Caremark Rx, Inc. Announces Record Q1 2004 Results; Raises Previous Guidance for 2004 Reflecting Completed Acquisition of AdvancePCS.Business Editors/Health/Medical Writers NASHVILLE Nashville, city (1990 pop. 487,969), state capital, coextensive with Davidson co., central Tenn., on the Cumberland River, in a fertile farm area; inc. as a city 1806, merged with Davidson co. 1963. , Tenn.--(BUSINESS WIRE)--May 6, 2004 Caremark Rx  The introduction to this article may be too long. Please help improve the introduction by moving some material from it into the body of the article according to the suggestions at , Inc. (NYSE NYSESee: New York Stock Exchange : CMX CMX Corel Presentation Exchange (file extension) CMX Cisco Mobile Exchange CMX Cloaca Maxima (sewage system of ancient Rome; Finnish rock band) CMX Crisis Management Exercise ) today reported diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of of $0.29 for the first quarter of 2004. The financial results included integration and other related expenses of $10.4 million ($6.2 million net of taxes) related to the company's recently completed acquisition of AdvancePCS AdvancePCS Inc. was a large prescription benefit plan administrator from the USA. The company merged with Caremark Rx in the beginning of 2005 and is now known under that name. . Excluding these expenses, diluted earnings per share for the quarter were $0.32 representing an increase of 33% from the first quarter of 2003. Caremark completed its acquisition of AdvancePCS on March 24, 2004. Therefore, the first quarter Caremark results include the results of AdvancePCS' operations from March 24 through March 31, 2004. Based on the current results and the expectation of achieving previously forecasted synergies of $125 million by the end of 2004, one quarter earlier than expected, Caremark is raising full-year 2004 guidance for diluted earnings per share, excluding integration and other related expenses, to a range of $1.37 to $1.39. The company's previous guidance was in the range of $1.35 to $1.37 per share. Consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: Operating Results During the first quarter of 2004, Caremark reported net revenues of $3.0 billion, a 40% increase over the first quarter of 2003. These revenues included $465.1 million of legacy AdvancePCS revenues during the quarter. Mail revenues were $1.4 billion, a 28% increase over the same period in the prior year. Mail prescriptions totaled 7.1 million during the first quarter, a growth rate of 20% over the first quarter of 2003. Retail revenues were $1.6 billion, an increase of 51% over the comparable period of 2003. Retail claims totaled 34.3 million during the first quarter, representing a 54% increase over the first quarter of 2003. EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become (earnings from continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the before interest, taxes, depreciation and amortization) for the first quarter of 2004, excluding integration and other related expenses, was $174.4 million, an increase of 38% over the first quarter of 2003. EBITDA included $9.3 million for AdvancePCS during the quarter. As a result of the strong performance, operating cash flow Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. for the first quarter of 2004 was $203.0 million compared with $137.7 million in the same period last year, an increase of 47%. At March 31, 2004, net debt was $246.9 million reflecting the cash paid for AdvancePCS (net of cash acquired), the retirement of 98% of the outstanding AdvancePCS 8 1/2% Senior Notes and net reduction of debt under Caremark's credit facilities credit facilities npl → facilidades fpl de crédito credit facilities npl → facilités fpl de paiement credit facilities . Capital expenditures totaled $12.9 million for the quarter, down from $18.1 million in the first quarter of 2003. Operating Results of Legacy Caremark As detailed in the "Selected Financial and Statistical Information", Caremark's revenues during the first quarter of 2004, excluding the results of AdvancePCS from March 24 to March 31, 2004, increased 18% over the first quarter of 2003 to $2.6 billion. Caremark EBITDA during the quarter, excluding AdvancePCS, increased 31% to $165.1 million, excluding integration and other related expenses, producing an EBITDA margin of 6.4% compared with 5.8% for the same period in the prior year. Caremark diluted earnings per share, excluding AdvancePCS and integration and other related expenses were $0.32. Operating Results of Legacy AdvancePCS As Footnote Text that appears at the bottom of a page that adds explanation. It is often used to give credit to the source of information. When accumulated and printed at the end of a document, they are called "endnotes." 1 to this press release indicates, during the first quarter of 2004, legacy AdvancePCS recorded full quarter revenues, including retail copayments, of $5.1 billion, an increase of 10% over the first quarter of 2003. Legacy AdvancePCS EBITDA for the quarter was $96.4 million, excluding $2.6 million of integration expenses, a decrease of $2.1 million compared with the first quarter of 2003. In management's opinion, this is not indicative indicative: see mood. of the ongoing EBITDA run rate for legacy AdvancePCS. Legacy AdvancePCS EBITDA was adversely impacted by adjustments recognized in the quarter for revisions ReVisions is a 2004 anthology of alternate history short-stories. It is edited by Julie E. Czerneda and Isaac Szpindel. Contents Title Author The Resonance of Light James Alan Gardner Out of China Julie E. to estimated net realizable values Net realizable value (NRV) is a commonly used method of evaluating an asset's worth in the field of inventory accounting. NRV is part of GAAP rules that apply to valuing