WOONSOCKET, R.I., Nov. 8, 2016 /PRNewswire/ --
Third Quarter Year-over-year Highlights:
- Net revenues increased 15.5% to $44.6 billion
- GAAP operating profit increased 20.9% to $2.8 billion
- GAAP diluted EPS from continuing operations of $1.43
- Adjusted EPS increased 28.0% to $1.64
- GAAP and Adjusted EPS both include a benefit of approximately 5 cents per share related to
a lower income tax rate primarily due to the resolution of tax matters previously forecasted for the fourth quarter
Year-to-date Highlights:
- Cash flow from operations of $7.9 billion
- Generated free cash flow of $6.6 billion
2016 Guidance:
- Full year GAAP diluted EPS lowered and narrowed to $4.84 to $4.90 from $4.92 to $5.00, including third quarter acquisition-related integration costs
- Full year Adjusted EPS lowered and narrowed to $5.77 to $5.83 from $5.81 to $5.89
- Provided fourth quarter GAAP diluted EPS of $1.52 to $1.58, excluding acquisition-related
integration costs
- Provided fourth quarter Adjusted EPS of $1.64 to $1.70, up 7.00% to 10.75%
- Raised full year cash flow from operations to $9.3 to $9.5 billion; free cash flow to
$6.8 to $7.0 billion
2017 Preliminary Outlook:
- Provided full year GAAP diluted EPS of $5.16 to $5.33
- Provided full year Adjusted EPS of $5.77 to $5.93
- Both include the projected loss of more than 40 million retail prescriptions related to new restricted pharmacy
networks
- GAAP diluted EPS includes impact of previously announced termination of pension plan
CVS Health Corporation (NYSE: CVS) today announced operating results for the three months ended September 30, 2016.
President and Chief Executive Officer Larry Merlo stated, "We posted a solid third quarter with
the PBM exceeding our expectations and retail performing at the lower end of our expectations. However, very recent pharmacy
network changes in the marketplace are expected to cause some retail prescriptions to begin migrating out of our pharmacies this
quarter. In addition, we are currently experiencing slowing prescription growth in the overall market as well as a soft
seasonal business. These factors combined are leading us to reduce the mid-point of our guidance for this year by
five cents per share. The network changes have more significant implications for our 2017 outlook.
While we expect a healthy increase in PBM operating profit growth in 2017, we expect a decrease in retail operating profit
growth."
Mr. Merlo continued, "We remain confident in our model and we are targeting 10% growth in Adjusted EPS for the longer term, as
we continue to introduce new and innovative ways to drive value for patients, payors, and providers."
Revenues
Net revenues for the three months ended September 30, 2016 increased 15.5%, or $6.0
billion, to $44.6 billion, compared to the three months ended September 30, 2015.
Revenues in the Pharmacy Services Segment increased 19.2%, or $4.9 billion, to $30.4 billion in the three months ended September 30, 2016. The increase was primarily driven by increased
pharmacy network claim volume and growth in specialty pharmacy. Pharmacy network claims processed during the three months ended
September 30, 2016 increased 23.3% to 282.6 million, compared to 229.1 million in the prior year. The increase in pharmacy
network claim volume was primarily due to the growth in net new business. Mail choice claims processed during the three months
ended September 30, 2016, increased 2.5%, to 22.4 million, compared to 21.9 million in the prior year. The increase in mail
choice claims was primarily driven by the continued adoption of our Maintenance Choice® offerings.
Revenues in the Retail/LTC Segment increased 12.5%, or $2.2 billion, to approximately
$20.1 billion, in the three months ended September 30, 2016. The increase was primarily driven
by the addition of the long-term care ("LTC") pharmacy operations acquired as part of the acquisition of Omnicare, Inc.
("Omnicare") in August 2015, the addition of the pharmacies and clinics of Target Corporation
("Target") acquired in December 2015 and pharmacy same store sales growth. Same store sales
increased 2.3% versus the third quarter of 2015. Pharmacy same store sales rose 3.4% and pharmacy same store prescription volumes
rose 3.0% on a 30-day equivalent basis. Pharmacy same store sales were negatively affected by approximately 340 basis points from
recent generic drug introductions. Front store same store sales decreased 1.0%, which were negatively affected by softer customer
traffic partially offset by an increase in basket size.
For the three months ended September 30, 2016, the generic dispensing rate increased approximately 160 basis points to
85.4% in the Pharmacy Services Segment and increased approximately 100 basis points to 85.8% in the Retail/LTC Segment.
