CVS Caremark Reports Third Quarter Financial Results

Third Quarter Year-Over-Year Highlights:
- Adjusted EPS from continuing operations of $0.65
- GAAP diluted EPS from continuing operations of $0.60
- Same store sales increased 2.5%
- Generic dispensing rate increased 370 basis points to 72.0% in the Pharmacy Services segment and 340 basis points to 73.5% in the Retail Pharmacy segment
- Mail choice penetration rate increased 250 basis points to 26.3%
Year-to-date Highlights:
- Generated free cash flow of $1.7 billion
- Generated cash flow from operations of $3.0 billion
Full-year Adjusted EPS Guidance Range Narrowed to $2.68- $2.70, reflecting solid year-to-date performance and the inclusion of costs related to the PBM streamlining initiative; Full-year GAAP EPS Guidance Range Narrowed to $2.49 - $2.51.

WOONSOCKET, R.I., Nov. 3, 2010 /PRNewswire via COMTEX/ --

CVS Caremark Corporation (NYSE: CVS), today announced revenues, operating profit, and net income for the three and nine months ended September 30, 2010.

 

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Revenues

Net revenues for the three months ended September 30, 2010, decreased $767 million, or 3.1%, to $23.9 billion, down from $24.6 billion in the prior year period.

Pharmacy Services segment revenues for the three months ended September 30, 2010, decreased 8.5%, to $11.9 billion, as compared to the prior year period. Adjusting the growth rate for the impact of new generics, net revenues would have decreased 1.6% in the Pharmacy Services segment. The decrease in net revenues was primarily due to the previously announced termination of a few large client contracts effective January 1, 2010 and the decrease of covered lives under our Medicare Part D program resulting from the 2010 Medicare Part D competitive bidding process. This was partially offset by new client starts effective January 1, 2010.

Retail Pharmacy segment revenues for the three months ended September 30, 2010, increased 4.1%, to $14.2 billion and total same store sales increased 2.5% over the prior year period. Pharmacy same store sales increased 3.0% and reflect a positive impact from Maintenance Choice(TM) of approximately 240 basis points on a net basis (i.e., a positive impact of approximately 310 basis points on a gross basis, net of approximately 70 basis points from the conversion of 30-day prescriptions at retail to 90-day prescriptions under the Maintenance Choice program). Pharmacy same store sales were negatively impacted by approximately 280 basis points due to recent generic introductions. Front store same store sales increased 1.4% in the three months ended September 30, 2010.

The generic dispensing rate increased approximately 370 basis points to 72.0% in our Pharmacy Services segment and 340 basis points to 73.5% in our Retail Pharmacy segment, compared to the three months ended September 30, 2009.

Income from continuing operations attributable to CVS Caremark

Income from continuing operations attributable to CVS Caremark for the three months ended September 30, 2010 decreased $203 million, or 19.8%, to $820 million, compared to $1.0 billion in the prior year period. During the three months ended September 30, 2009, the Company recorded approximately $156 million ($0.11 per diluted share) of previously unrecognized tax benefits, which were related to the expiration of various statutes of limitation and settlements with tax authorities. Excluding the impact of the recognition of these tax benefits in the three months ended September 30, 2009, income from continuing operations attributable to CVS Caremark would have decreased $47 million, or 5.4%.

Adjusted earnings per share from continuing operations attributable to CVS Caremark, which excludes $108 million of intangible asset amortization related to acquisition activity, for the three months ended September 30, 2010, were $0.65, compared to $0.76 (including the $0.11 per diluted share income tax benefit) in the prior year period. GAAP earnings per diluted share from continuing operations attributable to CVS Caremark for the three months ended September 30, 2010 were $0.60, compared to $0.71 (including the $0.11 per diluted share income tax benefit) in the prior year period.

Income from continuing operations attributable to CVS Caremark for the nine months ended September 30, 2010 decreased $241 million, or 9.1%, to $2.4 billion, compared to $2.7 billion in the prior year period. Excluding the impact of the $156 million tax benefit, income from continuing operations attributable to CVS Caremark would have decreased $85 million, or 3.4%.

