Caremark Rx, Inc. Reports Third Quarter 2006 EPS.NASHVILLE, 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 third 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 $.67, exceeding the top of the company's guidance range by $.04 per share. Excluding a $.02 per share after tax gain from a treasury lock agreement, 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 were $.65 per share, up 27% compared to the third quarter of 2005. "We are pleased at yet another quarter of strong financial performance. Our third quarter results demonstrate the strength of our overall business and our ability to capitalize on Cap´i`tal`ize on` v. t. 1. To turn (an opportunity) to one's advantage; to take advantage of (a situation); to profit from; as, to capitalize on an opponent's mistakes s>. a number of high profile generic launches on behalf of our customers. Caremark remains well positioned to help health plan sponsors and participants get more value for their pharmaceutical dollar," said Mac Crawford, Chairman, President and Chief Executive Officer. Third Quarter Operating Results Net revenues were $9.1 billion in the third quarter of 2006, an increase of 13% over the third quarter of 2005. Revenue growth was driven primarily by an increase in retail 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. During the second quarter, Caremark began providing additional Medicare Part D services to a large health plan client under a revised contract which also contributed to third quarter revenue growth. 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 increased 6% to $3.1 billion and mail pharmacy claims were 14.6 million, up slightly from the third quarter of 2005. Retail revenues grew 18% to $6.0 billion compared to the third quarter of 2005. Retail pharmacy claims decreased 5% to 110.5 million compared to the third quarter of 2005. The decrease in retail claims is primarily a result of previously disclosed terminations of retail-oriented contracts, partially offset by Medicare and other new client prescription claims. SG&A (selling, general and administrative) expenses were $136.1 million, an increase of 15% over the third quarter of 2005. Third quarter 2006 SG&A expenses included $10.3 million of share-based compensation expense resulting from the adoption of FAS 123R. Excluding $10.3 million and $2.7 million of share-based compensation expense in the third quarter of 2006 and the third quarter of 2005, respectively, SG&A expenses grew by 9%. 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.
Diluted earnings for the third quarter grew by 31% to $.67 per share. Excluding $.02 per share after tax gain from a treasury lock agreement, diluted earnings for the third quarter were up 27% to $.65 per share. Nine Months 2006 Operating Results Through September 30, net revenue grew 12% to $27.5 billion. Retail revenue grew by 13% to $17.9 billion. Retail claims declined 6% during the first nine months of the year 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 $9.4 billion, an increase of 9%. Mail claims grew 4% through the end of the third quarter. SG&A expenses increased 15% to $404.4 million, which includes $31.2 million of share-based compensation expense. Excluding $31.2 million and $9.2 million of share-based compensation expense in the first nine months of 2006 and the first nine months of 2005, respectively, SG&A expenses grew by 9%. EBITDA for the first nine months, excluding a $10.6 million gain in the second quarter on a settlement with a former client, was $1.3 billion, an increase of 13%. EBITDA per adjusted claim for the first nine months was $2.80, an increase of 17%. Diluted earnings per share for the first nine months grew by 25% to $1.76. Excluding a $.01 per share after tax gain in the second quarter from a settlement with a former client and a $.02 per share after tax gain from a treasury lock agreement, diluted earnings for the first nine months were up 21% to $1.72 per share. Balance Sheet and Cash Flow At September 30, 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 $878 million, reflecting total cash and cash equivalents and short-term investments of $1.3 billion, offset by Senior Notes totaling $450 million. In October, the 7.375% Senior Notes totaling $450 million matured and were retired. The company also terminated an associated treasury lock agreement, which was an instrument used to hedge interest rates. Since the company does not currently intend to refinance Refinance 1. When a business or person revises their payment schedule for repaying debt. 2. Replacing an older loan with a new loan offering better terms. Notes: When a business refinances they typically extend the maturity date. the Senior Notes, the treasury lock agreement no longer qualified for hedge accounting Why is hedge accounting necessary? Many financial institutions and corporate businesses (entities) use derivative financial instruments to hedge their exposure to different risks (eg interest rate risk, foreign exchange risk, commodity risk, etc). treatment creating a $17.1 million pre-tax gain in the third quarter or $.02 per share after tax. 