CVS 2003 Annual Report Download

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CVS Corporation 2003 Annual Report

Table of contents

  • Page 1
    CVS Corporation 2003 Annual Report

  • Page 2
    ... in which we operate. CVS trades on the New York Stock Exchange under the symbol "CVS" and at year-end had a market capitalization of more than $14 billion. On the cover: The Titusville CVS/pharmacy location that opened in November 2003 is one of our new stores in the fast-growing Florida markets.

  • Page 3
    ..., President, and CEO Tom Ryan visits Store Manager Terri Chalifoux at the CVS/pharmacy in Wakefield, Rhode Island. TO OUR SHAREHOLDERS: CVS can look back over 2003 with a great sense of accomplishment. We turned in the best performance in our 40-year history, with sales hitting an all-time high of...

  • Page 4
    ...the pharmacy in 2003 and anticipate substantial benefits as 2004 progresses. In July 2003, CVS also became the first national drug retailer to offer self-service digital photo printing. Customers have noted their approval of our easy-to-use kiosks by printing more than 25 million images through year...

  • Page 5
    ...member of SureScripts, an organization formed to provide an electronic link between doctors and pharmacies. This should help make the prescription-filling process faster and more efficient, and a highly promising beta test is currently underway in Rhode Island. We expect the necessary connections to...

  • Page 6
    ... to benefit plans that allow customers to fill their 90-day prescriptions in retail stores. Let me stress that CVS does not oppose dispensing medication through mail order. However, we are opposed to a small number of PBMs implementing plan designs that not only force patients to use mail, but...

  • Page 7
    ... for many years and retired following our last annual meeting. In closing, I want to thank long-standing shareholders for the continued confidence you place in our efforts. If you're new to CVS, then you've become a shareholder during a most exciting period. We are a company with a long history, to...

  • Page 8
    ExtraCare Loyalty Program

  • Page 9
    .../pharmacy in Jamaica Plain, Massachusetts, customers love to flash their ExtraCare® cards for Shift Supervisor Eve Rodriguez-with good reason. ExtraCare lets customers at every location enjoy advertised discounts without the hassle of clipping coupons. Cardholders also get a little something back...

  • Page 10
    ...they don't enter the store. For many, the store's double drive-thru pharmacy is just what the doctor ordered. It's one of more than 1,700 drive-thrus found at CVS locations, allowing customers to drop off prescriptions or pick them up without ever leaving their cars. Parents with children napping in...

  • Page 11

  • Page 12
    Pharmacy Service Initiative

  • Page 13
    ...drop-off. PSI also gives them a high degree of confidence that prescriptions will be filled and "ready when promised." For Cristina Fueyo (left), Nicole Povich, and our other 12,000-plus pharmacists, PSI also means that they have more time to spend counseling customers and providing the best service...

  • Page 14
    Photo Leadership

  • Page 15
    ...200 CVS/pharmacy locations around the country. In July 2003, CVS became the first national retailer to offer this service. We're making it a snap for customers to retrieve images from their digital cameras, film, CDs, or camera phones-and to crop, enlarge, and print them on high-quality Kodak paper...

  • Page 16
    Assisted Inventory Management

  • Page 17
    ... all locations with our computerized Assisted Inventory Management (AIM) system. Introduced in 2002, AIM has since helped to dramatically improve our in-stock position and the CVS shopping experience. More good news is coming in 2004 as we reap the benefits of the recent AIM rollout in the pharmacy.

  • Page 18
    ... in the Community Always ready to help. In Seminole, Florida, Pharmacy Supervisor Alan Obringer and Pharmacy Manager Susan Villella recently found themselves back in grade school. That's because both are part of a team of CVS associates who volunteer their time in Bauder Elementary School's Science...

  • Page 19
    ... and Analysis of Financial Condition and Results of Operation Consolidated Statements of Operations Consolidated Balance Sheets Consolidated Statements of Shareholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Five-Year Financial Summary Management...

  • Page 20
    ...-the-counter drugs, greeting cards, film and photo finishing services, beauty products and cosmetics, seasonal merchandise and convenience foods through our CVS/pharmacy® retail stores and online through CVS.com® . We also provide Pharmacy Benefit Management and Specialty Pharmacy services through...

  • Page 21
    ... current rate of sales growth and gross margin dollars could be adversely impacted. Total operating expenses, which include store and administrative payroll, employee benefits, store and administrative occupancy costs, selling expenses, advertising expenses, administrative expenses and depreciation...

