_________ to_________
Number: 001-01011
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Delaware | 05-0494040 | |||||||
| (State or other jurisdiction of | (I.R.S. Employer Identification | |||||||
One CVS Drive, Woonsocket, Rhode Island 02895
(Address
| One CVS Drive, | Woonsocket, | Rhode Island | 02895 | |||||||||||||||||
| (Address of principal executive offices) | (Zip Code) | |||||||||||||||||||
| Registrant’s telephone number, including area code: | (401) | 765-1500 | ||||||||||||||||||
| Former name, former address and former fiscal year, if changed since last report: | N/A | |||||||||||||||||||
Registrant’s telephone number, including area code: (401) 765‑1500
the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| Common Stock, par value $0.01 per share | CVS | New York Stock Exchange | ||||||
Large accelerated filer | ☑ | Accelerated filer | ☐ | ||||||||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||||||||
Emerging growth company | ☐ | ||||||||||
| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐ | ||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Common Stock, $0.01 par value,
1,012,992,425 shares
outstanding.
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| TABLE OF CONTENTS | |||||||||
| Page | |||||||||
| Financial Information | |||||||||
| Item 1. | |||||||||
| Item 2. | |||||||||
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||||||||
| Other Information | |||||||||
| Item 1A. | |||||||||
| Item 3 | |||||||||
| 4. | |||||||||
| Item 5. | |||||||||
Item 6. | |||||||||
| |||||
| Condensed Consolidated Statements of Operations (Unaudited) for the three months ended March 31, 2022 and 2021 | |||||
| Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three months ended March 31, 2022 and 2021 | |||||
| Condensed Consolidated Balance Sheets (Unaudited) as of March 31, 2022 and December 31, 2021 | |||||
| Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2022 and 2021 | |||||
| Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) for the three months ended March 31, 2022 and 2021 | |||||
| Notes to Condensed Consolidated Financial Statements (Unaudited) | |||||
| Report of Independent Registered Public Accounting Firm | |||||
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| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
In millions, except per share amounts |
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
|
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|
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|
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|
|
|
|
|
|
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 |
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Basic earnings per share: |
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|
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|
|
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 | 2022 | 2021 | |||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Products | $ | 52,522 | $ | 47,387 | |||||||||||||||||||
| Premiums | 21,631 | 18,960 | |||||||||||||||||||||
| Services | 2,505 | 2,453 | |||||||||||||||||||||
| Net investment income | 168 | 297 | |||||||||||||||||||||
| Total revenues | 76,826 | 69,097 | |||||||||||||||||||||
| Operating costs: | |||||||||||||||||||||||
| Cost of products sold | 45,509 | 40,894 | |||||||||||||||||||||
| Benefit costs | 17,951 | 15,704 | |||||||||||||||||||||
| Operating expenses | 9,876 | 8,922 | |||||||||||||||||||||
| Total operating costs | 73,336 | 65,520 | |||||||||||||||||||||
| Operating income | 3,490 | 3,577 | |||||||||||||||||||||
| Interest expense | 586 | 657 | |||||||||||||||||||||
| Other income | (42) | (50) | |||||||||||||||||||||
| Income before income tax provision | 2,946 | 2,970 | |||||||||||||||||||||
| Income tax provision | 633 | 746 | |||||||||||||||||||||
| Net income | 2,313 | 2,224 | |||||||||||||||||||||
| Net income attributable to noncontrolling interests | (1) | (1) | |||||||||||||||||||||
| Net income attributable to CVS Health | $ | 2,312 | $ | 2,223 | |||||||||||||||||||
| Net income per share attributable to CVS Health: | |||||||||||||||||||||||
| Basic | $ | 1.76 | $ | 1.69 | |||||||||||||||||||
| Diluted | $ | 1.74 | $ | 1.68 | |||||||||||||||||||
| Weighted average shares outstanding: | |||||||||||||||||||||||
| Basic | 1,312 | 1,313 | |||||||||||||||||||||
| Diluted | 1,328 | 1,322 | |||||||||||||||||||||
| Dividends declared per share | $ | 0.55 | $ | 0.50 | |||||||||||||||||||
3
CVS Health Corporation
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| Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||
In millions |
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
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|
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|
|
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Net income |
| $ | 1,285 |
| $ | 1,541 |
| $ | 3,336 |
| $ | 3,612 |
Other comprehensive income: |
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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 | 2022 | 2021 | |||||||||||||||||||||
| Net income | $ | 2,313 | $ | 2,224 | |||||||||||||||||||
| Other comprehensive loss, net of tax: | |||||||||||||||||||||||
| Net unrealized investment losses | (1,155) | (386) | |||||||||||||||||||||
| Foreign currency translation adjustments | 3 | (2) | |||||||||||||||||||||
| Net cash flow hedges | (3) | (4) | |||||||||||||||||||||
| Other comprehensive loss | (1,155) | (392) | |||||||||||||||||||||
| Comprehensive income | 1,158 | 1,832 | |||||||||||||||||||||
| Comprehensive income attributable to noncontrolling interests | (1) | (1) | |||||||||||||||||||||
| Comprehensive income attributable to CVS Health | $ | 1,157 | $ | 1,831 | |||||||||||||||||||
4
CVS Health Corporation
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|
| September 30, |
| December 31, | |||||||||||||
In millions, except per share amounts |
| 2017 |
| 2016 | In millions, except per share amounts | March 31, 2022 | December 31, 2021 | ||||||||||
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Assets: |
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| Assets: | ||||||||||
Cash and cash equivalents |
| $ | 2,485 |
| $ | 3,371 | Cash and cash equivalents | $ | 8,442 | $ | 9,408 | ||||||
Short-term investments |
|
| 75 |
|
| 87 | |||||||||||
| Investments | Investments | 2,900 | 3,117 | ||||||||||||||
Accounts receivable, net |
|
| 12,440 |
|
| 12,164 | Accounts receivable, net | 26,451 | 24,431 | ||||||||
Inventories |
|
| 14,147 |
|
| 14,760 | Inventories | 18,160 | 17,760 | ||||||||
Other current assets |
|
| 776 |
|
| 660 | Other current assets | 5,530 | 5,292 | ||||||||
Total current assets |
|
| 29,923 |
|
| 31,042 | Total current assets | 61,483 | 60,008 | ||||||||
| Long-term investments | Long-term investments | 22,595 | 23,025 | ||||||||||||||
Property and equipment, net |
|
| 9,914 |
|
| 10,175 | Property and equipment, net | 12,844 | 12,896 | ||||||||
| Operating lease right-of-use assets | Operating lease right-of-use assets | 18,801 | 19,122 | ||||||||||||||
Goodwill |
|
| 38,169 |
|
| 38,249 | Goodwill | 79,060 | 79,121 | ||||||||
Intangible assets, net |
|
| 13,303 |
|
| 13,511 | Intangible assets, net | 28,543 | 29,026 | ||||||||
| Separate accounts assets | Separate accounts assets | 4,670 | 5,087 | ||||||||||||||
Other assets |
|
| 1,544 |
|
| 1,485 | Other assets | 4,877 | 4,714 | ||||||||
Total assets |
| $ | 92,853 |
| $ | 94,462 | Total assets | $ | 232,873 | $ | 232,999 | ||||||
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Liabilities: |
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| Liabilities: | ||||||||||
Accounts payable |
| $ | 7,899 |
| $ | 7,946 | Accounts payable | $ | 12,738 | $ | 12,544 | ||||||
Claims and discounts payable |
|
| 9,807 |
|
| 9,451 | |||||||||||
| Pharmacy claims and discounts payable | Pharmacy claims and discounts payable | 18,572 | 17,330 | ||||||||||||||
| Health care costs payable | Health care costs payable | 10,260 | 8,808 | ||||||||||||||
| Policyholders’ funds | Policyholders’ funds | 4,138 | 4,301 | ||||||||||||||
Accrued expenses |
|
| 8,404 |
|
| 6,937 | Accrued expenses | 16,619 | 17,670 | ||||||||
Short-term debt |
|
| 110 |
|
| 1,874 | |||||||||||
| Other insurance liabilities | Other insurance liabilities | 1,387 | 1,303 | ||||||||||||||
| Current portion of operating lease liabilities | Current portion of operating lease liabilities | 1,849 | 1,646 | ||||||||||||||
Current portion of long-term debt |
|
| 2,293 |
|
| 42 | Current portion of long-term debt | 4,217 | 4,205 | ||||||||
Total current liabilities |
|
| 28,513 |
|
| 26,250 | Total current liabilities | 69,780 | 67,807 | ||||||||
| Long-term operating lease liabilities | Long-term operating lease liabilities | 17,786 | 18,177 | ||||||||||||||
Long-term debt |
|
| 23,386 |
|
| 25,615 | Long-term debt | 52,063 | 51,971 | ||||||||
Deferred income taxes |
|
| 4,442 |
|
| 4,214 | Deferred income taxes | 5,829 | 6,270 | ||||||||
| Separate accounts liabilities | Separate accounts liabilities | 4,670 | 5,087 | ||||||||||||||
| Other long-term insurance liabilities | Other long-term insurance liabilities | 6,363 | 6,402 | ||||||||||||||
Other long-term liabilities |
|
| 1,644 |
|
| 1,549 | Other long-term liabilities | 2,242 | 1,904 | ||||||||
| Total liabilities | Total liabilities | 158,733 | 157,618 | ||||||||||||||
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Shareholders’ equity: |
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| Shareholders’ equity: | ||||||||||
CVS Health shareholders’ equity: |
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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 | |||||||||||
| Preferred stock, par value $0.01: 0.1 shares authorized; 0ne issued or outstanding | Preferred stock, par value $0.01: 0.1 shares authorized; 0ne issued or outstanding | — | — | ||||||||||||||
| Common stock, par value $0.01: 3,200 shares authorized; 1,747 shares issued and 1,306 shares outstanding at March 31, 2022 and 1,744 shares issued and 1,322 shares outstanding at December 31, 2021 and capital surplus | Common stock, par value $0.01: 3,200 shares authorized; 1,747 shares issued and 1,306 shares outstanding at March 31, 2022 and 1,744 shares issued and 1,322 shares outstanding at December 31, 2021 and capital surplus | 47,677 | 47,377 | ||||||||||||||
| Treasury stock, at cost: 441 shares at March 31, 2022 and 422 shares at December 31, 2021 | Treasury stock, at cost: 441 shares at March 31, 2022 and 422 shares at December 31, 2021 | (30,145) | (28,173) | ||||||||||||||
Retained earnings |
|
| 40,779 |
|
| 38,983 | Retained earnings | 56,488 | 54,906 | ||||||||
Accumulated other comprehensive income (loss) |
|
| (147) |
|
| (305) | Accumulated other comprehensive income (loss) | (190) | 965 | ||||||||
Total CVS Health shareholders’ equity |
|
| 34,863 |
|
| 36,830 | Total CVS Health shareholders’ equity | 73,830 | 75,075 | ||||||||
Noncontrolling interest |
|
| 5 |
|
| 4 | |||||||||||
| Noncontrolling interests | Noncontrolling interests | 310 | 306 | ||||||||||||||
Total shareholders’ equity |
|
| 34,868 |
|
| 36,834 | Total shareholders’ equity | 74,140 | 75,381 | ||||||||
Total liabilities and shareholders’ equity |
| $ | 92,853 |
| $ | 94,462 | Total liabilities and shareholders’ equity | $ | 232,873 | $ | 232,999 | ||||||
5
CVS Health Corporation
| Three Months Ended March 31, | |||||||||||
| In millions | 2022 | 2021 | |||||||||
| Cash flows from operating activities: | |||||||||||
| Cash receipts from customers | $ | 74,192 | $ | 66,487 | |||||||
| Cash paid for inventory and prescriptions dispensed by retail network pharmacies | (44,365) | (39,171) | |||||||||
| Insurance benefits paid | (16,616) | (15,456) | |||||||||
| Cash paid to other suppliers and employees | (8,969) | (8,270) | |||||||||
| Interest and investment income received | 199 | 222 | |||||||||
| Interest paid | (782) | (876) | |||||||||
| Income taxes paid | (96) | (44) | |||||||||
| Net cash provided by operating activities | 3,563 | 2,892 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Proceeds from sales and maturities of investments | 2,570 | 2,177 | |||||||||
| Purchases of investments | (3,474) | (3,131) | |||||||||
| Purchases of property and equipment | (1,051) | (829) | |||||||||
| Acquisitions (net of cash acquired) | (7) | (84) | |||||||||
| Other | (31) | — | |||||||||
| Net cash used in investing activities | (1,993) | (1,867) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Net borrowings of short-term debt | — | 252 | |||||||||
| Repayments of long-term debt | (14) | (3,049) | |||||||||
| Repurchase of common stock | (2,000) | — | |||||||||
| Dividends paid | (722) | (656) | |||||||||
| Proceeds from exercise of stock options | 297 | 212 | |||||||||
| Payments for taxes related to net share settlement of equity awards | (62) | (3) | |||||||||
| Other | (149) | 59 | |||||||||
| Net cash used in financing activities | (2,650) | (3,185) | |||||||||
| Net decrease in cash, cash equivalents and restricted cash | (1,080) | (2,160) | |||||||||
| Cash, cash equivalents and restricted cash at the beginning of the period | 12,691 | 11,043 | |||||||||
| Cash, cash equivalents and restricted cash at the end of the period | $ | 11,611 | $ | 8,883 | |||||||
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|
| 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 | 2022 | 2021 | |||||||||
| Reconciliation of net income to net cash provided by operating activities: | |||||||||||
| Net income | $ | 2,313 | $ | 2,224 | |||||||
| Adjustments required to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 1,055 | 1,126 | |||||||||
| Stock-based compensation | 89 | 87 | |||||||||
| Deferred income taxes and other noncash items | (187) | (166) | |||||||||
| Change in operating assets and liabilities, net of effects from acquisitions: | |||||||||||
| Accounts receivable, net | (1,967) | (2,093) | |||||||||
| Inventories | (400) | 879 | |||||||||
| Other assets | (352) | (286) | |||||||||
