EX-99.1 2 exhibit991pressreleasedate.htm PRESS RELEASE Exhibit
Exhibit 99.1
 
Investor
 
Nancy Christal
 
Media
 
Carolyn Castel
Contact:
 
Senior Vice President
 
Contact:
 
Vice President
 
 
Investor Relations
 
 
 
Corporate Communications
 
 
(914) 722-4704
 
 
 
(401) 770-5717
 
FOR IMMEDIATE RELEASE
 
CVS HEALTH REPORTS SECOND QUARTER RESULTS
FULL YEAR GAAP DILUTED EPS GUIDANCE REVISED TO REFLECT
DEBT EXTINGUISHMENT AND INTEGRATION COSTS
FULL YEAR ADJUSTED EPS GUIDANCE RAISED AND NARROWED

Second Quarter Year-over-year Highlights:
•
Net revenues increased 17.6% to $43.7 billion
•
GAAP operating profit increased 3.9% to $2.4 billion; operating profit excluding acquisition-related transaction and integration costs increased 6.5%
•
GAAP diluted EPS decreased from $1.12 to $0.86, primarily driven by a loss on early extinguishment of debt and acquisition-related integration costs
•
Adjusted EPS increased 8.3% to $1.32

Year-to-date Highlights:
•
Cash flow from operations of $4.0 billion
•
Generated free cash flow of $2.9 billion

2016 Guidance:
•
Full year GAAP diluted EPS revised to $4.92 to $5.00 from $5.24 to $5.39, to reflect the impact of the loss on early extinguishment of debt and second quarter acquisition-related integration costs
•
Full year Adjusted EPS raised and narrowed to $5.81 to $5.89 from $5.73 to $5.88
•
Provided third quarter GAAP diluted EPS of $1.38 to $1.41, including a loss on early extinguishment of debt and excluding acquisition-related integration costs
•
Provided third quarter Adjusted EPS of $1.55 to $1.58
•
Raised full year cash flow from operations to $8.8 to $9.1 billion from $7.6 to $7.9 billion; free cash flow raised to $6.3 to $6.6 billion from $5.3 to $5.6 billion


WOONSOCKET, RHODE ISLAND, August 2, 2016 - CVS Health Corporation (NYSE: CVS) today announced operating results for the three months ended June 30, 2016.

Revenues
 
Net revenues for the three months ended June 30, 2016 increased 17.6%, or $6.6 billion, to $43.7 billion, compared to the three months ended June 30, 2015. Revenues in the Pharmacy Services Segment increased 20.7%, or $5.1 billion, to $29.5 billion in the three months ended June 30, 2016. The increase was primarily driven by increased pharmacy network claim volume and growth in specialty pharmacy. Pharmacy network claims processed during the three months ended June 30, 2016 increased 22.6% to 280.5 million, compared to 228.8 million in the prior year. The increase in pharmacy network claim volume was primarily due to the growth in net new business. Mail choice claims processed during the three months ended June 30, 2016, increased 3.9%, to 22.2 million, compared to 21.3 million in the prior year. The increase in mail choice claims was primarily driven by the continued adoption of our Maintenance Choice® offerings.

Revenues in the Retail/LTC Segment increased 16.0%, or $2.8 billion, to approximately $20.0 billion, in the three months ended June 30, 2016. The increase was primarily driven by the addition of the long-term care ("LTC") pharmacy operations acquired as part of the acquisition of Omnicare, Inc. ("Omnicare") in August 2015, the addition of the pharmacies and clinics of Target Corporation ("Target") acquired in December 2015 and pharmacy same store sales growth. Same store sales increased 2.1% versus the second quarter of 2015. Pharmacy same store sales rose 3.9% and pharmacy same store prescription volumes rose 3.5% on a 30-day equivalent basis. Pharmacy same store sales were negatively affected by approximately 355 basis points

1


from recent generic drug introductions. Front store same store sales decreased 2.5%, including the effect of the shift of Easter from April in 2015 to March in 2016, which resulted in a decrease in front store same store sales of approximately 80 basis points. Front store same store sales were also negatively affected by softer customer traffic, partially offset by an increase in basket size.

For the three months ended June 30, 2016, the generic dispensing rate increased approximately 155 basis points to 85.4% in the Pharmacy Services Segment and increased approximately 110 basis points to 86.1% in the Retail/LTC Segment.

