CVS 2014 Annual Report Download - page 37

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2014 Annual Report
Operating expenses increased $671 million, or 4.8% to $14.5 billion, or 21.4% as a percentage of net revenues,
in the year ended December 31, 2014, as compared to $13.8 billion, or 21.1% as a percentage of net revenues, in
the prior year. Operating expenses increased $389 million, or 2.9%, to $13.8 billion, or 21.1% as a percentage of
net revenues, in the year ended December 31, 2013, as compared to $13.5 billion, or 21.1% as a percentage of
net revenues, in the prior year. Operating expenses as a percentage of net revenues remained consistent from 2012
through 2013 primarily due to disciplined cost control, despite the negative impact of generics on net revenues.
Operating expenses as a percentage of net revenues increased in 2014 primarily due to reimbursement rate pres-
sure, the implementation of Specialty Connect, which reduced net revenues, and higher legal costs. The increase
in operating expense dollars in 2014 and 2013 was the result of higher store operating costs associated with our
increased store count, as well as higher legal costs. The results for the years ended December 31, 2014 and 2013
include gains from legal settlements of $21 million and $61 million, respectively. Additionally, in September 2014, the
Retail Pharmacy Segment made a charitable contribution of $25 million to the CVS Foundation to fund future charitable
giving. The foundation is a non-profit entity that focuses on health, education and community involvement programs.
Corporate Segment
Operating expenses increased $45 million, or 6.0%, to $796 million in the year ended December 31, 2014, as
compared to the prior year. Operating expenses increased $57 million, or 8.3%, to $751 million in the year ended
December 31, 2013. Operating expenses within the Corporate Segment include executive management, corporate
relations, legal, compliance, human resources, corporate information technology and finance related costs. The
increase in operating expenses in 2014 and 2013 was primarily due to increased strategic initiatives, benefits costs,
facilities management and information technology costs.
Liquidity and Capital Resources
We maintain a level of liquidity sufficient to allow us to cover our cash needs in the short-term. Over the long-term,
we manage our cash and capital structure to maximize shareholder return, maintain our financial position and
maintain flexibility for future strategic initiatives. We continuously assess our working capital needs, debt and
leverage levels, capital expenditure requirements, dividend payouts, potential share repurchases and future invest-
ments or acquisitions. We believe our operating cash flows, commercial paper program, sale-leaseback program,
as well as any potential future borrowings, will be sufficient to fund these future payments and long-term initiatives.
The change in cash and cash equivalents is as follows:
YEAR ENDED DECEMBER 31,
IN MILLIONS
2014 2013 2012
Net cash provided by operating activities $ 8,137 $ 5,783 $ 6,671
Net cash used in investing activities
(4,045) (1,835) (1,849)
Net cash used in financing activities
(5,694) (1,237) (4,860)
Effect of exchange rate changes on cash and cash equivalents
(6) 3 —
Net increase (decrease) in cash and cash equivalents
$ (1,608) $ 2,714 $ (38)
Net cash provided by operating activities increased by $2.4 billion in 2014 and decreased by $0.9 billion in
2013. The increase in 2014 was primarily due to increased net income and increased accounts payable due to
payables management and timing. The decrease in 2013 was primarily due to increased accounts receivable
due to the timing of payments from CMS in connection with our Medicare Part D operations, partially offset by
improved inventory management.