SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): May 3, 2005
Caremark Rx, Inc.
(Exact Name of Registrant as Specified in its Charter)
| Delaware | 1-14200 | 63-1151076 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) | (IRS Employer Identification No.) |
| 211 Commerce Street, Suite 800 Nashville, Tennessee |
37201 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (615) 743-6600
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02 Results of Operations and Financial Condition
On May 3, 2005, Caremark Rx, Inc. (the “Company”) issued the following press release disclosing material, non-public financial information concerning the Company’s quarterly fiscal period ended March 31, 2005. This press release contains certain non-GAAP financial measures as described therein.
[Caremark Rx, Inc. Letterhead]
For Immediate Release
Contacts:
Caremark Rx, Inc.
Investor Relations
Pete Clemens, 615/743-6606
or
Gavin Anderson & Company
Media Relations
Gerard Carney, 212/515-1941
Caremark Rx, Inc. Announces Record First Quarter Results
Company Raises its 2005 Guidance
Nashville, TN, May 3, 2005 – Caremark Rx, Inc. (NYSE: CMX) today reported diluted earnings per share of $.43, for the first quarter of 2005, in-line with First Call consensus estimates. The first quarter financial results included $1.2 million of integration and other expenses related to the acquisition of AdvancePCS, which closed in the first quarter of 2004. Excluding these expenses, diluted earnings per share for the first quarter of 2005 was also $.43, a 34% increase from the first quarter of 2004.
Caremark’s first quarter of 2005 results included the results of AdvancePCS for the full quarter. However, Caremark’s first quarter of 2004 results only included the results of AdvancePCS from March 24, 2004 through March 31, 2004. On a pro forma basis, assuming the AdvancePCS results were included for the entire first quarter of 2004, diluted earnings per share, excluding integration and other related expenses, increased 59% for the first quarter of 2005.
First Quarter 2005 Operating Results
Due to the completion of the AdvancePCS acquisition on March 24, 2004, the first quarter results reflect the inclusion of AdvancePCS for the entire first quarter of 2005, but only from March 24 through March 31 for the first quarter of 2004. Caremark reported net revenues of $8.4 billion in the first quarter of 2005, an increase of $5.4 billion over the first quarter of 2004. During the first quarter of 2005, mail pharmacy revenues totaled $2.7 billion, an increase of $1.4 billion, and mail claims totaled 14.3 million, an increase of 7.2 million claims over the first quarter of 2004. During the first quarter of 2005, retail revenues totaled $5.6 billion, an increase of $3.9 billion, and retail claims totaled 130.3 million, an increase of 96.1 million claims over the first quarter of 2004.
EBITDA (earnings before interest, taxes, depreciation and amortization) for the first quarter of 2005, excluding integration and other related expenses, was $368.0 million, an increase of $193.6 million over the first quarter of 2004. Operating cash flow in the first quarter was $267.0 million compared with $203.0 million in the same period last year, an increase of $64.0 million.
Diluted earnings per share of $.43, excluding integration and other related expenses, for the first quarter of 2005, represented an increase of 34% from $.32 for the first quarter of 2004.
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“We are pleased with our financial results as during the quarter Caremark implemented a record amount of new business,” said Mac Crawford, Chairman, President and Chief Executive Officer of Caremark. “The company’s substantial cash flow from operations was partially utilized to reduce debt levels while we continued to be active in the market repurchasing our shares. At this time we are raising our guidance for earnings per share to a range of $1.92 to $1.94 for 2005.”
First Quarter 2005 Operating Results—Pro Forma
On a pro forma basis, assuming the AdvancePCS acquisition was included in the full first quarter of 2004 results, Caremark net revenues increased 10% in the first quarter of 2005. Growth in revenues was negatively impacted by higher dispensing rates of generic drugs that have lower prices but result in cost savings for Caremark’s clients. Adjusting for the impact of higher generic dispensing rates, first quarter revenues would have increased approximately 14% from the pro forma first quarter of 2004.
