CVS 2000 Annual Report Download

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2000 Annual Report
CVS Corporation
retailer in America.
healthcare service
and convenient
innovative,
customer-focused,
To be the most
Achieving Our Goal:

Table of contents

  • Page 1
    Achieving Our Goal: To be the most customer-focused, innovative, and convenient healthcare service retailer in America. 2000 Annual Report CVS Corporation

  • Page 2
    2000 vem ent A Year of Great Achie e 13% on a co m parabl d pe m ju s le sa al t to • Our 1 bi lli on . 52-w eek basis to $20. e , w hi le ph ar m acy sam % 11 se ro s le sa e or st • Sam e %. st ore sales cli m bed 18 a are ad vanced 18% on • Our earn in gs per...

  • Page 3
    ... In millions, except per share 2000 (52 weeks) 1999 (53 weeks) % Change Sales Operating profit* Net earnings* Diluted earnings per common share* Closing stock price per common share $ 20,087.5 1,303.5 734.5 1.80 59.94 $ 18,098.3 1,135.5 635.1 1.55 39.88 11.0 14.8 15.7 16.1 50.3 Sales (in...

  • Page 4
    ... locations, we operate more drugstores than any other company in the U.S. Our pharmacy business continues to register phenomenal same store sales growth, up nearly 18% in 2000. In fact, more prescriptions are filled at CVS/pharmacy than at any other retailer. The $140 billion pharmacy industry will...

  • Page 5
    ... building our presence in the nation's top drugstore markets.We have added our traditional CVS/ pharmacy stores, through organic growth or strategic acquisitions, and developed new channels, such as ProCare and CVS.com, to meet the needs of all our customers. CVS currently enjoys the #1 or #2 market...

  • Page 6
    ..., currently managing more than 9 million lives. Through its proprietary systems and services, PharmaCare has enabled the managed care community to provide its members with the best healthcare in the most cost-effective manner, while assuring We now operate 46 CVS ProCare specialty pharmacies across...

  • Page 7
    ... industry, proven strategies in place, and a solid financial position. Our investments in new technology, such as the EPIC pharmacy system and our Assisted Inventory Management program, are expected to have a positive impact on efficiency and profitability. And, we expect to reap the benefits...

  • Page 8
    ... to share of this growing market. a managed care plan requiring only a customer co-pay, prescription use nearly doubles. These trends, coupled with the possibility of a CVS led the industry with an 18% increase prescription drug benefit for Medicare enrollees, proin pharmacy same store sales in 2000...

  • Page 9
    ... refill system. We call it the Rapid Refill System because it lets customers renew prescriptions, 24 hours a day over the phone, without having to speak directly to someone in our store.This provides greater convenience for our customers by eliminating wait time, and benefits CVS by reducing labor...

  • Page 10
    ... important vehicle for differentiating CVS from its drugstore and mass merchant competitors. During 2000, we introduced a line of exclusive bath and body products under the Essence of Beauty® brand name.The early results demonstrate the generation of strong repeat purchases and customer traffic...

  • Page 11
    ...photo business where sales rose more than 20%, and our market share of Kodak's business increased significantly. To enhance convenience, we added more one-hour labs in 2000, reaching a total of 3,000 chainwide. At the same time, we have been at the forefront in introducing new photo-related services...

  • Page 12
    ... an improved store-level system, Assisted Inventory Management, or AIM, which we believe will significantly reduce out-of-stocks, drive sales and improve inventory productivity. Our new Tampa store represents entry into a high-growth market that capitalizes on the Company's name recognition among...

  • Page 13
    ...Our early results suggest that these stores will exceed our expectations. We also launched an aggressive growth initiative in Florida. During 2000, we opened stores in Tampa, the 16th largest market in the U.S., and in Orlando, the 27th largest market, and we have plans to enter Fort Lauderdale, the...

  • Page 14
    ...order services. We launched ProCare with the objective of providing a pharmacy resource uniquely focused on serving patients with chronic conditions, such as HIV/AIDS, organ transplants, infertility, multiple sclerosis and cancer. Estimated at $14 billion in size today, the specialty pharmacy market...

  • Page 15
    ... offers counter items at highly prescription refills and advice competitive prices. for Internet customers. ...healthcare service retailer..."CVS is on the corner, on the phone and on the web, offering healthcare products and services to meet all of our customers' needs." 13 2000 Annual Report

  • Page 16
    .... Early sales from the site are robust. WebMD became our exclusive provider of health content, providing our customers with Internet access to reliable health-related information from expert sources. We made the decision in 2000 to relocate CVS.com's operations to our headquarters in Rhode Island to...

  • Page 17
    ...to work, training them as pharmacy technicians, photo technicians and supervisors. Identified by President Clinton as a leader in this area, CVS is one of a number of prominent national companies that have embraced the Welfareto-Work concept, providing jobs that benefit our communities. Our industry...

  • Page 18
    ... 280 Georgia 1 Hawaii 73 Illinois 274 Indiana 67 Kentucky * Nevada 29 New Hampshire 209 New Jersey 404 New York 275 North Carolina * New Markets Announced in February 2001 include Phoenix, Arizona and Las Vegas, Nevada. 4,133 Stores ProCare Retail Sites (46) CVS Markets 16 CVS Corporation

  • Page 19
    ...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, Directors and Shareholder Information 18 21 21 22 23 24 25 26 39 40 17 2000 Annual Report

  • Page 20
    ... Our pharmacy sales growth continued to benefit from our ability to attract and retain managed care customers and favorable industry trends. These trends include an aging American population; many "baby boomers" are now in their fifties and are consuming a greater number of prescription drugs. The...