Adjusted earnings per share from continuing operations attributable to CVS Caremark, which excludes $319 million of intangible asset amortization related to acquisition activity, for the nine months ended September 30, 2010, were $1.89, compared to $1.96 (including the $0.11 per diluted share income tax benefit) in the prior year period. GAAP earnings per diluted share from continuing operations attributable to CVS Caremark for the nine months ended September 30, 2010 were $1.75, compared to $1.82 (including the $0.11 per diluted share income tax benefit) in the prior year period.

Tom Ryan, Chairman and Chief Executive Officer, said, "I am pleased with our third quarter results, which were at the higher end of our expectations. Our retail business delivered industry-leading same store sales growth while solid gross margins and expense control led to significantly improved operating margins. Our PBM offerings continued to gain traction with clients as evidenced by the year-to-date results of the 2011 selling season. We have begun to make important investments in the PBM streamlining initiative, which will lead to improved results and higher returns in the coming years."

2010 Guidance Range Narrowed

David Denton, Executive Vice President and Chief Financial Officer, stated, "In light of our solid performance year to date and expectations for the remainder of the year that include some one-time costs relating to the PBM streamlining initiative, we are narrowing our guidance for adjusted earnings per share for 2010 to a range of $2.68 to $2.70 from a range of $2.68 to $2.73." Mr. Denton continued, "In addition, we are reiterating our guidance for free cash flow this year of approximately $2.5 billion. We expect to generate significantly more free cash on an annual basis for the next five years, and we intend to exercise disciplined capital allocation practices to achieve the highest possible return for our shareholders."

Real estate program

During the three months ended September 30, 2010, the Company opened 49 new retail drugstores, and closed six retail drugstores, one specialty pharmacy store and one mail order pharmacy. In addition, the Company relocated 18 retail drugstores. As of September 30, 2010, the Company operated 7,152 retail drugstores, 44 specialty pharmacy stores, 18 specialty mail order pharmacies and five mail order pharmacies in 44 states, the District of Columbia and Puerto Rico.

Teleconference and webcast

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

About the Company

CVS Caremark is the largest pharmacy health care provider in the United States. Through our integrated offerings across the entire spectrum of pharmacy care, we are uniquely positioned to provide greater access to engage plan members in behaviors that improve their health, and to lower overall health care costs for health plans, plan sponsors and their members. CVS Caremark is a market leader in mail order pharmacy, retail pharmacy, specialty pharmacy, and retail clinics, and is a leading provider of Medicare Part D Prescription Drug Plans. As one of the country's largest pharmacy benefits managers (PBMs), we provide access to a network of more than 65,000 pharmacies, including our more than 7,100 CVS/pharmacy(R) stores that provide unparalleled service and capabilities. Our clinical expertise includes one of the industry's most comprehensive disease management programs. General information about CVS Caremark is available through the Company's website 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, 2009 and under the section entitled "Cautionary Statement Concerning Forward-Looking Statements" in our most recently filed Quarterly Report on Form 10-Q.

CVS CAREMARK CORPORATION

Condensed Consolidated Statements of Income

(Unaudited)

 
 

Three Months Ended

 

Nine Months Ended

 
 

September 30,

 

September 30,

 

In millions, except per share amounts

2010

 

2009

 

2010

 

2009

 
                 

Net revenues

$ 23,875

 

$ 24,642

 

$ 71,641

 

$ 72,907

 

Cost of revenues

18,851

 

19,630

 

56,851

 

58,095

 

Gross profit

5,024

 

5,012

 

14,790

 

14,812

 

Operating expenses

3,540

 

3,446

 

10,396

 

10,269

 

Operating profit

1,484

 

1,566

 

4,394

 

4,543

 

Interest expense, net

137

 

123

 

399

 

393

 

Income before income tax provision

1,347

 

1,443

 

3,995

 

4,150

 

Income tax provision

528

 

420

 

1,582

 

1,494

 

Income from continuing operations

819

 

1,023

 

2,413

 

2,656

 

Loss from discontinued operations, net of tax

(11)

 

(2)

 

(14)

 

(10)

 

Net income

808

 

1,021

 

2,399

 

2,646

 

Net loss attributable to noncontrolling interest(1)

1

 

--

 

2

 

--

 

