CVS 2014 Annual Report Download - page 28

Download and view the complete annual report

Please find page 28 of the 2014 CVS annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 94

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94

Management’s Discussion and Analysis
of Financial Condition and Results of Operations
26
CVS Health
Net interest expense increased $91 million during the year ended December 31, 2014, primarily due to the issuance of
$4 billion of debt in December 2013 and $1.5 billion of debt in August 2014. During 2013, net interest expense decreased
by $48 million, to $509 million compared to 2012, which resulted from lower average interest rates during 2013.
Loss on Early Extinguishment of Debt —
During the year ended December 31, 2014, the Company completed a
$2.0 billion tender offer and repurchase of certain Senior Notes. The Company paid a premium of $490 million in
excess of the debt principal in connection with the repurchase of the Senior Notes, wrote off $26 million of unamor-
tized deferred financing costs and incurred $5 million in fees, for a total loss on early extinguishment of debt of
$521 million. During the year ended December 31, 2012, the Company completed a $1.3 billion tender offer and
repurchase of certain Senior Notes and incurred a total loss on the early extinguishment of debt of $348 million.
See Note 5 to the consolidated financial statements.
Income tax provision —
Our effective income tax rate was 39.5%, 38.9% and 38.6% in 2014, 2013 and 2012,
respectively. The effective income tax was higher in 2014 than in 2013 primarily due to certain permanent items in
2014. These same items were the principal factors for the increase in the effective income tax rate in 2013 compared
to 2012.
Income from continuing operations
increased $45 million or 1.0% to $4.6 billion in 2014. Income from continuing
operations increased $731 million or 18.9% to $4.6 billion in 2013 as compared to $3.9 billion in 2012. The 2014 and
2013 increases in income from continuing operations were primarily related to increases in generic dispensing rates
and increased prescription volume for both operating segments. In addition, as discussed previously, income from
continuing operations included a $521 million and $348 million loss on early extinguishment of debt in 2014 and 2012,
respectively, which positively impacted the growth rate in 2013 and negatively impacted the growth rate in 2014.
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, includ-
ing Linens ‘n Things, which filed for bankruptcy in 2008. The Company’s loss from discontinued operations includes
lease-related costs required to satisfy its Linens ‘n Things lease guarantees. We incurred a loss from discontinued
operations, net of tax, of $1 million, $8 million and $7 million in 2014, 2013 and 2012, respectively.
See Note 1 “Significant Accounting Policies — Discontinued Operations” to the consolidated financial statements
for additional information about discontinued operations and Note 11 “Commitments and Contingencies” for
additional information about our lease guarantees.
Net loss attributable to noncontrolling interest
of $2 million for the year ended December 31, 2012 represents the
minority shareholders’ portion of the net loss of our subsidiary, Generation Health, Inc. (“Generation Health”). We
acquired the remaining 40% interest of Generation Health in June 2012 and as a result, there was no longer a
noncontrolling interest in Generation Health for the years ended December 31, 2014 and 2013. For the year ended
December 31, 2014, the Company had immaterial noncontrolling interests in two consolidated entities.
Net income attributable to CVS Health
increased $52 million or 1.1% to $4.6 billion (or $3.96 per diluted share)
in 2014. This compares to $4.6 billion (or $3.74 per diluted share) in 2013 and $3.9 billion (or $3.02 per diluted share)
in 2012. As discussed previously, the 2014 increase in net income attributable to CVS Health was primarily related
to increased generic drug dispensing and increased prescription volume in both operating segments. The increase
in net income attributable to CVS Health per diluted share was also driven by increased share repurchase activity
in 2014 and 2013. The increase in net income attributable to CVS Health and per diluted share in 2014 includes a
$521 million loss on early extinguishment of debt, which negatively impacted the net income growth rate in 2014.