CVS Caremark Reports Record Second Quarter Revenues, Operating Profit, and Earnings

CVS Caremark Reports Record Second Quarter Revenues, Operating Profit, and
Earnings

WOONSOCKET, R.I., July 31 /PRNewswire-FirstCall/ -- CVS Caremark
Corporation (NYSE: CVS), today announced record revenues, operating profit,
and earnings for the second quarter ended June 28, 2008.
(Logo: http://www.newscom.com/cgi-bin/prnh/20080731/NETH034LOGO )
Second Quarter Year-Over-Year Highlights:
-- Adjusted EPS from continuing operations of $0.60, which excludes $97.8
million in amortization of intangible assets, up 17.1% -- GAAP diluted EPS
from continuing operations of $0.56, up 19.5%
-- Net revenues of $21.1 billion

Revenues:
Net revenues for the second quarter ended June 28, 2008, increased $437.0
million to $21.1 billion, up from $20.7 billion during the second quarter
ended June 30, 2007.
Revenues in the retail drugstore segment increased 4.6% to $11.8 billion
in the second quarter, while same store sales (sales from stores open more
than one year) in the Company's CVS/pharmacy division for the second quarter
rose 3.1% over the prior year period. Pharmacy same store sales rose 3.7% and
were negatively impacted by approximately 280 basis points due to recent
generic introductions, while front-end same store sales increased 1.8%. Same
store sales for the second quarter were negatively impacted by an earlier
Easter, which shifted more holiday sales into March. The Company estimates the
Easter shift had a negative impact of approximately 110 basis points on front-
end same store sales for the quarter ended June 28, 2008.
Revenues in the pharmacy services segment increased 1.0% to $10.7 billion
in the second quarter ended June 28, 2008. Retail network claims processed
during the second quarter ended June 28, 2008, increased 2.7% to 136.3 million
compared to 132.7 million in the prior year period. The increase in retail
network claims was driven primarily by increased enrollment in the Medicare
Part D business. Mail service claims processed during the second quarter ended
June 28, 2008 decreased 18.9% to 15.0 million compared to 18.5 million in the
prior year period primarily due to the termination of the Federal Employees
Health Benefit Plan mail contract effective December 31, 2007.
Earnings from continuing operations:
Earnings from continuing operations for the second quarter ended June 28,
2008, increased 13.8% to $823.5 million or $0.56 per diluted share on a GAAP
basis, compared with earnings from continuing operations of $723.6 million or
$0.47 per diluted share in the comparable 2007 period. Adjusted earnings per
share from continuing operations, which excludes $97.8 million in amortization
of intangible assets primarily related to acquisition activity, for the second
quarter were $0.60, compared with $0.51 per share in the comparable 2007
period. Earnings from continuing operations for the six months ended June 28,
2008, increased 38.8% to $1,572.0 million or $1.07 per diluted share on a GAAP
basis, compared with earnings from continuing operations of $1,132.5 million
or $0.91 per diluted share in the comparable 2007 period. Adjusted earnings
per share from continuing operations, which excludes $195.7 million in
amortization of intangible assets primarily related to acquisition activity,
for the six months were $1.15, compared with $0.99 per share in the comparable
2007 period.
Tom Ryan, Chairman, President and Chief Executive Officer of CVS Caremark
said, "This was another quarter of strong financial performance across our
businesses. We delivered solid improvement in sales and gross margins and
continued to exercise disciplined expense control. That enabled us to hit a
record operating profit margin this quarter. At the same time, we've further
advanced our new PBM/retail model and our clients have expressed growing
enthusiasm for our unique new product offerings."
Loss from discontinued operations:
In connection with business dispositions completed between 1991 and 1997,
the Company continues to guarantee store lease obligations for a number of
former subsidiaries, including Linens 'n Things ("Linens"). On May 2, 2008,
Linens Holding Co., which operates Linens, filed a voluntary petition under
Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the District of Delaware. As a result, CVS Caremark
reported a $48.7 million net loss, or $0.03 per diluted share, from
discontinued operations for the thirteen and twenty-six weeks ended June 28,
2008. The net loss from discontinued operations consists of lease-related
costs (net of income tax benefit), which the Company may be required to
satisfy pursuant to the guarantee of certain Linens' store lease obligations.
Real estate program
For the quarter, CVS Caremark opened 49 new retail pharmacy stores, closed
8 retail pharmacy stores, and relocated 39 others. As of June 28, 2008, the
Company operated 6,308 retail pharmacy stores, 56 specialty pharmacy stores,
19 specialty mail order pharmacies and 7 mail order pharmacies in 44 states
and the District of Columbia.
Teleconference and webcast
The Company will be holding a conference call today for the investment
community at 8:30 am (EDT) to discuss its quarterly results. An audio webcast
of the conference call will be broadcast simultaneously through the Investor
Relations portion of the CVS website for all interested parties. To access the
webcast, visit http://investor.CVS.com. This webcast will be archived and
available on the web site for a one-month period following the conference
call.
About the Company
CVS Caremark is the largest provider of prescriptions in the nation. The
Company fills or manages more than 1 billion prescriptions annually. Through
its unmatched breadth of service offerings, CVS Caremark is transforming the
delivery of healthcare services in the U.S. The Company is uniquely positioned
to effectively manage costs and improve healthcare outcomes through its more
than 6,300 CVS/pharmacy stores; its pharmacy benefit management, mail order
and specialty pharmacy division, Caremark Pharmacy Services; its retail-based
health clinic subsidiary, MinuteClinic; and its online pharmacy, CVS.com.
General information about CVS Caremark is available through the Investor
Relations portion of the Company's website, at http://investor.CVS.com, as
well as through the press room portion of the Company's website, at
www.cvs.com/pressroom.
Forward-looking statement
This press release contains certain forward-looking statements that are
subject to risks and uncertainties that could cause actual results to differ
materially. For these statements, the Company claims the protection of the
safe harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995. The Company strongly recommends that you become
familiar with the specific risks and uncertainties outlined under the caption
"Cautionary Statement Concerning Forward-Looking Statements" in its Quarterly
Report on Form 10-Q for the quarter ended March 29, 2008.
Investor Contact:
Nancy Christal
Senior Vice President
Investor Relations
(914) 722-4704

