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: | August 4, 2015 |
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 7.4% to $37.2 billion |
• | Operating profit increased 2.5% to $2.3 billion |
• | Adjusted EPS of $1.19 and GAAP diluted EPS of $1.12, both include 3 cents of acquisition-related transaction and financing costs |
• | Adjusted EPS increased 7.7% to $1.22, excluding the 3 cents of acquisition-related transaction and financing costs |
• | Generated free cash flow of approximately $2.1 billion |
• | Cash flow from operations of approximately $3.0 billion |
• | Full year Adjusted EPS of $5.11 to $5.18, excluding any acquisition-related transaction and financing costs; GAAP diluted EPS of $4.64 to $4.71; both include the effect of the previously-announced reduction in 2015 share repurchases |
• | Provided third quarter Adjusted EPS guidance of $1.27 to $1.30 excluding any acquisition-related transaction and financing costs; GAAP diluted EPS guidance of $1.13 to $1.16 |
• | Confirmed full year free cash flow of $5.9 to $6.2 billion; cash flow from operations of $7.6 to $7.9 billion |
(1) | Excluding $21 million of pre-tax ($13 million after-tax) acquisition-related transaction costs and $36 million of pre-tax ($22 million after-tax) acquisition-related financing costs for the three months ended June 30, 2015, net income increased $61 million or 4.9% from $1,246 million for the three months ended June 30, 2014 to $1,307 million for the three months ended June 30, 2015. |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
In millions, except per share amounts | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Net revenues | $ | 37,169 | $ | 34,602 | $ | 73,501 | $ | 67,291 | ||||||||
Cost of revenues | 30,767 | 28,278 | 60,935 | 55,025 | ||||||||||||
Gross profit | 6,402 | 6,324 | 12,566 | 12,266 | ||||||||||||
Operating expenses | 4,140 | 4,116 | 8,172 | 8,034 | ||||||||||||
Operating profit | 2,262 | 2,208 | 4,394 | 4,232 | ||||||||||||
Interest expense, net | 166 | 158 | 300 | 316 | ||||||||||||
Income before income tax provision | 2,096 | 2,050 | 4,094 | 3,916 | ||||||||||||
Income tax provision | 824 | 804 | 1,601 | 1,541 | ||||||||||||
Net income | $ | 1,272 | $ | 1,246 | $ | 2,493 | $ | 2,375 | ||||||||
Net income per share: | ||||||||||||||||
Basic | $ | 1.13 | $ | 1.07 | $ | 2.20 | $ | 2.03 | ||||||||
Diluted | $ | 1.12 | $ | 1.06 | $ | 2.19 | $ | 2.01 | ||||||||
Weighted average shares outstanding: | ||||||||||||||||
Basic | 1,124 | 1,165 | 1,126 | 1,172 | ||||||||||||
Diluted | 1,132 | 1,174 | 1,134 | 1,182 | ||||||||||||
Dividends declared per share | $ | 0.350 | $ | 0.275 | $ | 0.700 | $ | 0.550 |
June 30, | December 31, | |||||||
In millions, except per share amounts | 2015 | 2014 | ||||||
Assets: | ||||||||
Cash and cash equivalents | $ | 1,244 | $ | 2,481 | ||||
Short-term investments | 160 | 34 | ||||||
Accounts receivable, net | 10,892 | 9,687 | ||||||
Inventories | 12,384 | 11,930 | ||||||
Deferred income taxes | 989 | 985 | ||||||
Other current assets | 732 | 866 | ||||||
Total current assets | 26,401 | 25,983 | ||||||
Property and equipment, net | 9,019 | 8,843 | ||||||
Goodwill | 28,122 | 28,142 | ||||||
Intangible assets, net | 9,683 | 9,774 | ||||||
Other assets | 1,443 | 1,445 | ||||||
Total assets | $ | 74,668 | $ | 74,187 | ||||
Liabilities: | ||||||||
Accounts payable | $ | 6,370 | $ | 6,547 | ||||
Claims and discounts payable | 6,961 | 5,404 | ||||||
Accrued expenses | 5,543 | 5,816 | ||||||
Short-term debt | 1,488 | 685 | ||||||
Current portion of long-term debt | 24 | 575 | ||||||
Total current liabilities | 20,386 | 19,027 | ||||||
Long-term debt | 11,633 | 11,630 | ||||||
