Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Mar. 31, 2018 | Apr. 25, 2018 | |
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, 2018 | |
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 | 1,016,646,347 | |
Document Fiscal Year Focus | 2,018 | |
Document Fiscal Period Focus | Q1 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Income - USD ($) shares in Millions, $ in Millions | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Condensed Consolidated Statements of Income | ||
Net revenues | $ 45,693 | $ 44,514 |
Cost of Goods and Services Sold | 38,834 | 37,943 |
Gross profit | 6,859 | 6,571 |
Operating expenses | 4,913 | 4,778 |
Operating profit | 1,946 | 1,793 |
Interest expense, net | 473 | 252 |
Other expense | 3 | 7 |
Income before income tax provision | 1,470 | 1,534 |
Income tax provision | 472 | 572 |
Income from continuing operations | 998 | 962 |
Loss from discontinued operations, net of tax | (9) | |
Net income | 998 | 953 |
Net income attributable to noncontrolling interest | (1) | |
Net income attributable to CVS Health | $ 998 | $ 952 |
Basic earnings per share: | ||
Income from continuing operations attributable to CVS Health (in dollars per share) | $ 0.98 | $ 0.93 |
Loss from discontinued operations attributable to CVS Health (in dollars per share) | (0.01) | |
Net income attributable to CVS Health (in dollars per share) | $ 0.98 | $ 0.92 |
Weighted average shares outstanding (in shares) | 1,016 | 1,030 |
Diluted earnings per share: | ||
Income from continuing operations attributable to CVS Health (in dollars per share) | $ 0.98 | $ 0.92 |
Loss from discontinued operations attributable to CVS Health (in dollars per share) | (0.01) | |
Net income attributable to CVS Health (in dollars per share) | $ 0.98 | $ 0.92 |
Weighted average shares outstanding (in shares) | 1,019 | 1,035 |
Dividends declared per share (in dollars per share) | $ 0.50 | $ 0.50 |
Condensed Consolidated Stateme3
Condensed Consolidated Statements of Comprehensive Income - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Condensed Consolidated Statements of Comprehensive Income | ||
Net income | $ 998 | $ 953 |
Other comprehensive income: | ||
Foreign currency translation adjustments, net of tax | 1 | 8 |
Net cash flow hedges, net of tax | 343 | 1 |
Total other comprehensive income | 344 | 9 |
Comprehensive income | 1,342 | 962 |
Comprehensive income attributable to noncontrolling interest | (1) | |
Comprehensive income attributable to CVS Health | $ 1,342 | $ 961 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets - USD ($) $ in Millions | Mar. 31, 2018 | Dec. 31, 2017 |
Assets: | ||
Cash and cash equivalents | $ 42,023 | $ 1,696 |
Short-term investments | 119 | 111 |
Accounts receivable, net | 13,964 | 13,181 |
Inventories | 14,824 | 15,296 |
Other current assets | 868 | 945 |
Total current assets | 71,798 | 31,229 |
Property and equipment, net | 10,144 | 10,292 |
Goodwill | 38,115 | 38,451 |
Intangible assets, net | 13,388 | 13,630 |
Other assets | 1,694 | 1,529 |
Total assets | 135,139 | 95,131 |
Liabilities: | ||
Accounts payable | 7,741 | 8,863 |
Claims and discounts payable | 11,241 | 10,355 |
Accrued expenses | 7,724 | 6,609 |
Short-term debt | 1,276 | |
Current portion of long-term debt | 3,542 | 3,545 |
Total current liabilities | 30,248 | 30,648 |
Long-term debt | 61,552 | 22,181 |
Deferred income taxes | 3,058 | 2,996 |
Other long-term liabilities | 1,604 | 1,611 |
Total Liabilities | 96,462 | 57,436 |
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; 1,714 shares issued and 1,016 shares outstanding at March 31, 2018 and 1,712 shares issued and 1,014 shares outstanding at December 31, 2017 | 17 | 17 |
Capital surplus | 32,191 | 32,079 |
Treasury stock, at cost: 697 shares at March 31, 2018 and December 31, 2017 | (37,716) | (37,765) |
Shares held in trust: 1 share at March 31, 2018 and December 31, 2017 | (31) | (31) |
Retained earnings | 44,040 | 43,556 |
Accumulated other comprehensive income (loss) | 172 | (165) |
Total CVS Health shareholders’ equity | 38,673 | 37,691 |
Noncontrolling interest | 4 | 4 |
Total shareholders’ equity | 38,677 | 37,695 |
Total liabilities and shareholders’ equity | $ 135,139 | $ 95,131 |
Condensed Consolidated Balance5
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares | Mar. 31, 2018 | Dec. 31, 2017 |
Condensed Consolidated Balance Sheets | ||
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) | 1,714,000,000 | 1,712,000,000 |
Common Stock, shares outstanding (in shares) | 1,016,000,000 | 1,014,000,000 |
Treasury Stock, shares (in shares) | 697,000,000 | 697,000,000 |
Shares held in trust: 1 share at September 30, 2017 and December 31, 2016 (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, 2018 | Mar. 31, 2017 | |
Cash flows from operating activities: | ||
Cash receipts from customers | $ 43,369 | $ 43,913 |
Cash paid for inventory and prescriptions dispensed by retail network pharmacies | (36,195) | (36,178) |
Cash paid to other suppliers and employees | (4,271) | (3,823) |
Interest received | 50 | 6 |
Interest paid | (545) | (328) |
Income taxes paid | (53) | (57) |
Net cash provided by operating activities | 2,355 | 3,533 |
Cash flows from investing activities: | ||
Purchases of property and equipment | (482) | (457) |
Proceeds from sale of property and equipment and other assets | 2 | 5 |
Acquisitions (net of cash acquired) and other investments | (368) | (93) |
Purchase of available-for-sale investments | (18) | |
Maturity of available-for-sale investments | 10 | 8 |
Proceeds from sale of subsidiary | 725 | |
Net cash used in investing activities | (131) | (537) |
Cash flows from financing activities: | ||
Decrease in short-term debt | (1,276) | (106) |
Proceeds from issuance of long-term debt | 39,376 | |
Repayments of long-term debt | (1) | |
Derivative settlements | 446 | |
Repurchase of common stock | (3,621) | |
Dividends paid | (508) | (516) |
Proceeds from exercise of stock options | 107 | 121 |
Payments for taxes related to net share settlement of equity awards | (4) | (11) |
Net cash provided by (used in) financing activities | 38,140 | (4,133) |
Net increase (decrease) in cash, cash equivalents and restricted cash | 40,364 | (1,137) |
Cash, cash equivalents and restricted cash at the beginning of the period | 1,900 | 3,520 |
Cash, cash equivalents and restricted cash at the end of the period | 42,264 | 2,383 |
Reconciliation of net income to net cash provided by operating activities: | ||
Net income | 998 | 953 |
Adjustments required to reconcile net income to net cash provided by operating activities: | ||
Depreciation and amortization | 644 | 619 |
Stock-based compensation | 55 | 55 |
Deferred income taxes and other noncash items | 62 | 14 |
Change in operating assets and liabilities, net of effects from acquisitions: | ||
Accounts receivable, net | (857) | 48 |
Inventories | 464 | 456 |
Other current assets | 56 | (74) |
Other assets | (113) | (1) |
Accounts payable and claims and discounts payable | (178) | (539) |
Accrued expenses | 1,231 | 1,848 |
Other long-term liabilities | (7) | 154 |
Net cash provided by operating activities | $ 2,355 | $ 3,533 |
Accounting Policies
Accounting Policies | 3 Months Ended |
Mar. 31, 2018 | |
Accounting Policies | |
Accounting Policies | CVS Health Corporation Notes to Condensed Consolidated Financial Statements (Unaudited) Note 1 – Accounting Policies Description of business CVS Health Corporation and its subsidiaries (collectively, “CVS Health” or the “Company”) together comprise the largest integrated pharmacy health care provider in the United States based upon revenues and prescriptions filled. The Company currently has three reportable business segments, Pharmacy Services, Retail/LTC and Corporate, which are described below. Pharmacy Services Segment (the “PSS”) - The PSS provides a full range of pharmacy benefit management services 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. As a pharmacy benefits manager, the PSS manages the dispensing of pharmaceuticals through the Company’s mail order pharmacies and national network of more than 68,000 retail pharmacies, consisting of approximately 41,000 chain pharmacies and 27,000 independent pharmacies, to eligible members in the benefits plans maintained by the Company’s clients and utilizes its information systems to perform, among other things, safety checks, drug interaction screenings and brand to generic substitutions. The PSS’ specialty pharmacies support individuals that require complex and expensive drug therapies. The specialty pharmacy business includes mail order and retail specialty pharmacies that operate under the CVS Caremark ® , CarePlus CVS Pharmacy ® , Navarro ® Health Services and Advanced Care Scripts (“ACS Pharmacy”) names. The Company also provides specialty infusion services and enteral nutrition services through Coram LLC and its subsidiaries (collectively, “Coram”). The PSS also provides health management programs, which include integrated disease management for 18 conditions, through the Company’s AccordantCare TM rare disease management offering. In addition, through the Company’s SilverScript Insurance Company (“SilverScript”) subsidiary, the PSS is a national provider of prescription drug benefits to eligible beneficiaries under the federal government’s Medicare Part D program. The PSS generates net revenues primarily by contracting with clients to provide prescription drugs to plan members. Prescription drugs are dispensed by the mail order pharmacies, specialty pharmacies and national network of retail pharmacies. Net revenues are also generated by providing additional services to clients, including administrative services such as claims processing and formulary management, as well as health care related services such as disease management. The PSS operates under the CVS Caremark ® Pharmacy Services, Caremark ® , CVS Caremark ® , CVS Specialty ® , AccordantCare TM , SilverScript®, Wellpartner ® , Coram ® , CVS Specialty ® , NovoLogix ® , Navarro ® Health Services and ACS Pharmacy names. As of March 31, 2018, the PSS operated 25 retail specialty pharmacy stores, 18 specialty mail order pharmacies, four mail order dispensing pharmacies, and 86 branches for infusion and enteral services, including approximately 74 ambulatory infusion suites and three centers of excellence, located in 43 states, Puerto Rico and the District of Columbia. Retail/LTC Segment (the “RLS”) - The RLS sells prescription drugs and a wide assortment of general merchandise, including over-the-counter drugs, beauty products and cosmetics, personal care products, convenience foods, seasonal merchandise, greeting cards, and photo finishing services, through the Company’s CVS Pharmacy ® , CVS ® , CVS Pharmacy y más ® , Longs Drugs ® , Navarro Discount Pharmacy ® and Drogaria Onofre TM retail stores and online through CVS.com ® , Navarro.com TM and Onofre.com.br TM . The RLS 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. The RLS also has long-term care (“LTC”) operations, which is comprised of providing the distribution of pharmaceuticals, related pharmacy consulting and other ancillary services to chronic care facilities and other care settings. Prior to January 2, 2018, the RLS also provided commercialization services under the name RxCrossroads ® (“RxC”). See “Note 3 – Goodwill” for a discussion of the divestiture of RxC. As of March 31, 2018, the RLS included 9,847 retail stores (of which 8,099 were our stores that operated a pharmacy and 1,699 were our pharmacies located within Target stores) located in 49 states, the District of Columbia, Puerto Rico and Brazil operating primarily under the CVS Pharmacy ® , CVS ® , CVS Pharmacy y más ® , Longs Drugs ® , Navarro Discount Pharmacy ® and Drogaria Onofre TM names, 37 onsite pharmacies primarily operating under the CarePlus CVS Pharmacy TM , CarePlus ® and CVS Pharmacy ® names, and 1,111 retail health care clinics operating under the MinuteClinic ® name (of which 1,107 were located in our retail pharmacy stores or Target stores), and our online retail websites, CVS.com ® , Navarro.com TM and Onofre.com.br TM . LTC operations are comprised of 163 spoke pharmacies that primarily handle new prescription orders, of which 30 are also hub pharmacies that use proprietary automation to support spoke pharmacies with refill prescriptions. LTC operates primarily under the Omnicare ® and NeighborCare ® names. Corporate Segment - The Corporate Segment provides management and administrative services to support the Company. The Corporate Segment consists of certain aspects of the Company’s executive management, corporate relations, legal, compliance, human resources, information technology and finance departments. Basis of Presentation The accompanying unaudited condensed consolidated financial statements of CVS Health Corporation and its subsidiaries 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, 2017 (“2017 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, 2018, 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, time deposits and debt securities 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 $119 million at March 31, 2018 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, 2018. The carrying amount and estimated fair value of the Company’s total long-term debt was $65.1 billion and $65.9 billion, respectively, as of March 31, 2018. 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 PSS and RLS 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 $22 million and $17 million in the three months ended March 31, 2018 and 2017, 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 $35 million and $40 million for pharmaceutical inventory purchases during the three months ended March 31, 2018 and 2017, respectively. Additionally, the Company performs certain collection functions for Heartland and then passes those customer cash collections back to Heartland. The Company’s investment in and equity in earnings of Heartland for all periods presented is immaterial. Discontinued Operations In connection with certain business dispositions completed between 1991 and 1997, the Company retained guarantees on store lease obligations for a number of former subsidiaries, including Bob’s Stores and Linens ‘n Things, both of which subsequently filed for bankruptcy. See “Note 10 – Commitments and Contingencies” to the condensed consolidated financial statements. The Company’s discontinued operations include lease-related costs which the Company believes it will likely be required to satisfy pursuant to its lease guarantees. Adoption of New Revenue Recognition Standard In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. The Company adopted the new revenue recognition standard as of January 1, 2018 using the modified retrospective method and applying the new standard to all contracts. Therefore, the comparative financial information has not been restated and continues to be reported under the accounting standards in effect for those periods. One difference was identified between the previous accounting guidance and the new accounting guidance in the RLS related to the accounting for the Company’s ExtraBucks ® Rewards customer loyalty program, which was previously accounted for under a cost deferral method. Under the new standard, this program is accounted for under a revenue deferral method. The Company recognized the cumulative effect of initially applying the new revenue recognition standard as an adjustment to beginning retained earnings. On January 1, 2018, the Company recorded an after-tax transition adjustment to reduce retained earnings by approximately $13 million ($17 million prior to tax effect). The Company expects the impact of the adoption of the new standard to be immaterial to its net revenue and net income on an ongoing basis. The following is a discussion of the Company’s revenue recognition policies by segment under the new revenue recognition accounting standard: Pharmacy Services Segment The PSS sells prescription drugs directly through its mail service dispensing pharmacies and indirectly through its retail pharmacy network. The Company’s pharmacy benefit arrangements are accounted for in a manner consistent with a master supply arrangement as there are no contractual minimum volumes and each prescription is considered a separate purchasing decision and distinct performance obligation transferred at a point in time. Pharmacy benefit management services performed in connection with each prescription claim are considered part of a single performance obligation which culminates in the dispensing of prescription drugs. The Company recognizes revenue using the gross method at the contract price negotiated with its clients when the Company has concluded it controls the prescription drug before it is transferred to the client plan members. The Company controls prescriptions dispensed indirectly through its retail pharmacy network because it has separate contractual arrangements with those pharmacies, has discretion in setting the price for the transaction and assumes primary responsibility for fulfilling the promise to provide prescription drugs to its client plan members while also performing the related pharmacy benefit management services. Net revenues include (i) the portion of the price the client pays directly to the PSS, net of any variable consideration, including volume-related or other discounts paid back to the client (see “Drug Discounts” and “Guarantees” below), (ii) the price paid to the PSS by client plan members for mail order prescriptions (“Mail Co-Payments”) and the price paid to retail network pharmacies by client plan members for retail prescriptions (“Retail Co-Payments”), and (iii) claims based administrative fees for retail pharmacy network contracts. Sales taxes are not included in revenue. The PSS recognizes revenue when control of the prescription drugs are transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those prescription drugs. The following revenue recognition policies have been established for the PSS: · Revenues generated from prescription drugs sold by mail service dispensing pharmacies are recognized when the prescription drug is delivered to the client plan member. At the time of delivery, the PSS has performed substantially all of its performance obligations under its client contracts and does not experience a significant level of returns or reshipments. · Revenues generated from prescription drugs sold by third party pharmacies in the PSS’ retail pharmacy network and associated administrative fees are recognized at the PSS’ point-of-sale, which is when the claim is adjudicated by the PSS’ online claims processing system and the Company has transferred control of the prescription drug and performed all of its performance obligations. For contracts under which the PSS acts as an agent or does not control the prescription drugs prior to transfer to the client, revenue is recognized using the net method. Drug discounts – The PSS records revenue net of manufacturers’ rebates, earned by its clients based on their plan members’ utilization of brand-name formulary drugs. The PSS estimates these rebates at period-end based on actual and estimated claims data and its estimates of the manufacturers’ rebates earned by its clients. The estimates are based on the best available data at period-end and recent history for the various factors that can affect the amount of rebates due to the client. The PSS adjusts its rebates payable to clients to the actual amounts paid when these rebates are paid or as significant events occur. Any cumulative effect of these adjustments is recorded against revenues as identified. Adjustments generally result from contract changes with clients or manufacturers that have retroactive rebate adjustments, differences between the estimated and actual product mix subject to rebates, or whether the product was included in the applicable formulary. The effect of adjustments between estimated and actual amounts have not been material to the Company’s results of operations or financial position. Guarantees – The PSS also adjusts revenues for refunds owed to the client resulting from pricing guarantees and performance against defined service and performance metrics. The inputs to these estimates are not subject to a high degree of subjectivity or volatility. The effect of adjustments between estimated and actual amounts have not been material to the Company’s results of operations or financial position. Medicare Part D – The PSS participates in the federal government’s Medicare Part D program as a prescription drug plan (“PDP”) through its SilverScript subsidiary. Net revenues include insurance premiums earned by the PDP, which are determined based on the PDP’s annual bid and related contractual arrangements with the United States Centers for Medicare and Medicaid Services (“CMS”). The insurance premiums include a beneficiary premium, which is the responsibility of the PDP member, which is subsidized by CMS in the case of low-income members, and a direct premium paid by CMS. Premiums collected in advance are initially recorded within accrued expenses and other current liabilities and are then recognized ratably as revenue over the period in which members are entitled to receive benefits. In addition to these premiums, net revenues include co-payments, coverage gap benefits, deductibles and co-insurance (collectively, the “Member Co-Payments”) related to PDP members’ actual prescription claims. In certain cases, CMS subsidizes a portion of these Member Co-Payments and the PSS is paid an estimated prospective Member Co-Payment subsidy, each month. If the prospective Member Co-Payment subsidies received differ from the amounts earned from actual prescriptions transferred, the difference is recorded in either accounts receivable or accrued expenses. The PSS accounts for Member Co-Payments (including the amounts subsidized by CMS) using the gross method consistent with revenue recognition policies for Mail Co-Payments and Retail Co-Payments. The Company estimates variable consideration in the form of amounts payable, or receivable from CMS under a risk-sharing feature of the Medicare Part D program design, referred to as the risk corridor, and adjusts revenue based on calculations of additional subsidies to be received or owed to CMS at the end of the reporting year. The Company also estimates cost of revenues for claims that have been reported and are in the process of being paid or contested and for its estimate of claims that have been incurred but have not yet been reported. Historically, the effect of these adjustments has not been material to the Company’s results of operations or financial position. Retail/LTC Segment Retail Pharmacy - The retail drugstores recognize revenue at the time the customer takes possession of the merchandise. For pharmacy sales, each prescription claim is its own arrangement with the customer and is a performance obligation, separate and distinct from other prescription claims under other retail network arrangements. Revenues are adjusted for refunds owed to the third party payer for pricing guarantees and performance against defined value-based service and performance metrics. The inputs to most of these estimates are not subject to a high degree of subjectivity or volatility. The effect of adjustments between estimated and actual amounts have not been material to the Company’s results of operations or financial position. Revenue from CVS Health gift cards purchased by customers is deferred as a contract liability until goods or services are transferred. Any amounts not expected to be redeemed by customers (i.e., breakage) are recognized based on historical redemption patterns. Customer returns are not material to the Company’s results of operations or financial position. Loyalty Program - The Company’s customer loyalty program, ExtraCare ® , is comprised of two components, ExtraSavings TM and ExtraBucks ® Rewards. ExtraSavings are coupons that are recorded as a reduction of revenue when redeemed as the Company concluded that they do not represent a promise to the customer to deliver additional goods or services at the time of issuance because they are not tied to a specific transaction or spending level. ExtraBucks Rewards are accumulated by customers based on their historical spending levels. Thus, the Company has determined that there is an additional performance obligation to those customers at the time of the initial transaction. The Company allocates the transaction price to the initial transaction and the ExtraBucks Rewards transaction based upon the relative standalone selling price, which considers historical redemption patterns for the rewards. Revenue allocated to ExtraBucks Rewards is recognized as those rewards are redeemed. At the end of each period, unredeemed rewards are reflected as a contract liability. Long-term Care - Revenue is recognized when control of the promised goods or services are transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Each prescription claim represents a separate performance obligation of the Company, separate and distinct from other prescription claims under customer arrangements. A significant portion of the revenue from sales of pharmaceutical and medical products are reimbursed by the federal Medicare Part D program and, to a lesser extent, state Medicaid programs. The Company monitors its revenues and receivables from these reimbursement sources, as well as other third party insurance payors, and reduces revenue at the revenue recognition date, to properly account for the variable consideration due to anticipated differences between billed and reimbursed amounts. Accordingly, the total net revenues and receivables reported in the Company’s financial statements are recorded at the amount expected to be ultimately received from these payors. Patient co-payments associated with Medicare Part D, certain state Medicaid programs, Medicare Part B and certain third party payors are typically not collected at the time products are delivered or services are rendered, but are billed to the individuals as part of normal billing procedures and subject to normal accounts receivable collections procedures. Health Care Clinics - For services provided by the Company’s health care clinics, revenue recognition occurs for completed services provided to patients, with adjustments taken for third party payor contractual obligations and patient direct bill historical collection rates. Disaggregation of Revenue The following table disaggregates the Company’s revenue by major source in each segment for the three months ended March 31, 2018: Pharmacy Intersegment Consolidated In millions Services Retail/LTC Eliminations Totals Major goods/services lines: Pharmacy $ 30,762 $ 15,500 $ (6,957) $ 39,305 Front Store — 4,726 — 4,726 Other 1,456 206 — 1,662 Total $ 32,218 $ 20,432 $ (6,957) $ 45,693 Pharmacy Services distribution channel: Mail choice (1) $ 11,208 Retail network (2) 19,554 Other 1,456 Total $ 32,218 (1) Pharmacy Services mail choice is defined as claims filled at a Pharmacy Services mail facility, which includes specialty mail claims inclusive of Specialty Connect ® claims picked up at retail, as well as prescriptions filled at our retail pharmacies under the Maintenance Choice program. (2) Pharmacy Services retail network net revenues do not include Maintenance Choice ® activity, which is included within the mail choice category. Retail network is defined as claims filled at retail and specialty retail pharmacies, including our retail pharmacies and long-term care pharmacies, but excluding Maintenance Choice activity. Contract Balances Contract liabilities primarily represent the Company’s obligation to transfer additional goods or services to a customer for which the Company has received consideration, for example ExtraBucks ® Rewards and unredeemed CVS Health gift cards. The consideration received remains a contract liability until goods or services have been provided to the retail customer. In addition, the Company recognizes breakage on CVS Health gift cards based on historical redemption patterns. The following table provides information about receivables and contract liabilities from contracts with customers: In millions March 31, 2018 December 31, 2017 Receivables (included in accounts receivable, net) $ 6,875 $ 7,873 Contract liabilities (included in accrued expenses) 71 53 During the three months ended March 31, 2018, the contract liabilities balance includes increases related to customers’ earnings in ExtraBucks Rewards or issuances of CVS Health gift cards and decreases for revenues recognized during the period as a result of the redemption of ExtraBucks Rewards or CVS Health gift cards and breakage of CVS Health gift cards. Below is a summary of the changes: In millions Balance, December 31, 2017 $ 53 Adoption of ASU 2014-09 17 Loyalty program earnings and gift card issuances 79 Redemption and breakage (78) Balance, March 31, 2018 $ 71 Impact of New Revenue Recognition Standard on Financial Statement Line Items The Company adopted ASU 2014-09 using the modified retrospective method. The cumulative effect of applying the new guidance to all contracts was recorded as an adjustment to retained earnings as of the adoption date. As a result of applying the modified retrospective method to adopt the new revenue guidance, the following adjustments were made to accounts on the condensed consolidated balance sheet as of January 1, 2018: Impact of Change in Accounting Policy As Reported Adjusted In millions December 31, 2017 Adjustments January 1, 2018 Condensed Consolidated Balance Sheet: Accrued expenses $ 6,609 $ 17 $ 6,626 Deferred income taxes 2,996 (4) 2,992 Total liabilities 57,436 13 57,449 Retained earnings 43,556 (13) 43,543 Total CVS Health shareholders' equity 37,691 (13) 37,678 Total shareholders' equity 37,695 (13) 37,682 The following table compares the reported condensed consolidated balance sheet, income statement, and statement of cash flows, as of and for the three months ended March 31, 2018, to the pro forma amounts had the previous revenue accounting guidance remained in effect: Impact of Change in Accounting Policy As Reported Balances As of/For the Without Three Months Ended Adoption of In millions March 31, 2018 Adjustments Topic 606 Condensed Consolidated Statement of Income: Net revenues $ 45,693 $ 7 $ 45,700 Cost of revenues 38,834 4 38,838 Gross profit 6,859 3 6,862 Operating profit 1,946 3 1,949 Income before income tax provision 1,470 3 1,473 Income tax provision 472 1 473 Income from continuing operations 998 2 1,000 Net income 998 2 1,000 Net income attributable to CVS Health 998 2 1,000 Condensed Consolidated Balance Sheet: Accrued expenses 7,724 (20) 7,704 Deferred income taxes 3,058 5 3,063 Total liabilities 96,462 (15) 96,447 Retained earnings 44,040 15 44,055 Total CVS Health shareholders' equity 38,673 15 38,688 Total shareholders' equity 38,677 15 38,692 Total liabilities and shareholders' equity 135,139 — 135,139 Condensed Consolidated Statement of Cash Flow: Reconciliation of net income to net cash provided by operating activities: Net income 998 2 1,000 Deferred income taxes and other noncash items 62 1 63 Accrued expenses 1,231 (3) 1,228 Other Accounting Pronouncements Recently Adopted In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities . This ASU requires equity investments, except those under the equity method of accounting or those that result in the consolidation of an investee, to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. This simplifies the impairment assessment of equity investments previously held at cost. Entities are required to apply the guidance retrospectively, with the exception of the amendments related to equity investments without readily determinable fair values, which must be applied on a prospective basis. Effective January 1, 2018, the Company adopted this new accounting guidance. The adoption of this new guidance did not have a material impact on the Company’s financial position or results of operations. 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. Effective January 1, 2018, the Company adopted this new accounting guidance. The adoption of this new guidance did not have a material impact on the Company’s financial position or results of operations. In November 2016, the FASB issued ASU 2016-18, Statement of C |
Proposed Aetna Acquisition
Proposed Aetna Acquisition | 3 Months Ended |
Mar. 31, 2018 | |
Proposed Aetna Acquisition | |
Proposed Aetna Acquisition | Note 2 – Proposed Aetna Acquisition On December 3, 2017, the Company entered into a definitive merger agreement to acquire all of the outstanding shares of Aetna Inc. (“Aetna”) for a combination of cash and stock. Under the terms of the merger agreement, Aetna shareholders will receive $145.00 per share in cash and 0.8378 CVS Health shares for each Aetna share. The transaction values Aetna at approximately $207 per share or approximately $69 billion based on the Company’s 5-day volume weighted average price ending December 1, 2017 of $74.21 per share. Including the assumption of Aetna’s debt, the total value of the transaction is approximately $77 billion. The final purchase price will be determined based on the Company’s stock price on the date of closing of the transaction. The proposed acquisition remains subject to customary closing conditions, including the expiration of the waiting period under the federal Hart-Scott-Rodino Antitrust Improvements Act of 1976 and approvals of state departments of insurance and U.S. and international regulators. If the transaction is not completed, the Company could be liable to Aetna for a termination fee of $2.1 billion in connection with the merger agreement, depending on the reasons leading to such termination. On February 1, 2018, CVS Health and Aetna each received a request for additional information (also known as a “second request”) from the U.S. Department of Justice (the “DOJ”) in connection with the DOJ’s review of the transactions contemplated by the definitive merger agreement. |
Goodwill
Goodwill | 3 Months Ended |
Mar. 31, 2018 | |
Goodwill. | |
Goodwill | Note 3 – Goodwill Goodwill is not amortized, but is subject to annual impairment reviews, or more frequent reviews if events or circumstances indicate there may be impairment. Below is a summary of the changes in the carrying value of goodwill by segment for the three months ended March 31, 2018: Pharmacy In millions Services Retail/LTC Total Balance, December 31, 2017 $ 21,819 $ 16,632 $ 38,451 Acquisitions 26 36 62 Divestiture of RxCrossroads subsidiary — (398) Balance, March 31, 2018 $ 21,845 $ 16,270 $ 38,115 On January 2, 2018, the Company sold RxCrossroads (“RxC”) to McKesson Corporation for $725 million, at which time the remaining goodwill of this reporting unit was removed from the condensed consolidated balance sheet. This transaction is subject to a working capital adjustment. |
