WOONSOCKET, R.I., Feb. 9,
2017 /PRNewswire/ --
Fourth Quarter Year-over-year Highlights:
- Net revenues increased 11.7% to $46.0
billion
- Operating profit in line with Company's
expectations
- GAAP diluted EPS from continuing operations of $1.59
- Adjusted EPS of $1.71, an
increase of 11.8%
Full Year Highlights:
- Net revenues increased 15.8% to $177.5 billion
- Operating profit in line with Company's
expectations
- GAAP diluted EPS from continuing operations of $4.91
- Adjusted EPS of $5.84, an
increase of 13.2%
- Cash flow from operations of $10.1
billion; free cash flow of $8.1
billion
2017 Guidance Confirmed:
- Full year GAAP diluted EPS of $5.02
to $5.18
- Full year Adjusted EPS of $5.77 to
$5.93
- First quarter GAAP diluted EPS of $0.82 to $0.88
- First quarter Adjusted EPS of $1.07
to $1.13
- Full year cash flow from operations of $7.7 to $8.6 billion and free cash flow of
$6.0 to $6.4 billion
CVS Health Corporation (NYSE: CVS) today announced operating
results for the three months and year ended December 31,
2016.
President and CEO Larry Merlo
stated, "In 2016, we delivered strong results across the
enterprise, with revenues up nearly 16% and Adjusted EPS up more
than 13%. Adjusted EPS in the fourth quarter came in just
above the high end of our guidance, as the Retail/LTC segment
delivered results in line with our expectations while the PBM
exceeded expectations. We also generated more than $8 billion in free cash for the full year,
exceeding our expectation, and we returned more than $6 billion to shareholders through dividends and
share repurchases. Our substantial cash generation capabilities
provide opportunities to bolster our growth, and we will continue
to be thoughtful and disciplined with respect to using our free
cash to return value to shareholders."
Revenues
Net revenues for the three months ended December 31, 2016
increased 11.7%, or $4.8 billion, to
$46.0 billion, up from $41.1 billion in the three months ended
December 31, 2015. For the year ended December 31, 2016,
net revenues increased 15.8%, or $24.2
billion, to $177.5 billion,
compared to $153.3 billion for the
year ended December 31, 2015.
Revenues in the Pharmacy Services Segment increased 17.9% to
$31.3 billion in the three months
ended December 31, 2016. This increase was primarily driven by
growth in pharmacy network and specialty pharmacy claims. Pharmacy
network claims processed during the three months ended
December 31, 2016, increased 23.9% to 294.3 million, compared
to 237.4 million in the prior year. The increase in pharmacy
network claim volume was primarily due to an increase in net new
business. Mail choice claims processed during the three months
ended December 31, 2016, increased 4.7% to 23.2 million,
compared to 22.2 million in the prior year. The increase in the
mail choice claim volume was primarily driven by continued adoption
of our Maintenance Choice® offerings and an increase in
specialty pharmacy claims, partially offset by a decline in
traditional mail volume. For the year ended December 31, 2016,
net revenues in the Pharmacy Services Segment increased 19.5% to
$120.0 billion, compared to
$100.4 billion in the year ended
December 31, 2015.
Revenues in the Retail/LTC Segment increased 4.7% to
$20.8 billion in the three months
ended December 31, 2016. The increase was largely driven by
the addition of the pharmacies of Target Corporation ("Target"),
which were acquired in December 2015.
Pharmacy same store prescription volumes rose 2.0% on a 30-day
equivalent basis. Same store sales decreased 0.7% versus the prior
year, with pharmacy same store sales up 0.2% and front store same
store sales down 2.9%. Front store same store sales were negatively
impacted by softer customer traffic and efforts to rationalize
promotional strategies, partially offset by an increase in basket
size. Pharmacy same store sales were negatively impacted for the
quarter by approximately 380 basis points due to recent generic
introductions.
For the year ended December 31, 2016, net revenues in the
Retail/LTC Segment increased 12.6% to $81.1
billion, compared to $72.0
billion in the year ended December 31, 2015. Pharmacy
same store prescription volumes rose 3.6% on a 30-day equivalent
basis. Same store sales increased 1.9% for the year ended
December 31, 2016, over the prior year, with pharmacy same
store sales up 3.2% and front store same store sales down 1.5%.
For the three months ended December 31, 2016, the generic
dispensing rate increased approximately 170 basis points to 85.4%
in our Pharmacy Services Segment and increased approximately 120
basis points to 85.2% in our Retail/LTC Segment, compared to the
prior year.
Operating Profit
For the three months ended December 31,
2016, consolidated operating profit increased $266 million. Operating profit for the quarter
increased $242 million in the
Pharmacy Services Segment and decreased $53
million in the Retail/LTC Segment. The Pharmacy Services
Segment operating profit includes the favorable impact of a
reversal of an accrual of $88 million
in connection with a legal settlement. The Retail/LTC Segment
operating profit includes acquisition-related integration costs of
$87 million in 2016 versus
$52 million in 2015 and an asset
impairment charge of $34 million in
2016 recorded in connection with our 2017 store rationalization.
Both segments benefited from increased generic drugs dispensed. The
Pharmacy Services Segment was also positively affected by growth in
specialty pharmacy, growth in Medicare Part D lives and favorable
purchasing economics. The Retail/LTC Segment was also positively
affected by the acquisition of the pharmacies and clinics of Target
as well as an improved front store margin rate. These positive
factors for both segments were partially offset by continued price
compression in the Pharmacy Services Segment and reimbursement
pressure in the Retail/LTC Segment. Corporate Segment operating
expenses decreased $92 million from
the prior year primarily due to the $90
million legal charge in the prior year associated with a
disputed 1999 legal settlement.
