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CVS Caremark Reports Record Results in Fourth Quarter and Fiscal 2009
Date:2/8/2010

WOONSOCKET, R.I., Feb. 8 /PRNewswire-FirstCall/ -- CVS Caremark Corporation (NYSE: CVS) today announced record revenues, operating profit, and income from continuing operations for the fourth quarter and fiscal year ended December 31, 2009.

(Logo: http://www.newscom.com/cgi-bin/prnh/20090226/NE75914LOGO)

Revenues

Net revenues for the fourth quarter of 2009, increased $1.7 billion to $25.8 billion, up from $24.1 billion in the fourth quarter of 2008. For fiscal year 2009, total revenue increased 12.9% to a record $98.7 billion, compared to $87.5 billion in fiscal year 2008.

Revenues in the pharmacy services segment increased 14.5% to $13.5 billion in the fourth quarter of 2009. Adjusting the growth rate for the impact of new generics, net revenues would have grown 18.3% in the pharmacy services segment. Pharmacy network claims processed during the fourth quarter of 2009 decreased 5.6% to 151.4 million, compared to 160.3 million in the fourth quarter of 2008. This decrease was primarily due to the termination of two large health plan clients effective January 1, 2009 and having three fewer reporting days in the fourth quarter of 2009 compared to the fourth quarter of 2008. This was partially offset by new client starts and the addition of RxAmerica claims for the full fourth quarter of 2009 as compared to a partial quarter in 2008. Mail choice claims processed during the fourth quarter of 2009 increased 4.4% to 16.7 million compared to 16.0 million in the fourth quarter of 2008 primarily as a result of net new client starts. For fiscal year 2009, total revenue in the pharmacy services segment increased 16.7% to $51.1 billion, compared to $43.8 billion in fiscal year 2008.

Revenues in the retail pharmacy segment increased 4.5% to $14.5 billion in the fourth quarter of 2009. Same store sales (sales from stores open more than one year) increased 4.9% in the fourth quarter of 2009. The growth rate of revenues in the retail pharmacy segment is lower than the growth rate of same store sales due to three fewer reporting days in the fourth quarter of 2009, as compared to the fourth quarter of 2008. Pharmacy same store sales rose 7.3% in the fourth quarter of 2009 and were negatively impacted by approximately 290 basis points due to recent generic introductions. Pharmacy same store sales in the fourth quarter of 2009 were positively impacted by approximately 270 basis points due to Maintenance Choice™. Front store same store sales increased 0.3% in the fourth quarter of 2009. For fiscal year 2009, total revenue in the retail pharmacy segment increased 13.0% to $55.4 billion, compared to $49.0 billion in fiscal year 2008.

The generic dispensing rate in our pharmacy services segment increased approximately 220 basis points to 68.9% and by approximately 260 basis points to 70.6% in our retail segment for the fourth quarter of 2009, compared to the fourth quarter of 2008.

Income from Continuing Operations

Income from continuing operations for the fourth quarter of 2009, increased 10.2% to $1.1 billion, compared to $1.0 billion during the fourth quarter of 2008. Adjusted earnings per share from continuing operations, which excludes $108 million of intangible asset amortization related to acquisition activity, for the fourth quarter of 2009 were $0.79 (including the $0.01 per diluted share income tax benefit), compared to $0.70 in the fourth quarter of 2008. GAAP earnings per diluted share from continuing operations for the fourth quarter of 2009 were $0.74 (including the $0.01 per diluted share income tax benefit), compared to $0.65 in the fourth quarter of 2008.

During the fiscal year ended December 31, 2009, the Company recorded approximately $167 million, or $0.12 per diluted share, of previously unrecognized tax benefits.

Income from continuing operations for the fiscal year ended December 31, 2009, increased 10.9% to $3.7 billion, compared to $3.3 billion in fiscal year 2008. Adjusted earnings per share from continuing operations, which excludes $430 million of intangible asset amortization related to acquisition activity, for 2009 were $2.74 (including the $0.12 per diluted share income tax benefit), compared to $2.44 in fiscal year 2008. GAAP earnings per diluted share from continuing operations for fiscal year 2009 were $2.56 (including the $0.12 per diluted share income tax benefit), compared with $2.27 in fiscal year 2008.

