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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|
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Three Months Ended
March 31,
|
||||||
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In millions, except per share amounts
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2015
|
|
2014
|
||||
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|
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|
||||
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Net revenues
|
$
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36,332
|
|
|
$
|
32,689
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Cost of revenues
|
30,168
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|
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26,747
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Gross profit
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6,164
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|
|
5,942
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Operating expenses
|
4,032
|
|
|
3,918
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||
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Operating profit
|
2,132
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|
|
2,024
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||
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Interest expense, net
|
134
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|
|
158
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|
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Income before income tax provision
|
1,998
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|
1,866
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Income tax provision
|
777
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|
737
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Net income
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$
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1,221
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$
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1,129
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||||
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Net income per share:
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Basic
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$
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1.08
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$
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0.96
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Diluted
|
$
|
1.07
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$
|
0.95
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|
|
Weighted average shares outstanding:
|
|
|
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||||
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Basic
|
1,128
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|
|
1,180
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||
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Diluted
|
1,136
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|
|
1,190
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Dividends declared per share
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$
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0.350
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$
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0.275
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Three Months Ended March 31,
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||||||
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In millions
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2015
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2014
|
||||
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||||
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Net income
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$
|
1,221
|
|
|
$
|
1,129
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|
|
Other comprehensive income (loss):
|
|
|
|
|
|
||
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Foreign currency translation adjustments, net of tax
|
(48
|
)
|
|
9
|
|
||
|
Cash flow hedges, net of tax
|
1
|
|
|
1
|
|
||
|
Total other comprehensive income (loss)
|
(47
|
)
|
|
10
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||
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Comprehensive income
|
$
|
1,174
|
|
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$
|
1,139
|
|
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In millions, except per share amounts
|
March 31,
2015 |
|
December 31,
2014 |
||||
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||||
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Assets:
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||||
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Cash and cash equivalents
|
$
|
1,518
|
|
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$
|
2,481
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|
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Short-term investments
|
116
|
|
|
34
|
|
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Accounts receivable, net
|
10,162
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|
|
9,687
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Inventories
|
12,231
|
|
|
11,930
|
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||
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Deferred income taxes
|
1,001
|
|
|
985
|
|
||
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Other current assets
|
594
|
|
|
866
|
|
||
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Total current assets
|
25,622
|
|
|
25,983
|
|
||
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Property and equipment, net
|
8,871
|
|
|
8,843
|
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||
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Goodwill
|
28,123
|
|
|
28,142
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||
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Intangible assets, net
|
9,759
|
|
|
9,774
|
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||
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Other assets
|
1,555
|
|
|
1,510
|
|
||
