SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549




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FORM 10-K

(Mark One)



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|[X] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934


For the year ended December 31, 2000


OR



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|---- | ----------------------------------------------------
|[  ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from  to


Commission File Number 0-27276

Caremark Rx, Inc.


(Exact Name of Registrant as Specified in its
Charter)


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|Delaware(State or Other Jurisdiction
	of Incorporation or Organization)                      |  | 63-1151076(I.R.S. Employer
	Identification No.)
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|3000 Galleria Tower, Suite 1000
	Birmingham, Alabama(Address of Principal Executive Offices) |  | 35244(Zip Code)                                

Registrants Telephone Number, Including Area Code:
(205) 733-8996

Securities Registered Pursuant to Section 12(b) of the Act:

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|--------------------------------------------------------------- |  | --------------------------------------------------------
|Title of Each Class                                             |  | Name of Each Exchange on which Registered               
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|Common Stock, par value $.001
	Preference Share Purchase Rights |  | The New York Stock Exchange
	The New York Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act:

NONE

Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days.  Yes 
  No

Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein and will not be contained, to the best of
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K.  Yes 
  No

The aggregate market value of the voting stock (common stock,
par value $.001) held by non-affiliates of the registrant as of
February 28, 2001, was $3,127,239,570.

As of February 28, 2001, the registrant had 230,754,542
shares (including 6,750,304 shares held in trust to be utilized
in employee benefit plans) of common stock, par value $.001,
issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The information set forth under Items 10, 11, 12 and 13 of Part
III of this Annual Report on Form 10-K is incorporated by
reference from the registrants definitive proxy statement
for its 2001 Annual Meeting of Stockholders that will be filed
no later than April 30, 2001.









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FORWARD LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE
RESULTS

In passing the Private Securities Litigation Reform Act of 1995
(the Reform Act), 15 U.S.C.A. Section 77z-2 and
78u-5 (Supp. 1996), Congress encouraged public companies to make
forward-looking statements by creating a safe harbor
to protect companies from securities law liability in connection
with forward-looking statements. Caremark Rx, Inc. (the
Company) intends to qualify both its written and
oral forward-looking statements for protection under the Reform
Act and any other similar safe harbor provisions.

Forward-looking statements are defined by the Reform
Act. Generally, forward-looking statements include expressed
expectations of future events and the assumptions on which the
expressed expectations are based. All forward-looking statements
are inherently uncertain as they are based on various
expectations and assumptions concerning future events, and they
are subject to numerous known and unknown risks and
uncertainties which could cause actual events or results to
differ materially from those projected. Due to those
uncertainties and risks, the investment community is urged not
to place undue reliance on written or oral forward-looking
statements of the Company. The Company undertakes no obligation
to update or revise forward-looking statements to reflect
changed assumptions, the occurrence of unanticipated events or
changes to future operating results over time.

Forward-looking statements are contained in this
document, primarily under the captions:
Business  Pharmaceutical Services
Industry,  Information Systems,
 Competition,
 Government Regulation,
 Corporate Liability and Insurance,
 Discontinued Operations, Legal
Proceedings, Managements Discussion and
Analysis of Financial Condition and Results of
Operations  Overview,
 Deferred Income Taxes,
 Factors That May Affect Future Results,
and  Liquidity and Capital Resources.
Moreover, the Company, through its senior management, may from
time to time make forward-looking statements about
matters described herein or other matters concerning the Company.

There are several factors which could adversely affect the
Companys operations and financial results including, but
not limited to, the following:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
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| | Risks relating to the Companys closure or divestiture of
	its Physician Practice Management (PPM) business,
	risks relating to the Companys compliance with or changes
	in government regulations, including pharmacy licensing
	requirements and healthcare reform legislation; risks relating
	to adverse resolution of lawsuits pending against the Company
	and its affiliates; risks relating to declining reimbursement
	levels of products distributed; risks relating to identification
	of and competition for growth and expansion opportunities; risks
	relating to modification of the Companys information
	systems to comply with HIPAA (as defined) privacy and electronic
	interchange standards; risks relating to liabilities in excess
	of the Companys insurance and risks relating to the
	Companys liquidity and capital requirements.

More detailed discussions of certain of these risk factors can
be found in: Business  Government
Regulation, Legal Proceedings,
Managements Discussion and Analysis of Financial
Condition and Results of Operations  Overview
and  Factors That May Affect Future
Results.

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PART I

Item  1.  Business.

General

Caremark Rx, Inc., a Delaware corporation (the
Company), is one of the largest pharmaceutical
services companies in the United States, with net revenue of
approximately $4.4 billion for 2000. The Companys
operations are conducted through its wholly-owned subsidiary
Caremark Inc. (Caremark), which assists employers,
insurance companies, unions, government employee groups, managed
care organizations and other sponsors of health benefit plans
and individuals throughout the United States in delivering
prescription drugs in a cost-effective manner. During the year
ended December 31, 2000, the Company managed over 68
million prescriptions for individuals from over 1,200
organizations. The term customer, as used throughout
the remainder of this document, may refer to any of these groups
as context requires.

The Companys pharmaceutical services are generally
referred to as pharmacy benefit management (PBM)
services and involve the design and administration of programs
aimed at reducing the costs and improving the safety,
effectiveness and convenience of prescription drug use. The
Company dispenses prescription drugs to customers through a
network of more than 50,000 third-party retail pharmacies
(approximately 96% of all retail pharmacies in the United
States) and through its own mail service pharmacies. The Company
has one of the leading mail service pharmacy businesses among
independent pharmacy services companies in terms of
prescriptions filled in 2000. During 2000, the Company processed
approximately 14.6 million pharmacy claims through its mail
service pharmacies and processed approximately 53.8 million
retail pharmacy claims.

The Company was formerly known as MedPartners, Inc., and was
organized in 1993 with the goal of improving the nations
healthcare system by building an integrated delivery system. The
Company grew quickly in pursuit of this goal, primarily through
acquisitions. The Company was incorporated under the laws of
Delaware in August 1995 as MedPartners/Mullikin,
Inc., the surviving corporation in the November 1995
combination of the businesses of the original MedPartners, Inc.
and Mullikin Medical Enterprises, L.P., a privately-held PPM
entity based in Long Beach, California. In September 1996, the
Company changed its name to MedPartners, Inc. and
completed the acquisition of Caremark International, Inc.
(CII), a publicly-traded PPM and pharmaceutical
services company based in Northbrook, Illinois.

On November 11, 1998, the Company announced that Caremark
would become its core operating unit and that it intended to
dispose of its PPM and contract services operations. As of
December 31, 2000, substantially all of the businesses
comprising these operations had been closed or sold. The Company
has classified these businesses as discontinued operations. See
Discontinued Operations.

The executive offices of the Company are located at 3000
Galleria Tower, Suite 1000, Birmingham, Alabama 35244, and
its telephone number is (205) 733-8996.

Pharmaceutical Services Industry

General. PBM companies initially emerged in the early
1980s, primarily to provide cost-effective drug distribution and
claims processing for the healthcare industry. In the mid-1980s
they evolved to include pharmacy networks and drug utilization
review to address the need to manage the total cost of
pharmaceutical services. Through volume discounts, retail
pharmacy networks, mail pharmacy services, preferred drug list
administration, claims processing and drug utilization review,
PBM companies created an opportunity for health benefit plan
sponsors to deliver prescription drugs in a more cost-effective
manner, while improving compliance with recommended guidelines
for safe and effective drug use.

PBM companies have focused on cost containment by:
(i) negotiating discounted prescription services through
retail pharmacy networks; (ii) purchasing discounted
products from drug wholesalers and manufacturers;
(iii) dispensing maintenance prescriptions by mail;
(iv) establishing drug utilization review and clinical
programs to encourage appropriate drug use and reduce potential
risk for complications and (v) encouraging the use of
generic rather than branded medications. Over the last several
years, in response to increasing

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The Company believes that future growth in the PBM industry will
be driven by: (i) the increased frequency of new drugs
coming on the market; (ii) expansion in new biotech and
injectable therapies; (iii) the aging of the population, as
older population segments have higher drug utilization;
(iv) a continuing trend toward outsourcing of pharmacy
management services; (v) increased penetration by managed
care organizations, which are large consumers of PBM services,
into the growing Medicare and Medicaid market; (vi) the
nature and extent of changes to the Medicare program, if any,
which result in the addition of a drug benefit component;
(vii) increased direct to consumer advertising by
pharmaceutical manufacturers and (viii) increased demand
for comprehensive pharmacy benefit, medication management and
disease management services.

Strategy. The Companys strategy is to provide
innovative pharmaceutical solutions and quality customer service
in order to enhance clinical outcomes and better manage overall
healthcare costs. The Company intends to increase its market
share and extend its leadership in the pharmaceutical services
industry. The Company believes that its independence from
ownership by a pharmaceutical manufacturer, a retail chain or an
insurance company distinguishes it from the majority of its
competitors.

Operations. The Company performs prescription drug
benefit management services for employers, insurance companies,
unions, government employee groups, managed care organizations
and other sponsors of health benefit plans throughout the United
States. The Companys largest customer, Coventry Health
Care, Inc. and affiliates, accounted for slightly more than ten
percent of its consolidated net revenue for the year ended
December 31, 2000.

Prescription drug benefit management involves the design and
administration of programs aimed at reducing the cost and
improving the safety, effectiveness and convenience of
prescription drug use. The Company dispenses prescription drugs
through a network of more than 50,000 third-party retail
pharmacies (approximately 96% of all retail pharmacies in the
United States) and through its mail service pharmacies. The
Company negotiates arrangements with pharmaceutical
manufacturers and drug wholesalers for the cost-effective
purchase of prescription drug products. Through clinical review,
the Company compiles a preferred drug list, which supports
customer goals of cost management and quality of care. The
Companys Pharmacy and Therapeutics (P&T)
Committee, which includes a number of physician specialists,
pharmacy representatives and a medical ethicist, participates in
this clinical review.

All prescriptions, whether they are filled through one of the
Companys pharmacies or through a pharmacy in the
Companys retail network, are analyzed, processed and
documented by the Companys proprietary prescription
management systems. These systems assist staff and network
pharmacists in processing prescriptions by automating tests for
various items, including plan eligibility, authorization, early
refills, duplicate dispensing, appropriateness of dosage, drug
interactions or allergies, over-utilization or potential fraud.
These systems also collect, through secured systems and
confidential screenings, comprehensive prescription utilization
information which is valuable to pharmaceutical manufacturers,
managed care payors and customers. With this information, the
Company offers a full range of drug cost reporting services,
including clinical case management, drug utilization review,
preferred drug management, therapeutic substitution and
customized prescription programs for senior citizens. The
Companys staff pharmacists review mail service
prescriptions and refill requests with the assistance of the
prescription management information system referred to above.
This review may involve a call to the prescribing physician and
can result in generic substitution, therapeutic substitution or
other actions to affect cost or to improve quality of treatment.

The Company currently operates three automated mail service
pharmacies in San Antonio, Texas; Lincolnshire, Illinois and
Westin, Florida. The Companys customers fill
prescriptions, primarily for mainte-

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The Company also operates a network of 17 smaller mail service
pharmacies (Branch Pharmacies) located throughout
the United States. The Branch Pharmacies are accredited by the
Joint Commission on Accreditation of Healthcare Organizations
(JCAHO) and are used to distribute certain products,
primarily those requiring refrigeration. Additionally, the
Company operates the industrys only United States Food and
Drug Administration (FDA) regulated repackaging
facility in which it repackages bulk purchases of certain drugs
into the most common prescription amounts dispensed from its
automated mail service pharmacies.

In 2001, the Company will transfer the operations of its
Lincolnshire, Illinois automated mail service pharmacy to a
larger facility located in nearby Mount Prospect, Illinois.
Additionally, the Company plans to begin development of a fourth
automated mail service pharmacy in order to meet projected
demand.

The Companys retail pharmacy program allows customers to
fill prescriptions at more than 50,000 pharmacies nationwide.
When a customer fills a prescription in a retail pharmacy, the
network pharmacist sends prescription data electronically to the
Company from the point-of-sale. This data interfaces with the
Companys proprietary prescription management system, which
verifies relevant customer data and co-payment information and
confirms that the pharmacy will receive payment for the
prescription.

The Company maintains rigorous clinical quality assurance
procedures as well as extensive policies and procedures to help
ensure regulatory compliance under its quality assurance
programs. Each mail service prescription undergoes a sequence of
safety and accuracy checks and is reviewed and verified by a
registered pharmacist before shipment. The P&T Committee
assists in the selection of preferred products for inclusion on
the Companys preferred drug list. The Company also
analyzes drug-related outcomes to identify opportunities to
improve the quality of care.

The Companys clinical services utilize advanced protocols
and offer customers greater convenience in working with health
care providers and other third-parties. Major initiatives such
as CarePatterns for disease state management and
CaremarkConnect for quick and easy patient enrollment
strengthen the Companys leadership position in these
markets.

Information Systems

The Companys PBM information system incorporates
integrated architecture which centralizes all data generated
from filling mail order prescriptions, adjudicating retail
pharmacy claims and fulfilling other customer service contracts.
This integrated system allows access to a single data source
containing a complete history of prescription activity for each
customer. Information from this system is then integrated into a
data repository, which is used for research and studies.
Rx Navigator, the Companys proprietary,
internally-developed query tool, also interfaces with this data
and is sold to the Companys customers and suppliers to
allow them to conduct customized data analysis.

Competition

The Company competes with a number of large national PBM
companies, including Express Scripts, Inc. (minority-owned by
New York Life Insurance Co.), Merck-Medco Managed Care, LLC (an
affiliate of Merck & Co., Inc.) and AdvancePCS. These
competitors are large and may possess greater financial,
marketing and other resources than the Company. The Company also
competes with several large health insurers and certain managed
care plans which have their own PBM capabilities as well as
several national and regional companies including Accredo
Health, Inc., Priority Healthcare Corp. and Gentiva Health
Services, Inc., which provide services similar to those offered
by the Company. To the extent that competitors are owned by
pharmaceutical manufacturers, retail pharmacies or insurance
companies, they may have pricing advantages that are unavailable
to the Company and other independent PBM companies.
Additionally, the

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The Company believes the primary competitive factors in the PBM
industry include: (i) the degree of independence from drug
manufacturers, retail pharmacies and payors; (ii) the
quality, scope and costs of products and services offered to
customers; (iii) responsiveness to customers demands;
(iv) the ability to negotiate favorable volume discounts
from drug manufacturers; (v) the ability to identify and
apply effective cost containment programs utilizing clinical
strategies; (vi) the ability to develop and utilize
preferred drug lists; (vii) the ability to market PBM
products and services and (viii) the commitment to provide
flexible, clinically-oriented services to customers. The Company
considers its principal competitive advantages to be its
independence from drug manufacturers, retail pharmacies and
payors; strong customer retention rate; broad service offering;
high quality of customer service as measured by independent
surveys and commitment to providing flexible,
clinically-oriented services to its customers.

Government Regulation

General.As a participant in the healthcare industry, the
Companys operations and relationships are subject to
federal and state laws and regulations and enforcement by
federal and state governmental agencies. Various federal and
state laws and regulations govern the purchase, distribution and
management of prescription drugs and related services and affect
or may affect the Company. Sanctions may be imposed for
violation of these laws or regulations. The Company believes its
operations are in substantial compliance with existing laws and
regulations which are material to its operations. However, the
application of complex standards to the detailed operation of
the Companys business always creates areas of uncertainty.
Moreover, regulation of the field is in a state of flux. Any
failure or alleged failure to comply with applicable laws and
regulations, or any adverse changes in the laws and regulations,
could have a material adverse effect on the Company.

Certain governmental entities have commenced investigations of
companies in the pharmaceutical services industry and have
identified issues concerning development of preferred drug
lists, therapeutic substitution programs, pricing of
pharmaceutical products and discounts or rebates from
prescription drug manufacturers. Additionally, at least one
state has filed a lawsuit concerning similar issues against a
health plan. To date, the Company has not been the subject of
any such investigation or suit. However, there can be no
assurance that the Company will not be subject to any such
investigation or litigation in the future.

Mail Service Pharmacy Regulation.The Company is licensed
to do business as a pharmacy in each state in which it operates
a dispensing pharmacy. Many of the states into which the Company
delivers prescription drugs have laws and regulations that
require out-of-state mail service pharmacies to register with,
or be licensed by, the board of pharmacy or similar regulatory
body in the state. These states generally permit the dispensing
pharmacy to follow the laws of the state within which the
dispensing pharmacy is located.

However, various states have enacted laws and adopted
regulations requiring, among other things, compliance with all
laws of the states into which the out-of-state pharmacy
dispenses medications, whether or not those laws conflict with
the laws of the state in which the pharmacy is located. To the
extent that such laws or regulations are found to be applicable
to the Companys operations, and are more stringent than
those of the states in which the Companys pharmacies are
located, the Company would be required to comply with them. In
addition, to the extent that any of the foregoing laws or
regulations prohibit or restrict the operation of mail service
pharmacies and are found to be applicable to the Company, they
could have a material adverse effect on the Companys
prescription mail service operations.

Other statutes and regulations may affect the Companys
mail service operations. The Federal Trade Commission requires
mail order sellers of goods generally to engage in truthful
advertising, to stock a reasonable supply of the products to be
sold, to fill mail orders within thirty days and to provide
clients with refunds when appropriate. In addition, the United
States Postal Service has statutory authority to restrict the
transmission of drugs and medicines through the mail to a degree
that could have a material adverse effect on the Companys
mail service operations. However, as of the date of this Annual
Report on Form 10-K, the Postal Service had not exercised
such statutory authority.

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Licensure Laws.Many states have licensure or
registration laws governing certain types of ancillary
healthcare organizations, including preferred provider
organizations, third party administrators and companies that
provide utilization review services. The scope of these laws
differs significantly from state to state, and the application
of such laws to the activities of PBM companies often is
unclear. The Company has registered under such laws in those
states in which the Company has concluded that such registration
is required.

The Company dispenses prescription drugs pursuant to orders
received through its RxRequest.com Internet web site.
Accordingly, the Company may be subject to federal and state
laws affecting on-line pharmacies. Several states have proposed
laws to regulate on-line pharmacies. Additionally, federal
regulation by the FDA, or another federal agency, of on-line
pharmacies which dispense prescription drugs has been proposed.
To the extent that such state or federal regulation could
restrict the Companys operations, certain of the
Companys operations could be materially adversely affected
by such legislation.

FDA Regulation.The FDA generally has authority to
regulate drug promotional information and materials that are
disseminated by a drug manufacturer or by other persons on
behalf of a drug manufacturer. In January 1998, the FDA issued a
Draft Guidance regarding its intent to regulate certain drug
promotion and switching activities of PBM companies that are
controlled, directly or indirectly, by drug manufacturers. The
FDA effectively withdrew the Draft Guidance and has indicated
that it would not issue a new draft guidance. However, there can
be no assurance that the FDA will not assert jurisdiction over
certain aspects of the Companys PBM business, including
the Internet sale of prescription drugs, which could materially
adversely affect certain operations of the Company.

The FDA also regulates the conduct of clinical trials for drugs.
In general, the sponsor of the drug product that is being
studied, or the manufacturer that will have the right to market
the drug product if it is approved by the FDA, has the
responsibility to comply with the laws and regulations that
apply to the conduct of clinical trials. However, in providing
services related to the conduct of clinical trials, the Company
may assume some or all of the sponsors or clinical
investigators obligations related to the study of the
drug. The Company believes that it has met all of its regulatory
responsibilities with regard to its involvement in clinical
trials; however, the interpretation of the laws and regulations
relating to the conduct of clinical trials is complex and
sometimes subjective. Any failure or alleged failure by the
Company to comply with its regulatory responsibilities with
respect to its involvement in clinical trials could have a
material adverse effect on its operations relating to clinical
trials.

Network Access Legislation.A majority of states now has
some form of legislation affecting the ability to limit access
to a pharmacy provider network or remove network providers. Such
legislation may require the Company or its clients to admit any
retail pharmacy willing to meet the plans price and other
terms for network participation (any willing
provider legislation), or may prohibit the removal of a
provider from a pharmacy network except in compliance with
certain procedures (due process legislation) or may
prohibit days supply limitations or co-payment
differentials between mail and retail pharmacy providers. To the
extent that such legislation is applicable and is not preempted
by the Employee Retirement Income Security Act of 1974, as
amended (ERISA), as to plans governed by ERISA,
certain Company operations could be materially adversely
affected by network access legislation.

Legislation Imposing Plan Design Mandates.Some states
have enacted legislation that prohibits a health plan sponsor
from implementing certain restrictive design features, and many
states have introduced legislation to regulate various aspects
of managed care plans, including provisions relating to pharmacy
benefits. For example, some states provide that members of the
plan may not be required to use network providers, but must
instead be provided with benefits even if they choose to use
non-network providers (freedom of choice
legislation), or provide that a patient may sue his or her
health plan if care is denied. Some states have enacted and
other states have introduced legislation regarding plan design
mandates, including legislation that prohibits or restricts
therapeutic substitution, requires coverage of all drugs
approved by the FDA or prohibits denial of coverage for non-FDA
approved uses. Some states mandate coverage of certain benefits
or conditions. Such legislation does not generally apply to the
Company, but it may apply to certain of the Companys
customers (generally, HMOs and health insurers). If such
legislation were to become widespread and broad in scope, it
could have the effect of limiting the economic benefits
achievable

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Other states have enacted legislation purporting to prohibit
health plans from requiring or offering members financial
incentives for use of mail order pharmacies. To date, there have
been no formal administrative or judicial efforts to enforce any
such laws against the Company; however, if commenced, any such
enforcement could have a material adverse effect on the mail
order pharmacy business of the Company.

The Anti-Remuneration Laws.Federal law prohibits, among
other things, an entity from offering, paying, soliciting or
receiving, subject to certain exceptions and safe
harbors, any remuneration to induce the referral of
patients or the purchase (or the arranging for or recommending
of the purchase) of items or services for which payment may be
made under Medicare, Medicaid or certain other federally-funded
healthcare programs. Several states have similar laws that are
not limited to services for which government-funded payment may
be made. State laws and exceptions or safe harbors vary and have
been infrequently interpreted by courts or regulatory agencies.
Sanctions for violating these federal and state
anti-remuneration laws may include imprisonment, criminal and
civil fines, and exclusion from participation in the Medicare
and Medicaid programs or other applicable programs.

The federal anti-remuneration law has been interpreted broadly
by some courts, the Office of Inspector General
(OIG) within the Department of Health and Human
Services (HHS), and administrative bodies. Because
of the federal statutes broad scope, federal regulations
establish certain safe harbors from liability. Safe harbors
exist for certain properly reported discounts received from
vendors, certain personal services arrangements, and certain
properly disclosed payments made by vendors to group purchasing
organizations, as well as for other transactions or
relationships. In late 1999, the HHS adopted a final rule
revising the discount safe harbor to protect certain rebates.
Because this revision is so recent, there is no clear guidance
on how the safe harbor revision will be interpreted.
Nonetheless, a practice that does not fall within a safe harbor
is not necessarily unlawful, but may be subject to challenge. In
the absence of an applicable exception or safe harbor, a
violation of the statute may occur even if only one purpose of a
payment arrangement is to induce patient referrals or purchases.
Among the practices that have been identified by the OIG as
potentially improper under the statute are certain product
conversion programs in which benefits are given by drug
manufacturers to pharmacists or physicians for changing a
prescription (or recommending or requesting such a change) from
one drug to another. Anti-remuneration laws have been cited as a
partial basis, along with state consumer protection laws
discussed below, for investigations and multi-state settlements
relating to financial incentives provided by drug manufacturers
to retail pharmacies in connection with such programs.

The Company believes that it is in substantial compliance with
the legal requirements imposed by the anti-remuneration laws and
regulations. However, there can be no assurance that the Company
will not be subject to challenge under such laws or regulations,
or that any such challenge would not have a material adverse
effect upon the Company.

The Stark Laws.The federal law known as Stark
II became effective in 1995, and was a significant
expansion of an earlier federal physician self-referral law
commonly known as Stark I. Stark II
prohibits physicians from referring Medicare or Medicaid
patients for designated health services (which
include outpatient prescription drugs, home health services, and
durable medical equipment and supplies) to an entity with which
the physician or an immediate family member of the physician has
a financial relationship, and prohibits the entity receiving a
prohibited referral from presenting a claim to Medicare or
Medicaid for the designated health service furnished under the
prohibited referral. Possible penalties for violation of the
Stark laws include denial of payment, refund of amounts
collected in violation of the statute, civil monetary penalties

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State Self-Referral Laws.The Company is subject to state
statutes and regulations that prohibit payments for referral of
patients to healthcare providers with whom the physicians have a
financial relationship. Some of these state statutes and
regulations apply to services reimbursed by governmental as well
as private payors. Violation of these laws may result in
prohibition of payment for services rendered, loss of pharmacy
or health provider licenses, fines and criminal penalties. The
laws and exceptions or safe harbors may vary from the federal
Stark laws and vary significantly from state to state. The laws
are often vague, and, in many cases, have not been widely
interpreted by courts or regulatory agencies; however, the
Company believes it is in substantial compliance with such laws.

Statutes Prohibiting False Claims and Fraudulent Billing
Activities.A range of federal civil and criminal laws
target false claims and fraudulent billing activities. One of
the most significant is the Federal False Claims Act, which
prohibits the submission of a false claim or the making of a
false record or statement in order to secure a reimbursement
from a government-sponsored program. In recent years, the
federal government has launched several initiatives aimed at
uncovering practices which violate false claims or fraudulent
billing laws. Claims under these laws may be brought either by
the government or by private individuals on behalf of the
government, through a whistleblower or qui
tam action. Because such actions are filed under seal and
may remain secret for years, there can be no assurance that the
Company or one of its affiliates is not named in a material qui
tam action which is not discussed in Legal
Proceedings.

Reimbursement.Approximately 4% of the Companys
revenue is derived directly from Medicare or Medicaid or other
government-sponsored healthcare programs subject to the federal
anti-remuneration laws, the Stark laws and/or the Federal False
Claims Act. Also, the Company indirectly provides products and
services to managed care entities that provide services to
beneficiaries of Medicare, Medicaid and other
government-sponsored healthcare programs.

Recently, the government has given increased attention to how
drug manufacturers develop pricing information, which in turn is
used in setting payments under the Medicare and Medicaid
programs. One element common to most payment formulas, Average
Wholesale Price (AWP), has come under criticism for
allegedly not accurately reflecting prices actually charged and
paid at the wholesale level. The federal government is currently
investigating the use of AWP for Medicare and Medicaid
reimbursement. There can be no assurance that the Company will
not be the subject of any such investigation.

Changes in the reporting of AWP or in the basis for calculating
reimbursement proposed by the federal government and certain
states, and other legislative or regulatory adjustments that may
be made regarding the reimbursement of drugs by Medicaid and
Medicare, could affect the Companys ability to negotiate
discounts with manufacturers. Such changes could affect the
Companys relationships with pharmacies and with health
plans. In some circumstances, such changes might also impact the
reimbursement that the Company receives from Medicare or
Medicaid programs or from managed care organizations that
contract with government health programs to provide prescription
drug benefits.

Should there be any material changes to federal or state
reimbursement methodologies, regulations or policies, it could
have a material adverse effect on the Company. In addition,
certain state Medicaid programs only allow for reimbursement to
pharmacies residing in the state or in a border state. While the
Company believes that it can service its current Medicaid
patients through existing pharmacies, there can be no

7



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Legislation and Other Matters Affecting Drug Prices.Some
states have adopted legislation providing that a pharmacy
participating in the state Medicaid program must give the state
the best price that the pharmacy makes available to any third
party plan (most favored nation legislation). Such
legislation may have a material adverse effect on the
Companys ability to negotiate discounts in the future from
network pharmacies. At least one state has enacted unitary
pricing legislation, which mandates that all wholesale
purchasers of drugs within the state be given access to the same
discounts and incentives. Such legislation has not yet been
enacted in the states where the Companys pharmacies are
located. Such legislation, if enacted in other states, could
have a material adverse effect on the Companys ability to
negotiate discounts on its purchase of prescription drugs to be
dispensed by its pharmacies.

Further, the Company negotiates pricing discounts from drug
manufacturers and, in certain circumstances, also sells services
to drug manufacturers. State Medicaid programs also negotiate
pricing discounts with drug manufacturers and generally require
that such Medicaid programs receive the best price
on such pricing discounts. Investigations involving drug
manufacturers have been commenced by certain governmental
entities which question whether best price discounts were
properly calculated, reported and paid to the Medicaid programs.
The Company is not responsible for any such calculations,
reports or payments; however, there can be no assurance that the
Companys ability to negotiate discounts from and/or sell
services to drug manufacturers will not be materially adversely
affected in the future. The Company has not been the subject of
any investigation into best price discounts to Medicaid
programs; however, there can be no assurance that the Company
will not be subject to such investigations in the future.

