UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM ~~10‑Q~~

10-Q

☒	~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

(Mark One)

☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the ~~Quarterly Period Ended~~quarterly period ended September 30, ~~2017~~

2023

☐	~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

_________ to_________

Commission File ~~Number 001‑01011~~

Number: 001-01011

CVS HEALTH CORPORATION

(Exact name of registrant as specified in its charter)

~~Delaware~~	~~05‑0494040~~
Delaware		05-0494040
(State or other jurisdiction of ~~Incorporation)~~ incorporation or organization)		(I.R.S. Employer Identification ~~Number)~~ No.)

~~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

Securities registered pursuant to Section 12(b) of ~~principal executive offices)~~

~~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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑Yes ☒ ☐No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation ~~S‑T~~S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). ☑Yes ☒ ☐No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule ~~12b‑2~~12b-2 of the Exchange Act.


Large accelerated filer ☒	☑	Accelerated filer	☐
Non-accelerated filer ~~☐ (Do not check if a smaller reporting company)~~	☐	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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐Yes ☐ ☑No ☒

~~Common Stock, $0.01 par value,~~

As of October 25, 2023, the registrant had 1,286,896,582 shares of common stock issued and ~~outstanding at October 31, 2017:~~

~~1,012,992,425 shares~~

outstanding.

~~Table of Contents~~

~~INDEX~~

		~~Page~~
~~Part I~~ TABLE OF CONTENTS
					Page
Part I			Financial Information

Item 1.			Financial Statements		1 3

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

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

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

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

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

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

~~Item 2.~~	Management’s Discussion and Analysis of Financial Condition and Results of Operations	56 25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk			79 42

Item 4.	Controls and Procedures			79 42

Part II			Other Information		43

Item 1.			Legal Proceedings		80 43
Item 1A.			Risk Factors		80
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds		80 43
Item 3			Defaults Upon Senior Securities		80
Item 6.			~~Exhibits~~ 4.	Mine Safety Disclosures 44		80
Item 5.			Other Information		80
Item 6.			Exhibits		81

Signatures					82 45

Form 10-Q Table of Contents

Part I.Financial Information

Item 1.Financial Statements

Index to Condensed Consolidated Financial Statements


~~Part I~~			~~Item 1~~ Page
Condensed Consolidated Statements of Operations (Unaudited) for the three and nine months ended September 30, 2023 and 2022			2

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the three and nine months ended September 30, 2023 and 2022			3

Condensed Consolidated Balance Sheets (Unaudited) as of September 30, 2023 and December 31, 2022			4

Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2023 and 2022			5

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) for the three months ended September 30, 2023 and 2022, the three months ended June 30, 2023 and 2022 and the three months ended March 31, 2023 and 2022			7

Notes to Condensed Consolidated Financial Statements (Unaudited)			9

Report of Independent Registered Public Accounting Firm			55

Index to Condensed Consolidated Financial Statements

CVS Health Corporation

Condensed Consolidated Statements of ~~Income~~

Operations

(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,
In millions, except per share amounts

2017

2016

2017

2016

Net revenues

$
46,181

$
44,615

$
136,380

$
131,555
Cost of revenues

39,055

37,123

115,739

110,304
Gross profit

7,126

7,492

20,641

21,251
Operating expenses

4,627

4,668

14,232

13,885
Operating profit

2,499

2,824

6,409

7,366
Interest expense, net

245

253

744

816
Loss on early extinguishment of debt

—

101

—

643
Other expense

192

7

206

23
Income before income tax provision

2,062

2,463

5,459

5,884
Income tax provision

777

921

2,115

2,271
Income from continuing operations

1,285

1,542

3,344

3,613
Loss from discontinued operations, net of tax

—

(1)

(8)

(1)
Net income

1,285

1,541

3,336

3,612
Net income attributable to noncontrolling interest

—

(1)

(1)

(2)
Net income attributable to CVS Health

$
1,285

$
1,540

$
3,335

$
3,610

Basic earnings per share:

Income from continuing operations attributable to CVS Health

$
1.26

$
1.44

$
3.26

$
3.34
Loss from discontinued operations attributable to CVS Health

$
—

$
—

$
(0.01)

$
—
Net income attributable to CVS Health

$
1.26

$
1.44

$
3.25

$
3.34
Weighted average shares outstanding

1,016

1,068

1,022

1,076
Diluted earnings per share:

Income from continuing operations attributable to CVS Health

$
1.26

$
1.43

$
3.25

$
3.32
Loss from discontinued operations attributable to CVS Health

$
—

$
—

$
(0.01)

$
—
Net income attributable to CVS Health

$
1.26

$
1.43

$
3.24

$
3.32
Weighted average shares outstanding

1,020

1,073

1,026

1,082
Dividends declared per share

$
0.50

$
0.425

$
1.50

$
1.275


	Three Months Ended September 30,				Nine Months Ended September 30,
In millions, except per share amounts	2023		2022		2023		2022
Revenues:
Products	$	61,298	$	57,643	$	179,984	$	166,959
Premiums	24,657		21,003		74,117		63,894
Services	3,532		2,312		8,977		7,253
Net investment income	277		201		885		515
Total revenues	89,764		81,159		263,963		238,621
Operating costs:
Cost of products sold	54,688		50,365		159,679		145,164
Health care costs	21,499		17,401		63,729		52,814
Restructuring charges	11		—		507		—
Opioid litigation charges	—		5,220		—		5,704
Loss on assets held for sale	—		2,480		349		2,521

Operating expenses	9,876		9,612		29,329		28,123
Total operating costs	86,074		85,078		253,593		234,326
Operating income (loss)	3,690		(3,919)		10,370		4,295
Interest expense	693		566		1,968		1,735

Other income	(22)		(41)		(66)		(126)
Income (loss) before income tax provision (benefit)	3,019		(4,444)		8,468		2,686
Income tax provision (benefit)	754		(1,045)		2,147		691


Net income (loss)	2,265		(3,399)		6,321		1,995
Net income attributable to noncontrolling interests	(4)		(7)		(23)		(18)
Net income (loss) attributable to CVS Health	$	2,261	$	(3,406)	$	6,298	$	1,977

Net income (loss) per share attributable to CVS Health:
Basic	$	1.76	$	(2.59)	$	4.90	$	1.51
Diluted	$	1.75	$	(2.59)	$	4.88	$	1.49
Weighted average shares outstanding:
Basic	1,287		1,315		1,284		1,313
Diluted	1,290		1,315		1,289		1,324










Dividends declared per share	$	0.605	$	0.55	$	1.815	$	1.65

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

statements (unaudited).

~~Table of Contents~~Index to Condensed Consolidated Financial Statements

CVS Health Corporation

Condensed Consolidated Statements of Comprehensive Income

(Loss)

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,
In millions

2017

2016

2017

2016

Net income

$
1,285

$
1,541

$
3,336

$
3,612
Other comprehensive income:

Foreign currency translation adjustments, net of tax

8

(3)

6

37
Net cash flow hedges, net of tax

—

1

1

2
Pension and other postretirement benefits, net of tax

151

—

151

—
Total other comprehensive income (loss)

159

(2)

158

39
Comprehensive income

1,444

1,539

3,494

3,651
Comprehensive income attributable to noncontrolling interest

—

(1)

(1)

(2)
Comprehensive income attributable to CVS Health

$
1,444

$
1,538

$
3,493

$
3,649


	Three Months Ended September 30,				Nine Months Ended September 30,
In millions	2023		2022		2023		2022
Net income (loss)	$	2,265	$	(3,399)	$	6,321	$	1,995
Other comprehensive income (loss), net of tax:
Net unrealized investment gains (losses)	(321)		(637)		85		(2,634)
Change in discount rate on long-duration insurance reserves	181		250		167		929
Foreign currency translation adjustments	(2)		(7)		(1)		(5)
Net cash flow hedges	(4)		8		9		20
Pension and other postretirement benefits	—		1		—		2
Other comprehensive income (loss)	(146)		(385)		260		(1,688)
Comprehensive income (loss)	2,119		(3,784)		6,581		307
Comprehensive income attributable to noncontrolling interests	(4)		(7)		(23)		(18)
Comprehensive income (loss) attributable to CVS Health	$	2,115	$	(3,791)	$	6,558	$	289

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

statements (unaudited).

~~Table of Contents~~Index to Condensed Consolidated Financial Statements

CVS Health Corporation

Condensed Consolidated Balance Sheets

(Unaudited)


	September 30,		December 31,
In millions, except per share amounts	2017		2016		In millions, except per share amounts	September 30, 2023		December 31, 2022

Assets:					Assets:
Cash and cash equivalents	$	2,485	$	3,371	Cash and cash equivalents	$	13,043	$	12,945
Short-term investments		75		87
Investments					Investments	3,145		2,778
Accounts receivable, net		12,440		12,164	Accounts receivable, net	32,927		27,276
Inventories		14,147		14,760	Inventories	17,954		19,090
Assets held for sale					Assets held for sale	—		908
Other current assets		776		660	Other current assets	3,074		2,636
Total current assets		29,923		31,042	Total current assets	70,143		65,633
Long-term investments					Long-term investments	21,667		21,096
Property and equipment, net		9,914		10,175	Property and equipment, net	13,022		12,873
Operating lease right-of-use assets					Operating lease right-of-use assets	17,564		17,872
Goodwill		38,169		38,249	Goodwill	91,261		78,150
Intangible assets, net		13,303		13,511	Intangible assets, net	29,624		24,803
Separate accounts assets					Separate accounts assets	3,200		3,228
Other assets		1,544		1,485	Other assets	4,825		4,620
Total assets	$	92,853	$	94,462	Total assets	$	251,306	$	228,275

Liabilities:					Liabilities:
Accounts payable	$	7,899	$	7,946	Accounts payable	$	14,874	$	14,838
Claims and discounts payable		9,807		9,451
Pharmacy claims and discounts payable					Pharmacy claims and discounts payable	21,497		19,423
Health care costs payable					Health care costs payable	12,550		10,142
Policyholders’ funds					Policyholders’ funds	1,440		1,500
Accrued expenses		8,404		6,937	Accrued expenses	22,571		18,745
Short-term debt		110		1,874
Other insurance liabilities					Other insurance liabilities	4,748		1,089
Current portion of operating lease liabilities					Current portion of operating lease liabilities	1,741		1,678

Current portion of long-term debt		2,293		42	Current portion of long-term debt	2,132		1,778
Liabilities held for sale					Liabilities held for sale	—		228
Total current liabilities		28,513		26,250	Total current liabilities	81,553		69,421
Long-term operating lease liabilities					Long-term operating lease liabilities	16,441		16,800
Long-term debt		23,386		25,615	Long-term debt	59,782		50,476
Deferred income taxes		4,442		4,214	Deferred income taxes	4,250		4,016
Separate accounts liabilities					Separate accounts liabilities	3,200		3,228
Other long-term insurance liabilities					Other long-term insurance liabilities	5,333		5,835
Other long-term liabilities		1,644		1,549	Other long-term liabilities	6,237		6,730
Total liabilities					Total liabilities	176,796		156,506

Shareholders’ equity:					Shareholders’ equity:
CVS Health shareholders’ equity:
Preferred stock, par value $0.01: 0.1 shares authorized; none issued or outstanding		—		—	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
Common stock, par value $0.01: 3,200 shares authorized; 1,767 shares issued and 1,287 shares outstanding at September 30, 2023 and 1,758 shares issued and 1,300 shares outstanding at December 31, 2022 and capital surplus					Common stock, par value $0.01: 3,200 shares authorized; 1,767 shares issued and 1,287 shares outstanding at September 30, 2023 and 1,758 shares issued and 1,300 shares outstanding at December 31, 2022 and capital surplus	48,829		48,193
Treasury stock, at cost: 480 shares at September 30, 2023 and 458 shares at December 31, 2022					Treasury stock, at cost: 480 shares at September 30, 2023 and 458 shares at December 31, 2022	(33,831)		(31,858)
Retained earnings		40,779		38,983	Retained earnings	60,343		56,398
Accumulated other comprehensive income (loss)		(147)		(305)
Accumulated other comprehensive loss					Accumulated other comprehensive loss	(1,004)		(1,264)
Total CVS Health shareholders’ equity		34,863		36,830	Total CVS Health shareholders’ equity	74,337		71,469
Noncontrolling interest		5		4
Noncontrolling interests					Noncontrolling interests	173		300
Total shareholders’ equity		34,868		36,834	Total shareholders’ equity	74,510		71,769
Total liabilities and shareholders’ equity	$	92,853	$	94,462	Total liabilities and shareholders’ equity	$	251,306	$	228,275

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

statements (unaudited).

~~Table of Contents~~Index to Condensed Consolidated Financial Statements

CVS Health Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended September 30,
In millions	2023		2022
Cash flows from operating activities:
Cash receipts from customers	$	260,300	$	235,395
Cash paid for inventory, prescriptions dispensed and health services rendered	(153,051)		(138,785)
Insurance benefits paid	(61,658)		(51,434)
Cash paid to other suppliers and employees	(26,038)		(22,728)
Interest and investment income received	1,174		687
Interest paid	(2,049)		(1,936)
Income taxes paid	(2,616)		(3,070)
Net cash provided by operating activities	16,062		18,129

Cash flows from investing activities:
Proceeds from sales and maturities of investments	5,547		5,535
Purchases of investments	(6,625)		(6,439)
Purchases of property and equipment	(2,120)		(2,039)
Acquisitions (net of cash and restricted cash acquired)	(16,492)		(131)
Proceeds from sale of subsidiaries (net of cash and restricted cash sold of $2,808 in 2022)	—		(1,928)
Other	43		74
Net cash used in investing activities	(19,647)		(4,928)

Cash flows from financing activities:


Proceeds from issuance of short-term loan	5,000		—
Repayment of short-term loan	(5,000)		—
Proceeds from issuance of long-term debt	10,898		—
Repayments of long-term debt	(2,734)		(4,195)
Repurchase of common stock	(2,013)		(2,000)

Dividends paid	(2,353)		(2,188)
Proceeds from exercise of stock options	242		510
Payments for taxes related to net share settlement of equity awards	(175)		(337)
Other	(210)		(119)
Net cash provided by (used in) financing activities	3,655		(8,329)
Net increase in cash, cash equivalents and restricted cash	70		4,872
Cash, cash equivalents and restricted cash at the beginning of the period	13,305		12,691
Cash, cash equivalents and restricted cash at the end of the period	$	13,375	$	17,563

Index to Condensed Consolidated Financial Statements

CVS Health Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Nine Months Ended

September 30,
In millions

2017

2016
Cash flows from operating activities:

Cash receipts from customers

$
133,055

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

(110,788)

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

(11,230)

(11,020)
Interest received

15

14
Interest paid

(869)

(954)
Income taxes paid

(2,040)

(2,194)
Net cash provided by operating activities

8,143

8,020

Cash flows from investing activities:

Purchases of property and equipment

(1,412)

(1,607)
Proceeds from sale-leaseback transactions

265

230
Proceeds from sale of property and equipment and other assets

20

22
Acquisitions (net of cash acquired) and other investments

(502)

(333)
Purchase of available-for-sale investments

—

(40)
Maturities of available-for-sale investments

21

76
Net cash used in investing activities

(1,608)

(1,652)

Cash flows from financing activities:

Increase (decrease) in short-term debt

(1,764)

340
Proceeds from issuance of long-term debt

—

3,455
Repayments of long-term debt

—

(5,185)
Purchase of noncontrolling interest in subsidiary

—

(39)
Payment of contingent consideration

—

(26)
Dividends paid

(1,539)

(1,384)
Proceeds from exercise of stock options

314

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

(70)

(72)
Repurchase of common stock

(4,361)

(4,000)
Other

(1)

(6)
Net cash used in financing activities

(7,421)

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

—

2
Net decrease in cash and cash equivalents

(886)

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

3,371

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

$
2,485

$
2,189

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

Net income

$
3,336

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

Depreciation and amortization

1,857

1,847
Goodwill impairment

135

—
Losses on settlements of defined benefit pension plans

187

—
Stock-based compensation

173

166
Loss on early extinguishment of debt

—

643
Deferred income taxes and other noncash items

271

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

Accounts receivable, net

(280)

(1,714)
Inventories

620

(337)
Other current assets

(212)

2
Other assets

(15)

(86)
Accounts payable and claims and discounts payable

330

1,570
Accrued expenses

1,670

2,149
Other long-term liabilities

71

49
Net cash provided by operating activities

$
8,143

$
8,020


	Nine Months Ended September 30,
In millions	2023		2022
Reconciliation of net income to net cash provided by operating activities:
Net income	$	6,321	$	1,995
Adjustments required to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	3,232		3,181
Loss on assets held for sale	349		2,521

Stock-based compensation	461		341
Gain on sale of subsidiary	—		(225)

Deferred income taxes and other noncash items	(360)		(2,213)
Change in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable, net	(3,920)		(2,009)
Inventories	1,305		(415)
Other assets	(518)		(244)
Accounts payable and pharmacy claims and discounts payable	2,466		3,350
Health care costs payable and other insurance liabilities	4,679		4,476
Other liabilities	2,047		7,371
Net cash provided by operating activities	$	16,062	$	18,129

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

statements (unaudited).

~~Table of Contents~~Index to Condensed Consolidated Financial Statements

CVS Health Corporation

Condensed Consolidated Statements of Shareholders’ Equity

(Unaudited)


			Attributable to CVS Health
	Number of shares outstanding		Common Stock and Capital Surplus (2)		Treasury Stock (1)		Retained Earnings		Accumulated Other Comprehensive Loss		Total CVS Health Shareholders’ Equity		Noncontrolling Interests		Total Shareholders’ Equity

	Common Shares	Treasury Shares (1)
In millions
Balance at December 31, 2022	1,758	(458)	$	48,193	$	(31,858)	$	56,398	$	(1,264)	$	71,469	$	300	$	71,769

Net income	—	—	—		—		2,136		—		2,136		6		2,142
Other comprehensive income	—	—	—		—		—		389		389		—		389
Stock option activity, stock awards and other	1	—	122		—		—		—		122		—		122
Purchase of treasury shares, net of ESPP issuances	—	(22)	(18)		(1,944)		—		—		(1,962)		—		(1,962)
Common stock dividends	—	—	—		—		(781)		—		(781)		—		(781)
Other increases (decreases) in noncontrolling interests	—	—	9		—		—		—		9		(108)		(99)
Balance at March 31, 2023	1,759	(480)	48,306		(33,802)		57,753		$	(875)	71,382		198		71,580
Net income	—	—	—		—		1,901		—		1,901		13		1,914
Other comprehensive income	—	—	—		—		—		17		17		—		17
Stock option activity, stock awards and other	5	—	345		—		—		—		345		—		345
Purchase of treasury shares, net of ESPP issuances	—	(2)	2		(131)		—		—		(129)		—		(129)
Common stock dividends	—	—	—		—		(786)		—		(786)		—		(786)
Acquisition of noncontrolling interests	—	—	—		—		—		—		—		66		66
Other decreases in noncontrolling interests	—	—	(4)		—		—		—		(4)		(1)		(5)
Balance at June 30, 2023	1,764	(482)	48,649		(33,933)		58,868		(858)		72,726		276		73,002
Net income	—	—	—		—		2,261		—		2,261		4		2,265
Other comprehensive loss (Note 10)	—	—	—		—		—		(146)		(146)		—		(146)
Stock option activity, stock awards and other	3	—	165		—		—		—		165		—		165
ESPP issuances, net of purchase of treasury shares	—	2	3		102		—		—		105		—		105
Common stock dividends	—	—	—		—		(786)		—		(786)		—		(786)
Other increases (decreases) in noncontrolling interests	—	—	12		—		—		—		12		(107)		(95)
Balance at September 30, 2023	1,767	(480)	$	48,829	$	(33,831)	$	60,343	$	(1,004)	$	74,337	$	173	$	74,510

(1)Treasury shares include 1 million shares held in trust and treasury stock includes $29 million related to shares held in trust as of September 30, 2023, June 30, 2023, March 31, 2023 and December 31, 2022.

(2)Common stock and capital surplus includes the par value of common stock of $18 million as of September 30, 2023, June 30, 2023, March 31, 2023 and December 31, 2022.

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

Index to Condensed Consolidated Financial Statements

CVS Health Corporation

Condensed Consolidated Statements of Shareholders’ Equity

(Unaudited)


			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
Adoption of new accounting standard (Note 1) (3)	—	—	—		—		91		(631)		(540)		—		(540)
Net income	—	—	—		—		2,354		—		2,354		1		2,355
Other comprehensive loss	—	—	—		—		—		(763)		(763)		—		(763)
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)		56,621		(429)		73,724		310		74,034
Net income	—	—	—		—		3,029		—		3,029		10		3,039
Other comprehensive loss	—	—	—		—		—		(540)		(540)		—		(540)
Stock option activity, stock awards and other	8	—	197		—		—		—		197		—		197
Purchase of treasury shares, net of ESPP issuances	—	(2)	—		(267)		—		—		(267)		—		(267)
Common stock dividends	—	—	—		—		(729)		—		(729)		—		(729)
Other increases in noncontrolling interests	—	—	—		—		—		—		—		2		2
Balance at June 30, 2022	1,755	(443)	47,874		(30,412)		58,921		(969)		75,414		322		75,736







Net income (loss)	—	—	—		—		(3,406)		—		(3,406)		7		(3,399)
Other comprehensive loss (Note 10)	—	—	—		—		—		(385)		(385)		—		(385)
Stock option activity, stock awards and other	2	—	173		—		—		—		173		—		173
ESPP issuances, net of purchase of treasury shares	—	1	—		86		—		—		86		—		86
Common stock dividends	—	—	—		—		(723)		—		(723)		—		(723)
Other decreases in noncontrolling interests	—	—	—		—		—		—		—		(1)		(1)
Balance at September 30, 2022	1,757	(442)	$	48,047	$	(30,326)	$	54,792	$	(1,354)	$	71,159	$	328	$	71,487

(1)Treasury shares include 1 million shares held in trust and treasury stock includes $29 million related to shares held in trust as of September 30, 2022, June 30, 2022, March 31, 2022 and December 31, 2021.

(2)Common stock and capital surplus includes the par value of common stock of $18 million as of September 30, 2022 and June 30, 2022 and $17 million as of March 31, 2022 and December 31, 2021.

(3)Reflects the adoption of Accounting Standards Update (“ASU”) 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts(Topic 944) during the three months ended March 31, 2023. See Note 1 ‘‘Significant Accounting Policies’’ for additional information.

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

Index to Condensed Consolidated Financial Statements

Notes to Condensed Consolidated Financial Statements

(Unaudited)

~~Note 1 –~~

1.Significant Accounting Policies

Description of Business

CVS Health Corporation, together with its subsidiaries (collectively, “CVS Health” or the “Company”), has more than 9,000 retail locations, more than 1,000 walk-in medical clinics, 192 primary care medical clinics, a leading pharmacy benefits manager with approximately 110 million plan members and expanding specialty pharmacy solutions, and a dedicated senior pharmacy care business serving more than one million patients per year. The Company also serves an estimated more than 35 million people through traditional, voluntary and consumer-directed health insurance products and related services, including expanding Medicare Advantage offerings and a leading standalone Medicare Part D prescription drug plan (“PDP”). The Company is a leader in key segments of health care through its foundational businesses and is creating new sources of value by expanding into next generation care delivery and health services, with a goal of improving satisfaction levels for both providers and consumers. The Company believes its integrated health care model increases access to quality care, delivers better health outcomes and lowers overall health care costs.

In connection with its new operating model adopted in the first quarter of 2023, the Company realigned the composition of its segments to reflect how its Chief Operating Decision Maker (the “CODM”) reviews information and manages the business. As a result of this realignment, the Company formed a new Health Services segment, which in addition to providing a full range of pharmacy benefit management (“PBM”) solutions, also delivers health care services in the Company’s medical clinics, virtually, and in the home, as well as provider enablement solutions. In addition, the Company created a new Pharmacy & Consumer Wellness segment, which includes its retail and long-term care pharmacy operations and related pharmacy services, as well as its retail front store operations. This segment will also provide pharmacy fulfillment services to support the Health Services segment’s specialty and mail order pharmacy offerings. Prior period segment financial information has been recast to conform with the current period presentation.

Following the segment realignment described above, the Company’s four reportable segments are as follows: Health Care Benefits, Health Services, Pharmacy & Consumer Wellness and Corporate/Other, which are described below.

Health Care Benefits Segment

The Health Care Benefits segment operates as one of the nation’s leading diversified health care benefits providers. The Health Care Benefits segment has the information and resources to help members, in consultation with their health care professionals, make more informed decisions about their health care. The Health Care Benefits segment offers a broad range of traditional, voluntary and consumer-directed health insurance products and related services, including medical, pharmacy, dental and behavioral health plans, medical management capabilities, Medicare Advantage and Medicare Supplement plans, PDPs and Medicaid health care management services. The Health Care Benefits segment’s customers include employer groups, individuals, college students, part-time and hourly workers, health plans, health care providers (“providers”), governmental units, government-sponsored plans, labor groups and expatriates. The Company refers to insurance products (where it assumes all or a majority of the risk for medical and dental care costs) as “Insured” and administrative services contract products (where the plan sponsor assumes all or a majority of the risk for medical and dental care costs) as “ASC.” In addition, effective January 2022, the Company entered the individual public health insurance exchanges (“Public Exchanges”) in eight states through which it sells Insured plans directly to individual consumers. The Company entered Public Exchanges in four additional states effective January 2023 and will enter an additional five states effective January 2024.

Health Services Segment

The Health Services segment provides a full range of PBM solutions, delivers health care services in its medical clinics, virtually, and in the home, and offers provider enablement solutions. PBM solutions include plan design offerings and administration, formulary management, retail pharmacy network management services, and specialty and mail order pharmacy services. In addition, the Company provides clinical services, disease management services, medical spend management 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 and provides various administrative, management and reporting services to pharmaceutical manufacturers. The Health Services segment’s clients are primarily employers,

insurance companies, unions, government employee groups, health plans, PDPs, Medicaid managed care plans, the U.S. Centers for Medicare & Medicaid Services (“CMS”), plans offered on Public Exchanges and private health insurance exchanges, other sponsors of health benefit plans throughout the United States and Covered Entities.

Pharmacy & Consumer Wellness Segment

The Pharmacy & Consumer Wellness segment dispenses prescriptions in its retail pharmacies and through its infusion operations, provides ancillary pharmacy services including pharmacy patient care programs, diagnostic testing and vaccination administration, and sells a wide assortment of health and wellness products and general merchandise. The segment also conducts long-term care pharmacy (“LTC”) operations, which distribute prescription drugs and provide related pharmacy consulting and ancillary services to long-term care facilities and other care settings, and provides pharmacy fulfillment services to support the Health Services segment’s specialty and mail order pharmacy offerings. As of September 30, 2023, the Pharmacy & Consumer Wellness segment operated more than 9,000 retail locations, as well as online retail pharmacy websites, LTC pharmacies and on-site pharmacies, retail specialty pharmacy stores, compounding pharmacies and branches for infusion and enteral nutrition services.

Corporate/Other Segment

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

•Management and administrative expenses to support the Company’s overall operations, which include certain aspects of executive management and the corporate relations, legal, compliance, human resources, information technology and finance departments, expenses associated with the Company’s investments in its transformation and enterprise modernization programs and acquisition-related transaction and integration costs; and

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

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of CVS Health ~~Corporation~~ and its subsidiaries ~~(collectively, “CVS Health” or the “Company”)~~ have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission ~~(“SEC”~~(the “SEC”) regarding interim financial reporting. In accordance with such rules and regulations, certain information and accompanying note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been ~~condensed or~~ omitted, although the Company believes the disclosures included herein are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto ~~which are included in Exhibit 13 to the Company’s Annual Report on Form 10‑K~~ for the year ended December 31, ~~2016 (“2016~~2022, which were revised to conform with current year financial statement changes as described in Note 13 “Segment Reporting,” and are included in Exhibit 99.1 to the Company’s Current Report on Form ~~10‑K”~~8-K filed with the SEC on May 25, 2023 (the “May 2023 8-K”).

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

Principles of Consolidation

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

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

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

~~Fair Value~~

Reclassifications

Certain prior year amounts have been reclassified to conform with the current year presentation.

Restricted Cash

Restricted cash included in other current assets on the unaudited condensed consolidated balance sheets primarily represents funds held on behalf of ~~Financial Instruments~~

~~The Company utilizes~~members and funds held in escrow in connection with agreements with accountable care organizations.

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 consist~~Company’s captive insurance companies to satisfy collateral requirements associated with the assignment of ~~the following:~~

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

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

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

certain insurance policies.

All restricted cash is invested in demand deposits, time deposits and money market funds.

~~Table of Contents~~

~~As of September 30, 2017, the carrying value~~The following is a reconciliation of cash and cash equivalents ~~short-term investments, accounts receivable, accounts payable, and~~on 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 to total cash, cash equivalents and restricted cash on the unaudited condensed consolidated statements of cash flows:


In millions	September 30, 2023		December 31, 2022
Cash and cash equivalents	$	13,043	$	12,945
Restricted cash (included in other current assets)	96		144
Restricted cash (included in other assets)	236		216
Total cash, cash equivalents and restricted cash in the statements of cash flows	$	13,375	$	13,305

Accounts Receivable

Accounts receivable are stated net of allowances for credit losses, customer credit allowances, contractual allowances and estimated terminations. Accounts receivable, net at September 30, 2023 and December 31, 2022 was composed of the following:


In millions	September 30, 2023		December 31, 2022
Trade receivables	$	10,424	$	8,983
Vendor and manufacturer receivables	16,646		12,395
Premium receivables	3,254		2,676
Other receivables	2,603		3,449
Total accounts receivable, net (1)	$	32,927	$	27,503

(1)Includes accounts receivable of $227 million which were accounted for as ~~these funds~~assets held for sale and were included in assets held for sale on the unaudited condensed consolidated balance sheet at December 31, 2022. See Note 2 ‘‘Acquisitions and Assets Held for Sale’’ for additional information.