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Total assets
|
$
|
73,930
|
|
|
$
|
74,252
|
|
|
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|
|
||||
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Liabilities:
|
|
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|
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||
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Accounts payable
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$
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6,431
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|
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$
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6,547
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Claims and discounts payable
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6,273
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|
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5,404
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Accrued expenses
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5,936
|
|
|
5,816
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Short-term debt
|
500
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|
|
685
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Current portion of long-term debt
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573
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|
|
575
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Total current liabilities
|
19,713
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|
|
19,027
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Long-term debt
|
11,689
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|
|
11,695
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Deferred income taxes
|
4,020
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|
|
4,036
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Other long-term liabilities
|
1,513
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|
|
1,531
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Commitments and contingencies (Note 8)
|
—
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|
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—
|
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||||
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Shareholders’ equity:
|
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CVS Health shareholders’ equity:
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||||
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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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||
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Common stock, par value $0.01: 3,200 shares authorized; 1,693 shares issued and 1,127
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|
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||||
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shares outstanding at March 31, 2015 and 1,691 shares issued and 1,140 shares
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||||
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outstanding at December 31, 2014
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17
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17
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Treasury stock, at cost: 565 shares at March 31, 2015 and 550 shares at December 31,
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||||
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2014
|
(25,634
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)
|
|
(24,078
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)
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||
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Shares held in trust: 1 share at March 31, 2015 and December 31, 2014
|
(31
|
)
|
|
(31
|
)
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Capital surplus
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30,235
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|
|
30,418
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Retained earnings
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32,667
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|
|
31,849
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Accumulated other comprehensive income (loss)
|
(264
|
)
|
|
(217
|
)
|
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Total CVS Health shareholders’ equity
|
36,990
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|
37,958
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Noncontrolling interest
|
5
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5
|
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||
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Total shareholders’ equity
|
36,995
|
|
|
37,963
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Total liabilities and shareholders’ equity
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$
|
73,930
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|
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$
|
74,252
|
|
|
|
Three Months Ended March 31,
|
||||||
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In millions
|
2015
|
|
2014
|
||||
|
Cash flows from operating activities:
|
|
|
|
||||
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Cash receipts from customers
|
$
|
34,570
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|
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$
|
30,505
|
|
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Cash paid for inventory and prescriptions dispensed by retail network pharmacies
|
(28,276
|
)
|
|
(23,966
|
)
|
||
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Cash paid to other suppliers and employees
|
(4,162
|
)
|
|
(4,196
|
)
|
||
|
Interest received
|
3
|
|
|
3
|
|
||
|
Interest paid
|
(87
|
)
|
|
(104
|
)
|
||
|
Income taxes paid
|
(64
|
)
|
|
(70
|
)
|
||
|
Net cash provided by operating activities
|
1,984
|
|
|
2,172
|
|
||
|
|
|
|
|
||||
|
Cash flows from investing activities:
|
|
|
|
|
|
||
|
Purchases of property and equipment
|
(419
|
)
|
|
(388
|
)
|
||
|
Proceeds from sale-leaseback transactions
|
25
|
|
|
5
|
|
||
|
Proceeds from sale of property and equipment and other assets
|
8
|
|
|
5
|
