CVS Health Reports Strong Profit Growth For Full Year 2014; Fourth Quarter Adjusted EPS At High End Of Company's Expectations

Tuesday, February 10, 2015

WOONSOCKET, R.I., Feb.10, 2015 /PRNewswire/ -- CVS Health Corporation (NYSE: CVS) today announced operating results for the three months and year ended December31, 2014.

Fourth Quarter Year-over-year Highlights:

  • Net revenues increased 12.9% to a record $37.1 billion
  • Operating profit increased 4.7% to $2.3 billion
  • Adjusted EPS of $1.21, an increase of 8.4%; GAAP diluted EPS from continuing operations of $1.14

Full Year Highlights:

  • Net revenues increased 9.9% to a record $139.4 billion
  • Adjusted EPS of $4.22 and GAAP diluted EPS from continuing operations of $3.96, both of which include a $0.27 loss from the early extinguishment of debt
  • Adjusted EPS excluding the loss from early extinguishment of debt in 2014 and the legal settlement gain in 2013 increased 13.5% to $4.49
  • Generated free cash flow of $6.5 billion; cash flow from operations of $8.1 billion

2015 Guidance:

  • Confirmed full year Adjusted EPS of $5.05 to $5.19; GAAP diluted EPS from continuing operations of $4.77 to $4.91
  • Confirmed first quarter Adjusted EPS of $1.06 to $1.09; GAAP diluted EPS from continuing operations of $0.99 to $1.02
  • Confirmed full year free cash flow of $5.9 to $6.2 billion; confirmed cash flow from operations of $7.6 to $7.9 billion

Revenues

Net revenues for the three months ended December31, 2014, increased 12.9%, or $4.2 billion to $37.1 billion, up from $32.8 billion in the three months ended December31, 2013. For the year ended December31, 2014, total revenue increased 9.9%, or $12.6 billion to $139.4 billion, compared to $126.8 billion for the year ended December31, 2013.

Revenues in the Pharmacy Services Segment increased 21.7% to $23.9 billion in the three months ended December31, 2014. This increase was driven by growth in specialty pharmacy including the acquisition of Coram and the impact of Specialty Connect, as well as increased volume in pharmacy network claims. Pharmacy network claims processed during the three months ended December31, 2014, increased 8.2% to 221.6 million, compared to 204.9 million in the prior year period. The increase was primarily due to net new business and growth in Managed Medicaid. Mail choice claims processed during the three months ended December31, 2014, increased approximately 1.4% to 21.3 million compared to 21.0 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, partially offset by a decline in traditional mail volumes. For the year ended December31, 2014, total revenue in the Pharmacy Services Segment increased 16.1% to $88.4 billion, compared to $76.2 billion in the year ended December31, 2013.

Revenues in the Retail Pharmacy Segment increased 2.9% to $17.7 billion in the three months ended December31, 2014. Same store sales increased 1.6% over the prior year period, with pharmacy same store sales up 5.5% and front store same store sales down 7.2%. Front store same store sales would have been approximately 800 basis points higher if tobacco and the estimated associated basket sales were excluded from the three months ended December 31, 2014 and 2013. Front store same store sales were negatively impacted by softer customer traffic, partially offset by an increase in basket size. Pharmacy same store prescription volumes rose 5.3% on a 30-day equivalent basis. Pharmacy same store sales were negatively impacted by approximately 150 basis points due to recent generic introductions and by approximately 190 basis points from the implementation of Specialty Connect. Specialty Connect transitioned all specialty prescriptions to the Pharmacy Services Segment, as they are now being processed through the Company's specialty mail order pharmacies. The implementation of Specialty Connect had a greater effect on revenues than prescription volumes due to the higher dollar value of specialty products. For the year ended December31, 2014, total revenue in the Retail Pharmacy Segment increased 3.3% to $67.8 billion, compared to $65.6 billion in the year ended December31, 2013. Same store sales increased 2.1% for the year ended December31, 2014, over the prior year, with pharmacy same store sales up 4.8% and front store same store sales down 4.0%. Front store same store sales would have been approximately 350 basis points higher if tobacco and the estimated associated basket sales were excluded from the years ended December 31, 2014 and 2013.