inventory, so as to not overstate or understate the value of inventory goods. for receivables Receivables An asset designation applicable to all debts, unsettled transactions or other monetary obligations owed to a company by its debtors or customers. Receivables are recorded by a company's accountants and reported on the balance sheet, and they and include all debts owed , settlements of amounts due to and due from customers and payroll taxes Payroll Tax Tax an employer withholds and/or pays on behalf of their employees based on the wage or salary of the employee. In most countries, including the U.S., both state and federal authorities collect some form of payroll tax. on stock options exercised shortly before the close of the acquisition. EBITDA was positively impacted by adjustments to certain liabilities and inventory investment buys that were higher than normal. The total of the above items reduced legacy AdvancePCS EBITDA by approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $19 million for the first quarter. The company does not expect similar adjustments of this magnitude magnitude, in astronomy, measure of the brightness of a star or other celestial object. The stars cataloged by Ptolemy (2d cent. A.D.), all visible with the unaided eye, were ranked on a brightness scale such that the brightest stars were of 1st magnitude and the to recur in future statements of operations. Outlook and Acquisition Integration Caremark's integration planning efforts that began in November November: see month. 2003 are now being executed executed 1) adj. to have been completed. (Example: "it is an executed contract") 2) v. to have completed or fully performed. (Example: "he executed all the promises made in the contract") 3) v. . "Throughout the integration process, our primary focus has been, and will continue to be, to benefit our customers and their plan participants Plan participants Employees or other beneficiaries who are eligible to receive benefits from a company's employee benefit plan. with no disruptions and improved services," said Mac Crawford, Chairman, President and Chief Executive Officer of Caremark. "We are also very pleased with the outlook for synergies with the AdvancePCS transaction." Based on current projections, Caremark expects 2004 consolidated net revenue to total $25 to $26 billion. Quarterly diluted earnings per share for 2004 before integration and other related expenses are expected to be $0.29 to $0.30 in the second quarter, $0.34 to $0.35 in the third quarter and $0.41 to $0.42 in the fourth quarter. Therefore, diluted earnings per share excluding integration and other related expenses for the full-year are expected to be in the range of $1.37 to $1.39. Caremark's 2004 earnings expectations are based, in part, on the following assumptions: -- The company now expects to achieve the previously estimated $125 million in pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta synergies in the remaining three quarters of 2004, one quarter earlier than originally projected. -- Stock option expense associated with stock options granted to AdvancePCS employees prior to the acquisition is expected to total approximately $23 million in 2004, or approximately $9 million, $7 million and $6 million in the last three quarters of the year, respectively. -- Amortization expense related to identifiable intangible assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. acquired in the transaction is currently estimated to total approximately $38 million in 2004, or approximately $12.5 million per remaining quarter in 2004. The company expects the valuation of the identifiable intangible assets associated with the transaction and the estimate of 2004 amortization expense to be completed by the end of the second quarter. -- Depreciation expense is expected to total approximately $25 to $26 million per remaining quarter in 2004. -- Net interest expense is expected to total $35 to $40 million in 2004. -- The company's effective accounting tax rate is expected to decrease slightly beginning in the second quarter to 39.8%. However, the cash tax rate will continue to be significantly lower until all of the company's tax net operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. carryforwards Carryforwards Tax losses allowed to be applied to offset future income in some specified number of future years. are fully utilized. In addition, Caremark's guidance includes implementation costs associated with the Federal Employee Program that selected Caremark to administer To give an oath, as to administer the oath of office to the president at the inauguration. To direct the transactions of business or government. Immigration laws are administered largely by the Immigration and Naturalization Service. its mail service benefit. While this contract begins January January: see month. 1, 2005, Caremark will incur To become subject to and liable for; to have liabilities imposed by act or operation of law. Expenses are incurred, for example, when the legal obligation to pay them arises. An individual incurs a liability when a money judgment is rendered against him or her by a court. incremental Additional or increased growth, bulk, quantity, number, or value; enlarged. Incremental cost is additional or increased cost of an item or service apart from its actual cost. expenses related to this contract during 2004. These incremental costs Costs which are additional costs to the Service appropriations that would not have been incurred absent support of the contingency operation. See also financial management. are expected to have a negative impact on 2004 earnings of approximately $0.02 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share and are expected to be incurred during the third and fourth quarters. The company