Price Graph
Price
Yield
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Delaware
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05-0494040
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(State of Incorporation)
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(I.R.S. Employer Identification Number)
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Large accelerated filer [X]
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Accelerated filer [ ]
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Non-accelerated filer [ ] (Do not check if a smaller reporting company)
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Smaller reporting company [ ]
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Page
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Item 1.
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Financial Statements
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Part I
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Item 1
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Three Months Ended
September 30,
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Nine Months Ended
September 30,
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||||||||||||
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In millions, except per share amounts
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2014
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2013
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2014
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2013
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||||||||
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Net revenues
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$
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35,021
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$
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31,932
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$
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102,312
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$
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93,931
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Cost of revenues
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28,553
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25,905
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83,578
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76,487
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Gross profit
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6,468
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6,027
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18,734
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17,444
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||||
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Operating expenses
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4,222
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3,873
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12,256
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11,624
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Operating profit
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2,246
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2,154
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6,478
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5,820
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Interest expense, net
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153
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122
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469
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374
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||||
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Loss on early extinguishment of debt
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521
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—
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521
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—
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||||
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Income before income tax provision
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1,572
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2,032
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5,488
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5,446
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||||
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Income tax provision
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624
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777
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2,165
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2,112
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Income from continuing operations
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948
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1,255
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3,323
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3,334
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Loss from discontinued operations, net of tax
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—
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(6
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)
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—
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(7
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)
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Net income
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$
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948
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$
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1,249
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$
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3,323
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$
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3,327
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Basic earnings per share:
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Income from continuing operations
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$
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0.82
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$
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1.03
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$
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2.84
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$
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2.72
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Loss from discontinued operations
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$
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—
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$
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—
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$
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—
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$
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(0.01
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)
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Net income
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$
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0.82
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$
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1.03
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$
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2.84
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$
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2.71
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Weighted average basic shares outstanding
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1,157
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1,218
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1,167
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1,226
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Diluted earnings per share:
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Income from continuing operations
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$
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0.81
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$
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1.02
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$
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2.82
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$
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2.70
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Loss from discontinued operations
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$
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—
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$
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—
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$
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—
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$
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(0.01
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)
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Net income
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$
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0.81
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$
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1.02
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$
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2.82
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$
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2.70
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Weighted average diluted shares outstanding
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1,164
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1,226
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1,175
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1,234
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Dividends declared per share
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$
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0.275
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$
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0.225
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$
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0.825
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$
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0.675
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Three Months Ended September 30,
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Nine Months Ended September 30,
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||||||||||||
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In millions
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2014
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2013
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2014
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2013
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Net income
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$
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948
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$
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1,249
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$
