Delaware
|
|
05-0494040
|
(State or other jurisdiction of incorporation or organization)
|
|
(I.R.S. Employer Identification No.)
|
|
One CVS Drive,
|
Woonsocket,
|
Rhode Island
|
|
02895
|
|
(Address of principal executive offices)
|
|
(Zip Code)
|
||||
|
|
|
|
|
||
Registrant’s telephone number, including area code:
|
|
(401)
|
765-1500
|
|||
Former name, former address and former fiscal year, if changed since last report:
|
N/A
|
Title of each class
|
Trading Symbol(s)
|
Name of each exchange on which registered
|
Common Stock, par value $0.01 per share
|
CVS
|
New York Stock Exchange
|
|
||
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, 2020 and 2019
|
|
|
|
Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three months ended March 31, 2020 and 2019
|
|
|
|
Condensed Consolidated Balance Sheets (Unaudited) as of March 31, 2020 and December 31, 2019
|
|
|
|
Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2020 and 2019
|
|
|
|
Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) for the three months ended March 31, 2020 and 2019
|
|
|
|
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
Three Months Ended
March 31, |
||||||
In millions, except per share amounts
|
2020
|
|
2019
|
||||
Revenues:
|
|
|
|
||||
Products
|
$
|
47,003
|
|
|
$
|
43,343
|
|
Premiums
|
17,640
|
|
|
16,282
|
|
||
Services
|
1,950
|
|
|
1,772
|
|
||
Net investment income
|
162
|
|
|
249
|
|
||
Total revenues
|
66,755
|
|
|
61,646
|
|
||
Operating costs:
|
|
|
|
||||
Cost of products sold
|
40,347
|
|
|
37,247
|
|
||
Benefit costs
|
14,387
|
|
|
13,459
|
|
||
Operating expenses
|
8,563
|
|
|
8,250
|
|
||
Total operating costs
|
63,297
|
|
|
58,956
|
|
||
Operating income
|
3,458
|
|
|
2,690
|
|
||
Interest expense
|
733
|
|
|
782
|
|
||
Other income
|
(54
|
)
|
|
(31
|
)
|
||
Income before income tax provision
|
2,779
|
|
|
1,939
|
|
||
Income tax provision
|
767
|
|
|
512
|
|
||
Net income
|
2,012
|
|
|
1,427
|
|
||
Net income attributable to noncontrolling interests
|
(5
|
)
|
|
(6
|
)
|
||
Net income attributable to CVS Health
|
$
|
2,007
|
|
|
$
|
1,421
|
|
|
|
|
|
||||
Net income per share attributable to CVS Health:
|
|
|
|
||||
Basic
|
$
|
1.54
|
|
|
$
|
1.09
|
|
Diluted
|
$
|
1.53
|
|
|
$
|
1.09
|
|
Weighted average shares outstanding:
|
|
|
|
||||
Basic
|
1,306
|
|
|
1,298
|
|
||
Diluted
|
1,312
|
|
|
1,302
|
|
||
Dividends declared per share
|
$
|
0.50
|
|
|
$
|
0.50
|
|
|
Three Months Ended
March 31, |
||||||
In millions
|
2020
|
|
2019
|
||||
Net income
|
$
|
2,012
|
|
|
$
|
1,427
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
||||
Net unrealized investment gains (losses)
|
(311
|
)
|
|
334
|
|
||
Foreign currency translation adjustments
|
(12
|
)
|
|
1
|
|
||
Net cash flow hedges
|
(9
|
)
|
|
(4
|
)
|
||
Other comprehensive income (loss)
|
(332
|
)
|
|
331
|
|
||
Comprehensive income
|
1,680
|
|
|
1,758
|
|
||
Comprehensive income attributable to noncontrolling interests
|
(5
|
)
|
|
(6
|
)
|
||
Comprehensive income attributable to CVS Health
|
$
|
1,675
|
|
|
$
|
1,752
|
|
In millions, except per share amounts
|
March 31,
2020 |
|
December 31,
2019 |
||||
Assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
10,081
|
|
|
$
|
5,683
|
|
Investments
|
2,632
|
|
|
2,373
|
|
||
Accounts receivable, net
|
23,037
|
|
|
19,617
|
|
||
Inventories
|
16,976
|
|
|
17,516
|
|
||
Other current assets
|
6,232
|
|
|
5,113
|
|
||
Total current assets
|
58,958
|
|
|
50,302
|
|
||
Long-term investments
|
16,840
|
|
|
17,314
|
|
||
Property and equipment, net
|
12,146
|
|
|
12,044
|
|
||
Operating lease right-of-use assets
|
20,672
|
|
|
20,860
|
|
||
Goodwill
|
79,993
|
|
|
79,749
|
|
||
Intangible assets, net
|
32,727
|
|
|
33,121
|
|
||
Separate accounts assets
|
4,555
|
|
|
4,459
|
|
||
Other assets
|
4,748
|
|
|
4,600
|
|
||
Total assets
|
$
|
230,639
|
|
|
$
|
222,449
|
|
|
|
|
|
||||
Liabilities:
|
|
|
|
||||
Accounts payable
|
$
|
10,223
|
|
|
$
|
10,492
|
|
Pharmacy claims and discounts payable
|
15,449
|
|
|
13,601
|
|
||
Health care costs payable
|
7,585
|
|
|
6,879
|
|
||
Policyholders’ funds
|
3,110
|
|
|
2,991
|
|
||
Accrued expenses
|
13,574
|
|
|
12,133
|
|
||
Other insurance liabilities
|
1,774
|
|
|
1,830
|
|
||
Current portion of operating lease liabilities
|
1,762
|
|
|
1,596
|
|
||
Short-term debt
|
255
|
|
|
—
|
|
||
Current portion of long-term debt
|
5,828
|
|
|
3,781
|
|
||
Total current liabilities
|
59,560
|
|
|
53,303
|
|
||
Long-term operating lease liabilities
|
18,739
|
|
|
18,926
|
|
||
Long-term debt
|
65,735
|
|
|
64,699
|
|
||
Deferred income taxes
|
7,121
|
|
|
7,294
|
|
||
Separate accounts liabilities
|
4,555
|
|
|
4,459
|
|
||
Other long-term insurance liabilities
|
7,338
|
|
|
7,436
|
|
||
Other long-term liabilities
|
2,117
|
|
|
2,162
|
|
||
Total liabilities
|
165,165
|
|
|
158,279
|
|
||
|
|
|
|
||||
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; 1,729 shares issued and 1,305 shares outstanding at March 31, 2020 and 1,727 shares issued and 1,302 shares outstanding at December 31, 2019 and capital surplus
|
46,180
|
|
|
45,972
|
|
||
Treasury stock, at cost: 424 shares at March 31, 2020 and 425 shares at December 31, 2019
|
(28,182
|
)
|
|
(28,235
|
)
|
||
Retained earnings
|
46,455
|
|
|
45,108
|
|
||
Accumulated other comprehensive income
|
687
|
|
|
1,019
|
|
||
Total CVS Health shareholders’ equity
|
65,140
|
|
|
63,864
|
|
||
Noncontrolling interests
|
334
|
|
|
306
|
|
||
Total shareholders’ equity
|
65,474
|
|
|
64,170
|
|
||
Total liabilities and shareholders’ equity
|
$
|
230,639
|
|
|
$
|
222,449
|
|
|
Three Months Ended
March 31, |
||||||
In millions
|
2020
|
|
2019
|
||||
Cash flows from operating activities:
|
|
|
|
||||
Cash receipts from customers
|
$
|
63,751
|
|
|
$
|
58,873
|
|
Cash paid for inventory and prescriptions dispensed by retail network pharmacies
|
(36,969
|
)
|
|
(35,645
|
)
|
||
Insurance benefits paid
|
(14,303
|
)
|
|
(12,951
|
)
|
||
Cash paid to other suppliers and employees
|
(8,187
|
)
|
|
(7,403
|
)
|
||
Interest and investment income received
|
206
|
|
|
250
|
|
||
Interest paid
|
(1,128
|
)
|
|
(1,123
|
)
|
||
Income taxes paid
|
(65
|
)
|
|
(53
|
)
|
||
Net cash provided by operating activities
|
3,305
|
|
|
1,948
|
|
||
|
|
|
|
||||
Cash flows from investing activities:
|
|
|
|
||||
Proceeds from sales and maturities of investments
|
1,288
|
|
|
1,986
|
|
||
Purchases of investments
|
(1,535
|
)
|
|
(2,047
|
)
|
||
Purchases of property and equipment
|
(742
|
)
|
|
(716
|
)
|
||
Acquisitions (net of cash acquired)
|
(613
|
)
|
|
(124
|
)
|
||
Other
|
5
|
|
|
10
|
|
||
Net cash used in investing activities
|
(1,597
|
)
|
|
(891
|
)
|
||
|
|
|
|
||||
Cash flows from financing activities:
|
|
|
|
||||
Net borrowings of short-term debt
|
255
|
|
|
2,285
|
|
||
Proceeds from issuance of long-term debt
|
3,946
|
|
|
—
|
|
||
Repayments of long-term debt
|
(1,008
|
)
|
|
(882
|
)
|
||
Dividends paid
|
(652
|
)
|
|
(649
|
)
|
||
Proceeds from exercise of stock options
|
154
|
|
|
101
|
|
||
Payments for taxes related to net share settlement of equity awards
|
(16
|
)
|
|
(44
|
)
|
||
Other
|
(4
|
)
|
|
5
|
|
||
Net cash provided by financing activities
|
2,675
|
|
|
816
|
|
||
Net increase in cash, cash equivalents and restricted cash
|
4,383
|
|
|
1,873
|
|
||
Cash, cash equivalents and restricted cash at the beginning of the period
|
5,954
|
|
|
4,295
|
|
||
Cash, cash equivalents and restricted cash at the end of the period
|
$
|
10,337
|
|
|
$
|
6,168
|
|
|
Three Months Ended
March 31, |
||||||
In millions
|
2020
|
|
2019
|
||||
Reconciliation of net income to net cash provided by operating activities:
|
|
|
|
||||
Net income
|
$
|
2,012
|
|
|
$
|
1,427
|
|
Adjustments required to reconcile net income to net cash provided by operating activities:
|
|
|
|
||||
Depreciation and amortization
|
1,086
|
|
|
1,111
|
|
||
Stock-based compensation
|
96
|
|
|
114
|
|
||
Deferred income taxes and other noncash items
|
(35
|
)
|
|
153
|
|
||
Change in operating assets and liabilities, net of effects from acquisitions:
|
|
|
|
||||
Accounts receivable, net
|
(2,715
|
)
|
|
(1,989
|
)
|
||
Inventories
|
541
|
|
|
1,001
|
|
||
Other assets
|
(1,119
|
)
|
|
(389
|
)
|
||
Accounts payable and pharmacy claims and discounts payable
|
1,928
|
|
|
(22
|
)
|
||
Health care costs payable and other insurance liabilities
|
139
|
|
|
553
|
|
||
Other liabilities
|
1,372
|
|
|
(11
|
)
|
||
Net cash provided by operating activities
|
$
|
3,305
|
|
|
$
|
1,948
|
|
|
|
|
Attributable to CVS Health
|
|
|
|||||||||||||||||||||
|
Number of shares outstanding
|
|
Common
Stock and
Capital
Surplus (2)
|
Treasury
Stock (1)
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
Income
|
Total CVS
Health
Shareholders
Equity
|
Noncontrolling
Interests
|
Total
Shareholders’
Equity
|
|||||||||||||||||
|
|
|||||||||||||||||||||||||
|
Common
Shares
|
Treasury
Shares (1)
|
|
|||||||||||||||||||||||
In millions
|
|
|||||||||||||||||||||||||
Three Months Ended March 31, 2020
|
|
|
|
|
|
|
|
|
||||||||||||||||||
Balance at December 31, 2019
|
1,727
|
|
(425
|
)
|
|
$
|
45,972
|
|
$
|
(28,235
|
)
|
$
|
45,108
|
|
$
|
1,019
|
|
$
|
63,864
|
|
$
|
306
|
|
$
|
64,170
|
|
Adoption of new accounting standard (Note 1)
|
—
|
|
—
|
|
|
—
|
|
—
|
|
(3
|
)
|
—
|
|
(3
|
)
|
—
|
|
(3
|
)
|
|||||||
Net income
|
—
|
|
—
|
|
|
—
|
|
—
|
|
2,007
|
|
—
|
|
2,007
|
|
5
|
|
2,012
|
|
|||||||
Other comprehensive loss (Note 7)
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
(332
|
)
|
(332
|
)
|
—
|
|
(332
|
)
|
|||||||
Stock option activity, stock awards and other
|
2
|
|
—
|
|
|
208
|
|
—
|
|
—
|
|
—
|
|
208
|
|
—
|
|
208
|
|
|||||||
Purchase of treasury shares, net of ESPP issuances
|
—
|
|
1
|
|
|
—
|
|
53
|
|
—
|
|
—
|
|
53
|
|
—
|
|
53
|
|
|||||||
Common stock dividends
|
—
|
|
—
|
|
|
—
|
|
—
|
|
(657
|
)
|
—
|
|
(657
|
)
|
—
|
|
(657
|
)
|
|||||||
Other increases in noncontrolling interests
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
23
|
|
23
|
|
|||||||
Balance at March 31, 2020
|
1,729
|
|
(424
|
)
|
|
$
|
46,180
|
|
$
|
(28,182
|
)
|
$
|
46,455
|
|
$
|
687
|
|
$
|
65,140
|
|
$
|
334
|
|
$
|
65,474
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
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 (3)
|
—
|
|
—
|
|
|
—
|
|
—
|
|
178
|
|
—
|
|
178
|
|
—
|
|
178
|
|
|||||||
Net income
|
—
|
|
—
|
|
|
—
|
|
—
|
|
1,421
|
|
—
|
|
1,421
|
|
6
|
|
1,427
|
|
|||||||
Other comprehensive income (Note 7)
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
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
|
|
(1)
|
Treasury shares include 1 million shares held in trust and treasury stock includes $29 million related to shares held in trust as of March 31, 2020 and 2019 and December 31, 2019 and 2018.
