UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported):  May 1, 2015
 
CVS HEALTH CORPORATION
(Exact Name of Registrant
as Specified in its Charter)
 
 
 
Delaware
 
 
 
 
(State or Other Jurisdiction of Incorporation)
 
 
 
 
 
 
 
001-01011
 
 
 
05-0494040
(Commission File Number)
 
 
 
(IRS Employer Identification No.)
 
One CVS Drive
 
 
Woonsocket, Rhode Island
 
02895
(Address of Principal Executive Offices)
 
(Zip Code)
 
Registrant’s telephone number, including area code:  (401) 765-1500
 

 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
o    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 











Item 2.02      Results of Operations and Financial Condition.
 
On May 1, 2015, CVS Health Corporation (the “Company”) issued a press release announcing its earnings for the three months ended March 31, 2015. Attached to this Current Report on Form 8-K as Exhibit 99.1, is a copy of the Company’s related press release dated May 1, 2015.
 
The information in this report is being furnished, not filed. Accordingly, the information in Item 9.01 of this report will not be incorporated by reference into any registration statement filed by the Company under the Securities Act of 1933, as amended, unless specifically identified therein as being incorporated by reference.
 
Item 9.01                   Financial Statements and Exhibits.
 
(d)         Exhibits
 
99.1      Press Release, dated May 1, 2015, of CVS Health Corporation.
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
CVS HEALTH CORPORATION
 
 
 
By:
/s/ David M. Denton
 
 
David M. Denton
 
 
Executive Vice President and
 
 
Chief Financial Officer
 
 
 
 
 
Dated:
May 1, 2015







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 RECORD FIRST QUARTER RESULTS

First Quarter Year-over-year Highlights:
•
Net revenues increased 11.1% to $36.3 billion
•
Operating profit increased 5.3% to $2.1 billion
•
Adjusted EPS of $1.14, an increase of 12.2%; GAAP diluted EPS from continuing operations of $1.07
•
Generated free cash flow of approximately $1.6 billion; cash flow from operations of approximately $2.0 billion

2015 Guidance:
•
Full year Adjusted EPS narrowed to $5.08 to $5.19; GAAP diluted EPS from continuing operations narrowed to $4.80 to $4.91
•
Provided second quarter Adjusted EPS guidance of $1.17 to $1.20 and GAAP diluted EPS from continuing operations guidance of $1.10 to $1.13
•
Confirmed full year free cash flow of $5.9 to $6.2 billion; cash flow from operations of $7.6 to $7.9 billion

WOONSOCKET, RHODE ISLAND, May 1, 2015 - CVS Health Corporation (NYSE: CVS) today announced operating results for the three months ended March 31, 2015.

Revenues
 
Net revenues for the three months ended March 31, 2015, increased 11.1%, or $3.6 billion, to $36.3 billion compared to the three months ended March 31, 2014.

Revenues in the Pharmacy Services Segment increased 18.2%, or $3.7 billion, to $23.9 billion in the three months ended March 31, 2015. The increase was primarily driven by growth in specialty pharmacy and pharmacy network claims. Pharmacy network claims processed during the three months ended March 31, 2015, increased 11.0% to 230.8 million compared to 208.0 million in the prior year. The increase in the pharmacy network claim volume was primarily due to net new business as well as growth in Managed Medicaid and public exchanges. Mail choice claims processed during the three months ended March 31, 2015, increased 2.7% to 20.3 million, compared to 19.8 million in the prior year. The increase in mail choice claims was driven by specialty claim volume and increased claims associated with the continued adoption of our Maintenance Choice® offerings.
 
