CMX News Caremark Rx, Inc. Reports Record Fourth Quarter and Full Year 2006 Results
NASHVILLE, Tenn.--(BUSINESS WIRE)--Caremark Rx, Inc. (NYSE: CMX) today reported fourth quarter diluted earnings per share 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 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 Part D and other new client revenues.
Retail revenue grew 14% to $6.0 billion compared to the fourth quarter of 2005. Retail pharmacy 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.
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) for the fourth quarter of 2006 was $516.8 million, an increase of 16% over the fourth quarter of 2005, excluding in both periods merger, integration and other related expenses as well as a non-operating gain from the sale of a retained interest in a previously disposed 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 and a favorable $5.3 million settlement related to a former AdvancePCS 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 29, 2006, net cash and short-term investments totaled $1.2 billion. In October 2006, the 7.375% Senior Notes totaling $450 million matured and were retired.
Operating cash flow 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 carryforward 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 and Dividend
In May 2006, Caremark’s Board of Directors approved an additional $1.25 billion in share repurchases bringing the total authorization 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 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 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, 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.
This press release contains “forward-looking statements,” as defined in the Private Securities Litigation Reform Act 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. 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 measures can be found in the footnotes to the tables attached to this press release.
CAREMARK RX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31,
December 31,
2006
2005
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$
804,033
$
1,268,883
Short-term investments
396,650
666,040
Short-term investments - restricted
-
27,500
Accounts receivable, net
2,231,785
2,074,586
Inventories
540,939
449,199
Deferred tax asset, net
114,652
112,586
Prepaid expenses and other current assets
33,768
46,303
Total current assets
4,121,827
4,645,097
Property and equipment, net
319,859
314,959
Goodwill, net
7,072,916
7,131,050
Other intangible assets, net
686,148
731,300
Other assets
30,339
28,442
Total assets
$
12,231,089
$
12,850,848
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
1,075,454
$
849,358
Claims and discounts payable
2,469,435
2,438,813
Other accrued expenses and liabilities
393,737
343,158
Income taxes payable
54,493
17,137
Current portion of long-term debt
-
63,400
Total current liabilities
3,993,119
3,711,866
Long-term debt, net of current portion
-
386,600
Deferred tax liability
231,983
245,389
Other long-term liabilities
326,303
326,427
Total liabilities
4,551,405
4,670,282
Commitments and contingencies
Stockholders' equity:
Common stock
486
481
Additional paid-in capital
8,714,446
8,719,492
Treasury stock
(2,429,432)
(986,641)
Shares held in trust
(89,758)
(93,616)
Retained earnings
1,499,122
551,447
Accumulated other comprehensive income (loss), net
(15,180)
(10,597)
Total stockholders' equity
7,679,684
8,180,566
Total liabilities and stockholders' equity
$
12,231,089
$
12,850,848
CAREMARK RX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share and per adjusted claim amounts)
Three Months Ended
Percentage
Twelve Months Ended
Percentage
December 31,
Increase /
December 31,
Increase /
2006
2005
(Decrease)
2006
2005
(Decrease)
Net revenue (a)
$
9,269,436
$
8,367,756
10.8%
$
36,750,203
$
32,991,251
11.4%
Operating expenses:
Cost of revenues (b)
8,610,700
7,799,461
10.4%
34,344,126
30,888,945
11.2%
Selling, general and administrative expenses (c)
141,924
123,183
15.2%
546,278
474,036
15.2%
Depreciation
26,317
26,150
0.6%
102,286
100,112
2.2%
Amortization of intangible assets
10,619
11,725
(9.4%)
43,456
47,258
(8.0%)
Merger, integration and other related expenses (Note 3)
