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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. | 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

1

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).
2

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).
3

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).
4

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 |

5

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).
6

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).
7

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.
8

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.
9

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.
10

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.
11

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
12

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.
13

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 |

_____________________________________________
(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) | $ | 22,838 |  |  | $ | (42) |  |  | $ | 22,796 |  |  | $ | 428 |  |  | $ | (726) |  |  | $ | 22,498 |
December 31, 2021 |  |  |  |  |  |  |  |  |  |  |
Debt securities: |  |  |  |  |  |  |  |  |  |  |
U.S. government securities | $ | 2,349 |  |  | $ | — |  |  | $ | 2,349 |  |  | $ | 70 |  |  | $ | (3) |  |  | $ | 2,416 |
States, municipalities and political subdivisions | 2,947 |  |  | — |  |  | 2,947 |  |  | 148 |  |  | (4) |  |  | 3,091 |
U.S. corporate securities | 9,093 |  |  | — |  |  | 9,093 |  |  | 682 |  |  | (40) |  |  | 9,735 |
Foreign securities | 2,821 |  |  | — |  |  | 2,821 |  |  | 196 |  |  | (24) |  |  | 2,993 |
Residential mortgage-backed securities | 870 |  |  | — |  |  | 870 |  |  | 15 |  |  | (10) |  |  | 875 |
Commercial mortgage-backed securities | 1,278 |  |  | — |  |  | 1,278 |  |  | 44 |  |  | (12) |  |  | 1,310 |
Other asset-backed securities | 2,791 |  |  | — |  |  | 2,791 |  |  | 14 |  |  | (13) |  |  | 2,792 |
Redeemable preferred securities | 25 |  |  | — |  |  | 25 |  |  | 3 |  |  | — |  |  | 28 |
Total debt securities (1) | $ | 22,174 |  |  | $ | — |  |  | $ | 22,174 |  |  | $ | 1,172 |  |  | $ | (106) |  |  | $ | 23,240 |

_____________________________________________
(1)Investment risks associated with the Company’s experience-rated products generally do not impact the Company’s consolidated operating results. At March 31, 2022, debt securities with a fair value of $775 million, gross unrealized capital gains of $38 million and gross unrealized capital losses of $13 million and at December 31, 2021, debt securities with a fair value of $864 million, gross unrealized capital gains of $94 million and gross unrealized capital losses of $2 million were included in total debt securities, but support experience-rated products. At March 31, 2022, the Company had debt securities with an allowance for credit losses of $4 million supporting experience-rated products. At December 31, 2021, the Company did not have any debt securities with an allowance for credit losses supporting experience-rated products. Changes in net unrealized capital gains (losses) on these securities are not reflected in accumulated other comprehensive income (loss).
14

The net amortized cost and fair value of debt securities at March 31, 2022 are shown below by contractual maturity. Actual maturities may differ from contractual maturities because securities may be restructured, called or prepaid, or the Company intends to sell a security prior to maturity.

In millions | Net Amortized Cost |  | Fair Value
Due to mature: |  |  |
Less than one year | $ | 1,228 |  |  | $ | 1,235 |
One year through five years | 7,165 |  |  | 7,038 |
After five years through ten years | 5,128 |  |  | 4,965 |
Greater than ten years | 4,375 |  |  | 4,515 |
Residential mortgage-backed securities | 910 |  |  | 867 |
Commercial mortgage-backed securities | 1,284 |  |  | 1,225 |
Other asset-backed securities | 2,706 |  |  | 2,653 |
Total | $ | 22,796 |  |  | $ | 22,498 |

15

Summarized below are the debt securities the Company held at March 31, 2022 and December 31, 2021 that were in an unrealized capital loss position, aggregated by the length of time the investments have been in that position:

| 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, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Debt securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government securities | 389 |  |  | $ | 1,468 |  |  | $ | 65 |  |  | 11 |  |  | $ | 49 |  |  | $ | 3 |  |  | 400 |  |  | $ | 1,517 |  |  | $ | 68 |
States, municipalities and political subdivisions | 728 |  |  | 1,159 |  |  | 61 |  |  | 23 |  |  | 44 |  |  | 4 |  |  | 751 |  |  | 1,203 |  |  | 65 |
U.S. corporate securities | 3,907 |  |  | 4,992 |  |  | 278 |  |  | 339 |  |  | 484 |  |  | 44 |  |  | 4,246 |  |  | 5,476 |  |  | 322 |
Foreign securities | 868 |  |  | 1,325 |  |  | 72 |  |  | 114 |  |  | 159 |  |  | 23 |  |  | 982 |  |  | 1,484 |  |  | 95 |
Residential mortgage-backed securities | 239 |  |  | 606 |  |  | 40 |  |  | 26 |  |  | 80 |  |  | 8 |  |  | 265 |  |  | 686 |  |  | 48 |
Commercial mortgage-backed securities | 326 |  |  | 701 |  |  | 50 |  |  | 55 |  |  | 130 |  |  | 17 |  |  | 381 |  |  | 831 |  |  | 67 |
Other asset-backed securities | 1,261 |  |  | 2,246 |  |  | 57 |  |  | 69 |  |  | 97 |  |  | 4 |  |  | 1,330 |  |  | 2,343 |  |  | 61 |
Redeemable preferred securities | 3 |  |  | 4 |  |  | — |  |  | 1 |  |  | 3 |  |  | — |  |  | 4 |  |  | 7 |  |  | — |
Total debt securities | 7,721 |  |  | $ | 12,501 |  |  | $ | 623 |  |  | 638 |  |  | $ | 1,046 |  |  | $ | 103 |  |  | 8,359 |  |  | $ | 13,547 |  |  | $ | 726 |
December 31, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Debt securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government securities | 43 |  |  | $ | 242 |  |  | $ | 2 |  |  | 10 |  |  | $ | 40 |  |  | $ | 1 |  |  | 53 |  |  | $ | 282 |  |  | $ | 3 |
States, municipalities and political subdivisions | 233 |  |  | 428 |  |  | 3 |  |  | 13 |  |  | 33 |  |  | 1 |  |  | 246 |  |  | 461 |  |  | 4 |
U.S. corporate securities | 1,610 |  |  | 2,296 |  |  | 31 |  |  | 165 |  |  | 238 |  |  | 9 |  |  | 1,775 |  |  | 2,534 |  |  | 40 |
Foreign securities | 449 |  |  | 747 |  |  | 20 |  |  | 57 |  |  | 91 |  |  | 4 |  |  | 506 |  |  | 838 |  |  | 24 |
Residential mortgage-backed securities | 165 |  |  | 593 |  |  | 9 |  |  | 10 |  |  | 36 |  |  | 1 |  |  | 175 |  |  | 629 |  |  | 10 |
Commercial mortgage-backed securities | 188 |  |  | 462 |  |  | 7 |  |  | 35 |  |  | 112 |  |  | 5 |  |  | 223 |  |  | 574 |  |  | 12 |
Other asset-backed securities | 1,011 |  |  | 2,030 |  |  | 12 |  |  | 26 |  |  | 31 |  |  | 1 |  |  | 1,037 |  |  | 2,061 |  |  | 13 |
Redeemable preferred securities | 1 |  |  | 2 |  |  | — |  |  | 1 |  |  | 3 |  |  | — |  |  | 2 |  |  | 5 |  |  | — |
Total debt securities | 3,700 |  |  | $ | 6,800 |  |  | $ | 84 |  |  | 317 |  |  | $ | 584 |  |  | $ | 22 |  |  | 4,017 |  |  | $ | 7,384 |  |  | $ | 106 |

The Company reviewed the securities in the table above and concluded that they are performing assets generating investment income to support the needs of the Company’s business. In performing this review, the Company considered factors such as the quality of the investment security based on research performed by the Company’s internal credit analysts and external rating agencies and the prospects of realizing the carrying value of the security based on the investment’s current prospects for recovery. Unrealized capital losses at March 31, 2022 were generally caused by interest rate increases and not by unfavorable changes in the credit quality associated with these securities. As of March 31, 2022, the Company did not intend to sell these securities, and did not believe it was more likely than not that it would be required to sell these securities prior to the anticipated recovery of their amortized cost basis.
16

The maturity dates for debt securities in an unrealized capital loss position at March 31, 2022 were as follows:

| 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 | $ | 2 |  |  | $ | — |  |  | $ | 199 |  |  | $ | 1 |  |  | $ | 201 |  |  | $ | 1 |
One year through five years | 27 |  |  | 1 |  |  | 4,405 |  |  | 193 |  |  | 4,432 |  |  | 194 |
After five years through ten years | 83 |  |  | 6 |  |  | 3,338 |  |  | 217 |  |  | 3,421 |  |  | 223 |
Greater than ten years | 56 |  |  | 4 |  |  | 1,577 |  |  | 128 |  |  | 1,633 |  |  | 132 |
Residential mortgage-backed securities | 4 |  |  | — |  |  | 682 |  |  | 48 |  |  | 686 |  |  | 48 |
Commercial mortgage-backed securities | 6 |  |  | 1 |  |  | 825 |  |  | 66 |  |  | 831 |  |  | 67 |
Other asset-backed securities | 14 |  |  | 1 |  |  | 2,329 |  |  | 60 |  |  | 2,343 |  |  | 61 |
Total | $ | 192 |  |  | $ | 13 |  |  | $ | 13,355 |  |  | $ | 713 |  |  | $ | 13,547 |  |  | $ | 726 |

Mortgage Loans
The Company’s mortgage loans are collateralized by commercial real estate. During the three months ended March 31, 2022 and 2021, the Company had the following activity in its mortgage loan portfolio:

| Three Months Ended March 31, |  |
In millions | 2022 |  | 2021 |  |  |  |
New mortgage loans | $ | 59 |  |  | $ | 47 |  |  |  |  |
Mortgage loans fully repaid | 35 |  |  | 90 |  |  |  |  |
Mortgage loans foreclosed | — |  |  | — |  |  |  |  |

The Company assesses mortgage loans on a regular basis for credit impairments, and assigns a credit quality indicator to each loan. The Company’s credit quality indicator is internally developed and categorizes each loan in its portfolio on a scale from 1 to 7. These indicators are based upon several factors, including current loan-to-value ratios, current and future property cash flow, property condition, market trends, creditworthiness of the borrower and deal structure.
•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.
17

Based on the Company’s assessments at March 31, 2022 and December 31, 2021, the amortized cost basis of the Company's mortgage loans within each credit quality indicator by year of origination was as follows:

| Amortized Cost Basis by Year of Origination
In millions, except credit quality indicator | 2022 |  | 2021 |  | 2020 |  | 2019 |  | 2018 |  | Prior |  | Total
March 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |
1 | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 26 |  |  | $ | 26 |
2 to 4 | 58 |  |  | 255 |  |  | 48 |  |  | 25 |  |  | 66 |  |  | 427 |  |  | 879 |
5 and 6 | — |  |  | — |  |  | — |  |  | — |  |  | 3 |  |  | 10 |  |  | 13 |
7 | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total | $ | 58 |  |  | $ | 255 |  |  | $ | 48 |  |  | $ | 25 |  |  | $ | 69 |  |  | $ | 463 |  |  | $ | 918 |
December 31, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |
1 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 28 |  |  | $ | 28 |
2 to 4 |  |  | 255 |  |  | 48 |  |  | 40 |  |  | 72 |  |  | 446 |  |  | 861 |
5 and 6 |  |  | — |  |  | — |  |  | — |  |  | 3 |  |  | 10 |  |  | 13 |
7 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total |  |  | $ | 255 |  |  | $ | 48 |  |  | $ | 40 |  |  | $ | 75 |  |  | $ | 484 |  |  | $ | 902 |

Net Investment Income
Sources of net investment income for the three months ended March 31, 2022 and 2021 were as follows:

| Three Months Ended March 31, |  |
In millions | 2022 |  | 2021 |  |  |  |
Debt securities | $ | 164 |  |  | $ | 157 |  |  |  |  |
Mortgage loans | 11 |  |  | 15 |  |  |  |  |
Other investments | 77 |  |  | 86 |  |  |  |  |
Gross investment income | 252 |  |  | 258 |  |  |  |  |
Investment expenses | (9) |  |  | (8) |  |  |  |  |
Net investment income (excluding net realized capital gains or losses) | 243 |  |  | 250 |  |  |  |  |
Net realized capital gains (losses) (1) | (75) |  |  | 47 |  |  |  |  |
Net investment income (2) | $ | 168 |  |  | $ | 297 |  |  |  |  |

_____________________________________________
(1)Net realized capital losses include credit-related and yield-related impairment losses on debt securities of $38 million and $18 million, respectively, in the three months ended March 31, 2022. Net realized capital gains are net of yield-related impairment losses on debt securities of $30 million in the three months ended March 31, 2021. There were no credit-related losses on debt securities in the three months ended March 31, 2021.
(2)Net investment income includes $9 million in each of the three-month periods ended March 31, 2022 and 2021 related to investments supporting experience-rated products.
Excluding amounts related to experience-rated products, proceeds from the sale of available-for-sale debt securities and the related gross realized capital gains and losses for the three months ended March 31, 2022 and 2021 were as follows:

| Three Months Ended March 31, |  |
In millions | 2022 |  | 2021 |  |  |  |
Proceeds from sales | $ | 1,911 |  |  | $ | 1,348 |  |  |  |  |
Gross realized capital gains | 14 |  |  | 22 |  |  |  |  |
Gross realized capital losses | 35 |  |  | 9 |  |  |  |  |

