Attached files
| file | filename |
|---|---|
| 8-K - 8-K - CVS HEALTH Corp | form8-kq42013.htm |
Exhibit 99.1
Investor Contact: | Nancy Christal | Media Contact: | Carolyn Castel | |||
Senior Vice President | Vice President | |||||
Investor Relations | Corporate Communications | |||||
(914) 722-4704 | (401) 770-5717 | |||||
FOR IMMEDIATE RELEASE
CVS CAREMARK REPORTS STRONG PROFIT GROWTH FOR FULL YEAR 2013;
FOURTH QUARTER ADJUSTED EPS AT HIGH END OF ITS EXPECTATIONS
Fourth Quarter Year-over-year Highlights:
• | Net revenues increased 4.6% to a record $32.8 billion, with Pharmacy Services up 5.2% and Retail Pharmacy up 5.6% |
• | Retail Pharmacy Segment same store sales increased 4.0% |
• | Adjusted EPS increased 15.8% to $1.12, while GAAP diluted EPS from continuing operations increased 16.9% to $1.05 |
• | Excluding a $0.17 per share loss on early extinguishment of debt in the fourth quarter of 2012, Adjusted EPS decreased 1.9% |
Full Year Highlights:
• | Net revenues increased 3.0% to a record $126.8 billion, with Pharmacy Services up 3.8% and Retail Pharmacy up 3.1% |
• | Retail Pharmacy Segment same store sales increased 1.7% |
• | Adjusted EPS of $4.00 and GAAP diluted EPS from continuing operations of $3.75, both of which include a $0.04 gain from a legal settlement in the third quarter |
• | Adjusted EPS increased 15.7% to $3.96, excluding the legal settlement gain in 2013 and the loss from early extinguishment of debt in 2012 |
• | Generated free cash flow of $4.4 billion; cash flow from operations of $5.8 billion |
2014 Guidance:
• | Confirmed full year Adjusted EPS to $4.36 to $4.50; GAAP diluted EPS from continuing operations of $4.09 to $4.23 |
• | Raised first quarter Adjusted EPS to $1.03 to $1.06; GAAP diluted EPS from continuing operations to $0.97 to $1.00 |
• | Raised full year free cash flow to a range of $5.5 to $5.8 billion from $5.1 to $5.4 billion; raised cash flow from operations to $7.0 to $7.3 billion from $6.6 to $6.9 billion |
WOONSOCKET, RHODE ISLAND, February 11, 2014 - CVS Caremark Corporation (NYSE: CVS) today announced operating results for the three months and year ended December 31, 2013.
President and Chief Executive Officer Larry Merlo said, "I am very pleased with our fourth quarter results, which came in at the high end of our expectations and helped produce a record year. As expected, the quarter was somewhat atypical, largely due to the timing of Medicare Part D profits within the PBM and the timing of break-open generics across the enterprise. Overall, the year 2013 produced strong growth in revenues, gross margin, operating margin and earnings across the enterprise."
Revenues
Net revenues for the three months ended December 31, 2013, increased 4.6%, or $1.4 billion to $32.8 billion, up from $31.4 billion in the three months ended December 31, 2012. For the year ended December 31, 2013, total revenue increased 3.0%, or $3.6 billion to $126.8 billion, compared to $123.1 billion for the year ended December 31, 2012.
Revenues in the Pharmacy Services Segment increased 5.2% to $19.6 billion in the three months ended December 31, 2013. This increase was primarily associated with drug cost inflation, new products and new clients in the specialty pharmacy business. Pharmacy network claims processed during the three months ended December 31, 2013, decreased 0.3% to 204.9 million, compared to 205.5 million in the prior year period. The decrease was primarily due to fewer Medicare Part D claims
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resulting from lower membership due to the sanctions placed on the Company in 2013 by the Centers for Medicare and Medicaid Services. Mail choice claims processed during the three months ended December 31, 2013, increased approximately 3.1% to 21.0 million compared to 20.4 million in the prior year period. The increase in the mail choice claim volume was primarily due to increased claims associated with the continuing adoption of our Maintenance Choice offerings. For the year ended December 31, 2013, total revenue in the Pharmacy Services Segment increased 3.8% to $76.2 billion, compared to $73.4 billion in the year ended December 31, 2012.
