Caremark 2002 Annual Report Download

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2002 CVS Corporation Annual Report
Making it easy to get more out of life.
CVS Brand
Products
24-Hour
Stores
CVS Gold
Emblem®
Products
CVS Rapid
RefillTM
1Hour
Photo
CVS.com®
ExtraCare®
Program

Table of contents

  • Page 1
    2002 CVS Corporation Annual Report CVS Gold Emblem® Products 24-Hour Stores CVS Rapid RefillTM 1Hour Photo CVS.com® CVS Brand Products ExtraCare® Program Making it easy to get more out of life.

  • Page 2
    ... help people live longer, healthier, happier lives. Our Mission: We will be the easiest pharmacy retailer for customers to use. The CVS Culture Our Values: Respect for individuals Integrity Teamwork Openness to new ideas Commitment to flawless execution Passion for extraordinary customer service

  • Page 3
    ... • We generated $545 million in free cash flow. • Inventory turns improved for the 4th consecutive year. • We opened 266 new or relocated CVS stores, 78 in new markets. • We held the #1 or #2 share in about 70% of the top 100 markets in which we operated. • We achieved sales per retail...

  • Page 4
    ... convenient locations, prescription renewal by phone or on CVS.com®, drive-thru pharmacy service, one-hour photo service, clipless coupons, and everything else we do to make their lives easier. It also means having items in stock that customers need. We implemented our Assisted Inventory Management...

  • Page 5
    ... bulging pipeline of new drugs awaiting approval. In addition, a large number of branded drugs are converting to generics, which lowers healthcare costs while improving our profitability. Congress continues to debate how to provide prescription drug coverage for those people covered by Medicare, and...

  • Page 6
    ... Pharmacy Growth Opportunities CVS fills one of every nine retail prescriptions in the United States. We currently operate in about 65 of the top 100 U.S. drugstore markets, and we are the market leader in approximately half of those. Pharmacy has always been our core business and currently accounts...

  • Page 7
    ... made CVS a preferred place to work for our 13,000 pharmacists. In addition to the competitive salary and benefits package we offer, our EPIC pharmacy system instituted throughout the company in 2001 creates the kind of work environment that pharmacists seek. EPIC leverages technology and manages...

  • Page 8
    ... enabled us to grow market share unique ability to balance mass and targeted at the expense of competitors. marketing so we can amply reward our best customers. The ExtraCare card provides many benefits to CVS customers, including automatic store sale prices; customized coupons targeted toward their...

  • Page 9
    ... products, diabetic supplies, and bath safety items. To make it easy, Home Health Care products are featured in our new "Catalog for Living Well," allowing customers to order either on the phone or on the Web. Success in Pricing, Promotion We pay close attention to market prices and promotion...

  • Page 10
    ...since late 2000. These areas include parts of Florida (Orlando, Tampa, Miami, Ft. Lauderdale, West Palm Beach, and Jacksonville) and Texas (Houston and Dallas/Ft. Worth), as well as Phoenix, Chicago and Las Vegas. We already have 125 stores in these markets, and the results so far are very promising...

  • Page 11
    ... locate new stores and relocate existing stores to better sites, to make it easier for our customers to use CVS. It's all part of what we do to help our customers get more out of life. This new CVS store on the Las Vegas strip symbolizes the company's bold and successful new market strategy...

  • Page 12
    ...-the-art-mail facility that serves as the central hub for both specialty mail services and the retail stores. We assist with reimbursement services and offer the convenience of home delivery, depending on customer preference and geographic coverage. The market for specialty pharmacy drugs, presently...

  • Page 13
    ..., through which we award more than 400 donations annually to non-profit agencies on behalf of CVS employees who volunteer at these organizations; and the CVS/Samaritan Vans, which patrol the highways in many cities and provide free roadside assistance to tens of thousands of motorists every year...

