CVS Caremark Reports Second Quarter Financial Results

Wednesday, July 28, 2010


Company Revises 2010 Earnings Guidance Range
New 12-Year Contract with Aetna to Provide Significant Long-Term Benefits
Second Quarter Year-Over-Year Highlights:
- Adjusted EPS from continuing operations of $0.65, including $0.03 per diluted share of accruals in our Retail Pharmacy segment for anticipated legal settlements
- GAAP diluted EPS from continuing operations of $0.60, including $0.03 per diluted share of accruals in our Retail Pharmacy segment for anticipated legal settlements
- Net revenues of $24.0 billion
- Generic dispensing rate increased 320 basis points to 71.0% in the Pharmacy Services segment and 310 basis points to 72.7% in the Retail Pharmacy segment
- Mail choice penetration rate increased 190 basis points to 25.9%

WOONSOCKET, R.I., July 28, 2010 /PRNewswire via COMTEX/ --

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

 

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Revenues

Net revenues for the three months ended June 30, 2010, decreased $864 million, or 3.5% to $24.0 billion, down from $24.9 billion in the prior year period.

Revenues in the Pharmacy Services segment decreased 9.0% to $11.8 billion in the three months ended June 30, 2010 over the prior year period. Adjusting the growth rate for the impact of new generics, net revenues would have decreased 3.1% 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.

Revenues in the Retail Pharmacy segment increased 3.7% to $14.3 billion in the three months ended June 30, 2010 and total same store sales increased 2.1% over the prior year period. Pharmacy same store sales increased 2.9% and were positively impacted by approximately 290 basis points due to the continued growth of Maintenance Choice(TM). Pharmacy same store sales were negatively impacted by approximately 180 basis points due to recent generic introductions, and were negatively impacted by the comparison against last year's H1N1 outbreak. Front store same store sales increased 0.4% in the three months ended June 30, 2010, and were negatively impacted by an earlier Easter, the inclusion of stores acquired as part of the Longs acquisition, and by the comparison against last year's H1N1 outbreak.

The generic dispensing rate increased approximately 320 basis points to 71.0% in our Pharmacy Services segment and 310 basis points to 72.7% in our Retail Pharmacy segment, compared to the three months ended June 30, 2009.

Income from continuing operations attributable to CVS Caremark

Income from continuing operations attributable to CVS Caremark for the three months ended June 30, 2010 decreased $67 million, or 7.5% to $822 million, compared to $889 million in the prior year period. Adjusted earnings per share from continuing operations, which excludes $106 million of intangible asset amortization related to acquisition activity, for the three months ended June 30, 2010, were $0.65, including $0.03 per diluted share of accruals in our Retail Pharmacy segment for anticipated legal settlements, compared to $0.65 in the prior year period. GAAP earnings per diluted share from continuing operations attributable to CVS Caremark for the three months ended June 30, 2010 were $0.60, including $0.03 per diluted share of accruals in our Retail Pharmacy segment for anticipated legal settlements, compared to $0.60 in the prior year period.

Income from continuing operations attributable to CVS Caremark for the six months ended June 30, 2010 decreased $38 million, or 2.3% to $1.6 billion, compared to $1.6 billion in the prior year period. Adjusted earnings per share from continuing operations, which excludes $211 million of intangible asset amortization related to acquisition activity, for the six months ended June 30, 2010, were $1.25, compared to $1.20 in the prior year period. GAAP earnings per diluted share from continuing operations attributable to CVS Caremark for the six months ended June 30, 2010 were $1.15, compared to $1.11 in the prior year period.

Tom Ryan, Chairman and Chief Executive Officer, said, "I'm pleased with our results for the second quarter, especially given the challenging retail pharmacy environment. Despite lower-than-expected retail sales growth, we were able to exercise disciplined expense control and to deliver on the bottom line. Our PBM business produced results as expected this quarter, and has made terrific progress in the selling season for 2011 as more clients embrace our ability to provide quality pharmacy care while lowering overall health care costs and improving outcomes. I couldn't be happier with our new contract wins to date, including our long-term agreement with Aetna.We're very pleased to be partnering with Aetna, and believe our integrated approach and multi-channel platform will help Aetna deliver exceptional results for its clients and members."

