Delaware
(State or other jurisdiction of incorporation or organization)
|
05-0494040
(I.R.S. Employer Identification No.)
|
||||||||
One CVS Drive, Woonsocket, Rhode Island
(Address of principal executive offices)
|
02895
(Zip Code)
|
||||||||
(401) 765-1500
|
|||||||||
(Registrant’s telephone number, including area code)
|
|
||
TABLE OF CONTENTS
|
Page
|
|
|
|
|
Part I
|
Financial Information
|
|
|
|
|
Item 1.
|
||
Item 2.
|
||
Item 3.
|
||
Item 4.
|
||
|
|
|
Part II
|
Other Information
|
|
|
|
|
Item 1.
|
||
Item 1A.
|
||
Item 2.
|
||
Item 3
|
||
Item 4.
|
||
Item 5.
|
||
Item 6.
|
||
|
|
|
|
|
Part I.
|
Financial Information
|
Item 1.
|
Financial Statements
|
|
|
|
Page
|
Condensed Consolidated Statements of Operations (Unaudited) for the three months ended March 31, 2019 and 2018
|
|
|
|
Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three months ended March 31, 2019 and 2018
|
|
|
|
Condensed Consolidated Balance Sheets (Unaudited) as of March 31, 2019 and December 31, 2018
|
|
|
|
Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2019 and 2018
|
|
|
|
Condensed Consolidated Statements of Shareholders' Equity (Unaudited) for the three months ended March 31, 2019 and 2018
|
|
|
|
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
|
|
|
Report of the Independent Registered Public Accounting Firm
|
|
|
|
|
Three Months Ended
March 31, |
||||||
In millions, except per share amounts
|
2019
|
|
2018
|
||||
Revenues:
|
|
|
|
||||
Products
|
$
|
43,343
|
|
|
$
|
44,049
|
|
Premiums
|
16,282
|
|
|
1,306
|
|
||
Services
|
1,772
|
|
|
338
|
|
||
Net investment income
|
249
|
|
|
50
|
|
||
Total revenues
|
61,646
|
|
|
45,743
|
|
||
Operating costs:
|
|
|
|
||||
Cost of products sold
|
37,247
|
|
|
37,505
|
|
||
Benefit costs
|
13,459
|
|
|
1,329
|
|
||
Operating expenses
|
8,250
|
|
|
4,913
|
|
||
Total operating costs
|
58,956
|
|
|
43,747
|
|
||
Operating income
|
2,690
|
|
|
1,996
|
|
||
Interest expense
|
782
|
|
|
523
|
|
||
Other expense (income)
|
(31
|
)
|
|
3
|
|
||
Income before income tax provision
|
1,939
|
|
|
1,470
|
|
||
Income tax provision
|
512
|
|
|
472
|
|
||
Net income
|
1,427
|
|
|
998
|
|
||
Net income attributable to noncontrolling interests
|
(6
|
)
|
|
—
|
|
||
Net income attributable to CVS Health
|
$
|
1,421
|
|
|
$
|
998
|
|
|
|
|
|
||||
Net income per share attributable to CVS Health:
|
|
|
|
||||
Basic
|
$
|
1.09
|
|
|
$
|
0.98
|
|
Diluted
|
$
|
1.09
|
|
|
$
|
0.98
|
|
Weighted average shares outstanding:
|
|
|
|
||||
Basic
|
1,298
|
|
|
1,016
|
|
||
Diluted
|
1,302
|
|
|
1,019
|
|
||
Dividends declared per share
|
$
|
0.50
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
||||
|
Three Months Ended
March 31, |
||||||
In millions
|
2019
|
|
2018
|
||||
Net income
|
$
|
1,427
|
|
|
$
|
998
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
||||
Net unrealized investment gains
|
334
|
|
|
—
|
|
||
Foreign currency translation adjustments
|
1
|
|
|
1
|
|
||
Net cash flow hedges
|
(4
|
)
|
|
343
|
|
||
Other comprehensive income
|
331
|
|
|
344
|
|
||
Comprehensive income
|
1,758
|
|
|
1,342
|
|
||
Comprehensive income attributable to noncontrolling interests
|
(6
|
)
|
|
—
|
|
||
Comprehensive income attributable to CVS Health
|
$
|
1,752
|
|
|
$
|
1,342
|
|
|
|
|
|
In millions, except per share amounts
|
March 31,
2019 |
|
December 31,
2018 |
||||
Assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
5,896
|
|
|
$
|
4,059
|
|
Investments
|
2,426
|
|
|
2,522
|
|
||
Accounts receivable, net
|
19,509
|
|
|
17,631
|
|
||
Inventories
|
15,448
|
|
|
16,450
|
|
||
Other current assets
|
4,578
|
|
|
4,581
|
|
||
Total current assets
|
47,857
|
|
|
45,243
|
|
||
Long-term investments
|
16,410
|
|
|
15,732
|
|
||
Property and equipment, net
|
11,348
|
|
|
11,349
|
|
||
Operating lease right-of-use assets
|
20,992
|
|
|
—
|
|
||
Goodwill
|
79,075
|
|
|
78,678
|
|
||
Intangible assets, net
|
35,147
|
|
|
36,524
|
|
||
Separate accounts assets
|
4,074
|
|
|
3,884
|
|
||
Other assets
|
4,865
|
|
|
5,046
|
|
||
Total assets
|
$
|
219,768
|
|
|
$
|
196,456
|
|
|
|
|
|
||||
Liabilities:
|
|
|
|
||||
Accounts payable
|
$
|
8,290
|
|
|
$
|
8,925
|
|
Pharmacy claims and discounts payable
|
11,827
|
|
|
11,365
|
|
||
Health care costs payable
|
6,701
|
|
|
6,147
|
|
||
Policyholders’ funds
|
2,732
|
|
|
2,939
|
|
||
Accrued expenses
|
10,443
|
|
|
10,711
|
|
||
Other insurance liabilities
|
1,937
|
|
|
1,937
|
|
||
Current portion of operating lease liabilities
|
1,803
|
|
|
—
|
|
||
Short-term debt
|
3,005
|
|
|
720
|
|
||
Current portion of long-term debt
|
3,893
|
|
|
1,265
|
|
||
Total current liabilities
|
50,631
|
|
|
44,009
|
|
||
Long-term operating lease liabilities
|
18,961
|
|
|
—
|
|
||
Long-term debt
|
67,888
|
|
|
71,444
|
|
||
Deferred income taxes
|
7,540
|
|
|
7,677
|
|
||
Separate accounts liabilities
|
4,074
|
|
|
3,884
|
|
||
Other long-term insurance liabilities
|
8,052
|
|
|
8,119
|
|
||
Other long-term liabilities
|
2,616
|
|
|
2,780
|
|
||
Total liabilities
|
159,762
|
|
|
137,913
|
|
||
|
|
|
|
||||
Shareholders’ equity:
|
|
|
|
||||
Preferred stock, par value $0.01: 0.1 shares authorized; none issued or outstanding
|
—
|
|
|
—
|
|
||
Common stock, par value $0.01: 3,200 shares authorized; 1,722 shares issued and 1,298 shares outstanding at March 31, 2019 and 1,720 shares issued and 1,295 shares outstanding at December 31, 2018
|
45,615
|
|
|
45,440
|
|
||
Treasury stock, at cost: 424 shares at March 31, 2019 and 425 shares at December 31, 2018
|
(28,221
|
)
|
|
(28,228
|
)
|
||
Retained earnings
|
41,859
|
|
|
40,911
|
|
||
Accumulated other comprehensive income
|
433
|
|
|
102
|
|
||
Total CVS Health shareholders’ equity
|
59,686
|
|
|
58,225
|
|
||
Noncontrolling interests
|
320
|
|
|
318
|
|
||
Total shareholders’ equity
|
60,006
|
|
|
58,543
|
|
||
Total liabilities and shareholders’ equity
|
$
|
219,768
|
|
|
$
|
196,456
|
|
|
|
|
|
|
Three Months Ended
March 31, |
||||||
In millions
|
2019
|
|
2018
|
||||
Cash flows from operating activities:
|
|
|
|
||||
Cash receipts from customers
|
$
|
58,873
|
|
|
$
|
43,369
|
|
Cash paid for inventory and prescriptions dispensed by retail network pharmacies
|
(35,645
|
)
|
|
(35,102
|
)
|
||
Insurance benefits paid
|
(12,951
|
)
|
|
(1,093
|
)
|
||
Cash paid to other suppliers and employees
|
(7,403
|
)
|
|
(4,271
|
)
|
||
Interest and investment income received
|
250
|
|
|
50
|
|
||
Interest paid
|
(1,123
|
)
|
|
(545
|
)
|
||
Income taxes paid
|
(53
|
)
|
|
(53
|
)
|
||
Net cash provided by operating activities
|
1,948
|
|
|
2,355
|
|
||
|
|
|
|
||||
Cash flows from investing activities:
|
|
|
|
||||
Proceeds from sales and maturities of investments
|
1,986
|
|
|
10
|
|
||
Purchases of investments
|
(2,047
|
)
|
|
(33
|
)
|
||
Purchases of property and equipment
|
(716
|
)
|
|
(482
|
)
|
||
Acquisitions (net of cash acquired)
|
(124
|
)
|
|
(353
|
)
|
||
Proceeds from sale of subsidiary
|
—
|
|
|
725
|
|
||
Other
|
10
|
|
|
2
|
|
||
Net cash used in investing activities
|
(891
|
)
|
|
(131
|
)
|
||
|
|
|
|
||||
Cash flows from financing activities:
|
|
|
|
||||
Net borrowings (repayments) of short-term debt
|
2,285
|
|
|
(1,276
|
)
|
||
Proceeds from issuance of long-term debt
|
—
|
|
|
39,376
|
|
||
Repayments of long-term debt
|
(882
|
)
|
|
(1
|
)
|
||
Derivative settlements
|
—
|
|
|
446
|
|
||
Dividends paid
|
(649
|
)
|
|
(508
|
)
|
||
Proceeds from exercise of stock options
|
101
|
|
|
107
|
|
||
Payments for taxes related to net share settlement of equity awards
|
(44
|
)
|
|
(4
|
)
|
||
Other
|
5
|
|
|
—
|
|
||
Net cash provided by financing activities
|
816
|
|
|
38,140
|
|
||
Net increase in cash, cash equivalents and restricted cash
|
1,873
|
|
|
40,364
|
|
||
Cash, cash equivalents and restricted cash at the beginning of the period
|
4,295
|
|
|
1,900
|
|
||
Cash, cash equivalents and restricted cash at the end of the period
|
$
|
6,168
|
|
|
$
|
42,264
|
|
|
|
|
|
|
|
|
|
||||
|
Three Months Ended
March 31, |
||||||
In millions
|
2019
|
|
2018
|
||||
Reconciliation of net income to net cash provided by operating activities:
|
|
|
|
||||
Net income
|
$
|
1,427
|
|
|
$
|
998
|
|
Adjustments required to reconcile net income to net cash provided by operating activities:
|
|
|
|||||
Depreciation and amortization
|
1,111
|
|
|
644
|
|
||
Stock-based compensation
|
114
|
|
|
55
|
|
||
Deferred income taxes and other noncash items
|
153
|
|
|
62
|
|
||
Change in operating assets and liabilities, net of effects from acquisitions:
|
|
|
|
||||
Accounts receivable, net
|
(1,989
|
)
|
|
(857
|
)
|
||
Inventories
|
1,001
|
|
|
464
|
|
||
Other assets
|
(389
|
)
|
|
(57
|
)
|
||
Accounts payable and pharmacy claims and discounts payable
|
(22
|
)
|
|
(178
|
)
|
||
Health care costs payable and other insurance liabilities
|
553
|
|
|
236
|
|
||
Other liabilities
|
(11
|
)
|
|
988
|
|
||
Net cash provided by operating activities
|
$
|
1,948
|
|
|
$
|
2,355
|
|
|
|
|
|
|
|
|
Attributable to CVS Health
|
|
|
|||||||||||||||||||||
|
Number of shares outstanding
|
|
Common
|
|
|
Accumulated
|
Total
|
|
|
|||||||||||||||||
|
|
Stock and
|
|
|
Other
|
CVS Health
|
|
|
||||||||||||||||||
|
Common
|
Treasury
|
|
Capital
|
Treasury
|
Retained
|
Comprehensive
|
Shareholders’
|
Noncontrolling
|
Total
|
||||||||||||||||
In millions
|
Shares
|
Shares
(1)
|
|
Surplus
(2)
|
Stock
(1)
|
Earnings
|
Income (Loss)
|
Equity
|
Interests
|
Equity
|
||||||||||||||||
Three Months Ended March 31, 2019
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Balance at December 31, 2018
|
1,720
|
|
(425
|
)
|
|
$
|
45,440
|
|
$
|
(28,228
|
)
|
$
|
40,911
|
|
$
|
102
|
|
$
|
58,225
|
|
$
|
318
|
|
$
|
58,543
|
|
Adoption of new accounting standard (Note 1)
|
—
|
|
—
|
|
|
—
|
|
—
|
|
178
|
|
—
|
|
178
|
|
—
|
|
178
|
|
|||||||
Net income
|
—
|
|
—
|
|
|
—
|
|
—
|
|
1,421
|
|
—
|
|
1,421
|
|
6
|
|
1,427
|
|
|||||||
Other comprehensive income (Note 8)
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
331
|
|
331
|
|
—
|
|
331
|
|
|||||||
Stock option activity, stock awards and other
|
2
|
|
—
|
|
|
175
|
|
—
|
|
—
|
|
—
|
|
175
|
|
—
|
|
175
|
|
|||||||
Purchase of treasury shares, net of ESPP issuances
|
—
|
|
1
|
|
|
—
|
|
7
|
|
—
|
|
—
|
|
7
|
|
—
|
|
7
|
|
|||||||
Common stock dividends
|
—
|
|
—
|
|
|
—
|
|
—
|
|
(651
|
)
|
—
|
|
(651
|
)
|
—
|
|
(651
|
)
|
|||||||
Other decreases in noncontrolling interests
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(4
|
)
|
(4
|
)
|
|||||||
Balance at March 31, 2019
|
1,722
|
|
(424
|
)
|
|
$
|
45,615
|
|
$
|
(28,221
|
)
|
$
|
41,859
|
|
$
|
433
|
|
$
|
59,686
|
|
$
|
320
|
|
$
|
60,006
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Three Months Ended March 31, 2018
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Balance at December 31, 2017
|
1,712
|
|
(698
|
)
|
|
$
|
32,096
|
|
$
|
(37,796
|
)
|
$
|
43,556
|
|
$
|
(165
|
)
|
$
|
37,691
|
|
$
|
4
|
|
$
|
37,695
|
|
Adoption of new accounting standards
(3)
|
—
|
|
—
|
|
|
—
|
|
—
|
|
(6
|
)
|
(7
|
)
|
(13
|
)
|
—
|
|
(13
|
)
|
|||||||
Net income
|
—
|
|
—
|
|
|
—
|
|
—
|
|
998
|
|
—
|
|
998
|
|
—
|
|
998
|
|
|||||||
Other comprehensive income (Note 8)
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
344
|
|
344
|
|
—
|
|
344
|
|
|||||||
Stock option activity, stock awards and other
|
2
|
|
—
|
|
|
112
|
|
—
|
|
—
|
|
—
|
|
112
|
|
—
|
|
112
|
|
|||||||
Purchase of treasury shares, net of ESPP issuances
|
—
|
|
—
|
|
|
—
|
|
49
|
|
—
|
|
—
|
|
49
|
|
—
|
|
49
|
|
|||||||
Common stock dividends
|
—
|
|
—
|
|
|
—
|
|
—
|
|
(508
|
)
|
—
|
|
(508
|
)
|
—
|
|
(508
|
)
|
|||||||
Balance at March 31, 2018
|
1,714
|
|
(698
|
)
|
|
$
|
32,208
|
|
$
|
(37,747
|
)
|
$
|
44,040
|
|
$
|
172
|
|
$
|
38,673
|
|
$
|
4
|
|
$
|
38,677
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Treasury shares include
1 million
shares held in trust as of March 31, 2019 and 2018 and December 31, 2018 and 2017. Treasury stock includes
$29 million
related to shares held in trust as of March 31, 2019 and December 31, 2018, and
$31 million
related to shares held in trust as of March 31, 2018 and December 31, 2017.
|
(2)
|
Common stock and capital surplus includes the par value of common stock of
$17 million
as of March 31, 2019 and 2018 and December 31, 2018 and 2017.
|
(3)
|
Reflects the adoption of ASU 2014-09,
Revenue from Contracts with Customers
, which resulted in a reduction to retained earnings of $13 million and the adoption of ASU 2018-02,
Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
, which resulted in a reduction to accumulated other comprehensive income and an increase to retained earnings of $7 million.
|
1.
|
Significant Accounting Policies
|
•
|
Management and administrative expenses to support the overall operations of the Company, which include certain aspects of executive management and the corporate relations, legal, compliance, human resources, information technology and finance departments and acquisition-related transaction and integration costs; and
|
•
|
Products for which the Company no longer solicits or accepts new customers such as its large case pensions and long-term care insurance products.
|
In millions
|
March 31,
2019 |
|
December 31,
2018 |
||||
Cash and cash equivalents
|
$
|
5,896
|
|
|
$
|
4,059
|
|
Restricted cash (included in other current assets)
|
6
|
|
|
6
|
|
||
Restricted cash (included in other assets)
|
266
|
|
|
230
|
|
||
Total cash, cash equivalents and restricted cash in the statements of cash flows
|
$
|
6,168
|
|
|
$
|
4,295
|
|
|
|
|
|
In millions
|
March 31,
2019 |
|
December 31,
2018 |
||||
Trade receivables
|
$
|
7,158
|
|
|
$
|
6,896
|
|
Vendor and manufacturer receivables
|
8,901
|
|
|
7,655
|
|
||
Premium receivables
|
2,582
|
|
|
2,259
|
|
||
Other receivables
|
868
|
|
|
821
|
|
||
Total accounts receivable, net
|
$
|
19,509
|
|
|
$
|
17,631
|
|
|
|
|
|
•
|
Revenues generated from prescription drugs sold by mail service dispensing pharmacies are recognized when the prescription drug is delivered to the client plan member. At the time of delivery, the Company has performed substantially
|
•
|
Revenues generated from prescription drugs sold by third-party pharmacies in the Company’s retail pharmacy network and associated administrative fees are recognized at the Company’s point-of-sale, which is when the claim is adjudicated by the Company’s online claims processing system and the Company has transferred control of the prescription drug and performed all of its performance obligations.
|
•
|
ASC fees are received in exchange for performing certain claim processing and member services for ASC members. ASC fee revenue is recognized over the period the service is provided. Some of the Company’s administrative services contracts include guarantees with respect to certain functions, such as customer service response time, claim processing accuracy and claim processing turnaround time, as well as certain guarantees that a plan sponsor’s benefit claim experience will fall within a certain range. With any of these guarantees, the Company is financially at risk if the conditions of the arrangements are not met, although the maximum amount at risk is typically limited to a percentage of the fees otherwise payable to the Company by the customer involved. Each period the Company estimates its obligations under the terms of these guarantees and records its estimate as an offset to service revenues.
|
•
|
Workers’ compensation administrative services consist of fee-based managed care services. Workers’ compensation administrative services revenue is recognized once the service is provided.
|
|
Pharmacy
|
|
Retail/
|
|
Health Care
|
|
Corporate/
|
|
Intersegment
|
|
Consolidated
|
||||||||||||
In millions
|
Services
|
|
LTC
|
|
Benefits
|
|
Other
|
|
Eliminations
|
|
Totals
|
||||||||||||
Three Months Ended March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Major goods/services lines:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Pharmacy
|
$
|
33,413
|
|
|
$
|
16,118
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(11,007
|
)
|
|
$
|
38,524
|
|
Front Store
|
—
|
|
|
4,799
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,799
|
|
||||||
Premiums
|
—
|
|
|
—
|
|
|
16,259
|
|
|
23
|
|
|
—
|
|
|
16,282
|
|
||||||
Net investment income
|
—
|
|
|
—
|
|
|
164
|
|
|
85
|
|
|
—
|
|
|
249
|
|
||||||
Other
|
145
|
|
|
198
|
|
|
1,447
|
|
|
2
|
|
|
—
|
|
|
1,792
|
|
||||||
Total
|
$
|
33,558
|
|
|
$
|
21,115
|
|
|
$
|
17,870
|
|
|
$
|
110
|
|
|
$
|
(11,007
|
)
|
|
$
|
61,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Pharmacy Services distribution channel:
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Pharmacy network
(1)
|
$
|
21,574
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Mail choice
(2)
|
11,839
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other
|
145
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total
|
$
|
33,558
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Three Months Ended March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Major goods/services lines:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Pharmacy
|
$
|
32,406
|
|
|
$
|
15,500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(8,601
|
)
|
|
$
|
39,305
|
|
Front Store
|
—
|
|
|
4,726
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,726
|
|
||||||
Premiums
|
—
|
|
|
—
|
|
|
1,306
|
|
|
—
|
|
|
—
|
|
|
1,306
|
|
||||||
Net investment income
|
—
|
|
|
—
|
|
|
2
|
|
|
48
|
|
|
—
|
|
|
50
|
|
||||||
Other
|
140
|
|
|
206
|
|
|
10
|
|
|
—
|
|
|
—
|
|
|
356
|
|
||||||
Total
|
$
|
32,546
|
|
|
$
|
20,432
|
|
|
$
|
1,318
|
|
|
$
|
48
|
|
|
$
|
(8,601
|
)
|
|
$
|
45,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Pharmacy Services distribution channel:
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Pharmacy network
(1)
|
$
|
21,198
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Mail choice
(2)
|
11,208
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other
|
140
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total
|
$
|
32,546
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Pharmacy Services pharmacy network is defined as claims filled at retail and specialty retail pharmacies, including the Company’s retail pharmacies and LTC pharmacies, but excluding Maintenance Choice
®
activity, which is included within the mail choice category.