|
(2)
|
Common stock and capital surplus includes the par value of common stock of $17 million as of March 31, 2020 and 2019 and December 31, 2019 and 2018.
|
(3)
|
Reflects the adoption of Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), which resulted in an increase to retained earnings of $178 million during the three months ended March 31, 2019.
|
1.
|
Significant Accounting Policies
|
•
|
Management and administrative expenses to support the Company’s overall operations, which include certain aspects of executive management and the corporate relations, legal, compliance, human resources, information technology and
|
•
|
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,
2020 |
|
December 31,
2019 |
||||
Cash and cash equivalents
|
$
|
10,081
|
|
|
$
|
5,683
|
|
Restricted cash (included in other assets)
|
256
|
|
|
271
|
|
||
Total cash, cash equivalents and restricted cash in the statements of cash flows
|
$
|
10,337
|
|
|
$
|
5,954
|
|
In millions
|
March 31,
2020 |
|
December 31,
2019 |
||||
Trade receivables
|
$
|
7,698
|
|
|
$
|
6,717
|
|
Vendor and manufacturer receivables
|
8,585
|
|
|
7,856
|
|
||
Premium receivables
|
3,916
|
|
|
2,663
|
|
||
Other receivables
|
2,838
|
|
|
2,381
|
|
||
Total accounts receivable, net
|
$
|
23,037
|
|
|
$
|
19,617
|
|
In millions
|
Pharmacy
Services |
|
Retail/
LTC |
|
Health Care
Benefits |
|
Corporate/
Other |
|
Intersegment
Eliminations |
|
Consolidated
Totals |
||||||||||||
Three Months Ended March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Major goods/services lines:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Pharmacy
|
$
|
34,774
|
|
|
$
|
17,355
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(10,257
|
)
|
|
$
|
41,872
|
|
Front Store
|
—
|
|
|
5,208
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,208
|
|
||||||
Premiums
|
—
|
|
|
—
|
|
|
17,621
|
|
|
19
|
|
|
—
|
|
|
17,640
|
|
||||||
Net investment income
|
—
|
|
|
—
|
|
|
93
|
|
|
69
|
|
|
—
|
|
|
162
|
|
||||||
Other
|
209
|
|
|
186
|
|
|
1,484
|
|
|
2
|
|
|
(8
|
)
|
|
1,873
|
|
||||||
Total
|
$
|
34,983
|
|
|
$
|
22,749
|
|
|
$
|
19,198
|
|
|
$
|
90
|
|
|
$
|
(10,265
|
)
|
|
$
|
66,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Pharmacy Services distribution channel:
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Pharmacy network (1)
|
$
|
21,100
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Mail choice (2)
|
13,674
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other
|
209
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total
|
$
|
34,983
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Three Months Ended March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Major goods/services lines:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Pharmacy (3)
|
$
|
33,413
|
|
|
$
|
16,118
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(11,001
|
)
|
|
$
|
38,530
|
|
Front Store
|
—
|
|
|
4,799
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,799
|
|
||||||
Premiums
|
—
|
|
|
—
|
|
|
16,259
|
|
|
23
|
|
|
—
|
|
|
16,282
|
|
||||||
Net investment income
|
—
|
|
|
—
|
|
|
164
|
|
|
85
|
|
|
—
|
|
|
249
|
|
||||||
Other (3)
|
145
|
|
|
198
|
|
|
1,447
|
|
|
2
|
|
|
(6
|
)
|
|
1,786
|
|
||||||
Total
|
$
|
33,558
|
|
|
$
|
21,115
|
|
|
$
|
17,870
|
|
|
$
|
110
|
|
|
$
|
(11,007
|
)
|
|
$
|
61,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Pharmacy Services distribution channel:
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Pharmacy network (1) (3)
|
$
|
21,532
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Mail choice (2) (3)
|
11,881
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other
|
145
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total
|
$
|
33,558
|
|
|
|
|
|
|
|
|
|
|
|
(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. 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.
|
(2)
|
Pharmacy Services 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 a retail pharmacy, as well as prescriptions filled at the Company’s retail pharmacies under the Maintenance Choice program.
|
(3)
|
Certain prior year amounts have been reclassified for consistency with the current period presentation.
|
In millions
|
March 31,
2020 |
|
December 31,
2019 |
||||
Trade receivables (included in accounts receivable, net)
|
$
|
7,698
|
|
|
$
|
6,717
|
|
Contract liabilities (included in accrued expenses)
|
85
|
|
|
73
|
|
|
Three Months Ended
March 31, |
||||||
In millions
|
2020
|
|
2019
|
||||
Contract liabilities, beginning of the period
|
$
|
73
|
|
|
$
|
67
|
|
Rewards earnings and gift card issuances
|
99
|
|
|
90
|
|
||
Redemption and breakage
|
(87
|
)
|
|
(82
|
)
|
||
Contract liabilities, end of the period
|
$
|
85
|
|
|
$
|
75
|
|
2.
|
Investments
|
|
March 31, 2020
|
|
December 31, 2019
|
||||||||||||||||||||
In millions
|
Current
|
|
Long-term
|
|
Total
|
|
Current
|
|
Long-term
|
|
Total
|
||||||||||||
Debt securities available for sale
|
$
|
2,451
|
|
|
$
|
14,266
|
|
|
$
|
16,717
|
|
|
$
|
2,251
|
|
|
$
|
14,671
|
|
|
$
|
16,922
|
|
Mortgage loans
|
181
|
|
|
983
|
|
|
1,164
|
|
|
122
|
|
|
1,091
|
|
|
1,213
|
|
||||||
Other investments
|
—
|
|
|
1,591
|
|
|
1,591
|
|
|
—
|
|
|
1,552
|
|
|
1,552
|
|
||||||
Total investments
|
$
|
2,632
|
|
|
$
|
16,840
|
|
|
$
|
19,472
|
|
|
$
|
2,373
|
|
|
$
|
17,314
|
|
|
$
|
19,687
|
|
In millions
|
Gross
Amortized
Cost |
|
Allowance for Credit Losses (1)
|
|
Net
Amortized
Cost
|
|
Gross
Unrealized Gains |
|
Gross
Unrealized Losses |
|
Fair
Value
|
||||||||||||
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
U.S. government securities
|
$
|
1,853
|
|
|
$
|
—
|
|
|
$
|
1,853
|
|
|
$
|
162
|
|
|
$
|
—
|
|
|
$
|
2,015
|
|
States, municipalities and political subdivisions
|
2,182
|
|
|
—
|
|
|
2,182
|
|
|
91
|
|
|
(7
|
)
|
|
2,266
|
|
||||||
U.S. corporate securities
|
7,128
|
|
|
(28
|
)
|
|
7,100
|
|
|
412
|
|
|
(109
|
)
|
|
7,403
|
|
||||||
Foreign securities
|
2,202
|
|
|
(18
|
)
|
|
2,184
|
|
|
112
|
|
|
(48
|
)
|
|
2,248
|
|
||||||
Residential mortgage-backed securities
|
574
|
|
|
—
|
|
|
574
|
|
|
38
|
|
|
—
|
|
|
612
|
|
||||||
Commercial mortgage-backed securities
|
662
|
|
|
—
|
|
|
662
|
|
|
43
|
|
|
(1
|
)
|
|
704
|
|
||||||
Other asset-backed securities
|
1,509
|
|
|
(2
|
)
|
|
1,507
|
|
|
7
|
|
|
(80
|
)
|
|
1,434
|
|
||||||
Redeemable preferred securities
|
35
|
|
|
—
|
|
|
35
|
|
|
1
|
|
|
(1
|
)
|
|
35
|
|
||||||
Total debt securities (2)
|
$
|
16,145
|
|
|
$
|
(48
|
)
|
|
$
|
16,097
|
|
|
$
|
866
|
|
|
$
|
(246
|
)
|
|
$
|
16,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
U.S. government securities
|
$
|
1,791
|
|
|
$
|
—
|
|
|
$
|
1,791
|
|
|
$
|
62
|
|
|
$
|
(1
|
)
|
|
$
|
1,852
|
|
States, municipalities and political subdivisions
|
2,202
|
|
|
—
|
|
|
2,202
|
|
|
108
|
|
|
(1
|
)
|
|
2,309
|
|
||||||
U.S. corporate securities
|
7,167
|
|
|
—
|
|
|
7,167
|
|
|
573
|
|
|
(3
|
)
|
|
7,737
|
|
||||||
Foreign securities
|
2,149
|
|
|
—
|
|
|
2,149
|
|
|
200
|
|
|
(1
|
)
|
|
2,348
|
|
||||||
Residential mortgage-backed securities
|
508
|
|
|
—
|
|
|
508
|
|
|
25
|
|
|
—
|
|
|
533
|
|
||||||
Commercial mortgage-backed securities
|
654
|
|
|
—
|
|
|
654
|
|
|
46
|
|
|
—
|
|
|
700
|
|
||||||
Other asset-backed securities
|
1,397
|
|
|
—
|
|
|
1,397
|
|
|
13
|
|
|
(5
|
)
|
|
1,405
|
|
||||||
Redeemable preferred securities
|
30
|
|
|
—
|
|
|
30
|
|
|
8
|
|
|
—
|
|
|
38
|
|
||||||
Total debt securities (2)
|
$
|
15,898
|
|
|
$
|
—
|
|
|
$
|
15,898
|
|
|
$
|
1,035
|
|
|
$
|
(11
|
)
|
|
$
|
16,922
|
|
(1)
|
Effective January 1, 2020, the Company adopted the available-for-sale debt security impairment model under ASU 2016-13, Financial Instruments - Credit Losses (Topic 326). The new impairment model requires the write down of amortized cost through an allowance for credit losses, rather than through a reduction of the amortized cost basis of the available-for-sale debt security. As the Company adopted the new available-for-sale debt security impairment model on a prospective basis, there was no allowance for credit losses recorded on available-for-sale debt securities at December 31, 2019.
|
(2)
|
Investment risks associated with the Company’s experience-rated products generally do not impact the Company’s consolidated operating results. At March 31, 2020, debt securities with a fair value of $917 million, gross unrealized capital gains of $65 million and gross unrealized capital losses of $10 million and at December 31, 2019, debt securities with a fair value of $965 million, gross unrealized capital gains of $83 million and no gross unrealized capital losses were included in total debt securities, but support experience-related products. Changes in net unrealized capital gains (losses) on these securities are not reflected in accumulated other comprehensive income.