|
||
|
Acquisitions (net of cash acquired) and other investments
|
(61
|
)
|
|
(2,194
|
)
|
||
|
Purchase of available-for-sale investments
|
(113
|
)
|
|
(43
|
)
|
||
|
Sales/maturities of available-for-sale investments
|
16
|
|
|
55
|
|
||
|
Net cash used in investing activities
|
(544
|
)
|
|
(2,560
|
)
|
||
|
|
|
|
|
||||
|
Cash flows from financing activities:
|
|
|
|
|
|
||
|
Decrease in short-term debt
|
(185
|
)
|
|
—
|
|
||
|
Dividends paid
|
(399
|
)
|
|
(325
|
)
|
||
|
Proceeds from exercise of stock options
|
126
|
|
|
154
|
|
||
|
Excess tax benefits from stock-based compensation
|
59
|
|
|
37
|
|
||
|
Repurchase of common stock
|
(2,007
|
)
|
|
(801
|
)
|
||
|
Net cash used in financing activities
|
(2,406
|
)
|
|
(935
|
)
|
||
|
Effect of exchange rate changes on cash and cash equivalents
|
3
|
|
|
—
|
|
||
|
Net decrease in cash and cash equivalents
|
(963
|
)
|
|
(1,323
|
)
|
||
|
Cash and cash equivalents at beginning of period
|
2,481
|
|
|
4,089
|
|
||
|
Cash and cash equivalents at end of period
|
$
|
1,518
|
|
|
$
|
2,766
|
|
|
|
|
|
|
||||
|
Reconciliation of net income to net cash provided by operating activities:
|
|
|
|
|
|
||
|
Net income
|
$
|
1,221
|
|
|
$
|
1,129
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
||
|
Depreciation and amortization
|
490
|
|
|
477
|
|
||
|
Stock-based compensation
|
44
|
|
|
35
|
|
||
|
Deferred income taxes and other noncash items
|
(31
|
)
|
|
16
|
|
||
|
Change in operating assets and liabilities, net of effects from acquisitions:
|
|
|
|
|
|
||
|
Accounts receivable, net
|
(481
|
)
|
|
(139
|
)
|
||
|
Inventories
|
(313
|
)
|
|
(64
|
)
|
||
|
Other current assets
|
269
|
|
|
70
|
|
||
|
Other assets
|
(52
|
)
|
|
(39
|
)
|
||
|
Accounts payable and claims and discounts payable
|
756
|
|
|
339
|
|
||
|
Accrued expenses
|
153
|
|
|
362
|
|
||
|
Other long-term liabilities
|
(72
|
)
|
|
(14
|
)
|
||
|
Net cash provided by operating activities
|
$
|
1,984
|
|
|
$
|
2,172
|
|
|
•
|
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 billions
|
|
|
|
|
|
|
||||
|
Authorization Date
|
Authorized
|
Remaining
|
||||||||
|
December 15, 2014 (“2014 Repurchase Program”)
|
|
$
|
10.0
|
|
|
|
$
|
10.0
|
|
|
|
December 17, 2013 (“2013 Repurchase Program”)
|
|
$
|
6.0
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
$
|
10.7
|
|
|
||
|
|
Three Months Ended March 31, 2015
|
||||||||||||||
|
In millions
|
Foreign Currency
|
|
Losses on Cash Flow Hedges
|
|
Pension and Other Postretirement Benefits
|
|
Total
|
||||||||
|
Balance, December 31, 2014
|
$
|
(65
|
)
|
|
$
|
(9
|
)
|
|
$
|
(143
|
)
|
|
$
|
(217
|
)
|
|
Other comprehensive income (loss) before
reclassifications
|
(48
|
)
|
|
—
|
|
|
—
|
|
|
(48
|
)
|
||||
|
Amounts reclassified from accumulated
other comprehensive income
(2)
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
||||
|
Other comprehensive income (loss)
|
(48
|
)
|
|
1
|
|
|
—
|
|
|
(47
|
)
|
||||
|
Balance, March 31, 2015
|
$
|
(113
|
)
|
|
$
|
(8
|
)
|
|
$
|
(143
|
)
|
|
$
|
(264
|
)
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
Three Months Ended March 31, 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
|
9
|
|
|
—
|
|
|
—
|
|
|
9
|
|
||||
|
Amounts reclassified from accumulated
other comprehensive income
(2)
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
||||
|
Other comprehensive income
|
9
|
|
|
1
|
|
|
—
|
|
|
10
|
|
||||
|
Balance, March 31, 2014
|
$
|
(21
|
)
|
|
$
|
(12
|
)
|
|
$
|
(106
|
)
|
|
$
|
(139
|
)
|
|
|
|
|
|
|
|
|
|
||||||||
|
(1)
|
All amounts are net of tax.
|
|
(2)
|
The amounts reclassified from accumulated other comprehensive income for losses on cash flow hedges are recorded within interest expense, net on the condensed consolidated statement of income. The amounts reclassified from accumulated other comprehensive income for pension and other postretirement benefits are included in operating expenses on the condensed consolidated statement of income.
|
|
|
Three Months Ended
March 31,
|
||||||
|
In millions
|
2015
|
|
2014
|
||||
|
Interest expense
|
$
|
137
|
|
|
$
|
161
|
|
|
Interest income
|
(3
|
)
|
|
(3
|
)
|
||
|
Interest expense, net
|
$
|
134
|
|
|
$
|
158
|
|
|
|
Three Months Ended
March 31, |
||||||
|
In millions, except per share amounts
|
2015
|
|
2014
|
||||
|
Numerator for earnings per share calculations:
|
|
|
|
||||
|
Net income
(1)
|
$
|
1,216
|
|
|
$
|
1,129
|
|
|
|
|
|
|
||||
|
Denominators for earnings per share calculations:
|
|
|
|
|
|
||
|
Weighted average shares, basic
|
1,128
|
|
|
1,180
|
|
||
|
Effect of dilutive securities
|
8
|
|
|
10
|
|
||
|
Weighted average shares, diluted
|
1,136
|
|
|
1,190
|
|
||
|
|
|
|
|
||||
|
Net income per share:
|
|
|
|
|
|
||
|
Basic
|
$
|
1.08
|
|
|
$
|
0.96
|
|
|
Diluted
|
$
|
1.07
|
|
|
$
|
0.95
|
|
|
(1)
|
Comprised of net income less amounts allocable to participating securities of
$5 million
for the three months ended March 31, 2015.
|
|
In millions
|
Pharmacy
Services
Segment
(1)
|
|
Retail
Pharmacy
Segment
|
|
Corporate
Segment
|
|
Intersegment
Eliminations
(2)
|
|
Consolidated
Totals
|
||||||||||
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
||||||||||
|
March 31, 2015:
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net revenues
|
$
|
23,879
|
|
|
$
|
16,951
|
|
|
$
|
—
|
|
|
$
|
(4,498
|
)
|
|
$
|
36,332
|
|
|
Gross profit
|
1,026
|
|
|
5,295
|
|
|
—
|
|
|
(157
|
)
|
|
6,164
|
|
|||||
|
Operating profit (loss)
|
734
|
|
|
1,727
|
|
|
(189
|
)
|
|
(140
|
)
|
|
2,132
|
|
|||||
|
March 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Net revenues
|
20,195
|
|
|
16,480
|
|
|
—
|
|
|
(3,986
|
)
|
|
32,689
|
|
|||||
|
Gross profit
|
934
|
|
|
5,184
|
|
|
—
|
|
|
(176
|
)
|
|
5,942
|
|
|||||
|
Operating profit (loss)
|
640
|
|
|
1,750
|
|
|
(190
|
)
|
|
(176
|
)
|
|
2,024
|
|
|||||
|
•
|
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 OIG’s claims, as well as related claims by the Department of Justice and private plaintiffs, without any admission of liability. The Company 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 PBM 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, among others, Caremark and several insurance companies 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 Rule of Civil Procedures 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, and the case is proceeding.