Tom Ryan, Chairman, President, and Chief Executive Officer, said, "We made good progress in 2009 in solidifying our position as the largest pharmacy health care provider in the nation with the broadest capabilities.  We continued to make investments and forge strategic alliances that will enable us to capitalize on the evolving health care landscape and further differentiate our offerings in the marketplace.  At the same time, we delivered financial performance ahead of our initial plan for the year, including the solid quarter we announced today. I'm very pleased to report continued industry-leading performance in our retail pharmacy business and solid performance in our PBM, which resulted in double-digit EPS growth and significant free cash flow generation."

Loss from Discontinued Operations

In connection with certain business dispositions completed between 1991 and 1997, the Company retained guarantees on store lease obligations for a number of former subsidiaries, including Linens 'n Things. The Company's loss from discontinued operations for the fourth quarter and fiscal year ended December 31, 2009 included $2 million ($3 million net of a $1 million income tax benefit) and $12 million ($19 million net of a $7 million income tax benefit) of lease-related costs, respectively. The loss from discontinued operations for the fourth quarter and fiscal year ended December 31, 2008 included $1 million ($1 million net of a de minimis income tax benefit) and $132 million ($214 million net of an $82 million income tax benefit) of lease-related costs, respectively.

Real Estate Program

During the fourth quarter of 2009, CVS Caremark opened 23 new retail pharmacy stores, and closed 6 retail pharmacy stores and 2 specialty pharmacy stores. In addition, the Company relocated 8 retail pharmacy stores. As of December 31, 2009, the Company operated 7,025 retail pharmacy stores, 49 specialty pharmacy stores, 18 specialty mail order pharmacies and 6 mail order pharmacies in 44 states, the District of Columbia and Puerto Rico.

Teleconference and Webcast

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

About the Company

CVS Caremark is the largest pharmacy health care provider in the United States.  Through our integrated offerings across the entire spectrum of pharmacy care, we are uniquely positioned to provide greater access, to engage plan participants in behaviors that improve their health, and to lower overall health care costs for plan sponsors and participants. CVS Caremark is a market leader in mail order pharmacy, retail pharmacy, specialty pharmacy, and retail clinics. We are also a leading provider of Medicare Part D Prescription Drug Plans. As one of the country's largest pharmacy benefit managers (PBMs), we provide access to a network of approximately 64,000 pharmacies, including approximately 7,000 CVS/pharmacy stores that provide unparalleled service and capabilities. Our clinical expertise includes one of the industry's most comprehensive disease management programs. General information about CVS Caremark is available through the Company's Web site at http://info.cvscaremark.com.  

Forward-looking Statements

This press release contains certain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially. For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The Company strongly recommends that you become familiar with the specific risks and uncertainties outlined under the Risk Factors section in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 and under the section entitled "Cautionary Statement Concerning Forward-Looking Statements" in our most recently filed Quarterly Report on Form 10-Q.

– Tables Follow –

    
    
    
    
                             CVS CAREMARK CORPORATION
                       Consolidated Statements of Operations 
                                   (Unaudited)
    
    In millions,               Fourth Quarter Ended(1) Fiscal Year Ended(1)
     except per                  December   December  December  December
     share amounts               31, 2009   31, 2008  31, 2009  31, 2008
    --------------               --------   --------  --------  --------
    
    Net revenues                   $25,822   $24,142   $98,729   $87,472
    Cost of revenues                20,254    18,918    78,349    69,182
    ----------------                ------     -----    ------     -----
    Gross profit                     5,568     5,224    20,380    18,290
    Operating expenses               3,673     3,492    13,942    12,244
    ------------------               -----      ----    ------     -----
    Operating profit                 1,895     1,732     6,438     6,046
    Interest expense, net              133       151       525       509
    ---------------------              ---       ---       ---       ---
    Income from continuing
     operations before income
     tax provision                   1,762               5,913
                                               1,581               5,537
    Income tax provision               711       627     2,205     2,193
    --------------------               ---       ---     -----     -----
    Income from continuing
     operations                      1,051       954     3,708     3,344
    Loss from discontinued
     operations, net of
     tax benefit(2)                     (2)       (1)      (12)     (132)
    --------------------------         ---       ---       ---      ----
    Net income                       1,049       953     3,696     3,212
    Preference dividends, net
     of income tax benefit(3)            -         4         -        14
    -----------------------------      ---       ---       ---       ---
    Net income available to
     common shareholders            $1,049      $949    $3,696    $3,198
    -----------------------         ------      ----    ------    ------
    
