CVS 2007 Annual Report Download

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The Power of One
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Table of contents

  • Page 1
    The Power of One :MJ:Xi\dXib:figfiXk`fe)''.8eelXcI\gfik

  • Page 2
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  • Page 4
    CVS Caremark Financial Highlights `ed`cc`fej#\oZ\gkg\ij_Xi\Ã"^li\j  2007 52 weeks  .-#*)0 0 0) *0 2006 52 weeks 0 0( % change...Total Revenues [fccXij`ed`cc`fej Stock Price at Year End XkZXc\e[Xip\Xi\e[`e[fccXij Annual Dividends Declared `e[fccXij .-#*)0%, *'%0 ...

  • Page 5
    ... about our new company and our plans for improving the delivery of pharmacy and health care services in the United States. # in 1 Prescriptions CVS Caremark fills or manages more than 1 billion prescriptions annually through our retail and specialty pharmacy stores, mail order facilities, and...

  • Page 6
    ...in 2008 with an expanded list of services.  I CVS Caremark # in 1 Specialty Pharmacy CVS Caremark leads the industry with approximately $8 billion in specialty pharmacy sales through our 20 specialty mail order pharmacies, our 56 specialty pharmacy stores, and CVS/pharmacy locations. Specialty...

  • Page 7
    ... it "CVS easy" for customers to fill prescriptions, replenish the medicine cabinet, or stop in to consult with one of our beauty advisors. With free time in such short supply these days, 60 percent of our locations offer drive-thru pharmacies and 72 percent provide the convenience of 24-hour or...

  • Page 8
    ... of retail health clinics? in cvs caremark, you get a company with the potential to have a major impact on the way pharmacy and health care services in the united states are delivered. we plan to leverage our unique combination to help payors control costs more effectively, improve patient...

  • Page 9
    ... into a cvs/pharmacy with the confidence that their pharmacist has a complete overview of their individual history. that includes routine prescriptions filled in our stores, mail order pharmacies, or at cvs.com; participation in one of caremark's leading health management programs; or a visit...

  • Page 10
     I CVS Caremark One Goal "CVS Caremark is positioned to improve access for patients, promote better health outcomes, and control payor costs in a way that no pharmacy retailer or PBM could do separately." Tom Ryan I Chairman of the Board, President & CEO

  • Page 11
    ... year set the stage for a new chapter in our company's history as we completed the transformational merger of CVS Corporation and Caremark Rx, Inc. We are now the largest integrated provider of prescriptions and related health services in the United States, filling or managing more than a quarter of...

  • Page 12
    ... pharmacy reimbursement rates, generics are more profitable than brand name drugs and help drive margin expansion. Moreover, CVS Caremark is now the largest purchaser of generic drugs in the United States, which enables us to drive down costs. In 007, the company had a  percent generic dispensing...

  • Page 13
    ... market. In fact, our Southern California CVS/ pharmacy stores now lead the entire chain in sales. These new CVS/pharmacy stores are benefiting from an improved merchandise assortment and category focus. ® ® The introduction of the ExtraCare card is encouraging customer loyalty and helping drive...

  • Page 14
    ... combined company. Mac chose to step down in November, and I wish him a happy and healthy retirement. We shared the same vision for the future of this industry, and the core team he assembled remains the guiding force at Caremark Pharmacy Services. Former director Roger Headrick provided invaluable...

  • Page 15
    ... President CVS/pharmacy - Retail Chris Bodine President CVS Caremark Health Care Services "Caremark has long had a reputation for strong clinical programs and superior customer service. Now we have an opportunity to take our offerings to the next level and provide payors and patients with options...

  • Page 16
    ... our customers have about their prescriptions, instore pharmacists are available to help seniors understand new Medicare Part D prescription drug plans. Every CVS/pharmacy offers a complete selection of national and CVS store brand overthe-counter remedies. All are FDA tested and approved using the...

