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: | February 10, 2015 |
Investor Contact: | Nancy Christal | Media Contact: | Carolyn Castel | |||
Senior Vice President | Vice President | |||||
Investor Relations | Corporate Communications | |||||
(914) 722-4704 | (401) 770-5717 |
• | Net revenues increased 12.9% to a record $37.1 billion |
• | Operating profit increased 4.7% to $2.3 billion |
• | Adjusted EPS of $1.21, an increase of 8.4%; GAAP diluted EPS from continuing operations of $1.14 |
• | Net revenues increased 9.9% to a record $139.4 billion |
• | Adjusted EPS of $4.22 and GAAP diluted EPS from continuing operations of $3.96, both of which include a $0.27 loss from the early extinguishment of debt |
• | Adjusted EPS excluding the loss from early extinguishment of debt in 2014 and the legal settlement gain in 2013 increased 13.5% to $4.49 |
• | Generated free cash flow of $6.5 billion; cash flow from operations of $8.1 billion |
• | Confirmed full year Adjusted EPS of $5.05 to $5.19; GAAP diluted EPS from continuing operations of $4.77 to $4.91 |
• | Confirmed first quarter Adjusted EPS of $1.06 to $1.09; GAAP diluted EPS from continuing operations of $0.99 to $1.02 |
• | Confirmed full year free cash flow of $5.9 to $6.2 billion; confirmed cash flow from operations of $7.6 to $7.9 billion |
(1) | Excluding the $72 million pre-tax ($44 million after-tax) gain on a legal settlement for the year ended December 31, 2013 and the $521 million pre-tax ($315 million after-tax) loss on early extinguishment of debt for the year ended December 31, 2014, net income increased $411 million or 9.0% from $4,548 million for the year ended December 31, 2013 to $4,959 million for the year ended December 31, 2014. |
Three Months Ended December 31, | Year Ended December 31, | |||||||||||||||
In millions, except per share amounts | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Net revenues | $ | 37,055 | $ | 32,830 | $ | 139,367 | $ | 126,761 | ||||||||
Cost of revenues | 30,422 | 26,492 | 114,000 | 102,978 | ||||||||||||
Gross profit | 6,633 | 6,338 | 25,367 | 23,783 | ||||||||||||
Operating expenses | 4,312 | 4,121 | 16,568 | 15,746 | ||||||||||||
Operating profit | 2,321 | 2,217 | 8,799 | 8,037 | ||||||||||||
Interest expense, net | 131 | 135 | 600 | 509 | ||||||||||||
Loss on early extinguishment of debt | — | — | 521 | — | ||||||||||||
Income before income tax provision | 2,190 | 2,082 | 7,678 | 7,528 | ||||||||||||
Income tax provision | 868 | 816 | 3,033 | 2,928 | ||||||||||||
Income from continuing operations | 1,322 | 1,266 | 4,645 | 4,600 | ||||||||||||
Loss from discontinued operations, net of tax | (1 | ) | (1 | ) | (1 | ) | (8 | ) | ||||||||
Net income | $ | 1,321 | $ | 1,265 | $ | 4,644 | $ | 4,592 | ||||||||
Basic earnings per share: | ||||||||||||||||
Income from continuing operations | $ | 1.15 | $ | 1.06 | $ | 3.98 | $ | 3.78 | ||||||||
Loss from discontinued operations | $ | — | $ | — | $ | — | $ | (0.01 | ) | |||||||
Net income | $ | 1.15 | $ | 1.06 | $ | 3.98 | $ | 3.77 | ||||||||
Weighted average basic shares outstanding | 1,143 | 1,192 | 1,161 | 1,217 | ||||||||||||
Diluted earnings per share: | ||||||||||||||||
Income from continuing operations | $ | 1.14 | $ | 1.05 | $ | 3.96 | $ | 3.75 | ||||||||
Loss from discontinued operations | $ | — | $ | — | $ | — | $ | (0.01 | ) | |||||||
Net income | $ | 1.14 | $ | 1.05 | $ | 3.96 | $ | 3.74 | ||||||||
Weighted average diluted shares outstanding | 1,152 | 1,201 | 1,169 | 1,226 | ||||||||||||
Dividends declared per share | $ | 0.275 | $ | 0.225 | $ | 1.10 | $ | 0.90 |
December 31, | ||||||||
In millions, except per share amounts | 2014 | 2013 | ||||||
Assets: | ||||||||
Cash and cash equivalents | $ | 2,481 | $ | 4,089 | ||||
Short-term investments | 34 | 88 | ||||||