Financial impact of Aetna agreement

In a separate release late yesterday, the Company also announced a new long-term strategic Pharmacy Benefit Management ("PBM") agreement with Aetna. This groundbreaking collaboration is certainly among the largest and longest-term contracts ever to have been negotiated in the PBM industry. It encompasses approximately $9.5 billion in annual drug spend relating to approximately 9.7 million lives. The Company expects significant long-term financial benefits from this strategic relationship. The agreement is expected to be $0.01 to $0.02 dilutive to adjusted earnings per share in 2010 due to implementation expenses; to be $0.01 to $0.03 accretive to adjusted earnings per share in 2011; to be in excess of $0.05 accretive in 2012; and to generate more than double that level of accretion in 2013 once the contract is fully implemented.

2010 guidance revision

David Denton, Executive Vice President and Chief Financial Officer, stated "The weak economy has had a dampening impact on prescription utilization and consumer behavior across the retail pharmacy sector, which has affected our sales performance. Having said that, we continue to outpace the industry and to gain market share at a healthy pace."

In light of these business trends, the Company is lowering its retail same store sales guidance for the year to a range of 2.0% to 3.5% from a range of 3.5% to 5.5%. The Company is also lowering its guidance for adjusted earnings per share for 2010 to a range of $2.68 to $2.73 from a range of $2.77 to $2.84. The earnings guidance revision results from the reduced retail sales guidance as well as higher-than-expected legal accruals and expenses, and from the initial dilution related to implementation costs for the Aetna contract.

Real estate program

During the three months ended June 30, 2010, the Company opened 50 new retail drugstores, and closed four retail drugstores and two specialty pharmacy stores. In addition, the Company relocated 28 retail drugstores. As of June 30, 2010, the Company operated 7,109 retail drugstores, 45 specialty pharmacy stores, 18 specialty mail order pharmacies and six 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 9:30 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 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 64,000 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            Six Months Ended
                                  June 30,                     June 30,
                                  --------                     --------
    In millions, except
     per share amounts         2010          2009        2010          2009
    -------------------        ----          ----        ----          ----

    Net revenues            $24,007       $24,871     $47,767       $48,265
    Cost of revenues         18,987        19,819      38,001        38,465
                             ------        ------      ------
    Gross profit              5,020         5,052       9,766         9,800
    Operating expenses        3,519         3,452       6,855         6,823
                              -----         -----       -----         -----
    Operating profit          1,501         1,600       2,911         2,977
    Interest expense, net       135           128         263           270
                                ---           ---         ---           ---
    Income before income
     tax provision            1,366         1,472       2,648         2,707
    Income tax provision        544           583       1,054         1,074
                                ---           ---       -----         -----
    Income from
     continuing
     operations                 822           889       1,594         1,633
    Loss from
     discontinued
     operations, net of
     tax                         (1)           (3)         (3)           (8)
                                ---           ---         ---           ---
    Net income                  821           886       1,591         1,625
    Net loss attributable
     to noncontrolling
     interest(1)                  -             -           1             -
                                ---           ---         ---           ---
    Net income
     attributable to CVS
     Caremark                  $821          $886      $1,592        $1,625
                                             ====      ======

    Income from
     continuing
     operations
     attributable to CVS
     Caremark:
     Income from
      continuing
      operations               $822          $889      $1,594        $1,633
     Net loss attributable
      to noncontrolling
      interest                    -             -           1             -
                                ---           ---         ---           ---
     Income from
      continuing
      operations
      attributable to CVS
      Caremark                 $822        $889    $1,595      $1,633
                               ====          ====      ======        ======