  • Page 14
    ...Arizona 6 California 130 Connecticut 2 Delaware 59 Florida 269 Georgia 1 Hawaii 95 Illinois 248 Indiana 58 Kentucky 18 Maine 166 Maryland 323 Massachusetts 232 Michigan 1 Minnesota 1 Missouri 8 Nevada 26 New Hampshire 228 New Jersey 409 New York 267 North Carolina 31 1 Ohio 1 Oregon 352 Pennsylvania...

  • 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 14 21 21 22 23 24 25 26 40 2002 Annual Report...

  • Page 16
    ...-counter drugs, greeting cards, film and photofinishing services, beauty products and cosmetics, seasonal merchandise and convenience foods, through its CVS/pharmacy® stores and online through CVS.com®. The Company also provides Pharmacy Benefit Management and Specialty Pharmacy services through...

  • Page 17
    ... gross margin rates have been adversely affected by the efforts of managed care organizations, pharmacy benefit managers, governmental and other third party payors to reduce prescription drug costs. To address this trend, we have dropped and/or renegotiated a number of third party programs that fell...

  • Page 18
    ... Chicago, Illinois; Las Vegas, Nevada; Phoenix, Arizona; and several markets in Florida and Texas. During 2003, we currently plan to invest over $1 billion in capital expenditures, which includes spending for approximately 150 -175 new stores (80 -100 in new markets), 100 relocations and 50 closings...

  • Page 19
    ... stores nor do we provide any guarantees, other than a corporate level guarantee of the lease payments, in connection with the sale-leasebacks. In accordance with generally accepted accounting principles, our operating leases are not reflected in our consolidated balance sheet. 2002 Annual Report...

  • Page 20
    ... can be affected by a number of factors including, but not limited to, general economic conditions, the cost of real estate, the continued efforts of third party organizations to reduce prescription drug costs, the continued efforts of competitors to gain market share and consumer spending patterns...

  • Page 21
    ... of operations or financial position. In December 2002, SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure" was issued. This statement provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee...

  • Page 22
    ... competition from other drugstore chains, from alternative distribution channels such as pharmacy benefit managers and other mail order companies, supermarkets, discount retailers, membership clubs, and internet companies as well as changes in consumer preferences or loyalties; 20 CVS Corporation

  • Page 23
    ... with auditing standards generally accepted in the United States of America and included a review of the system of internal accounting controls to the extent they considered necessary to support their opinion. Independent Auditors' Report Board of Directors and Shareholders CVS Corporation: We...

  • Page 24
    ... operating expenses Operating profit Interest expense, net Earnings before income tax provision Income tax provision Net earnings Preference dividends, net of income tax benefit Net earnings available to common shareholders Basic earnings per common share: Net earnings Weighted average common shares...

  • Page 25
    Consolidated Balance Sheets In millions, except shares and per share amounts December 28, 2002 December 29, 2001 Assets: Cash and cash equivalents Accounts receivable, net Inventories Deferred income taxes Other current assets Total current assets Property and equipment, net Goodwill, net ...

  • Page 26
    ... of Shareholders' Equity In millions 2002 Shares 2001 2000 2002 Dollars 2001 2000 Preference stock: Beginning of year Conversion to common stock End of year Common stock: Beginning of year Stock options exercised and awards End of year Treasury stock: Beginning of year Purchase of treasury shares...

  • Page 27
    ... items Change in operating assets and liabilities providing/(requiring) cash, net of effects from acquisitions: Accounts receivable, net Inventories Other current assets Other assets Accounts payable Accrued expenses Other long-term liabilities Net cash provided by operating activities Cash flows...

  • Page 28
    ...-counter drugs, greeting cards, film and photofinishing services, beauty products and cosmetics, seasonal merchandise and convenience foods, through its CVS/pharmacy® stores and online through CVS.com®. The Company also provides Pharmacy Benefit Management and Specialty Pharmacy services through...

  • Page 29
    ... standard insurance industry actuarial assumptions and the Company's historical claims experience. Stock-based compensation ~ The Company accounts for its stock-based compensation plans under the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees...