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3.Fair Value
The preparation of the Company’s unaudited condensed consolidated financial statements in accordance with GAAP requires certain assets and liabilities to be reflected at their fair value and others to be reflected on another basis, such as an adjusted historical cost basis. The Company’s assets and liabilities carried at fair value have been classified within one of three levels of a hierarchy established by GAAP. The following are the levels of the hierarchy and a brief description of the type of valuation information (“valuation inputs”) that qualifies a financial asset or liability for each level:
•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.
For a description of the methods and assumptions that are used to estimate the fair value and determine the fair value hierarchy classification of each class of financial instrument, see Note 4 “Fair Value” in the 2021 Form 10-K.
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There were no financial liabilities measured at fair value on a recurring basis on the condensed consolidated balance sheets at March 31, 2022 or December 31, 2021. Financial assets measured at fair value on a recurring basis on the condensed consolidated balance sheets at March 31, 2022 and December 31, 2021 were as follows:

In millions | Level 1 |  | Level 2 |  | Level 3 |  | Total
March 31, 2022 |  |  |  |  |  |  |
Cash and cash equivalents (1) | $ | 4,601 |  |  | $ | 3,872 |  |  | $ | — |  |  | $ | 8,473 |
Debt securities: |  |  |  |  |  |  |
U.S. government securities | 2,243 |  |  | 43 |  |  | — |  |  | 2,286 |
States, municipalities and political subdivisions | — |  |  | 2,498 |  |  | — |  |  | 2,498 |
U.S. corporate securities | — |  |  | 9,912 |  |  | 32 |  |  | 9,944 |
Foreign securities | — |  |  | 2,991 |  |  | 8 |  |  | 2,999 |
Residential mortgage-backed securities | — |  |  | 867 |  |  | — |  |  | 867 |
Commercial mortgage-backed securities | — |  |  | 1,225 |  |  | — |  |  | 1,225 |
Other asset-backed securities | — |  |  | 2,623 |  |  | 30 |  |  | 2,653 |
Redeemable preferred securities | — |  |  | 26 |  |  | — |  |  | 26 |
Total debt securities | 2,243 |  |  | 20,185 |  |  | 70 |  |  | 22,498 |
Equity securities | 149 |  |  | — |  |  | 60 |  |  | 209 |
Total | $ | 6,993 |  |  | $ | 24,057 |  |  | $ | 130 |  |  | $ | 31,180 |
December 31, 2021 |  |  |  |  |  |  |
Cash and cash equivalents | $ | 4,954 |  |  | $ | 4,454 |  |  | $ | — |  |  | $ | 9,408 |
Debt securities: |  |  |  |  |  |  |
U.S. government securities | 2,372 |  |  | 44 |  |  | — |  |  | 2,416 |
States, municipalities and political subdivisions | — |  |  | 3,086 |  |  | 5 |  |  | 3,091 |
U.S. corporate securities | — |  |  | 9,697 |  |  | 38 |  |  | 9,735 |
Foreign securities | — |  |  | 2,983 |  |  | 10 |  |  | 2,993 |
Residential mortgage-backed securities | — |  |  | 875 |  |  | — |  |  | 875 |
Commercial mortgage-backed securities | — |  |  | 1,310 |  |  | — |  |  | 1,310 |
Other asset-backed securities | — |  |  | 2,789 |  |  | 3 |  |  | 2,792 |
Redeemable preferred securities | — |  |  | 28 |  |  | — |  |  | 28 |
Total debt securities | 2,372 |  |  | 20,812 |  |  | 56 |  |  | 23,240 |
Equity securities | 114 |  |  | — |  |  | 55 |  |  | 169 |
Total | $ | 7,440 |  |  | $ | 25,266 |  |  | $ | 111 |  |  | $ | 32,817 |

_____________________________________________
(1)Includes cash and cash equivalents of $31 million which were 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.
During the three months ended March 31, 2022 there were $3 million of transfers out of Level 3. During the three months ended March 31, 2021, there were no transfers into or out of Level 3.
20

The carrying value and estimated fair value classified by level of fair value hierarchy for financial instruments carried on the condensed consolidated balance sheets at adjusted cost or contract value at March 31, 2022 and December 31, 2021 were as follows:

| Carrying Value |  | Estimated Fair Value
In millions |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
March 31, 2022 |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |
Mortgage loans | $ | 918 |  |  | $ | — |  |  | $ | — |  |  | $ | 892 |  |  | $ | 892 |
Equity securities (1) | 126 |  |  | N/A |  | N/A |  | N/A |  | N/A
Liabilities: |  |  |  |  |  |  |  |  |
Investment contract liabilities: |  |  |  |  |  |  |  |  |
With a fixed maturity | 5 |  |  | — |  |  | — |  |  | 5 |  |  | 5 |
Without a fixed maturity | 334 |  |  | — |  |  | — |  |  | 336 |  |  | 336 |
Long-term debt | 56,280 |  |  | 58,624 |  |  | — |  |  | — |  |  | 58,624 |
December 31, 2021 |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |
Mortgage loans | $ | 902 |  |  | $ | — |  |  | $ | — |  |  | $ | 907 |  |  | $ | 907 |
Equity securities (1) | 126 |  |  | N/A |  | N/A |  | N/A |  | N/A
Liabilities: |  |  |  |  |  |  |  |  |
Investment contract liabilities: |  |  |  |  |  |  |  |  |
With a fixed maturity | 5 |  |  | — |  |  | — |  |  | 5 |  |  | 5 |
Without a fixed maturity | 336 |  |  | — |  |  | — |  |  | 373 |  |  | 373 |
Long-term debt | 56,176 |  |  | 64,157 |  |  | — |  |  | — |  |  | 64,157 |

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(1)It was not practical to estimate the fair value of these cost-method investments as it represents shares of unlisted companies.
Separate Accounts assets relate to the Company’s large case pensions products which represent funds maintained to meet specific objectives of contract holders. Since contract holders bear the investment risk of these assets, a corresponding Separate Accounts liability has been established equal to the assets. These assets and liabilities are carried at fair value. Separate Accounts financial assets as of March 31, 2022 and December 31, 2021 were as follows:

|  | March 31, 2022 |  | December 31, 2021
In millions |  | Level 1 |  | Level 2 |  | Level 3 |  | Total |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Cash and cash equivalents |  | $ | 3 |  |  | $ | 193 |  |  | $ | — |  |  | $ | 196 |  |  | $ | 2 |  |  | $ | 186 |  |  | $ | — |  |  | $ | 188 |
Debt securities |  | 1,095 |  |  | 2,793 |  |  | — |  |  | 3,888 |  |  | 1,233 |  |  | 3,048 |  |  | — |  |  | 4,281 |
Equity securities |  | — |  |  | 1 |  |  | — |  |  | 1 |  |  | — |  |  | 1 |  |  | — |  |  | 1 |
Common/collective trusts |  | — |  |  | 500 |  |  | — |  |  | 500 |  |  | — |  |  | 547 |  |  | — |  |  | 547 |
Total (1) |  | $ | 1,098 |  |  | $ | 3,487 |  |  | $ | — |  |  | $ | 4,585 |  |  | $ | 1,235 |  |  | $ | 3,782 |  |  | $ | — |  |  | $ | 5,017 |

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(1)Excludes $85 million and $70 million of other receivables at March 31, 2022 and December 31, 2021, respectively.
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4.Health Care Costs Payable
The following table shows the components of the change in health care costs payable during the three months ended March 31, 2022 and 2021:

| Three Months Ended March 31,
In millions | 2022 |  | 2021
Health care costs payable, beginning of the period | $ | 8,808 |  |  | $ | 7,936 |
Less: Reinsurance recoverables | 8 |  |  | 10 |
Health care costs payable, beginning of the period, net | 8,800 |  |  | 7,926 |
Add: Components of incurred health care costs |  |  |
Current year | 18,536 |  |  | 16,291 |
Prior years | (676) |  |  | (652) |
Total incurred health care costs (1) | 17,860 |  |  | 15,639 |
Less: Claims paid |  |  |
Current year | 10,225 |  |  | 9,538 |
Prior years | 6,183 |  |  | 5,767 |
Total claims paid | 16,408 |  |  | 15,305 |
Add: Premium deficiency reserve | 13 |  |  | 7 |
Other (2) | (13) |  |  | — |
Health care costs payable, end of the period, net | 10,252 |  |  | 8,267 |
Add: Reinsurance recoverables | 8 |  |  | 5 |
Health care costs payable, end of the period | $ | 10,260 |  |  | $ | 8,272 |

_____________________________________________
(1)Total incurred health care costs for the three months ended March 31, 2022 and 2021 in the table above exclude (i) $13 million and $7 million, respectively, for a premium deficiency reserve related to the Company’s Medicaid products, (ii) $19 million and $13 million, respectively, of benefit costs recorded in the Health Care Benefits segment that are included in other insurance liabilities on the unaudited condensed consolidated balance sheets and (iii) $59 million and $45 million, respectively, of benefit costs recorded in the Corporate/Other segment that are included in other insurance liabilities on the unaudited condensed consolidated balance sheets.
(2)As a result of the planned divestiture of the Thailand business, the net assets associated with this business were accounted for as assets held for sale and the associated health care costs payable balance is included in accrued expenses on the unaudited condensed consolidated balance sheet at March 31, 2022.
The Company’s estimates of prior years’ health care costs payable decreased by $676 million and $652 million, respectively, in the three months ended March 31, 2022 and 2021, because claims were settled for amounts less than originally estimated (i.e., the amount of claims incurred was lower than originally estimated), primarily due to lower health care cost trends as well as the actual claim submission time being faster than originally assumed (i.e., the Company’s completion factors were higher than originally assumed) in estimating health care costs payable at the end of the prior year.
At March 31, 2022, the Company’s liabilities for the ultimate cost of (i) services rendered to the Company’s Insured members but not yet reported to the Company and (ii) claims which have been reported to the Company but not yet paid (collectively, “IBNR”) plus expected development on reported claims totaled approximately $7.9 billion. The majority of the Company’s liabilities for IBNR plus expected development on reported claims at March 31, 2022 related to the current year.
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5.Shareholders’ Equity
Share Repurchases
The following share repurchase program has been authorized by CVS Health Corporation’s Board of Directors (the “Board”):

In billions Authorization Date | Authorized |  | Remaining as of March 31, 2022
December 9, 2021 (“2021 Repurchase Program”) | $ | 10.0 |  |  | $ | 8.0 |

The 2021 Repurchase Program permits the Company to effect repurchases from time to time through a combination of open market repurchases, privately negotiated transactions, accelerated share repurchase (“ASR”) transactions, and/or other derivative transactions. The 2021 Repurchase Program can be modified or terminated by the Board at any time.
During the three months ended March 31, 2022, the Company repurchased approximately 19.1 million shares of common stock for approximately $2.0 billion pursuant to the 2021 Repurchase Program, including share repurchases under the ASR transaction described below. During the three months ended March 31, 2021, the Company did not repurchase any shares of its common stock.
Pursuant to the authorization under the 2021 Repurchase Program, the Company entered into a $1.5 billion fixed dollar ASR with Barclays Bank PLC (“Barclays”). Upon payment of the $1.5 billion purchase price on January 4, 2022, the Company received a number of shares of CVS Health Corporation’s common stock equal to 80% of the $1.5 billion notional amount of the ASR or approximately 11.6 million shares at a price of $103.34 per share, which were placed into treasury stock in January 2022. The ASR was accounted for as an initial treasury stock transaction for $1.2 billion and a forward contract for $0.3 billion. The forward contract was classified as an equity instrument and was recorded within capital surplus. In February 2022, the Company received approximately 2.7 million shares of CVS Health Corporation’s common stock, representing the remaining 20% of the $1.5 billion notional amount of the ASR, thereby concluding the ASR. These shares were placed into treasury stock and the forward contract was reclassified from capital surplus to treasury stock in February 2022.
At the time they were received, the initial and final receipt of shares resulted in an immediate reduction of the outstanding shares used to calculate the weighted average common shares outstanding for basic and diluted earnings per share.
Dividends
The quarterly cash dividend declared by the Board was $0.55 and $0.50 per share in the three months ended March 31, 2022 and 2021, respectively. CVS Health Corporation has paid cash dividends every quarter since becoming a public company. Future dividend payments will depend on the Company’s earnings, capital requirements, financial condition and other factors considered relevant by the Board.
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6.Other Comprehensive Income
Shareholders’ equity included the following activity in accumulated other comprehensive income (loss) for the three months ended March 31, 2022 and 2021:

| Three Months Ended March 31, |  |
In millions | 2022 |  | 2021 |  |  |  |
Net unrealized investment gains (losses): |  |  |  |  |  |  |
Beginning of period balance | $ | 778 |  |  | $ | 1,214 |  |  |  |  |
Other comprehensive loss before reclassifications ($(1,405) and $(487) pretax) | (1,230) |  |  | (400) |  |  |  |  |
Amounts reclassified from accumulated other comprehensive income ($77 and $17 pretax) (1) | 75 |  |  | 14 |  |  |  |  |
Other comprehensive loss | (1,155) |  |  | (386) |  |  |  |  |
End of period balance | (377) |  |  | 828 |  |  |  |  |
Foreign currency translation adjustments: |  |  |  |  |  |  |
Beginning of period balance | — |  |  | 7 |  |  |  |  |
Other comprehensive income (loss) before reclassifications | 3 |  |  | (2) |  |  |  |  |
Other comprehensive income (loss) | 3 |  |  | (2) |  |  |  |  |
End of period balance | 3 |  |  | 5 |  |  |  |  |
Net cash flow hedges: |  |  |  |  |  |  |
Beginning of period balance | 222 |  |  | 248 |  |  |  |  |
Amounts reclassified from accumulated other comprehensive income ($(4) and $(5) pretax) (2) | (3) |  |  | (4) |  |  |  |  |
Other comprehensive loss | (3) |  |  | (4) |  |  |  |  |
End of period balance | 219 |  |  | 244 |  |  |  |  |
Pension and other postretirement benefits: |  |  |  |  |  |  |
Beginning of period balance | (35) |  |  | (55) |  |  |  |  |
Other comprehensive income | — |  |  | — |  |  |  |  |
End of period balance | (35) |  |  | (55) |  |  |  |  |
Total beginning of period accumulated other comprehensive income | 965 |  |  | 1,414 |  |  |  |  |
Total other comprehensive loss | (1,155) |  |  | (392) |  |  |  |  |
Total end of period accumulated other comprehensive income (loss) | $ | (190) |  |  | $ | 1,022 |  |  |  |  |

