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CVS Caremark Reports Record Second Quarter Results

WOONSOCKET, R.I., Aug. 5, 2014 /PRNewswire/ -- 

Second Quarter Year-over-year Highlights:

  • Net revenues increased 10.7% to approximately $34.6 billion
  • Operating profit increased 11.9% to approximately $2.2 billion
  • Adjusted EPS increased 16.5% to $1.13, while GAAP diluted EPS from continuing operations increased 16.7% to $1.06

Year-to-date Highlights:

  • Generated free cash flow of $2.2 billion
  • Cash flow from operations of $3.1 billion

2014 Guidance:

  • Full-year Adjusted EPS range raised and narrowed to $4.43 to $4.51, up from $4.36 to $4.50
  • GAAP diluted EPS from continuing operations range raised and narrowed to $4.16 to $4.24, up from $4.09 to $4.23
  • Provided third quarter Adjusted EPS guidance of $1.11 to $1.14 and GAAP diluted EPS from continuing operations guidance of $1.04 to $1.07
  • Full year free cash flow range confirmed at $5.5 to $5.8 billion; cash flow from operations raised to $7.2 to $7.5 billion, up from $7.0 to $7.3 billion

CVS Caremark Corporation (NYSE: CVS) today announced operating results for the three months ended June 30, 2014.

CVS Caremark logo.

Revenues

Net revenues for the three months ended June 30, 2014, increased 10.7%, or approximately $3.4 billion, to $34.6 billion compared to the three months ended June 30, 2013.

Revenues in the Pharmacy Services Segment increased 16.2%, or $3.0 billion, to $21.8 billion in the three months ended June 30, 2014. The increase was driven by net new business, growth in specialty pharmacy including the acquisition of Coram and the impact of Specialty Connect®, drug inflation and product mix, partially offset by an increase in generic dispensing. Pharmacy network claims processed during the three months ended June 30, 2014 increased 2.2% to 210.4 million compared to 205.9 million in the prior year. The increase in the pharmacy network claim volume was primarily due to net new business, partially offset by a decrease in Medicare Part D claims. Mail choice claims processed during the three months ended June 30, 2014 decreased 1.0% to 20.5 million, compared to 20.7 million 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.

Revenues in the Retail Pharmacy Segment increased 4.5%, or $732 million, to $16.9 billion in the three months ended June 30, 2014. Same store sales increased 3.3% versus the second quarter of last year, with pharmacy same store sales up 5.0% and front store same store sales down 0.4%. Pharmacy same store prescription volumes rose 3.9% on a 30-day equivalent basis. Front store same store sales were positively impacted by approximately 80 basis points from the shift of the Easter holiday from March in 2013 to April in 2014. Front store same store sales were negatively impacted by softer customer traffic, partially offset by an increase in basket size. In addition, front store same store sales would have been approximately 110 basis points higher if tobacco and the estimated associated basket sales were excluded. Pharmacy same store sales were negatively impacted by approximately 160 basis points from recent generic drug introductions and by approximately 130 basis points from the implementation of Specialty Connect. The implementation of Specialty Connect had a greater effect on revenues than prescription volumes due to the higher dollar value of specialty products.

Specialty Connect 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.

For the three months ended June 30, 2014, the generic dispensing rate increased approximately 180 basis points in the Pharmacy Services Segment, to 82.4%, and approximately 160 basis points in the Retail Pharmacy Segment, to 83.5%, compared to the prior year.

Net Income

Net income for the three months ended June 30, 2014, increased 10.9%, or approximately $122 million, to $1.2 billion, compared with approximately $1.1 billion during the three months ended June 30, 2013. The Pharmacy Services and Retail Pharmacy segments both benefited from the impact of increased generic drugs dispensed and, consistent with our guidance, from the State of California's finalization of Medicaid reimbursement rates relative to our historic rate estimates. The Pharmacy Services Segment was positively impacted by growth in specialty pharmacy and favorable purchasing economics. The Retail Pharmacy Segment was positively impacted by increased sales and an improved margin rate, partially offset by incremental store operating costs associated with operating more stores. Adjusted earnings per share (Adjusted EPS) for the three months ended June 30, 2014 and 2013, was $1.13 and $0.97, respectively, an increase of 16.5%. Adjusted EPS in the three months ended June 30, 2014 excludes $133 million and $124 million in 2014 and 2013, respectively, of intangible asset amortization related to acquisition activity. GAAP earnings per diluted share for the three months ended June 30, 2014 and 2013, was $1.06 and $0.91, respectively, an increase of 16.7%.

