WOONSOCKET, R.I., Aug. 8, 2017 /PRNewswire/ --
Second Quarter Year-over-year Highlights:
- Net revenues increased 4.5% to $45.7
billion
- GAAP diluted EPS from continuing operations of $1.07, including a $135
million, or 13 cents per
share, goodwill impairment charge related to the RxCrossroads
business
- Adjusted EPS of $1.33
Year-to-date Highlights:
- Generated cash flow from operations of $5.5 billion; free cash flow of $4.6 billion
2017 Guidance:
- Narrowed and revised full year GAAP diluted EPS from
continuing operations to $4.92 to
$5.02, including the goodwill impairment charge, from
$5.02 to $5.18
- Narrowed full year Adjusted EPS to $5.83 to $5.93 from $5.77
to $5.93
- Provided third quarter GAAP diluted EPS from continuing
operations of $1.20 to $1.23
- Provided third quarter Adjusted EPS of $1.47 to $1.50, reflecting the timing of
operating profit between the third and fourth quarters related to
the Medicare Part D operations
- Confirmed full year cash flow from operations of
$7.7 to $8.6 billion; free cash flow
of $6.0 to $6.4 billion
CVS Health Corporation (NYSE: CVS) today announced operating
results for the three and six months ended June 30, 2017.
President and Chief Executive Officer Larry Merlo stated, "The second quarter results
we posted today keep us nicely on pace to achieve our full-year
targets. Operating profit in the Retail/LTC Segment was in line
with expectations while operating profit in the Pharmacy Services
Segment exceeded expectations. At the same time, we have generated
substantial free cash flow year-to-date and continued to return
significant value to our shareholders through dividends and share
repurchases. While we are pleased to report results consistent with
our expectations, we won't be satisfied until the total enterprise
returns to healthy levels of earnings growth."
Mr. Merlo continued, "Given our performance in the first half
and our confidence in our expectations for the back half of this
year, we are narrowing and raising the midpoint of our Adjusted EPS
guidance for 2017. Additionally, our differentiated value
proposition continues to resonate in the marketplace. The 2018
selling season is shaping up to be another successful one for our
PBM, with solid gross and net new business achieved to date."
Revenues
Net revenues for the three months ended June 30, 2017 increased 4.5%, or $2.0 billion, to $45.7
billion, up from $43.7 billion
in the three months ended June 30,
2016.
Revenues in the Pharmacy Services Segment increased 9.5% to
$32.3 billion in the three months
ended June 30, 2017. This increase
was primarily driven by growth in pharmacy network claim volume as
well as brand inflation and specialty pharmacy volume, partially
offset by increased generic dispensing and price compression.
Pharmacy network claims processed during the three months ended
June 30, 2017 increased 10.3% on a
30-day equivalent basis, to 376.0 million, compared to 340.9
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 June 30, 2017 increased 5.2%, on a 30-day
equivalent basis, to 65.6 million, compared to 62.3 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.
Revenues in the Retail/LTC Segment decreased 2.2% to
$19.6 billion in the three months
ended June 30, 2017. The decrease was
largely driven by a 2.6% decrease in same store sales, an increase
in the generic dispensing rate and continued reimbursement
pressure.
Pharmacy same store sales decreased 2.8% and were negatively
impacted by approximately 410 basis points due to recent generic
introductions. Same store prescription volumes remained flat, on a
30-day equivalent basis, in the three months ended June 30, 2017. The previously-announced
restricted networks that exclude CVS Pharmacy had a negative impact
of approximately 460 basis points on same store prescription
volumes.
Front store same store sales declined 2.1% in the three months
ended June 30, 2017. The shift of the
Easter holiday to the second quarter in 2017 from the first quarter
in 2016 had an approximately 75 basis point positive impact. 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.
For the three months ended June 30,
2017, the generic dispensing rate increased approximately
130 basis points to 87.2% in our Pharmacy Services Segment and
increased approximately 150 basis points to 87.6% in our Retail/LTC
Segment, compared to the prior year.
Operating Profit
Consolidated operating profit for the three months ended
June 30, 2017, decreased $240 million, or 10.2%. The decrease was
partially due to a goodwill impairment charge of $135 million related to the RxCrossroads
reporting unit within the Retail/LTC Segment. Additionally, the
previously-announced restricted networks that exclude CVS Pharmacy
and continued reimbursement pressure in the Retail/LTC Segment
negatively impacted operating profit. This was partially offset by
growth in pharmacy network claim volume and growth in specialty
pharmacy in the Pharmacy Services Segment and a $71 million decrease in acquisition-related
integration costs in the three months ended June 30, 2017 versus the same quarter last
year.
