Attached files
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8-K - FORM 8-K - MEDCO HEALTH SOLUTIONS INC | c23642e8vk.htm |
Investors:
|
Valerie Haertel | Media: | Lowell Weiner | |||
(201) 269-5781 | (201) 269-6986 | |||||
valerie_haertel@medco.com | lowell_weiner@medco.com |
or $0.96 excluding Merger-Related Expenses, Up 12.9 Percent;
Diluted EPS Excluding All Intangible Amortization and Merger-Related Expenses
of a Record $1.07, Up 12.6 Percent
| Record GAAP diluted earnings per share (EPS) of $0.90, or $0.96 when excluding $36.6 million of expenses associated with the pending Express Scripts merger, an increase of 12.9 percent over $0.85 in third-quarter 2010 |
| Record diluted EPS, excluding all intangible amortization and merger-related expenses, increased 12.6 percent to $1.07 from $0.95 in third-quarter 2010 |
| Total net revenues increased 4.1 percent to $17.0 billion |
| Gross margin increased 4.3 percent to a record $1.17 billion, representing a gross margin percentage of 6.9 percent, consistent with third-quarter 2010 |
| EBITDA (Earnings Before Interest and Other Income/Expense, Taxes, Depreciation and Amortization) increased 3.9 percent to a record $801 million and EBITDA per adjusted prescription increased 4.6 percent to a record $3.43 when excluding merger-related expenses |
| Mail-order prescriptions increased 0.4 percent to 27.4 million, including generic mail-order prescriptions which increased 3.5 percent to 17.7 million |
| Overall generic dispensing rate increased 2.2 percentage points to a record 73.8 percent; mail-order generic dispensing rate increased 2.0 percentage points to a record 64.8 percent |
| Specialty pharmacy revenues increased 16.7 percent to a record $3.4 billion; specialty gross margin percentage was consistent with last year at 6.8 percent; specialty operating income increased 33.0 percent to a record $148.6 million |
| Full-year 2011 GAAP diluted EPS is now expected in the range of $3.54 to $3.58; EPS guidance excluding estimated merger-related expenses is now anticipated in the range of $3.65 to $3.69, representing 16 to 17 percent growth over 2010, narrowed from the previous guidance range of $3.59 to $3.69, which represented growth of 14 to 17 percent over 2010 (please see Table 9) |
| Full-year 2011 guidance for diluted EPS, excluding all intangible amortization and merger-related expenses, is now expected in the range of $4.08 to $4.12, representing growth of 15 to 16 percent over 2010, narrowed from the previous guidance range of $4.02 to $4.12, which represented growth of 13 to 16 percent over the 2010 full-year equivalent of $3.55 (please see Table 9) |
| Included in the SEC Form S-4 (S-4) filed on October 6, 2011 by Aristotle Holding, Inc. in connection with the pending Express Scripts merger is prospective financial information on Medcos forecasted stand-alone financial performance. That disclosure includes forecasts for net revenues, net income and EBITDA for the periods of 2011 through 2014. The 2011 amounts presented in the S-4 approximately reflect the mid-point of the narrowed 2011 guidance range. The 2012 amounts represent Medcos internal operating plan. Historically, when Medco provided initial annual guidance to investors and analysts, the internal operating plan amounts were stronger than the range of guidance provided, as the management perspective was to direct the company toward overachievement of financial goals. In the current case, since the operating plan amounts are disclosed in the S-4, investors and analysts should view such 2012 amounts as the high-end of a range, with a four percent reduction representing the low-end of the range, consistent with ranges provided in previous years. |
| Competition in the PBM, specialty pharmacy and broader healthcare industry is intense and could impair our ability to attract and retain clients; |
| Failure to retain key clients and their members, either as a result of economic conditions, increased competition or other factors, could result in significantly decreased revenues, harm to our reputation and decreased profitability; |
| Government efforts to reduce healthcare costs and alter healthcare financing practices could lead to a decreased demand for our services or to reduced profitability; |
| Failure in continued execution of our retiree strategy, including the potential loss of Medicare Part D-eligible members, could adversely impact our business and financial results; |
| If we or our suppliers fail to comply with complex and evolving laws and regulations domestically and internationally, we could suffer penalties, be required to pay substantial damages and/or make significant changes to our operations; |
| If we do not continue to earn and retain purchase discounts, rebates and service fees from manufacturers at current levels, our gross margins may decline; |
| From time to time we engage in transactions to acquire other companies or businesses and if we are unable to effectively integrate acquired businesses into ours, our operating results may be adversely affected. Even if we are successful, the integration of these businesses has required, and will likely continue to require, significant resources and management attention; |
| New legislative or regulatory initiatives that restrict or prohibit the PBM industrys ability to use patient identifiable information could limit our ability to use information critical to the operation of our business; |
| Our Specialty Pharmacy business is dependent on our relationships with a limited number of suppliers and our clinical research services are dependent on our relationships with a limited number of clients. As such, the loss of one or more of these relationships, or limitations on our ability to provide services to these suppliers or clients, could significantly impact our ability to sustain and/or improve our financial performance; |
| Our ability to grow our Specialty Pharmacy business could be limited if we do not expand our existing base of drugs or if we lose patients; |
