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Medco Reports Record Third-Quarter 2008 GAAP Diluted EPS of $0.58; Diluted EPS Excluding Amortization of Intangible Assets of $0.63
Date:11/5/2008

2009 GAAP Diluted EPS Guidance Reflects Growth of 15 to 21 Percent

FRANKLIN LAKES, N.J., Nov. 5 /PRNewswire-FirstCall/ --

Third-Quarter Highlights:

-- GAAP diluted EPS increased 48.7 percent to a record $0.58 from $0.39 in

third-quarter 2007

-- Diluted EPS, excluding $0.05 in amortization of intangible assets from

the 2003 spin-off, increased 43.2 percent to $0.63 from $0.44 in

third-quarter 2007

-- Both GAAP diluted EPS, and diluted EPS excluding amortization of

intangibles, reflect a $0.05 state income tax benefit, which was

disclosed and included in our previous guidance. Excluding this benefit,

GAAP diluted EPS increased 35.9 percent, and diluted EPS excluding

amortization of intangibles increased 31.8 percent

-- Specialty pharmacy revenues increased 34.3 percent to a record of over

$2.0 billion

-- Mail-order prescription volume increased 11.1 percent to 26.1 million,

from 23.5 million in third-quarter 2007

-- Generic dispensing rate increased to a record 64.4 percent, 4.1

percentage points higher than third-quarter 2007

-- EBITDA per adjusted prescription increased 22.2 percent to a record of

$3.19, compared to $2.61 in third-quarter 2007

Guidance:

-- Reaffirming full-year 2008 guidance

-- Full-year 2009 GAAP diluted EPS guidance of $2.45 to $2.55, represents

15 to 21 percent growth over 2008 guidance

-- Full-year 2009 diluted EPS guidance, excluding amortization of

intangible assets, of $2.67 to $2.77, represents 15 to 20 percent growth

over 2008 guidance

Driven by continued record 2008 sales and strong operating performance across the company, Medco Health Solutions, Inc. (NYSE: MHS) today reported third-quarter 2008 GAAP diluted earnings per share increased 48.7 percent to $0.58, compared to $0.39 for the third quarter of 2007. Adjusting for the $0.05 per share in amortization of intangible assets that existed when Medco became a publicly traded company, third-quarter 2008 diluted earnings per share increased 43.2 percent to $0.63, from $0.44 in the third-quarter of 2007. Excluding a nonrecurring $0.05 state income tax benefit for the quarter, which was previously disclosed and included in the company's prior guidance, GAAP diluted earnings per share increased 35.9 percent to a record of $0.53, and when excluding both the state income tax benefit and the amortization of intangible assets, diluted earnings per share rose 31.8 percent.

"Our strong third quarter results and 2009 guidance reflect our compelling business model, which is designed to improve clinical and financial outcomes for clients and their members, and deliver value that is even more critical in a turbulent economy," said David B. Snow Jr., Medco chairman and chief executive officer.

"Medco sales successes continue at a strong pace. For 2008, annualized new-named sales rose to $7.2 billion from the $6.5 billion reported in the second quarter, resulting from additional wins effective in the second half of 2008. Our net-new sales for 2008 increased to $5.4 billion from the $5.2 billion reported in the second quarter with an industry-leading 98 percent retention rate across our entire book-of-business," said Snow.

"Our 2009 sales results to date are very strong with new-named annualized sales up almost 40 percent to $6.4 billion from the $4.6 billion we reported last quarter. Net-new sales of $4.9 billion increased nearly 70 percent over the $2.9 billion we reported at the end of the second quarter. Our 2009 retention rate currently stands at 96.5 percent," said Snow.

Snow added, "We have seen clients and consumers alike choosing the cost-saving benefits of mail-order and generics in these difficult economic times, and our strong 2009 net-new business growth provides additional evidence that our value proposition is resonating with both current and new clients."

Richard J. Rubino, chief financial officer, added: "We continue to see strong growth across our business, resulting in record EBITDA per adjusted prescription of $3.19. In particular, specialty pharmacy revenue grew more than 34 percent this quarter compared to third-quarter 2007, with its operating income increasing nearly 49 percent."

