CVS 1998 Annual Report Download - page 38

36
CVS Corporation
twelve
Following is a reconciliation of the Company’s business segments to the consolidated financial statements:
Retail PBM Intersegment Other Consolidated
In millions Segment Segment Eliminations(1) Adjustments(2) Totals
1998: Net sales $15,081.1 $488.4 $(295.9) $ — $15,273.6
Operating profit 927.8 12.7 — (168.3) 772.2
Depreciation and amortization 248.6 1.1 — — 249.7
Total assets 6,652.1 119.6 (35.5) — 6,736.2
Capital expenditures 498.0 4.3 — — 502.3
1997:
Net sales $13,649.4 $ 320.7 $(220.5) $ — $13,749.6
Operating profit 771.2 7.9 — (517.7) 261.4
Depreciation and amortization 237.8 0.4 — — 238.2
Total assets 5,937.3 60.6 (19.0) — 5,978.9
Capital expenditures 339.6 2.0 — — 341.6
1996:
Net sales $11,766.3 $208.9 $(143.6) $ — $11,831.6
Operating profit 602.5 2.2 — (12.8) 591.9
Depreciation and amortization 205.2 0.2 — — 205.4
Total assets 6,003.5 32.8 (21.4) — 6,014.9
Capital expenditures 326.9 2.0 — — 328.9
(1) Intersegment eliminations relate to intersegment sales and accounts receivables that occur when a PBM segment customer uses a Retail segment store
to purchase covered merchandise. When this occurs, both segments record the sale on a stand-alone basis.
(2) Other adjustments relate to the merger and restructuring charges discussed in Note 3 and a $12.8 million charge that was recorded when Rite Aid
Corporation withdrew its tender offer to acquire Revco. This event took place in 1996 before the CVS/Revco Merger. The merger and restructuring charges
are not considered when management assesses the stand-alone performance of the Company’s business segments.
The accounting policies of the segments are substantially the
same as those described in Note 1. The Company evaluates
segment performance based on operating profit, before the
effect of nonrecurring charges and gains and intersegment
profits.
Following is a reconciliation of the significant components of
each segment’s sales to consolidated net sales for the years
ended December 31:
1998 1997 1996
Pharmacy(1) 57.6% 54.7% 51.6%
Front store 42.4 45.3 48.4
Consolidated net sales 100.0% 100.0% 100.0%
(1) Pharmacy sales includes the Retail segment’s pharmacy sales, the PBM
segment’s total sales and the effect of the intersegment sales elimina-
tion discussed in the table below.
Business Segments
The Company currently operates a Retail segment and a
Pharmacy Benefit Management (“PBM”) segment. The
Company’s business segments are operating units that
offer different products and services, and require distinct
technology and marketing strategies.
The Retail segment, which is described in Note 1, is the
Company’s only reportable segment.
The PBM segment provides a full range of prescription
benefit management services to managed care and other
organizations. These services include plan design and
administration, formulary management, mail order pharmacy
services, claims processing and generic substitution.
Notes to Consolidated Financial Statements (continued)