CVS Caremark Reports Record Fourth Quarter And Full Year 2012 Results

WOONSOCKET, R.I., Feb. 6, 2013 /PRNewswire/ -- CVS Caremark Corporation (NYSE: CVS) today announced operating results for the three months and year ended December 31, 2012.

Fourth Quarter Year-over-year Highlights:

  • Net revenues increased 10.9% to a record $31.4 billion, with Pharmacy Services up 17.4% and Retail Pharmacy up 5.1%
  • Retail Pharmacy segment same store sales increased 4.0%
  • Operating profit increased 17.7% to a record $2.3 billion
  • Adjusted EPS of $0.97 and GAAP diluted EPS from continuing operations of $0.90, both of which include a $0.17 per share loss on early extinguishment of debt
  • Adjusted EPS of $1.14, excluding the loss on early extinguishment of debt

 

Full Year Highlights:

  • Net revenues increased 15.0% to a record $123.1 billion, with Pharmacy Services up 24.7% and Retail Pharmacy up 6.8%
  • Retail Pharmacy segment same store sales increased 5.5%
  • Operating profit increased 14.2% to a record $7.2 billion
  • Adjusted EPS of $3.27 and GAAP diluted EPS from continuing operations of $3.03, both of which include a $0.17 per share loss on early extinguishment of debt
  • Adjusted EPS of $3.43, excluding the loss on early extinguishment of debt
  • Generated free cash flow of $5.2 billion; cash flow from operations of $6.7 billion

 

2013 Guidance:

  • Raised full year Adjusted EPS to $3.86 to $4.00; GAAP diluted EPS from continuing operations of $3.61 to $3.75, to reflect the impact of debt refinancing  
  • Confirmed first quarter Adjusted EPS from continuing operations of $0.77 to $0.80; GAAP diluted EPS from continuing operations of $0.71 to $0.74
  • Confirmed full year free cash flow of $4.8 to $5.1 billion; cash flow from operations of $6.4 to $6.6 billion  

 

Revenues

Net revenues for the three months ended December 31, 2012, increased 10.9%, or $3.1 billion, to $31.4 billion, up from $28.3 billion in the three months ended December 31, 2011. For the year ended December 31, 2012, total revenue increased 15.0%, or $16.0 billion, to $123.1 billion, compared to $107.1 billion for the year ended December 31, 2011.

Revenues in the Pharmacy Services segment increased 17.4% to $18.6 billion in the three months ended December 31, 2012. This increase was primarily associated with new 2012 client starts, drug cost inflation and the growth of our Medicare Part D program. Pharmacy network claims processed during the three months ended December 31, 2012, increased 6.5% to 205.5 million, compared to 193.0 million in the prior year period. The increase in pharmacy network claims was primarily due to a large number of 2012 new client starts, as well as higher claims activity associated with our Medicare Part D program. Mail choice claims processed during the three months ended December 31, 2012, increased approximately 14.6% to 20.4 million compared to 17.8 million in the prior year period. The increase in the mail choice claim volume was primarily due to a significant number of 2012 new client starts, as well as increased claims associated with the continuing client adoption of our Maintenance Choice offerings. For the year ended December 31, 2012, total revenue in the Pharmacy Services segment increased 24.7% to $73.4 billion, compared to $58.9 billion in the year ended December 31, 2011.

Revenues in the Retail Pharmacy segment increased 5.1% to $16.3 billion in the three months ended December 31, 2012. Same store sales increased 4.0% over the prior year period, with pharmacy same store sales up 4.0% and front store same store sales up 3.9%. Calendar day shifts in the fourth quarter of 2012, which had one additional Monday and one fewer Saturday compared with the same period in 2011, positively impacted pharmacy same store sales by approximately 80 basis points. Additionally, pharmacy same store prescription volumes rose 9.0% when 90-day prescriptions are counted as one prescription. After converting each 90-day prescription into three prescriptions, same store prescription volumes increased 11.0% in the quarter. Pharmacy same store sales were negatively impacted by approximately 11 percentage points due to recent generic introductions. For the year ended December 31, 2012, total revenue in the Retail Pharmacy segment increased 6.8% to $63.7 billion, compared to $59.6 billion in the year ended December 31, 2011. Same store sales increased 5.5% for the year ended December 31, 2012, over the prior year, with pharmacy same store sales up 6.5% and front store same store sales up 3.4%.