Operating Profit

For the three months ended June 30, 2016, consolidated operating profit increased $88 million, or 3.9%. Excluding acquisition-related integration costs of $81 million in 2016 and acquisition-related transaction costs of $21 million in 2015, consolidated operating profit increased $148 million, or 6.5%, from $2,283 million for the three months ended June 30, 2015 to $2,431 million for the three months ended June 30, 2016. For the three months ended June 30, 2016, operating profit increased by $98 million, or 10.4%, in the Pharmacy Services Segment and by $24 million, or 1.4%, in the Retail/LTC Segment. Excluding acquisition-related integration costs of $81 million, the Retail/LTC Segment operating profit grew $105 million, or 6.2%, from $1,681 million for the three months ended June 30, 2015 to $1,786 million for the three months ended June 30, 2016. Both segments benefited from the Omnicare acquisition and increased generic drugs dispensed. The Pharmacy Services Segment was also positively affected by growth in specialty pharmacy, growth in Medicare Part D lives and favorable purchasing economics. The Retail/LTC Segment was also positively affected by the acquisition of the pharmacies and clinics of Target and an improved front store margin rate. These positive factors for both segments were partially offset by continued pricing and reimbursement pressure.

Net Income and Earnings Per Share

Net income for the three months ended June 30, 2016 was $0.9 billion, a decrease of $348 million or 27.3%. The decrease was primarily driven by a loss on early extinguishment of debt of $542 million, an increase in interest expense of $114 million and $81 million of acquisition-related integration costs, partially offset by an increase in operating profit. The increase in interest expense is primarily due to the issuance of $15 billion of long-term debt in July 2015 that was used to acquire Omnicare and the pharmacies and clinics of Target, as well as the debt assumed through the acquisition of Omnicare in August 2015.

GAAP earnings per diluted share (“GAAP diluted EPS”) for the three months ended June 30, 2016 was $0.86, compared to $1.12 in the prior year. Adjusted earnings per share (“Adjusted EPS”) for the three months ended June 30, 2016 and 2015, was $1.32 and $1.22, respectively. Adjusted EPS excludes $197 million and $131 million of intangible asset amortization for the three months ended June 30, 2016 and 2015, respectively. Adjusted EPS for the three months ended June 30, 2016 also excludes $81 million of acquisition-related integration costs and the loss on early extinguishment of debt of $542 million. Adjusted EPS for the three months ended June 30, 2015 also excludes $21 million of acquisition-related transaction costs and $36 million of acquisition-related bridge financing costs. Further detail is shown in the Adjusted Earnings Per Share reconciliation later in this release.

President and Chief Executive Officer Larry Merlo stated, “I'm very pleased with our solid second quarter results across the enterprise. Operating profit in the Retail/LTC Segment was in line with expectations while operating profit in the Pharmacy Services Segment exceeded expectations. At the same time, we have generated substantial free cash flow year-to-date and continued to return significant value to our shareholders through dividends and share repurchases.”

Mr. Merlo continued, “With our differentiated value proposition, we see 2017 shaping up to be another very successful PBM selling season, with substantial gross and net new business to date. Given our outperformance in the second quarter and confidence in our expectations for the back half of this year, we are raising and narrowing our Adjusted EPS guidance and also raising our free cash flow guidance for 2016.”

Guidance
 
The Company revised full year GAAP diluted EPS to $4.92 to $5.00 from $5.24 to $5.39 to reflect the impact of the loss on early extinguishment of debt and second quarter acquisition-related integration costs. When the Company reports subsequent quarters, full-year 2016 GAAP diluted EPS is expected to be revised downward to reflect the impact from future acquisition-related integration costs that are not currently included in guidance. The Company raised and narrowed full year Adjusted EPS


2


to $5.81 to $5.89 from $5.73 to $5.88, which excludes the loss on early extinguishment of debt and acquisition-related integration costs. Further detail is shown in the Adjusted Earnings Per Share Guidance reconciliation later in this release.

In the third quarter of 2016, the Company expects to deliver GAAP diluted EPS of $1.38 to $1.41, including a loss on early extinguishment of debt from a debt redemption that was completed in July 2016 and excluding acquisition-related integration costs. The Company expects to deliver Adjusted EPS of $1.55 to $1.58, which excludes the loss on early extinguishment of debt and acquisition-related integration costs. Further detail is shown in the Adjusted Earnings Per Share Guidance reconciliation later in this release.