Revenues in the Retail Pharmacy Segment increased 5.6% to $17.2 billion in the three months ended December 31, 2013. Same store sales increased 4.0% over the prior year period, with pharmacy same store sales up 6.8% and front store same store sales down 1.9%. The decline in front store same store sales was driven by softer traffic, which was partially offset by an increase in basket size. Additionally, pharmacy same store prescription volumes rose 3.8% when each 90-day prescription is converted into three prescriptions. When counting each 90-day prescription as one prescription, same store prescription volumes increased 0.8% in the quarter. Pharmacy same store sales were negatively impacted by approximately 230 basis points due to recent generic introductions. For the year ended December 31, 2013, total revenue in the Retail Pharmacy Segment increased 3.1% to $65.6 billion, compared to $63.6 billion in the year ended December 31, 2012. Same store sales increased 1.7% for the year ended December 31, 2013, over the prior year, with pharmacy same store sales up 2.6% and front store same store sales down 0.5%.
For the three months ended December 31, 2013, the generic dispensing rate increased approximately 110 basis points in both segments to 81.1% in our Pharmacy Services Segment and 81.0% in our Retail Pharmacy Segment, compared to the prior year period.
Income from Continuing Operations Attributable to CVS Caremark
Income from continuing operations attributable to CVS Caremark for the three months ended December 31, 2013, increased 12.4% or $141 million, to $1.3 billion, compared with $1.1 billion for the three months ended December 31, 2012. Adjusted earnings per share from continuing operations attributable to CVS Caremark (Adjusted EPS) for the three months ended December 31, 2013 and 2012, was $1.12 and $0.96, respectively, at the high end of guidance. Adjusted EPS excludes $124 million of intangible asset amortization related to acquisition activity in both the three months ended December 31, 2013 and 2012. GAAP earnings per diluted share from continuing operations attributable to CVS Caremark ("GAAP EPS") for the three months ended December 31, 2013 and 2012, was $1.05 and $0.90, respectively. Both Adjusted and GAAP EPS for the fourth quarter 2012 included a $348 million, or an approximate $0.17 per share, loss on early extinguishment of debt.
Income from continuing operations attributable to CVS Caremark for the year ended December 31, 2013, increased 18.8% or $729 million, to $4.6 billion, compared to $3.9 billion in the prior year. Adjusted EPS, which excludes $494 million and $486 million of intangible asset amortization related to acquisition activity for the years ended December 31, 2013 and 2012, was $4.00 and $3.26, respectively. These results include: a $72 million, or an approximate $0.04 per share, gain from a legal settlement recognized in the third quarter of 2013; and the $348 million, or the approximate $0.17 per share, loss on early extinguishment of debt recognized in the fourth quarter of 2012. Excluding the gain from the legal settlement and the loss on early extinguishment of debt, Adjusted EPS increased 15.7% in 2013 to $3.96, at the high end of guidance. GAAP EPS for the year ended December 31, 2013, was $3.75, which also includes the impact of the gain from the legal settlement, compared to $3.02 in the prior year, which includes the loss on early extinguishment of debt.
With respect to the Company's future prospects, Mr. Merlo stated, "The U.S. health care landscape is undergoing its most transformative change in decades. Health care consumers are taking on greater responsibility for choosing their own plans and controlling costs - what we're calling the 'retailization' of health care - while payors and providers are increasingly looking for new ways to improve the health care value equation. With our unique pharmacy health care model, we have the ability and agility to offer innovative solutions and capitalize on these changing market dynamics. As a result, we look forward to continued strong growth in 2014 and beyond."
Guidance
The Company confirmed its earnings guidance for the full year 2014. The Company currently expects to deliver Adjusted EPS of $4.36 to $4.50 and GAAP diluted earnings per share from continuing operations of $4.09 to $4.23 in 2014. These 2014 guidance estimates assume the completion of $4.0 billion in share repurchases. The Company raised its first quarter Adjusted EPS guidance to $1.03 to $1.06 and GAAP diluted earnings per share from continuing operations to $0.97 to $1.00. The Company raised its 2014 free cash flow guidance to a range of $5.5 to $5.8 billion from $5.1 to $5.4 billion, and its 2014 cash flow from operations guidance to a range of $7.0 to $7.3 billion from $6.6 to $6.9 billion, reflecting the shift in timing of certain cash receipts to early 2014 from late 2013.
