Caremark 1998 Annual Report Download

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Table of contents

  • Page 1

  • Page 2
    ... store sales rose 10.8%, while pharmacy same store sales jumped 16.5%. T his year, you can view our entire Annual Report on CVS' Investor Information Web site. Our updated Web site provides the public with easy access to important corporate information. The Investor Information portion of our Web...

  • Page 3
    Financial Highlights In millions, except per share data 1998 1997 % Change Sales Operating profit* Earnings from continuing operations* Diluted earnings per common share from continuing operations* Closing stock price per common share Total market capitalization $15,273.6 940.5 510.1 1.26 55 21,...

  • Page 4
    ... the future Stanley P . Goldstein Chairman of the Board (left) and Thomas M. Ryan President and Chief Executive Officer Mr. Goldstein and Mr. Ryan visit the CVS distribution center in Woonsocket, Rhode Island-one of ten distribution centers throughout the country that serve over 4,100 stores in...

  • Page 5
    ... we are proactively working with our managed care partners to align incentives to lower costs and improve care. We are pleased to report that there are signs that the pressure on our pharmacy margin is beginning to ease. Cost control has always been a key priority for CVS and 1998 was no exception...

  • Page 6
    ... to what CVS has to offer. Revco's solid pharmacy franchise continues to show Accelerated Real Estate Development Program Is Expected to Provide Significant Growth In October 1998, based on our strong real estate pipeline and solid financial position, we decided to ramp up our new store program. 4

  • Page 7
    ... starts with location, and we strive for the best sites with the easiest access. Making it easier for our customers also means offering our Rapid Refillâ„¢ system, drive-thru pharmacy, one-hour photo, and other convenience services. For some customers, ordering a prescription refill on the Internet...

  • Page 8
    ... our new transfer agent, The Bank of New York, offers a Dividend Reinvestment and Direct Stock Purchase Plan. Further, we have re-designed our Web site to provide easy access to more information about CVS. We are in the midst of the most significant growth period in the history of our company. 1998...

  • Page 9
    ... and sales. Since its introduction in 1994, CVS has invested over $200 million in our state-of-the-art Rx2000 pharmacy system. One of our most successful innovations has been the launch of our Rapid Refill system, which enables customers to order prescription refills using a touch-tone telephone. We...

  • Page 10
    ... to CVS. Our strong presence in local markets and our advanced technology systems enable us to provide unique prescription benefit management (PBM) services. This has made us a partner of choice for many managed care organizations. PharmaCare®, our pharmacy benefit management company, was formed in...

  • Page 11
    ..., photofinishing, greeting cards, over-thecounter drugs, seasonal merchandise and CVS Throughout our stores, commitment to service is our first priority. Our advanced pharmacy technology enables our pharmacists to spend more time counseling customers on over-the-counter medications and other...

  • Page 12
    ... our line of successful CVS Gold Emblem® convenience food products. The Gold Emblem name signifies our commitment to superior quality and exceptional value. Just as in our pharmacy business, investments in One-hour photo labs are just one of the ways we offer value to our customers. We plan to...

  • Page 13
    ... advanced technology, and our talented people that drive our superior execution at retail. stores. Our goal is to have 150-200 stores in the city's five boroughs within the next few years. As part of this strategy, we acquired 16 well-located stores from Thriftway Pharmacy in 1998. These sites have...

  • Page 14
    ..., and Southeast. CVS Store Count by State Alabama Connecticut Delaware Florida Georgia Illinois Indiana Kentucky Maine Maryland Massachusetts Michigan New Hampshire New Jersey New York North Carolina Ohio Pennsylvania Rhode Island South Carolina Tennessee Vermont Virginia Washington, D.C. West...

  • Page 15
    ... Independent Auditors' Report Consolidated Statements of Operations Consolidated Balance Sheets Consolidated Statements of Shareholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Five-Year Financial Summary Officers, Directors and Shareholder Information...

  • Page 16
    ... for all the outstanding common stock of Arbor. We also converted Arbor's stock options into options to purchase 5.3 million shares of our common stock. The merger of CVS and Arbor was a tax-free reorganization, which we treated as a pooling of interests under Accounting Principles Board Opinion No...

  • Page 17
    ... for other important information about the Big B acquisition. • We have an active program in place to relocate our existing shopping center stores to larger, more convenient, freestanding locations. Historically, we have achieved significant improvements in customer count and net sales when we do...

  • Page 18
    ... in lower operating costs and improved sales. Our major IT initiatives include: Supply Chain Management, Rx2000 Pharmacy Delivery Project, and Rapid . As a result of combining the operations of CVS, Arbor and Revco, we were able to achieve substantial annual operating cost savings in 1998 and 1997...

  • Page 19
    ... $0.52 per diluted share) in 1996. Liquidity & Capital Resources Liquidity ~ The Company has three primary sources of liquidity: cash provided by operations, commercial paper and uncommitted lines of credit. Our commercial paper program is supported by a $670 million, five-year unsecured revolving...

  • Page 20
    ...new stores, relocate 300 existing stores and close 130 stores. As of December 31, 1998, we operated 4,122 stores in 24 states and the District of Columbia. This compares to 4,094 stores as of December 31, 1997. Discriminatory Pricing Litigation Against Drug Manufacturers and Wholesalers The Company...

  • Page 21
    ... work plan, we have been communicating with our key business partners, including our vendors, suppliers, financial institutions, managed care organizations, pharmacy benefit managers, third party insurance programs and governmental agencies to determine the status of their Year 2000 compliance...

  • Page 22
    ... to support their opinion. The Audit Committee of the Board of Directors, consisting solely of outside directors, meets periodically with management, internal auditors and the independent auditors to review matters relating to the Company's financial reporting, the adequacy of internal accounting...