  • Page 17
    1 I 007 Annual Report 2 1 3 4

  • Page 18
    ... for PBM clients will provide beneficial health promotions for their plan members. 1 I CVS Caremark 1 We filled approximately 74 million traditional and specialty prescriptions by mail in 2007. Clinical pharmacists in our seven award-winning customer contact centers routinely interact with...

  • Page 19
    1 I 007 Annual Report 2 1 3 4

  • Page 20
    ... insurance plans. 2 MinuteClinics will play an increasingly important role in CVS Caremark's drive to lower the cost of health care for insurance plans and self-insured employers. Each location provides quality care at a price that is more affordable than the typical visit to the doctor's office...

  • Page 21
    ... 2.9% Compound Annual Return Rate (5 Year) 26.9% 12.8% 2.2% SOURCE: Standard & Poor's Research Insight (1) Index includes CVS Caremark (2) Index currently includes Costco Wholesale, CVS Caremark, Kroger, Safeway, SUPERVALU, Sysco, Wal-Mart, Walgreen, and Whole Foods The year-end values of each...

  • Page 22
    ... by plan Overview of Our Business CVS Caremark is the largest provider of prescriptions and related healthcare services in the United States. We fill or manage more than one billion prescriptions annually. As a fully integrated pharmacy services company, we drive value for our customers by...

  • Page 23
    ... a distribution center located in La Habra, California (collectively the "Standalone Drug Business"). Overview of Pharmacy Services Segment Our pharmacy services business provides comprehensive prescription benefit management services to over 2,000 health benefit plans. These services include mail...

  • Page 24
    ... to provide prescription drugs to plan participants. Prescription drugs are dispensed by our mail order pharmacies, our specialty pharmacies and by retail pharmacies in our national network (including CVS/pharmacy stores). Net 0 I CVS Caremark Results of Operations and Industry Analysis Summary of...

  • Page 25
    ... in our average debt balance, which resulted primarily from the borrowings used to fund the special cash dividend paid to Caremark shareholders and the accelerated share repurchase program that commenced subsequent to the Caremark Merger. The increase in interest expense during 2006 was due to...

  • Page 26
    ... Co-Payments for 2007.  I CVS Caremark (2) Intersegment eliminations relate to intersegment revenues that occur when a Pharmacy Services Segment customer uses a Retail Pharmacy Segment store to purchase covered products. When this occurs, both segments record the revenue on a standalone basis...

  • Page 27
    ... generic drugs, which typically have a lower selling price. In addition, our pharmacy growth has also been adversely affected by the growth of the mail order channel, a decline in the number of significant new brand named drug introductions, higher consumer co-payments and co-insurance arrangements...

  • Page 28
    ... payors to reduce reimbursement payments to retail pharmacies for generic drugs, which reduced the benefit we realized from brand to generic product conversions. We expect this trend to continue. • Sales to customers covered by third party insurance programs have continued to increase and, thus...

  • Page 29
    ...results include incremental depreciation and amortization resulting from the preliminary fixed and intangible assets recorded in connection with the Caremark Merger and exclude merger-related expenses and integration expenses. The comparable financial information has been provided for illustrative...

  • Page 30
    ... further information about the Pharmacy Services Segment's revenue recognition policies. • Changes in mail service and retail network revenue are primarily impacted by changes in pharmacy claims processed, drug cost inflation, customer and claims mix, customer pricing and generic dispensing rates...

  • Page 31
    ... dispensed, either directly through our mail service and specialty retail pharmacies or indirectly through our national retail pharmacy network, shipping and handling costs and the operating costs of our mail service pharmacies, customer service operations and related information technology...

  • Page 32
    ...amortization related to selling, general and administrative activities and retail specialty pharmacy store and administrative payroll, employee benefits 8 I CVS Caremark Liquidity and Capital Resources We anticipate that our cash flow from operations, supplemented by commercial paper and long-term...

  • Page 33
    ... common share. We believe that our current cash on hand and cash provided by operations, together with our ability to obtain additional shortterm and long-term financing, will be sufficient to cover our working capital needs, capital expenditures, debt service requirements and dividend requirements...