also will be required to expense certain ongoing integration costs as they are incurred. Since the acquisition of AdvancePCS closed on March 24, 2004, and the integration is in process, these expenses have not yet been quantified and therefore are not included in the company's earnings per share expectations given above. "The synergies we expect to achieve in 2004 from the acquisition make us comfortable raising our previously established guidance for diluted earnings per share for 2004 to the range of $1.37 to $1.39, excluding the impact of integration and other related expenses," said Mr. Crawford. "Also, we now believe that the synergies ultimately to be realized in the transaction will total approximately $250 million annually which will be achieved over the next several years," said Crawford. "With the first quarter off to a strong start and increased earnings expected for the remainder of 2004, Caremark is delivering strong value for our shareholders as we remain focused on continuing to be the premier health management solutions provider." Conference Call As announced, Caremark will hold a conference call to discuss first quarter 2004 results, as well as guidance for the remainder of 2004. The details of the call are as follows: Date: Thursday Thursday: see week. , May 6, 2004 Time: 10:30 a.m. Eastern Time Toll Number: (706) 634-6560 Toll-Free Number: (888) 596-9623 Leader: Mac Crawford Replay Number: (706) 645-9291 Conference ID: 6681853 The call will also be broadcast live as well as replayed through the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the . The web cast can be accessed through the "Investor Information" page on the Caremark Rx, Inc. website at www.caremarkrx.com. A taped replay of the call will also be available beginning at 12:30 p.m. Eastern Time on Thursday, May 6, 2004, until Midnight Eastern Time, Thursday, May 13, 2004, by calling the replay number listed above. About Caremark Rx, Inc. Caremark Rx, Inc. is a leading pharmaceutical services company, providing through its affiliates comprehensive drug benefit services to over 2,000 health plan sponsors and their plan participants throughout the U.S. Caremark's clients include corporate health plans, managed care organizations, insurance companies, unions, government agencies and other funded benefit plans. The company operates a national retail pharmacy pharmacy, art of compounding and dispensing drugs and medication. The term is also applied to an establishment used for such purposes. Until modern times medication was prepared and dispensed by the physician himself. In the 18th cent. network with over 55,000 participating pharmacies This article is a list of major pharmacies (also known as chemists and drugstores) by country. Australia Pharmacies in Australia are mostly independently-owned by pharmacists, often operated as franchises of retail brands offered by the three major , seven mail service pharmacies, the industry's only FDA-regulated repackaging plant and 23 specialty A contract under seal. A specialty is a written document that has been sealed and delivered and is given as security for the payment of a specifically indicated debt. pharmacies for delivery of advanced medications to individuals with chronic or genetic diseases and disorders A
Forward-Looking Statement forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. This press release contains statements that constitute "forward-looking statements" within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934 as amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. by the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. "Forward-looking statements" contained in this press release include the intent, belief or current expectations of the company and members of its senior management team with respect to the anticipated growth prospects for the company's business, including revenue growth and earnings per share projections and the anticipated amount and timing of synergies and accretion The act of adding portions of soil to the soil already in possession of the owner by gradual deposition through the operation of natural causes. The growth of the value of a particular item given to a person as a specific bequest under the provisions of a will between the from the AdvancePCS transaction and the amount of certain expenses to be incurred in connection with the transaction, as well as the assumptions upon which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance, involve risks and uncertainties and that actual results may differ materially from those contemplated by such forward-looking statements. Important factors currently known to management that could cause actual results to differ materially from those contemplated by the forward-looking statements in this press release include, but are not limited to, adverse developments with respect to the company's operating plan and objectives, as well as adverse developments in the healthcare or pharmaceutical industry generally. Additional factors that could cause actual results to differ materially from those contemplated in this press release can be found in the company's Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the year ended December December: see month. 31, 2003. This press release includes certain non-GAAP financial measures as defined under SEC rules. As required by SEC rules, we have provided, in the footnotes to the tables attached hereto here·to adv. To this document, matter, or proposition. hereto Adverb Formal or law to this place, matter, or document Adv. 1. , a reconciliation of those measures to the most directly comparable GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). measures. Additional information about Caremark Rx is available on the World Wide Web at http://www.caremarkrx.com.
