CVS Caremark Corporation (CVS)

As of March 31, 2007, we operated 6,156 retail stores compared to 5,431 retail stores on April 1, 2006. During the first quarter of 2007, the Retail Segment’s revenues benefited from the revenues of the Standalone Drug Business (14.0%) and new store openings (1.3%).

Retail Segment revenues continued to benefit from our active relocation program, which moves existing in-line shopping center stores to larger, more convenient, freestanding locations. Historically, we have achieved significant improvements in customer count and net revenues when we do this. As such, our relocation strategy remains an important component of our overall growth strategy. As of March 31, 2007, approximately 62% of our existing stores were freestanding, compared to approximately 60% at April 1, 2006.

Our pharmacy revenues growth continued to benefit from new market expansions, increased penetration in existing markets, our ability to attract and retain managed care customers and favorable industry trends. These trends include an aging American population; many “baby boomers” are now in their fifties and are consuming a greater number of prescription drugs. The increased use of pharmaceuticals as the first line of defense for individual healthcare also contributed to the growing demand for pharmacy services. We believe these favorable industry trends will continue.

Pharmacy revenue dollars continue to be negatively impacted by the conversion of brand named drugs to equivalent generic drugs, which typically have a lower selling price. In addition, our pharmacy growth has continued to be adversely affected by the growth of the mail order channel, a decline in the number of significant new drug introductions, higher consumer co-payments and co-insurance arrangements and an increase in the number of over-the-counter remedies that had historically only been available by prescription.

Part I