Business News
Medco Reports Record Second-Quarter 2008 GAAP Diluted EPS; Reflects Growth of 34.2 Percent; Raises and Narrows 2008 Guidance
2008-07-24 05:30:00
Medco Reports Record Second-Quarter 2008 GAAP Diluted EPS; Reflects Growth of 34.2 Percent; Raises and Narrows 2008 Guidance
Second-Quarter Year-Over-Year Highlights:
- Record GAAP diluted EPS increased 34.2 percent to $0.51 from $0.38 in
second-quarter 2007
- Record diluted EPS increased 30.2 percent to $0.56 from $0.43 in
second-quarter 2007, excluding $0.05 in amortization of intangible assets
from the 2003 spin-off
- Net revenues increased 15.6 percent to nearly $12.8 billion
- Specialty revenues increased 32.6 percent to a record of nearly $2.0
billion
- Mail-order prescription volume of 26.3 million increased 2.8 million, or
11.9 percent, from 23.5 million in second-quarter 2007
- Record generic dispensing rate of 63.7 percent increased 4.8 percentage
points from second-quarter 2007
Raised and Narrowed 2008 Guidance:
- Full-year GAAP diluted EPS guidance is raised to $2.10 to $2.13,
reflecting growth of 29 to 31 percent over 2007, up from previous guidance
of $2.07 to $2.11 per share
- Full-year diluted EPS guidance, excluding amortization of intangible
assets, is raised to $2.30 to $2.33, reflecting growth of 26 to 28 percent
over 2007, up from previous guidance of $2.27 to $2.31 per share (Please
see Table 9 for a reconciliation of earnings per share guidance).
FRANKLIN LAKES, N.J., July 24 /EMWNews/ -- Driven by
record 2008 sales performance across the company, including Accredo Health
Group, and strong fundamentals, Medco Health Solutions, Inc. (NYSE: MHS)
today reported a 34.2 percent increase in second-quarter 2008 GAAP diluted
earnings per share to $0.51, compared to $0.38 for the second quarter of
2007. Excluding $0.05 per share in amortization of intangible assets that
existed when Medco became a publicly traded company, second-quarter 2008
diluted earnings per share increased 30.2 percent to $0.56 from $0.43 in
second-quarter 2007.
"This quarter, Medco demonstrated that strong execution around the
fundamentals of our business on behalf of our customers continues to drive
outstanding earnings performance for our shareholders," said David B. Snow
Jr., Medco chairman and chief executive officer.
"Beyond the quarter, our business strategy fueled extremely strong
sales results and industry-leading customer retention rates. Our 2008
annualized new-named sales rose to $6.5 billion, and we achieved a
retention rate of 98 percent, reflecting continued success in our 2008
sales season. Additionally, our 2009 annualized new-named sales to date are
currently at $4.6 billion, with a retention rate of more than 97 percent.
These strong 2009 sales results are particularly impressive this early in
the 2009 sales season, and are a testament to the strength of our
integrated service and clinical models," said Snow.
Richard J. Rubino, chief financial officer, added: "The second quarter
results exceeded our expectations with strong performance across-the-board.
We experienced record revenue and operating income in our Accredo business,
a high level of operational efficiencies with the absorption of our
significant 2008 new client wins, and continued contribution from generics
at mail -- all adding up to record EBITDA per adjusted prescription of
$3.05. We are very confident in our business model and pleased to both
raise and narrow the range of our guidance, elevating our projected 2008
GAAP EPS growth to 29 to 31 percent."
Second-Quarter Financial and Operational Results
Medco reported net revenues of nearly $12.8 billion, a 15.6 percent
increase from second-quarter 2007. Net revenues increased primarily as a
result of contributions from significant new client wins and price
inflation on brand-name drugs, partially offset by higher volumes of
lower-cost generic drugs. Medco's generic dispensing rate increased 4.8
percentage points to a record 63.7 percent from the second quarter of 2007.
The mail-order generic dispensing rate increased 5.0 percentage points to
54.9 percent and the retail generic dispensing rate increased 4.8
percentage points to 65.6 percent.
While higher volumes of lower-cost generic drugs reduced net revenues
by approximately $710 million, these savings benefit clients and members,
and contribute to higher gross margins. Year-to-date, the higher volumes of
generic drugs reduced net revenues by approximately $1.5 billion.