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3,323
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$
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3,327
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Other comprehensive income (loss):
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Foreign currency translation adjustments, net of tax
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(29
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)
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3
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(14
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(15
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)
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Cash flow hedges, net of tax
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1
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1
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3
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2
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Total other comprehensive income (loss)
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(28
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)
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4
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(11
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(13
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Comprehensive income
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$
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920
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$
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1,253
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$
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3,312
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$
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3,314
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In millions, except per share amounts
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September 30,
2014 |
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December 31,
2013 |
||||
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Assets:
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||||
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Cash and cash equivalents
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$
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1,132
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$
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4,089
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Short-term investments
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78
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88
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Accounts receivable, net
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10,828
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8,729
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Inventories
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11,613
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11,045
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Deferred income taxes
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1,042
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902
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Other current assets
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644
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472
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Total current assets
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25,337
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25,325
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Property and equipment, net
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8,694
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8,615
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Goodwill
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28,151
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26,542
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Intangible assets, net
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9,854
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9,529
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Other assets
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1,540
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1,515
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Total assets
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$
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73,576
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$
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71,526
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||||
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Liabilities:
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Accounts payable
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$
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6,033
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$
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5,548
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Claims and discounts payable
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5,400
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4,548
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|
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Accrued expenses
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5,433
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4,768
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Short-term debt
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775
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|
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—
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|
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Current portion of long-term debt
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572
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561
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|
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Total current liabilities
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18,213
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15,425
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|
||
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Long-term debt
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11,709
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12,841
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|
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Deferred income taxes
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4,051
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3,901
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|
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Other long-term liabilities
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1,494
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1,421
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Commitments and contingencies (Note 12)
|
—
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—
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|
||
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|
||||
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Shareholders’ equity:
|
|
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|
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|
||
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CVS Health shareholders' equity:
|
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|
|
||||
|
Preferred stock, par value $0.01: 0.1 share authorized; none issued or outstanding
|
—
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|
|
—
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|
||
|
Common stock, par value $0.01: 3,200 shares authorized; 1,690 shares issued and 1,153
|
|
|
|
||||
|
shares outstanding at September 30, 2014 and 1,680 shares issued and 1,180 shares
|
|
|
|
||||
|
outstanding at December 31, 2013
|
17
|
|
|
17
|
|
||
|
Treasury stock, at cost: 536 shares at September 30, 2014 and 500 shares at December 31,
|
|
|
|
||||
|
2013
|
(22,877
|
)
|
|
(20,169
|
)
|
||
|
Shares held in trust: 1 share at September 30, 2014 and December 31, 2013
|
(31
|
)
|
|
(31
|
)
|
||
|
Capital surplus
|
30,310
|
|
|
29,777
|
|
||
|
Retained earnings
|
30,845
|
|
|
28,493
|
|
||
|
Accumulated other comprehensive income (loss)
|
(160
|
)
|
|
(149
|
)
|
||
|
Total CVS Health shareholders' equity
|
38,104
|
|
|
37,938
|
|
||
|
Noncontrolling interest
|
5
|
|
|
—
|
|
||
|
Total shareholders’ equity
|
38,109
|
|
|
37,938
|
|
||
|
Total liabilities and shareholders’ equity
|
$
|
73,576
|
|
|
$
|
71,526
|
|
|
|
Nine Months Ended September 30,
|
||||||
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In millions
|
2014
|
|
2013
|
||||
|
Cash flows from operating activities:
|
|
|
|
||||
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Cash receipts from customers
|
$
|
95,816
|
|
|
$
|
85,408
|
|
|
Cash paid for inventory and prescriptions dispensed by retail network pharmacies
|
(77,067
|
)
|
|
(67,826
|
)
|
||
|
Cash paid to other suppliers and employees
|
(11,267
|
)
|
|
(10,760
|
)
|
||
|
Interest received
|
11
|
|
|
5
|
|
||
|
Interest paid
|
(458
|
)
|
|
(369
|
)
|
||
|
Income taxes paid
|
(2,321
|
)
|
|
(2,213
|
)
|
||
|
Net cash provided by operating activities
|
4,714
|
|
|
4,245
|
|
||
|
|
|
|
|
||||
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Cash flows from investing activities:
|
|
|
|
|
|
||
|
Purchases of property and equipment
|
(1,436
|
)
|
|
(1,330
|
)
|
||
|
Proceeds from sale-leaseback transactions
|
328
|
|
|
156
|
|
||
|
Proceeds from sale of property and equipment
|
8
|
|
|
13
|
|
||
|
Acquisitions (net of cash acquired) and other investments
|
(2,392
|
)
|
|
(354
|
)
|
||
|
Purchase of available-for-sale investments
|
(161
|
)
|
|
(107
|
)
|
||
|
Sales/maturities of available-for-sale investments
|
119
|
|
|
—
|
|
||
|
Net cash used in investing activities
|
(3,534
|
)
|
|
(1,622
|
)
|
||
|
|
|
|
|
||||
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Cash flows from financing activities:
|
|
|
|
|
|
||
|
Increase in short-term debt
|
775
|
|
|
124
|
|
||
|
Proceeds from issuance of long-term debt
|
1,483
|
|
|
—
|
|
||
|
Repayments of long-term debt
|
(3,086
|
)
|
|
—
|
|
||
|
Dividends paid
|
(971
|
)
|
|
(829
|
)
|
||
|
Proceeds from exercise of stock options
|
378
|
|
|
431
|
|
||
|
Excess tax benefits from stock-based compensation
|
89
|
|
|
48
|
|
||
|
Repurchase of common stock
|
(2,801
|
)
|
|
(2,272
|
)
|
||
|
Net cash used in financing activities
|
(4,133
|
)
|
|
(2,498
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)
|
||
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Effect of exchange rate changes on cash and cash equivalents
|
(4
|
)
|
|
5
|
|
||
|
Net increase (decrease) in cash and cash equivalents
|
(2,957
|
)
|
|
130
|
|
||
|
Cash and cash equivalents at beginning of period
|
4,089
|
|
|
1,375
|
|
||
|
Cash and cash equivalents at end of period
|
$
|
1,132
|
|
|
$
|
1,505
|
|
|
|
|
|
|
||||
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Reconciliation of net income to net cash provided by operating activities:
|
|
|
|
|
|
||
|
Net income
|
$
|
3,323
|
|
|
$
|
3,327
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
||
|
Depreciation and amortization
|
1,442
|
|
|
1,412
|
|
||
|
Stock-based compensation
|
121
|
|
|
101
|
|
||
|
Loss on early extinguishment of debt
