Delaware | ||||
(State or Other Jurisdiction of Incorporation) | ||||
001-01011 | 05-0494040 | |||
(Commission File Number) | (IRS Employer Identification No.) |
One CVS Drive | ||
Woonsocket, Rhode Island | 02895 | |
(Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including area code: (401) 765-1500 |
CVS HEALTH CORPORATION | |||
By: | /s/ David M. Denton | ||
David M. Denton | |||
Executive Vice President and | |||
Chief Financial Officer | |||
Dated: | November 4, 2014 |
Investor | Nancy Christal | Media | Carolyn Castel | |||
Contact: | Senior Vice President | Contact: | Vice President | |||
Investor Relations | Corporate Communications | |||||
(914) 722-4704 | (401) 770-5717 |
• | Net revenues increased 9.7% to $35.0 billion |
• | Operating profit increased 4.3% to $2.2 billion |
• | Adjusted EPS of $0.88 and GAAP diluted EPS from continuing operations of $0.81, both of which include a $0.27 per share loss on early extinguishment of debt |
• | Adjusted EPS increased 9.0% to $1.15, excluding the loss on early extinguishment of debt in 2014 and a legal settlement gain in 2013 |
• | Generated free cash flow of $3.6 billion |
• | Cash flow from operations of $4.7 billion |
• | Full-year Adjusted EPS range narrowed to $4.47 to $4.50; excluding the $0.27 per share loss on early extinguishment of debt |
• | GAAP diluted EPS from continuing operations of $3.93 to $3.96 |
• | Provided fourth quarter Adjusted EPS guidance of $1.18 to $1.21 and GAAP diluted EPS from continuing operations guidance of $1.12 to $1.15 |
• | Full year free cash flow range raised to $5.7 to $6.0 billion; cash flow from operations raised to $7.4 to $7.7 billion |
(1) | Excluding the $72 million pre-tax ($44 million after-tax) gain on a legal settlement for the three months ended September 30, 2013 and the $521 million pre-tax ($315 million after-tax) loss on early extinguishment of debt for the three months ended September 30, 2014, net income increased $61 million or 5.0% from $1,205 million to $1,266 million. |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
In millions, except per share amounts | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Net revenues | $ | 35,021 | $ | 31,932 | $ | 102,312 | $ | 93,931 | ||||||||
Cost of revenues | 28,553 | 25,905 | 83,578 | 76,487 | ||||||||||||
Gross profit | 6,468 | 6,027 | 18,734 | 17,444 | ||||||||||||
Operating expenses | 4,222 | 3,873 | 12,256 | 11,624 | ||||||||||||
Operating profit | 2,246 | 2,154 | 6,478 | 5,820 | ||||||||||||
Interest expense, net | 153 | 122 | 469 | 374 | ||||||||||||
Loss on early extinguishment of debt | 521 | — | 521 | — | ||||||||||||
Income before income tax provision | 1,572 | 2,032 | 5,488 | 5,446 | ||||||||||||
Income tax provision | 624 | 777 | 2,165 | 2,112 | ||||||||||||
Income from continuing operations | 948 | 1,255 | 3,323 | 3,334 | ||||||||||||
Loss from discontinued operations, net of tax | — | (6 | ) | — | (7 | ) | ||||||||||
Net income | $ | 948 | $ | 1,249 | $ | 3,323 | $ | 3,327 | ||||||||
Basic earnings per share: | ||||||||||||||||
Income from continuing operations | $ | 0.82 | $ | 1.03 | $ | 2.84 | $ | 2.72 | ||||||||
Loss from discontinued operations | $ | — | $ | — | $ | — | $ | (0.01 | ) | |||||||
Net income | $ | 0.82 | $ | 1.03 | $ | 2.84 | $ | 2.71 | ||||||||
Weighted average basic shares outstanding | 1,157 | 1,218 | 1,167 | 1,226 | ||||||||||||
Diluted earnings per share: | ||||||||||||||||
Income from continuing operations | $ | 0.81 | $ | 1.02 | $ | 2.82 | $ | 2.70 | ||||||||
Loss from discontinued operations | $ | — | $ | — | $ | — | $ | (0.01 | ) | |||||||
Net income | $ | 0.81 | $ | 1.02 | $ | 2.82 | $ | 2.70 | ||||||||
Weighted average diluted shares outstanding | 1,164 | 1,226 | 1,175 | 1,234 | ||||||||||||
Dividends declared per share | $ | 0.275 | $ | 0.225 | $ | 0.825 | $ | 0.675 |
September 30, | December 31, | |||||||
