UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549




---

FORM 10-Q

(Mark One)



| |     |                                                                                         
| | --- | ----------------------------------------------------------------------------------------
| | [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934
|
| |     | For the quarterly period ended March 31, 2001                                           

OR



| |      |                                                                                          
| | ---- | -----------------------------------------------------------------------------------------
| | [  ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934



| |  |                                   
| |  | ----------------------------------
| |  | For the transition period from  to

Commission file number: 0-27276

CAREMARK RX, INC.

(Exact Name of Registrant as Specified in its
Charter)


|                                |  |                    
|------------------------------- |  | -------------------
|                               
|                               
|                               
|                               
|Delaware                        |  | 63-1151076         
|(State or other jurisdiction of |  | (I.R.S. Employer   
|incorporation or organization)  |  | Identification No.)

3000 Galleria Tower, Suite 1000

Birmingham, Alabama 35244


(Address and zip code of principal executive
offices)


(205) 733-8996

(Registrants telephone number, including
area code)


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

As of March 31, 2001, the registrant had 230,754,542 shares
(including 6,660,331 shares held in trust to be utilized in
employee benefit plans) of common stock, par value $.001 per
share, issued and outstanding.



---






---



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 and appear primarily in Part I 
Item 2, Managements Discussion and Analysis of
Financial Condition and Results of Operations and in Part
II  Item 1, Legal Proceedings.
Moreover, the Company, through its senior management, may from
time to time make forward-looking statements about
matters described herein or about 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:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 existing or future lawsuits 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 privacy and
	electronic interchange standards mandated by the Health
	Insurance Portability and Accountability Act of 1996
	(HIPAA); 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 the Companys Annual Report on Form 10-K
for the year ended December 31, 2000, filed with the
Securities and Exchange Commission on March 21, 2001, under
the captions: 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.

i



---



CAREMARK RX, INC.

QUARTERLY REPORT ON FORM 10-Q

INDEX

|                               |  |                                                                                                           |  |      |    | 
|------------------------------ |  | --------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                               |  |                                                                                                           |  | Page
|                               |  |                                                                                                           |  |     
|                              
|                              
|                              
|                              
|PART I  FINANCIAL INFORMATION |  |                                                                                                           |  |     
|Item 1.                        |  | Financial Statements                                                                                      |  |      |    | 
|                              
|                              
|                              
|                              
|                               |  | Condensed Consolidated Balance Sheets  March 31,
	2001 (Unaudited) and December 31, 2000                 |  |      | 2  | 
|                              
|                              
|                              
|                              
|                               |  | Condensed Consolidated Statements of Operations (Unaudited)
	 Three Months Ended March 31, 2001 and 2000 |  |      | 3  | 
|                              
|                              
|                              
|                              
|                               |  | Condensed Consolidated Statements of Cash Flows (Unaudited)
	 Three Months Ended March 31, 2001 and 2000 |  |      | 4  | 
|                              
|                              
|                              
|                              
|                               |  | Notes to Condensed Consolidated Financial Statements (Unaudited)                                          |  |      | 5  | 
|                              
|                              
|                              
|                              
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition
	and Results of Operations                    |  |      | 11 | 
|                              
|                              
|                              
|                              
|Item 3.                        |  | Quantitative and Qualitative Disclosures About Market Risk                                                |  |      | 15 | 
|                              
|                              
|                              
|                              
|PART II  OTHER INFORMATION    |  |                                                                                                           |  |     
|                              
|                              
|                              
|                              
|Item 1.                        |  | Legal Proceedings                                                                                         |  |      | 16 | 
|                              
|                              
|                              
|                              
|Item 6.                        |  | Exhibits and Reports on Form 8-K                                                                          |  |      | 18 | 

1



---



CAREMARK RX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)