Revenues in the Retail Pharmacy Segment increased 2.9%, or $471 million, to $17.0 billion in the three months ended March 31, 2015. Same store sales increased 1.2% over the first quarter of last year, with pharmacy same store sales up 4.2% and front store same store sales down 6.1%. On a comparable basis, front store same store sales would have been approximately 800 basis points higher if tobacco and the estimated associated basket sales were excluded from the three months ended March 31, 2014. Front stores same store sales were impacted by softer customer traffic, partially offset by an increase in basket size. Pharmacy same store prescription volumes rose 5.1% on a 30-day equivalent basis, partially driven by strong seasonal volume. Pharmacy same store sales were negatively impacted by approximately 280 basis points from recent generic drug introductions and by approximately 190 basis points from the implementation of Specialty Connect®. The implementation of Specialty Connect had a greater effect on revenues than prescription volumes due to the higher dollar value of specialty products.

For the three months ended March 31, 2015, the generic dispensing rate increased approximately 150 basis points from the prior year in both segments, rising to to 83.5% in the Pharmacy Services Segment and 84.4% in the Retail Pharmacy Segment.

Net Income
 
Net income for the three months ended March 31, 2015, increased 8.1%, or $92 million, to $1.2 billion, compared with approximately $1.1 billion during the three months ended March 31, 2014. The Pharmacy Services and Retail Pharmacy segments both benefited from the impact of increased generic drugs dispensed. The Pharmacy Services Segment was positively

1


impacted by growth in specialty pharmacy as well as favorable purchasing and rebate economics, partially offset by price compression. The Retail Pharmacy Segment was positively impacted by increased sales, an improved front store margin rate largely driven by the removal of tobacco products and favorable purchasing economics, partially offset by reimbursement pressure. Adjusted earnings per share (Adjusted EPS) for the three months ended March 31, 2015 and 2014, was $1.14 and $1.02, respectively, an increase of 12.2%. Adjusted EPS in the three months ended March 31, excludes $129 million and $131 million in 2015 and 2014, respectively, of intangible asset amortization related to acquisition activity. GAAP earnings per diluted share for the three months ended March 31, 2015 and 2014, was $1.07 and $0.95, respectively, an increase of 12.7%.
 
President and Chief Executive Officer Larry Merlo stated, “We delivered better-than-expected results this quarter, primarily driven by stronger-than-expected prescription volumes as well as favorable purchasing and rebate economics in the PBM.  Adjusted EPS increased 12.2%, to $1.14, five cents above the high end of our guidance range, with operating profit in the retail business in line with our expectations and operating profit in the PBM exceeding our expectations. We also generated approximately $1.6 billion in free cash flow, and we continued to return significant value to our shareholders through our disciplined capital allocation practices.”

Mr. Merlo continued, “We are already off to a solid start in the 2016 PBM selling season. Our integrated model allows us to provide differentiated products and services that generate savings for our clients while providing better health outcomes and convenience for patients. We remain very well positioned with our distinctive, channel-agnostic solutions, which are resonating strongly in the marketplace.”
 
Guidance
 
The Company raised the low end of its EPS guidance range for the full year 2015. The Company now expects to deliver Adjusted EPS of $5.08 to $5.19, up from $5.05 to $5.19, and GAAP diluted EPS from continuing operations of $4.80 to $4.91, up from $4.77 to $4.91 in 2015. The Company also continues to expect to deliver 2015 free cash flow of $5.9 billion to $6.2 billion, and 2015 cash flow from operations of $7.6 billion to $7.9 billion. The Company expects to deliver Adjusted EPS of $1.17 to $1.20 and GAAP diluted EPS from continuing operations of $1.10 to $1.13 in the second quarter of 2015.

Real Estate Program
 
During the three months ended March 31, 2015, the Company opened 38 new retail drugstores and closed 10 retail drugstores. In addition, the Company relocated 12 retail drugstores. As of March 31, 2015, the Company operated 8,006 locations in 47 states, the District of Columbia, Puerto Rico and Brazil. These locations included 7,850 retail drugstores, 17 onsite pharmacies, 24 retail specialty pharmacy stores, 11 specialty mail order pharmacies, four mail service dispensing pharmacies, and 86 branches for infusion and enteral services, including approximately 70 ambulatory infusion suites and six centers of excellence.
 
