Caremark Rx, Inc. Announces Record Second Quarter 2004 Results; Cash Flow from Operations of $499 Million in the Second Quarter; Integration of AdvancePCS Acquisition on Track.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. -- Management Reaffirms Guidance for 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 $0.30 for the second quarter of 2004. The financial results included integration and other related expenses of $5.0 million ($3.0 million net of taxes) related to the company's 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 also $0.30, representing an increase of 15% from the second quarter of 2003. 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 during the second quarter of 2004 more than tripled to $498.9 million compared to $129.7 million generated during the same period of the prior year. Due to the completion of the AdvancePCS acquisition on March 24, 2004, Caremark's second quarter results included the results of AdvancePCS operations for the full quarter. On a 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 basis, assuming the AdvancePCS results were included in the second quarter of 2003, diluted earnings per share for the second quarter of 2004, excluding integration and other related expenses, increased from $0.24 to $0.30, or by 25%. Caremark also reaffirmed its previous earnings per share guidance for 2004. Caremark continues to expect 2004 diluted earnings per share, excluding integration and other related expenses, in the range of $1.37 to $1.39 for the year. Caremark continues to expect to achieve the projected synergies associated with the AdvancePCS acquisition of $125 million by the end of 2004. Second Quarter 2004 Operating Results Due to the completion of the AdvancePCS acquisition on March 24, 2004, the second quarter results reflected the inclusion of AdvancePCS for the full second quarter of 2004. During the second quarter of 2004, Caremark reported record net revenues of $7.3 billion, an increase of $5.1 billion over the second quarter of 2003. During the second quarter of 2004, mail 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. revenues totaled $2.1 billion, an increase of $1.0 billion, and mail prescriptions totaled 11.4 million, an increase of 5.3 million prescriptions, over the second quarter of 2003. During the second quarter of 2004, retail revenues totaled $5.1 billion, an increase of $4.0 billion, and retail claims totaled 133.9 million, an increase of 111.8 million claims, over the second 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 second quarter of 2004, excluding integration and other related expenses, was $281.6 million, an increase of $145.8 million over the second quarter of 2003. 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. in the second quarter was $498.9 million compared with $129.7 million in the same period last year, an increase of $369.2 million. Second quarter 2004 cash flow included $55 million from a refund TO REFUND. To pay back by the party who has received it, to the party who has paid it, money which ought not to have been paid. 2. On a deficiency of assets, executors and administrators cum testamento annexo, are entitled to have refunded to them legacies of estimated tax Federal and state tax laws require a quarterly payment of estimated taxes due from corporations, trusts, estates, non-wage employees, and wage employees with income not subject to withholding. payments made by AdvancePCS prior to the merger, and approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $75 million related to the reduction of inventory at AdvancePCS. On July July: see month. 20, 2004, Caremark announced that its Board of Directors had authorized au·thor·ize tr.v. au·thor·ized, au·thor·iz·ing, au·thor·iz·es 1. To grant authority or power to. 2. To give permission for; sanction: an increase in its stock repurchase Stock repurchase A firm's repurchase of outstanding shares of its common stock. program to repurchase re·pur·chase tr.v. re·pur·chased, re·pur·chas·ing, re·pur·chas·es To buy (something) again. n. The act of buying something that one previously sold or owned. Noun 1. up to $750 million of the company's common stock in the open market. Prior to April 1, 2004, the company had purchased 1.8 million shares at an approximate ap·prox·i·mate v. To bring together, as cut edges of tissue. adj. 1. Relating to the contact surfaces, either proximal or distal, of two adjacent teeth; proximate. 2. Close together. total cost of $28 million. During the second quarter of 2004, the company repurchased 1.1 million shares, at an approximate total cost of $34 million resulting in no material impact on diluted earnings per share during the second quarter. Since June June: see month. 