Third-Quarter Financial and Operational Results

Medco reported net revenues of nearly $12.6 billion, a 15.0 percent increase from third-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 4.1 percentage points to 64.4 percent from the third quarter of 2007. The mail-order generic dispensing rate increased 4.9 percentage points to 55.8 percent and the retail generic dispensing rate increased 4.2 percentage points to 66.4 percent.

Higher volumes of lower-cost generic drugs reduced net revenues for third-quarter 2008 by approximately $650 million, delivering significant savings to clients and members, and contributing to higher gross margins. On a year-to-date basis, the higher volume of generic drugs reduced net revenues by over $2.1 billion.

Total prescription volume, adjusting for the difference in days supply between mail order and retail, was 193.0 million, a 5.6 percent increase over the third quarter of 2007. Additionally, mail-order prescription volume increased 11.1 percent to 26.1 million and retail prescription volume increased 2.3 percent to 115.1 million. The adjusted mail-order penetration rate increased 2.0 percentage points, reaching an industry-leading 40.4 percent.

Total gross margin increased one full percentage point to 7.4 percent from 6.4 percent in the third quarter of 2007, reflecting higher mail-order and specialty volumes, 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 expenses of $347.2 million increased 31.9 percent or $84.0 million over third-quarter 2007. A majority of this increase, $63.4 million, is attributable to operating expenses from PolyMedica and Critical Care Systems, which were acquired in fourth-quarter 2007; and Europa Apotheek Venlo, a second-quarter 2008 majority-stake acquisition. Excluding the effect of these acquisitions, the remaining increase primarily reflects employee-related costs to support the company's growing client base and strategic clinical initiatives.

Earnings Before Interest Income/Expense, Taxes, Depreciation and Amortization (EBITDA) for the quarter was $616.2 million, an increase of $139.5 million, or 29.3 percent, over the same period last year. EBITDA per adjusted prescription increased 22.2 percent to $3.19 from $2.61 in the third quarter of 2007. (Please refer to Table 6 for a reconciliation of EBITDA to reported net income).

Interest and other (income) expense, net, of $58.2 million in third-quarter 2008 increased from $25.5 million in third-quarter 2007, largely attributable to higher debt levels including bonds issued in March 2008 to fund the recent acquisitions.

The effective tax rate for the third quarter of 2008 was 34.0 percent, compared to 39.9 percent in the third quarter of 2007. As previously announced, the company recorded a nonrecurring state income tax benefit, which was primarily related to income tax statute of limitations expirations in certain states.

Net income of $295.7 million increased 37.7 percent over the same quarter last year.

Medco generated year-to-date cash flows from operations of $797.2 million, compared to $816.4 million for the same period in 2007. The company closed the third quarter of 2008 with $440.8 million of cash on its balance sheet.

Specialty Pharmacy Segment

Revenues for Medco's specialty pharmacy segment, Accredo Health Group, grew a record 34.3 percent to over $2.0 billion, compared to $1.5 billion in the third quarter of 2007. This is primarily the result of the contribution from significant new clients commencing in January 2008 and the acquisition of Critical Care Systems in fourth-quarter 2007.

Gross margin increased to 8.1 percent in the third quarter of 2008 compared to 7.8 percent for the same period in 2007. Operating income rose 48.6 percent to $78.0 million from $52.5 million in the third quarter of 2007, driven by the increased volume from new business.

Share Repurchase Programs

During the third quarter, Medco repurchased 8.3 million shares for $391.7 million with an average per-share cost of $47.23. In October 2008, Medco completed its previously authorized $5.5 billion share repurchase program by repurchasing approximately 0.6 million shares for $29.7 million with an average per-share cost of $45.81. From the inception of the $5.5 billion share repurchase program in 2005 through completion, Medco acquired 153.8 million shares at an average per-share cost of $35.75.

The Medco Board of Directors approved a new share repurchase program, authorizing the purchase of up to $3 billion of the company's common stock in the open market through November 2010. The company expects to use free cash flow to fund these repurchases.

Guidance

Medco reaffirmed its full-year guidance for 2008. That guidance includes GAAP diluted EPS of $2.10 to $2.13, reflecting growth of 29 to 31 percent over 2007 and diluted EPS guidance, excluding the effect of amortization of intangibles that existed when Medco became a public company, of $2.30 to $2.33, reflecting growth of 26 to 28 percent over 2007.

