What happens
when you start
with heart?
2015 Annual Report
1 Letter to Shareholders
7 Start with Heart
21 2015 Financial Report
Financial highlights
(in millions, except per share figures)
2015
2014
% change
Net revenues
Operating profit
Net income
Diluted EPS from continuing operations
Free cash flow*
Stock price at year-end
$ 153,290
$ 139,367
10.0%
$
$
$
$
$
9,454
5,239
4.62
6,456
97.77
$
$
$
$
$
8,799
7.4%
4,644
12.8%
3.96
16.8%
6,516
(0.9%)
96.31
1.5%
Market capitalization at year-end
$ 107,645
$ 109,800
(2.0%)
* Free cash flow is defined as net cash provided by operating activities less net additions to properties and equipment (i.e., additions to property and equipment
plus proceeds from sale-leaseback transactions).
Net revenue
in billions of dollars
Diluted EPS from
continuing operations
in dollars
Annual cash dividends
in dollars per common share
107.1
123.1
126.8
139.4
153.3
2.59
3.02
3.75
3.96
4.62
0.50
0.65
0.90
1.10
1.40
11
12
13
14
15
11
12
13
14
15
11
12
13
14
15
Dear Fellow Shareholders:
CVS Health enjoyed a successful 2015 that was highlighted by
excellent performance across our enterprise and two key acquisitions
that support our strategy for growth in an evolving health care market.
That strategy is focused on creating superior value for patients, payors,
and providers through an unmatched suite of integrated assets.
From our nationwide retail footprint to our leading pharmacy benefits man-
agement (PBM) and specialty businesses, and now our leading presence
in long-term pharmacy care, we have forged a competitive advantage that
is helping us benefit from a broad range of market trends. They include
the implementation of the Affordable Care Act, the aging U.S. population,
and increased prescription utilization. Of the roughly 710 million pre-
scriptions added to the market over the past five years, CVS Health has
captured 39 percent through one of our dispensing channels. In other
words, we are growing our share of an expanding market.
CVS Health is truly a one-of-a-kind company that helps patients
get the care they need through the channel that works best for
them. Products such as Maintenance Choice®, Specialty ConnectTM,
and Pharmacy Advisor® remain unmatched in the marketplace. In
specialty, we have unparalleled capabilities to holistically manage
patients, provide clinical support, and drive superior outcomes. As
clients look to drive down overall health care costs, our growing
volumes—along with our Red Oak generic sourcing venture with
Cardinal Health—create unparalleled scale and purchasing exper-
tise that help them best accomplish this.
And we certainly aren’t standing still. We broadened our reach in
2015 with the acquisition of Omnicare, the nation’s leading provider of
pharmacy services to the long-term care market. Omnicare dispenses
100 million scripts annually to approximately 2 million patients. We
also grew our core pharmacy business with the purchase of more
than 1,670 pharmacies and nearly 80 retail clinics from Target
Corporation. This transaction, which closed in December, expanded
our pharmacy count by 20 percent and our number of clinics by
8 percent. I’ll have more to say about both of these acquisitions, but
let me first offer a brief overview of CVS Health’s financial performance.
Larry J. Merlo
President and Chief Executive Officer
Record revenue and earnings helped us return more
than $6 billion to shareholders
Once again, we met or exceeded all of our key financial
targets through our ongoing focus on three pillars that
we consider essential to maximizing shareholder value:
• Productive, long-term growth;
• Generating significant free cash flow; and
• Optimizing capital allocation.
Net revenues for the year increased 10 percent to a
record $153 billion, while adjusted earnings per share
(EPS) rose nearly 15 percent to $5.16 on a comparable
basis. That excludes amortization, acquisition-related
costs, and a charge related to a disputed 1999 legal
settlement in 2015; it excludes amortization and the loss
on the early extinguishment of debt in 2014. Looking
back at the steady state targets we introduced in 2010
for the subsequent five-year period, I am happy to report
that the company’s growth hit the higher end of each
target range. Operating profit has risen at a 10 percent
compounded annual growth rate (CAGR), while adjusted
EPS has grown at a 14 percent CAGR.
CVS Health generated $6.5 billion in free cash flow during
2015 and returned more than $6 billion to shareholders
through dividends and share repurchases. Our board of
directors increased our quarterly dividend by 27 percent
and approved an additional 21 percent increase for 2016.
That marks our 13th consecutive year of increases and
keeps us on track to reach a 35 percent dividend payout
ratio target by 2018. We expect to return more than
$5 billion to shareholders in 2016 through dividends and
share repurchases.
The Omnicare and Target deals represent efficient
strategic uses of our capital that will help drive long-term
growth. Even after financing both acquisitions through
debt, we still have a strong balance sheet with well-lad-
dered debt maturities. We maintain a high triple-B credit
rating that allows CVS Health to continue to effectively
finance the working capital needs of the company.
While the stock market has been tumultuous, CVS Health
shares produced a total return of 2.9 percent in 2015 to
outperform the major indices. Over the same period, the
S&P 500 Index and the Dow Jones Industrial Average
returned 1.4 percent and 0.2 percent, respectively. We
have notably outperformed these indices on a three-,
five-, and 10-year basis as well.
High retention rates and new business wins reflect the
value of the CVS Caremark® PBM model
The capabilities of CVS Caremark remain unmatched in
the PBM marketplace, fueling strong top- and bottom-line
2
CVS Health
growth in 2015. Another highly successful selling season
resulted in $14.8 billion in gross new client business
to start 2016. While health plans accounted for roughly
80 percent of our wins, we were also very successful in
the employer segment with more than 90 new clients
totaling $1.8 billion in revenue. With a 98 percent client
retention rate, net new client business for 2016 totaled
$12.7 billion.
A D D I N G S H A R E H O L D E R V A L U E
CVS Health generated $6.5 billion
in free cash flow during 2015 and
returned more than $6 billion to
shareholders through dividends
and share repurchases.
We are winning with our strong record of service and
execution, our competitive pricing, and by bringing
unique solutions to the market to meet a broad range
of client concerns. Surveys have shown that cost
control is our clients’ top priority. This is followed by
a variety of additional factors, with each of our client
channels having different priorities. Our flexibility and
expertise in addressing them has certainly been key
to our success.
We led the market with the first formulary exclusions in
2012, ensuring patient access to high-quality medications
at the lowest possible cost to clients. Since that time,
we’ve identified additional exclusions on an annual
basis. Most recently, we took bold steps in 2015 with
Hepatitis C medications and PCSK9 inhibitors. These
expensive therapies are key potential drivers of rising
costs—or “trend”—for clients. Through our strategies, we
expect to have saved clients $6.4 billion for the five-year
period through 2016. Oversight and strategic pharmacy
management cut our clients’ trend by more than half in
2015, despite record levels of drug price increases. This
past year we also launched a valuable surveillance and
reporting tool—Interactive Rx Insights—that allows our
sales team to simulate the impact of plan designs and
show clients how specific solutions reduce the impact of
trend drivers.
Our Medicare Part D (Med D) business had another
successful Annual Enrollment Period for 2016. The
SilverScript® Prescription Drug Plan (PDP) added 500,000
lives, raising total enrollment to 5 million captive PDP
lives, including Employee Group Waiver Plans. When
adding the Med D lives we manage for our health plan
clients, the total rises to more than 11 million Med D
lives under management, up 41 percent from the prior
year, and making us the clear leader in the Med D space.
Through our enterprise clinical capabilities, we have
an unmatched ability to drive Med D Star ratings—for
SilverScript as well as our health plan clients’ offerings.
In fact, SilverScript was the largest PDP to achieve a
four-star rating, and 73 percent of our clients’ lives were
enrolled in a high performing plan for the 2016 plan year.
Our specialty business, with its breadth of offerings,
has been a key driver of revenue gains
Throughout 2015, we continued to capture an outsized
share of the specialty market, the industry’s fastest-grow-
ing sector. Our CVS SpecialtyTM business is the nation’s
largest, and our growth has outpaced both the industry
overall and that of our nearest competitor. In 2015,
revenues from the specialty drugs we dispensed and
managed across the enterprise totaled nearly $40 billion,
increasing 32 percent over the prior year.
CVS Specialty offers all the traditional capabilities that
payors expect from a specialty pharmacy. We’ve raised
the bar as well by offering a unique range of differen-
tiated solutions through our integrated model. Take
our highly popular Specialty ConnectTM offering, which
gives specialty patients the option of picking up their
medications at any CVS Pharmacy® location or having
the medication delivered by mail. More than 54 percent
of our specialty patients prefer in-store pickup—along
with the opportunity to consult with a pharmacist face-
to-face—and we’ve served more than 100,000 of them
in this way since we rolled out the program in 2014.
Among specialty patients that opt for in-store pickup,
we’ve seen adherence improve by 11.4 percent.
Our differentiated offerings also include Accordant® rare
disease case management and Coram® infusion services,
both of which make CVS Specialty particularly attractive
to manufacturers who want to launch new drugs through
limited distribution networks. Only CVS Specialty has the
NovoLogix® technology platform, enabling us to help our
clients manage all specialty medications including those
paid under the medical benefit.
Retail pharmacy growth has outpaced our competitors
while the Target deal further broadens our reach
At CVS Pharmacy, same store sales increased 1.7 percent
in 2015. Pharmacy same store sales rose 4.5 percent,
while front store same store sales decreased 5 percent,
driven primarily by our exit from tobacco sales in 2014.
CVS Pharmacy filled 21.6 percent of all retail prescriptions
in 2015 to lead the U.S. retail drugstore market. In fact,
our retail prescription business has grown at twice the
rate of the overall market since 2010.
Gross new business
wins to start 2016
Total
$14.8B
n 84% Health Plan
n 12% Employer
n 4% Government
With a client retention rate
of 98%, net new business
for 2016 totaled $12.7B
$40 billion
in revenues from specialty drugs
dispensed and managed across the enterprise
CVS Pharmacy filled
21.6%
of all retail prescriptions
in 2015 to lead the U.S. retail
drugstore market
2015 Annual Report
3
Although our integrated model has certainly played
a key role in these results, nearly 44 percent of our
prescription growth since 2013 has been driven by
share gains from non-CVS Caremark payors. This is due
in part to the many programs we have put in place to
provide all customers with excellent service and value.
Our growth has also led to valuable economies of scale.
For example, our labor cost to fill prescriptions has fallen
by approximately 13 percent (excluding wage inflation)
over the past five years.
Our stores are also playing an important role in what we
call the retailization of health care. With the rise in con-
sumer-directed health plans, it is imperative that patients
stay on their medications. We encourage appropriate
patient behavior through our industry-leading adherence
programs. Additionally, the Affordable Care Act has led
increasing numbers of individuals to choose their own
health plans on public exchanges. We can effectively
support health plan partners with in-store displays and
service centers that support their outreach efforts.
I’ve already touched on the Target deal, which has
expanded our presence to regions such as Seattle, Den-
ver, Portland, and Salt Lake City. Across the enterprise,
you can now find a CVS Health location in every U.S.
state. We are currently in the process of rebranding these
assets as CVS Pharmacy® and MinuteClinic® locations.
CVS Pharmacy stores have typically filled twice the num-
ber of prescriptions as Target pharmacies, so these new
locations represent a significant opportunity to drive script
growth and profitability. In addition to the acquired Target
locations, we opened 161 new stores in 2015. Factoring
in closings, net units increased by 130 stores.
For our PBM business, members now have approxi-
mately 9,600 CVS Pharmacy locations to choose from.
That’s up from about 7,800 in 2014. This enhances the
relevance of Pharmacy Advisor, Maintenance Choice,
and our other integrated offerings since more members
will benefit from easier access to them.
Health and Beauty and ExtraCare® are driving front store
gains; CVS MinuteClinic™ expands its scope of services
In the front of the store, our average basket size in
2015 (after excluding the impact of our exit from
tobacco) increased 2 percent—and 4 percent in our
core health and beauty businesses. These results are
gratifying given the lackluster trend in overall shopping
visits across the retail landscape. Health and beauty
offer higher margins and growth opportunities than
other front store categories, and we are expanding
our emphasis on both through a combination of store
remodelings, merchandising enhancements, and
improved product mix.
Among other front store initiatives, shoppers have
responded enthusiastically to our expanded healthy
food options. We’ve also continued to strengthen our
position with Hispanic customers, the fastest-growing
demographic in the United States, by launching CVS
Pharmacy y más™ in 12 locations in Miami. These
stores offer hundreds of Hispanic products and services
not found in traditional drugstores, and we saw sales
in the test stores increase by an average of 10 percent.
We expect to expand on this concept in 2016.
We have more ways in which
we can assist patients to help
drive adherence and improve
outcomes.
The ExtraCare loyalty program, now in its 18th year,
continues to play an indispensable role in driving
profitable front store sales across all our stores. It helps
identify our higher-value shoppers so we can build on
our relationship with them through personalized promo-
tions. Such shoppers represent 30 percent of our retail
customer base, but they are responsible for driving more
than 80 percent of sales in the front of the store.
It has been more than a year since we stopped selling
tobacco in our stores, a move that better aligned our
business practices with our goals as a health care
company. At the time, we also reasoned that removing
a convenient location to buy cigarettes could decrease
overall tobacco use. A new study conducted by our
CVS Health Research Institute has shown that approxi-
mately 95 million fewer packs were sold in states where
CVS Pharmacy has a 15 percent or greater share of the
retail pharmacy market compared to states without a
large CVS Pharmacy presence. We continue to promote
smoking cessation in a variety of other ways, with our
30,000 pharmacists and 3,100 nurse practitioners
taking the lead.
The expansion of CVS MinuteClinic continued in 2015,
with the number of locations at year end totaling 1,135
in 33 states and Washington, D.C. That includes the 79
clinics we acquired from Target. More than 50 percent
of the U.S. population now lives within 10 miles of a
4
CVS Health
MinuteClinic, and we operate more retail clinics than all
our competitors combined. CVS MinuteClinic plays an
important, complementary role with traditional medical
practices. Through our 2015 implementation of the Epic
electronic health record platform, we are now sharing
information with approximately 275 health systems
and provider organizations. The Epic platform has also
allowed us to expand the CVS MinuteClinic scope of
services to cover 28 of the 50 most common primary
care diagnoses.
CVS MinuteClinic has been exploring a number of
transformative digital offerings, such as telehealth, to
improve access and convenience. This is just one of the
many ways in which we have been working to enhance
our digital capabilities across the enterprise to strengthen
engagement with patients and providers. For example,
we’ve added several features to the CVS Pharmacy
app that have improved the customer experience in
the pharmacy as well as the front of the store. Benefits
include improved adherence as well as savings of both
time and money.
The aging population has created new growth opportu-
nities and was a key driver of our Omnicare acquisition
The nation’s aging population will play a major role in the
evolving health care market, and it will create new oppor-
tunities for CVS Health. The number of people 65 or
older is expected to grow 18 percent in just the next five
years—and 38 percent through 2025. This demographic
utilizes more than double the number of prescriptions
of the under-65 population, creating a long-term tailwind
for the industry. Increased utilization, combined with
growth in specialty medications, is expected to fuel a
6 percent rise in prescription expenditures annually over
the next decade.
With this projected growth in prescription expenditures,
it’s important to keep in mind that pharmacy care remains
the most cost-effective way of reducing overall health
care costs. Getting and keeping patients on the neces-
sary medications to manage chronic diseases can drive
billions of dollars in costs out of the system. Compared
with our peers, we have more ways in which we can
touch patients to help drive adherence and improve out-
comes—from our retail, mail, and specialty pharmacies
to our MinuteClinic locations and now through Omnicare.
Approximately 70 percent of people over age 65 are
likely to require some form of long-term care service and
support. The Omnicare acquisition bolsters our ability to
serve this population across the continuum of senior care.
Omnicare’s nationwide footprint includes a significant
presence in both the assisted living and skilled nursing
facility settings, giving us broad reach and an ability to
leverage clinical insights to improve care.
Through our combined enterprise assets, we will also
bridge some of the historic gaps in Omnicare’s offerings
to better address the unmet needs of these high-risk
populations. For example, Omnicare’s robust offering
for the skilled nursing facility market did not include a
complete solution to address care coordination issues
during a patient’s admittance or discharge. With roughly
9,600 retail locations, we can ensure the timeliness of
medication adherence through first-fill and emergency
prescriptions, reducing the potential for costly hospital
readmissions. In addition, we’ve launched an integrated
discharge solution that will coordinate care and offer the
CVS Health suite of services to patients returning home.
We are developing integrated solutions for the assisted
living, independent living, and home care markets as well.
Before signing off, I must note with pride the more
than $80 million we contributed to our communities in
2015 through the CVS Health Foundation, CVS Health
Charity Classic, corporate grants, gifts in-kind, and
employee giving. That total also includes the more than
$7.5 million raised for the American Lung Association’s
LUNG FORCE as well as Stand Up to Cancer through
our two in-store campaigns. Moreover, our remarkable
colleagues volunteered their time to a broad range of
community outreach programs and donated nearly
$1 million to the causes they care most about. They also
supported the CVS Health Employee Relief Fund that
helps colleagues who have suffered significant hardship
as a result of a natural disaster, family death, medical
emergency, or other unforeseen events.
In closing, I am confident that our leadership across the
pharmacy spectrum will help us continue to drive supe-
rior value for our health care partners and shareholders.
As we expand our core pharmacy business, we will
also broaden our reach into new health care channels
and make investments to drive sustainable enterprise
growth. On behalf of our board of directors and our
more than 240,000 colleagues who work hard each and
every day to help people on their path to better health,
thank you for investing in CVS Health.
Sincerely,
Larry J. Merlo
President and Chief Executive Officer
February 9, 2016
2015 Annual Report
5
6
CVS Health
Health care is our business, and better
health is our purpose. So when we
develop solutions for the substantial
challenges facing patients, payors,
and providers, we begin with more
than just a focus on the bottom line.
We also start ...with heart.
Every day, CVS Health has the opportunity to make a positive
impact on the lives of millions of people and help them on their path
to better health. In a constantly evolving health care environment,
that’s a responsibility we take seriously. What happens when you
start with heart? We invite you to turn the page and learn more.
2015 Annual Report
7
when you start with heart,
everything
comes
together
Our extensive suite of assets
positions CVS Health to play
an important role in solving
the cost, quality, and access
issues of an evolving health
care market.
When it comes to tackling health care’s
ongoing challenges, more innovative offerings
are definitely needed. That’s why CVS Health
has assembled the most comprehensive
suite of assets in the business. Think of us as
a “category of one.” You may know the CVS
name best for our convenient CVS Pharmacy®
locations, but we are also a leader in pharmacy
benefits, specialty pharmacy, infusion, retail
clinics, and now long-term pharmacy care. This
combination has allowed us to partner more
broadly across the health care landscape than our
competitors, forging strong connections with patients,
payors, and providers alike. And it has led to integrated
and groundbreaking adherence solutions such as Maintenance
Choice®, Specialty Connect™, and Pharmacy Advisor®. Across our
enterprise, deep clinical expertise and insights enable us to deliver
superior outcomes at a lower cost. Moreover, no one possesses
the business-to-business and business-to-consumer capabilities of
CVS Health. That gives us an edge in an increasingly consumer-directed
health care environment.
8
CVS Health
Approximately 9,600
CVS Pharmacy® stores
dispense more prescriptions
than any other drugstore chain.
Through face-to-face counseling, our
pharmacists drive medication
adherence, close gaps in care,
and recommend more cost-
effective drug therapies.
Innovative
CVS Caremark®
plan designs help
minimize client costs
while improving health
outcomes for 75 million plan
members. We operate five
mail order pharmacies and
offer broad capabilities
that include formulary
management and clinical
services.
t
s
o
C
CVS Specialty™ supports
individuals with chronic
or genetic diseases
who require complex and
expensive drug therapies.
The nation’s largest specialty
pharmacy, we operate 24 retail
specialty pharmacy stores
and 11 specialty mail
order pharmacies.
Our unique clinical programs
help patients stay on their
prescribed therapies. Unmatched
business-to-consumer experience
helps bring these programs to life,
ensuring appropriate utilization,
improving outcomes, and
lowering overall health
care costs.
s s
s s
e
e
c
c
A c
A c
At more than 1,100
MinuteClinic® locations,
our nurse practitioners and
physician assistants diagnose and
treat minor health conditions,
perform health screenings, monitor
chronic conditions, provide
wellness services, and
deliver vaccinations.
Qualit
Qualit
y
y
Payors
Patients
Providers
s s
s s
e
e
c
c
A c
A c
Our Coram®
business is
one of the nation’s
largest providers of
comprehensive infusion
services. It cares for
140,000 patients annually
through a national network
of more than 85 locations
as well as the largest home
infusion network in the
United States.
Omnicare® is a leading
provider of pharmacy
services to the long-term
care market. Acquired
in 2015, it enhances
our service offerings to
address the needs of an
aging population across
the continuum of
senior care.
The NovoLogix® platform
allows us to manage claims for
drugs covered under the medical
benefit with the same precision
we apply to pharmacy benefits. Such
drugs are usually administered
in a physician’s office, an
infusion suite, or a
patient’s home.
$153
billion
in enterprise revenue in 2015,
more than 85% in health care
5
million
customers per
day in our retail
pharmacies
1.9
billion
prescriptions
dispensed
or managed
annually
243,000
colleagues across all 50 states,
Washington, D.C., Puerto Rico,
and Brazil
2015 Annual Report
9
when you start with heart,
you do things
differently
CVS Caremark provides clinical solutions that no other pharmacy benefits
manager (PBM) can match currently.
Our clients and plan members enjoy all the services of a best-in-class PBM. And with easy access to
CVS Pharmacy locations from coast to coast, members benefit from our unique, integrated solutions. Take
Maintenance Choice, which gives plan members the option of receiving their maintenance medications
by mail or picking them up at one of our retail stores. Helping customers get their prescriptions in the way
that works best for them is one of the keys to driving better outcomes. Our Pharmacy Advisor program
for patients with chronic conditions engages plan members face-to-face when they fill prescriptions in our
stores as well as by mail and through our call centers. It has delivered 15.6 million interventions to date,
increasing adherence by 4 percent and reducing gaps in care by 7.5 percent. For our clients, every member
who achieves optimal adherence reduces their overall costs. No wonder our PBM satisfaction rate exceeds
95 percent among clients and members alike.
Clients have made Maintenance
Choice available to
23 million
members to date, and adoption
continues to grow
9,600
CVS Pharmacy stores
offer Maintenance
Choice
15.6 million
interventions delivered
through Pharmacy Advisor,
driving 4% improvement
in adherence
10
CVS Health
N
A
J
when you start with heart,
care
doesn’t
take a
day off
More than 28 million patient visits have taken place at MinuteClinic
since its inception, and our physicians assistants and nurse
practitioners continue to provide high-quality, cost-effective care.
The nation’s largest operator of retail clinics has long been a
convenient, cost-effective option for the treatment of strep
throat, ear infections, and other common family ailments.
Typically found inside CVS Pharmacy stores—and now in
select Target locations—MinuteClinic is open seven days a
week with no appointment required. More than 250 insurance
carriers, offering multiple plans nationwide, now cover its
visits in-network. The adoption of the Epic electronic health
record platform has accelerated the expansion of the
MinuteClinic scope of services. MinuteClinic now treats a
broader range of acute conditions, adding 11 such conditions
over the past year alone, including gastrointestinal illness
and musculoskeletal pain. Through affiliations with 63 major
health systems, MinuteClinic also provides access to clinical
support, chronic disease monitoring, and wellness programs.
As one of the many CVS Health integrated offerings, clients
have increasingly incorporated MinuteClinic into their
CVS Caremark plan designs. The result has been improved
health care access for members and lower costs for clients.
More than 50%
of the U.S. population lives within
10 miles of a MinuteClinic
1,135
MinuteClinic
locations
at the end
of 2015
63
affiliations with
major health
systems across
the U.S.
2015 Annual Report
11
when you start with heart,
a conversation
goes a long way
CVS Pharmacy fills more than one in every five prescriptions in the
United States, and this leadership role positions us to drive improvements
in medication adherence.
It’s no secret that proper use of prescription drugs is the most cost-effective way of treating illness. Yet
getting patients on the right regimens and keeping them adherent is a challenge that results in $300 billion
in avoidable costs annually. With approximately 9,600 retail pharmacies across the country, CVS Pharmacy
leverages the power of the face-to-face interactions that take place daily between our 30,000 pharmacists
and our customers. They have helped us achieve the best adherence numbers in the industry. Moreover,
we use advanced analytics to tailor interventions based on customer preferences and demographics. For
example, a patient who has been on a medication for many years requires different services than one who is
picking up a prescription for the very first time. Among our newest solutions, ScriptSyncTM enables patients
with multiple medications to consolidate eligible maintenance prescriptions to one monthly pickup date. By
reducing the number of trips a customer has to make, we’re removing yet another barrier to good health.
CVS Pharmacy adherence
rates are, on average,
6 percentage points
better than for our peers
for diabetes, cholesterol, and
hypertension therapies
Lack of adherence costs
the U.S. health care system
an estimated
$300 billion
annually
ScriptSync enrolled
600,000
patients in 2015
12
CVS Health
22%
of CVS Pharmacy
front store sales
are generated by
store brands
80%
of front store
transactions
use the
ExtraCare card
6,000+
unique store brand
products
when you start with heart,
you put the
customer first
We continue to improve the shopping experience for retail customers
with valuable savings options and an improved product assortment.
Let’s start with the popular ExtraCare loyalty program, which saved our approximately 70 million active
cardholders nearly $4 billion in 2015. Moreover, it has allowed us to personalize circulars based on the
categories and products that interest each customer most. Customers who shop the health and beauty
aisles are enjoying an expanded product assortment and a variety of other in-store enhancements. We
focus on selling sustainably sourced products and evaluate them for potentially harmful ingredients.
Following our exit from tobacco sales, we’ve expanded our Better-For-You healthy foods offerings in key
segments such as nutrition bars and high protein snacks. The result? Nearly 75 percent of customers have
said that they intend to shop us more for on-the-go snacking. Shoppers also increasingly choose our
store brands, sales of which are growing at more than double the industry average. Our customers value
the lower prices of these high-quality alternatives to national brands, and we benefit from the higher margins
they provide. Our latest offerings include CVS Health® branded health products, Gold Emblem Abound™
healthy food, and our Beauty 360™ line, to name just a few.
2015 Annual Report
13
Only
5% to 7%
of Target customers have
historically used a Target
pharmacy, a significant
opportunity to drive script
growth and profitability
76%
of the U.S. population
now lives within 5 miles
of a CVS Pharmacy
when you start with heart,
life gets
a little easier
Patients count on the convenience of CVS Pharmacy locations, and
our 2015 acquisition of Target’s pharmacy and clinic businesses makes
it even easier to reach us.
We’re always in pursuit of ways to expand access to pharmacy care and improve outcomes. The latest
example? Our ambitious partnership with Target. It adds more than 1,670 pharmacies—and nearly
80 retail clinics—in existing CVS Pharmacy markets as well as many new ones. That means patients can
now seamlessly fill acute care scripts at their CVS Pharmacy down the block or pick up maintenance
medications while shopping at their favorite Target. As we convert these store-within-a-store locations to the
CVS Pharmacy and MinuteClinic brands, we’ll roll out ScriptSync and all the other services customers have
come to expect from our pharmacists and nurse practitioners. For millions of CVS Caremark plan members,
the Target deal puts more of our pharmacies within easy driving distance. That has allowed many more plan
members to reap the benefits of our Maintenance Choice program. Other CVS Health integrated offerings—
Pharmacy Advisor and Specialty Connect among them—are on the way as well.
14
CVS Health
when you start with heart,
you make a
long-term
commitment
Dispensing 100 million scripts annually, Omnicare is the leading
pharmacy provider to the elderly in chronic care settings.
Aging comes with its share of challenges, and the U.S.
over-65 population is rising steadily. CVS Health has long
served seniors through our retail pharmacy network, our
SilverScript Medicare Part D prescription drug plan, and
with our unmatched specialty solutions, to name just a few
examples. With the 2015 acquisition of Omnicare, we now
provide seniors with pharmacy services even further along
the continuum of care. Roughly 70 percent will eventually
require some form of long-term care service and support.
Omnicare is the market leader among skilled nursing
U.S. Population Over Age 85
in millions (estimated)
6.3
6.7
7.5
9.1
11.9
and assisted living facilities, with a reputation for robust
2015
20 20
2025
2030
2035
clinical services that drive better outcomes. Together,
CVS Health and Omnicare can leverage clinical insights to
take pharmacy care for this vulnerable population to the
next level. Our integrated solutions will address the unmet
needs of patients in skilled nursing, assisted living, indepen-
dent living, and home settings. And since 80 percent
of the residents that Omnicare serves live within five miles
of a CVS Pharmacy, getting access to the medications
they need has never been easier.
10,000
baby boomers turn 65
every day
70%
of people turning age 65 can
expect to use some form of
long-term care
2015 Annual Report
15
when you start with heart,
complex
challenges
get simpler
CVS Specialty solutions are driving better outcomes while addressing
rising costs in the fastest-growing pharmacy segment.
For people with complex medical conditions, specialty drugs can literally be lifesavers. With so many
promising new specialty drugs in the pipeline, this market’s annual sales are expected to reach $130 billion
in 2016—and $220 billion just four years after that. As the nation’s largest specialty pharmacy, we’ve
developed solutions that improve patient care while helping to control these soaring costs. For example,
only CVS Specialty has embedded certified rare disease care management nurses from our Accordant
subsidiary into the specialty pharmacy process. This resulted in an objective improvement in clinical
quality and significantly reduced disease-related hospitalizations and emergency room visits. Customers
have embraced Specialty Connect, which gives them the flexibility of picking up their medications at any
CVS Pharmacy instead of waiting for home delivery. This integrated offering has led to significant gains
in adherence. And only CVS Specialty has the tools to manage payor costs for all specialty medications,
including those that are infused or paid under the medical benefit.
Specialty Drug
Revenue
in billions
$30
$40
$22
$19
$10
2011
2012
2013
2014
2015
16
CVS Health
CVS Specialty is a
market leader, with nearly
$40 billion
in specialty revenues in 2015
when you start with heart,
you’re
always
in touch
Our digital innovations create a
better experience for customers,
with adherence and savings tools
that drive loyalty.
myCVS
®
4
Show Card
and Offers
Find a
Store
Pick Up
Prescription
Pharmacy
more
3
2
prescriptions to pick up
prescriptions to refill
Scan to
Refill
View/Refill
Prescriptions
Edit Pick
Up List
My Deals & Rewards
more
$5
extrabucks® rewards
Digitally engaged patients fill
2.4x
the number of prescriptions
as other patients, making
them more adherent to their
medications
CVS Health customers are getting a lot out of their
smartphones these days. More than 35 percent
have enrolled to receive text messages containing
prescription refill reminders and status updates. And
we’ve made our CVS Pharmacy mobile app more
useful than ever. Its Reminder Tool alerts customers
to take their medications, while Mobile Prescription
Pickup increases privacy at the pharmacy counter.
Customers can simply present a unique barcode
with all the necessary information required for
pickup, eliminating the need to provide name and
date of birth. Shoppers love the myWeekly Ad fea-
ture, which displays personalized offers, ExtraCare
savings, and sales on favorite items throughout the
store. MinuteClinic patients are experiencing the
efficiency of a mobile solution we’re piloting that
shows wait times for all of our clinics and offers
the ability to sign up for online queuing. Users of
the CVS Specialty app can seamlessly select their
delivery option each time they order, choosing mail
or in-store pickup through our Specialty Connect
product. What’s next? Our apps will soon include
facial recognition, making account login a breeze.
2015 Annual Report
17
Pharmacymoreprescriptions to pick up3prescriptions to refill2myCVS4View/RefillPrescriptionsEdit PickUp ListScan toRefillMy Deals & Rewardsmoreextrabucks® rewards$5®Show Cardand OffersPick UpPrescriptionFind aStore when you start with heart,
communities
can count
on you
CVS Health has made community
health and wellness central to
our charge for a better world.
From the 2015 deployment of telehealth to the launch
of new digital pharmacy tools that drive adherence,
CVS Health innovations are increasing access to care and
making it more affordable. Such Health in Action initiatives
can be seen in a variety of other ways across the enterprise,
including the ongoing expansion of our Gold Emblem
Abound line of healthy snacks. These products are free of
artificial flavors and preservatives and contain zero grams
of trans fat. We removed tobacco products from our stores
more than a year ago, and this past year the CVS Health
Foundation announced a five-year, $5 million commitment
to the Campaign for Tobacco Free Kids. We’ve also
partnered with Scholastic to provide nearly 3 million
children and their parents with resources on the dangers
of smoking. And Project Health, which provides free health
screenings to patients, reached nearly 89,000 people in
2015. These events, which take place in communities
across the country, support underserved populations and
focus on diabetes and hypertension.
18
CVS Health
More than
100
Gold Emblem
Abound™ products
now available
Over
1,100
Project Health
events in 2015
Nearly
3 million
kids educated
about the dangers
of smoking through
our partnership
with Scholastic
15%
carbon reduction
goal for 2018
850
stores underwent LED
lighting retrofits in 2015,
with another 1,450
scheduled for 2016
when you start with heart,
you leave a
lighter footprint
We’ve made significant progress in reducing greenhouse gas (GHG)
emissions and in improving the ingredients in our products.
With approximately 9,600 retail locations, it has never been easier to find a CVS Pharmacy store. We’re
proud of our growth, but CVS Health also has a responsibility to mitigate the environmental impact of our
operations. Among our Planet in Balance initiatives, we continuously measure and try to reduce our energy
use, water use, GHG emissions, and waste. We’ve lowered our carbon intensity per square foot of retail
space by double digits through 2015—compared to a 2010 baseline—primarily due to ongoing LED lighting
upgrades and fleet efficiency initiatives. CVS Health is working to reach a 15 percent reduction goal by 2018.
A commitment to integrating green building concepts in new store designs and retrofits will help us in
our efforts to get there. We are also making meaningful changes to the ingredients in our store brands. In
2015, we phased out the use of microbeads in beauty and personal care products because of their role
in plastic particle water pollution and moved closer to adopting the Roundtable on Sustainable Palm Oil’s
sourcing guidelines.