|
(2)
|
Pharmacy Services mail choice is defined as claims filled at a Pharmacy Services mail facility, which includes specialty mail claims inclusive of Specialty Connect
®
claims picked up at a CVS Pharmacy retail store, as well as prescriptions filled at the Company’s retail pharmacies under the Maintenance Choice program, which permits eligible client plan members to fill their maintenance prescriptions through mail order delivery or at a CVS Pharmacy retail store for the same price as mail order.
|
|
|
|
|
||||
In millions
|
March 31,
2019 |
|
December 31,
2018 |
||||
Trade receivables (included in accounts receivable, net)
|
$
|
7,158
|
|
|
$
|
6,896
|
|
Contract liabilities (included in accrued expenses)
|
75
|
|
|
67
|
|
||
|
|
|
|
|
|
||
In millions
|
|
||
Balance at December 31, 2018
|
$
|
67
|
|
Loyalty program earnings and gift card issuances
|
90
|
|
|
Redemption and breakage
|
(82
|
)
|
|
Balance at March 31, 2019
|
$
|
75
|
|
|
|
|
|
Impact of Change in Accounting Policy
|
||||||||||
|
|
As Reported
|
|
|
|
Adjusted
|
||||||
In millions
|
|
December 31, 2018
|
|
Adjustments
|
|
January 1, 2019
|
||||||
Condensed Consolidated Balance Sheets:
|
|
|
|
|
|
|
||||||
Other current assets
|
|
$
|
4,581
|
|
|
$
|
(48
|
)
|
|
$
|
4,533
|
|
Total current assets
|
|
45,243
|
|
|
(48
|
)
|
|
45,195
|
|
|||
Property and equipment, net
|
|
11,349
|
|
|
11
|
|
|
11,360
|
|
|||
Operating lease right-of-use assets
|
|
—
|
|
|
20,987
|
|
|
20,987
|
|
|||
Intangible assets, net
|
|
36,524
|
|
|
(217
|
)
|
|
36,307
|
|
|||
Other assets
|
|
5,046
|
|
|
(521
|
)
|
|
4,525
|
|
|||
Total assets
|
|
196,456
|
|
|
20,212
|
|
|
216,668
|
|
|||
Accrued expenses
|
|
10,711
|
|
|
(52
|
)
|
|
10,659
|
|
|||
Current portion of operating lease liabilities
|
|
—
|
|
|
1,803
|
|
|
1,803
|
|
|||
Current portion of long-term debt
|
|
1,265
|
|
|
2
|
|
|
1,267
|
|
|||
Total current liabilities
|
|
44,009
|
|
|
1,753
|
|
|
45,762
|
|
|||
Long-term operating lease liabilities
|
|
—
|
|
|
18,832
|
|
|
18,832
|
|
|||
Long-term debt
|
|
71,444
|
|
|
(96
|
)
|
|
71,348
|
|
|||
Deferred income taxes
|
|
7,677
|
|
|
63
|
|
|
7,740
|
|
|||
Other long-term liabilities
|
|
2,780
|
|
|
(518
|
)
|
|
2,262
|
|
|||
Total liabilities
|
|
137,913
|
|
|
20,034
|
|
|
157,947
|
|
|||
Retained earnings
|
|
40,911
|
|
|
178
|
|
|
41,089
|
|
|||
Total CVS Health shareholders’ equity
|
|
58,225
|
|
|
178
|
|
|
58,403
|
|
|||
Total shareholders’ equity
|
|
58,543
|
|
|
178
|
|
|
58,721
|
|
2.
|
Acquisition of Aetna
|
In millions
|
|
||
Cash and cash equivalents
|
$
|
6,565
|
|
Accounts receivable
|
4,089
|
|
|
Other current assets
|
3,896
|
|
|
Investments (current and long-term)
|
17,984
|
|
|
Goodwill
|
47,082
|
|
|
Intangible assets
|
23,086
|
|
|
Other long-term assets
|
8,249
|
|
|
Total assets acquired
|
110,951
|
|
|
Health care costs payable
|
5,293
|
|
|
Other current liabilities
|
9,982
|
|
|
Debt (current and long-term)
|
8,098
|
|
|
Deferred income taxes
|
4,414
|
|
|
Other long-term liabilities
|
13,078
|
|
|
Total liabilities assumed
|
40,865
|
|
|
Noncontrolling interests
|
320
|
|
|
Total consideration transferred
|
$
|
69,766
|
|
In millions, except per share amounts
|
|
|
||
Total revenues
|
|
$
|
59,093
|
|
Net income attributable to CVS Health
|
|
1,807
|
|
|
Net income per share attributable to CVS Health:
|
|
|
||
Basic
|
|
$
|
1.40
|
|
Diluted
|
|
$
|
1.39
|
|
|
|
|
•
|
Elimination of intercompany transactions between CVS Health and Aetna;
|
•
|
Elimination of estimated foregone interest income associated with (i) cash assumed to have been used to partially fund the Aetna Acquisition and (ii) adjusting the amortized cost of Aetna’s investment portfolio to fair value as of the completion of the Aetna Acquisition;
|
•
|
Elimination of historical intangible asset, deferred acquisition cost and capitalized software amortization expense and addition of amortization expense based on the current preliminary values of identified intangible assets;
|
•
|
Additional interest expense from (i) the long-term debt issued to partially fund the Aetna Acquisition and (ii) the amortization of the fair value adjustment to assumed long-term debt.
|
•
|
Additional depreciation expense related to the adjustment of Aetna’s property and equipment to fair value;
|
•
|
Adjustments to align CVS Health’s and Aetna’s accounting policies;
|
•
|
Elimination of transaction related costs; and
|
•
|
Tax effects of the adjustments noted above.
|
3.
|
Investments
|
|
March 31, 2019
|
|
December 31, 2018
|
||||||||||||||||||||
In millions
|
Current
|
|
Long-term
|
|
Total
|
|
Current
|
|
Long-term
|
|
Total
|
||||||||||||
Debt securities available for sale
|
$
|
2,286
|
|
|
$
|
13,611
|
|
|
$
|
15,897
|
|
|
$
|
2,359
|
|
|
$
|
12,896
|
|
|
$
|
15,255
|
|
Mortgage loans
|
123
|
|
|
1,215
|
|
|
1,338
|
|
|
145
|
|
|
1,216
|
|
|
1,361
|
|
||||||
Other investments
|
17
|
|
|
1,584
|
|
|
1,601
|
|
|
18
|
|
|
1,620
|
|
|
1,638
|
|
||||||
Total investments
|
$
|
2,426
|
|
|
$
|
16,410
|
|
|
$
|
18,836
|
|
|
$
|
2,522
|
|
|
$
|
15,732
|
|
|
$
|
18,254
|
|
In millions
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
||||||||
March 31, 2019
|
|
|
|
|
|
|
|
||||||||
Debt securities:
|
|
|
|
|
|
|
|
||||||||
U.S. government securities
|
$
|
1,704
|
|
|
$
|
40
|
|
|
$
|
—
|
|
|
$
|
1,744
|
|
States, municipalities and political subdivisions
|
2,246
|
|
|
71
|
|
|
—
|
|
|
2,317
|
|
||||
U.S. corporate securities
|
6,777
|
|
|
288
|
|
|
(1
|
)
|
|
7,064
|
|
||||
Foreign securities
|
2,243
|
|
|
110
|
|
|
—
|
|
|
2,353
|
|
||||
Residential mortgage-backed securities
|
577
|
|
|
18
|
|
|
—
|
|
|
595
|
|
||||
Commercial mortgage-backed securities
|
608
|
|
|
29
|
|
|
—
|
|
|
637
|
|
||||
Other asset-backed securities
|
1,148
|
|
|
8
|
|
|
(7
|
)
|
|
1,149
|
|
||||
Redeemable preferred securities
|
32
|
|
|
6
|
|
|
—
|
|
|
38
|
|
||||
Total debt securities
(1)
|
$
|
15,335
|
|
|
$
|
570
|
|
|
$
|
(8
|
)
|
|
$
|
15,897
|
|
|
|
|
|
|
|
|
|
||||||||
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
||||
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. government securities
|
$
|
1,662
|
|
|
$
|
26
|
|
|
$
|
—
|
|
|
$
|
1,688
|
|
States, municipalities and political subdivisions
|
2,370
|
|
|
30
|
|
|
(1
|
)
|
|
2,399
|
|
||||
U.S. corporate securities
|
6,444
|
|
|
61
|
|
|
(16
|
)
|
|
6,489
|
|
||||
Foreign securities
|
2,355
|
|
|
31
|
|
|
(3
|
)
|
|
2,383
|
|
||||
Residential mortgage-backed securities
|
567
|
|
|
10
|
|
|
—
|
|
|
577
|
|
||||
Commercial mortgage-backed securities
|
594
|
|
|
11
|
|
|
—
|
|
|
605
|
|
||||
Other asset-backed securities
|
1,097
|
|
|
3
|
|
|
(15
|
)
|
|
1,085
|
|
||||
Redeemable preferred securities
|
30
|
|
|
—
|
|
|
(1
|
)
|
|
29
|
|
||||
Total debt securities
(1)
|
$
|
15,119
|
|
|
$
|
172
|
|
|
$
|
(36
|
)
|
|
$
|
15,255
|
|
|
|
|
|
|
|
|
|
(1)
|
Investment risks associated with the Company’s experience-rated products generally do not impact the Company’s consolidated operating results. At
March 31, 2019
, debt securities with a fair value of
$939 million
, gross unrealized capital gains of
$45 million
and no gross unrealized capital losses and at
December 31, 2018
, debt securities with a fair value of
$916 million
, gross unrealized capital gains of
$12 million
and gross unrealized capital losses of
$2 million
were included in total debt securities, but support experience-rated products. Changes in net unrealized capital gains (losses) on these securities are not reflected in accumulated other comprehensive income.
|
In millions
|
Amortized
Cost
|
|
Fair
Value
|
||||
Due to mature:
|
|
|
|
||||
Less than one year
|
$
|
990
|
|
|
$
|
993
|
|
One year through five years
|
5,511
|
|
|
5,630
|
|
||
After five years through ten years
|
2,991
|
|
|
3,125
|
|
||
Greater than ten years
|
3,510
|
|
|
3,768
|
|
||
Residential mortgage-backed securities
|
577
|
|
|
595
|
|
||
Commercial mortgage-backed securities
|
608
|
|
|
637
|
|
||
Other asset-backed securities
|
1,148
|
|
|
1,149
|
|
||
Total
|
$
|
15,335
|
|
|
$
|
15,897
|
|
In millions, except number of securities
|
Number of Securities
|
|
Fair Value
|
|
Unrealized Losses
|
|||||
March 31, 2019
|
|
|
|
|
|
|||||
Debt securities:
|
|
|
|
|
|
|||||
U.S. government securities
|
12
|
|
|
$
|
30
|
|
|
$
|
—
|
|
States, municipalities and political subdivisions
|
26
|
|
|
39
|
|
|
—
|
|
||
U.S. corporate securities
|
70
|
|
|
94
|
|
|
1
|
|
||
Foreign securities
|
39
|
|
|
47
|
|
|
—
|
|
||
Residential mortgage-backed securities
|
23
|
|
|
—
|
|
|
—
|
|
||
Commercial mortgage-backed securities
|
1
|
|
|
2
|
|
|
—
|
|
||
Other asset-backed securities
|
487
|
|
|
486
|
|
|
7
|
|
||
Redeemable preferred securities
|
1
|
|
|
6
|
|
|
—
|
|
||
Total debt securities
|
659
|
|
|
$
|
704
|
|
|
$
|
8
|
|
|
|
|
|
|
|
|||||
December 31, 2018
|
|
|
|
|
|
|
|
|||
Debt securities:
|
|
|
|
|
|
|
|
|||
U.S. government securities
|
8
|
|
|
$
|
26
|
|
|
$
|
—
|
|
States, municipalities and political subdivisions
|
54
|
|
|
86
|
|
|
1
|
|
||
U.S. corporate securities
|
1,399
|
|
|
1,431
|
|
|
16
|
|
||
Foreign securities
|
243
|
|
|
314
|
|
|
3
|
|
||
Residential mortgage-backed securities
|
45
|
|
|
1
|
|
|
—
|
|
||
Other asset-backed securities
|
516
|
|
|
528
|
|
|
15
|
|
||
Redeemable preferred securities
|
14
|
|
|
23
|
|
|
1
|
|
||
Total debt securities
|
2,279
|
|
|
$
|
2,409
|
|
|
$
|
36
|
|
|
|
|
|
|
|
|
Supporting
experience-rated products
|
|
Supporting remaining
products
|
|
Total
|
||||||||||||||||||
In millions
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
||||||||||||
Due to mature:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Less than one year
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
20
|
|
|
$
|
—
|
|
|
$
|
21
|
|
|
$
|
—
|
|
One year through five years
|
—
|
|
|
—
|
|
|
43
|
|
|
1
|
|
|
43
|
|
|
1
|
|
||||||
After five years through ten years
|
6
|
|
|
—
|
|
|
82
|
|
|
—
|
|
|
88
|
|
|
—
|
|
||||||
Greater than ten years
|
4
|
|
|
—
|
|
|
60
|
|
|
—
|
|
|
64
|
|
|
—
|
|
||||||
Residential mortgage-backed securities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Commercial mortgage-backed securities
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|
—
|
|
||||||
Other asset-backed securities
|
—
|
|
|
—
|
|
|
486
|
|
|
7
|
|
|
486
|
|
|
7
|
|
||||||
Total
|
$
|
11
|
|
|
$
|
—
|
|
|
$
|
693
|
|
|
$
|
8
|
|
|
$
|
704
|
|
|
$
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
||
New mortgage loans
|
$
|
41
|
|
Mortgage loans fully repaid
|
52
|
|
|
Mortgage loans foreclosed
|
—
|
|
|
|
|
•
|
Category 1 -
Represents loans of superior quality.
|
•
|
Categories 2 to 4
- Represent loans where credit risk is minimal to acceptable; however, these loans may display some susceptibility to economic changes.
|
•
|
Categories 5 and 6
- Represent loans where credit risk is not substantial, but these loans warrant management’s close attention.
|
•
|
Category 7
- Represents loans where collections are potentially at risk; if necessary, an impairment is recorded.
|
In millions, except credit ratings indicator
|
March 31,
2019 |
|
December 31,
2018 |
||||
1
|
$
|
41
|
|
|
$
|
42
|
|
2 to 4
|
1,283
|
|
|
1,301
|
|
||
5 and 6
|
14
|
|
|
18
|
|
||
7
|
—
|
|
|
—
|
|
||
Total
|
$
|
1,338
|
|
|
$
|
1,361
|
|
|
|
|
|
|
Three Months Ended
March 31, |
||||||
In millions
|
2019
|
|
2018
|
||||
Debt securities
|
$
|
156
|
|
|
$
|
50
|
|
Mortgage loans
|
17
|
|
|
—
|
|
||
Other investments
|
26
|
|
|
—
|
|
||
Gross investment income
|
199
|
|
|
50
|
|
||
Investment expenses
|
(9
|
)
|
|
—
|
|
||
Net investment income (excluding net realized capital gains or losses)
|
190
|
|
|
50
|
|
||
Net realized capital gains
(1)
|
59
|
|
|
—
|
|
||
Net investment income
(2)
|
$
|
249
|
|
|
$
|
50
|
|
|
|
|
|
(1)
|
Other-than-temporary impairment (“OTTI”) losses on debt securities recognized in the unaudited condensed consolidated statements of operations were
$7 million
for the three months ended March 31, 2019. There were no OTTI losses on debt securities for the three months ended March 31, 2018.
|
(2)
|
Net investment income includes
$11 million
for the
three
months ended
March 31, 2019
related to investments supporting experience-rated products. The Company had no investments supporting experience-rated products during the three months ended March 31, 2018.
|
In millions
|
|
||
Proceeds from sales
|
$
|
1,489
|
|
Gross realized capital gains
|
35
|
|
|
Gross realized capital losses
|
2
|
|
|
|
|
4.
|
Fair Value
|
•
|
Level 1 – Unadjusted quoted prices for identical assets or liabilities in active markets.
|
•
|
Level 2 – Valuation inputs other than Level 1 that are based on observable market data. These include: quoted prices for similar assets in active markets, quoted prices for identical assets in inactive markets, valuation inputs that are observable that are not prices (such as interest rates and credit risks) and valuation inputs that are derived from or corroborated by observable markets.
|
•
|
Level 3 – Developed from unobservable data, reflecting the Company’s assumptions.
|
|
|
|
|
|
|
|
|
||||||||
In millions
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
||||||||
March 31, 2019
|
|
|
|
|
|
|
|
||||||||
Debt securities:
|
|
|
|
|
|
|
|
||||||||
U.S. government securities
|
$
|
1,665
|
|
|
$
|
79
|
|
|
$
|
—
|
|
|
$
|
1,744
|
|
States, municipalities and political subdivisions
|
—
|
|
|
2,317
|
|
|
—
|
|
|
2,317
|
|
||||
U.S. corporate securities
|
—
|
|
|
7,006
|
|
|
58
|
|
|
7,064
|
|
||||
Foreign securities
|
—
|
|
|
2,350
|
|
|
3
|
|
|
2,353
|
|
||||
Residential mortgage-backed securities
|
—
|
|
|
595
|
|
|
—
|
|
|
595
|
|
||||
Commercial mortgage-backed securities
|
—
|
|
|
637
|
|
|
—
|
|
|
637
|
|
||||
Other asset-backed securities
|
—
|
|
|
1,149
|
|
|
—
|
|
|
1,149
|
|
||||
Redeemable preferred securities
|
—
|
|
|
27
|
|
|
11
|
|
|
38
|
|
||||
Total debt securities
|
1,665
|
|
|
14,160
|
|
|
72
|
|
|
15,897
|
|
||||
Equity securities
|
9
|
|
|
—
|
|
|
71
|
|
|
80
|
|
||||
Total
|
$
|
1,674
|
|
|
$
|
14,160
|
|
|
$
|
143
|
|
|
$
|
15,977
|
|
|
|
|
|
|
|
|
|
||||||||
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
||||
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. government securities
|
$
|
1,597
|
|
|
$
|
91
|
|
|
$
|
—
|
|
|
$
|
1,688
|
|
States, municipalities and political subdivisions
|
—
|
|
|
2,399
|
|
|
—
|
|
|
2,399
|
|
||||
U.S. corporate securities
|
—
|
|
|
6,422
|
|
|
67
|
|
|
6,489
|
|
||||
Foreign securities
|
—
|
|
|
2,380
|
|
|
3
|
|
|
2,383
|
|
||||
Residential mortgage-backed securities
|
—
|
|
|
577
|
|
|
—
|
|
|
577
|
|
||||
Commercial mortgage-backed securities
|
—
|
|
|
605
|
|
|
—
|
|
|
605
|
|
||||
Other asset-backed securities
|
—
|
|
|
1,085
|
|
|
—
|
|
|
1,085
|
|
||||
Redeemable preferred securities
|
—
|
|
|
22
|
|
|
7
|
|
|
29
|
|
||||
Total debt securities
|
1,597
|
|
|
13,581
|
|
|
77
|
|
|
15,255
|
|
||||
Equity securities
|
19
|
|
|
—
|
|
|
54
|
|
|
73
|
|
||||
Total
|
$
|
1,616
|
|
|
$
|
13,581
|
|
|
$
|
131
|
|
|
$
|
15,328
|
|
|
Carrying
Value
|
|
Estimated Fair Value
|
||||||||||||||||
In millions
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|||||||||||
March 31, 2019
|
|
|
|
|
|
|
|
|
|
||||||||||
Assets:
|
|
|
|
|
|
|
|
|
|
||||||||||
Mortgage loans
|
$
|
1,338
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,350
|
|
|
$
|
1,350
|
|
Equity securities
(1)
|
135
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|||||
Liabilities:
|
|
|
|
|
|
|
|
|
|
||||||||||
Investment contract liabilities:
|
|
|
|
|
|
|
|
|
|
||||||||||
With a fixed maturity
|
5
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
5
|
|
|||||
Without a fixed maturity
|
377
|
|
|
—
|
|
|
—
|
|
|
364
|
|
|
364
|
|
|||||
Long-term debt
|
71,781
|
|
|
72,376
|
|
|
—
|
|
|
—
|
|
|
72,376
|
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||||||
December 31, 2018
|
|
|
|
|
|
|
|
|
|
||||||||||
Assets:
|
|
|
|
|
|
|
|
|
|
||||||||||
Mortgage loans
|
$
|
1,361
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,366
|
|
|
$
|
1,366
|
|
Equity securities
(1)
|
140
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|||||
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Investment contract liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
With a fixed maturity
|
5
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
5
|
|
|||||
Without a fixed maturity
|
382
|
|
|
—
|
|
|
—
|
|
|
357
|
|
|
357
|
|
|||||
Long-term debt
|
72,709
|
|
|
71,252
|
|
|
—
|
|
|
—
|
|
|
71,252
|
|
|||||
|
|
|
|
|
|
|
|
|
|
(1)
|
It was not practical to estimate the fair value of these cost-method investments as it represents shares of unlisted companies.