Privacy and Confidentiality Legislation.Most of the
Companys activities involve the receipt or use by the
Company of confidential medical information, including the
transfer of the confidential information to an individuals
health benefit plan. In addition, the Company uses aggregated
and blinded (anonymous) data for research and analysis
purposes. Confidentiality provisions of the Health Insurance
Portability and Accountability Act of 1996 (HIPAA)
required the Secretary of HHS to issue standards concerning
health information privacy if Congress did not enact health
information privacy legislation by August 1999. As Congress did
not enact health information privacy legislation, the Secretary
issued the final rule regarding health information privacy in
December 2000. The rule establishes minimum standards and
preempts state laws which are less restrictive than HIPAA
regarding health information privacy. The rule provides that the
health information privacy standards would become effective in
April 2003. The Company is currently assessing the steps it
must take to comply with these regulations and the associated
costs of compliance. While this assessment is not yet complete,
the Company believes that the rule will require substantial
changes to its systems, policies and procedures, and there can
be no assurance that these changes will not have a material
adverse effect on the Company.

In addition to the proposed federal health information privacy
regulations described above, most states have enacted patient
confidentiality laws which limit the disclosure of confidential
medical information. It is unclear which state laws may be
preempted by the final HHS rule discussed above.

Consumer Protection Laws.Most states have consumer
protection laws that have been the basis for investigations and
multi-state settlements relating to financial incentives
provided by drug manufacturers to pharmacies in connection with
drug switching programs. There can be no assurance that the
Company will not be subject to challenge under one or more of
these laws.

Disease Management Services Regulation.All states
regulate the practice of medicine. To the Companys
knowledge, no PBM has been found to be engaging in the practice
of medicine by reason of its disease management services.
However, there can be no assurance that a federal or state
regulatory authority will not assert that such services
constitute the practice of medicine, thereby subjecting such
services to federal and state laws and regulations applicable to
the practice of medicine.

8



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Comprehensive PBM Regulation.Although no state has
passed legislation regulating PBM activities in a comprehensive
manner, such legislation has been introduced previously in
several states. Such legislation, if enacted in a state in which
the Company conducts a significant amount of business, and if
such legislation restricted the Companys ability to
conduct its business in a manner similar to that in which it
currently does, could have a material adverse impact on the
Companys operations. In addition, certain quasi-regulatory
organizations, including the National Association of Boards of
Pharmacy (NABP, an organization of state boards of
pharmacy), the National Association of Insurance Commissioners
(NAIC, an organization of state insurance
regulators) and the National Committee on Quality Assurance
(NCQA, an accreditation organization) are
considering proposals to regulate PBMs and/or PBM activities
including formulary development and utilization management.
While the actions of the NABP and NAIC would not have the force
of law, they may influence states to adopt any requirements or
model acts which they promulgate. In addition, any standards
established by NCQA could materially impact the Company either
directly or indirectly based on their impact on the
Companys health plan customers.

Antitrust.Numerous lawsuits have been filed throughout
the United States under various state and federal antitrust laws
by retail pharmacies against drug manufacturers challenging
certain brand drug pricing practices. An adverse outcome in any
of these lawsuits could require defendant drug manufacturers to
provide the same types of discounts on pharmaceuticals to retail
pharmacies and buying groups as are provided to managed care
entities to the extent that their respective abilities to affect
market share are comparable. This practice, if generally
followed in the industry, could increase competition from
pharmacy chains and buying groups and reduce or eliminate the
availability to the Company of certain discounts, rebates and
fees currently received in connection with its drug purchasing
and preferred drug administration programs. The loss of such
discounts, rebates, and fees could have a material adverse
impact on the Company. In addition, to the extent that the
Company appears to have actual or potential market power in a
relevant market, business arrangements and practices may be
subject to heightened scrutiny from an anti-competitive
perspective and possible challenge by state or federal
regulators or private parties.

ERISA Regulation.ERISA provides for comprehensive
federal regulation of certain employee pension and health
benefit plans, including self-funded corporate health plans with
which the Company has agreements to provide pharmaceutical
services. The Company believes that, in general, the conduct of
its business is not subject to the fiduciary obligations of
ERISA, but there can be no assurance that the Company will not
be subject to assertions that the fiduciary obligations imposed
by the statute apply to certain aspects of the Companys
operations. State legislation discussed in this section may be
preempted in whole or in part by ERISA. However, the scope of
ERISA preemption is uncertain and is subject to conflicting
court rulings. In addition, the Company provides services to
certain customers, such as governmental entities, that are not
subject to the preemption provisions of ERISA.

Regulation of Financial Risk Plans.Fee-for-service
prescription drug plans are generally not subject to financial
regulation by the states. However, if a PBM company plan offers
to provide prescription drug coverage on a capitated basis or
otherwise accepts material financial risk in providing the
benefit, laws in various states may regulate the plan. Such laws
may require that the party at risk establish reserves or
otherwise demonstrate financial viability. Laws that may apply
in such cases include insurance laws, HMO laws or limited
prepaid health service plan laws. The Company currently has no
contracts under which it is materially at risk to provide
pharmacy benefits. In those cases in which the Company has
contracts under which it has assumed limited risk under
performance guarantees or similar arrangements, the Company
believes that it has complied with all applicable laws.

Other Laws Affecting Pharmacy Operations.The Company is
subject to state and federal statutes and regulations governing
the operation of pharmacies, repackaging of drug products,
wholesale distribution, dispensing of controlled substances,
medical waste disposal and clinical trials. Federal statutes and
regulations govern the labeling, packaging, advertising and
adulteration of prescription drugs and the dispensing of
controlled substances. Federal controlled substance laws require
the Company to register its pharmacies and repackaging facility
with the United States Drug Enforcement Administration and to
comply with security, recordkeeping, inventory control and
labeling standards in order to dispense controlled substances.

9



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State controlled substance laws require registration and
compliance with state pharmacy licensure, registration or permit
standards promulgated by the state pharmacy licensing authority.
Such standards often address the qualifications of an
applicants personnel, the adequacy of its prescription
fulfillment and inventory control practices and the adequacy of
its facilities. In general, pharmacy licenses are renewed
annually. Pharmacists employed by each pharmacy must also
satisfy applicable state licensing requirements. Also, pharmacy
technicians must comply with applicable state requirements for
registration, or in some states, licensure. In addition, the
Branch Pharmacies are accredited by JCAHO and must maintain
certain quality and other standards to retain this accreditation.

Future Legislation, Regulation and Interpretation.As a
result of the continued escalation of healthcare costs and the
inability of many individuals to obtain health insurance,
numerous proposals have been or may be introduced in the United
States Congress and state legislatures relating to healthcare
reform. There can be no assurance as to the ultimate content,
timing or effect of any healthcare reform legislation, nor is it
possible at this time to estimate the impact of potential
legislation, which may be material, on the Company. Further,
although the Company exercises care in structuring its
operations to comply in all material respects with the laws and
regulations summarized in this Government Regulation section,
there can be no assurance that: (i) government officials
charged with responsibility for enforcing such laws will not
assert that the Company or certain transactions in which the
Company is involved are in violation thereof and (ii) such
laws will ultimately be interpreted by the courts in a manner
consistent with the Companys interpretation. Therefore, it
is possible that future legislation and regulation and the
interpretation thereof could have a material adverse effect on
the Company.

Medicare Prescription Drug Benefit. Medicare
reimbursement and coverage of prescription drugs could change
significantly in the near future. Medicare presently covers only
a limited number of outpatient prescription drugs, but
legislative initiatives are being considered to expand Medicare
coverage of drugs, in some instances as part of a broad reform
of the Medicare program. Some proposals have included provisions
for incorporating the services of PBM companies into the program
to control costs. The Company cannot assess at this stage
whether such legislation will be approved, how it would address
drug coverage or costs or how it would impact the Company.

Corporate Liability and Insurance

The Company maintains professional liability insurance, general
liability and other customary insurance on a claims-made and
modified occurrence basis, in amounts deemed appropriate by
management based upon historical claims and the nature and risks
of the Companys business. The Companys business may
subject the Company to litigation and liability for damages. The
Company believes that its current insurance protection is
adequate for its present business operations, but there can be
no assurance that the Company will be able to maintain its
professional and general liability insurance coverage in the
future or that such insurance coverage will be available on
acceptable terms or adequate to cover any or all potential
product or professional liability claims. A successful liability
claim in excess of the Companys insurance coverage could
have a material adverse effect on the Company.

Employees

As of December 31, 2000, the Company employed a total of
3,474 persons. None of these employees are represented by a
labor union, and the Company believes that its relations with
its employees are good.

Discontinued Operations

General.During 1998, the Company committed to a plan to
divest its PPM and contract services businesses. As a result,
the Company has classified the results of the operations of
these businesses as discontinued operations. During 1999, the
Company sold its contract services operations, all of its
California PPM operations and all but four of the clinics in its
non-California PPM operations. Divestiture of three of the four
remaining clinics was completed in 2000.

10



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On March 5, 1999, MedPartners Provider Network
(MPN) received a cease and desist order (the
Order) from the California Department of
Corporations (DOC), along with a letter advising
that the DOC would be conducting a non-routine audit of the
finances of MPN, commencing March 8, 1999. On March 11,
1999, the DOC appointed a conservator and assumed control of the
business operations of MPN. On April 9, 1999, the Company
and representatives of the State of California reached an
agreement in principle to settle the disputes relating to MPN.
See Item 3, Legal Proceedings and Note 13,
Discontinued Operations to the Companys
audited consolidated financial statements which begin on
page F-1 of this Annual Report on Form 10-K.

Government Regulation.Federal and state laws addressing,
among other things, anti-remuneration, physician self-referrals,
reimbursement, false claims and fraudulent billing activities,
apply to the PPM operations of the Company. A portion of the net
revenue of the Companys managed physician practices is
derived from payments made by Medicare or Medicaid or other
government-sponsored healthcare programs. As a result, the
Company is subject to laws and regulations under these programs.
For a discussion of these laws, see Government
Regulation above.

Liability and Insurance.The Company maintains
professional liability insurance, general liability, and other
customary insurance on a claims-made and modified occurrence
basis, in amounts deemed appropriate by management based upon
historical claims and the nature and risks of the business. In
some cases, the Company has arranged professional liability and
other insurance coverage for its managed physician practices
and, in connection with the PPM divestiture, has accrued for or
purchased tail coverage for claims arising from
incidents which were or are incurred but not reported during the
policy periods. There can be no assurance that claims will not
exceed the limits of available insurance coverage or related
accrual or that such coverage will continue to be available.

Moreover, the Company has generally required its managed
physician groups to obtain and maintain professional liability
insurance coverage that names the Company and its applicable PPM
management affiliate as an additional insured. Such insurance
provides coverage, subject to policy limits, in the event the
Company is held liable as a co-defendant in a lawsuit for
professional malpractice against a physician or a physician
group. In addition, the Company has typically been indemnified
under its management agreements by the managed physician groups
for liabilities resulting from the delivery of medical services
by physicians and physician practices. However, there can be no
assurance that any future claim or claims will not exceed the
limits of these available insurance coverages or that
indemnification will be available for all such claims.

Item 
2.     Properties

The Company leases substantially all of its real property. Its
corporate headquarters is located in Birmingham, Alabama, and it
also has corporate offices in Northbrook, Illinois and Redlands,
California. The Companys information technology support is
provided from a facility in Bannockburn, Illinois.

The Company operates three automated mail service pharmacies
located in San Antonio, Texas; Westin, Florida and Lincolnshire,
Illinois. The Companys FDA-regulated repackaging facility
is located in Vernon Hills, Illinois. The Companys primary
call center and other support operations are located in
additional facilities in San Antonio, Texas, and the Company
also operates branch pharmacies located in 17 smaller offices
across the United States to support its distribution of certain
products, principally those requiring refrigeration.

In 2001, the Company will transfer the operations of its
Lincolnshire, Illinois automated mail service pharmacy to a
larger facility located in nearby Mount Prospect, Illinois.
Additionally, the Company plans to begin development of a fourth
automated mail service pharmacy in order to meet projected
demand.

Item  3.     Legal
Proceedings

The Company is party to certain legal actions arising in the
ordinary course of business. The Company is named as a defendant
in various legal actions arising from its continuing operations
and its discontinued PPM operations, including employment
disputes, contract disputes, personal injury claims and
professional liability

11



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In September 1997, the Company issued 6.50% Threshold
Appreciation Price Securities (TAPS). The TAPS were
initially secured by $481.4 million in U.S. Treasury Notes.
Under the terms of the purchase contract agreement pursuant to
which the TAPS were issued (the Purchase Contract),
the Company was to receive the maturity proceeds from these U.S.
Treasury Notes, and the TAPS holders were to exchange their TAPS
for shares of the Companys common stock on August 31,
2000, the date the TAPS were scheduled to be surrendered by the
TAPS holders in exchange for shares of the Companys common
stock. In 1999, two lawsuits were filed in the Supreme Court of
the State of New York, County of New York, claiming that a
Termination Event (as defined in the Purchase
Contract) which would have resulted in the TAPS holders
receiving the U.S. Treasury Notes, had occurred with respect to
the TAPS. Both of these lawsuits have been dismissed with
prejudice. The Company settled one of these lawsuits, which
involved plaintiffs holding approximately 35 percent of the
outstanding TAPS (the Settling TAPS Holders), in
April 2000 (the New York Settlement).

The New York Settlement provided, among other things, that the
Settling TAPS Holders would receive 1.55 shares of the
Companys common stock for each TAPS owned or controlled by
them. Accordingly, on April 14, 2000, the Company delivered
1.55 shares of the Companys common stock for each TAPS
tendered by the Settling TAPS Holders and paid to the Settling
TAPS Holders accrued and unpaid interest due on the U.S.
Treasury Notes corresponding to the tendered TAPS. The Company
received approximately $168 million in cash from the
cancellation of the related TAPS.

The New York Settlement provides that, in the event the Company
settles litigation with other holders of TAPS for a greater
value per each TAPS, as measured in accordance with the terms of
the settlement agreement, than the settlement value of the New
York Settlement, the Company will pay each Settling TAPS Holder
the difference in value per each TAPS between the settlement
value of the New York Settlement and the settlement value of any
settlement with other holders of TAPS.

In March 2000, a purported class action was filed in the Circuit
Court of Franklin County, Alabama (the Circuit
Court), also claiming that a Termination Event had
occurred. This lawsuit was subsequently certified by the court
as a non-opt out class action, and therefore
includes all TAPS holders other than those who were parties to
the New York Settlement. The Company reached a settlement in
this lawsuit (the Alabama Settlement), which
received final court approval pursuant to a Final Approval Order
and Judgment issued on June 9, 2000 (the Final
Order) by the Circuit Court. On June 19, 2000,
certain TAPS holders filed a notice of appeal to the Supreme
Court of Alabama, questioning the Circuit Courts order
denying their motion to intervene and the adequacy of the
settlement. On July 21, 2000, two other TAPS holders filed
notices of appeal to the Supreme Court of Alabama, purporting to
appeal on the same grounds as the June 19, 2000 appeal. The
Company believes that the appeals are without merit and has
filed a motion to dismiss these appeals.

As required by the Purchase Contract, on August 31, 2000,
the Company issued approximately 14.2 million shares of its
common stock to the class members in exchange for the same
number of outstanding TAPS. The Company received the remaining
$313 million of proceeds related to the TAPS which, combined
with the proceeds received in April 2000 in connection with the
New York Settlement, were used to retire the Companys $420
million senior subordinated notes which matured on
September 1, 2000. The remaining TAPS proceeds were used to
reduce the Companys indebtedness under the Former Credit
Facility (as defined).

Pursuant to an order from the Circuit Court requiring
distribution of the class benefits under the Alabama Settlement,
on September 13, 2000, the Company issued to each class
member 0.22 shares of the Companys common stock for each
TAPS held by that class member, less each class members
share of pro rata attorneys fees. The Final Order provided
for 25% of the stock issuable to the class under the Alabama
Settlement to be paid as fees to the attorneys for the class.

12



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On April 11, 2000, certain TAPS holders filed a lawsuit
entitled Aragon Investments, Ltd. et al. v. Caremark Rx, Inc. in
the Supreme Court of the State of New York, County of New York,
claiming that a Termination Event had occurred with
respect to the TAPS. On January 24, 2001, the Supreme Court
of the State of New York dismissed the Aragon litigation,
subject to the rights of the plaintiffs to recommence their
action if the Circuit Courts decision is reversed on
appeal by the Supreme Court of Alabama. The plaintiffs have
filed a notice of appeal to the Appellate Division of the New
York Supreme Court.

In 1993, approximately 3,900 independent and retail chain
pharmacies filed a group of antitrust lawsuits and a class
action lawsuit against brand name pharmaceutical manufacturers,
wholesalers and PBM companies. Caremark was named as a defendant
in a number of lawsuits in 1994, but was not named in the class
action. The lawsuits, which were transferred to the United
States District Court for the Northern District of Illinois for
pretrial proceedings, alleged that at least 24 pharmaceutical
manufacturers provided unlawful price and service discounts to
certain favored buyers and conspired among themselves to deny
similar discounts to the plaintiffs in violation of the Sherman
Act and the Robinson-Patman Act. The complaints that included
Caremark charged that certain defendant PBM companies, including
Caremark, were favored buyers who knowingly induced or received
discriminatory prices from the manufacturers in violation of the
Robinson-Patman Act. Each complaint sought unspecified treble
damages, declaratory and equitable relief and attorneys
fees and expenses.

In April 1995, the Court entered a stay of pretrial proceedings
as to certain Robinson-Patman Act claims in this litigation,
including the Robinson-Patman Act claims against Caremark,
pending a trial of price discrimination claims brought by a
limited number of plaintiffs against five defendants not
including Caremark. The stay involving claims against Caremark
has remained in place to date. Numerous settlements by parties
other than Caremark have been reached, including a partial
settlement of the class action which provided for a cash payment
of approximately $351 million by the settling manufacturers as
well as a commitment to abide by certain injunctive provisions.

The remaining defendants received a judgment in their favor in
1998 on the class action conspiracy claims. On appeal, that
judgment was affirmed in part and reversed and remanded in part
and is currently undergoing further proceedings in the district
court and the court of appeals. It is expected that trials of
the remaining non-class action conspiracy claims brought under
the Sherman Act, to the extent they have not otherwise been
settled or dismissed on summary judgment, will ultimately be
remanded and move forward to trial and likely will also precede
the trial of any Robinson-Patman Act claims.

The Companys California PPM operations included MPN, a
wholly-owned subsidiary of the Company and a healthcare service
plan licensed by the State of California (the State)
under the Knox-Keene Health Care Service Plan Act of 1975. In
March 1999, the California Department of Corporations (the
DOC) appointed a conservator and assumed control of
the business operations of MPN. The conservator, purportedly on
behalf of MPN, filed a voluntary petition under Chapter 11
of the United States Bankruptcy Code. The Company judicially
challenged the authority of both the DOC and the conservator to
take these actions in both the California Superior Court and in
the United States Bankruptcy Court for the Central District of
California (the Bankruptcy Court).

The Company, MPN and representatives of the State subsequently
executed an agreement to settle the dispute relating to MPN (as
amended, the Settlement Agreement). The Company,
various of its subsidiaries, MPN, certain managed physician
practices and various health plans executed a supplemental
agreement (as amended, the Supplemental Plan
Agreement), pursuant to which (1) the parties to the
Supplemental Plan Agreement agreed to subordinate, waive and/ or
release various claims against one another on the terms and
conditions set forth therein, and (2) the health plans
agreed to support the Chapter 11 plan of reorganization
filed by MPN. On September 14, 2000, the Bankruptcy Court
entered an order which: (i) confirmed the Second Amended
Chapter 11 Plan of MPN dated July 7, 2000 (the
Plan); (ii) approved the Settlement Agreement;
and (iii) approved the Supplemental Plan Agreement.
Following the occurrence of the Effective Date of
the Plan on October 16, 2000, distributions commenced to
the creditors of MPN from assets of MPN and from letters of
credit in the aggregate amount of $40.0 million provided by the

13



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Pursuant to the Provider Self-Disclosure Protocol of the OIG,
the Company has conducted a voluntary investigation of the
practices of an affiliate known as Home Health Agency of Greater
Miami, doing business as AmCare (AmCare). The
investigation uncovered several potentially inappropriate
practices by certain managers at AmCare, some of which may have
resulted in overpayments from federal programs for AmCares
home health services. The Company has since terminated these
managers, ceased AmCares operations, and reported the
matter to the OIG. While the OIG has not yet responded to the
Companys internal investigation report, and therefore the
resolution of this matter is as yet unknown, it is likely that
the government will determine that overpayments were made which
require repayment by the Company. The Companys estimates
of the repayments due have been accrued in its financial
statements.

In August 1999, the Company and certain of its subsidiaries,
affiliates and managed physician practices sold a portion of
their Southern California PPM assets to KPC Medical Management,
Inc. (KPCMM) and its affiliates. At the same time,
the Company and certain of its subsidiaries, affiliates, and
managed physician practices sold other Southern California PPM
assets to KPC Global Care, Inc. (KPCGC) and certain
of its affiliates. KPCMM and KPCGC and their respective
affiliated purchasers are collectively referred to hereinafter
as the KPC Purchasers. In these transactions, the
KPC Purchasers agreed to assume and perform all obligations of
the Company and related sellers under certain real estate
leases, personal property leases, vendor contracts and other
contracts (Assumed Obligations). Certain of such
leases and contracts are not assignable without the other
partys consent, and in many cases, consent has not yet
been obtained or has been obtained on the express condition that
the Company and/ or one of its subsidiaries, affiliates, or
managed physician practices remain jointly obligated on the
lease or contract. The Company has been advised by certain
lessors, vendors and other third parties that Assumed
Obligations have not been performed by the KPC Purchasers.

On November 24, 2000, KPCMM and certain of its affiliates
(not including KPCGC) filed a petition under Chapter 11 of
the United States Bankruptcy Code in the United States
Bankruptcy Court, Central District of California 
Riverside Division (the KPC Bankruptcy Case). KPCMM
and the other debtors (the KPC Debtors) are
currently operating as debtors in possession in the KPC
Bankruptcy Case. The KPC Debtors have rejected many of the
Assumed Obligations, and many of the real property sites subject
to leases assigned to the KPC Debtors have been surrendered to
the Company and/ or one of its subsidiaries, affiliates or
managed physician practices.

At this time it is unclear what effect the KPC Bankruptcy Case
will have on the Companys potential liability for Assumed
Obligations or on its ability to collect other amounts due from
the KPC Purchasers. The KPC Bankruptcy Case will likely result
in the failure of the KPC Debtors to satisfy their Assumed
Obligations. Therefore, the Company and its subsidiaries,
affiliates and managed physician practices could be subject to
claims from lessors, vendors and other third parties relating to
the Assumed Obligations. The Company and/ or its subsidiaries,
affiliates and managed physician practices intend to mitigate
potential liability for Assumed Obligations to the extent
possible by seeking sublessees for real property and/ or
negotiating arrangements for termination of Assumed Obligations
with lessors, vendors and other third parties.

Although the Company believes that it has meritorious defenses
to the claims of liability or for damages in the actions that
have been instituted against it, there can be no assurance that
pending lawsuits will not have a disruptive effect upon the
Companys operations, that the defense of the lawsuits will
not consume the time and attention of the Companys senior
management or that the resolution of the lawsuits will not have
a material adverse effect on the operating results and financial
condition of the Company. The Company intends to vigorously
defend each of its pending lawsuits. The Company believes that
these lawsuits will not have a material adverse effect on the
operating results and financial condition of the Company.

Item  4.     Submission of
Matters to a Vote of Security Holders

There were no matters submitted to a vote of stockholders of the
Company during the fourth quarter of 2000.

14



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Item  5.     Market for
Registrants Common Equity and Related Stockholder
Matters

General. The Companys common stock is listed on the
New York Stock Exchange (the NYSE) under the symbol
CMX (formerly listed under the symbol
MDM). The following table sets forth, for the
calendar periods indicated, the range of high and low sales
prices for each quarter of the two year period beginning
January 1, 1999.

|               |  |      |        |     |  |   |        | 
|-------------- |  | ---- | ------ | --- |  | - | ------ | 
|               |  | High |        | Low
|               |  |      |        |    
|2000           |  |      |        |     |  |   |        | 
|              
|              
|              
|              
|First Quarter  |  | $    | 5.125  |     |  | $ | 3.750  | 
|              
|              
|              
|              
|Second Quarter |  |      | 7.188  |     |  |   | 4.375  | 
|              
|              
|              
|              
|Third Quarter  |  |      | 11.500 |     |  |   | 6.875  | 
|              
|              
|              
|              
|Fourth Quarter |  |      | 13.938 |     |  |   | 10.063 | 
|              
|              
|              
|              
|1999           |  |      |        |     |  |   |        | 
|              
|              
|              
|              
|First Quarter  |  | $    | 6.625  |     |  | $ | 2.875  | 
|              
|              
|              
|              
|Second Quarter |  |      | 7.563  |     |  |   | 4.000  | 
|              
|              
|              
|              
|Third Quarter  |  |      | 9.000  |     |  |   | 5.250  | 
|              
|              
|              
|              
|Fourth Quarter |  |      | 6.000  |     |  |   | 3.938  | 

On February 28, 2001, the closing sale price of the
Companys common stock on the NYSE was $14.00, and there
were 20,700 holders of record of the Companys common stock.

The Company has never paid a cash dividend on its common stock.
Future dividends, if any, will be determined by the
Companys Board of Directors in light of circumstances
existing from time to time, including the Companys growth,
profitability, financial condition, results of operations,
continued existence of the restrictions described below and
other factors deemed relevant by the Companys Board of
Directors.

Restrictions contained in the Credit Facility (as defined) limit
the payment of non-stock dividends on the Companys common
stock.

Unregistered Sales of Securities. On April 14, 2000,
the Company issued an aggregate of 11,741,250 shares of common
stock to certain TAPS holders in settlement of a lawsuit brought
against the Company in the Supreme Court of New York. The
Company received approximately $168 million in cash from the
cancellation of the related TAPS, which was used to reduce
indebtedness under the Former Credit Facility. Such shares were
issued in reliance upon an exemption from the registration
requirements of the Securities Act of 1933, as amended, (the
Securities Act) pursuant to Section 3(a)(9) thereof.

On August 31, 2000, the Company issued approximately 14.2
million shares of its common stock to TAPS holders as required
by the Purchase Contract. The shares were issued in exchange for
an equal number of outstanding TAPS, and the Company received
approximately $313 million of proceeds from the maturity of
the related U.S. Treasury Notes. Such shares were issued in
reliance upon an exemption from the registration requirements of
the Securities Act pursuant to Section 3(a)(9) thereof. On
September 13, 2000, the Company issued an aggregate of
3,105,875 additional shares of common stock (including 776,821
shares issued to the attorneys for the class) related to
settlement of this lawsuit. Such shares were issued in reliance
upon an exemption from the registration requirements of the
Securities Act pursuant to Section 3(a)(10) thereof.

