Caremark Rx, Inc. Announces Record Second Quarter Results; Earnings Per Diluted Share Increases 57%; Company Raises 2005 Earnings Guidance
Second Quarter 2005 Operating Results
“Caremark continues to perform well both operationally and financially”
Caremark reported net revenues of $8.2 billion in the second quarter of 2005, an increase of 13% over the second quarter of 2004. During the second quarter of 2005, mail pharmacy revenues totaled $2.8 billion, an increase of 34%, and mail claims totaled 14.5 million, an increase of 26% over the second quarter of 2004. During the second quarter of 2005, retail revenues totaled $5.3 billion, an increase of 4%, and retail claims totaled 120.2 million, a decrease of 10% as compared to the second quarter of 2004. As has been mentioned on prior investor conference calls, the decrease in retail claims was anticipated and can be attributed to previously disclosed terminations of predominantly retail-oriented clients.
EBITDA (earnings before interest, taxes, depreciation and amortization) for the second quarter of 2005, excluding integration and other related expenses, was $394.7 million, an increase of 40% over the second quarter of 2004. Operating cash flow in the second quarter was $304.0 million.
Diluted earnings per share of $.47, excluding integration and other related expenses, for the second quarter of 2005, represented an increase of 57% from $.30 for the second quarter of 2004.
"Caremark continues to perform well both operationally and financially," said Mac Crawford, Chairman, President and Chief Executive Officer. "Caremark's focus on driving value for our clients has again translated into value for shareholders through recording another quarter of record earnings and significant cash flow. We look forward to continuing to help our clients manage their costs during the second half of the year."
First Half 2005 Operating Results
Caremark closed the acquisition of AdvancePCS on March 24, 2004. As a result, Caremark's operating results for the first half of 2004 only include the AdvancePCS operations from March 24, 2004 through June 30, 2004. During the first six months of 2005, Caremark reported net revenues of $16.6 billion, an increase of $6.3 billion over the same period in the prior year. EBITDA for the first six months of 2005, excluding integration and other related expenses, was $762.7 million, an increase of $306.7 million over the same period of 2004. The Company's cash flow from operations for the first half of 2005 totaled $571.0 million.
Diluted earnings per share for the first six months of 2005, excluding integration and other related expenses, increased 49% to $.91 compared to $.61 in the first six months of 2004.
First Half 2005 Operating Results-Pro Forma
On a pro forma basis, assuming the AdvancePCS acquisition was included in the full first half of 2004, net revenues increased by 11% over the first six months of 2004. On a pro forma basis, EBITDA for the first six months of 2005, excluding integration and other related expenses, was $762.7 million, an increase of 42% from $535.4 million during the first six months of 2004. Pro forma diluted earnings per share, excluding integration and other related expenses, were $.91 for the first half of 2005, an increase of 60% compared to $.57 recorded in the same period of the prior year.
Balance Sheet
At June 30, 2005, Caremark reported a net cash and short-term investments position of $958.5 million, reflecting total cash and cash equivalents and short-term investments of $1.4 billion offset by Senior Notes totaling $450.0 million. During the quarter, Caremark called the remaining AdvancePCS Senior Notes totaling $1.7 million, spent $28.8 million on capital expenditures and repurchased $208.3 million of its common stock.
Share Repurchase
On May 17, 2005, Caremark announced that its Board of Directors had authorized an increase in its stock repurchase program to repurchase up to $1.25 billion of the Company's common stock in the open market. Prior to the second quarter of 2005, the Company had repurchased 20.2 million shares at an approximate total cost of $591 million. During the second quarter of 2005, the Company repurchased 5.0 million shares at an approximate total cost of $208 million. Since the end of the second quarter of 2005, the company has repurchased an additional 2.0 million shares at an approximate cost of $85 million. In total, as of August 3, 2005, the Company has repurchased 27.2 million shares at an approximate total cost of $884 million, leaving $366 million available under its authorized program.
Outlook
Caremark expects 2005 revenue growth on a GAAP basis to be 28% to 30%. Caremark expects that its 2005 diluted earnings per share, before integration and other related expenses, will be in the range of $1.95 to $1.97, based on 457 million diluted shares outstanding and an effective tax rate of 39.5%. This is compared to the previous guidance of $1.92 to $1.94 per diluted share. Caremark's 2005 earnings 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 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 total $3 million to $5 million in 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.
In addition, Caremark expects diluted earnings per share, before integration and other related expenses, to be $.51 for the third quarter of 2005.
Medicare Part D
Caremark is actively supporting clients in the implementation of the Medicare Drug benefit. The Company has submitted bids to become a Prescription Drug Plan (PDP) under the name SilverScript Insurance Company in all 34 regions designated by the Centers for Medicare and Medicaid Services (CMS). As a result of this decision, Caremark believes it is well positioned to support the unique needs and requirements of both health plan and employer clients through a complete suite of options ranging from support of the subsidy to several PDP solutions.
