~~INDEX~~

				~~Page~~
~~Part I~~
TABLE OF CONTENTS			Page

Part I	Financial Information

Item 1.	Financial Statements	1 3

	~~Condensed Consolidated Statements of Income (Unaudited) – Three and Nine Months Ended September 30, 2017 and 2016~~ Item 2.	3

	~~Condensed Consolidated Statements of Comprehensive Income (Unaudited) – Three and Nine Months Ended September 30, 2017 and 2016~~	4

	~~Condensed Consolidated Balance Sheets (Unaudited) – As of September 30, 2017 and December 31, 2016~~	5

	~~Condensed Consolidated Statements of Cash Flows (Unaudited) – Nine Months Ended September 30, 2017 and 2016~~	6

	~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~	7

	~~Report of Independent Registered Public Accounting Firm~~	24

~~Item 2.~~	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40 25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	58 42

Item 4.	Controls and Procedures	58 42

Part II	Other Information	43

Item 1.	Legal Proceedings	58 43
Item 1A.	Risk Factors	58
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59 43
Item 3	Defaults Upon Senior Securities	59
Item 6.	~~Exhibits~~ 4.	Mine Safety Disclosures 44	59
Item 5.	Other Information	59
Item 6.	Exhibits	60

Signatures		61 45


Part I.	Financial Information


Item 1.	Financial Statements

Index to Condensed Consolidated Financial Statements


~~Part I~~	~~Item 1~~

	Page
Condensed Consolidated Statements of Operations (Unaudited) for the three months ended March 31, 2019 and 2018	2

Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three months ended March 31, 2019 and 2018	3

Condensed Consolidated Balance Sheets (Unaudited) as of March 31, 2019 and December 31, 2018	4

Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2019 and 2018	5

Condensed Consolidated Statements of Shareholders' Equity (Unaudited) for the three months ended March 31, 2019 and 2018	7

Notes to Condensed Consolidated Financial Statements (Unaudited)	8

Report of the Independent Registered Public Accounting Firm	39

CVS Health Corporation

Condensed Consolidated Statements of ~~Income~~

Operations

(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,
In millions, except per share amounts

2017

2016

2017

2016

Net revenues

$
46,181

$
44,615

$
136,380

$
131,555
Cost of revenues

39,055

37,123

115,739

110,304
Gross profit

7,126

7,492

20,641

21,251
Operating expenses

4,627

4,668

14,232

13,885
Operating profit

2,499

2,824

6,409

7,366
Interest expense, net

245

253

744

816
Loss on early extinguishment of debt

—

101

—

643
Other expense

192

7

206

23
Income before income tax provision

2,062

2,463

5,459

5,884
Income tax provision

777

921

2,115

2,271
Income from continuing operations

1,285

1,542

3,344

3,613
Loss from discontinued operations, net of tax

—

(1)

(8)

(1)
Net income

1,285

1,541

3,336

3,612
Net income attributable to noncontrolling interest

—

(1)

(1)

(2)
Net income attributable to CVS Health

$
1,285

$
1,540

$
3,335

$
3,610

Basic earnings per share:

Income from continuing operations attributable to CVS Health

$
1.26

$
1.44

$
3.26

$
3.34
Loss from discontinued operations attributable to CVS Health

$
—

$
—

$
(0.01)

$
—
Net income attributable to CVS Health

$
1.26

$
1.44

$
3.25

$
3.34
Weighted average shares outstanding

1,016

1,068

1,022

1,076
Diluted earnings per share:

Income from continuing operations attributable to CVS Health

$
1.26

$
1.43

$
3.25

$
3.32
Loss from discontinued operations attributable to CVS Health

$
—

$
—

$
(0.01)

$
—
Net income attributable to CVS Health

$
1.26

$
1.43

$
3.24

$
3.32
Weighted average shares outstanding

1,020

1,073

1,026

1,082
Dividends declared per share

$
0.50

$
0.425

$
1.50

$
1.275



	Three Months Ended March 31,
In millions, except per share amounts	2019			2018
Revenues:
Products	$	43,343		$	44,049
Premiums	16,282			1,306
Services	1,772			338
Net investment income	249			50
Total revenues	61,646			45,743
Operating costs:
Cost of products sold	37,247			37,505
Benefit costs	13,459			1,329
Operating expenses	8,250			4,913
Total operating costs	58,956			43,747
Operating income	2,690			1,996
Interest expense	782			523
Other expense (income)	(31		)	3
Income before income tax provision	1,939			1,470
Income tax provision	512			472
Net income	1,427			998
Net income attributable to noncontrolling interests	(6		)	—
Net income attributable to CVS Health	$	1,421		$	998

Net income per share attributable to CVS Health:
Basic	$	1.09		$	0.98
Diluted	$	1.09		$	0.98
Weighted average shares outstanding:
Basic	1,298			1,016
Diluted	1,302			1,019
Dividends declared per share	$	0.50		$	0.50

See accompanying notes to condensed consolidated financial ~~statements.~~

statements (unaudited).

CVS Health Corporation

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,
In millions

2017

2016

2017

2016

Net income

$
1,285

$
1,541

$
3,336

$
3,612
Other comprehensive income:

Foreign currency translation adjustments, net of tax

8

(3)

6

37
Net cash flow hedges, net of tax

—

1

1

2
Pension and other postretirement benefits, net of tax

151

—

151

—
Total other comprehensive income (loss)

159

(2)

158

39
Comprehensive income

1,444

1,539

3,494

3,651
Comprehensive income attributable to noncontrolling interest

—

(1)

(1)

(2)
Comprehensive income attributable to CVS Health

$
1,444

$
1,538

$
3,493

$
3,649




	Three Months Ended March 31,
In millions	2019			2018
Net income	$	1,427		$	998
Other comprehensive income (loss), net of tax:
Net unrealized investment gains	334			—
Foreign currency translation adjustments	1			1
Net cash flow hedges	(4		)	343
Other comprehensive income	331			344
Comprehensive income	1,758			1,342
Comprehensive income attributable to noncontrolling interests	(6		)	—
Comprehensive income attributable to CVS Health	$	1,752		$	1,342

See accompanying notes to condensed consolidated financial ~~statements.~~

statements (unaudited).

CVS Health Corporation

Condensed Consolidated Balance Sheets

(Unaudited)

September 30,

December 31,
In millions, except per share amounts

2017

2016

Assets:

Cash and cash equivalents

$
2,485

$
3,371
Short-term investments

75

87
Accounts receivable, net

12,440

12,164
Inventories

14,147

14,760
Other current assets

776

660
Total current assets

29,923

31,042
Property and equipment, net

9,914

10,175
Goodwill

38,169

38,249
Intangible assets, net

13,303

13,511
Other assets

1,544

1,485
Total assets

$
92,853

$
94,462

Liabilities:

Accounts payable

$
7,899

$
7,946
Claims and discounts payable

9,807

9,451
Accrued expenses

8,404

6,937
Short-term debt

110

1,874
Current portion of long-term debt

2,293

42
Total current liabilities

28,513

26,250
Long-term debt

23,386

25,615
Deferred income taxes

4,442

4,214
Other long-term liabilities

1,644

1,549

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; 1,712 shares issued and 1,013 shares outstanding at September 30, 2017 and 1,705 shares issued and 1,061 shares outstanding at December 31, 2016

17

17
Treasury stock, at cost: 698 shares at September 30, 2017 and 643 shares at December 31, 2016

(37,764)

(33,452)
Shares held in trust: 1 share at September 30, 2017 and December 31, 2016

(31)

(31)
Capital surplus

32,009

31,618
Retained earnings

40,779

38,983
Accumulated other comprehensive income (loss)

(147)

(305)
Total CVS Health shareholders’ equity

34,863

36,830
Noncontrolling interest

5

4
Total shareholders’ equity

34,868

36,834
Total liabilities and shareholders’ equity

$
92,853

$
94,462



In millions, except per share amounts	March 31, 2019			December 31, 2018
Assets:
Cash and cash equivalents	$	5,896		$	4,059
Investments	2,426			2,522
Accounts receivable, net	19,509			17,631
Inventories	15,448			16,450
Other current assets	4,578			4,581
Total current assets	47,857			45,243
Long-term investments	16,410			15,732
Property and equipment, net	11,348			11,349
Operating lease right-of-use assets	20,992			—
Goodwill	79,075			78,678
Intangible assets, net	35,147			36,524
Separate accounts assets	4,074			3,884
Other assets	4,865			5,046
Total assets	$	219,768		$	196,456

Liabilities:
Accounts payable	$	8,290		$	8,925
Pharmacy claims and discounts payable	11,827			11,365
Health care costs payable	6,701			6,147
Policyholders’ funds	2,732			2,939
Accrued expenses	10,443			10,711
Other insurance liabilities	1,937			1,937
Current portion of operating lease liabilities	1,803			—
Short-term debt	3,005			720
Current portion of long-term debt	3,893			1,265
Total current liabilities	50,631			44,009
Long-term operating lease liabilities	18,961			—
Long-term debt	67,888			71,444
Deferred income taxes	7,540			7,677
Separate accounts liabilities	4,074			3,884
Other long-term insurance liabilities	8,052			8,119
Other long-term liabilities	2,616			2,780
Total liabilities	159,762			137,913

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; 1,722 shares issued and 1,298 shares outstanding at March 31, 2019 and 1,720 shares issued and 1,295 shares outstanding at December 31, 2018	45,615			45,440
Treasury stock, at cost: 424 shares at March 31, 2019 and 425 shares at December 31, 2018	(28,221		)	(28,228		)
Retained earnings	41,859			40,911
Accumulated other comprehensive income	433			102
Total CVS Health shareholders’ equity	59,686			58,225
Noncontrolling interests	320			318
Total shareholders’ equity	60,006			58,543
Total liabilities and shareholders’ equity	$	219,768		$	196,456

See accompanying notes to condensed consolidated financial ~~statements.~~

statements (unaudited).

CVS Health Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited)



	Three Months Ended March 31,
In millions	2019			2018
Cash flows from operating activities:
Cash receipts from customers	$	58,873		$	43,369
Cash paid for inventory and prescriptions dispensed by retail network pharmacies	(35,645		)	(35,102		)
Insurance benefits paid	(12,951		)	(1,093		)
Cash paid to other suppliers and employees	(7,403		)	(4,271		)
Interest and investment income received	250			50
Interest paid	(1,123		)	(545		)
Income taxes paid	(53		)	(53		)
Net cash provided by operating activities	1,948			2,355

Cash flows from investing activities:
Proceeds from sales and maturities of investments	1,986			10
Purchases of investments	(2,047		)	(33		)
Purchases of property and equipment	(716		)	(482		)
Acquisitions (net of cash acquired)	(124		)	(353		)
Proceeds from sale of subsidiary	—			725
Other	10			2
Net cash used in investing activities	(891		)	(131		)

Cash flows from financing activities:
Net borrowings (repayments) of short-term debt	2,285			(1,276		)
Proceeds from issuance of long-term debt	—			39,376
Repayments of long-term debt	(882		)	(1		)
Derivative settlements	—			446
Dividends paid	(649		)	(508		)
Proceeds from exercise of stock options	101			107
Payments for taxes related to net share settlement of equity awards	(44		)	(4		)
Other	5			—
Net cash provided by financing activities	816			38,140
Net increase in cash, cash equivalents and restricted cash	1,873			40,364
Cash, cash equivalents and restricted cash at the beginning of the period	4,295			1,900
Cash, cash equivalents and restricted cash at the end of the period	$	6,168		$	42,264

CVS Health Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Nine Months Ended

September 30,
In millions

2017

2016
Cash flows from operating activities:

Cash receipts from customers

$
133,055

$
128,545
Cash paid for inventory and prescriptions dispensed by retail network pharmacies

(110,788)

(106,371)
Cash paid to other suppliers and employees

(11,230)

(11,020)
Interest received

15

14
Interest paid

(869)

(954)
Income taxes paid

(2,040)

(2,194)
Net cash provided by operating activities

8,143

8,020

Cash flows from investing activities:

Purchases of property and equipment

(1,412)

(1,607)
Proceeds from sale-leaseback transactions

265

230
Proceeds from sale of property and equipment and other assets

20

22
Acquisitions (net of cash acquired) and other investments

(502)

(333)
Purchase of available-for-sale investments

—

(40)
Maturities of available-for-sale investments

21

76
Net cash used in investing activities

(1,608)

(1,652)

Cash flows from financing activities:

Increase (decrease) in short-term debt

(1,764)

340
Proceeds from issuance of long-term debt

—

3,455
Repayments of long-term debt

—

(5,185)
Purchase of noncontrolling interest in subsidiary

—

(39)
Payment of contingent consideration

—

(26)
Dividends paid

(1,539)

(1,384)
Proceeds from exercise of stock options

314

277
Payments for taxes related to net share settlement of equity awards

(70)

(72)
Repurchase of common stock

(4,361)

(4,000)
Other

(1)

(6)
Net cash used in financing activities

(7,421)

(6,640)
Effect of exchange rate changes on cash and cash equivalents

—

2
Net decrease in cash and cash equivalents

(886)

(270)
Cash and cash equivalents at the beginning of the period

3,371

2,459
Cash and cash equivalents at the end of the period

$
2,485

$
2,189

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

Net income

$
3,336

$
3,612
Adjustments required to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

1,857

1,847
Goodwill impairment

135

—
Losses on settlements of defined benefit pension plans

187

—
Stock-based compensation

173

166
Loss on early extinguishment of debt

—

643
Deferred income taxes and other noncash items

271

119
Change in operating assets and liabilities, net of effects from acquisitions:

Accounts receivable, net

(280)

(1,714)
Inventories

620

(337)
Other current assets

(212)

2
Other assets

(15)

(86)
Accounts payable and claims and discounts payable

330

1,570
Accrued expenses

1,670

2,149
Other long-term liabilities

71

49
Net cash provided by operating activities

$
8,143

$
8,020




	Three Months Ended March 31,
In millions	2019			2018
Reconciliation of net income to net cash provided by operating activities:
Net income	$	1,427		$	998
Adjustments required to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,111			644
Stock-based compensation	114			55
Deferred income taxes and other noncash items	153			62
Change in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable, net	(1,989		)	(857		)
Inventories	1,001			464
Other assets	(389		)	(57		)
Accounts payable and pharmacy claims and discounts payable	(22		)	(178		)
Health care costs payable and other insurance liabilities	553			236
Other liabilities	(11		)	988
Net cash provided by operating activities	$	1,948		$	2,355

See accompanying notes to condensed consolidated financial ~~statements.~~

statements (unaudited).

CVS Health Corporation

Condensed Consolidated Statements of Shareholders’ Equity

(Unaudited)



				Attributable to CVS Health
	Number of shares outstanding			Common								Accumulated			Total
				Stock and								Other			CVS Health
	Common	Treasury		Capital		Treasury			Retained			Comprehensive			Shareholders’			Noncontrolling			Total
In millions	Shares	Shares ⁽¹⁾		Surplus ⁽²⁾		Stock ⁽¹⁾			Earnings			Income (Loss)			Equity			Interests			Equity
Three Months Ended March 31, 2019
Balance at December 31, 2018	1,720	(425	)	$	45,440	$	(28,228	)	$	40,911		$	102		$	58,225		$	318		$	58,543
Adoption of new accounting standard (Note 1)	—	—		—		—			178			—			178			—			178
Net income	—	—		—		—			1,421			—			1,421			6			1,427
Other comprehensive income (Note 8)	—	—		—		—			—			331			331			—			331
Stock option activity, stock awards and other	2	—		175		—			—			—			175			—			175
Purchase of treasury shares, net of ESPP issuances	—	1		—		7			—			—			7			—			7
Common stock dividends	—	—		—		—			(651		)	—			(651		)	—			(651		)
Other decreases in noncontrolling interests	—	—		—		—			—			—			—			(4		)	(4		)
Balance at March 31, 2019	1,722	(424	)	$	45,615	$	(28,221	)	$	41,859		$	433		$	59,686		$	320		$	60,006

Three Months Ended March 31, 2018
Balance at December 31, 2017	1,712	(698	)	$	32,096	$	(37,796	)	$	43,556		$	(165	)	$	37,691		$	4		$	37,695
Adoption of new accounting standards ⁽³⁾	—	—		—		—			(6		)	(7		)	(13		)	—			(13		)
Net income	—	—		—		—			998			—			998			—			998
Other comprehensive income (Note 8)	—	—		—		—			—			344			344			—			344
Stock option activity, stock awards and other	2	—		112		—			—			—			112			—			112
Purchase of treasury shares, net of ESPP issuances	—	—		—		49			—			—			49			—			49
Common stock dividends	—	—		—		—			(508		)	—			(508		)	—			(508		)
Balance at March 31, 2018	1,714	(698	)	$	32,208	$	(37,747	)	$	44,040		$	172		$	38,673		$	4		$	38,677

^{_____________________________________________}


(1)	Treasury shares include 1 million shares held in trust as of March 31, 2019 and 2018 and December 31, 2018 and 2017. Treasury stock includes $29 million related to shares held in trust as of March 31, 2019 and December 31, 2018, and $31 million related to shares held in trust as of March 31, 2018 and December 31, 2017.


(2)	Common stock and capital surplus includes the par value of common stock of $17 million as of March 31, 2019 and 2018 and December 31, 2018 and 2017.

(3)

Reflects the adoption of ASU 2014-09, Revenue from Contracts with Customers, which resulted in a reduction to retained earnings of $13 million and the adoption of ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which resulted in a reduction to accumulated other comprehensive income and an increase to retained earnings of $7 million.

See accompanying notes to condensed consolidated financial statements (unaudited).

Notes to Condensed Consolidated Financial Statements


1.	Significant Accounting Policies

Description of business

CVS Health Corporation, together with its subsidiaries (collectively, “CVS Health,” the “Company,” “we,” “our” or “us”), is the nation’s premier health innovation company helping people on their path to better health. Whether in one of its pharmacies or through its health services and plans, CVS Health is pioneering a bold new approach to total health by making quality care more affordable, accessible, simple and seamless. CVS Health is community-based and locally focused, engaging consumers with the care they need when and where they need it. The Company has more than 9,900 retail locations, approximately 1,100 walk-in medical clinics, a leading pharmacy benefits manager with approximately 94 million plan members, a dedicated senior pharmacy care business serving more than one million patients per year and expanding specialty pharmacy services. CVS Health also serves an estimated 38 million people through traditional, voluntary and consumer-directed health insurance products and related services, including rapidly expanding Medicare Advantage offerings and a leading standalone Medicare Part D prescription drug plan (“PDP”). The Company believes its innovative health care model increases access to quality care, delivers better health outcomes and lowers overall health care costs.

On November 28, 2018 (the “Aetna Acquisition Date”), the Company acquired Aetna Inc. (“Aetna”). As a result of the acquisition of Aetna (the “Aetna Acquisition”), the Company added the Health Care Benefits segment. Certain aspects of Aetna’s operations, including products for which the Company no longer solicits or accepts new customers, such as large case pensions and long-term care insurance products, are included in the Company’s Corporate/Other segment.

Effective for the first quarter of 2019, the Company realigned the composition of its segments to correspond with changes to its operating model and reflect how its Chief Operating Decision Maker (the “CODM”) reviews information and manages the business. As a result of this realignment, the Company’s SilverScript

~~(Unaudited)~~

~~Note 1 – Accounting Policies~~

^® PDP moved from the Pharmacy Services segment to the Health Care Benefits segment. In addition, the Company moved Aetna’s mail order and specialty pharmacy operations from the Health Care Benefits segment to the Pharmacy Services segment. Segment financial information for the three months ended March 31, 2018, has been retrospectively adjusted to reflect these changes.

The Company has four reportable segments: Pharmacy Services, Retail/LTC, Health Care Benefits and Corporate/Other, which are described below.

Pharmacy Services Segment

The Pharmacy Services segment provides a full range of pharmacy benefit management (“PBM”) solutions, including plan design offerings and administration, formulary management, retail pharmacy network management services, mail order pharmacy, specialty pharmacy and infusion services, clinical services, disease management services and medical spend management. The Pharmacy Services segment’s clients are primarily employers, insurance companies, unions, government employee groups, health plans, PDPs, Medicaid managed care plans, plans offered on public health insurance exchanges (“Public Exchanges”) and private health insurance exchanges, other sponsors of health benefit plans and individuals throughout the United States. The Pharmacy Services segment operates retail specialty pharmacy stores, specialty mail order pharmacies, mail order dispensing pharmacies, compounding pharmacies and branches for infusion and enteral nutrition services.

Retail/LTC Segment

The Retail/LTC segment sells prescription drugs and a wide assortment of general merchandise, including over-the-counter drugs, beauty products, cosmetics and personal care products, provides health care services through its MinuteClinic^®walk-in medical clinics and conducts long-term care (“LTC”) pharmacy operations, which distribute prescription drugs and provide related pharmacy consulting and other ancillary services to chronic care facilities and other care settings. As of March 31, 2019, the Retail/LTC segment operated more than 9,900 retail locations, approximately 1,100 MinuteClinic^®locations as well as online retail pharmacy websites, LTC pharmacies and onsite pharmacies.

Health Care Benefits Segment

The Health Care Benefits segment is one of the nation’s leading diversified health care benefits providers, serving an estimated 38 million people as of March 31, 2019. The Health Care Benefits segment has the information and resources to help members, in consultation with their health care professionals, make more informed decisions about their health care. The Health Care Benefits segment offers a broad range of traditional, voluntary and consumer-directed health insurance products and related services, including medical, pharmacy, dental, behavioral health, medical management capabilities, Medicare Advantage and Medicare Supplement plans, PDPs, Medicaid health care management services, workers’ compensation administrative services

and health information technology products and services. The Health Care Benefits segment’s customers include employer groups, individuals, college students, part-time and hourly workers, health plans, health care providers (“providers”), governmental units, government-sponsored plans, labor groups and expatriates. The Company refers to insurance products (where it assumes all or a majority of the risk for medical and dental care costs) as “Insured” and administrative services contract products (where the plan sponsor assumes all or a majority of the risk for medical and dental care costs) as “ASC.”

Corporate/Other Segment

The Company presents the remainder of its financial results in the Corporate/Other segment, which consists of:

Management and administrative expenses to support the overall operations of the Company, which include certain aspects of executive management and the corporate relations, legal, compliance, human resources, information technology and finance departments and acquisition-related transaction and integration costs; and

Products for which the Company no longer solicits or accepts new customers such as its large case pensions and long-term care insurance products.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of CVS Health Corporation and its subsidiaries ~~(collectively, “CVS Health” or the “Company”)~~ have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission ~~(“SEC”~~(the “SEC”) regarding interim financial reporting. In accordance with such rules and regulations, certain information and accompanying note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been ~~condensed or~~ omitted, although the Company believes the disclosures included herein are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto, which are included in Exhibit 1313.1 to the Company’s Annual Report on Form 10‑K for the year ended December 31, ~~2016 (“2016~~2018 (the “2018 Form 10‑K”).

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods presented. Because of the influence of various factors on the Company’s operations, including business combinations, certain holidays and other seasonal influences, net income for any interim period may not be comparable to the same interim period in previous years or necessarily indicative of income for the full year.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of ~~the Company~~CVS Health Corporation and its majority-owned subsidiaries and the variable interest entities (“VIEs”) for which the Company is the primary beneficiary. All material intercompany balances and transactions have been eliminated.

The Company continually evaluates its investments to determine if they represent variable interests in a VIE. If the Company determines that it has a variable interest in a VIE, the Company then evaluates if it is the primary beneficiary of the VIE. The evaluation is a qualitative assessment as to whether the Company has the ability to direct the activities of a VIE that most significantly impact the entity’s economic performance. The Company consolidates a VIE if it is considered to be the primary beneficiary.

Assets and liabilities of VIEs for which the Company is the primary beneficiary were not significant to the Company’s unaudited condensed consolidated financial statements. VIE creditors do not have recourse against the general credit of the Company.

~~Fair Value of Financial Instruments~~

~~The Company utilizes~~

Reclassifications

Certain prior year amounts have been reclassified to conform with the ~~three-level valuation hierarchy for~~current year presentation.

Restricted Cash

Restricted cash included in other current assets in the ~~recognition and disclosure of fair value measurements. The categorization of~~unaudited condensed consolidated balance sheets represents amounts held in escrow accounts in connection with certain recent acquisitions. Restricted cash included in other assets ~~and liabilities within this hierarchy is based upon~~in the ~~lowest level of input that is significant to the measurement of fair value. The three levels~~unaudited condensed consolidated balance sheets represents amounts held in a trust in one of the ~~hierarchy consist~~Company’s captive insurance companies

to satisfy collateral requirements associated with the assignment of ~~the following:~~

~~Level 1 – Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.~~

Level 2 – Inputs to the valuation methodology are quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active or inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the instrument.

Level 3 – Inputs to the valuation methodology are unobservable inputs based upon management’s best estimate of inputs market participants could use in pricing the asset or liability at the measurement date, including assumptions about risk.

~~As of September 30, 2017, the carrying value~~certain insurance polices. All restricted cash is invested in time deposits, money market funds or commercial paper. The following represents a reconciliation of cash and cash equivalents ~~short-term investments, accounts receivable, accounts payable, and~~in the contingent consideration liability included in accrued expenses approximated their fair value due to the nature of these financial instruments. The Company invests in money market funds, commercial paper and time deposits that are classified as cash and cash equivalents within the accompanyingunaudited condensed consolidated balance sheets ~~as these funds~~to total cash, cash equivalents and restricted cash in the unaudited condensed consolidated statements of cash flows:



In millions	March 31, 2019		December 31, 2018
Cash and cash equivalents	$	5,896	$	4,059
Restricted cash (included in other current assets)	6		6
Restricted cash (included in other assets)	266		230
Total cash, cash equivalents and restricted cash in the statements of cash flows	$	6,168	$	4,295

Accounts Receivable

Accounts receivable are ~~highly liquid~~stated net of allowances for doubtful accounts, customer credit allowances, contractual allowances and ~~readily convertible to known amounts of cash. These investments are classified within Level 1~~estimated terminations. Accounts receivable, net is composed of the ~~fair value hierarchy~~following:



In millions	March 31, 2019		December 31, 2018
Trade receivables	$	7,158	$	6,896
Vendor and manufacturer receivables	8,901		7,655
Premium receivables	2,582		2,259
Other receivables	868		821
Total accounts receivable, net	$	19,509	$	17,631

Revenue Recognition

The following is a discussion of the Company’s revenue recognition policies by segment.

Pharmacy Services Segment

The Pharmacy Services segment sells prescription drugs directly through its mail service dispensing pharmacies and indirectly through the Company’s retail pharmacy network. The Company’s pharmacy benefit arrangements are accounted for in a manner consistent with a master supply arrangement as there are no contractual minimum volumes and each prescription is considered a separate purchasing decision and distinct performance obligation transferred at a point in time. PBM services performed in connection with each prescription claim are considered part of a single performance obligation which culminates in the dispensing of prescription drugs.

The Company recognizes revenue using the gross method at the contract price negotiated with its clients when the Company has concluded it controls the prescription drug before it is transferred to the client plan members. The Company controls prescriptions dispensed indirectly through its retail pharmacy network because it has separate contractual arrangements with those pharmacies, has discretion in setting the price for the transaction and assumes primary responsibility for fulfilling the promise to provide prescription drugs to its client plan members while also performing the related PBM services.

Revenues include (i) the portion of the price the client pays directly to the Pharmacy Services segment, net of any discounts earned on brand name drugs or other discounts and refunds paid back to the client (see “Drug Discounts” and “Guarantees” below), (ii) the price paid to the Pharmacy Services segment by client plan members for mail order prescriptions and the price paid to retail network pharmacies by client plan members for retail prescriptions (“Retail Co-Payments”), and (iii) claims based administrative fees for retail pharmacy network contracts. Sales taxes are not included in revenue.

The Company recognizes revenue when control of the prescription drugs is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those prescription drugs. The following revenue recognition policies have been established for the Pharmacy Services segment:

Revenues generated from prescription drugs sold by mail service dispensing pharmacies are recognized when the prescription drug is delivered to the client plan member. At the time of delivery, the Company has performed substantially

all of its performance obligations under its client contracts and does not experience a significant level of returns or reshipments.

Revenues generated from prescription drugs sold by third-party pharmacies in the Company’s retail pharmacy network and associated administrative fees are recognized at the Company’s point-of-sale, which is when the claim is adjudicated by the Company’s online claims processing system and the Company has transferred control of the prescription drug and performed all of its performance obligations.

For contracts under which the Pharmacy Services segment acts as an agent or does not control the prescription drugs prior to transfer to the client plan member, revenue is recognized using the net method.

Drug Discounts

The Pharmacy Services segment records revenue net of manufacturers’ rebates earned by its clients based on their plan members’ utilization of brand name formulary drugs. The Pharmacy Services segment estimates these rebates at period-end based on actual and estimated claims data and its estimates of the manufacturers’ rebates earned by its clients. The estimates are based on the best available data at period-end and recent history for the various factors that can affect the amount of rebates due to the client. The Pharmacy Services segment adjusts its rebates payable to clients to the actual amounts paid when these rebates are paid or as significant events occur. Any cumulative effect of these adjustments is recorded against revenues as identified. Adjustments generally result from contract changes with clients or manufacturers that have retroactive rebate adjustments, differences between the estimated and actual product mix subject to rebates, or whether the brand name drug was included in the applicable formulary. The effect of adjustments between estimated and actual manufacturers’ rebate amounts has not been material to the Company’s operating results or financial condition.

Guarantees

The Pharmacy Services segment also adjusts revenues for refunds owed to clients resulting from pricing guarantees and performance against defined service and performance metrics. The inputs to these estimates are not subject to a high degree of subjectivity or volatility. The effect of adjustments between estimated and actual pricing and performance refund amounts has not been material to the Company’s operating results or financial condition.

Retail/LTC Segment

Retail Pharmacy

The Company’s retail drugstores recognize revenue at the time the customer takes possession of the merchandise. For pharmacy sales, each prescription claim is its own arrangement with the customer and is a performance obligation, separate and distinct from other prescription claims under other retail network arrangements. Revenues are adjusted for refunds owed to third party payers for pricing guarantees and performance against defined value-based service and performance metrics. The inputs to these estimates are not subject to a high degree of subjectivity or volatility. The effect of adjustments between estimated and actual pricing and performance refund amounts has not been material to the Company’s operating results or financial condition.

Revenue from Company gift cards purchased by customers is deferred as a contract liability until goods or services are transferred. Any amounts not expected to be redeemed by customers (i.e., breakage) are recognized based on historical redemption patterns.

Customer returns are not material to the Company’s operating results or financial condition. Sales taxes are not included in revenue.

Loyalty Program

The Company’s customer loyalty program, ExtraCare^®, consists of two components, ExtraSavings^TM and ExtraBucks^® Rewards. ExtraSavings are coupons that are recorded as a reduction of revenue when redeemed as the Company has concluded that they do not represent a promise to the customer to deliver additional goods or services at the time of issuance because they are ~~valued using quoted market prices. The Company’s short-term investments of $75 million~~not tied to a specific transaction or spending level.

ExtraBucks Rewards are accumulated by customers based on their historical spending levels. Thus, the Company has determined that there is an additional performance obligation to those customers at ~~September 30, 2017 consist of certificates of deposit with initial maturities of greater than three months when purchased that mature within one year from~~ the ~~balance sheet date. These investments, which are classified within Level 1~~time of the ~~fair value hierarchy,~~initial transaction. The Company allocates the transaction price to the initial transaction and the ExtraBucks Rewards transaction based upon the relative standalone selling price, which considers historical redemption patterns for the rewards. Revenue allocated to ExtraBucks Rewards is recognized as those rewards are ~~carried~~redeemed. At the end of each period, unredeemed rewards are reflected as a contract liability.

Long-term Care

Revenue is recognized when control of the promised goods or services is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods or services. Each prescription claim represents a separate performance obligation of the Company, separate and distinct from other prescription claims under customer arrangements. A significant portion of Long-term Care revenue from sales of pharmaceutical and medical products is reimbursed by the federal Medicare Part D program and, to a lesser extent, state Medicaid programs. The Company monitors its revenues and receivables from these reimbursement sources, as well as other third-party insurance payors, and reduces revenue at ~~fair value,~~the revenue recognition date to properly account for the variable consideration due to anticipated differences between billed and reimbursed amounts. Accordingly, the total revenues and receivables reported in the Company’s unaudited condensed consolidated financial statements are recorded at the amount expected to be ultimately received from these payors.

Patient co-payments associated with Medicare Part D, certain state Medicaid programs, Medicare Part B and certain third-party payors are typically not collected at the time products are delivered or services are rendered, but are billed to the individuals as part of normal billing procedures and subject to normal accounts receivable collections procedures.

Walk-In Medical Clinics

For services provided by the Company’s walk-in medical clinics, revenue recognition occurs for completed services provided to patients, with adjustments taken for third-party payor contractual obligations and patient direct bill historical collection rates.

Health Care Benefits Segment

Premium Revenue

Premiums are recognized as revenue in the month in which ~~approximated historical cost at September 30, 2017. The carrying amount~~the enrollee is entitled to receive health care services. Premiums are reported net of an allowance for estimated terminations and uncollectible amounts. Additionally, premium revenue subject to the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010’s (as amended, collectively, the “ACA’s”) minimum medical loss ratio (“MLR”) rebate requirements is recorded net of the estimated ~~fair value~~minimum MLR rebates for the current calendar year. Premiums related to unexpired contractual coverage periods (unearned premiums) are reported as other insurance liabilities on the unaudited condensed consolidated balance sheets and recognized as revenue when earned.