Media Contact:
Eileen Howard Dunn
Senior Vice President
Corporate Communications & Community Relations
(401) 770-4561

- Tables Follow -

CVS CAREMARK CORPORATION
Consolidated Statements of Operations
(Unaudited)
-------------------------------------------------------------------------
13 Weeks Ended 26 Weeks Ended(1)
In millions, except per share June 28, June 30, June 28, June 30,
amounts 2008 2007 2008 2007
-------------------------------------------------------------------------
Net revenues $21,140.3 $20,703.3 $42,466.3 $33,891.9
Cost of revenues 16,767.1 16,544.8 33,800.1 26,430.2
-------------------------------------------------------------------------
Gross profit 4,373.2 4,158.5 8,666.2 7,461.7
Operating expenses 2,895.1 2,848.7 5,818.0 5,415.4
-------------------------------------------------------------------------
Operating profit 1,478.1 1,309.8 2,848.2 2,046.3
Interest expense, net 114.7 105.9 245.6 169.8
-------------------------------------------------------------------------
Earnings from continuing
operations before income tax
provision 1,363.4 1,203.9 2,602.6 1,876.5
Income tax provision 539.9 480.3 1,030.6 744.0
-------------------------------------------------------------------------
Earnings from continuing
operations 823.5 723.6 1,572.0 1,132.5
Loss from discontinued operations,
net of income tax benefit(2) (48.7) -- (48.7) --
-------------------------------------------------------------------------
Net earnings 774.8 723.6 1,523.3 1,132.5
Preference dividends, net of
income tax benefit 3.6 3.5 7.1 7.0
-------------------------------------------------------------------------
Net earnings available to common
shareholders $771.2 $720.1 $1,516.2 $1,125.5
-------------------------------------------------------------------------
Basic earnings per common share:
Earnings from continuing
operations $0.57 $0.48 $1.09 $0.94
Loss from discontinued
operations (0.03) -- (0.03) --
-------------------------------------------------------------------------
Net earnings $0.54 $0.48 $1.06 $0.94
Weighted average basic common
shares outstanding 1,431.8 1,492.4 1,430.8 1,199.2
-------------------------------------------------------------------------
Diluted earnings per common
share: (3)
Earnings from continuing
operations $0.56 $0.47 $1.07 $0.91
Loss from discontinued
operations (0.03) -- (0.03) --
-------------------------------------------------------------------------
Net earnings $0.53 $0.47 $1.04 $0.91
-------------------------------------------------------------------------
Weighted average diluted
common shares outstanding 1,468.7 1,542.5 1,468.5 1,241.4
-------------------------------------------------------------------------
Dividends declared per common
share $0.06000 $0.06000 $0.12000 $0.10875
-------------------------------------------------------------------------