For the full-year 2009, Medco expects to achieve GAAP diluted earnings per share in the range of $2.45 to $2.55, representing growth of 15 to 21 percent over its 2008 guidance. Diluted earnings per share in 2009, excluding amortization of intangible assets, is projected to be in the range of $2.67 to $2.77, a growth rate of 15 to 20 percent over the 2008 guidance.

"Our 2009 earnings guidance further validates our business and financial strategies. We are keenly focused on asset management and increasing our return on invested capital. Additionally, we expect to drive cash flows from operations to approximately $2 billion in 2009, up 50 percent from our full-year 2008 expectations. This affords us the opportunity to build cash balances in these uncertain economic times, while also providing the flexibility to repurchase shares," said Rubino.

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 pharmacy drugs, as well as the level of efficiency in the business. Adjusted prescription volume equals the majority of 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.

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 by adjusting for this significant non-cash item it enhances comparability of the company's financial results 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 result from Medco investment decisions.

Conference Call

Management will hold a conference call to review Medco's financial results and operating outlook on Nov. 5, 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 Nov. 5, 2008 through Nov. 19, 2008. Dial in: (800) 642-1687 from inside the U.S., or (706) 645-9291 from outside the U.S. Please use passcode 67488070.

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.medcohealth.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, either as a result of

economic conditions, increased competition or other factors, 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 Nine Months Ended

---------------------- --------------------

Sept. 27, Sept. 29, Sept. 27, Sept. 29,

2008 2007 2008 2007

---------- ---------- --------- ----------

Product net revenues

(Includes retail co-payments

of $1,828 and $1,831 in the

third quarters of 2008

and 2007, and $5,830 and

$5,705 in the nine

months of 2008 and 2007) $12,390.3 $10,783.1 $37,804.3 $32,721.7

Service revenues 168.8 135.5 492.3 406.1

--------- --------- --------- ---------

Total net revenues 12,559.1 10,918.6 38,296.6 33,127.8

--------- --------- --------- ---------

Cost of operations:

Cost of product net revenues

(Includes retail co-payments

of $1,828 and $1,831 in the

third quarters of 2008 and

2007, and $5,830 and

$5,705 in the nine months

of 2008 and 2007) 11,580.7 10,183.3 35,391.5 30,845.0

Cost of service revenues 53.6 34.5 146.7 103.6

--------- --------- --------- ---------

Total cost of revenues 11,634.3 10,217.8 35,538.2 30,948.6

Selling, general and

administrative expenses 347.2 263.2 1,044.0 785.6

Amortization of intangibles 71.1 54.6 211.2 163.9

Interest and other

(income) expense, net 58.2 25.5 169.9 62.3

--------- --------- --------- ---------

Total cost of

operations 12,110.8 10,561.1 36,963.3 31,960.4

--------- --------- --------- ---------

Income before provision for

income taxes 448.3 357.5 1,333.3 1,167.4

Provision for income taxes 152.6 142.8 504.7 462.9

--------- --------- --------- ---------

Net income $295.7 $214.7 $828.6 $704.5

========= ========= ========= =========

Basic earnings per share:

-------------------------

Weighted average shares

outstanding 503.3 537.9 512.7 555.3

Earnings per share $0.59 $0.40 $1.62 $1.27

========= ========= ========= =========

Diluted earnings per share:

---------------------------

Weighted average shares

outstanding 513.4 547.9 523.0 565.3

Earnings per share $0.58 $0.39 $1.58 $1.25

========= ========= ========= ==========

Medco Health Solutions, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(In millions)

Table 2.

September 27, December 29,

2008 2007

-------------- -------------

ASSETS

Current assets:

Cash and cash equivalents $440.8 $774.1

Short-term investments 66.9 70.3

Manufacturer accounts receivable, net 1,824.7 1,516.2

Client accounts receivable, net 1,494.0 1,340.3

Income taxes receivable 211.5 216.0

Inventories, net 1,947.2 1,946.0

Prepaid expenses and other current assets 73.4 285.4

Deferred tax assets 163.4 154.4

--------- ---------

Total current assets 6,221.9 6,302.7

Property and equipment, net 763.8 725.5

Goodwill 6,335.5 6,230.2

Intangible assets, net 2,738.1 2,905.0

Other noncurrent assets 53.8 54.5

--------- ---------

Total assets $16,113.1 $16,217.9

========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Claims and other accounts payable $2,173.6 $2,812.9

