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: | May 3, 2016 |
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 18.9% to $43.2 billion |
• | Operating profit increased 2.0% to $2.2 billion, including the effect of acquisition-related integration costs of $61 million; operating profit increased approximately 5.0% excluding the acquisition-related integration costs |
• | Adjusted EPS increased 4.0% to $1.18; GAAP diluted EPS of $1.04 |
• | Generated free cash flow of $1.8 billion and cash flow from operations of $2.4 billion |
• | Confirmed full year Adjusted EPS of $5.73 to $5.88 |
• | As expected, GAAP diluted EPS is revised, to $5.24 to $5.39 from $5.28 to $5.43, recognizing the impact in the first quarter of the acquisition-related integration costs and a charge related to a disputed 1999 legal settlement |
• | Provided second quarter Adjusted EPS guidance of $1.28 to $1.31; GAAP diluted EPS of $1.17 to $1.20; both excluding acquisition-related integration costs |
• | Confirmed full year free cash flow of $5.3 to $5.6 billion; cash flow from operations of $7.6 to $7.9 billion |
Three Months Ended March 31, | ||||||||
In millions, except per share amounts | 2016 | 2015 | ||||||
Net revenues | $ | 43,215 | $ | 36,332 | ||||
Cost of revenues | 36,471 | 30,168 | ||||||
Gross profit | 6,744 | 6,164 | ||||||
Operating expenses | 4,568 | 4,032 | ||||||
Operating profit | 2,176 | 2,132 | ||||||
Interest expense, net | 283 | 134 | ||||||
Income before income tax provision | 1,893 | 1,998 | ||||||
Income tax provision | 746 | 777 | ||||||
Net income | 1,147 | 1,221 | ||||||
Net income attributable to noncontrolling interest | (1 | ) | — | |||||
Net income attributable to CVS Health | $ | 1,146 | $ | 1,221 | ||||
Net income per share attributable to CVS Health: | ||||||||
Basic | $ | 1.04 | $ | 1.08 | ||||
Diluted | $ | 1.04 | $ | 1.07 | ||||
Weighted average shares outstanding: | ||||||||
Basic | 1,092 | 1,128 | ||||||
Diluted | 1,099 | 1,136 | ||||||
Dividends declared per share | $ | 0.425 | $ | 0.350 |
March 31, | December 31, | |||||||
In millions, except per share amounts | 2016 | 2015 | ||||||
Assets: | ||||||||
Cash and cash equivalents | $ | 1,779 | $ | 2,459 | ||||
Short-term investments | 85 | 88 | ||||||
Accounts receivable, net | 13,025 | 11,888 | ||||||
Inventories | 13,912 | 14,001 | ||||||
Other current assets | 612 | 722 | ||||||
Total current assets | 29,413 | 29,158 | ||||||
Property and equipment, net | 9,862 | 9,855 | ||||||
Goodwill | 38,115 | 38,106 | ||||||
Intangible assets, net | 13,750 | 13,878 | ||||||
Other assets | 1,494 | 1,440 | ||||||
Total assets | $ | 92,634 | $ | 92,437 | ||||
Liabilities: | ||||||||
Accounts payable | $ | 7,361 | $ | 7,490 | ||||
Claims and discounts payable | 8,530 | 7,653 | ||||||
Accrued expenses | 7,444 | 6,829 | ||||||
Current portion of long-term debt | 1,202 | 1,197 | ||||||
Total current liabilities | 24,537 | 23,169 | ||||||
Long-term debt | 26,267 | 26,267 | ||||||
Deferred income taxes | 4,232 | 4,217 | ||||||
Other long-term liabilities | 1,567 | 1,542 | ||||||
Commitments and contingencies | — | — | ||||||
Redeemable noncontrolling interest | — | 39 | ||||||
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; 1,701 shares issued and 1,081 | ||||||||
shares outstanding at March 31, 2016 and 1,699 shares issued and 1,101 shares | ||||||||
outstanding at December 31, 2015 | 17 | 17 | ||||||
Treasury stock, at cost: 619 shares at March 31, 2016 and 597 shares at December 31, | ||||||||
2015 | (31,058 | ) | (28,886 | ) | ||||
Shares held in trust: 1 share at March 31, 2016 and December 31, 2015 | (31 | ) | (31 | ) | ||||
Capital surplus | 31,254 | 30,948 | ||||||
Retained earnings | 36,182 | 35,506 | ||||||
Accumulated other comprehensive income (loss) | (339 | ) | (358 | ) | ||||