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Real Estate Program
During the three months ended December 31, 2013, the Company opened 60 new retail drugstores and closed one retail drugstore, one onsite pharmacy, five specialty retail pharmacies and one specialty mail order pharmacy. In addition, the Company relocated 17 retail drugstores. As of December 31, 2013, the Company operated 7,717 locations in 46 states, the District of Columbia, Puerto Rico and Brazil. These locations included 7,660 retail drugstores, 17 onsite pharmacies, 25 retail specialty pharmacy stores, 11 specialty mail order pharmacies and four mail service dispensing pharmacies.
Teleconference and Webcast
The Company will be holding a conference call today for the investment community at 8:30 am (EST) to discuss its quarterly results. An audio webcast of the call will be broadcast simultaneously for all interested parties through the Investor Relations section of the CVS Caremark website at http://info.cvscaremark.com/investors. This webcast will be archived and available on the website for a one-year period following the conference call.
About the Company
CVS Caremark is dedicated to helping people on their path to better health as the largest integrated pharmacy company in the United States. Through the Company's more than 7,600 retail pharmacy stores; its leading pharmacy benefit manager serving more than 60 million plan members; and its retail health clinic system, the largest in the nation with approximately 800 MinuteClinic® locations, it is a market leader in mail order, retail and specialty pharmacy, retail clinics, and Medicare Part D Prescription Drug Plans. As a pharmacy innovation company, CVS Caremark continually strives to improve health and lower costs by developing new approaches such as its unique Pharmacy Advisor® program that helps people with chronic diseases such as diabetes obtain and stay on their medications. Find more information about CVS Caremark at
http://info.cvscaremark.com/.
Forward-Looking Statements
This press release contains certain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially. For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The Company strongly recommends that you become familiar with the specific risks and uncertainties outlined in our Securities and Exchange Commission filings, including those in the Risk Factors section in our Annual Report on Form 10-K for the year ended December 31, 2013.
— Tables Follow —
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CVS CAREMARK CORPORATION
Condensed Consolidated Statements of Income
(Unaudited)
Three Months Ended December 31, | Year Ended December 31, | |||||||||||||||
In millions, except per share amounts | 2013 | 2012 | 2013 | 2012 | ||||||||||||
Net revenues | $ | 32,830 | $ | 31,397 | $ | 126,761 | $ | 123,120 | ||||||||
Cost of revenues | 26,492 | 25,103 | 102,978 | 100,632 | ||||||||||||
Gross profit | 6,338 | 6,294 | 23,783 | 22,488 | ||||||||||||
Operating expenses | 4,121 | 3,995 | 15,746 | 15,278 | ||||||||||||
Operating profit | 2,217 | 2,299 | 8,037 | 7,210 | ||||||||||||
Interest expense, net | 135 | 159 | 509 | 557 | ||||||||||||
Loss on early extinguishment of debt | — | 348 | — | 348 | ||||||||||||
Income before income tax provision | 2,082 | 1,792 | 7,528 | 6,305 | ||||||||||||
Income tax provision | 816 | 667 | 2,928 | 2,436 | ||||||||||||
Income from continuing operations | 1,266 | 1,125 | 4,600 | 3,869 | ||||||||||||
Loss from discontinued operations, net of tax | (1 | ) | — | (8 | ) | (7 | ) | |||||||||
Net income | 1,265 | 1,125 | 4,592 | 3,862 | ||||||||||||
Net loss attributable to noncontrolling interest | — | — | — | 2 | ||||||||||||
Net income attributable to CVS Caremark | $ | 1,265 | $ | 1,125 | $ | 4,592 | $ | 3,864 | ||||||||
Income from continuing operations attributable to CVS Caremark: | ||||||||||||||||
Income from continuing operations | $ | 1,266 | $ | 1,125 | $ | 4,600 | $ | 3,869 | ||||||||
Net loss attributable to noncontrolling interest | — | — | — | 2 | ||||||||||||
