CVS 2014 Annual Report Download - page 27

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2014 Annual Report
Gross profit increased $1.6 billion, or 6.7% in 2014, to $25.4 billion, as compared to $23.8 billion in 2013. Gross
profit increased $1.3 billion, or 5.8% in 2013, to $23.8 billion, as compared to $22.5 billion in 2012. Gross profit as
a percentage of net revenues declined to 18.2%, as compared to 18.8% in 2013 and 18.3% in 2012.
• During 2014, gross profit in our Pharmacy Services Segment and Retail Pharmacy Segment increased by 12.6%
and 5.8%, respectively, compared to the prior year. For the year ended December 31, 2014, gross profit as a
percent of net revenues in our Pharmacy Services Segment and Retail Pharmacy Segment was 5.4% and 31.4%,
respectively.
• During 2013, gross profit in our Pharmacy Services Segment and Retail Pharmacy Segment increased by 11.3%
and 5.3%, respectively, compared to the prior year. For the year ended December 31, 2013, gross profit as a
percent of net revenues in our Pharmacy Services Segment and Retail Pharmacy Segment was 5.6% and 30.6%,
respectively.
• The increased weighting toward the Pharmacy Services Segment, which has a lower gross profit than the Retail
Pharmacy Segment, resulted in a decline in consolidated gross profit as a percent of net revenues in 2014 as
compared to 2013. In addition, gross profit for 2014, 2013 and 2012 has been negatively impacted by the efforts
of managed care organizations, pharmacy benefit managers and governmental and other third-party payors to
reduce their prescription drug costs.
• Our gross profit continued to benefit from the increased utilization of generic drugs (which normally yield a higher
gross profit rate than equivalent brand name drugs) in both the Pharmacy Services and Retail Pharmacy segments
for 2012 through 2014, offsetting the negative impacts described above.
Please see the Segment Analysis later in this document for additional information about our gross profit.
Operating expenses increased $822 million, or 5.2% in the year ended December 31, 2014, as compared to the
prior year. Operating expenses as a percent of net revenues declined to 11.9% in the year ended December 31,
2013 compared to 12.4% in the prior year. The increase in operating expense dollars in the year ended December 31,
2014 was primarily due to incremental store operating costs associated with a higher store count, as well as legal
costs and strategic initiatives as compared to the prior year. Additionally, the year ended December 31, 2013
included a $72 million gain on a legal settlement. The improvement in operating expenses as a percent of net
revenues in 2014 is primarily due to expense leverage from net revenue growth and disciplined expense control.
Operating expenses increased $468 million in the year ended December 31, 2013 as compared to the prior year.
Operating expenses as a percent of net revenues remained flat at 12.4% in the year ended December 31, 2013.
The increase in operating expense dollars in the year ended December 31, 2013 was primarily due to incremental
store operating costs associated with a higher store count as compared to the prior year, as well as strategic
initiatives. The increase was partially offset by a $72 million gain on a legal settlement.
Please see the Segment Analysis later in this document for additional information about operating expenses.
Interest expense, net for the years ended December 31 consisted of the following:
IN MILLIONS 2014 2013 2012
Interest expense $ 615 $ 517 $ 561
Interest income
(15) (8) (4)
Interest expense, net
$ 600 $ 509 $ 557