CVS Caremark Reports Record Third Quarter Results

Tuesday, November 5, 2013

WOONSOCKET, R.I., Nov.5, 2013 /PRNewswire/ -- CVS Caremark Corporation (NYSE: CVS) today announced operating results for the three months ended September 30, 2013.

Third Quarter Year-over-year Highlights:

  • Operating profit increased 19.2% to approximately $2.2 billion
  • Adjusted EPS increased 28.1% to $1.09, while GAAP diluted EPS from continuing operations increased 29.5% to $1.03; both include a $0.04 gain from a legal settlement
  • Adjusted EPS of $1.05, excluding the gain from a legal settlement, an increase of 23.9%
  • Retail pharmacy same store prescription volumes increased 1.4%, or 4.5% on a 30-day equivalent basis
  • Retail pharmacy same store sales increased 5.7%; total same store sales increased 3.6%

Year-to-date Highlights:

  • Generated free cash flow of $3.1 billion
  • Cash flow from operations of $4.2 billion

2013 Guidance Raised and Narrowed:

  • Full-year Adjusted EPS range to $3.98 to $4.01 and GAAP diluted EPS from continuing operations range to $3.73 to $3.76; both including the gain from a legal settlement
  • Full-year Adjusted EPS range to $3.94 to $3.97, excluding the gain from a legal settlement
  • Full year free cash flow at $4.8 to $5.1 billion; cash flow from operations at $6.4 to $6.6 billion

Revenues

Net revenues for the three months ended September30, 2013, increased 5.8%, or $1.7 billion, to $32.0 billion compared to the three months ended September30, 2012.

Revenues in the Pharmacy Services Segment increased 7.8%, or $1.4 billion, to $19.5 billion in the three months ended September30, 2013. The increase was primarily driven by broad-based growth of claims as well as drug cost inflation in the specialty pharmacy business, partially offset by the impact of recent generic drug introductions. Pharmacy network claims processed during the three months ended September30, 2013, increased 2.0% to 200.9 million, compared to 197.0 million in the prior year period. The increase in pharmacy network claims was primarily due to additional claims activity associated with new clients. Mail choice claims processed during the three months ended September30, 2013, increased approximately 3.1% to 21.0 million, compared to 20.4 million in the prior year period. The increase in the mail choice claim volume was primarily due to increased claims associated with the continuing adoption of our Maintenance Choice offerings.

Revenues in the Retail Pharmacy Segment increased 5.0%, or $780 million, to $16.3 billion in the three months ended September 30, 2013. Same store sales increased 3.6% when compared to the prior year period, with pharmacy same store sales up 5.7% and front store same store sales down 1.0%. Despite the decline in front store same store sales, which was driven by softer traffic, both front store basket size and front store margin improved modestly during the quarter. The increase in same store sales was primarily driven by the growth of prescription volumes, partially offset by the impact of recent generic drug introductions. Pharmacy same store prescription volumes rose 1.4% when 90-day prescriptions are counted as one prescription, and increased 4.5% on a 30-day equivalent basis (when 90-day prescriptions are counted as three prescriptions). Pharmacy same store sales were negatively impacted by approximately 320 basis points due to recent generic drug introductions.

For the three months ended September30, 2013, the generic dispensing rate increased approximately 170 basis points in the Pharmacy Services Segment, to 81.0%, and approximately 160 basis points in the Retail Pharmacy Segment, to 81.5%, 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 September30, 2013, increased 24.6%, or approximately $249 million, to $1.3 billion, compared with $1.0 billion during the three months ended September30, 2012. The Pharmacy Services and Retail Pharmacy segments both benefited from the impact of increased generic drugs dispensed and the continued growth of our Maintenance Choice program. Adjusted earnings per share from continuing operations attributable to CVS Caremark (Adjusted EPS) for the three months ended September30, 2013 and 2012, was $1.09 and $0.85, respectively, an increase of 28.1%. Adjusted EPS in the third quarter of 2013 includes a pre-tax gain from a legal settlement of $72 million (approximately $0.04 per share). Excluding the gain from the legal settlement, Adjusted EPS increased 23.9% in the third quarter to $1.05. Adjusted EPS in the three months ended September 30, 2013 and 2012, excludes $124 million and $121 million, respectively, of intangible asset amortization related to acquisition activity. GAAP earnings per diluted share from continuing operations attributable to CVS Caremark for the three months ended September30, 2013 and 2012, was $1.03 and $0.79, respectively, an increase of 29.5%. GAAP earnings per share also includes the impact of the legal settlement in the third quarter of 2013.