Total prescription volume, adjusting for the difference in days supply
between mail order and retail, increased 6.4 percent from the second
quarter of 2007 to 198.1 million. Mail-order prescription volume increased
11.9 percent to 26.3 million. Retail prescription volume increased 3.2
percent to 119.6 million. Adjusted mail-order prescriptions as a percentage
of total adjusted prescriptions increased 2.0 percentage points, reaching
39.7 percent. Total gross margin increased 90 basis points to 7.3 percent
from 6.4 percent in the second quarter of 2007, reflecting higher mail
volumes and penetration, and higher generic dispensing rates. (Please see
Table 5 for the calculation of adjusted prescription volume and generic
dispensing rate information).
Total selling, general and administrative expense of $368.4 million
increased 34.5 percent or $94.4 million over second-quarter 2007. Over $61
million of this increase is attributable to operating expenses from
PolyMedica and Critical Care Systems, which were acquired in fourth-quarter
2007, and Europa Apotheek Venlo, a first-quarter 2008 majority-stake
acquisition. The remaining increase primarily reflects employee-related
costs to support the growing client base and strategic clinical
initiatives. Earnings Before Interest Income/Expense, Taxes, Depreciation
and Amortization (EBITDA) for the quarter increased $129.6 million, or 27.3
percent, to $604.1 million compared to the same period last year. EBITDA
per adjusted prescription increased 19.6 percent to $3.05 from $2.55 in the
second quarter of 2007. (Please refer to Table 6 for a reconciliation of
EBITDA to reported net income).
Interest and other (income) expense, net, of $57.5 million in second-
quarter 2008 increased from $21.9 million in second-quarter 2007, largely
attributable to higher debt levels including the senior notes issuance in
March 2008 to fund recent acquisitions.
The effective tax rate for the second quarter of 2008 was 39.9 percent,
compared to 39.3 percent in the second-quarter 2007. Net income of $262.7
million increased 22.2 percent from the same quarter last year.
Medco generated year-to-date cash flows from operations of $200.2
million, compared to $676.7 million for the same period in 2007, reflecting
increases in receivables and inventory, driven by overall business growth.
The company closed the second quarter of 2008 with $371.7 million of cash
on its balance sheet.
Share Repurchase Program
In conjunction with its $5.5 billion share repurchase program, Medco
repurchased 12.4 million shares for $562.4 million during the second
quarter of 2008 with an average per-share cost of $45.22. From the
inception of the program in 2005 through the end of second-quarter 2008,
Medco repurchased 144.9 million shares at a total cost of $5.1 billion and
average per-share cost of $35.05. At the close of the second quarter, $400
million remained under the current authorization.
Specialty Pharmacy Segment
Revenues for Medco's specialty pharmacy segment, Accredo Health Group,
reached record levels with growth of 32.6 percent to nearly $2.0 billion,
compared to $1.5 billion in the second quarter of 2007. This is primarily
the result of the contribution from significant new clients in January 2008
and the acquisition of Critical Care Systems in fourth-quarter 2007.
The gross margin of 8.0 percent was in line with the second-quarter of
2007. Operating income rose 24.6 percent to $67.8 million from $54.4
million in the second quarter of 2007, driven by increased volume from new
business.
Use of Non-GAAP Measures
Medco calculates and uses EBITDA and EBITDA per adjusted prescription
as indicators of its ability to generate cash from its reported operating
results. These measurements are used in concert with net income and cash
flows from operations, which measure actual cash generated in the period.
In addition, Medco believes that EBITDA and EBITDA per adjusted
prescription are supplemental measurement tools used by analysts and
investors to help evaluate overall operating performance and the ability to
incur and service debt and make capital expenditures. EBITDA does not
represent funds available for Medco's discretionary use and is not intended
to represent or to be used as a substitute for net income or cash flows
from operations data as measured under U.S. Generally Accepted Accounting
Principles (GAAP). The items excluded from EBITDA, but included in the
calculation of reported net income, are significant components of the
consolidated statements of income and must be considered in performing a
comprehensive assessment of overall financial performance. EBITDA, and the
associated year-to-year trends, should not be considered in isolation.
Medco's calculation of EBITDA may not be consistent with calculations of
EBITDA used by other companies.
EBITDA per adjusted prescription is calculated by dividing EBITDA by
the adjusted prescription volume for the period. This measure is used as an
indicator of EBITDA performance on a per-unit basis, providing insight into
the cash-generating potential of each prescription. EBITDA, and as a
result, EBITDA per adjusted prescription, is affected by the changes in
prescription volumes between retail and mail order, the relative
representation of brand- name, generic and specialty drugs, as well as the
level of efficiency in the business. Adjusted prescription volume equals
the majority of mail-order prescriptions multiplied by 3, plus retail
prescriptions. These mail-order prescriptions are multiplied by 3 to adjust
for the fact that they include approximately 3 times the amount of product
days supplied compared with retail prescriptions.