|
|
|
March 31, 2019
|
|
December 31, 2018
|
||||||||||||||||||||||||||||
In millions
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
||||||||||||||||
Debt securities
|
|
$
|
983
|
|
|
$
|
2,445
|
|
|
$
|
—
|
|
|
$
|
3,428
|
|
|
$
|
782
|
|
|
$
|
2,500
|
|
|
$
|
4
|
|
|
$
|
3,286
|
|
Equity securities
|
|
—
|
|
|
3
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
3
|
|
||||||||
Common/collective trusts
|
|
—
|
|
|
415
|
|
|
—
|
|
|
415
|
|
|
—
|
|
|
404
|
|
|
—
|
|
|
404
|
|
||||||||
Total
(1)
|
|
$
|
983
|
|
|
$
|
2,863
|
|
|
$
|
—
|
|
|
$
|
3,846
|
|
|
$
|
782
|
|
|
$
|
2,907
|
|
|
$
|
4
|
|
|
$
|
3,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Excludes
$228 million
and
$191 million
of cash and cash equivalents and accounts receivable at
March 31, 2019
and
December 31, 2018
, respectively.
|
5.
|
Leases
|
In millions
|
|
|
||
Operating lease cost
|
|
$
|
682
|
|
Finance lease cost:
|
|
|
||
Amortization of right-of-use assets
|
|
9
|
|
|
Interest on lease liabilities
|
|
10
|
|
|
Total finance lease costs
|
|
19
|
|
|
Short-term lease costs
|
|
6
|
|
|
Variable lease costs
|
|
142
|
|
|
Less: sublease income
|
|
12
|
|
|
Net lease cost
|
|
$
|
837
|
|
In millions
|
|
|
||
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
||
Operating cash flows paid for operating leases
|
|
$
|
670
|
|
Operating cash flows paid for interest portion of finance leases
|
|
10
|
|
|
Financing cash flows paid for principal portion of finance leases
|
|
7
|
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
|
|
|
Operating leases
|
|
556
|
|
|
Finance leases
|
|
12
|
|
In millions, except lease term and discount rate
|
|
|
||
Operating leases:
|
|
|
||
Operating lease right-of-use assets
|
|
$
|
20,992
|
|
|
|
|
||
Current portion of operating lease liabilities
|
|
$
|
1,803
|
|
Long-term operating lease liabilities
|
|
18,961
|
|
|
Total operating lease liabilities
|
|
$
|
20,764
|
|
|
|
|
||
Finance leases:
(1)
|
|
|
||
Property and equipment, net
|
|
$
|
509
|
|
|
|
|
||
Current portion of long-term debt
|
|
$
|
25
|
|
Long-term debt
|
|
535
|
|
|
Total finance lease liabilities
|
|
$
|
560
|
|
|
|
|
||
Weighted average remaining lease term
|
|
|
||
Operating leases
|
|
14.2
|
|
|
Finance leases
|
|
20.3
|
|
|
|
|
|
||
Weighted average discount rate
|
|
|
||
Operating leases
|
|
4.7
|
%
|
|
Finance leases
|
|
7.5
|
%
|
(1)
|
Finance lease right-of-use assets are included within property and equipment, net and the respective finance lease liabilities are included in the current portion of long-term debt and long-term debt lines on the unaudited condensed consolidated balance sheets.
|
|
|
Finance
|
|
Operating
|
|
|
||||||
In millions
|
|
Leases
|
|
Leases
(1)
|
|
Total
|
||||||
2019 (remaining nine months)
|
|
$
|
50
|
|
|
$
|
2,035
|
|
|
$
|
2,085
|
|
2020
|
|
65
|
|
|
2,612
|
|
|
2,677
|
|
|||
2021
|
|
62
|
|
|
2,477
|
|
|
2,539
|
|
|||
2022
|
|
58
|
|
|
2,316
|
|
|
2,374
|
|
|||
2023
|
|
56
|
|
|
2,203
|
|
|
2,259
|
|
|||
Thereafter
|
|
786
|
|
|
16,588
|
|
|
17,374
|
|
|||
Total lease payments
(2)
|
|
1,077
|
|
|
28,231
|
|
|
29,308
|
|
|||
Less: imputed interest
|
|
(517
|
)
|
|
(7,467
|
)
|
|
(7,984
|
)
|
|||
Total lease liabilities
|
|
$
|
560
|
|
|
$
|
20,764
|
|
|
$
|
21,324
|
|
(1)
|
Future operating lease payments have not been reduced by minimum sublease rentals of
$182 million
due in the future under noncancelable subleases.
|
(2)
|
The Company leases pharmacy and clinic space from Target Corporation. Amounts related to such finance and operating leases are reflected above. Pharmacy lease amounts due in excess of the remaining estimated economic life of the buildings of approximately
$2.1 billion
are not reflected herein since the estimated economic life of the buildings is shorter than the contractual term of the pharmacy lease arrangement.
|
6.
|
Health Care Costs Payable
|
In millions
|
|
|
||
Health care costs payable, beginning of the period
|
|
$
|
6,147
|
|
Less: Reinsurance recoverables
|
|
4
|
|
|
Health care costs payable, beginning of the period, net
|
|
6,143
|
|
|
Add: Components of incurred health care costs
|
|
|
||
Current year
|
|
13,804
|
|
|
Prior years
|
|
(446
|
)
|
|
Total incurred health care costs
(1)
|
|
13,358
|
|
|
Less: Claims paid
|
|
|
||
Current year
|
|
8,004
|
|
|
Prior years
|
|
4,812
|
|
|
Total claims paid
|
|
12,816
|
|
|
Add: Premium deficiency reserve
|
|
11
|
|
|
Health care costs payable, end of period, net
|
|
6,696
|
|
|
Add: Reinsurance recoverables
|
|
5
|
|
|
Health care costs payable, end of period
|
|
$
|
6,701
|
|
|
|
|
(1)
|
Total incurred health care costs during the
three
months ended
March 31, 2019
in the table above exclude (i)
$11 million
related to a premium deficiency reserve for the 2019 coverage year related to the Company’s Medicaid products, (ii)
$10 million
of benefit costs recorded in the Health Care Benefits segment that are included in other insurance liabilities on the unaudited condensed consolidated balance sheet and (iii)
$80 million
of benefit costs recorded in the Corporate/Other segment that are included in other insurance liabilities on the unaudited condensed consolidated balance sheet.
|
7.
|
Shareholders’ Equity
|
8.
|
Other Comprehensive Income
|
|
Three Months Ended
March 31, |
||||||
In millions
|
2019
|
|
2018
|
||||
Net unrealized investment gains (losses):
|
|
|
|
||||
Beginning of period balance
|
$
|
97
|
|
|
$
|
—
|
|
Other comprehensive income before reclassifications
($410 and $0 pretax)
|
348
|
|
|
—
|
|
||
Amounts reclassified from accumulated other comprehensive income
($(19) and $0 pretax)
(1)
|
(14
|
)
|
|
—
|
|
||
Other comprehensive income
|
334
|
|
|
—
|
|
||
End of period balance
|
431
|
|
|
—
|
|
||
|
|
|
|
||||
Foreign currency translation adjustments:
|
|
|
|
||||
Beginning of period balance
|
(158
|
)
|
|
(129
|
)
|
||
Other comprehensive income
|
1
|
|
|
1
|
|
||
Other comprehensive income
|
1
|
|
|
1
|
|
||
End of period balance
|
(157
|
)
|
|
(128
|
)
|
||
|
|
|
|
||||
Net cash flow hedges:
|
|
|
|
||||
Beginning of period balance
|
312
|
|
|
(15
|
)
|
||
Adoption of new accounting standard
(2)
|
—
|
|
|
(3
|
)
|
||
Other comprehensive income before reclassifications
($0 and $464 pretax)
|
—
|
|
|
344
|
|
||
Amounts reclassified from accumulated other comprehensive income (loss)
($(5) and $(1) pretax)
(3)
|
(4
|
)
|
|
(1
|
)
|
||
Other comprehensive income (loss)
|
(4
|
)
|
|
343
|
|
||
End of period balance
|
308
|
|
|
325
|
|
||
|
|
|
|
||||
Pension and OPEB plans:
|
|
|
|
||||
Beginning of period balance
|
(149
|
)
|
|
(21
|
)
|
||
Adoption of new accounting standard
(2)
|
—
|
|
|
(4
|
)
|
||
Other comprehensive income
|
—
|
|
|
—
|
|
||
End of period balance
|
(149
|
)
|
|
(25
|
)
|
||
|
|
|
|
||||
Total beginning of period accumulated other comprehensive income (loss)
|
102
|
|
|
(165
|
)
|
||
Adoption of new accounting standard
(2)
|
—
|
|
|
(7
|
)
|
||
Total other comprehensive income
|
331
|
|
|
344
|
|
||
Total end of period accumulated other comprehensive income
|
$
|
433
|
|
|
$
|
172
|
|
|
|
|
|
(1)
|
Amounts reclassified from accumulated other comprehensive income for specifically identified debt securities are included in net investment income within the unaudited condensed consolidated statements of operations.
|
(2)
|
Reflects the adoption of ASU 2018-02,
Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
during the first quarter of 2018.
|
(3)
|
Amounts reclassified from accumulated other comprehensive loss for specifically identified cash flow hedges are included within interest expense in the unaudited condensed consolidated statements of operations. The Company expects to reclassify approximately
$18 million
, net of tax, in gains associated with its cash flow hedges into net income within the next 12 months.
|
9.
|
Earnings Per Share
|
|
Three Months Ended
March 31, |
||||||
In millions, except per share amounts
|
2019
|
|
2018
|
||||
Numerator for earnings per share calculation:
|
|
|
|
||||
Net income
|
$
|
1,427
|
|
|
$
|
998
|
|
Income allocated to participating securities
|
(2
|
)
|
|
(2
|
)
|
||
Net income attributable to noncontrolling interest
|
(6
|
)
|
|
—
|
|
||
Net income attributable to CVS Health
|
$
|
1,419
|
|
|
$
|
996
|
|
|
|
|
|
||||
Denominator for earnings per share calculation:
|
|
|
|
||||
Weighted average shares, basic
|
1,298
|
|
|
1,016
|
|
||
Effect of dilutive securities
|
4
|
|
|
3
|
|
||
Weighted average shares, diluted
|
1,302
|
|
|
1,019
|
|
||
|
|
|
|
||||
Earnings per share:
|
|
|
|
||||
Basic
|
$
|
1.09
|
|
|
$
|
0.98
|
|
Diluted
|
$
|
1.09
|
|
|
$
|
0.98
|
|
|
|
|
|
10.
|
Reinsurance
|
11.
|
Commitments and Contingencies
|
12.
|
Segment Reporting
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Three Months Ended March 31, 2018
|
||||||||||||||||||||||
|
Pharmacy
|
|
Retail/
|
|
Health Care
|
|
Corporate/
|
|
Intersegment
|
|
Consolidated
|
||||||||||||
In millions
|
Services
|
|
LTC
|
|
Benefits
|
|
Other
|
|
Eliminations
|
|
Totals
|
||||||||||||
Revenues, as previously reported
|
$
|
32,220
|
|
|
$
|
20,432
|
|
|
$
|
—
|
|
|
$
|
48
|
|
|
$
|
(6,957
|
)
|
|
$
|
45,743
|
|
Adjustments
|
326
|
|
|
—
|
|
|
1,318
|
|
|
—
|
|
|
(1,644
|
)
|
|
—
|
|
||||||
Revenues, as adjusted
|
$
|
32,546
|
|
|
$
|
20,432
|
|
|
$
|
1,318
|
|
|
$
|
48
|
|
|
$
|
(8,601
|
)
|
|
$
|
45,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Cost of products sold
(1)
|
$
|
29,751
|
|
|
$
|
14,516
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(6,762
|
)
|
|
$
|
37,505
|
|
Adjustments
|
1,556
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,556
|
)
|
|
—
|
|
||||||
Cost of products sold
|
$
|
31,307
|
|
|
$
|
14,516
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
(8,318
|
)
|
|
$
|
37,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Benefit costs
(1)
|
$
|
1,329
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,329
|
|
Adjustments
|
(1,329
|
)
|
|
—
|
|
|
1,329
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Benefit costs
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,329
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Operating expenses, as previously reported
|
$
|
377
|
|
|
$
|
4,292
|
|
|
$
|
—
|
|
|
$
|
264
|
|
|
$
|
(20
|
)
|
|
$
|
4,913
|
|
Adjustments
|
(39
|
)
|
|
—
|
|
|
127
|
|
|
—
|
|
|
(88
|
)
|
|
—
|
|
||||||
Operating expenses, as adjusted
|
$
|
338
|
|
|
$
|
4,292
|
|
|
$
|
127
|
|
|
$
|
264
|
|
|
$
|
(108
|
)
|
|
$
|
4,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Operating income (loss), as previously reported
|
$
|
763
|
|
|
$
|
1,624
|
|
|
$
|
—
|
|
|
$
|
(216
|
)
|
|
$
|
(175
|
)
|
|
$
|
1,996
|
|
Adjustments
|
138
|
|
|
—
|
|
|
(138
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Operating income (loss), as adjusted
|
901
|
|
|
1,624
|
|
|
(138
|
)
|
|
(216
|
)
|
|
(175
|
)
|
|
1,996
|
|
||||||
Adjustments
|
86
|
|
|
212
|
|
|
1
|
|
|
(2
|
)
|
|
—
|
|
|
297
|
|
||||||
Adjusted operating income (loss)
|
$
|
987
|
|
|
$
|
1,836
|
|
|
$
|
(137
|
)
|
|
$
|
(218
|
)
|
|
$
|
(175
|
)
|
|
$
|
2,293
|
|
(1)
|
The total of cost of products sold and benefit costs were previously reported as cost of revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Pharmacy
|
|
Retail/
|
|
Health Care
|
|
Corporate/
|
|
Intersegment
|
|
Consolidated
|
||||||||||||
In millions
|
Services
(1)
|
|
LTC
|
|
Benefits
|
|
Other
|
|
Eliminations
(2)
|
|
Totals
|
||||||||||||
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Revenues from customers
|
$
|
33,558
|
|
|
$
|
21,115
|
|
|
$
|
17,706
|
|
|
$
|
25
|
|
|
$
|
(11,007
|
)
|
|
$
|
61,397
|
|
Net investment income
|
—
|
|
|
—
|
|
|
164
|
|
|
85
|
|
|
—
|
|
|
249
|
|
||||||
Total revenues
|
33,558
|
|
|
21,115
|
|
|
17,870
|
|
|
110
|
|
|
(11,007
|
)
|
|
61,646
|
|
||||||
Adjusted operating income (loss)
|
947
|
|
|
1,489
|
|
|
1,562
|
|
|
(231
|
)
|
|
(172
|
)
|
|
3,595
|
|
||||||
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Revenues from customers
|
$
|
32,546
|
|
|
$
|
20,432
|
|
|
$
|
1,316
|
|
|
$
|
—
|
|
|
$
|
(8,601
|
)
|
|
$
|
45,693
|
|
Net investment income
|
—
|
|
|
—
|
|
|
2
|
|
|
48
|
|
|
—
|
|
|
50
|
|
||||||
Total revenues
|
32,546
|
|
|
20,432
|
|
|
1,318
|
|
|
48
|
|
|
(8,601
|
)
|
|
45,743
|
|
||||||
Adjusted operating income (loss)
|
987
|
|
|
1,836
|
|
|
(137
|
)
|
|
(218
|
)
|
|
(175
|
)
|
|
2,293
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Revenues of the Pharmacy Services segment include approximately
$3.3 billion
of retail co-payments for each of the three-month periods ended March 31, 2019 and 2018.
|
(2)
|
Intersegment eliminations relate to intersegment revenue generating activities that occur between the Pharmacy Services segment and the Retail/LTC segment for the three months ended March 31, 2018. Effective November 28, 2018, intersegment eliminations also relate to intersegment revenue generating activities that occur between the Health Care Benefits segment and the Pharmacy Services segment and/or the Retail/LTC segment.
|
|
|
|
|
||||
|
Three Months Ended
|
||||||
|
March 31,
|
||||||
In millions
|
2019
|
|
2018
|
||||
Operating income (GAAP measure)
|
$
|
2,690
|
|
|
$
|
1,996
|
|
Amortization of intangible assets
(1)
|
622
|
|
|
210
|
|
||
Acquisition-related transaction and integration costs
(2)
|
148
|
|
|
43
|
|
||
Store rationalization charge
(3)
|
135
|
|
|
—
|
|
||
Loss on divestiture of subsidiary
(4)
|
—
|
|
|
86
|
|
||
Interest income on financing for the Aetna Acquisition
(5)
|
—
|
|
|
(42
|
)
|
||
Adjusted operating income
|
$
|
3,595
|
|
|
$
|
2,293
|
|
|
|
|
|
(1)
|
Intangible assets relate to the Company's acquisition activities and are amortized over their useful lives. The amortization of intangible assets is reflected in the Company's unaudited GAAP condensed consolidated statements of operations in operating expenses within each segment. The amortization of intangible assets is not directly related to the core performance of the Company's business operations.
|
(2)
|
During the three months ended March 31, 2019, acquisition-related integration costs relate to the Aetna Acquisition. During the three months ended March 31, 2018, acquisition-related transaction and integration costs relate to the acquisitions of Aetna and Omnicare, Inc. The acquisition-related transaction and integration costs are reflected in the Company’s unaudited GAAP condensed consolidated statements of operations in operating expenses primarily within the Corporate/Other segment.
|
(3)
|
During the three months ended March 31, 2019, the store rationalization charge primarily relates to operating lease right-of-use asset impairment charges in connection with the planned closure of
46
underperforming retail pharmacy stores in the second quarter of 2019. The store rationalization charge is reflected in the Company’s unaudited GAAP condensed consolidated statements of operations in operating expenses within the Retail/LTC segment.
|
(4)
|
During the three months ended March 31, 2018, the loss on divestiture of subsidiary represents the pre-tax loss on the sale of the Company’s RxCrossroads subsidiary for
$725 million
and is reflected in operating expenses in the Company’s unaudited GAAP condensed consolidated statement of operations within the Retail/LTC segment.
|
(5)
|
During the three months ended March 31, 2018, the Company recorded interest income of
$42 million
on the proceeds of its unsecured senior notes issued in March 2018 to partially fund the Aetna Acquisition. All amounts are for the periods prior to the close of the Aetna Acquisition, which occurred on November 28, 2018, and were recorded within the Corporate/Other segment.
|
•
|
Management and administrative expenses to support the overall operations of the Company, which include certain aspects of executive management and the corporate relations, legal, compliance, human resources, information technology and finance departments and acquisition-related transaction and integration costs; and
|
•
|
Products for which the Company no longer solicits or accepts new customers such as large case pensions and long-term care insurance products.