President and Chief Executive Officer Larry Merlo stated: "Our third quarter results reflect strong operating performance across the enterprise. Adjusted earnings per share excluding the settlement gain exceeded the high end of our guidance by 2 cents per share, primarily reflecting better-than-expected third quarter performance in the PBM. We are well on track for another year of strong growth in 2013."

Mr.Merlo continued, "Year-to-date, we have also generated significant free cash, which we will continue to use to enhance shareholder value. Between dividends and share repurchases, we expect to return $5 billion to our shareholders in 2013."

Real Estate Program

During the three months ended September30, 2013, the Company opened 49 new retail drugstores, and closed one retail drugstore. In addition, the Company relocated 22 retail drugstores. As of September30, 2013, the Company operated 7,665 locations in 45 states, the District of Columbia, Puerto Rico and Brazil. These locations included 7,601 retail drugstores, 18 onsite pharmacies, 30 retail specialty pharmacy stores, 12 specialty mail order pharmacies and four mail service pharmacies.

Guidance

The Company raised and narrowed its earnings guidance range for the full year 2013, reflecting year-to-date results that exceeded expectations. The Company now expects to deliver Adjusted EPS of $3.98 to $4.01 and GAAP diluted earnings per share from continuing operations of $3.73 to $3.76 in 2013, both including the gain from the legal settlement in the third quarter.Excluding the gain from the legal settlement, the Company expects to deliver Adjusted EPS of $3.94 to $3.97 in 2013. The Company also continues to expect to deliver 2013 free cash flow of $4.8 billion to $5.1 billion, and 2013 cash flow from operations guidance of $6.4 billion to $6.6 billion.

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 7,600 retail pharmacystores; its leading pharmacy benefit manager serving more than 60 million plan members; and its retail health clinic system, the largest in the nation with more than 750 MinuteCliniclocations, it is a market leader in mail order, retail and specialty pharmacy, retail clinics, and Medicare PartD Prescription Drug Plans. As a pharmacy innovation company, CVS Caremark continually strives to improve health and lower costs by developing new approaches such as its unique Pharmacy Advisorprogram that helps people with chronic diseases such as diabetes obtain and stay on their medications. Find more information about CVS Caremark 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 Form10-K for the year ended December31, 2012 and under the section entitled "Cautionary Statement Concerning Forward-Looking Statements" in our most recently filed Quarterly Report on Form10-Q.

Tables Follow

CVS CAREMARK CORPORATION
Condensed Consolidated Statements of Income
(Unaudited)

ThreeMonthsEnded

September30,

Nine MonthsEnded

September30,

Inmillions,exceptpershareamounts

2013

2012

2013

2012

Net revenues

$

31,968

$

30,227

$

93,979

$

91,739

Cost of revenues

25,933

24,580

76,527

75,530

Gross profit

6,035

5,647

17,452

16,209

Operating expenses

3,874

3,833

11,624

11,284

Operating profit

2,161

1,814

5,828

4,925

Interest expense, net

122

134

374

397

Income before income tax provision

2,039

1,680

5,454

4,528

Income tax provision

779

669

2,116

1,775

Income from continuing operations

1,260

1,011

3,338

2,753

Loss from discontinued operations, net of tax

(6)

(5)

(7)

(7)

Net income

1,254

1,006

3,331

2,746

Net loss attributable to noncontrolling interest

2

Net income attributable to CVS Caremark

$

1,254

$

1,006

$

3,331

$

2,748

Income from continuing operations attributable to CVS Caremark:

Income from continuing operations

$

1,260

$

1,011

$

3,338

$

2,753

Net loss attributable to noncontrolling interest

2

Income from continuing operations attributable to CVS Caremark

$

1,260

$

1,011

$

3,338

$

2,755

Basic earnings per common share:

Income from continuing operations attributable to CVS Caremark

$

1.04

$

0.80

$

2.72

$

2.15

Loss from discontinued operations attributable to CVS Caremark

$

(0.01)

$

$

(0.01)

$

(0.01)

Net income attributable to CVS Caremark

$

1.03

$

0.80

$

2.72

$

2.15

Weighted average basic common shares outstanding

1,218

1,265

1,226

1,281

Diluted earnings per common share:

Income from continuing operations attributable to CVS Caremark

$

1.03

$

0.79

$

2.70

$

2.14

Loss from discontinued operations attributable to CVS Caremark

$

(0.01)

$

$

(0.01)