CAREMARK RX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, December
2004 31,
2003
------------ -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $357,111 $815,328
Accounts receivable, net 2,143,726 669,680
Inventories 343,244 204,939
Income taxes receivable 40,210 -
Deferred tax asset, net 356,360 240,978
Prepaid expenses and other current assets 25,800 15,752
------------ -----------
Total current assets 3,266,451 1,946,677
Property and equipment, net 300,759 159,769
Goodwill 6,899,210 49,171
Other intangible assets, net 955,880 9,273
Deferred tax asset, net - 227,426
Other assets 68,978 81,312
------------ -----------
Total assets $11,491,278 $2,473,628
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $536,254 $385,362
Claims and discounts payable 2,503,892 509,713
Other accrued expenses and liabilities 255,904 158,666
Income taxes payable - 7,820
Current portion of long-term debt 4,000 2,500
------------ -----------
Total current liabilities 3,300,050 1,064,061
Long-term debt, net of current portion 600,000 693,125
Deferred tax liability 67,947 -
Other long-term liabilities 276,511 75,804
------------ -----------
Total liabilities 4,244,508 1,832,990
Commitments and contingencies
Stockholders' equity:
Common stock 460 269
Additional paid-in capital 8,332,895 1,762,477
Unearned stock-based compensation (49,088) -
Treasury stock (28,782) (28,782)
Shares held in trust (100,680) (101,103)
Accumulated deficit (897,045) (981,233)
Accumulated other comprehensive loss (10,990) (10,990)
------------ -----------
Total stockholders' equity 7,246,770 640,638
------------ -----------
Total liabilities and stockholders' equity $11,491,278 $2,473,628
============ ===========
CAREMARK RX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended
March 31,
-----------------------
2004 (a) 2003
----------- -----------
Net revenue $3,025,943 $2,163,796
Operating expenses:
Cost of revenues (b) 2,794,811 1,991,701
Selling, general and administrative expenses 55,911 46,103
Depreciation 12,789 9,859
Amortization of intangible assets 1,059 17
Stock option expense 819 -
Integration and other related expenses 10,410 -
----------- -----------
Operating income 150,144 116,116
Interest expense, net 9,830 11,094
----------- -----------
Income before provision for income taxes 140,314 105,022
Provision for income taxes 56,126 42,009
----------- -----------
Net income $84,188 $63,013
=========== ===========
Average number of common shares outstanding -
basic 277,753 255,332
Dilutive effect of stock options and warrants 8,159 6,449
----------- -----------
Average number of common shares outstanding -
diluted 285,912 261,781
=========== ===========
Net income per common share - diluted $0.29 $0.24
=========== ===========
Pharmacy claims:
Mail 7,141 5,951
Retail 34,265 22,280
----------- -----------
Total 41,406 28,231
=========== ===========
Adjusted Claims (Note 4) 55,155 39,725
=========== ===========
Supplemental presentation of non-GAAP
financial measures:
EBITDA (Earnings before interest, taxes,
depreciation and amortization) (Note 2) $163,992 $125,992
=========== ===========
EBITDA excluding integration and other
related expenses (Note 3) $174,402 $125,992
=========== ===========
EBITDA per adjusted claim excluding
integration and other related expenses
(Notes 3 and 4) $3.16 $3.17
=========== ===========
Net income per common share - diluted
excluding integration and other related
expenses (Note 3) $0.32 $0.24
=========== ===========
(a) Includes the results of operations of AdvancePCS from March
24, 2004 through March 31, 2004.
(b) Excludes depreciation which is presented separately.
