 | 552.4 |
Current maturities of long-term debt | 1160.1 | 1340.1 |
Current liabilities of discontinued operations | 0 | 6.7 |
Total current liabilities | 5189.5 | 5456.8 |
Long-term debt | 2492.8 | 2492.5 |
Other liabilities | 469.6 | 430.1 |
Total liabilities | 8151.9 | 8379.4 |
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 per share; shares issued: 345,110,000 and 345,279,000, respectively; shares outstanding: 274,048,000 and 275,007,000, respectively | 3.5 | 3.5 |
Additional paid-in capital | 2,283 | 2,260 |
Accumulated other comprehensive income | 18 | 14.1 |
Retained earnings | 4448.8 | 4188.6 |
Stockholders' equity before treasury stock | 6753.3 | 6466.2 |
Common stock in treasury at cost, 71,062,000 and 70,272,000 shares, respectively | -3106.3 | -2914.4 |
Total stockholders' equity | 3,647 | 3551.8 |
Total liabilities and stockholders' equity | 11798.9 | 11931.2 |
1_Consolidated Balance Sheet (U
Consolidated Balance Sheet (Unaudited) (Parenthetical) | ||
Mar. 31, 2010
| Dec. 31, 2009
| |
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 | 345,110,000 | 345,279,000 |
Common stock, shares outstanding | 274,048,000 | 275,007,000 |
Common stock in treasury at cost, shares | 71,062,000 | 70,272,000 |
Consolidated Statement of Opera
Consolidated Statement of Operations (Unaudited) (USD $) | |||||||||||||||||||
In Millions, except Per Share data | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 | |||||||||||||||||
Consolidated Statement of Operations | |||||||||||||||||||
Revenues | 11143.9 | [1] | 5422.8 | [1] | |||||||||||||||
Cost of revenues | 10478.9 | [1] | 4888.7 | [1] | |||||||||||||||
Gross profit | 665 | 534.1 | |||||||||||||||||
Selling, general and administrative | 210.9 | 178.6 | |||||||||||||||||
Operating income | 454.1 | 355.5 | |||||||||||||||||
Other (expense) income: | |||||||||||||||||||
Interest income | 1.7 | 0.9 | |||||||||||||||||
Interest expense | -42.8 | -17.1 | |||||||||||||||||
Total other (expense) income | -41.1 | -16.2 | |||||||||||||||||
Income before income taxes | 413 | 339.3 | |||||||||||||||||
Provision for income taxes | -152.8 | -124.6 | |||||||||||||||||
Net income from continuing operations | 260.2 | 214.7 | |||||||||||||||||
Net loss from discontinued operations, net of tax | -0.3 | ||||||||||||||||||
Net income | 260.2 | 214.4 | |||||||||||||||||
Weighted average number of common shares outstanding during the period: | |||||||||||||||||||
Basic | 274.9 | 247.6 | |||||||||||||||||
Diluted | 277.9 | 249.3 | |||||||||||||||||
Basic earnings per share: | |||||||||||||||||||
Continuing operations | 0.95 | 0.87 | |||||||||||||||||
Discontinued operations | $0 | $0 | |||||||||||||||||
Net earnings | 0.95 | 0.87 | |||||||||||||||||
Diluted earnings per share: | |||||||||||||||||||
Continuing operations | 0.94 | 0.86 | |||||||||||||||||
Discontinued operations | $0 | $0 | |||||||||||||||||
Net earnings | 0.94 | 0.86 | |||||||||||||||||
[1]Includes retail pharmacy co-payments of $1,662.6 million and $822.7 million for the three months ended March 31, 2010 and 2009, respectively. |
2_Consolidated Statement of Ope
Consolidated Statement of Operations (Unaudited) (Parenthetical) (USD $) | ||
In Millions | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Consolidated Statement of Operations | ||
Retail pharmacy co-payments | 1662.6 | 822.7 |
Consolidated Statement of Chang
Consolidated Statement of Changes in Stockholders Equity (Unaudited) (USD $) | ||||||
In Millions | Common Stock
| Additional Paid-in Capital
| Accumulated Other Comprehensive Income
| Retained Earnings
| Treasury Stock
| Total
|
Beginning Balance, shares at Dec. 31, 2009 | 345.3 | |||||
Beginning Balance at Dec. 31, 2009 | 3.5 | $2,260 | 14.1 | 4188.6 | -2914.4 | 3551.8 |
Comprehensive income: | ||||||
Net income | 260.2 | 260.2 | ||||
Other comprehensive income: | ||||||
Foreign currency translation adjustment | 3.9 | 3.9 | ||||
Comprehensive income | 3.9 | 260.2 | 264.1 | |||
Treasury stock acquired | -218.2 | -218.2 | ||||
Changes in stockholders' equity related to employee stock plans | 23 | 26.3 | 49.3 | |||