  • Page 22
    ... in payroll and benefit costs were driven by an increase in the number of 24-hour stores, new stores and the implementation costs associated with strategic initiatives such as the Pharmacy Service Initiative and Assisted Inventory Management. Whereas we do not believe the increase in total operating...

  • Page 23
    ... common stock dividends totaling $90.6 million or $0.23 per common share. In October 2003, our Board of Directors authorized a 15% increase in our common stock dividend to $0.265 per share for 2004. We believe that our current cash on hand, cash provided by operations and sale-leaseback transactions...

  • Page 24
    ...or guarantee any off-balance sheet debt. We finance a portion of our new store development through sale-leaseback transactions, which involve selling stores to unrelated parties at net book value and then leasing the stores back under leases that qualify and are accounted for as operating leases. We...

  • Page 25
    ...When estimating these potential termination costs and their related timing, we consider a number of factors, which include, but are not limited to, historical settlement experience, the owner of the property, the location and condition of the property, the terms of the underlying lease, the specific...

  • Page 26
    ...self-insurance liability during the past three years. Inventory Our inventory is stated at the lower of cost or market on a first-in, first-out basis using the retail method of accounting to determine cost of sales and inventory in our stores, and the cost method of accounting to determine inventory...

  • Page 27
    ...CVS Corporation or any subsidiary, events or developments that the Company expects or anticipates will occur in the future, including statements relating to sales growth, earnings or earnings per common share growth, free cash flow, debt rating, inventory levels, inventory turn and loss rates, store...

  • Page 28
    ... Statements of Operations FISCAL YEAR ENDED In millions, except per share amounts 3, 2004 (53 WEEKS) JAN. 28, 2002 (52 WEEKS) DEC. 29, 2001 (52 WEEKS) DEC. Net sales Cost of goods sold, buying and warehousing costs Gross margin Selling, general and administrative expenses Depreciation and...

  • Page 29
    ... 28, 2002 Treasury stock, at cost: 14,803,000 shares at January 3, 2004 and 16,215,000 shares at December 28, 2002 Guaranteed ESOP obligation Capital surplus Retained earnings Accumulated other comprehensive loss TOTAL SHAREHOLDERS ' EQUITY TOTAL LIABILITIES AND SHAREHOLDERS ' EQUITY - - 242...

  • Page 30
    ...shares Conversion of preference stock Employee stock purchase plan issuance End of year GUARANTEED ESOP OBLIGATION : Beginning of year Reduction of guaranteed ESOP obligation End of year CAPITAL SURPLUS : Beginning of year Conversion of preference stock Stock option activity and awards Tax benefit...

  • Page 31
    ... FLOWS FROM FINANCING ACTIVITIES : (1,121.7) 487.8 (133.1) 13.4 (753.6) (1,108.8) 448.8 (93.5) 17.7 (735.8) (713.6) 323.3 (159.1) 12.6 (536.8) Reductions in long-term debt Additions to long-term debt Proceeds from exercise of stock options Dividends paid Purchase of treasury shares Reductions in...

  • Page 32
    ...-counter drugs, greeting cards, film and photofinishing services, beauty products and cosmetics, seasonal merchandise and convenience foods, through its CVS/pharmacy® stores and online through CVS.com®. The Company also provides Pharmacy Benefit Management and Specialty Pharmacy services through...

  • Page 33
    ...405.6 management segment, which is recognized using the net method under Emerging Issues Task Force ("EITF") No. 99-19, "Reporting Revenue Gross as a Principal Versus Net as an Agent," is recognized at the time the service is provided. Service revenue totaled $96.0 million in 2003, $84.9 million in...

  • Page 34
    ...2001. Interest paid totaled $64.9 million in 2003, $60.7 million in 2002 and $75.2 million in 2001. Nonrecurring items ~ During 2001, the Company received $50.3 million of settlement proceeds from various lawsuits against certain manufacturers of brand name prescription drugs. The Company elected to...

  • Page 35
    ... in turn, would reduce the amounts that would be accrued under the Company's incentive compensation plans. Diluted earnings per common share is computed by dividing: (i) net earnings, after accounting for the difference between the dividends on the ESOP preference stock and common stock and after...

  • Page 36
    ... a summary of the Company's net rental expense for operating leases for the respective years: In millions The Company finances a portion of its store development program through sale-leaseback transactions. The properties are sold at net book value and the resulting leases qualify and are accounted...