For the year ended December 31,
2016, consolidated operating profit increased $884 million. Operating profit for the year
increased by $683 million in the
Pharmacy Services Segment and $151
million in the Retail/LTC Segment. The Pharmacy Services
Segment operating profit includes the favorable legal matter
discussed previously. The Retail/LTC Segment includes
acquisition-related integration costs of $281 million in 2016 versus $64 million in 2015 and an asset impairment
charge in 2016 of $34 million. The
drivers of the increases are the same as those described above for
the three months ended December 31,
2016, as well as the acquisition of Omnicare, Inc.
("Omnicare") in August 2015.
Corporate Segment operating expenses decreased $143 million during the year ended December 31, 2016, primarily due to a decrease in
acquisition-related transaction and integration costs of
$146 million, an $87 million decrease in legal charges associated
with a disputed 1999 legal settlement, partially offset by
operating expense increases associated with the 2015 acquisitions
of Omnicare and the pharmacies and clinics of Target, as well as
increases in legal and strategic initiative costs.
Net Income and Earnings Per Share
Net income for the three months ended December 31, 2016 was $1.7
billion, an increase of $208
million or 13.8%. The increase in net income is primarily
due to the $266 million increase in
operating profit discussed above. Net income for the year ended
December 31, 2016 was $5.3 billion, an increase of $80 million or 1.5%. The increase is primarily
driven by the $884 million increase
in operating profit discussed above, partially offset by the
$643 million loss on early
extinguishment of debt and an increase in interest expense of
$220 million due to higher net
borrowings during the year associated with the July 2015 $15
billion debt issuance. The Company benefited from a lower
effective income tax rate in the fourth quarter of 38.0% versus
38.9% in the prior year period, and 38.4% for the year ended
December 31, 2016 versus 39.3% in the
prior year. The lower effective income tax rates were primarily due
to the resolution of income tax matters in open tax years through
2012, as well as other permanent items.
GAAP earnings per diluted share from continuing operations
("GAAP diluted EPS") for the three months ended December 31, 2016 was $1.59 compared to $1.34 in the prior year. Adjusted earnings per
share ("Adjusted EPS") for the three months ended December 31, 2016 and 2015, was $1.71 and $1.53,
respectively. Further detail is shown in the Adjusted Earnings Per
Share reconciliation later in this release.
GAAP diluted EPS for the year ended December 31, 2016 was $4.91 compared to $4.62 in the prior year. Adjusted EPS for the
year ended December 31, 2016 and
2015, was $5.84 and $5.16, respectively. Further detail is shown in
the Adjusted Earnings Per Share reconciliation later in this
release.
Guidance
The Company confirmed its previous EPS and cash flow guidance
for the full year and first quarter of 2017. The Company expects to
deliver GAAP diluted EPS of $5.02 to
$5.18 and Adjusted EPS of $5.77 to
$5.93 for the full year 2017. The Company expects to
deliver GAAP diluted EPS of $0.82 to
$0.88 and Adjusted EPS of $1.07 to
$1.13 in the first quarter of 2017. The Company also
confirmed its 2017 cash flow from operations guidance of
$7.7 to $8.6 billion and free cash
flow guidance of $6.0 to $6.4
billion. These 2017 guidance estimates assume the completion
of $5.0 billion in share
repurchases.
Mr. Merlo added, "As we outlined late last year, we have a
four-point plan in place to return to more robust levels of growth
in the years ahead. We remain confident in our model and our
position in the evolving health care landscape. We can bring
value to all health care stakeholders, helping them achieve their
goals of making care more affordable, accessible, and
effective."
Real Estate Program
During the three months ended December 31, 2016, the
Company opened 40 new retail stores and closed 25 retail stores. In
addition, the Company relocated 16 retail stores. As of
December 31, 2016, the Company operated 9,709 retail stores,
including pharmacies in Target stores, in 49 states, the
District of Columbia, Puerto Rico and Brazil.
As previously disclosed, the Company intends to close
approximately 70 retail stores during 2017 and expects to take a
charge of approximately $225 million
associated with the remaining lease obligations of such stores. The
vast majority of the store closures are expected to occur in the
three months ending March 31, 2017.
In connection with such anticipated store closures, the Company
recorded a $34 million asset
impairment charge in the three months ended December 31, 2016.
Teleconference and Webcast
The Company will be holding a conference call today for the
investment community at 8:30 am (EST)
to discuss its fourth quarter and annual results. An audio webcast
of the call will be broadcast simultaneously for all interested
parties through the Investor Relations section of the CVS Health
website at http://investors.cvshealth.com. This webcast will be
archived and available on the website for a one-year period
following the conference call.
About CVS Health
CVS Health is a pharmacy innovation company helping people on
their path to better health. Through its more than 9,700 retail
locations, more than 1,100 walk-in medical clinics, a leading
pharmacy benefits manager with nearly 90 million plan members, a
dedicated senior pharmacy care business serving more than one
million patients per year, expanding specialty pharmacy services,
and a leading stand-alone Medicare Part D prescription drug plan,
the company enables people, businesses and communities to manage
health in more affordable and effective ways. This unique
integrated model increases access to quality care, delivers better
health outcomes and lowers overall health care costs. Find more
information about how CVS Health is shaping the future of health at
https://www.cvshealth.com.
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of the federal securities laws. By their nature, all
forward-looking statements involve risks and uncertainties. Actual
results may differ materially from those contemplated by the
forward-looking statements for a number of reasons as described in
our Securities and Exchange Commission filings, including those set
forth in the Risk Factors section and under the section entitled
"Cautionary Statement Concerning Forward-Looking Statements" in our
most recently filed Annual Report on Form 10-K and Quarterly
Report on Form 10-Q.