30, 2004, the company has repurchased 3.8 million shares at an approximate total cost of $117 million. In total, as of July 28, 2004, the company has repurchased 6.7 million shares at an approximate cost of $179 million. At June 30, 2004, Caremark reported a net cash position of $272.6 million, reflecting total cash and equivalents of $873.2 million offset by a term loan and senior notes totaling $600.6 million. Capital expenditures totaled $18.2 million during the second quarter of 2004. "We are very pleased that the second quarter results were in line with our expectations and that we are successfully integrating the operations of AdvancePCS," said Mac Crawford, Chairman, President and Chief Executive Officer of Caremark. "Our cash flow has been strong and the Board made the decision to authorize To empower another with the legal right to perform an action. The Constitution authorizes Congress to regulate interstate commerce. authorize v. to officially empower someone to act. (See: authority) the significant increase in share repurchases Share Repurchase A program by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares. This is usually an indication that the company's management thinks the shares are undervalued. as an appropriate use of cash, while we evaluate other longer-term strategies for capital deployment Installing, setting up, testing and running. This military term, which means the placement of troops and equipment in the field, is widely used with computers as an alternate to the word "implementation. , and while we continue the integration of AdvancePCS." Second Quarter 2004 Operating Results-Pro Forma forma, adj/n minor elements between the members of a botanical species. On a pro forma basis, assuming the AdvancePCS acquisition was included in the second quarter of 2003 results, Caremark net revenues increased 4% in the second quarter of 2004. Revenue growth was impacted by Caremark's higher dispensing dispensing provision of drugs or medicines as set out properly on a lawful prescription. A prescription can only be filled, the drugs supplied, by a registered pharmacist, veterinarian, dentist or member of the medical profession. rate of generic drugs generic drug, a drug sold or prescribed under the nonproprietary name of its active ingredients or under a generally descriptive name rather than under a brand or trade name. that have lower prices but result in healthcare cost savings for Caremark's clients. Second quarter revenues were also impacted by a revenue reduction due to the previously announced renewal of a large contract, and a corresponding change in revenue recognition for this contract from a gross basis to a net basis. Excluding the impact of higher generic Generic Describes the characteristics and/or experience of the total universe of a coupon of MBS sector type; that is, in contrast to a specific pool or collateral group, as in a specific CMO issue. dispensing rates and the change in revenue recognition for the contract mentioned above, second quarter revenues would have increased approximately 13% over the pro forma second quarter of 2003. Mail revenues increased 23% and mail prescriptions increased 11% in the second quarter of 2004 from the pro forma second quarter of 2003. Mail prescriptions represented 20% of total retail-adjusted prescriptions in the second quarter of 2004, up from 19% in the pro forma second quarter of 2003. Retail revenues in the second quarter of 2004 decreased by 2% from the pro forma second quarter in 2003, reflecting the change in revenue recognition for the contract mentioned above. Retail prescriptions were up slightly in the second quarter of 2004 compared to the pro forma second quarter of 2003. EBITDA, excluding integration and other related expenses, in the second quarter of 2004 increased by $51.7 million, or 22%, from the pro forma second quarter of 2003. EBITDA per claim in the second quarter of 2004 increased to $1.68, or 20%, over the pro forma second quarter of 2003. First Half 2004 Operating Results Due to Caremark's completion of the AdvancePCS acquisition on March 24, 2004, the six months operating results included the results of AdvancePCS operations from March 24 through June 30, 2004. During the first six months of 2004, Caremark reported net revenues of $10.3 billion, an increase of $6.0 billion over the same period in the prior year. EBITDA for the first six months of 2004, excluding integration and other related expenses, was $456.0 million, an increase of $194.2 million over the same period of 2003. The company's cash flow from operations for the first half of 2004 totaled $701.9 million, an increase of $434.5 million, or 162% from the same period in 2003. Diluted earnings per share for the first six months of 2004, excluding integration and other related expenses, increased 22% to $0.61 compared to $0.50 in the first six