Net Income and Earnings Per Share
Net income for the three months ended June 30, 2017 increased $174 million or 18.8%, to $1.1 billion. The increase was primarily due to
the absence of a $542 million loss on
early extinguishment of debt in the current year, partially offset
by the $240 million decrease in
operating profit and an increase in the effective income tax rate,
from 39.5% to 41.1%. The increase in the tax rate was primarily due
to the nondeductible goodwill impairment charge of $135 million, or 280 basis points, partially
offset by $14 million in discrete tax
benefits related to the required adoption of new accounting
guidance for share-based compensation on January 1, 2017.
GAAP earnings per diluted share from continuing operations
("GAAP diluted EPS") for the three months ended June 30, 2017 was $1.07, compared to $0.86 in the prior year. Adjusted earnings per
share ("Adjusted EPS") for the three months ended June 30, 2017 and 2016, was $1.33 and $1.32,
respectively. Further detail is shown in the Adjusted Earnings Per
Share reconciliation later in this release.
Guidance
The Company narrowed and revised full year GAAP diluted EPS
guidance to $4.92 to $5.02, including
the goodwill impairment charge, from $5.02
to $5.18. The Company narrowed full year Adjusted EPS
guidance to $5.83 to $5.93 from
$5.77 to $5.93.
In the third quarter, the Company expects to deliver GAAP
diluted EPS of $1.20 to $1.23 and
Adjusted EPS of $1.47 to $1.50 which
are affected by the timing of the Medicare Part D operating profit
between the third and fourth quarters relative to the prior year,
resulting from the variability between the quarters as members move
through the risk corridor. The third quarter GAAP diluted EPS
guidance also includes an estimated loss on the
previously-disclosed settlement of a defined benefit pension
plan.
The Company 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.
Real Estate Program
During the three months ended June 30,
2017, the Company opened 27 new retail locations and closed
three retail locations. In addition, the Company relocated 10
retail locations. As of June 30,
2017, the Company operated 9,700 retail locations, including
pharmacies in Target stores, in 49 states, the District of Columbia, Puerto Rico and Brazil.
As previously disclosed, the Company intends to close a total of
approximately 70 retail stores during 2017 and expects to take a
cumulative charge of approximately $220
million primarily associated with the remaining lease
obligations of such stores. The Company closed 63 retail stores and
took a charge of $205 million in the
six months ended June 30, 2017. The
Company expects to close approximately seven additional retail
stores during the remainder of 2017.
Teleconference and Webcast
The Company will be holding a conference call today for the
investment community at 8:30 am (EDT)
to discuss its quarterly 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 the Company
CVS Health is a pharmacy innovation company helping people on
their path to better health. Through its 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
The Private Securities Litigation Reform Act of 1995 provides a
safe harbor for forward-looking statements made by or on behalf of
CVS Health Corporation. 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
|
|
Six Months
Ended
|
|
|
June 30,
|
|
June 30,
|
In millions, except per share amounts
|
|
2017
|
|
2016
(1)
|
|
2017
|
|
2016
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$
|
45,685
|
|
$
|
43,725
|
|
$
|
90,199
|
|
$
|
86,940
|
Cost of
revenues
|
|
|
38,750
|
|
|
36,710
|
|
|
76,684
|
|
|
73,181
|
Gross
profit
|
|
|
6,935
|
|
|
7,015
|
|
|
13,515
|
|
|
13,759
|
Operating
expenses
|
|
|
4,818
|
|
|
4,658
|
|
|
9,605
|
|
|
9,217
|
Operating
profit
|
|
|
2,117
|
|
|
2,357
|
|
|
3,910
