Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Mar. 31, 2017 | Apr. 26, 2017 | |
Document and Entity Information | ||
Entity Registrant Name | CVS HEALTH Corp | |
Entity Central Index Key | 64,803 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2017 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 1,018,795,398 | |
Document Fiscal Year Focus | 2,017 | |
Document Fiscal Period Focus | Q1 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Income - USD ($) shares in Millions, $ in Millions | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Income Statement | ||
Net revenues | $ 44,514 | $ 43,215 |
Cost of revenues | 37,934 | 36,471 |
Gross profit | 6,580 | 6,744 |
Operating expenses | 4,787 | 4,559 |
Operating profit | 1,793 | 2,185 |
Interest expense, net | 252 | 283 |
Other expense | 7 | 9 |
Income before income tax provision | 1,534 | 1,893 |
Income tax provision | 572 | 746 |
Income from continuing operations | 962 | 1,147 |
Loss from discontinued operations, net of tax | (9) | |
Net income | 953 | 1,147 |
Net income attributable to noncontrolling interest | (1) | (1) |
Net income attributable to CVS Health | $ 952 | $ 1,146 |
Basic earnings per share: | ||
Income from continuing operations attributable to CVS Health (in dollars per share) | $ 0.93 | $ 1.04 |
Loss from discontinued operations attributable to CVS Health (in dollars per share) | (0.01) | |
Net income attributable to CVS Health (in dollars per share) | $ 0.92 | $ 1.04 |
Weighted average shares outstanding (in shares) | 1,030 | 1,092 |
Diluted earnings per share: | ||
Income from continuing operations attributable to CVS Health (in dollars per share) | $ 0.92 | $ 1.04 |
Loss from discontinued operations attributable to CVS Health (in dollars per share) | (0.01) | |
Net income attributable to CVS Health (in dollars per share) | $ 0.92 | $ 1.04 |
Weighted average shares outstanding (in shares) | 1,035 | 1,099 |
Dividends declared per share (in dollars per share) | $ 0.50 | $ 0.425 |
Condensed Consolidated Stateme3
Condensed Consolidated Statements of Comprehensive Income - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Statement of Comprehensive Income | ||
Net income | $ 953 | $ 1,147 |
Other comprehensive income: | ||
Foreign currency translation adjustments, net of tax | 8 | 18 |
Net cash flow hedges, net of tax | 1 | 1 |
Total other comprehensive income | 9 | 19 |
Comprehensive income | 962 | 1,166 |
Comprehensive income attributable to noncontrolling interest | (1) | (1) |
Comprehensive income attributable to CVS Health | $ 961 | $ 1,165 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets - USD ($) $ in Millions | Mar. 31, 2017 | Dec. 31, 2016 |
Assets: | ||
Cash and cash equivalents | $ 2,217 | $ 3,371 |
Short-term investments | 85 | 87 |
Accounts receivable, net | 12,114 | 12,164 |
Inventories | 14,306 | 14,760 |
Other current assets | 735 | 660 |
Total current assets | 29,457 | 31,042 |
Property and equipment, net | 10,057 | 10,175 |
Goodwill | 38,263 | 38,249 |
Intangible assets, net | 13,390 | 13,511 |
Other assets | 1,503 | 1,485 |
Total assets | 92,670 | 94,462 |
Liabilities: | ||
Accounts payable | 7,344 | 7,946 |
Claims and discounts payable | 9,453 | 9,451 |
Accrued expenses | 8,680 | 6,937 |
Short-term debt | 1,768 | 1,874 |
Current portion of long-term debt | 43 | 42 |
Total current liabilities | 27,288 | 26,250 |
Long-term debt | 25,622 | 25,615 |
Deferred income taxes | 4,214 | 4,214 |
Other long-term liabilities | 1,704 | 1,549 |
Shareholders’ equity: | ||
Preferred stock, par value $0.01: 0.1 shares authorized; none issued or outstanding | ||
Common stock, par value $0.01: 3,200 shares authorized; 1,707 shares issued and 1,027 shares outstanding at March 31, 2017 and 1,705 shares issued and 1,061 shares outstanding at December 31, 2016 | 17 | 17 |
Treasury stock, at cost: 679 shares at March 31, 2017 and 643 shares at December 31, 2016 | (36,306) | (33,452) |
Shares held in trust: 1 share at March 31, 2017 and December 31, 2016 | (31) | (31) |
Capital surplus | 31,034 | 31,618 |
Retained earnings | 39,419 | 38,983 |
Accumulated other comprehensive income (loss) | (296) | (305) |
Total CVS Health shareholders’ equity | 33,837 | 36,830 |
Noncontrolling interest | 5 | 4 |
Total shareholders’ equity | 33,842 | 36,834 |
Total liabilities and shareholders’ equity | $ 92,670 | $ 94,462 |
Condensed Consolidated Balance5
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares | Mar. 31, 2017 | Dec. 31, 2016 |
Statement of Financial Position | ||
Preferred Stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Preferred Stock, shares authorized (in shares) | 100,000 | 100,000 |
Preferred Stock, shares issued (in shares) | 0 | 0 |
Preferred Stock, shares outstanding (in shares) | 0 | 0 |
Common Stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common Stock, shares authorized (in shares) | 3,200,000,000 | 3,200,000,000 |
Common Stock, shares issued (in shares) | 1,707,000,000 | 1,705,000,000 |
Common Stock, shares outstanding (in shares) | 1,027,000,000 | 1,061,000,000 |
Treasury Stock, shares (in shares) | 679,000,000 | 643,000,000 |
Shares held in trust: 1 share at December 31, 2016 and 2015 (in shares) | 1,000,000 | 1,000,000 |
Condensed Consolidated Stateme6
Condensed Consolidated Statements of Cash Flows - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Cash flows from operating activities: | ||
Cash receipts from customers | $ 43,913 | $ 41,482 |
Cash paid for inventory and prescriptions dispensed by retail network pharmacies | (36,178) | (35,575) |
Cash paid to other suppliers and employees | (3,823) | (2,934) |
Interest received | 6 | 5 |
Interest paid | (328) | (378) |
Income taxes paid | (57) | (161) |
Net cash provided by operating activities | 3,533 | 2,439 |
Cash flows from investing activities: | ||
Purchases of property and equipment | (457) | (598) |
Proceeds from sale of property and equipment and other assets | 5 | 2 |
Acquisitions (net of cash acquired) and other investments | (110) | (51) |
Purchase of available-for-sale investments | (36) | |
Maturity of available-for-sale investments | 8 | 50 |
Net cash used in investing activities | (554) | (633) |
Cash flows from financing activities: | ||
Decrease in short-term debt | (106) | |
Purchase of noncontrolling interest in subsidiary | (39) | |
Dividends paid | (516) | (470) |
Proceeds from exercise of stock options | 121 | 104 |
Payments for taxes related to net share settlement of equity awards | (11) | (12) |
Repurchase of common stock | (3,621) | (2,066) |
Other | (4) | |
Net cash used in financing activities | (4,133) | (2,487) |
Effect of exchange rate changes on cash and cash equivalents | 1 | |
Net decrease in cash and cash equivalents | (1,154) | (680) |
Cash and cash equivalents at the beginning of the period | 3,371 | 2,459 |
Cash and cash equivalents at the end of the period | 2,217 | 1,779 |
Reconciliation of net income to net cash provided by operating activities: | ||
Net income | 953 | 1,147 |
Adjustments required to reconcile net income to net cash provided by operating activities: | ||
Depreciation and amortization | 619 | 617 |
Stock-based compensation | 55 | 57 |
Deferred income taxes and other noncash items | 14 | 17 |
Change in operating assets and liabilities, net of effects from acquisitions: | ||
Accounts receivable, net | 48 | (1,131) |
Inventories | 456 | 89 |
Other current assets | (74) | 106 |
Other assets | (1) | (52) |
Accounts payable and claims and discounts payable | (539) | 798 |
Accrued expenses | 1,848 | 768 |
Other long-term liabilities | 154 | 23 |
Net cash provided by operating activities | $ 3,533 | $ 2,439 |
Accounting Policies
Accounting Policies | 3 Months Ended |
Mar. 31, 2017 | |
Accounting Policies | |