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(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 $11 million, net of tax, in net gains associated with its cash flow hedges into net income within the next 12 months.
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7.Earnings Per Share
Earnings per share is computed using the treasury stock method. Stock options and stock appreciation rights to purchase 2 million and 10 million shares of common stock were outstanding, but were excluded from the calculation of diluted earnings per share for the three months ended March 31, 2022 and 2021, respectively, because their exercise prices were greater than the average market price of the common shares and, therefore, the effect would be antidilutive.
The following is a reconciliation of basic and diluted earnings per share for the respective periods:

| Three Months Ended March 31, |  |
In millions, except per share amounts | 2022 |  | 2021 |  |  |  |
Numerator for earnings per share calculation: |  |  |  |  |  |  |
Net income attributable to CVS Health | $ | 2,312 |  |  | $ | 2,223 |  |  |  |  |
Denominator for earnings per share calculation: |  |  |  |  |  |  |
Weighted average shares, basic | 1,312 |  |  | 1,313 |  |  |  |  |
Restricted stock units and performance stock units | 10 |  |  | 6 |  |  |  |  |
Stock options and stock appreciation rights | 6 |  |  | 3 |  |  |  |  |
Weighted average shares, diluted | 1,328 |  |  | 1,322 |  |  |  |  |
Earnings per share: |  |  |  |  |  |  |
Basic | $ | 1.76 |  |  | $ | 1.69 |  |  |  |  |
Diluted | $ | 1.74 |  |  | $ | 1.68 |  |  |  |  |