|
|
•
|
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 arbitration based on the contract terms between the pharmacies and Caremark. In October 2003,
two
independent pharmacies, North Jackson Pharmacy, Inc. and C&C, Inc. d/b/a Big C Discount Drugs, Inc., filed a putative class action complaint in Alabama federal court against Caremark and
two
PBM competitors, seeking treble damages and injunctive relief. The North Jackson Pharmacy case against
two
of the Caremark entities named as defendants was transferred to Illinois federal court, and the case against a separate Caremark entity was sent to arbitration based on contract terms between the pharmacies and Caremark. The Bellevue arbitration was then stayed by the parties pending developments in the North Jackson Pharmacy court case.
|
|
•
|
In November 2009, a securities class action lawsuit was filed in the United States District Court for the District of Rhode Island by Richard Medoff, purportedly on behalf of purchasers of CVS Health Corporation stock between May 5, 2009 and November 4, 2009. 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 by Mark Wuotila in December 2009 in the same court against the directors and certain officers of the Company. This lawsuit, which has remained 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. The parties are conducting discovery in the class action, and the derivative action is 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 with 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, Anthony Spay, 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 declined to intervene in the lawsuit. The case is proceeding.
|
|
•
|
In November 2014, the U.S. District Court in the District of Massachusetts unsealed a
qui tam
lawsuit brought against the Company by a pharmacy auditor and a CVS pharmacist. The lawsuit, which was initially filed under seal in 2011, alleges that the Company violated the federal False Claims Act, as well as the false claims acts of several states, by overcharging state and federal governments in connection with prescription drugs available through the Company’s Health Savings Pass program, a membership-based program that allows enrolled customers special pricing for typical 90-day supplies of various generic prescription drugs. The federal government, which issued a January 2012 OIG subpoena concerning the Health Savings Pass program, has declined to intervene in the case. The Company has filed a motion to dismiss the declined
qui tam
complaint. Separately, the Attorney General of the State of Texas has issued civil investigative demands and other requests in February 2012 and May 2014, and has continued its investigation concerning the Health Savings Pass program and claims for reimbursement from the Texas Medicaid program.
|
|
•
|
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 our retail pharmacy stores in Sanford
,
Florida. The license revocations for the
two
stores formally became effective on November 13, 2012. 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 several 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 January 2014, the U.S. District Court in the Southern District of New York unsealed a
qui tam
action in which the Company is a defendant. The suit originally was filed under seal in 2011 by relator David Kester, a former employee of Novartis Pharmaceuticals Corp. (“Novartis”). The suit alleges that Novartis, the Company, and other specialty pharmacies violated the federal False Claims Act, as well as the false claims acts of several states, by using pharmacists, nurses and other staff to recommend and increase the sales and market share for certain Novartis specialty drugs in exchange for patient referrals, rebates and discounts provided by Novartis. The federal government has intervened in the case as to some allegations against Novartis but has declined to intervene as to any of the allegations against the Company. The relator has continued to litigate the declined action against the Company and other specialty pharmacies.
|
|
•
|
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 collecting documents in response to the subpoena.
