Caremark Rx, Inc. Announces Record Third Quarter Results; Raises 2005 Guidance to Upper End of Range; Gives Initial Outlook For 2006.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. -- 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 $.51 for the third quarter of 2005, equal to previous Company guidance as well as First Call consensus estimates. Diluted earnings per share for the third quarter of 2005 increased by 38% compared to $.37 in the third quarter of 2004. The third quarter 2005 and 2004 financial results included $1.7 million and $5.8 million, respectively, of integration and other expenses related to the 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. , which closed in the first quarter of 2004. Excluding these expenses, diluted earnings per share for the third quarter of 2005 were also $.51, compared to $.38 in the third quarter of 2004, an increase of 34%. Third Quarter 2005 Operating Results Caremark reported net revenues of $8.1 billion in the third quarter of 2005, an increase of 8% over the third quarter of 2004. During the third quarter of 2005, 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 $2.9 billion and mail claims totaled 14.6 million, increases of 33% and 23%, respectively, over the third quarter of 2004. During the third quarter of 2005, retail revenues totaled $5.1 billion and retail claims totaled 116.2 million, decreases of 2% and 12%, respectively, as compared to the third quarter of 2004. The decrease in retail claims is primarily attributed to previously disclosed dis·close tr.v. dis·closed, dis·clos·ing, dis·clos·es 1. To expose to view, as by removing a cover; uncover. 2. To make known (something heretofore kept secret). terminations of retail-oriented clients. 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 before interest, taxes, depreciation and amortization Earnings before interest, taxes, depreciation and amortization (EBITDA) is a non-GAAP metric that can be used to evaluate a company's profitability.
Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. in the third quarter was $225.9 million compared to $413.9 million in the third quarter of 2004. The lower 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 third quarter of 2005 is primarily attributed to the previously disclosed payment of $137.5 million to the U.S. Government to settle certain allegations against AdvancePCS, a subsidiary of Caremark. Diluted earnings per share of $.51, excluding integration and other related expenses, for the third quarter of 2005, represented an increase of 34% from $.38 for the third quarter of 2004. Commenting on the quarter's results, Mac Crawford, Chairman, President and Chief Executive Officer said, "We continued to perform well during the quarter and deliver on our strategy. We saw strong growth in both revenues and earnings, and continue to experience higher mail order penetration The successful unauthorized breach of a security perimeter. See penetration test. rates, strong growth in 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. product sales, as well as 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 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. rates within our book of business. This continues to translate (1) To change one language into another; for example, assemblers, compilers and interpreters translate source language into machine language. (2) In computer graphics, to move an image on screen without rotating it. into savings for our customers and another quarter of enhanced returns for our shareholders." Nine Months 2005 Operating Results Caremark closed the acquisition of AdvancePCS on March 24, 2004. As a result, the Company's operating results for the first nine months of 2004 only include the AdvancePCS operations from March 24, 2004 through September September: see month. 30, 2004. During the first nine months of 2005, Caremark reported net revenues of $24.6 billion, an increase of $6.8 billion over the same period in the prior year. EBITDA for the first nine months of 2005, excluding integration and other related expenses, was $1.2 billion, an increase of $392.0 million over the same period of 2004. The Company's cash flow from operations for the first nine months of 2005 totaled $796.9 million. Diluted earnings per share for the first nine months of 2005, excluding integration and other related expenses, increased 42% to $1.42 compared to $1.00 in the first nine months of 2004. Nine Months 2005 Operating Results-Pro Forma forma, adj/n minor elements between the members of a botanical species. 