    Basic earnings per common
     share:
      Income from continuing
       operations                    $0.75     $0.66     $2.59     $2.32
      Loss from discontinued
       operations                        -         -     (0.01)    (0.09)
      ----------------------           ---       ---     -----     -----
      Net income                     $0.75     $0.66     $2.58     $2.23
      ----------                     -----     -----     -----     -----
      Weighted average basic
       common shares
       outstanding                   1,400     1,437     1,434     1,434
      ----------------------         -----     -----     -----     -----
    
    Diluted earnings per common
     share(3):
      Income from continuing
       operations                    $0.74     $0.65     $2.56     $2.27
      Loss from discontinued 
       operations                        -         -     (0.01)    (0.09)
      ----------------------           ---       ---     -----     -----
      Net income                     $0.74     $0.65     $2.55     $2.18
      ----------                     -----     -----     -----     -----
      Weighted average diluted
       common shares
       outstanding                   1,413     1,467     1,450     1,469
      ------------------------       -----     -----     -----     -----
    Dividends declared per
     common share                 $0.07625  $0.06900  $0.30500  $0.25800
    ----------------------        --------  --------  --------  --------
    
    
    (1) On December 23, 2008, the Company's Board of Directors approved a
        change in the Company's fiscal year end from the Saturday nearest 
        December 31 of each year to December 31 of each year to better reflect
        the Company's position in the health care, rather than the retail, 
        industry. As you review the Company's operating performance, please 
        consider that the fourth quarter of 2009 and 2008 include 92 days and
        95 days, respectively, and the fiscal years ended December 31, 2009 
        and 2008 include 365 days and 368 days, respectively.
    
    (2) In connection with certain business dispositions completed between 
        1991 and 1997, the Company continues to guarantee store lease 
        obligations for a number of former subsidiaries, including Linens 'n 
        Things. On May 2, 2008, Linens Holding Co. and certain affiliates, 
        which operate Linens 'n Things, filed voluntary petitions under 
        Chapter 11 of the United States Bankruptcy Code in the United States 
        Bankruptcy Court for the District of Delaware. Pursuant to the court 
        order entered on October 16, 2008, Linens Holding Co. is in the 
        process of liquidating the entire Linens 'n Things retail chain. The 
        Company's loss from discontinued operations for the fourth quarter and
        fiscal year ended December 31, 2009 included $2 million ($3 million 
        net of a $1 million income tax benefit) and $12 million ($19 million 
        net of a $7 million income tax benefit) of lease-related costs, 
        respectively. The loss from discontinued operations for the fourth 
        quarter and fiscal year ended December 31, 2008 included $1 million 
        ($1 million net of a de minimis income tax benefit) and $132 million 
        ($214 million net of an $82 million income tax benefit) of lease-
        related costs, respectively.
    
    (3) Diluted earnings per common share is computed by dividing (i) net 
        income, after accounting for the difference between the dividends on 
        the ESOP preference stock and common stock and after making 
        adjustments for the incentive compensation plans by (ii) basic shares 
        plus the additional shares that would be issued assuming that all 
        dilutive stock awards are exercised and the ESOP preference stock is 
        converted into common stock. The dilutive income adjustment related to
        preference dividends was $1 million and $3 million for the fourth 
        quarter and fiscal year ended December 31, 2008, respectively.  
    
    
    
    
    
                              CVS CAREMARK CORPORATION
                            Consolidated Balance Sheets
                                    (Unaudited)
    
                                                    December 31,  December 31,
    In millions, except per share amounts                  2009          2008
    -------------------------------------                  ----          ----
    Assets:
      Cash and cash equivalents                          $1,086        $1,352
      Short-term investments                                  5            --
      Accounts receivable, net                            5,457         5,384
      Inventories                                        10,343         9,153
      Deferred income taxes                                 506           435
      Other current assets                                  140           202
      --------------------
        Total current assets                             17,537        16,526
    
      Property and equipment, net                         7,923         8,125
      Goodwill                                           25,680        25,494
      Intangible assets, net                             10,127        10,446
      Other assets                                          374           369
      ------------                                          ---           ---
        Total assets                                    $61,641       $60,960
        ------------                                    -------       -------
    