For the three months ended December31, 2014, the generic dispensing rate increased approximately 125 basis points to 82.1% in our Pharmacy Services Segment and increased approximately 140 basis points to 82.4% in our Retail Pharmacy Segment, compared to the prior year.

Operating Profit and Net Income

Operating profit for the Pharmacy Services and Retail Pharmacy segments for the three months ended December 31, 2014 increased 0.9% and 6.5%, respectively. Both segments benefited from the impact of increased generic drugs dispensed and favorable purchasing economics, which improved operating margins. The Pharmacy Services Segment was also positively impacted by growth in specialty pharmacy, which was mostly offset by client price compression and the incremental investment in the 2015 welcome season as a result of a successful selling season. The Retail Pharmacy Segment was also positively impacted by the growth of prescription volumes combined with an improved pharmacy margin rate, partially offset by the loss of gross profit from tobacco and the associated basket, as well as incremental store operating costs associated with operating more stores. Operating profit for the Pharmacy Services and Retail Pharmacy segments for the year ended December 31, 2014 increased 13.8% and 7.9%, respectively. Both segments benefited from the impact of increased generic drugs dispensed and favorable purchasing economics. The Pharmacy Services Segment was also positively impacted by growth in specialty pharmacy. The Retail Pharmacy Segment was also positively impacted by growth of prescription volumes combined with an improved pharmacy margin rate, partially offset by the loss of sales from tobacco and the associated basket, as well as incremental store operating costs associated with operating more stores.

Net income for the three months ended December31, 2014, increased 4.5% or $57 million, to $1.3 billion, compared to the prior year. Adjusted earnings per share (Adjusted EPS) for the three months ended December31, 2014 and 2013, was $1.21 and $1.12, respectively. Adjusted EPS excludes $128 million and $124 million of intangible asset amortization related to acquisition activity in the three months ended December31, 2014 and 2013, respectively. GAAP earnings per diluted share ("GAAP EPS") for the three months ended December31, 2014 and 2013, was $1.14 and $1.05, respectively.

Net income for the year ended December31, 2014, increased 1.2% or $53 million, to $4.6 billion, compared to the prior year. Net income for the year ended December 31, 2014 includes a $521 million pre-tax loss ($0.27 per share) on early extinguishment of debt. Excluding the loss on early extinguishment of debt and a $72 million pre-tax gain ($0.04 per share) from a legal settlement in 2013, net income increased 9.0%(1). Adjusted EPS for the years ended December 31, 2014 and 2013, was $4.22 and $4.00, respectively. Excluding the 2014 loss on early extinguishment of debt and the 2013 gain from the legal settlement, Adjusted EPS increased 13.5% to $4.49. Adjusted EPS excludes $518 million and $494 million of acquisition related intangible asset amortization for the years ended December31, 2014 and 2013, respectively. GAAP EPS for the year ended December 31, 2014, was $3.96, which also includes the loss on early extinguishment of debt, compared to $3.75 in the prior year, which includes the gain from the legal settlement.

President and CEO Larry Merlo, stated, "By any measure, 2014 was a great year for our company.We delivered strong financial performance, with solid year-over-year growth in revenues, operating profit, earnings per share and cash flow.Our performance in the fourth quarter was no exception, with Adjusted EPS increasing 8.4%, coming in at the high end of our expectations.At the same time, we generated free cash flow for the full-year of $6.5 billion,exceeding our expectations."

Mr. Merlo continued, "Our results underscore the fact that we are winning in the marketplace and, as a result, driving solid and sustainable growth. I'm pleased with the very successful selling season we had for 2015, with gross client wins of $7 billion and net new client business of $3.6 billion. 2014 will be remembered as the year in which we rebranded our company as CVS Health and made the right decision to exit the tobacco category, better aligning our company with patients, payors, and providers. Only CVS Health has an integrated enterprise model bringing differentiated, channel-agnostic solutions to the marketplace."

(1)

Excluding the $72 million pre-tax ($44 million after-tax) gain on a legal settlement for the year ended December 31, 2013 and the $521 million pre-tax ($315 million after-tax) loss on early extinguishment of debt for the year ended December 31, 2014, net income increased $411 million or 9.0% from $4,548 million for the year ended December 31, 2013 to $4,959 million for the year ended December 31, 2014.