Changes in stockholders' equity related to employee stock plans, shares | -0.2 | |||||
Ending Balance at Mar. 31, 2010 | 3.5 | $2,283 | $18 | 4448.8 | -3106.3 | $3,647 |
Ending Balance, shares at Mar. 31, 2010 | 345.1 |
Consolidated Statement of Cash
Consolidated Statement of Cash Flows (Unaudited) (USD $) | ||
In Millions | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Cash flows from operating activities: | ||
Net income | 260.2 | 214.4 |
Net loss from discontinued operations, net of tax | 0.3 | |
Net income from continuing operations | 260.2 | 214.7 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation and amortization | 59.7 | 24.6 |
Deferred financing fees | 1.3 | 0.6 |
Non-cash adjustments to net income | 39.5 | 20.5 |
Changes in operating assets and liabilities: | ||
Claims and rebates payable | -203.7 | -15.3 |
Other net changes in operating assets and liabilities | 603.8 | 41.3 |
Net cash provided by operating activities-continuing operations | 760.8 | 286.4 |
Net cash used in operating activities-discontinued operations | -0.1 | |
Net cash flows provided by operating activities | 760.8 | 286.3 |
Cash flows from investing activities: | ||
Purchases of property and equipment | -34.2 | -13.6 |
Other | 5.2 | 3.2 |
Net cash used in investing activities | (29) | -10.4 |
Cash flows from financing activities: | ||
Treasury stock acquired | -218.2 | |
Repayment of long-term debt | (180) | (80) |
Tax benefit relating to employee stock compensation | 26.7 | 0.3 |
Net proceeds (cash used) from employee stock plans | 10.7 | -1.4 |
Net cash used in financing activities | -360.8 | -81.1 |
Effect of foreign currency translation adjustment | 1.7 | -0.5 |
Net increase in cash and cash equivalents | 372.7 | 194.3 |
Cash and cash equivalents at beginning of period | 1070.4 | 530.7 |
Cash and cash equivalents at end of period | 1443.1 | $725 |
Summary of significant accounti
Summary of significant accounting policies | |
3 Months Ended
Mar. 31, 2010 | |
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, 2009. For a full description of our accounting policies, refer to the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December31, 2009. We believe the accompanying unaudited consolidated financial statements reflect all adjustments (consisting of only normal recurring adjustments) necessary to state fairly the Unaudited Consolidated Balance Sheet at March31, 2010, the Unaudited Consolidated Statement of Operations for the three months ended March31, 2010 and 2009, the Unaudited Consolidated Statement of Changes in Stockholders Equity for the three months ended March31, 2010, and the Unaudited Consolidated Statement of Cash Flows for the three months ended March31, 2010 and 2009. Operating results for the three months ended March31, 2010 are not necessarily indicative of the results that may be expected for the year ending December31, 2010. |
Fair value measurements
Fair value measurements | |
3 Months Ended
Mar. 31, 2010 | |
Fair value measurements [Abstract] | |
Fair value measurements | Note 2 Fair value measurements Financial Accounting Standards Board (FASB) guidance regarding fair value measurement 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 March31, 2010 and December31, 2009 include cash equivalents of $1,335.2million and $909.8million, restricted cash and investments of $10.0million and $9.1million, and trading securities of $12.0million and $11.4million (included in other assets), respectively. These assets are carried at fair value based on quoted market prices for identical securities (Level 1 inputs). Cash equivalents include investments in AAA-rated money market mutual funds with weighted average maturities of less than 90 days. As of December31, 2009, short-term investments included our investment in the Reserve Primary Fund (the Primary Fund), which is a money market fund. We recognized an unrealized loss of $2.0 million in the third quarter of 2008, when the net asset value of the Primary Fund decreased below $1 per share. We have received cash distributions from the Primary Fund totaling $48.7million since the third quarter of 2008, including a $3.3million receipt during the first quarter of 2010. Upon receipt of this cash distribution, we recognized a gain of $1.4million, which is recorded in interest income, and reduced the net balance of the investment to zero. The estimated fair value of our investment in the Primary Fund was $1.9million as of December31, 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. The carrying value of cash and cash equivalents, accounts receivable, claims and rebates payable, and accounts payable approximated fair values due to the short-term maturities of these instruments. The fair value, which approximates the carrying value, of our bank credit facility was estimated using either quoted market prices or the current rates offered to us for debt with similar maturity. The carrying values and the fair values of our senior notes are shown in the following table: March 31, 2010 December 31, 2009 Carrying Fair Carrying Fair (in millions) Amount Value Amount Value 5.25% senior notes due 2012, net of unamortized discount $ 999.4 $ 1,065.0 $ 999.4 $ 1,068.6 6.25% senior notes due 2014, net of unamortized discount 996.3 1,107.5 996.1 1,095.7 7.25% senior notes due 2019, net of unamortized discount 496.9 |
Acquisition
Acquisition | |
3 Months Ended
Mar. 31, 2010 | |
Acquisition [Abstract] | |
Acquisition | Note 3 Acquisition On December1, 2009, we completed the purchase of 100% of the shares and equity interests of certain subsidiaries of WellPoint, Inc. (WellPoint) that provide pharmacy benefit management services (NextRx or the NextRx PBM Business), in exchange for total consideration of $4.675billion paid in cash, which is subject to a purchase price adjustment for working capital. The purchase price adjustment for working capital was finalized in the second quarter of 2010 and did not have a material impact. The NextRx PBM Business is a national provider of PBM services, and we believe the acquisition will enhance our ability to achieve cost savings, innovations, and operational efficiencies which will benefit our customers and stockholders. The purchase price was primarily funded through a $2.5billion underwritten public offering of senior notes completed on June9, 2009 resulting in net proceeds of $2,478.3million, and a public offering of 26.45million shares of common stock completed June10, 2009 resulting in net proceeds of $1,569.1million. This acquisition is reported as part of our PBM segment. 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 the goodwill and other intangibles generated being tax deductible over 15years. We estimate the value of such election to us to be between $800 million and $1.2billion dependent upon the discount factor and tax rate assumed. Additionally, at the closing of the acquisition, we entered into a 10-year contract with WellPoint (the PBM agreement) under which we will provide pharmacy benefits management services to WellPoint and its designated affiliates which were previously provided by NextRx. The services provided under the PBM Agreement include retail network pharmacy management, home delivery and specialty pharmacy services, drug formulary management, claims adjudication and other services consistent with those provided to other PBM clients. The following unaudited pro forma information presents a summary of our combined results of operations and those of the NextRx PBM Business for the three months ended March31, 2009 as if the acquisition and financing transactions had occurred at January1, 2009, along with certain pro forma adjustments to give effect to amortization of other intangible assets, interest expense on acquisition debt and other adjustments. This information is presented with actual results from the three months ended March31, 2010 for comparative purposes. The following pro forma financial information is not necessarily indicative of the results of operations as they would have been had the transactions been effected on the assumed date, nor is it necessarily an indication of trends in future results for a number of reasons, including but not limited to, differences between the assumptions used to prepare the pro forma information, cost savings from operating efficiencies, potential synergies, and the impact of incremental costs incurred in integrating the PBM business: Three Months Ended March 31, (in millions, except per share data) 2 |