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 acquisition was included in the full first nine months of 2004, net revenues increased by 10% over the first nine months of 2004. EBITDA for the first nine months of 2005, excluding integration and other related expenses, was $1.2 billion, an increase of 36% from pro forma EBITDA of $870.5 million during the first nine months of 2004. Diluted earnings per share, excluding integration and other related expenses, were $1.42 for the first nine months of 2005, an increase of 49% compared to $.95 recorded in the same period of the prior year on a pro forma basis. Balance Sheet At September 30, 2005, Caremark reported a net cash and short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. investments position of $1.05 billion, reflecting total cash and cash equivalents and short-term investments of $1.5 billion offset by Senior Notes totaling $450 million. During the third quarter, Caremark invested $41.2 million on capital expenditures and repurchased $98 million of its common stock. Share Repurchase 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. In May 2005, 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: a $1.25 billion 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. the Company's common stock in the open market. Prior to the third quarter of 2005, the Company had repurchased 25.2 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 $799 million. During the third quarter of 2005, the Company repurchased 2.3 million shares at an approximate total cost of $98 million. Since September 30, 2005, the Company repurchased 830,000 shares at an approximate total cost of $40 million. In total, the Company has repurchased 28.3 million shares to date at an approximate total cost of $937 million, leaving $313 million available under its authorized program. Medicare Medicare, national health insurance program in the United States for persons aged 65 and over and the disabled. It was established in 1965 with passage of the Social Security Amendments and is now run by the Centers for Medicare and Medicaid Services. Part D In September, Caremark announced that it had received approval from the Centers for Medicare and Medicaid Services The Centers for Medicare and Medicaid Services (CMS), previously known as the Health Care Financing Administration (HCFA), is a federal agency within the United States Department of Health and Human Services (DHHS) that administers the Medicare program and (CMS (1) See content management system and color management system. (2) (Conversational Monitor System) Software that provides interactive communications for IBM's VM operating system. ) to participate as a prescription drug prescription drug Prescription medication Pharmacology An FDA-approved drug which must, by federal law or regulation, be dispensed only pursuant to a prescription–eg, finished dose form and active ingredients subject to the provisos of the Federal Food, Drug, plan sponsor (PDP (1) (Plasma Display Panel) See plasma display. (2) (Policy Decision Point) See COPS and XACML. (3) (Programmed Data P ). Caremark will be offering Medicare prescription drug benefits to seniors throughout the country starting next year through its wholly-owned subsidiary, SilverScript Insurance Company. In addition, Caremark is eligible to receive auto-enrollment of dual eligibles in 27 regions across the country. "We are excited to have received approval from CMS to participate in the new Medicare Part D program. We believe that the plan will provide service to the many seniors who have not had prescription drug coverage in the past. We also see opportunities for Caremark to provide additional services and support to our health plan and employer clients as they continue to evaluate the scope of the program for 2006 and beyond," said Mac Crawford. Outlook Caremark expects that its 2005 diluted earnings per share, before integration and other related expenses, will be $1.97, based on 456 million 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. shares outstanding and an effective tax rate of 39.5%. This represents the high-end high-end adj. Informal 1. Appealing to sophisticated and discerning customers: a high-end department store; high-end video equipment. 