Deferred income taxes | 4,026 | 4,036 | ||||||
Other long-term liabilities | 1,490 | 1,531 | ||||||
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; 1,697 shares issued and 1,118 | ||||||||
shares outstanding at June 30, 2015 and 1,691 shares issued and 1,140 shares | ||||||||
outstanding at December 31, 2014 | 17 | 17 | ||||||
Treasury stock, at cost: 578 shares at June 30, 2015 and 550 shares at December 31, | ||||||||
2014 | (26,988 | ) | (24,078 | ) | ||||
Shares held in trust: 1 share at June 30, 2015 and December 31, 2014 | (31 | ) | (31 | ) | ||||
Capital surplus | 30,840 | 30,418 | ||||||
Retained earnings | 33,544 | 31,849 | ||||||
Accumulated other comprehensive income (loss) | (255 | ) | (217 | ) | ||||
Total CVS Health shareholders’ equity | 37,127 | 37,958 | ||||||
Noncontrolling interest | 6 | 5 | ||||||
Total shareholders’ equity | 37,133 | 37,963 | ||||||
Total liabilities and shareholders’ equity | $ | 74,668 | $ | 74,187 |
Six Months Ended June 30, | ||||||||
In millions | 2015 | 2014 | ||||||
Cash flows from operating activities: | ||||||||
Cash receipts from customers | $ | 71,014 | $ | 62,932 | ||||
Cash paid for inventory and prescriptions dispensed by retail network pharmacies | (58,129 | ) | (50,268 | ) | ||||
Cash paid to other suppliers and employees | (7,935 | ) | (7,787 | ) | ||||
Interest received | 9 | 6 | ||||||
Interest paid | (311 | ) | (331 | ) | ||||
Income taxes paid | (1,627 | ) | (1,483 | ) | ||||
Net cash provided by operating activities | 3,021 | 3,069 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (942 | ) | (891 | ) | ||||
Proceeds from sale-leaseback transactions | 34 | 5 | ||||||
Proceeds from sale of property and equipment and other assets | 14 | 7 | ||||||
Acquisitions (net of cash acquired) and other investments | (112 | ) | (2,248 | ) | ||||
Purchase of available-for-sale investments | (124 | ) | (161 | ) | ||||
Sale or maturity of available-for-sale investments | 40 | 103 | ||||||
Net cash used in investing activities | (1,090 | ) | (3,185 | ) | ||||
Cash flows from financing activities: | ||||||||
Increase in short-term debt | 803 | — | ||||||
Repayments of long-term debt | (550 | ) | (41 | ) | ||||
Dividends paid | (794 | ) | (647 | ) | ||||
Proceeds from exercise of stock options | 211 | 266 | ||||||
Excess tax benefits from stock-based compensation | 97 | 65 | ||||||
Repurchase of common stock | (2,934 | ) | (2,001 | ) | ||||
Net cash used in financing activities | (3,167 | ) | (2,358 | ) | ||||
Effect of exchange rates on cash and cash equivalents | (1 | ) | (3 | ) | ||||
Net decrease in cash and cash equivalents | (1,237 | ) | (2,477 | ) | ||||
Cash and cash equivalents at the beginning of the period | 2,481 | 4,089 | ||||||
Cash and cash equivalents at the end of the period | $ | 1,244 | $ | 1,612 | ||||
Reconciliation of net income to net cash provided by operating activities: | ||||||||
Net income | $ | 2,493 | $ | 2,375 | ||||
Adjustments required to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 978 | 965 | ||||||
Stock-based compensation | 88 | 77 | ||||||
Deferred income taxes and other non-cash items | 6 | 44 | ||||||
Change in operating assets and liabilities, net of effects of acquisitions: | ||||||||
Accounts receivable, net | (1,211 | ) | (584 | ) | ||||
Inventories | (465 | ) | (235 | ) | ||||
Other current assets | 131 | (74 | ) | |||||
Other assets | (48 | ) | (23 | ) | ||||
Accounts payable and claims and discounts payable | 1,383 | 521 | ||||||
Accrued expenses | (241 | ) | 33 | |||||
Other long-term liabilities | (93 | ) | (30 | ) | ||||
Net cash provided by operating activities | $ | 3,021 | $ | 3,069 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