2015 Annual Report
19
when you start with heart,
you create valuable
opportunities
We leverage the power of CVS Health to create economic opportunities
and value across our communities.
Investors aren’t the only people benefiting from our success. More than 240,000 colleagues enjoy a safe,
rewarding, and inclusive workplace every day. As part of our Leader in Growth initiatives, we will have
transitioned 100,000 people from public assistance to meaningful jobs and career paths at CVS Health by the
end of 2016. And thanks to our scale and reputation, we’re a valued recruiting partner in our communities.
For example, CVS Health will become the first company permitted to open shop on a military base for
recruiting purposes when our hiring and training center launches in 2016 at Fort Bragg, North Carolina.
CVS Health has long demonstrated a commitment to supporting diverse suppliers, including minority- and
women-owned enterprises, disability-owned enterprises, and many others. We spent $913 million on goods
and services provided by such companies in 2015. Moreover, we teamed recently with Roger Williams
University to launch the CVS Health Executive Learning Program for Diverse Suppliers. It offers training
opportunities and the chance for diverse business leaders from across the country to expand their skill levels
and growth potential in areas such as management, technology, finance, and human resources.
100,000
people helped to transition from
public assistance to meaningful
jobs by the end of 2016
$913 million
spent with diverse suppliers
in 2015
20
CVS Health
2015
Financial Report
22 Management’s Discussion and Analysis of
Financial Condition and Results of Operations
51 Management’s Report on Internal Control
Over Financial Reporting
52 Report of Ernst & Young LLP, Independent
Registered Public Accounting Firm
53 Consolidated Statements of Income
54 Consolidated Statements of Comprehensive
Income
55 Consolidated Balance Sheets
56 Consolidated Statements of Cash Flows
57 Consolidated Statements of Shareholders’
Equity
58 Notes to Consolidated Financial Statements
98 Five-Year Financial Summary
99 Report of Ernst & Young LLP, Independent
Registered Public Accounting Firm
100 Stock Performance Graph
2015 Annual Report
21
The following discussion and analysis should be read in conjunction with our audited consolidated financial state-
ments and Cautionary Statement Concerning Forward-Looking Statements that are included in this Annual Report.
Overview of Our Business
CVS Health Corporation, together with its subsidiaries (collectively “CVS Health,” the “Company,” “we,” “our” or
“us”), is a pharmacy innovation company helping people on their path to better health. At the forefront of a changing
health care landscape, the Company has an unmatched suite of capabilities and the expertise needed to drive
innovations that will help shape the future of health.
We are currently the only integrated pharmacy health care company with the ability to impact consumers, payors,
and providers with innovative, channel-agnostic solutions. We have a deep understanding of their diverse needs
through our unique integrated model, and we are bringing them innovative solutions that help increase access to
quality care, deliver better health outcomes, and lower overall health care costs.
Through our approximately 9,600 retail pharmacies, more than 1,100 walk-in health care clinics, a leading pharmacy
benefits manager with more than 75 million plan members, a dedicated senior pharmacy care business serving
more than one million patients per year, and expanding specialty pharmacy services, we enable people, businesses,
and communities to manage health in more affordable, effective ways. We are delivering break-through products and
services, from advising patients on their medications at our CVS Pharmacy® locations, to introducing unique programs
to help control costs for our clients at CVS Caremark®, to innovating how care is delivered to our patients with complex
conditions through CVS SpecialtyTM, to improving pharmacy care for the senior community through Omnicare®, or by
expanding access to high-quality, low-cost care at CVS MinuteClinicTM.
On August 18, 2015, the Company acquired 100% of the outstanding common shares and voting interests of
Omnicare, Inc. (“Omnicare”), for $98 per share for a total of $9.6 billion and assumed long-term debt with a fair
value of approximately $3.1 billion. Omnicare is a leading pharmaceutical care company that specializes in the
management of long-term care pharmacy services. As a result of the acquisition of Omnicare, the Company’s
segments have been expanded. The Company’s Pharmacy Services Segment now also includes the specialty
pharmacy operations of Omnicare. The Company’s Retail Pharmacy Segment has been renamed the “Retail/LTC
Segment” and now also includes the long-term care (“LTC”) operations, as well as the commercialization services
of Omnicare. The LTC operations include the distribution of pharmaceuticals, related pharmacy consulting and
other ancillary services to chronic care facilities and other care settings.
On December 16, 2015, we completed our acquisition of the pharmacy and clinic businesses of Target Corporation
(“Target”). This acquisition expands our pharmacy and clinic presence in existing and new markets. It allows us to
increase patient access and is an investment in our core business to drive growth. The results of the Target pharma-
cies and clinics are included in our Retail/LTC Segment.
We have three reportable segments: Pharmacy Services, Retail/LTC and Corporate.
Overview of Our Pharmacy Services Segment
Our Pharmacy Services business generates revenue from a full range of pharmacy benefit management (“PBM”)
solutions, including plan design and administration, formulary management, Medicare Part D services, mail order,
specialty pharmacy and infusion services, retail pharmacy network management services, prescription management
systems, clinical services, disease management services and medical spend management.
Our clients are primarily employers, insurance companies, unions, government employee groups, health plans,
Managed Medicaid plans and other sponsors of health benefit plans, and individuals throughout the United States.
A portion of covered lives primarily within the Managed Medicaid, health plan and employer markets have access
to our services through public and private exchanges.
22
Management’s Discussion and Analysis of Financial Condition and Results of OperationsCVS Health As a pharmacy benefits manager, we manage the dispensing of prescription drugs through our mail order pharmacies,
specialty pharmacies, long-term care pharmacies and national network of more than 68,000 retail pharmacies, consisting
of approximately 41,000 chain pharmacies (which includes our CVS Pharmacy® stores) and 27,000 independent
pharmacies, to eligible members in the benefit plans maintained by our clients and utilize our information systems to
perform, among other things, safety checks, drug interaction screenings and brand to generic substitutions.
Our specialty pharmacies support individuals who require complex and expensive drug therapies. Our specialty
pharmacy business includes mail order and retail specialty pharmacies that operate under the CVS Caremark®,
CarePlus CVS PharmacyTM, Navarro® Health Services and Advanced Care Scripts names. Substantially all of our
mail service specialty pharmacies have been accredited by The Joint Commission, which is an independent,
not-for-profit organization that accredits and certifies health care organizations and programs in the United States.
We also offer specialty infusion services and enteral nutrition services through Coram LLC and its subsidiaries
(collectively, “Coram”). With Specialty ConnectTM, which integrates our specialty pharmacy mail and retail capabili-
ties, we provide members with disease-state specific counseling from our experienced specialty pharmacists and
the choice to bring their specialty prescriptions to any CVS Pharmacy location. Whether submitted through our
mail order pharmacy or at a CVS Pharmacy, all prescriptions are filled through the Company’s specialty mail order
pharmacies, so all revenue from this specialty prescription services program is recorded within the Pharmacy
Services Segment. Members then can choose to pick up their medication at their local CVS Pharmacy or have it
sent to their home through the mail. In August 2015, we expanded our offerings with the acquisition of Omnicare
which included its specialty pharmacy operating under the Advanced Care Scripts name.
We also provide health management programs, which include integrated disease management for 17 conditions,
through our Accordant® rare disease management offering. The majority of these integrated programs are accredited
by the National Committee for Quality Assurance.
In addition, through our SilverScript Insurance Company (“SilverScript”) subsidiary, we are a national provider of
drug benefits to eligible beneficiaries under the federal government’s Medicare Part D program. We currently provide
Medicare Part D plan benefits to approximately 5.0 million beneficiaries through SilverScript, including our individual
and employer group waiver plans.
The Pharmacy Services Segment operates under the CVS Caremark® Pharmacy Services, Caremark®, CVS CaremarkTM,
CarePlus CVS PharmacyTM, Accordant®, SilverScript®, Coram®, CVS SpecialtyTM, NovoLogix®, Navarro® Health
Services and Advanced Care Scripts names. As of December 31, 2015, the Pharmacy Services Segment operated
24 retail specialty pharmacy stores, 11 specialty mail order pharmacies, five mail order dispensing pharmacies, and
83 branches for infusion and enteral services, including approximately 73 ambulatory infusion suites and six centers
of excellence, located in 40 states, Puerto Rico and the District of Columbia.
Overview of Our Retail/LTC Segment
Our Retail/LTC Segment sells prescription drugs and a wide assortment of general merchandise, including over-
the-counter drugs, beauty products and cosmetics, personal care products, convenience foods, photo finishing,
seasonal merchandise and greeting cards. With the acquisition of Omnicare, the Retail/LTC Segment now also
includes the distribution of prescription drugs, related pharmacy consulting and other ancillary services to chronic
care facilities and other care settings, as well as commercialization services which are provided under the name
RxCrossroads®. We added approximately 1,672 pharmacies through the acquisition of Target’s pharmacies, thereby,
expanding our presence in new and existing markets. The stores within Target will only sell prescription drugs and
over-the-counter drugs that are required to be behind the counter. Our Retail/LTC Segment derives the majority of its
revenues through the sale of prescription drugs, which are dispensed by our more than 30,000 pharmacists. The role
of our retail pharmacists is shifting from primarily dispensing prescriptions to also providing services, including flu
vaccinations as well as face-to-face patient counseling with respect to adherence to drug therapies, closing gaps
in care, and more cost-effective drug therapies. Our integrated pharmacy services model enables us to enhance
access to care while helping to lower overall health care costs and improve health outcomes.
23
2015 Annual Report Our Retail/LTC Segment also provides health care services through our MinuteClinic® health care clinics. MinuteClinics
are staffed by nurse practitioners and physician assistants who utilize nationally recognized protocols to diagnose
and treat minor health conditions, perform health screenings, monitor chronic conditions, and deliver vaccinations.
We believe our clinics provide high quality services that are affordable and convenient. Through the acquisition of
Target’s clinics, we added 79 clinics in December 2015.
Our proprietary loyalty card program, ExtraCare®, has about 70 million active cardholders, making it one of the
largest and most successful retail loyalty card programs in the country.
As of December 31, 2015, our Retail/LTC Segment included 9,655 retail stores (of which 7,897 were our stores that
operated a pharmacy and 1,672 were our pharmacies located within Target store) located in 49 states, the District
of Columbia, Puerto Rico and Brazil operating primarily under the CVS Pharmacy®, CVS®, Longs Drugs®, Navarro
Discount Pharmacy® and Drogaria OnofreTM names, 32 onsite pharmacies primarily operating under the CarePlus
CVS PharmacyTM, CarePlus® and CVS Pharmacy® names, and 1,135 retail health care clinics operating under the
MinuteClinic® name (of which 1,049 were located in CVS Pharmacy stores), and our online retail websites, CVS.com®,
Navarro.comTM and Onofre.com.brTM. LTC operations are comprised of 143 spoke pharmacies that primarily handle
new prescription orders, of which 32 are also hub pharmacies that use proprietary automation to support spoke
pharmacies with refill prescriptions. LTC operates primarily under the Omnicare® and NeighborCare® names.
Overview of Our Corporate Segment
The Corporate Segment provides management and administrative services to support the Company. The Corporate
Segment consists of certain aspects of our executive management, corporate relations, legal, compliance, human
resources, corporate information technology and finance departments.
Results of Operations
Summary of our Consolidated Financial Results
I N M I L L I O N S , E X C E P T P E R S H A R E A M O U N T S
2015
2014
2013
Y EA R EN DED DE C EM BE R 3 1,
Net revenues
Cost of revenues
Gross profit
Operating expenses
Operating profit
Interest expense, net
Loss on early extinguishment of debt
Income before income tax provision
Income tax provision
Income from continuing operations
Income (loss) from discontinued operations, net of tax
Net income
Net income attributable to noncontrolling interest
$ 153,290
126,762
$
139,367
$
126,761
114,000
102,978
26,528
17,074
9,454
838
—
8,616
3,386
5,230
9
5,239
(2)
25,367
16,568
8,799
600
521
7,678
3,033
4,645
(1)
4,644
—
23,783
15,746
8,037
509
—
7,528
2,928
4,600
(8)
4,592
—
Net income attributable to CVS Health
$
5,237
$
4,644
$
4,592
Diluted earnings per share:
Income from continuing operations attributable to CVS Health
Income (loss) from discontinued operations attributable to CVS Health
Net income attributable to CVS Health
$
$
$
4.62
0.01
4.63
$
$
$
3.96
—
3.96
$
$
$
3.75
(0.01)
3.74
24
Management’s Discussion and Analysis of Financial Condition and Results of OperationsCVS Health
Net revenues increased $13.9 billion in 2015 compared to 2014, and increased $12.6 billion in 2014 compared to
2013. As you review our performance in this area, we believe you should consider the following important information:
• During 2015, net revenues in our Pharmacy Services Segment increased 13.5% and net revenues in our
Retail/LTC Segment increased 6.2% compared to the prior year.
• During 2014, net revenues in our Pharmacy Services Segment increased by 16.1% and net revenues in our
Retail/LTC Segment increased 3.3% compared to the prior year.
• In 2015 and 2014, the impact from net new business grew for the Pharmacy Services Segment. The increase in
our generic dispensing rates in both of our operating segments continued to have a negative effect on net revenue
in 2015 as compared to 2014, as well as in 2014 as compared to 2013.
• Both segments benefited from the Omnicare acquisition that occurred in August 2015.
Please see the Segment Analysis later in this document for additional information about our net revenues.
Gross profit increased $1.2 billion, or 4.6% in 2015, to $26.5 billion, as compared to $25.4 billion in 2014. Gross
profit increased $1.6 billion, or 6.7% in 2014, to $25.4 billion, as compared to $23.8 billion in 2013. Gross profit as
a percentage of net revenues declined to 17.3%, as compared to 18.2% in 2014 and 18.8% in 2013.
• During 2015, gross profit in our Pharmacy Services Segment and Retail/LTC Segment increased by 9.6% and
3.4%, respectively, compared to the prior year. For the year ended December 31, 2015, gross profit as a percent
of net revenues in our Pharmacy Services Segment and Retail/LTC Segment was 5.2% and 30.5%, respectively.
• During 2014, gross profit in our Pharmacy Services Segment and Retail/LTC Segment increased by 12.6% and
5.8%, respectively, compared to the prior year. For the year ended December 31, 2014, gross profit as a percent
of net revenues in our Pharmacy Services Segment and Retail/LTC Segment was 5.4% and 31.4%, respectively.
• The increased weighting toward the Pharmacy Services Segment, which has a lower gross profit than the Retail/
LTC Segment, resulted in a decline in consolidated gross profit as a percent of net revenues in 2015 as compared
to 2014. In addition, gross profit for 2015, 2014 and 2013 has been negatively impacted by price compression in
the Pharmacy Services Segment and reimbursement pressure in the Retail/LTC Segment.
• Our gross profit continued to benefit from the increased utilization of generic drugs (which normally yield a higher
gross profit rate than equivalent brand name drugs) in both the Pharmacy Services and Retail/LTC segments for
2013 through 2015, partially offsetting the negative impacts described above.
Please see the Segment Analysis later in this document for additional information about our gross profit.
Operating expenses increased $506 million, or 3.0%, in the year ended December 31, 2015, as compared to the
prior year. Operating expenses as a percent of net revenues declined to 11.1% in the year ended December 31,
2015 compared to 11.9% in the prior year. The increase in operating expense dollars in the year ended December 31,
2015 was primarily due to incremental store operating costs associated with a higher store count, the Omnicare
acquisition in August 2015 and the acquisition of the Target pharmacy and clinic businesses in December 2015. The
decrease in operating expenses as a percent of net revenues in 2015 is primarily due to expense leverage from net
revenue growth.
Operating expenses increased $882 million, or 5.2%, in the year ended December 31, 2014 as compared to the
prior year. Operating expenses as a percent of net revenues declined to 11.9% in the year ended December 31,
2014 compared to 12.4% in the prior year. The increase in operating expense dollars in the year ended December 31,
2014 was primarily due to incremental store operating costs associated with a higher store count, as well as legal
costs and strategic initiatives as compared to the prior year. Additionally, the year ended December 31, 2013
included a $72 million gain on a legal settlement. The improvement in operating expenses as a percent of net
revenues in 2014 is primarily due to expense leverage from net revenue growth and disciplined expense control.
Please see the Segment Analysis later in this document for additional information about operating expenses.
25
2015 Annual Report Interest expense, net for the years ended December 31 consisted of the following:
I N M I L L I O N S
Interest expense
Interest income
Interest expense, net
2015
859
(21)
838
$
$
2014
615
(15)
600
$
$
2013
517
(8)
509
$
$
Net interest expense increased $238 million during the year ended December 31, 2015, primarily due to the amorti-
zation of bridge facility fees of $52 million for the unsecured bridge facility that was entered into on May 20, 2015
and was amortized to interest expense over the period it was outstanding, the $15 billion debt issuance in July
2015, and the debt assumed from the Omnicare acquisition. See Note 6, “Borrowings and Credit Agreements” to
the consolidated financial statements for additional information. During 2014, net interest expense increased by
$91 million, to $600 million compared to 2013, primarily due to the issuance of $4 billion of debt in December 2013
and $1.5 billion of debt in August 2014.
Loss on early extinguishment of debt During the year ended December 31, 2014, the Company completed a
$2.0 billion tender offer and repurchase of certain Senior Notes. The Company paid a premium of $490 million in
excess of the debt principal in connection with the repurchase of the Senior Notes, wrote off $26 million of unamortized
deferred financing costs and incurred $5 million in fees, for a total loss on early extinguishment of debt of $521 million.
See Note 6, “Borrowings and Credit Agreements” to the consolidated financial statements for additional information.
Income tax provision Our effective income tax rate was 39.3%, 39.5% and 38.9% in 2015, 2014 and 2013,
respectively. The effective income tax rate was lower in 2015 compared to 2014 primarily due to certain permanent
items in 2014. The effective income tax rate was higher in 2014 than in 2013 primarily due to certain permanent
items in 2014.
Income from continuing operations increased $585 million or 12.6% to $5.2 billion in 2015. Income from continuing
operations increased $45 million or 1.0% to $4.6 billion in 2014 as compared to 2013. The 2015 and 2014 increases
in income from continuing operations were primarily related to increases in generic dispensing rates and increased
prescription volume for both operating segments. The increase in 2015 was negatively affected by $272 million of
acquisition-related bridge financing, transaction and integration costs associated with the acquisition of Omnicare
and the acquisition of the pharmacies and clinics of Target. In addition, as discussed above, income from continuing
operations included a $521 million loss on early extinguishment of debt in 2014, which positively impacted the
growth rate in 2015 and negatively impacted the growth rate in 2014.
Income (loss) from discontinued operations In connection with certain business dispositions completed between
1991 and 1997, the Company retained guarantees on store lease obligations for a number of former subsidiaries,
including Linens ‘n Things, which filed for bankruptcy in 2008. The Company’s income from discontinued operations
in 2015 of $9 million, net of tax, was related to the release of certain store lease guarantees due to the settlement
of a dispute with a landlord. The Company’s loss from discontinued operations includes lease-related costs required
to satisfy its Linens ‘n Things lease guarantees. We incurred a loss from discontinued operations, net of tax, of
$1 million and $8 million in 2014 and 2013, respectively.
See Note 1 “Significant Accounting Policies —Discontinued Operations” to the consolidated financial statements for
additional information about discontinued operations and Note 12 “Commitments and Contingencies” for additional
information about our lease guarantees.
Net income attributable to noncontrolling interest of $2 million for the year ended December 31, 2015 represents
the noncontrolling shareholders’ portion of the net income from several less than wholly owned entities. For the
year ended December 31, 2014, the Company had two consolidated entities with immaterial noncontrolling inter-
ests. For the year ended December 31, 2013, the Company did not consolidate any entities that were not wholly
owned by the Company.
26
Management’s Discussion and Analysis of Financial Condition and Results of OperationsCVS Health
Net income attributable to CVS Health increased $593 million or 12.8% to $5.2 billion (or $4.63 per diluted share)
in 2015. This compares to $4.6 billion (or $3.96 per diluted share) in 2014 and $4.6 billion (or $3.74 per diluted share)
in 2013. As discussed previously, the 2015 increase in net income attributable to CVS Health was primarily related
to increased generic drug dispensing and increased prescription volume in both operating segments, as well as
the loss on early extinguishment of debt in 2014. The increase in 2015 was negatively affected by $272 million of
acquisition-related bridge financing, transaction and integration costs associated with the acquisition of Omnicare
and the acquisition of the pharmacies and clinics of Target. The increase in net income attributable to CVS Health
per diluted share was also driven by increased share repurchase activity in 2015, 2014 and 2013. The net income
attributable to CVS Health and per diluted share in 2014 includes a $521 million loss on early extinguishment of
debt, which negatively impacted the net income growth rate in 2014.
Segment Analysis
We evaluate the performance of our Pharmacy Services and Retail/LTC segments based on net revenues, gross
profit and operating profit before the effect of nonrecurring charges and gains and certain intersegment activities.
The Company evaluates the performance of its Corporate Segment based on operating expenses before the effect
of discontinued operations, nonrecurring charges and gains, and certain intersegment activities. The following is a
reconciliation of the Company’s business segments to the consolidated financial statements:
I N M I L L I O N S
2015:
Net revenues
Gross profit
Operating profit (loss) (3)
2014:
Net revenues
Gross profit
Operating profit (loss)
2013:
Net revenues
Gross profit
Operating profit (loss) (4)
Pharmacy
Services
Segment (1) (2)
Retail/LTC
Segment (2)
Corporate
Segment
Intersegment
Eliminations (2)
Consolidated
Totals
$ 100,363 $ 72,007
$
5,227
3,989
21,992
7,130
—
—
$ (19,080) $ 153,290
(691)
26,528
(1,037)
(628)
9,454
88,440
4,771
3,514
76,208
4,237
3,086
67,798
21,277
6,762
65,618
20,112
6,268
—
—
(796)
—
—
(751)
(16,871)
139,367
(681)
(681)
25,367
8,799
(15,065)
126,761
(566)
(566)
23,783
8,037
(1) Net revenues of the Pharmacy Services Segment include approximately $8.9 billion, $8.1 billion and $7.9 billion of Retail Co-Payments for 2015,
2014 and 2013, respectively. See Note 1 to the consolidated financial statements for additional information about Retail Co-Payments.
(2) Intersegment eliminations relate to intersegment revenue generating activities that occur between the Pharmacy Services Segment and the
Retail/LTC Segment. These occur in the following ways: when members of Pharmacy Services Segment clients (“members”) fill prescriptions
at retail stores to purchase covered products, when members enrolled in programs such as Maintenance Choice® elect to pick up maintenance
prescriptions at a retail drugstore instead of receiving them through the mail, or when members have prescriptions filled at long-term care facilities.
When these occur, both the Pharmacy Services and Retail/LTC segments record the revenues, gross profit and operating profit on a standalone basis.
(3) For the year ended December 31, 2015, the Corporate Segment operating loss includes $156 million of acquisition-related transaction and
integration costs and a $90 million charge related to a legacy lawsuit challenging the 1999 legal settlement by MedPartners of various securities
class actions and a related derivative claim.
(4) Consolidated operating profit for the year ended December 31, 2013 includes a $72 million gain on a legal settlement, of which, $11 million is
included in the Pharmacy Services Segment and $61 million is included in the Retail/LTC Segment.
27
2015 Annual Report
Pharmacy Services Segment
The following table summarizes our Pharmacy Services Segment’s performance for the respective periods:
I N M I L L I O N S
Net revenues
Gross profit
Gross profit % of net revenues
Operating expenses
Operating expenses % of net revenues
Operating profit
Operating profit % of net revenues
Net revenues:
Mail choice (1)
Pharmacy network (2)
Other
Pharmacy claims processed:
Total
Mail choice (1)
Pharmacy network (2)
Generic dispensing rate:
Total
Mail choice (1)
Pharmacy network (2)
Mail choice penetration rate
Y EA R EN DED DE C EM BE R 3 1,
2015
$ 100,363
$
5,227
5.2 %
$
1,238
1.2 %
$
3,989
4.0 %
$ 37,828
$ 62,240
$
295
1,011.9
85.7
926.2
83.7 %
76.4 %
84.4 %
20.6 %
$
$
$
$
$
$
$
2014
88,440
4,771
5.4 %
1,257
1.4 %
3,514
4.0 %
31,081
57,122
237
932.0
82.4
849.6
82.2 %
74.6 %
83.0 %
21.4 %
$
$
$
$
$
$
$
2013
76,208
4,237
5.6 %
1,151
1.5 %
3,086
4.1 %
24,791
51,211
206
902.1
83.3
818.8
80.5 %
72.6 %
81.3 %
22.6 %
(1) Mail choice is defined as claims filled at a Pharmacy Services mail facility, which includes specialty mail claims inclusive of Specialty Connect
claims filled at retail, as well as prescriptions filled at retail under the Maintenance Choice program.
(2) Pharmacy network net revenues, claims processed and generic dispensing rates do not include Maintenance Choice, which are included within the
mail choice category. Pharmacy network is defined as claims filled at retail and specialty pharmacies, including our retail drugstores and long-term
care pharmacies, but excluding Maintenance Choice activity.
Net revenues in our Pharmacy Services Segment increased $11.9 billion, or 13.5%, to $100.4 billion for the year
ended December 31, 2015, as compared to the prior year. The increase is primarily due to growth in specialty
pharmacy, driven by new clients, increased volume from new products and the addition of the specialty pharmacy
operations of Omnicare, as well as inflation and increased pharmacy network claims. Conversely, the increase in our
generic dispensing rate had a negative impact on our revenue in 2015, as it did in 2014.
Net revenues increased $12.2 billion, or 16.1%, to $88.4 billion for the year ended December 31, 2014, as compared
to the prior year. The increase in 2014 was primarily due to growth in specialty pharmacy, including the acquisition of
Coram and the impact of Specialty Connect, and increased pharmacy network volume. Conversely, the increase in
our generic dispensing rate had a negative impact on our revenue in 2014, as it did in 2013.
As you review our Pharmacy Services Segment’s revenue performance, we believe you should also consider the
following important information:
• Our mail choice claims processed increased 4.0% to 85.7 million claims in the year ended December 31, 2015,
compared to 82.4 million claims in the prior year. The increase in mail choice claims was driven by net new
business, specialty and continuing adoption of our Maintenance Choice offerings. During 2014, our mail choice
28
Management’s Discussion and Analysis of Financial Condition and Results of OperationsCVS Health
claims processed decreased 1.1% to 82.4 million claims. The decrease in mail choice claims was driven by a
decline in traditional mail volumes, which was mostly offset by growth in our Maintenance Choice program and
specialty pharmacy.
• During 2015 and 2014, our average revenue per mail choice claim increased by 17.0% and 26.8%, compared
to 2014 and 2013, respectively. The increase in 2015 was primarily due to growth in specialty pharmacy. The
increase in 2014 was primarily due to the acquisition of Coram and drug inflation particularly in specialty phar-
macy, partially offset by increases in the percentage of generic prescription drugs dispensed and changes in
client pricing.
• Our pharmacy network claims processed increased 9.0% to 926.2 million claims in the year ended December 31,
2015, compared to 849.6 million claims in the prior year. This increase was primarily due to net new business.
During 2014, our pharmacy network claims processed increased 3.8% to 849.6 million compared to 818.8 million
pharmacy network claims processed in 2013. This increase was primarily due to net new business and growth in
Managed Medicaid, partially offset by a decrease in Medicare Part D claims. Medicare Part D claims were
negatively affected by the CMS sanctions that were in place during 2013.
• Our average revenue per pharmacy network claim processed remained flat for the year ended December 31,
2015 as compared to the prior year. During 2014, our average revenue per pharmacy network claim processed
increased by 7.5%, compared to 2013. This increase was primarily due to drug inflation and changes in the drug
mix, partially offset by increases in the generic dispensing rate.
• Our mail choice generic dispensing rate was 76.4%, 74.6% and 72.6% in the years ended December 31, 2015,
2014 and 2013, respectively. Our pharmacy network generic dispensing rate increased to 84.4% in the year ended
December 31, 2015, compared to 83.0% in the prior year. During 2014, our pharmacy network generic dispensing
rate increased to 83.0% compared to our pharmacy network generic dispensing rate of 81.3% in 2013. These
continued increases in mail choice and pharmacy network generic dispensing rates were primarily due to the
impact of new generic drug introductions, and our continuous efforts to encourage plan members to use generic
drugs when they are available. We believe our generic dispensing rates will continue to increase in future periods,
albeit at a slower pace. This increase will be affected by, among other things, the number of new generic drug
introductions and our success at encouraging plan members to utilize generic drugs when they are available and
clinically appropriate.
• We completed the rollout of Specialty ConnectTM in May 2014, which integrates the Company’s specialty phar-
macy mail and retail capabilities, providing members with the choice to bring their specialty prescriptions to any
CVS Pharmacy® location. Whether submitted through our mail order pharmacy or at CVS Pharmacy, all prescrip-
tions are filled through the Company’s specialty mail order pharmacies, so all revenue from this specialty
prescription services program is recorded within the Pharmacy Services Segment.
• The Pharmacy Services Segment recognizes revenues from its pharmacy network transactions based on individ-
ual contract terms. Our Pharmacy Services Segment contracts are predominantly accounted for using the gross
method. See the “Revenue Recognition” description under “Critical Accounting Policies” later in this section for
further information on our revenue recognition policy.
Gross profit in our Pharmacy Services Segment includes net revenues less cost of revenues. Cost of revenues
includes (i) the cost of pharmaceuticals dispensed, either directly through our mail service and specialty retail
pharmacies or indirectly through our pharmacy network, (ii) shipping and handling costs and (iii) the operating costs
of our mail service dispensing pharmacies, customer service operations and related information technology support.
Gross profit increased $456 million, or 9.6% to $5.2 billion in the year ended December 31, 2015, as compared to
the prior year. Gross profit as a percentage of net revenues decreased to 5.2% for the year ended December 31,
2015, compared to 5.4% in the prior year. The increase in gross profit dollars in the year ended December 31, 2015
was primarily due to volume increases and higher generic dispensing, as well as favorable purchasing and rebate
29
2015 Annual Report economics, partially offset by price compression. The decrease in gross profit as a percentage of net revenues was
primarily due to price compression, partially offset by favorable generic dispensing, as well as favorable purchasing
and rebate economics.
During 2014, gross profit increased $534 million, or 12.6% to $4.8 billion in the year ended December 31, 2014,
as compared to the prior year. Gross profit as a percentage of net revenues decreased to 5.4% for the year ended
December 31, 2014, compared to 5.6% in the prior year. The increase in gross profit dollars in the year ended
December 31, 2014 was primarily due to volume increases, higher generic dispensing and favorable purchasing
economics, partially offset by price compression. The decrease in gross profit as a percentage of net revenues was
due to price compression, partially offset by favorable generic dispensing and purchasing economics. In addition,
gross profit dollars and margin for the year ended December 31, 2014, were positively impacted by $16 million
related to the favorable resolution of previously proposed retroactive reimbursement rate changes in the State of
California Medicaid program.
As you review our Pharmacy Services Segment’s performance in this area, we believe you should consider the
following important information:
• Our gross profit dollars and gross profit as a percentage of net revenues continued to be impacted by our efforts
to (i) retain existing clients, (ii) obtain new business and (iii) maintain or improve the rebates and/or discounts
we received from manufacturers, wholesalers and retail pharmacies. In particular, competitive pressures in the
PBM industry have caused us and other PBMs to continue to share a larger portion of rebates and/or discounts
received from pharmaceutical manufacturers with clients. In addition, market dynamics and regulatory changes
have impacted our ability to offer plan sponsors pricing that includes retail network “differential” or “spread”.
We expect 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. The increased use by patients of generic drugs has positively impacted
our gross profit margins but has resulted in third party payors augmenting their efforts to reduce reimbursement
payments for prescriptions. This trend, which we expect to continue, reduces the benefit we realize from brand
to generic product conversions.
• We review our network contracts on an individual basis to determine if the related revenues should be accounted
for using the gross method or net method under the applicable accounting rules. Our Pharmacy Services
Segment network contracts are predominantly accounted for using the gross method, which results in higher
revenues, higher cost of revenues and lower gross profit rates.
• Our gross profit as a percentage of revenues benefited from the increase in our total generic dispensing rate,
which increased to 83.7% and 82.2% in 2015 and 2014, respectively, compared to our generic dispensing rate
of 80.5% in 2013. These increases were primarily due to new generic drug introductions and our continued efforts
to encourage plan members to use clinically appropriate generic drugs when they are available. We expect these
trends to continue, albeit at a slower pace.
Operating expenses in our Pharmacy Services Segment, which include selling, general and administrative
expenses, depreciation and amortization related to selling, general and administrative activities and retail specialty
pharmacy store and administrative payroll, employee benefits and occupancy costs, decreased to 1.2% of net
revenues in 2015, compared to 1.4% in 2014 and 1.5% in 2013.
As you review our Pharmacy Services Segment’s performance in this area, we believe you should consider the
following important information:
• Operating expenses decreased $19 million or 1.5%, to $1.2 billion, in the year ended December 31, 2015,
compared to the prior year. The decrease in operating expense dollars is primarily due to lower integration costs
from the Coram acquisition which occurred in January 2014, partially offset by the addition of the specialty
30
Management’s Discussion and Analysis of Financial Condition and Results of OperationsCVS Health pharmacy operations of Omnicare from the acquisition in August 2015. Operating expenses as a percentage of
net revenues improved slightly from 1.4% in 2014 to 1.2% in 2015.
• During 2014, the increase in operating expenses of $106 million or 9.2%, to $1.3 billion compared to 2013,
is primarily related to increased costs associated with infusion services due to the 2014 acquisition of Coram,
as well as an $11 million gain from a legal settlement during the year ended December 31, 2013. The slight
decrease in operating expenses as a percentage of net revenues was primarily due to expense leverage from
net revenue growth.
