CVS Caremark Reports Record Third Quarter 2009 Results
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Third Quarter Year-Over-Year Highlights:
-- Adjusted EPS from continuing operations of $0.65 (excluding an $0.11
income tax benefit), up 8.1%
-- GAAP diluted EPS from continuing operations of $0.71 (including an $0.11
income tax benefit)
-- Net revenues of $24.6 billion, up 18.1%
-- PBM revenues increased 23.4%, with pharmacy network revenues up 28.3%
while mail choice revenues up 14.8%
-- Retail revenues increased 17.9%, with same store sales up 5.7%
WOONSOCKET, R.I.--(BUSINESS WIRE)-- CVS Caremark Corporation (NYSE: CVS) today announced record third quarter revenues, operating profit, and net income for the quarter ended September 30, 2009.
Revenues
Net revenues for the third quarter of 2009, increased $3.8 billion to $24.6 billion, up from $20.9 billion during the third quarter of 2008. Net revenues were positively impacted by one more reporting day during the third quarter of 2009 compared to the third quarter of 2008.
Revenues in the pharmacy services segment increased 23.4% to $13.0 billion in the third quarter of 2009. Adjusting the growth rate for the impact of new generics, net revenues would have grown 27.2% in the pharmacy services segment. Pharmacy network claims processed during the third quarter of 2009 increased 9.0% to 146.5 million, compared to 134.4 million in the prior year period. This increase was primarily due to the addition of RxAmerica claims and new client starts. This was offset by a reduction in claims due to the termination of two large health plan clients effective January 1, 2009. Mail choice claims processed during the third quarter of 2009 increased 11.4% to 16.4 million compared to 14.7 million in the prior year period, primarily as a result of net new client starts.
Revenues in the retail pharmacy segment increased 17.9% to $13.6 billion in the third quarter of 2009. Same store sales (sales from stores open more than one year based on a comparable 90-day reporting period) increased 5.7% over the prior year period. Pharmacy same store sales rose 8.0% and were negatively impacted by approximately 380 basis points due to recent generic introductions. Pharmacy same store sales were positively impacted by approximately 250 basis points due to Maintenance Choice(TM). Front store same store sales increased 0.8%.
The generic dispensing rate in our pharmacy services segment increased 320 basis points to a best-in-class 68.3% in the third quarter. At the same time, the generic dispensing rate in our retail segment increased approximately 210 basis points to 70.1%.
Income from Continuing Operations
Income from continuing operations for the third quarter ended September 30, 2009, increased 25.0% to $1.0 billion, compared with income from continuing operations of $818.8 million during the third quarter of 2008. During the third quarter of 2009, the Company recorded approximately $155.7 million, or $0.11 per diluted share, of previously unrecognized tax benefits. These tax benefits are related to the expiration of various statutes of limitation and settlements with tax authorities.
Adjusted earnings per share from continuing operations, which excludes $108.0 million of intangible asset amortization related to acquisition activity, for the third quarter were $0.76 (including the $0.11 per diluted share income tax benefit), compared with $0.60 in the third quarter of 2008. GAAP earnings per diluted share from continuing operations for the third quarter of 2009 were $0.71 (including the $0.11 per diluted share income tax benefit), compared with $0.56 in the third quarter of 2008.
Income from continuing operations for the nine months ended September 30, 2009, increased 11.1% to $2.7 billion, compared with income from continuing operations of $2.4 billion during the nine months ended September 27, 2008. Adjusted earnings per share from continuing operations, which excludes $322.8 million of intangible asset amortization related to acquisition activity, for the nine months ended September 30, 2009, were $1.96 (including the $0.11 per diluted share income tax benefit), compared with $1.75 in the nine months ended September 27, 2008. GAAP earnings per diluted share from continuing operations for the nine months ended September 30, 2009 were $1.82 (including the $0.11 per diluted share income tax benefit), compared with $1.63 in the nine months ended September 27, 2008.
Tom Ryan, Chairman, President, and Chief Executive Officer, said, "I'm very pleased with our performance across the enterprise this quarter. The quarter was characterized by continued industry-leading performance in our retail business, solid performance in our PBM, and record results from MinuteClinic. Our integrated pharmacy care offerings are contributing to results across the company at a growing pace. We achieved solid revenue growth, healthy earnings growth and significant free cash flow. In addition, we recently completed the Longs integration, and the early customer feedback and improvement in financial results are quite positive."