Operating Profit
For the three months ended September 30, 2016, consolidated operating profit increased $486
million, or 20.9%. Excluding acquisition-related integration costs of $65 million in 2016
and acquisition-related transaction and integration costs of $127 million in 2015, consolidated
operating profit increased $424 million, or 17.3%, from $2,458
million for the three months ended September 30, 2015 to $2,882
million for the three months ended September 30, 2016. For the three months ended September
30, 2016, operating profit increased $296 million, or 25.3%, to $1,458 million in the Pharmacy Services Segment and $130 million, or 7.9%, to
$1,773 million in the Retail/LTC Segment. Excluding acquisition-related integration costs of
$52 million and $12 million in the three months ended September 30, 2016 and 2015, respectively, the Retail/LTC Segment operating profit grew $170 million, or 10.3%, to $1,825 million for the three months ended
September 30, 2016. 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 and the acquisition of
Omnicare's LTC business as well as an improved front store margin rate. These positive factors for both segments were partially
offset by continued pricing in the Pharmacy Services Segment and reimbursement pressure in the Retail/LTC Segment.
Net Income and Earnings Per Share
Net income for the three months ended September 30, 2016 was $1.5 billion, an increase of
$294 million or 23.6%. The increase in net income is primarily due to the $486 million increase in operating profit discussed above partially offset by a
$101 million loss on early extinguishment of debt. Net income also benefited, by approximately
$0.05 per share, from a lower income tax rate, which was primarily due to the resolution of income
tax matters previously forecasted in the fourth quarter.
GAAP earnings per diluted share from continuing operations ("GAAP diluted EPS") for the three months ended September 30,
2016 was $1.43, compared to $1.10 in the prior year. Adjusted
earnings per share ("Adjusted EPS") for the three months ended September 30, 2016 and 2015, was $1.64 and $1.28, respectively. Adjusted EPS excludes $197
million and $160 million of intangible asset amortization for the three months ended
September 30, 2016 and 2015, respectively. Adjusted EPS for the three months ended September 30, 2016 also excludes
$65 million of acquisition-related integration costs and the loss on early extinguishment of debt
of $101 million. Adjusted EPS for the three months ended September 30,
2015 also excludes $127 million of acquisition-related transaction and integration costs and
$16 million of acquisition-related bridge financing costs. Further detail is shown in the Adjusted
Earnings Per Share reconciliation later in this release.
Guidance
The Company lowered and narrowed full year GAAP diluted EPS to $4.84 to $4.90 from $4.92 to $5.00, including acquisition-related integration costs recorded in the nine months ended September 30, 2016. The Company lowered and narrowed full year Adjusted EPS to $5.77 to
$5.83 from $5.81 to $5.89. Estimated acquisition-related integration costs for the fourth
quarter of 2016 are excluded from the 2016 guidance. Further detail is shown in the 2016 Adjusted Earnings Per Share Guidance
reconciliation attached to this release.
In the fourth quarter of 2016, the Company expects to deliver GAAP diluted EPS of $1.52 to
$1.58. The Company expects to deliver Adjusted EPS of $1.64 to $1.70. Further detail is
shown in the 2016 Adjusted Earnings Per Share Guidance reconciliation attached to this release.
The Company raised cash flow guidance for 2016 and now expects to deliver cash flow from operations of $9.3 billion to $9.5 billion and 2016 free cash flow of $6.8 billion to $7.0
billion. Further detail is shown in the 2016 Free Cash Flow Guidance reconciliation attached to this release.
2017 Preliminary Outlook
The Company provided a preliminary outlook for 2017. GAAP diluted EPS is expected to be in the range of $5.16 to $5.33 and Adjusted EPS is expected to be in the range of $5.77 to
$5.93. Included in this outlook is the impact from the projected loss of more than 40 million retail prescriptions
related to marketplace changes, including new retail pharmacy networks that are excluding CVS Pharmacy drugstores. The GAAP
outlook includes the expected impact of the previously-announced termination of one of the Company's pension plans and excludes
the impact of integration costs related to the acquisition of Omnicare, which will be updated as the year progresses. Further
detail is shown in the 2017 Preliminary Outlook reconciliation later in this release.
New Share Repurchase Authorization
The share repurchase authorization approved in December 2014 is nearing completion with
approximately $3.7 billion remaining. Reflecting the board's ongoing commitment to returning value
to shareholders, the Company announced that, consistent with its practice, the board of directors approved a new share repurchase
program for up to $15 billion of the Company's outstanding common stock. Combined with the
approximately $3.7 billion that remains from the 2014 program, the Company has approximately
$18.7 billion available for share repurchases. The share repurchase authorization, which is
effective immediately and is expected to be completed over a multi-year period, permits the Company to effect the repurchases
from time to time through a combination of open market repurchases, privately negotiated transactions, accelerated share
repurchase transactions, and/or other derivative transactions.
Real Estate Program
During the three months ended September 30, 2016, the Company opened 48 new retail stores and closed 6 retail stores. In
addition, the Company relocated 11 retail stores. As of September 30, 2016, the Company operated 9,694 retail stores,
including pharmacies in Target stores, in 49 states, the District of Columbia, Puerto Rico and Brazil.