Retail/LTC Segment
The following table summarizes our Retail/LTC Segment’s performance for the respective periods:
I N M I L L I O N S
Net revenues
Gross profit
Gross profit % of net revenues
Operating expenses (1)
Y EA R EN DED DE C EM BE R 3 1,
2015
2014
2013
$ 72,007
$ 21,992
$
$
67,798
21,277
$
$
65,618
20,112
30.5 %
31.4 %
30.6 %
$ 14,862
$
14,515
$
13,844
Operating expenses % of net revenues
20.6 %
21.4 %
21.1 %
Operating profit
Operating profit % of net revenues
Prescriptions filled (90 Day = 3 prescriptions) (2)
Net revenue increase (decrease):
Total
Pharmacy
Front Store
Total prescription volume (90 Day = 3 prescriptions) (2)
Same store sales increase (decrease) (3):
Total
Pharmacy
Front Store (4)
Prescription volume (90 Day = 3 prescriptions) (2)
Generic dispensing rates
Pharmacy % of net revenues
$
7,130
$
6,762
$
6,268
9.9 %
1,031.6
10.0 %
935.9
9.6 %
890.1
6.2 %
9.5 %
(2.5)%
10.2 %
1.7 %
4.5 %
(5.0)%
4.8 %
84.5 %
72.9 %
3.3 %
5.1 %
(2.5)%
5.2 %
2.1 %
4.8 %
(4.0)%
4.1 %
83.1 %
70.7 %
3.1 %
4.1 %
1.0 %
5.2 %
1.7 %
2.6 %
(0.5)%
4.4 %
81.4 %
69.5 %
(1) Operating expenses for the three months and year ended December 31, 2015 include $52 million and $64 million, respectively, of acquisition-
related integration costs related to the acquisition of Omnicare and the pharmacies and clinics of Target.
(2) Includes the adjustment to convert 90-day, non-specialty prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the
fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal prescription.
(3) Same store sales and prescriptions exclude revenues from MinuteClinic, and revenue and prescriptions from stores in Brazil, LTC operations and
from commercialization services.
(4) Front store same store sales would have been approximately 520 basis points higher for the year ended December 31, 2015 if tobacco and the
estimated associated basket sales were excluded from the year ended December 31, 2014.
Net revenues increased approximately $4.2 billion, or 6.2%, to $72.0 billion for the year ended December 31, 2015,
as compared to the prior year. This increase was primarily driven by the acquisition of Omnicare, a same store sales
increase of 1.7%, and net revenues from new and acquired stores, which accounted for approximately 160 basis
points of our total net revenue percentage increase during the year. Net revenues increased $2.2 billion, or 3.3%
to $67.8 billion for the year ended December 31, 2014, as compared to the prior year. This increase was primarily
31
2015 Annual Report
driven by a same store sales increase of 2.1% and net revenues from new stores, which accounted for approximately
140 basis points of our total net revenue percentage increase during the year. Additionally, in 2015, 2014 and 2013
we continued to see a positive impact on our net revenues due to the growth of our Maintenance Choice program.
As you review our Retail/LTC Segment’s performance in this area, we believe you should consider the following
important information:
• Front store same store sales declined 5.0% in the year ended December 31, 2015, as compared to the prior year.
The decrease is primarily due to the Company’s decision to stop selling tobacco products and softer customer
traffic. The decrease was partially offset by an increase in basket size. On a comparable basis, front store same
store sales would have been approximately 520 basis points higher for the year ended December 31, 2015 if
tobacco and the estimated associated basket sales were excluded from the year ended December 31, 2014.
• Pharmacy same store sales rose 4.5% in the year ended December 31, 2015, as compared to the prior year.
Pharmacy same store sales were positively impacted by same store script growth of 4.8%, partially offset by
the impact of the increase in generic dispensing and reimbursement pressure.
• Pharmacy revenues continue to be negatively impacted by the conversion of brand name drugs to equivalent
generic drugs, which typically have a lower selling price. Pharmacy same store sales were negatively impacted by
approximately 390 and 160 basis points for the years ended December 31, 2015 and 2014, respectively, due to
recent generic introductions. The increase in the impact from 2014 to 2015 was primarily due to a larger impact
from new generic drug introductions. In addition, our pharmacy revenue growth has also been affected by
continued reimbursement pressure, the lack of significant new brand name drug introductions, as well as an
increase in the number of over-the-counter remedies that were historically only available by prescription.
• As of December 31, 2015, we operated 9,655 retail stores, including the 1,672 locations in Target stores, com-
pared to 7,822 retail stores as of December 31, 2014 and 7,660 retail stores as of December 31, 2013. Total net
revenues from new and acquired stores contributed approximately 1.6%, 1.1% and 1.0% to our total net revenue
percentage increase in 2015, 2014, and 2013, respectively.
• Pharmacy revenue growth continued to benefit from increased utilization by Medicare Part D beneficiaries, our
ability to attract and retain managed care customers and favorable industry trends. These trends include an
aging American population; many “baby boomers” are now in their fifties and sixties and are consuming a greater
number of prescription drugs, as well as expanded coverage from the Patient Protection and Affordable Care
Act and the Health Care and Education Reconciliation Act (collectively, “ACA”). In addition, the increased use of
pharmaceuticals as the first line of defense for individual health care also contributed to the growing demand for
pharmacy services. We believe these favorable industry trends will continue.
Gross profit in our Retail/LTC Segment includes net revenues less the cost of merchandise sold during the reporting
period and the related purchasing costs, warehousing costs, delivery costs and actual and estimated inventory losses.
Gross profit increased $715 million, or 3.4%, to approximately $22.0 billion in the year ended December 31, 2015,
as compared to the prior year. Gross profit as a percentage of net revenues decreased to 30.5% in year ended
December 31, 2015, from 31.4% in 2014. Gross profit increased $1.2 billion, or 5.8%, to $21.3 billion for the year
ended December 31, 2014, as compared to the prior year. Gross profit as a percentage of net revenues increased
to 31.4% for the year ended December 31, 2014, compared to 30.6% for the prior year.
The increase in gross profit dollars in the year ended December 31, 2015, was primarily driven by the addition of
LTC, same store sales and new store sales, increased generic dispensing, as well as favorable purchasing econom-
ics, partially offset by continued reimbursement pressure. The increase in gross profit dollars for the year ended
December 31, 2014, was primarily driven by increases in the generic dispensing rate, same store sales and new
store sales, as well as favorable purchasing economics. The decrease in gross profit as a percentage of net reve-
nues in 2015 was primarily driven by a decline in pharmacy margins due to continued reimbursement pressure,
32
Management’s Discussion and Analysis of Financial Condition and Results of OperationsCVS Health partially offset by favorable pharmacy purchasing economics, as well as increased front store margins due to changes
in the mix of products sold. The increase in gross profit as a percentage of net revenues in 2014 was primarily driven
by increased pharmacy margins due to the positive impact of increased generic dispensing rates and increased front
store margins, partially offset by continued reimbursement pressure. The increase in gross profit as a percentage of
net revenues in 2014 was also driven by the removal of tobacco products from our stores.
As you review our Retail/LTC Segment’s performance in this area, we believe you should consider the following
important information:
• Front store revenues as a percentage of total net revenues for the years ended December 31, 2015, 2014 and
2013 were 26.5%, 28.8% and 30.5%, respectively. The decline in front store revenues as a percentage of total net
revenues in 2015 and 2014 was largely due to the removal of tobacco products and the associated basket sales.
On average, our gross profit on front store revenues is generally higher than our gross profit on pharmacy reve-
nues. Pharmacy revenues as a percentage of total net revenues increased approximately 220, 120 and 60 basis
points in the years ended December 31, 2015, 2014 and 2013, respectively. This was due to pharmacy revenues
growing faster than front store revenues, as well as the acquisition of Omnicare. The mix effect from a higher
proportion of pharmacy sales had a negative effect on our overall gross profit for the years ended December 31,
2015, 2014 and 2013, respectively. This negative effect was partially offset by increased generic drug dispensing
rates, the removal of tobacco products from our stores, favorable purchasing economics and increased store
brand penetration.
• During the year ended December 31, 2014, our front store gross profit as a percentage of net revenues increased
compared to the prior year. The increase is primarily related to a change in the mix of products sold, including the
removal of tobacco products from our stores, and higher store brand sales.
• Gross profit dollars and margin for the year ended December 31, 2014 were positively impacted by $53 million
related to the favorable resolution of previously proposed retroactive reimbursement rate changes in the State of
California’s Medicaid program.
• Our pharmacy gross profit rates have been adversely affected by the efforts of managed care organizations,
PBMs and governmental and other third party payors to reduce their prescription drug costs, as well as changes
in the mix of our business within pharmacy. In the event this trend accelerates, we may not be able to sustain our
current rate of revenue growth and gross profit dollars could be adversely impacted. The increased use of generic
drugs has positively impacted our gross profit but has resulted in third party payors augmenting their efforts to
reduce reimbursement payments to retail pharmacies for prescriptions. This trend, which we expect to continue,
reduces the benefit we realize from brand to generic product conversions.
• ACA made several significant changes to Medicaid rebates and to reimbursement. One of these changes was the
revision of the definition of Average Manufacturer Price (“AMP”) and the reimbursement formula for multi-source
drugs. Changes in reporting of AMP or other adjustments that may be made regarding the reimbursement of drug
payments by Medicaid and Medicare could impact our pricing to customers and other payors and/or could impact
our ability to negotiate discounts or rebates with manufacturers, wholesalers, PBMs or retail and mail pharmacies.
See “Efforts to reduce reimbursement levels and alter health care financing practices” in Part I, Item 1A, Risk
Factors within our 2015 Form 10-K, for additional information.
Operating expenses in our Retail/LTC Segment include store payroll, store employee benefits, store occupancy
costs, selling expenses, advertising expenses, depreciation and amortization expense and certain administra-
tive expenses.
Operating expenses increased $347 million, or 2.4% to $14.9 billion, or 20.6% as a percentage of net revenues, in
the year ended December 31, 2015, as compared to $14.5 billion, or 21.4% as a percentage of net revenues, in the
prior year. Operating expenses increased $671 million, or 4.8%, to $14.5 billion, or 21.4% as a percentage of net
revenues, in the year ended December 31, 2014, as compared to $13.8 billion, or 21.1% as a percentage of net
33
2015 Annual Report revenues, in the prior year. Operating expenses as a percentage of net revenues for the year ended December 31,
2015 improved primarily due to higher legal costs in the prior year and leverage gained from the addition of LTC net
revenues. The increase in operating expense dollars for the year ended December 31, 2015, was primarily due to the
addition of LTC, including acquisition-related integration costs of $64 million, and incremental store operating costs
associated with operating more stores. Operating expenses as a percentage of net revenues increased in 2014
primarily due to reimbursement rate pressure, the implementation of Specialty Connect, which reduced net reve-
nues, and higher legal costs. The increase in operating expense dollars in 2014 and 2013 was the result of higher
store operating costs associated with our increased store count, as well as higher legal costs. The results for the
years ended December 31, 2014 and 2013 include gains from legal settlements of $21 million and $61 million,
respectively. Additionally, in September 2014, the Retail/LTC Segment made a charitable contribution of $25 million
to the CVS Foundation to fund future charitable giving. The foundation is a non-profit entity that focuses on health,
education and community involvement programs.
Corporate Segment
Operating expenses increased $241 million, or 30.3%, to $1.0 billion in the year ended December 31, 2015, as
compared to the prior year. Operating expenses increased $45 million, or 6.0%, to $796 million in the year ended
December 31, 2014. Operating expenses within the Corporate Segment include executive management, corporate
relations, legal, compliance, human resources, corporate information technology and finance related costs. The
increase in operating expenses in 2015 was primarily due to acquisition-related transaction and integration costs
associated with the acquisition of Omnicare and Target’s pharmacy and clinic business, as well as a $90 million
charge related to a legacy lawsuit challenging the 1999 settlement by MedPartners of various securities class
actions and a related derivative claim. Total acquisition-related transaction and integration costs recorded in
the Corporate Segment for both acquisitions were $156 million and the charge for the lawsuit was $90 million
for the year ended December 31, 2015. The increase in operating expenses in 2014 was primarily due to increased
strategic initiatives, benefits costs, facilities management and information technology costs.
Liquidity and Capital Resources
We maintain a level of liquidity sufficient to allow us to cover our cash needs in the short-term. Over the long-term,
we manage our cash and capital structure to maximize shareholder return, maintain our financial position and maintain
flexibility for future strategic initiatives. We continuously assess our working capital needs, debt and leverage levels,
capital expenditure requirements, dividend payouts, potential share repurchases and future investments or acquisi-
tions. We believe our operating cash flows, commercial paper program, sale-leaseback program, as well as any
potential future borrowings, will be sufficient to fund these future payments and long-term initiatives.
The change in cash and cash equivalents is as follows:
I N M I L L I O N S
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Y EA R EN DED DE C EM BE R 3 1,
2015
2014
2013
$
8,412
$
8,137
$
5,783
(13,420)
5,006
(20)
(22)
$
(4,045)
(5,694)
(6)
(1,835)
(1,237)
3
$
(1,608)
$
2,714
Net cash provided by operating activities increased by $275 million in 2015 and $2.4 billion in 2014. The increase in
2015 was primarily due to increased net income partially offset by various changes in working capital. The increase
in 2014 was primarily due to increased net income and increased accounts payable due to payables management
and timing.
34
Management’s Discussion and Analysis of Financial Condition and Results of OperationsCVS Health
Net cash used in investing activities increased by $9.4 billion in 2015 and increased by $2.2 billion in 2014. The
increase in 2015 was primarily due to the $9.6 billion paid for the acquisition of Omnicare and the $1.9 billion paid
for the acquisition of the Target pharmacy and clinic businesses in 2015, compared to the $2.1 billion paid for the
Coram acquisition in 2014. The increase in 2014 was primarily due to the $2.1 billion paid for the acquisition of
Coram and an increase in capital expenditures.
In 2015, gross capital expenditures totaled approximately $2.4 billion, an increase of $231 million compared to
the prior year. During 2015, approximately 36% of our total capital expenditures were for new store construction,
21% were for store, fulfillment and support facilities expansion and improvements and 43% were for technology
and other corporate initiatives. Gross capital expenditures totaled approximately $2.1 billion and $2.0 billion during
2014 and 2013, respectively. During 2014, approximately 42% of our total capital expenditures were for new store
construction, 21% were for store, fulfillment and support facilities expansion and improvements and 37% were for
technology and other corporate initiatives.
Proceeds from sale-leaseback transactions totaled $411 million in 2015. This compares to $515 million in 2014
and $600 million in 2013. Under the sale-leaseback transactions, the properties are generally sold at net book value,
which generally approximates fair value, and the resulting leases generally qualify and are accounted for as operat-
ing leases. The specific timing and amount of future sale-leaseback transactions will vary depending on future
market conditions and other factors.
Below is a summary of our store development activity for the respective years:
Total stores (beginning of year)
New and acquired stores (1)
Closed stores (1)
Total stores (end of year)
Relocated stores
2015 (2)
2014 (2)
2013 (2)
7,866
1,833
(34)
9,665
58
7,702
187
(23)
7,866
60
7,508
213
(19)
7,702
78
(1) Relocated stores are not included in new or closed store totals.
(2) Includes retail drugstores, onsite pharmacy stores, specialty pharmacy stores and pharmacies within Target stores.
Net cash provided by financing activities increased by $10.7 billion in 2015 and cash used in financing activities
increased by $4.5 billion in 2014. The increase cash received in 2015 was primarily due to higher net borrowings in
2015 including the $14.8 billion in net proceeds received from the July 2015 debt issuance, partially offset by an
increase in share repurchases of $1.0 billion. The increase in cash used in 2014 was primarily due to the repayments
of long-term debt and lower borrowings than in 2013.
Share repurchase programs The following share repurchase programs were authorized by the Company’s Board of
Directors:
I N B I L L I O N S
Authorization Date
December 15, 2014 (“2014 Repurchase Program”)
December 17, 2013 (“2013 Repurchase Program”)
September 19, 2012 (“2012 Repurchase Program”)
Authorized
Remaining
$
$
$
10.0
6.0
6.0
$
$
$
7.7
—
—
The share Repurchase Programs, each of which was effective immediately, permit the Company to effect repur-
chases 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 2014 Repurchase
35
2015 Annual Report
Program may be modified or terminated by the Board of Directors at any time. The 2013 and 2012 Repurchase
Programs have been completed, as described below.
Pursuant to the authorization under the 2014 Repurchase Program, effective December 11, 2015, the Company
entered into a $725 million fixed dollar ASR with Barclays Bank PLC (“Barclays”). Upon payment of the $725 million
purchase price on December 14, 2015, the Company received a number of shares of its common stock equal to
80% of the $725 million notional amount of the ASR or approximately 6.2 million shares. At the conclusion of the
ASR program, the Company may receive additional shares equal to the remaining 20% of the $725 million notional
amount. The initial 6.2 million shares of common stock delivered to the Company by Barclays were placed into treasury
stock in December 2015. The ASR was accounted for as an initial treasury stock transaction for $580 million and a
forward contract for $145 million. The forward contract was classified as an equity instrument and was recorded within
capital surplus on the consolidated balance sheet. On January 28, 2016, the Company received 1.4 million shares of
common stock, representing the remaining 20% of the $725 million notional amount of the ASR, thereby concluding
the ASR. The remaining 1.4 million shares of common stock delivered to the Company by Barclays were placed into
treasury stock in January 2016 and the forward contract was reclassified from capital surplus to treasury stock.
Pursuant to the authorization under the 2013 Repurchase Programs, effective January 2, 2015, the Company
entered into a $2.0 billion fixed dollar ASR agreement with J.P. Morgan Chase Bank (“JP Morgan”). Upon payment of
the $2.0 billion purchase price on January 5, 2015, the Company received a number of shares of its common stock
equal to 80% of the $2.0 billion notional amount of the ASR agreement or approximately 16.8 million shares, which
were placed into treasury stock in January 2015. On May 1, 2015, the Company received approximately 3.1 million
shares of common stock, representing the remaining 20% of the $2.0 billion notional amount of the ASR, thereby
concluding the ASR. The remaining 3.1 million shares of common stock delivered to the Company by JP Morgan
were placed into treasury stock in May 2015. The ASR was accounted for as an initial treasury stock transaction for
$1.6 billion and a forward contract for $0.4 billion. The forward contract was classified as an equity instrument and
was initially recorded within capital surplus on the consolidated balance sheet and was reclassified to treasury stock
upon the settlement of the ASR in May 2015.
Pursuant to the authorization under the 2012 Repurchase Program, effective October 1, 2013, the Company entered
into a $1.7 billion fixed dollar ASR agreement with Barclays. Upon payment of the $1.7 billion purchase price on
October 1, 2013, the Company received a number of shares of its common stock equal to 50% of the $1.7 billion
notional amount of the ASR agreement or approximately 14.9 million shares at a price of $56.88 per share. The
Company received approximately 11.7 million shares of common stock on December 30, 2013 at an average
price of $63.83 per share, representing the remaining 50% of the $1.7 billion notional amount of the ASR agreement
and thereby concluding the agreement. The total of 26.6 million shares of common stock delivered to the Company
by Barclays over the term of the October 2013 ASR agreement were placed into treasury stock. The ASR was
accounted for as an initial treasury stock transaction and a forward contract. The forward contract was classified
as an equity instrument.
Each of the ASR transactions described above, the initial repurchase of the shares and delivery of the remainder of
the shares to conclude each ASR, 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.
During the year ended December 31, 2015, the Company repurchased an aggregate of 48.0 million shares of
common stock for approximately $5.0 billion under the 2013 and 2014 Repurchase Programs. As of December 31,
2015, there remained an aggregate of approximately $7.7 billion available for future repurchases under the 2014
Repurchase Program and the 2013 Repurchase Program was complete.
Short-term borrowings We did not have any commercial paper outstanding as of December 31, 2015. In connec-
tion with our commercial paper program, we maintain a $1.00 billion, five-year unsecured back-up credit facility,
which expires on May 23, 2018, a $1.25 billion, five-year unsecured back-up credit facility, which expires on July 24,
2019, and a $1.25 billion, five-year unsecured back-up credit facility, which expires on July 1, 2020. The credit
36
Management’s Discussion and Analysis of Financial Condition and Results of OperationsCVS Health 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 December 31, 2015, there were no borrowings outstanding under the back-up credit facilities.
On May 20, 2015, in connection with the acquisition of Omnicare, the Company entered into a $13 billion unsecured
bridge loan facility. The Company paid approximately $52 million in fees in connection with the facility. The fees were
capitalized and amortized as interest expense over the period the bridge facility was outstanding. The bridge loan
facility expired on July 20, 2015 upon the Company’s issuance of unsecured senior notes with an aggregate
principal of $15 billion as discussed below. The bridge loan facility fees were fully amortized during the year ended
December 31, 2015.
Long-term borrowings On July 20, 2015, the Company issued an aggregate of $2.25 billion of 1.9% unsecured
senior notes due 2018 (“2018 Notes”), an aggregate of $2.75 billion of 2.8% unsecured senior notes due 2020
(“2020 Notes”), an aggregate of $1.5 billion of 3.5% unsecured senior notes due 2022 (“2022 Notes”), an aggregate
of $3 billion of 3.875% unsecured senior notes due 2025 (“2025 Notes”), an aggregate of $2 billion of 4.875%
unsecured senior notes due 2035 (“2035 Notes”), and an aggregate of $3.5 billion of 5.125% unsecured senior notes
due 2045 (“2045 Notes” and, together with the 2018 Notes, 2020 Notes, 2022 Notes, 2025 Notes and 2035 Notes,
the “Notes”) for total proceeds of approximately $14.8 billion, net of discounts and underwriting fees. The Notes pay
interest semi-annually and contain redemption terms which allow or require the Company to redeem the Notes at a
defined redemption price plus accrued and unpaid interest at the redemption date. The net proceeds of the Notes
were used to fund the Omnicare acquisition and the acquisition of the pharmacies and clinics of Target. The remain-
ing proceeds were used for general corporate purposes.
Upon the closing of the Omnicare acquisition in August 2015, the Company assumed the long-term debt of Omnicare
that had a fair value of approximately $3.1 billion, $2.0 billion of which was previously convertible into Omnicare
shares that holders were able to redeem subsequent to the acquisition. During the period from August 18, 2015 to
December 31, 2015, all but $5 million of the $2.0 billion of previously convertible debt was redeemed and repaid and
approximately $0.4 billion in Omnicare term debt assumed was repaid for total repayments of Omnicare debt of
approximately $2.4 billion in 2015.
The remaining principal of the Omnicare debt assumed was comprised of senior unsecured notes with an aggregate
principal amount of $700 million ($400 million of 4.75% senior notes due 2022 and $300 million of 5% senior notes
due 2024). In September 2015, the Company commenced exchange offers for the 4.75% senior notes due 2022 and
the 5% senior notes due 2024 to exchange all validly tendered and accepted notes issued by Omnicare for notes to
be issued by the Company. This offer expired on October 20, 2015 and the aggregate principal amounts below of
each of the Omnicare notes were validly tendered and exchanged for notes issued by the Company.
Interest Rate and Maturity
4.75% senior notes due 2022
5% senior notes due 2024
Total senior notes issued under exchange transaction
Aggregate Principal
Amount (In Millions)
Percentage of Total
Outstanding Principal
Amount Exchanged
$
$
388
296
684
96.8 %
98.8 %
The Company recorded this exchange transaction as a modification of the original debt instruments. As such, no
gain or loss on extinguishment was recognized in the Company’s consolidated income statement as a result of this
exchange transaction and issuance costs were expensed as incurred.
On August 7, 2014, the Company issued $850 million of 2.25% unsecured senior notes due August 12, 2019
and $650 million of 3.375% unsecured senior notes due August 12, 2024 (collectively, the “2014 Notes”) for total
proceeds of approximately $1.5 billion, net of discounts and underwriting fees. The 2014 Notes pay interest
37
2015 Annual Report
semi-annually and may be redeemed, in whole at any time, or in part from time to time, at the Company’s option
at a defined redemption price plus accrued and unpaid interest to the redemption date. The net proceeds of the
2014 Notes were used for general corporate purposes and to repay certain corporate debt.
On August 7, 2014, the Company announced tender offers for any and all of the 6.25% Senior Notes due 2027, and
up to a maximum amount of the 6.125% Senior Notes due 2039, the 5.75% Senior Notes due 2041 and the 5.75%
Senior Notes due 2017, for up to an aggregate principal amount of $1.5 billion. On August 21, 2014, the Company
increased the aggregate principal amount of the tender offers to $2.0 billion and completed the repurchase for the
maximum amount on September 4, 2014. The Company paid a premium of $490 million in excess of the debt
principal in connection with the tender offers, wrote off $26 million of unamortized deferred financing costs and
incurred $5 million in fees, for a total loss on the early extinguishment of debt of $521 million. The loss was recorded
in income from continuing operations in the condensed consolidated statement of income for the year ended
December 31, 2014.
During the year ended December 31, 2014, the Company repurchased the remaining $41 million of outstanding
Enhanced Capital Advantage Preferred Securities (“ECAPS”) at par. The fees and write-off of deferred issuance
costs associated with the early extinguishment of the ECAPS were immaterial.
On December 2, 2013, the Company issued $750 million of 1.2% unsecured senior notes due December 5, 2016;
$1.25 billion of 2.25% unsecured senior notes due December 5, 2018; $1.25 billion of 4% unsecured senior notes
due December 5, 2023; and $750 million of 5.3% unsecured senior notes due December 5, 2043 (the “2013 Notes”)
for total proceeds of approximately $4.0 billion, net of discounts and underwriting fees. The 2013 Notes pay interest
semi-annually and may be redeemed, in whole at any time, or in part from time to time, at the Company’s option at
a defined redemption price plus accrued and unpaid interest to the redemption date. The net proceeds of the 2013
Notes were used to repay commercial paper outstanding at the time of issuance and to fund the acquisition of
Coram in January 2014. The remainder was used for general corporate purposes.
Our backup credit facilities and unsecured senior notes (see Note 6, “Borrowings and Credit Agreements” to the
consolidated financial statements) contain customary restrictive financial and operating covenants.
These covenants do not include a requirement for the acceleration of our debt maturities in the event of a down-
grade in our credit rating. We do not believe the restrictions contained in these covenants materially affect our
financial or operating flexibility.
As of December 31, 2015 and 2014, we had no outstanding derivative financial instruments.
Debt Ratings As of December 31, 2015, our long-term debt was rated “Baa1” by Moody’s with a stable outlook and
“BBB+” by Standard & Poor’s with a stable outlook, and our commercial paper program was rated “P-2” by Moody’s
and “A-2” by Standard & Poor’s. In assessing our credit strength, we believe that both Moody’s and Standard &
Poor’s considered, among other things, our capital structure and financial policies as well as our consolidated balance
sheet, our historical acquisition activity and other financial information. Although we currently believe our long-term
debt ratings will remain investment grade, we cannot guarantee the future actions of Moody’s and/or Standard &
Poor’s. Our debt ratings have a direct impact on our future borrowing costs, access to capital markets and new
store operating lease costs.
Quarterly Dividend Increase In December 2015, our Board of Directors authorized a 21% increase in our quarterly
common stock dividend to $0.425 per share effective in 2016. This increase equates to an annual dividend rate of
$1.70 per share. In December 2014, our Board of Directors authorized a 27% increase in our quarterly common
stock dividend to $0.35 per share. This increase equated to an annual dividend rate of $1.40 per share. In December
2013, our Board of directors authorized a 22% increase in our quarterly common stock dividend to $0.275 per
share. This increase equated to an annual dividend rate of $1.10 per share.
38
Management’s Discussion and Analysis of Financial Condition and Results of OperationsCVS Health Off-Balance Sheet Arrangements
In connection with executing operating leases, we provide a guarantee of the lease payments. We also finance a
portion of our new store development through sale-leaseback transactions, which involve selling stores to unrelated
parties and then leasing the stores back under leases that generally qualify and are accounted for as operating
leases. We do not have any retained or contingent interests in the stores, and we do not provide any guarantees,
other than a guarantee of the lease payments, in connection with the transactions. In accordance with generally
accepted accounting principles, our operating leases are not reflected on our consolidated balance sheets.
Between 1991 and 1997, we sold or spun off a number of subsidiaries, including Bob’s Stores, Linens ‘n Things,
Marshalls, Kay-Bee Toys, This End Up and Footstar. In many cases, when a former subsidiary leased a store,
the Company provided a guarantee of the store’s lease obligations. When the subsidiaries were disposed of, 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
were to become insolvent and failed to make the required payments under a store lease, the Company could be
required to satisfy these obligations.
As of December 31, 2015, we guaranteed approximately 72 such store leases (excluding the lease guarantees related
to Linens ‘n Things), with the maximum remaining lease term extending through 2026. Management believes the
ultimate disposition of any of the remaining lease guarantees will not have a material adverse effect on the Company’s
consolidated financial condition or future cash flows. Please see “Income (loss) from discontinued operations”
previously in this document for further information regarding our guarantee of certain Linens ‘n Things’ store
lease obligations.
Below is a summary of our significant contractual obligations as of December 31, 2015:
I N M I L L I O N S
Operating leases
Lease obligations from discontinued operations
Capital lease obligations
Contractual lease obligations with Target (1)
Long-term debt
Interest payments on long-term debt (2)
Other long-term liabilities reflected in our
consolidated balance sheet
PAY ME NT S DU E B Y PE R IO D
Total
2016
2017 to
2018
2019 to
2020
Thereafter
$ 27,681
$
2,405
$ 4,518
$
3,921
$ 16,837
35
1,324
1,697
26,819
14,201
14
52
—
1,179
1,079
13
164
—
4,588
1,982
5
138
—
3
970
1,697
4,444
1,698
16,608
9,442
829
42
432
102
253
$ 72,586
$
4,771
$ 11,697
$ 10,308
$ 45,810
(1) The Company leases pharmacy and clinic space from Target. See Note 7, “Leases” to the consolidated financial statements for additional
information regarding the lease arrangements with Target. Amounts related to the operating and capital leases with Target are reflected within the
operating leases and capital lease obligations above. Amounts due in excess of the remaining estimated economic lives of the buildings are
reflected herein assuming equivalent stores continue to operate through the term of the arrangements.
(2) Interest payments on long-term debt are calculated on outstanding balances and interest rates in effect on December 31, 2015.
39
2015 Annual Report
Critical Accounting Policies
We prepare our consolidated financial statements in conformity with generally accepted accounting principles,
which require management to make certain estimates and apply judgment. We base our estimates and judgments
on historical experience, current trends and other factors that management believes to be important at the time
the consolidated financial statements are prepared. On a regular basis, we review our accounting policies and how
they are applied and disclosed in our consolidated financial statements. While we believe the historical experience,
current trends and other factors considered, support the preparation of our consolidated financial statements in
conformity with generally accepted accounting principles, actual results could differ from our estimates, and such
differences could be material.
Our significant accounting policies are discussed in Note 1 to our consolidated financial statements. We believe
the following accounting policies include a higher degree of judgment and/or complexity and, thus, are considered
to be critical accounting policies. We have discussed the development and selection of our critical accounting
policies with the Audit Committee of our Board of Directors and the Audit Committee has reviewed our disclosures
relating to them.
Revenue Recognition
Pharmacy Services Segment
Our Pharmacy Services Segment sells prescription drugs directly through our mail service dispensing pharmacies
and indirectly through our retail pharmacy network. We recognize revenues in our Pharmacy Services Segment from
prescription drugs sold by our mail service dispensing pharmacies and under retail pharmacy network contracts
where we are the principal using the gross method at the contract prices negotiated with our clients. Net revenue
from our Pharmacy Services Segment includes: (i) the portion of the price the client pays directly to us, net of any
volume-related or other discounts paid back to the client, (ii) the price paid to us (“Mail Co-Payments”) or a third
party pharmacy in our retail pharmacy network (“Retail Co-Payments”) by individuals included in our clients’ benefit
plans, and (iii) administrative fees for retail pharmacy network contracts where we are not the principal. Sales taxes
are not included in revenue.
We recognize revenue in the Pharmacy Services Segment when: (i) persuasive evidence of an arrangement exists,
(ii) delivery has occurred or services have been rendered, (iii) the seller’s price to the buyer is fixed or determinable,
and (iv) collectability is reasonably assured. The following revenue recognition policies have been established for the
Pharmacy Services Segment.
• Revenues generated from prescription drugs sold by mail service dispensing pharmacies are recognized when the
prescription is delivered. At the time of delivery, the Pharmacy Services Segment has performed substantially all
of its obligations under its client contracts and does not experience a significant level of returns or reshipments.
• Revenues generated from prescription drugs sold by third party pharmacies in the Pharmacy Services Segment’s
retail pharmacy network and associated administrative fees are recognized at the Pharmacy Services Segment’s
point-of-sale, which is when the claim is adjudicated by the Pharmacy Services Segment’s online claims process-
ing system.
We determine whether we are the principal or agent for our retail pharmacy network transactions on a contract by
contract basis. In the majority of our contracts, we have determined we are the principal due to us: (i) being the
primary obligor in the arrangement, (ii) having latitude in establishing the price, changing the product or performing
part of the service, (iii) having discretion in supplier selection, (iv) having involvement in the determination of product
or service specifications, and (v) having credit risk. Our obligations under our client contracts for which revenues
are reported using the gross method are separate and distinct from our obligations to the third party pharmacies
included in our retail pharmacy network contracts. Pursuant to these contracts, we are contractually required to
40
Management’s Discussion and Analysis of Financial Condition and Results of OperationsCVS Health pay the third party pharmacies in our retail pharmacy network for products sold, regardless of whether we are paid
by our clients. Our responsibilities under these client contracts typically include validating eligibility and coverage
levels, communicating the prescription price and the co-payments due to the third party retail pharmacy, identifying
possible adverse drug interactions for the pharmacist to address with the physician prior to dispensing, suggesting
clinically appropriate generic alternatives where appropriate and approving the prescription for dispensing. Although
we do not have credit risk with respect to Retail Co-Payments or inventory risk related to retail network claims, we
believe that all of the other indicators of gross revenue reporting are present. For contracts under which we act as
an agent, we record revenues using the net method.
