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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to_________
Commission File Number: 001-01011
CVS HEALTH CORPORATION
(Exact name of registrant as specified in its charter)
| | | | | | | | |
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 |
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.01 per share | CVS | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☑ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
Large accelerated filer | ☑ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☑ No
As of April 27, 2022, the registrant had 1,311,309,074 shares of common stock issued and outstanding.
| | | | | | | | |
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
Index to Condensed Consolidated Financial Statements
| | | | | |
| Page |
Condensed Consolidated Statements of Operations (Unaudited) for the three months ended March 31, 2022 and 2021 | |
| |
Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three months ended March 31, 2022 and 2021 | |
| |
Condensed Consolidated Balance Sheets (Unaudited) as of March 31, 2022 and December 31, 2021 | |
| |
Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2022 and 2021 | |
| |
Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) for the three months ended March 31, 2022 and 2021 | |
| |
Notes to Condensed Consolidated Financial Statements (Unaudited) | |
| |
Report of Independent Registered Public Accounting Firm | |
CVS Health Corporation
Condensed Consolidated Statements of Operations
(Unaudited)
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
In millions, except per share amounts | 2022 | | 2021 | | | | |
Revenues: | | | | | | | |
Products | $ | 52,522 | | | $ | 47,387 | | | | | |
Premiums | 21,631 | | | 18,960 | | | | | |
Services | 2,505 | | | 2,453 | | | | | |
Net investment income | 168 | | | 297 | | | | | |
Total revenues | 76,826 | | | 69,097 | | | | | |
Operating costs: | | | | | | | |
Cost of products sold | 45,509 | | | 40,894 | | | | | |
Benefit costs | 17,951 | | | 15,704 | | | | | |
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Operating expenses | 9,876 | | | 8,922 | | | | | |
Total operating costs | 73,336 | | | 65,520 | | | | | |
Operating income | 3,490 | | | 3,577 | | | | | |
Interest expense | 586 | | | 657 | | | | | |
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Other income | (42) | | | (50) | | | | | |
Income before income tax provision | 2,946 | | | 2,970 | | | | | |
Income tax provision | 633 | | | 746 | | | | | |
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Net income | 2,313 | | | 2,224 | | | | | |
Net income attributable to noncontrolling interests | (1) | | | (1) | | | | | |
Net income attributable to CVS Health | $ | 2,312 | | | $ | 2,223 | | | | | |
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Net income per share attributable to CVS Health: | | | | | | | |
Basic | $ | 1.76 | | | $ | 1.69 | | | | | |
Diluted | $ | 1.74 | | | $ | 1.68 | | | | | |
Weighted average shares outstanding: | | | | | | | |
Basic | 1,312 | | | 1,313 | | | | | |
Diluted | 1,328 | | | 1,322 | | | | | |
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Dividends declared per share | $ | 0.55 | | | $ | 0.50 | | | | | |
See accompanying notes to condensed consolidated financial statements (unaudited).
CVS Health Corporation
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
In millions | 2022 | | 2021 | | | | |
Net income | $ | 2,313 | | | $ | 2,224 | | | | | |
Other comprehensive loss, net of tax: | | | | | | | |
Net unrealized investment losses | (1,155) | | | (386) | | | | | |
Foreign currency translation adjustments | 3 | | | (2) | | | | | |
Net cash flow hedges | (3) | | | (4) | | | | | |
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Other comprehensive loss | (1,155) | | | (392) | | | | | |
Comprehensive income | 1,158 | | | 1,832 | | | | | |
Comprehensive income attributable to noncontrolling interests | (1) | | | (1) | | | | | |
Comprehensive income attributable to CVS Health | $ | 1,157 | | | $ | 1,831 | | | | | |
See accompanying notes to condensed consolidated financial statements (unaudited).
