UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 25, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 1-31312
MEDCO HEALTH SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 22-3461740 | |
| (State or other jurisdiction of incorporation) |
(I.R.S. Employer Identification No.) |
| 100 Parsons Pond Drive, Franklin Lakes, NJ | 07417-2603 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: 201-269-3400
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of the close of business on October 25, 2004, the registrant had 272,495,769 shares of common stock, $0.01 par value, issued and outstanding.
QUARTERLY REPORT ON FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In millions, except for share data)
| September 25, 2004 |
December 27, 2003 |
|||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 1,000.5 | $ | 638.5 | ||||
| Short-term investments |
57.5 | 59.5 | ||||||
| Accounts receivable, net |
1,589.2 | 1,394.0 | ||||||
| Inventories, net |
1,204.1 | 1,213.4 | ||||||
| Prepaid expenses and other current assets |
80.2 | 95.5 | ||||||
| Deferred tax assets |
191.9 | 359.4 | ||||||
| Total current assets |
4,123.4 | 3,760.3 | ||||||
| Property and equipment, net |
664.8 | 757.3 | ||||||
| Goodwill, net |
3,310.2 | 3,310.2 | ||||||
| Intangible assets, net |
2,185.6 | 2,320.5 | ||||||
| Other noncurrent assets |
127.3 | 114.7 | ||||||
| Total assets |
$ | 10,411.3 | $ | 10,263.0 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Claims and other accounts payable |
$ | 2,168.6 | $ | 1,988.2 | ||||
| Accrued expenses and other current liabilities |
342.0 | 567.1 | ||||||
| Current portion of long-term debt |
80.0 | 50.0 | ||||||
| Total current liabilities |
2,590.6 | 2,605.3 | ||||||
| Noncurrent liabilities: |
||||||||
| Long-term debt, net |
1,194.3 | 1,346.1 | ||||||
| Deferred tax liabilities |
1,047.0 | 1,177.5 | ||||||
| Other noncurrent liabilities |
58.3 | 54.1 | ||||||
| Total liabilities |
4,890.2 | 5,183.0 | ||||||
| Commitments and contingencies (See Note 11) |
||||||||
| Stockholders’ equity: |
||||||||
| Preferred stock, par value $0.01—authorized: 10,000,000 shares; issued and outstanding: 0 |
— | — | ||||||
| Common stock, par value $0.01—authorized: 1,000,000,000 shares; issued and outstanding: 272,224,089 shares at September 25, 2004 and 270,532,667 shares at December 27, 2003 |
2.7 | 2.7 | ||||||
| Accumulated other comprehensive income |
— | — | ||||||
| Additional paid-in capital |
5,002.2 | 4,913.4 | ||||||
| Unearned compensation |
(4.0 | ) | (7.4 | ) | ||||
| Retained earnings |
520.2 | 171.3 | ||||||
| Total stockholders’ equity |
5,521.1 | 5,080.0 | ||||||
| Total liabilities and stockholders’ equity |
$ | 10,411.3 | $ | 10,263.0 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In millions, except for per share data)
| Quarters Ended |
Nine Months Ended |
||||||||||||
| September 25, 2004 |
September 27, 2003 |
September 25, 2004 |
September 27, 2003 |
||||||||||
| Product net revenues (Includes retail co-payments of $1,631 and $1,686 in the third quarters of 2004 and 2003, and $5,121 and $5,030 in the nine months of 2004 and 2003) |
$ | 8,615.3 | $ | 8,447.9 | $ | 26,201.6 | $ | 25,003.6 | |||||
| Service revenues |
81.3 | 76.1 | 237.1 | 259.0 | |||||||||
| Total net revenues |
8,696.6 | 8,524.0 | 26,438.7 | 25,262.6 | |||||||||
