2016 Annual Report
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
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The CVS Health 2016 Annual Report achieved the following
results by printing on paper containing 10 percent post-
consumer recycled content. FSC® is not responsible for any
calculations of results from choosing this paper.
Trees
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82
fully grown
Water
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gallons
Energy
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Solid Waste
Not Produced
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Pollutants
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MM BTUs
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pounds
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pounds
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pounds
CVS Health, One CVS Drive, Woonsocket, RI 02895 | 401.765.1500 | cvshealth.com
Health is where the heart is.
We deliver value to all health
care stakeholders.
The CVS Health “heart mark” is a ubiquitous presence across our enterprise, representing
the unique value we provide to patients, payors, and providers alike. We accomplish
this through our unmatched suite of leading assets and our success at integrating them
to offer innovative health care solutions. This annual report describes some of the ways
in which our model allows us to enhance access, improve health outcomes, and lower
overall health care costs, while positioning CVS Health for long-term growth. We think
you will agree that health really is where the heart is when seeking affordable, accessible,
and effective care.
Shareholder Information
Officers
Larry J. Merlo
President and Chief Executive Officer
Lisa G. Bisaccia
Executive Vice President and
Chief Human Resources Officer
Eva C. Boratto
Executive Vice President – Controller
and Chief Accounting 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
Directors
J. David Joyner
Executive Vice President, Sales and
Account Services – CVS Caremark
Robert O. Kraft
Executive Vice President and
President – Omnicare
Thomas M. Moriarty
Executive Vice President, Chief Policy
Officer and General Counsel
Jonathan C. Roberts
Executive Vice President and
Chief Operating Officer
Andrew J. Sussman, M.D.
Executive Vice President, Clinical Services
and Associate Chief Medical Officer
Nancy R. Christal
Senior Vice President – Investor Relations
Carol A. DeNale
Senior Vice President and Treasurer
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, Corporate Secretary
and Assistant General Counsel
Thomas S. Moffatt
Vice President, Assistant Secretary and
Assistant General Counsel
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, 2016.
After our 2016 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).
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)
Former 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 10, 2017
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.
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
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.
Pharmacy Advisor
has increased adherence
by nearly
10%
Cost management solutions
have lowered client trend
to an average of only
3.2%
$9 billion
in aggregate client savings
driven by managed
formularies since 2012
will accelerate as the population ages.
To reduce costs and improve out-
comes, CVS SpecialtyTM has moved
well beyond a basic specialty offering.
Our enhanced care management
Our solutions reflect
evolving health care needs.
In an era of rising costs, CVS Health is the optimal
partner to deliver savings and help improve outcomes
for all health care stakeholders.
In our retail pharmacies, innovations
such as first-fill counseling, our sig-
nature Pharmacy Advisor® program,
and ScriptSync® are just a few of the
ways in which we drive best-in-class
adherence rates and help improve
outcomes for patients. Meanwhile,
CVS Caremark® draws on a broad
range of capabilities to manage costs
leadership in providing solutions to
model includes, among other things,
ensure that the patients we serve
more than 250 rare-disease nurses,
have access to the right drug at the
comorbidity management, symptom
lowest cost. We have led the way
management, and social support.
in formulary innovations and were
This high level of patient engagement
the first PBM to exclude high-cost
results in fewer emergency room visits
drugs from our formulary in favor of
and hospitalizations and can produce
less expensive clinical equivalents.
up to an 11 percent reduction in the
Specialty patients drive a large por-
overall health care costs associated
for PBM clients. They include our
tion of health care costs, a trend that
with a given managed condition.
2016 Annual Report
1
2016 Annual Report Complex patient and market issues require a broad set of interventions
Patient Issues
Payor / Market Issues
Clinical
complexity
Multi-drug
regimens
Spend across
pharmacy and
medical benefits
Biosimilars
Pipeline of
new drugs and
indications
Emerging
specialty
provider models
It takes all the
pieces to see a
complete picture
of the patient.
Through our integrated
assets, we offer exclusive
programs that provide
an enhanced member
experience and better
results.
2
Take Maintenance Choice®, which
offers PBM plan members the option
of receiving their 90-day prescriptions
by mail or by picking them up at
their local CVS Pharmacy® location.
The number of people enrolled
continues to increase because
of its convenience and ability to
improve adherence rates. Specialty
Connect® offers a similar benefit
to patients with prescriptions for
complex specialty medications.
Through our Health Engagement
EngineTM, we seamlessly aggregate
data from across the enterprise and
other payor sources and combine
it with our clinical research to
identify opportunities for improving
clinical care. That enables our
36,000 pharmacists and clinicians
to have important conversations
with patients that help lead to
better health outcomes and lower
costs for payors. And regardless
of the channel a patient chooses,
our pharmacists have access to a
single, unified record for prescriptions
and care. Our digital assets are
integrated as well, allowing patients
to download a single app to manage
all their prescription needs, including
retail, mail, and specialty.
CVS Health We leverage our
full circle of care
for partners.
We can partner with all PBMs and health plans,
leveraging our enterprise assets and capabilities to
meet their individual needs.
The winners in pharmacy care will
be those who keep patients the
healthiest and deliver the greatest
overall health care value. With
CVS Pharmacy as the anchor
of our suite of enterprise assets,
we offer a compelling value
proposition—especially in an
era of consumer-directed health
care. With our menu of pharmacy,
long-term care, MinuteClinic, and
infusion services, CVS Pharmacy
can be the partner of choice for
health plans and all PBMs, not
just our own. Our new strategic
relationship with OptumRx is a great
example. In addition to a 90-day
in-store prescription offering, we will
activate Health Tag messaging at
point of sale and provide ExtraCare®
health cards that offer savings to
OptumRx members. In another
example that highlights how we
can partner with a non-PBM client,
we used a combination of our retail
assets and clinical programs to drive
adherence and improve the client’s
Medicare Part D quality ratings. We
integrated the client’s clinical rules
engine into our workflow so our
pharmacists could counsel their
members, implemented ScriptSync,
and delivered clinical counseling
through our call centers.
2.4 billion
adjusted prescriptions
dispensed or managed
annually
80%
of Medicare lives we
serve are in either four-
or five-star plans
2 million+
patients have enrolled
in ScriptSync since its
inception
3
2016 Annual Report We see significant
opportunity for
long-term growth.
We are focused on
maximizing shareholder
value through long-term
growth, strong cash flow,
and a disciplined approach
to capital allocation.
CVS Health’s ability to aggregate
lives and increase share across our
enterprise dispensing channels—
including retail, specialty, and
long-term care—are cornerstones
of our strategy for sustainable
growth. Through CVS Caremark’s
unique cost management and
clinical capabilities, our covered
lives have increased by more
than 40 percent in just the past
four years. We will continue to
execute with excellence and drive
efficiencies across our enterprise
to remain a low-cost provider—
and one that delivers exceptional
service to patients. A streamlining
initiative now underway is expected
to result in a total of nearly $3 billion
in savings from 2017 through
2021. Our integrated model also
provides a platform for developing
innovative clinical solutions to support
patients along all stages of the care
continuum. Through it all, we’ll
operate with an enterprise mindset
rather than focusing on the success
of any one business. And thanks to
the substantial cash that CVS Health
generates, we can return significant
value to shareholders through
acquisitions and other strategic
investments, dividends, and share
repurchases.
Our strategic business imperatives
Aggregate
lives
Grow
share
Execute with
excellence
Drive
innovation
Enterprise
focus
4
CVS Health Nurturing our communities
is at the heart of what we do.
The three pillars of our Prescription for a Better
World provide the framework for CVS Health’s social
responsibility initiatives.
supply chain. As a Leader in Growth,
we’ve formed the GREENTEAM
Colleague Resource Group with
the goal of making environmental
sustainability a relevant part of every
colleague’s role and responsibility.
The link between human health and
the health of our planet is becoming
increasingly apparent, and the
GREENTEAM inspires our colleagues
to advance our leadership in this area.
Through Health in Action, we
donated more than $90 million in
charitable contributions, colleague
volunteerism, gifts in-kind, and other
community investments in 2016.