Total CVS Health shareholders’ equity | 36,025 | 37,196 | ||||||
Noncontrolling interest | 6 | 7 | ||||||
Total shareholders’ equity | 36,031 | 37,203 | ||||||
Total liabilities and shareholders’ equity | $ | 92,634 | $ | 92,437 |
Three Months Ended March 31, | ||||||||
In millions | 2016 | 2015 | ||||||
Cash flows from operating activities: | ||||||||
Cash receipts from customers | $ | 41,482 | $ | 34,570 | ||||
Cash paid for inventory and prescriptions dispensed by retail network pharmacies | (35,575 | ) | (28,276 | ) | ||||
Cash paid to other suppliers and employees | (2,961 | ) | (4,162 | ) | ||||
Interest received | 5 | 3 | ||||||
Interest paid | (378 | ) | (87 | ) | ||||
Income taxes paid | (161 | ) | (64 | ) | ||||
Net cash provided by operating activities | 2,412 | 1,984 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (598 | ) | (419 | ) | ||||
Proceeds from sale-leaseback transactions | — | 25 | ||||||
Proceeds from sale of property and equipment and other assets | 2 | 8 | ||||||
Acquisitions (net of cash acquired) and other investments | (51 | ) | (61 | ) | ||||
Purchase of available-for-sale investments | (36 | ) | (113 | ) | ||||
Sale or maturity of available-for-sale investments | 50 | 16 | ||||||
Net cash used in investing activities | (633 | ) | (544 | ) | ||||
Cash flows from financing activities: | ||||||||
Decrease in short-term debt | — | (185 | ) | |||||
Purchase of noncontrolling interest in subsidiary | (39 | ) | — | |||||
Dividends paid | (470 | ) | (399 | ) | ||||
Proceeds from exercise of stock options | 92 | 126 | ||||||
Excess tax benefits from stock-based compensation | 27 | 59 | ||||||
Repurchase of common stock | (2,066 | ) | (2,007 | ) | ||||
Other | (4 | ) | — | |||||
Net cash used in financing activities | (2,460 | ) | (2,406 | ) | ||||
Effect of exchange rates on cash and cash equivalents | 1 | 3 | ||||||
Net decrease in cash and cash equivalents | (680 | ) | (963 | ) | ||||
Cash and cash equivalents at the beginning of the period | 2,459 | 2,481 | ||||||
Cash and cash equivalents at the end of the period | $ | 1,779 | $ | 1,518 | ||||
Reconciliation of net income to net cash provided by operating activities: | ||||||||
Net income | $ | 1,147 | $ | 1,221 | ||||
Adjustments required to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 617 | 490 | ||||||
Stock-based compensation | 57 | 44 | ||||||
Deferred income taxes and other non-cash items | 17 | (31 | ) | |||||
Change in operating assets and liabilities, net of effects of acquisitions: | ||||||||
Accounts receivable, net | (1,131 | ) | (481 | ) | ||||
Inventories | 89 | (313 | ) | |||||
Other current assets | 106 | 269 | ||||||
Other assets | (52 | ) | (52 | ) | ||||
Accounts payable and claims and discounts payable | 798 | 756 | ||||||
Accrued expenses | 741 | 153 | ||||||
Other long-term liabilities | 23 | (72 | ) | |||||
Net cash provided by operating activities | $ | 2,412 | $ | 1,984 |
Three Months Ended March 31, | |||||||||
In millions, except per share amounts | 2016 | 2015 | |||||||
Income before income tax provision | $ | 1,893 | $ | 1,998 | |||||
Non-GAAP adjustments: | |||||||||
Amortization of intangible assets | 199 | 129 | |||||||
Acquisition-related integration costs(1) | 61 | — | |||||||
Charge related to a disputed 1999 legal settlement | 3 | — | |||||||
Adjusted income before income tax provision | 2,156 | 2,127 | |||||||
Adjusted income tax provision | 847 | 828 | |||||||
Adjusted net income | 1,309 | 1,299 | |||||||
Net income attributable to noncontrolling interest | (1 | ) | — | ||||||
Income allocable to participating securities | (7 | ) | (5 | ) | |||||
Adjusted net income attributable to CVS Health | $ | 1,301 | $ | 1,294 | |||||
Weighted average diluted shares outstanding | 1,099 | 1,136 | |||||||