Accounting Policies | CVS Health Corporation Notes to Condensed Consolidated Financial Statements (Unaudited) Note 1 – Accounting Policies 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”) 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 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 Form 10‑K”). In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods presented. Because of the influence of various factors on the Company’s operations, including business combinations, certain holidays and other seasonal influences, net income for any interim period may not be comparable to the same interim period in previous years or necessarily indicative of income for the full year. Principles of Consolidation The 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 condensed consolidated financial statements. VIE creditors do not have recourse against the general credit of the Company. Fair Value of Financial Instruments The Company utilizes 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 levels of the hierarchy consist of the following: · Level 1 – Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. · Level 2 – Inputs to the valuation methodology are quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active or inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the instrument. · Level 3 – Inputs to the valuation methodology are unobservable inputs based upon management’s best estimate of inputs market participants could use in pricing the asset or liability at the measurement date, including assumptions about risk. As of March 31, 2017, the carrying value of cash and cash equivalents, short-term investments, accounts receivable, accounts payable, and 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 accompanying condensed consolidated balance sheets, as these funds are highly liquid and readily convertible to known amounts of cash. These investments are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. The Company’s short-term investments of $85 million at March 31, 2017 consist of certificates of deposit with initial maturities of greater than three months when purchased that mature within one year from the balance sheet date. These investments, which are classified within Level 1 of the fair value hierarchy, are carried at fair value, which approximated historical cost at March 31, 2017. The carrying amount and estimated fair value of the Company’s total long-term debt was $25.7 billion and $26.6 billion, respectively, as of March 31, 2017. The fair value of the Company’s long-term debt was estimated based on quoted prices currently offered in active markets for the Company’s debt, which is considered Level 1 of the fair value hierarchy. 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 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 $17 million and $13 million in the three months ended March 31, 2017 and 2016, respectively. The Company’s investment in and equity in earnings of SureScripts for all periods presented is immaterial. The Company has an equity method investment in Heartland Healthcare Services (“Heartland”). Heartland operates several long-term care pharmacies in four states. Heartland paid the Company approximately $40 million and $38 million for pharmaceutical inventory purchases during the three months ended March 31, 2017 and 2016, respectively. Additionally, the Company performs certain collection functions for Heartland and then passes those customer cash collections to Heartland. The Company’s investment in Heartland as of March 31, 2017 and December 31, 2016 and equity in earnings of Heartland for the three months ended March 31, 2017 and 2016 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 8 – Commitments and Contingencies” to the condensed consolidated financial statements. The Company’s loss from discontinued operations includes lease-related costs which the Company believes it will likely be required to satisfy pursuant to its lease guarantees. New Accounting Pronouncements Recently Adopted In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-11, Inventory , which amends Accounting Standard Codification (“ASC”) Topic 330. This ASU simplifies current accounting treatments by requiring entities to measure most inventories at “the lower of cost and net realizable value” rather than using lower of cost or market. This guidance does not apply to inventories measured using the last-in, first-out method or the retail inventory method. The Company adopted this standard effective January 1, 2017. The adoption of this new guidance did not have any impact on the Company’s condensed consolidated results of operations, financial position or cash flows. In March 2016, the FASB issued ASU No. 2016-09, 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. The new guidance 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 new guidance is required to be applied prospectively. The new 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 new 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 new guidance effective January 1, 2017. The primary impact of adopting this new guidance was the recognition of excess tax benefits in the income statement instead of recognizing them in equity. This new income statement guidance was adopted on a prospective basis. As a result, a discrete tax benefit of $19 million was recognized in the income tax provision in the three months ended March 31, 2017. The Company elected to retrospectively adopt the new guidance on the presentation of excess tax benefits in the statement of cash flows. As a result, the following is a reconciliation of the effect of the reclassification of the excess tax benefits on the Company’s condensed consolidated statement of cash flows for the three months ended March 31, 2016: As Previously In millions Reported Adjustments As Revised Cash paid to other suppliers and employees $ (2,961) $ 27 $ (2,934) Net cash provided by operating activities 2,412 27 2,439 Excess tax benefits from stock-based compensation 27 (27) — Net cash used in financing activities (2,460) (27) (2,487) Reconciliation of net income to net cash provided by operating activities: Accrued expenses 741 27 768 The Company elected to continue to estimate forfeitures expected to occur to determine the amount of compensation cost to be recognized in each period. None of the other provisions in this new guidance had a material impact on the Company’s condensed consolidated financial statements. In March 2017, the FASB issued ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost , which amends ASC Topic 715, Compensation – Retirement Benefits . ASU 2017-17 requires entities to disaggregate the current service cost component from the other components of net benefit cost and present it with other current compensation costs for related employees in the income statement and present the other components of net benefit cost elsewhere in the income statement and outside of operating income. Only the service cost component of net benefit cost is eligible for capitalization. The guidance is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted as of the beginning of any annual periods for which an entity’s financial statements have not been issued. Entities are required to retrospectively apply the requirement for a separate presentation in the income statement of service costs and other components of net benefit cost and prospectively adopt the requirement to limit the capitalization of benefit costs to the service component. The Company adopted the income statement presentation aspects of this new guidance on a retrospective basis during the three months ended March 31, 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 statement of income for the three months ended March 31, 2016: As Previously In millions Reported Adjustments As Revised Operating expenses $ 4,568 $ (9) $ 4,559 Operating profit 2,176 9 2,185 Other expense — 9 9 In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment , which amends ASC Topic 350, Intangibles – Goodwill and Other . This ASU requires the Company to perform its annual, or applicable interim, goodwill impairment test by comparing the fair value of each reporting unit with its carrying amount. An impairment charge must be recognized at the amount by which the carrying amount exceeds the fair value of the reporting unit; however, the charge recognized should not exceed the total amount of goodwill allocated to that reporting unit. Income tax effects resulting from any tax deductible goodwill should be considered when measuring a goodwill impairment loss, if applicable. The guidance in ASU 2017-04 is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company elected to early adopt this standard as of January 1, 2017. The adoption of this guidance did not have any impact on the Company’s condensed consolidated results of operations, financial position or cash flows. New Accounting Pronouncements Not Yet Adopted In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 outlines a single comprehensive model for companies to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. In March 2016, the FASB issued ASU 2016-08, “ Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net) ,” which amends the principal-versus-agent implementation guidance and in April 2016 the FASB issued ASU 2016-10, “ Identifying Performance Obligations and Licensing ,” which amends the guidance in those areas in the new revenue recognition standard. Both ASU's were issued in response to feedback received from the FASB-International Accounting Standards Board joint revenue recognition transition resource group. This new standard could impact the timing and amounts of revenue recognized. The new revenue standard is effective for annual reporting periods (including interim reporting periods within those periods) beginning January 1, 2018. Early adoption of the standard in 2017 is permitted; however, the Company does not intend to early adopt the new standard. Companies have the option of using either a full retrospective or a modified retrospective approach to adopt the guidance. The Company formed a project team to assess and implement the new standard. While the Company is continuing to assess all of the potential impacts of the new standard including the potential impact from recent acquisitions, the Company does not expect the implementation of the 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 intends to adopt the new standard on a modified retrospective basis. 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 new 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 this new accounting guidance. |