Teleconference and Webcast
The Company will be holding a conference call today for the investment community at 8:30 am (ET)
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 more than 9,600 retail
pharmacies, more than 1,100 walk-in medical clinics, a leading pharmacy benefits manager with more than 80 million plan members,
a dedicated senior pharmacy care business serving more than one million patients per year, and expanding specialty pharmacy
services, 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
September 30,
|
|
Nine Months Ended
September 30,
|
|
In millions, except per share amounts
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
Net revenues
|
$
|
44,615
|
|
|
$
|
38,644
|
|
|
$
|
131,555
|
|
|
$
|
112,144
|
|
|
Cost of revenues
|
37,123
|
|
|
31,983
|
|
|
110,304
|
|
|
92,917
|
|
|
Gross profit
|
7,492
|
|
|
6,661
|
|
|
21,251
|
|
|
19,227
|
|
|
Operating expenses
|
4,675
|
|
|
4,330
|
|
|
13,908
|
|
|
12,502
|
|
|
Operating profit
|
2,817
|
|
|
2,331
|
|
|
7,343
|
|
|
6,725
|
|
|
Interest expense, net
|
253
|
|
|
261
|
|
|
816
|
|
|
562
|
|
|
Loss on early extinguishment of debt
|
101
|
|
|
—
|
|
|
643
|
|
|
—
|
|
|
Income before income tax provision
|
2,463
|
|
|
2,070
|
|
|
5,884
|
|
|
6,163
|
|
|
Income tax provision
|
921
|
|
|
833
|
|
|
2,271
|
|
|
2,433
|
|
|
Income from continuing operations
|
1,542
|
|
|
1,237
|
|
|
3,613
|
|
|
3,730
|
|
|
Income (loss) from discontinued operations, net of tax
|
(1)
|
|
|
10
|
|
|
(1)
|
|
|
10
|
|
|
Net income
|
1,541
|
|
|
1,247
|
|
|
3,612
|
|
|
3,740
|
|
|
Net income attributable to noncontrolling interest
|
(1)
|
|
|
(1)
|
|
|
(2)
|
|
|
(1)
|
|
|
Net income attributable to CVS Health
|
$
|
1,540
|
|
|
$
|
1,246
|
|
|
$
|
3,610
|
|
|
$
|
3,739
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to CVS Health
|
$
|
1.44
|
|
|
$
|
1.10
|
|
|
$
|
3.34
|
|
|
$
|
3.31
|
|
|
Income from discontinued operations attributable to CVS Health
|
$
|
—
|
|
|
$
|
0.01
|
|
|
$
|
—
|
|
|
$
|
0.01
|
|
|
Net income attributable to CVS Health
|
$
|
1.44
|
|
|
$
|
1.11
|
|
|
$
|
3.34
|
|
|
$
|
3.32
|
|
|
Weighted average basic shares outstanding
|
1,068
|
|
|
1,114
|
|
|
1,076
|
|
|
1,122
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to CVS Health
|
$
|
1.43
|
|
|
$
|
1.10
|
|
|
$
|
3.32
|
|
|
$
|
3.28
|
|
|
Income from discontinued operations attributable to CVS Health
|
$
|
—
|
|
|
$
|
0.01
|
|
|
$
|
—
|
|
|
$
|
0.01
|
|
|
Net income attributable to CVS Health
|
$
|
1.43
|
|
|
$
|
1.11
|
|
|
$
|
3.32
|
|
|
$
|
3.29
|
|
|
Weighted average diluted shares outstanding
|
1,073
|
|
|
1,121
|
|
|
1,082
|
|
|
1,130
|
|
|
Dividends declared per share
|
$
|
0.425
|
|
|
$
|
0.350
|
|
|
$
|
1.275
|
|
|
$
|
1.050
|
|
|
CVS HEALTH CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
|
|
|
|
September 30,
|
|
December 31,
|
|
In millions, except per share amounts
|
|
2016
|
|
2015
|
|
Assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,189
|
|
|
$
|
2,459
|
|
|
Short-term investments
|
|
74
|
|
|
88
|
|
|
Accounts receivable, net
|
|
13,625
|
|
|
11,888
|
|
|
Inventories
|
|
14,348
|
|
|
14,001
|
|
|
Other current assets
|
|
703
|
|
|
722
|
|
|
Total current assets
|
|
30,939
|
|
|
29,158
|
|
|
Property and equipment, net
|
|
9,901
|
|
|
9,855
|
|
|
Goodwill
|
|
38,214
|
|
|
38,106
|
|
|
Intangible assets, net
|
|
13,567
|
|
|
13,878
|
|
|
Other assets
|
|
1,535
|
|
|
1,440
|
|
|
Total assets
|
|
$
|
94,156
|
|
|
$
|
92,437
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