months of 2003. First Half 2004 Operating Results-Pro Forma On a pro forma basis, assuming AdvancePCS was included in the first six months of both 2004 and 2003 results, net revenues were $14.9 billion in the first half of 2004, an increase of 8% from the same period in 2003. Excluding the impact of higher generic dispensing rates and the change in revenue recognition for the contract mentioned above, pro forma revenues for the first six months of 2004 would have increased approximately 14% over the first six months of 2003. On a pro forma basis, EBITDA for the first six months of 2004, excluding integration and other related expenses, was $535.4 million, an increase of 20% from the first six months of 2003. Pro forma diluted earnings per share, excluding integration and other related expenses, were $0.57 for the first half of 2004, an increase of 24% compared to the same period in the prior year. Outlook and AdvancePCS Integration Caremark remains comfortable with the guidance provided previously, by quarter, for 2004. For the third quarter of 2004, the company continues to expect diluted earnings per share, before integration and other related expenses, to be in the range of $0.34 to $0.35. For the full year 2004, Caremark continues to expect 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: net revenue to total $25 to $26 billion and diluted earnings per share, excluding integration and other related expenses, to be in the range of $1.37 to $1.39. Caremark's integration of AdvancePCS remains on track and consistent with the plans put in place upon completing the acquisition on March 24, 2004. "As we have proceeded with the integration, we are confident in the outlook for transaction synergies of $125 million in 2004, and ultimately, $250 million annually," said Crawford. Conference Call As announced, Caremark will hold a conference call to discuss second quarter 2004 results, guidance for 2004, and general operations of the company. The details of the call are as follows:
Date: Thursday, July 29, 2004
Time: 11:30 a.m. Eastern Time
10:30 a.m. Central Time
Toll Number: 706-634-6560
Toll-Free Number: 888-596-9623
Leader: Mac Crawford
Replay Number: 706-645-9291
Conference ID: 8750597
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 webcast 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 2:30 p.m. Eastern Time on Thursday Thursday: see week. , July 29, 2004, until Midnight Eastern Time, Thursday, August 5, 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 Plan participants Employees or other beneficiaries who are eligible to receive benefits from a company's employee benefit plan. 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 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, the company's Quarterly Report on Form 10-Q Form 10-Q See 10-Q. for the quarter ended March 31, 2004 and the company's other periodic filings from time to time with the SEC. 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)
June 30, December 31,
2004 2003
------------- -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 873,236 $ 815,328
Accounts receivable, net 2,052,715 669,680
Inventories 270,161 204,939
Deferred tax asset, net 383,508 240,978
Prepaid expenses and other current assets 25,374 15,752
------------- -------------
Total current assets 3,604,994 1,946,677
Property and equipment, net 294,202 159,769
Goodwill 6,880,906 49,171
Other intangible assets, net 943,016 9,273
Deferred tax asset, net - 227,426
Other assets 58,524 81,312
------------- -------------
Total assets $ 11,781,642 $ 2,473,628
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 560,641 $ 385,362
Claims and discounts payable 2,456,880 509,713
Other accrued expenses and liabilities 287,254 158,666
Income taxes payable 6,640 7,820
Current portion of long-term debt 4,000 2,500
------------- -------------
Total current liabilities 3,315,415 1,064,061
Long-term debt, net of current portion 596,610 693,125
Deferred tax liability 65,222 -
Other long-term liabilities 264,690 75,804
------------- -------------
Total liabilities 4,241,937 1,832,990
Commitments and contingencies
Stockholders' equity:
Common stock 471 269
Additional paid-in capital 8,507,866 1,762,477
Unearned stock-based compensation (37,391) -
Treasury stock (62,391) (28,782)
Shares held in trust (100,034) (101,103)
Accumulated deficit (757,826) (981,233)
Accumulated other comprehensive loss (10,990) (10,990)
------------- -------------
Total stockholders' equity 7,539,705 640,638
------------- -------------
Total liabilities and stockholders' equity $ 11,781,642 $ 2,473,628
============= =============
CAREMARK RX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share and per adjusted claim amounts)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
2004 (a) 2003 2004 (a) 2003