|
521
|
|
|
—
|
|
||
|
Deferred income taxes and other noncash items
|
(64
|
)
|
|
129
|
|
||
|
Change in operating assets and liabilities, net of effects from acquisitions:
|
|
|
|
|
|
||
|
Accounts receivable, net
|
(1,872
|
)
|
|
(1,518
|
)
|
||
|
Inventories
|
(449
|
)
|
|
(79
|
)
|
||
|
Other current assets
|
(160
|
)
|
|
176
|
|
||
|
Other assets
|
(19
|
)
|
|
(125
|
)
|
||
|
Accounts payable and claims and discounts payable
|
1,222
|
|
|
697
|
|
||
|
Accrued expenses
|
676
|
|
|
76
|
|
||
|
Other long-term liabilities
|
(27
|
)
|
|
49
|
|
||
|
Net cash provided by operating activities
|
$
|
4,714
|
|
|
$
|
4,245
|
|
|
•
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Level 1 – Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
|
|
•
|
Level 2 – Inputs to the valuation methodology are quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active or inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the instrument.
|
|
•
|
Level 3 – Inputs to the valuation methodology are unobservable inputs based upon management’s best estimate of inputs market participants could use in pricing the asset or liability at the measurement date, including assumptions about risk.
|
|
In millions
|
Pharmacy Services
|
|
Retail Pharmacy
|
|
Total
|
||||||
|
Balance, December 31, 2013
|
$
|
19,658
|
|
|
$
|
6,884
|
|
|
$
|
26,542
|
|
|
Acquisitions
|
1,577
|
|
|
38
|
|
|
1,615
|
|
|||
|
Foreign currency translation adjustments
|
—
|
|
|
(5
|
)
|
|
(5
|
)
|
|||
|
Other
(1)
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|||
|
Balance, September 30, 2014
|
$
|
21,234
|
|
|
$
|
6,917
|
|
|
$
|
28,151
|
|
|
|
September 30, 2014
|
|
December 31, 2013
|
||||||||||||||||||||
|
In millions
|
Gross
Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Gross
Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
||||||||||||
|
Trademarks (indefinitely-lived)
|
$
|
6,398
|
|
|
$
|
—
|
|
|
$
|
6,398
|
|
|
$
|
6,398
|
|
|
$
|
—
|
|
|
$
|
6,398
|
|
|
Customer contracts and
relationships and covenants not
to compete
|
6,465
|
|
|
(3,434
|
)
|
|
3,031
|
|
|
5,840
|
|
|
(3,083
|
)
|
|
2,757
|
|
||||||
|
Favorable leases and other
|
888
|
|
|
(463
|
)
|
|
425
|
|
|
800
|
|
|
(426
|
)
|
|
374
|
|
||||||
|
|
$
|
13,751
|
|
|
$
|
(3,897
|
)
|
|
$
|
9,854
|
|
|
$
|
13,038
|
|
|
$
|
(3,509
|
)
|
|
$
|
9,529
|
|
|
|
Three Months Ended September 30, 2014
|
||||||||||||||
|
In millions
|
Foreign Currency
|
|
Losses on Cash Flow Hedges
|
|
Pension and Other Postretirement Benefits
|
|
Total
|
||||||||
|
Balance, June 30, 2014
|
$
|
(15
|
)
|
|
$
|
(11
|
)
|
|
$
|
(106
|
)
|
|
$
|
(132
|
)
|
|
Other comprehensive income before
reclassifications
|
(29
|
)
|
|
—
|
|
|
—
|
|
|
(29
|
)
|
||||
|
Amounts reclassified from accumulated
other comprehensive income
(2)
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
||||
|
Other comprehensive income (loss)
|
(29
|
)
|
|
1
|
|
|
—
|
|
|
(28
|
)
|
||||
|
Balance, September 30, 2014
|
$
|
(44
|
)
|
|
$
|
(10
|
)
|
|
$
|
(106
|
)
|
|
$
|
(160
|
)
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
Three Months Ended September 30, 2013
|
||||||||||||||
|
|
Foreign Currency
|
|
Losses on Cash Flow Hedges
|
|
Pension and Other Postretirement Benefits
|
|
Total
|
||||||||
|
Balance, June 30, 2013
|
$
|
(18
|
)
|
|
$
|
(15
|
)
|
|
$
|
(165
|
)
|
|
$
|
(198
|
)
|
|
Other comprehensive income (loss) before
reclassifications
|
3
|
|
|
—
|
|
|
—
|
|
|
3
|
|
||||
|
Amounts reclassified from accumulated
other comprehensive income
(2)
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
||||
|
Other comprehensive income
|
3
|
|
|
1
|
|
|
—
|
|
|
4
|
|
||||
|
Balance, September 30, 2013
|
$
|
(15
|
)
|
|
$
|
(14
|
)
|
|
$
|
(165
|
)
|
|
$
|
(194
|
)
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
Nine Months Ended September 30, 2014
|
||||||||||||||
|
|
Foreign Currency
|
|
Losses on Cash Flow Hedges
|
|
Pension and Other Postretirement Benefits
|
|
Total
|
||||||||
|
Balance, December 31, 2013
|
$
|
(30
|
)
|
|
$
|
(13
|
)
|
|
$
|
(106
|
)
|
|
$
|
(149
|
)
|
|
Other comprehensive income before
reclassifications
|
(14
|
)
|
|
—
|
|
|
—
|
|
|
(14
|
)
|
||||
|
Amounts reclassified from accumulated
other comprehensive income
(2)
|
—
|
|
|
3
|
|
|
—
|
|
|
3
|
|
||||
|
Other comprehensive income (loss)
|
(14
|
)
|
|
3
|
|
|
—
|
|
|
(11
|
)
|
||||
|
Balance, September 30, 2014
|
$
|
(44
|
)
|
|
$
|
(10
|
)
|
|
$
|
(106
|
)
|
|
$
|
(160
|
)
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
Nine Months Ended September 30, 2013
|
||||||||||||||
|
|
Foreign Currency
|
|
Losses on Cash Flow Hedges
|
|
Pension and Other Postretirement Benefits
|
|
Total
|
||||||||
|
Balance, December 31, 2012
|
$
|
—
|
|
|
$
|
(16
|
)
|
|
$
|
(165
|
)
|
|
$
|
(181
|
)
|
|
Other comprehensive income (loss) before
reclassifications
|
(15
|
)
|
|
—
|
|
|
—
|
|
|
(15
|
)
|
||||
|
Amounts reclassified from accumulated
other comprehensive income
(2)
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
||||
|
Other comprehensive income (loss)
|
(15
|
)
|
|
2
|
|
|
—
|
|
|
(13
|
)
|
||||
|
Balance, September 30, 2013
|
$
|
(15
|
)
|
|
$
|
(14
|
)
|
|
$
|
(165
|
)
|
|
$
|
(194
|
)
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
||||||||||||
|
In millions
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
|
Interest expense
|
$
|
158
|
|
|
$
|
125
|
|
|
$
|
480
|
|
|
$
|
379
|
|
|
Interest income
|
(5
|
)
|
|
(3
|
)
|
|
(11
|
)
|
|
(5
|
)
|
||||
|
Interest expense, net
|
$
|
153
|
|
|
$
|
122
|
|
|
$
|
469
|
|
|
$
|
374
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30,
|
||||||||||||
|
In millions, except per share amounts
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
|
Numerator for earnings per share calculations:
|
|
|
|
|
|
|
|
||||||||
|
Income from continuing operations attributable to common
stockholders
(1)
|
$
|
944
|
|
|
$
|
1,255
|
|
|
$
|
3,310
|
|
|
$
|
3,334
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Denominators for earnings per share calculations:
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Weighted average shares, basic
|
1,157
|
|
|
1,218
|
|
|
1,167
|
|
|
1,226
|
|
||||
|
Effect of dilutive securities
|
7
|
|
|
8
|
|
|
8
|
|
|
8
|
|
||||
|
Weighted average shares, diluted
|
1,164
|
|
|
1,226
|
|
|
1,175
|
|
|
1,234
|
|
||||
|
|
|
|
|
|
|
|
|
||||||||
|
Earnings per share from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Basic
|
$
|
0.82
|
|
|
$
|
1.03
|
|
|
$
|
2.84
|
|
|
$
|
2.72
|
|
|
Diluted
|
$
|
0.81
|
|
|
$
|
1.02
|
|
|
$
|
2.82
|
|
|
$
|
2.70
|
|
|
(1)
|
Comprised of income from continuing operations less amounts allocable to participating securities of
$4 million
and
$13 million
for the three and nine months ended September 30, 2014.
|
|
In millions
|
Pharmacy
Services
Segment
(1)
|
|
Retail
Pharmacy
Segment
|
|
Corporate
Segment
|
|
Intersegment
Eliminations
(2)
|
|
Consolidated
Totals
|
||||||||||
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
||||||||||
|
September 30, 2014:
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net revenues
|
$
|
22,534
|
|
|
$
|
16,749
|
|
|
$
|
—
|
|
|
$
|
(4,262
|
)
|
|
$
|
35,021
|
|
|
Gross profit
|
1,403
|
|
|
5,237
|
|
|
—
|
|
|
(172
|
)
|
|
6,468
|
|
|||||
|
Operating profit (loss)
|
1,087
|
|
|
1,527
|
|
|
(196
|
)
|
|
(172
|
)
|
|
2,246
|
|
|||||
|
September 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Net revenues
|
19,483
|
|
|
16,248
|
|
|
—
|
|
|
(3,799
|
)
|
|
31,932
|
|
|||||
|
Gross profit
|
1,294
|
|
|
4,876
|
|
|
—
|
|
|
(143
|
)
|
|
6,027
|
|
|||||
|
Operating profit (loss)
(3)
|
1,012
|
|
|
1,464
|
|
|
(179
|
)
|
|
(143
|
)
|
|
2,154
|
|
|||||
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
September 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Net revenues
|
64,566
|
|
|
50,100
|
|
|
—
|
|
|
(12,354
|
)
|
|
102,312
|
|
|||||
|
Gross profit
|
3,533
|
|
|
15,719
|
|
|
—
|
|
|
(518
|
)
|
|
18,734
|
|
|||||
|
Operating profit (loss)
|
2,605
|
|
|
4,982
|
|
|
(591
|
)
|
|
(518
|
)
|
|
6,478
|
|
|||||
|
September 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Net revenues
|
56,593
|
|
|
48,426
|
|
|
—
|
|
|
(11,088
|
)
|
|
93,931
|
|
|||||
|
Gross profit
|
3,025
|
|
|
14,828
|
|
|
—
|
|
|
(409
|
)
|
|
17,444
|
|
|||||
|
Operating profit (loss)
(3)
|
2,186
|
|
|
4,596
|
|
|
(553
|
)
|
|
(409
|
)
|
|
5,820
|
|
|||||
|
Total assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
September 30, 2014
|
42,527
|
|
|
31,197
|
|
|
1,344
|
|
|
(1,492
|
)
|
|
73,576
|
|
|||||
|
December 31, 2013
|
38,343
|
|
|
30,191
|
|
|
4,420
|
|
|
(1,428
|
)
|
|
71,526
|
|
|||||
|
Goodwill:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
September 30, 2014
|
21,234
|
|
|
6,917
|
|
|
—
|
|
|
—
|
|
|
28,151
|
|
|||||
|
December 31, 2013
|
19,658
|
|
|
6,884
|
|
|
—
|
|
|
—
|
|
|
26,542
|
|
|||||
|
(3)
|
Consolidated operating profit for the three and nine months ended September 30, 2013 includes a
$72 million
gain on a legal settlement, of which,
$11 million
is included in the Pharmacy Services Segment and
$61 million
is included in the Retail Pharmacy Segment.
|
|
•
|
In December 2007, the Company received a document subpoena from the Office of Inspector General (“OIG”) within the U.S. Department of Health and Human Services (“HHS”), requesting information relating to the processing of Medicaid and certain other government agency claims on behalf of its clients (which allegedly resulted in underpayments from our pharmacy benefit management clients to the applicable government agencies) on one of the Company's adjudication platforms. In September 2014, the Company settled the underlying lawsuit with the United States Department of Justice (“DOJ”), the OIG and the private plaintiff without any admission of liability and is in discussions with the OIG concerning other claim processing issues.
|
|
•
|
Caremark (the term “Caremark” being used herein to generally refer to any one or more pharmacy benefit management subsidiaries of the Company, as applicable) was named in a putative class action lawsuit filed in October 2003 in Alabama state court by John Lauriello, purportedly on behalf of participants in the 1999 settlement of various securities class action and derivative lawsuits against Caremark and others. Other defendants include insurance companies that provided coverage to Caremark with respect to the settled lawsuits. The Lauriello lawsuit seeks approximately
$3.2 billion
in compensatory damages plus other non-specified damages based on allegations that the amount of insurance coverage available for the settled lawsuits was misrepresented and suppressed. A similar lawsuit was filed in November 2003 by Frank McArthur, also in Alabama state court, naming as defendants Caremark, several insurance companies, attorneys and law firms involved in the 1999 settlement. This lawsuit was stayed as a later-filed class action, but McArthur was subsequently allowed to intervene in the Lauriello action. Following the close of class discovery, the trial court entered an Order on August 15, 2012 that granted the plaintiffs’ motion to certify a class pursuant to Alabama Rules of Civil Procedure 23(b)(3) but denied their request that the class also be certified pursuant to Rule 23(b)(1). In addition, the August 15, 2012 Order appointed class representatives and class counsel. On September 12, 2014, the Alabama Supreme Court affirmed the trial court's August 15, 2012 Order. The Defendants timely filed an Application for Rehearing with the Alabama Supreme Court seeking to clarify or modify its September 12, 2014 decision. The proceedings in the trial court remain stayed pending resolution of the rehearing application.