|
In millions
|
Net
Amortized
Cost
|
|
Fair
Value
|
||||
Due to mature:
|
|
|
|
||||
Less than one year
|
$
|
1,219
|
|
|
$
|
1,225
|
|
One year through five years
|
5,292
|
|
|
5,399
|
|
||
After five years through ten years
|
3,135
|
|
|
3,233
|
|
||
Greater than ten years
|
3,708
|
|
|
4,110
|
|
||
Residential mortgage-backed securities
|
574
|
|
|
612
|
|
||
Commercial mortgage-backed securities
|
662
|
|
|
704
|
|
||
Other asset-backed securities
|
1,507
|
|
|
1,434
|
|
||
Total
|
$
|
16,097
|
|
|
$
|
16,717
|
|
|
Less than 12 months
|
|
Greater than 12 months
|
|
Total
|
|||||||||||||||||||||||||||
In millions, except number of securities
|
Number of Securities
|
|
Fair
Value
|
|
Unrealized Losses
|
|
Number of Securities
|
|
Fair
Value
|
|
Unrealized Losses
|
|
Number of Securities
|
|
Fair
Value
|
|
Unrealized Losses
|
|||||||||||||||
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
U.S. government securities
|
8
|
|
|
$
|
20
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
8
|
|
|
$
|
20
|
|
|
$
|
—
|
|
States, municipalities and political subdivisions
|
174
|
|
|
314
|
|
|
7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
174
|
|
|
314
|
|
|
7
|
|
||||||
U.S. corporate securities
|
1,622
|
|
|
1,712
|
|
|
108
|
|
|
6
|
|
|
2
|
|
|
1
|
|
|
1,628
|
|
|
1,714
|
|
|
109
|
|
||||||
Foreign securities
|
513
|
|
|
630
|
|
|
48
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
513
|
|
|
630
|
|
|
48
|
|
||||||
Residential mortgage-backed securities
|
14
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
—
|
|
|
21
|
|
|
—
|
|
|
—
|
|
||||||
Commercial mortgage-backed securities
|
21
|
|
|
50
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
21
|
|
|
50
|
|
|
1
|
|
||||||
Other asset-backed securities
|
589
|
|
|
893
|
|
|
67
|
|
|
89
|
|
|
68
|
|
|
13
|
|
|
678
|
|
|
961
|
|
|
80
|
|
||||||
Redeemable preferred securities
|
6
|
|
|
11
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|
11
|
|
|
1
|
|
||||||
Total debt securities
|
2,947
|
|
|
$
|
3,630
|
|
|
$
|
232
|
|
|
102
|
|
|
$
|
70
|
|
|
$
|
14
|
|
|
3,049
|
|
|
$
|
3,700
|
|
|
$
|
246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
U.S. government securities
|
52
|
|
|
$
|
168
|
|
|
$
|
1
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
52
|
|
|
$
|
168
|
|
|
$
|
1
|
|
States, municipalities and political subdivisions
|
66
|
|
|
115
|
|
|
1
|
|
|
2
|
|
|
5
|
|
|
—
|
|
|
68
|
|
|
120
|
|
|
1
|
|
||||||
U.S. corporate securities
|
181
|
|
|
305
|
|
|
2
|
|
|
2
|
|
|
—
|
|
|
1
|
|
|
183
|
|
|
305
|
|
|
3
|
|
||||||
Foreign securities
|
39
|
|
|
75
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
39
|
|
|
75
|
|
|
1
|
|
||||||
Residential mortgage-backed securities
|
30
|
|
|
16
|
|
|
—
|
|
|
9
|
|
|
—
|
|
|
—
|
|
|
39
|
|
|
16
|
|
|
—
|
|
||||||
Commercial mortgage-backed securities
|
16
|
|
|
49
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16
|
|
|
49
|
|
|
—
|
|
||||||
Other asset-backed securities
|
138
|
|
|
254
|
|
|
1
|
|
|
187
|
|
|
182
|
|
|
4
|
|
|
325
|
|
|
436
|
|
|
5
|
|
||||||
Total debt securities
|
522
|
|
|
$
|
982
|
|
|
$
|
6
|
|
|
200
|
|
|
$
|
187
|
|
|
$
|
5
|
|
|
722
|
|
|
$
|
1,169
|
|
|
$
|
11
|
|
|
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
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
163
|
|
|
$
|
3
|
|
|
$
|
170
|
|
|
$
|
3
|
|
One year through five years
|
30
|
|
|
1
|
|
|
1,082
|
|
|
44
|
|
|
1,112
|
|
|
45
|
|
||||||
After five years through ten years
|
61
|
|
|
4
|
|
|
776
|
|
|
60
|
|
|
837
|
|
|
64
|
|
||||||
Greater than ten years
|
55
|
|
|
4
|
|
|
515
|
|
|
49
|
|
|
570
|
|
|
53
|
|
||||||
Commercial mortgage-backed securities
|
1
|
|
|
—
|
|
|
49
|
|
|
1
|
|
|
50
|
|
|
1
|
|
||||||
Other asset-backed securities
|
16
|
|
|
1
|
|
|
945
|
|
|
79
|
|
|
961
|
|
|
80
|
|
||||||
Total
|
$
|
170
|
|
|
$
|
10
|
|
|
$
|
3,530
|
|
|
$
|
236
|
|
|
$
|
3,700
|
|
|
$
|
246
|
|
|
Three Months Ended
March 31, |
||||||
In millions
|
2020
|
|
2019
|
||||
New mortgage loans
|
$
|
8
|
|
|
$
|
41
|
|
Mortgage loans fully repaid
|
44
|
|
|
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.
|
|
Amortized Cost Basis by Year of Origination
|
||||||||||||||||||||||||||
In millions, except credit quality indicator
|
2020
|
|
2019
|
|
2018
|
|
2017
|
|
2016
|
|
Prior
|
|
Total
|
||||||||||||||
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
1
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
15
|
|
|
$
|
—
|
|
|
$
|
41
|
|
|
$
|
56
|
|
2 to 4
|
5
|
|
|
94
|
|
|
95
|
|
|
164
|
|
|
139
|
|
|
589
|
|
|
1,086
|
|
|||||||
5 and 6
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
12
|
|
|
13
|
|
|||||||
7
|
—
|
|
|
—
|
|
|
—
|
|
|
9
|
|
|
—
|
|
|
—
|
|
|
9
|
|
|||||||
Total
|
$
|
5
|
|
|
$
|
94
|
|
|
$
|
96
|
|
|
$
|
188
|
|
|
$
|
139
|
|
|
$
|
642
|
|
|
$
|
1,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
1
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
15
|
|
|
$
|
—
|
|
|
$
|
43
|
|
|
$
|
58
|
|
2 to 4
|
5
|
|
|
88
|
|
|
93
|
|
|
206
|
|
|
140
|
|
|
611
|
|
|
1,143
|
|
|||||||
5 and 6
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12
|
|
|
12
|
|
|||||||
7
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Total
|
$
|
5
|
|
|
$
|
88
|
|
|
$
|
93
|
|
|
$
|
221
|
|
|
$
|
140
|
|
|
$
|
666
|
|
|
$
|
1,213
|
|
|
Three Months Ended
March 31, |
||||||
In millions
|
2020
|
|
2019
|
||||
Debt securities
|
$
|
144
|
|
|
$
|
156
|
|
Mortgage loans
|
15
|
|
|
17
|
|
||
Other investments
|
47
|
|
|
26
|
|
||
Gross investment income
|
206
|
|
|
199
|
|
||
Investment expenses
|
(8
|
)
|
|
(9
|
)
|
||
Net investment income (excluding net realized capital gains or losses)
|
198
|
|
|
190
|
|
||
Net realized capital gains (losses) (1)
|
(36
|
)
|
|
59
|
|
||
Net investment income (2)
|
$
|
162
|
|
|
$
|
249
|
|
(1)
|
Net realized capital losses include credit-related and yield-related impairment losses on debt securities of $45 million and $41 million, respectively, in the three months ended March 31, 2020. Net realized capital gains are net of other than temporary impairment losses on debt securities of $7 million in the three months ended March 31, 2019.
|
(2)
|
Net investment income includes $11 million for both the three months ended March 31, 2020 and 2019 related to investments supporting experience-rated products.
|
|
Three Months Ended
March 31, |
||||||
In millions
|
2020
|
|
2019
|
||||
Proceeds from sales
|
$
|
723
|
|
|
$
|
1,489
|
|
Gross realized capital gains
|
20
|
|
|
35
|
|
||
Gross realized capital losses
|
35
|
|
|
2
|
|
3.
|
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, 2020
|
|
|
|
|
|
|
|
||||||||
Cash and cash equivalents
|
$
|
7,503
|
|
|
$
|
2,578
|
|
|
$
|
—
|
|
|
$
|
10,081
|
|
Debt securities:
|
|
|
|
|
|
|
|
||||||||
U.S. government securities
|
1,947
|
|
|
68
|
|
|
—
|
|
|
2,015
|
|
||||
States, municipalities and political subdivisions
|
—
|
|
|
2,266
|
|
|
—
|
|
|
2,266
|
|
||||
U.S. corporate securities
|
—
|
|
|
7,373
|
|
|
30
|
|
|
7,403
|
|
||||
Foreign securities
|
—
|
|
|
2,248
|
|
|
—
|
|
|
2,248
|
|
||||
Residential mortgage-backed securities
|
—
|
|
|
612
|
|
|
—
|
|
|
612
|
|
||||
Commercial mortgage-backed securities
|
—
|
|
|
704
|
|
|
—
|
|
|
704
|
|
||||
Other asset-backed securities
|
—
|
|
|
1,434
|
|
|
—
|
|
|
1,434
|
|
||||
Redeemable preferred securities
|
—
|
|
|
23
|
|
|
12
|
|
|
35
|
|
||||
Total debt securities
|
1,947
|
|
|
14,728
|
|
|
42
|
|
|
16,717
|
|
||||
Equity securities
|
18
|
|
|
—
|
|
|
32
|
|
|
50
|
|
||||
Total
|
$
|
9,468
|
|
|
$
|
17,306
|
|
|
$
|
74
|
|
|
$
|
26,848
|
|
|
|
|
|
|
|
|
|
||||||||
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents
|
$
|
3,397
|
|
|
$
|
2,286
|
|
|
$
|
—
|
|
|
$
|
5,683
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. government securities
|
1,785
|
|
|
67
|
|
|
—
|
|
|
1,852
|
|
||||
States, municipalities and political subdivisions
|
—
|
|
|
2,309
|
|
|
—
|
|
|
2,309
|
|
||||
U.S. corporate securities
|
—
|
|
|
7,700
|
|
|
37
|
|
|
7,737
|
|
||||
Foreign securities
|
—
|
|
|
2,348
|
|
|
—
|
|
|
2,348
|
|
||||
Residential mortgage-backed securities
|
—
|
|
|
533
|
|
|
—
|
|
|
533
|
|
||||
Commercial mortgage-backed securities
|
—
|
|
|
700
|
|
|
—
|
|
|
700
|
|
||||
Other asset-backed securities
|
—
|
|
|
1,405
|
|
|
—
|
|
|
1,405
|
|
||||
Redeemable preferred securities
|
—
|
|
|
26
|
|
|
12
|
|
|
38
|
|
||||
Total debt securities
|
1,785
|
|
|
15,088
|
|
|
49
|
|
|
16,922
|
|
||||
Equity securities
|
34
|
|
|
—
|
|
|
39
|
|
|
73
|
|
||||
Total
|
$
|
5,216
|
|
|
$
|
17,374
|
|
|
$
|
88
|
|
|
$
|
22,678
|
|
|
Carrying
Value
|
|
Estimated Fair Value
|
||||||||||||||||
In millions
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|||||||||||
March 31, 2020
|
|
|
|
|
|
|
|
|
|
||||||||||
Assets:
|
|
|
|
|
|
|
|
|
|
||||||||||
Mortgage loans
|
$
|
1,164
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,192
|
|
|
$
|
1,192
|
|
Equity securities (1)
|
204
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|||||
Liabilities:
|
|
|
|
|
|
|
|
|
|
||||||||||
Investment contract liabilities:
|
|
|
|
|
|
|
|
|
|
||||||||||
With a fixed maturity
|
5
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
5
|
|
|||||
Without a fixed maturity
|
380
|
|
|
—
|
|
|
—
|
|
|
383
|
|
|
383
|
|
|||||
Long-term debt
|
71,563
|
|
|
75,875
|
|
|
—
|
|
|
—
|
|
|
75,875
|
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||||||
December 31, 2019
|
|
|
|
|
|
|
|
|
|
||||||||||
Assets:
|
|
|
|
|
|
|
|
|
|
||||||||||
Mortgage loans
|
$
|
1,213
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,239
|
|
|
$
|
1,239
|
|
Equity securities (1)
|
149
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|||||
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Investment contract liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
With a fixed maturity
|
5
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
5
|
|
|||||
Without a fixed maturity
|
372
|
|
|
—
|
|
|
—
|
|
|
392
|
|
|
392
|
|
|||||
Long-term debt
|
68,480
|
|
|
74,306
|
|
|
—
|
|
|
—
|
|
|
74,306
|
|
(1)
|
It was not practical to estimate the fair value of these cost-method investments as it represents shares of unlisted companies.