Conference Call
As announced, Caremark will hold a conference call to discuss second quarter 2005 results and general operations of the company. The details of the call are as follows:
Date: Thursday, August 4, 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: 7841895
The call also will be broadcast live as well as replayed through the Internet. The Webcast can be accessed through the "Investor Relations" page on the Caremark Rx, Inc. Web site at www.caremarkrx.com.
A taped replay of the call also will be available beginning at 11:30 a.m. Eastern Time on August 4, 2005, until Midnight Eastern Time on August 18, 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 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, 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 Rx is available on the World Wide Web at www.caremarkrx.com.
Forward-Looking Statement
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 by the Private Securities Litigation Reform Act 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 earnings per share projections, 2005 revenue growth, 2005 diluted earnings per share projections and third quarter 2005 diluted earnings per share projections, 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 for the year ended December 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, 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.
CAREMARK RX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, December 31,
2005 2004
----------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 742,441 $ 1,078,803
Short-term investments 638,566 223,610
Short-term investments - restricted 27,500 -
Accounts receivable, net 2,071,873 1,977,557
Inventories 362,370 436,754
Deferred tax asset, net 289,873 402,698
Income taxes receivable 23,141 64,654
Prepaid expenses and other current assets 33,080 35,550
----------- -----------
Total current assets 4,188,844 4,219,626
Property and equipment, net 289,656 285,214
Goodwill, net 7,123,206 6,982,551
Other intangible assets, net 756,578 782,312
Other assets 35,208 40,031
----------- -----------
Total assets $12,393,492 $12,309,734
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 851,729 $ 678,083
Claims and discounts payable 2,331,094 2,644,426
Other accrued expenses and liabilities 453,667 293,017
Current portion of long-term debt - 148,610
----------- -----------
Total current liabilities 3,636,490 3,764,136
Long-term debt, net of current portion 450,000 450,000
Deferred tax liability 240,870 220,141
Other long-term liabilities 332,373 335,740
----------- -----------
Total liabilities 4,659,733 4,770,017
Commitments and contingencies
Stockholders' equity:
Common stock 477 475
Additional paid-in capital 8,625,258 8,564,031
Unearned stock-based compensation (12,569) (21,783)
Treasury stock (798,966) (510,978)
Shares held in trust (95,430) (97,452)
Retained earnings (accumulated deficit) 29,365 (380,924)
Accumulated other comprehensive loss (14,376) (13,652)
----------- -----------
Total stockholders' equity 7,733,759 7,539,717
----------- -----------
Total liabilities and stockholders'
equity $12,393,492 $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 Six Months Ended
June 30, June 30,
---------------------- ------------------------
2005 2004 2005 2004 (a)
---------- ---------- ----------- -----------
Net revenue $8,236,215 $7,304,442 $16,612,298 $10,330,385
Operating expenses:
Cost of revenues (b) 7,723,509 6,894,591 15,617,333 9,689,402
Selling, general
and administrative
expenses 115,128 119,945 225,831 175,856
Depreciation 24,556 24,474 48,560 37,263
Amortization of
intangible assets 11,725 12,300 23,808 13,359
Stock option expense 2,865 8,266 6,441 9,085
Integration and
other related
expenses 5,912 5,028 7,121 15,438
---------- ---------- ----------- -----------
Operating income 352,520 239,838 683,204 389,982
Interest expense,
net 819 8,578 5,041 18,408
---------- ---------- ----------- -----------
Income before
provision for
income taxes 351,701 231,260 678,163 371,574
Provision for
income taxes 138,922 92,041 267,874 148,167
---------- ---------- ----------- -----------
Net income $ 212,779 $ 139,219 $ 410,289 $ 223,407
========== ========== =========== ===========
Average number of
common shares
outstanding - basic 447,559 459,817 449,162 368,785
Dilutive effect of
stock options and
warrants 8,920 11,110 8,745 9,635
---------- ---------- ----------- -----------
Average number of
common shares
outstanding -
diluted 456,479 470,927 457,907 378,420
========== ========== =========== ===========
Net income per
common share -
diluted $ 0.47 $ 0.30 $ 0.90 $ 0.59
========== ========== =========== ===========
Pharmacy claims:
Mail 14,452 11,431 28,755 18,572
Retail 120,232 133,927 250,554 168,192
---------- ---------- ----------- -----------
Total 134,684 145,358 279,309 186,764
========== ========== =========== ===========
Adjusted Claims
(Note 4) 163,097 167,808 335,648 222,963
========== ========== =========== ===========
Supplemental
presentation of non-
GAAP financial
measures:
EBITDA (Earnings
before interest,
taxes, depreciation
and amortization)
(Note 2) $ 388,801 $ 276,612 $ 755,572 $ 440,604
========== ========== =========== ===========
EBITDA excluding
integration and
other related