| Our Specialty Pharmacy business, certain revenues from diabetes testing supplies and our Medicare Part D offerings expose us to increased billing, cash application and credit risks. Additionally, current economic conditions may expose us to increased credit risk; |
| Changes in reimbursement, including reimbursement for durable medical equipment, could negatively affect our revenues and profits; |
| Prescription volumes may decline, and our net revenues and profitability may be negatively impacted, if the safety risk profiles of drugs increase or if drugs are withdrawn from the market, including as a result of manufacturing issues, or if prescription drugs transition to over-the-counter products; |
| Demand for our clinical research services depends on the willingness of companies in the pharmaceutical and biotechnology industries to continue to outsource clinical development and on our reputation for independent, high-quality scientific research and evidence development; |
| PBMs could be subject to claims under ERISA if they are found to be a fiduciary of a health benefit plan governed by ERISA; |
| Pending litigation could adversely impact our business practices and have a material adverse effect on our business, financial condition, liquidity and operating results; |
| Changes in industry pricing benchmarks could adversely affect our financial performance; |
| We are subject to a corporate integrity agreement and noncompliance may impede our ability to conduct business with the federal government; |
| The terms and covenants relating to our existing indebtedness could adversely impact our financial performance and liquidity; |
| We may be subject to liability claims for damages and other expenses not covered by insurance; |
| The success of our business depends on maintaining a well-secured pharmacy operation and technology infrastructure. Additionally, significant disruptions to our infrastructure or any of our facilities due to failure to execute security measures or failure to execute business continuity plans in the event of an epidemic or pandemic or some other catastrophic event could adversely impact our business; |
| Business process and technology infrastructure improvements associated with our agile enterprise initiative may not be successfully or timely implemented or may fail to operate as designed and intended, causing the Companys performance to suffer; |
| We may be required to record a material non-cash charge to income if our recorded intangible assets or goodwill are impaired, or if we shorten intangible asset useful lives; |
| We are subject to certain risks associated with our international operations; |
| Anti-takeover provisions of the Delaware General Corporation Law, our certificate of incorporation and our bylaws could delay or deter a change in control and make it more difficult to remove incumbent officers and directors; and |
| We have entered into a Merger Agreement with Express Scripts, Inc. (Express Scripts). Express Scripts and the Company may be unable to obtain stockholder or regulatory approvals required for the merger contemplated by the Merger Agreement or may be required to accept conditions that could reduce the anticipated benefits of the merger as a condition to obtaining regulatory approvals; the length of time necessary to consummate the pending merger may be longer than anticipated; a condition to closing of the merger may not be satisfied; problems may arise in successfully integrating the businesses of Express Scripts and the Company; Express Scripts may be unable to realize the synergies expected from the merger; the merger may involve unexpected costs; the businesses may suffer as a result of uncertainty surrounding the pending merger and the industry may be subject to future risks that are described in Securities and Exchange Commission (SEC) reports filed by Express Scripts and the Company. |
Additional Information and Where to Find It
Aristotle Holding, Inc., a wholly owned subsidiary of Express Scripts, has filed a registration statement on Form S-4 with the SEC in connection with the proposed merger, which includes a joint proxy statement/prospectus of Medco and Express Scripts. Stockholders are urged to read the registration statement and the joint proxy statement/prospectus contained therein (including all amendments or supplements to it) because they contain important information.
You can obtain a free copy of the registration statement and the joint proxy statement/prospectus, as well as other filings containing information about Medco and Express Scripts, at the SECs Internet site (http://www.sec.gov). You can also obtain copies of Medcos filings, free of charge, in the Investor Relations portion of the Medco website at http://www.medcohealth.com under the heading Investors and then under SEC Filings or by directing a request to Investor Relations, 100 Parsons Pond Drive, Franklin Lakes, NJ, 07417, 201-269-3400. Copies of Express Scripts filings can also be obtained, free of charge, by directing a request to Investor Relations, One Express Way, Saint Louis, MO, 63121.
Participants in Solicitation
Medco and Express Scripts and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the stockholders of Medco in connection with the proposed merger. Information about the directors and executive officers of Medco and their ownership of Medco common stock is set forth in the proxy statement for the Medco 2011 annual meeting of stockholders, as filed with the SEC on Schedule 14A on April 8, 2011. Information about the directors and executive officers of Express Scripts and their ownership of Express Scripts common stock is set forth in the proxy statement for the Express Scripts 2011 annual meeting of stockholders, as filed with the SEC on Schedule 14A on March 21, 2011 and in the Current Report on Form 8-K, as filed with the SEC on September 28, 2011. Additional information regarding the interests of those persons and other persons who may be deemed participants in the proxy solicitation may be obtained by reading the registration statement and the joint proxy statement/prospectus contained therein and other relevant documents filed with the SEC. You may obtain free copies of these documents as described in the preceding paragraph.