15



---



Item  6.     Selected
Financial Data

The following table sets forth selected financial data for the
Company derived from the Companys audited consolidated
financial statements. The selected financial data should be read
in conjunction with the audited consolidated financial
statements and notes thereto listed in the index on page F-1 of
this Annual Report on Form 10-K.

|                                                                                                    |                                                                     |                                          |           |         |   |      |            |         |   |      |            |         |   |   |           |         |   |   |           |         |  
|--------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------- | ---------------------------------------- | --------- | ------- | - | ---- | ---------- | ------- | - | ---- | ---------- | ------- | - | - | --------- | ------- | - | - | --------- | ------- | -
|                                                                                                    |                                                                     |                                         
|                                                                                                    |                                                                     | Year Ended December 31,                 
|                                                                                                    |                                                                     |                                         
|                                                                                                    |                                                                     | 2000                                     |           | 1999    |   | 1998 |            | 1997    |   | 1996
|                                                                                                    |                                                                     |                                          |           |         |   |      |            |         |   |     
|                                                                                                    |                                                                     |                                         
|                                                                                                    |                                                                     | (In thousands, except per share amounts)
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Statements of Operations Data:                                                                      |                                                                     |                                          |           |         |   |      |            |         |   |      |            |         |   |   |           |         |   |   |           |        
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Net revenue                                                                                         |                                                                     | $                                        | 4,430,144 |         |   | $    | 3,307,806  |         |   | $    | 2,634,017  |         |   | $ | 2,363,404 |         |   | $ | 2,159,480 |        
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Income from continuing operations before preferred security
	dividends                              |                                                                     | $                                        | 104,695   |         |   | $    | 59,146     |         |   | $    | 30,760     |         |   | $ | 38,049    |         |   | $ | 32,329    |        
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Preferred security dividends                                                                        |                                                                     |                                          | (13,250   | )       |   |      | (3,255     | )       |   |      |           |         |   |   |          |         |   |   |          |        
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Loss from discontinued operations                                                                   |                                                                     |                                          | (268,000  | )       |   |      | (199,310   | )       |   |      | (1,284,878 | )       |   |   | (832,775  | )       |   |   | (177,817  | )      
|                                                                                                    |                                                                     |                                          |           |         |   |      |            |         |   |      |            |         |   |   |           |         |   |   |           |        
|Loss available to common stockholders before cumulative effect
	of a change in accounting principle |                                                                     |                                          | (176,555  | )       |   |      | (143,419   | )       |   |      | (1,254,118 | )       |   |   | (794,726  | )       |   |   | (145,488  | )      
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Cumulative effect of a change in accounting principle                                               |                                                                     |                                          |          |         |   |      |           |         |   |      | (6,348     | )       |   |   | (25,889   | )       |   |   |          |        
|                                                                                                    |                                                                     |                                          |           |         |   |      |            |         |   |      |            |         |   |   |           |         |   |   |           |        
|Net loss available to common stockholders                                                           |                                                                     | $                                        | (176,555  | )       |   | $    | (143,419   | )       |   | $    | (1,260,466 | )       |   | $ | (820,615  | )       |   | $ | (145,488  | )      
|                                                                                                    |                                                                     |                                          |           |         |   |      |            |         |   |      |            |         |   |   |           |         |   |   |           |        
|Average number of common shares outstanding:                                                        |                                                                     |                                          |           |         |   |      |            |         |   |      |            |         |   |   |           |         |   |   |           |        
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                    | Basic                                                               |                                          |           | 206,042 |   |      |            | 190,734 |   |      |            | 189,327 |   |   |           | 185,830 |   |   |           | 169,897 |  
|                                                                                                    |                                                                     |                                          |           |         |   |      |            |         |   |      |            |         |   |   |           |         |   |   |           |        
|                                                                                                    | Diluted                                                             |                                          |           | 214,025 |   |      |            | 194,950 |   |      |            | 189,927 |   |   |           | 189,573 |   |   |           | 174,028 |  
|                                                                                                    |                                                                     |                                          |           |         |   |      |            |         |   |      |            |         |   |   |           |         |   |   |           |        
|Earnings (loss) per common share  basic:                                                           |                                                                     |                                          |           |         |   |      |            |         |   |      |            |         |   |   |           |         |   |   |           |        
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                    | Income available to common stockholders from continuing
	operations |                                          | $         | 0.44    |   |      | $          | 0.29    |   |      | $          | 0.16    |   |   | $         | 0.20    |   |   | $         | 0.19    |  
|                                                                                                    |                                                                     |                                          |           |         |   |      |            |         |   |      |            |         |   |   |           |         |   |   |           |        
|                                                                                                    | Loss from discontinued operations                                   |                                          | $         | (1.30   | ) |      | $          | (1.04   | ) |      | $          | (6.79   | ) |   | $         | (4.48   | ) |   | $         | (1.05   | )
|                                                                                                    |                                                                     |                                          |           |         |   |      |            |         |   |      |            |         |   |   |           |         |   |   |           |        
|                                                                                                    | Cumulative effect of a change in accounting principle               |                                          | $         |        |   |      | $          |        |   |      | $          | (0.03   | ) |   | $         | (0.14   | ) |   | $         |        |  
|                                                                                                    |                                                                     |                                          |           |         |   |      |            |         |   |      |            |         |   |   |           |         |   |   |           |        
|                                                                                                    | Net loss available to common stockholders                           |                                          | $         | (0.86   | ) |      | $          | (0.75   | ) |      | $          | (6.66   | ) |   | $         | (4.42   | ) |   | $         | (0.86   | )
|                                                                                                    |                                                                     |                                          |           |         |   |      |            |         |   |      |            |         |   |   |           |         |   |   |           |        
|Earnings (loss) per common share  diluted:                                                         |                                                                     |                                          |           |         |   |      |            |         |   |      |            |         |   |   |           |         |   |   |           |        
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                    | Income available to common stockholders from continuing
	operations |                                          | $         | 0.43    |   |      | $          | 0.29    |   |      | $          | 0.16    |   |   | $         | 0.20    |   |   | $         | 0.19    |  
|                                                                                                    |                                                                     |                                          |           |         |   |      |            |         |   |      |            |         |   |   |           |         |   |   |           |        
|                                                                                                    | Loss from discontinued operations                                   |                                          | $         | (1.25   | ) |      | $          | (1.03   | ) |      | $          | (6.77   | ) |   | $         | (4.39   | ) |   | $         | (1.02   | )
|                                                                                                    |                                                                     |                                          |           |         |   |      |            |         |   |      |            |         |   |   |           |         |   |   |           |        
|                                                                                                    | Cumulative effect of a change in accounting principle               |                                          | $         |        |   |      | $          |        |   |      | $          | (0.03   | ) |   | $         | (0.14   | ) |   | $         |        |  
|                                                                                                    |                                                                     |                                          |           |         |   |      |            |         |   |      |            |         |   |   |           |         |   |   |           |        
|                                                                                                    | Net loss available to common stockholders                           |                                          | $         | (0.82   | ) |      | $          | (0.74   | ) |      | $          | (6.64   | ) |   | $         | (4.33   | ) |   | $         | (0.83   | )
|                                                                                                    |                                                                     |                                          |           |         |   |      |            |         |   |      |            |         |   |   |           |         |   |   |           |        
|Balance Sheet Data:                                                                                 |                                                                     |                                          |           |         |   |      |            |         |   |      |            |         |   |   |           |         |   |   |           |        
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Cash and cash equivalents                                                                           |                                                                     | $                                        | 2,352     |         |   | $    | 6,797      |         |   | $    | 23,100     |         |   | $ | 109,098   |         |   | $ | 112,792   |        
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Working capital (deficit)                                                                           |                                                                     |                                          | (180,035  | )       |   |      | (28,750    | )       |   |      | 85,111     |         |   |   | 83,813    |         |   |   | 270,189   |        
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Total assets                                                                                        |                                                                     |                                          | 685,536   |         |   |      | 770,846    |         |   |      | 1,862,106  |         |   |   | 2,891,896 |         |   |   | 1,807,366 |        
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Long-term debt, less current portion                                                                |                                                                     |                                          | 735,222   |         |   |      | 1,230,025  |         |   |      | 1,735,096  |         |   |   | 1,395,079 |         |   |   | 663,979   |        
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Convertible preferred securities                                                                    |                                                                     |                                          | 200,000   |         |   |      | 200,000    |         |   |      |           |         |   |   |          |         |   |   |          |        
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Total stockholders equity (deficit)                                                                |                                                                     |                                          | (969,064  | )       |   |      | (1,281,475 | )       |   |      | (1,144,173 | )       |   |   | 92,221    |         |   |   | 839,073   |        



|         |                                                                                        
|-------- | ---------------------------------------------------------------------------------------
|Item  7. | Managements Discussion and Analysis of Financial
	Condition and Results of  Operations

The purpose of the following discussion is to facilitate the
understanding and assessment of significant changes and trends
related to the results of operations and financial condition of
the Company. This discussion should be read in conjunction with
the Companys audited consolidated financial statements and
notes thereto which begin on page F-1 of this Annual Report
on Form 10-K.

16



---



Overview

The Company is one of the largest pharmaceutical services
companies in the United States. The Companys services
assist employers, insurance companies, unions, government
employee groups, managed care organizations and other health
benefit plans and individuals throughout the United States in
delivering prescription drugs in a cost-effective manner.

The Companys net revenue generally includes payments by
its customers based on the price of prescription drugs dispensed
to their members and administrative fees. Prescription drugs are
dispensed from third-party retail pharmacies included in one of
the Companys networks and from its own mail service
pharmacies. The preponderance of the Companys revenue is
earned on a fee-for-service basis through contracts covering one
to three-year periods. Revenues for selected types of services
are earned based on a percentage of savings achieved or on a
per-enrollee or per-member basis. Costs of revenues are
comprised primarily of prescription drug acquisition costs and
associated dispensing costs.

The Company has added two large managed care contracts since the
second quarter of 1999, the largest of which began on
January 1, 2000 (the Managed Care Contracts).
The addition of the Managed Care Contracts resulted in higher
revenues and higher average revenue per customer; however, the
addition of these contracts also caused the Companys gross
margins (gross profit as a percentage of net revenue) to
decrease. Managed care plans typically involve a higher
concentration of retail pharmacy claims, which have lower gross
margins than the Companys mail service pharmacy claims.
The Company anticipates that its gross margins will continue to
decrease, but at a slower rate in the future, due to increased
competitive pressures and changes in product mix.

The Company had tax net operating loss (NOL) carry
forwards of approximately $2.1 billion as of
December 31, 2000. If not utilized to offset future taxable
income, these NOL carry forwards will expire on various dates
through 2020. In addition to these NOL carry forwards, the
Company has approximately $127 million of future additional
income tax deductions related to its discontinued operations.
The Company also has a federal alternative minimum tax credit
carry forward of approximately $17.1 million, which may be
used to offset its ordinary federal corporate income taxes in
the future.

Because of the uncertainty of the ultimate realization of the
Companys net deferred tax asset, a valuation allowance has
been established for the amount of the net deferred tax asset
that is not otherwise expected to be used to offset deferred tax
liabilities. Amounts reflected in income taxes payable on the
Companys consolidated balance sheets set forth elsewhere
herein represent state taxes in those states where the Company
does not have state NOL carry forwards.

A discussion of the factors influencing the Companys
results of operations for the years ended December 31,
2000, 1999 and 1998 follows. All numbers presented in this
discussion are approximations at the level of precision
indicated.

Results of continuing operations for 2000 compared to 1999

Net revenue for 2000 was $4.43 billion, an increase of $1.12
billion, or 33.8%, over the $3.31 billion for 1999. This growth
in net revenue was due primarily to new customer contracts,
including the Managed Care Contracts, coupled with retention and
growth of existing customers, additional services provided to
existing customers and drug cost inflation. The Company
processed 68.4 million pharmacy claims in 2000, an increase of
17.4 million claims, or 34.1%, over the 51.0 million claims
processed in 1999.

Cost of revenues for 2000 increased to $4.08 billion, or 92.1%
of net revenue, from $3.01 billion, or 90.6% of net revenue, in
1999. This increase was due primarily to the increased mix of
retail claims to total claims due to the addition of the Managed
Care Contracts. Retail claims represented 53.8 million, or 78.7%
of the 68.4 million pharmacy claims processed in 2000, compared
to 38.5 million, or 75.5%, of the 51.0 million claims processed
in 1999.

Selling, general and administrative expenses for 2000 increased
to $116.2 million, or 2.6% of net revenue, from $100.4 million,
or 3.0% of net revenue, in 1999. This decrease as a percentage
of net revenue resulted

17



---





Depreciation and amortization increased by $3.3 million, or
14.9%, to $25.4 million in 2000 from $22.1 million in 1999. This
increase was due primarily to goodwill amortization related to
the Companys acquisition of the assets of Direct Scripts,
Inc. in the third quarter of 1999.

Operating income (net revenue less cost of revenue, selling,
general and administrative expenses and depreciation and
amortization) and operating margin were $210.2 million and 4.7%
for 2000, compared to $179.4 million and 5.4% for 1999. The
increase in operating income was primarily due to revenue
growth. This revenue growth was significantly impacted by the
addition of the Managed Care Contracts which accounts for the
overall decrease in operating margins.

Net interest expense was $97.0 million for 2000, compared to
$115.3 million in 1999. The decrease in net interest expense
resulted primarily from the Companys retirement of its
$420 million senior subordinated notes in September 2000, as
well as from reductions in amounts due under the Former Credit
Facility from operating cash flows and the TAPS proceeds. The
reduction in interest expense due to reduced debt levels was
offset by increases in interest rates on the Former Credit
Facility, which is subject to variable rates. See
Liquidity and Capital Resources.

The Companys effective tax rate on income from continuing
operations was 7.5% for 2000 and 7.7% for 1999. These effective
rates are significantly below the statutorily enacted corporate
income tax rates for each period and are the result of the tax
NOL carry forwards discussed above and tax planning strategies
in certain states that allow consolidated return filings which
will allow the Company to utilize its consolidated NOLs in these
states.

The Company recorded dividends on its Convertible Preferred
Securities (as defined) of $13.3 million in 2000 compared with
$3.3 million in 1999. See Liquidity and Capital
Resources  Convertible Preferred Securities and
Note 8, Redeemable Preferred Stock to the
Companys audited consolidated financial statements which
begin on page F-1 of this Annual Report on Form 10-K.

Results of continuing operations for 1999 compared to 1998

Net revenue for 1999 was $3.31 billion, an increase of $674
million, or 25.6%, over the $2.63 billion for 1998. This growth
in net revenue was due primarily to new customer contracts
coupled with retention and growth of existing customers,
additional services provided to existing customers and drug cost
inflation. The Company processed 51.0 million pharmacy claims in
1999, an increase of 6.5 million claims, or 14.6%, over the 44.5
million claims processed in 1998.

Cost of revenue for 1999 increased to $3.01 billion, or 90.9% of
net revenue, from $2.38 billion, or 90.5% of net revenue, in
1998. This increase was due primarily to the increased mix of
retail claims to total claims. Retail claims represented 38.5
million, or 75.5%, of the 51.0 million pharmacy claims processed
in 1999, compared to 33.1 million, or 74.4%, of the 44.5 million
claims processed in 1998.

Selling, general and administrative expenses for 1999 increased
to $100.4 million, or 3.0% of net revenue, from $87.7 million,
or 3.3% of net revenue, in 1998. This decrease as a percentage
of net revenue resulted primarily from increased sales volumes
which did not require proportional increases in administrative
expenses.

Depreciation and amortization increased by $3.2 million, or
16.9%, to $22.1 million in 1999 from $18.9 million in 1998. This
increase was due primarily to increases in depreciation expense
related to capital expenditures made in 1998.

Operating income (net revenue less cost of revenue, selling,
general and administrative expenses and depreciation and
amortization) and operating margin were $179.4 million and 5.4%
for 1999, compared to $143.7 million and 5.5% for 1998. The
decrease in operating margins was due to the factors cited above
for the increase in cost of revenue for 1999 compared to 1998.

18



---



Special charges totaled $9.5 million in 1998 and related
primarily to severance, occupancy costs for excess facilities
and certain litigation.

Net interest expense was $115.3 million for 1999, compared to
$84.6 million in 1998. The increase in interest expense resulted
primarily from a reduction of $25.4 million in the amount of
interest allocated to discontinued operations in 1999.

The Companys effective tax rate on income from continuing
operations was 7.7% for 1999 and 38% for 1998. This decrease
resulted from the Companys application of its NOL carry
forwards to income from continuing operations in 1999. The
effective rate for 1999 is significantly below the statutorily
enacted corporate income tax rates due to the factors discussed
above in the comparison of the results of continuing operations
for 2000 and 1999.

The Company recorded dividends on its Convertible Preferred
Securities (as defined) of $3.3 million in 1999. See
Liquidity and Capital Resources  Convertible
Preferred Securities and Note 8, Redeemable
Preferred Stock to the Companys audited consolidated
financial statements which begin on page F-1 of this Annual
Report on Form 10-K.

Deferred Income Taxes

Under Statement of Financial Accounting Standards 109,
Accounting for Income Taxes
(FAS 109), the Company is required to record a
net deferred tax asset for the future tax benefits of tax loss
and tax credit carry forwards, as well as for other temporary
differences, if realization of such benefits is more likely than
not. In assessing the realizability of deferred tax assets,
management has considered reversing deferred tax liabilities,
projected future taxable income and tax planning strategies.
However, the ultimate realization of the deferred tax assets is
dependent upon the generation of future taxable income during
the periods in which temporary differences become deductible and
net operating losses can be carried forward.

Management believes, considering all available information,
including the Companys history of earnings (after
adjustments for nonrecurring items, special charges, permanent
differences, and other appropriate items) and after considering
appropriate tax planning strategies, it is more likely than not
that the deferred tax assets will not be realized. Accordingly,
the Company has recorded a valuation allowance of
$904 million, which is the amount of the deferred tax
assets in excess of the deferred tax liabilities. The valuation
allowance has been established due to the uncertainty of
forecasting future taxable income.

Discontinued Operations

Discontinued operations loss for the year ended
December 31, 2000, consists of charges totaling $268
million ($198 million in March 2000 and $70 million in December
2000) related to revised estimates of exit costs for the
Companys discontinued PPM operations. These charges are
composed of: (i) a $167.6 million adjustment in the net
assets related to the Companys remaining PPM operations
and (ii) $100.4 million in adjustments to reserves for potential
future obligations such as rents and litigation. These amounts
are estimates, and actual costs could differ from those
recorded. During the year ended December 31, 2000, the
Company completed the divestiture of three of its PPM practices
and was operating one remaining PPM practice at
December 31, 2000.

Discontinued operations loss for the year ended
December 31, 1999 consists of a charge of $199.3 million
related to the net loss on the disposal of the PPM operations.
This charge is an adjustment to the $1.1 billion charge recorded
in the fourth quarter of 1998. The 1999 charge includes a $119.9
million adjustment to the impairment and write-off of
intangibles and other PPM assets, an adjustment to the estimated
costs to exit the PPM operations of approximately $73.6 million
and an adjustment of approximately $5.8 million related to the
gain on the sale of the contract services business. For the year
ended December 31, 1999, the Companys discontinued
operations had net revenue of approximately $1.4 billion and an
operating loss of approximately $165.0 million. The Company
received net cash proceeds of $324.4 million and $316.8 million
during 1999 from the sales of the PPM and contract services
businesses, respectively.

19



---



Recent Accounting Pronouncements

In April 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-5,
Reporting on the Costs of Start-Up Activities
(SOP 98-5). SOP 98-5 requires that the
costs of start-up activities be expensed as incurred. As a
result, the Company recorded a charge of $6.3 million, net of
tax of $3.9 million, as a cumulative effect of a change in
accounting principle as of January 1, 1998.

In September 2000, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities  a replacement of FASB Statement
No. 125 (FAS 140). FAS 140
revised the standards for accounting for securitization
transactions and other transfers and requires additional
disclosures; however, it left intact most of the provisions of
FASB Statement No. 125, under which the Company has
previously accounted for its accounts receivable securitization
transactions.

FAS 140 is effective for all transfers and servicing of
financial assets occurring after March 31, 2001; however,
the expanded disclosure requirements of FAS 140 are
effective for financial statements for fiscal years ending after
December 15, 2000, and are reflected in Note 4,
Trade Receivable Securitization to the
Companys audited consolidated financial statements which
begin on page F-1 of this Annual Report on Form 10-K.
The Company will adopt the accounting requirements of
FAS 140 on April 1, 2001, and does not expect the
adoption of FAS 140 to have a material impact on its
financial position, results of operations or cash flows.

Factors That May Affect Future Results

The Companys future operating results and financial
condition are dependent on its ability to market its services
profitably, successfully increase market share and manage
expense growth relative to revenue growth. The future operating
results and financial condition of the Company may be affected
by a number of additional factors, including: (i) its
ability to successfully terminate leases and other contractual
agreements related to its discontinued operations and the
outcome of various litigation surrounding the closure or sale of
PPM assets; (ii) identification of and competition for
growth and expansion opportunities; (iii) declining
reimbursement levels for products distributed;
(iv) exposure to professional liability in excess of the
Companys insurance; (v) compliance with, or changes
in, government regulation, including pharmacy licensing
requirements and healthcare reform legislation;
(vii) adverse resolution of pending lawsuits;
(viii) costs of modifications of its information systems to
comply with HIPAA privacy and electronic interchange standards
and (ix) liquidity and capital requirements. Changes in one
or more of these factors could have a material adverse effect on
the future operating results and financial condition of the
Company.

There are various legal matters which, if adversely determined,
could have a material adverse effect on the Companys
operating results and financial condition. See Item 3.
Legal Proceedings and Notes 13 and 14 to the
Companys audited consolidated financial statements which
begin on page F-1 of this annual report on Form 10-K.

Liquidity and Capital Resources

General.The Company broadly defines liquidity as its
ability to generate sufficient cash flow from operating
activities to meet its obligations and commitments. In addition,
liquidity includes the ability to obtain appropriate financing
objectives. Therefore, liquidity cannot be considered separately
from capital resources that consist of current or potentially
available funds for use in achieving business objectives and
meeting debt service commitments.

Currently, the Companys liquidity needs arise primarily
from the funding of its discontinued operations (including the
funding of any retained liabilities), as well as its working
capital requirements and capital expenditures. The Company
believes that cash flows from operations and amounts available
under the Revolving Facility (as defined) are sufficient to meet
its liquidity needs.

Cash Flows. The Companys cash flow from continuing
operations for the year ended December 31, 2000, was $221.4
million and was used primarily to fund discontinued operations
($145.5 million), capital

20



---





The Company received approximately $481 million in proceeds from
the maturity of its TAPS during 2000. The majority of these
proceeds were used to retire the Companys $420 million
senior subordinated notes which became due on September 1,
2000. The remaining TAPS proceeds were used to reduce the
Companys indebtedness under the Former Credit Facility,
with $60 million being applied to the Former Term Loan Facility
(as defined) and the remainder being applied to the Former
Revolving Facility (as defined).

Credit Facility. The Company has a $550 million credit
facility with Bank of America, N.A. as administrative agent (the
Credit Facility). The Company has granted a lien on
substantially all of its current and future material personal
property as well as the current and future material personal
property and capital stock of its material subsidiaries as
security for amounts outstanding under the Credit Facility and
the Senior Notes (as defined) on an equal and ratable basis. The
Credit Facility is guaranteed by the Companys material
subsidiaries and consists of a $300 million revolving credit
facility (Revolving Facility) which matures in March
2005 and a $250 million term loan facility (Term Loan
Facility) which matures in March 2006. The Credit Facility
was put in place on March 15, 2001, and replaced the
Companys former credit facility (Former Credit
Facility), which was scheduled to mature in June 2001.

At December 31, 2000, the Former Credit Facility consisted
of: (i) a term loan facility (the Former Term Loan
Facility) with a balance of $27.7 million outstanding and
(ii) a revolving credit facility (the Former
Revolving Facility) in an aggregate principal amount of up
to $400 million. At December 31, 2000, the Company had
approximately $118.2 million available for borrowing under the
Former Revolving Facility, exclusive of approximately $24.3
million reserved under letters of credit.

Borrowings under the Credit Facility currently bear interest at
variable rates based on the London Inter-bank Offered Rate
(LIBOR), plus varying margins. At the Companys
option, or upon certain defaults or other events, borrowings
under the Credit Facility may instead bear interest based on the
prime rate plus varying margins.

The Credit Facility provides for net cash proceeds received from
certain asset sales to be used to reduce the outstanding debt
under the Term Loan Facility. The Company is also required to
repay the Term Loan Facility with 100% of the net cash proceeds
received from certain issuances of equity or debt, and with 50%
of the excess cash flow (as defined in the Credit Facility) for
each year.

The Credit Facility contains covenants that, among other things,
restrict the Companys ability to incur additional
indebtedness or guarantee obligations, engage in mergers or
consolidation, dispose of assets, make investments, loans or
advances, engage in certain transactions with affiliates,
conduct certain corporate activities, create liens, make capital
expenditures, prepay or modify the terms of certain other
indebtedness, pay dividends and other distributions or change
its business. In addition, the Company is required to comply
with specified financial covenants, including a maximum leverage
ratio, a minimum fixed charge coverage ratio and a minimum
interest expense coverage ratio. The Credit Facility includes
various customary and other events of default, including cross
default provisions, defaults for any material judgment or change
in control.

Senior Notes. The senior notes are in an aggregate
principal amount of $450 million and bear interest at
7 3/8% annually, with all principal amounts due in October
2006 (the Senior Notes). The indenture for the
Senior Notes contains, among other things, restrictions on
subsidiary indebtedness, sale and leaseback transactions, and
consolidation, merger and sale of assets. The Senior Notes are
not guaranteed by any subsidiary. The indenture for the Senior
Notes also contains restrictions on indebtedness secured by
liens. To

21



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Convertible Preferred Securities. In September 1999, the
Company, through its wholly-owned subsidiary Caremark Rx Capital
Trust I (the Trust), privately placed 4.0 million
shares ($200.0 million aggregate face value) of 7% shared
preference redeemable securities (Convertible Preferred
Securities). The sole assets of the Trust, which has no
business operations apart from administration of the Convertible
Preferred Securities, are the 7% convertible subordinated
debentures of the Company, maturing October 1, 2029, with
principal amount of $206.2 million (the Trust
Debentures). The Trust is the sole holder of the Trust
Debentures.

Each Convertible Preferred Security may be converted, at the
option of the holder, into shares of the Companys common
stock at the rate of 6.7125 shares of common stock for each
Convertible Preferred Security (equivalent to a conversion price
of $7.4488 per share of common stock). The conversion of all
Convertible Preferred Securities would result in the
Companys issuance of approximately 26.9 million shares of
common stock.

All Convertible Preferred Securities outstanding on
October 1, 2029, must be redeemed by the Company; however,
any or all of the Convertible Preferred Securities may be
redeemed at the option of the Company beginning October 15,
2002, at prices ranging from $50.00 to $52.00 plus accumulated
and unpaid dividends per Convertible Preferred Security.

Dividends on the Convertible Preferred Securities are payable at
an annual rate of 7% of the liquidation amount of $50.00 per
Convertible Preferred Security. These dividends are cumulative
and are payable in arrears on the first day of each calendar
quarter. As of December 31, 2000, the Company had paid all
dividend payments on the Convertible Preferred Securities as
scheduled.

Considered together, (1) the Companys guaranty, to
the extent that the Trust has funds available, of distribution
and liquidation payments on the Convertible Preferred Securities
and (2) the Companys obligations under (a) the
Trust Debentures and the related indenture and (b) the
Trusts trust agreement, provide a full and unconditional
guarantee by the Company of amounts payable in respect to the
Convertible Preferred Securities issued by the Trust.

Receivables Securitization. The Company has securitized
certain of its accounts receivable pursuant to a facility with
The Chase Manhattan Bank as funding agent. As of
December 31, 2000, the Company had securitized
approximately $100 million in accounts receivable.

On January 31, 2001, the Company amended and restated its
accounts receivable securitization facility. The amended and
restated facility increased the aggregate amount available
thereunder from $100 million to at least $115 million and
extended the term of the facility to January 31, 2006.

Discontinued Operations. Cash used to fund the remaining
net liabilities of discontinued operations and estimated exit
costs, which are classified in current liabilities as other
accrued expenses and liabilities, will be funded by cash flows
from continuing operations and by the Revolving Facility. The
Company believes that these sources will be sufficient to fund
discontinued operations exit costs. If they are not, the Company
would seek to enhance its liquidity position through further
modifications to the Credit Facility, incurrence of additional
indebtedness, asset sales, restructuring of debt, and/or the
sale of securities. Although the Company currently believes that
one or more of such alternatives would be available to enhance
liquidity, each such alternative is dependent upon future
events, conditions and other matters outside of the
Companys control.

Item  7A.  Quantitative and Qualitative
Disclosures About Market Risk

The Company is exposed to market risk from changes in interest
rates related to debt outstanding under the Credit Facility. The
Companys earnings and the market value of its fixed-rate
debt are subject to change as a result of movements in market
interest rates. At December 31, 2000, the Company had
$285.2 million in long-term debt subject to variable rates of
interest. A hypothetical increase in interest rates of 1% from
the rate at December 31, 2000, would result in an increase
in annual interest expense of $2.9 million, presuming

22



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Item  8.  Financial Statements and
Supplementary Data

Information with respect to this item is contained in the
Companys audited consolidated financial statements and
financial statement schedule listed in the index on
page F-1 of this Annual Report in Form 10-K and is
incorporated herein by reference.

Item  9.  Changes in and Disagreements With
Accountants on Accounting and Financial Disclosure

None.

PART III

Item  10.  Directors and Executive Officers
of the Registrant

The information required by this Item is incorporated herein by
reference to the Companys Proxy Statement for the 2001
Annual Meeting of Stockholders.

Item  11.  Executive Compensation

The information required by this Item is incorporated herein by
reference to the Companys Proxy Statement for the 2001
Annual Meeting of Stockholders.

Item  12.  Security Ownership of Certain
Beneficial Owners and Management

The information required by this Item is incorporated herein by
reference to the Companys Proxy Statement for the 2001
Annual Meeting of Stockholders.

Item  13.  Certain Relationships and
Related Transactions

The information required by this Item is incorporated herein by
reference to the Companys Proxy Statement for the 2001
Annual Meeting of Stockholders.

PART IV

Item  14.  Exhibits, Financial Statement
Schedules, and Reports on Form 8-K

(a)  Financial Statements, Financial Statement Schedules
and Exhibits

1.  Financial Statements

The consolidated financial statements of the Company and its
subsidiaries filed as a part of this Annual Report on
Form 10-K are listed in the index on page F-1 of this
Annual Report on Form 10-K, which listing is hereby
incorporated herein by reference.

2.  Financial Statement Schedules

All schedules for which provision is made in the applicable
accounting regulations of the Commission, except for
Schedule II above, have been omitted because they are not
required under the related instructions, or are inapplicable, or
because the information has been provided in the consolidated
financial statements or the notes thereto.

23



---



3.  Exhibits.

The Exhibits filed as a part of this Annual Report are listed in
Item 14(c) of this Annual Report on Form 10-K, which
is hereby incorporated herein by reference.