Dave Rickard, Executive Vice President, Chief Financial Officer, and Chief Administrative Officer, said, "Given our continued strong performance year to date, we are narrowing our earnings guidance range for 2009. We expect to deliver adjusted earnings per share from continuing operations, excluding the effect of the tax benefit, of $2.61 to $2.64, up from our previous guidance of $2.59 to $2.64."
Loss from Discontinued Operations
In connection with certain business dispositions completed between 1991 and 1997, the Company retained guarantees on store lease obligations for a number of former subsidiaries, including Linens 'n Things. The Company's loss from discontinued operations for the third quarter and nine months ended September 30, 2009 included $1.8 million ($2.9 million, net of a $1.1 million income tax benefit) and $9.5 million ($15.5 million, net of a $6.0 million income tax benefit) of lease-related costs, respectively. The loss from discontinued operations for the third quarter and nine months ended September 27, 2008 included $82.8 million ($134.8 million, net of a $52.0 million income tax benefit) and $131.5 million ($213.6 million, net of an $82.1 million income tax benefit) of lease-related costs, respectively.
Real Estate Program
For the quarter, CVS Caremark opened 65 new retail pharmacy stores, and closed 6 retail pharmacy stores and 1 specialty pharmacy. In addition, the Company relocated 22 retail pharmacy stores. As of September 30, 2009, the Company operated 7,008 retail pharmacy stores, 49 specialty pharmacy stores, 20 specialty mail order pharmacies and 6 mail order pharmacies in 43 states, the District of Columbia and Puerto Rico.
Segment Changes
During the third quarter of 2009, the Company made changes to its reportable segments to reflect changes that were made to the way the Company's management evaluates the performance of operations, develops strategy and allocates resources. This change involves the reclassification of certain administrative expenses previously recorded within the Pharmacy Services and Retail Pharmacy segments to a new Corporate segment. The Corporate segment consists of costs primarily associated with executive management, corporate relations, legal, compliance, human resources, corporate information technology and finance. This change had no impact on the Company's consolidated results of operations. As a result of this change, the Company's business now includes three segments: Pharmacy Services, Retail Pharmacy and Corporate. The Company's historical segment disclosures have been revised to conform to the current presentation.
During the third quarter of 2009, the Company also made a change to its Pharmacy Services segment as it relates to the Company's intersegment activities (such as the Maintenance Choice program). This change impacts the gross profit and operating profit lines within the Pharmacy Services segment. Under the Maintenance Choice program, Pharmacy Services customers can 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 will now record the revenue, gross profit and operating profit on a standalone basis and corresponding intersegment eliminations are made. This change is reflected in the segment results in the third quarter of 2009 and in the nine months ended September 30, 2009. This change had no impact on the Company's consolidated results of operations.
As result of these segment changes, the Company has provided segment disclosures under the current and historical formats for each quarter in 2008 and 2009 in the Investor Relations section of the CVS Caremark website at www.cvscaremark.com/investors.
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 conference call will be broadcast simultaneously for all interested parties through the Investor Relations section of the CVS Caremark website at cvscaremark.com/investors. 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 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 more than 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 website, at cvscaremark.com, as well as through the Newsroom section of the Company's website, at cvscaremark.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.