(1) On March 22, 2007, pursuant to the Agreement and Plan of Merger dated
as of November 1, 2006, as amended (the "Merger Agreement"), Caremark Rx, Inc.
("Caremark") was merged with and into a newly formed subsidiary of CVS
Corporation, with the CVS subsidiary continuing as the surviving entity. Under
the terms of the Merger Agreement, Caremark shareholders received 1.67 shares
of common stock, par value $0.01 per share of the Corporation for each share
of common stock of Caremark, par value $0.001 per share, issued and
outstanding immediately prior to the effective time of the merger. Further,
the results of operations for the six months ended June 30, 2007 include 101
days of Caremark's results of operations.
(2) In connection with certain business dispositions completed between
1991 and 1997, the Company continues to guarantee approximately 220 store
lease obligations for a number of former subsidiaries, including Linen 'n
Things. On May 2, 2008, Linens Holding Co., which operates Linens 'n Things,
filed a voluntary petition under Chapter 11 of the United States Bankruptcy
Code in the United States Bankruptcy Court for the District of Delaware. The
loss from discontinued operations includes $78.8 million of lease-related
costs ($48.7 million net of a $30.1 million income tax benefit), which the
Company believes it may be required to satisfy pursuant to the lease
guarantees. These amounts, which will change as more information becomes
available, were calculated in accordance with Statement of Financial
Accounting Standards No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities."
(3) Diluted earnings per common share is computed by dividing (i) net
earnings, after accounting for the difference between the dividends on the
ESOP preference stock and common stock and after making adjustments for the
incentive compensation plans by (ii) Basic shares plus the additional shares
that would be issued assuming that all dilutive stock awards are exercised and
the ESOP preference stock is converted into common stock. The dilutive
earnings adjustment was $1.0 million and $0.8 million for the thirteen-weeks
ended June 28, 2008 and June 30, 2007, respectively. The dilutive earnings
adjustment was $1.9 million and $1.9 million for the fiscal years ended June
28, 2008 and June 30, 2007, respectively.

CVS CAREMARK CORPORATION
Consolidated Balance Sheets
(Unaudited)
-------------------------------------------------------------------------
June 28, December 29,
In millions, except share and per share amounts 2008 2007
-------------------------------------------------------------------------
Assets:
Cash and cash equivalents $615.7 $1,056.6
Short-term investments -- 27.5
Accounts receivable, net 4,457.7 4,579.6
Inventories 8,001.4 8,008.2
Deferred income taxes 360.4 329.4
Other current assets 170.2 148.1
-------------------------------------------------------------------------
Total current assets 13,605.4 14,149.4