CVS Health Corporation
Condensed Consolidated Balance Sheets
(Unaudited)
| | | | | | | | | | | |
In millions, except per share amounts | March 31, 2022 | | December 31, 2021 |
Assets: | | | |
Cash and cash equivalents | $ | 8,442 | | | $ | 9,408 | |
Investments | 2,900 | | | 3,117 | |
Accounts receivable, net | 26,451 | | | 24,431 | |
Inventories | 18,160 | | | 17,760 | |
Other current assets | 5,530 | | | 5,292 | |
Total current assets | 61,483 | | | 60,008 | |
Long-term investments | 22,595 | | | 23,025 | |
Property and equipment, net | 12,844 | | | 12,896 | |
Operating lease right-of-use assets | 18,801 | | | 19,122 | |
Goodwill | 79,060 | | | 79,121 | |
Intangible assets, net | 28,543 | | | 29,026 | |
Separate accounts assets | 4,670 | | | 5,087 | |
Other assets | 4,877 | | | 4,714 | |
Total assets | $ | 232,873 | | | $ | 232,999 | |
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Liabilities: | | | |
Accounts payable | $ | 12,738 | | | $ | 12,544 | |
Pharmacy claims and discounts payable | 18,572 | | | 17,330 | |
Health care costs payable | 10,260 | | | 8,808 | |
Policyholders’ funds | 4,138 | | | 4,301 | |
Accrued expenses | 16,619 | | | 17,670 | |
Other insurance liabilities | 1,387 | | | 1,303 | |
Current portion of operating lease liabilities | 1,849 | | | 1,646 | |
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Current portion of long-term debt | 4,217 | | | 4,205 | |
Total current liabilities | 69,780 | | | 67,807 | |
Long-term operating lease liabilities | 17,786 | | | 18,177 | |
Long-term debt | 52,063 | | | 51,971 | |
Deferred income taxes | 5,829 | | | 6,270 | |
Separate accounts liabilities | 4,670 | | | 5,087 | |
Other long-term insurance liabilities | 6,363 | | | 6,402 | |
Other long-term liabilities | 2,242 | | | 1,904 | |
Total liabilities | 158,733 | | | 157,618 | |
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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; 1,747 shares issued and 1,306 shares outstanding at March 31, 2022 and 1,744 shares issued and 1,322 shares outstanding at December 31, 2021 and capital surplus | 47,677 | | | 47,377 | |
Treasury stock, at cost: 441 shares at March 31, 2022 and 422 shares at December 31, 2021 | (30,145) | | | (28,173) | |
Retained earnings | 56,488 | | | 54,906 | |
Accumulated other comprehensive income (loss) | (190) | | | 965 | |
Total CVS Health shareholders’ equity | 73,830 | | | 75,075 | |
Noncontrolling interests | 310 | | | 306 | |
Total shareholders’ equity | 74,140 | | | 75,381 | |
Total liabilities and shareholders’ equity | $ | 232,873 | | | $ | 232,999 | |
See accompanying notes to condensed consolidated financial statements (unaudited).
CVS Health Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| | | | | | | | | | | |
| Three Months Ended March 31, |
In millions | 2022 | | 2021 |
Cash flows from operating activities: | | | |
Cash receipts from customers | $ | 74,192 | | | $ | 66,487 | |
Cash paid for inventory and prescriptions dispensed by retail network pharmacies | (44,365) | | | (39,171) | |
Insurance benefits paid | (16,616) | | | (15,456) | |
Cash paid to other suppliers and employees | (8,969) | | | (8,270) | |
Interest and investment income received | 199 | | | 222 | |
Interest paid | (782) | | | (876) | |
Income taxes paid | (96) | | | (44) | |
Net cash provided by operating activities | 3,563 | | | 2,892 | |
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Cash flows from investing activities: | | | |
Proceeds from sales and maturities of investments | 2,570 | | | 2,177 | |
Purchases of investments | (3,474) | | | (3,131) | |
Purchases of property and equipment | (1,051) | | | (829) | |
Acquisitions (net of cash acquired) | (7) | | | (84) | |
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Other | (31) | | | — | |
Net cash used in investing activities | (1,993) | | | (1,867) | |
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Cash flows from financing activities: | | | |
Net borrowings of short-term debt | — | | | 252 | |
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Repayments of long-term debt | (14) | | | (3,049) | |
Repurchase of common stock | (2,000) | | | — | |
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Dividends paid | (722) | | | (656) | |
Proceeds from exercise of stock options | 297 | | | 212 | |
Payments for taxes related to net share settlement of equity awards | (62) | | | (3) | |
Other | (149) | | | 59 | |
Net cash used in financing activities | (2,650) | | | (3,185) | |
Net decrease in cash, cash equivalents and restricted cash | (1,080) | | | (2,160) | |
Cash, cash equivalents and restricted cash at the beginning of the period | 12,691 | | | 11,043 | |
Cash, cash equivalents and restricted cash at the end of the period | $ | 11,611 | | | $ | 8,883 | |
CVS Health Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| | | | | | | | | | | |
| Three Months Ended March 31, |
In millions | 2022 | | 2021 |
Reconciliation of net income to net cash provided by operating activities: | | | |
Net income | $ | 2,313 | | | $ | 2,224 | |
Adjustments required to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 1,055 | | | 1,126 | |
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Stock-based compensation | 89 | | | 87 | |
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Deferred income taxes and other noncash items | (187) | | | (166) | |
Change in operating assets and liabilities, net of effects from acquisitions: | | | |
Accounts receivable, net | (1,967) | | | (2,093) | |
Inventories | (400) | | | 879 | |
Other assets | (352) | | | (286) | |
Accounts payable and pharmacy claims and discounts payable | 1,974 | | | 576 | |
Health care costs payable and other insurance liabilities | 1,478 | | | 294 | |
Other liabilities | (440) | | | 251 | |
Net cash provided by operating activities | $ | 3,563 | | | $ | 2,892 | |
See accompanying notes to condensed consolidated financial statements (unaudited).