|
|
|
March 31, 2020
|
|
December 31, 2019
|
||||||||||||||||||||||||||||
In millions
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
||||||||||||||||
Cash and cash equivalents
|
|
$
|
4
|
|
|
$
|
198
|
|
|
$
|
—
|
|
|
$
|
202
|
|
|
$
|
2
|
|
|
$
|
143
|
|
|
$
|
—
|
|
|
$
|
145
|
|
Debt securities
|
|
1,273
|
|
|
2,587
|
|
|
—
|
|
|
3,860
|
|
|
1,224
|
|
|
2,589
|
|
|
—
|
|
|
3,813
|
|
||||||||
Equity securities
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
||||||||
Common/collective trusts
|
|
—
|
|
|
491
|
|
|
—
|
|
|
491
|
|
|
—
|
|
|
499
|
|
|
—
|
|
|
499
|
|
||||||||
Total
|
|
$
|
1,277
|
|
|
$
|
3,278
|
|
|
$
|
—
|
|
|
$
|
4,555
|
|
|
$
|
1,226
|
|
|
$
|
3,233
|
|
|
$
|
—
|
|
|
$
|
4,459
|
|
4.
|
Health Care Costs Payable
|
|
Three Months Ended
March 31, |
||||||
In millions
|
2020
|
|
2019
|
||||
Health care costs payable, beginning of the period
|
$
|
6,879
|
|
|
$
|
6,147
|
|
Less: Reinsurance recoverables
|
5
|
|
|
4
|
|
||
Health care costs payable, beginning of the period, net
|
6,874
|
|
|
6,143
|
|
||
Acquisition
|
412
|
|
|
—
|
|
||
Add: Components of incurred health care costs
|
|
|
|
||||
Current year
|
14,764
|
|
|
13,804
|
|
||
Prior years
|
(464
|
)
|
|
(446
|
)
|
||
Total incurred health care costs (1)
|
14,300
|
|
|
13,358
|
|
||
Less: Claims paid
|
|
|
|
||||
Current year
|
8,773
|
|
|
8,004
|
|
||
Prior years
|
5,242
|
|
|
4,812
|
|
||
Total claims paid
|
14,015
|
|
|
12,816
|
|
||
Add: Premium deficiency reserve
|
10
|
|
|
11
|
|
||
Health care costs payable, end of the period, net
|
7,581
|
|
|
6,696
|
|
||
Add: Reinsurance recoverables
|
4
|
|
|
5
|
|
||
Health care costs payable, end of the period
|
$
|
7,585
|
|
|
$
|
6,701
|
|
(1)
|
Total incurred health care costs for the three months ended March 31, 2020 and 2019 in the table above exclude (i) $10 million and $11 million, respectively, related to a premium deficiency reserve related to the Company’s Medicaid products, (ii) $9 million and $10 million, respectively, of benefit costs recorded in the Health Care Benefits segment that are included in other insurance liabilities on the Company’s unaudited condensed consolidated balance sheets and (iii) $68 million and $80 million, respectively, of benefit costs recorded in the Corporate/Other segment that are included in other insurance liabilities on the Company’s unaudited condensed consolidated balance sheets.
|
5.
|
Borrowings
|
In millions
|
March 31, 2020
|
|
December 31, 2019
|
||||
Short-term debt
|
|
|
|
||||
Commercial paper
|
$
|
255
|
|
|
$
|
—
|
|
Long-term debt
|
|
|
|
||||
3.125% senior notes due March 2020
|
—
|
|
|
723
|
|
||
Floating rate notes due March 2020 (2.515% at December 31, 2019)
|
—
|
|
|
277
|
|
||
2.8% senior notes due July 2020
|
2,750
|
|
|
2,750
|
|
||
3.35% senior notes due March 2021
|
2,038
|
|
|
2,038
|
|
||
Floating rate notes due March 2021 (1.719% at March 31, 2020 and 2.605% at December 31, 2019)
|
1,000
|
|
|
1,000
|
|
||
4.125% senior notes due May 2021
|
222
|
|
|
222
|
|
||
2.125% senior notes due June 2021
|
1,750
|
|
|
1,750
|
|
||
4.125% senior notes due June 2021
|
203
|
|
|
203
|
|
||
5.45% senior notes due June 2021
|
187
|
|
|
187
|
|
||
3.5% senior notes due July 2022
|
1,500
|
|
|
1,500
|
|
||
2.75% senior notes due November 2022
|
1,000
|
|
|
1,000
|
|
||
2.75% senior notes due December 2022
|
1,250
|
|
|
1,250
|
|
||
4.75% senior notes due December 2022
|
399
|
|
|
399
|
|
||
3.7% senior notes due March 2023
|
6,000
|
|
|
6,000
|
|
||
2.8% senior notes due June 2023
|
1,300
|
|
|
1,300
|
|
||
4% senior notes due December 2023
|
1,250
|
|
|
1,250
|
|
||
2.625% senior notes due August 2024
|
1,000
|
|
|
1,000
|
|
||
3.375% senior notes due August 2024
|
650
|
|
|
650
|
|
||
3.5% senior notes due November 2024
|
750
|
|
|
750
|
|
||
5% senior notes due December 2024
|
299
|
|
|
299
|
|
||
4.1% senior notes due March 2025
|
5,000
|
|
|
5,000
|
|
||
3.875% senior notes due July 2025
|
2,828
|
|
|
2,828
|
|
||
2.875% senior notes due June 2026
|
1,750
|
|
|
1,750
|
|
||
3% senior notes due August 2026
|
750
|
|
|
750
|
|
||
3.625% senior notes due April 2027
|
750
|
|
|
—
|
|
||
6.25% senior notes due June 2027
|
372
|
|
|
372
|
|
||
4.3% senior notes due March 2028
|
9,000
|
|
|
9,000
|
|
||
3.25% senior notes due August 2029
|
1,750
|
|
|
1,750
|
|
||
3.75% senior notes due April 2030
|
1,500
|
|
|
—
|
|
||
4.875% senior notes due July 2035
|
652
|
|
|
652
|
|
||
6.625% senior notes due June 2036
|
771
|
|
|
771
|
|
||
6.75% senior notes due December 2037
|
533
|
|
|
533
|
|
||
4.78% senior notes due March 2038
|
5,000
|
|
|
5,000
|
|
||
6.125% senior notes due September 2039
|
447
|
|
|
447
|
|
||
4.125% senior notes due April 2040
|
1,000
|
|
|
—
|
|
||
5.75% senior notes due May 2041
|
133
|
|
|
133
|
|
||
4.5% senior notes due May 2042
|
500
|
|
|
500
|
|
||
4.125% senior notes due November 2042
|
500
|
|
|
500
|
|
||
5.3% senior notes due December 2043
|
750
|
|
|
750
|
|
||
4.75% senior notes due March 2044
|
375
|
|
|
375
|
|
||
5.125% senior notes due July 2045
|
3,500
|
|
|
3,500
|
|
||
3.875% senior notes due August 2047
|
1,000
|
|
|
1,000
|
|
||
5.05% senior notes due March 2048
|
8,000
|
|
|
8,000
|
|
||
4.25% senior notes due April 2050
|
750
|
|
|
—
|
|
||
Finance lease obligations
|
919
|
|
|
808
|
|
||
Other
|
279
|
|
|
279
|
|
||
Total debt principal
|
72,612
|
|
|
69,246
|
|
||
Debt premiums
|
256
|
|
|
262
|
|
||
Debt discounts and deferred financing costs
|
(1,050
|
)
|
|
(1,028
|
)
|
||
|
71,818
|
|
|
68,480
|
|
||
Less:
|
|
|
|
||||
Short-term debt (commercial paper)
|
(255
|
)
|
|
—
|
|
||
Current portion of long-term debt
|
(5,828
|
)
|
|
(3,781
|
)
|
||
Long-term debt
|
$
|
65,735
|
|
|
$
|
64,699
|
|
6.
|
Shareholders’ Equity
|
7.
|
Other Comprehensive Income
|
|
Three Months Ended
March 31, |
||||||
In millions
|
2020
|
|
2019
|
||||
Net unrealized investment gains (losses):
|
|
|
|
||||
Beginning of period balance
|
$
|
774
|
|
|
$
|
97
|
|
Other comprehensive income (loss) before reclassifications ($(486) and $410 pretax)
|
(394
|
)
|
|
348
|
|
||
Amounts reclassified from accumulated other comprehensive income ($101 and $(19) pretax) (1)
|
83
|
|
|
(14
|
)
|
||
Other comprehensive income (loss)
|
(311
|
)
|
|
334
|
|
||
End of period balance
|
463
|
|
|
431
|
|
||
|
|
|
|
||||
Foreign currency translation adjustments:
|
|
|
|
||||
Beginning of period balance
|
4
|
|
|
(158
|
)
|
||
Other comprehensive income (loss) before reclassifications
|
(12
|
)
|
|
1
|
|
||
Other comprehensive income (loss)
|
(12
|
)
|
|
1
|
|
||
End of period balance
|
(8
|
)
|
|
(157
|
)
|
||
|
|
|
|
||||
Net cash flow hedges:
|
|
|
|
||||
Beginning of period balance
|
279
|
|
|
312
|
|
||
Other comprehensive loss before reclassifications ($(7) and $0 pretax)
|
(5
|
)
|
|
—
|
|
||
Amounts reclassified from accumulated other comprehensive income ($(6) and $(5) pretax) (2)
|
(4
|
)
|
|
(4
|
)
|
||
Other comprehensive loss
|
(9
|
)
|
|
(4
|
)
|
||
End of period balance
|
270
|
|
|
308
|
|
||
|
|
|
|
||||
Pension and other postretirement benefits:
|
|
|
|
||||
Beginning of period balance
|
(38
|
)
|
|
(149
|
)
|
||
Other comprehensive income
|
—
|
|
|
—
|
|
||
End of period balance
|
(38
|
)
|
|
(149
|
)
|
||
|
|
|
|
||||
Total beginning of period accumulated other comprehensive income
|
1,019
|
|
|
102
|
|
||
Total other comprehensive income (loss)
|
(332
|
)
|
|
331
|
|
||
Total end of period accumulated other comprehensive income
|
$
|
687
|
|
|
$
|
433
|
|
(1)
|
Amounts reclassified from accumulated other comprehensive income for specifically identified debt securities are included in net investment income in the unaudited condensed consolidated statements of operations.
|
(2)
|
Amounts reclassified from accumulated other comprehensive income for specifically identified cash flow hedges are included in interest expense in the unaudited condensed consolidated statements of operations. The Company expects to reclassify approximately $14 million, net of tax, in net gains associated with its cash flow hedges into net income within the next 12 months.
|
8.
|
Earnings Per Share
|
|
Three Months Ended
March 31, |
||||||
In millions, except per share amounts
|
2020
|
|
2019
|
||||
Numerator for earnings per share calculation:
|
|
|
|
||||
Net income
|
$
|
2,012
|
|
|
$
|
1,427
|
|
Income allocated to participating securities
|
—
|
|
|
(2
|
)
|
||
Net income attributable to noncontrolling interests
|
(5
|
)
|
|
(6
|
)
|
||
Net income attributable to CVS Health
|
$
|
2,007
|
|
|
$
|
1,419
|
|
|
|
|
|
||||
Denominator for earnings per share calculation:
|
|
|
|
||||
Weighted average shares, basic
|
1,306
|
|
|
1,298
|
|
||
Effect of dilutive securities
|
6
|
|
|
4
|
|
||
Weighted average shares, diluted
|
1,312
|
|
|
1,302
|
|
||
|
|
|
|
||||
Earnings per share:
|
|
|
|
||||
Basic
|
$
|
1.54
|
|
|
$
|
1.09
|
|
Diluted
|
$
|
1.53
|
|
|
$
|
1.09
|
|
9.
