Caremark Rx, Inc. Reports Record Fourth Quarter and Full Year 2006 Results.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 fourth quarter 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 $.71, exceeding the top of the company's guidance range by $.02 per share. Diluted earnings per share grew 29% compared to adjusted diluted earnings per share for the fourth quarter of 2005. Full year 2006 adjusted 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. earnings grew 23% to $2.42 per share compared to adjusted diluted earnings of $1.97 per share in 2005. Full year 2006 net revenue increased 11% to $36.8 billion. Fourth Quarter Operating Results Net revenue was $9.3 billion in the fourth quarter of 2006, an increase of 11% over the fourth quarter of 2005. Revenue growth was driven by an increase in retail and mail sales, including the addition of 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 and other new client revenues. Retail revenue grew 14% to $6.0 billion compared to the fourth quarter of 2005. 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. claims increased 1% to 112.8 million compared to the fourth quarter of 2005. The increase in retail claims is primarily a result of increases in Medicare and other net new client prescription claims. Mail pharmacy revenue increased 5% to $3.2 billion and mail pharmacy claims were 14.8 million, down 1% from the fourth quarter of 2005. Mail claims declined primarily as a result of previously disclosed mid-year client contract terminations Defense procurement: the cessation or cancellation, in whole or in part, of work under a prime contract or a subcontract thereunder for the convenience of, or at the option of, the government, or due to failure of the contractor to perform in accordance with the terms of the contract (default). . Selling, general and administrative (SG&A) expenses were $141.9 million, an increase of 15% over the fourth quarter of 2005. Fourth quarter 2006 SG&A expenses included $9.9 million of share-based compensation expense resulting from the adoption of FAS 123R. Excluding $9.9 million and $1.3 million of share-based compensation expense in the fourth quarter of 2006 and the fourth quarter of 2005, respectively, SG&A expenses grew by 8%. 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.
v. dis·posed, dis·pos·ing, dis·pos·es v.tr. 1. To place or set in a particular order; arrange. 2. subsidiary in the fourth quarter of 2005. EBITDA per adjusted claim grew to $3.30, a 15% increase compared to the fourth quarter of 2005. Fourth quarter diluted earnings increased 29% to $.71 per share compared to adjusted diluted earnings per share for the fourth quarter of 2005. Fourth quarter 2005 adjusted diluted earnings per share exclude merger, integration and other related expenses, a non-operating gain from the sale of a retained interest in a previously disposed subsidiary and a positive adjustment to the provision for income taxes. Fourth quarter 2006 results include $5.4 million in expenses related to Caremark's proposed merger with CVS (1) (Concurrent Versions System) A version control system for Unix that was initially developed as a series of shell scripts in the mid-1980s. CVS maintains the changes between one source code version and another and stores all the changes in one file. and a favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. $5.3 million settlement related to a former 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. client. Fourth quarter 2006 earnings benefited by approximately $.01 per share from a 0.2% reduction in the full year tax rate to 39.3%. Full Year 2006 Operating Results Full year net revenue grew 11% to $36.8 billion. Retail revenue grew 13% to $23.9 billion. Retail claims declined 4% during 2006 which was primarily a result of previously disclosed terminations of retail-oriented contracts, partially offset by Medicare and other new client prescription claims. Mail revenue was $12.5 billion, an increase of 8%. Mail claims grew 2% for the full year. SG&A expenses increased 15% to $546.3 million, which includes $41.1 million of share-based compensation expense resulting from the adoption of FAS123R. Excluding $41.1 million and $10.5 million of share-based compensation expense for 2006 and 2005, respectively, SG&A expenses grew by 9%. EBITDA for the full year, excluding a $10.6 million gain in the second quarter of 2006 from a settlement with a former client, was $1.8 billion, an increase of 14%, excluding in both periods merger, integration and other related expenses as well as a non-operating gain recorded in the fourth quarter of 2005. EBITDA per adjusted claim for the year was $2.92, an increase of 17%. Adjusted diluted earnings grew 23% to $2.42 per share compared to adjusted diluted earnings of $1.97 per share. Adjusted diluted earnings exclude merger, integration and other related expenses in both periods. Full year 2006 adjusted earnings also exclude a gain in the second quarter from a settlement with a former client and a gain on a treasury lock agreement. Adjusted earnings for 2005 also exclude a non-operating gain from the sale of a retained interest in a previously disposed subsidiary and a positive adjustment for the provision of income taxes. Balance Sheet and Cash Flow At December December: see month. 29, 2006, 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 totaled $1.2 billion. In October October: see month. 2006, the 7.375% Senior Notes totaling $450 million matured and were retired. 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 fourth quarter of 2006 was $374.9 million compared to $509 million during the same period of 2005. Operating cash flow for the full year was $1.2 billion compared to $1.3 billion in 2005. The decline in operating cash flow was driven by cash payments of federal income taxes in 2006 after Caremark utilized the majority of its federal 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. carryforward carryforward 1. A business operating loss that, for tax purposes, may be claimed a certain number of years in the future, often up to 15 years. in 2005. Income tax payments, net of refunds, totaled $709.5 million in 2006 compared to $30.6 million in 2005. Capital expenditures were $28.4 million in the fourth quarter and $107.5 million for 2006. 