    Basic earnings per
     common share:
    Income from
     continuing
     operations
     attributable to CVS
     Caremark                 $0.61       $0.61     $1.16       $1.12
     Loss from
      discontinued
      operations                  -             -           -             -
                                ---           ---         ---           ---
     Net income
      attributable to CVS
      Caremark                $0.61         $0.61       $1.16         $1.12
                              =====         =====       =====         =====
     Weighted average
      basic common shares
      outstanding             1,359         1,457       1,372         1,453
                              =====         =====       =====         =====

    Diluted earnings per
     common share:
    Income from
     continuing
     operations
     attributable to CVS
     Caremark                 $0.60       $0.60     $1.15       $1.11
     Loss from
      discontinued
      operations                  -             -           -             -
                                ---           ---         ---           ---
     Net income
      attributable to CVS
      Caremark                $0.60         $0.60       $1.15         $1.11
                              =====         =====       =====         =====
     Weighted average
      diluted common
      shares outstanding      1,369         1,472       1,381         1,470
                              =====         =====       =====         =====

    Dividends declared
     per common share      $0.08750      $0.07625    $0.17500      $0.15250
                           ========      ========    ========      ========



    (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)


                                                  June 30,    December 31,
    In millions, except per share amounts         --------    ------------
    -------------------------------------               2010           2009
                                                        ----           ----
    Assets:
     Cash and cash equivalents                        $1,107         $1,086
     Short-term investments                                4              5
     Accounts receivable, net                          5,101          5,457
     Inventories                                      10,389         10,343
     Deferred income taxes                               498            506
     Other current assets                                171            140
                                                         ---            ---
       Total current assets                           17,270         17,537
     Property and equipment, net                       8,248          7,923
     Goodwill                                         25,672         25,680
     Intangible assets, net                            9,949         10,127
     Other assets                                        385            374
                                                         ---            ---
       Total assets                                  $61,524        $61,641
                                                     =======        =======

    Liabilities:
     Accounts payable                                 $3,867         $3,560
     Claims and discounts payable                      2,482          3,075
     Accrued expenses                                  2,603          3,246
     Short-term debt                                   1,852            315
     Current portion of long-term debt                   655          2,104
                                                         ---          -----
       Total current liabilities                      11,459         12,300
    Long-term debt                                     9,454          8,756
     Deferred income taxes                             3,633          3,678
     Other long-term liabilities                       1,070          1,102
     Commitments and contingencies
     Redeemable noncontrolling interest                   36             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; 1,618 shares issued                     16             16
    and 1,356 shares outstanding at June 30,
     2010 and 1,612 shares issued and
    1,391 shares outstanding at December 31,
     2009
     Treasury stock, at cost: 260 shares at June
      30, 2010 and 219 shares at                      (9,073)        (7,610)
    December 31, 2009
     Shares held in trust: 2 shares at June 30,
      2010 and December 31, 2009                         (56)           (56)
     Capital surplus                                  27,413         27,198
     Retained earnings                                17,705         16,355
     Accumulated other comprehensive loss               (133)          (135)
                                                        ----           ----
       Total shareholders' equity                     35,872         35,768
                                                      ------         ------
    Total liabilities and shareholders' equity       $61,524        $61,641
                                                     =======        =======



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


                                                    Six Months Ended
                                                        June 30,
                                                        --------
    In millions                                     2010              2009
    -----------                                     ----              ----
    Cash flows from operating activities:
      Cash receipts from revenues                $45,745           $45,497
      Cash paid for inventory and prescriptions
       dispensed by retail network pharmacies    (35,386)          (35,665)
      Cash paid to other suppliers and employees  (7,129)           (6,903)
      Interest received                                2                 3
      Interest paid                                 (284)             (284)
      Income taxes paid                           (1,236)           (1,325)
                                                  ------            ------
    Net cash provided by operating activities      1,712             1,323
                                                   -----             -----