    Liabilities:
      Accounts payable                                   $3,560        $3,801
      Claims and discounts payable                        3,075         2,814
      Accrued expenses                                    3,246         3,178
      Short-term debt                                       315         3,044
      Current portion of long-term debt                   2,104           653
      ---------------------------------                   -----           ---
        Total current liabilities                        12,300        13,490
    
      Long-term debt                                      8,756         8,057
      Deferred income taxes                               3,678         3,702
      Other long-term liabilities                         1,102         1,137
      Commitments and contingencies
      Redeemable noncontrolling interest                     37            --
    
    Shareholders' equity:
      Preference stock, series one ESOP convertible, 
       par value $1.00: 50 shares authorized; no issued 
       and outstanding shares at December 31, 2009 and 4 
       shares issued and outstanding at
       December 31, 2008                                     --           191
      Common stock, par value $0.01: 3,200 shares 
       authorized; 1,612 shares issued and 1,393 shares 
       outstanding at December 31, 2009 and 1,603 shares 
       issued and 1,438 shares outstanding at 
       December 31, 2008                                     16            16
      Treasury stock, at cost: 219 shares at
       December 31, 2009 and 165 shares at 
       December 31, 2008                                 (7,610)       (5,812)
      Shares held in trust: 2 shares at December 31, 
       2009 and December 31, 2008                           (56)          (56)
      Capital surplus                                    27,198        27,280
      Retained earnings                                  16,355        13,098
      Accumulated other comprehensive loss                 (135)         (143)
    --------------------------------------                 ----          ----
       Total shareholders' equity                        35,768        34,574
    -----------------------------                        ------        ------
    Total liabilities and shareholders' equity          $61,641       $60,960
    ------------------------------------------          -------       -------
    
    
    
    
    
                           CVS CAREMARK CORPORATION
                     Consolidated Statements of Cash Flows
                                  (Unaudited)
    
                                                       Fiscal Year Ended(1)
                                                  December 31,   December 31,
    In millions                                          2009           2008
    -----------                                          ----           ----
    Cash flows from operating activities:
      Cash receipts from revenues                      $93,568        $82,250
      Cash paid for inventory and prescriptions 
       dispensed by retail network pharmacies          (73,536)       (64,131)
      Cash paid to other suppliers and employees       (13,121)       (11,832)
      Interest received                                      5             20
      Interest paid                                       (542)          (574)
      Income taxes paid                                 (2,339)        (1,786)
    -------------------                                 ------         ------
    Net cash provided by operating activities            4,035          3,947
    -----------------------------------------            -----          -----
    Cash flows from investing activities:
      Additions to property and equipment               (2,548)        (2,180)
      Proceeds from sale-leaseback transactions          1,562            204
      Proceeds from sale or disposal of assets              23             19
      Acquisitions (net of cash acquired) and
       investments                                        (101)        (2,651)
      Purchase of short-term investments                    (5)            --
      Sale of short-term investments                        --             28
    --------------------------------
    Net cash used in investing activities               (1,069)        (4,580)
    -------------------------------------               ------         ------
    Cash flows from financing activities:
      Increase (decrease) in short-term debt            (2,729)           959
      Repayment of debt assumed in
       acquisition                                                       (353)
        Additions to long-term debt                      2,800            350
        Reductions in long-term debt                      (653)            (2)
      Dividends paid                                      (439)          (383)
        Derivative settlements                              (3)
      Proceeds from exercise of stock options              250            328
      Excess tax benefits from stock-based
       compensation                                         19             53
        Repurchase of common stock                      (2,477)           (23)
    ------------------------------                      ------            ---
    Net cash  provided by (used in)
     financing activities                               (3,232)           929
    -------------------------------                     ------            ---
    Net increase (decrease) in cash and
     cash equivalents                                     (266)           296
    Cash and cash equivalents at beginning
     of period                                           1,352          1,056
    --------------------------------------               -----          -----
    Cash and cash equivalents at end of period          $1,086         $1,352
    ------------------------------------------          ------         ------
    Reconciliation of net income to net cash provided 
     by operating activities:
      Net income                                        $3,696         $3,212
      Adjustments required to reconcile net income 
       to net cash provided by operating activities:
        Depreciation and amortization                    1,389          1,274
        Stock-based compensation                           165             92
        Deferred income taxes and other non-cash items      48             (3)
      Change in operating assets and liabilities, net 
       of effects of acquisitions:
        Accounts receivable, net                           (86)          (291)
        Inventories                                     (1,199)          (488)
        Other current assets                                48             12
        Other assets                                        (2)            19
        Accounts payable and claims and
         discounts payable                                   4            (64)
        Accrued expenses                                   (66)           183
        Other long-term liabilities                         38              1
    -------------------------------                        ---             --
    Net cash provided by operating activities           $4,035         $3,947
    -----------------------------------------           ------         ------
    