President and Chief Executive Officer Larry Merlo stated, "I'm extremely pleased with our strong performance this quarter. With Adjusted EPS increasing 16.5%, we came in two cents above the high end of our expectations. This was fueled by solid results across the enterprise, as both the PBM and retail businesses exceeded revenue expectations while delivering strong gross margins. Operating profit in the PBM increased 30%, exceeding expectations, while operating profit in the retail business grew 6.5%, at the high end of our expectations." Mr. Merlo continued, "Additionally, we have generated significant free cash flow through the first half of this year. Between dividends and share repurchases, we have returned $2.6 billion to our shareholders year-to-date, and remain on track to achieve our goal of returning more than $5 billion in 2014."

Guidance

The Company raised and narrowed its earnings guidance range for the full year 2014. The Company now expects to deliver Adjusted EPS of $4.43 to $4.51, up from $4.36 to $4.50. GAAP diluted EPS from continuing operations was raised to $4.16 to $4.24, up from $4.09 to $4.23. The Company continues to expect to deliver 2014 free cash flow of $5.5 billion to $5.8 billion, while the 2014 cash flow from operations range was raised to $7.2 billion to $7.5 billion, up from $7.0 to $7.3 billion. The Company expects to deliver Adjusted EPS of $1.11 to $1.14 and GAAP diluted EPS from continuing operations of $1.04 to $1.07 in the third quarter of 2014.

Real Estate Program

During the three months ended June 30, 2014, the Company opened 34 new retail drugstores and closed four retail drugstores. In addition, the Company relocated eight retail drugstores. As of June 30, 2014, the Company operated 7,859 locations in 47 states, the District of Columbia, Puerto Rico and Brazil. These locations included 7,705 retail drugstores, 860 health care clinics, 17 onsite pharmacies, 24 retail specialty pharmacy stores, 11 specialty mail order pharmacies, four mail service dispensing pharmacies, and 84 branches and six centers of excellence for infusion and enteral services.

Teleconference and Webcast

The Company will be holding a conference call today for the investment community at 8:30 am (EDT) to discuss its quarterly results. An audio webcast of the call will be broadcast simultaneously for all interested parties through the Investor Relations section of the CVS Caremark website at http://info.cvscaremark.com/investors. This webcast will be archived and available on the website for a one-year period following the conference call.

About the Company

CVS Caremark is dedicated to helping people on their path to better health as the largest integrated pharmacy company in the United States. Through the Company's more than 7,700 retail pharmacy stores; its leading pharmacy benefit manager serving nearly 65 million plan members; and its retail health clinic system, the largest in the nation with more than 860 MinuteClinic® locations, it is a market leader in mail order, retail and specialty pharmacy, retail clinics, and Medicare Part D Prescription Drug Plans. As a pharmacy innovation company, CVS Caremark continually strives to improve health and lower costs by developing new approaches such as its unique Pharmacy Advisor® program that helps people with chronic diseases such as diabetes obtain and stay on their medications. Find more information about CVS Caremark at http://info.cvscaremark.com/.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the federal securities laws. By their nature, all forward-looking statements involve risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements for a number of reasons as described in our Securities and Exchange Commission filings, including those set forth in the Risk Factors section in our Annual Report on Form 10-K for the year ended December 31, 2013 and under the section entitled "Cautionary Statement Concerning Forward-Looking Statements" in our most recently filed Quarterly Report on Form 10-Q.