Some of the Company’s ~~total long-term debt was $25.7 billion~~contracts allow for premiums to be adjusted to reflect actual experience or the relative health status of Insured members. Such adjustments are reasonably estimable at the outset of the contract, and ~~$27.0 billion, respectively,~~adjustments to those estimates are made based on actual experience of the customer emerging under the contract and the terms of the underlying contract.

Services Revenue

Services revenue relates to contracts that can include various combinations of services or series of services which generally are capable of being distinct and accounted for as separate performance obligations. Health Care Benefits segment services revenue consists of ~~September 30, 2017. The fair value~~the following components:

ASC fees are received in exchange for performing certain claim processing and member services for ASC members. ASC fee revenue is recognized over the period the service is provided. Some of the Company’s ~~long-term debt was estimated~~administrative services contracts include guarantees with respect to certain functions, such as customer service response time, claim processing accuracy and claim processing turnaround time, as well as certain guarantees that a plan sponsor’s benefit claim experience will fall within a certain range. With any of these guarantees, the Company is financially at risk if the conditions of the arrangements are not met, although the maximum amount at risk is typically limited to a percentage of the fees otherwise payable to the Company by the customer involved. Each period the Company estimates its obligations under the terms of these guarantees and records its estimate as an offset to service revenues.

Workers’ compensation administrative services consist of fee-based managed care services. Workers’ compensation administrative services revenue is recognized once the service is provided.

Disaggregation of Revenue

The following table disaggregates the Company’s revenue by major source in each segment for the three months ended March 31, 2019 and 2018:



	Pharmacy		Retail/		Health Care		Corporate/		Intersegment			Consolidated
In millions	Services		LTC		Benefits		Other		Eliminations			Totals
Three Months Ended March 31, 2019
Major goods/services lines:
Pharmacy	$	33,413	$	16,118	$	—	$	—	$	(11,007	)	$	38,524
Front Store	—		4,799		—		—		—			4,799
Premiums	—		—		16,259		23		—			16,282
Net investment income	—		—		164		85		—			249
Other	145		198		1,447		2		—			1,792
Total	$	33,558	$	21,115	$	17,870	$	110	$	(11,007	)	$	61,646

Pharmacy Services distribution channel:
Pharmacy network ⁽¹⁾	$	21,574
Mail choice⁽²⁾	11,839
Other	145
Total	$	33,558

Three Months Ended March 31, 2018
Major goods/services lines:
Pharmacy	$	32,406	$	15,500	$	—	$	—	$	(8,601	)	$	39,305
Front Store	—		4,726		—		—		—			4,726
Premiums	—		—		1,306		—		—			1,306
Net investment income	—		—		2		48		—			50
Other	140		206		10		—		—			356
Total	$	32,546	$	20,432	$	1,318	$	48	$	(8,601	)	$	45,743

Pharmacy Services distribution channel:
Pharmacy network ⁽¹⁾	$	21,198
Mail choice⁽²⁾	11,208
Other	140
Total	$	32,546

^{_____________________________________________}


(1)	Pharmacy Services pharmacy network is defined as claims filled at retail and specialty retail pharmacies, including the Company’s retail pharmacies and LTC pharmacies, but excluding Maintenance Choice^® activity, which is included within the mail choice category.

(2)

Pharmacy Services mail choice is defined as claims filled at a Pharmacy Services mail facility, which includes specialty mail claims inclusive of Specialty Connect^® claims picked up at a CVS Pharmacy retail store, as well as prescriptions filled at the Company’s retail pharmacies under the Maintenance Choice program, which permits eligible client plan members to fill their maintenance prescriptions through mail order delivery or at a CVS Pharmacy retail store for the same price as mail order.

Contract Balances

Contract liabilities primarily represent the Company’s obligation to transfer additional goods or services to a customer for which the Company has received consideration, for example ExtraBucks^®Rewards and unredeemed Company gift cards. The consideration received remains a contract liability until goods or services have been provided to the customer. In addition, the Company recognizes breakage on Company gift cards based on ~~quoted prices currently offered~~historical redemption patterns.

The following table provides information about receivables and contract liabilities from contracts with customers:




In millions	March 31, 2019		December 31, 2018
Trade receivables (included in accounts receivable, net)	$	7,158	$	6,896
Contract liabilities (included in accrued expenses)	75		67

During the three months ended March 31, 2019, the contract liabilities balance includes increases related to customers’ earnings in ~~active markets~~ExtraBucks Rewards or issuances of Company gift cards and decreases for revenues recognized during the ~~Company’s debt, which is considered Level 1~~period as a result of the ~~fair value hierarchy.~~

redemption of ExtraBucks Rewards or Company gift cards and breakage of Company gift cards. Below is a summary of such changes:




In millions
Balance at December 31, 2018	$	67
Loyalty program earnings and gift card issuances	90
Redemption and breakage	(82		)
Balance at March 31, 2019	$	75

Related Party Transactions

The Company has an equity method investment in SureScripts, LLC (“SureScripts”), which operates a clinical health information network. The ~~Pharmacy Services and Retail/LTC segments utilize~~Company utilizes this clinical health information network in providing services to its client plan members and retail customers. The Company expensed fees for the use of this network of approximately $5$10 million and $7$22 million in the three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016, respectively, and expensed fees for the use of this network of approximately $29 million in the nine months ended September 30, 2017 and 2016.~~2018, respectively. The Company’s investment in and equity in the earnings of SureScripts for all periods presented is immaterial.

The Company has an equity method investment in Heartland Healthcare Services (“Heartland”). Heartland operates several ~~long-term care~~LTC pharmacies in four states. Heartland paid the Company approximately ~~$36~~$25 million and ~~$46~~$35 million for pharmaceutical inventory purchases during the three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016, respectively, and approximately $106 million and $116 million for pharmaceutical inventory purchases during the nine months ended September 30, 2017 and 2016.~~2018, respectively. Additionally, the Company performs certain collection functions for Heartland and then passes those customer cash collections back to Heartland. The Company’s investment in and equity in the earnings of Heartland for all periods presented is immaterial.

~~Discontinued Operations~~

In connection with certain business dispositions completed between 1991 and 1997, the Company retained guarantees on store lease obligations for a number of former subsidiaries, including Bob’s Stores and Linens ‘n Things, both of which subsequently filed for bankruptcy. See “Note 12 – Commitments and Contingencies” to the condensed consolidated financial statements. The Company’s discontinued operations include lease-related costs which the Company believes it will likely be required to satisfy pursuant to its lease guarantees.

New Accounting Pronouncements Recently Adopted

Leases

In ~~July 2015,~~February 2016, the Financial Accounting Standards Board ~~(“FASB”~~(the “FASB”) ~~issued Accounting Standards Update (“ASU”) 2015-11,~~ ~~Inventory~~, which amends Accounting Standard Codification (“ASC”) Topic 330. This ASU simplifies current accounting treatments by requiring entities to measure most inventories at “the lower of cost and net realizable value” rather than using lower of cost or market. This guidance does not apply to inventories measured using the last-in, first-out method or the retail inventory method. The Company adopted this standard effective January 1, 2017. The adoption of this new guidance did not have any impact on the Company’s condensed consolidated results of operations, financial position or cash flows.

~~In March 2016, the FASB issued ASU No. 2016-09,~~ ~~Improvements to Employee Share-Based Payment Accounting, which amends the accounting for certain aspects of shared-based payments to employees in ASC Topic 718,~~ ~~Compensation - Stock Compensation~~. The new guidance eliminates the accounting for any excess tax benefits and deficiencies through equity, and requires all excess tax benefits and deficiencies related to employee share-based compensation arrangements to be recorded in the income statement. This aspect of the guidance is required to be applied prospectively. The guidance also requires the presentation of excess tax benefits on the statement of cash flows as an operating activity rather than a financing activity, a change which may be applied prospectively or retrospectively. The

guidance further provides an accounting policy election to account for forfeitures as they occur rather than utilizing the estimated amount of forfeitures at the time of issuance. The Company adopted this guidance effective January 1, 2017. The primary impact of adopting this guidance was the recognition of excess tax benefits in the income statement instead of recognizing them in equity. This income statement guidance was adopted on a prospective basis. As a result, a discrete tax benefit of $18 million and $51 million was recognized in the income tax provision in the three and nine months ended September 30, 2017, respectively.

The Company elected to retrospectively adopt the guidance on the presentation of excess tax benefits in the statement of cash flows. The following is a reconciliation of the effect of the resulting reclassification of the excess tax benefits on the Company’s condensed consolidated statement of cash flows for the nine months ended September 30, 2016:

As Previously




In millions

Reported

Adjustments

As Revised
Cash paid to other suppliers and employees

$
(11,092)

$
72

$
(11,020)
Net cash provided by operating activities

7,948

72

8,020
Excess tax benefits from stock-based compensation

72

(72)

—
Net cash used in financing activities

(6,568)

(72)

(6,640)
Reconciliation of net income to net cash provided by operating activities:

Accrued expenses

2,077

72

2,149

The Company elected to continue to estimate forfeitures expected to occur to determine the amount of compensation cost to be recognized in each period. None of the other provisions in this guidance had a material impact on the Company’s condensed consolidated financial statements.

~~In March 2017, the FASB issued ASU 2017-07,~~ ~~Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which amends ASC Topic 715,~~ ~~Compensation – Retirement Benefits~~. ASU 2017-17 requires entities to disaggregate the current service cost component from the other components of net benefit cost and present it with other current compensation costs for related employees in the income statement and present the other components of net benefit cost elsewhere in the income statement and outside of operating income. Only the service cost component of net benefit cost is eligible for capitalization. The guidance is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted as of the beginning of any annual periods for which an entity’s financial statements have not been issued. Entities are required to retrospectively apply the requirement for a separate presentation in the income statement of service costs and other components of net benefit cost and prospectively adopt the requirement to limit the capitalization of benefit costs to the service component. The Company adopted the income statement presentation aspects of this new guidance on a retrospective basis effective January 1, 2017. Nearly all of the Company’s net benefit costs for the Company’s defined benefit pension and postretirement plans do not contain a service cost component as most of these defined benefit plans have been frozen for an extended period of time. The following is a reconciliation of the effect of the reclassification of the net benefit cost from operating expenses to other expense in the Company’s condensed consolidated statements of income for the three and nine months ended September 30, 2016:

As Previously




In millions

Reported

Adjustments

As Revised
Three Months Ended September 30, 2016

Operating expenses

$
4,675

$
(7)

$
4,668
Operating profit

2,817

7

2,824
Other expense

—

7

7
Nine Months Ended September 30, 2016

Operating expenses

13,908

(23)

13,885
Operating profit

7,343

23

7,366
Other expense

—

23

23

~~In January 2017, the FASB issued ASU 2017-04,~~ ~~Simplifying the Test for Goodwill Impairment, which amends ASC Topic 350,~~ ~~Intangibles – Goodwill and Other~~. This ASU requires the Company to perform its annual, or applicable interim, goodwill impairment test by comparing the fair value of each reporting unit with its carrying amount. An impairment charge must be recognized at the amount by which the carrying amount exceeds the fair value of the reporting unit; however, the charge recognized should not exceed the total amount of goodwill allocated to that reporting unit. Income tax effects resulting from any tax deductible goodwill should be considered when measuring a goodwill impairment charge, if applicable. The guidance in ASU 2017-04 is effective for annual or interim goodwill impairment

~~Table~~The assessment of ~~Contents~~

tests in fiscal years beginning after December 15, 2019. The Company elected to early adopt this standard as of January 1, 2017. At the date of adoption of this new guidance, the guidance did not have any impact on the Company’s condensed consolidated results of operations, financial position or cash flows.

~~New Accounting Pronouncements Not Yet Adopted~~

~~In May 2014, the FASB issued ASU 2014-09,~~ ~~Revenue from Contracts with Customers~~ (Topic 606). ASU 2014-09 outlines a single comprehensive model for companies to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. In March 2016, the FASB issued ASU 2016-08, “~~Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net),” which amends the principal-versus-agent implementation guidance and in April 2016 the FASB issued ASU 2016-10, “Identifying Performance Obligations and Licensing~~,” which amends the guidance in those areas in the new revenue recognition standard. Both ASUs were issued in response to feedback received from the FASB-International Accounting Standards Board joint revenue recognition transition resource group. The new revenue standard is effective for annual reporting periods (including interim reporting periods within those periods) beginning January 1, 2018. The Company chose not to early adopt the new standard. Companies have the option of using either a full retrospective or a modified retrospective approach to adopt the standard. The Company intends to adopt the new standard on a modified retrospective basis. The Company formed a project team to assess and implement the new revenue standard and is substantially complete in documenting its accounting policies applying the new revenue guidance. The Company does not expect that the implementation of the new standard will have a material effect on the Company's consolidated results of operations, cash flows or financial position. The new standard will however require more extensive revenue-related disclosures. The Company has identified one difference in its Retail/LTC Segment related to the accounting for its ExtraBucks Rewards customer loyalty program, which is currently accounted for under a cost deferral method. Under the new standard, this program will be accounted for under a revenue deferral method; however, the difference is not expected to be material.

~~In February 2016, the FASB~~ issued ASU 2016-02, Leases (Topic 842). Lessees ~~will be~~are required to recognize a right-of-use asset and a lease liability for virtually all of their leases (other than leases that meet the definition of a short-term lease). The liability ~~will be~~is equal to the present value of lease payments. The asset ~~will be~~is based on the liability, subject to ~~adjustment,~~certain adjustments, such as for initial direct costs. For income statement purposes, a dual model was retained, requiring leases to be classified as either operating or finance leases. Operating leases ~~will~~ result in straight-line expense (similar to ~~current~~ operating ~~leases)~~leases under the prior accounting standard) while finance leases ~~will~~ result in a front-loaded expense pattern (similar to ~~current~~ capital ~~leases)~~leases under the prior accounting standard). Lessor accounting is similar to the ~~current~~prior model, but updated to align with certain changes to the lessee model (e.g., certain definitions, such as initial direct costs, have been updated) and the new revenue recognition ~~standard.~~standard that was adopted in 2018.

The Company adopted this new accounting standard on January 1, 2019 on a modified retrospective basis and applied the new standard to all leases through a cumulative-effect adjustment to beginning retained earnings. As a result, comparative financial information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which includes, among other things, the ability to carry forward the existing lease classification. On January 1, 2019, the Company recorded an after-tax transition adjustment to increase retained earnings by approximately $178 million ($241 million prior to tax effect). The new standard had a material impact on the unaudited condensed consolidated balance sheet, but did not materially impact the Company’s consolidated operating results and had no impact on the Company’s cash flows.

The following is a discussion of the Company’s lease policy under the new lease accounting standard:

The Company determines if an arrangement contains a lease at the inception of a contract. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the commencement date based on the present value of the remaining future minimum lease payments. As the interest rate implicit in the Company’s leases is not readily determinable, the Company utilizes its incremental borrowing rate, determined by class of underlying asset, to discount the lease payments.The operating lease right-of-use assets also include lease payments made before commencement and exclude lease incentives.

The Company’s real estate leases typically contain options that permit renewals for additional periods of up to five years each. For real estate leases, the options to extend are not considered reasonably certain at lease commencement because the Company reevaluates each lease on a regular basis to consider the economic and strategic incentives of exercising the renewal options, and regularly opens or closes stores to align with its operating strategy. Generally, the renewal option periods are not included within the lease term and the associated payments are not included in the measurement of the right-of-use asset and lease liability. Similarly, renewal options are not included in the lease term for non-real estate leases because they are not considered reasonably certain of being exercised at lease commencement. Leases with an initial term of 12 months or less are not recorded on the balance sheets and lease expense is recognized on a straight-line basis over the term of the short-term lease.

For real estate leases, the Company accounts for lease components and nonlease components as a single lease component. Certain real estate leases require additional payments based on sales volume, as well as reimbursement for real estate taxes, common area maintenance and insurance, which are expensed as incurred as variable lease costs. Other real estate leases contain one fixed lease payment that includes real estate taxes, common area maintenance and insurance. These fixed payments are considered part of the lease payment and included in the right-of-use assets and lease liabilities.

See Note 5 ‘‘Leases’’ for additional information.

Impact of New Lease Standard on Balance Sheet Line Items

As a result of applying the new lease standard using a modified retrospective method, the following adjustments were made to accounts on the condensed consolidated balance sheet as of January 1, 2019:



	Impact of Change in Accounting Policy
	As Reported					Adjusted
In millions	December 31, 2018		Adjustments			January 1, 2019
Condensed Consolidated Balance Sheets:
Other current assets	$	4,581	$	(48	)	$	4,533
Total current assets	45,243		(48		)	45,195
Property and equipment, net	11,349		11			11,360
Operating lease right-of-use assets	—		20,987			20,987
Intangible assets, net	36,524		(217		)	36,307
Other assets	5,046		(521		)	4,525
Total assets	196,456		20,212			216,668
Accrued expenses	10,711		(52		)	10,659
Current portion of operating lease liabilities	—		1,803			1,803
Current portion of long-term debt	1,265		2			1,267
Total current liabilities	44,009		1,753			45,762
Long-term operating lease liabilities	—		18,832			18,832
Long-term debt	71,444		(96		)	71,348
Deferred income taxes	7,677		63			7,740
Other long-term liabilities	2,780		(518		)	2,262
Total liabilities	137,913		20,034			157,947
Retained earnings	40,911		178			41,089
Total CVS Health shareholders’ equity	58,225		178			58,403
Total shareholders’ equity	58,543		178			58,721

Accounting for Interest Associated with the Purchase of Callable Debt Securities

In March 2017, the FASB issued ASU 2017-08, Accounting for Interest Associated with the Purchase of Callable Debt Securities (Topic 310). Under this standard, premiums on callable debt securities are amortized to the earliest call date rather than to the contractual maturity date. Callable debt securities held at a discount will continue to be amortized to the contractual maturity date. The Company adopted this new accounting guidance on January 1, 2019 on a modified retrospective basis and recorded an immaterial cumulative effect adjustment from accumulated other comprehensive income to retained earnings on the condensed consolidated balance sheet.

New Accounting Pronouncements Not Yet Adopted

Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326). This standard requires the use of a forward-looking expected loss impairment model for trade and other receivables, held-to-maturity debt securities, loans and other instruments. This standard also requires impairments and recoveries for available-for-sale debt securities to be recorded through an allowance account and revises certain disclosure requirements. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2018. Early adoption is permitted. The Company believes that the new standard will have a material impact on its consolidated balance sheet.~~2019. The Company is currently evaluating the effect that implementation of this standard will have on the Company’s consolidated operating results, ~~of operations,~~ cash flows, financial ~~position~~condition and related disclosures.

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract

In August ~~2016,~~2018, the FASB issued ASU ~~No. 2016-15,~~2018-15, ~~Classification of Certain Cash Receipts~~Intangibles - Goodwill and ~~Cash Payments~~other - Internal-Use Software ~~. ASU 2016-15~~(Topic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is ~~intended~~a Service Contract. This standard requires a customer in a cloud computing arrangement that is a service contract to ~~add or clarify guidance on~~follow the ~~classification of certain cash receipts and payments in the statement of cash flows and to eliminate the diversity in practice related to such classifications. The~~internal-use software guidance in ~~ASU 2016-15~~Topic 350-40 to determine which implementation costs to capitalize as assets. The standard is ~~required~~effective for ~~annual reporting~~public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2017, with early~~2019. Early adoption is

permitted. The Company is currently evaluating the effect that implementation of this standard will have on ~~its~~the Company’s consolidated ~~statement of~~operating results, cash flows, ~~of adopting this accounting guidance.~~

financial condition and related disclosures.

Targeted Improvements to the Accounting for Long-Duration Insurance Contracts

In ~~November 2016,~~August 2018, the FASB issued ASU ~~2016-18,~~2018-12, ~~Statement~~Targeted Improvements to the Accounting for Long-Duration Contracts (Topic 944). This standard requires the Company to review cash flow assumptions for its long-duration insurance contracts at least annually and recognize the effect of ~~Cash Flows, which amends ASC Topic 230. This ASU requires entities to show the~~ changes in future cash flow assumptions in net income. This standard also requires the ~~total~~Company to update discount rate assumptions quarterly and recognize the effect of ~~cash, cash equivalents, restricted cash~~changes in these assumptions in other comprehensive income. The rate used to discount the Company’s liability for future policy benefits will be based on an estimate of the yield for an upper-medium-grade fixed-income instrument. In addition, this standard changes the amortization method for deferred acquisition costs and ~~restricted cash equivalents~~requires additional disclosures regarding the long duration insurance contract liabilities in the ~~statement of cash flows. As a result, entities will no longer be required to present transfers between cash~~Company’s interim and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet, the new guidance requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet. Entities will also have to disclose the nature of their restricted cash and restricted cash equivalent balances.annual financial statements. The ~~guidance~~standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2017 and interim periods within those years. Early adoption is permitted. Entities are required to apply the guidance retrospectively.~~2020. The Company is currently evaluating the effect that implementation of ~~adopting~~ this standard will have on the Company’s consolidated operating results, cash flows, financial condition and related disclosures.


2.	Acquisition of Aetna

On the Aetna Acquisition Date, the Company acquired 100% of the outstanding shares and voting interests of Aetna for a combination of cash and stock. Under the terms of the merger agreement, Aetna shareholders received $145.00 in cash and 0.8378 CVS Health shares for each Aetna share. The transaction valued Aetna at approximately $212 per share or approximately $70 billion. Including the assumption of Aetna’s debt, the total value of the transaction was approximately $78 billion. The Company financed the cash portion of the purchase price through a combination of cash on hand and by issuing approximately $45 billion of new debt, including senior notes and term loans. Aetna is a leading health care benefits company that offers a broad range of traditional, voluntary, and consumer-directed health insurance products and related services. The Company acquired Aetna to help improve the consumer health care experience by combining Aetna’s health care benefits products and services with CVS Health’s more than 9,900 retail locations, approximately 1,100 walk-in medical clinics and integrated pharmacy capabilities with the goal of becoming the new, trusted front door to health care.

The transaction has been accounted for using the acquisition method of accounting ~~guidance.~~

which requires, among other things, the assets acquired and liabilities assumed to be recognized at their fair values at the date of acquisition. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:



In millions
Cash and cash equivalents	$	6,565
Accounts receivable	4,089
Other current assets	3,896
Investments (current and long-term)	17,984
Goodwill	47,082
Intangible assets	23,086
Other long-term assets	8,249
Total assets acquired	110,951
Health care costs payable	5,293
Other current liabilities	9,982
Debt (current and long-term)	8,098
Deferred income taxes	4,414
Other long-term liabilities	13,078
Total liabilities assumed	40,865
Noncontrolling interests	320
Total consideration transferred	$	69,766

fair value is preliminary and is based on information that was available to management at the time the unaudited condensed consolidated financial statements were prepared. The most significant open items included the valuation of certain intangible assets, the accounting for income taxes and the accounting for contingencies as management is awaiting

~~Note 2 – Goodwill~~

additional information to complete its assessment of these matters. Measurement period adjustments will be recorded in the period in which they are determined, as if they had been completed at the acquisition date. Measurement period adjustments to assets acquired and ~~Intangible Assets~~

~~Goodwill is not amortized, but is subject~~liabilities assumed during the three months ended March 31, 2019 primarily related to ~~annual impairment reviews, or more frequent reviews if events or circumstances indicate there may be impairment.~~

~~Below is~~additional information received related to certain valuations and contingencies and the related impact on the accounting for income taxes and goodwill. There were no material income statement measurement period adjustments recorded during the three months ended March 31, 2019.

Unaudited pro forma financial information

The following unaudited pro forma information presents a summary of the ~~changes~~Company’s combined operating results for the three months March 31, 2018 as if the Aetna acquisition and the related financing transactions had occurred on January 1, 2017. The following pro forma financial information is not necessarily indicative of the Company’s operating results as they would have been had the acquisition been effected on the assumed date, nor is it necessarily an indication of trends in future results for a number of reasons, including, but not limited to, differences between the assumptions used to prepare the pro forma information, basic shares outstanding and dilutive equivalents, cost savings from operating efficiencies, potential synergies, and the impact of incremental costs incurred in integrating the businesses.



In millions, except per share amounts
Total revenues	$	59,093
Net income attributable to CVS Health	1,807
Net income per share attributable to CVS Health:
Basic	$	1.40
Diluted	$	1.39

The pro forma results for the three months ended March 31, 2018 include adjustments related to the following purchase accounting and acquisition-related items:

Elimination of intercompany transactions between CVS Health and Aetna;

Elimination of estimated foregone interest income associated with (i) cash assumed to have been used to partially fund the Aetna Acquisition and (ii) adjusting the amortized cost of Aetna’s investment portfolio to fair value as of the completion of the Aetna Acquisition;

Elimination of historical intangible asset, deferred acquisition cost and capitalized software amortization expense and addition of amortization expense based on the current preliminary values of identified intangible assets;

Additional interest expense from (i) the long-term debt issued to partially fund the Aetna Acquisition and (ii) the amortization of the fair value adjustment to assumed long-term debt.

Additional depreciation expense related to the adjustment of Aetna’s property and equipment to fair value;

Adjustments to align CVS Health’s and Aetna’s accounting policies;

Elimination of transaction related costs; and

Tax effects of the adjustments noted above.


3.	Investments

Total investments at March 31, 2019 and December 31, 2018 were as follows:



	March 31, 2019						December 31, 2018
In millions	Current		Long-term		Total		Current		Long-term		Total
Debt securities available for sale	$	2,286	$	13,611	$	15,897	$	2,359	$	12,896	$	15,255
Mortgage loans	123		1,215		1,338		145		1,216		1,361
Other investments	17		1,584		1,601		18		1,620		1,638
Total investments	$	2,426	$	16,410	$	18,836	$	2,522	$	15,732	$	18,254

Debt Securities

Debt securities available for sale at March 31, 2019 and December 31, 2018 were as follows:



In millions	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
March 31, 2019
Debt securities:
U.S. government securities	$	1,704	$	40	$	—		$	1,744
States, municipalities and political subdivisions	2,246		71		—			2,317
U.S. corporate securities	6,777		288		(1		)	7,064
Foreign securities	2,243		110		—			2,353
Residential mortgage-backed securities	577		18		—			595
Commercial mortgage-backed securities	608		29		—			637
Other asset-backed securities	1,148		8		(7		)	1,149
Redeemable preferred securities	32		6		—			38
Total debt securities ⁽¹⁾	$	15,335	$	570	$	(8	)	$	15,897

December 31, 2018
Debt securities:
U.S. government securities	$	1,662	$	26	$	—		$	1,688
States, municipalities and political subdivisions	2,370		30		(1		)	2,399
U.S. corporate securities	6,444		61		(16		)	6,489
Foreign securities	2,355		31		(3		)	2,383
Residential mortgage-backed securities	567		10		—			577
Commercial mortgage-backed securities	594		11		—			605
Other asset-backed securities	1,097		3		(15		)	1,085
Redeemable preferred securities	30		—		(1		)	29
Total debt securities ⁽¹⁾	$	15,119	$	172	$	(36	)	$	15,255

^{_____________________________________________}

(1)

Investment risks associated with the Company’s experience-rated products generally do not impact the Company’s consolidated operating results. At March 31, 2019, debt securities with a fair value of $939 million, gross unrealized capital gains of $45 million and no gross unrealized capital losses and at December 31, 2018, debt securities with a fair value of $916 million, gross unrealized capital gains of $12 million and gross unrealized capital losses of $2 million were included in total debt securities, but support experience-rated products. Changes in net unrealized capital gains (losses) on these securities are not reflected in accumulated other comprehensive income.

The fair value of debt securities at March 31, 2019 is shown below by contractual maturity. Actual maturities may differ from contractual maturities because securities may be restructured, called or prepaid, or the Company intends to sell a security prior to maturity.



In millions	Amortized Cost		Fair Value
Due to mature:
Less than one year	$	990	$	993
One year through five years	5,511		5,630
After five years through ten years	2,991		3,125
Greater than ten years	3,510		3,768
Residential mortgage-backed securities	577		595
Commercial mortgage-backed securities	608		637
Other asset-backed securities	1,148		1,149
Total	$	15,335	$	15,897

Summarized below are the debt securities the Company held at March 31, 2019 and December 31, 2018 that were in an unrealized capital loss position:



In millions, except number of securities	Number of Securities	Fair Value		Unrealized Losses
March 31, 2019
Debt securities:
U.S. government securities	12	$	30	$	—
States, municipalities and political subdivisions	26	39		—
U.S. corporate securities	70	94		1
Foreign securities	39	47		—
Residential mortgage-backed securities	23	—		—
Commercial mortgage-backed securities	1	2		—
Other asset-backed securities	487	486		7
Redeemable preferred securities	1	6		—
Total debt securities	659	$	704	$	8

December 31, 2018
Debt securities:
U.S. government securities	8	$	26	$	—
States, municipalities and political subdivisions	54	86		1
U.S. corporate securities	1,399	1,431		16
Foreign securities	243	314		3
Residential mortgage-backed securities	45	1		—
Other asset-backed securities	516	528		15
Redeemable preferred securities	14	23		1
Total debt securities	2,279	$	2,409	$	36

Since Aetna’s investment portfolio was measured at fair value as of the Aetna Acquisition Date, each of the securities in the table above were in an unrealized loss position for less than 12 months. The Company reviewed the securities in the tables above and concluded that these are performing assets generating investment income to support the needs of the Company’s business. In performing this review, the Company considered factors such as the quality of the investment security based on research performed by the Company’s internal credit analysts and external rating agencies and the prospects of realizing the carrying value of ~~goodwill~~the security based on the investment’s current prospects for recovery. As of March 31, 2019, the Company did not intend to sell these securities, and did not believe it was more likely than not that it would be required to sell these securities prior to anticipated recovery of their amortized cost basis.

The maturity dates for debt securities in an unrealized capital loss position at March 31, 2019 were as follows:



	Supporting experience-rated products				Supporting remaining products				Total
In millions	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Due to mature:
Less than one year	$	1	$	—	$	20	$	—	$	21	$	—
One year through five years	—		—		43		1		43		1
After five years through ten years	6		—		82		—		88		—
Greater than ten years	4		—		60		—		64		—
Residential mortgage-backed securities	—		—		—		—		—		—
Commercial mortgage-backed securities	—		—		2		—		2		—
Other asset-backed securities	—		—		486		7		486		7
Total	$	11	$	—	$	693	$	8	$	704	$	8

Mortgage Loans

The Company’s mortgage loans are collateralized by ~~segment~~commercial real estate. The Company did not have any mortgage loans during the three months ended March 31, 2018. During the three months ended March 31, 2019, the Company had the following activity in its mortgage loan portfolio:



In millions
New mortgage loans	$	41
Mortgage loans fully repaid	52
Mortgage loans foreclosed	—

The Company assesses mortgage loans on a regular basis for credit impairments, and annually assigns a credit quality indicator to each loan. The Company’s credit quality indicator is internally developed and categorizes its portfolio on a scale from 1 to 7. These indicators are based upon several factors, including current loan to value ratios, property condition, market trends, creditworthiness of the borrower and deal structure. The vast majority of the Company’s mortgage loans fall into categories 2 to 4.

Category 1 - Represents loans of superior quality.

Categories 2 to 4 - Represent loans where credit risk is minimal to acceptable; however, these loans may display some susceptibility to economic changes.

Categories 5 and 6 - Represent loans where credit risk is not substantial, but these loans warrant management’s close attention.

Category 7 - Represents loans where collections are potentially at risk; if necessary, an impairment is recorded.

Based upon the most recent assessments at March 31, 2019 and December 31, 2018, the Company’s mortgage loans were given the following credit quality indicators:



In millions, except credit ratings indicator	March 31, 2019		December 31, 2018
1	$	41	$	42
2 to 4	1,283		1,301
5 and 6	14		18
7	—		—
Total	$	1,338	$	1,361

Net Investment Income

Sources of net investment income for the ~~nine~~three months ended ~~September 30, 2017:~~

March 31, 2019 and 2018 were as follows:

Pharmacy

In millions

Services

Retail/LTC

Total
Balance, December 31, 2016

$
21,637

$
16,612

$
38,249
Acquisitions

—

52

52
Foreign currency translation adjustments

—

3

3
Impairment

—

(135)

(135)
Balance, September 30, 2017

$
21,637

$
16,532

$
38,169

~~During 2017,~~



	Three Months Ended March 31,
In millions	2019			2018
Debt securities	$	156		$	50
Mortgage loans	17			—
Other investments	26			—
Gross investment income	199			50
Investment expenses	(9		)	—
Net investment income (excluding net realized capital gains or losses)	190			50
Net realized capital gains ⁽¹⁾	59			—
Net investment income ⁽²⁾	$	249		$	50

^{_____________________________________________}


(1)	Other-than-temporary impairment (“OTTI”) losses on debt securities recognized in the unaudited condensed consolidated statements of operations were $7 million for the three months ended March 31, 2019. There were no OTTI losses on debt securities for the three months ended March 31, 2018.


(2)	Net investment income includes $11 million for the three months ended March 31, 2019 related to investments supporting experience-rated products. The Company had no investments supporting experience-rated products during the three months ended March 31, 2018.

The portion of unrealized capital gains and losses recognized during the three months ended March 31, 2019 related to investments in equity securities held as of the reporting date was not material.