Goodwill and Other intangibles
Goodwill and Other intangibles | |
3 Months Ended
Mar. 31, 2010 | |
Goodwill and Other intangibles [Abstract] | |
Goodwill and Other intangibles | Note 4 Goodwill and other intangible assets The following is a summary of our goodwill and other intangible assets (amounts in millions) for our two reportable segments PBM and Emerging Markets (EM): March 31, 2010 December 31, 2009 Gross Net Gross Net Carrying Accumulated Carrying Carrying Accumulated Carrying Amount Amortization Amount Amount Amortization Amount Goodwill PBM $ 5,474.4 $ (107.4 ) $ 5,367.0 $ 5,472.1 $ (107.3 ) $ 5,364.8 EM 154.4 154.4 154.4 154.4 $ 5,628.8 $ (107.4 ) $ 5,521.4 $ 5,626.5 $ (107.3 ) $ 5,519.2 Other intangible assets PBM Customer contracts $ 2,018.5 $ (235.0 ) $ 1,783.5 $ 2,018.3 $ (197.8 ) $ 1,820.5 Other 27.9 (12.2 ) 15.7 27.9 (10.9 ) 17.0 2,046.4 (247.2 ) 1,799.2 2,046.2 (208.7 ) 1,837.5 EM Customer relationships 72.4 (31.5 ) 40.9 72.4 (29.7 ) 42.7 Other 2.4 2.4 2.4 2.4 74.8 (31.5 ) 43.3 74.8 (29.7 ) 45.1 Total other intangible assets $ 2,121.2 $ (278.7 ) $ 1,842.5 $ 2,121.0 $ (238.4 ) $ 1,882.6 The aggregate amount of amortization expense of other intangible assets for our continuing operations was $40.1million and $9.3million for the three months ended March31, 2010 and 2009, respectively. In accordance with applicable accounting guidance, amortization for customer contracts related to the PBM agreement has been included as an offset to revenues in the amount of $28.5million for the three months ended March31, 2010. The future aggregate amount of amortization expense of other intangible assets for our continuing operations is expected to be approximately $159.7million for 2010, $157.9million for 2011, $157.1million for 2012, $156.5 million for 2013, and $152.1million for 2014. The weighted average amortization period of intangible assets subject to amortization is 15years in total, and by major intangible class is 5 to 20years for customer-related intangibles and 3 to 10years for other intangible assets. A summary of the change in the net carrying value of goodwill by business segment is shown in the following table: (in millions) PBM EM Total Balance at December31, 2009 5,364.8 154.4 5,519.2 Adjustment to purchase price allocation(1) 1.5 1.5 Foreign currency translation and other 0.7 0.7 Balance at March31, 2010 $ 5,367.0 $ 154.4 $ 5,521.4 (1) Represents adjustments to preliminary assignment of fair value to net assets acquired for |
Earnings per share
Earnings per share | |
3 Months Ended
Mar. 31, 2010 | |
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 March 31, (in millions) 2010(1) 2009 Weighted average number of common shares outstanding during the period Basic EPS(2) 274.9 247.6 Dilutive common stock equivalents: Outstanding stock options, stock-settled stock appreciation rights (SSRs), restricted stock units, and executive deferred compensation units(2) 3.0 1.7 Weighted average number of common shares outstanding during the period Diluted EPS(2) 277.9 249.3 (1) The increase in weighted average number of common shares outstanding for the three months ended March31, 2010 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 1.4million and 4.4million for the three months ended March31, 2010 and 2009, respectively. These were excluded because their effect was anti-dilutive. The above shares are all calculated under the treasury stock method. |
Financing
Financing | |
3 Months Ended
Mar. 31, 2010 | |
Financing [Abstract] | |