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 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 7,800 retail drugstores, nearly 1,000 walk-in medical clinics, a leading pharmacy benefits manager with more than 70 million plan members, and expanding specialty pharmacy services, the Company enables people, businesses and communities to manage health in more affordable, 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 www.cvshealth.com.









2


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
March 31,
In millions, except per share amounts
 
2015
 
2014
 
 
 
 
 
Net revenues
 
$
36,332

 
$
32,689

Cost of revenues
 
30,168

 
26,747

Gross profit
 
6,164

 
5,942

Operating expenses
 
4,032

 
3,918

Operating profit
 
2,132

 
2,024

Interest expense, net
 
134

 
158

Income before income tax provision
 
1,998

 
1,866

Income tax provision
 
777

 
737

Net income
 
$
1,221

 
$
1,129

 
 
 
 
 
Net income per share:
 
 
 
 
Basic
 
$
1.08

 
$
0.96

Diluted
 
$
1.07

 
$
0.95

Weighted average shares outstanding:
 
 
 
 
Basic
 
1,128

 
1,180

Diluted
 
1,136

 
1,190

Dividends declared per share
 
$
0.350

 
$
0.275

 



4


CVS HEALTH CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
 
 
 
March 31,
 
December 31,
In millions, except per share amounts
 
2015
 
2014
Assets:
 
 

 
 

Cash and cash equivalents
 
$
1,518

 
$
2,481

Short-term investments
 
116

 
34

Accounts receivable, net
 
10,162

 
9,687

Inventories
 
12,231

 
11,930

Deferred income taxes
 
1,001

 
985

Other current assets
 
594

 
866

Total current assets
 
25,622

 
25,983

Property and equipment, net
 
8,871

 
8,843

Goodwill
 
28,123

 
28,142

Intangible assets, net
 
9,759

 
9,774

Other assets
 
1,555

 
1,510

Total assets
 
$
73,930

 
$
74,252

 
 
 
 
 
Liabilities:
 
 

 
 

Accounts payable
 
$
6,431

 
$
6,547

Claims and discounts payable
 
6,273

 
5,404

Accrued expenses
 
5,936

 
5,816

Short-term debt
 
500

 
685

Current portion of long-term debt
 
573

 
575

Total current liabilities
 
19,713

 
19,027

Long-term debt
 
11,689

 
11,695

Deferred income taxes
 
4,020

 
4,036

Other long-term liabilities
 
1,513

 
1,531

Commitments and contingencies
 
—

 
—

 
 
 
 
 
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; 1,693 shares issued and 1,127
 
 
 
 
shares outstanding at March 31, 2015 and 1,691 shares issued and 1,140 shares
 
 
 
 
outstanding at December 31, 2014
 
17

 
17

Treasury stock, at cost: 565 shares at March 31, 2015 and 550 shares at December 31,
 
 
 
 
2014
 
(25,634
)
 
(24,078
)
Shares held in trust: 1 share at March 31, 2015 and December 31, 2014
 
(31
)
 
(31
)
Capital surplus
 
30,235

 
30,418

Retained earnings
 
32,667

 
31,849

Accumulated other comprehensive income (loss)
 
(264
)
 
(217
)
Total CVS Health shareholders’ equity
 
36,990

 
37,958

Noncontrolling interest
 
5

 
5

Total shareholders' equity
 
36,995

 
37,963

Total liabilities and shareholders’ equity
 
$
73,930

 
$
74,252

 


5


CVS HEALTH CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
 
 
Three Months Ended
March 31,
In millions
 
2015
 
2014
Cash flows from operating activities:
 
 

 
 

Cash receipts from customers
 
$
34,570

 
$
30,505

Cash paid for inventory and prescriptions dispensed by retail network pharmacies
 
(28,276
)
 
(23,966
)
Cash paid to other suppliers and employees
 
(4,162
)
 
(4,196
)
Interest received
 
3

 
3

Interest paid
 
(87
)
 
(104
)
Income taxes paid
 
(64
)
 
