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 2, 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 17.6% to $43.7 billion |
• | GAAP operating profit increased 3.9% to $2.4 billion; operating profit excluding acquisition-related transaction and integration costs increased 6.5% |
• | GAAP diluted EPS decreased from $1.12 to $0.86, primarily driven by a loss on early extinguishment of debt and acquisition-related integration costs |
• | Adjusted EPS increased 8.3% to $1.32 |
• | Cash flow from operations of $4.0 billion |
• | Generated free cash flow of $2.9 billion |
• | Full year GAAP diluted EPS revised to $4.92 to $5.00 from $5.24 to $5.39, to reflect the impact of the loss on early extinguishment of debt and second quarter acquisition-related integration costs |
• | Full year Adjusted EPS raised and narrowed to $5.81 to $5.89 from $5.73 to $5.88 |
• | Provided third quarter GAAP diluted EPS of $1.38 to $1.41, including a loss on early extinguishment of debt and excluding acquisition-related integration costs |
• | Provided third quarter Adjusted EPS of $1.55 to $1.58 |
• | Raised full year cash flow from operations to $8.8 to $9.1 billion from $7.6 to $7.9 billion; free cash flow raised to $6.3 to $6.6 billion from $5.3 to $5.6 billion |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
In millions, except per share amounts | 2016 | 2015 | 2016 | 2015 | |||||||||||
Net revenues | $ | 43,725 | $ | 37,169 | $ | 86,940 | $ | 73,501 | |||||||
Cost of revenues | 36,710 | 30,767 | 73,181 | 60,935 | |||||||||||
Gross profit | 7,015 | 6,402 | 13,759 | 12,566 | |||||||||||
Operating expenses | 4,665 | 4,140 | 9,233 | 8,172 | |||||||||||
Operating profit | 2,350 | 2,262 | 4,526 | 4,394 | |||||||||||
Interest expense, net | 280 | 166 | 563 | 300 | |||||||||||
Loss on early extinguishment of debt | 542 | — | 542 | — | |||||||||||
Income before income tax provision | 1,528 | 2,096 | 3,421 | 4,094 | |||||||||||
Income tax provision | 604 | 824 | 1,350 | 1,601 | |||||||||||
Net income | 924 | 1,272 | 2,071 | 2,493 | |||||||||||
Net income attributable to noncontrolling interest | — | — | (1 | ) | — | ||||||||||
Net income attributable to CVS Health | $ | 924 | $ | 1,272 | $ | 2,070 | $ | 2,493 | |||||||
Net income per share attributable to CVS Health: | |||||||||||||||
Basic | $ | 0.86 | $ | 1.13 | $ | 1.91 | $ | 2.20 | |||||||
Diluted | $ | 0.86 | $ | 1.12 | $ | 1.90 | $ | 2.19 | |||||||
Weighted average shares outstanding: | |||||||||||||||
Basic | 1,070 | 1,124 | 1,081 | 1,126 | |||||||||||
Diluted | 1,075 | 1,132 | 1,087 | 1,134 | |||||||||||
Dividends declared per share | $ | 0.425 | $ | 0.350 | $ | 0.850 | $ | 0.700 |
June 30, | December 31, | |||||||
In millions, except per share amounts | 2016 | 2015 | ||||||
Assets: | ||||||||
Cash and cash equivalents | $ | 1,127 | $ | 2,459 | ||||
Short-term investments | 80 | 88 | ||||||
Accounts receivable, net | 13,183 | 11,888 | ||||||
Inventories | 14,177 | 14,001 | ||||||
Other current assets | 881 | 722 | ||||||
Total current assets | 29,448 | 29,158 | ||||||
Property and equipment, net | 9,981 | 9,855 | ||||||
Goodwill | 38,190 | 38,106 | ||||||
Intangible assets, net | 13,639 | 13,878 | ||||||
Other assets | 1,490 | 1,440 | ||||||
Total assets | $ | 92,748 | $ | 92,437 | ||||
Liabilities: | ||||||||
Accounts payable | $ | 7,351 | $ | 7,490 | ||||
Claims and discounts payable | 8,938 | 7,653 | ||||||
Accrued expenses | 7,244 | 6,829 | ||||||
Short-term debt | 745 | — | ||||||
Current portion of long-term debt | 2,291 | 1,197 | ||||||
Total current liabilities | 26,569 | 23,169 | ||||||
Long-term debt | 25,600 | 26,267 | ||||||
Deferred income taxes | 4,260 | 4,217 | ||||||