(b)  Reports on Form 8-K

The Company filed a Current Report on Form 8-K on
December 6, 2000, in which it reported a change in its
certifying accountant (Form 8-K Item 4).

(c)  Exhibits

|        |     |  |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------- | --- |  |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |  |  |  
|No.     |     |  |  |  
|        |     |  |  |  
|        | 2.1 |  |  |  |  | Amended and Restated Operations and Settlement Agreement, dated
	as of June 16, 1999, among the Commissioner of the
	Department of Corporations of the State of California acting or
	himself and for the Department of Corporations of the State of
	California, J. Mark Abernathy as Special Monitor, the Company
	and its successors and assigns, and MedPartners Provider
	Network, Inc., a California corporation, filed as
	Exhibit 2.1 to the Companys Quarterly Report on
	Form 10-Q for the fiscal quarter ended June 30, 1999,
	is hereby incorporated herein by reference.                                                                                                                                                                            
|        | 2.2 |  |  |  |  | Second Amended and Restated Operations and Settlement Agreement,
	dated September 14, 2000, among the Director of the
	Department of Managed Care of the State of California; the
	Department of Managed Care of the State of California; J. Mark
	Abernathy, as Special Monitor-Examiner; the Company; and
	MedPartners Provider Network, Inc., a California corporation,
	filed as Exhibit 2.1 to the Companys Quarterly Report
	on Form 10-Q for the quarterly period ended September 30,
	2000, is hereby incorporated herein by reference. The Exhibits
	and Schedules that are referenced in the Operations and
	Settlement Agreement have been omitted for purposes of this
	filing, but will be furnished supplementally to the commission
	upon request.
|        | 2.3 |  |  |  |  | Second Amended Chapter 11 Plan of MedPartners Provider
	Network, Inc., dated July 7, 2000, filed as
	Exhibit 2.2 to the Companys Quarterly Report on
	Form 10-Q for the quarterly period ended September 30,
	2000, is hereby incorporated herein by reference. The Exhibits
	and Schedules that are referenced in the Chapter 11 Plan of
	MedPartners Provider Network, Inc. have been omitted for
	purposes of this filing, but will be furnished supplementally to
	the commission upon request.                                                                                                                                                                                                                                                              
|        | 2.4 |  |  |  |  | Amended and Restated Supplemental Plan Agreement, dated
	September 14, 2000, among MedPartners Provider Network,
	Inc., the Company, certain direct and indirect subsidiaries of
	the Company, certain Managed Physician Practices, and certain
	Plans, filed as Exhibit 2.3 to the Companys Quarterly
	Report on Form 10-Q for the quarterly period ended
	September 30, 2000, is hereby incorporated herein by
	reference. The Exhibits and Schedules that are referenced in the
	Supplemental Plan Agreement have been omitted for purposes of
	this filing, but will be furnished supplementally to the
	commission upon request.                                                                                                                            
|        | 3.1 |  |  |  |  | MedPartners, Inc. Third Restated Certificate of Incorporation,
	filed as Exhibit 3.1 to the Companys Annual Report on
	Form 10-K for the year ended December 31, 1996, is
	hereby incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        | 3.2 |  |  |  |  | Certificate of Ownership and Merger, merging Caremark Rx, Inc.
	into MedPartners, Inc., filed as Exhibit 99.2 to the
	Companys Current Report on Form 8-K filed on
	September  14, 1999, is hereby incorporated herein by
	reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 3.3 |  |  |  |  | Caremark Rx, Inc. Sixth Amended and Restated Bylaws.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        | 4.1 |  |  |  |  | Amended and Restated Rights Agreement, dated as of
	February  1, 2000, between Caremark Rx, Inc. and First
	Chicago Trust Company, filed as Exhibit 4.1 to the
	Companys Current Report on Form 8-K filed on
	February 4, 2000, is hereby incorporated herein by
	reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 4.2 |  |  |  |  | Purchase Contract Agreement, dated September 15, 1997,
	between MedPartners, Inc. and The First National Bank of
	Chicago, filed as Exhibit 4.4 to the Companys
	Registration Statement of Form S-3 (Registration No.
	333-35665), is hereby incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

24



---



|        |      |  |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                    
|------- | ---- |  |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |  |  |  
|No.     |      |  |  |  
|        |      |  |  |  
|        | 4.3  |  |  |  |  | Pledge Agreement, dated September 15, 1997, by and between
	MedPartners, Inc., PNC Bank, Kentucky, Inc. and The First
	National Bank of Chicago, filed as Exhibit 4.5 to the
	Companys Registration Statement of Form S-3
	(Registration No. 333-35665), and is hereby incorporated
	herein by reference.                                                                         
|        | 4.4  |  |  |  |  | Form of Common Stock Certificate of Registrant filed as
	Exhibit 4.4 to the Companys Quarterly Report on Form
	10-Q for the quarterly period ended June 30, 2000, is
	hereby incorporated herein by reference.                                                                                                                                                                    
|        | 4.5  |  |  |  |  | Certificate of Trust of Caremark Rx Capital Trust I, filed as
	Exhibit 4.1 to Amendment No. 1 to the Companys
	Quarterly Report on Form 10-Q for the quarterly period
	ended September 30, 1999, is hereby incorporated herein by
	reference.                                                                                                                                     
|        | 4.6  |  |  |  |  | Trust Agreement of Caremark Rx Capital Trust I dated as of
	September 10, 1999, by and between the Company, the
	Wilmington Trust Company, and the Administrative Trustees named
	therein, filed as Exhibit 4.2 to Amendment No. 1 to
	the Companys Quarterly Report on Form 10-Q for the
	quarterly period ended September 30, 1999, is hereby
	incorporated herein by reference.
|        | 4.7  |  |  |  |  | Amended and Restated Trust Agreement dated as of September 
	29, 1999, by and between the Company, the Wilmington Trust
	Company, and the Holders named therein, filed as Exhibit 
	4.3 to Amendment No. 1 to the Companys Quarterly
	Report on Form 10-Q for the quarterly period ended
	September 30, 1999, is hereby incorporated herein by
	reference.                        
|        | 4.8  |  |  |  |  | Indenture for the Convertible Subordinated Debentures due 2029
	dated as of September 29, 1999 between the Company, and the
	Wilmington Trust Company, filed as Exhibit 4.4 to Amendment
	No. 1 to the Companys Quarterly Report on Form 10-Q
	for the quarterly period ended September 30, 1999, is
	hereby incorporated herein by reference.                                    
|        | 4.9  |  |  |  |  | Form of Common Securities of Caremark Rx Capital Trust I, filed
	as Exhibit 4.5 to Amendment No. 1 of the
	Companys Quarterly Report on Form 10-Q for the quarterly
	period ended September 30, 1999 is hereby incorporated
	herein by reference.                                                                                                                                 
|        | 4.10 |  |  |  |  | Form of SPURS, filed as Exhibit 4.6 to Amendment No. 1
	to the Companys Quarterly Report on Form 10-Q for the
	quarterly period ended September 30, 1999, is hereby
	incorporated herein by reference.                                                                                                                                                                            
|        | 4.11 |  |  |  |  | Form of Convertible Subordinated Debentures due 2029, filed as
	Exhibit 4.7 to Amendment No. 1 to the Companys
	Quarterly Report on Form 10-Q for the quarterly period
	ended September 30, 1999, is hereby incorporated herein by
	reference.                                                                                                                                    
|        | 4.12 |  |  |  |  | Guarantee Agreement dated as of September 29, 1999 by and
	between the Company and the Wilmington Trust Company, filed as
	Exhibit 4.8 to Amendment No. 1 to the Companys
	Quarterly Report on Form 10-Q for the quarterly period
	ended September 30, 1999, is hereby incorporated herein by
	reference.                                                                         
|        | 10.1 |  |  |  |  | Consulting Agreement, dated as of August 7, 1996, by and
	among Caremark International, Inc., MedPartners, Inc. and C.A.
	Lance Piccolo, filed as Exhibit 10.1 to the Companys
	Registration Statement on Form S-4 (Registration No. 
	333-09767), is hereby incorporated herein by reference.                                                                                    
|        | 10.2 |  |  |  |  | Termination Agreement, dated as of November 29, 1995, by
	and between MedPartners/ Mullikin, Inc. and John S. McDonald,
	filed as Exhibit 10.4 to the Companys Registration
	Statement on Form S-1 (Registration No.  333-1130), is
	hereby incorporated herein by reference.                                                                                                     
|        | 10.3 |  |  |  |  | Employment Agreement, dated March 18, 1998, by and between
	the Company and E. Mac Crawford, filed as Exhibit 10.4 to the
	Companys Quarterly Report on form 10-Q for the quarterly
	period ended March 31, 1998, is hereby incorporated herein
	by reference.                                                                                                                    
|        | 10.4 |  |  |  |  | Amendment No. 1 to Employment Agreement, dated
	August 6, 1998, by and between the Company and E. Mac
	Crawford, filed as Exhibit 10.2 to the Companys
	Quarterly Report on Form  10-Q for the quarterly period
	ended September 30, 1998, is hereby incorporated herein by
	reference.                                                                                           
|        | 10.5 |  |  |  |  | Nonqualified Stock Option Agreement, dated August 6, 1998,
	by and between the Company and E. Mac Crawford, filed as
	Exhibit 10.3 to the Companys Quarterly Report on
	Form  10-Q for the quarterly period ended
	September 30, 1998, is hereby incorporated herein by
	reference.                                                                                               

25



---



|        |       |  |  |   |  |                                                                                                                                                                                                                                                                                           
|------- | ----- |  |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |  |  |  
|No.     |       |  |  |  
|        |       |  |  |  
|        | 10.6  |  |  |  |  | Amendment No. 2 to Employment Agreement, dated December 1,
	1998, by and between the Company and E. Mac Crawford, filed as
	Exhibit 10.2 to the Companys Quarterly Report on
	Form  10-Q for the quarterly period ended March 31,
	1999, is hereby incorporated herein by reference.     
|        | 10.7  |  |  |  |  | Nonqualified Stock Option Agreement, dated January 27,
	1999, by and between the Company and E. Mac Crawford, filed as
	Exhibit 10.3 to the Companys Quarterly Report on
	Form  10-Q for the quarterly period ended March 31,
	1999, is hereby incorporated herein by reference.         
|        | 10.8  |  |  |  |  | Amendment No. 3 to Employment Agreement, dated
	March 8, 2000, by and between the Company and E. Mac
	Crawford, filed as Exhibit 10.4 to the Companys
	Quarterly Report on Form  10-Q for the quarterly period
	ended June 30, 2000, is hereby incorporated herein by
	reference.        
|        | 10.9  |  |  |  |  | Nonqualified Stock Option Agreement, dated March 8, 2000,
	by and between the Company and E. Mac Crawford, filed as
	Exhibit 10.5 to the Companys Quarterly Report on Form
	10-Q for the quarterly period ended June 30, 2000, is
	hereby incorporated herein by reference.              
|        | 10.10 |  |  |  |  | Employment Agreement, dated January 1, 2000, by and between
	the Company and John J. Arlotta, filed as Exhibit 10.11 to the
	Companys Quarterly Report on Form 10-Q for the
	quarterly period ended September 30, 2000, is hereby
	incorporated herein by reference.                     
|        | 10.11 |  |  |  |  | Amended and Restated Employment Agreement, dated May 1,
	2000, by and between the Company and James H. Dickerson, Jr.,
	filed as Exhibit 10.6 to the Companys Quarterly
	Report on Form 10-Q for the quarterly period ended
	June  30, 2000, is hereby incorporated herein by reference. 
|        | 10.12 |  |  |  |  | Nonqualified Stock Option Agreement, dated August 6, 1998,
	by and between the Company and James H. Dickerson, Jr., filed as
	Exhibit 10.9 to the Companys Quarterly Report on
	Form 10-Q for the quarterly period ended September 30,
	1998, is hereby incorporated herein by reference.
|        | 10.13 |  |  |  |  | Employment Agreement, dated July 1, 1998, by and between
	the Company and Edward L. Hardin, Jr., filed as Exhibit 
	10.16 to the Companys Annual Report on Form 10-K for
	the year ended December 31, 1998, is hereby incorporated
	herein by reference.                                 
|        | 10.14 |  |  |  |  | Nonqualified Stock Option Agreement, dated August 6, 1998,
	by and between the Company and Edward L. Hardin, Jr., filed as
	Exhibit 10.11 to the Companys Annual Report on
	Form  10-K for the year ended December 31, 1999, is
	hereby incorporated herein by reference.                
|        | 10.15 |  |  |  |  | Amendment No. 1 to Employment Agreement, dated
	March 8, 2000, by and between the Company and Edward L.
	Hardin, Jr., filed as Exhibit 10.12 to the Companys
	Annual Report on Form 10-K for the year ended
	December 31, 1999, is hereby incorporated herein by
	reference.             
|        | 10.16 |  |  |  |  | Employment Agreement dated June 1, 2000, by and between the
	Company and Brad Karro filed as Exhibit 10.7 to the
	Companys Quarterly Report on Form 10-Q for the
	quarterly period ended June 30, 2000, is hereby
	incorporated herein by reference.                                     
|        | 10.17 |  |  |  |  | The Companys Amended and Restated Incentive Compensation
	Plan, filed as Exhibit 10.4 to the Companys Quarterly
	Report on Form 10-Q for the quarterly period ended
	September 30, 2000, is hereby incorporated herein by
	reference.                                                   
|        | 10.18 |  |  |  |  | First Amendment to the Companys Amended and Restated
	Incentive Compensation Plan, dated November 15, 2000.                                                                                                                                                                              
|        | 10.19 |  |  |  |  | Second Amendment to the Companys Amended and Restated
	Incentive Compensation Plan, dated January 12, 2001.                                                                                                                                                                              
|        | 10.20 |  |  |  |  | The Companys Amended and Restated 1993 Stock Option Plan,
	filed as Exhibit 10.5 to the Companys Quarterly
	Report on Form 10-Q for the quarterly period ended
	September 30, 2000, is hereby incorporated herein by
	reference.                                                        
|        | 10.21 |  |  |  |  | First Amendment to the Companys Amended and Restated 1993
	Stock Option Plan, dated November 15, 2000.                                                                                                                                                                                   
|        | 10.22 |  |  |  |  | Second Amendment to the Companys Amended and Restated 1993
	Stock Option Plan, dated January 12, 2001.                                                                                                                                                                                   
|        | 10.23 |  |  |  |  | The Companys Amended and Restated 1994 Stock Option Plan,
	filed as Exhibit 10.6 to the Companys Quarterly
	Report on Form 10-Q for the quarterly period ended
	September 30, 2000, is hereby incorporated herein by
	reference.                                                        

26



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|        |       |  |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------- | ----- |  |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |  |  |  
|No.     |       |  |  |  
|        |       |  |  |  
|        | 10.24 |  |  |  |  | First Amendment to the Companys Amended and Restated 1994
	Stock Option Plan, dated November 15, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | 10.25 |  |  |  |  | Second Amendment to the Companys Amended and Restated 1994
	Stock Option Plan, dated January 12, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | 10.26 |  |  |  |  | The Companys Non-Employee Director Stock Option Plan,
	filed as Exhibit 4.2 to the Companys Registration
	statement on Form S-8 (Registration No. 333-14163), is
	hereby incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                   
|        | 10.27 |  |  |  |  | The Companys Amended and Restated 1995 Stock Option Plan,
	filed as Exhibit 10.7 to the Companys Quarterly
	Report on Form 10-Q for the quarterly period ended
	September 30, 2000, is hereby incorporated herein by
	reference.                                                                                                                                                                                                                                                                                                                             
|        | 10.28 |  |  |  |  | First Amendment to the Companys Amended and Restated 1995
	Stock Option Plan, dated November 15, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | 10.29 |  |  |  |  | Second Amendment to the Companys Amended and Restated 1995
	Stock Option Plan, dated January 12, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | 10.30 |  |  |  |  | The Companys Amended and Restated 1997 Long Term Incentive
	Compensation Plan, filed as Exhibit 10.8 to the
	Companys Quarterly Report on Form 10-Q for the
	quarterly period ended September 30, 2000, is hereby
	incorporated herein by reference.                                                                                                                                                                                                                                                                                                         
|        | 10.31 |  |  |  |  | First Amendment to the Companys 1997 Long Term Incentive
	Compensation Plan, dated November 15, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10.32 |  |  |  |  | Second Amendment to the Companys 1997 Long Term Incentive
	Compensation Plan, dated January 12, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10.33 |  |  |  |  | The Companys Amended and Restated 1998 Employee Stock
	Option Plan, filed as Exhibit 10.9 to the Companys
	Quarterly Report on Form 10-Q for the quarterly period
	ended September 30, 2000, is hereby incorporated herein by
	reference.                                                                                                                                                                                                                                                                                                                    
|        | 10.34 |  |  |  |  | First Amendment to the Companys Amended and Restated 1998
	Employee Stock Option Plan, dated November 15, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | 10.35 |  |  |  |  | Second Amendment to the Companys Amended and Restated 1998
	Employee Stock Option Plan, dated January 12, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | 10.36 |  |  |  |  | The Companys Amended and Restated 1998 New Employee Stock
	Option Plan, filed as Exhibit 10.10 to the Companys
	Quarterly Report on Form 10-Q for the quarterly period
	ended September 30, 2000, is hereby incorporated herein by
	reference.                                                                                                                                                                                                                                                                                                               
|        | 10.37 |  |  |  |  | First Amendment to the Companys Amended and Restated 1998
	New Employee Stock Option Plan dated November 15, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 10.38 |  |  |  |  | Second Amendment to the Companys Amended and Restated 1998
	New Employee Stock Option Plan, dated January 12, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 10.39 |  |  |  |  | Amended and Restated Receivables Transfer Agreement, dated as of
	January 31, 2001, among MP Receivables Company, as
	transferor, Caremark Inc., as originator and collection agent,
	Redwood Receivables Corporation, Park Avenue Receivables
	Corporation, The Chase Manhattan Bank, as agent for Park Avenue
	Receivables Corporation and the PARCO APA Banks (as defined
	therein), and General Electric Capital Corporation, as agent for
	Redwood Receivables Corporation and the Redwood Liquidity
	Providers (as defined therein) and as funding agent.
|        | 10.40 |  |  |  |  | Amended and Restated Receivables Purchase Agreement, dated as of
	January 31, 2001, among Caremark Inc., as seller, and MP
	Receivables Company, as buyer.                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 10.41 |  |  |  |  | $1 Billion Third Amended and Restated Credit Agreement, dated
	June 9, 1998, by and between MedPartners, Inc.,
	NationsBank, National Association (successor by merger of
	NationsBank, National Association (South)), as Administrative
	Agent for Lenders, The First National Bank of Chicago, as
	Documentation Agent for Lenders, and the Lenders thereto, filed
	as Exhibit 10.1 to the Companys Quarterly Report on
	Form 10-Q for the quarterly period ended June  30,
	1998, is hereby incorporated herein by reference.                              

27



---



|        |       |  |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------- | ----- |  |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |  |  |  
|No.     |       |  |  |  
|        |       |  |  |  
|        | 10.42 |  |  |  |  | Amendment and Waiver No. 1 to the Third Amended and
	Restated Credit Agreement, dated December 4, 1998, by and
	between the Company, Bank of America, N.A., Credit Lyonnais New
	York Branch, The First National Bank of Chicago, Morgan Guaranty
	Trust Company of New York, Bank of America Securities LLC, and
	Bank of America, filed as Exhibit 10.1 to the
	Companys Current Report on Form 8-K filed on
	January 15, 1999, is hereby incorporated herein by
	reference.                     
|        | 10.43 |  |  |  |  | Amendment and Waiver No. 2 to the Third Amended and
	Restated Credit Agreement, dated January 13, 1999, by and
	between the Company, Bank of America, N.A., Credit Lyonnais New
	York Branch, The First National Bank of Chicago, Morgan Guaranty
	Trust Company of New York, Bank of America Securities LLC, and
	Bank of America, filed as Exhibit 10.2 to the
	Companys Current Report on Form 8-K filed on
	January 15, 1999, is hereby incorporated herein by
	reference.                     
|        | 10.44 |  |  |  |  | Amendment and Waiver No. 3 to the Third Amended and
	Restated Credit Agreement, dated February 9, 1999, by and
	between the Company, Bank of America, N.A., Credit Lyonnais New
	York Branch, The First National Bank of Chicago, Morgan Guaranty
	Trust Company of New York, Bank of America Securities LLC, and
	Bank of America, filed as Exhibit 10.31 to the
	Companys Annual Report on Form 10-K for the year
	ended December 31, 1998, is hereby incorporated herein by
	reference.         
|        | 10.45 |  |  |  |  | Amendment and Waiver No. 4 to the Third Amended and
	Restated Credit Agreement, dated March 18, 1999, by and
	between the Company, Bank of America, N.A., Credit Lyonnais New
	York Branch, The First National Bank of Chicago, Morgan Guaranty
	Trust Company of New York, Bank of America Securities LLC, and
	Bank of America, filed as Exhibit 10.32 to the
	Companys Annual Report on Form 10-K for the year
	ended December 31, 1998, is hereby incorporated herein by
	reference.           
|        | 10.46 |  |  |  |  | Amendment and Waiver No. 5 to the Third Amended and
	Restated Credit Agreement, dated April 1, 1999, by and
	between the Company, Bank of America, N.A., Credit Lyonnais New
	York Branch, The First National Bank of Chicago, Morgan Guaranty
	Trust Company of New York, Bank of America Securities LLC, and
	Bank of America, filed as Exhibit 10.33 to the
	Companys Annual Report on Form 10-K for the year
	ended December 31, 1998, is hereby incorporated herein by
	reference.            
|        | 10.47 |  |  |  |  | Amendment and Waiver No. 6 to the Third Amended and
	Restated Credit Agreement, dated April 14, 1999, by and
	between the Company, Bank of America, N.A., Credit Lyonnais New
	York Branch, The First National Bank of Chicago, Morgan Guaranty
	Trust Company of New York, Bank of America Securities LLC, and
	Bank of America, filed as Exhibit 10.1 to the
	Companys Quarterly Report on Form 10-Q for the quarterly
	period ended March 31, 1999, is hereby incorporated herein
	by reference.
|        | 10.48 |  |  |  |  | Amendment and Waiver No. 7 to the Third Amended and
	Restated Credit Agreement, dated June 29, 1999, by and
	between the Company, Bank of America, N.A., Credit Lyonnais New
	York Branch, The First National Bank of Chicago, Morgan Guaranty
	Trust Company of New York, Bank of America Securities LLC, and
	Bank of America, filed as Exhibit 10.1 to the
	Companys Quarterly Report on Form 10-Q for the quarterly
	period ended June 30, 1999, is hereby incorporated herein
	by reference.  
|        | 10.49 |  |  |  |  | Amendment and Waiver No. 8 to the Third Amended and
	Restated Credit Agreement, dated August 2, 1999, by and
	between the Company, Bank of America, N.A., Credit Lyonnais New
	York Branch, The First National Bank of Chicago, Morgan Guaranty
	Trust Company of New York, Bank of America Securities LLC, and
	Bank of America, filed as Exhibit 10.2 to the
	Companys Quarterly Report on Form 10-Q for the quarterly
	period ended June 30, 1999, is hereby incorporated herein
	by reference. 

28



---



|        |       |  |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------- | ----- |  |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |  |  |  
|No.     |       |  |  |  
|        |       |  |  |  
|        | 10.50 |  |  |  |  | Amendment and Waiver No. 9 to the Third Amended and
	Restated Credit Agreement, dated August 16, 1999, by and
	between the Company, Bank of America, N.A., Credit Lyonnais New
	York Branch, The First National Bank of Chicago, Morgan Guaranty
	Trust Company of New York, Bank of America Securities LLC, and
	Bank of America, filed as Exhibit 10.1 to the
	Companys Quarterly Report on Form 10-Q for the quarterly
	period ended September 30, 1999, is hereby incorporated
	herein by reference.    
|        | 10.51 |  |  |  |  | Amendment and Waiver No. 10 to the Third Amended and
	Restated Credit Agreement, dated August 23, 1999, by and
	between the Company, Bank of America, N.A., Credit Lyonnais New
	York Branch, The First National Bank of Chicago, Morgan Guaranty
	Trust Company of New York, Bank of America Securities LLC, and
	Bank of America, filed as Exhibit 10.2 to the
	Companys Quarterly Report on Form 10-Q for the quarterly
	period ended September 30, 1999, is hereby incorporated
	herein by reference.   
|        | 10.52 |  |  |  |  | Amendment and Waiver No. 11 to the Third Amended and
	Restated Credit Agreement, dated August 30, 1999, by and
	between the Company, Bank of America, N.A., Credit Lyonnais New
	York Branch, The First National Bank of Chicago, Morgan Guaranty
	Trust Company of New York, Bank of America Securities LLC, and
	Bank of America, filed as Exhibit 10.3 to the
	Companys Quarterly Report on Form 10-Q for the quarterly
	period ended September 30, 1999, is hereby incorporated
	herein by reference.   
|        | 10.53 |  |  |  |  | Amendment and Waiver No. 12 to the Third Amended and
	Restated Credit Agreement, dated September 14, 1999, by and
	between the Company, Bank of America, N.A., Credit Lyonnais New
	York Branch, The First National Bank of Chicago, Morgan Guaranty
	Trust Company of New York, Bank of America Securities LLC, and
	Bank of America, filed as Exhibit 10.4 to the
	Companys Quarterly Report on Form 10-Q for the quarterly
	period ended September 30, 1999, is hereby incorporated
	herein by reference.
|        | 10.54 |  |  |  |  | Amendment and Waiver No. 13 to the Third Amended and
	Restated Credit Agreement, dated November 5, 1999, by and
	between the Company, Bank of America, N.A., Credit Lyonnais New
	York Branch, The First National Bank of Chicago, Morgan Guaranty
	Trust Company of New York, Bank of America Securities LLC, and
	Bank of America, filed as Exhibit 10.5 to the
	Companys Quarterly Report on Form 10-Q for the quarterly
	period ended September 30, 1999, is hereby incorporated
	herein by reference.  
|        | 10.55 |  |  |  |  | Amendment and Waiver No. 14 to the Third Amended and
	Restated Credit Agreement, dated December 16, 1999, by and
	between the Company, NationsBank, Credit Lyonnais New York
	Branch, The First National Bank of Chicago, Morgan Guaranty
	Trust Company of New York, NationsBanc Montgomery Securities
	LLC, and NationsBank, N.A, filed with the Companys Annual
	Report on Form 10-K for the year ended December 31,
	1999, is hereby incorporated herein by reference.                                  
|        | 10.56 |  |  |  |  | Amendment and Waiver No. 15 to the Third Amended and
	Restated Credit Agreement, dated January 20, 2000 by and
	between the Company, NationsBank, N.A., Credit Lyonnais New York
	Branch, The First National Bank of Chicago, Morgan Guaranty
	Trust Company of New York, and NationsBanc Montgomery Securities
	LLC, filed with the Companys Annual Report on
	Form 10-K for the year ended December 31, 1999, is
	hereby incorporated herein by reference.                                                
|        | 10.57 |  |  |  |  | Amendment and Waiver No. 16 to the Third Amended and
	Restated Credit Agreement dated February 3, 2000, by and
	between the Company, NationsBank, N.A., Lyonnais New York
	Branch, The First National Bank of Chicago, Morgan Guaranty
	Trust Company of New York, NationsBanc Montgomery Securities LLC
	and NationsBank, N.A, filed with the Companys Annual
	Report on Form 10-K for the year ended December 31,
	1999, is hereby incorporated herein by reference.                                      

