CVS HEALTH Corp [CVS] Filings

10-Q 1 cvs-20220331.htm 10-Q cvs-20220331

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

☐ 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.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	51
Item 4.	Controls and Procedures	51

Part II	Other Information

Item 1.	Legal Proceedings	51
Item 1A.	Risk Factors	51
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 3	Defaults Upon Senior Securities	52
Item 4.	Mine Safety Disclosures	52
Item 5.	Other Information	52
Item 6.	Exhibits	53

Signatures		54

Form 10-Q Table of Contents

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			2

Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three months ended March 31, 2022 and 2021			3

Condensed Consolidated Balance Sheets (Unaudited) as of March 31, 2022 and December 31, 2021			4

Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2022 and 2021			5

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) for the three months ended March 31, 2022 and 2021			7

Notes to Condensed Consolidated Financial Statements (Unaudited)			8

Report of Independent Registered Public Accounting Firm			33

Index to Condensed Consolidated Financial Statements

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

Operating expenses	9,876		8,922
Total operating costs	73,336		65,520
Operating income	3,490		3,577
Interest expense	586		657

Other income	(42)		(50)
Income before income tax provision	2,946		2,970
Income tax provision	633		746


Net income	2,313		2,224
Net income attributable to noncontrolling interests	(1)		(1)
Net income attributable to CVS Health	$	2,312	$	2,223

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










Dividends declared per share	$	0.55	$	0.50

See accompanying notes to condensed consolidated financial statements (unaudited).

Index to Condensed Consolidated Financial Statements

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)

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).

Index to Condensed Consolidated Financial Statements

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

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

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

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).

Index to Condensed Consolidated Financial Statements

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

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)

Other	(31)		—
Net cash used in investing activities	(1,993)		(1,867)

Cash flows from financing activities:
Net borrowings of short-term debt	—		252

Repayments of long-term debt	(14)		(3,049)
Repurchase of common stock	(2,000)		—

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

Index to Condensed Consolidated Financial Statements

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

Stock-based compensation	89		87


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).

Index to Condensed Consolidated Financial Statements

CVS Health Corporation

Condensed Consolidated Statements of Shareholders’ Equity

(Unaudited)


			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















Balance at December 31, 2020	1,733	(423)	$	46,513	$	(28,178)	$	49,640	$	1,414	$	69,389	$	312	$	69,701

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

_____________________________________________

(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).

Index to Condensed Consolidated Financial Statements

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:


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

Pharmacy Services distribution channel:
Pharmacy network (1)			$	22,824
Mail choice (2)			16,374
Other			263
Total			$	39,461

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

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)	$