CVS Caremark Reports Record Second Quarter 2009 Results; Company Raises 2009 Guidance

Tuesday, August 4, 2009

Second Quarter Year-Over-Year Highlights:

WOONSOCKET, R.I.--(BUSINESS WIRE)--Aug. 4, 2009-- CVS Caremark Corporation (NYSE: CVS), today announced revenues, operating profit, and earnings for the second quarter ended June 30, 2009.

Revenues:

Net revenues for the second quarter of 2009, increased $3.7 billion to $24.9 billion, up from $21.1 billion during the second quarter of 2008.

Revenues in the pharmacy services segment increased 22.1% to $13.0 billion in the second quarter of 2009. Adjusting the growth rate for the impact of new generics, net revenues would have grown 26.2% in the pharmacy services segment. During the second quarter of 2009, the Company converted a number of RxAmerica® retail pharmacy network contracts, which resulted in those contracts being accounted for using the gross method which increased net revenues. Retail network claims processed during the second quarter of 2009 increased 8.8% to 148.3 million, compared to 136.3 million in the prior year period. This increase was primarily due to the addition of RxAmerica claims and claims that were filled at retail pharmacies under the Maintenance Choice™ program. This was offset by a reduction in claims due to the termination of two large health plan clients effective January 1, 2009. Mail service claims processed during the second quarter of 2009 increased 5.3% to 15.8 million compared to 15.0 million in the prior year period, primarily as a result of net new client starts offset by a shift of participants toward the Company’s Maintenance Choice program.

Revenues in the retail pharmacy segment increased 17.2% to $13.8 billion in the second quarter of 2009. Same store sales (sales from stores open more than one year) increased 6.1% over the prior year period. Pharmacy same store sales rose 7.5% and were negatively impacted by approximately 478 basis points due to recent generic introductions, while front store same store sales increased 3.0%. Front store revenues were positively impacted by a later Easter (April 12th this year versus March 23rd last year), which shifted more holiday sales into the second quarter of 2009. The Company estimates the Easter shift had a positive impact of approximately 135 basis points on front store same store sales for the second quarter of 2009 and approximately 45 basis points on total same store sales. Front store revenues were also positively impacted by approximately 85 basis points as a result of product cost increases in advance of the federal cigarette excise tax increase.

The generic dispensing rate in our pharmacy services segment increased 330 basis points to a best-in-class 67.8% in the second quarter. At the same time, the generic dispensing rate in our retail segment increased approximately 260 basis points to 69.6%.

Earnings from continuing operations:

Earnings from continuing operations for the second quarter ended June 30, 2009, increased 8.0% to $889.1 million, compared with earnings from continuing operations of $823.5 million during the second quarter of 2008. Adjusted earnings per share from continuing operations, which excludes $107.3 million of intangible asset amortization related to acquisition activity, for the second quarter were $0.65, compared with $0.60 in the second quarter of 2008. GAAP earnings per diluted share from continuing operations for the second quarter of 2009 were $0.60, compared with $0.56 in the second quarter of 2008. Earnings from continuing operations for the six months ended June 30, 2009, increased 3.9% to $1.63 billion, compared with earnings from continuing operations of $1.57 billion during the six months ended June 28, 2008. Adjusted earnings per share from continuing operations, which excludes $214.8 million of intangible asset amortization related to acquisition activity, for the six months ended June 30, 2009, were $1.20, compared with $1.15 in the six months ended June 28, 2008. GAAP earnings per diluted share from continuing operations for the six months ended June 30, 2009 were $1.11, compared with $1.07 in the six months ended June 28, 2008.

The Company’s reported results include the impact of the Longs business, which has a lower operating margin, as well as integration expenses incurred related to the Longs acquisition. Additionally, reported expenses include the impact of the elimination of the joint venture with Universal American, the income from which was historically recorded as an offset to expenses.

Tom Ryan, Chairman, President, and Chief Executive Officer, said “I’m very pleased with our second quarter results, which were at the high end of our expectations. We saw solid revenue growth and cost control across our businesses, which led to 8% operating profit growth after one-time costs for the Longs integration. This is shaping up to be a very good year and we expect an even better 2010.”

Dave Rickard, Executive Vice President, Chief Administrative Officer and Chief Financial Officer, said, “Given our strong performance year to date as well as our optimism for the rest of the year, we’re raising our earnings guidance and narrowing the range. We now expect to deliver Adjusted EPS from continuing operations of $2.59 - $2.64 for the year, up from our previous guidance of $2.55 - $2.63. GAAP EPS from continuing operations is projected at $2.41 - $2.46, up from our previous guidance of $2.37 - $2.45.”