The Company ~~began pursuing various strategic alternatives~~did not have any material proceeds from the sale of available for ~~its RxCrossroads~~sale debt securities or related gross realized capital gains or losses for the three months ended March 31, 2018. Excluding amounts related to experience-rated products, proceeds from the sale of available for sale debt securities and the related gross realized capital gains and losses for the three months ended March 31, 2019 were as follows:



In millions
Proceeds from sales	$	1,489
Gross realized capital gains	35
Gross realized capital losses	2


4.	Fair Value

The preparation of the Company’s condensed consolidated financial statements in accordance with GAAP requires certain assets and liabilities to be reflected at their fair value and others to be reflected on another basis, such as an adjusted historical cost basis. The Company’s assets and liabilities carried at fair value have been classified within one of three levels of a hierarchy established by GAAP. The following are the levels of the hierarchy and a brief description of the type of valuation information (“~~RxC”~~valuation inputs”) ~~reporting unit. In connection with this ongoing effort,~~that qualifies a financial asset or liability for each level:

Level 1 – Unadjusted quoted prices for identical assets or liabilities in active markets.

Level 2 – Valuation inputs other than Level 1 that are based on observable market data. These include: quoted prices for similar assets in active markets, quoted prices for identical assets in inactive markets, valuation inputs that are observable that are not prices (such as interest rates and credit risks) and valuation inputs that are derived from or corroborated by observable markets.

Level 3 – Developed from unobservable data, reflecting the ~~Company performed an interim goodwill impairment test in~~Company’s assumptions.

For a description of the ~~second quarter of 2017. In conjunction with the impairment test,~~methods and assumptions that are used to estimate the fair value and determine the fair value hierarchy classification of each class of financial instrument, see Note 4 “Fair Value” of Notes to Consolidated Financial Statements in Exhibit 13.1 to the 2018 Form 10-K.

There were no financial liabilities measured at fair value on a recurring basis on the condensed consolidated balance sheets at March 31, 2019 or December 31, 2018. Financial assets measured at fair value on a recurring basis on the condensed consolidated balance sheets at March 31, 2019 and December 31, 2018 were as follows:




In millions	Level 1		Level 2		Level 3		Total
March 31, 2019
Debt securities:
U.S. government securities	$	1,665	$	79	$	—	$	1,744
States, municipalities and political subdivisions	—		2,317		—		2,317
U.S. corporate securities	—		7,006		58		7,064
Foreign securities	—		2,350		3		2,353
Residential mortgage-backed securities	—		595		—		595
Commercial mortgage-backed securities	—		637		—		637
Other asset-backed securities	—		1,149		—		1,149
Redeemable preferred securities	—		27		11		38
Total debt securities	1,665		14,160		72		15,897
Equity securities	9		—		71		80
Total	$	1,674	$	14,160	$	143	$	15,977

December 31, 2018
Debt securities:
U.S. government securities	$	1,597	$	91	$	—	$	1,688
States, municipalities and political subdivisions	—		2,399		—		2,399
U.S. corporate securities	—		6,422		67		6,489
Foreign securities	—		2,380		3		2,383
Residential mortgage-backed securities	—		577		—		577
Commercial mortgage-backed securities	—		605		—		605
Other asset-backed securities	—		1,085		—		1,085
Redeemable preferred securities	—		22		7		29
Total debt securities	1,597		13,581		77		15,255
Equity securities	19		—		54		73
Total	$	1,616	$	13,581	$	131	$	15,328

There were no transfers between Levels 1 and 2 during the three months ended March 31, 2019 or 2018. During the three months ended March 31, 2019 and 2018, there were no transfers into or out of Level 3.

The carrying value and estimated fair value classified by level of fair value hierarchy for financial instruments carried on the condensed consolidated balance sheets at adjusted cost or contract value at March 31, 2019 and December 31, 2018 were as follows:



	Carrying Value		Estimated Fair Value
In millions			Level 1		Level 2		Level 3		Total
March 31, 2019
Assets:
Mortgage loans	$	1,338	$	—	$	—	$	1,350	$	1,350
Equity securities ⁽¹⁾	135		N/A		N/A		N/A		N/A
Liabilities:
Investment contract liabilities:
With a fixed maturity	5		—		—		5		5
Without a fixed maturity	377		—		—		364		364
Long-term debt	71,781		72,376		—		—		72,376

December 31, 2018
Assets:
Mortgage loans	$	1,361	$	—	$	—	$	1,366	$	1,366
Equity securities ⁽¹⁾	140		N/A		N/A		N/A		N/A
Liabilities:
Investment contract liabilities:
With a fixed maturity	5		—		—		5		5
Without a fixed maturity	382		—		—		357		357
Long-term debt	72,709		71,252		—		—		71,252

^{_____________________________________________}


(1)	It was not practical to estimate the fair value of these cost-method investments as it represents shares of unlisted companies.

Separate Accounts assets related to the Company’s large case pensions products represent funds maintained to meet specific objectives of contract holders. Since contract holders bear the investment risk of these assets, a corresponding Separate Accounts liability has been established equal to the assets. These assets and liabilities are carried at fair value. Separate Accounts financial assets as of March 31, 2019 and December 31, 2018 were as follows:



	March 31, 2019								December 31, 2018
In millions	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Debt securities	$	983	$	2,445	$	—	$	3,428	$	782	$	2,500	$	4	$	3,286
Equity securities	—		3		—		3		—		3		—		3
Common/collective trusts	—		415		—		415		—		404		—		404
Total ⁽¹⁾	$	983	$	2,863	$	—	$	3,846	$	782	$	2,907	$	4	$	3,693

^{_____________________________________________}


(1)	Excludes $228 million and $191 million of cash and cash equivalents and accounts receivable at March 31, 2019 and December 31, 2018, respectively.

During the three months ended March 31, 2019, the Company had an immaterial amount of Level 3 Separate Accounts financial assets.


5.	Leases

The Company leases most of its retail stores and mail order facilities and certain distribution centers and corporate offices under operating or finance leases, typically with initial terms of 15 to 25 years. The Company also leases certain equipment and other assets under operating or finance leases, typically with initial terms of 3 to 10 years.

The Company maintains certain lease agreements for which the noncancelable contractual term of the ~~RxC reporting unit was~~pharmacy lease arrangement exceeds the remaining estimated ~~to be lower than the carrying value, resulting in a $135 million goodwill impairment charge within operating expenses during the second quarter of 2017. The fair value~~economic life of the ~~RxC reporting unit was determined using a combination of a discounted cash flow method and a market multiple method. During the second quarter of 2017,~~buildings being leased. For these pharmacy lease agreements, the Company ~~also performed an impairment test~~concluded that for accounting purposes the lease term was the remaining economic life of the ~~intangible assets~~buildings. Consequently, most of the RxC reporting unit and none were impaired. During the third quarter of 2017, the Company performed its required annual impairment tests and concluded there was no impairment of goodwill or trade names.

On November 6, 2017, the Company entered into a definitive agreement to sell RxC to McKesson Corporation for $735 million. The transaction is subject to a working capital adjustment and is expected to close in the first quarter of 2018, subject to customary regulatory approvals.

these individual pharmacy leases are finance leases.

The following table is a summary of the Company’s ~~intangible assets as~~components of ~~September 30, 2017 and December 31, 2016:~~

September 30, 2017

December 31, 2016


Gross



Net

Gross



Net

Carrying

Accumulated

Carrying

Carrying

Accumulated

Carrying

In millions

Amount

Amortization

Amount

Amount

Amortization

Amount

Trademark (indefinitely-lived)

$
6,398

$
—

$
6,398

$
6,398

$
—

$
6,398

Customer contracts and relationships and covenants not to compete

11,848

(5,345)

6,503

11,485

(4,802)

6,683

Favorable leases and other

1,151

(749)

402

1,123

(693)

430

$
19,397

$
(6,094)

$
13,303

$
19,006

$
(5,495)

$
13,511

~~Note 3 – Share Repurchase Programs~~

During the nine months ended September 30, 2017, the Company had the following outstanding share repurchase programs, both of which had previously been authorized by the Company’s Board of Directors:

In billions

Authorization Date

Authorized

Remaining
November 2, 2016 (“2016 Repurchase Program”)

$
15.0

$
13.9
December 15, 2014 (“2014 Repurchase Program”)

10.0

—

Each of the 2014 and 2016 Repurchase Programs, which were effective immediately, permitted the Company to effect repurchases from time to time through a combination of open market repurchases, privately negotiated transactions, accelerated share repurchase transactions, and/or other derivative transactions. Each of the repurchase programs could be modified or terminated by the Board of Directors at any time. The 2014 Repurchase Program was completed during the second quarter of 2017.

~~During~~net lease cost for the three months ended ~~September 30, 2017, the Company repurchased an aggregate of approximately 5.0 million shares of common stock~~March 31, 2019:



In millions
Operating lease cost	$	682
Finance lease cost:
Amortization of right-of-use assets	9
Interest on lease liabilities	10
Total finance lease costs	19
Short-term lease costs	6
Variable lease costs	142
Less: sublease income	12
Net lease cost	$	837

Supplemental cash flow information related to leases for approximately $0.4 billion pursuant to the 2016 Repurchase Program. During the nine months ended September 30, 2017, the Company repurchased an aggregate of approximately 55.4 million shares of common stock for approximately $4.4 billion pursuant to the 2014 and 2016 Repurchase Programs. This activity includes the accelerated share repurchase agreements (“ASRs”) described below.

Pursuant to the authorization under the 2014 Repurchase Program, effective August 29, 2016, the Company entered into two fixed dollar ASRs with Barclays Bank PLC (“Barclays”) for a total of $3.6 billion. Upon payment of the $3.6 billion purchase price on January 6, 2017, the Company received a number of shares of its common stock equal to 80% of the $3.6 billion notional amount of the ASRs or approximately 36.1 million shares, which were placed into treasury stock in January 2017. The ASRs were accounted for as an initial treasury stock transaction for $2.9 billion and a forward contract for $0.7 billion. In April 2017, the Company received 9.9 million shares of common stock, representing the remaining 20% of the $3.6 billion notional amount of the ASRs, thereby concluding the ASRs. The remaining 9.9 million shares of common stock delivered to the Company by Barclays were placed into treasury stock and the forward contract was reclassified from capital surplus to treasury stock in April 2017.

At the time they were received, the initial and final receipt of shares resulted in an immediate reduction of the outstanding shares used to calculate the weighted average common shares outstanding for basic and diluted earnings per share.

~~Note 4 – Pension Settlements~~

As of December 31, 2016, the Company sponsored seven defined benefit pension plans. Two of the plans are tax-qualified plans that are funded based on actuarial calculations and applicable federal laws and regulations. The other five plans are unfunded nonqualified supplemental retirement plans. All seven of these plans are closed to new participants. During the three months ended September 30, 2017, the Company settled the pension obligations of its two tax-qualified plans by irrevocably transferring pension liabilities to an insurance company through the purchase of group annuity contracts and through lump sum distributions. These purchases, funded with pension plan assets, resulted in pre-tax settlement losses of $187 million in the three months ended September 30, 2017,March 31, 2019 is as follows:



In millions
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows paid for operating leases	$	670
Operating cash flows paid for interest portion of finance leases	10
Financing cash flows paid for principal portion of finance leases	7
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	556
Finance leases	12

Supplemental balance sheet information related to ~~the recognition~~leases as of ~~accumulated deferred actuarial losses. The settlement losses are included in other expense in the condensed consolidated statement of income.~~

~~Note 5 – Accumulated Other Comprehensive Income~~

Accumulated other comprehensive income consists of foreign currency translation adjustments, unrealized losses on cash flow hedges executed in previous years associated with the issuance of long-term debt, and changes in the net actuarial gains and losses associated with pension and other postretirement benefit plans. March 31, 2019 is as follows:



In millions, except lease term and discount rate
Operating leases:
Operating lease right-of-use assets	$	20,992

Current portion of operating lease liabilities	$	1,803
Long-term operating lease liabilities	18,961
Total operating lease liabilities	$	20,764

Finance leases:⁽¹⁾
Property and equipment, net	$	509

Current portion of long-term debt	$	25
Long-term debt	535
Total finance lease liabilities	$	560

Weighted average remaining lease term
Operating leases	14.2
Finance leases	20.3

Weighted average discount rate
Operating leases	4.7		%
Finance leases	7.5		%

^{_____________________________________________}


(1)	Finance lease right-of-use assets are included within property and equipment, net and the respective finance lease liabilities are included in the current portion of long-term debt and long-term debt lines on the unaudited condensed consolidated balance sheets.

The following table summarizes the ~~activity within the components~~maturity of ~~accumulated other comprehensive income.~~

~~Changes in accumulated other comprehensive income (loss) by component is shown on the following tables:~~

Three Months Ended September 30, 2017 (1)






Pension and


Losses on

Other

Foreign

Cash Flow

Postretirement

In millions

Currency

Hedges

Benefits

Total
Balance, June 30, 2017

$
(129)

$
(4)

$
(173)

$
(306)
Other comprehensive income before reclassifications

8

—

—

8
Amounts reclassified from accumulated other comprehensive income (2)

—

—

151

151
Net other comprehensive income

8

—

151

159
Balance, September 30, 2017

$
(121)

$
(4)

$
(22)

$
(147)

Three Months Ended September 30, 2016 (1)






Pension and


Losses on

Other

Foreign

Cash Flow

Postretirement

Currency

Hedges

Benefits

Total
Balance, June 30, 2016

$
(125)

$
(6)

$
(186)

$
(317)
Other comprehensive income (loss) before reclassifications

(3)

—

—

(3)
Amounts reclassified from accumulated other comprehensive income (2)

—

1

—

1
Net other comprehensive income (loss)

(3)

1

—

(2)
Balance, September 30, 2016

$
(128)

$
(5)

$
(186)

$
(319)

Nine Months Ended September 30, 2017 (1)






Pension and


Losses on

Other

Foreign

Cash Flow

Postretirement

Currency

Hedges

Benefits

Total
Balance, December 31, 2016

$
(127)

$
(5)

$
(173)

$
(305)
Other comprehensive income before reclassifications

6

—

—

6
Amounts reclassified from accumulated other comprehensive income (2)

—

1

151

152
Net other comprehensive income

6

1

151

158
Balance, September 30, 2017

$
(121)

$
(4)

$
(22)

$
(147)

Nine Months Ended September 30, 2016 (1)






Pension and


Losses on

Other

Foreign

Cash Flow

Postretirement

Currency

Hedges

Benefits

Total
Balance, December 31, 2015

$
(165)

$
(7)

$
(186)

$
(358)
Other comprehensive income before reclassifications

37

—

—

37
Amounts reclassified from accumulated other comprehensive income (2)

—

2

—

2
Net other comprehensive income

37

2

—

39
Balance, September 30, 2016

$
(128)

$
(5)

$
(186)

$
(319)

~~(1)~~

~~All amounts are net of tax.~~

~~(2)~~

The amounts reclassified from accumulated other comprehensive income for losses on cash flow hedges are recorded within interest expense, net on the condensed consolidated statements of income. The amounts reclassified from accumulated other comprehensive income for pension and other postretirement benefits are included in other expense on the condensed consolidated statements of income.

~~Note 6 – Stock-Based Compensation~~

~~A summary of stock-based compensation for each of the respective periods is as follows:~~

Three Months Ended

Nine Months Ended

September 30,

September 30,
In millions

2017

2016

2017

2016
Stock-based compensation:








Stock options

$
15

$
20

$
49

$
60
Restricted stock units

50

38

124

106
Total stock-based compensation

$
65

$
58

$
173

$
166

~~During the nine months ended September 30, 2017, the Company granted approximately 4 million stock options with a weighted average fair value of $9.43~~lease liabilities under finance and ~~a weighted average fair value exercise price of $78.05. The Company had approximately 21 million stock options outstanding~~operating leases as of September 30, 2017 with a weighted average exercise price of $75.09 and a weighted average contractual term of 3.87 years. During the nine months ended September 30, 2017, the Company granted approximately 3 million restricted stock units with a weighted average fair value of $78.35. The Company had approximately 6 million restricted stock units unvested as of September 30, 2017 with a weighted average fair value of $87.20.

~~Note 7 – Sale-Leaseback Transactions~~

March 31, 2019:



	Finance			Operating
In millions	Leases			Leases ⁽¹⁾			Total
2019 (remaining nine months)	$	50		$	2,035		$	2,085
2020	65			2,612			2,677
2021	62			2,477			2,539
2022	58			2,316			2,374
2023	56			2,203			2,259
Thereafter	786			16,588			17,374
Total lease payments ⁽²⁾	1,077			28,231			29,308
Less: imputed interest	(517		)	(7,467		)	(7,984		)
Total lease liabilities	$	560		$	20,764		$	21,324

^{_____________________________________________}


(1)	Future operating lease payments have not been reduced by minimum sublease rentals of $182 million due in the future under noncancelable subleases.

(2)

The Company leases pharmacy and clinic space from Target Corporation. Amounts related to such finance and operating leases are reflected above. Pharmacy lease amounts due in excess of the remaining estimated economic life of the buildings of approximately $2.1 billion are not reflected herein since the estimated economic life of the buildings is shorter than the contractual term of the pharmacy lease arrangement.

The Company finances a portion of its store development program through sale-leaseback transactions. The properties are generally sold at net book value, which generally approximates fair value, and the resulting leases ~~typically~~generally qualify and are accounted for as operating leases. The operating leases that resulted from these transactions are included in the table above. The Company does not have any retained or contingent interests in the stores and does not provide any guarantees, other than a guarantee of lease payments, in connection with the sale-leaseback transactions. ~~Proceeds from~~Sale-leaseback transactions resulted in an

immaterial gain and proceeds of $5 million in the three months ended March 31, 2019. There were no sale-leaseback transactions ~~totaled $265 million and $230 million for~~in the ~~nine~~three months ended ~~September 30, 2017 and 2016, respectively.~~

~~Note 8 –~~ March 31, 2018.

Store ~~Closures~~

~~In December 2016,~~Rationalization Charge

During the three months ended March 31, 2019, the Company announced an enterprise streamlining initiative designed to reduce costs and enhance operating efficiencies to allow the Company to be more competitive in the current health care environment. In connection with the enterprise streamlining initiative, the Company announcedperformed a review of its ~~intention to rationalize the number of~~ retail stores ~~by closing approximately 70~~and determined it would close 46 underperforming retail pharmacy stores during the ~~year ending December 31, 2017. During~~second quarter of 2019. As a result, management determined that there were indicators of impairment with respect to the impacted stores, including the operating lease right-of-use assets. Accordingly, an interim long lived asset impairment test was performed. The results of the impairment test indicated that the fair value of each store asset group was lower than the carrying value. The fair value was determined using a discounted cash flow method based on estimated sublease income. In the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, the Company ~~closed five and 68 retail stores, respectively, and~~ recorded a store rationalization charge of $135 million, primarily related to these operating lease right-of-use asset impairment charges, ~~of $6 million and $211 million, respectively,~~which was recorded within operating expenses in the Retail/LTC Segment. ~~The charges are primarily comprised of provisions~~


6.	Health Care Costs Payable

Prior to the Aetna Acquisition, the Company’s health care costs payable balance was immaterial and related to unpaid pharmacy claims for ~~the present value of noncancelable lease obligations.~~

The noncancelable lease obligations associated with stores closed during the nine months ended September 30, 2017 extend through the year 2039. In connection with the enterprise streamlining initiative,its SilverScript PDP. Accordingly, the Company ~~expects~~has not included disclosures for health care costs payable for periods prior to ~~record additional charges of approximately $9 million during~~ the ~~fourth quarter of 2017 as it continues to rationalize the number of retail stores.~~

~~Note 9 – Interest Expense, Net~~

Aetna Acquisition Date.

The following ~~are~~table shows the components of ~~interest expense, net:~~

the change in health care costs payable during the three months ended March 31, 2019:

Three Months Ended

Nine Months Ended

September 30,

September 30,
In millions

2017

2016

2017

2016
Interest expense

$
250

$
258

$
759

$
830
Interest income

(5)

(5)

(15)

(14)
Interest expense, net

$
245

$
253

$
744

$
816



In millions
Health care costs payable, beginning of the period	$	6,147
Less: Reinsurance recoverables	4
Health care costs payable, beginning of the period, net	6,143
Add: Components of incurred health care costs
Current year	13,804
Prior years	(446		)
Total incurred health care costs ⁽¹⁾	13,358
Less: Claims paid
Current year	8,004
Prior years	4,812
Total claims paid	12,816
Add: Premium deficiency reserve	11
Health care costs payable, end of period, net	6,696
Add: Reinsurance recoverables	5
Health care costs payable, end of period	$	6,701

~~Note 10 – Earnings Per~~ ^{_____________________________________________}

(1)

Total incurred health care costs during the three months ended March 31, 2019 in the table above exclude (i) $11 million related to a premium deficiency reserve for the 2019 coverage year related to the Company’s Medicaid products, (ii) $10 million of benefit costs recorded in the Health Care Benefits segment that are included in other insurance liabilities on the unaudited condensed consolidated balance sheet and (iii) $80 million of benefit costs recorded in the Corporate/Other segment that are included in other insurance liabilities on the unaudited condensed consolidated balance sheet.

The Company’s estimates of prior years’ health care costs payable decreased by $446 million in the three months ended March 31, 2019, because claims were settled for amounts less than originally estimated (i.e., the amount of claims incurred was lower than originally estimated), primarily due to lower health care cost trends as well as the actual claim submission time being faster than originally assumed (i.e., the Company’s completion factors were higher than originally assumed) in estimating health care costs payable at the end of the prior year.

At March 31, 2019, the Company’s liabilities for the ultimate cost of (i) services rendered to members but not yet reported to the Company and (ii) claims which have been reported to the Company but not yet paid (collectively, “IBNR”) plus expected development on reported claims totaled approximately $5.1 billion. The majority of the Company’s liabilities for IBNR plus expected development on reported claims at March 31, 2019 related to the current year.


7.	Shareholders’ Equity

Repurchases

On November 2, 2016, the Company’s Board of Directors (the “Board”) authorized the 2016 share repurchase program (“2016 Repurchase Program”) for up to $15.0 billion of the Company’s common shares. The 2016 Repurchase Program permits the Company to effect repurchases from time to time through a combination of open market repurchases, privately negotiated transactions, accelerated share repurchase transactions, and/or other derivative transactions. The 2016 Repurchase Program can be modified or terminated by the Board at any time.

During the three months ended March 31, 2019 and 2018, the Company did not repurchase any shares of its common stock. At March 31, 2019, the Company had remaining authorization to repurchase an aggregate of up to approximately $13.9 billion of its common shares under the 2016 Repurchase Program.

Dividends

The quarterly cash dividend declared by the Board was $0.50 per share in the three-month periods ended March 31, 2019 and 2018. CVS Health has paid cash dividends every quarter since becoming a public company. Future dividend payments will depend on the Company’s earnings, capital requirements, financial condition and other factors considered relevant by the Board.


8.	Other Comprehensive Income

Shareholders’ equity included the following activity in accumulated other comprehensive income for the three months ended March 31, 2019 and 2018:



	Three Months Ended March 31,
In millions	2019			2018
Net unrealized investment gains (losses):
Beginning of period balance	$	97		$	—
Other comprehensive income before reclassifications ($410 and $0 pretax)	348			—
Amounts reclassified from accumulated other comprehensive income ($(19) and $0 pretax) ⁽¹⁾	(14		)	—
Other comprehensive income	334			—
End of period balance	431			—

Foreign currency translation adjustments:
Beginning of period balance	(158		)	(129		)
Other comprehensive income	1			1
Other comprehensive income	1			1
End of period balance	(157		)	(128		)

Net cash flow hedges:
Beginning of period balance	312			(15		)
Adoption of new accounting standard ⁽²⁾	—			(3		)
Other comprehensive income before reclassifications ($0 and $464 pretax)	—			344
Amounts reclassified from accumulated other comprehensive income (loss) ($(5) and $(1) pretax) ⁽³⁾	(4		)	(1		)
Other comprehensive income (loss)	(4		)	343
End of period balance	308			325

Pension and OPEB plans:
Beginning of period balance	(149		)	(21		)
Adoption of new accounting standard ⁽²⁾	—			(4		)
Other comprehensive income	—			—
End of period balance	(149		)	(25		)

Total beginning of period accumulated other comprehensive income (loss)	102			(165		)
Adoption of new accounting standard ⁽²⁾	—			(7		)
Total other comprehensive income	331			344
Total end of period accumulated other comprehensive income	$	433		$	172

^{_____________________________________________}


(1)	Amounts reclassified from accumulated other comprehensive income for specifically identified debt securities are included in net investment income within the unaudited condensed consolidated statements of operations.


(2)	Reflects the adoption of ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income during the first quarter of 2018.


(3)	Amounts reclassified from accumulated other comprehensive loss for specifically identified cash flow hedges are included within interest expense in the unaudited condensed consolidated statements of operations. The Company expects to reclassify approximately $18 million, net of tax, in gains associated with its cash flow hedges into net income within the next 12 months.


9.	Earnings Per Share

Earnings per share is computed using the two-class method. ~~Options~~Stock appreciation rights and options to purchase ~~10.9~~15.3 million ~~and 9.9 million~~ s~~hares~~shares of common stock were outstanding, but were ~~not included in~~excluded from the calculation of diluted earnings per share, for the three ~~and nine~~ months ended ~~September 30, 2017, respectively,~~March 31, 2019 because ~~the~~their exercise prices ~~of the options~~ were greater than the average market price of the common shares and, therefore, the effect would be antidilutive. For the same reason, options to purchase ~~approximately 7.7 million and 6.4~~13.2 million shares of common stock were outstanding, but were ~~not included in~~excluded from the calculation of diluted earnings per share, for the three ~~and nine~~ months ended ~~September 30, 2016, respectively.~~

March 31, 2018.

The following is a reconciliation of basic and diluted earnings per share ~~from continuing operations~~ for the respective periods:

Three Months Ended

Nine Months Ended

September 30,

September 30,
In millions, except per share amounts

2017

2016

2017

2016
Numerator for earnings per share calculation:

Income from continuing operations

$
1,285

$
1,542

$
3,344

$
3,613
Income allocated to participating securities

(3)

(7)

(12)

(18)
Net income attributable to noncontrolling interest

—

(1)

(1)

(2)
Income from continuing operations attributable to CVS Health

$
1,282

$
1,534

$
3,331

$
3,593

Denominator for earnings per share calculation:

Weighted average shares, basic

1,016

1,068

1,022

1,076
Effect of dilutive securities

4

5

4

6
Weighted average shares, diluted

1,020

1,073

1,026

1,082

Earnings per share from continuing operations:

Basic

$
1.26

$
1.44

$
3.26

$
3.34
Diluted

$
1.26

$
1.43

$
3.25

$
3.32

~~Note 11 – Segment Reporting~~



	Three Months Ended March 31,
In millions, except per share amounts	2019			2018
Numerator for earnings per share calculation:
Net income	$	1,427		$	998
Income allocated to participating securities	(2		)	(2		)
Net income attributable to noncontrolling interest	(6		)	—
Net income attributable to CVS Health	$	1,419		$	996

Denominator for earnings per share calculation:
Weighted average shares, basic	1,298			1,016
Effect of dilutive securities	4			3
Weighted average shares, diluted	1,302			1,019

Earnings per share:
Basic	$	1.09		$	0.98
Diluted	$	1.09		$	0.98


10.	Reinsurance

The Company ~~has three reportable segments: Pharmacy Services, Retail/LTC~~utilizes reinsurance agreements primarily to reduce required capital and ~~Corporate. The Retail/LTC Segment includes~~to facilitate the ~~operating results~~acquisition or disposition of certain insurance contracts. Ceded reinsurance agreements permit the Company to recover a portion of its losses from reinsurers, although they do not discharge the Company’s primary liability as the direct insurer of the ~~Company’s Retail Pharmacy and LTC/RxCrossroads operating segments as~~risks reinsured.

On November 30, 2018, Aetna completed the operations and economic characteristics are similar. The Company’s three reportable segments maintain separate financial information by which operating results are evaluated on a regular basis by the Company’s chief operating decision maker in deciding how to allocate resources and in assessing performance.

The Company evaluates its Pharmacy Services and Retail/LTC segments’ 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 performancesale of its Corporate Segment based on operating expenses before the effect of nonrecurring charges and gains and certain intersegment activities. The chief operating decision maker does not use total assets by segment to make decisions regarding resources, therefore the total asset disclosure by segment has not been included.

~~The Pharmacy Services Segment provides a full range of pharmacy benefit management (“PBM”) solutions including plan design offerings and administration, formulary management,~~standalone Medicare Part D ~~services, mail order, specialty pharmacy~~prescription drug plans to a subsidiary of WellCare, effective December 31, 2018. In connection with that sale, subsidiaries of WellCare and infusion services, retail pharmacy network management services, prescription management systems, clinical services, disease management services and medical spend management. The Company’s clients are primarily employers,Aetna entered into reinsurance agreements under which WellCare has ceded to Aetna 100% of the insurance ~~companies, unions, government employee groups, health plans,~~risk related to the divested standalone Medicare Part D ~~Managed Medicaid~~prescription drug plans ~~plans offered~~for the 2019 PDP plan year.

In January 2019, the Company entered into two four-year reinsurance agreements with an unrelated reinsurer that allow it to reduce required capital and provide collateralized excess of loss reinsurance coverage on a portion of the public and private exchanges, and other sponsors of health benefit plans and individuals throughout the United States. Through the Company’s SilverScript Insurance Company subsidiary, the Pharmacy Services Segment is a national provider of drug benefits to eligible beneficiaries under the federal government’s Medicare Part D program. The Pharmacy Services Segment operates under the CVS Caremark® ~~Pharmacy Services, Caremark~~®~~, CVS Caremark~~TM~~, CarePlus CVS Pharmacy~~TM~~, Accordant~~®~~, SilverScript~~®~~, Coram~~®~~, CVS Specialty~~TM~~, NovoLogix~~®~~, Navarro~~®Health ~~Services, Advanced~~ Care Scripts and ACS Pharmacy names. As of September 30, 2017, the Pharmacy Services Segment operated 23 retail specialty pharmacy stores, 15 specialty mail order pharmacies, four mail service dispensing pharmacies, and 82 branches for infusion and enteral services, including approximately 73 ambulatory infusion suites and three centers of excellence, located in 41 states, Puerto Rico and the District of Columbia.

The Retail/LTC Segment sells prescription drugs and a wide assortment of general merchandise, including over-the-counter drugs, beauty products and cosmetics, personal care products, convenience foods, photo finishing services, seasonal merchandise and greeting cards. The Retail/LTC Segment also includes providing the distribution of prescription drugs, related pharmacy consulting and other ancillary services to chronic care facilities and other care settings, as well as commercialization services that are provided under the name RxCrossroads®~~. The Retail/LTC~~

Benefits segment’s group Commercial Insured business.

~~Segment also provides health care services through its MinuteClinic~~® health care clinics. MinuteClinics are staffed by nurse practitioners and physician assistants who utilize nationally recognized protocols to diagnose and treat minor health conditions, perform health screenings, monitor chronic conditions and deliver vaccinations. As of September 30, 2017, our Retail/LTC Segment included 9,751 retail locations (of which 8,016 were the Company’s stores that operated a pharmacy and 1,687 were the Company’s pharmacies located within Target stores) located in 49 states, the District of Columbia, Puerto Rico and Brazil operating primarily under the CVS Pharmacy®~~, CVS~~®~~, CVS Pharmacy y más~~®~~, Longs Drugs~~®~~, Navarro Discount Pharmacy~~® ~~and Drogaria Onofre~~TM ~~names, 38 onsite pharmacies primarily operating under the CarePlus CVS Pharmacy~~TM~~, CarePlus~~® ~~and CVS Pharmacy~~® ~~names, 1,129 retail health care clinics operating under the MinuteClinic~~® ~~name (of which 1,122 were located in CVS Pharmacy and Target stores), and our online retail websites, CVS.com~~®~~, Navarro.com~~TM ~~and Onofre.com.br~~TM. LTC operations are comprised of 143 spoke pharmacies that primarily handle new prescription orders, of which 31 are also hub pharmacies that use proprietary automation to support spoke pharmacies with refill prescriptions. LTC operates primarily under the Omnicare® ~~and NeighborCare~~® ~~names.~~

The Corporate Segment provides management and administrative services to support the Company. The Corporate Segment consists of certain aspects of executive management, corporate relations, legal, compliance, human resources, information technology and finance departments.

Pharmacy


Services

Retail/LTC

Corporate

Intersegment

Consolidated
In millions

Segment(1)

Segment

Segment

Eliminations(2)

Totals
Three Months Ended

September 30, 2017:

Net revenues

$
32,896

$
19,593

$
—

$
(6,308)

$
46,181
Gross profit (3)

1,645

5,685

—

(204)

7,126
Operating profit (loss) (4)(5)(6)

1,353

1,553

(220)

(187)

2,499
September 30, 2016:

Net revenues

30,429

20,143

—

(5,957)

44,615
Gross profit (3)

1,797

5,893

—

(198)

7,492
Operating profit (loss) (5)(6)(7)

1,459

1,778

(228)

(185)

2,824
Nine Months Ended

September 30, 2017:

Net revenues

96,444

58,488

—

(18,552)

136,380
Gross profit (3)

4,210

17,036

—

(605)

20,641
Operating profit (loss) (4)(5)(6)

3,272

4,375

(686)

(552)

6,409
September 30, 2016:

Net revenues

88,704

60,253

—

(17,402)

131,555
Gross profit (3)

4,266

17,560

—

(575)

21,251
Operating profit (loss) (5)(6)(7)

3,282

5,273

(660)

(529)

7,366

	~~(1)~~
11.		~~Net revenues of the Pharmacy Services Segment include approximately $2.6 billion~~Commitments and $2.5 billion of retail co‑payments for the three months ended September 30, 2017 and 2016, respectively, as well as $8.4 billion and $8.1 billion of retail co-payments for the nine months ended September 30, 2017 and 2016, respectively. Contingencies

~~(2)~~

Intersegment eliminations relate to intersegment revenue generating activities that occur between the Pharmacy Services Segment and the Retail/LTC Segment. These occur in the following ways: when members of Pharmacy Services Segment clients (“members”) fill prescriptions at the Company’s retail pharmacies to purchase covered products, when members enrolled in programs such as Maintenance Choice® elect to pick up maintenance prescriptions at one of the Company’s retail pharmacies instead of receiving them through the mail, or when members have prescriptions filled at the Company’s long-term care pharmacies. When these occur, both the Pharmacy Services and Retail/LTC segments record the revenues, gross profit and operating profit on a standalone basis.