| Accounts payable and pharmacy claims and discounts payable | 1,974 | 576 | |||||||||
| Health care costs payable and other insurance liabilities | 1,478 | 294 | |||||||||
| Other liabilities | (440) | 251 | |||||||||
| Net cash provided by operating activities | $ | 3,563 | $ | 2,892 | |||||||
CVS Health Corporation
| Attributable to CVS Health | ||||||||||||||||||||||||||||||||
| Number of shares outstanding | Common Stock and Capital Surplus (2) | Treasury Stock (1) | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total CVS Health Shareholders’ Equity | Noncontrolling Interests | Total Shareholders’ Equity | |||||||||||||||||||||||||
| Common Shares | Treasury Shares (1) | |||||||||||||||||||||||||||||||
| In millions | ||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 1,744 | (422) | $ | 47,377 | $ | (28,173) | $ | 54,906 | $ | 965 | $ | 75,075 | $ | 306 | $ | 75,381 | ||||||||||||||||
| Net income | — | — | — | — | 2,312 | — | 2,312 | 1 | 2,313 | |||||||||||||||||||||||
| Other comprehensive loss (Note 6) | — | — | — | — | — | (1,155) | (1,155) | — | (1,155) | |||||||||||||||||||||||
| Stock option activity, stock awards and other | 3 | — | 300 | — | — | — | 300 | — | 300 | |||||||||||||||||||||||
| Purchase of treasury shares, net of ESPP issuances | — | (19) | — | (1,972) | — | — | (1,972) | — | (1,972) | |||||||||||||||||||||||
| Common stock dividends | — | — | — | — | (730) | — | (730) | — | (730) | |||||||||||||||||||||||
| Other increases in noncontrolling interests | — | — | — | — | — | — | — | 3 | 3 | |||||||||||||||||||||||
| Balance at March 31, 2022 | 1,747 | (441) | $ | 47,677 | $ | (30,145) | $ | 56,488 | $ | (190) | $ | 73,830 | $ | 310 | $ | 74,140 | ||||||||||||||||
| Balance at December 31, 2020 | 1,733 | (423) | $ | 46,513 | $ | (28,178) | $ | 49,640 | $ | 1,414 | $ | 69,389 | $ | 312 | $ | 69,701 | ||||||||||||||||
| Net income | — | — | — | — | 2,223 | — | 2,223 | 1 | 2,224 | |||||||||||||||||||||||
| Other comprehensive loss (Note 6) | — | — | — | — | — | (392) | (392) | — | (392) | |||||||||||||||||||||||
| Stock option activity, stock awards and other | 2 | — | 214 | — | — | — | 214 | — | 214 | |||||||||||||||||||||||
| ESPP issuances, net of purchase of treasury shares | — | 1 | — | 76 | — | — | 76 | — | 76 | |||||||||||||||||||||||
| Common stock dividends | — | — | — | — | (660) | — | (660) | — | (660) | |||||||||||||||||||||||
| Other increases in noncontrolling interests | — | — | — | — | — | — | — | 1 | 1 | |||||||||||||||||||||||
| Balance at March 31, 2021 | 1,735 | (422) | $ | 46,727 | $ | (28,102) | $ | 51,203 | $ | 1,022 | $ | 70,850 | $ | 314 | $ | 71,164 | ||||||||||||||||
redemption of ExtraBucks Rewards or Company gift cards and breakage of Company gift cards. Below is a summary of such changes: close in the second quarter of 2022. 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 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 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 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 In billions Authorization Date Authorized Remaining November 2, 2016 (“2016 Repurchase Program”) $ 15.0 $ 13.9 December 15, 2014 (“2014 Repurchase Program”) 10.0 — During the three months ended stock. February 2022. 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) 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 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 The following is a reconciliation of basic and diluted earnings per share 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 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 Lease Guarantees several years. The Company condition. 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. These other legal proceedings and government actions include claims of or relating to bad faith, medical or professional malpractice, breach of fiduciary duty, claims processing, dispensing of medications, non-compliance with state and federal regulatory regimes, marketing misconduct, denial of or 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, laws or regulations as they may relate to one or more of the Company’s of CVS Health Corporation for them to be in conformity with U.S. generally accepted accounting principles. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) Corporate/Other, which are described below. Retail/LTC Segment Current Trends Summary of 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 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 The following table summarizes 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 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 % % 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 % •Operating expenses in 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) March 31, 2022 compared to the prior year. investments. In billions Authorization Date Authorized Remaining November 2, 2016 (“2016 Repurchase Program”) $ 15.0 $ 13.9 December 15, 2014 (“2014 Repurchase Program”) 10.0 — modified or terminated by the Board any shares of its common stock. February 2022. Critical Accounting Policies While Cautionary Statement Concerning Forward-Looking Statements Any forward-looking statement speaks only as of the date of this report, and we disclaim any intention or obligation to update or revise forward-looking statements, whether as a result of new information, future events, uncertainties or otherwise. Annual Report on Form 10-K for the fiscal year ended December 31, 2021 for a discussion of the Company’s exposures to market risk. the Company’s common shares. 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 Item 3. Defaults Upon Senior Securities Date: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 13 to the Company’s Annual Report on Form 10‑K10-K for the year ended December 31, 2016 (“20162021 (the “2021 Form 10‑K”10-K”).Fair ValueFinancial InstrumentsThe Company utilizesmembers, including health savings account funds associated with high deductible health plans. Restricted cash (included in other assets) on the three-level valuation hierarchy for the recognition and disclosure of fair value measurements. The categorization of assets and liabilities within this hierarchy is based upon the lowest level of input that is significant to the measurement of fair value. The three levelsunaudited condensed consolidated balance sheets represents amounts held in a trust in one of the hierarchy consistCompany’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.7As of September 30, 2017, the carrying valueThe following is a reconciliation of cash and cash equivalents short-term investments, accounts receivable, accounts payable, andon 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 fundsto total cash, cash equivalents and restricted cash on the unaudited condensed consolidated statements of cash flows:In millions March 31,
2022December 31,
2021March 31,
2021Cash and cash equivalents $ 8,442 $ 9,408 $ 5,598 Restricted cash (included in other current assets) 2,913 3,065 2,972 Restricted cash (included in other assets) 256 218 313 Total cash, cash equivalents and restricted cash in the statements of cash flows $ 11,611 $ 12,691 $ 8,883 highly liquidstated net of allowances for credit losses, customer credit allowances, contractual allowances and readily convertible to known amounts of cash. These investments are classified within Level 1estimated terminations. Accounts receivable, net is composed of the fair value hierarchy because they are valued using quoted market prices. following:In millions March 31,
2022December 31,
2021Trade receivables $ 8,728 $ 7,932 Vendor and manufacturer receivables 11,685 10,573 Premium receivables 3,508 2,537 Other receivables 2,530 3,389 Total accounts receivable, net $ 26,451 $ 24,431 short-term investmentsallowance for credit losses was $324 million and $339 million as of $75 million 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 of the fair value hierarchy, are carried at fair value, which approximated historical cost at September 30, 2017. The carrying amountMarch 31, 2022 and estimated fair valueDecember 31, 2021, respectively. When developing an estimate of the Company’s total long-term debt was $25.7 billionexpected credit losses, the Company considers all available relevant information regarding the collectability of cash flows, including historical information, current conditions and $27.0 billion, respectively, asreasonable and supportable forecasts of September 30, 2017. The fair valuefuture economic conditions over the contractual life of the receivable. The Company’s long-term debt was estimatedaccounts receivable are short duration in nature and typically settle in less than 30 days.In millions Health Care
BenefitsPharmacy
ServicesRetail/
LTCCorporate/
OtherIntersegment
EliminationsConsolidated
TotalsThree Months Ended March 31, 2022 Major goods/services lines: Pharmacy $ — $ 39,198 $ 19,532 $ — $ (11,240) $ 47,490 Front Store — — 5,313 — — 5,313 Premiums 21,614 — — 17 — 21,631 Net investment income (loss) 89 — (16) 95 — 168 Other 1,406 263 589 14 (48) 2,224 Total $ 23,109 $ 39,461 $ 25,418 $ 126 $ (11,288) $ 76,826 Pharmacy Services distribution channel: $ 22,824 16,374 Other 263 Total $ 39,461 Three Months Ended March 31, 2021 Major goods/services lines: Pharmacy $ — $ 36,141 $ 17,885 $ — $ (11,074) $ 42,952 Front Store — — 4,642 — — 4,642 Premiums 18,942 — — 18 — 18,960 Net investment income 148 — 46 103 — 297 Other 1,393 180 701 14 (42) 2,246 Total $ 20,483 $ 36,321 $ 23,274 $ 135 $ (11,116) $ 69,097 Pharmacy Services distribution channel: $ 21,893 14,248 Other 180 Total $ 36,321 quoted prices currently offeredhistorical redemption patterns.In millions March 31,
2022December 31,
2021Trade receivables (included in accounts receivable, net) $ 8,728 $ 7,932 Contract liabilities (included in accrued expenses) 80 87 active marketsExtraBucksRewards or issuances of Company gift cards and decreases for revenues recognized during the Company’s debt, which is considered Level 1period as a result of the fair value hierarchy.Three Months Ended
March 31,In millions 2022 2021 Contract liabilities, beginning of the period $ 87 $ 71 Rewards earnings and gift card issuances 80 93 Redemption and breakage (87) (84) Contract liabilities, end of the period $ 80 $ 80 Pharmacy Services and Retail/LTC segments utilizeCompany 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$15 million and $7$9 million in the three months ended September 30, 2017March 31, 2022 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 2016.2021, respectively. The Company’s investment in and equity in the earnings of SureScripts for all periods presented is immaterial.long-term careLTC pharmacies in four4 states. Heartland paid the Company approximately $36$21 million and $46$18 million for pharmaceutical inventory purchases during the three months ended September 30, 2017March 31, 2022 and 2016, respectively, and approximately $106 million and $116 million for pharmaceutical inventory purchases during the nine months ended September 30, 2017 and 2016.2021, respectively. Additionally, the Company performs certain collection functions for Heartland and then passestransfers 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 Operationsconnection with certain business dispositions completed between 1991 and 1997,March 2022, the Company retained guarantees on store lease obligations forreached an agreement to sell its international health care business domiciled in Thailand (“Thailand business”), which is included in the Commercial Business reporting unit within the Health Care Benefits segment. At that time, a numberportion of former subsidiaries, including Bob’s Stores and Linens ‘n Things, both of which subsequently filed for bankruptcy. See “Note 12 – Commitments and Contingencies”the Commercial Business goodwill was specifically allocated to the Thailand business. The net assets of the Thailand business were accounted for as assets held for sale and included in other current assets and accrued expenses on the unaudited condensed consolidated financial statements.balance sheet at March 31, 2022. The Company’s discontinued operations include lease-related costs whichcarrying value of the Thailand business was determined to be greater than its fair value and, accordingly, the Company believes it will likely be requiredrecorded a $41 million loss on assets held for sale within the Health Care Benefits segment during the three months ended March 31, 2022. The sale is expected to satisfy pursuant to its lease guarantees.RecentlyNot Yet AdoptedJuly 2015,August 2018, the Financial Accounting Standards Board (“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, 2018-12, Employee Share-Based Paymentthe 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. The8guidance 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: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:In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which amends ASC Topic 350, Intangibles – Goodwill and OtherLong-Duration Contracts (Topic 944). This ASUstandard requires the Company to performreview cash flow assumptions for its annual, or applicable interim, goodwill impairment test by comparinglong-duration insurance contracts at least annually and recognize the fair valueeffect of each reporting unit with its carrying amount. An impairment charge must be recognized atchanges in future cash flow assumptions in net income. This standard also requires the amount by whichCompany to update discount rate assumptions quarterly and recognize the carrying amount exceeds the fair valueeffect of the reporting unit; however, the charge recognized should not exceed the total amount of goodwill allocatedchanges in these assumptions in other comprehensive income. The rate used 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 impairment9tests 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 ondiscount the Company’s condensed consolidated results of operations, financial position or cash flows.New Accounting Pronouncements Not