  • Page 34
    ... 15, 2016 (collectively the "2006 Notes"). The 2006 Notes pay interest semi-annually and Off-Balance Sheet Arrangements In connection with executing operating leases, we provide a guarantee of the lease payments. We finance a portion of our new store development through sale-leaseback transactions...

  • Page 35
    ... critical accounting policies discussed below are applicable to both of our business segments. We have discussed the development and selection of our critical accounting policies with the Audit Committee of our Board of Directors and the Audit Committee has reviewed our disclosures relating to them...

  • Page 36
    ... and our consolidated sales, profitability and cash flow results and forecasts. These estimates can be affected by a number of factors including, but not limited to, general economic conditions, efforts of third party organizations to reduce their prescription drug costs and/or increased member co...

  • Page 37
    ... relates to our general liability, workers' compensation and auto liability. Similar reviews are conducted semi-annually to determine that our self insurance liability is adequate for our health and medical liability. Our total self-insurance liability covered by this critical accounting policy was...

  • Page 38
    ...-out basis using the retail method of accounting to determine cost of sales and inventory in our stores, average cost to determine cost of sales and inventory in our mail service and specialty pharmacies and the cost method of accounting to determine inventory in our distribution centers. Under the...

  • Page 39
    ... addressing operating performance of CVS Caremark Corporation or any subsidiary, events or developments that the Company expects or anticipates will occur in the future, including statements relating to revenue growth, earnings or earnings per common share growth, free cash flow, debt ratings...

  • Page 40
    ...reliance on the Company's forward-looking statements. discounts and/or rebates from pharmaceutical manufacturers at current levels; • Risks regarding the impact of the new Medicare prescription drug benefit on our business; • Risks related to the change in industry pricing benchmarks that could...

  • Page 41
    ...testing of the operating effectiveness of controls. Our system of internal control over financial reporting is enhanced by periodic reviews by our internal auditors, written policies and procedures and a written Code of Conduct adopted by our Company's Board of Directors, applicable to all employees...

  • Page 42
    ...Oversight Board (United States), the consolidated balance sheet of CVS Caremark Corporation as of December 29, 2007, and the related consolidated statements of operations, shareholders' equity and cash flows for the fifty-two week period ended December 29, 2007 and our report dated February 25, 2008...

  • Page 43
    ... to common shareholders BASIC EARNINGS PER COMMON SHARE: Net earnings Weighted average common shares outstanding DILUTED EARNINGS PER COMMON SHARE: Net earnings Weighted average common shares outstanding Dividends declared per common share See accompanying notes to consolidated financial statements...

  • Page 44
    ... Inventories Deferred income taxes Other current assets Total current assets Property and equipment, net Goodwill Intangible assets, net Deferred income taxes Other assets Total assets LIABILITIES: Accounts payable Claims and discounts payable Accrued expenses Short-term debt Current portion of long...

  • Page 45
    ... revenues Cash paid for inventory Cash paid to other suppliers and employees Interest and dividends received Interest paid Income taxes paid Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment Proceeds from sale-leaseback transactions...

  • Page 46
    ... of guaranteed ESOP obligation End of year SHARES HELD IN TRUST: Beginning of year Shares acquired through Caremark Merger End of year CAPITAL SURPLUS: Beginning of year Common stock issued for Caremark Merger, net of issuance costs Stock option activity and awards Tax benefit on stock options and...

  • Page 47
    ...year Net earnings Common stock dividends Preference stock dividends Tax benefit on preference stock dividends Adoption of FIN 48 End of year Total shareholders' equity COMPREHENSIVE INCOME: Net earnings Recognition of unrealized gain/(loss) on derivatives, net of income tax Pension liability, net of...

  • Page 48
    ...retail stores. The pharmacy services business provides a full range of pharmacy benefit management services including mail order pharmacy services, specialty pharmacy services, plan design and administra I CVS Caremark Stock Split On May 12, 2005, the Company's Board of Directors authorized a two...