|
|
Three Months Ended
March 31, |
|
Change
|
|||||||||||
In millions
|
2019
|
|
2018
|
|
$
|
|
%
|
|||||||
Revenues:
|
|
|
|
|
|
|
|
|||||||
Products
|
$
|
43,343
|
|
|
$
|
44,049
|
|
|
$
|
(706
|
)
|
|
(1.6
|
)%
|
Premiums
|
16,282
|
|
|
1,306
|
|
|
14,976
|
|
|
1,146.7
|
%
|
|||
Services
|
1,772
|
|
|
338
|
|
|
1,434
|
|
|
424.3
|
%
|
|||
Net investment income
|
249
|
|
|
50
|
|
|
199
|
|
|
398.0
|
%
|
|||
Total revenues
|
61,646
|
|
|
45,743
|
|
|
15,903
|
|
|
34.8
|
%
|
|||
Operating costs:
|
|
|
|
|
|
|
|
|||||||
Cost of products sold
|
37,247
|
|
|
37,505
|
|
|
(258
|
)
|
|
(0.7
|
)%
|
|||
Benefit costs
|
13,459
|
|
|
1,329
|
|
|
12,130
|
|
|
912.7
|
%
|
|||
Operating expenses
|
8,250
|
|
|
4,913
|
|
|
3,337
|
|
|
67.9
|
%
|
|||
Total operating costs
|
58,956
|
|
|
43,747
|
|
|
15,209
|
|
|
34.8
|
%
|
|||
Operating income
|
2,690
|
|
|
1,996
|
|
|
694
|
|
|
34.8
|
%
|
|||
Interest expense
|
782
|
|
|
523
|
|
|
259
|
|
|
49.5
|
%
|
|||
Other expense (income)
|
(31
|
)
|
|
3
|
|
|
(34
|
)
|
|
(1,133.3
|
)%
|
|||
Income before income tax provision
|
1,939
|
|
|
1,470
|
|
|
469
|
|
|
31.9
|
%
|
|||
Income tax provision
|
512
|
|
|
472
|
|
|
40
|
|
|
8.5
|
%
|
|||
Net income
|
1,427
|
|
|
998
|
|
|
429
|
|
|
43.0
|
%
|
|||
Net income attributable to noncontrolling interests
|
(6
|
)
|
|
—
|
|
|
(6
|
)
|
|
100.0
|
%
|
|||
Net income attributable to CVS Health
|
$
|
1,421
|
|
|
$
|
998
|
|
|
$
|
423
|
|
|
42.4
|
%
|
•
|
Total revenues increased
$15.9 billion
or
34.8%
in the three months ended
March 31, 2019
, as compared to the prior year. The increase in total revenues was driven by the impact of the Aetna Acquisition (primarily reflected in the Health Care Benefits segment) which occurred in November 2018, a
3.1%
increase in Pharmacy Services segment revenue, and a
3.3%
increase in Retail/LTC segment revenue.
|
•
|
Please see “Segment Analysis” later in this report for additional information about the revenues of the Company’s segments.
|
•
|
Operating expenses increased
$3.3 billion
or
67.9%
in the three months ended
March 31, 2019
compared to the prior year. Operating expenses as a percentage of total revenues were
13.4%
in the three months ended
March 31, 2019
, an increase of
270
basis points compared to the prior year. The increase in operating expenses was primarily driven by the impact of the Aetna Acquisition (including intangible asset amortization), higher operating expenses in the Retail/LTC segment and an increase in acquisition-related integration costs.
|
•
|
Please see “Segment Analysis” later in this report for additional information about the operating expenses of the Company’s segments.
|
•
|
Operating income increased
$694 million
or
34.8%
in the three months ended
March 31, 2019
compared to the prior year. The increase was primarily due to the Aetna Acquisition, partially offset by reimbursement pressure and higher operating expenses in the Retail/LTC segment, continued price compression in the Pharmacy Services segment and an increase in acquisition-related integration costs.
|
•
|
Please see “Segment Analysis” later in this report for additional information about the operating income of the Company’s segments.
|
•
|
Interest expense increased
$259 million
in the three months ended
March 31, 2019
compared to the prior year, primarily due to financing activity associated with the Aetna Acquisition. See
“Liquidity and Capital Resources”
later in this report for additional information.
|
•
|
The Company’s effective income tax rate was
26.4%
in the three months ended
March 31, 2019
compared to
32.1%
for the prior year. The decrease in the effective income tax rate compared to the prior year was primarily due to the impact of the non-deductible goodwill included in the loss associated with the divestiture of the Company’s RxCrossroads subsidiary during the three months ended March 31, 2018.
|
•
|
Ongoing pharmacy reimbursement pressure in the Pharmacy Services and Retail/LTC segments and reductions in the traditional offsets to those pressures, including a declining benefit from the introduction of new multi-source generic prescription drugs and lower benefits from generic dispensing rate increases;
|
•
|
The reimbursement pressure in the Pharmacy Services segment is projected to be exacerbated by the cumulative effect on rebate guarantees of lower brand name drug price inflation and a modest 2019 selling season; and
|
•
|
The Retail/LTC segment is projected to be impacted by structural and Company specific challenges in the long-term care space as well as the annualization of the Company’s 2018 investment of a portion of the savings from the Tax Cuts and Job Act (the “TCJA”) in wages and benefits.
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Pharmacy
|
|
Retail/
|
|
Health Care
|
|
Corporate/
|
|
Intersegment
|
|
Consolidated
|
||||||||||||
In millions
|
Services
(1)
|
|
LTC
|
|
Benefits
|
|
Other
|
|
Eliminations
(2)
|
|
Totals
|
||||||||||||
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total revenues
|
$
|
33,558
|
|
|
$
|
21,115
|
|
|
$
|
17,870
|
|
|
$
|
110
|
|
|
$
|
(11,007
|
)
|
|
$
|
61,646
|
|
Adjusted operating income (loss)
|
947
|
|
|
1,489
|
|
|
1,562
|
|
|
(231
|
)
|
|
(172
|
)
|
|
3,595
|
|
||||||
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total revenues
|
32,546
|
|
|
20,432
|
|
|
1,318
|
|
|
48
|
|
|
(8,601
|
)
|
|
45,743
|
|
||||||
Adjusted operating income (loss)
|
987
|
|
|
1,836
|
|
|
(137
|
)
|
|
(218
|
)
|
|
(175
|
)
|
|
2,293
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Revenues of the Pharmacy Services segment include approximately
$3.3 billion
of retail co-payments for each of the three-month periods ended March 31, 2019 and 2018.
|
(2)
|
Intersegment eliminations relate to intersegment revenue generating activities that occur between the Pharmacy Services segment and the Retail/LTC segment for the three months ended March 31, 2018. Effective November 28, 2018, intersegment eliminations also relate to intersegment revenue generating activities that occur between the Health Care Benefits segment and the Pharmacy Services segment and/or the Retail/LTC segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Three Months Ended March 31, 2019
|
||||||||||||||||||||||
|
Pharmacy
|
|
Retail/
|
|
Health Care
|
|
Corporate/
|
|
Intersegment
|
|
Consolidated
|
||||||||||||
In millions
|
Services
|
|
LTC
|
|
Benefits
|
|
Other
|
|
Eliminations
|
|
Totals
|
||||||||||||
Operating income (GAAP measure)
|
$
|
850
|
|
|
$
|
1,238
|
|
|
$
|
1,155
|
|
|
$
|
(381
|
)
|
|
$
|
(172
|
)
|
|
$
|
2,690
|
|
Non-GAAP adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Amortization of intangible assets
(1)
|
97
|
|
|
116
|
|
|
407
|
|
|
2
|
|
|
—
|
|
|
622
|
|
||||||
Acquisition-related integration costs
(2)
|
—
|
|
|
—
|
|
|
—
|
|
|
148
|
|
|
—
|
|
|
148
|
|
||||||
Store rationalization charge
(3)
|
—
|
|
|
135
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
135
|
|
||||||
Adjusted operating income
|
$
|
947
|
|
|
$
|
1,489
|
|
|
$
|
1,562
|
|
|
$
|
(231
|
)
|
|
$
|
(172
|
)
|
|
$
|
3,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Three Months Ended March 31, 2018
|
||||||||||||||||||||||
|
Pharmacy
|
|
Retail/
|
|
Health Care
|
|
Corporate/
|
|
Intersegment
|
|
Consolidated
|
||||||||||||
In millions
|
Services
|
|
LTC
|
|
Benefits
|
|
Other
|
|
Eliminations
|
|
Totals
|
||||||||||||
Operating income (GAAP measure)
|
$
|
901
|
|
|
$
|
1,624
|
|
|
$
|
(138
|
)
|
|
$
|
(216
|
)
|
|
$
|
(175
|
)
|
|
$
|
1,996
|
|
Non-GAAP adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Amortization of intangible assets
(1)
|
86
|
|
|
123
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
210
|
|
||||||
Acquisition-related transaction and integration costs
(2)
|
—
|
|
|
3
|
|
|
—
|
|
|
40
|
|
|
—
|
|
|
43
|
|
||||||
Loss on divestiture of subsidiary
(4)
|
—
|
|
|
86
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
86
|
|
||||||
Interest income on financing for the Aetna Acquisition
(5)
|
—
|
|
|
—
|
|
|
—
|
|
|
(42
|
)
|
|
—
|
|
|
(42
|
)
|
||||||
Adjusted operating income
|
$
|
987
|
|
|
$
|
1,836
|
|
|
$
|
(137
|
)
|
|
$
|
(218
|
)
|
|
$
|
(175
|
)
|
|
$
|
2,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Intangible assets relate to the Company's acquisition activities and are amortized over their useful lives. The amortization of intangible assets is reflected in the Company's unaudited GAAP condensed consolidated statements of operations in operating expenses within each segment. The amortization of intangible assets is not directly related to the core performance of the Company's business operations.
|
(2)
|
During the three months ended March 31, 2019, acquisition-related integration costs relate to the Aetna Acquisition. During the three months ended March 31, 2018, acquisition-related transaction and integration costs relate to the acquisitions of Aetna and Omnicare, Inc. The acquisition-related transaction and integration costs are reflected in the Company’s unaudited GAAP condensed consolidated statements of operations in operating expenses primarily within the Corporate/Other segment.
|
(3)
|
During the three months ended March 31, 2019, the store rationalization charge primarily relates to operating lease right-of-use asset impairment charges in connection with the planned closure of 46 underperforming retail pharmacy stores in the second quarter of 2019. The store rationalization charge is reflected in the Company’s unaudited GAAP condensed consolidated statements of operations in operating expenses within the Retail/LTC segment.
|
(4)
|
During the three months ended March 31, 2018, the loss on divestiture of subsidiary represents the pre-tax loss on the sale of the Company’s RxCrossroads subsidiary for $725 million and is reflected in operating expenses in the Company’s unaudited GAAP condensed consolidated statement of operations within the Retail/LTC segment.
|
(5)
|
During the three months ended March 31, 2018, the Company recorded interest income of
$42 million
on the proceeds of its unsecured senior notes issued in March 2018 to partially fund the Aetna Acquisition (the “2018 Notes”). All amounts are for the periods prior to the close of the Aetna Acquisition, which occurred on November 28, 2018, and were recorded within the Corporate/Other segment.
|
|
Three Months Ended
|
|
|
|
|
|||||||||
|
March 31,
|
|
Change
|
|||||||||||
In millions, except percentages
|
2019
|
|
2018
|
|
$
|
|
%
|
|||||||
Revenues:
|
|
|
|
|
|
|
|
|||||||
Products
|
$
|
33,450
|
|
|
$
|
32,431
|
|
|
$
|
1,019
|
|
|
3.1
|
%
|
Services
|
108
|
|
|
115
|
|
|
(7
|
)
|
|
(6.1
|
)%
|
|||
Total revenues
|
33,558
|
|
|
32,546
|
|
|
1,012
|
|
|
3.1
|
%
|
|||
Cost of products sold
|
32,339
|
|
|
31,307
|
|
|
1,032
|
|
|
3.3
|
%
|
|||
Operating expenses
|
369
|
|
|
338
|
|
|
31
|
|
|
9.2
|
%
|
|||
Operating expenses as a % of revenues
|
1.1
|
%
|
|
1.0
|
%
|
|
|
|
|
|||||
Operating income
|
$
|
850
|
|
|
$
|
901
|
|
|
$
|
(51
|
)
|
|
(5.7
|
)%
|
Operating income as a % of revenues
|
2.5
|
%
|
|
2.8
|
%
|
|
|
|
|
|||||
Adjusted operating income
(1)
|
$
|
947
|
|
|
$
|
987
|
|
|
$
|
(40
|
)
|
|
(4.2
|
)%
|
Adjusted operating income as a % of revenues
|
2.8
|
%
|
|
3.0
|
%
|
|
|
|
|
|||||
Revenues (by distribution channel):
|
|
|
|
|
|
|
|
|||||||
Pharmacy network
(2)
|
$
|
21,574
|
|
|
$
|
21,198
|
|
|
$
|
376
|
|
|
1.8
|
%
|
Mail choice
(3)
|
11,839
|
|
|
11,208
|
|
|
631
|
|
|
5.6
|
%
|
|||
Other
|
145
|
|
|
140
|
|
|
5
|
|
|
3.6
|
%
|
|||
Pharmacy claims processed:
(4)
|
|
|
|
|
|
|
|
|||||||
Total
|
481.8
|
|
|
468.8
|
|
|
13.0
|
|
|
2.8
|
%
|
|||
Pharmacy network
(2)
|
407.7
|
|
|
399.5
|
|
|
8.2
|
|
|
2.1
|
%
|
|||
Mail choice
(3)
|
74.1
|
|
|
69.3
|
|
|
4.8
|
|
|
6.9
|
%
|
|||
Generic dispensing rate:
(4)
|
|
|
|
|
|
|
|
|||||||
Total
|
88.3
|
%
|
|
87.6
|
%
|
|
|
|
|
|||||
Pharmacy network
(2)
|
88.9
|
%
|
|
88.3
|
%
|
|
|
|
|
|||||
Mail choice
(3)
|
84.8
|
%
|
|
83.9
|
%
|
|
|
|
|
|||||
Mail choice penetration rate
(4)
|
15.4
|
%
|
|
14.8
|
%
|
|
|
|
|
(1)
|
See “Segment Analysis” above in this report for a reconciliation of operating income (GAAP measure) to adjusted operating income for the Pharmacy Services segment.
|
(2)
|
Pharmacy network revenues, pharmacy claims processed and generic dispensing rate do not include Maintenance Choice
®
activity, which is included within the mail choice category. Pharmacy network is defined as claims filled at retail and specialty retail pharmacies, including the Company’s retail pharmacies and long-term care pharmacies, but excluding Maintenance Choice activity. Maintenance Choice permits eligible client plan members to fill their maintenance prescriptions through mail order delivery or at a CVS pharmacy retail store for the same price as mail order.
|
(3)
|
Mail choice is defined as claims filled at a Pharmacy Services mail order facility, which includes specialty mail claims inclusive of Specialty Connect
®
claims picked up at retail, as well as prescriptions filled at the Company’s retail pharmacies under the Maintenance Choice program.
|
(4)
|
Includes an adjustment to convert 90-day prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal prescription.
|
•
|
Total revenues increased
$1.0 billion
, or
3.1%
, to
$33.6 billion
for the three months ended
March 31, 2019
compared to the prior year. The increase was primarily due to brand name drug price inflation as well as increased total pharmacy claims volume, partially offset by continued price compression and an increased generic dispensing rate.
|
•
|
As you review the Pharmacy Services segment’s performance in this area, you should consider the following important information about the business:
|
•
|
The Company’s mail choice claims processed, on a 30-day equivalent basis, increased
6.9%
to
74.1 million
claims in the three months ended
March 31, 2019
compared to
69.3 million
in the prior year. The increase in mail choice claims was primarily driven by the continued adoption of Maintenance Choice offerings.
|
•
|
During the three months ended
March 31, 2019
, the average revenue per mail choice claim, on a 30-day equivalent basis, decreased by
1.1%
compared to the prior year as a result of continued price compression.
|
•
|
The Company’s pharmacy network claims processed, on a 30-day equivalent basis, increased
2.1%
to
407.7 million
claims in the three months ended
March 31, 2019
, compared to
399.5 million
claims in the prior year. The increase in the pharmacy network claim volume was primarily due to net new business.
|
•
|
During the three months ended
March 31, 2019
, the average revenue per pharmacy network claim processed, on a 30-day equivalent basis, decreased
0.3%
compared to the prior year as a result of continued price compression.
|
•
|
The Company’s total generic dispensing rate increased to
88.3%
in the three months ended
March 31, 2019
compared to
87.6%
in the prior year. The continued increase in the Company’s generic dispensing rate was primarily due to the impact of new generic drug introductions and the Company’s ongoing efforts to encourage plan members to use generic drugs when they are available and clinically appropriate. The Company believes its generic dispensing rate will continue to increase in future periods, albeit at a slower pace. This increase will be affected by, among other things, the number of new brand and generic drug introductions and the Company’s success at encouraging plan members to utilize generic drugs when they are available and clinically appropriate.
|
•
|
Operating expenses in the Pharmacy Services segment include selling, general and administrative expenses; depreciation and amortization related to selling, general and administrative activities; and expenses related to specialty retail pharmacies, which include store and administrative payroll, employee benefits and occupancy costs.
|
•
|
Operating expenses increased
$31 million
, or
9.2%
, in the three months ended
March 31, 2019
compared to the prior year. The year over year increase in operating expenses was primarily due to operating expenses associated with Aetna’s mail order and specialty pharmacy operations (including intangible amortization) and investments related to the Company’s agreement with Anthem, Inc. (“Anthem”) during the three months ended March 31, 2019.
|
•
|
Operating expenses as a percentage of total revenues remained relatively consistent at
1.1%
and
1.0%
in the three months ended
March 31, 2019
and
2018
, respectively.
|
•
|
Operating income decreased
$51 million
, or
5.7%
, and adjusted operating income decreased
$40 million
, or
4.2%
, in the three months ended
March 31, 2019
compared to the prior year. The decrease in both operating income and adjusted operating income was primarily driven by continued price compression and investments related to the Company’s agreement with Anthem during the three months ended March 31, 2019. The decrease in operating income also was due to increased intangible amortization related to Aetna’s mail order and specialty pharmacy operations.
|
•
|
As you review the Pharmacy Services segment’s performance in this area, you should consider the following important information about the business:
|
•
|
The Company’s efforts to (i) retain existing clients, (ii) obtain new business and (iii) maintain or improve the rebates and/or discounts the Company receives from manufacturers, wholesalers and retail pharmacies continue to have an impact on operating income. In particular, competitive pressures in the PBM industry have caused the Company and other PBMs to continue to share with clients a larger portion of rebates and/or discounts received from pharmaceutical manufacturers. In addition, marketplace dynamics and regulatory changes have limited the Company’s ability to offer plan sponsors pricing that includes retail network “differential” or “spread,” and the Company expects these trends to continue. The “differential” or “spread” is any difference between the drug price charged to plan sponsors, including Medicare Part D plan sponsors, by a PBM and the price paid for the drug by the PBM to the dispensing provider.
|
|
Three Months Ended
|
|
|
|
|
|||||||||
|
March 31,
|
|
Change
|
|||||||||||
In millions, except percentages
|
2019
|
|
2018
|
|
$
|
|
%
|
|||||||
Revenues:
|
|
|
|
|
|
|
|
|||||||
Products
|
$
|
20,900
|
|
|
$
|
20,219
|
|
|
$
|
681
|
|
|
3.4
|
%
|
Services
|
215
|
|
|
213
|
|
|
2
|
|
|
0.9
|
%
|
|||
Total revenues
|
21,115
|
|
|
20,432
|
|
|
683
|
|
|
3.3
|
%
|
|||
Cost of products sold
|
15,297
|
|
|
14,516
|
|
|
781
|
|
|
5.4
|
%
|
|||
Operating expenses
|
4,580
|
|
|
4,292
|
|
|
288
|
|
|
6.7
|
%
|
|||
Operating expenses as a % of revenues
|
21.7
|
%
|
|
21.0
|
%
|
|
|
|
|
|||||
Operating income
|
$
|
1,238
|
|
|
$
|
1,624
|
|
|
$
|
(386
|
)
|
|
(23.8
|
)%
|
Operating income as a % of revenues
|
5.9
|
%
|
|
7.9
|
%
|
|
|
|
|
|||||
Adjusted operating income
(1)
|
$
|
1,489
|
|
|
$
|
1,836
|
|
|
$
|
(347
|
)
|
|
(18.9
|
)%
|
Adjusted operating income as a % of revenues
|
7.1
|
%
|
|
9.0
|
%
|
|
|
|
|
|||||
Revenues (by major goods/service lines):
|
|
|
|
|
|
|
|
|||||||
Pharmacy
|
$
|
16,118
|
|
|
$
|
15,500
|
|
|
$
|
618
|
|
|
4.0
|
%
|
Front Store
|
4,799
|
|
|
4,726
|
|
|
73
|
|
|
1.5
|
%
|
|||
Other
|
198
|
|
|
206
|
|
|
(8
|
)
|
|
(3.9
|
)%
|
|||
Prescriptions filled
(2)
|
346.8
|
|
|
328.8
|
|
|
18.0
|
|
|
5.5
|
%
|
|||
Revenues increase:
|
|
|
|
|
|
|
|
|||||||
Total
|
3.3
|
%
|
|
5.6
|
%
|
|
|
|
|
|||||
Pharmacy
|
4.0
|
%
|
|
7.4
|
%
|
|
|
|
|
|||||
Front Store
|
1.5
|
%
|
|
2.3
|
%
|
|
|
|
|
|||||
Total prescription volume increase
(2)
|
5.5
|
%
|
|
8.5
|
%
|
|
|
|
|
|||||
Same store sales increase:
(3)
|
|
|
|
|
|
|
|
|||||||
Total
|
3.8
|
%
|
|
5.8
|
%
|
|
|
|
|
|||||
Pharmacy
|
4.9
|
%
|
|
7.3
|
%
|
|
|
|
|
|||||
Front Store
|
0.4
|
%
|
|
1.6
|
%
|
|
|
|
|
|||||
Prescription volume
(2)
|
6.7
|
%
|
|
8.5
|
%
|
|
|
|
|
|||||
Generic dispensing rate
(2)
|
88.7
|
%
|
|
88.1
|
%
|
|
|
|
|
(1)
|
See “Segment Analysis” above in this report for a reconciliation of operating income (GAAP measure) to adjusted operating income for the Retail/LTC segment.