The CVS Health Foundation and
American Cancer Society awarded
grants to 20 U.S. colleges and
universities in 2016 as part of our
Tobacco-Free Generation Campus
Initiative. This $3.6 million multi-
year program will help accelerate
and expand the implementation of
100 percent smoke- and tobacco-
free campus policies. Turning to
Planet in Balance, we announced
this past year that we are working
toward setting a science-based
emission-reduction target focused
on reducing emissions across our
5
$90
million+
in community investments
$1 billion+
spent on diverse suppliers
56
metric tons of unused
medications collected
$113M
worth of free medical
services through
Project Health
2016 Annual Report Financial highlights
(in millions, except per share figures)
2016
2015
% change
Net revenues
Operating profit
Net income
Diluted EPS from continuing operations
Free cash flow*
Stock price at year-end
$ 177,526
$ 153,290
15.8%
$ 10,338
$
$
$
$
5,319
4.91
8,075
78.91
$
$
$
$
$
9,454
5,239
4.62
9.3%
1.5%
6.2%
6,456
25.1%
97.77
-19.3%
Market capitalization at year-end
$ 84,153
$ 107,635
-21.8%
* 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
123.1
126.8
139.4
153.3
177.5
3.02
3.75
3.96
4.62
4.91
0.65
0.90
1.10
1.40 1.70
12
13
14
15
16
12
13
14
15
16
12
13
14
15
16
6
CVS Health
Dear Fellow Shareholders:
Health care continues to evolve rapidly in the United States.
Despite the ongoing changes as well as uncertainty surrounding
health care reform, CVS Health believes that the winners in our
industry will be those who drive more affordable, accessible,
and effective care. We are uniquely positioned to meet any
challenges head on and pivot as needed to address any
policy changes.
We continue to have the most extensive suite of enterprise assets,
each of which would be a market leader on a standalone basis.
Yet what really sets them apart is our ability, largely through
technology, to integrate pharmacy care from the payor to the
provider to the patient. Our success at integrating our assets
enables us to offer innovative services and to deliver additional
value to stakeholders. Products such as Maintenance Choice ®
and Specialty Connect ® are unmatched in the marketplace.
They remain the gold standard in giving patients choice while also
delivering substantial savings to payors. Moreover, with our truly
integrated assets, we have a full view of each patient and a
single patient record for prescriptions and care regardless of the
CVS Health channel used.
We think of our CVS Pharmacy ® locations as the “front door
of health care.” They give us a significant advantage in the
marketplace as the retailization of health care continues, with
consumer-directed health plans putting more incentive into the
hands of patients to make cost-effective decisions regarding their
health. Our research has found that face-to-face interactions
are two to three times more effective than other interactions at
increasing adherence and improving health outcomes. Impor-
tantly, CVS Health also owns the last mile in the delivery of care.
Our unmatched touch points—from retail and mail to specialty,
medical clinics, long-term care, and infusion—put us in direct
contact with health care consumers every day.
Larry J. Merlo
President and Chief Executive Officer
This letter will provide additional insight into these topics as
well as update you on our results across the enterprise. We
have many accomplishments to look back on, including a
successful PBM selling season, superior specialty growth,
and the progress we made at integrating the 2015 acquisi-
tions of Omnicare and the pharmacies and clinics of Target.
We also excelled at managing rising drug costs—or “trend.”
As always, I’ll start with a brief overview of CVS Health’s
financial performance and outlook.
Free cash flow totaled
$8.1 billion in 2016, and
we returned $6.3 billion
to shareholders through
dividends and share
repurchases during the year.
Robust cash flow provides a strong platform for
future growth
In 2016, we benefited from our ongoing focus on the three
key financial pillars that we consider essential to maximizing
shareholder value:
• Driving productive, long-term growth;
• Generating significant levels of free cash flow; and
• Optimizing capital allocation.
Net revenues for the year increased nearly 16 percent to
a record $177 billion, while adjusted earnings per share
(EPS) rose 13 percent to $5.84. The compound annual
growth rate in operating profit and adjusted EPS puts
us at the high end of the steady state growth targets we
introduced in 2013.
We experienced strong organic prescription growth across
the enterprise in 2016, augmented by the Omnicare
and Target acquisitions. Moreover, the successful CVS
Caremark ® PBM selling season of 2015 led to growth in
our membership base and claims in 2016.
That said, we do expect to experience some headwinds
in the near term that will slow earnings growth in 2017,
driven primarily by pharmacy network changes announced
late in 2016 that are causing some retail prescriptions to
migrate out of our pharmacies. Additionally, our entire
industry is facing uncertainty surrounding health care
reform. All of these factors contributed to a 19 percent
decline in CVS Health’s stock price in 2016, although we
have still outperformed both the S&P 500 Index and the
Dow Jones Industrial Average on a five- and 10-year basis.
We have already developed a four-point plan that will
help us generate more robust levels of earnings growth
in the years ahead. First, we will leverage our enterprise
capabilities and CVS Pharmacy’s compelling retail value
proposition to partner more broadly with other PBMs and
health plans. Our recent announcement that OptumRx
members now have the option to fill their 90-day prescrip-
tions at a CVS Pharmacy is just one example.
Second, we will continue to innovate to bring new, integrated
PBM products to market that capitalize on the benefits
inherent in our integrated model. Take Maintenance Choice,
which gives plan members the option of receiving their
90-day prescriptions in the mail or through in-store pickup.
Its latest iteration, now in the pilot phase, brings conve-
nience to the next level by offering same-day delivery within
two to three hours to a member’s home or workplace.
Third, we have launched an enterprise streamlining
initiative that we expect to result in nearly $3 billion in
cumulative savings by 2021. It includes enhancing the
efficiency of our shared services functions, optimizing our
pharmacy delivery platform, and rationalizing our store
footprint. As part of the latter, we expect to close approx-
imately 70 stores in 2017. Many are located close to our
CVS Pharmacy locations within Target stores.
Finally, we have significant cash generation capabilities
that provide us with a variety of ways to grow and return
value to shareholders. Free cash flow totaled $8.1 billion
in 2016, and we returned $6.3 billion to shareholders
through dividends and share repurchases during the year.
After increasing our quarterly dividend by 21 percent for
2016, our board of directors has approved an additional
18 percent increase for 2017. That marks our 14th
consecutive year of increasing the dividend. We will
also continue to repurchase shares, taking advantage of
the recent decline in our stock price. Through dividends
and share repurchases, we expect to allocate more than
$7 billion in 2017 to enhancing total returns for shareholders.
As exemplified by Omnicare and Target, we also use our
cash flow for strategic acquisitions and other ventures
that supplement our existing asset base and provide a
platform for long-term growth. We will continue to identify
8
CVS Health such opportunities in the future, always taking a disciplined
approach to deploying capital. With well-laddered debt
maturities and a high triple-B credit rating, we have a
healthy balance sheet that provides flexibility and allows us
to maximize shareholder value for the long term. In fact, we
took advantage of the favorable interest rate environment
in 2016 to reduce long-term debt levels and the associated
interest expense.
PBMs are a key part of the solution to reining in rising
drug prices
Before discussing CVS Caremark’s performance, I want
to address the ongoing rhetoric around drug pricing. New
launches at elevated price points and increasing prices of
older drugs have contributed to a sense that government
interventions are necessary. Some market participants have
attempted to paint PBMs as “middle men” in the pharmacy
supply chain, taking outsized profits at the expense of
patients and payors. This is simply not true. PBMs are
the solution, not the problem. That’s why both public and
private payors continue to count on PBMs as indispensable
partners that help to manage their drug trend.
Numerous evaluations from the Federal Trade Commission,
Congressional Budget Office, and other government agen-
cies have consistently concluded that PBMs operate in a
highly efficient market and drive real savings to the health
care economy. And CVS Caremark’s array of cost manage-
ment solutions have helped to reduce client costs, from an
unmanaged gross trend of 11 percent to a managed trend
of only 3.2 percent in 2016. In addition, a recent industry
study showed that every dollar invested in PBM services
returned $6 in savings for clients and members. So, the
value of PBMs is quantitatively pretty clear.
Now, it is a bigger challenge to negotiate lower prices when
there is basically a single product in a category. So, we
will continue to encourage the need to create competition
within therapeutic classes as a solution to reducing the
cost of drugs; whether it’s clearing out the FDA backlog of
potential drug approvals, many of which are generics, or
increasing the speed to market of new biosimilar agents.
High satisfaction rates, integrated offerings, and trend
management capabilities are driving growth in CVS
Caremark’s book of business
CVS Caremark’s integrated model continued to resonate
in the marketplace, helping us achieve strong top- and
bottom-line growth in 2016. In a highly competitive 2017
selling season, gross new business wins totaled $7.9 billion.
That represents more than half of all revenue from clients
that switched PBMs. Health plans accounted for approxi-
mately two-thirds of our wins, with employers, unions, and
government entities comprising the rest.
We own the last mile of care through our unmatched
patient touchpoints
Retail Pharmacy
Retail Clinics
Mail
Specialty
Long-Term Care
Infusion
No matter the road, we can shape behavior and drive outcomes
9
2016 Annual Report With our 97 percent retention rate, net new business for
2017 totaled $4.4 billion. This new business provides an
important platform to grow dispensing across the enter-
prise. As an example, let’s look at payors that came on
board in 2015. While their members filled 8.4 million retail
prescriptions in one of our channels before these payors
were clients, we expect their members to fill more than
29 million scripts through one of our channels in 2017.