29



---



|        |       |  |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------- | ----- |  |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |  |  |  
|No.     |       |  |  |  
|        |       |  |  |  
|        | 10.58 |  |  |  |  | Amendment and Waiver No. 17 to the Third Amended and
	Restated Credit Agreement, dated April 10, 2000, among the
	Company, Bank of America, N.A., Credit Lyonnais New York Branch,
	The First National Bank of Chicago, Morgan Guaranty Trust
	Company of New York, Banc of America Securities LLC, and Bank of
	America, N.A. , filed as Exhibit 10.1 to the Companys
	Quarterly Report on Form 10-Q for the quarterly period ended
	June 30, 2000, is hereby incorporated herein by reference.      
|        | 10.59 |  |  |  |  | Amendment and Waiver No. 18 to the Third Amended and
	Restated Credit Agreement, dated April 10, 2000, among the
	Company, Bank of America, N.A., Credit Lyonnais New York Branch,
	The First National Bank of Chicago, Morgan Guaranty Trust
	Company of New York, Banc of America Securities LLC, and Bank of
	America, N.A. , filed as Exhibit 10.2 to the Companys
	Quarterly Report on Form 10-Q for the quarterly period ended
	June 30, 2000, is hereby incorporated herein by reference.      
|        | 10.60 |  |  |  |  | Amendment and Waiver No. 19 to the Third Amended and
	Restated Credit Agreement, dated August 8, 2000, among the
	Company, Bank of America, N.A., Credit Lyonnais New York Branch,
	The First National Bank of Chicago, Morgan Guaranty Trust
	Company of New York, Banc of America Securities LLC, and Bank of
	America, N.A., filed as Exhibit 10.1 to the Companys
	Quarterly Report on Form 10-Q for the quarterly period ended
	September 30, 2000, is hereby incorporated herein by
	reference. 
|        | 10.61 |  |  |  |  | Amendment and Waiver No. 20 to the Third Amended and
	Restated Credit Agreement, dated August 31, 2000, among the
	Company, Bank of America, N.A., Credit Lyonnais New York Branch,
	The First National Bank of Chicago, Morgan Guaranty Trust
	Company of New York, Banc of America Securities LLC, and Bank of
	America, N.A., filed as Exhibit 10.1 to the Companys
	Quarterly Report on Form 10-Q for the quarterly period ended
	September 30, 2000, is hereby incorporated herein by
	reference.
|        | 10.62 |  |  |  |  | Amendment and Waiver No. 21 to the Third Amended and
	Restated Credit Agreement, dated January 23, 2001, among
	the Company, Bank of America, N.A., Credit Lyonnais New York
	Branch, The First National Bank of Chicago, Morgan Guaranty
	Trust Company of New York, Banc of America Securities LLC, and
	Bank of America, N.A.                                                                                                                                                                       
|        | 10.63 |  |  |  |  | Credit Agreement, dated as of March 15, 2001, by and
	between the Company, the Initial Lenders named therein, Bank of
	America, N.A., J.P. Morgan, a division of Chase Securities,
	Inc., First Union National Bank, and Banc of America Securities
	LLC.                                                                                                                                                                                                                                              
|        | 10.64 |  |  |  |  | Text of Final Order approving the class action settlement in the
	class action lawsuit entitled James Taff et al. v. Caremark Rx,
	Inc. et al., Case No. 0072, filed as Exhibit 99.2 to the
	Companys Current Report on Form 8-K filed on
	June 13, 2000, is hereby incorporated herein by reference.                                                                                                                                                                                                 
|        | 10.65 |  |  |  |  | Pledge Agreement, dated November 4, 1999, from the Company
	as Grantor to Lasalle Bank National Association as Trustee,
	filed with the Companys Annual Report on Form 10-K
	for the year ended December 31, 1999, is hereby
	incorporated herein by reference.                                                                                                                                                                                                                                       
|        | 10.66 |  |  |  |  | Trust Agreement, dated November 4, 1999, by and among the
	Company and Lasalle Bank National Association as Trustee, filed
	with the Companys Annual Report on Form 10-K for the
	year ended December 31, 1999, is hereby incorporated herein
	by reference.                                                                                                                                                                                                                                          
|        | 10.67 |  |  |  |  | Pledge and Security Agreement, dated March 15, 2001, for
	the Company and its material subsidiaries, as Grantors, to
	LaSalle Bank National Association as Trustee.                                                                                                                                                                                                                                                                                                                                    
|        | 10.68 |  |  |  |  | Trust Agreement, dated March 15, 2001, for the Company and
	its material subsidiaries, as Grantors, to LaSalle Bank National
	Association as Trustee.                                                                                                                                                                                                                                                                                                                                                  
|        | 21    |  |  |  |  | Subsidiaries of the Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 23.1  |  |  |  |  | Consent of Arthur Andersen LLP                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 23.2  |  |  |  |  | Consent of Ernst & Young LLP                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

30



---



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Registrant has duly
caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.



| |                  
| | -----------------
| | Caremark Rx, Inc.



| |     |                     
| | --- | --------------------
| | By: | /s/ HOWARD A. MCLURE

| |                             
| | ----------------------------
| |                             
| | Howard A. McLure            
| | Executive Vice President and
| | Chief Financial Officer     

Date: March 15, 2001

Pursuant to the requirements of the Securities Act of 1934,
this Report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.

|                                                   |  |                                                                |  |               
|-------------------------------------------------- |  | -------------------------------------------------------------- |  | --------------
|Signature                                          |  | Capacity                                                       |  | Date          
|                                                   |  |                                                                |  |               
|/s/ EDWIN M. CRAWFORDEdwin M. Crawford             |  | Chief Executive Officer and Chairman of the Board of Directors |  | March 15, 2001
|/s/ JAMES H. DICKERSON, JR.James H. Dickerson, Jr. |  | President, Chief Operating Officer and Director                |  | March 15, 2001
|/s/ EDWARD L. HARDINEdward L. Hardin               |  | Executive Vice President, General Counsel and Director         |  | March 15, 2001
|/s/ HOWARD A. MCLUREHoward A. McLure               |  | Executive Vice President and Chief Financial Officer           |  | March 15, 2001
|/s/ MARK S. WEEKSMark S. Weeks                     |  | Senior Vice President and Controller                           |  | March 16, 2001
|/s/ EDWIN M. BANKSEdwin M. Banks                   |  | Director                                                       |  | March 15, 2001
|/s/ HARRIS DIAMONDHarris Diamond                   |  | Director                                                       |  | March 20, 2001
|/s/ KRISTEN GIBNEYKristen Gibney                   |  | Director                                                       |  | March 15, 2001
|/s/ ROGER L. HEADRICKRoger L. Headrick             |  | Director                                                       |  | March 15, 2001
|/s/ MICHAEL D. MARTINMichael D. Martin             |  | Director                                                       |  | March 15, 2001
|/s/ TED H. MCCOURTNEYTed H. McCourtney             |  | Director                                                       |  | March 15, 2001
|/s/ CHARLES W. NEWHALL, IIICharles W. Newhall, III |  | Director                                                       |  | March 15, 2001
|/s/ C.A. LANCE PICCOLOC.A. Lance Piccolo           |  | Director                                                       |  | March 15, 2001

31



---



CAREMARK RX, INC. AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

The following audited consolidated financial statements of the
registrant and its subsidiaries are submitted herewith in
response to Item 8 and Item 14(a)(1):

|                                                                                                                  |  |      |     | 
|----------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                  |  | Page
|                                                                                                                  |  |     
|Report of Arthur Andersen LLP, Independent Public Accountants
	(2000)                                             |  |      | F-2 | 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|Report of Ernst & Young LLP, Independent Auditors (1999 and
	1998)                                                |  |      | F-3 | 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|Consolidated balance sheets as of December 31, 2000 and 1999                                                      |  |      | F-4 | 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|Consolidated statements of operations for the years ended
	December 31, 2000, 1999 and 1998                       |  |      | F-5 | 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|Consolidated statements of changes in stockholders deficit
	for the years ended December 31, 2000, 1999 and 1998 |  |      | F-6 | 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|Consolidated statements of cash flows for the years ended
	December 31, 2000, 1999 and 1998                       |  |      | F-7 | 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|Notes to consolidated financial statements                                                                        |  |      | F-8 | 

The following financial statement schedule of the registrant and
its subsidiaries is submitted herewith in response to Item
14(a)(2):

|                                                              |  |      |     | 
|------------------------------------------------------------- |  | ---- | --- | 
|                                                              |  | Page
|                                                              |  |     
|Report of Arthur Andersen LLP, Independent Public Accountants |  |      | S-1 | 
|                                                             
|                                                             
|                                                             
|                                                             
|Schedule II  Valuation and qualifying accounts               |  |      | S-2 | 

F-1



---



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Caremark Rx, Inc.:

We have audited the accompanying consolidated balance sheet of
Caremark Rx, Inc. (a Delaware corporation) and subsidiaries as
of December 31, 2000, and the related consolidated
statements of operations, changes in stockholders deficit
and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit.

We conducted our audit in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Caremark Rx, Inc. and subsidiaries as of
December 31, 2000, and the consolidated results of their
operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the
United States.



| |                        
| | -----------------------
| | /s/ ARTHUR ANDERSEN LLP
| | Arthur Andersen LLP    

Atlanta, Georgia





F-2



---



REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

Board of Directors



We have audited the accompanying consolidated balance sheet of
Caremark Rx, Inc. as of December 31, 1999, and the related
consolidated statements of operations, changes in
stockholders deficit and cash flows for each of the two
years in the period ended December 31, 1999. Our audits
also included the financial statement schedule listed in the
index at Item 14(a)(2) for the two years in the period
ended December 31, 1999. These financial statements and
schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Caremark Rx, Inc. at December 31,
1999, and the consolidated results of its operations and its
cash flows for each of the two years in the period ended
December 31, 1999, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion,
the related financial statement schedule for the two years in
the period ended December 31, 1999, when considered in
relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set
forth therein.

As discussed in Note 1 to the financial statements, in 1998 the
Company changed its method of accounting for start-up costs.



| |                  
| | -----------------
| | Ernst & Young LLP

Birmingham, Alabama



F-3



---



CAREMARK RX, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)


|                                                 |                                                                                                                                        |                                             |         |            |           |   |           |            |            |  
|------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------- | ------- | ---------- | --------- | - | --------- | ---------- | ---------- | -
|                                                 |                                                                                                                                        |                                            
|                                                 |                                                                                                                                        | December 31,                               
|                                                 |                                                                                                                                        |                                            
|                                                 |                                                                                                                                        | 2000                                        |         | 1999      
|                                                 |                                                                                                                                        |                                             |         |           
|                                                
|                                                
|                                                
|                                                
|ASSETS                                          
|                                                
|                                                
|                                                
|                                                
|Current assets:                                  |                                                                                                                                        |                                             |         |            |           |   |           |           
|                                                
|                                                
|                                                
|                                                
|                                                 | Cash and cash equivalents                                                                                                              |                                             | $       | 2,352      |           |   | $         | 6,797      |           
|                                                
|                                                
|                                                
|                                                
|                                                 | Accounts receivable, less allowance for doubtful accounts of
	$17,920 in 2000 and $14,146 in 1999                                      |                                             |         | 249,766    |           |   |           | 229,332    |           
|                                                
|                                                
|                                                
|                                                
|                                                 | Inventories                                                                                                                            |                                             |         | 186,231    |           |   |           | 159,031    |           
|                                                
|                                                
|                                                
|                                                
|                                                 | Prepaid expenses and other current assets                                                                                              |                                             |         | 8,757      |           |   |           | 14,880     |           
|                                                
|                                                
|                                                
|                                                
|                                                 | Current assets of discontinued operations                                                                                              |                                             |         | 6,221      |           |   |           | 124,616    |           
|                                                 |                                                                                                                                        |                                             |         |            |           |   |           |           
|                                                 |                                                                                                                                        | Total current assets                        |         |            | 453,327   |   |           |            | 534,656    |  
|                                                
|                                                
|                                                
|                                                
|Property and equipment, net                      |                                                                                                                                        |                                             | 110,320 |            |           |   | 108,168   |           
|                                                
|                                                
|                                                
|                                                
|Intangible assets, net                           |                                                                                                                                        |                                             | 35,165  |            |           |   | 41,080    |           
|                                                
|                                                
|                                                
|                                                
|Other assets                                     |                                                                                                                                        |                                             | 79,723  |            |           |   | 79,740    |           
|                                                
|                                                
|                                                
|                                                
|Non-current assets of discontinued operations    |                                                                                                                                        |                                             | 7,001   |            |           |   | 7,202     |           
|                                                 |                                                                                                                                        |                                             |         |            |           |   |           |           
|                                                 |                                                                                                                                        | Total assets                                |         | $          | 685,536   |   |           | $          | 770,846    |  
|                                                 |                                                                                                                                        |                                             |         |            |           |   |           |           
|                                                
|                                                
|                                                
|                                                
|LIABILITIES AND STOCKHOLDERS DEFICIT           
|                                                
|                                                
|                                                
|                                                
|Current liabilities:                             |                                                                                                                                        |                                             |         |            |           |   |           |           
|                                                
|                                                
|                                                
|                                                
|                                                 | Accounts payable                                                                                                                       |                                             | $       | 417,567    |           |   | $         | 275,119    |           
|                                                
|                                                
|                                                
|                                                
|                                                 | Other accrued expenses and liabilities                                                                                                 |                                             |         | 169,857    |           |   |           | 162,768    |           
|                                                
|                                                
|                                                
|                                                
|                                                 | Income taxes payable                                                                                                                   |                                             |         | 2,533      |           |   |           | 6,978      |           
|                                                
|                                                
|                                                
|                                                
|                                                 | Current portion of long-term debt                                                                                                      |                                             |         | 1,875      |           |   |           | 19,371     |           
|                                                
|                                                
|                                                
|                                                
|                                                 | Current liabilities of discontinued operations                                                                                         |                                             |         | 43,405     |           |   |           | 99,170     |           
|                                                 |                                                                                                                                        |                                             |         |            |           |   |           |           
|                                                 |                                                                                                                                        | Total current liabilities                   |         |            | 635,237   |   |           |            | 563,406    |  
|                                                
|                                                
|                                                
|                                                
|Long-term debt, net of current portion           |                                                                                                                                        |                                             | 733,347 |            |           |   | 1,230,025 |           
|                                                
|                                                
|                                                
|                                                
|Other long-term liabilities                      |                                                                                                                                        |                                             | 82,398  |            |           |   | 46,453    |           
|                                                
|                                                
|                                                
|                                                
|Long-term liabilities of discontinued operations |                                                                                                                                        |                                             | 3,618   |            |           |   | 12,437    |           
|                                                 |                                                                                                                                        |                                             |         |            |           |   |           |           
|                                                 |                                                                                                                                        | Total liabilities                           |         |            | 1,454,600 |   |           |            | 1,852,321  |  
|Commitments and contingencies                    |                                                                                                                                        |                                             |         |            |           |   |           |           
|                                                
|                                                
|                                                
|                                                
|Convertible Preferred Securities                 |                                                                                                                                        |                                             | 200,000 |            |           |   | 200,000   |           
|                                                
|                                                
|                                                
|                                                
|Stockholders deficit:                           |                                                                                                                                        |                                             |         |            |           |   |           |           
|                                                
|                                                
|                                                
|                                                
|                                                 | Common stock, $.001 par value; 400,000 shares authorized; issued
	and outstanding  230,755 shares in 2000 and 199,523
	shares in 1999 |                                             |         | 231        |           |   |           | 200        |           
|                                                
|                                                
|                                                
|                                                
|                                                 | Additional paid-in capital                                                                                                             |                                             |         | 1,399,902  |           |   |           | 949,177    |           
|                                                
|                                                
|                                                
|                                                
|                                                 | Shares held in trust  7,152 in 2000 and 8,383 in 1999                                                                                 |                                             |         | (115,287   | )         |   |           | (135,141   | )         
|                                                
|                                                
|                                                
|                                                
|                                                 | Accumulated deficit                                                                                                                    |                                             |         | (2,253,910 | )         |   |           | (2,095,711 | )         
|                                                 |                                                                                                                                        |                                             |         |            |           |   |           |           
|                                                 |                                                                                                                                        | Total stockholders deficit                 |         |            | (969,064  | ) |           |            | (1,281,475 | )
|                                                 |                                                                                                                                        |                                             |         |            |           |   |           |           
|                                                 |                                                                                                                                        | Total liabilities and stockholders deficit |         | $          | 685,536   |   |           | $          | 770,846    |  
|                                                 |                                                                                                                                        |                                             |         |            |           |   |           |           

The accompanying Notes to Consolidated Financial Statements are



F-4



---



CAREMARK RX, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)


|                                                                                            |                                                       |                         |           |           |   |      |           |           |   |   |            |           |  
|------------------------------------------------------------------------------------------- | ----------------------------------------------------- | ----------------------- | --------- | --------- | - | ---- | --------- | --------- | - | - | ---------- | --------- | -
|                                                                                            |                                                       |                        
|                                                                                            |                                                       | Year Ended December 31,
|                                                                                            |                                                       |                        
|                                                                                            |                                                       | 2000                    |           | 1999      |   | 1998
|                                                                                            |                                                       |                         |           |           |   |     
|Net revenue                                                                                 |                                                       | $                       | 4,430,144 |           |   | $    | 3,307,806 |           |   | $ | 2,634,017  |          
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Operating expenses:                                                                         |                                                       |                         |           |           |   |      |           |           |   |   |            |          
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Cost of revenues                                      |                         |           | 4,078,322 |   |      |           | 3,005,918 |   |   |            | 2,383,666 |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Selling, general and administrative expenses          |                         |           | 116,242   |   |      |           | 100,403   |   |   |            | 87,721    |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Depreciation and amortization                         |                         |           | 25,354    |   |      |           | 22,095    |   |   |            | 18,944    |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Interest expense, net                                 |                         |           | 97,042    |   |      |           | 115,292   |   |   |            | 84,574    |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Special charges                                       |                         |           |          |   |      |           |          |   |   |            | 9,500     |  
|                                                                                            |                                                       |                         |           |           |   |      |           |           |   |   |            |          
|                                                                                            |                                                       |                         | 4,316,960 |           |   |      | 3,243,708 |           |   |   | 2,584,405  |          
|                                                                                            |                                                       |                         |           |           |   |      |           |           |   |   |            |          
|Income from continuing operations before provision for income
	taxes                        |                                                       |                         | 113,184   |           |   |      | 64,098    |           |   |   | 49,612     |          
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Provision for income taxes                                                                  |                                                       |                         | 8,489     |           |   |      | 4,952     |           |   |   | 18,852     |          
|                                                                                            |                                                       |                         |           |           |   |      |           |           |   |   |            |          
|Income from continuing operations                                                           |                                                       |                         | 104,695   |           |   |      | 59,146    |           |   |   | 30,760     |          
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Preferred security dividends                                                                |                                                       |                         | 13,250    |           |   |      | 3,255     |           |   |   |           |          
|                                                                                            |                                                       |                         |           |           |   |      |           |           |   |   |            |          
|Income from continuing operations available to common
	stockholders                         |                                                       |                         | 91,445    |           |   |      | 55,891    |           |   |   | 30,760     |          
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Loss from discontinued operations, net of income tax expense of
	$243, 977 in 1998          |                                                       |                         | (268,000  | )         |   |      | (199,310  | )         |   |   | (1,284,878 | )        
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Cumulative effect of a change in accounting principle, net of
	income tax benefit of $3,890 |                                                       |                         |          |           |   |      |          |           |   |   | (6,348     | )        
|                                                                                            |                                                       |                         |           |           |   |      |           |           |   |   |            |          
|Net loss to common stockholders                                                             |                                                       | $                       | (176,555  | )         |   | $    | (143,419  | )         |   | $ | (1,260,466 | )        
|                                                                                            |                                                       |                         |           |           |   |      |           |           |   |   |            |          
|Average number of common shares outstanding  basic                                         |                                                       |                         | 206,042   |           |   |      | 190,734   |           |   |   | 189,327    |          
|                                                                                            |                                                       |                         |           |           |   |      |           |           |   |   |            |          
|Average number of common shares outstanding  diluted                                       |                                                       |                         | 214,025   |           |   |      | 194,950   |           |   |   | 189,927    |          
|                                                                                            |                                                       |                         |           |           |   |      |           |           |   |   |            |          
|Earnings per common share  basic:                                                          |                                                       |                         |           |           |   |      |           |           |   |   |            |          
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Income from continuing operations                     |                         | $         | 0.44      |   |      | $         | 0.29      |   |   | $          | 0.16      |  
|                                                                                            |                                                       |                         |           |           |   |      |           |           |   |   |            |          
|                                                                                            | Loss from discontinued operations                     |                         | $         | (1.30     | ) |      | $         | (1.04     | ) |   | $          | (6.79     | )
|                                                                                            |                                                       |                         |           |           |   |      |           |           |   |   |            |          
|                                                                                            | Cumulative effect of a change in accounting principle |                         | $         |          |   |      | $         |          |   |   | $          | (0.03     | )
|                                                                                            |                                                       |                         |           |           |   |      |           |           |   |   |            |          
|Net loss                                                                                    |                                                       | $                       | (0.86     | )         |   | $    | (0.75     | )         |   | $ | (6.66      | )        
|                                                                                            |                                                       |                         |           |           |   |      |           |           |   |   |            |          
|Earnings per common share  diluted:                                                        |                                                       |                         |           |           |   |      |           |           |   |   |            |          
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Income from continuing operations                     |                         | $         | 0.43      |   |      | $         | 0.29      |   |   | $          | 0.16      |  
|                                                                                            |                                                       |                         |           |           |   |      |           |           |   |   |            |          
|                                                                                            | Loss from discontinued operations                     |                         | $         | (1.25     | ) |      | $         | (1.03     | ) |   | $          | (6.77     | )
|                                                                                            |                                                       |                         |           |           |   |      |           |           |   |   |            |          
|                                                                                            | Cumulative effect of a change in accounting principle |                         | $         |          |   |      | $         |          |   |   | $          | (0.03     | )
|                                                                                            |                                                       |                         |           |           |   |      |           |           |   |   |            |          
|Net loss                                                                                    |                                                       | $                       | (0.82     | )         |   | $    | (0.74     | )         |   | $ | (6.64      | )        
|                                                                                            |                                                       |                         |           |           |   |      |           |           |   |   |            |          

The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements

F-5



---



CAREMARK RX, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS
DEFICIT

(In thousands)


|                                  |                                                                                    |                             |            |            |          |      |            |            |            |   |            |            |            |  
|--------------------------------- | ---------------------------------------------------------------------------------- | --------------------------- | ---------- | ---------- | -------- | ---- | ---------- | ---------- | ---------- | - | ---------- | ---------- | ---------- | -
|                                  |                                                                                    |                            
|                                  |                                                                                    | Year Ended December 31,    
|                                  |                                                                                    |                            
|                                  |                                                                                    | 2000                        |            | 1999       |          | 1998
|                                  |                                                                                    |                             |            |            |          |     
|Common stock:                     |                                                                                    |                             |            |            |          |      |            |            |            |   |            |           
|                                 
|                                 
|                                 
|                                 
|                                  | Balance  beginning of year                                                        |                             | $          | 200        |          |      | $          | 199        |            |   | $          | 198        |           
|                                 
|                                 
|                                 
|                                 
|                                  | Stock issued to TAPS holders upon conversion                                       |                             |            | 29         |          |      |            |           |            |   |            |           |           
|                                 
|                                 
|                                 
|                                 
|                                  | Exercise of employee stock options                                                 |                             |            | 2          |          |      |            | 1          |            |   |            |           |           
|                                 
|                                 
|                                 
|                                 
|                                  | Stock issued in business combinations                                              |                             |            |           |          |      |            |           |            |   |            | 1          |           
|                                  |                                                                                    |                             |            |            |          |      |            |            |            |   |            |           
|                                  | Balance  end of year                                                              |                             |            | 231        |          |      |            | 200        |            |   |            | 199        |           
|                                  |                                                                                    |                             |            |            |          |      |            |            |            |   |            |           
|Additional paid-in capital:       |                                                                                    |                             |            |            |          |      |            |            |            |   |            |           
|                                 
|                                 
|                                 
|                                 
|                                  | Balance  beginning of year                                                        |                             |            | 949,177    |          |      |            | 954,420    |            |   |            | 937,233    |           
|                                 
|                                 
|                                 
|                                 
|                                  | Stock issued to TAPS holders upon conversion, net of issuance
	costs               |                             |            | 473,972    |          |      |            |           |            |   |            |           |           
|                                 
|                                 
|                                 
|                                 
|                                  | Exercise of employee stock options                                                 |                             |            | 4,460      |          |      |            | 1,853      |            |   |            | 5,096      |           
|                                 
|                                 
|                                 
|                                 
|                                  | Exercise of employee stock options from shares held in trust                       |                             |            | (14,709    | )        |      |            |           |            |   |            |           |           
|                                 
|                                 
|                                 
|                                 
|                                  | Stock issued for employee stock purchase plan from shares held
	in trust           |                             |            | (1,213     | )        |      |            | (3,669     | )          |   |            | (4,177     | )         
|                                 
|                                 
|                                 
|                                 
|                                  | Stock issued in business combinations                                              |                             |            |           |          |      |            |           |            |   |            | 16,541     |           
|                                 
|                                 
|                                 
|                                 
|                                  | Preferred security dividends                                                       |                             |            | (13,250    | )        |      |            | (3,255     | )          |   |            |           |           
|                                 
|                                 
|                                 
|                                 
|                                  | Other                                                                              |                             |            | 1,465      |          |      |            | (172       | )          |   |            | (273       | )         
|                                  |                                                                                    |                             |            |            |          |      |            |            |            |   |            |           
|Balance  end of year             |                                                                                    |                             | 1,399,902  |            |          |      | 949,177    |            |            |   | 954,420    |           
|                                  |                                                                                    |                             |            |            |          |      |            |            |            |   |            |           
|Shares held in trust:             |                                                                                    |                             |            |            |          |      |            |            |            |   |            |           
|                                 
|                                 
|                                 
|                                 
|                                  | Balance  beginning of year                                                        |                             |            | (135,141   | )        |      |            | (142,477   | )          |   |            | (150,200   | )         
|                                 
|                                 
|                                 
|                                 
|                                  | Exercise of employee stock options                                                 |                             |            | 17,606     |          |      |            |           |            |   |            |           |           
|                                 
|                                 
|                                 
|                                 
|                                  | Stock issued for employee stock purchase plan                                      |                             |            | 2,248      |          |      |            | 7,336      |            |   |            | 7,723      |           
|                                  |                                                                                    |                             |            |            |          |      |            |            |            |   |            |           
|                                  | Balance  end of year                                                              |                             |            | (115,287   | )        |      |            | (135,141   | )          |   |            | (142,477   | )         
|                                  |                                                                                    |                             |            |            |          |      |            |            |            |   |            |           
|Accumulated deficit:              |                                                                                    |                             |            |            |          |      |            |            |            |   |            |           
|                                 
|                                 
|                                 
|                                 
|                                  | Accumulated deficit  beginning of year                                            |                             |            | (2,095,711 | )        |      |            | (1,956,315 | )          |   |            | (695,010   | )         
|                                 
|                                 
|                                 
|                                 
|                                  | Net loss (excludes preferred dividends)                                            |                             |            | (163,305   | )        |      |            | (140,164   | )          |   |            | (1,260,466 | )         
|                                 
|                                 
|                                 
|                                 
|                                  | Other comprehensive loss  unrealized gain
	(loss) on marketable equity securities |                             |            | (1,039     | )        |      |            | 768        |            |   |            | (839       | )         
|                                 
|                                 
|                                 
|                                 
|                                  | Reclassification adjustment for other comprehensive losses
	included in net loss   |                             |            | 6,145      |          |      |            |           |            |   |            |           |           
|                                  |                                                                                    |                             |            |            |          |      |            |            |            |   |            |           
|                                  |                                                                                    | Total comprehensive loss    |            |            | (158,199 | )    |            |            | (139,396   | ) |            |            | (1,261,305 | )
|                                  |                                                                                    |                             |            |            |          |      |            |            |            |   |            |           
|Accumulated deficit  end of year |                                                                                    |                             | (2,253,910 | )          |          |      | (2,095,711 | )          |            |   | (1,956,315 | )         
|                                  |                                                                                    |                             |            |            |          |      |            |            |            |   |            |           
|                                  |                                                                                    | Total stockholders deficit |            | $          | (969,064 | )    |            | $          | (1,281,475 | ) |            | $          | (1,144,173 | )
|                                  |                                                                                    |                             |            |            |          |      |            |            |            |   |            |           