|
|
|
4,542
|
Interest expense,
net
|
|
|
247
|
|
|
280
|
|
|
499
|
|
|
563
|
Loss on early
extinguishment of debt
|
|
|
—
|
|
|
542
|
|
|
—
|
|
|
542
|
Other
expense
|
|
|
7
|
|
|
7
|
|
|
14
|
|
|
16
|
Income before income
tax provision
|
|
|
1,863
|
|
|
1,528
|
|
|
3,397
|
|
|
3,421
|
Income tax
provision
|
|
|
766
|
|
|
604
|
|
|
1,338
|
|
|
1,350
|
Income from
continuing operations
|
|
|
1,097
|
|
|
924
|
|
|
2,059
|
|
|
2,071
|
Income (loss) from
discontinued operations, net of tax
|
|
|
1
|
|
|
—
|
|
|
(8)
|
|
|
—
|
Net income
|
|
|
1,098
|
|
|
924
|
|
|
2,051
|
|
|
2,071
|
Net income
attributable to noncontrolling interest
|
|
|
—
|
|
|
—
|
|
|
(1)
|
|
|
(1)
|
Net income
attributable to CVS Health
|
|
$
|
1,098
|
|
$
|
924
|
|
$
|
2,050
|
|
$
|
2,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations attributable to CVS Health
|
|
$
|
1.07
|
|
$
|
0.86
|
|
$
|
2.00
|
|
$
|
1.91
|
Loss from discontinued
operations attributable to CVS Health
|
|
$
|
—
|
|
$
|
—
|
|
$
|
(0.01)
|
|
$
|
—
|
Net income attributable
to CVS Health
|
|
$
|
1.07
|
|
$
|
0.86
|
|
$
|
1.99
|
|
$
|
1.91
|
Weighted average shares
outstanding
|
|
|
1,019
|
|
|
1,070
|
|
|
1,024
|
|
|
1,081
|
Diluted earnings per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations attributable to CVS Health
|
|
$
|
1.07
|
|
$
|
0.86
|
|
$
|
1.99
|
|
$
|
1.90
|
Loss from discontinued
operations attributable to CVS Health
|
|
$
|
—
|
|
$
|
—
|
|
$
|
(0.01)
|
|
$
|
—
|
Net income attributable
to CVS Health
|
|
$
|
1.07
|
|
$
|
0.86
|
|
$
|
1.98
|
|
$
|
1.90
|
Weighted average shares
outstanding
|
|
|
1,024
|
|
|
1,075
|
|
|
1,029
|
|
|
1,087
|
Dividends declared
per share
|
|
$
|
0.50
|
|
$
|
0.425
|
|
$
|
1.00
|
|
$
|
0.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Effective January 1,
2017, the Company adopted Accounting Standards Update ("ASU")
2017-07, Improving the Presentation of Net Periodic Pension Cost
and Net Periodic Postretirement Benefit Cost, which resulted in
a retrospective reclassification of $7 million and $16 million of
net benefit costs from operating expenses to other expense in the
three and six months ended June 30, 2016, respectively.
|
CVS HEALTH
CORPORATION
Condensed
Consolidated Balance Sheets
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
In millions, except per share amounts
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
2,094
|
|
$
|
3,371
|
Short-term
investments
|
|
|
75
|
|
|
87
|
Accounts receivable,
net
|
|
|
12,274
|
|
|
12,164
|
Inventories
|
|
|
14,271
|
|
|
14,760
|
Other current
assets
|
|
|
690
|
|
|
660
|
Total current
assets
|
|
|
29,404
|
|
|
31,042
|
Property and equipment,
net
|
|
|
10,073
|
|
|
10,175
|
Goodwill
|
|
|
38,130
|
|
|
38,249
|
Intangible assets,
net
|
|
|
13,354
|
|
|
13,511
|
Other assets
|
|
|
1,564
|
|
|
1,485
|
Total
assets
|
|
$
|
92,525
|
|
$
|
94,462
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
7,874
|
|
$
|
7,946
|
Claims and discounts
payable
|
|
|
9,708
|
|
|
9,451
|
Accrued
expenses
|
|
|
8,133
|
|
|
6,937
|
Short-term
debt
|
|
|
1,100
|
|
|
1,874
|
Current portion of
long-term debt
|
|
|
42
|
|
|
42
|
Total current
liabilities
|
|
|
26,857
|
|
|
26,250
|
Long-term
debt
|
|
|
25,622
|
|
|
25,615
|
Deferred income
taxes
|
|
|
4,210
|
|
|
4,214
|
Other long-term
liabilities
|
|
|
1,689
|
|
|
1,549
|
|
|
|
|
|
|
|
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; 1,710 shares issued and
1,015
shares outstanding at June 30, 2017 and 1,705 shares
issued and 1,061 shares
outstanding at December 31, 2016
|
|
|
17
|
|
|
17
|
Treasury stock, at
cost: 694 shares at June 30, 2017 and 643 shares at
December 31, 2016
|
|
|
(37,414)
|
|
|
(33,452)
|
Shares held in trust:
1 share at June 30, 2017 and
December 31, 2016
|
|
|
(31)
|
|
|
(31)
|
Capital
surplus
|
|
|
31,871
|
|
|
31,618
|
Retained
earnings