Adjusted EPS | $ | 1.18 | $ | 1.14 |
(1) | Costs associated with the acquisitions of Omnicare and the pharmacies and clinics of Target. |
Three Months Ended March 31, | ||||||||
In millions | 2016 | 2015 | ||||||
Net cash provided by operating activities | $ | 2,412 | $ | 1,984 | ||||
Subtract: Additions to property and equipment | (598 | ) | (419 | ) | ||||
Add: Proceeds from sale-leaseback transactions | — | 25 | ||||||
Free cash flow | $ | 1,814 | $ | 1,590 |
In millions | Pharmacy Services Segment(1) | Retail/LTC Segment | Corporate Segment | Intersegment Eliminations(2) | Consolidated Totals | |||||||||||||||
Three Months Ended | ||||||||||||||||||||
March 31, 2016: | ||||||||||||||||||||
Net revenues | $ | 28,765 | $ | 20,112 | $ | — | $ | (5,662 | ) | $ | 43,215 | |||||||||
Gross profit(3) | 1,102 | 5,830 | — | (188 | ) | 6,744 | ||||||||||||||
Operating profit (loss)(3) | 782 | 1,777 | (212 | ) | (171 | ) | 2,176 | |||||||||||||
March 31, 2015: | ||||||||||||||||||||
Net revenues | 23,879 | 16,951 | — | (4,498 | ) | 36,332 | ||||||||||||||
Gross profit | 1,026 | 5,295 | — | (157 | ) | 6,164 | ||||||||||||||
Operating profit (loss) | 734 | 1,727 | (189 | ) | (140 | ) | 2,132 |
(1) | Net revenues of the Pharmacy Services Segment include approximately $3.0 billion and $2.5 billion of retail co-payments for the three months ended March 31, 2016 and 2015, respectively. |
(2) | Intersegment eliminations relate to intersegment revenue generating activities that occur between the Pharmacy Services Segment and the Retail/LTC Segment. These occur when Pharmacy Services Segment members fill prescriptions at either the Company's retail pharmacies or long-term care facilities. Revenues are recorded in both segments and are eliminated in consolidation. Gross profit and operating profit related to the Company's Maintenance Choice® programs are recorded in both segments and are also eliminated in consolidation. |
(3) | The Retail/LTC Segment gross profit and operating profit for the three months ended March 31, 2016 include $4 million and $57 million, respectively, of acquisition-related integration costs related to the acquisitions of Omnicare and the pharmacies and clinics of Target. |
Three Months Ended March 31, | |||||||||
In millions | 2016 | 2015 | |||||||
Net revenues | $ | 28,765 | $ | 23,879 | |||||
Gross profit | 1,102 | 1,026 | |||||||
Gross profit % of net revenues | 3.8 | % | 4.3 | % | |||||
Operating expenses | 320 | 292 | |||||||
Operating expense % of net revenues | 1.1 | % | 1.2 | % | |||||
Operating profit | 782 | 734 | |||||||
Operating profit % of net revenues | 2.7 | % | 3.1 | % | |||||
Net revenues: | |||||||||
Mail choice(1) | $ | 10,150 | $ | 8,750 | |||||
Pharmacy network(2) | 18,536 | 15,059 | |||||||
Other | 79 | 70 | |||||||
Pharmacy claims processed: | |||||||||
Total | 304.8 | 251.1 | |||||||
Mail choice(1) | 21.7 | 20.3 | |||||||
Pharmacy network(2) | 283.1 | 230.8 | |||||||
Generic dispensing rate: | |||||||||
Total | 85.2 | % | 83.5 | % | |||||
Mail choice(1) | 77.3 | % | 76.1 | % | |||||
Pharmacy network(2) | 85.8 | % | 84.1 | % | |||||
Mail choice penetration rate | 17.6 | % | 19.8 | % |
(1) | Mail choice is defined as claims filled at a Pharmacy Services mail facility, which include specialty mail claims inclusive of Specialty Connect® claims filled at retail, as well as prescriptions filled at retail under the Maintenance Choice® program. |
(2) | Pharmacy network net revenues, claims processed and generic dispensing rates do not include Maintenance Choice, which are included within the mail choice category. Pharmacy network is defined as claims filled at retail and specialty pharmacies, including our retail drugstores and long-term care pharmacies, but excluding Maintenance Choice activity. |