Share Repurchase Programs
Share Repurchase Programs | 3 Months Ended |
Mar. 31, 2017 | |
Share Repurchase Programs | |
Share Repurchase Programs | Note 2 – Share Repurchase Programs During the three months ended March 31, 2017, the Company had the following outstanding share repurchase programs that were authorized by the Company’s Board of Directors: In billions Authorization Date Authorized Remaining November 2, 2016 (“2016 Repurchase Program”) $ 15.0 $ 14.6 December 15, 2014 (“2014 Repurchase Program”) $ 10.0 $ — The 2014 and 2016 Repurchase Programs, which were effective immediately, permit the Company to effect repurchases from time to time through a combination of open market repurchases, privately negotiated transactions, accelerated share repurchase transactions, and/or other derivative transactions. The repurchase programs may be modified or terminated by the Board of Directors at any time. During the three months ended March 31, 2017, the Company repurchased an aggregate of approximately 36.1 million shares of common stock for approximately $3.6 billion pursuant to the 2014 and 2016 Repurchase Programs. This activity includes the accelerated share repurchase agreements (“ASR”) described below. Pursuant to the authorization under the 2014 Repurchase Program, effective August 29, 2016, the Company entered into two fixed dollar ASRs with Barclays Bank PLC (“Barclays”) for a total of $3.6 billion. Upon payment of the $3.6 billion purchase price on January 6, 2017, the Company received a number of shares of its common stock equal to 80% of the $3.6 billion notional amount of the ASRs or approximately 36.1 million shares, which were placed into treasury stock in January 2017. The ASR was accounted for as an initial treasury stock transaction for $2.9 billion and a forward contract for $0.7 billion. The forward contract was classified as an equity instrument and was recorded within capital surplus on the condensed consolidated balance sheet as of March 31, 2017. In April 2017, the Company received 9.9 million shares of common stock, representing the remaining 20% of the $3.6 billion notional amount of the ASR, thereby concluding the ASR. The remaining 9.9 million shares of common stock delivered to the Company by Barclays were placed into treasury stock and the forward contract was reclassified from capital surplus to treasury stock in April 2017. At the time they were received, the initial and final receipt of shares resulted in an immediate reduction of the outstanding shares used to calculate the weighted average common shares outstanding for basic and diluted earnings per share. |
Accumulated Other Comprehensive
Accumulated Other Comprehensive Income | 3 Months Ended |
Mar. 31, 2017 | |
Accumulated Other Comprehensive Income | |
Accumulated Other Comprehensive Income | Note 3 – Accumulated Other Comprehensive Income Accumulated other comprehensive income consists of foreign currency translation adjustments, unrealized losses on cash flow hedges executed in previous years associated with the issuance of long-term debt, and changes in the net actuarial gains and losses associated with pension and other postretirement benefit plans. The following table summarizes the activity within the components of accumulated other comprehensive income. Changes in accumulated other comprehensive income (loss) by component is shown on the below: Three Months Ended March 31, 2017 (1) Pension and Losses on Other Foreign Cash Flow Postretirement In millions Currency Hedges Benefits Total Balance, December 31, 2016 $ (127) $ (5) $ (173) $ (305) Other comprehensive income before reclassifications 8 — — 8 Amounts reclassified from accumulated other comprehensive income (2) — 1 — 1 Net other comprehensive income 8 1 — 9 Balance, March 31, 2017 $ (119) $ (4) $ (173) $ (296) Three Months Ended March 31, 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 18 — — 18 Amounts reclassified from accumulated other comprehensive income (2) — 1 — 1 Net other comprehensive income 18 1 — 19 Balance, March 31, 2016 $ (147) $ (6) $ (186) $ (339) (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 statement 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 statement of income. |
Store Closures
Store Closures | 3 Months Ended |
Mar. 31, 2017 | |
Store Closures | |
Store Closures | Note 4 – 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 healthcare 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 months ended March 31, 2017, the Company closed 60 retail stores and recorded a charge of $199 million within operating expenses in the Retail/LTC Segment which is primarily comprised of a provision for the present value of noncancelable lease obligations. The noncancelable lease obligations associated with stores closed during the three months ended March 31, 2017 extend through the year 2039. In connection with the enterprise streamlining initiative, the Company expects to record additional charges of approximately $20 million during the remainder of 2017 to rationalize the number of retail stores. |
Interest Expense, Net
Interest Expense, Net | 3 Months Ended |
Mar. 31, 2017 | |
Interest Expense, Net | |
Interest Expense, Net | Note 5 – Interest Expense, Net The following are the components of interest expense, net: Three Months Ended March 31, In millions 2017 2016 Interest expense $ 258 $ 288 Interest income (6) (5) Interest expense, net $ 252 $ 283 |
Earnings Per Share
Earnings Per Share | 3 Months Ended |
Mar. 31, 2017 | |
Earnings Per Share | |
Earnings Per Share | Note 6 – Earnings Per Share Earnings per share is computed using the two-class method. Options to purchase 7.8 million s hares of common stock were outstanding, but were not included in the calculation of diluted earnings per share, for the three months ended March 31, 2017, because the exercise prices of the options were greater than the average market price of the common shares and, therefore, the effect would be antidilutive. For the same reason, options to purchase approximately 3.6 million shares of common stock were outstanding, but were not included in the calculation of diluted earnings per share for the three months ended March 31, 2016. The following is a reconciliation of basic and diluted earnings per share from continuing operations for the respective periods: Three Months Ended March 31, In millions, except per share amounts 2017 2016 Numerator for earnings per share calculation: Income from continuing operations $ 962 $ 1,147 Income allocated to participating securities (4) (6) Net income attributable to noncontrolling interest (1) (1) Income from continuing operations attributable to CVS Health $ 957 $ 1,140 Denominator for earnings per share calculation: Weighted average shares, basic 1,030 1,092 Effect of dilutive securities 5 7 Weighted average shares, diluted 1,035 1,099 Earnings per share from continuing operations: Basic $ 0.93 $ 1.04 Diluted $ 0.92 $ 1.04 |
Segment Reporting
Segment Reporting | 3 Months Ended |
Mar. 31, 2017 | |
Segment Reporting | |