Mail pharmacy revenues increased 32% and mail claims increased 26% in the first quarter of 2005 from the pro forma first quarter of 2004. Mail prescriptions represented 24% of total retail-adjusted prescriptions in the first quarter of 2005, as compared to 20% in the pro forma first quarter of 2004. The increase in mail prescriptions can be primarily attributed to the company’s new business starts in 2005, which was heavily weighted to accounts with significant mail order utilization.
Retail revenues increased 1% and retail claims decreased by 5% in the first quarter of 2005 compared to the pro forma first quarter of 2004. The decrease in retail claims can be attributed to the termination of a large AdvancePCS health plan client, which was announced in late 2003, but was not effective until January 1, 2005. Also, as was mentioned on prior investor calls, Caremark did not renew an additional large health plan client, which also terminated effective January 1, 2005.
EBITDA, excluding integration and other related expenses, increased 45% in the first quarter of 2005 from the pro forma first quarter of 2004. EBITDA per adjusted claim was $2.13 in the first quarter of 2005, an increase of 44% from the pro forma first quarter of 2004.
Diluted earnings per share, excluding integration and other related expenses, of $.43 for the first quarter of 2005 increased 59% over the pro forma diluted earnings per share of $.27 for the same period in 2004.
Balance Sheet
At March 31, 2005, Caremark reported a net cash and short-term investments position of $881.6 million, reflecting total cash and cash equivalents and short-term investments of $1.3 billion offset by senior notes totaling $450.0 million and other debt of $1.7 million. During the quarter, Caremark paid off its bank term loan totaling $147.0 million, spent $27.0 million on capital expenditures and repurchased $79.6 million of its common stock.
During the quarter ended March 31, 2005, goodwill increased by $141 million from the balance at December 31, 2004 as final adjustments to the accounts of legacy AdvancePCS were recorded. These adjustments covered a number of items including legal matters related to the legacy AdvancePCS operations and had no impact on earnings during the quarter ended March 31, 2005.
Share Repurchase
On July 20, 2004, Caremark announced that its Board of Directors had authorized an increase in its stock repurchase program to repurchase up to $750 million of the company’s common stock in the open market. Prior to the first quarter of 2005, the company had repurchased 18.2 million shares at an approximate total cost of $511 million. During the first quarter of 2005, the company repurchased 2.1 million shares at an approximate total cost
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of $80 million. Since the end of the first quarter of 2005, the company has repurchased an additional 2.1 million shares at a total approximate cost of $84 million. In total, as of May 2, 2005, the company had repurchased 22.4 million shares at an approximate total cost of $675 million.
Outlook
Caremark continues to expect 2005 revenue growth on a GAAP basis to be in the range of 25% to 28%. Caremark expects that its 2005 diluted earnings per share, before integration and other related expenses, will be in the range of $1.92 to $1.94, based on an expected 460 million diluted shares outstanding. This is compared to the previous guidance of $1.88 to $1.92 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 $13 million in 2005. The company’s previous expectation for stock option expense for 2005 of $19 million was also based on implementing FAS123R on July 1, 2005. This implementation has been delayed by the SEC until January 1, 2006. |
| • | 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 $105 million in 2005. |
| • | Net interest expense is expected to total $3 million to $7 million in 2005. |
| • | The company will continue to expense certain ongoing integration and 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 in the range of $.45 to $.46 for the second quarter of 2005.
Medicare Part D
Caremark continues to develop its Medicare product offering for 2006 as well as the systems and infrastructure to provide its clients with the highest levels of support. The company is working closely with its clients to advise them on the most appropriate way of moving forward with this opportunity. Caremark is also supporting a number of clients that are expected to actively participate in the program.
Conference Call
As announced, Caremark will hold a conference call to discuss first quarter 2005 results, and general operations of the company. The details of the call are as follows:
| Date: |
Tuesday, May 3, 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: |
5395526 | |||
The call will also 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. website at www.caremarkrx.com.
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A taped replay of the call will also be available beginning at 1:30 p.m. Eastern Time on May 3, 2005, until Midnight Eastern Time on May 17, 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, union, government agencies and other funded benefit plans. The Company operates a national retail pharmacy network with over 59,000 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.
