CVS 2009 Annual Report Download - page 30

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Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Segment Analysis
We evaluate the performance of our Pharmacy Services and Retail Pharmacy Segments based on net revenues, gross profit and
operating profit before the effect of certain intersegment activities and charges. The Company evaluates the performance of its
Corporate segment based on operating expenses before the effect of discontinued operations and certain intersegment activities
and charges. The following is a reconciliation of the Company’s business segments to the consolidated financial statements:
Pharmacy Retail
Services Pharmacy Corporate Intersegment Consolidated
in millions Segment (1) (3) Segment (3) Segment Eliminations (2) (3) Totals
2009:
Net revenues $ 51,065 $ 55,355 $ – $ (7,691) $ 98,729
Gross profit 3,835 16,593 – (48) 20,380
Operating profit 2,866 4,159 (539) (48) 6,438
2008 (4):
Net revenues $ 43,769 $ 48,990 $ – $ (5,287) $ 87,472
Gross profit 3,550 14,741 – (1) 18,290
Operating profit 2,755 3,753 (461) (1) 6,046
2007 (4):
Net revenues $ 34,938 $ 45,087 $ – $ (3,695) $ 76,330
Gross profit 2,997 13,111 – – 16,108
Operating profit 2,245 2,960 (411) – 4,794
(1) Net revenues of the Pharmacy Services segment include approximately $6.9 billion, $6.3 billion and $4.6 billion of Retail Co-Payments for 2009, 2008
and 2007, respectively. Please see Note 1 to the consolidated financial statements for additional information about Retail Co-Payments.
(2) Intersegment eliminations relate to two types of transactions: (i) Intersegment revenues that occur when Pharmacy Services segment clients use Retail
Pharmacy segment stores to purchase covered products. When this occurs, both the Pharmacy Services and Retail Pharmacy segments record the
revenue on a standalone basis and (ii) Intersegment revenues, gross profit and operating profit that occur when Pharmacy Services segment clients,
through the Company’s intersegment activities (such as the Maintenance Choice Program), elect to pick up their maintenance prescriptions at Retail
Pharmacy segment stores instead of receiving them through the mail. When this occurs, both the Pharmacy Services and Retail Pharmacy segments
record the revenue, gross profit and operating profit on a standalone basis.
(3) Beginning in 2008, when Pharmacy Services segment clients elect to pick up their maintenance prescriptions at Retail Pharmacy segment stores
through the Company’s intersegment activities (such as the Maintenance Choice program) instead of receiving them through the mail, both segments
record the corresponding revenue, gross profit and operating profit in their respective segment results. As a result, both the Pharmacy Services and the
Retail Pharmacy segments include the following results for 2009 and 2008 associated with this activity: net revenues of $692 million and $8 million
for 2009 and 2008, respectively; gross profit of $48 million and less than a $1 million for 2009 and 2008, respectively; operating profit of $48 million
and less than a $1 million for 2009 and 2008, respectively.
(4) The results for 2008 and 2007 have been revised to conform to the current presentation of our reportable segments.
CVS Caremark
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