  • Page 30
    ..., which represented a partial payment of the Company's share of the settlement proceeds received from a class action lawsuit against certain manufacturers of brand name prescription drugs. Income taxes ~ The Company provides for federal and state income taxes currently payable, as well as for...

  • Page 31
    ... in operation. In December 2002, SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure" was issued. This statement provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. This...

  • Page 32
    ...-line basis over the term of the lease. In addition to minimum rental payments, certain leases require additional payments based on sales volume, as well as reimbursements for real estate taxes, maintenance and insurance. Following is a summary of the Company's net rental expense for operating...

  • Page 33
    ... for impairment at the reporting unit level annually, or whenever events or circumstances indicate there may be an impairment. When evaluating goodwill for potential impairment, the Company first compares the fair value of the reporting unit, based on estimated future discounted cash flows, with its...

  • Page 34
    ... to certain union-administered pension and health and welfare plans that totaled $12.1 million in 2002, $1 1.1 million in 2001and $9.3 million in 2000. The Company also has nonqualified supplemental executive retirement plans in place for certain key employees for whom it has purchased cost recovery...

  • Page 35
    ... plan assets and funded status of the Company's defined benefit and other postretirement benefit plans as of the respective balance sheet dates: Defined Benefit Plans December 28, December 29, 2002 2001 Other Postretirement Benefits December 28, December 29, 2002 2001 In millions Change in benefit...

  • Page 36
    ... Statements 7 Stock Incentive Plans The 1997 Incentive Compensation Plan provides for the granting of up to 42.9 million shares of common stock in the form of stock options and other awards to selected officers and employees of the Company. All grants under the plan are awarded at fair market value...

  • Page 37
    ... Footstar, Inc. Typically, when a former division leased a store, the Company provided a corporate level guarantee of the lease payments. When the divisions were sold, the Company's guarantees remained in place, although each purchaser indemnified the Company for the lease guarantee. If any of the...

  • Page 38
    ... the Company's specialty pharmacy business, which focuses on supporting individuals that require complex and expensive drug therapies. The PBM segment operates under the PharmaCare Management Services name, while the specialty pharmacy mail order facilities and 33 retail pharmacies, located in...

  • Page 39
    ... 2002 and sold in May 2002. 3. The Columbus, Ohio mail order facility (the "Mail Facility") would be closed and its operations would be transferred to the Company's Pittsburgh, Pennsylvania mail order facility by no later than April 2002. Since this location was a leased facility, management planned...

  • Page 40
    ...for severance pay, healthcare continuation costs and outplacement service costs related to approximately 1,500 managerial, administrative and store employees in the Company's Woonsocket, Rhode Island corporate headquarters; Columbus, Mail Facility; Henderson D.C. and the Stores. As of April 30, 2002...

  • Page 41
    ... Quarter Fourth Quarter Fiscal Year 2002: Net sales Gross margin Operating profit Net earnings Net earnings per common share, basic Net earnings per common share, diluted Dividends per common share Stock price: (New York Stock Exchange) High Low Registered shareholders at year-end $ 5,970.7 1,493...

  • Page 42
    ... of brand name prescription drugs and the Company's contribution of $46.8 million of these settlement proceeds to the CVS Charitable Trust, Inc. to fund future charitable giving, (ii) in 2000, $19.2 million ($1 1.5 million after-tax) nonrecurring gain representing partial payment of our share of the...

  • Page 43
    ... Agent and Registrar Questions regarding stock holdings, certificate replacement/transfer, dividends and address changes should be directed to: The Bank of New York Shareholder Relations Department P.O. Box 1 1 258 Church Street Station New York, NY 10286 Toll-free: (877) CVSPLAN (287-7526) E-mail...

  • Page 44
    ExtraBucksTM Indulgence Life to the fullest. SM CVS Corporation One CVS Drive Woonsocket, RI 02895