Loss from discontinued operations:

In connection with certain business dispositions completed between 1991 and 1997, the Company continues to guarantee store lease obligations for a number of former subsidiaries, including Linens ‘n Things. The Company’s loss from discontinued operations for the second quarter of 2009 includes $2.6 million ($4.3 million, net of a $1.7 million income tax benefit) of lease-related costs (i.e., interest accretion and legal fees). The loss from discontinued operations for the six months ended June 30, 2009 includes $7.7 million ($12.6 million, net of a $4.9 million income tax benefit) of lease-related costs. The loss from discontinued operations for the second quarter and six months ended June 28, 2008 was $48.7 million ($78.8 million, net of a $30.1 million income tax benefit) of lease-related costs.

Real estate program:

For the quarter, CVS Caremark opened 51 new retail pharmacy stores, and closed 14 retail pharmacy stores and 2 specialty pharmacies. In addition, the Company relocated 26 retail pharmacy stores. As of June 30, 2009, the Company operated 6,949 retail pharmacy stores, 50 specialty pharmacy stores, 20 specialty mail order pharmacies and 6 mail order pharmacies in 43 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 (EDT) 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 Web site at http://investors.cvshealth.com. This webcast will be archived and available on the Web site for a one-month period following the conference call.

About the Company:

CVS Caremark is the largest provider of prescriptions in the nation. The Company fills or manages more than 1 billion prescriptions annually. Through its unmatched breadth of service offerings, CVS Caremark is transforming the delivery of health care services in the U.S. The Company is uniquely positioned to effectively manage costs and improve health care outcomes through its nearly 7,000 CVS/pharmacy and Longs Drugs stores; its Caremark Pharmacy Services division (pharmacy benefit management, mail order and specialty pharmacy); its retail-based health clinic subsidiary, MinuteClinic; and its online pharmacy, CVS.com. General information about CVS Caremark is available through the Investors section of the Company’s Web site, at cvshealth.com, as well as through the Newsroom section of the Company’s Web site, at https://cvshealth.com/newsroom.

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, 2008 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
Consolidated Condensed Statements of Operations (Unaudited)

Consolidated Condensed Statements of Operations (Unaudited)

(1) On December 23, 2008, our Board of Directors approved a change in our fiscal year end from the Saturday nearest December 31 of each year to December 31 of each year to better reflect our position in the health care, rather than the retail, industry. As you review our operating performance, please consider that the second quarter of 2009 and 2008 both include 91 days and the six months ended June 30, 2009 and June 28, 2008 include 181 days and 182 days, respectively.

(2) In connection with certain business dispositions completed between 1991 and 1997, the Company continues to guarantee store lease obligations for a number of former subsidiaries, including Linens ‘n Things. On May 2, 2008, Linens Holding Co. and certain affiliates, which operate Linens ‘n Things, filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. Pursuant to the court order entered on October 16, 2008, Linens Holding Co. is in the process of liquidating the entire Linens ‘n Things retail chain. The Company’s loss from discontinued operations for the second quarter of 2009 includes $2.6 million ($4.3 million, net of a $1.7 million income tax benefit) of lease-related costs (i.e., interest accretion and legal fees). The loss from discontinued operations for the six months ended June 30, 2009 includes $7.7 million ($12.6 million, net of a $4.9 million income tax benefit) of lease-related costs. The loss from discontinued operations for the second quarter and six months ended June 28, 2008 was $48.7 million ($78.8 million, net of a $30.1 million income tax benefit) of lease-related costs.

(3) Diluted earnings per common share is computed by dividing (i) net earnings, after accounting for the difference between the dividends on the ESOP preference stock and common stock and after making adjustments for the incentive compensation plans by (ii) Basic shares plus the additional shares that would be issued assuming that all dilutive stock awards are exercised and the ESOP preference stock is converted into common stock. The dilutive earnings adjustment related to preference dividends was $3.6 million and $7.1 million for the second quarter and six months ended June 28, 2008, respectively.

CVS CAREMARK CORPORATION
Consolidated Condensed Balance Sheets (Unaudited)

Consolidated Condensed Balance Sheets (Unaudited)

(1) On December 23, 2008, our Board of Directors approved a change in our fiscal year end from the Saturday nearest December 31 of each year to December 31 of each year to better reflect our position in the health care, rather than the retail, industry.

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

Consolidated Condensed Statements of Cash Flows (Unaudited)

(1) On December 23, 2008, our Board of Directors approved a change in our fiscal year end from the Saturday nearest December 31 of each year to December 31 of each year to better reflect our position in the health care, rather than the retail, industry. As you review our operating performance, please consider that the six months ended June 30, 2009 and June 28, 2008 include 181 days and 182 days, respectively.