Guidance

The Company confirmed its previous guidance for the full year and first quarter of 2015. The Company currently expects to deliver Adjusted EPS of $5.05 to $5.19 and GAAP diluted earnings per share from continuing operations of $4.77 to $4.91 in 2015.These 2015 guidance estimates assume the completion of $6.0 billion in share repurchases. The Company also confirmed its first quarter Adjusted EPS guidance of $1.06 to $1.09 and GAAP diluted earnings per share from continuing operations of $0.99 to $1.02. The Company confirmed its 2015 free cash flow guidance of $5.9 to $6.2 billion, and its 2015 cash flow from operations guidance of $7.6 to $7.9 billion.

Real Estate Program

During the three months ended December31, 2014, the Company opened 50 new retail drugstores and closed seven retail drugstores. In addition, the Company relocated 30 retail drugstores. As of December31, 2014, the Company operated 7,981 locations in 47 states, the District of Columbia, Puerto Rico and Brazil. These locations included 7,822 retail drugstores, 17 onsite pharmacies, 27 retail specialty pharmacy stores, 11 specialty mail order pharmacies, four mail service dispensing pharmacies, and 86 branches and six centers of excellence for infusion and enteral services.

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 Health website at http://info.cvshealth.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 Health is a pharmacy innovation company helping people on their path to better health. Through its 7,800 retail pharmacies, more than 900 walk-in medical clinics, a leading pharmacy benefits manager with more than 65 million plan members, and expanding specialty pharmacy services, the Company enables people, businesses and communities to manage health in more affordable, effective ways. This unique integrated model increases access to quality care, delivers better health outcomes and lowers overall health care costs. Find more information about how CVS Health is shaping the future of health at www.cvshealth.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the federal securities laws. By their nature, all forward-looking statements involve risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements for a number of reasons as described in our Securities and Exchange Commission filings, including those set forth in the Risk Factors section and under the section entitled "Cautionary Statement Concerning Forward-Looking Statements" in our most recently filed Annual Report on Form10-K and Quarterly Report on Form 10-Q.

Tables Follow

CVS HEALTH CORPORATION

Condensed Consolidated Statements of Income

(Unaudited)

 
   

ThreeMonthsEnded

December31,

 

YearEnded

December31,

Inmillions,exceptpershareamounts

 

2014

   

2013

   

2014

   

2013

 

Net revenues

 

$

37,055

   

$

32,830

   

$

139,367

   

$

126,761

 

Cost of revenues

 

30,422

   

26,492

   

114,000

   

102,978

 

Gross profit

 

6,633

   

6,338

   

25,367

   

23,783

 

Operating expenses

 

4,312

   

4,121

   

16,568

   

15,746

 

Operating profit

 

2,321

   

2,217

   

8,799

   

8,037

 

Interest expense, net

 

131

   

135

   

600

   

509

 

Loss on early extinguishment of debt

 

 

   

 

   

521

   

 

 

Income before income tax provision

 

2,190

   

2,082

   

7,678

   

7,528

 

Income tax provision

 

868

   

816

   

3,033

   

2,928

 

Income from continuing operations

 

1,322

   

1,266

   

4,645

   

4,600

 

Loss from discontinued operations, net of tax

 

(1)

   

(1)

   

(1)

   

(8)

 

Net income

 

$

1,321

   

$

1,265

   

$

4,644

   

$

4,592

 

Basic earnings per share:

                       

Income from continuing operations

 

$

1.15

   

$

1.06

   

$

3.98

   

$

3.78

 

Loss from discontinued operations

 

$

 

   

$

 

   

$

 

   

$

(0.01)

 

Net income

 

$

1.15

   

$

1.06

   

$

3.98

   

$

3.77

 

Weighted average basic shares outstanding

 

1,143

   

1,192

   

1,161

   

1,217

 

Diluted earnings per share:

                       

Income from continuing operations

 

$

1.14

   

$

1.05

   

$

3.96

   

$

3.75

 

Loss from discontinued operations

 

$

 

   

$

 

   

$

 

   

$

(0.01)