The Company raised cash flow guidance for 2016 and now expects to deliver cash flow from operations of $8.8 billion to $9.1 billion, up from $7.6 billion to $7.9 billion, and 2016 free cash flow of $6.3 billion to $6.6 billion, up from $5.3 billion to $5.6 billion. Further detail is shown in the Free Cash Flow Guidance reconciliation later in this release.

Real Estate Program
 
During the three months ended June 30, 2016, the Company opened 20 new retail stores, two onsite pharmacies and closed 10 retail stores. In addition, the Company relocated 9 retail stores. As of June 30, 2016, the Company operated 9,652 retail stores, including pharmacies in Target stores, in 49 states, the District of Columbia, Puerto Rico and Brazil.

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

About the Company
 
CVS Health is a pharmacy innovation company helping people on their path to better health. Through its more than 9,600 retail pharmacies, more than 1,100 walk-in medical clinics, a leading pharmacy benefits manager with nearly 80 million plan members, a dedicated senior pharmacy care business serving more than one million patients per year, and expanding specialty pharmacy services, the Company enables people, businesses and communities to manage health in more affordable and effective ways. This unique integrated model increases access to quality care, delivers better health outcomes and lowers overall health care costs. Find more information about how CVS Health is shaping the future of health at https://www.cvshealth.com.

Forward-Looking Statements
 
This press release contains forward-looking statements within the meaning of the federal securities laws. By their nature, all forward-looking statements involve risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements for a number of reasons as described in our Securities and Exchange Commission filings, including those set forth in the Risk Factors section and under the section entitled “Cautionary Statement Concerning Forward-Looking Statements” in our most recently filed Annual Report on Form 10-K and Quarterly Report on Form 10-Q.

 — Tables Follow —

3


CVS HEALTH CORPORATION
Condensed Consolidated Statements of Income
(Unaudited)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
In millions, except per share amounts
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
Net revenues
$
43,725

 
$
37,169

 
$
86,940

 
$
73,501

Cost of revenues
36,710

 
30,767

 
73,181

 
60,935

Gross profit
7,015

 
6,402

 
13,759

 
12,566

Operating expenses
4,665

 
4,140

 
9,233

 
8,172

Operating profit
2,350

 
2,262

 
4,526

 
4,394

Interest expense, net
280

 
166

 
563

 
300

Loss on early extinguishment of debt
542

 
—

 
542

 
—

Income before income tax provision
1,528

 
2,096

 
3,421

 
4,094

Income tax provision
604

 
824

 
1,350

 
1,601

Net income
924

 
1,272

 
2,071

 
2,493

Net income attributable to noncontrolling interest
—

 
—

 
(1
)
 
—

Net income attributable to CVS Health
$
924

 
$
1,272

 
$
2,070

 
$
2,493

 
 
 
 
 
 
 
 
Net income per share attributable to CVS Health:
 
 
 
 
 

 
 

Basic
$
0.86

 
$
1.13

 
$
1.91

 
$
2.20

Diluted
$
0.86

 
$
1.12

 
$
1.90

 
$
2.19

Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
1,070

 
1,124

 
1,081

 
1,126

Diluted
1,075

 
1,132

 
1,087

 
1,134

Dividends declared per share
$
0.425

 
$
0.350

 
$
0.850

 
$
0.700

 



4


CVS HEALTH CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
 
 
 
June 30,
 
December 31,
In millions, except per share amounts
 
2016
 
2015
Assets:
 
 

 
 

Cash and cash equivalents
 
$
1,127

 
$
2,459

Short-term investments
 
80

 
88

Accounts receivable, net
 
13,183

 
11,888

Inventories
 
14,177

 
14,001

Other current assets
 
881

 
722

Total current assets
 
29,448

 
29,158

Property and equipment, net
 
9,981

 
9,855

Goodwill
 
38,190

 
38,106

Intangible assets, net
 
13,639

 
13,878

Other assets
 
1,490

 
1,440

Total assets
 
$
92,748

 
$
92,437

 
 
 
 
 
Liabilities:
 
 

 
 