|
|
|
40,005
|
|
|
38,983
|
Accumulated other
comprehensive income (loss)
|
|
|
(306)
|
|
|
(305)
|
Total CVS Health
shareholders' equity
|
|
|
34,142
|
|
|
36,830
|
Noncontrolling
interest
|
|
|
5
|
|
|
4
|
Total shareholders'
equity
|
|
|
34,147
|
|
|
36,834
|
Total liabilities and
shareholders' equity
|
|
$
|
92,525
|
|
$
|
94,462
|
CVS HEALTH
CORPORATION
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
June
30,
|
In millions
|
|
2017
|
|
2016
(1)
|
Cash flows from
operating activities:
|
|
|
|
|
|
|
Cash receipts from
customers
|
|
$
|
88,343
|
|
$
|
84,324
|
Cash paid for inventory
and prescriptions dispensed by retail network pharmacies
|
|
|
(73,748)
|
|
|
(70,851)
|
Cash paid to other
suppliers and employees
|
|
|
(7,000)
|
|
|
(7,019)
|
Interest
received
|
|
|
10
|
|
|
9
|
Interest
paid
|
|
|
(539)
|
|
|
(615)
|
Income taxes
paid
|
|
|
(1,534)
|
|
|
(1,762)
|
Net cash provided by
operating activities
|
|
|
5,532
|
|
|
4,086
|
|
|
|
|
|
|
|
Cash flows from
investing activities:
|
|
|
|
|
|
|
Purchases of property
and equipment
|
|
|
(888)
|
|
|
(1,102)
|
Proceeds from sale of
property and equipment and other assets
|
|
|
13
|
|
|
11
|
Acquisitions (net of
cash acquired) and other investments
|
|
|
(315)
|
|
|
(168)
|
Purchase of
available-for-sale investments
|
|
|
—
|
|
|
(39)
|
Maturity of
available-for-sale investments
|
|
|
16
|
|
|
67
|
Net cash used in
investing activities
|
|
|
(1,174)
|
|
|
(1,231)
|
|
|
|
|
|
|
|
Cash flows from
financing activities:
|
|
|
|
|
|
|
Increase (decrease) in
short-term debt
|
|
|
(774)
|
|
|
745
|
Proceeds from issuance
of long-term debt
|
|
|
—
|
|
|
3,455
|
Repayments of long-term
debt
|
|
|
—
|
|
|
(3,579)
|
Purchase of
noncontrolling interest in subsidiary
|
|
|
—
|
|
|
(39)
|
Dividends
paid
|
|
|
(1,028)
|
|
|
(929)
|
Proceeds from exercise
of stock options
|
|
|
189
|
|
|
193
|
Payments for taxes
related to net share settlement of equity awards
|
|
|
(60)
|
|
|
(71)
|
Repurchase of common
stock
|
|
|
(3,961)
|
|
|
(3,960)
|
Other
|
|
|
(1)
|
|
|
(4)
|
Net cash used in
financing activities
|
|
|
(5,635)
|
|
|
(4,189)
|
Effect of exchange
rate changes on cash and cash equivalents
|
|
|
—
|
|
|
2
|
Net decrease in cash
and cash equivalents
|
|
|
(1,277)
|
|
|
(1,332)
|
Cash and cash
equivalents at the beginning of the period
|
|
|
3,371
|
|
|
2,459
|
Cash and cash
equivalents at the end of the period
|
|
$
|
2,094
|
|
$
|
1,127
|
|
|
|
|
|
|
|
Reconciliation of net
income to net cash provided by operating activities:
|
|
|
|
|
|
|
Net income
|
|
$
|
2,051
|
|
$
|
2,071
|
Adjustments required to
reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
1,242
|
|
|
1,236
|
Goodwill
impairment
|
|
|
135
|
|
|
—
|
Stock-based
compensation
|
|
|
108
|
|
|
107
|
Loss on early
extinguishment of debt
|
|
|
—
|
|
|
542
|
Deferred income taxes
and other noncash items
|
|
|
21
|
|
|
75
|
Change in operating
assets and liabilities, net of effects from
acquisitions:
|
|
|
|
|
|
|
Accounts receivable,
net
|
|
|
(114)
|
|
|
(1,279)
|
Inventories
|
|
|
492
|
|
|
(167)
|
Other current
assets
|
|
|
(31)
|
|
|
(170)
|
Other
assets
|
|
|
(38)
|
|
|
(53)
|
Accounts payable and
claims and discounts payable
|
|
|
180
|
|
|
1,164
|
Accrued
expenses
|
|
|
1,345
|
|
|
555
|
Other long-term
liabilities
|
|
|
141
|
|
|
5
|
Net cash provided by
operating activities
|
|
$
|
5,532
|
|
$
|
4,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Effective
January 1, 2017, the Company adopted ASU 2016-09, Improvements
to Employee Share-Based Payment Accounting, which resulted in a
retrospective reclassification of $63 million of excess tax
benefits from financing activities to operating activities which
increased net cash provided by operating activities and increased
cash used in financing activities for the six months ended June 30,
2016.