Segment Reporting | Note 7 – 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 and ACS Pharmacy names. As of March 31, 2017, the Pharmacy Services Segment operated 23 retail specialty pharmacy stores, 13 specialty mail order pharmacies, four mail service dispensing pharmacies, and 84 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 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 March 31, 2017, our Retail/LTC Segment included 9,676 retail stores (of which 7,948 were the Company’s stores that operated a pharmacy and 1,678 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, 40 onsite pharmacies primarily operating under the CarePlus CVS Pharmacy TM , CarePlus ® and CVS Pharmacy ® names, 1,125 retail health care clinics operating under the MinuteClinic ® name (of which 1,118 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 151 spoke pharmacies that primarily handle new prescription orders, of which 32 are also hub pharmacies that use proprietary automation to support spoke pharmacies with refill prescriptions. LTC operates primarily under the Omnicare ® and NeighborCare ® names. The Corporate Segment provides management and administrative services to support the Company. The Corporate Segment consists of certain aspects of executive management, corporate relations, legal, compliance, human resources, information technology and finance departments. Pharmacy Services Retail/LTC Corporate Intersegment Consolidated In millions Segment (1) Segment Segment Eliminations (2) Totals Three Months Ended March 31, 2017: Net revenues $ 31,223 $ 19,341 $ — $ (6,050) $ 44,514 Gross profit 1,096 5,676 — (192) 6,580 Operating profit (loss) (3) 784 1,411 (226) (176) 1,793 March 31, 2016: Net revenues 28,765 20,112 — (5,662) 43,215 Gross profit (4) 1,102 5,830 — (188) 6,744 Operating profit (loss) (4)(5) 784 1,784 (212) (171) 2,185 (1) Net revenues of the Pharmacy Services Segment include approximately $3.1 billion and $3.0 billion of Retail Co‑Payments for the three months ended March 31, 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 operating profit for the three months ended March 31, 2017 includes a $199 million charge associated with store closures (see “Note 4 – Store Closures” to the condensed consolidated financial statements) and $15 million of acquisition-related integration costs. The integration costs are related to the acquisition of Omnicare. (4) The Retail/LTC Segment gross profit and operating profit for the three months ended March 31, 2016 includes $4 million and $61 million, respectively, of acquisition-related integration costs. The integration costs are related to the acquisitions of Omnicare and the pharmacies and clinics of Target. (5) 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 $9 million (see “Note 1 – Accounting Policies” to the condensed consolidated financial statements). |
Commitments and Contingencies
Commitments and Contingencies | 3 Months Ended |
Mar. 31, 2017 | |
Commitments and Contingencies | |
Commitments and Contingencies | Note 8 – Commitments and Contingencies Lease Guarantees Between 1991 and 1997, the Company sold or spun off a number of subsidiaries, including Bob’s Stores, Linens ‘n Things, Marshalls, Kay-Bee Toys, Wilsons, This End Up and Footstar. In many cases, when a former subsidiary leased a store, the Company provided a guarantee of the store’s lease obligations. When the subsidiaries were disposed of and accounted for as discontinued operations, the Company’s guarantees remained in place, although each initial purchaser has agreed to indemnify the Company for any lease obligations the Company was required to satisfy. If any of the purchasers or any of the former subsidiaries were to become insolvent and failed to make the required payments under a store lease, the Company could be required to satisfy these obligations. As of March 31, 2017, the Company guaranteed approximately 86 such store leases (excluding the lease guarantees related to Linens ‘n Things, which have been recorded as a liability on the condensed consolidated balance sheet), with the maximum remaining lease term extending through 2047. In April 2016, Bob’s Stores filed for Chapter 11 bankruptcy protection. As described above, the Company, through one or more of its affiliates, is alleged to have guaranteed certain of the Bob’s Stores’ leases (the “Bob’s Leases”). The Company, through its subsidiary, CVS Pharmacy, Inc., and Bob’s Stores, LLC, a Delaware limited liability company (“New Bob’s”), the entity that acquired substantially all of the assets of Bob’s Stores in the 2016 bankruptcy proceeding, entered into an agreement in October 2016, pursuant to which, in exchange for a series of payments that are immaterial individually and in the aggregate to be made by CVS Pharmacy, Inc., New Bob’s accepted the assignment of the Bob’s Leases and agreed to be bound by certain restrictions regarding renewals, extensions and modifications to the Bob’s Leases. The Company believed these restrictions would potentially reduce the Company's exposure to liability under guarantees of the Bob’s Leases in the future. The bankruptcy court approved the assignment of the Bob’s Leases to New Bob's on November 7, 2016, and all of the Bob’s Leases were assigned to New Bob’s. On February 5, 2017, New Bob’s and certain of its affiliates (collectively, the “Debtors”) filed for Chapter 11 bankruptcy protection. The Debtors, including New Bob’s, have sought Bankruptcy Court approval to sell substantially all of their assets to an affiliate of SportsDirect Retail Ltd. (the “SD Affiliate”). As of this time, it is unclear which of the Bob’s Leases will be assumed by the SD Affiliate. The Company will continue to monitor the Debtors’ bankruptcy proceedings. Legal Matters The Company is a party to legal proceedings, investigations and claims in the ordinary course of its business, including the matters described below. The Company records accruals for outstanding legal matters when it believes it is probable that a loss will be incurred and the amount can be reasonably estimated. The Company evaluates, on a quarterly basis, developments in legal matters that could affect the amount of any accrual and developments that would make a loss contingency both probable and reasonably estimable. If a loss contingency is not both probable and estimable, the Company does not establish an accrued liability. None of the Company’s accruals for outstanding legal matters are material individually or in the aggregate to the Company’s financial position. Except as otherwise noted, the Company cannot predict with certainty the timing or outcome of the legal matters described below, and 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. · 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 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 federal government has declined intervention in the case. · United States ex rel. James Banigan and Richard Templin v. Organon USA Inc. et al. (U.S. District Court for the District of Massachusetts). In October 2010, the court unsealed a qui tam complaint, which had been under seal since 2007, against Organon, Omnicare, Inc. and PharMerica Corporation. The suit was brought by two former employees of Organon, as relators on behalf of the federal government and several state and local governments. The action alleges civil violations of the federal False Claims Act based on allegations that Organon and its affiliates paid Omnicare and several other long-term care pharmacies rebates, post-purchase discounts and other forms of remuneration in return for purchasing pharmaceuticals from Organon and taking steps to increase the purchase of Organon’s drugs in violation of the Anti-Kickback Statute. The U.S. Department of Justice declined to intervene in this action. The Company has tentatively agreed with the Department of Justice to resolve this matter for $23 million plus interest. These financial terms are contingent on approval by authorized officials at the Department of Justice, negotiation of terms of a settlement agreement, approval and releases from the OIG, the National Association of Medicaid Fraud Control Units, and the Department of Justice. While the Company believes that a final settlement will be reached, there can be no assurance that any final settlement agreement will be reached or as to the final terms of such settlement. · 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 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 Caremark's motion for summary judgment in its entirety, and entered judgment in favor of 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 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 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. · California ReadyFill Subpoena. In November 2012, the Company received a subpoena for documents from the OIG requesting information concerning automatic refill programs used by pharmacies to refill prescriptions for customers. The subpoena was issued in connection with an investigation conducted out of the U.S. Attorney’s Office for the Central District of California. The Company produced documents and