— Tables Follow —
|
CVS HEALTH
CORPORATION
|
|
Condensed
Consolidated Statements of Income
|
|
(Unaudited)
|
|
|
|
Three Months Ended
December 31,
|
|
Year Ended
December 31,
|
|
In millions, except per share amounts
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Net
revenues
|
|
$
|
45,971
|
|
|
$
|
41,145
|
|
|
$
|
177,526
|
|
|
$
|
153,290
|
|
|
Cost of
revenues
|
|
38,365
|
|
|
33,844
|
|
|
148,669
|
|
|
126,762
|
|
|
Gross
profit
|
|
7,606
|
|
|
7,301
|
|
|
28,857
|
|
|
26,528
|
|
|
Operating
expenses
|
|
4,611
|
|
|
4,572
|
|
|
18,519
|
|
|
17,074
|
|
|
Operating
profit
|
|
2,995
|
|
|
2,729
|
|
|
10,338
|
|
|
9,454
|
|
|
Interest expense,
net
|
|
242
|
|
|
276
|
|
|
1,058
|
|
|
838
|
|
|
Loss on early
extinguishment of debt
|
|
—
|
|
|
—
|
|
|
643
|
|
|
—
|
|
|
Income before income
tax provision
|
|
2,753
|
|
|
2,453
|
|
|
8,637
|
|
|
8,616
|
|
|
Income tax
provision
|
|
1,046
|
|
|
953
|
|
|
3,317
|
|
|
3,386
|
|
|
Income from
continuing operations
|
|
1,707
|
|
|
1,500
|
|
|
5,320
|
|
|
5,230
|
|
|
Income (loss) from
discontinued operations, net of tax
|
|
—
|
|
|
(1)
|
|
|
(1)
|
|
|
9
|
|
|
Net income
|
|
1,707
|
|
|
1,499
|
|
|
5,319
|
|
|
5,239
|
|
|
Net income
attributable to noncontrolling interest
|
|
—
|
|
|
(1)
|
|
|
(2)
|
|
|
(2)
|
|
|
Net income
attributable to CVS Health
|
|
$
|
1,707
|
|
|
$
|
1,498
|
|
|
$
|
5,317
|
|
|
$
|
5,237
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share:
|
|
|
|
|
|
|
|
|
|
Income from
continuing operations attributable to CVS Health
|
|
$
|
1.60
|
|
|
$
|
1.35
|
|
|
$
|
4.93
|
|
|
$
|
4.65
|
|
|
Income from
discontinued operations attributable to CVS Health
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.01
|
|
|
Net income
attributable to CVS Health
|
|
$
|
1.60
|
|
|
$
|
1.35
|
|
|
$
|
4.93
|
|
|
$
|
4.66
|
|
|
Weighted average
basic shares outstanding
|
|
1,064
|
|
|
1,107
|
|
|
1,073
|
|
|
1,118
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share:
|
|
|
|
|
|
|
|
|
|
Income from
continuing operations attributable to CVS Health
|
|
$
|
1.59
|
|
|
$
|
1.34
|
|
|
$
|
4.91
|
|
|
$
|
4.62
|
|
|
Income from
discontinued operations attributable to CVS Health
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.01
|
|
|
Net income
attributable to CVS Health
|
|
$
|
1.59
|
|
|
$
|
1.34
|
|
|
$
|
4.90
|
|
|
$
|
4.63
|
|
|
Weighted average
diluted shares outstanding
|
|
1,069
|
|
|
1,114
|
|
|
1,079
|
|
|
1,126
|
|
|
Dividends declared
per share
|
|
$
|
0.425
|
|
|
$
|
0.35
|
|
|
$
|
1.70
|
|
|
$
|
1.40
|
|
|
CVS HEALTH
CORPORATION
|
|
Condensed
Consolidated Balance Sheets
|
|
(Unaudited)
|
|
|
|
December 31,
|
|
In millions, except per share amounts
|
|
2016
|
|
2015
|
|
Assets:
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
3,371
|
|
|
$
|
2,459
|
|
|
Short-term
investments
|
|
87
|
|
|
88
|
|
|
Accounts receivable,
net
|
|
12,164
|
|
|
11,888
|
|
|
Inventories
|
|
14,760
|
|
|
14,001
|
|
|
Other current
assets
|
|
660
|
|
|
722
|
|
|
Total current
assets
|
|
31,042
|
|
|
29,158
|
|
|
Property and
equipment, net
|
|
10,175
|
|
|
9,855
|
|
|
Goodwill
|
|
38,249
|
|
|
38,106
|
|
|
Intangible assets,
net
|
|
13,511
|
|
|
13,878
|
|
|
Other
assets
|
|
1,485
|
|
|
1,440
|
|
|
Total
assets
|
|
$
|
94,462
|
|
|
$
|
92,437
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
Accounts
payable
|
|
$
|
7,946
|
|
|
$
|
7,490
|
|
|
Claims and discounts
payable
|
|
9,451
|
|
|
7,653
|
|
|
Accrued
expenses
|
|
6,937
|
|
|
6,829
|
|
|
Short-term
debt
|
|
1,874
|
|
|
—
|
|
|
Current portion of
long-term debt
|
|
42
|
|
|
1,197
|
|
|
Total current
liabilities
|
|
26,250
|
|
|
23,169
|
|
|
Long-term
debt
|
|
25,615
|
|
|
26,267
|
|
|
Deferred income
taxes
|
|
4,214
|
|
|
4,217
|
|
|
Other long-term
liabilities
|
|
1,549
|
|
|
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; 1,705 shares issued
and
|
|
|
|
|
|
1,061 shares
outstanding at December 31, 2016 and 1,699 shares issued and
1,101
|
|
|
|
|
|
shares outstanding at
December 31, 2015
|
|
17
|
|
|
17
|
|
|
Treasury
stock, at cost: 643 shares at December 31, 2016 and 597
shares
|
|
|
|
|
|
at December 31,
2015
|
|
(33,452)
|
|
|
(28,886)
|
|
|
Shares held in
trust: 1 share at December 31, 2016 and 2015