Financing | Note 6 Financing Long-term debt consists of: March 31, December 31, (in millions) 2010 2009 Term A loans due October14, 2010 with an average interest rate of 0.9% at March31, 2010 $ 360.0 $ 540.0 Term-1 loans due October14, 2010 with an average interest rate of 0.8% at March31, 2010 800.0 800.0 5.25% senior notes due 2012, net of unamortized discount 999.4 999.4 6.25% senior notes due 2014, net of unamortized discount 996.3 996.1 7.25% senior notes due 2019, net of unamortized discount 496.9 496.8 Revolving credit facility due October14, 2010 Other 0.3 0.3 Total debt 3,652.9 3,832.6 Less current maturities 1,160.1 1,340.1 Long-term debt $ 2,492.8 $ 2,492.5 At March31, 2010 our credit facility includes $360.0million of Term A loans, $800.0million of Term-1 loans and a $600.0million revolving credit facility. The revolving credit facility (none of which was outstanding as of March31, 2010) is available for general corporate purposes. During the first three months of 2010, we made scheduled payments of $180.0million on the Term A loan. We anticipate that the current cash balances and the cash flow from operations will be sufficient to re-pay the principal balances when due and make our scheduled payments for those contractual obligations and capital commitments included in our Annual Report on Form 10-K for the year ended December31, 2009. While it is our current intention to re-pay these loans when due, we may enter into a new loan facility to provide additional liquidity. At March31, 2010, our remaining Term A loans and Term-1 loans obligation is $1,160.0million and our cash and cash equivalents are $1,443.1million. 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 March31, 2010, the weighted average interest rate on the facility was 0.8%. 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 March31, 2010, 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 5.25% senior notes due 2012; $1.0billion aggregate principal amount of 6.25% senior notes due 2014 and $500million aggregate principal amount of 7.25% senior notes due 2019. T |
Common stock
Common stock | |
3 Months Ended
Mar. 31, 2010 | |
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 used the net proceeds for the acquisition of WellPoints NextRx PBM Business (see Note 3). |
Stock-based compensation plans
Stock-based compensation plans | |
3 Months Ended
Mar. 31, 2010 | |
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, stock-settled stock appreciation rights (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 three months of 2010, we granted 1,184,000 stock options with a weighted average fair market value of $31.95. The SSRs and stock options have three-year graded vesting. During the first three months of 2010, we granted to certain officers and employees approximately 131,000 restricted stock units and performance shares with a weighted average fair market value of $98.99. 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 original value of the performance share grants is subject to a multiplier of 2.5 based on certain performance metrics. During the first quarter of 2010, approximately 106,000 additional performance shares were granted to certain officers for exceeding certain performance metrics. The total number of non-vested restricted stock and performance share awards was 530,000 at March31, 2010 and 600,000 at December31, 2009. We recognized stock-based compensation expense of $11.9million and $9.6million in the three months ended March31, 2010 and 2009, respectively. Unamortized stock-based compensation as of March31, 2010 was $46.8million for stock options and SSRs and $24.1million 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 March 31, 2010 2009 Expected life of option 3-5years 3-5years Risk-free interest rate 1.3%-2.3% 1.3%-1.9% Expected volatility of stock 37%-40% 35%-39% Expected dividend yield None None |
Contingencies
Contingencies | |
3 Months Ended
Mar. 31, 2010 | |
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. In the ordinary course of business there have arisen various legal proceedings, investigations or claims now pending against us or our subsidiaries. The effect of these actions on future financial results is not subject to reasonable estimation because considerable uncertainty exists about the outcomes. 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 any such legal proceedings, investigations or claims 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 any such matters, would not have a material adverse effect on our financial condition, our consolidated results of operations or our consolidated cash flows. |