CAREMARK RX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
March 31,
-----------------------
2004 (a) 2003
-----------------------
Cash flows from continuing operations:
Net income $84,188 $63,013
Adjustments to reconcile net income to net
cash provided by continuing operations:
Deferred income taxes 49,529 37,323
Depreciation and amortization 13,848 9,876
Non-cash interest expense 899 903
Writeoff of deferred financing costs 2,206 -
Stock option expense 819 -
Other non-cash expenses 129 397
Changes in operating assets and liabilities,
net of effects of acquisitions/disposals of
businesses 51,333 26,220
-----------------------
Net cash provided by continuing operations 202,951 137,732
Cash flows from investing activities:
Cash paid for AdvancePCS, net of cash acquired (368,427) -
Capital expenditures, net (12,943) (18,105)
Partial liquidation of cost-method investment 10,382 -
-----------------------
Net cash used in investing activities (370,988) (18,105)
Cash flows from financing activities:
Repayments under credit facility (245,625) (625)
Borrowing under new term loan 150,000 -
Principal payment under AdvancePCS Senior
Notes Tender Offer (204,222) -
Proceeds from equity-based compensation plans 16,853 4,227
Purchase of treasury stock - (6,111)
Deferred financing costs (3,518) (100)
Securities issuance costs (1,892) -
-----------------------
Net cash used in financing activities (288,404) (2,609)
Cash used in discontinued operations (1,776) (23,833)
-----------------------
Net increase (decrease) in cash and cash
equivalents (458,217) 93,185
Cash and cash equivalents - beginning of
period 815,328 306,804
-----------------------
Cash and cash equivalents - end of period $357,111 $399,989
=======================
Non-cash investing activities related to the
acquisition of AdvancePCS:
Issuance of approximately 191 million shares
of common stock $(6,227,720)
Issuance of replacement stock options for the
purchase of approximately 14 million shares
of common stock, net of approximately $49.9
million allocated to unearned compensation (271,909)
Issuance of replacement warrants for the
purchase of approximately 902,000 shares of
common stock (15,000)
Fair value of non-cash net assets acquired
(including approximately $6.85 billion of
goodwill, based on the Company's preliminary
purchase price allocation) 6,891,347
------------
$376,718
============
(a) Includes the cash flows of AdvancePCS from March 24, 2004
through March 31, 2004.
CAREMARK RX, INC. AND SUBSIDIARIES
SELECTED FINANCIAL AND STATISTICAL INFORMATION
(In thousands, except per adjusted claim amounts)
Caremark Rx
Three Months AdvancePCS
Ended (8 days
Consolidating March 31, ended Eliminations Consolidated
Statements of Income 2004 March 31,
2004)
---------- ---------- ------------ ------------
Net revenue $2,561,989 $ 465,112 $ (1,158) $3,025,943
Operating expenses:
Cost of revenues 2,347,894 448,075 (1,158) 2,794,811
Selling, general and
administrative
expenses 49,033 6,878 - 55,911
Depreciation 11,835 954 - 12,789
Amortization of
intangible assets - 1,059 - 1,059
Stock option expense - 819 - 819
Integration and other
related expenses 10,410 - - 10,410
---------- ---------- ------------ ------------
Operating income 142,817 7,327 - 150,144
Interest expense, net 9,822 8 - 9,830
---------- ---------- ------------ ------------
Income before
provision for income
taxes 132,995 7,319 - 140,314
Provision for income
taxes 53,198 2,928 - 56,126
---------- ---------- ------------ ------------
Net income $ 79,797 $ 4,391 $ - $ 84,188
========== ========== ============ ============
EBITDA (Note 2) $ 154,652 $ 9,340 $ - $ 163,992
========== ========== ============ ============
EBITDA excluding
integration and other
related expenses
(Note 3) $ 165,062 $ 9,340 $ - $ 174,402
========== ========== ============ ============
Claims Processed
Mail 6,721 420 - 7,141
Retail 24,018 10,247 - 34,265
---------- ---------- ------------ ------------
Total 30,739 10,667 - 41,406
========== ========== ============ ============
Adjusted Claims
(Note 4) 43,647 11,508 - 55,155
========== ========== ============ ============
EBITDA per adjusted
claim (excluding
integration and other
related expenses)
(Notes 3 and 4) $ 3.78 $ 0.81 $ - $ 3.16
========== ========== ============ ============
CAREMARK RX, INC. AND SUBSIDIARIES
SELECTED PRO FORMA* FINANCIAL AND STATISTICAL INFORMATION
(In thousands, except per adjusted claim amounts)
Three Months Ended
March 31,
----------------------
2004 2003 Percentage
Financial Information Pro Forma Pro Forma Increase
---------- ---------- ----------
Net revenue $7,635,746 $6,790,618 12%
Cost of revenues 7,255,707 6,448,047 13%
Selling, general and administrative
expenses 117,319 116,576 1%
Stock option expense 9,000 9,000 0%
---------- ---------- ----------
EBITDA (Notes 2 and 3) 253,720 216,995 17%
Depreciation 22,890 19,762 16%
Amortization 12,075 12,092 0%
---------- ---------- ----------
Operating income (Note 3) $218,755 $185,141 18%
========== ========== ==========
Claims Processed
Mail 11,323 9,997 13%
Retail 137,738 134,551 2%
---------- ---------- ----------
Total 149,061 144,548 3%
========== ========== ==========
Adjusted Claims (Note 4) 171,172 164,134 4%
========== ========== ==========
EBITDA per adjusted claim
(Notes 2 and 4) $1.48 $1.32 12%
========== ========== ==========
* Assumes the AdvancePCS acquisition occurred at the beginning of
each period presented. See Note 1.