|
|
•
|
Various lawsuits have been filed alleging that Caremark has violated applicable antitrust laws in establishing and maintaining retail pharmacy networks for client health plans. In August 2003, Bellevue Drug Co., Robert Schreiber, Inc. d/b/a Burns Pharmacy and Rehn-Huerbinger Drug Co. d/b/a Parkway Drugs #4, together with Pharmacy Freedom Fund and the National Community Pharmacists Association filed a putative class action against Caremark in Pennsylvania federal court, seeking treble damages and injunctive relief. This case was initially sent to
|
|
•
|
In November 2009, a securities class action lawsuit was filed in the United States District Court for the District of Rhode Island purportedly on behalf of purchasers of the Company's stock between May 5, 2009 and November 4, 2009. Plaintiffs subsequently amended the lawsuit to allege a class period beginning October 30, 2008. The lawsuit names the Company and certain officers as defendants and includes allegations of securities fraud relating to public disclosures made by the Company concerning the PBM business and allegations of insider trading. In addition, a shareholder derivative lawsuit was filed in December 2009 in the same court against the directors and certain officers of the Company. This lawsuit, which was stayed pending developments in the related securities class action, includes allegations of, among other things, securities fraud, insider trading and breach of fiduciary duties and further alleges that the Company was damaged by the purchase of stock at allegedly inflated prices under its share repurchase program. In January 2011, both lawsuits were transferred to the United States District Court for the District of New Hampshire. In June 2012, the court granted the Company’s motion to dismiss the securities class action. The plaintiffs subsequently appealed the court’s ruling on the motion to dismiss. In May 2013, the First Circuit Court of Appeals vacated the prior ruling and remanded the case to the district court for further proceedings. In December 2013, the district court denied the Company’s renewed motion to dismiss the lawsuit. The derivative lawsuit is presently stayed pending further developments in the class action.
|
|
•
|
In March 2010, the Company learned that various State Attorneys General offices and certain other government agencies were conducting a multi-state investigation of certain of the Company’s business practices similar to those being investigated at that time by the U.S. Federal Trade Commission (“FTC”).
Twenty-eight
states, the District of Columbia and the County of Los Angeles are known to be participating in this investigation. The prior FTC investigation, which commenced in August 2009, was officially concluded in May 2012 when the consent order entered into between the FTC and the Company became final. The Company has cooperated in the multi-state investigation.
|
|
•
|
In March 2010, the Company received a subpoena from the OIG requesting information about programs under which the Company has offered customers remuneration conditioned upon the transfer of prescriptions for drugs or medications to the Company’s pharmacies in the form of gift cards, cash, non-prescription merchandise or discounts or coupons for non-prescription merchandise. The subpoena relates to an investigation of possible false or otherwise improper claims for payment under the Medicare and Medicaid programs. The Company has provided documents and other information in response to this request for information.
|
|
•
|
In January 2012, the United States District Court for the Eastern District of Pennsylvania unsealed a first amended
qui tam
complaint filed in August 2011 by an individual relator, who is described in the complaint as having once been employed by a firm providing pharmacy prescription benefit audit and recovery services. The complaint seeks monetary damages and alleges that Caremark's processing of Medicare claims on behalf of one of its clients violated the federal false claims act. The United States, acting through the U.S. Attorney's Office in Philadelphia, Pennsylvania, declined to intervene in the lawsuit. Caremark filed a motion to dismiss the amended complaint and the DOJ filed a
|
|
•
|
In January 2012, the Company received a subpoena from the OIG requesting information about its Health Savings Pass program, a prescription drug discount program for uninsured or underinsured individuals, in connection with an investigation of possible false or otherwise improper claims for payment involving HHS programs. In February 2012, the Company also received a civil investigative demand from the Office of the Attorney General of the State of Texas requesting a copy of information produced under this OIG subpoena and other information related to prescription drug claims submitted by the Company's pharmacies to Texas Medicaid for reimbursement. In May 2014, the Company received a second set of civil investigative demands from the Attorney General of the State of Texas, requesting that the Company produce further information related to prescription drug claims submitted by the Company's pharmacies to Texas Medicaid for reimbursement. The Company is providing documents and other information in response to these requests for information.
|
|
•
|
A purported shareholder derivative action was filed on behalf of nominal defendant CVS Health Corporation against certain of the Company’s officers and members of its Board of Directors. The action, which alleged a single claim for breach of fiduciary duty relating to the Company's alleged failure to properly implement internal regulatory controls to comply with the Controlled Substances Act and the Combat Methamphetamine Epidemic Act, was originally filed in June 2012. In addition, an amended complaint was filed in November 2012 and a Supplemental Complaint was filed in April 2013. In October 2013, the court granted the Company's motion to dismiss and entered judgment dismissing the action, without prejudice. Following dismissal of the action, the same purported shareholder sent a letter to the Company's Board of Directors demanding that the Board investigate her allegations and pursue legal action against certain directors and officers of the Company. After conducting a thorough review, an independent committee of the Board of Directors rejected the demand.
|
|
•
|
On October 12, 2012, the Drug Enforcement Agency (“DEA”) Administrator published its Final Decision and Order revoking the DEA license registrations for dispensing controlled substances at two of the Company's retail pharmacy stores in Sanford, Florida. The license revocations for the two stores formally became effective on November 13, 2012. The pharmacies had voluntarily suspended dispensing controlled substances since April 2012, and have continued operating in that manner in compliance with the DEA Order. The Company has entered into discussions with the U.S. Attorney’s Office for the Middle District of Florida concerning civil penalties for violations of the Controlled Substances Act arising from the circumstances underlying the action taken against the two Sanford, Florida stores. The Company is also undergoing audits by the DEA and is in discussions with the DEA and the U.S. Attorney’s Office in several locations. Whether agreements can be reached and on what terms is uncertain.
|
|
•
|
In November 2012, the Company received a subpoena from the OIG requesting information concerning automatic refill programs used by pharmacies to refill prescriptions for customers. The Company has been cooperating and providing documents and other information in response to this request for information.
|
|
•
|
In March 2014, the Company received a subpoena from the United States Attorney’s Office for the District of Rhode Island, requesting documents and information concerning bona fide service fees and rebates received from certain pharmaceutical manufacturers in connection with certain drugs utilized under Part D of the Medicare Program. The Company has been cooperating with the government and producing documents in response to the subpoena.