Segment information
Segment information | |
3 Months Ended
Mar. 31, 2010 | |
Segment information [Abstract] | |
Segment information | Note 10 Segment information 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. During the first quarter of 2010, we received notification of a client contract loss in one of our smaller EM lines of business. The client contract will remain in effect through December 31, 2010. As a result of this client loss, we reassessed carrying values of assets and liabilities in this business unit in the first quarter of 2010. We are currently assessing the strategic options for this business. Based on the assessment of these options, we have concluded that there was no goodwill impairment as of March 31, 2010. As circumstances change, we will continue to re-evaluate the fair value of the business' assets as compared to the carrying values and there still exists the possibility of an impairment charge in 2010. As of March 31, 2010, the total assets for this business were $39.8 million which includes goodwill and intangible assets of $23.8 million. During the annual impairment analysis in 2009, this reporting unit's fair value was in excess of its carrying value by approximately 100%. During 2009, the valuations of two other reporting units in our EM segment yielded fair values which were less than 20% in excess of their carrying value and we concluded that no impairment existed since their fair value exceeded their carrying value. As of March 31, 2010, the total assets which include goodwill and the intangible assets of these two reporting units were approximately $370.0 million and $28.0 million, respectively. During the first quarter of 2010, there have been no events or circumstances relative to these reporting units that would require a re-evaluation of the fair value of the EM segment assets as compared to the carrying values. The fair value of both reporting units was determined using the income approach whereby estimated future discounted cash flows are used to develop fair value. 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 ended March31, 2010 and 2009. (in millions) PBM EM Total For the three months ended March31, 2010 Product revenue: Network revenues(1) $ 7,521.5 $ $ 7,521.5 Home delivery and specialty revenues(2) 3,230.6 3,230.6 Other revenues 324.1 324.1 Service revenues 59.3 8.4 67.7 Total revenues 10,811.4 332.5 11,143.9 Depreciation and amortization expense 56.7 3.0 59.7 Operating income 450.6 3.5 454.1 Interest income 1.7 Interest expense (42.8 ) Income before income taxes 413.0 Capital expenditures |
Condensed consolidating financi
Condensed consolidating financial information | |
3 Months Ended
Mar. 31, 2010 | |
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. The assets, liabilities, and operations from this former subsidiary are included as discontinued operations in those of the non-guarantors. Subsequent to the acquisition of NextRx, 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 March31, 2010 Cash and cash equivalents $ 1,333.3 $ 40.7 $ 69.1 $ $ 1,443.1 Restricted cash and investments 8.4 1.6 10.0 Receivables, net 1,249.0 861.7 10.6 2,121.3 Other current assets 98.5 362.9 3.8 465.2 Current assets $ 2,680.8 $ 1,273.7 $ 85.1 $ $ 4,039.6 Property and equipment, net 239.9 112.5 10.5 362.9 Investments in subsidiaries 6,038.2 (6,038.2 ) Intercompany (2,863.6 ) 2,960.5 (96.9 ) Goodwill 2,940.6 2,555.2 25.6 5,521.4 Other intangible assets, net 1,513.5 324.8 4.2 1,842.5 Other assets 21.8 8.7 2.0 32.5 Total assets $ 10,571.2 $ 7,235.4 $ 30.5 $ (6,038.2 ) $ 11,798.9 Claims and rebates payable $ 2,181.5 $ 465.5 $ $ $ 2,647.0 Accounts payable 703.4 30.4 3.0 736.8 Accrued expenses 306.6 331.9 7.1 645.6 Current maturities of long-term debt 1,160.0 0.1 1,160.1 Current liabilities $ 4,351.5 $ 827.9 $ 10.1 |