Property and equipment, net 6,305.1 5,852.8
Goodwill 23,926.0 23,922.3
Intangible assets, net 10,271.2 10,429.6
Other assets 359.3 367.8
-------------------------------------------------------------------------
Total assets $54,467.0 $54,721.9
-------------------------------------------------------------------------

Liabilities:
Accounts payable $3,287.0 $3,593.0
Claims and discounts payable 2,245.6 2,484.3
Accrued expenses 2,250.9 2,556.8
Short-term debt 980.0 2,085.0
Current portion of long-term debt 47.3 47.2
-------------------------------------------------------------------------
Total current liabilities 8,810.8 10,766.3

Long-term debt 8,348.3 8,349.7
Deferred income taxes 3,437.7 3,426.1
Other long-term liabilities 860.0 857.9

Shareholders' equity:
Preference stock, series one ESOP convertible,
par value $1.00: authorized 50,000,000 shares;
issued and outstanding 3,702,000 shares at
June 28, 2008 and 3,798,000 shares at
December 29, 2007 197.9 203.0
Common stock, par value $0.01: authorized
3,200,000,000 shares; issued 1,601,670,000
shares at June 28, 2008 and 1,590,139,000
shares at December 29, 2007 16.0 15.9
Treasury stock, at cost: 166,130,000 shares at
June 28, 2008 and 153,682,000 shares at
December 29, 2007 (5,869.6) (5,620.4)
Shares held in trust, 1,700,000 shares at
June 28, 2008 and 9,224,000 at
December 29, 2007 (55.5) (301.3)
Guaranteed ESOP obligation (44.5) (44.5)
Capital surplus 27,205.6 26,831.9
Retained earnings 11,608.3 10,287.0
Accumulated other comprehensive loss (48.0) (49.7)
-------------------------------------------------------------------------
Total shareholders' equity 33,010.2 31,321.9
-------------------------------------------------------------------------
Total liabilities and shareholders' equity $54,467.0 $54,721.9
-------------------------------------------------------------------------

CVS CAREMARK CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
-------------------------------------------------------------------------
26 Weeks Ended
June 28, June 30,
In millions 2008 2007
-------------------------------------------------------------------------
Cash flows from operating activities:
Cash receipts from revenues $30,803.6 $28,614.2
Cash paid for inventory (22,428.1) (21,836.9)
Cash paid to other suppliers and employees (5,938.5) (4,447.7)
Interest received 10.1 15.6
Interest paid (267.1) (201.2)
Income taxes paid (787.9) (716.8)
-------------------------------------------------------------------------
Net cash provided by operating activities 1,392.1 1,427.2
-------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property and equipment (955.3) (778.0)
Proceeds from sale-leaseback transactions 69.6 23.7
Acquisitions (net of cash acquired) and other
investments (14.0) (1,941.3)
Sale/(purchase) of short-term investment 27.5 (96.0)
Proceeds from sale or disposal of assets 9.5 86.1
-------------------------------------------------------------------------
Net cash used in investing activities (862.7) (2,705.5)
-------------------------------------------------------------------------
Cash flows from financing activities:
Reductions in short-term debt (1,105.0) (1,182.3)
Additions to long-term debt -- 6,000.0
Reductions in long-term debt (1.3) (520.6)
Dividends paid (172.1) (132.4)
Proceeds from exercise of stock options 278.9 231.3
Excess tax benefits from stock based
compensation 52.2 30.1
Repurchase of common stock (23.0) (2,866.2)
-------------------------------------------------------------------------
Net cash (used in)/provided by financing
activities (970.3) 1,559.9
-------------------------------------------------------------------------