Borrowings and Credit Agreement
Borrowings and Credit Agreements | 3 Months Ended |
Mar. 31, 2018 | |
Borrowings and Credit Agreements | |
Borrowings and Credit Agreements | Note 4 – Borrowings and Credit Agreements March 31, December 31, In millions 2018 2017 Short-term debt Commercial paper $ — $ 1,276 Long-term debt 3.25% senior exchange debentures due 2035 — 1 1.9% senior notes due 2018 2,250 2,250 2.25% senior notes due 2018 1,250 1,250 2.25% senior notes due 2019 850 850 2.8% senior notes due 2020 2,750 2,750 3.125% senior notes due 2020 2,000 — Floating rate notes due 2020 1,000 — 2.125% senior notes due 2021 1,750 1,750 4.125% senior notes due 2021 550 550 3.35% senior notes due 2021 3,000 — Floating rate notes due 2021 1,000 — 2.75% senior notes due 2022 1,250 1,250 3.5% senior notes due 2022 1,500 1,500 4.75% senior notes due 2022 399 399 4% senior notes due 2023 1,250 1,250 3.7% senior notes due 2023 6,000 — 3.375% senior notes due 2024 650 650 5% senior notes due 2024 299 299 3.875% senior notes due 2025 2,828 2,828 4.1% senior notes due 2025 5,000 — 2.875% senior notes due 2026 1,750 1,750 6.25% senior notes due 2027 372 372 4.3% senior notes due 2028 9,000 — 4.875% senior notes due 2035 652 652 4.78% senior notes due 2038 5,000 — 6.125% senior notes due 2039 447 447 5.75% senior notes due 2041 133 133 5.3% senior notes due 2043 750 750 5.125% senior notes due 2045 3,500 3,500 5.05% senior notes due 2048 8,000 — Capital lease obligations 672 670 Other 23 43 Total debt principal 65,875 27,170 Debt premiums 27 28 Debt discounts and deferred financing costs (808) (196) 65,094 27,002 Less: Short-term debt (commercial paper) — (1,276) Current portion of long-term debt (3,542) (3,545) Long-term debt $ 61,552 $ 22,181 The Company did not have any commercial paper outstanding as of March 31, 2018. In connection with its commercial paper program, the Company maintains a $1.0 billion 364-day unsecured back-up credit facility, which expires on May 17, 2018, a $1.25 billion, five-year unsecured back-up credit facility, which expires on July 24, 2019, a $1.25 billion, five-year unsecured back-up credit facility, which expires on July 1, 2020, and a $1.0 billion, five-year unsecured back-up credit facility, which expires on May 18, 2022. The Company intends to renew its 364-day unsecured back-up credit facility prior to its expiration. The credit facilities allow for borrowings at various rates that are dependent, in part, on the Company’s public debt ratings and require the Company to pay a weighted average quarterly facility fee of approximately 0.02%, regardless of usage. As of March 31, 2018 and December 31, 2017, there were no borrowings outstanding under the back-up credit facilities. On March 9, 2018, the Company issued an aggregate of $40.0 billion of floating rate notes and unsecured senior notes, collectively the “Notes”, for total proceeds of approximately $39.4 billion, net of discounts and underwriting fees, comprised of the following: In millions 3.125% senior notes due 2020 $ 2,000 Floating rate notes due 2020 1,000 3.35% senior notes due 2021 3,000 Floating rate notes due 2021 1,000 3.7% senior notes due 2023 6,000 4.1% senior notes due 2025 5,000 4.3% senior notes due 2028 9,000 4.78% senior notes due 2038 5,000 5.05% senior notes due 2048 8,000 Total debt principal $ 40,000 The Notes pay interest semi-annually and contain redemption terms which allow or require the Company to redeem the Notes at a defined redemption price plus accrued and unpaid interest at the redemption date. The net proceeds of the Notes will be used to fund the proposed acquisition of Aetna. If the Aetna acquisition has not been completed by September 3, 2019 (the “Outside Date”) or if, prior to such date, the merger agreement is terminated or the Company otherwise publicly announces that the merger will not be consummated, then the Company will be required to redeem all outstanding 2020 Floating Rate Notes, 2021 Floating Rate Notes, 2020 Notes, 2021 Notes, 2023 Notes, 2025 Notes, 2028 Notes and 2038 Notes at a redemption price equal to 101% of the aggregate principal amount of those notes plus accrued and unpaid interest. The 2048 Notes are not subject to this mandatory redemption provision. On December 3, 2017, in connection with the proposed acquisition of Aetna, the Company entered into a $49.0 billion unsecured bridge loan facility. The Company paid approximately $221 million in fees upon entering into the agreement. The fees were capitalized in other current assets and are being amortized as interest expense over the period the bridge facility is outstanding. The bridge loan facility was reduced to $44.0 billion on December 15, 2017 upon the Company entering into a $5.0 billion term loan agreement. As discussed above, on March 9, 2018, the Company issued unsecured senior notes with an aggregate principal of $40.0 billion. At this time, the bridge loan facility was reduced to $4.0 billion and the Company paid approximately $8 million in fees to retain the bridge loan facility through the date of the proposed Aetna acquisition. These fees were capitalized in other current assets and will be amortized as interest expense over the period the bridge facility is outstanding. The Company recorded $161 million of amortization of the bridge loan facility fees during the three months ended March 31, 2018, which was recorded in “Interest expense, net” on the condensed consolidated income statement. |
Share Repurchase Programs
Share Repurchase Programs | 3 Months Ended |
Mar. 31, 2018 | |
Share Repurchase Programs | |
Share Repurchase Programs | Note 5 – Share Repurchase Programs The following share repurchase programs were authorized by the Company’s Board of Directors: In billions Remaining as of Authorization Date Authorized March 31, 2018 November 2, 2016 (“2016 Repurchase Program”) $ 15.0 $ 13.9 December 15, 2014 (“2014 Repurchase Program”) 10.0 — The share Repurchase Programs, each of which was 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 (“ASR”) transactions, and/or other derivative transactions. The 2016 Repurchase Program can be modified or terminated by the Board of Directors at any time. During the three months ended March 31, 2018, the Company did not repurchase any shares of common stock pursuant to the 2016 Repurchase Program. Pursuant to the authorization under the 2014 Repurchase Program, effective August 29, 2016, the Company entered into two fixed dollar ASRs with Barclays Bank PLC (“Barclays”) for a total of $3.6 billion. Upon payment of the $3.6 billion purchase price on January 6, 2017, the Company received a number of shares of its common stock equal to 80% of the $3.6 billion notional amount of the ASRs or approximately 36.1 million shares, which were placed into treasury stock in January 2017. The ASRs were accounted for as an initial treasury stock transaction for $2.9 billion and a forward contract for $0.7 billion. In April 2017, the Company received 9.9 million shares of common stock, representing the remaining 20% of the $3.6 billion notional amount of the ASRs, thereby concluding the ASRs. The remaining 9.9 million shares of common stock delivered to the Company by Barclays were placed into treasury stock and the forward contract was reclassified from capital surplus to treasury stock in April 2017. At the time they were received, the initial and final receipt of shares resulted in an immediate reduction of the outstanding shares used to calculate the weighted average common shares outstanding for basic and diluted earnings per share. |
Accumulated Other Comprehensive
Accumulated Other Comprehensive Income | 3 Months Ended |
Mar. 31, 2018 | |
Accumulated Other Comprehensive Income | |
Accumulated Other Comprehensive Income | Note 6 – Accumulated Other Comprehensive Income Accumulated other comprehensive income consists of foreign currency translation adjustments, cash flow hedges associated with the forecasted 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 following tables: Three Months Ended March 31, 2018 (1) Pension and Other Foreign Cash Flow Postretirement In millions Currency Hedges Benefits Total Balance, December 31, 2017 $ (129) $ (15) $ (21) $ (165) Reclassifications to retained earnings in accordance with ASU 2018-02 (3) — (3) (4) (7) (129) (18) (25) (172) Other comprehensive income (loss): Other comprehensive income (loss) before reclassifications 1 344 — 345 Amounts reclassified from accumulated other comprehensive income (2) — (1) — (1) Other comprehensive income 1 343 — 344 Balance, March 31, 2018 $ (128) $ 325 $ (25) $ 172 Three Months Ended March 31, 2017 (1) Pension and Other Foreign Cash Flow Postretirement Currency Hedges Benefits Total Balance, December 31, 2016 $ (127) $ (5) $ (173) $ (305) Other comprehensive income: Other comprehensive income before reclassifications 8 — — 8 Amounts reclassified from accumulated other comprehensive income (2) — 1 — 1 Other comprehensive income 8 1 — 9 Balance, March 31, 2017 $ (119) $ (4) $ (173) $ (296) (1) All amounts are net of tax. (2) The amounts reclassified from accumulated other comprehensive income for cash flow hedges are recorded within interest expense, net on the condensed consolidated statements of income. The amounts reclassified from accumulated other comprehensive income for pension and other postretirement benefits are included in other expense on the condensed consolidated statements of income. (3) See “Note 1 – Accounting Policies” to the condensed consolidated financial statements for additional information on the adoption of ASU 2018-02 during the first quarter of 2018. Beginning in December 2017 and during the three months ended March 31, 2018, to manage interest rate risk the Company entered into several interest rate swap and treasury lock transactions. These agreements were designated as cash flow hedges and were used to hedge the exposure to variability in future cash flows resulting from changes in interest rates related to the anticipated issuance of long-term debt in connection with the proposed acquisition of Aetna. On March 9, 2018, the Company issued unsecured senior notes with an aggregate principal of $40.0 billion as discussed in “Note 4 – Borrowings and Credit Agreements” to the condensed consolidated financial statements. In connection with the issuance of the Notes, the Company terminated all outstanding cash flow hedges. In connection with the hedge transactions, the Company received a net amount of $446 million from the hedge counterparties upon termination, which was recorded as a gain, net of tax, of $331 million in accumulated other comprehensive income and will be reclassified as a reduction of interest expense over the life of the underlying debt. The Company expects to reclassify approximately $24 million in gains associated with these cash flow hedges into earnings within the next 12 months. |
Interest Expense, Net
Interest Expense, Net | 3 Months Ended |
Mar. 31, 2018 | |
Interest Expense, Net | |
Interest Expense, Net | Note 7 – Interest Expense, Net The following are the components of interest expense, net: Three Months Ended March 31, In millions 2018 2017 Interest expense $ 523 $ 258 Interest income (50) (6) Interest expense, net $ 473 $ 252 |
Earnings Per Share
Earnings Per Share | 3 Months Ended |
Mar. 31, 2018 | |
Earnings Per Share | |
Earnings Per Share | Note 8 – Earnings Per Share Earnings per share is computed using the two-class method. Options to purchase 13.2 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, 2018, 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 7.8 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, 2017. 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 2018 2017 Numerator for earnings per share calculation: Income from continuing operations $ 998 $ 962 Income allocated to participating securities (2) (4) Net income attributable to noncontrolling interest — (1) Income from continuing operations attributable to CVS Health $ 996 $ 957 Denominator for earnings per share calculation: Weighted average shares, basic 1,016 1,030 Effect of dilutive securities 3 5 Weighted average shares, diluted 1,019 1,035 Earnings per share from continuing operations: Basic $ 0.98 $ 0.93 Diluted $ 0.98 $ 0.92 |
Segment Reporting
Segment Reporting | 3 Months Ended |
Mar. 31, 2018 | |
Segment Reporting | |
Segment Reporting | Note 9 – Segment Reporting The Company has three reportable segments: Pharmacy Services, Retail/LTC and Corporate. As discussed in “Note 3- Goodwill”, during the three months ended March 31, 2018, the Company sold its RxC operations which were previously included in the Retail/LTC reportable segment. In conjunction with the Company’s implementation of a new enterprise resource planning system in the first quarter of 2018, the Company changed the manner in which certain shared functional costs are allocated to its reportable segments. Segment financial information for the three months ended March 31, 2017, has been retrospectively adjusted to reflect this change to the cost allocation methodology as shown below: Pharmacy Services Retail/LTC Corporate Intersegment Consolidated In millions Segment Segment Segment Eliminations Totals Cost of revenues, as previously reported $ 30,127 $ 13,665 $ (5,858) $ 37,934 Adjustments 14 (5) — 9 Cost of revenues, as adjusted $ 30,141 $ 13,660 $ (5,858) $ 37,943 Gross profit, as previously reported $ 1,096 $ 5,676 $ (192) $ 6,580 Adjustments (14) 5 — (9) Gross profit, as adjusted $ 1,082 $ 5,681 $ (192) $ 6,571 Operating expenses, as previously reported $ 312 $ 4,265 $ 226 $ (16) $ 4,787 Adjustments 13 (17) (5) — (9) Operating expenses, as adjusted $ 325 $ 4,248 $ 221 $ (16) $ 4,778 Operating profit (loss), as previously reported $ 784 $ 1,411 $ (226) $ (176) $ 1,793 Adjustments (27) 22 5 — — Operating profit (loss), as adjusted $ 757 $ 1,433 $ (221) $ (176) $ 1,793 The following is a reconciliation of the Company’s segments to the accompanying condensed consolidated financial statements: Pharmacy Services Retail/LTC Corporate Intersegment Consolidated In millions Segment (1) Segment Segment Eliminations (2) Totals Three Months Ended March 31, 2018: Net revenues $ 32,218 $ 20,432 $ — $ (6,957) $ 45,693 Gross profit 1,138 5,916 — (195) 6,859 Operating profit (loss) (3)(4) 761 1,624 (264) (175) 1,946 March 31, 2017: Net revenues 31,223 19,341 — (6,050) 44,514 Gross profit 1,082 5,681 — (192) 6,571 Operating profit (loss) (5) 757 1,433 (221) (176) 1,793 (1) Net revenues of the Pharmacy Services Segment include approximately $3.3 billion and $3.1 billion of retail co‑payments for the three months ended March 31, 2018 and 2017, 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, 2018 includes an $86 million loss on the divestiture of the RxCrossroads subsidiary (see “Note 3 – Goodwill” to the condensed consolidated financial statements) and $3 million of acquisition-related integration costs related to the acquisition of Omnicare. (4) The Corporate Segment operating loss for the three months ended March 31, 2018 includes $40 million in acquisition-related transaction and integration costs related to the proposed Aetna acquisition. (5) The Retail/LTC Segment operating profit for the three months ended March 31, 2017 includes a $199 million charge associated with store closures and $15 million of acquisition-related integration costs related to the acquisition of Omnicare. |
Commitments and Contingencies
Commitments and Contingencies | 3 Months Ended |
Mar. 31, 2018 | |
Commitments and Contingencies. | |