~~(3)~~

The Retail/LTC Segment gross profit for the three months ended September 30, 2017 and 2016 includes $2 million and $5 million, respectively, of acquisition-related integration costs. The Retail/LTC Segment gross profit for the nine months ended September 30, 2017 and 2016 includes $7 million and $15 million, respectively, of acquisition-related integration costs. The integration costs in 2017 are related to the acquisition of Omnicare and the integration costs in 2016 are related to the acquisitions of Omnicare and the pharmacies and clinics of Target.

~~(4)~~

The Retail/LTC Segment operating profit for the three and nine months ended September 30, 2017 includes $6 million and $211 million, respectively, of charges associated with store closures (see “Note 8 – Store Closures” to the condensed consolidated financial statements). The Retail/LTC Segment operating profit for the nine months ended September 30, 2017 also includes a $135 million goodwill impairment charge related to the segment’s RxCrossroads reporting unit (see “Note 2 – Goodwill and Intangible Assets” to the condensed consolidated financial statements).

~~(5)~~

The Retail/LTC Segment operating profit for the three months ended September 30, 2017 and 2016 includes $9 million and $52 million, respectively, of acquisition-related integration costs. The Retail/LTC Segment operating profit for the nine months ended September 30, 2017 and 2016 includes $34 million and $194 million, respectively, of acquisition-related integration costs. The integration costs in 2017 are related to the acquisition of Omnicare and the integration costs in 2016 are related to the acquisitions of Omnicare and the pharmacies and clinics of Target.

~~(6)~~

The Corporate Segment operating loss for the three and nine months ended September 30, 2017 include a $3 million reduction in integration costs for a change in estimate related to the acquisition of Omnicare. The Corporate Segment operating loss for the three and nine months ended September 30, 2016 includes $13 million of integration costs related to the acquisitions of Omnicare and the pharmacies and clinics of Target.

~~(7)~~

~~Amounts revised to reflect the adoption of ASU 2017-07,~~ ~~Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,~~ which increased consolidated operating profit by $7 and $23 million for the three and nine months ended September 30, 2016, respectively (see “Note 1 – Accounting Policies” to the condensed consolidated financial statements).

~~Table~~The Company is named as a defendant in a number of ~~Contents~~

~~Note 12 – Commitments and Contingencies~~

Lease Guarantees

Between ~~1991~~1995 and 1997, the Company sold or spun off a number of subsidiaries, including Bob’s Stores and Linens ‘n Things, ~~Marshalls, Kay-Bee Toys, Wilsons, This End Up~~each of which subsequently filed for bankruptcy, and ~~Footstar.~~Marshalls. In many cases, when a former subsidiary leased a store, the Company provided a guarantee of the ~~store’s~~former subsidiary’s lease obligations. When the subsidiaries were disposed of and accounted for as discontinued operations, the Company’s guarantees remained in place, although each initial purchaser ~~has~~ agreed to indemnify the Company for any lease obligations the Company was required to satisfy. If any of the purchasers or any of the former subsidiaries ~~were to become insolvent and failed~~fail to make the required payments under a store lease, the Company could be required to satisfy ~~these~~those obligations. As of ~~September 30, 2017,~~March 31, 2019, the Company guaranteed approximately 8680 such store leases (excluding the lease guarantees

related to Linens ‘n Things, which have been recorded as a liability on the unaudited condensed consolidated balance sheet), with the maximum remaining lease term extending through ~~2047.~~

~~In April 2016~~2029.

Guaranty Fund Assessments, Market Stabilization and ~~again~~Other Non-Voluntary Risk Sharing Pools

Under guaranty fund laws existing in ~~February 2017, Bob’s Stores~~all states, insurers doing business in those states can be assessed (in most states up to prescribed limits) for certain obligations of insolvent insurance companies to policyholders and ~~its related~~claimants. The life and ~~successor entities filed for Chapter 11 bankruptcy protection. As described above,~~health insurance guaranty associations in which the Company ~~through~~participates that operate under these laws respond to insolvencies of long-term care insurers as well as health insurers. The Company’s assessments generally are based on a formula relating to the Company’s health care premiums in the state compared to the premiums of other insurers. Certain states allow assessments to be recovered over time as offsets to premium taxes. Some states have similar laws relating to HMOs and/or other payors such as not-for-profit consumer-governed health plans established under the ACA.

In 2009, the Pennsylvania Insurance Commissioner placed long-term care insurer Penn Treaty Network America Insurance Company and one ~~or more~~ of its ~~affiliates,~~subsidiaries (collectively, “Penn Treaty”) in rehabilitation, an intermediate action before insolvency, and subsequently petitioned a state court to convert the rehabilitation into a liquidation. Penn Treaty was placed in liquidation in March 2017. The Company has recorded a liability for its estimated share of future assessments by applicable life and health guaranty associations. It is ~~alleged~~reasonably possible that in the future the Company may record a liability and expense relating to other insolvencies which could have ~~guaranteed~~a material adverse effect on the Company’s operating results, financial condition and cash flows. While historically the Company has ultimately recovered more than half of guaranty fund assessments through statutorily permitted premium tax offsets, significant increases in assessments could lead to legislative and/or regulatory actions that may limit future offsets.

HMOs in certain states in which the Company does business are subject to assessments, including market stabilization and other risk-sharing pools, for which the Company is assessed charges based on incurred claims, demographic membership mix and other factors. The Company establishes liabilities for these assessments based on applicable laws and regulations. In certain states, the ultimate assessments the Company pays are dependent upon the Company’s experience relative to other entities subject to the assessment, and the ultimate liability is not known at the financial statement date. While the ultimate amount of the ~~Bob’s Stores’ leases (the “Bob’s Leases”). Following these bankruptcy filings, in May 2017~~assessment is dependent upon the experience of all pool participants, the Company believes it has adequate reserves to cover such assessments.

Litigation and SDI Stores, LLC (“SDI Stores”), entered into an agreement regarding the Bob’s Leases, which was amended in August 2017 (the “CVS/SDI Stores Agreement”). Pursuant to the CVS/SDI Stores Agreement, SDI Stores has accepted the assignment of the Bob’s Leases and has agreed to be bound by certain restrictions regarding renewals, extensions and modifications to the Bob’s Leases, in exchange for a series of payments that are immaterial to the Company.

~~Legal Matters~~

Regulatory Proceedings

The Company is a party to numerous legal proceedings, investigations, audits and claims arising, for the most part, in the ordinary course of its ~~business,~~businesses, including the matters described below. The Company records accruals for outstanding legal matters when it believes it is probable that a loss will be incurred and the amount can be reasonably estimated. The Company evaluates, on a quarterly basis, developments in legal matters that could affect the amount of any accrual and developments that would make a loss contingency both probable and reasonably estimable. If a loss contingency is not both probable and estimable, the Company does not establish an accrued liability. None of the Company’s accruals for outstanding legal matters are material individually or in the aggregate to the Company’s financial ~~position.~~

condition.

Except as otherwise noted, the Company cannot predict with certainty the timing or outcome of the legal matters described below, and the Company is unable to reasonably estimate a possible loss or range of possible loss in excess of amounts already accrued for these matters.

~~Indiana State District Council of Laborers and HOD Carriers Pension and Welfare Fund v. Omnicare, Inc.,~~ et al. (U.S. District Court for the Eastern District of Kentucky). In February 2006, two substantially similar putative class action lawsuits were filed and subsequently consolidated. The consolidated complaint was filed against Omnicare, three of its officers and two of its directors and purported to be brought on behalf of all open-market purchasers of Omnicare common stock from August 3, 2005 through July 27, 2006, as well as all purchasers who bought shares of Omnicare common stock in Omnicare’s public offering in December 2005. The complaint alleged violations of the Securities Exchange Act of 1934 and Section 11 of the Securities Act of 1933 and sought, among other things, compensatory damages and injunctive relief. After dismissals and appeals to the United States Court of Appeals for the Sixth Circuit, the United States Supreme Court remanded the case to the district court. In October 2016, Omnicare filed an answer to plaintiffs’ third amended complaint, and discovery commenced.

~~FTC and Multi-State Investigation.~~ In March 2010, the Company learned that various State Attorneys General offices and certain other government agencies were conducting a multi-state investigation of certain of the Company’s business practices similar to those being investigated at that time by the U.S. Federal Trade Commission (“FTC”). Twenty-eight states, the District of Columbia and the County of Los Angeles are known to be participating in this investigation. The prior FTC investigation, which commenced in August 2009, was officially concluded in May 2012 when the consent order entered into between the FTC and the Company became final. The Company has cooperated with the multi-state investigation.

It is reasonably possible that the outcome of such legal matters could be material to the Company.

Usual and Customary Litigation

litigations that allege that the Company’s retail stores overcharged for prescription drugs by not providing the correct usual and customary charge.

~~United States~~ ~~ex rel.~~ ~~Jack Chin v. Walgreen Company,~~ et al. (U.S. District Court for the Central District of California). In March 2010, the Company received a subpoena from the U.S. Department of Health and Human Services, Office of the Inspector General (“OIG”) requesting information about programs under which the Company has offered customers remuneration conditioned upon the transfer of prescriptions for drugs or medications to the Company’s pharmacies in the form of gift cards, cash, non-prescription merchandise or discounts or coupons for non-prescription merchandise. In October 2016, the U.S. District Court for the Central District of California unsealed a ~~qui tam~~ complaint, filed in April 2009 against CVS Pharmacy and other retail pharmacies, alleging that the Company violated the federal False Claims Act, and the False Claims Acts of several states, by offering such programs. The complaint was served on the Company in January 2017. The federal government has declined intervention in the case. The Company is defending this lawsuit.

~~United States~~ ~~ex rel.~~ ~~Anthony R. Spay v. CVS Caremark Corporation,~~ ~~et al. (U.S. District Court for the Eastern District of Pennsylvania). In January 2012, the court unsealed a first amended~~ ~~qui tam~~ complaint filed in August 2011 by an individual relator, Anthony Spay, who is described in the complaint as having once been employed by a firm providing pharmacy prescription benefit audit and recovery services. The complaint seeks monetary damages and alleges that CVS Caremark’s processing of Medicare claims on behalf of one of its clients violated the federal False Claims Act. The United States declined to intervene in the lawsuit. In September 2015, the Court granted CVS Caremark’s motion for summary judgment in its entirety, and entered judgment in favor of CVS Caremark and against Spay. In October 2015, Spay filed a notice of appeal in the United States Court of Appeals for the Third Circuit; that court heard oral arguments on the appeal in November 2016.

~~State of Texas~~ ~~ex rel.~~ ~~Myron Winkelman and Stephani Martinson,~~ ~~et al.~~ ~~v. CVS Health Corporation,~~ (Travis County Texas District Court). In February 2012, the Attorney General of the State of Texas issued Civil Investigative Demands and has issued a series of subsequent requests for documents and information in connection with its investigation concerning the CVS Health Savings Pass program and other pricing practices with respect to claims for reimbursement from the Texas Medicaid program. In January 2017, the court unsealed a first amended petition. The amended petition alleges the Company violated the Texas Medicaid Fraud Prevention Act by submitting false claims for reimbursement to Texas Medicaid by, among other things, failing to use the price available to members of the CVS Health Savings Pass program as the usual and customary price. The amended petition was unsealed following the Company’s filing of ~~CVS Pharmacy, Inc. v. Charles Smith,~~ et al. (Travis County District Court), a declaratory judgment action against the State of Texas in December 2016 seeking a declaration that the prices charged to members of the CVS Health Savings Pass program do not constitute usual and customary prices under the Medicaid regulation. The State of Texas is also pursuing temporary injunctive relief.

~~Subpoena Concerning PBM Administrative Fees.~~ ~~In March 2014, the Company received a subpoena from the United States Attorney’s Office for the~~District of Rhode Island, requesting documents and information concerning bona fide service fees and rebates received from pharmaceutical manufacturers in connection with certain drugs utilized under Medicare Part D, as well as the reporting of those fees and rebates to Part D plan sponsors. The Company has been cooperating with the government and providing documents and information in response to the subpoena.

~~Corcoran~~ ~~et al.~~ ~~v. CVS Health Corporation~~ ~~(U.S. District Court for the Northern District of California) and~~ ~~Podgorny~~ ~~et al.~~ ~~v. CVS Health Corporation~~ (U.S. District Court for the Northern District of Illinois). These putative class actions were filed against the Company in July and September 2015. The cases were consolidated in United States District Court in the Northern District of California. Plaintiffs seek damages and injunctive relief on behalf of a class of consumers who purchased certain prescription drugs under the consumer protection statutes and common laws of certain states. Several third-party payors filed similar putative class actions on behalf of payors captioned ~~Sheet Metal Workers Local No. 20 Welfare and Benefit Fund v. CVS Health Corp.~~ ~~and~~ ~~Plumbers Welfare Fund, Local 130 v. CVS Health Corporation~~ (both pending in the U.S. District Court for the District of Rhode Island) in February and August 2016. In all of these cases the plaintiffs allege the Company overcharged for certain prescription drugs by not submitting the price available to members of the CVS Health Savings Pass program as the pharmacy’s usual and customary price. In the consumer case (Corcoran), the Court granted summary judgment to CVS on plaintiffs’ claims in their entirety and certified certain subclasses in September 2017. The plaintiffs have filed a notice of appeal to the Ninth Circuit. The Company continues to defend these actions.

State of Texas ex rel. Myron Winkelman and Stephani Martinson, et al. v. CVS Health Corporation (Travis County Texas District Court). In February 2012, the Attorney General of the State of Texas issued Civil Investigative Demands (“CIDs”) to the Company and subsequently has issued a series of requests for documents and information in connection with its investigation concerning the CVS Health Savings Pass program and other pricing practices with respect to claims for reimbursement from the Texas Medicaid program. In January 2017, the Travis County Court unsealed a first amended qui tam petition filed in April 2014. The government has intervened in this case. The amended petition alleges the Company violated the Texas Medicaid Fraud Prevention Act by submitting false claims for reimbursement to the Texas Medicaid program by, among other things, failing to use the price available to members of the CVS Health Savings Pass program as the pharmacies’

~~Table~~usual and customary price. The amended petition was unsealed following the Company’s December 2016 filing of ~~Contents~~

CVS Pharmacy, Inc. v. Charles Smith, et al. (Travis County Texas District Court), a declaratory judgment action against the State of Texas seeking a declaration that the prices charged to members of the CVS Health Savings Pass program do not constitute usual and customary prices under the applicable Medicaid regulation. In March 2018, the Travis County Court denied the State of Texas’s request for temporary injunctive relief. The Company is defending itself against these claims.

~~Omnicare DEA Subpoena.~~ In September 2015, Omnicare was served with an administrative subpoena by the U.S. Drug Enforcement Administration (“DEA”). The subpoena seeks documents related to controlled substance policies, procedures, and practices at eight pharmacy locations from May 2012 to the present. In September 2017, the DEA expanded the investigation to include an additional pharmacy. The Company has been cooperating and providing documents in response to this administrative subpoena.

~~Omnicare Cycle Fill Civil Investigative Demand.~~ In October 2015, Omnicare received a Civil Investigative Demand from the United States Attorney’s Office for the Southern District of New York requesting information and documents concerning Omnicare’s cycle fill process for assisted living facilities. The Company has been cooperating with the government and providing documents and information in response to the Civil Investigative Demand. In July 2017, Omnicare also received a subpoena from the California Department of Insurance requesting documents on similar subject matter.

~~PBM Pricing Civil Investigative Demand.~~ In October 2015, the Company received from the DOJ a Civil Investigative Demand requesting documents and information in connection with a federal False Claims Act investigation concerning allegations that the Company submitted, or caused to be submitted, to the Medicare Part D program prescription drug event data that misrepresented true prices paid by the Company’s PBM to pharmacies for drugs dispensed to Part D beneficiaries with prescription benefits administered by the Company’s PBM. The Company has been cooperating with the government and providing documents and information in response to the Civil Investigative Demand.

~~United States~~ ~~ex rel.~~ ~~Sally Schimelpfenig and John Segura v. Dr. Reddy's Laboratories Limited and Dr. Reddy's Laboratories, Inc.~~ ~~(U.S. District Court for the Eastern District of Pennsylvania). In November 2015, the court unsealed a second amended~~ ~~qui tam~~ complaint filed in September 2015. The DOJ declined to intervene in this action. The relators allege that the Company, Walgreens, Wal-Mart, and Dr. Reddy’s Laboratories violated the federal and various state False Claims Acts by dispensing prescriptions in unit dose packaging supplied by Dr. Reddy’s that was not compliant with the Consumer Product Safety Improvement Act and the Poison Preventive Packaging Act and thereby allegedly rendering the drugs misbranded under the Food, Drug and Cosmetic Act. In March 2017, the Court granted the Company's motion to dismiss with leave to file an amended complaint. In June 2017, the Company moved to dismiss relators’ third amended complaint.

~~Barchock~~ ~~et al.~~ ~~v. CVS Health Corporation,~~ et al. (U.S. District Court for the District of Rhode Island). In February 2016, a class action lawsuit was filed against the Company, the Benefit Plans Committee of the Company, and Galliard Capital Management, Inc., by Mary Barchock, Thomas Wasecko, and Stacy Weller, purportedly on behalf of the 401(k) Plan and the Employee Stock Ownership Plan of the Company (the “Plan”), and participants in the Plan. The complaint alleged that the defendants breached fiduciary duties owed to the plaintiffs and the Plan by investing too much of the Plan’s Stable Value Fund in short-term money market funds and cash management accounts. The court recently granted the Company’s motion to dismiss the plaintiffs’ amended complaint. In May 2017, plaintiffs appealed that ruling in the United States Court of Appeals for the First Circuit.

~~State of California~~ ~~ex rel.~~ ~~Matthew Omlansky v. CVS Caremark Corporation~~ ~~(Superior Court of the State of California, County of Sacramento). In April 2016, the court unsealed a first amended~~ ~~qui tam~~ complaint filed in July 2013. The government has declined intervention in this case. The relator alleges that the Company submitted false claims for payment to California Medicaid in connection with reimbursement for drugs available through the CVS Health Savings Pass program as well as certain other generic drugs. The case has been stayed pending the relator’s appeal of the judgment against him in a similar case against another retailer.

~~Retail DEA Matters.~~ The Company has been also undergoing several audits by the DEA Administrator and is in discussions with the DEA and the U.S. Attorney’s Offices in several locations concerning allegations that the Company has violated certain requirements of the CSA.

~~West Virginia Opioid Litigation~~. In March 2017, the Company was named as a defendant in four separate lawsuits filed in the U.S. District Court of the Southern District of West Virginia on behalf of counties in the state of West Virginia (Cabell, Fayette, Kanawha and Wayne counties), each of which alleges that CVS Indiana L.L.C., as well as various other distributors of controlled substances, caused a public nuisance related to opioid

Corcoran et al. v. CVS Health Corporation (U.S. District Court for the Northern District of California) and Podgorny et al. v. CVS Health Corporation (U.S. District Court for the Northern District of Illinois). These putative class actions were filed against the Company in July and September 2015. The cases were consolidated in the U.S. District Court for the Northern District of California. Plaintiffs seek damages and injunctive relief under the consumer protection statutes and common laws of certain states on behalf of a class of consumers who purchased certain prescription drugs. Several third-party payors filed similar putative class actions on behalf of payors captioned Sheet Metal Workers Local No. 20

Welfare and Benefit Fund v. CVS Health Corp. and Plumbers Welfare Fund, Local 130 v. CVS Health Corporation (both pending in the U.S. District Court for the District of Rhode Island) in February and August 2016. In all of these cases the plaintiffs allege the Company overcharged for certain prescription drugs by not submitting the price available to members of the CVS Health Savings Pass program as the pharmacy’s usual and customary price. In the Corcoran case, the U.S. District Court granted summary judgment to CVS on plaintiffs’ claims in their entirety and certified certain subclasses in September 2017. The Corcoran plaintiffs have appealed the District Court’s decision to the Ninth Circuit. The Sheet Metal Workers plaintiffs have amended their complaint to assert a claim under the federal Racketeer Influenced and Corrupt Organizations Act (“RICO”) premised on an alleged conspiracy between the Company and other PBMs. The Company is defending itself against these claims.

~~Table~~State of ~~Contents~~

California ex rel. Matthew Omlansky v. CVS Caremark Corporation (Superior Court of the State of California, County of Sacramento). In April 2016, the California Superior Court unsealed a first amended qui tam complaint filed in July 2013. The government has declined to intervene in this case. The relator alleges that the Company submitted false claims for payment to the California Medicaid program in connection with reimbursement for drugs available through the CVS Health Savings Pass program as well as certain other generic drugs. The case has been stayed pending the relator’s appeal of the judgment against him in a similar case against another retailer. The Company is defending itself against these claims.

abuse by failing to detect and/or report purported suspicious orders of opioids distributed for dispensing in the plaintiff counties. Omnicare Distribution Center, LLC also is named as a defendant in the complaint filed by Kanawha County. The Company is defending these lawsuits.

~~Cherokee Nation Opioid Litigation~~. In April 2017, the Company was named as a defendant in an action filed on behalf of the Cherokee Nation in the District Court of Cherokee Nation (the “Cherokee Action”). The lawsuit asserts several causes of action arising from allegations that large retail pharmacies and wholesale distributors caused widespread opioid abuse among members of the Cherokee Nation by purportedly failing to comply with the Controlled Substances Act and/or otherwise failing to prevent the diversion of opioids. In June 2017, the Company filed a motion to dismiss the Cherokee Action. The Cherokee Nation has since filed an amended petition in the Cherokee Action. Also in June 2017, the six defendants in the Cherokee Action collectively filed a complaint in the U.S. District Court for the Northern District of Oklahoma, ~~McKesson, et al.~~ ~~v. Hembree, et al., seeking a declaration and preliminary injunction prohibiting the District Court of Cherokee Nation from exercising jurisdiction over the Cherokee Action.~~

~~State of Mississippi v. CVS Health Corporation,~~ et al. (Chancery Court of DeSoto County, Mississippi, Third Judicial District). In July 2016, the Company was served with a complaint filed on behalf of the State of Mississippi alleging that CVS retail pharmacies in Mississippi submitted false claims for reimbursement to Mississippi Medicaid by not submitting the price available to members of the CVS Health Savings Pass program as the pharmacy’s usual and customary price. The Company has responded to the complaint, filed a counterclaim, and moved to transfer the case to circuit court. The motion to transfer was granted, which the State has appealed, and the motion to dismiss remains pending.

~~Mayberry v. Walgreens Co.,~~ ~~et al~~. (U.S. District Court for the Northern District of Illinois). In March 2017, a complaint was filed against the Company (and several other retail pharmacy defendants) alleging that the defendant pharmacies improperly submitted certain insulin claims through Medicare Part D rather than Part B. The Company’s motion to dismiss the complaint was granted. The Company separately received in December 2016 a Civil Investigative Demand from the U.S. Attorney’s Office for the Northern District of New York, requesting documents and information in connection with a False Claims Act investigation concerning whether the Company’s retail pharmacies improperly submitted certain insulin claims to Medicare Part D rather than Part B. The Company has been cooperating with the government and providing documents and information in response to the Civil Investigative Demand.

~~Cold Chain Logistics Civil Investigative Demand~~. In September 2016, the Company received from the DOJ a Civil Investigative Demand in connection with an investigation as to whether the Company’s handling of certain temperature-sensitive pharmaceuticals violates the federal Food, Drug and Cosmetic Act and the False Claims Act. The Company has been cooperating with the government and providing documents and information in response to the Civil Investigative Demand.

~~Amburgey,~~ ~~et al.~~ ~~v. CaremarkPCS Health, L.L.C.~~ (U.S. District Court for the Central District of California). In March 2017, the Company was served with a complaint challenging the policies and procedures used by CVS Specialty pharmacies to ship temperature-sensitive medications. The case is similar to a matter already pending against the Company in the Superior Court of California (Los Angeles County), ~~Bertram v. Immunex Corp., et al., which was filed in October 2014. The Company is defending these lawsuits.~~

~~Barnett,~~ ~~et al. v.~~ ~~Novo Nordisk Inc., et al. and~~ ~~Boss, et al. v.~~ ~~CVS Health Corporation~~, et al. (both pending in the U.S. District Court for the District of New Jersey). These putative class actions were filed against the Company and other PBMs and manufacturers of insulin in March 2017. Plaintiffs in both cases allege that the PBMs and manufacturers have engaged in a conspiracy whereby the PBMs sell access to their formularies by demanding the highest rebates, which in turn causes increased list prices for insulin. The primary claims are antitrust claims, claims under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), violations of state unfair competition and consumer protection laws and in ~~Boss, claims pursuant to the Employee Retirement Income Security Act (“ERISA”). The~~ ~~Barnett~~ plaintiffs seek to represent a nationwide class of all persons who paid any portion of the purchase prices for a prescription for certain insulin products at a price calculated by reference to a benchmark. The ~~Boss~~ plaintiffs purport to represent multiple nationwide classes including a non-ERISA Employee/Exchange Plan class, an ERISA class, a Medicare class and an uninsured class. The Company continues to defend these lawsuits.

State of Mississippi v. CVS Health Corporation, et al. (Chancery Court of DeSoto County, Mississippi, Third Judicial District). In July 2016, the Company was served with a complaint filed on behalf of the State of Mississippi alleging that CVS retail pharmacies in Mississippi submitted false claims for reimbursement to the Mississippi Medicaid program by not submitting the price available to members of the CVS Health Savings Pass program as the pharmacy’s usual and customary price. The Company has responded to the complaint, moved for judgment on the pleadings, filed a counterclaim and moved the case to Mississippi Circuit Court. The Company’s motion for judgment on the pleadings remains pending. The Company is defending itself against these claims.

PBM Litigation and Investigations

~~Table~~

The Company is named as a defendant in a number of ~~Contents~~

lawsuits and is subject to a number of investigations concerning its PBM practices.

~~Insulin Products Investigation.~~ Bewley, et al. v. CVS Health Corporation, et al. and Prescott, et al. v. CVS Health Corporation, et al. (both pending in the U.S. District Court for the Western District of Washington). These putative class actions were filed against the Company and other PBMs and manufacturers of glucagon kits (Bewley) and diabetes test strips (Prescott) in May 2017.Both cases allege that, by contracting for rebates with the manufacturers of these diabetes products, the Company and other PBMs caused list prices for these products to increase, thereby harming certain consumers. The plaintiffs’ primary claims are made under federal antitrust laws, RICO, state unfair competition and consumer protection laws and the federal Employee Retirement Income Security Act of 1974 (“ERISA”). Both of these cases have been transferred to the U.S. District Court for the District of New Jersey on defendants’ motions. In April 2019, the named plaintiffs in both the Bewley and Prescott cases voluntarily dismissed all of their claims without prejudice, ending both cases.In April 2017, the Company separately received a Civil Investigative Demand from the Attorney General of Washington, seeking documents and information regarding pricing and rebates for insulin products in connection with a pending investigation into unfair and deceptive acts or practice regarding insulin pricing. We have been notified by the Office of the Attorney General of Washington that information provided in response to the Civil Investigative Demand will be shared with the Attorneys General of California, Florida, Minnesota and New Mexico. In July 2017, the Company received a Civil Investigative Demand from the Attorney General of Minnesota, seeking documents and information regarding pricing and rebates for insulin and epinephrine products in connection with a pending investigation into unfair and deceptive acts or practices regarding insulin and epinephrine pricing.

~~Bewley,~~ ~~et al. v.~~ ~~CVS Health Corporation, et al. and~~ ~~Prescott, et al. v.~~ ~~CVS Health Corporation~~, et al. (both pending in the U.S. District Court for the Western District of Washington). These putative class actions were filed in May 2017 against the Company and other pharmacy benefit managers and manufacturers of glucagon kits (Bewley) and diabetes test strips (Prescott).Both cases allege that, by contracting for rebates with the manufacturers of these diabetes products, the Company and other PBMs caused list prices for these products to increase, thereby harming certain consumers. The primary claims are made under federal antitrust laws, RICO, state unfair competition and consumer protection laws, and ERISA. The Company is defending these lawsuits.

Klein, et al. v. Prime Therapeutics, et al. (U.S. District Court for the District of Minnesota). This putative class action was filed against the Company and other PBMs in June 2017 on behalf of ERISA plan members who purchased and paid for EpiPen or EpiPen Jr. Plaintiffs allege that the PBMs are ERISA fiduciaries to plan members and have violated ERISA by allegedly causing higher inflated prices for EpiPens through the process of negotiating increased rebates from EpiPen manufacturer Mylan. This case has been consolidated with a similar matter and is now proceeding as In re EpiPen ERISA Litigation. The Company is defending itself against these claims.~~, et al. v.~~ ~~Prime Therapeutics, et al.~~ (U.S. District Court for the District of Minnesota). In June 2017, a putative class action complaint was filed against the Company and other pharmacy benefit managers on behalf of ERISA plan members who purchased and paid for EpiPen or EpiPen Jr. Plaintiffs allege that the pharmacy benefit managers are ERISA fiduciaries to plan members and have violated ERISA by allegedly causing higher inflated prices for EpiPen through the process of negotiating increased rebates from EpiPen manufacturer, Mylan. The Company is defending this lawsuit.

~~Medicare Part D Civil Investigative Demand~~. In May 2017, the United States Attorney’s Office for the Southern District of New York issued a Civil Investigative Demand to the Company concerning possible false claims submitted to Medicare in connection with reimbursements for prescription drugs under the Medicare Part D program. The Company has been cooperating with the government and providing documents and information in response to the Civil Investigative Demand.

~~Shareholder Matters.~~ ~~In August and September 2017, four complaints were filed by putative derivative plaintiffs against certain officers and directors of the Company. Three of those actions,~~ ~~Sherman v. Merlo,~~ ~~et al.,~~ ~~Feghali v. Merlo,~~ ~~et al., and~~ ~~Banchalter v. Merlo,~~ ~~et al., were filed in the U.S. District Court for the District of Rhode Island. A fourth,~~ ~~Boron v. Bracken,~~ et al., was filed in Rhode Island Superior Court. These matters assert a variety of causes of action, including breach of fiduciary duty, waste of corporate assets, unjust enrichment, civil conspiracy and violation of Section 14(a) of the Exchange Act, and are premised on the allegation that the defendants approved business plans that exposed the Company to various litigations and investigations. The parties in the three federal matters have filed a joint motion to stay the cases pending resolution of certain of the underlying matters.

The Company has received subpoenas, CIDs, and other requests for documents and information from, and is being investigated by, Attorneys General of several states regarding its PBM practices, including pricing and rebates. In addition, the Company received an inquiry from the U.S. Senate Committee on Finance regarding insulin pricing. The Company has been providing documents and information in response to these subpoenas, CIDs and requests for information.

~~MSP Recovery Claims Series, LLC, et al. v.~~ ~~CVS Health Corporation~~, et al. (U.S. District Court for the Western District of Texas). In September 2017, a putative class action complaint was filed against the company, Express Scripts, Inc., and the manufacturers of insulin on behalf of assignees of claims of Medicare Advantage Organizations. Plaintiffs assert that the PBMs and manufacturers have engaged in a conspiracy whereby the PBMs sell access to their formularies by demanding the highest rebates, which in turn causes increased list prices for insulin. The plaintiffs assert claims on behalf of two putative classes: (1) all Medicare C payors and (2) all Medicare D payors. The complaint asserts claims under RICO, and for common law fraud and unjust enrichment.

Controlled Substances Litigation, Audits and Subpoenas

In December 2017, the U.S. Judicial Panel on Multidistrict Litigation consolidated numerous cases filed against various defendants by plaintiffs such as counties, cities, hospitals, Indian tribes and third-party payors, alleging claims generally concerning the impacts of widespread opioid abuse. The consolidated multidistrict litigation captioned In re National Prescription Opiate Litigation (MDL No. 2804) is pending in the U.S. District Court for the Northern District of Ohio. This multidistrict litigation presumptively includes hundreds of relevant federal court cases that name the Company as a defendant. A significant number of similar cases that name the Company as a defendant in some capacity are pending in state courts. The Company is defending itself against all such claims. Additionally, the Company has received subpoenas, CIDs and/or other requests for information regarding opioids from the Attorneys General of several states. The Company has been cooperating with the government with respect to these subpoenas, CIDs and other requests for information.

The Company routinely is audited by the United States Drug Enforcement Administration (“DEA”). In some instances, the Company is in discussions with the DEA and U.S. Attorney’s Offices concerning allegations that the Company violated certain requirements of the Controlled Substance Act.