For the three months ended December 31, 2012, the generic dispensing rate increased approximately 500 basis points to 80.0% in our Pharmacy Services segment and approximately 400 basis points to 79.9% in our Retail Pharmacy segment, compared to the prior year period.

Income from Continuing Operations Attributable to CVS Caremark

Income from continuing operations attributable to CVS Caremark for the three months ended December 31, 2012, increased 2.7%, or $29 million, to $1.13 billion, compared with $1.10 billion during the three months ended December 31, 2011. The increase in income from continuing operations was primarily driven by improved operating profit in both our Pharmacy Services and Retail Pharmacy segments. Adjusted earnings per share from continuing operations attributable to CVS Caremark (Adjusted EPS) for the three months ended December 31, 2012 and 2011, was $0.97 and $0.89, respectively. These include a $348 million, or an approximate $0.17 per share, loss on early extinguishment of debt recognized in the fourth quarter of 2012. Excluding the loss on early extinguishment of debt, Adjusted EPS increased 27.9% in the fourth quarter to $1.14. Adjusted EPS excludes $124 million and $114 million of intangible asset amortization related to acquisition activity in the three months ended December 31, 2012 and 2011, respectively. GAAP earnings per diluted share from continuing operations attributable to CVS Caremark for the three months ended December 31, 2012 and 2011, was $0.90 and $0.84, respectively, which also includes the impact of the loss on early extinguishment of debt recognized in the fourth quarter of 2012.

Income from continuing operations attributable to CVS Caremark for the year ended December 31, 2012, increased 11.3%, or $392 million, to $3.9 billion, compared to $3.5 billion in the prior year. Adjusted EPS, which excludes $486 million and $452 million of intangible asset amortization related to acquisition activity for the years ended December 31, 2012 and 2011, was $3.27 and $2.80, respectively. These include the $348 million, or the approximate $0.17 per share, loss on early extinguishment of debt recognized in the fourth quarter of 2012. Excluding the loss on early extinguishment of debt, Adjusted EPS increased 22.8% in 2012 to $3.43. GAAP earnings per diluted share from continuing operations attributable to CVS Caremark for the year ended December 31, 2012, was $3.03, which also includes the impact of the loss on early extinguishment of debt, compared to $2.59 in the prior year.

President and Chief Executive Officer Larry Merlo, said, "I'm very pleased with our fourth quarter results. Both the PBM and retail segments turned in strong performances at the high end of our expectations. And we also realized below-the-line benefits in the quarter from a lower effective tax rate and fewer shares than we originally anticipated, resulting in EPS exceeding the high end of our guidance by approximately three cents per share."

Mr. Merlo continued, "Additionally, we continued to drive shareholder value through our disciplined approach to capital allocation.  We generated free cash flow of $5.2 billion in 2012, exceeding our expectations, and returned more than $5.1 billion to our shareholders through dividends and share repurchases."

 

Real Estate Program

During the three months ended December 31, 2012, the company opened 37 new retail drugstores and closed two retail drugstores. In addition, the company relocated eight retail drugstores. As of December 31, 2012, the company operated 7,525 locations in 45 states, the District of Columbia and Puerto Rico. These locations included 7,458 retail drugstores, 19 onsite pharmacies, 31 retail specialty pharmacy stores, 12 specialty mail order pharmacies and five mail order pharmacies.

 

Guidance

 

The company raised its earnings guidance for the full year 2013 to reflect the anticipated two cents per share of EPS accretion related to the debt tender and refinancing that was executed during the fourth quarter of last year. The company currently expects to deliver Adjusted EPS of $3.86 to $4.00 and GAAP diluted earnings per share from continuing operations of $3.61 to $3.75 per share in 2013. The company confirmed its 2013 free cash flow guidance of $4.8 billion to $5.1 billion, and its 2013 cash flow from operations guidance of $6.4 billion to $6.6 billion. These 2013 guidance estimates assume the completion of $4.0 billion in share repurchases.

Teleconference and Webcast

The company will be holding a conference call today for the investment community at 8:30 am (EST) to discuss its quarterly results. An audio webcast of the call will be broadcast simultaneously for all interested parties through the Investor Relations section of the CVS Caremark website at http://info.cvscaremark.com/investors. This webcast will be archived and available on the website for a one-year period following the conference call.