Accounts receivable, net | 9,687 | 8,729 | ||||||
Inventories | 11,930 | 11,045 | ||||||
Deferred income taxes | 985 | 902 | ||||||
Other current assets | 866 | 472 | ||||||
Total current assets | 25,983 | 25,325 | ||||||
Property and equipment, net | 8,843 | 8,615 | ||||||
Goodwill | 28,142 | 26,542 | ||||||
Intangible assets, net | 9,774 | 9,529 | ||||||
Other assets | 1,510 | 1,515 | ||||||
Total assets | $ | 74,252 | $ | 71,526 | ||||
Liabilities: | ||||||||
Accounts payable | $ | 6,547 | $ | 5,548 | ||||
Claims and discounts payable | 5,404 | 4,548 | ||||||
Accrued expenses | 5,816 | 4,768 | ||||||
Short-term debt | 685 | — | ||||||
Current portion of long-term debt | 575 | 561 | ||||||
Total current liabilities | 19,027 | 15,425 | ||||||
Long-term debt | 11,695 | 12,841 | ||||||
Deferred income taxes | 4,036 | 3,901 | ||||||
Other long-term liabilities | 1,531 | 1,421 | ||||||
Commitments and contingencies | — | — | ||||||
Shareholders’ equity: | ||||||||
CVS Health shareholders’ equity: | ||||||||
Preferred stock, par value $0.01: 0.1 shares authorized; none issued or outstanding | — | — | ||||||
Common stock, par value $0.01: 3,200 shares authorized; 1,691 shares issued and | ||||||||
1,140 shares outstanding at December 31, 2014 and 1,680 shares issued and 1,180 | ||||||||
shares outstanding at December 31, 2013 | 17 | 17 | ||||||
Treasury stock, at cost: 550 shares at December 31, 2014 and 500 shares | ||||||||
at December 31, 2013 | (24,078 | ) | (20,169 | ) | ||||
Shares held in trust: 1 share at December 31, 2014 and 2013 | (31 | ) | (31 | ) | ||||
Capital surplus | 30,418 | 29,777 | ||||||
Retained earnings | 31,849 | 28,493 | ||||||
Accumulated other comprehensive income (loss) | (217 | ) | (149 | ) | ||||
Total CVS Health shareholders’ equity | 37,958 | 37,938 | ||||||
Noncontrolling interest | 5 | — | ||||||
Total shareholders’ equity | 37,963 | 37,938 | ||||||
Total liabilities and shareholders’ equity | $ | 74,252 | $ | 71,526 |
Year Ended December 31, | ||||||||
In millions | 2014 | 2013 | ||||||
Cash flows from operating activities: | ||||||||
Cash receipts from customers | $ | 132,406 | $ | 114,993 | ||||
Cash paid for inventory and prescriptions dispensed by retail network pharmacies | (105,362 | ) | (91,178 | ) | ||||
Cash paid to other suppliers and employees | (15,344 | ) | (14,295 | ) | ||||
Interest received | 15 | 8 | ||||||
Interest paid | (647 | ) | (534 | ) | ||||
Income taxes paid | (2,931 | ) | (3,211 | ) | ||||
Net cash provided by operating activities | 8,137 | 5,783 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (2,136 | ) | (1,984 | ) | ||||
Proceeds from sale-leaseback transactions | 515 | 600 | ||||||
Proceeds from sale of property and equipment and other assets | 11 | 54 | ||||||
Acquisitions (net of cash acquired) and other investments | (2,439 | ) | (415 | ) | ||||
Purchase of available-for-sale investments | (157 | ) | (226 | ) | ||||
Sale or maturity of available-for-sale investments | 161 | 136 | ||||||
Net cash used in investing activities | (4,045 | ) | (1,835 | ) | ||||
Cash flows from financing activities: | ||||||||
Increase (decrease) in short-term debt | 685 | (690 | ) | |||||
Proceeds from issuance of long-term debt | 1,483 | 3,964 | ||||||
Repayments of long-term debt | (3,100 | ) | — | |||||
Dividends paid | (1,288 | ) | (1,097 | ) | ||||
Proceeds from exercise of stock options | 421 | 500 | ||||||
Excess tax benefits from stock-based compensation | 106 | 62 | ||||||
Repurchase of common stock | (4,001 | ) | (3,976 | ) | ||||
Net cash used in financing activities | (5,694 | ) | (1,237 | ) | ||||
Effect of exchange rates on cash | (6 | ) | 3 | |||||
Net increase (decrease) in cash and cash equivalents | (1,608 | ) | 2,714 | |||||
Cash and cash equivalents at the beginning of the year | 4,089 | 1,375 | ||||||