    Cash flows from investing activities:
      Additions to property and equipment           (866)           (1,091)
      Proceeds from sale-leaseback transactions        -               503
      Proceeds from sale or disposal of assets        10                 6
      Acquisitions (net of cash acquired) and
       investments                                   (25)              (26)
      Maturity of short-term investments               1                 -
                                                     ---               ---
    Net cash used in investing activities           (880)             (608)
                                                    ----              ----

    Cash flows from financing activities:
      Increase (decrease) in short-term debt       1,537            (1,716)
      Issuance of long-term debt                     991             1,000
      Repayments of long-term debt                (1,751)               (1)
      Dividends paid                                (241)             (221)
      Derivative settlements                          (5)                -
      Proceeds from exercise of stock options        145                91
      Excess tax benefits from stock-based
       compensation                                   13                 5
      Repurchase of common stock                  (1,500)                -
                                                  ------               ---
    Net cash used in financing activities           (811)             (842)
                                                    ----              ----
    Net increase (decrease) in cash and cash
     equivalents                                      21              (127)
    Cash and cash equivalents at beginning of
     period                                        1,086             1,352
                                                   -----             -----
    Cash and cash equivalents at end of period    $1,107            $1,225
                                                  ======            ======



    Reconciliation of net income to net cash provided
     by operating activities:
      Net income                                          $1,591  $1,625
      Adjustments required to reconcile net income to net
       cash provided by operating activities:
        Depreciation and amortization                        726     736
        Stock-based compensation                              75      75
        Deferred income taxes and other non-cash items       (20)     61
      Change in operating assets and liabilities, net of
       effects of acquisitions:
        Accounts receivable, net                             356    (136)
        Inventories                                          (46)   (255)
        Other current assets                                 (31)    (31)
        Other assets                                          (4)     (3)
        Accounts payable and claims and discounts payable   (286)    (52)
        Accrued expenses                                    (617)   (744)
        Other long-term liabilities                          (32)     47
                                                             ---     ---
    Net cash provided by operating activities             $1,712  $1,323
                                                          ======  ======



     Adjusted Earnings Per Share
                  (Unaudited)

     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        Six Months Ended
                                   June 30,                 June 30,
                                   --------                 --------
    In millions, except per
     share amounts             2010            2009   2010           2009
    -----------------------    ----            ----   ----           ----

    Income before income tax
     provision               $1,366          $1,472 $2,648         $2,707
    Amortization                106             107    211            215
                                ---             ---    ---            ---
    Adjusted income before
     income tax provision     1,472           1,579  2,859          2,922
    Adjusted income tax
     provision(1)               586             625  1,138          1,160
                                ---             ---  -----          -----
    Adjusted income from
     continuing operations      886             954  1,721          1,762
    Net loss attributable to
     noncontrolling interest      -               -      1              -
                                ---             ---    ---            ---
    Adjusted income from
     continuing operations
     attributable to CVS       $886            $954 $1,722         $1,762
    Caremark                   ====            ==== ======         ======
    Weighted average diluted
     common shares
     outstanding              1,369           1,472  1,381          1,470
    Adjusted earnings per
     share from continuing
     operations               $0.65           $0.65  $1.25          $1.20
    attributable to CVS
     Caremark                 =====           =====  =====          =====



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

     Adjusted Earnings Per Share Guidance
                          (Unaudited)

     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, 2009and 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, 2010
    -------------------------------------               -----------------

    Income before income tax provision                 $5,673         $5,865
    Amortization                                          425            435
                                                          ---            ---
    Adjusted income before income tax provision         6,098          6,300
    Adjusted income tax provision                       2,421          2,539
                                                        -----          -----
    Adjusted income from continuing operations          3,677          3,761
    Net loss attributable to noncontrolling
     interest                                               4              4
                                                          ---            ---
    Adjusted income from continuing operations
     attributable to CVS Caremark                      $3,681         $3,765
                                                       ======         ======
    Weighted average diluted common shares
     outstanding                                        1,375          1,380
    Adjusted earnings per share from continuing
     operations attributable to CVS                     $2.68          $2.73
    Caremark                                            =====          =====