The Company’s allowance for credit losses was $357 million and $333 million as of September 30, 2023 and December 31, 2022, respectively. When developing an estimate of the Company’s expected credit losses, the Company considers all available relevant information regarding the collectability of cash flows, including historical information, current conditions and reasonable and supportable forecasts of future economic conditions over the contractual life of the receivable. The Company’s accounts receivable are ~~highly liquid~~short duration in nature and ~~readily convertible~~typically settle in less than 30 days.

Health Care Contract Acquisition Costs

Insurance products included in the Health Care Benefits segment are cancellable by either the customer or the member monthly upon written notice. Acquisition costs related to ~~known amounts~~prepaid health care and health indemnity contracts are generally expensed as incurred. For certain long-duration insurance contracts, acquisition costs directly related to the successful acquisition of ~~cash. These investments~~a new or renewal insurance contract, including commissions, are ~~classified within Level 1~~deferred and are recorded as other current assets or other assets on

the unaudited condensed consolidated balance sheets. Contracts are grouped by product and issue year into cohorts consistent with the grouping used in estimating the associated liability and are amortized on a constant level basis based on the remaining in-force policies over the estimated term of the contracts to approximate straight-line amortization. Changes to the Company’s assumptions, including assumptions related to persistency, are reflected at the cohort level at the time of change and are recognized prospectively over the estimated terms of the contract. The amortization of deferred acquisition costs is recorded in operating expenses in the unaudited condensed consolidated statements of operations.

The following is a roll forward of deferred acquisition costs for the nine months ended September 30, 2023 and 2022:


	Nine Months Ended September 30,
In millions		2023		2022
Deferred acquisition costs, beginning of the period		$	1,219	$	879
Capitalizations		414		423
Amortization expense		(196)		(163)

Deferred acquisition costs, end of the period		$	1,437	$	1,139

Goodwill

The Company accounts for business combinations using the acquisition method of accounting, which requires the excess cost of an acquisition over the fair value ~~hierarchy because they are valued using quoted market prices.~~ of net assets acquired and identifiable intangible assets to be recorded as goodwill. Goodwill is not amortized, but is subject to impairment reviews annually, or more frequently, if necessary.

Effective for the 2023 annual goodwill impairment test, the Company elected to change its annual goodwill impairment test date from August 31st to October 31st to better align with its annual budgeting processes, as this previous election predates large acquisitions such as Caremark Rx, Inc. and Aetna Inc.

The Company’s ~~short-term investments~~most recent goodwill impairment test was performed as of ~~$75 million at September 30, 2017~~January 1, 2023, in connection with the segment realignment previously described in the “Description of Business” section. The results of that impairment test indicated that there was no impairment of goodwill as of the testing date, with the fair values of all reporting units with goodwill exceeding their respective carrying values by significant margins.

Intangible Assets

The Company’s identifiable intangible assets consist primarily of ~~certificates~~trademarks, trade names, customer contracts/relationships, covenants not to compete, technology, provider networks and value of ~~deposit with initial maturities of greater than three months when purchased that mature within one year~~business acquired (“VOBA”). These intangible assets arise primarily from the ~~balance sheet date.~~determination of their respective fair market values at the date of acquisition. Amounts assigned to identifiable intangible assets, and their related useful lives, are derived from established valuation techniques and management estimates.

The Company’s definite-lived intangible assets are amortized over their estimated useful lives based upon the pattern of future cash flows attributable to the asset. Definite-lived intangible assets are amortized using the straight-line method. VOBA is subject to loss recognition testing annually, or more frequently, if necessary.

Indefinite lived intangible assets are not amortized but are tested for impairment annually, or more frequently, if necessary.

Separate Accounts

Separate Accounts assets and liabilities related to large case pensions products represent funds maintained to meet specific objectives of contract holders who bear the investment risk. These ~~investments, which are classified within Level 1 of the fair value hierarchy,~~assets and liabilities are carried at fair ~~value,~~value. Net investment income (including net realized capital gains and losses) accrue directly to such contract holders. The assets of each account are legally segregated and are not subject to claims arising from the Company’s other businesses. Deposits, withdrawals and net investment income (including net realized and net unrealized capital gains and losses) on Separate Accounts assets are not reflected in the unaudited condensed consolidated statements of operations or cash flows. Management fees charged to contract holders are included in services revenue and recognized over the period earned.

See Note 5 ‘‘Fair Value’’ and Note 7 ‘‘Other Insurance Liabilities and Separate Accounts’’ for additional information about separate accounts.

Future Policy Benefits

Future policy benefits consist primarily of reserves for products for which ~~approximated historical cost at September 30, 2017.~~the Company no longer solicits or accepts new customers, including limited payment pension and annuity contracts and long-term care insurance contracts and are recorded in other insurance liabilities and other long-term liabilities on the unaudited condensed consolidated balance sheets. Contracts are grouped into cohorts by contract type and issue year. The ~~carrying amount~~liability for future policy benefits is adjusted for differences between actual and ~~estimated fair~~expected experience.

Reserves for limited payment pension and annuity contracts represent the Company’s estimate of the present value of future benefits to be paid to or on behalf of policyholders and are computed using actuarial principles that consider, among other things, assumptions reflecting anticipated mortality and retirement experience. On an annual basis, or more frequently if necessary, the Company reviews mortality assumptions against both industry standards and its experience.

Reserves for long-term care insurance contracts represent the Company’s ~~total long-term debt was $25.7 billion~~estimate of the present value of future benefits and ~~$27.0 billion, respectively,~~settlement costs to be paid to or on behalf of policyholders less the present value of future net premiums. The Company’s estimate of the present value of future benefits under such contracts is based upon mortality, morbidity, lapse and interest rate assumptions. On an annual basis, or more frequently if necessary, the Company reviews its mortality, morbidity and lapse assumptions against its experience. Annually, or each time the assumptions are changed, the net premium ratio used to calculate the future policy benefit liability is updated to reflect actual experience, as well as the impact of any change in assumptions on the Company’s future cash flows.

The Company discounts its future policy benefit liability using a curve of spot rates derived from an upper-medium grade fixed-income investment. At each reporting date, the Company will measure its liability for future policy benefits using both the current spot rate curve and the locked-in discount rate at each cohort’s inception. Any difference between the measured liabilities is recorded in other comprehensive income (loss). In subsequent periods, the current period amount recorded in other comprehensive income (loss) will be adjusted for amounts previously recorded in accumulated other comprehensive loss.

As of September 30, ~~2017.~~ 2023, future policy benefits balances of $366 million and $4.4 billion were recorded in other insurance liabilities and other long-term insurance liabilities, respectively. As of December 31, 2022, future policy benefits balances of $334 million and $4.7 billion were recorded in other insurance liabilities and other long-term insurance liabilities, respectively.

See Note 7 ‘‘Other Insurance Liabilities and Separate Accounts’’ for additional information about future policy benefits.

Revenue Recognition

Disaggregation of Revenue

The ~~fair value~~following tables disaggregate the Company’s revenue by major source in each segment for the three and nine months ended September 30, 2023 and 2022:


In millions	Health Care Benefits		Health Services		Pharmacy & Consumer Wellness		Corporate/ Other		Intersegment Eliminations		Consolidated Totals
Three Months Ended September 30, 2023
Major goods/services lines:
Pharmacy	$	—	$	44,985	$	22,977	$	—	$	(11,764)	$	56,198
Front Store	—		—		5,371		—		—		5,371
Premiums	24,645		—		—		12		—		24,657
Net investment income (loss)	187		—		(2)		92		—		277
Other	1,464		1,906		526		1		(636)		3,261
Total	$	26,296	$	46,891	$	28,872	$	105	$	(12,400)	$	89,764

Health Services distribution channel:
Pharmacy network (1)			$	27,981
Mail & specialty (2)			17,004
Other			1,906
Total			$	46,891

Three Months Ended September 30, 2022
Major goods/services lines:
Pharmacy	$	—	$	42,652	$	21,084	$	—	$	(11,361)	$	52,375
Front Store	—		—		5,581		—		—		5,581
Premiums	20,989		—		—		14		—		21,003
Net investment income (loss)	101		—		(10)		110		—		201
Other	1,406		602		582		18		(609)		1,999
Total	$	22,496	$	43,254	$	27,237	$	142	$	(11,970)	$	81,159

Health Services distribution channel:
Pharmacy network (1)			$	26,334
Mail & specialty (2)			16,318
Other			602
Total			$	43,254


In millions	Health Care Benefits		Health Services		Pharmacy & Consumer Wellness		Corporate/ Other		Intersegment Eliminations		Consolidated Totals
Nine Months Ended September 30, 2023
Major goods/services lines:
Pharmacy	$	—	$	133,428	$	67,371	$	—	$	(36,754)	$	164,045
Front Store	—		—		16,597		—		—		16,597
Premiums	74,079		—		—		38		—		74,117
Net investment income (loss)	556		—		(4)		333		—		885
Other	4,285		4,269		1,614		5		(1,854)		8,319
Total	$	78,920	$	137,697	$	85,578	$	376	$	(38,608)	$	263,963

Health Services distribution channel:
Pharmacy network (1)			$	83,050
Mail & specialty (2)			50,378
Other			4,269
Total			$	137,697

Nine Months Ended September 30, 2022
Major goods/services lines:
Pharmacy	$	—	$	123,627	$	61,496	$	—	$	(33,932)	$	151,191
Front Store	—		—		16,630		—		—		16,630
Premiums	63,848		—		—		46		—		63,894
Net investment income (loss)	278		—		(44)		281		—		515
Other	4,205		2,180		1,799		51		(1,844)		6,391
Total	$	68,331	$	125,807	$	79,881	$	378	$	(35,776)	$	238,621

Health Services distribution channel:
Pharmacy network (1)			$	76,358
Mail & specialty (2)			47,269
Other			2,180
Total			$	125,807

(1)Health Services pharmacy network is defined as claims filled at retail and specialty retail pharmacies, including the Company’s retail pharmacies and LTC pharmacies. Effective January 1, 2023, pharmacy network also includes activity associated with Maintenance Choice®, which permits eligible client plan members to fill their maintenance prescriptions through mail order delivery or at a CVS pharmacy retail store for the same price as mail order. Maintenance Choice activity was previously reflected in mail & specialty. Prior period financial information has been revised to conform with current period presentation.

(2)Health Services mail & specialty is defined as specialty mail claims inclusive of Specialty Connect® claims picked up at a retail pharmacy, as well as mail order and specialty claims fulfilled by the Pharmacy & Consumer Wellness segment. Effective January 1, 2023, mail & specialty excludes Maintenance Choice activity, which is now reflected within pharmacy network. Prior period financial information has been revised to conform with current period presentation.

Contract Balances

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

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


In millions	September 30, 2023		December 31, 2022
Trade receivables (included in accounts receivable, net)	$	10,424	$	8,983
Contract liabilities (included in accrued expenses)	167		71

During the nine months ended September 30, 2023 and 2022, the contract liabilities balance includes increases related to customers’ earnings in ExtraBucks Rewards or issuances of Company gift cards and decreases for revenues recognized during the period as a result of the ~~Company’s long-term debt was estimated based on quoted prices currently offered~~redemption of ExtraBucks Rewards or Company gift cards and breakage of Company gift cards. During the nine months ended September 30, 2023, the contract liabilities balance also reflects the addition of contract liabilities acquired in ~~active markets for~~connection with the Company’s ~~debt, which~~acquisitions of Signify Health, Inc. (“Signify Health”) and Oak Street Health, Inc. (“Oak Street Health”) on March 29, 2023 and May 2, 2023, respectively. Below is ~~considered Level 1~~a summary of ~~the fair value hierarchy.~~

such changes:


	Nine Months Ended September 30,
In millions	2023		2022
Contract liabilities, beginning of the period	$	71	$	87
Rewards earnings and gift card issuances	250		250
Redemption and breakage	(267)		(263)
Acquired contract liabilities	109		—
Other	4		—
Contract liabilities, end of the period	$	167	$	74

Related Party Transactions

The Company has an equity method investment in SureScripts, LLC (“SureScripts”), which operates a clinical health information network. The ~~Pharmacy Services and Retail/LTC segments utilize~~Company utilizes this clinical health information network in providing services to its client plan members and retail customers. The Company expensed fees for the use of this network of ~~approximately $5~~$12 million and $7$16 million in the three months ended September 30, ~~2017~~2023 and ~~2016,~~2022, respectively, and expensed fees for the use of this network of ~~approximately $29~~$44 million and $47 million in the nine months ended September 30, ~~2017~~2023 and ~~2016.~~2022, respectively. The Company’s investment in and equity in the earnings of SureScripts for all periods presented is immaterial.

The Company has an equity method investment in Heartland Healthcare Services, LLC (“Heartland”)~~. Heartland~~, which operates ~~several long-term care pharmacies in four states.~~an LTC pharmacy. Heartland paid the Company ~~approximately $36~~$5 million and ~~$46~~$22 million for pharmaceutical inventory purchases during the three months ended September 30, ~~2017~~2023 and ~~2016,~~2022, respectively, and ~~approximately $106~~$34 million and ~~$116~~$66 million for pharmaceutical inventory purchases during the nine months ended September 30, ~~2017~~2023 and ~~2016.~~2022, respectively. Additionally, the Company performs certain collection functions for Heartland and then ~~passes~~transfers those customer cash collections ~~back~~ to Heartland. The Company’s investment in and equity in the earnings of Heartland for all periods presented is immaterial.

~~Discontinued Operations~~

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

New Accounting Pronouncements Recently Adopted

Targeted Improvements to the Accounting for Long-Duration Insurance Contracts

In ~~July 2015,~~August 2018, the Financial Accounting Standards Board ~~(“FASB”)~~ issued ASU 2018-12, Targeted Improvements to the Accounting ~~Standards Update (“ASU”~~for Long-Duration Contracts (Topic 944) (the “long-duration insurance standard”) ~~2015-11,~~ ~~Inventory, which amends Accounting Standard Codification (“ASC”) Topic 330.~~. This ~~ASU simplifies current accounting treatments by requiring entities~~standard requires the Company to ~~measure most inventories~~review cash flow assumptions for its long-duration insurance contracts at ~~“the lower~~least annually and recognize the effect of ~~cost~~changes in future cash flow assumptions in net income. This standard also requires the Company to update discount rate assumptions quarterly and ~~net realizable value” rather than using lower~~recognize the effect of ~~cost or market. This guidance does not apply~~changes in these assumptions in other comprehensive income. The rate used to ~~inventories measured using~~discount the ~~last-in, first-out~~Company’s liability for future policy benefits will be based on an estimate of the yield for an upper-medium grade fixed-income instrument with a duration profile matching that of the Company’s liabilities. In addition, this standard changes the amortization method orfor deferred acquisition costs and requires additional disclosures regarding the ~~retail inventory method.~~ long duration insurance contract liabilities in the Company’s interim and annual financial statements.

The Company adopted this accounting standard on January 1, 2023, using the modified retrospective transition method as of the earliest period presented, January 1, 2021, also referred to as the “transition date”, for changes to its liabilities for future policy benefits, deferred acquisition costs and value of business acquired intangible asset. Upon adoption, the Company recorded a transition date net adjustment to reduce accumulated other comprehensive income (loss) by $986 million ($766 million after-

tax) with a corresponding increase to its liability for future policy benefits, the majority of which is included within other insurance liabilities and other long-term liabilities on the unaudited condensed consolidated balance sheets. The transition date net adjustment was 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 historical guidance. The Company was not required to record an adjustment to retained earnings on the transition date. Prior period financial information has been revised to reflect the adoption of the long-duration insurance standard.

The following summarizes changes in the balances of long-duration insurance liabilities as a result of the adoption of the long-duration insurance standard effective January 1, ~~2017. The adoption~~2021:


In millions	Large Case Pensions		Long-Term Care		Other
Balance at December 31, 2020, net of reinsurance	$	3,224	$	1,142	$	480
Add: Reinsurance recoverable	—		—		274
Balance at December 31, 2020	3,224		1,142		754
Change in discount rate assumptions	604		553		44
Removal of shadow adjustments in accumulated other comprehensive income	(181)		—		—
Adjusted balance at January 1, 2021	3,647		1,695		798
Less: Reinsurance recoverable	—		—		308
Adjusted balance at January 1, 2021, net of reinsurance	$	3,647	$	1,695	$	490

Impact of ~~this new guidance did not have any impact~~Long-Duration Insurance Standard Adoption on ~~the Company’s condensed consolidated results of operations, financial position or cash flows.~~

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

Financial Statement Line Items

~~Table of Contents~~

guidance further provides an accounting policy election to account for forfeitures as they occur rather than utilizing the estimated amount of forfeitures at the time of issuance. The Company adopted this guidance effective January 1, 2017. The primary impact of adopting this guidance was the recognition of excess tax benefits in the income statement instead of recognizing them in equity. This income statement guidance was adopted on a prospective basis. As a result of applying the long-duration insurance standard using a ~~discrete tax benefit of $18 million and $51 million was recognized~~modified retrospective method, the following adjustments were made to amounts reported in the ~~income tax provision in~~unaudited condensed consolidated statement of operations for the three and nine months ended September 30, ~~2017, respectively.~~

~~The Company elected~~2022:


	Impact of Change in Accounting Policy
In millions	As Reported September 30, 2022		Adjustments		Adjusted September 30, 2022
Three Months Ended
Condensed Consolidated Statement of Operations:
Operating costs:
Health care costs	$	17,419	$	(18)	$	17,401
Operating expenses	9,606		6		9,612
Total operating costs	85,090		(12)		85,078
Operating loss	(3,931)		12		(3,919)
Loss before income tax benefit	(4,456)		12		(4,444)
Income tax benefit	(1,047)		2		(1,045)
Net loss	(3,409)		10		(3,399)
Net loss attributable to CVS Health	(3,416)		10		(3,406)
Net loss per share attributable to CVS Health:
Basic	$	(2.60)	$	0.01	$	(2.59)
Diluted	$	(2.60)	$	0.01	$	(2.59)

Nine Months Ended
Condensed Consolidated Statement of Operations:
Operating costs:
Health care costs	$	52,976	$	(162)	$	52,814
Operating expenses	28,128		(5)		28,123
Total operating costs	234,493		(167)		234,326
Operating income	4,128		167		4,295
Income before income tax provision	2,519		167		2,686
Income tax provision	654		37		691
Net income	1,865		130		1,995
Net income attributable to CVS Health	1,847		130		1,977
Net income per share attributable to CVS Health:
Basic	$	1.41	$	0.10	$	1.51
Diluted	$	1.40	$	0.09	$	1.49

As a result of applying the long-duration insurance standard using a modified retrospective method, the following adjustments were made to ~~retrospectively adopt the guidance on the presentation of excess tax benefits~~amounts reported in the ~~statement~~unaudited condensed consolidated balance sheet as of ~~cash flows. The~~December 31, 2022:


	Impact of Change in Accounting Policy
In millions	As Reported December 31, 2022		Adjustments		Adjusted December 31, 2022
Condensed Consolidated Balance Sheet:
Other current assets	$	2,685	$	(49)	$	2,636
Total current assets	65,682		(49)		65,633
Intangible assets, net	24,754		49		24,803
Total assets	228,275		—		228,275
Health care costs payable	10,406		(264)		10,142
Other insurance liabilities	1,140		(51)		1,089
Total current liabilities	69,736		(315)		69,421
Deferred income taxes	3,880		136		4,016
Other long-term insurance liabilities	6,108		(273)		5,835
Other long-term liabilities	6,732		(2)		6,730
Total liabilities	156,960		(454)		156,506
Retained earnings	56,145		253		56,398
Accumulated other comprehensive loss	(1,465)		201		(1,264)
Total CVS Health shareholders’ equity	71,015		454		71,469
Total shareholders’ equity	71,315		454		71,769
Total liabilities and shareholders’ equity	228,275		—		228,275

As a result of applying the long-duration insurance standard using a modified retrospective method, the following ~~is a reconciliation of~~adjustments were made to amounts reported in the ~~effect of the resulting reclassification of the excess tax benefits on the Company’s~~unaudited condensed consolidated statement of cash flows for the nine months ended September 30, ~~2016:~~

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


	Impact of Change in Accounting Policy
In millions	As Reported September 30, 2022		Adjustments		Adjusted September 30, 2022
Condensed Consolidated Statement of Cash Flows:
Reconciliation of net income to net cash provided by operating activities:
Net income	$	1,865	$	130	$	1,995
Adjustments required to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	3,198		(17)		3,181
Deferred income taxes and other noncash items	(2,250)		37		(2,213)
Change in operating assets and liabilities, net of effects from acquisitions:
Other assets	(311)		67		(244)
Health care costs payable and other insurance liabilities	4,687		(211)		4,476
Other liabilities	7,377		(6)		7,371

2.Acquisitions and Assets Held for Sale

Oak Street Health Acquisition

On May 2, 2023 (the “Oak Street Health Acquisition Date”), the Company acquired 100% of the outstanding shares and voting interest of Oak Street Health for cash (“Oak Street Health Acquisition”). Under the terms of the merger agreement, Oak Street Health stockholders received $39.00 per share in cash. The Company ~~elected~~financed the transaction with borrowings of $5.0 billion from a term loan agreement entered into on May 1, 2023 as described in Note 8 ‘‘Borrowings’’ and cash on hand. Oak Street Health is a leading multi-payor, senior focused value-based primary care company. Oak Street Health is included within the Health Services segment. The Company acquired Oak Street Health to ~~continue~~advance its value-based care strategy and broaden its platform into primary care.

The fair value of the consideration transferred on the date of acquisition consisted of the following:


In millions
Cash	$	9,579
Fair value of replacement equity awards for pre-combination services (3.9 million shares) (1)	118
Effective settlement of pre-existing relationship (2)	(29)
Total consideration transferred	$	9,668

_____________________________________________

(1)The fair value of the replacement equity awards issued by the Company was determined as of the Oak Street Health Acquisition Date. The fair value of the awards attributed to ~~estimate forfeitures expected~~pre-combination services of $118 million is included in the consideration transferred and the fair value of the awards attributed to ~~occur~~post-combination services of $165 million has been, or will be, included in the Company’s post-combination financial statements as compensation costs.

(2)The purchase price included $29 million of effectively settled liabilities the Company owed to ~~determine~~Oak Street Health from their pre-existing relationship.

The transaction has been accounted for using the ~~amount~~acquisition method of ~~compensation cost~~accounting which requires, among other things, the assets acquired and liabilities assumed to be recognized ~~in each period. None~~at their fair values at the date of acquisition. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:


In millions
Cash and cash equivalents	$	201
Investments	168
Accounts receivable	1,143
Other current assets	46
Property and equipment	180
Operating lease right-of-use assets	316
Goodwill	7,189
Intangible assets	4,233
Other long-term assets	7
Total assets acquired	13,483
Health care costs payable	1,098
Other current liabilities	443
Operating lease liabilities (current and long-term)	378
Debt (current and long-term)	1,028
Deferred income taxes	773
Other long-term liabilities	29
Total liabilities assumed	3,749
Noncontrolling interests	66
Total consideration transferred	$	9,668

The assessment of fair value is preliminary and is based on information that was available to management at the time the unaudited condensed consolidated financial statements were prepared. The most significant open items included the accounting for income taxes and the accounting for contingencies as management is awaiting additional information to complete its assessment of these matters. Measurement period adjustments will be recorded in the period in which they are determined, as if they had been completed at the acquisition date. The finalization of the Company’s purchase accounting assessment could result in changes in the valuation of assets acquired and liabilities assumed, which could be material.

Goodwill

Goodwill represents future economic benefits expected to arise from the Company’s expanded presence in the health services industry, the assembled workforce acquired, expected revenue and medical cost synergies, as well as operating efficiencies and cost savings. The preliminary valuation of goodwill was allocated to the Company’s business segments as follows:


In millions
Health Services	$	6,912
Pharmacy & Consumer Wellness	156
Health Care Benefits	121
Total goodwill	$	7,189

The amount of goodwill deductible for income tax purposes was not material.

Intangible Assets

The following table summarizes the fair values and weighted average useful lives for intangible assets acquired in the Oak Street Health Acquisition:


In millions, except weighted average useful life	Gross Fair Value		Weighted Average Useful Life (years)
Customer relationships (1)	$	3,620	19.9
Technology	143		3.0
Trademark (definite-lived)	470		8.0
Total intangible assets	$	4,233	18.0

(1) The substantial majority of the customer relationships intangible asset relates to relationships with health plan payers.

Deferred Income Taxes

The purchase price allocation includes net deferred tax liabilities of $773 million, primarily related to deferred tax liabilities established on the identifiable acquired intangible assets.

Consolidated Results of Operations

During the period from the Oak Street Health Acquisition Date through September 30, 2023, the Company’s consolidated results of operations included $1.3 billion of revenues and $304 million of operating losses, including $121 million of intangible asset amortization and $51 million of stock-based compensation, associated with the results of operations of Oak Street Health.

During the nine months ended September 30, 2023, the Company incurred transaction costs of $77 million associated with the Oak Street Health Acquisition, which were recorded in operating expenses.

Signify Health Acquisition

On March 29, 2023 (the “Signify Health Acquisition Date”), the Company acquired 100% of the outstanding shares and voting interest of Signify Health for cash (“Signify Health Acquisition”). Under the terms of the merger agreement, Signify Health stockholders received $30.50 per share in cash. The Company financed the transaction with cash on hand, which included approximately $6 billion of proceeds from the issuance of senior unsecured notes in February 2023. Signify Health is a leader in health risk assessments, value-based care and provider enablement services. Signify Health is included within the Health Services segment. The Company acquired Signify Health to advance its health care services strategy, growth in value-based care and new product offerings for other ~~provisions~~payers.

The fair value of the consideration transferred on the date of acquisition consisted of the following:


In millions
Cash	$	7,450
Fair value of replacement equity awards for pre-combination services (3.2 million shares) (1)	14
Effective settlement of pre-existing relationship (2)	(111)
Total consideration transferred	$	7,353

_____________________________________________

(1)The fair value of the replacement equity awards issued by the Company was determined as of the Signify Health Acquisition Date. The fair value of the awards attributed to pre-combination services of $14 million is included in the consideration transferred and the fair value of the awards attributed to post-combination services of $167 million has been, or will be, included in the Company’s post-combination financial statements as compensation costs.

(2)The purchase price included $111 million of effectively settled liabilities the Company owed to Signify Health from their pre-existing relationship.

The transaction has been accounted for using the acquisition method of accounting which requires, among other things, the assets acquired and liabilities assumed to be recognized at their fair values at the date of acquisition. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:


In millions
Cash and cash equivalents	$	376
Accounts receivable	190
Other current assets (including restricted cash of $28)	147
Property and equipment	25
Goodwill	5,922
Intangible assets	1,920
Other long-term assets	23
Total assets acquired	8,603
Other current liabilities	606
Debt (current and long-term)	346
Deferred income taxes	272
Other long-term liabilities	26
Total liabilities assumed	1,250
Total consideration transferred	$	7,353

The assessment of fair value is preliminary and is based on information that was available to management at the time the unaudited condensed consolidated financial statements were prepared. The most significant open items included the estimation of certain contract assets and contract liabilities, the accounting for income taxes and the accounting for contingencies as management is awaiting additional information to complete its assessment of these matters. Measurement period adjustments will be recorded in the period in which they are determined, as if they had been completed at the acquisition date. The finalization of the Company’s purchase accounting assessment could result in changes in the valuation of assets acquired and liabilities assumed, which could be material.

Goodwill


In millions
Health Services	$	3,419
Health Care Benefits	2,473
Pharmacy & Consumer Wellness	30
Total goodwill	$	5,922

Approximately $1.7 billion of goodwill is deductible for income tax purposes.

Intangible Assets

The following table summarizes the fair values and weighted average useful lives for intangible assets acquired in the Signify Health Acquisition:


In millions, except weighted average useful life	Gross Fair Value		Weighted Average Useful Life (years)
Customer relationships	$	1,810	16.7
Technology	50		3.0
Trademark (definite-lived)	60		5.0
Total intangible assets	$	1,920	16.0

Deferred Income Taxes

The purchase price allocation includes net deferred tax liabilities of $272 million, primarily related to deferred tax liabilities established on the identifiable acquired intangible assets.

Consolidated Results of Operations

During the period from the Signify Health Acquisition Date through September 30, 2023, the Company’s consolidated results of operations included $528 million of revenues associated with the results of operations of Signify Health, while its impact on consolidated operating income was not material.

During the nine months ended September 30, 2023, the Company incurred transaction costs of $37 million associated with the Signify Health Acquisition, which were recorded in operating expenses.

Assets Held For Sale

The Company continually evaluates its portfolio for non-strategic assets. During 2022, the Company determined that its Omnicare® long-term care business (“LTC business”), which is included within the Pharmacy & Consumer Wellness segment, was no longer a strategic asset and during the third quarter of 2022 committed to a plan to sell the LTC business. At that time, the LTC business met the criteria to be classified as held for sale.

During 2022, the carrying value of the LTC business was determined to be greater than its estimated fair value less costs to sell. Accordingly, the Company recorded total losses on assets held for sale of $2.5 billion during the year ended December 31, 2022. During the first quarter of 2023, a loss on assets held for sale of $349 million was recorded to write-down the carrying value of the LTC business to the Company’s best estimate of the ultimate selling price which reflects its estimated fair value less costs to sell. The loss on assets held for sale represents the write-down of long-lived assets and was recorded in the Company’s unaudited condensed consolidated statement of operations within the Pharmacy & Consumer Wellness segment.