CVS Health Corporation
Condensed Consolidated Statements of Shareholders’ Equity
(Unaudited)
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| | | Attributable to CVS Health | | |
| Number of shares outstanding | | Common Stock and Capital Surplus (2) | Treasury Stock (1) | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total CVS Health Shareholders’ Equity | Noncontrolling Interests | Total Shareholders’ Equity |
| |
| Common Shares | Treasury Shares (1) | |
In millions | |
Balance at December 31, 2021 | 1,744 | | (422) | | | $ | 47,377 | | $ | (28,173) | | $ | 54,906 | | $ | 965 | | $ | 75,075 | | $ | 306 | | $ | 75,381 | |
Net income | — | | — | | | — | | — | | 2,312 | | — | | 2,312 | | 1 | | 2,313 | |
Other comprehensive loss (Note 6) | — | | — | | | — | | — | | — | | (1,155) | | (1,155) | | — | | (1,155) | |
Stock option activity, stock awards and other | 3 | | — | | | 300 | | — | | — | | — | | 300 | | — | | 300 | |
Purchase of treasury shares, net of ESPP issuances | — | | (19) | | | — | | (1,972) | | — | | — | | (1,972) | | — | | (1,972) | |
Common stock dividends | — | | — | | | — | | — | | (730) | | — | | (730) | | — | | (730) | |
Other increases in noncontrolling interests | — | | — | | | — | | — | | — | | — | | — | | 3 | | 3 | |
Balance at March 31, 2022 | 1,747 | | (441) | | | $ | 47,677 | | $ | (30,145) | | $ | 56,488 | | $ | (190) | | $ | 73,830 | | $ | 310 | | $ | 74,140 | |
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Balance at December 31, 2020 | 1,733 | | (423) | | | $ | 46,513 | | $ | (28,178) | | $ | 49,640 | | $ | 1,414 | | $ | 69,389 | | $ | 312 | | $ | 69,701 | |
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Net income | — | | — | | | — | | — | | 2,223 | | — | | 2,223 | | 1 | | 2,224 | |
Other comprehensive loss (Note 6) | — | | — | | | — | | — | | — | | (392) | | (392) | | — | | (392) | |
Stock option activity, stock awards and other | 2 | | — | | | 214 | | — | | — | | — | | 214 | | — | | 214 | |
ESPP issuances, net of purchase of treasury shares | — | | 1 | | | — | | 76 | | — | | — | | 76 | | — | | 76 | |
Common stock dividends | — | | — | | | — | | — | | (660) | | — | | (660) | | — | | (660) | |
Other increases in noncontrolling interests | — | | — | | | — | | — | | — | | — | | — | | 1 | | 1 | |
Balance at March 31, 2021 | 1,735 | | (422) | | | $ | 46,727 | | $ | (28,102) | | $ | 51,203 | | $ | 1,022 | | $ | 70,850 | | $ | 314 | | $ | 71,164 | |
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_____________________________________________
(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, 2022 and 2021 and December 31, 2021 and 2020.
(2)Common stock and capital surplus includes the par value of common stock of $17 million as of March 31, 2022 and 2021 and December 31, 2021 and 2020.
See accompanying notes to condensed consolidated financial statements (unaudited).