|
|
|
/s/ Ernst & Young LLP
|
|
|
|
|
November 4, 2014
|
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Boston, Massachusetts
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Item 2
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Three Months Ended
September 30,
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Nine Months Ended
September 30,
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In millions
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2014
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2013
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2014
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2013
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Net revenues
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$
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35,021
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$
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31,932
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$
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102,312
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$
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93,931
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Cost of revenues
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28,553
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25,905
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83,578
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76,487
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Gross profit
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6,468
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6,027
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18,734
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17,444
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Operating expenses
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4,222
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3,873
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12,256
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11,624
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Operating profit
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2,246
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2,154
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6,478
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5,820
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Interest expense, net
|
153
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122
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469
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374
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Loss on early extinguishment of debt
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521
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—
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521
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—
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Income before income tax provision
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1,572
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2,032
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5,488
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5,446
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Income tax provision
|
624
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777
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2,165
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2,112
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Income from continuing operations
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948
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1,255
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3,323
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3,334
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Loss from discontinued operations, net of tax
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—
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(6
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)
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—
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(7
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)
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Net income
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$
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948
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$
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1,249
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$
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3,323
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$
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3,327
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In millions
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Pharmacy
Services
Segment
(1)
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Retail
Pharmacy
Segment
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Corporate
Segment
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Intersegment
Eliminations
(2)
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Consolidated
Totals
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Three Months Ended
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September 30, 2014:
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Net revenues
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$
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22,534
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$
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16,749
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$
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—
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$
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(4,262
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)
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$
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35,021
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Gross profit
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1,403
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5,237
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—
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(172
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)
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6,468
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Operating profit (loss)
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1,087
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1,527
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(196
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)
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(172
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)
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2,246
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|||||
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September 30, 2013:
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Net revenues
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19,483
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16,248
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—
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(3,799
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)
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31,932
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|||||
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Gross profit
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1,294
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4,876
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—
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(143
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)
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6,027
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Operating profit (loss)
(3)
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1,012
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1,464
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(179
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)
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(143
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)
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2,154
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Nine Months Ended
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September 30, 2014:
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Net revenues
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64,566
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50,100
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—
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(12,354
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)
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102,312
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Gross profit
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3,533
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15,719
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—
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(518
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)
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18,734
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Operating profit (loss)
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2,605
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4,982
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(591
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)
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(518
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)
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6,478
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September 30, 2013:
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Net revenues
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56,593
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48,426
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—
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(11,088
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)
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93,931
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|||||
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Gross profit
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3,025
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14,828
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—
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(409
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)
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17,444
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Operating profit (loss)
(3)
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2,186
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4,596
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(553
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)
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(409
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)
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5,820
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(1)
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Net revenues of the Pharmacy Services Segment include approximately
$1.9 billion
of retail co-payments for both the three months ended September 30, 2014 and 2013, as well as
$6.1 billion
of retail co-payments for both the nine months ended September 30, 2014 and 2013.
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(2)
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Intersegment eliminations relate to two types of transaction: (i) Intersegment revenues that occur when Pharmacy Services Segment customers use Retail Pharmacy Segment stores to purchase covered products. When this occurs, both the Pharmacy Services and Retail Pharmacy segments record the revenue on a stand-alone basis, and (ii) Intersegment revenues, gross profit and operating profit that occur when Pharmacy Services Segment customers, through the Company's intersegment activities (such as the Maintenance Choice
®
program), elect to pick-up their maintenance prescriptions at Retail Pharmacy Segment stores instead of receiving them through the mail. When this occurs, both the Pharmacy Services and Retail Pharmacy segments record the revenue, gross profit and operating profit on a standalone basis. The following amounts are eliminated in consolidation in connection with the intersegment activity described in item (ii) above: net revenues of
$1.2 billion
and
$1.1 billion
for the three months ended September 30, 2014 and 2013, respectively, and
$3.6 billion
and
$3.1 billion
for the nine months ended September 30, 2014 and 2013, respectively; and gross profit and operating profit of
$172 million
and
$143 million
for the three months ended September 30, 2014 and 2013, respectively, and
$518 million
and
$409 million
for the nine months ended September 30, 2014 and 2013, respectively.
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(3)
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Consolidated operating profit for the three and nine months ended September 30, 2013 includes a
$72 million
gain on a legal settlement, of which,
$11 million
is included in the Pharmacy Services Segment and
$61 million
is included in the Retail Pharmacy Segment.
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Three Months Ended
September 30, |
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Nine Months Ended
September 30,
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In millions
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2014
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2013
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2014
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2013
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||||||||
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Net revenues
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$
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22,534
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$
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19,483
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$
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64,566
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$
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56,593
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Gross profit
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1,403
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1,294
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3,533
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3,025
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Gross profit % of net revenues
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6.2
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%
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6.6
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%
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5.5
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%
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5.4
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%
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||||
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Operating expenses
(5)
|
316
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|
282
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|
928
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|
839
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Operating expense % of net revenues
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1.4
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%
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1.4
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%
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1.4
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%
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1.5
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%
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||||
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Operating profit
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1,087
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1,012
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2,605
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2,186
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Operating profit % of net revenues
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4.8
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%
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5.2
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%
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4.0
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%
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3.9
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%
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||||
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Net revenues
(1)(4)
:
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Mail choice
(2)
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$
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8,054
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$
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6,369
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$
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22,641
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$
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18,274
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Pharmacy network
(3)
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14,420
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13,063
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41,748
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38,163
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Other
|
60
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51
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177
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156
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Pharmacy claims processed
(1)
:
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Total
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230.3
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221.9
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689.1
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676.2
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Mail choice
(2)
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20.7
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21.0
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61.1
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62.3
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||||
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Pharmacy network
(3)
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209.6
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|
200.9
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|
628.0
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|
613.9
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||||
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Generic dispensing rate
(1)
:
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|||||
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Total
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82.5
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%
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|
80.7
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%
|
|
82.3
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%
|
|
80.4
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%
|
||||
|
Mail choice
(2)
|
75.0
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%
|
|
72.8
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%
|
|
74.5
|
%
|
|
72.4
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%
|
||||
|
Pharmacy network
(3)
|
83.2
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%
|
|
81.5
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%
|
|
83.1
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%
|
|
81.2
|
%
|
||||
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Mail choice penetration rate
|
21.7
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%
|
|
23.0
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%
|
|
21.5
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%
|
|
22.5
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%
|
||||
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(4)
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In May 2014, the Company implemented Specialty Connect, which integrates the Company's mail and retail capabilities, providing members with the choice to bring their specialty prescriptions to any CVS/pharmacy location. Whether submitted through our mail order pharmacy or at CVS/pharmacy, all prescriptions are filled through the Company’s specialty mail order pharmacies, so all revenue from this specialty prescription services program is recorded within the Pharmacy Services Segment. Members then can choose to pick up their medication at their local CVS/pharmacy or have it sent to their home through the mail.
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(5)
|
Operating expenses for the three and nine months ended September 30, 2013 includes a $11 million gain on a legal settlement.
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•
|
Our mail choice claims processed decreased 1.3% to 20.7 million claims in the three months ended September 30, 2014, compared to 21.0 million claims in the prior year. The decrease in mail choice claims was driven by a decline in traditional mail volumes, which was partially offset by growth in our Maintenance Choice program and specialty pharmacy.
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•
|
Our average revenue per mail choice claim increased by 28.2%, compared to the prior year. This increase was primarily due to growth in specialty pharmacy, drug inflation and product mix.
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•
|
Our pharmacy network claims processed increased 4.3% to 209.6 million claims in the three months ended September 30, 2014, compared to 200.9 million claims in the prior year. The increase in the pharmacy network claim volume was primarily due to net new business and growth in Managed Medicaid, partially offset by a decrease in Medicare Part D claims. Medicare Part D claims were negatively impacted by the CMS sanctions that were in place during 2013.