|
|
(31)
|
|
|
(31)
|
|
|
Capital
surplus
|
|
31,618
|
|
|
30,948
|
|
|
Retained
earnings
|
|
38,983
|
|
|
35,506
|
|
|
Accumulated
other comprehensive income (loss)
|
|
(305)
|
|
|
(358)
|
|
|
Total CVS Health
shareholders' equity
|
|
36,830
|
|
|
37,196
|
|
|
Noncontrolling
interest
|
|
4
|
|
|
7
|
|
|
Total
shareholders' equity
|
|
36,834
|
|
|
37,203
|
|
|
Total liabilities and
shareholders' equity
|
|
$
|
94,462
|
|
|
$
|
92,437
|
|
|
CVS HEALTH
CORPORATION
|
|
Condensed
Consolidated Statements of Cash Flows
|
|
(Unaudited)
|
|
|
|
Year Ended
December 31,
|
|
In millions
|
|
2016
|
|
2015
|
|
Cash flows from
operating activities:
|
|
|
|
|
|
Cash receipts from
customers
|
|
$
|
172,310
|
|
|
$
|
148,954
|
|
|
Cash paid for
inventory and prescriptions dispensed by retail network
pharmacies
|
|
(142,511)
|
|
|
(122,498)
|
|
|
Cash paid to other
suppliers and employees
|
|
(15,550)
|
|
|
(14,162)
|
|
|
Interest
received
|
|
20
|
|
|
21
|
|
|
Interest
paid
|
|
(1,140)
|
|
|
(629)
|
|
|
Income taxes
paid
|
|
(3,060)
|
|
|
(3,274)
|
|
|
Net cash provided by
operating activities
|
|
10,069
|
|
|
8,412
|
|
|
Cash flows from
investing activities:
|
|
|
|
|
|
Purchases of property
and equipment
|
|
(2,224)
|
|
|
(2,367)
|
|
|
Proceeds from
sale-leaseback transactions
|
|
230
|
|
|
411
|
|
|
Proceeds from sale of
property and equipment and other assets
|
|
37
|
|
|
35
|
|
|
Acquisitions (net of
cash acquired) and other investments
|
|
(539)
|
|
|
(11,475)
|
|
|
Purchase of
available-for-sale investments
|
|
(65)
|
|
|
(267)
|
|
|
Maturity of
available-for-sale investments
|
|
91
|
|
|
243
|
|
|
Net cash used in
investing activities
|
|
(2,470)
|
|
|
(13,420)
|
|
|
Cash flows from
financing activities:
|
|
|
|
|
|
Increase (decrease)
in short-term debt
|
|
1,874
|
|
|
(685)
|
|
|
Proceeds from
issuance of long-term debt
|
|
3,455
|
|
|
14,805
|
|
|
Repayments of
long-term debt
|
|
(5,943)
|
|
|
(2,902)
|
|
|
Purchase of
noncontrolling interest in subsidiary
|
|
(39)
|
|
|
—
|
|
|
Payment of contingent
consideration
|
|
(26)
|
|
|
(58)
|
|
|
Dividends
paid
|
|
(1,840)
|
|
|
(1,576)
|
|
|
Proceeds from
exercise of stock options
|
|
224
|
|
|
299
|
|
|
Excess tax benefits
from stock-based compensation
|
|
72
|
|
|
127
|
|
|
Repurchase of common
stock
|
|
(4,461)
|
|
|
(5,001)
|
|
|
Other
|
|
(5)
|
|
|
(3)
|
|
|
Net cash provided by
(used in) financing activities
|
|
(6,689)
|
|
|
5,006
|
|
|
Effect of exchange
rates on cash
|
|
2
|
|
|
(20)
|
|
|
Net increase
(decrease) in cash and cash equivalents
|
|
912
|
|
|
(22)
|
|
|
Cash and cash
equivalents at the beginning of the year
|
|
2,459
|
|
|
2,481
|
|
|
Cash and cash
equivalents at the end of the year
|
|
$
|
3,371
|
|
|
$
|
2,459
|
|
|
Reconciliation of net
income to net cash provided by operating activities:
|
|
|
|
|
|
Net income
|
|
$
|
5,319
|
|
|
$
|
5,239
|
|
|
Adjustments required
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
Depreciation and
amortization
|
|
2,475
|
|
|
2,092
|
|
|
Stock-based
compensation
|
|
222
|
|
|
230
|
|
|
Loss on early
extinguishment of debt
|
|
643
|
|
|
—
|
|
|
Deferred income taxes
and other non-cash items
|
|
153
|
|
|
(266)
|
|
|
Change in operating
assets and liabilities, net of effects of acquisitions:
|
|
|
|
|
|
Accounts receivable,
net
|
|
(243)
|
|
|
(1,594)
|
|
|
Inventories
|
|
(742)
|
|
|
(1,141)
|
|
|
Other current
assets
|
|
35
|
|
|
355
|
|
|
Other
assets
|
|
(43)
|
|
|
2
|
|
|
Accounts payable and
claims and discounts payable
|
|
2,189
|
|
|
2,834
|
|
|
Accrued
expenses
|
|
59
|
|
|
765
|
|
|
Other long-term
liabilities
|
|
2
|
|
|
(104)
|
|
|
Net cash provided by
operating activities
|
|
$
|
10,069
|
|
|
$
|
8,412
|
|
Non-GAAP Financial Measures
The following provides reconciliations of certain non-GAAP
financial measures presented in this Form 8-K to the most directly
comparable financial measures calculated and presented in
accordance with GAAP. The Company uses the non-GAAP measures
"Adjusted EPS" and "Free Cash Flow" to assess and analyze
underlying business performance and trends. Management believes
that providing these non-GAAP measures enhances investors'
understanding of the Company's performance.