 

Net income

 

$

1.14

   

$

1.05

   

$

3.96

   

$

3.74

 

Weighted average diluted shares outstanding

 

1,152

   

1,201

   

1,169

   

1,226

 

Dividends declared per share

 

$

0.275

   

$

0.225

   

$

1.10

   

$

0.90

 

CVS HEALTH CORPORATION

Condensed Consolidated Balance Sheets

(Unaudited)

 
   

December31,

Inmillions,exceptpershareamounts

 

2014

   

2013

 

Assets:

           

Cash and cash equivalents

 

$

2,481

   

$

4,089

 

Short-term investments

 

34

   

88

 

Accounts receivable, net

 

9,687

   

8,729

 

Inventories

 

11,930

   

11,045

 

Deferred income taxes

 

985

   

902

 

Other current assets

 

866

   

472

 

Total current assets

 

25,983

   

25,325

 

Property and equipment, net

 

8,843

   

8,615

 

Goodwill

 

28,142

   

26,542

 

Intangible assets, net

 

9,774

   

9,529

 

Other assets

 

1,510

   

1,515

 

Total assets

 

$

74,252

   

$

71,526

 
             

Liabilities:

           

Accounts payable

 

$

6,547

   

$

5,548

 

Claims and discounts payable

 

5,404

   

4,548

 

Accrued expenses

 

5,816

   

4,768

 

Short-term debt

 

685

   

 

 

Current portion of long-term debt

 

575

   

561

 

Total current liabilities

 

19,027

   

15,425

 

Long-term debt

 

11,695

   

12,841

 

Deferred income taxes

 

4,036

   

3,901

 

Other long-term liabilities

 

1,531

   

1,421

 

Commitments and contingencies

 

 

   

 

 
             

Shareholders' equity:

           

CVS Health 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; 1,691 shares issued and

           

1,140 shares outstanding at December31, 2014 and 1,680 shares issued and 1,180

           

shares outstanding at December31, 2013

 

17

   

17

 

Treasury stock, at cost: 550 shares at December31, 2014 and 500 shares

           

at December31, 2013

 

(24,078)

   

(20,169)

 

Shares held in trust: 1 share at December31, 2014 and 2013

 

(31)

   

(31)

 

Capital surplus

 

30,418

   

29,777

 

Retained earnings

 

31,849

   

28,493

 

Accumulated other comprehensive income (loss)

 

(217)

   

(149)

 

Total CVS Health shareholders' equity

 

37,958

   

37,938

 

Noncontrolling interest

 

5

   

 

 

Total shareholders' equity

 

37,963

   

37,938

 

Total liabilities and shareholders' equity

 

$

74,252

   

$

71,526

 

CVS HEALTH CORPORATION

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 
   

YearEnded

December31,

Inmillions

 

2014

   

2013

 

Cash flows from operating activities:

           

Cash receipts from customers

 

$

132,406

   

$

114,993

 

Cash paid for inventory and prescriptions dispensed by retail network pharmacies

 

(105,362)

   

(91,178)

 

Cash paid to other suppliers and employees

 

(15,344)

   

(14,295)

 

Interest received

 

15

   

8

 

Interest paid

 

(647)

   

(534)

 

Income taxes paid

 

(2,931)

   

(3,211)

 

Net cash provided by operating activities

 

8,137

   

5,783

 

Cash flows from investing activities:

           

Purchases of property and equipment

 

(2,136)

   

(1,984)

 

Proceeds from sale-leaseback transactions

 

515

   

600

 

Proceeds from sale of property and equipment and other assets

 

11

   

54

 

Acquisitions (net of cash acquired) and other investments

 

(2,439)

   

(415)

 

Purchase of available-for-sale investments

 

(157)

   

(226)

 

Sale or maturity of available-for-sale investments

 

161

   

136

 

Net cash used in investing activities

 

(4,045)

   

(1,835)

 

Cash flows from financing activities:

           

Increase (decrease) in short-term debt

 

685

   

(690)

 

Proceeds from issuance of long-term debt

 

1,483

   

3,964

 

Repayments of long-term debt

 

(3,100)

   

 

 

Dividends paid

 

(1,288)

   