We deduct from our revenues the manufacturers’ rebates that are earned by our clients based on their members’
utilization of brand-name formulary drugs. We estimate these rebates at period-end based on actual and estimated
claims data and our estimates of the manufacturers’ rebates earned by our clients. We base our estimates on the
best available data at period-end and recent history for the various factors that can affect the amount of rebates due
to the client. We adjust our rebates payable to clients to the actual amounts paid when these rebates are paid or as
significant events occur. We record any cumulative effect of these adjustments against revenues as identified, and
adjust our estimates prospectively to consider recurring matters. Adjustments generally result from contract changes
with our clients or manufacturers, differences between the estimated and actual product mix subject to rebates or
whether the product was included in the applicable formulary. We also deduct from our revenues pricing guarantees
and guarantees regarding the level of service we will provide to the client or member as well as other payments
made to our clients. Because the inputs to most of these estimates are not subject to a high degree of subjectivity or
volatility, the effect of adjustments between estimated and actual amounts have not been material to our results of
operations or financial position.
We participate in the federal government’s Medicare Part D program as a PDP through our SilverScript Insurance
Company subsidiary. Our net revenues include insurance premiums earned by the PDP, which are determined
based on the PDP’s annual bid and related contractual arrangements with CMS. The insurance premiums include a
beneficiary premium, which is the responsibility of the PDP member, but which is subsidized by CMS in the case of
low-income members, and a direct premium paid by CMS. Premiums collected in advance are initially deferred as
accrued expenses and are then recognized ratably as revenue over the period in which members are entitled to
receive benefits.
In addition to these premiums, our net revenues include co-payments, coverage gap benefits, deductibles and
co-insurance (collectively, the “Member Co-Payments”) related to PDP members’ actual prescription claims. In
certain cases, CMS subsidizes a portion of these Member Co-Payments and we are paid an estimated prospective
Member Co-Payment subsidy, each month. The prospective Member Co-Payment subsidy amounts received
from CMS are also included in our net revenues. We assume no risk for these amounts, which represented 6.3%,
6.4% and 7.0% of consolidated net revenues in 2015, 2014 and 2013, respectively. If the prospective Member
Co-Payment subsidies received differ from the amounts based on actual prescription claims, the difference is
recorded in either accounts receivable or accrued expenses. We account for fully insured CMS obligations and
Member Co-Payments (including the amounts subsidized by CMS) using the gross method consistent with our
revenue recognition policies for Mail Co-Payments and Retail Co-Payments. We have recorded estimates of various
assets and liabilities arising from our participation in the Medicare Part D program based on information in our
claims management and enrollment systems. Significant estimates arising from our participation in the Medicare
Part D program include: (i) estimates of low-income cost subsidy, reinsurance amounts and coverage gap discount
amounts ultimately payable to or receivable from CMS based on a detailed claims reconciliation, (ii) an estimate
of amounts payable to CMS under a risk-sharing feature of the Medicare Part D program design, referred to as the
risk corridor and (iii) estimates for claims that have been reported and are in the process of being paid or contested
and for our estimate of claims that have been incurred but have not yet been reported. Actual amounts of Medicare
Part D-related assets and liabilities could differ significantly from amounts recorded. Historically, the effect of these
adjustments has not been material to our results of operations or financial position.
41
2015 Annual Report Retail/LTC Segment
Retail Pharmacy We recognize revenue from the sale of front store merchandise at the time the merchandise is
purchased by the retail customer and recognize revenue from the sale of prescription drugs when the prescription
is picked up by the customer. Customer returns are not material. Sales taxes are not included in revenue.
Long-term Care We recognize revenue when products are delivered or services are rendered or provided to
our customers, prices are fixed and determinable, and collection is reasonably assured. A significant portion of
our revenues from sales of pharmaceutical and medical products are reimbursed by the federal Medicare Part D
program and, to a lesser extent, state Medicaid programs. Payments for services rendered to patients covered by
these programs are generally less than billed charges. We monitor our revenues and receivables from these reim-
bursement sources, as well as other third party insurance payors, and record an estimated contractual allowances
for sales and receivable balances at the revenue recognition date, to properly account for anticipated differences
between billed and reimbursed amounts. Accordingly, the total net sales and receivables reported in our consoli-
dated financial statements are recorded at the amount expected to be ultimately received from these payors. Since
billing functions for a portion of our revenue systems are largely computerized, enabling online adjudication at the
time of sale to record net revenues, our exposure in connection with estimating contractual allowance adjustments
is limited primarily to unbilled and initially rejected Medicare, Medicaid and third party claims (typically approved
for reimbursement once additional information is provided to the payor). For the remaining portion of our revenue
systems, the contractual allowance is estimated for all billed, unbilled and initially rejected Medicare, Medicaid
and third party claims. We evaluate several criteria in developing the estimated contractual allowances on a monthly
basis, including historical trends based on actual claims paid, current contract and reimbursement terms, and
changes in customer base and payor/product mix. Contractual allowance estimates are adjusted to actual amounts
as cash is received and claims are settled, and the aggregate impact of these resulting adjustments was not
significant to our results of operations. Further, we do not expect the impact of changes in estimates related to
unsettled contractual allowance amounts from Medicare, Medicaid and third party payors as of December 31, 2015
to be significant to our future consolidated results of operation, financial position and cash flows.
Patient co-payments associated with Medicare Part D, certain state Medicaid programs, Medicare Part B and
certain third party payors are typically not collected at the time products are delivered or services are rendered, but
are billed to the individuals as part of our normal billing procedures and subject to our normal accounts receivable
collections procedures.
Health Care Clinics for services provided by our health care clinics, revenue recognition occurs for completed
services provided to patients, with adjustments taken for third party payor contractual obligations and patient direct
bill historical collection rates.
Loyalty Program our customer loyalty program, ExtraCare®, is comprised of two components, ExtraSavingsTM
and ExtraBucks® Rewards. ExtraSavings coupons redeemed by customers are recorded as a reduction of revenues
when redeemed. ExtraBucks Rewards are accrued as a charge to cost of revenues when earned, net of estimated
breakage. We determine breakage based on our historical redemption patterns.
Allowances for Doubtful Accounts
Accounts receivable primarily includes amounts due from third party providers (e.g., pharmacy benefit managers,
insurance companies, governmental agencies and long-term care facilities), clients, members and private pay
customers, as well as vendors and manufacturers. We provide a reserve for accounts receivable considered to
be at increased risk of becoming uncollectible by establishing an allowance to reduce the carrying value of such
receivables to their estimated net realizable value. We establish this allowance for doubtful accounts and consider
such factors as historical collection experience, (i.e., payment history and credit losses) and creditworthiness,
42
Management’s Discussion and Analysis of Financial Condition and Results of OperationsCVS Health specifically identified credit risks, aging of accounts receivable by payor category, current and expected economic
conditions and other relevant factors. We regularly review our allowance for doubtful accounts for appropriateness.
Judgment is used to assess the collectability of account balances and the economic ability of a customer to pay.
Our allowance for doubtful accounts as of December 31, 2015 was $161 million, compared with $256 million as
of December 31, 2014. Our allowance for doubtful accounts represented 1.3% and 2.6% of gross receivables (net
of contractual allowance adjustments) as of December 31, 2015 and 2014, respectively. Unforeseen future develop-
ments could lead to changes in our provision for doubtful accounts levels and future allowance for doubtful accounts
percentages. For example, a one percentage point increase in the allowance for doubtful accounts as a percentage
of gross receivables as of December 31, 2015 would result in an increase to the provision of doubtful accounts of
approximately $120 million.
Given our experience, we believe that our aggregate reserves for potential losses are adequate, but if any of our
larger customers were to unexpectedly default on their obligations, our overall allowances for doubtful accounts may
prove to be inadequate. In particular, if economic conditions worsen, the payor mix shifts significantly or reimburse-
ment rates are adversely affected, we may adjust our allowance for doubtful accounts accordingly, and our accounts
receivable collections, cash flows, financial position and results of operations could be adversely affected.
Vendor Allowances and Purchase Discounts
Pharmacy Services Segment
Our Pharmacy Services Segment receives purchase discounts on products purchased. Contractual arrangements
with vendors, including manufacturers, wholesalers and retail pharmacies, normally provide for the Pharmacy
Services Segment to receive purchase discounts from established list prices in one, or a combination, of the following
forms: (i) a direct discount at the time of purchase, (ii) a discount for the prompt payment of invoices or (iii) when
products are purchased indirectly from a manufacturer (e.g., through a wholesaler or retail pharmacy), a discount (or
rebate) paid subsequent to dispensing. These rebates are recognized when prescriptions are dispensed and are
generally calculated and billed to manufacturers within 30 days of the end of each completed quarter. Historically,
the effect of adjustments resulting from the reconciliation of rebates recognized to the amounts billed and collected
has not been material to the results of operations. We account for the effect of any such differences as a change in
accounting estimate in the period the reconciliation is completed. The Pharmacy Services Segment also receives
additional discounts under its wholesaler contracts if it exceeds contractually defined annual purchase volumes.
In addition, the Pharmacy Services Segment receives fees from pharmaceutical manufacturers for administrative
services. Purchase discounts and administrative service fees are recorded as a reduction of “Cost of revenues”.
Retail/LTC Segment
Vendor allowances received by the Retail/LTC Segment reduce the carrying cost of inventory and are recognized
in cost of revenues when the related inventory is sold, unless they are specifically identified as a reimbursement
of incremental costs for promotional programs and/or other services provided. Amounts that are directly linked to
advertising commitments are recognized as a reduction of advertising expense (included in operating expenses)
when the related advertising commitment is satisfied. Any such allowances received in excess of the actual cost
incurred also reduce the carrying cost of inventory. The total value of any upfront payments received from vendors
that are linked to purchase commitments is initially deferred. The deferred amounts are then amortized to reduce
cost of revenues over the life of the contract based upon purchase volume. The total value of any upfront payments
received from vendors that are not linked to purchase commitments is also initially deferred. The deferred amounts
are then amortized to reduce cost of revenues on a straight-line basis over the life of the related contract.
We have not made any material changes in the way we account for vendor allowances and purchase discounts
during the past three years.
43
2015 Annual Report Inventory
Effective January 1, 2015, the Company changed its methods of accounting for “front store” inventories in the
Retail/LTC Segment. Prior to 2015, the Company valued front store inventories at the lower of cost or market on a
first-in, first-out (“FIFO”) basis in retail stores using the retail inventory method and in distribution centers using the
FIFO cost method. Effective January 1, 2015, all front store inventories in the Retail/LTC Segment have been valued
at the lower of cost or market using the weighted average cost method. These changes affected approximately 36%
of consolidated inventories.
These changes were made primarily to provide the Company with better information to manage its retail front store
operations and to bring all of the Company’s inventories to a common inventory valuation methodology. The
Company believes the weighted average cost method is preferable to the retail inventory method and the FIFO cost
method because it results in greater precision in the determination of cost of revenues and inventories at the stock
keeping unit (“SKU”) level and results in a consistent inventory valuation method for all of the Company’s inventories
as all of the Company’s remaining inventories, which consist of prescription drugs, were already being valued using
the weighted average cost method.
The Company recorded the cumulative effect of these changes in accounting principle as of January 1, 2015. The
Company determined that retrospective application for periods prior to 2015 is impracticable, as the period-specific
information necessary to value front store inventories in the Retail/LTC Segment under the weighted average cost
method is unavailable. The Company implemented a new perpetual inventory system to manage front store inven-
tory at the SKU level and valued front store inventory as of January 1, 2015 and calculated the cumulative impact.
The effect of these changes in accounting principle as of January 1, 2015, was a decrease in inventories of $7 million,
an increase in current deferred income tax assets of $3 million and a decrease in retained earnings of $4 million.
All prescription drug inventories in the Retail/LTC Segment have been valued at the lower of cost or market using the
weighted average cost method. The weighted average cost method is used to determine cost of sales and inventory
in our mail service and specialty pharmacies in our Pharmacy Services Segment.
We reduce the value of our ending inventory for estimated inventory losses that have occurred during the interim
period between physical inventory counts. Physical inventory counts are taken on a regular basis in each store and
a continuous cycle count process is the primary procedure used to validate the inventory balances on hand in each
distribution center and mail facility to ensure that the amounts reflected in the accompanying consolidated financial
statements are properly stated. The accounting for inventory contains uncertainty since we must use judgment
to estimate the inventory losses that have occurred during the interim period between physical inventory counts.
When estimating these losses, we consider a number of factors, which include, but are not limited to, historical
physical inventory results on a location-by-location basis and current physical inventory loss trends.
Our total reserve for estimated inventory losses covered by this critical accounting policy was $225 million as of
December 31, 2015. Although we believe we have sufficient current and historical information available to us to
record reasonable estimates for estimated inventory losses, it is possible that actual results could differ. In order to
help you assess the aggregate risk, if any, associated with the uncertainties discussed above, a ten percent (10%)
pre-tax change in our estimated inventory losses, which we believe is a reasonably likely change, would increase
or decrease our total reserve for estimated inventory losses by about $23 million as of December 31, 2015.
Although we believe that the estimates discussed above are reasonable and the related calculations conform to
generally accepted accounting principles, actual results could differ from our estimates, and such differences could
be material.
44
Management’s Discussion and Analysis of Financial Condition and Results of OperationsCVS Health Goodwill and Intangible Assets
Identifiable intangible assets consist primarily of trademarks, client contracts and relationships, favorable leases
and covenants not to compete. These intangible assets arise primarily from the determination of their respective fair
market values at the date of acquisition.
Amounts assigned to identifiable intangible assets, and their related useful lives, are derived from established
valuation techniques and management estimates. Goodwill represents the excess of amounts paid for acquisitions
over the fair value of the net identifiable assets acquired.
We evaluate the recoverability of certain long-lived assets, including intangible assets with finite lives, but excluding
goodwill and intangible assets with indefinite lives which are tested for impairment using separate tests, whenever
events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. We group
and evaluate these long-lived assets for impairment at the lowest level at which individual cash flows can be
identified. When evaluating these long-lived assets for potential impairment, we first compare the carrying amount
of the asset group to the asset group’s estimated future cash flows (undiscounted and without interest charges). If
the estimated future cash flows are less than the carrying amount of the asset group, an impairment loss calculation
is prepared. The impairment loss calculation compares the carrying amount of the asset group to the asset group’s
estimated future cash flows (discounted and with interest charges). If required, an impairment loss is recorded for
the portion of the asset group’s carrying value that exceeds the asset group’s estimated future cash flows (dis-
counted and with interest charges). Our long-lived asset impairment loss calculation contains uncertainty since we
must use judgment to estimate each asset group’s future sales, profitability and cash flows. When preparing these
estimates, we consider historical results and current operating trends and our consolidated sales, profitability and
cash flow results and forecasts.
These estimates can be affected by a number of factors including, but not limited to, general economic and regula-
tory conditions, efforts of third party organizations to reduce their prescription drug costs and/or increased member
co-payments, the continued efforts of competitors to gain market share and consumer spending patterns.
Goodwill and indefinitely-lived intangible assets are subject to annual impairment reviews, or more frequent reviews
if events or circumstances indicate that the carrying value may not be recoverable.
Indefinitely-lived intangible assets are tested by comparing the estimated fair value of the asset to its carrying value.
If the carrying value of the asset exceeds its estimated fair value, an impairment loss is recognized and the asset is
written down to its estimated fair value.
Our indefinitely-lived intangible asset impairment loss calculation contains uncertainty since we must use judgment
to estimate the fair value based on the assumption that in lieu of ownership of an intangible asset, the Company
would be willing to pay a royalty in order to utilize the benefits of the asset. Value is estimated by discounting the
hypothetical royalty payments to their present value over the estimated economic life of the asset. These estimates
can be affected by a number of factors including, but not limited to, general economic conditions, availability of
market information as well as the profitability of the Company.
Goodwill is tested for impairment on a reporting unit basis using a two-step process. The first step of the impairment
test is to identify potential impairment by comparing the reporting unit’s fair value with its net book value (or carrying
amount), including goodwill. The fair value of our reporting units is estimated using a combination of the discounted
cash flow valuation model and comparable market transaction models. If the fair value of the reporting unit exceeds
its carrying amount, the reporting unit’s goodwill is not considered to be impaired and the second step of the
impairment test is not performed. If the carrying amount of the reporting unit exceeds its fair value, the second
step of the impairment test is performed to measure the amount of impairment loss, if any. The second step of the
impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of the
goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of the goodwill, an
impairment loss is recognized in an amount equal to that excess.
45
2015 Annual Report The determination of the fair value of our reporting units requires the Company to make significant assumptions
and estimates. These assumptions and estimates primarily include, but are not limited to, the selection of appropri-
ate peer group companies; control premiums and valuation multiples appropriate for acquisitions in the industries
in which the Company competes; discount rates, terminal growth rates; and forecasts of revenue, operating profit,
depreciation and amortization, capital expenditures and future working capital requirements. When determining
these assumptions and preparing these estimates, we consider each reporting unit’s historical results and current
operating trends and our consolidated revenues, profitability and cash flow results, forecasts and industry trends.
Our estimates can be affected by a number of factors including, but not limited to, general economic and regulatory
conditions, our market capitalization, efforts of third party organizations to reduce their prescription drug costs and/
or increase member co-payments, the continued efforts of competitors to gain market share and consumer spend-
ing patterns.
The carrying value of goodwill and other intangible assets covered by this critical accounting policy was $38.1 billion
and $13.9 billion as of December 31, 2015, respectively. We did not record any impairment losses related to goodwill
or other intangible assets during 2015, 2014 or 2013. During the third quarter of 2015, we performed our required
annual impairment tests of goodwill and indefinitely-lived trademarks. The results of the impairment tests concluded
that there was no impairment of goodwill or trademarks. The goodwill impairment test resulted in the fair value of our
reporting units exceeding their carrying values by a significant margin.
Although we believe we have sufficient current and historical information available to us to test for impairment, it is
possible that actual results could differ from the estimates used in our impairment tests.
We have not made any material changes in the methodologies utilized to test the carrying values of goodwill and
intangible assets for impairment during the past three years.
Closed Store Lease Liability
We account for closed store lease termination costs when a leased store is closed. When a leased store is closed,
we record a liability for the estimated present value of the remaining obligation under the noncancelable lease, which
includes future real estate taxes, common area maintenance and other charges, if applicable. The liability is reduced
by estimated future sublease income.
The initial calculation and subsequent evaluations of our closed store lease liability contain uncertainty since we
must use judgment to estimate the timing and duration of future vacancy periods, the amount and timing of future
lump sum settlement payments and the amount and timing of potential future sublease income. When estimating
these potential termination costs and their related timing, we consider a number of factors, which include, but are
not limited to, historical settlement experience, the owner of the property, the location and condition of the property,
the terms of the underlying lease, the specific marketplace demand and general economic conditions.
Our total closed store lease liability covered by this critical accounting policy was $221 million as of December 31,
2015. This amount is net of $115 million of estimated sublease income that is subject to the uncertainties discussed
above. Although we believe we have sufficient current and historical information available to us to record reasonable
estimates for sublease income, it is possible that actual results could differ.
In order to help you assess the risk, if any, associated with the uncertainties discussed above, a ten percent (10%)
pre-tax change in our estimated sublease income, which we believe is a reasonably likely change, would increase or
decrease our total closed store lease liability by about $12 million as of December 31, 2015.
We have not made any material changes in the reserve methodology used to record closed store lease reserves
during the past three years.
46
Management’s Discussion and Analysis of Financial Condition and Results of OperationsCVS Health Self-Insurance Liabilities
We are self-insured for certain losses related to general liability, workers’ compensation and auto liability, although
we maintain stop loss coverage with third party insurers to limit our total liability exposure. We are also self-insured
for certain losses related to health and medical liabilities.
The estimate of our self-insurance liability contains uncertainty since we must use judgment to estimate the ultimate
cost that will be incurred to settle reported claims and unreported claims for incidents incurred but not reported as
of the balance sheet date. When estimating our self-insurance liability, we consider a number of factors, which
include, but are not limited to, historical claim experience, demographic factors, severity factors and other standard
insurance industry actuarial assumptions. On a quarterly basis, we review our self-insurance liability to determine
if it is adequate as it relates to our general liability, workers’ compensation and auto liability. Similar reviews are
conducted semi-annually to determine if our self-insurance liability is adequate for our health and medical liability.
Our total self-insurance liability covered by this critical accounting policy was $660 million as of December 31, 2015.
Although we believe we have sufficient current and historical information available to us to record reasonable
estimates for our self-insurance liability, it is possible that actual results could differ. In order to help you assess the
risk, if any, associated with the uncertainties discussed above, a ten percent (10%) pre-tax change in our estimate
for our self-insurance liability, which we believe is a reasonably likely change, would increase or decrease our
self-insurance liability by about $66 million as of December 31, 2015.
We have not made any material changes in the accounting methodology used to establish our self-insurance liability
during the past three years.
Income Taxes
Income taxes are accounted for using the asset and liability method. Deferred tax liabilities or assets are established
for temporary differences between financial and tax reporting bases and are subsequently adjusted to reflect
changes in enacted tax rates expected to be in effect when the temporary differences reverse. The deferred tax
assets are reduced, if necessary, by a valuation allowance to the extent future realization of those tax benefits is
uncertain.
Significant judgment is required in determining the provision for income taxes and the related taxes payable and
deferred tax assets and liabilities since, in the ordinary course of business, there are transactions and calculations
where the ultimate tax outcome is uncertain. Additionally, our tax returns are subject to audit by various domestic
and foreign tax authorities that could result in material adjustments or differing interpretations of the tax laws.
Although we believe that our estimates are reasonable and are based on the best available information at the time
we prepare the provision, actual results could differ from these estimates resulting in a final tax outcome that may be
materially different from that which is reflected in our consolidated financial statements.
The tax benefit from an uncertain tax position is recognized only if it is more likely than not that the tax position will
be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits
recognized in the consolidated financial statements from such positions are then measured based on the largest
benefit that has a greater than 50% likelihood of being realized upon settlement. Interest and/or penalties related to
uncertain tax positions are recognized in income tax expense. Significant judgment is required in determining our
uncertain tax positions. We have established accruals for uncertain tax positions using our best judgment and adjust
these accruals, as warranted, due to changing facts and circumstances.
47
2015 Annual Report Proposed Lease Accounting Standard Update
In May 2013, the Financial Accounting Standards Board issued a revised proposed accounting standard update
on lease accounting that will require entities to recognize assets and liabilities arising from lease contracts on the
balance sheet. The proposed accounting standard update states that lessees and lessors should apply a “right-of-
use model” in accounting for all leases. Under the proposed model, lessees would recognize an asset for the right to
use the leased asset, and a liability for the obligation to make rental payments over the lease term. The Company
cannot presently determine the potential impact the proposed standard would have on its results of operations.
While the Company believes that the proposed standard, as currently drafted, will likely have a material impact on its
financial position, it will not have a material impact on its liquidity; however, until the proposed standard is finalized,
such evaluation cannot be completed.
See Note 1, “Significant Accounting Policies” to the consolidated financial statements for a description of New
Accounting Pronouncements applicable to the Company.
Cautionary Statement Concerning Forward-Looking Statements
This annual report contains forward-looking statements within the meaning of the federal securities laws. In addition,
the Company and its representatives may, from time to time, make written or verbal forward-looking statements,
including statements contained in the Company’s filings with the U.S. Securities and Exchange Commission (“SEC”)
and in its reports to stockholders, press releases, webcasts, conference calls, meetings and other communications.
Generally, the inclusion of the words “believe,” “expect,” “intend,” “estimate,” “project,” “anticipate,” “will,” “should”
and similar expressions identify statements that constitute forward-looking statements. All statements addressing
operating performance of CVS Health Corporation or any subsidiary, events or developments that the Company
expects or anticipates will occur in the future, including statements relating to corporate strategy; revenue growth;
earnings or earnings per common share growth; adjusted earnings or adjusted earnings per common share growth;
free cash flow; debt ratings; inventory levels; inventory turn and loss rates; store development; relocations and new
market entries; retail pharmacy business, sales trends and operations; PBM business, sales trends and operations;
LTC pharmacy business, sales trends and operations; the Company’s ability to attract or retain customers and
clients; Medicare Part D competitive bidding, enrollment and operations; new product development; and the impact
of industry developments, as well as statements expressing optimism or pessimism about future operating results
or events, are forward-looking statements within the meaning of the federal securities laws.
The forward-looking statements are and will be based upon management’s then-current views and assumptions
regarding future events and operating performance, and are applicable only as of the dates of such statements. The
Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new
information, future events, or otherwise.
By their nature, all forward-looking statements involve risks and uncertainties. Actual results may differ materially
from those contemplated by the forward-looking statements for a number of reasons as described in our SEC
filings, including those set forth in the Risk Factors section within the 2015 Annual Report on Form 10-K, and
including, but not limited to:
• Risks relating to the health of the economy in general and in the markets we serve, which could impact consumer
purchasing power, preferences and/or spending patterns, drug utilization trends, the financial health of our PBM
and LTC clients or other payors doing business with the Company and our ability to secure necessary financing,
suitable store locations and sale-leaseback transactions on acceptable terms.
• Efforts to reduce reimbursement levels and alter health care financing practices, including pressure to reduce
reimbursement levels for generic drugs.
48
Management’s Discussion and Analysis of Financial Condition and Results of OperationsCVS Health • The possibility of PBM and LTC client loss and/or the failure to win new PBM and LTC business, including as
a result of failure to win renewal of expiring contracts, contract termination rights that may permit clients to
terminate a contract prior to expiration and early or periodic renegotiation of pricing by clients prior to expiration
of a contract.
• The possibility of loss of Medicare Part D business and/or failure to obtain new Medicare Part D business, whether
as a result of the annual Medicare Part D competitive bidding process or otherwise.
• Risks related to the frequency and rate of the introduction of generic drugs and brand name prescription products.
• Risks of declining gross margins in the PBM and LTC pharmacy industries attributable to increased competitive
pressures, increased client demand for lower prices, enhanced service offerings and/or higher service levels and
market dynamics and, with respect to the PBM industry, regulatory changes that impact our ability to offer plan
sponsors pricing that includes the use of retail “differential” or “spread.”
• Regulatory changes, business changes and compliance requirements and restrictions that may be imposed by
Centers for Medicare and Medicaid Services (“CMS”), Office of Inspector General or other government agencies
relating to the Company’s participation in Medicare, Medicaid and other federal and state government-funded
programs, including sanctions and remedial actions that may be imposed by CMS on its Medicare Part D business.
• Risks and uncertainties related to the timing and scope of reimbursement from Medicare, Medicaid and other
government-funded programs, including the possible impact of sequestration, the impact of other federal budget,
debt and deficit negotiations and legislation that could delay or reduce reimbursement from such programs and the
impact of any closure, suspension or other changes affecting federal or state government funding or operations.
• Possible changes in industry pricing benchmarks used to establish pricing in many of our PBM and LTC client
contracts, pharmaceutical purchasing arrangements, retail network contracts, specialty payor agreements and
other third party payor contracts.
• A highly competitive business environment, including the uncertain impact of increased consolidation in the PBM
industry, uncertainty concerning the ability of our retail pharmacy business to secure and maintain contractual
relationships with PBMs and other payors on acceptable terms, uncertainty concerning the ability of our PBM
business to secure and maintain competitive access, pricing and other contract terms from retail network pharma-
cies in an environment where some PBM clients are willing to consider adopting narrow or more restricted retail
pharmacy networks.
• The Company’s ability to timely identify or effectively respond to changing consumer preferences and spending
patterns, an inability to expand the products being purchased by our customers, or the failure or inability to obtain
or offer particular categories of products.
• Risks relating to our ability to secure timely and sufficient access to the products we sell from our domestic and/or
international suppliers.
• Reform of the U.S. health care system, including ongoing implementation of ACA, continuing legislative efforts,
regulatory changes and judicial interpretations impacting our health care system and the possibility of shifting
political and legislative priorities related to reform of the health care system in the future.
• Risks relating to any failure to properly maintain our information technology systems, our information security
systems and our infrastructure to support our business and to protect the privacy and security of sensitive
customer and business information.
• Risks related to compliance with a broad and complex regulatory framework, including compliance with new and
existing federal, state and local laws and regulations relating to health care, accounting standards, corporate
securities, tax, environmental and other laws and regulations affecting our business.
49
2015 Annual Report Management’s Discussion and Analysis
of Financial Condition and Results of Operations
• Risks related to litigation, government investigations and other legal proceedings as they relate to our business, the
pharmacy services, retail pharmacy, LTC pharmacy or retail clinic industries or to the health care industry generally.
• The risk that any condition related to the closing of any proposed acquisition may not be satisfied on a timely
basis or at all, including the inability to obtain required regulatory approvals of any proposed acquisition, or on the
terms desired or anticipated; the risk that such approvals may result in the imposition of conditions that could
adversely affect the resulting combined company or the expected benefits of any proposed transaction; and the
risk that the proposed transactions fail to close for any other reason.
• The possibility that the anticipated synergies and other benefits from any acquisition by us will not be realized,
or will not be realized within the expected time periods.
• The risks and uncertainties related to our ability to integrate the operations, products, services and employees
of any entities acquired by us and the effect of the potential disruption of management’s attention from ongoing
business operations due to any pending acquisitions.
• The accessibility or availability of adequate financing on a timely basis and on reasonable terms in connection
with any proposed acquisition.
• Risks related to the outcome of any legal proceedings related to, or involving any entity that is a part of, any
proposed acquisition contemplated by us.
• Other risks and uncertainties detailed from time to time in our filings with the SEC.
The foregoing list is not exhaustive. There can be no assurance that the Company has correctly identified and
appropriately assessed all factors affecting its business. Additional risks and uncertainties not presently known
to the Company or that it currently believes to be immaterial also may adversely impact the Company. Should any
risks and uncertainties develop into actual events, these developments could have a material adverse effect on
the Company’s business, financial condition and results of operations. For these reasons, you are cautioned not
to place undue reliance on the Company’s forward-looking statements.
50
CVS Health Management’s Report on Internal Control
Over Financial Reporting
We are responsible for establishing and maintaining adequate internal control over financial reporting. Our Company’s
internal control over financial reporting includes those policies and procedures that pertain to the Company’s ability
to record, process, summarize and report a system of internal accounting controls and procedures to provide
reasonable assurance, at an appropriate cost/benefit relationship, that the unauthorized acquisition, use or disposi-
tion of assets are prevented or timely detected and that transactions are authorized, recorded and reported properly
to permit the preparation of financial statements in accordance with generally accepted accounting principles
(GAAP) and receipts and expenditures are duly authorized. In order to ensure the Company’s internal control over
financial reporting is effective, management regularly assesses such controls and did so most recently for its
financial reporting as of December 31, 2015.
We conducted an assessment of the effectiveness of our internal controls over financial reporting based on the
criteria set forth in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (2013 Framework). This evaluation included review of the documentation, evaluation
of the design effectiveness and testing of the operating effectiveness of controls. Our system of internal control
over financial reporting is enhanced by periodic reviews by our internal auditors, written policies and procedures
and a written Code of Conduct adopted by our Company’s Board of Directors, applicable to all employees of our
Company. In addition, we have an internal Disclosure Committee, comprised of management from each functional
area within the Company, which performs a separate review of our disclosure controls and procedures. There are
inherent limitations in the effectiveness of any system of internal controls over financial reporting.
Management’s assessment of the effectiveness of our internal control over financial reporting did not include two
acquisitions, Omnicare, Inc. and the pharmacies and clinics of Target Corporation, consummated during fiscal year
2015. Omnicare, Inc. and the Target Corporation pharmacy and clinic businesses are included in the Company’s
2015 consolidated financial statements and represent 18% of total assets as of December 31, 2015 and 2% of net
revenues for the year then ended.
Based on our assessment, we conclude our Company’s internal control over financial reporting is effective and
provides reasonable assurance that assets are safeguarded and that the financial records are reliable for preparing
financial statements as of December 31, 2015.
Ernst & Young LLP, independent registered public accounting firm, is appointed by the Board of Directors and ratified
by our Company’s shareholders. They were engaged to render an opinion regarding the fair presentation of our
consolidated financial statements as well as conducting an audit of internal control over financial reporting. Their
accompanying reports are based upon audits conducted in accordance with the standards of the Public Company
Accounting Oversight Board (United States).
February 9, 2016
51
2015 Annual Report Report of Ernst & Young LLP, Independent Registered
Public Accounting Firm
The Board of Directors and Shareholders of CVS Health Corporation
We have audited CVS Health Corporation’s internal control over financial reporting as of December 31, 2015, based on
criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). CVS Health Corporation’s management is responsible for
maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control
over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting.
Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inade-
quate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s
assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal
controls of Omnicare, Inc. and the pharmacies and clinics of Target Corporation, which are included in the 2015 consoli-
dated financial statements of CVS Health Corporation and constituted 18% of total assets as of December 31, 2015
and 2% of net revenues for the year then ended. Our audit of internal control over financial reporting of CVS Health
Corporation also did not include an evaluation of the internal control over financial reporting of Omnicare, Inc. and the
pharmacies and clinics of Target Corporation.
In our opinion, CVS Health Corporation maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2015, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of CVS Health Corporation as of December 31, 2015 and 2014, and the related
consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three
years in the period ended December 31, 2015 of CVS Health Corporation and our report dated February 9, 2016
expressed an unqualified opinion thereon.
Boston, Massachusetts
February 9, 2016
52
CVS Health
Consolidated Statements of Income
I N M I L L I O N S , E X C E P T P E R S H A R E A M O U N T S
2015
2014
2013
Y EA R EN DED DE C EM BE R 3 1,
$ 153,290
126,762
$
139,367
$
126,761
114,000
102,978
Net revenues
Cost of revenues
Gross profit
Operating expenses
Operating profit
Interest expense, net
Loss on early extinguishment of debt
Income before income tax provision
Income tax provision
Income from continuing operations
Income (loss) from discontinued operations, net of tax
Net income
Net income attributable to noncontrolling interest
26,528
17,074
9,454
838
—
8,616
3,386
5,230
9
5,239
(2)
Net income attributable to CVS Health
$
5,237
Basic earnings per share:
Income from continuing operations attributable to CVS Health
Income (loss) from discontinued operations attributable to
CVS Health
Net income attributable to CVS Health
Weighted average shares outstanding
Diluted earnings per share:
Income from continuing operations attributable to CVS Health
Income (loss) from discontinued operations attributable to
CVS Health
Net income attributable to CVS Health
Weighted average shares outstanding
Dividends declared per share
See accompanying notes to consolidated financial statements.