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 second 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.
-tables follow-
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CAREMARK RX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
| March 31, 2005 |
December 31, 2004 |
|||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 809,918 | $ | 1,078,803 | ||||
| Short-term investments |
523,343 | 223,610 | ||||||
| Accounts receivable, net |
2,101,156 | 1,977,557 | ||||||
| Inventories |
367,245 | 436,754 | ||||||
| Deferred tax asset, net |
392,191 | 402,698 | ||||||
| Income taxes receivable |
54,940 | 64,654 | ||||||
| Prepaid expenses and other current assets |
48,437 | 35,550 | ||||||
| Total current assets |
4,297,230 | 4,219,626 | ||||||
| Property and equipment, net |
288,253 | 285,214 | ||||||
| Goodwill, net |
7,123,206 | 6,982,551 | ||||||
| Other intangible assets, net |
768,817 | 782,312 | ||||||
| Other assets |
36,348 | 40,031 | ||||||
| Total assets |
$ | 12,513,854 | $ | 12,309,734 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 894,883 | $ | 678,083 | ||||
| Claims and discounts payable |
2,454,858 | 2,644,426 | ||||||
| Other accrued expenses and liabilities |
450,012 | 293,017 | ||||||
| Current portion of long-term debt |
1,678 | 148,610 | ||||||
| Total current liabilities |
3,801,431 | 3,764,136 | ||||||
| Long-term debt, net of current portion |
450,000 | 450,000 | ||||||
| Deferred tax liability |
237,628 | 220,141 | ||||||
| Other long-term liabilities |
331,555 | 335,740 | ||||||
| Total liabilities |
4,820,614 | 4,770,017 | ||||||
| Commitments and contingencies |
||||||||
| Stockholders’ equity: |
||||||||
| Common stock |
476 | 475 | ||||||
| Additional paid-in capital |
8,593,933 | 8,564,031 | ||||||
| Unearned stock-based compensation |
(17,037 | ) | (21,783 | ) | ||||
| Treasury stock |
(590,626 | ) | (510,978 | ) | ||||
| Shares held in trust |
(96,440 | ) | (97,452 | ) | ||||
| Accumulated deficit |
(183,414 | ) | (380,924 | ) | ||||
| Accumulated other comprehensive loss |
(13,652 | ) | (13,652 | ) | ||||
| Total stockholders’ equity |
7,693,240 | 7,539,717 | ||||||
| Total liabilities and stockholders’ equity |
$ | 12,513,854 | $ | 12,309,734 | ||||
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CAREMARK RX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share and per adjusted claim amounts)
| Three Months Ended March 31, | ||||||
| 2005 |
2004 (a) | |||||
| Net revenue |
$ | 8,376,083 | $ | 3,025,943 | ||
| Operating expenses: |
||||||
| Cost of revenues (b) |
7,893,824 | 2,794,811 | ||||
| Selling, general and administrative expenses |
110,703 | 55,911 | ||||
| Depreciation |
24,004 | 12,789 | ||||
| Amortization of intangible assets |
12,083 | 1,059 | ||||
| Stock option expense |
3,576 | 819 | ||||
| Integration and other related expenses |
1,209 | 10,410 | ||||
| Operating income |
330,684 | 150,144 | ||||
| Interest expense, net |
4,222 | 9,830 | ||||
| Income before provision for income taxes |
326,462 | 140,314 | ||||
| Provision for income taxes |
128,952 | 56,126 | ||||
| Net income |
$ | 197,510 | $ | 84,188 | ||
| Average number of common shares outstanding—basic |
450,783 | 277,753 | ||||
| Dilutive effect of stock options and warrants |
8,570 | 8,159 | ||||
| Average number of common shares outstanding—diluted |
459,353 | 285,912 | ||||
| Net income per common share—diluted |
$ | 0.43 | $ | 0.29 | ||
| Pharmacy claims: |
||||||
| |
14,303 | 7,141 | ||||
| Retail |
130,322 | 34,265 | ||||
| Total |
144,625 | 41,406 | ||||
| Adjusted Claims (Note 4) |
172,550 | 55,155 | ||||
| Supplemental presentation of non-GAAP financial measures: |
||||||