Yet AdoptedIn 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 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 equal to the present value of lease payments. The assetfuture policy benefits will be based on an estimate of the liability, subject to adjustment, such asyield for initial direct costs. For income statement purposes,an upper-medium grade fixed-income instrument with a dual model was retained, requiring leases to be classified as either operating or finance leases. Operating leases will resultduration profile matching that of the Company’s liabilities. In addition, this standard changes the amortization method for deferred acquisition costs and requires additional disclosures regarding the long duration insurance contract liabilities in straight-line expense (similar to current operating leases) while finance leases will result in a front-loaded expense pattern (similar to current capital leases). Lessor accounting is similar to the current model, but updated to align with certain changes to the lessee model (e.g., certain definitions, such as initial direct costs, have been updated)Company’s interim and the new revenue recognition standard.annual financial statements. The standard is effective for public companies for fiscal years, and interim2018. Early adoption is permitted.2022. The Company believes thatwill adopt the new standard will have a materialon January 1, 2023, using the modified retrospective transition method as of the earliest period presented for changes to the liability for future policy benefits and deferred acquisition costs. While the Company is still evaluating the impact of the new standard on its financial statements, the Company anticipates an increase to its liability for future policy benefits with a corresponding change in accumulated other comprehensive income as a result of updating the rate used to discount the liabilities to reflect the yield for an upper-medium grade fixed-income instrument compared to the Company’s expected investment yield under the existing guidance. March 31, 2022 December 31, 2021 In millions Current Long-term Total Current Long-term Total Debt securities available for sale $ 2,826 $ 19,672 $ 22,498 $ 3,009 $ 20,231 $ 23,240 Mortgage loans 114 804 918 58 844 902 Other investments 33 2,119 2,152 50 1,950 2,000 $ 2,973 $ 22,595 $ 25,568 $ 3,117 $ 23,025 $ 26,142 sheet. The Company is currently evaluatingsheet at March 31, 2022.In millions Gross
Amortized
CostAllowance
for Credit
LossesGross
Unrealized
GainsGross
Unrealized
LossesFair
ValueMarch 31, 2022 Debt securities: U.S. government securities $ 2,333 $ — $ 2,333 $ 21 $ (68) $ 2,286 States, municipalities and political subdivisions 2,526 — 2,526 37 (65) 2,498 U.S. corporate securities 10,005 — 10,005 261 (322) 9,944 Foreign securities 3,049 (42) 3,007 87 (95) 2,999 Residential mortgage-backed securities 910 — 910 5 (48) 867 Commercial mortgage-backed securities 1,284 — 1,284 8 (67) 1,225 Other asset-backed securities 2,706 — 2,706 8 (61) 2,653 Redeemable preferred securities 25 — 25 1 — 26 $ 22,838 $ (42) $ 22,796 $ 428 $ (726) $ 22,498 December 31, 2021 Debt securities: U.S. government securities $ 2,349 $ — $ 2,349 $ 70 $ (3) $ 2,416 States, municipalities and political subdivisions 2,947 — 2,947 148 (4) 3,091 U.S. corporate securities 9,093 — 9,093 682 (40) 9,735 Foreign securities 2,821 — 2,821 196 (24) 2,993 Residential mortgage-backed securities 870 — 870 15 (10) 875 Commercial mortgage-backed securities 1,278 — 1,278 44 (12) 1,310 Other asset-backed securities 2,791 — 2,791 14 (13) 2,792 Redeemable preferred securities 25 — 25 3 — 28 $ 22,174 $ — $ 22,174 $ 1,172 $ (106) $ 23,240 effect that implementation of this standard will have onCompany’s experience-rated products generally do not impact the Company’s consolidated resultsoperating results. At March 31, 2022, debt securities with a fair value of operations, cash flows, financial$775 million, gross unrealized capital gains of $38 million and gross unrealized capital losses of $13 million and at December 31, 2021, debt securities with a fair value of $864 million, gross unrealized capital gains of $94 million and gross unrealized capital losses of $2 million were included in total debt securities, but support experience-rated products. At March 31, 2022, the Company had debt securities with an allowance for credit losses of $4 million supporting experience-rated products. At December 31, 2021, the Company did not have any debt securities with an allowance for credit losses supporting experience-rated products. Changes in net unrealized capital gains (losses) on these securities are not reflected in accumulated other comprehensive income (loss).In millions Net
Amortized
CostFair
ValueDue to mature: Less than one year $ 1,228 $ 1,235 One year through five years 7,165 7,038 After five years through ten years 5,128 4,965 Greater than ten years 4,375 4,515 Residential mortgage-backed securities 910 867 Commercial mortgage-backed securities 1,284 1,225 Other asset-backed securities 2,706 2,653 Total $ 22,796 $ 22,498 and related disclosures.In August 2016,aggregated by the FASB issued ASU No. 2016-15, Classificationlength of Certain Cash Receipts and Cash Payments. ASU 2016-15 is intended to add or clarify guidance ontime the classification of certain cash receipts and paymentsinvestments have been in that position:Less than 12 months Greater than 12 months Total In millions, except number of securities Number
of
SecuritiesFair
ValueUnrealized
LossesNumber
of
SecuritiesFair
ValueUnrealized
LossesNumber
of
SecuritiesFair
ValueUnrealized
LossesMarch 31, 2022 Debt securities: U.S. government securities 389 $ 1,468 $ 65 11 $ 49 $ 3 400 $ 1,517 $ 68 States, municipalities and political subdivisions 728 1,159 61 23 44 4 751 1,203 65 U.S. corporate securities 3,907 4,992 278 339 484 44 4,246 5,476 322 Foreign securities 868 1,325 72 114 159 23 982 1,484 95 Residential mortgage-backed securities 239 606 40 26 80 8 265 686 48 Commercial mortgage-backed securities 326 701 50 55 130 17 381 831 67 Other asset-backed securities 1,261 2,246 57 69 97 4 1,330 2,343 61 Redeemable preferred securities 3 4 — 1 3 — 4 7 — Total debt securities 7,721 $ 12,501 $ 623 638 $ 1,046 $ 103 8,359 $ 13,547 $ 726 December 31, 2021 Debt securities: U.S. government securities 43 $ 242 $ 2 10 $ 40 $ 1 53 $ 282 $ 3 States, municipalities and political subdivisions 233 428 3 13 33 1 246 461 4 U.S. corporate securities 1,610 2,296 31 165 238 9 1,775 2,534 40 Foreign securities 449 747 20 57 91 4 506 838 24 Residential mortgage-backed securities 165 593 9 10 36 1 175 629 10 Commercial mortgage-backed securities 188 462 7 35 112 5 223 574 12 Other asset-backed securities 1,011 2,030 12 26 31 1 1,037 2,061 13 Redeemable preferred securities 1 2 — 1 3 — 2 5 — Total debt securities 3,700 $ 6,800 $ 84 317 $ 584 $ 22 4,017 $ 7,384 $ 106 statement of cash flowstable above and concluded that they are performing assets generating investment income to eliminatesupport the diversity in practice related to such classifications. The guidance in ASU 2016-15 is required for annual reporting periods beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the effect on its consolidated statement of cash flows of adopting this accounting guidance.In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows, which amends ASC Topic 230. This ASU requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer be required to present transfers between cash 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 reconciliationneeds of the totals inCompany’s business. In performing this review, the statement of cash flows toCompany considered factors such as the related captions in the balance sheet. Entities will also have to disclose the nature of their restricted cash and restricted cash equivalent balances. The guidance is effective for 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. The Company is currently evaluating the effect of adopting this accounting guidance.10Note 2 – Goodwill and Intangible AssetsGoodwill is not amortized, but is subject to annual impairment reviews, or more frequent reviews if events or circumstances indicate there may be impairment.Below is a summaryquality of the changes ininvestment 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 goodwillthe security based on the investment’s current prospects for recovery. Unrealized capital losses at March 31, 2022 were generally caused by segmentinterest rate increases and not by unfavorable changes in the credit quality associated with these securities. As of March 31, 2022, 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 the anticipated recovery of their amortized cost basis. Supporting
experience-rated productsSupporting
remaining productsTotal In millions Fair
ValueUnrealized
LossesFair
ValueUnrealized
LossesFair
ValueUnrealized
LossesDue to mature: Less than one year $ 2 $ — $ 199 $ 1 $ 201 $ 1 One year through five years 27 1 4,405 193 4,432 194 After five years through ten years 83 6 3,338 217 3,421 223 Greater than ten years 56 4 1,577 128 1,633 132 Residential mortgage-backed securities 4 — 682 48 686 48 Commercial mortgage-backed securities 6 1 825 66 831 67 Other asset-backed securities 14 1 2,329 60 2,343 61 Total $ 192 $ 13 $ 13,355 $ 713 $ 13,547 $ 726 ninethree months ended September 30, 2017:During 2017, the Company began pursuing various strategic alternatives for its RxCrossroads (“RxC”) reporting unit. In connection with this ongoing effort, the Company performed an interim goodwill impairment test in the second quarter of 2017. In conjunction with the impairment test, the fair value of the RxC reporting unit was 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 of the RxC reporting unit was determined using a combination of a discounted cash flow methodMarch 31, 2022 and a market multiple method. During the second quarter of 2017, the Company also performed an impairment test of the intangible assets 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.The following is a summary of the Company’s intangible assets as of September 30, 2017 and December 31, 2016:Note 3 – Share Repurchase ProgramsDuring the nine months ended September 30, 2017,2021, the Company had the following outstandingactivity in its mortgage loan portfolio:Three Months Ended
March 31,In millions 2022 2021 New mortgage loans $ 59 $ 47 Mortgage loans fully repaid 35 90 Mortgage loans foreclosed — — Amortized Cost Basis by Year of Origination In millions, except credit quality indicator 2022 2021 2020 2019 2018 Prior Total March 31, 2022 1 $ — $ — $ — $ — $ — $ 26 $ 26 2 to 4 58 255 48 25 66 427 879 5 and 6 — — — — 3 10 13 7 — — — — — — — Total $ 58 $ 255 $ 48 $ 25 $ 69 $ 463 $ 918 December 31, 2021 1 $ — $ — $ — $ — $ 28 $ 28 2 to 4 255 48 40 72 446 861 5 and 6 — — — 3 10 13 7 — — — — — — Total $ 255 $ 48 $ 40 $ 75 $ 484 $ 902 Three Months Ended
March 31,In millions 2022 2021 Debt securities $ 164 $ 157 Mortgage loans 11 15 Other investments 77 86 Gross investment income 252 258 Investment expenses (9) (8) Net investment income (excluding net realized capital gains or losses) 243 250 (75) 47 $ 168 $ 297 Three Months Ended
March 31,In millions 2022 2021 Proceeds from sales $ 1,911 $ 1,348 Gross realized capital gains 14 22 Gross realized capital losses 35 9 In millions Level 1 Level 2 Level 3 Total March 31, 2022 $ 4,601 $ 3,872 $ — $ 8,473 Debt securities: U.S. government securities 2,243 43 — 2,286 States, municipalities and political subdivisions — 2,498 — 2,498 U.S. corporate securities — 9,912 32 9,944 Foreign securities — 2,991 8 2,999 Residential mortgage-backed securities — 867 — 867 Commercial mortgage-backed securities — 1,225 — 1,225 Other asset-backed securities — 2,623 30 2,653 Redeemable preferred securities — 26 — 26 Total debt securities 2,243 20,185 70 22,498 Equity securities 149 — 60 209 Total $ 6,993 $ 24,057 $ 130 $ 31,180 December 31, 2021 Cash and cash equivalents $ 4,954 $ 4,454 $ — $ 9,408 Debt securities: U.S. government securities 2,372 44 — 2,416 States, municipalities and political subdivisions — 3,086 5 3,091 U.S. corporate securities — 9,697 38 9,735 Foreign securities — 2,983 10 2,993 Residential mortgage-backed securities — 875 — 875 Commercial mortgage-backed securities — 1,310 — 1,310 Other asset-backed securities — 2,789 3 2,792 Redeemable preferred securities — 28 — 28 Total debt securities 2,372 20,812 56 23,240 Equity securities 114 — 55 169 Total $ 7,440 $ 25,266 $ 111 $ 32,817 Carrying
Value Estimated Fair Value In millions Level 1 Level 2 Level 3 Total March 31, 2022 Assets: Mortgage loans $ 918 $ — $ — $ 892 $ 892 126 N/A N/A N/A N/A Liabilities: Investment contract liabilities: With a fixed maturity 5 — — 5 5 Without a fixed maturity 334 — — 336 336 Long-term debt 56,280 58,624 — — 58,624 December 31, 2021 Assets: Mortgage loans $ 902 $ — $ — $ 907 $ 907 126 N/A N/A N/A N/A Liabilities: Investment contract liabilities: With a fixed maturity 5 — — 5 5 Without a fixed maturity 336 — — 373 373 Long-term debt 56,176 64,157 — — 64,157 March 31, 2022 December 31, 2021 In millions Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Cash and cash equivalents $ 3 $ 193 $ — $ 196 $ 2 $ 186 $ — $ 188 Debt securities 1,095 2,793 — 3,888 1,233 3,048 — 4,281 Equity securities — 1 — 1 — 1 — 1 Common/collective trusts — 500 — 500 — 547 — 547 $ 1,098 $ 3,487 $ — $ 4,585 $ 1,235 $ 3,782 $ — $ 5,017 Three Months Ended
March 31,In millions 2022 2021 Health care costs payable, beginning of the period $ 8,808 $ 7,936 Less: Reinsurance recoverables 8 10 Health care costs payable, beginning of the period, net 8,800 7,926 Add: Components of incurred health care costs Current year 18,536 16,291 Prior years (676) (652) 17,860 15,639 Less: Claims paid Current year 10,225 9,538 Prior years 6,183 5,767 Total claims paid 16,408 15,305 Add: Premium deficiency reserve 13 7 (13) — Health care costs payable, end of the period, net 10,252 8,267 Add: Reinsurance recoverables 8 5 Health care costs payable, end of the period $ 10,260 $ 8,272 programs, both of which had previouslyprogram has been authorized by the Company’sCVS Health Corporation’s Board of Directors:Directors (the “Board”):Authorized Remaining as of