Client rebates and guarantees payable 1,647.8 1,092.2

Accrued expenses and other current

liabilities 570.0 624.1

Short-term debt 600.0 600.0

----- -----

Total current liabilities 4,991.4 5,129.2

Long-term debt, net 3,985.0 2,894.4

Deferred tax liabilities 1,103.1 1,167.0

Other noncurrent liabilities 129.9 152.0

--------- ---------

Total liabilities 10,209.4 9,342.6

Total stockholders' equity 5,903.7 6,875.3

--------- ---------

Total liabilities and stockholders' equity $16,113.1 $16,217.9

========= =========

September 27, December 29,

2008 2007

------------- -------------

Balance Sheet Debt:

-------------------

Accounts receivable financing facility $600.0 $600.0

Senior unsecured revolving credit facility 1,000.0 1,400.0

Senior unsecured term loan 1,000.0 1,000.0

7.25% senior notes due 2013, net of

unamortized discount 497.7 497.4

6.125% senior notes due 2013, net of

unamortized discount 298.4 -

7.125% senior notes due 2018, net of

unamortized discount 1,187.9 -

Fair value of interest rate swap

agreements 1.0 (3.0)

-------- --------

Total debt $4,585.0 $3,494.4

======== ========

Medco Health Solutions, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In millions)

Table 3.

Nine Months Ended

-----------------

Sept. 27, Sept. 29,

2008 2007

--------- ---------

Cash flows from operating activities:

Net income $828.6 $704.5

Adjustments to reconcile net income to

net cash provided by operating

activities:

Depreciation 117.7 124.4

Amortization of intangibles 211.2 163.9

Deferred income taxes (89.4) (99.7)

Stock-based compensation on employee

stock plans 97.8 73.9

Tax benefit on employee stock plans 63.6 87.4

Excess tax benefits from stock-based

compensation arrangements (39.3) (58.9)

Other 80.9 45.7

Net changes in assets and liabilities

(net of acquisition effects, 2008 only)

Manufacturer accounts receivable, net (306.8) (6.4)

Client accounts receivable, net (203.9) 67.4

Inventories, net 2.5 31.1

Prepaid expenses and other current assets 213.6 (10.8)

Income taxes receivable 4.5 -

Deferred income taxes - (8.9)

Other noncurrent assets 10.5 (7.0)

Claims and other accounts payable (651.5) (706.4)

Client rebates and guarantees payable 555.6 408.1

Accrued expenses and other current

and noncurrent liabilities (98.4) 8.1

------ ------

Net cash provided by operating activities 797.2 816.4

------ ------

Cash flows from investing activities:

Cash paid for Europa Apotheek Venlo

B.V., net of cash acquired (126.5) -

Capital expenditures (156.5) (93.5)

Purchases of securities and other investments (73.0) (113.1)

Proceeds from sale of securities and

other investments 69.0 108.5

------ ------

Net cash used by investing activities (287.0) (98.1)

------ ------

Cash flows from financing activities:

Proceeds from long-term debt 3,235.7 1,000.0

Repayments on long-term debt (2,150.0) (456.5)

Proceeds under accounts receivable

financing facility - 275.0

Debt issuance costs (11.3) (1.7)

Settlement of cash flow hedge (45.4) -

Purchase of treasury stock (1,956.3) (1,960.6)

Excess tax benefits from stock-based

compensation arrangements 39.3 58.9

Proceeds from employee stock plans 44.5 177.6

------ ------

Net cash used by financing activities (843.5) (907.3)

------ ------

Net decrease in cash and cash equivalents (333.3) (189.0)

Cash and cash equivalents at beginning of period 774.1 818.5

------ ------

Cash and cash equivalents at end of period $440.8 $629.5

====== ======

Medco Health Solutions, Inc.

Consolidated Income Statement Results

(Unaudited)

(In millions)

Table 4.