|                                                                                                 |                                                                                                    |                                             |         |              |           |   |         |            |           |  
|------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------- | ------------------------------------------- | ------- | ------------ | --------- | - | ------- | ---------- | --------- | -
|                                                                                                 |                                                                                                    | March 31,                                   |         | December 31,
|                                                                                                 |                                                                                                    | 2001                                        |         | 2000        
|                                                                                                 |                                                                                                    |                                             |         |             
|                                                                                                 |                                                                                                    | (Unaudited)                                 |         |             
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|ASSETS                                                                                          
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Current assets:                                                                                  |                                                                                                    |                                             |         |              |           |   |         |           
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Cash and cash equivalents                                                                          |                                             | $       | 30,342       |           |   | $       | 2,352      |          
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Accounts receivable, less allowances for doubtful accounts of
	$20,425 in 2001 and $17,920 in 2000 |                                             |         | 231,415      |           |   |         | 249,766    |          
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Inventories                                                                                        |                                             |         | 166,465      |           |   |         | 186,231    |          
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Prepaid expenses and other current assets                                                          |                                             |         | 10,066       |           |   |         | 8,757      |          
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Current assets of discontinued operations                                                          |                                             |         | 1,712        |           |   |         | 6,221      |          
|                                                                                                 |                                                                                                    |                                             |         |              |           |   |         |           
|                                                                                                 |                                                                                                    | Total current assets                        |         |              | 440,000   |   |         |            | 453,327   |  
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Property and equipment, net of accumulated depreciation of
	$106,252 in 2001 and $99,965 in 2000 |                                                                                                    |                                             | 114,024 |              |           |   | 110,320 |           
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Intangible assets, net of accumulated amortization of $13,435 in
	2001 and $21,563 in 2000       |                                                                                                    |                                             | 37,734  |              |           |   | 35,165  |           
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Other assets                                                                                     |                                                                                                    |                                             | 79,272  |              |           |   | 79,723  |           
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Non-current assets of discontinued operations                                                    |                                                                                                    |                                             | 6,940   |              |           |   | 7,001   |           
|                                                                                                 |                                                                                                    |                                             |         |              |           |   |         |           
|                                                                                                 |                                                                                                    | Total assets                                |         | $            | 677,970   |   |         | $          | 685,536   |  
|                                                                                                 |                                                                                                    |                                             |         |              |           |   |         |           
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                           
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Current liabilities:                                                                             |                                                                                                    |                                             |         |              |           |   |         |           
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Accounts payable                                                                                   |                                             | $       | 423,810      |           |   | $       | 417,567    |          
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Other accrued expenses and liabilities                                                             |                                             |         | 158,884      |           |   |         | 169,857    |          
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Income taxes payable                                                                               |                                             |         | 3,741        |           |   |         | 2,533      |          
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Current portion of long-term debt                                                                  |                                             |         | 2,500        |           |   |         | 1,875      |          
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Current liabilities of discontinued operations                                                     |                                             |         | 40,264       |           |   |         | 43,405     |          
|                                                                                                 |                                                                                                    |                                             |         |              |           |   |         |           
|                                                                                                 |                                                                                                    | Total current liabilities                   |         |              | 629,199   |   |         |            | 635,237   |  
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Long-term debt, net of current portion                                                           |                                                                                                    |                                             | 697,500 |              |           |   | 733,347 |           
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Other long-term liabilities                                                                      |                                                                                                    |                                             | 80,939  |              |           |   | 82,398  |           
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Long-term liabilities of discontinued operations                                                 |                                                                                                    |                                             | 2,429   |              |           |   | 3,618   |           
|                                                                                                 |                                                                                                    |                                             |         |              |           |   |         |           
|                                                                                                 |                                                                                                    | Total liabilities                           |         |              | 1,410,067 |   |         |            | 1,454,600 |  
|Commitments and contingencies                                                                    |                                                                                                    |                                             |         |              |           |   |         |           
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Convertible Preferred Securities                                                                 |                                                                                                    |                                             | 200,000 |              |           |   | 200,000 |           
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Stockholders deficit:                                                                           |                                                                                                    |                                             |         |              |           |   |         |           
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Common stock, $.001 par value per share; 400,000 shares
	authorized; 230,755 shares issued         |                                             |         | 231          |           |   |         | 231        |          
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Additional paid-in capital                                                                         |                                             |         | 1,390,362    |           |   |         | 1,399,902  |          
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Shares held in trust  6,660 in 2001 and 7,152 in
	2000                                            |                                             |         | (107,372     | )         |   |         | (115,287   | )        
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Accumulated deficit                                                                                |                                             |         | (2,215,318   | )         |   |         | (2,253,910 | )        
|                                                                                                 |                                                                                                    |                                             |         |              |           |   |         |           
|                                                                                                 |                                                                                                    | Total stockholders deficit                 |         |              | (932,097  | ) |         |            | (969,064  | )
|                                                                                                 |                                                                                                    |                                             |         |              |           |   |         |           
|                                                                                                 |                                                                                                    | Total liabilities and stockholders deficit |         | $            | 677,970   |   |         | $          | 685,536   |  
|                                                                                                 |                                                                                                    |                                             |         |              |           |   |         |           

The accompanying Notes to Condensed Consolidated Financial
Statements are



2



---



CAREMARK RX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


(In thousands, except per share amounts)


