Caremark 2003 Annual Report Download

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CVS Corporation 2003 Annual Report

Table of contents

  • Page 1
    CVS Corporation 2003 Annual Report

  • Page 2
    ...photo labs with digital capabilities. It also means clean, neat stores with superior customer service and prescriptions that are ready when promised. Sales in 2003 reached a record-breaking $26.6 billion, generated by our retail locations and by PharmaCare Management Services, our PBM and specialty...

  • Page 3
    ... growth of 92 stores. Of these, more than 80 are located in fast-growing new CVS markets such as Florida, Texas, Chicago, Phoenix, and Las Vegas. We also broke ground for a distribution center in Ennis, Texas, scheduled to open in late 2004. The first facility of its kind in North America, it will...

  • Page 4
    ...inventory turns of 5.0 times for the year, up from 4.6 times in 2002. Furthermore, we rolled out AIM for the pharmacy in 2003 and anticipate substantial benefits as 2004 progresses. In July 2003, CVS also became the first national drug retailer to offer self-service digital photo printing. Customers...

  • Page 5
    ...member of SureScripts, an organization formed to provide an electronic link between doctors and pharmacies. This should help make the prescription-filling process faster and more efficient, and a highly promising beta test is currently underway in Rhode Island. We expect the necessary connections to...

  • Page 6
    ... resistance growing against benefit plans that force patients to order maintenance medications through the mail. We are encouraged by the overwhelmingly positive response to benefit plans that allow customers to fill their 90-day prescriptions in retail stores. Let me stress that CVS does not oppose...

  • Page 7
    ... for this country's uninsured, and good for CVS. IMS Health predicts that a Medicare prescription benefit would add 75-100 million incremental prescriptions to the market annually. BUILDING ON A STRONG CORPORATE GOVERNANCE TRADITION Another piece of federal legislation, the Sarbanes-Oxley Act, has...

  • Page 8
    ExtraCare Loyalty Program

  • Page 9
    ...cards for Shift Supervisor Eve Rodriguez-with good reason. ExtraCare lets customers at every location enjoy advertised discounts without the hassle of clipping coupons. Cardholders also get a little something back with their sales receipts every quarter: ExtraBucksâ„¢. Customers can apply these cash...

  • Page 10
    ..., Rhode Island, customers appreciate the great service they receive-even when they don't enter the store. For many, the store's double drive-thru pharmacy is just what the doctor ordered. It's one of more than 1,700 drive-thrus found at CVS locations, allowing customers to drop off prescriptions or...

  • Page 11

  • Page 12
    Pharmacy Service Initiative

  • Page 13
    ... (PSI) we rolled out in every CVS/pharmacy in 2003, our pharmacy teams are able to make the prescription-filling process easier by verifying insurance, medication availability, or refill authorization on the spot. As a result, we resolve potential problems while customers are still at drop-off. PSI...

  • Page 14
    Photo Leadership

  • Page 15
    ... a digital solution. Printing digital photos has never been easier (or more fun) for this mother and child in Dallas, Texas. That's because they're using one of our self-service digital photo kiosks now found in more than 3,200 CVS/pharmacy locations around the country. In July 2003, CVS became the...

  • Page 16
    Assisted Inventory Management

  • Page 17
    ... out of inventory tracking at all locations with our computerized Assisted Inventory Management (AIM) system. Introduced in 2002, AIM has since helped to dramatically improve our in-stock position and the CVS shopping experience. More good news is coming in 2004 as we reap the benefits of the...

  • Page 18
    ..., Florida, Pharmacy Supervisor Alan Obringer and Pharmacy Manager Susan Villella recently found themselves back in grade school. That's because both are part of a team of CVS associates who volunteer their time in Bauder Elementary School's Science Lab. Through our Volunteer Challenge Grants Program...

  • Page 19
    2003 Financial Report Management's Discussion and Analysis of Financial Condition and Results of Operation Consolidated Statements of Operations Consolidated Balance Sheets Consolidated Statements of Shareholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial ...

  • Page 20
    ...-the-counter drugs, greeting cards, film and photo finishing services, beauty products and cosmetics, seasonal merchandise and convenience foods through our CVS/pharmacy® retail stores and online through CVS.com® . We also provide Pharmacy Benefit Management and Specialty Pharmacy services through...

  • Page 21
    ... have been adversely affected by the efforts of managed care organizations, pharmacy benefit managers, governmental and other third party payors to reduce their prescription drug costs. To address this trend, we have dropped and/or renegotiated a number of third party programs that fell below our...

  • Page 22
    ... activities decreased to $968.9 million in 2003. This compares to $1,204.8 million in 2002 and $680.6 million in 2001. The decrease in net cash provided by operations during 2003 primarily resulted from higher accounts receivable and lower accounts payable (20) CVS Corporation 2003 Annual Report

  • Page 23
    ...end ended in the middle of many of our third party payors' biweekly payment cycles. Accounts payable decreased primarily due to the timing of vendor payments. Net cash used in investing activities increased to $753.6 million in 2003. This compares to $735.8 million in 2002 and $536.8 million in 2001...

  • Page 24
    ...'s consolidated financial condition, results of operations or future cash flows. The Company issues letters of credit for insurance programs and import purchases. The fair value of the outstanding letters of credit was $72.0 million as of January 3, 2004. (22) CVS Corporation 2003 Annual Report

  • Page 25
    ... future real estate taxes, common area maintenance and other charges, if applicable. The liability is reduced by estimated future sublease income. The calculation of our closed store lease liability contains uncertainty since we must use judgment to estimate the timing and duration of future vacancy...