|
Commitments and Contingencies
|
10.
|
Segment Reporting
|
In millions
|
Pharmacy
Services (1) |
|
Retail/
LTC |
|
Health Care
Benefits |
|
Corporate/
Other |
|
Intersegment
Eliminations |
|
Consolidated
Totals |
||||||||||||
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Revenues from external customers
|
$
|
32,118
|
|
|
$
|
15,357
|
|
|
$
|
19,097
|
|
|
$
|
21
|
|
|
$
|
—
|
|
|
$
|
66,593
|
|
Intersegment revenues
|
2,865
|
|
|
7,392
|
|
|
8
|
|
|
—
|
|
|
(10,265
|
)
|
|
—
|
|
||||||
Net investment income
|
—
|
|
|
—
|
|
|
93
|
|
|
69
|
|
|
—
|
|
|
162
|
|
||||||
Total revenues
|
34,983
|
|
|
22,749
|
|
|
19,198
|
|
|
90
|
|
|
(10,265
|
)
|
|
66,755
|
|
||||||
Adjusted operating income (loss)
|
1,181
|
|
|
1,902
|
|
|
1,491
|
|
|
(285
|
)
|
|
(176
|
)
|
|
4,113
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Revenues from external customers
|
$
|
29,826
|
|
|
$
|
13,846
|
|
|
$
|
17,700
|
|
|
$
|
25
|
|
|
$
|
—
|
|
|
$
|
61,397
|
|
Intersegment revenues
|
3,732
|
|
|
7,269
|
|
|
6
|
|
|
—
|
|
|
(11,007
|
)
|
|
—
|
|
||||||
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
|
|
(1)
|
Total revenues of the Pharmacy Services segment include approximately $3.4 billion and $3.3 billion of retail co-payments for the three months ended March 31, 2020 and 2019, respectively.
|
|
Three Months Ended
March 31, |
||||||
In millions
|
2020
|
|
2019
|
||||
Operating income (GAAP measure)
|
$
|
3,458
|
|
|
$
|
2,690
|
|
Amortization of intangible assets (1)
|
586
|
|
|
622
|
|
||
Acquisition-related integration costs (2)
|
69
|
|
|
148
|
|
||
Store rationalization charge (3)
|
—
|
|
|
135
|
|
||
Adjusted operating income
|
$
|
4,113
|
|
|
$
|
3,595
|
|
(1)
|
The Company’s acquisition activities have resulted in the recognition of intangible assets as required under the acquisition method of accounting which consist primarily of trademarks, customer contracts/relationships, covenants not to compete, technology, provider networks and value of business acquired. Definite-lived intangible assets are amortized over their estimated useful lives and are tested for impairment when events indicate that the carrying value may not be recoverable. The amortization of intangible assets is reflected in the Company’s unaudited GAAP condensed consolidated statements of operations in operating expenses within each segment. Although intangible assets contribute to the Company’s revenue generation, the amortization of intangible assets does not directly relate to the underwriting of the Company’s insurance products, the services performed for the Company’s customers or the sale of the Company’s products or services. Additionally, intangible asset amortization expense typically fluctuates based on the size and timing of the Company’s acquisition activity. Accordingly, the Company believes excluding the amortization of intangible assets enhances the Company’s and investors’ ability to compare the Company’s past financial performance with its current performance and to analyze underlying business performance and trends. Intangible asset amortization excluded from the related non-GAAP financial measure represents the entire amount recorded within the Company’s GAAP financial statements, and the revenue generated by the associated intangible assets has not been excluded from the related non-GAAP financial measure. Intangible asset amortization is excluded from the related non-GAAP financial measure because the amortization, unlike the related revenue, is not affected by operations of any particular period unless an intangible asset becomes impaired or the estimated useful life of an intangible asset is revised.
|
(2)
|
During the three months ended March 31, 2020 and 2019, acquisition-related integration costs relate to the Aetna Acquisition. The acquisition-related integration costs are reflected in the Company’s unaudited GAAP condensed consolidated statements of operations in operating expenses 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 statement of operations in operating expenses within the Retail/LTC segment.
|
•
|
Management and administrative expenses to support the Company’s overall operations, which include certain aspects of executive management and the corporate relations, legal, compliance, human resources, information technology and finance departments, expenses associated with the Company’s investments in its transformation and Enterprise modernization programs and acquisition-related 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.
|
•
|
Drug utilization due to the reduction in discretionary visits with providers;
|
•
|
Front store sales as a result of reduced customer traffic in our retail pharmacies due to shelter-in-place orders and COVID-19 related unemployment;
|
•
|
Medical membership in our Health Care Benefits segment and covered lives in our PBM clients due to reductions in workforce at our existing customers (including due to business failures) as well as reduced willingness to change benefits providers by prospective customers;
|
•
|
Benefit costs due to COVID-19 related support programs we have put in place for our medical members and mandated increases to the medical services we must pay for without a corresponding increase in the premiums we receive in our Insured Health Care Benefits products; and
|
•
|
The timing and collectability of payments to the Company from customers, clients, government payers and members as a result of the impact of COVID-19 on them.
|
•
|
The Pharmacy Services segment is expected to benefit from continued improvements in purchasing economics and Enterprise modernization, partially offset by 2020 selling season net losses and continued price compression.
|
•
|
The Retail/LTC segment is expected to experience continued reimbursement pressure.
|
•
|
The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the “ACA”) imposes a significant industry-wide health insurer fee known as the “HIF.” The HIF is non-deductible for federal income tax purposes and is allocated to insurers based on the ratio of the amount of an insurer’s net premium revenues written during the preceding calendar year to the amount of health insurance premium for all U.S. health risk for certain lines of business during the preceding calendar year. The HIF was suspended for 2019, will be $15.5 billion for 2020 and has been repealed for calendar years after 2020. Our estimated share of the HIF for 2020 is approximately $1.1 billion. While the Company expects the reintroduction of the HIF to result in a lower medical benefit ratio (“MBR”) in 2020 compared to 2019, all else being equal, the Company expects its 2020 consolidated net income and effective income tax rate will be negatively impacted by the HIF compared to 2019 due to the non-deductibility of the HIF for federal income tax purposes.
|
•
|
The Company expects changes to its business environment to continue for the next several years as elected and other government officials at the national and state levels continue to propose and enact significant modifications to public policy and existing laws and regulations that govern the Company’s businesses.
|
|
Three Months Ended
March 31, |
|
Change
|
|||||||||||
In millions
|
2020
|
|
2019
|
|
$
|
|
%
|
|||||||
Revenues:
|
|
|
|
|
|
|
|
|||||||
Products
|
$
|
47,003
|
|
|
$
|
43,343
|
|
|
$
|
3,660
|
|
|
8.4
|
%
|
Premiums
|
17,640
|
|
|
16,282
|
|
|
1,358
|
|
|
8.3
|
%
|
|||
Services
|
1,950
|
|
|
1,772
|
|
|
178
|
|
|
10.0
|
%
|
|||
Net investment income
|
162
|
|
|
249
|
|
|
(87
|
)
|
|
(34.9
|
)%
|
|||
Total revenues
|
66,755
|
|
|
61,646
|
|
|
5,109
|
|
|
8.3
|
%
|
|||
Operating costs:
|
|
|
|
|
|
|
|
|||||||
Cost of products sold
|
40,347
|
|
|
37,247
|
|
|
3,100
|
|
|
8.3
|
%
|
|||
Benefit costs
|
14,387
|
|
|
13,459
|
|
|
928
|
|
|
6.9
|
%
|
|||
Operating expenses
|
8,563
|
|
|
8,250
|
|
|
313
|
|
|
3.8
|
%
|
|||
Total operating costs
|
63,297
|
|
|
58,956
|
|
|
4,341
|
|
|
7.4
|
%
|
|||
Operating income
|
3,458
|
|
|
2,690
|
|
|
768
|
|
|
28.6
|
%
|
|||
Interest expense
|
733
|
|
|
782
|
|
|
(49
|
)
|
|
(6.3
|
)%
|
|||
Other income
|
(54
|
)
|
|
(31
|
)
|
|
(23
|
)
|
|
(74.2
|
)%
|
|||
Income before income tax provision
|
2,779
|
|
|
1,939
|
|
|
840
|
|
|
43.3
|
%
|
|||
Income tax provision
|
767
|
|
|
512
|
|
|
255
|
|
|
49.8
|
%
|
|||
Net income
|
2,012
|
|
|
1,427
|
|
|
585
|
|
|
41.0
|
%
|
|||
Net income attributable to noncontrolling interests
|
(5
|
)
|
|
(6
|
)
|
|
1
|
|
|
16.7
|
%
|
|||
Net income attributable to CVS Health
|
$
|
2,007
|
|
|
$
|
1,421
|
|
|
$
|
586
|
|
|
41.2
|
%
|
•
|
Total revenues increased $5.1 billion, or 8.3%, in the three months ended March 31, 2020 compared to the prior year primarily driven by strong underlying core growth across all segments. Revenues in the Retail/LTC and Pharmacy Services segments in the three months ended March 31, 2020 also increased as a result of the COVID-19 pandemic, which resulted in greater use of 90-day prescriptions and early refills of maintenance medications, as well as increased front store volume in the Retail/LTC segment.
|
•
|
Please see “Segment Analysis” later in this report for additional information about the revenues of the Company’s segments.
|
•
|
Operating expenses increased $313 million, or 3.8%, in the three months ended March 31, 2020 compared to the prior year. Operating expenses as a percentage of total revenues were 12.8% in the three months ended March 31, 2020, an increase of 60 basis points compared to the prior year. The increase in operating expenses was primarily due to the reinstatement of the HIF for 2020 and incremental operating expenses to support the increased volume described above. The increase in operating expenses was partially offset by the favorable impact of cost savings initiatives, the absence of the $135 million store rationalization charge recorded in the three months ended March 31, 2019 and a decrease in acquisition-related integration costs of $79 million in the three months ended March 31, 2020 compared to the prior period.
|
•
|
Please see “Segment Analysis” later in this report for additional information about the operating expenses of the Company’s segments.
|
•
|
Operating income increased $768 million, or 28.6%, in the three months ended March 31, 2020 compared to the prior year. The increase was primarily due to (i) increased volume across all segments, (ii) improved purchasing economics in the Pharmacy Services segment, (iii) the favorable impact of cost savings initiatives, (iv) the absence of the $135 million store rationalization charge recorded in the three months ended March 31, 2019 and (v) a decrease in acquisition-related integration costs in the three months ended March 31, 2020 compared to the prior period. These increases were partially offset by a decline in operating income in the Health Care Benefits segment, continued reimbursement pressure in the Retail/LTC segment and continued price compression in the Pharmacy Services segment. The COVID-19 pandemic increased operating income in the three months ended March 31, 2020 due to increased volume in the Retail/LTC segment, as well as reduced benefit costs due to the deferral of elective procedures and other discretionary utilization in the Health Care Benefits segment, partially offset by lower net investment income.
|
•
|
Please see “Segment Analysis” later in this report for additional information about the operating income of the Company’s segments.
|
•
|
Interest expense decreased $49 million in the three months ended March 31, 2020 compared to the prior year, primarily due to lower average debt in the three months ended March 31, 2020. See “Liquidity and Capital Resources” later in this report for additional information.
|
•
|
The Company’s effective income tax rate was 27.6% in the three months ended March 31, 2020 compared to 26.4% in the prior year. The increase in the effective income tax rate was primarily due to the reinstatement of the non-deductible HIF for 2020.
|
In millions
|
Pharmacy
Services (1)
|
|
Retail/
LTC |
|
Health Care
Benefits |
|
Corporate/
Other |
|
Intersegment
Eliminations (2)
|
|
Consolidated
Totals |
||||||||||||
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total revenues
|
$
|
34,983
|
|
|
$
|
22,749
|
|
|
$
|
19,198
|
|
|
$
|
90
|
|
|
$
|
(10,265
|
)
|
|
$
|
66,755
|
|
Adjusted operating income (loss)
|
1,181
|
|
|
1,902
|
|
|
1,491
|
|
|
(285
|
)
|
|
(176
|
)
|
|
4,113
|
|
||||||
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
|
|
(1)
|
Total revenues of the Pharmacy Services segment include approximately $3.4 billion and $3.3 billion of retail co-payments for the three months ended March 31, 2020 and 2019, respectively.