That will be an important driver of share gains.
Payors have different reasons for choosing CVS Caremark,
from our high client and member satisfaction scores to our
ability to control trend. We accomplish the latter in a variety
of ways. Among them, CVS Health has been the industry
leader in formulary innovations. In 2012, we became the
first PBM to exclude high-cost drugs from our formulary
in favor of less expensive clinical equivalents. In 2017, we
will continue to lead the market in formulary strategy with
the inclusion of biosimilars as a key component as well as
a new indication-based formulary. We are also monitoring
hyperinflationary drug pricing on a real-time basis, enabling
rapid response to help reduce the impact on our clients.
The complexity of the market
and the growing impact of
specialty pharmacy on overall
drug spending make our
integrated PBM/specialty model
more relevant than ever.
Complementing our partnership with health plans, we have
broad expertise in government programs. SilverScript ® is
the nation’s largest Medicare Part D (Med D) Prescription
Drug Plan (PDP), and we are proud that it earned four stars
on the government’s annual quality measurement system
for the second consecutive year.
SilverScript began 2017 with 5.5 million captive PDP lives,
including Employee Group Waiver Plans, up 10 percent
from the previous year. We serve and support a total of
12.3 million lives under management when you include the
Med D and MA-PD offerings of more than 40 of our health
plan clients. We provide these clients with operational and
consultative services that include making formulary and
plan design recommendations. That has helped improve
their star ratings and enabled them to grow faster than the
market. While the Med D market has averaged 4.8 percent
annual growth since 2013, our clients have seen their Med D
membership rise by 7.6 percent.
CVS Specialty’s unique capabilities help us address
the increasing complexity in the industry’s fastest-
growing sector
Revenue from the specialty prescriptions we dispense and
manage grew to $50 billion in 2016. That is a 27 percent
increase over 2015. Since 2013, our dispensed specialty
revenue has grown at a compound annual growth rate of
26 percent, compared with 22 percent for the industry.
Specialty remains the industry’s fastest-growing sector, and
our 28 percent share of the market leads our competitors
by a wide margin.
Many factors have contributed to our strong performance.
Payors value our capabilities in price as well as utilization
and site of care management. And our NovoLogix ® technol-
ogy platform allows us to manage all specialty medications,
including those paid under the medical benefit. Even our most
sophisticated health plan clients who have been managing
specialty on their own can realize incremental savings when
they take advantage of our full range of management tools.
The complexity of the market and the growing impact of
specialty pharmacy on overall drug spending make our
integrated PBM/specialty model more relevant than ever.
Adherence has risen by 11.4 percent among those enrolled
in Specialty Connect ®. Like Maintenance Choice, this
product offers specialty patients the option of having their
medications delivered by mail or to their CVS Pharmacy
location for pick-up. Specialty Connect users choose the
latter option 54 percent of the time.
Access to new drugs has also played an important role in
our performance. Some of these drugs have had limited
distribution, and manufacturers can be discriminating evalu-
ators when choosing specialty pharmacy partners. We have
secured access to 30 of the 35 limited distribution products
generally used in our channels and that have launched in
the past two years. That success is a testament to the level
of service our specialty pharmacy offers. In 2017, we are
rolling out an enhanced specialty model that will further
streamline the entire prescription process for physicians
and patients while lowering costs for payors.
10
CVS Health CVS Pharmacy’s industry-leading care programs and high
adherence rates make us a valuable strategic partner
CVS Pharmacy same store prescription volumes rose by
3.6 percent in 2016, with same store pharmacy sales up
3.2 percent. With front store same store sales declining by
1.5 percent, total same store sales increased by 1.9 percent.
CVS Pharmacy locations now fill more than 1 billion prescrip-
tions annually, and we have captured a 23.8 percent share
of U.S. retail prescriptions. Size, scale, and expertise matter
in health care. We have more than 9,600 locations with
27,000 retail pharmacists and 73,000 pharmacy technicians
who help patients get on—and stay on—their medications.
Non-adherence costs the U.S. health care system hundreds
of billions of dollars each year. Our deep clinical expertise
and industry-leading care programs drive best-in-class
adherence rates. For example, we have demonstrated better
adherence results than our key competitors for patients with
diabetes, hypertension, and high cholesterol. Innovations
such as first-fill counseling, our signature Pharmacy
Advisor ® program, and ScriptSync ® are just a few of the
programs that are driving these improved health outcomes.
The market innovations we are driving through our retail
pharmacy’s integration with CVS Caremark have certainly
played an important role in our growth. That said, it’s worth
noting that 55 percent of retail prescription growth since
2013 has been driven by share gains with other payors.
They value the clinical solutions/capabilities that CVS
Pharmacy brings to market to keep their members healthy.
We are successfully leveraging the Omnicare and
Target acquisitions; MinuteClinic continues to enhance
our value proposition
Now let me bring you up to date on our Omnicare and
Target acquisitions. I’ll start with Omnicare, the nation’s
leading provider of pharmacy services to the long-term care
market. Omnicare dispenses approximately 100 million
scripts annually to more than 1 million patients. We are
using our retail footprint and extensive operational expertise
to help improve efficiency and productivity in Omnicare’s
core business of serving skilled nursing facilities. For
example, 77 percent of Omnicare’s customers live within
three miles of a CVS Pharmacy. That means we can fill
prescriptions for them much more quickly in emergency
situations. We have several initiatives underway as well to
accelerate growth in the assisted living and independent
living markets.
Moving on to Target, last year’s acquisition of its nearly
1,700 pharmacies expanded our retail footprint by more
than 20 percent. It also gave us a presence in new regions
such as Seattle, Denver, Portland, and Salt Lake City. We
have successfully completed the integration and are now
focused on converting more of Target’s 30 million weekly
guests into CVS Pharmacy customers. We are making
good progress and moving in the right direction, with script
performance improving versus prior quarters. This is driven
by the strength of our patient care programs as well as
Maintenance Choice.
Our deep clinical expertise and
industry-leading care programs
drive best-in-class adherence
rates for our patients.
The Target deal included the acquisition of nearly 80 retail
clinics that we have since rebranded as MinuteClinic
locations. In total, we operate more than 1,100 clinics
across 33 states, three times more than our next-largest
competitor. And MinuteClinic’s nearly 3,000 nurse practi-
tioners and physician assistants have logged more than
34 million patient visits to date.
MinuteClinic enhances the CVS Pharmacy value proposition
in a variety of ways. Perhaps most importantly, it is up to
80 percent less expensive than other sites of care, such
as the emergency room. In 2017, approximately 4 million
CVS Caremark plan members will have an opportunity to
benefit from the MinuteClinic Savings Strategy program.
This integrated offering provides PBM members with
reduced or zero co-pays. MinuteClinic is also partnering
with health systems on population health strategies and
engaging patients through a convenient and consumer-
friendly experience. In fact, MinuteClinic and the Department
of Veterans Affairs recently partnered to expand access to
high-quality and convenient health care services for veterans
in Northern California.
11
2016 Annual Report Health and Beauty, ExtraCare®, and digital initiatives drive
front store performance
Our social responsibility initiatives include a major
anti-tobacco effort
In the front of the store, we have focused on ways of
enhancing the pharmacy experience and driving profitable
margin growth for the enterprise. Our emphasis on health
and beauty—categories closely tied to pharmacy—helped us
accomplish both. Health and beauty offer profit margins that
are higher than the average of other front-store categories,
and sales have grown at a compound annual growth rate of
3.5 percent since 2011. We also continued to have success
with store brands, which offer higher margins than national
brands and now comprise more than 22 percent of front-
store sales. We believe that their penetration rate can reach
25 percent in the coming years.
Our digital offerings complement
and leverage our brick-and-
mortar locations to make the
shopping experience even more
convenient.
Among other front store initiatives, we have continued to
shift our promotional dollars from mass circulars to digital
and personalized offers. In particular, we have focused on
the top 30 percent of customers that account for 75 percent
of our margins. The ExtraCare loyalty program, now in
its 19th year, helps us identify and engage these higher-
value shoppers.
Our digital offerings complement and leverage our brick-
and-mortar locations to make the shopping experience
even more convenient. As an example, we launched CVS
Curbside in roughly 4,000 stores across 40 markets in
late 2016. With this new service, customers can use the
CVS smartphone app to have purchases delivered to their
car when they pull up to the store. For parents with young
children or people with mobility issues, we believe that this
is a compelling offering. We expect to add a similar option
for pharmacy as well.
No discussion of CVS Health would be complete without
acknowledging the broad and ambitious social responsibility
initiatives underway across the enterprise. You can read
about them in detail in our comprehensive 2016 corporate
social responsibility (CSR) report, which will be available in
May. I’ll mention just a couple here.