data. · Pure Services Subpoena. In November 2013, Omnicare received a subpoena from HHS-OIG seeking information regarding Omnicare’s May 2008 acquisition of Pure Service Pharmacy. In 2016, Omnicare reached an agreement regarding financial terms to resolve, for $1.5 million plus interest, the subpoena regarding the acquisition of Pure Service Pharmacy. These financial terms are contingent on approval by authorized officials at the Department of Justice, negotiation of terms of a settlement agreement, approval and releases from the OIG, the National Association of Medicaid Fraud Control Units, and the Department of Justice. While the Company believes that a final settlement will be reached, there can be no assurance that any final settlement agreement will be reached or as to the final terms of such settlement. · Auto Label Subpoena. In June 2014, Omnicare received a subpoena from the United States Attorney’s Office for the District of New Jersey seeking information regarding Omnicare’s Auto Label Verification system. In 2016, Omnicare reached an agreement regarding financial terms to resolve, for $8 million plus interest, the subpoena regarding Omnicare’s Auto Label Verification system. These financial terms are contingent on approval by authorized officials at the Department of Justice, negotiation of terms of a settlement agreement, approval and releases from the OIG, the National Association of Medicaid Fraud Control Units, and the Department of Justice. While the Company believes that a final settlement will be reached, there can be no assurance that any final settlement agreement will be reached or as to the final terms of such settlement. · 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 Part D of the Medicare Program, 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. · ReadyFill Subpoena (Minnesota). In May 2015, the Company received a subpoena from the OIG requesting information and documents concerning the Company’s automatic refill programs, adherence outreach programs, and pharmacy customer incentives, particularly in connection with claims for reimbursement made to the Minnesota Medicaid program. The Company has been cooperating with the investigation and providing 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. (U.S. District Court for the District of Rhode Island) and Plumbers Welfare Fund, Local 130 v. CVS Health Corporation (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 as the pharmacy’s usual and customary price the price available to members of the CVS Health Savings Pass program. In the consumer case (Corcoran), the Court denied plaintiffs’ motion for certification of an 11-state class without prejudice. The Company continues to defend these actions. · Omnicare DEA Subpoena. In September 2015, Omnicare was served with an administrative subpoena by the U.S. Drug Enforcement Agency (“DEA”). The subpoena seeks documents related to controlled substance policies, procedures, and practices at eight pharmacy locations from May 2012 to the present. The Company has been cooperating and providing documents in response to this administrative subpoena. · Omnicare Cycle Fill CID. 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. · PBM Pricing CID. In October 2015, the Company received from the U.S. Department of Justice a Civil Investigative Demand requesting documents and information in connection with a 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 U.S. Department of Justice 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 & Cosmetic Act. In March 2017, the Court granted the Company's motion to dismiss with leave to file an amended complaint. · Barchock et al. v. CVS Health Corporation et al. (U.S. District Court for the District of Rhode Island). In February 2016, an ERISA 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 alleges 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. · 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 Health Savings Pass program as well as certain other generic drugs. The Company’s motion to dismiss the complaint was denied. · DEA Matters. In October 2016, the Company reached an agreement in principle with the U.S. Attorney’s Office for the Eastern District of California to resolve alleged violations of the Controlled Substances Act (“CSA”) for $5 million. The settlement is contingent on the negotiation of terms of a settlement agreement. 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 Office 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 LLC, as well as various other distributors of controlled substances, caused a public nuisance related to opioid 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 actions. · 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 as the pharmacy’s usual and customary price the price available to members of the CVS Health Savings Pass program. 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 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 is defending this action. 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. · Cold Chain Logistics CID . In September 2016, the Company received from the U.S. Department of Justice 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 actions. · 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 pharmacy benefit managers (“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. 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. The Company is also a party to other legal proceedings, government investigations, inquiries and audits, and has received and is cooperating with subpoenas or similar process from various governmental agencies requesting information, all arising in the normal course of its business, none of which is expected to be material to the Company. The Company can give no assurance, however, that its business, financial condition and results of operations will not be materially adversely affected, or that the Company will not be required to materially change its business practices, based on: (i) future enactment of new health care or other laws or regulations; (ii) the interpretation or application of existing laws or regulations as they may relate to the Company’s business, the pharmacy services, specialty pharmacy, retail pharmacy, long-term care pharmacy or retail clinic industries or to the health care industry generally; (iii) pending or future federal or state governmental investigations of the Company’s business or the pharmacy services, specialty pharmacy, retail pharmacy, long-term care pharmacy or retail clinic industry or of the health care industry generally; (iv) pending or future government 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 the pharmacy services, specialty pharmacy, retail pharmacy, long-term care pharmacy or retail clinic industry or the health care industry generally. |
Accounting Policies (Policies)
Accounting Policies (Policies) | 3 Months Ended |
Mar. 31, 2017 | |
Accounting Policies | |
Principles of Consolidation | Principles of Consolidation The 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 condensed consolidated financial statements. VIE creditors do not have recourse against the general credit of the Company. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments The Company utilizes 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 levels of the hierarchy consist of the following: · Level 1 – Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. · Level 2 – Inputs to the valuation methodology are quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active or inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the instrument. · Level 3 – Inputs to the valuation methodology are unobservable inputs based upon management’s best estimate of inputs market participants could use in pricing the asset or liability at the measurement date, including assumptions about risk. As of March 31, 2017, the carrying value of cash and cash equivalents, short-term investments, accounts receivable, accounts payable, and 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 accompanying condensed consolidated balance sheets, as these funds are highly liquid and readily convertible to known amounts of cash. These investments are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. The Company’s short-term investments of $85 million at March 31, 2017 consist of certificates of deposit with initial maturities of greater than three months when purchased that mature within one year from the balance sheet date. These investments, which are classified within Level 1 of the fair value hierarchy, are carried at fair value, which approximated historical cost at March 31, 2017. The carrying amount and estimated fair value of the Company’s total long-term debt was $25.7 billion and $26.6 billion, respectively, as of March 31, 2017. The fair value of the Company’s long-term debt was estimated based on quoted prices currently offered in active markets for the Company’s debt, which is considered Level 1 of the fair value hierarchy. |