Income from continuing operations attributable to CVS Caremark | $ | 1,266 | $ | 1,125 | $ | 4,600 | $ | 3,871 | ||||||||
Basic earnings per common share: | ||||||||||||||||
Income from continuing operations attributable to CVS Caremark | $ | 1.06 | $ | 0.91 | $ | 3.78 | $ | 3.05 | ||||||||
Loss from discontinued operations attributable to CVS Caremark | $ | — | $ | — | $ | (0.01 | ) | $ | (0.01 | ) | ||||||
Net income attributable to CVS Caremark | $ | 1.06 | $ | 0.91 | $ | 3.77 | $ | 3.04 | ||||||||
Weighted average basic common shares outstanding | 1,192 | 1,241 | 1,217 | 1,271 | ||||||||||||
Diluted earnings per common share: | ||||||||||||||||
Income from continuing operations attributable to CVS Caremark | $ | 1.05 | $ | 0.90 | $ | 3.75 | $ | 3.02 | ||||||||
Loss from discontinued operations attributable to CVS Caremark | $ | — | $ | — | $ | (0.01 | ) | $ | (0.01 | ) | ||||||
Net income attributable to CVS Caremark | $ | 1.05 | $ | 0.90 | $ | 3.74 | $ | 3.02 | ||||||||
Weighted average diluted common shares outstanding | 1,201 | 1,249 | 1,226 | 1,280 | ||||||||||||
Dividends declared per common share | $ | 0.2250 | $ | 0.1625 | $ | 0.90 | $ | 0.65 | ||||||||
During the fourth quarter of 2013, the Company began recognizing revenue from the sale of prescription drugs within the Retail Pharmacy Segment when the prescription is picked up by the customer. Prior to this, revenue from the sale of prescription drugs was recognized at the time the prescription was filled. This immaterial error correction is reflected in all periods presented. See Note 1 “Significant Accounting Policies” (Revenue Recognition - Retail Pharmacy Segment) to the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2013.
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CVS CAREMARK CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
December 31, | ||||||||
In millions, except per share amounts | 2013 | 2012 | ||||||
Assets: | ||||||||
Cash and cash equivalents | $ | 4,089 | $ | 1,375 | ||||
Short-term investments | 88 | 5 | ||||||
Accounts receivable, net | 8,729 | 6,479 | ||||||
Inventories | 11,045 | 11,032 | ||||||
Deferred income taxes | 902 | 693 | ||||||
Other current assets | 472 | 577 | ||||||
Total current assets | 25,325 | 20,161 | ||||||
Property and equipment, net | 8,615 | 8,632 | ||||||
Goodwill | 26,542 | 26,395 | ||||||
Intangible assets, net | 9,529 | 9,753 | ||||||
Other assets | 1,515 | 1,280 | ||||||
Total assets | $ | 71,526 | $ | 66,221 | ||||
Liabilities: | ||||||||
Accounts payable | $ | 5,548 | $ | 5,070 | ||||
Claims and discounts payable | 4,548 | 3,974 | ||||||
Accrued expenses | 4,768 | 4,411 | ||||||
Short-term debt | — | 690 | ||||||
Current portion of long-term debt | 561 | 5 | ||||||
Total current liabilities | 15,425 | 14,150 | ||||||
Long-term debt | 12,841 | 9,133 | ||||||
Deferred income taxes | 3,901 | 3,784 | ||||||
Other long-term liabilities | 1,421 | 1,501 | ||||||
Commitments and contingencies | — | — | ||||||
Shareholders' equity: | ||||||||
Preferred stock, par value $0.01: 0.1 shares authorized; none issued or outstanding | — | — | ||||||
Common stock, par value $0.01: 3,200 shares authorized; 1,680 shares issued and 1,180 | ||||||||
shares outstanding at December 31, 2013 and 1,667 shares issued and 1,231 shares | ||||||||
outstanding at December 31, 2012 | 17 | 17 | ||||||
Treasury stock, at cost: 500 shares at December 31, 2013 and 435 shares | ||||||||
at December 31, 2012 | (20,169 | ) | (16,270 | ) | ||||
Shares held in trust: 1 share at December 31, 2013 and 2012 | (31 | ) | (31 | ) | ||||
Capital surplus | 29,777 | 29,120 | ||||||
Retained earnings | 28,493 | 24,998 | ||||||
Accumulated other comprehensive loss | (149 | ) | (181 | ) | ||||
Total shareholders' equity | 37,938 | 37,653 | ||||||
Total liabilities and shareholders' equity | $ | 71,526 | $ | 66,221 | ||||
See Note 1 “Significant Accounting Policies” (Revenue Recognition - Retail Pharmacy Segment) to the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2013.