We completed the removal of tobacco products from
our stores in 2014. Through the Be the First initiative we
launched in 2016, we have made a five-year, $50 million
commitment to help people lead tobacco-free lives. We
are supporting education, advocacy, tobacco control,
and healthy behavior programming in partnership with
organizations uniquely positioned to tackle this public
health challenge. In addition to our tobacco-related efforts,
through Project Health we have provided more than
$113 million worth of free health services, such as biometric
screenings and health insurance education, at select
CVS Pharmacy locations throughout the United States and
Puerto Rico. These efforts support our corporate purpose
of helping people on their path to better health.
In closing, I want to thank our board of directors, our
shareholders, and the 250,000 colleagues who have played
a significant role in CVS Health’s achievements. Because
of them, we are able to deliver a compelling business model
that offers benefits in savings, accessibility, and outcomes
across the health care spectrum. If you haven’t done so
already, I encourage you to read the rest of this report to
learn more about our unique capabilities.
Sincerely,
Larry J. Merlo
President and Chief Executive Officer
February 9, 2017
12
CVS Health 2016
Financial Report
14 Management’s Discussion and Analysis of
Financial Condition and Results of Operations
43 Management’s Report on Internal Control
Over Financial Reporting
44 Report of Ernst & Young LLP, Independent
Registered Public Accounting Firm
45 Consolidated Statements of Income
46 Consolidated Statements of Comprehensive
Income
47 Consolidated Balance Sheets
48 Consolidated Statements of Cash Flows
49 Consolidated Statements of Shareholders’
Equity
50 Notes to Consolidated Financial Statements
90 Five-Year Financial Summary
91 Report of Ernst & Young LLP, Independent
Registered Public Accounting Firm
92 Stock Performance Graph
13
2016 Annual Report Management’s Discussion and Analysis
of Financial Condition and Results of Operations
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 care.
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 more than 9,700 retail locations, more than 1,100 walk-in health care clinics, a leading pharmacy benefits
manager with nearly 90 million plan members, a dedicated senior pharmacy care business serving more than one mil-
lion patients per year, expanding specialty pharmacy services and a leading stand-alone Medicare Part D prescription
drug plan, 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 MinuteClinic®.
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 offerings and administration, formulary management, Medicare Part D services,
mail order pharmacy, 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,
Medicare Part D plans, Managed Medicaid plans, plans offered on the public and private exchanges, other spon-
sors 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.
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® pharmacies) 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 (“ACS Pharmacy”) 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
14
CVS Health its subsidiaries (collectively, “Coram”). With Specialty Connect®, which integrates our specialty pharmacy mail
and retail capabilities, 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.
We also provide health management programs, which include integrated disease management for 18 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. As of December 31,
2016, we provided Medicare Part D plan benefits to approximately 5.5 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 ACS Pharmacy names. As of December 31, 2016, the Pharmacy Services Segment operated
23 retail specialty pharmacy stores, 13 specialty mail order pharmacies, four mail order dispensing pharmacies, and
84 branches for infusion and enteral services, including approximately 73 ambulatory infusion suites and three
centers of excellence, located in 41 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’s long-term care (“LTC”) operations, 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®. Our Retail/LTC Segment derives the majority of its revenues through the
sale of prescription drugs, which are dispensed by our more than 32,000 pharmacists. The role of our retail pharma-
cists is expanding 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.
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.
Our proprietary loyalty card program, ExtraCare®, has about 65 million active cardholders, making it one of the
largest and most successful retail loyalty card programs in the country.
As of December 31, 2016, our Retail/LTC Segment included 9,709 retail stores (of which 7,980 were our stores that
operated a pharmacy and 1,674 were our pharmacies located within Target stores) located in 49 states, the District
of Columbia, Puerto Rico and Brazil operating primarily under the CVS Pharmacy®, CVS®, CVS Pharmacy y más®,
Longs Drugs®, Navarro Discount Pharmacy® and Drogaria OnofreTM names, 38 onsite pharmacies primarily operating
under the CarePlus CVS PharmacyTM, CarePlus® and CVS Pharmacy® names, and 1,139 retail health care clinics
15
2016 Annual Report Management’s Discussion and Analysis
of Financial Condition and Results of Operations
operating under the MinuteClinic® name (of which 1,132 were located in our retail pharmacy stores or Target stores),
and our online retail websites, CVS.com®, Navarro.com and Onofre.com.br. LTC operations are comprised of
152 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, 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
2016
2015
2014
Y EA R EN DED DE CE MB E 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
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
$ 177,526
148,669
$
153,290
$
139,367
126,762
114,000
28,857
18,519
10,338
1,058
643
8,637
3,317
5,320
(1)
5,319
(2)
$
5,317
$
$
$
4.91
—
4.90
$
$
$
$
26,528
17,074
9,454
838
—
8,616
3,386
5,230
9
5,239
(2)
5,237
4.62
0.01
4.63
25,367
16,568
8,799
600
521
7,678
3,033
4,645
(1)
4,644
—
4,644
3.96
—
3.96
$
$
$
$
Net revenues increased $24.2 billion in 2016 compared to 2015, and increased $13.9 billion in 2015 compared
to 2014. As you review our performance in this area, we believe you should consider the following important
information:
• During 2016, net revenues in our Pharmacy Services Segment increased 19.5% and net revenues in our Retail/
LTC Segment increased 12.6% compared to the prior year. The Retail/LTC Segment benefited from the 2015
acquisitions of Omnicare and the pharmacies and clinics of Target.
16
CVS Health
• During 2015, net revenues in our Pharmacy Services Segment increased by 13.5% and net revenues in our Retail/
LTC Segment increased 6.2% compared to the prior year.
• In 2016 and 2015, the Pharmacy Services Segment continued to grow from net new business and specialty. The
increase in our generic dispensing rates in both of our operating segments continued to have a negative effect on
net revenue in 2016 as compared to 2015, as well as in 2015 as compared to 2014.
Please see the Segment Analysis later in this document for additional information about our net revenues.
Gross profit increased $2.3 billion, or 8.8% in 2016, to $28.9 billion, as compared to $26.5 billion in 2015. 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 as a
percentage of net revenues declined to 16.3%, as compared to 17.3% in 2015 and 18.2% in 2014.
• During 2016, gross profit in our Pharmacy Services Segment and Retail/LTC Segment increased by 12.9% and
7.9%, respectively, compared to the prior year. For the year ended December 31, 2016, gross profit as a percentage
of net revenues in our Pharmacy Services Segment and Retail/LTC Segment was 4.9% and 29.3%, respectively.
• 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 percentage
of net revenues in our Pharmacy Services Segment and Retail/LTC Segment was 5.2% and 30.5%, 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 2016 as compared
to 2015. In addition, gross profit for 2016 and 2015 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
2016 and 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 $1.4 billion, or 8.5%, in the year ended December 31, 2016, as compared to the
prior year. Operating expenses as a percent of net revenues declined to 10.4% in the year ended December 31,
2016 compared to 11.1% in the prior year. The increase in operating expense dollars in the year ended December
31, 2016 was primarily due to the acquisition of the Target pharmacy and clinic businesses in December 2015, the
Omnicare acquisition in August 2015 and incremental store operating costs associated with a higher store count,
partially offset by lower legal settlement costs in the year ended December 31, 2016. The improvement in operating
expenses as a percentage of net revenues in 2016 is primarily due to expense leverage from net revenue growth.
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, the acquisition of the Target pharmacy and clinic businesses in December 2015 and a
$90 million legal charge in 2015 related to a disputed 1999 legal settlement. The improvement in operating expenses
as a percentage of net revenues in 2015 is primarily due to expense leverage from net revenue growth.
Please see the Segment Analysis later in this document for additional information about operating expenses.
17
2016 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
2016
$
1,078
(20)
$
1,058
2015
859
(21)
838
$
$
2014
615
(15)
600
$
$
Net interest expense increased $220 million during the year ended December 31, 2016, primarily due to the $15 billion
debt issuance in July 2015, the proceeds of which were used to fund the acquisitions of Omnicare and the pharma-
cies and clinics of Target, and the debt assumed from the Omnicare acquisition. See Note 5 “Borrowings and Credit
Agreements” to the consolidated financial statements for additional information. During 2015, net interest expense
increased by $238 million, to $838 million compared to 2014, primarily due to the amortization of bridge facility fees
of $52 million for the unsecured bridge facility that was entered into on May 2015 and was amortized to interest
expense over the period the facility was outstanding, the $15 billion debt issuance in July 2015, and the debt
assumed in the Omnicare acquisition.