|                                                                     |                                              |                    |           |           |      |   |           |         |       |  
|-------------------------------------------------------------------- | -------------------------------------------- | ------------------ | --------- | --------- | ---- | - | --------- | ------- | ----- | -
|                                                                     |                                              |                   
|                                                                     |                                              | Three Months Ended
|                                                                     |                                              | March 31,         
|                                                                     |                                              |                   
|                                                                     |                                              | 2001               |           | 2000     
|                                                                     |                                              |                    |           |          
|Net revenue                                                          |                                              | $                  | 1,373,942 |           |      | $ | 1,051,990 |        
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Operating expenses:                                                  |                                              |                    |           |           |      |   |           |        
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Cost of revenues                             |                    |           | 1,270,755 |      |   |           | 968,675 |      
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Selling, general and administrative expenses |                    |           | 34,922    |      |   |           | 27,097  |      
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Depreciation and amortization                |                    |           | 6,742     |      |   |           | 5,723   |      
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Interest expense, net                        |                    |           | 19,802    |      |   |           | 28,869  |      
|                                                                     |                                              |                    |           |           |      |   |           |        
|Income from continuing operations before provision for income
	taxes |                                              |                    | 41,721    |           |      |   | 21,626    |        
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Provision for income taxes                                           |                                              |                    | 3,129     |           |      |   | 1,621     |        
|                                                                     |                                              |                    |           |           |      |   |           |        
|Income from continuing operations                                    |                                              |                    | 38,592    |           |      |   | 20,005    |        
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Preferred security dividends                                         |                                              |                    | 3,304     |           |      |   | 3,220     |        
|                                                                     |                                              |                    |           |           |      |   |           |        
|Income from continuing operations available to common
	stockholders  |                                              |                    | 35,288    |           |      |   | 16,785    |        
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Loss from discontinued operations                                    |                                              |                    |          |           |      |   | (198,000  | )      
|                                                                     |                                              |                    |           |           |      |   |           |        
|Net income (loss) to common stockholders                             |                                              | $                  | 35,288    |           |      | $ | (181,215  | )      
|                                                                     |                                              |                    |           |           |      |   |           |        
|Average number of common shares outstanding  basic                  |                                              |                    | 222,925   |           |      |   | 191,250   |        
|                                                                     |                                              |                    |           |           |      |   |           |        
|Average number of common shares outstanding  diluted                |                                              |                    | 260,298   |           |      |   | 193,687   |        
|                                                                     |                                              |                    |           |           |      |   |           |        
|Earnings per common share  basic:                                   |                                              |                    |           |           |      |   |           |        
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Income from continuing operations            |                    | $         | 0.16      |      |   | $         | 0.09    |      
|                                                                     |                                              |                    |           |           |      |   |           |        
|                                                                     | Loss from discontinued operations            |                    | $         |          |      |   | $         | (1.04   | )    
|                                                                     |                                              |                    |           |           |      |   |           |        
|                                                                     |                                              | Net income (loss)  |           | $         | 0.16 |   |           | $       | (0.95 | )
|                                                                     |                                              |                    |           |           |      |   |           |        
|Earnings per common share  diluted:                                 |                                              |                    |           |           |      |   |           |        
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Income from continuing operations            |                    | $         | 0.15      |      |   | $         | 0.09    |      
|                                                                     |                                              |                    |           |           |      |   |           |        
|                                                                     | Loss from discontinued operations            |                    | $         |          |      |   | $         | (1.02   | )    
|                                                                     |                                              |                    |           |           |      |   |           |        
|                                                                     |                                              | Net income (loss)  |           | $         | 0.15 |   |           | $       | (0.93 | )
|                                                                     |                                              |                    |           |           |      |   |           |        

The accompanying Notes to Condensed Consolidated Financial
Statements are



3



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CAREMARK RX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


(In thousands)


|                                                |                                                                                            |                               |                                                                 |         |       |         |         |         |       |         |  
|----------------------------------------------- | ------------------------------------------------------------------------------------------ | ----------------------------- | --------------------------------------------------------------- | ------- | ----- | ------- | ------- | ------- | ----- | ------- | -
|                                                |                                                                                            |                              
|                                                |                                                                                            | Three Months Ended           
|                                                |                                                                                            | March 31,                    
|                                                |                                                                                            |                              
|                                                |                                                                                            | 2001                          |                                                                 | 2000   
|                                                |                                                                                            |                               |                                                                 |        
|Cash flows from operating activities:           |                                                                                            |                               |                                                                 |         |       |         |         |        
|                                               
|                                               
|                                               
|                                               
|                                                | Income from continuing operations                                                          |                               | $                                                               | 38,592  |       |         | $       | 20,005  |      
|                                               
|                                               
|                                               
|                                               
|                                                | Adjustments for non-cash items:                                                            |                               |                                                                 |         |       |         |         |         |      
|                                               
|                                               
|                                               
|                                               
|                                                |                                                                                            | Depreciation and amortization |                                                                 |         | 6,742 |         |         |         | 5,723 |        
|                                               
|                                               
|                                               
|                                               
|                                                |                                                                                            | Non-cash interest expense     |                                                                 |         | 1,414 |         |         |         | 1,801 |        
|                                               
|                                               
|                                               
|                                               
|                                                | Changes in operating assets and liabilities, net of effects of
	acquisitions of businesses |                               |                                                                 | 37,979  |       |         |         | 51,052  |      
|                                                |                                                                                            |                               |                                                                 |         |       |         |         |        
|                                                |                                                                                            |                               | Net cash and cash equivalents provided by continuing operations |         |       | 84,727  |         |         |       | 78,581  |  
|                                               
|                                               
|                                               
|                                               
|Cash flows from investing activities:           |                                                                                            |                               |                                                                 |         |       |         |         |        
|                                               
|                                               
|                                               
|                                               
|                                                | Capital expenditures, net                                                                  |                               |                                                                 | (14,022 | )     |         |         | (4,201  | )    
|                                               
|                                               
|                                               
|                                               
|Cash flows from financing activities:           |                                                                                            |                               |                                                                 |         |       |         |         |        
|                                               
|                                               
|                                               
|                                               
|                                                | Proceeds from issuance of equity securities, net                                           |                               |                                                                 | 1,679   |       |         |         | 3,328   |      
|                                               
|                                               
|                                               
|                                               
|                                                | Net repayments under credit facility                                                       |                               |                                                                 | (35,222 | )     |         |         | (25,438 | )    
|                                               
|                                               
|                                               
|                                               
|                                                | Long-term debt issuance costs                                                              |                               |                                                                 | (4,812  | )     |         |         |        |      
|                                               
|                                               
|                                               
|                                               
|                                                | Accounts receivable securitization                                                         |                               |                                                                 | 10,888  |       |         |         |        |      
|                                               
|                                               
|                                               
|                                               
|                                                | Dividend payments on Convertible Preferred Securities                                      |                               |                                                                 |        |       |         |         | (3,568  | )    
|                                               
|                                               
|                                               
|                                               
|                                                | Other                                                                                      |                               |                                                                 | 108     |       |         |         | (104    | )    
|                                                |                                                                                            |                               |                                                                 |         |       |         |         |        
|                                                |                                                                                            |                               | Net cash and cash equivalents used in financing activities      |         |       | (27,359 | )       |         |       | (25,782 | )
|                                               
|                                               
|                                               
|                                               
|Cash used in discontinued operations            |                                                                                            |                               | (14,769                                                         | )       |       |         | (43,399 | )      
|                                               
|                                               
|                                               
|                                               
|Cash paid for special charges                   |                                                                                            |                               | (587                                                            | )       |       |         | (211    | )      
|                                                |                                                                                            |                               |                                                                 |         |       |         |         |        
|Net increase in cash and cash equivalents       |                                                                                            |                               | 27,990                                                          |         |       |         | 4,988   |        
|                                               
|                                               
|                                               
|                                               
|Cash and cash equivalents  beginning of period |                                                                                            |                               | 2,352                                                           |         |       |         | 6,797   |        
|                                                |                                                                                            |                               |                                                                 |         |       |         |         |        
|Cash and cash equivalents  end of period       |                                                                                            | $                             | 30,342                                                          |         |       | $       | 11,785  |        
|                                                |                                                                                            |                               |                                                                 |         |       |         |         |        

