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CVS Corporation2001 Annual Report

Table of contents

  • Page 1
    2001 Annual Report CVS Corporation

  • Page 2
    ... sto res. • 43 o f o ur new sto res in 2001 were in new CVS markets with sub stantial g ro wth po te ntial, inc luding Miami, Tampa, Orlando , Ft. Lauderdale, Chic ago , Dallas, Ho usto n, and Las Veg as. • We ro lle d o ut o ur EPIC pharmac y system and wo rkflo w impro vements to all o f o ur...

  • Page 3
    ...i g h l i g h t s 2001 ( 5 2 weeks) 2000 ( 52 weeks) % Change Sale s Ope rating pro fit* Ne t e arning s* Dilute d e arning ... St ore Count By St at e 4, 191 Sto res CVS/ pharmacy Market s ProCare Market ...Ohio Orego n Pennsylvania Rho de Island So uth Caro lina 140 11 2 245 1 50 55 Tennessee Texas...

  • Page 4
    ... beac hhead po sitio ns in so me o f the fastest- g ro wing drug sto re markets in the U. S. , inc luding Tampa, Orlando , Ft. Lauderdale, Miami, Chic ago , Las Veg as, Dallas, and Ho usto n. Early results are extremely pro mising . We plan to c o ntinue penetrating these and o ther hig h- g ro wth...

  • Page 5
    ... Care, and c lo se o ne mail fac ility. We to o k a no n- rec urring $353 millio n pre- tax c harge in the fo urth quarter related to this restruc turing . The remo val o f these c o sts will c o ntribute to a healthy financ ial o utlo o k fo r CVS in the years ahead. While 2001 was a c halleng ing...

  • Page 6
    ...ro w, as brand- name drug s representing $35 billio n in sales are expec ted to be remo ved fro m the patent list o ver the next 5 to 7 years. We typic ally experienc e hig h substitutio n rates when patents expire. A generic replac ement fo r Pro zac ®, fo r example, bec ame available in 2001, and...

  • Page 7
    ... apprec iate CVS' Rapid Refill system - o ur 24- ho ur servic e that enables c usto mers to renew presc riptio ns auto matic ally by telepho ne - whic h no w ac c o unts fo r 50% o f all refills. Custo mers c an sc hedule renewals at their c o nvenienc e, and pharmac ists c an better manage their wo...

  • Page 8
    ... 400 sto res in 2001 and plan to have it in 600 additio nal sto res in 2002. In the beauty area, the results so far indic ate c usto mers spend mo re time sho pping and inc rease their rate o f purc hases in sto res spo rting the new desig n. One-hour phot o labs, digit al imaging services and phot...

  • Page 9
    .... In sto res near hig h- business areas, we are sto c king the kinds o f pro duc ts so ug ht by lunc htime c usto mer traffic. We are ac c elerating o ur advertising spending in 2002, buying mo re print spac e, o ffering " ho tter" pric es, and airing mo re radio and TV advertising . We are inc...

  • Page 10
    ..., we plan to o pen appro ximately 75 mo re new- market sto res in the territo ries we ' ve CVS Corporation 8 We cont inue t o find out st anding opport unit ies for growt h in exist ing market s. Our new locat ion near Cit icorp Cent er in New York Cit y is expect ed t o be a high volume st ore...

  • Page 11
    ... ac quisitio n o f Revc o . The c lo sing o f these lo w- vo lume sto res will elevate the quality o f o ur sto re base and sho uld help to impro ve o ur same- sto re sales perfo rmanc e. 9 new markets, suc h as Flo rida, Chic ago and Texas, are exceeding o ur expec tatio ns. 2001 Annual Report

  • Page 12
    ... aliber o ffered by Pro Care. Mo st managed c are c o mpanies still sec ure separate c o ntrac ts fo r these servic es. But the sig nific ant g ro wth in c o sts inc urred by plans fo r spec ialty pharmac eutic als and the need fo r administrative synerg ies is driving demand fo r c o mbined PBM and...

  • Page 13
    ..., PA, just a few miles fro m the United Airlines Flig ht 93 c rash site, o ur asso c iates pro vided fo o d and water to emergenc y servic e wo rkers. CVS helped to pro vide a substantial do natio n to the Ameri can Red Cross Di sast er Reli ef Fund thro ug h a c o mbinatio n o f CVS- spo nso red...