- Tables Follow -
CVS CAREMARK CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
Third Quarter Ended(1) Nine Months Ended(1)
In millions, except September 30, September 27, September 30, September 27,
per share amounts
2009 2008 2009 2008
Net revenues $ 24,641.9 $ 20,863.4 $ 72,906.9 $ 63,329.7
Cost of revenues 19,630.2 16,462.8 58,095.0 50,262.9
Gross profit 5,011.7 4,400.6 14,811.9 13,066.8
Operating expenses 3,445.8 2,934.4 10,269.0 8,752.4
Operating profit 1,565.9 1,466.2 4,542.9 4,314.4
Interest expense, 122.8 112.7 392.8 358.3
net
Income from
continuing 1,443.1 1,353.5 4,150.1 3,956.1
operations before
income tax provision
Income tax provision 420.0 534.7 1,494.4 1,565.3
Income from
continuing 1,023.1 818.8 2,655.7 2,390.8
operations
Loss from
discontinued (1.8 ) (82.8 ) (9.5 ) (131.5 )
operations, net of
tax benefit (2)
Net income 1,021.3 736.0 2,646.2 2,259.3
Preference
dividends, net of -- 3.5 -- 10.6
income tax benefit
(3)
Net income available
to common $ 1,021.3 $ 732.5 $ 2,646.2 $ 2,248.7
shareholders
Basic earnings per
common share:
Income from
continuing $ 0.72 $ 0.57 $ 1.84 $ 1.66
operations
Loss from
discontinued (0.01 ) (0.06 ) (0.01 ) (0.09 )
operations
Net income $ 0.71 $ 0.51 $ 1.83 $ 1.57
Weighted average
basic common shares 1,429.4 1,435.5 1,445.4 1,432.4
outstanding
Diluted earnings per
common share:
Income from
continuing $ 0.71 $ 0.56 $ 1.82 $ 1.63
operations
Loss from
discontinued -- (0.06 ) (0.01 ) (0.09 )
operations
Net income $ 0.71 $ 0.50 $ 1.81 $ 1.54
Weighted average
diluted common 1,444.9 1,469.7 1,461.6 1,469.0
shares outstanding
Dividends declared $ 0.07625 $ 0.06900 $ 0.22875 $ 0.18900
per common share
(1) On December 23, 2008, the Company's Board of Directors approved a change in
the Company's fiscal year end from the Saturday nearest December 31 of each year
to December 31 of each year to better reflect the Company's position in the
health care, rather than the retail, industry. As you review the Company's
operating performance, please consider that the third quarter of 2009 and 2008
include 92 days and 91 days, respectively, and the nine months ended September
30, 2009 and September 27, 2008 both include 273 days.
(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 third quarter and nine months ended September
30, 2009 included $1.8 million ($2.9 million, net of a $1.1 million income tax
benefit) and $9.5 million ($15.5 million, net of a $6.0 million income tax
benefit) of lease-related costs, respectively. The loss from discontinued
operations for the third quarter and nine months ended September 27, 2008
included $82.8 million ($134.8 million, net of a $52.0 million income tax
benefit) and $131.5 million ($213.6 million, net of an $82.1 million income tax
benefit) of lease-related costs, respectively.
(3) Diluted earnings per common share is computed by dividing (i) net income,
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 income adjustment
related to preference dividends was $3.5 million and $10.6 million for the third
quarter and nine months ended September 27, 2008, respectively.
CVS CAREMARK CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
September 30, December 31,
In millions, except share and per share amounts
2009 2008
Assets:
Cash and cash equivalents $ 1,130.6 $ 1,352.4
Short-term investments 4.7 --
Accounts receivable, net 5,692.9 5,384.3
Inventories 9,975.9 9,152.6
Deferred income taxes 424.3 435.2
Other current assets 169.5 201.7
Total current assets 17,397.9 16,526.2
Property and equipment, net 8,277.4 8,125.2
Goodwill 25,622.1 25,493.9
Intangible assets, net 10,204.3 10,446.2
Other assets 377.6 368.4
Total assets $ 61,879.3 $ 60,959.9
Liabilities:
Accounts payable $ 3,963.2 $ 3,800.7
Claims and discounts payable 2,907.8 2,814.2
Accrued expenses 2,625.5 3,177.6
Short-term debt 1,100.0 3,044.1
Current portion of long-term debt 2,103.9 653.3
Total current liabilities 12,700.4 13,489.9
Long-term debt 8,756.2 8,057.2
Deferred income taxes 3,595.5 3,701.7
Other long-term liabilities 1,152.3 1,136.7
Total liabilities 26,204.4 26,385.5
Commitments and contingencies
Shareholders' equity:
Preference stock, series one ESOP convertible, par
value $1.00: 50,000,000 shares authorized; no
issued and outstanding shares at September 30, 2009 -- 191.5
and 3,583,000 shares issued and outstanding at
December 31, 2008
Common stock, par value $0.01: 3,200,000,000 shares
authorized; 1,610,769,000 shares issued and
1,418,763,000 shares outstanding at September 30, 16.1 16.0
2009 and 1,603,267,000 shares issued and
1,437,065,000 shares outstanding at December 31,
2008
Treasury stock, at cost: 190,306,000 shares at
September 30, 2009 and 164,502,000 shares at (6,669.1 ) (5,812.3 )
December 31, 2008
Shares held in trust: 1,700,000 shares (55.5 ) (55.5 )
Capital surplus 27,114.4 27,279.6
Retained earnings 15,412.7 13,097.8
Accumulated other comprehensive loss (143.7 ) (142.7 )