|
(2)
|
Intersegment eliminations relate to intersegment revenue generating activities that occur between the Pharmacy Services segment, the Retail/LTC segment and/or the Health Care Benefits segment.
|
|
Three Months Ended March 31, 2020
|
||||||||||||||||||||||
In millions
|
Pharmacy
Services |
|
Retail/
LTC |
|
Health Care
Benefits |
|
Corporate/
Other |
|
Intersegment
Eliminations |
|
Consolidated
Totals |
||||||||||||
Operating income (loss) (GAAP measure)
|
$
|
1,114
|
|
|
$
|
1,780
|
|
|
$
|
1,095
|
|
|
$
|
(355
|
)
|
|
$
|
(176
|
)
|
|
$
|
3,458
|
|
Non-GAAP adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Amortization of intangible assets (1)
|
67
|
|
|
122
|
|
|
396
|
|
|
1
|
|
|
—
|
|
|
586
|
|
||||||
Acquisition-related integration costs (2)
|
—
|
|
|
—
|
|
|
—
|
|
|
69
|
|
|
—
|
|
|
69
|
|
||||||
Adjusted operating income (loss)
|
$
|
1,181
|
|
|
$
|
1,902
|
|
|
$
|
1,491
|
|
|
$
|
(285
|
)
|
|
$
|
(176
|
)
|
|
$
|
4,113
|
|
|
Three Months Ended March 31, 2019
|
||||||||||||||||||||||
In millions
|
Pharmacy
Services |
|
Retail/
LTC |
|
Health Care
Benefits |
|
Corporate/
Other |
|
Intersegment
Eliminations |
|
Consolidated
Totals |
||||||||||||
Operating income (loss) (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 (loss)
|
$
|
947
|
|
|
$
|
1,489
|
|
|
$
|
1,562
|
|
|
$
|
(231
|
)
|
|
$
|
(172
|
)
|
|
$
|
3,595
|
|
(1)
|
The Company’s acquisition activities have resulted in the recognition of intangible assets as required under the acquisition method of accounting which consist primarily of trademarks, customer contracts/relationships, covenants not to compete, technology, provider networks and value of business acquired. Definite-lived intangible assets are amortized over their estimated useful lives and are tested for impairment when events indicate that the carrying value may not be recoverable. The amortization of intangible assets is reflected in the Company’s unaudited GAAP condensed consolidated statements of operations in operating expenses within each segment. Although intangible assets contribute to the Company’s revenue generation, the amortization of intangible assets does not directly relate to the underwriting of the Company’s insurance products, the services performed for the Company’s customers or the sale of the Company’s products or services. Additionally, intangible asset amortization expense typically fluctuates based on the size and timing of the Company’s acquisition activity. Accordingly, the Company believes excluding the amortization of intangible assets enhances the Company’s and investors’ ability to compare the Company’s past financial performance with its current performance and to analyze underlying business performance and trends. Intangible asset amortization excluded from the related non-GAAP financial measure represents the entire amount recorded within the Company’s GAAP financial statements, and the revenue generated by the associated intangible assets has not been excluded from the related non-GAAP financial measure. Intangible asset amortization is excluded from the related non-GAAP financial measure because the amortization, unlike the related revenue, is not affected by operations of any particular period unless an intangible asset becomes impaired or the estimated useful life of an intangible asset is revised.
|
(2)
|
During the three months ended March 31, 2020 and 2019, acquisition-related integration costs relate to the Company’s acquisition (the “Aetna Acquisition”) of Aetna Inc. (“Aetna”). The acquisition-related integration costs are reflected in the Company’s unaudited GAAP condensed consolidated statements of operations in operating expenses 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 statement of operations in operating expenses within the Retail/LTC segment.
|
|
Three Months Ended
March 31, |
|
Change
|
|||||||||||
In millions, except percentages
|
2020
|
|
2019
|
|
$
|
|
%
|
|||||||
Revenues:
|
|
|
|
|
|
|
|
|||||||
Products
|
$
|
34,746
|
|
|
$
|
33,450
|
|
|
$
|
1,296
|
|
|
3.9
|
%
|
Services
|
237
|
|
|
108
|
|
|
129
|
|
|
119.4
|
%
|
|||
Total revenues
|
34,983
|
|
|
33,558
|
|
|
1,425
|
|
|
4.2
|
%
|
|||
Cost of products sold
|
33,503
|
|
|
32,339
|
|
|
1,164
|
|
|
3.6
|
%
|
|||
Operating expenses
|
366
|
|
|
369
|
|
|
(3
|
)
|
|
(0.8
|
)%
|
|||
Operating expenses as a % of total revenues
|
1.0
|
%
|
|
1.1
|
%
|
|
|
|
|
|||||
Operating income
|
$
|
1,114
|
|
|
$
|
850
|
|
|
$
|
264
|
|
|
31.1
|
%
|
Operating income as a % of total revenues
|
3.2
|
%
|
|
2.5
|
%
|
|
|
|
|
|||||
Adjusted operating income (1)
|
$
|
1,181
|
|
|
$
|
947
|
|
|
$
|
234
|
|
|
24.7
|
%
|
Adjusted operating income as a % of total revenues
|
3.4
|
%
|
|
2.8
|
%
|
|
|
|
|
|||||
Revenues (by distribution channel):
|
|
|
|
|
|
|
|
|||||||
Pharmacy network (2) (3)
|
$
|
21,100
|
|
|
$
|
21,532
|
|
|
$
|
(432
|
)
|
|
(2.0
|
)%
|
Mail choice (3) (4)
|
13,674
|
|
|
11,881
|
|
|
1,793
|
|
|
15.1
|
%
|
|||
Other
|
209
|
|
|
145
|
|
|
64
|
|
|
44.1
|
%
|
|||
Pharmacy claims processed: (5)
|
|
|
|
|
|
|
|
|||||||
Total
|
541.4
|
|
|
481.8
|
|
|
59.6
|
|
|
12.4
|
%
|
|||
Pharmacy network (2)
|
461.1
|
|
|
407.7
|
|
|
53.4
|
|
|
13.1
|
%
|
|||
Mail choice (4)
|
80.3
|
|
|
74.1
|
|
|
6.2
|
|
|
8.4
|
%
|
|||
Generic dispensing rate: (5)
|
|
|
|
|
|
|
|
|||||||
Total
|
89.0
|
%
|
|
88.3
|
%
|
|
|
|
|
|||||
Pharmacy network (2)
|
89.5
|
%
|
|
88.9
|
%
|
|
|
|
|
|||||
Mail choice (4)
|
85.7
|
%
|
|
84.8
|
%
|
|
|
|
|
(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 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. 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)
|
Certain prior year amounts have been reclassified for consistency with the current period presentation.
|
(4)
|
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 a retail pharmacy, as well as prescriptions filled at the Company’s retail pharmacies under the Maintenance Choice program.
|
(5)
|
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 $1.4 billion, or 4.2%, to $35.0 billion for the three months ended March 31, 2020 compared to the prior year primarily due to growth in specialty pharmacy, brand inflation and increased total pharmacy claims volume, including greater use of 90-day prescriptions and early refills of maintenance medications as consumers prepared for the COVID-19 pandemic. The increase was partially offset by previously disclosed client losses, continued price compression and an increased generic dispensing rate.
|
•
|
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 remained flat in the three months ended March 31, 2020 compared to the prior year.
|
•
|
Operating expenses as a percentage of total revenues remained relatively consistent at 1.0% and 1.1% in each of the three-month periods ended March 31, 2020 and 2019, respectively.
|
•
|
Operating income increased $264 million, or 31.1%, and adjusted operating income increased $234 million, or 24.7%, in the three months ended March 31, 2020 compared to the prior year primarily driven by growth in specialty pharmacy, improved purchasing economics and an increased generic dispensing rate, partially offset by previously disclosed client losses and continued price compression. The increase in operating income also was driven by lower amortization expense in the three months ended March 31, 2020.
|
•
|
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 and adjusted operating income. In particular, competitive pressures in the PBM industry have caused the Company and other PBMs to continue to share with clients a larger portion of rebates 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.
|
•
|
Total pharmacy claims processed represents the number of prescription claims processed through our pharmacy benefits manager and dispensed by either our retail network pharmacies or our own mail and specialty pharmacies. Management uses this metric to understand variances between actual claims processed and expected amounts as well as trends in period-over-period results. This metric provides management and investors with information useful in understanding the impact of pharmacy claim volume on segment revenues and operating results.
|
•
|
The Company’s pharmacy network claims processed on a 30-day equivalent basis increased 13.1% to 461.1 million claims in the three months ended March 31, 2020, compared to 407.7 million claims in the prior year. The increase in pharmacy network claims processed was primarily driven by increased claims processed under the Company’s agreement with IngenioRx, which began in the second quarter of 2019, and greater use of 90-day prescriptions and early refills of maintenance medications as consumers prepared for the COVID-19 pandemic.
|
•
|
The Company’s mail choice claims processed on a 30-day equivalent basis increased 8.4% to 80.3 million claims in the three months ended March 31, 2020, compared to 74.1 million claims in the prior year. The increase in mail choice claims was primarily driven by increased claims processed under the Company’s agreement with IngenioRx, greater use of 90-day prescriptions and early refills of maintenance medications as consumers prepared for the COVID-19 pandemic and the continued adoption of Maintenance Choice offerings.
|
•
|
Generic dispensing rate is calculated by dividing the Pharmacy Services segment’s generic drug prescriptions processed or filled by its total prescriptions processed or filled. Management uses this metric to evaluate the effectiveness of the business at encouraging the use of generic drugs when they are available and clinically appropriate, which aids in decreasing costs for client members and retail customers. This metric provides management and investors with information useful in understanding trends in segment total revenues and operating results.
|
•
|
The Pharmacy Services segment’s total generic dispensing rate increased to 89.0% in the three months ended March 31, 2020 compared to 88.3% in the prior year. The continued increase in the segment’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 the segment’s 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.
|
|
Three Months Ended
March 31, |
|
Change
|
|||||||||||
In millions, except percentages
|
2020
|
|
2019
|
|
$
|
|
%
|
|||||||
Revenues:
|
|
|
|
|
|
|
|
|||||||
Products
|
$
|
22,522
|
|
|
$
|
20,900
|
|
|
$
|
1,622
|
|
|
7.8
|
%
|
Services
|
227
|
|
|
215
|
|
|
12
|
|
|
5.6
|
%
|
|||
Total revenues
|
22,749
|
|
|
21,115
|
|
|
1,634
|
|
|
7.7
|
%
|
|||
Cost of products sold
|
16,578
|
|
|
15,297
|
|
|
1,281
|
|
|
8.4
|
%
|
|||
Operating expenses
|
4,391
|
|
|
4,580
|
|
|
(189
|
)
|
|
(4.1
|
)%
|
|||
Operating expenses as a % of total revenues
|
19.3
|
%
|
|
21.7
|
%
|
|
|
|
|
|||||
Operating income
|
$
|
1,780
|
|
|
$
|
1,238
|
|
|
$
|
542
|
|
|
43.8
|
%
|
Operating income as a % of total revenues
|
7.8
|
%
|
|
5.9
|
%
|
|
|
|
|
|||||
Adjusted operating income (1)
|
$
|
1,902
|
|
|
$
|
1,489
|
|
|
$
|
413
|
|
|
27.7
|
%
|
Adjusted operating income as a % of total revenues
|
8.4
|
%
|
|
7.1
|
%
|
|
|
|
|
|||||
Revenues (by major goods/service lines):
|
|
|
|
|
|
|
|
|||||||
Pharmacy
|
$
|
17,355
|
|
|
$
|
16,118
|
|
|
$
|
1,237
|
|
|
7.7
|
%
|
Front Store
|
5,208
|
|
|
4,799
|
|
|
409
|
|
|
8.5
|
%
|
|||
Other
|
186
|
|
|
198
|
|
|
(12
|
)
|
|
(6.1
|
)%
|
|||
Prescriptions filled (2)
|
375.1
|
|
|
346.8
|
|
|
28.3
|
|
|
8.2
|
%
|
|||
Same store sales increase: (3)
|
|
|
|
|
|
|
|
|||||||
Total
|
9.0
|
%
|
|
3.8
|
%
|
|
|
|
|
|||||
Pharmacy
|
9.3
|
%
|
|
4.9
|
%
|
|
|
|
|
|||||
Front Store
|
8.0
|
%
|
|
0.4
|
%
|
|
|
|
|
|||||
Prescription volume (2)
|
9.8
|
%
|
|
6.7
|
%
|
|
|
|
|
|||||
Generic dispensing rate (2)
|
89.3
|
%
|
|
88.7
|
%
|
|
|
|
|
(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 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 represent the change in revenues and prescriptions filled in the Company’s retail pharmacy stores that have been operating for greater than one year, expressed as a percentage that indicates the increase or decrease relative to the comparable prior period. Same store metrics exclude revenues from MinuteClinic, revenues and prescriptions from LTC operations and, in 2019, revenues and prescriptions from stores in Brazil. Management uses these metrics to evaluate the performance of existing stores on a comparable basis and to inform future decisions regarding existing stores and new locations. Same-store metrics provide management and investors with information useful in understanding the portion of current revenues and prescriptions resulting from organic growth in existing locations versus the portion resulting from opening new stores.