|
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
certain adjustments such as the amortization of intangible assets,
acquisition-related transaction and integration costs, charges in
connection with store rationalization, goodwill impairments,
adjustments to legal reserves in connection with certain legal
settlements, 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
|
|
Six Months Ended
|
|
|
June
30,
|
|
June
30,
|
In millions, except per share amounts
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income
tax provision
|
|
$
|
1,863
|
|
$
|
1,528
|
|
$
|
3,397
|
|
$
|
3,421
|
Non-GAAP
adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of
intangible assets
|
|
|
203
|
|
|
197
|
|
|
403
|
|
|
396
|
Acquisition-related
integration costs (1)
|
|
|
10
|
|
|
81
|
|
|
25
|
|
|
142
|
Charges in connection
with store rationalization (2)
|
|
|
6
|
|
|
—
|
|
|
205
|
|
|
—
|
Goodwill impairment
(3)
|
|
|
135
|
|
|
—
|
|
|
135
|
|
|
—
|
Charge related to a
disputed 1999 legal settlement
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
Loss on early
extinguishment of debt
|
|
|
—
|
|
|
542
|
|
|
—
|
|
|
542
|
Adjusted income
before income tax provision
|
|
|
2,217
|
|
|
2,348
|
|
|
4,165
|
|
|
4,504
|
Adjusted income tax
provision
|
|
|
852
|
|
|
923
|
|
|
1,586
|
|
|
1,770
|
Adjusted income from
continuing operations
|
|
|
1,365
|
|
|
1,425
|
|
|
2,579
|
|
|
2,734
|
Net income
attributable to noncontrolling interest
|
|
|
—
|
|
|
—
|
|
|
(1)
|
|
|
(1)
|
Adjusted income
allocable to participating securities
|
|
|
(4)
|
|
|
(6)
|
|
|
(10)
|
|
|
(13)
|
Adjusted income from
continuing operations attributable to CVS Health
|
|
$
|
1,361
|
|
$
|
1,419
|
|
$
|
2,568
|
|
$
|
2,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
diluted shares outstanding
|
|
|
1,024
|
|
|
1,075
|
|
|
1,029
|
|
|
1,087
|
Adjusted
EPS
|
|
$
|
1.33
|
|
$
|
1.32
|
|
$
|
2.50
|
|
$
|
2.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) In 2017, the integration
costs relate to the acquisition of Omnicare. In 2016, the
integration costs relate to the acquisitions of Omnicare and the
pharmacies and clinics of Target.
(2) Primarily represents
charges for noncancelable lease obligations associated with stores
closed in connection with our enterprise streamlining
initiative.
(3) The goodwill impairment
relates to the RxCrossroads reporting unit within the Retail/LTC
Segment.
|
Free Cash
Flow
(Unaudited)
|
|
|
|
|
|
|
|
The following is a
reconciliation of net cash provided by operating activities to Free
Cash Flow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended
|
|
|
June
30,
|
In millions
|
|
2017
|
|
2016
(1)
|
|
|
|
|
|
|
|
Net cash provided by
operating activities
|
|
$
|
5,532
|
|
$
|
4,086
|
Subtract: Additions to
property and equipment
|
|
|
(888)
|
|
|
(1,102)
|
Free cash
flow
|
|
$
|
4,644
|
|
$
|
2,984
|
|
|
|
|
|
|
|
|
|
(1) Effective January 1,
2017, the Company adopted ASU 2016-09, Improvements to Employee
Share-Based Payment Accounting, which resulted in a
retrospective reclassification of $63 million of excess tax
benefits from financing activities to operating activities which
increased net cash provided by operating activities for the six
months ended June 30, 2016.
|
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 condensed consolidated financial
statements:
|
|
|
|
|
Pharmacy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
Retail/LTC
|
|
Corporate
|
|
Intersegment
|
|
Consolidated
|
In millions
|
|
Segment(1)
|
|
Segment
|
|
Segment
|
|
Eliminations(2)
|
|
Totals
|
Three Months
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$
|
32,325
|
|
$
|
19,554
|
|
$
|
—
|
|
$
|
(6,194)
|
|
$
|
45,685
|
Gross profit
(3)
|
|
|
1,469
|
|
|
5,675
|
|
|
—
|
|
|
(209)
|
|
|
6,935
|
Operating profit
(loss) (4)(5)
|
|
|
1,135
|
|
|
1,411
|
|
|
(240)
|
|
|
(189)
|
|
|
2,117
|
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) (5)(6)
|
|
|
1,039
|
|
|
1,711
|
|
|
(220)
|
|
|
(173)
|
|
|
2,357
|
Six Months
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
|
63,548
|
|
|
38,895
|
|
|
—
|
|
|
(12,244)
|
|
|
90,199
|
Gross profit
(3)
|
|
|
2,565
|
|
|
11,351
|
|
|
—
|
|
|
(401)
|
|
|
13,515
|
Operating profit
(loss) (4)(5)
|
|
|
1,919
|
|
|
2,822
|
|
|
(466)
|
|
|
(365)
|
|
|
3,910
|
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) (5)(6)
|
|
|
1,823
|
|
|
3,495
|
|
|
(432)
|
|
|
(344)
|
|
|
4,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Net revenues of the
Pharmacy Services Segment include approximately $2.7 billion
and $2.6 billion of retail co‑payments for the three months
ended June 30, 2017 and 2016, respectively, as well as $5.8 billion
and $5.6 billion of retail co-payments for the six months ended
June 30, 2017 and 2016, 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 the
Company's retail pharmacies to purchase covered products, when
members enrolled in programs such as Maintenance Choice®
elect to pick up maintenance prescriptions at one of the Company's
retail pharmacies instead of receiving them through the mail, or
when members have prescriptions filled at the Company's 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 ended June 30, 2017 and 2016
includes $5 million and $6 million, respectively, of
acquisition-related integration costs. The Retail/LTC Segment gross
profit for the six months ended June 30, 2017 and 2016 includes
$5 million and $10 million, respectively, of
acquisition-related integration costs. The integration costs in
2017 are related to the acquisition of Omnicare and the integration
costs in 2016 are related to the acquisitions of Omnicare and the
pharmacies and clinics of Target.