The Company defines Adjusted Earnings per Share, or Adjusted
EPS, as income from continuing operations excluding the impact of
the amortization of intangible assets, acquisition-related
transaction, integration and bridge financing costs, adjustments to
legal reserves in connection with certain legal settlements,
charges in connection with store rationalization, losses on early
extinguishments of debt and losses on settlements of defined
benefit pension plans divided by the Company's weighted average
diluted shares outstanding. The Company believes that this measure
enhances investors' ability to compare the Company's past financial
performance with its current performance.
The Company defines Free Cash Flow as net cash provided by
operating activities less net additions to property and equipment
(i.e., additions to property and equipment plus proceeds from
sale-leaseback transactions). Management uses this non-GAAP
financial measure for internal comparisons and finds it useful in
assessing year-over-year cash flow performance.
These non-GAAP financial measures are provided as supplemental
information to the financial measures presented in this press
release that are calculated and presented in accordance with GAAP.
Adjusted EPS should be considered in addition to, rather than as a
substitute for, income before income tax provision as a measure of
our performance. Free Cash Flow should be considered in addition
to, rather than as a substitute for, net cash provided by operating
activities as a measure of our liquidity. The Company's definitions
of Adjusted EPS and Free Cash Flow may not be comparable to
similarly titled measurements reported by other companies.
|
Adjusted Earnings
Per Share
|
|
(Unaudited)
|
|
|
The following is a
reconciliation of income before income tax provision to Adjusted
EPS:
|
|
|
|
Three Months Ended
December 31,
|
|
Year Ended
December 31,
|
|
In millions, except per share amounts
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Income before income
tax provision
|
|
$
|
2,753
|
|
|
$
|
2,453
|
|
|
$
|
8,637
|
|
|
$
|
8,616
|
|
|
Non-GAAP
adjustments:
|
|
|
|
|
|
|
|
|
|
Amortization of
intangible assets
|
|
202
|
|
|
191
|
|
|
795
|
|
|
611
|
|
|
Acquisition-related
transaction and integration costs(1)
|
|
84
|
|
|
72
|
|
|
291
|
|
|
220
|
|
|
Acquisition-related
bridge financing costs(1)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
52
|
|
|
Adjustments to legal
reserves in connection with legal
settlements(2)
|
|
(88)
|
|
|
90
|
|
|
(85)
|
|
|
90
|
|
|
Asset impairment
charge in connection with store
rationalization(3)
|
|
34
|
|
|
—
|
|
|
34
|
|
|
—
|
|
|
Loss on early
extinguishment of debt
|
|
—
|
|
|
—
|
|
|
643
|
|
|
—
|
|
|
Adjusted income
before income tax provision
|
|
2,985
|
|
|
2,806
|
|
|
10,315
|
|
|
9,589
|
|
|
Adjusted income tax
provision
|
|
1,149
|
|
|
1,093
|
|
|
3,982
|
|
|
3,750
|
|
|
Adjusted income from
continuing operations
|
|
1,836
|
|
|
1,713
|
|
|
6,333
|
|
|
5,839
|
|
|
Net income
attributable to noncontrolling interest
|
|
—
|
|
|
(1)
|
|
|
(2)
|
|
|
(2)
|
|
|
Adjusted income
allocable to participating securities
|
|
(9)
|
|
|
(8)
|
|
|
(31)
|
|
|
(27)
|
|
|
Adjusted income from
continuing operations attributable to CVS Health
|
|
$
|
1,827
|
|
|
$
|
1,704
|
|
|
$
|
6,300
|
|
|
$
|
5,810
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
diluted shares outstanding
|
|
1,069
|
|
|
1,114
|
|
|
1,079
|
|
|
1,126
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted earnings per
share
|
|
$
|
1.71
|
|
|
$
|
1.53
|
|
|
$
|
5.84
|
|
|
$
|
5.16
|
|
|
|
|
(1)
|
Costs associated with
the acquisitions of Omnicare and the pharmacies and clinics of
Target.
|
|
(2)
|
Represents legal
charges of $90 million in the fourth quarter of 2015 and $3 million
in the first quarter of 2016 in connection with a disputed 1999
legal settlement, and an $88 million reversal of an accrual in
connection with a legal settlement in the fourth quarter of
2016.
|
|
(3)
|
Asset impairment
charge in connection with planned store closures in 2017 related to
our enterprise streamlining initiative.