Medco uses diluted earnings per share excluding intangible asset
amortization expense that existed when Medco became a public company in
2003 as a supplemental measure of operating performance. The excluded
amortization is associated with intangible assets that substantially arose
in connection with the acquisition of Medco by Merck & Co., Inc. in 1993
and were pushed down to Medco's balance sheet. The company believes that
diluted earnings per share, excluding the amortization of these
intangibles, is a useful measure because of the significance of this
non-cash item and enhances comparability with its peers. The intangible
asset amortization resulting from Medco's acquisitions, such as the
acquisitions of Accredo Health, Incorporated in August 2005, and PolyMedica
Corporation in October 2007, are not part of the excluded amortization in
this calculation because they results from Medco investment decisions.
Conference Call
Management will hold a conference call to review Medco's financial
results and operating outlook on July 24, 2008 at 8:30 a.m. ET.
To access the live conference call via telephone: Dial in: (800)
949-5383 from inside the U.S., or (706) 679-3440 from outside the U.S.
To access the live webcast:
Visit the Investor Relations section at http://www.medco.com or go directly to
http://www.medco.com/investor.
For a replay of the call:
A replay of the call will be available after the event on July 24, 2008
through August 7, 2008. Dial in: (800) 642-1687 from inside the U.S., or
(706) 645-9291 from outside the U.S. Please use passcode 55170474.
About Medco
Medco Health Solutions, Inc., (NYSE: MHS) is the nation's leading
pharmacy benefit manager based on its 2007 total net revenues of more than
$44 billion. Medco's prescription drug benefit programs, covering
approximately one in five Americans, are designed to drive down the cost of
pharmacy health care for private and public employers, health plans, labor
unions and government agencies of all sizes, and for individuals served by
the Medicare Part D Prescription Drug Program and those served by its
specialty pharmacy segment, Accredo Health Group. Medco, the world's most
advanced pharmacy(R), is positioned to serve the unique needs of patients
with chronic and complex conditions through its Medco Therapeutic Resource
Centers(R), including its enhanced diabetes pharmacy care practice through
the Liberty acquisition. Medco is the highest-ranked independent pharmacy
benefit manager on the 2008 Fortune 100 list. On the Net:
http://www.medco.com.
This press release contains "forward-looking statements" as that term
is defined in the Private Securities Litigation Reform Act of 1995. These
statements involve risks and uncertainties that may cause results to differ
materially from those set forth in the statements. No forward-looking
statement can be guaranteed, and actual results may differ materially from
those projected. We undertake no obligation to publicly update any forward-
looking statement, whether as a result of new information, future events or
otherwise. Forward-looking statements are not historical facts, but rather
are based on current expectations, estimates, assumptions and projections
about the business and future financial results of the pharmacy benefit
management ("PBM") and specialty pharmacy industries, and other legal,
regulatory and economic developments. We use words such as "anticipates,"
"believes," "plans," "expects," "projects," "future," "intends," "may,"
"will," "should," "could," "estimates," "predicts," "potential,"
"continue," "guidance" and similar expressions to identify these
forward-looking statements. Medco's actual results could differ materially
from the results contemplated by these forward-looking statements due to a
number of factors, including those set forth below.
-- Competition in the PBM, specialty pharmacy and the broader
healthcare industry is intense and could impair our ability to attract and
retain clients;
-- Failure to retain key clients and their members could result in
significantly decreased revenues and could harm our profitability;
-- If we do not continue to earn and retain purchase discounts and
rebates from manufacturers at current levels, our gross margins may
decline;
-- Our acquisition activity has increased recently 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;
-- If we fail to comply with complex and rapidly evolving laws and
regulations, we could suffer penalties, or be required to pay substantial
damages or make significant changes to our operations;
-- 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 to execute our Medicare Part D prescription drug benefits
strategy could adversely impact our business and financial results;
-- 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;
-- We are subject to corporate integrity agreements and noncompliance
may impede our ability to conduct business with the federal government;
-- Legislative or regulatory initiatives that restrict or prohibit the
PBM industry's ability to use patient identifiable medical information
could limit our ability to use information that is critical to the
operation of our business;
-- Our specialty pharmacy business is highly dependent on our
relationships with a limited number of biopharmaceutical suppliers and the
loss of any of these relationships could significantly impact our ability
to sustain or increase our revenues;
-- 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
credit risk;
-- Changes in industry pricing benchmarks could adversely affect our
financial performance;
-- The terms and covenants relating to our existing indebtedness could
adversely impact our financial performance;
-- Prescription volumes may decline, and our net revenues and
profitability may be negatively impacted, if products are withdrawn from
the market, if prescription drugs transition to over-the-counter products,
or if increased safety risk profiles of specific drugs result in
utilization decreases;
-- We may be subject to liability claims for damages and other expenses
that are not covered by insurance;
-- The success of our business depends on maintaining a well-secured
pharmacy operation and technology infrastructure and failure to execute
could adversely impact our business;
-- We could 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;
-- Changes in reimbursement rates, including competitive bidding for
durable medical equipment suppliers, could negatively affect our PolyMedica
diabetes testing supplies revenues and profits under our Liberty brand; and
-- Anti-takeover provisions of the Delaware General Corporation Law
("DGCL"), 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.