$
$
$
$
$
$
$
4.65
0.01
4.66
1,118
4.62
0.01
4.63
1,126
1.40
25,367
16,568
8,799
600
521
7,678
3,033
4,645
(1)
4,644
—
4,644
3.98
—
3.98
1,161
3.96
—
3.96
1,169
1.10
$
$
$
$
$
$
$
$
23,783
15,746
8,037
509
—
7,528
2,928
4,600
(8)
4,592
—
4,592
3.78
(0.01)
3.77
1,217
3.75
(0.01)
3.74
1,226
0.90
$
$
$
$
$
$
$
$
53
2015 Annual Report
Consolidated Statements of Comprehensive Income
I N M I L L I O N S
Net income
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax
Net cash flow hedges, net of tax
Pension and other postretirement benefits, net of tax
Total other comprehensive income (loss)
Comprehensive income
Comprehensive income attributable to noncontrolling interest
Y EA R EN DED DE CE MB E R 3 1 ,
2015
2014
2013
$
5,239
$
4,644
$
4,592
(100)
2
(43)
(141)
5,098
(2)
(35)
4
(37)
(68)
4,576
—
(30)
3
59
32
4,624
—
Comprehensive income attributable to CVS Health
$
5,096
$
4,576
$
4,624
See accompanying notes to consolidated financial statements.
54
CVS Health
Consolidated Balance Sheets
I N M I L L I O N S , E X C E P T P E R S H A R E A M O U N T S
Assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Inventories
Deferred income taxes
Other current assets
Total current assets
Property and equipment, net
Goodwill
Intangible assets, net
Other assets
Total assets
Liabilities:
Accounts payable
Claims and discounts payable
Accrued expenses
Short-term debt
Current portion of long-term debt
Total current liabilities
Long-term debt
Deferred income taxes
Other long-term liabilities
Commitments and contingencies (Note 12)
Redeemable noncontrolling interest
Shareholders’ equity:
CVS Health 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; 1,699 shares issued and
1,101 shares outstanding at December 31, 2015 and 1,691 shares issued and
1,140 shares outstanding at December 31, 2014
Treasury stock, at cost: 597 shares at December 31, 2015 and 550 shares at
December 31,2014
Shares held in trust: 1 share at December 31, 2015 and 2014
Capital surplus
Retained earnings
Accumulated other comprehensive income (loss)
Total CVS Health shareholders’ equity
Noncontrolling interest
Total shareholders’ equity
D E C E M B E R 3 1 ,
2015
2014
$
2,459
$
2,481
88
11,888
14,001
1,220
722
30,378
9,855
38,106
13,878
1,440
34
9,687
11,930
985
866
25,983
8,843
28,142
9,774
1,445
$ 93,657
$
74,187
$
7,490
7,653
6,829
—
1,197
23,169
26,267
5,437
1,542
—
39
—
17
(28,886)
(31)
30,948
35,506
(358)
37,196
7
37,203
$
6,547
5,404
5,816
685
575
19,027
11,630
4,036
1,531
—
—
—
17
(24,078)
(31)
30,418
31,849
(217)
37,958
5
37,963
Total liabilities and shareholders’ equity
$ 93,657
$
74,187
See accompanying notes to consolidated financial statements.
55
2015 Annual Report
Consolidated Statements of Cash Flows
Y EA R EN DED DE CE MB E R 3 1 ,
2015
2014
2013
$ 148,954
$
132,406
$
114,993
I N M I L L I O N S
Cash flows from operating activities:
Cash receipts from customers
Cash paid for inventory and prescriptions dispensed
by retail network pharmacies
Cash paid to other suppliers and employees
Interest received
Interest paid
Income taxes paid
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment
Proceeds from sale-leaseback transactions
Proceeds from sale of property and equipment and other assets
Acquisitions (net of cash acquired) and other investments
Purchase of available-for-sale investments
Maturity of available-for-sale investments
Net cash used in investing activities
Cash flows from financing activities:
Increase (decrease) in short-term debt
Proceeds from issuance of long-term debt
Repayments of long-term debt
Payment of contingent consideration
Dividends paid
Proceeds from exercise of stock options
Excess tax benefits from stock-based compensation
Repurchase of common stock
Other
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
(122,498)
(14,162)
21
(629)
(3,274)
8,412
(2,367)
411
35
(11,475)
(267)
243
(13,420)
(685)
14,805
(2,902)
(58)
(1,576)
299
127
(5,001)
(3)
5,006
(20)
(22)
2,481
$
$
Cash and cash equivalents at the end of the year
$
2,459
Reconciliation of net income to net cash provided by operating activities:
Net income
Adjustments required to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization
Stock-based compensation
Loss on early extinguishment of debt
Deferred income taxes and other noncash items
Change in operating assets and liabilities, net of effects
from acquisitions:
Accounts receivable, net
Inventories
Other current assets
Other assets
Accounts payable and claims and discounts payable
Accrued expenses
Other long-term liabilities
$
5,239
2,092
230
—
(266)
(1,594)
(1,141)
355
2
2,834
765
(104)
(105,362)
(15,344)
15
(647)
(2,931)
8,137
(2,136)
515
11
(2,439)
(157)
161
(4,045)
685
1,483
(3,100)
—
(1,288)
421
106
(4,001)
—
(5,694)
(6)
(1,608)
4,089
2,481
4,644
1,931
165
521
(58)
(737)
(770)
(383)
9
1,742
1,060
13
(91,178)
(14,295)
8
(534)
(3,211)
5,783
(1,984)
600
54
(415)
(226)
136
(1,835)
(690)
3,964
—
—
(1,097)
500
62
(3,976)
—
(1,237)
3
2,714
1,375
4,089
4,592
1,870
141
—
(86)
(2,210)
12
105
(135)
1,024
471
(1)
$
$
Net cash provided by operating activities
$
8,412
$
8,137
$
5,783
See accompanying notes to consolidated financial statements.
56
CVS Health
Consolidated Statements of Shareholders’ Equity
I N M I L L I O N S
Common stock:
Beginning of year
Stock options exercised and issuance
of stock awards
End of year
Treasury stock:
Beginning of year
Purchase of treasury shares
Employee stock purchase plan issuances
End of year
Shares held in trust:
S HA R ES
Y EA R EN DED DE CE MB E R 3 1 ,
DO L L AR S
Y EA R EN DED DE CE MB E R 31,
2015
2014
2013
2015
2014
2013
1,691
1,680
1,667
$
17
$
17
$
8
11
13
1,699
1,691
1,680
$
—
17
$
—
17
$
17
—
17
(550)
(48)
1
(597)
(500)
(51)
1
(550)
(435)
(66)
1
(500)
$ (24,078) $ (20,169)
(4,001)
92
(4,856)
48
$ (16,270)
(3,976)
77
$ (28,886) $ (24,078)
$ (20,169)
Balance at beginning and end of year
(1)
(1)
(1)
$
(31) $
(31)
$
(31)
Capital surplus:
Beginning of year
Stock option activity and stock awards
Excess tax benefit on stock options and stock awards
Portion of accelerated share repurchase not settled
End of year
Retained earnings:
Beginning of year
Changes in inventory accounting principles (Note 2)
Net income attributable to CVS Health
Common stock dividends
End of year
Accumulated other comprehensive loss:
Beginning of year
Foreign currency translation adjustments, net of tax
Net cash flow hedges, net of tax
Pension and other postretirement benefits, net of tax
End of year
Total CVS Health shareholders’ equity
Noncontrolling interest:
Beginning of year
Business combinations
Capital contributions
Net income attributable to noncontrolling interest (1)
Distributions
End of year
Total shareholders’ equity
$ 30,418
533
142
(145)
$ 29,777
535
106
—
$ 29,120
588
69
—
$ 30,948
$ 30,418
$ 29,777
$ 31,849
(4)
5,237
(1,576)
$ 28,493
—
4,644
(1,288)
$ 24,998
—
4,592
(1,097)
$ 35,506
$ 31,849
$ 28,493
$
$
(217) $
(100)
2
(43)
(149)
(35)
4
(37)
$
(358) $
(217)
$
(181)
(30)
3
59
(149)
$ 37,196
$ 37,958
$ 37,938
$
$
5
1
2
1
(2)
$
7
$
—
5
—
—
—
5
$
$
—
—
—
—
—
—
$ 37,203
$ 37,963
$ 37,938
(1) Excludes $1 million attributable to redeemable noncontrolling interest (See Note 1 – “Significant Accounting Policies”).
See accompanying notes to consolidated financial statements.
57
2015 Annual Report
1 | Significant Accounting Policies
Description of business CVS Health Corporation and its subsidiaries (the “Company”) is the largest integrated
pharmacy health care provider in the United States based upon revenues and prescriptions filled. The Company
currently has three reportable business segments, Pharmacy Services, Retail/LTC and Corporate, which are
described below.
Changes in Segment Definition As a result of the acquisition of Omnicare, Inc. (“Omnicare”) on August 18, 2015,
the Company’s segments have been expanded. The Company’s Pharmacy Services Segment now also includes
the specialty pharmacy operations of Omnicare. The Company’s former Retail Pharmacy Segment now also
includes the long-term care (“LTC”) operations, as well as the commercialization services of Omnicare, and has
been renamed the “Retail/LTC Segment.” The LTC operations include the distribution of pharmaceuticals, related
pharmacy consulting and other ancillary services to chronic care facilities and other care settings. The Company’s
Corporate Segment now also includes certain aspects of Omnicare’s corporate expenses.
On December 16, 2015, the Company completed its acquisition of the pharmacy and clinic businesses of Target
Corporation (“Target”). See Note 3, “Acquisitions.” The results of the Target pharmacies and clinics are included in
the Retail/LTC Segment.
Pharmacy Services Segment (the “PSS”) The PSS provides a full range of pharmacy benefit management services
including mail order pharmacy services, specialty pharmacy and infusion services, plan design and administration,
formulary management and claims processing. The Company’s clients are primarily employers, insurance compa-
nies, unions, government employee groups, health plans, Managed Medicaid plans and other sponsors of health
benefit plans and individuals throughout the United States.
As a pharmacy benefits manager, the PSS manages the dispensing of pharmaceuticals through the Company’s mail
order pharmacies and national network of more than 68,000 retail pharmacies, consisting of approximately 41,000
chain pharmacies and 27,000 independent pharmacies, to eligible members in the benefits plans maintained by the
Company’s clients and utilizes its information systems to perform, among other things, safety checks, drug interac-
tion screenings and brand to generic substitutions.
The PSS’ specialty pharmacies support individuals that require complex and expensive drug therapies. The spe-
cialty pharmacy business includes mail order and retail specialty pharmacies that operate under the CVS Caremark®,
CarePlus CVS PharmacyTM, Navarro® Health Services and Advanced Care Scripts names. In January 2014, the
Company enhanced its offerings of specialty infusion services and began offering enteral nutrition services through
Coram LLC and its subsidiaries. In August 2015, the Company further expanded its specialty offerings with the
acquisition of Advanced Care Scripts which was part of the Omnicare acquisition. See Note 3, “Acquisitions”.
The PSS also provides health management programs, which include integrated disease management for 17 condi-
tions, through the Company’s Accordant® rare disease management offering.
In addition, through the Company’s SilverScript Insurance Company (“SilverScript”) subsidiary, the PSS is a national
provider of drug benefits to eligible beneficiaries under the federal government’s Medicare Part D program.
The PSS generates net revenues primarily by contracting with clients to provide prescription drugs to plan members.
Prescription drugs are dispensed by the mail order pharmacies, specialty pharmacies and national network of retail
pharmacies. Net revenues are also generated by providing additional services to clients, including administrative
services such as claims processing and formulary management, as well as health care related services such as
disease management.
The pharmacy services business operates under the CVS Caremark® Pharmacy Services, Caremark®, CVS CaremarkTM,
CarePlus CVS PharmacyTM, Accordant®, SilverScript®, Coram®, CVS SpecialtyTM, NovoLogix®, Navarro® Health
Services and Advanced Care Scripts names. As of December 31, 2015, the PSS operated 24 retail specialty
58
CVS HealthNotes to Consolidated Financial Statements pharmacy stores, 11 specialty mail order pharmacies and five mail order dispensing pharmacies, and 83 branches
for infusion and enteral services, including 73 ambulatory infusion suites and six centers of excellence, located in
40 states, Puerto Rico and the District of Columbia.
Retail/LTC Segment (the “RLS”) The RLS sells prescription drugs and a wide assortment of general merchandise,
including over-the-counter drugs, beauty products and cosmetics, photo finishing, seasonal merchandise, greeting
cards and convenience foods, through the Company’s CVS Pharmacy®, CVS®, Longs Drugs®, Navarro Discount
Pharmacy® and Drogaria OnofreTM retail stores and online through CVS.com®, Navarro.comTM and Onofre.com.brTM.
The RLS also provides health care services through its MinuteClinic® health care clinics. MinuteClinics are staffed
by nurse practitioners and physician assistants who utilize nationally recognized protocols to diagnose and treat
minor health conditions, perform health screenings, monitor chronic conditions and deliver vaccinations.
With the acquisition of Omnicare, the RLS now includes LTC operations, which is comprised of providing the
distribution of pharmaceuticals, related pharmacy consulting and other ancillary services to chronic care facilities
and other care settings, as well as commercialization services which are provided under the name RxCrossroads®.
With the acquisition of the pharmacies and clinics of Target, the Company added 1,672 pharmacies and approxi-
mately 79 clinics.
As of December 31, 2015, the retail pharmacy business included 9,655 retail stores (of which 7,897 were our stores
that operated a pharmacy and 1,672 were our pharmacies located within a Target store) located in 49 states, the
District of Columbia, Puerto Rico and Brazil operating primarily under the CVS Pharmacy, CVS, Longs Drugs,
Navarro Discount Pharmacy and Drogaria Onofre names, the online retail websites, CVS.com, Navarro.com and
Onofre.com.br, and 1,135 retail health care clinics operating under the MinuteClinic name (of which 1,049 were
located in CVS Pharmacy stores). LTC operations is comprised of 143 spoke pharmacies that primarily handle new
prescription orders and 32 hub pharmacies that use proprietary automation to support spoke pharmacies with refill
prescriptions. LTC operates primarily under the Omnicare® and NeighborCare® names.
Corporate Segment The Corporate Segment provides management and administrative services to support the
Company. The Corporate Segment consists of certain aspects of the Company’s executive management, corporate
relations, legal, compliance, human resources, corporate information technology and finance departments.
Principles of consolidation The 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 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 benefi-
ciary 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
consolidated financial statements. VIE creditors do not have recourse against the general credit of the Company.
Use of estimates The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that affect
the reported amounts in the consolidated financial statements and accompanying notes. Actual results could
differ from those estimates.
59
2015 Annual Report Fair value hierarchy The Company utilizes the three-level valuation hierarchy for the recognition and disclosure of
fair value measurements. The categorization of assets and liabilities within this hierarchy is based upon the lowest level
of input that is significant to the measurement of fair value. The three levels of the hierarchy consist of the following:
• Level 1 – Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets
or liabilities that the Company has the ability to access at the measurement date.
• Level 2 – Inputs to the valuation methodology are quoted prices for similar assets and liabilities in active markets,
quoted prices in markets that are not active or inputs that are observable for the asset or liability, either directly or
indirectly, for substantially the full term of the instrument.
• Level 3 – Inputs to the valuation methodology are unobservable inputs based upon management’s best estimate
of inputs market participants could use in pricing the asset or liability at the measurement date, including assump-
tions about risk.
Cash and cash equivalents Cash and cash equivalents consist of cash and temporary investments with maturities
of three months or less when purchased. The Company invests in short-term money market funds, commercial paper
and time deposits, as well as other debt securities that are classified as cash equivalents within the accompanying
consolidated balance sheets, as these funds are highly liquid and readily convertible to known amounts of cash.
These investments are classified within Level 1 of the fair value hierarchy because they are valued using quoted
market prices.
Short-term investments The Company’s short-term investments consist of certificates of deposit with initial
maturities of greater than three months when purchased that mature in less than one year from the balance sheet
date. These investments, which were classified as available-for-sale within Level 1 of the fair value hierarchy, were
carried at fair value, which approximated their historical cost at December 31, 2015 and 2014.
Fair value of financial instruments As of December 31, 2015, the Company’s financial instruments include cash
and cash equivalents, short-term and long-term investments, accounts receivable, accounts payable, contingent
consideration liability and short-term debt. Due to the nature of these instruments, the Company’s carrying value
approximates fair value. The carrying amount and estimated fair value of total long-term debt was $27.5 billion and
$28.4 billion, respectively, as of December 31, 2015. The fair value of the Company’s long-term debt was estimated
based on quoted rates currently offered in active markets for the Company’s debt, which is considered Level 1 of
the fair value hierarchy. The Company had outstanding letters of credit, which guaranteed foreign trade purchases,
with a fair value of $4 million as of December 31, 2015. There were no outstanding derivative financial instruments
as of December 31, 2015 and 2014.
Foreign currency translation and transactions For local currency functional currency, assets and liabilities are
translated at end-of-period rates while revenues and expenses are translated at average rates in effect during the
period. Equity is translated at historical rates and the resulting cumulative translation adjustments are included as
a component of accumulated other comprehensive income (loss).
For U.S. dollar functional currency locations, foreign currency assets and liabilities are remeasured into U.S. dollars
at end-of-period exchange rates, except for non-monetary balance sheet accounts, which are remeasured at
historical exchange rates. Revenue and expense are remeasured at average exchange rates in effect during each
period, except for those expenses related to the nonmonetary balance sheet amounts, which are remeasured at
historical exchange rates. Gains or losses from foreign currency remeasurement are included in income.
Gains and losses arising from foreign currency transactions and the effects of remeasurements were not material
for all periods presented.
Accounts receivable Accounts receivable are stated net of an allowance for doubtful accounts. The accounts
receivable balance primarily includes amounts due from third party providers (e.g., pharmacy benefit managers,
insurance companies, governmental agencies and long-term care facilities), clients, members and private pay
customers, as well as vendors and manufacturers. Charges to bad debt are based on both historical write-offs
and specifically identified receivables.
60
CVS HealthNotes to Consolidated Financial Statements The activity in the allowance for doubtful accounts receivable for the years ended December 31 is as follows:
I N M I L L I O N S
Beginning balance
Additions charged to bad debt expense
Write-offs charged to allowance
Ending balance
2015
256
216
(311)
161
$
$
2014
256
185
(185)
256
$
$
2013
243
195
(182)
256
$
$
Inventories All inventories are stated at the lower of cost or market. Prescription drug inventories in the RLS and
PSS, as well as front store inventories in the RLS stores are accounted for using the weighted average cost method.
See Note 2, “Changes in Accounting Principle.” Physical inventory counts are taken on a regular basis in each retail
store and long-term care pharmacy and a continuous cycle count process is the primary procedure used to validate
the inventory balances on hand in each distribution center and mail facility to ensure that the amounts reflected in
the accompanying consolidated financial statements are properly stated. During the interim period between physical
inventory counts, the Company accrues for anticipated physical inventory losses on a location-by-location basis
based on historical results and current trends.
Property and equipment Property, equipment and improvements to leased premises are depreciated using the
straight-line method over the estimated useful lives of the assets, or when applicable, the term of the lease, which-
ever is shorter. Estimated useful lives generally range from 10 to 40 years for buildings, building improvements and
leasehold improvements and 3 to 10 years for fixtures, equipment and internally developed software. Repair and
maintenance costs are charged directly to expense as incurred. Major renewals or replacements that substantially
extend the useful life of an asset are capitalized and depreciated. Application development stage costs for signifi-
cant internally developed software projects are capitalized and depreciated.
The following are the components of property and equipment at December 31:
I N M I L L I O N S
Land
Building and improvements
Fixtures and equipment
Leasehold improvements
Software
Accumulated depreciation and amortization
Property and equipment, net
$
2015
1,635
3,168
10,001
4,015
2,217
21,036
(11,181)
2014
$
1,506
2,828
8,958
3,626
1,868
18,786
(9,943)
$
9,855
$
8,843
The gross amount of property and equipment under capital leases was $528 million and $268 million as of
December 31, 2015 and 2014, respectively. Accumulated amortization of property and equipment under capital
lease was $97 million and $86 million as of December 31, 2015 and 2014, respectively. Amortization of property and
equipment under capital lease is included within depreciation expense. Depreciation expense totaled $1.5 billion in
2015 and $1.4 billion in both 2014 and 2013.
Goodwill and other indefinitely-lived assets Goodwill and other indefinitely-lived assets are not amortized, but
are subject to impairment reviews annually, or more frequently if necessary. See Note 4 for additional information on
goodwill and other indefinitely-lived assets.
Intangible assets Purchased customer contracts and relationships are amortized on a straight-line basis over
their estimated useful lives between 9 and 20 years. Purchased customer lists are amortized on a straight-line basis
over their estimated useful lives of up to 10 years. Purchased leases are amortized on a straight-line basis over the
remaining life of the lease. See Note 4 for additional information about intangible assets.
61
2015 Annual Report
Impairment of long-lived assets The Company groups and evaluates fixed and finite-lived intangible assets
for impairment at the lowest level at which individual cash flows can be identified, whenever events or changes in
circumstances indicate that the carrying value of an asset may not be recoverable. If indicators of impairment are
present, the Company first compares the carrying amount of the asset group to the estimated future cash flows
associated with the asset group (undiscounted and without interest charges). If the estimated future cash flows used
in this analysis are less than the carrying amount of the asset group, an impairment loss calculation is prepared. The
impairment loss calculation compares the carrying amount of the asset group to the asset group’s estimated future
cash flows (discounted and with interest charges). If required, an impairment loss is recorded for the portion of the
asset group’s carrying value that exceeds the asset group’s estimated future cash flows (discounted and with
interest charges).
Redeemable noncontrolling interest As a result of the acquisition of Omnicare in August 2015, the Company
obtained a 73% ownership interest in a limited liability company (“LLC”). Due to the change in control in Omnicare,
the noncontrolling member of the LLC had the contractual right to put its membership interest to the Company at
fair value. Consequently, the noncontrolling interest in the LLC is recorded as a redeemable noncontrolling interest
at fair value. In January 2016, as provided for in the LLC operating agreement, the noncontrolling shareholder of the
LLC exercised its option to sell its ownership interest in the LLC to the Company. On February 8, 2016, in accordance
with the terms of the LLC operating agreement, the Company purchased the noncontrolling interest in the LLC at an
amount determined pursuant to the operating agreement that approximated its carrying value at December 31, 2015.
Below is a summary of the changes in redeemable noncontrolling interest for the year ended December 31, 2015:
I N M I L L I O N S
Acquisition of noncontrolling interest
Net income attributable to noncontrolling interest
Distributions
Balance, December 31, 2015
Revenue Recognition
$
$
39
1
(1)
39
Pharmacy Services Segment The PSS sells prescription drugs directly through its mail service dispensing pharma-
cies and indirectly through its retail pharmacy network. The PSS recognizes revenue from prescription drugs sold
by its mail service dispensing pharmacies and under retail pharmacy network contracts where it is the principal
using the gross method at the contract prices negotiated with its clients. Net revenues include: (i) the portion of the
price the client pays directly to the PSS, net of any volume-related or other discounts paid back to the client (see
“Drug Discounts” below), (ii) the price paid to the PSS by client plan members for mail order prescriptions (“Mail
Co-Payments”) and the price paid to retail network pharmacies by client plan members for retail prescriptions
(“Retail Co-Payments”), and (iii) administrative fees for retail pharmacy network contracts where the PSS is not the
principal as discussed later in this document. Sales taxes are not included in revenue.
Revenue is recognized when: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services
have been rendered, (iii) the seller’s price to the buyer is fixed or determinable, and (iv) collectability is reasonably
assured. The following revenue recognition policies have been established for the PSS:
• Revenues generated from prescription drugs sold by mail service dispensing pharmacies are recognized when the
prescription is delivered. At the time of delivery, the PSS has performed substantially all of its obligations under its
client contracts and does not experience a significant level of returns or reshipments.
• Revenues generated from prescription drugs sold by third party pharmacies in the PSS’ retail pharmacy network
and associated administrative fees are recognized at the PSS’ point-of-sale, which is when the claim is adjudi-
cated by the PSS online claims processing system.
62
CVS HealthNotes to Consolidated Financial Statements
The PSS determines whether it is the principal or agent for its retail pharmacy network transactions on a contract
by contract basis. In the majority of its contracts, the PSS has determined it is the principal due to it: (i) being the
primary obligor in the arrangement, (ii) having latitude in establishing the price, changing the product or performing
part of the service, (iii) having discretion in supplier selection, (iv) having involvement in the determination of product
or service specifications, and (v) having credit risk. The PSS’ obligations under its client contracts for which reve-
nues are reported using the gross method are separate and distinct from its obligations to the third party pharmacies
included in its retail pharmacy network contracts. Pursuant to these contracts, the PSS is contractually required
to pay the third party pharmacies in its retail pharmacy network for products sold, regardless of whether the PSS
is paid by its clients. The PSS’ responsibilities under its client contracts typically include validating eligibility and
coverage levels, communicating the prescription price and the co-payments due to the third party retail phar-
macy, identifying possible adverse drug interactions for the pharmacist to address with the prescriber prior to
dispensing, suggesting generic alternatives where clinically appropriate and approving the prescription for dispens-
ing. Although the PSS does not have credit risk with respect to Retail Co-Payments or inventory risk related to retail
network claims, management believes that all of the other applicable indicators of gross revenue reporting are
present. For contracts under which the PSS acts as an agent, revenue is recognized using the net method.
Drug Discounts The PSS deducts from its revenues any rebates, inclusive of discounts and fees, earned by its
clients. Rebates are paid to clients in accordance with the terms of client contracts, which are normally based on
fixed rebates per prescription for specific products dispensed or a percentage of manufacturer discounts received
for specific products dispensed. The liability for rebates due to clients is included in “Claims and discounts payable”
in the accompanying consolidated balance sheets.
Medicare Part D The PSS, through its SilverScript subsidiary, participates in the federal government’s Medicare
Part D program as a Prescription Drug Plan (“PDP”). Net revenues include insurance premiums earned by the PDP,
which are determined based on the PDP’s annual bid and related contractual arrangements with the Centers for
Medicare and Medicaid Services (“CMS”). The insurance premiums include a direct premium paid by CMS and a
beneficiary premium, which is the responsibility of the PDP member, but which is subsidized by CMS in the case
of low-income members. Premiums collected in advance are initially deferred in accrued expenses and are then
recognized in net revenues over the period in which members are entitled to receive benefits.
In addition to these premiums, net revenues include co-payments, coverage gap benefits, deductibles and co-
insurance (collectively, the “Member Co-Payments”) related to PDP members’ actual prescription claims. In certain
cases, CMS subsidizes a portion of these Member Co-Payments and pays the PSS an estimated prospective Member
Co-Payment subsidy amount each month. The prospective Member Co-Payment subsidy amounts received from
CMS are also included in net revenues. SilverScript assumes no risk for these amounts. If the prospective Member
Co-Payment subsidies received differ from the amounts based on actual prescription claims, the difference is
recorded in either accounts receivable or accrued expenses.
The PSS accounts for CMS obligations and Member Co-Payments (including the amounts subsidized by
CMS) using the gross method consistent with its revenue recognition policies for Mail Co-Payments and Retail
Co-Payments (discussed previously in this document).
Retail/LTC Segment
Retail Pharmacy The retail drugstores recognize revenue at the time the customer takes possession of the mer-
chandise. Customer returns are not material. Revenue generated from the performance of services in the RLS’
health care clinics is recognized at the time the services are performed. Sales taxes are not included in revenue.
Long-term Care Revenue is recognized when products are delivered or services are rendered or provided to the
customer, prices are fixed and determinable, and collection is reasonably assured. A significant portion of our
revenues from sales of pharmaceutical and medical products are reimbursed by the federal Medicare Part D program
and, to a lesser extent, state Medicaid programs. Payments for services rendered to patients covered by these
63
2015 Annual Report programs are generally less than billed charges. The Company monitors its revenues and receivables from these
reimbursement sources, as well as other third party insurance payors, and record an estimated contractual allow-
ance for sales and receivable balances at the revenue recognition date, to properly account for anticipated
differences between billed and reimbursed amounts. Accordingly, the total net sales and receivables reported in
the Company’s consolidated financial statements are recorded at the amount expected to be ultimately received
from these payors. Since billing functions for a portion of the Company’s revenue systems are largely computerized,
enabling online adjudication at the time of sale to record net revenues, the Company’s exposure in connection with
estimating contractual allowance adjustments is limited primarily to unbilled and initially rejected Medicare, Medicaid
and third party claims (typically approved for reimbursement once additional information is provided to the payor).
For the remaining portion of the Company’s revenue systems, the contractual allowance is estimated for all billed,
unbilled and initially rejected Medicare, Medicaid and third party claims. The Company evaluates several criteria in
developing the estimated contractual allowances on a monthly basis, including historical trends based on actual
claims paid, current contract and reimbursement terms, and changes in customer base and payor/product mix.
Contractual allowance estimates are adjusted to actual amounts as cash is received and claims are settled, and
the aggregate impact of these resulting adjustments was not significant to our results of operations for any of the
periods presented.
Patient co-payments associated with Medicare Part D, certain state Medicaid programs, Medicare Part B and
certain third party payors are typically not collected at the time products are delivered or services are rendered, but
are billed to the individuals as part of our normal billing procedures and subject to our normal accounts receivable
collections procedures.
Health Care Clinics For services provided by our health care clinics, revenue recognition occurs for completed
services provided to patients, with adjustments taken for third party payor contractual obligations and patient direct
bill historical collection rates.
Loyalty Program The Company’s customer loyalty program, ExtraCare®, is comprised of two components,
ExtraSavingsTM and ExtraBucks® Rewards. ExtraSavings coupons redeemed by customers are recorded as a
reduction of revenues when redeemed. ExtraBucks Rewards are accrued as a charge to cost of revenues when
earned, net of estimated breakage. The Company determines breakage based on historical redemption patterns.
See Note 13 for additional information about the revenues of the Company’s business segments.
Cost of Revenues
Pharmacy Services Segment The PSS’ cost of revenues includes: (i) the cost of prescription drugs sold during
the reporting period directly through its mail service dispensing pharmacies and indirectly through its retail pharmacy
network, (ii) shipping and handling costs, and (iii) the operating costs of its mail service dispensing pharmacies and
client service operations and related information technology support costs including depreciation and amortization.
The cost of prescription drugs sold component of cost of revenues includes: (i) the cost of the prescription drugs
purchased from manufacturers or distributors and shipped to members in clients’ benefit plans from the PSS’
mail service dispensing pharmacies, net of any volume-related or other discounts (see “Vendor allowances
and purchase discounts” on the following page) and (ii) the cost of prescription drugs sold (including Retail
Co-Payments) through the PSS’ retail pharmacy network under contracts where it is the principal, net of any
volume-related or other discounts.
Retail/LTC Segment The RLS’ cost of revenues includes: the cost of merchandise sold during the reporting period
and the related purchasing costs, warehousing and delivery costs (including depreciation and amortization) and
actual and estimated inventory losses.
See Note 13 for additional information about the cost of revenues of the Company’s business segments.
64
CVS HealthNotes to Consolidated Financial Statements Vendor Allowances and Purchase Discounts
The Company accounts for vendor allowances and purchase discounts as follows:
Pharmacy Services Segment The PSS receives purchase discounts on products purchased. The PSS’ contractual
arrangements with vendors, including manufacturers, wholesalers and retail pharmacies, normally provide for the
PSS to receive purchase discounts from established list prices in one, or a combination, of the following forms: (i) a
direct discount at the time of purchase, (ii) a discount for the prompt payment of invoices, or (iii) when products are
purchased indirectly from a manufacturer (e.g., through a wholesaler or retail pharmacy), a discount (or rebate)
paid subsequent to dispensing. These rebates are recognized when prescriptions are dispensed and are generally
calculated and billed to manufacturers within 30 days of the end of each completed quarter. Historically, the effect of
adjustments resulting from the reconciliation of rebates recognized to the amounts billed and collected has not been
material to the PSS’ results of operations. The PSS accounts for the effect of any such differences as a change in
accounting estimate in the period the reconciliation is completed. The PSS also receives additional discounts under
its wholesaler contracts if it exceeds contractually defined annual purchase volumes. In addition, the PSS receives
fees from pharmaceutical manufacturers for administrative services. Purchase discounts and administrative service
fees are recorded as a reduction of “Cost of revenues”.
Retail/LTC Segment Vendor allowances received by the RLS reduce the carrying cost of inventory and are recog-
nized in cost of revenues when the related inventory is sold, unless they are specifically identified as a reimbursement
of incremental costs for promotional programs and/or other services provided. Amounts that are directly linked to
advertising commitments are recognized as a reduction of advertising expense (included in operating expenses)
when the related advertising commitment is satisfied. Any such allowances received in excess of the actual cost
incurred also reduce the carrying cost of inventory. The total value of any upfront payments received from vendors
that are linked to purchase commitments is initially deferred. The deferred amounts are then amortized to reduce
cost of revenues over the life of the contract based upon purchase volume. The total value of any upfront payments
received from vendors that are not linked to purchase commitments is also initially deferred. The deferred amounts
are then amortized to reduce cost of revenues on a straight-line basis over the life of the related contract. The total
amortization of these upfront payments was not material to the accompanying consolidated financial statements.
Insurance The Company is self-insured for certain losses related to general liability, workers’ compensation
and auto liability. The Company obtains third party insurance coverage to limit exposure from these claims. The
Company is also self-insured for certain losses related to health and medical liabilities. The Company’s self-insur-
ance accruals, which include reported claims and claims incurred but not reported, are calculated using standard
insurance industry actuarial assumptions and the Company’s historical claims experience.
Facility opening and closing costs New facility opening costs, other than capital expenditures, are charged
directly to expense when incurred. When the Company closes a facility, the present value of estimated unrecover-
able costs, including the remaining lease obligation less estimated sublease income and the book value of
abandoned property and equipment, are charged to expense. The long-term portion of the lease obligations
associated with facility closings was $217 million and $207 million in 2015 and 2014, respectively.