Condensed Consolidated Statements of Income
Includes Merger-Related Expenses (1)
(Unaudited)
(In millions, except for per share data)
Quarters Ended | Nine Months Ended | |||||||||||||||
September 24, | September 25, | September 24, | September 25, | |||||||||||||
2011 (1) | 2010 | 2011 (1) | 2010 | |||||||||||||
Product net revenues (Includes retail co-payments of
$2,140 and $2,216 in the third quarters of 2011
and 2010, and $6,908 and $6,966 in the nine months of
2011 and 2010) |
$ | 16,602.8 | $ | 16,062.0 | $ | 49,988.7 | $ | 48,309.0 | ||||||||
Service revenues |
378.7 | 257.8 | 1,086.4 | 729.2 | ||||||||||||
Total net revenues |
16,981.5 | 16,319.8 | 51,075.1 | 49,038.2 | ||||||||||||
Cost of operations: |
||||||||||||||||
Cost of product net revenues (Includes retail
copayments of $2,140 and $2,216 in the third
quarters of 2011 and 2010, and $6,908 and $6,966
in the nine months of 2011 and 2010) |
15,692.1 | 15,127.2 | 47,367.1 | 45,665.3 | ||||||||||||
Cost of service revenues |
122.3 | 73.1 | 365.3 | 198.9 | ||||||||||||
Total cost of revenues |
15,814.4 | 15,200.3 | 47,732.4 | 45,864.2 | ||||||||||||
Selling, general and administrative expenses |
455.6 | 395.0 | 1,263.0 | 1,121.9 | ||||||||||||
Amortization of intangibles |
73.2 | 71.2 | 219.6 | 212.5 | ||||||||||||
Interest expense |
52.2 | 43.4 | 156.4 | 123.0 | ||||||||||||
Interest (income) and other (income) expense, net |
(2.6 | ) | (2.6 | ) | 1.7 | (10.3 | ) | |||||||||
Total costs and expenses |
16,392.8 | 15,707.3 | 49,373.1 | 47,311.3 | ||||||||||||
Income before provision for income taxes |
588.7 | 612.5 | 1,702.0 | 1,726.9 | ||||||||||||
Provision for income taxes |
233.3 | 241.0 | 670.7 | 678.0 | ||||||||||||
Net income |
$ | 355.4 | $ | 371.5 | $ | 1,031.3 | $ | 1,048.9 | ||||||||
Basic weighted average shares outstanding |
388.0 | 429.9 | 397.0 | 450.2 | ||||||||||||
Basic earnings per share |
$ | 0.92 | $ | 0.86 | $ | 2.60 | $ | 2.33 | ||||||||
Diluted weighted average shares outstanding |
394.9 | 437.1 | 404.7 | 459.3 | ||||||||||||
Diluted earnings per share |
$ | 0.90 | $ | 0.85 | $ | 2.55 | $ | 2.28 | ||||||||
(1) | Includes pre-tax merger-related expenses of $36.6 million for the third quarter and nine months of 2011 associated with the pending Express Scripts merger, with $35.6 million in SG&A expenses and $1.0 million in Cost of product net revenues. Merger-related expenses are $22 million after tax. Please refer to Table 4a for results excluding merger-related expenses. |
Condensed Consolidated Balance Sheets
(Unaudited)
(In millions)
September 24, | December 25, | |||||||
2011 | 2010 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 161.5 | $ | 853.4 | ||||
Short-term investments |
5.3 | 56.7 | ||||||
Manufacturer accounts receivable, net |
1,859.8 | 1,895.1 | ||||||
Client accounts receivable, net |
2,410.7 | 2,553.1 | ||||||
Inventories, net |
788.1 | 1,013.2 | ||||||
Prepaid expenses and other current assets |
69.7 | 75.8 | ||||||
Deferred tax assets |
266.9 | 238.4 | ||||||
Total current assets |
5,562.0 | 6,685.7 | ||||||
Property and equipment, net |
1,027.1 | 993.6 | ||||||
Goodwill |
6,957.7 | 6,939.5 | ||||||
Intangible assets, net |
2,214.4 | 2,409.8 | ||||||
Other noncurrent assets |
102.4 | 68.7 | ||||||
Total assets |
$ | 15,863.6 | $ | 17,097.3 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Claims and other accounts payable |
$ | 2,960.5 | $ | 3,495.4 | ||||
Client rebates and guarantees payable |
2,201.8 | 2,453.2 | ||||||
Accrued expenses and other current liabilities |
940.0 | 910.2 | ||||||
Short-term debt |
36.4 | 23.6 | ||||||
Current portion of long-term debt |
2,000.0 | | ||||||
Total current liabilities |
8,138.7 | 6,882.4 | ||||||
Long-term debt, net |
3,002.2 | 5,003.6 | ||||||
Deferred tax liabilities |
972.2 | 985.1 | ||||||
Other noncurrent liabilities |
200.1 | 239.4 | ||||||
Total liabilities |
12,313.2 | 13,110.5 | ||||||
Total stockholders equity |
3,550.4 | 3,986.8 | ||||||
Total liabilities and stockholders equity |
$ | 15,863.6 | $ | 17,097.3 | ||||
September 24, | December 25, | |||||||
2011 | 2010 | |||||||
Balance Sheet Debt |
||||||||
Accounts receivable financing facility |
$ | | $ | | ||||
Other short-term debt |
36.4 | 23.6 | ||||||
Senior unsecured revolving credit facility |