March 31, 2022December 9, 2021 (“2021 Repurchase Program”) $ 10.0 $ 8.0 Each of the 2014 and 2016Programs, which were effective immediately, permittedProgram permits the Company to effect repurchases from time to time through a combination of open market repurchases, privately negotiated transactions, accelerated share repurchase (“ASR”) transactions, and/or other derivative transactions. Each of the repurchase programs couldThe 2021 Repurchase Program can be modified or terminated by the Board of Directors at any time. The 2014 Repurchase Program was completed during the second quarter of 2017.11September 30, 2017,March 31, 2022, the Company repurchased an aggregate of approximately 5.019.1 million shares of common stock for approximately $0.4$2.0 billion pursuant to the 20162021 Repurchase Program.Program, including share repurchases under the ASR transaction described below. During the ninethree months ended September 30, 2017,March 31, 2021, the Company repurchased an aggregate of approximately 55.4 milliondid not repurchase any shares of its 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.20142021 Repurchase Program, effective August 29, 2016, the Company entered into twoa $1.5 billion fixed dollar ASRsASR with Barclays Bank PLC (“Barclays”) for a total of $3.6 billion.. Upon payment of the $3.6$1.5 billion purchase price on January 6, 2017,4, 2022, the Company received a number of shares of itsCVS Health Corporation’s common stock equal to 80% of the $3.6$1.5 billion notional amount of the ASRsASR or approximately 36.111.6 million shares at a price of $103.34 per share, which were placed into treasury stock in January 2017.2022. The ASRs wereASR was accounted for as an initial treasury stock transaction for $2.9$1.2 billion and a forward contract for $0.7$0.3 billion. The forward contract was classified as an equity instrument and was recorded within capital surplus. In April 2017,February 2022, the Company received 9.9approximately 2.7 million shares of CVS Health Corporation’s common stock, representing the remaining 20% of the $3.6$1.5 billion notional amount of the ASRs,ASR, thereby concluding the ASRs. The remaining 9.9 millionASR. These 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.Note 4 – Pension SettlementsAs of December 31, 2016,Company sponsored seven defined benefit pension plans. Two of the plans are tax-qualified plans that are funded based on actuarial calculationsBoard was $0.55 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$0.50 per share in the three months ended September 30, 2017, related toMarch 31, 2022 and 2021, respectively. CVS Health Corporation has paid cash dividends every quarter since becoming a public company. Future dividend payments will depend on the recognition of accumulated deferred actuarial losses. The settlement losses are included inCompany’s earnings, capital requirements, financial condition and other expense infactors considered relevant by the condensed consolidated statement of income.Note 5 – Accumulated Board.Accumulated other comprehensive income consists of foreign currency translation adjustments, unrealized losses on cash flow hedges executed in previous years associated withissuance of long-term debt, and changes in the net actuarial gains and losses associated with pension and other postretirement benefit plans. The following table summarizes the activity within the components of accumulated other comprehensive income.12Changes in accumulated other comprehensive income (loss) by component is shown onfor the following tables:(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 CompensationA summary of stock-based compensation for each of the respective periods is as follows:13During the ninethree months ended September 30, 2017, the Company granted approximately 4 million stock options with a weighted average fair value of $9.43March 31, 2022 and a weighted average fair value exercise price of $78.05. The Company had approximately 21 million stock options outstanding 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 $87.20.2021:Three Months Ended
March 31,In millions 2022 2021 Net unrealized investment gains (losses): Beginning of period balance $ 778 $ 1,214 (1,230) (400) 75 14 Other comprehensive loss (1,155) (386) End of period balance (377) 828 Foreign currency translation adjustments: Beginning of period balance — 7 Other comprehensive income (loss) before reclassifications 3 (2) Other comprehensive income (loss) 3 (2) End of period balance 3 5 Net cash flow hedges: Beginning of period balance 222 248 (3) (4) Other comprehensive loss (3) (4) End of period balance 219 244 Pension and other postretirement benefits: Beginning of period balance (35) (55) Other comprehensive income — — End of period balance (35) (55) Total beginning of period accumulated other comprehensive income 965 1,414 Total other comprehensive loss (1,155) (392) Total end of period accumulated other comprehensive income (loss) $ (190) $ 1,022 Note 7 – Sale-Leaseback TransactionsThe Company finances a portion of its store development program through sale-leaseback transactions. The propertiesgenerally sold atincluded in net book value, which approximates fair value, and the resulting leases typically qualify and are accounted for as operating leases. The Company does not have any retained or contingent interestsinvestment income in the stores and does not provide any guarantees,unaudited condensed consolidated statements of operations.than a guarantee of lease payments,comprehensive income for specifically identified cash flow hedges are included in connection with the sale-leaseback transactions. Proceeds from sale-leaseback transactions totaled $265 million and $230 million for the nine months ended September 30, 2017 and 2016, respectively.Note 8 – Store ClosuresIn December 2016, the Company announced an enterprise streamlining initiative designed to reduce costs and enhance operating efficiencies to allow the Company to be more competitiveinterest expense in the current health care environment. In connection with the enterprise streamlining initiative, the Company announced its intention to rationalize the numberunaudited condensed consolidated statements of retail stores by closing approximately 70 underperforming stores during the year ending December 31, 2017. During the three and nine months ended September 30, 2017, the Company closed five and 68 retail stores, respectively, and recorded charges of $6 million and $211 million, respectively, within operating expenses in the Retail/LTC Segment.operations. The charges are primarily comprised of provisions 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, the Company expects to record additional chargesreclassify approximately $11 million, net of approximately $9 million duringtax, in net gains associated with its cash flow hedges into net income within the fourth quarter of 2017 as it continues to rationalize the number of retail stores.Note 9 – Interest Expense, NetThe following are the components of interest expense, net:Note 10 – two-classtreasury stock method. OptionsStock options and stock appreciation rights to purchase 10.92 million and 9.910 million sharesshares of common stock were outstanding, but were not included inexcluded from the calculation of diluted earnings per share for the three and nine months ended September 30, 2017,March 31, 2022 and 2021, respectively, because thetheir 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 million shares of common stock were outstanding, but were not included in the calculation of diluted earnings per share for the three and nine months ended September 30, 2016, respectively.14from continuing operations for the respective periods:Three Months Ended
March 31,In millions, except per share amounts 2022 2021 Numerator for earnings per share calculation: Net income attributable to CVS Health Net income attributable to CVS Health $ 2,312 $ 2,223 Denominator for earnings per share calculation: Weighted average shares, basic 1,312 1,313 Restricted stock units and performance stock units Restricted stock units and performance stock units 10 6 Stock options and stock appreciation rights Stock options and stock appreciation rights 6 3 Weighted average shares, diluted 1,328 1,322 Earnings per share: Earnings per share: Basic $ 1.76 $ 1.69 Diluted $ 1.74 $ 1.68 Note 11 – Segment Reportinghas three reportable segments: Pharmacy Services, Retail/LTC and Corporate. The Retail/LTC Segment includes thebelieves COVID-19’s impact on its businesses, operating results, cash flows and/or financial condition primarily will be driven by the geographies impacted and the severity and duration of the Company’s Retail Pharmacy and LTC/RxCrossroads operating segments aspandemic; 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 performance 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, Medicare Part D services, mail order, specialty pharmacy 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, insurance companies, unions, government employee groups, health plans, Medicare Part D, Managed Medicaid plans, plans offeredpandemic’s impact on the publicU.S. and private exchanges,global economies and other sponsors ofconsumer behavior and 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 CaremarkTM, CarePlus CVS PharmacyTM, Accordant®, SilverScript®, Coram®, CVS SpecialtyTM, 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 Ricocare utilization patterns; and the Districttiming, scope and impact 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,stimulus legislation as well as commercialization services thatother federal, state and local governmental responses to the pandemic. Those primary drivers are provided under the name RxCrossroads®. The Retail/LTC15Segment 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 werebeyond the Company’s stores that operatedknowledge and control. As a pharmacy and 1,687 wereresult, the impact COVID-19 will have on the Company’s pharmacies located within Target stores) locatedbusinesses, operating results, cash flows and/or financial condition is uncertain, but the impact could be adverse and material. COVID-19 also may result in 49 states,legal and regulatory proceedings, investigations and claims against 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 OnofreTM names, 38 onsite pharmacies primarily operating under the CarePlus CVS PharmacyTM, 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.comTM and Onofre.com.brTM. 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.16(1)Net revenues of the Pharmacy Services Segment include approximately $2.6 billion 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.(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).17Note 12 – Commitments and Contingencies19911995 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 Upeach 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’sformer subsidiary’s lease obligations.obligations for the initial lease term and any extension thereof pursuant to a renewal option provided for in the lease prior to the time of the disposition. 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 failedfail to make the required payments under a store lease, the Company could be required to satisfy thesethose obligations, and any significant adverse impact of COVID-19 on such purchasers and/or former subsidiaries increases the risk that the Company will be required to satisfy those obligations. As of September 30, 2017,March 31, 2022, the Company guaranteed approximately 8668 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)sheets), with the maximum remaining lease term extending through 2047.In April 20162030.againOther Non-Voluntary Risk Sharing PoolsFebruary 2017, Bob’s Storesall 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 relatedclaimants. The life and successor entities filed for Chapter 11 bankruptcy protection. As described above,healththroughparticipates that operate under these laws respond to insolvencies of long-term care insurers and life 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 Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010. 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 insurance guaranty associations. It is allegedreasonably possible that in the future the Company may record a liability and expense relating to other insolvencies which could have guaranteed certaina material adverse effect on the Company’s operating results, financial condition and cash flows, and the risk is heightened by any significant adverse impact of the Bob’s Stores’ leases (the “Bob’s Leases”). Following these bankruptcy filings, in May 2017COVID-19 pandemic on the solvency of other insurers, including long-term care and life insurers. 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 limit future offsets.SDI Stores, LLC (“SDI Stores”), entered into an agreement regardingother risk-sharing pools, for which the Bob’s Leases, which was amended in August 2017 (the “CVS/SDI Stores Agreement”). PursuantCompany 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 CVS/SDI Stores Agreement, SDI Stores has acceptedassessment, and the assignmentultimate liability is not known at the financial statement date. While the ultimate amount of the Bob’s Leasesassessment is dependent upon the experience of all pool participants, the Company believes it has adequate reserves to cover such assessments.agreedbeen involved or is currently involved in numerous legal proceedings, including litigation, arbitration, government investigations, audits, reviews and claims. These include routine, regular and special investigations, audits and reviews by the U.S. Centers for Medicare & Medicaid Services (“CMS”), state insurance and health and welfare departments, the U.S. Department of Justice (the “DOJ”), state attorneys general, the U.S. Drug Enforcement Administration (the “DEA”) and other governmental authorities.bound by certain restrictions regarding renewals, extensionsclass actions and/or involve parties seeking large and/or indeterminate amounts, including punitive or exemplary damages, and modifications to the Bob’s Leases, in exchangemay remain unresolved for a series of payments that are immaterial to the Company.Legal Mattersisalso may be named from time to time inparty togovernmental body. The results of legal proceedings, including government investigations, are often uncertain and claimsdifficult to predict, and the costs incurred in these matters can be substantial, regardless of the ordinary course of its business, including the matters described below. outcome.position.·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 The Company believes that its defenses and assertions in pending legal proceedings have merit and does not believe that any of these pending matters, after consideration of applicable reserves and rights to indemnification, will have a material adverse effect on the Company’s financial position. Substantial unanticipated verdicts, fines and rulings, however, do sometimes occur, which could result in judgments against the Company, entry into settlements or a revision to its expectations regarding the outcome of certain matters, and such developments could have a material adverse effect on its results of operations. In addition, as a result of governmental investigations or proceedings, the Company may be subject to damages, civil or criminal fines or penalties, or other sanctions including possible suspension or loss of licensure and/or exclusion 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.18