Quarter Quarter

Ended Ended

Sept. 27, Increase Sept. 29,

2008 (1) (Decrease) 2007

---------- ----------- ----------

Consolidated income

statement results

-------------------

Retail product revenues (2) $6,946.0 $494.1 7.7% $6,451.9

Mail-order product revenues 5,444.3 1,113.1 25.7% 4,331.2

-------- -------- ----- --------

Total product net

revenues (2) 12,390.3 1,607.2 14.9% 10,783.1

-------- -------- ----- --------

Client and other

service revenues 127.0 31.3 32.7% 95.7

Manufacturer service

revenues 41.8 2.0 5.0% 39.8

-------- -------- ----- --------

Total service revenues 168.8 33.3 24.6% 135.5

-------- -------- ----- --------

Total net

revenues (2) 12,559.1 1,640.5 15.0% 10,918.6

-------- -------- ----- --------

Cost of product net

revenues (2) 11,580.7 1,397.4 13.7% 10,183.3

Cost of service

revenues 53.6 19.1 55.4% 34.5

-------- -------- ----- --------

Total cost of

revenues (2) 11,634.3 1,416.5 13.9% 10,217.8

Selling, general and

administrative expenses 347.2 84.0 31.9% 263.2

Amortization of

intangibles 71.1 16.5 30.2% 54.6

Interest and other

(income) expense, net 58.2 32.7 128.2% 25.5

-------- -------- ----- --------

Income before provision

for income taxes 448.3 90.8 25.4% 357.5

Provision for income taxes 152.6 9.8 6.9% 142.8

-------- -------- ----- --------

Net Income $295.7 $81.0 37.7% $214.7

======== ======== ===== ========

Diluted earnings

per share:

----------------

Weighted average shares

outstanding 513.4 (34.5) -6.3% 547.9

Earnings per share $0.58 $0.19 48.7% $0.39

======== ======== ===== ========

Earnings per share,

excluding intangible

amortization (3) $0.63 $0.19 43.2% $0.44

======== ======== ===== ========

Gross margin (4)

----------------

Product $809.6 $209.8 35.0% $599.8

Product gross margin

percentage 6.5% 0.9% 5.6%

Service $115.2 $14.2 14.1% $101.0

Service gross margin

percentage 68.2% -6.3% 74.5%

Total $924.8 $224.0 32.0% $700.8

Total gross margin

percentage 7.4% 1.0% 6.4%

Nine Months Nine Months

Ended Ended

Sept. 27, Increase Sept. 29,

2008 (1) (Decrease) 2007

---------- ----------- ----------

Consolidated income

statement results

-------------------

Retail product revenues (2) $21,518.3 $1,750.8 8.9% $19,767.5

Mail-order product revenues 16,286.0 3,331.8 25.7% 12,954.2

-------- -------- ----- --------

Total product net

revenues (2) 37,804.3 5,082.6 15.5% 32,721.7

-------- -------- ----- --------

Client and other

service revenues 360.3 66.9 22.8% 293.4

Manufacturer service

revenues 132.0 19.3 17.1% 112.7

-------- -------- ----- --------

Total service revenues 492.3 86.2 21.2% 406.1

-------- -------- ----- --------

Total net revenues (2) 38,296.6 5,168.8 15.6% 33,127.8

-------- -------- ----- --------

Cost of product net

revenues (2) 35,391.5 4,546.5 14.7% 30,845.0

Cost of service

revenues 146.7 43.1 41.6% 103.6

-------- -------- ----- --------

Total cost of

revenues (2) 35,538.2 4,589.6 14.8% 30,948.6

Selling, general and

administrative expenses 1,044.0 258.4 32.9% 785.6

Amortization of

intangibles 211.2 47.3 28.9% 163.9

Interest and other

(income) expense, net 169.9 107.6 172.7% 62.3

-------- -------- ----- --------

Income before provision

for income taxes 1,333.3 165.9 14.2% 1,167.4

Provision for income

taxes 504.7 41.8 9.0% 462.9

-------- -------- ----- --------

Net Income $828.6 $124.1 17.6% $704.5

======== ======== ===== ========

Diluted earnings

per share:

----------------

Weighted average shares

outstanding 523.0 (42.3) -7.5% 565.3

Earnings per share $1.58 $0.33 26.4% $1.25

======== ======== ===== ========

Earnings per share,

excluding intangible

amortization (3) $1.74 $0.35 25.2% $1.39

======== ======== ===== ========

Gross margin (4)

----------------

Product $2,412.8 $536.1 28.6% $1,876.7

Product gross margin

percentage 6.4% 0.7% 5.7%

Service $345.6 $43.1 14.2% $302.5

Service gross margin

percentage 70.2% -4.3% 74.5%

Total $2,758.4 $579.2 26.6% $2,179.2

Total gross margin

percentage 7.2% 0.6% 6.6%

(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 $1,828 million and $1,831 million for

the third quarters of 2008 and 2007, and $5,830 million and

$5,705 million for the nine 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