Loss on early extinguishment of debt During the year ended December 31, 2016, the Company purchased
approximately $4.2 billion aggregate principal amount of certain of its senior notes pursuant to its tender offer
for such senior notes and option to redeem the outstanding senior notes (see Note 5 “Borrowings and Credit
Agreements” to the consolidated financial statements). The Company paid a premium of $583 million in excess
of the debt principal, wrote off $54 million of unamortized deferred financing costs and incurred $6 million in fees,
for a total loss on the early extinguishment of debt of $643 million.
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 5, “Borrowings and
Credit Agreements” to the consolidated financial statements for additional information.
Income tax provision Our effective income tax rate was 38.4%, 39.3% and 39.5% in 2016, 2015 and 2014,
respectively. The effective income tax rate was lower in 2016 compared to 2015 primarily due to the resolution of
income tax matters in open tax years through 2012, as well as other permanent items. The effective income tax
rate was lower in 2015 compared to 2014 primarily due to certain permanent items 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 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 in both 2016 and 2014. 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.
See Note 1 “Significant Accounting Policies—Discontinued Operations” to the consolidated financial statements for
additional information about discontinued operations and Note 11 “Commitments and Contingencies” for additional
information about our lease guarantees.
18
Management’s Discussion and Analysis of Financial Condition and Results of OperationsCVS Health
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 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
2016:
Net revenues
Gross profit (3)
Operating profit (loss) (4)(5)(6)
2015:
Net revenues
Gross profit
Operating profit (loss) (5)(6)
2014:
Net revenues
Gross profit
Operating profit (loss)
Pharmacy
Services
Segment (1) (2)
Retail/LTC
Segment (2)
Corporate
Segment
Intersegment
Eliminations (2)
Consolidated
Totals
$ 119,963 $ 81,100
$
5,901
4,672
23,738
7,281
—
—
$ (23,537) $ 177,526
(782)
28,857
(894)
(721)
10,338
$ 100,363
$
72,007
$
5,227
3,989
21,992
7,130
$
88,440
$
67,798
$
4,771
3,514
21,277
6,762
—
—
(1,037)
—
—
(796)
$
(19,080) $ 153,290
(691)
(628)
26,528
9,454
$
(16,871) $ 139,367
(681)
(681)
25,367
8,799
(1) Net revenues of the Pharmacy Services Segment include approximately $10.5 billion, $8.9 billion and $8.1 billion of Retail/LTC Co-Payments for
2016, 2015 and 2014, respectively. See Note 1 “Significant Accounting Policies—Revenue Recognition” to the consolidated financial statements
for additional information about Retail/LTC 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 our retail
pharmacies to purchase covered products, when members enrolled in programs such as Maintenance Choice ® elect to pick up maintenance
prescriptions at one of our retail pharmacies instead of receiving them through the mail, or when members have prescriptions filled at our
long-term care pharmacies. When these occur, both the Pharmacy Services and Retail/LTC segments record the revenues, gross profit and
operating profit on a standalone basis.
(3) The Retail/LTC Segment gross profit for the year ended December 31, 2016 includes $46 million of acquisition-related integration costs. The
integration costs are related to the acquisitions of Omnicare and the pharmacies and clinics of Target.
(4) The Pharmacy Services Segment operating profit for the year ended December 31, 2016 includes the reversal of an accrual of $88 million in
connection with a legal settlement.
(5) The Retail/LTC Segment operating profit for the 2016 and 2015 include $281 million and $64 million, respectively, of acquisition-related integration
costs. The integration costs are related to the acquisitions of Omnicare and the pharmacies and clinics of Target. Operating profit for the year
ended December 31, 2016 also includes a $34 million asset impairment charge in connection with planned store closures in 2017 related to our
enterprise streamlining initiative.
(6) The Corporate Segment operating loss for the year ended December 31, 2016 includes integration costs of $10 million related to the acquisitions
of Omnicare and the pharmacies and clinics of Target. For the year ended December 31, 2015, the Corporate Segment operating loss includes
$156 million of acquisition-related transaction and integration costs related to the acquisitions of Omnicare and the pharmacies and clinics of
Target 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.
19
2016 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 (3)
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,
2016
$ 119,963
$
5,901
4.9 %
$
1,229
1.0 %
$
4,672
3.9 %
$ 42,783
$ 76,848
$
332
1,230.0
89.5
1,140.5
85.4 %
78.2 %
85.9 %
18.0 %
$
$
$
$
$
$
$
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 %
(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 our retail pharmacies 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 retail pharmacies, including our retail pharmacies and
long-term care pharmacies, but excluding Maintenance Choice activity.
(3) The Pharmacy Services Segment operating expenses for the year ended December 31, 2016 includes the reversal of an accrual of $88 million in
connection with a legal settlement.
Net revenues in our Pharmacy Services Segment increased $19.6 billion, or 19.5%, to $120.0 billion for the year
ended December 31, 2016, as compared to the prior year. The increase is primarily due to increased pharmacy network
claims, growth in specialty pharmacy, including the growth in Medicare Part D, addition of ACS Pharmacy through the
acquisition of Omnicare, and inflation, partially offset by increased generic dispensing and price compression.
Net revenues increased $11.9 billion, or 13.5%, to $100.4 billion for the year ended December 31, 2015, as com-
pared 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 ACS Pharmacy through the acquisition 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.
20
Management’s Discussion and Analysis of Financial Condition and Results of OperationsCVS Health
As you review our Pharmacy Services Segment’s revenue performance, we believe you should also consider the
following important information about the business:
• Our mail choice claims processed increased 4.4% to 89.5 million claims in the year ended December 31, 2016,
compared to 85.7 million claims in the prior year. The increase in mail choice claims was driven by growth in
specialty pharmacy claims, increase in net new business, and continuing adoption of our Maintenance Choice
offerings. During 2015, our mail choice claims processed increased 4.0% to 85.7 million claims. The increase in
mail choice claims was driven by net new business, specialty and continuing adoption of our Maintenance
Choice offerings.
• During 2016 and 2015, our average revenue per mail choice claim increased by 8.3% and 17.0%, compared
to 2015 and 2014, respectively. The increase in both years was primarily due to growth in specialty pharmacy
and inflation.
• Our pharmacy network claims processed increased 23.1% to 1,140.5 million claims in the year ended December 31,
2016, compared to 926.2 million claims in the prior year. This increase was primarily due to volume from net new
business. During 2015, our pharmacy network claims processed increased 9.0% to 926.2 million compared to
849.6 million pharmacy network claims processed in 2014. This increase was primarily due to net new business.
• During 2016 and 2015, our average revenue per pharmacy network claim processed remained flat.
• Our mail choice generic dispensing rate was 78.2%, 76.4% and 74.6% in the years ended December 31, 2016,
2015 and 2014, respectively. Our pharmacy network generic dispensing rate increased to 85.9% in the year ended
December 31, 2016, compared to 84.4% in the prior year. During 2015, our pharmacy network generic dispensing
rate increased to 84.4% compared to our pharmacy network generic dispensing rate of 83.0% in 2014. 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 brand and
generic drug introductions and our success at encouraging plan members to utilize generic drugs when they are
available and clinically appropriate.
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 $674 million, or 12.9%, to $5.9 billion in the year ended December 31, 2016, as compared to
the prior year. Gross profit as a percentage of net revenues decreased to 4.9% for the year ended December 31,
2016, compared to 5.2% in the prior year. The increase in gross profit dollars in the year ended December 31, 2016
was primarily due to growth in specialty pharmacy, growth in Medicare Part D lives, higher generic dispensing and
favorable purchasing economics, partially offset by price compression. The decrease in gross profit as a percentage
of net revenues was primarily due to changes in the mix of our business and continued price compression, partially
offset by favorable generic dispensing and purchasing economics.
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
21
2016 Annual Report was primarily due to volume increases and higher generic dispensing, as well as favorable purchasing and rebate
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.
As you review our Pharmacy Services Segment’s performance in this area, we believe you should consider the
following important information about the business:
• 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 continue to have an impact on our
gross profit dollars and gross profit as a percentage of net revenues. In particular, competitive pressures in the
PBM industry have caused us and other PBMs to continue to share with clients a larger portion of rebates and/or
discounts received from pharmaceutical manufacturers. In addition, market dynamics and regulatory changes
have limited our ability to offer plan sponsors pricing that includes retail network “differential” or “spread,” and 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.
• Our gross profit as a percentage of revenues benefited from the increase in our total generic dispensing rate,
which increased to 85.4% and 83.7% in 2016 and 2015, respectively, compared to our generic dispensing rate
of 82.2% in 2014. These increases were primarily due to new generic drug introductions and our continual 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. The increased use by patients of generic drugs has also 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.
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 administrative
payroll, employee benefits and occupancy costs, decreased to 1.0% of net revenues in 2016, compared to 1.2%
in 2015 and 1.4% in 2014.