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•
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Our average revenue per pharmacy network claim processed increased 5.8%, as compared to the prior year. This increase was primarily due to drug inflation and changes in the drug mix, partially offset by increases in the generic dispensing rate.
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•
|
Our mail choice claims processed decreased 1.9% to 61.1 million claims in the nine months ended September 30, 2014, compared to 62.3 million claims in the prior year. The decrease in mail choice claims was driven by a decline in traditional mail volumes, which was partially offset by growth in our Maintenance Choice program.
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•
|
Our average revenue per mail choice claim increased by 26.3%, compared to the prior year. This increase was primarily due to growth in specialty pharmacy, drug inflation and product mix.
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•
|
Our pharmacy network claims processed increased 2.3% to 628.0 million claims in the nine months ended September 30, 2014, compared to 613.9 million claims in the prior year. The increase in the pharmacy network claim volume was primarily due to net new business and growth in Managed Medicaid, partially offset by a decrease in Medicare Part D claims. Medicare Part D claims were negatively impacted by the CMS sanctions that were in place during 2013.
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•
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Our average revenue per pharmacy network claim processed increased 7.0%, as compared to the prior year. This increase was primarily due to drug inflation and changes in the drug mix, partially offset by increases in the generic dispensing rate.
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•
|
In May 2014, the Company implemented Specialty Connect, which integrates the Company's mail and retail capabilities, providing members with the choice to bring their specialty prescriptions to any CVS/pharmacy location. Whether submitted through our mail order pharmacy or at CVS/pharmacy, all prescriptions are filled through the Company’s specialty mail order pharmacies, so all revenue from this specialty prescription services program is recorded within the Pharmacy Services Segment. Members then can choose to pick up their medication at their local CVS/pharmacy or have it sent to their home through the mail.
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•
|
Our gross profit dollars and gross profit as a percentage of net revenues continued to be impacted by our efforts to (i) retain existing clients, (ii) obtain new business and (iii) maintain or improve the rebates and/or discounts we received from manufacturers, wholesalers and retail pharmacies. In particular, competitive pressures in the PBM industry have caused us and other PBMs to continue to share a larger portion of rebates and/or discounts received from pharmaceutical manufacturers with clients. In addition, market dynamics and regulatory changes have impacted our ability to offer plan sponsors pricing that includes retail network “differential” or “spread.” We expect these trends to continue. The "differential" or "spread" is any difference between the drug price charged to plan sponsors, by a PBM and the price paid for the drug by the PBM to the dispensing provider. The increased use of generic drugs has positively impacted our gross profit margins but has resulted in third party payors augmenting their efforts to reduce reimbursement payments for prescriptions. This trend, which we expect to continue, reduces the benefit we realize from brand to generic product conversions.
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•
|
Our gross profit as a percentage of revenues benefited from the increase in our total generic dispensing rate, which increased to 82.5% and 82.3% in the three and nine months ended September 30, 2014, respectively, compared to our generic dispensing rates of 80.7% and 80.4% in the prior year, respectively. This increase was primarily due to new generic drug introductions and our continual efforts to encourage plan members to use clinically appropriate generic drugs when they are available. We expect the trend in generic introductions to continue, albeit at a slower pace.
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|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
||||||||||||
|
In millions
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
|
|
|
|
|
|
|
|
|
||||||||
|
Net revenues
|
$
|
16,749
|
|
|
$
|
16,248
|
|
|
$
|
50,100
|
|
|
$
|
48,426
|
|
|
Gross profit
|
5,237
|
|
|
4,876
|
|
|
15,719
|
|
|
14,828
|
|
||||
|
Gross profit % of net revenues
|
31.3
|
%
|
|
30.0
|
%
|
|
31.4
|
%
|
|
30.6
|
%
|
||||
|
Operating expenses
(3)
|
3,710
|
|
|
3,412
|
|
|
10,737
|
|
|
10,232
|
|
||||
|
Operating expense % of net revenues
|
22.1
|
%
|
|
21.0
|
%
|
|
21.4
|
%
|
|
21.1
|
%
|
||||
|
Operating profit
|
1,527
|
|
|
1,464
|
|
|
4,982
|
|
|
4,596
|
|
||||
|
Operating profit % of net revenues
|
9.1
|
%
|
|
9.0
|
%
|
|
9.9
|
%
|
|
9.5
|
%
|
||||
|
Retail prescriptions filled (90 Day = 3 Rx)
(1)
|
233.7
|
|
|
219.7
|
|
|
691.1
|
|
|
660.5
|
|
||||
|
Net revenue increase:
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Total
|
3.1
|
%
|
|
4.7
|
%
|
|
3.5
|
%
|
|
2.3
|
%
|
||||
|
Pharmacy
|
5.3
|
%
|
|
6.7
|
%
|
|
5.0
|
%
|
|
2.6
|
%
|
||||
|
Front store
|
(3.7
|
)%
|
|
0.4
|
%
|
|
(1.6
|
)%
|
|
1.5
|
%
|
||||
|
Total prescription volume (90 Day = 3 Rx)
(1)
|
6.4
|
%
|
|
4.9
|
%
|
|
4.6
|
%
|
|
5.4
|
%
|
||||
|
Same store increase (decrease)
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Total sales
|
2.0
|
%
|
|
3.3
|
%
|
|
2.3
|
%
|
|
0.9
|
%
|
||||
|
Pharmacy sales
|
4.8
|
%
|
|
5.2
|
%
|
|
4.5
|
%
|
|
1.2
|
%
|
||||
|
Front store sales
(4)
|
(4.5
|
)%
|
|
(1.0
|
)%
|
|
(2.9
|
)%
|
|
—
|
%
|
||||
|
Prescription volume (90 Day = 3 Rx)
(1)
|
5.1
|
%
|
|
4.1
|
%
|
|
3.7
|
%
|
|
4.6
|
%
|
||||
|
Generic dispensing rate
|
83.3
|
%
|
|
81.5
|
%
|
|
83.3
|
%
|
|
81.5
|
%
|
||||
|
Pharmacy % of total revenues
|
71.8
|
%
|
|
70.4
|
%
|
|
70.5
|
%
|
|
69.5
|
%
|
||||
|
Third party % of pharmacy revenue
|
98.7
|
%
|
|
97.9
|
%
|
|
98.6
|
%
|
|
97.9
|
%
|
||||
|
(1)
|
Includes the adjustment to convert 90-day prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal prescription.
|
|
(2)
|
Same store sales exclude revenues from MinuteClinic and stores in Brazil.
|
|
(3)
|
Operating expenses for the three and nine months ended September 30, 2013 includes a
$61 million
gain on a legal settlement.
|
|
(4)
|
Front store same store sales would have been approximately 480 and 200 basis points higher for the three and nine months ended September 30, 2014, respectively, if tobacco and the estimated associated basket sales were excluded from both the three and nine months ended September 30, 2014 and 2013.
|
|
•
|
Net revenues from new stores accounted for approximately 110 basis points and 120 basis points of the increase in our total net revenues for the three and nine months ended September 30, 2014, respectively.