    (1) On December 23, 2008, the Company's Board of Directors approved a 
        change in the Company's fiscal year end from the Saturday nearest 
        December 31 of each year to December 31 of each year to better reflect
        the Company's position in the health care, rather than the retail, 
        industry. As you review the Company's operating performance, please 
        consider that the fiscal years ended December 31, 2009 and 2008 
        include 365 days and 368 days, respectively.
    
    
    

Adjusted Earnings Per Share

(Unaudited)

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

The Company defines adjusted earnings per share as income from continuing operations before income taxes plus amortization, less income tax provision and dilutive income adjustment, divided by the weighted average diluted common shares outstanding.

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

    
    
                  
                  
                  
    In millions,            (Unaudited)                 (Unaudited)
     except            Fourth Quarter Ended(1)      Fiscal Year Ended(1)
     per share        December 31,  December 31,  December 31,  December 31,
     amounts              2009          2008          2009          2008
    -----------       -----------   -----------   -----------   -----------
    Income from
     continuing
     operations before 
     income tax
     provision            $1,762        $1,581        $5,913        $5,537
    Amortization             108           111           430           405
    Adjusted income from
     continuing operations
     before income tax
     provision             1,870         1,692         6,343         5,942
    Adjusted income tax
     provision(2)            754           671         2,366         2,353
    -------------            ---           ---         -----         -----
    Adjusted net income 
     from continuing 
     operations            1,116         1,021         3,977         3,589
    Dilutive income
     adjustment               --            (1)           --            (3)
    -----------              ---           ---           ---           ---
    Adjusted net income from
     continuing operations
     available to common
     shareholders          1,116         1,020         3,977         3,586
    -------------          -----         -----         -----         -----
    Weighted average
     diluted common shares       
     outstanding           1,413         1,467         1,450         1,469
    Adjusted earnings per
     share from continuing
     operations(3)         $0.79         $0.70         $2.74         $2.44
    --------------         -----         -----         -----         -----
    
    
    (1) On December 23, 2008, the Company's Board of Directors approved a 
        change in the Company's fiscal year end from the Saturday nearest 
        December 31 of each year to December 31 of each year to better reflect
        the Company's position in the health care, rather than the retail, 
        industry. As you review the Company's operating performance, please 
        consider that the fourth quarter of 2009 and 2008 include 92 days and 
        95 days, respectively, and the fiscal years ended December 31, 2009 
        and 2008 include 365 days and 368 days, respectively.
    
    (2) The adjusted income tax provision is computed using the same effective
        income tax rate from the consolidated statement of operations.
    
    (3) Excluding the impact of approximately $7 million and $167 million of 
        previously unrecognized tax benefits that were recognized in the 
        fourth quarter and fiscal year ended December 31, 2009, adjusted 
        earnings per share from continuing operations would have been $0.78 
        and $2.62 for the fourth quarter and fiscal year ended December 31, 
        2009, respectively.
    
    
    

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:

    
    
    
    
                                                       (Unaudited)
                                                   Fiscal Year Ended(1)
    In millions                                 December 31,   December 31,
    -----------                                     2009          2008
                                                -----------    -----------
    Net income                                     $3,696        $3,212
    Non-cash charges (including
     depreciation and amortization)                 1,602         1,363
    Change in operating assets and liabilities, 
     net of effects of acquisitions                (1,263)         (628)
    -------------------------------------------    ------          ----
    Net cash provided by operating activities       4,035         3,947
     Subtract:  Additions to property and
      equipment                                    (2,548)       (2,180)
     Add:  Proceeds from sale-leaseback
      transactions                                  1,562           204
    -----------------------------------             -----           ---
    Free cash flow                                 $3,049        $1,971
    --------------                                 ------        ------
    
    (1) On December 23, 2008, the Company's Board of Directors approved a 
        change in the Company's fiscal year end from the Saturday nearest 
        December 31 of each year to December 31 of each year to better reflect
        the Company's position in the health care, rather than the retail, 
        industry. As you review the Company's operating performance, please 
        consider that the fiscal years ended December 31, 2009 and 2008 
        include 365 days and 368 days, respectively.
    
