Segment Reporting

6 Months Ended

Jun. 30, 2012

Segment Reporting

Segment Reporting

Note 8 – Segment Reporting

The Company has three segments: Pharmacy Services, Retail Pharmacy and Corporate. The Company’s segments maintain separate financial information for which operating results are evaluated on a regular basis by the Company’s chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company evaluates its Pharmacy Services and Retail Pharmacy segments’ performance based on net revenue, gross profit and operating profit before the effect of nonrecurring charges and gains and certain intersegment activities. The Company evaluates the performance of its Corporate Segment based on operating expenses before the effect of nonrecurring charges and gains and certain intersegment activities.

The Pharmacy Services Segment provides a full range of pharmacy benefit management (“PBM”) services including mail order and specialty pharmacy services, plan design and administration, formulary management, discounted drug purchase arrangements, Medicare Part D services, retail pharmacy network management services, prescription management systems, clinical services, disease management services and pharmacogenomics. The Company’s customers are primarily employers, insurance companies, unions, government employee groups, managed care organizations, other sponsors of health benefit plans and individuals throughout the United States. In addition, through the Company’s SilverScript Insurance Company and Pennsylvania Life Insurance Company subsidiaries, the Company is a national provider of drug benefits to eligible beneficiaries under the Federal Government’s Medicare Part D program. The Pharmacy Services business operates under the CVS Caremark® Pharmacy Services, Caremark®, CVS Caremark®, CarePlus CVS/pharmacy®, CarePlus™, RxAmerica® and Accordant® names. As of June 30, 2012, the Pharmacy Services Segment operated 31 retail specialty pharmacy stores, 12 specialty mail order pharmacies and five mail service pharmacies located in 22 states, Puerto Rico and the District of Columbia.

The Retail Pharmacy Segment sells prescription drugs and a wide assortment of general merchandise, including over-the-counter drugs, beauty products and cosmetics, photo finishing, seasonal merchandise, greeting cards and convenience foods through the Company’s CVS/pharmacy and Longs Drugs retail stores and online through CVS.com. As of June 30, 2012, the Retail Pharmacy Segment included 7,381 retail drugstores (of which 7,323 operated a pharmacy), 28 onsite pharmacies, 584 retail health care clinics, and the online retail website, CVS.com. The retail drugstores are located in 41 states, Puerto Rico and the District of Columbia. The retail health care clinics operate under the MinuteClinic® name, and 577 are located within CVS/pharmacy stores. MinuteClinics utilize nationally recognized medical protocols to diagnose and treat minor health conditions, perform health screenings, monitor chronic conditions and deliver vaccinations. The clinics are staffed by board-certified nurse practitioners and physician assistants who provide access to affordable care without appointment.

The Corporate Segment provides management and administrative services to support the Company. The Corporate Segment consists of certain aspects of our executive management, corporate relations, legal, compliance, human resources, corporate information technology and finance departments.

In millions	Pharmacy Services Segment(1)(3)		Retail Pharmacy Segment		Corporate Segment		Intersegment Eliminations(2)		Consolidated Totals
Three Months Ended
June 30, 2012: Net revenues	$	18,423	$	15,846	$	¾	$	(3,555)	$	30,714
Gross profit	777		4,769		¾		(97)		5,449
Operating profit (loss)	511		1,469		(175)		(97)		1,708
June 30, 2011: Net revenues	14,374		14,826		¾		(2,786)		26,414
Gross profit	720		4,408		¾		(42)		5,086
Operating profit (loss)	448		1,240		(162)		(42)		1,484
Six Months Ended
June 30, 2012: Net revenues	36,722		31,869		¾		(7,079)		61,512
Gross profit	1,393		9,341		¾		(172)		10,562
Operating profit (loss)	860		2,766		(343)		(172)		3,111
June 30, 2011: Net revenues	28,203		29,413		¾		(5,507)		52,109
Gross profit	1,350		8,555		¾		(77)		9,828
Operating profit (loss)	839		2,336		(309)		(77)		2,789
Total assets:
June 30, 2012	36,039		28,951		1,253		(654)		65,589
December 31, 2011	35,704		28,323		1,121		(605)		64,543
Goodwill:
June 30, 2012	19,624		6,801		¾		¾		26,425
December 31, 2011	19,657		6,801		¾		¾		25,458

(1)Net revenues of the Pharmacy Services Segment include approximately $2.1 billion and $1.9 billion of retail co-payments for the three months ended June 30, 2012 and 2011, respectively, as well as $4.4 billion and $4.1 billion of retail co-payments for the six months ended June 30, 2012 and 2011, respectively.

(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 standalone 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. Beginning in the fourth quarter of 2011, the Maintenance Choice eliminations reflect all discounts available for the purchase of mail order prescription drugs. The following amounts are eliminated in consolidation in connection with the item (ii) intersegment activity: net revenues of $840 million and $626 million for the three months ended June 30, 2012 and 2011, respectively, and $1.6 billion and $1.2 billion for the six months ended June 30, 2012 and 2011, respectively; gross profit and operating profit of $97 million and $42 million for the three months ended June 30, 2012 and 2011, respectively, and $172 million and $77 million for the six months ended June 30, 2012 and 2011, respectively.

(3)The results of the Pharmacy Services Segment for the three and six months ended June 30, 2011 have been revised to reflect the results of TheraCom as discontinued operations. See Note 6 to the condensed consolidated financial statements.