participating in government programs. The outcome of such governmental investigations of proceedings could be material to the Company.Contentsthe federal Controlled Substances Act and the federal False Claims Act. In January 2022, the DOJ served the Company with a CID regarding similar subjects. The Company is providing documents and information in response to these matters.·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 theDistrict 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.19
In December 2021, the Company received a demand for inspection of books and records pursuant to Delaware Corporation Law Section 220 (the “Demand”). The Demand purports to be related to potential breaches of fiduciary duties by the Board in relation to certain matters concerning opioids.·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 opioid20abuse 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.21·Insulin Products Investigation. 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). 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.·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.all arisinganticompetitive practices, general contractual matters, product liability, intellectual property litigation and employment litigation. Some of these other legal proceedings are or are purported to be class actions or derivative claims. The Company is defending itself against the claims brought in these matters.normal courseCompany’s Health Care Benefits segment, frequently are subject to 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 its business, none of which is expectedany government contract could adversely affect the Company’s operating results. The Company will continue to defend contract awards it receives.materiala 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).Company. 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.however, that its business,businesses, financial condition, andoperating results of operationsand/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 existing22business,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 governmentalgovernment investigations of one or more of the Company’s businessbusinesses, 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.In millions Health Care
BenefitsRetail/
LTCCorporate/
OtherConsolidated
TotalsThree Months Ended March 31, 2022 Revenues from external customers $ 22,997 $ 36,196 $ 17,434 $ 31 $ — $ 76,658 Intersegment revenues 23 3,265 8,000 — (11,288) — Net investment income (loss) 89 — (16) 95 — 168 Total revenues 23,109 39,461 25,418 126 (11,288) 76,826 Adjusted operating income (loss) 1,751 1,636 1,605 (305) (204) 4,483 March 31, 2021 Revenues from external customers $ 20,315 $ 33,313 $ 15,140 $ 32 $ — $ 68,800 Intersegment revenues 20 3,008 8,088 — (11,116) — Net investment income 148 — 46 103 — 297 Total revenues 20,483 36,321 23,274 135 (11,116) 69,097 Adjusted operating income (loss) 1,782 1,507 1,394 (303) (175) 4,205 23
The following are reconciliations of consolidated operating income to adjusted operating income for the three months ended March 31, 2022 and 2021:Three Months Ended
March 31,In millions 2022 2021 Operating income (GAAP measure) $ 3,490 $ 3,577 468 587 484 — 41 — — 41 Adjusted operating income $ 4,483 $ 4,205 and ShareholdersCorporation:September 30, 2017,March 31, 2022, the related condensed consolidated statements of incomeoperations and comprehensive income for the three-month and nine-month periods ended September 30, 2017March 31, 2022 and 2016,2021, the related condensed consolidated statements of shareholders’ equity for the three-month periods ended March 31, 2022 and 2021, the related condensed consolidated statements of cash flows for the nine-monththree-month periods ended September 30, 2017March 31, 2022 and 2016. These2021, 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.conducted our reviewhave 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, 2021, 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 9, 2022, 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, 2021, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.informationstatements 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 LLPNovember 6, 2017Boston, Massachusetts24Our Businesspharmacy innovationdiversified health solutions company united around a common purpose of helping people on their path to better health. At the forefront of aIn an increasingly connected and digital world, we are meeting people wherever they are and changing health care landscape, theto meet their needs. 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 9,7009,000 retail locations, more than 1,100 walk-in health caremedical clinics, a leading pharmacy benefits manager with nearly 90approximately 110 million plan members with expanding specialty pharmacy solutions and a dedicated senior pharmacy care business serving more than one million patients per year,year. The Company also serves an estimated 35 million people through traditional, voluntary and consumer-directed health insurance products and related services, including expanding specialty pharmacy servicesMedicare Advantage offerings and a leading stand-alonestandalone Medicare Part D prescription drug plan we enable people, businesses, and communities to manage(“PDP”). The Company believes its innovative health in more affordable, effective ways. We are delivering break-through products and services, from advising patients on their medications at our CVS Pharmacy® 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 SpecialtyTM, to improving pharmacy care for the senior community through Omnicare®, or by expandingmodel increases access to high-quality, low-costquality care, at CVS MinuteClinic®.We have threedelivers better health outcomes and lowers overall health care costs.Corporate.Ourbusiness generates revenue fromsegment provides a full range of pharmacy benefit management (“PBM”) solutions, including plan design offerings and administration, formulary management, Medicare Part Dretail pharmacy network management services and mail order pharmacy. In addition, through the Pharmacy Services segment, the Company provides specialty pharmacy and infusion services, retail pharmacy network management services, prescription management systems, clinical services, disease management services, and medical spend management.Ourmanagement and pharmacy and/or other administrative services for providers and federal 340B drug pricing program covered entities (“Covered Entities”). The Company operates a group purchasing organization that negotiates pricing for the purchase of pharmaceuticals and rebates with pharmaceutical manufacturers on behalf of its participants. The Company also provides various administrative, management and reporting services to pharmaceutical manufacturers. The Pharmacy Services segment’s clients are primarily employers, insurance companies, unions, government employee groups, health plans, Medicare Part D plans, ManagedPDPs, Medicaid managed care plans, plans offered on the publicPublic 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 planStates 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.Covered Entities. 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 SpecialtyTM, 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 serviceorder dispensing pharmacies, compounding pharmacies and 82 branches for infusion and enteral services, including approximately 73 ambulatory infusion suites and three centersnutrition services.excellence, located in 41 states, Puerto Rico and the District of Columbia.25OurSegmentsegment sells prescription drugs and a wide assortment of health and wellness products and general merchandise, including over-the-counterprovides health care services through its MinuteClinic® walk-in medical clinics, provides medical diagnostic testing, administers vaccinations for illnesses such as influenza, coronavirus disease 2019 (“COVID-19”) and shingles and conducts long-term care pharmacy (“LTC”) operations, which distribute prescription drugs beauty products and cosmetics, personal care products, convenience foods, photo finishing, seasonal merchandise and greeting cards through our CVS Pharmacy®, CVS®, Longs Drugs®, Navarro Discount Pharmacy® and Drogaria OnofreTM retail locations and online through CVS.com®, Navarro.comTM and Onofre.com.brTM. The Retail/LTC Segment also includes providing the distribution of prescription drugs,provide related pharmacy consulting and other ancillary services to chroniclong-term care facilities and other care settings,settings. As of March 31, 2022, the Retail/LTC segment operated more than 9,000 retail locations, more than 1,100 MinuteCliniclocations as well as commercialization services that are provided underonline retail pharmacy websites, LTC pharmacies and on-site pharmacies.name RxCrossroads®. Our Retail/LTCCorporate/Other Segment derivesmajorityremainder of its revenues throughfinancial results in the sale of prescription drugs,Corporate/Other segment, which are dispensed by our more than 31,000 pharmacists. Our Retail/LTC Segment also provides health 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 OnofreTM 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.comTM and Onofre.com.brTM. 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 SegmentThe Corporate Segment provides managementconsists of:servicesexpenses to support the Company. The Corporate Segment consists ofCompany’s overall operations, which include certain aspects of our executive management and the corporate relations, legal, compliance, human resources, information technology and finance departments.Resultsdepartments, expenses associated with the Company’s investments in its transformation and enterprise modernization programs and acquisition-related integration costs; andOperationsourthe Company’s operating results of operations for the three and nine months ended September 30, 2017March 31, 2022 and 2016,2021, and the significant developments affecting ourthe Company’s financial condition since December 31, 2016.2021. 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, which are included as Exhibit 13 to our 2016in the 2021 Form 10‑K along with this report.10-K.26the Condensed Consolidated Financial Results:Three Months Ended
March 31,Change In millions 2022 2021 $ % Revenues: Products $ 52,522 $ 47,387 $ 5,135 10.8 % Premiums 21,631 18,960 2,671 14.1 % Services 2,505 2,453 52 2.1 % Net investment income 168 297 (129) (43.4) % Total revenues 76,826 69,097 7,729 11.2 % Operating costs: Cost of products sold 45,509 40,894 4,615 11.3 % Benefit costs 17,951 15,704 2,247 14.3 % Operating expenses 9,876 8,922 954 10.7 % Total operating costs 73,336 65,520 7,816 11.9 % Operating income 3,490 3,577 (87) (2.4) % Interest expense 586 657 (71) (10.8) % Other income (42) (50) 8 16.0 % Income before income tax provision 2,946 2,970 (24) (0.8) % Income tax provision 633 746 (113) (15.1) % Income from continuing operations 2,313 2,224 89 4.0 % Net income 2,313 2,224 89 4.0 % Net income attributable to noncontrolling interests (1) (1) — — % Net income attributable to CVS Health $ 2,312 $ 2,223 $ 89 4.0 % Net Netapproximately $1.6$7.7 billion, or 3.5%, and $4.8 billion, or 3.7%, in the three and nine months ended September 30, 2017, respectively, 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 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 decrease in the Retail/LTC Segment was primarily due to 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 an increase in the generic dispensing rate. Generic prescription drugs typically have a lower selling price than brand name prescription drugs.Please see the section entitled “Segment Analysis” below for additional information regarding net revenues.Gross ProfitGross profit dollars decreased $366 million, 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 points 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.27Operating ExpensesOperating expenses decreased $41 million, or 0.9%11.2%, in the three months ended September 30, 2017 asMarch 31, 2022 compared to the prior year. year driven by growth across all segments.as a percentage of net revenues decreased approximately 45 basis points to 10.0%increased $954 million, or 10.7%, 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.·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 basis points to 10.4% in the nine months ended September 30, 2017 asMarch 31, 2022 compared to the prior year. The increase in operating expenses in the nine months ended September 30, 2017 was due to the items mentioned above, which were more than offset by the following:·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 for additional information regarding operating expenses.Interest Expense, netInterest expense, net, decreased $8 million and $72 million in the three and nine months ended September 30, 2017, respectively, as compared to the prior year. The decrease in the three and nine months ended was primarily due to the Company’s debt issuanceestablishment of a $484 million pretax ($370 million after-tax) legal settlement accrual related to the pending agreement with the State of Florida to settle all opioid claims against the Company and debt tender offers that occurredincremental costs associated with growth in 2016 which resultedthe business.overall more favorable interest rates oneach of the three-month periods ended March 31, 2022 and 2021.long-term debt.Forsegments.on our financing activities, please seeabout the operating results of the Company’s segments.section below.Losslater in this report for additional information.Early Extinguishmentthe Company’s reportable segments in accordance with the accounting guidance for segment reporting and is consistent with the segment disclosure in Note 9 ‘‘Segment Reporting’’ to the unaudited condensed consolidated financial statements.Debtthe Company’s segments based on adjusted operating income, which 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. 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 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.In millions Health Care