 

 

CVS CAREMARK CORPORATION

Condensed Consolidated Statements of Income

(Unaudited)













Three Months Ended

June 30,


Six Months Ended

June 30,

In millions, except per share amounts


2014



2013



2014



2013















Net revenues


$

34,602



$

31,248



$

67,291



$

61,999


Cost of revenues


28,278



25,407



55,025



50,581


Gross profit


6,324



5,841



12,266



11,418


Operating expenses


4,116



3,869



8,034



7,752


Operating profit


2,208



1,972



4,232



3,666


Interest expense, net


158



126



316



252


Income before income tax provision


2,050



1,846



3,916



3,414


Income tax provision


804



721



1,541



1,335


Income from continuing operations


1,246



1,125



2,375



2,079


Loss from discontinued operations, net of tax




(1)





(1)


Net income


$

1,246



$

1,124



$

2,375



$

2,078















Basic earnings per share:













Income from continuing operations


$

1.07



$

0.92



$

2.03



$

1.69


Loss from discontinued operations


$



$



$



$


Net income


$

1.07



$

0.92



$

2.03



$

1.69


Weighted average basic shares outstanding


1,165



1,227



1,172



1,230















Diluted earnings per share:













Income from continuing operations


$

1.06



$

0.91



$

2.01



$

1.68


Loss from discontinued operations


$



$



$



$


Net income


$

1.06



$

0.91



$

2.01



$

1.68


Weighted average diluted shares outstanding


1,174



1,236



1,182



1,238















Dividends declared per share


$

0.275



$

0.225



$

0.550



$

0.450


 

 

CVS CAREMARK CORPORATION

Condensed Consolidated Balance Sheets

(Unaudited)













June 30,


December 31,

In millions, except per share amounts


2014



2013


Assets:







Cash and cash equivalents


$

1,612



$

4,089


Short-term investments


100



88


Accounts receivable, net


9,533



8,729


Inventories


11,360



11,045


Deferred income taxes


979



902


Other current assets


554



472


Total current assets


24,138



25,325


Property and equipment, net


8,820



8,615


Goodwill


28,126



26,542


Intangible assets, net


9,906



9,529


Other assets


1,603



1,515


Total assets


$

72,593



$

71,526









Liabilities:







Accounts payable


$

5,780



$

5,548


Claims and discounts payable


4,918



4,548


Accrued expenses


4,812



4,768


Current portion of long-term debt


1,119



561


Total current liabilities


16,629



15,425


Long-term debt


12,252



12,841


Deferred income taxes


4,091



3,901


Other long-term liabilities


1,489



1,421


Commitments and contingencies












Shareholders' equity:







CVS Caremark shareholders' equity:







Preferred stock, par value $0.01: 0.1 shares authorized; none issued or outstanding





Common stock, par value $0.01: 3,200 shares authorized; 1,688 shares issued and 1,160







shares outstanding at June 30, 2014 and 1,680 shares issued and 1,180 shares







outstanding at December 31, 2013


17



17


Treasury stock, at cost: 527 shares at June 30, 2014 and 500 shares at December 31,







2013


(22,131)



(20,169)


Shares held in trust: 1 share at June 30, 2014 and December 31, 2013


(31)



(31)


Capital surplus


30,186



29,777


Retained earnings


30,221



28,493


Accumulated other comprehensive income (loss)


(132)



(149)


Total CVS Caremark shareholders' equity


38,130



37,938


Noncontrolling interest


2




Total shareholders' equity


38,132



37,938


Total liabilities and shareholders' equity


$

72,593



$

71,526


 

 

CVS CAREMARK CORPORATION

Condensed Consolidated Statements of Cash Flows

(Unaudited)









Six Months Ended

June 30,

In millions


2014



2013


Cash flows from operating activities:







Cash receipts from customers


$

62,932



$

56,446


Cash paid for inventory and prescriptions dispensed by retail network pharmacies


(50,268)



(44,657)


Cash paid to other suppliers and employees


(7,787)



(7,452)


Interest received


6



2


Interest paid


(331)



(267)


Income taxes paid


(1,483)



(1,530)


Net cash provided by operating activities


3,069



2,542









Cash flows from investing activities:







Purchases of property and equipment


(891)



(804)