$

(0.01)

Net income attributable to CVS Caremark

$

1.02

$

0.79

$

2.70

$

2.13

Weighted average diluted common shares outstanding

1,226

1,274

1,234

1,290

Dividends declared per common share

$

0.2250

$

0.1625

$

0.6750

$

0.4875

CVS CAREMARK CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)

September30,

December 31,

Inmillions,exceptpershareamounts

2013

2012

Assets:

Cash and cash equivalents

$

1,505

$

1,375

Short-term investments

108

5

Accounts receivable, net

8,035

6,473

Inventories

10,825

10,759

Deferred income taxes

558

663

Other current assets

401

577

Total current assets

21,432

19,852

Property and equipment, net

8,749

8,632

Goodwill

26,550

26,395

Intangible assets, net

9,587

9,753

Other assets

1,487

1,280

Total assets

$

67,805

$

65,912

Liabilities:

Accounts payable

$

5,412

$

5,070

Claims and discounts payable

4,360

3,974

Accrued expenses

3,940

4,051

Short-term debt

814

690

Current portion of long-term debt

572

5

Total current liabilities

15,098

13,790

Long-term debt

8,819

9,133

Deferred income taxes

3,791

3,784

Other long-term liabilities

1,563

1,501

Commitments and contingencies

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; 1,669 shares issued and

1,204 shares outstanding at September 30, 2013 and 1,667 shares issued and 1,231

shares outstanding at December31, 2012

17

17

Treasury stock, at cost: 473 shares at September30, 2013 and 435 shares at

December 31, 2012

(18,462)

(16,270)

Shares held in trust: 1 share at September30, 2013 and December31, 2012

(31)

(31)

Capital surplus

29,653

29,120

Retained earnings

27,551

25,049

Accumulated other comprehensive loss

(194)

(181)

Total shareholders' equity

38,534

37,704

Total liabilities and shareholders' equity

$

67,805

$

65,912

CVS CAREMARK CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)

Nine MonthsEnded

September30,

Inmillions

2013

2012

Cash flows from operating activities:

Cash receipts from customers

$

85,408

$

84,463

Cash paid for inventory and prescriptions dispensed by retail network pharmacies

(67,826)

(67,464)

Cash paid to other suppliers and employees

(10,760)

(10,120)

Interest received

5

2

Interest paid

(369)

(411)

Income taxes paid

(2,213)

(1,530)

Net cash provided by operating activities

4,245

4,940

Cash flows from investing activities:

Purchases of property and equipment

(1,330)

(1,314)

Proceeds from sale-leaseback transactions

156

427

Proceeds from sale of property and equipment

13

Acquisitions (net of cash acquired) and other investments

(354)

(303)

Purchase of available-for-sale investments

(107)

Proceeds from sale of subsidiary

7

Net cash used in investing activities

(1,622)

(1,183)

Cash flows from financing activities:

Increase in short-term debt

124

75

Repayments of long-term debt

(56)

Purchase of noncontrolling interest in subsidiary

(26)

Dividends paid

(829)

(627)

Proceeds from exercise of stock options

431

677

Excess tax benefits from stock-based compensation

48

21

Repurchase of common stock

(2,272)

(4,001)

Net cash used in financing activities

(2,498)

(3,937)

Effect of exchange rates on cash

5

Net increase (decrease) in cash and cash equivalents

130

(180)

Cash and cash equivalents at the beginning of the year

1,375

1,413

Cash and cash equivalents at the end of the year

$

1,505

$

1,233

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

Net income

$

3,331

$

2,746

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

Depreciation and amortization

1,412

1,297

Stock-based compensation

101

97

Deferred income taxes and other non-cash items

129

87

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

Accounts receivable, net

(1,518)

(296)

Inventories

(39)

(586)

Other current assets

176

425

Other assets

(125)

(142)

Accounts payable and claims and discounts payable

697

919

Accrued expenses

32

325

Other long-term liabilities

49

68

Net cash provided by operating activities

$

4,245

$

4,940

Adjusted Earnings Per Share
(Unaudited)

For internal comparisons, management finds it useful to assess year-over-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:

ThreeMonthsEnded

September30,

Nine MonthsEnded

September30,

Inmillions,exceptpershareamounts

2013

2012

2013

2012

Income before income tax provision(1)

$

2,039

$

1,680

$

5,454

$

4,528

Amortization

124

121

370

362

Adjusted income before income tax provision

2,163

1,801

5,824

4,890

Adjusted income tax provision(2)

827

717

2,259

1,916

Adjusted income from continuing operations

1,336

1,084

3,565

2,974

Net loss attributable to noncontrolling interest

2

Adjusted income from continuing operations attributable to

CVS Caremark

$

1,336

$

1,084

$

3,565

$

2,976

Weighted average diluted common shares outstanding

1,226

1,274

1,234

1,290

Adjusted earnings per share from continuing operations

attributable to CVS Caremark

$

1.09

$

0.85

$

2.89

$

2.31

(1)

Includes a $72 million gain on a legal settlement (approximately $0.04 per diluted share) during the three and nine months ended September 30, 2013.