The accompanying Notes to Consolidated Financial Statements are



F-6



---



CAREMARK RX, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                              |                                                                                                        |                                                                              |                                                                                                                 |                              |          |         |         |          |          |         |         |            |          |           |         |  
|--------------------------------------------- | ------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------- | ---------------------------- | -------- | ------- | ------- | -------- | -------- | ------- | ------- | ---------- | -------- | --------- | ------- | -
|                                              |                                                                                                        |                                                                             
|                                              |                                                                                                        | Year Ended December 31,                                                     
|                                              |                                                                                                        |                                                                             
|                                              |                                                                                                        | 2000                                                                         |                                                                                                                 | 1999                         |          | 1998   
|                                              |                                                                                                        |                                                                              |                                                                                                                 |                              |          |        
|                                              |                                                                                                        |                                                                             
|                                              |                                                                                                        | (In thousands)                                                              
|                                             
|                                             
|                                             
|                                             
|Cash flows from operating activities:         |                                                                                                        |                                                                              |                                                                                                                 |                              |          |         |         |          |          |         |         |           
|                                             
|                                             
|                                             
|                                             
|                                              | Net loss                                                                                               |                                                                              | $                                                                                                               | (163,305                     | )        |         | $       | (140,164 | )        |         | $       | (1,260,466 | )       
|                                             
|                                             
|                                             
|                                             
|                                              | Adjustments to reconcile net loss to net cash and cash
	equivalents provided by continuing operations: |                                                                              |                                                                                                                 |                              |          |         |         |          |          |         |         |            |         
|                                             
|                                             
|                                             
|                                             
|                                              |                                                                                                        |                                                                              | Loss from discontinued operations                                                                               |                              |          | 268,000 |         |          |          | 199,310 |         |            |          | 1,284,878 |        
|                                             
|                                             
|                                             
|                                             
|                                              |                                                                                                        |                                                                              | Depreciation and amortization                                                                                   |                              |          | 25,354  |         |          |          | 22,095  |         |            |          | 18,944    |        
|                                             
|                                             
|                                             
|                                             
|                                              |                                                                                                        |                                                                              | Provision for doubtful accounts                                                                                 |                              |          | 14,586  |         |          |          | 17,566  |         |            |          | 12,662    |        
|                                             
|                                             
|                                             
|                                             
|                                              |                                                                                                        |                                                                              | Non-cash interest expense                                                                                       |                              |          | 6,322   |         |          |          | 6,108   |         |            |          | 5,778     |        
|                                             
|                                             
|                                             
|                                             
|                                              |                                                                                                        |                                                                              | Deferred income taxes                                                                                           |                              |          |        |         |          |          |        |         |            |          | 18,852    |        
|                                             
|                                             
|                                             
|                                             
|                                              |                                                                                                        |                                                                              | Cumulative effect of a change in accounting principle                                                           |                              |          |        |         |          |          |        |         |            |          | 6,348     |        
|                                             
|                                             
|                                             
|                                             
|                                              |                                                                                                        |                                                                              | Special charges                                                                                                 |                              |          |        |         |          |          |        |         |            |          | 9,500     |        
|                                             
|                                             
|                                             
|                                             
|                                              |                                                                                                        |                                                                              | Changes in operating assets and liabilities, net of effects of
	acquisitions of businesses and special charges: |                              |          |         |         |          |          |         |         |            |          |           |        
|                                             
|                                             
|                                             
|                                             
|                                              |                                                                                                        |                                                                              |                                                                                                                 | Accounts receivable          |          |         | (35,984 | )        |          |         | (85,569 | )          |          |           | 11,235  |  
|                                             
|                                             
|                                             
|                                             
|                                              |                                                                                                        |                                                                              |                                                                                                                 | Inventories                  |          |         | (27,200 | )        |          |         | 16,462  |            |          |           | (33,504 | )
|                                             
|                                             
|                                             
|                                             
|                                              |                                                                                                        |                                                                              |                                                                                                                 | Accounts payable             |          |         | 137,240 |          |          |         | 58,888  |            |          |           | 23,353  |  
|                                             
|                                             
|                                             
|                                             
|                                              |                                                                                                        |                                                                              |                                                                                                                 | Other assets and liabilities |          |         | (3,638  | )        |          |         | (8,469  | )          |          |           | (13,660 | )
|                                              |                                                                                                        |                                                                              |                                                                                                                 |                              |          |         |         |          |          |         |         |           
|                                              |                                                                                                        | Net cash and cash equivalents provided by continuing operations              |                                                                                                                 |                              | 221,375  |         |         |          | 86,227   |         |         |            | 83,920   |          
|                                             
|                                             
|                                             
|                                             
|Cash flows from investing activities:         |                                                                                                        |                                                                              |                                                                                                                 |                              |          |         |         |          |          |         |         |           
|                                             
|                                             
|                                             
|                                             
|                                              | Capital expenditures                                                                                   |                                                                              |                                                                                                                 | (23,245                      | )        |         |         | (20,350  | )        |         |         | (28,661    | )       
|                                             
|                                             
|                                             
|                                             
|                                              | Acquisitions of businesses, net of cash acquired                                                       |                                                                              |                                                                                                                 | (1,632                       | )        |         |         | (13,219  | )        |         |         |           |         
|                                             
|                                             
|                                             
|                                             
|                                              | Proceeds from sales of property and equipment, net                                                     |                                                                              |                                                                                                                 |                             |          |         |         |         |          |         |         | 8,523      |         
|                                              |                                                                                                        |                                                                              |                                                                                                                 |                              |          |         |         |          |          |         |         |           
|                                              |                                                                                                        | Net cash and cash equivalents used in investing activities                   |                                                                                                                 |                              | (24,877  | )       |         |          | (33,569  | )       |         |            | (20,138  | )        
|                                             
|                                             
|                                             
|                                             
|Cash flows from financing activities:         |                                                                                                        |                                                                              |                                                                                                                 |                              |          |         |         |          |          |         |         |           
|                                             
|                                             
|                                             
|                                             
|                                              | Proceeds from issuance of equity securities, net                                                       |                                                                              |                                                                                                                 | 482,919                      |          |         |         | 2,744    |          |         |         | 8,369      |         
|                                             
|                                             
|                                             
|                                             
|                                              | Payments on subordinated debt                                                                          |                                                                              |                                                                                                                 | (420,000                     | )        |         |         |         |          |         |         |           |         
|                                             
|                                             
|                                             
|                                             
|                                              | Net borrowings (repayments) under credit facility                                                      |                                                                              |                                                                                                                 | (94,174                      | )        |         |         | (485,504 | )        |         |         | 340,399    |         
|                                             
|                                             
|                                             
|                                             
|                                              | Net proceeds from issuance of convertible preferred securities                                         |                                                                              |                                                                                                                 |                             |          |         |         | 192,128  |          |         |         |           |         
|                                             
|                                             
|                                             
|                                             
|                                              | Dividend payments on convertible preferred securities                                                  |                                                                              |                                                                                                                 | (17,676                      | )        |         |         |         |          |         |         |           |         
|                                             
|                                             
|                                             
|                                             
|                                              | Accounts receivable securitization                                                                     |                                                                              |                                                                                                                 |                             |          |         |         | 24,390   |          |         |         |           |         
|                                             
|                                             
|                                             
|                                             
|                                              | Debt and preferred securities issuance costs                                                           |                                                                              |                                                                                                                 | (411                         | )        |         |         | (3,424   | )        |         |         | (6,100     | )       
|                                             
|                                             
|                                             
|                                             
|                                              | Net repayment of other debt                                                                            |                                                                              |                                                                                                                 |                             |          |         |         | (403     | )        |         |         | (408       | )       
|                                              |                                                                                                        |                                                                              |                                                                                                                 |                              |          |         |         |          |          |         |         |           
|                                              |                                                                                                        | Net cash and cash equivalents provided by (used in) financing
	activities    |                                                                                                                 |                              | (49,342  | )       |         |          | (270,069 | )       |         |            | 342,260  |          
|                                             
|                                             
|                                             
|                                             
|Cash paid for special charges                 |                                                                                                        |                                                                              | (6,092                                                                                                          | )                            |          |         | (5,040  | )        |          |         | (5,670  | )         
|                                             
|                                             
|                                             
|                                             
|Cash flows from discontinued operations:      |                                                                                                        |                                                                              |                                                                                                                 |                              |          |         |         |          |          |         |         |           
|                                             
|                                             
|                                             
|                                             
|                                              | Operating activities                                                                                   |                                                                              |                                                                                                                 | (171,551                     | )        |         |         | (271,236 | )        |         |         | (246,437   | )       
|                                             
|                                             
|                                             
|                                             
|                                              | Investing activities                                                                                   |                                                                              |                                                                                                                 | 26,042                       |          |         |         | 497,170  |          |         |         | (280,708   | )       
|                                             
|                                             
|                                             
|                                             
|                                              | Financing activities                                                                                   |                                                                              |                                                                                                                 |                             |          |         |         | (19,786  | )        |         |         | 40,775     |         
|                                              |                                                                                                        |                                                                              |                                                                                                                 |                              |          |         |         |          |          |         |         |           
|                                              |                                                                                                        | Net cash and cash equivalents provided by (used in) discontinued
	operations |                                                                                                                 |                              | (145,509 | )       |         |          | 206,148  |         |         |            | (486,370 | )        
|                                              |                                                                                                        |                                                                              |                                                                                                                 |                              |          |         |         |          |          |         |         |           
|Net decrease in cash and cash equivalents     |                                                                                                        |                                                                              | (4,445                                                                                                          | )                            |          |         | (16,303 | )        |          |         | (85,998 | )         
|                                             
|                                             
|                                             
|                                             
|Cash and cash equivalents  beginning of year |                                                                                                        |                                                                              | 6,797                                                                                                           |                              |          |         | 23,100  |          |          |         | 109,098 |           
|                                              |                                                                                                        |                                                                              |                                                                                                                 |                              |          |         |         |          |          |         |         |           
|Cash and cash equivalents  end of year       |                                                                                                        | $                                                                            | 2,352                                                                                                           |                              |          | $       | 6,797   |          |          | $       | 23,100  |           
|                                              |                                                                                                        |                                                                              |                                                                                                                 |                              |          |         |         |          |          |         |         |           

The accompanying Notes to Consolidated Financial Statements are



F-7



---



CAREMARK RX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2000


1.  Business and Basis of Presentation

Caremark Rx, Inc., a Delaware corporation (the
Company), is one of the largest pharmaceutical
services companies in the United States, with net revenue of
approximately $4.4 billion for 2000. The Companys
operations are conducted through its wholly-owned subsidiary
Caremark Inc. (Caremark), which assists employers,
insurance companies, unions, government employee groups, managed
care organizations and other sponsors of health benefit plans
and individuals throughout the United States in delivering
prescription drugs in a cost-effective manner. For the year
ended December 31, 2000, the Company managed over
68 million prescriptions for individuals from over 1,200
organizations.

The Companys pharmaceutical services are generally
referred to as pharmacy benefit management (PBM)
services and involve the design and administration of programs
aimed at reducing the costs and improving the safety,
effectiveness and convenience of prescription drug use. The
Company dispenses prescription drugs to customers through a
network of more than 50,000 third-party retail pharmacies
(approximately 96% of all retail pharmacies in the United
States) and through its own mail service pharmacies. During
2000, the Company processed approximately 14.6 million
pharmacy claims through its mail service pharmacies and
processed approximately 53.8 million retail pharmacy claims.

The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been
eliminated. The preparation of the consolidated financial
statements in conformity with accounting principles generally
accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual amounts could differ from those
estimates and assumptions.

Certain prior year amounts have been reclassified to conform to
the current years presentation. Such reclassifications had
no material effect on the Companys previously reported
consolidated financial position, results of operations or cash
flows.

2.  Summary of Significant Accounting Policies

Cash and Cash Equivalents. The Company considers all
highly liquid investments with a maturity of three months or
less when purchased to be cash equivalents. The carrying amount
of cash and cash equivalents approximates fair value.

Investments in Equity Securities. The Companys
investments in equity securities are classified as
available-for-sale. Available-for-sale securities are carried at
fair value, with unrealized gains and losses reported as other
comprehensive income unless a decline in value is judged other
than temporary. During the year ended December 31, 2000,
the company determined that one of its investments had
experienced a permanent decline in value, and, accordingly,
recognized a loss of approximately $6.1 million. This loss is
included in loss from discontinued operations in the
accompanying consolidated statements of operations.

Inventories. Inventories, which are primarily finished
goods, consist of prescription drugs, medical equipment and
supplies and are stated at the lower of cost (first-in,
first-out method) or market.

Revenue Recognition. The Companys net revenue is
generated primarily by dispensing prescription drugs, either
directly through its mail service pharmacies or indirectly
through its retail network, and primarily includes amounts paid
or payable by customers based on the cost of the prescription
drugs dispensed to their beneficiaries plus administrative fees.
Net revenues also include: (i) amounts paid or payable for
certain disease management and health benefit management
products recorded at predetermined contractual rates

F-8



---



CAREMARK RX, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

based on the achievement of certain criteria and
(ii) amounts paid or payable for access to data in the
Companys information systems recorded at predetermined
contractual rates.

Revenues from the dispensing of prescription drugs from the
Companys pharmacies are recognized when each prescription
is shipped. Revenues from sales of prescription drugs by
pharmacies in the Companys nationwide third-party retail
network and administrative fees are recognized when each claim
is adjudicated using the Companys on-line claims
processing system at the point-of-sale. Revenues for disease
management, health benefit management, data access and other
products are recognized based on the date of the Companys
acquiring rights and incurring obligations under various
fee-for-service arrangements.

For the year ended December 31, 2000, the Company had one
customer contract which generated approximately $463.3 million
of its $4.4 billion of net revenue.

Recent Accounting Pronouncements. In April 1998, the
American Institute of Certified Public Accountants issued a
Statement of Position Reporting on the Costs of Start-Up
Activities (SOP 98-5). SOP 98-5 requires that
the costs of start-up activities be expensed as incurred. As a
result, the Company recorded a charge of $6.3 million, net of
tax of $3.9 million, as a cumulative effect of a change in
accounting principle as of January 1, 1998.

In September 2000, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities
 a replacement of FASB Statement No. 125
(FAS 140). FAS 140 revised the standard for
accounting for securitization transactions and other transfers
and requires additional disclosures; however, it left intact
most of the provisions of FASB Statement No. 125, under
which the Company has previously accounted for its accounts
receivable securitization transactions.

FAS 140 is effective for all transfers and servicing of
financial assets occurring after March 31, 2001; however,
the expanded disclosure requirements of FAS 140 are effective
for financial statements for fiscal years ending after
December 15, 2000, and are reflected in Note 4, Trade
Receivable Securitization. The Company will adopt the
accounting requirements of FAS 140 on April 1, 2001, and
does not expect the adoption of FAS 140 to have a material
impact to its financial position, results of operations or cash
flows.

3.  Supplemental Cash Flow Information

Supplemental information with respect to the Companys cash
flows (including cash flows from discontinued operations) for
the years ended December 31, 2000, 1999 and 1998 is as
follows (in thousands):

|                                 |                                       |                         |   |         |  |      |   |         |  |  |   |         |  
|-------------------------------- | ------------------------------------- | ----------------------- | - | ------- |  | ---- | - | ------- |  |  | - | ------- | -
|                                 |                                       |                        
|                                 |                                       | Year ended December 31,
|                                 |                                       |                        
|                                 |                                       | 2000                    |   | 1999    |  | 1998
|                                 |                                       |                         |   |         |  |     
|Cash paid during the period for: |                                       |                         |   |         |  |      |   |         |  |  |   |        
|                                
|                                
|                                
|                                
|                                 | Interest                              |                         | $ | 100,481 |  |      | $ | 112,127 |  |  | $ | 128,444 |  
|                                 |                                       |                         |   |         |  |      |   |         |  |  |   |        
|                                 | Income taxes, net of refunds received |                         | $ | 5,239   |  |      | $ | 8,441   |  |  | $ | (393    | )
|                                 |                                       |                         |   |         |  |      |   |         |  |  |   |        

4.  Trade Receivable Securitization

In December 1998, the Company sold certain of its trade accounts
receivable to a wholly-owned special purpose entity,
(SPE), which, in turn, entered into a $100 million
securitization facility with a third-party conduit entity. The
initial transaction resulted in a loss of $6.1 million, of which
$3.3 million related to transaction costs, during the year ended
December 31, 1998. Ongoing sales of receivables during 2000
and 1999 resulted in the recognition of additional expenses of
$9.8 million and $6.2 million, respectively. These expenses
are included in interest expense.

F-9



---



CAREMARK RX, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

The Company retained servicing responsibilities, for which it is
paid a servicing fee equal to 1% of the accounts receivable
serviced, and a subordinated interest in the transferred
receivables. The servicing fees received by the Company were
$2.8 million in 2000 and $1.8 million in 1999 and are considered
adequate compensation for services rendered. Accordingly, no
related asset or liability has been recorded. The Company is
also required, under the terms of the transaction, to maintain a
$20 million net equity balance within the SPE for the life of
the agreement.

The 1998 securitization transaction was recorded in accordance
with the provisions of Statement of Financial Accounting
Standards No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities (FAS 125), which requires the
Company to allocate the carrying amount of trade accounts
receivable sold among: (i) the retained interest;
(ii) the servicing rights retained and (iii) the
interest sold, based on the relative fair value of each
component. The fair value of receivables sold is determined
based on the consideration received from the third-party conduit
entity. As the receivables are non-interest bearing, the sale to
the conduit entity occurs at a discount and results in a loss
being recorded by the Company upon sale.

As of December 31, 2000 and 1999, the Company had
securitized approximately $100 million in trade accounts
receivable. The Companys total accounts receivable subject
to the securitization facility at December 31, 2000, were
approximately $135.5 million. Delinquent amounts and credit
losses related to these receivables were not material at or
during the year ended December 31, 2000.

Activity in retained interest in trade receivable
securitizations was as follows (in thousands):

|                                     |                                                |                         |         |            |   |   |        |            |  
|------------------------------------ | ---------------------------------------------- | ----------------------- | ------- | ---------- | - | - | ------ | ---------- | -
|                                     |                                                |                        
|                                     |                                                | Year Ended December 31,
|                                     |                                                |                        
|                                     |                                                | 2000                    |         | 1999      
|                                     |                                                |                         |         |           
|Balance at the beginning of the year |                                                | $                       | 82,848  |            |   | $ | 78,725 |           
|                                    
|                                    
|                                    
|                                    
|                                     | Additions                                      |                         |         | 1,922,759  |   |   |        | 1,277,866  |  
|                                    
|                                    
|                                    
|                                    
|                                     | Accretion                                      |                         |         |           |   |   |        | (1,420     | )
|                                    
|                                    
|                                    
|                                    
|                                     | Excess cash flow received on retained interest |                         |         | (1,884,633 | ) |   |        | (1,272,323 | )
|                                     |                                                |                         |         |            |   |   |        |           
|Balance at end of the year           |                                                | $                       | 120,974 |            |   | $ | 82,848 |           
|                                     |                                                |                         |         |            |   |   |        |           

The components of retained interest in the trade receivable
securitization were as follows (in thousands):

|                                 |  |              |         |      |  |   |        | 
|-------------------------------- |  | ------------ | ------- | ---- |  | - | ------ | 
|                                 |  |             
|                                 |  | December 31,
|                                 |  |             
|                                 |  | 2000         |         | 1999
|                                 |  |              |         |     
|Subordinated interest            |  | $            | 100,974 |      |  | $ | 64,268 | 
|                                
|                                
|                                
|                                
|Fair value of restricted capital |  |              | 20,000  |      |  |   | 20,000 | 
|                                 |  |              |         |      |  |   |        | 
|                                 |  | $            | 120,974 |      |  | $ | 84,268 | 
|                                 |  |              |         |      |  |   |        | 

The Company amended and restated its accounts receivable
securitization facility on January 31, 2001. See Note 17,
Subsequent Events.

5.  Property and Equipment

Property and equipment are stated at cost. Depreciation of
property and equipment is calculated using the straight-line
method over the shorter of the estimated useful life of each
asset or the term of any underlying lease. Estimated useful
lives range from 5 to 15 years for buildings and leasehold
improvements and 3 to 10 years for equipment and computer
software.

F-10



---



CAREMARK RX, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Property and equipment consisted of the following at
December 31, 2000 and 1999 (in thousands):

|                                               |  |              |         |      |  |   |         |  
|---------------------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | -
|                                               |  |             
|                                               |  | December 31,
|                                               |  |             
|                                               |  | 2000         |         | 1999
|                                               |  |              |         |     
|Land                                           |  | $            | 99      |      |  | $ | 78      |  
|                                              
|                                              
|                                              
|                                              
|Buildings and leasehold improvements           |  |              | 32,536  |      |  |   | 25,515  |  
|                                              
|                                              
|                                              
|                                              
|Equipment and computer software                |  |              | 151,723 |      |  |   | 143,725 |  
|                                              
|                                              
|                                              
|                                              
|Construction in progress                       |  |              | 25,927  |      |  |   | 19,308  |  
|                                               |  |              |         |      |  |   |         |  
|                                               |  |              | 210,285 |      |  |   | 188,626 |  
|                                              
|                                              
|                                              
|                                              
|Less accumulated depreciation and amortization |  |              | (99,965 | )    |  |   | (80,458 | )
|                                               |  |              |         |      |  |   |         |  
|                                               |  | $            | 110,320 |      |  | $ | 108,168 |  
|                                               |  |              |         |      |  |   |         |  

Depreciation expense for the years ended December 31, 2000,
1999, and 1998 was $20.6 million, $21.2 million, and $18.4
million respectively.

6.  Intangible Assets

Intangible assets are primarily composed of: (i) costs
associated with obtaining long-term debt financing, which are
being amortized and included in interest expense systematically
over the terms of the related debt agreements, and
(ii) amounts related to the September 1999 acquisition of
the assets of Direct Scripts, Inc., which are being amortized
over a period of five years.

Net intangible assets totaled $35.2 million and $41.1 million at
December 31, 2000 and 1999, respectively. As of
December 31, 2000 and 1999, accumulated amortization
totaled $21.6 million and $15.5 million, respectively. The
portion of amortization expense related to debt issuance costs
has been classified as interest expense and totaled $6.3
million, $6.1 million and $5.8 million for the years ended
December 31, 2000, 1999 and 1998, respectively.
Amortization expense, net of amounts classified as interest
expense, for the years ended December 31, 2000, 1999 and
1998 was $2.6 million, $0.9 million and $0.5 million,
respectively.

7.  Long-Term Debt and Operating Leases

Information with respect to the Companys long-term debt at
December 31, 2000 and 1999 is as follows (in thousands):

|                                             |                                                            |              |         |         |  |   |           |         | 
|-------------------------------------------- | ---------------------------------------------------------- | ------------ | ------- | ------- |  | - | --------- | ------- | 
|                                             |                                                            |             
|                                             |                                                            | December 31,
|                                             |                                                            |             
|                                             |                                                            | 2000         |         | 1999   
|                                             |                                                            |              |         |        
|Credit facility due June 2001:               |                                                            |              |         |         |  |   |           |        
|                                            
|                                            
|                                            
|                                            
|                                             | Term loan facility (10.44% to 10.56% at December 31, 2000) |              | $       | 27,668  |  |   | $         | 111,396 | 
|                                            
|                                            
|                                            
|                                            
|                                             | Revolving facility (9.56% to 11.50% at December 31, 2000)  |              |         | 257,554 |  |   |           | 268,000 | 
|                                             |                                                            |              |         |         |  |   |           |        
|                                             |                                                            |              | 285,222 |         |  |   | 379,396   |        
|                                            
|                                            
|                                            
|                                            
|7.375% senior notes due 2006(1)              |                                                            |              | 450,000 |         |  |   | 450,000   |        
|                                            
|                                            
|                                            
|                                            
|6.875% senior subordinated notes due 2000(1) |                                                            |              |        |         |  |   | 420,000   |        
|                                             |                                                            |              |         |         |  |   |           |        
|                                             |                                                            |              | 735,222 |         |  |   | 1,249,396 |        
|                                            
|                                            
|                                            
|                                            
|Less: amounts due within one year(2)         |                                                            |              | (1,875  | )       |  |   | (19,371   | )      
|                                             |                                                            |              |         |         |  |   |           |        
|                                             |                                                            | $            | 733,347 |         |  | $ | 1,230,025 |        
|                                             |                                                            |              |         |         |  |   |           |        






|    |                                                                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The aggregate fair value of these obligations, based on quoted
	market prices, was $418.5 million and $772.2 million at
	December 31, 2000 and 1999, respectively.                                                   
|(2) | The credit facility was refinanced on March 15, 2001. Amounts
	due within one year at December 31, 2000, represent amounts
	payable under the New Term Loan Facility (as defined). See
	Note 17, Subsequent Events.

F-11



---



CAREMARK RX, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Credit Facility. The Company has a credit facility with
Bank of America, N.A. as administrative agent. The Company has
effectively pledged the capital stock of Caremark as security
for amounts outstanding. The credit facility is guaranteed by
the Companys material subsidiaries and was refinanced on
March 15, 2001, prior to its scheduled maturity in June
2001. See Note 17, Subsequent Events.

The credit facility consists of: (i) a term loan facility
with a balance of $27.7 million outstanding at December 31,
2000 and (ii) a revolving credit facility in an aggregate
principal amount of up to $400 million. At December 31,
2000, the Company had approximately $118.2 million available for
borrowing under the revolving facility, exclusive of
approximately $24.3 million reserved under letters of credit.

Borrowings under the credit facility currently bear interest at
variable rates based on the London Inter-bank Offered Rate
(LIBOR), plus varying margins. At the Companys
option, or upon certain defaults or other events, borrowings
under the credit facility may instead bear interest based on the
prime rate plus varying margins.

The credit facility provides for net cash proceeds received from
asset sales to be used to reduce the outstanding debt under the
term loan facility. The Company is also required to repay the
term loan facility ratably with 100% of the net cash proceeds
received from certain issuances of equity or debt or
extraordinary receipts, and with 50% of the excess cash flow (as
defined in the credit facility) for each fiscal year.

The credit facility contains covenants that, among other things,
restrict the Companys ability to incur additional
indebtedness or guarantee obligations, engage in mergers or
consolidation, dispose of assets, make investments, loans or
advances, engage in certain transactions with affiliates,
conduct certain corporate activities, create liens, make capital
expenditures, prepay or modify the terms of other indebtedness,
pay dividends and other distributions or change its business. In
addition, the Company is required to comply with specified
financial covenants, including a maximum leverage ratio, a
minimum fixed charge coverage ratio and a minimum interest
expense coverage ratio. The credit facility includes various
customary and other events of default, including cross default
provisions, defaults for any material judgment or change in
control, and defaults relating to liabilities arising from the
Companys making additional investments in its California
PPM business. The Company was in compliance with all debt
covenants at December 31, 2000.

Senior Notes. The senior notes have an outstanding
principal balance of $450 million, bear interest at 7 3/8%
and mature October 8, 2006 (the Senior Notes).
Interest on the Senior Notes is payable semi-annually on
April 1 and October 1 of each year. The Senior Notes
are not redeemable by the Company prior to maturity and are not
entitled to the benefit of any mandatory sinking fund. The
Senior Notes rank senior in right of payment to all existing and
future subordinated indebtedness of the Company and pari passu
in right of payment with all existing and future unsubordinated
obligations of the Company.

The indenture for the Senior Notes contains, among other things,
restrictions on subsidiary indebtedness, sale and leaseback
transactions, and consolidation, merger and sale of
substantially all assets. The Senior Notes are not guaranteed by
any subsidiary. The indenture for the Senior Notes also contains
restrictions on indebtedness secured by liens. To comply with
this covenant, the Company has prospectively secured the Senior
Notes on an equal and ratable basis with the New Credit Facility
(as defined). See Note 17, Subsequent Events.

F-12



---



CAREMARK RX, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Other Debt Information. Principal maturities of long-term
debt payable under the New Term Loan Facility and the Senior
Notes at December 31, 2000, are as follows (in thousands):

|     |       |   |         |         | 
|---- | ----- | - | ------- | ------- | 
|    
|    
|    
|    
|2001 |       | $ | 1,875   |        
|    
|    
|    
|    
|2002 |       |   | 2,500   |        
|    
|    
|    
|    
|2003 |       |   | 2,500   |        
|    
|    
|    
|    
|2004 |       |   | 2,500   |        
|    
|    
|    
|    
|2005 |       |   | 2,500   |        
|    
|    
|    
|    
|2006 |       |   | 688,125 |        
|     |       |   |         |        
|     | Total |   | $       | 700,000 | 
|     |       |   |         |        

In addition, any amounts outstanding under the New Revolving
Facility (as defined) are due in March 2005.

Interest expense totaled $97.7 million, $116.4 million and $90.8
million in 2000, 1999 and 1998, respectively. Interest income
totaled $0.7 million, $1.1 million and $6.2 million in
2000, 1999 and 1998, respectively. These amounts exclude net
interest expense allocated to discontinued operations of $6.9
million and $32.3 million for the years ended December 31,
1999 and 1998, respectively.

Operating Leases. The Company leases substantially all of
the real property used in its continuing operations. These
leases are classified as operating leases and generally have
five to fifteen year terms with renewal options. Total rent
expense for the Companys continuing operations, consisting
primarily of expenses for these leases and for leased computer
equipment, was $16.9 million per year for each of the three
years ended December 31, 2000, 1999 and 1998. Future
minimum lease payments under noncancelable operating leases with
remaining terms of one year or more at December 31, 2000,
are as follows (in thousands):

|           |       |   |        |        | 
|---------- | ----- | - | ------ | ------ | 
|          
|          
|          
|          
|2001       |       | $ | 10,709 |       
|          
|          
|          
|          
|2002       |       |   | 10,569 |       
|          
|          
|          
|          
|2003       |       |   | 8,255  |       
|          
|          
|          
|          
|2004       |       |   | 7,122  |       
|          
|          
|          
|          
|2005       |       |   | 7,177  |       
|          
|          
|          
|          
|Thereafter |       |   | 17,573 |       
|           |       |   |        |       
|           | Total |   | $      | 61,405 | 
|           |       |   |        |       

8.  Redeemable Preferred Stock

In September 1999, the Company, through its wholly-owned
subsidiary Caremark Rx Capital Trust I (the Trust),
privately placed 4.0 million shares ($200.0 million aggregate
face value) of 7% shared preference redeemable securities
(Convertible Preferred Securities). The sole assets
of the Trust, which has no business operations apart from
administration of the Convertible Preferred Securities, are the
7% convertible subordinated debentures of the Company, maturing
October 1, 2029, with principal amount of $206.2 million
(the Trust Debentures). The Trust is the sole holder
of the Trust Debentures.

Each Convertible Preferred Security may be converted, at the
option of the holder, into shares of the Companys common
stock at the rate of 6.7125 shares of common stock for each
Convertible Preferred Security (equivalent to a conversion price
of $7.4488 per share of common stock). The conversion of all
Convertible Preferred Securities would result in the
Companys issuance of approximately 26.9 million shares of
common stock.