|
•
|
Total revenues increased $1.6 billion, or 7.7%, to $22.7 billion in the three months ended March 31, 2020 compared to the prior year primarily driven by increased prescription volume, higher front store revenues and brand inflation, partially offset by continued reimbursement pressure and an increased generic dispensing rate. Total revenues in the three months ended March 31, 2020 reflected the greater use of 90-day prescriptions, early refills of maintenance medications and increased front store volume as consumers prepared for the COVID-19 pandemic, as well as the impact of an additional day in 2020 due to the leap year.
|
•
|
Pharmacy same store sales increased 9.3% in the three months ended March 31, 2020 compared to the prior year. The increase was driven by the 9.8% increase in pharmacy same store prescription volume on a 30-day equivalent basis, including increased prescription volume related to COVID-19, brand inflation and the impact of the additional day in 2020 due to the leap year. These increases were partially offset by continued reimbursement pressure and an increased generic dispensing rate.
|
•
|
Front store same store sales increased 8.0% in the three months ended March 31, 2020 compared to the prior year. The increase in front store sales in the three months ended March 31, 2020 compared to the prior year was primarily due to strength in consumer health and general merchandise sales, which was primarily driven by COVID-19 related sales; the expansion of the CarePass® program; and the impact of the additional day in 2020 due to the leap year.
|
•
|
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 decreased $189 million, or 4.1%, in the three months ended March 31, 2020 compared to the prior year, primarily due to the absence of the $135 million store rationalization charge primarily related to operating lease right-of-use asset impairment charges in connection with the planned closure of underperforming retail pharmacy stores recorded in the three months ended March 31, 2019, the impact of cost savings initiatives and the favorable resolution of certain legal matters in the three months ended March 31, 2020. These decreases were partially offset by increased operating expenses associated with the increased volume described above, including the impact of COVID-19 in the three months ended March 31, 2020.
|
•
|
Operating expenses as a percentage of total revenues decreased to 19.3% in the three months ended March 31, 2020 compared to 21.7% in the prior year. The decrease in operating expenses as a percentage of total revenues was primarily driven by the increases in revenues and decreases in operating expenses described above.
|
•
|
Operating income increased $542 million, or 43.8%, and adjusted operating income increased $413 million, or 27.7%, in the three months ended March 31, 2020 compared to the prior year. The increase in both operating income and adjusted operating income was primarily due to the increased pharmacy and front store volume described above, improved generic drug purchasing, the impact of cost savings initiatives and the favorable resolution of certain legal matters in the three months ended March 31, 2020, partially offset by continued reimbursement pressure. The increase in operating income was also due to the absence of the $135 million store rationalization charge recorded in the three months ended March 31, 2019.
|
•
|
As you review the Retail/LTC segment’s performance in this area, you should consider the following important information about the business:
|
•
|
The segment’s pharmacy operating income and adjusted operating income has been adversely affected by the efforts of managed care organizations, PBMs and governmental and other third-party payors to reduce their prescription drug costs, including the use of restrictive networks, as well as changes in the mix of business within the pharmacy portion of the Retail/LTC segment. If the reimbursement pressure accelerates, the segment may not be able grow revenues, and its operating income and adjusted operating income could be adversely affected.
|
•
|
The increased use of generic drugs has positively impacted the segment’s operating income and adjusted 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 segment realizes from brand to generic drug conversions.
|
•
|
Prescriptions filled represents the number of prescriptions dispensed through the Retail/LTC segment’s pharmacies. Management uses this metric to understand variances between actual prescriptions dispensed and expected amounts as well as trends in period-over-period results. This metric provides management and investors with information useful in understanding the impact of prescription volume on segment revenues and operating results.
|
•
|
Prescriptions filled increased 8.2% on a 30-day equivalent basis, driven primarily by the continued adoption of patient care programs, greater use of 90-day prescriptions and early refills of maintenance medications as consumers prepared for COVID-19, and the impact of the additional day in 2020 due to the leap year.
|
•
|
Generic dispensing rate is calculated by dividing the Retail/LTC segment’s generic drug prescriptions filled by its total prescriptions filled. Management uses this metric to evaluate the effectiveness of the business at encouraging the use of generic drugs when they are available and clinically appropriate, which aids in decreasing costs for client members and retail customers. This metric provides management and investors with information useful in understanding trends in segment total revenues and operating results.
|
•
|
The Retail/LTC segment’s generic dispensing rate increased to 89.3% in the three months ended March 31, 2020 compared to 88.7% in the prior year. The continued increase in the segment’s generic dispensing rate was primarily due to the impact of new generic drug introductions. The Company believes the segment’s 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.
|
|
Three Months Ended
March 31, |
|
Change
|
|||||||||||
In millions, except percentages and basis points (“bps”)
|
2020
|
|
2019
|
|
$
|
|
%
|
|||||||
Revenues:
|
|
|
|
|
|
|
|
|||||||
Premiums
|
$
|
17,621
|
|
|
$
|
16,259
|
|
|
$
|
1,362
|
|
|
8.4
|
%
|
Services
|
1,484
|
|
|
1,447
|
|
|
37
|
|
|
2.6
|
%
|
|||
Net investment income
|
93
|
|
|
164
|
|
|
(71
|
)
|
|
(43.3
|
)%
|
|||
Total revenues
|
19,198
|
|
|
17,870
|
|
|
1,328
|
|
|
7.4
|
%
|
|||
Benefit costs
|
14,516
|
|
|
13,655
|
|
|
861
|
|
|
6.3
|
%
|
|||
MBR
|
82.4
|
%
|
|
84.0
|
%
|
|
(160)
|
bps
|
||||||
Operating expenses
|
$
|
3,587
|
|
|
$
|
3,060
|
|
|
$
|
527
|
|
|
17.2
|
%
|
Operating expenses as a % of total revenues
|
18.7
|
%
|
|
17.1
|
%
|
|
|
|
|
|||||
Operating income
|
$
|
1,095
|
|
|
$
|
1,155
|
|
|
$
|
(60
|
)
|
|
(5.2
|
)%
|
Operating income as a % of total revenues
|
5.7
|
%
|
|
6.5
|
%
|
|
|
|
|
|||||
Adjusted operating income (1)
|
$
|
1,491
|
|
|
$
|
1,562
|
|
|
$
|
(71
|
)
|
|
(4.5
|
)%
|
Adjusted operating income as a % of total revenues
|
7.8
|
%
|
|
8.7
|
%
|
|
|
|
|
(1)
|
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 $1.3 billion, or 7.4%, to $19.2 billion in the three months ended March 31, 2020 compared to the prior year primarily driven by membership growth in the Health Care Benefits segment’s Government products and the favorable impact of the reinstatement of the HIF for 2020. These increases were partially offset by the absence of the financial results of Aetna’s standalone Medicare Part D prescription drug plans, which the Company retained through 2019, membership declines in the segment’s Commercial Insured products, as well as a decline in net investment income due to lower interest rates and the capital markets volatility associated with the COVID-19 pandemic.
|
•
|
Medical benefit ratio is calculated as benefit costs divided by premium revenues and represents the percentage of premium revenues spent on medical benefits for the Company’s Insured members. Management uses MBR to assess the underlying business performance and underwriting of its insurance products, understand variances between actual results and expected results and identify trends in period-over-period results. MBR provides management and investors with information useful in assessing the operating results of the Company’s Insured Health Care Benefits products.
|
•
|
The Health Care Benefits segment’s MBR decreased 160 basis points for the three months ended March 31, 2020 compared to the prior year primarily due to the reinstatement of the HIF for 2020.
|
•
|
Operating expenses in the Health Care Benefits segment include selling, general and administrative expenses and depreciation and amortization expenses.
|
•
|
Operating expenses increased $527 million, or 17.2%, in the three months ended March 31, 2020 compared to the prior year. The increase in operating expenses was primarily due to the reinstatement of the HIF for 2020 and incremental operating expenses to support the increased membership described above, including incremental operating expenses to onboard additional Medicaid members in the three months ended March 31, 2020. This increase was partially offset by the impact of cost reduction efforts, including integration synergies.
|
•
|
Operating expenses as a percentage of total revenues increased to 18.7% in the three months ended March 31, 2020 compared to 17.1% in the prior year. The increase in operating expenses as a percentage of total revenues was primarily due to the reinstatement of the HIF for 2020.
|
•
|
Operating income decreased $60 million, or 5.2%, and adjusted operating income decreased $71 million, or 4.5% in the three months ended March 31, 2020, compared to the prior year. The decrease was primarily driven by membership declines in the segment’s Commercial Insured products including the migration of Commercial customers from Insured to ASC products, higher Medicaid benefit costs in certain states and incremental operating expenses to onboard additional Medicaid members. This decrease was partially offset by membership growth in the segment’s Government products and increased integration synergies. The COVID-19 pandemic had a modest impact on operating income and adjusted operating income in the three months ended March 31, 2020, as the reduction in benefit costs primarily related to the deferral of elective procedures and other discretionary utilization was largely offset by lower net investment income due to lower interest rates and the capital markets volatility associated with the COVID-19 pandemic.
|
(1)
|
Represents the Company’s SilverScript PDP membership only. Excludes 2.5 million and 2.4 million members as of December 31, 2019 and March 31, 2019, respectively, related to Aetna’s standalone PDPs that were sold effective December 31, 2018. The Company retained the financial results of the divested plans through 2019 through a reinsurance agreement. Subsequent to 2019, the Company no longer retains the financial results of the divested plans.
|
•
|
Medical membership represents the number of members covered by the Company’s Insured and ASC medical products and related services at a specified point in time. Management uses this metric to understand variances between actual medical membership and expected amounts as well as trends in period-over-period results. This metric provides management and investors with information useful in understanding the impact of medical membership on segment total revenues and operating results.
|
•
|
Medical membership as of March 31, 2020 increased compared with December 31, 2019, primarily reflecting increases in Medicare and Medicaid products, partially offset by a decline in Commercial Insured products. Medical membership as of March 31, 2020 increased compared with March 31, 2019, reflecting increases in Medicare and Medicaid products, partially offset by declines in Commercial products.
|
|
Three Months Ended
March 31,
|
|
Change
|
|||||||||||
In millions, except percentages
|
2020
|
|
2019
|
|
$
|
|
%
|
|||||||
Revenues:
|
|
|
|
|
|
|
|
|||||||
Premiums
|
$
|
19
|
|
|
$
|
23
|
|
|
$
|
(4
|
)
|
|
(17.4
|
)%
|
Services
|
2
|
|
|
2
|
|
|
—
|
|
|
—
|
%
|
|||
Net investment income
|
69
|
|
|
85
|
|
|
(16
|
)
|
|
(18.8
|
)%
|
|||
Total revenues
|
90
|
|
|
110
|
|
|
(20
|
)
|
|
(18.2
|
)%
|
|||
Benefit costs
|
68
|
|
|
79
|
|
|
(11
|
)
|
|
(13.9
|
)%
|
|||
Operating expenses
|
377
|
|
|
412
|
|
|
(35
|
)
|
|
(8.5
|
)%
|
|||
Operating loss
|
(355
|
)
|
|
(381
|
)
|
|
26
|
|
|
6.8
|
%
|
|||
Adjusted operating loss (1)
|
(285
|
)
|
|
(231
|
)
|
|
(54
|
)
|
|
(23.4
|
)%
|
(1)
|
See “Segment Analysis” above in this report for a reconciliation of operating loss (GAAP measure) to adjusted operating loss for the Corporate/Other segment.
