CVS 1999 Annual Report Download

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1999 Annual Report | CVS Corporation
Total healthcare solutions for the way we live.

Table of contents

  • Page 1
    1999 Annual Report | CVS Corporation Total healthcare solutions for the way we live.

  • Page 2
    ... it CVS.com. • We continued to improve our return on invested capital with inventory turns increasing to 4.0x per year. • CVS has the #1 market share in 30 of the top 100 U.S. drugstore markets --more than any other drugstore chain. • CVS cared for 2.5 million customers per day in 1999.

  • Page 3
    Fi n a n c i a l H i g h l i g h t s In millions, except per share 1999 1998 % Change Sales Operating profit* Net earnings* Diluted earnings per common share* $18,098.3 1,135.5 635.1 1.55 $ 15,273.6 940.5 510.1 1.26 18.5 20.7 24.5 23.0 Sales (In Billions) Operating Profit* (In Millions) 99 98...

  • Page 4
    ... On the Web, CVS.com provides prescription filling options, comprehensive healthcare information and a wide range of front store merchandise with the added convenience of mail delivery or in-store pharmacy pickup. At the heart of our long-term growth strategy is cutting-edge technology, which we use...

  • Page 5
    ...to support our managed care clients in effectively servicing this customer segment. We have truly created a new business model in specialty pharmacy with CVS ProCare. Services are provided through a dedicated specialty pharmacy mail order facility located in Ohio and through retail apothecary stores...

  • Page 6
    ... services, including one-hour photo, digital and online capabilities, and a variety of film and camera products. 4 that our one-year sales gain of $3 billion in 1999 is greater than our entire sales level for 1990. Our front store business delivered a 3.6 percent increase in same-store sales...

  • Page 7
    ...service. New stores and relocations, as well as the rapid development of our new strategic business units, will further accelerate our longterm growth rate. All of these initiatives will help us achieve our long-term goal of our return on invested capital to equal two times our weighted average cost...

  • Page 8
    ... makers also are marketing those drugs more directly and aggressively to consumers than ever before. CVS pharmacies provide a total healthcare solution for patients and dispense more prescriptions than any other pharmacy in America. 6 Each day, more than 12,000 CVS pharmacists help us fulfill our...

  • Page 9
    ... Labor is reduced, capacity is increased, customer wait times are cut in half, and customer satisfaction ratings improve, all of which contribute to improved performance. Rapid efill remains an important part of the pharmacy business, accounting for more than half of all prescription refills in 1999...

  • Page 10
    ...and Oil of Olay® lines of cosmetics chainwide, enabling us to gain significant market share. Market shares in virtually all of our core categories are on the rise, including vitamins, baby care, diet and nutrition, beauty, photo developing, film and batteries, among others. We also are committed to...

  • Page 11
    ... of 20 ProCare apothecaries. Plans call for the opening of 400-450 stores annually in existing and new markets. number of one-hour photo labs to 2,000 labs, and project 3,000 by the end of the year 2000. 1999 Annual Report 9 stores each year in the foreseeable future. To achieve this measure...

  • Page 12
    .... We are well-positioned to be a leading healthcare player on the Internet, with plans to build the business that are both aggressive and prudent. At CVS.com, customers can order prescriptions for pickup or mail delivery, order refills using the Express Refills feature, and buy general merchandise...

  • Page 13
    ... technology required for complex billing and benefit management and, most importantly, we can support the high level of counseling needed by specialty pharmacy patients. Our ProCare pharmacists are specially trained to provide one-on-one case management. In fact, ProCare has a 24-hour call-in number...

  • Page 14
    ...offering new and expectant parents in the Washington, D.C. area support and information that promote child health, safety and learning readiness. The CVS Innovation Grants Program works with elementary and secondary public schools to re-examine teaching approaches and explore innovative ways to help...

  • Page 15
    ...' Report Consolidated Statements of Operations Consolidated Balance Sheets Consolidated Statements of Shareholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Five-Year Financial Summary Officers and Directors Shareholder Information Store Count by State...

  • Page 16
    ... following important information: • Our pharmacy sales growth continued to benefit from our ability to attract and retain managed care customers, our ongoing program of purchasing prescription files from independent pharmacies and favorable industry trends. These trends include an aging American...