Total shareholders' equity 35,674.9 34,574.4
Total liabilities and shareholders' equity $ 61,879.3 $ 60,959.9
CVS CAREMARK CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended(1)
September 30, September 27,
In millions
2009 2008
Cash flows from operating activities:
Cash receipts from revenues $ 52,816.6 $ 45,314.1
Cash paid for inventory (37,730.3 ) (32,724.1 )
Cash paid to other suppliers and employees (10,661.5 ) (8,784.1 )
Interest received 4.2 14.4
Interest paid (409.6 ) (383.4 )
Income taxes paid (1,788.8 ) (1,258.6 )
Net cash provided by operating activities 2,230.6 2,178.3
Cash flows from investing activities:
Additions to property and equipment (1,752.5 ) (1,483.2 )
Proceeds from sale-leaseback transactions 748.2 196.9
Proceeds from sale or disposal of assets 7.0 13.6
Acquisitions (net of cash acquired) and (43.3 ) (27.9 )
investments
Purchase of short-term investments (4.7 ) --
Sale of short-term investments -- 27.5
Net cash used in investing activities (1,045.3 ) (1,273.1 )
Cash flows from financing activities:
Net reduction in short-term debt (1,944.1 ) (1,103.0 )
Derivative settlements (3.4 ) --
Dividends paid (330.8 ) (270.5 )
Proceeds from exercise of stock options 236.5 313.7
Excess tax benefits from stock-based compensation 25.9 55.3
Issuance of long-term debt 2,800.0 350.0
Repayments of long-term debt (652.3 ) (2.0 )
Repurchase of common stock (1,538.9 ) (23.0 )
Net cash used in financing activities (1,407.1 ) (679.5 )
Net increase (decrease) in cash and cash (221.8 ) 225.7
equivalents
Cash and cash equivalents at beginning of period 1,352.4 1,056.6
Cash and cash equivalents at end of period $ 1,130.6 $ 1,282.3
Reconciliation of net income to net cash provided
by operating activities:
Net income $ 2,646.2 $ 2,259.3
Adjustments required to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,036.5 920.2
Stock-based compensation 112.6 67.7
Deferred income taxes and other non-cash items 69.9 24.1
Change in operating assets and liabilities, net of
effects of acquisitions:
Accounts receivable, net (320.8 ) (219.7 )
Inventories (832.0 ) (337.1 )
Other current assets (11.9 ) (42.9 )
Other assets (6.9 ) 5.1
Accounts payable and claims and discounts payable 240.2 (364.7 )
Accrued expenses (793.8 ) (121.5 )
Other long-term liabilities 90.6 (12.2 )
Net cash provided by operating activities $ 2,230.6 $ 2,178.3
(1) On December 23, 2008, the Company's Board of Directors approved a change in
the Company's fiscal year end from the Saturday nearest December 31 of each year
to December 31 of each year to better reflect the Company's position in the
health care, rather than the retail, industry. As you review the Company's
operating performance, please consider that the third quarter of 2009 and 2008
include 92 days and 91 days, respectively, and the nine months ended September
30, 2009 and September 27, 2008 both include 273 days.
Adjusted Earnings Per Share
Unaudited
For internal comparisons, management finds it useful to assess year-to-year
performance by adjusting diluted income per share for amortization, which
primarily relates to acquisition activities.
The Company defines adjusted earnings per share as income from continuing
operations before income taxes plus amortization, less income tax provision and
dilutive income adjustment, divided by the weighted average diluted common
shares outstanding.
Following is a reconciliation of income from continuing operations before income
tax provision to adjusted earnings per share:
(Unaudited) (Unaudited)
Third Quarter Ended(1) Nine Months Ended(1)
In millions, except September 30, September 27, September 30, September 27,
per share amounts
2009 2008 2009 2008
Income from
continuing $ 1,443.1 $ 1,353.5 $ 4,150.1 $ 3,956.1
operations before
income tax provision
Amortization 108.0 98.2 322.8 293.9
Adjusted income from
continuing 1,551.1 1,451.7 4,472.9 4,250.0
operations before
income tax provision
Income tax provision 451.4 573.4 1,610.6 1,681.7
Adjusted net income
from continuing 1,099.7 878.3 2,862.3 2,568.3
operations
Dilutive income -- (0.8 ) -- (2.7 )
adjustment
Adjusted net income
from continuing
operations available 1,099.7 877.5 2,862.3 2,565.6
to common
shareholders
Weighted average
diluted common 1,444.9 1,469.7 1,461.6 1,469.0
shares outstanding
Adjusted earnings
per share from $ 0.76 $ 0.60 $ 1.96 $ 1.75
continuing
operations(2)
(1) On December 23, 2008, the Company's Board of Directors approved a change in
the Company's fiscal year end from the Saturday nearest December 31 of each year
to December 31 of each year to better reflect the Company's position in the
health care, rather than the retail, industry. As you review the Company's
operating performance, please consider that the third quarter of 2009 and 2008
include 92 days and 91 days, respectively, and the nine months ended September
30, 2009 and September 27, 2008 both include 273 days.