In millions, except per share amounts | 2014 | 2013 | ||||||
Assets: | ||||||||
Cash and cash equivalents | $ | 1,132 | $ | 4,089 | ||||
Short-term investments | 78 | 88 | ||||||
Accounts receivable, net | 10,828 | 8,729 | ||||||
Inventories | 11,613 | 11,045 | ||||||
Deferred income taxes | 1,042 | 902 | ||||||
Other current assets | 644 | 472 | ||||||
Total current assets | 25,337 | 25,325 | ||||||
Property and equipment, net | 8,694 | 8,615 | ||||||
Goodwill | 28,151 | 26,542 | ||||||
Intangible assets, net | 9,854 | 9,529 | ||||||
Other assets | 1,540 | 1,515 | ||||||
Total assets | $ | 73,576 | $ | 71,526 | ||||
Liabilities: | ||||||||
Accounts payable | $ | 6,033 | $ | 5,548 | ||||
Claims and discounts payable | 5,400 | 4,548 | ||||||
Accrued expenses | 5,433 | 4,768 | ||||||
Short-term debt | 775 | — | ||||||
Current portion of long-term debt | 572 | 561 | ||||||
Total current liabilities | 18,213 | 15,425 | ||||||
Long-term debt | 11,709 | 12,841 | ||||||
Deferred income taxes | 4,051 | 3,901 | ||||||
Other long-term liabilities | 1,494 | 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; 1,690 shares issued and 1,153 | ||||||||
shares outstanding at September 30, 2014 and 1,680 shares issued and 1,180 shares | ||||||||
outstanding at December 31, 2013 | 17 | 17 | ||||||
Treasury stock, at cost: 536 shares at September 30, 2014 and 500 shares at December 31, | ||||||||
2013 | (22,877 | ) | (20,169 | ) | ||||
Shares held in trust: 1 share at September 30, 2014 and December 31, 2013 | (31 | ) | (31 | ) | ||||
Capital surplus | 30,310 | 29,777 | ||||||
Retained earnings | 30,845 | 28,493 | ||||||
Accumulated other comprehensive income (loss) | (160 | ) | (149 | ) | ||||
Total CVS Health shareholders’ equity | 38,104 | 37,938 | ||||||
Noncontrolling interest | 5 | — | ||||||
Total shareholders' equity | 38,109 | 37,938 | ||||||
Total liabilities and shareholders’ equity | $ | 73,576 | $ | 71,526 |
Nine Months Ended September 30, | ||||||||
In millions | 2014 | 2013 | ||||||
Cash flows from operating activities: | ||||||||
Cash receipts from customers | $ | 95,816 | $ | 85,408 | ||||
Cash paid for inventory and prescriptions dispensed by retail network pharmacies | (77,067 | ) | (67,826 | ) | ||||
Cash paid to other suppliers and employees | (11,267 | ) | (10,760 | ) | ||||
Interest received | 11 | 5 | ||||||
Interest paid | (458 | ) | (369 | ) | ||||
Income taxes paid | (2,321 | ) | (2,213 | ) | ||||
Net cash provided by operating activities | 4,714 | 4,245 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (1,436 | ) | (1,330 | ) | ||||
Proceeds from sale-leaseback transactions | 328 | 156 | ||||||
Proceeds from sale of property and equipment | 8 | 13 | ||||||
Acquisitions (net of cash acquired) and other investments | (2,392 | ) | (354 | ) | ||||
Purchase of available-for-sale investments | (161 | ) | (107 | ) | ||||
Sale or maturity of available-for-sale investments | 119 | — | ||||||
Net cash used in investing activities | (3,534 | ) | (1,622 | ) | ||||
Cash flows from financing activities: | ||||||||
Increase in short-term debt | 775 | 124 | ||||||
Proceeds from issuance of long-term debt | 1,483 | — | ||||||
Repayments of long-term debt | (3,086 | ) | — | |||||
Dividends paid | (971 | ) | (829 | ) | ||||
Proceeds from exercise of stock options | 378 | 431 | ||||||
Excess tax benefits from stock-based compensation | 89 | 48 | ||||||
Repurchase of common stock | (2,801 | ) | (2,272 | ) | ||||
Net cash used in financing activities | (4,133 | ) | (2,498 | ) | ||||
Effect of exchange rates on cash | (4 | ) | 5 | |||||
Net increase (decrease) in cash and cash equivalents | (2,957 | ) | 130 | |||||
Cash and cash equivalents at the beginning of the period | 4,089 | 1,375 | ||||||
Cash and cash equivalents at the end of the period | $ | 1,132 | $ | 1,505 | ||||
Reconciliation of net income to net cash provided by operating activities: | ||||||||