While the Company continues to evaluate strategic alternatives for the LTC business, during the third quarter of 2023, the Company determined it was no longer probable that a sale would be completed in the near term. At that time, the Company concluded that the LTC business no longer met the criteria to be classified as held for sale. Accordingly, the assets and liabilities associated with this ~~guidance~~business have been reclassified to held and used at their respective fair values on the unaudited condensed consolidated balance sheet as of September 30, 2023.

3.Restructuring Program

During the second quarter of 2023, the Company developed an enterprise-wide restructuring plan intended to streamline and simplify the organization, improve efficiency and reduce costs. In connection with the development of this plan and the recently completed acquisitions of Signify Health and Oak Street Health, the Company also conducted a strategic review of its various transformation initiatives and determined that it would terminate certain initiatives, including providing clinical trials services. In connection with the restructuring plan, during the second quarter of 2023, the Company recorded a $496 million pre-tax restructuring charge, comprised of $344 million of severance and employee-related costs associated with corporate workforce optimization and $152 million of asset impairment charges, and during the third quarter of 2023, the Company recorded an $11 million stock-based compensation charge associated with the impacted employees. These restructuring charges are reflected in the Corporate/Other segment. The severance and employee-related costs were recorded in accrued expenses and the asset impairments were recorded as a reduction of property and equipment, net, while the stock-based compensation charge was reflected as an adjustment to common stock and capital surplus on the unaudited condensed consolidated balance sheet. During the three months ended September 30, 2023, the Company made payments of $58 million related to the severance and employee-related costs.

Severance and employee-related costs consist primarily of salary continuation benefits, prorated annual incentive compensation, continuation of health care benefits and outplacement services. Severance and employee-related benefits are determined pursuant to the Company’s written severance plans and are recognized when the benefits are determined to be probable of being paid and are reasonably estimable.

The restructuring program is expected to be substantially complete by the end of 2023.

4.Investments

Total investments at September 30, 2023 and December 31, 2022 were as follows:


	September 30, 2023						December 31, 2022
In millions	Current		Long-term		Total		Current		Long-term		Total
Debt securities available for sale	$	3,027	$	17,374	$	20,401	$	2,718	$	17,562	$	20,280
Mortgage loans	116		1,157		1,273		55		989		1,044
Other investments	2		3,136		3,138		5		2,562		2,567
Total investments (1)	$	3,145	$	21,667	$	24,812	$	2,778	$	21,113	$	23,891

(1)Includes long-term investments of $17 million which were accounted for as assets held for sale and were included in assets held for sale on the unaudited condensed consolidated balance sheet at December 31, 2022. See Note 2 ‘‘Acquisitions and Assets Held for Sale’’ for additional information.

Debt Securities

Debt securities available for sale at September 30, 2023 and December 31, 2022 were as follows:


In millions	Gross Amortized Cost		Allowance for Credit Losses		Net Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
September 30, 2023
Debt securities:
U.S. government securities	$	2,092	$	—	$	2,092	$	—	$	(171)	$	1,921
States, municipalities and political subdivisions	2,277		—		2,277		1		(151)		2,127
U.S. corporate securities	10,062		—		10,062		12		(879)		9,195
Foreign securities	2,621		(1)		2,620		9		(233)		2,396
Residential mortgage-backed securities	833		—		833		—		(103)		730
Commercial mortgage-backed securities	1,128		—		1,128		—		(151)		977
Other asset-backed securities	3,069		—		3,069		13		(46)		3,036
Redeemable preferred securities	20		—		20		—		(1)		19
Total debt securities (1)	$	22,102	$	(1)	$	22,101	$	35	$	(1,735)	$	20,401

December 31, 2022
Debt securities:
U.S. government securities	$	2,074	$	—	$	2,074	$	—	$	(182)	$	1,892
States, municipalities and political subdivisions	2,393		—		2,393		8		(129)		2,272
U.S. corporate securities	9,838		(3)		9,835		26		(903)		8,958
Foreign securities	2,780		(1)		2,779		15		(244)		2,550
Residential mortgage-backed securities	845		—		845		1		(89)		757
Commercial mortgage-backed securities	1,172		—		1,172		1		(155)		1,018
Other asset-backed securities	2,940		—		2,940		6		(136)		2,810
Redeemable preferred securities	25		—		25		—		(2)		23
Total debt securities (1)	$	22,067	$	(4)	$	22,063	$	57	$	(1,840)	$	20,280

(1)Investment risks associated with the Company’s experience-rated products generally do not impact the Company’s consolidated operating results. At September 30, 2023, debt securities with a fair value of $560 million, gross unrealized capital gains of $2 million and gross unrealized capital losses of $63 million and at December 31, 2022, debt securities with a fair value of $609 million, gross unrealized capital gains of $3 million and gross unrealized capital losses of $59 million were included in total debt securities, but support experience-rated products. Changes in net unrealized capital gains (losses) on these securities are not reflected in accumulated other comprehensive loss.

The net amortized cost and fair value of debt securities at September 30, 2023 are shown below by contractual maturity. Actual maturities may differ from contractual maturities because securities may be restructured, called or prepaid, or the Company intends to sell a security prior to maturity.


In millions	Net Amortized Cost		Fair Value
Due to mature:
Less than one year	$	1,273	$	1,254
One year through five years	7,413		6,995
After five years through ten years	4,279		3,891
Greater than ten years	4,106		3,518
Residential mortgage-backed securities	833		730
Commercial mortgage-backed securities	1,128		977
Other asset-backed securities	3,069		3,036
Total	$	22,101	$	20,401

Summarized below are the debt securities the Company held at September 30, 2023 and December 31, 2022 that were in an unrealized capital loss position, aggregated by the length of time the investments have been in that position:


	Less than 12 months					Greater than 12 months					Total
In millions, except number of securities	Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses
September 30, 2023
Debt securities:
U.S. government securities	143	$	393	$	12	370	$	1,250	$	159	513	$	1,643	$	171
States, municipalities and political subdivisions	614	1,003		36		634	939		115		1,248	1,942		151
U.S. corporate securities	2,619	2,903		127		4,427	5,688		752		7,046	8,591		879
Foreign securities	565	749		28		1,064	1,473		205		1,629	2,222		233
Residential mortgage-backed securities	88	234		9		460	496		94		548	730		103
Commercial mortgage-backed securities	83	207		11		340	668		140		423	875		151
Other asset-backed securities	399	1,010		11		597	1,144		35		996	2,154		46
Redeemable preferred securities	4	2		—		8	17		1		12	19		1
Total debt securities	4,515	$	6,501	$	234	7,900	$	11,675	$	1,501	12,415	$	18,176	$	1,735

December 31, 2022
Debt securities:
U.S. government securities	519	$	1,620	$	164	35	$	191	$	18	554	$	1,811	$	182
States, municipalities and political subdivisions	859	1,370		95		196	322		34		1,055	1,692		129
U.S. corporate securities	5,193	6,537		622		1,479	1,822		281		6,672	8,359		903
Foreign securities	1,168	1,715		147		403	592		97		1,571	2,307		244
Residential mortgage-backed securities	452	464		39		91	257		50		543	721		89
Commercial mortgage-backed securities	288	611		69		187	381		86		475	992		155
Other asset-backed securities	1,008	1,893		88		391	694		48		1,399	2,587		136
Redeemable preferred securities	13	18		2		2	5		—		15	23		2
Total debt securities	9,500	$	14,228	$	1,226	2,784	$	4,264	$	614	12,284	$	18,492	$	1,840

The Company reviewed the securities in the table above and concluded that they are performing assets generating investment income to support the needs of the Company’s business. In performing this review, the Company considered factors such as the quality of the investment security based on research performed by the Company’s internal credit analysts and external rating agencies and the prospects of realizing the carrying value of the security based on the investment’s current prospects for recovery. Unrealized capital losses at September 30, 2023 were generally caused by interest rate increases and not by unfavorable changes in the credit quality associated with these securities. As of September 30, 2023, 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.

The maturity dates for debt securities in an unrealized capital loss position at September 30, 2023 were as follows:


	Supporting experience-rated products				Supporting remaining products				Total
In millions	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Due to mature:
Less than one year	$	16	$	1	$	1,032	$	19	$	1,048	$	20
One year through five years	151		7		6,356		416		6,507		423
After five years through ten years	113		14		3,439		381		3,552		395
Greater than ten years	206		37		3,104		560		3,310		597
Residential mortgage-backed securities	8		1		722		102		730		103
Commercial mortgage-backed securities	16		2		859		149		875		151
Other asset-backed securities	18		1		2,136		45		2,154		46
Total	$	528	$	63	$	17,648	$	1,672	$	18,176	$	1,735

Mortgage Loans

The Company’s mortgage loans are collateralized by commercial real estate. During the three and nine months ended September 30, 2023 and 2022, the Company had the following activity in its mortgage loan portfolio:


	Three Months Ended September 30,				Nine Months Ended September 30,
In millions	2023		2022		2023		2022
New mortgage loans	$	63	$	125	$	286	$	305
Mortgage loans fully repaid	17		62		34		136
Mortgage loans foreclosed	—		—		—		—

The Company assesses mortgage loans on a ~~material impact~~regular basis for credit impairments, and assigns a credit quality indicator to each loan. The Company’s credit quality indicator is internally developed and categorizes each loan in its portfolio on a scale from 1 to 7. These indicators are based upon several factors, including current loan-to-value ratios, current and future property cash flow, property condition, market trends, creditworthiness of the borrower and deal structure.

•Category 1 - Represents loans of superior quality.

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

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

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

Based on the Company’s ~~condensed consolidated financial statements.~~

~~In March 2017,~~assessments at September 30, 2023 and December 31, 2022, the ~~FASB issued ASU 2017-07,~~ ~~Improving~~amortized cost basis of the ~~Presentation~~Company's mortgage loans within each credit quality indicator by year of origination was as follows:


	Amortized Cost Basis by Year of Origination
In millions, except credit quality indicator	2023		2022		2021		2020		2019		Prior		Total
September 30, 2023
1	$	—	$	—	$	—	$	—	$	—	$	12	$	12
2 to 4	259		344		239		35		11		347		1,235
5 and 6	—		—		6		—		—		20		26
7	—		—		—		—		—		—		—
Total	$	259	$	344	$	245	$	35	$	11	$	379	$	1,273

December 31, 2022
1			$	—	$	—	$	—	$	—	$	15	$	15
2 to 4			326		247		36		11		402		1,022
5 and 6			—		—		—		—		7		7
7			—		—		—		—		—		—
Total			$	326	$	247	$	36	$	11	$	424	$	1,044

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~~Investment Income

Sources 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 ofinvestment income for the three and nine months ended September 30, ~~2016:~~

2023 and 2022 were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
In millions	2023		2022		2023		2022
Debt securities	$	217	$	174	$	612	$	510
Mortgage loans	16		14		43		38
Other investments	199		134		609		279
Gross investment income	432		322		1,264		827
Investment expenses	(13)		(11)		(34)		(29)
Net investment income (excluding net realized capital losses)	419		311		1,230		798
Net realized capital losses (1)	(142)		(110)		(345)		(283)
Net investment income (2)	$	277	$	201	$	885	$	515

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
(1)Net realized capital losses include yield-related impairment losses on debt securities of $47 million in the three months ended September 30, 2023. There were no credit-related losses on debt securities in the three months ended September 30, 2023. Net realized capital losses include yield-related impairment losses on debt securities of $108 million and are net of the reversal of previously recorded credit-related impairment losses on debt securities of $3 million in the nine months ended September 30, 2023. Net realized capital losses include yield-related and credit-related impairment losses on debt securities of $73 million and $1 million, respectively, in the three months ended September 30, 2022. Net realized capital losses include yield-related and credit-related impairment losses on debt securities of $121 million and $17 million, respectively, in the nine months ended September 30, 2022.

(2)Net investment income includes $8 million and $25 million for the three and nine months ended September 30, 2023, respectively, and $8 million and $26 million for the three and nine months ended September 30, 2022, respectively, related to investments supporting experience-rated products.

Excluding amounts related to experience-rated products, proceeds from the sale of available-for-sale debt securities and the related gross realized capital gains and losses for the three and nine months ended September 30, 2023 and 2022 were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
In millions	2023		2022		2023		2022
Proceeds from sales	$	1,171	$	593	$	3,503	$	3,556
Gross realized capital gains	2		3		7		20
Gross realized capital losses	110		28		294		135

5.Fair Value

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

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

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

•Level 3 – Developed from unobservable data, reflecting the Company’s assumptions.

For a description of the methods and assumptions that are used to estimate the fair value and determine the fair value hierarchy classification of each class of financial instrument, see Note 4 ‘‘Fair Value’’ in Exhibit 99.1 to the May 2023 8-K.

There were no financial liabilities measured at fair value on a recurring basis on the unaudited condensed consolidated balance sheets at September 30, 2023 or December 31, 2022. Financial assets measured at fair value on a recurring basis on the unaudited condensed consolidated balance sheets at September 30, 2023 and December 31, 2022 were as follows:


In millions	Level 1		Level 2		Level 3		Total
September 30, 2023
Cash and cash equivalents	$	5,159	$	7,884	$	—	$	13,043
Debt securities:
U.S. government securities	1,899		22		—		1,921
States, municipalities and political subdivisions	—		2,127		—		2,127
U.S. corporate securities	—		9,166		29		9,195
Foreign securities	—		2,388		8		2,396
Residential mortgage-backed securities	—		730		—		730
Commercial mortgage-backed securities	—		977		—		977
Other asset-backed securities	—		3,036		—		3,036
Redeemable preferred securities	—		19		—		19
Total debt securities	1,899		18,465		37		20,401
Equity securities	187		—		83		270
Total	$	7,245	$	26,349	$	120	$	33,714

December 31, 2022
Cash and cash equivalents (1)	$	6,902	$	6,049	$	—	$	12,951
Debt securities:
U.S. government securities	1,860		32		—		1,892
States, municipalities and political subdivisions	—		2,272		—		2,272
U.S. corporate securities	—		8,897		61		8,958
Foreign securities	—		2,542		8		2,550
Residential mortgage-backed securities	—		757		—		757
Commercial mortgage-backed securities	—		1,018		—		1,018
Other asset-backed securities	—		2,810		—		2,810
Redeemable preferred securities	—		23		—		23
Total debt securities	1,860		18,351		69		20,280
Equity securities	116		—		60		176
Total	$	8,878	$	24,400	$	129	$	33,407

~~In January 2017,~~

(1)Includes cash and cash equivalents of $6 million which were accounted for as assets held for sale and were included in assets held for sale on the ~~FASB issued ASU 2017-04,~~ ~~Simplifying~~unaudited condensed consolidated balance sheet at December 31, 2022. See Note 2 ‘‘Acquisitions and Assets Held for Sale’’ for additional information.

During the ~~Test~~three months ended September 30, 2023 and 2022 there were no transfers into or out of Level 3. During the nine months ended September 30, 2023 and 2022, there were $42 million and $29 million, respectively, of transfers out of Level 3.

The carrying value and estimated fair value classified by level of fair value hierarchy for ~~Goodwill Impairment, which amends ASC Topic 350,~~ ~~Intangibles – Goodwill~~financial instruments carried on the unaudited condensed consolidated balance sheets at adjusted cost or contract value at September 30, 2023 and ~~Other. This ASU requires the Company~~December 31, 2022 were as follows:


	Carrying Value		Estimated Fair Value
In millions			Level 1		Level 2		Level 3		Total
September 30, 2023
Assets:
Mortgage loans	$	1,273	$	—	$	—	$	1,203	$	1,203
Equity securities (1)	519		N/A		N/A		N/A		N/A
Liabilities:
Investment contract liabilities:
With a fixed maturity	1		—		—		1		1
Without a fixed maturity	324		—		—		277		277
Long-term debt	61,914		54,807		—		—		54,807

December 31, 2022
Assets:
Mortgage loans	$	1,044	$	—	$	—	$	978	$	978
Equity securities (1)	411		N/A		N/A		N/A		N/A
Liabilities:
Investment contract liabilities:
With a fixed maturity	3		—		—		3		3
Without a fixed maturity	332		—		—		305		305
Long-term debt (2)	52,257		47,653		—		—		47,653

(1)It was not practical to ~~perform its annual, or applicable interim, goodwill impairment test by comparing~~estimate the fair value of ~~each reporting unit with its carrying amount. An impairment charge must be recognized~~these cost-method investments as it represents shares of unlisted companies.

(2)Includes long-term debt of $3 million which was accounted for as liabilities held for sale and was included in liabilities held for sale on the unaudited condensed consolidated balance sheet at December 31, 2022. See Note 2 ‘‘Acquisitions and Assets Held for Sale’’ for additional information.

Separate Accounts assets relate to the ~~amount by~~Company’s large case pensions products which represent funds maintained to meet specific objectives of contract holders. Since contract holders bear the ~~carrying amount exceeds~~investment risk of these assets, a corresponding Separate Accounts liability has been established equal to the assets. These assets and liabilities are carried at fair ~~value~~value. Separate Accounts financial assets as of September 30, 2023 and December 31, 2022 were as follows:


	September 30, 2023								December 31, 2022
In millions	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	1	$	152	$	—	$	153	$	2	$	154	$	—	$	156
Debt securities	667		1,896		—		2,563		712		1,965		—		2,677

Common/collective trusts	—		443		—		443		—		480		—		480
Total (1)	$	668	$	2,491	$	—	$	3,159	$	714	$	2,599	$	—	$	3,313

(1)Excludes $41 million of other receivables and $85 million of other payables at September 30, 2023 and December 31, 2022, respectively.

6.Health Care Costs Payable

The following table shows the components of the ~~reporting unit; however,~~change in health care costs payable during the ~~charge recognized should not exceed~~nine months ended September 30, 2023 and 2022:


	Nine Months Ended September 30,
In millions	2023		2022
Health care costs payable, beginning of the period	$	10,142	$	8,678
Less: Reinsurance recoverables	5		8
Less: Impact of discount rate on long-duration insurance reserves (1)	8		—
Health care costs payable, beginning of the period, net	10,129		8,670
Acquisitions, net	1,098		—
Add: Components of incurred health care costs
Current year	64,183		53,216
Prior years	(679)		(670)
Total incurred health care costs (2)	63,504		52,546
Less: Claims paid
Current year	52,952		43,632
Prior years	9,207		7,468
Total claims paid	62,159		51,100
Add: Premium deficiency reserve	—		5

Health care costs payable, end of the period, net	12,572		10,121
Add: Reinsurance recoverables	4		5
Add: Impact of discount rate on long-duration insurance reserves (1)	(26)		5
Health care costs payable, end of the period	$	12,550	$	10,131

(1)Reflects the total amount of goodwill allocated to that reporting unit. Income tax effects resulting from any tax deductible goodwill should be considered when measuring a goodwill impairment charge, if applicable. The guidance in ASU 2017-04difference between the current discount rate and the locked-in discount rate on long-duration insurance reserves which is ~~effective for annual or interim goodwill impairment~~

~~Table of Contents~~

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

~~New~~balance sheets. Refer to Note 1 ‘‘Significant Accounting ~~Pronouncements Not Yet Adopted~~

~~In May 2014, the FASB issued ASU 2014-09,~~ ~~Revenue from Contracts with Customers~~ ~~(Topic 606). ASU 2014-09 outlines a single comprehensive model~~Policies’’ 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 Segmentfurther information 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 asset will be based on the liability, subject to adjustment, such as for initial direct costs. For income statement purposes, a dual model was retained, requiring leases to be classified as either operating or finance leases. Operating leases will result in straight-line expense (similar to current operating leases) 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) and the new revenue recognition standard. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company believes that the new standard will have a material impact on its consolidated balance sheet. The Company is currently evaluating the effect that implementation of this standard will have on the Company’s consolidated results of operations, cash flows, financial position and related disclosures.

~~In August 2016, the FASB issued ASU No. 2016-15,~~ ~~Classification of Certain Cash Receipts and Cash Payments~~. ASU 2016-15 is intended to add or clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows and to eliminate the diversity in practice related to such classifications. The 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 reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet. Entities will also have to disclose the nature of their restricted cash and restricted cash equivalent balances. 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 thislong-duration insurance contracts accounting ~~guidance.~~

standard.

~~Table of Contents~~

~~Note 2 – Goodwill and Intangible Assets~~

~~Goodwill 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 summary of the changes in the carrying value of goodwill by segment~~(2)Total incurred health care costs for the nine months ended September 30, ~~2017:~~

2023 and 2022 in the table above exclude $62 million and $59 million, respectively, of health care costs recorded in the Health Care Benefits segment that are included in other insurance liabilities on the unaudited condensed consolidated balance sheets and $163 million and $204 million, respectively, of health care costs recorded in the Corporate/Other segment that are included in other insurance liabilities on the unaudited condensed consolidated balance sheets. The incurred health care costs for the nine months ended September 30, 2022 also exclude $5 million for a premium deficiency reserve related to the Company’s Medicaid products.

Pharmacy

In millions

Services

Retail/LTC

Total
Balance, December 31, 2016

$
21,637

$
16,612

$
38,249
Acquisitions

—

52

52
Foreign currency translation adjustments

—

3

3
Impairment

—

(135)

(135)
Balance, September 30, 2017

$
21,637

$
16,532

$
38,169

~~During 2017,~~

The Company’s estimates of prior years’ health care costs payable decreased by $679 million and $670 million, respectively, in the nine months ended September 30, 2023 and 2022, because claims were settled for amounts less than originally estimated (i.e., the amount of claims incurred was lower than originally estimated), primarily due to lower health care cost trends as well as the actual claim submission time being faster than originally assumed (i.e., the Company’s completion factors were higher than originally assumed) in estimating health care costs payable at the end of the prior year.

At September 30, 2023, the Company’s liabilities for the ultimate cost of (i) services rendered to the Company’s Insured members but not yet reported to the Company ~~began pursuing various strategic alternatives for its RxCrossroads (“RxC”) reporting unit. In connection with this ongoing effort,~~and (ii) claims which have been reported to the Company ~~performed an interim goodwill impairment test~~but not yet paid (collectively, “IBNR”) plus expected development on reported claims totaled approximately $8.9 billion. Substantially all of the Company’s liabilities for IBNR plus expected development on reported claims at September 30, 2023 related to the current year.

7.Other Insurance Liabilities and Separate Accounts

Future Policy Benefits

The following tables show the components of the change in the ~~second quarter~~liability for future policy benefits, which is included in other insurance liabilities and other long-term insurance liabilities on the unaudited condensed consolidated balance sheets, during the nine months ended September 30, 2023 and 2022:


	Nine Months Ended September 30, 2023
In millions	Large Case Pensions		Long-Term Care
Present value of expected net premiums (1)
Liability for future policy benefits, beginning of period - current discount rate			$	300

Beginning liability for future policy benefits at original (locked-in) discount rate			$	302
Effect of changes in cash flow assumptions			—
Effect of actual variances from expected experience			7
Adjusted beginning liability for future policy benefits - original (locked-in) discount rate			309

Interest accrual (using locked-in discount rate)			11
Net premiums (actual)			(29)

Ending liability for future policy benefits at original (locked-in) discount rate			291
Effect of changes in discount rate assumptions			(12)
Liability for future policy benefits, end of period - current discount rate			$	279

Present value of expected future policy benefits
Liability for future policy benefits, beginning of period - current discount rate	$	2,253	$	1,566

Beginning liability for future policy benefits at original (locked-in) discount rate	$	2,425	$	1,613
Effect of changes in cash flow assumptions	—		—
Effect of actual variances from expected experience	1		9
Adjusted beginning liability for future policy benefits - original (locked-in) discount rate	2,426		1,622
Issuances	8		—
Interest accrual (using locked-in discount rate)	74		61
Benefit payments (actual)	(210)		(53)


Ending liability for future policy benefits at original (locked-in) discount rate	2,298		1,630
Effect of changes in discount rate assumptions	(247)		(146)
Liability for future policy benefits, end of period - current discount rate	$	2,051	$	1,484

Net liability for future policy benefits	$	2,051	$	1,205
Less: Reinsurance recoverable	—		—
Net liability for future policy benefits, net of reinsurance recoverable	$	2,051	$	1,205

(1)The present value of ~~2017. In conjunction with~~expected net premiums is equivalent to the ~~impairment test,~~present value of expected gross premiums for the long-term care insurance contracts as net premiums are set equal to gross premiums.


	Nine Months Ended September 30, 2022
In millions	Large Case Pensions		Long-Term Care
Present value of expected net premiums (1)
Liability for future policy benefits, beginning of the period - current discount rate			$	389

Beginning liability for future policy benefits at original (locked-in) discount rate			$	323
Effect of changes in cash flow assumptions			(14)
Effect of actual variances from expected experience			13
Adjusted beginning liability for future policy benefits - original (locked-in) discount rate			322

Interest accrual (using locked-in discount rate)			11
Net premiums (actual)			(30)

Ending liability for future policy benefits at original (locked-in) discount rate			303
Effect of changes in discount rate assumptions			(5)
Liability for future policy benefits, end of the period - current discount rate			$	298

Present value of expected future policy benefits
Liability for future policy benefits, beginning of the period - current discount rate	$	3,034	$	1,991

Beginning liability for future policy benefits at original (locked-in) discount rate	$	2,650	$	1,480
Effect of changes in cash flow assumptions	—		99
Effect of actual variances from expected experience	(26)		15
Adjusted beginning liability for future policy benefits - original (locked-in) discount rate	2,624		1,594
Issuances	4		—
Interest accrual (using locked-in discount rate)	80		60
Benefit payments (actual)	(220)		(48)


Ending liability for future policy benefits at original (locked-in) discount rate	2,488		1,606
Effect of changes in discount rate assumptions	(205)		(78)
Liability for future policy benefits, end of the period - current discount rate	$	2,283	$	1,528

Net liability for future policy benefits	$	2,283	$	1,230
Less: Reinsurance recoverable	—		—
Net liability for future policy benefits, net of reinsurance recoverable	$	2,283	$	1,230

(1)The present value of expected net premiums is equivalent to the present value of expected gross premiums for the long-term care insurance contracts as net premiums are set equal to gross premiums.

The Company did not have any material differences between the actual experience and expected experience for the significant assumptions used in the computation of the liability for future policy benefits.

The amount of undiscounted expected gross premiums and expected future benefit payments for long-duration insurance liabilities as of September 30, 2023 and 2022 were as follows:


In millions	September 30, 2023		September 30, 2022
Large case pensions
Expected future benefit payments	$	3,337	$	3,622
Expected gross premiums	—		—

Long-term care
Expected future benefit payments	$	3,237	$	3,269
Expected gross premiums	419		439

The weighted-average interest rate used in the measurement of the long-duration insurance liabilities as of September 30, 2023 and 2022 were as follows:


	September 30, 2023	September 30, 2022
Large case pensions
Interest accretion rate	4.20%	4.20%
Current discount rate	5.86%	5.42%

Long-term care
Interest accretion rate	5.11%	5.11%
Current discount rate	5.99%	5.65%

The weighted-average durations (in years) of the long-duration insurance liabilities as of September 30, 2023 and 2022 were as follows:


	September 30, 2023	September 30, 2022
Large case pensions	7.4	7.4
Long-term care	12.2	12.8

Policyholders’ Funds

The following table shows the components of the change in policyholders’ funds related to long-duration insurance contracts, which are included in policyholders’ funds and other long-term liabilities on the unaudited condensed consolidated balance sheets, during the nine months ended September 30, 2023 and 2022:


	Nine Months Ended September 30,
In millions, except weighted average crediting rate	2023		2022
Policyholders’ funds, beginning of the period	$	345	$	522

Deposits received	1		10
Policy charges	(2)		(1)
Surrenders and withdrawals	(23)		(27)


Interest credited	9		10
Change in net unrealized losses	(4)		(163)
Other	(23)		(18)
Policyholders’ funds, end of the period	$	303	$	333

Weighted average crediting rate	4.40%		4.80%

Net amount at risk	$	—	$	—

Cash surrender value	$	324	$	337

Separate Accounts

The following table shows the fair value of assets, by major investment category, supporting Separate Accounts as of September 30, 2023 and December 31, 2022:


In millions	September 30, 2023		December 31, 2022

Cash and cash equivalents	$	153	$	156
Debt securities:
U.S. government securities	671		717
States, municipalities and political subdivisions	26		27
U.S. corporate securities	1,610		1,667


Foreign securities	198		201
Residential mortgage-backed securities	37		41
Commercial mortgage-backed securities	6		6
Other asset-backed securities	15		18
Total debt securities	2,563		2,677

Common/collective trusts	443		480

Total (1)	$	3,159	$	3,313

(1)Excludes $41 million of other receivables and $85 million of other payables at September 30, 2023 and December 31, 2022, respectively.

The following table shows the ~~RxC reporting unit was estimated to be lower than~~components of the ~~carrying value, resulting~~change in ~~a $135 million goodwill impairment charge within operating expenses~~Separate Accounts liabilities during the ~~second quarter of 2017.~~ nine months ended September 30, 2023 and 2022:


	Nine Months Ended September 30,
In millions	2023		2022

Separate Accounts liability, beginning of the period	$	3,228	$	5,087
Premiums and deposits	657		636

Surrenders and withdrawals	(7)		(576)
Benefit payments	(714)		(711)
Investment (earnings) losses	42		(1,057)
Net transfers from general account	4		7
Other	(10)		(68)
Separate Accounts liability, end of the period	$	3,200	$	3,318

Cash surrender value, end of the period	$	2,136	$	2,153

The ~~fair value of~~Company did not recognize any gains or losses on assets transferred to Separate Accounts during the ~~RxC reporting unit was determined using a combination of a discounted cash flow method~~nine months ended September 30, 2023 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.