(2) Excluding the impact of approximately $155.7 million of previously
unrecognized tax benefits that were recognized in the third quarter of 2009,
adjusted earnings per share from continuing operations would have been $0.65 and
$1.85 for the third quarter and nine months ended September 30, 2009,
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:
(Unaudited)
Nine Months Ended(1)
September 30, September 27,
In millions
2009 2008
Net income $ 2,646.2 $ 2,259.3
Non-cash charges (including depreciation and 1,219.0 1,012.0
amortization)
Working capital change (1,634.6 ) (1,093.0 )
Net cash provided by operating activities 2,230.6 2,178.3
Subtract: Additions to property and equipment (1,752.5 ) (1,483.2 )
Add: Proceeds from sale-leaseback transactions 748.2 196.9
Free cash flow $ 1,226.3 $ 892.0
(1) On December 23, 2008, the Company's Board of Directors approved a change
in the Company's fiscal year end from the Saturday nearest December 31 of
each year to December 31 of each year to better reflect the Company's
position in the health care, rather than the retail, industry. As you review
the Company's operating performance, please consider that the third quarter
of 2009 and 2008 include 92 days and 91 days, respectively, and the nine
months ended September 30, 2009 and September 27, 2008 both include 273
days.
Supplemental Unaudited Information
The Company evaluates its Pharmacy Services and Retail Pharmacy segment
performance based on net revenue, gross profit and operating profit before the
effect of discontinued operations and certain intersegment activities and
charges. The Company evaluates the performance of its Corporate segment based on
operating expenses 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 condensed consolidated financial
statements:
Pharmacy Retail
In Services Pharmacy Corporate Intersegment Consolidated
millions
Segment(1) Segment(3) Segment Eliminations(2) (3) Totals
(3)
Third
Quarter
Ended:
September
30, 2009:
Net $ 13,030.3 $ 13,605.4 $ -- $ (1,993.8 ) $ 24,641.9
revenues
Gross 1,031.1 3,994.3 -- (13.7 ) 5,011.7
profit
Operating
profit 799.2 909.8 (129.4 ) (13.7 ) 1,565.9
(loss)
September
27, 2008(
(4)):
Net $ 10,563.4 $ 11,542.0 $ -- $ (1,242.0 ) $ 20,863.4
revenues
Gross 892.6 3,508.1 -- (0.1 ) 4,400.6
profit
Operating
profit 705.6 865.8 (105.1 ) (0.1 ) 1,466.2
(loss)
Nine
Months
Ended:
September
30, 2009:
Net $ 37,573.0 $ 40,899.5 $ -- $ (5,565.6 ) $ 72,906.9
revenues
Gross 2,760.1 12,081.6 -- (29.8 ) 14,811.9
profit
Operating
profit 2,033.0 2,938.1 (398.4 ) (29.8 ) 4,542.9
(loss)
September
27, 2008(
(4)):
Net $ 31,984.9 $ 35,158.4 $ -- $ (3,813.6 ) $ 63,329.7
revenues
Gross 2,530.6 10,536.4 -- (0.2 ) 13,066.8
profit
Operating
profit 1,946.0 2,701.1 (332.5 ) (0.2 ) 4,314.4
(loss)
(1) Net revenues of the Pharmacy Services segment include approximately $1.7
billion and $1.5 billion of Retail co-payments for the third quarters ended
September 30, 2009 and September 27, 2008, respectively. Net revenues of the
Pharmacy Services segment include approximately $5.2 billion and $4.7 billion of
Retail co-payments for the nine months ended September 30, 2009 and September
27, 2008, respectively.