Net (decrease)/increase in cash and cash
equivalents (440.9) 281.6
Cash and cash equivalents at beginning of period 1,056.6 530.7
-------------------------------------------------------------------------
Cash and cash equivalents at end of period $615.7 $812.3
-------------------------------------------------------------------------
Reconciliation of net earnings to net cash
provided by operating activities:
Net earnings $1,523.3 $1,132.5
Adjustments required to reconcile net
earnings to net cash provided by operating
activities:
Depreciation and amortization 609.3 516.8
Stock based compensation 35.4 47.0
Deferred income taxes and other non-cash items (8.1) (5.3)
Change in operating assets and liabilities,
providing/(requiring) cash, net of effects
from acquisitions:
Accounts receivable, net 121.9 566.5
Inventories 6.9 (190.9)
Other current assets (30.3) (19.9)
Other assets 10.3 (13.1)
Accounts payable and Claims and
discounts payable (544.6) (291.0)
Accrued expenses (334.6) (335.1)
Other long-term liabilities 2.6 19.7
-------------------------------------------------------------------------
Net cash provided by operating activities $1,392.1 $1,427.2
-------------------------------------------------------------------------

Adjusted Earnings Per Share
---------------------------

For internal comparisons, management finds it useful to assess year-to-
year performance adjusting diluted earnings per share for amortization, which
primarily relates to acquisition activities.
The Company defines adjusted earnings per share as earnings from
continuing operations before income taxes plus amortization, less income tax
provision and dilutive earnings adjustment, divided by the weighted average
diluted common shares outstanding.
Following is a reconciliation of earnings from continuing operations
before income tax provision to adjusted earnings per share:

-------------------------------------------------------------------------
(Unaudited) (Unaudited)
------------ -----------
13 Weeks Ended 26 Weeks Ended
-------------- --------------
In millions, except per share June 28, June 30, June 28, June 30,
amounts 2008 2007 2008 2007
-------------------------------------------------------------------------
Earnings from continuing
operations before income tax
provision $1,363.4 $1,203.9 $2,602.6 $1,876.5
Amortization 97.8 112.7 195.7 160.1
-------------------------------------------------------------------------
Adjusted earnings from continuing
operations before income tax
provision 1,461.2 1,316.6 2,798.3 2,036.6
Income tax provision 578.6 525.3 1,108.1 807.5
-------------------------------------------------------------------------
Adjusted net earnings from
continuing operations 882.6 791.3 1,690.2 1,229.3
Dilutive earnings adjustment (1.0) (0.8) (1.9) (1.9)
-------------------------------------------------------------------------
Adjusted net earnings from
continuing operations available
to common shareholders 881.6 790.5 1,688.3 1,227.4
-------------------------------------------------------------------------
Weighted average diluted common
shares outstanding 1,468.7 1,542.5 1,468.5 1,241.4
Adjusted earnings per share from
continuing operations $0.60 $0.51 $1.15 $0.99
-------------------------------------------------------------------------

Free Cash Flow
--------------

The Company defines free cash flow as net cash provided by operating
activities less net additions to properties and equipment (additions to
property and equipment plus proceeds from sale-leaseback transactions).
Following is a reconciliation of net cash provided by operating activities
to free cash flow:

-------------------------------------------------------------------------
(Unaudited)
-----------
26 Weeks Ended
--------------
June 28, June 30,
In millions 2008 2007
-------------------------------------------------------------------------
Net earnings $1,523.3 $1,132.5
Non-cash charges (including depreciation and
amortization) 636.6 558.5
Working capital change (767.8) (263.8)
-------------------------------------------------------------------------
Net cash provided by operating activities $1,392.1 $1,427.2
Subtract: Additions to property and equipment (955.3) (778.0)
Add: Proceeds from sale-leaseback transactions 69.6 23.7
-------------------------------------------------------------------------
Free cash flow $506.4 $672.9
-------------------------------------------------------------------------

Supplemental Unaudited Information

The Company evaluates segment performance based on net revenue, gross
profit and operating profit before the effect of discontinued operations and
certain intersegment activities and charges. Following is a reconciliation of
the Company's business segments to the accompanying consolidated financial
statements:

--------------------------------------------------------------------------
Retail Pharmacy
Pharmacy Services Intersegment Consolidated
In millions Segment Segment(1) Eliminations(2) Totals
--------------------------------------------------------------------------
13 Weeks Ended:
June 28, 2008:
Net revenues $11,770.8 $10,656.8 $(1,287.3) $21,140.3
Gross profit 3,523.3 849.9 -- 4,373.2
Operating profit 864.0 614.1 -- 1,478.1

June 30, 2007:
Net revenues $11,249.7 $10,554.1 $(1,100.5) $20,703.3
Gross profit 3,295.7 862.8 -- 4,158.5
Operating profit 727.8 582.0 -- 1,309.8
--------------------------------------------------------------------------
26 Weeks Ended:
June 28, 2008:
Net revenues $23,616.4 $21,421.5 $(2,571.6) $42,466.3
Gross profit 7,028.3 1,637.9 -- 8,666.2
Operating profit 1,704.1 1,144.1 -- 2,848.2

June 30, 2007:
Net revenues $22,488.9 $12,664.4 $(1,261.4) $33,891.9
Gross profit 6,401.4 1,060.3 -- 7,461.7
Operating profit 1,353.7 692.6 -- 2,046.3
--------------------------------------------------------------------------

(1) Net revenues of the Pharmacy Services Segment include approximately
$1,540.2 million and $1,412.1 million of Retail Co-payments for the thirteen
weeks ended June 28, 2008 and June 30, 2007, respectively. Net revenues of the
Pharmacy Services Segment include approximately $3,205.1 million and $1,568.1
million of Retail Co-payments for the twenty- six weeks ended June 28, 2008
and June 30, 2007, respectively.
(2) Intersegment eliminations relate to intersegment revenues that occur
when a Pharmacy Services Segment customer uses a Retail Pharmacy Segment store
to purchase covered products. When this occurs, both segments record the
revenue on a standalone basis.

Supplemental Information
Preliminary and Unaudited

Retail Pharmacy Segment

The following table summarizes the Retail Pharmacy Segment's performance
for the respective periods:

-----------------------------------------------------------------------
13 weeks ended 26 weeks ended

June 28, June 30, June 28, June 30,
In millions 2008 2007 2008 2007
-----------------------------------------------------------------------
Net revenues $11,770.8 $11,249.7 $23,616.4 $22,488.9
Gross profit 3,523.3 3,295.7 7,028.3 6,401.4
Gross profit % of
net revenues 29.9% 29.3% 29.8% 28.5%
Operating expenses(1) 2,659.3 2,567.9 5,324.2 5,047.7
Operating expense %
of net revenues 22.6% 22.8% 22.5% 22.5%
Operating profit 864.0 727.8 1,704.1 1,353.7
Operating profit %
of net revenues 7.3% 6.5% 7.2% 6.0%
-----------------------------------------------------------------------
Net revenue increase:
Total 4.6% 15.5% 5.0% 19.2%
Pharmacy 4.9% 14.1% 4.9% 17.6%
Front Store 4.1% 18.6% 5.3% 22.6%
Same store sales
increase:(2)
Total 3.1% 5.7% 3.5% 6.5%
Pharmacy 3.7% 5.7% 3.7% 6.7%
Front Store 1.8% 5.9% 3.1% 6.2%
Generic dispensing
rates 67.0% 62.4% 66.8% 62.1%
Pharmacy % of total
revenues 67.8% 67.6% 68.0% 68.1%
Third party % of
pharmacy revenue 95.8% 95.0% 95.8% 95.1%
Retail prescriptions
filled 134.6 130.7 274.1 264.7
-----------------------------------------------------------------------