2022.

8.Borrowings

The following table is a summary of the Company’s ~~intangible assets as of~~borrowings at September 30, ~~2017~~2023 and December 31, ~~2016:~~

2022:


In millions	September 30, 2023		December 31, 2022



Long-term debt




2.8% senior notes due June 2023	$	—	$	1,300
4% senior notes due December 2023	414		414
3.375% senior notes due August 2024	650		650
2.625% senior notes due August 2024	1,000		1,000
3.5% senior notes due November 2024	750		750
5% senior notes due December 2024 (1)	299		299
4.1% senior notes due March 2025	950		950
3.875% senior notes due July 2025	2,828		2,828
5% senior notes due February 2026	1,500		—
0% convertible senior notes due March 2026	3		—
2.875% senior notes due June 2026	1,750		1,750
3% senior notes due August 2026	750		750
3.625% senior notes due April 2027	750		750
6.25% senior notes due June 2027	372		372
1.3% senior notes due August 2027	2,250		2,250
4.3% senior notes due March 2028	5,000		5,000
5% senior notes due January 2029	1,000		—
3.25% senior notes due August 2029	1,750		1,750
5.125% senior notes due February 2030	1,500		—
3.75% senior notes due April 2030	1,500		1,500
1.75% senior notes due August 2030	1,250		1,250
5.25% senior notes due January 2031	750		—
1.875% senior notes due February 2031	1,250		1,250
2.125% senior notes due September 2031	1,000		1,000
5.25% senior notes due February 2033	1,750		—
5.3% senior notes due June 2033	1,250		—
4.875% senior notes due July 2035	652		652
6.625% senior notes due June 2036	771		771
6.75% senior notes due December 2037	533		533
4.78% senior notes due March 2038	5,000		5,000
6.125% senior notes due September 2039	447		447
4.125% senior notes due April 2040	1,000		1,000
2.7% senior notes due August 2040	1,250		1,250
5.75% senior notes due May 2041	133		133
4.5% senior notes due May 2042	500		500
4.125% senior notes due November 2042	500		500
5.3% senior notes due December 2043	750		750
4.75% senior notes due March 2044	375		375
5.125% senior notes due July 2045	3,500		3,500
3.875% senior notes due August 2047	1,000		1,000
5.05% senior notes due March 2048	8,000		8,000
4.25% senior notes due April 2050	750		750
5.625% senior notes due February 2053	1,250		—
5.875% senior notes due June 2053	1,250		—


6% senior notes due June 2063	750		—
Finance lease liabilities	1,493		1,465
Other	309		314
Total debt principal	62,479		52,753
Debt premiums	190		200
Debt discounts and deferred financing costs	(755)		(696)
	61,914		52,257
Less:

Current portion of long-term debt	(2,132)		(1,778)
Long-term debt (1)	$	59,782	$	50,479

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

(1)Includes long-term debt of $3 million which was accounted for as liabilities held for sale and was included in liabilities held for sale on the unaudited condensed consolidated balance sheet at December 31, 2022. See Note ~~3 – Share Repurchase Programs~~

~~During the nine months ended September 30, 2017,~~2 ‘‘Acquisitions and Assets Held for Sale’’ for additional information.

Short-term Borrowings

Term Loan Agreement

On May 1, 2023, the Company ~~had~~entered into a 364-day $5.0 billion term loan agreement. The term loan agreement allows for borrowings at various rates that are dependent, in part, on the Company’s debt ratings. On May 2, 2023, the Company borrowed $5.0 billion at an interest rate of approximately 6.2% under the term loan agreement to fund a portion of the Oak Street Health acquisition purchase price. On June 2, 2023, the Company repaid the outstanding balance under the term loan agreement.

Long-term Borrowings

2023 Notes

On June 2, 2023, the Company issued $1.0 billion aggregate principal amount of 5.0% senior notes due January 2029, $750 million aggregate principal amount of 5.25% senior notes due January 2031, $1.25 billion aggregate principal amount of 5.3% senior notes due June 2033, $1.25 billion aggregate principal amount of 5.875% senior notes due June 2053 and $750 million aggregate principal amount of 6.0% senior notes due June 2063 for total proceeds of approximately $4.9 billion, net of discounts and underwriting fees. The net proceeds of these offerings were used, along with cash on hand, to repay the outstanding balance under the term loan agreement described above.

On February 21, 2023, the Company issued $1.5 billion aggregate principal amount of 5.0% senior notes due February 2026, $1.5 billion aggregate principal amount of 5.125% senior notes due February 2030, $1.75 billion aggregate principal amount of 5.25% senior notes due February 2033 and $1.25 billion aggregate principal amount of 5.625% senior notes due February 2053 for total proceeds of approximately $6.0 billion, net of discounts and underwriting fees. The net proceeds of these offerings were used to fund general corporate purposes, including a portion of the Signify Health Acquisition purchase price.

Oak Street Health Convertible Notes

Prior to the Oak Street Health Acquisition, Oak Street Health held 0% convertible senior notes with an aggregate principal amount of $920 million (the “Convertible Notes”), which were assumed by the Company in connection with the Oak Street Health Acquisition. The Oak Street Health Acquisition constituted a fundamental change in the Convertible Notes giving the holders the right to require the Company to repurchase the Convertible Notes. The repurchase price was an amount in cash equal to 100% of the principal amount of the Convertible Notes. On May 31, 2023, the Company issued a notice of repurchase to the holders of the Convertible Notes. In connection with this notice, $917 million of the Convertible Notes were submitted for repurchase and settled on July 21, 2023, with $3 million remaining outstanding.

9.Shareholders’ Equity

Share Repurchases

The following ~~outstanding~~ share repurchase programs ~~both of which had previously~~have been authorized by ~~the Company’s~~CVS Health Corporation’s Board of ~~Directors:~~

Directors (the “Board”):

In billions

Authorization Date

Authorized

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

$
15.0

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

10.0

—


In billions Authorization Date	Authorized		Remaining as of September 30, 2023
November 17, 2022 (“2022 Repurchase Program”)	$	10.0	$	10.0
December 9, 2021 (“2021 Repurchase Program”)	10.0		4.5

Each of the ~~2014 and 2016~~share Repurchase Programs ~~which were~~was effective immediately ~~permitted~~and permit 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~~Both the ~~repurchase programs could~~2022 and 2021 Repurchase Programs 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.~~

~~Table of Contents~~

During the ~~three~~nine months ended September 30, ~~2017,~~2023 and 2022, the Company repurchased an aggregate of ~~approximately 5.0~~22.8 million shares of common stock for approximately ~~$0.4~~$2.0 billion ~~pursuant to the 2016 Repurchase Program. During the nine months ended September 30, 2017, the Company repurchased~~and an aggregate of ~~approximately 55.4~~19.1 million shares of common stock for approximately ~~$4.4~~$2.0 billion, respectively, both pursuant to the ~~2014 and 2016~~2021 Repurchase ~~Programs.~~Program. This activity includes the ~~accelerated~~ share ~~repurchase agreements (“ASRs”)~~repurchases under the ASR transactions described below.

Pursuant to the authorization under the ~~2014~~2021 Repurchase Program, ~~effective August 29, 2016,~~ the Company entered into ~~two~~a $2.0 billion fixed dollar ~~ASRs~~ASR with ~~Barclays Bank PLC (“Barclays”) for a total of $3.6 billion.~~Citibank, N.A.. Upon payment of the ~~$3.6~~$2.0 billion purchase price on January ~~6, 2017,~~4, 2023, the Company received a number of shares of ~~its~~CVS Health Corporation’s common stock equal to 80% of the ~~$3.6~~$2.0 billion notional amount of the ~~ASRs~~ASR or approximately ~~36.1~~17.4 million shares at a price of $92.19 per share, which were placed into treasury stock in January ~~2017.~~2023. The ~~ASRs were~~ASR was accounted for as an initial treasury stock transaction for ~~$2.9~~$1.6 billion and a forward contract for ~~$0.7~~$0.4 billion. The forward contract was classified as an equity instrument and was recorded within capital surplus. In ~~April 2017,~~February 2023, the Company received ~~9.9~~approximately 5.4 million shares of CVS Health Corporation’s common stock, representing the remaining 20% of the ~~$3.6~~$2.0 billion notional amount of the ~~ASRs,~~ASR, thereby concluding the ~~ASRs. The remaining 9.9 million~~ASR. 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.~~

February 2023.

Pursuant to the authorization under the 2021 Repurchase Program, the Company entered into a $1.5 billion fixed dollar ASR with Barclays Bank PLC. Upon payment of the $1.5 billion purchase price on January 4, 2022, the Company received a number of shares of CVS Health Corporation’s common stock equal to 80% of the $1.5 billion notional amount of the ASR or approximately 11.6 million shares at a price of $103.34 per share, which were placed into treasury stock in January 2022. The ASR was accounted for as an initial treasury stock transaction for $1.2 billion and a forward contract for $0.3 billion. The forward contract was classified as an equity instrument and was recorded within capital surplus. In February 2022, the Company received approximately 2.7 million shares of CVS Health Corporation’s common stock, representing the remaining 20% of the $1.5 billion notional amount of the ASR, thereby concluding the ASR. These shares were placed into treasury and the forward contract was reclassified from capital surplus to treasury stock in February 2022.

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

~~Note 4 – Pension Settlements~~

~~As of December 31, 2016,~~

Dividends

The quarterly cash dividend declared by the ~~Company sponsored seven defined benefit pension plans. Two of the plans are tax-qualified plans that are funded based on actuarial calculations~~Board was $0.605 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$0.55 per share in the three months ended September 30, ~~2017, related to~~2023 and 2022, respectively. Cash dividends declared by the ~~recognition of accumulated deferred actuarial losses. The settlement losses are included in other expense~~Board were $1.815 and $1.65 per share in the ~~condensed consolidated statement of income.~~

~~Note 5 – Accumulated~~ nine months ended September 30, 2023 and 2022, respectively. CVS Health Corporation has paid cash dividends every quarter since becoming a public company. Future dividend payments will depend on the Company’s earnings, capital requirements, financial condition and other factors considered relevant by the Board.

10.Other Comprehensive Income

~~Accumulated other comprehensive income consists of foreign currency translation adjustments, unrealized losses on cash flow hedges executed in previous years associated with~~ (Loss)

Shareholders’ equity included the ~~issuance 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.~~

~~Table of Contents~~

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

Three Months Ended September 30, 2017 (1)






Pension and


Losses on

Other

Foreign

Cash Flow

Postretirement

In millions

Currency

Hedges

Benefits

Total
Balance, June 30, 2017

$
(129)

$
(4)

$
(173)

$
(306)
Other comprehensive income before reclassifications

8

—

—

8
Amounts reclassified from accumulated other comprehensive income (2)

—

—

151

151
Net other comprehensive income

8

—

151

159
Balance, September 30, 2017

$
(121)

$
(4)

$
(22)

$
(147)

Three Months Ended September 30, 2016 (1)






Pension and


Losses on

Other

Foreign

Cash Flow

Postretirement

Currency

Hedges

Benefits

Total
Balance, June 30, 2016

$
(125)

$
(6)

$
(186)

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

(3)

—

—

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

—

1

—

1
Net other comprehensive income (loss)

(3)

1

—

(2)
Balance, September 30, 2016

$
(128)

$
(5)

$
(186)

$
(319)

Nine Months Ended September 30, 2017 (1)






Pension and


Losses on

Other

Foreign

Cash Flow

Postretirement

Currency

Hedges

Benefits

Total
Balance, December 31, 2016

$
(127)

$
(5)

$
(173)

$
(305)
Other comprehensive income before reclassifications

6

—

—

6
Amounts reclassified from accumulated other comprehensive income (2)

—

1

151

152
Net other comprehensive income

6

1

151

158
Balance, September 30, 2017

$
(121)

$
(4)

$
(22)

$
(147)

Nine Months Ended September 30, 2016 (1)






Pension and


Losses on

Other

Foreign

Cash Flow

Postretirement

Currency

Hedges

Benefits

Total
Balance, December 31, 2015

$
(165)

$
(7)

$
(186)

$
(358)
Other comprehensive income before reclassifications

37

—

—

37
Amounts reclassified from accumulated other comprehensive income (2)

—

2

—

2
Net other comprehensive income

37

2

—

39
Balance, September 30, 2016

$
(128)

$
(5)

$
(186)

$
(319)

~~(1)~~

~~All amounts are net of tax.~~

~~(2)~~

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

~~Note 6 – Stock-Based Compensation~~

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

Three Months Ended

Nine Months Ended

September 30,

September 30,
In millions

2017

2016

2017

2016
Stock-based compensation:








Stock options

$
15

$
20

$
49

$
60
Restricted stock units

50

38

124

106
Total stock-based compensation

$
65

$
58

$
173

$
166

~~Table of Contents~~

During the nine months ended September 30, 2017, the Company granted approximately 4 million stock options with a weighted average fair value of $9.43 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.

~~Note 7 – Sale-Leaseback Transactions~~

The Company finances a portion of its store development program through sale-leaseback transactions. The properties are generally sold at 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 interests in the stores and does not provide any guarantees, other than a guarantee of lease payments, in connection with the sale-leaseback transactions. Proceeds from sale-leaseback transactions totaled $265 million and $230 million for the nine months ended September 30, 2017 and 2016, respectively.

~~Note 8 – Store Closures~~

In December 2016, the Company announced an enterprise streamlining initiative designed to reduce costs and enhance operating efficiencies to allow the Company to be more competitive in the current health care environment. In connection with the enterprise streamlining initiative, the Company announced its intention to rationalize the number 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,~~2023 and 2022:


	Three Months Ended September 30,				Nine Months Ended September 30,
In millions	2023		2022		2023		2022
Net unrealized investment gains (losses):
Beginning of period balance	$	(1,113)	$	(1,199)	$	(1,519)	$	778
Adoption of new accounting standard ($0, $0, $0, $26 pretax) (1)	—		—		—		20
Other comprehensive loss before reclassifications ($(475), $(814), $(310), $(3,361) pretax)	(478)		(725)		(313)		(2,852)
Amounts reclassified from accumulated other comprehensive income (loss) ($157, $99, $398, $253 pretax) (2)	157		88		398		218
Other comprehensive income (loss)	(321)		(637)		85		(2,634)
End of period balance	(1,434)		(1,836)		(1,434)		(1,836)

Change in discount rate on long-duration insurance reserves:
Beginning of period balance	205		28		219		—
Adoption of new accounting standard ($0, $0, $0, $(838) pretax) (1)	—		—		—		(651)
Other comprehensive income before reclassifications ($233, $321, $210, $1,195 pretax)	181		250		167		929
Other comprehensive income	181		250		167		929
End of period balance	386		278		386		278

Foreign currency translation adjustments:
Beginning of period balance	1		2		—		—
Other comprehensive loss before reclassifications	(2)		(7)		(1)		(5)

Other comprehensive loss	(2)		(7)		(1)		(5)
End of period balance	(1)		(5)		(1)		(5)

Net cash flow hedges:
Beginning of period balance	252		234		239		222
Other comprehensive income before reclassifications ($0, $13, $25, $37 pretax)	—		10		19		28
Amounts reclassified from accumulated other comprehensive income ($(5), $(2), $(13), $(10) pretax) (3)	(4)		(2)		(10)		(8)
Other comprehensive income (loss)	(4)		8		9		20
End of period balance	248		242		248		242

Pension and other postretirement benefits:
Beginning of period balance	(203)		(34)		(203)		(35)

Amounts reclassified from accumulated other comprehensive loss ($0, $1, $0, $2 pretax) (4)	—		1		—		2
Other comprehensive income	—		1		—		2
End of period balance	(203)		(33)		(203)		(33)

Total beginning of period accumulated other comprehensive income (loss)	(858)		(969)		(1,264)		965
Adoption of new accounting standard (1)	—		—		—		(631)
Total other comprehensive income (loss)	(146)		(385)		260		(1,688)
Total end of period accumulated other comprehensive loss	$	(1,004)	$	(1,354)	$	(1,004)	$	(1,354)

(1)Reflects the ~~Company closed five and 68 retail stores, respectively, and recorded charges~~adoption of ~~$6 million and $211 million, respectively, within operating expenses in~~ASU 2018-12, Targeted Improvements to the ~~Retail/LTC Segment. The charges are primarily comprised of provisions~~Accounting for ~~the present value of noncancelable lease obligations.~~

~~The noncancelable lease obligations associated with stores closed~~Long-Duration Contracts(Topic 944) during the nine months ended September 30, ~~2017 extend through~~2023. See Note 1 ‘‘Significant Accounting Policies’’ for additional information.

(2)Amounts reclassified from accumulated other comprehensive income (loss) for specifically identified debt securities are included in net investment income in the ~~year 2039. In connection with~~unaudited condensed consolidated statements of operations.

(3)Amounts reclassified from accumulated other comprehensive income for specifically identified cash flow hedges are included in interest expense in the ~~enterprise streamlining initiative, the~~unaudited condensed consolidated statements of operations. The Company expects to ~~record additional charges~~reclassify approximately $15 million net of ~~approximately $9 million during~~tax, in net gains associated with its cash flow hedges into net income within the ~~fourth quarter~~next 12 months.

(4)Amounts reclassified from accumulated other comprehensive loss for specifically identified pension and other postretirement benefits are included in other income in the unaudited condensed consolidated statements of ~~2017 as it continues to rationalize the number of retail stores.~~

~~Note 9 – Interest Expense, Net~~

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

operations.

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

~~Note 10 –~~

11.Earnings (Loss) Per Share

Earnings (loss) per share is computed using the ~~two-class~~treasury stock method. ~~Options~~For periods in which the Company reports net income, diluted earnings per share is determined using the weighted average number of common and dilutive common equivalent shares outstanding during the period, unless the effect is antidilutive. Stock options and stock appreciation rights to purchase ~~10.9~~9 million and ~~9.9~~7 million s~~hares~~shares of common stock were outstanding, but were ~~not included in~~excluded from the calculation of diluted earnings per share for the three and nine months ended September 30, ~~2017,~~2023, respectively, because ~~the~~their exercise prices ~~of the options~~ were greater than the average market price of the common shares and, therefore, the effect would be antidilutive. For the same reason, stock options and stock appreciation rights to purchase ~~approximately 7.7 million and 6.4~~4 million shares of common stock were outstanding, but were ~~not included in~~excluded from the calculation of diluted earnings (loss) per share for each of the three and nine-month periods ended September 30, 2022. In addition, due to the net loss attributable to CVS Health in the three months ended September 30, 2022, 8 million potentially dilutive common equivalent shares were excluded from the calculation of diluted loss per share, as the impact of these shares was antidilutive for that period.

The following is a reconciliation of basic and diluted earnings (loss) per share for the three and nine months ended September 30, ~~2016, respectively.~~

2023 and 2022:


	Three Months Ended September 30,				Nine Months Ended September 30,
In millions, except per share amounts	2023		2022		2023		2022
Numerator for earnings (loss) per share calculation:



Net income (loss) attributable to CVS Health	$	2,261	$	(3,406)	$	6,298	$	1,977

Denominator for earnings (loss) per share calculation:
Weighted average shares, basic	1,287		1,315		1,284		1,313
Restricted stock units and performance stock units	2		—		3		6
Stock options and stock appreciation rights	1		—		2		5
Weighted average shares, diluted	1,290		1,315		1,289		1,324

Earnings (loss) per share:
Basic	$	1.76	$	(2.59)	$	4.90	$	1.51
Diluted	$	1.75	$	(2.59)	$	4.88	$	1.49

~~Table of Contents~~

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

Three Months Ended

Nine Months Ended

September 30,

September 30,
In millions, except per share amounts

2017

2016

2017

2016
Numerator for earnings per share calculation:

Income from continuing operations

$
1,285

$
1,542

$
3,344

$
3,613
Income allocated to participating securities

(3)

(7)

(12)

(18)
Net income attributable to noncontrolling interest

—

(1)

(1)

(2)
Income from continuing operations attributable to CVS Health

$
1,282

$
1,534

$
3,331

$
3,593

Denominator for earnings per share calculation:

Weighted average shares, basic

1,016

1,068

1,022

1,076
Effect of dilutive securities

4

5

4

6
Weighted average shares, diluted

1,020

1,073

1,026

1,082

Earnings per share from continuing operations:

Basic

$
1.26

$
1.44

$
3.26

$
3.34
Diluted

$
1.26

$
1.43

$
3.25

$
3.32

~~Note 11 – Segment Reporting~~

The Company has three reportable segments: Pharmacy Services, Retail/LTC and Corporate. The Retail/LTC Segment includes the operating results of the Company’s Retail Pharmacy and LTC/RxCrossroads operating segments as 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 offered on the public and private exchanges, and other sponsors of health benefit plans and individuals throughout the United States. Through the Company’s SilverScript Insurance Company subsidiary, the Pharmacy Services Segment is a national provider of drug benefits to eligible beneficiaries under the federal government’s Medicare Part D program. The Pharmacy Services Segment operates under the CVS Caremark® ~~Pharmacy Services, Caremark~~®~~, CVS Caremark~~TM~~, CarePlus CVS Pharmacy~~TM~~, Accordant~~®~~, SilverScript~~®~~, Coram~~®~~, CVS Specialty~~TM~~, NovoLogix~~®~~, Navarro~~® Health Services, Advanced Care Scripts and ACS Pharmacy names. As of September 30, 2017, the Pharmacy Services Segment operated 23 retail specialty pharmacy stores, 15 specialty mail order pharmacies, four mail service dispensing pharmacies, and 82 branches for infusion and enteral services, including approximately 73 ambulatory infusion suites and three centers of excellence, located in 41 states, Puerto Rico and the District of Columbia.

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

~~Table of Contents~~

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

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

~~Table of Contents~~

Pharmacy


Services

Retail/LTC

Corporate

Intersegment

Consolidated
In millions

Segment(1)

Segment

Segment

Eliminations(2)

Totals
Three Months Ended

September 30, 2017:

Net revenues

$
32,896

$
19,593

$
—

$
(6,308)

$
46,181
Gross profit (3)

1,645

5,685

—

(204)

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

1,353

1,553

(220)

(187)

2,499
September 30, 2016:

Net revenues

30,429

20,143

—

(5,957)

44,615
Gross profit (3)

1,797

5,893

—

(198)

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

1,459

1,778

(228)

(185)

2,824
Nine Months Ended

September 30, 2017:

Net revenues

96,444

58,488

—

(18,552)

136,380
Gross profit (3)

4,210

17,036

—

(605)

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

3,272

4,375

(686)

(552)

6,409
September 30, 2016:

Net revenues

88,704

60,253

—

(17,402)

131,555
Gross profit (3)

4,266

17,560

—

(575)

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

3,282

5,273

(660)

(529)

7,366

~~(1)~~

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).

~~Table of Contents~~

~~Note 12 –~~ 12.Commitments and Contingencies

Lease Guarantees

Between ~~1991~~1995 and 1997, the Company sold or spun off a number of subsidiaries, including Bob’s Stores and Linens ‘n Things, ~~Marshalls, Kay-Bee Toys, Wilsons, This End Up~~each of which subsequently filed for bankruptcy, and ~~Footstar.~~Marshalls. In many cases, when a former subsidiary leased a store, the Company provided a guarantee of the ~~store’s~~former subsidiary’s lease ~~obligations.~~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 failed~~fail to make the required payments under a store lease, the Company could be required to satisfy ~~these~~those obligations. As of September 30, ~~2017,~~2023, the Company guaranteed ~~approximately 86~~63 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 2016~~2035.

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

Under guaranty fund laws existing in ~~February 2017, Bob’s Stores~~all states, insurers doing business in those states can be assessed (in most states up to prescribed limits) for certain obligations of insolvent insurance companies to policyholders and ~~its related~~claimants. The life and ~~successor entities filed for Chapter 11 bankruptcy protection. As described above,~~health insurance guaranty associations in which the Company ~~through~~participates that operate under these laws respond to insolvencies of long-term care insurers 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.

In 2009, the Pennsylvania Insurance Commissioner placed long-term care insurer Penn Treaty Network America Insurance Company and one ~~or more~~ of its ~~affiliates,~~subsidiaries (collectively, “Penn Treaty”) in rehabilitation, an intermediate action before insolvency, and subsequently petitioned a state court to convert the rehabilitation into a liquidation. Penn Treaty was placed in liquidation in March 2017. The Company has recorded a liability for its estimated share of future assessments by applicable life and health insurance guaranty associations. It is ~~alleged~~reasonably possible that in the future the Company may record a liability and expense relating to other insolvencies which could have ~~guaranteed~~a material adverse effect on the Company’s operating results, financial condition and cash flows, and the risk is heightened by any significant adverse impact the coronavirus disease 2019 (“COVID-19”) pandemic had 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.

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

Litigation and ~~SDI Stores, LLC (“SDI Stores”~~Regulatory Proceedings

The Company has been 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 CMS, state insurance and health and welfare departments, the U.S. Department of Justice (the “DOJ”), ~~entered into an agreement regarding~~state Attorneys General, the ~~Bob’s Leases, which was amended~~U.S. Drug Enforcement Administration (the “DEA”), the U.S. Federal Trade Commission (the “FTC”) and other governmental authorities.

Legal proceedings, in ~~August 2017 (the “CVS/SDI Stores Agreement”). Pursuant to the CVS/SDI Stores Agreement, SDI Stores has accepted the assignment~~general, and securities, class action and multi-district litigation, in particular, and governmental special investigations, audits and reviews can be expensive and disruptive. Some of the ~~Bob’s Leases and has agreed~~litigation matters may purport or be determined to be ~~bound by certain restrictions regarding renewals, extensions~~class actions and/or involve parties seeking large and/or indeterminate amounts, including punitive or exemplary damages, and ~~modifications to the Bob’s Leases, in exchange~~may remain unresolved for ~~a series of payments that are immaterial to the Company.~~

~~Legal Matters~~

several years. The Company isalso may be named from time to time in qui tam actions initiated by private third parties that could also be separately pursued by a ~~party to~~governmental body. The results of legal proceedings, including government investigations, are often uncertain and ~~claims~~difficult 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.

The Company records accruals for outstanding legal matters when it believes it is probable that a loss will be incurred and the amount can be reasonably estimated. The Company evaluates, on a quarterly basis, developments in legal matters that could affect the amount of any accrual and developments that would make a loss contingency both probable and reasonably estimable. If a loss contingency is not both probable and reasonably estimable, the Company does not establish an accrued liability. ~~None~~Other than the controlled substances litigation accruals described below, none of the Company’s accruals for outstanding legal matters are material individually or in the aggregate to the Company’s ~~financial position.~~

unaudited condensed consolidated balance sheets.

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

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

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

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 participating in government programs. The outcome of such governmental investigations of proceedings could be material to the Company.

Usual and Customary Pricing Litigation

The Company is named as a defendant in a number of lawsuits that allege that the Company’s retail pharmacies overcharged for prescription drugs by not submitting the correct usual and customary price during the claims adjudication process. These actions are brought by a number of different types of plaintiffs, including plan members, private payors and government payors, and are based on different legal theories. Some of these cases are brought as putative class actions, and in some instances, classes have been certified. In October 2022, one of the litigating shareholders made a litigation demand to the Board related to these and other issues after his amended derivative complaint was dismissed for failing to demonstrate demand futility. The Company is defending itself against these claims.

PBM Litigation and Investigations

The Company is named as a defendant in a number of lawsuits and is subject to a number of investigations concerning its PBM practices.

The Company is facing multiple lawsuits, including by state Attorneys General, governmental subdivisions, and several putative class actions, regarding drug pricing and its rebate arrangements with drug manufacturers. These complaints, brought by a number of different types of plaintiffs under a variety of legal theories, generally allege that rebate agreements between the drug manufacturers and PBMs caused inflated prices for certain drug products. The majority of these cases have now been transferred into a multi-district litigation in the U.S. District Court for the District of New Jersey. The Company is defending itself against these claims. The Company has also received subpoenas, civil investigative demands (“CIDs”), and other requests for documents and information from, and is being investigated by, the FTC and Attorneys General of several states and the District of Columbia regarding its PBM practices, including pricing and rebates. The Company has been providing documents and information in response to these subpoenas, CIDs, and requests for information.

United States ex rel. Behnke v. CVS Caremark Corporation, et al. (U.S. District Court for the Eastern District of Pennsylvania). In April 2018, the Court unsealed a complaint filed in February 2014. The government has declined to intervene in this case. The relator alleges that the Company submitted, or caused to be submitted, to Part D of the Medicare program Prescription Drug Event data and/or Direct and Indirect Remuneration reports 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 is defending itself against these claims.

Controlled Substances Litigation, Audits and Subpoenas

In December 2022, the Company agreed to a formal settlement agreement, the financial amounts of which were agreed to in principle in October 2022, with a leadership group of a number of state Attorneys General and the Plaintiffs’ Executive Committee. Upon finalization, the agreement resolves substantially all opioid claims against Company entities by participating states and political subdivisions but not private plaintiffs, alleging claims beginning as far back as the early 2000s generally concerning the impacts of widespread prescription opioid abuse. The maximum amount payable by the Company under the settlement is approximately $4.3 billion in opioid remediation and $625 million in attorneys’ fees and costs and additional remediation. The amounts are payable over 10 years, beginning in 2023. The agreement also contains injunctive terms relating to the dispensing of opioid medications. The settlement agreement is available at nationalopioidsettlement.com.