8.Commitments and Contingencies
COVID-19
The COVID-19 pandemic continues to evolve. The Company believes COVID-19’s impact on its businesses, operating results, cash flows and/or financial condition primarily will be driven by the geographies impacted and the severity and duration of the pandemic; the pandemic’s impact on the U.S. and global economies and consumer behavior and health care utilization patterns; and the timing, scope and impact of stimulus legislation as well as other federal, state and local governmental responses to the pandemic. Those primary drivers are beyond the Company’s knowledge and control. As a result, the impact COVID-19 will have on the Company’s businesses, operating results, cash flows and/or financial condition is uncertain, but the impact could be adverse and material. COVID-19 also may result in legal and regulatory proceedings, investigations and claims against the Company.
Lease Guarantees
Between 1995 and 1997, the Company sold or spun off a number of subsidiaries, including Bob’s Stores and Linens ‘n Things, each of which subsequently filed for bankruptcy, and Marshalls. In many cases, when a former subsidiary leased a store, the Company provided a guarantee of the former subsidiary’s lease obligations for the initial lease term and any extension thereof pursuant to a renewal option provided for in the lease prior to the time of the disposition. When the subsidiaries were disposed of and accounted for as discontinued operations, the Company’s guarantees remained in place, although each initial purchaser agreed to indemnify the Company for any lease obligations the Company was required to satisfy. If any of the purchasers or any of the former subsidiaries fail to make the required payments under a store lease, the Company could be required to satisfy those obligations, and any significant adverse impact of COVID-19 on such purchasers and/or former subsidiaries increases the risk that the Company will be required to satisfy those obligations. As of March 31, 2022, the Company guaranteed 68 such store leases (excluding the lease guarantees related to Linens ‘n Things, which have been recorded as a liability on the unaudited condensed consolidated balance sheets), with the maximum remaining lease term extending through 2030.
Guaranty Fund Assessments, Market Stabilization and Other Non-Voluntary Risk Sharing Pools
Under guaranty fund laws existing in all states, insurers doing business in those states can be assessed (in most states up to prescribed limits) for certain obligations of insolvent insurance companies to policyholders and claimants. The life and health
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insurance guaranty associations in which the Company participates that operate under these laws respond to insolvencies of long-term care insurers and life insurers as well as health insurers. The Company’s assessments generally are based on a formula relating to the Company’s health care premiums in the state compared to the premiums of other insurers. Certain states allow assessments to be recovered over time as offsets to premium taxes. Some states have similar laws relating to HMOs and/or other payors such as not-for-profit consumer-governed health plans established under the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010.
In 2009, the Pennsylvania Insurance Commissioner placed long-term care insurer Penn Treaty Network America Insurance Company and one of its subsidiaries (collectively, “Penn Treaty”) in rehabilitation, an intermediate action before insolvency, and subsequently petitioned a state court to convert the rehabilitation into a liquidation. Penn Treaty was placed in liquidation in March 2017. The Company has recorded a liability for its estimated share of future assessments by applicable life and health insurance guaranty associations. It is reasonably possible that in the future the Company may record a liability and expense relating to other insolvencies which could have a material adverse effect on the Company’s operating results, financial condition and cash flows, and the risk is heightened by any significant adverse impact of the COVID-19 pandemic on the solvency of other insurers, including long-term care and life insurers. While historically the Company has ultimately recovered more than half of guaranty fund assessments through statutorily permitted premium tax offsets, significant increases in assessments could lead to legislative and/or regulatory actions that limit future offsets.
HMOs in certain states in which the Company does business are subject to assessments, including market stabilization and other risk-sharing pools, for which the Company is assessed charges based on incurred claims, demographic membership mix and other factors. The Company establishes liabilities for these assessments based on applicable laws and regulations. In certain states, the ultimate assessments the Company pays are dependent upon the Company’s experience relative to other entities subject to the assessment, and the ultimate liability is not known at the financial statement date. While the ultimate amount of the assessment is dependent upon the experience of all pool participants, the Company believes it has adequate reserves to cover such assessments.
Litigation and Regulatory Proceedings
The Company has been involved or is currently involved in numerous legal proceedings, including litigation, arbitration, government investigations, audits, reviews and claims. These include routine, regular and special investigations, audits and reviews by the U.S. Centers for Medicare & Medicaid Services (“CMS”), state insurance and health and welfare departments, the U.S. Department of Justice (the “DOJ”), state attorneys general, the U.S. Drug Enforcement Administration (the “DEA”) and other governmental authorities.
Legal proceedings, in general, and securities, class action and multi-district litigation, in particular, and governmental special investigations, audits and reviews can be expensive and disruptive. Some of the litigation matters may purport or be determined to be class actions and/or involve parties seeking large and/or indeterminate amounts, including punitive or exemplary damages, and may remain unresolved for several years. The Company also may be named from time to time in qui tam actions initiated by private third parties that could also be separately pursued by a governmental body. The results of legal proceedings, including government investigations, are often uncertain and difficult to predict, and the costs incurred in these matters can be substantial, regardless of the outcome.
The Company records accruals for outstanding legal matters when it believes it is probable that a loss will be incurred and the amount can be reasonably estimated. The Company evaluates, on a quarterly basis, developments in legal matters that could affect the amount of any accrual and developments that would make a loss contingency both probable and reasonably estimable. If a loss contingency is not both probable and reasonably estimable, the Company does not establish an accrued liability. None of the Company’s accruals for outstanding legal matters are material individually or in the aggregate to the Company’s financial condition.
Except as otherwise noted, the Company cannot predict with certainty the timing or outcome of the legal matters described below, and the Company is unable to reasonably estimate a possible loss or range of possible loss in excess of amounts already accrued for these matters. The Company believes that its defenses and assertions in pending legal proceedings have merit and does not believe that any of these pending matters, after consideration of applicable reserves and rights to indemnification, will have a material adverse effect on the Company’s financial position. Substantial unanticipated verdicts, fines and rulings, however, do sometimes occur, which could result in judgments against the Company, entry into settlements or a revision to its expectations regarding the outcome of certain matters, and such developments could have a material adverse effect on its results of operations. In addition, as a result of governmental investigations or proceedings, the Company may be subject to damages, civil or criminal fines or penalties, or other sanctions including possible suspension or loss of licensure and/or exclusion from
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participating in government programs. The outcome of such governmental investigations of proceedings could be material to the Company.
Usual and Customary Pricing Litigation
The Company and certain current and former directors and officers are named as a defendant in a number of lawsuits that allege that the Company’s retail pharmacies overcharged for prescription drugs by not submitting the correct usual and customary price during the claims adjudication process. These actions are brought by a number of different types of plaintiffs, including plan members, private payors, government payors, and shareholders based on different legal theories. Some of these cases are brought as putative class actions, and in some instances, classes have been certified. The Company is defending itself against these claims.
PBM Litigation and Investigations
The Company is named as a defendant in a number of lawsuits and is subject to a number of investigations concerning its PBM practices.
The Company is facing multiple lawsuits, including by a State Attorney General, governmental subdivisions and several putative class actions, regarding drug pricing and its rebate arrangements with drug manufacturers. These complaints, brought by a number of different types of plaintiffs under a variety of legal theories, generally allege that rebate agreements between the drug manufacturers and PBMs caused inflated prices for certain drug products. The Company is defending itself against these claims. The Company has also received subpoenas, civil investigative demands (“CIDs”) and other requests for documents and information from, and is being investigated by, Attorneys General of several states and the District of Columbia regarding its PBM practices, including pricing and rebates. The Company has been providing documents and information in response to these subpoenas, CIDs and requests for information.
United States ex rel. Behnke v. CVS Caremark Corporation, et al. (U.S. District Court for the Eastern District of Pennsylvania). In April 2018, the Court unsealed a complaint filed in February 2014. The government has declined to intervene in this case. The relator alleges that the Company submitted, or caused to be submitted, to Part D of the Medicare program Prescription Drug Event data and/or Direct and Indirect Remuneration reports that misrepresented true prices paid by the Company’s PBM to pharmacies for drugs dispensed to Part D beneficiaries with prescription benefits administered by the Company’s PBM. The Company is defending itself against these claims.
Controlled Substances Litigation, Audits and Subpoenas
In December 2017, the U.S. Judicial Panel on Multidistrict Litigation consolidated numerous cases filed against various defendants by plaintiffs such as counties, cities, hospitals, Indian tribes and third-party payors, alleging claims generally concerning the impacts of widespread prescription opioid abuse. The consolidated multidistrict litigation captioned In re National Prescription Opiate Litigation (MDL No. 2804) is pending in the U.S. District Court for the Northern District of Ohio. This multidistrict litigation presumptively includes hundreds of relevant federal court cases that name the Company as a defendant. A significant number of similar cases that name the Company as a defendant in some capacity are pending in state courts.
In addition, the Company has been named as a defendant in similar cases brought by certain state Attorneys General. The Company is defending itself against all such claims. Additionally, the Company has received subpoenas, CIDs and/or other requests for information regarding opioids from state Attorneys General and insurance and other regulators of several U.S. jurisdictions. The Company has been cooperating with the government with respect to these subpoenas, CIDs and other requests for information. In November 2021, the Company was among the chain pharmacies found liable by a jury in a trial in federal court in Ohio; the remedy pursuant to that verdict has not been determined and the Company plans to appeal.
In March 2022, CVS Health Corporation and CVS Pharmacy, Inc. entered into a pending settlement agreement with the State of Florida to resolve claims related to opioid medications dating back more than a decade. Under the terms of the settlement agreement, CVS Health Corporation will settle all opioid claims against it and its subsidiaries by the State of Florida for $484 million, which is to be paid over a period of 18 years. During the three months ended March 31, 2022, the Company recorded a $484 million liability associated with this pending legal settlement.
In January 2020, the DOJ served the Company with a DEA administrative subpoena. The subpoena seeks documents relating to practices with respect to prescription opioids and other controlled substances at CVS pharmacy locations concerning potential
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violations of the federal Controlled Substances Act and the federal False Claims Act. In January 2022, the DOJ served the Company with a CID regarding similar subjects. The Company is providing documents and information in response to these matters.
Prescription Processing Litigation and Investigations
The Company is named as a defendant in a number of lawsuits and is subject to a number of investigations concerning its prescription processing practices, including the following:
U.S. ex rel. Bassan et al. v. Omnicare, Inc. and CVS Health Corp. (U.S. District Court for the Southern District of New York). In December 2019, the U.S. Attorney’s Office for the Southern District of New York (the “SDNY”) filed a complaint-in-intervention in this previously sealed qui tam case. The complaint alleges that for certain non-skilled nursing facilities, Omnicare improperly filled prescriptions beyond one year where a valid prescription did not exist and that these dispensing events violated the federal False Claims Act. The Company is defending itself against these claims.
In July 2017, the Company also received a subpoena from the California Department of Insurance requesting documents concerning the Company’s Omnicare pharmacies’ cycle fill process for assisted living facilities. The Company has been cooperating with the California Department of Insurance and providing documents and information in response to this subpoena.
In December 2016, the Company received a CID from the U.S. Attorney’s Office for the Northern District of New York requesting documents and information in connection with a federal False Claims Act investigation concerning whether the Company’s retail pharmacies improperly submitted certain insulin claims to Part D of the Medicare program rather than Part B of the Medicare program. The Company has been cooperating with the government and providing documents and information in response to this CID.
Provider Proceedings
The Company is named as a defendant in purported class actions and individual lawsuits arising out of its practices related to the payment of claims for services rendered to its members by providers with whom the Company has a contract and with whom the Company does not have a contract (“out-of-network providers”). Among other things, these lawsuits allege that the Company paid too little to its health plan members and/or providers for out-of-network services and/or otherwise allege that the Company failed to timely or appropriately pay or administer out-of-network claims and benefits (including the Company’s post payment audit and collection practices and reductions in payments to providers due to sequestration). Other major health insurers are the subject of similar litigation or have settled similar litigation.
The Company also has received subpoenas and/or requests for documents and other information from, and been investigated by, state Attorneys General and other state and/or federal regulators, legislators and agencies relating to, and the Company is involved in other litigation regarding, its out-of-network benefit payment and administration practices. It is reasonably possible that others could initiate additional litigation or additional regulatory action against the Company with respect to its out-of-network benefit payment and/or administration practices.
CMS Actions
CMS regularly audits the Company’s performance to determine its compliance with CMS’s regulations and its contracts with CMS and to assess the quality of services it provides to Medicare beneficiaries. CMS uses various payment mechanisms to allocate and adjust premium payments to the Company’s and other companies’ Medicare plans by considering the applicable health status of Medicare members as supported by information prepared, maintained and provided by providers. The Company collects claim and encounter data from providers and generally relies on providers to appropriately code their submissions to the Company and document their medical records, including the diagnosis data submitted to the Company with claims. CMS pays increased premiums to Medicare Advantage plans and Medicare PDP plans for members who have certain medical conditions identified with specific diagnosis codes. Federal regulators review and audit the providers’ medical records to determine whether those records support the related diagnosis codes that determine the members’ health status and the resulting risk-adjusted premium payments to the Company. In that regard, CMS has instituted risk adjustment data validation (“RADV”) audits of various Medicare Advantage plans, including certain of the Company’s plans, to validate coding practices and supporting medical record documentation maintained by providers and the resulting risk adjusted premium payments to the plans. CMS may require the Company to refund premium payments if the Company’s risk adjusted premiums are not properly supported by medical record data. The Office of the Inspector General of the U.S. Department of Health and Human Services
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(“OIG”) also is auditing the Company’s risk adjustment-related data and that of other companies. The Company expects CMS and the OIG to continue these types of audits.
In 2012, CMS revised its audit methodology for RADV audits to determine refunds payable by Medicare Advantage plans for contract year 2011 and forward. Under the revised methodology, among other things, CMS will extrapolate the error rate identified in the audit sample of approximately 200 members to all risk adjusted premium payments made under the contract being audited. For contract years prior to 2011, CMS did not extrapolate sample error rates to the entire contract. As a result, the revised methodology may increase the Company’s exposure to premium refunds to CMS based on incomplete medical records maintained by providers. Since 2013, CMS has selected certain of the Company’s Medicare Advantage contracts for various contract years for RADV audit, and the number of RADV audits continues to increase. The Company is currently unable to predict which of its Medicare Advantage contracts will be selected for future audit, the amounts of any retroactive refunds of, or prospective adjustments to, Medicare Advantage premium payments made to the Company, the effect of any such refunds or adjustments on the actuarial soundness of the Company’s Medicare Advantage bids, or whether any RADV audit findings would require the Company to change its method of estimating future premium revenue in future bid submissions to CMS or compromise premium assumptions made in the Company’s bids for prior contract years, the current contract year or future contract years. Any premium or fee refunds or adjustments resulting from regulatory audits, whether as a result of RADV, Public Exchange related or other audits by CMS, the OIG or otherwise, including audits of the Company’s minimum medical loss ratio rebates, methodology and/or reports, could be material and could adversely affect the Company’s operating results, cash flows and/or financial condition.
Medicare and Medicaid CIDs
The Company has received CIDs from the Civil Division of the DOJ in connection with a current investigation of the Company’s patient chart review processes in connection with risk adjustment data submissions under Parts C and D of the Medicare program. The Company has been cooperating with the government and providing documents and information in response to these CIDs.
In May 2017, the Company received a CID from the SDNY requesting documents and information concerning possible false claims submitted to Medicare in connection with reimbursements for prescription drugs under the Medicare Part D program. The Company has been cooperating with the government and providing documents and information in response to this CID.
Stockholder Matters
Beginning in February 2019, multiple class action complaints, as well as a derivative complaint, were filed by putative plaintiffs against the Company and certain current and former officers and directors. The plaintiffs in these cases assert a variety of causes of action under federal securities laws that are premised on allegations that the defendants made certain omissions and misrepresentations relating to the performance of the Company’s LTC business unit. The Company and its current and former officers and directors are defending themselves against these claims. Since filing, several of the cases have been consolidated, and the first-filed federal case, City of Miami Fire Fighters’ and Police Officers’ Retirement Trust, et al. (formerly known as Anarkat), was dismissed with prejudice in February 2021. Plaintiffs have appealed that decision to the First Circuit after their motion for reconsideration was denied. In re CVS Health Corp. Securities Act Litigation (formerly known as Waterford) and In re CVS Health Corp. Securities Litigation (formerly known as City of Warren and Freundlich) have been stayed pending the outcome of the First Circuit appeal.
In August and September 2020, two class actions under the Employee Retirement Income Security Act of 1974 (“ERISA”) were filed in the U.S. District Court for the District of Connecticut against CVS Health, Aetna Inc. (“Aetna”), and several current and former executives, directors and/or members of Aetna’s Compensation and Talent Management Committee: Radcliffe v. Aetna Inc., et al. and Flaim v. Aetna Inc., et al. The plaintiffs in these cases assert a variety of causes of action premised on allegations that the defendants breached fiduciary duties and engaged in prohibited transactions relating to participants in the Aetna 401(k) Plan’s investment in company stock between December 3, 2017 and February 20, 2019, claiming losses related to the performance of the Company’s LTC business unit. The district court consolidated the actions, and in October 2021, dismissed the consolidated action without prejudice. Plaintiffs filed an amended consolidated complaint, which the Company has moved to dismiss. The Company also received a related document request pursuant to ERISA § 104(b), to which the Company has responded. The Company and its current and former officers and directors are defending themselves against these claims.
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In December 2021, the Company received a demand for inspection of books and records pursuant to Delaware Corporation Law Section 220 (the “Demand”). The Demand purports to be related to potential breaches of fiduciary duties by the Board in relation to certain matters concerning opioids.
Other Legal and Regulatory Proceedings
The Company is also a party to other legal proceedings and is subject to government investigations, inquiries and audits and has received and is cooperating with the government in response to CIDs, subpoenas or similar process from various governmental agencies requesting information. These other legal proceedings and government actions include claims of or relating to bad faith, medical or professional malpractice, breach of fiduciary duty, claims processing, dispensing of medications, non-compliance with state and federal regulatory regimes, marketing misconduct, denial of or failure to timely or appropriately pay or administer claims and benefits, provider network structure (including the use of performance-based networks and termination of provider contracts), rescission of insurance coverage, improper disclosure or use of personal information, anticompetitive practices, general contractual matters, product liability, intellectual property litigation and employment litigation. Some of these other legal proceedings are or are purported to be class actions or derivative claims. The Company is defending itself against the claims brought in these matters.
Awards to the Company and others of certain government contracts, particularly Medicaid contracts and other contracts with government customers in the Company’s Health Care Benefits segment, frequently are subject to protests by unsuccessful bidders. These protests may result in awards to the Company being reversed, delayed or modified. The loss or delay in implementation of any government contract could adversely affect the Company’s operating results. The Company will continue to defend contract awards it receives.
There also continues to be a heightened level of review and/or audit by regulatory authorities and legislators of, and increased litigation regarding, the Company’s and the rest of the health care and related benefits industry’s business and reporting practices, including premium rate increases, utilization management, development and application of medical policies, complaint, grievance and appeal processing, information privacy, provider network structure (including provider network adequacy, the use of performance-based networks and termination of provider contracts), provider directory accuracy, calculation of minimum medical loss ratios and/or payment of related rebates, delegated arrangements, rescission of insurance coverage, limited benefit health products, student health products, pharmacy benefit management practices (including manufacturers’ rebates, pricing, the use of narrow networks and the placement of drugs in formulary tiers), sales practices, customer service practices, vendor oversight and claim payment practices (including payments to out-of-network providers).
As a leading national health solutions company, the Company regularly is the subject of government actions of the types described above. These government actions may prevent or delay the Company from implementing planned premium rate increases and may result, and have resulted, in restrictions on the Company’s businesses, changes to or clarifications of the Company’s business practices, retroactive adjustments to premiums, refunds or other payments to members, beneficiaries, states or the federal government, withholding of premium payments to the Company by government agencies, assessments of damages, civil or criminal fines or penalties, or other sanctions, including the possible suspension or loss of licensure and/or suspension or exclusion from participation in government programs.
The Company can give no assurance that its businesses, financial condition, operating results and/or cash flows will not be materially adversely affected, or that the Company will not be required to materially change its business practices, based on: (i) future enactment of new health care or other laws or regulations; (ii) the interpretation or application of existing laws or regulations as they may relate to one or more of the Company’s businesses, one or more of the industries in which the Company competes and/or the health care industry generally; (iii) pending or future federal or state government investigations of one or more of the Company’s businesses, one or more of the industries in which the Company competes and/or the health care industry generally; (iv) pending or future government audits, investigations or enforcement actions against the Company; (v) adverse developments in any pending qui tam lawsuit against the Company, whether sealed or unsealed, or in any future qui tam lawsuit that may be filed against the Company; or (vi) adverse developments in pending or future legal proceedings against the Company or affecting one or more of the industries in which the Company competes and/or the health care industry generally.
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9.Segment Reporting
The Company has three operating segments, Health Care Benefits, Pharmacy Services and Retail/LTC, as well as a Corporate/Other segment. The Company’s segments maintain separate financial information, and the Company’s chief operating decision maker (the “CODM”) evaluates the segments’ operating results on a regular basis in deciding how to allocate resources among the segments and in assessing segment performance. The CODM evaluates the performance of the Company’s segments based on adjusted operating income, which is defined as operating income (GAAP measure) excluding the impact of amortization of intangible assets and other items, if any, that neither relate to the ordinary course of the Company’s business nor reflect the Company’s underlying business performance. See the reconciliations of consolidated operating income (GAAP measure) to consolidated adjusted operating income below for further context regarding the items excluded from operating income in determining adjusted operating income. The Company uses adjusted operating income as its principal measure of segment performance as it enhances the Company’s ability to compare past financial performance with current performance and analyze underlying business performance and trends. Non-GAAP financial measures the Company discloses, such as consolidated adjusted operating income, should not be considered a substitute for, or superior to, financial measures determined or calculated in accordance with GAAP.
The following is a reconciliation of financial measures of the Company’s segments to the consolidated totals:

In millions | Health Care Benefits |  | Pharmacy Services (1) |  | Retail/ LTC |  | Corporate/ Other |  | Intersegment Eliminations (2) |  | Consolidated Totals
Three Months Ended |  |  |  |  |  |  |  |  |  |  |
March 31, 2022 |  |  |  |  |  |  |  |  |  |  |
Revenues from external customers | $ | 22,997 |  |  | $ | 36,196 |  |  | $ | 17,434 |  |  | $ | 31 |  |  | $ | — |  |  | $ | 76,658 |
Intersegment revenues | 23 |  |  | 3,265 |  |  | 8,000 |  |  | — |  |  | (11,288) |  |  | — |
Net investment income (loss) | 89 |  |  | — |  |  | (16) |  |  | 95 |  |  | — |  |  | 168 |
Total revenues | 23,109 |  |  | 39,461 |  |  | 25,418 |  |  | 126 |  |  | (11,288) |  |  | 76,826 |
Adjusted operating income (loss) | 1,751 |  |  | 1,636 |  |  | 1,605 |  |  | (305) |  |  | (204) |  |  | 4,483 |
March 31, 2021 |  |  |  |  |  |  |  |  |  |  |
Revenues from external customers | $ | 20,315 |  |  | $ | 33,313 |  |  | $ | 15,140 |  |  | $ | 32 |  |  | $ | — |  |  | $ | 68,800 |
Intersegment revenues | 20 |  |  | 3,008 |  |  | 8,088 |  |  | — |  |  | (11,116) |  |  | — |
Net investment income | 148 |  |  | — |  |  | 46 |  |  | 103 |  |  | — |  |  | 297 |
Total revenues | 20,483 |  |  | 36,321 |  |  | 23,274 |  |  | 135 |  |  | (11,116) |  |  | 69,097 |
Adjusted operating income (loss) | 1,782 |  |  | 1,507 |  |  | 1,394 |  |  | (303) |  |  | (175) |  |  | 4,205 |