     Free Cash Flow
        (Unaudited)

     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:

                                                    Six Months Ended
                                                        June 30,
                                                        --------
    In millions                                     2010           2009
    -----------                                     ----           ----

    Net cash provided by operating activities     $1,712         $1,323
     Subtract:  Additions to property and
      equipment                                     (866)        (1,091)
     Add:  Proceeds from sale-leaseback
      transactions                                     -            503
                                                     ---            ---
    Free cash flow                                  $846           $735
                                                    ====           ====



     Supplemental Information
                (Unaudited)

     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:

                     Pharmacy   Retail  Corporate  Intersegment   Consolidated
    In millions      Services  Pharmacy  Segment  Eliminations(2)     Totals
    -----------     Segment(1)  Segment  -------  --------------      ------
                    ---------   -------
    Three Months
     Ended
     June 30, 2010:   $11,840   $14,311       $-         $(2,144)      $24,007
     Net revenues
      Gross profit        821     4,229        -             (30)        5,020
      Operating profit
       (loss)             591     1,096     (156)            (30)        1,501
     June 30, 2009(3):$13,008   $13,797       $-         $(1,934)      $24,871
     Net revenues
      Gross profit        931     4,131        -             (10)        5,052
      Operating profit
       (loss)             697     1,056     (143)            (10)        1,600
    Six Months Ended
     June 30, 2010:   $23,677   $28,289       $-         $(4,199)      $47,767
     Net revenues
      Gross profit      1,603     8,216        -             (53)        9,766
      Operating profit
       (loss)           1,130     2,125     (291)            (53)        2,911
     June 30, 2009(3):$24,543   $27,294       $-         $(3,572)      $48,265
     Net revenues
      Gross profit      1,729     8,087        -             (16)        9,800
      Operating profit
       (loss)           1,234     2,028     (269)            (16)        2,977


     (1) Net revenues of the Pharmacy Services segment include
     approximately $1.6 billion and $1.8 billion of retail co-payments
     for the three months ended June 30, 2010 and 2009, respectively, and
     $3.4 billion of retail co-payments for the six months ended June
     30, 2010 and 2009.
     (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 $430 million and $156 million
     for the three months ended June 30, 2010 and 2009, respectively, and
     $770 million and $254 million for the six months ended June 30, 2010
     and 2009, respectively; gross profit of $30 million and $10 million
     for the three months ended June 30, 2010 and 2009, respectively, and
     $53 million and $16 million for the six months ended June 30, 2010
     and 2009, respectively; and operating profit of $30 million and $10
     million for the three months ended June 30, 2010 and 2009,
     respectively, and $53 million and $16 million for the six months
     ended June 30, 2010 and 2009, respectively.
     (3) The results for the three and six months ended June 30, 2009 have
     been revised to conform to the 2010 presentation.


                               Supplemental Information
                                     (Unaudited)

    Pharmacy Services Segment

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

                            Three Months Ended         Six Months Ended
                                 June 30,                  June 30,
                                 --------                  --------
    In millions              2010        2009(1)     2010        2009(1)
    -----------              ----         ------     ----         ------

    Net revenues          $11,840        $13,008  $23,677        $24,543
    Gross profit              821            931    1,603          1,729
      Gross profit % of
       net revenues           6.9%           7.2%     6.8%           7.0%
    Operating expenses        230            234      473            495
      Operating expense %
       of net revenues        1.9%           1.8%     2.0%           2.0%
    Operating profit          591            697    1,130          1,234
      Operating profit %
       of net revenues        5.0%           5.4%     4.8%           5.0%

