CVS 2011 Annual Report Download - page 6

CVS CAREMARK 4 2011 ANNUAL REPORT
S H A R E H O L D E R L E T T E R c o n t i n u e d
• To deliver solutions that improve the health of
those we serve; and
• To lower the overall cost of health care.
By capitalizing on CVS Caremark’s best-in-class
businesses as well as the power of our combined
entity – what we call our “integration sweet spots”
– we are well-positioned to deliver on our goal of
reinventing pharmacy for better health ... and better
shareholder value. As our strategies have advanced
and taken hold in the marketplace, we are very
excited about the results of our efforts. Before
getting into more detail on that, I want to provide a
quick overview of the past year’s performance.
2011 Saw Strong Revenue and Earnings
Gains Coupled with Record Free Cash Flow
Net revenues increased 11.8 percent to a record
$107.1 billion in 2011, with Adjusted EPS rising
5.9 percent excluding the three-cent per share tax
benefit in the prior year. CVS Caremark shares
returned 18.9 percent, significantly outpacing our retail
pharmacy and PBM peers as well as the broader
S&P 500 Index and Dow Jones Industrial Average.
We are extremely pleased with our performance
and highly focused on further enhancing share-
holder value. Our roadmap for accomplishing that
consists of three main pillars:
• Driving productive, long-term growth;
• Generating significant levels of free cash; and
• Adhering to our disciplined capital allocation
strategy.
We generated $4.6 billion in free cash flow in
2011, a 39 percent increase over 2010’s level.
In total, we returned $3.7 billion to our share-
holders last year – nearly double 2010’s total
– through $3 billion in share repurchases and a
43 percent dividend increase. With our steady
state earnings targets, we expect free cash flow
to increase substantially over the next several
years. We plan to use our available cash to invest
in opportunities that will enhance our returns, to
repurchase shares, and to continue to increase
our dividend with a targeted payout ratio of 25 to
30 percent by 2015.
Our PBM Enjoyed High Client Retention Rates
with Significant New Contracts Awarded
In our PBM business, our deep clinical expertise
allows us to deliver a wide spectrum of best-in-
class services and innovative plan designs for our
clients and their members. Our specialty pharmacy
is an industry leader, and our Medicare Part D pre-
scription drug plans make us a strong No. 2 player
in this fast-growing space.
Our PBM business made tremendous strides over
the past year. Our client retention rate for 2012 is
approximately 98 percent while our book of busi-
ness grew significantly. Our 2012 selling season
yielded more than $7 billion in net new sales along
with another $5.5 billion related to PBM contracts
that came with our 2011 purchase of Universal
American’s Medicare Part D business. In fact,
when we combine the 2011 and 2012 selling
seasons with the Universal American acquisition,
we have increased our book of business by 50 per-
cent compared with 2010. At the same time,
we have been successfully executing the PBM
streamlining initiative we announced last year,
“ By capitalizing on CVS Caremark’s best-in-class businesses as
well as the power of our combined entity, we are well-positioned
to deliver on our goal of reinventing pharmacy for better health
... and better shareholder value.”