2. of the previous guidance of $1.95 to $1.97 per diluted share. Caremark expects 2005 revenue growth on a GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). basis of approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 27%. Caremark's expectations are currently based, in part, on the following assumptions: --Stock option expense associated with the unvested stock options held by AdvancePCS employees at the acquisition is expected to be approximately $11 million in 2005. --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 AdvancePCS transaction is estimated to total approximately $47 million in 2005. --Depreciation expense is expected to total approximately $101 million in 2005. --Net interest expense is expected to be break even for 2005. --The Company will continue to expense certain ongoing integration expenses related to the AdvancePCS acquisition as these costs are incurred. These expenses are not included in the Company's earnings per share expectations for 2005. Caremark expects diluted earnings per share, before integration and other related expenses, to be $.55 for the fourth quarter of 2005. Caremark has not previously provided guidance for 2006. There are a number of factors that will have an impact on the Company's 2006 results, including the timing of generic launches, the number of initial suppliers of each new generic drug 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. as well as many aspects of the new Medicare Part D benefit. At the current time, Caremark expects diluted earnings per share for 2006 to be $2.30 to $2.38 before the impact of expensing stock options, a requirement under FASB FASB See: Financial Accounting Standards Board FASB See Financial Accounting Standards Board (FASB). 123R beginning in January January: see month. 2006. The Company expects the 2006 stock option expense under FASB 123R to total $50 million to $55 million before taxes or $.07 to $.08 per diluted share after taxes. Conference Call As announced, Caremark will hold a conference call to discuss third quarter 2005 results, its 2006 outlook and the general operations of the Company. The details of the call are as follows:
Date: Tuesday, November 8, 2005
Time: 10:30 a.m. Eastern Time
9:30 a.m. Central Time
Toll-Free Number: (888) 596-9623
Int'l/Local Dial-in#: (706) 634-6560
Leader: Mac Crawford
Replay Number: (800) 642-1687 or (706) 645-9291
Conference ID: 1394400
The call also will 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 can be accessed through the "Investor Relations Investor relations The process by which the corporation communicates with its investors. " page on the Caremark Rx, Inc. Web site at www.caremarkrx.com. A taped replay of the call also will be available beginning at 1:30 p.m. Eastern Time on November November: see month. 8, 2005, until Midnight Eastern Time on November 22, 2005, 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 60,000 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 21 licensed specialty pharmacies for delivery of advanced medications to individuals with chronic or genetic diseases and disorders A
Additional information about Caremark Rx is available on the World Wide Web at www.caremarkrx.com. 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 2005 and 2006 earnings per share projections, 2005 and 2006 revenue growth, the anticipated impact in 2006 of the Company's Medicare Part D programs, 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, 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 measures. Additional information about Caremark Rx is available on the World Wide Web at http://www.caremarkrx.com.
-tables follow-
CAREMARK RX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, December 31,
2005 2004
------------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $942,738 $1,078,803
Short-term investments 534,703 223,610
Short-term investments - restricted 27,500 -
Accounts receivable, net 2,051,013 1,977,557
Inventories 405,776 436,754
Deferred tax asset, net 151,223 402,698
Income taxes receivable 41,409 64,654
Prepaid expenses and other current
assets 28,822 35,550
------------- ------------
Total current assets 4,183,184 4,219,626
Property and equipment, net 303,525 285,214
Goodwill, net 7,123,206 6,982,551
Other intangible assets, net 744,339 782,312
Other assets 49,859 40,031
------------- ------------
Total assets $12,404,113 $12,309,734
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $794,016 $678,083
Claims and discounts payable 2,349,647 2,644,426
Other accrued expenses and liabilities 329,033 293,017
Current portion of long-term debt - 148,610
------------- ------------
Total current liabilities 3,472,696 3,764,136
Long-term debt, net of current portion 450,000 450,000
Deferred tax liability 249,901 220,141
Other long-term liabilities 332,987 335,740
------------- ------------
