TO OUR STOCKHOLDERS

During 2000, Express Scripts delivered another year of exceptional results, reporting its 36th consecutive quarter of earnings growth. We generated record levels of cash from operations and continued our profitable membership growth, adding 5 million net new members. During 2000, we improved our service capabilities, focusing on delivering even greater value to our plan sponsors, members and providers of health services. We reinforced our leader ship in the industry, positioning Express Scripts solidly for sustainable growth. 

Were ported net income of $94.1 million and earnings per share of $2.41, a 36% increase over last year. Since going public in 1992, we have achieved a 38% annual compound growth rate in diluted earnings per share. Our diluted cash earnings per share, which excludes amortization of goodwill from acquisitions, grew to $3.07 reflecting a 43% annual compound growth rate since 1992. All of the preceding earnings and per share amounts exclude non-recurring items, which are more fully described in the Financial Highlights. 

Our exceptional results provided $245.9 million in cash flow from operations. We used our strong cash position to reduce debt by $240 million and to repurchase 790,000 shares of stock for $30 million during the year. Our debt to total capitalization at year-end was 36%, which enhances our future cash flow and strengthens our financial position. By every measure, 2000 was one of our most successful years.

2000 was the year in which the marketplace "discovered" the pharmacy benefit management (PBM) industry. For more than a decade and a half, Express Scripts has been managing the delivery of the drug benefit, the most-used employee health benefit. 

Pharmaceutical spending has risen at a rapid rate and intensified the need to help seniors pay for prescription drugs. Last year, the presidential election placed a spotlight on the need for drug benefits for senior citizens and others who have no drug benefit coverage and do not benefit from PBM services. Through this debate, the issue of pharmaceutical spending and the role of the PBM were recognized at the national level.
 
This outlook is healthy for our company and for our industry. Moving into the 21st century, demand for PBM services will be driven by demographic trends, higher drug utilization, new drug discovery and the steps the government is taking to provide our nation's Medicare, Medicaid and uninsured populations with affordable access to the drug therapies they need. 

Each step of the way, the PBM becomes a more crucial player, and the opportunity to deliver value increases. Express Scripts brings thought leadership and organization to the marketplace and offers value to each participant in the prescription process: plan sponsors and members, physicians, pharmacists and pharmaceutical manufacturers. Each has a strong interest in how, when and at what cost these life-saving and health-enhancing drugs move from discovery to consumer. 

We advise sponsors, who must balance drug cost and access with quality of care. We help members, who now are empowered to make choices about their healthcare. We supply physicians with information relevant to their patients' needs. We work with pharmacists to make the prescription process more efficient and safe. And we assist pharmaceutical manufacturers with the ethical, safe and fair distribution of their medicines. Express Scripts is charting the future of pharmacy, which allows us to bring added value to the pharmaceutical market place. 

Against this backdrop of market opportunity, Express Scripts stands uniquely positioned. We have a strong financial track record and the fundamental balance sheet strength to sustain growth. Our size and performance have placed us in the Fortune 500 and Forbes Platinum 400. We are recognized as an industry thought leader with a seasoned, strong management team built from the best of our three legacy organizations - Express Scripts, ValueRx and Diversified Pharmaceutical Services (DPS). Most importantly, we've integrated and organized our company to leverage these attributes to deliver the best value to our plan sponsors and each of the constituents we serve. 

In this industry, scale counts. Express Scripts manages an annual drug spend in excess of $11 billion, with 242 million network claims and 15 million mail pharmacy claims processed in 2000. (1) We continue to grow and increase profits by focusing on our two main growth drivers: new membership and cross-selling expanded services to current members.

Through the January 1, 2001, enrollment period, we added 5 million net new members, which brings our total membership to 43.5 million members at January 1, 2001. We won important new business through the year, including our first Medicaid client through which Express Scripts became the first major PBM to administer a large-scale Medicaid program in the United States. 

Plan sponsors are attracted to Express Scripts not only by our ability to administer pharmacy benefits with utmost quality, integrity and cost-effectiveness, but also by the flexibility and innovation of our product lines. Plan sponsors benefit both from our negotiating leverage and our formulary flexibility, which allows them to address the particular cost-benefit challenges their health plans face. In helping plan sponsors evaluate their options, we offer expert consultation and depth of knowledge based on our extensive primary research, highlighted annually in our nationally recognized Drug Trend Report and at our annual Outcomes Conference. 