(2) Intersegment eliminations relate to two types of transactions: (i)
Intersegment revenues that occur when Pharmacy Services segment customers use
Retail Pharmacy segment stores to purchase covered products. When this occurs,
both the Pharmacy Services and Retail Pharmacy segments record the revenue on a
standalone basis and (ii) Intersegment revenues, gross profit and operating
profit that occur when Pharmacy Services segment customers, through the
Company's intersegment activities (such as the Maintenance Choice 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 will record the revenue, gross
profit and operating profit on a standalone basis.
(3) When Pharmacy Services segment customers elect to pick-up their maintenance
prescriptions at Retail Pharmacy segment stores through the Company's
intersegment activities (such as the Maintenance Choice program) instead of
receiving them through the mail, both segments record the corresponding revenue,
gross profit and operating profit in their respective segment results. As a
result, both the Pharmacy Services and the Retail Pharmacy segments include the
following results associated with this activity: net revenues of $196.1 million
and $450.0 million for the third quarter and nine months ended September 30,
2009, respectively; net revenues of $2.6 million and $3.6 million for the third
quarter and nine months ended September 27, 2008, respectively; gross profit of
$13.7 million and $29.8 million for the third quarter and nine months ended
September 30, 2009, respectively; gross profit of $0.1 million and $0.2 million
for the third quarter and nine months ended September 27, 2008, respectively;
operating profit of $13.7 million and $29.8 million for the third quarter and
nine months ended September 30, 2009, respectively; and operating profit of $0.1
million and $0.2 million for the third quarter and nine months ended September
27, 2008, respectively.
(4) The third quarter and nine months ended September 27, 2008 have been revised
to conform to the current presentation of our reportable segments.
Supplemental Information
Unaudited
Pharmacy Services Segment
The following table summarizes the Pharmacy Services segment's performance for
the respective periods:
(Unaudited) (Unaudited)
Third Quarter Ended(1) Nine Months Ended(1)
September 30, September 27, September 30, September 27,
In millions
2009 2008(2) 2009 2008(2)
As reported:
Net revenues $ 13,030.3 $ 10,563.4 $ 37,573.0 $ 31,984.9
Gross profit 1,031.1 892.6 2,760.1 2,530.6
Gross profit % of 7.9% 8.4% 7.3% 7.9%
net revenues
Operating expenses 231.9 187.0 727.1 584.6
Operating expense % 1.8% 1.8% 1.9% 1.8%
of net revenues
Operating profit 799.2 705.6 2,033.0 1,946.0
Operating profit % 6.1% 6.7% 5.4% 6.1%
of net revenues
Net revenues(3):
Mail choice(4) $ 4,156.5 $ 3,619.9 $ 12,438.1 $ 10,888.7
Pharmacy network(5) 8,782.2 6,846.2 24,871.4 20,812.0
Other 91.6 97.3 263.5 284.2
Pharmacy claims
processed(3):
Total 162.9 149.1 490.4 457.1
Mail choice(4) 16.4 14.7 49.3 44.9
Pharmacy network(5) 146.5 134.4 441.1 412.2
Generic dispensing
rate(3):
Total 68.3% 65.1% 67.9% 64.6%
Mail choice(4) 56.6% 55.2% 56.1% 54.1%
Pharmacy network(5) 69.5% 66.1% 69.1% 65.6%
Mail choice 23.8% 23.3% 23.8% 23.3%
penetration rate(6)
(1) On December 23, 2008, the Company's Board of Directors approved a change in
the Company's fiscal year end from the Saturday nearest December 31 of each
year to December 31 of each year to better reflect the Company's position in
the health care, rather than the retail, industry. As you review the Company's
operating performance, please consider that the third quarter of 2009 and 2008
include 92 days and 91 days, respectively, and the nine months ended September
30, 2009 and September 27, 2008 both include 273 days.
(2) The third quarter and nine months ended September 27, 2008 have been
revised to conform to the current presentation of the Pharmacy Services
segment.
(3) Pharmacy network net revenues, claims processed and generic dispensing
rates do not include Maintenance Choice, which are included within the mail
choice category.
(4) 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(TM) program.
(5) Pharmacy network is defined as claims filled at retail pharmacies,
including CVS/pharmacy stores.
(6) Excluding the impact of RxAmerica, the mail choice penetration rate would
have been 26.2% for the third quarter of 2009 and for the nine months ended
September 30, 2009.