Sept. 27, Increase Sept. 29,

2008 (1) (Decrease) 2007

---------- ----------- ----------

Volume Information

------------------

Retail prescriptions 115.1 2.6 2.3% 112.5

Mail-order prescriptions 26.1 2.6 11.1% 23.5

------ ----- ----- -----

Total prescriptions 141.2 5.2 3.8% 136.0

====== ===== ===== =====

Adjusted prescriptions (2) 193.0 10.3 5.6% 182.7

Adjusted mail-order penetration

(3) 40.4% 2.0% 38.4%

Other volume (4) 1.6 1.6 N/M* -

Generic Dispensing Rate Information

-----------------------------------

Retail generic dispensing rate 66.4% 4.2% 62.2%

Mail-order generic dispensing rate 55.8% 4.9% 50.9%

Overall generic dispensing rate 64.4% 4.1% 60.3%

Manufacturer Rebate Information

-------------------------------

Rebates earned $1,125 $269 31.4% $856

Percent of rebates retained 18.2% 5.4% 12.8%

Depreciation Information

------------------------

Cost of revenues

depreciation $10.2 $0.1 1.0% $10.1

SG&A expenses depreciation 28.4 (0.6) -2.1% 29.0

------ ----- ----- -----

Total depreciation $38.6 $(0.5) -1.3% $39.1

====== ===== ===== =====

Nine Months Nine Months

Ended Ended

Sept. 27, Increase Sept. 29,

2008 (1) (Decrease) 2007

---------- ---------- -----------

Volume Information

------------------

Retail prescriptions 361.8 13.9 4.0% 347.9

Mail-order prescriptions 79.1 8.7 12.4% 70.4

------ ----- ----- -----

Total prescriptions 440.9 22.6 5.4% 418.3

====== ===== ===== =====

Adjusted prescriptions (2) 597.8 39.4 7.1% 558.4

Adjusted mail-order penetration

(3) 39.5% 1.8% 37.7%

Other volume (4) 4.3 4.3 N/M* -

Generic Dispensing Rate Information

-----------------------------------

Retail generic dispensing rate 65.7% 4.7% 61.0%

Mail-order generic dispensing rate 54.7% 5.0% 49.7%

Overall generic dispensing rate 63.8% 4.7% 59.1%

Manufacturer Rebate Information

-------------------------------

Rebates earned $3,240 $547 20.3% $2,693

Percent of rebates retained 19.0% 3.4% 15.6%

Depreciation Information

------------------------

Cost of revenues depreciation $31.9 $(3.4) -9.6% $35.3

SG&A expenses depreciation 85.8 (3.3) -3.7% 89.1

------ ----- ----- -----

Total depreciation $117.7 $(6.7) -5.4% $124.4

====== ===== ===== =====

(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 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) 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 Nine Months Ended

-------------- -----------------

Sept. 27, Sept. 29, Sept. 27, Sept. 29,

2008 (1) 2007 2008 (1) 2007

---------- ---------- ---------- ----------

EBITDA

Reconciliation:

----------------

Net income $295.7 $214.7 $828.6 $704.5

Add:

Interest and other

(income) expense, net 58.2 25.5 169.9 (2) 62.3

Provision for

income taxes 152.6 (3) 142.8 504.7 (3) 462.9

Depreciation expense 38.6 39.1 117.7 124.4

Amortization expense 71.1 54.6 211.2 163.9

------ ------ -------- --------

EBITDA $616.2 $476.7 $1,832.1 $1,518.0

====== ====== ======== ========

Adjusted prescriptions (4) 193.0 182.7 597.8 558.4

------ ------ -------- --------

EBITDA per adjusted

prescription $3.19 $2.61 $3.06 $2.72

====== ====== ======== ========

(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) Includes a third-quarter 2008 nonrecurring state income tax benefit of

$28 million primarily resulting from statute of limitations

expirations in certain states.

(4) Adjusted prescription volume equals the majority of 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.

Medco Health Solutions, Inc.

Accredo Health Group (Specialty Pharmacy) Segment Results

(Unaudited)

(In millions)

Table 7.