  • Page 14
    ... result in the intro duc tio n o f lo wer pric ed generic equivalents. Ho wever, g ro ss marg ins o n generic drug sales are generally hig her than o n sales o f equivalent hig her pric ed branded drug s. • Sales were neg atively impac ted during 2001 by a pharmac ist sho rtage in c ertain markets...

  • Page 15
    ...po sitive results as tho se histo ric ally ac hieved. Please read the " Cautio nary Statement Co nc erning Fo rward- Lo o king Statements" sec tio n belo w. • During 2001, we rec eived $50. 3 millio n o f settlement pro c eeds fro m vario us lawsuits ag ainst c ertain manufac turers o f brand name...

  • Page 16
    ... be suffic ient to c o ver o ur wo rking c apital needs, c apital expenditures and debt servic e requirements fo r at least the next twelve mo nths and beyo nd. I ncome t ax provision ~ Our effec tive inc o me tax rate was 41. 8% in 2001, 40. 0% in 2000 and 41. 0% in 1999. Our effec tive inc o me...

  • Page 17
    ...the date o f the making o f suc h statements. Additio nal info rmatio n c o nc erning these risks and unc ertainties is c o ntained in o ur filing s with the Sec urities and Exc hange Co mmissio n, inc luding o ur Annual Repo rt o n Fo rm 10- K fo r the fisc al year ended Dec ember 29, 2001. Recent...

  • Page 18
    ... sts Gro ss marg in Selling , general and administrative expenses Deprec iatio n and amo rtizatio n To tal o perating expenses Operating pro fit Interest expense, net Earning s befo re inc o me tax pro visio n Inc o me tax pro visio n Net earning s Preferenc e dividends, net o f inc o me tax benefit...

  • Page 19
    ...,5 3 9 .6 3 ,4 9 2 .7 4 ,5 6 6 .9 $ 8 ,6 2 8 .2 - 267. 5 4. 1 ( 404. 9) ( 240. 6) 1, 493. 8 3, 184. 7 4, 304. 6 $ 7, 949. 5 Tot al shareholders' equit y Tot al liabilit ies and shareholders' equit y See ac c o mpanying no tes to c o nso lidated financ ial statements. 2001 Annual Report 1, 001. 4

  • Page 20
    ... awards under sto c k plans Other End o f year 1 ,4 9 3 .8 ( 1 .2 ) 4 2 .8 4 .2 1 ,5 3 9 .6 1, 371. 7 ( 0. 7) 120. 1 2. 7 1, 493. 8 1, 336. 4 0. 1 31. 3 3. 9 1, 371. 7 Ret ained earnings: Beg inning o f year Net earning s Dividends: Preferenc e sto c k, net o f inc o me tax benefit Co mmo n sto...

  • Page 21
    ... 2 180. 8 $ 230. 0 Net cash used in f inancing act ivit ies Net ( dec rease) inc rease in c ash and c ash equivalents Cash and c ash equivalents at beg inning o f year Cash and cash equivalent s at end of year See ac c o mpanying no tes to c o nso lidated financ ial statements. 2001 Annual Report

  • Page 22
    ... 53 weeks. Unless o therwise no ted, all referenc es to years relate to the Co mpany ' s fisc al year. Dec ember 30, 2000 2001 CVS Corporation Use of est imat es ~ The preparatio n o f financ ial statements in c o nfo rmity with generally ac c epted ac c o unting princ iples requires management...

  • Page 23
    ... ac tio n lawsuit ag ainst c ertain manufac turers o f brand name presc riptio n drug s. Revenue recognit ion ~ The Co mpany rec o g nizes revenue fro m the sale o f merc handise at the time the merc handise is so ld. Servic e revenue fro m the Co mpany ' s pharmac y benefit management seg ment is...

  • Page 24
    ... ket, Rho de Island c o rpo rate headquarters by no later than Dec ember 2001. Sinc e these lo c atio ns were leased fac ilities, management planned to either return the premises to the landlo rds at the c o nc lusio n o f the leases o r nego tiate an early terminatio n o f the c o ntrac tual o blig...