  • Page 23
    ... of CVS Corporation and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 1998, in conformity with generally accepted accounting principles. KPMG LLP Providence, Rhode Island...

  • Page 24
    CVS Corporation Consolidated Statements of Operations In millions, except per share amounts Net sales Cost of goods sold, buying and warehousing costs Gross margin Selling, general and administrative expenses Depreciation and amortization Merger, restructuring and other nonrecurring charges Total ...

  • Page 25
    ... 14) Shareholders' equity: Preferred stock, $0.01 par value: authorized 120,619 shares, 0 shares issued and outstanding Preference stock, series one ESOP convertible, par value $1.00: authorized 50,000,000 shares; issued and outstanding 5,239,000 shares at December 31, 1998 and 5,324,000 shares at...

  • Page 26
    CVS Corporation Consolidated Statements of Shareholders' Equity Years Ended December 31, In millions Preference stock: Beginning of year Conversion to common stock End of year Common stock: Beginning of year Stock options exercised and awards under stock plans Effect of change in par value Other ...

  • Page 27
    ... in accounts payable (Decrease) in accrued expenses Increase (decrease) in federal income taxes payable and other liabilities Net cash provided by (used in) operating activities Cash flows from investing activities: Additions to property and equipment Acquisitions, net of cash Proceeds from sale of...

  • Page 28
    ... information about the Company's strategic restructuring program and discontinued operations. Stock split ~ On May 13, 1998, the Company's shareholders approved an increase in the number of authorized common shares from 300 million to one billion. Also on that date, the Board of Directors authorized...

  • Page 29
    ... intrinsic value method prescribed in Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees." The Company has elected to continue to account for its stock-based compensation plans under APB No. 25. See Note 7 for further information about the Company's stock...

  • Page 30
    ... addition, outstanding Revco stock options were converted at the same exchange ratio into options to purchase 6.6 million shares of CVS common stock. The CVS/Arbor Merger and CVS/Revco Merger (collectively, the "Mergers") constituted tax-free reorganizations and have been accounted for as pooling of...

  • Page 31
    ..., 1998. The remaining cash outlays primarily include noncancelable lease commitments. These exit plans did not provide future benefit to the retained stores or corporate facilities. Following is a summary of the significant components of the above charges: CVS/Arbor Charge Utilized to Date Transfer...

  • Page 32
    ...Distribution"), (iii) the initial and secondary public offerings of Linens 'n Things and (iv) the elimination of certain corporate overhead costs. The strategic restructuring program was completed without significant changes to the Board approved plan. As part of completing this program, the Company...

  • Page 33
    ...elect to receive shares of common stock in lieu of cash compensation. Eligible Directors may also elect to defer compensation payable in common stock until their service as a director concludes. The 1996 DSP replaced the Company's 1989 Directors Stock Option Plan. As of December 31, 1998, there were...

  • Page 34
    ... stock option activity under the 1997 ICP , the Preexisting Plans and the pre-merger plans of Arbor and Revco for the years ended December 31: 1998 Weighted Average Shares Exercise Price 1997 Weighted Average Shares Exercise Price 1996 Weighted Average Shares Exercise Price Outstanding at beginning...

  • Page 35
    ... in 1996. The Company also sponsors an Employee Stock Ownership Plan. See Note 9 for further information about this plan. Other Postretirement Benefits The Company provides postretirement healthcare and life insurance benefits to retirees who meet eligibility requirements. The Company's funding...

  • Page 36
    ... shares of ESOP Preference Stock in the plan. As of December 31, 1998, 5.2 million shares of ESOP Preference Stock were outstanding, of which 1.6 million shares were allocated to participants and the remaining 3.6 million shares were held in the ESOP Trust for future allocations. Annual ESOP...

  • Page 37
    ... reorganization goodwill. On October 12, 1996, the Company completed the Footstar Distribution which is believed to be tax-free to the Company and its shareholders based on a legal opinion provided by outside counsel. However, since opinions of counsel are not binding on the Internal Revenue Service...

  • Page 38
    ... 1, is the Company's only reportable segment. The PBM segment provides a full range of prescription benefit management services to managed care and other organizations. These services include plan design and administration, formulary management, mail order pharmacy services, claims processing and...

  • Page 39
    ... common shareholders, diluted Denominator for earnings per common share calculation: Weighted average common shares, basic Effect of dilutive securities: Preference stock Stock options Weighted average common shares, diluted Basic earnings per common share: Earnings from continuing operations before...

  • Page 40
    ... Net earnings (loss) per common share: 1998: Basic Diluted 1997: Basic Diluted Market price per common share (New York Stock Exchange): 1998: High Low 1997: High Low Dividends declared per common share: 1998 1997 Number of registered common shareholders at year-end: 1998 $ 132.0 92.1 $ 132.0 92...

  • Page 41
    ... number of common shares outstanding used to calculate comparable diluted earnings per common share Cash dividends Financial position and other data: Total assets Total long-term debt Shareholders' equity Depreciation and amortization Number of stores at year-end Percentage of net sales: Operating...

  • Page 42
    ...Finance General Electric Company Shareholder Information: Corporate Headquarters CVS Corporation One CVS Drive Woonsocket, RI 02895 (401)765-1500 Annual Shareholders' Meeting 10:00 a.m. April 14, 1999 CVS Corporate Headquarters Stock Market Listing New York Stock Exchange Symbol: CVS Transfer Agent...

  • Page 43
    ... Operating Officer. He became Chairman and Chief Executive Officer of Melville the following year, and under his leadership, Melville grew to become one of the preeminent retail In 1965, the first CVS store in our home state companies in the U.S. with annual revenues was opened in Providence, Rhode...

  • Page 44
    Care that touches everyone ...one at a time. CVS Corporation One CVS Drive | Woonsocket, RI 02895