    
    

Supplemental Unaudited Information

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

    
    
    
                                                                
                  Pharmacy    Retail                   
                  Services   Pharmacy               Intersegment
                  Segment    Segment   Corporate    Eliminations  Consolidated
    In millions    (2)(4)      (4)      Segment        (3)(4)        Totals
    -----------   --------   --------  ---------   -------------  ------------
                                                                   
    Fourth Quarter
     Ended(1):
     December 31, 
      2009:                                            
      Net revenues $13,492    $14,455     $--         $(2,125)      $25,822
      Gross profit   1,075      4,511      --             (18)        5,568
      Operating 
       profit (loss)   833      1,220    (140)            (18)        1,895
     December 31, 
      2008(5):                                                         
      Net revenues $11,784    $13,832     $--         $(1,474)      $24,142
      Gross profit   1,020      4,204      --              --         5,224
      Operating 
       profit (loss)   809      1,051    (128)             --         1,732
    
    Fiscal Year
     Ended(1):
     December 31, 
      2009:                                            
      Net revenues $51,065    $55,355     $--         $(7,691)      $98,729
      Gross profit   3,835     16,593      --             (48)       20,380
      Operating 
       profit (loss) 2,866      4,159    (539)            (48)        6,438
     December 31, 
      2008(5):                                                         
      Net revenues $43,769    $48,990     $--         $(5,287)      $87,472
      Gross profit   3,550     14,741      --              (1)       18,290
      Operating 
       profit (loss) 2,755      3,753    (461)             (1)        6,046
    
    (1) On December 23, 2008, the Company's Board of Directors approved a 
        change in the Company's fiscal year end from the Saturday nearest 
        December 31 of each year to December 31 of each year to better 
        reflect the Company's position in the health care, rather than the 
        retail, industry. As you review the Company's operating performance, 
        please consider that the fourth quarter of 2009 and 2008 include 92
        days and 95 days, respectively, and the fiscal years ended December 
        31, 2009 and 2008 include 365 days and 368 days, respectively.
    
    (2) Net revenues of the Pharmacy Services segment include approximately 
        $1.7 billion and $1.6 billion of Retail co-payments for the fourth 
        quarters ended December 31, 2009 and December 31, 2008, respectively. 
        Net revenues of the Pharmacy Services segment include approximately 
        $6.9 billion and $6.3 billion of Retail co-payments for the fiscal 
        years ended December 31, 2009 and December 31, 2008, respectively.
    
    (3) Intersegment eliminations relate to two types of transactions: (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 standalone 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 will
        record the revenue, gross profit and operating profit on a standalone 
        basis.
    
    (4) When Pharmacy Services segment customers elect to pick-up their 
        maintenance prescriptions at Retail Pharmacy segment stores through 
        the Company's intersegment activities (such as the Maintenance Choice 
        program) instead of receiving them through the mail, both segments 
        record the corresponding revenue, gross profit and operating profit in
        their respective segment results. As a result, both the Pharmacy 
        Services and the Retail Pharmacy segments include the following 
        results associated with this activity: net revenues of $242 million 
        and $692 million for the fourth quarter and fiscal year ended December
        31, 2009, respectively; net revenues of $4 million and $8 million for 
        the fourth quarter and fiscal year ended December 31, 2008, 
        respectively; gross profit of $18 million and $48 million for the 
        fourth quarter and fiscal year ended December 31, 2009, respectively; 
        gross profit of less than $1 million and $1 million for the fourth 
        quarter and fiscal year ended December 31, 2008, respectively; 
        operating profit of $18 million and $48 million for the fourth quarter
        and fiscal year ended December 31, 2009, respectively; operating 
        profit of less than $1 million and $1 million for the fourth quarter 
        and fiscal year ended December 31, 2008, respectively.
    
    (5) The fourth quarter and fiscal year ended December 31, 2008 have been 
        revised to conform to the current presentation of our reportable 
        segments.
    