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CVS CAREMARK CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Year Ended December 31, | ||||||||
In millions | 2013 | 2012 | ||||||
Cash flows from operating activities: | ||||||||
Cash receipts from customers | $ | 114,993 | $ | 113,205 | ||||
Cash paid for inventory and prescriptions dispensed by retail network pharmacies | (91,178 | ) | (90,032 | ) | ||||
Cash paid to other suppliers and employees | (14,295 | ) | (13,643 | ) | ||||
Interest received | 8 | 4 | ||||||
Interest paid | (534 | ) | (581 | ) | ||||
Income taxes paid | (3,211 | ) | (2,282 | ) | ||||
Net cash provided by operating activities | 5,783 | 6,671 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (1,984 | ) | (2,030 | ) | ||||
Proceeds from sale-leaseback transactions | 600 | 529 | ||||||
Proceeds from sale of property and equipment and other assets | 54 | 23 | ||||||
Acquisitions (net of cash acquired) and other investments | (415 | ) | (378 | ) | ||||
Purchase of available-for-sale investments | (226 | ) | — | |||||
Sale or maturity of available-for-sale investments | 136 | — | ||||||
Proceeds from sale of subsidiary | — | 7 | ||||||
Net cash used in investing activities | (1,835 | ) | (1,849 | ) | ||||
Cash flows from financing activities: | ||||||||
Decrease in short-term debt | (690 | ) | (60 | ) | ||||
Proceeds from issuance of long-term debt | 3,964 | 1,239 | ||||||
Repayments of long-term debt | — | (1,718 | ) | |||||
Purchase of noncontrolling interest in subsidiary | — | (26 | ) | |||||
Dividends paid | (1,097 | ) | (829 | ) | ||||
Proceeds from exercise of stock options | 500 | 836 | ||||||
Excess tax benefits from stock-based compensation | 62 | 28 | ||||||
Repurchase of common stock | (3,976 | ) | (4,330 | ) | ||||
Net cash used in financing activities | (1,237 | ) | (4,860 | ) | ||||
Effect of exchange rates on cash | 3 | — | ||||||
Net increase (decrease) in cash and cash equivalents | 2,714 | (38 | ) | |||||
Cash and cash equivalents at the beginning of the year | 1,375 | 1,413 | ||||||
Cash and cash equivalents at the end of the year | $ | 4,089 | $ | 1,375 | ||||
Reconciliation of net income to net cash provided by operating activities: | ||||||||
Net income | $ | 4,592 | $ | 3,862 | ||||
Adjustments required to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 1,870 | 1,753 | ||||||
Stock-based compensation | 141 | 132 | ||||||
Loss on early extinguishment of debt | — | 348 | ||||||
Deferred income taxes and other non-cash items | (86 | ) | (111 | ) | ||||
Change in operating assets and liabilities, net of effects of acquisitions: | ||||||||
Accounts receivable, net | (2,210 | ) | (387 | ) | ||||
Inventories | 12 | (853 | ) | |||||
Other current assets | 105 | 3 | ||||||
Other assets | (135 | ) | (99 | ) | ||||
Accounts payable and claims and discounts payable | 1,024 | 1,147 | ||||||
Accrued expenses | 471 | 766 | ||||||
Other long-term liabilities | (1 | ) | 110 | |||||
Net cash provided by operating activities | $ | 5,783 | $ | 6,671 | ||||
See Note 1 “Significant Accounting Policies” (Revenue Recognition - Retail Pharmacy Segment) to the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2013.