In September 2015, the DEA served the Company with an administrative subpoena. The subpoena seeks documents related to controlled substance policies, procedures and practices at eight Omnicare pharmacy locations from May 2012 to the present. In September 2017, the DEA expanded the investigation to include an additional Omnicare pharmacy location. The Company has been cooperating with the government and providing documents and witnesses in response to this subpoena.

Prescription Processing Investigations

In October 2015, the Company received a CID from the U.S. Attorney’s Office for the Southern District of New York requesting documents and information concerning the Company’s Omnicare pharmacies’ cycle fill process for assisted living facilities. The Company has been cooperating with the government and providing documents and information in response to this CID. In July 2017, the Company also received a subpoena from the California Department of Insurance requesting documents concerning similar subject matter. The Company has been cooperating with the California Department of Insurance and providing documents and information in response to this subpoena.

In December 2016, the Company received a CID from the U.S. Attorney’s Office for the Northern District of New York requesting documents and information in connection with a federal False Claims Act investigation concerning whether the Company’s retail pharmacies improperly submitted certain insulin claims to Part D of the Medicare program rather than Part B of the Medicare program. The Company has been cooperating with the government and providing documents and information in response to this CID.

In May 2017, the Company received a CID from the U.S. Attorney’s Office for the Southern District of New York requesting documents and information concerning possible false claims submitted to Medicare in connection with reimbursements for prescription drugs under the Medicare Part D program. The Company has been cooperating with the government and providing documents and information in response to this CID.

Provider Proceedings

The Company is named as a defendant in purported class actions and individual lawsuits arising out of its practices related to the payment of claims for services rendered to its members by health care providers with whom the Company has a contract and with whom the Company does not have a contract (“out-of-network providers”). Among other things, these lawsuits allege that the Company paid too little to its health plan members and/or providers for these services and/or otherwise allege that the Company failed to timely or appropriately pay or administer claims and benefits (including the Company’s post payment audit and collection practices and reductions in payments to providers due to sequestration). Other major health insurers are the subject of similar litigation or have settled similar litigation.

On October 28, 2016, Aetna was named as a respondent in an arbitration proceeding that had commenced as a lawsuit in Florida state court on August 25, 2015. The arbitration proceeding was brought by hospitals owned by HCA Holdings, Inc. with

respect to Aetna’s out-of-network benefit payment and administration practices in Florida relating to services and care rendered to members in Aetna’s individual Public Exchange products from 2014 through 2016. Coverage under Aetna’s individual Public Exchange products in Florida was not available after December 31, 2016. On October 15, 2018, the trial arbitrator awarded the claimant hospitals approximately $150 million. Aetna appealed the trial arbitrator’s decision. On March 28, 2019, the appellate arbitrator reduced the award to approximately $86 million. The proceeding has ended. During the three months ended March 31, 2019, the Company recorded the reduction in the required reserve amount for this proceeding as a measurement period adjustment to its Aetna Acquisition accounting and recorded a reduction to goodwill.

The Company also has received subpoenas and/or requests for documents and other information from, and been investigated by, Attorneys General and other state and/or federal regulators, legislators and agencies relating to, and the Company is involved in other litigation regarding, its out-of-network benefit payment and administration practices. It is reasonably possible that others could initiate additional litigation or additional regulatory action against the Company with respect to its out-of-network benefit payment and/or administration practices.

CMS Actions

The United States Centers for Medicare & Medicaid Services (“CMS”) regularly audits the Company’s performance to determine its compliance with CMS’s regulations and its contracts with CMS and to assess the quality of services it provides to Medicare beneficiaries. CMS uses various payment mechanisms to allocate and adjust premium payments to the Company’s and other companies’ Medicare plans by considering the applicable health status of Medicare members as supported by information prepared, maintained and provided by health care providers. The Company collects claim and encounter data from providers and generally relies on providers to appropriately code their submissions to the Company and document their medical records, including the diagnosis data submitted to the Company with claims. CMS pays increased premiums to Medicare Advantage plans and Medicare PDP plans for members who have certain medical conditions identified with specific diagnosis codes. Federal regulators review and audit the providers’ medical records to determine whether those records support the related diagnosis codes that determine the members’ health status and the resulting risk-adjusted premium payments to the Company. In that regard, CMS has instituted risk adjustment data validation (“RADV”) audits of various Medicare Advantage plans, including certain of the Company’s plans, to validate coding practices and supporting medical record documentation maintained by health care providers and the resulting risk adjusted premium payments to the plans. CMS may require the Company to refund premium payments if the Company’s risk adjusted premiums are not properly supported by medical record data. The Office of Inspector General (the “OIG”) also is auditing the Company’s risk adjustment-related data and that of other companies. The Company expects CMS and the OIG to continue these types of audits.

In 2012, CMS revised its audit methodology for RADV audits to determine refunds payable by Medicare Advantage plans for contract year 2011 and forward. Under the revised methodology, among other things, CMS will project the error rate identified in the audit sample of approximately 200 members to all risk adjusted premium payments made under the contract being audited. For contract years prior to 2011, CMS did not project sample error rates to the entire contract. As a result, the revised methodology may increase the Company’s exposure to premium refunds to CMS based on incomplete medical records maintained by providers. Since 2013, CMS has selected certain of the Company’s Medicare Advantage contracts for various contract years for RADV audit. The Company is currently unable to predict which of its Medicare Advantage contracts will be selected for future audit, the amounts of any retroactive refunds of, or prospective adjustments to, Medicare Advantage premium payments made to the Company, the effect of any such refunds or adjustments on the actuarial soundness of the Company’s Medicare Advantage bids, or whether any RADV audit findings would require the Company to change its method of estimating future premium revenue in future bid submissions to CMS or compromise premium assumptions made in the Company’s bids for prior contract years, the current contract year or future contract years. Any premium or fee refunds or adjustments resulting from regulatory audits, whether as a result of RADV, Public Exchange related or other audits by CMS, the OIG, the United States Department of Health and Human Services or otherwise, including audits of the Company’s minimum MLR rebates, methodology and/or reports, could be material and could adversely affect the Company’s operating results, financial condition and/or cash flows.

Medicare CIDs

The Company has received CIDs from the Civil Division of the DOJ in connection with a current investigation of the Company’s patient chart review processes in connection with risk adjustment data submissions under Parts C and D of the Medicare program. The Company has been cooperating with the government and providing documents and information in response to these CIDs.

Tunney Act Proceeding

On October 10, 2018, the Company and Aetna entered into a consent decree with the DOJ that allowed CVS Health’s proposed acquisition of Aetna to proceed, provided Aetna agreed to sell its individual standalone Medicare Part D prescription drug plans. As permitted by the asset preservation stipulation and order dated October 25, 2018, CVS Health completed its acquisition of Aetna on November 28, 2018, and Aetna completed the sale of such plans on November 30, 2018. The consent decree remains subject to the court approval process under the Antitrust Procedures and Penalties Act, which could result in a revision in or delay in receiving approval of the consent decree. The approval process is for the limited purpose of determining whether the consent decree is in the public interest. The Company believes that the consent decree will not have a material impact on the Company’s operating results, cash flows or financial condition.

Shareholder Matters

In February and March 2019, two putative class action complaints were filed by putative plaintiffs against the Company and certain of its current and former officers. Anarkat v. CVS Health Corp., et al., was filed in the U.S. District Court for the Southern District of New York, and Labourers’ Pension Fund of Central and Eastern Canada v. CVS Health Corp., et al., was filed in the Supreme Court of the State of New York, County of New York. The plaintiffs in these cases assert a variety of causes of action under federal securities laws that are premised on allegations that the defendants made certain omissions and misrepresentations relating to the performance of the Company’s LTC business unit, which allegedly injured investors who acquired CVS Health securities between May 21, 2015 and February 20, 2019. The Company is defending itself against these claims.

Other Legal and Regulatory Proceedings.

The Company is also a party to other legal proceedings and is subject to government investigations, inquiries and audits and has received and is cooperating with the government in response to CIDs, subpoenas or similar process from various governmental agencies requesting information, all arising in the ~~normal~~ordinary course of its ~~business, none~~businesses. These other legal proceedings include claims of ~~which is expected~~or relating to bad faith, medical malpractice, non-compliance with state and federal regulatory regimes, marketing misconduct, failure to timely or appropriately pay or administer claims and benefits, provider network structure (including the use of performance-based networks and termination of provider contracts), rescission of insurance coverage, improper disclosure or use of personal information, anticompetitive practices, general contractual matters, product liability, intellectual property litigation and employment litigation. Some of these other legal proceedings are or are purported to be ~~material~~class actions or derivative claims. The Company is defending itself against the claims brought in these matters.

Awards to the ~~Company.~~ Company and others of certain government contracts, particularly Medicaid contracts and other contracts with government customers in the Company’s Health Care Benefits segment, are subject to increasingly frequent protests by unsuccessful bidders. These protests may result in awards to the Company being reversed, delayed or modified. The loss or delay in implementation of any government contract could adversely affect the Company’s operating results. The Company will continue to defend contract awards it receives.

There also continues to be a heightened level of review and/or audit by regulatory authorities and legislators of, and increased litigation regarding, the Company’s and the rest of the health care and related benefits industry’s business and reporting practices, including premium rate increases, utilization management, development and application of medical policies, complaint, grievance and appeal processing, information privacy, provider network structure (including provider network adequacy, the use of performance-based networks and termination of provider contracts), provider directory accuracy, calculation of minimum medical loss ratios and/or payment of related rebates, delegated arrangements, rescission of insurance coverage, limited benefit health products, student health products, pharmacy benefit management practices (including manufacturers’ rebates, pricing, the use of narrow networks and the placement of drugs in formulary tiers), sales practices, customer service practices, vendor oversight and claim payment practices (including payments to out-of-network providers).

As a leading national health care company, the Company regularly is the subject of government actions of the types described above. These government actions may prevent or delay the Company from implementing planned premium rate increases and may result, and have resulted, in restrictions on the Company’s businesses, changes to or clarifications of the Company’s business practices, retroactive adjustments to premiums, refunds or other payments to members, beneficiaries, states or the federal government, withholding of premium payments to the Company by government agencies, assessments of damages, civil or criminal fines or penalties, or other sanctions, including the possible suspension or loss of licensure and/or suspension or exclusion from participation in government programs.

The Company can give no assurance, however, that its ~~business,~~businesses, financial condition, ~~and~~operating results ~~of operations~~and/or cash flows will not be materially adversely affected, or that the Company will not be required to materially change its business practices, based on: (i) future enactment of new health care or other laws or regulations; (ii) the interpretation or application of existing

^{_____________________________________________}

laws or regulations as they may relate to one or more of the Company’s ~~business,~~businesses, one or more of the ~~pharmacy services, specialty pharmacy, retail pharmacy, long-term care pharmacy or retail clinic~~ industries in which the Company competes and/or to the health care industry generally; (iii) pending or future federal or state governmental investigations of one or more of the Company’s ~~business~~businesses, one or more of the ~~pharmacy services, specialty pharmacy, retail pharmacy, long-term care pharmacy~~ industries in which the Company competes and/or ~~retail clinic industry or of~~ the health care industry generally; (iv) pending or future government audits, investigations or enforcement actions against the Company; (v) adverse developments in any pending qui tam lawsuit against the Company, whether sealed or unsealed, or in any future qui tam lawsuit that may be filed against the Company; or (vi) adverse developments in pending or future legal proceedings against the Company or affecting one or more of the ~~pharmacy services, specialty pharmacy, retail pharmacy, long-term care pharmacy or retail clinic industry~~ industries in which the Company competes and/or the health care industry generally.


12.	Segment Reporting

The Company has three operating segments, Pharmacy Services, Retail/LTC and Health Care Benefits, as well as a Corporate/Other segment. The Company’s segments maintain separate financial information, and the CODM evaluates the segments’ operating results on a regular basis in deciding how to allocate resources among the segments and in assessing segment performance. The CODM evaluates the performance of the Company’s segments based on adjusted operating income. Effective for the first quarter of 2019, adjusted operating income is defined as operating income (GAAP measure) excluding the impact of amortization of intangible assets and other items, if any, that neither relate to the ordinary course of the Company's business nor reflect the Company's underlying business performance. Segment financial information for the three months ended March 31, 2018 has been retrospectively adjusted to conform with the current period presentation. See the reconciliation of consolidated operating income (GAAP measure) to adjusted operating income below for further context regarding the items excluded from operating income in determining adjusted operating income. The Company uses adjusted operating income as its principal measure of segment performance as it enhances the Company’s ability to compare past financial performance with current performance and analyze underlying business performance and trends. Non-GAAP financial measures the Company discloses, such as consolidated adjusted operating income, should not be considered a substitute for, or superior to, financial measures determined or calculated in accordance with GAAP.

Effective for the first quarter of 2019, the Company realigned the composition of its segments to correspond with changes to its operating model and reflect how the CODM reviews information and manages the business. See Note 1 ‘‘Significant Accounting Policies’’ for further discussion. Segment financial information for the three months ended March 31, 2018, has been retrospectively adjusted to reflect these changes as shown below:




	Three Months Ended March 31, 2018
	Pharmacy			Retail/		Health Care			Corporate/			Intersegment			Consolidated
In millions	Services			LTC		Benefits			Other			Eliminations			Totals
Revenues, as previously reported	$	32,220		$	20,432	$	—		$	48		$	(6,957	)	$	45,743
Adjustments	326			—		1,318			—			(1,644		)	—
Revenues, as adjusted	$	32,546		$	20,432	$	1,318		$	48		$	(8,601	)	$	45,743

Cost of products sold ⁽¹⁾	$	29,751		$	14,516	$	—		$	—		$	(6,762	)	$	37,505
Adjustments	1,556			—		—			—			(1,556		)	—
Cost of products sold	$	31,307		$	14,516	$	—		$	—		(8,318		)	$	37,505

Benefit costs ⁽¹⁾	$	1,329		$	—	$	—		$	—		$	—		$	1,329
Adjustments	(1,329		)	—		1,329			—			—			—
Benefit costs	$	��		$	—	$	1,329		$	—		$	—		$	1,329

Operating expenses, as previously reported	$	377		$	4,292	$	—		$	264		$	(20	)	$	4,913
Adjustments	(39		)	—		127			—			(88		)	—
Operating expenses, as adjusted	$	338		$	4,292	$	127		$	264		$	(108	)	$	4,913

Operating income (loss), as previously reported	$	763		$	1,624	$	—		$	(216	)	$	(175	)	$	1,996
Adjustments	138			—		(138		)	—			—			—
Operating income (loss), as adjusted	901			1,624		(138		)	(216		)	(175		)	1,996
Adjustments	86			212		1			(2		)	—			297
Adjusted operating income (loss)	$	987		$	1,836	$	(137	)	$	(218	)	$	(175	)	$	2,293

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(1)	The total of cost of products sold and benefit costs were previously reported as cost of revenues.

The following is a reconciliation of financial measures of the Company’s segments to the consolidated totals:

~~Table~~




	Pharmacy		Retail/		Health Care			Corporate/			Intersegment			Consolidated
In millions	Services⁽¹⁾		LTC		Benefits			Other			Eliminations⁽²⁾			Totals
Three Months Ended
March 31, 2019
Revenues from customers	$	33,558	$	21,115	$	17,706		$	25		$	(11,007	)	$	61,397
Net investment income	—		—		164			85			—			249
Total revenues	33,558		21,115		17,870			110			(11,007		)	61,646
Adjusted operating income (loss)	947		1,489		1,562			(231		)	(172		)	3,595
March 31, 2018
Revenues from customers	$	32,546	$	20,432	$	1,316		$	—		$	(8,601	)	$	45,693
Net investment income	—		—		2			48			—			50
Total revenues	32,546		20,432		1,318			48			(8,601		)	45,743
Adjusted operating income (loss)	987		1,836		(137		)	(218		)	(175		)	2,293


(1)	Revenues of the Pharmacy Services segment include approximately $3.3 billion of retail co-payments for each of the three-month periods ended March 31, 2019 and 2018.

(2)

Intersegment eliminations relate to intersegment revenue generating activities that occur between the Pharmacy Services segment and the Retail/LTC segment for the three months ended March 31, 2018. Effective November 28, 2018, intersegment eliminations also relate to intersegment revenue generating activities that occur between the Health Care Benefits segment and the Pharmacy Services segment and/or the Retail/LTC segment.

The following is a reconciliation of ~~Contents~~

consolidated operating income to adjusted operating income for the three months ended March 31, 2019 and 2018:

Three Months Ended
March 31,
In millions 2019 2018
Operating income (GAAP measure) $ 2,690
$ 1,996
Amortization of intangible assets ⁽¹⁾
622
210
Acquisition-related transaction and integration costs ⁽²⁾
148
43
Store rationalization charge ⁽³⁾
135
—
Loss on divestiture of subsidiary ⁽⁴⁾
—
86
Interest income on financing for the Aetna Acquisition ⁽⁵⁾
—
(42 )
Adjusted operating income $ 3,595
$ 2,293

^{_____________________________________________}

(1)

Intangible assets relate to the Company's acquisition activities and are amortized over their useful lives. The amortization of intangible assets is reflected in the Company's unaudited GAAP condensed consolidated statements of operations in operating expenses within each segment. The amortization of intangible assets is not directly related to the core performance of the Company's business operations.

(2)

During the three months ended March 31, 2019, acquisition-related integration costs relate to the Aetna Acquisition. During the three months ended March 31, 2018, acquisition-related transaction and integration costs relate to the acquisitions of Aetna and Omnicare, Inc. The acquisition-related transaction and integration costs are reflected in the Company’s unaudited GAAP condensed consolidated statements of operations in operating expenses primarily within the Corporate/Other segment.

(3)

During the three months ended March 31, 2019, the store rationalization charge primarily relates to operating lease right-of-use asset impairment charges in connection with the planned closure of 46 underperforming retail pharmacy stores in the second quarter of 2019. The store rationalization charge is reflected in the Company’s unaudited GAAP condensed consolidated statements of operations in operating expenses within the Retail/LTC segment.


(4)	During the three months ended March 31, 2018, the loss on divestiture of subsidiary represents the pre-tax loss on the sale of the Company’s RxCrossroads subsidiary for $725 million and is reflected in operating expenses in the Company’s unaudited GAAP condensed consolidated statement of operations within the Retail/LTC segment.


(5)	During the three months ended March 31, 2018, the Company recorded interest income of $42 million on the proceeds of its unsecured senior notes issued in March 2018 to partially fund the Aetna Acquisition. All amounts are for the periods prior to the close of the Aetna Acquisition, which occurred on November 28, 2018, and were recorded within the Corporate/Other segment.

Report of Independent Registered Public Accounting Firm

~~The~~

To the Shareholders and the Board of Directors ~~and Shareholders~~

of CVS Health ~~Corporation:~~

Corporation

Results of Review of Interim Financial Statements

We have reviewed the accompanying condensed consolidated balance sheet of CVS Health Corporation (the Company) as of ~~September 30, 2017,~~March 31, 2019, the related condensed consolidated statements of ~~income and~~operations, comprehensive income, ~~for the three-month~~shareholders’ equity and ~~nine-month periods ended September 30, 2017 and 2016, and the condensed consolidated statements of~~ cash flows for the ~~nine-month~~three-month periods ended ~~September 30, 2017~~March 31, 2019 and ~~2016. These~~2018, and the related notes (collectively referred to as the “condensed consolidated interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated interim financial statements ~~are the responsibility of the Company’s management.~~

for them to be in conformity with U.S. generally accepted accounting principles.

We ~~conducted our review~~have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2018, the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity and cash flows for the year then ended, and the related notes (not presented herein) and in our report dated February 28, 2019, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2018, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Adoption of ASU 2016-02

As discussed in Note 1 to the condensed consolidated interim financial statements, the Company changed its method of accounting for leases in 2019 due to the adoption of ASU 2016-02, Leases.

Basis for Review Results

These financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial ~~information~~statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the ~~Public Company Accounting Oversight Board (United States),~~PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of CVS Health Corporation as of December 31, 2016, and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for the year then ended (not presented herein), and we expressed an unqualified audit opinion on those consolidated financial statements in our report dated February 9, 2017. In our opinion, the accompanying condensed consolidated balance sheet of CVS Health Corporation as of December 31, 2016, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.


	~~/s/ Ernst & Young LLP~~

~~November 6, 2017~~
~~Boston, Massachusetts~~

/s/ Ernst & Young LLP

Boston, Massachusetts

May 1, 2019


~~Part I~~	~~Item 2~~

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

Overview of ~~Our~~ Business

CVS Health Corporation, together with its subsidiaries (collectively, “CVS Health,” the “Company,” “we,” “our” or “us”), is ~~a pharmacy~~the nation’s premier health innovation company helping people on their path to better health. AtWhether in one of its pharmacies or through its health services and plans, CVS Health is pioneering a bold new approach to total health by making quality care more affordable, accessible, simple and seamless. CVS Health is community-based and locally focused, engaging consumers with the ~~forefront of a changing health~~ care ~~landscape, the~~they need when and where they need it. The Company has ~~an unmatched suite of capabilities and the expertise needed to drive innovations that will help shape the future of health care.~~

We are currently the only integrated pharmacy health care company with the ability to impact consumers, payors, and providers with innovative, channel-agnostic solutions. We have a deep understanding of their diverse needs through our unique integrated model, and we are bringing them innovative solutions that help increase access to quality care, deliver better health outcomes and lower overall health care costs.

~~Through~~ more than ~~9,700~~9,900 retail locations, ~~more than~~approximately 1,100 walk-in ~~health care~~medical clinics, a leading pharmacy benefits manager with ~~nearly 90~~approximately 94 million plan members, a dedicated senior pharmacy care business serving more than one million patients per year and expanding specialty pharmacy services. CVS Health also serves an estimated 38 million people through traditional, voluntary and consumer-directed health insurance products and related services, including rapidly expanding Medicare Advantage offerings and a leading ~~stand-alone~~standalone Medicare Part D prescription drug plan ~~we enable people, businesses,~~(“PDP”). The Company believes its innovative health care model increases access to quality care, delivers better health outcomes and ~~communities to manage~~lowers overall health care costs.

® ~~locations, to introducing unique programs to help control costs for our clients at CVS Caremark~~®~~, to innovating how care is delivered to our patients with complex conditions through CVS Specialty~~TM~~, to improving pharmacy care~~Effective for the ~~senior community through Omnicare~~first quarter of 2019, the Company realigned the composition of its segments to correspond with changes to its operating model and reflect how its Chief Operating Decision Maker (the “CODM”) reviews information and manages the business. As a result of this realignment, the Company’s SilverScript^®~~, or by expanding access~~ PDP moved from the Pharmacy Services segment to ~~high-quality, low-cost care at CVS MinuteClinic~~the Health Care Benefits segment. In addition, the Company moved Aetna’s mail order and specialty pharmacy operations from the Health Care Benefits segment to the Pharmacy Services segment. Segment financial information for the three months ended March 31, 2018, has been retrospectively adjusted to reflect these changes.®.

~~We have three~~

The Company has four reportable segments: Pharmacy Services, Retail/LTC, Health Care Benefits and ~~Corporate.~~

Corporate/Other, which are described below.

Overview of the Pharmacy Services Segment

~~Our~~

The Pharmacy Services ~~business generates revenue from~~segment provides a full range of pharmacy benefit management (“PBM”) solutions, including plan design offerings and administration, formulary management, ~~Medicare Part D~~retail pharmacy network management services, mail order pharmacy, specialty pharmacy and infusion services, ~~retail pharmacy network management services, prescription management systems,~~ clinical services, disease management services and medical spend management.

~~Our~~ The Pharmacy Services segment’s clients are primarily employers, insurance companies, unions, government employee groups, health plans, ~~Medicare Part D plans, Managed~~PDPs, Medicaid managed care plans, plans offered on ~~the~~ public health insurance exchanges and private health insurance exchanges, other sponsors of health benefit plans and individuals throughout the United States. ~~A portion of covered lives, primarily within the Managed Medicaid, health plan and employer markets have access to our services through public and private exchanges.~~

As a pharmacy benefits manager, we manage the dispensing of prescription drugs through our mail order pharmacies, specialty pharmacies, long-term care pharmacies and national network of more than 68,000 retail pharmacies, consisting of approximately 41,000 chain pharmacies (which includes our CVS Pharmacy® pharmacies) and 27,000 independent pharmacies, to eligible members in the benefit plans maintained by our clients and utilize our information systems to perform, among other things, safety checks, drug interaction screenings and brand-to-generic substitutions.

Our specialty pharmacies support individuals who require complex and expensive drug therapies. Our specialty pharmacy business includes mail order and retail specialty pharmacies that operate under the CVS Caremark®~~, CarePlus CVS Pharmacy~~®~~, Navarro~~® ~~Health Services and Advanced Care Scripts or ACS names.~~ The Pharmacy Services ~~Segment also provides health management programs, which include integrated disease management for 18 conditions, through our Accordant~~® rare disease management offering. In addition, through our SilverScript Insurance Company subsidiary, we are a national provider of drug benefits to eligible beneficiaries under the federal government’s Medicare Part D program. The Pharmacy Services Segmentsegment operates ~~under the CVS Caremark~~® ~~Pharmacy Services, Caremark~~®~~, CVS Caremark~~®~~, CarePlus CVS Pharmacy~~®~~, Accordant~~®~~, SilverScript~~®~~, Coram~~®~~, CVS Specialty~~TM~~, NovoLogix~~®~~, Navarro~~® ~~Health Services and Advanced Care Scripts or ACS names. As of September 30, 2017, the Pharmacy Services Segment operated 23~~ retail specialty pharmacy stores, 15 specialty mail order pharmacies, ~~four~~ mail ~~service~~order dispensing pharmacies, compounding pharmacies and 82 branches for infusion and enteral ~~services, including approximately 73 ambulatory infusion suites and~~nutrition services. During the three ~~centers~~months ended March 31, 2019, the Company’s PBM filled or managed 482 million prescriptions on a 30-day equivalent basis.

Overview of ~~excellence, located in 41 states, Puerto Rico and~~ the ~~District of Columbia.~~

Retail/LTC Segment

~~Our~~The Retail/LTC ~~Segment~~segment sells prescription drugs and a wide assortment of general merchandise, including over-the-counter drugs, beauty products, cosmetics and ~~cosmetics,~~ personal care products, ~~convenience foods, photo finishing, seasonal merchandise~~provides health care services through its MinuteClinic^® walk-in medical clinics and ~~greeting cards through our CVS Pharmacy~~®~~, CVS~~®~~, Longs Drugs~~®~~, Navarro Discount Pharmacy~~®conducts long-term care (“LTC”) pharmacy operations, which distribute prescription drugs and ~~Drogaria Onofre~~TM ~~retail locations and online through CVS.com~~®~~, Navarro.com~~TM ~~and Onofre.com.br~~TM~~. The Retail/LTC Segment also includes providing the distribution of prescription drugs,~~provide related pharmacy consulting and other ancillary services to chronic care facilities and other care ~~settings,~~settings. As of March 31, 2019, the Retail/LTC segment operated more than 9,900 retail locations, approximately 1,100 MinuteClinic^®locations as well as ~~commercialization~~online retail pharmacy websites, LTC pharmacies and onsite pharmacies. During the three months ended March 31, 2019, the Retail/LTC segment filled 347 million prescriptions on a 30-day equivalent basis.

Overview of the Health Care Benefits Segment

Benefits segment offers a broad range of traditional, voluntary and consumer-directed health insurance products and related services, ~~that are provided under the name RxCrossroads~~®~~. Our Retail/LTC Segment derives the~~including medical, pharmacy, dental, behavioral health, medical management capabilities, Medicare Advantage and Medicare Supplement plans, PDPs, Medicaid health care management services, workers’ compensation administrative services and health information technology products and services. The Health Care Benefits segment’s customers include employer groups, individuals, college students, part-time and hourly workers, health plans, health care providers (“providers”), governmental units, government-sponsored plans, labor groups and expatriates. The Company refers to insurance products (where it assumes all or a majority of ~~its revenues through~~ the ~~sale of prescription drugs, which are dispensed by our more than 31,000 pharmacists. Our Retail/LTC Segment also provides health~~risk for medical and dental care services through our MinuteClinic health care clinics. MinuteClinics are staffed by nurse practitioners and physician assistants who utilize nationally recognized protocols to diagnose and treat minor health conditions, perform health screenings, monitor chronic conditions and deliver vaccinations. As of September 30, 2017, our Retail/LTC Segment included 9,751 retail locations (of which 8,016 were the Company’s stores that operated a pharmacy and 1,687 were the Company’s pharmacies located within a Target store) located in 49 states, the District of Columbia, Puerto Rico and Brazil operating primarily under the CVS Pharmacy®~~, CVS~~®~~, CVS Pharmacy y más~~®~~, Longs Drugs~~®~~, Navarro Discount Pharmacy~~® ~~and Drogaria Onofre~~TM ~~names, 38 onsite pharmacies primarily operating under the CarePlus CVS Pharmacy~~®~~, CarePlus~~® ~~and CVS Pharmacy~~® ~~names, 1,129 retail health care clinics operating under the MinuteClinic~~® ~~name (of which 1,122 were located in CVS Pharmacy and Target stores), and our online retail websites, CVS.com~~®~~, Navarro.com~~TM ~~and Onofre.com.br~~TM. LTC operations are comprised of 143 spoke pharmacies that primarily handle new prescription orders, of which 31 are also hub pharmacies that use proprietary automation to support spoke pharmacies with refill prescriptions. LTC operates primarily under the Omnicare® ~~and NeighborCare~~® ~~names.~~

~~Corporate Segment~~

~~The Corporate Segment provides management~~costs) as “Insured” and administrative services contract products (where the plan sponsor assumes all or a majority of the risk for medical and dental care costs) as “ASC.”

Overview of the Corporate/Other Segment

The Company presents the remainder of its financial results in the Corporate/Other segment, which consists of:

Management and administrative expenses to support the ~~Company. The Corporate Segment consists~~overall operations of the Company, which include certain aspects of ~~our~~ executive management and the corporate relations, legal, compliance, human resources, information technology and finance ~~departments.~~

departments and acquisition-related transaction and integration costs; and

Products for which the Company no longer solicits or accepts new customers such as large case pensions and long-term care insurance products.

Operating Results ~~of Operations~~

The following discussion explains the material changes in ~~our~~the Company’s operating results ~~of operations~~ for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019 and ~~2016,~~2018, and the significant developments affecting ~~our~~the Company’s financial condition since December 31, ~~2016.~~2018. We strongly recommend that you read our audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included as Exhibit 1313.1 to ~~our 2016~~the Company’s Annual Report on Form ~~10‑K along with this report.~~

10-K for the year ended December 31, 2018 (the “2018 Form 10-K”).

Summary of ~~the Condensed~~ Consolidated Financial ~~Results:~~

Results

~~Net~~



	Three Months Ended March 31,					Change
In millions	2019			2018		$			%
Revenues:
Products	$	43,343		$	44,049	$	(706	)	(1.6	)%
Premiums	16,282			1,306		14,976			1,146.7	%
Services	1,772			338		1,434			424.3	%
Net investment income	249			50		199			398.0	%
Total revenues	61,646			45,743		15,903			34.8	%
Operating costs:
Cost of products sold	37,247			37,505		(258		)	(0.7	)%
Benefit costs	13,459			1,329		12,130			912.7	%
Operating expenses	8,250			4,913		3,337			67.9	%
Total operating costs	58,956			43,747		15,209			34.8	%
Operating income	2,690			1,996		694			34.8	%
Interest expense	782			523		259			49.5	%
Other expense (income)	(31		)	3		(34		)	(1,133.3	)%
Income before income tax provision	1,939			1,470		469			31.9	%
Income tax provision	512			472		40			8.5	%
Net income	1,427			998		429			43.0	%
Net income attributable to noncontrolling interests	(6		)	—		(6		)	100.0	%
Net income attributable to CVS Health	$	1,421		$	998	$	423		42.4	%

Commentary

Revenues

~~Net~~

Total revenues increased ~~approximately $1.6~~$15.9 billion or ~~3.5%, and $4.8 billion, or 3.7%,~~34.8% in the three ~~and nine~~ months ended ~~September 30, 2017, respectively,~~March 31, 2019, as compared to the prior year. The increase ~~is due to increases~~ in ~~the Pharmacy Services Segment partially offset by decreases in the Retail/LTC Segment. The increase in the Pharmacy Services Segment~~total revenues was driven by growth in pharmacy network claim volume attributable to net new business, brand inflation and specialty pharmacy volume, partially offset by increased price compression and generic dispensing. The decreasethe impact of the Aetna Acquisition (primarily reflected in the ~~Retail/LTC Segment was primarily due to~~Health Care Benefits segment) which occurred in November 2018, a decline in same stores sales as a result of the previously-announced marketplace changes, which began to have an impact in the fourth quarter of 2016, that restrict CVS Pharmacy from participating in certain networks. The Retail/LTC Segment decrease was also due to continued reimbursement pressure and an3.1% increase in ~~the generic dispensing rate. Generic prescription drugs typically have~~Pharmacy Services segment revenue, and a ~~lower selling price than brand name prescription drugs.~~

3.3% increase in Retail/LTC segment revenue.

Please see ~~the section entitled~~ “Segment Analysis” ~~below~~later in this report for additional information ~~regarding net revenues.~~

~~Gross Profit~~

~~Gross profit dollars decreased $366 million,~~about the revenues of the Company’s segments.