  • Page 17
    ...'s information technology systems and Revco's noncompatible store merchandise fixtures. Please read Notes 2 and 3 to the consolidated financial statements for other important information about the CVS/Arbor merger. • During 1997, we recorded a $337.1 million charge to operating expenses for direct...

  • Page 18
    ...support our working capital needs. In addition, we may elect to use long-term borrowings in the future to support our continued growth. Our commercial paper program is supported by a $670 million, five-year unsecured revolving credit facility that expires on May 30, 2002, and a $530 million, 364-day...

  • Page 19
    ... with the Arbor and Revco mergers. You should be aware that cash flow from operations will continue to be negatively impacted by future payments associated with the Arbor and Revco mergers and the Company's strategic restructuring program. As of January 1, 2000, the future cash payments associated...

  • Page 20
    ... Directors, consisting solely of outside directors, meets periodically with management, internal auditors and the independent auditors to review matters relating to the Company's financial reporting, the adequacy of internal accounting controls, and the scope and results of audit work. The internal...

  • Page 21
    Independent Auditors' Report Board of Directors and Shareholders CVS Corporation: We have audited the accompanying consolidated balance sheets of CVS Corporation and subsidiaries as of January 1, 2000 and December 26, 1998, and the related consolidated statements of operations, shareholders' equity...

  • Page 22
    ... Fiscal Year Ended December 26, 1998 (52 weeks) In millions, except per share amounts January 1, 2000 (53 weeks) December 27, 1997 (52 weeks) Net sales Cost of goods sold, buying and warehousing costs Gross margin Selling, general and administrative expenses Depreciation and amortization Merger...

  • Page 23
    ... 403,047,000 shares at January 1, 2000, and 401,380,000 shares at December 26, 1998 Treasury stock, at cost: 11,051,000 shares at January 1, 2000, and 11,169,000 shares at December 26, 1998 Guaranteed ESOP obligation Capital surplus Retained earnings Total shareholders' equity Total liabilities...

  • Page 24
    ... Beginning of year Stock options exercised and awards under stock plans Other End of year Treasury stock: Beginning of year Conversion of preference stock Other End of year Guaranteed ESOP obligation: Beginning of year Reduction of guaranteed ESOP obligation End of year Capital surplus: Beginning of...

  • Page 25
    ... by (used in) operating activities: Depreciation and amortization Merger, restructuring and other nonrecurring charges Deferred income taxes and other noncash items Extraordinary item, net of income tax benefit Change in assets and liabilities, excluding acquisitions: Increase in accounts receivable...

  • Page 26
    ... 13 14 15 Significant Accounting Policies Description of business ~ CVS Corporation ("CVS" or the "Company") is principally in the retail drugstore business. As of January 1, 2000, the Company operated 4,098 retail drugstores and three mail order facilities located in 26 states and the District of...

  • Page 27
    ... life of the related contract. Funds that are directly linked to advertising commitments are recognized as a reduction of advertising expense when the related advertising commitment is satisfied. Store opening and closing costs ~ New store opening costs are charged directly to expense when incurred...

  • Page 28
    ...excise taxes and related income tax gross-ups relate to employment agreements that Arbor had in place with 22 senior executives. Employee severance and benefits and employee outplacement costs relate to 236 employees who were located in Arbor's Troy, Michigan corporate headquarters, including the 22...

  • Page 29
    ...lease interests and prescription files) are typically store specific and, therefore, are directly assigned to stores. The asset write-offs relate to the 55 store locations discussed above and the Troy, Michigan corporate headquarters. Management's decision to close the store locations was considered...

  • Page 30
    ... dates: Merger Transaction Costs Employee Noncancelable Severance & Lease Benefits(1) Obligations(2) Duplicate Facility Asset Write-offs Contract Cancellation Costs Other costs included $1.3 million for the estimated writeoff of Arbor's Point-of-Sale software and $1.4 million for travel and related...

  • Page 31
    ... agreements. The incremental retirement benefits (i.e., enhanced SERP benefits) also resulted from the change in control. Exit Costs ~ In conjunction with the merger transaction, management made the decision to close Revco's Twinsburg, Ohio corporate headquarters and 223 Revco store locations...