Commitments and Contingencies | Note 10 – Commitments and Contingencies Lease Guarantees Between 1995 and 1997, the Company sold or spun off a number of subsidiaries, including Bob’s Stores, Linens ‘n Things, and Marshalls. 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, 2018, the Company guaranteed approximately 85 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 2029. 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. In August 2017, the plaintiffs moved for class certification, which Omnicare has opposed. · 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 U.S. Department of Health and Human Services, Office of the Inspector General requesting information about programs under which the Company has offered customers remuneration conditioned upon the transfer of prescriptions for drugs or medications to the Company’s pharmacies in the form of gift cards, cash, non-prescription merchandise or discounts or coupons for non-prescription merchandise. In October 2016, the U.S. District Court for the Central District of California unsealed a qui tam complaint, filed in April 2009 against CVS Pharmacy and other retail pharmacies, alleging that the Company violated the federal False Claims Act, and the False Claims Acts of several states, by offering such programs. The complaint was served on the Company in January 2017. In December 2017, the same court unsealed a second qui tam complaint filed by the same relator in September 2017. The complaint is based on the same factual allegations but asserts a legal theory the Court did not permit him to add to the original case. The federal government has declined intervention in both cases. In April 2018, the Court dismissed the second lawsuit. The Company is defending the matter. · State of Texas ex rel. Myron Winkelman and Stephani Martinson, et al. v. CVS Health Corporation, (Travis County Texas District Court). In February 2012, the Attorney General of the State of Texas issued Civil Investigative Demands and has issued a series of subsequent requests for documents and information in connection with its investigation concerning the CVS Health Savings Pass program and other pricing practices with respect to claims for reimbursement from the Texas Medicaid program. In January 2017, the court unsealed a first amended petition. The amended petition alleges the Company violated the Texas Medicaid Fraud Prevention Act by submitting false claims for reimbursement to Texas Medicaid by, among other things, failing to use the price available to members of the CVS Health Savings Pass program as the usual and customary price. The amended petition was unsealed following the Company’s filing of CVS Pharmacy, Inc. v. Charles Smith, et al. (Travis County District Court), a declaratory judgment action against the State of Texas in December 2016 seeking a declaration that the prices charged to members of the CVS Health Savings Pass program do not constitute usual and customary prices under the Medicaid regulation. In March 2018, the Court denied the State of Texas’s request for temporary injunctive relief. · Subpoena Concerning PBM Administrative Fees. In March 2014, the Company received a subpoena from the United States Attorney’s Office for the District of Rhode Island, requesting documents and information concerning bona fide service fees and rebates received from pharmaceutical manufacturers in connection with certain drugs utilized under Medicare Part D, as well as the reporting of those fees and rebates to Part D plan sponsors. The Company cooperated with the government and provided documents and information in response to the subpoena. In April 2018, the U.S. District Court for the District of Rhode Island unsealed a 2014 qui tam complaint, U.S. ex rel. Borzilleri v. Bayer AB et al., naming pharmaceutical manufacturers, insurers and PBMs, including the Company, and asserting claims under the federal False Claims Act, and the false claims acts of several states, concerning the payment and/or receipt of bona fide service fees. The government has declined intervention in this action. · Corcoran et al. v. CVS Health Corporation (U.S. District Court for the Northern District of California) and Podgorny et al. v. CVS Health Corporation (U.S. District Court for the Northern District of Illinois). These putative class actions were filed against the Company in July and September 2015. The cases were consolidated in United States District Court in the Northern District of California. Plaintiffs seek damages and injunctive relief on behalf of a class of consumers who purchased certain prescription drugs under the consumer protection statutes and common laws of certain states. Several third-party payors filed similar putative class actions on behalf of payors captioned Sheet Metal Workers Local No. 20 Welfare and Benefit Fund v. CVS Health Corp. and Plumbers Welfare Fund, Local 130 v. CVS Health Corporation (both pending in the U.S. District Court for the District of Rhode Island) in February and August 2016. In all of these cases the plaintiffs allege the Company overcharged for certain prescription drugs by not submitting the price available to members of the CVS Health Savings Pass program as the pharmacy’s usual and customary price. In the consumer case (Corcoran), the Court granted summary judgment to CVS on plaintiffs’ claims in their entirety and certified certain subclasses in September 2017. The plaintiffs have filed a notice of appeal to the Ninth Circuit. The Company continues to defend these actions. · Omnicare DEA Subpoena. In September 2015, Omnicare was served with an administrative subpoena by the U.S. Drug Enforcement Administration (“DEA”). The subpoena seeks documents related to controlled substance policies, procedures, and practices at eight pharmacy locations from May 2012 to the present. In September 2017, the DEA expanded the investigation to include an additional pharmacy. The Company has been cooperating and providing documents and witnesses in response to this administrative subpoena. · Omnicare Cycle Fill Civil Investigative Demand. In October 2015, Omnicare received a Civil Investigative Demand from the United States Attorney’s Office for the Southern District of New York requesting information and documents concerning Omnicare’s cycle fill process for assisted living facilities. The Company has been cooperating with the government and providing documents and information in response to the Civil Investigative Demand. In July 2017, Omnicare also received a subpoena from the California Department of Insurance requesting documents on similar subject matter. · United States ex rel. Behnke v. CVS Caremark Corporation et al. (U.S. District Court for the Eastern District of Pennsylvania). In April 2018, the Court unsealed a complaint that had been filed in February 2014 by a qui tam relator alleging that the Company violated the federal False Claims Act by causing to be reported prices that were higher than those actually paid to certain pharmacies for medications dispensed to beneficiaries under the Medicare Part D program. This action relates to an October 2015 Civil Investigative Demand issued by the U.S. Department of Justice. The Company cooperated with the government and provided documents and information in response to that Civil Investigative Demand. The U.S. Department of Justice has filed a notice of declination with respect to the qui tam action. · United States ex rel. Sally Schimelpfenig and John Segura v. Dr. Reddy's Laboratories Limited and Dr. Reddy's Laboratories, Inc. (U.S. District Court for the Eastern District of Pennsylvania). In November 2015, the court unsealed a second amended qui tam complaint filed in September 2015. The DOJ declined to intervene in this action. The relators allege that the Company, Walgreens, Wal-Mart, and Dr. Reddy’s Laboratories violated the federal and various state False Claims Acts by dispensing prescriptions in unit dose packaging supplied by Dr. Reddy’s that was not compliant with the Consumer Product Safety Improvement Act and the Poison Preventive Packaging Act and thereby allegedly rendering the drugs misbranded under the Food, Drug and Cosmetic Act. In March 2017, the Court granted the Company's motion to dismiss with leave to file an amended complaint. In March 2018, the Court granted the Company’s motion to dismiss an amended complaint with prejudice. · Barchock et al. v. CVS Health Corporation, et al. (U.S. District Court for the District of Rhode Island). In February 2016, a class action lawsuit was filed against the Company, the Benefit Plans Committee of the Company, and Galliard Capital Management, Inc., by Mary Barchock, Thomas Wasecko, and Stacy Weller, purportedly on behalf of the 401(k) Plan and the Employee Stock Ownership Plan of the Company (the “Plan”), and participants in the Plan. The complaint alleged that the defendants breached fiduciary duties owed to the plaintiffs and the Plan by investing too much of the Plan’s Stable Value Fund in short-term money market funds and cash management accounts. The court granted the Company’s motion to dismiss the plaintiffs’ amended complaint. In May 2017, plaintiffs appealed that ruling in the United States Court of Appeals for the First Circuit. In March 2018, the Court of Appeals affirmed the dismissal. · State of California ex rel. Matthew Omlansky v. CVS Caremark Corporation (Superior Court of the State of California, County of Sacramento). In April 2016, the court unsealed a first amended qui tam complaint filed in July 2013. The government has declined intervention in this case. The relator alleges that the Company submitted false claims for payment to California Medicaid in connection with reimbursement for drugs available through the CVS Health Savings Pass program as well as certain other generic drugs. The case has been stayed pending the relator’s appeal of the judgment against him in a similar case against another retailer. · Retail DEA Matters. The Company has been also undergoing several audits by the DEA Administrator and is in discussions with the DEA and the U.S. Attorney’s Offices in several locations concerning allegations that the Company has violated certain requirements of the Controlled Substance Act. · National Opioid Litigation . In December 2017, the United States Judicial Panel on Multidistrict Litigation consolidated numerous cases filed against various defendants by plaintiffs such as counties, cities, hospitals, Indian tribes, and third-party payors, alleging claims generally concerning the impacts of widespread opioid abuse. The consolidated multidistrict litigation captioned In re National Prescription Opiate Litigation (MDL No. 2804) is pending in the U.S. District Court for the Northern District of Ohio. This multidistrict litigation presumptively includes approximately 40 relevant federal court cases that name the Company. Approximately 20 similar cases that name the Company in some capacity have been filed in state courts. Such cases include a case that was re-filed in Oklahoma Circuit Court by the Cherokee Nation after it was dismissed voluntarily by the Cherokee Nation in the District Court of Cherokee Nation. The Company is defending all such federal and state matters. Additionally, the Company has received from the Attorney Generals of several states subpoenas, civil investigative demands, and/or other requests concerning opioids. · State of Mississippi v. CVS Health Corporation, et al. (Chancery Court of DeSoto County, Mississippi, Third Judicial District). In July 2016, the Company was served with a complaint filed on behalf of the State of Mississippi alleging that CVS retail pharmacies in Mississippi submitted false claims for reimbursement to Mississippi Medicaid by not submitting the price available to members of the CVS Health Savings Pass program as the pharmacy’s usual and customary price. The Company has responded to the complaint, filed a counterclaim, and moved to transfer the case to circuit court. The motion to transfer was granted, which the State has appealed, and the motion to dismiss remains pending. · Part B Insulin Products Civil Investigative Demand. In December 2016, the Company received a Civil Investigative Demand from the U.S. Attorney’s Office for the Northern District of New York, requesting documents and information in connection with a False Claims Act investigation concerning whether the Company’s retail pharmacies improperly submitted certain insulin claims to Medicare Part D rather than Part B. The Company has cooperated with the government and provided documents and information in response to the Civil Investigative Demand. · Cold Chain Logistics Civil Investigative Demand . In September 2016, the Company received from the DOJ a Civil Investigative Demand in connection with an investigation as to whether the Company’s handling of certain temperature-sensitive pharmaceuticals violates the federal Food, Drug and Cosmetic Act and the False Claims Act. The Company has been cooperating with the government and providing documents and information in response to the Civil Investigative Demand. · Amburgey, et al. v. CaremarkPCS Health, L.L.C. (U.S. District Court for the Central District of California). In March 2017, the Company was served with a complaint challenging the policies and procedures used by CVS Specialty pharmacies to ship temperature-sensitive medications. The case is similar to a matter already pending against the Company in the Superior Court of California (Los Angeles County), Bertram v. Immunex Corp. , et al., which was filed in October 2014. In November 2017, the plaintiffs voluntarily dismissed the Amburgey case without prejudice. In April 2018, the Court granted summary judgment in the Company’s favor in the Bertram matter and also denied Bertram’s motion for class certification. · Insulin Products Investigation. In April 2017, the Company received a Civil Investigative Demand from the Attorney General of Washington, seeking documents and information regarding pricing and rebates for insulin products in connection with a pending investigation into unfair and deceptive acts or practice regarding insulin pricing. We have been notified by the Office of the Attorney General of Washington that information provided in response to the Civil Investigative Demand will be shared with the Attorneys General of California, Florida, Minnesota, New Mexico, the District of Columbia, and Mississippi. In July 2017, the Company received a Civil Investigative Demand from the Attorney General of Minnesota, seeking documents and information regarding pricing and rebates for insulin and epinephrine products in connection with a pending investigation into unfair and deceptive acts or practices regarding insulin and epinephrine pricing. · Bewley, et al. v. CVS Health Corporation , et al. and Prescott , et al. v. CVS Health Corporation , et al. (both pending in the U.S. District Court for the Western District of Washington). These putative class actions were filed in May 2017 against the Company and other pharmacy benefit managers and manufacturers of glucagon kits ( Bewley ) and diabetes test strips ( Prescott ). Both cases allege that, by contracting for rebates with the manufacturers of these diabetes products, the Company and other PBMs caused list prices for these products to increase, thereby harming certain consumers. The primary claims are made under federal antitrust laws, RICO, state unfair competition and consumer protection laws, and ERISA. These cases have both been transferred to the United States District Court for the District of New Jersey on defendants’ motions. The Company is defending these lawsuits. · Klein , et al. v. Prime Therapeutics , et al. (U.S. District Court for the District of Minnesota). In June 2017, a putative class action complaint was filed against the Company and other pharmacy benefit managers on behalf of ERISA plan members who purchased and paid for EpiPen or EpiPen Jr. Plaintiffs allege that the pharmacy benefit managers are ERISA fiduciaries to plan members and have violated ERISA by allegedly causing higher inflated prices for EpiPen through the process of negotiating increased rebates from EpiPen manufacturer, Mylan. This case was recently consolidated with a similar matter and is now proceeding as In re EpiPen ERISA Litigation . The Company is defending the lawsuit. · Medicare Part D Civil Investigative Demand . In May 2017, the United States Attorney’s Office for the Southern District of New York issued a Civil Investigative Demand to the Company concerning possible false claims submitted to Medicare in connection with reimbursements for prescription drugs under the Medicare Part D program. The Company has been cooperating with the government and providing documents and information in response to the Civil Investigative Demand. · Shareholder Matters. In August and September 2017, four complaints were filed by putative derivative plaintiffs against certain officers and directors of the Company. Three of those actions, Sherman v. Merlo, et al., Feghali v. Merlo, et al., and Banchalter v. Merlo, et al., were filed in the U.S. District Court for the District of Rhode Island. A fourth, Boron v. Bracken, et al., was filed in Rhode Island Superior Court. These matters assert a variety of causes of action, including breach of fiduciary duty, waste of corporate assets, unjust enrichment, civil conspiracy and violation of Section 14(a) of the Exchange Act, and are premised on the allegation that the defendants approved business plans that exposed the Company to various litigations and investigations. The three federal matters have been stayed pending resolution of certain of the underlying matters, and the Company has filed a motion to stay the state court action. · MSP Recovery Claims Series, LLC , et al. v. CVS Health Corporation , et al. (U.S. District Court for the Western District of Texas). In September 2017, a putative class action complaint was filed against the Company, Express Scripts, Inc., and the manufacturers of insulin on behalf of assignees of claims of Medicare Advantage Organizations. Plaintiffs assert that the PBMs and manufacturers have engaged in a conspiracy whereby the PBMs sell access to their formularies by demanding the highest rebates, which in turn causes increased list prices for insulin. The plaintiffs initially asserted claims against the Company on behalf of two putative classes: (1) all Medicare C payors and (2) all Medicare D payors. The complaint asserts claims under RICO, and for common law fraud and unjust enrichment. This case was transferred to the U.S. District Court for the District of New Jersey, and the plaintiff filed an amended complaint against only the drug manufacturers, and not against the PBMs. 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, 2018 | |