 

About the Company

CVS Caremark is dedicated to helping people on their path to better health as the largest integrated pharmacy company in the United States. Through the company's more than 7,400 CVS/pharmacy® stores; its leading pharmacy benefit manager serving more than 60 million plan members; and its retail health clinic system, the largest in the nation with approximately 600 MinuteClinic® locations, it is a market leader in mail order, retail and specialty pharmacy, retail clinics, and Medicare Part D Prescription Drug Plans. As a pharmacy innovation company with an unmatched breath of capabilities, CVS Caremark continually strives to improve health and lower costs by developing new approaches such as its unique Pharmacy Advisor® program that helps people with chronic diseases such as diabetes obtain and stay on their medications. Find more information about how CVS Caremark is reinventing pharmacy for better health at http://info.cvscaremark.com/.

 

Forward-Looking Statements

This press release contains certain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially. For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The Company strongly recommends that you become familiar with the specific risks and uncertainties outlined under the Risk Factors section in our Annual Report on Form 10-K for the year ended December 31, 2011 and under the section entitled "Cautionary Statement Concerning Forward-Looking Statements" in our most recently filed Quarterly Report on Form 10-Q.

– Tables Follow –

 

 

 

 

CVS CAREMARK CORPORATION

Condensed Consolidated Statements of Income

(Unaudited)

 
 

Three Months Ended

 

Year Ended

 

December 31,

 

December 31,

In millions, except per share amounts

2012(1)

 

2011

 

2012(1)

 

2011

               

Net revenues

$   31,394

 

$   28,317

 

$  123,133

 

$  107,100

Cost of revenues

25,097

 

22,762

 

100,627

 

86,539

Gross profit

6,297

 

5,555

 

22,506

 

20,561

Operating expenses

3,995

 

3,598

 

15,278

 

14,231

Operating profit

2,302

 

1,957

 

7,228

 

6,330

Interest expense, net

159

 

147

 

557

 

584

Loss on early extinguishment of debt

348

 

 

348

 

Income before income tax provision

1,795

 

1,810

 

6,323

 

5,746

Income tax provision

666

 

711

 

2,441

 

2,258

Income from continuing operations

1,129

 

1,099

 

3,882

 

3,488

Income (loss) from discontinued operations, net of tax

 

(36)

 

(7)

 

(31)

Net income

1,129

 

1,063

 

3,875

 

3,457

Net loss attributable to noncontrolling interest

 

1

 

2

 

4

Net income attributable to CVS Caremark

$     1,129

 

$     1,064

 

$      3,877

 

$      3,461

               

Income from continuing operations attributable to CVS Caremark:

             

Income from continuing operations

$     1,129

 

$      1,099

 

$     3,882

 

$     3,488

Net loss attributable to noncontrolling interest

 

1

 

2

 

4

Income from continuing operations attributable to CVS Caremark

$    1,129

 

$     1,100

 

$     3,884

 

$     3,492

               

Basic earnings per common share:

  Income from continuing operations attributable to CVS Caremark

$      0.91

 

 

 

$        0.84

 

 

$       3.06

 

 

$        2.61

    Income (loss) from discontinued operations attributable to CVS Caremark

 

(0.03)

 

 

(0.01)

 

(0.02)

    Net income attributable to CVS Caremark

$      0.91

 

$       0.82

 

$      3.05

 

$        2.59

    Weighted average basic common shares outstanding

1,241

 

1,302

 

1,271

 

1,338

               

Diluted earnings per common share:

Income from continuing operations attributable to CVS Caremark

$        0.90

 

 

 

$         0.84

 

 

$       3.03

 

 

$       2.59

    Income (loss) from discontinued operations attributable to CVS Caremark

 

(0.03)

 

 

(0.01)

 

(0.02)

    Net income attributable to CVS Caremark

$        0.90

 

$        0.81

 

$      3.03

 

$        2.57

    Weighted average diluted common shares outstanding

1,249

 

1,310

 

1,280

 

1,347

               

Dividends declared per common share

$   0.1625

 

$    0.1250

 

$  0.6500

 

$   0.5000

 

(1) Effective January 1, 2012, the Company changed its methods of accounting for prescription drug inventories in the Retail Pharmacy Segment. Additional details of the accounting change are discussed in Note 2 to the condensed consolidated financial statements included in the Company's Form 10-Q for the quarter ended September 30, 2012.