|
|
|
/s/ Ernst & Young LLP
|
|
|
|
|
May 1, 2015
|
|
|
Boston, Massachusetts
|
|
|
Part I
|
|
Item 2
|
|
|
Three Months Ended
March 31,
|
||||||
|
In millions
|
2015
|
|
2014
|
||||
|
|
|
|
|
||||
|
Net revenues
|
$
|
36,332
|
|
|
$
|
32,689
|
|
|
Cost of revenues
|
30,168
|
|
|
26,747
|
|
||
|
Gross profit
|
6,164
|
|
|
5,942
|
|
||
|
Operating expenses
|
4,032
|
|
|
3,918
|
|
||
|
Operating profit
|
2,132
|
|
|
2,024
|
|
||
|
Interest expense, net
|
134
|
|
|
158
|
|
||
|
Income before income tax provision
|
1,998
|
|
|
1,866
|
|
||
|
Income tax provision
|
777
|
|
|
737
|
|
||
|
Net income
|
$
|
1,221
|
|
|
$
|
1,129
|
|
|
In millions
|
Pharmacy
Services
Segment
(1)
|
|
Retail
Pharmacy
Segment
|
|
Corporate
Segment
|
|
Intersegment
Eliminations
(2)
|
|
Consolidated
Totals
|
||||||||||
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
||||||||||
|
March 31, 2015:
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net revenues
|
$
|
23,879
|
|
|
$
|
16,951
|
|
|
$
|
—
|
|
|
$
|
(4,498
|
)
|
|
$
|
36,332
|
|
|
Gross profit
|
1,026
|
|
|
5,295
|
|
|
—
|
|
|
(157
|
)
|
|
6,164
|
|
|||||
|
Operating profit (loss)
|
734
|
|
|
1,727
|
|
|
(189
|
)
|
|
(140
|
)
|
|
2,132
|
|
|||||
|
March 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Net revenues
|
20,195
|
|
|
16,480
|
|
|
—
|
|
|
(3,986
|
)
|
|
32,689
|
|
|||||
|
Gross profit
|
934
|
|
|
5,184
|
|
|
—
|
|
|
(176
|
)
|
|
5,942
|
|
|||||
|
Operating profit (loss)
|
640
|
|
|
1,750
|
|
|
(190
|
)
|
|
(176
|
)
|
|
2,024
|
|
|||||
|
(1)
|
Net revenues of the Pharmacy Services Segment include approximately
$2.5 billion
and
$2.2 billion
of retail co-payments for the three months ended March 31, 2015 and 2014, respectively.
|
|
(2)
|
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 March 31, 2015 and 2014, respectively; gross profit of
$157 million
and
$176 million
for the three months ended March 31, 2015 and 2014, respectively; and operating profit of
$140 million
and
$176 million
for the three months ended March 31, 2015 and 2014, respectively.
|
|
|
Three Months Ended
March 31, |
||||||
|
In millions
|
2015
|
|
2014
|
||||
|
|
|
|
|
||||
|
Net revenues
|
$
|
23,879
|
|
|
$
|
20,195
|
|
|
Gross profit
|
1,026
|
|
|
934
|
|
||
|
Gross profit % of net revenues
|
4.3
|
%
|
|
4.6
|
%
|
||
|
Operating expenses
|
292
|
|
|
294
|
|
||
|
Operating expense % of net revenues
|
1.2
|
%
|
|
1.5
|
%
|
||
|
Operating profit
|
734
|
|
|
640
|
|
||
|
Operating profit % of net revenues
|
3.1
|
%
|
|
3.2
|
%
|
||
|
Net revenues
(1)
:
|
|
|
|
|
|
||
|
Mail choice
(2)
|
$
|
8,750
|
|
|
$
|
6,834
|
|
|
Pharmacy network
(3)
|
15,059
|
|
|
13,302
|
|
||
|
Other
|
70
|
|
|
59
|
|
||
|
Pharmacy claims processed
(1)
:
|
|
|
|
|
|
||
|
Total
|
251.1
|
|
|
227.8
|
|
||
|
Mail choice
(2)
|
20.3
|
|
|
19.8
|
|
||
|
Pharmacy network
(3)
|
230.8
|
|
|
208.0
|
|
||
|
Generic dispensing rate
(1)
:
|
|
|
|
|
|||
|
Total
|
83.5
|
%
|
|
82.0
|
%
|
||
|
Mail choice
(2)
|
76.1
|
%
|
|
73.9
|
%
|
||
|
Pharmacy network
(3)
|
84.1
|
%
|
|
82.8
|
%
|
||
|
Mail choice penetration rate
|
19.8
|
%
|
|
21.2
|
%
|
||
|
•
|
Our mail choice claims processed increased 2.7% to 20.3 million claims in the three months ended March 31, 2015, compared to 19.8 million claims in the prior year. The increase in mail choice claims was driven by specialty claim volume and increased claims associated with the continuing adoption of our Maintenance Choice offerings.