Cash and cash equivalents at the end of the year | $ | 2,481 | $ | 4,089 | ||||
Reconciliation of net income to net cash provided by operating activities: | ||||||||
Net income | $ | 4,644 | $ | 4,592 | ||||
Adjustments required to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 1,931 | 1,870 | ||||||
Stock-based compensation | 165 | 141 | ||||||
Loss on early extinguishment of debt | 521 | — | ||||||
Deferred income taxes and other non-cash items | (58 | ) | (86 | ) | ||||
Change in operating assets and liabilities, net of effects of acquisitions: | ||||||||
Accounts receivable, net | (737 | ) | (2,210 | ) | ||||
Inventories | (770 | ) | 12 | |||||
Other current assets | (383 | ) | 105 | |||||
Other assets | 9 | (135 | ) | |||||
Accounts payable and claims and discounts payable | 1,742 | 1,024 | ||||||
Accrued expenses | 1,060 | 471 | ||||||
Other long-term liabilities | 13 | (1 | ) | |||||
Net cash provided by operating activities | $ | 8,137 | $ | 5,783 |
Three Months Ended December 31, | Year Ended December 31, | |||||||||||||||
In millions, except per share amounts | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Income before income tax provision(1) | $ | 2,190 | $ | 2,082 | $ | 7,678 | $ | 7,528 | ||||||||
Amortization | 128 | 124 | 518 | 494 | ||||||||||||
Adjusted income before income tax provision | 2,318 | 2,206 | 8,196 | 8,022 | ||||||||||||
Adjusted income tax provision and other(2) | 925 | 865 | 3,257 | 3,120 | ||||||||||||
Adjusted income from continuing operations | $ | 1,393 | $ | 1,341 | $ | 4,939 | $ | 4,902 | ||||||||
Weighted average diluted shares outstanding | 1,152 | 1,201 | 1,169 | 1,226 | ||||||||||||
Adjusted earnings per share | $ | 1.21 | $ | 1.12 | $ | 4.22 | $ | 4.00 |
(1) | Includes a $521 million loss on early extinguishment of debt (approximately $0.27 per diluted share) during the year ended December 31, 2014 and a $72 million gain on a legal settlement (approximately $0.04 per diluted share) during the year ended December 31, 2013. Excluding these items, Adjusted EPS for the year ended December 31, 2014, was $4.49, up 13.5% from $3.96 for the year ended December 31, 2013. |
(2) | The adjusted income tax provision is computed using the effective income tax rate computed from the consolidated statement of income. Other includes earnings allocated to participating securities of $6 million and $19 million for the three months and year ended December 31, 2014, respectively. |
Year Ended December 31, | ||||||||
In millions | 2014 | 2013 | ||||||
Net cash provided by operating activities | $ | 8,137 | $ | 5,783 | ||||
Subtract: Additions to property and equipment | (2,136 | ) | (1,984 | ) | ||||
Add: Proceeds from sale-leaseback transactions | 515 | 600 | ||||||
Free cash flow | $ | 6,516 | $ | 4,399 |
In millions | Pharmacy Services Segment(1) | Retail Pharmacy Segment | Corporate Segment | Intersegment Eliminations(2) | Consolidated Totals | |||||||||||||||
Three Months Ended | ||||||||||||||||||||
December 31, 2014: | ||||||||||||||||||||
Net revenues | $ | 23,874 | $ | 17,698 | $ | — | $ | (4,517 | ) | $ | 37,055 | |||||||||
Gross profit | 1,238 | 5,558 | — | (163 | ) | 6,633 | ||||||||||||||
Operating profit (loss) | 909 | 1,780 | (205 | ) | (163 | ) | 2,321 | |||||||||||||
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 | |||||||||||||
Year Ended | ||||||||||||||||||||
December 31, 2014: | ||||||||||||||||||||
Net revenues | 88,440 | 67,798 | — | (16,871 | ) | 139,367 | ||||||||||||||
Gross profit | 4,771 | 21,277 | — | (681 | ) | 25,367 | ||||||||||||||
Operating profit (loss) | 3,514 | 6,762 | (796 | ) | (681 | ) | 8,799 | |||||||||||||
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 |
