CVS 2010 Annual Report Download - page 17

improved retail operating margins. However, we faced
some well-documented challenges in our PBM busi-
ness, and we are disappointed with our performance.
Total revenue decreased 2.3 percent to $96.4 billion, with
income from continuing operations down 7.2 percent to
$3.4 billion. We will talk more about the steps we are
taking to turn around PBM performance.
CVS Caremark shares returned 7.9 percent in 2010,
trailing the 12.8 percent return of the S&P 500 Index.
Our below-market share performance is unacceptable,
and enhancing shareholder returns remains a top priority
for us. Accordingly, we returned more than $1.9 billion to
our shareholders last year through a combination of share
repurchases and dividends. We were able to accom-
plish this as a result of the $3.3 billion in free cash flow
we generated in 2010, a 7.6 percent increase over 2009.
We expect our cash-generation capabilities to increase
substantially in the coming years due to anticipated
earnings growth and a sweeping initiative to reduce
working capital. We will take a disciplined approach to
deploying the substantial cash we generate to achieve
the highest possible return for our shareholders. We
will invest in high-return projects and expect to continue
returning value to our shareholders in the form of
dividends and value-enhancing share repurchases. To
that end, we recently raised our dividend by 43 percent,
making this our eighth consecutive year with a dividend
increase. We also expect to complete our $2 billion
authorized share repurchase during 2011.
Long-Term Agreement with Aetna Highlights
Strong 2011 PBM Selling Season
As we said, we have begun to take steps to turn around
the performance of our PBM. After experiencing contract
losses in the 2010 PBM selling season, we undertook
a series of steps to stabilize and grow our PBM,
and position the business for long-term success. We
re-established momentum in the 2011 selling season
and are very pleased with our progress to date. Our
client satisfaction rate remained high and we saw a
97 percent retention rate during the season. We also
added a significant amount of net new business, with
revenues totaling approximately $9.4 billion. The 2012
selling season is off to a good start as well.
Clients are enthusiastic about our differentiated
offerings, which enjoyed positive momentum in
the 2011 selling season. Maintenance Choice®, which
gives plan participants the option of filling their 90-day
maintenance prescriptions by mail or at one of our
convenient retail locations, has been adopted by
approximately 600 clients representing 7.4 million lives.
Our generic step therapy programs have been adopted
by 170 clients representing 5.5 million lives. Our newest
addition, the Pharmacy AdvisorTM program, has already
been adopted by PBM clients representing more than
10 million lives, or approximately 20 percent of our
PBM book of business.
The 12-year agreement we landed in July to provide
Aetna with a broad range of PBM services marked a
watershed for our company. The result of an extensive
competitive bidding process, it provides significant
validation of our core PBM capabilities as well as the
benefits we bring to the table through our integrated
model. Once fully implemented, CVS Caremark® will
serve approximately 9 million Aetna PBM members
and administer approximately $9 billion in annual drug
spending. In addition to taking over management of
Aetna’s retail pharmacy network as well as pharmacy
customer and member service functions, CVS Caremark
will also handle purchasing, inventory management,
and prescription fulfillment for Aetna’s mail-order and
specialty pharmacy operations. We see significant
upside opportunity from this relationship over time,
as we work together to offer our unique products that
will help lower overall health care costs and improve
health outcomes for members.
– 13 –