Related Party Transactions | 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 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 $17 million and $13 million in the three months ended March 31, 2017 and 2016, respectively. The Company’s investment in and equity in earnings of SureScripts for all periods presented is immaterial. The Company has an equity method investment in Heartland Healthcare Services (“Heartland”). Heartland operates several long-term care pharmacies in four states. Heartland paid the Company approximately $40 million and $38 million for pharmaceutical inventory purchases during the three months ended March 31, 2017 and 2016, respectively. Additionally, the Company performs certain collection functions for Heartland and then passes those customer cash collections to Heartland. The Company’s investment in Heartland as of March 31, 2017 and December 31, 2016 and equity in earnings of Heartland for the three months ended March 31, 2017 and 2016 is immaterial. |
Discontinued Operations | 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 8 – Commitments and Contingencies” to the condensed consolidated financial statements. The Company’s loss from discontinued operations includes lease-related costs which the Company believes it will likely be required to satisfy pursuant to its lease guarantees. |
New Accounting Pronouncements | New Accounting Pronouncements Recently Adopted In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-11, Inventory , which amends Accounting Standard Codification (“ASC”) Topic 330. This ASU simplifies current accounting treatments by requiring entities to measure most inventories at “the lower of cost and net realizable value” rather than using lower of cost or market. This guidance does not apply to inventories measured using the last-in, first-out method or the retail inventory method. The Company adopted this standard effective January 1, 2017. The adoption of this new guidance did not have any impact on the Company’s condensed consolidated results of operations, financial position or cash flows. In March 2016, the FASB issued ASU No. 2016-09, 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. The new guidance 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 new guidance is required to be applied prospectively. The new 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 new 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 new guidance effective January 1, 2017. The primary impact of adopting this new guidance was the recognition of excess tax benefits in the income statement instead of recognizing them in equity. This new income statement guidance was adopted on a prospective basis. As a result, a discrete tax benefit of $19 million was recognized in the income tax provision in the three months ended March 31, 2017. The Company elected to retrospectively adopt the new guidance on the presentation of excess tax benefits in the statement of cash flows. As a result, the following is a reconciliation of the effect of the reclassification of the excess tax benefits on the Company’s condensed consolidated statement of cash flows for the three months ended March 31, 2016: As Previously In millions Reported Adjustments As Revised Cash paid to other suppliers and employees $ (2,961) $ 27 $ (2,934) Net cash provided by operating activities 2,412 27 2,439 Excess tax benefits from stock-based compensation 27 (27) — Net cash used in financing activities (2,460) (27) (2,487) Reconciliation of net income to net cash provided by operating activities: Accrued expenses 741 27 768 The Company elected to continue to estimate forfeitures expected to occur to determine the amount of compensation cost to be recognized in each period. None of the other provisions in this new guidance had a material impact on the Company’s condensed consolidated financial statements. In March 2017, the FASB issued ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost , which amends ASC Topic 715, Compensation – Retirement Benefits . ASU 2017-17 requires entities to disaggregate the current service cost component from the other components of net benefit cost and present it with other current compensation costs for related employees in the income statement and present the other components of net benefit cost elsewhere in the income statement and outside of operating income. Only the service cost component of net benefit cost is eligible for capitalization. The guidance is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted as of the beginning of any annual periods for which an entity’s financial statements have not been issued. Entities are required to retrospectively apply the requirement for a separate presentation in the income statement of service costs and other components of net benefit cost and prospectively adopt the requirement to limit the capitalization of benefit costs to the service component. The Company adopted the income statement presentation aspects of this new guidance on a retrospective basis during the three months ended March 31, 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 statement of income for the three months ended March 31, 2016: As Previously In millions Reported Adjustments As Revised Operating expenses $ 4,568 $ (9) $ 4,559 Operating profit 2,176 9 2,185 Other expense — 9 9 In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment , which amends ASC Topic 350, Intangibles – Goodwill and Other . This ASU requires the Company to perform its annual, or applicable interim, goodwill impairment test by comparing the fair value of each reporting unit with its carrying amount. An impairment charge must be recognized at the amount by which the carrying amount exceeds the fair value of the reporting unit; however, the charge recognized should not exceed the total amount of goodwill allocated to that reporting unit. Income tax effects resulting from any tax deductible goodwill should be considered when measuring a goodwill impairment loss, if applicable. The guidance in ASU 2017-04 is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company elected to early adopt this standard as of January 1, 2017. The adoption of this guidance did not have any impact on the Company’s condensed consolidated results of operations, financial position or cash flows. New Accounting Pronouncements Not Yet Adopted In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 outlines a single comprehensive model for companies to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. In March 2016, the FASB issued ASU 2016-08, “ Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net) ,” which amends the principal-versus-agent implementation guidance and in April 2016 the FASB issued ASU 2016-10, “ Identifying Performance Obligations and Licensing ,” which amends the guidance in those areas in the new revenue recognition standard. Both ASU's were issued in response to feedback received from the FASB-International Accounting Standards Board joint revenue recognition transition resource group. This new standard could impact the timing and amounts of revenue recognized. The new revenue standard is effective for annual reporting periods (including interim reporting periods within those periods) beginning January 1, 2018. Early adoption of the standard in 2017 is permitted; however, the Company does not intend to early adopt the new standard. Companies have the option of using either a full retrospective or a modified retrospective approach to adopt the guidance. The Company formed a project team to assess and implement the new standard. While the Company is continuing to assess all of the potential impacts of the new standard including the potential impact from recent acquisitions, the Company does not expect the implementation of the 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 intends to adopt the new standard on a modified retrospective basis. 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 new 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 this new accounting guidance. |
Accounting Policies (Tables)
Accounting Policies (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Accounting Policies | |