------------ ------------ ------------ ------------
Net revenue $ 7,304,442 $ 2,204,039 $10,330,385 $ 4,367,835
Operating expenses:
Cost of
revenues (b) 6,894,591 2,019,399 9,689,402 4,011,100
Selling, general
and administrative
expenses 119,945 48,785 175,856 94,888
Depreciation 24,474 10,740 37,263 20,599
Amortization of
intangible assets 12,300 18 13,359 35
Stock option
expense 8,266 - 9,085 -
Integration and
other related
expenses 5,028 - 15,438 -
------------ ------------ ------------ ------------
Operating income 239,838 125,097 389,982 241,213
Interest expense,
net 8,578 10,875 18,408 21,969
------------ ------------ ------------ ------------
Income before
provision for
income taxes 231,260 114,222 371,574 219,244
Provision for
income taxes 92,041 45,688 148,167 87,697
------------ ------------ ------------ ------------
Net income $ 139,219 $ 68,534 $ 223,407 $ 131,547
============ ============ ============ ============
Average number of
common shares
outstanding -
basic 459,817 256,391 368,785 255,864
Dilutive effect of
stock options and
warrants 11,110 7,215 9,635 6,832
------------ ------------ ------------ ------------
Average number of
common shares
outstanding -
diluted 470,927 263,606 378,420 262,696
============ ============ ============ ============
Net income per
common share -
diluted $ 0.30 $ 0.26 $ 0.59 $ 0.50
============ ============ ============ ============
Pharmacy claims:
Mail 11,431 6,103 18,572 12,054
Retail 133,927 22,090 168,192 44,370
------------ ------------ ------------ ------------
Total 145,358 28,193 186,764 56,424
============ ============ ============ ============
Adjusted Claims
(Note 4) 167,808 40,084 222,963 79,809
============ ============ ============ ============
Supplemental
presentation of
non-GAAP financial
measures:
EBITDA (Earnings
before interest,
taxes,
depreciation and
amortization)
(Note 2) $ 276,612 $ 135,855 $ 440,604 $ 261,847
============ ============ ============ ============
EBITDA excluding
integration and
other related
expenses (Notes 2
and 3) $ 281,640 $ 135,855 $ 456,042 $ 261,847
============ ============ ============ ============
EBITDA per adjusted
claim excluding
integration and
other related
expenses (Notes 3
and 4) $ 1.68 $ 3.39 $ 2.05 $ 3.28
============ ============ ============ ============
Net income per
common share -
diluted excluding
integration and
other related
expenses (Note 3) $ 0.30 $ 0.26 $ 0.61 $ 0.50
============ ============ ============ ============
(a) Includes the results of operations of AdvancePCS beginning March
24, 2004.
(b) Excludes depreciation which is presented separately.
CAREMARK RX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended
June 30,
---------------------------
2004 (a) 2003
------------- -------------
Cash flows from continuing operations:
Net income $ 223,407 $ 131,547
Adjustments to reconcile net income to net
cash provided by
continuing operations:
Deferred income taxes 101,252 78,058
Depreciation and amortization 50,622 20,634
Bad debt 8,318 6,758
Stock option expense 9,085 -
Non-cash interest expense 1,645 1,804
Writeoff of deferred financing costs 2,206 -
Other non-cash expenses 249 541
Changes in operating assets and
liabilities, net of effects of
acquisitions/disposals of businesses 305,112 28,049
------------- -------------
Net cash provided by continuing operations 701,896 267,391
Cash flows from investing activities:
Capital expenditures, net (31,151) (26,589)
Acquisitions of businesses, net of cash
acquired (391,021) (319)
Partial liquidation of cost-method
investment 10,382 -
------------- -------------
Net cash used in investing activities (411,790) (26,908)
Cash flows from financing activities:
Net repayments under credit facilities (96,625) (1,250)
Principal payment under AdvancePCS Senior
Notes Tender Offer (206,810) -
Net proceeds from exercise of stock
options and retirement of warrants 113,691 39,214
Purchase of treasury stock (33,609) (6,111)
Deferred financing costs (3,857) (100)
Securities issuance costs (2,729) -
------------- -------------
Net cash provided by (used in) financing
activities (229,939) 31,753
Cash used in discontinued operations (2,259) (53,262)
------------- -------------
Net increase in cash and cash equivalents 57,908 218,974
Cash and cash equivalents - beginning of
period 815,328 306,804
------------- -------------
Cash and cash equivalents - end of period $ 873,236 $ 525,778
============= =============
Non-cash investing and financing
activities related to the AdvancePCS
acquisition:
Fair value of non-cash net assets acquired
(based on the Company's preliminary
purchase price allocation) $ 6,913,941
=============
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 consideration $ 6,514,629
=============
(a) Includes the cash flows of AdvancePCS from March 24, 2004 through
June 30, 2004.