Proceeds from sale-leaseback transactions


5




Proceeds from sale of property and equipment


7



11


Acquisitions (net of cash acquired) and other investments


(2,248)



(300)


Purchase of available-for-sale investments


(161)




Sale or maturity of available-for-sale investments


103




Net cash used in investing activities


(3,185)



(1,093)









Cash flows from financing activities:







Decrease in short-term debt




(690)


Repayments of long-term debt


(41)




Dividends paid


(647)



(553)


Proceeds from exercise of stock options


266



309


Excess tax benefits from stock-based compensation


65



34


Repurchase of common stock


(2,001)



(748)


Net cash used in financing activities


(2,358)



(1,648)


Effect of exchange rates on cash


(3)



(2)


Net decrease in cash and cash equivalents


(2,477)



(201)


Cash and cash equivalents at the beginning of the period


4,089



1,375


Cash and cash equivalents at the end of the period


$

1,612



$

1,174









Reconciliation of net income to net cash provided by operating activities:







Net income


$

2,375



$

2,078


Adjustments required to reconcile net income to net cash provided by operating activities:







Depreciation and amortization


965



951


Stock-based compensation


77



66


Deferred income taxes and other non-cash items


44



82


Change in operating assets and liabilities, net of effects of acquisitions:







Accounts receivable, net


(584)



(575)


Inventories


(235)



192


Other current assets


(74)



165


Other assets


(23)



(138)


Accounts payable and claims and discounts payable


521



98


Accrued expenses


33



(401)


Other long-term liabilities


(30)



24


Net cash provided by operating activities


$

3,069



$

2,542


 

Adjusted Earnings Per Share
(Unaudited)

For internal comparisons, management finds it useful to assess year-over-year performance by adjusting diluted earnings per share for amortization, which primarily relates to acquisition activities.

The Company defines adjusted earnings per share as income before income tax provision plus amortization, less adjusted income tax provision, divided by the weighted average diluted shares outstanding.

The following is a reconciliation of income before income tax provision to adjusted earnings per share:



Three Months Ended

June 30,


Six Months Ended

June 30,

In millions, except per share amounts


2014



2013



2014



2013


Income before income tax provision


$

2,050



$

1,846



$

3,916



$

3,414


Amortization


133



124



264



246


Adjusted income before income tax provision


2,183



1,970



4,180



3,660


Adjusted income tax provision(1)


856



770



1,645



1,432


Adjusted net income


$

1,327



$

1,200



$

2,535



$

2,228















Weighted average diluted shares outstanding


1,174



1,236



1,182



1,238


Adjusted earnings per share


$

1.13



$

0.97



$

2.15



$

1.80



















(1) The adjusted income tax provision is computed using the effective income tax rate computed from the condensed consolidated statement of income.

 

Free Cash Flow
(Unaudited)

The Company defines free cash flow as net cash provided by operating activities less net additions to properties and equipment (i.e., additions to property and equipment plus proceeds from sale-leaseback transactions).

The following is a reconciliation of net cash provided by operating activities to free cash flow:



Six Months Ended

June 30,

In millions


2014



2013









Net cash provided by operating activities


$

3,069



$

2,542


Subtract: Additions to property and equipment


(891)



(804)


Add: Proceeds from sale-leaseback transactions


5




Free cash flow


$

2,183



$

1,738


 

Supplemental Information
(Unaudited)

The Company evaluates its Pharmacy Services and Retail Pharmacy Segment performance based on net revenue, gross profit and operating profit before the effect of nonrecurring charges and gains and certain intersegment activities. The Company evaluates the performance of its Corporate Segment based on operating expenses before the effect of nonrecurring charges and gains and certain intersegment activities. The following is a reconciliation of the Company's segments to the accompanying consolidated financial statements:

 

In millions


Pharmacy

Services

Segment(1)


Retail

Pharmacy

Segment


Corporate

Segment


Intersegment

Eliminations(2)


Consolidated

Totals

Three Months Ended
















June 30, 2014:
















Net revenues


$

21,836



$

16,871



$



$

(4,105)



$

34,602


Gross profit


1,195



5,299





(170)