The foregoing list of factors is not exhaustive. You should carefully
consider the foregoing factors and the other risks and uncertainties that
affect our business described in our Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q and other documents filed from time to time with the
Securities and Exchange Commission.
Medco Health Solutions, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
(In millions, except for per share data)
Table 1.
Quarters Ended Six Months Ended
--------------------------------------------
June 28, June 30, June 28, June 30,
2008 2007 2008 2007
----------- ---------- ----------- ---------
Product net revenues
(Includes retail
co-payments of $1,900
and $1,887 in the
second quarters
of 2008 and 2007,
and $4,002 and $3,874
in the six months of
2008 and 2007) $12,607.1 $10,912.3 $25,414.0 $21,938.6
Service revenues 167.5 137.3 323.6 270.6
--------- --------- --------- ---------
Total net revenues 12,774.6 11,049.6 25,737.6 22,209.2
--------- --------- --------- ---------
Cost of operations:
Cost of product net
revenues (Includes
retail co-payments
of $1,900 and $1,887
in the second quarters
of 2008 and 2007, and
$4,002 and $3,874 in
the six months of 2008
and 2007) 11,794.0 10,311.9 23,810.8 20,661.8
Cost of service revenues 47.1 33.1 93.0 69.1
--------- --------- --------- ---------
Total cost of revenues 11,841.1 10,345.0 23,903.8 20,730.9
Selling, general and
administrative expenses 368.4 274.0 696.8 522.4
Amortization of
intangibles 70.6 54.6 140.1 109.3
Interest and other
(income) expense, net 57.5 21.9 111.8 36.8
--------- --------- --------- ---------
Total cost of
operations 12,337.6 10,695.5 24,852.5 21,399.4
--------- --------- --------- ---------
Income before provision
for income taxes 437.0 354.1 885.1 809.8
Provision for income taxes 174.3 139.2 352.2 320.1
--------- --------- --------- ---------
Net income $262.7 $214.9 $532.9 $489.7
========= ========= ========= =========
Basic earnings per share:
-------------------------
Weighted average shares
outstanding 507.7 554.4 517.3 564.0
Earnings per share $0.52 $0.39 $1.03 $0.87
========= ========= ========= =========
Diluted earnings per share:
---------------------------
Weighted average shares
outstanding 517.6 564.2 527.7 573.5
Earnings per share $0.51 $0.38 $1.01 $0.85
========= ========= ========= =========
Medco Health Solutions, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In millions)
Table 2.