Quarter Quarter

Ended Ended

Sept. 27, Increase Sept. 29,

2008 (1) (Decrease) 2007

---------- ----------- ----------

Specialty Pharmacy:

-------------------

Product net revenues $1,996.9 $513.9 34.7% $1,483.0

Service revenues 17.8 1.2 7.2% 16.6

-------- ------ ---- --------

Total net revenues 2,014.7 515.1 34.3% 1,499.6

Total cost of revenues 1,851.5 468.8 33.9% 1,382.7

Selling, general and

administrative expenses 74.1 19.3 35.2% 54.8

Amortization of intangibles 11.1 1.5 15.6% 9.6

-------- ------ ---- --------

Operating Income $78.0 $25.5 48.6% $52.5

======== ====== ==== ========

Gross Margin (2) $163.2 $46.3 39.6% $116.9

Gross margin percentage 8.1% 0.3% 7.8%

Nine Months Nine Months

Ended Ended

Sept. 27, Increase Sept. 29,

2008 (1) (Decrease) 2007

---------- ----------- ----------

Specialty Pharmacy:

-------------------

Product net revenues $5,831.9 $1,433.1 32.6% $4,398.8

Service revenues 54.5 9.2 20.3% 45.3

-------- -------- ---- --------

Total net revenues 5,886.4 1,442.3 32.5% 4,444.1

Total cost of revenues 5,420.1 1,328.0 32.5% 4,092.1

Selling, general and

administrative expenses 223.4 60.8 37.4% 162.6

Amortization of intangibles 33.4 4.4 15.2% 29.0

-------- -------- ---- --------

Operating Income $209.5 $49.1 30.6% $160.4

======== ======== ==== ========

Gross Margin (2) $466.3 $114.3 32.5% $352.0

Gross margin percentage 7.9% - 7.9%

(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 Nine Months Ended

-------------- -----------------

Sept. 27, Sept. 29, Sept. 27, Sept. 29,

2008 2007 2008 2007

---------- ---------- ---------- ----------

Earnings Per Share

Reconciliation:

------------------

GAAP diluted earnings

per share $0.58 $0.39 $1.58 $1.25

Adjustment for the

amortization of

intangible assets (1) 0.05 0.05 0.16 0.14

----- ----- ----- -----

Diluted earnings per

share, excluding

intangible amortization $0.63 $0.44 $1.74 $1.39

===== ===== ===== =====

(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.

Earnings Per Share Reconciliation:

Third-Quarter 2008 Non-Recurring Tax Benefit

(Unaudited)

Table 9.

Quarter Ended Quarter Ended

Earnings Per Share Sept.27, Sept. 29,

Reconciliation: 2008 2007 Growth

------------------ --------- ---------- ------

GAAP diluted earnings

per share $0.58 $0.39 48.7%

Adjustment for the

third-quarter 2008

tax benefit (1) (0.05) -

----- -----

Diluted earnings per share,

excluding tax benefit $0.53 $0.39 35.9%

Adjustment for the

amortization of

intangible assets (2) 0.05 0.05

----- -----

Diluted earnings per share,

excluding intangible

amortization and tax

benefit $0.58 $0.44 31.8%

===== =====

(1) This adjustment represents the per share effect of a third-quarter

2008 nonrecurring state income tax benefit, which was primarily

related to income tax statute of limitations expirations in certain

states.

(2) 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 10.

Estimated Estimated

Full Year ended Full Year Ended Full Year Ended

December 29, December 27, December 26,

2007 2008 2009

-------------- --------------- ---------------

Actual Low End High End Low End High End

------ ------- -------- ------- --------

Earnings Per

Share Guidance

Reconciliation:

----------------

GAAP diluted earnings

per share $1.63 $2.10 $2.13 $2.45 $2.55

Adjustment for

the amortization of

intangible assets (1) 0.19 0.20 0.20 0.22 0.22

----- ----- ----- ----- -----

Diluted earnings

per share, excluding

intangible

amortization $1.82 $2.30 $2.33 $2.67 $2.77

===== ===== ===== ===== =====

Diluted earnings per

share growth over

prior year 29% 31% 15% 21%

Diluted earnings per

share growth over

prior year, excluding

intangible amortization 26% 28% 15% 20%

(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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SOURCE Medco Health Solutions, Inc.
Copyright©2008 PR Newswire.
All rights reserved


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