Net income | $ | 3,323 | $ | 3,327 | ||||
Adjustments required to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 1,442 | 1,412 | ||||||
Stock-based compensation | 121 | 101 | ||||||
Loss on early extinguishment of debt | 521 | — | ||||||
Deferred income taxes and other non-cash items | (64 | ) | 129 | |||||
Change in operating assets and liabilities, net of effects of acquisitions: | ||||||||
Accounts receivable, net | (1,872 | ) | (1,518 | ) | ||||
Inventories | (449 | ) | (79 | ) | ||||
Other current assets | (160 | ) | 176 | |||||
Other assets | (19 | ) | (125 | ) | ||||
Accounts payable and claims and discounts payable | 1,222 | 697 | ||||||
Accrued expenses | 676 | 76 | ||||||
Other long-term liabilities | (27 | ) | 49 | |||||
Net cash provided by operating activities | $ | 4,714 | $ | 4,245 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
In millions, except per share amounts | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Income before income tax provision(1) | $ | 1,572 | $ | 2,032 | $ | 5,488 | $ | 5,446 | ||||||||
Amortization | 126 | 124 | 391 | 370 | ||||||||||||
Adjusted income before income tax provision | 1,698 | 2,156 | 5,879 | 5,816 | ||||||||||||
Adjusted income tax provision and other(2) | 678 | 824 | 2,332 | 2,255 | ||||||||||||
Adjusted net income from continuing operations | $ | 1,020 | $ | 1,332 | $ | 3,547 | $ | 3,561 | ||||||||
Weighted average diluted shares outstanding | 1,164 | 1,226 | 1,175 | 1,234 | ||||||||||||
Adjusted earnings per share | $ | 0.88 | $ | 1.09 | $ | 3.02 | $ | 2.88 |
(1) | Includes a $521 million loss on early extinguishment of debt (approximately $0.27 per diluted share) during the three and nine months ended September 30, 2014 and a $72 million gain on a legal settlement (approximately $0.04 per diluted share) during the three and nine months ended September 30, 2013. Excluding these items, Adjusted EPS for the three months ended September 30, 2014, was $1.15, up 9.0% from $1.05 for the three months ended September 30, 2013. |
(2) | The adjusted income tax provision is computed using the effective income tax rate computed from the condensed consolidated statement of income. Other includes earnings allocated to participating securities of $4 million and $13 million for the three and nine months ended September 30, 2014, respectively. |
Nine Months Ended September 30, | ||||||||
In millions | 2014 | 2013 | ||||||
Net cash provided by operating activities | $ | 4,714 | $ | 4,245 | ||||
Subtract: Additions to property and equipment | (1,436 | ) | (1,330 | ) | ||||
Add: Proceeds from sale-leaseback transactions | 328 | 156 | ||||||
Free cash flow | $ | 3,606 | $ | 3,071 |
In millions | Pharmacy Services Segment(1) | Retail Pharmacy Segment | Corporate Segment | Intersegment Eliminations(2) | Consolidated Totals | |||||||||||||||
Three Months Ended | ||||||||||||||||||||
September 30, 2014: | ||||||||||||||||||||
Net revenues | $ | 22,534 | $ | 16,749 | $ | — | $ | (4,262 | ) | $ | 35,021 | |||||||||
Gross profit | 1,403 | 5,237 | — | (172 | ) | 6,468 | ||||||||||||||
Operating profit (loss) | 1,087 | 1,527 | (196 | ) | (172 | ) | 2,246 | |||||||||||||
September 30, 2013: | ||||||||||||||||||||
Net revenues | 19,483 | 16,248 | — | (3,799 | ) | 31,932 | ||||||||||||||
Gross profit | 1,294 | 4,876 | — | (143 | ) | 6,027 | ||||||||||||||
Operating profit (loss)(3) | 1,012 | 1,464 | (179 | ) | (143 | ) | 2,154 | |||||||||||||
Nine Months Ended | ||||||||||||||||||||
September 30, 2014: | ||||||||||||||||||||
Net revenues | 64,566 | 50,100 | — | (12,354 | ) | 102,312 | ||||||||||||||
Gross profit | 3,533 | 15,719 | — | (518 | ) | 18,734 | ||||||||||||||
Operating profit (loss) | 2,605 | 4,982 | (591 | ) | (518 | ) | 6,478 | |||||||||||||
September 30, 2013: | ||||||||||||||||||||
Net revenues | 56,593 | 48,426 | — | (11,088 | ) | 93,931 | ||||||||||||||
Gross profit | 3,025 | 14,828 | — | (409 | ) | 17,444 | ||||||||||||||