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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 December 31, | Year Ended December 31, | |||||||||||||||
In millions, except per share amounts | 2013 | 2012 | 2013 | 2012 | ||||||||||||
Income before income tax provision(1) | $ | 2,082 | $ | 1,792 | $ | 7,528 | $ | 6,305 | ||||||||
Amortization | 124 | 124 | 494 | 486 | ||||||||||||
Adjusted income before income tax provision | 2,206 | 1,916 | 8,022 | 6,791 | ||||||||||||
Adjusted income tax provision(2) | 865 | 713 | 3,120 | 2,624 | ||||||||||||
Adjusted income from continuing operations | 1,341 | 1,203 | 4,902 | 4,167 | ||||||||||||
Net loss attributable to noncontrolling interest | — | — | — | 2 | ||||||||||||
Adjusted income from continuing operations attributable to CVS Caremark | $ | 1,341 | $ | 1,203 | $ | 4,902 | $ | 4,169 | ||||||||
Weighted average diluted common shares outstanding | 1,201 | 1,249 | 1,226 | 1,280 | ||||||||||||
Adjusted earnings per share from continuing operations attributable to CVS Caremark | $ | 1.12 | $ | 0.96 | $ | 4.00 | $ | 3.26 | ||||||||
(1) | Includes a $72 million gain from a legal settlement (approximately $0.04 per diluted share) recognized in the third quarter of 2013 and a $348 million loss on early extinguishment of debt (approximately $0.17 per diluted share) in the fourth quarter of 2012. |
(2) | The adjusted income tax provision is computed using the effective income tax rates from the consolidated statements of income. |
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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:
Year Ended December 31, | ||||||||
In millions | 2013 | 2012 | ||||||
Net cash provided by operating activities | $ | 5,783 | $ | 6,671 | ||||
Subtract: Additions to property and equipment | (1,984 | ) | (2,030 | ) | ||||
Add: Proceeds from sale-leaseback transactions | 600 | 529 | ||||||
Free cash flow | $ | 4,399 | $ | 5,170 | ||||
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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:
In millions | Pharmacy Services Segment(1) | Retail Pharmacy Segment | Corporate Segment | Intersegment Eliminations(2) | Consolidated Totals | |||||||||||||||
Three Months Ended | ||||||||||||||||||||
December 31, 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 | |||||||||||||
December 31, 2012: | ||||||||||||||||||||
Net revenues | 18,642 | 16,283 | — | (3,528 | ) | 31,397 | ||||||||||||||
Gross profit | 1,334 | 5,092 | — | (132 | ) | 6,294 | ||||||||||||||
Operating profit (loss) | 1,035 | 1,578 | (182 | ) | (132 | ) | 2,299 | |||||||||||||
Year Ended | ||||||||||||||||||||
December 31, 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 | |||||||||||||
December 31, 2012: | ||||||||||||||||||||
Net revenues | 73,444 | 63,641 | — | (13,965 | ) | 123,120 | ||||||||||||||
Gross profit | 3,808 | 19,091 | — | (411 | ) | 22,488 | ||||||||||||||
Operating profit (loss) | 2,679 | 5,636 | (694 | ) | (411 | ) | 7,210 | |||||||||||||
During the fourth quarter of 2013, the Company began recognizing revenue from the sale of prescription drugs within the Retail Pharmacy Segment when the prescription is picked up by the customer. Prior to this, revenue from the sale of prescription drugs was recognized at the time the prescription was filled. This immaterial error correction is reflected in all periods presented. See Note 1 “Significant Accounting Policies” (Revenue Recognition - Retail Pharmacy Segment) to the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2013.