Accounts payable
 
$
7,351

 
$
7,490

Claims and discounts payable
 
8,938

 
7,653

Accrued expenses
 
7,244

 
6,829

Short-term debt
 
745

 
—

Current portion of long-term debt
 
2,291

 
1,197

Total current liabilities
 
26,569

 
23,169

Long-term debt
 
25,600

 
26,267

Deferred income taxes
 
4,260

 
4,217

Other long-term liabilities
 
1,553

 
1,542

Commitments and contingencies
 
—

 
—

Redeemable noncontrolling interest
 
—

 
39

 
 
 
 
 
Shareholders’ equity:
 
 

 
 

CVS Health 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; 1,704 shares issued and 1,065
 
 
 
 
shares outstanding at June 30, 2016 and 1,699 shares issued and 1,101 shares
 
 
 
 
outstanding at December 31, 2015
 
17

 
17

Treasury stock, at cost: 638 shares at June 30, 2016 and 597 shares at December 31,
 
 
 
 
2015
 
(33,010
)
 
(28,886
)
Shares held in trust: 1 share at June 30, 2016 and December 31, 2015
 
(31
)
 
(31
)
Capital surplus
 
31,454

 
30,948

Retained earnings
 
36,647

 
35,506

Accumulated other comprehensive income (loss)
 
(317
)
 
(358
)
Total CVS Health shareholders’ equity
 
34,760

 
37,196

Noncontrolling interest
 
6

 
7

Total shareholders’ equity
 
34,766

 
37,203

Total liabilities and shareholders’ equity
 
$
92,748

 
$
92,437

 


5


CVS HEALTH CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited) 
 
 
Six Months Ended
June 30,
In millions
 
2016
 
2015
Cash flows from operating activities:
 
 

 
 

Cash receipts from customers
 
$
84,324

 
$
71,014

Cash paid for inventory and prescriptions dispensed by retail network pharmacies
 
(70,851
)
 
(58,129
)
Cash paid to other suppliers and employees
 
(7,082
)
 
(7,935
)
Interest received
 
9

 
9

Interest paid
 
(615
)
 
(311
)
Income taxes paid
 
(1,762
)
 
(1,627
)
Net cash provided by operating activities
 
4,023

 
3,021

 
 
 
 
 
Cash flows from investing activities:
 
 

 
 

Purchases of property and equipment
 
(1,102
)
 
(942
)
Proceeds from sale-leaseback transactions
 
—

 
34

Proceeds from sale of property and equipment and other assets
 
11

 
14

Acquisitions (net of cash acquired) and other investments
 
(168
)
 
(112
)
Purchase of available-for-sale investments
 
(39
)
 
(124
)
Sale or maturity of available-for-sale investments
 
67

 
40

Net cash used in investing activities
 
(1,231
)
 
(1,090
)
 
 
 
 
 
Cash flows from financing activities:
 
 

 
 

Increase in short-term debt
 
745

 
803

Proceeds from issuance of long-term debt
 
3,455

 
—

Repayments of long-term debt
 
(3,579
)
 
(550
)
Purchase of noncontrolling interest in subsidiary
 
(39
)
 
—

Dividends paid
 
(929
)
 
(794
)
Proceeds from exercise of stock options
 
122

 
211

Excess tax benefits from stock-based compensation
 
63

 
97

Repurchase of common stock
 
(3,960
)
 
(2,934
)
Other
 
(4
)
 
—

Net cash used in financing activities
 
(4,126
)
 
(3,167
)
Effect of exchange rates on cash and cash equivalents
 
2

 
(1
)
Net decrease in cash and cash equivalents
 
(1,332
)
 
(1,237
)
Cash and cash equivalents at the beginning of the period
 
2,459

 
2,481

Cash and cash equivalents at the end of the period
 
$
1,127

 
$
1,244

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

 
 

Net income
 
$
2,071

 
$
2,493

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

 
 
Depreciation and amortization
 
1,236

 
978

Stock-based compensation
 
107

 
88

Loss on early extinguishment of debt
 
542

 
—

Deferred income taxes and other non-cash items
 
75

 
6

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

 
 

Accounts receivable, net
 
(1,279
)
 
(1,211
)
Inventories
 
(167
)
 
(465
)
Other current assets
 
(170
)
 
131

Other assets
 
(53
)
 
(48
)
Accounts payable and claims and discounts payable
 
1,164

 
1,383

Accrued expenses
 
492

 
(241
)
Other long-term liabilities
 
5

 
(93
)
Net cash provided by operating activities
 
$
4,023

 
$
3,021


6


Non-GAAP Financial Measures

The following provides reconciliations of certain non-GAAP financial measures presented in this press release to the most directly comparable financial measures calculated and presented in accordance with GAAP. The Company uses the non-GAAP measures “Adjusted EPS” and “Free Cash Flow” to assess and analyze underlying business performance and trends. Management believes that providing these non-GAAP measures enhances investors’ understanding of the Company’s performance.