|
|
Free Cash
Flow
|
|
(Unaudited)
|
|
|
The following is a
reconciliation of net cash provided by operating activities to free
cash flow:
|
|
|
|
Year Ended
December 31,
|
|
In millions
|
|
2016
|
|
2015
|
|
Net cash provided by
operating activities
|
|
$
|
10,069
|
|
|
$
|
8,412
|
|
|
Subtract: Additions
to property and equipment
|
|
(2,224)
|
|
|
(2,367)
|
|
|
Add: Proceeds from
sale-leaseback transactions
|
|
230
|
|
|
411
|
|
|
Free cash
flow
|
|
$
|
8,075
|
|
|
$
|
6,456
|
|
|
Supplemental
Information
|
|
(Unaudited)
|
|
|
The Company evaluates
its Pharmacy Services and Retail/LTC segment performance based on
net revenues, 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 following is a reconciliation of the Company's segments to the
accompanying consolidated financial statements:
|
|
|
In millions
|
|
Pharmacy
Services
Segment(1)
|
|
Retail/LTC
Segment
|
|
Corporate
Segment(6)
|
|
Intersegment
Eliminations(2)
|
|
Consolidated
Totals
|
|
Three Months
Ended
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016:
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$
|
31,259
|
|
|
$
|
20,847
|
|
|
$
|
—
|
|
|
$
|
(6,135)
|
|
|
$
|
45,971
|
|
|
Gross
profit(3)
|
|
1,635
|
|
|
6,178
|
|
|
—
|
|
|
(207)
|
|
|
7,606
|
|
|
Operating profit
(loss)(4)(5)
|
|
1,394
|
|
|
2,026
|
|
|
(233)
|
|
|
(192)
|
|
|
2,995
|
|
|
December 31,
2015:
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
26,514
|
|
|
19,903
|
|
|
—
|
|
|
(5,272)
|
|
|
41,145
|
|
|
Gross
profit
|
|
1,492
|
|
|
6,002
|
|
|
—
|
|
|
(193)
|
|
|
7,301
|
|
|
Operating profit
(loss)(5)
|
|
1,152
|
|
|
2,079
|
|
|
(325)
|
|
|
(177)
|
|
|
2,729
|
|
|
Year
Ended
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016:
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
119,963
|
|
|
81,100
|
|
|
—
|
|
|
(23,537)
|
|
|
177,526
|
|
|
Gross
profit(3)
|
|
5,901
|
|
|
23,738
|
|
|
—
|
|
|
(782)
|
|
|
28,857
|
|
|
Operating profit
(loss)(4)(5)
|
|
4,672
|
|
|
7,281
|
|
|
(894)
|
|
|
(721)
|
|
|
10,338
|
|
|
December 31,
2015:
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
100,363
|
|
|
72,007
|
|
|
—
|
|
|
(19,080)
|
|
|
153,290
|
|
|
Gross
profit
|
|
5,227
|
|
|
21,992
|
|
|
—
|
|
|
(691)
|
|
|
26,528
|
|
|
Operating profit
(loss)(5)
|
|
3,989
|
|
|
7,130
|
|
|
(1,037)
|
|
|
(628)
|
|
|
9,454
|
|
|
|
|
(1)
|
Net revenues of the
Pharmacy Services Segment include approximately $2.4 billion and
$2.1 billion of Retail/LTC co-payments for the three months ended
December 31, 2016 and 2015, respectively, as well as $10.5
billion and $8.9 billion of Retail/LTC co-payments for the year
ended December 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 in the following ways: when members
of Pharmacy Services Segment clients ("members") fill prescriptions
at our retail pharmacies to purchase covered products, when members
enrolled in programs such as Maintenance Choice® elect
to pick up maintenance prescriptions at one of our retail
pharmacies 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 for the three months and the year ended
December 31, 2016 includes $31 million and $46 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 Pharmacy Services
Segment operating profit for the three months and year ended
December 31, 2016 includes the reversal of an accrual of $88
million in connection with a legal settlement.
|
|
(5)
|
The Retail/LTC
Segment operating profit for the three months and year ended
December 31, 2016 includes a $34 million asset impairment charge in
connection with planned store closures in 2017 related to our
enterprise streamlining initiative. In addition, the Retail/LTC
Segment operating profit for the three months and year ended
December 31, 2016 includes $87 million and $281 million,
respectively, of acquisition-related integration costs. The
Retail/LTC Segment operating profit for the three months and year
ended December 31, 2015 includes $52 million and $64 million,
respectively of acquisition-related integration costs. The
integration costs are related to the acquisitions of Omnicare and
the pharmacies and clinics of Target.
|
|
(6)
|
The Corporate
Segment's operating loss for the three months ended December 31,
2016 includes a $3 million reduction in integration costs for a
change in estimate, and for the year ended December 31, 2016 the
Corporate Segment's operating loss includes integration costs of
$10 million related to the acquisitions of Omnicare and the
pharmacies and clinics of Target. For the year ended December 31,
2016, the Corporate Segment also included a $3 million charge
related to a legacy lawsuit challenging the 1999 legal settlement
by MedPartners of various securities class actions and a related
derivative claim. The Corporate Segment operating loss for the
three months and year ended December 31, 2015 includes $20 million
and $156 million, respectively, of acquisition-related transaction
and integration costs related to the acquisitions of Omnicare and
the pharmacy and clinics of Target. For the three months and year
ended December 31, 2015, the Corporate Segment also included a $90
million charge related to a legacy lawsuit challenging the 1999
legal settlement by MedPartners of various securities class actions
and a related derivative claim.
|
|
Supplemental
Information
|
|
(Unaudited)
|
|
Pharmacy Services
Segment
|
|
|
The following table
summarizes the Pharmacy Services Segment's performance for the
respective periods:
|
|
|
|
|
Three Months Ended
December 31,
|
|
Year Ended
December 31,
|
|
In millions
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Net
revenues
|
|
$
|
31,259
|
|
|
$
|
26,514
|
|
|
$
|
119,963
|
|
|
$
|
100,363
|
|
|
Gross
profit
|
|
$
|
1,635
|
|
|
$
|
1,492
|
|
|
$
|
5,901
|
|
|
$
|
5,227
|
|
|
Gross profit % of net
revenues
|
|
5.2
|
%
|
|
5.6
|
%
|
|
4.9
|
%
|
|
5.2
|
%
|
|
Operating
expenses(3)
|
|
$
|
241
|
|
|
$
|
340
|
|
|
$
|
1,229
|
|
|
$
|
1,238
|
|
|
Operating expense %
of net revenues
|
|
0.8
|
%
|
|
1.3
|
%
|
|
1.0
|
%
|
|
1.2
|
%
|
|
Operating
profit
|
|
$
|
1,394
|
|
|
$
|
1,152
|
|
|
$
|
4,672
|
|
|
$
|
3,989
|
|
|
Operating profit % of
net revenues
|
|
4.5
|
%
|
|
4.3
|
%
|
|
3.9
|
%
|
|
4.0
|
%
|
|
Net
revenues:
|
|
|
|
|
|
|
|
|
|
Mail
choice(1)
|
|
$
|
11,115
|
|
|
$
|
10,235
|
|
|
$
|
42,783
|
|
|
$
|
37,828
|
|
|
Pharmacy
network(2)
|
|
$
|
20,065
|
|
|
$
|
16,198
|
|
|
$
|
76,848
|
|
|
$
|
62,240
|
|
|
Other
|
|
$
|
79
|
|
|
$
|
81
|
|
|
$
|
332
|
|
|
$
|
295
|
|
|
Pharmacy claims
processed:
|
|
|
|
|
|
|
|
|
|
Total
|
|
317.5
|
|
|
259.6
|
|
|
1,230.0
|
|
|
1,011.9
|
|
|
Mail
choice(1)
|
|
23.2
|
|
|
22.2
|
|
|
89.5
|
|
|
85.7
|
|
|
Pharmacy
network(2)
|
|
294.3
|
|
|
237.4
|
|
|
1,140.5
|
|
|
926.2
|
|
|
Generic dispensing
rate:
|
|
|
|
|
|
|
|
|
|
Total
|
|
85.4
|
%
|
|
83.7
|
%
|
|
85.4
|
%
|
|
83.7
|
%
|
|
Mail
choice(1)
|
|
78.9
|
%
|
|
76.5
|
%
|
|
78.2
|
%
|
|
76.4
|
%
|
|
Pharmacy
network(2)
|
|
85.9
|
%
|
|
84.4
|
%
|
|
85.9
|
%
|
|
84.4
|
%
|
|
Mail choice
penetration rate
|
|
18.0
|
%
|
|
20.7
|
%
|
|
18.0
|
%
|
|
20.6
|
%
|
|
|
|
(1)
|
Mail choice is
defined as claims filled at a Pharmacy Services mail facility,
which includes specialty mail claims inclusive of Specialty
Connect® claims filled at retail, as well as
prescriptions filled at our retail pharmacies 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 retail pharmacies, including our retail
pharmacies and long-term care pharmacies, but excluding Maintenance
Choice activity.