(1) Operating expenses include merger and integration costs associated
with the Caremark Merger of $0.6 million and $6.2 million for the thirteen
weeks ended June 28, 2008 and June 30, 2007, respectively. Operating expenses
include merger and integration costs associated with the Caremark Merger of
$1.0 million and $10.7 million for the twenty-six weeks ended June 28, 2008
and June 30, 2007, respectively.
(2) On June 2, 2006, we acquired certain assets and assumed certain
liabilities from Albertson's, Inc. for $4.0 billion. The assets acquired and
the liabilities assumed included approximately 700 standalone drugstores and a
distribution center located in La Habra, California (collectively, the
"Standalone Drug Business"). During the thirteen and twenty-six weeks ended
June 30, 2007, total net revenues were significantly affected by the
acquisition of the Standalone Drug Business, which increased total net
revenues by approximately 8.1% and 11.0% respectively. The sales results of
the Standalone Drug Business were not included in same store sales revenue
until July 1, 2007.

Supplemental Information
Preliminary and Unaudited

Pharmacy Services Segment

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

13 Weeks Ended 26 Weeks Ended
June 28, June 30, June 28, June 30,
In millions 2008 2007 2008 2007
--------------------------------------------------------------------------
As reported:
--------------------------------------------------------------------------
Net revenues (1) $10,656.8 $10,554.1 $21,421.5 $12,664.4
Gross profit 849.9 862.8 1,637.9 1,060.3
Gross profit % of net
revenues 8.0% 8.2% 7.6% 8.4%
Operating expenses 235.8 280.8 493.8 367.7
Operating expense % of
net revenues 2.2% 2.7% 2.3% 2.9%
Operating profit 614.1 582.0 1,144.1 692.6
Operating profit % of
net revenues 5.8% 5.5% 5.3% 5.5%
--------------------------------------------------------------------------
Net revenues:
Mail service $3,620.8 $4,171.7 $7,267.9 $5,381.4
Retail network 6,942.9 6,296.5 13,966.7 7,182.4
Other 93.1 85.9 186.9 100.6
--------------------------------------------------------------------------
Comparable Financial Information: (2)
-------------------------------------
Net revenues $10,656.8 $10,554.1 $21,421.5 $21,075.0
Gross profit 849.9 862.8 1,637.9 1,620.8
Gross profit % of net
revenues 8.0% 8.2% 7.6% 7.7%
Operating expenses 235.8 265.2 493.8 732.3
Merger and integration
costs(3) (5.0) (18.8) (15.4) (234.0)
--------------------------------------------------------------------------
Total operating expenses 230.8 246.4 478.4 498.3
Operating expense % of
net revenues 2.2% 2.3% 2.2% 2.4%
Operating profit 619.1 616.4 1,159.5 1,122.5
Operating profit % of
net revenues 5.8% 5.8% 5.4% 5.3%
--------------------------------------------------------------------------
Net revenues:
Mail service $3,620.8 $4,171.7 $7,267.9 $8,336.6
Retail network 6,942.9 6,296.5 13,966.7 12,570.0
Other 93.1 85.9 186.9 168.4
Pharmacy claims processed:
Total 151.3 151.2 308.1 303.6
Mail service 15.0 18.5 30.3 37.0
Retail network 136.3 132.7 277.8 266.6
Generic dispensing rate:
Total 64.5% 59.6% 64.3% 59.2%
Mail service 54.5% 47.6% 53.6% 46.7%
Retail network 65.5% 61.2% 65.3% 60.7%
Mail order penetration rate 23.5% 28.2% 23.3% 28.2%
--------------------------------------------------------------------------