  • Page 37
    ... our commercial paper program, the Company maintains a $650 million, five-year unsecured back-up credit facility, which expires on May 21, 2006 and a $600 million, 364-day unsecured back-up credit facility, which expires on May 17, 2004. The credit facilities allow for borrowings at various rates...

  • Page 38
    ... an annual dividend of $3.90 per share. The ESOP Trust uses the dividends received and contributions from the Company to repay the ESOP Notes. As the ESOP Notes are repaid, ESOP Preference Stock is allocated to participants based on (i) the ratio of each year's debt service payment to total current...

  • Page 39
    ...$12.1 million in 2002 and $11.1 million in 2001. The Company also has nonqualified supplemental executive retirement plans in place for certain key employees for whom it has purchased cost recovery variable life insurance. The Company uses an investment strategy which emphasizes equities in order to...

  • Page 40
    ... other long-term liabilities, as of January 3, 2004 and December 28, 2002. The accumulated benefit (38) CVS Corporation 2003 Annual Report obligation for the defined benefit pension plans was $333.5 and $318.0 million at January 3, 2004 and December 28, 2002, respectively. The Company estimates it...

  • Page 41
    ... Incentive Compensation Plan provides for the granting of up to 42.9 million shares of common stock in the form of stock options and other awards to selected officers and employees of the Company. All grants under Following is a summary of the stock option activity for the respective years: 2003...

  • Page 42
    ... price of $21.34 per share. As of January 3, 2004, 3.3 million shares of common stock have been issued since inception of the plan. 3, 2004 DEC. 28, 2002 36.3 73.1 46.3 43.9 53.9 27.1 29.9 62.7 373.2 Deferred tax assets: Inventory Restructuring Charge Employee benefits Lease and rents Retirement...

  • Page 43
    ... segment. The PBM segment provides a full range of prescription benefit management services to managed care providers and other organizations. These services include plan design and administration, formulary management, mail order pharmacy services, claims processing and generic substitution. The...

  • Page 44
    ... location was owned, management planned to sell the property upon closure. The D.C. was closed in April 2002 and sold in May 2002. 3. The Columbus, Ohio mail order facility (the "Mail Facility") would be closed and its operations would be transferred to the Company's Pittsburgh, Pennsylvania mail...

  • Page 45
    ... of the leases or negotiate an early termination of the contractual obligations. The Satellite Facilities were closed in December 2001. 5. Approximately 1,500 managerial, administrative and store employees in the Company's Woonsocket, Rhode Island corporate headquarters; Columbus Mail Facility...

  • Page 46
    ... and outplacement service costs related to approximately 1,500 managerial, administrative and store employees in the Company's Woonsocket, Rhode Island corporate headquarters; Columbus, Mail Facility; Henderson D.C. and the Stores. As of April 30, 2002, all these employees had been terminated. 12...

  • Page 47
    ... common share Stock price: (New Y ork Stock Exchange) High Low Registered shareholders at year-end 2002: Net sales Gross margin Operating profit Net earnings Net earnings per common share, basic Net earnings per common share, diluted Dividends per common share Stock price: (New Y ork Stock Exchange...

  • Page 48
    Five-Year Financial Summary In millions, except per share amounts STATEMENT OF OPERATIONS DATA : 2003 (53 WEEKS) 2002 (52 WEEKS) 2001 (52 WEEKS) 2000 (52 WEEKS) 1999 (53 WEEKS) Net sales Gross margin(1) Selling, general and administrative expenses Depreciation and amortization(2) Merger, ...

  • Page 49
    ...CVS Corporation and subsidiaries adopted the provisions of Emerging Issues Task Force Issue No. 02-16, Accounting by a Reseller for Cash Consideration received from a Vendor, in 2003. Thomas M. Ryan Chairman of the Board, President and Chief Executive Officer KPMG KPMG LLP Providence, Rhode Island...

  • Page 50
    ...Merlo Executive Vice President-Stores Transfer Agent and Registrar Questions regarding stock holdings, certificate replacement/transfer, dividends and address changes should be directed to: The Bank of New York Shareholder Relations Department P.O. Box 11258 Church Street Station New York, NY 10286...

  • Page 51
    ...: We help people live longer, healthier, happier lives. Our Mission: We will be the easiest pharmacy retailer for customers to use. Our Values for Success: Respect for individuals Integrity Teamwork Openness to new ideas Commitment to flawless execution Passion for extraordinary customer service

  • Page 52
    CVS Corporation, One CVS Drive, Woonsocket, RI 02895