1,000.0 | (1) | 1,000.0 | |||||
Senior unsecured term loan |
1,000.0 | (1) | 1,000.0 | |||||
7.25% senior notes due 2013, net of unamortized discount |
499.0 | 498.7 | ||||||
6.125% senior notes due 2013, net of unamortized discount |
299.4 | 299.2 | ||||||
2.75% senior notes due 2015, net of unamortized discount |
499.9 | 499.8 | ||||||
7.125% senior notes due 2018, net of unamortized discount |
1,190.9 | 1,190.1 | ||||||
4.125% senior notes due 2020, net of unamortized discount |
499.0 | 498.9 | ||||||
Fair value of interest rate swap agreements |
14.0 | 16.9 | ||||||
Total debt |
$ | 5,038.6 | $ | 5,027.2 | ||||
(1) | Reflected as current portion of long-term debt on the balance sheet as of September 24, 2011. |
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In millions)
Nine Months Ended | ||||||||
September 24, | September 25, | |||||||
2011 | 2010 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 1,031.3 | $ | 1,048.9 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation |
154.9 | 135.6 | ||||||
Amortization of intangibles |
219.6 | 212.5 | ||||||
Deferred income taxes |
(97.6 | ) | (87.5 | ) | ||||
Stock-based compensation on employee stock plans |
127.2 | 115.4 | ||||||
Tax benefit on employee stock plans |
79.5 | 68.7 | ||||||
Excess tax benefits from stock-based compensation arrangements |
(39.1 | ) | (36.1 | ) | ||||
Other |
85.8 | 84.2 | ||||||
Net changes in assets and liabilities (net of acquisition effects): |
||||||||
Manufacturer accounts receivable, net |
37.7 | (99.1 | ) | |||||
Client accounts receivable, net |
43.2 | (31.0 | ) | |||||
Income taxes receivable |
1.0 | 194.0 | ||||||
Inventories, net |
225.4 | 286.3 | ||||||
Prepaid expenses and other current assets |
5.0 | (3.8 | ) | |||||
Other noncurrent assets |
(32.8 | ) | (4.0 | ) | ||||
Claims and other accounts payable |
(533.7 | ) | (678.1 | ) | ||||
Client rebates and guarantees payable |
(251.4 | ) | 214.5 | |||||
Accrued expenses and other current and noncurrent liabilities |
30.1 | (55.2 | ) | |||||
Net cash provided by operating activities |
1,086.1 | 1,365.3 | ||||||
Cash flows from investing activities: |
||||||||
Capital expenditures |
(190.3 | ) | (164.1 | ) | ||||
Purchases of securities and other assets |
(20.3 | ) | (32.3 | ) | ||||
Acquisitions of businesses, net of cash acquired |
(15.1 | ) | (701.1 | ) | ||||
Proceeds from sale of securities and other investments |
51.4 | 18.5 | ||||||
Net cash used by investing activities |
(174.3 | ) | (879.0 | ) | ||||
Cash flows from financing activities: |
||||||||
Proceeds from long-term debt |
10,327.2 | 3,498.7 | ||||||
Repayments on long-term debt |
(10,327.2 | ) | (2,525.0 | ) | ||||
Proceeds from accounts receivable financing facility and other |
1,150.8 | 303.0 | ||||||
Repayments under accounts receivable financing facility |
(1,138.0 | ) | (300.0 | ) | ||||
Debt issuance costs |
(0.3 | ) | (7.8 | ) | ||||
Purchases of treasury stock |
(1,786.6 | ) | (3,161.4 | ) | ||||
Excess tax benefits from stock-based compensation arrangements |
39.1 | 36.1 | ||||||
Net proceeds from employee stock plans |
131.3 | 34.3 | ||||||
Net cash used by financing activities |
(1,603.7 | ) | (2,122.1 | ) | ||||
Net decrease in cash and cash equivalents |
(691.9 | ) | (1,635.8 | ) | ||||
Cash and cash equivalents at beginning of period |
853.4 | 2,528.2 | ||||||
Cash and cash equivalents at end of period |
$ | 161.5 | $ | 892.4 | ||||
Consolidated Income Statement Results
Includes Merger-Related Expenses (1)
(Unaudited)
(In millions, except for per share data)
Quarter Ended | Quarter Ended | Nine Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
September 24, | September 25, | September 24, | September 25, | |||||||||||||||||||||||||||||
2011 (1) (2) | Variance | 2010 (2) | 2011 (1) (2) | Variance | 2010 (2) | |||||||||||||||||||||||||||
Consolidated income statement results |
||||||||||||||||||||||||||||||||
Retail product revenues (3) |
$ | 10,095.2 | $ | 194.6 | 2.0 | % | $ | 9,900.6 | $ | 30,643.8 | $ | 692.4 | 2.3 | % | $ | 29,951.4 | ||||||||||||||||
Mail-order product revenues |
6,507.6 | 346.2 | 5.6 | % | 6,161.4 | 19,344.9 | 987.3 | 5.4 | % | 18,357.6 | ||||||||||||||||||||||
Total product net revenues (3) |
16,602.8 | 540.8 | 3.4 | % | 16,062.0 | 49,988.7 | 1,679.7 | 3.5 | % | 48,309.0 | ||||||||||||||||||||||
