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CVS HEALTH Corp Annual Report, Year Ended Dec 30, 2000

Filing Date
Filed March 19, 2001
Period End
December 30, 2000
Security
CVS
In the record · 2016–202610-K1110-Q328-K181

CVS filed 11 annual reports (10-K), 32 quarterly reports (10-Q) and 181 current reports (8-K) between 2016 and 2026.

  1. FY2016 annual report10-K · Feb ’17Feb ’17
  2. Leadership change8-K · Aug ’19Aug ’19
  3. Impairment8-K · Nov ’21Nov ’21
  4. Leadership change8-K · Apr ’25Apr ’25

01—Abstract

Summary

Summary of the 10-K filed March 19, 2001. Cited figures are marked; the original filing is the authoritative source.

CVS Corporation's fiscal 2000 10-K (fiscal year ended December 30, 2000) shows a retailer that grew sales and earnings strongly while keeping its balance sheet conservative.

Net sales rose 11.0% to $20.1 billiona, with same-store sales up 10.9%. Pharmacy same-store sales grew 17.7%, and pharmacy now makes up 63% of sales. Net earnings increased to $746.0 million, or $1.83 per diluted share, up from $1.55 in 1999.

Excluding a one-time $19.2 millionb pre-tax litigation gain in 2000 and 1998 merger-related charges, comparable diluted EPS was $1.80 versus $1.55 in 1999, a 16% increase. Operating profit reached $1.32 billion, and operating cash flow rose to $780.2 million. Growth is driven by the managed care and prescription business, an aging population, and the company's store expansion.

CVS operated 4,133 stores at year-end and plans to open about 300 more in 2001, with a goal of roughly 80% freestanding locations over the long term (currently 39%, targeting 44% by end of 2001). The company also expanded into specialty pharmacy through the Stadtlander acquisition for $124 millionc in cash, and it reports that it uses no derivatives. Investors should note the structural margin pressure: gross margin slipped to 26.7% from 26.9% as lower-margin third-party prescription sales grew to 89% of pharmacy sales, and management warns it may not sustain its current sales growth if it drops more unprofitable third-party programs.

Balance sheet and capital allocation remain sound. Long-term debt was $536.8 milliond against shareholders' equity of $4.30 billion, and commercial paper of $589.6 million was supported by credit facilities. The company repurchased $163.2 million of its stock under a $1 billion authorization, and the dividend was $0.23 per share annually.

Contingent exposure is notable: CVS guarantees leases on about 1,300 former stores, which would cost roughly $876 million to settle if all purchasers became insolvent, though management views that as highly unlikely and indemnified. Overall the filing presents a strong growth story with the main risks coming from pharmacy reimbursement pressure and reliance on continued store expansion.

02—Key points

Key Highlights

  1. Net sales grew 11.0% to $20.1 billion, with same-store sales up 10.9% and pharmacy same-store sales up 17.7%.
  2. Net earnings rose 19.6% to $746.0 million; diluted EPS was $1.83 (about $1.80 excluding a one-time gain), up from $1.55.
  3. Operating profit increased to $1.32 billion, and operating cash flow rose to $780.2 million from $726.3 million.
  4. Gross margin declined slightly to 26.7% of sales from 26.9%, as lower-margin third-party pharmacy sales rose to 89% of pharmacy sales.
  5. Store footprint reached 4,133 stores; the company plans about 300 openings in 2001 and aims for roughly 80% freestanding locations long term.
  6. Balance sheet is solid, with long-term debt of $536.8 million versus $4.30 billion in shareholders' equity; the company repurchased $163.2 million of stock in 2000.
  7. Contingent liability of roughly $876 million if all purchasers of about 1,300 divested stores became insolvent, which management considers highly unlikely.

03—Questions

Frequently Asked Questions

  1. What drove CVS's revenue and earnings growth in fiscal 2000?

    Growth came mainly from pharmacy sales, which rose 18.2% to $12.6 billion, supported by managed care relationships, an aging population, and new drug introductions. Front store sales also grew to $7.2 billion. Net earnings rose to $746.0 million, or $1.83 per diluted share, though comparable EPS excluding a one-time gain was about $1.80.

  2. Is CVS's margin under pressure?

    Yes, modestly. Gross margin fell to 26.7% from 26.9% as pharmacy sales outpaced front store sales and third-party prescriptions grew to 89% of pharmacy sales, and these carry lower margins. Management says it has dropped unprofitable third-party programs, but warns it may not sustain current sales growth if it must keep doing so.

  3. How is CVS funding its expansion and shareholder returns?

    Operations generated $780.2 million in cash, which together with commercial paper and sale-leaseback transactions ($299.3 million in 2000) funded $695.3 million of capital expenditures. The company spent $263.3 million on acquisitions, including Stadtlander for $124 million in cash. It also repurchased $163.2 million of stock and paid $104.8 million in dividends.

  4. What are the main contingent risks disclosed?

    CVS guarantees lease obligations for about 1,300 former stores sold between 1991 and 1997, with purchasers indemnifying CVS. Management estimates settlement would be about $876 million if all purchasers became insolvent, which it considers highly unlikely. Management also states that pending litigation is not expected to have a material adverse effect.

  5. Does CVS use derivatives or face significant market risk?

    According to Item 7A, CVS had not entered into derivative financial instruments or derivative commodity instruments, and management believes its exposure to interest rate and other market risks is not material. Its $589.6 million of commercial paper carried a weighted average rate of 6.9%, and the company has no investments in derivatives.

04—Continue

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