|
•
|
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.
|
•
|
Total revenues decreased $20 million in the three months ended March 31, 2020 compared to the prior year, primarily due to net realized capital losses associated with the COVID-19 related capital markets volatility during the three months ended March 31, 2020 compared to net realized capital gains during the three months ended March 31, 2019.
|
•
|
Operating expenses within the Corporate/Other segment consist of management and administrative expenses to support the Company’s overall operations, which include certain aspects of executive management and the corporate relations, legal, compliance, human resources, information technology and finance departments, expenses associated with the Company’s investments in its transformation and Enterprise modernization programs and acquisition-related integration costs. Segment operating expenses also include operating costs to support the large case pensions and long-term care insurance products.
|
•
|
Operating expenses decreased $35 million in the three months ended March 31, 2020 compared to the prior year. The decrease was primarily driven by a decrease in acquisition-related integration costs of $79 million in the three months ended March 31, 2020 compared to the prior period, partially offset by incremental operating expenses associated with the Company’s investments in transformation and increased legal costs in the three months ended March 31, 2020.
|
|
Three Months Ended
March 31, |
|
Change
|
|||||||||||
In millions, except percentages
|
2020
|
|
2019
|
|
$
|
|
%
|
|||||||
Net cash provided by operating activities
|
$
|
3,305
|
|
|
$
|
1,948
|
|
|
$
|
1,357
|
|
|
69.7
|
%
|
Net cash used in investing activities
|
(1,597
|
)
|
|
(891
|
)
|
|
(706
|
)
|
|
79.2
|
%
|
|||
Net cash provided by financing activities
|
2,675
|
|
|
816
|
|
|
1,859
|
|
|
227.8
|
%
|
|||
Net increase in cash, cash equivalents and restricted cash
|
$
|
4,383
|
|
|
$
|
1,873
|
|
|
$
|
2,510
|
|
|
134.0
|
%
|
•
|
Net cash provided by operating activities increased by $1.4 billion in the three months ended March 31, 2020 compared to the prior year due primarily to the timing of payables and higher operating income in the Pharmacy Services and Retail/LTC segments, which were impacted by the COVID-19 pandemic as described in “Segment Analysis” above in this report.
|
•
|
Net cash used in investing activities increased by $706 million in the three months ended March 31, 2020 compared to the prior year due primarily to an increase in cash used for acquisitions and increased net purchases of investments.
|
•
|
Net cash provided by financing activities was $2.7 billion in the three months ended March 31, 2020 compared to $816 million in the prior year. The increase in cash provided by financing activities primarily related to the issuance of $4.0 billion of senior notes during the three months ended March 31, 2020, partially offset by lower short-term borrowings during the three months ended March 31, 2020 compared to the prior year.
|
·
|
Anticipates
|
·
|
Believes
|
·
|
Can
|
·
|
Continue
|
·
|
Could
|
·
|
Estimates
|
·
|
Evaluate
|
·
|
Expects
|
·
|
Explore
|
·
|
Forecast
|
·
|
Guidance
|
·
|
Intends
|
·
|
Likely
|
·
|
May
|
·
|
Might
|
·
|
Outlook
|
·
|
Plans
|
·
|
Potential
|
·
|
Predict
|
·
|
Probable
|
·
|
Projects
|
·
|
Seeks
|
·
|
Should
|
·
|
View
|
·
|
Will
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
In millions
|
March 31,
2020 |
|
December 31,
2019 |
||||
Experience-rated products
|
$
|
1,048
|
|
|
$
|
1,100
|
|
Remaining products
|
18,424
|
|
|
18,587
|
|
||
Total investments
|
$
|
19,472
|
|
|
$
|
19,687
|
|
•
|
The fair value of long-term debt would decline by approximately $4.6 billion ($5.8 billion pretax). Changes in the fair value of long-term debt do not impact the Company’s operating results or financial condition.
|
•
|
The theoretical reduction in the fair value of debt investment securities partially offset by the theoretical reduction in the fair value of interest rate sensitive liabilities would result in a net decline in fair value of approximately $410 million ($520 million pretax) related to continuing non-experience-rated products. Reductions in the fair value of investment securities would be reflected as an unrealized loss in equity, as the Company classifies these debt securities as available for sale. The Company does not record liabilities at fair value.
|
Item 4.
|
Controls and Procedures
|
Part II.
|
Other Information
|
Item 1.
|
Legal Proceedings
|
Item 1A.
|
Risk Factors
|
•
|
In our Pharmacy Services segment, by causing drug utilization to decline, reducing demand for PBM services and adversely affecting the financial health of our PBM clients.
|
•
|
In our Retail/LTC segment, by causing drug utilization to decline, changing consumer purchasing power, preferences and/or spending patterns leading to reduced consumer demand for products sold in our stores and adversely affecting the financial health of our LTC pharmacy customers.
|
•
|
By leading to reductions in workforce by our existing customers (including due to business failures), which would reduce our revenues, the number of covered lives in our PBM clients and/or the number of members our Health Care Benefits segment serves.
|
•
|
By leading our clients and customers and potential clients and customers, particularly those with the most employees or members, and state and local governments, to force us to compete more vigorously on factors such as price and service to retain or obtain their business.
|
•
|
By leading customers and potential customers of our Retail/LTC and Health Care Benefits segments to purchase fewer products and/or products that generate less profit for us than the ones they currently purchase or otherwise would have purchased.
|
•
|
By leading customers and potential customers of our Health Care Benefits segment, particularly smaller employers and individuals, to forego obtaining or renewing their health and other coverage with us.
|
•
|
In our Health Care Benefits segment, by causing unanticipated increases and volatility in utilization of medical and other covered services, including behavioral health services, by our medical members, changes in medical claim submission patterns and/or increases in medical unit costs and/or provider behavior, each of which would increase our costs and limit our ability to accurately detect, forecast, manage, reserve and price for our (and our self-insured customers’) medical cost trends and incurred and future health care and other benefits costs.
|
•
|
By increasing medical unit costs and causing changes in provider behavior in our Health Care Benefits segment as hospitals and other providers attempt to maintain revenue levels in their efforts to adjust to their own COVID-19-related and other economic challenges.
|
•
|
By weakening the ability or perceived ability of the issuers and/or guarantors of the debt or other securities we hold in our investment portfolio to perform on their obligations to us, which could result in defaults in those securities and has reduced, and may further reduce, the value of those securities and has created, and may continue to create, net realized capital losses for us that reduce our operating results.
|
•
|
By weakening the ability of our customers, including self-insured customers in our Health Care Benefits segment, medical providers and the other companies with which we do business as well as our medical members to perform their obligations to us or causing them not to perform those obligations, either of which could reduce our operating results.
|
•
|
By weakening the ability of our former subsidiaries and/or their purchasers to satisfy their lease obligations that we have guaranteed and causing the Company to be required to satisfy those obligations.
|
•
|
By weakening the financial condition of other insurers, including long-term care insurers and life insurers, which increases the risk that we will receive significant assessments for obligations of insolvent insurers to policyholders and claimants.
|
•
|
By causing, over time, inflation that could cause interest rates to increase and thereby increase our interest expense and reduce our operating results, as well as decrease the value of the debt securities we hold in our investment portfolio, which would reduce our operating results and/or adversely affect our financial condition.
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
Fiscal Period
|
Total Number
of Shares Purchased |
|
Average
Price Paid per Share |
|
Total Number of Shares
Purchased as Part of Publicly Announced Plans or Programs |
|
Approximate Dollar
Value of Shares that May Yet Be Purchased Under the Plans or Programs |
||||||
January 1, 2020 through January 31, 2020
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
13,869,392,446
|
|
February 1, 2020 through February 29, 2020
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
13,869,392,446
|
|
March 1, 2020 through March 31, 2020
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
13,869,392,446
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
4
|
Instruments defining the rights of security holders, including indentures
|
|
|
4.1
|
Form of the Registrant’s 2027 Note (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on March 31, 2020).
|
|
|
4.2
|
Form of the Registrant’s 2030 Note (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on March 31, 2020).
|
|
|
4.3
|
Form of the Registrant’s 2040 Note (incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed on March 31, 2020).
|
|
|
4.4
|
Form of the Registrant’s 2050 Note (incorporated by reference to Exhibit 4.4 to the Registrant’s Current Report on Form 8-K filed on March 31, 2020).
|
|
|
10
|
Material Contracts
|
|
|
10.1*
|
|
|
|
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
|
|
|
|
101
|
The following materials from the CVS Health Corporation Quarterly Report on Form 10-Q for the three months ended March 31, 2020 formatted in Inline 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. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
|
|
|
104
|
|
|
|
104
|
Cover Page Interactive Data File - The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, formatted in Inline XBRL (included as Exhibit 101).
|
|
|
CVS HEALTH CORPORATION
|
|
|
|
Date:
|
May 6, 2020
|
By:
|
/s/ Eva C. Boratto
|
|
|
|
Eva C. Boratto
|
|
|
|
Executive Vice President and Chief Financial Officer
|
|
|
|
|
1.
|
TERMINATION OF EMPLOYMENT; OTHER SERVICE.
|
2.
|
CONSIDERATION.
|
3.
|
SEVERANCE.
|
4.
|
OTHER PAYMENTS AND BENEFITS.
|
5.
|
MANAGEMENT INCENTIVE AWARD.
|
6.
|
STOCK OPTIONS.
|
7.
|
RESTRICTED STOCK UNITS.
|
8.
|
PERFORMANCE STOCK UNITS.
|
9.
|
2017-2019 LONG TERM INCENTIVE PLAN (LTIP) AWARD.
|
10.
|
DEFERRED COMPENSATION.
|
11.
|
NO OTHER PAY OR BENEFITS; SUFFICIENCY OF CONSIDERATION.
|
12.
|
GENERAL RELEASE OF CLAIMS.
|
13.
|
NO PENDING ACTIONS; COVENANT NOT TO SUE.
|
14.
|
NO FMLA OR FLSA CLAIMS.
|
15.
|
RESTRICTIVE COVENANT AGREEMENT. Employee and CVS acknowledge and agree that paragraph 2 of the Restrictive Covenant Agreement shall be amended and restated as set forth in Addendum I hereto.
|
16.
|
NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
|
17.
|
RETURN OF COMPANY PROPERTY.
|
18.
|
UNDERSTANDING OF AGREEMENT; ADVICE OF COUNSEL.
|
19.
|
REVIEW AND REVOCATION OF GENERAL RELEASE.
|
20.
|
EMPLOYEE COVENANTS.
|
21.
|
NON-DISPARAGEMENT.
|
22.
|
COOPERATION.
|
23.
|
BREACH OF EMPLOYEE COVENANTS AND INJUNCTIVE RELIEF.
|
24.
|
NONADMISSION OF WRONGDOING.
|
25.
|
GOVERNING LAW; VENUE; HEADINGS.
|
26.
|
JURY TRIAL WAIVER.
|
27.
|
COUNTERPARTS.
|
28.
|
SEVERABILITY.
|
29.
|
SECTION 409A AND RESPONSIBILITY FOR TAXES.
|
30.
|
SUCCESSORS.
|
31.
|
DEBTS TO THE COMPANY.
|
32.
|
ENTIRE AGREEMENT.
|
NAME
|
|
CVS PHARMACY, INC.
|
||
|
|
|
||
/s/ DERICA W. RICE
|
|
By:
|
/s/ LISA BISACCIA
|
|
|
|
|
|
Lisa Bisaccia
Executive Vice President, Chief
Human Resources Officer
|
|
|
|
|
|
Date:
|
3/3/20
|
|
Date:
|
3 March 2020
|
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 6, 2020
|
|
/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 6, 2020
|
|
/S/ EVA C. BORATTO
|
|
|
|
Eva C. Boratto
|
|
|
|
Executive Vice President and Chief Financial Officer
|
Date:
|
May 6, 2020
|
/S/ LARRY J. MERLO
|
|
|
Larry J. Merlo
|
|
|
President and Chief Executive Officer
|
Date:
|
May 6, 2020
|
/S/ EVA C. BORATTO
|
|
|
Eva C. Boratto
|
|
|
Executive Vice President and Chief Financial Officer
|