Client and other service revenues |
249.0 | 40.8 | 19.6 | % | 208.2 | 704.5 | 104.6 | 17.4 | % | 599.9 | ||||||||||||||||||||||
Manufacturer service revenues |
129.7 | 80.1 | N/M | * | 49.6 | 381.9 | 252.6 | N/M | * | 129.3 | ||||||||||||||||||||||
Total service revenues |
378.7 | 120.9 | 46.9 | % | 257.8 | 1,086.4 | 357.2 | 49.0 | % | 729.2 | ||||||||||||||||||||||
Total net revenues (3) |
16,981.5 | 661.7 | 4.1 | % | 16,319.8 | 51,075.1 | 2,036.9 | 4.2 | % | 49,038.2 | ||||||||||||||||||||||
Cost of product net revenues (3) |
15,692.1 | 564.9 | 3.7 | % | 15,127.2 | 47,367.1 | 1,701.8 | 3.7 | % | 45,665.3 | ||||||||||||||||||||||
Cost of service revenues |
122.3 | 49.2 | 67.3 | % | 73.1 | 365.3 | 166.4 | 83.7 | % | 198.9 | ||||||||||||||||||||||
Total cost of revenues (3) |
15,814.4 | 614.1 | 4.0 | % | 15,200.3 | 47,732.4 | 1,868.2 | 4.1 | % | 45,864.2 | ||||||||||||||||||||||
Selling, general and administrative expenses |
455.6 | 60.6 | 15.3 | % | 395.0 | 1,263.0 | 141.1 | 12.6 | % | 1,121.9 | ||||||||||||||||||||||
Amortization of intangibles |
73.2 | 2.0 | 2.8 | % | 71.2 | 219.6 | 7.1 | 3.3 | % | 212.5 | ||||||||||||||||||||||
Interest expense |
52.2 | 8.8 | 20.3 | % | 43.4 | 156.4 | 33.4 | 27.2 | % | 123.0 | ||||||||||||||||||||||
Interest (income) and other (income) expense, net |
(2.6 | ) | | N/M | * | (2.6 | ) | 1.7 | 12.0 | N/M | * | (10.3 | ) | |||||||||||||||||||
Income before provision for income taxes |
588.7 | (23.8 | ) | -3.9 | % | 612.5 | 1,702.0 | (24.9 | ) | -1.4 | % | 1,726.9 | ||||||||||||||||||||
Provision for income taxes |
233.3 | (7.7 | ) | -3.2 | % | 241.0 | 670.7 | (7.3 | ) | -1.1 | % | 678.0 | ||||||||||||||||||||
Net Income |
$ | 355.4 | $ | (16.1 | ) | -4.3 | % | $ | 371.5 | $ | 1,031.3 | $ | (17.6 | ) | -1.7 | % | $ | 1,048.9 | ||||||||||||||
Diluted earnings per share |
||||||||||||||||||||||||||||||||
Weighted average shares outstanding |
394.9 | (42.2 | ) | -9.7 | % | 437.1 | 404.7 | (54.6 | ) | -11.9 | % | 459.3 | ||||||||||||||||||||
Earnings per share |
$ | 0.90 | $ | 0.05 | 5.9 | % | $ | 0.85 | $ | 2.55 | $ | 0.27 | 11.8 | % | $ | 2.28 | ||||||||||||||||
Gross margin (4) |
||||||||||||||||||||||||||||||||
Product |
$ | 910.7 | $ | (24.1 | ) | -2.6 | % | $ | 934.8 | $ | 2,621.6 | $ | (22.1 | ) | -0.8 | % | $ | 2,643.7 | ||||||||||||||
Product gross margin percentage |
5.5 | % | -0.3 | % | 5.8 | % | 5.2 | % | -0.3 | % | 5.5 | % | ||||||||||||||||||||
Service |
$ | 256.4 | $ | 71.7 | 38.8 | % | $ | 184.7 | $ | 721.1 | $ | 190.8 | 36.0 | % | $ | 530.3 | ||||||||||||||||
Service gross margin percentage |
67.7 | % | -3.9 | % | 71.6 | % | 66.4 | % | -6.3 | % | 72.7 | % | ||||||||||||||||||||
Total |
$ | 1,167.1 | $ | 47.6 | 4.3 | % | $ | 1,119.5 | $ | 3,342.7 | $ | 168.7 | 5.3 | % | $ | 3,174.0 | ||||||||||||||||
Total gross margin percentage |
6.9 | % | 0.0 | % | 6.9 | % | 6.5 | % | 0.0 | % | 6.5 | % |
(1) | Includes pre-tax merger-related expenses of $36.6 million for the third quarter and nine months of 2011 associated with the pending Express Scripts merger, with $35.6 million in SG&A expenses and $1.0 million in Cost of product net revenues. Merger-related expenses are $22 million after tax. Please refer to Table 4a for results excluding merger-related expenses. | |
(2) | Includes UBCs operating results commencing on the September 16, 2010 acquisition date. | |
(3) | Includes retail co-payments of $2,140 million and $2,216 million for the third quarters of 2011 and 2010, and $6,908 million and $6,966 million for the nine months of 2011 and 2010. | |
(4) | Represents total net revenues minus total cost of revenues. | |
* | Not meaningful |
Consolidated Income Statement Results
Excludes Merger-Related Expenses (1)
(Unaudited)
(In millions, except for per share data)
Quarter Ended | Quarter Ended | Nine Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
September 24, | September 25, | September 24, | September 25, | |||||||||||||||||||||||||||||
2011 (1) (2) | Variance | 2010 (2) | 2011 (1) (2) | Variance | 2010 (2) | |||||||||||||||||||||||||||
Consolidated income statement results |
||||||||||||||||||||||||||||||||
Retail product revenues (3) |
$ | 10,095.2 | $ | 194.6 | 2.0 | % | $ | 9,900.6 | $ | 30,643.8 | $ | 692.4 | 2.3 | % | $ | 29,951.4 | ||||||||||||||||
Mail-order product revenues |