In millions, except per share amounts | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Income before income tax provision(1) | $ | 2,096 | $ | 2,050 | $ | 4,094 | $ | 3,916 | ||||||||
Amortization | 131 | 133 | 260 | 264 | ||||||||||||
Adjusted income before income tax provision | 2,227 | 2,183 | 4,354 | 4,180 | ||||||||||||
Adjusted income tax provision and other(2) | 882 | 856 | 1,714 | 1,645 | ||||||||||||
Adjusted net income | $ | 1,345 | $ | 1,327 | $ | 2,640 | $ | 2,535 | ||||||||
Weighted average diluted shares outstanding | 1,132 | 1,174 | 1,134 | 1,182 | ||||||||||||
Adjusted earnings per share | $ | 1.19 | $ | 1.13 | $ | 2.33 | $ | 2.15 | ||||||||
Adjustments for acquisition-related costs: | ||||||||||||||||
Add back: Per share acquisition-related transaction costs recorded during the three and six months ended June 30, 2015(1) | 0.01 | — | 0.01 | — | ||||||||||||
Add back: Per share acquisition-related financing costs recorded during the three and six months ended June 30, 2015(1) | 0.02 | — | 0.02 | — | ||||||||||||
Adjusted earnings per share (excluding acquisition-related transaction and financing costs) | $ | 1.22 | $ | 1.13 | $ | 2.36 | $ | 2.15 |
(1) | Includes $21 million of acquisition-related transaction costs and $36 million of acquisition-related financing costs (for a total impact of approximately $0.03 per diluted share) during the three and six months ended June 30, 2015 related to the proposed acquisitions of Omnicare Inc. and the pharmacies and clinics of Target Corporation. Excluding these items, Adjusted EPS for the three and six months ended June 30, 2015 was $1.22 and $2.36, respectively, an increase of 7.7% and 9.9%, respectively, from the prior year. |
(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 $7 million and $12 million for the three and six months ended June 30, 2015, respectively. |
Six Months Ended June 30, | ||||||||
In millions | 2015 | 2014 | ||||||
Net cash provided by operating activities(1) | $ | 3,021 | $ | 3,069 | ||||
Subtract: Additions to property and equipment | (942 | ) | (891 | ) | ||||
Add: Proceeds from sale-leaseback transactions | 34 | 5 | ||||||
Free cash flow | $ | 2,113 | $ | 2,183 |
(1) | Cash provided by operating activities for the six months ended June 30, 2015 includes $21 million of pre-tax acquisition-related transaction costs ($13 million after-tax). |
In millions | Pharmacy Services Segment(1) | Retail Pharmacy Segment | Corporate Segment | Intersegment Eliminations(2) | Consolidated Totals | |||||||||||||||
Three Months Ended | ||||||||||||||||||||
June 30, 2015: | ||||||||||||||||||||
Net revenues | $ | 24,442 | $ | 17,242 | $ | — | $ | (4,515 | ) | $ | 37,169 | |||||||||
Gross profit | 1,241 | 5,322 | — | (161 | ) | 6,402 | ||||||||||||||
Operating profit (loss)(3) | 940 | 1,681 | (215 | ) | (144 | ) | 2,262 | |||||||||||||
June 30, 2014: | ||||||||||||||||||||
Net revenues | 21,836 | 16,871 | — | (4,105 | ) | 34,602 | ||||||||||||||
Gross profit | 1,195 | 5,299 | — | (170 | ) | 6,324 | ||||||||||||||
Operating profit (loss) | 878 | 1,705 | (205 | ) | (170 | ) | 2,208 | |||||||||||||
Six Months Ended | ||||||||||||||||||||
June 30, 2015: | ||||||||||||||||||||
Net revenues | 48,321 | 34,193 | — | (9,013 | ) | 73,501 | ||||||||||||||
Gross profit | 2,267 | 10,617 | — | (318 | ) | 12,566 | ||||||||||||||
Operating profit (loss)(3) | 1,675 | 3,408 | (404 | ) | (285 | ) | 4,394 | |||||||||||||
June 30, 2014: | ||||||||||||||||||||
Net revenues | 42,031 | 33,351 | — | (8,091 | ) | 67,291 | ||||||||||||||
Gross profit | 2,129 | 10,483 | — | (346 | ) | 12,266 | ||||||||||||||
Operating profit (loss) | 1,518 | 3,455 | (395 | ) | (346 | ) | 4,232 |