The accompanying Notes to Condensed Consolidated Financial
Statements are



4



---



CAREMARK RX, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2001


(Unaudited)


Note  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. The Companys
operations are conducted through Caremark Inc.
(Caremark), a wholly-owned subsidiary 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.

The unaudited condensed consolidated financial statements
include the accounts of the Company and its wholly-owned
subsidiaries and have been prepared in accordance with
accounting principles generally accepted in the United States
for interim financial reporting and in accordance with
Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and notes required by generally
accepted accounting principles for complete financial statements.

In the opinion of management, the accompanying unaudited
condensed consolidated financial statements contain all
adjustments (consisting of normal recurring items) necessary for
a fair presentation of results for the interim periods
presented. The results of operations for any interim period are
not necessarily indicative of results to be expected for a full
year. The condensed consolidated balance sheet of the Company at
December 31, 2000, has been derived from audited financial
statements but does not include all disclosures required by
generally accepted accounting principles. These financial
statements and footnote disclosures should be read in
conjunction with the Companys audited consolidated
financial statements and notes thereto for the year ended
December 31, 2000, which appear in the Companys
Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 21, 2001.

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

Note  2.     Income
Taxes

Significant variations exist in the customary relationship
between income tax expense and pretax income because the Company
has generated net operating losses or utilized net operating
loss carry forwards to offset its taxable federal income and
certain taxable state income. Consequently, the Company has
provided for an income tax rate of 7.5% on income from
continuing operations, which represents its aggregate effective
state tax and federal alternative minimum tax rate.

Note  3.     Trade
Receivable Securitization

The Company has securitized certain of its accounts receivable
pursuant to a $150 million facility with General Electric
Capital Corporation (GECC) as funding agent and The
Chase Manhattan Bank (Chase) as group agent.
GECCs $125 million commitment under the facility is due
January 31, 2006, and Chases $25 million commitment
is due February 7, 2002, and may be extended for an
additional period of up to 364 days. As of March 31,
2001, and December 31, 2000, the Company had drawn
approximately $111 million and $100 million, respectively, under
this facility.

5



---



CAREMARK RX, INC. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note  4.     Long-term
Debt

The Companys long-term debt at March 31, 2001, and
December 31, 2000, consisted of the following (in
thousands):

|                                  |                                              |           |         |              |  |   |         |         | 
|--------------------------------- | -------------------------------------------- | --------- | ------- | ------------ |  | - | ------- | ------- | 
|                                  |                                              | March 31, |         | December 31,
|                                  |                                              | 2001      |         | 2000        
|                                  |                                              |           |         |             
|Credit facility:                  |                                              |           |         |              |  |   |         |        
|                                 
|                                 
|                                 
|                                 
|                                  | Term loan facility (8.04% at March 31, 2001) |           | $       | 250,000      |  |   | $       | 27,668  | 
|                                 
|                                 
|                                 
|                                 
|                                  | Revolving facility                           |           |         |             |  |   |         | 257,554 | 
|                                  |                                              |           |         |              |  |   |         |        
|                                  |                                              |           | 250,000 |              |  |   | 285,222 |        
|                                 
|                                 
|                                 
|                                 
|7.375% senior notes due 2006      |                                              |           | 450,000 |              |  |   | 450,000 |        
|                                  |                                              |           |         |              |  |   |         |        
|                                  |                                              |           | 700,000 |              |  |   | 735,222 |        
|                                 
|                                 
|                                 
|                                 
|Less: amounts due within one year |                                              |           | (2,500  | )            |  |   | (1,875  | )      
|                                  |                                              |           |         |              |  |   |         |        
|                                  |                                              | $         | 697,500 |              |  | $ | 733,347 |        
|                                  |                                              |           |         |              |  |   |         |        