Upon reaching an agreement in principle in October 2022, the Company concluded that settlement of opioid claims by governmental entities and tribes was probable, and the loss related thereto could be reasonably estimated. As a result of that conclusion, and its assessment of certain other opioid-related claims including those for which the Company reached agreement in August and September 2022, the Company recorded pre-tax charges of $5.3 billion during the year ended December 31, 2022. Settlement accruals expected to be paid within twelve months from the balance sheet date are classified as accrued expenses on the unaudited condensed consolidated balance sheets and settlement accruals expected to be paid greater than

~~Table~~

twelve months from the balance sheet date are classified as other long-term liabilities on the unaudited condensed consolidated balance sheets.

In June 2023, the Company elected to move forward with a final settlement agreement, the financial amounts of ~~Contents~~

which were agreed to in principle in October 2022, to resolve claims brought by participating states and political subdivisions such as counties, cities, and towns, but not by private plaintiffs, alleging claims beginning as far back as the early 2000s generally concerning the impacts of widespread prescription opioid abuse. The agreement became effective in June 2023.

Forty-five states, the District of Columbia, and all eligible United States territories are participating in the settlement. A high percentage of eligible subdivisions within the participating states also have elected to join the settlement. The Company has separately entered into settlement agreements with four states – Florida, West Virginia, New Mexico, and Nevada – and a high percentage of eligible subdivisions within those states also have elected to participate.

The final settlement agreement contains certain contingencies related to payment obligations. Because these contingencies are inherently unpredictable, the assessment requires judgments about future events. The amount of ultimate loss may differ from the amount accrued by the Company.

The State of Maryland has not elected to participate in the settlement. Subdivisions within the State of Maryland thus may not participate in the settlement. The State of Maryland has issued a civil subpoena for information from the Company.

In December 2022, the Company also agreed to a formal settlement agreement with a leadership group representing tribes throughout the United States. The agreement resolves substantially all opioid claims against Company entities by such tribes. The maximum amount payable by the Company under the settlement is $113 million in opioid remediation and $16 million in attorneys’ fees and costs, payable over 10 years. The Company also entered into a separate settlement with the Cherokee Nation.

These settlements resolve a majority of the cases against the Company that had been pending in the consolidated multidistrict litigation captioned In re National Prescription Opiate Litigation (MDL No. 2804) pending in the U.S. District Court for the Northern District of Ohio. However, certain opioid-related cases against the Company remain pending in the multidistrict litigation and in various state courts, including those brought by non-participating subdivisions and private parties such as hospitals and third-party payors. The Company continues to defend those cases.

In November 2021, the Company was among the chain pharmacies found liable by a jury in a trial in federal court in Ohio; in August 2022, the court issued a judgment jointly against the three defendants in the amount of $651 million to be paid over 15 years and also ordered certain injunctive relief. The Company is appealing the judgment and has not accrued a liability for this matter.

Because of the many uncertainties associated with any settlement arrangement or other resolution of opioid-related litigation matters, and because the Company continues to actively defend ongoing litigation for which it believes it has defenses and assertions that have merit, the Company is not able to reasonably estimate the range of ultimate possible loss for all opioid-related litigation matters at this time. The outcome of these legal matters could have a material effect on the Company’s business, financial condition, operating results and/or cash flows.

In January 2020, the DOJ served the Company with a DEA administrative subpoena. The subpoena seeks documents relating to practices with respect to prescription opioids and other controlled substances at CVS pharmacy locations concerning potential violations of the federal Controlled Substances Act and the federal False Claims Act. The DOJ subsequently served additional DEA administrative subpoenas relating to controlled substances. The DOJ also served the Company with additional CIDs relating to controlled substances. The Company is providing documents and information in response to these matters.

Prescription Processing Litigation and Investigations

The Company is named as a defendant in a number of lawsuits and is subject to a number of investigations concerning its prescription processing practices, including the following:

U.S. ex rel. Bassan et al. v. Omnicare, Inc. and CVS Health Corp. (U.S. District Court for the Southern District of New York). In December 2019, the U.S. Attorney’s Office for the Southern District of New York (the “SDNY”) filed a complaint-in-intervention in this previously sealed qui tam case. The complaint alleges that for certain non-skilled nursing facilities,

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

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

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

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

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

Omnicare improperly filled prescriptions beyond one year where a valid prescription did not exist and that these dispensing events violated the federal False Claims Act. The Company is defending itself against these claims.

U.S. ex rel. Gill et al. v. CVS Health Corp. et al. (U.S. District Court for the Northern District of Illinois). In July 2022, the Delaware Attorney General’s Office moved for partial intervention as to allegations under the Delaware false claims act related to not escheating alleged overpayments in this previously sealed qui tam case. The federal government and the remaining states declined to intervene on other additional theories in the relator’s complaint. The Company is defending itself against all of the claims.

In July 2017, the Company also received a subpoena from the California Department of Insurance requesting documents concerning the Company’s Omnicare pharmacies’ cycle fill process for assisted living facilities. The Company has been cooperating with the California Department of Insurance and providing documents and information in response to this subpoena.

Provider Proceedings

The Company is named as a defendant in purported class actions and individual lawsuits arising out of its practices related to the payment of claims for services rendered to its members by providers with whom the Company has a contract and with whom the Company does not have a contract (“out-of-network providers”). Among other things, these lawsuits allege that the Company paid too little to its health plan members and/or providers for out-of-network services (including COVID-19 testing) and/or otherwise allege that the Company failed to timely or appropriately pay or administer claims and benefits (including the Company’s post payment audit and collection practices). Other major health insurers are the subject of similar litigation or have settled similar litigation.

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

CMS Actions

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

In 2012, in the “Notice of Final Payment Error Calculation for Part C Medicare Advantage Risk Adjustment Validation Data (RADV) Contract-Level Audits,” CMS revised its audit methodology for RADV contract-level audits to determine refunds payable by Medicare Advantage plans for contract year 2011 and forward. Under the revised methodology, among other things, CMS announced extrapolation of the error rate identified in the audit sample along with the application of a process to account for errors in the government’s traditional fee-for-service Medicare program (“FFS Adjuster”). For contract years prior to 2011, CMS did not extrapolate sample error rates to the entire contract, nor did CMS propose to apply a FFS adjuster. By applying the FFS Adjuster, Medicare Advantage organizations would have been liable for repayments only to the extent that their extrapolated payment errors exceeded the error rate in Original Medicare, which could have impacted the extrapolated repayments to which Medicare Advantage organizations are subject. This revised contract-level audit methodology increased

the Company’s exposure to premium refunds to CMS based on incomplete medical records maintained by providers. In the RADV audit methodology CMS used from 2011-2013, CMS selected only a few of the Company’s Medicare Advantage contracts for various contract years for contract-level RADV audits. In October 2018, CMS in the proposed rule (“Proposed Rule”) announced a new methodology for RADV audits targeting certain health conditions and members with many diagnostic conditions along with extrapolation for the error rates identified without use of a FFS Adjuster. While the rule was under proposal, CMS initiated contract-level RADV audits for the years 2014 and 2015 with this new RADV methodology without a final rule.

On January 30, 2023, CMS released the final rule (“RADV Audit Rule”), announcing it may use extrapolation for payment years 2018 forward, for both RADV audits and OIG audits, and eliminated the application of a FFS Adjuster in Part C contract-level RADV audits of Medicare Advantage organizations. In the RADV Audit Rule, CMS indicated that it will use more than one audit methodology going forward and indicated CMS will audit contracts it believes are at the highest risk for overpayments based on its statistical modeling, citing a 2016 Governmental Accountability Office report that recommended selection of contract-level RADV audits with a focus on contracts likely to have high rates of improper payment, the highest coding intensity scores, and contracts with high levels of unsupported diagnoses from prior RADV audits.

The Company is currently unable to predict which of its Medicare Advantage contracts will be selected for future audit, the amounts of any retroactive refunds for years prior to 2018 or prospective adjustments to Medicare Advantage premium payments made to the Company, the effect of any such refunds or adjustments on the actuarial soundness of the Company’s Medicare Advantage bids, or whether any RADV audit findings would require the Company to change its method of estimating future premium revenue in future bid submissions to CMS or compromise premium assumptions made in the Company’s bids for prior contract years, the current contract year or future contract years. Any premium or fee refunds or adjustments resulting from regulatory audits, whether as a result of RADV, Public Exchange related or other audits by CMS, the OIG or otherwise, including audits of the Company’s minimum loss ratio rebates, methodology and/or reports, could be material and could adversely affect the Company’s operating results, cash flows and/or financial condition.

The RADV Audit Rule does not apply to the CMS Part C Improper Payment Measures audits nor the HHS-RADV programs.

Medicare and Medicaid Litigation and Investigations

The Company has received CIDs from the Civil Division of the DOJ in connection with investigations of the Company’s identification and/or submission of diagnosis codes related to risk adjustment payments, including patient chart review processes, under Parts C and D of the Medicare program. The Company is cooperating with the government and providing documents and information in response to these CIDs.

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

In November 2021, prior to its acquisition by the Company, Oak Street Health received a CID from the DOJ in connection with an investigation of possible false claims submitted to Medicare related to Oak Street Health’s relationships with third-party marketing agents and Oak Street Health’s provision of free transportation to federal health care beneficiaries. The Company has been cooperating with the government and has provided documents and information in response to the CID.

In January 2022, the U.S. Attorney’s Office for the District of Massachusetts issued a subpoena to Aetna Life Insurance Company seeking, among other things, information in connection with its relationship with certain brokers, and the Company may receive similar inquiries in the future. The Company is cooperating with the subpoena.

Stockholder Matters

Beginning in February 2019, multiple class action complaints, as well as a derivative complaint, were filed by putative plaintiffs against the Company and certain current and former officers and directors. The plaintiffs in these cases assert a variety of causes of action under federal securities laws that are premised on allegations that the defendants made certain omissions and misrepresentations relating to the performance of the Company’s LTC business unit. Since filing, several of the cases have been consolidated, and two have resolved, including the first-filed federal case, City of Miami Fire Fighters’ and Police Officers’ Retirement Trust, et al. (formerly known as Anarkat), the dismissal of which the First Circuit affirmed in August 2022. The Company and its current and former officers and directors are defending themselves against remaining claims. The Company

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has moved to dismiss the amended complaint in In re CVS Health Corp. Securities Act Litigation (formerly known as Waterford). In In re CVS Health Corp. Securities Litigation (formerly known as City of ~~Contents~~

Warren and Freundlich), the court granted the Company’s motion to dismiss in February 2023 and the plaintiffs have filed a notice of appeal.

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

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

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

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

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

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

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

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

Beginning in December 2021, the Company has received three demands for inspection of books and records pursuant to Delaware Corporation Law Section 220, as well as a derivative complaint (Vladimir Gusinsky Revocable Trust v. Lynch, et al.) that was filed in January 2023. The demands and the complaint purport to be related to potential breaches of fiduciary duties by the Board in relation to certain matters concerning opioids. The Company and its current and former officers and directors are defending themselves against these matters.

~~Table~~In January 2022, a shareholder class action complaint was filed in the Northern District of ~~Contents~~

Illinois, Allison v. Oak Street Health, Inc., et al. Defendants include Oak Street Health and certain of its pre-acquisition officers and directors. The putative plaintiffs assert causes of action under various securities laws premised on allegations that defendants made omissions and misrepresentations to investors relating to marketing conduct they allege may violate the False Claims Act. The Company and the individual defendants are defending themselves against these claims.

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

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

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

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

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

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

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

Other Legal and Regulatory Proceedings

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~~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.

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, ~~all arising~~anticompetitive practices, general contractual matters, product liability, intellectual property litigation, discrimination 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.

Awards to the Company and others of certain government contracts, particularly Medicaid contracts and other contracts with government customers in the ~~normal course~~Company’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 expected~~any government contract could adversely affect the Company’s operating results. The Company will continue to defend contract awards it receives.

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

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

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

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laws or regulations as they may relate to one or more of the Company’s ~~business,~~businesses, one or more of the ~~pharmacy services, specialty pharmacy, retail pharmacy, long-term care pharmacy or retail clinic~~ industries in which the Company competes and/or to the health care industry generally; (iii) pending or future federal or state ~~governmental~~government investigations of one or more of the Company’s ~~business~~businesses, one or more of the ~~pharmacy services, specialty pharmacy, retail pharmacy, long-term care pharmacy~~ industries in which the Company competes and/or ~~retail clinic industry or of~~ the health care

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

13.Segment Reporting

The Company has three operating segments, Health Care Benefits, Health Services and Pharmacy & Consumer Wellness, as well as a Corporate/Other segment. The Company’s segments maintain separate financial information, and the CODM evaluates the segments’ operating results on a regular basis in deciding how to allocate resources among the segments and in assessing segment performance. The CODM evaluates the performance of the Company’s segments based on adjusted operating income. Adjusted operating income is defined as operating income (loss) (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. Effective for the first quarter of 2023, adjusted operating income also excludes the impact of net realized capital gains or losses. See the reconciliations of consolidated operating income (loss) (GAAP measure) to consolidated adjusted operating income below for further context regarding the items excluded from operating income (loss) 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.

Segment financial information for the three and nine months ended September 30, 2022 has been revised to conform with current period presentation for the following items:

•The realignment of the Company’s segments to correspond with changes made to its operating model as described in Note 1 “Significant Accounting Policies,” including the discontinuance of the former Maintenance Choice segment reporting practice as described in Note (1) of the table included on the next page.

•The impact of the adoption of the long-duration insurance accounting standard, which the Company adopted on January 1, 2023 using a modified retrospective transition method, as described in Note 1 “Significant Accounting Policies.”

•The exclusion of the impact of net realized capital gains or losses from adjusted operating income, as described above.

The impact of these items on segment financial information for the three and nine months ended September 30, 2022 is reflected in the “Adjustments” lines of the table included on the next page.


	Three Months Ended September 30, 2022
In millions	Health Care Benefits		Health Services		Pharmacy & Consumer Wellness		Corporate/ Other		Intersegment Eliminations (1)		Consolidated Totals




Total revenues, as previously reported	$	22,511	$	43,216	$	26,706	$	142	$	(11,416)	$	81,159
Adjustments	(15)		38		531		—		(554)		—
Total revenues, as adjusted	$	22,496	$	43,254	$	27,237	$	142	$	(11,970)	$	81,159

















Adjusted operating income (loss), as previously reported	$	1,544	$	1,877	$	1,398	$	(417)	$	(169)	$	4,233
Adjustments	97		(182)		3		29		169		116
Adjusted operating income (loss), as adjusted	$	1,641	$	1,695	$	1,401	$	(388)	$	—	$	4,349

	Nine Months Ended September 30, 2022
In millions	Health Care Benefits		Health Services		Pharmacy & Consumer Wellness		Corporate/ Other		Intersegment Eliminations (1)		Consolidated Totals
Total revenues, as previously reported	$	68,376	$	125,489	$	78,410	$	378	$	(34,032)	$	238,621
Adjustments	(45)		318		1,471		—		(1,744)		—
Total revenues, as adjusted	$	68,331	$	125,807	$	79,881	$	378	$	(35,776)	$	238,621

Adjusted operating income (loss), as previously reported	$	5,126	$	5,368	$	4,865	$	(1,277)	$	(556)	$	13,526
Adjustments	299		(372)		(181)		130		556		432
Adjusted operating income (loss), as adjusted	$	5,425	$	4,996	$	4,684	$	(1,147)	$	—	$	13,958

(1)Intersegment revenue eliminations relate to intersegment revenue generating activities that occur between the Health Care Benefits segment, the Health Services segment, and/or the Pharmacy & Consumer Wellness segment. Prior to January 1, 2023, intersegment adjusted operating income eliminations occurred when members of the Health Services segment’s clients enrolled in Maintenance Choice elected to pick up maintenance prescriptions at one of the Company’s retail pharmacies instead of receiving them through the mail. When this occurred, both the Health Services and Pharmacy & Consumer Wellness segments recorded the adjusted operating income on a stand-alone basis. Effective January 1, 2023, the adjusted operating income associated with such transactions is reported only in the Pharmacy & Consumer Wellness segment, therefore no adjusted operating income elimination is required. Prior period financial information has been recast to conform with current period presentation.

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


In millions	Health Care Benefits		Health Services (1)		Pharmacy & Consumer Wellness		Corporate/ Other		Intersegment Eliminations (2)		Consolidated Totals
Three Months Ended
September 30, 2023
Revenues from external customers	$	26,089	$	44,064	$	19,321	$	13	$	—	$	89,487
Intersegment revenues	20		2,827		9,553		—		(12,400)		—
Net investment income (loss)	187		—		(2)		92		—		277
Total revenues	26,296		46,891		28,872		105		(12,400)		89,764
Adjusted operating income (loss)	1,536		1,878		1,389		(347)		—		4,456

September 30, 2022
Revenues from external customers	$	22,375	$	40,544	$	18,007	$	32	$	—	$	80,958
Intersegment revenues	20		2,710		9,240		—		(11,970)		—
Net investment income (loss)	101		—		(10)		110		—		201
Total revenues	22,496		43,254		27,237		142		(11,970)		81,159
Adjusted operating income (loss)	1,641		1,695		1,401		(388)		—		4,349

Nine Months Ended
September 30, 2023
Revenues from external customers	$	78,302	$	127,907	$	56,826	$	43	$	—	$	263,078
Intersegment revenues	62		9,790		28,756		—		(38,608)		—
Net investment income (loss)	556		—		(4)		333		—		885
Total revenues	78,920		137,697		85,578		376		(38,608)		263,963
Adjusted operating income (loss)	4,901		5,452		3,936		(982)		—		13,307

September 30, 2022
Revenues from external customers	$	67,993	$	116,801	$	53,215	$	97	$	—	$	238,106
Intersegment revenues	60		9,006		26,710		—		(35,776)		—
Net investment income (loss)	278		—		(44)		281		—		515
Total revenues	68,331		125,807		79,881		378		(35,776)		238,621
Adjusted operating income (loss)	5,425		4,996		4,684		(1,147)		—		13,958

(1)Total revenues of the Health Services segment include approximately $3.2 billion and $2.9 billion of retail co-payments for the three months ended September 30, 2023 and 2022, respectively. Total revenues of the Health Services segment include approximately $10.7 billion and $9.8 billion of retail co-payments for the nine months ended September 30, 2023 and 2022, respectively.

~~Table~~

The following are reconciliations of ~~Contents~~consolidated operating income (loss) to adjusted operating income for the three and nine months ended September 30, 2023 and 2022:


	Three Months Ended September 30,				Nine Months Ended September 30,
In millions	2023		2022		2023		2022
Operating income (loss) (GAAP measure)	$	3,690	$	(3,919)	$	10,370	$	4,295
Amortization of intangible assets (1)	509		458		1,396		1,380
Net realized capital losses (2)	142		110		345		283
Acquisition-related transaction and integration costs (3)	94		—		294		—
Restructuring charges (4)	11		—		507		—
Office real estate optimization charges (5)	10		—		46		—
Loss on assets held for sale (6)	—		2,480		349		2,521
Opioid litigation charges (7)	—		5,220		—		5,704
Gain on divestiture of subsidiary (8)	—		—		—		(225)
Adjusted operating income	$	4,456	$	4,349	$	13,307	$	13,958

(1)The Company’s acquisition activities have resulted in the recognition of intangible assets as required under the acquisition method of accounting which consist primarily of trademarks, customer contracts/relationships, covenants not to compete, technology, provider networks and value of business acquired. Definite-lived intangible assets are amortized over their estimated useful lives and are tested for impairment when events indicate that the carrying value may not be recoverable. The amortization of intangible assets is reflected in the unaudited condensed consolidated statements of operations in operating expenses within each segment. Although intangible assets contribute to the Company’s revenue generation, the amortization of intangible assets does not directly relate to the underwriting of the Company’s insurance products, the services performed for the Company’s customers or the sale of the Company’s products or services. Additionally, intangible asset amortization expense typically fluctuates based on the size and timing of the Company’s acquisition activity. Accordingly, the Company believes excluding the amortization of intangible assets enhances the Company’s and investors’ ability to compare the Company’s past financial performance with its current performance and to analyze underlying business performance and trends. Intangible asset amortization excluded from the related non-GAAP financial measure represents the entire amount recorded within the Company’s GAAP financial statements, and the revenue generated by the associated intangible assets has not been excluded from the related non-GAAP financial measure. Intangible asset amortization is excluded from the related non-GAAP financial measure because the amortization, unlike the related revenue, is not affected by operations of any particular period unless an intangible asset becomes impaired or the estimated useful life of an intangible asset is revised.

(2)The Company’s net realized capital gains and losses arise from various types of transactions, primarily in the course of managing a portfolio of assets that support the payment of insurance liabilities. Net realized capital gains and losses are reflected in the unaudited condensed consolidated statements of operations in net investment income (loss) within each segment. These capital gains and losses are the result of investment decisions, market conditions and other economic developments that are unrelated to the performance of the Company’s business, and the amount and timing of these capital gains and losses do not directly relate to the underwriting of the Company’s insurance products, the services performed for the Company’s customers or the sale of the Company’s products or services. Accordingly, the Company believes excluding net realized capital gains and losses enhances the Company’s and investors’ ability to compare the Company’s past financial performance with its current performance and to analyze underlying business performance and trends.

(3)During the three and nine months ended September 30, 2023, the acquisition-related transaction and integration costs relate to the acquisitions of Signify Health and Oak Street Health. The acquisition-related transaction and integration costs are reflected in the Company’s unaudited condensed consolidated statements of operations in operating expenses within the Corporate/Other segment.

(4)During the three months ended September 30, 2023, the restructuring charges are comprised of a stock-based compensation charge. During the nine months ended September 30, 2023, the restructuring charges also include severance and employee-related costs and asset impairment charges. During the second quarter of 2023, the Company developed an enterprise-wide restructuring plan intended to streamline and simplify the organization, improve efficiency and reduce costs. In connection with the development of this plan and the recently completed acquisitions of Signify Health and Oak Street Health, the Company also conducted a strategic review of its various transformation initiatives and determined that it would terminate certain initiatives. The restructuring charges are reflected within the Corporate/Other segment.

(5)During the three and nine months ended September 30, 2023, the office real estate optimization charges primarily relate to the abandonment of leased real estate and the related right-of-use assets and property and equipment in connection with the planned reduction of corporate office real estate space in response to the Company’s new flexible work arrangement. The office real estate optimization charges are reflected in the Company’s unaudited condensed consolidated statements of operations in operating expenses within the Health Care Benefits, Health Services and Corporate/Other segments.

(6)During the nine months ended September 30, 2023 and the three and nine months ended September 30, 2022, the loss on assets held for sale relates to the Company’s LTC reporting unit within the Pharmacy & Consumer Wellness segment. During 2022, the Company determined that its LTC business was no longer a strategic asset and committed to a plan to sell it, at which time the LTC business met the criteria for held-for-sale accounting and its net assets were accounted for as assets held for sale. The carrying value of the LTC business was determined to be greater than its estimated fair value less costs to sell, and, accordingly the Company recorded a loss on assets held for sale during the third quarter of 2022. During the first quarter of 2023, a loss on assets held for sale was recorded to write down the carrying value of the LTC business to the Company’s best estimate of the ultimate selling price which reflects its estimated fair value less costs to sell. As of September 30, 2023, the Company determined the LTC business no longer met the criteria for held-for-sale accounting and accordingly the net assets associated with the LTC business were reclassified to held and used at their respective fair values. During the nine months ended September 30, 2022, the loss on assets held for sale also relates to the Company’s international health care business domiciled in Thailand (“Thailand business”), which was included in the Commercial Business reporting unit in the Health Care Benefits segment. The sale of the Thailand business closed in the second quarter of 2022, and the ultimate loss on the sale was not material.

(7)During the three and nine months ended September 30, 2022, the opioid litigation charges relate to agreements to resolve substantially all opioid claims against the Company by certain states and government entities. The opioid litigation charges are reflected within the Corporate/Other segment.

(8)During the nine months ended September 30, 2022, the gain on divestiture of subsidiary represents the pre-tax gain on the sale of PayFlex Holdings, Inc., which the Company sold on June 1, 2022, for approximately $775 million. The gain on divestiture is reflected as a reduction in operating expenses in the Company’s unaudited condensed consolidated statements of operations within the Health Care Benefits segment.

Index to Condensed Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

~~The~~

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

of CVS Health ~~Corporation:~~

Corporation

Results of Review of Interim Financial Statements

We have reviewed the accompanying condensed consolidated balance sheet of CVS Health Corporation (the Company) as of September 30, ~~2017,~~2023, the related condensed consolidated statements of ~~income~~operations and comprehensive income (loss) for the three-month and nine-month periods ended September 30, ~~2017~~2023 and ~~2016,~~2022, the related condensed consolidated statements of shareholders’ equity for the three-month periods ended March 31, 2023 and 2022, June 30, 2023 and 2022 and September 30, 2023 and 2022, the related condensed consolidated statements of cash flows for the nine-month periods ended September 30, ~~2017~~2023 and ~~2016. These~~2022, and the related notes (collectively referred to as the “condensed consolidated interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated interim financial statements ~~are the responsibility of the Company’s management.~~

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

We ~~conducted our review~~have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2022, the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for the year then ended, and the related notes (not presented herein); and in our report dated February 8, 2023, except for Note 8 and Note 18, as to which the date is May 25, 2023, we expressed an unqualified audit opinion on those consolidated financial statements.

As described in Note 1 to the Company’s condensed consolidated interim financial statements, on January 1, 2023, the Company adopted ASU 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts.

Basis for Review Results

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

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

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


	~~/s/ Ernst & Young LLP~~

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

/s/ Ernst & Young LLP

Boston, Massachusetts

November 1, 2023

Form 10-Q Table of Contents


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

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

(“MD&A”)

Overview of ~~Our~~ Business

CVS Health Corporation, together with its subsidiaries (collectively, “CVS Health,” the “Company,” “we,” “our” or “us”), is a ~~pharmacy innovation~~leading diversified health solutions company ~~helping~~reshaping health care to help make healthier happen for more Americans. In an increasingly connected and digital world, CVS Health is meeting people ~~on their path to better health. At the forefront of a~~wherever they are and changing health care ~~landscape, the~~to 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 ~~9,700~~9,000 retail locations, more than ~~1,100~~1,000 walk-in ~~health~~medical clinics, 192 primary care medical clinics, a leading pharmacy benefits manager with ~~nearly 90~~approximately 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 more than 35 million people through traditional, voluntary and consumer-directed health insurance products and related services, including expanding ~~specialty pharmacy services~~Medicare Advantage offerings and a leading ~~stand-alone~~standalone Medicare Part D prescription drug plan ~~we enable people,~~(“PDP”). The Company is a leader in key segments of health care through its foundational businesses and ~~communities~~is creating new sources of value by expanding into next generation care delivery and health services, with a goal of improving satisfaction levels for both providers and consumers. The Company believes its integrated health care model increases access to ~~manage~~quality care, delivers better health ~~in more~~outcomes and lowers overall health care costs.

In August 2023, the Company announced the launch of CordavisTM, a wholly owned subsidiary that will work directly with pharmaceutical manufacturers to commercialize and/or co-produce high quality biosimilar products. Through Cordavis, the Company will help to ensure the consistent long-term supply of FDA approved, 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 Specialty~~TM~~, to improving pharmacy care~~biosimilars for the ~~senior community through Omnicare~~®~~, or by expanding access~~U.S. pharmaceutical market.

In connection with its new operating model adopted in the first quarter of 2023, the Company realigned the composition of its segments to ~~high-quality, low-cost care at CVS MinuteClinic~~®.

~~We have three reportable segments: Pharmacy~~reflect how its Chief Operating Decision Maker (the “CODM”) reviews information and manages the business. As a result of this realignment, the Company formed a new Health Services ~~Retail/LTC and Corporate.~~

~~Pharmacy Services Segment~~

~~Our Pharmacy Services business generates revenue from~~segment, which in addition to providing a full range of pharmacy benefit management (“PBM”) solutions, also delivers health care services in the Company’s medical clinics, virtually, and in the home, as well as provider enablement solutions. In addition, the Company created a new Pharmacy & Consumer Wellness segment, which includes its retail and long-term care pharmacy operations and related pharmacy services, as well as its retail front store operations. This segment will also provide pharmacy fulfillment services to support the Health Services segment’s specialty and mail order pharmacy offerings. Prior period segment financial information has been recast to conform with the current period presentation.

Overview of the Health Care Benefits Segment

Overview of the Health Services Segment

~~Our~~management 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 and provides various administrative, management

and reporting services to pharmaceutical manufacturers. The Health Services segment’s clients are primarily employers, insurance companies, unions, government employee groups, health plans, PDPs, Medicaid managed care plans, the U.S. Centers for Medicare ~~Part D plans, Managed~~& Medicaid ~~plans,~~ Services (“CMS”), plans offered on ~~the public~~Public Exchanges and private health insurance exchanges, other sponsors of health benefit plans ~~and individuals~~ throughout the United ~~States. A portion~~States and Covered Entities.