(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 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 for both the three months ended June 30, 2015 and 2014, and $2.4 billion and $2.3 billion for the six months ended June 30, 2015 and 2014, respectively; gross profit of $161 million and $170 million for the three months ended June 30, 2015 and 2014, respectively, and $318 million and $346 million for the six months ended June 30, 2015 and 2014, respectively; and operating profit of $144 million and $170 million for the three months ended June 30, 2015 and 2014, respectively, and $285 million and $346 million for the six months ended June 30, 2015 and 2014, respectively. |
(3) | The Corporate Segment operating loss includes $21 million of acquisition-related transaction costs for the three and six months ended June 30, 2015. |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
In millions | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Net revenues | $ | 24,442 | $ | 21,836 | $ | 48,321 | $ | 42,031 | ||||||||
Gross profit | 1,241 | 1,195 | 2,267 | 2,129 | ||||||||||||
Gross profit % of net revenues | 5.1 | % | 5.5 | % | 4.7 | % | 5.1 | % | ||||||||
Operating expenses | 301 | 317 | 592 | 611 | ||||||||||||
Operating expense % of net revenues | 1.2 | % | 1.5 | % | 1.2 | % | 1.5 | % | ||||||||
Operating profit | 940 | 878 | 1,675 | 1,518 | ||||||||||||
Operating profit % of net revenues | 3.8 | % | 4.0 | % | 3.5 | % | 3.6 | % | ||||||||
Net revenues(1): | ||||||||||||||||
Mail choice(2) | $ | 9,107 | $ | 7,753 | $ | 17,857 | $ | 14,587 | ||||||||
Pharmacy network(3) | 15,267 | 14,025 | 30,326 | 27,327 | ||||||||||||
Other | 68 | 58 | 138 | 117 | ||||||||||||
Pharmacy claims processed(1): | ||||||||||||||||
Total | 250.1 | 230.9 | 501.3 | 458.7 | ||||||||||||
Mail choice(2) | 21.3 | 20.5 | 41.7 | 40.3 | ||||||||||||
Pharmacy network(3) | 228.8 | 210.4 | 459.6 | 418.4 | ||||||||||||
Generic dispensing rate(1): | ||||||||||||||||
Total | 83.9 | % | 82.4 | % | 83.7 | % | 82.0 | % | ||||||||
Mail choice(2) | 76.3 | % | 74.6 | % | 76.2 | % | 72.5 | % | ||||||||
Pharmacy network(3) | 84.6 | % | 83.2 | % | 84.4 | % | 83.0 | % | ||||||||
Mail choice penetration rate | 20.7 | % | 21.6 | % | 20.2 | % | 21.4 | % |
(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. |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
In millions | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Net revenues | $ | 17,242 | $ | 16,871 | $ | 34,193 | $ | 33,351 | ||||||||
Gross profit | 5,322 | 5,299 | 10,617 | 10,483 | ||||||||||||
Gross profit % of net revenues | 30.9 | % | 31.4 | % | 31.0 | % | 31.4 | % | ||||||||
Operating expenses | 3,641 | 3,594 | 7,209 | 7,028 | ||||||||||||
Operating expense % of net revenues | 21.1 | % | 21.3 | % | 21.1 | % | 21.1 | % | ||||||||
Operating profit | 1,681 | 1,705 | 3,408 | 3,455 | ||||||||||||
Operating profit % of net revenues | 9.7 | % | 10.1 | % | 10.0 | % | 10.4 | % | ||||||||
Retail prescriptions filled (90 Day = 3 Rx) (1) | 244.1 | 230.3 | 485.5 | 457.4 | ||||||||||||
Net revenue increase (decrease): | ||||||||||||||||
Total | 2.2 | % | 4.5 | % | 2.5 | % | 3.6 | % | ||||||||
Pharmacy | 5.2 | % | 5.4 | % | 5.2 | % | 4.8 | % | ||||||||
Front store | (5.1 | )% | 1.1 | % | (4.4 | )% | (0.6 | )% | ||||||||
Total prescription volume (90 Day = 3 Rx) (1) | 6.0 | % | 4.8 | % | 6.1 | % | 3.8 | % | ||||||||
Same store increase (decrease)(2): | ||||||||||||||||
Total sales | 0.5 | % | 3.3 | % | 0.8 | % | 2.4 | % | ||||||||
Pharmacy sales | 4.1 | % | 5.0 | % | 4.2 | % | 4.4 | % | ||||||||
Front store sales(3) | (7.8 | )% | (0.4 | )% | (7.0 | )% | (2.1 | )% | ||||||||