Adjusted Earnings per Share, or Adjusted EPS, is net income excluding the impact of the amortization of intangible assets, acquisition-related transaction and integration costs, acquisition-related bridge financing costs, charge related to a disputed 1999 legal settlement and loss on early extinguishment of debt divided by the Company’s weighted average diluted shares outstanding. The Company believes that this measure enhances investors’ ability to compare the Company’s past financial performance with its current performance.

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). Management uses this non-GAAP financial measure for internal comparisons and finds it useful in assessing year-over-year cash flow performance.

These non-GAAP financial measures are provided as supplemental information to the financial measures presented in this press release that are calculated and presented in accordance with GAAP. Adjusted EPS should be considered in addition to, rather than as a substitute for, income before income tax provision as a measure of our performance. Free Cash Flow should be considered in addition to, rather than as a substitute for, net cash provided by operating activities as a measure of our liquidity. The Company’s definitions of Adjusted EPS and Free Cash Flow may not be comparable to similarly titled measurements reported by other companies.


7



Adjusted Earnings Per Share
(Unaudited)
 
The following is a reconciliation of income before income tax provision to Adjusted EPS:
 
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
In millions, except per share amounts
 
2016
 
2015
 
2016
 
2015
Income before income tax provision
 
$
1,528

 
$
2,096

 
$
3,421

 
$
4,094

Non-GAAP adjustments:
 
 
 
 
 
 
 
 
Amortization of intangible assets
 
197

 
131

 
396

 
260

Acquisition-related transaction and integration costs(1)
 
81

 
21

 
142

 
21

Acquisition-related bridge financing costs(1)
 
—

 
36

 
—

 
36

Charge related to a disputed 1999 legal settlement
 
—

 
—

 
3

 
—

Loss on early extinguishment of debt
 
542

 
—

 
542

 
—

Adjusted income before income tax provision
 
2,348

 
2,284

 
4,504

 
4,411

Adjusted income tax provision
 
923

 
897

 
1,770

 
1,724

Adjusted net income
 
1,425

 
1,387

 
2,734

 
2,687

Net income attributable to noncontrolling interest
 
—

 
—

 
(1
)
 
—

Income allocable to participating securities
 
(6
)
 
(7
)
 
(13
)
 
(12
)
Adjusted net income attributable to CVS Health
 
$
1,419

 
$
1,380


$
2,720

 
$
2,675

 
 
 
 
 
 
 
 
 
Weighted average diluted shares outstanding
 
1,075

 
1,132

 
1,087

 
1,134

Adjusted EPS
 
$
1.32

 
$
1.22

 
$
2.50

 
$
2.36

 

(1)
Costs associated with the acquisitions of Omnicare and the pharmacies and clinics of Target.



8


Free Cash Flow
(Unaudited)
 
The following is a reconciliation of net cash provided by operating activities to free cash flow:
 
 
 
Six Months Ended
June 30,
In millions
 
2016
 
2015
 
 
 
 
 
Net cash provided by operating activities
 
$
4,023

 
$
3,021

Subtract: Additions to property and equipment
 
(1,102
)
 
(942
)
Add: Proceeds from sale-leaseback transactions
 
—

 
34

Free cash flow
 
$
2,921

 
$
2,113




9


Supplemental Information
(Unaudited)
 
The Company evaluates its Pharmacy Services Segment and Retail/LTC Segment performance based on net revenue, gross profit and operating profit before the effect of nonrecurring charges and gains and certain intersegment activities. The Company evaluates the performance of its Corporate Segment based on operating expenses before the effect of nonrecurring charges and gains and certain intersegment activities. The following is a reconciliation of the Company’s segments to the accompanying condensed consolidated financial statements:
 