Operating expenses

Operating expenses increased $3.3 billion or 4.9%, and $610 million, or 2.9%, in the three and nine months ended September 30, 2017, respectively, as compared to the prior year. Gross profit dollars for the three months ended September 30, 2017, were negatively affected by continued reimbursement pressure as well as the loss of prescription volume in the Retail/LTC Segment as a result of previously-announced marketplace changes. Gross profit as a percentage of net revenues decreased approximately 135 basis points67.9% in the three months ended September 30, 2017 to 15.4%, as compared to the prior year. Gross profit as a percentage of net revenues decreased approximately 100 basis points in the nine months ended September 30, 2017 to 15.1%, as compared to the prior year. The decrease in gross profit as a percentage of net revenues was driven by the increased weighting toward the Pharmacy Services Segment, which has a lower gross profit than the Retail/LTC Segment.

~~Please see the section entitled “Segment Analysis” below for additional information regarding gross profit.~~

~~Operating Expenses~~

~~Operating expenses decreased $41 million, or 0.9%, in the three months ended September 30, 2017 as~~March 31, 2019 compared to the prior year. Operating expenses as a percentage of ~~net~~total revenues ~~decreased approximately 45 basis points to 10.0%~~were 13.4% in the three months ended ~~September 30, 2017 as compared to the prior year. The decrease in operating expenses in the three months ended September 30, 2017 was primarily due to the following:~~

~~A decrease in acquisition-related integration costs of $56 million versus the same period in the prior year.~~

~~The realization of partially reserved receivables within the Pharmacy Services Segment.~~

~~These items were partially offset by:~~

~~Hurricane related expenses of $55 million, predominately in the Retail/LTC Segment, as a result of the three major hurricanes that hit the southern United States and Puerto Rico.~~

AnMarch 31, 2019, an increase ~~in operating expenses due to incremental store operating costs associated with operating more stores.~~

~~Operating expenses increased $347 million, or 2.5%, in the nine months ended September 30, 2017 as compared to the prior year. Operating expenses as a percentage~~ of ~~net revenues decreased approximately 10~~270 basis points ~~to 10.4% in the nine months ended September 30, 2017 as~~ compared to the prior year. The increase in operating expenses was primarily driven by the impact of the Aetna Acquisition (including intangible asset amortization), higher operating expenses in the ~~nine~~Retail/LTC segment and an increase in acquisition-related integration costs.

Please see “Segment Analysis” later in this report for additional information about the operating expenses of the Company’s segments.

Operating income

Operating income increased $694 million or 34.8% in the three months ended ~~September 30, 2017~~March 31, 2019 compared to the prior year. The increase was primarily due to the ~~items mentioned above, which were more than~~Aetna Acquisition, partially offset by reimbursement pressure and higher operating expenses in the ~~following:~~

Retail/LTC segment, continued price compression in the Pharmacy Services segment and an increase in acquisition-related integration costs.

A goodwill impairment charge of $135 million in the second quarter of 2017 in the RxCrossroads reporting unit (see “Note 2 – Goodwill and Intangible Assets” to our condensed consolidated financial statements).

Charges of $211 million in the nine months ended September 30, 2017 associated with the closure of 68 retail stores in connection with our enterprise streamlining initiative (see “Note 8 – Store Closures” to our condensed consolidated financial statements).

Please see ~~the section entitled~~ “Segment Analysis” ~~below~~later in this report for additional information ~~regarding~~about the operating ~~expenses.~~

income of the Company’s segments.

Interest ~~Expense, net~~

expense

Interest expense ~~net, decreased $8 million and $72~~increased $259 million in the three ~~and nine~~ months ended ~~September 30, 2017, respectively, as~~March 31, 2019 compared to the prior year, primarily due to financing activity associated with the Aetna Acquisition. See “Liquidity and Capital Resources” later in this report for additional information.

Income tax provision

The Company’s effective income tax rate was 26.4% in the three months ended March 31, 2019 compared to 32.1% for the prior year. The decrease in the three and nine months ended was primarily due to the Company’s debt issuance and debt tender offers that occurred in 2016 which resulted in overall more favorable interest rates on the Company’s long-term debt.

~~For additional information on our financing activities, please see the “Liquidity and Capital Resources” section below.~~

~~Loss on Early Extinguishment of Debt~~

During the three months ended September 30, 2016, the Company exercised its option to redeem outstanding senior notes of approximately $1.1 billion aggregate principal amount. The Company paid a premium of $97 million in excess of the debt principal in connection with the purchase of the senior notes and wrote off $4 million of unamortized deferred financing costs, for a total loss on the early extinguishment of debt of $101 million.

During the nine months ended September 30, 2016, the Company purchased approximately $4.2 billion aggregate principal amount of certain of its senior notes pursuant to its tender offer for such senior notes and option to redeem the outstanding senior notes. The Company paid a premium of $583 million in excess of the debt principal, wrote off $54 million of unamortized deferred financing costs and incurred $6 million in fees, for a total loss on the early extinguishment of debt of $643 million.

~~Other Expense~~

~~Other expense increased $185 million and $183 million in the three and nine months ended September 30, 2017, respectively, as~~effective income tax rate compared to the prior ~~year. The increase in the three and nine months ended~~year was primarily driven by the losses on the settlements of defined benefit pension plans of $187 million. See “Note 4 – Pension Settlements” to the Company’s condensed consolidated financial statements.

~~Income Tax Provision~~

Our effective income tax rate was 37.7% and 37.4% for the three months ended September 30, 2017 and 2016, respectively. The effective income tax rate in 2017 was higher than in 2016 primarily due to a discrete tax benefit recorded in 2016 related to the successful resolution with the IRS of certain tax matters, partially offset by the tax benefit recognized in 2017 for employee share-based compensation. Our effective income tax rate was 38.7% and 38.6% for the nine months ended September 30, 2017 and 2016, respectively. The effective income tax rate in 2017 was higher than in 2016 primarily due to the impact of the ~~nondeductible~~non-deductible goodwill ~~impairment charge recognized~~included in ~~2017, partially offset by~~ the ~~excess tax benefit recognized for employee share-based compensation.~~

~~Loss from Discontinued Operations~~

~~The~~ loss ~~from discontinued operations~~associated with the divestiture of ~~$8 million for~~ the ~~nine~~Company’s RxCrossroads subsidiary during the three months ended ~~September 30, 2017, was primarily comprised~~March 31, 2018.

Outlook for 2019

The Company expects 2019 to be a transition year as it integrates the Aetna Acquisition and focuses on key pillars of its growth

strategy. The Company believes that it is on track to exceed its 2020 target for synergies from the Aetna Acquisition. The Company also expects that the following challenges may have a ~~$15 million charge (net~~disproportionate adverse impact on, and reduce, the operating income of ~~tax of $6 million) associated with lease guarantees the Company provided on store lease obligations of Bob’s Stores, a former subsidiary of the Company that filed for bankruptcy subsequent to~~ its ~~disposition. See “Note 12 - Commitments and Contingencies” to the Company’s condensed consolidated financial statements.~~

~~Segment Analysis~~

~~We evaluate the performance of our~~ Pharmacy Services and Retail/LTC segments ~~based~~in 2019 compared to 2018:

Ongoing pharmacy reimbursement pressure in the Pharmacy Services and Retail/LTC segments and reductions in the traditional offsets to those pressures, including a declining benefit from the introduction of new multi-source generic prescription drugs and lower benefits from generic dispensing rate increases;

The reimbursement pressure in the Pharmacy Services segment is projected to be exacerbated by the cumulative effect on ~~net revenue, gross profit~~rebate guarantees of lower brand name drug price inflation and ~~operating profit before~~a modest 2019 selling season; and

The Retail/LTC segment is projected to be impacted by structural and Company specific challenges in the ~~effect~~long-term care space as well as the annualization of ~~nonrecurring charges~~the Company’s 2018 investment of a portion of the savings from the Tax Cuts and ~~gains~~Job Act (the “TCJA”) in wages and ~~certain intersegment activities. We evaluate~~benefits.

The Company is taking specific actions designed to address these challenges and position it well in 2020 and beyond. These actions include new product and service initiatives in its Pharmacy Services and Retail/LTC segments, introducing a new PBM client contracting model, accelerating the action plan designed to improve the performance of ~~our Corporate~~ the LTC business and initiating a

new enterprise cost reduction effort. The Company also is continuing to evaluate its assets and the roles they play in enabling the Company’s core strategies.

The Company’s current expectations described above are forward-looking statements. Please see “Cautionary Statement Concerning Forward-Looking Statements” in this report for information regarding important factors that may cause the Company’s actual results to differ from those currently projected and/or otherwise materially affect the Company.

Segment Analysis

The following discussion of segment operating results is presented based on the Company’s reportable segments in accordance with the accounting guidance for segment reporting and is consistent with our segment disclosure in Note 12 ‘‘Segment Reporting’’ to the unaudited condensed consolidated financial statements.

The Company has three operating ~~expenses before~~segments, Pharmacy Services, Retail/LTC and Health Care Benefits, as well as a Corporate/Other segment. The Company’s segments maintain separate financial information, and the ~~effect~~CODM evaluates the segments’ operating results on a regular basis in deciding how to allocate resources among the segments and in assessing segment performance. The CODM evaluates the performance of ~~nonrecurring charges~~the Company’s segments based on adjusted operating income. Effective for the first quarter of 2019, adjusted operating income is defined as operating income (GAAP measure) excluding the impact of amortization of intangible assets and ~~gains~~other items, if any, that neither relate to the ordinary course of the Company's business nor reflect the Company's underlying business performance. Segment financial information for the three months ended March 31, 2018 has been retrospectively adjusted to conform with the current period presentation. See the reconciliations of operating income (GAAP measure) to adjusted operating income below for further context regarding the items excluded from operating income in determining adjusted operating income. The Company uses adjusted operating income as its principal measure of segment performance as it enhances the Company’s ability to compare past financial performance with current performance and ~~certain intersegment activities.~~ analyze underlying business performance and trends. Non-GAAP financial measures the Company discloses, such as consolidated adjusted operating income, should not be considered a substitute for, or superior to, financial measures determined or calculated in accordance with GAAP.

Effective for the first quarter of 2019, the Company realigned the composition of its segments to correspond with changes to its operating model and reflect how the CODM reviews information and manages the business. See Note 1 ‘‘Significant Accounting Policies’’ to the unaudited condensed consolidated financial statements for further discussion. Segment financial information for the three months ended March 31, 2018, has been retrospectively adjusted to reflect these changes as shown in Note 12 ‘‘Segment Reporting’’ to the unaudited condensed consolidated financial statements.

The following is a reconciliation of ~~our~~financial measures of the Company’s segments to the ~~condensed~~ consolidated ~~financial statements:~~




	Pharmacy		Retail/		Health Care			Corporate/			Intersegment			Consolidated
In millions	Services⁽¹⁾		LTC		Benefits			Other			Eliminations⁽²⁾			Totals
Three Months Ended
March 31, 2019
Total revenues	$	33,558	$	21,115	$	17,870		$	110		$	(11,007	)	$	61,646
Adjusted operating income (loss)	947		1,489		1,562			(231		)	(172		)	3,595
March 31, 2018
Total revenues	32,546		20,432		1,318			48			(8,601		)	45,743
Adjusted operating income (loss)	987		1,836		(137		)	(218		)	(175		)	2,293

^{_____________________________________________}


(1)		~~Net revenues~~Revenues of the Pharmacy Services ~~Segment~~segment include approximately ~~$2.6 billion and $2.5~~$3.3 billion of retail co-payments for each of the ~~three months~~three-month periods ended ~~September 30, 2017~~March 31, 2019 and ~~2016, respectively, as well as $8.4 billion and $8.1 billion of retail co-payments for the nine months ended September 30, 2017 and 2016, respectively.~~ 2018.


(2)		Intersegment eliminations relate to intersegment revenue generating activities that occur between the Pharmacy Services ~~Segment~~segment and the Retail/LTC Segment. These occur in the following ways: when members of Pharmacy Services Segment clients ("members") fill prescriptions at the Company's retail pharmacies to purchase covered products, when members enrolled in programs such as Maintenance Choice® elect to pick up maintenance prescriptions at one of the Company's retail pharmacies instead of receiving them through the mail, or when members have prescriptions filled at the Company's long-term care pharmacies. When these occur, both the Pharmacy Services and Retail/LTC segments record the revenues, gross profit and operating profit on a standalone basis.

~~(3)~~

~~The Retail/LTC Segment gross profit~~segment for the three months ended ~~September 30, 2017~~March 31, 2018. Effective November 28, 2018, intersegment eliminations also relate to intersegment revenue generating activities that occur between the Health Care Benefits segment and ~~2016 includes $2 million~~the Pharmacy Services segment and/or the Retail/LTC segment.

The following is a reconciliation of operating income to adjusted operating income for the three months ended March 31, 2019 and 2018:




	Three Months Ended March 31, 2019
	Pharmacy		Retail/		Health Care		Corporate/			Intersegment			Consolidated
In millions	Services		LTC		Benefits		Other			Eliminations			Totals
Operating income (GAAP measure)	$	850	$	1,238	$	1,155	$	(381	)	$	(172	)	$	2,690
Non-GAAP adjustments:
Amortization of intangible assets ⁽¹⁾	97		116		407		2			—			622
Acquisition-related integration costs ⁽²⁾	—		—		—		148			—			148
Store rationalization charge ⁽³⁾	—		135		—		—			—			135
Adjusted operating income	$	947	$	1,489	$	1,562	$	(231	)	$	(172	)	$	3,595




	Three Months Ended March 31, 2018
	Pharmacy		Retail/		Health Care			Corporate/			Intersegment			Consolidated
In millions	Services		LTC		Benefits			Other			Eliminations			Totals
Operating income (GAAP measure)	$	901	$	1,624	$	(138	)	$	(216	)	$	(175	)	$	1,996
Non-GAAP adjustments:
Amortization of intangible assets ⁽¹⁾	86		123		1			—			—			210
Acquisition-related transaction and integration costs ⁽²⁾	—		3		—			40			—			43
Loss on divestiture of subsidiary ⁽⁴⁾	—		86		—			—			—			86
Interest income on financing for the Aetna Acquisition ⁽⁵⁾	—		—		—			(42		)	—			(42		)
Adjusted operating income	$	987	$	1,836	$	(137	)	$	(218	)	$	(175	)	$	2,293

^{_____________________________________________}

(1)

Intangible assets relate to the Company's acquisition activities and ~~$5 million, respectively,~~are amortized over their useful lives. The amortization of ~~acquisition-related integration costs.~~intangible assets is reflected in the Company's unaudited GAAP condensed consolidated statements of operations in operating expenses within each segment. The ~~Retail/LTC Segment gross profit for the nine months ended September 30, 2017 and 2016 includes $7 million and $15 million, respectively,~~amortization of ~~acquisition-related integration costs. The integration costs in 2017 are~~intangible assets is not directly related to the ~~acquisition~~core performance of ~~Omnicare and~~ the Company's business operations.

(2)

During the three months ended March 31, 2019, acquisition-related integration costs ~~in 2016 are related~~relate to the Aetna Acquisition. During the three months ended March 31, 2018, acquisition-related transaction and integration costs relate to the acquisitions of Aetna and Omnicare, Inc. The acquisition-related transaction and integration costs are reflected in the ~~pharmacies and clinics of Target.~~

~~(4)~~

The Retail/LTC Segment operating profit for the three and nine months ended September 30, 2017 includes $6 million and $211 million, respectively, of charges associated with store closures (see “Note 8 – Store Closures” to theCompany’s unaudited GAAP condensed consolidated ~~financial statements). The Retail/LTC Segment~~statements of operations in operating ~~profit for~~expenses primarily within the nine months ended September 30, 2017 also includes a $135 million goodwill impairment charge related to the segment’s RxCrossroads reporting unit (see “Note 2 – Goodwill and Intangible Assets” to the condensed consolidated financial statements).

Corporate/Other segment.

	~~(5)~~
(3)		~~The Retail/LTC Segment operating profit for~~During the three months ended ~~September 30, 2017 and 2016 includes $9~~March 31, 2019, the store rationalization charge primarily relates to operating lease right-of-use asset impairment charges in connection with the planned closure of 46 underperforming retail pharmacy stores in the second quarter of 2019. The store rationalization charge is reflected in the Company’s unaudited GAAP condensed consolidated statements of operations in operating expenses within the Retail/LTC segment.


(4)	During the three months ended March 31, 2018, the loss on divestiture of subsidiary represents the pre-tax loss on the sale of the Company’s RxCrossroads subsidiary for $725 million and ~~$52~~is reflected in operating expenses in the Company’s unaudited GAAP condensed consolidated statement of operations within the Retail/LTC segment.

(5)

During the three months ended March 31, 2018, the Company recorded interest income of $42 million ~~respectively,~~on the proceeds of ~~acquisition-related integration costs. The Retail/LTC Segment operating profit~~its unsecured senior notes issued in March 2018 to partially fund the Aetna Acquisition (the “2018 Notes”). All amounts are for the ~~nine months ended September 30, 2017 and 2016 includes $34 million and $194 million, respectively, of acquisition-related integration costs. The integration costs in 2017 are related~~periods prior to the ~~acquisition~~close of ~~Omnicare~~the Aetna Acquisition, which occurred on November 28, 2018, and were recorded within the ~~integration costs in 2016 are related to the acquisitions of Omnicare and the pharmacies and clinics of Target.~~

Corporate/Other segment.

~~(6)~~

~~(7)~~

~~Amounts revised to reflect the adoption of ASU 2017-07,~~ ~~Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~, which increased consolidated operating profit by $7 and $23 million for the three and nine months ended September 30, 2016, respectively (see "Note 1 - Accounting Policies" to the condensed consolidated financial statements).

Pharmacy Services Segment

The following table summarizes ~~our~~the Pharmacy Services ~~Segment’s~~segment’s performance for the respective periods:

Three Months Ended

Nine Months Ended

September 30,

September 30,
In millions

2017

2016

2017

2016
Net revenues

$
32,896

$
30,429

$
96,444

$
88,704

Gross profit

1,645

1,797

4,210

4,266

Gross profit % of net revenues

5.0
%

5.9
%

4.4
%

4.8
%
Operating expenses (1)

292

338

938

984

Operating expenses % of net revenues

0.9
%

1.1
%

1.0
%

1.1
%
Operating profit (1)

1,353

1,459

3,272

3,282

Operating profit % of net revenues

4.1
%

4.8
%

3.4
%

3.7
%
Net revenues:

Mail choice (2)

$
11,590

$
10,872

$
33,950

$
31,668

Pharmacy network (3)

21,216

19,469

62,258

56,783

Other

90

88

236

253

Pharmacy claims processed (90 Day = 3 prescriptions) (4)(5):

Total

441.1

408.7

1,323.2

1,213.8

Mail choice (2)

66.9

63.0

196.2

186.3

Pharmacy network (3)

374.2

345.7

1,127.0

1,027.5

Generic dispensing rate (4)(5):

Total

87.0
%

86.0
%

87.1
%

85.8
%
Mail choice (2)

83.3
%

81.7
%

83.1
%

81.1
%
Pharmacy network (3)

87.7
%

86.8
%

87.8
%

86.7
%
Mail choice penetration rate (4)(5)

15.2
%

15.4
%

14.8
%

15.3
%



	Three Months Ended
	March 31,						Change
In millions, except percentages	2019			2018			$			%
Revenues:
Products	$	33,450		$	32,431		$	1,019		3.1	%
Services	108			115			(7		)	(6.1	)%
Total revenues	33,558			32,546			1,012			3.1	%
Cost of products sold	32,339			31,307			1,032			3.3	%
Operating expenses	369			338			31			9.2	%
Operating expenses as a % of revenues	1.1		%	1.0		%
Operating income	$	850		$	901		$	(51	)	(5.7	)%
Operating income as a % of revenues	2.5		%	2.8		%
Adjusted operating income ⁽¹⁾	$	947		$	987		$	(40	)	(4.2	)%
Adjusted operating income as a % of revenues	2.8		%	3.0		%
Revenues (by distribution channel):
Pharmacy network ⁽²⁾	$	21,574		$	21,198		$	376		1.8	%
Mail choice ⁽³⁾	11,839			11,208			631			5.6	%
Other	145			140			5			3.6	%
Pharmacy claims processed: ⁽⁴⁾
Total	481.8			468.8			13.0			2.8	%
Pharmacy network ⁽²⁾	407.7			399.5			8.2			2.1	%
Mail choice ⁽³⁾	74.1			69.3			4.8			6.9	%
Generic dispensing rate: ⁽⁴⁾
Total	88.3		%	87.6		%
Pharmacy network ⁽²⁾	88.9		%	88.3		%
Mail choice ⁽³⁾	84.8		%	83.9		%
Mail choice penetration rate ⁽⁴⁾	15.4		%	14.8		%

^{_____________________________________________}


(1)		~~Amounts revised~~See “Segment Analysis” above in this report for a reconciliation of operating income (GAAP measure) to ~~reflect the adoption of ASU 2017-07,~~ ~~Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which decreased~~adjusted operating ~~expenses and increased operating profit by $1 million~~income for the ~~three months ended September 30, 2016. For the nine months ended September 30, 2016, the adoption of ASU 2017-07 decreased operating expenses and increased operating profit by $4 million.~~

~~(2)~~

~~Mail choice is defined as claims filled at a~~ Pharmacy Services ~~mail facility, which includes specialty mail claims inclusive of Specialty Connect® claims picked up at retail, as well as prescriptions filled at our retail pharmacies under the Maintenance Choice~~® ~~program.~~

segment.

	~~(3)~~
(2)		Pharmacy network ~~net~~ revenues, pharmacy claims processed and generic dispensing ~~rates~~rate do not include Maintenance Choice^® activity, which is included within the mail choice category. Pharmacy network is defined as claims filled at retail and specialty retail pharmacies, including ~~our~~the Company’s retail pharmacies and long-term care pharmacies, but excluding Maintenance Choice activity. Maintenance Choice permits eligible client plan members to fill their maintenance prescriptions through mail order delivery or at a CVS pharmacy retail store for the same price as mail order.

	~~(4)~~
(3)	Mail choice is defined as claims filled at a Pharmacy Services mail order facility, which includes specialty mail claims inclusive of Specialty Connect^® claims picked up at retail, as well as prescriptions filled at the Company’s retail pharmacies under the Maintenance Choice program.


(4)	Includes ~~the~~an adjustment to convert 90-day 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.

~~(5)~~

The pharmacy claims processed, the generic dispensing rate and the mail choice penetration rate for the three and nine months ended September 30, 2016 has been revised to reflect 90-day prescriptions to the equivalent of three 30-day prescriptions.

Commentary

~~Net~~

Revenues

~~Net~~

Total revenues ~~in our Pharmacy Services Segment~~ increased ~~$2.5~~$1.0 billion, or ~~8.1%~~3.1%, to ~~$32.9~~$33.6 billion infor the three months ended ~~September 30, 2017, as compared to the prior year. Net revenues in our Pharmacy Services Segment increased $7.7 billion, or 8.7%, to $96.4 billion in the nine months ended September 30, 2017, as~~March 31, 2019 compared to the prior year. The increase iswas primarily due to ~~growth in~~brand name drug price inflation as well as increased total pharmacy ~~network claim volume, brand inflation and specialty pharmacy~~claims volume, partially offset by ~~increased~~continued price compression and an increased generic ~~dispensing.~~ dispensing rate.

As you review ~~our~~the Pharmacy Services ~~Segment’s~~segment’s performance in this area, ~~we believe~~ you should consider the following important information about the ~~business for the three and nine months ended September 30, 2017:~~

business:

~~In the three months ended September 30, 2017, our mail choice claims processed, on a 30-day equivalent basis, increased 6.1% to 66.9~~The Company’s mail choice claims processed, on a 30-day equivalent basis, increased 6.9% to 74.1 million claims compared to 63.0 million claims in the prior year. In the nine months ended September 30, 2017, our mail choice claims processed, on a 30-day equivalent basis, increased 5.3% to 196.2 million claims compared to 186.3 million claims in the prior year. The increase in mail choice claims was primarily driven by the continued adoption of our Maintenance Choice offerings and an increase in specialty pharmacy claims.

Our average revenue per mail choice claim, on a 30-day equivalent basis, increased 0.4% and 1.8% in the three and nine months ended September 30, 2017, respectively, compared to the prior year. This increase was primarily due to growth in specialty pharmacy.

In the three months ended September 30, 2017, our pharmacy network claims processed, on a 30-day equivalent basis, increased 8.3% to 374.2 million claims compared to 345.7 million claims in the prior year. In the nine months ended September 30, 2017, our pharmacy network claims processed, on a 30-day equivalent basis, increased 9.7% to 1,127.0 million claims compared to 1,027.5 million claims in the prior year. The increase in the pharmacy network claim volume was primarily due to net new business.

Our average revenue per pharmacy network claim processed, on a 30-day equivalent basis, increased 0.6% and decreased 0.1% in the three and nine months ended September 30, 2017, respectively, compared to the prior year.

In the three months ended September 30, 2017, our total generic dispensing rate increased to 87.0%, compared to 86.0% in the prior year. In the nine months ended September 30, 2017, our total generic dispensing rate increased to 87.1%, compared to 85.8% in the prior year. These continued increases in our generic dispensing rate were primarily due to the impact of new generic drug introductions, and our continuous efforts to encourage plan members to use generic drugs when they are available and clinically appropriate. We believe our generic dispensing rate will continue to increase in future periods, albeit at a slower pace. This increase will be affected by, among other things, the number of new brand and generic drug introductions and our success at encouraging plan members to utilize generic drugs when they are available and clinically appropriate.

~~Gross Profit~~

Gross profit in our Pharmacy Services Segment includes net revenues less cost of revenues. Cost of revenues includes (i) the cost of pharmaceuticals dispensed, either directly through our mail service, specialty mail and specialty retail pharmacies or indirectly through our retail pharmacy networks, (ii) shipping and handling costs and (iii) the operating costs of our mail service dispensing pharmacies, customer service operations and related information technology support.

~~Gross profit decreased $152 million, or 8.4%, to approximately $1.6 billion~~ in the three months ended ~~September 30, 2017, as~~March 31, 2019 compared to 69.3 million in the prior year. The increase in mail choice claims was primarily driven by the continued adoption of Maintenance Choice offerings.

During the three months ended March 31, 2019, the average revenue per mail choice claim, on a 30-day equivalent basis, decreased by 1.1% compared to the prior year. Gross profit decreased $56 million, or 1.3%, to approximately $4.2 billion in the nine months ended September 30, 2017, as compared to the prior year. The decrease in gross profit dollars was primarily due to price compression and a shift in the timing of the Medicare Part D gross profit dollars between the third and fourth quarter in 2017 due to participants moving through benefits slower relative to the prior year ~~partially offset by network volume increases. Gross profit~~ as a ~~percentage~~result of ~~net revenues decreased~~continued price compression.

The Company’s pharmacy network claims processed, on a 30-day equivalent basis, increased 2.1% to ~~5.0%~~407.7 million claims in the three months ended ~~September 30, 2017,~~March 31, 2019, compared to ~~5.9% in the prior year. Gross profit as a percentage of net revenues decreased to 4.4% in the nine months ended September 30, 2017, compared to 4.8%~~399.5 million claims in the prior year. The ~~decrease~~increase in ~~gross profit as a percentage of net revenues~~the pharmacy network claim volume was primarily due to net new business.

During the three months ended March 31, 2019, the average revenue per pharmacy network claim processed, on a 30-day equivalent basis, decreased 0.3% compared to the prior year as a result of continued price ~~compression and changes~~compression.

The Company’s total generic dispensing rate increased to 88.3% in the ~~mix of our business, partially offset by favorable generic dispensing.~~

~~As you review our Pharmacy Services Segment’s performance in this area, we believe you should consider the following important information about the business for the~~ three ~~and nine~~ months ended ~~September 30, 2017:~~

Our efforts to (i) retain existing clients, (ii) obtain new business and (iii) maintain or improve the rebates and/or discounts we received from manufacturers, wholesalers and retail pharmacies continue to have an impact on our gross profit dollars and gross profit as a percentage of net revenues. In particular, competitive pressures in the PBM industry have caused us and other PBMs to continue to share with clients a larger portion of rebates and/or discounts received from pharmaceutical manufacturers. In addition, market dynamics and regulatory changes have limited our ability to offer plan sponsors pricing that includes retail network “differential” or “spread,” and we expect these trends to continue. The “differential” or “spread” is any difference between the drug price charged to plan sponsors, including Medicare Part D plan sponsors, by a PBM and the price paid for the drug by the PBM to the dispensing provider.

~~Our gross profit as a percentage of revenues benefited from the increase in our total generic dispensing rate, as noted previously.~~

March 31, 2019 compared to 87.6% in the prior year. The continued increase in the Company’s generic dispensing rate was primarily due to the impact of new generic drug introductions and the Company’s ongoing efforts to encourage plan members to use generic drugs when they are available and clinically appropriate. The Company believes its generic dispensing rate will continue to increase in future periods, albeit at a slower pace. This increase will be affected by, among other things, the number of new brand and generic drug introductions and the Company’s success at encouraging plan members to utilize generic drugs when they are available and clinically appropriate.

Operating expenses

~~Operating Expenses~~

Operating expenses in ~~our~~the Pharmacy Services ~~Segment~~segment include selling, general and administrative expenses; depreciation and amortization related to selling, general and administrative activities; and expenses related to specialty retail pharmacies, which include store and administrative payroll, employee benefits and occupancy costs.

Operating expenses ~~decreased $46 million to $292~~increased $31 million, or ~~0.9% as a percentage of net revenues,~~9.2%, in the three months ended ~~September 30, 2017,~~March 31, 2019 compared to ~~$338 million, or 1.1%~~the prior year. The year over year increase in operating expenses was primarily due to operating expenses associated with Aetna’s mail order and specialty pharmacy operations (including intangible amortization) and investments related to the Company’s agreement with Anthem, Inc. (“Anthem”) during the three months ended March 31, 2019.

Operating expenses as a percentage of ~~net~~total revenues remained relatively consistent at 1.1% and 1.0% in the ~~prior year.~~ three months ended March 31, 2019 and 2018, respectively.

Operating ~~expenses~~income and adjusted operating income

Operating income decreased ~~$46 million to $938~~$51 million, or ~~1.0% as a percentage of net revenues,~~5.7%, and adjusted operating income decreased $40 million, or 4.2%, in the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2019 compared to ~~$984 million, or 1.1% as a percentage of net revenues, in~~ the prior year. The decrease in both operating ~~expenses~~income and adjusted operating income was primarily driven by continued price compression and investments related to the Company’s agreement with Anthem during the three months ended March 31, 2019. The decrease in operating income also was due to increased intangible amortization related to Aetna’s mail order and specialty pharmacy operations.

As you review the Pharmacy Services segment’s performance in this area, you should consider the following important information about the business:

The Company’s efforts to (i) retain existing clients, (ii) obtain new business and (iii) maintain or improve the rebates and/or discounts the Company receives from manufacturers, wholesalers and retail pharmacies continue to have an impact on operating income. In particular, competitive pressures in the ~~three~~PBM industry have caused the Company and ~~nine months ended September 30, 2017~~other PBMs to continue to share with clients a larger portion of rebates and/or discounts received from pharmaceutical manufacturers. In addition, marketplace dynamics and regulatory changes have limited the Company’s ability to offer plan sponsors pricing that includes retail network “differential” or “spread,” and the Company expects these trends to continue. The “differential” or “spread” is ~~primarily due~~any difference between the drug price charged to plan sponsors, including Medicare Part D plan sponsors, by a PBM and the price paid for the drug by the PBM to the ~~realization of partially reserved receivables.~~

dispensing provider.