|
|
•
|
Front store same store sales decreased by 4.5% and 2.9% for the three and nine months ended September 30, 2014, respectively, compared to the prior year. The decrease in front store same store sales for the three months ended September 30, 2014 is primarily due to the Company's decision to stop selling tobacco products and softer customer traffic. Front store same store sales would have been approximately 480 and 200 basis points higher for the three and nine months ended September 30, 2014, respectively, if tobacco and the estimated associated basket sales were excluded from both the three and nine months ended September 30, 2014 and 2013. The decrease in front store same store sales for the nine months ended September 30, 2014 is primarily due to a decrease in customer traffic, as well as
|
|
•
|
Pharmacy same store sales increased 4.8% and 4.5% for the three and nine months ended September 30, 2014, respectively, as compared to the prior year. The increase in pharmacy same store sales was primarily due to the increase in same store script growth of 5.1% and 3.7% for the three and nine months ended September 30, 2014, respectively, as well as drug inflation. Pharmacy same store sales for the nine months ended September 30, 2014 were negatively impacted by a lower incidence of flu compared to last year's strong flu season and extreme weather conditions across much of the United States in the first quarter, which led to fewer physician visits and prescriptions written. Pharmacy same store sales for the three and nine months ended September 30, 2014 were negatively impacted by approximately 190 and 120 basis points, respectively, from the implementation of Specialty Connect. Specialty Connect transitioned all specialty prescriptions to the Pharmacy Services Segment, as they are being processed through the Company's specialty mail order pharmacies. The implementation of Specialty Connect had a greater effect on revenues than on prescription volumes due to the higher dollar value of specialty products.
|
|
•
|
Pharmacy revenues continue to be negatively impacted by the conversion of brand name drugs to equivalent generic drugs, which typically have a lower selling price. Pharmacy same store sales were negatively impacted by approximately 190 and 160 basis points for the three and nine months ended September 30, 2014, respectively, due to recent generic introductions. The generic dispensing rate grew to 83.3% for both the three and nine months ended September 30, 2014, compared to 81.5% for both periods in the prior year. In addition, our pharmacy revenue growth has also been affected by the lack of significant new brand name drug introductions and higher consumer co-payments and co-insurance arrangements, continued reimbursement pressure, as well as, an increase in the number of over-the-counter remedies that were historically only available by prescription.
|
|
•
|
Pharmacy revenue growth continued to benefit from the increased utilization by Medicare Part D beneficiaries, our ability to attract and retain managed care customers and favorable industry trends. These trends include an aging American population; many “baby boomers” are now in their fifties and sixties and are consuming a greater number of prescription drugs, as well as expanded coverage from the Affordable Care Act. In addition, the increased use of pharmaceuticals as the first line of defense for individual health care also contributed to the growing demand for pharmacy services. We believe these favorable industry trends will continue.
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|
•
|
Sales to customers covered by third party insurance programs are a significant component of our retail pharmacy business. On average, our gross profit rate on third party pharmacy revenues is lower than our gross profit on cash pharmacy revenues. Third party revenues were 98.7% and 98.6% in the three and nine months ended September 30, 2014, respectively, compared to 97.9% for both the three and nine months ended September 30, 2013. The increase is primarily due to the Affordable Care Act, which has led to more customers having insurance coverage.
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|
•
|
Front store revenues as a percentage of total revenues for the three and nine months ended September 30, 2014 was 27.7% and 29.0%, respectively, compared to 29.6% and 30.5% in the prior year, respectively. On average, our gross profit on front store revenues is higher than our average gross profit on pharmacy revenues. Pharmacy revenues as a percentage of total revenues increased approximately 140 and 100 basis points in the three and nine months ended September 30, 2014, respectively, compared to the prior year. The negative effect of the sales shift was offset by an increase in pharmacy margins.
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|
•
|
During the three and nine months ended September 30, 2014, our front store gross profit as a percentage of net revenues increased compared to the same period in the prior year. The increase is primarily related to a change in the mix of products sold and higher store brand sales.
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•
|
Our pharmacy gross profit rates have been adversely affected by the efforts of managed care organizations, pharmacy benefit managers and governmental and other third-party payors to reduce their prescription drug costs. In the event this trend continues, we may not be able to sustain our current rate of revenue growth and gross profit dollars could be adversely impacted. The increased use of generic drugs has positively impacted our gross profit but in recent years has resulted in third party payors augmenting their efforts to reduce reimbursement payments to retail pharmacies for prescriptions. This trend, which we expect to continue, reduces the benefit we realize from brand to generic product conversions.
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|
•
|
Risks relating to the health of the economy in general and in the markets we serve, which could impact consumer purchasing power, preferences and/or spending patterns, drug utilization trends, the financial health of our PBM clients or other payors doing business with the Company and our ability to secure necessary financing, suitable store locations and sale-leaseback transactions on acceptable terms.
|
|
•
|
Efforts to reduce reimbursement levels and alter health care financing practices, including pressure to reduce reimbursement levels for generic drugs.
|
|
•
|
The possibility of PBM client loss and/or the failure to win new PBM business, including as a result of failure to win renewal of expiring contracts, contract termination rights that may permit clients to terminate a contract prior to expiration and early or periodic renegotiation of pricing by clients prior to expiration of a contract.
|
|
•
|
The possibility of loss of Medicare Part D business and/or failure to obtain new Medicare Part D business, whether as a result of the annual Medicare Part D competitive bidding process or otherwise.
|
|
•
|
Risks related to the frequency and rate of the introduction of generic drugs and brand name prescription products.
|
|
•
|
Risks of declining gross margins in the PBM industry attributable to increased competitive pressures, increased client demand for lower prices, enhanced service offerings and/or higher service levels and market dynamics and regulatory changes that impact our ability to offer plan sponsors pricing that includes the use of retail “differential” or “spread.”
|
|
•
|
Regulatory changes, business changes and compliance requirements and restrictions that may be imposed by Centers for Medicare and Medicaid Services ("CMS"), Office of Inspector General or other government agencies relating to the Company's participation in Medicare, Medicaid and other federal and state government-funded programs, including sanctions and remedial actions that may be imposed by CMS on its Medicare Part D business.
|
|
•
|
Risks and uncertainties related to the timing and scope of reimbursement from Medicare, Medicaid and other government-funded programs, including the impact of sequestration, the impact of other federal budget, debt and deficit negotiations and legislation that could delay or reduce reimbursement from such programs and the impact of any closure, suspension or other changes affecting federal or state government funding or operations.
|
|
•
|
Possible changes in industry pricing benchmarks used to establish pricing in many of our PBM client contracts, pharmaceutical purchasing arrangements, retail network contracts, specialty payor agreements and other third party payor contracts.
|
|
•
|
An extremely competitive business environment, including the uncertain impact of increased consolidation in the PBM industry, uncertainty concerning the ability of our retail pharmacy business to secure and maintain contractual relationships with PBMs and other payors on acceptable terms, uncertainty concerning the ability of our PBM business to secure and maintain competitive access, pricing and other contract terms from retail network pharmacies in an environment where some PBM clients are willing to consider adopting narrow or more restricted retail pharmacy networks.
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|
•
|
The Company's ability to fully integrate and to realize the planned benefits associated with the acquisition of Coram LLC in accordance with the expected timing.
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|
•
|
The Company's ability to timely identify or effectively respond to changing consumer preferences and spending patterns, an inability to expand the products being purchased by our customers, or the failure or inability to obtain or offer particular categories of products.
|
|
•
|
Risks relating to our ability to secure timely and sufficient access to the products we sell from our domestic and/or international suppliers.
|
|
•
|
Reform of the U.S. health care system, including ongoing implementation of the Patient Protection and Affordable Care Act, continuing legislative efforts, regulatory changes and judicial interpretations impacting our health care system and the possibility of shifting political and legislative priorities related to reform of the health care system in the future.
|
|
•
|
Risks relating to any failure to properly maintain our information technology systems, our information security systems and our infrastructure to support our business and to protect the privacy and security of sensitive customer and business information.