The Company has a credit facility with Bank of America, N.A. as
administrative agent. The credit facility is guaranteed by the
Companys material subsidiaries, including Caremark, and
the Company has granted a lien on substantially all of its
current and future personal property and pledged the capital
stock of Caremark as security for amounts outstanding.

The credit facility consists of: (i) a $250 million term
loan facility maturing on March 15, 2006 and (ii) a
$300 million revolving credit facility maturing on
March 15, 2005. The Company will begin making required
principal payments of $625,000 per quarter with respect to the
term loan facility on June 1, 2001. At March 31, 2001, the
Company had approximately $275.6 million available for borrowing
under the revolving facility, exclusive of approximately $24.4
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 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 and defaults for any material judgment or change in
control. The Company was in compliance with all debt covenants
at March 31, 2001.

Note  5.     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

6



---



CAREMARK RX, INC. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 cumulative
and are payable in arrears. Dividend payments are due no later
than the first day of each calendar quarter and accumulate at an
annual rate of 7% of the liquidation amount of $50.00 per
Convertible Preferred Security plus any accrued and unpaid
dividends thereon. As of March 31, 2001, the Company had
paid all dividends on the Convertible Preferred Securities on or
in advance of their respective due dates.

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.

7



---



CAREMARK RX, INC. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note  6.     Earnings per
Common 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):

|                                                                  |                                     |                    |         |        |   |   |         |        |  
|----------------------------------------------------------------- | ----------------------------------- | ------------------ | ------- | ------ | - | - | ------- | ------ | -
|                                                                  |                                     |                   
|                                                                  |                                     | Three Months Ended
|                                                                  |                                     | March 31,         
|                                                                  |                                     |                   
|                                                                  |                                     | 2001               |         | 2000  
|                                                                  |                                     |                    |         |       
|Numerator                                                         |                                     |                    |         |        |   |   |         |       
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Income from continuing operations                                 |                                     | $                  | 38,592  |        |   | $ | 20,005  |       
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Less preferred security dividends   |                    |         | (3,304 | ) |   |         | (3,220 | )
|                                                                  |                                     |                    |         |        |   |   |         |       
|Basic numerator                                                   |                                     |                    | 35,288  |        |   |   | 16,785  |       
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Add preferred security dividends(1) |                    |         | 3,304  |   |   |         |       |  
|                                                                  |                                     |                    |         |        |   |   |         |       
|Diluted numerator                                                 |                                     | $                  | 38,592  |        |   | $ | 16,785  |       
|                                                                  |                                     |                    |         |        |   |   |         |       
|Denominator                                                       |                                     |                    |         |        |   |   |         |       
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Average number of common shares outstanding (basic denominator)   |                                     |                    | 222,925 |        |   |   | 191,250 |       
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Common stock equivalents:                                         |                                     |                    |         |        |   |   |         |       
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Convertible Preferred Securities(1) |                    |         | 26,850 |   |   |         |       |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Stock options                       |                    |         | 10,523 |   |   |         | 2,437  |  
|                                                                  |                                     |                    |         |        |   |   |         |       
|Average number of common shares outstanding (diluted denominator) |                                     |                    | 260,298 |        |   |   | 193,687 |       
|                                                                  |                                     |                    |         |        |   |   |         |       
|Income from continuing operations per common share 
	basic       |                                     | $                  | 0.16    |        |   | $ | 0.09    |       
|                                                                  |                                     |                    |         |        |   |   |         |       
|Income from continuing operations per common share 
	diluted     |                                     | $                  | 0.15    |        |   | $ | 0.09    |       
|                                                                  |                                     |                    |         |        |   |   |         |       






|    |                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Conversion of the Convertible Preferred Securities is not
	reflected for the 2000 period due to the anti-dilutive effect of
	such presumed conversion. See Note 5, Redeemable
	Preferred Stock.

Options to purchase approximately 6.6 million shares of the
Companys common stock at $12.60 to $26.19 per share were
outstanding at and during the three months ended March 31,
2001, 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.

Note  7.     Discontinued
Operations

During the three months ended March 31, 2000, the Company
recorded a charge of $198.0 million as a result of its progress
in completing the exit from its PPM operations. This charge
included a $153.3 million adjustment in the net assets of the
Companys remaining PPM operations and $44.7 million in
adjustments to reserves for potential future obligations such as
rents and litigation. These amounts were estimates, and the
Company subsequently recorded a $70 million adjustment to this
estimated amount in December 2000. Actual results could continue
to differ from amounts estimated by the Company. As of
March 31, 2001, the Company continued to operate one
remaining PPM practice.