    Net revenues(2):
      Mail choice(3)       $4,111         $4,229   $8,189         $8,282
      Pharmacy network(4)   7,630          8,689   15,300         16,089
      Other                    99             90      188            172
    Pharmacy claims
     processed(2):
      Total                 144.3          164.1    291.7          327.5
      Mail choice(3)         16.0           16.6     31.5           32.9
      Pharmacy network(4)   128.3          147.5    260.2          294.6
    Generic dispensing
     rate(2):
      Total                  71.0%          67.8%    70.7%          67.7%
      Mail choice(3)         61.0%          56.3%    59.9%          55.9%
      Pharmacy network(4)    72.2%          68.9%    71.9%          68.9%
    Mail choice
     penetration rate        25.9%          24.0%    25.4%          23.8%



    (1) The results for the three and six months ended June 30, 2009 have
    been revised to conform to the 2010 presentation of the
    Pharmacy Services segment.
    (2) Pharmacy network net revenues, claims processed and generic
    dispensing rates do not include Maintenance Choice, which
    are included within the mail choice category.
    (3) 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.
    (4) Pharmacy network is defined as claims filled at retail
    pharmacies, including our retail drugstores.

     EBITDA and EBITDA per Adjusted Claim
                          (Unaudited)

     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        Six Months Ended
                                       June 30,                 June 30,
                                       --------                 --------
    In millions, except per
     adjusted claim  amounts       2010         2009(1)   2010        2009(1)
    ------------------------       ----          ------   ----         ------

    Operating profit               $591            $697 $1,130         $1,234
    Depreciation and amortization    96              94    194            186
                                    ---             ---    ---            ---
    EBITDA                          687             791  1,324          1,420
    Adjusted claims               173.2           194.1  348.7          386.8
                                  -----           -----  -----          -----
    EBITDA per adjusted claim     $3.96           $4.07  $3.79          $3.67
                                  =====           =====  =====          =====



    (1) The three and six months ended June 30, 2009 have been revised to
    conform to the 2010 presentation of the Pharmacy
    Services segment's operating profit and depreciation and amortization.

                               Supplemental Information
                                     (Unaudited)

    Retail Pharmacy Segment

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

    .                       Three Months Ended         Six Months Ended
                                 June 30,                  June 30,
                                 --------                  --------
    In millions              2010        2009(1)     2010        2009(1)
    -----------              ----         ------     ----         ------

    Net revenues          $14,311        $13,797  $28,289        $27,294
    Gross profit            4,229          4,131    8,216          8,087
      Gross profit % of
       net revenues          29.6%          29.9%    29.0%          29.6%
    Operating expenses      3,133          3,075    6,091          6,059
      Operating expense %
       of net revenues       21.9%          22.3%    21.5%          22.2%
    Operating profit        1,096          1,056    2,125          2,028
      Operating profit %
       of net revenues        7.7%           7.7%     7.5%           7.4%

    Net revenue
     increase(2):
      Total                   3.7%          17.2%     3.6%          15.6%
      Pharmacy                4.2%          16.3%     4.4%          14.7%
      Front store             2.8%          19.1%     2.0%          17.4%
    Same store sales
     increase
     (decrease)(3):
      Total                   2.1%           6.1%     2.2%           4.7%
      Pharmacy                2.9%           7.5%     3.3%           6.0%
      Front store             0.4%           3.0%   (0.2)%           1.9%
    Generic dispensing
     rate                    72.7%          69.6%    72.4%          69.4%
    Pharmacy % of total
     revenues                67.6%          67.3%    68.0%          67.5%
    Third party % of
     pharmacy revenue        97.2%          96.9%    97.2%          96.8%
    Retail
     prescriptions
     filled                 157.5          153.2    314.8          305.7



     (1) The results for the three and six months ended June 30, 2009 have
     been revised to conform to the
    2010 presentation of the Retail Pharmacy segment.
     (2) The net revenue increase for the three and six months ended June
     30, 2009 include the results
    associated with stores acquired from Longs Drug Stores Corporation in
    October 2008.
     (3) Beginning in November 2009, same store sales increase includes
     the stores acquired from Longs
    Drug Stores Corporation in October 2008.

SOURCE CVS Caremark Corporation