CVS 2002 Annual Report Download

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2002 CVS Corporation Annual Report
Making it easy to get more out of life.
CVS Brand
Products
24-Hour
Stores
CVS Gold
Emblem®
Products
CVS Rapid
RefillTM
1Hour
Photo
CVS.com®
ExtraCare®
Program

Table of contents

  • Page 1
    2002 CVS Corporation Annual Report CVS Gold Emblem® Products 24-Hour Stores CVS Rapid RefillTM 1Hour Photo CVS.com® CVS Brand Products ExtraCare® Program Making it easy to get more out of life.

  • Page 2
    ... help people live longer, healthier, happier lives. Our Mission: We will be the easiest pharmacy retailer for customers to use. The CVS Culture Our Values: Respect for individuals Integrity Teamwork Openness to new ideas Commitment to flawless execution Passion for extraordinary customer service

  • Page 3
    ... $545 million in free cash flow. • Inventory turns improved for the 4th consecutive year. • We opened 266 new or relocated CVS stores, 78 in new markets. • We held the #1 or #2 share in about 70% of the top 100 markets in which we operated. • We achieved sales per retail square foot of...

  • Page 4
    ... the right stores at the right times. Our pharmacy business is the next target for the AIM system. We are currently conducting a pilot test and plan to roll out the AIM system for pharmacy during 2003. Our ExtraCare card program continues to build customer loyalty. With 33 million members, ExtraCare...

  • Page 5
    ... remain committed to increasing our return on invested capital to drive shareholder value. In the 2002/2003 fiscal years, we will have invested more than $1 billion in stores and technology. We expect to open another 250-275 stores in 2003, and to grow our total square footage by 4% to 5% each year...

  • Page 6
    ...priced brand-name drugs to more cost-effective generics, our pharmacy sales are growing at a healthy pace. Each day, nearly 1 3,000 CVS pharmacists help people live longer, healthier lives. Capitalizing on Opportunities To capitalize on these growth trends, we plan to make CVS the easiest pharmacy...

  • Page 7
    ... program shows we are making significant progress on improving service. We will not be satisfied until 100% of our customers are satisfied. We have made CVS a preferred place to work for our 13,000 pharmacists. In addition to the competitive salary and benefits package we offer, our EPIC pharmacy...

  • Page 8
    ... at the expense of competitors. marketing so we can amply reward our best customers. The ExtraCare card provides many benefits to CVS customers, including automatic store sale prices; customized coupons targeted toward their interests; ExtraBucksTM rewards; health information; and more. ExtraCare...

  • Page 9
    ...in purchasing items like incontinence products, diabetic supplies, and bath safety items. To make it easy, Home Health Care products are featured in our new "Catalog for Living Well," allowing customers to order either on the phone or on the Web. Success in Pricing, Promotion We pay close attention...

  • Page 10
    ...parts of Florida (Orlando, Tampa, Miami, Ft. Lauderdale, West Palm Beach, and Jacksonville) and Texas (Houston and Dallas/Ft. Worth), as well as Phoenix, Chicago and Las Vegas. We already have 125 stores in these markets, and the results so far are very promising. We will open 250-275 new stores in...

  • Page 11
    ... locate new stores and relocate existing stores to better sites, to make it easier for our customers to use CVS. It's all part of what we do to help our customers get more out of life. This new CVS store on the Las Vegas strip symbolizes the company's bold and successful new market strategy...

  • Page 12
    ...-the-art-mail facility that serves as the central hub for both specialty mail services and the retail stores. We assist with reimbursement services and offer the convenience of home delivery, depending on customer preference and geographic coverage. The market for specialty pharmacy drugs, presently...

  • Page 13
    ...-of-the-art science education programs to help prepare inner-city Boston teenagers to succeed in college. The CVS/pharmacy Professional Practice Laboratory is part of Wayne State University in Detroit, where students are trained for future careers in pharmacy and other healthcare professions. Our...

  • Page 14
    ...26 New Hampshire 228 New Jersey 409 New York 267 North Carolina 31 1 Ohio 1 Oregon 352 Pennsylvania 53 Rhode Island 172 South Carolina 123 Tennessee 44 Texas 2 Vermont 239 Virginia 48 Washington, D.C. 53 West Virginia 4,087 Stores CVS/pharmacy Markets PharmaCare/ProCare Markets 12 CVS Corporation

  • Page 15
    ... Financial Report Management's Discussion and Analysis of Financial Condition and Results of Operation Management's Responsibility for Financial Reporting Independent Auditors' Report Consolidated Statements of Operations Consolidated Balance Sheets Consolidated Statements of Shareholders' Equity...

  • Page 16
    ... higher priced brand-name drugs. • Front store sales benefited during 2002 from an increase in promotional programs that were designed to respond to competitive and economic conditions, and from the implementation of our Assisted Inventory Management system, which increased our in-stock positions...

  • Page 17
    ... gross margin rates have been adversely affected by the efforts of managed care organizations, pharmacy benefit managers, governmental and other third party payors to reduce prescription drug costs. To address this trend, we have dropped and/or renegotiated a number of third party programs that fell...

  • Page 18
    ... total expenditures in 2002 were for new stores, store expansions and/or remodels. During 2002, we opened 78 stores in new markets, including: Chicago, Illinois; Las Vegas, Nevada; Phoenix, Arizona; and several markets in Florida and Texas. During 2003, we currently plan to invest over $1 billion in...

  • Page 19
    ..., access to capital markets and new store operating lease costs. On March 6, 2000, the Board of Directors approved a common stock repurchase program, which allows the Company to acquire up to $1 billion of its common stock, in part, to fund employee benefit plans. No shares were repurchased during...