Accounts payable
|
|
$
|
7,584
|
|
|
$
|
7,490
|
|
|
Claims and discounts payable
|
|
9,178
|
|
|
7,653
|
|
|
Accrued expenses
|
|
8,856
|
|
|
6,829
|
|
|
Short-term debt
|
|
340
|
|
|
—
|
|
|
Current portion of long-term debt
|
|
783
|
|
|
1,197
|
|
|
Total current liabilities
|
|
26,741
|
|
|
23,169
|
|
|
Long-term debt
|
|
25,610
|
|
|
26,267
|
|
|
Deferred income taxes
|
|
4,254
|
|
|
4,217
|
|
|
Other long-term liabilities
|
|
1,597
|
|
|
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 1,066
|
|
|
|
|
|
shares outstanding at September 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 September 30, 2016 and 597
shares at December 31,
|
|
|
|
|
|
2015
|
|
(32,991)
|
|
|
(28,886)
|
|
|
Shares held in trust: 1 share at September 30, 2016 and
December 31, 2015
|
|
(31)
|
|
|
(31)
|
|
|
Capital surplus
|
|
31,541
|
|
|
30,948
|
|
|
Retained earnings
|
|
37,732
|
|
|
35,506
|
|
|
Accumulated other comprehensive income (loss)
|
|
(319)
|
|
|
(358)
|
|
|
Total CVS Health shareholders' equity
|
|
35,949
|
|
|
37,196
|
|
|
Noncontrolling interest
|
|
5
|
|
|
7
|
|
|
Total shareholders' equity
|
|
35,954
|
|
|
37,203
|
|
|
Total liabilities and shareholders' equity
|
|
$
|
94,156
|
|
|
$
|
92,437
|
|
|
CVS HEALTH CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
Nine Months Ended
September 30,
|
|
In millions
|
|
2016
|
|
2015
|
|
Cash flows from operating activities:
|
|
|
|
|
|
Cash receipts from customers
|
|
$
|
128,545
|
|
|
$
|
108,324
|
|
|
Cash paid for inventory and prescriptions dispensed by retail network
pharmacies
|
|
(106,371)
|
|
|
(89,530)
|
|
|
Cash paid to other suppliers and employees
|
|
(11,092)
|
|
|
(11,240)
|
|
|
Interest received
|
|
14
|
|
|
15
|
|
|
Interest paid
|
|
(954)
|
|
|
(423)
|
|
|
Income taxes paid
|
|
(2,194)
|
|
|
(2,305)
|
|
|
Net cash provided by operating activities
|
|
7,948
|
|
|
4,841
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
Purchases of property and equipment
|
|
(1,607)
|
|
|
(1,490)
|
|
|
Proceeds from sale-leaseback transactions
|
|
230
|
|
|
34
|
|
|
Proceeds from sale of property and equipment and other assets
|
|
22
|
|
|
28
|
|
|
Acquisitions (net of cash acquired) and other investments
|
|
(333)
|
|
|
(9,503)
|
|
|
Purchase of available-for-sale investments
|
|
(40)
|
|
|
(184)
|
|
|
Sale or maturity of available-for-sale investments
|
|
76
|
|
|
115
|
|
|
Net cash used in investing activities
|
|
(1,652)
|
|
|
(11,000)
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
Increase in short-term debt
|
|
340
|
|
|
(685)
|
|
|
Proceeds from issuance of long-term debt
|
|
3,455
|
|
|
14,808
|
|
|
Repayments of long-term debt
|
|
(5,185)
|
|
|
(2,898)
|
|
|
Purchase of noncontrolling interest in subsidiary
|
|
(39)
|
|
|
—
|
|
|
Payments of contingent consideration
|
|
(26)
|
|
|
—
|
|
|
Dividends paid
|
|
(1,384)
|
|
|
(1,185)
|
|
|
Proceeds from exercise of stock options
|
|
205
|
|
|
277
|
|
|
Excess tax benefits from stock-based compensation
|
|
72
|
|
|
132
|
|
|
Repurchase of common stock
|
|
(4,000)
|
|
|
(3,871)
|
|
|
Other
|
|
(6)
|
|
|
(2)
|
|
|
Net cash provided by (used in) financing activities
|
|
(6,568)
|
|
|
6,576
|
|
|
Effect of exchange rates on cash and cash equivalents
|
|
2
|
|
|
(8)
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
(270)
|
|
|
409
|
|
|
Cash and cash equivalents at the beginning of the period
|
|
2,459
|
|
|
2,481
|
|
|
Cash and cash equivalents at the end of the period
|
|
$
|
2,189
|
|
|
$
|
2,890
|
|
|
|
|
|
|
|