(1) | Net revenues of the Pharmacy Services Segment include approximately $1.9 billion of retail co-payments for both the three months ended December 31, 2014 and 2013, respectively, as well as $8.1 billion and $7.9 billion of retail co-payments for the year ended December 31, 2014 and 2013, respectively. |
(2) | Intersegment eliminations relate to two types of transactions: (i) Intersegment revenues that occur when Pharmacy Services Segment clients use Retail Pharmacy Segment stores to purchase covered products. When this occurs, both the Pharmacy Services and Retail Pharmacy segments record the revenue on a standalone basis and (ii) Intersegment revenues, gross profit and operating profit that occur when Pharmacy Services Segment clients, through the Company’s intersegment activities (such as the Maintenance Choice program), elect to pick up their maintenance prescriptions at Retail Pharmacy Segment stores instead of receiving them through the mail. When this occurs, both the Pharmacy Services and Retail Pharmacy segments record the revenue, gross profit and operating profit on a standalone basis. The following amounts are eliminated in consolidation in connection with the item (ii) intersegment activity: net revenues of $1.3 billion and $1.2 billion for the three months ended December 31, 2014 and 2013, respectively, and $4.9 billion and $4.3 billion for the year ended December 31, 2014 and 2013, respectively; and gross profit and operating profit of $163 million and $157 million for the three months ended December 31, 2014 and 2013, respectively, and $681 million and $566 million for the year ended December 31, 2014 and 2013, respectively. |
(3) | Consolidated operating profit for the year ended December 31, 2013 includes a $72 million gain from a legal settlement, of which $11 million is included in the Pharmacy Services Segment and $61 million is included in the Retail Pharmacy Segment. |
Three Months Ended December 31, | Year Ended December 31, | |||||||||||||||
In millions | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Net revenues | $ | 23,874 | $ | 19,615 | $ | 88,440 | $ | 76,208 | ||||||||
Gross profit | $ | 1,238 | $ | 1,211 | $ | 4,771 | $ | 4,237 | ||||||||
Gross profit % of net revenues | 5.2 | % | 6.2 | % | 5.4 | % | 5.6 | % | ||||||||
Operating expenses(4) | $ | 329 | $ | 310 | $ | 1,257 | $ | 1,151 | ||||||||
Operating expense % of net revenues | 1.4 | % | 1.6 | % | 1.4 | % | 1.5 | % | ||||||||
Operating profit | $ | 909 | $ | 901 | $ | 3,514 | $ | 3,086 | ||||||||
Operating profit % of net revenues | 3.8 | % | 4.6 | % | 4.0 | % | 4.1 | % | ||||||||
Net revenues(1): | ||||||||||||||||
Mail choice(2) | $ | 8,440 | $ | 6,516 | $ | 31,081 | $ | 24,791 | ||||||||
Pharmacy network(3) | $ | 15,374 | $ | 13,048 | $ | 57,122 | $ | 51,211 | ||||||||
Other | $ | 60 | $ | 51 | $ | 237 | $ | 206 | ||||||||
Pharmacy claims processed(1): | ||||||||||||||||
Total | 242.9 | 225.9 | 932.0 | 902.1 | ||||||||||||
Mail choice(2) | 21.3 | 21.0 | 82.4 | 83.3 | ||||||||||||
Pharmacy network(3) | 221.6 | 204.9 | 849.6 | 818.8 | ||||||||||||
Generic dispensing rate(1): | ||||||||||||||||
Total | 82.1 | % | 80.8 | % | 82.2 | % | 80.5 | % | ||||||||
Mail choice(2) | 75.1 | % | 73.2 | % | 74.6 | % | 72.6 | % | ||||||||
Pharmacy network(3) | 82.7 | % | 81.6 | % | 83.0 | % | 81.3 | % | ||||||||
Mail choice penetration rate | 21.3 | % | 22.7 | % | 21.4 | % | 22.6 | % |
(1) | Pharmacy network net revenues, claims processed and generic dispensing rates do not include Maintenance Choice, which are included within the mail choice category. |
(2) | Mail choice is defined as claims filled at a Pharmacy Services mail facility, which include specialty mail claims, as well as 90-day claims filled at our retail stores under the Maintenance Choice program. |
(3) | Pharmacy network is defined as claims filled at retail pharmacies, including our retail drugstores, but excluding Maintenance Choice activity. |