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, 2018, 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, time deposits and debt securities 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 $119 million at March 31, 2018 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, 2018. The carrying amount and estimated fair value of the Company’s total long-term debt was $65.1 billion and $65.9 billion, respectively, as of March 31, 2018. 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 PSS and RLS 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 $22 million and $17 million in the three months ended March 31, 2018 and 2017, 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 $35 million and $40 million for pharmaceutical inventory purchases during the three months ended March 31, 2018 and 2017, respectively. Additionally, the Company performs certain collection functions for Heartland and then passes those customer cash collections back to Heartland. The Company’s investment in and equity in earnings of Heartland for all periods presented 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 10 – Commitments and Contingencies” to the condensed consolidated financial statements. The Company’s discontinued operations include lease-related costs which the Company believes it will likely be required to satisfy pursuant to its lease guarantees. |
New Accounting Pronouncements | Adoption of New Revenue Recognition Standard In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. The Company adopted the new revenue recognition standard as of January 1, 2018 using the modified retrospective method and applying the new standard to all contracts. Therefore, the comparative financial information has not been restated and continues to be reported under the accounting standards in effect for those periods. One difference was identified between the previous accounting guidance and the new accounting guidance in the RLS related to the accounting for the Company’s ExtraBucks ® Rewards customer loyalty program, which was previously accounted for under a cost deferral method. Under the new standard, this program is accounted for under a revenue deferral method. The Company recognized the cumulative effect of initially applying the new revenue recognition standard as an adjustment to beginning retained earnings. On January 1, 2018, the Company recorded an after-tax transition adjustment to reduce retained earnings by approximately $13 million ($17 million prior to tax effect). The Company expects the impact of the adoption of the new standard to be immaterial to its net revenue and net income on an ongoing basis. The following is a discussion of the Company’s revenue recognition policies by segment under the new revenue recognition accounting standard: Pharmacy Services Segment The PSS sells prescription drugs directly through its mail service dispensing pharmacies and indirectly through its retail pharmacy network. The Company’s pharmacy benefit arrangements are accounted for in a manner consistent with a master supply arrangement as there are no contractual minimum volumes and each prescription is considered a separate purchasing decision and distinct performance obligation transferred at a point in time. Pharmacy benefit management services performed in connection with each prescription claim are considered part of a single performance obligation which culminates in the dispensing of prescription drugs. The Company recognizes revenue using the gross method at the contract price negotiated with its clients when the Company has concluded it controls the prescription drug before it is transferred to the client plan members. The Company controls prescriptions dispensed indirectly through its retail pharmacy network because it has separate contractual arrangements with those pharmacies, has discretion in setting the price for the transaction and assumes primary responsibility for fulfilling the promise to provide prescription drugs to its client plan members while also performing the related pharmacy benefit management services. Net revenues include (i) the portion of the price the client pays directly to the PSS, net of any variable consideration, including volume-related or other discounts paid back to the client (see “Drug Discounts” and “Guarantees” below), (ii) the price paid to the PSS by client plan members for mail order prescriptions (“Mail Co-Payments”) and the price paid to retail network pharmacies by client plan members for retail prescriptions (“Retail Co-Payments”), and (iii) claims based administrative fees for retail pharmacy network contracts. Sales taxes are not included in revenue. The PSS recognizes revenue when control of the prescription drugs are transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those prescription drugs. The following revenue recognition policies have been established for the PSS: · Revenues generated from prescription drugs sold by mail service dispensing pharmacies are recognized when the prescription drug is delivered to the client plan member. At the time of delivery, the PSS has performed substantially all of its performance obligations under its client contracts and does not experience a significant level of returns or reshipments. · Revenues generated from prescription drugs sold by third party pharmacies in the PSS’ retail pharmacy network and associated administrative fees are recognized at the PSS’ point-of-sale, which is when the claim is adjudicated by the PSS’ online claims processing system and the Company has transferred control of the prescription drug and performed all of its performance obligations. For contracts under which the PSS acts as an agent or does not control the prescription drugs prior to transfer to the client, revenue is recognized using the net method. Drug discounts – The PSS records revenue net of manufacturers’ rebates, earned by its clients based on their plan members’ utilization of brand-name formulary drugs. The PSS estimates these rebates at period-end based on actual and estimated claims data and its estimates of the manufacturers’ rebates earned by its clients. The estimates are based on the best available data at period-end and recent history for the various factors that can affect the amount of rebates due to the client. The PSS adjusts its rebates payable to clients to the actual amounts paid when these rebates are paid or as significant events occur. Any cumulative effect of these adjustments is recorded against revenues as identified. Adjustments generally result from contract changes with clients or manufacturers that have retroactive rebate adjustments, differences between the estimated and actual product mix subject to rebates, or whether the product was included in the applicable formulary. The effect of adjustments between estimated and actual amounts have not been material to the Company’s results of operations or financial position. Guarantees – The PSS also adjusts revenues for refunds owed to the client resulting from pricing guarantees and performance against defined service and performance metrics. The inputs to these estimates are not subject to a high degree of subjectivity or volatility. The effect of adjustments between estimated and actual amounts have not been material to the Company’s results of operations or financial position. Medicare Part D – The PSS participates in the federal government’s Medicare Part D program as a prescription drug plan (“PDP”) through its SilverScript subsidiary. Net revenues include insurance premiums earned by the PDP, which are determined based on the PDP’s annual bid and related contractual arrangements with the United States Centers for Medicare and Medicaid Services (“CMS”). The insurance premiums include a beneficiary premium, which is the responsibility of the PDP member, which is subsidized by CMS in the case of low-income members, and a direct premium paid by CMS. Premiums collected in advance are initially recorded within accrued expenses and other current liabilities and are then recognized ratably as revenue over the period in which members are entitled to receive benefits. In addition to these premiums, net revenues include co-payments, coverage gap benefits, deductibles and co-insurance (collectively, the “Member Co-Payments”) related to PDP members’ actual prescription claims. In certain cases, CMS subsidizes a portion of these Member Co-Payments and the PSS is paid an estimated prospective Member Co-Payment subsidy, each month. If the prospective Member Co-Payment subsidies received differ from the amounts earned from actual prescriptions transferred, the difference is recorded in either accounts receivable or accrued expenses. The PSS accounts for Member Co-Payments (including the amounts subsidized by CMS) using the gross method consistent with revenue recognition policies for Mail Co-Payments and Retail Co-Payments. The Company estimates variable consideration in the form of amounts payable, or receivable from CMS under a risk-sharing feature of the Medicare Part D program design, referred to as the risk corridor, and adjusts revenue based on calculations of additional subsidies to be received or owed to CMS at the end of the reporting year. The Company also estimates cost of revenues for claims that have been reported and are in the process of being paid or contested and for its estimate of claims that have been incurred but have not yet been reported. Historically, the effect of these adjustments has not been material to the Company’s results of operations or financial position. Retail/LTC Segment Retail Pharmacy - The retail drugstores recognize revenue at the time the customer takes possession of the merchandise. For pharmacy sales, each prescription claim is its own arrangement with the customer and is a performance obligation, separate and distinct from other prescription claims under other retail network arrangements. Revenues are adjusted for refunds owed to the third party payer for pricing guarantees and performance against defined value-based service and performance metrics. The inputs to most of these estimates are not subject to a high degree of subjectivity or volatility. The effect of adjustments between estimated and actual amounts have not been material to the Company’s results of operations or financial position. Revenue from CVS Health gift cards purchased by customers is deferred as a contract liability until goods or services are transferred. Any amounts not expected to be redeemed by customers (i.e., breakage) are recognized based on historical redemption patterns. Customer returns are not material to the Company’s results of operations or financial position. Loyalty Program - The Company’s customer loyalty program, ExtraCare ® , is comprised of two components, ExtraSavings TM and ExtraBucks ® Rewards. ExtraSavings are coupons that are recorded as a reduction of revenue when redeemed as the Company concluded that they do not represent a promise to the customer to deliver additional goods or services at the time of issuance because they are not tied to a specific transaction or spending level. ExtraBucks Rewards are accumulated by customers based on their historical spending levels. Thus, the Company has determined that there is an additional performance obligation to those customers at the time of the initial transaction. The Company allocates the transaction price to the initial transaction and the ExtraBucks Rewards transaction based upon the relative standalone selling price, which considers historical redemption patterns for the rewards. Revenue allocated to ExtraBucks Rewards is recognized as those rewards are redeemed. At the end of each period, unredeemed rewards are reflected as a contract liability. Long-term Care - Revenue is recognized when control of the promised goods or services are transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Each prescription claim represents a separate performance obligation of the Company, separate and distinct from other prescription claims under customer arrangements. A significant portion of the revenue from sales of pharmaceutical and medical products are reimbursed by the federal Medicare Part D program and, to a lesser extent, state Medicaid programs. The Company monitors its revenues and receivables from these reimbursement sources, as well as other third party insurance payors, and reduces revenue at the revenue recognition date, to properly account for the variable consideration due to anticipated differences between billed and reimbursed amounts. Accordingly, the total net revenues and receivables reported in the Company’s financial statements are recorded at the amount expected to be ultimately received from these payors. Patient co-payments associated with Medicare Part D, certain state Medicaid programs, Medicare Part B and certain third party payors are typically not collected at the time products are delivered or services are rendered, but are billed to the individuals as part of normal billing procedures and subject to normal accounts receivable collections procedures. Health Care Clinics - For services provided by the Company’s health care clinics, revenue recognition occurs for completed services provided to patients, with adjustments taken for third party payor contractual obligations and patient direct bill historical collection rates. Disaggregation of Revenue The following table disaggregates the Company’s revenue by major source in each segment for the three months ended March 31, 2018: Pharmacy Intersegment Consolidated In millions Services Retail/LTC Eliminations Totals Major goods/services lines: Pharmacy $ 30,762 $ 15,500 $ (6,957) $ 39,305 Front Store — 4,726 — 4,726 Other 1,456 206 — 1,662 Total $ 32,218 $ 20,432 $ (6,957) $ 45,693 Pharmacy Services distribution channel: Mail choice (1) $ 11,208 Retail network (2) 19,554 Other 1,456 Total $ 32,218 (1) Pharmacy Services mail choice is defined as claims filled at a Pharmacy Services mail facility, which includes specialty mail claims inclusive of Specialty Connect ® claims picked up at retail, as well as prescriptions filled at our retail pharmacies under the Maintenance Choice program. (2) Pharmacy Services retail network net revenues do not include Maintenance Choice ® activity, which is included within the mail choice category. Retail network is defined as claims filled at retail and specialty retail pharmacies, including our retail pharmacies and long-term care pharmacies, but excluding Maintenance Choice activity. Contract Balances Contract liabilities primarily represent the Company’s obligation to transfer additional goods or services to a customer for which the Company has received consideration, for example ExtraBucks ® Rewards and unredeemed CVS Health gift cards. The consideration received remains a contract liability until goods or services have been provided to the retail customer. In addition, the Company recognizes breakage on CVS Health gift cards based on historical redemption patterns. The following table provides information about receivables and contract liabilities from contracts with customers: In millions March 31, 2018 December 31, 2017 Receivables (included in accounts receivable, net) $ 6,875 $ 7,873 Contract liabilities (included in accrued expenses) 71 53 During the three months ended March 31, 2018, the contract liabilities balance includes increases related to customers’ earnings in ExtraBucks Rewards or issuances of CVS Health gift cards and decreases for revenues recognized during the period as a result of the redemption of ExtraBucks Rewards or CVS Health gift cards and breakage of CVS Health gift cards. Below is a summary of the changes: In millions Balance, December 31, 2017 $ 53 Adoption of ASU 2014-09 17 Loyalty program earnings and gift card issuances 79 Redemption and breakage (78) Balance, March 31, 2018 $ 71 Impact of New Revenue Recognition Standard on Financial Statement Line Items The Company adopted ASU 2014-09 using the modified retrospective method. The cumulative effect of applying the new guidance to all contracts was recorded as an adjustment to retained earnings as of the adoption date. As a result of applying the modified retrospective method to adopt the new revenue guidance, the following adjustments were made to accounts on the condensed consolidated balance sheet as of January 1, 2018: Impact of Change in Accounting Policy As Reported Adjusted In millions December 31, 2017 Adjustments January 1, 2018 Condensed Consolidated Balance Sheet: Accrued expenses $ 6,609 $ 17 $ 6,626 Deferred income taxes 2,996 (4) 2,992 Total liabilities 57,436 13 57,449 Retained earnings 43,556 (13) 43,543 Total CVS Health shareholders' equity 37,691 (13) 37,678 Total shareholders' equity 37,695 (13) 37,682 The following table compares the reported condensed consolidated balance sheet, income statement, and statement of cash flows, as of and for the three months ended March 31, 2018, to the pro forma amounts had the previous revenue accounting guidance remained in effect: Impact of Change in Accounting Policy As Reported Balances As of/For the Without Three Months Ended Adoption of In millions March 31, 2018 Adjustments Topic 606 Condensed Consolidated Statement of Income: Net revenues $ 45,693 $ 7 $ 45,700 Cost of revenues 38,834 4 38,838 Gross profit 6,859 3 6,862 Operating profit 1,946 3 1,949 Income before income tax provision 1,470 3 1,473 Income tax provision 472 1 473 Income from continuing operations 998 2 1,000 Net income 998 2 1,000 Net income attributable to CVS Health 998 2 1,000 Condensed Consolidated Balance Sheet: Accrued expenses 7,724 (20) 7,704 Deferred income taxes 3,058 5 3,063 Total liabilities 96,462 (15) 96,447 Retained earnings 44,040 15 44,055 Total CVS Health shareholders' equity 38,673 15 38,688 Total shareholders' equity 38,677 15 38,692 Total liabilities and shareholders' equity 135,139 — 135,139 Condensed Consolidated Statement of Cash Flow: Reconciliation of net income to net cash provided by operating activities: Net income 998 2 1,000 Deferred income taxes and other noncash items 62 1 63 Accrued expenses 1,231 (3) 1,228 Other Accounting Pronouncements Recently Adopted In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities . This ASU requires equity investments, except those under the equity method of accounting or those that result in the consolidation of an investee, to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. This simplifies the impairment assessment of equity investments previously held at cost. Entities are required to apply the guidance retrospectively, with the exception of the amendments related to equity investments without readily determinable fair values, which must be applied on a prospective basis. Effective January 1, 2018, the Company adopted this new accounting guidance. The adoption of this new guidance did not have a material impact on the Company’s financial position or results of operations. 