Adding additional services to our clients' pharmacy programs, or cross-selling, is also a key strategy for Express Scripts because we have the scale and capacity to expand the number of services each member uses without significantly increasing overhead. Cross-selling not only fuels our revenue growth, it enhances profitability and increases the value we deliver to plan sponsors and their members as they use multiple services -advanced formulary services, retail pharmacy network management and mail pharmacy. In 2000, we cross-sold additional services to approximately 6 million members, and the opportunity exists to cross-sell additional services in the future. Mail pharmacy offers us a particularly strong opportunity to increase value to our clients because mail service costs less, provides increased formulary compliance and is more convenient for our members. Also, when our mail service pharmacists or the retail drugstore substitutes a generic drug for a branded drug, with the physician's approval, it is a win-win situation. Costs are reduced for our plan sponsors and our members and Express Scripts earns slightly more profit per prescription. Over the past three years, we have increased gross profit per average member by 22% through cross-selling and integration synergies.

Moving forward, increased pharmaceutical spending will increase the demand for our services and drive our growth. The rise in pharmaceutical spending provides an important driver for our growth. The dynamics point to a continued high rate of increase in pharmaceuticals pending due to increased utilization, the growing pipeline of new drug therapies and the aging population. Furthermore, we'll look for new opportunities to work with the government and other payers to profitably manage new prescription drug benefits for the uninsured, the Medicare retiree population without drug coverage, and the state Medicaid beneficiaries - groups that, by our estimate, total between 70 million and 100 million Americans. 

Pharmaceuticals have become the first line of attack against disease. Years ago, severe stomach ulcers were treated with surgery; now prescription drugs can remove the underlying causes for ulcers. This change in the practice of medicine has occurred in many other diseases, such as diabetes, hypertension, depression and elevated lipid levels, increasing the use of prescription drugs. Health plans encourage drug therapy for many diseases as an effective alternative to high-cost, hospital stays. The federal government has aided this process by shortening the drug approval timeline and easing regulations regarding direct-to-consumer advertising. Consumers are more aware and are taking a more active role in evaluating their choices for treatment alternatives, and often these consumers prefer to take prescription drugs rather than pursue other medical therapy. 

So, it is not surprising that pharmaceutical costs are the fastest-growing component of healthcare. Based on our analysis of the drug usage patterns and costs, we estimate that the rate of pharmaceutical spending will increase 15% on average each year for the next five years. For seniors, the anticipated growth in annual per member drug spend is expected to increase from approximately $1,000 in 1999 to more than $1,700 in 2004,increasing the need to provide some level of financial assistance to help the elderly pay their drug bills. To help control cost trends and ensure access to the drugs our members need, we employ our aggregate buying power on our plan sponsors' behalf through market share discounts, pharmacy network discounts and mail pharmacy economies for maintenance medications. Our clinical programs add value through physician-controlled generic substitution, therapy compliance and disease management programs. 

As we add value and reduce the cost of providing prescription drugs, we are paid for each prescription we manage. Therefore, revenues and profits should grow with new drugs coming to market and as utilization increases. 

We have a strategy in place to continue strong earnings growth. In addition to the inherent growth driven by the increase in pharmaceutical spending, we're targeting continued new membership growth. As we add new members, we have even greater opportunity to cross-sell additional services and thereby increase our revenue and profits. The acquisitions and integration of ValueRx and DPS added not only scale, but opened the door to greater member profitability through cross-selling and greater productivity through economies of scale and operating synergies. Furthermore, the Internet and other technologies represent a tremendous opportunity to increase member satisfaction and reduce our costs. 

Our Specialty Distribution Services (SDS) subsidiary provides administrative, reimbursement and pharmacy services for the expanding number of drugs that require special handling or delivery due to their chemical properties. As the biotechnology companies produce new drugs, there will be an increasing supply of drugs to dispense through specialty distribution. Our strong manufacturer and payer relationships, proven clinical management skills and successful mail pharmacy operations are keys to our success in this area. SDS represents the largest component of our non-PBM business segment based on revenues and EBITDA. During 2000, our non-PBM revenues, primarily from the Specialty Distribution business, grew 34% over the prior year. We expect SDS will continue to contribute to our cash flow and add significant growth to our operating earnings in the future. 