6,324


Operating profit (loss)


878



1,705



(205)



(170)



2,208


June 30, 2013:
















Net revenues


18,800



16,139





(3,691)



31,248


Gross profit


963



5,005





(127)



5,841


Operating profit (loss)


675



1,600



(176)



(127)



1,972


Six Months Ended
















June 30, 2014:
















Net revenues


42,031



33,351





(8,091)



67,291


Gross profit


2,129



10,483





(346)



12,266


Operating profit (loss)


1,518



3,455



(395)



(346)



4,232


June 30, 2013:
















Net revenues


37,111



32,179





(7,291)



61,999


Gross profit


1,731



9,952





(265)



11,418


Operating profit (loss)


1,174



3,132



(375)



(265)



3,666


Total Assets:
















June 30, 2014


41,189



30,803



1,790



(1,189)



72,593


December 31, 2013


38,343



30,191



4,420



(1,428)



71,526


Goodwill:
















June 30, 2014


21,233



6,893







28,126


December 31, 2013


19,658



6,884







26,542


















(1) Net revenues of the Pharmacy Services Segment includes approximately $2.0 billion of retail co-payments for the three months ended both June 30, 2014 and 2013, as well as $4.2 billion of retail co-payments for the six months ended both June 30, 2014 and 2013.






















(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 June 30, 2014 and 2013, respectively, and $2.3 billion and $2.0 billion for the six months ended June 30, 2014 and 2013, respectively; and gross profit and operating profit of $170 million and $127 million for the three months ended June 30, 2014 and 2013, respectively, and $346 million and $265 million for the six months ended June 30, 2014 and 2013, respectively.

 

Supplemental Information
(Unaudited)

Pharmacy Services Segment

The following table summarizes the Pharmacy Services Segment's performance for the respective periods:



Three Months Ended

June 30,


Six Months Ended

June 30,

In millions


2014



2013



2014



2013















Net revenues


$

21,836



$

18,800



$

42,031



$

37,111


Gross profit


1,195



963



2,129



1,731


Gross profit % of net revenues


5.5

%


5.1

%


5.1

%


4.7

%

Operating expenses


317



288



611



557


Operating expense % of net revenues


1.5

%


1.5

%


1.5

%


1.5

%

Operating profit


878



675



1,518



1,174


Operating profit % of net revenues


4.0

%


3.6

%


3.6

%


3.2

%

Net revenues(1)(4):













Mail choice(2)


$

7,753



$

6,036



$

14,587



$

11,905


Pharmacy network(3)


14,025



12,709



27,327



25,100


Other


58



55



117



105


Pharmacy claims processed(1):













Total


230.9



226.6



458.7



454.3


Mail choice(2)


20.5



20.7



40.3



41.3


Pharmacy network(3)


210.4



205.9



418.4



413.0


Generic dispensing rate(1):













Total


82.4

%


80.7

%


82.0

%


80.6

%

Mail choice(2)


74.6

%


75.8

%


72.5

%


75.6

%

Pharmacy network(3)


83.2

%


81.1

%


83.0

%


81.0

%

Mail choice penetration rate


21.6

%


22.4

%


21.4

%


22.3

%














(1) Pharmacy network net revenues, claims processed and generic dispensing rates do not include Maintenance Choice, which are included within

the mail choice category.


(2) Mail choice is defined as claims filled at a Pharmacy Services mail facility, which include specialty mail claims, as well as 90-day claims filled at

retail under the Maintenance Choice program.


(3) Pharmacy network is defined as claims filled at retail pharmacies, including our retail drugstores, but excluding Maintenance Choice activity.


(4) 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.