Advertising costs Advertising costs are expensed when the related advertising takes place. Advertising costs, net
of vendor funding (included in operating expenses), were $221 million, $212 million and $177 million in 2015, 2014
and 2013, respectively.
Interest expense, net Interest expense, net of capitalized interest, was $859 million, $615 million and $517 million,
and interest income was $21 million, $15 million and $8 million in 2015, 2014 and 2013, respectively. Capitalized
interest totaled $12 million, $19 million and $25 million in 2015, 2014 and 2013, respectively.
65
2015 Annual Report Shares held in trust The Company maintains grantor trusts, which held approximately 1 million shares of its
common stock at December 31, 2015 and 2014, respectively. These shares are designated for use under various
employee compensation plans. Since the Company holds these shares, they are excluded from the computation of
basic and diluted shares outstanding.
Accumulated other comprehensive income Accumulated other comprehensive income (loss) consists of changes
in the net actuarial gains and losses associated with pension and other postretirement benefit plans, losses on
derivatives from cash flow hedges executed in previous years associated with the issuance of long-term debt, and
foreign currency translation adjustments. The amount included in accumulated other comprehensive loss related to
the Company’s pension and postretirement plans was $305 million pre-tax ($186 million after-tax) as of December 31,
2015 and $234 million pre-tax ($143 million after-tax) as of December 31, 2014. The net impact on cash flow hedges
totaled $14 million pre-tax ($7 million after-tax) and $16 million pre-tax ($9 million after-tax) as of December 31, 2015
and 2014, respectively. Cumulative foreign currency translation adjustments at December 31, 2015 and 2014 were
$165 million and $65 million, respectively.
Changes in accumulated other comprehensive income (loss) by component are shown below:
I N M I L L I O N S
Y EA R EN DED DE C EM BE R 3 1, 2 0 1 5 ( 1)
Losses on
Cash Flow
Hedges
Pension
and Other
Postretirement
Benefits
Foreign
Currency
Total
Balance, December 31, 2014
$
(65)
$
(9)
$
(143)
$
(217)
Other comprehensive income (loss) before
reclassifications
Amounts reclassified from accumulated
other comprehensive income (2)
Net other comprehensive income (loss)
Balance, December 31, 2015
$
(100)
—
(100)
(165)
—
2
2
(56)
13
(43)
$
(7)
$
(186)
$
I N M I L L I O N S
Y EA R EN DED DE C EM BE R 3 1, 2 0 1 4 ( 1)
Losses on
Cash Flow
Hedges
Pension
and Other
Postretirement
Benefits
Foreign
Currency
(156)
15
(141)
(358)
Total
Balance, December 31, 2013
$
(30)
$
(13)
$
(106)
$
(149)
Other comprehensive income (loss) before
reclassifications
Amounts reclassified from accumulated
other comprehensive income (2)
Net other comprehensive income (loss)
Balance, December 31, 2014
$
(1) All amounts are net of tax.
(35)
—
(35)
(65)
$
—
4
4
(9)
—
(37)
(37)
(35)
(33)
(68)
$
(143)
$
(217)
(2) The amounts reclassified from accumulated other comprehensive income for cash flow hedges are recorded within interest expense, net on the
consolidated statement of income. The amounts reclassified from accumulated other comprehensive income for pension and other postretirement
benefits are included in operating expenses on the consolidated statement of income.
Stock-based compensation Stock-based compensation is measured at the grant date based on the fair value of
the award and is recognized as expense over the applicable requisite service period of the stock award (generally 3
to 5 years) using the straight-line method.
66
CVS HealthNotes to Consolidated Financial Statements
Variable Interest Entity In July 2014, the Company and Cardinal Health, Inc. (“Cardinal”) established Red Oak
Sourcing, LLC (“Red Oak”), a generic pharmaceutical sourcing entity in which the Company and Cardinal each own
50%. The Red Oak arrangement has an initial term of ten years. Under this arrangement, the Company and Cardinal
contributed their sourcing and supply chain expertise to Red Oak and agreed to source and negotiate generic
pharmaceutical supply contracts for both companies through Red Oak; however, Red Oak does not own or hold
inventory on behalf of either company. No physical assets (e.g., property and equipment) were contributed to Red
Oak by either company and minimal funding was provided to capitalize Red Oak.
The Company has determined that it is the primary beneficiary of this variable interest entity because it has the
ability to direct the activities of Red Oak. Consequently, the Company consolidates Red Oak in its consolidated
financial statements within the Retail/LTC Segment.
Cardinal is required to pay the Company 39 quarterly payments beginning in October 2014. As milestones are met,
the quarterly payments increase. The Company received approximately $122 million and $26 million from Cardinal
during the years ended December 31, 2015 and 2014, respectively. The payments reduce the Company’s carrying
value of inventory and are recognized in cost of revenues when the related inventory is sold. Revenues associated
with Red Oak expenses reimbursed by Cardinal for the years ended December 31, 2015 and 2014, as well as
amounts due to or due from Cardinal at December 31, 2015 and 2014 were immaterial.
Related party transactions The Company has an equity method investment in SureScripts, LLC (“SureScripts”),
which operates a clinical health information network. The Pharmacy Services and Retail/LTC segments utilize this
clinical health information network in providing services to its client plan members and retail customers. The
Company expensed fees of approximately $50 million in the years ended December 2015 and 2014, and $48 million in
the year ended December 31, 2013, for the use of this network. The Company’s investment in and equity in earnings
of SureScripts for all periods presented is immaterial.
In connection with the acquisition of Omnicare in August 2015, the Company obtained an equity method investment
in Heartland Healthcare Services (“Heartland”). Heartland operates several long-term care pharmacies in four states.
Heartland paid the Company approximately $25 million for pharmaceutical inventory purchases during the period
from August 18, 2015 to December 31, 2015. Additionally, the Company performs certain collection functions for
Heartland and then passes those customer cash collections to Heartland. The Company’s investment in and equity
in earnings of Heartland as of and for the year ended December 31, 2015 is immaterial.
In September 2014, the Company made a charitable contribution of $25 million to the CVS Foundation (formerly
CVS Caremark Charitable Trust, Inc.) (the “Foundation”) to fund future giving. The Foundation is a non-profit entity
that focuses on health, education and community involvement programs. The charitable contribution was recorded
as an operating expense in the consolidated statement of income for the year ended December 31, 2014.
Income taxes The Company accounts for income taxes under the asset and liability method, which requires the
recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been
included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are deter-
mined on the basis of the differences between the consolidated financial statements and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of
a change in the tax rates on deferred tax asset and liabilities is recognized in income in the period that includes the
enactment date.
The Company recognizes net deferred tax assets to the extent that it believes these assets are more likely than not
to be realized in making such a determination. The Company considers all available positive and negative evidence,
including future reversals of existing taxable temporary differences, projected future taxable income, tax planning
strategies, and results of recent operations. To the extent that the Company does not consider it more likely than not
that a deferred tax asset will be recovered, a valuation allowance is established.
67
2015 Annual Report The Company records uncertain tax positions on the basis of a two-step process whereby (1) the Company deter-
mines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits
of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company
recognizes the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement
with the related tax authority.
Interest and/or penalties related to uncertain tax positions are recognized in income tax expense.
Discontinued Operations In connection with certain business dispositions completed between 1991 and
1997, the Company retained guarantees on store lease obligations for a number of former subsidiaries, including
Linens ‘n Things which filed for bankruptcy in 2008. The Company’s income from discontinued operations in 2015 of
$9 million, net of tax, was related to the release of certain store lease guarantees due to a settlement with a landlord.
The Company’s loss from discontinued operations includes lease-related costs which the Company believes it will
likely be required to satisfy pursuant to its Linens ‘n Things lease guarantees.
Below is a summary of the results of discontinued operations for the years ended December 31:
I N M I L L I O N S
Income from discontinued operations
Income tax expense
Income from discontinued operations, net of tax
2015
2014
$
$
15
(6)
9
$
$
(1)
—
(1)
$
$
2013
(12)
4
(8)
Earnings per common share Earnings per share is computed using the two-class method. Options to purchase
2.7 million, 2.1 million and 6.2 million shares of common stock were outstanding as of December 31, 2015, 2014
and 2013, respectively, but were not included in the calculation of diluted earnings per share because the options’
exercise prices were greater than the average market price of the common shares and, therefore, the effect would
be antidilutive.
New Accounting Pronouncement In May 2014, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standard Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU
No. 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from
contracts with customers and supersedes most current revenue recognition guidance, including industry-specific
guidance. This new guidance is expected to be effective for annual reporting periods (including interim reporting
periods within those periods) beginning January 1, 2018; early adoption in 2017 is permitted. Companies have the
option of using either a full retrospective or a modified retrospective approach to adopt the guidance. This update
could impact the timing and amounts of revenue recognized. The Company is currently evaluating the effect that
implementation of this update will have on its consolidated financial position and results of operations upon adop-
tion, as well as the method of transition and required disclosures.
In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs (Topic 835-30).
ASU No. 2015-03 requires the presentation of debt issuance costs in the balance sheet as a direct deduction from
the related debt liability rather than as an asset. Amortization of such costs are required to be reported as interest
expense, which is consistent with the Company’s current policy. This change conforms the presentation of debt
issuance costs with that of debt discounts. The ASU is effective for annual reporting periods (including interim
reporting periods within those periods) beginning after December 15, 2015; early adoption is permitted. The guid-
ance is required to be applied retrospectively to all prior periods. The Company has early adopted this standard as
of June 30, 2015. The effect of the adoption of ASU 2015-03 on the Company’s consolidated balance sheet is a
68
CVS HealthNotes to Consolidated Financial Statements
reduction of noncurrent assets and long-term debt of $65 million as of December 31, 2014. The following is a reconcili-
ation of the effect of this reclassification on the Company’s consolidated balance sheet as of December 31, 2014:
I N M I L L I O N S
Other assets
Total assets
Long-term debt
Total liabilities and shareholders’ equity
As Previously Reported
Adjustments
As Revised
$
1,510
$
74,252
11,695
74,252
(65)
(65)
(65)
(65)
$
1,445
74,187
11,630
74,187
In September 2015, the FASB issued ASU No. 2015-16, Simplifying the Accounting for Measurement-Period
Adjustments. ASU No. 2015-16 requires that an acquirer recognize adjustments to provisional amounts that are
identified during the measurement period after an acquisition within the reporting period they are determined. This
is a change from the previous requirement that the adjustments be recorded retrospectively. The ASU also requires
disclosure of the effect on earnings of changes in depreciation, amortization or other income effects, if any, as a
result of the adjustment to the provisional amounts, calculated as if the accounting had been completed at the
acquisition date. The ASU is effective for annual reporting periods (including interim reporting periods within
those periods) beginning after December 15, 2015; early adoption is permitted. The Company has early adopted
the ASU as of September 30, 2015. The adoption did not have a material effect on the Company’s consolidated
financial statements.
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740). ASU No. 2015-17 simplifies
the presentation of deferred income taxes by requiring that deferred tax assets and liabilities be classified as
nocurrent in the statement of financial position. This ASU may be applied either prospectively to all deferred
tax assets and liabilities, or retrospectively to all periods presented for annual reporting periods (including interim
reporting periods within those periods) beginning after December 15, 2016. The change will require additional
disclosure based on the method of adoption. Had the Company adopted this ASU, current deferred income taxes,
total current assets, total assets and total liabilities would have been approximately $1.2 billion and $1.0 billion
lower as of December 31, 2015 and 2014, respectively.
2 | Changes in Accounting Principle
Effective January 1, 2015, the Company changed its methods of accounting for “front store” inventories in the
Retail/LTC Segment. Prior to 2015, the Company valued front store inventories at the lower of cost or market on a
first-in, first-out (“FIFO”) basis in retail stores using the retail inventory method and in distribution centers using the
FIFO cost method. Effective January 1, 2015, all front store inventories in the Retail/LTC Segment have been valued
at the lower of cost or market using the weighted average cost method. These changes affected approximately 36%
of consolidated inventories.
These changes were made primarily to provide the Company with better information to manage its retail front
store operations and to bring all of the Company’s inventories to a common inventory valuation methodology. The
Company believes the weighted average cost method is preferable to the retail inventory method and the FIFO cost
method because it results in greater precision in the determination of cost of revenues and inventories at the stock
keeping unit (“SKU”) level and results in a consistent inventory valuation method for all of the Company’s inventories
as all of the Company’s remaining inventories, which consist of prescription drugs, were already being valued using
the weighted average cost method.
The Company recorded the cumulative effect of these changes in accounting principle as of January 1, 2015. The
Company determined that retrospective application for periods prior to 2015 is impracticable, as the period-specific
information necessary to value front store inventories in the Retail/LTC Segment under the weighted average cost
method is unavailable. The Company implemented a new perpetual inventory system to manage front store inventory
69
2015 Annual Report
at the SKU level and valued front store inventory as of January 1, 2015 and calculated the cumulative impact. The
effect of these changes in accounting principle as of January 1, 2015, was a decrease in inventories of $7 million, an
increase in current deferred income tax assets of $3 million and a decrease in retained earnings of $4 million.
Had the Company not made these changes in accounting principle, for the year ended December 31, 2015, income
from continuing operations would have been lower by $27 million. Basic and diluted earnings per share from continu-
ing operations attributable to CVS Health would have been approximately $0.02 per share lower for the year ended
December 31, 2015.
3 | Acquisitions
Omnicare Acquisition
On August 18, 2015, the Company acquired 100% of the outstanding common shares and voting interests of
Omnicare, for $98 per share for a total of $9.6 billion and assumed long-term debt with a fair value of approximately
$3.1 billion. Additionally, holders of Omnicare restricted stock units and performance based restricted stock units
received 738,765 CVS Health Corporation restricted stock awards with a fair value of approximately $80 million
as replacement awards. Omnicare is a leading health care services company that specializes in the management
of complex pharmaceutical care. Omnicare’s long-term care (“LTC”) business is the nation’s largest provider of
pharmaceuticals, related pharmacy consulting and other ancillary services to chronic care facilities and other care
settings. In addition, Omnicare has a specialty pharmacy business operating primarily under the name of Advanced
Care Scripts, and provides commercialization services under the name of RxCrossroads®. The Company is including
LTC and the commercialization services in its former Retail Pharmacy Segment, which has been renamed the
“Retail/LTC Segment,” and will include the specialty pharmacy business in its Pharmacy Services Segment. The
Company acquired Omnicare to expand its operations in dispensing prescription drugs to assisted-living and
long-term care facilities, and to broaden its presence in the specialty pharmacy business as the Company seeks to
serve a greater percentage of the growing senior patient population in the United States.
The fair value of the consideration transferred on the date of acquisition consisted of the following:
I N M I L L I O N S
Cash paid to Omnicare shareholders
Fair value of replacement equity awards issued to Omnicare employees for precombination services
Total consideration
$
$
9,636
9
9,645
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date
of acquisition:
I N M I L L I O N S
Current assets (including cash of $298)
Property and equipment
Goodwill
Intangible assets
Other noncurrent assets
Current liabilities
Long-term debt
Deferred income tax liabilities
Other noncurrent liabilities
Redeemable noncontrolling interest
Total consideration
70
$
1,657
313
9,090
3,962
64
(705)
(3,110)
(1,518)
(69)
(39)
$
9,645
CVS HealthNotes to Consolidated Financial Statements
The assessment of fair value is preliminary and is based on information that was available to management at the
time the condensed consolidated financial statements were prepared. Accordingly, such amounts may change. The
most significant open items included the accounting for deferred income taxes and contingencies as management
is awaiting additional information to complete its assessment of these matters. The goodwill represents future
economic benefits expected to arise from the Company’s expanded presence in the pharmaceutical care market,
the assembled workforce acquired, expected purchasing and revenue synergies, as well as operating efficiencies
and cost savings. Goodwill of $8.6 billion was allocated to the Retail/LTC Segment and the remaining goodwill of
$0.5 billion was allocated to the Pharmacy Services Segment. Approximately $0.4 billion of the goodwill is deduct-
ible for income tax purposes. Intangible assets acquired include customer relationships and trade names of
$3.9 billion and $74 million, respectively, with estimated weighted average useful lives of 19.1 and 2.9 years,
respectively, and 18.8 years in total.
The fair value of trade accounts receivable acquired is $600 million, with the gross contractual amount being
$857 million. The Company expects $257 million of trade accounts receivable to be uncollectible. The fair value
of other receivables acquired is $147 million, with the gross contractual amount being $161 million. The Company
expects $14 million of other receivables to be uncollectible.
During the year ended December 31, 2015, the Company incurred transaction costs of $70 million associated with
the acquisition of Omnicare that were recorded within operating expenses.
The Company’s consolidated results of operations for the year ended December 31, 2015, include $2.6 billion of
net revenues and net income of $61 million associated with the operating results of Omnicare from August 18, 2015
to December 31, 2015. These Omnicare operating results include severance costs and accelerated stock-based
compensation.
The following unaudited pro forma information presents a summary of the Company’s combined results of opera-
tions for the year ended December 31, 2015 and 2014 as if the Omnicare acquisition and the related financing
transactions had occurred on January 1, 2014. The following pro forma financial information is not necessarily
indicative of the results of operations as they would have been had the transactions been effected on the assumed
date, nor is it necessarily an indication of trends in future results for a number of reasons, including, but not limited
to, differences between the assumptions used to prepare the pro forma information, basic shares outstanding and
dilutive equivalents, cost savings from operating efficiencies, potential synergies, and the impact of incremental
costs incurred in integrating the businesses.
I N M I L L I O N S , E X C E P T P E R S H A R E D A T A
Total revenues
Income from continuing operations
Basic earnings per share from continuing operations
Diluted earnings per share from continuing operations
Y EA R EN DED DE CE MB E R 31,
2015
2014
$ 156,798
$
144,836
5,277
4.70
4.66
$
$
4,522
3.88
3.85
$
$
Pro forma income from continuing operations for the year ended December 31, 2015, excludes $135 million related
to severance costs, accelerated stock-based compensation and transaction costs incurred in connection with the
Omnicare acquisition. Pro forma income from continuing operations for the year ended December 31, 2014, includes
a $521 million loss on the early extinguishment of debt recorded by CVS Health.
Target Pharmacy Acquisition
On December 16, 2015, the Company acquired the pharmacy and clinic businesses of Target for approximately
$1.9 billion, plus contingent consideration of up to $50 million based on future prescription growth over a three
year period. The purchase price is also subject to adjustment based on the value of inventory at the closing date.
71
2015 Annual Report
The Company acquired Target’s 1,672 pharmacies which operate in 47 states and will operate them through a
store-within-a-store format, branded as CVS Pharmacy. The Company also acquired 79 Target clinic locations which
will be rebranded as MinuteClinic. The Company acquired the Target pharmacy and clinic businesses primarily to
expand the geographic reach of its retail pharmacy business.
The estimated fair values of the assets acquired at the date of acquisition were approximately as follows:
I N M I L L I O N S
Accounts receivable
Inventories
Property and equipment
Intangible assets
Goodwill
Total cash consideration
$
2
472
9
490
916
$
1,889
The assessment of fair value is preliminary and is based on information that was available to management at the time
the consolidated financial statements were prepared. Accordingly, such amounts may change. As of December 31,
2015, the most significant open item was the inventory related purchase price adjustment. Intangible assets acquired
include customer relationships with an estimated useful life of 13 years. The goodwill represents future economic
benefits expected to arise from the Company’s expanded geographic presence in the retail pharmacy market, the
assembled workforce acquired, expected purchasing and revenue synergies, as well as operating efficiencies and
cost savings. The goodwill is deductible for income tax purposes. No liability for any potential contingent consider-
ation has been recorded based on current projections for future prescription growth over the relevant period.
In January 2016, the Company received approximately $21 million from Target as final settlement of the inventory
valuation. This amount will be recorded as a reduction of the purchase price in the first quarter of 2016.
In connection with the closing of the transaction, the Company and Target entered into pharmacy and clinic operat-
ing and master lease agreements. See Note 7 of the consolidated financial statements for disclosures of the
Company’s leasing arrangements.
During the year ended December 31, 2015, the Company incurred transaction costs of approximately $26 million
associated with the acquisition that were recorded within operating expenses. The results of the Target pharmacies
and clinics are included in the Company’s Retail/LTC Segment beginning on December 16, 2015. Pro forma financial
information for this acquisition is not presented as such results are immaterial to the Company’s consolidated
financial statements.
Coram Acquisition
On January 16, 2014, the Company acquired 100% of the voting interests of Coram LLC and its subsidiaries (collectively,
“Coram”), the specialty infusion services and enteral nutrition business unit of Apria Healthcare Group Inc. (“Apria”), for
cash consideration of approximately $2.1 billion, plus contingent consideration of approximately $0.1 billion. The pur-
chase price was also subject to a working capital adjustment, which resulted in the Company receiving $9 million from
Apria. Coram is one of the nation’s largest providers of comprehensive infusion services, caring for approximately 240,000
patients annually. Coram has approximately 4,600 employees, including approximately 600 nurses and 250 dietitians,
operating primarily through 83 branch locations and six centers of excellence for patient intake.
The contingent consideration is based on the Company’s future realization of Coram’s tax net operating loss
carryforwards (“NOLs”) as of the date of the acquisition. The Company will pay the seller the first $60 million in tax
savings realized from the future utilization of the Coram NOLs, plus 50% of any additional future tax savings from
the remaining NOLs. The fair value of the contingent consideration liability associated with the future realization of
the Coram NOLs was determined using Level 3 inputs based on the present value of contingent payments expected
to be made based on the Company’s estimate of the amount and timing of Coram NOLs that will ultimately be
72
CVS HealthNotes to Consolidated Financial Statements
realized. The change in fair value of the contingent consideration liability recognized in earnings for the year ended
December 31, 2014 was immaterial and for the year ended December 31, 2015 was approximately $4 million. During
the year ended December 31, 2015, the Company made contingent consideration payments to Apria of approxi-
mately $58 million.
The Company recognized approximately $1.6 billion of goodwill in connection with the acquisition. The goodwill
represents future economic benefits expected to arise from the Company’s expanded presence in the specialty
pharmaceuticals market, the assembled workforce acquired, and the expected synergies from combining operations
with Coram. The goodwill is nondeductible for income tax purposes.
Coram’s results of operations are included in the Company’s PSS beginning on January 16, 2014. Pro forma informa-
tion for this acquisition is not presented as Coram’s results are immaterial to the Company’s consolidated financial
statements. During the year ended December 31, 2014, acquisition costs of $15 million were expensed as incurred
within operating expenses.
4 | Goodwill and Other Intangibles
Goodwill and other indefinitely-lived assets are not amortized, but are subject to annual impairment reviews, or more
frequent reviews if events or circumstances indicate an impairment may exist.
When evaluating goodwill for potential impairment, the Company first compares the fair value of its reporting units
to their respective carrying amounts. The Company estimates the fair value of its reporting units using a combination
of a future discounted cash flow valuation model and a comparable market transaction model. If the estimated fair
value of the reporting unit is less than its carrying amount, an impairment loss calculation is prepared. The impair-
ment loss calculation compares the implied fair value of a reporting unit’s goodwill with the carrying amount of its
goodwill. If the carrying amount of the goodwill exceeds the implied fair value, an impairment loss is recognized
in an amount equal to the excess. During the third quarter of 2015, the Company performed its required annual
goodwill impairment tests. The Company concluded there were no goodwill impairments as of the testing date.
Below is a summary of the changes in the carrying amount of goodwill by segment for the years ended December 31,
2015 and 2014:
I N M I L L I O N S
Balance, December 31, 2013
Acquisitions
Foreign currency translation adjustments
Other (1)
Balance, December 31, 2014
Acquisitions
Foreign currency translation adjustments
Other (1)
Pharmacy Services
Retail/LTC
Total
$
19,658
$
6,884
$
26,542
1,578
—
(2)
21,234
452
—
(1)
38
(14)
—
6,908
9,554
(40)
(1)
1,616
(14)
(2)
28,142
10,006
(40)
(2)
Balance, December 31, 2015
$ 21,685
$ 16,421
$ 38,106
(1) “Other” represents immaterial purchase accounting adjustments for acquisitions.
Indefinitely-lived intangible assets are tested for impairment by comparing the estimated fair value of the asset to its
carrying value. The Company estimates the fair value of its indefinitely-lived trademark using the relief from royalty
method under the income approach. If the carrying value of the asset exceeds its estimated fair value, an impair-
ment loss is recognized and the asset is written down to its estimated fair value. During the third quarter of 2015,
the Company performed its annual impairment test of the indefinitely-lived trademark and concluded there was
no impairment as of the testing date. The carrying amount of its indefinitely-lived trademark was $6.4 billion as of
December 31, 2015 and 2014.
73
2015 Annual Report
The Company amortizes intangible assets with finite lives over the estimated useful lives of the respective assets,
which have a weighted average useful life of 15.5 years. The weighted average useful lives of the Company’s
customer contracts and relationships and covenants not to compete are 15.5 years. The weighted average lives
of the Company’s favorable leases and other intangible assets are 15.6 years. Amortization expense for intangible
assets totaled $611 million, $518 million and $494 million in 2015, 2014 and 2013, respectively. The anticipated
annual amortization expense for these intangible assets for the next five years is as follows:
I N M I L L I O N S
2016
2017
2018
2019
2020
$
760
735
705
662
490
The following table is a summary of the Company’s intangible assets as of December 31:
I N M I L L I O N S
2015
2014
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Trademark (indefinitely-lived)
$ 6,398
$
—
$ 6,398
$
6,398
$
—
$
6,398
Customer contracts and relationships
and covenants not to compete
Favorable leases and other
10,594
1,595
(4,092)
(617)
6,502
978
6,521
880
(3,549)
(476)
2,972
404
$ 18,587
$
(4,709) $ 13,878
$ 13,799
$
(4,025) $
9,774
5 | Share Repurchase Programs
The following share repurchase programs were authorized by the Company’s Board of Directors:
I N B I L L I O N S
Authorization Date
December 15, 2014 (“2014 Repurchase Program”)
December 17, 2013 (“2013 Repurchase Program”)
September 19, 2012 (“2012 Repurchase Program”)
Authorized
Remaining
$
$
$
10.0
6.0
6.0
$
$
$
7.7
—
—
The share Repurchase Programs, each of which was effective immediately, permit the Company to effect repur-
chases 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 2014 Repurchase
Program may be modified or terminated by the Board of Directors at any time. The 2013 and 2012 Repurchase
Programs have been completed, as described in the following paragraphs.
Pursuant to the authorization under the 2014 Repurchase Program, effective December 11, 2015, the Company
entered into a $725 million fixed dollar ASR with Barclays Bank PLC (“Barclays”). Upon payment of the $725 million
purchase price on December 14, 2015, the Company received a number of shares of its common stock equal to
80% of the $725 million notional amount of the ASR or approximately 6.2 million shares. At the conclusion of the
ASR program, the Company may receive additional shares equal to the remaining 20% of the $725 million notional
amount. The initial 6.2 million shares of common stock delivered to the Company by Barclays were placed into treasury
74
CVS HealthNotes to Consolidated Financial Statements
stock in December 2015. The ASR was accounted for as an initial treasury stock transaction for $580 million and a
forward contract for $145 million. The forward contract was classified as an equity instrument and was recorded within
capital surplus on the consolidated balance sheet. On January 28, 2016, the Company received 1.4 million shares of
common stock, representing the remaining 20% of the $725 million notional amount of the ASR, thereby concluding
the ASR. The remaining 1.4 million shares of common stock delivered to the Company by Barclays were placed into
treasury stock in January 2016 and the forward contract was reclassified from capital surplus to treasury stock.
Pursuant to the authorization under the 2013 Repurchase Programs, effective January 2, 2015, the Company entered
into a $2.0 billion fixed dollar ASR agreement with J.P. Morgan Chase Bank (“JP Morgan”). Upon payment of the
$2.0 billion purchase price on January 5, 2015, the Company received a number of shares of its common stock
equal to 80% of the $2.0 billion notional amount of the ASR agreement or approximately 16.8 million shares, which
were placed into treasury stock in January 2015. On May 1, 2015, the Company received approximately 3.1 million
shares of common stock, representing the remaining 20% of the $2.0 billion notional amount of the ASR, thereby
concluding the ASR. The remaining 3.1 million shares of common stock delivered to the Company by JP Morgan
were placed into treasury stock in May 2015. The ASR was accounted for as an initial treasury stock transaction for
$1.6 billion and a forward contract for $0.4 billion. The forward contract was classified as an equity instrument and
was initially recorded within capital surplus on the consolidated balance sheet and was reclassified to treasury stock
upon the settlement of the ASR in May 2015.
Pursuant to the authorization under the 2012 Repurchase Program, effective October 1, 2013, the Company entered
into a $1.7 billion fixed dollar ASR agreement with Barclays. Upon payment of the $1.7 billion purchase price on
October 1, 2013, the Company received a number of shares of its common stock equal to 50% of the $1.7 billion
notional amount of the ASR agreement or approximately 14.9 million shares at a price of $56.88 per share. The
Company received approximately 11.7 million shares of common stock on December 30, 2013 at an average price
of $63.83 per share, representing the remaining 50% of the $1.7 billion notional amount of the ASR agreement and
thereby concluding the agreement. The total of 26.6 million shares of common stock delivered to the Company
by Barclays over the term of the October 2013 ASR agreement were placed into treasury stock. The ASR was
accounted for as an initial treasury stock transaction and a forward contract. The forward contract was classified
as an equity instrument.
Each of the ASR transactions described above, the initial repurchase of the shares and delivery of the remainder
of the shares to conclude each ASR, 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.
During the year ended December 31, 2015, the Company repurchased an aggregate of 48.0 million shares of
common stock for approximately $5.0 billion under the 2013 and 2014 Repurchase Programs. As of December 31,
2015, there remained an aggregate of approximately $7.7 billion available for future repurchases under the 2014
Repurchase Program and the 2013 Repurchase Program was complete.
During the year ended December 31, 2014, the Company repurchased an aggregate of 51.4 million shares of
common stock for approximately $4.0 billion under the 2013 and 2012 Repurchase Programs. As of December 31,
2014, there remained an aggregate of approximately $12.7 billion available for future repurchases under the 2014
and 2013 Repurchase Programs. As of December 31, 2014, the 2012 Repurchase Program was complete.
During the year ended December 31, 2013, the Company repurchased an aggregate of 66.2 million shares of common
stock for approximately $4.0 billion under the 2012 Repurchase Program, which includes shares received from the
October 2013 ASR agreement described above. As of December 31, 2013, there remained an aggregate of approxi-
mately $6.7 billion available for future repurchases under the 2013 and 2012 Repurchase Programs.
75
2015 Annual Report 6 | Borrowings and Credit Agreements
The following table is a summary of the Company’s borrowings as of December 31:
I N M I L L I O N S
Commercial paper
3.25% senior notes due 2015
1.2% senior notes due 2016
6.125% senior notes due 2016
5.75% senior notes due 2017
1.9% senior notes due 2018
2.25% senior notes due 2018
2.25% senior notes due 2019
6.6% senior notes due 2019
2.8% senior notes due 2020
4.75% senior notes due 2020
4.125% senior notes due 2021
2.75% senior notes due 2022
3.5% senior notes due 2022
4.75% senior notes due 2022
4% senior notes due 2023
3.375% senior notes due 2024
5% senior notes due 2024
3.875% senior notes due 2025
6.25% senior notes due 2027
3.25% senior exchange debentures due 2035
4.875% senior notes due 2035
6.125% senior notes due 2039
5.75% senior notes due 2041
5.3% senior notes due 2043
5.125% senior notes due 2045
Capital lease obligations
Other
Total debt principal
Debt premiums
Debt discounts and deferred financing costs
Less:
Short-term debt (commercial paper)
Current portion of long-term debt
Long-term debt
$
2015
—
—
750
421
1,080
2,250
1,250
850
394
2,750
450
550
1,250
1,500
400
1,250
650
300
3,000
453
5
2,000
734
493
750
3,500
644
20
27,694
39
(269)
27,464
—
(1,197)
$
2014
685
550
750
421
1,080
—
1,250
850
394
—
450
550
1,250
—
—
1,250
650
—
—
453
—
—
734
493
750
—
391
41
12,992
—
(102)
12,890
(685)
(575)
$ 26,267
$
11,630
The Company did not have any commercial paper outstanding as of December 31, 2015. In connection with its
commercial paper program, the Company maintains a $1.0 billion, five-year unsecured back-up credit facility, which
expires on May 23, 2018, a $1.25 billion, five-year unsecured back-up credit facility, which expires on July 24, 2019,
76
CVS HealthNotes to Consolidated Financial Statements
and a $1.25 billion, five-year unsecured back-up credit facility, which expires on July 1, 2020. 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
December 31, 2015, there were no borrowings outstanding under the back-up credit facilities. The weighted average
interest rate for short-term debt outstanding as of December 31, 2014 was 0.36%.
On May 20, 2015, in connection with the acquisition of Omnicare, the Company entered into a $13 billion unsecured
bridge loan facility. The Company paid approximately $52 million in fees in connection with the facility. The fees were
capitalized and amortized as interest expense over the period the bridge facility was outstanding. The bridge loan
facility expired on July 20, 2015 upon the Company’s issuance of unsecured senior notes with an aggregate principal
of $15 billion as discussed below. The bridge loan facility fees became fully amortized in July 2015.
On July 20, 2015, the Company issued an aggregate of $2.25 billion of 1.9% unsecured senior notes due 2018
(“2018 Notes”), an aggregate of $2.75 billion of 2.8% unsecured senior notes due 2020 (“2020 Notes”), an aggregate
of $1.5 billion of 3.5% unsecured senior notes due 2022 (“2022 Notes”), an aggregate of $3 billion of 3.875% unse-
cured senior notes due 2025 (“2025 Notes”), an aggregate of $2 billion of 4.875% unsecured senior notes due 2035
(“2035 Notes”), and an aggregate of $3.5 billion of 5.125% unsecured senior notes due 2045 (“2045 Notes” and,
together with the 2018 Notes, 2020 Notes, 2022 Notes, 2025 Notes and 2035 Notes, the “Notes”) for total proceeds
of approximately $14.8 billion, net of discounts and underwriting fees. The Notes pay interest semi-annually and
contain redemption terms which allow or require the Company to redeem the Notes at a defined redemption price
plus accrued and unpaid interest at the redemption date. The net proceeds of the Notes were used to fund the
Omnicare acquisition and the acquisition of the pharmacies and clinics of Target. The remaining proceeds were
used for general corporate purposes.