(1) Effective September 1, 2007, we converted a number of the PharmaCare
retail pharmacy network contracts to the Caremark contract structure, which
resulted in those contracts being accounted for using the gross method. This
change caused total net revenues to increase by approximately $667.6 million
and $1.4 billion during the thirteen and twenty-six weeks ended June 28, 2008,
respectively.
(2) The Comparable Financial Information combines the historical Pharmacy
Services Segment results of CVS and Caremark assuming the Caremark Merger and
any adjustments to the estimated assets acquired and liabilities assumed as of
March 22, 2007 occurred at the beginning the twenty-six week period ended June
30, 2007. Accordingly, the comparable results include incremental depreciation
and amortization resulting from the fixed and intangible assets recorded in
connection with the Caremark Merger and exclude merger-related expenses and
integration costs. The comparable financial information has been provided for
illustrative purposes only and does not purport to be indicative of the actual
results that would have been achieved by the combined business segment for the
periods presented or that will be achieved by the combined business segment in
the future.
(3) Merger and integration costs for the thirteen weeks ended June 28,
2008 primarily consist of system integration and facility consolidation costs.
Merger and integration costs for the thirteen weeks ended June 30, 2007
include $10.6 million of severance and retention costs and $8.2 million of
other merger-related costs. Merger and integration costs for the twenty-six
weeks ended June 28, 2008 primarily consist of severance and retention, system
integration and facility consolidation costs. Merger and integration costs for
the twenty-six weeks ended June 30, 2007, include $80.3 million of stock
option expense associated with the accelerated vesting of certain Caremark
stock options, which vested upon consummation of the merger due to change in
control provisions of the underlying Caremark stock option plans, $42.9
million of change-in-control payments due upon the consummation of the merger
due to change-in-control provisions in certain Caremark employment agreements
and merger-related costs of $110.9 million. Merger-related costs include $43.8
million of investment banker fees, $32.8 million of legal and accounting fees
and $34.3 million of other merger-related costs.

EBITDA and EBITDA per Adjusted Claim
------------------------------------

The Company defines EBITDA as earnings before interest, taxes,
depreciation and amortization (and excluding merger and integration related
costs). We define EBITDA per adjusted claim as EBITDA divided by adjusted
pharmacy claims. Adjusted pharmacy claims normalize the claims volume
statistic for the difference in average days' supply for mail and retail
claims. Adjusted pharmacy claims are calculated by multiplying 90-day claims
(the majority of total mail claims) by 3 and adding the 30-day claims. EBITDA
can be reconciled to operating profit, which we believe to be the most
directly comparable GAAP financial measure. Following is a reconciliation
of operating profit to EBITDA:

Pharmacy Services Segment - Comparable Financial (Unaudited)
Information (1) 13 Weeks Ended
June 28, June 30,
In millions, except per adjusted claim amounts 2008 2007
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Operating profit $614.1 $597.6
Merger and integration costs(2) 5.0 18.8
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Comparable operating profit $619.1 $616.4
Depreciation and amortization 87.6 92.0
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EBITDA $706.7 $708.4
Adjusted claims 178.1 184.9
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EBITDA per adjusted claim $3.97 $3.83
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(1) The Comparable Financial Information combines the historical Pharmacy
Services Segment results of CVS and Caremark assuming the Caremark Merger and
any adjustments to the estimated assets acquired and liabilities assumed as of
March 22, 2007 occurred at the beginning of the twenty-six week period ended
June 30, 2007. The comparable results include incremental depreciation and
amortization resulting from the fixed and intangible assets recorded in
connection with the Caremark Merger and exclude merger-related expenses and
integration costs. The comparable financial information, which is used by
management to assess year-to-year performance, has been provided for
illustrative purposes only and does not purport to be indicative of the actual
results that would have been achieved by the combined business segment for the
periods presented or that will be achieved by the combined business segment in
the future.
(2) Merger and integration costs for the thirteen weeks ended June 28,
2008 primarily consist of system integration and facility consolidation costs.
Merger and integration costs for the thirteen weeks ended June 30, 2007
include $10.6 million of severance and retention costs and $8.2 million of
other merger-related costs.
SOURCE CVS Caremark Corporation

Nancy Christal, Senior Vice President, Investor Relations, +1-914-722-4704, or
Eileen Howard Dunn, Senior Vice President, Corporate Communications &
Community Relations, +1-401-770-4561