 

Supplemental Information
(Unaudited)

Retail Pharmacy Segment

The following table summarizes the Retail Pharmacy Segment's performance for the respective periods:



Three Months Ended

June 30,


Six Months Ended

June 30,

In millions


2014



2013



2014



2013















Net revenues


$

16,871



$

16,139



$

33,351



$

32,179


Gross profit


5,299



5,005



10,483



9,952


Gross profit % of net revenues


31.4

%


31.0

%


31.4

%


30.9

%

Operating expenses


3,594



3,404



7,028



6,819


Operating expense % of net revenues


21.3

%


21.1

%


21.1

%


21.2

%

Operating profit


1,705



1,600



3,455



3,132


Operating profit % of net revenues


10.1

%


9.9

%


10.4

%


9.7

%

Retail prescriptions filled (90 Day = 3 Rx) (1)


230.3



219.7



457.4



440.1


Net revenue increase:













Total


4.5

%


2.0

%


3.6

%


1.1

%

Pharmacy


5.4

%


2.4

%


4.8

%


0.6

%

Front store


1.1

%


1.1

%


(0.6)

%


2.1

%

Total prescription volume (90 Day = 3 Rx) (1)


4.8

%


5.9

%


3.8

%


5.7

%

Same store increase (decrease)(2):













Total sales


3.3

%


0.5

%


2.4

%


(0.4)

%

Pharmacy sales


5.0

%


1.0

%


4.4

%


(0.8)

%

Front store sales


(0.4)

%


(0.4)

%


(2.1)

%


0.5

%

Prescription volume (90 Day = 3 Rx) (1)


3.9

%


5.0

%


3.0

%


4.8

%

Generic dispensing rate


83.5

%


81.9

%


83.2

%


81.6

%

Pharmacy % of total revenues


69.6

%


69.1

%


69.8

%


69.0

%

Third party % of pharmacy revenue


98.7

%


97.8

%


98.5

%


97.8

%


















(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 30-day prescription.


(2) Same store sales exclude revenues from MinuteClinic and stores in Brazil.

 

Adjusted Earnings Per Share Guidance
(Unaudited)

The following reconciliation of estimated income before income tax provision to estimated adjusted earnings per share contains forward-looking information. All forward-looking information involves risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking information for a number of reasons as described in our Securities and Exchange Commission filings, including those set forth in the Risk Factors section in our Annual Report on Form 10-K for the year ended December 31, 2013 and under the section entitled "Cautionary Statement Concerning Forward-Looking Statements" in our most recently filed Quarterly Report on Form 10-Q. For internal comparisons, management finds it useful to assess year-over-year performance by adjusting diluted earnings per share for amortization, which primarily relates to acquisition activities.

 

In millions, except per share amounts


Year Ending

December 31, 2014








Income before income tax provision


$

8,041



$

8,178


Amortization


518



520


Adjusted income before income tax provision


8,559



8,698


Adjusted income tax provision


3,371



3,422


Adjusted income from continuing operations


$

5,188



$

5,276









Weighted average diluted shares outstanding


1,172



1,170


Adjusted earnings per share from continuing operations


$

4.43



$

4.51


  

In millions, except per share amounts


Three Months Ending

September 30, 2014








Income before income tax provision


$

2,007



$

2,064


Amortization


125



127


Adjusted income before income tax provision


2,132



2,191


Adjusted income tax provision


841



863


Adjusted income from continuing operations


$

1,291



$

1,328









Weighted average diluted shares outstanding


1,168



1,167


Adjusted earnings per share from continuing operations


$

1.11



$

1.14


 

Free Cash Flow Guidance
(Unaudited)

The following reconciliation of net cash provided by operating activities to free cash flow contains forward-looking information. All forward-looking information involves risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking information for a number of reasons as described in our Securities and Exchange Commission filings, including those set forth in the Risk Factors section in our Annual Report on Form 10-K for the year ended December 31, 2013 and under the section entitled "Cautionary Statement Concerning Forward-Looking Statements" in our most recently filed Quarterly Report on Form 10-Q. For internal comparisons, management finds it useful to assess year-over-year cash flow performance by adjusting cash provided by operating activities, by capital expenditures and proceeds from sale-leaseback transactions.

In millions


Year Ending

December 31, 2014








Net cash provided by operating activities


$

7,150



$

7,450


Subtract: Additions to property and equipment


(2,300)



(2,200)


Add: Proceeds from sale-leaseback transactions


600



500


Free cash flow


$

5,450



$

5,750


 

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SOURCE CVS Caremark Corporation

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