|
|
•
|
Our average revenue per mail choice claim increased by 24.7%, compared to the prior year. This increase was primarily due to growth in specialty pharmacy.
|
|
•
|
Our pharmacy network claims processed increased 11.0% to 230.8 million claims in the three months ended March 31, 2015, compared to 208.0 million claims in the prior year. The increase in the pharmacy network claim volume was primarily due to net new business, as well as growth in Managed Medicaid and public exchanges.
|
|
•
|
Our average revenue per pharmacy network claim processed increased 2.0%, 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.
|
|
•
|
Our mail choice generic dispensing rate increased to 76.1% in the three months ended March 31, 2015, compared to 73.9% in the prior year. Our pharmacy network generic dispensing rate increased to 84.1%, compared to 82.8% in the prior year. These continued increases in mail choice and pharmacy network generic dispensing rates were primarily due to the impact of new generic drug introductions, and our continuous efforts to encourage plan members to use generic drugs when they are available. We believe our generic dispensing rates will continue to increase in future periods, albeit at a slower pace. This increase will be affected by, among other things, the number of new generic drug introductions and our success at encouraging plan members to utilize generic drugs when they are available and clinically appropriate.
|
|
•
|
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, including Medicare Part D 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.
|
|
•
|
Our gross profit as a percentage of revenues benefited from the increase in our total generic dispensing rate, which increased to 83.5% in the three months ended March 31, 2015, compared to our generic dispensing rate of 82.0% in the prior year. 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.
|
|
|
Three Months Ended
March 31,
|
||||||
|
In millions
|
2015
|
|
2014
|
||||
|
|
|
|
|
||||
|
Net revenues
|
$
|
16,951
|
|
|
$
|
16,480
|
|
|
Gross profit
|
5,295
|
|
|
5,184
|
|
||
|
Gross profit % of net revenues
|
31.2
|
%
|
|
31.5
|
%
|
||
|
Operating expenses
|
3,568
|
|
|
3,434
|
|
||
|
Operating expense % of net revenues
|
21.0
|
%
|
|
20.8
|
%
|
||
|
Operating profit
|
1,727
|
|
|
1,750
|
|
||
|
Operating profit % of net revenues
|
10.2
|
%
|
|
10.6
|
%
|
||
|
Retail prescriptions filled (90 Day = 3 Rx)
(1)
|
241.3
|
|
|
227.1
|
|
||
|
Net revenue increase:
|
|
|
|
|
|
||
|
Total
|
2.9
|
%
|
|
2.7
|
%
|
||
|
Pharmacy
|
5.3
|
%
|
|
5.1
|
%
|
||
|
Front store
|
(3.6
|
)%
|
|
(2.4
|
)%
|
||
|
Total prescription volume (90 Day = 3 Rx)
(1)
|
6.3
|
%
|
|
2.7
|
%
|
||
|
Same store increase (decrease)
(2)
:
|
|
|
|
|
|
||
|
Total sales
|
1.2
|
%
|
|
1.4
|
%
|
||
|
Pharmacy sales
|
4.2
|
%
|
|
3.8
|
%
|
||
|
Front store sales
(3)
|
(6.1
|
)%
|
|
(3.8
|
)%
|
||
|
Prescription volume (90 Day = 3 Rx)
(1)
|
5.1
|
%
|
|
2.1
|
%
|
||
|
Generic dispensing rate
|
84.4
|
%
|
|
82.9
|
%
|
||
|
Pharmacy % of total revenues
|
71.7
|
%
|
|
70.5
|
%
|
||
|
Third party % of pharmacy revenue
|
98.5
|
%
|
|
98.3
|
%
|
||
|
(1)
|
Includes the adjustment to convert 90-day, non-specialty 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)
|
On a comparable basis, front store same store sales would have been approximately 800 basis points higher for the three months ended March 31, 2015 if tobacco and the estimated associated basket sales were excluded from the three months ended March 31, 2014.
|
|
•
|
Net revenues from new stores accounted for approximately 160 basis points of the increase in our total net revenues for the three months ended March 31, 2015.
|
|
•
|
Front store same store sales decreased by 6.1% for the three months ended March 31, 2015, compared to the prior year. The decrease is primarily due to the Company’s decision to stop selling tobacco products and softer customer traffic. On a comparable basis, front store same store sales would have been approximately 800 basis points higher if tobacco and the estimated associated basket sales were excluded from the three months ended March 31, 2014.