June 28, December 29,
2008 2007
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $371.7 $774.1
Short-term investments 70.9 70.3
Manufacturer accounts receivable, net 1,772.3 1,516.2
Client accounts receivable, net 1,594.2 1,340.3
Income taxes receivable 210.0 216.0
Inventories, net 2,090.0 1,946.0
Prepaid expenses and other current assets 330.7 285.4
Deferred tax assets 154.4 154.4
------------ ------------
Total current assets 6,594.2 6,302.7
Property and equipment, net 734.6 725.5
Goodwill 6,346.2 6,230.2
Intangible assets, net 2,809.0 2,905.0
Other noncurrent assets 61.6 54.5
------------ ------------
Total assets $16,545.6 $16,217.9
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Claims and other accounts payable $2,812.0 $2,812.9
Client rebates and guarantees payable 1,267.6 1,092.2
Accrued expenses and other
current liabilities 561.1 624.1
Short-term debt 600.0 600.0
------------ ------------
Total current liabilities 5,240.7 5,129.2
Long-term debt, net 4,083.0 2,894.4
Deferred tax liabilities 1,103.2 1,167.0
Other noncurrent liabilities 173.8 152.0
------------ ------------
Total liabilities 10,600.7 9,342.6
Total stockholders' equity 5,944.9 6,875.3
------------ ------------
Total liabilities and stockholders' equity $16,545.6 $16,217.9
============ ============
June 28, December 29,
2008 2007
------------ ------------
Balance Sheet Debt:
-------------------
Accounts receivable financing facility $600.0 $600.0
Senior unsecured revolving credit facility 1,100.0 1,400.0
Senior unsecured term loan 1,000.0 1,000.0
7.25% senior notes due 2013,
net of unamortized discount 497.6 497.4
6.125% senior notes due 2013,
net of unamortized discount 298.4 -
7.125% senior notes due 2018,
net of unamortized discount 1,187.7 -
Fair value of interest rate swap agreements (0.7) (3.0)
------------ ------------
Total debt $4,683.0 $3,494.4
============ ============
Medco Health Solutions, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In millions)
Table 3.
Six Months Ended
--------------------------------
June 28, June 30,
2008 2007
--------------- ----------------
Cash flows from operating activities:
Net income $532.9 $489.7
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation 79.0 85.4
Amortization of intangibles 140.1 109.3
Deferred income taxes (80.6) (69.8)
Stock-based compensation on
employee stock plans 63.7 46.5
Tax benefit on employee
stock plans 51.7 59.1
Excess tax benefits from
stock-based compensation
arrangements (31.4) (38.7)
Other 57.1 25.3
Net changes in assets and
liabilities (net of
acquisition effects, 2008 only)
Manufacturer accounts receivable,
net (254.8) (89.1)
Client accounts receivable, net (279.9) 51.6
Inventories, net (140.1) 102.5
Prepaid expenses and other
current assets (43.7) (1.3)
Income taxes receivable 6.0 (5.9)
Other noncurrent assets 3.2 10.0
Claims and other accounts payable (15.8) (305.5)
Client rebates and guarantees
payable 175.4 183.7
Accrued expenses and other
current and noncurrent
liabilities (62.6) 23.9
--------------- ----------------
Net cash provided by operating
activities 200.2 676.7
--------------- ----------------
Cash flows from investing
activities:
Cash paid for Europa Apotheek
Venlo B.V., net of cash
acquired (126.2) -
Capital expenditures (87.6) (59.4)
Purchases of securities and
other investments (42.9) (75.1)
Proceeds from sale of
securities and other
investments 35.9 80.3
--------------- ----------------
Net cash used by investing
activities (220.8) (54.2)
--------------- ----------------
Cash flows from financing
activities:
Proceeds from long-term debt 2,865.7 1,000.0
Repayments on long-term debt (1,680.0) (456.5)
Proceeds under accounts
receivable financing facility - 275.0
Debt issuance costs (11.3) (1.6)
Settlement of cash flow hedge (45.4) -
Purchase of treasury stock (1,563.3) (1,447.2)
Excess tax benefits from
stock-based compensation
arrangements 31.4 38.7
Proceeds from employee stock
plans 21.1 134.3
--------------- ----------------
Net cash used by financing
activities (381.8) (457.3)
--------------- ----------------
Net (decrease) increase in cash
and cash equivalents (402.4) 165.2
Cash and cash equivalents at
beginning of period 774.1 818.5
--------------- ----------------
Cash and cash equivalents at end
of period $371.7 $983.7
=============== ================
Medco Health Solutions, Inc.
Consolidated Income Statement Results
(Unaudited)
(In millions)
Table 4.
