CVS Caremark Reports Second Quarter Financial Results

CVS CAREMARK CORPORATION

Condensed Consolidated Statements of Income

(Unaudited)

Three Months Ended

Six Months Ended

June 30,

June 30,

In millions, except per share amounts

2010

2009

2010

2009

Net revenues

$    24,007

$    24,871

$    47,767

$    48,265

Cost of revenues

18,987

19,819

38,001

38,465

Gross profit

5,020

5,052

9,766

9,800

Operating expenses

3,519

3,452

6,855

6,823

Operating profit

1,501

1,600

2,911

2,977

Interest expense, net

135

128

263

270

Income before income tax provision

1,366

1,472

2,648

2,707

Income tax provision

544

583

1,054

1,074

Income from continuing operations

822

889

1,594

1,633

Loss from discontinued operations, net of tax

(1)

(3)

(3)

(8)

Net income

821

886

1,591

1,625

Net loss attributable to noncontrolling interest(1)

-

-

1

-

Net income attributable to CVS Caremark

$         821

$         886

$      1,592

$   1,625

Income from continuing operations attributable to CVS Caremark:

Income from continuing operations

$       822

$         889

$      1,594

$      1,633

Net loss attributable to noncontrolling interest

-

-

1

-

Income from continuing operations attributable to CVS Caremark

$       822

$        889

$      1,595

$      1,633

Basic earnings per common share:
Income from continuing operations attributable to CVS Caremark

$      0.61

$      0.61

$      1.16

$     1.12

Loss from discontinued operations

-

-

-

-

Net income attributable to CVS Caremark

$      0.61

$      0.61

$      1.16

$     1.12

Weighted average basic common shares outstanding

1,359

1,457

1,372

1,453

Diluted earnings per common share:
Income from continuing operations attributable to CVS Caremark

$      0.60

$      0.60

 $     1.15

$     1.11

Loss from discontinued operations

-

-

-

-

Net income attributable to CVS Caremark

$      0.60

$    0.60

$      1.15

$     1.11

Weighted average diluted common shares outstanding

1,369

1,472

1,381

1,470

Dividends declared per common share

$  0.08750

$  0.07625

$  0.17500

$  0.15250

(1) Represents the minority shareholders' portion of the net loss from our majority owned subsidiary Generation Health, Inc.

CVS CAREMARK CORPORATION

Condensed Consolidated Balance Sheets

(Unaudited)

In millions, except per share amounts

June 30,

2010

December 31,

2009

Assets:

Cash and cash equivalents

$  1,107

$  1,086

Short-term investments

4

5

Accounts receivable, net

5,101

5,457

Inventories

10,389

10,343

Deferred income taxes

498

506

Other current assets

171

140

Total current assets

17,270

17,537

Property and equipment, net

8,248

7,923

Goodwill

25,672

25,680

Intangible assets, net

9,949

10,127

Other assets

385

374

Total assets

$  61,524

$  61,641

Liabilities:

Accounts payable

$  3,867

$  3,560

Claims and discounts payable

2,482

3,075

Accrued expenses

2,603

3,246

Short-term debt

1,852

315

Current portion of long-term debt

655

2,104

Total current liabilities

11,459

12,300

Long-term debt

9,454

8,756

Deferred income taxes

3,633

3,678

Other long-term liabilities

1,070

1,102

Commitments and contingencies

Redeemable noncontrolling interest

36

37

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; 1,618 shares issued
and 1,356 shares outstanding at June 30, 2010 and 1,612 shares issued and
1,391 shares outstanding at December 31, 2009

16

16

Treasury stock, at cost: 260 shares at June 30, 2010 and 219 shares at
December 31, 2009

(9,073)

(7,610)

Shares held in trust: 2 shares at June 30, 2010 and December 31, 2009

(56)

(56)

Capital surplus

27,413

27,198

Retained earnings

17,705

16,355

Accumulated other comprehensive loss

(133)

(135)

Total shareholders' equity

35,872

35,768

Total liabilities and shareholders' equity

$  61,524

$  61,641

CVS CAREMARK CORPORATION

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Six Months Ended

June 30,

In millions

2010

2009

Cash flows from operating activities:

Cash receipts from revenues

$      45,745

$       45,497

Cash paid for inventory and prescriptions dispensed by retail network pharmacies

(35,386)

(35,665)

Cash paid to other suppliers and employees

(7,129)

(6,903)

Interest received

2

3

Interest paid

(284)

(284)

Income taxes paid

(1,236)

(1,325)

Net cash provided by operating activities

1,712

1,323

Cash flows from investing activities:

Additions to property and equipment

(866)

(1,091)

Proceeds from sale-leaseback transactions

-

503

Proceeds from sale or disposal of assets

10

6

Acquisitions (net of cash acquired) and investments

(25)

(26)