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 earnings from continuing operations before income taxes plus amortization, less income tax provision and dilutive earnings adjustment, divided by the weighted average diluted common shares outstanding.

Following is a reconciliation of earnings from continuing operations before income tax provision to adjusted earnings per share:

Reconciliation of earnings from continuing operations

(1) On December 23, 2008, our Board of Directors approved a change in our fiscal year end from the Saturday nearest December 31 of each year to December 31 of each year to better reflect our position in the health care, rather than the retail, industry. As you review our operating performance, please consider that the second quarter of 2009 and 2008 both include 91 days and the six months ended June 30, 2009 and June 28, 2008 include 181 days and 182 days, respectively.

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).

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

Reconciliation of net cash provided

(1) On December 23, 2008, our Board of Directors approved a change in our fiscal year end from the Saturday nearest December 31 of each year to December 31 of each year to better reflect our position in the health care, rather than the retail, industry. As you review our operating performance, please consider that the six months ended June 30, 2009 andJune 28, 2008 include 181 days and 182 days, respectively.

Supplemental Unaudited Information

The Company evaluates segment performance based on net revenue, gross profit and operating profit before the effect of discontinued operations and certain intersegment activities and charges.

Following is a reconciliation of the Company’s business segments to the accompanying consolidated financial statements:

Reconciliation of the Company’s business segments

(1) On December 23, 2008, our Board of Directors approved a change in our fiscal year end from the Saturday nearest December 31 of each year to December 31 of each year to better reflect our position in the health care, rather than the retail, industry. As you review our operating performance, please consider that the second quarter of 2009 and 2008 both include 91 days and the six months ended June 30, 2009 and June 28, 2008 include 181 days and 182 days, respectively.

(2) Net revenues of the Pharmacy Services Segment include approximately $1.77 billion and $1.54 billion of Retail Co-payments for the second quarters ended June 30, 2009 and June 28, 2008, respectively. Net revenues of the Pharmacy Services Segment include approximately $3.44 billion and $3.20 billion of Retail Co-payments for the six months ended June 30, 2009 and June 28, 2008, respectively.

(3) Intersegment eliminations relate to intersegment revenues that occur when a Pharmacy Services Segment customer uses a Retail Pharmacy Segment store to purchase covered products. When this occurs, both segments record the revenue on a standalone basis.

Supplemental Information

Preliminary and Unaudited

Pharmacy Services Segment

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

Pharmacy Services Segment’s performance

(1) On December 23, 2008, our Board of Directors approved a change in our fiscal year end from the Saturday nearest December 31 of each year to December 31 of each year to better reflect our position in the health care, rather than the retail, industry. As you review our operating performance, please consider that the second quarter of 2009 and 2008 both include 91 days and the six months ended June 30, 2009 and June 28, 2008 include 181 days and 182 days, respectively.

(2) Excluding the impact of RxAmerica and Maintenance Choice™, the mail order penetration rate would have been 26.1% for the second quarter of 2009 and 25.5% for the six months ended June 30, 2009.

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.

Following is a reconciliation of operating profit to EBITDA:

Reconciliation of operating profit to EBITDA

(1) On December 23, 2008, our Board of Directors approved a change in our fiscal year end from the Saturday nearest December 31 of each year to December 31 of each year to better reflect our position in the health care, rather than the retail, industry. As you review our operating performance, please consider that the second quarter of 2009 and 2008 both include 91 days.

(2) Excluding the impact of RxAmerica and Maintenance Choice™, EBITDA per adjusted claim would have been $4.12for the second quarter of 2009.

(3) The EBITDA per adjusted claim number, which was reported in the Company’s second quarter 2008 earnings release, was $3.97 as a result of adding back merger and integration costs related to the Caremark merger of $5.0 million.

Supplemental Information

Preliminary and Unaudited

Retail Pharmacy Segment

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

Retail Pharmacy Segment’s performance

(1) On December 23, 2008, our Board of Directors approved a change in our fiscal year end from the Saturday nearest December 31 of each year to December 31 of each year to better reflect our position in the health care, rather than the retail, industry. As you review our operating performance, please consider that the second quarter of 2009 and 2008 both include 91 days and the six months ended June 30, 2009 and June 28, 2008 include 181 days and 182 days, respectively.

(2) Same store sales increase excludes the Longs Drug Stores, which were acquired effective October 20, 2008. These stores will be included in same store sales beginning in November 2009.

CVS Caremark Corporation

Investor Contact:

Nancy Christal, 914-722-4704
Senior Vice President
Investor Relations

or

Media Contact:

Eileen Howard Dunn, 401-770-4561
Senior Vice President
Corporate Communications &
Community Relations

Source: CVS Caremark Corporation