Reconciliation of condensed consolidated statement of cash flows | As Previously In millions Reported Adjustments As Revised Cash paid to other suppliers and employees $ (2,961) $ 27 $ (2,934) Net cash provided by operating activities 2,412 27 2,439 Excess tax benefits from stock-based compensation 27 (27) — Net cash used in financing activities (2,460) (27) (2,487) Reconciliation of net income to net cash provided by operating activities: Accrued expenses 741 27 768 |
Reconciliation of condensed consolidated statement of income | As Previously In millions Reported Adjustments As Revised Operating expenses $ 4,568 $ (9) $ 4,559 Operating profit 2,176 9 2,185 Other expense — 9 9 |
Share Repurchase Programs (Tabl
Share Repurchase Programs (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Equity [Abstract] | |
Share Repurchase Programs | In billions Authorization Date Authorized Remaining November 2, 2016 (“2016 Repurchase Program”) $ 15.0 $ 14.6 December 15, 2014 (“2014 Repurchase Program”) $ 10.0 $ — |
Accumulated Other Comprehensi18
Accumulated Other Comprehensive Income (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Accumulated Other Comprehensive Income | |
Schedule of Accumulated Other Comprehensive Income (Loss) by Component | Three Months Ended March 31, 2017 (1) Pension and Losses on Other Foreign Cash Flow Postretirement In millions Currency Hedges Benefits Total Balance, December 31, 2016 $ (127) $ (5) $ (173) $ (305) Other comprehensive income before reclassifications 8 — — 8 Amounts reclassified from accumulated other comprehensive income (2) — 1 — 1 Net other comprehensive income 8 1 — 9 Balance, March 31, 2017 $ (119) $ (4) $ (173) $ (296) Three Months Ended March 31, 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 18 — — 18 Amounts reclassified from accumulated other comprehensive income (2) — 1 — 1 Net other comprehensive income 18 1 — 19 Balance, March 31, 2016 $ (147) $ (6) $ (186) $ (339) (1) All amounts are net of tax. The amounts reclassified from accumulated other comprehensive income for losses on cash flow hedges are recorded within interest expense, net on the condensed consolidated statement 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 statement of income. |
Interest Expense, Net (Tables)
Interest Expense, Net (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Interest Expense, Net | |
Components of net interest expense | Three Months Ended March 31, In millions 2017 2016 Interest expense $ 258 $ 288 Interest income (6) (5) Interest expense, net $ 252 $ 283 |
Earnings Per Share (Tables)
Earnings Per Share (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Earnings Per Share | |
Reconciliation of basic and diluted earnings per common share | Three Months Ended March 31, In millions, except per share amounts 2017 2016 Numerator for earnings per share calculation: Income from continuing operations $ 962 $ 1,147 Income allocated to participating securities (4) (6) Net income attributable to noncontrolling interest (1) (1) Income from continuing operations attributable to CVS Health $ 957 $ 1,140 Denominator for earnings per share calculation: Weighted average shares, basic 1,030 1,092 Effect of dilutive securities 5 7 Weighted average shares, diluted 1,035 1,099 Earnings per share from continuing operations: Basic $ 0.93 $ 1.04 Diluted $ 0.92 $ 1.04 |
Segment Reporting (Tables)
Segment Reporting (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Segment Reporting | |
Reconciliation of the Company's business segments to the consolidated financial statements | Pharmacy Services Retail/LTC Corporate Intersegment Consolidated In millions Segment (1) Segment Segment Eliminations (2) Totals Three Months Ended March 31, 2017: Net revenues $ 31,223 $ 19,341 $ — $ (6,050) $ 44,514 Gross profit 1,096 5,676 — (192) 6,580 Operating profit (loss) (3) 784 1,411 (226) (176) 1,793 March 31, 2016: Net revenues 28,765 20,112 — (5,662) 43,215 Gross profit (4) 1,102 5,830 — (188) 6,744 Operating profit (loss) (4)(5) 784 1,784 (212) (171) 2,185 (1) Net revenues of the Pharmacy Services Segment include approximately $3.1 billion and $3.0 billion of Retail Co‑Payments for the three months ended March 31, 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 operating profit for the three months ended March 31, 2017 includes a $199 million charge associated with store closures (see “Note 4 – Store Closures” to the condensed consolidated financial statements) and $15 million of acquisition-related integration costs. The integration costs are related to the acquisition of Omnicare. (4) The Retail/LTC Segment gross profit and operating profit for the three months ended March 31, 2016 includes $4 million and $61 million, respectively, of acquisition-related integration costs. The integration costs are related to the acquisitions of Omnicare and the pharmacies and clinics of Target. 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 $9 million (see “Note 1 – Accounting Policies” to the condensed consolidated financial statements). |
Accounting Policies - Fair Valu
Accounting Policies - Fair Value of Financial Instruments (Details) - USD ($) $ in Millions | Mar. 31, 2017 | Dec. 31, 2016 |
Accounting Policies | ||
Short-term investments | $ 85 | $ 87 |
Carrying amount of long-term debt | 25,700 | |
Estimated fair value of long-term debt | $ 26,600 |
Accounting Policies - Related P
Accounting Policies - Related Party Transactions (Details) $ in Millions | 3 Months Ended | |
Mar. 31, 2017USD ($)state | Mar. 31, 2016USD ($) | |
Related Party Transaction [Line Items] | ||
Expenses from transactions with related party | $ 17 | $ 13 |
Equity Method Investee | ||
Related Party Transaction [Line Items] | ||
Other revenues from transactions with related party | $ 40 | $ 38 |
Heartland Healthcare Services | ||
Related Party Transaction [Line Items] | ||
Number of states in which entity operates | state | 4 |
Accounting Policies - New Accou
Accounting Policies - New Accounting Pronouncements (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
New Accounting Pronouncements or Change in Accounting Principle | ||
Income tax provision | $ 572 | $ 746 |
Statement of Cash Flows | ||
Cash paid to other suppliers and employees | (3,823) | (2,934) |
Net cash provided by operating activities | 3,533 | 2,439 |
Net cash used in financing activities | (4,133) | (2,487) |
Reconciliation of net income to net cash provided by operating activities: | ||
Accrued expenses | 1,848 | 768 |
Income Statement | ||
Operating expenses | 4,787 | 4,559 |
Operating profit | 1,793 | 2,185 |
Other expense | 7 | 9 |
Previously Reported | ||
Statement of Cash Flows | ||
Cash paid to other suppliers and employees | (2,961) | |
Net cash provided by operating activities | 2,412 | |
Excess tax benefits from stock-based compensation | 27 | |
Net cash used in financing activities | (2,460) | |
Reconciliation of net income to net cash provided by operating activities: | ||
Accrued expenses | 741 | |
Income Statement | ||
Operating expenses | 4,568 | |
Operating profit | 2,176 | |
Adjustment | ||
Statement of Cash Flows | ||
Cash paid to other suppliers and employees | 27 | |
Net cash provided by operating activities | 27 | |
Excess tax benefits from stock-based compensation | (27) | |
Net cash used in financing activities | (27) | |
Reconciliation of net income to net cash provided by operating activities: | ||
Accrued expenses | 27 | |
Income Statement | ||
Operating expenses | (9) | |
Operating profit | 9 | |
Other expense | $ 9 | |
ASU 2016-09 | Previously Reported | ||
New Accounting Pronouncements or Change in Accounting Principle | ||
Income tax provision | $ (19) |
Share Repurchase Program (Detai
Share Repurchase Program (Details) shares in Millions, $ in Millions | Aug. 29, 2016USD ($)agreement | Apr. 30, 2017USD ($)shares | Mar. 31, 2017USD ($)shares | Jan. 31, 2017shares | Jan. 06, 2017 |
2016 Repurchase Program | |||||
Share repurchases | |||||
Share repurchase program, authorized amount | $ 15,000 | ||||
Amount available for repurchases | 14,600 | ||||
2014 Repurchase Program | |||||
Share repurchases | |||||
Share repurchase program, authorized amount | 10,000 | ||||
2014 Repurchase Program | August 29, 2016 | |||||
Share repurchases | |||||
Repurchase of common stock | $ 9.9 | ||||
Number of agreements | agreement | 2 | ||||
Amount under ASR agreement | $ 3,600 | $ 3,600 | |||
ASR, shares received as a percent of notional amount | 80.00% | ||||
Shares repurchased under ASR agreement (in shares) | shares | 36.1 | ||||
ASR, shares to be received at end of program as a percent of notional amount | 20.00% | ||||
ASR, maximum number of shares (in shares) | shares | 9.9 | ||||
Transfer of shares to treasury stock value | 2,900 | ||||