  • Page 25
    ... severanc e pay, healthc are c o ntinuatio n c o sts and o utplac ement servic e c o sts related to appro ximately 1, 500 managerial, administrative and sto re emplo yees in the Co mpany's Wo o nso c ket, Rho de Island c o rpo rate headquarters; Co lumbus, Mail Fac ility; Henderso n, D. C. and the...

  • Page 26
    ... also leases c ertain equipment and o ther assets under no nc anc elable o perating leases, who se initial terms typic ally range fro m 3 to 10 years. Minimum rent is expensed o n a straig ht- line basis o ver the term o f the lease. In additio n to minimum rental payments, c ertain leases require...

  • Page 27
    ... ed by the hig her o f ( i) the princ ipal payments o r ( ii) the c o st o f shares allo c ated. Fo llo wing is a summary o f the ESOP ac tivity fo r the respec tive years: In millio ns The Co mpany spo nso rs a no nc o ntributo ry defined benefit pensio n plan that c o vers c ertain full- time...

  • Page 28
    ...fo r the defined benefit and o ther po stretirement benefit plans fo r the respec tive years: Defined Benefit Plans In millio ns Other Po stretirement Benefits 1999 2001 2000 2001 2000 1999 Servic e c o st Interest c o st o n benefit o blig atio n Expec ted return o n plan assets Amo rtizatio...

  • Page 29
    ...estimated using the Blac k- Sc ho les Optio n Pric ing Mo del with the fo llo wing assumptio ns: 2001 2000 1999 Dividend yield Expec ted vo latility Risk- free interest rate Expec ted life 0 .7 7 % 2 9 .7 9 % 5 .0 0 % 7 .0 0. 40% 27. 92% 6. 25% 6. 5 0. 58% 25. 86% 6. 50% 6. 0 2001 Annual Report...

  • Page 30
    ...nc iliatio n o f the statuto ry inc o me tax rate to the Co mpany's effec tive tax rate fo r the respec tive years: 2001 2000 1999 c urrent and fo rmer CVS pharmac ists. The ac tio n c o ntends that, as a result o f CVS' pay prac tic es, these pharmac ists sho uld no t be treated as salaried exempt...

  • Page 31
    ... pro c eeds rec eived fro m a c lass ac tio n lawsuit ag ainst c ertain manufac turers o f brand name presc riptio n drug s. No nrec urring c harges and g ains are no t c o nsidered when management assesses the stand- alo ne perfo rmanc e o f the Co mpany's business seg ments. 2001 Annual Report

  • Page 32
    ...$ 1 .0 0 $ 1. 83 $ 1. 55 30 12 2001: Quart erly Financial I nformat ion ( Unaudit ed) First Quarter Sec o nd Quarter Third Quarter Fo urth Quarter Fisc al Year Do llars in millio ns, e xce pt pe r share amo unts Net sales Gro ss marg in Operating pro fit ( lo ss) Net earning s ( lo ss) Net...

  • Page 33
    ... c o sts asso c iated with the Ac tio n Plan and $3. 5 millio n ( $2. 1 millio n after- tax) no nrec urring g ain resulting fro m the net effec t o f the $50. 3 millio n o f settlement pro c eeds rec eived fro m vario us lawsuits ag ainst c ertain manufac turers o f brand name presc riptio n drug...

  • Page 34
    ... and the sc o pe and results o f audit wo rk. The internal audito rs and independent audito rs have free ac c ess to the Audit Co mmittee. Tho mas M. Ryan David B. Ric kard Exec utive Vic e President, Chief Financ ial Offic er and Chief Administrative Offic er CVS Corporation Chairman o f the Bo...

  • Page 35
    ... firm Shareholder I nformat ion Co rpo rate Headquarters CVS Co rpo ratio n One CVS Drive , Wo o nso cke t, RI 0 2 8 9 5 ( 4 0 1 ) 7 6 5 -1 5 0 0 David B. Ric kard Exe cutive Vice Pre side nt, Chie f Financial Office r and Chie f Administrative Office r W. Do n Co rnwell ( 1) Chairman o f the Bo...

  • Page 36
    CVS Co rpo ratio n One CVS Drive | Wo o nso c ket, RI 02895