    
    

Supplemental Information

(Unaudited)

Pharmacy Services Segment

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

    
    
    
    
                            (Unaudited)                 (Unaudited)
                      Fourth Quarter Ended(1)       Fiscal Year Ended(1)
                    December 31,   December 31,  December 31,   December 31,
    In millions         2009         2008(6)         2009         2008(6)
    ---------       --------------------------   --------------------------
    As reported:
    ----------
    Net revenues       $13,492       $11,784        $51,065       $43,769
    Gross profit         1,075         1,020          3,835         3,550
      Gross profit
       % of net revenues   8.0%          8.7%           7.5%          8.1%
    Operating expenses     242           211            969           795
      Operating expense 
       % of net revenues   1.8%          1.8%           1.9%          1.8%
    Operating profit       833           809          2,866         2,755
      Operating profit
       % of net revenues   6.2%          6.9%           5.6%          6.3%
    --------------------   ---           ---            ---           ---
    Net revenues(2):
      Mail choice(3)     $4,273        $4,020        $16,711       $14,909
      Pharmacy network(4) 9,132         7,670         34,004        28,482
      Other                  87            94            350           378
    Pharmacy claims
     processed(2):
      Total               168.1         176.3          658.5         633.4
      Mail choice(3)       16.7          16.0           66.0          60.9
      Pharmacy network(4) 151.4         160.3          592.5         572.5
    Generic dispensing
     rate(2):
      Total                68.9%         66.7%          68.2%         65.1%
      Mail choice(3)       57.4%         55.2%          56.5%         54.4%
      Pharmacy network(4)  70.0%         67.7%          69.3%         66.2%
    Mail choice
     penetration rate(5)   23.6%         21.7%          23.8%         22.9%
    -------------------    ----          ----           ----          ----
    
    
    (1) On December 23, 2008, the Company's Board of Directors approved a 
        change in the Company's fiscal year end from the Saturday nearest 
        December 31 of each year to December 31 of each year to better reflect
        the Company's position in the health care, rather than the retail, 
        industry. As you review the Company's operating performance, please 
        consider that the fourth quarter of 2009 and 2008 include 92 days and 
        95 days, respectively, and the fiscal years ended December 31, 2009 
        and 2008 include 365 days and 368 days, respectively.
    
    (2) Pharmacy network net revenues, claims processed and generic dispensing
        rates do not include Maintenance Choice, which are included within the
        mail choice category. 
    
    (3) Mail choice is defined as claims filled at a Pharmacy Services mail 
        facility, which includes specialty mail claims, as well as 90-day 
        claims filled at retail under the Maintenance Choice(TM) program. 
    
    (4) Pharmacy network is defined as claims filled at retail pharmacies, 
        including CVS/pharmacy stores.
    
    (5) Excluding the impact of RxAmerica, the mail choice penetration rate 
        would have been 26.1% and 26.2% for the fourth quarter of 2009 and for
        the fiscal year ended December 31, 2009, respectively. 
    
    (6) The fourth quarter and fiscal year ended December 31, 2008 have been 
        revised to conform to the current presentation of our reportable 
        segments.
    
    
    

EBITDA and EBITDA per Adjusted Claim

(Unaudited)

The Company defines EBITDA as income before interest, taxes, depreciation and amortization. We define EBITDA per adjusted claim as EBITDA divided by adjusted pharmacy claims. Adjusted pharmacy claims normalize the claims volume statistic for the difference in average days' supply for mail and retail claims. Adjusted pharmacy claims are calculated by multiplying 90-day claims (the majority of total mail claims) by 3 and adding the 30-day claims. EBITDA can be reconciled to operating profit, which we believe to be the most directly comparable GAAP financial measure.

The following is a reconciliation of operating profit to EBITDA:

    
    
    
    
    Pharmacy Services Segment      
    In millions, except       (Unaudited)                (Unaudited)
     per adjusted       Fourth Quarter Ended (1)     Fiscal Year Ended (1)
     claim amounts     December 31,  December 31,  December 31,  December 31,
                           2009       2008(2)(3)       2009       2008(2)(3)
    Operating profit       $833          $809        $2,866         $2,755
    Depreciation and
     amortization           100            91           377            357
    EBITDA                 $933          $900        $3,243         $3,112
    Adjusted claims       198.2         204.8         777.5          742.3
    EBITDA per adjusted
     claim                $4.71         $4.40         $4.17          $4.19
    
    (1) On December 23, 2008, the Company's Board of Directors approved a 
        change in the Company's fiscal year end from the Saturday nearest 
        December 31 of each year to December 31 of each year to better reflect
        the Company's position in the health care, rather than the retail, 
        industry. As you review the Company's operating performance, please 
        consider that the fourth quarter of 2009 and 2008 include 92 days and 
        95 days, respectively, and the fiscal years ended December 31, 2009 
        and 2008 include 365 days and 368 days, respectively.
    