CAREMARK RX, INC. AND SUBSIDIARIES
SELECTED PRO FORMA FINANCIAL AND STATISTICAL INFORMATION (a)
(In thousands, except per share and per adjusted claim amounts)
Three Months Ended
June 30,
-------------------------
2004 2003 Percentage
Financial Information Pro Forma Pro Forma Increase
------------ ------------ ----------
Net revenue $ 7,304,442 $ 7,020,176 4%
Cost of revenues (b) 6,894,591 6,668,904 3%
Selling, general and
administrative expenses 119,945 113,020 6%
Stock option expense 8,266 8,266 0%
------------ ------------ ----------
EBITDA (Notes 2 and 3) 281,640 229,986 22%
Depreciation 24,474 21,104 16%
Amortization of intangible assets 12,300 12,318 0%
------------ ------------ ----------
Operating income (Note 3) 244,866 196,564 25%
Interest expense, net 8,578 15,635 -45%
------------ ------------ ----------
Income before provision for
income taxes 236,288 180,929 31%
Provision for income taxes 94,043 71,971 31%
------------ ------------ ----------
Net income 142,245 108,958 31%
============ ============ ==========
Average number of common shares
outstanding - diluted 470,927 452,041 4%
============ ============ ==========
Net income per common share -
diluted $ 0.30 $ 0.24 25%
============ ============ ==========
Claims Processed
Mail 11,431 10,285 11%
Retail 133,927 133,780 0%
----------- ----------- ---------
Total 145,358 144,065 1%
============ ============ ==========
Adjusted Claims (Note 4) 167,808 164,321 2%
============ ============ ==========
EBITDA per adjusted claim (Notes
2 and 4) $ 1.68 $ 1.40 20%
============ ============ ==========
Six Months Ended
June 30,
-------------------------
2004 2003 Percentage
Financial Information Pro Forma Pro Forma Increase
------------ ------------ ----------
Net revenue $14,940,188 $13,810,794 8%
Cost of revenues (b) 14,150,298 13,116,951 8%
Selling, general and
administrative expenses 237,264 229,596 3%
Stock option expense 17,266 17,266 0%
------------ ------------ ----------
EBITDA (Notes 2 and 3) 535,360 446,981 20%
Depreciation 47,364 40,866 16%
Amortization of intangible assets 24,375 24,410 0%
------------ ------------ ----------
Operating income (Note 3) 463,621 381,705 21%
Interest expense, net 18,518 31,956 -42%
------------ ------------ ----------
Income before provision for
income taxes 445,103 349,749 27%
Provision for income taxes 177,191 139,126 27%
------------ ------------ ----------
Net income 267,912 210,623 27%
============ ============ ==========
Average number of common shares
outstanding - diluted 467,505 454,701 3%
============ ============ ==========
Net income per common share -
diluted $ 0.57 $ 0.46 24%
============ ============ ==========
Claims Processed
Mail 22,754 20,282 12%
Retail 271,665 268,331 1%
------------ ------------ ----------
Total 294,419 288,613 2%
============ ============ ==========
Adjusted Claims (Note 4) 338,980 328,455 3%
============ ============ ==========
EBITDA per adjusted claim (Notes
2 and 4) $ 1.58 $ 1.36 16%
============ ============ ==========
(a) Assumes the AdvancePCS acquisition occurred at the beginning of
each period presented. See Note 1.
(b) Excludes depreciation which is presented separately.