|
(2)
|
Includes an adjustment to convert 90-day non-specialty prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal prescription.
|
(3)
|
Same store sales and prescription volume exclude revenues from MinuteClinic, and revenue and prescriptions from stores in Brazil and LTC operations.
|
•
|
Total revenues increased
$683 million
, or
3.3%
, to
$21.1 billion
in the three months ended
March 31, 2019
compared to the prior year. The increase was primarily driven by increased prescription volume and brand name drug price inflation, partially offset by continued reimbursement pressure and the impact of generic drug introductions.
|
•
|
As you review the Retail/LTC segment’s performance in this area, you should consider the following important information about the business:
|
•
|
Front store same store sales increased
0.4%
in the three months ended
March 31, 2019
compared to the prior year. The increase in front store revenues in
2019
was primarily driven by increases in health product sales.
|
•
|
Pharmacy same store sales increased
4.9%
in the three months ended
March 31, 2019
compared to the prior year. The increase was driven by the
6.7%
increase in pharmacy same store prescription volumes on a 30-day equivalent basis driven mainly by (i) continued adoption of patient care programs, (ii) collaborations with PBMs, and (iii) the Company’s preferred status in a number of Medicare Part D networks.
|
•
|
Pharmacy revenue continues to be adversely affected by the conversion of brand name drugs to equivalent generic drugs, which typically have a lower selling price. The generic dispensing rate grew to
88.7%
in the three months ended
March 31, 2019
compared to
88.1%
in the prior year. Pharmacy revenue growth also has been negatively affected by continued reimbursement pressure.
|
•
|
Pharmacy revenue growth has been adversely affected by industry challenges in the LTC business, such as continuing lower occupancy rates at skilled nursing facilities, as well as the deteriorating financial health of many skilled nursing facilities.
|
•
|
Pharmacy revenue in
2019
continued to benefit from the Company’s ability to attract and retain managed care customers and the increased use of pharmaceuticals by an aging population as the first line of defense for health care.
|
•
|
Operating expenses in the Retail/LTC segment include store payroll, store employee benefits, store occupancy costs, selling expenses, advertising expenses, depreciation and amortization expense and certain administrative expenses.
|
•
|
Operating expenses increased
$288 million
, or
6.7%
, in the three months ended
March 31, 2019
compared to the prior year. The increase in operating expenses in the three months ended
March 31, 2019
was primarily due to the following:
|
•
|
A
$135 million
store rationalization charge recorded during the first quarter of 2019 primarily related to operating lease right-of-use asset impairment charges in connection with the planned closure of
46
underperforming retail pharmacy stores in the second quarter of 2019;
|
•
|
The investment of a portion of the savings from the TCJA in wages and benefits; and
|
•
|
The increased prescription volume described previously;
|
•
|
Partially offset by the absence of the
$86 million
pre-tax loss on the sale of the Company’s RxCrossroads subsidiary recorded in the three months ended March 31, 2018.
|
•
|
Operating expenses as a percentage of total revenues were
21.7%
in the three months ended
March 31, 2019
compared to
21.0%
in the prior year. The increase in operating expenses as a percentage of total revenues was primarily driven by the store rationalization charge and the impact of the investment of a portion of the savings from the TCJA in wages and benefits in the three months ended March 31, 2019, partially offset by the absence of a pre-tax loss on the sale of the Company’s RxCrossroads subsidiary recorded in the three months ended March 31, 2018.
|
•
|
Operating income decreased
$386 million
, or
23.8%
, and adjusted operating income decreased
$347 million
, or
18.9%
, in the three months ended
March 31, 2019
compared to the prior year. The decrease in both operating income and adjusted operating income was primarily due to (i) continued reimbursement pressure, (ii) increased operating expenses associated with the investment of a portion of the savings from the TCJA in wages and benefits described above and higher legal costs and (iii) declining year-over-year performance in our long-term care business. The decrease in operating income also was driven by the
$135 million
store rationalization charge described above, partially offset by the absence of the
$86 million
pre-tax loss on the sale of the Company’s RxCrossroads subsidiary recorded in the three months ended March 31, 2018.
|
•
|
As you review the Retail/LTC segment’s performance in this area, you should consider the following important information about the business:
|
•
|
The Company’s pharmacy operating income has been adversely affected by the efforts of managed care organizations, PBMs and governmental and other third-party payors to reduce their prescription drug costs, including the use of restrictive networks, as well as changes in the mix of business within the pharmacy portion of the Retail/LTC Segment. If the reimbursement pressure accelerates, the Company may not be able grow revenues, and its operating income could be adversely affected.
|
•
|
The increased use of generic drugs has positively impacted the Company’s operating income but has resulted in third-party payors augmenting their efforts to reduce reimbursement payments to retail pharmacies for prescriptions. This trend, which the Company expects to continue, reduces the benefit the Company realizes from brand to generic drug conversions.
|
|
Three Months Ended
|
|
|
|
|
|||||||||
|
March 31,
|
|
Change
|
|||||||||||
In millions, except percentages
|
2019
|
|
2018
|
|
$
|
|
%
|
|||||||
Revenues:
|
|
|
|
|
|
|
|
|||||||
Premiums
|
$
|
16,259
|
|
|
$
|
1,306
|
|
|
$
|
14,953
|
|
|
1,144.9
|
%
|
Services
|
1,447
|
|
|
10
|
|
|
1,437
|
|
|
14,370.0
|
%
|
|||
Net investment income
|
164
|
|
|
2
|
|
|
162
|
|
|
8,100.0
|
%
|
|||
Total revenues
|
17,870
|
|
|
1,318
|
|
|
16,552
|
|
|
1,255.8
|
%
|
|||
Benefit costs
|
13,655
|
|
|
1,329
|
|
|
12,326
|
|
|
927.5
|
%
|
|||
MBR (Benefit costs as a % of premium revenues)
(1)
|
84.0
|
%
|
|
NM
|
|
|
|
|
|
|||||
Operating expenses
|
$
|
3,060
|
|
|
$
|
127
|
|
|
$
|
2,933
|
|
|
2,309.4
|
%
|
Operating expenses as a % of revenues
|
17.1
|
%
|
|
9.6
|
%
|
|
|
|
|
|||||
Operating income (loss)
|
$
|
1,155
|
|
|
$
|
(138
|
)
|
|
$
|
1,293
|
|
|
937.0
|
%
|
Operating income (loss) as a % of revenues
|
6.5
|
%
|
|
NM
|
|
|
|
|
|
|||||
Adjusted operating income (loss)
(2)
|
$
|
1,562
|
|
|
$
|
(137
|
)
|
|
$
|
1,699
|
|
|
1,240.1
|
%
|
Adjusted operating income (loss) as a % of revenues
|
8.7
|
%
|
|
NM
|
|
|
|
|
|
(1)
|
The Health Care Benefits segment for the three months ended March 31, 2018 consisted solely of the Company’s SilverScript PDP business. Accordingly, the MBR for the three months ended March 31, 2018 is not meaningful and not directly comparable to the MBR for the three months ended March 31, 2019.
|
(2)
|
See “Segment Analysis” above in this report for a reconciliation of operating income (GAAP measure) to adjusted operating income for the Health Care Benefits segment.
|
•
|
Total revenues increased
$16.6 billion
for the three months ended
March 31, 2019
compared to the prior year primarily driven by the Aetna Acquisition. Revenues for the three months ended March 31, 2019 reflect strong membership growth in the Health Care Benefits segment's Medicare products.
|
•
|
Operating expenses in the Health Care Benefits segment include selling, general and administrative expenses and depreciation and amortization expenses.
|
•
|
Operating expenses increased
$2.9 billion
in the three months ended
March 31, 2019
compared to the prior year primarily driven by the Aetna Acquisition (including the amortization of intangible assets).
|
•
|
Operating income and adjusted operating income increased
$1.3 billion
and
$1.7 billion
, respectively, in the three months ended
March 31, 2019
compared to the prior year. The increases were primarily driven by the Aetna Acquisition. The increase in operating income was partially offset by an increase in intangible amortization related to the Aetna Acquisition. Operating loss and adjusted operating loss for the three months ended
March 31, 2018
reflect the seasonality of earnings for the Company's SilverScript PDP business. The quarterly earnings of the Company’s SilverScript PDP business generally increase as the year progresses.
|
(1)
|
Represents the Company’s SilverScript PDP membership only. Excludes
2.4 million
and
2.3 million
members as of March 31, 2019 and December 31, 2018, respectively, related to Aetna’s standalone PDPs that were sold effective December 31, 2018. The Company will retain the financial results of the divested plans through 2019 through a reinsurance agreement.
|
•
|
Total revenues increased
$62 million
in the three months ended
March 31, 2019
compared to the prior year.
|
•
|
In 2019, revenues relate to products for which the Company no longer solicits or accepts new customers, such as large case pensions and long-term care insurance products, that were acquired in the Aetna Acquisition. In 2018, revenues relate to interest income related to the $40 billion of 2018 Notes issued to partially fund the Aetna Acquisition.
|
•
|
Operating expenses within the Corporate/Other segment include certain aspects of costs related to executive management and the corporate relations, legal, compliance, human resources, information technology and finance departments and acquisition-related transaction and integration costs. After the Aetna Acquisition Date, such operating expenses also include operating costs to support the large case pensions and long-term care insurance products acquired in the Aetna Acquisition.
|
•
|
Operating expenses increased
$148 million
in the three months ended
March 31, 2019
compared to the prior year. The increase was primarily driven by an increase in acquisition-related integration costs of
$108 million
in the three months ended
March 31, 2019
as compared to the prior period and incremental operating expenses to support the large case pensions and long-term care insurance products described above.
|
|
Three Months Ended
March 31, |
|
Change
|
|||||||||||
In millions
|
2019
|
|
2018
|
|
$
|
|
%
|
|||||||
Net cash provided by operating activities
|
$
|
1,948
|
|
|
$
|
2,355
|
|
|
$
|
(407
|
)
|
|
(17.3
|
)%
|
Net cash used in investing activities
|
(891
|
)
|
|
(131
|
)
|
|
(760
|
)
|
|
580.2
|
%
|
|||
Net cash provided by financing activities
|
816
|
|
|
38,140
|
|
|
(37,324
|
)
|
|
(97.9
|
)%
|
|||
Net increase in cash, cash equivalents and restricted cash
|
$
|
1,873
|
|
|
$
|
40,364
|
|
|
$
|
(38,491
|
)
|
|
95.4
|
%
|
•
|
Net cash provided by operating activities
decreased by
$407 million
in the three months ended
March 31, 2019
due primarily to the timing of client and customer payments as well as the timing of payments from CMS, partially offset by the Aetna Acquisition. Net cash provided by operating activities for the three months ended March 31, 2018 reflects an advance payment from CMS received in March 2018 related to April 2018.
|
•
|
Net cash used in investing activities
increased by
$760 million
in the three months ended
March 31, 2019
largely driven by the three months ended March 31, 2018 reflecting
$725 million
in proceeds from the sale of RxCrossroads.
|
•
|
Net cash provided by financing activities
was
$816 million
in the three months ended
March 31, 2019
compared to
$38.1 billion
in the prior year. The decrease in cash provided by financing activities primarily related to long-term borrowings during 2018 to partially fund the Aetna Acquisition, as well as a
$500 million
partial repayment of the term loan used to partially fund the Aetna Acquisition and the repayment of $375 million of senior notes that matured during the three months ended March 31, 2019.
|
|
|
||
In millions
|
|
||
3.125% senior notes due March 2020
|
$
|
2,000
|
|
Floating rate notes due March 2020
|
1,000
|
|
|
3.35% senior notes due March 2021
|
3,000
|
|
|
Floating rate notes due March 2021
|
1,000
|
|
|
3.7% senior notes due March 2023
|
6,000
|
|
|
4.1% senior notes due March 2025
|
5,000
|
|
|
4.3% senior notes due March 2028
|
9,000
|
|
|
4.78% senior notes due March 2038
|
5,000
|
|
|
5.05% senior notes due March 2048
|
8,000
|
|
|
Total debt principal
|
$
|
40,000
|
|
•
|
Risks to our brand and reputation, the Aetna Acquisition, data governance risks, effectiveness of our talent management and alignment of talent to our business needs, and potential changes in public policy, laws and regulations present overarching risks to our enterprise in 2019 and beyond.
|
•
|
Our brand and reputation are two of our most important assets; negative public perception of the industries in which we operate, or of our industries’ or our practices, can adversely affect our businesses, results of operations, cash flows and prospects.
|
•
|
Data governance failures can adversely affect our reputation, businesses and prospects. Our use and disclosure of members’, customers’ and other constituents’ sensitive information is subject to complex regulations at multiple levels. We would be adversely affected if we or our business associates or other vendors fail to adequately protect members’, customers’ or other constituents’ sensitive information.
|
•
|
We face significant competition in attracting and retaining talented employees. Further, managing succession for, and retention of, key executives is critical to our success, and our failure to do so could adversely affect our future performance.
|
•
|
We are subject to potential changes in public policy, laws and regulations, including reform of the United States health care system, that can adversely affect the markets for our products and services and our businesses, operations, results of operations, cash flows and prospects.
|
•
|
Our enterprise strategy may not be an effective response to the changing dynamics in the industries in which we operate, or we may not be able to implement our strategy and related strategic projects.
|
•
|
Efforts to reduce reimbursement levels and alter health care financing practices could adversely affect our businesses.
|
•
|
Gross margins in the industries in which we operate may decline.
|
•
|
Our results of operations are affected by the health of the economy in general and in the geographies we serve.
|
•
|
We operate in a highly competitive business environment. Competitive and economic pressures may limit our ability to increase pricing to reflect higher costs or may force us to accept lower margins. If customers elect to self-insure, reduce benefits or adversely renegotiate or amend their agreements with us, our revenues and results of operations will be adversely affected. We may not be able to obtain appropriate pricing on new or renewal business.
|
•
|
We may lose clients and/or fail to win new business. If we fail to compete effectively in the geographies and product areas in which we operate, including maintaining or increasing membership in our Health Care Benefits segment, our results of operations, financial condition and cash flows could be materially and adversely affected.
|
•
|
We are exposed to risks relating to the solvency of our customers and of other insurers.
|
•
|
We face risks relating to the market availability, pricing, suppliers and safety profiles of prescription drugs that we purchase and sell.
|
•
|
We face risks related to the frequency and rate of the introduction and pricing of generic drugs and brand name prescription drug products.
|
•
|
Possible changes in industry pricing benchmarks and drug pricing generally can adversely affect our PBM business.
|
•
|
Product liability, product recall or personal injury issues could damage our reputation.
|
•
|
We face challenges in growing our Medicare Advantage and Medicare Part D membership.
|
•
|
We face challenges in growing our Medicaid membership, and expanding our Medicaid membership exposes us to additional risks.
|
•
|
A change in our Health Care Benefits product mix may adversely affect our profit margins.
|
•
|
We may not be able to accurately forecast health care and other benefit costs, which could adversely affect our Health Care Benefits segment’s results of operations. There can be no assurance that the future health care and other benefit costs of our Insured Health Care Benefits products will not exceed our projections.
|
•
|
A number of factors, many of which are beyond our control, contribute to rising health care and other benefit costs. If we are unable to satisfactorily manage our health care and other benefit costs, our Health Care Benefits segment’s results of operations and competitiveness will be adversely affected.
|
•
|
The reserves we hold for expected claims in our Insured Health Care Benefits products are based on estimates that involve an extensive degree of judgment and are inherently variable. Any reserve, including a premium deficiency reserve, may be insufficient. If actual claims exceed our estimates, our results of operations could be materially adversely affected, and our ability to take timely corrective actions to limit future costs may be limited.
|
•
|
Extreme events, or the threat of extreme events, could materially increase our health care (including behavioral health) costs. We cannot predict whether or when any such events will occur.
|
•
|
Legislative and regulatory changes could create significant challenges to our Medicare Advantage and Medicare Part D revenues and results of operations, and proposed changes to these programs could create significant additional challenges. Entitlement program reform, if it occurs, could have a material adverse effect on our businesses, operations and/or results of operations.
|
•
|
We may not be able to obtain adequate premium rate increases in our Insured Health Care Benefits products, which would have an adverse effect on our revenues, MBRs and results of operations and could magnify the adverse impact of increases in health care and other benefit costs and of ACA assessments, fees and taxes.
|
•
|
Minimum MLR rebate requirements limit the level of margin we can earn in our Insured Health Care Benefits products while leaving us exposed to higher than expected medical costs. Challenges to our minimum MLR rebate methodology and/or reports could adversely affect our results of operations.
|
•
|
Our business activities are highly regulated. Our Pharmacy Services, Medicare Advantage, Medicare Part D, Medicaid, dual eligible, dual eligible special needs plan, small group and certain other products are subject to particularly extensive and complex regulations. If we fail to comply with applicable laws and regulations, we could be subject to significant adverse regulatory actions or suffer brand and reputational harm which may have a material adverse effect on our businesses. Compliance with existing and future laws, regulations and/or judicial decisions may reduce our profitability and limit our growth.
|
•
|
If our compliance or other systems and processes fail or are deemed inadequate, we may suffer brand and reputational harm and become subject to regulatory actions or litigation which could adversely affect our businesses, results of operations, cash flows and/or financial condition.
|
•
|
Our litigation and regulatory risk profile are changing as a result of the Aetna Acquisition and as we offer new products and services and expand in business areas beyond our historical core businesses of Retail/LTC and Pharmacy Services.
|
•
|
We routinely are subject to litigation and other adverse legal proceedings, including class actions and qui tam actions. Many of these proceedings seek substantial damages which may not be covered by insurance. These proceedings may be costly to defend, result in changes in our business practices, harm our brand and reputation and adversely affect our businesses and results of operations.
|
•
|
We frequently are subject to regular and special governmental audits, investigations and reviews that could result in changes to our business practices and also could result in material refunds, fines, penalties, civil liabilities, criminal liabilities and other sanctions.
|
•
|
We are subject to retroactive adjustments to and/or withholding of certain premiums and fees, including as a result of CMS RADV audits. We generally rely on health care providers to appropriately code claim submissions and document their medical records. If these records do not appropriately support our risk adjusted premiums, we may be required to refund premium payments to CMS and/or pay fines and penalties under the False Claims Act.
|
•
|
Programs funded in whole or in part by the U.S. federal government account for a significant portion of our revenues. The U.S. federal government and our other government customers may reduce funding for health care or other programs, cancel or decline to renew contracts with us, or make changes that adversely affect the number of persons eligible for certain programs, the services provided to enrollees in such programs, our premiums and our administrative and health care and other benefit costs, any of which could have a material adverse effect on our businesses, results of operations and cash flows. In addition, an extended federal government shutdown or a delay by Congress in raising the federal government’s debt ceiling could lead to a delay, reduction, suspension or cancellation of federal government spending and a significant increase in interest rates that could, in turn, have a material adverse effect on our businesses, results of operations and cash flows.
|
•
|
Our results of operations may be adversely affected by changes in laws and policies governing employers and by union organizing activity.
|
•
|
We must develop and maintain a relevant omni-channel experience for our retail customers.
|
•
|
We must maintain and improve our relationships with our retail and specialty pharmacy customers and increase the demand for our products and services, including proprietary brands. If we fail to develop new products, differentiate our products from those of our competitors or demonstrate the value of our products to our customers and members, our ability to retain or grow our customer base may be adversely affected.