 

 

 

CVS CAREMARK CORPORATION

Condensed Consolidated Balance Sheets

(Unaudited)

 
 

December 31,

In millions, except per share amounts

2012(1)

 

2011

Assets:

     

    Cash and cash equivalents

$           1,375

 

$           1,413

    Short-term investments

5

 

5

    Accounts receivable, net

6,473

 

6,047

    Inventories

10,759

 

10,046

    Deferred income taxes

663

 

503

    Other current assets

577

 

580

       Total current assets

19,852

 

18,594

    Property and equipment, net

8,632

 

8,467

    Goodwill

26,395

 

26,458

    Intangible assets, net

9,753

 

9,869

    Other assets

1,280

 

1,155

       Total assets

$         65,912

 

$         64,543

       

Liabilities:

     

    Accounts payable

$           5,070

 

$           4,370

    Claims and discounts payable

3,974

 

3,487

    Accrued expenses

4,051

 

3,293

    Short-term debt

690

 

750

    Current portion of long-term debt

5

 

56

       Total current liabilities

13,790

 

11,956

    Long-term debt

9,133

 

9,208

    Deferred income taxes

3,784

 

3,853

    Other long-term liabilities

1,501

 

1,445

    Commitments and contingencies

     

    Redeemable noncontrolling interest

 

30

       

Shareholders' equity:

     

Preferred stock, par value $0.01: 0.1 shares authorized; none issued or outstanding

 

Common stock, par value $0.01: 3,200 shares authorized; 1,667 shares issued and 1,231 shares outstanding at December 31, 2012 and 1,640 shares issued and 1,298 shares outstanding at December 31, 2011

 

 

17

 

 

 

16

Treasury stock, at cost: 435 shares at December 31, 2012 and 340 shares at December 31, 2011

 

(16,270)

 

 

(11,953)

Shares held in trust: 1 share at December 31, 2012

    and 2 shares at December 31, 2011

 

(31)

 

(56)

Capital surplus

29,120

 

28,126

Retained earnings

25,049

 

22,090

Accumulated other comprehensive loss

(181)

 

(172)

    Total shareholders' equity

37,704

 

38,051

Total liabilities and shareholders' equity

$         65,912

 

$         64,543

 

(1) Effective January 1, 2012, the Company changed its methods of accounting for prescription drug inventories in the Retail Pharmacy Segment. Additional details of the accounting change are discussed in Note 2 to the condensed consolidated financial statements included in the Company's Form 10-Q for the quarter ended September 30, 2012.

 

 

 

CVS CAREMARK CORPORATION

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 
 

Year Ended

 

December 31,

In millions

2012(1)

 

2011

Cash flows from operating activities:

     

    Cash receipts from customers

$    113,205

 

$       97,688

    Cash paid for inventory and prescriptions dispensed by retail network pharmacies

(90,032)

 

(75,148)

    Cash paid to other suppliers and employees

(13,643)

 

(13,635)

    Interest received

4

 

4

    Interest paid

(581)

 

(647)

    Income taxes paid

(2,282)

 

(2,406)

Net cash provided by operating activities

6,671

 

5,856

       

Cash flows from investing activities:

     

    Purchases of property and equipment

(2,030)

 

(1,872)

    Proceeds from sale-leaseback transactions

529

 

592

    Proceeds from sale of property and equipment

23

 

4

    Acquisitions (net of cash acquired) and other investments

(378)

 

(1,441)

    Purchase of available-for-sale investments

 

(3)

    Sale or maturity of available-for-sale investments

 

60

    Proceeds from sale of subsidiary

7

 

250

Net cash used in investing activities

(1,849)

 

(2,410)

       

Cash flows from financing activities:

     

    Increase (decrease) in short-term debt

(60)

 

450

    Proceeds from issuance of long-term debt

1,239

 

1,463

    Repayments of long-term debt

(1,718)

 

(2,122)

    Purchase of noncontrolling interest in subsidiary

(26)

 

    Dividends paid

(829)

 