Reconciliation of net income to net cash provided by operating
activities:
|
|
|
|
|
|
Net income
|
|
$
|
3,612
|
|
|
$
|
3,740
|
|
|
Adjustments required to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
|
1,847
|
|
|
1,510
|
|
|
Stock-based compensation
|
|
166
|
|
|
175
|
|
|
Loss on early extinguishment of debt
|
|
643
|
|
|
—
|
|
|
Deferred income taxes and other non-cash items
|
|
119
|
|
|
(184)
|
|
|
Change in operating assets and liabilities, net of effects of
acquisitions:
|
|
|
|
|
|
Accounts receivable, net
|
|
(1,714)
|
|
|
(2,530)
|
|
|
Inventories
|
|
(337)
|
|
|
(893)
|
|
|
Other current assets
|
|
2
|
|
|
591
|
|
|
Other assets
|
|
(86)
|
|
|
(13)
|
|
|
Accounts payable and claims and discounts payable
|
|
1,570
|
|
|
2,038
|
|
|
Accrued expenses
|
|
2,077
|
|
|
523
|
|
|
Other long-term liabilities
|
|
49
|
|
|
(116)
|
|
|
Net cash provided by operating activities
|
|
$
|
7,948
|
|
|
$
|
4,841
|
|
|
Non-GAAP Financial Measures
|
|
|
The following provides reconciliations of certain non-GAAP financial
measures presented in this press release 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 net
income excluding the impact of the amortization of intangible assets, acquisition-related transaction and integration
costs, acquisition-related bridge financing costs, charge related to a disputed 1999 legal settlement and loss on early
extinguishment of debt 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 properties 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.
|
|
|
The Company has not provided a reconciliation of the long-term Adjusted EPS
target announced today to GAAP EPS. The Company is unable to reasonably estimate the GAAP items excluded from the
multi-year, long-term Adjusted EPS target.
|
|
|
Adjusted Earnings Per Share
(Unaudited)
|
|
|
The following is a reconciliation of income before income tax provision to
Adjusted EPS:
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
In millions, except per share amounts
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Income before income tax provision
|
|
$
|
2,463
|
|
|
$
|
2,070
|
|
|
$
|
5,884
|
|
|
$
|
6,163
|
|
|
Non-GAAP adjustments:
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
197
|
|
|
160
|
|
|
593
|
|
|
419
|
|
|
Acquisition-related transaction and integration
costs(1)
|
|
65
|
|
|
127
|
|
|
207
|
|
|
147
|
|
|
Acquisition-related bridge financing costs(1)
|
|
—
|
|
|
16
|
|
|
—
|
|
|
52
|
|
|
Charge related to a disputed 1999 legal settlement
|
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
Loss on early extinguishment of debt
|
|
101
|
|
|
—
|
|
|
643
|
|
|
—
|
|
|
Adjusted income before income tax provision
|
|
2,826
|
|
|
2,373
|
|
|
7,330
|
|
|
6,781
|
|
|
Adjusted income tax provision
|
|
1,063
|
|
|
933
|
|
|
2,832
|
|
|
2,658
|
|
|
Adjusted income from continuing operations
|
|
1,763
|
|
|
1,440
|
|
|
4,498
|
|
|
4,123
|
|
|
Net income attributable to noncontrolling interest
|
|
(1)
|
|
|
(1)
|
|
|
(2)
|
|
|
(1)
|
|
|
Adjusted income allocable to participating securities
|
|
(8)
|
|
|
(6)
|
|
|
(23)
|
|
|
(18)
|
|
|
Adjusted income from continuing operations attributable to
CVS Health
|
|
$
|
1,754
|
|
|
$
|
1,433
|
|
|
$
|
4,473
|
|
|
$
|
4,104
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding
|
|
1,073
|
|
|
1,121
|
|
|
1,082
|
|
|
1,130
|
|
|
Adjusted EPS
|
|
$
|
1.64
|
|
|
$
|
1.28
|
|
|
$
|
4.13
|
|
|
$
|
3.63
|
|
|
|
(1) Costs associated with the acquisitions of Omnicare and the
pharmacies and clinics of Target.