  • Page 26
    ...the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. In November 2003, the EITF reached a consensus on Issue 03-10, "Application of EITF Issue No. 02-16, Accounting by a Customer (Including a Reseller) for...

  • Page 27
    ...efforts of health maintenance organizations, managed care organizations, pharmacy benefit management companies, governmental entities and other third party payors to reduce prescription drug costs and pharmacy reimbursement rates; - The growth of mail order pharmacies and changes to pharmacy benefit...

  • Page 28
    ... sales Cost of goods sold, buying and warehousing costs Gross margin Selling, general and administrative expenses Depreciation and amortization T otal operating expenses Operating profit Interest expense, net Earnings before income tax provision Income tax provision Net earnings Preference dividends...

  • Page 29
    ..., except shares and per share amounts ASSETS : 3, 2004 DEC. 28, 2002 Cash and cash equivalents Accounts receivable, net Inventories Deferred income taxes Other... Treasury stock, at cost: 14,803,000 shares at January 3, 2004 and 16,215,000 shares at December 28, 2002 Guaranteed ESOP obligation ...

  • Page 30
    ... of preference stock Employee stock purchase plan issuance End of year GUARANTEED ESOP OBLIGATION : Beginning of year Reduction of guaranteed ESOP obligation End of year CAPITAL SURPLUS : Beginning of year Conversion of preference stock Stock option activity and awards Tax benefit on stock options...

  • Page 31
    ... taxes and other noncash 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...

  • Page 32
    ...-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 33
    ...the time the product or service is sold. Customer returns are immaterial. Vendor allowances ~ The Company accounts for vendor allowances under the guidance provided by EITF No. 02-16, "Accounting by a Reseller for Cash Consideration Received from a Vendor." Vendor allowances reduce the carrying cost...

  • Page 34
    ... loss as of December 29, 2001. Earnings per common share ~ Basic earnings per common share is computed by dividing: (i) net earnings, after deducting the after-tax ESOP preference dividends, by (ii) the weighted average number of common shares (32) CVS Corporation 2003 Annual Report

  • Page 35
    ... their applicability under changed conditions. The adoption of this Statement did not have a material impact on the Company's consolidated results of operations or financial position. The Company adopted SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," effective...

  • Page 36
    ...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 leases...

  • Page 37
    ... November 1, 2007, and pay interest semi-annually. The Company may redeem these notes at any time, in whole or in part, at a defined redemption price plus accrued interest. Net proceeds from the notes were used to repay outstanding commercial paper. The Credit Facilities and unsecured senior notes...

  • Page 38
    ...Company's contributions under the above defined contribution plans totaled $46.9 million in 2003, $29.1 million in 2002 and $26.7 million in 2001. The Company also sponsors an Employee Stock Ownership Plan. See Note 5 for further information about this plan. (36) CVS Corporation 2003 Annual Report

  • Page 39
    ... pension and health and welfare plans that totaled $13.2 million in 2003, $12.1 million in 2002 and $11.1 million in 2001. The Company also has nonqualified supplemental executive retirement plans in place for certain key employees for whom it has purchased cost recovery variable life insurance...

  • Page 40
    ... 28, 2002. The accumulated benefit (38) CVS Corporation 2003 Annual Report obligation for the defined benefit pension plans was $333.5 and $318.0 million at January 3, 2004 and December 28, 2002, respectively. The Company estimates it will make cash contributions to the plan during the next fiscal

  • Page 41
    ... for future grants under the plan. 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 Following...

  • Page 42
    ... stock option grant was estimated using the Black-Scholes Option Pricing Model with the following assumptions: 2003 Dividend yield Expected volatility Risk-free interest rate Expected life Statutory income tax rate State income taxes, net of federal tax benefit Goodwill and other(1) Effective tax...

  • Page 43
    ... managed care providers and other organizations. These services include plan design and administration, formulary management, mail order pharmacy services, claims processing and generic substitution. The PBM segment also includes the Company's specialty pharmacy business, which focuses on supporting...

  • Page 44
    ... 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 to either return the premises...

  • Page 45
    ...satellite office facilities (the "Satellite Facilities") would be closed and their operations would be consolidated into the Company's Woonsocket, Rhode Island corporate headquarters by no later than December 2001. Since these locations were leased facilities, management planned to either return the...

  • Page 46
    ... and benefits included $19.5 million 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...

  • Page 47
    ...FINANCIAL INFORMATION ( UNAUDITED ) SECOND QUARTER THIRD QUARTER FOURTH QUARTER FISCAL YEAR Dollars in millions, except per share amounts FIRST QUARTER 2003: Net sales Gross margin Operating profit Net earnings Net earnings per common share, basic Net earnings per common share, diluted Dividends...

  • Page 48
    ...the settlement proceeds from a class action lawsuit against certain manufacturers of brand name prescription drugs. (4) Net earnings and net earnings per common share include the after-tax effect of the charges and gains discussed in Notes (1) and (3) above. (46) CVS Corporation 2003 Annual Report

  • Page 49
    ... 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 KPMG LLP Board of Directors and Shareholders CVS Corporation...

  • Page 50
    ...; formerly Chairman of the Board and Chief Executive Officer CVS Corporation Larry J. Merlo Executive Vice President-Stores Transfer Agent and Registrar Questions regarding stock holdings, certificate replacement/transfer, dividends and address changes should be directed to: The Bank of New York...

  • Page 51
    ...: We help people live longer, healthier, happier lives. Our Mission: We will be the easiest pharmacy retailer for customers to use. Our Values for Success: Respect for individuals Integrity Teamwork Openness to new ideas Commitment to flawless execution Passion for extraordinary customer service

  • Page 52
    CVS Corporation, One CVS Drive, Woonsocket, RI 02895