In millions
 
Pharmacy 
Services
Segment(1)
 
Retail/LTC
Segment
 
Corporate 
Segment
 
Intersegment 
Eliminations(2)
 
Consolidated
Totals
Three Months Ended
 
 

 
 

 
 

 
 

 
 

June 30, 2016:
 
 
 
 
 
 
 
 
 
 
Net revenues
 
$
29,510

 
$
19,998

 
$
—

 
$
(5,783
)
 
$
43,725

Gross profit(3)
 
1,367

 
5,837

 
—

 
(189
)
 
7,015

Operating profit (loss)(3)
 
1,038

 
1,705

 
(220
)
 
(173
)
 
2,350

June 30, 2015:
 
 

 
 

 
 

 
 

 
 

Net revenues
 
24,442

 
17,242

 
—

 
(4,515
)
 
37,169

Gross profit
 
1,241

 
5,322

 
—

 
(161
)
 
6,402

Operating profit (loss)(4)
 
940

 
1,681

 
(215
)
 
(144
)
 
2,262

Six Months Ended
 
 

 
 

 
 

 
 

 
 

June 30, 2016:
 
 

 
 

 
 

 
 

 
 

Net revenues
 
58,275

 
40,110

 
—

 
(11,445
)
 
86,940

Gross profit(3)
 
2,469

 
11,667

 
—

 
(377
)
 
13,759

Operating profit (loss)(3)
 
1,820

 
3,482

 
(432
)
 
(344
)
 
4,526

June 30, 2015:
 
 

 
 

 
 

 
 

 
 

Net revenues
 
48,321

 
34,193

 
—

 
(9,013
)
 
73,501

Gross profit
 
2,267

 
10,617

 
—

 
(318
)
 
12,566

Operating profit (loss)(4)
 
1,675

 
3,408

 
(404
)
 
(285
)
 
4,394

 

(1)
Net revenues of the Pharmacy Services Segment include approximately $2.6 billion and $2.2 billion of retail co-payments for the three months ended June 30, 2016 and 2015, respectively, as well as $5.6 billion and $4.7 billion of retail co-payments for the six months ended June 30, 2016 and 2015, respectively.
(2)
Intersegment eliminations relate to intersegment revenue generating activities that occur between the Pharmacy Services Segment and the Retail/LTC Segment. These occur in the following ways: when members of Pharmacy Services Segment clients (“members”) fill prescriptions at our retail stores to purchase covered products, when members enrolled in programs such as Maintenance Choice ® elect to pick up maintenance prescriptions at one of our retail stores instead of receiving them through the mail, or when members have prescriptions filled at our long-term care pharmacies. When these occur, both the Pharmacy Services and Retail/LTC segments record the revenues, gross profit and operating profit on a standalone basis.
(3)
The Retail/LTC Segment gross profit and operating profit for the three months ended June 30, 2016 includes $6 million and $81 million, respectively, of acquisition-related integration costs. The Retail/LTC Segment gross profit and operating profit for the six months ended June 30, 2016 includes $10 million and $142 million, respectively, of acquisition-related integration costs. The integration costs are related to the acquisitions of Omnicare and the pharmacies and clinics of Target.
(4)
The Corporate Segment operating loss for the three and six months ended June 30, 2015 includes $21 million of acquisition-related transaction costs.
 



10


Supplemental Information
(Unaudited)
 
Pharmacy Services Segment
 
The following table summarizes the Pharmacy Services Segment’s performance for the respective periods:
 
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
In millions
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Net revenues
 
$
29,510

 
$
24,442

 
$
58,275

 
$
48,321

Gross profit
 
1,367

 
1,241

 
2,469

 
2,267

Gross profit % of net revenues
 
4.6
%
 
5.1
%
 
4.2
%
 
4.7
%
Operating expenses
 
329

 
301

 
649

 
592

Operating expense % of net revenues
 
1.1
%
 
1.2
%
 
1.1
%
 
1.2
%
Operating profit
 
1,038

 
940

 
1,820

 
1,675

Operating profit % of net revenues
 
3.5
%
 
3.8
%
 
3.1
%
 
3.5
%
Net revenues:
 
 

 
 

 
 

 
 

Mail choice(1)
 
$
10,646

 
$
9,107

 
$
20,796

 
$
17,857

Pharmacy network(2)
 