_____________________________________________
(1)Total revenues of the Pharmacy Services segment include approximately $3.8 billion and $3.4 billion of retail co-payments for the three months ended March 31, 2022 and 2021, respectively.
(2)Intersegment revenue eliminations relate to intersegment revenue generating activities that occur between the Health Care Benefits segment, the Pharmacy Services segment, and/or the Retail/LTC segment. Intersegment adjusted operating income eliminations occur when members of Pharmacy Services Segment clients (“PSS members”) enrolled in Maintenance Choice® elect to pick up maintenance prescriptions at one of the Company’s retail pharmacies instead of receiving them through the mail. When this occurs, both the Pharmacy Services and Retail/LTC segments record the adjusted operating income on a stand-alone basis.
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The following are reconciliations of consolidated operating income to adjusted operating income for the three months ended March 31, 2022 and 2021:

| Three Months Ended March 31, |  |
In millions | 2022 |  | 2021 |  |  |  |
Operating income (GAAP measure) | $ | 3,490 |  |  | $ | 3,577 |  |  |  |  |
Amortization of intangible assets (1) | 468 |  |  | 587 |  |  |  |  |
Legal settlement accrual (2) | 484 |  |  | — |  |  |  |  |
Loss on assets held for sale (3) | 41 |  |  | — |  |  |  |  |
Acquisition-related integration costs (4) | — |  |  | 41 |  |  |  |  |
Adjusted operating income | $ | 4,483 |  |  | $ | 4,205 |  |  |  |  |

_____________________________________________
(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 unaudited 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, 2022, the legal settlement accrual relates to the pending agreement with the State of Florida, entered into in March 2022, to resolve claims dating back more than a decade related to opioid medications. Under this agreement, CVS Health Corporation will settle all opioid claims against it and its subsidiaries by the State of Florida for $484 million, inclusive of certain legal fees, to be paid over a period of 18 years. The legal settlement accrual is reflected in the unaudited condensed consolidated statement of operations in operating expenses within the Corporate/Other segment.
(3)During the three months ended March 31, 2022, the loss on assets held for sale relates to the Commercial Business reporting unit within the Health Care Benefits segment. In March 2022, the Company reached an agreement to sell its Thailand business, which is included in the Commercial Business reporting unit. 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 a loss on assets held for sale was recorded. The sale is expected to close in the second quarter of 2022. The loss on assets held for sale is reflected in the unaudited condensed consolidated statement of operations in operating expenses within the Health Care Benefits segment.
(4)During the three months ended March 31, 2021, acquisition-related integration costs relate to the acquisition of Aetna. The acquisition-related integration costs are reflected in the unaudited condensed consolidated statement of operations in operating expenses within the Corporate/Other segment.
10.Subsequent Event
On April 2, 2022, the Company reached an agreement to sell its Payflex® business, which is reported within the Health Care Benefits segment. Payflex provides services to employers, their employees, and their former employees in the areas of tax-advantaged account reimbursement administration (flexible spending, health reimbursement, health savings, transit and parking), Consolidated Omnibus Budget Reconciliation Act (“COBRA”) administration and special-member billing administration.
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Index to Condensed Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of CVS Health Corporation
Results of Review of Interim Financial Statements
We have reviewed the accompanying condensed consolidated balance sheet of CVS Health Corporation (the Company) as of March 31, 2022, the related condensed consolidated statements of operations and comprehensive income for the three-month periods ended March 31, 2022 and 2021, the related condensed consolidated statements of shareholders’ equity for the three-month periods ended March 31, 2022 and 2021, the related condensed consolidated statements of cash flows for the three-month periods ended March 31, 2022 and 2021, and the related notes (collectively referred to as the “condensed consolidated interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2021, the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity and cash flows for the year then ended, and the related notes (not presented herein); and in our report dated February 9, 2022, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2021, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
These financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
/s/ Ernst & Young LLP
Boston, Massachusetts
May 4, 2022
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Form 10-Q Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)
Overview of Business
CVS Health Corporation, together with its subsidiaries (collectively, “CVS Health,” the “Company,” “we,” “our” or “us”), is a diversified health solutions company united around a common purpose of helping people on their path to better health. In an increasingly connected and digital world, we are meeting people wherever they are and changing health care to meet their needs. 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 Company has four reportable segments: Health Care Benefits, Pharmacy Services, Retail/LTC and Corporate/Other, which are described below.
Overview of the 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.
Overview of the 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.
Overview of the 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, coronavirus disease 2019 (“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.
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Overview of the 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.
Overview of Current Trends
We also face trends and uncertainties specific to our reportable segments, certain of which are summarized below and also discussed in the review of our segment results. For the remainder of the year, the Company believes you should consider the following important information:
•The Health Care Benefits segment is expected to continue to benefit from Medicare and Commercial membership growth, partially offset by membership declines in its Medicaid products. The projected MBR is expected to decrease compared to 2021, reflecting pricing and a reduction in COVID-19 related medical costs. While the Company still expects a net negative impact from COVID-19 in 2022 within the Health Care Benefits segment, including the impact of the assumption that a fourth COVID-19 booster will be administered to adults aged 50 and older and to certain immunocompromised individuals as per the guidelines set forth by the CDC, the expectation is the impact will be less adverse than what was experienced in 2021.
•The Pharmacy Services segment is expected to continue to benefit from the Company’s ability to drive further improvements in purchasing economics and continued growth in specialty pharmacy, partially offset by continued client price improvements and regulation of pharmacy pricing.
•The Retail/LTC segment is expected to continue to benefit from increased prescription volume and improved generic drug purchasing, partially offset by continued pharmacy reimbursement pressure and incremental operating expenses associated with the Company’s minimum wage investment. The Company expects that COVID-19 vaccinations, including the impact of the assumption of a fourth COVID-19 booster as described above, and diagnostic testing will continue in 2022, albeit at lower levels than those experienced during 2021. The Company expects to see continued strength in front store sales, including sales of over-the-counter (“OTC”) test kits, in 2022. The extent of COVID-19 vaccinations, diagnostic testing and OTC test kit sales will be dependent upon various factors including vaccine hesitancy, the emergence of new variants, government testing initiatives and the availability and administration of pediatric and booster vaccinations.
•The Company is expected to benefit from the continuation of its enterprise-wide cost savings initiatives, which aim to reduce the Company’s operating cost structure in a way that improves the consumer experience and is sustainable. Key drivers include:
•Investments in digital, technology and analytics capabilities that will streamline processes and improve outcomes,
•Implementing workforce and workplace strategies, and
•Deploying vendor and procurement strategies.
•The Company expects changes to its business environment to continue 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 or impact the Company’s businesses.
•The COVID-19 pandemic continues to impact the economies of the U.S. and other countries around the world. The Company believes COVID-19’s impact on its businesses, operating results, cash flows and/or financial condition primarily will be driven by the geographies impacted and the severity and duration of the pandemic, as well as the pandemic’s impact on the U.S. and global economies, global supply chain, consumer behavior, and health care utilization patterns. In addition, as described in the “Government Regulation” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”), federal, state and local governmental policies and initiatives designed to reduce the transmission of COVID-19 and emerging new variants may not effectively combat the severity and/or duration of the COVID-19 pandemic, and have resulted in a myriad of impacts on the Company’s businesses. Those primary drivers are beyond the Company’s knowledge and control. As a result, the impact COVID-19 will have on the Company’s businesses, operating results, cash flows and/or financial condition is uncertain, but the impact could be adverse and material.
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The Company’s current expectations described above are forward-looking statements. Please see the “Cautionary Statement Concerning Forward-Looking Statements” in this Form 10-Q for information regarding important factors that may cause the Company’s actual results to differ from those currently projected and/or otherwise materially affect the Company.
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Operating Results
The following discussion explains the material changes in the Company’s operating results for the three months ended March 31, 2022 and 2021, and the significant developments affecting the Company’s financial condition since December 31, 2021. We strongly recommend that you read our audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations, which are included in the 2021 Form 10-K.
Summary of Consolidated Financial Results

| Three Months Ended March 31, |  |  |  | Change |  |
In millions | 2022 |  | 2021 |  |  |  |  |  | $ |  | % |  |  |  |
Revenues: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Products | $ | 52,522 |  |  | $ | 47,387 |  |  |  |  |  |  | $ | 5,135 |  |  | 10.8 | % |  |  |  |
Premiums | 21,631 |  |  | 18,960 |  |  |  |  |  |  | 2,671 |  |  | 14.1 | % |  |  |  |
Services | 2,505 |  |  | 2,453 |  |  |  |  |  |  | 52 |  |  | 2.1 | % |  |  |  |
Net investment income | 168 |  |  | 297 |  |  |  |  |  |  | (129) |  |  | (43.4) | % |  |  |  |
Total revenues | 76,826 |  |  | 69,097 |  |  |  |  |  |  | 7,729 |  |  | 11.2 | % |  |  |  |
Operating costs: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of products sold | 45,509 |  |  | 40,894 |  |  |  |  |  |  | 4,615 |  |  | 11.3 | % |  |  |  |
Benefit costs | 17,951 |  |  | 15,704 |  |  |  |  |  |  | 2,247 |  |  | 14.3 | % |  |  |  |
Operating expenses | 9,876 |  |  | 8,922 |  |  |  |  |  |  | 954 |  |  | 10.7 | % |  |  |  |
Total operating costs | 73,336 |  |  | 65,520 |  |  |  |  |  |  | 7,816 |  |  | 11.9 | % |  |  |  |
Operating income | 3,490 |  |  | 3,577 |  |  |  |  |  |  | (87) |  |  | (2.4) | % |  |  |  |
Interest expense | 586 |  |  | 657 |  |  |  |  |  |  | (71) |  |  | (10.8) | % |  |  |  |
Other income | (42) |  |  | (50) |  |  |  |  |  |  | 8 |  |  | 16.0 | % |  |  |  |
Income before income tax provision | 2,946 |  |  | 2,970 |  |  |  |  |  |  | (24) |  |  | (0.8) | % |  |  |  |
Income tax provision | 633 |  |  | 746 |  |  |  |  |  |  | (113) |  |  | (15.1) | % |  |  |  |
Income from continuing operations | 2,313 |  |  | 2,224 |  |  |  |  |  |  | 89 |  |  | 4.0 | % |  |  |  |
Net income | 2,313 |  |  | 2,224 |  |  |  |  |  |  | 89 |  |  | 4.0 | % |  |  |  |
Net income attributable to noncontrolling interests | (1) |  |  | (1) |  |  |  |  |  |  | — |  |  | — | % |  |  |  |
Net income attributable to CVS Health | $ | 2,312 |  |  | $ | 2,223 |  |  |  |  |  |  | $ | 89 |  |  | 4.0 | % |  |  |  |

Commentary - Three Months Ended March 31, 2022 vs. 2021
Revenues
•Total revenues increased $7.7 billion, or 11.2%, in the three months ended March 31, 2022 compared to the prior year driven by growth across all segments.
•Please see “Segment Analysis” later in this report for additional information about the revenues of the Company’s segments.
Operating expenses
•Operating expenses increased $954 million, or 10.7%, in the three months ended March 31, 2022 compared to the prior year. The increase in operating expenses was primarily due to the establishment of a $484 million pretax ($370 million after-tax) legal settlement accrual related to the pending agreement with the State of Florida to settle all opioid claims against the Company and incremental costs associated with growth in the business.
•Operating expenses as a percentage of total revenues remained consistent at 12.9% in each of the three-month periods ended March 31, 2022 and 2021.
•Please see “Segment Analysis” later in this report for additional information about the operating expenses of the Company’s segments.
Operating income
•Operating income decreased $87 million, or 2.4%, in the three months ended March 31, 2022 compared to the prior year primarily due to the Company’s pending agreement with the State of Florida described above. This decrease was partially offset by increased prescription and front store volume, including the sale of COVID-19 over-the-counter (“OTC”) test
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kits, and the impact of COVID-19 vaccinations in the Retail/LTC segment, improved purchasing economics and growth in specialty pharmacy in the Pharmacy Services segment and a decrease in amortization of intangible assets compared to prior year.
•Please see “Segment Analysis” later in this report for additional information about the operating results of the Company’s segments.
Interest expense
•Interest expense decreased $71 million, or 10.8%, in the three months ended March 31, 2022 compared to the prior year due to lower debt in the three months ended March 31, 2022. See “Liquidity and Capital Resources” later in this report for additional information.
Income tax provision
•The effective income tax rate was 21.5% for the three months ended March 31, 2022 compared to 25.1% for the three months ended March 31, 2021. The decrease in the effective income tax rate was primarily due to the impact of certain discrete tax items concluded in the first quarter of 2022.
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Segment Analysis
The following discussion of segment operating results is presented based on the Company’s reportable segments in accordance with the accounting guidance for segment reporting and is consistent with the segment disclosure in Note 9 ‘‘Segment Reporting’’ to the unaudited condensed consolidated financial statements.
The Company has three operating segments, Health Care Benefits, Pharmacy Services and Retail/LTC, as well as a Corporate/Other segment. The Company’s segments maintain separate financial information, and the Company’s chief operating decision maker (the “CODM”) evaluates the segments’ operating results on a regular basis in deciding how to allocate resources among the segments and in assessing segment performance. The CODM evaluates the performance of the Company’s segments based on adjusted operating income, which is defined as operating income (GAAP measure) excluding the impact of amortization of intangible assets and other items, if any, that neither relate to the ordinary course of the Company’s business nor reflect the Company’s underlying business performance. See the reconciliations of operating income (GAAP measure) to adjusted operating income below for further context regarding the items excluded from operating income in determining adjusted operating income. The Company uses adjusted operating income as its principal measure of segment performance as it enhances the Company’s ability to compare past financial performance with current performance and analyze underlying business performance and trends. Non-GAAP financial measures the Company discloses, such as consolidated adjusted operating income, should not be considered a substitute for, or superior to, financial measures determined or calculated in accordance with GAAP.
The following is a reconciliation of financial measures of the Company’s segments to the consolidated totals:

In millions | Health Care Benefits |  | Pharmacy Services (1) |  | Retail/ LTC |  | Corporate/ Other |  | Intersegment Eliminations (2) |  | Consolidated Totals
Three Months Ended |  |  |  |  |  |  |  |  |  |  |
March 31, 2022 |  |  |  |  |  |  |  |  |  |  |
Total revenues | $ | 23,109 |  |  | $ | 39,461 |  |  | $ | 25,418 |  |  | $ | 126 |  |  | $ | (11,288) |  |  | $ | 76,826 |
Adjusted operating income (loss) | 1,751 |  |  | 1,636 |  |  | 1,605 |  |  | (305) |  |  | (204) |  |  | 4,483 |
March 31, 2021 |  |  |  |  |  |  |  |  |  |  |
Total revenues | 20,483 |  |  | 36,321 |  |  | 23,274 |  |  | 135 |  |  | (11,116) |  |  | 69,097 |
Adjusted operating income (loss) | 1,782 |  |  | 1,507 |  |  | 1,394 |  |  | (303) |  |  | (175) |  |  | 4,205 |

_____________________________________________
(1)Total revenues of the Pharmacy Services segment include approximately $3.8 billion and $3.4 billion of retail co-payments for the three months ended March 31, 2022 and 2021, respectively.
(2)Intersegment revenue eliminations relate to intersegment revenue generating activities that occur between the Health Care Benefits segment, the Pharmacy Services segment, and/or the Retail/LTC segment. Intersegment adjusted operating income eliminations occur when members of Pharmacy Services Segment clients (“PSS members”) enrolled in Maintenance Choice® elect to pick up maintenance prescriptions at one of the Company’s retail pharmacies instead of receiving them through the mail. When this occurs, both the Pharmacy Services and Retail/LTC segments record the adjusted operating income on a stand-alone basis.
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The following are reconciliations of consolidated operating income (GAAP measure) to consolidated adjusted operating income, as well as reconciliations of segment GAAP operating income to segment adjusted operating income:

| Three Months Ended March 31, 2022
In millions | Health Care Benefits |  | Pharmacy Services |  | Retail/ LTC |  | Corporate/ Other |  | Intersegment Eliminations |  | Consolidated Totals
Operating income (loss) (GAAP measure) | $ | 1,409 |  |  | $ | 1,592 |  |  | $ | 1,483 |  |  | $ | (790) |  |  | $ | (204) |  |  | $ | 3,490 |
Amortization of intangible assets (1) | 301 |  |  | 44 |  |  | 122 |  |  | 1 |  |  | — |  |  | 468 |
Legal settlement accrual (2) | — |  |  | — |  |  | — |  |  | 484 |  |  | — |  |  | 484 |
Loss on assets held for sale (3) | 41 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 41 |
Adjusted operating income (loss) | $ | 1,751 |  |  | $ | 1,636 |  |  | $ | 1,605 |  |  | $ | (305) |  |  | $ | (204) |  |  | $ | 4,483 |

| Three Months Ended March 31, 2021
In millions | Health Care Benefits |  | Pharmacy Services |  | Retail/ LTC |  | Corporate/ Other |  | Intersegment Eliminations |  | Consolidated Totals
Operating income (loss) (GAAP measure) | $ | 1,380 |  |  | $ | 1,452 |  |  | $ | 1,265 |  |  | $ | (345) |  |  | $ | (175) |  |  | $ | 3,577 |
Amortization of intangible assets (1) | 402 |  |  | 55 |  |  | 129 |  |  | 1 |  |  | — |  |  | 587 |
Acquisition-related integration costs (4) | — |  |  | — |  |  | — |  |  | 41 |  |  | — |  |  | 41 |
Adjusted operating income (loss) | $ | 1,782 |  |  | $ | 1,507 |  |  | $ | 1,394 |  |  | $ | (303) |  |  | $ | (175) |  |  | $ | 4,205 |

_____________________________________________
(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 unaudited 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, 2022, the legal settlement accrual relates to the pending agreement with the State of Florida, entered into in March 2022, to resolve claims dating back more than a decade related to opioid medications. Under this agreement, CVS Health Corporation will settle all opioid claims against it and its subsidiaries by the State of Florida for $484 million, inclusive of certain legal fees, to be paid over a period of 18 years. The legal settlement accrual is reflected in the unaudited condensed consolidated statement of operations in operating expenses within the Corporate/Other segment.
(3)During the three months ended March 31, 2022, the loss on assets held for sale relates to the Commercial Business reporting unit within the Health Care Benefits segment. 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. 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 a loss on assets held for sale was recorded. The sale is expected to close in the second quarter of 2022. The loss on assets held for sale is reflected in the unaudited condensed consolidated statement of operations in operating expenses within the Health Care Benefits segment.
(4)During the three months ended March 31, 2021, acquisition-related integration costs relate to the Company’s acquisition of Aetna Inc. The acquisition-related integration costs are reflected in the unaudited condensed consolidated statement of operations in operating expenses within the Corporate/Other segment.
40

Health Care Benefits Segment
The following table summarizes the Health Care Benefits segment’s performance for the respective periods:

| Three Months Ended March 31, |  |  |  | Change |  |
In millions, except percentages and basis points (“bps”) | 2022 |  | 2021 |  |  |  |  |  | $ |  | % |  |  |  |
Revenues: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Premiums | $ | 21,614 |  | $ | 18,942 |  |  |  |  |  | $ | 2,672 |  |  | 14.1 | % |  |  |  |
Services | 1,406 |  | 1,393 |  |  |  |  |  | 13 |  |  | 0.9 | % |  |  |  |
Net investment income | 89 |  | 148 |  |  |  |  |  | (59) |  |  | (39.9) | % |  |  |  |
Total revenues | 23,109 |  | 20,483 |  |  |  |  |  | 2,626 |  |  | 12.8 | % |  |  |  |
Benefit costs | 18,049 |  | 15,757 |  |  |  |  |  | 2,292 |  |  | 14.5 | % |  |  |  |
MBR | 83.5 | % |  | 83.2 | % |  |  |  |  |  | 30 | bps |  |  |
Operating expenses | $ | 3,651 |  | $ | 3,346 |  |  |  |  |  | $ | 305 |  |  | 9.1 | % |  |  |  |
Operating expenses as a % of total revenues | 15.8 | % |  | 16.3 | % |  |  |  |  |  |  |  |  |  |  |  |
Operating income | $ | 1,409 |  | $ | 1,380 |  |  |  |  |  | $ | 29 |  |  | 2.1 | % |  |  |  |
Operating income as a % of total revenues | 6.1 | % |  | 6.7 | % |  |  |  |  |  |  |  |  |  |  |  |
Adjusted operating income (1) | $ | 1,751 |  | $ | 1,782 |  |  |  |  |  | $ | (31) |  |  | (1.7) | % |  |  |  |
Adjusted operating income as a % of total revenues | 7.6 | % |  | 8.7 | % |  |  |  |  |  |  |  |  |  |  |  |
Premium revenues (by business): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Government | $ | 16,195 |  | $ | 13,917 |  |  |  |  |  | $ | 2,278 |  |  | 16.4 | % |  |  |  |
Commercial | 5,419 |  | 5,025 |  |  |  |  |  | 394 |  |  | 7.8 | % |  |  |  |

_____________________________________________
(1)See “Segment Analysis” above in this report for a reconciliation of Health Care Benefits segment operating income (GAAP measure) to adjusted operating income, which represents the Company’s principal measure of segment performance.
Commentary - Three Months Ended March 31, 2022 vs. 2021
Revenues
•Total revenues increased $2.6 billion, or 12.8%, to $23.1 billion in the three months ended March 31, 2022 compared to the prior year driven by growth across all product lines.
Medical Benefit Ratio (“MBR”)
•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 MBR increased slightly to 83.5% in the three months ended March 31, 2022 compared to 83.2% in the prior year reflective of the continued progression towards normalized total medical costs.
Operating expenses
•Operating expenses in the Health Care Benefits segment include selling, general and administrative expenses and depreciation and amortization expenses.
•Operating expenses increased $305 million, or 9.1%, in the three months ended March 31, 2022 compared to the prior year. The increase in operating expenses was primarily due to incremental operating expenses to support the growth in the business described above.
•Operating expenses as a percentage of total revenues decreased to 15.8% in the three months ended March 31, 2022 compared to 16.3% in the prior year. The decrease in operating expenses as a percentage of total revenues was primarily driven by the increases in total revenues described above.
Adjusted operating income
•Adjusted operating income decreased slightly in the three months ended March 31, 2022 compared to the prior year primarily driven by net realized capital losses and the continued progression towards normalized total medical costs, largely offset by membership growth across all product lines.
41

The following table summarizes the Health Care Benefits segment’s medical membership for the respective periods:

| March 31, 2022 |  | December 31, 2021 |  |  |  | March 31, 2021
In thousands | Insured |  | ASC |  | Total |  | Insured |  | ASC |  | Total |  |  |  |  |  |  |  | Insured |  | ASC |  | Total
Medical membership: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial | 3,285 |  |  | 13,924 |  |  | 17,209 |  |  | 3,258 |  |  | 13,530 |  |  | 16,788 |  |  |  |  |  |  |  |  | 3,201 |  |  | 13,584 |  |  | 16,785 |
Medicare Advantage | 3,169 |  |  | — |  |  | 3,169 |  |  | 2,971 |  |  | — |  |  | 2,971 |  |  |  |  |  |  |  |  | 2,874 |  |  | — |  |  | 2,874 |
Medicare Supplement | 1,292 |  |  | — |  |  | 1,292 |  |  | 1,285 |  |  | — |  |  | 1,285 |  |  |  |  |  |  |  |  | 1,146 |  |  | — |  |  | 1,146 |
Medicaid | 2,375 |  |  | 477 |  |  | 2,852 |  |  | 2,333 |  |  | 471 |  |  | 2,804 |  |  |  |  |  |  |  |  | 2,184 |  |  | 637 |  |  | 2,821 |
Total medical membership | 10,121 |  |  | 14,401 |  |  | 24,522 |  |  | 9,847 |  |  | 14,001 |  |  | 23,848 |  |  |  |  |  |  |  |  | 9,405 |  |  | 14,221 |  |  | 23,626 |
Supplemental membership information: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Medicare Prescription Drug Plan (standalone) | 6,022 |  |  |  |  |  |  | 5,777 |  |  |  |  |  |  |  |  |  |  |  |  | 5,694 |

Medical Membership
•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, 2022 of 24.5 million increased 674,000 members compared with December 31, 2021, reflecting increases across all product lines.
Medicare Update
On April 4, 2022, the U.S. Centers for Medicare & Medicaid Services issued its final notice detailing final 2023 Medicare Advantage benchmark payment rates. Final 2023 Medicare Advantage rates resulted in an increase in industry benchmark rates of approximately 5.0%.
42

Pharmacy Services Segment
The following table summarizes the Pharmacy Services segment’s performance for the respective periods:

| Three Months Ended March 31, |  |  |  | Change |  |
In millions, except percentages | 2022 |  | 2021 |  |  |  |  |  | $ |  | % |  |  |  |
Revenues: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Products | $ | 39,164 |  | $ | 36,067 |  |  |  |  |  | $ | 3,097 |  |  | 8.6 | % |  |  |  |
Services | 297 |  | 254 |  |  |  |  |  | 43 |  |  | 16.9 | % |  |  |  |
Total revenues | 39,461 |  | 36,321 |  |  |  |  |  | 3,140 |  |  | 8.6 | % |  |  |  |
Cost of products sold | 37,490 |  | 34,523 |  |  |  |  |  | 2,967 |  |  | 8.6 | % |  |  |  |
Operating expenses | 379 |  | 346 |  |  |  |  |  | 33 |  |  | 9.5 | % |  |  |  |
Operating expenses as a % of total revenues | 1.0 | % |  | 1.0 | % |  |  |  |  |  |  |  |  |  |  |  |
Operating income | $ | 1,592 |  | $ | 1,452 |  |  |  |  |  | $ | 140 |  |  | 9.6 | % |  |  |  |
Operating income as a % of total revenues | 4.0 | % |  | 4.0 | % |  |  |  |  |  |  |  |  |  |  |  |
Adjusted operating income (1) | $ | 1,636 |  | $ | 1,507 |  |  |  |  |  | $ | 129 |  |  | 8.6 | % |  |  |  |
Adjusted operating income as a % of total revenues | 4.1 | % |  | 4.1 | % |  |  |  |  |  |  |  |  |  |  |  |
Revenues (by distribution channel): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pharmacy network (2) | $ | 22,824 |  | $ | 21,893 |  |  |  |  |  | $ | 931 |  |  | 4.3 | % |  |  |  |
Mail choice (3) | 16,374 |  | 14,248 |  |  |  |  |  | 2,126 |  |  | 14.9 | % |  |  |  |
Other | 263 |  | 180 |  |  |  |  |  | 83 |  |  | 46.1 | % |  |  |  |
Pharmacy claims processed: (4) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total | 567.0 |  | 535.9 |  |  |  |  |  | 31.1 |  |  | 5.8 | % |  |  |  |
Pharmacy network (2) | 484.3 |  | 455.4 |  |  |  |  |  | 28.9 |  |  | 6.3 | % |  |  |  |
Mail choice (3) | 82.7 |  | 80.5 |  |  |  |  |  | 2.2 |  |  | 2.7 | % |  |  |  |
Generic dispensing rate: (4) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total | 87.7 | % |  | 88.1 | % |  |  |  |  |  |  |  |  |  |  |  |
Pharmacy network (2) | 88.1 | % |  | 88.5 | % |  |  |  |  |  |  |  |  |  |  |  |
Mail choice (3) | 85.6 | % |  | 85.7 | % |  |  |  |  |  |  |  |  |  |  |  |