BenefitsRetail/
LTCCorporate/
OtherConsolidated
TotalsThree Months Ended March 31, 2022 Total revenues $ 23,109 $ 39,461 $ 25,418 $ 126 $ (11,288) $ 76,826 Adjusted operating income (loss) 1,751 1,636 1,605 (305) (204) 4,483 March 31, 2021 Total revenues 20,483 36,321 23,274 135 (11,116) 69,097 Adjusted operating income (loss) 1,782 1,507 1,394 (303) (175) 4,205 Three Months Ended March 31, 2022 In millions Health Care
BenefitsPharmacy
ServicesRetail/
LTCCorporate/
OtherIntersegment
EliminationsConsolidated
TotalsOperating income (loss) (GAAP measure) $ 1,409 $ 1,592 $ 1,483 $ (790) $ (204) $ 3,490 301 44 122 1 — 468 — — — 484 — 484 41 — — — — 41 Adjusted operating income (loss) $ 1,751 $ 1,636 $ 1,605 $ (305) $ (204) $ 4,483 Three Months Ended March 31, 2021 In millions Health Care
BenefitsPharmacy
ServicesRetail/
LTCCorporate/
OtherIntersegment
EliminationsConsolidated
TotalsOperating income (loss) (GAAP measure) $ 1,380 $ 1,452 $ 1,265 $ (345) $ (175) $ 3,577 402 55 129 1 — 587 — — — 41 — 41 Adjusted operating income (loss) $ 1,782 $ 1,507 $ 1,394 $ (303) $ (175) $ 4,205 September 30, 2016,March 31, 2022, the legal settlement accrual relates to the pending agreement with the State of Florida, entered into in March 2022, to resolve claims dating back more than a decade related to opioid medications. Under this agreement, CVS Health Corporation will settle all opioid claims against it and its subsidiaries by the State of Florida for $484 million, inclusive of certain legal fees, to be paid over a period of 18 years. The legal settlement accrual is reflected in the unaudited condensed consolidated statement of operations in operating expenses within the Corporate/Other segment.exercisedreached an agreement to sell its option to redeem outstanding senior notes of approximately $1.1 billion aggregate principal amount. The Company paidinternational health care business domiciled in Thailand (“Thailand business”), which is included in the Commercial Business reporting unit. At that time, a premium of $97 million in excessportion of the debt principal in connection withCommercial Business goodwill was specifically allocated to the purchaseThailand business. The net assets of the senior notesThailand business were accounted for as assets held for sale and wrote off $4 millionincluded in other current assets and accrued expenses on the unaudited condensed consolidated balance sheet at March 31, 2022. The carrying value of unamortized deferred financingthe Thailand business was determined to be greater than its fair value and a loss on assets held for sale was recorded. The sale is expected to close in the second quarter of 2022. The loss on assets held for sale is reflected in the unaudited condensed consolidated statement of operations in operating expenses within the Health Care Benefits segment.Three Months Ended
March 31,Change In millions, except percentages and basis points (“bps”) 2022 2021 $ % Revenues: Premiums $ 21,614 $ 18,942 $ 2,672 14.1 % Services 1,406 1,393 13 0.9 % Net investment income 89 148 (59) (39.9) % Total revenues 23,109 20,483 2,626 12.8 % Benefit costs 18,049 15,757 2,292 14.5 % MBR 83.5 % 83.2 % 30 bps Operating expenses $ 3,651 $ 3,346 $ 305 9.1 % Operating expenses as a % of total revenues 15.8 % 16.3 % Operating income $ 1,409 $ 1,380 $ 29 2.1 % Operating income as a % of total revenues 6.1 % 6.7 % $ 1,751 $ 1,782 $ (31) (1.7) % Adjusted operating income as a % of total revenues 7.6 % 8.7 % Premium revenues (by business): Government $ 16,195 $ 13,917 $ 2,278 16.4 % Commercial 5,419 5,025 394 7.8 % total loss onreconciliation of Health Care Benefits segment operating income (GAAP measure) to adjusted operating income, which represents the early extinguishmentCompany’s principal measure of debt of $101 million.During the nine months ended September 30, 2016, the Company purchased approximately $4.2segment performance.aggregate principal amount of certain of its senior notes pursuantor 12.8%, 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.28Other ExpenseOther expense increased $185 million and $183 million$23.1 billion in the three and nine months ended September 30, 2017, respectively,March 31, 2022 compared to the prior year driven by growth across all product lines.and nine months ended March 31, 2022 compared to 16.3% in the prior year. The decrease in operating expenses as a percentage of total revenues 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 ProvisionOur effectiveincreases in total revenues described above. tax rate was 37.7% and 37.4% forSeptember 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 relatedMarch 31, 2022 compared to the successful resolution withprior year primarily driven by net realized capital losses and the IRS of certain tax matters, partiallycontinued progression towards normalized total medical costs, largely 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 goodwill impairment charge recognized in 2017, partially offset by the excess tax benefit recognized for employee share-based compensation.Loss from Discontinued OperationsThe loss from discontinued operations of $8 million for the nine months ended September 30, 2017, was primarily comprised of a $15 million charge (net 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.29Segment AnalysisWe evaluate the performance of our Pharmacy Services and Retail/LTC segments based on net revenue, gross profit and operating profit before the effect of nonrecurring charges and gains and certain intersegment activities. We evaluate the performance of our Corporate Segment based on operating expenses before the effect of nonrecurring charges and gains and certain intersegment activities. The following is a reconciliation of our segments to the condensed consolidated financial statements:(1)Net revenues of the Pharmacy Services Segment include approximately $2.6 billion 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.(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).30Pharmacy Services Segmentour the Health Care Benefits segment’s medical membership for the respective periods:March 31, 2022 December 31, 2021 March 31, 2021 In thousands Insured ASC Total Insured ASC Total Insured ASC Total Medical membership: Commercial 3,285 13,924 17,209 3,258 13,530 16,788 3,201 13,584 16,785 Medicare Advantage 3,169 — 3,169 2,971 — 2,971 2,874 — 2,874 Medicare Supplement 1,292 — 1,292 1,285 — 1,285 1,146 — 1,146 Medicaid 2,375 477 2,852 2,333 471 2,804 2,184 637 2,821 Total medical membership 10,121 14,401 24,522 9,847 14,001 23,848 9,405 14,221 23,626 Supplemental membership information: Medicare Prescription Drug Plan (standalone) 6,022 5,777 5,694 Segment’sSegmentThree Months Ended
March 31,Change In millions, except percentages 2022 2021 $ % Revenues: Products $ 39,164 $ 36,067 $ 3,097 8.6 % Services 297 254 43 16.9 % Total revenues 39,461 36,321 3,140 8.6 % Cost of products sold 37,490 34,523 2,967 8.6 % Operating expenses 379 346 33 9.5 % Operating expenses as a % of total revenues 1.0 % 1.0 % Operating income $ 1,592 $ 1,452 $ 140 9.6 % Operating income as a % of total revenues 4.0 % 4.0 % $ 1,636 $ 1,507 $ 129 8.6 % Adjusted operating income as a % of total revenues 4.1 % 4.1 % Revenues (by distribution channel): $ 22,824 $ 21,893 $ 931 4.3 % 16,374 14,248 2,126 14.9 % Other 263 180 83 46.1 % Total 567.0 535.9 31.1 5.8 % 484.3 455.4 28.9 6.3 % 82.7 80.5 2.2 2.7 % Total 87.7 % 88.1 % 88.1 % 88.5 % 85.6 % 85.7 % (1)Amounts revised to reflect the adoption(1)See “Segment Analysis” above in this report for a reconciliation 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 $1 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 $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.(3)Pharmacy network net revenues, claims processed and generic dispensing rates 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 retail pharmacies and long-term care pharmacies, but excluding Maintenance Choice activity.(4)Includes the 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.Net RevenuesNet revenues in our Pharmacy Services Segmentsegment operating income (GAAP measure) to adjusted operating income, which represents the Company’s principal measure of segment performance.$2.5$3.1 billion, or 8.1%8.6%, to $32.9$39.5 billion in the three months ended September 30, 2017, asMarch 31, 2022 compared to the prior year. Net revenuesyear primarily driven by increased pharmacy claims volume, growth in ourspecialty pharmacy and brand inflation, partially offset by continued client price improvements.Segmentsegment include selling, general and administrative expenses; depreciation and amortization expense; and expenses related to specialty retail pharmacies, which include administrative payroll, employee benefits and occupancy costs.$7.7 billion,$129 million, or 8.7%8.6%, to $96.4 billion in the ninethree months ended September 30, 2017, asMarch 31, 2022 compared to the prior year. The increase isin adjusted operating income was primarily due to growth in pharmacy network claim volume, brand inflationdriven by improved purchasing economics, including increased contributions from the products and services of the Company’s group purchasing organization, and specialty pharmacy volume,pharmacy. These increases were partially offset by increasedcontinued client price compression and generic dispensing. improvements.ourthe Pharmacy Services Segment’ssegment’s performance in this area, we believe you should consider the following important information about the business:and nine months ended September 30, 2017:·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 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.31
Generic dispensing rate·Our average revenue per mail choice claim, on a 30-day equivalent basis, increased 0.4% and 1.8% in•Generic dispensing rate is calculated by dividing 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 ProfitGross profit in our Pharmacy Services Segment includes netsegment’s generic drug prescriptions processed or filled by its total prescriptions processed or filled. Management uses this metric to evaluate the effectiveness of the business at encouraging the use of generic drugs when they are available and clinically appropriate, which aids in decreasing costs for client members and retail customers. This metric provides management and investors with information useful in understanding trends in segment total revenues less costand operating results.revenues. CostCOVID-19 vaccinations, the segment’s total generic dispensing rate was 88.8% and 88.9% in the three months ended March 31, 2022 and 2021, respectively.Three Months Ended