18,778

 
15,267

 
37,314

 
30,326

Other
 
86

 
68

 
165

 
138

Pharmacy claims processed:
 
 

 
 

 
 
 
 

Total
 
302.7

 
250.1

 
607.4

 
501.3

Mail choice(1)
 
22.2

 
21.3

 
43.8

 
41.7

Pharmacy network(2)
 
280.5

 
228.8

 
563.6

 
459.6

Generic dispensing rate:
 
 
 
 

 
 

 
 

Total
 
85.4
%
 
83.9
%
 
85.3
%
 
83.7
%
Mail choice(1)
 
78.0
%
 
76.3
%
 
77.7
%
 
76.2
%
Pharmacy network(2)
 
86.0
%
 
84.6
%
 
85.9
%
 
84.4
%
Mail choice penetration rate
 
18.1
%
 
20.7
%
 
17.9
%
 
20.2
%
 

(1)
Mail choice is defined as claims filled at a Pharmacy Services mail facility, which include specialty mail claims inclusive of Specialty Connect® claims filled at our retail stores, as well as prescriptions filled at our retail stores under the Maintenance Choice® program.
(2)
Pharmacy network net revenues, claims processed and generic dispensing rates do not include Maintenance Choice, which are included within the mail choice category. Pharmacy network is defined as claims filled at retail stores and specialty retail pharmacies, including our retail stores and long-term care pharmacies, but excluding Maintenance Choice activity.



 

11


Supplemental Information
(Unaudited)
 
Retail/LTC Segment
 
The following table summarizes the Retail/LTC Segment’s performance for the respective periods:

 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
In millions
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Net revenues
 
$
19,998

 
$
17,242

 
$
40,110

 
$
34,193

Gross profit(1)
 
5,837

 
5,322

 
11,667

 
10,617

Gross profit % of net revenues
 
29.2
 %
 
30.9
 %
 
29.1
 %
 
31.0
 %
Operating expenses(1)
 
4,132

 
3,641

 
8,185

 
7,209

Operating expense % of net revenues
 
20.7
 %
 
21.1
 %
 
20.4
 %
 
21.1
 %
Operating profit
 
1,705

 
1,681

 
3,482

 
3,408

Operating profit % of net revenues
 
8.5
 %
 
9.7
 %
 
8.7
 %
 
10.0
 %
Prescriptions filled (90 Day = 3 Rx)(2)
 
300.9

 
244.1

 
606.0

 
485.5

Net revenue increase (decrease):
 
 

 
 

 
 

 
 

Total
 
16.0
 %
 
2.2
 %
 
17.3
 %
 
2.5
 %
Pharmacy
 
21.2
 %
 
5.2
 %
 
22.4
 %
 
5.2
 %
Front store
 
(0.6
)%
 
(5.1
)%
 
1.0
 %
 
(4.4
)%
Total prescription volume (90 Day = 3 Rx)(2)
 
23.2
 %
 
6.0
 %
 
24.8
 %
 
6.1
 %
Same store increase (decrease)(3):
 
 

 
 

 
 
 
 

Total sales
 
2.1
 %
 
0.5
 %
 
3.1
 %
 
0.8
 %
Pharmacy sales
 
3.9
 %
 
4.1
 %
 
4.7
 %
 
4.2
 %
Front store sales
 
(2.5
)%
 
(7.8
)%
 
(0.9
)%
 
(7.0
)%
Prescription volume (90 Day = 3 Rx)(2)
 
3.5
 %
 
4.8
 %
 
4.7
 %
 
4.9
 %
Generic dispensing rate
 
86.1
 %
 
85.0
 %
 
85.9
 %
 
84.7
 %
Pharmacy % of total revenues
 
74.8
 %
 
71.6
 %
 
74.7
 %
 
71.6
 %
 

(1)
Gross profit and operating expenses for the three months ended June 30, 2016 include $6 million and $75 million, respectively, of acquisition-related integration costs related to the acquisitions of Omnicare and the pharmacies and clinics of Target. Gross profit and operating expenses for the six months ended June 30, 2016 include $10 million and $132 million, respectively, of acquisition-related integration costs related to the acquisitions of Omnicare and the pharmacies and clinics of Target.
(2)
Includes the adjustment to convert 90-day, non-specialty prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal prescription.
(3)
Same store sales and prescriptions exclude revenues from MinuteClinic®, and revenue and prescriptions from stores in Brazil, long-term care operations and from commercialization services.