2014 Repurchase Program | Forward contract | August 29, 2016 | |||||
Share repurchases | |||||
Derivative, Notional Amount | $ 700 | ||||
Share Repurchase Program 2016 and 2014 | |||||
Share repurchases | |||||
Repurchase of common stock (in shares) | shares | 36.1 | ||||
Repurchase of common stock | $ 3,600 |
Accumulated Other Comprehensi26
Accumulated Other Comprehensive Income (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Accumulated Other Comprehensive Income (Loss) [Roll Forward] | ||
Beginning of year | $ 36,834 | |
Total other comprehensive income | 9 | $ 19 |
End of year | 33,842 | |
Foreign Currency | ||
Accumulated Other Comprehensive Income (Loss) [Roll Forward] | ||
Beginning of year | (127) | (165) |
Other comprehensive income before reclassifications | 8 | 18 |
Amounts reclassified from accumulated other comprehensive income | 0 | 0 |
Total other comprehensive income | 8 | 18 |
End of year | (119) | (147) |
Losses on Cash Flow Hedges | ||
Accumulated Other Comprehensive Income (Loss) [Roll Forward] | ||
Beginning of year | (5) | (7) |
Other comprehensive income before reclassifications | 0 | 0 |
Amounts reclassified from accumulated other comprehensive income | 1 | 1 |
Total other comprehensive income | 1 | 1 |
End of year | (4) | (6) |
Pension and Other Postretirement Benefits | ||
Accumulated Other Comprehensive Income (Loss) [Roll Forward] | ||
Beginning of year | (173) | (186) |
Other comprehensive income before reclassifications | 0 | 0 |
Amounts reclassified from accumulated other comprehensive income | 0 | 0 |
End of year | (173) | (186) |
Accumulated Other Comprehensive Loss | ||
Accumulated Other Comprehensive Income (Loss) [Roll Forward] | ||
Beginning of year | (305) | (358) |
Other comprehensive income before reclassifications | 8 | 18 |
Amounts reclassified from accumulated other comprehensive income | 1 | 1 |
Total other comprehensive income | 9 | 19 |
End of year | $ (296) | $ (339) |
Store Closures (Details)
Store Closures (Details) $ in Millions | 3 Months Ended | 12 Months Ended |
Mar. 31, 2017USD ($)store | Dec. 31, 2017USD ($)store | |
Restructuring and Related Cost, Expected Cost | ||
Number of underperforming store closures | store | 60 | |
Restructuring charge incurred | $ | $ 199 | |
Forecast | ||
Restructuring and Related Cost, Expected Cost | ||
Number of underperforming store closures | store | 70 | |
Additional Restructuring charges expected to be incurred | $ | $ 20 |
Interest Expense, Net (Details)
Interest Expense, Net (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Interest Expense | ||
Interest expense | $ 258 | $ 288 |
Interest income | (6) | (5) |
Interest expense), net | $ 252 | $ 283 |
Earnings Per Share (Details)
Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Millions, $ in Millions | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Reconciliation of basic and diluted earnings per common share | ||
Antidilutive securities excluded from computation of earnings per share (in shares) | 7.8 | 3.6 |
Numerator for earnings per share calculation: | ||
Income from continuing operations | $ 962 | $ 1,147 |
Income allocated to participating securities | (4) | (6) |
Net income attributable to noncontrolling interest | (1) | (1) |
Income from continuing operations attributable to CVS Health | $ 957 | $ 1,140 |
Denominator for earnings per share calculation: | ||
Weighted average shares, basic (in shares) | 1,030 | 1,092 |
Effect of dilutive securities (in shares) | 5 | 7 |
Weighted average shares, diluted (in shares) | 1,035 | 1,099 |
Earnings per share from continuing operations: | ||
Earnings per share, basic (in dollars per share) | $ 0.93 | $ 1.04 |
Earnings per share, diluted (in dollars per share) | $ 0.92 | $ 1.04 |
Segment Reporting (Details)
Segment Reporting (Details) $ in Millions | 3 Months Ended | |
Mar. 31, 2017USD ($)statesegmentpharmacyitemstoreCenter | Mar. 31, 2016USD ($) | |
Segment reporting information | ||
Number of reportable segments | segment | 3 | |
Net revenues | $ 44,514 | $ 43,215 |
Gross profit | 6,580 | 6,744 |
Operating profit (loss) | 1,793 | 2,185 |
Restructuring charge incurred | $ 199 | |
ASU 2017-17 | ||
Segment reporting information | ||
Operating profit (loss) | 9 | |
Pharmacy Services Segment | ||
Segment reporting information | ||
Centers of excellence for infusion and enteral services | Center | 3 | |
Number of states pharmacies operated | state | 41 | |
Net revenues | $ 31,223 | 28,765 |
Gross profit | 1,096 | 1,102 |
Operating profit (loss) | 784 | 784 |
Net revenues, retail co-payments | $ 3,100 | 3,000 |
Retail/LTC Segment | ||
Segment reporting information | ||
Number of states pharmacies operated | state | 49 | |
Number of retail drugstores | item | 9,676 | |
Number of retail drugstores operating a pharmacy | item | 7,948 | |
Number of LTC spoke pharmacies | item | 151 | |
Number of LTC hub pharmacies | item | 32 | |
Net revenues | $ 19,341 | 20,112 |
Gross profit | 5,676 | 5,830 |
Operating profit (loss) | 1,411 | 1,784 |
Restructuring charge incurred | 199 | |
Integration related costs | 15 | |
Retail/LTC Segment | Gross Profit | ||
Segment reporting information | ||
Integration related costs | 4 | |
Retail/LTC Segment | Operating profit | ||
Segment reporting information | ||
Integration related costs | 61 | |
Corporate Segment | ||
Segment reporting information | ||
Operating profit (loss) | (226) | (212) |
Intersegment Eliminations | ||
Segment reporting information | ||
Net revenues | (6,050) | (5,662) |
Gross profit | (192) | (188) |
Operating profit (loss) | $ (176) | $ (171) |
Minute Clinic Within C V S Pharmacy Stores | Retail/LTC Segment | ||
Segment reporting information | ||
Number of clinics in retail drugstores | item | 1,118 | |
CarePlus and CVS Pharmacy | Retail/LTC Segment | ||
Segment reporting information | ||
Number of pharmacies (more than 68,000) | pharmacy | 40 | |
MinuteClinic | Retail/LTC Segment | ||
Segment reporting information | ||
Number of clinics | item | 1,125 | |
Target Pharmacy Acquisition | Retail/LTC Segment | ||
Segment reporting information | ||
Number of retail drugstores operating a pharmacy | store | 1,678 | |
Specialty stores | Pharmacy Services Segment | ||
Segment reporting information | ||
Number of pharmacies (more than 68,000) | pharmacy | 23 | |
Specialty mail order | Pharmacy Services Segment | ||
Segment reporting information | ||
Number of pharmacies (more than 68,000) | pharmacy | 13 | |
Mail service | Pharmacy Services Segment | ||
Segment reporting information | ||
Number of pharmacies (more than 68,000) | pharmacy | 4 | |
Infusion and Enteral Branches | Pharmacy Services Segment | ||
Segment reporting information | ||
Number of infusion and enteral branches | pharmacy | 84 | |
Ambulatory Infusion Suites | Pharmacy Services Segment | ||
Segment reporting information | ||
Number of infusion and enteral branches | pharmacy | 73 |
Commitments and Contingencies (
Commitments and Contingencies (Details) $ in Millions | 1 Months Ended | 3 Months Ended | 12 Months Ended | |||||
Mar. 31, 2017lawsuitstore | Oct. 31, 2016USD ($) | Sep. 30, 2015pharmacy | Jun. 30, 2014USD ($) | Oct. 31, 2010USD ($)plaintiff | Feb. 28, 2006lawsuititemdirector | Mar. 31, 2017itemstore | Dec. 31, 2016USD ($)item | |
Loss contingencies | ||||||||
Number of store leases guaranteed | store | 86 | 86 | ||||||
Number of material accruals for outstanding legal matters | item | 0 | |||||||
Number of states in which plaintiffs reside | item | 11 | |||||||
Number of pharmacies indicated in subpoena | pharmacy | 8 | |||||||
Number of Caremark entities named as defendants | lawsuit | 4 | |||||||
Number of legal proceedings, government investigations, inquiries and audits expected to be material | item | 0 | |||||||
Omnicare, Inc. | ||||||||
Loss contingencies | ||||||||
New claims filed, number | lawsuit | 2 | |||||||
Number of officers named in lawsuit | item | 3 | |||||||
Number of directors named in lawsuit | director | 2 | |||||||
Banigan and Templin v. Organon USA, Inc., Omnicare, Inc. and PharMerica Corporation | Omnicare, Inc. | ||||||||
Loss contingencies | ||||||||
Number of former employees | plaintiff | 2 | |||||||
Litigation settlement, amount | $ | $ 23 | |||||||
Omnicare's Nationwide Billing Practices, Pure Service Pharmacy | Omnicare, Inc. | ||||||||
Loss contingencies | ||||||||
Litigation settlement, amount | $ | $ 1.5 | |||||||
Auto Label Verification | Omnicare, Inc. | ||||||||
Loss contingencies | ||||||||
Litigation settlement, amount | $ | $ 8 | |||||||
Controlled Substances Act | ||||||||
Loss contingencies | ||||||||
Litigation settlement, amount | $ | $ 5 |