Express Scripts' capital structure improvements increased our flexibility and financial strength by reducing interest expense and contributing to our earning power. The number of our common stock shares available to trade was enhanced during 2000 when NYLife HealthCare Management, Inc. (NYLIFE) converted their 15 million Class B shares to Class A and sold 6.9million shares of Express Scripts common stock through a secondary offering. NYLIFE also created a special purpose financing trust to issue securities that could be converted into an additional 3.45 million of NYLIFE's Express Scripts stock in three years. As a result of the sale of these shares, NYLIFE is no longer the majority owner of Express Scripts, a position it had held since we went public in 1992. The increase in the number of our common shares that now trade on Nasdaq has improved the trading characteristics of our stock. 

Related to the NYLIFE stock sale, the composition of our board of directors changed. I was voted chairman of the board, and NYLIFE reduced its board representation. We thank our outgoing board members for their years of counsel and service. Now wewill focus on recruiting new directors who can bring new sources of expertise to bear on our strategic direction. The generation of shareholder value is our principal job, and we're pleased to have provided a 45% compounded annual return to shareholders since our public offering. We will continue to explore new ways to support that objective. 

Express Scripts is forward looking. At Express Scripts, we anticipate many changes in our environment and are planning our actions accordingly. That orientation toward the future needs of our clients, members and others in the prescription process, led us to innovate and help shape the future of the industry. As rewarding as this success has been, we realize that we must constantly learn, plan, innovate and update our business model. 

Looking ahead, we see four critical elements that will create opportunity for Express Scripts and everyone we serve. These elements are technology leadership, Internet and e-business initiatives, international opportunities, and the legislative landscape. 

Technology leadership: The PBM industry has been at the forefront of information technology in healthcare. From our infancy, pharmacy has driven the development of electronic data interchange, and today Express Scripts handles about 300 million paperless transactions. By 2002, we will expand to the ANSI 5.0 standard, which will greatly enhance the amounts and types of information that can be shared electronically with our network pharmacies. We are taking the necessary steps to comply with new regulations governing healthcare benefit access and patient privacy. 

Internet and e-business initiatives: We will also enhance our value proposition as we connect Express Scripts, the pharmacy and prescribing physicians through electronic prescribing. We have formed a joint venture, RxHub LLC, with other leading PBMs that will develop a standardized electronic exchange, which will enable physicians who use electronic prescribing technology to link to pharmacies, PBMs and health plans. Our goal is to enhance safety, compliance, cost-savings and member satisfaction by making the member's formulary, health history, drug interaction and other clinical information available to the physician at the point of care. 

Using the Internet as a communications vehicle, we are increasing our connectivity not only to physicians but also to our plan sponsors and members. Consumers are taking an increasingly active role in how their health benefits are designed and used. An example of an innovation targeted toward members is the introduction of Express Choice, Express Scripts' online prescription drug benefit planner. Express Choice lets our members see how each benefit plan option suits their needs, based on their actual prescription drug history, and using "what if" scenarios comparing mail service, generic drug usage and other variables. 

This is just one of numerous ways we are using the Internet to empower consumers with information and interactive decision making opportunities. As the health benefits industry evolves through government-funded drug benefits, new health plan financing mechanisms such as defined contribution plans and other developments, Express Scripts will continue to provide consumers and plan sponsors with tools such as these to make the system simpler, more transparent and more accountable. 

International opportunities: As quickly as the pharmaceutical landscape changes in the United States, there is possibly even greater opportunity to shape the future of pharmacy on a global basis. Our growing presence in Canada and early exploration into overseas markets reveal the great, untapped potential for improving the drug supply chain internationally. The PBM tools and skills being used in the United States today may have application internationally. 

Legislative landscape: As the Bush administration begins, and a new legislative agenda is advanced, we will seek to have an active voice in public policy. Based on our extensive data and experience in the industry, we have a great deal of value to offer policymakers. We are active in talking to public officials about the dynamics of the pharmacy industry and the factors that can improve or reduce the effectiveness of the health system for all Americans, particularly those who are uninsured or under-served. 

We believe strongly that healthcare offers a strong opportunity for growth in the 21st century, and that the increasing importance of prescription drugs makes pharmacy the most exciting part of health care. Within the industry, we've positioned Express Scripts as a leader and the organization with the most value to offer plan sponsors, members and others involved in the prescription process. Demographic and economic forces will only increase our role in improving the efficiency and effectiveness of the drug supply chain and the delivery of drug therapy. Through the years, our management and staff have approached every opportunity with strategic vision and excellence in execution; we'll continue to raise the bar and provide superior returns on your investment. 

Barrett Toan 
Chairman and Chief Executive Officer 
Express Scripts, Inc.