(674)

    Derivative settlements

 

(19)

    Proceeds from exercise of stock options

836

 

431

    Excess tax benefits from stock-based compensation

28

 

21

    Repurchase of common stock

(4,330)

 

(3,001)

    Other

 

(9)

Net cash used in financing activities

(4,860)

 

(3,460)

Net decrease in cash and cash equivalents

(38)

 

(14)

Cash and cash equivalents at the beginning of the year

1,413

 

1,427

Cash and cash equivalents at the end of the year

$        1,375

 

$            1,413

Reconciliation of net income to net cash provided by operating activities:

     

    Net income

$         3,875

 

$         3,457

    Adjustments required to reconcile net income to net cash provided by operating activities:

     

          Depreciation and amortization

1,753

 

1,568

          Stock-based compensation

132

 

135

          Loss on early extinguishment of debt

348

 

          Gain on sale of subsidiary

 

(53)

          Deferred income taxes and other non-cash items

(106)

 

144

          Change in operating assets and liabilities, net of effects of acquisitions:

     

             Accounts receivable, net

(387)

 

(748)

             Inventories

(858)

 

607

             Other current assets

3

 

(420)

             Other assets

(99)

 

(49)

             Accounts payable and claims and discounts payable

1,147

 

1,128

             Accrued expenses

753

 

85

             Other long-term liabilities

110

 

2

Net cash provided by operating activities

$         6,671

 

$         5,856

 

(1) Effective January 1, 2012, the Company changed its methods of accounting for prescription drug inventories in the Retail Pharmacy Segment. Additional details of this accounting change are discussed in Note 2 to the condensed consolidated financial statements included in the Company's Form 10-Q for the quarter ended September 30, 2012.

 

Adjusted Earnings Per Share
(Unaudited)

For internal comparisons, management finds it useful to assess year-to-year performance by adjusting diluted earnings per share for amortization, which primarily relates to acquisition activities.

The Company defines adjusted earnings per share as income before income tax provision plus amortization, less adjusted income tax provision, plus net loss attributable to noncontrolling interest divided by the weighted average diluted common shares outstanding.

The following is a reconciliation of income before income tax provision to adjusted earnings per share:

 

 

Three Months Ended

 

Year Ended

 

December 31,

 

December 31,

In millions, except per share amounts

2012

 

2011

 

2012

 

2011

               

Income before income tax provision(1)

$       1,795

 

$     1,810

 

$      6,323

 

$    5,746

Amortization

124

 

114

 

486

 

452

Adjusted income before income tax provision

1,919

 

1,924

 

6,809

 

6,198

Adjusted income tax provision(2)

713

 

756

 

2,628

 

2,436

Adjusted income from continuing operations

1,206

 

1,168

 

4,181

 

3,762

Net loss attributable to noncontrolling interest

 

1

 

2

 

4

Adjusted income from continuing operations attributable to CVS Caremark

$      1,206

 

$     1,169

 

$      4,183

 

$    3,766

Weighted average diluted common shares outstanding

1,249

 

1,310

 

1,280

 

1,347

Adjusted earnings per share from continuing operations attributable to CVS Caremark

$        0.97

 

$       0.89

 

$        3.27

 

$       2.80

 

(1) Includes a $348 million loss on early extinguishment of debt (approximately $0.17 per diluted share) in the fourth quarter of 2012.

 

(2) The adjusted income tax provision is computed using the effective income tax rates of 37.11% and 38.6% from the consolidated statements of income for the three months and year ended December 31, 2012.

 

Free Cash Flow
(Unaudited)

The Company defines free cash flow as net cash provided by operating activities less net additions to properties and equipment (i.e., additions to property and equipment plus proceeds from sale-leaseback transactions).