(2)

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

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:

Nine MonthsEnded

September30,

Inmillions

2013

2012

Net cash provided by operating activities

$

4,245

$

4,940

Subtract: Additions to property and equipment

(1,330)

(1,314)

Add: Proceeds from sale-leaseback transactions

156

427

Free cash flow

$

3,071

$

4,053

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:

Inmillions

Pharmacy

Services

Segment(1)

Retail

Pharmacy

Segment

Corporate

Segment

Intersegment

Eliminations(2)

Consolidated

Totals

Three Months Ended

September30, 2013:

Net revenues

$

19,483

$

16,284

$

$

(3,799)

$

31,968

Gross profit

1,294

4,884

(143)

6,035

Operating profit (loss)(3)

1,012

1,471

(179)

(143)

2,161

September30, 2012:

Net revenues

18,079

15,504

(3,356)

30,227

Gross profit

1,081

4,672

(106)

5,647

Operating profit (loss)

784

1,305

(169)

(106)

1,814

Nine Months Ended

September30, 2013:

Net revenues

56,593

48,474

(11,088)

93,979

Gross profit

3,025

14,836

(409)

17,452

Operating profit (loss)(3)

2,186

4,604

(553)

(409)

5,828

September30, 2012:

Net revenues

54,802

47,373

(10,436)

91,739

Gross profit

2,474

14,014

(279)

16,209

Operating profit (loss)

1,644

4,071

(511)

(279)

4,925

Total Assets:

September 30, 2013

37,274

30,048

1,679

(1,196)

67,805

December 31, 2012

36,057

29,183

1,408

(736)

65,912

Goodwill:

September 30, 2013

19,657

6,893

26,550

December 31, 2012

19,646

6,749

26,395

(1)

Net revenues of the Pharmacy Services Segment include approximately $1.9 billion and $2.0 billion of retail co-payments for the three months ended September 30, 2013 and 2012, respectively, as well as $6.1 billion and $6.4 billion of retail co-payments for the nine months ended September 30, 2013 and 2012, respectively.

(2)

Intersegment eliminations relate to two types of transaction: (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. The following amounts are eliminated in consolidation in connection with the item (ii) intersegment activity: net revenues of $1.1 billion and $841 million for the three months ended September 30, 2013 and 2012, respectively, and $3.1 billion and $2.5 billion for the nine months ended September 30, 2013 and 2012, respectively; gross profit and operating profit of $143 million and $106 million for the three months ended September 30, 2013 and 2012, respectively, and $409 million and $279 million for the nine months ended September 30, 2013 and 2012, respectively.

(3)

Consolidated operating profit for the three and nine months ended September 30, 2013 includes a $72 million gain on a legal settlement, of which, $11 million is included in the Pharmacy Services Segment and $61 million is included in the Retail Pharmacy Segment.

Supplemental Information
(Unaudited)

Pharmacy Services Segment

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

ThreeMonthsEnded

September30,

Nine MonthsEnded

September30,

Inmillions

2013

2012

2013

2012

Net revenues

$

19,483

$

18,079

$

56,593

$

54,802

Gross profit

1,294

1,081

3,025

2,474

Gross profit % of net revenues

6.6

%

6.0

%

5.4

%

4.5

%

Operating expenses(4)

282

297

839

830

Operating expense % of net revenues

1.4

%

1.6

%

1.5

%

1.5

%

Operating profit

1,012

784

2,186

1,644

Operating profit % of net revenues

5.2

%

4.3

%

3.9

%

3.0

%

Net revenues(1):

Mail choice(2)

$

6,369

$

5,675

$

18,274

$

17,084

Pharmacy network(3)

13,063

12,363

38,163

37,573

Other

51

41

156

145

Pharmacy claims processed(1):

Total

221.9

217.4

676.2

654.6

Mail choice(2)

21.0

20.4

62.3

61.3

Pharmacy network(3)

200.9

197.0

613.9

593.3

Generic dispensing rate(1):

Total

81.0

%

79.3

%

80.7

%

78.0

%

Mail choice(2)

76.2

%

73.1

%

75.8

%

71.1

%

Pharmacy network(3)

81.5

%

79.9

%

81.2

%

78.6

%

Mail choice penetration rate

23.0

%

22.9

%

22.5

%

22.9

%

(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.