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. Effective January 1, 2018, the Company adopted this new accounting guidance. The adoption of this new guidance did not have a material impact on the Company’s financial position or results of operations. In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows , which amends Accounting Standard Codification (“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 are no longer 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 required to be applied retrospectively. Effective January 1, 2018, the Company adopted this new accounting guidance. The following represents a reconciliation of cash and cash equivalents in the condensed consolidated balance sheet to total cash, cash equivalents and restricted cash in the condensed consolidated statement of cash flows: March 31, December 31, In millions 2018 2017 Cash and cash equivalents $ 42,023 $ 1,696 Restricted cash (included in other current assets) 14 14 Restricted cash (included in other assets) 227 190 Total cash, cash equivalents and restricted cash in the statement of cash flows $ 42,264 $ 1,900 Restricted cash included in other current assets in the condensed consolidated balance sheets represents amounts held in escrow accounts in connection with certain recent acquisitions. Restricted cash included in other assets in the condensed consolidated balance sheets represents amounts held in a trust in the Company’s insurance captive to satisfy collateral requirements associated with the assignment of certain insurance policies. All restricted cash is invested in time deposits, money markets, and commercial paper, which are classified within Level 1 of the fair value hierarchy. Restricted cash activity was previously reported in “acquisitions (net of cash acquired) and other investments” within investing cash flows on the Company’s condensed consolidated statement of cash flows. The following is a reconciliation of the effect on the relevant line items on the statement of cash flows for the three months ended March 31, 2017 as a result of adopting this new accounting guidance: As Previously In millions Reported Adjustments As Revised Three Months Ended March 31, 2017 Acquisitions (net of cash acquired) and other investments $ (110) $ 17 $ (93) Net cash used in investing activities (554) 17 (537) Net decrease in cash, cash equivalents and restricted cash (1) (1,154) 17 (1,137) Cash, cash equivalents, and restricted cash at the beginning of the period (1) 3,371 149 3,520 Cash, cash equivalents, and restricted cash at the end of the period (1) 2,217 166 2,383 (1) Prior to the adoption of ASU 2016-18, these financial statement captions excluded restricted cash. The financial statement captions have been renamed to reflect the inclusion of restricted cash subsequent to the adoption of ASU 2016-18 on January 1, 2018. In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”). ASU 2018-02 permits entities to reclassify tax effects stranded in accumulated other comprehensive income as a result of the Tax Cuts and Jobs Act (“TCJA”) to retained earnings. The guidance states that because the adjustment of deferred income taxes due to the reduction of the historical corporate income tax rate to the newly enacted corporate income tax rate was required to be included in income from continuing operations, the tax effects of items within accumulated other comprehensive income (“stranded tax effects”) are not reflected at the appropriate tax rate. During the first quarter of 2018, the Company elected to early adopt this new standard and decreased accumulated other comprehensive income and increased retained earnings in the period of adoption by $7 million due to the change in the U.S. federal corporate income tax rate in December 2017. See “Note 6 – Accumulated Other Comprehensive Income” to the condensed consolidated financial statements for the impact of the adoption of this standard on accumulated other comprehensive income for the three months ended March 31, 2018. New Accounting Pronouncements Not Yet Adopted 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 June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326). The new standard requires the use of a forward-looking expected loss impairment model for trade and other receivables, held-to-maturity debt securities, loans and other instruments. The new standard also requires impairments and recoveries for available-for-sale debt securities to be recorded through an allowance account and revises certain disclosure requirements. The 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. |
Accounting Policies (Tables)
Accounting Policies (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Schedule of revenue disaggregation | Pharmacy Intersegment Consolidated In millions Services Retail/LTC Eliminations Totals Major goods/services lines: Pharmacy $ 30,762 $ 15,500 $ (6,957) $ 39,305 Front Store — 4,726 — 4,726 Other 1,456 206 — 1,662 Total $ 32,218 $ 20,432 $ (6,957) $ 45,693 Pharmacy Services distribution channel: Mail choice (1) $ 11,208 Retail network (2) 19,554 Other 1,456 Total $ 32,218 (1) Pharmacy Services mail choice is defined as claims filled at a Pharmacy Services mail facility, which includes specialty mail claims inclusive of Specialty Connect ® claims picked up at retail, as well as prescriptions filled at our retail pharmacies under the Maintenance Choice program. (2) Pharmacy Services retail network net revenues do not include Maintenance Choice ® activity, which is included within the mail choice category. Retail network is defined as claims filled at retail and specialty retail pharmacies, including our retail pharmacies and long-term care pharmacies, but excluding Maintenance Choice activity. |
Schedule of contract balances and activity | Contract Balances Contract liabilities primarily represent the Company’s obligation to transfer additional goods or services to a customer for which the Company has received consideration, for example ExtraBucks ® Rewards and unredeemed CVS Health gift cards. The consideration received remains a contract liability until goods or services have been provided to the retail customer. In addition, the Company recognizes breakage on CVS Health gift cards based on historical redemption patterns. The following table provides information about receivables and contract liabilities from contracts with customers: In millions March 31, 2018 December 31, 2017 Receivables (included in accounts receivable, net) $ 6,875 $ 7,873 Contract liabilities (included in accrued expenses) 71 53 During the three months ended March 31, 2018, the contract liabilities balance includes increases related to customers’ earnings in ExtraBucks Rewards or issuances of CVS Health gift cards and decreases for revenues recognized during the period as a result of the redemption of ExtraBucks Rewards or CVS Health gift cards and breakage of CVS Health gift cards. Below is a summary of the changes: In millions Balance, December 31, 2017 $ 53 Adoption of ASU 2014-09 17 Loyalty program earnings and gift card issuances 79 Redemption and breakage (78) Balance, March 31, 2018 $ 71 |
Schedule of new accounting pronouncements and changes in accounting principles | March 31, December 31, In millions 2018 2017 Cash and cash equivalents $ 42,023 $ 1,696 Restricted cash (included in other current assets) 14 14 Restricted cash (included in other assets) 227 190 Total cash, cash equivalents and restricted cash in the statement of cash flows $ 42,264 $ 1,900 |
Reconciliation of condensed consolidated statement of cash flows | As Previously In millions Reported Adjustments As Revised Three Months Ended March 31, 2017 Acquisitions (net of cash acquired) and other investments $ (110) $ 17 $ (93) Net cash used in investing activities (554) 17 (537) Net decrease in cash, cash equivalents and restricted cash (1) (1,154) 17 (1,137) Cash, cash equivalents, and restricted cash at the beginning of the period (1) 3,371 149 3,520 Cash, cash equivalents, and restricted cash at the end of the period (1) 2,217 166 2,383 (1) Prior to the adoption of ASU 2016-18, these financial statement captions excluded restricted cash. The financial statement captions have been renamed to reflect the inclusion of restricted cash subsequent to the adoption of ASU 2016-18 on January 1, 2018. |
ASU 2014-09 | |
Schedule of new accounting pronouncements and changes in accounting principles | Impact of Change in Accounting Policy As Reported Adjusted In millions December 31, 2017 Adjustments January 1, 2018 Condensed Consolidated Balance Sheet: Accrued expenses $ 6,609 $ 17 $ 6,626 Deferred income taxes 2,996 (4) 2,992 Total liabilities 57,436 13 57,449 Retained earnings 43,556 (13) 43,543 Total CVS Health shareholders' equity 37,691 (13) 37,678 Total shareholders' equity 37,695 (13) 37,682 The following table compares the reported condensed consolidated balance sheet, income statement, and statement of cash flows, as of and for the three months ended March 31, 2018, to the pro forma amounts had the previous revenue accounting guidance remained in effect: Impact of Change in Accounting Policy As Reported Balances As of/For the Without Three Months Ended Adoption of In millions March 31, 2018 Adjustments Topic 606 Condensed Consolidated Statement of Income: Net revenues $ 45,693 $ 7 $ 45,700 Cost of revenues 38,834 4 38,838 Gross profit 6,859 3 6,862 Operating profit 1,946 3 1,949 Income before income tax provision 1,470 3 1,473 Income tax provision 472 1 473 Income from continuing operations 998 2 1,000 Net income 998 2 1,000 Net income attributable to CVS Health 998 2 1,000 Condensed Consolidated Balance Sheet: Accrued expenses 7,724 (20) 7,704 Deferred income taxes 3,058 5 3,063 Total liabilities 96,462 (15) 96,447 Retained earnings 44,040 15 44,055 Total CVS Health shareholders' equity 38,673 15 38,688 Total shareholders' equity 38,677 15 38,692 Total liabilities and shareholders' equity 135,139 — 135,139 Condensed Consolidated Statement of Cash Flow: Reconciliation of net income to net cash provided by operating activities: Net income 998 2 1,000 Deferred income taxes and other noncash items 62 1 63 Accrued expenses 1,231 (3) 1,228 |
Goodwill (Tables)
Goodwill (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Goodwill. | |
Goodwill by Segment | Pharmacy In millions Services Retail/LTC Total Balance, December 31, 2017 $ 21,819 $ 16,632 $ 38,451 Acquisitions 26 36 62 Divestiture of RxCrossroads subsidiary — (398) Balance, March 31, 2018 $ 21,845 $ 16,270 $ 38,115 |
Borrowings and Credit Agreeme20
Borrowings and Credit Agreements (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Borrowings and Credit Agreements | |
Summary of the Company's borrowings | March 31, December 31, In millions 2018 2017 Short-term debt Commercial paper $ — $ 1,276 Long-term debt 3.25% senior exchange debentures due 2035 — 1 1.9% senior notes due 2018 2,250 2,250 2.25% senior notes due 2018 1,250 1,250 2.25% senior notes due 2019 850 850 2.8% senior notes due 2020 2,750 2,750 3.125% senior notes due 2020 2,000 — Floating rate notes due 2020 1,000 — 2.125% senior notes due 2021 1,750 1,750 4.125% senior notes due 2021 550 550 3.35% senior notes due 2021 3,000 — Floating rate notes due 2021 1,000 — 2.75% senior notes due 2022 1,250 1,250 3.5% senior notes due 2022 1,500 1,500 4.75% senior notes due 2022 399 399 4% senior notes due 2023 1,250 1,250 3.7% senior notes due 2023 6,000 — 3.375% senior notes due 2024 650 650 5% senior notes due 2024 299 299 3.875% senior notes due 2025 2,828 2,828 4.1% senior notes due 2025 5,000 — 2.875% senior notes due 2026 1,750 1,750 6.25% senior notes due 2027 372 372 4.3% senior notes due 2028 9,000 — 4.875% senior notes due 2035 652 652 4.78% senior notes due 2038 5,000 — 6.125% senior notes due 2039 447 447 5.75% senior notes due 2041 133 133 5.3% senior notes due 2043 750 750 5.125% senior notes due 2045 3,500 3,500 5.05% senior notes due 2048 8,000 — Capital lease obligations 672 670 Other 23 43 Total debt principal 65,875 27,170 Debt premiums 27 28 Debt discounts and deferred financing costs (808) (196) 65,094 27,002 Less: Short-term debt (commercial paper) — (1,276) Current portion of long-term debt (3,542) (3,545) Long-term debt $ 61,552 $ 22,181 |
Schedule of debt issuances | In millions 3.125% senior notes due 2020 $ 2,000 Floating rate notes due 2020 1,000 3.35% senior notes due 2021 3,000 Floating rate notes due 2021 1,000 3.7% senior notes due 2023 6,000 4.1% senior notes due 2025 5,000 4.3% senior notes due 2028 9,000 4.78% senior notes due 2038 5,000 5.05% senior notes due 2048 8,000 Total debt principal $ 40,000 |
Share Repurchase Programs (Tabl
Share Repurchase Programs (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Share Repurchase Programs | |
Share repurchase programs | In billions Remaining as of Authorization Date Authorized March 31, 2018 November 2, 2016 (“2016 Repurchase Program”) $ 15.0 $ 13.9 December 15, 2014 (“2014 Repurchase Program”) 10.0 — |
Accumulated Other Comprehensi22
Accumulated Other Comprehensive Income (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Accumulated Other Comprehensive Income | |
Schedule of accumulated other comprehensive income (loss) by component | Three Months Ended March 31, 2018 (1) Pension and Other Foreign Cash Flow Postretirement In millions Currency Hedges Benefits Total Balance, December 31, 2017 $ (129) $ (15) $ (21) $ (165) Reclassifications to retained earnings in accordance with ASU 2018-02 (3) — (3) (4) (7) (129) (18) (25) (172) Other comprehensive income (loss): Other comprehensive income (loss) before reclassifications 1 344 — 345 Amounts reclassified from accumulated other comprehensive income (2) — (1) — (1) Other comprehensive income 1 343 — 344 Balance, March 31, 2018 $ (128) $ 325 $ (25) $ 172 Three Months Ended March 31, 2017 (1) Pension and Other Foreign Cash Flow Postretirement Currency Hedges Benefits Total Balance, December 31, 2016 $ (127) $ (5) $ (173) $ (305) Other comprehensive income: Other comprehensive income before reclassifications 8 — — 8 Amounts reclassified from accumulated other comprehensive income (2) — 1 — 1 Other comprehensive income 8 1 — 9 Balance, March 31, 2017 $ (119) $ (4) $ (173) $ (296) (1) All amounts are net of tax. (2) The amounts reclassified from accumulated other comprehensive income for cash flow hedges are recorded within interest expense, net on the condensed consolidated statements of income. The amounts reclassified from accumulated other comprehensive income for pension and other postretirement benefits are included in other expense on the condensed consolidated statements of income. (3) See “Note 1 – Accounting Policies” to the condensed consolidated financial statements for additional information on the adoption of ASU 2018-02 during the first quarter of 2018. |
Interest Expense, Net (Tables)
Interest Expense, Net (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Interest Expense, Net | |
Components of net interest expense | Three Months Ended March 31, In millions 2018 2017 Interest expense $ 523 $ 258 Interest income (50) (6) Interest expense, net $ 473 $ 252 |
Earnings Per Share (Tables)
Earnings Per Share (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Earnings Per Share | |
Reconciliation of basic and diluted earnings per common share | Three Months Ended March 31, In millions, except per share amounts 2018 2017 Numerator for earnings per share calculation: Income from continuing operations $ 998 $ 962 Income allocated to participating securities (2) (4) Net income attributable to noncontrolling interest — (1) Income from continuing operations attributable to CVS Health $ 996 $ 957 Denominator for earnings per share calculation: Weighted average shares, basic 1,016 1,030 Effect of dilutive securities 3 5 Weighted average shares, diluted 1,019 1,035 Earnings per share from continuing operations: Basic $ 0.98 $ 0.93 Diluted $ 0.98 $ 0.92 |
Segment Reporting (Tables)
Segment Reporting (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Segment Reporting | |