Caremark Rx, Inc. Notes to Press Release Tables For the Quarter Ended March 31, 2004 (1) On March 24, 2004, we completed our previously announced acquisition of AdvancePCS. The accompanying ac·com·pa·ny v. ac·com·pa·nied, ac·com·pa·ny·ing, ac·com·pa·nies v.tr. 1. To be or go with as a companion. 2. balance sheet as of March 31, 2004, reflects the impact of this transaction and the preliminary allocation The apportionment or designation of an item for a specific purpose or to a particular place. In the law of trusts, the allocation of cash dividends earned by a stock that makes up the principal of a trust for a beneficiary usually means that the dividends will be treated as of the purchase price we paid to the net assets Net assets The difference between total assets on the one hand and current liabilities and noncapitalized long-term liabilities on the other hand. net assets See owners' equity. we acquired from AdvancePCS. This puchase price allocation is preliminary and subject to revision (programming) revision - A release of a piece of software which is not a major release or a bugfix, but only introduces small changes or new features. based on the outcome of ongoing evaluations of these net assets. We expect these evaluations to be substantially complete by June June: see month. 30, 2004. The results of operations and cash flows of AdvancePCS for the eight days ended March 31, 2004, are included in the accompanying condensed con·dense v. con·densed, con·dens·ing, con·dens·es v.tr. 1. To reduce the volume or compass of. 2. To make more concise; abridge or shorten. 3. Physics a. consolidated statements of operations and cash flows. To assist you in understanding the impact of the AdvancePCS acquisition, we have prepared the following pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma presentation of the results of operations of Caremark Rx, Inc. and AdvancePCS as if the acquisition of AdvancePCS had been completed at the beginning of each period (in thousands, except per share and per adjusted claim amounts):
Quarter Ended March 31, 2004
---------------------------------------------------
Pro Forma Pro Forma
Caremark Rx AdvancePCS Adjustments Combined
------------ ------------ ------------ ------------
Net revenue $2,561,989 $5,086,229 $ (12,472) $7,635,746
Costs and expenses:
Cost of revenues 2,347,894 4,920,285 (12,472) 7,255,707
Selling, general
and administrative
expenses 49,033 68,286 - 117,319
Depreciation 11,835 11,055 - 22,890
Amortization - 3,286 8,789 12,075
Equity in loss of
RxHub - 1,262 (1,262) -
Stock option expense - - 9,000 9,000
Integration and other
related expenses 10,410 2,584 (12,994) -
--------- ---------- --------- -----------
Operating income 142,817 79,471 (3,533) 218,755
Interest expense, net 9,822 4,024 (3,906) 9,940
--------- ---------- --------- -----------
Income before provision
for income taxes 132,995 75,447 373 208,815
Provision for income
taxes 53,198 29,801 149 83,148
--------- ---------- --------- -----------
Net Income $ 79,797 $ 45,646 $ 224 $ 125,667
========= ========== ========= ===========
Average number of shares
outstanding - diluted 268,504 100,982 94,597 464,083
========= ========== ========= ===========
Earnings per share -
diluted $ 0.30 $ 0.45 $ 0.27
========= ========== ===========
EBITDA (Note 2) $154,652 $ 93,812 $ 5,256 $ 253,720
========= ========== ======== ===========
EBITDA excluding
integration and
other related exp.