Net income attributable to CVS Caremark

$ 809

 

$ 1,021

 

$ 2,401

 

$ 2,646

 
                 

Income from continuing operations attributable to

CVS Caremark:

               

Income from continuing operations

$ 819

 

$ 1,023

 

$ 2,413

 

$ 2,656

 

Plus net loss attributable to noncontrolling interest

1

 

--

 

2

 

--

 

Income from continuing operations attributable to CVS Caremark

$ 820

 

$ 1,023

 

$ 2,415

 

$ 2,656

 
                 

Basic earnings per common share:

               

Income from continuing operations attributable to CVS Caremark

$ 0.60

 

$ 0.72

 

$ 1.76

 

$ 1.84

 

Loss from discontinued operations

(0.01)

 

(0.01)

 

(0.01)

 

(0.01)

 

Net income attributable to CVS Caremark

$ 0.59

 

$ 0.71

 

$ 1.75

 

$ 1.83

 

Weighted average basic common shares outstanding

1,360

 

1,429

 

1,368

 

1,445

 
                 

Diluted earnings per common share:

               

Income from continuing operations attributable to CVS Caremark

$ 0.60

 

$ 0.71

 

$ 1.75

 

$ 1.82

 

Loss from discontinued operations

(0.01)

 

--

 

(0.01)

 

(0.01)

 

Net income attributable to CVS Caremark

$ 0.59

 

$ 0.71

 

$ 1.74

 

$ 1.81

 

Weighted average diluted common shares outstanding

1,368

 

1,445

 

1,378

 

1,462

 
                 

Dividends declared per common share

$ 0.08750

 

$ 0.07625

 

$ 0.26250

 

$ 0.22875

 

(1) Represents the minority shareholders' portion of the net loss from our majority owned subsidiary Generation Health, Inc.

 
               

CVS CAREMARK CORPORATION

Condensed Consolidated Balance Sheets

(Unaudited)

 

In millions, except per share amounts

September 30, 2010

 

December 31, 2009

 

Assets:

       

Cash and cash equivalents

$ 979

 

$ 1,086

 

Short-term investments

4

 

5

 

Accounts receivable, net

5,111

 

5,457

 

Inventories

10,585

 

10,343

 

Deferred income taxes

479

 

506

 

Other current assets

181

 

140

 

Total current assets

17,339

 

17,537

 

Property and equipment, net

8,356

 

7,923

 

Goodwill

25,673

 

25,680

 

Intangible assets, net

9,876

 

10,127

 

Other assets

469

 

374

 

Total assets

$ 61,713

 

$ 61,641

 
         

Liabilities:

       

Accounts payable

$ 4,162

 

$ 3,560

 

Claims and discounts payable

2,360

 

3,075

 

Accrued expenses

2,664

 

3,246

 

Short-term debt

1,384

 

315

 

Current portion of long-term debt

1,104

 

2,104

 

Total current liabilities

11,674

 

12,300

 

Long-term debt

8,653

 

8,756

 

Deferred income taxes

3,653

 

3,678

 

Other long-term liabilities

1,061

 

1,102

 

Commitments and contingencies

       

Redeemable noncontrolling interest

35

 

37

 
         

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; 1,619 shares issued and 1,358 shares outstanding at September 30, 2010 and 1,612 shares issued and 1,391 shares outstanding at December 31, 2009

16

 

16

 

Treasury stock, at cost: 259 shares at September 30, 2010 and 219 shares at December 31, 2009

(9,029)

 

(7,610)

 

Shares held in trust: 2 shares at September 30, 2010

and December 31, 2009

(56)

 

(56)

 

Capital surplus

27,443

 

27,198

 

Retained earnings

18,396

 

16,355

 

Accumulated other comprehensive loss

(133)

 

(135)

 

Total shareholders' equity

36,637

 

35,768

 

Total liabilities and shareholders' equity

$ 61,713

 

$ 61,641

 
   
       

CVS CAREMARK CORPORATION

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 
 

Nine Months Ended

 
 

September 30,

 

In millions

2010

 

2009

 

Cash flows from operating activities:

       

Cash receipts from revenues

$ 68,524

 

$ 68,788

 