(4) | Operating expenses for the year ended December 31, 2013 include an $11 million gain from a legal settlement. |
Three Months Ended December 31, | Year Ended December 31, | |||||||||||||||
In millions | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Net revenues | $ | 17,698 | $ | 17,192 | $ | 67,798 | $ | 65,618 | ||||||||
Gross profit | $ | 5,558 | $ | 5,284 | $ | 21,277 | $ | 20,112 | ||||||||
Gross profit % of net revenues | 31.4 | % | 30.7 | % | 31.4 | % | 30.6 | % | ||||||||
Operating expenses(2) | $ | 3,778 | $ | 3,613 | $ | 14,515 | $ | 13,844 | ||||||||
Operating expense % of net revenues | 21.3 | % | 21.0 | % | 21.4 | % | 21.1 | % | ||||||||
Operating profit | $ | 1,780 | $ | 1,671 | $ | 6,762 | $ | 6,268 | ||||||||
Operating profit % of net revenues | 10.1 | % | 9.7 | % | 10.0 | % | 9.6 | % | ||||||||
Retail prescriptions filled (90 Day = 3 Rx) (1) | 244.8 | 229.6 | 935.9 | 890.1 | ||||||||||||
Net revenue increase (decrease): | ||||||||||||||||
Total | 2.9 | % | 5.6 | % | 3.3 | % | 3.1 | % | ||||||||
Pharmacy | 5.5 | % | 8.5 | % | 5.1 | % | 4.1 | % | ||||||||
Front store | (4.9 | )% | (0.5 | )% | (2.5 | )% | 1.0 | % | ||||||||
Total prescription volume (90 Day = 3 Rx) (1) | 6.7 | % | 4.6 | % | 5.2 | % | 5.2 | % | ||||||||
Same store increase (decrease): | ||||||||||||||||
Total sales | 1.6 | % | 4.0 | % | 2.1 | % | 1.7 | % | ||||||||
Pharmacy sales | 5.5 | % | 6.8 | % | 4.8 | % | 2.6 | % | ||||||||
Front store sales | (7.2 | )% | (1.9 | )% | (4.0 | )% | (0.5 | )% | ||||||||
Prescription volume (90 Day = 3 Rx) (1) | 5.3 | % | 3.8 | % | 4.1 | % | 4.4 | % | ||||||||
Generic dispensing rate | 82.4 | % | 81.0 | % | 83.1 | % | 81.4 | % | ||||||||
Pharmacy % of total revenues | 71.2 | % | 69.5 | % | 70.7 | % | 69.5 | % | ||||||||
Third party % of pharmacy revenue | 98.7 | % | 98.1 | % | 98.6 | % | 97.9 | % |
(1) | Includes the adjustment to convert 90-day, non-specialty prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal prescription. |
(2) | Operating expenses for the year ended December 31, 2013 include a $61 million gain from a legal settlement. |
In millions, except per share amounts | Year Ending December 31, 2015 | |||||||
Income before income tax provision | $ | 8,866 | $ | 9,137 | ||||
Amortization | 520 | 520 | ||||||
Adjusted income before income tax provision | 9,386 | 9,657 | ||||||
Adjusted income tax provision and other(1) | 3,709 | 3,820 | ||||||
Adjusted income from continuing operations | 5,677 | 5,837 | ||||||
Net income attributable to noncontrolling interest | (1 | ) | (1 | ) | ||||
Adjusted income from continuing operations attributable to CVS Health | $ | 5,676 | $ | 5,836 | ||||
Weighted average diluted common shares outstanding | 1,125 | 1,125 | ||||||
Adjusted earnings per share from continuing operations | $ | 5.05 | $ | 5.19 |
In millions, except per share amounts | Three Months Ending March 31, 2015 | |||||||
Income before income tax provision | $ | 1,864 | $ | 1,920 | ||||
Amortization | 124 | 128 | ||||||
Adjusted income before income tax provision | 1,988 | 2,048 | ||||||
Adjusted income tax provision and other(1) | 788 | 810 | ||||||
Adjusted income from continuing operations attributable to CVS Health | $ | 1,200 | $ | 1,238 | ||||
Weighted average diluted common shares outstanding | 1,137 | 1,136 | ||||||
Adjusted earnings per share from continuing operations | $ | 1.06 | $ | 1.09 |
(1) | Other includes earnings allocated to participating securities. |
In millions | Year Ending December 31, 2015 | |||||||
Net cash provided by operating activities | $ | 7,550 | $ | 7,949 | ||||
Subtract: Additions to property and equipment | (2,300 | ) | (2,200 | ) | ||||
Add: Proceeds from sale-leaseback transactions | 600 | 500 | ||||||
Free cash flow | $ | 5,850 | $ | 6,249 |