Quarter Quarter
Ended Ended
June 28, June 30,
2008 (1) Increase (Decrease) 2007
-------- ------------------- -------
Consolidated income statement results
-------------------------------------
Retail product revenues (2) $7,156.8 $553.5 8.4% $6,603.3
Mail-order product revenues 5,450.3 1,141.3 26.5% 4,309.0
---------- --------- ------- --------
Total product net revenues (2) 12,607.1 1,694.8 15.5% 10,912.3
---------- --------- ------- --------
Client and other service revenues 118.4 17.6 17.5% 100.8
Manufacturer service revenues 49.1 12.6 34.5% 36.5
---------- --------- ------- --------
Total service revenues 167.5 30.2 22.0% 137.3
---------- --------- ------- --------
Total net revenues (2) 12,774.6 1,725.0 15.6% 11,049.6
---------- --------- ------- --------
Cost of product net
revenues (2) 11,794.0 1,482.1 14.4% 10,311.9
Cost of service revenues 47.1 14.0 42.3% 33.1
---------- --------- ------- --------
Total cost of revenues (2) 11,841.1 1,496.1 14.5% 10,345.0
Selling, general and
administrative expenses 368.4 94.4 34.5% 274.0
Amortization of intangibles 70.6 16.0 29.3% 54.6
Interest and other (income)
expense, net 57.5 35.6 162.6% 21.9
---------- --------- ------- --------
Income before provision for
income taxes 437.0 82.9 23.4% 354.1
Provision for income taxes 174.3 35.1 25.2% 139.2
---------- --------- ------- --------
Net Income $262.7 $47.8 22.2% $214.9
========== ========= ======= ========
Diluted earnings per share:
---------------------------
Weighted average shares
outstanding 517.6 (46.6) -8.3% 564.2
Earnings per share $0.51 $0.13 34.2% $0.38
========== ========= ======= ========
Earnings per share, excluding
intangible amortization (3) $0.56 $0.13 30.2% $0.43
========== ========= ======= ========
Gross margin (4)
----------------
Product $813.1 $212.7 35.4% $600.4
Product gross margin percentage 6.4% 0.9% 5.5%
Service $120.4 $16.2 15.5% $104.2
Service gross margin
percentage 71.9% -4.0% 75.9%
Total $933.5 $228.9 32.5% $704.6
Total gross margin percentage 7.3% 0.9% 6.4%
Six Six
Months Months
Ended Ended
June 28, June 30,
2008 (1) Increase (Decrease) 2007
---------- ------------------ ----------
Consolidated income statement results
-------------------------------------
Retail product revenues (2) $14,572.3 $1,256.7 9.4% $13,315.6
Mail-order product revenues 10,841.7 2,218.7 25.7% 8,623.0
--------- -------- ------ ---------
Total product net revenues(2) 25,414.0 3,475.4 15.8% 21,938.6
--------- -------- ------ ---------
Client and other service
revenues 233.3 35.7 18.1% 197.6
Manufacturer service revenues 90.3 17.3 23.7% 73.0
--------- -------- ------ ---------
Total service revenues 323.6 53.0 19.6% 270.6
--------- -------- ------ ---------
Total net revenues (2) 25,737.6 3,528.4 15.9% 22,209.2
--------- -------- ------ ---------
Cost of product net
revenues (2) 23,810.8 3,149.0 15.2% 20,661.8
Cost of service revenues 93.0 23.9 34.6% 69.1
--------- -------- ------ ---------
Total cost of
revenues (2) 23,903.8 3,172.9 15.3% 20,730.9
Selling, general and
administrative expenses 696.8 174.4 33.4% 522.4
Amortization of intangibles 140.1 30.8 28.2% 109.3
Interest and other (income)
expense, net 111.8 75.0 203.8% 36.8
--------- -------- ------ ---------
Income before provision for
income taxes 885.1 75.3 9.3% 809.8
Provision for income taxes 352.2 32.1 10.0% 320.1
--------- -------- ------ ---------
Net Income $532.9 $43.2 8.8% $489.7
========= ======== ====== =========
Diluted earnings per share:
---------------------------
Weighted average shares
outstanding 527.7 (45.8) -8.0% 573.5
Earnings per share $1.01 $0.16 18.8% $0.85
========= ======== ====== =========
Earnings per share, excluding
intangible amortization (3) $1.11 $0.16 16.8% $0.95
========= ======== ====== =========
Gross margin (4)
----------------
Product $1,603.2 $326.4 25.6% $1,276.8
Product gross margin
percentage 6.3% 0.5% 5.8%
Service $230.6 $29.1 14.4% $201.5
Service gross margin
percentage 71.3% -3.2% 74.5%
Total $1,833.8 $355.5 24.0% $1,478.3
Total gross margin
percentage 7.1% 0.4% 6.7%
(1) Includes PolyMedica's, Critical Care's, and Europa Apotheek's
operating results commencing on the October 31, 2007, November 14,
2007, and April 28, 2008 acquisition dates, respectively.
(2) Includes retail co-payments of $1,900 million and $1,887 million for
the second quarters of 2008 and 2007, and $4,002 million and
$3,874 million for the six months of 2008 and 2007.
(3) Please refer to Table 8 for reconciliation of the earnings per share
excluding intangible amortization.
(4) Defined as net revenues minus cost of revenues.