Cash paid for inventory and prescriptions dispensed by retail network pharmacies

(52,953)

 

(54,553)

 

Cash paid to other suppliers and employees

(10,346)

 

(9,810)

 

Interest received

3

 

4

 

Interest paid

(439)

 

(410)

 

Income taxes paid

(1,785)

 

(1,789)

 

Net cash provided by operating activities

3,004

 

2,230

 
         

Cash flows from investing activities:

       

Additions to property and equipment

(1,379)

 

(1,752)

 

Proceeds from sale-leaseback transactions

124

 

748

 

Proceeds from sale or disposal of assets

24

 

7

 

Acquisitions (net of cash acquired) and investments

(158)

 

(43)

 

Purchase of short-term investments

--

 

(5)

 

Maturity of short-term investments

1

 

--

 

Net cash used in investing activities

(1,388)

 

(1,045)

 
         

Cash flows from financing activities:

       

Increase (decrease) in short-term debt

1,069

 

(1,944)

 

Proceeds from issuance of long-term debt

991

 

2,800

 

Repayments of long-term debt

(2,102)

 

(652)

 

Dividends paid

(360)

 

(331)

 

Derivative settlements

(5)

 

(3)

 

Proceeds from exercise of stock options

171

 

236

 

Excess tax benefits from stock-based compensation

13

 

26

 

Repurchase of common stock

(1,500)

 

(1,539)

 

Net cash used in financing activities

(1,723)

 

(1,407)

 

Net decrease in cash and cash equivalents

(107)

 

(222)

 

Cash and cash equivalents at beginning of period

1,086

 

1,352

 

Cash and cash equivalents at end of period

$ 979

 

$ 1,130

 
   
       
   

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

       

Net income

$ 2,399

 

$ 2,646

 

Adjustments required to reconcile net income to net cash

provided by operating activities:

       

Depreciation and amortization

1,096

 

1,037

 

Stock-based compensation

112

 

113

 

Deferred income taxes and other non-cash items

43

 

69

 

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

       

Accounts receivable, net

346

 

(321)

 

Inventories

(242)

 

(832)

 

Other current assets

(41)

 

(12)

 

Other assets

11

 

(7)

 

Accounts payable and claims and discounts payable

(112)

 

240

 

Accrued expenses

(567)

 

(794)

 

Other long-term liabilities

(41)

 

91

 

Net cash provided by operating activities

$ 3,004

 

$ 2,230

 
   
       

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 from continuing operations attributable to CVS Caremark:

 
 

Three Months Ended

 

Nine Months Ended

 
 

September 30,

 

September 30,

 

In millions, except per share amounts

2010

 

2009

 

2010

 

2009

 
                 

Income before income tax provision

$1,347

 

$1,443

 

$3,995

 

$4,150

 

Amortization

108

 

108

 

319

 

323

 

Adjusted income before income tax provision

1,455

 

1,551

 

4,314

 

4,473

 

Adjusted income tax provision(1)

570

 

451

 

1,708

 

1,611

 

Adjusted income from continuing operations

885

 

1,100

 

2,606

 

2,862

 

Net loss attributable to noncontrolling interest

1

 

--

 

2

 

--

 

Adjusted income from continuing operations attributable to CVS Caremark

$ 886

 

$ 1,100

 

$ 2,608

 

$ 2,862

 

Weighted average diluted common shares outstanding

1,368

 

1,445

 

1,378

 

1,462

 

Adjusted earnings per share from continuing operations attributable to CVS Caremark(2)

$ 0.65

 

$ 0.76

 

$ 1.89

 

$ 1.96

 

(1) The adjusted income tax provision is computed using the same effective income tax rate from the condensed consolidated statement of income.

(2) Excluding the impact of approximately $156 million of previously unrecognized tax benefits that were recognized in the three months ended September 30, 2009, adjusted earnings per share from continuing operations attributable to CVS Caremark would have been $0.65 and $1.85 for the three and nine months ended September 30, 2009, respectively.

 
               

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, 2009. 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.