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. through nine months was $855 million compared to $797 million in the first nine months of 2005. Capital expenditures totaled $28.3 million in the third quarter and $79.1 million through the first nine months of 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 On May 11, 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. Prior to the third quarter of 2006, the company had repurchased 57.3 million shares at a total cost of $2.3 billion. During the third quarter of 2006, Caremark repurchased 1.8 million shares at a total cost of $102.4 million. Since the end of the third quarter through November 2, 2006, the company has not repurchased its stock in the open market. As of November 2, 2006, cumulative repurchases since August 2002 were 59.1 million shares at a total cost of $2.4 billion, leaving approximately $570 million available under the current authorization. On April 5, 2006, Caremark announced that its Board of Directors declared a quarterly cash dividend of $.10 per share of common stock. The first quarterly dividend was paid on July 17, 2006 to stockholders of record on June 30, 2006. The second consecutive dividend of $.10 per share of common stock was paid on October 16, 2006 to stockholders of record on September 29, 2006. Financial Guidance There are a number of factors that may affect projected 2006 results, including the timing of launch and number of initial suppliers of new 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. , and certain aspects of the Medicare Part D benefit. Due to strong performance through the third quarter driven in part by generic launches, the company is raising and narrowing it earnings guidance range. Diluted earnings per share for 2006 are now expected to be in the range of $2.40 to $2.41, or 22% growth compared to full year 2005 earnings per share of $1.97. This updated guidance range excludes the second quarter $.01 per share after tax gain from a settlement with a former client and the third quarter $.02 per share after tax gain from a treasury lock agreement. The updated guidance range includes the impact of share-based compensation expense. Several key assumptions supporting the full year 2006 earnings guidance range follow: * Revenue in 2006 is projected to grow in the range of 11% to 12%. * FAS 123R share-based compensation expense is expected to be approximately $41 million. * Depreciation expense is expected to be approximately $103 million. * Amortization expense is estimated to be approximately $44 million. * Net interest income is estimated to be approximately $35 million, but is subject to change due to future interest rates, cash used for share repurchases and the timing and magnitude of operating cash flows. * The effective tax rate is expected to be 39.5%. * Assuming full dilution Dilution A reduction in earnings per share of common stock that occurs through the issuance of additional shares or the conversion of convertible securities. Notes: Adding to the number of shares outstanding reduces the value of holdings of existing shareholders. , weighted average shares outstanding for 2006 should be in the range of 436 million to 437 million. * 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 is expected to exceed $1 billion for the full year. Fourth quarter diluted earnings is expected to be $.68 to $.69 per share. Webcast of Earnings Conference Call As previously announced, Caremark will hold a conference call to discuss third quarter 2006 results, its outlook and the general operations of the company. Investors and the general public can access a live webcast of the conference call through the Investor Relations Investor relations The process by which the corporation communicates with its investors. page at www.caremarkrx.com. The call will be held Thursday, November 2, 2006 at 10:30 a.m. Eastern Time and will be available for replay via the website through November 16, 2006. 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 2006 earnings per share projections, 2006 revenue growth, the anticipated impact in 2006 of the company's participation in the Medicare Part D program and projected enrollment of Medicare Part D beneficiaries, estimated 2006 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. [TABLE OMITTED] -
[TABLE OMITTED]
(a) Includes a $10.6 million gain from a settlement with a former
client in the nine months ended September 30, 2006.
(b) Excludes depreciation which is presented separately.
(c) Includes share-based compensation of $10.3 million and $31.2
million based on FAS 123R in the three months and nine months
ended September 30, 2006, respectively, and $2.7 million and $9.2
million based on APB 25 in the three months and nine months ended
September 30, 2005, respectively.
[TABLE OMITTED]
Caremark Rx, Inc. Notes to Press Release Tables September 30, 2006 (1) 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. (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 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. 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 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 , 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): [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) The analyses used by management to evaluate the performance of our business exclude integration and other related expenses, the benefit from a settlement with a former client and the gain from a treasury lock agreement. 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 integration and other related expenses, the benefit from a settlement with a former client and the gain from a treasury lock agreement 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, the benefit from a settlement with a former client and the gain from a treasury lock agreement, are as follows (in thousands, except per share amounts): [TABLE OMITTED] |
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