(4) The Retail/LTC Segment
operating profit for the three and six months ended June 30, 2017
includes a $135 million goodwill impairment charge. The Retail/LTC
Segment operating profit for the three and six months ended June
30, 2017 also includes $6 million and $205 million, respectively,
of charges associated with store closures.
(5) The Retail/LTC Segment
operating profit for the three months ended June 30, 2017 and 2016
includes $10 million and $81 million, respectively, of
acquisition-related integration costs. The Retail/LTC Segment
operating profit for the six months ended June 30, 2017 and 2016
includes $25 million and $142 million, respectively, of
acquisition-related integration costs. The integration costs in
2017 are related to the acquisition of Omnicare and the integration
costs in 2016 are related to the acquisitions of Omnicare and the
pharmacies and clinics of Target.
(6) Amounts revised to
reflect the adoption of ASU 2017-07, Improving the Presentation
of Net Periodic Pension Cost and Net Periodic Postretirement
Benefit Cost, which increased consolidated operating profit by
$7 million and $16 million in the three and six months ended June
30, 2016, respectively.
|
Supplemental
Information
(Unaudited)
|
|
Pharmacy Services
Segment
|
|
The following table
summarizes the Pharmacy Services Segment's performance for the
respective periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
|
June 30,
|
|
June 30,
|
In millions
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net
revenues
|
|
$
|
32,325
|
|
|
$
|
29,510
|
|
|
$
|
63,548
|
|
|
$
|
58,275
|
|
Gross
profit
|
|
|
1,469
|
|
|
|
1,367
|
|
|
|
2,565
|
|
|
|
2,469
|
|
Gross profit % of net
revenues
|
|
|
4.5
|
%
|
|
|
4.6
|
%
|
|
|
4.0
|
%
|
|
|
4.2
|
%
|
Operating expenses
(1)
|
|
|
334
|
|
|
|
328
|
|
|
|
646
|
|
|
|
646
|
|
Operating expenses % of
net revenues
|
|
|
1.0
|
%
|
|
|
1.1
|
%
|
|
|
1.0
|
%
|
|
|
1.1
|
%
|
Operating profit
(1)
|
|
|
1,135
|
|
|
|
1,039
|
|
|
|
1,919
|
|
|
|
1,823
|
|
Operating profit % of
net revenues
|
|
|
3.5
|
%
|
|
|
3.5
|
%
|
|
|
3.0
|
%
|
|
|
3.1
|
%
|
Net
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mail choice
(2)
|
|
$
|
11,512
|
|
|
$
|
10,646
|
|
|
$
|
22,360
|
|
|
$
|
20,796
|
|
Pharmacy network
(3)
|
|
|
20,741
|
|
|
|
18,778
|
|
|
|
41,042
|
|
|
|
37,314
|
|
Other
|
|
|
72
|
|
|
|
86
|
|
|
|
146
|
|
|
|
165
|
|
Pharmacy claims
processed (90 Day = 3 prescriptions) (4)(5):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
441.6
|
|
|
|
403.2
|
|
|
|
882.1
|
|
|
|
805.1
|
|
Mail choice
(2)
|
|
|
65.6
|
|
|
|
62.3
|
|
|
|
129.3
|
|
|
|
123.3
|
|
Pharmacy network
(3)
|
|
|
376.0
|
|
|
|
340.9
|
|
|
|
752.8
|
|
|
|
681.8
|
|
Generic dispensing
rate (4)(5):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
87.2
|
%
|
|
|
85.9
|
%
|
|
|
87.1
|
%
|
|
|
85.7
|
%
|
Mail choice
(2)
|
|
|
83.1
|
%
|
|
|
81.2
|
%
|
|
|
82.9
|
%
|
|
|
80.8
|
%
|
Pharmacy network
(3)
|
|
|
87.9
|
%
|
|
|
86.8
|
%
|
|
|
87.8
|
%
|
|
|
86.6
|
%
|
Mail choice
penetration rate (4)(5)
|
|
|
14.9
|
%
|
|
|
15.5
|
%
|
|
|
14.7
|
%
|
|
|
15.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Amounts revised to
reflect the adoption of ASU 2017-07, Improving the Presentation
of Net Periodic Pension Cost and Net Periodic Postretirement
Benefit Cost, which decreased operating expenses and increased
operating profit by $1 million for the three months ended June 30,
2016. For the six months ended June 30, 2016, the adoption of ASU
2017-07 decreased operating expenses and increased operating profit
by $3 million.