Medco Health Solutions, Inc.
Consolidated Selected Information
(Unaudited)
(In millions)
Table 5.
Quarter Quarter
Ended Ended
June 28, June 30,
2008 (1) Increase (Decrease) 2007
--------- ------------------- -------
Volume Information
------------------
Retail prescriptions 119.6 3.7 3.2% 115.9
Mail-order prescriptions 26.3 2.8 11.9% 23.5
--------- -------- -------- --------
Total prescriptions 145.9 6.5 4.7% 139.4
========== ======== ======== ========
Adjusted prescriptions (2) 198.1 11.9 6.4% 186.2
Adjusted mail-order penetration
(3) 39.7% 2.0% 37.7%
Other volume (4) 1.5 1.5 N/M* -
Generic Dispensing Rate Information
-----------------------------------
Retail generic dispensing rate 65.6% 4.8% 60.8%
Mail-order generic dispensing rate 54.9% 5.0% 49.9%
Overall generic dispensing rate 63.7% 4.8% 58.9%
Manufacturer Rebate Information
-------------------------------
Rebates earned $1,062 $144 15.7% $918
Percent of rebates retained 18.7% 3.1% 15.6%
Depreciation Information
------------------------
Cost of revenues depreciation $10.9 $(3.9) -26.4% $14.8
SG&A expenses depreciation 28.1 (1.0) -3.4% 29.1
--------- -------- -------- --------
Total depreciation $39.0 $(4.9) -11.2% $43.9
========== ======== ======== ========
Six Six
Months Months
Ended Ended
June 28, June 30,
2008 (1) Increase (Decrease) 2007
--------- ------------------ ---------
Volume Information
------------------
Retail prescriptions 246.8 11.4 4.8% 235.4
Mail-order prescriptions 52.9 5.9 12.6% 47.0
-------- -------- -------- ---------
Total prescriptions 299.7 17.3 6.1% 282.4
========= ======== ======== =========
Adjusted prescriptions (2) 404.8 29.1 7.7% 375.7
Adjusted mail-order
penetration (3) 39.0% 1.7% 37.3%
Other volume (4) 2.7 2.7 N/M* -
Generic Dispensing Rate Information
-----------------------------------
Retail generic dispensing rate 65.4% 4.9% 60.5%
Mail-order generic
dispensing rate 54.2% 5.1% 49.1%
Overall generic dispensing rate 63.5% 4.9% 58.6%
Manufacturer Rebate Information
-------------------------------
Rebates earned $2,115 $278 15.1% $1,837
Percent of rebates retained 19.4% 2.5% 16.9%
Depreciation Information
------------------------
Cost of revenues depreciation $21.6 $(3.7) -14.6% $25.3
SG&A expenses depreciation 57.4 (2.7) -4.5% 60.1
--------- ------- -------- ---------
Total depreciation $79.0 $(6.4) -7.5% $85.4
========= ======= ======== =========
(1) Includes PolyMedica's, Critical Care's, and Europa Apotheek's
operating results commencing on the October 31, 2007, November 14,
2007, and April 28, 2008 acquisition dates, respectively.
(2) Adjusted prescription volume equals the majority of mail-order
prescriptions multiplied by 3, plus retail prescriptions. These
mail-order prescriptions are multiplied by 3 to adjust for the fact
that they include approximately 3 times the amount of product days
supplied compared with retail prescriptions.
(3) The percentage of adjusted mail-order prescriptions to total
adjusted prescriptions.
(4) Represents over-the-counter drugs, as well as diabetic supplies
primarily dispensed by PolyMedica.
*Not meaningful
Medco Health Solutions, Inc.
Consolidated EBITDA
(Unaudited)
(In millions, except for EBITDA per adjusted prescription data)
Table 6.
Quarters Ended Six Months Ended
------------------- -------------------
June 28, June 30, June 28, June 30,
2008 (1) 2007 2008 (1) 2007
-------- -------- -------- --------
EBITDA Reconciliation:
----------------------
Net income $262.7 $214.9 $532.9 $489.7
Add:
Interest and other (income)
expense, net 57.5 21.9 111.8(2) 36.8
Provision for income taxes 174.3 139.2 352.2 320.1
Depreciation expense 39.0 43.9 79.0 85.4
Amortization expense 70.6 54.6 140.1 109.3
-------- -------- ---------- --------
EBITDA $604.1 $474.5 $1,216.0 $1,041.3
======== ======== ========== ========
Adjusted prescriptions (3) 198.1 186.2 404.8 375.7
-------- -------- --------- --------
EBITDA per adjusted
prescription $3.05 $2.55 $3.00 $2.77
======== ======== ========== ========
(1) Includes PolyMedica's, Critical Care's, and Europa Apotheek's
operating results commencing on the October 31, 2007, November 14,
2007, and April 28,
2008 acquisition dates, respectively.