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. and Dividend In May 2006, Caremark's Board of Directors approved an additional $1.25 billion in share repurchases bringing the total authorization The right or permission to use a system resource; the process of granting access. See access control. under the company's share repurchase program to $3.0 billion. The company has not repurchased any shares under this program since the end of the third quarter of 2006. Cumulative repurchases under the program are 59.1 million shares at a total cost of $2.4 billion, leaving approximately $570 million available under the current authorization. On December 18, 2006, Caremark announced that its Board of Directors declared a quarterly cash dividend of $.10 per share of common stock. The dividend for the fourth quarter was paid on January January: see month. 15, 2007. Financial Guidance For 2007, Caremark expects diluted earnings per share to be in the range of $2.89 to $2.92 representing 19% to 21% growth compared to full year 2006 adjusted earnings per share of $2.42. The 2007 earnings per share guidance range does not include expenses related to Caremark's proposed merger with CVS. In addition, the company expects its effective tax rate to be 39.3% for the year. First quarter 2007 diluted earnings are expected to be $.68 per share. 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. The company's clients include corporate health plans, managed care organizations, insurance companies, unions, government agencies and other funded benefit plans. In addition, Caremark is a national provider of drug benefits to eligible beneficiaries under the Medicare Part D program. 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. Additional information about Caremark is available 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 "forward-looking statements," as defined in 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, and such statements are based on management's current expectations with respect to anticipated growth and performance prospects. Forward-looking statements in this press release include 2007 earnings per share projections, 2007 assumptions set forth in the "Financial Guidance" section of this press release and other assumptions. Current and 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 due to various factors. For example, adverse developments could occur with respect to the company's operating plan and objectives, competitive trends, Medicare Part D participation, the timing, launch and impact of new branded and generic pharmaceuticals, regulatory and legal matters, government investigations, and pricing and reimbursement Reimbursement Payment made to someone for out-of-pocket expenses has incurred. . Additional factors can be found in the company's Forms 10-K, 10-Q and other SEC filings. This press release includes certain non-GAAP financial measures as defined under SEC rules. A reconciliation to the most directly comparable GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). measures can be found in the footnotes to the tables attached to this press release.
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Caremark Rx, Inc.
Notes to Press Release Tables
December 31, 2006
(1) 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.
(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 liquidity and 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):
[TABLE OMITTED]
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 year ended December 31, 2006, we recorded a $10.6 million
gain from a settlement with a former client and a $17.1 million
gain on a treasury lock agreement. In addition, in the quarter and
year ended December 31, 2006, we recorded $5.4 million of expenses
related to our proposed merger with CVS Corporation, offset by a
$5.3 million gain from an insurance settlement related to our
acquisition of AdvancePCS.
In the quarter and year ended December 31, 2005, we recorded a
non-operating gain, net, of approximately $25.7 million, which
consists primarily of a gain on the sale of our retained interest
in a previously disposed subsidiary, and a positive adjustment to
the provision for income taxes of approximately $25.8 million
primarily to reflect resolution of income tax uncertainties
related to the conclusion of a tax audit of another former
discontinued operations subsidiary that was also divested several
years ago. In addition, in the quarter and year ended December 31,
2005, we incurred approximately $2.3 million and $11.1 million,
respectively, of integration and other expenses related to our
acquisition of AdvancePCS.
The analyses used by management to evaluate the performance of our
business exclude merger, integration and other related expenses,
the benefit from a settlement with a former client, the gain from
a treasury lock agreement, the non-operating gain, net and the
positive adjustment to the provision for income taxes. However,
under the SEC's Regulation G, financial measures which exclude
non-recurring items are non-GAAP financial measures; therefore,
our presentations of amounts of EBITDA, adjusted net income and
earnings per share which exclude these merger, integration and
other related expenses, the benefit from a settlement with a
former client, the gain from a treasury lock agreement, the
non-operating gain, net and the positive adjustment to the
provision for income taxes 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 merger, integration and
other related expenses, the benefit from a settlement with a
former client, the gain from a treasury lock agreement, the
non-operating gain, net and the positive adjustment to the
provision for income taxes, are as follows (in thousands, except
per share amounts):
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