Upon the closing of the Omnicare acquisition in August 2015, the Company assumed the long-term debt of Omnicare
that had a fair value of approximately $3.1 billion, $2.0 billion of which was previously convertible into Omnicare
shares that holders were able to redeem subsequent to the acquisition. During the period from August 18, 2015 to
December 31, 2015, all but $5 million of the $2.0 billion of previously convertible debt was redeemed and repaid and
approximately $0.4 billion in Omnicare term debt assumed was repaid for total repayments of Omnicare debt of
approximately $2.4 billion in 2015.
The remaining principal of the Omnicare debt assumed was comprised of senior unsecured notes with an aggregate
principal amount of $700 million ($400 million of 4.75% senior notes due 2022 and $300 million of 5% senior notes
due 2024). In September 2015, the Company commenced exchange offers for the 4.75% senior notes due 2022 and
the 5% senior notes due 2024 to exchange all validly tendered and accepted notes issued by Omnicare for notes to
be issued by the Company. This offer expired on October 20, 2015 and the aggregate principal amounts below of
each of the Omnicare notes were validly tendered and exchanged for notes issued by the Company.
Interest Rate and Maturity
4.75% senior notes due 2022
5% senior notes due 2024
Total senior notes issued under exchange transaction
Aggregate
Principal
Amount
(In Millions)
Percentage of
Total Outstanding
Principal Amount
Exchanged
$
$
388
296
684
96.8 %
98.8 %
The Company recorded this exchange transaction as a modification of the original debt instruments. As such, no
gain or loss on extinguishment was recognized in the Company’s consolidated income statement as a result of this
exchange transaction and issuance costs were expensed as incurred.
77
2015 Annual Report
On August 7, 2014, the Company issued $850 million of 2.25% unsecured senior notes due August 12, 2019
and $650 million of 3.375% unsecured senior notes due August 12, 2024 (collectively, the “2014 Notes”) for total
proceeds of approximately $1.5 billion, net of discounts and underwriting fees. The 2014 Notes pay interest
semi-annually and may be redeemed, in whole at any time, or in part from time to time, at the Company’s option
at a defined redemption price plus accrued and unpaid interest to the redemption date. The net proceeds of the
2014 Notes were used for general corporate purposes and to repay certain corporate debt.
On August 7, 2014, the Company announced tender offers for any and all of the 6.25% Senior Notes due 2027, and
up to a maximum amount of the 6.125% Senior Notes due 2039, the 5.75% Senior Notes due 2041 and the 5.75%
Senior Notes due 2017, for up to an aggregate principal amount of $1.5 billion. On August 21, 2014, the Company
increased the aggregate principal amount of the tender offers to $2.0 billion and completed the repurchase for
the maximum amount on September 4, 2014. The Company paid a premium of $490 million in excess of the debt
principal in connection with the tender offers, wrote off $26 million of unamortized deferred financing costs and
incurred $5 million in fees, for a total loss on the early extinguishment of debt of $521 million. The loss was recorded in
income from continuing operations on the consolidated statement of income for the year ended December 31, 2014.
During the year ended December 31, 2014, the Company repurchased the remaining $41 million of outstanding
Enhanced Capital Advantage Preferred Securities (“ECAPS”) at par. The fees and write-off of deferred issuance
costs associated with the early extinguishment of the ECAPS were immaterial.
On December 2, 2013, the Company issued $750 million of 1.2% unsecured senior notes due December 5, 2016;
$1.25 billion of 2.25% unsecured senior notes due December 5, 2018; $1.25 billion of 4.0% unsecured senior notes
due December 5, 2023; and $750 million of 5.3% unsecured senior notes due December 5, 2043 (the “2013 Notes”)
for total proceeds of approximately $4.0 billion, net of discounts and underwriting fees. The 2013 Notes pay interest
semi-annually and may be redeemed, in whole at any time, or in part from time to time, at the Company’s option at
a defined redemption price plus accrued and unpaid interest to the redemption date. The net proceeds of the 2013
Notes were used to repay commercial paper outstanding at the time of issuance and to fund the acquisition of
Coram in January 2014. The remainder was used for general corporate purposes.
The credit facilities, back-up credit facilities and unsecured senior notes contain customary restrictive financial and
operating covenants. The covenants do not materially affect the Company’s financial or operating flexibility.
The following is a summary of the Company’s required principal debt repayments, excluding unamortized debt
discounts, deferred financing costs and debt premiums, due during each of the next five years and thereafter, as of
December 31, 2015:
Year Ending December 31:
I N M I L L I O N S
2016
2017
2018
2019
2020
Thereafter
Total
78
$
1,197
1,113
3,521
1,266
3,224
17,373
$
27,694
CVS HealthNotes to Consolidated Financial Statements
7 | Leases
The Company leases most of its retail and mail order locations, ten of its distribution centers and certain corporate
offices under noncancelable operating leases, typically with initial terms of 15 to 25 years and with options that
permit renewals for additional periods. The Company also leases certain equipment and other assets under
noncancelable operating leases, typically with initial terms of 3 to 10 years. In December 2015, in connection with
the acquisition of the pharmacy and clinic businesses of Target, the Company entered into lease agreements with
Target for the pharmacy and clinic space within Target stores. Given that the noncancelable contractual term of
the pharmacy lease arrangement exceeds the remaining estimated economic life of the buildings being leased, the
Company concluded for accounting purposes that the lease term was the remaining economic life of the buildings.
Consequently, most of the individual pharmacy leases are capital leases. Approximately $0.3 billion of capital lease
obligations were recorded in connection with this transaction.
Minimum rent on operating leases is expensed on a straight-line basis over the term of the lease. In addition to
minimum rental payments, certain leases require additional payments based on sales volume, as well as reimburse-
ment for real estate taxes, common area maintenance and insurance, which are expensed when incurred.
The following table is a summary of the Company’s net rental expense for operating leases for the years ended
December 31:
I N M I L L I O N S
Minimum rentals
Contingent rentals
Less: sublease income
2015
2014
2013
$
2,317
$
2,320
$
2,210
34
2,351
(22)
36
2,356
(21)
41
2,251
(21)
$
2,329
$
2,335
$
2,230
The following table is a summary of the future minimum lease payments under capital and operating leases as of
December 31, 2015:
I N M I L L I O N S
2016
2017
2018
2019
2020
Thereafter
Total future lease payments (2)
Less: imputed interest
Present value of capital lease obligations
Capital
Leases
Operating
Leases (1)
$
2,405
2,321
2,197
2,044
1,877
16,837
$
27,681
$
$
52
94
70
69
69
970
1,324
(679)
645
(1) Future operating lease payments have not been reduced by minimum sublease rentals of $180 million due in the future under noncancelable
subleases.
(2) The Company leases pharmacy and clinic space from Target. Amounts related to such capital and operating leases are reflected above. Amounts
due in excess of the remaining estimated economic life of the buildings of approximately $1.7 billion are not reflected herein since the estimated
economic life of the buildings is shorter than the contractual term of the lease arrangement.
79
2015 Annual Report
The Company finances a portion of its store development program through sale-leaseback transactions. The properties
are generally sold at net book value, which generally approximates fair value, and the resulting leases generally qualify
and are accounted for as operating leases. The operating leases that resulted from these transactions are included in
the previous table. The Company does not have any retained or contingent interests in the stores and does not provide
any guarantees, other than a guarantee of lease payments, in connection with the sale-leaseback transactions. Proceeds
from sale-leaseback transactions totaled $411 million in 2015, $515 million in 2014 and $600 million in 2013.
8 | Medicare Part D
The Company offers Medicare Part D benefits through SilverScript, which has contracted with CMS to be a PDP
and, pursuant to the Medicare Prescription Drug, Improvement and Modernization Act of 2003, must be a risk-bear-
ing entity regulated under state insurance laws or similar statutes.
SilverScript is a licensed domestic insurance company under the applicable laws and regulations. Pursuant to these
laws and regulations, SilverScript must file quarterly and annual reports with the National Association of Insurance
Commissioners (“NAIC”) and certain state regulators, must maintain certain minimum amounts of capital and surplus
under a formula established by the NAIC and must, in certain circumstances, request and receive the approval of
certain state regulators before making dividend payments or other capital distributions to the Company. The Company
does not believe these limitations on dividends and distributions materially impact its financial position.
The Company has recorded estimates of various assets and liabilities arising from its participation in the Medicare
Part D program based on information in its claims management and enrollment systems. Significant estimates
arising from its participation in this program include: (i) estimates of low-income cost subsidy, reinsurance amounts,
and coverage gap discount amounts ultimately payable to or receivable from CMS based on a detailed claims recon-
ciliation that will occur in the following year; (ii) an estimate of amounts receivable from or payable to CMS under
a risk-sharing feature of the Medicare Part D program design, referred to as the risk corridor and (iii) estimates for
claims that have been reported and are in the process of being paid or contested and for our estimate of claims that
have been incurred but have not yet been reported.
As of December 31, 2015 and 2014, amounts due from CMS included in accounts receivable were $1.6 billion and
$1.8 billion, respectively.
9 | Pension Plans and Other Postretirement Benefits
Defined Contribution Plans
The Company sponsors voluntary 401(k) savings plans that cover all employees who meet plan eligibility require-
ments. The Company makes matching contributions consistent with the provisions of the plans.
At the participant’s option, account balances, including the Company’s matching contribution, can be transferred
without restriction among various investment options, including the Company’s common stock fund under one of
the defined contribution plans. The Company also maintains a nonqualified, unfunded Deferred Compensation Plan
for certain key employees. This plan provides participants the opportunity to defer portions of their eligible compensa-
tion and receive matching contributions equivalent to what they could have received under the CVS Health 401(k) Plan
absent certain restrictions and limitations under the Internal Revenue Code. The Company’s contributions under the
above defined contribution plans were $251 million, $238 million and $235 million in 2015, 2014 and 2013, respectively.
Defined Benefit Pension Plans
As of December 31, 2015, the Company sponsored seven defined benefit pension plans. Two of the plans are
tax-qualified plans that are funded based on actuarial calculations and applicable federal laws and regulations. The
other five plans are unfunded nonqualified supplemental retirement plans. As of December 31, 2014 and 2013, the
Company sponsored nine defined benefit pension plans. Four of the plans were tax-qualified plans and the other
five plans were unfunded nonqualified supplemental retirement plans. Most of the plans were frozen in prior periods.
80
CVS HealthNotes to Consolidated Financial Statements On September 30, 2015, the Company’s Board of Directors approved a resolution to merge the four tax-qualified
defined benefit plans that existed in 2014 and terminate the resulting merged plan. The merger was effective
September 30, 2015 and the merged plan termination was effective December 31, 2015. It is expected to take
approximately 18 to 24 months to complete the settlement of the terminated plan from the date of the approved
resolution. The assumptions used to calculate the pension liability as of December 31, 2015 reflect the resolution
to terminate the merged plan. This resulted in the pension liability and pre-tax accumulated other comprehensive
income both increasing by $67 million during the three months ended December 31, 2015. The pension liability will
be settled in either lump sum payments or purchased annuities. Currently, there is not enough information available
to determine the ultimate cost of the termination; however, based on current market rates the one-time settlement
charge at final liquidation is estimated to be in the range of approximately $175 million to $250 million.
The following tables outline the change in benefit obligations and plan assets over the comparable periods:
I N M I L L I O N S
Change in benefit obligation:
Benefit obligation at beginning of year
Acquisition
Service cost
Interest cost
Actuarial loss
Benefit payments
Settlements
2015
2014
$
796
$
694
8
—
31
45
(36)
—
—
1
32
119
(41)
(9)
796
Benefit obligation at end of year
$
844
$
I N M I L L I O N S
Change in plan assets:
2015
2014
Fair value of plan assets at the beginning of the year
$
635
$
568
Acquisitions
Actual return on plan assets
Employer contributions
Benefit payments
Settlements
Fair value of plan assets at the end of the year
Funded status
5
(13)
22
(36)
—
613
$
(231)
$
—
75
42
(41)
(9)
635
(161)
The components of net periodic benefit costs for the years ended December 31, 2015, 2014 and 2013 are
shown below:
I N M I L L I O N S
2015
2014
2013
Components of net periodic benefit cost:
Interest cost
Expected return on plan assets
Amortization of net loss
Settlement loss
Service cost
Net periodic pension cost
$
$
31
(33)
21
—
—
19
$
$
32
(31)
16
3
1
21
$
$
30
(34)
22
—
1
19
81
2015 Annual Report
Pension Plan Assumptions
The Company uses a series of actuarial assumptions to determine the benefit obligations and the net benefit costs.
The discount rate is determined by examining the current yields observed on the measurement date of fixed-inter-
est, high quality investments expected to be available during the period to maturity of the related benefits on a plan
by plan basis. The discount rate for the merged qualified plan that has been terminated is determined by examining
the current assumed lump sum and annuity purchase rates. The expected long-term rate of return on plan assets is
determined by using the plan’s target allocation and historical returns for each asset class on a plan by plan basis.
Certain of the Company’s pension plans use assumptions on expected compensation increases of plan participants.
These increases are determined by an actuarial analysis of the plan participants, their expected compensation
increases, and the duration of their earnings period until retirement. Each of these assumptions are reviewed as plan
characteristics change and on an annual basis with input from senior pension and financial executives and the
Company’s external actuarial consultants.
The discount rate for determining plan benefit obligations was 4.25% for all plans except the merged qualified
plan in 2015 and 4% for all plans in 2014. The discount rate for the merged qualified plan was 3.25% in 2015. The
expected long-term rate of return for the plans ranged from 5.75% to 6.75% in 2015 and ranged from 5.75% to
7.25% in 2014. The rate of compensation increases for certain of the plans with active participants ranged from 4%
to 6% in 2015 and 2014.
Return on Plan Assets
Historically, the Company used an investment strategy which emphasized equities in order to produce higher
expected returns, and in the long run, lower expected expense and cash contribution requirements. Beginning in
2013, the Company changed its investment strategy to be liability management driven. The qualified pension plan
asset allocation targets in 2014 and 2013 were revised to hold more fixed income investments based on the change
in the investment strategy. As of December 31, 2015, investment allocations for the two qualified defined benefit
plans range from 80% to 100% in fixed income and 0% to 20% in equities. The following tables show the fair value
allocation of plan assets by asset category as of December 31, 2015 and 2014.
I N M I L L I O N S
Cash and money market funds
Fixed income funds
Equity mutual funds
Total assets at fair value
Cash and money market funds
Fixed income funds
Equity mutual funds
Total assets at fair value
FAI R VAL U E O F P L AN AS SE T S AT DE C E M BE R 3 1 , 2 015
Level 1
Level 2
Level 3
Total
10
$
—
$
4
115
129
484
—
$
484
$
—
—
—
—
$
$
10
488
115
613
FAI R VAL U E O F P L AN AS S ETS AT DE C E MB E R 3 1 , 2 014
Level 1
Level 2
Level 3
Total
7
$
—
$
—
84
91
514
30
$
544
$
—
—
—
—
$
$
7
514
114
635
$
$
$
$
As of December 31, 2015, the Company’s qualified defined benefit pension plan assets consisted of 19% equity,
80% fixed income and 2% money market securities of which 21% were classified as Level 1 and 79% as Level 2
in the fair value hierarchy. The Company’s qualified defined benefit pension plan assets as of December 31, 2014
consisted of 18% equity, 81% fixed income and 1% money market securities of which 14% were classified as
Level 1 and 86% as Level 2 in the fair value hierarchy.
82
CVS HealthNotes to Consolidated Financial Statements
The Company continued to have no investments in Level 3 alternative investments during the years ended
December 31, 2015 and 2014.
Cash Flows
The Company contributed $22 million, $42 million and $33 million to the pension plans during 2015, 2014 and 2013,
respectively. The Company plans to make approximately $37 million in contributions to the pension plans during
2016. These contributions include contributions made to certain nonqualified benefit plans for which there is no
funding requirement. The Company estimates the following future benefit payments which are calculated using the
same actuarial assumptions used to measure the benefit obligation as of December 31, 2015:
I N M I L L I O N S
2016
2017 (1)
2018
2019
2020
Thereafter
$
37
39
51
50
49
250
(1) Excludes any payments associated with the ultimate settlement of the terminated plan discussed above.
Multiemployer Pension Plans
The Company also contributes to a number of multiemployer pension plans under the terms of collective-bargaining
agreements that cover its union-represented employees. The risks of participating in these multiemployer plans are
different from single-employer pension plans in the following aspects: (i) assets contributed to the multiemployer plan
by one employer may be used to provide benefits to employees of other participating employers, (ii) if a participating
employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining partici-
pating employers, and (iii) if the Company chooses to stop participating in some of its multiemployer plans, the
Company may be required to pay those plans an amount based on the underfunded status of the plan, referred to
as a withdrawal liability.
None of the multiemployer pension plans in which the Company participates are individually significant to the
Company. Total Company contributions to multiemployer pension plans were $14 million in 2015 and 2014 and
$13 million in 2013.
Other Postretirement Benefits
The Company provides postretirement health care and life insurance benefits to certain retirees who meet eligibility
requirements. The Company’s funding policy is generally to pay covered expenses as they are incurred. For retiree
medical plan accounting, the Company reviews external data and its own historical trends for health care costs to
determine the health care cost trend rates. As of December 31, 2015 and 2014, the Company’s other postretirement
benefits have an accumulated postretirement benefit obligation of $33 million and $31 million, respectively. Net
periodic benefit costs related to these other postretirement benefits were $2 million in 2015, $1 million in 2014, and
$11 million in 2013. The net periodic benefit costs for 2013 include a settlement loss of $8 million.
Pursuant to various collective bargaining agreements, the Company also contributes to multiemployer health and
welfare plans that cover certain union-represented employees. The plans provide postretirement health care and life
insurance benefits to certain employees who meet eligibility requirements. Total Company contributions to multiem-
ployer health and welfare plans were $60 million, $58 million and $55 million in 2015, 2014 and 2013, respectively.
83
2015 Annual Report
10 | Stock Incentive Plans
Stock-based compensation expense is measured at the grant date based on the fair value of the award and is
recognized as expense over the requisite service period of the stock award (generally three to five years) using the
straight-line method.
Compensation expense related to stock options, which includes the Employee Stock Purchase Plan (the “ESPP”)
totaled $90 million, $103 million and $100 million for 2015, 2014 and 2013, respectively. The recognized tax benefit
was $26 million, $33 million and $32 million for 2015, 2014 and 2013, respectively. Compensation expense related
to restricted stock awards totaled $140 million, $62 million and $41 million for 2015, 2014 and 2013, respectively.
Stock-based compensation for the year ended December 31, 2015 includes $38 million associated with accelerated
vesting of restricted stock replacement awards issued to Omnicare executives who were terminated subsequent to
the acquisition.
The ESPP provides for the purchase of up to 15 million shares of common stock. In March 2013, the Board of
Directors approved an amendment to the ESPP to provide an additional 15 million shares of common stock for
issuance. Under the ESPP, eligible employees may purchase common stock at the end of each six month offering
period at a purchase price equal to 85% of the lower of the fair market value on the first day or the last day of the
offering period. During 2015, approximately 1 million shares of common stock were purchased under the provisions
of the ESPP at an average price of $72.21 per share. As of December 31, 2015, approximately 14 million shares of
common stock were available for issuance under the ESPP.
The fair value of stock-based compensation associated with the ESPP is estimated on the date of grant (the first day
of the six month offering period) using the Black-Scholes Option Pricing Model.
The following table is a summary of the assumptions used to value the ESPP awards for each of the respective
periods:
Dividend yield (1)
Expected volatility (2)
Risk-free interest rate (3)
Expected life (in years) (4)
2015
0.71 %
13.92 %
0.11 %
0.50
2014
0.75 %
14.87 %
0.08 %
0.5
2013
0.86 %
16.94 %
0.10 %
0.5
Weighted-average grant date fair value
$
18.72
$
13.74
$
10.08
(1) The dividend yield is calculated based on semi-annual dividends paid and the fair market value of the Company’s stock at the grant date.
(2) The expected volatility is based on the historical volatility of the Company’s daily stock market prices over the previous six month period.
(3) The risk-free interest rate is based on the Treasury constant maturity interest rate whose term is consistent with the expected term of ESPP
options (i.e., 6 months).
(4) The expected life is based on the semi-annual purchase period.
The terms of the Company’s Incentive Compensation Plan (“ICP”) provide for grants of annual incentive and long-term
performance awards to executive officers and other officers and employees of the Company or any subsidiary of the
Company. Payment of such annual incentive and long-term performance awards will be in cash, stock, other awards
or other property, at the discretion of the Management Planning and Development Committee of the Company’s
Board of Directors. The ICP allows for a maximum of 74 million shares to be reserved and available for grants.
The ICP is the only compensation plan under which the Company grants stock options, restricted stock and other
stock-based awards to its employees, with the exception of the Company’s ESPP. In November 2012, the Company’s
Board of Directors approved an amendment to the ICP to eliminate the share recycling provision of the ICP. As of
December 31, 2015, there were approximately 24 million shares available for future grants under the ICP.
84
CVS HealthNotes to Consolidated Financial Statements
The Company’s restricted awards are considered nonvested share awards and require no payment from the
employee. Compensation cost is recorded based on the market price of the Company’s common stock on the grant
date and is recognized on a straight-line basis over the requisite service period. The Company granted 2,695,000,
2,708,000 and 1,715,000 restricted stock units with a weighted average fair value of $100.81, $73.60 and $54.30 in
2015, 2014 and 2013, respectively. As of December 31, 2015, there was $268 million of total unrecognized compensa-
tion cost related to the restricted stock units that are expected to vest. These costs are expected to be recognized
over a weighted-average period of 2.61 years. The total fair value of restricted shares vested during 2015, 2014 and
2013 was $164 million, $57 million and $41 million, respectively.
The following table is a summary of the restricted stock unit and restricted share award activity for the year ended
December 31, 2015:
U N I T S I N T H O U S A N D S
Nonvested at beginning of year
Granted
Vested
Forfeited
Nonvested at end of year
Weighted
Average
Grant Date
Fair Value
$
$
$
$
$
51.90
100.81
103.82
73.61
59.22
Units
4,677
2,695
(1,646)
(308)
5,418
All grants under the ICP are awarded at fair value on the date of grant. The fair value of stock options is estimated
using the Black-Scholes Option Pricing Model and stock-based compensation is recognized on a straight-line basis
over the requisite service period. Stock options granted generally become exercisable over a four-year period from
the grant date. Stock options generally expire seven years after the grant date.
Excess tax benefits of $127 million, $106 million and $62 million were included in financing activities in the accompanying
consolidated statements of cash flow during 2015, 2014 and 2013, respectively. Cash received from stock options
exercised, which includes the ESPP, totaled $299 million, $421 million and $500 million during 2015, 2014 and 2013,
respectively. The total intrinsic value of stock options exercised was $394 million, $372 million and $282 million in 2015,
2014 and 2013, respectively. The total fair value of stock options vested during 2015, 2014 and 2013 was $334 million,
$292 million and $329 million, respectively.
The fair value of each stock option is estimated using the Black-Scholes option pricing model based on the following
assumptions at the time of grant:
Dividend yield (1)
Expected volatility (2)
Risk-free interest rate (3)
Expected life (in years) (4)
2015
1.37 %
18.07 %
1.24 %
4.20
Weighted-average grant date fair value
$
14.01
$
2014
1.47 %
19.92 %
1.35 %
4.00
11.04
$
2013
1.65 %
30.96 %
0.73 %
4.70
12.50
(1) The dividend yield is based on annual dividends paid and the fair market value of the Company’s stock at the grant date.
(2) The expected volatility is estimated using the Company’s historical volatility over a period equal to the expected life of each option grant after
adjustments for infrequent events such as stock splits.
(3) The risk-free interest rate is selected based on yields from U.S. Treasury zero-coupon issues with a remaining term equal to the expected term of
the options being valued.
(4) The expected life represents the number of years the options are expected to be outstanding from grant date based on historical option holder
exercise experience.
85
2015 Annual Report
As of December 31, 2015, unrecognized compensation expense related to unvested options totaled $91 million,
which the Company expects to be recognized over a weighted-average period of 1.72 years. After considering
anticipated forfeitures, the Company expects approximately 12 million of the unvested stock options to vest over
the requisite service period.
The following table is a summary of the Company’s stock option activity for the year ended December 31, 2015:
S H A R E S I N T H O U S A N D S
Outstanding at December 31, 2014
Granted
Exercised
Forfeited
Expired
Outstanding at December 31, 2015
Exercisable at December 31, 2015
Vested at December 31, 2015 and expected
to vest in the future
Shares
28,166
3,772
(6,425)
(902)
(270)
24,341
11,847
23,765
Weighted
Average
Exercise Price
Weighted
Average
Remaining
Contractual Term
Aggregate
Intrinsic Value
$
$
$
$
$
$
$
$
47.87
102.25
40.68
66.81
38.03
57.60
42.17
56.96
3.88
2.66
$ 993,965,110
$ 658,732,653
3.84
$ 984,746,487
11 | Income Taxes
The income tax provision for continuing operations consisted of the following for the years ended December 31:
I N M I L L I O N S
Current:
Federal
State
Deferred:
Federal
State
Total
2015
2014
2013
$
3,065
$
2,581
$
2,623
555
3,620
(180)
(54)
(234)
495
3,076
(43)
—
(43)
437
3,060
(115)
(17)
(132)
$
3,386
$
3,033
$
2,928
The following table is a reconciliation of the statutory income tax rate to the Company’s effective income tax rate for
continuing operations for the years ended December 31:
Statutory income tax rate
State income taxes, net of federal tax benefit
Other
Effective income tax rate
2015
35.0 %
4.0
0.3
2014
35.0 %
4.3
0.2
39.3 %
39.5 %
2013
35.0 %
4.0
(0.1)
38.9 %
86
CVS HealthNotes to Consolidated Financial Statements
The following table is a summary of the significant components of the Company’s deferred tax assets and liabilities
as of December 31:
I N M I L L I O N S
Deferred tax assets:
Lease and rents
Inventory
Employee benefits
Allowance for doubtful accounts
Retirement benefits
Net operating loss and capital loss carryforwards
Deferred income
Other
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Inventories
Depreciation and amortization
Total deferred tax liabilities
Net deferred tax liabilities
2015
2014
$
378
99
359
279
105
115
83
498
(115)
1,801
—
(6,018)
(6,018)
$
396
—
311
164
80
74
261
297
(5)
1,578
(18)
(4,572)
(4,590)
$
(4,217)
$
(3,012)
Net deferred tax assets (liabilities) are presented on the consolidated balance sheets as follows:
I N M I L L I O N S
Deferred tax assets – current
Deferred tax assets – noncurrent (included in other assets)
Deferred tax liabilities – noncurrent
Net deferred tax liabilities
2015
$
1,220
$
—
(5,437)
2014
985
39
(4,036)
$
(4,217)
$
(3,012)
The Company assesses positive and negative evidence to determine whether it is more likely than not some portion
of a deferred tax asset would not be realized. When it would not, a valuation allowance is established for such
portion of a deferred tax asset. The Company’s valuation allowance increased by $110 million in the current year, a
majority of which relates to capital losses assumed in the Omnicare acquisition.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
I N M I L L I O N S
Beginning balance
Additions based on tax positions related to the current year
Additions based on tax positions related to prior years
Reductions for tax positions of prior years
Expiration of statutes of limitation
Settlements
Ending balance
2015
2014
2013
$
188
57
122
(11)
(13)
(5)
$
117
$
32
70
(15)
(15)
(1)
80
19
37
(1)
(17)
(1)
$
338
$
188
$
117
87
2015 Annual Report
The Company and most of its subsidiaries are subject to U.S. federal income tax as well as income tax of numerous
state and local jurisdictions. The Company is a participant in the Compliance Assurance Process (“CAP”), which is a
voluntary program offered by the Internal Revenue Service (“IRS”) under which participating taxpayers work collabo-
ratively with the IRS to identify and resolve potential tax issues through open, cooperative and transparent interaction
prior to the filing of their federal income tax. The IRS is currently examining the Company’s 2014 and 2015 consoli-
dated U.S. federal income tax returns.
The Company and its subsidiaries are also currently under income tax examinations by a number of state and local
tax authorities. As of December 31, 2015, no examination has resulted in any proposed adjustments that would
result in a material change to the Company’s results of operations, financial condition or liquidity.
Substantially all material state and local income tax matters have been concluded for fiscal years through 2010.
Although certain state exams will be concluded and certain state statutes will lapse in 2016, the change in the
balance of our uncertain tax positions will be immaterial. In addition, it is reasonably possible that the Company’s
unrecognized tax benefits could significantly change within the next twelve months due to the anticipated conclu-
sion of various examinations with the IRS for various years. An estimate of the range of the possible change cannot
be made at this time.
The Company recognizes interest accrued related to unrecognized tax benefits and penalties in income tax expense.
The Company recognized interest of approximately $5 million during the year ended December 31, 2015, $6 million
during the year ended December 31, 2014, and $4 million during the year ended December 31, 2013. The Company
had approximately $16 million and $11 million accrued for interest and penalties as of December 31, 2015 and
2014, respectively.
There are no material uncertain tax positions as of December 31, 2015 the ultimate deductibility of which is highly
certain but for which there is uncertainty about the timing. If there were, any such items would impact deferred tax
accounting only, not the annual effective income tax rate, and would accelerate the payment of cash to the taxing
authority to a period earlier than expected.
As of December 31, 2015, the total amount of unrecognized tax benefits that, if recognized, would affect the
effective income tax rate is approximately $292 million, after considering the federal benefit of state income taxes.
12 | Commitments and Contingencies
Lease Guarantees
Between 1991 and 1997, the Company sold or spun off a number of subsidiaries, including Bob’s Stores,
Linens ‘n Things, Marshalls, Kay-Bee Toys, Wilsons, This End Up and Footstar. In many cases, when a former
subsidiary leased a store, the Company provided a guarantee of the store’s lease obligations. When the subsidiar-
ies were disposed of, the Company’s guarantees remained in place, although each initial purchaser has 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 were to become insolvent and failed to make the required payments under a store
lease, the Company could be required to satisfy these obligations.
As of December 31, 2015, the Company guaranteed approximately 72 such store leases (excluding the lease guaran-
tees related to Linens ‘n Things, which are discussed in Note 1), with the maximum remaining lease term extending
through 2026. Management believes the ultimate disposition of any of the remaining guarantees will not have a
material adverse effect on the Company’s consolidated financial condition, results of operations or future cash flows.
Legal Matters
The Company is a party to legal proceedings, investigations and claims in the ordinary course of its business,
including the matters described later in this document. 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
88
CVS HealthNotes to Consolidated Financial Statements 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 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 position.
The Company’s contingencies are subject to significant uncertainties, including, among other factors: (i) the proce-
dural status of pending matters; (ii) whether class action status is sought and certified; (iii) whether asserted claims
or allegations will survive dispositive motion practice; (iv) the extent of potential damages, fines or penalties, which
are often unspecified or indeterminate; (v) the impact of discovery on the legal process; (vi) whether novel or
unsettled legal theories are at issue; (vii) the settlement posture of the parties, and/or (viii) in the case of certain
government agency investigations, whether a sealed qui tam lawsuit (“whistleblower” action) has been filed and
whether the government agency makes a decision to intervene in the lawsuit following investigation.
Except as otherwise noted, the Company cannot predict with certainty the timing or outcome of the legal matters
described below, and is unable to reasonably estimate a possible loss or range of possible loss in excess of
amounts already accrued for these matters.
• Caremark (the term “Caremark” being used herein to generally refer to any one or more PBM subsidiaries of the
Company, as applicable) was named in a putative class action lawsuit filed in October 2003 in Alabama state
court by John Lauriello, purportedly on behalf of participants in the 1999 settlement of various securities class
action and derivative lawsuits against Caremark and others. Other defendants include insurance companies that
provided coverage to Caremark with respect to the settled lawsuits. The Lauriello lawsuit seeks approximately
$3.2 billion in compensatory damages plus other non-specified damages based on allegations that the amount of
insurance coverage available for the settled lawsuits was misrepresented and suppressed. A similar lawsuit was
filed in November 2003 by Frank McArthur, also in Alabama state court, naming as defendants, among others,
Caremark and several insurance companies involved in the 1999 settlement. This lawsuit was stayed as a
later-filed class action, but McArthur was subsequently allowed to intervene in the Lauriello action. Following the
close of class discovery, the trial court entered an Order on August 15, 2012 that granted the plaintiffs’ motion to
certify a class pursuant to Alabama Rule of Civil Procedures 23(b)(3) but denied their request that the class also
be certified pursuant to Rule 23(b)(1). In addition, the August 15, 2012 Order appointed class representatives and
class counsel. On September 12, 2014, the Alabama Supreme Court affirmed the trial court’s August 15, 2012
Order. In November 2015, the trial court ruled on the parties’ motions for summary judgment. The Court granted
in part and denied in part plaintiffs’ motion for summary judgment and the Court denied Caremark’s motion for
summary judgment. The parties engaged in mediation in January 2016. The case is proceeding and trial is
currently scheduled to begin on February 19, 2016.