Other long-term liabilities | 1,553 | 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; 1,704 shares issued and 1,065 | ||||||||
shares outstanding at June 30, 2016 and 1,699 shares issued and 1,101 shares | ||||||||
outstanding at December 31, 2015 | 17 | 17 | ||||||
Treasury stock, at cost: 638 shares at June 30, 2016 and 597 shares at December 31, | ||||||||
2015 | (33,010 | ) | (28,886 | ) | ||||
Shares held in trust: 1 share at June 30, 2016 and December 31, 2015 | (31 | ) | (31 | ) | ||||
Capital surplus | 31,454 | 30,948 | ||||||
Retained earnings | 36,647 | 35,506 | ||||||
Accumulated other comprehensive income (loss) | (317 | ) | (358 | ) | ||||
Total CVS Health shareholders’ equity | 34,760 | 37,196 | ||||||
Noncontrolling interest | 6 | 7 | ||||||
Total shareholders’ equity | 34,766 | 37,203 | ||||||
Total liabilities and shareholders’ equity | $ | 92,748 | $ | 92,437 |
Six Months Ended June 30, | ||||||||
In millions | 2016 | 2015 | ||||||
Cash flows from operating activities: | ||||||||
Cash receipts from customers | $ | 84,324 | $ | 71,014 | ||||
Cash paid for inventory and prescriptions dispensed by retail network pharmacies | (70,851 | ) | (58,129 | ) | ||||
Cash paid to other suppliers and employees | (7,082 | ) | (7,935 | ) | ||||
Interest received | 9 | 9 | ||||||
Interest paid | (615 | ) | (311 | ) | ||||
Income taxes paid | (1,762 | ) | (1,627 | ) | ||||
Net cash provided by operating activities | 4,023 | 3,021 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (1,102 | ) | (942 | ) | ||||
Proceeds from sale-leaseback transactions | — | 34 | ||||||
Proceeds from sale of property and equipment and other assets | 11 | 14 | ||||||
Acquisitions (net of cash acquired) and other investments | (168 | ) | (112 | ) | ||||
Purchase of available-for-sale investments | (39 | ) | (124 | ) | ||||
Sale or maturity of available-for-sale investments | 67 | 40 | ||||||
Net cash used in investing activities | (1,231 | ) | (1,090 | ) | ||||
Cash flows from financing activities: | ||||||||
Increase in short-term debt | 745 | 803 | ||||||
Proceeds from issuance of long-term debt | 3,455 | — | ||||||
Repayments of long-term debt | (3,579 | ) | (550 | ) | ||||
Purchase of noncontrolling interest in subsidiary | (39 | ) | — | |||||
Dividends paid | (929 | ) | (794 | ) | ||||
Proceeds from exercise of stock options | 122 | 211 | ||||||
Excess tax benefits from stock-based compensation | 63 | 97 | ||||||
Repurchase of common stock | (3,960 | ) | (2,934 | ) | ||||
Other | (4 | ) | — | |||||
Net cash used in financing activities | (4,126 | ) | (3,167 | ) | ||||
Effect of exchange rates on cash and cash equivalents | 2 | (1 | ) | |||||
Net decrease in cash and cash equivalents | (1,332 | ) | (1,237 | ) | ||||
Cash and cash equivalents at the beginning of the period | 2,459 | 2,481 | ||||||
Cash and cash equivalents at the end of the period | $ | 1,127 | $ | 1,244 | ||||
Reconciliation of net income to net cash provided by operating activities: | ||||||||
Net income | $ | 2,071 | $ | 2,493 | ||||
Adjustments required to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 1,236 | 978 | ||||||
Stock-based compensation | 107 | 88 | ||||||
Loss on early extinguishment of debt | 542 | — | ||||||
Deferred income taxes and other non-cash items | 75 | 6 | ||||||
Change in operating assets and liabilities, net of effects of acquisitions: | ||||||||
Accounts receivable, net | (1,279 | ) | (1,211 | ) | ||||
Inventories | (167 | ) | (465 | ) | ||||
Other current assets | (170 | ) | 131 | |||||
Other assets | (53 | ) | (48 | ) | ||||
Accounts payable and claims and discounts payable | 1,164 | 1,383 | ||||||
Accrued expenses | 492 | (241 | ) | |||||