|
|
(3)
|
The Pharmacy Services
Segment operating expenses for the three months and year ended
December 31, 2016 includes the reversal of an accrual of $88
million in connection with a legal settlement.
|
|
Supplemental
Information
|
|
(Unaudited)
|
|
Retail/LTC
Segment
|
|
|
The following table
summarizes the Retail/LTC Segment's performance for the respective
periods:
|
|
|
|
Three Months Ended
December 31,
|
|
Year Ended
December 31,
|
|
In millions
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Net
revenues
|
|
$
|
20,847
|
|
|
$
|
19,903
|
|
|
$
|
81,100
|
|
|
$
|
72,007
|
|
|
Gross
profit(1)
|
|
$
|
6,178
|
|
|
$
|
6,002
|
|
|
$
|
23,738
|
|
|
$
|
21,992
|
|
|
Gross profit % of net
revenues
|
|
29.6
|
%
|
|
30.2
|
%
|
|
29.3
|
%
|
|
30.5
|
%
|
|
Operating
expenses(2)
|
|
$
|
4,152
|
|
|
$
|
3,923
|
|
|
$
|
16,457
|
|
|
$
|
14,862
|
|
|
Operating expense %
of net revenues
|
|
19.9
|
%
|
|
19.7
|
%
|
|
20.3
|
%
|
|
20.6
|
%
|
|
Operating
profit
|
|
$
|
2,026
|
|
|
$
|
2,079
|
|
|
$
|
7,281
|
|
|
$
|
7,130
|
|
|
Operating profit % of
net revenues
|
|
9.7
|
%
|
|
10.4
|
%
|
|
9.0
|
%
|
|
9.9
|
%
|
|
Prescriptions filled
(90 Day = 3 Rx)(3)
|
|
314.7
|
|
|
287.5
|
|
|
1,223.5
|
|
|
1,031.6
|
|
|
Net revenue increase
(decrease):
|
|
|
|
|
|
|
|
|
|
Total
|
|
4.7
|
%
|
|
12.5
|
%
|
|
12.6
|
%
|
|
6.2
|
%
|
|
Pharmacy
|
|
5.7
|
%
|
|
16.7
|
%
|
|
15.9
|
%
|
|
9.5
|
%
|
|
Front
store
|
|
(1.3)
|
%
|
|
1.2
|
%
|
|
0.3
|
%
|
|
(2.5)
|
%
|
|
Total prescription
volume (90 Day = 3 Rx)(3)
|
|
9.5
|
%
|
|
7.1
|
%
|
|
18.6
|
%
|
|
10.2
|
%
|
|
Same store increase
(decrease)(4):
|
|
|
|
|
|
|
|
|
|
Total
sales
|
|
(0.7)
|
%
|
|
3.5
|
%
|
|
1.9
|
%
|
|
1.7
|
%
|
|
Pharmacy
sales
|
|
0.2
|
%
|
|
5.0
|
%
|
|
3.2
|
%
|
|
4.5
|
%
|
|
Front store
sales(5)
|
|
(2.9)
|
%
|
|
(0.5)
|
%
|
|
(1.5)
|
%
|
|
(5.0)
|
%
|
|
Prescription volume
(90 Day = 3 Rx)(3)
|
|
2.0
|
%
|
|
5.0
|
%
|
|
3.6
|
%
|
|
4.8
|
%
|
|
Generic dispensing
rate
|
|
85.2
|
%
|
|
84.0
|
%
|
|
85.7
|
%
|
|
84.5
|
%
|
|
Pharmacy % of total
revenues
|
|
74.6
|
%
|
|
73.9
|
%
|
|
75.0
|
%
|
|
72.9
|
%
|
|
|
|
(1)
|
Gross profit for the
three months and year ended December 31, 2016 includes $31 million
and $46 million, respectively of acquisition-related integration
costs related to the acquisitions of Omnicare and the pharmacies
and clinics of Target.
|
|
(2)
|
Operating expenses
for the three months and year ended December 31, 2016 include a $34
million asset impairment charge in connection with planned store
closures in 2017 related to our enterprise streamlining initiative.