6,507.6 | 346.2 | 5.6 | % | 6,161.4 | 19,344.9 | 987.3 | 5.4 | % | 18,357.6 | ||||||||||||||||||||||
Total product net revenues (3) |
16,602.8 | 540.8 | 3.4 | % | 16,062.0 | 49,988.7 | 1,679.7 | 3.5 | % | 48,309.0 | ||||||||||||||||||||||
Client and other service revenues |
249.0 | 40.8 | 19.6 | % | 208.2 | 704.5 | 104.6 | 17.4 | % | 599.9 | ||||||||||||||||||||||
Manufacturer service revenues |
129.7 | 80.1 | N/M | * | 49.6 | 381.9 | 252.6 | N/M | * | 129.3 | ||||||||||||||||||||||
Total service revenues |
378.7 | 120.9 | 46.9 | % | 257.8 | 1,086.4 | 357.2 | 49.0 | % | 729.2 | ||||||||||||||||||||||
Total net revenues (3) |
16,981.5 | 661.7 | 4.1 | % | 16,319.8 | 51,075.1 | 2,036.9 | 4.2 | % | 49,038.2 | ||||||||||||||||||||||
Cost of product net revenues (3) |
15,691.1 | 563.9 | 3.7 | % | 15,127.2 | 47,366.1 | 1,700.8 | 3.7 | % | 45,665.3 | ||||||||||||||||||||||
Cost of service revenues |
122.3 | 49.2 | 67.3 | % | 73.1 | 365.3 | 166.4 | 83.7 | % | 198.9 | ||||||||||||||||||||||
Total cost of revenues (3) |
15,813.4 | 613.1 | 4.0 | % | 15,200.3 | 47,731.4 | 1,867.2 | 4.1 | % | 45,864.2 | ||||||||||||||||||||||
Selling, general and administrative expenses |
420.0 | 25.0 | 6.3 | % | 395.0 | 1,227.4 | 105.5 | 9.4 | % | 1,121.9 | ||||||||||||||||||||||
Amortization of intangibles |
73.2 | 2.0 | 2.8 | % | 71.2 | 219.6 | 7.1 | 3.3 | % | 212.5 | ||||||||||||||||||||||
Interest expense |
52.2 | 8.8 | 20.3 | % | 43.4 | 156.4 | 33.4 | 27.2 | % | 123.0 | ||||||||||||||||||||||
Interest (income) and other (income) expense, net |
(2.6 | ) | | N/M | * | (2.6 | ) | 1.7 | 12.0 | N/M | * | (10.3 | ) | |||||||||||||||||||
Income before provision for income taxes |
625.3 | 12.8 | 2.1 | % | 612.5 | 1,738.6 | 11.7 | 0.7 | % | 1,726.9 | ||||||||||||||||||||||
Provision for income taxes |
247.9 | 6.9 | 2.9 | % | 241.0 | 685.3 | 7.3 | 1.1 | % | 678.0 | ||||||||||||||||||||||
Net Income |
$ | 377.4 | $ | 5.9 | 1.6 | % | $ | 371.5 | $ | 1,053.3 | $ | 4.4 | 0.4 | % | $ | 1,048.9 | ||||||||||||||||
Diluted earnings per share |
||||||||||||||||||||||||||||||||
Weighted average shares outstanding |
394.9 | (42.2 | ) | -9.7 | % | 437.1 | 404.7 | (54.6 | ) | -11.9 | % | 459.3 | ||||||||||||||||||||
Earnings per share |
$ | 0.96 | $ | 0.11 | 12.9 | % | $ | 0.85 | $ | 2.60 | $ | 0.32 | 14.0 | % | $ | 2.28 | ||||||||||||||||
Earnings per share, excluding
all intangible amortization (4) |
$ | 1.07 | $ | 0.12 | 12.6 | % | $ | 0.95 | $ | 2.93 | $ | 0.37 | 14.5 | % | $ | 2.56 | ||||||||||||||||
Gross margin (5) |
||||||||||||||||||||||||||||||||
Product |
$ | 911.7 | $ | (23.1 | ) | -2.5 | % | $ | 934.8 | $ | 2,622.6 | $ | (21.1 | ) | -0.8 | % | $ | 2,643.7 | ||||||||||||||
Product gross margin percentage |
5.5 | % | -0.3 | % | 5.8 | % | 5.2 | % | -0.3 | % | 5.5 | % | ||||||||||||||||||||
Service |
$ | 256.4 | $ | 71.7 | 38.8 | % | $ | 184.7 | $ | 721.1 | $ | 190.8 | 36.0 | % | $ | 530.3 | ||||||||||||||||
Service gross margin percentage |
67.7 | % | -3.9 | % | 71.6 | % | 66.4 | % | -6.3 | % | 72.7 | % | ||||||||||||||||||||
Total |
$ | 1,168.1 | $ | 48.6 | 4.3 | % | $ | 1,119.5 | $ | 3,343.7 | $ | 169.7 | 5.3 | % | $ | 3,174.0 | ||||||||||||||||
Total gross margin percentage |
6.9 | % | 0.0 | % | 6.9 | % | 6.5 | % | 0.0 | % | 6.5 | % |
(1) | Excludes pre-tax merger-related expenses of $36.6 million, or $22 million after tax, for the third quarter and nine months of 2011 associated with the pending Express Scripts merger. Please refer to Table 4 for results including merger-related expenses. | |
(2) | Includes UBCs operating results commencing on the September 16, 2010 acquisition date. | |
(3) | Includes retail co-payments of $2,140 million and $2,216 million for the third quarters of 2011 and 2010, and $6,908 million and $6,966 million for the nine months of 2011 and 2010. | |
(4) | Please refer to Table 8 for reconciliation of the earnings per share excluding all intangible amortization. | |
(5) | Represents total net revenues minus total cost of revenues. | |
* | Not meaningful |
Consolidated Selected Information
(Unaudited)
(In millions)
Quarter Ended | Quarter Ended | Nine Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
September 24, | September 25, | September 24, | September 25, | |||||||||||||||||||||||||||||