Operating profit (loss)(3) | 2,186 | 4,596 | (553 | ) | (409 | ) | 5,820 | |||||||||||||
Total Assets: | ||||||||||||||||||||
September 30, 2014 | 42,527 | 31,197 | 1,344 | (1,492 | ) | 73,576 | ||||||||||||||
December 31, 2013 | 38,343 | 30,191 | 4,420 | (1,428 | ) | 71,526 | ||||||||||||||
Goodwill: | ||||||||||||||||||||
September 30, 2014 | 21,234 | 6,917 | — | — | 28,151 | |||||||||||||||
December 31, 2013 | 19,658 | 6,884 | — | — | 26,542 |
(2) | Intersegment eliminations relate to two types of transaction: (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 stand-alone 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 intersegment activity described in item (ii) above: net revenues of $1.2 billion and $1.1 billion for the three months ended September 30, 2014 and 2013, respectively, and $3.6 billion and $3.1 billion for the nine months ended September 30, 2014 and 2013, respectively; and gross profit and operating profit of $172 million and $143 million for the three months ended September 30, 2014 and 2013, respectively, and $518 million and $409 million for the nine months ended September 30, 2014 and 2013, respectively. |
(3) | Consolidated operating profit for the three and nine months ended September 30, 2013 includes a $72 million gain on a legal settlement, of which, $11 million is included in the Pharmacy Services Segment and $61 million is included in the Retail Pharmacy Segment. |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
In millions | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Net revenues | $ | 22,534 | $ | 19,483 | $ | 64,566 | $ | 56,593 | ||||||||
Gross profit | 1,403 | 1,294 | 3,533 | 3,025 | ||||||||||||
Gross profit % of net revenues | 6.2 | % | 6.6 | % | 5.5 | % | 5.4 | % | ||||||||
Operating expenses(5) | 316 | 282 | 928 | 839 | ||||||||||||
Operating expense % of net revenues | 1.4 | % | 1.4 | % | 1.4 | % | 1.5 | % | ||||||||
Operating profit | 1,087 | 1,012 | 2,605 | 2,186 | ||||||||||||
Operating profit % of net revenues | 4.8 | % | 5.2 | % | 4.0 | % | 3.9 | % | ||||||||
Net revenues(1)(4): | ||||||||||||||||
Mail choice(2) | $ | 8,054 | $ | 6,369 | $ | 22,641 | $ | 18,274 | ||||||||
Pharmacy network(3) | 14,420 | 13,063 | 41,748 | 38,163 | ||||||||||||
Other | 60 | 51 | 177 | 156 | ||||||||||||
Pharmacy claims processed(1): | ||||||||||||||||
Total | 230.3 | 221.9 | 689.1 | 676.2 | ||||||||||||
Mail choice(2) | 20.7 | 21.0 | 61.1 | 62.3 | ||||||||||||
Pharmacy network(3) | 209.6 | 200.9 | 628.0 | 613.9 | ||||||||||||
Generic dispensing rate(1): | ||||||||||||||||
Total | 82.5 | % | 80.7 | % | 82.3 | % | 80.4 | % | ||||||||
Mail choice(2) | 75.0 | % | 72.8 | % | 74.5 | % | 72.4 | % | ||||||||
Pharmacy network(3) | 83.2 | % | 81.5 | % | 83.1 | % | 81.2 | % | ||||||||
Mail choice penetration rate | 21.7 | % | 23.0 | % | 21.5 | % | 22.5 | % |
(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 retail 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) | In May 2014, the Company implemented Specialty Connect, which integrates the Company's mail and retail capabilities, providing members with the choice to bring their specialty prescriptions to any CVS/pharmacy location. Whether submitted through our mail order pharmacy or at CVS/pharmacy, all prescriptions are filled through the Company’s specialty mail order pharmacies, so all revenue from this specialty prescription services program is recorded within the Pharmacy Services Segment. Members then can choose to pick up their medication at their local CVS/pharmacy or have it sent to their home through the mail. |
(5) | Operating expenses for the three and nine months ended September 30, 2013 includes a $11 million gain on a legal settlement. |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
In millions | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Net revenues | $ | 16,749 | $ | 16,248 | $ | 50,100 | $ | 48,426 | ||||||||