As you review our Pharmacy Services Segment’s performance in this area, we believe you should consider the
following important information about the business:
• Operating expenses decreased $9 million or 0.7% in the year ended December 31, 2016, compared to the prior
year. The decrease in operating expense dollars is primarily due to an $88 million reversal of an accrual in connec-
tion with a legal settlement, partially offset by an increase in costs associated with the growth of our business.
• 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 ACS Pharmacy from
the Omnicare acquisition in August 2015. Operating expenses as a percentage of net revenues improved slightly
from 1.4% in 2014 to 1.2% in 2015.
22
Management’s Discussion and Analysis of Financial Condition and Results of OperationsCVS Health 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 (1)
Gross profit % of net revenues
Operating expenses (2)
Y EA R EN DED DE C EM BE R 3 1,
2016
2015
2014
$ 81,100
$ 23,738
$
$
72,007
21,992
$
$
67,798
21,277
29.3 %
30.5 %
31.4 %
$ 16,457
$
14,862
$
14,515
Operating expenses % of net revenues
20.3 %
20.6 %
21.4 %
Operating profit
Operating profit % of net revenues
Prescriptions filled (90 Day = 3 prescriptions) (3)
Net revenue increase (decrease):
Total
Pharmacy
Front Store
Total prescription volume (90 Day = 3 prescriptions) (3)
Same store sales increase (decrease) (4):
Total
Pharmacy
Front Store (5)
Prescription volume (90 Day = 3 prescriptions) (3)
Generic dispensing rates
Pharmacy % of net revenues
$
7,281
$
7,130
$
6,762
9.0 %
9.9 %
1,223.5
1,031.6
10.0 %
935.9
12.6 %
15.9 %
0.3 %
18.6 %
1.9 %
3.2 %
(1.5) %
3.6 %
85.7 %
75.0 %
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 %
(1) Gross profit for the year ended December 31, 2016 includes $46 million of acquisition-related integration costs related to the acquisitions of
Omnicare and the pharmacies and clinics of Target.
(2) Operating expenses for the years ended December 31, 2016 and 2015, include $235 million and $64 million, respectively, of acquisition-related
integration costs related to the acquisitions of Omnicare and the pharmacies and clinics of Target. Operating expenses for the year ended
December 31, 2016 also includes a $34 million asset impairment charge in connection with planned store closures in 2017 related to our enterprise
streamlining initiative.
(3) 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.
(4) Same store sales and prescriptions exclude revenues from MinuteClinic, and revenue and prescriptions from stores in Brazil, from LTC operations
and from commercialization services.
(5) 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 $9.1 billion, or 12.6%, to $81.1 billion for the year ended December 31, 2016,
as compared to the prior year. This increase was primarily driven by the acquisitions of the pharmacies and clinics
of Target and new stores, which accounted for approximately 640 basis points of our total net revenue percentage
increase during the year, the acquisition of Omnicare’s LTC operations and a same store sales increase of 1.9%. 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 LTC, 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.
23
2016 Annual Report
As you review our Retail/LTC Segment’s performance in this area, we believe you should consider the following
important information about the business:
• Front store same store sales declined 1.5% in the year ended December 31, 2016, as compared to the prior year.
The decrease is primarily driven by softer customer traffic and efforts to rationalize promotional strategies, partially
offset by an increase in basket size.
• Pharmacy same store sales rose 3.2% in the year ended December 31, 2016, as compared to the prior year.
Pharmacy same store sales were positively impacted by same store script growth of 3.6%, as well as approxi-
mately 20 basis points due to an additional day in 2016 related to leap year for the year ended December 31,
2016. Due to marketplace changes in the latter half of 2016, we expect script growth to be negatively impacted
for the next several quarters by restricted network relationships that exclude CVS Pharmacy.
• 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 360 and 390 basis points for the years ended December 31, 2016 and 2015, respectively, due to
recent generic introductions. The generic dispensing rate grew to 85.7% for the year ended December 31, 2016,
compared to 84.5% in the prior year. In addition, our pharmacy revenue growth has also been negatively affected
by the mix of drugs sold, continued reimbursement pressure and the lack of significant new brand name drug
introductions.
• As of December 31, 2016, we operated 9,709 retail stores, including the 1,674 locations in Target stores, com-
pared to 9,655 retail stores as of December 31, 2015, and 7,822 retail stores as of December 31, 2014. Total net
revenues from new and acquired stores contributed approximately 6.4%, 1.6% and 1.1% to our total net revenue
percentage increase in 2016, 2015, and 2014, respectively. The majority of the increase in 2016 was primarily due
to the addition of the pharmacies of Target in December 2015.
• Pharmacy revenue continued to benefit from the increased utilization by Medicare Part D beneficiaries, our ability
to attract and retain managed care customers, the increased use of pharmaceuticals by an aging population and
as the first line of defense for individual health care.
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 $1.7 billion, or 7.9%, to approximately $23.7 billion in the year ended December 31,
2016, as compared to the prior year. Gross profit as a percentage of net revenues decreased to 29.3% in year
ended December 31, 2016, from 30.5% in 2015. 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.
The increase in gross profit dollars in the year ended December 31, 2016, was primarily driven by the addition of the
pharmacies and clinics of Target and LTC, as well as same store sales, partially offset by continued reimbursement
pressure. The decrease in gross profit as a percentage of net revenues was primarily driven by a decline in phar-
macy margins due to continued reimbursement pressure and the mix effect of lower margins from the acquisitions
of the pharmacies and clinics of Target and LTC, partially offset by increased front store margins. Front store margins
increased due to changes in the mix of products sold and efforts to rationalize promotional strategies. 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 economics, partially offset
by continued reimbursement pressure.
24
Management’s Discussion and Analysis of Financial Condition and Results of OperationsCVS Health As you review our Retail/LTC Segment’s performance in this area, we believe you should consider the following
important information about the business:
• Front store revenues as a percentage of total net revenues for the years ended December 31, 2016, 2015 and
2014 were 23.6%, 26.5% and 28.8%, respectively. On average, our gross profit on front store revenues is gener-
ally higher than our gross profit on pharmacy revenues. Pharmacy revenues as a percentage of total net revenues
increased approximately 210, 220 and 120 basis points in the years ended December 31, 2016, 2015 and 2014,
respectively. This was due to pharmacy revenues growing faster than front store revenues, largely driven by the
acquisitions of the pharmacies and clinics of Target and LTC. The mix effect from a higher proportion of pharmacy
sales had a negative effect on our overall gross profit as a percentage of net revenues for the years ended
December 31, 2016, 2015 and 2014, respectively. This negative effect was partially offset by an increase in
generic drugs dispensed, an improved front store gross margin rate, which includes efforts to rationalize promo-
tional strategies.
• During 2016 and 2015, our front store gross profit as a percentage of net revenues increased compared to the
prior year. In both years, the increase reflects a change in the mix of products sold, including store brand prod-
ucts, as a result of our efforts to rationalize promotional strategies. The increase in 2015 was also partially due
to the removal of tobacco products from our stores in late 2014.
• 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, including the use of
restrictive networks, as well as changes in the mix of our business within the pharmacy portion of the Retail/LTC
Segment. In the event the reimbursement pressure 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.
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 administrative expenses.
Operating expenses increased $1.6 billion, or 10.7% to $16 billion, or 20.3% as a percentage of net revenues, in
the year ended December 31, 2016, as compared to $14.9 billion, or 20.6% as a percentage of net revenues, in
the prior year. 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 as a percentage of net revenues for the year ended December 31,
2016 improved primarily due to expense leverage from net revenue growth. The increase in operating expense
dollars for the year ended December 31, 2016, was primarily due to the addition of the pharmacies and clinics
within Target stores and LTC, including acquisition-related integration costs of $235 million, and incremental store
operating costs associated with operating more stores. Operating expenses for the year ended December 31, 2016,
includes a gain from a legal settlement with certain credit card companies of $32 million and an asset impairment
charge of $34 million in connection with planned store closures in 2017 related to our enterprise streamlining
initiative. Additionally, in April 2016, the Retail/LTC Segment made a charitable contribution of $32 million to the
CVS Foundation to fund future charitable giving. The CVS 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 year ended December 31, 2016. 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.
25
2016 Annual Report Corporate Segment
Operating expenses decreased $143 million, or 13.8%, to $894 million in the year ended December 31, 2016, as
compared to the prior year. Operating expenses increased $241 million, or 30.3%, to $1.0 billion in the year ended
December 31, 2015. Operating expenses within the Corporate Segment include executive management, corporate
relations, legal, compliance, human resources, information technology and finance-related costs. The decrease in
operating expenses for the year ended December 31, 2016 was primarily due to acquisition-related transaction and
integration costs associated with the acquisition of Omnicare that occurred in August 2015, and the acquisition of
the pharmacies and clinics of Target that occurred in December 2015. Acquisition-related integration costs for the
year ended December 31, 2016 were $10 million. The increase in operating expenses in the year ended December
31, 2015 was primarily due to acquisition-related transaction and integration costs of $156 million associated with
the acquisitions of Omnicare and pharmacies and clinics of Target, 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.