expenses (Notes 2
and 3) $ 394,713 $ 281,640 $ 762,693 $ 456,042
========== ========== =========== ===========
EBITDA per adjusted
claim excluding
integration and
other related
expenses (Notes
3 and 4) $ 2.42 $ 1.68 $ 2.27 $ 2.05
========== ========== =========== ===========
Net income per common
share - diluted
excluding
integration and
other related
expenses (Note 3) $ 0.47 $ 0.30 $ 0.91 $ 0.61
========== ========== =========== ===========
(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,
----------------------
2005 2004 (a)
----------- ----------
Cash flows from continuing operations:
Net income $ 410,289 $ 223,407
Adjustments to reconcile net income to net
cash provided by continuing operations:
Deferred income taxes 236,125 101,252
Depreciation and amortization 72,368 50,622
Stock option expense 6,441 9,085
Non-cash interest expense 1,240 1,645
Writeoff of deferred financing costs 686 2,206
Other non-cash expenses 153 249
Changes in operating assets and liabilities,
net of effects of acquisitions/disposals of
businesses (156,329) 313,430
---------- ---------
Net cash provided by continuing operations 570,973 701,896
Cash flows from investing activities:
Purchase of short-term investments (689,000) -
Sale of short-term investments 246,544 -
Acquisition of business, net of cash acquired - (391,021)
Capital expenditures, net (55,801) (31,151)
(Acquisition)/partial liquidation of
cost-method investments (2,251) 10,382
---------- ---------
Net cash used in investing activities (500,508) (411,790)
Cash flows from financing activities:
Net repayments under credit facilities (147,000) (96,625)
Repurchase of AdvancePCS Senior Notes (1,678) (206,810)
Proceeds from stock issued under equity-based
compensation plans 38,431 113,691
Purchase of treasury stock (287,988) (33,609)
Deferred financing costs - (3,857)
Securities issuance costs - (2,729)
---------- ---------
Net cash used in financing activities (398,235) (229,939)
Cash used in discontinued operations (8,592) (2,259)
---------- ---------
Net (decrease) increase in cash and cash
equivalents (336,362) 57,908
Cash and cash equivalents - beginning of period 1,078,803 815,328
---------- ---------
Cash and cash equivalents - end of period $ 742,441 $ 873,236
========== =========
(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
June 30,
------------------------- Percentage
2005 2004 Increase
Financial Information Pro Forma Pro Forma (Decrease)
------------ ------------ ----------
Net revenue $ 8,236,215 $ 7,304,442 13%
Cost of revenues (b) 7,723,509 6,894,591 12%
Selling, general and
administrative expenses 115,128 119,945 -4%
Stock option expense 2,865 8,266 -65%
----------- ----------- ----------
EBITDA (c) (Notes 2 and 3) 394,713 281,640 40%
Depreciation 24,556 24,474 0%
Amortization of intangible assets 11,725 12,083 -3%
----------- ----------- ----------
Operating income (Note 3) 358,432 245,083 46%
Interest expense, net 819 8,578 -90%
----------- ----------- ----------
Income before provision for
income taxes 357,613 236,505 51%
Provision for income taxes 141,257 94,044 50%
----------- ----------- ----------
Net income (Note 3) $ 216,356 $ 142,461 52%
=========== =========== ==========
Average number of common shares
outstanding - diluted 456,479 470,927 -3%
=========== =========== ==========
Net income per common share -
diluted $ 0.47 $ 0.30 57%
=========== =========== ==========
Claims Processed
Mail 14,452 11,431 26%
Retail 120,232 133,927 -10%
----------- ----------- ----------
Total 134,684 145,358 -7%
=========== =========== ==========
Adjusted Claims (Note 4) 163,097 167,808 -3%
=========== =========== ==========
EBITDA per adjusted claim
(Notes 2 and 4) $ 2.42 $ 1.68 44%
=========== =========== ==========
Six Months Ended
June 30,
------------------------- Percentage
2005 2004 Increase
Financial Information Pro Forma Pro Forma (Decrease)
------------ ------------ ----------
Net revenue $16,612,298 $14,940,188 11%
Cost of revenues (b) 15,617,333 14,150,298 10%
Selling, general and
administrative expenses 225,831 237,264 -5%
Stock option expense 6,441 17,266 -63%
----------- ----------- ----------
EBITDA (c) (Notes 2 and 3) 762,693 535,360 42%
Depreciation 48,560 47,364 3%
Amortization of intangible assets 23,808 24,166 -1%
----------- ----------- ----------
Operating income (Note 3) 690,325 463,830 49%
Interest expense, net 5,041 18,518 -73%
----------- ----------- ----------
Income before provision for
income taxes 685,284 445,312 54%
Provision for income taxes 270,687 177,192 53%
----------- ----------- ----------
Net income (Note 3) $ 414,597 $ 268,120 55%
=========== =========== ==========
Average number of common shares
outstanding - diluted 457,907 467,505 -2%
=========== =========== ==========
Net income per common share -
diluted $ 0.91 $ 0.57 60%
=========== =========== ==========
Claims Processed
Mail 28,755 22,754 26%
Retail 250,554 271,665 -8%
----------- ----------- ----------
Total 279,309 294,419 -5%
=========== =========== ==========
Adjusted Claims (Note 4) 335,648 338,980 -1%
=========== =========== ==========
EBITDA per adjusted claim
(Notes 2 and 4) $ 2.27 $ 1.58 44%
=========== =========== ==========
(a) Assumes the AdvancePCS acquisition occurred on January 1, 2004.