(2) Mail choice is defined as
claims filled at a Pharmacy Services mail facility, which includes
specialty mail claims inclusive of Specialty Connect®
claims picked up at retail, as well as prescriptions filled at our
retail pharmacies under the Maintenance Choice®
program.
(3) Pharmacy network net
revenues, claims processed and generic dispensing rates do not
include Maintenance Choice activity, which is 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.
(4) Includes the adjustment
to convert 90-day 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.
(5) The pharmacy claims
processed, the generic dispensing rate and the mail choice
penetration rate for the three and six months ended June 30, 2016
has been revised to reflect 90-day prescriptions to the equivalent
of three 30-day prescriptions.
|
Supplemental
Information
(Unaudited)
|
|
Retail/LTC
Segment
|
|
The following table
summarizes the Retail/LTC Segment's performance for the respective
periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
|
June 30,
|
|
June 30,
|
In millions
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net
revenues
|
|
$
|
19,554
|
|
|
$
|
19,998
|
|
|
$
|
38,895
|
|
|
$
|
40,110
|
|
Gross profit
(1)(2)
|
|
|
5,675
|
|
|
|
5,837
|
|
|
|
11,351
|
|
|
|
11,667
|
|
Gross profit % of net
revenues
|
|
|
29.0
|
%
|
|
|
29.2
|
%
|
|
|
29.2
|
%
|
|
|
29.1
|
%
|
Operating expenses
(1)(2)(3)(4)
|
|
|
4,264
|
|
|
|
4,126
|
|
|
|
8,529
|
|
|
|
8,172
|
|
Operating expenses % of
net revenues
|
|
|
21.8
|
%
|
|
|
20.6
|
%
|
|
|
21.9
|
%
|
|
|
20.4
|
%
|
Operating profit
(4)
|
|
|
1,411
|
|
|
|
1,711
|
|
|
|
2,822
|
|
|
|
3,495
|
|
Operating profit % of
net revenues
|
|
|
7.2
|
%
|
|
|
8.6
|
%
|
|
|
7.3
|
%
|
|
|
8.7
|
%
|
Prescriptions filled
(90 Day = 3 prescriptions) (5)
|
|
|
301.6
|
|
|
|
300.9
|
|
|
|
604.7
|
|
|
|
606.0
|
|
Net revenue increase
(decrease):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(2.2)
|
%
|
|
|
16.0
|
%
|
|
|
(3.0)
|
%
|
|
|
17.3
|
%
|
Pharmacy
|
|
|
(2.5)
|
%
|
|
|
21.2
|
%
|
|
|
(3.1)
|
%
|
|
|
22.4
|
%
|
Front Store
|
|
|
(1.3)
|
%
|
|
|
(0.6)
|
%
|
|
|
(2.6)
|
%
|
|
|
1.0
|
%
|
Total prescription
volume (90 Day = 3 prescriptions) (5)
|
|
|
0.2
|
%
|
|
|
23.2
|
%
|
|
|
(0.2)
|
%
|
|
|
24.8
|
%
|
Same store sales
increase (decrease) (6):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(2.6)
|
%
|
|
|
2.1
|
%
|
|
|
(3.7)
|
%
|
|
|
3.1
|
%
|
Pharmacy
|
|
|
(2.8)
|
%
|
|
|
3.9
|
%
|
|
|
(3.7)
|
%
|
|
|
4.7
|
%
|
Front Store
|
|
|
(2.1)
|
%
|
|
|
(2.5)
|
%
|
|
|
(3.5)
|
%
|
|
|
(0.9)
|
%
|
Prescription volume (90
Day = 3 prescriptions) (5)
|
|
|
0.0
|
%
|
|
|
3.5
|
%
|
|
|
(0.7)
|
%
|
|
|
4.7
|
%
|
Generic dispensing
rates
|
|
|
87.6
|
%
|
|
|
86.1
|
%
|
|
|
87.6
|
%
|
|
|
85.9
|
%
|
Pharmacy % of net
revenues
|
|
|
74.6
|
%
|
|
|
74.8
|
%
|
|
|
74.6
|
%
|
|
|
74.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Gross profit and
operating expenses for the three months ended June 30, 2017 each
include $5 million of acquisition-related integration costs.