Reconciliation of the Company's business segments to the consolidated financial statements | Pharmacy Services Retail/LTC Corporate Intersegment Consolidated In millions Segment Segment Segment Eliminations Totals Cost of revenues, as previously reported $ 30,127 $ 13,665 $ (5,858) $ 37,934 Adjustments 14 (5) — 9 Cost of revenues, as adjusted $ 30,141 $ 13,660 $ (5,858) $ 37,943 Gross profit, as previously reported $ 1,096 $ 5,676 $ (192) $ 6,580 Adjustments (14) 5 — (9) Gross profit, as adjusted $ 1,082 $ 5,681 $ (192) $ 6,571 Operating expenses, as previously reported $ 312 $ 4,265 $ 226 $ (16) $ 4,787 Adjustments 13 (17) (5) — (9) Operating expenses, as adjusted $ 325 $ 4,248 $ 221 $ (16) $ 4,778 Operating profit (loss), as previously reported $ 784 $ 1,411 $ (226) $ (176) $ 1,793 Adjustments (27) 22 5 — — Operating profit (loss), as adjusted $ 757 $ 1,433 $ (221) $ (176) $ 1,793 The following is a reconciliation of the Company’s segments to the accompanying condensed consolidated financial statements: Pharmacy Services Retail/LTC Corporate Intersegment Consolidated In millions Segment (1) Segment Segment Eliminations (2) Totals Three Months Ended March 31, 2018: Net revenues $ 32,218 $ 20,432 $ — $ (6,957) $ 45,693 Gross profit 1,138 5,916 — (195) 6,859 Operating profit (loss) (3)(4) 761 1,624 (264) (175) 1,946 March 31, 2017: Net revenues 31,223 19,341 — (6,050) 44,514 Gross profit 1,082 5,681 — (192) 6,571 Operating profit (loss) (5) 757 1,433 (221) (176) 1,793 (1) Net revenues of the Pharmacy Services Segment include approximately $3.3 billion and $3.1 billion of retail co‑payments for the three months ended March 31, 2018 and 2017, 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, 2018 includes an $86 million loss on the divestiture of the RxCrossroads subsidiary (see “Note 3 – Goodwill” to the condensed consolidated financial statements) and $3 million of acquisition-related integration costs related to the acquisition of Omnicare. (4) The Corporate Segment operating loss for the three months ended March 31, 2018 includes $40 million in acquisition-related transaction and integration costs related to the proposed Aetna acquisition. The Retail/LTC Segment operating profit for the three months ended March 31, 2017 includes a $199 million charge associated with store closures and $15 million of acquisition-related integration costs related to the acquisition of Omnicare. |
Accounting Policies - Descripti
Accounting Policies - Description of Business (Details) | 3 Months Ended |
Mar. 31, 2018segmentstateclinicpharmacyitemstoreCenter | |
Segment reporting information | |
Number of reportable segments | segment | 3 |
Pharmacy Services Segment | |
Segment reporting information | |
Number of pharmacies (more than 68,000) | 68,000 |
Number of chain pharmacies | 41,000 |
Number of independent pharmacies | 27,000 |
Number of conditions for integrated disease management | item | 18 |
Centers of excellence for infusion and enteral services | Center | 3 |
Number of states pharmacies operated | state | 43 |
Pharmacy Services Segment | Specialty stores | |
Segment reporting information | |
Number of pharmacies (more than 68,000) | 25 |
Pharmacy Services Segment | Specialty mail order | |
Segment reporting information | |
Number of pharmacies (more than 68,000) | 18 |
Pharmacy Services Segment | Mail service | |
Segment reporting information | |
Number of pharmacies (more than 68,000) | 4 |
Pharmacy Services Segment | Infusion and Enteral Branches | |
Segment reporting information | |
Number of infusion and enteral branches | 86 |
Pharmacy Services Segment | Ambulatory Infusion Suites | |
Segment reporting information | |
Number of infusion and enteral branches | 74 |
Retail/LTC Segment | |
Segment reporting information | |
Number of states pharmacies operated | state | 49 |
Number of drugstores | store | 9,847 |
Number of on-site pharmacies | 37 |
Number of LTC spoke pharmacies | store | 163 |
Number of LTC hub pharmacies | store | 30 |
Retail/LTC Segment | MinuteClinic | |
Segment reporting information | |
Number of drugstores | clinic | 1,111 |
Retail/LTC Segment | Minute Clinic Within C V S Pharmacy Stores | |
Segment reporting information | |
Number of drugstores | clinic | 1,107 |
Retail/LTC Segment | Pharmacy | |
Segment reporting information | |
Number of drugstores | store | 8,099 |
Target Pharmacy Acquisition | Retail/LTC Segment | |
Segment reporting information | |
Number of pharmacies acquired | 1,699 |
Accounting Policies - Fair Valu
Accounting Policies - Fair Value of Financial Instruments (Details) - USD ($) $ in Millions | Mar. 31, 2018 | Dec. 31, 2017 |
Accounting Policies | ||
Short-term investments | $ 119 | $ 111 |
Carrying amount of long-term debt | 65,100 | |
Estimated fair value of long-term debt | $ 65,900 |
Accounting Policies - Related P
Accounting Policies - Related Party Transactions (Details) $ in Millions | 3 Months Ended | |
Mar. 31, 2018USD ($)state | Mar. 31, 2017USD ($) | |
Related Party Transaction | ||
Expenses from transactions with related party | $ 22 | $ 17 |
Equity Method Investee | ||
Related Party Transaction | ||
Other revenues from transactions with related party | $ 35 | $ 40 |
Heartland Healthcare Services | ||
Related Party Transaction | ||
Number of states in which entity operates | state | 4 |
Accounting Policies - Revenue A
Accounting Policies - Revenue Adoption Retained Earnings Adjustment (Details) - ASU 2014-09 $ in Millions | Jan. 02, 2018USD ($) |
Retained earnings adjustment | |
Retained earnings adjustment net of tax | $ (13) |
Retained earnings adjustment before of tax | $ (17) |
Accounting Policies - Revenue D
Accounting Policies - Revenue Disaggregation (Details) $ in Millions | 3 Months Ended |
Mar. 31, 2018USD ($) | |
Revenue Disaggregation | |
Net revenue | $ 45,693 |
Pharmacy | |
Revenue Disaggregation | |
Net revenue | 39,305 |
Front Store | |
Revenue Disaggregation | |
Net revenue | 4,726 |
Other | |
Revenue Disaggregation | |
Net revenue | 1,662 |
Operating Segments | Pharmacy Services Segment | |
Revenue Disaggregation | |
Net revenue | 32,218 |
Operating Segments | Pharmacy Services Segment | Pharmacy | |
Revenue Disaggregation | |
Net revenue | 30,762 |
Operating Segments | Pharmacy Services Segment | Mail choice | |
Revenue Disaggregation | |
Net revenue | 11,208 |
Operating Segments | Pharmacy Services Segment | Retail network | |
Revenue Disaggregation | |
Net revenue | 19,554 |
Operating Segments | Pharmacy Services Segment | Other | |
Revenue Disaggregation | |
Net revenue | 1,456 |
Operating Segments | Retail/LTC Segment | |
Revenue Disaggregation | |
Net revenue | 20,432 |
Operating Segments | Retail/LTC Segment | Pharmacy | |
Revenue Disaggregation | |
Net revenue | 15,500 |
Operating Segments | Retail/LTC Segment | Front Store | |
Revenue Disaggregation | |
Net revenue | 4,726 |
Operating Segments | Retail/LTC Segment | Other | |
Revenue Disaggregation | |
Net revenue | 206 |
Intersegment Eliminations | |
Revenue Disaggregation | |
Net revenue | (6,957) |
Intersegment Eliminations | Pharmacy | |
Revenue Disaggregation | |
Net revenue | $ (6,957) |
Accounting Policies - Contract
Accounting Policies - Contract Balances and Activity (Details) - USD ($) $ in Millions | 3 Months Ended | ||
Mar. 31, 2018 | Mar. 31, 2018 | Dec. 31, 2017 | |
Accounting Policies | |||
Receivables (included in accounts receivable, net) | $ 6,875 | $ 7,873 | |
Contract liabilities (included in accrued expenses) | $ 53 | $ 71 | $ 53 |
Rollforward of contract liabilities | |||
Balance at beginning of period | 53 | ||
Adoption of ASU 2014-09 | 17 | ||
Loyalty program earnings and gift card issuance | 79 | ||
Redemption and breakage | (78) | ||
Balance at end of period | $ 71 |
Accounting Policies - Impact of
Accounting Policies - Impact of New Revenue Recognition Standard on Financial Statement Line Items (Details) - USD ($) $ in Millions | 3 Months Ended | |||
Mar. 31, 2018 | Mar. 31, 2017 | Jan. 02, 2018 | Dec. 31, 2017 | |
Condensed Consolidated Statements of Income | ||||
Net revenue | $ 45,693 | |||
Cost of revenue | 38,834 | $ 37,943 | ||
Gross profit | 6,859 | 6,571 | ||
Operating profit | 1,946 | 1,793 | ||
Income before income tax provision | 1,470 | 1,534 | ||
Income tax provision | 472 | 572 | ||
Income from continuing operations | 998 | 962 | ||
Net income | 998 | 953 | ||
Net income attributable to CVS Health | 998 | 952 | ||
Condensed Consolidated Balance Sheets | ||||
Accrued expenses | 7,724 | $ 6,626 | $ 6,609 | |
Deferred income taxes | 3,058 | 2,992 | 2,996 | |
Total Liabilities | 96,462 | 57,449 | 57,436 | |
Retained earnings | 44,040 | 43,543 | 43,556 | |
Total CVS Health shareholders’ equity | 38,673 | 37,678 | 37,691 | |
Total shareholders’ equity | 38,677 | 37,682 | 37,695 | |
Total liabilities and shareholders’ equity | 135,139 | 95,131 | ||
Reconciliation of net income to net cash provided by operating activities: | ||||
Net income | 998 | 953 | ||
Deferred income taxes and other noncash items | 62 | 14 | ||
Accrued expenses | 1,231 | $ 1,848 | ||
ASU 2014-09 | Adjustment | ||||
Condensed Consolidated Statements of Income | ||||
Net revenue | 7 | |||
Cost of revenue | 4 | |||
Gross profit | 3 | |||
Operating profit | 3 | |||
Income before income tax provision | 3 | |||
Income tax provision | 1 | |||
Income from continuing operations | 2 | |||
Net income | 2 | |||
Net income attributable to CVS Health | 2 | |||
Condensed Consolidated Balance Sheets | ||||
Accrued expenses | (20) | 17 | ||
Deferred income taxes | 5 | (4) | ||
Total Liabilities | (15) | 13 | ||
Retained earnings | 15 | (13) | ||
Total CVS Health shareholders’ equity | 15 | (13) | ||
Total shareholders’ equity | 15 | $ (13) | ||
Reconciliation of net income to net cash provided by operating activities: | ||||
Net income | 2 | |||
Deferred income taxes and other noncash items | 1 | |||
Accrued expenses | (3) | |||
ASU 2014-09 | As previously reported | ||||
Condensed Consolidated Statements of Income | ||||
Net revenue | 45,700 | |||
Cost of revenue | 38,838 | |||
Gross profit | 6,862 | |||
Operating profit | 1,949 | |||
Income before income tax provision | 1,473 | |||
Income tax provision | 473 | |||
Income from continuing operations | 1,000 | |||
Net income | 1,000 | |||
Net income attributable to CVS Health | 1,000 | |||
Condensed Consolidated Balance Sheets | ||||
Accrued expenses | 7,704 | 6,609 | ||
Deferred income taxes | 3,063 | 2,996 | ||
Total Liabilities | 96,447 | 57,436 | ||
Retained earnings | 44,055 | 43,556 | ||
Total CVS Health shareholders’ equity | 38,688 | 37,691 | ||
Total shareholders’ equity | 38,692 | $ 37,695 | ||
Total liabilities and shareholders’ equity | 135,139 | |||
Reconciliation of net income to net cash provided by operating activities: | ||||
Net income | 1,000 | |||
Deferred income taxes and other noncash items | 63 | |||
Accrued expenses | $ 1,228 |
Accounting Policies - New Accou
Accounting Policies - New Accounting Pronouncements (Details) - USD ($) $ in Millions | 3 Months Ended | |||
Mar. 31, 2018 | Mar. 31, 2017 | Mar. 31, 2018 | Dec. 31, 2017 | |
Cash and cash equivalents and restricted cash | ||||
Cash and cash equivalents | $ 42,023 | $ 1,696 | ||
Total cash, cash equivalents and restricted cash in the statement of cash flows | $ 1,900 | $ 3,520 | 42,264 | 1,900 |
Condensed Consolidated Statements of Cash Flows | ||||
Acquisitions (net of cash acquired) and other investments | (368) | (93) | ||
Net cash used in investing activities | (131) | (537) | ||
Net decrease in cash, cash equivalents and restricted cash | 40,364 | (1,137) | ||
Cash, cash equivalents and restricted cash at the beginning of the period | 1,900 | 3,520 | ||
Cash, cash equivalents and restricted cash at the end of the period | 42,264 | 2,383 | ||
Adjustments Early Adoption | ASU 2018-02 | Adjustments | ||||
Condensed Consolidated Statements of Income | ||||
Amounts reclassified from accumulated other comprehensive income | (7) | |||
ASU 2016-18 | ||||
Cash and cash equivalents and restricted cash | ||||
Cash and cash equivalents | 42,023 | 1,696 | ||
Total cash, cash equivalents and restricted cash in the statement of cash flows | 1,900 | 42,264 | 1,900 | |
Condensed Consolidated Statements of Cash Flows | ||||
Cash, cash equivalents and restricted cash at the beginning of the period | 1,900 | |||
Cash, cash equivalents and restricted cash at the end of the period | $ 42,264 | |||
ASU 2016-18 | Previously Reported | ||||
Cash and cash equivalents and restricted cash | ||||
Total cash, cash equivalents and restricted cash in the statement of cash flows | 3,371 | |||
Condensed Consolidated Statements of Cash Flows | ||||
Acquisitions (net of cash acquired) and other investments | (110) | |||
Net cash used in investing activities | (554) | |||
Net decrease in cash, cash equivalents and restricted cash | (1,154) | |||
Cash, cash equivalents and restricted cash at the beginning of the period | 3,371 | |||
Cash, cash equivalents and restricted cash at the end of the period | 2,217 | |||
ASU 2016-18 | Adjustments | ||||
Cash and cash equivalents and restricted cash | ||||
Total cash, cash equivalents and restricted cash in the statement of cash flows | 149 | |||
Condensed Consolidated Statements of Cash Flows | ||||
Acquisitions (net of cash acquired) and other investments | 17 | |||
Net cash used in investing activities | 17 | |||
Net decrease in cash, cash equivalents and restricted cash | 17 | |||
Cash, cash equivalents and restricted cash at the beginning of the period | 149 | |||
Cash, cash equivalents and restricted cash at the end of the period | $ 166 | |||
ASU 2016-18 | Other Current Assets | ||||
Cash and cash equivalents and restricted cash | ||||
Restricted Cash and Cash Equivalents | 14 | 14 | ||
ASU 2016-18 | Other Long-Term Assets | ||||
Cash and cash equivalents and restricted cash | ||||
Restricted Cash and Cash Equivalents | $ 227 | $ 190 |
Proposed Aetna Acquisition (Det
Proposed Aetna Acquisition (Details) - Aetna $ / shares in Units, $ in Billions | Dec. 03, 2017USD ($)$ / sharesshares |
Business Acquisition | |
Cash consideration for shares acquired (dollars per share) | $ / shares | $ 145 |
Shares exchanged for each share acquired (in shares) | shares | 0.8378 |
The assigned value per share of acquiree (dollars per share) | $ / shares | $ 207 |
Assigned value of acquiree | $ | $ 69 |
Weighted average share price analysis | 5 days |
Consideration transferred | $ | $ 77 |
Potential termination fees | $ | $ 2.1 |
Aetna Acquisition | |
Business Acquisition | |
Share price (dollars per share) | $ / shares | $ 74.21 |
Goodwill (Details)
Goodwill (Details) - USD ($) $ in Millions | 3 Months Ended | ||
Mar. 31, 2018 | Mar. 31, 2017 | Jan. 02, 2018 | |
Goodwill | |||
Income tax provision | $ 472 | $ 572 | |
Goodwill | |||
Goodwill, beginning balance | 38,451 | ||
Acquisitions | 62 | ||
Sale of RxCrossroads reporting unit | (398) | ||
Goodwill, ending balance | 38,115 | ||
Pharmacy Services Segment | |||
Goodwill | |||
Goodwill, beginning balance | 21,819 | ||
Acquisitions | 26 | ||
Goodwill, ending balance | 21,845 | ||
Retail/LTC Segment | |||
Goodwill | |||
Goodwill, impairment loss | 199 | ||
Goodwill | |||
Goodwill, beginning balance | 16,632 | ||
Acquisitions | 36 | ||
Sale of RxCrossroads reporting unit | (398) | ||
Goodwill, ending balance | $ 16,270 | ||
Rx Crossroads Member | |||
Disposal group | |||
Consideration | $ 725 |
Borrowings and Credit Agreeme36
Borrowings and Credit Agreements - Schedule of Long-term Debt Instruments (Details) - USD ($) $ in Millions | Mar. 31, 2018 | Dec. 31, 2017 |
Borrowings and Credit Agreements | ||
Total debt principal | $ 65,875 | $ 27,170 |
Debt premiums | 27 | 28 |
Debt discounts and deferred financing costs | (808) | (196) |
Long-term debt, net of premiums, discounts and deferred costs | 65,094 | 27,002 |
Short-term debt (commercial paper) | (1,276) | |
Current portion of long-term debt | (3,542) | (3,545) |
Long-term debt | 61,552 | 22,181 |
1.9% senior notes due 2018 | ||
Borrowings and Credit Agreements | ||
Total debt principal | $ 2,250 | 2,250 |
Interest rate, stated percentage | 1.90% | |
2.25% senior notes due 2018 | ||
Borrowings and Credit Agreements | ||
Total debt principal | $ 1,250 | 1,250 |
Interest rate, stated percentage | 2.25% | |
2.25% senior notes due 2019 | ||
Borrowings and Credit Agreements | ||
Total debt principal | $ 850 | 850 |
Interest rate, stated percentage | 2.25% | |
2.8% senior notes due 2020 | ||
Borrowings and Credit Agreements | ||
Total debt principal | $ 2,750 | 2,750 |
Interest rate, stated percentage | 2.80% | |
3.125% senior notes due 2020 | ||
Borrowings and Credit Agreements | ||
Total debt principal | $ 2,000 | |
Interest rate, stated percentage | 3.125% | |
Floating rate notes due 2020 | ||
Borrowings and Credit Agreements | ||
Total debt principal | $ 1,000 | |
2.125% senior notes due 2021 | ||
Borrowings and Credit Agreements | ||
Total debt principal | $ 1,750 | 1,750 |
Interest rate, stated percentage | 2.125% | |
4.125% senior notes due 2021 | ||
Borrowings and Credit Agreements | ||
Total debt principal | $ 550 | 550 |
Interest rate, stated percentage | 4.125% | |
3.35% senior notes due 2021 | ||
Borrowings and Credit Agreements | ||
Total debt principal | $ 3,000 | |
Interest rate, stated percentage | 3.35% | |
Floating rate notes due 2021 | ||
Borrowings and Credit Agreements | ||
Total debt principal | $ 1,000 | |
2.75% senior notes due 2022 | ||
Borrowings and Credit Agreements | ||
Total debt principal | $ 1,250 | 1,250 |
Interest rate, stated percentage | 2.75% | |
3.5% senior notes due 2022 | ||
Borrowings and Credit Agreements | ||
Total debt principal | $ 1,500 | 1,500 |
Interest rate, stated percentage | 3.50% | |
4.75% senior notes due 2022 | ||