|
|
Free Cash Flow
(Unaudited)
|
|
|
The following is a reconciliation of net cash provided by operating
activities to free cash flow:
|
|
|
|
Nine Months Ended
September 30,
|
|
In millions
|
|
2016
|
|
2015
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
7,948
|
|
|
$
|
4,841
|
|
|
Subtract: Additions to property and equipment
|
|
(1,607)
|
|
|
(1,490)
|
|
|
Add: Proceeds from sale-leaseback transactions
|
|
230
|
|
|
34
|
|
|
Free cash flow
|
|
$
|
6,571
|
|
|
$
|
3,385
|
|
|
Supplemental Information
(Unaudited)
|
|
|
The Company evaluates its Pharmacy Services Segment and Retail/LTC Segment
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 following is a
reconciliation of the Company's segments to the accompanying condensed consolidated financial statements:
|
|
|
In millions
|
|
Pharmacy
Services
Segment(1)
|
|
Retail/LTC
Segment
|
|
Corporate
Segment
|
|
Intersegment
Eliminations(2)
|
|
Consolidated
Totals
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
30,429
|
|
|
$
|
20,143
|
|
|
$
|
—
|
|
|
$
|
(5,957)
|
|
|
$
|
44,615
|
|
|
Gross profit(3)
|
|
1,797
|
|
|
5,893
|
|
|
—
|
|
|
(198)
|
|
|
7,492
|
|
|
Operating profit (loss)(4)(5)
|
|
1,458
|
|
|
1,773
|
|
|
(229)
|
|
|
(185)
|
|
|
2,817
|
|
|
September 30, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
25,528
|
|
|
17,912
|
|
|
—
|
|
|
(4,796)
|
|
|
38,644
|
|
|
Gross profit
|
|
1,468
|
|
|
5,373
|
|
|
—
|
|
|
(180)
|
|
|
6,661
|
|
|
Operating profit (loss)(4)(5)
|
|
1,162
|
|
|
1,643
|
|
|
(309)
|
|
|
(165)
|
|
|
2,331
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
88,704
|
|
|
60,253
|
|
|
—
|
|
|
(17,402)
|
|
|
131,555
|
|
|
Gross profit(3)
|
|
4,266
|
|
|
17,560
|
|
|
—
|
|
|
(575)
|
|
|
21,251
|
|
|
Operating profit (loss)(4)(5)
|
|
3,278
|
|
|
5,255
|
|
|
(661)
|
|
|
(529)
|
|
|
7,343
|
|
|
September 30, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
73,849
|
|
|
52,105
|
|
|
—
|
|
|
(13,810)
|
|
|
112,144
|
|
|
Gross profit
|
|
3,735
|
|
|
15,990
|
|
|
—
|
|
|
(498)
|
|
|
19,227
|
|
|
Operating profit (loss)(4)(5)
|
|
2,837
|
|
|
5,050
|
|
|
(712)
|
|
|
(450)
|
|
|
6,725
|
|
|
|
(1) Net revenues of the Pharmacy Services Segment include
approximately $2.5 billion and $2.1 billion of retail co-payments for the three months ended September 30, 2016 and
2015, respectively, as well as $8.1 billion and $6.8 billion of retail co-payments for the nine months ended
September 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 for the three and nine
months ended September 30, 2016 includes $5 million and $15 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 Retail/LTC Segment operating profit for the three and
nine months ended September 30, 2016 includes $52 million and $194 million, respectively, of acquisition-related
integration costs. The Retail/LTC Segment operating profit for the three and nine months ended September 30, 2015
includes $12 million of acquisition-related integration costs. The integration costs are related to the acquisitions of
Omnicare and the pharmacies and clinics of Target.
|
|
(5) The Corporate Segment operating loss for the three and nine
months ended September 30, 2016 includes $13 million of integration costs. The Corporate Segment operating loss for the
three and nine months ended September 30, 2015 includes $115 million and $135 million, respectively, of
acquisition-related transaction and integration costs.
|
|
Supplemental Information
(Unaudited)
|
|
|
Pharmacy Services Segment
|
|
|
The following table summarizes the Pharmacy Services Segment's performance
for the respective periods:
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
In millions
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
30,429
|
|
|
$
|
25,528
|
|
|
$
|
88,704
|
|
|
$
|
73,849
|
|
|
Gross profit
|
|
1,797
|
|
|
1,468
|
|
|
4,266
|
|
|
3,735
|
|
|
Gross profit % of net revenues
|
|
5.9%
|
|
|
5.8%
|
|
|
4.8%
|
|
|
5.1%
|
|
|
Operating expenses
|
|
339
|
|
|
306
|
|
|
988
|
|
|
898
|
|
|
Operating expense % of net revenues
|
|
1.1%
|
|
|
1.2%
|
|
|
1.1%
|
|
|
1.2%
|
|
|
Operating profit
|
|
1,458
|
|
|
1,162
|
|
|
3,278
|
|
|
2,837
|
|
|
Operating profit % of net revenues
|
|
4.8%
|
|
|
4.6%
|
|
|
3.7%
|
|
|
3.8%
|
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
Mail choice(1)
|
|
$
|
10,872
|
|
|
$
|
9,735
|
|
|
$
|
31,668
|
|
|
$
|
27,592
|
|
|
Pharmacy network(2)
|
|
19,469
|
|
|
15,716
|
|
|
56,783
|
|
|
46,043
|
|
|
Other
|
|
88
|
|
|
77
|
|
|
253
|
|
|
214
|
|
|
Pharmacy claims processed:
|
|
|
|
|
|
|
|
|
|
Total
|
|
305.0
|
|
|
251.0
|
|
|
912.5
|
|
|
752.3
|
|
|
Mail choice(1)
|
|
22.4
|
|
|
21.9
|
|
|
66.3
|
|
|
63.5
|
|
|
Pharmacy network(2)
|
|
282.6
|
|
|
229.1
|
|
|
846.2
|
|
|
688.8
|
|
|
Generic dispensing rate:
|
|
|
|
|
|
|
|
|
|
Total
|
|
85.4%
|
|
|
83.8%
|
|
|
85.4%
|
|
|
83.7%
|
|
|
Mail choice(1)
|
|
78.5%
|
|
|
76.5%
|
|
|
78.0%
|
|
|
76.3%
|
|
|
Pharmacy network(2)
|
|
86.0%
|
|
|
84.5%
|
|
|
85.9%
|
|
|
84.4%
|
|
|
Mail choice penetration rate
|
|
18.1%
|
|
|
21.1%
|
|
|
18.0%
|
|
|
20.5%
|
|
|
|
(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.