| EBITDA (Earnings before interest, taxes, depreciation and amortization) (Note 2) |
$ | 366,771 | $ | 163,992 | ||
| EBITDA excluding integration and other related expenses (Notes 2 and 3) |
$ | 367,980 | $ | 174,402 | ||
| EBITDA per adjusted claim excluding integration and other related expenses (Notes 3 and 4) |
$ | 2.13 | $ | 3.16 | ||
| Net income per common share—diluted excluding integration and other related expenses (Note 3) |
$ | 0.43 | $ | 0.32 | ||
| (a) | Includes the results of operations of AdvancePCS beginning March 24, 2004. |
| (b) | Excludes depreciation which is presented separately. |
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CAREMARK RX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
| Three Months Ended March 31, |
||||||||
| 2005 |
2004 (a) |
|||||||
| Cash flows from continuing operations: |
||||||||
| Net income |
$ | 197,510 | $ | 84,188 | ||||
| Adjustments to reconcile net income to net cash provided by continuing operations: |
||||||||
| Deferred income taxes |
116,621 | 49,529 | ||||||
| Depreciation and amortization |
36,087 | 13,848 | ||||||
| Stock option expense |
3,576 | 819 | ||||||
| Non-cash interest expense |
727 | 899 | ||||||
| Writeoff of deferred financing costs |
686 | 2,206 | ||||||
| Other non-cash expenses |
11 | 129 | ||||||
| Changes in operating assets and liabilities, net of effects of acquisitions/disposals of businesses |
(88,206 | ) | 51,333 | |||||
| Net cash provided by continuing operations |
267,012 | 202,951 | ||||||
| Cash flows from investing activities: |
||||||||
| Purchase of short-term investments |
(468,407 | ) | — | |||||
| Sale of short-term investments |
168,674 | — | ||||||
| Acquisition of business, net of cash acquired |
— | (368,427 | ) | |||||
| Capital expenditures, net |
(27,043 | ) | (12,943 | ) | ||||
| Partial liquidation of cost-method investment |
— | 10,382 | ||||||
| Net cash used in investing activities |
(326,776 | ) | (370,988 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Net repayments under credit facilities |
(147,000 | ) | (95,625 | ) | ||||
| Principal payment under AdvancePCS Senior Notes Tender Offer |
— | (204,222 | ) | |||||
| Proceeds from equity-based compensation plans |
18,578 | 16,853 | ||||||
| Purchase of treasury stock |
(79,648 | ) | — | |||||
| Deferred financing costs |
— | (3,518 | ) | |||||
| Securities issuance costs |
— | (1,892 | ) | |||||
| Net cash used in financing activities |
(208,070 | ) | (288,404 | ) | ||||
| Cash used in discontinued operations |
(1,051 | ) | (1,776 | ) | ||||
| Net decrease in cash and cash equivalents |
(268,885 | ) | (458,217 | ) | ||||
| Cash and cash equivalents—beginning of period |
1,078,803 | 815,328 | ||||||
| Cash and cash equivalents—end of period |
$ | 809,918 | $ | 357,111 | ||||
| (a) | Includes the cash flows of AdvancePCS beginning March 24, 2004. |
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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 March 31, |
Percentage Increase (Decrease) |
||||||||
| 2005 Pro Forma |
2004 Pro Forma |
||||||||
| Financial Information |
|||||||||
| Net revenue |
$ | 8,376,083 | $ | 7,635,746 | 10 | % | |||
| Cost of revenues (b) |
7,893,824 | 7,255,707 | 9 | % | |||||
| Selling, general and administrative expenses |
110,703 | 117,319 | -6 | % | |||||
| Stock option expense |
3,576 | 9,000 | -60 | % | |||||
| EBITDA (c) (Notes 2 and 3) |
367,980 | 253,720 | 45 | % | |||||
| Depreciation |
24,004 | 22,890 | 5 | % | |||||
| Amortization of intangible assets |
12,083 | 12,083 | 0 | % | |||||
| Operating income (Note 3) |
331,893 | 218,747 | 52 | % | |||||
| Interest expense, net |
4,222 | 9,940 | -58 | % | |||||
| Income before provision for income taxes |