Borrowings and Credit Agreements | ||
Total debt principal | $ 399 | 399 |
Interest rate, stated percentage | 4.75% | |
4% senior notes due 2023 | ||
Borrowings and Credit Agreements | ||
Total debt principal | $ 1,250 | 1,250 |
Interest rate, stated percentage | 4.00% | |
3.7% senior notes due 2023 | ||
Borrowings and Credit Agreements | ||
Total debt principal | $ 6,000 | |
Interest rate, stated percentage | 3.70% | |
3.375% senior notes due 2024 | ||
Borrowings and Credit Agreements | ||
Total debt principal | $ 650 | 650 |
Interest rate, stated percentage | 3.375% | |
5% senior notes due 2024 | ||
Borrowings and Credit Agreements | ||
Total debt principal | $ 299 | 299 |
Interest rate, stated percentage | 5.00% | |
3.875% senior notes due 2025 | ||
Borrowings and Credit Agreements | ||
Total debt principal | $ 2,828 | 2,828 |
Interest rate, stated percentage | 3.875% | |
4.1% senior notes due 2025 | ||
Borrowings and Credit Agreements | ||
Total debt principal | $ 5,000 | |
Interest rate, stated percentage | 4.10% | |
2.875% senior notes due 2026 | ||
Borrowings and Credit Agreements | ||
Total debt principal | $ 1,750 | 1,750 |
Interest rate, stated percentage | 2.875% | |
6.25% senior notes due 2027 | ||
Borrowings and Credit Agreements | ||
Total debt principal | $ 372 | 372 |
Interest rate, stated percentage | 6.25% | |
4.3% senior notes due 2028 | ||
Borrowings and Credit Agreements | ||
Total debt principal | $ 9,000 | |
Interest rate, stated percentage | 4.30% | |
3.25% senior exchange debentures due 2035 | ||
Borrowings and Credit Agreements | ||
Total debt principal | 1 | |
Interest rate, stated percentage | 3.25% | |
4.875% senior notes due 2035 | ||
Borrowings and Credit Agreements | ||
Total debt principal | $ 652 | 652 |
Interest rate, stated percentage | 4.875% | |
4.78% senior notes due 2038 | ||
Borrowings and Credit Agreements | ||
Total debt principal | $ 5,000 | |
Interest rate, stated percentage | 4.78% | |
6.125% senior notes due 2039 | ||
Borrowings and Credit Agreements | ||
Total debt principal | $ 447 | 447 |
Interest rate, stated percentage | 6.125% | |
5.75% senior notes due 2041 | ||
Borrowings and Credit Agreements | ||
Total debt principal | $ 133 | 133 |
Interest rate, stated percentage | 5.75% | |
5.3% senior notes due 2043 | ||
Borrowings and Credit Agreements | ||
Total debt principal | $ 750 | 750 |
Interest rate, stated percentage | 5.30% | |
5.125% senior notes due 2045 | ||
Borrowings and Credit Agreements | ||
Total debt principal | $ 3,500 | 3,500 |
Interest rate, stated percentage | 5.125% | |
5.05% senior notes due 2048 | ||
Borrowings and Credit Agreements | ||
Total debt principal | $ 8,000 | |
Interest rate, stated percentage | 5.05% | |
Capital lease obligation | ||
Borrowings and Credit Agreements | ||
Total debt principal | $ 672 | 670 |
Other | ||
Borrowings and Credit Agreements | ||
Total debt principal | 23 | 43 |
Commercial Paper | ||
Borrowings and Credit Agreements | ||
Total debt principal | $ 0 | $ 1,276 |
Borrowings and Credit Agreeme37
Borrowings and Credit Agreements - Additional Information (Details) - USD ($) | Mar. 09, 2018 | Dec. 03, 2017 | Mar. 31, 2018 | Dec. 31, 2017 | Dec. 15, 2017 |
Borrowings and Credit Agreements | |||||
Carrying amount of long-term debt | $ 65,100,000,000 | ||||
Aetna Acquisition | |||||
Borrowings and Credit Agreements | |||||
Redemption percentage | 101.00% | ||||
Unsecured senior notes of $40 billion | |||||
Borrowings and Credit Agreements | |||||
Debt instrument, face amount | $ 40,000,000,000 | ||||
Proceeds from issuance of debt | 39,400,000,000 | ||||
Carrying amount of long-term debt | 40,000,000,000 | ||||
3.125% senior notes due 2020 | |||||
Borrowings and Credit Agreements | |||||
Debt instrument, face amount | $ 2,000,000,000 | ||||
Interest rate, stated percentage | 3.125% | ||||
Floating rate notes due 2020 | |||||
Borrowings and Credit Agreements | |||||
Debt instrument, face amount | $ 1,000,000,000 | ||||
3.35% senior notes due 2021 | |||||
Borrowings and Credit Agreements | |||||
Debt instrument, face amount | $ 3,000,000,000 | ||||
Interest rate, stated percentage | 3.35% | ||||
Floating rate notes due 2021 | |||||
Borrowings and Credit Agreements | |||||
Debt instrument, face amount | $ 1,000,000,000 | ||||
3.7% senior notes due 2023 | |||||
Borrowings and Credit Agreements | |||||
Debt instrument, face amount | $ 6,000,000,000 | ||||
Interest rate, stated percentage | 3.70% | ||||
4.1% senior notes due 2025 | |||||
Borrowings and Credit Agreements | |||||
Debt instrument, face amount | $ 5,000,000,000 | ||||
Interest rate, stated percentage | 4.10% | ||||
4.3% senior notes due 2028 | |||||
Borrowings and Credit Agreements | |||||
Debt instrument, face amount | $ 9,000,000,000 | ||||
Interest rate, stated percentage | 4.30% | ||||
4.78% senior notes due 2038 | |||||
Borrowings and Credit Agreements | |||||
Debt instrument, face amount | $ 5,000,000,000 | ||||
Interest rate, stated percentage | 4.78% | ||||
5.05% senior notes due 2048 | |||||
Borrowings and Credit Agreements | |||||
Debt instrument, face amount | $ 8,000,000,000 | ||||
Interest rate, stated percentage | 5.05% | ||||
Term loan in connection with Aetna purchase | Aetna Acquisition | |||||
Borrowings and Credit Agreements | |||||
Debt instrument, face amount | $ 5,000,000,000 | ||||
Unsecured Backup Credit Facilities | |||||
Borrowings and Credit Agreements | |||||
Commitment fee percentage | 0.02% | ||||
Long-term line of credit | $ 0 | $ 0 | |||
Unsecured Backup Credit Facilities | Unsecured Backup Credit Facility Expiring May 17, 2018 | |||||
Borrowings and Credit Agreements | |||||
Maximum borrowing capacity | $ 1,000,000,000 | ||||
Line of credit facility term (in years) | 364 days | ||||
Unsecured Backup Credit Facilities | Unsecured Backup Credit Facility Expiring July 24, 2019 | |||||
Borrowings and Credit Agreements | |||||
Maximum borrowing capacity | $ 1,250,000,000 | ||||
Line of credit facility term (in years) | 5 years | ||||
Unsecured Backup Credit Facilities | Unsecured Backup Credit Facility Expiring July 1, 2020 | |||||
Borrowings and Credit Agreements | |||||
Maximum borrowing capacity | $ 1,250,000,000 | ||||
Line of credit facility term (in years) | 5 years | ||||
Unsecured Backup Credit Facilities | Unsecured Backup Credit Facility Expiring May 18, 2022 | |||||
Borrowings and Credit Agreements | |||||
Maximum borrowing capacity | $ 1,000,000,000 | ||||
Line of credit facility term (in years) | 5 years | ||||
Unsecured Debt | Unsecured Bridge Loan | Aetna Acquisition | |||||
Borrowings and Credit Agreements | |||||
Debt issuance fees paid | $ 221,000,000 | ||||
Amortization of loan facility fees | $ 161,000,000 | ||||
Debt instrument, face amount | $ 49,000,000,000 | $ 44,000,000,000 | |||
Carrying amount of long-term debt | $ 4,000,000,000 | ||||
Extension fees paid for extension of bridge loan facility | $ 8,000,000 |
Share Repurchase Programs (Deta
Share Repurchase Programs (Details) $ in Billions | Aug. 29, 2016USD ($)agreement | Apr. 30, 2017shares | Mar. 31, 2018USD ($)shares | Jan. 31, 2017shares | Jan. 06, 2017 |
2016 Repurchase Program | |||||
Share repurchases | |||||
Share repurchase program, authorized amount | $ 15 | ||||
Amount available for repurchases | $ 13.9 | ||||
Repurchase of common stock (in shares) | shares | 0 | ||||
2014 Repurchase Program | |||||
Share repurchases | |||||
Share repurchase program, authorized amount | $ 10 | ||||
2014 Repurchase Program | August 29, 2016 | |||||
Share repurchases | |||||
Number of agreements | agreement | 2 | ||||
Amount under ASR agreement | $ 3.6 | ||||
ASR, shares received as a percent of notional amount | 80.00% | ||||
Shares repurchased under ASR agreement (in shares) | shares | 36,100,000 | ||||
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 | 9,900,000 | ||||
Transfer of shares to treasury stock value | 2.9 | ||||
2014 Repurchase Program | Forward contract | August 29, 2016 | |||||
Share repurchases | |||||
Derivative, Notional Amount | $ 0.7 |
Accumulated Other Comprehensi39
Accumulated Other Comprehensive Income (Details) - USD ($) $ in Millions | Mar. 09, 2018 | Mar. 31, 2018 | Mar. 31, 2017 | Jan. 02, 2018 | Jan. 01, 2018 |
Accumulated Other Comprehensive Income (Loss) rollforward | |||||
Beginning of year | $ 37,695 | ||||
Total other comprehensive income | 344 | $ 9 | |||
End of year | 38,677 | ||||
Payments received from termination of cash flow hedge | $ 446 | 446 | |||
Gains recorded in accumulated other comprehensive income | 331 | ||||
Cash flow hedge gains expected to be reclassified in next 12 months | 24 | ||||
Foreign Currency | |||||
Accumulated Other Comprehensive Income (Loss) rollforward | |||||
Beginning of year | (127) | ||||
Beginning of the year, adjusted | $ (129) | ||||
Other comprehensive income (loss) before reclassifications | 1 | 8 | |||
Total other comprehensive income | 1 | 8 | |||
End of year | (128) | (119) | |||
Losses on Cash Flow Hedges | |||||
Accumulated Other Comprehensive Income (Loss) rollforward | |||||
Beginning of year | (5) | ||||
Beginning of the year, adjusted | (18) | ||||
Other comprehensive income (loss) before reclassifications | 344 | ||||
Amounts reclassified from accumulated other comprehensive income | (1) | 1 | |||
Total other comprehensive income | 343 | 1 | |||
End of year | 325 | (4) | |||
Pension and Other Postretirement Benefits | |||||
Accumulated Other Comprehensive Income (Loss) rollforward | |||||
Beginning of year | (173) | ||||
Beginning of the year, adjusted | (25) | ||||
End of year | (25) | (173) | |||
Accumulated Other Comprehensive Income (Loss) | |||||
Accumulated Other Comprehensive Income (Loss) rollforward | |||||
Beginning of year | (305) | ||||
Beginning of the year, adjusted | $ (172) | ||||
Other comprehensive income (loss) before reclassifications | 345 | 8 | |||
Amounts reclassified from accumulated other comprehensive income | (1) | 1 | |||
Total other comprehensive income | 344 | 9 | |||
End of year | 172 | $ (296) | |||
Adjustments Early Adoption | ASU 2018-02 | Losses on Cash Flow Hedges | |||||
Accumulated Other Comprehensive Income (Loss) rollforward | |||||
Retained earnings adjustment | $ (3) | ||||
Adjustments Early Adoption | ASU 2018-02 | Pension and Other Postretirement Benefits | |||||
Accumulated Other Comprehensive Income (Loss) rollforward | |||||
Retained earnings adjustment | (4) | ||||
Adjustments Early Adoption | ASU 2018-02 | Accumulated Other Comprehensive Income (Loss) | |||||
Accumulated Other Comprehensive Income (Loss) rollforward | |||||
Retained earnings adjustment | $ (7) | ||||
Previously Reported | Foreign Currency | |||||
Accumulated Other Comprehensive Income (Loss) rollforward | |||||
Beginning of year | (129) | ||||
Previously Reported | Losses on Cash Flow Hedges | |||||
Accumulated Other Comprehensive Income (Loss) rollforward | |||||
Beginning of year | (15) | ||||
Previously Reported | Pension and Other Postretirement Benefits | |||||
Accumulated Other Comprehensive Income (Loss) rollforward | |||||
Beginning of year | (21) | ||||
Previously Reported | Accumulated Other Comprehensive Income (Loss) | |||||
Accumulated Other Comprehensive Income (Loss) rollforward | |||||
Beginning of year | $ (165) | ||||
Unsecured senior notes of $40 billion | |||||
Accumulated Other Comprehensive Income (Loss) rollforward | |||||
Aggregate Principal | $ 40,000 |
Interest Expense, Net (Details)
Interest Expense, Net (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Interest Expense | ||
Interest expense | $ 523 | $ 258 |
Interest income | (50) | (6) |
Interest expense), net | $ 473 | $ 252 |
Earnings Per Share (Details)
Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Millions, $ in Millions | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Reconciliation of basic and diluted earnings per common share | ||
Antidilutive securities excluded from computation of earnings per share (in shares) | 13.2 | 7.8 |
Numerator for earnings per share calculation: | ||
Income from continuing operations | $ 998 | $ 962 |
Income allocated to participating securities | (2) | (4) |
Net income attributable to noncontrolling interest | (1) | |
Income from continuing operations attributable to CVS Health | $ 996 | $ 957 |
Denominator for earnings per share calculation: | ||
Weighted average shares, basic (in shares) | 1,016 | 1,030 |
Effect of dilutive securities (in shares) | 3 | 5 |
Weighted average shares, diluted (in shares) | 1,019 | 1,035 |
Earnings per share from continuing operations: | ||
Earnings per share, basic (in dollars per share) | $ 0.98 | $ 0.93 |
Earnings per share, diluted (in dollars per share) | $ 0.98 | $ 0.92 |
Segment Reporting (Details)
Segment Reporting (Details) $ in Millions | 3 Months Ended | |
Mar. 31, 2018USD ($)segment | Mar. 31, 2017USD ($) | |
Segment reporting information | ||
Number of reportable segments | segment | 3 | |
Net revenues | $ 45,693 | $ 44,514 |
Cost of Goods and Services Sold | 38,834 | 37,943 |
Gross profit | 6,859 | 6,571 |
Operating expenses | 4,913 | 4,778 |
Operating profit (loss) | 1,946 | 1,793 |
Pharmacy Services Segment | ||
Segment reporting information | ||
Net revenues, retail co-payments | 3,300 | 3,100 |
Retail/LTC Segment | ||
Segment reporting information | ||
Integration related costs | 15 | |
Goodwill, impairment loss | 199 | |
Loss on disposal | 86 | |
Acquisition related costs | 3 | |
Corporate Segment | Operating profit | ||
Segment reporting information | ||
Acquisition related costs | 40 | |
Operating Segments | Pharmacy Services Segment | ||
Segment reporting information | ||
Net revenues | 32,218 | 31,223 |
Cost of Goods and Services Sold | 30,141 | |
Gross profit | 1,138 | 1,082 |
Operating expenses | 325 | |
Operating profit (loss) | 761 | 757 |
Operating Segments | Retail/LTC Segment | ||
Segment reporting information | ||
Net revenues | 20,432 | 19,341 |
Cost of Goods and Services Sold | 13,660 | |
Gross profit | 5,916 | 5,681 |
Operating expenses | 4,248 | |
Operating profit (loss) | 1,624 | 1,433 |
Operating Segments | Corporate Segment | ||
Segment reporting information | ||
Operating expenses | 221 | |
Operating profit (loss) | (264) | (221) |
Intersegment Eliminations | ||
Segment reporting information | ||
Net revenues | (6,957) | (6,050) |
Cost of Goods and Services Sold | (5,858) | |
Gross profit | (195) | (192) |
Operating expenses | (16) | |
Operating profit (loss) | $ (175) | (176) |
Previously Reported | ||
Segment reporting information | ||
Cost of Goods and Services Sold | 37,934 | |
Gross profit | 6,580 | |
Operating expenses | 4,787 | |
Operating profit (loss) | 1,793 | |
Previously Reported | Operating Segments | Pharmacy Services Segment | ||
Segment reporting information | ||
Cost of Goods and Services Sold | 30,127 | |
Gross profit | 1,096 | |
Operating expenses | 312 | |
Operating profit (loss) | 784 | |
Previously Reported | Operating Segments | Retail/LTC Segment | ||
Segment reporting information | ||
Cost of Goods and Services Sold | 13,665 | |
Gross profit | 5,676 | |
Operating expenses | 4,265 | |
Operating profit (loss) | 1,411 | |
Previously Reported | Operating Segments | Corporate Segment | ||
Segment reporting information | ||
Operating expenses | 226 | |
Operating profit (loss) | (226) | |
Previously Reported | Intersegment Eliminations | ||
Segment reporting information | ||
Cost of Goods and Services Sold | (5,858) | |
Gross profit | (192) | |
Operating expenses | (16) | |
Operating profit (loss) | (176) | |
Adjustments. | ||
Segment reporting information | ||
Cost of Goods and Services Sold | 9 | |
Gross profit | (9) | |
Operating expenses | (9) | |
Adjustments. | Operating Segments | Pharmacy Services Segment | ||
Segment reporting information | ||
Cost of Goods and Services Sold | 14 | |
Gross profit | (14) | |
Operating expenses | 13 | |
Operating profit (loss) | (27) | |
Adjustments. | Operating Segments | Retail/LTC Segment | ||
Segment reporting information | ||
Cost of Goods and Services Sold | (5) | |
Gross profit | 5 | |
Operating expenses | (17) | |
Operating profit (loss) | 22 | |
Adjustments. | Operating Segments | Corporate Segment | ||
Segment reporting information | ||
Operating expenses | (5) | |
Operating profit (loss) | $ 5 |
Commitments and Contingencies (
Commitments and Contingencies (Details) | 1 Months Ended | 2 Months Ended | 3 Months Ended | |||
Dec. 31, 2017item | Sep. 30, 2015pharmacy | Mar. 31, 2010state | Feb. 28, 2006lawsuititemdirector | Sep. 30, 2017complaint | Mar. 31, 2018itemstore | |
Loss contingencies | ||||||
Number of store leases guaranteed | store | 85 | |||||
Number of material accruals for outstanding legal matters | 0 | |||||
Number of pharmacies indicated in subpoena | pharmacy | 8 | |||||
Omnicare, Inc. | ||||||
Loss contingencies | ||||||
New claims filed, number | lawsuit | 2 | |||||
Number of officers named in lawsuit | 3 | |||||
Number of directors named in lawsuit | director | 2 | |||||
Multi-state Investigation | ||||||
Loss contingencies | ||||||
Number of states participating in multi-state investigation | state | 28 | |||||
National Opioid Litigation | ||||||
Loss contingencies | ||||||
the number of relevant federal court cases that named the company | 40 | |||||
The number of relevant state court cases that named the company | 20 | |||||
Shareholder Matters | ||||||
Loss contingencies | ||||||
Number of complaints | complaint | 4 | |||||
Number of complaints filed in Rhode Island | complaint | 3 |