Notes to Consolidated Financial Statements

Index 2000 - A Year of Great Achievement Financial Highlights To our Shareholders Positioned for Growth Front-End Business New Store Growth Program CVS Procare CVS.com Community Involvement Store Count by State Management's Discussion and Analysis... Management's Responsibility for Financial Reporting Independent Auditor's Report Consolidated Statements of Operations Consolidated Balance Sheets Consolidated Statements of Shareholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements.    Significant Accounting Policies    Borrowing and Credit Agreements    Leases    Employee Stock Ownership Plan    Stock Incentive Plans    Pension Plans and Other Postretirement Benefits    Income Taxes    Commitments & Contingencies    Business Segments    Business Combinations    Reconciliation of Earnings Per Common Share    Quarterly Financial Information (Unaudited) Five-Year Financial Summary Corporate Information

9. Business Segments

The Company currently operates four business segments: Retail Pharmacy, Pharmacy Benefit Management ("PBM"), Specialty Pharmacy and Internet Pharmacy. The Company's business segments are operating units that offer different products and services, and require distinct technology and marketing strategies.

The Retail Pharmacy segment, which includes 4,087 retail drugstores located in 24 states and the District of Columbia, operates under the CVS/pharmacy name. The Retail Pharmacy segment is the Company's only reportable segment.

The PBM segment provides a full range of prescription benefit management services to managed care providers and other organizations. These services include plan design and administration, formulary management, mail order pharmacy services, claims processing and generic substitution. The PBM segment operates under the PharmaCare Management Services name.

The Specialty Pharmacy segment, which includes mail order facilities and 46 retail pharmacies located in 17 states and the District of Columbia, operates under the CVS ProCare name. The Specialty Pharmacy segment focuses on supporting individuals that require complex and expensive drug therapies.

The Internet Pharmacy segment, which includes a mail order facility and a complete online retail pharmacy, operates under the CVS.com name.

The accounting policies of the segments are substantially the same as those described in Note 1. The Company evaluates segment performance based on operating profit before the effect of nonrecurring charges and gains and intersegment profits.

Following is a reconciliation of the significant components of the Retail Pharmacy segment's net sales for the respective years.

	2000	1999	1998
Pharmacy	62.7%	58.7%	57.6%
Front store	37.3	41.3	42.4
Total net sales	100.0%	100.0%	100.0%

Following is a reconciliation of the Company’s business segments to the consolidated financial statements:

In millions	Retail Pharmacy Segment	All Other Segments	Intersegment Eliminations(1)	Other Adjustments(2)	Consolidated Totals
2000:   Net sales	$ 19,372.4	$ 975.8	$ (260.7)	$ —	$ 20,087.5
Operating profit	1,290.7	12.8	—	19.2	1,322.7
Depreciation and amortization	285.4	11.2	—	—	296.6
Total assets	7,498.8	478.7	(28.0)	—	7,949.5
Capital expenditures(3)	679.2	16.1	—	—	695.3
1999   Net sales	$ 17,625.7	$ 888.4	$ (415.8)	$ —	$ 18,098.3
Operating profit	1,120.4	15.1	—	—	1,135.5
Depreciation and amortization	274.6	3.3	—	—	277.9
Total assets	7,146.1	173.4	(44.1)	—	7,275.4
Capital expenditures(3)	706.3	16.4	—	—	722.7
1998:   Net sales	$ 15,081.1	$ 488.4	$ (295.9)	$ —	$ 15,273.6
Operating profit	927.8	12.7	—	(188.6)	751.9
Depreciation and amortization	248.6	1.1	—	—	249.7
Total assets	6,602.1	119.6	(35.5)	—	6,686.2
Capital expenditures(3)	498.0	4.3	—	—	502.3

(1)

Intersegment eliminations relate to intersegment sales and accounts receivables that occur when a Pharmacy Benefit Management segment customer uses a Retail Pharmacy segment store to purchase covered merchandise. When this occurs, both segments record the sale on a stand-alone basis.

(2)

In 1998, other adjustments relate to merger, restructuring and other nonrecurring charges associated with the Revco and Arbor mergers. In 2000, other adjustments relate to the nonrecurring gain representing a partial payment of the settlement proceeds from a class action lawsuit against certain manufacturers of brand name prescription drugs. The charges and gain are not considered when management assesses the stand-alone performance of the Company's business segments.

(3)

Capital expenditure amounts are shown before the effect of sale-leaseback transaction proceeds. See the Consolidated Statements of Cash Flows and Note 3 for additional information.

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