Other long-term liabilities | 5 | (93 | ) | |||||
Net cash provided by operating activities | $ | 4,023 | $ | 3,021 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
In millions, except per share amounts | 2016 | 2015 | 2016 | 2015 | ||||||||||||
Income before income tax provision | $ | 1,528 | $ | 2,096 | $ | 3,421 | $ | 4,094 | ||||||||
Non-GAAP adjustments: | ||||||||||||||||
Amortization of intangible assets | 197 | 131 | 396 | 260 | ||||||||||||
Acquisition-related transaction and integration costs(1) | 81 | 21 | 142 | 21 | ||||||||||||
Acquisition-related bridge financing costs(1) | — | 36 | — | 36 | ||||||||||||
Charge related to a disputed 1999 legal settlement | — | — | 3 | — | ||||||||||||
Loss on early extinguishment of debt | 542 | — | 542 | — | ||||||||||||
Adjusted income before income tax provision | 2,348 | 2,284 | 4,504 | 4,411 | ||||||||||||
Adjusted income tax provision | 923 | 897 | 1,770 | 1,724 | ||||||||||||
Adjusted net income | 1,425 | 1,387 | 2,734 | 2,687 | ||||||||||||
Net income attributable to noncontrolling interest | — | — | (1 | ) | — | |||||||||||
Income allocable to participating securities | (6 | ) | (7 | ) | (13 | ) | (12 | ) | ||||||||
Adjusted net income attributable to CVS Health | $ | 1,419 | $ | 1,380 | $ | 2,720 | $ | 2,675 | ||||||||
Weighted average diluted shares outstanding | 1,075 | 1,132 | 1,087 | 1,134 | ||||||||||||
Adjusted EPS | $ | 1.32 | $ | 1.22 | $ | 2.50 | $ | 2.36 |
(1) | Costs associated with the acquisitions of Omnicare and the pharmacies and clinics of Target. |
Six Months Ended June 30, | ||||||||
In millions | 2016 | 2015 | ||||||
Net cash provided by operating activities | $ | 4,023 | $ | 3,021 | ||||
Subtract: Additions to property and equipment | (1,102 | ) | (942 | ) | ||||
Add: Proceeds from sale-leaseback transactions | — | 34 | ||||||
Free cash flow | $ | 2,921 | $ | 2,113 |
In millions | Pharmacy Services Segment(1) | Retail/LTC Segment | Corporate Segment | Intersegment Eliminations(2) | Consolidated Totals | |||||||||||||||
Three Months Ended | ||||||||||||||||||||
June 30, 2016: | ||||||||||||||||||||
Net revenues | $ | 29,510 | $ | 19,998 | $ | — | $ | (5,783 | ) | $ | 43,725 | |||||||||
Gross profit(3) | 1,367 | 5,837 | — | (189 | ) | 7,015 | ||||||||||||||
Operating profit (loss)(3) | 1,038 | 1,705 | (220 | ) | (173 | ) | 2,350 | |||||||||||||
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)(4) | 940 | 1,681 | (215 | ) | (144 | ) | 2,262 | |||||||||||||
Six Months Ended | ||||||||||||||||||||
June 30, 2016: | ||||||||||||||||||||
Net revenues | 58,275 | 40,110 | — | (11,445 | ) | 86,940 | ||||||||||||||
Gross profit(3) | 2,469 | 11,667 | — | (377 | ) | 13,759 | ||||||||||||||
Operating profit (loss)(3) | 1,820 | 3,482 | (432 | ) | (344 | ) | 4,526 | |||||||||||||
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)(4) | 1,675 | 3,408 | (404 | ) | (285 | ) | 4,394 |
(1) | Net revenues of the Pharmacy Services Segment include approximately $2.6 billion and $2.2 billion of retail co-payments for the three months ended June 30, 2016 and 2015, respectively, as well as $5.6 billion and $4.7 billion of retail co-payments for the six months ended June 30, 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 in the following ways: when members of Pharmacy Services Segment clients (“members”) fill prescriptions at our retail stores to purchase covered products, when members enrolled in programs such as Maintenance Choice ® elect to pick up maintenance prescriptions at one of our retail stores instead of receiving them through the mail, or when members have prescriptions filled at our long-term care pharmacies. When these occur, both the Pharmacy Services and Retail/LTC segments record the revenues, gross profit and operating profit on a standalone basis. |