| Cost of operations: |
|||||||||||||
| Cost of product net revenues (Includes retail co-payments of $1,631 and $1,686 in the third quarters of 2004 and 2003, and $5,121 and $5,030 in the nine months of 2004 and 2003) |
8,238.7 | 8,087.5 | 25,068.9 | 24,012.6 | |||||||||
| Cost of service revenues |
32.2 | 47.7 | 95.7 | 140.9 | |||||||||
| Total cost of revenues (see Note 9 for a description of transactions with Merck) |
8,270.9 | 8,135.2 | 25,164.6 | 24,153.5 | |||||||||
| Selling, general and administrative expenses |
170.8 | 184.8 | 506.6 | 515.5 | |||||||||
| Amortization of intangibles |
45.0 | 23.6 | 134.9 | 70.7 | |||||||||
| Interest and other (income) expense, net |
12.6 | 8.7 | 48.0 | (3.4 | ) | ||||||||
| Total cost of operations |
8,499.3 | 8,352.3 | 25,854.1 | 24,736.3 | |||||||||
| Income before provision for income taxes |
197.3 | 171.7 | 584.6 | 526.3 | |||||||||
| Provision for income taxes |
79.2 | 71.4 | 235.7 | 218.8 | |||||||||
| Net income |
$ | 118.1 | $ | 100.3 | $ | 348.9 | $ | 307.5 | |||||
| Basic earnings per share: |
|||||||||||||
| Weighted average shares outstanding |
272.1 | 270.0 | 271.4 | 270.0 | |||||||||
| Earnings per share |
$ | 0.43 | $ | 0.37 | $ | 1.29 | $ | 1.14 | |||||
| Diluted earnings per share: |
|||||||||||||
| Weighted average shares outstanding |
274.2 | 270.2 | 274.2 | 270.1 | |||||||||
| Earnings per share |
$ | 0.43 | $ | 0.37 | $ | 1.27 | $ | 1.14 | |||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
| Number of (In Thousands) |
($ in millions, except for per share data) | ||||||||||||||||||||
| Common Stock |
$0.01 Par Value Common Stock |
Accumulated Other Comprehensive Income (Loss) |
Additional Paid-in Capital |
Unearned Compensation |
Retained Earnings |
Total Stockholders’ Equity | |||||||||||||||
| Balances at December 27, 2003 |
270,533 | $ | 2.7 | $ | — | $ | 4,913.4 | $ | (7.4 | ) | $ | 171.3 | $ | 5,080.0 | |||||||
| Net income |
— | — | — | — | — | 348.9 | 348.9 | ||||||||||||||
| Total comprehensive income |
— | — | — | — | — | 348.9 | 348.9 | ||||||||||||||
| Issuance of common stock for options exercised |
1,503 | — | — | 45.2 | — | — | 45.2 | ||||||||||||||
| Issuance of common stock under the Employee Stock Purchase Plan |
172 | — | — | 5.1 | — | — | 5.1 | ||||||||||||||
| Restricted stock unit activity |
16 | — | — | 0.2 | 3.4 | — | 3.6 | ||||||||||||||
| Adjustment to deferred taxes existing as of the spin-off date |
— | — | — | 38.3 | — | — | 38.3 | ||||||||||||||
| Balances at September 25, 2004 |
272,224 | $ | 2.7 | $ | — | $ | 5,002.2 | $ | (4.0 | ) | $ | 520.2 | $ | 5,521.1 | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
($ in millions)
| Nine Months Ended |
||||||||
| September 25, 2004 |
September 27, 2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 348.9 | $ | 307.5 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation |
157.5 | 139.1 | ||||||
| Amortization of intangibles |
134.9 | 70.7 | ||||||
| Deferred income taxes |
75.3 | (11.8 | ) | |||||
| Other |
24.5 | 24.4 | ||||||
| Net changes in assets and liabilities: |
||||||||
| Accounts receivable |
(197.2 | ) | 175.4 | |||||
| Inventories |
9.3 | (51.1 | ) | |||||
| Other noncurrent assets |
(16.1 | ) | 18.4 | |||||
| Current liabilities |
(44.7 | ) | 493.9 | |||||
| Other noncurrent liabilities |
2.1 | 18.5 | ||||||
| Other |
15.3 | |||||||