In addition, operating expenses for the three months and year ended
December 31, 2016 include $56 million and $235 million,
respectively, of acquisition-related integration costs related to
the acquisitions of Omnicare and the pharmacies and clinics of
Target. Operating expenses for the three months and year ended
December 31, 2015 include $52 million and $64 million,
respectively, of acquisition-related integration costs related to
the acquisitions of Omnicare and the pharmacies and clinics of
Target.
|
|
(3)
|
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.
|
|
(4)
|
Same store sales and
prescriptions exclude revenues from MinuteClinic, and revenue and
prescriptions from stores in Brazil, from LTC operations and from
commercialization services.
|
|
(5)
|
Front store same
store sales would have been approximately 520 basis points higher
for the year ended December 31, 2015 if tobacco and the estimated
associated basket sales were excluded from the year ended December
31, 2014.
|
|
Adjusted Earnings
Per Share Guidance
|
|
(Unaudited)
|
|
|
The following
reconciliation of estimated income before income tax provision to
estimated adjusted earnings per share contains forward-looking
information. All forward-looking information involves risks and
uncertainties. Actual results may differ materially from those
contemplated by the forward-looking information for a number of
reasons as described in our Securities and Exchange Commission
filings, including those set forth in the Risk Factors section and
under the section entitled "Cautionary Statement Concerning
Forward-Looking Statements" in our most recently filed Annual
Report on Form 10-K and Quarterly Report on Form 10-Q. See also
previous discussion at "Non-GAAP Financial Measures" for more
information on how we calculate Adjusted EPS.
|
|
|
In millions, except per share amounts
|
|
Year Ending
December 31, 2017
|
|
|
|
|
|
|
Income before income
tax provision
|
|
$
|
8,563
|
|
|
$
|
8,863
|
|
|
Non-GAAP
adjustments:
|
|
|
|
|
|
Amortization of
intangible assets
|
|
825
|
|
|
825
|
|
|
Acquisition-related
integration costs
|
|
35
|
|
|
35
|
|
|
Charge in connection
with store rationalization(1)
|
|
225
|
|
|
225
|
|
|
Loss on settlement of
defined benefit pension plan
|
|
195
|
|
|
195
|
|
|
Adjusted income
before income tax provision
|
|
9,843
|
|
|
10,143
|
|
|
Adjusted income tax
provision
|
|
3,829
|
|
|
3,956
|
|
|
Adjusted income from
continuing operations
|
|
6,014
|
|
|
6,187
|
|
|
Net income
attributable to noncontrolling interest
|
|
(2)
|
|
|
(2)
|
|
|
Adjusted income
allocable to participating securities
|
|
(25)
|
|
|
(25)
|
|
|
Adjusted income from
continuing operations attributable to CVS Health
|
|
$
|
5,987
|
|
|
$
|
6,160
|
|
|
|
|
|
|
|
Weighted average
diluted shares outstanding
|
|
1,038
|
|
|
1,038
|
|
|
Adjusted earnings per
share
|
|
$
|
5.77
|
|
|
$
|
5.93
|
|
|
|
|
In millions, except per share amounts
|
|
Three Months
Ending
March 31, 2017
|
|
|
|
|
|
|
Income before income
tax provision
|
|
$
|
1,368
|
|
|
$
|
1,468
|
|
|
Non-GAAP
adjustments:
|
|
|
|
|
|
Amortization of
intangible assets
|
|
200
|
|
|
200
|
|
|
Acquisition-related
integration costs
|
|
15
|
|
|
15
|
|
|
Charge in connection
with store rationalization(1)
|
|
220
|
|
|
220
|
|
|
Adjusted income
before income tax provision
|
|
1,803
|
|
|
1,903
|
|
|
Adjusted income tax
provision
|
|
687
|
|
|
725
|
|
|
Adjusted income from
continuing operations
|
|
1,116
|
|
|
1,178
|
|
|
Net income
attributable to noncontrolling interest
|
|
—
|
|
|
—
|
|
|
Adjusted income
allocable to participating securities
|
|
(5)
|
|
|
(5)
|
|
|
Adjusted income from
continuing operations attributable to CVS Health
|
|
$
|
1,111
|
|
|
$
|
1,173
|
|
|
|
|
|
|
|
Weighted average
diluted shares outstanding
|
|
1,041
|
|
|
1,041
|
|
|
Adjusted earnings per
share
|
|
$
|
1.07
|
|
|
$
|
1.13
|
|
|
|
|
(1)
|
The charge in
connection with store rationalization primarily represents an
estimated lease obligation charge in connection with planned store
closures related to our enterprise streamlining
initiative.
|
|
Free Cash Flow
Guidance
|
|
(Unaudited)
|
|
|
The following
reconciliation of net cash provided by operating activities to free
cash flow contains forward-looking information. All forward-looking
information involves risks and uncertainties. Actual results may
differ materially from those contemplated by the forward-looking
information for a number of reasons as described in our Securities
and Exchange Commission filings, including those set forth in the
Risk Factors section and under the section entitled "Cautionary
Statement Concerning Forward-Looking Statements" in our most
recently filed Annual Report on Form 10-K and Quarterly Report on
Form 10-Q. See also previous discussion at "Non-GAAP Financial
Measures" for more information on how we calculate Free Cash
Flow.
|
|
|
In millions
|
|
Year
Ending
December 31, 2017
|
|
|
|
|
|
|
Net cash provided by
operating activities
|
|
$
|
7,700
|
|
|
$
|
8,600
|
|
|
Subtract: Additions
to property and equipment
|
|
(2,000)
|
|
|
(2,400)
|
|
|
Add: Proceeds from
sale-leaseback transactions
|
|
300
|
|
|
200
|
|
|
Free cash
flow
|
|
$
|
6,000
|
|
|
$
|
6,400
|
|
To view the original version on PR Newswire,
visit:http://www.prnewswire.com/news-releases/cvs-health-reports-record-fourth-quarter-and-full-year-results-for-2016-confirms-2017-eps-guidance-300404774.html
SOURCE CVS Health Corporation