(70
)
Net cash provided by operating activities
 
1,984

 
2,172

 
 
 
 
 
Cash flows from investing activities:
 
 

 
 

Purchases of property and equipment
 
(419
)
 
(388
)
Proceeds from sale-leaseback transactions
 
25

 
5

Proceeds from sale of property and equipment and other assets
 
8

 
5

Acquisitions (net of cash acquired) and other investments
 
(61
)
 
(2,194
)
Purchase of available-for-sale investments
 
(113
)
 
(43
)
Sale or maturity of available-for-sale investments
 
16

 
55

Net cash used in investing activities
 
(544
)
 
(2,560
)
 
 
 
 
 
Cash flows from financing activities:
 
 

 
 

Decrease in short-term debt
 
(185
)
 
—

Dividends paid
 
(399
)
 
(325
)
Proceeds from exercise of stock options
 
126

 
154

Excess tax benefits from stock-based compensation
 
59

 
37

Repurchase of common stock
 
(2,007
)
 
(801
)
Net cash used in financing activities
 
(2,406
)
 
(935
)
Effect of exchange rates on cash and cash equivalents
 
3

 
—

Net decrease in cash and cash equivalents
 
(963
)
 
(1,323
)
Cash and cash equivalents at the beginning of the period
 
2,481

 
4,089

Cash and cash equivalents at the end of the period
 
$
1,518

 
$
2,766

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

 
 

Net income
 
$
1,221

 
$
1,129

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

 
 
Depreciation and amortization
 
490

 
477

Stock-based compensation
 
44

 
35

Deferred income taxes and other non-cash items
 
(31
)
 
16

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

 
 

Accounts receivable, net
 
(481
)
 
(139
)
Inventories
 
(313
)
 
(64
)
Other current assets
 
269

 
70

Other assets
 
(52
)
 
(39
)
Accounts payable and claims and discounts payable
 
756

 
339

Accrued expenses
 
153

 
362

Other long-term liabilities
 
(72
)
 
(14
)
Net cash provided by operating activities
 
$
1,984

 
$
2,172

 

6


Adjusted Earnings Per Share
(Unaudited)
 
For internal comparisons, management finds it useful to assess year-over-year performance by adjusting diluted earnings per share for amortization, which primarily relates to acquisition activities.
 
The Company defines adjusted earnings per share as income before income tax provision plus amortization, less adjusted income tax provision and other, which is comprised of earnings allocated to participating securities, divided by the weighted average diluted shares outstanding.
 
The following is a reconciliation of income before income tax provision to adjusted earnings per share:
 
 
 
Three Months Ended
March 31,
In millions, except per share amounts
 
2015
 
2014
Income before income tax provision
 
$
1,998

 
$
1,866

Amortization
 
129

 
131

Adjusted income before income tax provision
 
2,127

 
1,997

Adjusted income tax provision and other(1) 
 
833

 
789

Adjusted net income
 
$
1,294

 
$
1,208

 
 
 
 
 
Weighted average diluted shares outstanding
 
1,136

 
1,190

Adjusted earnings per share
 
$
1.14

 
$
1.02

 

(1)
The adjusted income tax provision is computed using the effective income tax rate computed from the condensed consolidated statement of income. “Other” includes earnings allocated to participating securities of $5 million for the three months ended March 31, 2015.


7


Free Cash Flow
(Unaudited)
 
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).
 
The following is a reconciliation of net cash provided by operating activities to free cash flow:
 
 
 
Three Months Ended
March 31,
In millions
 
2015
 
2014
 
 
 
 
 
Net cash provided by operating activities
 
$
1,984

 
$
2,172

Subtract: Additions to property and equipment
 
(419
)
 
(388
)
Add: Proceeds from sale-leaseback transactions
 
25

 
5

Free cash flow
 
$
1,590

 
$
1,789




8


Supplemental Information
(Unaudited)
 
The Company evaluates its Pharmacy Services and Retail Pharmacy 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 
Pharmacy 
Segment
 