_____________________________________________
(1)See “Segment Analysis” above in this report for a reconciliation of Pharmacy Services segment operating income (GAAP measure) to adjusted operating income, which represents the Company’s principal measure of segment performance.
(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)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.
(4)Includes an adjustment to convert 90-day prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal prescription.
Commentary - Three Months Ended March 31, 2022 vs. 2021
Revenues
•Total revenues increased $3.1 billion, or 8.6%, to $39.5 billion in the three months ended March 31, 2022 compared to the prior year primarily driven by increased pharmacy claims volume, growth in specialty pharmacy and brand inflation, partially offset by continued client price improvements.
Operating expenses
•Operating expenses in the Pharmacy Services segment include selling, general and administrative expenses; depreciation and amortization expense; and expenses related to specialty retail pharmacies, which include administrative payroll, employee benefits and occupancy costs.
•Operating expenses as a percentage of total revenues remained consistent at 1.0% in each of the three-month periods ended March 31, 2022 and 2021.
43

Adjusted operating income
•Adjusted operating income increased $129 million, or 8.6%, in the three months ended March 31, 2022 compared to the prior year. The increase in adjusted operating income was primarily driven by improved purchasing economics, including increased contributions from the products and services of the Company’s group purchasing organization, and specialty pharmacy. These increases were partially offset by continued client price improvements.
•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, fees and/or discounts the Company receives from manufacturers, wholesalers and retail pharmacies continue to have an impact on 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, fees 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.
Pharmacy claims processed
•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 total revenues and operating results.
•The Company’s pharmacy network claims processed on a 30-day equivalent basis increased 6.3% in the three months ended March 31, 2022 compared to the prior year primarily driven by net new business, increased utilization and the impact of a weaker cough, cold and flu season experienced in the prior year.
•The Company’s mail choice claims processed on a 30-day equivalent basis increased 2.7% in the three months ended March 31, 2022 compared to the prior year primarily driven by net new business and the continued adoption of Maintenance Choice offerings.
•Excluding the impact of COVID-19 vaccinations, total pharmacy claims processed increased 5.5% on a 30-day equivalent basis for the three months ended March 31, 2022 compared to the prior year.
Generic dispensing rate
•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 decreased to 87.7% in the three months ended March 31, 2022 compared to 88.1% in the prior year. The decrease in the segment’s generic dispensing rate was primarily driven by an increase in brand prescriptions, largely attributable to increased COVID-19 vaccinations in the three months ended March 31, 2022 compared to the prior year. Excluding the impact of COVID-19 vaccinations, the segment’s total generic dispensing rate was 88.8% and 88.9% in the three months ended March 31, 2022 and 2021, respectively.
44

Retail/LTC Segment
The following table summarizes the Retail/LTC segment’s performance for the respective periods:

| Three Months Ended March 31, |  |  |  | Change |  |
In millions, except percentages | 2022 |  | 2021 |  |  |  |  |  | $ |  | % |  |  |  |
Revenues: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Products | $ | 24,605 |  | $ | 22,394 |  |  |  |  |  | $ | 2,211 |  |  | 9.9 | % |  |  |  |
Services | 829 |  | 834 |  |  |  |  |  | (5) |  |  | (0.6) | % |  |  |  |
Net investment income (loss) | (16) |  | 46 |  |  |  |  |  | (62) |  |  | (134.8) | % |  |  |  |
Total revenues | 25,418 |  | 23,274 |  |  |  |  |  | 2,144 |  |  | 9.2 | % |  |  |  |
Cost of products sold | 18,765 |  | 17,042 |  |  |  |  |  | 1,723 |  |  | 10.1 | % |  |  |  |
Operating expenses | 5,170 |  | 4,967 |  |  |  |  |  | 203 |  |  | 4.1 | % |  |  |  |
Operating expenses as a % of total revenues | 20.3 | % |  | 21.3 | % |  |  |  |  |  |  |  |  |  |  |  |
Operating income | $ | 1,483 |  | $ | 1,265 |  |  |  |  |  | $ | 218 |  |  | 17.2 | % |  |  |  |
Operating income as a % of total revenues | 5.8 | % |  | 5.4 | % |  |  |  |  |  |  |  |  |  |  |  |
Adjusted operating income (1) | $ | 1,605 |  | $ | 1,394 |  |  |  |  |  | $ | 211 |  |  | 15.1 | % |  |  |  |
Adjusted operating income as a % of total revenues | 6.3 | % |  | 6.0 | % |  |  |  |  |  |  |  |  |  |  |  |
Revenues (by major goods/service lines): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pharmacy | $ | 19,532 |  | $ | 17,885 |  |  |  |  |  | $ | 1,647 |  |  | 9.2 | % |  |  |  |
Front Store | 5,313 |  | 4,642 |  |  |  |  |  | 671 |  |  | 14.5 | % |  |  |  |
Other | 589 |  | 701 |  |  |  |  |  | (112) |  |  | (16.0) | % |  |  |  |
Net investment income (loss) | (16) |  | 46 |  |  |  |  |  | (62) |  |  | (134.8) | % |  |  |  |
Prescriptions filled (2) | 394.6 |  | 375.4 |  |  |  |  |  | 19.2 |  |  | 5.1 | % |  |  |  |
Same store sales increase (decrease): (3) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total | 10.7 | % |  | 0.4 | % |  |  |  |  |  |  |  |  |  |  |  |
Pharmacy | 10.1 | % |  | 4.1 | % |  |  |  |  |  |  |  |  |  |  |  |
Front Store | 13.2 | % |  | (11.4) | % |  |  |  |  |  |  |  |  |  |  |  |
Prescription volume (2) | 6.1 | % |  | 1.0 | % |  |  |  |  |  |  |  |  |  |  |  |
Generic dispensing rate (2) | 87.5 | % |  | 87.4 | % |  |  |  |  |  |  |  |  |  |  |  |

_____________________________________________
(1)See “Segment Analysis” above in this report for a reconciliation of Retail/LTC segment operating income (GAAP measure) to adjusted operating income, which represents the Company’s principal measure of segment performance.
(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. 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.
Commentary - Three Months Ended March 31, 2022 vs. 2021
Revenues
•Total revenues increased $2.1 billion, or 9.2%, to $25.4 billion in the three months ended March 31, 2022 compared to the prior year primarily driven by increased prescription and front store volume, including the sale of COVID-19 OTC test kits and the impact of a weaker cough, cold and flu season experienced in the prior year, as well as pharmacy brand inflation. These increases were partially offset by the impact of recent generic introductions, continued pharmacy reimbursement pressure and decreased COVID-19 diagnostic testing.
•Pharmacy same store sales increased 10.1% in the three months ended March 31, 2022 compared to the prior year. The increase was primarily driven by the 6.1% increase in pharmacy same store prescription volume on a 30-day equivalent basis and pharmacy brand inflation. These increases were partially offset by the impact of recent generic introductions and continued pharmacy reimbursement pressure.
45

•Front store same store sales increased 13.2% in the three months ended March 31, 2022 compared to the prior year. The increase was primarily due to strength in consumer health, including the sale of COVID-19 OTC test kits and the impact of a weaker cough, cold and flu season experienced in the prior year, in the three months ended March 31, 2022.
•Other revenues decreased $112 million in the three months ended March 31, 2022 compared to the prior year. The decrease was primarily due to decreased COVID-19 diagnostic testing in the three months ended March 31, 2022 compared to the prior year.
Operating expenses
•Operating expenses in the Retail/LTC segment include store payroll, store employee benefits, store occupancy costs, selling expenses, advertising expenses, depreciation and amortization expense and certain administrative expenses.
•Operating expenses increased $203 million, or 4.1%, in the three months ended March 31, 2022 compared to the prior year. The increase was primarily due to incremental costs associated with increased volume, as well as increased investments in the segment’s operations and capabilities.
•Operating expenses as a percentage of total revenues decreased to 20.3% in the three months ended March 31, 2022 compared to 21.3% in the prior year. The decrease in operating expenses as a percentage of total revenues was primarily driven by the increases in total revenues described above.
Adjusted operating income
•Adjusted operating income increased $211 million, or 15.1% in the three months ended March 31, 2022 compared to the prior year. The increase in adjusted operating income was primarily driven by the increased prescription and front store volume described above, the impact of COVID-19 vaccinations and improved generic drug purchasing. These increases were partially offset by continued pharmacy reimbursement pressure, increased investments in the segment’s operations and capabilities and decreased COVID-19 diagnostic testing.
•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 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 pharmacy reimbursement pressure accelerates, the segment may not be able grow revenues, and its adjusted operating income could be adversely affected.
•The increased use of generic drugs has positively impacted the segment’s 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
•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 total revenues and operating results.
•Prescriptions filled increased 5.1% on a 30-day equivalent basis in the three months ended March 31, 2022 compared to the prior year primarily driven by increased utilization and the impact of a weaker cough, cold and flu season experienced in the prior year. Excluding the impact of COVID-19 vaccinations, prescriptions filled increased 5.6% on a 30-day equivalent basis for the three months ended March 31, 2022 compared to the prior year.
Generic dispensing rate
•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 87.5% in the three months ended March 31, 2022 compared to 87.4% in the prior year. The increase in the segment’s generic dispensing rate was primarily driven by a decrease in brand prescriptions, largely attributable to decreased COVID-19 vaccinations in the three months ended March 31, 2022 compared to the prior year. Excluding the impact of COVID-19 vaccinations, the segment’s total generic dispensing rate was 89.9% and 89.5% in the three months ended March 31, 2022 and 2021, respectively.
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Corporate/Other Segment
The following table summarizes the Corporate/Other segment’s performance for the respective periods:

| Three Months Ended March 31, |  |  |  | Change |  |
In millions, except percentages | 2022 |  | 2021 |  |  |  |  |  | $ |  | % |  |  |  |
Revenues: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Premiums | $ | 17 |  |  | $ | 18 |  |  |  |  |  |  | $ | (1) |  |  | (5.6) | % |  |  |  |
Services | 14 |  |  | 14 |  |  |  |  |  |  | — |  |  | — | % |  |  |  |
Net investment income | 95 |  |  | 103 |  |  |  |  |  |  | (8) |  |  | (7.8) | % |  |  |  |
Total revenues | 126 |  |  | 135 |  |  |  |  |  |  | (9) |  |  | (6.7) | % |  |  |  |
Cost of products sold | 10 |  |  | 8 |  |  |  |  |  |  | 2 |  |  | 25.0 | % |  |  |  |
Benefit costs | 59 |  |  | 45 |  |  |  |  |  |  | 14 |  |  | 31.1 | % |  |  |  |
Operating expenses | 847 |  |  | 427 |  |  |  |  |  |  | 420 |  |  | 98.4 | % |  |  |  |
Operating loss | (790) |  |  | (345) |  |  |  |  |  |  | (445) |  |  | (129.0) | % |  |  |  |
Adjusted operating loss (1) | (305) |  |  | (303) |  |  |  |  |  |  | (2) |  |  | (0.7) | % |  |  |  |

_____________________________________________
(1)See “Segment Analysis” above in this report for a reconciliation of Corporate/Other segment operating loss (GAAP measure) to adjusted operating loss, which represents the Company’s principal measure of segment performance.
Commentary - Three Months Ended March 31, 2022 vs. 2021
Revenues
•Revenues primarily 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 $9 million, or 6.7%, to $126 million in the three months ended March 31, 2022 compared to the prior year primarily driven by lower net investment income from hedge funds and lower net realized capital gains in the three months ended March 31, 2022 compared to the prior year.
Adjusted operating loss
•Adjusted operating loss remained relatively consistent in the three months ended March 31, 2022 compared to the prior year.
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Liquidity and Capital Resources
Cash Flows
The Company maintains a level of liquidity sufficient to allow it to meet its cash needs in the short-term. Over the long term, the Company manages its cash and capital structure to maximize shareholder return, maintain its financial condition and maintain flexibility for future strategic initiatives. The Company continuously assesses its regulatory capital requirements, working capital needs, debt and leverage levels, debt maturity schedule, capital expenditure requirements, dividend payouts, potential share repurchases and future investments or acquisitions. The Company believes its operating cash flows, commercial paper program, credit facilities, as well as any potential future borrowings, will be sufficient to fund these future payments and long-term initiatives. As of March 31, 2022, the Company had approximately $8.4 billion in cash and cash equivalents, approximately $3.0 billion of which was held by the parent company or nonrestricted subsidiaries.
The net change in cash, cash equivalents and restricted cash during the three months ended March 31, 2022 and 2021 was as follows:

| Three Months Ended March 31, |  | Change
In millions, except percentages | 2022 |  | 2021 |  | $ |  | %
Net cash provided by operating activities | $ | 3,563 |  |  | $ | 2,892 |  |  | $ | 671 |  |  | 23.2 | %
Net cash used in investing activities | (1,993) |  |  | (1,867) |  |  | (126) |  |  | (6.7) | %
Net cash used in financing activities | (2,650) |  |  | (3,185) |  |  | 535 |  |  | 16.8 | %
Net decrease in cash, cash equivalents and restricted cash | $ | (1,080) |  |  | $ | (2,160) |  |  | $ | 1,080 |  |  | 50.0 | %