Caremark Rx, Inc. Notes to Press Release Tables June 30, 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 June 30, 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 purchase 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. The results of operations and cash flows of AdvancePCS for the period subsequent to the acquisition 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 also included pro forma information presenting 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 presented. The actual results of operations of AdvancePCS included in the pro forma information include increases to net revenue and cost of revenues of approximately $1.0 billion and $2.0 billion for the quarter and six months ended June 30, 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 historical 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 or the pro forma combined company. The pro forma adjustments to the historical results of Caremark Rx and AdvancePCS also include the following items: --Elimination of revenues and cost of revenues generated from Caremark Rx's historical participation in AdvancePCS's specialty pharmacy networks (no impact to operating income or net income). --An increase in amortization of 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. of approximately $9 million per quarter for the 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. 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 See finalization. . --Addition of stock option expense for the intrinsic value Intrinsic Value 1. The value of a company or an asset based on an underlying perception of the value. 2. For call options, this is the difference between the underlying stock's price and the strike price. of AdvancePCS unvested options at the acquisition date. --Elimination of integration and other related expenses which are directly related to the transaction. --A decrease in interest expense to reflect the elimination of interest expense associated with the $186.2 million of AdvancePCS's 8 1/2% Senior Notes Due 2008 that Caremark Rx repurchased in conjunction conjunction, in astronomy conjunction, in astronomy, alignment of two celestial bodies as seen from the earth. Conjunction of the moon and the planets is often determined by reference to the sun. with the acquisition of AdvancePCS. --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 changed to 39.8% in the second quarter of 2004. --The average number of common shares outstanding - 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. has been adjusted to reflect 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 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. 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 Six Months Ended
June 30, June 30,
--------------------- ---------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Net income $ 139,219 $ 68,534 $ 223,407 $ 131,547
Depreciation 24,474 10,740 37,263 20,599
Amortization of intangible
assets 12,300 18 13,359 35
Interest expense, net 8,578 10,875 18,408 21,969
Provision for income taxes 92,041 45,688 148,167 87,697
---------- ---------- ---------- ----------
EBITDA 276,612 135,855 440,604 261,847
Cash interest (payments)
receipts 395 (19,945) (24,234) (21,727)
Cash tax (payments) refunds 38,816 (2,915) 34,318 (9,368)
Other non-cash expenses 13,768 144 19,858 541
Other changes in operating
assets and liabilities,
net of
acquisitions/disposals of
businesses 169,354 16,520 231,350 36,098
---------- ---------- ---------- ----------
Net cash provided by
continuing operations $ 498,945 $ 129,659 $ 701,896 $ 267,391
========== ========== ========== ==========
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 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 quarter and six months ended June 30, 2004, we incurred approximately $5.0 million and $15.4 million of expenses, respectively, primarily for: (1) integration activities related to our acquisition of AdvancePCS, including pre-acquisition integration planning; (2) involuntary involuntary adj. or adv. without intent, will, or choice. Participation in a crime is involuntary if forced by immediate threat to life or health of oneself or one's loved ones, and will result in dismissal or acquittal. INVOLUNTARY. termination/employee retention benefits ($2.9 million quarter-to-date and $4.4 million year-to-date Year-to-date (YTD) The period beginning at the start of the calendar year up to the current date. ) and (2) writing off approximately $2.2 million (in the first quarter of 2004) 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 Six Months Ended
June 30, 2004 June 30, 2004
------------------ ------------------
EBITDA $ 276,612 $ 440,604
Integration and other related
expenses 5,028 15,438
------------------ ------------------
EBITDA excluding integration
and other related expenses $ 281,640 $ 456,042
================== ==================
Net income $ 139,219 $ 223,407
Integration and other related
expenses (net of income tax
benefit) 3,027 9,294
------------------ ------------------
Net income excluding
integration and other related
expenses $ 142,246 $ 232,701
================== ==================
Net income per common share -
diluted $ 0.30 $ 0.59
Integration and other related
expenses per share (net of tax
benefit) - 0.02
------------------ ------------------
Net income per common share -
diluted excluding integration
and other related expenses $ 0.30 $ 0.61
================== ==================
(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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