 
 

Fiscal Year Ending

 

In millions, except per share amounts

December 31, 2010

 
         

Income before income tax provision

$ 5,620

 

$ 5,675

 

Amortization

432

 

430

 

Adjusted income before income tax provision

6,052

 

6,105

 

Adjusted income tax provision

2,376

 

2,402

 

Adjusted income from continuing operations

3,676

 

3,703

 

Net loss attributable to noncontrolling interest

4

 

4

 

Adjusted income from continuing operations attributable to CVS Caremark

$ 3,680

 

$ 3,707

 

Weighted average diluted common shares outstanding

1,375

 

1,375

 

Adjusted earnings per share from continuing operations attributable to CVS Caremark

$ 2.68

 

$ 2.70

 
   
       

Free Cash Flow

(Unaudited)

The Company defines free cash flow as net cash provided by operating activities less net additions to property 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:

 
 

Nine months Ended

 
 

September 30,

 

In millions

2010

 

2009

 
         

Net cash provided by operating activities

$ 3,004

 

$ 2,230

 

Subtract: Additions to property and equipment

(1,379)

 

(1,752)

 

Add: Proceeds from sale-leaseback transactions

124

 

748

 

Free cash flow

$ 1,749

 

$ 1,226

 
   
       

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 condensed consolidated financial statements:

 

In millions

Pharmacy Services

Segment(1)

 

Retail Pharmacy Segment

 

Corporate Segment

 

Intersegment Eliminations(2)

 

Consolidated

Totals

 

Three Months Ended

                   

September 30, 2010:

                   

Net revenues

$ 11,926

 

$ 14,159

 

$ -

 

$ (2,210)

 

$ 23,875

 

Gross profit

882

 

4,181

 

-

 

(39)

 

5,024

 

Operating profit (loss)

652

 

1,039

 

(168)

 

(39)

 

1,484

 

September 30, 2009:

                   

Net revenues

$ 13,030

 

$ 13,606

 

$ -

 

$ (1,994)

 

$ 24,642

 

Gross profit

1,031

 

3,995

 

-

 

(14)

 

5,012

 

Operating profit (loss)

799

 

910

 

(129)

 

(14)

 

1,566

 

Nine Months Ended

                   

September 30, 2010:

                   

Net revenues

$ 35,603

 

$ 42,448

 

$ -

 

$ (6,410)

 

$ 71,641

 

Gross profit

2,485

 

12,397

 

-

 

(92)

 

14,790

 

Operating profit (loss)

1,781

 

3,164

 

(459)

 

(92)

 

4,394

 

September 30, 2009:

                   

Net revenues

$ 37,573

 

$ 40,900

 

$ -

 

$ (5,566)

 

$ 72,907

 

Gross profit

2,760

 

12,082

 

-

 

(30)

 

14,812

 

Operating profit (loss)

2,033

 

2,938

 

(398)

 

(30)

 

4,543

 

(1) Net revenues of the Pharmacy Services segment include approximately $1.6 billion and $1.7 billion of retail co-payments for the three months ended September 30, 2010 and 2009, respectively, and $5.0 billion and $5.2 billion of retail co-payments for the nine months ended September 30, 2010 and 2009, 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(TM) 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. As a result, both the Pharmacy Services and the Retail Pharmacy segments include the following results associated with this activity: net revenues of $489 million and $196 million for the three months ended September 30, 2010 and 2009, respectively, and $1.3 billion and $450 million for the nine months ended September 30, 2010 and 2009, respectively; gross profit of $39 million and $14 million for the three months ended September 30, 2010 and 2009, respectively, and $92 million and $30 million for the nine months ended September 30, 2010 and 2009, respectively; and operating profit of $39 million and $14 million for the three months ended September 30, 2010 and 2009, respectively, and $92 million and $30 million for the nine months ended September 30, 2010 and 2009, respectively.