(Note 3) $165,062 $ 96,396 $(7,738) $ 253,720
========= ========== ======== ===========
Claims processed
Mail 6,721 4,602 - 11,323
Retail 24,018 113,720 - 137,738
--------- ---------- --------- -----------
Total 30,739 118,322 - 149,061
========= ========== ========= ===========
Adjusted Claims
(Note 4) 43,647 127,525 - 171,172
========= ========== ========= ===========
EBITDA per adjusted
claim excluding
integration and other
related expenses
(Notes 3 and 4) $ 3.78 $ 0.76 $ 1.48
========= =========== ==========
Quarter Ended March 31, 2003
---------------------------------------------------
Pro Forma Pro Forma
Caremark Rx AdvancePCS Adjustments Combined
------------ ------------ ------------ ------------
Net revenue $2,163,796 $4,639,038 $ (12,216) $6,790,618
Costs and expenses:
Cost of revenues 1,991,701 4,468,562 (12,216) 6,448,047
Selling, general
and administrative
expenses 46,103 70,473 - 116,576
Depreciation 9,859 9,903 - 19,762
Amortization 17 3,646 8,429 12,092
Equity in loss of
RxHub - 1,526 (1,526) -
Stock option expense - - 9,000 9,000
--------- ---------- --------- -----------
Operating income 116,116 84,928 (15,903) 185,141
Interest expense, net 11,094 9,133 (3,906) 16,321
--------- ---------- --------- -----------
Income before provision
for income taxes 105,022 75,795 (11,997) 168,820
Provision for income
taxes 42,009 29,945 (4,799) 67,155
--------- ---------- --------- -----------
Net Income $ 63,013 $ 45,850 $(7,198) $ 101,665
========= ========== ========= ===========
Average number of shares
outstanding - diluted 261,781 96,128 99,451 457,360
========= ========== ========= ===========
Earnings per share -
diluted $ 0.24 $ 0.48 $ 0.22
========= ========== ===========
EBITDA (Note 2) $125,992 $ 98,477 $(7,474) $ 216,995
========= ========== ======== ===========
Claims processed
Mail 5,951 4,046 - 9,997
Retail 22,280 112,271 - 134,551
--------- ---------- --------- -----------
Total 28,231 116,317 - 144,548
========= ========== ========= ===========
Adjusted Claims
(Note 4) 39,725 124,409 - 164,134
========= ========== ========= ===========
EBITDA per adjusted
claim (Note 2) $ 3.17 $ 0.79 $ 1.32
========= =========== ==========
The actual results of operations of AdvancePCS presented above include increases to net revenue and cost of revenues of approximately $1.2 billion and $1.0 billion for the quarters ended March 31, 2004 and 2003, respectively, from the amounts previously reported by AdvancePCS to reflect the impact of conforming con·form v. con·formed, con·form·ing, con·forms v.intr. 1. To correspond in form or character; be similar. 2. AdvancePCS's policy for recording retail copayments to that used by Caremark Rx, Inc. These adjustments had no effect on the operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. or net income of AdvancePCS. The pro forma adjustments to the historical results of Caremark Rx and AdvancePCS consist of the following:
Line Item Description of Adjustment
----------------------------------------------------------------------
Net revenue.....Elimination of Caremark Rx revenues generated from
participation in AdvancePCS's specialty pharmacy
network.
Cost of
revenues.......Elimination of Caremark Rx's cost of revenues from
participation in AdvancePCS's specialty pharmacy
network.
Amortization....The increase in amortization represents the
incremental amount of amortization related to the
identifiable intangible assets identified in the
preliminary purchase price allocation. These amounts
may be revised in the future as Caremark Rx's
evaluation of acquired intangible assets is
finalized.
Equity in loss
of RxHub.......Elimination of the equity in loss of RxHub due to
Caremark Rx's assigning no value to AdvancePCS's
investment in RxHub in the preliminary purchase price
allocation.
Stock option
expense........Addition of stock option expense for the intrinsic
value of AdvancePCS unvested options at the
acquisition date. The pro forma adjustment of $9
million approximates the amount to be expensed in the
second quarter of 2004, which will be the first full
quarter for reporting combined results of operations.
Integration and
other related
expenses.......Integration and other other expenses which are
directly related to the transaction have been
eliminated.
Interest
expense, net...The adjustment to interest expense represents the
elimination of interest expense associated with the
$183.8 million of AdvancePCS's 8 1/2% Senior Notes
Due 2008 that Caremark Rx repurchased in conjunction
with the acquisition of AdvancePCS.
Provision for
income taxes...The provision for income taxes on pro forma
adjustments has been calculated using a 40% rate,
which is Caremark Rx's historical effective tax rate
on book income. This rate is expected to change to
approximately 39.8% in the second quarter of 2004.
Average number
of common
shares
outstanding -
diluted........The adjustments to average number of common shares
outstanding - diluted reflects the impact of the
common shares, replacement stock options and
replacement warrants issued in connection with the
acquisition.