Total liabilities 4,505,584 4,770,017
Commitments and contingencies
Stockholders' equity:
Common stock 478 475
Additional paid-in capital 8,646,101 8,564,031
Unearned stock-based compensation (9,472) (21,783)
Treasury stock (896,962) (510,978)
Shares held in trust (94,496) (97,452)
Retained earnings (accumulated deficit) 260,786 (380,924)
Accumulated other comprehensive income
(loss), net (7,906) (13,652)
------------- ------------
Total stockholders' equity 7,898,529 7,539,717
------------- ------------
Total liabilities and stockholders'
equity $12,404,113 $12,309,734
============= ============
CAREMARK RX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share and per adjusted claim amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -------------------------
2005 2004 2005 2004 (a)
----------- ----------- ------------ ------------
Net revenue (Note 1) $8,072,441 $7,457,892 $24,623,495 $17,788,277
Operating expenses:
Cost of revenues
(b) (Note 1) 7,533,395 7,004,741 23,089,484 16,694,143
Selling, general
and
administrative
expenses 115,848 111,645 341,679 287,501
Depreciation 25,402 24,735 73,962 61,998
Amortization of
intangible assets 11,725 11,847 35,533 25,206
Stock option
expense 2,733 6,408 9,174 15,493
Integration and
other related
expenses 1,686 5,798 8,807 21,236
----------- ----------- ------------ ------------
Operating income 381,652 292,718 1,064,856 682,700
Interest (income)
expense, net (863) 7,306 4,178 25,714
----------- ----------- ------------ ------------
Income before
provision for
income taxes 382,515 285,412 1,060,678 656,986
Provision for income
taxes 151,094 113,593 418,968 261,760
----------- ----------- ------------ ------------
Net income $231,421 $171,819 $641,710 $395,226
=========== =========== ============ ============
Average number of
common shares
outstanding - basic 444,507 456,131 447,593 398,113
Dilutive effect of
stock options and
warrants 9,087 8,638 8,859 9,302
----------- ----------- ------------ ------------
Average number of
common shares
outstanding -
diluted 453,594 464,769 456,452 407,415
=========== =========== ============ ============
Net income per
common share -
diluted $0.51 $0.37 $1.41 $0.97
=========== =========== ============ ============
Pharmacy claims:
Mail 14,559 11,791 43,314 30,363
Retail 116,159 132,554 366,713 300,746
----------- ----------- ------------ ------------
Total 130,718 144,345 410,027 331,109
=========== =========== ============ ============
Adjusted Claims
(Note 5) 159,236 167,523 494,884 390,486
=========== =========== ============ ============
Supplemental
presentation of
non-GAAP financial
measures:
EBITDA (Earnings
before interest,
taxes,
depreciation and
amortization)
(Note 3) $418,779 $329,300 $1,174,351 $769,904
=========== =========== ============ ============
EBITDA excluding
integration and
other related
expenses (Notes 3
and 4) $420,465 $335,098 $1,183,158 $791,140
=========== =========== ============ ============
EBITDA per
adjusted claim
excluding
integration and
other related
expenses (Notes 4
and 5) $2.64 $2.00 $2.39 $2.03
=========== =========== ============ ============
Net income per
common share -
diluted excluding
integration and
other related
expenses (Note 4) $0.51 $0.38 $1.42 $1.00
=========== =========== ============ ============
(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)
Nine Months Ended
September 30,
---------------------
2005 2004 (a)
---------- ----------
Cash flows from continuing operations:
Net income $641,710 $395,226
Adjustments to reconcile net income to net
cash provided by continuing operations:
Deferred income taxes 343,243 233,887
Depreciation and amortization 109,495 87,204
Stock option expense 9,174 15,493
Non-cash interest expense 1,754 2,392
Writeoff of deferred financing costs 686 2,206
Other non-cash expenses, net 796 249
Changes in operating assets and liabilities,
net of effects of acquisitions/disposals of
businesses (309,979) 379,145
---------- ----------
Net cash provided by continuing operations 796,879 1,115,802
Cash flows from investing activities:
Purchase of short-term investments (765,325) (198,651)
Sale of short-term investments 426,732 -
Acquisition of AdvancePCS, net of cash
acquired - (391,933)
Capital expenditures, net (96,994) (55,446)
Proceeds from sale of property and equipment 2,113 -
(Acquisition)/partial liquidation of
investments in businesses (7,438) 10,382
---------- ----------
Net cash used in investing activities (440,912) (635,648)
Cash flows from financing activities:
Net repayments under credit facilities (147,000) (97,625)