 
                   

Supplemental Information

(Unaudited)

Pharmacy Services Segment

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

 
 

Three Months Ended

 

Nine Months Ended

 
 

September 30,

 

September 30,

 

In millions

2010

 

2009

 

2010

 

2009

 
                 

Net revenues

$ 11,926

 

$ 13,030

 

$ 35,603

 

$ 37,573

 

Gross profit

882

 

1,031

 

2,485

 

2,760

 

Gross profit % of net revenues

7.4%

 

7.9%

 

7.0%

 

7.3%

 

Operating expenses

230

 

232

 

704

 

727

 

Operating expense % of net revenues

1.9%

 

1.8%

 

2.0%

 

1.9%

 

Operating profit

652

 

799

 

1,781

 

2,033

 

Operating profit % of net revenues

5.5%

 

6.1%

 

5.0%

 

5.4%

 
                 

Net revenues(1):

               

Mail choice(2)

$ 4,197

 

$ 4,156

 

$ 12,386

 

$ 12,438

 

Pharmacy network(3)

7,615

 

8,782

 

22,915

 

24,871

 

Other

114

 

92

 

302

 

264

 

Pharmacy claims processed(1):

               

Total

144.4

 

162.9

 

436.1

 

490.4

 

Mail choice(2)

16.2

 

16.4

 

47.7

 

49.3

 

Pharmacy network(3)

128.2

 

146.5

 

388.4

 

441.1

 

Generic dispensing rate(1):

               

Total

72.0%

 

68.3%

 

71.1%

 

67.9%

 

Mail choice(2)

62.4%

 

56.6%

 

60.8%

 

56.1%

 

Pharmacy network(3)

73.1%

 

69.5%

 

72.3%

 

69.1%

 

Mail choice penetration rate

26.3%

 

23.8%

 

25.7%

 

23.8%

 

(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 includes 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.

 
               

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

 

Nine Months Ended

 
 

September 30,

 

September 30,

 

In millions, except per adjusted claim amounts

2010

 

2009

 

2010

 

2009

 
                 

Operating profit

$ 652

 

$ 799

 

$ 1,781

 

$ 2,033

 

Depreciation and amortization

98

 

91

 

292

 

277

 

EBITDA

750

 

890

 

2,073

 

2,310

 

Adjusted claims

173.9

 

192.4

 

522.7

 

579.3

 

EBITDA per adjusted claim

$ 4.31

 

$ 4.63

 

$ 3.97

 

$ 3.99

 
   
               

Supplemental Information

(Unaudited)

Retail Pharmacy Segment

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

 
 

Three Months Ended

 

Nine Months Ended

 
 

September 30,

 

September 30,

 

In millions

2010

 

2009

 

2010

 

2009

 
                 

Net revenues

$ 14,159

 

$ 13,606

 

$ 42,448

 

$ 40,900

 

Gross profit

4,181

 

3,995

 

12,397

 

12,082

 

Gross profit % of net revenues

29.5%

 

29.4%

 

29.2%

 

29.5%

 

Operating expenses

3,142

 

3,085

 

9,233

 

9,144

 

Operating expense % of net revenues

22.2%

 

22.7%

 

21.8%

 

22.4%

 

Operating profit

1,039

 

910

 

3,164

 

2,938

 

Operating profit % of net revenues

7.3%

 

6.7%

 

7.5%

 

7.2%

 
                 

Net revenue increase(1):

               

Total

4.1%

 

17.9%

 

3.8%

 

16.3%

 

Pharmacy

4.3%

 

18.0%

 

4.4%

 

15.8%

 

Front store

3.6%

 

17.6%

 

2.5%

 

17.4%

 

Same store sales increase(2):

               

Total

2.5%

 

5.7%

 

2.3%

 

5.0%

 

Pharmacy

3.0%

 

8.0%

 

3.2%

 

6.7%

 

Front store

1.4%

 

0.8%

 

0.4%

 

1.5%

 

Generic dispensing rate

73.5%

 

70.1%

 

72.8%

 

69.6%

 

Pharmacy % of total revenues

68.7%

 

68.4%

 

68.4%

 

67.8%

 

Third party % of pharmacy revenue

97.3%

 

97.1%

 

97.3%

 

96.9%

 

Retail prescriptions filled

157.7

 

151.8

 

472.5

 

457.5

 

(1) The net revenue increase for the three and nine months ended September 30, 2009 include the results associated with stores acquired in the acquisition of Longs Drug Stores Corporation in October 2008.

(2) Beginning in November 2009, same store sales increase includes the stores acquired in the acquisition of Longs Drug Stores Corporation in October 2008.

 
               

SOURCE CVS Caremark Corporation