March 31,Change In millions, except percentages 2022 2021 $ % Revenues: Products $ 24,605 $ 22,394 $ 2,211 9.9 % Services 829 834 (5) (0.6) % Net investment income (loss) (16) 46 (62) (134.8) % Total revenues 25,418 23,274 2,144 9.2 % Cost of products sold 18,765 17,042 1,723 10.1 % Operating expenses 5,170 4,967 203 4.1 % Operating expenses as a % of total revenues 20.3 % 21.3 % Operating income $ 1,483 $ 1,265 $ 218 17.2 % Operating income as a % of total revenues 5.8 % 5.4 % $ 1,605 $ 1,394 $ 211 15.1 % Adjusted operating income as a % of total revenues 6.3 % 6.0 % Revenues (by major goods/service lines): Pharmacy $ 19,532 $ 17,885 $ 1,647 9.2 % Front Store 5,313 4,642 671 14.5 % Other 589 701 (112) (16.0) % Net investment income (loss) (16) 46 (62) (134.8) % 394.6 375.4 19.2 5.1 % Total 10.7 % 0.4 % Pharmacy 10.1 % 4.1 % Front Store 13.2 % (11.4) % 6.1 % 1.0 % 87.5 % 87.4 % includes (i)and prescriptions filled in the cost of pharmaceuticals dispensed, either directly through our mail service, specialty mail and specialty retail pharmacies or indirectly through ourCompany’s retail pharmacy networks, (ii) shippingstores that have been operating for greater than one year, expressed as a percentage that indicates the increase or decrease relative to the comparable prior period. Same store metrics exclude revenues from MinuteClinic, revenues and handling costsprescriptions from LTC operations. Management uses these metrics to evaluate the performance of existing stores on a comparable basis and (iii)to inform future decisions regarding existing stores and new locations. Same-store metrics provide management and investors with information useful in understanding the operating costsportion of our mail service dispensing pharmacies, customer service operationscurrent revenues and related information technology support.Gross profit decreased $152 million,prescriptions resulting from organic growth in existing locations versus the portion resulting from opening new stores.8.4%9.2%, to approximately $1.6$25.4 billion in the three months ended September 30, 2017,March 31, 2022 compared to the prior year primarily driven by increased prescription and front store volume, including the sale of COVID-19 OTC test kits and the impact of a weaker cough, cold and flu season experienced in the prior year, as well as pharmacy brand inflation. These increases were partially offset by the impact of recent generic introductions, continued pharmacy reimbursement pressure and decreased COVID-19 diagnostic testing.Gross profit decreased $56 million, or 1.3%, to approximately $4.2 billionThe increase was primarily driven by the 6.1% increase in pharmacy same store prescription volume on a 30-day equivalent basis and pharmacy brand inflation. These increases were partially offset by the impact of recent generic introductions and continued pharmacy reimbursement pressure.ninethree months ended September 30, 2017, asMarch 31, 2022 compared to the prior year. The increase was primarily due to strength in consumer health, including the sale of COVID-19 OTC test kits and the impact of a weaker cough, cold and flu season experienced in the prior year, in the three months ended March 31, 2022.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 of net revenues decreased to 5.0%COVID-19 diagnostic testing in the three months ended September 30, 2017, 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% in the prior year. The decrease in gross profit as a percentage of net revenues was primarily due to continued price compression and changes 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.32Operating ExpensesOperating expenses in our Pharmacy Services 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 million, or 0.9% as a percentage of net revenues, in the three months ended September 30, 2017, compared to $338 million, or 1.1% as a percentage of net revenues, in the prior year. Operating expenses decreased $46 million to $938 million, or 1.0% as a percentage of net revenues, in the nine months ended September 30, 2017, compared to $984 million, or 1.1% as a percentage of net revenues, in the prior year. The decrease in operating expenses in the three and nine months ended September 30, 2017 is primarily due to the realization of partially reserved receivables.33Retail/LTC SegmentThe following table summarizes our Retail/LTC Segment’s performance for the respective periods:0.0 (1)Gross profit and operating expenses 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.(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 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)Same store sales and prescriptions exclude revenues from MinuteClinic, and revenue and prescriptions from stores in Brazil, LTC operations and from commercialization services.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 RevenuesNet revenues in our Retail/LTC Segment decreased $549 million, or 2.7%, to approximately $19.6 billion in the three months ended September 30, 2017, asMarch 31, 2022 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 nine months ended September 30, 2017, as compared to the prior year. As you review our Retail/LTC 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 promotional34
Operating expensesstrategies continue to be rationalized, partially offset by an increase in basket size. For the nine months ended September 30, 2017, 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 ProfitGross 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 compared to the prior year. Gross profit decreased $524 million, or 3.0%, to $17.0 billion in the nine months ended September 30, 2017, as compared to the prior year. Gross profit as a percentage of net revenues decreased to 29.0% in the three months ended September 30, 2017, compared to 29.3% in the prior year. Gross profit as a percentage of net revenues remained flat at 29.1% 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 as well as loss of prescriptions in Retail Pharmacy due to previously discussed network restrictions. The decrease in gross profit as a percentage 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 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 use35of 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 Expensesourthe Retail/LTC Segmentsegment include store payroll, andstore employee benefits, store occupancy costs, selling expenses, advertising expenses, depreciation and amortization expense and certain administrative expenses.$16$203 million, to $4.1 billion, or 21.1% as a percentage of net revenues,4.1%, in the three months ended September 30, 2017, asMarch 31, 2022 compared to $4.1 billion, or 20.4%the prior year. The increase was primarily due to incremental costs associated with increased volume, as well as increased investments in the segment’s operations and capabilities.nettotal revenues decreased to 20.3% in the three months ended March 31, 2022 compared to 21.3% in the prior year. OperatingThe decrease in operating expenses increased $373 million to $12.7 billion, or 21.6% as a percentage of nettotal revenues was primarily driven by the increases in total revenues described above.ninethree months ended September 30, 2017, asMarch 31, 2022 compared to $12.3 billion, or 20.4%the prior year. The increase in adjusted operating income was primarily driven by the increased prescription and front store volume described above, the impact of COVID-19 vaccinations and improved generic drug purchasing. These increases were partially offset by continued pharmacy reimbursement pressure, increased investments in the segment’s operations and capabilities and decreased COVID-19 diagnostic testing.percentage30-day equivalent basis in the three months ended March 31, 2022 compared to the prior year primarily driven by increased utilization and the impact of neta weaker cough, cold and flu season experienced in the prior year. Excluding the impact of COVID-19 vaccinations, prescriptions filled increased 5.6% on a 30-day equivalent basis for the three months ended March 31, 2022 compared to the prior year.operating expensesthe segment’s generic dispensing rate was primarily driven by a decrease in brand prescriptions, largely attributable to decreased COVID-19 vaccinations in the three and nine months ended September 30, 2017 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 in the nine months ended September 30, 2017 was also due to 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).36Corporate SegmentOperating ExpensesOperating expenses in our Corporate Segment include expenses from the Company’s executive management, corporate relations, legal, compliance, human resources, information technology and finance departments.Operating expenses decreased $8 million, or 3.1%, to $220 million and increased $26 million, or 4.3%, to $686 million in the three and nine months ended September 30, 2017, respectively, asMarch 31, 2022 compared to the prior year. Excluding the impact of COVID-19 vaccinations, the segment’s total generic dispensing rate was 89.9% and 89.5% in the three months ended March 31, 2022 and 2021, respectively.changefollowing table summarizes the Corporate/Other segment’s performance for the respective periods:Three Months Ended
March 31,Change In millions, except percentages 2022 2021 $ % Revenues: Premiums $ 17 $ 18 $ (1) (5.6) % Services 14 14 — — % Net investment income 95 103 (8) (7.8) % Total revenues 126 135 (9) (6.7) % Cost of products sold 10 8 2 25.0 % Benefit costs 59 45 14 31.1 % Operating expenses 847 427 420 98.4 % Operating loss (790) (345) (445) (129.0) % (305) (303) (2) (0.7) % expenses was partiallyloss (GAAP measure) to adjusted operating loss, which represents the Company’s principal measure of segment performance.ongoing investmentslower net investment income from hedge funds and lower net realized capital gains in strategic initiatives and increased employee benefit costs, offset by a decrease in acquisition-related integration costs of $16 million for the three and nine months ended September 30, 2017 versusMarch 31, 2022 compared to the same periodsprior year.We maintainusit to cover ourmeet its cash needs in the short-term. Over the long-term, we manage ourlong term, the Company manages its cash and capital structure to maximize shareholder return, maintain ourits financial positioncondition and maintain flexibility for future strategic initiatives. WeThe Company continuously assess ourassesses 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 ourThe Company believes its operating cash flows, commercial paper program, sale-leaseback program,credit facilities, as well as any potential future borrowings, will be sufficient to fund these future payments and long-term initiatives.The change As of March 31, 2022, the Company had approximately $8.4 billion in cash and cash equivalents, isapproximately $3.0 billion of which was held by the parent company or nonrestricted subsidiaries.Three Months Ended
March 31,Change In millions, except percentages In millions, except percentages 2022 2021 $ % Net cash provided by operating activities $ 3,563 $ 2,892 $ 671 23.2 % Net cash used in investing activities (1,993) (1,867) (126) (6.7) % Net cash used in financing activities (2,650) (3,185) 535 16.8 % Net decrease in cash, cash equivalents and restricted cash Net decrease in cash, cash equivalents and restricted cash $ (1,080) $ (2,160) $ 1,080 50.0 % was approximately $8.1 billionincreased by $671 million in the ninethree months ended September 30, 2017,March 31, 2022 compared to $8.0 billion in the nineprior year. The increase was primarily due to the timing of payments, partially offset by higher inventory purchases during the three months ended September 30, 2016. was approximately $1.6 billionincreased by $126 million in the ninethree months ended September 30, 2017,March 31, 2022 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 and other investments increased approximately $0.2 billion from the prior year which wasprimarily due to increased purchases of property and equipment, partially offset by a decrease in capital expenditureshigher net proceeds from sale and maturities of approximately $0.2 billion in the current year. was $7.4decreased to $2.7 billion in the ninethree months ended September 30, 2017,March 31, 2022 compared to net$3.2 billion in the prior year. The decrease in cash used in financing activities primarily related to lower repayments of $6.6 billion inlong-term debt during the ninethree months ended September 30, 2016. The cash used in financing activities increased $0.8 billion primarily dueMarch 31, 2022 compared to an increase of $0.4 billion in net debt repayments and an increase of $0.4 billion inthe prior year, partially offset by share repurchases in the current year.During the ninethree months ended September 30, 2017,March 31, 2022.hadmaintains a $2.0 billion, five-year unsecured back-up revolving credit facility, which expires on May 17, 2023, a $2.0 billion, five-year unsecured back-up revolving credit facility, which expires on May 16, 2024, and a $2.0 billion, five-year unsecured back-up revolving credit facility, which expires on May 11, 2026. 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 0.03%, regardless of usage. As of March 31, 2022, there were no borrowings outstanding under any of the Company’s back-up credit facilities. outstanding share repurchase programs, both of which had previouslyprogram has been authorized by the Company’sCVS Health Corporation’s Board of Directors:Directors (the “Board”):Authorized Remaining as of
March 31, 2022December 9, 2021 (“2021 Repurchase Program”) $ 10.0 $ 8.0 Each of the 2014 and 2016Programs, which were effective immediately, permittedProgram permits the Company to effect repurchases from time to time through a combination of open market repurchases, privately negotiated transactions, accelerated share repurchase (“ASR”) transactions, and/or other derivative transactions. Each of the repurchase programs couldThe 2021 Repurchase Program can be37of Directors at any time. The 2014 Repurchase Program was completed during the second quarter of 2017.ninethree months ended September 30, 2017,March 31, 2022, the Company repurchased an aggregate of approximately 55.419.1 million shares of common stock for approximately $4.4$2.0 billion pursuant to the 2014 and 20162021 Repurchase Programs. This activity includesProgram, including share repurchases under the accelerated shareASR transaction described below. During the three months ended March 31, 2021, the Company did not repurchase agreements (“ASRs”) described below.20142021 Repurchase Program, effective August 29, 2016, the Company entered into twoa $1.5 billion fixed dollar ASRsASR with Barclays Bank PLC (“Barclays”) for a total of $3.6 billion.. Upon payment of the $3.6$1.5 billion purchase price on January 6, 2017,4, 2022, the Company received a number of shares of itsCVS Health Corporation’s common stock equal to 80% of the $3.6$1.5 billion notional amount of the ASRsASR or approximately 36.111.6 million shares at a price of $103.34 per share, which were placed into treasury stock in January 2017.2022. The ASRs wereASR was accounted for as an initial treasury stock transaction for $2.9$1.2 billion and a forward contract for $0.7$0.3 billion. The forward contract was classified as an equity instrument and was recorded within capital surplus. In April 2017,February 2022, the Company received 9.9approximately 2.7 million shares of CVS Health Corporation’s common stock, representing the remaining 20% of the $3.6$1.5 billion notional amount of the ASRs,ASR, thereby concluding the ASRs. The remaining 9.9 millionASR. These 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.net incomeearnings per share.The Company had $110 million of commercial paper outstanding at a weighted average interest rate of 1.26% as of September 30, 2017. In connection with its commercial paper program, the Company maintains a $1.0 billion, 364-day unsecured back-up credit facility, which expires on May 17, 2018, 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 credit facility, which expires on July 1, 2020, and a $1.0 billion, five-year unsecured back-up credit facility, which expires on May 18, 2022. 