EBITDA and EBITDA per Adjusted Claim
Unaudited
The Company defines EBITDA as income 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:
Pharmacy Services (Unaudited) (Unaudited)
Segment
Third Quarter Ended(1) Nine Months Ended(1)
In millions, except September 30, September 27, September 30, September 27,
per adjusted claim
amounts 2009 2008(4) 2009 2008(4)
Operating profit $ 799.2 $ 705.6 $ 2,033.0 $ 1,946.0
Depreciation and 91.2 88.6 276.9 265.5
amortization
EBITDA $ 890.4 $ 794.2 $ 2,309.9 $ 2,211.5
Adjusted claims 192.4 175.3 579.3 537.5
EBITDA per adjusted $ 4.63(2) $ 4.53(3) $ 3.99(2) $ 4.11
claim
(1) On December 23, 2008, the Company's Board of Directors approved a change in
the Company's fiscal year end from the Saturday nearest December 31 of each
year to December 31 of each year to better reflect the Company's position in
the health care, rather than the retail, industry. As you review the Company's
operating performance, please consider that the third quarter of 2009 and 2008
include 92 days and 91 days, respectively.
(2) Excluding the impact of RxAmerica, EBITDA per adjusted claim would have
been $4.89 for the third quarter of 2009 and $4.28 for the nine months ended
September 30, 2009.
(3) The EBITDA per adjusted claim number, which was reported in the Company's
third quarter 2008 earnings release, was $4.27 as a result of adding back
merger and integration costs related to the Caremark merger of $2.7 million.
(4) The third quarter ended and nine months ended September 27, 2008 have been
revised to conform to the current 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:
(Unaudited) (Unaudited)
Third Quarter Ended(1) Nine Months Ended(1)
September 30, September 27, September 30, September 27,
In millions
2009 2008(2) 2009 2008(2)
Net revenues $ 13,605.4 $ 11,542.0 $ 40,899.5 $ 35,158.4
Gross profit 3,994.3 3,508.1 12,081.6 10,536.4
Gross profit % of 29.4% 30.4% 29.5% 30.0%
net revenues
Operating expenses 3,084.5 2,642.3 9,143.5 7,835.3
Operating expense % 22.7% 22.9% 22.4% 22.3%
of net revenues
Operating profit 909.8 865.8 2,938.1 2,701.1
Operating profit % 6.7% 7.5% 7.2% 7.7%
of net revenues
Net revenue
increase:
Total 17.9% 5.3% 16.3% 5.1%
Pharmacy 18.0% 5.1% 15.8% 5.0%
Front store 17.6% 5.7% 17.4% 5.5%
Same store sales
increase(3):
Total 5.7% 3.7% 5.0% 3.6%
Pharmacy 8.0% 3.8% 6.7% 3.8%
Front store 0.8% 3.3% 1.5% 3.1%
Generic dispensing 70.1% 68.0% 69.6% 67.2%
rates
Pharmacy % of total 68.4% 68.3% 67.8% 68.1%
revenues
Third party % of 96.7% 95.9% 96.8% 95.9%
pharmacy revenue
Retail prescriptions 151.8 132.3 457.5 406.4
filled
(1) On December 23, 2008, the Company's Board of Directors approved a change in
the Company's fiscal year end from the Saturday nearest December 31 of each year
to December 31 of each year to better reflect the Company's position in the
health care, rather than the retail, industry. As you review the Company's
operating performance, please consider that the third quarter of 2009 and 2008
include 92 days and 91 days, respectively, and the nine months ended September
30, 2009 and September 27, 2008 both include 273 days.
(2) The third quarter and nine months ended September 27, 2008 have been revised
to conform to the current presentation of the Retail Pharmacy segment.
(3) 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.
Supplemental Information
Unaudited
Corporate Segment
The following table summarizes our Corporate segment's performance for the
respective periods:
(Unaudited) (Unaudited)
Third Quarter Ended(1) Nine Months Ended(1)
September 30, September 27, September 30, September 27,
In millions
2009 2008 2009 2008
Operating expenses $129.4 $105.1 $398.4 $332.5
(1) On December 23, 2008, the Company's Board of Directors approved a change
in the Company's fiscal year end from the Saturday nearest December 31 of each
year to December 31 of each year to better reflect the Company's position in
the health care, rather than the retail, industry. As you review the Company's
operating performance, please consider that the third quarter of 2009 and 2008
include 92 days and 91 days, respectively, and the nine months ended September
30, 2009 and September 27, 2008 both include 273 days.
Source: CVS Caremark Corporation
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