|
•
|
In order to be competitive in the increasingly consumer-oriented marketplace for our health care products and services, we will need to develop and deploy consumer-friendly products and services and make investments in consumer engagement, reduce our cost structure and compete successfully with new entrants into our businesses. If we are unsuccessful, our future growth and profitability may be adversely affected.
|
•
|
Our results of operations may be adversely affected if we are unable to contract with manufacturers, providers, suppliers and vendors on competitive terms and develop and maintain attractive networks with high quality providers.
|
•
|
If our service providers fail to meet their contractual obligations to us or to comply with applicable laws or regulations, we may be exposed to brand and reputational harm, litigation or regulatory action. This risk is particularly high in our Medicare, Medicaid, dual eligible and dual eligible special needs plan programs.
|
•
|
Continuing consolidation and integration among providers and other suppliers may increase our medical and other covered benefits costs, make it difficult for us to compete in certain geographies and create new competitors.
|
•
|
We may experience increased medical and other benefit costs, litigation risk and customer and member dissatisfaction when providers that do not have contracts with us render services to our Health Care Benefits members.
|
•
|
Customers, particularly large sophisticated customers, expect us to implement their contracts and onboard their employees and members efficiently and effectively. Failure to do so could adversely affect our reputation, businesses, results of operations, cash flows and prospects. If we or our vendors fail to provide our customers with quality service that meets their expectations, our ability to retain and grow our membership and customer base will be adversely affected.
|
•
|
We are subject to payment-related risks that could increase our operating costs, expose us to fraud or theft, subject us to potential liability and disrupt our business operations.
|
•
|
Our and our vendors’ operations are subject to a variety of business continuity hazards and risks, any of which could interrupt our operations or otherwise adversely affect our performance and results of operations.
|
•
|
We and our vendors have experienced cyber attacks. We can provide no assurance that we or our vendors will be able to detect, prevent or contain the effects of such attacks or other information security (including cybersecurity) risks or threats in the future.
|
•
|
The failure or disruption of our information technology systems or the failure of our information technology infrastructure to support our businesses could adversely affect our reputation, businesses, results of operations and cash flows.
|
•
|
Our business success and results of operations depend in part on effective information technology systems and on continuing to develop and implement improvements in technology. Pursuing multiple initiatives simultaneously could make this continued development and implementation significantly more challenging.
|
•
|
Sales of our products and services are dependent on our ability to attract and motivate internal sales personnel and independent third-party brokers, consultants and agents. New distribution channels create new disintermediation risk. We may be subject to penalties or other regulatory actions as a result of the marketing practices of brokers and agents selling our products.
|
•
|
We also face other risks that could adversely affect our businesses, results of operations, financial condition and/or cash flows, which include:
|
•
|
Failure of our corporate governance policies or procedures, for example significant financial decisions being made at an inappropriate level in our organization;
|
•
|
Inappropriate application of accounting principles or a significant failure of internal control over financial reporting, which could lead to a restatement of our results of operations and/or a deterioration in the soundness and accuracy of our reported results of operations; and
|
•
|
Failure to adequately manage our run-off businesses and/or our regulatory and financial exposure to businesses we have sold, including Aetna’s divested standalone Medicare Part D, domestic group life insurance, group disability insurance and absence management businesses.
|
•
|
Goodwill and other intangible assets could, in the future, become impaired.
|
•
|
We would be adversely affected if we do not effectively deploy our capital. Downgrades or potential downgrades in our credit ratings, should they occur, could adversely affect our brand and reputation, businesses, cash flows, financial condition and results of operations.
|
•
|
Adverse conditions in the U.S. and global capital markets can significantly and adversely affect the value of our investments in debt and equity securities, mortgage loans, alternative investments and other investments, our results of operations and/or our financial condition.
|
•
|
We have limited experience in the insurance and managed health care industry, which may hinder our ability to achieve our objectives as a combined company.
|
•
|
The Aetna Acquisition may not be accretive, and may be dilutive, to our earnings per share, which may adversely affect our stock price.
|
•
|
We may fail to successfully combine the businesses and operations of CVS Health and Aetna to realize the anticipated benefits and cost savings of the Aetna Acquisition within the anticipated timeframe or at all, which could adversely affect our stock price.
|
•
|
Our future results may be adversely impacted if we do not effectively manage our expanded operations following completion of the Aetna Acquisition.
|
•
|
We may have difficulty attracting, motivating and retaining executives and other key employees following completion of the Aetna Acquisition.
|
•
|
The Aetna integration process could disrupt our ongoing businesses and/or operations.
|
•
|
Our indebtedness following completion of the Aetna Acquisition is substantially greater than our indebtedness on a stand-alone basis and greater than the combined indebtedness of CVS Health and Aetna existing prior to the announcement of the transaction. This increased level of indebtedness could adversely affect our business flexibility and increase our borrowing costs.
|
•
|
We will continue to incur significant integration-related costs in connection with the Aetna Acquisition.
|
•
|
We expect to continue to pursue acquisitions, joint ventures, strategic alliances and other inorganic growth opportunities, which may be unsuccessful, cause us to assume unanticipated liabilities, disrupt our existing businesses, be dilutive or lead us to assume significant debt, among other things.
|
•
|
We may be unable to successfully integrate companies we acquire.
|
•
|
As a result of our expanded international operations, we face political, legal and compliance, operational, regulatory, economic and other risks that we do not face or are more significant than in our domestic operations.
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
Item 4.
|
Controls and Procedures
|
Part II.
|
Other Information
|
Item 1.
|
Legal Proceedings
|
Item 1A.
|
Risk Factors
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
|
|
|
|
|
|
|
|
Approximate Dollar
|
||||||
|
|
|
|
|
|
Total Number of Shares
|
|
Value of Shares that
|
||||||
|
|
Total Number
|
|
Average
|
|
Purchased as Part of
|
|
May Yet Be
|
||||||
|
|
of Shares
|
|
Price Paid per
|
|
Publicly Announced
|
|
Purchased Under the
|
||||||
Fiscal Period
|
|
Purchased
|
|
Share
|
|
Plans or Programs
|
|
Plans or Programs
|
||||||
January 1, 2019 through January 31, 2019
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
13,869,392,446
|
|
February 1, 2019 through February 28, 2019
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
13,869,392,446
|
|
March 1, 2019 through March 31, 2019
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
13,869,392,446
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
10
|
|
|
|
10.1
|
|
|
|
10.2
|
|
|
|
10.3
|
|
|
|
10.4
|
|
|
|
15
|
Letter re: unaudited interim financial information
|
|
|
15.1
|
|
|
|
31
|
Rule 13a-14(a)/15d-14(a) Certifications
|
|
|
31.1
|
|
|
|
31.2
|
|
|
|
32
|
Section 1350 Certifications
|
|
|
32.1
|
|
|
|
32.2
|
|
|
|
101
|
Interactive Data File
|
|
|
101
|
The following materials from the CVS Health Corporation Quarterly Report on Form 10-Q for the three months ended March 31, 2019 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Operations, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash flows, (v) the Condensed Consolidated Statements of Shareholders’ Equity and (vi) the related Notes to Condensed Consolidated Financial Statements.
|
|
|
CVS HEALTH CORPORATION
|
|
|
|
Date:
|
May 1, 2019
|
By:
|
/s/ Eva C. Boratto
|
|
|
|
Eva C. Boratto
|
|
|
|
Executive Vice President and Chief Financial Officer
|
|
|
|
|
|
|
Page
|
|
1.
|
Definitions .................................................................................................................
|
2
|
|
2.
|
Term of Agreement ...................................................................................................
|
6
|
|
3.
|
Entitlement to Severance Benefit .............................................................................
|
6
|
|
4.
|
Confidential
i
t
y;
Cooperation
wit
h Regard
to Litigat
io
n;
Non-d
i
sparagement ............
|
8
|
|
5.
|
Non-solicitation .........................................................................................................
|
9
|
|
6.
|
Remedies .................................................................................................................
|
10
|
|
7.
|
Effec
t
of
Agreeme
nt
on Other
Benefits and Obligations ...........................................
|
10
|
|
8.
|
Not
an
Em
ployment Agreement ...............................................................................
|
10
|
|
9.
|
Resolution of D
i
sputes .............................................................................................
|
10
|
|
10.
|
Assignability; B
i
nding
Nature ....................................................................................
|
10
|
|
11.
|
Rep
r
esentation .........................................................................................................
|
11
|
|
12.
|
Entire Agreement ......................................................................................................
|
11
|
|
13.
|
Amendment or
Waiver, Code
Sec
ti
on
409A .............................................................
|
11
|
|
14.
|
Severability ...............................................................................................................
|
11
|
|
15.
|
Survivorship ..............................................................................................................
|
11
|
|
16.
|
Bene
ficiar
i
es/Re
ferences .........................................................................................
|
12
|
|
17.
|
Govern
i
ng Law/Jurisdiction ......................................................................................
|
12
|
|
18.
|
Not
i
ces .....................................................................................................................
|
12
|
|
19.
|
Head
ing
s ..................................................................................................................
|
12
|
|
20.
|
Counterparts .............................................................................................................
|
13
|
|
1.
|
Definitions
.
|
a.
|
"Base Salary" shall mean Executive
'
s annual rate of base salary at
t
he time of
E
xecutive
'
s terminat
io
n of emp
l
oyment or,
if
greater, as in
effect immediately
prior to a Change in
Control.
|
b.
|
"Cause" shall exist if:
|
i.
|
Executive
willfully and materially
breaches
Sectio
n
s
4
o
r
5
of this
Agreement;
|
ii.
|
Executive is conv
i
cted of a
f
elony invo
l
ving mo
r
al t
u
rpi
t
ude
;
or
|
iii.
|
Executive
engages i
n
conduct
that constitutes willful
gross
ne
g
l
ect o
r
willfu
l
gross misconduct
in
carry
in
g out Executive's
duties
under this Ag
r
eement,
resulting,
in either case
, in
material harm to
the financial
cond
i
tion or
reputation
of
the
Company.
|
c.
|
A "Change in Contro
l”
shall be deemed to have occurred
if:
|
(i)
|
any Person
(
other than (w)
the
Company,
(
x) any
trustee
or other fiduc
i
ary holding securities under any emp
l
oyee
benefit
plan of the Company,
(y)
any company owned
,
directly or ind
i
rectly, by
the
stockho
l
ders of the Company
immediately
after the occurrence
wi
th
respect
t
o
w
hich
the evaluation
is
being made in substantially the same proportions as
their
ownership of the common stock of the Company
i
mmediately prior to such occurrence or (z
)
any surviving or
resulting
entity from a merger or consolidation
r
ef
e
rre
d to
in
cla
use
(iii)
below
that
does not co
n
stitute a Change in Control under clause
(iii)
below) becomes
th
e
Beneficial Owner (except
that
a Person shall be deemed to be the Beneficial Owner of all
shares
tha
t
any such Person
has
the
right
to acq
uire
pursuant to any agreement or arrangement or upon exercise of conversion rights, warrants or options
or
otherwise, without regard to
th
e
sixty day period referred
to in
Ru
l
e
13d
-3
under
the Exchange Act), directly or indirectly, of securities of the Company
or
of any
subsid
iary
owning
direc
tly
or
indirectly
al
l
or subs
t
antially all o
f
the
consol
i
dated assets of the Company (a
"Signifi
cant
Subsidiary"),
representing
30% or more of
the combined
voting
power
of the Company's or such Significant Subs
i
d
i
ary's then outstanding
secur
ities;
|
(ii)
|
during any period of twelve
(12)
consecutive months
,
individuals
who
at
the
beginning of such period constitute the
Board
,
and any new director whose election by the Board or nomination
for
election
by
the Company
'
s
stockholders was
approved by a vote
of
at least a majority of the directors then still in office who either were directors at the beginning o
f
the twelve (12)
month period
or whose election or nomination
for
elect
ion was
previously so approved
,
cease
for any
reason
to co
n
stitute at least a majority of
the Board;
|
(iii)
|
the consummation of a merger or consol
i
dation of
t
he Company or any Significant Subsidiary with
a
n
y other entity, other than a merger or consolidation which would resu
l
t
in
t
he voting securities of the Company or
a
Significa
n
t Subsidiary outstanding immediately pr
i
or
ther
eto
continuing to
represent
(either by remaining outstand
i
ng or by being converted
into
voting securities of the surviving or
resulting
entity) more than
50%
of the
comb
i
ned voting power of the surviving or resu
l
ting
entity
outstanding
immediately
afte
r
such merger or consolidation; or
|
(iv)
|
the consummation of a transaction (or series of
tr
a
nsaction
s
within
a
12 month period)
which
constitutes
the
sale or d
i
sposition of all or substantially all of
the
consol
i
dated assets of the Company but in
no
event
assets having a gross fair market value of
l
ess than 40% of the total
gr
oss
fair market value of all of the consolidated assets of the Company
(other than
such a sale or disposition im
m
ediate
l
y after which such assets
will
be owned directly or
ind
irec
tly
by the stockholders of
the
Company in substantially the same proportions as
their
ownership o
f
the common stock of the Company
i
mmed
i
ately
prior
to such sale or disposition)
|
(A)
|
T
h
e term "Benefic
i
al Owner" shall have the meaning ascribed to such term
in
Rule
1
3d-3 unde
r
the Exchange Act (including
|
|
any successor to such Rule).
|
d.
|
"Committee" shall mean
the
Management Planning and Development Committee of the Board, or the corresponding
committe
e
of the board of directors of a successor
to
CVS Caremark.
|
e.
|
"Company" shall mean, collectively,
CVS
Caremark and any Subsidiary or affiliate of CVS Caremark.
|
f.
|
"Confidential Informat
i
on" shall have the meaning set forth
i
n Section 4 below
.
|
g.
|
"Constructive Termination W
i
thout Cause" shall
mean
a
terminatio
n
of the Executive's employment at Execu
t
ive
'
s
initiative
following
the
occurrence, without
the
Executive's written consent, of one or more of the follow
i
ng events (except as a
result
of a prior termination)
:
|
i.
|
an assignment of
any
duties to Executive that is inconsistent with
Executive's
status as a
member of the
senior
managem
ent
of CVS Caremark;
|
ii.
|
a
material
decrease
i
n Executive's
annual base salary or ta
r
get annual
incent
i
ve award opportunity;
|
iii.
|
any failure to secure
t
he agreement of any successor to CVS Caremark to fully assume
t
he
Company's obligations
under
this Agreement;
or
|
iv.
|
a relocation o
f
Execu
t
ive's
principal place of
emp
loyment
more than 35 miles from Executive's
place
of employment before such
re
l
ocation.
|
h.
|
"Disability" shall
mean
disabil
i
ty as that term is defined
in
t
he
Company's
Long
-
Term
Disabil
ity
Plan.
|
i.
|
"Effective Da
t
e"
shall
have
the meaning
se
t
forth
in
Sect
i
on 2 below
.
|
j.
|
"Original
Term" shall
have
the meaning set forth
in
Section
2
below.
|
k.
|
"Renewal
Term" shall
have
the meaning
set
forth in Section 2 below.
|
I.
|
"Severance
Period" shall mean the period of 18 months following the
t
ermi
nation
of
Executive's
employment with the Company
.
|
m.
|
"Subsidiary" shall
have the
meaning set forth in Section 4 below.
|
n.
|
"Term" sha
ll
have the
m
eani
ng
set forth
in
Sec
t
ion 2 below.
|
o
.
|
"termination
of
employment
"
,
"
employment is
terminat
ed
" and other similar
words shall
mean
with
respect
to Executive:
|
(A)
|
except
i
n the
case where
Executive is on
a bona
fide
l
eave of absence pursuant
to
the Company's
po
l
icies as provided below,
Execut
i
ve
is
deemed to have
incurred a Separation
from
Service
on
a date
if t
h
e
company and Executive reasonably anticipate that
the level
of services to
be
performed by
Executive
after such date
would be
permanently
reduced
to
20%
or
less of
the average services rendered by
Executive
during
the
immediate
l
y preceding 36-month period
(or
the
total
per
i
od
of
employment
,
if
l
ess
than 36
months), disregarding periods during which Executive
was
on a
bona
fi
de leave
of absence
;
|
(B)
|
i
f
Executive is absent
from
work due
to
mil
i
tary
leave,
sick
l
eave, or other bona fide
l
eave of absence pursuant to
the
Company's
po
l
icies, Executive shall
incur
a Separation from
Service on the first date
that
the ru
l
es of
(A),
above,
are
satisfied
following the later
of
(i)
the six-month anniversary
of the
commencement of
the
l
eave or
(
i
i) the expiration of Executive's
right,
if any,
to
reemp
l
oyment
unde
r
statute, contract or Company
policy
;
|
(C)
|
Executive shall
be
considered to continue
employment
and to not
have
a Sepa
r
ation
from
Service
while on
a bona
fide leave of absence
pursuant to
the
Company's policies if
the
leave does not
exceed
6
consecutive months (12)
months
for
a disability
leave
of
absence)
or,
if longer,
so long as the Executive retains
a
right
to reemployment
w
i
th the
Company or an Affi
l
iate under an applicable statu
t
e, contrac
t
or Company policy
.
For
t
h
is purpose
,
a "disability
leave
of absence"
is an absence
due
to
any
medically
determinable
physica
l
or
mental impair
m
ent
of Executive
that can
be
expected
to result in
death
or
can
be expected
to
last for
a cont
i
nuous period
of not
less than
6
months
,
where
such impairment causes the
Participant
to
be
unable to perform
th
e
duties
of
his job or
a substantially sim
i
lar
job
;
|
(D)
|
for purposes of determ
i
ning
whether
another orga
n
ization
i
s
an
Affil
iat
e
of
the Company,
common ownersh
i
p
of at
l
east 50% shall
be
determina
t
ive;
|
(E)
|
the Compan
y
specifically
reserves
the right to determine whe
t
her
a
sale or other disposition
of
substantia
l
assets to an unrelated
party
constitutes a Separation
from
Service with
respect
to Executive providing services to
the seller
i
mmediately
prio
r
to
the
transaction and
p
r
oviding
services
to
the buyer after the transaction
.
Such
determination
shall be
made in accordance
with the requirements of Section 409A
of the
Code; or
|
(ii)
|
for any p
l
an
o
r
arrangement that
is not
subject to
t
he rules of
Section 409A of the Code, the complete cessation of
providing
service to the Company or any Affiliate as
an employee.
|
2.
|
Term
of Agreement.
|
3.
|
Entitlement to
Severance Benefit
.
|
a.
|
Severance
Benefit
. In the
event Ex
e
cutive's
employment with
the Company is Terminated
Without Cause, other than due to
death, or Disability, o
r i
n
the
event there is
|
i.
|
Base Salary
through
the
date
of termination of Executive's
employment
,
which shall be pa
id
in
a cash l
um
p sum not later than 15
days following
Executive's
termination
o
f
employment;
|
ii.
|
An amount equa
l
to
1
.5 times
Executive's
Base Sa
l
ary in
effect
on
the date
of termination of
Executive's
employment
(or
i
n
the
event
a
r
eduction
in
Base Sa
la
ry
is
a basis for
a
Constructive
T
ermination Without Cause
,
then
the Base Sa
l
ary in effect
immediately prior to
such
reduction),
payable in a cash lump sum promptly
(but
i
n
no
event later than
15
days)
following
Executive
'
s
termination
of
employment;
|
iii.
|
An amoun
t
equal
to
the sum of
(A) the most recen
t
ly
established target annual cash incentive bonus amount,
pro
rated
based
on t
h
e portion
of the
performance year
that Executive has
worked as
of
the
date of
Executive's
termination, plus
|
(B)
|
25%
of Base Salary
(which
represents an amo
u
nt equa
l
to the cash
value
of
|
iv.
|
An amount equal to
1.5
times
the sum
of (A) the most recently
established target
annual
incentive
cash
bonus
amoun
t
plus
(B)
25% of
Base
Salary
(determined in
acco
r
dance w
i
th Sec
t
ion
3.a
.
i
i above), payable
i
n
a cash
lump sum
promptly {but
in
no
event later t
h
an 15 days)
following the Executive
'
s
termination
of employment;
|
v.
|
E
li
mination
of all restrictions
on any
restricted
stock
or restricted
stock
unit
awards outsta
n
ding
at
the
time
of
termination
of emp
loyment
(other than
awards
under
the Compan
y
's Partnership
Equity Program, wh
i
ch shall
be governed
by the terms of
such awards);
|
vi.
|
Immediate
vesting
of
all
outstanding stock
options
and the
right
to
exercise such stock options
for the remainder
of the
full
term of
such option (other
than awards
|
vii.
|
The balance
of
any
incentive
awards
earned
as of December 31
of
th
e prior year
(but not
yet paid), which shall be paid
in
a single lump sum
not
later
than
15 days following Executive's termination of employment;
|
viii.
|
Settlement of all deferred compensation arrangements
in
accordance with any then applicable deferred compensation plan or election form;
|
ix.
|
Continued participat
i
on in all medical, health and
life insurance
plans at the same be
nefit
le
vel
at
which Executive was
participating
on the date of termination of
Executive's emp
lo
yment
until the earlier of:
|
1.
|
the end
of the
Severance Period; or
|
2.
|
the
date
,
or dates, Executive receives equivale
n
t coverage and benefits
under the
plans
and
programs of a subsequent employer (such coverage and benefits to be determ
i
ned
on
a coverage-by
coverage,
or benefit-by-benefit, basis);
|
x.
|
other or addit
io
nal benefits then due o
r
earned in
accordanc
e
with applicable plans and programs
of
the Company.
|
b.
|
Change
in
Control Best Payments Determination
.