2011 (1) | Variance | 2010 (1) | 2011 (1) | Variance | 2010 (1) | |||||||||||||||||||||||||||
Volume Information |
||||||||||||||||||||||||||||||||
Generic mail-order prescriptions |
17.7 | 0.6 | 3.5 | % | 17.1 | 53.2 | 3.1 | 6.2 | % | 50.1 | ||||||||||||||||||||||
Brand mail-order prescriptions |
9.7 | (0.5 | ) | -4.9 | % | 10.2 | 29.5 | (2.4 | ) | -7.5 | % | 31.9 | ||||||||||||||||||||
Total mail-order prescriptions |
27.4 | 0.1 | 0.4 | % | 27.3 | 82.7 | 0.7 | 0.9 | % | 82.0 | ||||||||||||||||||||||
Retail prescriptions |
152.2 | (1.8 | ) | -1.2 | % | 154.0 | 471.6 | 2.8 | 0.6 | % | 468.8 | |||||||||||||||||||||
Total prescriptions |
179.6 | (1.7 | ) | -0.9 | % | 181.3 | 554.3 | 3.5 | 0.6 | % | 550.8 | |||||||||||||||||||||
Adjusted prescriptions (2) |
233.6 | (1.6 | ) | -0.7 | % | 235.2 | 717.6 | 4.9 | 0.7 | % | 712.7 | |||||||||||||||||||||
Adjusted mail-order penetration (3) |
34.8 | % | 0.3 | % | 34.5 | % | 34.3 | % | 0.1 | % | 34.2 | % | ||||||||||||||||||||
Generic Dispensing Rate Information |
||||||||||||||||||||||||||||||||
Retail generic dispensing rate |
75.4 | % | 2.3 | % | 73.1 | % | 75.0 | % | 2.7 | % | 72.3 | % | ||||||||||||||||||||
Mail-order generic dispensing rate |
64.8 | % | 2.0 | % | 62.8 | % | 64.3 | % | 3.2 | % | 61.1 | % | ||||||||||||||||||||
Overall generic dispensing rate |
73.8 | % | 2.2 | % | 71.6 | % | 73.4 | % | 2.8 | % | 70.6 | % | ||||||||||||||||||||
Manufacturer Rebate Information |
||||||||||||||||||||||||||||||||
Rebates earned |
$ | 1,528 | $ | 81 | 5.6 | % | $ | 1,447 | $ | 4,514 | $ | 186 | 4.3 | % | $ | 4,328 | ||||||||||||||||
Percent of rebates retained |
13.0 | % | 0.2 | % | 12.8 | % | 12.3 | % | 0.0 | % | 12.3 | % | ||||||||||||||||||||
Depreciation Information |
||||||||||||||||||||||||||||||||
Cost of revenues depreciation |
$ | 15.6 | $ | 3.0 | 23.8 | % | $ | 12.6 | $ | 47.5 | $ | 10.4 | 28.0 | % | $ | 37.1 | ||||||||||||||||
SG&A expenses depreciation |
37.2 | 3.3 | 9.7 | % | 33.9 | 107.4 | 8.9 | 9.0 | % | 98.5 | ||||||||||||||||||||||
Total depreciation |
$ | 52.8 | $ | 6.3 | 13.5 | % | $ | 46.5 | $ | 154.9 | $ | 19.3 | 14.2 | % | $ | 135.6 | ||||||||||||||||
(1) | Includes UBCs operating results commencing on the September 16, 2010 acquisition date. | |
(2) | Adjusted prescription volume equals substantially all mail-order prescriptions multiplied by three, plus retail prescriptions. These mail-order prescriptions are multiplied by three to adjust for the fact that they include approximately three times the amount of product days supplied compared with retail prescriptions. | |
(3) | Represents the percentage of adjusted mail-order prescriptions to total adjusted prescriptions. |
(Unaudited)
(In millions, except for EBITDA per adjusted prescription data)
Quarters Ended | Nine Months Ended | |||||||||||||||
September 24, | September 25, | September 24, | September 25, | |||||||||||||
2011 (1) | 2010 (1) | 2011 (1) | 2010 (1) | |||||||||||||
EBITDA Reconciliation: |
||||||||||||||||
Net income |
$ | 355.4 | $ | 371.5 | $ | 1,031.3 | $ | 1,048.9 | ||||||||
Add: |
||||||||||||||||
Interest expense |
52.2 | 43.4 | 156.4 | 123.0 | ||||||||||||
Interest (income) and other (income) expense, net |
(2.6 | ) | (2.6 | ) | 1.7 | (10.3 | ) | |||||||||
Provision for income taxes |
233.3 | 241.0 | 670.7 | 678.0 | ||||||||||||
Depreciation expense |
52.8 | 46.5 | 154.9 | 135.6 | ||||||||||||
Amortization expense |
73.2 | 71.2 | 219.6 | 212.5 | ||||||||||||
EBITDA |
764.3 | 771.0 | 2,234.6 | 2,187.7 | ||||||||||||
Adjustment for 2011 merger-related expenses (2) |
36.6 | | 36.6 | | ||||||||||||
EBITDA, excluding 2011 merger-related expenses |
$ | 800.9 | $ | 771.0 | $ | 2,271.2 | $ | 2,187.7 | ||||||||
Adjusted prescriptions (3) |
233.6 | 235.2 | 717.6 | 712.7 | ||||||||||||
EBITDA per adjusted prescription |
$ | 3.27 | $ | 3.28 | $ | 3.11 | $ | 3.07 | ||||||||
EBITDA per adjusted prescription, excluding 2011 merger-related expenses |
$ | 3.43 | $ | 3.28 | $ | 3.16 | $ | 3.07 | ||||||||
(1) | Includes UBCs operating results commencing on the September 16, 2010 acquisition date. | |
(2) | Represents pre-tax merger-related expenses associated with the pending Express Scripts merger. | |