Overview of ~~covered lives, primarily within~~ the ~~Managed Medicaid, health plan and employer markets have access to our services through public and private exchanges.~~

~~As a pharmacy benefits manager, we manage the dispensing of prescription drugs through our mail order pharmacies, specialty pharmacies, long-term care~~Pharmacy & Consumer Wellness Segment

The Pharmacy & Consumer Wellness segment dispenses prescriptions in its retail 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~~through its infusion operations, provides ancillary pharmacy ~~business includes mail order and retail specialty pharmacies that operate under the CVS Caremark~~®~~, CarePlus CVS Pharmacy~~®~~, Navarro~~® Health Services and Advanced Care Scripts or ACS names. The Pharmacy Services Segment also provides health management programs, which include integrated disease management for 18 conditions, through our Accordant® rare disease management offering. In addition, through our SilverScript Insurance Company subsidiary, we are a national provider of drug benefits to eligible beneficiaries under the federal government’s Medicare Part D program. The Pharmacy Services Segment operates under the CVS Caremark® ~~Pharmacy Services, Caremark~~®~~, CVS Caremark~~®~~, CarePlus CVS Pharmacy~~®~~, Accordant~~®~~, SilverScript~~®~~, Coram~~®~~, CVS Specialty~~TM~~, NovoLogix~~®~~, Navarro~~® Health Services and Advanced Care Scripts or ACS names. As of September 30, 2017, the Pharmacy Services Segment operated 23 retail specialty pharmacy stores, 15 specialty mail order pharmacies, four mail service dispensing pharmacies, and 82 branches for infusion and enteral services including ~~approximately 73 ambulatory infusion suites~~pharmacy patient care programs, diagnostic testing and ~~three centers of excellence, located in 41 states, Puerto Rico~~vaccination administration, and ~~the District of Columbia.~~

~~Table of Contents~~

~~Retail/LTC Segment~~

~~Our Retail/LTC Segment~~ sells ~~prescription drugs and~~ a wide assortment of ~~general merchandise, including over-the-counter drugs, beauty~~health and wellness products and ~~cosmetics, personal~~general merchandise. The segment also conducts long-term care ~~products, convenience foods, photo finishing, seasonal merchandise~~pharmacy (“LTC”) operations, which distribute prescription drugs and ~~greeting cards through our CVS Pharmacy~~®~~, CVS~~®~~, Longs Drugs~~®~~, Navarro Discount Pharmacy~~® ~~and Drogaria Onofre~~TM ~~retail locations and online through CVS.com~~®~~, Navarro.com~~TM ~~and Onofre.com.br~~TM~~. The Retail/LTC Segment also includes providing the distribution of prescription drugs,~~provide related pharmacy consulting and ~~other~~ ancillary services to ~~chronic~~long-term care facilities and other care settings, ~~as well as commercialization~~and provides pharmacy fulfillment services ~~that are provided under~~to support the ~~name RxCrossroads~~®. Our Retail/LTC Segment derives the majority of its revenues through the sale of prescription drugs, which are dispensed by our more than 31,000 pharmacists. Our Retail/LTC Segment also provides health care services through our MinuteClinic health care clinics. MinuteClinics are staffed by nurse practitionersHealth Services segment’s specialty and ~~physician assistants who utilize nationally recognized protocols to diagnose and treat minor health conditions, perform health screenings, monitor chronic conditions and deliver vaccinations.~~mail order pharmacy offerings. As of September 30, ~~2017, our Retail/LTC Segment included 9,751~~2023, the Pharmacy & Consumer Wellness segment operated more than 9,000 retail locations, (of which 8,016 were the Company’s stores that operated a pharmacy and 1,687 were the Company’s pharmacies located within a Target store) located in 49 states, the District of Columbia, Puerto Rico and Brazil operating primarily under the CVS Pharmacy®~~, CVS~~®~~, CVS Pharmacy y más~~®~~, Longs Drugs~~®~~, Navarro Discount Pharmacy~~® ~~and Drogaria Onofre~~TM ~~names, 38 onsite pharmacies primarily operating under the CarePlus CVS Pharmacy~~®~~, CarePlus~~® ~~and CVS Pharmacy~~® ~~names, 1,129 retail health care clinics operating under the MinuteClinic~~® ~~name (of which 1,122 were located in CVS Pharmacy and Target stores), and our~~as well as online retail pharmacy websites, ~~CVS.com~~®~~, Navarro.com~~TMLTC pharmacies and ~~Onofre.com.br~~TM~~. LTC operations are comprised~~on-site pharmacies, retail specialty pharmacy stores, compounding pharmacies and branches for infusion and enteral nutrition services.

Overview of ~~143 spoke pharmacies that~~the Corporate/Other Segment

The Company presents the remainder of its financial results in the Corporate/Other segment, which primarily ~~handle new prescription orders, of which 31 are also hub pharmacies that use proprietary automation to support spoke pharmacies with refill prescriptions. LTC operates primarily under the Omnicare~~® ~~and NeighborCare~~® ~~names.~~

~~Corporate Segment~~

~~The Corporate Segment provides management~~consists of:

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

~~Results~~departments, expenses associated with the Company’s investments in its transformation and enterprise modernization programs and acquisition-related transaction and integration costs; and

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

Overview of ~~Operations~~

Current Trends

We also face trends and uncertainties specific to our reportable segments, certain of which are summarized below and also discussed in the review of our segment results. For the remainder of the year, the Company believes you should consider the following important information:

•The Health Care Benefits segment is expected to experience higher than previously expected medical cost trend in Medicare Advantage for the remainder of 2023 and is expected to be impacted by higher-than-expected Public Exchange growth. Medical cost trends remain consistent with pricing in Commercial and Medicaid.

•The Health Services segment is expected to continue to benefit from the Company’s ability to drive further improvements in purchasing economics, which leads to lower pharmacy costs for our customers, and pharmacy network volume. These increases are expected to be partially offset by continued client price improvements and the evolving regulation of pharmacy pricing, as well as pharmaceutical manufacturer policies restricting 340B discounts. The dilutive impact of the acquisition of Oak Street Health, Inc. (“Oak Street Health”) is expected to be partially offset by the accretive impact of the acquisition of Signify Health, Inc. (“Signify Health”) during the remainder of the year.

•The Pharmacy & Consumer Wellness segment is expected to benefit from higher than previously expected contributions from seasonal immunizations. The segment anticipates lower-than-expected prescription volume in the remainder of 2023, primarily attributable to Medicaid redeterminations.

•The Company is expected to benefit from the continuation of its enterprise-wide cost savings initiatives, which aim to reduce the Company’s operating cost structure in a way that improves the consumer experience and is sustainable. Key drivers include:

•Investments in digital, technology and analytics capabilities that will streamline processes and improve outcomes,

•Implementing workforce and workplace strategies, including the enterprise-wide restructuring program initiated in the second quarter of 2023, and

•Deploying vendor and procurement strategies.

•The Company expects changes to its business environment to continue as elected and other government officials at the national and state levels continue to propose and enact significant modifications to public policy and existing laws and regulations that govern or impact the Company’s businesses.

The Company’s current expectations described above are forward-looking statements. Please see the “Cautionary Statement Concerning Forward-Looking Statements” in this Form 10-Q for information regarding important factors that may cause the Company’s actual results to differ from those currently projected and/or otherwise materially affect the Company.

Operating Results

The following discussion explains the material changes in ~~our~~the Company’s operating results ~~of operations~~ for the three and nine months ended September 30, ~~2017~~2023 and ~~2016,~~2022, and the significant developments affecting ~~our~~the Company’s financial condition since December 31, ~~2016.~~2022. We strongly recommend that you read our audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations ~~included as Exhibit 13~~for the year ended December 31, 2022, which were revised to ~~our 2016 Form 10‑K along with this report.~~

~~Table of Contents~~

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

~~Net Revenues~~

~~Net revenues increased approximately $1.6 billion, or 3.5%, and $4.8 billion, or 3.7%,~~changes discussed 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 Profit~~

~~Gross profit dollars decreased $366 million, or 4.9%,~~ and ~~$610 million, or 2.9%,~~are included in Exhibit 99.1 to the ~~three~~Company’s Current Report on Form 8-K filed with the U.S. Securities and ~~nine months ended~~Exchange Commission (the “SEC”) on May 25, 2023 (the “May 2023 8-K”).

Summary of Consolidated Financial Results


									Change
	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30, 2023 vs 2022				Nine Months Ended September 30, 2023 vs 2022
In millions	2023		2022		2023		2022		$		%		$		%
Revenues:
Products	$	61,298	$	57,643	$	179,984	$	166,959	$	3,655	6.3	%	$	13,025	7.8	%
Premiums	24,657		21,003		74,117		63,894		3,654		17.4	%	10,223		16.0	%
Services	3,532		2,312		8,977		7,253		1,220		52.8	%	1,724		23.8	%
Net investment income	277		201		885		515		76		37.8	%	370		71.8	%
Total revenues	89,764		81,159		263,963		238,621		8,605		10.6	%	25,342		10.6	%
Operating costs:
Cost of products sold	54,688		50,365		159,679		145,164		4,323		8.6	%	14,515		10.0	%
Health care costs	21,499		17,401		63,729		52,814		4,098		23.6	%	10,915		20.7	%
Restructuring charges	11		—		507		—		11		100.0	%	507		100.0	%
Opioid litigation charges	—		5,220		—		5,704		(5,220)		(100.0)	%	(5,704)		(100.0)	%
Loss on assets held for sale	—		2,480		349		2,521		(2,480)		(100.0)	%	(2,172)		(86.2)	%

Operating expenses	9,876		9,612		29,329		28,123		264		2.7	%	1,206		4.3	%
Total operating costs	86,074		85,078		253,593		234,326		996		1.2	%	19,267		8.2	%
Operating income (loss)	3,690		(3,919)		10,370		4,295		7,609		194.2	%	6,075		141.4	%
Interest expense	693		566		1,968		1,735		127		22.4	%	233		13.4	%

Other income	(22)		(41)		(66)		(126)		19		46.3	%	60		47.6	%
Income (loss) before income tax provision (benefit)	3,019		(4,444)		8,468		2,686		7,463		167.9	%	5,782		215.3	%
Income tax provision (benefit)	754		(1,045)		2,147		691		1,799		172.2	%	1,456		210.7	%


Net income (loss)	2,265		(3,399)		6,321		1,995		5,664		166.6	%	4,326		216.8	%
Net income attributable to noncontrolling interests	(4)		(7)		(23)		(18)		3		42.9	%	(5)		(27.8)	%
Net income (loss) attributable to CVS Health	$	2,261	$	(3,406)	$	6,298	$	1,977	$	5,667	166.4	%	$	4,321	218.6	%

Commentary - Three 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 net2023 vs. 2022

Revenues

•Total 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.~~

~~Table of Contents~~

~~Operating Expenses~~

~~Operating expenses decreased $41 million,~~$8.6 billion, or ~~0.9%~~10.6%, in the three months ended September 30, ~~2017 as~~2023 compared to the prior ~~year.~~ year driven by growth across all segments.

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

Operating expenses

•Operating expenses ~~as a percentage of net revenues decreased approximately 45 basis points to 10.0%~~increased $264 million, or 2.7%, in the three months ended September 30, ~~2017~~2023 compared to the prior year. The increase in operating expenses was primarily due to increased operating expenses to support growth in the business, operating expenses associated with Oak Street Health and Signify Health, as well as acquisition-related transaction and integration costs recorded in the current year. These increases were partially offset by gains from anti-trust legal settlements recorded in the three months ended September 30, 2023.

•Operating expenses as a percentage of total revenues were 11.0% in the three months ended September 30, 2023, a decrease of 80 basis points compared to the prior year. The decrease in operating expenses as a percentage of total revenues was primarily due to the increases in total revenues described above.

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

Operating income (loss)

•During the three months ended September 30, 2023, the Company generated operating income of $3.7 billion compared to a $3.9 billion operating loss in the prior year. The change was primarily driven by the absence of a $5.2 billion opioid litigation charge and a $2.5 billion loss on assets held for sale related to the write-down of the Company’s Omnicare® long-term care business (“LTC business”), both of which were recorded in the prior year.

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

Interest expense

•Interest expense increased $127 million, or 22.4%, due to higher debt in the three months ended September 30, ~~2017~~2023 to fund the acquisitions of Signify Health and Oak Street Health. See “Liquidity and Capital Resources” later in this report for additional information.

Income tax provision (benefit)

•The Company recorded income tax expense at an effective income tax rate of 25.0% for the three months ended September 30, 2023, compared to an income tax benefit at an effective tax rate of 23.5% during the prior year due to the pre-tax loss incurred in the three months ended September 30, 2022. The difference in the effective income tax rate was primarily due to certain nondeductible legal charges recorded in the ~~following:~~

prior year.

~~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.~~

Commentary - Nine Months EndedSeptember 30, 2023 vs. 2022

~~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.~~

Revenues

~~Operating expenses~~

•Total revenues increased ~~$347 million,~~$25.3 billion, or ~~2.5%~~10.6%, in the nine months ended September 30, ~~2017 as~~2023 compared to the prior ~~year.~~ year driven by growth across all segments.

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

Operating expenses

•Operating expenses ~~as a percentage of net revenues decreased approximately 10 basis points to 10.4%~~increased $1.2 billion, or 4.3%, in the nine months ended September 30, ~~2017 as~~2023 compared to the prior year. The increase in operating expenses was primarily due to increased operating expenses to support growth in the business, operating expenses associated with Oak Street Health and Signify Health, incremental investments in business operations, acquisition-related transaction and integration costs recorded in the current year and the absence of a $225 million pre-tax gain on the sale of PayFlex Holdings, Inc. (“PayFlex”) recorded in the prior year. These increases were partially offset by gains from anti-trust legal settlements as well as the favorable impact of business initiatives in the current year.

•Operating expenses as a percentage of total revenues were 11.1% in the nine months ended September 30, ~~2017~~2023, a decrease of 70 basis points compared to the prior year. The decrease in operating expenses as a percentage of total revenues was primarily due to the ~~items mentioned above,~~increases in total revenues described above.

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

Operating income

•Operating income increased $6.1 billion, or 141.4%, in the nine months ended September 30, 2023 compared to the prior year. The increase in operating income was primarily driven by the absence of $5.7 billion in opioid litigation charges recorded in the prior year and increases in the Pharmacy and Consumer Wellness segment, primarily driven by the absence of the $2.5 billion loss on assets held for sale recorded in the prior year related to the write-down of the LTC business which was partially offset by continued pharmacy reimbursement pressure and decreased COVID-19 vaccinations and diagnostic testing compared to the prior year. These increases in operating income were ~~more than~~partially offset by declines in the Health Care Benefits segment, including the absence of the $225 million pre-tax gain on the sale of PayFlex recorded in the prior year, as well as the restructuring charges and acquisition-related transaction and integration costs recorded in the current year.

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

Interest expense

•Interest expense increased $233 million, or 13.4%, due to higher debt in the nine months ended September 30, 2023 to fund the acquisitions of Signify Health and Oak Street Health. See “Liquidity and Capital Resources” later in this report for additional information.

Income tax provision

•The effective income tax rate was 25.4% for the nine months ended September 30, 2023 compared to 25.7% for the nine months ended September 30, 2022. The decrease in the effective income tax rate was primarily due to certain nondeductible legal charges and basis differences on the sale of PayFlex in the prior year, partially offset by the ~~following:~~

~~A goodwill impairment charge~~absence 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”~~impact of certain discrete tax items concluded in the first and third quarters of 2022.

Segment Analysis

The following discussion of segment operating results is presented based on the Company’s reportable segments in accordance with the accounting guidance for segment reporting and is consistent with the segment disclosure in Note 13 ‘‘Segment Reporting’’ to the unaudited condensed consolidated financial statements.

The Company has three operating segments, Health Care Benefits, Health Services and Pharmacy & Consumer Wellness, as well as a Corporate/Other segment. The Company’s segments maintain separate financial information, and the Company’s CODM evaluates the segments’ operating results on a regular basis in deciding how to allocate resources among the segments and in assessing segment performance. The CODM evaluates the performance of the Company’s segments based on adjusted operating income. Adjusted operating income is defined as operating income (loss) as measured by accounting principles generally accepted in the United States of America (“GAAP”) 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. Effective for the first quarter of 2023, adjusted operating income also excludes the impact of net realized capital gains or losses. See the reconciliations of operating income (loss) (GAAP measure) to adjusted operating income below for ~~additional~~further context regarding the items excluded from operating income (loss) 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.

Segment financial information ~~regarding operating expenses.~~

~~Interest Expense, net~~

~~Interest expense, net, decreased $8 million and $72 million in~~for the three and nine months ended September 30, ~~2017, respectively,~~2022 has been revised to conform with current period presentation for the following items:

•The realignment of the Company’s segments to correspond with changes made to its operating model as ~~compared~~described in Note 1 ‘‘Significant Accounting Policies’’ to the ~~prior year.~~ unaudited condensed consolidated financial statements, including the discontinuance of the former Maintenance Choice segment reporting practice as described in Note (2) of the table included on the next page.

•The ~~decrease~~impact of the adoption of the long-duration insurance accounting standard, which the Company adopted on January 1, 2023 using a modified retrospective transition method, as described in ~~the three and nine months ended was primarily due~~Note 1 ‘‘Significant Accounting Policies’’ to the ~~Company’s debt issuance and debt tender offers that occurred in 2016 which resulted in overall more favorable interest rates on the Company’s long-term debt.~~

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

~~Loss on Early Extinguishment of Debt~~

~~During the three months ended September 30, 2016, the Company exercised its option to redeem outstanding senior notes of approximately $1.1 billion aggregate principal amount.~~ unaudited condensed consolidated financial statements.

•The ~~Company paid a premium of $97 million in excess~~exclusion of the ~~debt principal in connection with the purchase~~impact of ~~the senior notes and wrote off $4 million~~net realized capital gains or losses from adjusted operating income, as described above.

The impact of ~~unamortized deferred financing costs,~~these items on segment financial information for ~~a total loss on the early extinguishment of debt of $101 million.~~

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

~~Table of Contents~~

~~Other Expense~~

~~Other expense increased $185 million and $183 million in~~ the three and nine months ended September 30, ~~2017, respectively, as compared~~2022 is reflected in the “Adjustments” lines of the table included on the next page.

The following is a reconciliation of financial measures of the Company’s segments to the ~~prior year. The increase in~~consolidated totals:


In millions	Health Care Benefits		Health Services (1)		Pharmacy & Consumer Wellness		Corporate/ Other		Intersegment Eliminations (2)		Consolidated Totals
Three Months Ended
September 30, 2023
Total revenues	$	26,296	$	46,891	$	28,872	$	105	$	(12,400)	$	89,764
Adjusted operating income (loss)	1,536		1,878		1,389		(347)		—		4,456
September 30, 2022
Total revenues, as previously reported	$	22,511	$	43,216	$	26,706	$	142	$	(11,416)	$	81,159
Adjustments	(15)		38		531		—		(554)		—
Total revenues, as adjusted	$	22,496	$	43,254	$	27,237	$	142	$	(11,970)	$	81,159
Adjusted operating income (loss), as previously reported	$	1,544	$	1,877	$	1,398	$	(417)	$	(169)	$	4,233
Adjustments	97		(182)		3		29		169		116
Adjusted operating income (loss), as adjusted	$	1,641	$	1,695	$	1,401	$	(388)	$	—	$	4,349

Nine Months Ended
September 30, 2023
Total revenues	$	78,920	$	137,697	$	85,578	$	376	$	(38,608)	$	263,963
Adjusted operating income (loss)	4,901		5,452		3,936		(982)		—		13,307
September 30, 2022
Total revenues, as previously reported	$	68,376	$	125,489	$	78,410	$	378	$	(34,032)	$	238,621
Adjustments	(45)		318		1,471		—		(1,744)		—
Total revenues, as adjusted	$	68,331	$	125,807	$	79,881	$	378	$	(35,776)	$	238,621
Adjusted operating income (loss), as previously reported	$	5,126	$	5,368	$	4,865	$	(1,277)	$	(556)	$	13,526
Adjustments	299		(372)		(181)		130		556		432
Adjusted operating income (loss), as adjusted	$	5,425	$	4,996	$	4,684	$	(1,147)	$	—	$	13,958

(1)Total revenues of the ~~three~~Health Services segment include approximately $3.2 billion and ~~nine months ended was primarily driven by the losses on the settlements~~$2.9 billion of ~~defined benefit pension plans of $187 million. See “Note 4 – Pension Settlements” to the Company’s condensed consolidated financial statements.~~

~~Income Tax Provision~~

~~Our effective income tax rate was 37.7% and 37.4%~~retail co-payments for the three months ended September 30, ~~2017~~2023 and ~~2016, respectively. The effective income tax rate in 2017 was higher than in 2016 primarily due to a discrete tax benefit recorded in 2016 related to the successful resolution with the IRS~~2022, respectively, and $10.7 billion and $9.8 billion of ~~certain tax matters, partially offset by the tax benefit recognized in 2017 for employee share-based compensation. Our effective income tax rate was 38.7% and 38.6%~~retail co-payments for the nine months ended September 30, ~~2017~~2023 and ~~2016,~~2022, respectively.

(2)Intersegment revenue eliminations relate to intersegment revenue generating activities that occur between the Health Care Benefits segment, the Health Services segment, and/or the Pharmacy & Consumer Wellness segment. Prior to January 1, 2023, intersegment adjusted operating income eliminations occurred when members of the Health Services segment’s clients enrolled in Maintenance Choice elected to pick up maintenance prescriptions at one of the Company’s retail pharmacies instead of receiving them through the mail. When this occurred, both the Health Services and Pharmacy & Consumer Wellness segments recorded the adjusted operating income on a stand-alone basis. Effective January 1, 2023, the adjusted operating income associated with such transactions is reported only in the Pharmacy & Consumer Wellness segment, therefore no adjusted operating income elimination is required.

The ~~effective~~following are reconciliations of consolidated operating income ~~tax rate~~(loss) (GAAP measure) to consolidated adjusted operating income, as well as reconciliations of segment GAAP operating income (loss) to segment adjusted operating income (loss):


	Three Months Ended September 30, 2023
In millions	Health Care Benefits		Health Services		Pharmacy & Consumer Wellness		Corporate/ Other		Consolidated Totals
Operating income (loss) (GAAP measure)	$	1,115	$	1,727	$	1,322	$	(474)	$	3,690
Amortization of intangible assets (1)	294		150		65		—		509
Net realized capital losses (2)	119		—		2		21		142

Acquisition-related transaction and integration costs (3)	—		—		—		94		94
Restructuring charge (4)	—		—		—		11		11
Office real estate optimization charges (5)	8		1		—		1		10
Adjusted operating income (loss)	$	1,536	$	1,878	$	1,389	$	(347)	$	4,456


	Three Months Ended September 30, 2022
In millions	Health Care Benefits		Health Services		Pharmacy & Consumer Wellness		Corporate/ Other		Consolidated Totals
Operating income (loss) (GAAP measure)	$	1,260	$	1,654	$	(1,212)	$	(5,621)	$	(3,919)
Amortization of intangible assets (1)	294		41		123		—		458
Net realized capital losses (2)	87		—		10		13		110

Loss on assets held for sale (6)	—		—		2,480		—		2,480
Opioid litigation charges (7)	—		—		—		5,220		5,220


Adjusted operating income (loss)	$	1,641	$	1,695	$	1,401	$	(388)	$	4,349


	Nine Months Ended September 30, 2023
In millions	Health Care Benefits		Health Services		Pharmacy & Consumer Wellness		Corporate/ Other		Consolidated Totals
Operating income (loss) (GAAP measure)	$	3,683	$	5,132	$	3,388	$	(1,833)	$	10,370
Amortization of intangible assets (1)	883		316		195		2		1,396
Net realized capital losses (2)	296		—		4		45		345
Acquisition-related transaction and integration costs (3)	—		—		—		294		294
Restructuring charges (4)	—		—		—		507		507
Office real estate optimization charges (5)	39		4		—		3		46
Loss on assets held for sale (6)	—		—		349		—		349



Adjusted operating income (loss)	$	4,901	$	5,452	$	3,936	$	(982)	$	13,307


	Nine Months Ended September 30, 2022
In millions	Health Care Benefits		Health Services		Pharmacy & Consumer Wellness		Corporate/ Other		Consolidated Totals
Operating income (loss) (GAAP measure)	$	4,512	$	4,870	$	1,793	$	(6,880)	$	4,295
Amortization of intangible assets (1)	885		126		367		2		1,380
Net realized capital losses (2)	212		—		44		27		283
Loss on assets held for sale (6)	41		—		2,480		—		2,521
Opioid litigation charges (7)	—		—		—		5,704		5,704
Gain on divestiture of subsidiary (8)	(225)		—		—		—		(225)


Adjusted operating income (loss)	$	5,425	$	4,996	$	4,684	$	(1,147)	$	13,958

(1)The Company’s acquisition activities have resulted in ~~2017 was higher than~~the recognition of intangible assets as required under the acquisition method of accounting which consist primarily of trademarks, customer contracts/relationships, covenants not to compete, technology, provider networks and value of business acquired. Definite-lived intangible assets are amortized over their estimated useful lives and are tested for impairment when events indicate that the

carrying value may not be recoverable. The amortization of intangible assets is reflected in ~~2016 primarily due~~the unaudited condensed consolidated statements of operations in operating expenses within each segment. Although intangible assets contribute to the ~~impact~~Company’s revenue generation, the amortization of intangible assets does not directly relate to the underwriting of the ~~nondeductible goodwill impairment charge recognized in 2017, partially offset~~Company’s insurance products, the services performed for the Company’s customers or the sale of the Company’s products or services. Additionally, intangible asset amortization expense typically fluctuates based on the size and timing of the Company’s acquisition activity. Accordingly, the Company believes excluding the amortization of intangible assets enhances the Company’s and investors’ ability to compare the Company’s past financial performance with its current performance and to analyze underlying business performance and trends. Intangible asset amortization excluded from the related non-GAAP financial measure represents the entire amount recorded within the Company’s GAAP financial statements, and the revenue generated by the ~~excess tax benefit recognized for employee share-based compensation.~~

~~Loss~~associated intangible assets has not been excluded from ~~Discontinued Operations~~

~~The loss~~the related non-GAAP financial measure. Intangible asset amortization is excluded from ~~discontinued~~the related non-GAAP financial measure because the amortization, unlike the related revenue, is not affected by operations of ~~$8 million~~any particular period unless an intangible asset becomes impaired or the estimated useful life of an intangible asset is revised.

(4)During the three months ended September 30, 2023, the restructuring charges are comprised of a stock-based compensation charge. During the nine months ended September 30, ~~2017, was primarily comprised~~2023, the restructuring charges also include severance and employee-related costs and asset impairment charges. During the second quarter of ~~a $15 million charge (net of tax of $6 million) associated with lease guarantees~~2023, the Company ~~provided on store lease obligations~~developed an enterprise-wide restructuring plan intended to streamline and simplify the organization, improve efficiency and reduce costs. In connection with the development of ~~Bob’s Stores, a former subsidiary~~this plan and the recently completed acquisitions of Signify Health and Oak Street Health, the Company also conducted a strategic review of its various transformation initiatives and determined that ~~filed for bankruptcy subsequent~~it would terminate certain initiatives. The restructuring charges are reflected within the Corporate/Other segment.

(5)During the three and nine months ended September 30, 2023, the office real estate optimization charges primarily relate to ~~its disposition. See “Note 12 - Commitments~~the abandonment of leased real estate and ~~Contingencies”~~the related right-of-use assets and property and equipment in connection with the planned reduction of corporate office real estate space in response to the Company’s new flexible work arrangement. The office real estate optimization charges are reflected in the Company’s unaudited condensed consolidated ~~financial statements.~~

~~Table~~statements of ~~Contents~~

~~Segment Analysis~~

~~We evaluate~~operations in operating expenses within the ~~performance of our Pharmacy~~Health Care Benefits, Health Services and ~~Retail/~~Corporate/Other segments.

(6)During the nine months ended September 30, 2023 and the three and nine months ended September 30, 2022, the loss on assets held for sale relates to the Company’s LTC ~~segments based~~reporting unit within the Pharmacy & Consumer Wellness segment. During 2022, the Company determined that its LTC business was no longer a strategic asset and committed to a plan to sell it, at which time the LTC business met the criteria for held-for-sale accounting and its net assets were accounted for as assets held for sale. The carrying value of the LTC business was determined to be greater than its estimated fair value less costs to sell, and, accordingly the Company recorded a loss on assets held for sale during the third quarter of 2022. During the first quarter of 2023, a loss on assets held for sale was recorded to write down the carrying value of the LTC business to the Company’s best estimate of the ultimate selling price which reflects its estimated fair value less costs to sell. As of September 30, 2023, the Company determined the LTC business no longer met the criteria for held-for-sale accounting and accordingly the net ~~revenue, gross profit~~assets associated with the LTC business were reclassified to held and ~~operating profit before~~used at their respective fair values. During the ~~effect~~nine months ended September 30, 2022, the loss on assets held for sale also relates to the Company’s international health care business domiciled in Thailand (“Thailand business”), which was included in the Commercial Business reporting unit in the Health Care Benefits segment. The sale of ~~nonrecurring~~the Thailand business closed in the second quarter of 2022, and the ultimate loss on the sale was not material.

(7)During the three and nine months ended September 30, 2022, the opioid litigation charges relate to agreements to resolve substantially all opioid claims against the Company by certain states and ~~gains and certain intersegment activities. We evaluate~~governmental entities. The opioid litigation charges are reflected within the ~~performance~~Corporate/Other segment.