Gross profit and operating expenses for the six months ended June
30, 2017 include $5 million and $20 million, respectively, of
acquisition-related integration costs. The integration costs are
related to the acquisition of Omnicare.
(2) 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. Gross profit and operating
expenses for the six months ended June 30, 2016 includes
$10 million and $132 million, respectively, of
acquisition-related integration costs. The integration costs are
related to the acquisitions of Omnicare and the pharmacies and
clinics of Target.
(3) Operating expenses for
the three and six months ended June 30, 2017 include a $135 million
goodwill impairment charge. Operating expenses for the three and
six months ended June 30, 2017 also includes $6 million and $205
million, respectively, of charges associated with store
closures.
(4) Amounts revised to
reflect the adoption of ASU 2017-07, Improving the Presentation
of Net Periodic Pension Cost and Net Periodic Postretirement
Benefit Cost, which decreased operating expenses and increased
operating profit by $6 million for the three months ended June 30,
2016. For the six months ended June 30, 2016, the adoption of ASU
2017-07 decreased operating expenses and increased operating profit
by $13 million.
(5) 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.
(6) Same store sales and
prescriptions exclude revenues from MinuteClinic, and revenue and
prescriptions from stores in Brazil, LTC operations and from
commercialization services.
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending
|
In millions, except per share amounts
|
|
December 31, 2017
|
|
|
|
|
|
|
|
Income before income
tax provision
|
|
$
|
8,332
|
|
$
|
8,498
|
Non-GAAP
adjustments:
|
|
|
|
|
|
|
Amortization of
intangible assets
|
|
|
820
|
|
|
820
|
Acquisition-related
integration costs
|
|
|
45
|
|
|
45
|
Charges in connection
with store rationalization
|
|
|
220
|
|
|
220
|
Goodwill
impairment
|
|
|
135
|
|
|
135
|
Loss on settlement of
defined benefit pension plan
|
|
|
220
|
|
|
220
|
Adjusted income
before income tax provision
|
|
|
9,772
|
|
|
9,938
|
Adjusted income tax
provision
|
|
|
3,782
|
|
|
3,850
|
Adjusted income from
continuing operations
|
|
|
5,990
|
|
|
6,088
|
Net income
attributable to noncontrolling interest
|
|
|
(1)
|
|
|
(1)
|
Adjusted income
allocable to participating securities
|
|
|
(22)
|
|
|
(22)
|
Adjusted income from
continuing operations attributable to CVS Health
|
|
$
|
5,967
|
|
$
|
6,065
|
|
|
|
|
|
|
|
Weighted average
diluted shares outstanding
|
|
|
1,023
|
|
|
1,023
|
Adjusted earnings per
share
|
|
$
|
5.83
|
|
$
|
5.93
|
|
|
|
|
|
|
|
|
|
Three Months Ending
|
In millions, except per share amounts
|
|
September 30,
2017
|
|
|
|
|
|
|
|
Income before income
tax provision
|
|
$
|
2,004
|
|
$
|
2,077
|
Non-GAAP
adjustments:
|
|
|
|
|
|
|
Amortization of
intangible assets
|
|
|
205
|
|
|
205
|
Acquisition-related
integration costs
|
|
|
15
|
|
|
15
|
Charge in connection
with store rationalization
|
|
|
10
|
|
|
10
|
Loss on settlement of
defined benefit pension plan
|
|
|
220
|
|
|
220
|
Adjusted income
before income tax provision
|
|
|
2,454
|
|
|
2,527
|
Adjusted income tax
provision
|
|
|
956
|
|
|
988
|
Adjusted income from
continuing operations
|
|
|
1,498
|
|
|
1,539
|
Net income
attributable to noncontrolling interest
|
|
|
—
|
|
|
—
|
Adjusted income
allocable to participating securities
|
|
|
(3)
|
|
|
(3)
|
Adjusted income from
continuing operations attributable to CVS Health
|
|
$
|
1,495
|
|
$
|
1,536
|
|
|
|
|
|
|
|
Weighted average
diluted shares outstanding
|
|
|
1,020
|
|
|
1,021
|
Adjusted earnings per
share
|
|
$
|
1.47
|
|
$
|
1.50
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending
|
In millions
|
|
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
|
View original
content:http://www.prnewswire.com/news-releases/cvs-health-reports-second-quarter-results-300500819.html
SOURCE CVS Health Corporation