CVS 2006 Annual Report Download - page 30

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
2006 Annual Report 27
• Our ability to integrate successfully the Caremark business or as timely
as expected and successfully retain key personnel;
• Our ability to realize the revenues and synergies and other benefits
from the merger as expected;
• Litigation and regulatory risks associated with the Caremark and
pharmacy benefit management industry generally;
• The continued efforts of health maintenance organizations, managed
care organizations, pharmacy benefit management companies and
other third party payors to reduce prescription drug costs and pharmacy
reimbursement rates, particularly with respect to generic pharmaceuticals;
• The effect on pharmacy revenue and gross profit rates attributable to
the introduction in 2006 of a new Medicare prescription drug benefit
and the continued efforts by various government entities to reduce
state Medicaid pharmacy reimbursement rates;
• Risks related to the change in industry pricing benchmarks that could
adversely affect our financial performance;
• The growth of mail order pharmacies and changes to pharmacy benefit
plans requiring maintenance medications to be filled exclusively through
mail order pharmacies;
• The effect on PharmaCare of increased competition in the pharmacy
benefit management industry, a declining margin environment
attributable to increased client demands for lower prices, enhanced
service offerings and/or higher service levels and the possible
termination of, or unfavorable modification to, contractual arrangements
with key clients or providers;
• The potential effect on PharmaCare’s business results of entering into
risk based or reinsurance arrangements in connection with providing
pharmacy benefit plan management services. Risks associated with these
arrangements include relying on actuarial assumptions that underestimate
prescription utilization rates and/or costs for covered members;
• Our ability to successfully integrate the Standalone Drug Business
acquired from Albertsons in June 2006;
• Our ability to expand MinuteClinic as expected;
• The risks relating to adverse developments in the healthcare or
pharmaceutical industry generally, including, but not limited to,
developments in any investigation related to the pharmaceutical
industry that may be conducted by governmental authorities;
• Increased competition from other drugstore chains, supermarkets,
discount retailers, membership clubs and Internet companies, as well
as changes in consumer preferences or loyalties;
• The frequency and rate of introduction of successful new prescription drugs;
• Our ability to generate sufficient cash flows to support capital
expansion and general operating activities;
• Interest rate fluctuations and changes in capital market conditions
or other events affecting our ability to obtain necessary financing on
favorable terms;
• Our ability to identify, implement and successfully manage and
finance strategic expansion opportunities including entering new
markets, acquisitions and joint ventures;
• Our ability to establish effective advertising, marketing and
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 attract, hire and retain suitable pharmacists, nurse
practitioners and management personnel;
• Our ability to achieve cost efficiencies and other benefits from various
operational initiatives and technological enhancements;
• Litigation risks as well as changes in laws and regulations, including
changes in accounting standards and taxation requirements (including
tax rate changes, new tax laws and revised tax law interpretations);
• The creditworthiness of the purchasers of businesses formerly owned
by CVS and whose leases are guaranteed by CVS;
• Fluctuations in inventory cost, availability and loss levels and our
ability to maintain relationships with suppliers on favorable terms;
• Our ability to implement successfully and to manage new computer
systems and technologies;
• The strength of the economy in general or in the markets served
by CVS, including changes in consumer purchasing power and/or
spending patterns; and
• Other risks and uncertainties detailed from time to time in our filings
with the Securities and Exchange Commission.
The foregoing list is not exhaustive. There can be no assurance that the
Company has correctly identified and appropriately assessed all factors
affecting its business. Additional risks and uncertainties not presently
known to the Company or that it currently believes to be immaterial also
may adversely impact the Company. Should any risks and uncertainties
develop into actual events, these developments could have material
adverse effects on the Company’s business, financial condition and
results of operations. For these reasons, you are cautioned not to place
undue reliance on the Company’s forward-looking statements.