(2) We believe that EBITDA is a supplemental measurement tool used by analysts and investors to help evaluate a company's overall operating performance; its ability to incur and service debt and its capacity for making capital expenditures. We use EBITDA, in addition to operating income and cash flows from operating activities, to assess our performance and believe that it is important for investors to be able to evaluate our company using the same measures used by our management. EBITDA can be reconciled rec·on·cile v. rec·on·ciled, rec·on·cil·ing, rec·on·ciles v.tr. 1. To reestablish a close relationship between. 2. To settle or resolve. 3. to net cash provided by continuing operations, which we believe to be the most directly comparable financial measure calculated and presented in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with GAAP, as follows (in thousands):
Three Months Ended
March 31,
-----------------------
2004 2003
----------- -----------
Net income $ 84,188 $ 63,013
Depreciation 12,789 9,859
Amortization of intangible assets 1,059 17
Interest expense, net 9,830 11,094
Provision for income taxes 56,126 42,009
----------- -----------
EBITDA 163,992 125,992
Cash interest payments, net of interest income (24,629) (1,782)
Cash tax payments, net of refunds (4,498) (6,453)
Other non-cash expenses 3,154 397
Other changes in operating assets and
liabilities, net of acquisitions/disposals of
businesses 64,932 19,578
----------- -----------
Net cash provided by continuing operations $ 202,951 $ 137,732
=========== ===========
EBITDA does not represent funds available for our discretionary use and is not intended to represent or to be used as a substitute for net income or cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses data as measured under GAAP. The items excluded from EBITDA are significant components of our statement of income and must be considered in performing a comprehensive assessment of our overall financial performance. EBITDA and the associated year-to-year trends should not be considered in isolation. Our calculation of EBITDA may not be consistent with calculations of EBITDA used by other companies. (3) In the first quarter of 2004, we incurred approximately $10.4 million of expenses primarily for: (1) integration activities related to our acquisition of AdvancePCS, including pre-acquisition integration planning and (2) writing off approximately $2.2 million of deferred financing costs related to our credit agreement that was replaced upon consummation CONSUMMATION. The completion of a thing; as the consummation of marriage; (q.v.) the consummation of a contract, and the like. 2. A contract is said to be consummated, when everything to be done in relation to it, has been accomplished. of the AdvancePCS acquisition. The analyses used by management to evaluate the performance of our business excludes these integration and other related expenses. Under the SEC's Regulation G, financial measures which exclude non-recurring expense items are non-GAAP financial measures; therefore, our presentations of amounts of EBITDA, operating income and earnings per share which exclude these integration and other related expenses are, likewise, non-GAAP financial measures which require reconciliation to the most directly comparable financial measure calculated and presented in accordance with GAAP. Since EBITDA is itself a non-GAAP financial measure, we direct your attention to note 2 above for a reconciliation of EBITDA to net cash provided by continuing operations, which we believe to be the most directly comparable financial measure calculated and presented in accordance with GAAP. Our reconciliations of the financial measures presented in the attached press release which exclude integration and other related expenses are as follows (in thousands, except per share amounts):
Three Months Ended
March 31, 2004
-------------------
EBITDA (Note 2) $ 163,992
Integration and other related expenses 10,410
-------------------
EBITDA excluding integration and other related
expenses $ 174,402
===================
Operating income $ 150,144
Integration and other related expenses 10,410
-------------------
Operating income excluding integration and other
related expenses $ 160,554
===================
Net income per common share - diluted $ 0.29
Integration and other related expenses per share
(net of tax benefit) 0.03
-------------------
Net income per common share - diluted excluding
integration and other related expenses $ 0.32
===================
(4) Adjusted pharmacy claims normalize normalize to convert a set of data by, for example, converting them to logarithms or reciprocals so that their previous non-normal distribution is converted to a normal one. the claims volume statistic statistic, n a value or number that describes a series of quantitative observations or measures; a value calculated from a sample. statistic a numerical value calculated from a number of observations in order to summarize them. for the difference in average days' supply for mail and retail claims. Adjusted pharmacy claims are calculated by multiplying mul·ti·ply 1 v. mul·ti·plied, mul·ti·ply·ing, mul·ti·plies v.tr. 1. To increase the amount, number, or degree of. 2. Mathematics To perform multiplication on. 90-day claims (the majority of total mail claims) by 3 and adding the 30-day claims (retail claims) to the product. |
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