The net liabilities of discontinued operations ($34.0 million at
March 31, 2001) represent primarily the remaining working
capital deficiency of the Companys discontinued PPM
subsidiaries. The Company has also accrued $87.0 million of
estimated remaining discontinued operations exit costs, which
are included in Other accrued expenses and
liabilities ($46.2 million) and Other long-term
liabilities ($40.8 million) in the accompanying condensed
consolidated balance sheet at March 31, 2001. These amounts
are estimates, and actual amounts could differ from those
recorded.

8



---



CAREMARK RX, INC. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 
8.     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 1999, two lawsuits were filed 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
Companys Threshold Appreciation Price Securities
(TAPS) issued in September 1997. A Termination
Event, as defined in the Purchase Contract Agreement pursuant to
which the TAPS were issued, would have resulted in the TAPS
holders receiving U.S. Treasury Notes which secured the TAPS.
Both of these lawsuits have been dismissed with prejudice. In
April 2000, the Company settled one of these lawsuits, which
involved plaintiffs holding approximately 35 percent of the
outstanding TAPS.

In March 2000, another lawsuit, also claiming that a Termination
Event had occurred, was filed in the Circuit Court of Franklin
County, Alabama (the Circuit Court). This lawsuit
was subsequently certified as a non-opt out class
action, and therefore includes all remaining TAPS holders that
had not previously settled. The Company reached a settlement in
this lawsuit (the Alabama Settlement), which
received final court approval by the Circuit Court on
June 9, 2000 (the Final Order). Certain TAPS
holders have filed notices 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.
The Company believes that the appeals are without merit and has
filed a motion to dismiss these appeals.

In April 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, also
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.

On August 31, 2000, the Company retired all outstanding
TAPS as scheduled by issuing approximately 14.2 million shares
of its common stock to the remaining TAPS holders in exchange
for the same number of outstanding TAPS. The Company received
the proceeds of the U.S. Treasury Notes securing the TAPS and
used such proceeds to reduce indebtedness. On September 13,
2000, pursuant to an order from the Circuit Court, the Company
issued shares of the Companys common stock to class
members in the manner required by the Alabama Settlement.

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

9



---



CAREMARK RX, INC. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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.

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 7, Discontinued Operations for
additional information concerning these matters. Additionally,
the Company has assigned to various parties approximately $121
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.

10



---



CAREMARK RX, INC. AND SUBSIDIARIES

MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS


March 31, 2001


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 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 had
approximately $127 million of future additional income tax
deductions as of December 31, 2000, 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.

Results of operations for the three months ended
March 31, 2001, compared to the same period in 2000

Net revenue for the 2001 period was $1,373.9 million, an
increase of $321.9 million, or 30.6%, over the $1,052 million
for the 2000 period. This growth in net revenue was due
primarily to new customer contracts which began on
January 1, 2001, coupled with retention and growth of
existing customers, additional services provided to existing
customers and drug cost inflation. The Company processed 20.7
million pharmacy claims in the 2001 period, an increase of 4.0
million claims, or 24.0%, over the 16.7 million claims processed
in the 2000 period.

Cost of revenues for the 2001 period increased to $1,270.8
million, or 92.5% of net revenue, from $968.7 million, or 92.1%
of net revenue, in the 2000 period. This increase was due
primarily to higher overall sales volumes and drug cost
inflation offset by a decrease in the mix of retail claims to
total claims due to increased mail order volume. Retail claims
represented 16.3 million, or 78.7% of the 20.7 million pharmacy
claims processed in the 2001 period, compared to 13.2 million,
or 79.0%, of the 16.7 million claims processed in the 2000
period.

Selling, general and administrative expenses for the 2001 period
increased to $34.9 million, or 2.5% of net revenue, from $27.1
million, or 2.6% of net revenue, in the 2000 period. This
decrease as a percentage of net revenue resulted primarily from
increased sales volumes which did not require proportional
increases in administrative expenses.

11



---



Depreciation and amortization increased by $1.0 million, or
17.5%, to $6.7 million in the 2001 period from $5.7 million in
the 2000 period. This increase was due primarily to an increase
in depreciation expense related to capital expenditures made in
2000.

Operating income (net revenue less cost of revenue, selling,
general and administrative expenses and depreciation and
amortization) and operating margin were $61.5 million and 4.5%
for the 2001 period, compared to $50.5 million and 4.8% for the
2000 period. The increase in operating income was primarily due
to revenue growth from new customer contracts which began on
January 1, 2001, while the decrease in operating margin was
due primarily to a shift in the mix of products distributed
toward those with lower margins.

Net interest expense was $19.8 million for the 2001 period,
compared to $28.9 million for the 2000 period. 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 a reduction in amounts due under the
credit facility which were funded from operating cash flows and
the TAPS proceeds. See Liquidity and Capital
Resources.

The Companys effective tax rate on income from continuing
operations was 7.5% for both the 2001 and 2000 periods. This
effective rate is significantly below the statutorily enacted
corporate income tax rates applicable to the Companys
taxable income for each period and is the result of:
(i) the tax NOL carry forwards discussed above and
(ii) state tax planning strategies which will allow the
Company to utilize its consolidated state tax NOLs in certain
states.