Maturity of short-term investments

1

-

Net cash used in investing activities

(880)

(608)

Cash flows from financing activities:

Increase (decrease) in short-term debt

1,537

(1,716)

Issuance of long-term debt

991

1,000

Repayments of long-term debt

(1,751)

(1)

Dividends paid

(241)

(221)

Derivative settlements

(5)

-

Proceeds from exercise of stock options

145

91

Excess tax benefits from stock-based compensation

13

5

Repurchase of common stock

(1,500)

-

Net cash used in financing activities

(811)

(842)

Net increase (decrease) in cash and cash equivalents

21

(127)

Cash and cash equivalents at beginning of period

1,086

1,352

Cash and cash equivalents at end of period

$         1,107

$         1,225

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

 Net income

$  1,591

$  1,625

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

   Depreciation and amortization

726

736

   Stock-based compensation

75

75

   Deferred income taxes and other non-cash items

(20)

61

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

   Accounts receivable, net

356

(136)

   Inventories

(46)

(255)

   Other current assets

(31)

(31)

   Other assets

(4)

(3)

   Accounts payable and claims and discounts payable

(286)

(52)

   Accrued expenses

(617)

(744)

   Other long-term liabilities

(32)

47

Net cash provided by operating activities

$  1,712

$  1,323

                                                                           Adjusted Earnings Per Share

                                                                                        (Unaudited)

Three Months Ended

Six Months Ended

June 30,

June 30,

In millions, except per share amounts

2010

2009

2010

2009

Income before income tax provision

$  1,366

$  1,472

$  2,648

$  2,707

Amortization

106

107

211

215

Adjusted income before income tax provision

1,472

1,579

2,859

2,922

Adjusted income tax provision(1)

586

625

1,138

1,160

Adjusted income from continuing operations

886

954

1,721

1,762

Net loss attributable to noncontrolling interest

-

-

1

-

Adjusted income from continuing operations attributable to CVS
Caremark

$         886

$         954

$         1,722

$    1,762

Weighted average diluted common shares outstanding

1,369

1,472

1,381

1,470

Adjusted earnings per share from continuing operations
attributable to CVS Caremark

$       0.65

$       0.65

$       1.25

$      1.20

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

                                                                     Adjusted Earnings Per Share Guidance

                                                                                          (Unaudited)

Year Ending

In millions, except per share amounts

December 31, 2010

Income before income tax provision

$  5,673

$  5,865

Amortization

425

435

Adjusted income before income tax provision

6,098

6,300

Adjusted income tax provision

2,421

2,539

Adjusted income from continuing operations

3,677

3,761

Net loss attributable to noncontrolling interest

4

4

Adjusted income from continuing operations attributable to CVS Caremark

$   3,681

$   3,765

Weighted average diluted common shares outstanding

1,375

1,380

Adjusted earnings per share from continuing operations attributable to CVS
Caremark

$    2.68

$    2.73

                                                                                    Free Cash Flow

                                                                                       (Unaudited)

Six Months Ended

June 30,

In millions

2010

2009

Net cash provided by operating activities

$  1,712

$     1,323

 Subtract:  Additions to property and equipment

(866)

(1,091)

 Add:  Proceeds from sale-leaseback transactions

-

503

Free cash flow

$     846

$       735

                                                                              Supplemental Information

                                                                                         (Unaudited)

In millions

Pharmacy
Services
Segment(1)

Retail
Pharmacy
Segment

Corporate
Segment

Intersegment
Eliminations(2)

Consolidated
Totals

Three Months Ended

June 30, 2010:
Net revenues

$      11,840

$   14,311

$  -

$    (2,144)

$       24,007

Gross profit

821

4,229

(30)

5,020

Operating profit (loss)

591

1,096

(156)

(30)

1,501

June 30, 2009(3):
Net revenues

$      13,008

$   13,797

$  -

$    (1,934)

$       24,871

Gross profit

931

4,131

(10)

5,052

Operating profit (loss)

697

1,056

(143)

(10)

1,600

Six Months Ended

June 30, 2010:
Net revenues

$      23,677

$   28,289

$  -

$    (4,199)

$       47,767

Gross profit

1,603

8,216

(53)

9,766

Operating profit (loss)

1,130

2,125

(291)

(53)

2,911

June 30, 2009(3):
Net revenues

$      24,543

$   27,294

$  -

$    (3,572)

$       48,265

Gross profit

1,729

8,087

(16)

9,800

Operating profit (loss)

1,234

2,028

(269)

(16)

2,977

(1) Net revenues of the Pharmacy Services segment include approximately $1.6 billion and $1.8 billion of retail co-payments
for the three months ended June 30, 2010 and 2009, respectively, and $3.4 billion of retail co-payments for the six
months ended June 30, 2010 and 2009.