(3) | The Retail/LTC Segment gross profit and operating profit for the three months ended June 30, 2016 includes $6 million and $81 million, respectively, of acquisition-related integration costs. The Retail/LTC Segment gross profit and operating profit for the six months ended June 30, 2016 includes $10 million and $142 million, respectively, of acquisition-related integration costs. The integration costs are related to the acquisitions of Omnicare and the pharmacies and clinics of Target. |
(4) | The Corporate Segment operating loss for the three and six months ended June 30, 2015 includes $21 million of acquisition-related transaction costs. |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
In millions | 2016 | 2015 | 2016 | 2015 | ||||||||||||
Net revenues | $ | 29,510 | $ | 24,442 | $ | 58,275 | $ | 48,321 | ||||||||
Gross profit | 1,367 | 1,241 | 2,469 | 2,267 | ||||||||||||
Gross profit % of net revenues | 4.6 | % | 5.1 | % | 4.2 | % | 4.7 | % | ||||||||
Operating expenses | 329 | 301 | 649 | 592 | ||||||||||||
Operating expense % of net revenues | 1.1 | % | 1.2 | % | 1.1 | % | 1.2 | % | ||||||||
Operating profit | 1,038 | 940 | 1,820 | 1,675 | ||||||||||||
Operating profit % of net revenues | 3.5 | % | 3.8 | % | 3.1 | % | 3.5 | % | ||||||||
Net revenues: | ||||||||||||||||
Mail choice(1) | $ | 10,646 | $ | 9,107 | $ | 20,796 | $ | 17,857 | ||||||||
Pharmacy network(2) | 18,778 | 15,267 | 37,314 | 30,326 | ||||||||||||
Other | 86 | 68 | 165 | 138 | ||||||||||||
Pharmacy claims processed: | ||||||||||||||||
Total | 302.7 | 250.1 | 607.4 | 501.3 | ||||||||||||
Mail choice(1) | 22.2 | 21.3 | 43.8 | 41.7 | ||||||||||||
Pharmacy network(2) | 280.5 | 228.8 | 563.6 | 459.6 | ||||||||||||
Generic dispensing rate: | ||||||||||||||||
Total | 85.4 | % | 83.9 | % | 85.3 | % | 83.7 | % | ||||||||
Mail choice(1) | 78.0 | % | 76.3 | % | 77.7 | % | 76.2 | % | ||||||||
Pharmacy network(2) | 86.0 | % | 84.6 | % | 85.9 | % | 84.4 | % | ||||||||
Mail choice penetration rate | 18.1 | % | 20.7 | % | 17.9 | % | 20.2 | % |
(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 our retail stores, as well as prescriptions filled at our retail stores 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 stores and specialty retail pharmacies, including our retail stores and long-term care pharmacies, but excluding Maintenance Choice activity. |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
In millions | 2016 | 2015 | 2016 | 2015 | ||||||||||||
Net revenues | $ | 19,998 | $ | 17,242 | $ | 40,110 | $ | 34,193 | ||||||||
Gross profit(1) | 5,837 | 5,322 | 11,667 | 10,617 | ||||||||||||
Gross profit % of net revenues | 29.2 | % | 30.9 | % | 29.1 | % | 31.0 | % | ||||||||
Operating expenses(1) | 4,132 | 3,641 | 8,185 | 7,209 | ||||||||||||
Operating expense % of net revenues | 20.7 | % | 21.1 | % | 20.4 | % | 21.1 | % | ||||||||
Operating profit | 1,705 | 1,681 | 3,482 | 3,408 | ||||||||||||
Operating profit % of net revenues | 8.5 | % | 9.7 | % | 8.7 | % | 10.0 | % | ||||||||
Prescriptions filled (90 Day = 3 Rx)(2) | 300.9 | 244.1 | 606.0 | 485.5 | ||||||||||||
Net revenue increase (decrease): | ||||||||||||||||
Total | 16.0 | % | 2.2 | % | 17.3 | % | 2.5 | % | ||||||||
Pharmacy | 21.2 | % | 5.2 | % | 22.4 | % | 5.2 | % | ||||||||
Front store | (0.6 | )% | (5.1 | )% | 1.0 | % | (4.4 | )% | ||||||||
Total prescription volume (90 Day = 3 Rx)(2) | 23.2 | % | 6.0 | % | 24.8 | % | 6.1 | % | ||||||||
Same store increase (decrease)(3): | ||||||||||||||||
Total sales | 2.1 | % | 0.5 | % | 3.1 | % | 0.8 | % | ||||||||
Pharmacy sales | 3.9 | % | 4.1 | % | 4.7 | % | 4.2 | % | ||||||||