(1,097)

 

Proceeds from exercise of stock options

 

421

   

500

 

Excess tax benefits from stock-based compensation

 

106

   

62

 

Repurchase of common stock

 

(4,001)

   

(3,976)

 

Net cash used in financing activities

 

(5,694)

   

(1,237)

 

Effect of exchange rates on cash

 

(6)

   

3

 

Net increase (decrease) in cash and cash equivalents

 

(1,608)

   

2,714

 

Cash and cash equivalents at the beginning of the year

 

4,089

   

1,375

 

Cash and cash equivalents at the end of the year

 

$

2,481

   

$

4,089

 

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

           

Net income

 

$

4,644

   

$

4,592

 

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

           

Depreciation and amortization

 

1,931

   

1,870

 

Stock-based compensation

 

165

   

141

 

Loss on early extinguishment of debt

 

521

   

 

 

Deferred income taxes and other non-cash items

 

(58)

   

(86)

 

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

           

Accounts receivable, net

 

(737)

   

(2,210)

 

Inventories

 

(770)

   

12

 

Other current assets

 

(383)

   

105

 

Other assets

 

9

   

(135)

 

Accounts payable and claims and discounts payable

 

1,742

   

1,024

 

Accrued expenses

 

1,060

   

471

 

Other long-term liabilities

 

13

   

(1)

 

Net cash provided by operating activities

 

$

8,137

   

$

5,783

 

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 and other, which is comprised of earnings allocated to participating securities, 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

December31,

 

YearEnded

December31,

Inmillions,exceptpershareamounts

 

2014

   

2013

   

2014

   

2013

 

Income before income tax provision(1)

 

$

2,190

   

$

2,082

   

$

7,678

   

$

7,528

 

Amortization

 

128

   

124

   

518

   

494

 

Adjusted income before income tax provision

 

2,318

   

2,206

   

8,196

   

8,022

 

Adjusted income tax provision and other(2)

 

925

   

865

   

3,257

   

3,120

 

Adjusted income from continuing operations

 

$

1,393

   

$

1,341

   

$

4,939

   

$

4,902

 

Weighted average diluted shares outstanding

 

1,152

   

1,201

   

1,169

   

1,226

 

Adjusted earnings per share

 

$

1.21

   

$

1.12

   

$

4.22

   

$

4.00

 

(1)

Includes a $521 million loss on early extinguishment of debt (approximately $0.27 per diluted share) during the year ended December 31, 2014 and a $72 million gain on a legal settlement (approximately $0.04 per diluted share) during the year ended December 31, 2013. Excluding these items, Adjusted EPS for the year ended December 31, 2014, was $4.49, up 13.5% from $3.96 for the year ended December 31, 2013.

(2)

The adjusted income tax provision is computed using the effective income tax rate computed from the consolidated statement of income. Other includes earnings allocated to participating securities of $6 million and $19 million for the three months and year ended December 31, 2014, 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).

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

   

YearEnded

December31,

Inmillions

 

2014

   

2013

 

Net cash provided by operating activities

 

$

8,137

   

$

5,783

 

Subtract: Additions to property and equipment

 

(2,136)

   

(1,984)

 

Add: Proceeds from sale-leaseback transactions

 

515

   

600

 

Free cash flow

 

$

6,516

   

$

4,399

 

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

                             

December31, 2014:

                             

Net revenues

 

$

23,874

   

$

17,698

   

$

 

   

$

(4,517)

   

$

37,055

 

Gross profit

 

1,238

   

5,558

   

 

   

(163)

   

6,633

 

Operating profit (loss)

 

909

   

1,780

   

(205)

   

(163)

   

2,321

 

December31, 2013:

                             

Net revenues

 

19,615

   

17,192

   

 

   

(3,977)

   

32,830

 

Gross profit

 

1,211

   

5,284

   

 

   

(157)

   

6,338

 

Operating profit (loss)

 

901

   

1,671

   

(198)

   

(157)

   

2,217

 

Year Ended

                             

December31, 2014:

                             

Net revenues

 

88,440

   

67,798

   

 

   

(16,871)

   

139,367

 

Gross profit

 

4,771

   

21,277

   

 

   

(681)

   