Repurchase of AdvancePCS Senior Notes (1,678) (206,810)
Proceeds from stock issued under equity-based
compensation plans 51,793 125,628
Purchase of treasury stock (385,984) (337,986)
Deferred financing costs - (3,857)
Securities issuance costs - (2,729)
---------- ----------
Net cash used in financing activities (482,869) (523,379)
Cash used in discontinued operations (9,163) (8,557)
---------- ----------
Net decrease in cash and cash equivalents (136,065) (51,782)
Cash and cash equivalents - beginning of period 1,078,803 815,328
---------- ----------
Cash and cash equivalents - end of period $942,738 $763,546
========== ==========
(a) Includes the cash flows of AdvancePCS beginning March 24, 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
September 30,
------------------------- Percentage
2005 2004 Increase
Financial Information Pro Forma Pro Forma (Decrease)
------------ ------------ ----------
Net revenue (Note 1) $8,072,441 $7,457,892 8%
Cost of revenues (b) (Note 1) 7,533,395 7,004,741 8%
Selling, general and
administrative expenses 115,848 111,645 4%
Stock option expense 2,733 6,408 -57%
------------ ------------ ---------
EBITDA (c) (Notes 3 and 4) 420,465 335,098 25%
Depreciation 25,402 24,735 3%
Amortization of intangible
assets 11,725 12,083 -3%
------------ ------------ ---------
Operating income (Note 4) 383,338 298,280 29%
Interest (income) expense, net (863) 7,306 -112%
------------ ------------ ---------
Income before provision for
income taxes 384,201 290,974 32%
Provision for income taxes 151,760 115,901 31%
------------ ------------ ---------
Net income (Note 4) $232,441 $175,073 33%
============ ============ =========
Average number of common shares
outstanding - diluted 453,594 464,769 -2%
============ ============ =========
Net income per common share -
diluted $0.51 $0.38 34%
============ ============ =========
Claims Processed
Mail 14,559 11,791 23%
Retail 116,159 132,554 -12%
------------ ------------ ---------
Total 130,718 144,345 -9%
============ ============ =========
Adjusted Claims (Note 5) 159,236 167,523 -5%
============ ============ =========
EBITDA per adjusted claim
(Notes 3 and 5) $2.64 $2.00 32%
============ ============ =========
Nine Months Ended
September 30,
------------------------- Percentage
2005 2004 Increase
Financial Information Pro Forma Pro Forma (Decrease)
------------ ------------ ----------
Net revenue (Note 1) $24,623,495 $22,398,080 10%
Cost of revenues (b) (Note 1) 23,089,484 21,155,039 9%
Selling, general and
administrative expenses 341,679 348,909 -2%
Stock option expense 9,174 23,674 -61%
------------ ------------ ---------
EBITDA (c) (Notes 3 and 4) 1,183,158 870,458 36%
Depreciation 73,962 72,099 3%
Amortization of intangible
assets 35,533 36,249 -2%
------------ ------------ ---------
Operating income (Note 4) 1,073,663 762,110 41%
Interest expense, net 4,178 25,824 -84%
------------ ------------ ---------
Income before provision for
income taxes 1,069,485 736,286 45%
Provision for income taxes 422,447 293,093 44%
------------ ------------ ---------
Net income (Note 4) $647,038 $443,193 46%
============ ============ =========
Average number of common shares
outstanding - diluted 456,452 466,593 -2%
============ ============ =========
Net income per common share -
diluted $1.42 $0.95 49%
============ ============ =========
Claims Processed
Mail 43,314 34,545 25%
Retail 366,713 404,219 -9%
------------ ------------ ---------
Total 410,027 438,764 -7%
============ ============ =========
Adjusted Claims (Note 5) 494,884 506,503 -2%
============ ============ =========
EBITDA per adjusted claim
(Notes 3 and 5) $2.39 $1.72 39%
============ ============ =========
(a) Assumes the AdvancePCS acquisition occurred on January 1, 2004.
See Note 2.
(b) Excludes depreciation which is presented separately.
(c) Excludes integration and other related expenses. See Note 4.
Caremark Rx, Inc.
Notes to Press Release Tables
September 30, 2005
(1) Amounts of revenue and cost of revenues originally reported for
the three months ended March 31, 2005 and June 30, 2005 have been
reduced by approximately $24 million and $37 million,
respectively, in arriving at the amounts of such items reported
for the nine months ended September 30, 2005, due to elimination
of certain intercompany revenue and cost of revenues in the
previously reported amounts. This adjustment represents
approximately 0.3% and 0.5% of revenue and cost of revenues
originally reported for the respective periods and has no impact
on the Company's net income, financial position or cash flows.