Liquidity and Capital Resources
We maintain a level of liquidity sufficient to allow us to meet 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 acquisitions. We believe our operating cash flows, commercial paper program, credit facilities,
sale-leaseback program, as well as any potential future borrowings, will be sufficient to fund these future pay-
ments 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
Y EA R EN DED DE C EM BE R 3 1,
2016
2015
2014
$ 10,069
$
8,412
$
8,137
(2,470)
(6,689)
2
(13,420)
5,006
(20)
(22)
(4,045)
(5,694)
(6)
$
(1,608)
Net increase (decrease) in cash and cash equivalents
$
912
$
Net cash provided by operating activities increased by $1.7 billion in 2016 and $275 million in 2015. The increase
in 2016 was primarily due to the timing of payments for our Medicare Part D operations. The increase in 2015 was
primarily due to increased net income partially offset by various changes in working capital.
Net cash used in investing activities decreased by $11.0 billion in 2016 and increased by $9.4 billion in 2015. The
decrease in 2016 and increase in 2015 were primarily due to the $9.6 billion paid for the acquisition of Omnicare and
the $1.9 billion paid for the acquisition of the pharmacies and clinics of Target in 2015, compared to the $2.1 billion
paid for the Coram acquisition in 2014.
In 2016, gross capital expenditures totaled approximately $2.2 billion, a decrease of approximately $143 million
compared to the prior year. During 2016, approximately 31% of our total capital expenditures were for new store
construction, 20% were for store, fulfillment and support facilities expansion and improvements and 49% were
for technology and other corporate initiatives. Gross capital expenditures totaled approximately $2.4 billion and
$2.1 billion during 2015 and 2014, respectively. 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.
26
Management’s Discussion and Analysis of Financial Condition and Results of OperationsCVS Health
Proceeds from sale-leaseback transactions totaled $230 million in 2016. This compares to $411 million in 2015
and $515 million in 2014. 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
2016 (2)
2015 (2)
2014 (2)
9,665
132
(47)
9,750
50
7,866
1,833
(34)
9,665
58
7,702
187
(23)
7,866
60
(1) Relocated stores are not included in new or closed store totals.
(2) Includes retail drugstores, certain onsite pharmacy stores, specialty pharmacy stores and pharmacies within Target stores.
Net cash used in financing activities was $6.7 billion in 2016 versus net cash provided by financing activities of
$5.0 billion in 2015. The difference of $11.7 billion is primarily due to lower long-term borrowings and higher net
repayments of short and long-term debt in 2016. Net cash provided by financing activities was $5.0 billion in 2015
versus net cash used in financing activities of $5.7 billion in 2014. The difference of $10.7 billion 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 in 2015 of $1.0 billion.
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
November 2, 2016 (“2016 Repurchase Program”)
December 15, 2014 (“2014 Repurchase Program”)
December 17, 2013 (“2013 Repurchase Program”)
Authorized
Remaining
$
$
$
15.0
10.0
6.0
$
$
$
15.0
3.2
—
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 2016 and 2014
Repurchase Programs may be modified or terminated by the Board of Directors at any time.
Pursuant to the authorization under the 2014 Repurchase Program, effective August 29, 2016, the Company
entered into two fixed dollar ASRs with Barclays Bank PLC (“Barclays”) for a total of $3.6 billion. Upon payment
of the $3.6 billion purchase price on January 6, 2017, the Company received a number of shares of its common
stock equal to 80% of the $3.6 billion notional amount of the ASRs or approximately 36.1 million shares at a price
of $80.34 per share, which were placed into treasury stock in January 2017. At the conclusion of the ASRs, the
Company may receive additional shares equal to the remaining 20% of the $3.6 billion notional amount. The ultimate
number of shares the Company may receive will fluctuate based on changes in the daily volume-weighted average
price of the Company’s stock over a period beginning on January 6, 2017 and ending on or before July 6, 2017. If
the mean daily volume-weighted average price of the Company’s common stock, less a discount (the “forward
27
2016 Annual Report
price”), during the ASRs falls below $80.34 per share, the Company will receive a higher number of shares from
Barclays. If the forward price rises above $80.34 per share, the Company will either receive fewer shares from Barclays
or, potentially have an obligation to Barclays which, at the Company’s option, could be settled in additional cash or
by issuing shares. Under the terms of the ASRs, the maximum number of shares that could be received or delivered is
90.1 million.
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. 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 mil-
lion notional amount of the ASR or approximately 6.2 million shares. 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 of $580 million and a forward contract of $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 of
$1.6 billion and a forward contract of $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.
In the ASR transactions described above, the initial repurchase of the shares and delivery of the remainder of the
shares to conclude the 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, 2016, the Company repurchased an aggregate of 47.5 million shares of common
stock for approximately $4.5 billion under the 2014 Repurchase Program. As of December 31, 2016, there remained
an aggregate of approximately $18.2 billion available for future repurchases under the 2016 and 2014 Repurchase
Programs, $3.6 billion of which was used for the ASR effective January 6, 2017 described previously. As of
December 31, 2015, the 2013 Repurchase Program was complete.
Short-term borrowings The Company had approximately $1.9 billion of commercial paper outstanding at a weighted
average interest rate of 1.22% as of December 31, 2016. 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, 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, 2016,
there were no borrowings outstanding under the back-up credit facilities.
28
Management’s Discussion and Analysis of Financial Condition and Results of OperationsCVS Health On January 3, 2017, the Company entered into a $2.5 billion revolving credit facility. The credit facility allows for
borrowings at various rates that are dependent, in part, on the Company’s debt ratings and require the Company to
pay a weighted average quarterly facility fee of approximately 0.03%, regardless of usage. The maximum available
under the credit facility decreases by $750 million on both March 31, 2017 and June 30, 2017 and by $500 million
on September 30, 2017. The credit facility expires on December 31, 2017.
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.
Long-term borrowings On May 16, 2016, the Company issued $1.75 billion aggregate principal amount of 2.125%
unsecured senior notes due June 1, 2021 and $1.75 billion aggregate principal amount of 2.875% unsecured senior
notes due June 1, 2026 (collectively, the “2016 Notes”) for total proceeds of approximately $3.5 billion, net of
discounts and underwriting fees. The 2016 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 2016 Notes were used for general corporate purposes and
to repay certain corporate debt.
On May 16, 2016, the Company announced tender offers for (1) any and all of its 5.75% Senior Notes due 2017,
its 6.60% Senior Notes due 2019 and its 4.75% Senior Notes due 2020 (collectively, the “Any and All Notes”) and
(2) up to $1.5 billion aggregate principal amount of its 6.25% Senior Notes due 2027, its 6.125% Senior Notes due
2039, its 5.75% Senior Notes due 2041, the 5.00% Senior Notes due 2024 issued by its wholly-owned subsidiary,
Omnicare, Inc. (“Omnicare”), the 4.75% Senior Notes due 2022 issued by Omnicare, its 4.875% Senior Notes due
2035 and its 3.875% Senior Notes due 2025 (collectively, the “Maximum Tender Offer Notes” and together with
the Any and All Notes, the “Notes”). On May 31, 2016, the Company increased the aggregate principal amount of
the tender offers for the Maximum Tender Offer Notes to $2.25 billion. The Company purchased approximately
$835 million aggregate principal amount of the Any and All Notes and $2.25 billion aggregate principal amount of
the Maximum Tender Offer Notes pursuant to the tender offers, which expired on June 13, 2016. The Company paid
a premium of $486 million in excess of the debt principal in connection with the purchase of the Notes, wrote off
$50 million of unamortized deferred financing costs and incurred $6 million in fees, for a total loss on the early
extinguishment of debt of $542 million which was recorded in income from continuing operations in the consolidated
statement of income for the year ended December 31, 2016.
On June 27, 2016, the Company notified the holders of the remaining Any and All Notes that the Company was
exercising its option to redeem the outstanding Any and All Notes pursuant to the terms of the Any and All Notes
and the Indenture dated as of August 15, 2006, between the Company and The Bank of New York Mellon Trust
Company, N.A. Approximately $1.1 billion aggregate principal amount of Any and All Notes was redeemed on
July 27, 2016. The Company paid a premium of $97 million in excess of the debt principal and wrote off $4 million
of unamortized deferred financing costs, for a total loss on early extinguishment of debt of $101 million during the
year ended December 31, 2016.