Notes to Condensed Consolidated Financial Statements (Unaudited)
1.Significant Accounting Policies
Description of Business
CVS Health Corporation, together with its subsidiaries (collectively, “CVS Health” or the “Company”), has more than 9,000 retail locations, more than 1,100 walk-in medical clinics, a leading pharmacy benefits manager with approximately 110 million plan members with expanding specialty pharmacy solutions and a dedicated senior pharmacy care business serving more than one million patients per year. The Company also serves an estimated 35 million people through traditional, voluntary and consumer-directed health insurance products and related services, including expanding Medicare Advantage offerings and a leading standalone Medicare Part D prescription drug plan (“PDP”). The Company believes its innovative health care model increases access to quality care, delivers better health outcomes and lowers overall health care costs.
The coronavirus disease 2019 (“COVID-19”) and its emerging new variants continue to impact the economies of the U.S. and other countries around the world. The impact of COVID-19 on the Company’s businesses, operating results, cash flows and financial condition, as well as information regarding certain expected impacts of COVID-19 on the Company, is discussed throughout this Quarterly Report on Form 10-Q.
The Company has four reportable segments: Health Care Benefits, Pharmacy Services, Retail/LTC and Corporate/Other, which are described below.
Health Care Benefits Segment
The Health Care Benefits segment operates as one of the nation’s leading diversified health care benefits providers. The Health Care Benefits segment has the information and resources to help members, in consultation with their health care professionals, make more informed decisions about their health care. The Health Care Benefits segment offers a broad range of traditional, voluntary and consumer-directed health insurance products and related services, including medical, pharmacy, dental and behavioral health plans, medical management capabilities, Medicare Advantage and Medicare Supplement plans, PDPs, Medicaid health care management services and health information technology products and services. The Health Care Benefits segment’s customers include employer groups, individuals, college students, part-time and hourly workers, health plans, health care providers (“providers”), governmental units, government-sponsored plans, labor groups and expatriates. The Company refers to insurance products (where it assumes all or a majority of the risk for medical and dental care costs) as “Insured” and administrative services contract products (where the plan sponsor assumes all or a majority of the risk for medical and dental care costs) as “ASC.” In addition, effective January 2022, the Company entered the individual public health insurance exchanges (“Public Exchanges”) in eight states through which it sells Insured plans directly to individual consumers.
Pharmacy Services Segment
The Pharmacy Services segment provides a full range of pharmacy benefit management (“PBM”) solutions, including plan design offerings and administration, formulary management, retail pharmacy network management services and mail order pharmacy. In addition, through the Pharmacy Services segment, the Company provides specialty pharmacy and infusion services, clinical services, disease management services, medical spend management and pharmacy and/or other administrative services for providers and federal 340B drug pricing program covered entities (“Covered Entities”). The Company operates a group purchasing organization that negotiates pricing for the purchase of pharmaceuticals and rebates with pharmaceutical manufacturers on behalf of its participants. The Company also provides various administrative, management and reporting services to pharmaceutical manufacturers. The Pharmacy Services segment’s clients are primarily employers, insurance companies, unions, government employee groups, health plans, PDPs, Medicaid managed care plans, plans offered on Public Exchanges and private health insurance exchanges, other sponsors of health benefit plans throughout the United States and Covered Entities. The Pharmacy Services segment operates retail specialty pharmacy stores, specialty mail order pharmacies, mail order dispensing pharmacies, compounding pharmacies and branches for infusion and enteral nutrition services.
Retail/LTC Segment
The Retail/LTC segment sells prescription drugs and a wide assortment of health and wellness products and general merchandise, provides health care services through its MinuteClinic® walk-in medical clinics, provides medical diagnostic testing, administers vaccinations for illnesses such as influenza, COVID-19 and shingles and conducts long-term care pharmacy (“LTC”) operations, which distribute prescription drugs and provide related pharmacy consulting and other ancillary services to long-term care facilities and other care settings. As of March 31, 2022, the Retail/LTC segment operated more than 9,000 retail locations, more than 1,100 MinuteClinic locations as well as online retail pharmacy websites, LTC pharmacies and on-site pharmacies.