Deferred Income Taxes

Under Statement of Financial Accounting Standards 109,
Accounting for Income Taxes, 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 NOLs can be carried forward.

Management believes, after 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 for 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

During the three months ended March 31, 2000, the Company
recorded a charge of $198.0 million as a result of its progress
in completing the exit from its PPM operations. This charge
included a $153.3 million adjustment in the net assets of the
Companys remaining PPM operations and $44.7 million in
adjustments to reserves for potential future obligations such as
rents and litigation. These amounts were estimates, and the
Company subsequently recorded a $70 million adjustment to this
estimated amount in December 2000. Actual results could continue
to differ from amounts estimated by the Company. As of
March 31, 2001, the Company continued to operate one
remaining PPM practice.

The Company has accrued approximately $121 million of net
liabilities related to its discontinued operations, of which it
expects to pay approximately $75 million throughout the
remainder of 2001. These amounts are estimates, and actual
amounts could differ from those recorded.

12



---



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 existing or future 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 Part
II  Item 1, Legal Proceedings and
Notes 7 and 8 to the Companys unaudited condensed
consolidated financial statements set forth elsewhere herein.

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 its revolving credit facility are sufficient to meet its
liquidity needs.

Cash Flows. The Companys cash flow from continuing
operations for the three months ended March 31, 2001, was
$84.7 million and was used primarily to fund discontinued
operations ($14.8 million), capital expenditures ($14 million)
and repayments of amounts due under the credit facility. A
significant amount of the capital expenditures made during the
three months ended March 31, 2001, relate to the
Companys relocation of its Illinois-based automated mail
service pharmacy to a larger facility. In addition to the impact
of factors discussed above for results of continuing operations
for 2001, the Companys cash flow from continuing
operations was positively affected by timing of payments for
inventory purchases.

Credit Facility. The Company has a $550 million credit
facility with Bank of America, N.A. as administrative agent. 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 Companys senior notes 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 which matures in March 2005
and a $250 million 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,
which was scheduled to mature in June 2001.

At March 31, 2001, borrowings under the credit facility
consisted of outstanding term loans of $250.0 million. The
Company will begin making required principal payments of
$625,000 per quarter with respect to the term loan facility on
June 1, 2001. At March 31, 2001, the Company had
approximately $275.6 million available for borrowing under the
revolving credit facility, exclusive of approximately $24.4
million reserved under letters of credit.

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Borrowings under the credit facility currently bear interest at
variable rates based on 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 Companys 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 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 comply with this covenant, the
Company has secured the senior notes on an equal and ratable
basis with the credit facility.

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 cumulative
and are payable in arrears. Dividend payments are due no later
than the first day of each calendar quarter and accumulate at an
annual rate of 7% of the liquidation amount of $50.00 per
Convertible Preferred Security plus any accrued and unpaid
dividends thereon. As of March 31, 2001, the Company had
paid all dividends on the Convertible Preferred Securities on or
in advance of their respective due dates.

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.

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Trade Receivable Securitization. The Company has
securitized certain of its accounts receivable pursuant to a
$150 million facility with General Electric Capital Corporation
(GECC) as funding agent and The Chase Manhattan Bank
(Chase) as group agent. GECCs $125 million
commitment under the facility is due January 31, 2006, and
Chases $25 million commitment is due February 7,
2002, and may be extended for an additional period of up to 364
days. As of March 31, 2001, and December 31, 2000, the
Company had drawn approximately $111 million and $100 million,
respectively, under this facility.

Discontinued Operations. Cash used to fund the remaining
net liabilities of discontinued operations and estimated exit
costs, which totaled approximately $121 million, in aggregate,
at March 31, 2001, will be funded by cash flows from
continuing operations and by borrowings under the revolving
credit facility. The Company believes that these sources will be
sufficient to fund costs related to its discontinued operations.
If they are not, the Company would seek to enhance its liquidity
position through 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.

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 March 31, 2001, the Company had $250
million in long-term debt subject to variable rates of interest.
A hypothetical increase in interest rates of 1% from the rate at
March 31, 2001, would result in an increase in annual
interest expense of $2.5 million, presuming that indebtedness
subject to variable interest rates remained constant. The impact
of such a change on the carrying value of long-term debt would
not be significant. These amounts are determined based on only
the impact of the hypothetical interest rates on the
Companys long-term debt balances and do not consider the
effects, if any, of the potential changes in the overall level
of economic activity that could exist in such an environment.

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PART II  OTHER INFORMATION

Item  1.     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 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 1999, two lawsuits were filed 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
Companys Threshold Appreciation Price Securities
(TAPS) issued in September 1997. A Termination
Event, as defined in the Purchase Contract Agreement pursuant to
which the TAPS were issued, would have resulted in the TAPS
holders receiving U.S. Treasury Notes which secured the TAPS.
Both of these lawsuits have been dismissed with prejudice. In
April 2000, the Company settled one of these lawsuits, which
involved plaintiffs holding approximately 35 percent of the
outstanding TAPS.