Retail/LTC Segment

The following table summarizes ~~our~~the Retail/LTC ~~Segment’s~~segment’s performance for the respective periods:

Three Months Ended

Nine Months Ended

September 30,

September 30,
In millions

2017

2016

2017

2016
Net revenues

$
19,593

$
20,143

$
58,488

$
60,253

Gross profit (1)(2)

5,685

5,893

17,036

17,560

Gross profit % of net revenues

29.0
%

29.3
%

29.1
%

29.1
%
Operating expenses (1)(2)(3)(4)

4,132

4,115

12,661

12,287

Operating expenses % of net revenues

21.1
%

20.4
%

21.6
%

20.4
%
Operating profit (4)

1,553

1,778

4,375

5,273

Operating profit % of net revenues

7.9
%

8.8
%

7.5
%

8.8
%
Prescriptions filled (90 Day = 3 prescriptions) (5)

304.0

302.9

908.7

908.9

Net revenue increase (decrease):

Total

(2.7)
%

12.5
%

(2.9)
%

15.6
%
Pharmacy

(2.9)
%

15.3
%

(3.1)
%

19.9
%
Front Store

(2.1)
%

0.8
%

(2.4)
%

0.9
%
Total prescription volume (90 Day = 3 prescriptions) (5)

0.4
%

17.1
%

0.0
%

22.1
%
Same store sales increase (decrease) (6):

Total

(3.2)
%

2.3
%

(3.5)
%

2.8
%
Pharmacy

(3.4)
%

3.4
%

(3.6)
%

4.3
%
Front Store

(2.8)
%

(1.0)
%

(3.3)
%

(1.0)
%
Prescription volume (90 Day = 3 prescriptions) (5)

0.3
%

3.0
%

(0.4)
%

4.1
%
Generic dispensing rates

87.2
%

85.8
%

87.4
%

85.8
%
Pharmacy % of net revenues

75.9
%

76.0
%

75.1
%

75.2
%



	Three Months Ended
	March 31,						Change
In millions, except percentages	2019			2018			$			%
Revenues:
Products	$	20,900		$	20,219		$	681		3.4	%
Services	215			213			2			0.9	%
Total revenues	21,115			20,432			683			3.3	%
Cost of products sold	15,297			14,516			781			5.4	%
Operating expenses	4,580			4,292			288			6.7	%
Operating expenses as a % of revenues	21.7		%	21.0		%
Operating income	$	1,238		$	1,624		$	(386	)	(23.8	)%
Operating income as a % of revenues	5.9		%	7.9		%
Adjusted operating income ⁽¹⁾	$	1,489		$	1,836		$	(347	)	(18.9	)%
Adjusted operating income as a % of revenues	7.1		%	9.0		%
Revenues (by major goods/service lines):
Pharmacy	$	16,118		$	15,500		$	618		4.0	%
Front Store	4,799			4,726			73			1.5	%
Other	198			206			(8		)	(3.9	)%
Prescriptions filled ⁽²⁾	346.8			328.8			18.0			5.5	%
Revenues increase:
Total	3.3		%	5.6		%
Pharmacy	4.0		%	7.4		%
Front Store	1.5		%	2.3		%
Total prescription volume increase ⁽²⁾	5.5		%	8.5		%
Same store sales increase: ⁽³⁾
Total	3.8		%	5.8		%
Pharmacy	4.9		%	7.3		%
Front Store	0.4		%	1.6		%
Prescription volume ⁽²⁾	6.7		%	8.5		%
Generic dispensing rate⁽²⁾	88.7		%	88.1		%

^{_____________________________________________}


(1)		~~Gross profit and~~See “Segment Analysis” above in this report for a reconciliation of operating ~~expenses~~income (GAAP measure) to adjusted operating income for the three months ended September 30, 2017 include $2 million and $7 million of acquisition-related integration costs. Gross profit and operating expenses for the nine months ended September 30, 2017 include $7 million and $27 million, respectively, of acquisition-related integration costs. The integration costs are related to the acquisition of Omnicare. Retail/LTC segment.


(2)		Gross profit and operating expenses for the three months ended September 30, 2016 include $5 million and $47 million, respectively, of acquisition-related integration costs. Gross profit and operating expenses for the nine months ended September 30, 2016 include $15 million and $179 million, respectively, of acquisition-related integration costs. The integration costs are related to the acquisitions of Omnicare and the pharmacies and clinics of Target.

~~(3)~~

Operating expenses for the three and nine months ended September 30, 2017 includes $6 million and $211 million, respectively, of charges associated with store closures (see “Note 8 – Store Closures” to our condensed consolidated financial statements). Operating expenses for the nine months ended September 30, 2017 also include a $135 million goodwill impairment charge related to the segment’s RxCrossroads reporting unit (see “Note 2 – Goodwill and Intangible Assets” to our condensed consolidated financial statements).

~~(4)~~

~~Amounts revised to reflect the adoption of ASU 2017-07,~~ ~~Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~, which decreased operating expenses and increased operating profit by $5 million for the three months ended September 30, 2016. For the nine months ended September 30, 2016, the adoption of ASU 2017-07 decreased operating expenses and increased operating profit by $18 million.

~~(5)~~

Includes ~~the~~an 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.

	~~(6)~~
(3)		Same store sales and ~~prescriptions~~prescription volume exclude revenues from MinuteClinic, and revenue and prescriptions from stores in Brazil and LTC ~~operations and from commercialization services.~~ operations.

As of September 30, 2017, we operated 9,751 retail locations (of which 8,016 were our stores that operated a pharmacy and 1,687 were our pharmacies located within Target stores), compared to 9,694 retail locations as of September 30, 2016.

~~Net~~

Commentary

Revenues

~~Net~~

Total revenues ~~in our Retail/LTC Segment decreased $549~~increased $683 million, or ~~2.7%~~3.3%, to ~~approximately $19.6~~$21.1 billion in the three months ended ~~September 30, 2017, as~~March 31, 2019 compared to the prior year. ~~Net revenues in our Retail/LTC Segment decreased $1.8 billion, or 2.9%, to approximately $58.5 billion in~~The increase was primarily driven by increased prescription volume and brand name drug price inflation, partially offset by continued reimbursement pressure and the ~~nine months ended September 30, 2017, as compared to the prior year.~~ impact of generic drug introductions.

As you review ~~our~~the Retail/LTC ~~Segment’s~~segment’s performance in this area, ~~we believe~~ you should consider the following important information about the ~~business for the three and nine months ended September 30, 2017:~~

Front store same store sales decreased by 2.8% and 3.3% for the three and nine months ended September 30, 2017, respectively, compared to the prior year as a result of continued softer customer traffic and as promotional

business:

~~strategies continue to be rationalized, partially offset by an increase in basket size. For the nine months ended September 30, 2017, front~~Front store same store sales ~~were negatively impacted by approximately 35 basis points due to the absence of leap day in the current year.~~

Pharmacy same store sales decreased 3.4% and 3.6% for the three and nine months ended September 30, 2017, respectively, due to the negative impact of approximately 435 and 440 basis points, respectively, of recent generic introductions. Same store prescription volumes increased ~~0.3% and decreased~~ 0.4%, on a 30-day equivalent basis, in the three and nine months ended September 30, 2017, respectively. The previously-discussed marketplace changes that restrict CVS Pharmacy from participating in certain networks had an approximately 420 and 450 basis point negative impact on same store prescription volumes in the three and nine months ended September 30, 2017, respectively.

Due to the previously-discussed marketplace changes that restrict CVS Pharmacy from participating in certain networks, we continue to expect prescription growth to be negatively impacted for the remainder of 2017 although to a lesser extent than the first nine months of the year.

Pharmacy revenues continue to be negatively impacted by the conversion of brand name drugs to equivalent generic drugs, which typically have a lower selling price. The generic dispensing rate grew to 87.2% and 87.4% for the three and nine months ended September 30, 2017, respectively, compared to 85.8% in both periods in the prior year. In addition, our pharmacy revenue growth has also been affected by continued reimbursement pressure, the mix of drugs sold and the lack of significant new brand name drug introductions.

~~Pharmacy revenue growth may be impacted by industry changes in the LTC business, such as lower occupancy rates at skilled nursing facilities.~~

Pharmacy revenue continued to benefit from our ability to attract and retain managed care customers, and the increased use of pharmaceuticals by an aging population as the first line of defense for health care.

~~Gross Profit~~

Gross profit in our Retail/LTC Segment includes net revenues less the cost of merchandise sold in the period and the related purchasing costs, warehousing costs, delivery costs and actual and estimated inventory losses.

~~Gross profit decreased $209 million, or 3.5%, to $5.7 billion~~ in the three months ended ~~September 30, 2017, as~~March 31, 2019 compared to the prior year. ~~Gross profit decreased $524 million, or 3.0%, to $17.0 billion~~The increase in front store revenues in 2019 was primarily driven by increases in health product sales.

Pharmacy same store sales increased 4.9% in the ~~nine~~three months ended ~~September 30, 2017, as~~March 31, 2019 compared to the prior year. ~~Gross profit as~~The increase was driven by the 6.7% increase in pharmacy same store prescription volumes on a ~~percentage~~30-day equivalent basis driven mainly by (i) continued adoption of ~~net revenues decreased~~patient care programs, (ii) collaborations with PBMs, and (iii) the Company’s preferred status in a number of Medicare Part D networks.

Pharmacy revenue continues to ~~29.0%~~be adversely affected by the conversion of brand name drugs to equivalent generic drugs, which typically have a lower selling price. The generic dispensing rate grew to 88.7% in the three months ended ~~September 30, 2017,~~March 31, 2019 compared to ~~29.3%~~88.1% in the prior year. ~~Gross profit as a percentage of net revenues remained flat at 29.1%~~Pharmacy revenue growth also has been negatively affected by continued reimbursement pressure.

Pharmacy revenue growth has been adversely affected by industry challenges in the ~~nine months ended September 30, 2017, compared to the prior year.~~

~~The decrease in gross profit dollars in both Retail Pharmacy and~~ LTC ~~was primarily driven by the continued reimbursement pressure~~business, such as continuing lower occupancy rates at skilled nursing facilities, as well as ~~loss~~the deteriorating financial health of ~~prescriptions~~many skilled nursing facilities.

Pharmacy revenue in ~~Retail Pharmacy due~~2019 continued to ~~previously discussed network restrictions. The decrease in gross profit~~benefit from the Company’s ability to attract and retain managed care customers and the increased use of pharmaceuticals by an aging population as ~~a percentage~~the first line of net revenues in the three months ended September 30, 2017 was primarily due to continued reimbursement pressure. Gross profit as a percentage of net revenues in the nine months ended September 30, 2017 was flat primarily driven by increased front store margins which offset the continued reimbursement pressure on pharmacy. Front store margins increased due to changes in the mix of products sold and efforts to rationalize promotional strategies.

~~As you review our Retail/LTC Segment’s performance in this area, we believe you should consider the following important information about the business~~defense for ~~the three and nine months ended September 30, 2017:~~

Front store revenues as a percentage of total net revenues for the three and nine months ended September 30, 2017 was 22.8% and 23.6% for the three and nine months ended September 30, 2017, respectively, compared to 22.7% and 23.5%, respectively, in the prior year. On average, our gross profit on front store revenues is higher than our gross profit on pharmacy revenues.

Our pharmacy gross profit rates have been adversely affected by the efforts of managed care organizations, PBMs and governmental and other third-party payors to reduce their prescription drug costs, including the use

health care.

Operating expenses

of restrictive networks, as well as changes in the mix of our business within the pharmacy portion of the Retail/LTC Segment. In the event the reimbursement pressure accelerates, we may not be able to sustain our current rate of revenue growth and gross profit dollars could be adversely impacted. The increased use of generic drugs has positively impacted our gross profit but has resulted in third-party payors augmenting their efforts to reduce reimbursement payments to retail pharmacies for prescriptions. This trend, which we expect to continue, reduces the benefit we realize from brand to generic product conversions.

~~Operating Expenses~~

Operating expenses in ~~our~~the Retail/LTC ~~Segment~~segment include store payroll, ~~and~~store employee benefits, store occupancy costs, selling expenses, advertising expenses, depreciation and amortization expense and certain administrative expenses.

Operating expenses increased ~~$16~~$288 million, ~~to $4.1 billion,~~ or ~~21.1% as a percentage of net revenues,~~6.7%, in the three months ended ~~September 30, 2017, as~~March 31, 2019 compared to $4.1 billion, or 20.4% as a percentage of net revenues, in the prior year. Operating expenses increased $373 million to $12.7 billion, or 21.6% as a percentage of net revenues, in the nine months ended September 30, 2017, as compared to $12.3 billion, or 20.4% as a percentage of net revenues, in the prior year. The increase in operating expenses in the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019 was primarily due to the following:

~~Hurricane related expenses of $53 million in the three and nine months ended September 30, 2017 as a result of the three major hurricanes that hit the southern United States and Puerto Rico.~~

Charges of $6 million and $211 million in the three and nine months ended September 30, 2017, respectively, associated with the closure of five and 68 retail stores, respectively, in connection with our enterprise streamlining initiative (see "Note 8 - Store Closures" to our condensed consolidated financial statements).

~~An increase in operating expenses due to incremental store operating costs associated with operating more stores.~~

These items were partially offset by a decrease in acquisition-related integration costs of $40 million and $152 million in the three and nine months ended September 30, 2017, respectively, versus the same periods in the prior year.

~~The increase~~A $135 million store rationalization charge recorded during the first quarter of 2019 primarily related to operating lease right-of-use asset impairment charges in connection with the ~~nine months ended September 30, 2017 was also due to a goodwill impairment charge~~planned closure of ~~$135 million~~46 underperforming retail pharmacy stores in the second quarter of ~~2017~~2019;

The investment of a portion of the savings from the TCJA in wages and benefits; and

The increased prescription volume described previously;

Partially offset by the absence of the $86 million pre-tax loss on the sale of the Company’s RxCrossroads subsidiary recorded in the three months ended March 31, 2018.

Operating expenses as a percentage of total revenues were 21.7% in the three months ended March 31, 2019 compared to 21.0% in the prior year. The increase in operating expenses as a percentage of total revenues was primarily driven by the store rationalization charge and the impact of the investment of a portion of the savings from the TCJA in wages and benefits in the three months ended March 31, 2019, partially offset by the absence of a pre-tax loss on the sale of the Company’s RxCrossroads ~~reporting unit (see "Note 2 - Goodwill~~subsidiary recorded in the three months ended March 31, 2018.

Operating income and ~~Intangible Assets"~~adjusted operating income

Operating income decreased $386 million, or 23.8%, and adjusted operating income decreased $347 million, or 18.9%, in the three months ended March 31, 2019 compared to the prior year. The decrease in both operating income and adjusted operating income was primarily due to (i) continued reimbursement pressure, (ii) increased operating expenses associated with the investment of a portion of the savings from the TCJA in wages and benefits described above and higher legal costs and (iii) declining year-over-year performance in our ~~condensed consolidated financial statements).~~

long-term care business. The decrease in operating income also was driven by the $135 million store rationalization charge described above, partially offset by the absence of the $86 million pre-tax loss on the sale of the Company’s RxCrossroads subsidiary recorded in the three months ended March 31, 2018.

As you review the Retail/LTC segment’s performance in this area, you should consider the following important information about the business:

The Company’s pharmacy operating income has been adversely affected by the efforts of managed care organizations, PBMs and governmental and other third-party payors to reduce their prescription drug costs, including the use of restrictive networks, as well as changes in the mix of business within the pharmacy portion of the Retail/LTC Segment. If the reimbursement pressure accelerates, the Company may not be able grow revenues, and its operating income could be adversely affected.

The increased use of generic drugs has positively impacted the Company’s operating income but has resulted in third-party payors augmenting their efforts to reduce reimbursement payments to retail pharmacies for prescriptions. This trend, which the Company expects to continue, reduces the benefit the Company realizes from brand to generic drug conversions.

Health Care Benefits Segment

For periods prior to the Aetna Acquisition (which occurred on November 28, 2018), the Health Care Benefits segment consisted solely of the Company’s SilverScript PDP business. The following table summarizes the Health Care Benefits segment’s performance for the respective periods:



	Three Months Ended
	March 31,						Change
In millions, except percentages	2019			2018			$		%
Revenues:
Premiums	$	16,259		$	1,306		$	14,953	1,144.9	%
Services	1,447			10			1,437		14,370.0	%
Net investment income	164			2			162		8,100.0	%
Total revenues	17,870			1,318			16,552		1,255.8	%
Benefit costs	13,655			1,329			12,326		927.5	%
MBR (Benefit costs as a % of premium revenues) ⁽¹⁾	84.0		%	NM
Operating expenses	$	3,060		$	127		$	2,933	2,309.4	%
Operating expenses as a % of revenues	17.1		%	9.6		%
Operating income (loss)	$	1,155		$	(138	)	$	1,293	937.0	%
Operating income (loss) as a % of revenues	6.5		%	NM
Adjusted operating income (loss) ⁽²⁾	$	1,562		$	(137	)	$	1,699	1,240.1	%
Adjusted operating income (loss) as a % of revenues	8.7		%	NM

^{_____________________________________________}


(1)	The Health Care Benefits segment for the three months ended March 31, 2018 consisted solely of the Company’s SilverScript PDP business. Accordingly, the MBR for the three months ended March 31, 2018 is not meaningful and not directly comparable to the MBR for the three months ended March 31, 2019.


(2)	See “Segment Analysis” above in this report for a reconciliation of operating income (GAAP measure) to adjusted operating income for the Health Care Benefits segment.

~~Corporate Segment~~

Commentary

Revenues

Total revenues increased $16.6 billion for the three months ended March 31, 2019 compared to the prior year primarily driven by the Aetna Acquisition. Revenues for the three months ended March 31, 2019 reflect strong membership growth in the Health Care Benefits segment's Medicare products.

Operating ~~Expenses~~

expenses

Operating expenses in ~~our Corporate Segment~~the Health Care Benefits segment include selling, general and administrative expenses ~~from~~and depreciation and amortization expenses.

Operating expenses increased $2.9 billion in the three months ended March 31, 2019 compared to the prior year primarily driven by the Aetna Acquisition (including the amortization of intangible assets).

Operating income (loss) and adjusted operating income (loss)

Operating income and adjusted operating income increased $1.3 billion and $1.7 billion, respectively, in the three months ended March 31, 2019 compared to the prior year. The increases were primarily driven by the Aetna Acquisition. The increase in operating income was partially offset by an increase in intangible amortization related to the Aetna Acquisition. Operating loss and adjusted operating loss for the three months ended March 31, 2018 reflect the seasonality of earnings for the Company's SilverScript PDP business. The quarterly earnings of the Company’s SilverScript PDP business generally increase as the year progresses.

Health Care Benefits segment’s medical membership as of March 31, 2019 and December 31, 2018 were as follows:



	March 31, 2019				December 31, 2018
In thousands	Insured	ASC	Total		Insured	ASC	Total
Medical membership:
Commercial	3,611	14,302	17,913		3,871	13,888	17,759
Medicare Advantage	2,231	—	2,231	��	1,758	—	1,758
Medicare Supplement	804	—	804		793	—	793
Medicaid	1,315	571	1,886		1,128	663	1,791
Total medical membership	7,961	14,873	22,834		7,550	14,551	22,101

Supplementary membership information:
Medicare Prescription Drug Plan (standalone) ⁽¹⁾			6,044				6,134

^{_____________________________________________}


(1)	Represents the Company’s SilverScript PDP membership only. Excludes 2.4 million and 2.3 million members as of March 31, 2019 and December 31, 2018, respectively, related to Aetna’s standalone PDPs that were sold effective December 31, 2018. The Company will retain the financial results of the divested plans through 2019 through a reinsurance agreement.

Medical Membership

Medical membership as of March 31, 2019 increased compared with December 31, 2018, reflecting increases in Medicare, Commercial ASC and Medicaid products, partially offset by declines in Commercial Insured products.

Medicare Update

On April 1, 2019, the United States Centers for Medicare & Medicaid Services (“CMS”) issued its final notice detailing final 2020 Medicare Advantage benchmark payment rates (the “Final Notice”). Overall the Company projects the benchmark rates in the Final Notice will increase funding for its Medicare Advantage business, excluding the impact of the health insurer fee, by approximately 2.0% in 2020 compared to 2019.

Corporate/Other Segment

Commentary

Revenues

Total revenues increased $62 million in the three months ended March 31, 2019 compared to the prior year.

In 2019, revenues relate to products for which the Company no longer solicits or accepts new customers, such as large case pensions and long-term care insurance products, that were acquired in the Aetna Acquisition. In 2018, revenues relate to interest income related to the $40 billion of 2018 Notes issued to partially fund the Aetna Acquisition.

Operating expenses

Operating expenses within the Corporate/Other segment include certain aspects of costs related to executive management and the corporate relations, legal, compliance, human resources, information technology and finance ~~departments.~~

departments and acquisition-related transaction and integration costs. After the Aetna Acquisition Date, such operating expenses also include operating costs to support the large case pensions and long-term care insurance products acquired in the Aetna Acquisition.

Operating expenses ~~decreased $8 million, or 3.1%, to $220 million and~~ increased ~~$26 million, or 4.3%, to $686~~$148 million in the three ~~and nine~~ months ended ~~September 30, 2017, respectively, as~~March 31, 2019 compared to the prior year. The ~~change in operating expenses~~increase was ~~partially~~primarily driven by ~~ongoing investments in strategic initiatives and increased employee benefit costs, offset by a decrease~~an increase in acquisition-related integration costs of ~~$16~~$108 million ~~for~~in the three ~~and nine~~ months ended ~~September 30, 2017 versus~~March 31, 2019 as compared to the ~~same periods in~~ prior ~~year.~~

period and incremental operating expenses to support the large case pensions and long-term care insurance products described above.

Liquidity and Capital Resources

~~We maintain~~

Cash Flows

The Company maintains a level of liquidity sufficient to allow usit to ~~cover our~~meet its cash needs in the short-term. Over the ~~long-term, we manage our~~long term, the Company manages its cash and capital structure to maximize shareholder return, maintain ~~our~~its financial ~~position~~condition and maintain flexibility for future strategic initiatives. WeThe Company continuously ~~assess our~~assesses its regulatory capital requirements, working capital needs, debt and leverage levels, debt maturity schedule, capital expenditure requirements, dividend payouts,

potential share repurchases and future investments or acquisitions. ~~We believe our~~The Company believes its operating cash flows, commercial paper program, credit facilities, sale-leaseback program, as well as any potential future borrowings, will be sufficient to fund these future payments and long-term initiatives.

The net change in cash, ~~and~~ cash equivalents and restricted cash is as follows:

Nine Months Ended September 30,
In millions

2017

2016
Net cash provided by operating activities

$
8,143

$
8,020
Net cash used in investing activities

(1,608)

(1,652)
Net cash used in financing activities

(7,421)

(6,640)
Effect of exchange rate changes on cash and cash equivalents

—

2
Net decrease in cash and cash equivalents

$
(886)

$
(270)



	Three Months Ended March 31,						Change
In millions	2019			2018			$			%
Net cash provided by operating activities	$	1,948		$	2,355		$	(407	)	(17.3	)%
Net cash used in investing activities	(891		)	(131		)	(760		)	580.2	%
Net cash provided by financing activities	816			38,140			(37,324		)	(97.9	)%
Net increase in cash, cash equivalents and restricted cash	$	1,873		$	40,364		$	(38,491	)	95.4	%

Commentary

Net cash provided by operating activities ~~was approximately $8.1 billion~~decreased by $407 million in the ~~nine~~three months ended ~~September 30, 2017, compared~~March 31, 2019 due primarily to ~~$8.0 billion in~~ the ~~nine~~timing of client and customer payments as well as the timing of payments from CMS, partially offset by the Aetna Acquisition. Net cash provided by operating activities for the three months ended ~~September 30, 2016.~~March 31, 2018 reflects an advance payment from CMS received in March 2018 related to April 2018.

Net cash used in investing activitiesincreased by $760 million in the three months ended March 31, 2019 largely driven by the three months ended March 31, 2018 reflecting $725 million in proceeds from the sale of RxCrossroads.

Net cash provided by financing activities was ~~approximately $1.6~~$816 million in the three months ended March 31, 2019 compared to $38.1 billion in the ~~nine~~prior year. The decrease in cash provided by financing activities primarily related to long-term borrowings during 2018 to partially fund the Aetna Acquisition, as well as a $500 million partial repayment of the term loan used to partially fund the Aetna Acquisition and the repayment of $375 million of senior notes that matured during the three months ended ~~September 30, 2017, compared to $1.7 billion in the nine months ended September 30, 2016. During the nine months ended September 30, 2017 cash used for acquisitions~~March 31, 2019.

Short-term Borrowings

Commercial Paper and ~~other investments increased approximately $0.2 billion from the prior year, which was offset by a decrease in capital expenditures of approximately $0.2 billion in the current year.~~

~~Net cash used in financing activities~~ was $7.4 billion in the nine months ended September 30, 2017, compared to net cash used in financing activities of $6.6 billion in the nine months ended September 30, 2016. The cash used in financing activities increased $0.8 billion primarily due to an increase of $0.4 billion in net debt repayments and an increase of $0.4 billion in share repurchases in the current year.

In billions

Authorization Date

Authorized

Remaining
November 2, 2016 (“2016 Repurchase Program”)

$
15.0

$
13.9
December 15, 2014 (“2014 Repurchase Program”)

10.0

—

Back-up Credit Facilities

~~modified or terminated by the Board of Directors at any time. The 2014 Repurchase Program was completed during the second quarter of 2017.~~

During the nine months ended September 30, 2017, the Company repurchased an aggregate of approximately 55.4 million shares of common stock for approximately $4.4 billion pursuant to the 2014 and 2016 Repurchase Programs. This activity includes the accelerated share repurchase agreements (“ASRs”) described below.

The Company had ~~$110 million~~approximately $3.0 billion of commercial paper outstanding at a weighted average interest rate of ~~1.26%~~2.74% as of ~~September 30, 2017.~~March 31, 2019. In connection with its commercial paper program, the Company maintains a ~~$1.0~~$1.75 billion 364-day unsecured back-up revolving credit facility, which expires on May ~~17, 2018,~~16, 2019, a $1.25 billion, five-year unsecured back-up ~~credit facility, which expires on July 24, 2019, a $1.25 billion, five-year unsecured back-up~~revolving credit facility, which expires on July 1, 2020, ~~and~~ a $1.0 billion, five-year unsecured back-up revolving credit facility, which expires on May 18, ~~2022.~~2022, and a $2.0 billion, five-year unsecured back-up revolving credit facility, which expires on May 17, 2023. The Company intends to renew its 364-day unsecured back-up revolving credit facility prior to its expiration. The credit facilities allow for borrowings at various rates that are dependent, in part, on the Company’s public debt ratings and require the Company to pay a weighted average quarterly facility fee of approximately ~~0.02%~~.03%, regardless of usage. As of ~~September 30, 2017,~~March 31, 2019, there were no borrowings outstanding under any of the back-up credit facilities.

Bridge Loan Facility

On ~~January~~December 3, 2017, in connection with the Aetna Acquisition, the Company entered into a ~~$2.5~~$49.0 billion ~~revolving credit facility.~~unsecured bridge loan facility commitment. The ~~credit~~Company paid $221 million in fees upon entering into the agreement. The fees were capitalized in other current assets and were amortized as interest expense over the period the bridge loan facility ~~allowed~~commitment was outstanding. The bridge loan facility commitment was reduced to $44.0 billion on December 15, 2017 upon the Company entering into a $5.0 billion term loan agreement. On March 9, 2018, the Company issued the 2018 Notes with an aggregate principal amount of $40.0 billion (see “Long-term Borrowings - 2018 Notes” below). At that time, the bridge loan facility commitment was reduced to $4.0 billion, and the Company paid $8 million in fees to retain the bridge loan facility commitment through the Aetna Acquisition Date. Those fees were capitalized in other current assets and were amortized as interest expense over the period the bridge loan facility commitment was outstanding. The Company recorded $161 million of amortization of the bridge loan facility commitment fees during the three months ended March 31, 2018, which was recorded in interest expense in the unaudited condensed consolidated statement of operations. On October 26, 2018, the Company entered into a $4.0 billion unsecured 364-day bridge term loan agreement to formalize the bridge loan facility discussed above. On November 28, 2018, in connection with the Aetna Acquisition, the $4.0 billion unsecured 364-day bridge term loan agreement terminated.

Federal Home Loan Bank of Boston

Since the Aetna Acquisition Date, a subsidiary of the Company is a member of the Federal Home Loan Bank of Boston (the “FHLBB”). As a member, the subsidiary has the ability to obtain cash advances, subject to certain minimum collateral requirements. The maximum borrowing capacity available from the FHLBB as of March 31, 2019, was approximately $860 million. As of March 31, 2019, there were no outstanding advances from the FHLBB.

Long-term Borrowings

2018 Notes

On March 9, 2018, the Company issued an aggregate of $40.0 billion in principal amount of the 2018 Notes for total proceeds of approximately $39.4 billion, net of discounts and underwriting fees. The net proceeds of the 2018 Notes were used to fund a portion of the Aetna Acquisition. The 2018 Notes consist of the following:




In millions
3.125% senior notes due March 2020	$	2,000
Floating rate notes due March 2020	1,000
3.35% senior notes due March 2021	3,000
Floating rate notes due March 2021	1,000
3.7% senior notes due March 2023	6,000
4.1% senior notes due March 2025	5,000
4.3% senior notes due March 2028	9,000
4.78% senior notes due March 2038	5,000
5.05% senior notes due March 2048	8,000
Total debt principal	$	40,000

Term Loan Agreement

On December 15, 2017, in connection with the Aetna Acquisition, the Company entered into a $5.0 billion term loan agreement. The term loan facility under the term loan agreement consists of a $3.0 billion three-year tranche and a $2.0 billion five-year tranche. The term loan agreement allows for borrowings at various rates that are dependent, in part, on the Company’s debt ~~ratings and required~~ratings. In connection with the Aetna Acquisition, the Company ~~to pay~~borrowed $5.0 billion (a $3.0 billion three-year tranche and a ~~weighted average quarterly facility fee of approximately 0.03%, regardless of usage. The maximum available~~$2.0 billion five-year tranche) under ~~this credit facility decreased by $750 million to $1.75 billion on March 31, 2017.~~the term loan agreement in November 2018. The Company terminated ~~this facility effective May 17, 2017.~~

~~Our back‑up~~the $2.0 billion five-year tranche in December 2018 with the repayment of the borrowing. In March 2019, the Company made a payment of $500 million on the three-year tranche. As of March 31, 2019, the Company had $2.5 billion outstanding under the term loan agreement.

Aetna Related Debt

Upon the closing of the Aetna Acquisition, the Company assumed long-term debt with a fair value of $8.1 billion with stated interest rates ranging from 2.2% to 6.75%.

Debt Covenants

The Company’s back-up revolving credit facilities, ~~and~~ unsecured senior notes, unsecured floating rate notes and term loan agreement contain customary restrictive financial and operating covenants. These covenants do not include ~~a requirement for the~~an acceleration of ~~our~~the Company’s debt maturities in the event of a downgrade in ~~our~~the Company’s credit ~~rating. We~~ratings. The covenants do not ~~believe the restrictions contained in these covenants~~ materially affect ~~our~~the Company’s financial or operating flexibility. As of ~~September 30, 2017,~~March 31, 2019, the Company iswas in compliance with all of its debt covenants.

Debt Ratings

As of ~~September 30, 2017, our~~March 31, 2019, the Company’s long-term debt was rated “Baa2” by Moody’s ~~as “Baa1” with a stable outlook~~ and “BBB” by Standard & Poor’s ~~as “BBB+” with a stable outlook,~~(“S&P”), and ~~our~~its commercial paper program was rated ~~“P‑2”~~“P-2” by Moody’s and ~~“A‑2”~~“A-2” by ~~Standard & Poor’s.~~S&P. In assessing ~~our~~the Company’s credit strength, ~~we believe~~the Company believes that both Moody’s and ~~Standard & Poor’s~~S&P considered, among other things, ~~our~~the Company’s capital structure and financial policies as well as ~~our~~its consolidated balance sheet, ~~our~~its historical acquisition activity and other financial information. Although wethe Company currently ~~believe our~~believes its long-term debt ratings will remain investment grade, weit cannot guarantee the future

actions of Moody’s and/or ~~Standard & Poor’s. Our~~S&P. The Company’s debt ratings have a direct impact on ~~our~~its future borrowing costs, access to capital markets and new store operating lease costs.

~~Off-Balance Sheet Arrangements~~

~~In connection with executing operating leases, we provide a guarantee~~

Share Repurchase Programs

During the three months ended March 31, 2019 and 2018, the Company did not repurchase any shares of common stock. See Note 7 ‘‘Shareholders’ Equity’’ to the lease payments. We also finance a portion of our new store development through sale-leaseback transactions, which involve selling stores to unrelated parties and then leasing the stores back under leases that generally qualify and are accounted for as operating leases. We do not have any retained or contingent interests in the stores, and we do not provide any guarantees, other than a guarantee of the lease payments, in connection with the transactions. In accordance with GAAP, such operating leases are not reflected in

~~our condensed consolidated balance sheet. See “Note 12 – Commitments and Contingencies” to our~~unaudited condensed consolidated financial statements for ~~a detailed discussion of these~~additional information on the Company’s share repurchase program.

Off-Balance Sheet Arrangements

See Note 11 ‘‘Commitments and Contingencies’’ to the unaudited condensed consolidated financial statements for information on the Company’s lease guarantees.

Critical Accounting Policies

~~We prepare our~~

The Company prepares the unaudited condensed consolidated financial statements in conformity with ~~GAAP,~~generally accepted accounting principles, which ~~requires~~require management to make certain estimates and apply judgment. ~~We base our estimates~~Estimates and judgments are based on historical experience, current trends and other factors that management believes to be important at the time the unaudited condensed consolidated financial statements are prepared. On a regular basis, ~~we review our~~the Company reviews its accounting policies and how they are applied and disclosed in ~~our~~the unaudited condensed consolidated financial statements.

While ~~we believe that~~the Company believes the historical experience, current trends and other factors considered by management support the preparation of ~~our~~the unaudited condensed consolidated financial statements in conformity with ~~GAAP,~~generally accepted accounting principles, actual results could differ from ~~our~~ estimates, and such differences could be material.

~~As discussed~~

Leases

Effective January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842). Lessees are required to recognize a right-of-use asset and a lease liability for virtually all of their leases (other than leases that meet the definition of a short-term lease). The liability is equal to the present value of lease payments. The asset is based on the liability, subject to certain adjustments, such as for initial direct costs. For income statement purposes, a dual model was retained, requiring leases to be classified as either operating or finance leases. Operating leases result in ~~“Note 2 – Goodwill~~straight-line expense (similar to operating leases under the prior accounting standard) while finance leases result in a front-loaded expense pattern (similar to capital leases under the prior accounting standard). Lessor accounting is similar to the prior model, but updated to align with certain changes to the lessee model (e.g., certain definitions, such as initial direct costs, have been updated) and ~~Intangible Assets”~~the new revenue recognition standard that was adopted in 2018. See the New Accounting Pronouncements Recently Adopted section of Note 1 ‘‘Significant Accounting Policies’’ to ~~our~~the unaudited condensed consolidated financial statements ~~during~~for a detailed discussion of the ~~three months ended September~~adoption of this new lease standard.