  • Page 49
    ... third party providers (e.g., pharmacy benefit managers, insurance companies and governmental agencies) and vendors as well as clients, participants and manufacturers. Property and Equipment Property, equipment and improvements to leased premises are depreciated using the straight-line method over...

  • Page 50
    ... future cash flows (discounted and with interest charges). If required, an impairment loss is recorded for the portion of the asset group's carrying value that exceeds the asset group's  I CVS Caremark in its customers' benefit plans and (iii) administrative fees for national retail pharmacy...

  • Page 51
    ...: (i) the cost of the prescription drugs purchased from manufacturers or distributors and shipped to participants in customers' benefit plans from the PSS' mail service pharmacies, net of any volume-related or other discounts (see "Drug Discounts" above) and (ii) the cost of prescription drugs sold...

  • Page 52
    ... services. Purchase discounts and administrative service fees are recorded as a reduction of "Cost of revenues" as required by EITF 02-16. Shares Held in Trust As a result of the Caremark Merger, the Company maintains grantor trusts, which held approximately 9.2 million shares of its common stock...

  • Page 53
    ...2006, the Company accounted for its stock-based compensation plans under the recognition and measurement principles of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. As such, no stock-based employee compensation costs were...

  • Page 54
    ... 15, 2008. The Company is currently evaluating the potential impact, if any, the adoption of SFAS 141R may have on its consolidated results of operations, financial position and cash flows. New Accounting Pronouncements The Company adopted Financial Accounting Standards Board Interpretation No...

  • Page 55
    ... dividend of $7.50 per share. The merger was accounted for using the purchase method of accounting under U.S. Generally Accepted Accounting Principles. Under the purchase method of accounting, CVS Corporation is considered the acquirer of Caremark for accounting purposes and the total purchase price...

  • Page 56
    ... the historical results of the Pharmacy Services Segment of CVS are based on a 52 week fiscal year ending on the Saturday nearest to December 31. (2) Inter-company revenues that occur when a Caremark customer uses a CVS/pharmacy retail store to purchase covered products were eliminated. These...

  • Page 57
    ...treasury account. On May 9, 2007, the Board of Directors of the Company authorized a share repurchase program for up to $5.0 billion of the Company's outstanding common stock. On May 13, 2007, the Company entered into a $2.5 billion fixed dollar accelerated share repurchase (the "May ASR") agreement...

  • Page 58
    ... time, in whole or in part at a defined redemption price plus accrued interest. Net proceeds from the 2006 Notes were used to repay a portion of the outstanding commercial paper issued to finance the acquisition of the Standalone Drug Business. #  I CVS Caremark  Borrowing and Credit Agreements...

  • Page 59
    ...384.6 $ 22,090.6  I 007 Annual Report $ $ $ 22,090.6 The Company finances a portion of its store development program through sale-leaseback transactions. The properties are sold and the resulting leases qualify and are accounted for as operating leases. The Company does not have any retained...

  • Page 60
    ...applications for states in which SilverScript currently operates were pending as of the date of this filing. The Company has recorded estimates of various assets and liabilities arising from its participation in the Medicare Part D program based on information in its claims management and enrollment...

  • Page 61
    ...Employer's Accounting for Defined Benefit Pension and Other Postretirement Plans-an amendment of FASB Statements No. 87, 88, 106, and 132(R)," 7 I 007 Annual Report Defined Contribution Plans The Company sponsors voluntary 401(k) Savings Plans that cover substantially all employees who meet plan...

  • Page 62
    ... of stock options on certain terminated employees. The 1999 ESPP provides for the purchase of up to 14.8 million shares of common stock. As a result of the 1999 ESPP not having sufficient shares available for the program to continue beyond 2007, the Board of Directors adopted, and shareholders...

  • Page 63
    ... payment from the employee. Compensation cost is recorded based on the market price on the grant date and is recognized on a straight-line basis over the requisite service period. The Company granted 5,000 and 427,000 shares of restricted stock with a weighted average per share grant date fair value...

