Express Scripts ( ESRX) was plunging after hours, after reporting higher second-quarter earnings and saying it will boost its legal reserve after learning 20 states are investigating its public contracts to manage prescription drug benefits. The company earned $65.4 million, or 83 cents a share, in the three months to June 30, down from $59.0 million, or 74 cents a share, last year. The 2004 quarter included a charge of 10 cents a share from the early reduction of debt. Revenue rose 13% from a year ago to $3.78 billion. Analysts had been looking for earnings of 94 cents a share before the charge on revenue of $3.85 billion in the latest quarter. Looking ahead, the pharmacy benefits manager expects 2004 earnings to rise at a rate toward the low half of a 20%-25% range. Analysts are forecasting earnings of $1 a share in the full year. Express Scripts also revealed that the New York attorney general notified the company that it is considering bringing civil charges that allege breaches in its contract to manage the prescription drug plan for the state and its employees. Express Scripts said it is in discussions with the office but believes it complied with both the contracts and its legal requirements. The company also said it received an information request from Vermont's attorney general covering a "wide range" of business practices, and has learned that attorneys general of 18 other states will issue identical requests. The company said it is cooperating with the probe. "Express Scripts believes that its services and business practices are in compliance with all applicable laws, rules and regulations in all material respects, but in light of the legal developments is evaluating the adequacy of legal reserves previously established and expects to increase such reserves in the third quarter for the costs of defense in an amount presently estimated at from $15 million to $20 million," the company said. Another pharmacy benefits manager, Caremark ( CMX), is facing a similar legal entanglement , including Florida whistleblower allegations it sold drugs that were returned to it. Express Scripts fell $8.81, or 12.3%, to $63.04 in after-hours trading.