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Management’s Discussion and Analysis of
Financial Condition and Results of Operations
CVS CAREMARK 2012 ANNUAL REPORT
26
Income tax provision –
฀Our฀effective฀income฀tax฀rate฀was฀38.6%,฀39.3%฀and฀38.9%฀in฀2012,฀2011฀and฀2010,฀respectively.฀
The lower effective income tax in 2012 versus 2011 primarily relates to permanent items, some of which are non-recurring
in nature. The higher effective income tax in 2011 versus 2010 primarily relates to changes in the recognition of previously
unrecognized tax benefits relating to the expiration of various statutes of limitation and settlements with tax authorities in
2010. In 2010, we recognized $47 million of income tax benefits related to the expiration of various statutes of limitation
and settlements with tax authorities.
Income from continuing operations
฀increased฀$394฀million฀or฀11.3%฀to฀$3.9฀billion฀in฀2012.฀Income฀from฀continuing฀
operations฀increased฀$66฀million฀or฀1.9%฀to฀$3.5฀billion฀in฀2011฀as฀compared฀to฀$3.4฀billion฀in฀2010.฀The฀2012฀increase฀
in income from continuing operations was primarily related to increases in generic dispensing rates and growth of our
Medicare Part D business in our Pharmacy Services Segment, as well as increased sales in the Retail Pharmacy Segment
resulting from share gains in our underlying business and the contractual impasse between Express Scripts and Walgreens,
our principal PBM and retail pharmacy competitors, respectively. Walgreens exited from the Express Scripts network as of
January 1, 2012. Subsequently, Express Scripts and Walgreens entered into a new pharmacy network agreement that
became effective on September 15, 2012.
Income (loss) from discontinued operations
In connection with certain business dispositions completed between 1991 and 1997, the Company retained guarantees on
store lease obligations for a number of former subsidiaries, including Linens ‘n Things which filed for bankruptcy in 2008.
The Company’s income (loss) from discontinued operations includes lease-related costs which the Company believes it
will likely be required to satisfy pursuant to its Linens ‘n Things lease guarantees.
We incurred a loss from discontinued operations of $7 million in 2012, a loss from discontinued operations of $31 million
in 2011 and income from discontinued operations of $2 million in 2010. The loss from discontinued operations in 2012
was primarily due to lease-related costs related to Linens ‘n Things lease guarantees. The loss from discontinued opera-
tions in 2011 was primarily due to the disposition of our TheraCom subsidiary. We recognized a $53 million pre-tax gain
and a $37 million after-tax loss on the sale of TheraCom. The after-tax loss was caused by the income tax treatment of
TheraCom’s nondeductible goodwill. Income from discontinued operations (net of tax) was $2 million in 2010 due to
$28 million in income from operations of TheraCom offset by $24 million in costs associated with our Linens ’n Things
lease guarantees and a $2 million tax provision.
See Note 4 “Discontinued Operations” to the consolidated financial statements for additional information about discontin-
ued operations and Note 13 “Commitments and Contingencies” for additional information about our lease guarantees.
Net loss attributable to noncontrolling interest
represents the minority shareholders’ portion of the net loss from our
majority฀owned฀subsidiary,฀Generation฀Health,฀Inc.฀We฀acquired฀the฀remaining฀40%฀interest฀of฀Generation฀Health,฀Inc.฀on฀
June 29, 2012. The net loss attributable to noncontrolling interest for the years ended December 31, 2012, 2011 and 2010
was $2 million, $4 million and $3 million, respectively.
Net income attributable to CVS Caremark
฀increased฀$416฀million฀or฀12.0%฀to฀$3.9฀billion฀(or฀$3.03฀per฀diluted฀share)฀in฀
2012. This compares to $3.5 billion (or $2.57 per diluted share) in 2011 and $3.4 billion (or $2.49 per diluted share) in 2010.
As noted previously, the 2012 increase in net income attributable to CVS Caremark was primarily related to new 2012 client
starts and growth of our Medicare Part D business in our Pharmacy Services Segment, as well as increased sales in the
Retail Pharmacy Segment resulting from share gains in our underlying business and the contractual impasse between
Express Scripts and Walgreens. The increase in net income attributable to CVS Caremark per diluted share was also driven
by increased share repurchase activity in 2012 and 2011.