Corporate/Other Segment
The Company presents the remainder of its financial results in the Corporate/Other segment, which primarily consists of:
•Management and administrative expenses to support the Company’s overall operations, which include certain aspects of executive management and the corporate relations, legal, compliance, human resources, information technology and finance departments, expenses associated with the Company’s investments in its transformation and enterprise modernization programs and acquisition-related integration costs; and
•Products for which the Company no longer solicits or accepts new customers such as its large case pensions and long-term care insurance products.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of CVS Health and its subsidiaries have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. In accordance with such rules and regulations, certain information and accompanying note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted, although the Company believes the disclosures included herein are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”).
In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods presented. Because of the influence of various factors on the Company’s operations, including business combinations, certain holidays and other seasonal influences, net income for any interim period may not be comparable to the same interim period in previous years or necessarily indicative of income for the full year.
Principles of Consolidation
The unaudited condensed consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries and variable interest entities (“VIEs”) for which the Company is the primary beneficiary. All material intercompany balances and transactions have been eliminated.
The Company continually evaluates its investments to determine if they represent variable interests in a VIE. If the Company determines that it has a variable interest in a VIE, the Company then evaluates if it is the primary beneficiary of the VIE. The evaluation is a qualitative assessment as to whether the Company has the ability to direct the activities of a VIE that most significantly impact the entity’s economic performance. The Company consolidates a VIE if it is considered to be the primary beneficiary.
Assets and liabilities of VIEs for which the Company is the primary beneficiary were not significant to the Company’s unaudited condensed consolidated financial statements. VIE creditors do not have recourse against the general credit of the Company.
Reclassifications
Certain prior year amounts have been reclassified to conform with the current year presentation.
Restricted Cash
Restricted cash (included in other current assets) on the unaudited condensed consolidated balance sheets represents funds held on behalf of members, including health savings account funds associated with high deductible health plans. Restricted cash (included in other assets) on the unaudited condensed consolidated balance sheets represents amounts held in a trust in one of the Company’s captive insurance companies to satisfy collateral requirements associated with the assignment of certain insurance policies. All restricted cash is invested in time deposits and money market funds.
The following is a reconciliation of cash and cash equivalents on the unaudited condensed consolidated balance sheets to total cash, cash equivalents and restricted cash on the unaudited condensed consolidated statements of cash flows:
| | | | | | | | | | | | | | | | | |
In millions | March 31, 2022 | | December 31, 2021 | | March 31, 2021 |
Cash and cash equivalents | $ | 8,442 | | | $ | 9,408 | | | $ | 5,598 | |
Restricted cash (included in other current assets) | 2,913 | | | 3,065 | | | 2,972 | |
Restricted cash (included in other assets) | 256 | | | 218 | | | 313 | |
Total cash, cash equivalents and restricted cash in the statements of cash flows | $ | 11,611 | | | $ | 12,691 | | | $ | 8,883 | |
Accounts Receivable
Accounts receivable are stated net of allowances for credit losses, customer credit allowances, contractual allowances and estimated terminations. Accounts receivable, net is composed of the following:
| | | | | | | | | | | |
In millions | March 31, 2022 | | December 31, 2021 |
Trade receivables | $ | 8,728 | | | $ | 7,932 | |
Vendor and manufacturer receivables | 11,685 | | | 10,573 | |
Premium receivables | 3,508 | | | 2,537 | |
Other receivables | 2,530 | | | 3,389 | |
Total accounts receivable, net | $ | 26,451 | | | $ | 24,431 | |
The Company’s allowance for credit losses was $324 million and $339 million as of March 31, 2022 and December 31, 2021, respectively. When developing an estimate of the Company’s expected credit losses, the Company considers all available relevant information regarding the collectability of cash flows, including historical information, current conditions and reasonable and supportable forecasts of future economic conditions over the contractual life of the receivable. The Company’s accounts receivable are short duration in nature and typically settle in less than 30 days.