25,367

 

Operating profit (loss)

 

3,514

   

6,762

   

(796)

   

(681)

   

8,799

 

December31, 2013:

                             

Net revenues

 

76,208

   

65,618

   

 

   

(15,065)

   

126,761

 

Gross profit

 

4,237

   

20,112

   

 

   

(566)

   

23,783

 

Operating profit (loss)(3)

 

3,086

   

6,268

   

(751)

   

(566)

   

8,037

 
                                         

(1)

Net revenues of the Pharmacy Services Segment include approximately $1.9 billion of retail co-payments for both the three months ended December31, 2014 and 2013, respectively, as well as $8.1 billion and $7.9 billion of retail co-payments for the year ended December31, 2014 and 2013, respectively.

(2)

Intersegment eliminations relate to two types of transactions: (i)Intersegment revenues that occur when Pharmacy Services Segment clients 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 clients, 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 $1.3 billion and $1.2 billion for the three months ended December31, 2014 and 2013, respectively, and $4.9 billion and $4.3 billion for the year ended December31, 2014 and 2013, respectively; and gross profit and operating profit of $163 million and $157 million for the three months ended December31, 2014 and 2013, respectively, and $681 million and $566 million for the year ended December31, 2014 and 2013, respectively.

(3)

Consolidated operating profit for the year ended December 31, 2013 includes a $72 million gain from 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

December31,

 

YearEnded

December31,

Inmillions

 

2014

   

2013

   

2014

   

2013

 

Net revenues

 

$

23,874

   

$

19,615

   

$

88,440

   

$

76,208

 

Gross profit

 

$

1,238

   

$

1,211

   

$

4,771

   

$

4,237

 

Gross profit % of net revenues

 

5.2

%

 

6.2

%

 

5.4

%

 

5.6

%

Operating expenses(4)

 

$

329

   

$

310

   

$

1,257

   

$

1,151

 

Operating expense % of net revenues

 

1.4

%

 

1.6

%

 

1.4

%

 

1.5

%

Operating profit

 

$

909

   

$

901

   

$

3,514

   

$

3,086

 

Operating profit % of net revenues

 

3.8

%

 

4.6

%

 

4.0

%

 

4.1

%

Net revenues(1):

                       

Mail choice(2)

 

$

8,440

   

$

6,516

   

$

31,081

   

$

24,791

 

Pharmacy network(3)

 

$

15,374

   

$

13,048

   

$

57,122

   

$

51,211

 

Other

 

$

60

   

$

51

   

$

237

   

$

206

 

Pharmacy claims processed(1):

                       

Total

 

242.9

   

225.9

   

932.0

   

902.1

 

Mail choice(2)

 

21.3

   

21.0

   

82.4

   

83.3

 

Pharmacy network(3)

 

221.6

   

204.9

   

849.6

   

818.8

 

Generic dispensing rate(1):

                       

Total

 

82.1

%

 

80.8

%

 

82.2

%

 

80.5

%

Mail choice(2)

 

75.1

%

 

73.2

%

 

74.6

%

 

72.6

%

Pharmacy network(3)

 

82.7

%

 

81.6

%

 

83.0

%

 

81.3

%

Mail choice penetration rate

 

21.3

%

 

22.7

%

 

21.4

%

 

22.6

%

(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 our retail stores 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 year ended December 31, 2013 include an $11 million gain from a legal settlement.

Supplemental Information
(Unaudited)

Retail Pharmacy Segment

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

   

ThreeMonthsEnded

December31,

 

YearEnded

December31,

Inmillions

 

2014

   

2013

   

2014

   

2013

 

Net revenues

 

$

17,698

   

$

17,192

   

$

67,798

   

$

65,618

 

Gross profit

 

$

5,558

   

$

5,284

   

$

21,277

   

$

20,112

 

Gross profit % of net revenues

 

31.4

%

 

30.7

%

 

31.4

%

 

30.6

%

Operating expenses(2)

 

$

3,778

   

$

3,613

   

$

14,515

   

$

13,844

 

Operating expense % of net revenues

 

21.3

%

 

21.0

%

 

21.4

%

 

21.1

%

Operating profit

 

$

1,780

   