See Note 1.
(b) Excludes depreciation which is presented separately.
(c) Excludes integration and other related expenses. See Note 3.
Caremark Rx, Inc.
Notes to Press Release Tables
June 30, 2005
(1) 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 $3.6
million and $3.0 million in the three months ended June 30, 2005
and 2004, and $4.3 million and $9.3 million in the six months
ended June 30, 2005 and 2004, respectively, incurred in connection
with the AdvancePCS Acquisition. See Note 3 below.
(2) We believe that EBITDA is a supplemental measurement tool used by
analysts and investors to help evaluate a company's overall
operating performance, its ability to incur and service debt and
its capacity for making capital expenditures. We use EBITDA, in
addition to operating income and cash flows from operating
activities, to assess our performance and believe that it is
important for investors to be able to evaluate our company using
the same measures used by our management. EBITDA can be reconciled
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 Six Months Ended
June 30, June 30,
------------------- -------------------
2005 2004 2005 2004
--------- --------- --------- ---------
Net income $212,779 $139,219 $410,289 $223,407
Depreciation 24,556 24,474 48,560 37,263
Amortization of intangible
assets 11,725 12,300 23,808 13,359
Interest expense, net 819 8,578 5,041 18,408
Provision for income taxes 138,922 92,041 267,874 148,167
--------- --------- --------- ---------
EBITDA 388,801 276,612 755,572 440,604
Cash interest (payments)
receipts (9,415) 395 (3,707) (24,234)
Cash tax refunds 12,597 38,816 8,617 34,318
Other non-cash expenses 3,007 8,386 6,594 11,540
Other changes in operating
assets and liabilities,
net of acquisitions/disposals
of businesses (91,029) 174,736 (196,103) 239,668
--------- --------- --------- ---------
Net cash provided by
continuing operations $303,961 $498,945 $570,973 $701,896
========= ========= ========= =========
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 quarters ended June 30, 2005 and 2004, we incurred
approximately $5.9 million and $5.0 million of expenses,
respectively, primarily for: (1) integration activities related to
our acquisition of AdvancePCS (in the second quarter of 2004) and
(2) involuntary termination/employee retention and related
benefits ($5.3 million in the second quarter of 2005 and $2.9
million in the second quarter of 2004). In the six months ended
June 30, 2005 and 2004, we incurred approximately $7.1 million and
$15.4 million of expenses, respectively, primarily for: (1)
integration activities related to our acquisition of AdvancePCS
(in the first half of 2004), including pre-acquisition integration
planning; (2) involuntary termination/employee retention and
related benefits ($6.5 million in the first half of 2005 and $4.4
million in the first half of 2004) and (3) writing off
approximately $2.2 million (in the first half of 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 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, June 30,
------------------- -------------------
2005 2004 2005 2004
--------- --------- --------- ---------
EBITDA $388,801 $276,612 $755,572 $440,604
Integration and other related
expenses 5,912 5,028 7,121 15,438
--------- --------- -------------------
EBITDA excluding integration
and other related expenses $394,713 $281,640 $762,693 $456,042
========= ========= ===================
Net income $212,779 $139,219 $410,289 $223,407
Integration and other related
expenses (net of income tax
benefit) 3,577 3,027 4,308 9,294
--------- --------- -------------------
Net income excluding
integration and other related
expenses $216,356 $142,246 $414,597 $232,701
========= ========= ===================
Net income per common share -
diluted $0.47 $0.30 $0.90 $0.59
Integration and other related
expenses per share (net of
tax benefit) - - 0.01 0.02
--------- --------- --------- ---------
Net income per common share -
diluted excluding integration
and other related expenses $0.47 $0.30 $0.91 $0.61
========= ========= ========= =========
(4) 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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