(2) On March 24, 2004, we completed our acquisition of AdvancePCS. The
results of operations and cash flows of AdvancePCS are included in
the accompanying condensed consolidated statements of income and
cash flows beginning March 24, 2004. 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 January 1, 2004.
The pro forma income amounts exclude integration and other related
expenses (net of benefit from income taxes) of approximately $1.0
million and $3.5 million in the three months ended September 30,
2005 and 2004, and $5.3 million and $12.8 million in the nine
months ended September 30, 2005 and 2004, respectively, incurred
in connection with the AdvancePCS Acquisition. See Note 4 below.
(3) 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
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, as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -------------------------
2005 2004 2005 2004
----------- ----------- ------------ ------------
Net income $ 231,421 $ 171,819 $ 641,710 $ 395,226
Depreciation 25,402 24,735 73,962 61,998
Amortization of
intangible assets 11,725 11,847 35,533 25,206
Interest (income)
expense, net (863) 7,306 4,178 25,714
Provision for
income taxes 151,094 113,593 418,968 261,760
----------- ----------- ------------ ------------
EBITDA 418,779 329,300 1,174,351 769,904
Cash interest
(payments)
receipts 9,529 1,500 5,822 (22,734)
Cash tax (payments)
refunds (17,873) (4,108) (9,256) 30,210
Other non-cash
expenses 3,567 6,408 10,161 17,948
Other changes in
operating assets
and liabilities,
net of
acquisitions/
disposals of
businesses (188,096) 80,806 (384,199) 320,474
----------- ----------- ------------ ------------
Net cash provided
by continuing
operations $ 225,906 $ 413,906 $ 796,879 $ 1,115,802
=========== =========== ============ ============
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.
(4) In the quarters ended September 30, 2005 and 2004, we incurred
approximately $1.7 million and $5.8 million of expenses,
respectively, primarily for integration activities related to our
acquisition of AdvancePCS and involuntary termination/employee
retention and related benefits. In the nine months ended September
30, 2005 and 2004, we incurred approximately $8.8 million and
$21.2 million of expenses, respectively, primarily for: (1)
integration activities related to our acquisition of AdvancePCS,
including pre-acquisition integration planning; (2) involuntary
termination/employee retention and related benefits ($7.1 million
in 2005 and $7.2 million in 2004) and (3) writing off
approximately $2.2 million (in 2004) of deferred financing costs
related to our credit agreement that was replaced upon
consummation 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 3 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 Nine Months Ended
September 30, September 30,
----------------------- -------------------------
2005 2004 2005 2004
----------- ----------- ------------ ------------
EBITDA $ 418,779 $ 329,300 $ 1,174,351 $ 769,904
Integration and
other related
expenses 1,686 5,798 8,807 21,236
----------- ----------- ------------ ------------
EBITDA excluding
integration and
other related
expenses $ 420,465 $ 335,098 $ 1,183,158 $ 791,140
=========== =========== ============ ============
Net income $ 231,421 $ 171,819 $ 641,710 $ 395,226
Integration and
other related
expenses (net of
income tax
benefit) 1,020 3,490 5,328 12,784
----------- ----------- ------------ ------------
Net income excluding
integration and
other related
expenses $ 232,441 $ 175,309 $ 647,038 $ 408,010
=========== =========== ============ ============
Net income per common
share - diluted $ 0.51 $ 0.37 $ 1.41 $ 0.97
Integration and
other related
expenses per share
(net of tax
benefit) - 0.01 0.01 0.03
----------- ----------- ------------ ------------
Net income per common
share - diluted
excluding
integration and
other related
expenses $ 0.51 $ 0.38 $ 1.42 $ 1.00
=========== =========== ============ ============
(5) Adjusted pharmacy claims normalize the claims volume statistic for
the difference in average days' supply for mail and retail claims.
Adjusted pharmacy claims are calculated by multiplying 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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