|
|
•
|
Pharmacy same store sales increased 4.2% for the three months ended March 31, 2015, 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%, partially driven by strong seasonal volume. Pharmacy same store sales for the three months ended March 31, 2015
|
|
•
|
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 280 basis points for the three months ended March 31, 2015 due to recent generic introductions. The generic dispensing rate grew to 84.4%, compared to 82.9% in the prior year. In addition, our pharmacy revenue growth has also been affected by continued reimbursement pressure, the lack of significant new brand name drug introductions and 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 Patient Protection and Affordable Care Act (“ACA”). In addition, the increased use of pharmaceuticals as the first line of defense for individual health care contributed to the growing demand for pharmacy services. We believe these favorable industry trends will continue.
|
|
•
|
Front store revenues as a percentage of total revenues for the three months ended March 31, 2015 was 27.6%, compared to 29.5% in the prior year. 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 120 basis points in the three months ended March 31, 2015 compared to the prior year. The mix effect from higher proportion of sales in the pharmacy had a negative effect on our overall gross profit for the three months ended March 31, 2015. The negative effect was partially offset by increased generic drug dispensing rates, the removal of tobacco products from our stores and increased store brand penetration.
|
|
•
|
During the three months ended March 31, 2015, 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, including the removal of tobacco products from our stores, and higher store brand sales.
|
|
•
|
Our pharmacy gross profit rates have been adversely affected by the efforts of managed care organizations, PBMs and governmental and other third-party payors to reduce their prescription drug costs. In the event this trend accelerates, 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 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.
|
|
|
|
Three Months Ended March 31,
|
||||||
|
in millions
|
|
2015
|
|
2014
|
||||
|
Net cash provided by operating activities
|
|
$
|
1,984
|
|
|
$
|
2,172
|
|
|
Net cash used in investing activities
|
|
(544
|
)
|
|
(2,560
|
)
|
||
|
Net cash used in financing activities
|
|
(2,406
|
)
|
|
(935
|
)
|
||
|
Effect of exchange rate changes on cash and cash equivalents
|
|
3
|
|
|
—
|
|
||
|
Net decrease in cash and cash equivalents
|
|
$
|
(963
|
)
|
|
$
|
(1,323
|
)
|
|
In billions
|
|
|
|
|
|
|
||||
|
Authorization Date
|
Authorized
|
Remaining
|
||||||||
|
December 15, 2014 (“2014 Repurchase Program”)
|
|
$
|
10.0
|
|
|
|
$
|
10.0
|
|
|
|
December 17, 2013 (“2013 Repurchase Program”)
|
|
$
|
6.0
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
$
|
10.7
|
|
|
||
|
•
|
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.
|
|
•
|
A highly 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.
|
|
•
|
The Company’s ability to realize the planned benefits associated with the acquisition of Coram in accordance with the expected timing.
|
|
•
|
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 ACA, 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.
|
|
•
|
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.
|
|
•
|
Other risks and uncertainties detailed from time to time in our filings with the SEC.
|
|
Part II
|
||
|
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
|
||||||
|
January 1, 2015 through January 31, 2015
|
16,795,255
|
|
|
$
|
94.49
|
|
|
16,795,255
|
|
|
$
|
10,684,839,660
|
|
|
February 1, 2015 through February 28, 2015
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
10,684,839,660
|
|
|
March 1, 2015 through March 31, 2015
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
10,684,839,660
|
|
|
Totals
|
16,795,255
|
|
|
|
|
|
16,795,255
|
|
|
|
|
||
|
3.1*
|
Amended and Restated Certificate of Incorporation of the Registrant [incorporated by reference to Exhibit 3.1 of the Registrant’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)].
|
|
10.1
|
Change in Control Agreement dated October 1, 2012 between the Registrant and the Registrant’s Executive Vice President, Chief Health Strategy Officer and General Counsel.
|
|
10.2
|
Restrictive Covenant Agreement dated June 1, 2014 between the Registrant and the Registrant’s Executive Vice President, Chief Health Strategy Officer and General Counsel.
|
|
15.1
|
Letter re: Unaudited Interim Financial Information.
|
|
18
|
Letter re: Changes in Accounting Principle.
|
|
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 months ended March 31, 2015 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
|
|
|
May 1, 2015
|
|
|
|
|
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 |
|---|