    (2) Excluding the impact of RxAmerica, EBITDA per adjusted claim would 
        have been $4.89 for the fourth quarter of 2009 and $4.43 for the 
        fiscal year ended December 31, 2009. 
    
    (3) The fourth quarter and fiscal year ended December 31, 2009 have been 
        revised to conform to the current presentation of the Pharmacy 
        Services segment's operating profit and depreciation and amortization.
    
    
    

Supplemental Information

(Unaudited)

Retail Pharmacy Segment

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

    
    
    
    
                           (Unaudited)                  (Unaudited)
                     Fourth Quarter Ended(1)         Fiscal Year Ended(1)
                    December 31,   December 31,   December 31,   December 31,
    In millions         2009          2008(3)         2009          2008(3)
    -----------     --------------------------    --------------------------
    Net revenues      $14,455        $13,832        $55,355       $48,990
    Gross profit        4,511          4,204         16,593        14,741
      Gross profit
       % of net revenues 31.2%          30.4%          30.0%         30.1%
    Operating expenses  3,291          3,153         12,434        10,988
      Operating expense
       % of net revenues 22.8%          22.8%          22.5%         22.4%
    Operating profit    1,220          1,051          4,159         3,753
      Operating profit
       % of net revenues  8.4%           7.6%           7.5%          7.7%
    --------------------  ---            ---            ---           ---
    Net revenue increase:
      Total               4.5%          18.8%          13.0%          8.7%
      Pharmacy            6.0%          17.2%          13.1%          8.1%
      Front store         1.5%          22.4%          12.7%         10.1%
    Same store sales
     increase(2):
      Total               4.9%           3.6%           5.0%          4.5%
      Pharmacy            7.3%           4.5%           6.9%          4.8%
      Front store         0.3%           1.8%           1.2%          3.6%
    Generic dispensing
     rates               70.6%          68.0%          69.9%         67.4%
    Pharmacy % of total
     revenues            66.8%          65.8%          67.5%         67.5%
    Third party % of
     pharmacy revenue    97.1%          96.2%          96.9%         96.1%
    Retail 
     prescriptions
     filled             159.0          152.6          616.5         559.0
    --------------      -----          -----          -----         -----
    
    (1) On December 23, 2008, the Company's Board of Directors approved a 
        change in the Company's fiscal year end from the Saturday nearest 
        December 31 of each year to December 31 of each year to better reflect
        the Company's position in the health care, rather than the retail, 
        industry. As you review the Company's operating performance, please 
        consider that the fourth quarter of 2009 and 2008 include 92 days and 
        95 days, respectively, and the fiscal years ended December 31, 2009 
        and 2008 include 365 days and 368 days, respectively.
    
    (2) Same store sales increase includes the Longs Drug stores beginning in 
        November 2009. 
    
    (3) The fourth quarter and fiscal year ended December 31, 2008 have been 
        revised to conform to the current presentation of our reportable 
        segments.
    
    
    

Supplemental Information

(Unaudited)

Corporate Segment

The following table summarizes our Corporate segment's performance for the respective periods:

    
    
                            (Unaudited)                 (Unaudited)
                      Fourth Quarter Ended(1)      Fiscal Year Ended(1)
                     December 31,   December 31, December 31,   December 31,
    In millions          2009          2008          2009          2008
    -----------      -----------    -----------  -----------    -----------
    Operating expenses   $140          $128          $539          $461
    ------------------    ----         ----          ----          ----
    
    (1) On December 23, 2008, the Company's Board of Directors approved a 
        change in the Company's fiscal year end from the Saturday nearest 
        December 31 of each year to December 31 of each year to better reflect
        the Company's position in the health care, rather than the retail, 
        industry. As you review the Company's operating performance, please 
        consider that the fourth quarter of 2009 and 2008 include 92 days and 
        95 days, respectively, and the fiscal years ended December 31, 2009 
        and 2008 include 365 days and 368 days, respectively.
    
    
    

SOURCE CVS Caremark Corporation

RELATED LINKS
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SOURCE CVS Caremark Corporation
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