  • Page 64
    ... included in financing activities in the accompanying consolidated statement of cash flow during 0 I CVS Caremark The fair value of each stock option is estimated using the BlackScholes Option Pricing Model based on the following assumptions at the time of grant: 2007 Dividend yield(1) Expected...

  • Page 65
    ... on the Company's consolidated financial condition, results of operations or future cash flows. In 2006, a number of shareholder derivative lawsuits have been filed in the Tennessee state court and the Tennessee federal court against Caremark and various officers and directors of Caremark seeking...

  • Page 66
    ...attorneys and law firms named as defendants in the McArthur complaint in intervention and denied the motions to dismiss that complaint filed by Caremark and the insurance company defendants. In January 2008, Lauriello filed a motion to dismiss McArthur's complaint in intervention, appealed the court...

  • Page 67
    ... certainty at this time. The Company has been named in a putative class action lawsuit filed in California state court by Gabe Tong, purportedly on behalf of current and former pharmacists working in the Company's California stores. The lawsuit alleges that CVS failed to provide pharmacists in the...

  • Page 68
    ... Ending Balance $ 2007 43.2 207.5 4.5 (6.7) (2.0) (13.1) 233.4  I CVS Caremark Following is a summary of the significant components of the Company's deferred tax assets and liabilities as of the respective balance sheet dates: In millions Deferred tax assets: Lease and rents Inventory Employee...

  • Page 69
    .... These services include mail order pharmacy services, specialty pharmacy services, plan design and administration, formulary management and claims processing, as well as providing insurance and reinsurance services in conjunction with prescription drug benefit plans. The specialty pharmacy business...

  • Page 70
    ...Co-Payments in 2007. (2) Intersegment eliminations relate to intersegment revenues and accounts receivable that occur when a Pharmacy Services Segment customer uses a Retail Pharmacy Segment store to purchase covered products. When this occurs, both segments record the revenue on a standalone basis.

  • Page 71
    ... benefit Net earnings available to common shareholders, basic Net earnings Dilutive earnings adjustment Net earnings available to common shareholders, diluted DENOMINATOR FOR EARNINGS PER COMMON SHARE CALCULATION: Weighted average common shares, basic Preference stock Stock options Restricted stock...

  • Page 72
    ... Low Registered shareholders at year-end 2006: Net revenues Gross profit Operating profit Net earnings(1) Net earnings per common share, basic (1) Net earnings per common share, diluted(1) Dividends per common share Stock price: (New York Stock Exchange) High Low $ 8 I CVS Caremark 9,979.9 2,594...

  • Page 73
    ... "Merger Agreement"), Caremark Rx, Inc. ("Caremark") was merged with and into a newly formed subsidiary of CVS Corporation, with the CVS subsidiary, Caremark Rx, L.L.C., continuing as the surviving entity (the "Caremark Merger"). Following the Caremark Merger, the name of the Company was changed to...

  • Page 74
    ... public accounting fiRM The Board of Directors and Shareholders CVS Caremark Corporation We have audited the accompanying consolidated balance sheet of CVS Caremark Corporation as of December 29, 2007, and the related consolidated statements of operations, shareholders' equity and cash flows for...

  • Page 75
    ... Corporation) as of December 30, 2006 and the related consolidated statements of operations, shareholders' equity and cash flows for the fifty-two week periods ended December 30, 2006, and December 31, 2005. These consolidated financial statements are the responsibility of the Company's management...

  • Page 76
    ... Cassel Annual Shareholders' Meeting May 7, 2008 CVS Caremark Corporate Headquarters Chris W. Bodine Executive Vice President and President - CVS Caremark Health Care Services David W. Dorman(2)(3) Managing Director and Senior Advisor Warburg Pincus LLC Stock Market Listing The New York Stock...

  • Page 77
    ... to participate in a total of 43 during 2008. Boston Red Sox Hitting Coach Dave Magadan with Cheshire Challengers baseball team member Sean Chamberland at CVS Caremark All Kids Can Baseball Camp at Fenway Park. ) * There are currently 122 Boundlessâ„¢ playgrounds in 24 states where children...

  • Page 78
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