Three Months Ended March 31, | |||||||||
In millions | 2016 | 2015 | |||||||
Net revenues | $ | 20,112 | $ | 16,951 | |||||
Gross profit(1) | 5,830 | 5,295 | |||||||
Gross profit % of net revenues | 29.0 | % | 31.2 | % | |||||
Operating expenses(1) | 4,053 | 3,568 | |||||||
Operating expense % of net revenues | 20.1 | % | 21.0 | % | |||||
Operating profit | 1,777 | 1,727 | |||||||
Operating profit % of net revenues | 8.8 | % | 10.2 | % | |||||
Prescriptions filled (90 Day = 3 Rx)(2) | 305.1 | 241.3 | |||||||
Net revenue increase (decrease): | |||||||||
Total | 18.6 | % | 2.9 | % | |||||
Pharmacy | 23.7 | % | 5.3 | % | |||||
Front store | 2.6 | % | (3.6 | )% | |||||
Total prescription volume (90 Day = 3 Rx)(2) | 16.0 | % | 6.3 | % | |||||
Same store increase (decrease)(3): | |||||||||
Total sales | 4.2 | % | 1.2 | % | |||||
Pharmacy sales | 5.5 | % | 4.2 | % | |||||
Front store sales | 0.7 | % | (6.1 | )% | |||||
Prescription volume (90 Day = 3 Rx)(2) | 5.9 | % | 5.1 | % | |||||
Generic dispensing rate | 85.7 | % | 84.4 | % | |||||
Pharmacy % of total revenues | 74.7 | % | 71.7 | % |
(1) | Gross profit includes $4 million and operating expenses include $57 million of acquisition-related integration costs related to the acquisitions of Omnicare and the pharmacies and clinics of Target for the three months ended March 31, 2016. |
(2) | 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. |
(3) | Same store sales and prescriptions exclude revenues from MinuteClinic®, and revenue and prescriptions from stores in Brazil, long-term care operations and from commercialization services. |
In millions, except per share amounts | Year Ending December 31, 2016 | |||||||
Income before income tax provision(1) | $ | 9,330 | $ | 9,606 | ||||
Non-GAAP adjustments: | ||||||||
Amortization of intangible assets | 800 | 798 | ||||||
Acquisition-related integration costs(1) | 61 | 61 | ||||||
Charge related to a disputed 1999 legal settlement | 3 | 3 | ||||||
Adjusted income before income tax provision | 10,194 | 10,468 | ||||||
Adjusted income tax provision | 3,974 | 4,082 | ||||||
Adjusted net income | 6,220 | 6,386 | ||||||
Net income attributable to noncontrolling interest | (7 | ) | (7 | ) | ||||
Income allocable to participating securities | (30 | ) | (30 | ) | ||||
Adjusted net income attributable to CVS Health | $ | 6,183 | $ | 6,349 | ||||
Weighted average diluted shares outstanding | 1,080 | 1,080 | ||||||
Adjusted earnings per share | $ | 5.73 | $ | 5.88 |
In millions, except per share amounts | Three Months Ending June 30, 2016 | |||||||
Income before income tax provision(1) | $ | 2,069 | $ | 2,138 | ||||
Non-GAAP adjustments: | ||||||||
Amortization of intangible assets | 195 | 195 | ||||||
Adjusted income before income tax provision | 2,264 | 2,333 | ||||||
Adjusted income tax provision | 884 | 917 | ||||||
Adjusted net income | 1,380 | 1,416 | ||||||
Net income attributable to noncontrolling interest | — | — | ||||||
Income allocable to participating securities | (8 | ) | (8 | ) | ||||
Adjusted net income attributable to CVS Health | $ | 1,372 | $ | 1,408 | ||||
Weighted average diluted shares outstanding | 1,075 | 1,075 | ||||||
Adjusted earnings per share(4) | $ | 1.28 | $ | 1.31 |
(1) | Excludes anticipated acquisition-related integration costs for the acquisitions of Omnicare and the pharmacies and clinics of Target for the period from April 1, 2016 through December 31, 2016. |
In millions | Year Ending December 31, 2016 | |||||||
Net cash provided by operating activities | $ | 7,575 | $ | 7,875 | ||||
Subtract: Additions to property and equipment | (2,550 | ) | (2,450 | ) | ||||
Add: Proceeds from sale-leaseback transactions | 275 | 175 | ||||||
Free cash flow | $ | 5,300 | $ | 5,600 |