Revenue Recognition
Disaggregation of Revenue
The following table disaggregates the Company’s revenue by major source in each segment for the three months ended March 31, 2022 and 2021:
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In millions | Health Care Benefits | | Pharmacy Services | | Retail/ LTC | | Corporate/ Other | | Intersegment Eliminations | | Consolidated Totals |
Three Months Ended March 31, 2022 | | | | | | | | |
Major goods/services lines: | | | | | | | | | | | |
Pharmacy | $ | — | | | $ | 39,198 | | | $ | 19,532 | | | $ | — | | | $ | (11,240) | | | $ | 47,490 | |
Front Store | — | | | — | | | 5,313 | | | — | | | — | | | 5,313 | |
Premiums | 21,614 | | | — | | | — | | | 17 | | | — | | | 21,631 | |
Net investment income (loss) | 89 | | | — | | | (16) | | | 95 | | | — | | | 168 | |
Other | 1,406 | | | 263 | | | 589 | | | 14 | | | (48) | | | 2,224 | |
Total | $ | 23,109 | | | $ | 39,461 | | | $ | 25,418 | | | $ | 126 | | | $ | (11,288) | | | $ | 76,826 | |
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Pharmacy Services distribution channel: | | | | | | | | |
Pharmacy network (1) | | | $ | 22,824 | | | | | | | | | |
Mail choice (2) | | | 16,374 | | | | | | | | | |
Other | | | 263 | | | | | | | | | |
Total | | | $ | 39,461 | | | | | | | | | |
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Three Months Ended March 31, 2021 | | | | | | | | |
Major goods/services lines: | | | | | | | | | | | |
Pharmacy | $ | — | | | $ | 36,141 | | | $ | 17,885 | | | $ | — | | | $ | (11,074) | | | $ | 42,952 | |
Front Store | — | | | — | | | 4,642 | | | — | | | — | | | 4,642 | |
Premiums | 18,942 | | | — | | | — | | | 18 | | | — | | | 18,960 | |
Net investment income | 148 | | | — | | | 46 | | | 103 | | | — | | | 297 | |
Other | 1,393 | | | 180 | | | 701 | | | 14 | | | (42) | | | 2,246 | |
Total | $ | 20,483 | | | $ | 36,321 | | | $ | 23,274 | | | $ | 135 | | | $ | (11,116) | | | $ | 69,097 | |
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Pharmacy Services distribution channel: | | | | | | | | |
Pharmacy network (1) | | | $ | 21,893 | | | | | | | | | |
Mail choice (2) | | | 14,248 | | | | | | | | | |
Other | | | 180 | | | | | | | | | |
Total | | | $ | 36,321 | | | | | | | | | |
_____________________________________________
(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.
Contract Balances
Contract liabilities primarily represent the Company’s obligation to transfer additional goods or services to a customer for which the Company has received consideration, and include ExtraBucks® Rewards and unredeemed Company gift cards. The consideration received remains a contract liability until goods or services have been provided to the customer. In addition, the Company recognizes breakage on Company gift cards based on historical redemption patterns.
The following table provides information about receivables and contract liabilities from contracts with customers:
| | | | | | | | | | | |
In millions | March 31, 2022 | | December 31, 2021 |
Trade receivables (included in accounts receivable, net) | $ | 8,728 | | | $ | 7,932 | |
Contract liabilities (included in accrued expenses) | 80 | | | 87 | |
During the three months ended March 31, 2022 and 2021, the contract liabilities balance includes increases related to customers’ earnings in ExtraBucks Rewards or issuances of Company gift cards and decreases for revenues recognized during the period as a result of the redemption of ExtraBucks Rewards or Company gift cards and breakage of Company gift cards. Below is a summary of such changes:
| | | | | | | | | | | |
| Three Months Ended March 31, |
In millions | 2022 | | 2021 |
Contract liabilities, beginning of the period | $ | 87 | | | $ | 71 | |
Rewards earnings and gift card issuances | 80 | | | 93 | |
Redemption and breakage | (87) | | | (84) | |
Contract liabilities, end of the period | $ | 80 | | | $ | 80 | |
Related Party Transactions
The Company has an equity method investment in SureScripts, LLC (“SureScripts”), which operates a clinical health information network. The Company utilizes this clinical health information network in providing services to its client plan members and retail customers. The Company expensed fees for the use of this network of $15 million and $9 million in the three months ended March 31, 2022 and 2021, respectively. The Company’s investment in and equity in the earnings of SureScripts for all periods presented is immaterial.
The Company has an equity method investment in Heartland Healthcare Services, LLC (“Heartland”). Heartland operates several LTC pharmacies in four states. Heartland paid the Company $21 million and $18 million for pharmaceutical inventory purchases during the three months ended March 31, 2022 and 2021, respectively. Additionally, the Company performs certain collection functions for Heartland and then transfers those customer cash collections to Heartland. The Company’s investment in and equity in the earnings of Heartland for all periods presented is immaterial.