|
|
Supplemental Information
(Unaudited)
|
|
|
Retail/LTC Segment
|
|
|
The following table summarizes the Retail/LTC Segment's performance for the
respective periods:
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
In millions
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
20,143
|
|
|
$
|
17,912
|
|
|
$
|
60,253
|
|
|
$
|
52,105
|
|
|
Gross profit(1)
|
|
5,893
|
|
|
5,373
|
|
|
17,560
|
|
|
15,990
|
|
|
Gross profit % of net revenues
|
|
29.3%
|
|
|
30.0%
|
|
|
9.1%
|
|
|
30.7%
|
|
|
Operating expenses(2)
|
|
4,120
|
|
|
3,730
|
|
|
12,305
|
|
|
10,940
|
|
|
Operating expense % of net revenues
|
|
20.5%
|
|
|
20.8%
|
|
|
20.4%
|
|
|
21.0%
|
|
|
Operating profit
|
|
1,773
|
|
|
1,643
|
|
|
5,255
|
|
|
5,050
|
|
|
Operating profit % of net revenues
|
|
8.8%
|
|
|
9.2%
|
|
|
8.7%
|
|
|
9.7%
|
|
|
Prescriptions filled (90 Day = 3 Rx)(3)
|
|
302.9
|
|
|
258.7
|
|
|
908.9
|
|
|
744.1
|
|
|
Net revenue increase (decrease):
|
|
|
|
|
|
|
|
|
|
Total
|
|
12.5%
|
|
|
6.9%
|
|
|
15.6%
|
|
|
4.0%
|
|
|
Pharmacy
|
|
15.3%
|
|
|
10.4%
|
|
|
19.9%
|
|
|
7.0%
|
|
|
Front store
|
|
0.8%
|
|
|
(2.4)%
|
|
|
0.9%
|
|
|
(3.7)%
|
|
|
Total prescription volume (90 Day = 3 Rx)(3)
|
|
17.1%
|
|
|
10.7%
|
|
|
22.1%
|
|
|
7.7%
|
|
|
Same store increase (decrease)(4):
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
2.3%
|
|
|
1.7%
|
|
|
2.8%
|
|
|
1.1%
|
|
|
Pharmacy sales
|
|
3.4%
|
|
|
4.6%
|
|
|
4.3%
|
|
|
4.3%
|
|
|
Front store sales
|
|
(1.0)%
|
|
|
(5.8)%
|
|
|
(1.0)%
|
|
|
(6.6)%
|
|
|
Prescription volume (90 Day = 3 Rx)(3)
|
|
3.0%
|
|
|
4.4%
|
|
|
4.1%
|
|
|
4.8%
|
|
|
Generic dispensing rate
|
|
85.8%
|
|
|
84.8%
|
|
|
85.8%
|
|
|
84.7%
|
|
|
Pharmacy % of total revenues
|
|
76.0%
|
|
|
74.1%
|
|
|
75.2%
|
|
|
72.5%
|
|
|
|
(1) Gross profit for the three and nine months ended
September 30, 2016 includes $5 million and $15 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 and nine months ended
September 30, 2016 includes $47 million and $179 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 and
nine months ended September 30, 2015 includes $12 million 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, long-term care operations and from commercialization
services.
|
|
2016 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 "Non-GAAP
Financial Measures" above for more information on how we calculate Adjusted EPS.