Corporate 
Segment
 
Intersegment 
Eliminations(2)
 
Consolidated
Totals
Three Months Ended
 
 

 
 

 
 

 
 

 
 

March 31, 2015:
 
 
 
 
 
 
 
 
 
 
Net revenues
 
$
23,879

 
$
16,951

 
$
—

 
$
(4,498
)
 
$
36,332

Gross profit
 
1,026

 
5,295

 
—

 
(157
)
 
6,164

Operating profit (loss)
 
734

 
1,727

 
(189
)
 
(140
)
 
2,132

March 31, 2014:
 
 

 
 

 
 

 
 

 
 

Net revenues
 
20,195

 
16,480

 
—

 
(3,986
)
 
32,689

Gross profit
 
934

 
5,184

 
—

 
(176
)
 
5,942

Operating profit (loss)
 
640

 
1,750

 
(190
)
 
(176
)
 
2,024

 

(1)         Net revenues of the Pharmacy Services Segment includes approximately $2.5 billion and $2.2 billion of retail co-payments for the three months ended March 31, 2015 and 2014, respectively.
(2)
Intersegment eliminations relate to two types of transactions: (i) Intersegment revenues that occur when Pharmacy Services Segment customers use Retail Pharmacy Segment stores to purchase covered products. When this occurs, both the Pharmacy Services and Retail Pharmacy segments record the revenue on a stand-alone basis, and (ii) Intersegment revenues, gross profit and operating profit that occur when Pharmacy Services Segment customers, through the Company’s intersegment activities (such as the Maintenance Choice® program), elect to pick-up their maintenance prescriptions at Retail Pharmacy Segment stores instead of receiving them through the mail. When this occurs, both the Pharmacy Services and Retail Pharmacy segments record the revenue, gross profit and operating profit on a standalone basis. The following amounts are eliminated in consolidation in connection with the intersegment activity described in item (ii) above: net revenues of $1.2 billion and $1.1 billion for the three months ended March 31, 2015 and 2014, respectively; gross profit of $157 million and $176 million for the three months ended March 31, 2015 and 2014, respectively; and operating profit of $140 million and $176 million for the three months ended March 31, 2015 and 2014, respectively.



9


Supplemental Information
(Unaudited)
 
Pharmacy Services Segment
 
The following table summarizes the Pharmacy Services Segment’s performance for the respective periods:
 
 
 
Three Months Ended
March 31,
In millions
 
2015
 
2014
 
 
 
 
 
Net revenues
 
$
23,879

 
$
20,195

Gross profit
 
1,026

 
934

Gross profit % of net revenues
 
4.3
%
 
4.6
%
Operating expenses
 
292

 
294

Operating expense % of net revenues
 
1.2
%
 
1.5
%
Operating profit
 
734

 
640

Operating profit % of net revenues
 
3.1
%
 
3.2
%
Net revenues(1):
 
 

 
 

Mail choice(2)
 
$
8,750

 
$
6,834

Pharmacy network(3)
 
15,059

 
13,302

Other
 
70

 
59

Pharmacy claims processed(1):
 
 

 
 

Total
 
251.1

 
227.8

Mail choice(2)
 
20.3

 
19.8

Pharmacy network(3)
 
230.8

 
208.0

Generic dispensing rate(1):
 
 
 
 

Total
 
83.5
%
 
82.0
%
Mail choice(2)
 
76.1
%
 
73.9
%
Pharmacy network(3)
 
84.1
%
 
82.8
%
Mail choice penetration rate
 
19.8
%
 
21.2
%
 

(1)
Pharmacy network net revenues, claims processed and generic dispensing rates do not include Maintenance Choice, which are included within the mail choice category.
(2)
Mail choice is defined as claims filled at a Pharmacy Services mail facility, which include specialty mail claims, as well as 90-day claims filled at retail under the Maintenance Choice program.
(3)
Pharmacy network is defined as claims filled at retail pharmacies, including our retail drugstores, but excluding Maintenance Choice activity.