  • Page 20
    ...When estimating these potential termination costs and their related timing, we consider a number of factors, which include, but are not limited to, historical settlement experience, the owner of the property, the location and condition of the property, the terms of the underlying lease, the specific...

  • Page 21
    ... value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures about the method of accounting for stock-based compensation and the effect of the method used on reported results...

  • Page 22
    ...promotional programs (including pricing strategies and price reduction programs implemented in response to competitive pressures and/or to drive demand); • Our ability to continue to secure suitable new store locations under acceptable lease terms; • Our ability to enter new markets successfully...

  • Page 23
    ... and reported properly. Our internal accounting control system is enhanced by periodic reviews by our internal auditors and independent auditors, written policies and procedures and a written Code of Conduct adopted by our Company's Board of Directors, applicable to all employees of our Company. In...

  • Page 24
    ...general and administrative expenses Depreciation and amortization Total operating expenses Operating profit Interest expense, net Earnings before income tax provision Income tax provision Net earnings Preference dividends, net of income tax benefit Net earnings available to common shareholders Basic...

  • Page 25
    ... 2001 Treasury stock, at cost: 16,215,000 shares at December 28, 2002 and 17 ,645,000 shares at December 29, 2001 Guaranteed ESOP obligation Capital surplus Retained earnings Accumulated other comprehensive loss Total shareholders' equity Total liabilities and shareholders' equity $ See accompanying...

  • Page 26
    ... year Purchase of treasury shares 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 year Conversion of preference stock Stock option activity and awards Tax benefit on stock...

  • Page 27
    ... Net cash used in investing activities Cash flows from financing activities: Additions to (reductions in) long-term debt Proceeds from exercise of stock options Dividends paid Purchase of treasury shares (Reductions in) additions to short-term borrowings Net cash used in financing activities Net...

  • Page 28
    ...-counter drugs, greeting cards, film and photofinishing services, beauty products and cosmetics, seasonal merchandise and convenience foods, through its CVS/pharmacy® stores and online through CVS.com®. The Company also provides Pharmacy Benefit Management and Specialty Pharmacy services through...

  • Page 29
    ...Funds that are directly linked to advertising commitments are recognized as a reduction of advertising expense in the selling, general and administrative expenses line when the related advertising commitment is satisfied. Store opening and closing costs ~ New store opening costs, other than capital...

  • Page 30
    ...of the Company's share of the settlement proceeds received from a class action lawsuit against certain manufacturers of brand name prescription drugs. Income taxes ~ The Company provides for federal and state income taxes currently payable, as well as for those deferred because of timing differences...

  • Page 31
    ... the fair value based method of accounting for stock-based employee compensation. This statement also amends the disclosure requirements of SFAS No. 123 to require prominent disclosures about the method of accounting for stock-based compensation and the effect of the method used on reported results...

  • Page 32
    ... in 2006, and $341.7 million in 2007 . The Company finances a portion of its store development program through sale-leaseback transactions. The properties are sold at net book value and the resulting leases qualify and are accounted for as operating leases. The Company does not have any retained or...

  • Page 33
    ... acquisition of customer lists. (2) The increase in the gross carrying amount during 2002 was primarily due to the acquisition of leases with rents below market rates. The amortization expense for these intangible assets totaled $53.3 million in 2002, $52.7 million in 2001 and $48.2 million in 2000...

  • Page 34
    .... The Company's funding policy is generally to pay covered expenses as they are incurred. For retiree medical plan accounting, the Company reviews external data and its own historical trends for healthcare costs to determine the healthcare cost trend rates. ESOP expense recognized Dividends paid...

  • Page 35
    ... Benefits 2001 2000 Service cost Interest cost on benefit obligation Expected return on plan assets Amortization of net (gain) loss Amortization of prior service cost Settlement gain Net periodic pension cost Actuarial assumptions: Discount rate Expected return on plan assets Rate of compensation...

  • Page 36
    ... 7 Stock Incentive Plans The 1997 Incentive Compensation Plan provides for the granting of up to 42.9 million shares of common stock in the form of stock options and other awards to selected officers and employees of the Company. All grants under the plan are awarded at fair market value on...

  • Page 37
    ... components of the Company's deferred tax assets and liabilities as of the respective balance sheet dates: In millions December 28, 2002 December 29, 2001 Deferred tax assets: Restructuring Charge Retirement benefits Employee benefits Lease and rents Inventory Amortization method Allowance for bad...

  • Page 38
    ...online retail website, CVS.com. The retail drugstores are located in 27 states and the District of Columbia and operate under the CVS/pharmacy name. The Retail Pharmacy segment is the Company's only reportable segment. The PBM segment provides a full range of prescription benefit management services...

  • Page 39
    ... of the leases or negotiate an early termination of the contractual obligations. The Satellite Facilities were closed in December 2001. 5. Approximately 1,500 managerial, administrative and store employees in the Company's Woonsocket, Rhode Island corporate headquarters; Columbus Mail Facility...

  • Page 40
    ...value. Employee severance and benefits included $19.5 million for severance pay, healthcare continuation costs and outplacement service costs related to approximately 1,500 managerial, administrative and store employees in the Company's Woonsocket, Rhode Island corporate headquarters; Columbus, Mail...

  • Page 41
    ... 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 shareholders at year-end $ 5,970.7 1,493.7 296.5 175.7 0.44 0.43 0.0575 35.40 25.80 $ 5,989...

  • Page 42
    ... payment of our share of the settlement proceeds from a class action lawsuit against certain manufacturers of brand name prescription drugs, and (iii) 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...

  • Page 43
    ...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 10583 (800) 201-0938 In addition, financial reports and recent filings...

  • Page 44
    ExtraBucksTM Indulgence Life to the fullest. SM CVS Corporation One CVS Drive Woonsocket, RI 02895