(2) 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 record the revenue, gross profit and operating profit
on a standalone basis.  As a result, both the Pharmacy Services and the Retail Pharmacy segments include the
following results associated with this activity: net revenues of $430 million and $156 million for the three months ended
June 30, 2010 and 2009, respectively, and $770 million and $254 million for the six months ended June 30, 2010 and
2009, respectively; gross profit of $30 million and $10 million for the three months ended June 30, 2010 and 2009,
respectively, and $53 million and $16 million for the six months ended June 30, 2010 and 2009, respectively; and
operating profit of $30 million and $10 million for the three months ended June 30, 2010 and 2009, respectively, and $53
million and $16 million for the six months ended June 30, 2010 and 2009, respectively.

(3) The results for the three and six months ended June 30, 2009 have been revised to conform to the 2010 presentation.

Supplemental Information

(Unaudited)

Pharmacy Services Segment

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

Three Months Ended

Six Months Ended

June 30,

June 30,

In millions

2010

2009(1)

2010

2009(1)

Net revenues

$ 11,840

$   13,008

$23,677

$   24,543

Gross profit

821

931

1,603

1,729

Gross profit % of net revenues

6.9%

7.2%

6.8%

7.0%

Operating expenses

230

234

473

495

Operating expense % of net revenues

1.9%

1.8%

2.0%

2.0%

Operating profit

591

697

1,130

1,234

Operating profit % of net revenues

5.0%

5.4%

4.8%

5.0%

Net revenues(2):

Mail choice(3)

$    4,111

$     4,229

$ 8,189

$8,282

Pharmacy network(4)

7,630

8,689

15,300

16,089

Other

99

90

188

172

Pharmacy claims processed(2):

Total

144.3

164.1

291.7

327.5

Mail choice(3)

16.0

16.6

31.5

32.9

Pharmacy network(4)

128.3

147.5

260.2

294.6

Generic dispensing rate(2):

Total

71.0%

67.8%

70.7%

67.7%

Mail choice(3)

61.0%

56.3%

59.9%

55.9%

Pharmacy network(4)

72.2%

68.9%

71.9%

68.9%

Mail choice penetration rate

25.9%

24.0%

25.4%

23.8%

(1) The results for the three and six months ended June 30, 2009 have been revised to conform to the 2010 presentation of the
Pharmacy Services segment.

(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 program.

(4) Pharmacy network is defined as claims filled at retail pharmacies, including our retail drugstores.

                                                                     EBITDA and EBITDA per Adjusted Claim

                                                                                          (Unaudited)

Three Months Ended

Six Months Ended

June 30,

June 30,

In millions, except per adjusted claim  amounts

2010

2009(1)

2010

2009(1)

Operating profit

$  591

$  697

$  1,130

$  1,234

Depreciation and amortization

96

94

194

186

EBITDA

687

791

1,324

1,420

Adjusted claims

173.2

194.1

348.7

386.8

EBITDA per adjusted claim

$       3.96

$       4.07

$       3.79

$      3.67

(1) The three and six months ended June 30, 2009 have been revised to conform to the 2010 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:

.

Three Months Ended

Six Months Ended

June 30,

June 30,

In millions

2010

2009(1)

2010

2009(1)

Net revenues

$14,311

$13,797

$28,289

$27,294

Gross profit

4,229

4,131

8,216

8,087

Gross profit % of net revenues

29.6%

29.9%

29.0%

29.6%

Operating expenses

3,133

3,075

6,091

6,059

Operating expense % of net revenues

21.9%

22.3%

21.5%

22.2%

Operating profit

1,096

1,056

2,125

2,028

Operating profit % of net revenues

7.7%

7.7%

7.5%

7.4%

Net revenue increase(2):

Total

3.7%

17.2%

3.6%

15.6%

Pharmacy

4.2%

16.3%

4.4%

14.7%

Front store

2.8%

19.1%

2.0%

17.4%

Same store sales increase (decrease)(3):

Total

2.1%

6.1%

2.2%

4.7%

Pharmacy

2.9%

7.5%

3.3%

6.0%

Front store

0.4%

3.0%

(0.2)%

1.9%

Generic dispensing rate

72.7%

69.6%

72.4%

69.4%

Pharmacy % of total revenues

67.6%

67.3%

68.0%

67.5%

Third party % of pharmacy revenue

97.2%

96.9%

97.2%

96.8%

Retail prescriptions filled

157.5

153.2

314.8

305.7

(1) The results for the three and six months ended June 30, 2009 have been revised to conform to the
2010 presentation of the Retail Pharmacy segment.

(2) The net revenue increase for the three and six months ended June 30, 2009 include the results
associated with stores acquired from Longs Drug Stores Corporation in October 2008.

(3) Beginning in November 2009, same store sales increase includes the stores acquired from Longs
Drug Stores Corporation in October 2008.