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|
•
|
Risks related to compliance with a broad and complex regulatory framework, including compliance with new and existing federal, state and local laws and regulations relating to health care, accounting standards, corporate securities, tax, environmental and other laws and regulations affecting our business.
|
|
•
|
Risks related to litigation, government investigations and other legal proceedings as they relate to our business, the pharmacy services, retail pharmacy or retail clinic industries or to the health care industry generally.
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|
•
|
Other risks and uncertainties detailed from time to time in our filings with the SEC.
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|
|
||
|
1.
|
In December 2007, the Company received a document subpoena from the Office of Inspector General (“OIG”) within the U.S. Department of Health and Human Services, requesting information relating to the processing of Medicaid and certain other government agency claims on behalf of its clients (which allegedly resulted in underpayments from our pharmacy benefit management clients to the applicable government agencies) on one of the Company's adjudication platforms. In September 2014, the Company settled the underlying lawsuit with the United States Department of Justice, the OIG and the private plaintiff without any admission of liability and is in discussions with the OIG concerning other claim processing issues.
|
|
2.
|
Caremark (the term “Caremark” being used herein to generally refer to any one or more pharmacy benefit management subsidiaries of the Company, as applicable) was named in a putative class action lawsuit filed in October 2003 in Alabama state court by John Lauriello, purportedly on behalf of participants in the 1999 settlement of various securities class action and derivative lawsuits against Caremark and others. Other defendants include insurance companies that provided coverage to Caremark with respect to the settled lawsuits. The Lauriello lawsuit seeks approximately
$3.2 billion
in compensatory damages plus other non-specified damages based on allegations that the amount of insurance coverage available for the settled lawsuits was misrepresented and suppressed. A similar lawsuit was filed in November 2003 by Frank McArthur, also in Alabama state court, naming as defendants Caremark, several insurance companies, attorneys and law firms involved in the 1999 settlement. This lawsuit was stayed as a later-filed class action, but McArthur was subsequently allowed to intervene in the Lauriello action. Following the close of class discovery, the trial court entered an Order on August 15, 2012 that granted the plaintiffs’ motion to certify a class pursuant to Alabama Rules of Civil Procedure 23(b)(3) but denied their request that the class also be certified pursuant to Rule 23(b)(1). In addition, the August 15, 2012 Order appointed class representatives and class counsel. On September 12, 2014, the Alabama Supreme Court affirmed the trial court's August 15, 2012 Order. The Defendants timely filed an Application for Rehearing with the Alabama Supreme Court seeking to clarify or modify its September 12, 2014 decision. The proceedings in the trial court remain stayed pending resolution of the rehearing application.
|
|
3.
|
A purported shareholder derivative action was filed on behalf of nominal defendant CVS Health Corporation against certain of the Company’s officers and members of its Board of Directors. The action, which alleged a single claim for breach of fiduciary duty relating to the Company's alleged failure to properly implement internal regulatory controls to comply with the Controlled Substances Act and the Combat Methamphetamine Epidemic Act, was originally filed in June 2012. In addition, an amended complaint was filed in November 2012 and a Supplemental Complaint was filed in April 2013. In October 2013, the court granted the Company's motion to dismiss and entered judgment dismissing the action, without prejudice. Following dismissal of the action, the same purported shareholder sent a letter to the Company's Board of Directors demanding that the Board investigate her allegations and pursue legal action against certain directors and officers of the Company. After conducting a thorough review, an independent committee of the Board of Directors rejected the demand.
|
|
Fiscal Period
|
Total Number
of Shares
Purchased
|
|
Average
Price Paid
per Share
|
|
Total Number of
Shares
Purchased as Part of
Publicly Announced
Plans or Programs
|
|
Approximate Dollar
Value of Shares that
May Yet Be
Purchased Under the
Plans or Programs
|
||||||
|
July 1, 2014 through July 31, 2014
|
3,631,980
|
|
|
$
|
77.16
|
|
|
3,631,980
|
|
|
$
|
4,411,858,900
|
|
|
August 1, 2014 through August 31, 2014
|
3,828,187
|
|
|
$
|
78.18
|
|
|
3,828,187
|
|
|
$
|
4,112,564,982
|
|
|
September 1, 2014 through September 30, 2014
|
2,729,807
|
|
|
$
|
80.76
|
|
|
2,729,807
|
|
|
$
|
3,892,098,284
|
|
|
Totals
|
10,189,974
|
|
|
|
|
|
10,189,974
|
|
|
|
|
||
|
3.1*
|
Amended and Restated Certificate of Incorporation of the Registrant [incorporated by reference to Exhibit 3.1 of CVS Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (Commission File No. 001-01011)].
|
|
3.1A*
|
Certificate of Amendment to the Amended and Restated Certificate of Incorporation, effective May 13, 1998 [incorporated by reference to Exhibit 4.1A to Registrant’s Registration Statement No. 333-52055 on Form S-3/A dated May 18, 1998 (Commission File No. 001-01001)].
|
|
3.1B*
|
Certificate of Amendment to the Amended and Restated Certificate of Incorporation [incorporated by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K dated March 22, 2007 (Commission File No. 001-01011)].
|
|
3.1C*
|
Certificate of Merger dated May 9, 2007 [incorporated by reference to Exhibit 3.1C to Registrant’s Quarterly Report on Form 10-Q dated November 1, 2007 (Commission File No. 001-01011)].
|
|
3.1D*
|
Certificate of Amendment to the Amended and Restated Certificate of Incorporation [incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K dated May 13, 2010 (Commission File No. 001-01011)].
|
|
3.1E*
|
Certificate of Amendment to the Amended and Restated Certificate of Incorporation [incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K dated May 10, 2012 (Commission File No. 001-01011)].
|
|
3.1F*
|
Certificate of Amendment to the Amended and Restated Certificate of Incorporation [incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K dated May 13, 2013 (Commission File No. 001-01011)].
|
|
3.1G*
|
Certificate of Amendment to the Amended and Restated Certificate of Incorporation [incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K dated September 3, 2014 (Commission File No. 001-01011)].
|
|
3.2*
|
By-laws of Registrant, as amended and restated [incorporated by reference to Exhibit 3.2 to the Registrant's Current Report on Form 8-K dated September 3, 2014 (Commission File No. 001-01011)].
|
|
15.1
|
Letter re: Unaudited Interim Financial Information.
|
|
31.1
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31.2
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32.1
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32.2
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
101
|
The following materials from the CVS Health Corporation Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2014 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows and (v) related Footnotes to the Condensed Consolidated Financial Statements.
|
|
CVS Health Corporation
|
|
|
(Registrant)
|
|
|
|
|
|
/s/ David M. Denton
|
|
|
|
|
|
David M. Denton
|
|
|
Executive Vice President and
|
|
|
Chief Financial Officer
|
|
|
November 4, 2014
|
|
|
|
|
No information found
* THE VALUE IS THE MARKET VALUE AS OF THE LAST DAY OF THE QUARTER FOR WHICH THE 13F WAS FILED.
| FUND | NUMBER OF SHARES | VALUE ($) | PUT OR CALL |
|---|
| DIRECTORS | AGE | BIO | OTHER DIRECTOR MEMBERSHIPS |
|---|
No information found
No Customers Found
Suppliers
Price
Yield
| Owner | Position | Direct Shares | Indirect Shares |
|---|