Prescription volume (90 Day = 3 Rx) (1) | 4.8 | % | 3.9 | % | 4.9 | % | 3.0 | % | ||||||||
Generic dispensing rate | 85.0 | % | 83.5 | % | 84.7 | % | 83.2 | % | ||||||||
Pharmacy % of total revenues | 71.6 | % | 69.6 | % | 71.6 | % | 69.8 | % | ||||||||
Third party % of pharmacy revenue | 98.8 | % | 98.7 | % | 98.7 | % | 98.5 | % |
(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) | Same store sales exclude revenues from MinuteClinic and stores in Brazil. |
(3) | On a comparable basis, front store same store sales would have been approximately 780 and 790 basis points higher for the three and six months ended June 30, 2015, respectively, if tobacco and the estimated associated basket sales were excluded from the three and six months ended June 30, 2014. |
In millions, except per share amounts | Year Ending December 31, 2015 | |||||||
Income before income tax provision(2)(3)(4) | $ | 8,638 | $ | 8,776 | ||||
Amortization | 522 | 521 | ||||||
Adjusted income before income tax provision | 9,160 | 9,297 | ||||||
Adjusted income tax provision and other(1) | 3,622 | 3,676 | ||||||
Adjusted net income | $ | 5,538 | $ | 5,621 | ||||
Weighted average diluted shares outstanding | 1,126 | 1,126 | ||||||
Adjusted earnings per share | $ | 4.92 | $ | 4.99 | ||||
Adjustments for acquisition-related costs: | ||||||||
Add back: Per share acquisition-related transaction and financing costs recorded during the six months ended June 30, 2015(2) | 0.03 | 0.03 | ||||||
Add back: Per share acquisition-related transaction and financing costs estimated from July 1, 2015 to December 31, 2015(3)(4) | 0.16 | 0.16 | ||||||
Adjusted earnings per share (excluding acquisition-related transaction and financing costs) | $ | 5.11 | $ | 5.18 |
In millions, except per share amounts | Three Months Ending September 30, 2015 | |||||||
Income before income tax provision | $ | 2,103 | $ | 2,165 | ||||
Amortization | 131 | 131 | ||||||
Adjusted income before income tax provision | 2,234 | 2,296 | ||||||
Adjusted income tax provision and other(1) | 889 | 914 | ||||||
Adjusted net income | $ | 1,345 | $ | 1,382 | ||||
Weighted average diluted shares outstanding | 1,122 | 1,122 | ||||||
Adjusted earnings per share | $ | 1.20 | $ | 1.23 | ||||
Adjustments for acquisition-related costs: | ||||||||
Add back: Financing costs estimated for the third quarter(5) | 0.07 | 0.07 | ||||||
Adjusted earnings per share (excluding acquisition-related financing costs) | $ | 1.27 | $ | 1.30 |
(1) | The adjusted income tax provision is computed using the effective income tax rate from the consolidated statement of income. Other includes earnings allocated to participating securities. |
(2) | During the three and six months ended June 30, 2015, the Company recorded $21 million of acquisition-related transaction costs and $36 million of acquisition-related financing costs related to the proposed acquisitions of Omnicare, Inc. and the pharmacies and clinics of Target Corporation. The total impact of these costs was approximately $0.03 per share. |
(3) | The acquisition-related transaction costs for the proposed acquisition of Omnicare, Inc. for the period from July 1, 2015 through December 31, 2015 are estimated to be $0.03 per share. Depending on the timing of the close of the proposed acquisition of the pharmacies and clinics of Target Corporation, there could be another $0.02 of transaction costs. |
(4) | The acquisition-related financing costs for the period from July 1, 2015 to December 31, 2015 are estimated to be $0.13 per share. |
(5) | The acquisition-related financing costs for the three months ending September 30, 2015 are estimated to be $0.07 per share. |
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 |