All Convertible Preferred Securities outstanding on
October 1, 2029, must be redeemed by the Company; however,
any or all of the Convertible Preferred Securities may be
redeemed at the option of the Company

F-13



---



CAREMARK RX, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

beginning October 15, 2002, at prices ranging from $50.00
to $52.00 plus accumulated and unpaid dividends per Convertible
Preferred Security.

Dividends on the Convertible Preferred Securities are payable at
an annual rate of 7% of the liquidation amount of $50.00 per
Convertible Preferred Security. These dividends are cumulative
and are payable in arrears on the first day of each calendar
quarter. As of December 31, 2000, the Company had made all
dividend payments on the Convertible Preferred Securities as
scheduled.

Considered together, (1) the Companys guaranty, to
the extent that the Trust has funds available, of distribution
and liquidation payments on the Convertible Preferred Securities
and (2) the Companys obligations under (a) the
Trust Debentures and the related indenture and (b) the
Trusts trust agreement, provide a full and unconditional
guarantee by the Company of amounts payable in respect to the
Convertible Preferred Securities issued by the Trust.

9.  Stockholders Deficit

Common Stock. The Companys Third Restated
Certificate of Incorporation provides that it may issue 400
million shares of common stock, par value $0.001. As of
December 31, 2000, 230.8 million shares of common stock
were outstanding.

During the year ended December 31, 2000, the Company issued
approximately 29 million shares of common stock in conjunction
with the maturity of its TAPS (as defined) for net cash proceeds
of approximately $478.9 million.

Rights Plan. On March 1, 1995, the Companys
Board of Directors declared a dividend, which was subsequently
paid, of one preferred share purchase right (an Original
Right) for each then-outstanding share of the
Companys common stock. Each share of the Companys
common stock which was issued subsequent to the record date for
this dividend payment carried with it a right equivalent to an
Original Right such that each share of the Companys
currently outstanding common stock also represents one preferred
share purchase right. On February 1, 2000, the Original
Rights were amended and restated in their entirety to represent
a right (the Rights) to purchase from the Company
one one-hundredth of a share of Series C Junior
Participating Preferred Stock of the Company, par value $.001
per share (the Preferred Shares), at a price of
$52.00 per one one-hundredth of a Preferred Share, subject to
adjustment. As of December 31, 2000, none of the Rights
have been exercised.

Preferred Stock. The Companys Third Restated
Certificate of Incorporation provides that it may issue 9.5
million shares of Preferred Stock, par value $0.001 and 0.5
million shares of Series C Junior Participating Preferred
Stock, par value $0.001. As of December 31, 2000, there
were no shares of preferred stock outstanding.

Stock Options. The Company offers participation in stock
option plans to certain employees and individuals. Awarded
options typically vest and become exercisable in incremental
installments over a period of either two or four years and
expire no later than ten years and one day from the date of
grant. The number of shares authorized under the various plans
was approximately 38.7 million as of December 31, 2000.

F-14



---



CAREMARK RX, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

The following table summarizes stock option activity for the
years ended December 31, 2000, 1999 and 1998:

|                                                                |                            |                |  |           |       |                |   |           |      |                |  |           |       |  |   |       |      |  |  |         |        |  |   |       |      | 
|--------------------------------------------------------------- | -------------------------- | -------------- |  | --------- | ----- | -------------- | - | --------- | ---- | -------------- |  | --------- | ----- |  | - | ----- | ---- |  |  | ------- | ------ |  | - | ----- | ---- | 
|                                                                |                            |                |  |           |       |               
|                                                                |                            | 2000           |  | 1999      |       | 1998          
|                                                                |                            |                |  |           |       |               
|                                                                |                            |                |  | Weighted- |       |                |   | Weighted- |      |                |  | Weighted-
|                                                                |                            |                |  | Average   |       |                |   | Average   |      |                |  | Average  
|                                                                |                            |                |  | Exercise  |       |                |   | Exercise  |      |                |  | Exercise 
|                                                                |                            | Options        |  | Price     |       | Options        |   | Price     |      | Options        |  | Price    
|                                                                |                            |                |  |           |       |                |   |           |      |                |  |          
|                                                                |                            | (In thousands) |  |           |       | (In thousands) |   |           |      | (In thousands) |  |          
|                                                               
|                                                               
|                                                               
|                                                               
|Outstanding:                                                    |                            |                |  |           |       |                |   |           |      |                |  |           |       |  |   |       |      |  |  |         |        |  |   |      
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Beginning of year          |                |  | 21,755    |       |                | $ | 8.44      |      |                |  | 30,387    |       |  | $ | 9.69  |      |  |  | 21,696  |        |  | $ | 17.50 |     
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Granted:                   |                |  |           |       |                |   |           |      |                |  |           |       |  |   |       |      |  |  |         |        |  |   |       |     
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                            | Price=Market   |  |           | 1,382 |                |   |           | 6.19 |                |  |           | 3,352 |  |   |       | 4.97 |  |  |         | 21,820 |  |   |       | 5.65 | 
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                            | Price>Market   |  |           | 4,071 |                |   |           | 4.56 |                |  |           |      |  |   |       |     |  |  |         |       |  |   |       |     | 
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Exercised                  |                |  | (2,324    | )     |                |   | 3.17      |      |                |  | (574      | )     |  |   | 3.00  |      |  |  | (271    | )      |  |   | 1.81  |     
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Canceled/ expired          |                |  | (1,103    | )     |                |   | 12.50     |      |                |  | (11,410   | )     |  |   | 11.06 |      |  |  | (12,858 | )      |  |   | 14.73 |     
|                                                                |                            |                |  |           |       |                |   |           |      |                |  |           |       |  |   |       |      |  |  |         |        |  |   |      
|                                                                | End of year                |                |  | 23,781    |       |                |   | 7.97      |      |                |  | 21,755    |       |  |   | 8.44  |      |  |  | 30,387  |        |  |   | 9.69  |     
|                                                                |                            |                |  |           |       |                |   |           |      |                |  |           |       |  |   |       |      |  |  |         |        |  |   |      
|                                                                | Exercisable at end of year |                |  | 14,289    |       |                |   | 5.66      |      |                |  | 13,523    |       |  |   | 6.02  |      |  |  | 10,108  |        |  |   | 8.99  |     
|                                                                |                            |                |  |           |       |                |   |           |      |                |  |           |       |  |   |       |      |  |  |         |        |  |   |      
|Weighted-average fair value of options granted during the year: |                            |                |  |           |       |                |   |           |      |                |  |           |       |  |   |       |      |  |  |         |        |  |   |      
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                            | Price=Market   |  |           |       |                |   | $         | 2.85 |                |  |           |       |  |   | $     | 4.89 |  |  |         |        |  |   | $     | 5.05 | 
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                            | Price>Market   |  |           |       |                |   |           | 1.73 |                |  |           |       |  |   |       |     |  |  |         |        |  |   |       |     | 

The following table summarizes information about stock options
outstanding at December 31, 2000:

|                 |  |                     |        |                     |  |                |      |                |  |                |       |  |  |  |        |  |  |   |       | 
|---------------- |  | ------------------- | ------ | ------------------- |  | -------------- | ---- | -------------- |  | -------------- | ----- |  |  |  | ------ |  |  | - | ----- | 
|                 |  |                     |        |                     |  |               
|                 |  | Options Outstanding |        |                    
|                 |  |                     |        | Options Exercisable
|                 |  |                     |        | Weighted-           |  |                |      |               
|                 |  | Options             |        | Average             |  | Weighted-      |      | Options        |  | Weighted-     
|                 |  | Outstanding         |        | Remaining           |  | Average        |      | Exercisable    |  | Average       
|                 |  | at 12/31/00         |        | Contractual Life    |  | Exercise Price |      | at 12/31/00    |  | Exercise Price
|                 |  |                     |        |                     |  |                |      |                |  |               
|                 |  | (In thousands)      |        | (Years)             |  |                |      | (In thousands) |  |               
|                
|                
|                
|                
|Under $4.19      |  |                     | 9,605  |                     |  |                | 7.65 |                |  | $              | 3.27  |  |  |  | 8,993  |  |  | $ | 3.23  | 
|                
|                
|                
|                
|$4.19  $7.31    |  |                     | 6,518  |                     |  |                | 8.97 |                |  |                | 4.78  |  |  |  | 3,045  |  |  |   | 4.90  | 
|                
|                
|                
|                
|$7.32  $16.63   |  |                     | 4,305  |                     |  |                | 5.60 |                |  |                | 14.99 |  |  |  | 3,918  |  |  |   | 15.58 | 
|                
|                
|                
|                
|$16.64 and above |  |                     | 3,353  |                     |  |                | 6.22 |                |  |                | 18.61 |  |  |  | 3,287  |  |  |   | 18.61 | 
|                 |  |                     |        |                     |  |                |      |                |  |                |       |  |  |  |        |  |  |   |       | 
|                 |  |                     | 23,781 |                     |  |                | 7.44 |                |  |                | 7.97  |  |  |  | 19,243 |  |  |   | 8.64  | 
|                 |  |                     |        |                     |  |                |      |                |  |                |       |  |  |  |        |  |  |   |       | 

F-15



---



CAREMARK RX, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Earnings per share. The following tables reconcile income
(numerator) and shares (denominator) used in the
Companys computations of income from continuing operations
per common share (in thousands, except per share amounts):

|                                                                  |                                     |                         |         |         |   |      |         |        |   |   |         |        | 
|----------------------------------------------------------------- | ----------------------------------- | ----------------------- | ------- | ------- | - | ---- | ------- | ------ | - | - | ------- | ------ | 
|                                                                  |                                     |                        
|                                                                  |                                     | Year Ended December 31,
|                                                                  |                                     |                        
|                                                                  |                                     | 2000                    |         | 1999    |   | 1998
|                                                                  |                                     |                         |         |         |   |     
|Numerator                                                         |                                     |                         |         |         |   |      |         |        |   |   |         |       
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Income from continuing operations   |                         | $       | 104,695 |   |      | $       | 59,146 |   |   | $       | 30,760 | 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Less preferred security dividends   |                         |         | (13,250 | ) |      |         | (3,255 | ) |   |         |       | 
|                                                                  |                                     |                         |         |         |   |      |         |        |   |   |         |       
|                                                                  | Basic numerator                     |                         |         | 91,445  |   |      |         | 55,891 |   |   |         | 30,760 | 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Add preferred security dividends(1) |                         |         |        |   |      |         |       |   |   |         |       | 
|                                                                  |                                     |                         |         |         |   |      |         |        |   |   |         |       
|                                                                  | Diluted numerator                   |                         | $       | 91,445  |   |      | $       | 55,891 |   |   | $       | 30,760 | 
|                                                                  |                                     |                         |         |         |   |      |         |        |   |   |         |       
|Denominator                                                       |                                     |                         |         |         |   |      |         |        |   |   |         |       
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Average number of common shares outstanding (basic denominator)   |                                     |                         | 206,042 |         |   |      | 190,734 |        |   |   | 189,327 |       
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Common stock equivalents:                                         |                                     |                         |         |         |   |      |         |        |   |   |         |       
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Convertible preferred securities(1) |                         |         |        |   |      |         |       |   |   |         |       | 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Employee stock options              |                         |         | 7,983   |   |      |         | 4,216  |   |   |         | 600    | 
|                                                                  |                                     |                         |         |         |   |      |         |        |   |   |         |       
|Average number of common shares outstanding (diluted denominator) |                                     |                         | 214,025 |         |   |      | 194,950 |        |   |   | 189,927 |       
|                                                                  |                                     |                         |         |         |   |      |         |        |   |   |         |       
|Income from continuing operations per common share 
	basic       |                                     | $                       | 0.44    |         |   | $    | 0.29    |        |   | $ | 0.16    |       
|                                                                  |                                     |                         |         |         |   |      |         |        |   |   |         |       
|Income from continuing operations per common share 
	diluted     |                                     | $                       | 0.43    |         |   | $    | 0.29    |        |   | $ | 0.16    |       
|                                                                  |                                     |                         |         |         |   |      |         |        |   |   |         |       






|    |                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Conversion of the convertible preferred securities is not
	reflected due to the anti-dilutive effect of such presumed
	conversion for all periods presented. See Note 8,
	Redeemable Preferred Stock.

Options to purchase approximately 7.7 million shares of the
Companys common stock at $7.70 to $26.188 per share were
outstanding at and during the year ended December 31, 2000,
but were excluded from the Companys computation of average
number of common shares outstanding  diluted because
the options exercise prices were greater than the average
market price of the common shares underlying such options during
the period.

Fair value of stock options. The Company accounts for
options to purchase its common stock under Statement of
Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation (FAS 123).
When the Company adopted FAS 123, it elected to continue
using the intrinsic value method of expense recognition
contained in Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees
(APB 25) and related interpretations, instead
of the fair value method found in FAS 123, to account for
employee stock options granted under its stock-based
compensation plans.

FAS 123 promotes the use of option valuation models,
particularly the Black-Scholes model
(Black-Scholes), to value employee stock options.
Option valuation models rely on the use of highly subjective
input variables to compute option values and presume that
options valued thereunder derive significant value from being
freely tradable. Options granted to the Companys employees
under its stock-based compensation plans are not freely
tradable, and the Company believes that this fact, coupled with
the imprecision of applying subjective estimates of option lives
and future stock prices, produces misleading results when option
pricing models are used to value options to purchase common
stock granted to the Companys employees under its
stock-based compensation plans.

F-16



---



CAREMARK RX, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

The intrinsic value method requires the Company to recognize
compensation expense based on the difference in the market price
and the exercise price of options at their grant date. The
exercise price of option grants under the Companys
stock-based compensation plans is equal to or greater than the
market price of the underlying stock on the grant date;
therefore, no compensation expense related to these options has
been recognized in the accompanying consolidated financial
statements.

FAS 123 requires companies which elected to continue applying
the intrinsic value method to disclose pro forma information
regarding net income and earnings per share as if the Company
had recognized compensation expense for employee stock options
grants using the fair value method described therein. The pro
forma impact of applying the FAS 123 fair value method on the
Companys net loss to common stockholders and net loss per
common share is as follows (in millions, except per share
amounts):

|             |                                     |                         |   |        |   |      |   |        |   |  |   |          |  
|------------ | ----------------------------------- | ----------------------- | - | ------ | - | ---- | - | ------ | - |  | - | -------- | -
|             |                                     |                        
|             |                                     | Year Ended December 31,
|             |                                     |                        
|             |                                     | 2000                    |   | 1999   |   | 1998
|             |                                     |                         |   |        |   |     
|As reported: |                                     |                         |   |        |   |      |   |        |   |  |   |         
|            
|            
|            
|            
|             | Net loss to common stockholders     |                         | $ | (176.6 | ) |      | $ | (143.4 | ) |  | $ | (1,260.5 | )
|             |                                     |                         |   |        |   |      |   |        |   |  |   |         
|             | Net loss per common share  basic   |                         | $ | (0.86  | ) |      | $ | (0.75  | ) |  | $ | (6.66    | )
|             |                                     |                         |   |        |   |      |   |        |   |  |   |         
|             | Net loss per common share  diluted |                         | $ | (0.82  | ) |      | $ | (0.74  | ) |  | $ | (6.64    | )
|             |                                     |                         |   |        |   |      |   |        |   |  |   |         
|Pro forma:   |                                     |                         |   |        |   |      |   |        |   |  |   |         
|            
|            
|            
|            
|             | Net loss to common stockholders     |                         | $ | (187.8 | ) |      | $ | (165.4 | ) |  | $ | (1,345.4 | )
|             |                                     |                         |   |        |   |      |   |        |   |  |   |         
|             | Net loss per common share  basic   |                         | $ | (0.91  | ) |      | $ | (0.87  | ) |  | $ | (7.11    | )
|             |                                     |                         |   |        |   |      |   |        |   |  |   |         
|             | Net loss per common share  diluted |                         | $ | (0.88  | ) |      | $ | (0.85  | ) |  | $ | (7.08    | )
|             |                                     |                         |   |        |   |      |   |        |   |  |   |         

The fair value of the Companys employee stock option
grants was estimated using Black-Scholes with the following
weighted-average assumptions:

|                                             |  |      |      |      |  |      |        |   |  |  |        |  
|-------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ------ | - |  |  | ------ | -
|                                             |  | 2000 |      | 1999 |  | 1998
|                                             |  |      |      |      |  |     
|Risk-free interest rates                     |  |      | 5.00 | %    |  |      | 5.465  | % |  |  | 5.095  | %
|                                            
|                                            
|                                            
|                                            
|Expected volatility                          |  |      | 0.88 |      |  |      | 4.1393 |   |  |  | 2.2065 |  
|                                            
|                                            
|                                            
|                                            
|Expected option lives (years from vest date) |  |      | 1.0  |      |  |      | 1.0    |   |  |  | 1.0    |  

Employee Stock Purchase Plan. The Companys employee
stock purchase plan permits all employees who have been employed
for at least sixty consecutive days to purchase common stock of
the Company through a payroll deduction plan. Employees may
contribute between $5.00 and $800.00 per pay period to the plan.
The purchase price of the shares under the plan is the lesser of
85% of the fair market value on the first or last business day
of each quarter. The plan results in no compensation expense to
the Company.

10.  Income Tax Expense

At December 31, 2000, the Company had a cumulative net
operating loss (NOL) carry forward for federal
income tax purposes of approximately $2.1 billion available to
reduce future amounts of taxable income. If not utilized to
offset future taxable income, these net operating loss carry
forwards will expire on various dates through 2020, with
approximately two-thirds of the total NOL carry forward amount
expiring from 2018 to 2020. In addition to these NOL carry
forwards, the Company has approximately $127 million of
future additional income tax deductions related to its
discontinued operations. The Company also has a federal
alternative minimum tax credit carry forward of approximately
$17.1 million, which may be used to offset its ordinary
federal corporate income taxes in the future.

F-17



---



CAREMARK RX, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Deferred income taxes reflect the net tax effects of temporary
differences between the amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Companys deferred
tax assets and liabilities were as follows (in thousands):

|                                            |                                              |              |          |         |  |   |          |         | 
|------------------------------------------- | -------------------------------------------- | ------------ | -------- | ------- |  | - | -------- | ------- | 
|                                            |                                              |             
|                                            |                                              | December 31,
|                                            |                                              |             
|                                            |                                              | 2000         |          | 1999   
|                                            |                                              |              |          |        
|Deferred tax assets:                        |                                              |              |          |         |  |   |          |        
|                                           
|                                           
|                                           
|                                           
|                                            | NOL carry forward                            |              | $        | 825,093 |  |   | $        | 726,697 | 
|                                           
|                                           
|                                           
|                                           
|                                            | Alternative minimum tax credit carry forward |              |          | 17,092  |  |   |          | 17,092  | 
|                                           
|                                           
|                                           
|                                           
|                                            | Discontinued operations write down           |              |          | 42,728  |  |   |          | 34,698  | 
|                                           
|                                           
|                                           
|                                           
|                                            | Bad debts                                    |              |          | 7,254   |  |   |          | 11,232  | 
|                                           
|                                           
|                                           
|                                           
|                                            | Restructuring                                |              |          | 1,423   |  |   |          | 3,828   | 
|                                           
|                                           
|                                           
|                                           
|                                            | Accrued vacation                             |              |          | 2,016   |  |   |          | 1,855   | 
|                                           
|                                           
|                                           
|                                           
|                                            | Other                                        |              |          | 21,790  |  |   |          | 26,278  | 
|                                            |                                              |              |          |         |  |   |          |        
|Gross deferred tax assets                   |                                              |              | 917,396  |         |  |   | 821,680  |        
|                                           
|                                           
|                                           
|                                           
|Valuation allowance for deferred tax assets |                                              |              | (904,362 | )       |  |   | (803,249 | )      
|                                            |                                              |              |          |         |  |   |          |        
|                                            |                                              |              | 13,034   |         |  |   | 18,431   |        
|Deferred tax liabilities                    |                                              |              |          |         |  |   |          |        
|                                           
|                                           
|                                           
|                                           
|                                            | Excess tax depreciation                      |              |          | 823     |  |   |          | 2,980   | 
|                                           
|                                           
|                                           
|                                           
|                                            | Other amortization                           |              |          | 11,700  |  |   |          | 15,163  | 
|                                           
|                                           
|                                           
|                                           
|                                            | Other                                        |              |          | 511     |  |   |          | 288     | 
|                                            |                                              |              |          |         |  |   |          |        
|Gross deferred tax liabilities              |                                              |              | 13,034   |         |  |   | 18,431   |        
|                                            |                                              |              |          |         |  |   |          |        
|Net deferred tax asset                      |                                              | $            |         |         |  | $ |         |        
|                                            |                                              |              |          |         |  |   |          |        

Because of the uncertainty of the ultimate realization of the
net deferred tax asset, the Company has established a valuation
allowance for the amount of the asset that is not otherwise used
to offset deferred tax liabilities.

The provision for income taxes related to continuing operations
consists of the following (in thousands):

|          |         |                         |       |       |  |      |       |       |  |   |        |        | 
|--------- | ------- | ----------------------- | ----- | ----- |  | ---- | ----- | ----- |  | - | ------ | ------ | 
|          |         |                        
|          |         | Year Ended December 31,
|          |         |                        
|          |         | 2000                    |       | 1999  |  | 1998
|          |         |                         |       |       |  |     
|Current:  |         |                         |       |       |  |      |       |       |  |   |        |       
|         
|         
|         
|         
|          | Federal |                         | $     |      |  |      | $     |      |  |   | $      |       | 
|         
|         
|         
|         
|          | State   |                         |       | 8,489 |  |      |       | 4,952 |  |   |        |       | 
|          |         |                         |       |       |  |      |       |       |  |   |        |       
|          |         |                         | 8,489 |       |  |      | 4,952 |       |  |   |       |       
|         
|         
|         
|         
|Deferred: |         |                         |       |       |  |      |       |       |  |   |        |       
|         
|         
|         
|         
|          | Federal |                         |       |      |  |      |       |      |  |   |        | 16,562 | 
|         
|         
|         
|         
|          | State   |                         |       |      |  |      |       |      |  |   |        | 2,290  | 
|          |         |                         |       |       |  |      |       |       |  |   |        |       
|          |         |                         |      |       |  |      |      |       |  |   | 18,852 |       
|          |         |                         |       |       |  |      |       |       |  |   |        |       
|          |         | $                       | 8,489 |       |  | $    | 4,952 |       |  | $ | 18,852 |       
|          |         |                         |       |       |  |      |       |       |  |   |        |       

F-18



---



CAREMARK RX, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

The differences between the provision for income taxes related
to continuing operations and the amount computed by applying the
statutory federal income tax rate to income from continuing
operations before taxes were as follows (in thousands):

|                              |                                              |                         |        |         |   |      |        |         |   |   |        |       | 
|----------------------------- | -------------------------------------------- | ----------------------- | ------ | ------- | - | ---- | ------ | ------- | - | - | ------ | ----- | 
|                              |                                              |                        
|                              |                                              | Year Ended December 31,
|                              |                                              |                        
|                              |                                              | 2000                    |        | 1999    |   | 1998
|                              |                                              |                         |        |         |   |     
|Federal tax at statutory rate |                                              | $                       | 34,977 |         |   | $    | 21,295 |         |   | $ | 17,364 |      
|                             
|                             
|                             
|                             
|Add (deduct):                 |                                              |                         |        |         |   |      |        |         |   |   |        |      
|                             
|                             
|                             
|                             
|                              | State income tax, net of federal tax benefit |                         |        | 8,489   |   |      |        | 4,952   |   |   |        | 1,488 | 
|                             
|                             
|                             
|                             
|                              | Tax benefit of NOL carry forward             |                         |        | (34,977 | ) |      |        | (21,295 | ) |   |        |      | 
|                              |                                              |                         |        |         |   |      |        |         |   |   |        |      
|                              |                                              | $                       | 8,489  |         |   | $    | 4,952  |         |   | $ | 18,852 |      
|                              |                                              |                         |        |         |   |      |        |         |   |   |        |      

The Internal Revenue Service (the Service) conducted
an examination of the consolidated federal income tax return
filed for Caremark International, Inc. and its affiliated
subsidiaries for taxable years ended December 31, 1992
through 1995. On June 30, 1999, the Service issued a tax
assessment (plus interest) for the taxable years ended
December 31, 1992 through 1995. On September 30, 1999,
the Company filed with the Appeals Office of the Service a
protest to the assessment appealing the findings of the Service.
The Company does not believe that the assessment will have a
material adverse effect on the results of operations or
financial position of the Company.

11.  Special Charge

The Company recorded a pre-tax charge during the second quarter
of 1998 of $9.5 million. This charge related primarily to
severance and occupancy costs for excess facilities and certain
litigation.

12.  Retirement Savings Plan

The Company and certain subsidiaries have employee benefit plans
to provide retirement, disability and death benefits to
substantially all of their employees and affiliates. The plans
primarily are defined contribution plans. Effective
January 1, 1998, the Board of Directors approved a
retirement savings plan for employees and affiliates. The plan
is a defined contribution plan in accordance with the provisions
of Section 401(k) of the Internal Revenue Code. Full-time
employees and affiliates are eligible to enroll in the plan in
the first quarter following two months of service. Individuals
on a part-time and per diem basis are eligible to participate in
the quarter following completion of one year of service. For
employees, the Company makes a matching contribution of 50% of
the employees pre-tax contribution, up to 6% of the
employees compensation, in each calendar year. The various
entities that have been acquired or merged into the Company have
various retirement plans that will be evaluated for possible
termination or incorporation into the Companys plan.

13.  Discontinued Operations

On November 11, 1998, the Company announced that Caremark,
which includes the PBM business, would become its core operating
unit. The Company also announced its intent to divest its
physician practice management (PPM) and contract
services businesses. As a result, in 1998 the Company restated
its prior period financial statements to reflect these
businesses, as well as the international operations sold during
1998, as discontinued operations.

F-19



---



CAREMARK RX, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

The operating results of these discontinued operations are
summarized as follows:

|                             |                                          |                                       |          |      |          |      |          |   |          |   |            |          |            |  
|---------------------------- | ---------------------------------------- | ------------------------------------- | -------- | ---- | -------- | ---- | -------- | - | -------- | - | ---------- | -------- | ---------- | -
|                             |                                          |                                      
|                             |                                          | Year Ended December 31,              
|                             |                                          |                                      
|                             |                                          | 2000                                  |          | 1999 |          | 1998
|                             |                                          |                                       |          |      |          |     
|Net revenue                  |                                          | $                                     |         |      |          | $    |         |   |          | $ | 4,369,536  |         
|                            
|                            
|                            
|                            
|Operating expenses           |                                          |                                       |         |      |          |      |         |   |          |   | 4,488,771  |         
|                            
|                            
|                            
|                            
|Merger expenses              |                                          |                                       |         |      |          |      |         |   |          |   |           |         
|                            
|                            
|                            
|                            
|Restructuring charges        |                                          |                                       |         |      |          |      |         |   |          |   | 65,675     |         
|                             |                                          |                                       |          |      |          |      |          |   |          |   |            |         
|                             | Loss from operations before income taxes |                                       |          |     |          |      |          |  |          |   |            | (184,910 | )         
|                            
|                            
|                            
|                            
|Income tax expense (benefit) |                                          |                                       |         |      |          |      |         |   |          |   | 34,453     |         
|                             |                                          |                                       |          |      |          |      |          |   |          |   |            |         
|                             | Loss from operations                     |                                       |          |     |          |      |          |  |          |   |            | (219,363 | )         
|                            
|                            
|                            
|                            
|Estimated loss on disposal   |                                          |                                       | (268,000 | )    |          |      | (199,310 | ) |          |   | (855,991   | )       
|                            
|                            
|                            
|                            
|Income tax expense           |                                          |                                       |         |      |          |      |         |   |          |   | 209,524    |         
|                             |                                          |                                       |          |      |          |      |          |   |          |   |            |         
|Net loss on disposal         |                                          |                                       | (268,000 | )    |          |      | (199,310 | ) |          |   | (1,065,515 | )       
|                             |                                          |                                       |          |      |          |      |          |   |          |   |            |         
|                             |                                          | Total loss on discontinued operations |          | $    | (268,000 | )    |          | $ | (199,310 | ) |            | $        | (1,284,878 | )
|                             |                                          |                                       |          |      |          |      |          |   |          |   |            |         

Year Ended December 31, 2000

Discontinued operations loss for the year ended
December 31, 2000, consists of charges totaling $268
million ($198 million in March 2000 and $70 million in December
2000) related to revised estimates of exit costs for the
Companys discontinued PPM operations, including revisions
related to KPCMM and KPCGC (See Note 14). These charges are
composed of: (i) a $167.6 million adjustment in the net
assets related to the Companys remaining PPM operations
and (ii) $100.4 million in adjustments to reserves for potential
future obligations such as rents and litigation. These amounts
are estimates, and actual costs could differ from those
recorded. During the year ended December 31, 2000, the
Company completed the divestiture of three of its PPM practices
and was operating one remaining PPM practice at
December 31, 2000.