The following is a reconciliation of net cash provided by operating activities to free cash flow:

 

 

   

Year Ended

   

December 31,

In millions

 

2012

 

2011

         

Net cash provided by operating activities

 

$      6,671

 

$     5,856

  Subtract:  Additions to property and equipment

 

(2,030)

 

(1,872)

  Add:  Proceeds from sale-leaseback transactions

 

529

 

592

Free cash flow

 

$     5,170

 

$      4,576

         

 

Supplemental Information
(Unaudited)

The Company evaluates its Pharmacy Services and Retail Pharmacy segment performance based on net revenue, gross profit and operating profit before the effect of nonrecurring charges and gains and certain intersegment activities. The Company evaluates the performance of its Corporate segment based on operating expenses before the effect of nonrecurring charges and gains and certain intersegment activities. The following is a reconciliation of the Company's segments to the accompanying consolidated financial statements:

 

 

In millions

Pharmacy Services

Segment(1)

 

Retail Pharmacy Segment

 

Corporate  Segment

 

Intersegment Eliminations(2)

 

Consolidated

Totals

                   

Three Months Ended

                 

  December 31, 2012:

    Net revenues

 

$             18,642

 

 

$          16,280

 

 

$          -

 

 

$            (3,528)

 

 

$       31,394

    Gross profit

1,334

 

5,095

 

-

 

(132)

 

6,297

    Operating profit (loss)

1,035

 

1,581

 

(182)

 

(132)

 

2,302

  December 31, 2011:

    Net revenues

 

15,874

 

 

15,493

 

 

-

 

 

(3,050)

 

 

28,317

    Gross profit

1,016

 

4,608

 

-

 

(69)

 

5,555

    Operating profit (loss)

724

 

1,453

 

(151)

 

(69)

 

1,957

Year Ended

                 

  December 31, 2012:

    Net revenues

 

73,444

 

 

63,654

 

 

-

 

 

(13,965)

 

 

123,133

    Gross profit

3,808

 

19,109

 

-

 

(411)

 

22,506

    Operating profit (loss)

2,679

 

5,654

 

(694)

 

(411)

 

7,228

  December 31, 2011:

    Net revenues

 

58,874

 

 

59,599

 

 

-

 

 

(11,373)

 

 

107,100

    Gross profit

3,279

 

17,468

 

-

 

(186)

 

20,561

    Operating profit (loss)

2,220

 

4,912

 

(616)

 

(186)

 

6,330

 

(1) Net revenues of the Pharmacy Services segment include approximately $2.0 billion of retail co-payments for both the three months ended December 31, 2012 and 2011, as well as $8.4 billion and $7.9 billion of retail co-payments for the year ended December 31, 2012 and 2011, respectively.

 

(2) Intersegment eliminations relate to two types of transactions: (i) Intersegment revenues that occur when Pharmacy Services segment customers use Retail Pharmacy segment stores to purchase covered products. When this occurs, both the Pharmacy Services and Retail Pharmacy segments record the revenue on a standalone basis, and (ii) Intersegment revenues, gross profit and operating profit that occur when Pharmacy Services segment customers, through the Company's intersegment activities (such as the Maintenance Choice™ program), elect to pick-up their maintenance prescriptions at Retail Pharmacy segment stores instead of receiving them through the mail. When this occurs, both the Pharmacy Services and Retail Pharmacy segments record the revenue, gross profit and operating profit on a standalone basis. Beginning in the fourth quarter of 2011, the Maintenance Choice eliminations reflect all discounts available for the purchase of mail order prescription drugs. The following amounts are eliminated in consolidation in connection with the item (ii) intersegment activity: net revenues of $888 million and $742 million for the three months ended December 31, 2012 and 2011, respectively, and $3.4 billion and $2.6 billion for the year ended December 31, 2012 and 2011, respectively; gross profit and operating profit of $132 million and $69 million for the three months ended December 31, 2012 and 2011, respectively, and $411 million and $186 million for the year ended December 31, 2012 and 2011, respectively.

 

Supplemental Information
(Unaudited)

Pharmacy Services Segment

The following table summarizes the Pharmacy Services segment's performance for the respective periods:

 

 

Three Months Ended

 

Year Ended

 

December 31,

 

December 31,

In millions

2012

 

2011

 

2012

 

2011

               

Net revenues

$ 18,642

 

$ 15,874

 

$ 73,444

 

$   58,874

Gross profit

1,334

 

1,016

 

3,808

 

3,279

    Gross profit % of net revenues

7.2%

 

6.4%

 

5.2%

 

5.6%

Operating expenses

299

 

292

 

1,129

 

1,059

     Operating expense % of net revenues

1.6%

 

1.8%

 

1.5%

 

1.8%

Operating profit

1,035

 

724

 

2,679

 