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%, regardless of usage. As of September 30, 2017, there were no borrowings outstanding under the back-up credit facilities.On January 3, 2017, the Company entered into a $2.5 billion revolving credit facility. The credit facility allowed for borrowings at various rates that are dependent, in part, on the Company’s debt ratings and required the Company to pay a weighted average quarterly facility fee of approximately 0.03%, regardless of usage. The maximum available under this credit facility decreased by $750 million to $1.75 billion on March 31, 2017. The Company terminated this facility effective May 17, 2017.Our back‑up credit facilities and unsecured senior notes contain customary restrictive financial and operating covenants. These covenants do not include a requirement for the acceleration of our debt maturities in the event of a downgrade in our credit rating. We do not believe the restrictions contained in these covenants materially affect our financial or operating flexibility. As of September 30, 2017, the Company is in compliance with all debt covenants.As of September 30, 2017, our long-term debt was rated by Moody’s as “Baa1” with a stable outlook and by Standard & Poor’s as “BBB+” with a stable outlook, and our commercial paper program was rated “P‑2” by Moody’s and “A‑2” by Standard & Poor’s. In assessing our credit strength, we believe that both Moody’s and Standard & Poor’s considered, among other things, our capital structure and financial policies as well as our consolidated balance sheet, our historical acquisition activity and other financial information. Although we currently believe our long-term debt ratings will remain investment grade, we cannot guarantee the future actions of Moody’s and/or Standard & Poor’s. Our debt ratings have a direct impact on our future borrowing costs, access to capital markets and new store operating lease costs.Off-Balance Sheet ArrangementsIn connection with executing operating leases, we provide a guarantee of 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 in38our condensed consolidated balance sheet. See “Note 12 – Commitments and Contingencies” to our condensed consolidated financial statements for a detailed discussion of these guarantees.We prepare ourGAAP,generally accepted accounting principles, which requiresrequire management to make certain estimates and apply judgment. We base our estimatesEstimates 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 ourthe Company reviews its accounting policies and how they are applied and disclosed in ourthe unaudited condensed consolidated financial statements.we believe thatthe Company believes the historical experience, current trends and other factors considered by management support the preparationourthe 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 in “Note 2 – Goodwill and Intangible Assets” to our condensed consolidated financial statements, during the three months ended September 30, 2017, we performed our required annual impairment tests of goodwill. The results of the impairment tests indicated that there was no impairment of goodwill. The goodwill impairment tests resulted in the fair values 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.The fair value of our reporting units is estimated using a combination of a discounted cash flow method and a market multiple method. The determination of the fair value of our 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 acquisitions in the industries in which 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 each 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, the continued efforts of competitors to gain market share and consumer spending patterns.As previously discussed, the results of our annual goodwill impairment test resulted in the fair value of our 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 lower occupancy rates in skilled nursing facilities, and client retention rates. Our projected discounted cash flow model assumes future script growth from our senior living initiative and the impact of acquisitions. Such projections also include expected 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 of 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 in the near term and the LTC reporting unit could be deemed to be impaired by a material amount.our otherthe Company’s critical accounting policies, please refer tosee “Critical Accounting Policies” in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2016of the 2021 Form 10‑K.10-K.39Act)”Act”) provides a safe harbor“safe harbor” for forward-looking statements, madeso long as (1) those statements are identified as forward-looking and (2) the statements are accompanied by or on behalfmeaningful cautionary statements that identify important factors that could cause actual results to differ materially from those discussed in the statement. We want to take advantage of CVS Health Corporation. The Company and its representatives may, from time to time, make written or verbal forward-looking statements, including statementsthese safe harbor provisions.Company’s filings with the U.S. Securities and Exchange Commission (“SEC”) and in its reports to stockholders, press releases, webcasts, conference calls, meetings and other communications. Generally, the inclusionmeaning of the Reform Act or SEC rules. This information includes, but is not limited to the forward-looking information in Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) included in Part I, Item 2 of this report. In addition, throughout this report and our other reports and communications, we use the following words “believe,” “expect,” “intend,” “estimate,” “project,” “anticipate,” “will,” “should”or variations or negatives of these words and similar expressions when we intend to identify statements that constitute forward-looking statements. statements:· Anticipates · Believes · Can · Continue · Could · Estimates · Evaluate · Expects · Explore · Forecast · Guidance · Intends · Likely · May · Might · Outlook · Plans · Potential · Predict · Probable · Projects · Seeks · Should · View · Will Corporationor any segment or any subsidiary and/or future events or developments, that the Company expects or anticipates will occur in the future, including statements relating to the projected impact of COVID-19 and its emerging new variants on the Company’s businesses, investment portfolio, operating results, cash flows and/or financial condition, statements relating to corporate strategy;strategy, statements relating to future revenue, growth; earningsoperating income or adjusted operating income, earnings per common share growth; adjusted earnings 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 pharmacyHealth Care Benefits segment business, sales results and/or trends, and operations; PBMmedical cost trends, medical membership, Medicare Part D membership, medical benefit ratios and/or operations, Pharmacy Services segment business, sales results and/or trends and operations; specialty pharmacyand/or operations, Retail/LTC segment business, sales results and/or trends and operations; LTC pharmacy business, sales trends and operations;and/or operations, incremental investment spending, interest expense, effective tax rate, weighted-average share count, cash flow from operations, net capital expenditures, cash available for debt repayment, integration synergies, net synergies, integration costs, enterprise modernization, transformation, leverage ratio, cash available for enhancing shareholder value, inventory reduction, turn rate and/or loss rate, debt ratings, the Company’s ability to attract or retain customers and clients; Medicare Part D competitive bidding, enrollment and operations;clients, store development and/or relocations, new product development;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-lookingarerely on a number of estimates, assumptions and will be based upon management’s then-current views and assumptions regardingprojections concerning future events, and operating performance, and are applicable only assubject to a number 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 involvesignificant risks and uncertainties. Actualuncertainties and other factors that could cause actual results mayto differ materially from those contemplated by the forward-looking statements for a numberstatements. Many of reasons asthese risks and uncertainties and other factors are outside our control. Certain of these risks and uncertainties and other factors are described under “Risk Factors” included in Part I, Item 1A of our SEC filings, including those set forth in the Risk Factors section within the 2016Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and including, butunder “Risk Factors” included in Part II, Item 1A of this report; these are 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.40·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.41·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.the only risks and uncertainties we face. 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 impactaffect the Company. ShouldCompany’s businesses. If any of those risks andor uncertainties developdevelops into actual events, these developmentsthose events or circumstances could have a material adverse effect on the Company’s business,businesses, operating results, cash flows, financial condition and results of operations. For these reasons, you are cautionedand/or stock price, among other effects.to placeput undue reliance on the Company’s forward-looking statements. 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 (inherent in the Company’s debt portfolio), foreign currency exchange rate risk and commodity price risk is not material.September 30, 2017,March 31, 2022, 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.havehas been no changeschange in ourthe Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Securities Exchange Act Rule 13a‑1513a-15 or Rule 15d‑1515d-15 that occurred in the three months ended September 30, 2017March 31, 2022 that havehas materially affected, or areis reasonably likely to materially affect, ourthe Company’s internal control over financial reporting.42Contingencies”Contingencies’’ contained in the “Notes to the Condensed Consolidated Financial Statements”Statements (Unaudited)” in Part I, Item 1 of ourthis Quarterly Report on Form 10‑Q10-Q is incorporated by reference herein.three and nine monthsfiscal year ended September 30, 2017 for a descriptionDecember 31, 2021. Those risk factors could adversely affect the Company’s businesses, operating results, cash flows and/or financial condition as well as the market price of our legal proceedings.September 30, 2017,March 31, 2022, 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.share repurchase program authorized by CVS Health Corporation’s Board of Directors on December 9, 2021. See “Note 3 - Share Repurchase Programs”Note 5 ‘‘Shareholders’ Equity’’ contained in the “Notes to the Condensed Consolidated Financial Statements”Statements (Unaudited)” in Part I, Item 1 of ourthis Quarterly Report on Form 10‑Q10-Q for the three months ended September 30, 2017.Fiscal Period Total Number
of Shares
PurchasedAverage
Price Paid per
ShareTotal Number of Shares
Purchased as Part of
Publicly Announced
Plans or ProgramsApproximate Dollar
Value of Shares that
May Yet Be
Purchased Under the
Plans or ProgramsJanuary 1, 2022 through January 31, 2022 11,612,413 $ 103.34 11,612,413 $ 8,800,000,000 February 1, 2022 through February 28, 2022 2,656,835 $ 112.92 2,656,835 $ 8,500,000,000 March 1, 2022 through March 31, 2022 4,781,527 $ 104.57 4,781,527 $ 8,000,000,137 19,050,775 19,050,775 43hereby incorporated by referencemanagement contracts or compensatory plans or arrangements. Exhibits other than those listed are omitted because they are not required to exhibitsbe listed or appendices previously filed byare not applicable. Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the Registrant as indicated in brackets followinghereby agrees to furnish to the descriptionSecurities and Exchange Commission a copy of the exhibit.any omitted instrument that is not required to be listed.3.1*10 Material Contracts 10.1* 3.1A*10.2* 10.3* 10.4* 15 Letter re: unaudited interim financial information 15.1 3.1B*3.1C*Rule 13a-14(a)/15d-14(a) Certifications 3.1D*3.1E*3.1F*3.1G*3.2*15.1Letter re: Unaudited Interim Financial Information.31.132.1 31.232.2 32.1Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.101101 10‑Q10-Q for the three months ended September 30, 2017March 31, 2022 formatted in Extensible Business Reporting Language (XBRL):Inline 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 (v) related Footnotes to the Condensed Consolidated Statements of Shareholders’ Equity and (vi) the related Notes to Condensed Consolidated Financial Statements. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.104 104 Cover Page Interactive Data File - The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, formatted in Inline XBRL (included as Exhibit 101). 44 of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrantregistrant has duly caused this Quarterly Report on Form 10‑Qreport to be signed on its behalf by the undersigned thereunto duly authorized.CVS Health Corporation(Registrant)CVS HEALTH CORPORATION May 4, 2022 By: /s/ DavidShawn M. DentonGuertin DavidShawn M. DentonGuertin Executive Vice President and Chief Financial Officer November 6, 201745