$

1,671

   

$

6,762

   

$

6,268

 

Operating profit % of net revenues

 

10.1

%

 

9.7

%

 

10.0

%

 

9.6

%

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

 

244.8

   

229.6

   

935.9

   

890.1

 

Net revenue increase (decrease):

                       

Total

 

2.9

%

 

5.6

%

 

3.3

%

 

3.1

%

Pharmacy

 

5.5

%

 

8.5

%

 

5.1

%

 

4.1

%

Front store

 

(4.9)

%

 

(0.5)

%

 

(2.5)

%

 

1.0

%

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

 

6.7

%

 

4.6

%

 

5.2

%

 

5.2

%

Same store increase (decrease):

                       

Total sales

 

1.6

%

 

4.0

%

 

2.1

%

 

1.7

%

Pharmacy sales

 

5.5

%

 

6.8

%

 

4.8

%

 

2.6

%

Front store sales

 

(7.2)

%

 

(1.9)

%

 

(4.0)

%

 

(0.5)

%

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

 

5.3

%

 

3.8

%

 

4.1

%

 

4.4

%

Generic dispensing rate

 

82.4

%

 

81.0

%

 

83.1

%

 

81.4

%

Pharmacy % of total revenues

 

71.2

%

 

69.5

%

 

70.7

%

 

69.5

%

Third party % of pharmacy revenue

 

98.7

%

 

98.1

%

 

98.6

%

 

97.9

%

(1)

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

(2)

Operating expenses for the year ended December 31, 2013 include a $61 million gain from 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. All forward-looking information involves risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking information for a number of reasons as described in our Securities and Exchange Commission filings, including those set forth in the Risk Factors section and under the section entitled "Cautionary Statement Concerning Forward-Looking Statements" in our most recently filed Annual Report on Form 10-K and 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.

Inmillions,exceptpershareamounts

 

Year Ending

December31,2015

Income before income tax provision

 

$

8,866

   

$

9,137

 

Amortization

 

520

   

520

 

Adjusted income before income tax provision

 

9,386

   

9,657

 

Adjusted income tax provision and other(1)

 

3,709

   

3,820

 

Adjusted income from continuing operations

 

5,677

   

5,837

 

Net income attributable to noncontrolling interest

 

(1)

   

(1)

 

Adjusted income from continuing operations attributable to CVS Health

 

$

5,676

   

$

5,836

 

Weighted average diluted common shares outstanding

 

1,125

   

1,125

 

Adjusted earnings per share from continuing operations

 

$

5.05

   

$

5.19

 
 
 

Inmillions,exceptpershareamounts

 

Three Months Ending

March31,2015

Income before income tax provision

 

$

1,864

   

$

1,920

 

Amortization

 

124

   

128

 

Adjusted income before income tax provision

 

1,988

   

2,048

 

Adjusted income tax provision and other(1)

 

788

   

810

 

Adjusted income from continuing operations attributable to CVS Health

 

$

1,200

   

$

1,238

 

Weighted average diluted common shares outstanding

 

1,137

   

1,136

 

Adjusted earnings per share from continuing operations

 

$

1.06

   

$

1.09

 

(1)

Other includes earnings allocated to participating securities.

Free Cash Flow Guidance
(Unaudited)

The following reconciliation of net cash provided by operating activities to free cash flow contains forward-looking information. All forward-looking information involves risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking information for a number of reasons as described in our Securities and Exchange Commission filings, including those set forth in the Risk Factors section and under the section entitled "Cautionary Statement Concerning Forward-Looking Statements" in our most recently filed Annual Report on Form 10-K and Quarterly Report on Form 10-Q. For internal comparisons, management finds it useful to assess year-to-year cash flow performance by adjusting cash provided by operating activities, by capital expenditures and proceeds from sale-leaseback transactions.

Inmillions

 

Year Ending

December31,2015

Net cash provided by operating activities

 

$

7,550

   

$

7,949

 

Subtract: Additions to property and equipment

 

(2,300)

   

(2,200)

 

Add: Proceeds from sale-leaseback transactions

 

600

   

500

 

Free cash flow

 

$

5,850

   

$

6,249

 

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SOURCE CVS Health Corporation