• Beginning in August 2003, various lawsuits were filed by pharmacies alleging that Caremark and other PBMs were
violating certain antitrust laws. In August 2003, Bellevue Drug Co., Robert Schreiber, Inc. d/b/a Burns Pharmacy
and Rehn-Huerbinger Drug Co. d/b/a Parkway Drugs #4, together with Pharmacy Freedom Fund and the National
Community Pharmacists Association filed a putative class action against Caremark in the United States District
Court for the Eastern District of Pennsylvania, seeking treble damages and injunctive relief. This case was initially
sent to arbitration based on the contract terms between the pharmacies and Caremark, but later returned to
federal court, where it currently remains. In addition, in October 2003, two independent pharmacies, North
Jackson Pharmacy, Inc. and C&C, Inc. d/b/a Big C Discount Drugs, Inc., filed three separate putative class action
complaints in the United States District Court for the Northern District of Alabama, all seeking treble damages
and injunctive relief. One complaint named three Caremark entities as defendants, and the other two complaints
named PBM competitors. The North Jackson Pharmacy case against two of the Caremark entities was transferred
to the United States District Court for the Northern District of Illinois; the case against the third Caremark entity
was sent to arbitration based on contract terms between the pharmacies and that entity. The arbitration was
stayed at the parties’ request and later closed by the American Arbitration Association.
89
2015 Annual Report In August 2006, the Judicial Panel on Multidistrict Litigation issued an order transferring all related PBM antitrust
cases, including the North Jackson Pharmacy cases, to the United States District Court for the Eastern District of
Pennsylvania for coordinated and consolidated proceedings with the cases originally filed in that court, including
the Bellevue matter. The consolidated action is now known as In re Pharmacy Benefit Managers Antitrust Litigation.
A motion for class certification filed by the North Jackson Pharmacy plaintiffs against the Caremark defendants in
August 2015 is currently pending. In the Bellevue matter, the parties are in the early stages of discovery.
• In February 2006, two substantially similar putative class action lawsuits were filed in the U.S. District Court for
the Eastern District of Kentucky, and were consolidated and entitled Indiana State Dist. Council of Laborers &
HOD Carriers Pension & Welfare Fund v. Omnicare, Inc., et al., No. 2:06cv26. The consolidated complaint was
filed against Omnicare, three of its officers and two of its directors and purported to be brought on behalf of all
open-market purchasers of Omnicare common stock from August 3, 2005 through July 27, 2006, as well as all
purchasers who bought shares of Omnicare common stock in Omnicare’s public offering in December 2005. The
complaint alleged violations of the Securities Exchange Act of 1934 and Section 11 of the Securities Act of 1933
and sought, among other things, compensatory damages and injunctive relief. After dismissals and appeals to the
United States Court of Appeals for the Sixth Circuit, the United States Supreme Court remanded the case to the
district court. In October 2015, the court granted plaintiffs’ motion to file a third amended complaint. In December
2015, Omnicare filed a motion to dismiss plaintiffs’ third amended complaint.
• In December 2007, the Company received a document subpoena from the Office of Inspector General (“OIG”)
within the U.S. Department of Health and Human Services, requesting information relating to the processing of
Medicaid and certain other government agency claims on behalf of its clients (which allegedly resulted in under-
payments from our pharmacy benefit management clients to the applicable government agencies) on one of the
Company’s adjudication platforms. In September 2014, the Company settled the OIG’s claims, as well as related
claims by the Department of Justice and private plaintiffs, without any admission of liability. The Company is in
discussions with the OIG concerning other claim processing issues.
• In November 2009, a securities class action lawsuit was filed in the United States District Court for the District of
Rhode Island by Richard Medoff, purportedly on behalf of purchasers of CVS Health Corporation stock between
May 5, 2009 and November 4, 2009. An amended complaint extended that time period back to October 30, 2008.
The lawsuit names the Company and certain officers as defendants and includes allegations of securities fraud
relating to public disclosures made by the Company concerning the PBM business and allegations of insider
trading. In addition, a shareholder derivative lawsuit was filed by Mark Wuotila in December 2009 in the same
court against the directors and certain officers of the Company. This lawsuit, which has remained stayed pending
developments in the related securities class action, includes allegations of, among other things, securities fraud,
insider trading and breach of fiduciary duties and further alleges that the Company was damaged by the purchase
of stock at allegedly inflated prices under its share repurchase program. In January 2011, both lawsuits were
transferred to the United States District Court for the District of New Hampshire. In August 2015, the Parties
reached an agreement in principle to settle the Medoff action for $48 million. In September 2015, the Parties filed
a joint stipulation seeking preliminary approval for this settlement. Preliminary approval was granted in November
2015 and the final approval hearing occurred in January 2016. The Company denies any wrongdoing, and agreed
to a settlement to avoid the burden, uncertainty and distraction of litigation. The settlement will be funded by
insurance proceeds. The Wuotila derivative matter remains pending.
• As part of a previously disclosed civil settlement agreement entered into by Omnicare with the U.S. Attorney’s
Office, for the District of Massachusetts in November 2009, Omnicare also entered into an amended and restated
corporate integrity agreement (“CIA”) with the OIG with a term of five years from November 2, 2009 with certain
provisions continuing for a period after the term. In October 2015, Omnicare received a closure letter from the
OIG. The Company is continuing discussions with the OIG around the CIA and its compliance program.
• In March 2010, the Company learned that various State Attorneys General offices and certain other government
agencies were conducting a multi-state investigation of certain of the Company’s business practices similar to
90
CVS HealthNotes to Consolidated Financial Statements those being investigated at that time by the U.S. Federal Trade Commission (“FTC”). Twenty-eight states, the
District of Columbia and the County of Los Angeles are known to be participating in this investigation. The prior
FTC investigation, which commenced in August 2009, was officially concluded in May 2012 when the consent
order entered into between the FTC and the Company became final. The Company has cooperated with the
multi-state investigation.
• In March 2010, the Company received a subpoena from the OIG requesting information about programs under
which the Company has offered customers remuneration conditioned upon the transfer of prescriptions for drugs
or medications to the Company’s pharmacies in the form of gift cards, cash, non-prescription merchandise or
discounts or coupons for non-prescription merchandise. The subpoena relates to an investigation of possible
false or otherwise improper claims for payment under the Medicare and Medicaid programs. The Company has
provided documents and other information in response to this request for information.
• On October 29, 2010, a qui tam complaint entitled United States et al., ex rel. Banigan and Templin v. Organon
USA, Inc., Omnicare, Inc. and PharMerica Corporation, Civil No. 07-12153-RWZ, that had been filed under seal
with the U.S. District Court in Boston, Massachusetts, was ordered unsealed by the court. The complaint was
brought by James Banigan and Richard Templin, former employees of Organon, as private party qui tam relators
on behalf of the federal government and several state and local governments. The action alleges civil violations of
the False Claims Act based on allegations that Organon and its affiliates paid Omnicare and several other long-
term care pharmacies rebates, post-purchase discounts and other forms of remuneration in return for purchasing
pharmaceuticals from Organon and taking steps to increase the purchase of Organon’s drugs in violation of the
Anti-Kickback Statute. The U.S. Department of Justice declined to intervene in this action. The court denied
Omnicare’s motion to dismiss in June 2012. Discovery is closed in this matter. The Company believes that the
allegations are without merit.
• In January 2012, the United States District Court for the Eastern District of Pennsylvania unsealed a first amended
qui tam complaint filed in August 2011 by an individual relator, Anthony Spay, who is described in the complaint
as having once been employed by a firm providing pharmacy prescription benefit audit and recovery services.
The complaint seeks monetary damages and alleges that Caremark’s processing of Medicare claims on behalf of
one of its clients violated the federal False Claims Act. The United States declined to intervene in the lawsuit. In
September 2015, the Court granted Caremark’s motion for summary judgment in its entirety, and entered judg-
ment in favor of Caremark and against Spay. In October 2015, Spay filed a notice of appeal in the United States
Court of Appeals for the Third Circuit.
• In November 2012, the Company received a subpoena from the OIG requesting information concerning automatic
refill programs used by pharmacies to refill prescriptions for customers. The Company has been cooperating and
providing documents and other information in response to this request for information.
• In 2013, Omnicare received subpoenas seeking information regarding Omnicare’s nationwide billing practices with
regard to National Drug Code overrides and Omnicare’s May 2008 acquisition of Pure Service Pharmacy. In 2014,
Omnicare received subpoenas seeking information regarding Omnicare’s Auto Label Verification system and
Omnicare’s per diem arrangements. Omnicare has produced documents and provided information in response to
these subpoenas and continues to cooperate in the investigations.
• On March 22, 2013, a qui tam complaint entitled United States et al. ex rel. Susan Ruscher v. Omnicare, Inc. et al.,
Civil No. 08-cv-3396, which had been filed under seal in the U.S. District Court for the Southern District of Texas,
was unsealed by the court. The complaint was brought by Susan Ruscher as a private party qui tam relator on
behalf of the federal government and several state governments alleging violations of the federal False Claims
Act and analogous state laws based upon allegations that Omnicare’s practices relating to customer collections
violated the Anti-Kickback Statute. In September 2015, the court granted summary judgment dismissing all claims
against Omnicare and denied relator’s motion for summary judgment related to Omnicare’s counterclaims and
thereafter, in October 2015, the court entered a final judgment for Omnicare and stayed trial on the counterclaims
91
2015 Annual Report pending an appeal from the relator. In October 2015, plaintiffs filed a notice of appeal in the United States Court of
Appeals for the Fifth Circuit.
• In March 2014, the Company received a subpoena from the United States Attorney’s Office for the District of
Rhode Island, requesting documents and information concerning bona fide service fees and rebates received from
pharmaceutical manufacturers in connection with certain drugs utilized under Part D of the Medicare Program, as
well as the reporting of those fees and rebates to Part D plan sponsors. The Company has been cooperating with
the government and providing documents and information in response to the subpoena.
• The U.S. Department of Justice, through the U.S. Attorney’s Office for the Western District of Virginia, investigated
whether Omnicare’s activities in connection with the agreements it had with the manufacturer of the pharmaceutical
Depakote violated the False Claims Act or the Anti-Kickback Statute. Omnicare cooperated with this investigation
and believes that it has complied with applicable laws and regulations with respect to this matter. In connection with
this matter, on December 22, 2014, the U.S. Department of Justice filed a civil complaint-in-intervention in two qui
tam complaints, entitled United States, et al., ex rel. Spetter v. Abbott Laboratories, Inc., Omnicare, Inc., and
PharMerica Corp., No. 1:07-cv-00006 and United States, et al., ex rel. McCoyd v. Abbott Laboratories, Omnicare,
Inc., PharMerica Corp., and Miles White, No. 1:07-cv-00081, alleging civil violations of the False Claims Act in
connection with the manufacturer agreements described above. In July 2015, the parties filed a Joint Motion to
Stay the Litigation stating that the parties have reached a proposed resolution of the monetary terms of a potential
settlement agreement. These financial terms are contingent on approval by authorized officials at the Department
of Justice, negotiation of terms of a settlement agreement, approval and releases from the OIG, the National
Association of Medicaid Fraud Control Units, and the Department of Justice, and coordination with discussions
with the United States regarding other ongoing matters. While the Company believes that a final settlement will be
reached, there can be no assurance that any final settlement agreement will be reached or as to the final terms of
such settlement.
• In May 2015, the Company entered into a settlement agreement with the U.S. Attorney’s Office for the Middle
District of Florida, resolving alleged violations of the Controlled Substances Act (“CSA”). The Company paid a
fine of $22 million in connection with the settlement. The Company is also undergoing several audits by the Drug
Enforcement Agency (“DEA”) Administrator and is in discussions with the DEA and the U.S. Attorney’s Office in
several locations concerning allegations that the Company has violated certain requirements of the CSA. Whether
agreements can be reached and on what terms is uncertain.
• In May 2015, the Company received a subpoena from the OIG requesting information and documents concerning
the Company’s automatic refill programs, adherence outreach programs, and pharmacy customer incentives,
particularly in connection with claims for reimbursement made to the Minnesota Medicaid program. The Company
has been cooperating with the investigation and providing information in response to the subpoena.
• In July 2015, the U.S. District Court in the District of Massachusetts dismissed all claims alleged in a qui tam
lawsuit that had been brought against the Company by a pharmacy auditor and a former CVS pharmacist. The
lawsuit, which was initially filed under seal in 2011, alleged that the Company violated the federal False Claims
Act, as well as the false claims acts of several states, by overcharging state and federal governments in connec-
tion with prescription drugs available through the Company’s Health Savings Pass program, a membership-based
program that allows enrolled customers special pricing for typical 90-day supplies of various generic prescription
drugs. The federal government had declined to intervene in the case. The plaintiffs are appealing the dismissal to
the U.S. Court of Appeals for First Circuit.
• On July 27, 2015, a consolidated class action complaint was filed by plaintiffs naming Omnicare, the members
of the Omnicare Board of Directors, CVS Health, CVS Pharmacy, Inc. and its merger subsidiary as defendants.
The complaint alleged that the members of the Omnicare Board of Directors breached their fiduciary duties to
Omnicare’s stockholders during merger negotiations by entering into the merger agreement and approving the
merger, and the CVS parties aided and abetted such breaches of fiduciary duties. In September 2015, the court
granted plaintiffs’ voluntary notice of dismissal of all allegations against the defendants.
92
CVS HealthNotes to Consolidated Financial Statements • The Attorney General of the State of Texas issued civil investigative demands and other requests in February
2012, May 2014, and May 2015, and has continued its investigation concerning the Health Savings Pass program
and other pricing practices with respect to claims for reimbursement from the Texas Medicaid program.
• In July and September 2015, two related putative class actions, Corcoran et al. v. CVS Health Corp., and
Podgorny et al. v. CVS Health Corp., were filed against the Company in the United States District Court in the
Northern District of California and the Northern District of Illinois, respectively. The two cases have been consoli-
dated in United States District Court in the Northern District of California. The consolidated second amended
complaint alleges that plaintiffs overpaid for prescriptions for generic drugs filled at CVS pharmacies. The plaintiffs
seek damages and injunctive relief under the consumer protection statutes and common laws of certain states.
The Company has moved to dismiss the second amended complaint.
• In September 2015, Omnicare was served with an administrative subpoena by the DEA. The subpoena seeks
documents related to controlled substance policies, procedures, and practices at eight pharmacy locations from
May 2012 to present. The Company has been cooperating and providing documents in response to this adminis-
trative subpoena.
• In October 2015, Omnicare received a Civil Investigative Demand from the United States Attorney’s Office for the
Southern District of New York requesting information and documents concerning Omnicare’s cycle fill process for
assisted living facilities. The Company has been cooperating with the government and providing documents and
information in response to the Civil Investigative Demand.
• In October 2015, the Company received from the U.S. Department of Justice a Civil Investigative Demand
requesting documents and information in connection with a False Claims Act investigation concerning allegations
that the Company submitted, or caused to be submitted, to the Medicare Part D program prescription drug event
data 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 has been cooperating
with the government and providing documents and information in response to the Civil Investigative Demand.
• In November 2015, the United States District Court for the Eastern District of Pennsylvania unsealed a second
amended qui tam complaint filed in September 2015, in an action captioned The United States of America et al.
ex rel. Sally Schimelpfeinig and John Segura v. Dr. Reddy’s Laboratories Limited et al. The U.S. Department of
Justice declined to intervene in this action. The relators allege that the Company, Walgreens, Wal-Mart, and Dr.
Reddy’s Laboratories violated the federal and various state False Claims Acts by dispensing prescriptions in unit
dose packaging supplied by Dr. Reddy’s that was not compliant with the Consumer Product Safety Improvement
Act and the Poison Preventive Packaging Act and thereby allegedly rendering the drugs misbranded under the
Food, Drug & Cosmetic Act.
The Company is also a party to other legal proceedings, government investigations, inquiries and audits arising in
the normal course of its business, none of which is expected to be material to the Company. The Company can give
no assurance, however, that its business, financial condition and results of operations 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 the Company’s business, the pharmacy services, retail pharmacy, long-term care
pharmacy or retail clinic industries or to the health care industry generally; (iii) pending or future federal or state
governmental investigations of the Company’s business or the pharmacy services, retail pharmacy, long-term care
pharmacy or retail clinic industry or of the health care industry generally; (iv) pending or future government enforce-
ment 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 the pharmacy services, retail
pharmacy, long-term care pharmacy or retail clinic industry or the health care industry generally.
93
2015 Annual Report 13 | Segment Reporting
The Company currently has three reportable segments: Pharmacy Services, Retail/LTC and Corporate. The Retail/
LTC Segment includes the operating results of the Company’s Retail Pharmacy and LTC operating segments as the
operations and economics characteristics are similar. The Company’s segments maintain separate financial informa-
tion for which operating results are evaluated on a regular basis by the Company’s chief operating decision maker in
deciding how to allocate resources and in assessing performance.
The Company evaluates its Pharmacy Services and Retail/LTC segment performance based on net revenue, gross profit
and operating profit before the effect of nonrecurring charges and certain intersegment activities. The Company
evaluates the performance of its Corporate Segment based on operating expenses before the effect of discontinued
operations, nonrecurring charges, and certain intersegment activities. See Note 1 for a description of the Pharmacy
Services, Retail/LTC and Corporate segments and related significant accounting policies.
The following table is a reconciliation of the Company’s business segments to the consolidated financial statements:
I N M I L L I O N S
2015:
Net revenues
Gross profit
Operating profit (3)
Depreciation and amortization
Additions to property and equipment
2014:
Net revenues
Gross profit
Operating profit
Depreciation and amortization
Additions to property and equipment
2013:
Net revenues
Gross profit
Operating profit (4)
Depreciation and amortization
Additions to property and equipment
Pharmacy
Services
Segment (1) (2)
Retail/LTC
Segment (2)
Corporate
Segment
Intersegment
Eliminations (2)
Consolidated
Totals
$ 100,363
$ 72,007
$
5,227
3,989
654
359
88,440
4,771
3,514
630
308
76,208
4,237
3,086
560
313
21,992
7,130
1,336
1,883
67,798
21,277
6,762
1,205
1,745
65,618
20,112
6,268
1,217
1,610
—
—
(1,037)
102
125
$ (19,080)
$ 153,290
(691)
(628)
—
—
26,528
9,454
2,092
2,367
—
—
(796)
96
83
—
—
(751)
93
61
(16,871)
139,367
(681)
(681)
—
—
25,367
8,799
1,931
2,136
(15,065)
126,761
(566)
(566)
—
—
23,783
8,037
1,870
1,984
(1) Net revenues of the Pharmacy Services Segment include approximately $8.9 billion, $8.1 billion and $7.9 billion of Retail Co-Payments for 2015,
2014 and 2013, respectively. See Note 1 to the consolidated financial statements for additional information about Retail Co-Payments.
(2) Intersegment eliminations relate to intersegment revenue generating activities that occur between the Pharmacy Services Segment and the Retail/
LTC Segment. These occur in the following ways: when members of Pharmacy Services Segment clients (“members”) fill prescriptions at retail
stores to purchase covered products, when members enrolled in programs such as Maintenance Choice® elect to pick up maintenance prescrip-
tions at a retail drugstore instead of receiving them through the mail, or when members have prescriptions filled at long-term care facilities. When
these occur, both the Pharmacy Services an d Retail/LTC segments record the revenues, gross profit and operating profit on a standalone basis.
(3) For the year ended December 31, 2015, the Corporate Segment operating loss includes $156 million of acquisition-related transaction and
integration costs and a $90 million charge related to a legacy lawsuit challenging the 1999 legal settlement by MedPartners of various securities
class actions and a related derivative claim.
(4) Consolidated operating profit for the year ended December 31, 2013 includes a $72 million gain on a legal settlement, of which, $11 million is
included in the Pharmacy Services Segment and $61 million is included in the Retail/LTC Segment.
94
CVS HealthNotes to Consolidated Financial Statements
14 | Earnings Per Share
The following is a reconciliation of basic and diluted earnings per share from continuing operations for the
respective years:
I N M I L L I O N S , E X C E P T P E R S H A R E A M O U N T S
2015
2014
2013
Numerator for earnings per share calculation:
Income from continuing operations attributable to
common stockholders (1)
Denominator for earnings per share calculation:
Weighted average shares, basic
Effect of dilutive securities
Weighted average shares, diluted
Earnings per share from continuing operations:
Basic
Diluted
$
5,202
$
4,626
$
4,600
1,118
8
1,126
1,161
8
1,169
1,217
9
1,226
$
$
4.65
4.62
$
$
3.98
3.96
$
$
3.78
3.75
(1) Comprised of income from continuing operations less amounts allocable to participating securities of $27 million and $19 million for the years
ended December 31, 2015 and 2014, respectively.
95
2015 Annual Report
15 | Quarterly Financial Information (Unaudited)
I N M I L L I O N S , E X C E P T P E R S H A R E A M O U N T S
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Year
2015:
Net revenues
Gross profit
Operating profit
Income from continuing operations
Income (loss) from discontinued operations,
net of tax
Net income attributable to CVS Health
Basic earnings per share:
Income from continuing operations
attributable to CVS Health
Income (loss) from discontinued operations
attributable to CVS Health
Net income attributable to CVS Health
Diluted earnings per share:
Income from continuing operations
attributable to CVS Health
Income (loss) from discontinued operations
attributable to CVS Health
Net income attributable to CVS Health
Dividends per share
Stock price: (New York Stock Exchange)
$ 36,332
$ 37,169
$ 38,644
$ 41,145
$ 153,290
6,164
2,132
1,221
6,402
2,262
1,272
—
—
1,221
1,272
6,661
2,331
1,237
10
1,246
7,301
2,729
1,500
26,528
9,454
5,230
(1)
9
1,498
5,237
$
1.08
$
1.13
$
1.10
$
1.35
$
4.65
$
$
—
1.08
$
$
—
1.13
$
$
0.01
1.11
$
$
—
1.35
$
$
0.01
4.66
$
1.07
$
1.12
$
1.10
$
1.34
$
4.62
$
$
—
1.07
$
$
—
1.12
$
$
0.01
1.11
$
$
—
1.34
$ 0.350
$ 0.350
$ 0.350
$ 0.350
$
$
$
0.01
4.63
1.40
High
Low
$ 104.56
$ 106.47
$ 113.45
$ 105.29
$ 113.45
$ 94.16
$ 98.74
$ 95.12
$ 91.56
$ 91.56
96
CVS HealthNotes to Consolidated Financial Statements
I N M I L L I O N S , E X C E P T P E R S H A R E A M O U N T S
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Year
2014:
Net revenues
Gross profit
Operating profit
Income from continuing operations
Loss from discontinued operations, net of tax
Net income attributable to CVS Health
Basic earnings per share:
Income from continuing operations
attributable to CVS Health
Loss from discontinued operations
attributable to CVS Health
Net income attributable to CVS Health
Diluted earnings per share:
Income from continuing operations
attributable to CVS Health
Loss from discontinued operations
attributable to CVS Health
Net income attributable to CVS Health
Dividends per share
Stock price: (New York Stock Exchange)
High
Low
$ 32,689
$ 34,602
$ 35,021
$ 37,055
$ 139,367
5,942
2,024
1,129
—
1,129
0.96
—
0.96
0.95
—
0.95
0.275
76.36
64.95
$
$
$
$
$
$
$
$
$
6,324
2,208
1,246
—
1,246
1.07
—
1.07
1.06
—
1.06
0.275
79.43
72.37
6,468
2,246
948
—
948
0.82
—
0.82
0.81
—
0.81
0.275
82.57
74.69
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
6,633
2,321
1,322
(1)
1,321
1.15
—
1.15
1.14
—
1.14
0.275
98.62
77.40
25,367
8,799
4,645
(1)
4,644
3.98
—
3.98
3.96
—
3.96
1.10
98.62
64.95
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
97
2015 Annual Report
Five-Year Financial Summary
I N M I L L I O N S , E X C E P T P E R S H A R E A M O U N T S
2015
2014
2013
2012
2011
Statement of operations data:
Net revenues
Gross profit
Operating expenses
Operating profit
Interest expense, net
Loss on early extinguishment of debt
Income tax provision (1)
Income from continuing operations
Income (loss) from discontinued operations,
net of tax
Net income
Net (income) loss attributable to noncontrolling
$ 153,290
$ 139,367
$ 126,761
$ 123,120
$ 107,080
26,528
17,074
9,454
838
—
3,386
5,230
9
5,239
25,367
16,568
8,799
600
521
3,033
4,645
23,783
15,746
8,037
509
—
2,928
4,600
22,488
15,278
7,210
557
348
2,436
3,869
(1)
(8)
(7)
4,644
4,592
3,862
20,562
14,231
6,331
584
—
2,258
3,489
(31)
3,458
interest
(2)
—
—
2
4
Net income attributable to CVS Health
$
5,237
$
4,644
$
4,592
$
3,864
$
3,462
Per share data:
Basic earnings per share:
Income from continuing operations
attributable to CVS Health
Income (loss) from discontinued operations
attributable to CVS Health
Net income attributable to CVS Health
Diluted earnings per share:
Income from continuing operations
attributable to CVS Health
Income (loss) from discontinued operations
attributable to CVS Health
Net income attributable to CVS Health
Cash dividends per share
Balance sheet and other data:
Total assets (1)
Long-term debt (1)
Total shareholders’ equity
$
4.65
$
3.98
$
3.78
$
$
0.01
4.66
$
$
—
3.98
$
$
(0.01)
3.77
$
4.62
$
3.96
$
3.75
$
$
$
0.01
4.63
1.40
$ 93,657
$ 26,267
$ 37,203
$
$
$
$
$
$
—
3.96
1.10
$
$
$
(0.01)
3.74
0.90
74,187
$ 71,452
11,630
$ 12,767
37,963
$ 37,938
$
$
$
$
$
$
$
$
$
$
3.05
$
2.61
(0.01) $
(0.02)
3.04
$
2.59
3.02
$
2.59
(0.01) $
(0.02)
3.02
0.65
$
$
2.57
0.50
66,167
$ 64,794
9,079
$
9,150
37,653
$ 38,014
Number of stores (at end of year)
9,681
7,866
7,702
7,508
7,388
(1) As of June 30, 2015, the Company early adopted Accounting Standard Update No. 2015-03, Simplifying the Presentation of Debt Issuance
Costs (Topic 835-30) issued by the Financial Accounting Standards Board in April 2015. The effect of the adoption on the Company’s consolidated
balance sheet is a reduction in noncurrent assets and long-term debt of $65 million, $74 million, $54 million and $58 million as of December 31,
2014, 2013, 2012 and 2011, respectively.
98
CVS Health
Report of Ernst & Young LLP, Independent Registered
Public Accounting Firm
The Board of Directors and Shareholders of CVS Health Corporation
We have audited the accompanying consolidated balance sheets of CVS Health Corporation as of December 31,
2015 and 2014, and the related consolidated statements of income, comprehensive income, shareholders’ equity,
and cash flows for each of the three years in the period ended December 31, 2015. These financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated
financial position of CVS Health Corporation at December 31, 2015 and 2014, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended December 31, 2015, in conformity
with U.S. generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, the Company has elected changes in its methods
of accounting for front store inventories in the Retail/LTC Segment effective January 1, 2015.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), CVS Health Corporation’s internal control over financial reporting as of December 31, 2015,
based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) and our report dated February 9, 2016 expressed
an unqualified opinion thereon.
Boston, Massachusetts
February 9, 2016
99
2015 Annual Report
Stock Performance Graph
The following graph shows changes over the past five-year period in the value of $100 invested in: (1) our common
stock; (2) S&P 500 Index; (3) S&P 500 Food and Staples Retailing Industry Group Index, which currently includes seven
retail companies; (4) S&P 500 Healthcare Sector Group Index, which currently includes 56 health care companies.
Relative Total Returns Since 2010 – Annual
DECEMBER 31, 2010 TO DE CE MBE R 3 1, 20 15
$325
$300
$275
$250
$225
$200
$175
$150
$125
$100
$75
$50
$25
$0
2010
2011
2012
2013
2014
2015
CVS Health
S&P 500
S&P 500 Food & Staples Retail Group Index
S&P 500 Healthcare Group Index
Y E A R E N D
1 YR CAGR
3 YR CAGR
5 YR CAGR
2010
2011
2012
2013
2014
2015
2014-15
2012-15
2010-15
CVS Health
S&P 500 (1)
S&P 500 Food & Staples
Retail Group Index (2)
S&P 500 Healthcare (3)
$100
$100
$119
$102
$143
$118
$215
$157
$294
$178
$302
$181
$100
$100
$110
$113
$130
$133
$173
$188
$213
$236
$210
$252
2.9%
1.4%
-1.6%
6.9%
28.3%
15.1%
17.2%
23.8%
24.8%
12.6%
16.0%
20.3%
Note: Analysis assumes reinvestment of dividends.
(1) Includes CVS Health.
(2) Includes seven companies: (COST, CVS, KR, SYY, WBA, WFM, WMT).
(3) Includes 56 companies.
The year-end values of each investment shown in the preceding graph are based on share price appreciation plus
dividends, with the dividends reinvested as of the last business day of the month during which such dividends were
ex-dividend. The calculations exclude trading commissions and taxes. Total stockholder returns from each invest-
ment, whether measured in dollars or percentages, can be calculated from the year-end investment values shown
beneath the graph.
100
CVS Health
Shareholder Information
Officers
Larry J. Merlo
President and Chief Executive Officer
Per G.H. Lofberg
Executive Vice President
Lisa G. Bisaccia
Executive Vice President and
Chief Human Resources Officer
Troyen A. Brennan, M.D.
Executive Vice President and
Chief Medical Officer
David M. Denton
Executive Vice President and
Chief Financial Officer
Helena B. Foulkes
Executive Vice President and
President – CVS Pharmacy
Stephen J. Gold
Executive Vice President and
Chief Information Officer
J. David Joyner
Executive Vice President, Sales and
Account Services – CVS Caremark
Directors
Thomas M. Moriarty
Executive Vice President, Chief Health
Strategy Officer and General Counsel
Jonathan C. Roberts
Executive Vice President and
President – CVS Caremark
Andrew J. Sussman, M.D.
Executive Vice President and Associate Chief
Medical Officer; President – CVS MinuteClinic
Eva C. Boratto
Senior Vice President – Controller and
Chief Accounting Officer
Nancy R. Christal
Senior Vice President – Investor Relations
Carol A. DeNale
Senior Vice President and Treasurer
Richard M. Bracken (1) (2)
Former Chairman and Chief Executive Officer
HCA Holdings, Inc.
Anne M. Finucane (1) (3)
Vice Chairman
Bank of America Corporation
C. David Brown II (1) (3)
Chairman of the Firm
Broad and Cassel
Alecia A. DeCoudreaux (2) (4)
President
Mills College
Nancy-Ann M. DeParle (2) (4)
Partner
Consonance Capital Partners, LLC
David W. Dorman (1) (3)
Chairman of the Board
CVS Health Corporation
Shareholder Information
Corporate Headquarters
CVS Health Corporation
One CVS Drive, Woonsocket, RI 02895
(401) 765-1500
Annual Shareholders’ Meeting
May 19, 2016
CVS Health Corporate Headquarters
Stock Market Listing
The New York Stock Exchange
Symbol: CVS
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Larry J. Merlo
President and Chief Executive Officer
CVS Health Corporation
Jean-Pierre Millon (2) (4)
Former President and Chief Executive Officer
PCS Health Services, Inc.
Richard J. Swift (4)
Former Chairman, President and Chief
Executive Officer
Foster Wheeler Ltd.
William C. Weldon (1) (3)
Former Chairman and Chief Executive Officer
Johnson & Johnson
Transfer Agent and Registrar
Questions regarding stock holdings, certificate
replacement/transfer, dividends and address
changes should be directed to:
Wells Fargo Shareowner Services
P.O. Box 64874
St. Paul, MN 55164-0874
Toll-free: (877) CVS-PLAN (287-7526)
International: +1 (651) 450-4064
Email: stocktransfer@wellsfargo.com
Website: www.shareowneronline.com
Direct Stock Purchase/Dividend
Reinvestment Program
Shareowner Services Plus PlanSM provides a
convenient and economical way for you to
purchase your first shares or additional shares
of CVS Health common stock. The program is
sponsored and administered by Wells Fargo
Bank, N.A. For more information, including an
enrollment form, please contact Wells Fargo
Bank, N.A. at (877) 287-7526.
David A. Falkowski
Senior Vice President and
Chief Compliance Officer
John P. Kennedy
Senior Vice President and Chief Tax Officer
Colleen M. McIntosh
Senior Vice President and Corporate Secretary
Thomas S. Moffatt
Vice President and Assistant Secretary
OFFICERS’ CERTIFICATIONS
The Company has filed the required certifications
under Section 302 of the Sarbanes-Oxley Act of 2002
regarding the quality of our public disclosures as
Exhibits 31.1 and 31.2 to our annual report on Form
10-K for the fiscal year ended December 31, 2015.
After our 2015 annual meeting of stockholders, the
Company filed with the New York Stock Exchange the
CEO certification regarding its compliance with the
NYSE corporate governance listing standards as
required by NYSE Rule 303A.12(a).
Tony L. White (2) (3)
Former Chairman, President and
Chief Executive Officer
Applied Biosystems, Inc.
(1) Member of the Nominating and
Corporate Governance Committee
(2) Member of the Patient Safety and
Clinical Quality Committee
(3) Member of the Management Planning
and Development Committee
(4) Member of the Audit Committee
Note: Committees are as of March 1, 2016.
Financial and Other Company
Information
The Company’s Annual Report on Form 10-K
will be sent without charge to any shareholder
upon request by contacting:
Nancy R. Christal
Senior Vice President – Investor Relations
CVS Health Corporation
670 White Plains Road – Suite 210
Scarsdale, NY 10583
(800) 201-0938
In addition, financial reports and recent
filings with the Securities and Exchange
Commission, including our Form 10-K,
as well as other Company information,
are available via the Internet at
investors.cvshealth.com.
WE ARE
A pharmacy innovation company
OUR STRATEGY
Reinventing pharmacy
OUR PURPOSE
Helping people on their
path to better health
OUR VALUES
Innovation
Collaboration
Caring
Integrity
Accountability
The CVS Health 2015 Annual Report achieved the following
results by printing on paper containing 10 percent post-con-
sumer recycled content. FSC® is not responsible for any
calculations of results from choosing this paper.
Trees
Saved
116
fully grown
Water
Saved
54,050
gallons
Energy
Saved
Solid Waste
Not Produced
Greenhouse Gases
Not Produced
Hazardous Air
Pollutants
Not Produced
53,000,000
MM BTUs
3,617
pounds
9,966
pounds
9
pounds
CVS Health, One CVS Drive, Woonsocket, RI 02895 | 401.765.1500 | cvshealth.com