 

10


Supplemental Information
(Unaudited)
 
Retail Pharmacy Segment
 
The following table summarizes the Retail Pharmacy Segment’s performance for the respective periods:
 
 
 
Three Months Ended
March 31,
In millions
 
2015
 
2014
 
 
 
 
 
Net revenues
 
$
16,951

 
$
16,480

Gross profit
 
5,295

 
5,184

Gross profit % of net revenues
 
31.2
 %
 
31.5
 %
Operating expenses
 
3,568

 
3,434

Operating expense % of net revenues
 
21.0
 %
 
20.8
 %
Operating profit
 
1,727

 
1,750

Operating profit % of net revenues
 
10.2
 %
 
10.6
 %
Retail prescriptions filled (90 Day = 3 Rx) (1)
 
241.3

 
227.1

Net revenue increase:
 
 

 
 

Total
 
2.9
 %
 
2.7
 %
Pharmacy
 
5.3
 %
 
5.1
 %
Front store
 
(3.6
)%
 
(2.4
)%
Total prescription volume (90 Day = 3 Rx) (1)
 
6.3
 %
 
2.7
 %
Same store increase (decrease)(2):
 
 

 
 

Total sales
 
1.2
 %
 
1.4
 %
Pharmacy sales
 
4.2
 %
 
3.8
 %
Front store sales(3)
 
(6.1
)%
 
(3.8
)%
Prescription volume (90 Day = 3 Rx) (1)
 
5.1
 %
 
2.1
 %
Generic dispensing rate
 
84.4
 %
 
82.9
 %
Pharmacy % of total revenues
 
71.7
 %
 
70.5
 %
Third party % of pharmacy revenue
 
98.5
 %
 
98.3
 %
 

(1)
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.
(2)
Same store sales exclude revenues from MinuteClinic and stores in Brazil.
(3)
On a comparable basis, front store same store sales would have been approximately 800 basis points higher for the three months ended March 31, 2015 if tobacco and the estimated associated basket sales were excluded from the three months ended March 31, 2014.


11


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. For internal comparisons, management finds it useful to assess year-over-year performance by adjusting diluted earnings per share for amortization, which primarily relates to acquisition activities.

 
In millions, except per share amounts
 
Year Ending
December 31, 2015
 
 
 
 
 
Income before income tax provision
 
$
8,942

 
$
9,136

Amortization
 
520

 
520

Adjusted income before income tax provision
 
9,462

 
9,656

Adjusted income tax provision and other(1)
 
3,751

 
3,818

Adjusted income from continuing operations
 
$
5,711

 
$
5,838

 
 
 
 
 
Weighted average diluted shares outstanding
 
1,124

 
1,124

Adjusted earnings per share from continuing operations
 
$
5.08

 
$
5.19

  
In millions, except per share amounts
 
Three Months Ending
June 30, 2015
 
 
 
 
 
Income before income tax provision
 
$
2,069

 
$
2,126

Amortization
 
130

 
130

Adjusted income before income tax provision
 
2,199

 
2,256

Adjusted income tax provision and other(1)
 
874

 
898

Adjusted income from continuing operations
 
$
1,325

 
$
1,358

 
 
 
 
 
Weighted average diluted shares outstanding
 
1,133

 
1,133

Adjusted earnings per share from continuing operations
 
$
1.17

 
$
1.20


(1) Other includes earnings allocated to participating securities.

12


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. For internal comparisons, management finds it useful to assess year-over-year cash flow performance by adjusting cash provided by operating activities, by capital expenditures and proceeds from sale-leaseback transactions.

 
In millions
 
Year Ending
December 31, 2015
 
 
 
 
 
Net cash provided by operating activities
 
$
7,550

 
$
7,949

Subtract: Additions to property and equipment
 
(2,300
)
 
(2,200
)
Add: Proceeds from sale-leaseback transactions
 
600

 
500

Free cash flow
 
$
5,850

 
$
6,249



13
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