Front store sales | (2.5 | )% | (7.8 | )% | (0.9 | )% | (7.0 | )% | ||||||||
Prescription volume (90 Day = 3 Rx)(2) | 3.5 | % | 4.8 | % | 4.7 | % | 4.9 | % | ||||||||
Generic dispensing rate | 86.1 | % | 85.0 | % | 85.9 | % | 84.7 | % | ||||||||
Pharmacy % of total revenues | 74.8 | % | 71.6 | % | 74.7 | % | 71.6 | % |
(1) | Gross profit and operating expenses for the three months ended June 30, 2016 include $6 million and $75 million, respectively, of acquisition-related integration costs related to the acquisitions of Omnicare and the pharmacies and clinics of Target. Gross profit and operating expenses for the six months ended June 30, 2016 include $10 million and $132 million, respectively, of acquisition-related integration costs related to the acquisitions of Omnicare and the pharmacies and clinics of Target. |
(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) | $ | 8,746 | $ | 8,921 | ||||
Non-GAAP adjustments: | ||||||||
Amortization of intangible assets | 795 | 795 | ||||||
Acquisition-related integration costs(1) | 142 | 142 | ||||||
Charge related to a disputed 1999 legal settlement | 3 | 3 | ||||||
Loss on early extinguishment of debt(2) | 644 | 644 | ||||||
Adjusted income before income tax provision | 10,330 | 10,505 | ||||||
Adjusted income tax provision | 4,017 | 4,103 | ||||||
Adjusted net income | 6,313 | 6,402 | ||||||
Net income attributable to noncontrolling interest | (2 | ) | (2 | ) | ||||
Income allocable to participating securities | (33 | ) | (33 | ) | ||||
Adjusted net income attributable to CVS Health | $ | 6,278 | $ | 6,367 | ||||
Weighted average diluted shares outstanding | 1,081 | 1,081 | ||||||
Adjusted earnings per share | $ | 5.81 | $ | 5.89 |
In millions, except per share amounts | Three Months Ending September 30, 2016 | |||||||
Income before income tax provision(1) | $ | 2,459 | $ | 2,526 | ||||
Non-GAAP adjustments: | ||||||||
Amortization of intangible assets | 195 | 195 | ||||||
Loss on early extinguishment of debt(3) | 102 | 102 | ||||||
Adjusted income before income tax provision | 2,756 | 2,823 | ||||||
Adjusted income tax provision | 1,087 | 1,115 | ||||||
Adjusted net income | 1,669 | 1,708 | ||||||
Net income attributable to noncontrolling interest | (1 | ) | (1 | ) | ||||
Income allocable to participating securities | (8 | ) | (9 | ) | ||||
Adjusted net income attributable to CVS Health | $ | 1,660 | $ | 1,698 | ||||
Weighted average diluted shares outstanding | 1,075 | 1,075 | ||||||
Adjusted earnings per share | $ | 1.55 | $ | 1.58 |
(1) | Excludes anticipated acquisition-related integration costs for the acquisitions of Omnicare and the pharmacies and clinics of Target for the period from July 1, 2016 through December 31, 2016. |
(2) | Includes $542 million loss on early extinguishment of debt from the tender offers that closed in June 2016, as well as the approximately $102 million loss on early extinguishment of debt from the redemption of certain senior notes in June 2016 that closed in July 2016. See Note 5, "Borrowings" in the Company's Form 10-Q for the quarter ended June 30, 2016 for further information. |
(3) | Includes approximately $102 million loss on early extinguishment of debt from the redemption of certain senior notes in June 2016 that closed in July 2016. See Note 5, "Borrowings" in the Company's Form 10-Q for the quarter ended June 30, 2016 for further information. |
In millions | Year Ending December 31, 2016 | |||||||
Net cash provided by operating activities | $ | 8,775 | $ | 9,075 | ||||
Subtract: Additions to property and equipment | (2,750 | ) | (2,650 | ) | ||||
Add: Proceeds from sale-leaseback transactions | 275 | 175 | ||||||
Free cash flow | $ | 6,300 | $ | 6,600 |