(3) | Adjusted prescription volume equals substantially all mail-order prescriptions multiplied by three, plus retail prescriptions. These mail-order prescriptions are multiplied by three to adjust for the fact that they include approximately three times the amount of product days supplied compared with retail prescriptions. |
Accredo Health Group (Specialty Pharmacy) Segment Results
(Unaudited)
(In millions)
Quarter Ended | Quarter Ended | Nine Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
September 24, | September 25, | September 24, | September 25, | |||||||||||||||||||||||||||||
2011 | Variance | 2010 | 2011 | Variance | 2010 | |||||||||||||||||||||||||||
Specialty Pharmacy: |
||||||||||||||||||||||||||||||||
Product net revenues |
$ | 3,341.3 | $ | 489.1 | 17.1 | % | $ | 2,852.2 | $ | 9,562.8 | $ | 1,268.9 | 15.3 | % | $ | 8,293.9 | ||||||||||||||||
Service revenues |
18.6 | (7.2 | ) | -27.9 | % | 25.8 | 57.2 | (18.1 | ) | -24.0 | % | 75.3 | ||||||||||||||||||||
Total net revenues |
3,359.9 | 481.9 | 16.7 | % | 2,878.0 | 9,620.0 | 1,250.8 | 14.9 | % | 8,369.2 | ||||||||||||||||||||||
Total cost of revenues |
3,133.1 | 450.7 | 16.8 | % | 2,682.4 | 8,979.8 | 1,193.3 | 15.3 | % | 7,786.5 | ||||||||||||||||||||||
Selling, general and administrative expenses |
67.7 | (5.5 | ) | -7.5 | % | 73.2 | 206.7 | (15.7 | ) | -7.1 | % | 222.4 | ||||||||||||||||||||
Amortization of intangibles |
10.5 | (0.2 | ) | -1.9 | % | 10.7 | 31.5 | (0.6 | ) | -1.9 | % | 32.1 | ||||||||||||||||||||
Operating Income |
$ | 148.6 | $ | 36.9 | 33.0 | % | $ | 111.7 | $ | 402.0 | $ | 73.8 | 22.5 | % | $ | 328.2 | ||||||||||||||||
Gross Margin (1) |
$ | 226.8 | $ | 31.2 | 16.0 | % | $ | 195.6 | $ | 640.2 | $ | 57.5 | 9.9 | % | $ | 582.7 | ||||||||||||||||
Gross margin percentage |
6.8 | % | 0.0 | % | 6.8 | % | 6.7 | % | -0.3 | % | 7.0 | % |
(1) | Represents total net revenues minus total cost of revenues. |
Earnings Per Share Reconciliation
(Unaudited)
Quarters Ended | Nine Months Ended | |||||||||||||||
September 24, | September 25, | September 24, | September 25, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Earnings Per Share Reconciliation: |
||||||||||||||||
GAAP diluted earnings per share |
$ | 0.90 | $ | 0.85 | $ | 2.55 | $ | 2.28 | ||||||||
Adjustment for merger-related expenses (1) |
0.06 | | 0.05 | | ||||||||||||
Diluted earnings per share, excluding merger-related expenses |
$ | 0.96 | $ | 0.85 | $ | 2.60 | $ | 2.28 | ||||||||
Adjustment for the amortization of intangible assets (2) |
0.11 | 0.10 | 0.33 | 0.28 | ||||||||||||
Diluted earnings per share, excluding all intangible amortization and
merger-related expenses |
$ | 1.07 | $ | 0.95 | $ | 2.93 | $ | 2.56 | ||||||||
Diluted earnings per share growth over prior year, excluding all
intangible amortization and merger-related expenses |
12.6 | % | 14.5 | % |
(1) | This adjustment represents the per-share effect of pre-tax merger-related expenses of $36.6 million, or $22 million after tax, for the third quarter and nine months of 2011 associated with the pending Express Scripts merger. | |
(2) | This adjustment represents the per-share effect of all intangible amortization. |
Guidance Information
(Unaudited)
Full Year Ended | ||||||||||||
December 25, 2010 | Full Year Ended December 31, 2011 | |||||||||||
Actual | Low End | High End | ||||||||||
Earnings Per Share Guidance Reconciliation: |
||||||||||||
GAAP diluted earnings per share |
$ | 3.16 | $ | 3.54 | $ | 3.58 | ||||||
Adjustment for merger-related expenses (1) |
| 0.11 | 0.11 | |||||||||
Diluted earnings per share, excluding merger-related expenses |
$ | 3.16 | $ | 3.65 | $ | 3.69 | ||||||
Adjustment for the amortization of intangible assets (2) |
0.39 | 0.43 | 0.43 | |||||||||
Diluted earnings per share, excluding all intangible amortization
and merger-related expenses |
$ | 3.55 | $ | 4.08 | $ | 4.12 | ||||||
Diluted earnings per share growth over prior year |
12 | % | 13 | % | ||||||||
Diluted earnings per share growth over prior year,
excluding merger-related expenses |
16 | % | 17 | % | ||||||||
Diluted earnings per share growth over prior year,
excluding all intangible amortization
and merger-related expenses |
15 | % | 16 | % |
(1) | This adjustment represents the per-share effect of estimated 2011 merger-related expenses associated with the pending Express Scripts merger. | |
(2) | This adjustment represents the per-share effect of all intangible amortization. |