(1) | Net revenues of the Pharmacy Services Segment include approximately $2.0 billion of retail co-payments for both the three months ended December 31, 2013 and 2012, as well as $7.9 billion and $8.4 billion of retail co-payments for the year ended December 31, 2013 and 2012, 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 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 $1.2 billion and $888 million for the three months ended December 31, 2013 and 2012, respectively, and $4.3 billion and $3.4 billion for the year ended December 31, 2013 and 2012, respectively; gross profit and operating profit of $157 million and $132 million for the three months ended December 31, 2013 and 2012, respectively, and $566 million and $411 million for the year ended December 31, 2013 and 2012, 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. |
9
Supplemental Information
(Unaudited)
Pharmacy Services Segment
The following table summarizes the Pharmacy Services Segment's performance for the respective periods:
Three Months Ended December 31, | Year Ended December 31, | |||||||||||||||
In millions | 2013 | 2012 | 2013 | 2012 | ||||||||||||
Net revenues | $ | 19,615 | $ | 18,642 | $ | 76,208 | $ | 73,444 | ||||||||
Gross profit | $ | 1,211 | $ | 1,334 | $ | 4,237 | $ | 3,808 | ||||||||
Gross profit % of net revenues | 6.2 | % | 7.2 | % | 5.6 | % | 5.2 | % | ||||||||
Operating expenses(4) | $ | 310 | $ | 299 | $ | 1,151 | $ | 1,129 | ||||||||
Operating expense % of net revenues | 1.6 | % | 1.6 | % | 1.5 | % | 1.5 | % | ||||||||
Operating profit | $ | 901 | $ | 1,035 | $ | 3,086 | $ | 2,679 | ||||||||
Operating profit % of net revenues | 4.6 | % | 5.6 | % | 4.1 | % | 3.6 | % | ||||||||
Net revenues(1): | ||||||||||||||||
Mail choice(2) | $ | 6,516 | $ | 5,759 | $ | 24,791 | $ | 22,843 | ||||||||
Pharmacy network(3) | $ | 13,048 | $ | 12,838 | $ | 51,211 | $ | 50,411 | ||||||||
Other | $ | 51 | $ | 45 | $ | 206 | $ | 190 | ||||||||
Pharmacy claims processed(1): | ||||||||||||||||
Total | 225.9 | 225.9 | 902.1 | 880.5 | ||||||||||||
Mail choice(2) | 21.0 | 20.4 | 83.3 | 81.7 | ||||||||||||
Pharmacy network(3) | 204.9 | 205.5 | 818.8 | 798.8 | ||||||||||||
Generic dispensing rate(1): | ||||||||||||||||
Total | 81.1 | % | 80.0 | % | 80.8 | % | 78.5 | % | ||||||||
Mail choice(2) | 76.6 | % | 74.5 | % | 76.0 | % | 72.0 | % | ||||||||
Pharmacy network(3) | 81.6 | % | 80.5 | % | 81.3 | % | 79.1 | % | ||||||||
Mail choice penetration rate | 22.7 | % | 22.1 | % | 22.6 | % | 22.7 | % | ||||||||
(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. |
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Supplemental Information
(Unaudited)
Retail Pharmacy Segment
The following table summarizes the Retail Pharmacy Segment's performance for the respective periods:
Three Months Ended December 31, | Year Ended December 31, | |||||||||||||||
In millions | 2013 | 2012 | 2013 | 2012 | ||||||||||||
Net revenues | $ | 17,192 | $ | 16,283 | $ | 65,618 | $ | 63,641 | ||||||||
Gross profit | $ | 5,284 | $ | 5,092 | $ | 20,112 | $ | 19,091 | ||||||||
Gross profit % of net revenues | 30.7 | % | 31.3 | % | 30.6 | % | 30.0 | % | ||||||||
Operating expenses(2) | $ | 3,613 | $ | 3,514 | $ | 13,844 | $ | 13,455 | ||||||||
Operating expense % of net revenues | 21.0 | % | 21.6 | % | 21.1 | % | 21.1 | % | ||||||||
Operating profit | $ | 1,671 | $ | 1,578 | $ | 6,268 | $ | 5,636 | ||||||||
Operating profit % of net revenues | 9.7 | % | 9.7 | % | 9.6 | % | 8.9 | % | ||||||||
Retail prescriptions filled (90 Day = 1 Rx) | 188.5 | 185.5 | 734.3 | 717.4 | ||||||||||||
Retail prescriptions filled (90 Day = 3 Rx) (1) | 229.6 | 219.4 | 890.1 | 845.8 | ||||||||||||
Net revenue increase: | ||||||||||||||||
Total | 5.6 | % | 4.9 | % | 3.1 | % | 6.8 | % | ||||||||
Pharmacy | 8.5 | % | 4.6 | % | 4.1 | % | 7.6 | % | ||||||||
Front store | (0.5 | )% | 5.5 | % | 1.0 | % | 5.1 | % | ||||||||
Total prescription volume (90 Day = 1 Rx) | 1.6 | % | 9.5 | % | 2.4 | % | 9.1 | % | ||||||||