(2) Includes a $9.8 million charge for the ineffective portion of the
forward-starting interest rate swap agreements associated with the
March 2008
issuance of senior notes.
(3) Adjusted prescription volume equals the majority of mail-order
prescriptions multiplied by 3, plus retail prescriptions. These
mail-order
prescriptions are multiplied by 3 to adjust for the fact that they
include approximately 3 times the amount of product days supplied
compared with
retail prescriptions.
Medco Health Solutions, Inc.
Accredo Health Group (Specialty Pharmacy) Segment Results
(Unaudited)
(In millions)
Table 7.
Quarter Quarter
Ended Ended
June 28, June 30,
2008 (1) Increase (Decrease) 2007
--------- -------- ---------- --------
Specialty Pharmacy:
-------------------
Product net revenues $1,960.4 $479.6 32.4% $1,480.8
Service revenues 21.5 7.5 53.6% 14.0
-------- ------- ------ ---------
Total net revenues 1,981.9 487.1 32.6% 1,494.8
Total cost of revenues 1,824.0 448.1 32.6% 1,375.9
Selling, general and
administrative expenses 78.9 24.0 43.7% 54.9
Amortization of intangibles 11.2 1.6 16.7% 9.6
-------- ------- ------ ---------
Operating Income $67.8 $13.4 24.6% $54.4
======== ======= ====== =========
Gross Margin (2) $157.9 $39.0 32.8% $118.9
Gross margin percentage 8.0% - 8.0%
Six Six
Months Months
Ended Ended
June 28, June 30,
2008 (1) Increase (Decrease) 2007
--------- ------------------ ---------
Specialty Pharmacy:
-------------------
Product net revenues $3,835.0 $919.2 31.5% $2,915.8
Service revenues 36.6 7.9 27.5% 28.7
-------- ------ ------ --------
Total net revenues 3,871.6 927.1 31.5% 2,944.5
Total cost of revenues 3,568.6 859.2 31.7% 2,709.4
Selling, general and
administrative expenses 149.3 41.4 38.4% 107.9
Amortization of intangibles 22.2 2.9 15.0% 19.3
-------- ------ ------ --------
Operating Income $131.5 $23.6 21.9% $107.9
======== ====== ====== ========
Gross Margin (2) $303.0 $67.9 28.9% $235.1
Gross margin percentage 7.8% -0.2% 8.0%
(1) Includes Critical Care's operating results commencing on the
November 14, 2007 acquisition date.
(2) Defined as net revenues minus cost of revenues.
Medco Health Solutions, Inc.
Earnings Per Share Reconciliation
(Unaudited)
Table 8.
Quarters Ended Six Months Ended
----------------- ------------------
June 28, June 30, June 28, June 30,
2008 2007 2008 2007
-------- -------- -------- ---------
Earnings Per Share Reconciliation:
----------------------------------
GAAP diluted earnings per share $0.51 $0.38 $1.01 $0.85
Adjustment for the amortization of
intangible assets (1) 0.05 0.05 0.10 0.10
-------- -------- -------- ---------
Diluted earnings per share,
excluding intangible amortization $0.56 $0.43 $1.11 $0.95
======== ======== ======== =========
(1) This adjustment represents the per share effect of the intangible
amortization from the 2003 spin-off, when Medco became a publicly
traded company.
Medco Health Solutions, Inc.
Guidance Information
(Unaudited)
Table 9.
Estimated
Full Year ended Full Year Ended
December 29, December 27,
2007 2008
--------------- -------------------
Actual Low End High End
--------------- -------------------
Earnings Per Share Guidance Reconciliation:
-------------------------------------------
GAAP diluted earnings per share $1.63 $2.10 $2.13
Adjustment for the amortization of
intangible assets (1) 0.19 0.20 0.20
------ ------ ------
Diluted earnings per share,
excluding intangible amortization $1.82 $2.30 $2.33
====== ====== ======
Diluted earnings per share growth
over prior year 29% 31%
Diluted earnings per share growth
over prior year, excluding
intangible amortization 26% 28%
(1) This adjustment represents the per share effect of the intangible
amortization from the 2003 spin-off, when Medco
became a publicly traded company.
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