In March 2000, another lawsuit, also claiming that a Termination
Event had occurred, was filed in the Circuit Court of Franklin
County, Alabama (the Circuit Court). This lawsuit
was subsequently certified as a non-opt out class
action, and therefore includes all remaining TAPS holders that
had not previously settled. The Company reached a settlement in
this lawsuit (the Alabama Settlement), which
received final court approval by the Circuit Court on
June 9, 2000 (the Final Order). Certain TAPS
holders have filed notices 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.
The Company believes that the appeals are without merit and has
filed a motion to dismiss these appeals.

In April 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, also
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.

On August 31, 2000, the Company retired all outstanding
TAPS as scheduled by issuing approximately 14.2 million shares
of its common stock to the remaining TAPS holders in exchange
for the same number of outstanding TAPS. The Company received
the proceeds of the U.S. Treasury Notes securing the TAPS and
used such proceeds to reduce indebtedness. On September 13,
2000, pursuant to an order from the Circuit Court, the Company
issued shares of the Companys common stock to class
members in the manner required by the Alabama Settlement.

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

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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 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, among other things, the
parties agreed to subordinate, waive and/or release various
claims against one another on the terms and conditions set forth
therein. 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.
(KPCGC) and certain of its affiliates. 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 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
jointly obligated on the Assumed Obligations.

On November 24, 2000, KPCMM and certain of its affiliates
(not including KPCGC) 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 on
its ability to collect other amounts due from the KPC
Purchasers. 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.

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

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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  6.     Exhibits and
Reports on Form 8-K

(a)  Exhibits.

|        |      |  |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------- | ---- |  |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |  |  |  
|No.     |      |  |  |  
|        |      |  |  |  
|        | 10.1 |  |  |  |  | Second Amendment to the Companys Amended and Restated 1993
	Stock Option Plan, dated January 12, 2001, filed as
	Exhibit 10.22 to the Companys Annual Report on
	Form 10-K for the year ended December 31, 2000, is
	hereby incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | 10.2 |  |  |  |  | Second Amendment to the Companys Amended and Restated 1994
	Stock Option Plan, dated January 12, 2001, filed as
	Exhibit 10.25 to the Companys Annual Report on
	Form 10-K for the year ended December 31, 2000, is
	hereby incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | 10.3 |  |  |  |  | Second Amendment to the Companys Amended and Restated 1995
	Stock Option Plan, dated January 12, 2001, filed as
	Exhibit 10.29 to the Companys Annual Report on
	Form 10-K for the year ended December 31, 2000, is
	hereby incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | 10.4 |  |  |  |  | Second Amendment to the Companys 1997 Long Term Incentive
	Compensation Plan, dated January 12, 2001, filed as
	Exhibit 10.32 to the Companys Annual Report on
	Form 10-K for the year ended December 31, 2000, is
	hereby incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10.5 |  |  |  |  | Second Amendment to the Companys Amended and Restated 1998
	Employee Stock Option Plan, dated January 12, 2001, filed
	as Exhibit 10.35 to the Companys Annual Report on
	Form  10-K for the year ended December 31, 2000, is
	hereby incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        | 10.6 |  |  |  |  | Second Amendment to the Companys Amended and Restated 1998
	New Employee Stock Option Plan, dated January 12, 2001,
	filed as Exhibit 10.38 to the Companys Annual Report
	on Form 10-K for the year ended December 31, 2000, is
	hereby incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 10.7 |  |  |  |  | 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, filed as
	Exhibit 10.39 to the Companys Annual Report on
	Form 10-K for the year ended December 31, 2000, is
	hereby incorporated herein by reference.
|        | 10.8 |  |  |  |  | Amended and Restated Receivables Purchase Agreement, dated as of
	January 31, 2001, among Caremark Inc., as seller, and MP
	Receivables Company, as buyer, filed as Exhibit 10.40 to
	the Companys Annual Report on Form 10-K for the year
	ended December 31, 2000, is hereby incorporated herein by
	reference.                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 10.9 |  |  |  |  | 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, filed as Exhibit 10.63 to the Companys Annual
	Report on Form 10-K for the year ended December 31,
	2000, is hereby incorporated herein by reference.                                                                                                                                                                                                                                                                                                       

18



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|        |       |  |  |   |  |                                                                                                                                                                                                                                                                                                                            
|------- | ----- |  |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |  |  |  
|No.     |       |  |  |  
|        |       |  |  |  
|        | 10.10 |  |  |  |  | Pledge and Security Agreement, dated March 15, 2001, for
	the Company and its material subsidiaries, as Grantors, to
	LaSalle Bank National Association as Trustee, filed as
	Exhibit 10.67 to the Companys Annual Report on
	Form 10-K for the year ended December 31, 2000, is
	hereby incorporated herein by reference.
|        | 10.11 |  |  |  |  | Trust Agreement, dated March 15, 2001, for the Company and
	its material subsidiaries, as Grantors, to LaSalle Bank National
	Association as Trustee, filed as Exhibit 10.68 to the
	Companys Annual Report on Form 10-K for the year
	ended December 31, 2000, is hereby incorporated herein by
	reference.              

(b)  Reports on Form 8-K. The Company filed no
current reports on Form 8-K during the three months ended
March 31, 2001.

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SIGNATURES

Pursuant to the requirements 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: April 27, 2001

20