Year Ended December 31, 1999

Discontinued operations loss for the year ended
December 31, 1999 consists of a charge of $199.3 million
related to the net loss on the disposal of the PPM operations.
This charge is an adjustment to the $1.1 billion charge recorded
in the fourth quarter of 1998. The 1999 charge includes a $119.9
million adjustment to the impairment and write-off of
intangibles and other PPM assets, an adjustment to the estimated
costs to exit the PPM operations of approximately $73.6 million,
and an adjustment of approximately $5.8 million related to the
gain on the sale of the contract services business. For the year
ended December 31, 1999, the Companys discontinued
operations had net revenue of approximately $1.4 billion and an
operating loss of approximately $165.0 million. The Company
received net cash proceeds of $324.4 million and $316.8 million
during 1999 from the sales of the PPM and contract services
businesses, respectively.

Year Ended December 31, 1998

Discontinued operations loss for the year ended
December 31, 1998 includes the losses of the PPM, contract
services and international businesses and a $1.1 billion charge
taken in the fourth quarter to exit these businesses. This
charge included approximately $815.4 million for the impairment
and write-off of intangibles and other PPM assets, estimated
costs to exit the PPM operations of approximately $340.9
million, (including $153.9 million to fully reserve the
Companys deferred tax assets) and approximately $90.8
million, net of taxes of $55.6 million, for the estimated net
gain for the sale of the contract services business. Also
included in discontinued operations loss for the year ended
December 31, 1998 are restructuring charges of $65.7
million that relate primarily to severance costs, costs
associated with the closing of certain clinic operations and
real estate obligations for space no longer in use or scheduled
to become vacant.

F-20



---



CAREMARK RX, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

California PPM Operations

The Companys California PPM operations included
MedPartners Provider Network, Inc. (MPN), a
wholly-owned subsidiary of the Company and a healthcare service
plan licensed by the State of California (the State)
under the Knox-Keene Health Care Service Plan Act of 1975. In
March 1999, the California Department of Corporations (the
DOC) appointed a conservator and assumed control of
the business operations of MPN. The conservator, purportedly on
behalf of MPN, filed a voluntary petition under Chapter 11
of the United States Bankruptcy Code. The Company judicially
challenged the authority of both the DOC and the conservator to
take these actions in both the California Superior Court and in
the United States Bankruptcy Court for the Central District of
California (the Bankruptcy Court).

The Company, MPN and representatives of the State subsequently
executed an agreement to settle the dispute relating to MPN (as
amended, the Settlement Agreement). The Company,
various of its subsidiaries, MPN, certain managed physician
practices and various health plans executed a supplemental
agreement (as amended, the Supplemental Plan
Agreement), pursuant to which (1) the parties to the
Supplemental Plan Agreement agreed to subordinate, waive and/or
release various claims against one another on the terms and
conditions set forth therein, and (2) the health plans
agreed to support the Chapter 11 plan of reorganization
filed by MPN. On September 14, 2000, the Bankruptcy Court
entered an order which: (i) confirmed the Second Amended
Chapter 11 Plan of MPN dated July 7, 2000 (the
Plan); (ii) approved the Settlement Agreement
and (iii) approved the Supplemental Plan Agreement.
Following the occurrence of the Effective Date of
the Plan on October 16, 2000, distributions commenced to
the creditors of MPN from assets of MPN and from letters of
credit in the aggregate amount of $40.0 million provided by the
Company pursuant to its funding commitment described in the
Plan. All required distributions are expected to be completed
approximately one year following the Effective Date of the Plan.

In August 1999, the Company and certain of its subsidiaries,
affiliates, and managed physician practices sold a portion of
their Southern California PPM assets to KPC Medical Management,
Inc. (KPCMM) and certain of its affiliates. At the
same time, the Company and certain of its subsidiaries,
affiliates, and managed physician practices sold other Southern
California PPM assets to KPC Global Care, Inc. and certain of
its affiliates (KPCGC).

As a result of these transactions, KPCMM and KPCGC and their
respective affiliated purchasers (the KPC
Purchasers) agreed to assume and perform certain
obligations of the Company and related sellers under certain
real estate leases, personal property leases, vendor contracts
and other contracts (Assumed Obligations). In many
cases, the Company and/or one of its subsidiaries, affiliates or
managed physician practices remain obligated on the Assumed
Obligations.

On November 24, 2000, KPCMM and certain of its affiliates
(not including KPCGC) (the KPC Debtors) filed for
bankruptcy, and subsequently rejected many of the Assumed
Obligations. At this time it is unclear what effect this
bankruptcy filing will have on the Companys potential
liability for Assumed Obligations or under the Guaranty, or on
its ability to collect other amounts due from the KPC Purchasers.

Other Items

The net assets of discontinued operations as of
December 31, 2000, represent primarily the remaining
working capital of the Companys discontinued PPM
subsidiaries.

F-21



---



CAREMARK RX, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

The Company retained numerous operating leases, primarily for
administrative and office space, related to its discontinued
operations. As of December 31, 2000, the cumulative gross
rents related to such leases were approximately
$288 million, with assignments or sublease arrangements of
approximately $170 million in place. The Company has
estimated the costs to terminate or sublease these facilities
and has included the net amount in its estimate of remaining
discontinued operations exit costs.

The Company has accrued $106.1 million of estimated remaining
discontinued operations exit costs at December 31, 2000.
These accrued exit costs are included in Other accrued
expenses and liabilities ($56.1 million) and Other
long-term liabilities ($50.0 million) in the accompanying
consolidated balance sheet. These amounts are estimates, and
actual amounts could differ from those recorded.

Net interest expense allocated to discontinued operations was
$6.9 million and $32.3 million for the years ended
December 31, 1999 and 1998, respectively.

The Company also paid $146.4 million in cash and issued $15.6
million of stock for acquisitions of discontinued operations
during the year ended December 31, 1998, prior to its
decision to discontinue the PPM and contract services businesses.

14.  Contingencies

The Company is party to certain legal actions arising in the
ordinary course of business. The Company is named as a defendant
in various legal actions arising from its continuing operations
and its discontinued PPM operations, including employment
disputes, contract disputes, personal injury claims and
professional liability claims. Management does not view any of
these actions as likely to result in an uninsured award that
would have a material adverse effect on the operating results
and financial condition of the Company.

In September 1997, the Company issued 6.50% Threshold
Appreciation Price Securities (TAPS). The TAPS were
initially secured by $481.4 million in U.S. Treasury Notes.
Under the terms of the purchase contract agreement pursuant to
which the TAPS were issued (the Purchase Contract),
the Company was to receive the maturity proceeds from these U.S.
Treasury Notes, and the TAPS holders were to exchange their TAPS
for shares of the Companys common stock on August 31,
2000, the date the TAPS were scheduled to be surrendered by the
TAPS holders in exchange for shares of the Companys common
stock. In 1999, two lawsuits were filed in the Supreme Court of
the State of New York, County of New York, claiming that a
Termination Event, as defined in the Purchase
Contract, which would have resulted in the TAPS holders
receiving the U.S. Treasury Notes, had occurred with respect to
the TAPS. Both of these lawsuits have been dismissed with
prejudice. The Company settled one of these lawsuits, which
involved plaintiffs holding approximately 35 percent of the
outstanding TAPS (the Settling TAPS Holders), in
April 2000 (the New York Settlement).

The New York Settlement provided, among other things, that the
Settling TAPS Holders would receive 1.55 shares of the
Companys common stock for each TAPS owned or controlled by
them. Accordingly, on April 14, 2000, the Company delivered
1.55 shares of the Companys common stock for each TAPS
tendered by the Settling TAPS Holders and paid to the Settling
TAPS Holders accrued and unpaid interest due on the U.S.
Treasury Notes corresponding to the tendered TAPS. The Company
received approximately $168 million in cash from the
cancellation of the related TAPS.

The New York Settlement provides that, in the event the Company
settles litigation with other holders of TAPS for a greater
value per each TAPS, as measured in accordance with the terms of
the settlement agreement, than the settlement value of the New
York Settlement, the Company will pay each Settling TAPS Holder
the difference in value per each TAPS between the settlement
value of the New York Settlement and the settlement value of any
settlement with other holders of TAPS.

F-22



---



CAREMARK RX, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

In March 2000, a purported class action was filed in the Circuit
Court of Franklin County, Alabama (the Circuit
Court), also claiming that a Termination Event had
occurred. This lawsuit was subsequently certified by the court
as a non-opt out class action, and therefore
includes all TAPS holders other than those who were parties to
the New York Settlement. The Company reached a settlement in
this lawsuit (the Alabama Settlement), which
received final court approval pursuant to a Final Approval Order
and Judgment issued on June 9, 2000 (the Final
Order) by the Circuit Court. On June 19, 2000,
certain TAPS holders filed a notice of appeal to the Supreme
Court of Alabama, questioning the Circuit Courts order
denying their motion to intervene and the adequacy of the
settlement. On July 21, 2000, two other TAPS holders filed
notices of appeal to the Supreme Court of Alabama, purporting to
appeal on the same grounds as the June 19, 2000 appeal. The
Company believes that the appeals are without merit and has
filed a motion to dismiss these appeals.

As required by the Purchase Contract, on August 31, 2000,
the Company issued approximately 14.2 million shares of its
common stock to the class members in exchange for the same
number of outstanding TAPS. The Company received the remaining
$313 million of proceeds related to the TAPS which, combined
with the proceeds received in April 2000 in connection with the
New York Settlement, were used to retire the Companys $420
million senior subordinated notes which matured on
September 1, 2000. The remaining TAPS proceeds were used to
reduce the Companys indebtedness under its credit
facility, with $60 million being applied to term loans and the
remainder to the revolving facility.

Pursuant to an order from the Circuit Court requiring
distribution of the class benefits under the Alabama Settlement,
on September 13, 2000, the Company issued to each class
member 0.22 shares of the Companys common stock for each
TAPS held by that class member, less each class members
share of pro rata attorneys fees. The Final Order provided
for 25% of the stock issuable to the class under the Alabama
Settlement to be paid as fees to the attorneys for the class.

On April 11, 2000, certain TAPS holders filed a lawsuit
entitled Aragon Investments, Ltd. et al. v. Caremark Rx, Inc. in
the Supreme Court of the State of New York, County of New York,
claiming that a Termination Event had occurred with
respect to the TAPS. On January 24, 2001, the Supreme Court
of the State of New York dismissed the Aragon litigation,
subject to the rights of the plaintiffs to recommence their
action if the Circuit Courts decision is reversed on
appeal by the Supreme Court of Alabama. The plaintiffs have
filed a notice of appeal to the Appellate Division of the New
York Supreme Court.

In 1993, approximately 3,900 independent and retail chain
pharmacies filed a group of antitrust lawsuits and a class
action lawsuit against brand name pharmaceutical manufacturers,
wholesalers and PBM companies. Caremark was named as a defendant
in a number of these lawsuits in 1994, but was not named in the
class action. The lawsuits, which were transferred to the United
States District Court for the Northern District of Illinois for
pretrial proceedings, alleged that at least 24 pharmaceutical
manufacturers provided unlawful price and service discounts to
certain favored buyers and conspired among themselves to deny
similar discounts to the plaintiffs in violation of the Sherman
Act and the Robinson-Patman Act. The complaints that included
Caremark charged that certain defendant PBM companies, including
Caremark, were favored buyers who knowingly induced or received
discriminatory prices from the manufacturers in violation of the
Robinson-Patman Act. Each complaint sought unspecified treble
damages, declaratory and equitable relief and attorneys
fees and expenses.

In April 1995, the Court entered a stay of pretrial proceedings
as to certain Robinson-Patman Act claims in this litigation,
including the Robinson-Patman Act claims against Caremark,
pending a trial of price discrimination claims brought by a
limited number of plaintiffs against five defendants not
including Caremark. The stay involving claims against Caremark
has remained in place to date. Numerous settlements by parties
other than Caremark have been reached, including a partial
settlement of the class action which provided for a cash payment
of approximately $351 million by the settling manufacturers as
well as a commitment to abide by certain injunctive provisions.

F-23



---



CAREMARK RX, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

The remaining defendants received a judgment in their favor in
1998 on the class action conspiracy claims. On appeal, that
judgment was affirmed in part and reversed and remanded in part
and is currently undergoing further proceedings in the district
court and the court of appeals. It is expected that trials of
the remaining non-class action conspiracy claims brought under
the Sherman Act, to the extent they have not otherwise been
settled or dismissed on summary judgment, will ultimately be
remanded and move forward to trial and likely will also precede
the trial of any Robinson-Patman Act claims.

Pursuant to the Provider Self-Disclosure Protocol of the Office
of Inspector General (OIG), the Company has
conducted a voluntary investigation of the practices of an
affiliate which is included in the Companys discontinued
operations and was known as Home Health Agency of Greater Miami,
doing business as AmCare (AmCare). The investigation
uncovered several potentially inappropriate practices by certain
managers at AmCare, some of which may have resulted in
overpayments from federal programs for AmCares home health
services. The Company has since terminated these managers,
ceased AmCares operations, and reported the matter to the
OIG. While the OIG has not yet responded to the Companys
internal investigation report, and therefore the resolution of
this matter is as yet unknown, it is likely that the government
will determine that overpayments were made which require
repayment by the Company. The Companys estimates of the
repayments due have been accrued in the financial statements.

Although the Company believes that it has meritorious defenses
to the claims of liability or for damages in the actions that
have been made against it, there can be no assurance that
pending lawsuits will not have a disruptive effect upon the
operations of the business, that the defense of the lawsuits
will not consume the time and attention of the Companys
senior management, or that the resolution of the lawsuits will
not have a material adverse effect on the operating results and
financial condition of the Company. The Company intends to
vigorously defend each of its pending lawsuits. The Company
believes that these lawsuits will not have a material adverse
effect on the operating results and financial condition of the
Company.

As previously discussed, the Company is a party to certain
claims and proceedings related to its discontinued operations.
See Note 13, Discontinued Operations for a full
description of these matters. Additionally, the Company has
assigned to various parties approximately $125 million of
lease obligations related to its discontinued operations. The
Company and/or one or more of its subsidiaries, affiliates or
managed physician practices remain named as guarantor or obligor
on these lease obligations.

15.  Corporate Liability and Insurance

The Company maintains professional liability, general liability
and other customary insurance on a claims-made and modified
occurrence basis, in amounts deemed appropriate by management
based upon historical claims and the nature and risks of the
business. The Company believes that its current insurance
protection is adequate for its present business operations, but
there can be no assurance that the Company will be able to
maintain its current insurance protection in the future or that
such insurance coverage will be available on acceptable terms or
adequate to cover any or all potential claims.

F-24



---



CAREMARK RX, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

16.  Selected Quarterly Financial Data (Unaudited)

The following tables set forth certain unaudited quarterly
financial data for 2000 and 1999. In the opinion of the
Companys management, this unaudited information has been
prepared on the same basis as the audited information and
includes all adjustments (consisting of normal recurring items)
necessary to present fairly the information set forth therein.
The operating results for any quarter are not necessarily
indicative of results for any future period.

|                                                                     |                                                            |                       |           |          |       |          |           |          |      |          |           |          |      |          |           |          |       |   |         |       |      |   |         |       |      |   |          |       |       |   |         |       |      | 
|-------------------------------------------------------------------- | ---------------------------------------------------------- | --------------------- | --------- | -------- | ----- | -------- | --------- | -------- | ---- | -------- | --------- | -------- | ---- | -------- | --------- | -------- | ----- | - | ------- | ----- | ---- | - | ------- | ----- | ---- | - | -------- | ----- | ----- | - | ------- | ----- | ---- | 
|                                                                     |                                                            |                      
|                                                                     |                                                            | Three Months Ended   
|                                                                     |                                                            |                      
|                                                                     |                                                            | Dec. 31,              |           | Sep. 30, |       | Jun. 30, |           | Mar. 31, |      | Dec. 31, |           | Sep. 30, |      | Jun. 30, |           | Mar. 31,
|                                                                     |                                                            | 2000                  |           | 2000     |       | 2000     |           | 2000     |      | 1999     |           | 1999     |      | 1999     |           | 1999    
|                                                                     |                                                            |                       |           |          |       |          |           |          |      |          |           |          |      |          |           |         
|Net revenue                                                          |                                                            | $                     | 1,203,778 |          |       | $        | 1,089,362 |          |      | $        | 1,084,456 |          |      | $        | 1,052,548 |          |       | $ | 913,545 |       |      | $ | 812,996 |       |      | $ | 796,207  |       |       | $ | 785,058 |      
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Operating expenses(1)                                                |                                                            |                       | 1,144,947 |          |       |          | 1,037,968 |          |      |          | 1,034,950 |          |      |          | 1,002,053 |          |       |   | 860,594 |       |      |   | 768,555 |       |      |   | 753,070  |       |       |   | 746,197 |      
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Interest expense, net                                                |                                                            |                       | 20,450    |          |       |          | 22,291    |          |      |          | 25,432    |          |      |          | 28,869    |          |       |   | 28,397  |       |      |   | 29,335  |       |      |   | 30,502   |       |       |   | 27,058  |      
|                                                                     |                                                            |                       |           |          |       |          |           |          |      |          |           |          |      |          |           |          |       |   |         |       |      |   |         |       |      |   |          |       |       |   |         |      
|                                                                     |                                                            |                       | 1,165,397 |          |       |          | 1,060,259 |          |      |          | 1,060,382 |          |      |          | 1,030,922 |          |       |   | 888,991 |       |      |   | 797,890 |       |      |   | 783,572  |       |       |   | 773,255 |      
|                                                                     |                                                            |                       |           |          |       |          |           |          |      |          |           |          |      |          |           |          |       |   |         |       |      |   |         |       |      |   |          |       |       |   |         |      
|Income from continuing operations before provision for income
	taxes |                                                            |                       | 38,381    |          |       |          | 29,103    |          |      |          | 24,074    |          |      |          | 21,626    |          |       |   | 24,554  |       |      |   | 15,106  |       |      |   | 12,635   |       |       |   | 11,803  |      
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Provision for income taxes                                           |                                                            |                       | 2,879     |          |       |          | 2,182     |          |      |          | 1,807     |          |      |          | 1,621     |          |       |   | 1,865   |       |      |   | 1,179   |       |      |   | 940      |       |       |   | 968     |      
|                                                                     |                                                            |                       |           |          |       |          |           |          |      |          |           |          |      |          |           |          |       |   |         |       |      |   |         |       |      |   |          |       |       |   |         |      
|Income from continuing operations                                    |                                                            |                       | 35,502    |          |       |          | 26,921    |          |      |          | 22,267    |          |      |          | 20,005    |          |       |   | 22,689  |       |      |   | 13,927  |       |      |   | 11,695   |       |       |   | 10,835  |      
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Preferred security dividends                                         |                                                            |                       | 3,502     |          |       |          | 3,273     |          |      |          | 3,255     |          |      |          | 3,220     |          |       |   | 3,220   |       |      |   | 35      |       |      |   |         |       |       |   |        |      
|                                                                     |                                                            |                       |           |          |       |          |           |          |      |          |           |          |      |          |           |          |       |   |         |       |      |   |         |       |      |   |          |       |       |   |         |      
|Income from continuing operations available to common
	stockholders  |                                                            |                       | 32,000    |          |       |          | 23,648    |          |      |          | 19,012    |          |      |          | 16,785    |          |       |   | 19,469  |       |      |   | 13,892  |       |      |   | 11,695   |       |       |   | 10,835  |      
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Loss from discontinued operations                                    |                                                            |                       | (70,000   | )        |       |          |          |          |      |          |          |          |      |          | (198,000  | )        |       |   |        |       |      |   |        |       |      |   | (199,310 | )     |       |   |        |      
|                                                                     |                                                            |                       |           |          |       |          |           |          |      |          |           |          |      |          |           |          |       |   |         |       |      |   |         |       |      |   |          |       |       |   |         |      
|Net income (loss) to common stockholders                             |                                                            | $                     | (38,000   | )        |       | $        | 23,648    |          |      | $        | 19,012    |          |      | $        | (181,215  | )        |       | $ | 19,469  |       |      | $ | 13,892  |       |      | $ | (187,615 | )     |       | $ | 10,835  |      
|                                                                     |                                                            |                       |           |          |       |          |           |          |      |          |           |          |      |          |           |          |       |   |         |       |      |   |         |       |      |   |          |       |       |   |         |      
|Average number of common shares outstanding  basic                  |                                                            |                       | 222,002   |          |       |          | 209,502   |          |      |          | 201,202   |          |      |          | 191,250   |          |       |   | 190,913 |       |      |   | 190,780 |       |      |   | 190,650  |       |       |   | 190,195 |      
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Dilutive effect of stock options and warrants              |                       |           | 10,505   |       |          |           | 9,350    |      |          |           | 6,414    |      |          |           | 2,437    |       |   |         | 3,409 |      |   |         | 6,458 |      |   |          | 4,635 |       |   |         | 2,361 |     
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Presumed conversion of convertible preferred securities(2) |                       |           | 26,850   |       |          |           |         |      |          |           |         |      |          |           |         |       |   |         |      |      |   |         |      |      |   |          |      |       |   |         |      |     
|                                                                     |                                                            |                       |           |          |       |          |           |          |      |          |           |          |      |          |           |          |       |   |         |       |      |   |         |       |      |   |          |       |       |   |         |      
|Average number of common shares outstanding  diluted                |                                                            |                       | 259,357   |          |       |          | 218,852   |          |      |          | 207,616   |          |      |          | 193,687   |          |       |   | 194,322 |       |      |   | 197,238 |       |      |   | 195,285  |       |       |   | 192,556 |      
|                                                                     |                                                            |                       |           |          |       |          |           |          |      |          |           |          |      |          |           |          |       |   |         |       |      |   |         |       |      |   |          |       |       |   |         |      
|Earnings per common share  basic:                                   |                                                            |                       |           |          |       |          |           |          |      |          |           |          |      |          |           |          |       |   |         |       |      |   |         |       |      |   |          |       |       |   |         |      
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Income from continuing operations                          |                       | $         | 0.14     |       |          | $         | 0.11     |      |          | $         | 0.09     |      |          | $         | 0.09     |       |   | $       | 0.10  |      |   | $       | 0.07  |      |   | $        | 0.06  |       |   | $       | 0.06  |     
|                                                                     |                                                            |                       |           |          |       |          |           |          |      |          |           |          |      |          |           |          |       |   |         |       |      |   |         |       |      |   |          |       |       |   |         |      
|                                                                     | Loss from discontinued operations                          |                       | $         | (0.32    | )     |          | $         |         |      |          | $         |         |      |          | $         | (1.04    | )     |   | $       |      |      |   | $       |      |      |   | $        | (1.05 | )     |   | $       |      |     
|                                                                     |                                                            |                       |           |          |       |          |           |          |      |          |           |          |      |          |           |          |       |   |         |       |      |   |         |       |      |   |          |       |       |   |         |      
|                                                                     |                                                            | Net income (loss)     |           | $        | (0.17 | )        |           | $        | 0.11 |          |           | $        | 0.09 |          |           | $        | (0.95 | ) |         | $     | 0.10 |   |         | $     | 0.07 |   |          | $     | (0.98 | ) |         | $     | 0.06 | 
|                                                                     |                                                            |                       |           |          |       |          |           |          |      |          |           |          |      |          |           |          |       |   |         |       |      |   |         |       |      |   |          |       |       |   |         |      
|Earnings per common share  diluted:                                 |                                                            |                       |           |          |       |          |           |          |      |          |           |          |      |          |           |          |       |   |         |       |      |   |         |       |      |   |          |       |       |   |         |      
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Income from continuing operations(2)                       |                       | $         | 0.14     |       |          | $         | 0.11     |      |          | $         | 0.09     |      |          | $         | 0.09     |       |   | $       | 0.10  |      |   | $       | 0.07  |      |   | $        | 0.06  |       |   | $       | 0.06  |     
|                                                                     |                                                            |                       |           |          |       |          |           |          |      |          |           |          |      |          |           |          |       |   |         |       |      |   |         |       |      |   |          |       |       |   |         |      
|                                                                     | Loss from discontinued operations                          |                       | $         | (0.27    | )     |          | $         |         |      |          | $         |         |      |          | $         | (1.02    | )     |   | $       |      |      |   | $       |      |      |   | $        | (1.02 | )     |   | $       |      |     
|                                                                     |                                                            |                       |           |          |       |          |           |          |      |          |           |          |      |          |           |          |       |   |         |       |      |   |         |       |      |   |          |       |       |   |         |      
|                                                                     |                                                            | Net income (loss) (2) |           | $        | (0.13 | )        |           | $        | 0.11 |          |           | $        | 0.09 |          |           | $        | (0.94 | ) |         | $     | 0.10 |   |         | $     | 0.07 |   |          | $     | (0.96 | ) |         | $     | 0.06 | 
|                                                                     |                                                            |                       |           |          |       |          |           |          |      |          |           |          |      |          |           |          |       |   |         |       |      |   |         |       |      |   |          |       |       |   |         |      






|    |                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes: cost of revenues; selling, general and administrative
	expenses; depreciation and amortization.                                   
|(2) | The Companys convertible preferred securities are dilutive
	to income from continuing operations for the quarter ended
	December  31, 2000.
|    | They are anti-dilutive for all other periods presented.                                                                                     

F-25



---



CAREMARK RX, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

17.  Subsequent Events

New Credit Agreement. On March 15, 2001, the Company
refinanced the Existing Credit Facility with a syndicate of
banks, financial institutions and other lenders, with Bank of
America, N.A. as administrative agent. The new credit facility
(the New Credit Facility) provides for borrowings in
the aggregate amount of $550 million and is composed of:
(i) a $250 million term loan facility (the New Term
Loan Facility) maturing on March 15, 2006 and
(ii) a $300 million revolving credit facility (the
New Revolving Facility) maturing on March 15,
2005.

The terms contained in the New Credit Facility are similar to
those in the credit facility existing at December 31, 2000,
with the following exceptions:



| |   |                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Indebtedness incurred by the Company under the New Credit
	Facility is secured by substantially all of the present and
	future material personal property of the Company and its
	material subsidiaries and a first-priority security interest in
	all of the capital stock of the material subsidiaries of the
	Company;
|
| |  | Indebtedness under the Senior Notes will be secured equally and
	ratably with indebtedness under the New Credit Facility;                                                                                                                                                                                                
|
| |  | Indebtedness incurred by the Company under the New Credit
	Facility is guaranteed by the material subsidiaries of the
	Company and                                                                                                                                                                                       
|
| |  | Affirmative covenants are less burdensome and negative covenants
	are less restrictive.                                                                                                                                                                                                                                  

Accounts Receivable Securitization. On January 31,
2001, the Company amended and restated the accounts receivable
securitization facility described in Note 4, Trade
Receivable Securitization. The amended and restated
facility increased the aggregate amount available thereunder
from $100 million to $115 million and extended the term of the
facility.

F-26



---



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Caremark Rx, Inc.:

We have audited in accordance with auditing standards generally
accepted in the United States, the consolidated financial
statements of Caremark Rx, Inc. (a Delaware corporation) and
subsidiaries for the year ended December 31, 2000, included
in this Form 10-K and have issued our report thereon dated
February 1, 2001 (except for Note 17, as to which the
date is March 15, 2001). Our audit was made for the purpose
of forming an opinion on the basic financial statements taken as
a whole. Schedule II included in Item 14(a)(2) of the
Form 10-K is the responsibility of the Companys
management and is presented for purposes of complying with the
Securities and Exchange Commissions rules and is not part
of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the
basic financial statements for the year ended December 31,
2000 and, in our opinion, fairly states in all material respects
the financial data required to be set forth in relation to the
basic financial statements taken as a whole for the year ended
December 31, 2000.

Birmingham, Alabama



S-1



---



SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

(In millions)


Deferred Income Tax Asset Valuation Allowance

|                  |  |            |       |                      |  |       |       |            |  |        |   |  |  |   |     |  |  |   |       | 
|----------------- |  | ---------- | ----- | -------------------- |  | ----- | ----- | ---------- |  | ------ | - |  |  | - | --- |  |  | - | ----- | 
|                  |  |            |       |                      |  |       |       |           
|                  |  |            |       | Additions Charged to |  |       |       |           
|                  |  | Balance at |       |                      |  |       |       | Balance at
|                  |  | Beginning  |       | Costs and            |  |       |       |            |  | End of
|Year Ended        |  | of Period  |       | Expenses             |  | Other |       | Deductions |  | Period
|                  |  |            |       |                      |  |       |       |            |  |       
|December 31, 2000 |  | $          | 803.2 |                      |  | $     | 101.2 |            |  | $      |  |  |  | $ |    |  |  | $ | 904.4 | 
|                 
|                 
|                 
|                 
|December 31, 1999 |  | $          | 736.0 |                      |  | $     | 67.2  |            |  | $      |  |  |  | $ |    |  |  | $ | 803.2 | 
|                 
|                 
|                 
|                 
|December 31, 1998 |  | $          | 109.3 |                      |  | $     | 629.7 |            |  | $      |  |  |  | $ | 3.0 |  |  | $ | 736.0 | 

S-2