2,220

     Operating profit % of net revenues

5.6%

 

4.6%

 

3.7%

 

3.8%

               

Net revenues(1):

             

    Mail choice(2)

$ 5,759

 

$  4,901

 

$ 22,843

 

$  18,616

   Pharmacy network(3)

12,838

 

10,924

 

50,411

 

40,040

    Other

45

 

49

 

190

 

218

Pharmacy claims processed(1):

             

    Total

225.9

 

210.8

 

880.5

 

774.6

    Mail choice(2)

20.4

 

17.8

 

81.7

 

70.6

    Pharmacy network(3)

205.5

 

193.0

 

798.8

 

704.0

Generic dispensing rate(1):

             

    Total

80.0%

 

75.0%

 

78.5%

 

74.1%

    Mail choice(2)

74.5%

 

66.1%

 

72.0%

 

64.9%

    Pharmacy network(3)

80.5%

 

75.8%

 

79.1%

 

75.0%

Mail choice penetration rate

22.1%

 

20.8%

 

22.7%

 

22.3%

 

(1) Pharmacy network net revenues, claims processed and generic dispensing rates do not include Maintenance Choice, which are included within the mail choice category.

 

(2) Mail choice is defined as claims filled at a Pharmacy Services' mail facility, which include specialty mail claims, as well as 90-day claims filled at retail under the Maintenance Choice program.

 

(3) Pharmacy network is defined as claims filled at retail pharmacies, including our retail drugstores, but excluding Maintenance Choice activity.

 

EBITDA and EBITDA per Adjusted Claim
(Unaudited)

The Company defines EBITDA as earnings before interest, taxes, depreciation and amortization. We define EBITDA per adjusted claim as EBITDA divided by adjusted pharmacy claims. Adjusted pharmacy claims normalize the claims volume statistic for the difference in average days' supply for mail and retail claims. Adjusted pharmacy claims are calculated by multiplying 90-day claims (the majority of total mail claims) by 3 and adding the 30-day claims. EBITDA can be reconciled to operating profit, which we believe to be the most directly comparable GAAP financial measure.

The following is a reconciliation of operating profit to EBITDA for the Pharmacy Services segment:

 

 

Three Months Ended

 

Year Ended

 

December 31,

 

December 31,

In millions, except per adjusted claim amounts

2012

 

2011

 

2012

 

2011

               

Operating profit

$  1,035

 

$      724

 

$      2,679

 

$  2,220

Depreciation and amortization

137

 

116

 

517

 

433

EBITDA

1,172

 

840

 

3,196

 

2,653

  Adjusted claims

264.0

 

243.9

 

1,033.0

 

905.6

EBITDA per adjusted claim

$    4.44

 

$       3.45

 

$        3.09

 

$     2.93

 

Supplemental Information
(Unaudited)
Retail Pharmacy Segment

The following table summarizes the Retail Pharmacy segment's performance for the respective periods:

 

Three Months Ended

 

Year Ended

 

December 31,

 

December 31,

In millions

2012

 

2011

 

2012

 

2011

               

Net revenues

$16,280

 

$15,493

 

$63,654

 

$59,599

Gross profit

5,095

 

4,608

 

19,109

 

17,468

    Gross profit % of net revenues

31.3%

 

29.7%

 

30.0%

 

29.3%

Operating expenses

3,514

 

3,155

 

13,455

 

12,556

     Operating expense % of net revenues

21.6%

 

20.4%

 

21.1%

 

21.1%

Operating profit

1,581

 

1,453

 

5,654

 

4,912

     Operating profit % of net revenues

9.7%

 

9.4%

 

8.9%

 

8.2%

               

Retail prescriptions filled (90 Day = 1Rx)

185.5

 

168.9

 

717.9

 

657.8

Retail prescriptions filled (90 Day = 3 Rx) (1)

219.7

 

197.1

 

848.1

 

763.4

Net revenue increase:

             

    Total

5.1%

 

4.0%

 

6.8%

 

3.9%

    Pharmacy

4.9%

 

4.9%

 

7.6%

 

4.4%

    Front store

5.5%

 

2.1%

 

5.1%

 

3.0%

Total prescription volume (90 Day = 1 Rx)

9.8%

 

3.2%

 

9.1%

 