  • Page 21
    ... manufacturers of brand name prescription drugs. The timing and amount of any future payments have yet to be determined. • During 1998, we recorded a $147.3 million pre-tax ($101.3 million after-tax) charge in total operating expenses for direct and other merger-related costs pertaining to the CVS...

  • Page 22
    ... Chicago, Illinois, Tampa and Orlando, Florida. As of December 30, 2000, we operated 4,133 retail and specialty pharmacy stores in 31 states and the District of Columbia. This compares to 4,098 stores as of January 1, 2000. The Company finances a portion of its store development program through sale...

  • Page 23
    ...the Board of 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...

  • Page 24
    Consolidated Statements of Operations December 30, 2000 (52 weeks) Fiscal Year Ended January 1, 2000 (53 weeks) December 26, 1998 (52 weeks) In millions, except per share amounts Net sales Cost of goods sold, buying and warehousing costs Gross margin Selling, general and administrative expenses ...

  • Page 25
    Consolidated Balance Sheets In millions, except shares and per share amounts December 30, 2000 January 1, 2000 Assets: Cash and cash equivalents Accounts receivable, net Inventories Deferred income taxes Other current assets Total current assets Property and equipment, net Goodwill, net Other ...

  • Page 26
    ... End of year Capital surplus: Beginning of year Conversion of preference stock Stock options exercised and awards under stock plans Other End of year Retained earnings: Beginning of year Net earnings Dividends: Preference stock, net of income tax benefit Common stock Immaterial pooling of interests...

  • Page 27
    ... and amortization Merger, restructuring and other nonrecurring charges Deferred income taxes and other noncash items Change in operating assets and liabilities, providing/(requiring) cash, net of effects from acquisitions: Accounts receivable, net Inventories Other current assets Other assets...

  • Page 28
    ... and software and 5 to 10 years for leasehold improvements. Following are the components of property and equipment included in the consolidated balance sheets as of the respective balance sheet dates: In millions December 30, 2000 January 1, 2000 Description of business ~ CVS Corporation ("CVS" or...

  • Page 29
    ...($11.5 million after-tax) nonrecurring gain in total operating expenses, which represented a partial payment of the Company's share of the settlement proceeds from a class action lawsuit against certain manufacturers of brand name prescription drugs. The timing and amount of any future payments have...

  • Page 30
    ... or operating flexibility. As of December 30, 2000, the aggregate long-term debt maturing during the next five years, excluding capital lease obligations, is: $21.6 million in 2001, $26.3 million in 2002, $32.1 million in 2003, $323.3 million in 2004 and $28.0 million in 2005. 28 CVS Corporation

  • Page 31
    ... of the Company's net rental expense for operating leases for the respective years: In millions 2000 Fiscal Year 1999 1998 3 Leases The Company sponsors a defined contribution Employee Stock Ownership Plan (the "ESOP") that covers full-time employees with at least one year of service. In 1989...

  • Page 32
    ... defer compensation payable in common stock until their service as a director concludes. As of December 30, 2000, there were 230,416 shares available for future grant under the 1996 DSP. As of December 30, 2000, the Company had the following stock incentive plans: 1997 Incentive Compensation Plan...

  • Page 33
    ... benefit pension plan that covers certain full-time employees of Revco who are not covered by collective bargaining agreements. On September 20, 1997, the Company suspended future benefit accruals under this plan. Benefits paid to retirees are based upon age at retirement, years of credited service...

  • Page 34
    ... and funded status of the Company's defined benefit and other postretirement benefit plans as of the respective balance sheet dates: In millions Defined Benefit Plans 2000 1999 Other Postretirement Benefits 2000 1999 Change in benefit obligation: Benefit obligation at beginning of year Service cost...

  • Page 35
    ... effect on the Company's consolidated financial condition, results of operations or future cash flows. As of December 30, 2000, the Company had outstanding commitments to purchase $335 million of merchandise inventory for use in the normal course of business. The Company currently expects to satisfy...

  • Page 36
    ...'s net sales for the respective years. 2000 1999 1998 The Company currently operates four business segments: Retail Pharmacy, Pharmacy Benefit Management ("PBM"), Specialty Pharmacy and Internet Pharmacy. The Company's business segments are operating units that offer different products and services...

  • Page 37
    ... were covered by employment agreements. Exit Costs ~ In conjunction with the merger transaction, management made the decision to close Arbor's Troy, Michigan corporate headquarters and 55 Arbor store locations. As a result, the following exit plan was executed: 1. Arbor's Troy, Michigan corporate...

  • Page 38
    ...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 39
    ... earnings per common share for the respective years: 2000 Fiscal Year 1999 1998 In millions, except per share amounts Numerator for earnings per common share calculation: Net earnings Preference dividends, net of income tax benefit Net earnings available to common shareholders, basic Net earnings...

  • Page 40
    ... Financial Information (Unaudited) Following is a summary of the unaudited quarterly results of operations and common stock prices for the respective quarters: First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal Year Dollars in millions, except per share amounts 2000: Net sales Gross...

  • Page 41
    ... manufacturers of brand name prescription drugs, (ii) in 1998, $147.3 million ($101.3 million after-tax) charge related to the merger of CVS and Arbor and $31.3 million ($18.4 million after-tax) of nonrecurring costs incurred in connection with eliminating Arbor's information technology systems...

  • Page 42
    ...International Business Machines Corporation Information Resources The Company's Annual Report on Form 10-K will be sent without charge to any shareholder upon request by contacting: Nancy R. Christal Vice President - Investor Relations CVS Corporation 670 White Plains Road - Suite 210 Scarsdale, NY...

  • Page 43
    Design: Clarke & Associates LLC Printing: Avanti/Case-Hoyt

  • Page 44
    Helping you make a difference. CVS Corporation One CVS Drive | Woonsocket, RI 02895