  • Page 32
    ... travel and related expenses that would be incurred in connection with closing Revco's corporate headquarters and $2.0 million for other miscellaneous charges associated with closing Revco's corporate headquarters. The above costs did not provide future benefit to the retained stores or corporate...

  • Page 33
    ... (iii) the initial and secondary public offerings of Linens 'n Things and (iv) the closing of the Company's administrative office facility located in Rye, New York. The strategic restructuring program was completed without significant changes to the Board approved plan. During the second quarter of...

  • Page 34
    ... is a summary of the Company's net rental expense for operating leases for the respective fiscal years: In millions 1999 Fiscal Year 1998 1997 CVS Corporation (1) See Note 9 for further information about the Company's ESOP Plan. 32 The Company's commercial paper program is supported by a $670...

  • Page 35
    ... elect to defer compensation payable in common stock until their service as a director concludes. The 1996 DSP replaced the Company's 1989 Directors Stock Option Plan. As of January 1, 2000, there were 247,071 shares available for future grant under the 1996 DSP. 33 Following is a summary of the...

  • Page 36
    ... to retirees are based upon age at retirement, years of credited service and average compensation during the five-year period ending September 20, 1997. The plan is funded based on actuarial calculations and applicable federal regulations. Pursuant to various labor agreements, the Company is also...

  • Page 37
    ...(1) The decrease in total service cost is primarily due to the suspension of future benefit accruals under the Revco pension plan during 1997. For measurement purposes, future healthcare costs are assumed to increase at an annual rate of 9.0%, decreasing to an annual growth rate of 5.0% in 2004 and...

  • Page 38
    ... on: (i) the ratio of each year's debt service payment to total current and future debt service payments multiplied by (ii) the number of unallocated shares of ESOP Preference Stock in the plan. As of January 1, 2000, 5.2 million shares of ESOP Preference Stock were outstanding, of which 1.9 million...

  • Page 39
    ... adverse effect on the Company's consolidated financial condition, results of operations or future cash flows. As of January 1, 2000, the Company had outstanding commitments to purchase $283.8 million of merchandise inventory for use in the normal course of business. The Company currently expects to...

  • Page 40
    ... sales and accounts receivables that occur when a Pharmacy Benefit Management segment customer uses a Retail Pharmacy 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, restructuring...

  • Page 41
    ... common shareholders, diluted Denominator for earnings per common share calculation: Weighted average common shares, basic Effect of dilutive securities: Preference stock Stock options Weighted average common shares, diluted Basic earnings per common share: Earnings from continuing operations before...

  • Page 42
    ...56.44 30.31 11,200 CVS Corporation Registered shareholders at year-end Fiscal 1998: Net sales Gross margin Operating profit Net earnings Net earnings per common share, basic Net earnings per common share, diluted Dividends per common share Stock price: (New York Stock Exchange) High Low Registered...

  • Page 43
    ...program and the early adoption of SFAS No. 121, and $49.5 million ($29.1 million after-tax) related to the Company changing its policy from capitalizing internally developed software costs to expensing the costs as incurred, outsourcing information technology functions and retaining former employees...

  • Page 44
    ... Charles C. Conaway President and Chief Operating Officer CVS Corporation Chairman of the Board PharmaCare Management Services, Inc. Senior Vice President - Human Resources CVS Corporation Nancy R. Christal Vice President - Investor Relations CVS Corporation Douglas A. Sgarro Senior Vice President...

  • Page 45
    Shareholder Information Corporate Headquarters CVS Corporation One CVS Drive, Woonsocket, RI 02895 (401) 765-1500 Annual Shareholders' Meeting 10:00 a.m. April 19, 2000 CVS Corporate Headquarters Stock Market Listing New York Stock Exchange Symbol: CVS Transfer Agent and Registrar Questions ...

  • Page 46
    Store Count by State 140 Alabama 1 California 123 Connecticut 3 Delaware 21 Florida 288 Georgia 69 Illinois 280 Indiana 71 Kentucky CVS Corporation 19 Maine 169 Maryland 325 Massachusetts 242 Michigan 28 New Hampshire 196 New Jersey 387 New York 279 North Carolina 396 Ohio 327 Pennsylvania 53 ...