Gross profit | 5,237 | 4,876 | 15,719 | 14,828 | ||||||||||||
Gross profit % of net revenues | 31.3 | % | 30.0 | % | 31.4 | % | 30.6 | % | ||||||||
Operating expenses(3) | 3,710 | 3,412 | 10,737 | 10,232 | ||||||||||||
Operating expense % of net revenues | 22.1 | % | 21.0 | % | 21.4 | % | 21.1 | % | ||||||||
Operating profit | 1,527 | 1,464 | 4,982 | 4,596 | ||||||||||||
Operating profit % of net revenues | 9.1 | % | 9.0 | % | 9.9 | % | 9.5 | % | ||||||||
Retail prescriptions filled (90 Day = 3 Rx) (1) | 233.7 | 219.7 | 691.1 | 660.5 | ||||||||||||
Net revenue increase: | ||||||||||||||||
Total | 3.1 | % | 4.7 | % | 3.5 | % | 2.3 | % | ||||||||
Pharmacy | 5.3 | % | 6.7 | % | 5.0 | % | 2.6 | % | ||||||||
Front store | (3.7 | )% | 0.4 | % | (1.6 | )% | 1.5 | % | ||||||||
Total prescription volume (90 Day = 3 Rx) (1) | 6.4 | % | 4.9 | % | 4.6 | % | 5.4 | % | ||||||||
Same store increase (decrease)(2): | ||||||||||||||||
Total sales | 2.0 | % | 3.3 | % | 2.3 | % | 0.9 | % | ||||||||
Pharmacy sales | 4.8 | % | 5.2 | % | 4.5 | % | 1.2 | % | ||||||||
Front store sales(4) | (4.5 | )% | (1.0 | )% | (2.9 | )% | — | % | ||||||||
Prescription volume (90 Day = 3 Rx) (1) | 5.1 | % | 4.1 | % | 3.7 | % | 4.6 | % | ||||||||
Generic dispensing rate | 83.3 | % | 81.5 | % | 83.3 | % | 81.5 | % | ||||||||
Pharmacy % of total revenues | 71.8 | % | 70.4 | % | 70.5 | % | 69.5 | % | ||||||||
Third party % of pharmacy revenue | 98.7 | % | 97.9 | % | 98.6 | % | 97.9 | % |
(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 30-day prescription. |
(2) | Same store sales exclude revenues from CVS/minuteclinic and stores in Brazil. |
(3) | Operating expenses for the three and nine months ended September 30, 2013 includes a $61 million gain on a legal settlement. |
(4) | Front store same store sales would have been approximately 480 and 200 basis points higher for the three and nine months ended September 30, 2014, respectively, if tobacco and the estimated associated basket sales were excluded from both the three and nine months ended September 30, 2014 and 2013. |
In millions, except per share amounts | Year Ending December 31, 2014 | |||||||
Income before income tax provision(1) | $ | 7,639 | $ | 7,697 | ||||
Amortization | 521 | 521 | ||||||
Adjusted income before income tax provision | 8,160 | 8,218 | ||||||
Adjusted income tax provision and other(2) | 3,251 | 3,274 | ||||||
Adjusted income from continuing operations | $ | 4,909 | $ | 4,944 | ||||
Weighted average diluted shares outstanding | 1,169 | 1,169 | ||||||
Adjusted earnings per share from continuing operations attributable to CVS Health | $ | 4.20 | $ | 4.23 |
In millions, except per share amounts | Three Months Ending December 31, 2014 | |||||||
Income before income tax provision | $ | 2,151 | $ | 2,210 | ||||
Amortization | 130 | 130 | ||||||
Adjusted income before income tax provision | 2,281 | 2,340 | ||||||
Adjusted income tax provision and other(2) | 918 | 942 | ||||||
Adjusted income from continuing operations | $ | 1,363 | $ | 1,398 | ||||
Weighted average diluted shares outstanding | 1,152 | 1,151 | ||||||
Adjusted earnings per share from continuing operations attributable to CVS Health | $ | 1.18 | $ | 1.21 |
(1) | Includes a $521 million loss on early extinguishment of debt (approximately $0.27 per diluted share) during the year ending December 31, 2014. Excluding the $0.27 loss on early extinguishment of debt, Adjusted EPS for the year ending December 31, 2014 is projected to be $4.47 to $4.50. |
(2) | Other includes earnings allocated to participating securities. |
In millions | Year Ending December 31, 2014 | |||||||
Net cash provided by operating activities | $ | 7,400 | $ | 7,700 | ||||
Subtract: Additions to property and equipment | (2,300 | ) | (2,200 | ) | ||||
Add: Proceeds from sale-leaseback transactions | 600 | 500 | ||||||
Free cash flow | $ | 5,700 | $ | 6,000 |