3.4%

Total prescription volume (90 Day = 3 Rx) (1)

11.5%

 

5.4%

 

11.1%

 

5.6%

Same store increase:

             

    Total sales

4.0%

 

2.5%

 

5.5%

 

2.3%

    Pharmacy sales

4.0%

 

3.6%

 

6.5%

 

3.1%

    Front store sales

3.9%

 

0.1%

 

3.4%

 

0.8%

    Prescription volume (90 Day = 1 Rx)

9.0%

 

2.1%

 

8.1%

 

2.2%

    Prescription volume (90 Day = 3 Rx) (1)

11.0%

 

4.4%

 

10.3%

 

4.4%

Generic dispensing rate

79.9%

 

75.9%

 

79.2%

 

75.6%

Pharmacy % of total revenues

67.6%

 

67.7%

 

68.8%

 

68.3%

Third party % of pharmacy revenue

97.6%

 

97.9%

 

97.5%

 

97.8%

               

(1) Includes the adjustment to convert 90-day prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal prescription.

 

Adjusted Earnings Per Share Guidance
(Unaudited)

The following reconciliation of estimated income before income tax provision to estimated adjusted earnings per share contains forward-looking information that is subject to risks and uncertainties that could cause actual results to differ materially. The Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The Company strongly recommends that you become familiar with the specific risks and uncertainties outlined under the Risk Factors section in our Annual Report on Form 10-K for the year ended December 31, 2011 and under the section entitled "Cautionary Statement Concerning Forward-Looking Statements" in our most recently filed Quarterly Report on Form 10-Q. For internal comparisons, management finds it useful to assess year-to-year performance by adjusting diluted earnings per share for amortization, which primarily relates to acquisition activities.

 

 

Year Ending

In millions, except per share amounts

December 31, 2013

       

Income before income tax provision

$       7,188

 

$    7,444

Amortization

485

 

485

Adjusted income before income tax provision

7,673

 

7,929

Adjusted income tax provision

2,985

 

3,084

Adjusted income from continuing operations

4,688

 

4,845

Net loss attributable to noncontrolling interest

-

 

-

Adjusted income from continuing operations attributable to CVS Caremark

$      4,688

 

$    4,845

Weighted average diluted common shares outstanding

1,215

 

1,211

Adjusted earnings per share from continuing operations attributable to CVS Caremark

$         3.86

 

$      4.00

 

 

 

Three Months Ending

In millions, except per share amounts

March 31, 2013

       

Income before income tax provision

$       1,442

 

$    1,502

Amortization

120

 

120

Adjusted income before income tax provision

1,562

 

1,622

Adjusted income tax provision

609

 

633

Adjusted income from continuing operations

953

 

989

Net loss attributable to noncontrolling interest

-

 

-

Adjusted income from continuing operations attributable to CVS Caremark

$         953

 

$       989

Weighted average diluted common shares outstanding

1,240

 

1,237

Adjusted earnings per share from continuing operations attributable to CVS Caremark

$         0.77

 

$      0.80

 

Free Cash Flow Guidance
(Unaudited)

The following reconciliation of net cash provided by operating activities to free cash flow contains forward-looking information that is subject to risks and uncertainties that could cause actual results to differ materially. The Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The Company strongly recommends that you become familiar with the specific risks and uncertainties outlined under the Risk Factors section in our Annual Report on Form 10-K for the year ended December 31, 2011 and under the section entitled "Cautionary Statement Concerning Forward-Looking Statements" in our most recently filed Quarterly Report on Form 10-Q. For internal comparisons, management finds it useful to assess year-to-year cash flow performance by adjusting cash provided by operating activities, by capital expenditures and proceeds from sale-leaseback transactions.

 

 

Year Ending

In millions

December 31, 2013

       

Net cash provided by operating activities

$       6,350

 

$          6,649

    Subtract:  Additions to property and equipment

(2,050)

 

(2,149)

    Add:  Proceeds from sale-leaseback transactions

500

 

600

Free cash flow

$       4,800

 

$          5,100

 

 

 

SOURCE CVS Caremark Corporation

Investors, Nancy Christal, Senior Vice President, Investor Relations, +1-914-722-4704; Media, Eileen H. Boone, Senior Vice President, Corporate Communications & Community Relations, +1-401-770-4561