In
the eve
nt
the Severance Benefits
described
in Section 3(a) a
r
e payable
to
Execut
i
ve
in
connection with a Change in Control and,
i
f paid
,
could subject Executive to an excise
tax
under
Section
4999 of the Interna
l
Revenue Code (the "Excise Tax"),
t
hen
notwithstanding the
provisions
of Section 3(a)
the
Company shall
reduce the
Severance Benefi
t
s (the "Benefit Reduction") under Section 3(a) by the amount
necessary
to result in the
Executive
not being subject to the
Excise
Tax
if
such reduction
would
result
in
the
Executive
's "Net
After-Tax Amount" attributable to the Severance Benefits
described
in Section 3(a) being grea
t
er
than it
would be
if no
Benefit Reduction
was
effected.
For
this purpose "Net After
-
T
ax
Amount" shall mean the net amount of Severance Benefits
Executive is
enti
tled
t
o
receive
under
this
Agreement after g
i
v
i
ng effect to all Federal, state and
local
taxes which would be applicable to such
payments,
including, but
not limited
to, the Excise Tax
.
The
determination of whether any such Benefit Reduction
sha
ll be
effected shall be
made
by a nationally recognized public accounting
firm
selected
by
the
Company (th
e
"Accounting Firm") prior
t
o the occ
u
rrence of the Change in Control and such determination shall be binding on both
Execu
t
ive and the Company. In
the
event
i
t
is
determined that a Benefit Reduction
is r
equired
,
such reduction of
ite
ms de
scribed
in Section
3(a)
above shall
be
done first by reducing
cash
severance determined in accordance with Section 3(a)(ii), 3(a)(iii) and 3(a)(iv); to the extent a further Benefit Reduction is necessary, then Severance Benefits will be reduced from the amounts determined
in
accordance with Section 3(a
)
(v) and 3(a)(v
i)
, a
l
l
as
determined
by
the
Accounting
Firm.
|
c.
|
No Mitigation; No Offset
. In
the
event of any termination of employment under this Section
3,
Executive shall be under no obligation
to
seek other employment, and the amounts due Executive
under
this Agreement shall not be
offset
by any remuneration attributable to any subsequent
emp
loyment
that Executive may obtain.
|
d.
|
Nature of Payments
. Any amounts due under this Section 3 are
in
the nature of severance
payme
nts
considered
to
be
r
easonable
by the Company and are
not in the nature
of a
penalty.
|
e.
|
Exclusivity
of Severance Benefit
. Upon termination of
Exe
cutive's
employment following a Change
in
Control, Executive shall not be entitled to any severance payments or severance benefits from
the Company,
or any other payments by
the
Company pursuant
to
any other agreement
o
r
ar
r
angement between Executive and the Company, other than
the
Severance Benefit provided in this Section 3, except as required by
law.
|
f.
|
General Release of Claims
.
Executive
agrees, as a condition of payment of the Severance Benefit provided
for
in this Section 3,
that
Executive will execute within 60 days
of
Executive's termination of employment a separation agreement, in a form reasonably satisfactory to
the Company,
that
includes a genera
l
release of any and all claims arising out
of Execu
tive’s
employment or
term
ination
of emp
l
oyment with the Company, other than
claim
s
for (i) enforcement of this Agreement,
(ii)
enforcement of Executive's rights under any
o
f t
he
Company's incentive compensation, equity and/or
emp
loyee
benefit plans and programs
to
which Executive is entitled
under this
Agreement, and
(iii)
any tort
fo
r
personal
injury not arising
out
of or
related to
Executive's employment or
te
rminatio
n
of employment.
|
g.
|
Subject to
the
provisions of Section
13(b),
all
payments to
be made pursuant to this Section 3 upon the termination of employment of Executive
shall
be made or commence, as the case may be, within 75 days after the
Execu
t
ive
'
s termination of employment provided,
however,
that if such termination of employmen
t
is after October 15 of a year,
the
payment or first payment
,
as
the case may be, shall be made at the end of such 75 day period
.
|
4.
|
Confidentiality; Cooperation
wi
th
Regard
to
Litigation: Non-disparagement
.
|
a.
|
During
the Term
and thereafter,
Executive
shall not, without the prior written consent of the Company, disclose to anyone (except
in
good faith
in
t
he ordinary course of
business
to
a person
who
will be advised by
Executive
to keep such information confidential) or make use of any confidential
i
nformation
except
in the
performance of Executive's duties
he
reun
der or
when
req
uired
to do so by
legal
process, by any governmental agency
h
aving
supervisory authority over the business of the Company or by any administrative or
l
egislati
ve
body (including
a
committee thereof) that
r
e
qui
res
Executive
to divulge, disclose or make accessible such information. In the event
that
Executive is
so
ordered,
Executive
shall give prompt written notice to the Company in order to allow the Company the opportunity to object
to
or otherwise resist such order.
|
b.
|
During
the Term
and thereafter, Executive shall not disclose the
exist
ence
or contents of this Agreement beyond what
is
disclosed
in
the proxy statement
or
documents filed
with
the government
un
less
and to the
extent such
disclosure
is
required by
la
w,
by a
gove
rnmental
agency, or
in
a document required by law to
be
filed
with
a governmental agency or in connection with
enforcement o
f
his/her
rights
under this Agreement. In the event that disclosure
is
so
required
,
Executive shall give prompt written notice to the Company in order
to
allow
t
he
Company the opportunity to
obj
ect
to
or otherwise resist such
requir
e
m
ent.
This
restriction shall not apply to such disclosure by Executive to members of his/her immediate family, his/her tax,
legal or financial
advisors, any lender,
|
c.
|
"Confidential
Information" shall mean all
information
concern
i
ng
the business
of the Company or any Subsidiary
r
elating
to
any of their products, product deve
l
opment
,
trade secrets, cus
t
omers, suppliers, finances, and business plans and s
t
rategies.
Exc
l
uded
from the
defin
i
tion
of
Confidential
Information is information (i) that
i
s or becomes part of the public domain, other than
through
the
breach
of this Agreement by Executive or (ii)
regarding
the Company's
bus
i
ness
or industry properly acqu
i
red
by Executive
in the
course of Executive's career as an Executive in
the
Company's
industry
and
i
ndependent of
Executive
'
s employment
by
the Company. For this purpose,
information
known or available generally within the
trade
or industry of the Company or any Subsidiary shall be deemed to
be
known or avai
l
ab
l
e
to the public.
|
d.
|
"Subsidiary" shall
mean any
corporation or other business entity owned or controlled directly or indirectly
by
CVS
Caremark
.
|
e.
|
Executive agrees to coopera
t
e with the Company, during
the Term and thereafter (
i
ncluding following Executive's termination of employment for any reason), by being reasonably
available to testify
on behalf of
the
Company
or
any Subsidiary
i
n any action
,
suit, or proceeding, whether civil, criminal, admin
i
strative, or investigative, and to assist the Company, or any Subsidiary, in any such action, suit, o
r
proceeding
,
by
providing information
and
meet
i
ng
and
consulting
with the
Board or its representatives or counse
l
, or representatives or
counse
l
to the
Company
,
or any Subsidiary as requested; provided, however that
the
same does not
materially interfere
with Executive's then current professional activities. The Company agrees to reimburse
Executive
on an
after tax
bas
i
s, for all
reasonable
expenses actually incurred
in
connection w
i
th Executive's provision
of
testimony
or
assistance
.
|
f.
|
Executive
agrees
that
,
dur
i
ng
the
T
erm and
thereafter (including
fol
l
owing
Executive's
termination
of employment for any reason) Executive
will not
make
statements
or representations, or otherwise communicate, directly or indirectly
,
i
n
writing,
orally
,
or
otherwise, or take any action which may,
directly
or
indirectly,
disparage or be damaging to the Company or any Subsidiary or their
r
espective officers, directors, employees, advisors, businesses
or reputations.
Notwi
t
hstanding the
fo
r
egoing, nothing in this Agreement s
h
all preclude Executive from mak
i
ng truthful
statements
or disclosures
that
are
required by
applicab
l
e
law,
regulation or
legal process
.
|
5.
|
Non-solicitation
.
|
6.
|
Remedies
.
|
7.
|
Effect of Agreement on Other Benefits and
Obligations
.
|
8.
|
Not an Employment Agreement.
|
9.
|
Resolution of Disputes
.
|
10.
|
Assignability; Binding Nature
.
|
11.
|
Representation
.
|
12.
|
Ent
i
re Ag
r
eement
.
|
13.
|
Amendment: Waiver
;
Code Section 409A
.
|
(a)
|
No prov
i
sion in this Agreemen
t
may be amen
d
ed unless suc
h
ame
n
dment
i
s agreed to
i
n writing and s
i
gned by Execu
ti
ve and an authorized officer of the Compa
ny
. No waiver by either Party of any breach
b
y the other Party of any condition or pr
o
v
i
sion con
t
ained
i
n this Ag
r
eement to be
p
erfor
m
ed by such o
t
her Party shall be deem
e
d a waiver of a sim
il
ar or d
i
ssimi
l
ar condi
t
io
n
or p
r
ov
i
s
i
o
n
at the same or a
n
y prio
r o
r subsequen
t
t
i
me
.
Any waiver mus
t
be i
n
wri
t
in
g
and signed by Execut
i
ve or a
n
author
i
zed officer of the Company, as the case may
b
e.
|
(b)
|
Executive and Company agree that i
t
is the
i
ntent of the parties that this Agreement not v
i
olate any appl
i
cable prov
i
sion of, or resu
l
t
i
n any additio
n
al tax o
r
penalty under
,
Section 409A of the Code
,
a
s
amended
,
a
n
d that to
th
e extent any provisions of th
i
s Ag
r
eement do not comply w
it
h such Code Section 409A t
h
e pa
rtie
s w
i
l
l
make suc
h
changes as are mutua
ll
y agreed upon in order to comp
l
y with Code Section 409A. In all e
v
ents, to the extent require
d
to avoid a violatio
n
of any o
f
the appli
c
ab
l
e ru
l
es under Code Sect
ion
409A b
y
reaso
n
of Code Sect
i
on 409A(a)(2
)(
B)(
i
)
,
pa
y
ment of any amounts subject to Code Sec
ti
on 409A shall be de
l
ayed unt
i
l the re
l
evant da
t
e of paymen
t
t
h
at wi
ll
resu
l
t in com
pl
iance with the
r
ules of Code Section 409A(a)(2)(B)(
i)
.
|
14.
|
S
e
verabi
l
ity
.
|
15.
|
Survivorship
.
|
16.
|
Beneficiaries/References
.
|
17.
|
Governing
Law/Jur
i
sdiction.
|
18.
|
Notices
.
|
19.
|
Headings
.
|
20.
|
C
o
unterparts
.
|
2.
|
N
on-
C
om
petit
io
n.
D
uri
ng
m
y em
pl
oy
m
en
t
by t
h
e Corpo
r
atio
n
a
n
d
d
ur
in
g t
h
e No
n
-C
o
m
p
et
i
tio
n P
er
i
od fo
ll
ow
in
g t
h
e
t
e
r
m
i
n
a
t
i
o
n of m
y em
plo
y
m
ent for an
y
re
a
son, I w
ill n
o
t
,
d
i
re
ct
l
y or i
n
di
r
ect
l
y, e
n
gage
in
Com
p
et
i
t
i
o
n
o
r pro
v
i
de Cons
u
lt
in
g o
r
A
u
d
i
t Se
r
vices
w
it
hin
the Restr
i
c
t
e
d
Area.
|
4.
|
Non-Disclosure of
Confiden
tia
l
Information.
|
6.
|
Rights
to Inventions,
Works.
|
7.
|
Cooperation.
|
2.
|
For an
emp
l
oyee residing
in
Utah,
you are
her
eby
advised:
|
3.
|
For an employee resid
in
g
in
Minnesota,
you
are
hereby advised:
|
|
|
Page
|
|
1.
|
Definitions .................................................................................................................
|
1
|
|
2.
|
Term of Agreement ...................................................................................................
|
4
|
|
3.
|
Entitlement to Severance Benefit .............................................................................
|
5
|
|
4.
|
Confidential
i
t
y;
Cooperation
wit
h Regard
to Litigat
io
n;
Non-d
i
sparagement ............
|
7
|
|
5.
|
Non-solicitation .........................................................................................................
|
8
|
|
6.
|
Remedies .................................................................................................................
|
8
|
|
7.
|
Effec
t
of
Agreeme
nt
on Other
Benefits .....................................................................
|
9
|
|
8.
|
Not
an
Em
ployment Agreement ...............................................................................
|
9
|
|
9.
|
Resolution of D
i
sputes .............................................................................................
|
9
|
|
10.
|
Assignability; B
i
nding
Nature ....................................................................................
|
9
|
|
11.
|
Rep
r
esentation .........................................................................................................
|
9
|
|
12.
|
Amendment or
Waiver,
Sec
ti
on
409A .......................................................................
|
9
|
|
13.
|
Severability ...............................................................................................................
|
10
|
|
14.
|
Survivorship ..............................................................................................................
|
10
|
|
15.
|
Bene
ficiar
i
es/Re
ferences .........................................................................................
|
10
|
|
16.
|
Govern
i
ng Law/Jurisdiction ......................................................................................
|
10
|
|
17.
|
Not
i
ces .....................................................................................................................
|
10
|
|
18.
|
Head
ing
s ..................................................................................................................
|
11
|
|
19.
|
Counterparts .............................................................................................................
|
11
|
|
1.
|
Definitions
.
|
a.
|
"Base Salary" shall mean
Execut
i
ve's annual
ra
te
of base salary at
the
time of
Executive
's
termination of employment or, if greater, as
in
effect immediate
l
y prior
to a
Change
in
Control.
|
b.
|
"Cause" shall
exis
t
if:
|
i.
|
Executive willfully and materia
l
ly
breaches Sections 4 or 5 of this Agreement;
|
ii.
|
Executive
is
convicted of a felony
involv
i
ng moral turpitude; or
|
iii.
|
Execu
t
i
ve
engages in conduct that constitutes
wil
lfu
l
gross neglect o
r
w
illful
gross misconduct in carrying out Executive's duties under
th
is
Agreement, resulting
,
in
either case,
in
material harm
to
the financia
l
condition
or repu
tat
ion
of
the
Company.
|
c.
|
A
"Change in
Control" shall be deemed to have occurred
if
:
|
(i)
|
any
Person
(other than (a)
t
he Company,
(b) any
t
rustee
or other fiduciary holding securities under any
emp
l
oyee
benefit plan
of
the Company, (c)
any
company owned,
directly
or
indire
c
tly,
by
the
stockholders of the Company
immediately
after the
occurrence
with
resp
ec
t to
which the evaluation
is
being
made in substantially
the
same proportions as their ownership of
the
common stock of the Company
immed
iately
prior
to
such occurrence or (d) any surviving or resulting
entity from
a
merger
or consolidation
r
e
fe
r
re
d to in
clause (iii) below that does not constitute a Change of Control under
c
lause (i
ii)
below) becomes the
Benefic
ia
l
Owner (except
tha
t a
Person shall be deemed
to
be
t
he
Beneficia
l
Owner of all shares that any such
Person
has the
right
to acquire pursuant to any agreement or arrangement or upon exercise of conversion
r
ights, warr
ants
or options or otherwise, without regard to
the
sixty day period referred
to in Rule
13d-3
under
th
e
Exchange Act), directly or
ind
irect
ly
,
of securities
of the
Company or of any subsidiary owning
directly
or
ind
irec
tly
all or substantially
all of the
consolidated
assets
of
the
Company (a
"S
ign
ifica
n
t
Subsidiary"), representing 30% or
more
of
the
combined voting
po
wer
of
the
Company's or
such
Significant Subsidiary's then
outstanding
securities;
|
(ii)
|
during
any per
iod
of twelve (12) consecutive months
,
ind
ividua
ls
who at
the
beginning of such period constitute
the Board,
and any new director
wh
ose
election by the Board or nomination
for
election
by the
Company's stockholders
was
approved by a vote of at least a majority of
the
directors then still
in
office who either were
d
i
recto
rs
at
the beginning of the twelve (12) month
p
er
iod
or whose election
or
nomination
for
election was previously so approved, cease
for any
reason
to
constitute at
leas
t
a majority of
t
he
Board;
|
(iii)
|
the consummation of a merger or consolidat
i
on of the Company or any Significant Subsidiary
w
ith any
other
entity,
other than a merger or consolidation which would
result
i
n
the voting securities of the Company or a Significant Subsidiary outstanding immediately prior thereto continuing to
represent
(either by
remain
ing
outstanding or by being converted
into
voting securities of the surviving or
resu
l
t
ing entity) more
than
50% of the combined voting power of
the
surviving or
resul
ting
entity outstanding
imme
diately
after such merger or consolidation; or
|
(iv)
|
the
consumma
t
ion
of a
transac
t
ion
(or series of
transactions
within a 12 month period) which constitutes
the
sale or disposition of all or substantially all of
the
consolidated assets of
the
Company but
in
no event assets
having
a gross fair market value of
less than
40% of the total gross fair market value of all of the consolidated assets of
the
Company (other than
such
a sale or disposition
immed
ia
tely
after
wh
ich
such assets
will
be owned directly or
ind
i
rectly
by the stockholders of
t
he
Company in substantially the same proportions as their ownership of
the common
stock of the Company
immed
i
ately
prior to such sale or disposition).
|
(A)
|
The
term
"Beneficial Owner" shall have the meaning ascribed
to
such term in
Rule
13d-3 under
the Exchange
Act (including any
successor
to
such Rule).
|
(B)
|
The term
"Exchange
Act" means the Securities Exchange Act of
193
4,
as amended from
t
ime
to
t
ime,
or any successor act thereto
.
|
(C)
|
The
t
erm
"Pe
rson
"
shall have the
mean
i
ng ascribed
to
such
term i
n
Section 3(a)(9) of
the Exchange
Act and used
i
n Sections
13(d)
and 14(d) thereof,
includ
ing
"
group" as defined
in
Section
13
(d)
thereof.
|
d.
|
"
Committee" shall mean
the Management
Planning and Development Committee of
the
Board, or the corresponding comm
i
ttee of the board of directors of a successor
to
CVS.
|
e.
|
"Company" shall mean
,
collectively, CVS and any Subsidiary or affiliate of CVS.
|
f.
|
"Confidential
Information
"
shall have the meaning set forth
in
Section
4
below.
|
g.
|
"Constructive Termination W
it
hout Cause" shall mean a
term
ina
t
ion
of the
Execut
i
ve
's employment
at Executive's
i
nitiat
i
ve
follo
wing
the occurrence,
without
the Execut
i
ve
'
s
wr
itten
consent,
of one or more of
t
he
following events (except as a
resu
l
t
of a pr
i
or
termination):
|
i.
|
an assignment of any duties to Execut
i
ve
that
i
s materia
ll
y
incons
i
stent w
it
h Execut
iv
e's status as a member of the senior management of CVS;
|
ii.
|
a material decrease
in Execut
i
ve
's
annual base salary or
target
annua
l
incen
tive
award opportunity
;
|
iii.
|
any fai
l
ure to secure
the
agreement of any successor to CVS
to fully
assume
the
Company's materia
l
obligations under
th
i
s Agreement
;
or
|
iv.
|
a
reloca
tion of Execut
i
ve's princ
i
pal
p
l
ace of employment more
than
35 miles from
Executive's
place of employment befo
r
e such
re
locat
i
on.
|
h.
|
"D
isability"
shall
mean
disab
i
lity
as that
term
is
defined in
the
Company's Long-Term Disability Plan.
|
i.
|
"Effect
iv
e Date
"
shall have
the
meaning set
forth
in Section 2
below
.
|
j.
|
"
Origina
l
Term" shall have
the
mean
i
ng set forth
in
Section
2
below.
|
k.
|
"Renewa
l
Term
"
shall have
the
mean
ing
set forth
i
n
Sect
i
on 2
below.
|
I.
|
"Severance Pe
r
iod" shall mean
the
pe
ri
od of
18
months following
t
he
t
ermination
of Executive's employment
w
ith the
Company
.
|
m.
|
"
Subsidiary" shall have the mean
i
ng set forth
in
Section 4 be
low
.
|
n.
|
"T
erm"
shall have the mean
in
g set forth
i
n Section 2 below
.
|
o.
|
"term
i
nation of employment",
"
employment
is term
ina
te
d"
and other similar words shall mean
with
respect to Executive
|
(A)
|
except
in the
case
where
Executive
is
on
a
bona
fide
leave
of absence pursuant to
the
Company
'
s
policies
as provided below, Executive
is
deemed
to
have
incurred
a Separation from Service on a date
i
f the
company and
E
xecu
tive
reasonably anticipate
that
the level of serv
i
ces
to
be performed
by
Execut
ive
after such date would be permanently
reduced
to 20% or
less
of the
average
services
rendere
d
by Executive dur
i
ng
the
immediately preced
i
ng 36-month period
(or
the
total
period of employment
,
if less
than
36 months), d
i
sregarding periods during
wh
ich
Executive was on a bona fide
lea
ve
of absence
;
|
(B)
|
i
f
Executive
is
absent from work due to mi
li
tary
leave
,
sick leave
,
or other bona fide leave of absence pursuant to the Company's policies, Executive shall
incur
a Separat
i
on from Service on
the
firs
t
date
that
the rules of
(A),
above, a
r
e satisfied
following the
la
ter
of (i)
the
six-month ann
iv
ersary of the commencement of
the
leave or (
ii
)
the expiration of
Executive's
right, if
any,
t
o reemployment under statute
,
contract
or
Company
policy
;
|
(C)
|
Executive shall
be
considered
to
continue employment and
to
not have
a
Separation from Serv
i
ce
while
on a bona fide
leave
of absence pursuant
to the
Company
'
s policies
if
the leave does not exceed 6 consecut
iv
e months
(12)
months for a disability
l
eave of absence) or
,
if
longer
,
so
l
ong as the
Execu
tive
retains a
rig
ht
to reemployment
with
the Company or an
Affi
lia
te
under an app
l
icable
statute, contract or Company po
l
ic
y.