Planned Divestiture of Thailand Health Care Business
In March 2022, the Company reached an agreement to sell its international health care business domiciled in Thailand (“Thailand business”), which is included in the Commercial Business reporting unit within the Health Care Benefits segment. At that time, a portion of the Commercial Business goodwill was specifically allocated to the Thailand business. The net assets of the Thailand business were accounted for as assets held for sale and included in other current assets and accrued expenses on the unaudited condensed consolidated balance sheet at March 31, 2022. The carrying value of the Thailand business was determined to be greater than its fair value and, accordingly, the Company recorded a $41 million loss on assets held for sale within the Health Care Benefits segment during the three months ended March 31, 2022. The sale is expected to close in the second quarter of 2022.
New Accounting Pronouncements Not Yet Adopted
Targeted Improvements to the Accounting for Long-Duration Insurance Contracts
In August 2018, the Financial Accounting Standards Board issued Accounting Standards Update 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts (Topic 944). This standard requires the Company to review cash flow assumptions for its long-duration insurance contracts at least annually and recognize the effect of changes in future cash flow assumptions in net income. This standard also requires the Company to update discount rate assumptions quarterly and recognize the effect of changes in these assumptions in other comprehensive income. The rate used to discount the Company’s liability for future policy benefits will be based on an estimate of the yield for an upper-medium grade fixed-income instrument with a duration profile matching that of the Company’s liabilities. In addition, this standard changes the amortization method for deferred acquisition costs and requires additional disclosures regarding the long duration insurance contract liabilities in the Company’s interim and annual financial statements. The standard is effective for public companies for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2022. The Company will adopt the new standard on January 1, 2023, using the modified retrospective transition method as of the earliest period presented for changes to the liability for future policy benefits and deferred acquisition costs. While the Company is still evaluating the impact of the new standard on its financial statements, the Company anticipates an increase to its liability for future policy benefits with a corresponding change in accumulated other comprehensive income as a result of updating the rate used to discount the liabilities to reflect the yield for an upper-medium grade fixed-income instrument compared to the Company’s expected investment yield under the existing guidance.
2.Investments
Total investments at March 31, 2022 and December 31, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
In millions | Current | | Long-term | | Total | | Current | | Long-term | | Total |
Debt securities available for sale | $ | 2,826 | | | $ | 19,672 | | | $ | 22,498 | | | $ | 3,009 | | | $ | 20,231 | | | $ | 23,240 | |
Mortgage loans | 114 | | | 804 | | | 918 | | | 58 | | | 844 | | | 902 | |
Other investments | 33 | | | 2,119 | | | 2,152 | | | 50 | | | 1,950 | | | 2,000 | |
Total investments (1) | $ | 2,973 | | | $ | 22,595 | | | $ | 25,568 | | | $ | 3,117 | | | $ | 23,025 | | | $ | 26,142 | |
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(1)Includes current investments of $73 million which have been accounted for as assets held for sale in connection with the planned divestiture of the Thailand business and are included in other current assets on the unaudited condensed consolidated balance sheet at March 31, 2022.
Debt Securities
Debt securities available for sale at March 31, 2022 and December 31, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In millions | Gross Amortized Cost | | Allowance for Credit Losses | | Net Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
March 31, 2022 | | | | | | | | | | | |
Debt securities: | | | | | | | | | | | |
U.S. government securities | $ | 2,333 | | | $ | — | | | $ | 2,333 | | | $ | 21 | | | $ | (68) | | | $ | 2,286 | |
States, municipalities and political subdivisions | 2,526 | | | — | | | 2,526 | | | 37 | | | (65) | | | 2,498 | |
U.S. corporate securities | 10,005 | | | — | | | 10,005 | | | 261 | | | (322) | | | 9,944 | |
Foreign securities | 3,049 | | | (42) | | | 3,007 | | | 87 | | | (95) | | | 2,999 | |
Residential mortgage-backed securities | 910 | | | — | | | 910 | | | 5 | | | (48) | | | 867 | |
Commercial mortgage-backed securities | 1,284 | | | — | | | 1,284 | | | 8 | | | (67) | | | 1,225 | |
Other asset-backed securities | 2,706 | | | — | | | 2,706 | | | 8 | | | (61) | | | 2,653 | |
Redeemable preferred securities | 25 | | | — | | | 25 | | | 1 | | | — | | | 26 | |
Total debt securities (1) | $ | |