(8)During the nine months ended September 30, 2022, the gain on divestiture of ~~our Corporate Segment based~~subsidiary represents the pre-tax gain on the sale of PayFlex, which the Company sold on June 1, 2022, for approximately $775 million. The gain on divestiture is reflected as a reduction in operating expenses ~~before~~in the ~~effect of nonrecurring charges and gains and certain intersegment activities. The following is a reconciliation of our segments to the~~Company’s unaudited 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)~~

~~(4)~~

~~(5)~~

~~(6)~~

~~(7)~~

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

~~Table of Contents~~

~~Pharmacy Services~~Health Care Benefits Segment

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


													Change
	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30, 2023 vs 2022					Nine Months Ended September 30, 2023 vs 2022
In millions, except percentages and basis points (“bps”)	2023			2022			2023			2022			$			%		$			%
Revenues:
Premiums	$	24,645		$	20,989		$	74,079		$	63,848		$	3,656		17.4	%	$	10,231		16.0	%
Services	1,464			1,406			4,285			4,205			58			4.1	%	80			1.9	%
Net investment income	187			101			556			278			86			85.1	%	278			100.0	%
Total revenues	26,296			22,496			78,920			68,331			3,800			16.9	%	10,589			15.5	%
Health care costs	21,114			17,512			63,329			53,100			3,602			20.6	%	10,229			19.3	%
MBR	85.7		%	83.4		%	85.5		%	83.2		%	230		bps			230		bps
Loss on assets held for sale	$	—		$	—		$	—		$	41		$	—		—	%	$	(41)		(100.0)	%
Operating expenses	4,067			3,724			11,908			10,678			343			9.2	%	1,230			11.5	%
Operating expenses as a % of total revenues	15.5		%	16.6		%	15.1		%	15.6		%
Operating income	$	1,115		$	1,260		$	3,683		$	4,512		$	(145)		(11.5)	%	$	(829)		(18.4)	%
Operating income as a % of total revenues	4.2		%	5.6		%	4.7		%	6.6		%
Adjusted operating income (1)	$	1,536		$	1,641		$	4,901		$	5,425		$	(105)		(6.4)	%	$	(524)		(9.7)	%
Adjusted operating income as a % of total revenues	5.8		%	7.3		%	6.2		%	7.9		%
Premium revenues (by business):
Government	$	17,208		$	15,433		$	52,680		$	47,379		$	1,775		11.5	%	$	5,301		11.2	%
Commercial	7,437			5,556			21,399			16,469			1,881			33.9	%	4,930			29.9	%

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
%
(1)See “Segment Analysis” above in this report for a reconciliation of Health Care Benefits segment operating income (GAAP measure) to adjusted operating income, which represents the Company’s principal measure of segment performance.

~~(1)~~

~~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 $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.

Commentary - Three Months Ended September 30, 2023 vs. 2022

~~(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.

Revenues

~~(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 Revenues~~

~~Net~~•Total revenues ~~in our Pharmacy Services Segment~~ increased ~~$2.5~~$3.8 billion, or ~~8.1%~~16.9%, to ~~$32.9~~$26.3 billion in the three months ended September 30, ~~2017, as~~2023 compared to the prior year driven by growth across all product lines.

Medical Benefit Ratio (“MBR”)

•Medical benefit ratio is calculated by dividing the Health Care Benefits segment’s health care costs by premium revenues and represents the percentage of premium revenues spent on medical benefits for the segment’s Insured members. Management uses MBR to assess the underlying business performance and underwriting of its insurance products, understand variances between actual results and expected results and identify trends in period-over-period results. MBR provides management and investors with information useful in assessing the operating results of the segment’s Insured Health Care Benefits products.

•The MBR increased to 85.7% in the three months ended September 30, 2023 compared to 83.4% in the prior year driven by the impact of lower year-over-year prior period development and increased utilization in Medicare Advantage, including outpatient and supplemental benefits such as dental and behavioral health, as well as over-the-counter (“OTC”) and flex cards, compared to the prior year.

Operating expenses

•Operating expenses in the Health Care Benefits segment include selling, general and administrative expenses and depreciation and amortization expenses.

•Operating expenses increased $343 million, or 9.2%, in the three months ended September 30, 2023 compared to the prior year primarily driven by increased operating expenses to support the growth across all product lines described above, as well as incremental investments in the business, including investments in service capabilities and member experience.

•Operating expenses as a percentage of total revenues decreased to 15.5% in the three months ended September 30, 2023 compared to 16.6% in the prior year. ~~Net~~The decrease in operating expenses as a percentage of total revenues was driven by the increases in ~~our Pharmacy Services Segment~~total revenues described above.

Adjusted operating income

•Adjusted operating income decreased $105 million, or 6.4%, in the three months ended September 30, 2023 compared to the prior year reflecting increased ~~$7.7~~utilization in Medicare Advantage, including the impact of lower year-over-year prior period development, partially offset by higher net investment income in the three months ended September 30, 2023 compared to the prior year.

Commentary - Nine Months EndedSeptember 30, 2023 vs. 2022

Revenues

•Total revenues increased $10.6 billion, or ~~8.7%~~15.5%, to ~~$96.4~~$78.9 billion in the nine months ended September 30, ~~2017,~~2023 compared to the prior year driven by growth across all product lines.

Medical Benefit Ratio

•The MBR increased to 85.5% in the nine months ended September 30, 2023 compared to 83.2% in the prior year driven by increased outpatient utilization in Medicare Advantage when compared with pandemic influenced utilization levels in the prior year.

Loss on assets held for sale

•During the nine months ended September 30, 2022, the Company recorded a $41 million loss on assets held for sale on its Thailand business, which was included in the Commercial Business reporting unit within the Health Care Benefits segment.

Operating expenses

•Operating expenses increased $1.2 billion, or 11.5%, in the nine months ended September 30, 2023 compared to the prior year primarily driven by increased operating expenses to support the growth across all product lines described above, incremental investments in the business, including investments in service capabilities and member experience, as well as the absence of the $225 million pre-tax gain on the sale of Payflex recorded in the prior year.

•Operating expenses as a percentage of total revenues decreased to 15.1% in the nine months ended September 30, 2023 compared to 15.6% in the prior year. The decrease in operating expenses as a percentage of total revenues was driven by the increases in total revenues described above.

Adjusted operating income

•Adjusted operating income decreased $524 million, or 9.7%, in the nine months ended September 30, 2023 compared to the prior year, reflecting increased utilization in Medicare Advantage when compared with pandemic influenced utilization levels in the prior year, as well as incremental investments in the business, including investments in service capabilities and member experience. These decreases were partially offset by higher net investment income and membership growth in the nine months ended September 30, 2023.

The following table summarizes the Health Care Benefits segment’s medical membership for the respective periods:


	September 30, 2023			June 30, 2023			December 31, 2022			September 30, 2022
In thousands	Insured	ASC	Total	Insured	ASC	Total	Insured	ASC	Total	Insured	ASC	Total
Medical membership:
Commercial	4,198	14,075	18,273	4,033	14,114	18,147	3,136	13,896	17,032	3,159	13,852	17,011
Medicare Advantage	3,438	—	3,438	3,408	—	3,408	3,270	—	3,270	3,260	—	3,260
Medicare Supplement	1,352	—	1,352	1,351	—	1,351	1,363	—	1,363	1,345	—	1,345
Medicaid	2,173	452	2,625	2,261	467	2,728	2,234	497	2,731	2,181	490	2,671
Total medical membership	11,161	14,527	25,688	11,053	14,581	25,634	10,003	14,393	24,396	9,945	14,342	24,287

Supplemental membership information:
Medicare Prescription Drug Plan (standalone)			6,092			6,094			6,128			6,090

Medical Membership

•Medical membership represents the number of members covered by the Health Care Benefits segment’s Insured and ASC medical products and related services at a specified point in time. Management uses this metric to understand variances between actual medical membership and expected amounts as well as trends in period-over-period results. This metric provides management and investors with information useful in understanding the impact of medical membership on the Health Care Benefits segment’s total revenues and operating results.

•Medical membership as of September 30, 2023 of 25.7 million increased 54 thousand members compared with June 30, 2023, reflecting increases in the Commercial and Medicare product lines. These increases were partially offset by a decline in the Medicaid product line, primarily attributable to the resumption of Medicaid redeterminations following the expiration of the public health emergency (“PHE”).

•Medical membership as of September 30, 2023 of 25.7 million increased 1.4 million members compared with September 30, 2022, reflecting increases in the Commercial and Medicare product lines, including an increase of approximately 1.2 million members related to the individual exchange business within the Commercial product line. These increases were partially offset by a decline in the Medicaid product line, primarily attributable to the resumption of Medicaid redeterminations following the expiration of the PHE.

Medicare Update

On March 31, 2023, CMS issued its final notice detailing final 2024 Medicare Advantage payment rates. Final 2024 Medicare Advantage rates resulted in an expected average decrease in revenue for the Medicare Advantage industry of 1.12%, excluding the CMS estimate of Medicare Advantage risk score trend.

The ACA ties a portion of each Medicare Advantage plan’s reimbursement to the plan’s “star ratings.” Plans must have a star rating of four or higher (out of five) to qualify for bonus payments. CMS released the Company’s 2024 star ratings in October 2023. The Company’s 2024 star ratings will be used to determine which of the Company’s Medicare Advantage plans have ratings of four stars or higher and qualify for bonus payments in 2025.

On October 13, 2023, CMS released its 2024 star ratings for Medicare Advantage and Medicare Part D prescription drug plans. Based on the newly released 2024 star ratings, which will impact total revenues in 2025, the percentage of Aetna Medicare Advantage members in 4+ star plans is expected to increase to 87% based on the Company’s membership as of September 2023, as compared to the unmitigated 21% in the prior year. The main driver of this increase was a half star improvement in the Aetna National PPO, which increased from 3.5 stars to 4.0 stars. As previously discussed, the decline in membership in 4+ star plans for payment year 2024 resulted in a mitigated 2024 headwind of approximately $800 million to $1.0 billion, which was primarily driven by the decrease of the Aetna National PPO plan from 4.5 stars to 3.5 stars. Based on the increase in membership in 4+ star plans for payment year 2025, the Company now expects to be eligible for bonus payments that will recover the majority of that revenue decrease in 2025. The Company expects to prudently reinvest a portion of this net improvement into its business.

Health Services Segment

The following table summarizes the Health Services segment’s performance for the respective periods:


													Change
	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30, 2023 vs 2022				Nine Months Ended September 30, 2023 vs 2022
In millions, except percentages	2023			2022			2023			2022			$		%		$		%
Revenues:
Products	$	45,019		$	42,673		$	133,371		$	123,822		$	2,346	5.5	%	$	9,549	7.7	%
Services	1,872			581			4,326			1,985			1,291		222.2	%	2,341		117.9	%
Total revenues	46,891			43,254			137,697			125,807			3,637		8.4	%	11,890		9.5	%
Cost of products sold	43,738			41,068			129,425			119,275			2,670		6.5	%	10,150		8.5	%
Health care costs	612			—			995			—			612		100.0	%	995		100.0	%
Operating expenses	814			532			2,145			1,662			282		53.0	%	483		29.1	%
Operating expenses as a % of total revenues	1.7		%	1.2		%	1.6		%	1.3		%
Operating income	$	1,727		$	1,654		$	5,132		$	4,870		$	73	4.4	%	$	262	5.4	%
Operating income as a % of total revenues	3.7		%	3.8		%	3.7		%	3.9		%
Adjusted operating income (1)	$	1,878		$	1,695		$	5,452		$	4,996		$	183	10.8	%	$	456	9.1	%
Adjusted operating income as a % of total revenues	4.0		%	3.9		%	4.0		%	4.0		%
Revenues (by distribution channel):
Pharmacy network (2)	$	27,981		$	26,334		$	83,050		$	76,358		$	1,647	6.3	%	$	6,692	8.8	%
Mail & specialty (3)	17,004			16,318			50,378			47,269			686		4.2	%	3,109		6.6	%
Other	1,906			602			4,269			2,180			1,304		216.6	%	2,089		95.8	%
Pharmacy claims processed (4)	579.6			584.6			1,743.5			1,734.9			(5.0)		(0.9)	%	8.6		0.5	%



Generic dispensing rate (4)	87.5		%	87.5		%	88.1		%	87.8		%

(1)See “Segment Analysis” above in this report for a reconciliation of Health Services segment operating income (GAAP measure) to adjusted operating income, which represents the Company’s principal measure of segment performance.

(2)Pharmacy network revenues relate to claims filled at retail and specialty retail pharmacies, including the Company’s retail pharmacies and LTC pharmacies. Effective January 1, 2023, pharmacy network revenues also include activity associated with Maintenance Choice, which permits eligible client plan members to fill their maintenance prescriptions through mail order delivery or at a CVS pharmacy retail store for the same price as mail order. Maintenance Choice activity was previously reflected in mail & specialty revenues. Prior period financial information has been revised to conform with current period presentation.

(3)Mail & specialty revenues relate to specialty mail claims inclusive of Specialty Connect® claims picked up at a retail pharmacy, as well as mail order and specialty claims fulfilled by the Pharmacy & Consumer Wellness segment. Effective January 1, 2023, mail & specialty revenues exclude Maintenance Choice activity, which is now reported within pharmacy network revenues. Prior period financial information has been revised to conform with current period presentation.

(4)Includes an adjustment to convert 90-day prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal prescription.

Commentary - Three Months Ended September 30, 2023 vs. 2022

Revenues

•Total revenues increased $3.6 billion, or 8.4%, to $46.9 billion in the three months ended September 30, 2023 compared to the prior year primarily driven by pharmacy drug mix, growth in specialty pharmacy, brand inflation and the acquisitions of Oak Street Health and Signify Health. These increases were partially offset by continued pharmacy client price improvements.

Operating expenses

•Operating expenses in the Health Services segment include selling, general and administrative expenses; and depreciation and amortization expense.

•Operating expenses increased $282 million, or 53.0%, to $814 million in the three months ended September 30, 2023 compared to the prior year primarily due to the acquisitions of Oak Street Health and Signify Health, including

amortization associated with the acquired intangible assets. These increases were partially offset by gains from anti-trust legal settlements recorded in the three months ended September 30, 2023.

•Operating expenses as a percentage of total revenues increased to 1.7% in the three months ended September 30, 2023 compared to 1.2% in the prior year. The increase isin operating expenses as a percentage of total revenues was primarily due to the increases in operating expenses described above.

Adjusted operating income

•Adjusted operating income increased $183 million, or 10.8%, in the three months ended September 30, 2023 compared to the prior year primarily driven by improved purchasing economics, including increased contributions from the products and services of the Company’s group purchasing organization, as well as growth in ~~pharmacy network claim volume, brand inflation and~~ specialty ~~pharmacy volume,~~pharmacy. These increases were partially offset by ~~increased~~continued pharmacy client price ~~compression and generic dispensing.~~ improvements.

•As you review ~~our Pharmacy~~the Health Services ~~Segment’s~~segment’s performance in this area, ~~we believe~~ you should consider the following important information about the business:

•The Company’s efforts to (i) retain existing clients, (ii) obtain new business and (iii) maintain or improve the rebates, fees and/or discounts the Company receives from manufacturers, wholesalers and retail pharmacies continue to have an impact on adjusted operating income. In particular, competitive pressures in the PBM industry have caused the Company and other PBMs to continue to share with clients a larger portion of rebates, fees and/or discounts received from pharmaceutical manufacturers. In addition, marketplace dynamics and regulatory changes have limited the Company’s ability to offer plan sponsors pricing that includes retail network “differential” or “spread,” and the Company expects these trends to continue. The “differential” or “spread” is 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.

Pharmacy claims processed

•Pharmacy claims processed represents the number of prescription claims processed through the Company’s pharmacy benefits manager and dispensed by either its retail network pharmacies or the Company’s mail and specialty pharmacies. Management uses this metric to understand variances between actual claims processed and expected amounts as well as trends in period-over-period results. This metric provides management and investors with information useful in understanding the impact of pharmacy claim volume on segment total revenues and operating results.

•The Company’s pharmacy claims processed decreased slightly on a 30-day equivalent basis in the three months ended September 30, 2023 compared to the prior year, reflecting the impact of a Medicaid customer contract change that occurred during the second quarter of 2023 and a decrease in COVID-19 vaccinations. These decreases were partially offset by net new business.

Generic dispensing rate

•Generic dispensing rate is calculated by dividing the Health Services segment’s generic drug claims processed by its total claims processed. 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 and operating results.

•The Health Services segment’s generic dispensing rate remained consistent at 87.5% in each of the three-month periods ended September 30, 2023 and 2022. Excluding the impact of COVID-19 vaccinations, the segment’s generic dispensing rate was 87.7% and 88.1% in the three months ended September 30, 2023 and 2022, respectively.

Commentary - Nine Months Ended September 30, 2023 vs. 2022

Revenues

•Total revenues increased $11.9 billion, or 9.5%, to $137.7 billion in the 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.

2023 compared to the prior year primarily driven by pharmacy drug mix, growth in specialty pharmacy, brand inflation and the acquisitions of Oak Street Health and Signify Health. These increases were partially offset by continued pharmacy client price improvements.

Operating expenses

•Operating expenses increased $483 million, or 29.1%, to $2.1 billion in the nine months ended September 30, 2023 compared to the prior year primarily due to the acquisitions of Oak Street Health and Signify Health, including amortization associated with the acquired intangible assets.

•Operating expenses as a percentage of total revenues increased to 1.6% in the nine months ended September 30, 2023 compared to 1.3% in the prior year. The increase in operating expenses as a percentage of total revenues was primarily due to the increases in operating expenses described above.

Adjusted operating income

•Adjusted operating income increased $456 million, or 9.1%, in the nine months ended September 30, 2023 compared to the prior year. The increase in adjusted operating income was primarily driven by improved purchasing economics, including increased contributions from the products and services of the Company’s group purchasing organization, as well as growth in specialty pharmacy. These increases were partially offset by continued pharmacy client price improvements and decreased COVID-19 diagnostic testing in the segment’s MinuteClinic walk-in medical clinics compared to the prior year.

Pharmacy claims processed

•The Company’s pharmacy claims processed increased slightly on a 30-day equivalent basis in the nine months ended September 30, 2023 compared to the prior year primarily driven by net new business and increased utilization. These increases were partially offset by the impact of a Medicaid customer contract change that occurred during the second quarter of 2023 and a decrease in COVID-19 vaccinations.

Generic dispensing rate

•The Health Services segment’s generic dispensing rate increased to 88.1% in the nine months ended September 30, 2023 compared to 87.8% in the prior year. The increase in the segment’s generic dispensing rate was primarily driven by a decrease in COVID-19 vaccinations, partially offset by an increase in glucagon-like peptide 1 (“GLP-1”) pharmacy claims in the nine months ended September 30, 2023 compared to the prior year. Excluding the impact of COVID-19 vaccinations, the segment’s generic dispensing rate was 88.2% and 88.6% in the nine months ended September 30, 2023 and 2022, respectively.

Pharmacy & Consumer Wellness Segment

The following table summarizes the Pharmacy & Consumer Wellness segment’s performance for the respective periods:


													Change
	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30, 2023 vs 2022				Nine Months Ended September 30, 2023 vs 2022
In millions, except percentages	2023			2022			2023			2022			$		%		$		%
Revenues:
Products	$	28,043		$	26,378		$	83,442		$	77,152		$	1,665	6.3	%	$	6,290	8.2	%
Services	831			869			2,140			2,773			(38)		(4.4)	%	(633)		(22.8)	%
Net investment income (loss)	(2)			(10)			(4)			(44)			8		80.0	%	40		90.9	%
Total revenues	28,872			27,237			85,578			79,881			1,635		6.0	%	5,697		7.1	%
Cost of products sold	22,797			20,849			67,301			60,412			1,948		9.3	%	6,889		11.4	%
Loss on assets held for sale	—			2,480			349			2,480			(2,480)		(100.0)	%	(2,131)		(85.9)	%

Operating expenses	4,753			5,120			14,540			15,196			(367)		(7.2)	%	(656)		(4.3)	%
Operating expenses as a % of total revenues	16.5		%	18.8		%	17.0		%	19.0		%
Operating income (loss)	$	1,322		$	(1,212)		$	3,388		$	1,793		$	2,534	209.1	%	$	1,595	89.0	%
Operating income (loss) as a % of total revenues	4.6		%	(4.4)		%	4.0		%	2.2		%
Adjusted operating income (1)	$	1,389		$	1,401		$	3,936		$	4,684		$	(12)	(0.9)	%	$	(748)	(16.0)	%
Adjusted operating income as a % of total revenues	4.8		%	5.1		%	4.6		%	5.9		%
Revenues (by major goods/service lines):
Pharmacy	$	22,977		$	21,084		$	67,371		$	61,496		$	1,893	9.0	%	$	5,875	9.6	%
Front Store	5,371			5,581			16,597			16,630			(210)		(3.8)	%	(33)		(0.2)	%
Other	526			582			1,614			1,799			(56)		(9.6)	%	(185)		(10.3)	%
Net investment income (loss)	(2)			(10)			(4)			(44)			8		80.0	%	40		90.9	%
Prescriptions filled (2)	407.1			405.6			1,217.6			1,202.0			1.5		0.4	%	15.6		1.3	%
Same store sales increase (decrease): (3)
Total	8.8		%	10.0		%	10.4		%	9.6		%
Pharmacy	11.9		%	11.3		%	13.0		%	9.7		%
Front Store	(2.2)		%	5.5		%	1.6		%	9.6		%
Prescription volume (2)	2.7		%	3.8		%	3.7		%	4.3		%
Generic dispensing rate (2)	88.3		%	88.0		%	89.1		%	88.0		%

(1)See “Segment Analysis” above in this report for a reconciliation of Pharmacy & Consumer Wellness segment operating income (loss) (GAAP measure) to adjusted operating income, which represents the Company’s principal measure of segment performance.

(2)Includes an adjustment to convert 90-day prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal prescription.

~~Table of Contents~~

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

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

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

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

~~Gross Profit~~

~~Gross profit~~(3)Same store sales and prescription volume represent the change in ~~our Pharmacy Services Segment includes net~~ revenues ~~less cost of revenues. Cost of revenues 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 our~~Company’s retail pharmacy ~~networks, (ii) shipping~~stores 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 and ~~handling costs~~prescriptions from LTC and ~~(iii)~~infusion services operations. Effective January 1, 2023, same store sales also include digital sales initiated online or through mobile applications and fulfilled through the ~~operating costs~~Company’s distribution centers. Prior period financial information has been revised to conform with current period presentation. Management uses these metrics to evaluate the performance of ~~our mail service dispensing pharmacies, customer service operations~~existing stores on a comparable basis and ~~related~~to inform future decisions regarding existing stores and new locations. Same-store metrics provide management and investors with information ~~technology support.~~

~~Gross profit decreased $152 million,~~useful in understanding the portion of current revenues and prescriptions resulting from organic growth in existing locations versus the portion resulting from opening new stores.

Commentary - Three Months Ended September 30, 2023 vs. 2022

Revenues

•Total revenues increased $1.6 billion, or ~~8.4%~~6.0%, to ~~approximately $1.6~~$28.9 billion in the three months ended September 30, ~~2017, as~~2023 compared to the prior year primarily driven by pharmacy drug mix, increased prescription volume and brand inflation. These increases

were partially offset by continued pharmacy reimbursement pressure, the impact of recent generic introductions, a decrease in store count and decreased sales of COVID-19 OTC test kits.

•Pharmacy same store sales increased 11.9% in the three months ended September 30, 2023 compared to the prior year. ~~Gross profit~~The increase was primarily driven by pharmacy drug mix, the 2.7% increase in pharmacy same store prescription volume on a 30-day equivalent basis and brand inflation. These increases were partially offset by continued pharmacy reimbursement pressure and the impact of recent generic introductions.

•Front store same store sales decreased ~~$56 million, or 1.3%, to approximately $4.2 billion~~2.2% in the ~~nine~~three months ended September 30, ~~2017, as~~2023 compared to the prior year. The decrease ~~in gross profit dollars~~ was primarily due to price compression and a shift in the timing of the Medicare Part D gross profit dollars between the third and fourth quarter in 2017 due to participants moving through benefits slower relative to the prior year, partially offset by network volume increases. Gross profit as a percentage of netdecreased contributions from COVID-19 OTC test kits.

•Other revenues decreased ~~to 5.0%~~9.6% in the three months ended September 30, ~~2017,~~2023 compared to ~~5.9% in~~ the prior year. ~~Gross profit~~The decrease was primarily due to decreased COVID-19 diagnostic testing in the three months ended September 30, 2023 compared to the prior year.

Loss on assets held for sale

•During the three months ended September 30, 2022, the Company recorded a $2.5 billion loss on assets held for sale related to the write-down of its LTC business. See Note 2 ‘‘Acquisitions and Assets Held for Sale’’ to the unaudited condensed consolidated financial statements for additional information.

Operating expenses

•Operating expenses in the Pharmacy & Consumer Wellness segment include payroll, employee benefits and occupancy costs associated with the segment’s stores and pharmacy fulfillment operations; selling expenses; advertising expenses; depreciation and amortization expense and certain administrative expenses.

•Operating expenses decreased $367 million, or 7.2%, in the three months ended September 30, 2023 compared to the prior year. The decrease was primarily due to $151 million in gains from anti-trust legal settlements recorded in the three months ended September 30, 2023, the decrease in store count, a decrease in amortization of intangible assets, lower expenses associated with COVID-19 vaccination administration compared to the prior year and the net favorable impact of store investments.

•Operating expenses as a percentage of ~~net~~total revenues decreased to ~~4.4%~~16.5% in the ~~nine~~three months ended September 30, ~~2017,~~2023 compared to ~~4.8%~~18.8% in the prior year. The decrease in ~~gross profit~~operating expenses as a percentage of ~~net~~total revenues was driven by the increases in total revenues and decreases in operating expenses described above.

Adjusted operating income

•Adjusted operating income remained relatively consistent at $1.4 billion in each of the three-month periods ended September 30, 2023 and 2022, primarily due to continued ~~price compression~~pharmacy reimbursement pressure and ~~changes~~decreased contributions from COVID-19 vaccinations, diagnostic testing and OTC test kits, largely offset by improved drug purchasing, the increased prescription volume described above and lower operating expenses driven by legal settlements recorded in the ~~mix of our business, partially offset by favorable generic dispensing.~~

three months ended September 30, 2023.

•As you review ~~our~~the Pharmacy ~~Services Segment’s~~& Consumer Wellness segment’s performance in this area, ~~we believe~~ you should consider the following important information about the business:

•The segment’s adjusted operating income has been adversely affected by the efforts of managed care organizations, PBMs and governmental and other third-party payors to reduce their prescription drug costs, including the use of restrictive networks, as well as changes in the mix of business ~~for~~within the ~~three~~pharmacy portion of the Pharmacy & Consumer Wellness segment. If the pharmacy reimbursement pressure accelerates, the segment may not be able to grow revenues, 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.~~

its adjusted operating income could be adversely affected.

~~Table~~•The increased use of ~~Contents~~

~~Operating Expenses~~

~~Operating expenses~~generic drugs has positively impacted the segment’s adjusted operating income but has resulted in ~~our Pharmacy Services Segment include selling, general and administrative expenses; depreciation and amortization related~~third-party payors augmenting their efforts to ~~selling, general and administrative activities; and expenses related~~reduce reimbursement payments to ~~specialty~~ retail pharmacies for prescriptions. This trend, which ~~include store~~the Company expects to continue, reduces the benefit the segment realizes from brand to generic drug conversions.

Prescriptions filled

•Prescriptions filled represents the number of prescriptions dispensed through the Pharmacy & Consumer Wellness segment’s retail and ~~administrative payroll, employee benefits~~long-term care pharmacies and ~~occupancy costs.~~

~~Operating expenses decreased $46 million~~infusion services operations. Management uses this metric to ~~$292 million, or 0.9%~~understand variances between actual prescriptions dispensed and expected amounts as well as trends in period-over-period results. This metric provides management and investors with information useful in understanding the impact of prescription volume on segment total revenues and operating results.

•Prescriptions filled increased slightly on a ~~percentage of net revenues,~~30-day equivalent basis in the three months ended September 30, ~~2017,~~2023 compared to ~~$338 million, or~~the prior year primarily driven by increased utilization, largely offset by a decrease in COVID-19 vaccinations and the decrease in store count. Excluding the impact of COVID-19 vaccinations, prescriptions filled increased 1.1% ason a ~~percentage~~30-day equivalent basis for the three months ended September 30, 2023 compared to the prior year.

Generic dispensing rate

•Generic dispensing rate is calculated by dividing the Pharmacy & Consumer Wellness segment’s generic drug prescriptions filled by its total prescriptions filled. Management uses this metric to evaluate the effectiveness of ~~net~~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 and operating results.

•The Pharmacy & Consumer Wellness segment’s generic dispensing rate increased to 88.3% in the three months ended September 30, 2023 compared to 88.0% in the prior year. ~~Operating expenses decreased $46 million~~The increase in the segment’s generic dispensing rate was primarily driven by a decrease in COVID-19 vaccinations, partially offset by an increase in GLP-1 pharmacy claims in the three months ended September 30, 2023 compared to ~~$938 million,~~the prior year. Excluding the impact of COVID-19 vaccinations, the segment’s total generic dispensing rate was 88.7% and 88.9% in the three months ended September 30, 2023 and 2022, respectively.

Commentary - Nine Months EndedSeptember 30, 2023 vs. 2022

Revenues

•Total revenues increased $5.7 billion, or ~~1.0% as a percentage of net revenues,~~7.1%, to $85.6 billion in the nine months ended September 30, ~~2017,~~2023 compared to ~~$984~~the prior year primarily driven by pharmacy drug mix, increased prescription volume and brand inflation. These increases were partially offset by the impact of recent generic introductions, continued pharmacy reimbursement pressure, decreased COVID-19 vaccinations, diagnostic testing and OTC test kit sales, as well as the decrease in store count.

•Pharmacy same store sales increased 13.0% in the nine months ended September 30, 2023 compared to the prior year. The increase was primarily driven by pharmacy drug mix, the 3.7% increase in pharmacy same store prescription volume on a 30-day equivalent basis and brand inflation. These increases were partially offset by the impact of recent generic introductions and continued pharmacy reimbursement pressure.