For
this
purpose, a
"disab
ilit
y
leave
of
absence" is an absence
d
u
e to
any med
i
cally
determinab
le
physical or
mental
impa
irment
of Executive that can be
expected
to result
in
death or can be expected to last for a continuous period of not less
than
6 months,
wher
e
such
impa
irmen
t
causes Executive to be unable
to
perform the duties of
E
xecut
ive
's
jo
b
or a substantially
simi
la
r
j
ob;
|
(D)
|
for purposes of
determ
in
ing whether
another organization
is
an Affiliate of the Company
,
common ownership of
at
least 50% shall be determinative;
|
(E)
|
the
Company
spec
ifica
lly
r
eserves the right to determine
whether
a
sa
le
or other dispos
iti
on of substantial assets to an unrelated party constitutes a Separation from Service
with
respect
to
Execut
iv
e
provid
ing
services
to the
seller
i
mmediately prior
to
the
transact
ion
and
prov
id
ing
services
to
the buyer
after
the
transaction
.
Such determination shall
be
made
in
accordance
w
ith the requirements of Sect
i
on 409A of the Code; or
|
(ii)
|
for any
p
la
n or
arrangement that
i
s not subject
to
the
r
ules of Sect
i
on 409A of
the
Code
,
the complete
cessation
of provid
i
ng service
to t
he
Company or any Affiliate as an employee.
|
2.
|
Term of Agreement.
|
3.
|
Entitlement
to
Severance Benefit
.
|
a.
|
Severance Benefit
.
In
the event Executive's employment
w
i
th
the Company
i
s
Terminated W
i
thou
t
Cause
,
other
than
due to death, or Disability, or
in the
event
there
i
s a Constructive Termination
Without
Cause, in each case
w
ithi
n two
years following
a
Change
in
Control, Executive shall be entitled to receive:
|
i.
|
Base Salary
through
the date of termination of Executive's emp
l
oyment, which shall
be paid
in
a cash
lum
p
sum not
later
than 15 days following Executive's termination
of emp
l
oyment;
|
ii.
|
An amount equal
to
1.5 t
i
mes Execut
i
ve's Base Salary
in
effect on
the
date of
term
ina
t
ion
of
Executive
'
s employment
(or in the
event a reduction
i
n Base Salary
is
a basis for a Construct
iv
e Termination
Without
Cause, then the Base Salary in effect
immediately
prior
to
such reduction),
payable
in
a
cash
lump sum
following Executive's termination
of employment;
|
iii.
|
An
amount equa
l
to the
most
recently
estab
l
ished
target
annual cash
incentive bonus
amount, prorated based on the portion
of the
performance
year
that Executive has
worked
as of
the
date of
E
xecutive’s
t
er
min
ation.
Such
payment
of a pro rata annual cash
i
ncentive
bonus will be payable in
a cash lump sum following Executive's
termination
of employment
;
|
iv.
|
An amount equal
to
1.5 times the most
recently
established
target
annua
l i
ncentive cash bonus amount,
payable in
a cash lump sum
following
the
Executive's termination
of emp
lo
yment
;
|
v.
|
Elimination
of all restrict
i
ons
on any restricted
stock or
restricted stock
unit awards outstanding at
the
time of
term
ination
of employment
(other
than awards under the Company's Partnersh
ip
Equity
Program, which
shall
be
governed
by
the terms of such awards);
|
vi.
|
Immed
i
ate vesting of a
ll
outstanding stock options and
the
right
to
exerc
ise
such
stock options for
the
remainder of the full
term
of such
option (other
than awards under
the
Company's
Partnership
Equ
i
ty Program, which
shall
be governed by
the
terms
of
such awards);
|
vii.
|
The balance of any
incentive
awards earned
as of
December 31 of
the
pr
i
or year but not yet paid,
which
shall
be paid in a
single
lump
sum
no
t
later
than 15
days
following
Exe
cutive's
termination of
employment;
|
viii.
|
Settlement of all
deferred compensation
arrangements in accordance
with
any
then
applicable deferred
compensatio
n
p
la
n
or
election
form
;
|
ix.
|
Continued part
i
cipation
in
all med
i
cal,
health
and
li
fe
insurance plans at the same benefit
level
at wh
i
ch Executive
was
partic
i
pating
on
the
date
of
term
ina
tion
of
Execut
i
ve's
employment unt
i
l
the
earlier of
:
|
1.
|
the
end
of the
Severance
Period;
or
|
2.
|
the date, or dates, Executive receives equivalent coverage and benefits under
the
plans and
programs
of a subsequent employer (such coverage and benefits to be determined on a coverage-by
coverage,
or benefit-by-benefit, basis)
;
|
x.
|
other or
additiona
l
benefits then due
or earned in accordance
with
app
l
icab
l
e plans and
programs
of
the
Company.
|
b.
|
Change in Control Best Payments Determinat
i
on
.
In
the
event the
Severance
Benefits described
in
Section 3(a)
are
payable
to
Executive in connection with a Change
in
Control and, if
paid,
could subject
E
xecutive
to
an excise
tax
under Section 4999
of the
Internal Revenue Code
(the "Excise
Tax
"), then notwithstand
i
ng
the provisions of Sect
i
on 3(a) the Company shall reduce
the
Severance Benefits (the
"B
enefit Reduction")
unde
r
Section 3(a)
by
the amount necessary to
resu
l
t in the Executive
not being subject to the
Excise
Ta
x
,
if
such
reduction would
resu
lt
i
n the
Executive's
"Net After-Tax
Amount" attr
i
butable
to
the Severance Benefits described
in
Section 3(a) being greater
than
it
would
be if
no
Benefit Reduction
was
effected. For this purpose "Net After-Tax Amount" shall mean the net amount of Severance Benefits
Executi
ve
is en
tit
l
ed
to
receive
under
this
Agreement after giv
i
ng effect to all Federal, state and
l
oca
l
taxes which wou
ld
be applicable to
such payments, including, but
not
l
imi
ted
to,
the Exc
i
se Tax. The determination
of whether
any such Benefit
Reduction
shall be
effected
shall be made by a
nationally
recognized
public
accounting firm selec
ted
by the
Company
(the "Accounting
Firm
")
prior to
the occurrence
of
the Change
in
Control and such determinat
i
on shall be binding on both Executive and
the
Company.
I
n the event it is
determined
that
a Benefit Reduction
i
s
required,
such
reduction
of items described
i
n
Section 3(a) above shall be done first
by
reducing cash severance determined in accordance
with
Section 3(a)(ii), 3(a)(iii) and
3(a)(iv);
to
the extent
a further Benefit Reduction
is
necessary
,
then Severance Benefits
will
be reduced from the amounts
determined
in accordance with Section 3(a)(v) and 3(a)(vi), all
as
determined by the Account
i
ng Firm
.
|
c.
|
No Mitigation; No Offset
. In the
event
of any
termination of employm
ent
under
this
Section 3, Executive
shall
be under no
obliga
tion to
see
k
other
employment, and the amounts
due Executive under this
Agreement shall
not be
offset
by
any
remuneration
attributable to any subsequent employment
that
Executive
may obtain
.
|
d.
|
Nature
of Payments
.
Any amounts
due
under
this Section 3 are
in
the
nature of
severance payments considered to be
reasonab
le
by the
Company and are not
in
the nature
of
a penalty
.
|
e.
|
Excl
u
sivi
t
y
of
Severance
Benefi
t.
Upon
t
erm
i
nation of Execut
iv
e
'
s employment during the
Term
,
Executi
v
e shall no
t
be entitled
to
any severance
paymen
t
s or severa
n
ce benefits from the Company, or
any
o
t
he
r
paymen
t
s by
the
Company
,
o
t
her than the
Severance
Benefit
p
r
ovided in this Sec
ti
on
3
,
except
as
required by
law
.
|
f.
|
General Release of C
l
aims
.
E
x
ecu
t
ive
ag
r
ees
,
as a condit
i
on
of payment of the Severance Benefit provided for in
th
i
s Section 3, that
Execu
ti
ve will execute
w
i
t
h
in
60
days
of Executive
'
s te
r
mination
of employmen
t
a separa
ti
on agreement
,
in a form reasona
b
ly satisfactory
to the Company
,
that includes a genera
l
re
l
ease of any and
a
ll
claims arising out of Executive's employmen
t
or term
i
nation
o
f
employment
wi
th the Company
,
o
t
he
r
than c
l
aims for (i) enforcement of
th
i
s Agreement
,
(
ii
)
e
nfo
r
cement o
f
Executive
'
s r
i
ghts under any of the
Company's
i
ncentive compensation, equ
i
ty and
/
or
emp
l
oyee benefit plans and
programs
to which E
x
ecu
ti
ve
i
s entitled under th
i
s Agreement
,
and {ii
i
) any tort for
p
ersonal
i
njury no
t
ar
i
s
i
ng out of or
related
t
o Execut
i
ve's emp
l
oyment or termination of employment.
|
g.
|
Subject
t
o the provisions o
f
Sect
i
on
12(b)
,
all paymen
t
s to
be
made pursuan
t t
o th
i
s Section 3 u
p
on
t
he
t
erminat
i
on of
emp
l
oyment o
f
Execut
i
ve shall be made or commence, as
the
case may be,
w
ithin
7
5 days after
the
Executive's termina
t
ion of emp
l
oyment
prov
i
ded,
howe
v
e
r
, that
i
f
such termination of employment
is
after October 15 of a year
, t
he payout or first payme
n
t
,
as the case may be, shall be made at
the end
o
f
such 75 day period
.
|
4.
|
Confidentiality; Cooperat
i
on
wit
h Rega
r
d
t
o Li
ti
gation;
Non-disparagemen
t.
|
a.
|
Du
r
ing the
Term
and
t
hereafter,
Executive
shall not, without the pr
i
or wr
i
tten
consent of the Company
,
disc
l
ose to anyone (except in
good
faith
i
n the ord
i
nary course of
business
to
a
person
w
ho
w
ill be advised by Executi
v
e
t
o
k
eep such
informa
t
ion
confidentia
l
) or make use of any confidentia
l
information except in the performance of Executive's
duties hereunder
or
w
hen required to do so by
lega
l
p
r
ocess,
by
any governmental agency ha
v
ing superv
i
sory
autho
r
ity
over the business of the Compan
y
or by any adminis
t
rat
i
ve or
leg
i
slative body (including a comm
i
ttee thereof) tha
t
requi
r
es Execu
ti
ve
to
divulge
,
disclose
o
r
make accessible such informa
ti
on
.
In
th
e
even
t
that E
x
ecut
i
ve
is
so ordered
,
Executive
shall give p
r
ompt wr
itt
en not
i
ce
t
o the Company
in
orde
r
to
allow
the
Company
the
opportun
i
ty to object
t
o or o
t
herwise resist such
orde
r.
|
b.
|
During the Term a
n
d thereafter
, E
xecutive shall not
disc
l
ose
the ex
i
stence or contents of this Agreement beyond what is disc
l
os
e
d
i
n the proxy statement or
documents
filed
w
ith
t
he government unless and
to
th
e extent such disc
l
osu
r
e
i
s
requi
r
ed by la
w,
by a governmenta
l
agency, or
i
n a document requ
i
red by
law
to
be
filed w
i
th
a governmen
t
a
l
agency o
r
in
con
n
ection wi
t
h
enforcement
of Ex
e
cu
t
i
v
e
'
s rights under this Agreement.
I
n t
he e
v
e
n
t
that
disclosure is so
requ
i
red
, E
xecut
i
ve shall g
i
ve promp
t w
ritten notice to
t
he Company
i
n order to allo
w
the Compa
ny
the opportunity to objec
t
to or o
t
he
rw
ise
resist such
r
equi
r
ement.
This res
t
riction shall
not
apply to such d
i
sclosure
by Executive to members o
f
Exec
u
t
i
ve's immed
i
ate fam
il
y,
E
xecutive
'
s tax
, l
egal or financial ad
vi
sors
,
any lender
,
or tax au
t
hori
t
ies,
or to po
t
ential fu
t
u
r
e employers to
t
he exten
t
necessary, ea
c
h
o
f whom shall be adv
i
sed not to
d
i
sclose such
information
.
|
c.
|
Confidential
Information
"
shall
m
ean
all
i
nformation concern
i
ng the business of the Company or any Subsid
i
ary relating
to
any of their products, produc
t
devel
o
pment
,
t
r
ade secrets
,
cus
t
omers
,
supp
li
ers,
fi
nances
,
and bus
i
ness
plans and st
r
a
t
eg
i
es
.
Excluded from the definition of Confidential
I
nformat
i
on
is
information
(i
) tha
t
is
or
b
ecomes part of the p
u
b
l
ic
domain
,
other
than
through
t
he
b
r
each o
f
th
i
s Agreement by
E
xecu
t
ive o
r
(ii)
regarding the
Company's business or
industry
properly acquired by
Execut
i
ve in the course of
Executive's
career as an E
x
ecu
t
ive
in the
Company's industry
and
inde
p
endent o
f
Executive
'
s employment
by
the Company
.
For this pu
r
pose
,
informa
t
ion
k
nown or
|
d.
|
"Subsidiary" shall mean any corporation or
other
business entity owned or controlled directly or
ind
irect
ly
by CVS.
|
e.
|
Executive agrees
to
cooperate with
the
Company, during
the
Term and
thereafter
(including follow
i
ng Executive's
terminat
i
on of
employment for any
reason),
by
be
i
ng reaso
nably
available to
test
i
fy
on
behalf
of
the
Company
or
any Subsidiary
in
any action, suit, or proceeding,
whether c
i
vil
,
criminal, administrative, or
in
vest
iga
tive,
and
to
assist
the
Company, or any Subsidiary,
in
any such action, suit
,
or proceeding, by providing information and meeting and consulting
with
the Board
or its
representatives or counsel, or representatives or counsel to the Company, or any Subsidiary as
reques
ted;
prov
i
ded, however
that
the same does not materially
i
nterfere
with Executive's
then current professional activities
.
The
Company agrees
to re
imburse E
xecutive on
an after
ta
x
basis, for all
reaso
nable
expenses
actua
lly incurred in
connection
with
E
xecutive
'
s provision of
tes
t
imon
y
or assistance.
|
f.
|
Execut
ive
agrees that, during the Term and thereafter
(
inc
luding fo
llo
wing
Executive's
term
i
nation
of
employment for any
reason)
Executive
w
il
l
not make
statements
or
represe
ntat
i
ons,
or otherw
ise
commun
i
cate,
directly or
i
ndirectly
, i
n
writ
ing
,
orally
,
or otherwise, or take any action
which
may, directly or
i
ndirectly
,
disparage or be damaging
to
the Company or any Subsidiary or their respective officers
,
directors,
employees
,
advisors, businesses or reputations. Notwithstanding
the
foregoing, nothing in this Agreement shall preclude Executive
from mak
i
ng
truthful statements
or d
isc
losures that are requi
red
by applicable law
,
regulation or
legal
process.
|
5.
|
Non-solicitation
.
|
6.
|
Remedies
.
|
7.
|
Effect of Agreement on Other Benefits
.
|
8.
|
Not an
Employm
ent Agreement.
|
9.
|
Resolut
i
on of Disputes
.
|
10.
|
Ass
ignability;
B
inding
Nature
.
|
11.
|
Representa
ti
on
.
|
12.
|
Amendment or
Wa
iver
;
Section 409A
.
|
(a)
|
No provision
i
n
th
is
Agreement may
be
amended
unless
such amendment
i
s agreed
to
i
n writing and signed by
Execut
ive
and an author
i
zed officer
of
the Company
.
No
waiver
by
either
Party
of any breach
by
the
other Party
of any
condition
or prov
i
sion contained in this Agreement to
be
performed by such other Party shall be deemed a waiver of a similar or dissimilar condit
i
on
or prov
i
s
i
on at the same or any prior or
subsequent time.
Any
wa
i
ver
must be
in
wri
t
ing and
s
i
gned by Executive or an author
i
zed
officer
of the Company, as the case may be
.
|
(b)
|
Executive and
Company agree that it
i
s the
intent
of the
Pa
rt
ies
t
hat
this Agreement no
t
v
iolate any
appl
i
cable prov
i
sion of,
or
resu
l
t
i
n
any additional
ta
x
o
r
pe
nalty
under, Section 409A
of
the Code,
as
amended, and
t
ha
t
to
t
he extent any provisions of
th
is
Agreement do not comply with such Code Section 409A
the
Parties
w
ill
make such changes as
are
mutually agreed
upon in
order to comply w
i
th Code Section
4
09A.
In all events
,
to the extent requ
i
red to avo
i
d a
viola
tion
of
the
applicable rules under all Section 409A by
r
eason of
Code Section
409A(a)(2)(B)(i), payment of any amounts subject
to
Code Section 409A shall be delayed until the relevant
da
te
of
payment that
w
ill
resu
lt
in compl
i
ance
with the
rules of Code Section 409A(a)(2)(B)(i).
|
13.
|
Severability
.
|
14.
|
Survivorsh
i
p
.
|
15.
|
Beneficiaries/References
.
|
16.
|
Governing
Law/Jurisd
i
ct
i
on.
|
17.
|
Not
ices.
|
18.
|
Headings
.
|
19.
|
Counterparts
.
|
4.
|
Non-Disclosure of Confidential Information
.
|
6.
|
Rights to Inventions, Works
.
|
7.
|
Cooperation
.
|
1.
|
For an employee residing in
Illinois, Kansas, or North Carolina
, you are hereby advised:
|
2.
|
For an employee residing in
Utah
, you are hereby advised:
|
3.
|
For an employee residing in
Minnesota
, you are hereby advised:
|
1.
|
I have reviewed this quarterly report on Form 10-Q of CVS Health Corporation;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date:
|
May 1, 2019
|
|
/
S
/ LARRY J. MERLO
|
|
|
|
Larry J. Merlo
|
|
|
|
President and Chief Executive Officer
|
1.
|
I have reviewed this quarterly report on Form 10-Q of CVS Health Corporation;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date:
|
May 1, 2019
|
|
/
S
/ EVA C. BORATTO
|
|
|
|
Eva C. Boratto
|
|
|
|
Executive Vice President and Chief Financial Officer
|
Date:
|
May 1, 2019
|
/
S
/ LARRY J. MERLO
|
|
|
Larry J. Merlo
|
|
|
President and Chief Executive Officer
|
Date:
|
May 1, 2019
|
/
S
/ EVA C. BORATTO
|
|
|
Eva C. Boratto
|
|
|
Executive Vice President and Chief Financial Officer
|