327,671 | 208,807 | 57 | % | |||||
| Provision for income taxes |
129,430 | 83,148 | 56 | % | |||||
| Net income (Note 3) |
$ | 198,241 | $ | 125,659 | 58 | % | |||
| Average number of common shares outstanding—diluted |
459,353 | 464,083 | -1 | % | |||||
| Net income per common share—diluted |
$ | 0.43 | $ | 0.27 | 59 | % | |||
| Claims Processed |
|||||||||
| |
14,303 | 11,323 | 26 | % | |||||
| Retail |
130,322 | 137,738 | -5 | % | |||||
| Total |
144,625 | 149,061 | -3 | % | |||||
| Adjusted Claims (Note 4) |
172,550 | 171,172 | 1 | % | |||||
| EBITDA per adjusted claim (Notes 2 and 4) |
$ | 2.13 | $ | 1.48 | 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. |
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Caremark Rx, Inc.
Notes to Press Release Tables
March 31, 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 operations 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 approximately $0.7 million and $6.3 million of integration and other related expenses (net of income tax benefit) incurred in connection with the AdvancePCS acquisition in the three months ended March 31, 2005 and 2004, respectively. 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 March 31, |
||||||||
| 2005 |
2004 |
|||||||
| Net income |
$ | 197,510 | $ | 84,188 | ||||
| Depreciation |
24,004 | 12,789 | ||||||
| Amortization of intangible assets |
12,083 | 1,059 | ||||||
| Interest expense, net |
4,222 | 9,830 | ||||||
| Provision for income taxes |
128,952 | 56,126 | ||||||
| EBITDA |
366,771 | 163,992 | ||||||
| Cash interest (payments) receipts |
5,708 | (24,629 | ) | |||||
| Cash tax payments |
(3,980 | ) | (4,498 | ) | ||||
| Other non-cash expenses |
3,587 | 3,154 | ||||||
| Other changes in operating assets and liabilities, net of acquisitions/disposals of businesses |
(105,074 | ) | 64,932 | |||||
| Net cash provided by continuing operations |
$ | 267,012 | $ | 202,951 | ||||
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 March 31, 2005 and 2004, we incurred approximately $1.2 million and $10.4 million of expenses, respectively, primarily for: (1) integration activities related to our acquisition of AdvancePCS (in the first quarter of 2004), including pre-acquisition integration planning; (2) involuntary termination/employee retention and related benefits ($1.2 million in the first quarter of 2005 and $1.5 million in the first quarter of 2004) and (3) writing off approximately $2.2 million (in the first quarter of 2004) of deferred
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Caremark Rx, Inc.
Notes to Press Release Tables—(Continued)
March 31, 2005
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 March 31, | ||||||
| 2005 |
2004 | |||||
| EBITDA |
$ | 366,771 | $ | 163,992 | ||
| Integration and other related expenses |
1,209 | 10,410 | ||||
| EBITDA excluding integration and other related expenses |
$ | 367,980 | $ | 174,402 | ||
| Net income |
$ | 197,510 | $ | 84,188 | ||
| Integration and other related expenses (net of income tax benefit) |
731 | 6,267 | ||||
| Net income excluding integration and other related expenses |
$ | 198,241 | $ | 90,455 | ||
| Net income per common share—diluted |
$ | 0.43 | $ | 0.29 | ||
| Integration and other related expenses per share (net of tax benefit) |
— | 0.03 | ||||
| Net income per common share—diluted excluding integration and other related expenses |
$ | 0.43 | $ | 0.32 | ||
(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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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Caremark Rx, Inc. | ||
| By: |
/s/ HOWARD A. MCLURE | |
| Howard A. McLure Executive Vice President and Chief Financial Officer | ||
Date: May 3, 2005