Commentary
•Net cash provided by operating activities increased by $671 million in the three months ended March 31, 2022 compared to the prior year. The increase was primarily due to the timing of payments, partially offset by higher inventory purchases during the three months ended March 31, 2022 compared to the prior year.
•Net cash used in investing activities increased by $126 million in the three months ended March 31, 2022 compared to the prior year primarily due to increased purchases of property and equipment, partially offset by higher net proceeds from sale and maturities of investments.
•Net cash used in financing activities decreased to $2.7 billion in the three months ended March 31, 2022 compared to $3.2 billion in the prior year. The decrease in cash used in financing activities primarily related to lower repayments of long-term debt during the three months ended March 31, 2022 compared to the prior year, partially offset by share repurchases in the three months ended March 31, 2022.
Short-term Borrowings
Commercial Paper and Back-up Credit Facilities
The Company did not have any commercial paper outstanding as of March 31, 2022. In connection with its commercial paper program, the Company maintains a $2.0 billion, five-year unsecured back-up revolving credit facility, which expires on May 17, 2023, a $2.0 billion, five-year unsecured back-up revolving credit facility, which expires on May 16, 2024, and a $2.0 billion, five-year unsecured back-up revolving credit facility, which expires on May 11, 2026. The credit facilities allow for borrowings at various rates that are dependent, in part, on the Company’s public debt ratings and require the Company to pay a weighted average quarterly facility fee of approximately 0.03%, regardless of usage. As of March 31, 2022, there were no borrowings outstanding under any of the Company’s back-up credit facilities.
Federal Home Loan Bank of Boston
A subsidiary of the Company is a member of the Federal Home Loan Bank of Boston (the “FHLBB”). As a member, the subsidiary has the ability to obtain cash advances, subject to certain minimum collateral requirements. The maximum borrowing capacity available from the FHLBB as of March 31, 2022 was approximately $1.0 billion. As of March 31, 2022, there were no outstanding advances from the FHLBB.
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Debt Covenants
The Company’s back-up revolving credit facilities and unsecured senior notes contain customary restrictive financial and operating covenants. These covenants do not include an acceleration of the Company’s debt maturities in the event of a downgrade in the Company’s credit ratings. The Company does not believe the restrictions contained in these covenants materially affect its financial or operating flexibility. As of March 31, 2022, the Company was in compliance with all of its debt covenants.
Debt Ratings
As of March 31, 2022, the Company’s long-term debt was rated “Baa2” by Moody’s Investor Service, Inc. (“Moody’s”) and “BBB” by Standard & Poor’s Financial Services LLC (“S&P”), and its commercial paper program was rated “P-2” by Moody’s and “A-2” by S&P. The outlook on the Company’s long-term debt is “Stable” by Moody’s and “Positive” by S&P. In assessing the Company’s credit strength, the Company believes that both Moody’s and S&P considered, among other things, the Company’s capital structure and financial policies as well as its consolidated balance sheet, its historical acquisition activity and other financial information. Although the Company currently believes its long-term debt ratings will remain investment grade, it cannot guarantee the future actions of Moody’s and/or S&P. The Company’s debt ratings have a direct impact on its future borrowing costs, access to capital markets and new store operating lease costs.
Share Repurchase Program
The following share repurchase program has been authorized by CVS Health Corporation’s Board of Directors (the “Board”):

In billions Authorization Date | Authorized |  | Remaining as of March 31, 2022
December 9, 2021 (“2021 Repurchase Program”) | $ | 10.0 |  |  | $ | 8.0 |

The 2021 Repurchase Program permits the Company to effect repurchases from time to time through a combination of open market repurchases, privately negotiated transactions, accelerated share repurchase (“ASR”) transactions, and/or other derivative transactions. The 2021 Repurchase Program can be modified or terminated by the Board at any time.
During the three months ended March 31, 2022, the Company repurchased approximately 19.1 million shares of common stock for approximately $2.0 billion pursuant to the 2021 Repurchase Program, including share repurchases under the ASR transaction described below. During the three months ended March 31, 2021, the Company did not repurchase any shares of its common stock.
Pursuant to the authorization under the 2021 Repurchase Program, the Company entered into a $1.5 billion fixed dollar ASR with Barclays Bank PLC (“Barclays”). Upon payment of the $1.5 billion purchase price on January 4, 2022, the Company received a number of shares of CVS Health Corporation’s common stock equal to 80% of the $1.5 billion notional amount of the ASR or approximately 11.6 million shares at a price of $103.34 per share, which were placed into treasury stock in January 2022. The ASR was accounted for as an initial treasury stock transaction for $1.2 billion and a forward contract for $0.3 billion. The forward contract was classified as an equity instrument and was recorded within capital surplus. In February 2022, the Company received approximately 2.7 million shares of CVS Health Corporation’s common stock, representing the remaining 20% of the $1.5 billion notional amount of the ASR, thereby concluding the ASR. These shares were placed into treasury stock and the forward contract was reclassified from capital surplus to treasury stock in February 2022.
At the time they were received, the initial and final receipt of shares resulted in an immediate reduction of the outstanding shares used to calculate the weighted average common shares outstanding for basic and diluted earnings per share.
Critical Accounting Policies
The Company prepares the unaudited condensed consolidated financial statements in conformity with generally accepted accounting principles, which require management to make certain estimates and apply judgment. Estimates and judgments are based on historical experience, current trends and other factors that management believes to be important at the time the unaudited condensed consolidated financial statements are prepared. On a regular basis, the Company reviews its accounting policies and how they are applied and disclosed in the unaudited condensed consolidated financial statements. While the Company believes the historical experience, current trends and other factors considered by management support the preparation
49

of the unaudited condensed consolidated financial statements in conformity with generally accepted accounting principles, actual results could differ from estimates, and such differences could be material.
For a full description of the Company’s critical accounting policies, see “Critical Accounting Policies” in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the 2021 Form 10-K.
Cautionary Statement Concerning Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 (the “Reform Act”) provides a “safe harbor” for forward-looking statements, so long as (1) those statements are identified as forward-looking and (2) the statements are accompanied by meaningful cautionary statements that identify important factors that could cause actual results to differ materially from those discussed in the statement. We want to take advantage of these safe harbor provisions.
Certain information contained in this Quarterly Report on Form 10-Q (this “report”) is forward-looking within the meaning of the Reform Act or SEC rules. This information includes, but is not limited to the forward-looking information in Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) included in Part I, Item 2 of this report. In addition, throughout this report and our other reports and communications, we use the following words or variations or negatives of these words and similar expressions when we intend to identify forward-looking statements:

· | 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

All statements addressing the future operating performance of CVS Health or any segment or any subsidiary and/or future events or developments, including statements relating to the projected impact of COVID-19 and its emerging new variants on the Company’s businesses, investment portfolio, operating results, cash flows and/or financial condition, statements relating to corporate strategy, statements relating to future revenue, operating income or adjusted operating income, earnings per share or adjusted earnings per share, Health Care Benefits segment business, sales results and/or trends, medical cost trends, medical membership, Medicare Part D membership, medical benefit ratios and/or operations, Pharmacy Services segment business, sales results and/or trends and/or operations, Retail/LTC segment business, sales results and/or trends and/or operations, incremental investment spending, interest expense, effective tax rate, weighted-average share count, cash flow from operations, net capital expenditures, cash available for debt repayment, integration synergies, net synergies, integration costs, enterprise modernization, transformation, leverage ratio, cash available for enhancing shareholder value, inventory reduction, turn rate and/or loss rate, debt ratings, the Company’s ability to attract or retain customers and clients, store development and/or relocations, new product development, and the impact of industry and regulatory developments as well as statements expressing optimism or pessimism about future operating results or events, are forward-looking statements within the meaning of the Reform Act.
Forward-looking statements rely on a number of estimates, assumptions and projections concerning future events, and are subject to a number of significant risks and uncertainties and other factors that could cause actual results to differ materially from those statements. Many of these risks and uncertainties and other factors are outside our control. Certain of these risks and uncertainties and other factors are described under “Risk Factors” included in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and under “Risk Factors” included in Part II, Item 1A of this report; these are not the only risks and uncertainties we face. There can be no assurance that the Company has identified all the risks that affect it. Additional risks and uncertainties not presently known to the Company or that the Company currently believes to be immaterial also may adversely affect the Company’s businesses. If any of those risks or uncertainties develops into actual events, those events or circumstances could have a material adverse effect on the Company’s businesses, operating results, cash flows, financial condition and/or stock price, among other effects.
You should not put undue reliance on forward-looking statements. Any forward-looking statement speaks only as of the date of this report, and we disclaim any intention or obligation to update or revise forward-looking statements, whether as a result of new information, future events, uncertainties or otherwise.
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Form 10-Q Table of Contents
Item 3.Quantitative and Qualitative Disclosures About Market Risk
The Company has not experienced any material changes in exposures to market risk since December 31, 2021. See the information contained in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 for a discussion of the Company’s exposures to market risk.
Item 4.Controls and Procedures
Evaluation of disclosure controls and procedures: The Company’s Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a‑15(f) and 15d‑15(f)) as of March 31, 2022, have concluded that as of such date the Company’s disclosure controls and procedures were adequate and effective and designed to provide reasonable assurance that material information relating to the Company and its subsidiaries would be made known to such officers on a timely basis.
Changes in internal control over financial reporting: There has been no change in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 that occurred in the three months ended March 31, 2022 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Part II.Other Information
Item 1.Legal Proceedings
The information contained in Note 8 ‘‘Commitments and Contingencies’’ contained in “Notes to Condensed Consolidated Financial Statements (Unaudited)” in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated by reference herein.
Item 1A.Risk Factors
There have been no material changes to the “Risk Factors” disclosed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021. Those risk factors could adversely affect the Company’s businesses, operating results, cash flows and/or financial condition as well as the market price of the Company’s common shares.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
(c) Stock Repurchases
The following table presents the total number of shares purchased in the three months ended March 31, 2022, the average price paid per share and the approximate dollar value of shares that still could have been purchased at the end of the applicable fiscal period, pursuant to the share repurchase program authorized by CVS Health Corporation’s Board of Directors on December 9, 2021. See Note 5 ‘‘Shareholders’ Equity’’ contained in “Notes to Condensed Consolidated Financial Statements (Unaudited)” in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

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, 2022 through January 31, 2022 | 11,612,413 |  |  | $ | 103.34 |  |  | 11,612,413 |  |  | $ | 8,800,000,000 |
February 1, 2022 through February 28, 2022 | 2,656,835 |  |  | $ | 112.92 |  |  | 2,656,835 |  |  | $ | 8,500,000,000 |
March 1, 2022 through March 31, 2022 | 4,781,527 |  |  | $ | 104.57 |  |  | 4,781,527 |  |  | $ | 8,000,000,137 |
| 19,050,775 |  |  |  |  | 19,050,775 |  |  |

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Form 10-Q Table of Contents
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
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Form 10-Q Table of Contents
Item 6. Exhibits
The exhibits listed in this Item 6 are filed as part of this Quarterly Report on Form 10-Q. Exhibits marked with an asterisk (*) are management contracts or compensatory plans or arrangements. Exhibits other than those listed are omitted because they are not required to be listed or are not applicable. Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the Registrant hereby agrees to furnish to the Securities and Exchange Commission a copy of any omitted instrument that is not required to be listed.
INDEX TO EXHIBITS

10 | Material Contracts
10.1* | Form of Restricted Stock Unit Agreement between the Registrant and selected employees of the Registrant.
10.2* | Form of Performance Stock Unit Agreement between the Registrant and selected employees of the Registrant.
10.3* | Form of Nonqualified Stock Option Agreement between the Registrant and selected executives of the Registrant.
10.4* | Form of Nonqualified Stock Option Agreement between the Registrant and selected employees of the Registrant.
15 | Letter re: unaudited interim financial information
15.1 | Letter from Ernst & Young LLP acknowledging awareness of the use of a report dated May 4, 2022 related to their reviews of interim financial information.
31 | Rule 13a-14(a)/15d-14(a) Certifications
31.1 | Certification by the Chief Executive Officer.
31.2 | Certification by the Chief Financial Officer.
32 | Section 1350 Certifications
32.1 | Certification by the Chief Executive Officer.
32.2 | Certification by the Chief Financial Officer.
101 |
101 | The following materials from the CVS Health Corporation Quarterly Report on Form 10-Q for the three months ended March 31, 2022 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, 2022, formatted in Inline XBRL (included as Exhibit 101).

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Form 10-Q Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

|  | CVS HEALTH CORPORATION

Date: | May 4, 2022 | By: | /s/ Shawn M. Guertin
|  |  | Shawn M. Guertin
|  |  | Executive Vice President and Chief Financial Officer