Total prescription volume (90 Day = 3 Rx) (1) | 4.6 | % | 11.3 | % | 5.2 | % | 11.0 | % | ||||||||
Same store increase: | ||||||||||||||||
Total sales | 4.0 | % | 3.8 | % | 1.7 | % | 5.6 | % | ||||||||
Pharmacy sales | 6.8 | % | 3.8 | % | 2.6 | % | 6.6 | % | ||||||||
Front store sales | (1.9 | )% | 3.9 | % | (0.5 | )% | 3.4 | % | ||||||||
Prescription volume (90 Day = 1 Rx) | 0.8 | % | 8.7 | % | 1.5 | % | 8.1 | % | ||||||||
Prescription volume (90 Day = 3 Rx) (1) | 3.8 | % | 10.5 | % | 4.4 | % | 10.0 | % | ||||||||
Generic dispensing rate | 81.0 | % | 79.9 | % | 81.4 | % | 79.2 | % | ||||||||
Pharmacy % of total revenues | 69.5 | % | 67.6 | % | 69.5 | % | 68.8 | % | ||||||||
Third party % of pharmacy revenue | 98.1 | % | 97.6 | % | 97.9 | % | 97.5 | % | ||||||||
During the fourth quarter of 2013, the Company began recognizing revenue from the sale of prescription drugs within the Retail Pharmacy Segment when the prescription is picked up by the customer. Prior to this, revenue from the sale of prescription drugs was recognized at the time the prescription was filled. This immaterial error correction is reflected in all periods presented. See Note 1 “Significant Accounting Policies” (Revenue Recognition - Retail Pharmacy Segment) to the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2013.
(1) | Includes the adjustment to convert 90-day prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal prescription. |
(2) | Operating expenses for the year ended December 31, 2013 include a $61 million gain from a legal settlement. |
11
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 in our Securities and Exchange Commission filings, including those in the Risk Factors section in our Annual Report on Form 10-K for the year ended December 31, 2013. 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.
In millions, except per share amounts | Year Ending December 31, 2014 | |||||||
Income before income tax provision | $ | 7,882 | $ | 8,136 | ||||
Amortization | 515 | 515 | ||||||
Adjusted income before income tax provision | 8,397 | 8,651 | ||||||
Adjusted income tax provision(1) | 3,293 | 3,383 | ||||||
Adjusted income from continuing operations | $ | 5,104 | $ | 5,268 | ||||
Weighted average diluted common shares outstanding | 1,170 | 1,170 | ||||||
Adjusted earnings per share from continuing operations | $ | 4.36 | $ | 4.50 | ||||
In millions, except per share amounts | Three Months Ending March 31, 2014 | |||||||
Income before income tax provision | $ | 1,884 | $ | 1,945 | ||||
Amortization | 124 | 124 | ||||||
Adjusted income before income tax provision | 2,008 | 2,069 | ||||||
Adjusted income tax provision(1) | 783 | 807 | ||||||
Adjusted income from continuing operations | $ | 1,225 | $ | 1,262 | ||||
Weighted average diluted common shares outstanding | 1,188 | 1,188 | ||||||
Adjusted earnings per share from continuing operations | $ | 1.03 | $ | 1.06 | ||||
(1) | The adjusted income tax provision is computed using the effective income tax rate from the consolidated statement of income. |
12
Free Cash Flow Guidance
(Unaudited)
The following reconciliation of net cash provided by operating activities to free cash flow contains forward-looking information that is subject to risks and uncertainties that could cause actual results to differ materially. The Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The Company strongly recommends that you become familiar with the specific risks and uncertainties outlined in our Securities and Exchange Commission filings, including those in the Risk Factors section in our Annual Report on Form 10-K for the year ended December 31, 2013. 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.
In millions | Year Ending December 31, 2014 | |||||||
Net cash provided by operating activities | $ | 6,950 | $ | 7,250 | ||||
Subtract: Additions to property and equipment | (2,100 | ) | (2,000 | ) | ||||
Add: Proceeds from sale-leaseback transactions | 600 | 500 | ||||||
Free cash flow | $ | 5,450 | $ | 5,750 | ||||
13