|
|
|
In millions, except per share amounts
|
|
Year Ending
December 31, 2016
|
|
|
|
|
|
|
Income before income tax provision(1)
|
|
$
|
8,588
|
|
|
$
|
8,689
|
|
|
Non-GAAP adjustments:
|
|
|
|
|
|
Amortization of intangible assets
|
|
798
|
|
|
798
|
|
|
Acquisition-related integration costs(1)
|
|
207
|
|
|
207
|
|
|
Loss on early extinguishment of debt
|
|
643
|
|
|
643
|
|
|
Charge related to a disputed 1999 legal settlement
|
|
3
|
|
|
3
|
|
|
Adjusted income before income tax provision
|
|
10,239
|
|
|
10,340
|
|
|
Adjusted income tax provision
|
|
3,973
|
|
|
4,012
|
|
|
Adjusted income from continuing operations
|
|
6,266
|
|
|
6,328
|
|
|
Net income attributable to noncontrolling interest
|
|
(2)
|
|
|
(2)
|
|
|
Income allocable to participating securities
|
|
(32)
|
|
|
(32)
|
|
|
Adjusted income from continuing operations attributable to CVS
Health
|
|
$
|
6,232
|
|
|
$
|
6,294
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding
|
|
1,080
|
|
|
1,080
|
|
|
Adjusted earnings per share
|
|
$
|
5.77
|
|
|
$
|
5.83
|
|
|
|
|
|
|
|
|
In millions, except per share amounts
|
|
Three Months Ending
December 31, 2016
|
|
|
|
|
|
|
Income before income tax provision(2)
|
|
$
|
2,704
|
|
|
$
|
2,805
|
|
|
Non-GAAP adjustments:
|
|
|
|
|
|
Amortization of intangible assets
|
|
205
|
|
|
205
|
|
|
Adjusted income before income tax provision
|
|
2,909
|
|
|
3,010
|
|
|
Adjusted income tax provision
|
|
1,140
|
|
|
1,180
|
|
|
Adjusted income from continuing operations
|
|
1,769
|
|
|
1,830
|
|
|
Net income attributable to noncontrolling interest
|
|
—
|
|
|
—
|
|
|
Income allocable to participating securities
|
|
(9)
|
|
|
(9)
|
|
|
Adjusted income from continuing operations attributable to CVS
Health
|
|
$
|
1,760
|
|
|
$
|
1,821
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding
|
|
1,073
|
|
|
1,073
|
|
|
Adjusted earnings per share
|
|
$
|
1.64
|
|
|
$
|
1.70
|
|
|
|
(1) 2016 guidance includes integration costs for the
acquisitions of Omnicare and the pharmacies and clinics of Target for the nine months ended September 30, 2016 and
excludes estimated integration costs for the period from October 1, 2016 to December 31, 2016.
|
|
(2) Estimated integration costs related to the acquisitions of
Omnicare and the pharmacies and clinics of Target for the period from October 1, 2016 to December 31, 2016 are excluded
from 2016 guidance.
|
|
2016 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 "Non-GAAP Financial Measures" above for more information
on how we calculate Free Cash Flow.
|
|
|
In millions
|
|
Year Ending
December 31, 2016
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
9,075
|
|
|
$
|
9,270
|
|
|
Subtract: Additions to property and equipment
|
|
(2,550)
|
|
|
(2,500)
|
|
|
Add: Proceeds from sale-leaseback transactions
|
|
275
|
|
|
230
|
|
|
Free cash flow
|
|
$
|
6,800
|
|
|
$
|
7,000
|
|
|
2017 Preliminary Outlook
Adjusted Earnings Per Share
(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 "Non-GAAP
Financial Measures" above 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(1)
|
|
$
|
8,835
|
|
|
$
|
9,152
|
|
|
Non-GAAP adjustments:
|
|
|
|
|
|
Amortization of intangible assets
|
|
820
|
|
|
820
|
|
|
Pension settlement
|
|
220
|
|
|
220
|
|
|
Adjusted income before income tax provision
|
|
9,875
|
|
|
10,192
|
|
|
Adjusted income tax provision
|
|
3,841
|
|
|
3,985
|
|
|
Adjusted income from continuing operations
|
|
6,034
|
|
|
6,207
|
|
|
Net income attributable to noncontrolling interest
|
|
(2)
|
|
|
(2)
|
|
|
Income allocable to participating securities
|
|
(33)
|
|
|
(33)
|
|
|
Adjusted income from continuing operations attributable to CVS
Health
|
|
$
|
5,999
|
|
|
$
|
6,172
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding
|
|
1,040
|
|
|
1,040
|
|
|
Adjusted earnings per share
|
|
$
|
5.77
|
|
|
$
|
5.93
|
|
|
|
(1) Estimated integration costs related to the acquisition of
Omnicare are excluded from the 2017 Preliminary Outlook.
|
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SOURCE CVS Health Corporation