12


Adjusted Earnings Per Share Guidance
(Unaudited)
 
The following reconciliation of estimated income before income tax provision to estimated adjusted earnings per share contains forward-looking information. All forward-looking information involves risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking information for a number of reasons as described in our Securities and Exchange Commission filings, including those set forth in the Risk Factors section and under the section entitled “Cautionary Statement Concerning Forward-Looking Statements” in our most recently filed Annual Report on Form 10-K and Quarterly Report on Form 10-Q. See also “Non-GAAP Financial Measures” above for more information on how we calculate Adjusted EPS.
 
In millions, except per share amounts
 
Year Ending
December 31, 2016
 
 
 
 
 
Income before income tax provision(1)
 
$
8,746

 
$
8,921

Non-GAAP adjustments:
 
 
 
 
Amortization of intangible assets
 
795

 
795

Acquisition-related integration costs(1)
 
142

 
142

Charge related to a disputed 1999 legal settlement
 
3

 
3

Loss on early extinguishment of debt(2)
 
644

 
644

Adjusted income before income tax provision
 
10,330

 
10,505

Adjusted income tax provision
 
4,017

 
4,103

Adjusted net income
 
6,313

 
6,402

Net income attributable to noncontrolling interest
 
(2
)
 
(2
)
Income allocable to participating securities
 
(33
)
 
(33
)
Adjusted net income attributable to CVS Health
 
$
6,278

 
$
6,367

 
 
 
 
 
Weighted average diluted shares outstanding
 
1,081

 
1,081

Adjusted earnings per share
 
$
5.81

 
$
5.89

  
In millions, except per share amounts
 
Three Months Ending
 September 30, 2016
 
 
 
 
 
Income before income tax provision(1)
 
$
2,459

 
$
2,526

Non-GAAP adjustments:
 
 
 
 
Amortization of intangible assets
 
195

 
195

Loss on early extinguishment of debt(3)
 
102

 
102

Adjusted income before income tax provision
 
2,756

 
2,823

Adjusted income tax provision
 
1,087

 
1,115

Adjusted net income
 
1,669

 
1,708

Net income attributable to noncontrolling interest
 
(1
)
 
(1
)
Income allocable to participating securities
 
(8
)
 
(9
)
Adjusted net income attributable to CVS Health
 
$
1,660

 
$
1,698

 
 
 
 
 
Weighted average diluted shares outstanding
 
1,075

 
1,075

Adjusted earnings per share
 
$
1.55

 
$
1.58


(1)
Excludes anticipated acquisition-related integration costs for the acquisitions of Omnicare and the pharmacies and clinics of Target for the period from July 1, 2016 through December 31, 2016.
(2)
Includes $542 million loss on early extinguishment of debt from the tender offers that closed in June 2016, as well as the approximately $102 million loss on early extinguishment of debt from the redemption of certain senior notes in June 2016 that closed in July 2016. See Note 5, "Borrowings" in the Company's Form 10-Q for the quarter ended June 30, 2016 for further information.
(3)
Includes approximately $102 million loss on early extinguishment of debt from the redemption of certain senior notes in June 2016 that closed in July 2016. See Note 5, "Borrowings" in the Company's Form 10-Q for the quarter ended June 30, 2016 for further information.


13


Free Cash Flow Guidance
(Unaudited)
 
The following reconciliation of net cash provided by operating activities to free cash flow contains forward-looking information. All forward-looking information involves risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking information for a number of reasons as described in our Securities and Exchange Commission filings, including those set forth in the Risk Factors section and under the section entitled “Cautionary Statement Concerning Forward-Looking Statements” in our most recently filed Annual Report on Form 10-K and Quarterly Report on Form 10-Q. See also “Non-GAAP Financial Measures” above for more information on how we calculate Free Cash Flow.

 
In millions
 
Year Ending
December 31, 2016
 
 
 
 
 
Net cash provided by operating activities
 
$
8,775

 
$
9,075

Subtract: Additions to property and equipment
 
(2,750
)
 
(2,650
)
Add: Proceeds from sale-leaseback transactions
 
275

 
175

Free cash flow
 
$
6,300

 
$
6,600





14