(4)

Operating expenses for the three and nine months ended September 30, 2013 includes a $11 million gain on a legal settlement.

Supplemental Information
(Unaudited)

Retail Pharmacy Segment

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

ThreeMonthsEnded

September30,

Nine MonthsEnded

September30,

Inmillions

2013

2012

2013

2012

Net revenues

$

16,284

$

15,504

$

48,474

$

47,373

Gross profit

4,884

4,672

14,836

14,014

Gross profit % of net revenues

30.0

%

30.1

%

30.6

%

29.6

%

Operating expenses(2)

3,413

3,367

10,232

9,943

Operating expense % of net revenues

21.0

%

21.7

%

21.1

%

21.0

%

Operating profit

1,471

1,305

4,604

4,071

Operating profit % of net revenues

9.0

%

8.4

%

9.5

%

8.6

%

Retail prescriptions filled (90 Day = 1Rx)

180.5

176.5

546.3

532.4

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

220.6

209.8

662.4

628.3

Net revenue increase:

Total

5.0

%

5.5

%

2.3

%

7.4

%

Pharmacy

7.1

%

6.3

%

2.7

%

8.6

%

Front store

0.4

%

3.7

%

1.5

%

4.9

%

Total prescription volume (90 Day = 1 Rx)

2.3

%

9.6

%

2.6

%

8.9

%

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

5.2

%

11.8

%

5.4

%

11.0

%

Same store increase (decrease):

Total sales

3.6

%

4.3

%

0.9

%

6.1

%

Pharmacy sales

5.7

%

5.3

%

1.3

%

7.4

%

Front store sales

(1.0)

%

2.2

%

%

3.2

%

Prescription volume (90 Day = 1 Rx)

1.4

%

8.7

%

1.7

%

7.8

%

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

4.5

%

11.1

%

4.8

%

10.0

%

Generic dispensing rate

81.5

%

79.9

%

81.5

%

79.0

%

Pharmacy % of total revenues

70.4

%

69.1

%

69.5

%

69.3

%

Third party % of pharmacy revenue

97.9

%

97.6

%

97.9

%

98.0

%

(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 30-day prescription.

(2)

Operating expenses for the three and nine months ended September 30, 2013 includes a $61 million gain on a legal settlement.

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, 2012 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-over-year performance by adjusting diluted earnings per share for amortization, which primarily relates to acquisition activities.

Inmillions,exceptpershareamounts

Year Ending

December31,2013

Income before income tax provision(1)

$

7,472

$

7,530

Amortization

495

495

Adjusted income before income tax provision

7,967

8,025

Adjusted income tax provision(2)

3,090

3,115

Adjusted income from continuing operations attributable to CVS Caremark

$

4,877

$

4,910

Weighted average diluted common shares outstanding

1,226

1,225

Adjusted earnings per share from continuing operations attributable to CVS Caremark

$

3.98

$

4.01

Inmillions,exceptpershareamounts

Three Months Ending

December31,2013

Income before income tax provision

$

2,018

$

2,076

Amortization

125

125

Adjusted income before income tax provision

2,143

2,201

Adjusted income tax provision(2)

831

855

Adjusted income from continuing operations attributable to CVS Caremark

$

1,312

$

1,346

Weighted average diluted common shares outstanding

1,201

1,197

Adjusted earnings per share from continuing operations attributable to CVS Caremark

$

1.09

$

1.12

(1)

Includes a $72 million gain on a legal settlement (approximately $0.04 per diluted share) during the year ending December 31, 2013.

(2)

The adjusted income tax provision is computed using the effective income tax rate from the consolidated statement of income.

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, 2012 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-over-year cash flow performance by adjusting cash provided by operating activities, by capital expenditures and proceeds from sale-leaseback transactions.

Inmillions

Year Ending

December31,2013

Net cash provided by operating activities

$

6,350

$

6,550

Subtract: Additions to property and equipment

(2,200)

(2,050)

Add: Proceeds from sale-leaseback transactions

600

550

Free cash flow

$

4,750

$

5,050

SOURCE CVS Caremark Corporation