•Front store same store sales increased 1.6% in the nine months ended September 30, 2023 compared to the prior year. The increase was primarily due to increased beauty and personal care product sales, largely offset by decreased contributions from COVID-19 OTC test kits in the nine months ended September 30, 2023 compared to the prior year.

•Other revenues decreased 10.3% in the nine months ended September 30, 2023 compared to the prior year. The decrease was primarily due to decreased COVID-19 diagnostic testing in the nine months ended September 30, 2023 compared to the prior year.

Loss on assets held for sale

•During the nine months ended September 30, 2023, the Company recorded a $349 million loss on assets held for sale compared to a $2.5 billion loss on assets held for sale recorded in the prior year, both related to the write-down of its LTC business.

Operating expenses

•Operating expenses decreased $656 million, or ~~1.1%~~4.3%, in the nine months ended September 30, 2023 compared to the prior year. The decrease was primarily due to lower expenses associated with COVID-19 vaccination administration, the decrease in store count, the gains from anti-trust legal settlements described above and a decrease in amortization of intangible assets.

•Operating expenses as a percentage of ~~net~~total revenues decreased to 17.0% in the nine months ended September 30, 2023 compared to 19.0% in the prior year. The decrease in operating expenses as a percentage of total revenues was driven by the increases in total revenues and decreases in operating expenses described above.

Adjusted operating income

•Adjusted operating income decreased $748 million, or 16.0%, in the ~~three and~~ nine months ended September 30, ~~2017 is primarily due~~2023 compared to the ~~realization~~prior year. The decrease in adjusted operating income was primarily driven by continued pharmacy reimbursement pressure and decreased COVID-19 vaccinations and diagnostic testing. These decreases were partially offset by the increased prescription volume described above, improved drug purchasing and lower operating expenses driven by legal settlements recorded in the nine months ended September 30, 2023.

Prescriptions filled

•Prescriptions filled increased 1.3% on a 30-day equivalent basis in the nine months ended September 30, 2023 compared to the prior year primarily driven by increased utilization, partially offset by a decrease in COVID-19 vaccinations and the decrease in store count. Excluding the impact of ~~partially reserved receivables.~~

COVID-19 vaccinations, prescriptions filled increased 2.6% on a 30-day equivalent basis for the nine months ended September 30, 2023 compared to the prior year.

Generic dispensing rate

~~Table~~•The Pharmacy & Consumer Wellness segment’s generic dispensing rate increased to 89.1% in the nine months ended September 30, 2023 compared to 88.0% in the prior year. The increase in the segment’s generic dispensing rate was primarily driven by a decrease in COVID-19 vaccinations, partially offset by an increase in GLP-1 pharmacy claims in the nine months ended September 30, 2023 compared to the prior year. Excluding the impact of ~~Contents~~

COVID-19 vaccinations, the segment’s total generic dispensing rate was 89.4% and 89.5% in the nine months ended September 30, 2023 and 2022, respectively.

~~Retail/LTC~~

Corporate/Other Segment

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


									Change
	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30, 2023 vs 2022				Nine Months Ended September 30, 2023 vs 2022
In millions, except percentages	2023		2022		2023		2022		$		%		$		%
Revenues:
Premiums	$	12	$	14	$	38	$	46	$	(2)	(14.3)	%	$	(8)	(17.4)	%
Services	1		18		5		51		(17)		(94.4)	%	(46)		(90.2)	%
Net investment income	92		110		333		281		(18)		(16.4)	%	52		18.5	%
Total revenues	105		142		376		378		(37)		(26.1)	%	(2)		(0.5)	%
Cost of products sold	—		11		1		31		(11)		(100.0)	%	(30)		(96.8)	%
Health care costs	61		55		163		204		6		10.9	%	(41)		(20.1)	%
Restructuring charges	11		—		507		—		11		100.0	%	507		100.0	%
Opioid litigation charges	—		5,220		—		5,704		(5,220)		(100.0)	%	(5,704)		(100.0)	%
Operating expenses	507		477		1,538		1,319		30		6.3	%	219		16.6	%
Operating loss	(474)		(5,621)		(1,833)		(6,880)		5,147		91.6	%	5,047		73.4	%
Adjusted operating loss (1)	(347)		(388)		(982)		(1,147)		41		10.6	%	165		14.4	%

Three Months Ended

Nine Months Ended

September 30,

September 30,
In millions

2017

2016

2017

2016
Net revenues

$
19,593

$
20,143

$
58,488

$
60,253

Gross profit (1)(2)

5,685

5,893

17,036

17,560

Gross profit % of net revenues

29.0
%

29.3
%

29.1
%

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

4,132

4,115

12,661

12,287

Operating expenses % of net revenues

21.1
%

20.4
%

21.6
%

20.4
%
Operating profit (4)

1,553

1,778

4,375

5,273

Operating profit % of net revenues

7.9
%

8.8
%

7.5
%

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

304.0

302.9

908.7

908.9

Net revenue increase (decrease):

Total

(2.7)
%

12.5
%

(2.9)
%

15.6
%
Pharmacy

(2.9)
%

15.3
%

(3.1)
%

19.9
%
Front Store

(2.1)
%

0.8
%

(2.4)
%

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

0.4
%

17.1
%

0.0
%

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

Total

(3.2)
%

2.3
%

(3.5)
%

2.8
%
Pharmacy

(3.4)
%

3.4
%

(3.6)
%

4.3
%
Front Store

(2.8)
%

(1.0)
%

(3.3)
%

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

0.3
%

3.0
%

(0.4)
%

4.1
%
Generic dispensing rates

87.2
%

85.8
%

87.4
%

85.8
%
Pharmacy % of net revenues

75.9
%

76.0
%

75.1
%

75.2
%
(1)See “Segment Analysis” above in this report for a reconciliation of Corporate/Other segment operating loss (GAAP measure) to adjusted operating loss, which represents the Company’s principal measure of segment performance.

~~(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~~Commentary - Three Months Ended September 30, ~~2017, we operated 9,751 retail locations (of~~2023 vs. 2022

Revenues

•Revenues primarily relate to products for which ~~8,016 were our stores that operated a pharmacy~~the Company no longer solicits or accepts new customers, such as large case pensions and ~~1,687 were our pharmacies located within Target stores), compared to 9,694 retail locations as of September 30, 2016.~~

~~Net Revenues~~

~~Net~~long-term care insurance products.

•Total revenues ~~in our Retail/LTC Segment~~ decreased ~~$549~~$37 million, or ~~2.7%~~26.1%, to ~~approximately $19.6 billion~~$105 million in the three months ended September 30, ~~2017, as~~2023 compared to the prior ~~year. Net~~year primarily driven by a decrease in net investment income, driven by lower average invested assets compared to the prior year, as well as a decrease in services revenue.

Restructuring charge

•During the three months ended September 30, 2023, the Company recorded an $11 million restructuring charge. See Note 3 ‘‘Restructuring Program’’ to the unaudited condensed consolidated financial statements for additional information.

Opioid litigation charges

•During the three months ended September 30, 2022, the Company recorded a $5.2 billion opioid litigation charge. See Note 12 ‘‘Commitments and Contingencies’’ to the unaudited condensed consolidated financial statements for additional information.

Adjusted operating loss

•Adjusted operating loss decreased $41 million, or 10.6%, in the three months ended September 30, 2023 compared to the prior year primarily driven by decreased operating expenses associated with the termination of certain transformation initiatives.

Commentary - Nine Months EndedSeptember 30, 2023 vs. 2022

Revenues

•Total revenues ~~in our Retail/LTC Segment decreased $1.8 billion, or 2.9%, to approximately $58.5 billion~~remained relatively consistent in the nine months ended September 30, ~~2017, as~~2023 compared to the prior ~~year. As you review our Retail/LTC Segment’s performance~~year as decreases in ~~this area, we believe you should consider~~services revenue and premiums were largely offset by increased net investment income, which increased due to favorable average investment yields compared to the ~~following important information about~~prior year.

Restructuring charges

•During the ~~business for the three and~~ nine months ended September 30, ~~2017:~~

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

2023, the Company recorded $507 million of restructuring charges.

Opioid litigation charges

~~Table of Contents~~

~~strategies continue to be rationalized, partially offset by an increase in basket size. For~~•During 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 Profit~~

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

~~Gross profit decreased $209 million, or 3.5%, to $5.7 billion in the three~~ months ended September 30, ~~2017, as compared to~~2022, the ~~prior year. Gross profit~~Company recorded $5.7 billion of opioid litigation charges.

Adjusted operating loss

•Adjusted operating loss decreased ~~$524~~$165 million, or ~~3.0%~~14.4%, ~~to $17.0 billion~~ in the nine months ended September 30, ~~2017, as~~2023 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~~year 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 use

~~Table of Contents~~

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

~~Operating Expenses~~

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

Operating expenses increased $16 million to $4.1 billion, or 21.1% as a percentage of net revenues, in the three months ended September 30, 2017, as compared to $4.1 billion, or 20.4% as a percentage of net revenues, in the prior year. Operating expenses increased $373 million to $12.7 billion, or 21.6% as a percentage of net revenues, in the nine months ended September 30, 2017, as compared to $12.3 billion, or 20.4% as a percentage of net revenues, in the prior year. The increase indecreased operating expenses inassociated with 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~~termination 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).~~

certain transformation initiatives.

~~Table of Contents~~

~~Corporate Segment~~

~~Operating Expenses~~

Operating 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, as compared to the prior year. The change in operating expenses was partially driven by ongoing investments 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 versus the same periods in prior year.

Liquidity and Capital Resources

~~We maintain~~

Cash Flows

The Company maintains a level of liquidity sufficient to allow usit to ~~cover our~~meet its cash needs in the short-term. Over the ~~long-term, we manage our~~long term, the Company manages its cash and capital structure to maximize shareholder return, maintain ~~our~~its financial ~~position~~condition and maintain flexibility for future strategic initiatives. WeThe Company continuously ~~assess our~~assesses its regulatory capital requirements, working capital needs, debt and leverage levels, debt maturity schedule, capital expenditure requirements, dividend payouts, potential share repurchases and future investments or acquisitions. ~~We believe our~~The Company believes its operating cash flows, commercial paper program, ~~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 September 30, 2023, the Company had approximately $13.0 billion in cash and cash equivalents, isapproximately $2.7 billion of which was held by the parent company or nonrestricted subsidiaries.

The net change in cash, cash equivalents and restricted cash during the nine months ended September 30, 2023 and 2022 was as follows:

Nine Months Ended September 30,
In millions

2017

2016
Net cash provided by operating activities

$
8,143

$
8,020
Net cash used in investing activities

(1,608)

(1,652)
Net cash used in financing activities

(7,421)

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

—

2
Net decrease in cash and cash equivalents

$
(886)

$
(270)


	Nine Months Ended September 30,				Change
In millions, except percentages	2023		2022		$		%
Net cash provided by operating activities	$	16,062	$	18,129	$	(2,067)	(11.4)	%
Net cash used in investing activities	(19,647)		(4,928)		(14,719)		(298.7)	%
Net cash provided by (used in) financing activities	3,655		(8,329)		11,984		143.9	%
Net increase in cash, cash equivalents and restricted cash	$	70	$	4,872	$	(4,802)	(98.6)	%

Commentary

•Net cash provided by operating activities ~~was approximately $8.1~~ decreased by $2.1 billion in the nine months ended September 30, ~~2017,~~2023 compared to ~~$8.0~~the prior year. The decrease was primarily due to the timing of payments and receipts, partially offset by lower inventory purchases. Both the nine months ended September 30, 2023 and 2022 reflect the early receipt of the CMS payments for October 2023 and 2022, respectively.

•Net cash used in investing activities increased by $14.7 billion in the nine months ended September 30, ~~2016.~~

2023 compared to the prior year primarily due to the acquisitions of Oak Street Health in May 2023 and Signify Health in March 2023.

•Net cash ~~used in investing~~provided by financing activitieswas ~~approximately $1.6~~$3.7 billion in the nine months ended September 30, 2017, compared to $1.7 billion in the nine months ended September 30, 2016. During the nine months ended September 30, 2017 cash used for acquisitions and other investments increased approximately $0.2 billion from the prior year, which was offset by a decrease in capital expenditures of approximately $0.2 billion in the current year.

~~Net cash used in financing activities~~ ~~was $7.4 billion in the nine months ended September 30, 2017,~~2023 compared to net cash used in financing activities of ~~$6.6~~$8.3 billion in the prior year. The change in cash provided by financing activities primarily related to proceeds from the issuance of approximately $10.9 billion of long-term senior notes in the nine months ended September 30, ~~2016. The cash used in financing activities increased $0.8 billion primarily due to an increase~~2023 and reflects lower repayments of ~~$0.4 billion in net~~long-term debt ~~repayments and an increase of $0.4 billion in share repurchases in the current year.~~

~~During~~during the nine months ended September 30, ~~2017,~~2023 compared to the prior year.

Short-term Borrowings

Commercial Paper and Back-up Credit Facilities

The Company did not have any commercial paper outstanding as of September 30, 2023. In connection with its commercial paper program, the Company ~~had~~maintains a $2.5 billion, five-year unsecured back-up revolving credit facility, which expires on May 16, 2025, a $2.5 billion, five-year unsecured back-up revolving credit facility, which expires on May 11, 2026, and a $2.5 billion, five-year unsecured back-up revolving credit facility, which expires on May 16, 2027. 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 September 30, 2023, there were no borrowings outstanding under any of the Company’s back-up credit facilities.

Term Loan Agreement

On May 1, 2023, the Company entered into a 364-day $5.0 billion term loan agreement. The term loan agreement allows for borrowings at various rates that are dependent, in part, on the Company’s debt ratings. On May 2, 2023, the Company borrowed $5.0 billion at an interest rate of approximately 6.2% under the term loan agreement to fund a portion of the Oak Street Health acquisition purchase price. On June 2, 2023, the Company repaid the outstanding balance under the term loan agreement.

Federal Home Loan Bank of Boston

A subsidiary of the Company is a member of the Federal Home Loan Bank of Boston (the “FHLBB”). As a member, the subsidiary has the ability to obtain cash advances, subject to certain minimum collateral requirements. The maximum borrowing capacity available from the FHLBB as of September 30, 2023 was approximately $950 million. As of September 30, 2023, there were no outstanding advances from the FHLBB.

Long-term Borrowings

2023 Notes

Oak Street Health Convertible Notes

Prior to the Oak Street Health acquisition, Oak Street Health held 0% convertible senior notes with an aggregate principal amount of $920 million (the “Convertible Notes”), which were assumed by the Company in connection with the Oak Street Health Acquisition. The Oak Street Health Acquisition constituted a fundamental change in the Convertible Notes giving the holders the right to require the Company to repurchase the Convertible Notes. The repurchase price was an amount in cash equal to 100% of the principal amount of the Convertible Notes. On May 31, 2023, the Company issued a notice of repurchase to the holders of the Convertible Notes. In connection with this notice, $917 million of the Convertible Notes were submitted for repurchase and settled on July 21, 2023, with $3 million remaining outstanding.

Debt Covenants

The Company’s back-up revolving credit facilities and unsecured senior notes contain customary restrictive financial and operating covenants. These covenants do not include an acceleration of the Company’s debt maturities in the event of a downgrade in the Company’s credit ratings. The Company does not believe the restrictions contained in these covenants materially affect its financial or operating flexibility. As of September 30, 2023, the Company was in compliance with all of its debt covenants.

Debt Ratings

As of September 30, 2023, the Company’s long-term debt was rated “Baa2” by Moody’s Investor Service, Inc. (“Moody’s”) and “BBB” by Standard & Poor’s Financial Services LLC (“S&P”), and its commercial paper program was rated “P-2” by Moody’s and “A-2” by S&P. The outlook on the Company’s long-term debt is “Stable” by both Moody’s and S&P. In assessing the Company’s credit strength, the Company believes that both Moody’s and S&P considered, among other things, the Company’s capital structure and financial policies as well as its consolidated balance sheet, its historical acquisition activity and other financial information. Although the Company currently believes its long-term debt ratings will remain investment grade, it cannot guarantee the future actions of Moody’s and/or S&P. The Company’s debt ratings have a direct impact on its future borrowing costs, access to capital markets and new store operating lease costs.

Share Repurchase Program

The following ~~outstanding~~ share repurchase ~~programs, both of which had previously~~program has been authorized by ~~the Company’s~~CVS Health Corporation’s Board of ~~Directors:~~

Directors (the “Board”):

In billions

Authorization Date

Authorized

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

$
15.0

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

10.0

—


In billions Authorization Date	Authorized		Remaining as of September 30, 2023
November 17, 2022 (“2022 Repurchase Program”)	$	10.0	$	10.0
December 9, 2021 (“2021 Repurchase Program”)	10.0		4.5

~~Table of Contents~~

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

During the nine months ended September 30, ~~2017,~~2023 and 2022, the Company repurchased an aggregate of ~~approximately 55.4~~22.8 million shares of common stock for approximately ~~$4.4~~$2.0 billion and an aggregate of 19.1 million shares of common stock for approximately $2.0 billion, respectively, both pursuant to the ~~2014 and 2016~~2021 Repurchase ~~Programs.~~Program. This activity includes the ~~accelerated~~ share ~~repurchase agreements (“ASRs”)~~repurchases under the ASR transactions described below.

February 2023.

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 Arrangements~~

In 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 in

~~Table of Contents~~

~~our condensed consolidated balance sheet. See “Note 12 – Commitments and Contingencies” to our condensed consolidated financial statements for a detailed discussion of these guarantees.~~

Critical Accounting Policies

~~We prepare our~~

The Company prepares the unaudited condensed consolidated financial statements in conformity with ~~GAAP,~~generally accepted accounting principles, which ~~requires~~require management to make certain estimates and apply judgment. ~~We base our estimates~~Estimates and judgments are based on historical experience, current trends and other factors that management believes to be important at the time the

unaudited condensed consolidated financial statements are prepared. On a regular basis, ~~we review our~~the Company reviews its accounting policies and how they are applied and disclosed in ~~our~~the unaudited condensed consolidated financial statements.

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

~~As discussed~~

Recoverability of Goodwill

The Company’s most recent goodwill impairment test was performed as of January 1, 2023, in ~~“Note 2 – Goodwill and Intangible Assets” to our condensed consolidated financial statements, during~~connection with the ~~three months ended September 30, 2017, we performed our required annual impairment tests of goodwill.~~segment realignment described in Note 1 “Significant Accounting Policies.” The results of ~~the~~that impairment ~~tests~~test indicated that there was no impairment of ~~goodwill. The~~ goodwill ~~impairment tests resulted in~~as of the testing date, with the fair values of ~~our Pharmacy Services and Retail Pharmacy~~all reporting units with goodwill exceeding their respective 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.

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

Exhibit 99.1 to the May 2023 8-K.

~~Table of Contents~~

Cautionary Statement Concerning Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 (the “Reform ~~Act)”~~Act”) provides a ~~safe harbor~~“safe harbor” for forward-looking statements, ~~made~~so long as (1) those statements are identified as forward-looking and (2) the statements are accompanied by ~~or on behalf~~meaningful 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 statements~~these safe harbor provisions.

Certain information contained in this Quarterly Report on Form 10-Q (this “report”) is forward-looking within the 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 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

All statements addressing the future operating performance of CVS Health ~~Corporation~~or 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 impact of COVID-19 and any new variants or viruses 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; earnings~~operating 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 pharmacy~~Health Care Benefits segment business, sales results and/or trends, ~~and operations; PBM~~medical cost trends, medical membership, Medicare Part D membership, medical benefit ratios and/or operations, Health Services segment business, sales results and/or trends ~~and operations; specialty pharmacy~~and/or operations, Pharmacy & Consumer Wellness segment business, sales results and/or trends 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, statements related to possible, proposed or pending acquisitions, joint ventures, investments or combinations that involve, among other things, the timing or likelihood of receipt of regulatory approvals, the timing of completion, integration synergies, net synergies and ~~operations; LTC pharmacy business, sales trends~~integration risks and ~~operations;~~other costs, including those related to CVS Health’s acquisitions of Signify Health and Oak Street Health, 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-looking~~

Form 10-Q Table of Contents

Forward-looking statements ~~are~~rely on a number of estimates, assumptions and ~~will be based upon management’s then-current views and assumptions regarding~~projections concerning future events, and ~~operating performance, and~~ are ~~applicable only as~~subject 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 involve~~significant risks and ~~uncertainties. Actual~~uncertainties and other factors that could cause actual results ~~may~~to differ materially from those ~~contemplated by the forward-looking statements for a number~~statements. Many of ~~reasons as~~these risks and uncertainties and other factors are outside our control.

Certain additional 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 2016~~Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and ~~including, but~~under “Risk Factors” included in Part II, Item 1A of the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2023; 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.

~~Table of Contents~~

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.

~~Table of Contents~~

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 may affect it. Additional risks and uncertainties not presently known to the Company or that itthe Company currently believes to be immaterial also may adversely ~~impact~~affect the ~~Company. Should~~Company’s businesses. If any of those risks ~~and~~or uncertainties ~~develop~~develops into actual events, ~~these developments~~those 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 cautioned~~and/or stock price, among other effects.

You should not ~~to place~~put undue reliance on ~~the Company’s~~ 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.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

~~As of September 30, 2017,~~

The Company has not experienced any material changes in exposures to market risk since December 31, 2022. See the ~~Company did not have any interest rate, foreign currency exchange rate or commodity derivative instruments~~information contained in ~~place~~Part II, Item 7A “Quantitative and ~~believes that as of September 30, 2017 its exposure~~Qualitative Disclosures About Market Risk” in Exhibit 99.1 to ~~interest rate risk (inherent in~~ the Company’s ~~debt portfolio), foreign currency exchange rate risk~~Current Report on Form 8-K filed with the U.S. Securities and ~~commodity price risk is not material.~~

Exchange Commission on May 25, 2023, for a discussion of the Company’s exposures to market risk.

Item 4.Controls and Procedures

Evaluation of disclosure controls and procedures: The Company’s Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a‑15(f) and 15d‑15(f)) as of September 30, ~~2017,~~2023, have concluded that as of such date the Company’s disclosure controls and procedures were adequate and effective and designed to provide reasonable assurance that material information relating to the Company and its subsidiaries would be made known to such officers on a timely basis.

Changes in internal control over financial reporting: There ~~have~~has been no ~~changes~~change in ~~our~~the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of ~~Securities Exchange Act~~ Rule ~~13a‑15~~13a-15 or Rule ~~15d‑15~~15d-15 that occurred in the three months ended September 30, ~~2017~~2023 that ~~have~~has materially affected, or ~~are~~is reasonably likely to materially affect, ~~our~~the Company’s internal control over financial reporting.

Part II.Other Information

~~Table of Contents~~

~~Part II~~

Item 1.Legal Proceedings

~~I. Legal Proceedings~~

~~We refer you to “Note~~

The information contained in Note 12 - ‘‘Commitments and ~~Contingencies”~~Contingencies’’ contained in ~~the~~ “Notes to ~~the~~ Condensed Consolidated Financial ~~Statements”~~Statements (Unaudited)” in Part I, Item 1 of ~~our~~this Quarterly Report on Form ~~10‑Q~~10-Q is incorporated by reference herein.

Item 1A.Risk Factors

There have been no material changes to the “Risk Factors” disclosed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the ~~three~~fiscal year ended December 31, 2022 (the “2022 10-K”) and ~~nine months~~the “Risk Factors” disclosed in Part II, Item 1A of the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended ~~September 30, 2017 for a description~~March 31, 2023 (the “Q1 2023 10-Q”). The risk factors set forth in the 2022 10-K and the Q1 2023 10-Q 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.~~

CVS Health Corporation’s common stock.

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

The following table presents the total number of shares purchased in the three months ended September 30, ~~2017,~~2023, 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 programs authorized by CVS Health Corporation’s Board of Directors on November 17, 2022 and December 9, 2021. See ~~“Note 3 - Share Repurchase Programs”~~Note 9 ‘‘Shareholders’ Equity’’ contained in ~~the~~ “Notes to ~~the~~ Condensed Consolidated Financial ~~Statements”~~Statements (Unaudited)” in Part I, Item 1 of ~~our~~this Quarterly Report on Form ~~10‑Q~~10-Q for additional information.


Fiscal Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
July 1, 2023 through July 31, 2023	—	$	—	—	$	14,500,000,143
August 1, 2023 through August 31, 2023	—	$	—	—	$	14,500,000,143
September 1, 2023 through September 30, 2023	—	$	—	—	$	14,500,000,143
	—			—

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

Securities Trading Plans of Directors and Executive Officers

During the three months ended September 30, ~~2017.~~

Approximate Dollar

Total Number of Shares

Value of Shares that

Total Number

Average

Purchased as Part of

May Yet Be

of Shares

Price Paid per

Publicly Announced

Purchased Under the
Fiscal Period

Purchased

Share

Plans or Programs

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

—

$
—

—

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

1,713,436

$
76.72

1,713,436

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

3,364,345

$
79.82

3,364,345

$
13,869,392,446

5,077,781

5,077,781

2023, none of our directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of CVS Health Corporation securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement.”

Form 10-Q Table of Contents

Item 6. Exhibits

~~Exhibits:~~

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

any omitted instrument that is not required to be listed.

INDEX TO EXHIBITS

3.1*
10			Material contracts

10.1*			The Registrant's Amended and Restated ~~Certificate of Incorporation~~Severance Plan for Non-Store Employees dated September 30, 2023.

15			Letter re: unaudited interim financial information

15.1			Letter from Ernst & Young LLP acknowledging awareness of the ~~Registrant [incorporated by reference~~use of a report dated November 1 , 2023 related to ~~Exhibit 3.1 to the Registrant’s Annual Report on Form 10‑K for the fiscal year ended December 31, 1996 (Commission File No. 001‑01011)].~~their reviews of interim financial information.
3.1A*			Certificate of Amendment to the Amended and Restated Certificate of Incorporation, effective May 13, 1998 [incorporated by reference to Exhibit 4.1A to the Registrant’s Registration Statement No. 333-52055 on Form S‑3/A dated May 18, 1998 (Commission File No. 001‑01001)].
3.1B* 31			Certificate of Amendment to the Amended and Restated Certificate of Incorporation [incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8‑K dated March 22, 2007 (Commission File No. 001‑01011)]. Rule 13a-14(a)/15d-14(a) Certifications
3.1C*			~~Certificate of Merger dated May 9, 2007 [incorporated by reference to Exhibit 3.1C to the Registrant’s Quarterly Report on Form 10‑Q dated November 1, 2007 (Commission File No. 001‑01011)].~~
3.1D* 31.1			~~Certificate of Amendment to~~Certification by the Amended and Restated Certificate of Incorporation [incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8‑K dated May 13, 2010 (Commission File No. 001‑01011)].Chief Executive Officer.
3.1E*			Certificate of Amendment to the Amended and Restated Certificate of Incorporation [incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8‑K dated May 10, 2012 (Commission File No. 001‑01011)].
3.1F* 31.2			~~Certificate of Amendment to~~Certification by the Amended and Restated Certificate of Incorporation [incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8‑K dated May 13, 2013 (Commission File No. 001‑01011)].Chief Financial Officer.
3.1G*			Certificate of Amendment to the Amended and Restated Certificate of Incorporation [incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8‑K dated September 3, 2014 (Commission File No. 001‑01011)].
3.2* 32			By‑laws of Registrant, as amended and restated [incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8‑K dated January 26, 2016 (Commission File No. 001‑01011)]. Section 1350 Certifications
~~15.1~~			~~Letter re: Unaudited Interim Financial Information.~~
~~31.1~~ 32.1			Certification ofby the Chief Executive ~~Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~Officer.
~~31.2~~
32.2			Certification ofby the Chief Financial ~~Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~Officer.
~~32.1~~			~~Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~
~~32.2~~ 101			~~Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~
~~101~~
101			The following materials from the CVS Health Corporation Quarterly Report on Form ~~10‑Q~~10-Q for the three and nine months ended September 30, ~~2017~~2023 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 (Loss), (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 September 30, 2023, formatted in Inline XBRL (included as Exhibit 101).

Form 10-Q Table of Contents

~~Signatures:~~

SIGNATURES

Pursuant to the requirements ~~of Section 13 or 15(d)~~ of the Securities Exchange Act of 1934, the ~~Registrant~~registrant has duly caused this ~~Quarterly Report on Form 10‑Q~~report to be signed on its behalf by the undersigned thereunto duly authorized.

~~CVS Health Corporation~~
~~(Registrant)~~						CVS HEALTH CORPORATION

Date:

November 1, 2023

By:

/s/ ~~David M. Denton~~

Thomas F. Cowhey

~~David M. Denton~~

Thomas F. Cowhey

~~Executive~~

Senior Vice President, ~~and~~Interim Chief Financial Officer

~~November 6, 2017~~


	Three Months Ended September 30,				Nine Months Ended September 30,
In millions	2017		2016		2017		2016

Net income	$	1,285	$	1,541	$	3,336	$	3,612
Other comprehensive income:
Foreign currency translation adjustments, net of tax		8		(3)		6		37
Net cash flow hedges, net of tax		—		1		1		2
Pension and other postretirement benefits, net of tax		151		—		151		—
Total other comprehensive income (loss)		159		(2)		158		39
Comprehensive income		1,444		1,539		3,494		3,651
Comprehensive income attributable to noncontrolling interest		—		(1)		(1)		(2)
Comprehensive income attributable to CVS Health	$	1,444	$	1,538	$	3,493	$	3,649


	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


	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


	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)


	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


					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

In billions

Authorization Date

Authorized

November 2, 2016 (“2016 Repurchase Program”)

December 15, 2014 (“2014 Repurchase Program”)