Goodwill

During 2018, the LTC reporting unit continued to experience industry wide challenges that have impacted management’s ability to grow the business at the rate that was originally estimated when the Company acquired Omnicare. Those challenges included lower client retention rates, lower occupancy rates in skilled nursing facilities, the deteriorating financial health of numerous skilled nursing facility customers which resulted in a number of customer bankruptcies in 2018, and continued facility reimbursement pressures. In June 2018, LTC management submitted its initial budget for 2019 and updated the 2018 annual forecast which showed a projected deterioration in the financial results for the remainder of 2018 and in 2019, which also caused management to update its long-term forecast beyond 2019. Based on these updated projections, management determined that there were indicators that the LTC reporting unit’s goodwill may be impaired and, accordingly, management performed an interim goodwill impairment test as of June 30, ~~2017, we~~2018. The results of that interim impairment test showed that the fair value of the LTC reporting unit was lower than the carrying value, resulting in a $3.9 billion pre-tax goodwill impairment charge in the second quarter of 2018.

During the third quarter of 2018, the Company performed ~~our~~its required annual impairment tests of ~~goodwill. The results of the impairment tests indicated that~~goodwill and concluded there was no impairment of goodwill. ~~The~~

During the fourth quarter of 2018, the LTC reporting unit missed its forecast primarily due to operational issues and customer liquidity issues, including one significant customer bankruptcy. Additionally, LTC management submitted an updated final

budget for 2019 which showed significant additional deterioration in the projected financial results for 2019 compared to the analyses performed in the second and third quarters of 2018 primarily due to continued industry and operational challenges, which also caused management to make further updates to its long-term forecast beyond 2019. Based on these updated projections, management determined that there were indicators that the LTC reporting unit’s goodwill may be further impaired and, accordingly, an interim goodwill impairment ~~tests resulted~~test was performed during the fourth quarter of 2018. The results of that impairment test showed that the fair value of the LTC reporting unit was lower than the carrying value, resulting in an additional $2.2 billion goodwill impairment charge in the ~~fair values~~fourth quarter of our Pharmacy Services and Retail Pharmacy reporting units exceeding their carrying values by significant margins. The fair values of our LTC and RxC reporting units exceeded their carrying values by approximately 1% and 6%, respectively. The balance of goodwill for our LTC and RxC reporting units at September 30, 2017 was approximately $6.4 billion and $0.4 billion, respectively.

2018.

The fair value of ~~our~~the LTC reporting ~~units is estimated~~unit was determined using a combination of a discounted cash flow method and a market multiple method. ~~The determination~~In addition to the lower financial projections, changes in risk-free interest rates and lower market multiples of peer group companies also contributed to the amount of the 2018 goodwill impairment charges.

As of March 31, 2019, the remaining goodwill balance in the LTC reporting unit is approximately $431 million.

Although the Company believes the financial projections used to determine the fair value of ~~our~~the LTC reporting units requires the Company to make significant assumptions and estimates. These assumptions and estimates primarily include, but are not limited to, the selection of appropriate peer group companies; control premiums and valuation multiples appropriate for acquisitionsunit in the ~~industries in which~~fourth quarter of 2018 were reasonable and achievable, the Company competes; discount rates, terminal growth rates; and forecasts of revenue, operating profit, depreciation and amortization, capital expenditures and future working capital requirements. When determining these assumptions and preparing these estimates, we consider eachLTC reporting unit may continue to face challenges that may affect the Company’s ability to grow the LTC reporting unit’s historical results and current operating trends and our consolidated revenues, profitability and cash flow results, forecasts and industry trends. Our estimates can be affected by a number of factors including, but not limited to, general economic and regulatory conditions, our market capitalization, efforts of customers and payers to reduce costs including their prescription drug costs and/or increase member co-payments,business at the ~~continued efforts of competitors to gain market share and consumer spending patterns.~~

~~As previously discussed, the results of our annual~~rate estimated when such goodwill impairment test ~~resulted~~was performed. These challenges and some of the key assumptions included in the Company’s financial projections to determine the estimated fair value of ~~our~~the LTC reporting unit exceeding its carrying value by approximately 1%. Our multi-year cash flow projections for our LTC reporting unit have declined from the prior year due to customer reimbursement pressures, industry trends such as lowerinclude client retention rates, occupancy rates in skilled nursing facilities, ~~and client retention rates. Our projected discounted cash flow model assumes future script growth from our~~the financial health of skilled nursing facility customers, facility reimbursement pressures, the Company’s ability to execute its senior living initiative, the Company’s ability to make acquisitions and integrate those businesses into its LTC operations in an orderly manner, as well as the ~~impact of acquisitions. Such projections also include expected~~Company’s ability to extract cost savings from labor productivity and other initiatives. Our market multiple method is heavily dependent on earnings multiples of market participants in the pharmacy industry, including certain competitors and suppliers. If we do not achieve our forecasts, given the small excess ofThe fair value ~~over the related carrying value, as well as current market conditions in the healthcare industry, it is reasonably possible that the operational performance~~ of the LTC reporting unit ~~could be below our current expectations~~also is dependent on market multiples of peer group companies and the risk-free interest rate environment, which impacts the discount rate used in the discounted cash flow valuation method. If the Company does not achieve its forecasts, it is reasonably possible in the near term ~~and~~that the goodwill of the LTC reporting unit could be deemed to be impaired again by a material amount.

For a full description of ~~our~~the Company’s other critical accounting policies, ~~please refer to~~see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in ~~our 2016~~the 2018 Form ~~10‑K.~~

10-K.

Cautionary Statement Concerning Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 (the “Reform ~~Act)”~~Act”) provides a safe harbor for forward-looking statements made by or on behalf of ~~CVS Health Corporation. The~~the Company. In addition, the Company and its representatives may, from time to time, make written or verbal forward-looking statements, including statements contained in the Company’s filings with the ~~U.S.~~United States Securities and Exchange Commission ~~(“SEC”~~(the “SEC”) and in its reports to stockholders, press releases, webcasts, conference calls, meetings and other communications. Generally, the inclusion of the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” ~~“estimate,”~~ “project,” ~~“anticipate,~~“should,” ~~“will,” “should”~~“will” and similar expressions identify statements that constitute forward-looking statements. All statements addressing operating performance of CVS Health Corporation or any subsidiary, events or developments that the Company projects, expects or anticipates will occur in the future, including statements relating to corporate strategy; revenue growth; adjusted revenue growth, earnings or earnings per common share growth; adjusted ~~earnings~~operating income or adjusted earnings per common share growth; free cash flow; debt ratings; inventory levels; inventory turn and loss rates; store development; relocations and new market entries; retail pharmacy business, sales results and/or trends and operations; PBM business, sales results and/or trends and operations; specialty pharmacy business, sales trends and operations; LTC pharmacy business, sales results and/or trends and operations; Health Care Benefits business, sales results and/or trends, medical cost trends, medical membership growth, medical benefit ratios and operations; the Company’s ability to attract or retain customers and clients; Medicare Advantage and/or Medicare Part D competitive bidding, enrollment and operations; new product development; and the impact of industry and regulatory developments, as well as statements expressing optimism or pessimism about future operating results or events, are forward-looking statements within the meaning of the Reform Act.

The forward-looking statements are and will be based upon management’s then-current views and assumptions regarding future events and operating performance, and are applicable only as of the dates of such statements. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

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~~the Company’s SEC filings, including those set forth in the Risk Factors section ~~within~~of the ~~2016~~2018 Form 10-K, and including, but not limited to:

Risks relating to the health of the economy in general and in the markets we serve, which could impact consumer purchasing power, preferences and/or spending patterns, drug utilization trends, the financial health of our PBM and LTC clients, retail and specialty pharmacy payors or other payors doing business with the Company and our ability to secure necessary financing, suitable store locations and sale-leaseback transactions on acceptable terms.

~~Efforts to reduce reimbursement levels and alter health care financing practices, including pressure to reduce reimbursement levels for generic drugs.~~

The possibility of PBM and LTC client loss and/or the failure to win new PBM and LTC business, including as a result of failure to win renewal of expiring contracts, contract termination rights that may permit clients to terminate a contract prior to expiration and early or periodic renegotiation of pricing by clients prior to expiration of a contract.

~~The possibility of loss of Medicare Part D business and/or failure to obtain new Medicare Part D business, whether as a result of the annual Medicare Part D competitive bidding process or otherwise.~~

~~Risks related to the frequency and rate of the introduction of generic drugs and brand name prescription products.~~

Risks of declining gross margins attributable to increased competitive pressures, increased client demand for lower prices, enhanced service offerings and/or higher service levels and market dynamics and, with respect to the PBM industry, regulatory changes that impact our ability to offer plan sponsors pricing that includes the use of retail “differential” or “spread” or the use of maximum allowable cost pricing.

Regulatory changes, business changes and compliance requirements and restrictions that may be imposed by Centers for Medicare and Medicaid Services (“CMS”), Office of Inspector General or other government agencies relating to the Company’s participation in Medicare, Medicaid and other federal and state government-funded programs, including sanctions and remedial actions that may be imposed by CMS on our Medicare Part D business.

Risks to our brand and reputation, the Aetna Acquisition, data governance risks, effectiveness of our talent management and alignment of talent to our business needs, and potential changes in public policy, laws and regulations present overarching risks to our enterprise in 2019 and beyond.

Our brand and reputation are two of our most important assets; negative public perception of the industries in which we operate, or of our industries’ or our practices, can adversely affect our businesses, results of operations, cash flows and prospects.

Data governance failures can adversely affect our reputation, businesses and prospects. Our use and disclosure of members’, customers’ and other constituents’ sensitive information is subject to complex regulations at multiple levels. We would be adversely affected if we or our business associates or other vendors fail to adequately protect members’, customers’ or other constituents’ sensitive information.

We face significant competition in attracting and retaining talented employees. Further, managing succession for, and retention of, key executives is critical to our success, and our failure to do so could adversely affect our future performance.

We are subject to potential changes in public policy, laws and regulations, including reform of the United States health care system, that can adversely affect the markets for our products and services and our businesses, operations, results of operations, cash flows and prospects.

Our enterprise strategy may not be an effective response to the changing dynamics in the industries in which we operate, or we may not be able to implement our strategy and related strategic projects.

Efforts to reduce reimbursement levels and alter health care financing practices could adversely affect our businesses.

Gross margins in the industries in which we operate may decline.

Our results of operations are affected by the health of the economy in general and in the geographies we serve.

We operate in a highly competitive business environment. Competitive and economic pressures may limit our ability to increase pricing to reflect higher costs or may force us to accept lower margins. If customers elect to self-insure, reduce benefits or adversely renegotiate or amend their agreements with us, our revenues and results of operations will be adversely affected. We may not be able to obtain appropriate pricing on new or renewal business.

We may lose clients and/or fail to win new business. If we fail to compete effectively in the geographies and product areas in which we operate, including maintaining or increasing membership in our Health Care Benefits segment, our results of operations, financial condition and cash flows could be materially and adversely affected.

We are exposed to risks relating to the solvency of our customers and of other insurers.

We face risks relating to the market availability, pricing, suppliers and safety profiles of prescription drugs that we purchase and sell.

We face risks related to the frequency and rate of the introduction and pricing of generic drugs and brand name prescription drug products.

Possible changes in industry pricing benchmarks and drug pricing generally can adversely affect our PBM business.

Product liability, product recall or personal injury issues could damage our reputation.

We face challenges in growing our Medicare Advantage and Medicare Part D membership.

We face challenges in growing our Medicaid membership, and expanding our Medicaid membership exposes us to additional risks.

A change in our Health Care Benefits product mix may adversely affect our profit margins.

We may not be able to accurately forecast health care and other benefit costs, which could adversely affect our Health Care Benefits segment’s results of operations. There can be no assurance that the future health care and other benefit costs of our Insured Health Care Benefits products will not exceed our projections.

A number of factors, many of which are beyond our control, contribute to rising health care and other benefit costs. If we are unable to satisfactorily manage our health care and other benefit costs, our Health Care Benefits segment’s results of operations and competitiveness will be adversely affected.

The reserves we hold for expected claims in our Insured Health Care Benefits products are based on estimates that involve an extensive degree of judgment and are inherently variable. Any reserve, including a premium deficiency reserve, may be insufficient. If actual claims exceed our estimates, our results of operations could be materially adversely affected, and our ability to take timely corrective actions to limit future costs may be limited.

Extreme events, or the threat of extreme events, could materially increase our health care (including behavioral health) costs. We cannot predict whether or when any such events will occur.

Legislative and regulatory changes could create significant challenges to our Medicare Advantage and Medicare Part D revenues and results of operations, and proposed changes to these programs could create significant additional challenges. Entitlement program reform, if it occurs, could have a material adverse effect on our businesses, operations and/or results of operations.

We may not be able to obtain adequate premium rate increases in our Insured Health Care Benefits products, which would have an adverse effect on our revenues, MBRs and results of operations and could magnify the adverse impact of increases in health care and other benefit costs and of ACA assessments, fees and taxes.

Minimum MLR rebate requirements limit the level of margin we can earn in our Insured Health Care Benefits products while leaving us exposed to higher than expected medical costs. Challenges to our minimum MLR rebate methodology and/or reports could adversely affect our results of operations.

Our business activities are highly regulated. Our Pharmacy Services, Medicare Advantage, Medicare Part D, Medicaid, dual eligible, dual eligible special needs plan, small group and certain other products are subject to particularly extensive and complex regulations. If we fail to comply with applicable laws and regulations, we could be subject to significant adverse regulatory actions or suffer brand and reputational harm which may have a material adverse effect on our businesses. Compliance with existing and future laws, regulations and/or judicial decisions may reduce our profitability and limit our growth.

If our compliance or other systems and processes fail or are deemed inadequate, we may suffer brand and reputational harm and become subject to regulatory actions or litigation which could adversely affect our businesses, results of operations, cash flows and/or financial condition.

Our litigation and regulatory risk profile are changing as a result of the Aetna Acquisition and as we offer new products and services and expand in business areas beyond our historical core businesses of Retail/LTC and Pharmacy Services.

We routinely are subject to litigation and other adverse legal proceedings, including class actions and qui tam actions. Many of these proceedings seek substantial damages which may not be covered by insurance. These proceedings may be costly to defend, result in changes in our business practices, harm our brand and reputation and adversely affect our businesses and results of operations.

We frequently are subject to regular and special governmental audits, investigations and reviews that could result in changes to our business practices and also could result in material refunds, fines, penalties, civil liabilities, criminal liabilities and other sanctions.

We are subject to retroactive adjustments to and/or withholding of certain premiums and fees, including as a result of CMS RADV audits. We generally rely on health care providers to appropriately code claim submissions and document their medical records. If these records do not appropriately support our risk adjusted premiums, we may be required to refund premium payments to CMS and/or pay fines and penalties under the False Claims Act.

Programs funded in whole or in part by the U.S. federal government account for a significant portion of our revenues. The U.S. federal government and our other government customers may reduce funding for health care or other programs, cancel or decline to renew contracts with us, or make changes that adversely affect the number of persons eligible for certain programs, the services provided to enrollees in such programs, our premiums and our administrative and health care and other benefit costs, any of which could have a material adverse effect on our businesses, results of operations and cash flows. In addition, an extended federal government shutdown or a delay by Congress in raising the federal government’s debt ceiling could lead to a delay, reduction, suspension or cancellation of federal government spending and a significant increase in interest rates that could, in turn, have a material adverse effect on our businesses, results of operations and cash flows.

Our results of operations may be adversely affected by changes in laws and policies governing employers and by union organizing activity.

We must develop and maintain a relevant omni-channel experience for our retail customers.

We must maintain and improve our relationships with our retail and specialty pharmacy customers and increase the demand for our products and services, including proprietary brands. If we fail to develop new products, differentiate our products from those of our competitors or demonstrate the value of our products to our customers and members, our ability to retain or grow our customer base may be adversely affected.

In order to be competitive in the increasingly consumer-oriented marketplace for our health care products and services, we will need to develop and deploy consumer-friendly products and services and make investments in consumer engagement, reduce our cost structure and compete successfully with new entrants into our businesses. If we are unsuccessful, our future growth and profitability may be adversely affected.

Our results of operations may be adversely affected if we are unable to contract with manufacturers, providers, suppliers and vendors on competitive terms and develop and maintain attractive networks with high quality providers.

If our service providers fail to meet their contractual obligations to us or to comply with applicable laws or regulations, we may be exposed to brand and reputational harm, litigation or regulatory action. This risk is particularly high in our Medicare, Medicaid, dual eligible and dual eligible special needs plan programs.

Continuing consolidation and integration among providers and other suppliers may increase our medical and other covered benefits costs, make it difficult for us to compete in certain geographies and create new competitors.

We may experience increased medical and other benefit costs, litigation risk and customer and member dissatisfaction when providers that do not have contracts with us render services to our Health Care Benefits members.

Customers, particularly large sophisticated customers, expect us to implement their contracts and onboard their employees and members efficiently and effectively. Failure to do so could adversely affect our reputation, businesses, results of operations, cash flows and prospects. If we or our vendors fail to provide our customers with quality service that meets their expectations, our ability to retain and grow our membership and customer base will be adversely affected.

We are subject to payment-related risks that could increase our operating costs, expose us to fraud or theft, subject us to potential liability and disrupt our business operations.

Our and our vendors’ operations are subject to a variety of business continuity hazards and risks, any of which could interrupt our operations or otherwise adversely affect our performance and results of operations.

We and our vendors have experienced cyber attacks. We can provide no assurance that we or our vendors will be able to detect, prevent or contain the effects of such attacks or other information security (including cybersecurity) risks or threats in the future.

The failure or disruption of our information technology systems or the failure of our information technology infrastructure to support our businesses could adversely affect our reputation, businesses, results of operations and cash flows.

Our business success and results of operations depend in part on effective information technology systems and on continuing to develop and implement improvements in technology. Pursuing multiple initiatives simultaneously could make this continued development and implementation significantly more challenging.

Sales of our products and services are dependent on our ability to attract and motivate internal sales personnel and independent third-party brokers, consultants and agents. New distribution channels create new disintermediation risk. We may be subject to penalties or other regulatory actions as a result of the marketing practices of brokers and agents selling our products.

We also face other risks that could adversely affect our businesses, results of operations, financial condition and/or cash flows, which include:

Failure of our corporate governance policies or procedures, for example significant financial decisions being made at an inappropriate level in our organization;

Inappropriate application of accounting principles or a significant failure of internal control over financial reporting, which could lead to a restatement of our results of operations and/or a deterioration in the soundness and accuracy of our reported results of operations; and

Failure to adequately manage our run-off businesses and/or our regulatory and financial exposure to businesses we have sold, including Aetna’s divested standalone Medicare Part D, domestic group life insurance, group disability insurance and absence management businesses.

Goodwill and other intangible assets could, in the future, become impaired.

We would be adversely affected if we do not effectively deploy our capital. Downgrades or potential downgrades in our credit ratings, should they occur, could adversely affect our brand and reputation, businesses, cash flows, financial condition and results of operations.

Adverse conditions in the U.S. and global capital markets can significantly and adversely affect the value of our investments in debt and equity securities, mortgage loans, alternative investments and other investments, our results of operations and/or our financial condition.

We have limited experience in the insurance and managed health care industry, which may hinder our ability to achieve our objectives as a combined company.

The Aetna Acquisition may not be accretive, and may be dilutive, to our earnings per share, which may adversely affect our stock price.

We may fail to successfully combine the businesses and operations of CVS Health and Aetna to realize the anticipated benefits and cost savings of the Aetna Acquisition within the anticipated timeframe or at all, which could adversely affect our stock price.

Our future results may be adversely impacted if we do not effectively manage our expanded operations following completion of the Aetna Acquisition.

We may have difficulty attracting, motivating and retaining executives and other key employees following completion of the Aetna Acquisition.

The Aetna integration process could disrupt our ongoing businesses and/or operations.

Our indebtedness following completion of the Aetna Acquisition is substantially greater than our indebtedness on a stand-alone basis and greater than the combined indebtedness of CVS Health and Aetna existing prior to the announcement of the transaction. This increased level of indebtedness could adversely affect our business flexibility and increase our borrowing costs.

We will continue to incur significant integration-related costs in connection with the Aetna Acquisition.

We expect to continue to pursue acquisitions, joint ventures, strategic alliances and other inorganic growth opportunities, which may be unsuccessful, cause us to assume unanticipated liabilities, disrupt our existing businesses, be dilutive or lead us to assume significant debt, among other things.

We may be unable to successfully integrate companies we acquire.

Risks and uncertainties related to the timing and scope of reimbursement from Medicare, Medicaid and other government-funded programs, including the possible impact of sequestration, the impact of other federal budget, debt and deficit negotiations and legislation that could delay or reduce reimbursement from such programs and the impact of any closure, suspension or other changes affecting federal or state government funding or operations.

Possible changes in industry pricing benchmarks used to establish pricing in many of our PBM and LTC client contracts, pharmaceutical purchasing arrangements, retail network contracts, specialty payor agreements and other third party payor contracts.

~~Efforts to increase reimbursement rates in PBM pharmacy networks and to inhibit the ability of PBMs to audit network pharmacies for fraud, waste and abuse.~~

~~Risks related to increasing oversight of PBM activities by state departments of insurance and boards of pharmacy.~~

A highly competitive business environment, including the uncertain impact of increased consolidation in the PBM industry, the possibility of combinations, joint ventures or other collaboration between PBMs and retailers, uncertainty concerning the ability of our retail pharmacy business to secure and maintain contractual relationships with PBMs and other payors on acceptable terms, uncertainty concerning the ability of our PBM business to secure and maintain competitive access, pricing and other contract terms from retail network pharmacies in an environment where some PBM clients are willing to consider adopting narrow or more restricted retail pharmacy networks, and the possibility of our retail stores or specialty pharmacies being excluded from narrow or restricted networks.

The Company’s ability to timely identify or effectively respond to changing consumer preferences and spending patterns, an inability to expand the products being purchased by our customers, or the failure or inability to obtain or offer particular categories of products.

~~Risks relating to our ability to secure timely and sufficient access to the products we sell from our domestic and/or international suppliers, including limited distribution drugs.~~

Reform of the U.S. health care system, including ongoing implementation of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act (collectively, “ACA”) and the possible repeal and replacement of all or parts of ACA, continuing legislative efforts, regulatory changes and judicial interpretations impacting our health care system and the possibility of shifting political and legislative priorities related to reform of the health care system in the future.

Risks related to changes in legislation, regulation and government policy (including through the use of Executive Orders) that could significantly impact our business and the health care and retail industries, including, but not limited to, the possibility of major developments in tax policy or trade relations, such as the imposition of unilateral tariffs on imported product, changes with respect to the approval process for biosimilars, or changes or developments with respect to the regulation of drug pricing, including federal and state drug pricing programs.

Risks relating to any failure to properly maintain our information technology systems, our information security systems and our infrastructure to support our business and to protect the privacy and security of sensitive customer and business information.

Risks related to compliance with a broad and complex regulatory framework, including compliance with new and existing federal, state and local laws and regulations relating to health care, network pharmacy reimbursement and auditing, accounting standards, corporate securities, tax, environmental and other laws and regulations affecting our business.

Risks related to litigation, government investigations and other legal proceedings as they relate to our business, the pharmacy services, retail pharmacy, LTC pharmacy or retail clinic industries, or to the health care industry generally.

As a result of our expanded international operations, we face political, legal and compliance, operational, regulatory, economic and other risks that we do not face or are more significant than in our domestic operations.

The risk that any condition related to the closing of any proposed acquisition may not be satisfied on a timely basis or at all, including the inability to obtain required regulatory approvals of any proposed acquisition, or on the terms desired or anticipated; the risk that such approvals may result in the imposition of conditions that could adversely affect the resulting combined company or the expected benefits of any proposed transaction; and the risk that the proposed transactions fail to close for any other reason.

~~The possibility that the anticipated synergies and other benefits from any acquisition by us will not be realized, or will not be realized within the expected time periods.~~

The risks and uncertainties related to our ability to integrate the operations, products, services and employees of any entities acquired by us and the effect of the potential disruption of management’s attention from ongoing business operations due to any pending acquisitions.

~~The accessibility or availability of adequate financing on a timely basis and on reasonable terms.~~

~~Risks related to the outcome of any legal proceedings related to, or involving any entity that is a part of, any proposed acquisition contemplated by us.~~

~~The possibility of lower than expected valuations at the Company’s reporting units could result in goodwill impairment charges at those reporting units.~~

~~Other risks and uncertainties detailed from time to time in our filings with the SEC.~~

The foregoing list is not exhaustive. There can be no assurance that the Company has correctly identified ~~and appropriately assessed~~ all ~~factors affecting its business.~~the risks that affect it. Additional risks and uncertainties not presently known to the Company or that itthe Company currently believes to be immaterial also may adversely ~~impact~~affect the ~~Company.~~Company’s businesses. Should any risks ~~and~~or uncertainties develop into actual events, these developments could have a material adverse effect on the Company’s ~~business,~~businesses, operating results, cash flows and/or financial ~~condition and results of operations.~~condition. For these reasons, you are cautioned not to place undue reliance on the Company’s forward-looking statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company has not experienced any material changes in exposures to market risk since December 31, 2018. See the information contained in Part II, Item ~~3. Quantitative~~7A “Quantitative and Qualitative Disclosures About Market ~~Risk~~

As of September 30, 2017, the Company did not have any interest rate, foreign currency exchange rate or commodity derivative instruments in place and believes that as of September 30, 2017 its exposure to interest rate risk (inherentRisk” in the Company’s ~~debt portfolio), foreign currency exchange rate risk and commodity price risk is not material.~~

Annual Report on Form 10-K for the year ended December 31, 2018 for a discussion of the Company’s exposures to market risk.

~~Item 4. Controls and Procedures~~

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures: The Company’s Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a‑15(f) and 15d‑15(f)) as of ~~September 30, 2017,~~March 31, 2019, have concluded that as of such date the Company’s disclosure controls and procedures were adequate and effective and designed to provide reasonable assurance that material information relating to the Company and its subsidiaries would be made known to such officers on a timely basis.

Changes in internal control over financial reporting: ~~There have~~On November 28, 2018, the Company completed its acquisition of Aetna. The Company is in the process of integrating the historical internal control over financial reporting of Aetna with the rest of the Company. In addition, the Company implemented controls related to the adoption of, ASU 2016-02, Leases (Topic 842) and the related financial statement reporting.

Other than the foregoing, there has been no ~~changes~~change in ~~our~~the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of ~~Securities Exchange Act~~ Rule ~~13a‑15~~13a-15 or Rule ~~15d‑15~~15d-15 that occurred in the three months ended ~~September 30, 2017~~March 31, 2019 that ~~have~~has materially affected, or ~~are~~is reasonably likely to materially affect, ~~our~~the Company’s internal control over financial reporting.

Part II

II.

Other Information

~~Item 1. Legal Proceedings~~

Item 1. Legal Proceedings

I. Legal Proceedings

~~We refer you to “Note 12 -~~

The information contained in Note 11 ‘‘Commitments and ~~Contingencies”~~Contingencies’’ contained in ~~the~~ “Notes to ~~the~~ Condensed Consolidated Financial Statements” in Part I, Item 1 of ~~our~~this Quarterly Report on Form ~~10‑Q~~10-Q is incorporated by reference herein.


Item 1A.	Risk Factors

There have been no material changes to the “Risk Factors” disclosed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the ~~three~~year ended December 31, 2018. Those risk factors could adversely affect the Company’s business, financial condition and ~~nine months ended September 30, 2017 for a description~~operating results as well as the market price of ~~our legal proceedings.~~

the Company’s common shares.

~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds~~

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table presents the total number of shares purchased in the three months ended ~~September 30, 2017,~~March 31, 2019, the average price paid per share and the approximate dollar value of shares that still could have been purchased at the end of the applicable fiscal period, pursuant to the 2016 Repurchase Program. See ~~“Note 3 - Share Repurchase Programs”~~“Note 7 ‘‘Shareholders’ Equity’’ contained in ~~the~~ “Notes to ~~the~~ Condensed Consolidated Financial Statements” in Part I, Item 1 of ~~our~~this Quarterly Report on Form ~~10‑Q for the three months ended September 30, 2017.~~

Approximate Dollar

Total Number of Shares

Value of Shares that

Total Number

Average

Purchased as Part of

May Yet Be

of Shares

Price Paid per

Publicly Announced

Purchased Under the
Fiscal Period

Purchased

Share

Plans or Programs

Plans or Programs
July 1, 2017 through July 31, 2017

—

$
—

—

$
14,269,392,432
August 1, 2017 through August 31, 2017

1,713,436

$
76.72

1,713,436

$
14,137,945,704
September 1, 2017 through September 30, 2017

3,364,345

$
79.82

3,364,345

$
13,869,392,446

5,077,781

5,077,781

10-Q.



					Approximate Dollar
				Total Number of Shares	Value of Shares that
	Total Number	Average		Purchased as Part of	May Yet Be
	of Shares	Price Paid per		Publicly Announced	Purchased Under the
Fiscal Period	Purchased	Share		Plans or Programs	Plans or Programs
January 1, 2019 through January 31, 2019	—	$	—	—	$	13,869,392,446
February 1, 2019 through February 28, 2019	—	$	—	—	$	13,869,392,446
March 1, 2019 through March 31, 2019	—	$	—	—	$	13,869,392,446
	—			—

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

Item 6. Exhibits

~~Exhibits:~~

The exhibits listed in this Item 6 are filed as part of this Quarterly Report on Form 10-Q. Exhibits marked with an asterisk (*) are ~~hereby incorporated by reference~~management contracts or compensatory plans or arrangements. Exhibits other than those listed are omitted because they are not required to ~~exhibits~~be listed or ~~appendices previously filed by~~are not applicable. Pursuant to Item 601(b)(4)(iii) of regulation S-K, the Registrant ~~as indicated in brackets following~~hereby agrees to furnish to the ~~description~~Securities and Exchange Commission a copy of ~~the exhibit.~~

any omitted instrument that is not required to be listed.

INDEX TO EXHIBITS

3.1*


10

10.1	~~Amended~~Change in Control Agreement effective as of July 19, 2010 between the Registrant and ~~Restated Certificate~~Eva Boratto.*

10.2	Restrictive Covenant Agreement dated May 17, 2017 between the Registrant and Eva Boratto.*

10.3	Change in Control Agreement dated as of ~~Incorporation~~November 10, 2017 between the Registrant and Derica Rice.*

10.4	Restrictive Covenant Agreement dated March 31, 2018 between the Registrant and Derica Rice.*

15	Letter re: unaudited interim financial information

15.1	Letter from Ernst & Young LLP acknowledging awareness of the ~~Registrant [incorporated by reference~~use of a report dated May 1, 2019 related to ~~Exhibit 3.1 to the Registrant’s Annual Report on Form 10‑K for the fiscal year ended December 31, 1996 (Commission File No. 001‑01011)].~~their reviews of interim financial information.
3.1A*	Certificate of Amendment to the Amended and Restated Certificate of Incorporation, effective May 13, 1998 [incorporated by reference to Exhibit 4.1A to the Registrant’s Registration Statement No. 333-52055 on Form S‑3/A dated May 18, 1998 (Commission File No. 001‑01001)].
3.1B* 31	Certificate of Amendment to the Amended and Restated Certificate of Incorporation [incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8‑K dated March 22, 2007 (Commission File No. 001‑01011)]. Rule 13a-14(a)/15d-14(a) Certifications
3.1C*	~~Certificate of Merger dated May 9, 2007 [incorporated by reference to Exhibit 3.1C to the Registrant’s Quarterly Report on Form 10‑Q dated November 1, 2007 (Commission File No. 001‑01011)].~~
3.1D* 31.1	~~Certificate of Amendment to~~Certification by the Amended and Restated Certificate of Incorporation [incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8‑K dated May 13, 2010 (Commission File No. 001‑01011)].Chief Executive Officer.
3.1E*	Certificate of Amendment to the Amended and Restated Certificate of Incorporation [incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8‑K dated May 10, 2012 (Commission File No. 001‑01011)].
3.1F* 31.2	~~Certificate of Amendment to~~Certification by the Amended and Restated Certificate of Incorporation [incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8‑K dated May 13, 2013 (Commission File No. 001‑01011)].Chief Financial Officer.
3.1G*	Certificate of Amendment to the Amended and Restated Certificate of Incorporation [incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8‑K dated September 3, 2014 (Commission File No. 001‑01011)].
3.2* 32	By‑laws of Registrant, as amended and restated [incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8‑K dated January 26, 2016 (Commission File No. 001‑01011)]. Section 1350 Certifications
~~15.1~~	~~Letter re: Unaudited Interim Financial Information.~~
~~31.1~~ 32.1	Certification ofby the Chief Executive ~~Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~Officer.
~~31.2~~
32.2	Certification ofby the Chief Financial ~~Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~Officer.
~~32.1~~	~~Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~
~~32.2~~ 101	~~Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~ Interactive Data File
~~101~~
101	The following materials from the CVS Health Corporation Quarterly Report on Form ~~10‑Q~~10-Q for the three months ended ~~September 30, 2017~~March 31, 2019 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of ~~Income,~~Operations, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash ~~Flows and~~flows, (v) ~~related Footnotes to~~ the Condensed Consolidated Statements of Shareholders’ Equity and (vi) the related Notes to Condensed Consolidated Financial Statements.