The Company recorded a total loss on the early extinguishment of debt of $643 million which was recorded in the
income from continuing operations in the consolidated statement of income for the year ended December 31, 2016.
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
29
2016 Annual Report 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
of $388 million of the 4.75% senior notes due 2022 and $296 million of the 5% senior notes due 2024 were validly
tendered and exchanged for notes issued by the Company. The Company recorded this exchange transaction as
a modification of the original debt instruments. Consequently, no gain or loss on extinguishment was recognized in
the Company’s consolidated income statement as a result of this exchange transaction and the issuance costs of
the new debt 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 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 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.
Our credit facilities and unsecured senior notes (see Note 5 “Borrowings and Credit Agreements” to the consoli-
dated financial statements) contain customary restrictive financial and operating covenants.
30
Management’s Discussion and Analysis of Financial Condition and Results of OperationsCVS Health 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, 2016, the Company is in compliance with all debt covenants.
As of December 31, 2016 and 2015, we had no outstanding derivative financial instruments.
Debt Ratings As of December 31, 2016, 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 Cash Dividend Increase In December 2016, our Board of Directors authorized an 18% increase in our
quarterly common stock cash dividend to $0.50 per share effective in 2017. This increase equates to an annual
dividend rate of $2.00 per share. In December 2015, our Board of Directors authorized a 21% increase in our
quarterly common stock cash dividend to $0.425 per share. This increase equated 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 cash dividend to $0.35 per share. This increase equated to an annual dividend rate of $1.40 per share.
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, 2016, we guaranteed approximately 87 such store leases (excluding the lease guarantees
related to Linens ‘n Things), with the maximum remaining lease term extending through 2047. 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.
31
2016 Annual Report Below is a summary of our significant contractual obligations as of December 31, 2016:
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
2017
2018 to
2019
2020 to
2021
Thereafter
$ 27,346
$
2,458
$
4,570
$
3,950
$ 16,368
19
1,314
1,737
25,204
11,385
806
7
74
—
21
916
76
7
143
—
4,350
1,724
5
141
—
5,050
1,480
—
956
1,737
15,783
7,265
377
112
241
$ 67,811
$
3,552
$ 11,171
$
10,738
$ 42,350
(1) The Company leases pharmacy and clinic space from Target. See Note 6 “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, 2016.
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“Significant Accounting Policies” 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.
32
Management’s Discussion and Analysis of Financial Condition and Results of OperationsCVS Health
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
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 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.
33
2016 Annual Report 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 5.9%,
6.3% and 6.4% of consolidated net revenues in 2016, 2015 and 2014, 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.
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 allowance
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 revenues and receivables reported in our
consolidated 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 on-line 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, 2016
to be significant to our future consolidated results of operations, financial position and cash flows.
34
Management’s Discussion and Analysis of Financial Condition and Results of OperationsCVS Health 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 revenue
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,
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, 2016 was $286 million, compared with $161 million as
of December 31, 2015. Our allowance for doubtful accounts represented 2.3% and 1.3% of gross receivables (net
of contractual allowance adjustments) as of December 31, 2016 and 2015, 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, 2016 would result in an increase to the provision of doubtful accounts of
approximately $126 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
35
2016 Annual Report 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 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.
Inventory
Inventories are valued at the lower of cost or market using the weighted average cost method.
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 $283 million as of
December 31, 2016. 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 $28 million as of December 31, 2016.
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.
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.
36
Management’s Discussion and Analysis of Financial Condition and Results of OperationsCVS Health 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 (discounted 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 esti-
mates, 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.
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 appropriate
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,
37
2016 Annual Report 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 spending patterns.
The carrying value of goodwill and other intangible assets covered by this critical accounting policy was $38.2 billion
and $13.5 billion as of December 31, 2016, respectively. We did not record any impairment losses related to goodwill
or other intangible assets during 2016, 2015 or 2014. During the third quarter of 2016, we performed our required
annual impairment tests of goodwill and indefinitely-lived trademarks. The goodwill impairment tests resulted in
the fair values of our Pharmacy Services and Retail Pharmacy reporting units exceeding their carrying values by
significant margins. The fair values of our LTC and RxCrossroads reporting units exceeded their carrying values by
7% and 12%, respectively. The balance of goodwill for our LTC and RxCrossroads reporting units at December 31,
2016 was approximately $6.4 billion and $0.6 billion, respectively.
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 $183 million as of December 31,
2016. This amount is net of $98 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 $10 million as of December 31, 2016.
We have not made any material changes in the reserve methodology used to record closed store lease reserves
during the past three years.
During the year ending December 31, 2017, we intend to close approximately 70 retail stores and expect to take a
charge of approximately $225 million associated with the remaining lease obligations of such stores.
38
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 insur-
ance 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 $670 million as of December 31, 2016.
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 $67 million as of December 31, 2016.
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 assets and liabilities are estab-
lished for any temporary differences between financial and tax reporting bases and are adjusted as needed to reflect
changes in the 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 losses, deductions
or other tax benefits is sufficiently 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 based on 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.
New Accounting Pronouncements
See Note 1 “Significant Accounting Policies” to the consolidated financial statements for a description of New
Accounting Pronouncements applicable to the Company.
39
2016 Annual Report 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;
specialty pharmacy 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 and regulatory developments, as well as
statements expressing optimism or pessimism about future operating results or events, are forward-looking state-
ments 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 2016 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 con-
sumer purchasing power, preferences and/or spending patterns, drug utilization trends, the financial health
of our PBM and LTC clients, retail and specialty pharmacy payors or other payors doing business with the
Company and our ability to secure necessary financing, suitable store locations and sale-leaseback transac-
tions on acceptable terms.
• Efforts to reduce reimbursement levels and alter health care financing practices, including pressure to reduce
reimbursement levels for generic drugs.
• 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 termi-
nate 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 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” or the use of maximum allowable cost pricing.
40
Management’s Discussion and Analysis of Financial Condition and Results of OperationsCVS Health • 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 our 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.
• Efforts to increase reimbursement rates in PBM pharmacy networks and to inhibit the ability of PBMs to audit
network pharmacies for fraud, waste and abuse.
• Risks related to increasing oversight of PBM activities by state departments of insurance.
• A highly competitive business environment, including the uncertain impact of increased consolidation in the PBM
industry, the possibility of combinations, joint ventures or other collaboration between PBMs and retailers, uncer-
tainty 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 pharmacies in an environ-
ment where some PBM clients are willing to consider adopting narrow or more restricted retail pharmacy networks,
and the possibility of our retail stores or specialty pharmacies being excluded from narrow or restricted 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, including limited distribution drugs.
• Reform of the U.S. health care system, including ongoing implementation of ACA and the possible repeal and
replacement of all or parts 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 related to changes in legislation, regulation and government policy (including through the use of Executive
Orders) that could significantly impact our business and the health care and retail industries, including the
possibility of major developments in tax policy or trade relations, such as the disallowance of tax deductions for
imported merchandise or the imposition of unilateral tariffs on imported products.
• 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, network pharmacy reimbursement
and auditing, accounting standards, corporate securities, tax, environmental and other laws and regulations
affecting our business.
41
2016 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.
• 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.
42
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 proce-
dures to provide reasonable assurance, at an appropriate cost/benefit relationship, that the unauthorized acquisition,
use or disposition 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 account-
ing 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, 2016.
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.
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, 2016.
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, 2017
43
2016 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, 2016,
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 inadequate because of changes in conditions, or that the degree of compliance with the policies or proce-
dures may deteriorate.
In our opinion, CVS Health Corporation maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2016, 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, 2016 and 2015, 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, 2016 of CVS Health Corporation and our report dated February 9,
2017 expressed an unqualified opinion thereon.
Boston, Massachusetts
February 9, 2017
44
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
2016
2015
2014
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
$ 177,526
148,669
$
153,290
$
139,367
126,762
114,000
28,857
18,519
10,338
1,058
643
8,637
3,317
5,320
(1)
5,319
(2)
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
—
Net income attributable to CVS Health
$
5,317
$
5,237
$
4,644
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.
$
$
$
$
$
$
$
4.93
—
4.93
1,073
4.91
—
4.90
1,079
1.70
$
$
$
$
$
$
$
4.65
0.01
4.66
1,118
4.62
0.01
4.63
1,126
1.40
$
$
$
$
$
$
$
3.98
—
3.98
1,161
3.96
—
3.96
1,169
1.10
45
2016 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 ,
2016
2015
2014
$
5,319
$
5,239
$
4,644
38
2
13
53
5,372
(2)
(100)
2
(43)
(141)
5,098
(2)
(35)
4
(37)
(68)
4,576
—
Comprehensive income attributable to CVS Health
$
5,370
$
5,096
$
4,576
See accompanying notes to consolidated financial statements.
46
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
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 11)
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; 1,705 shares issued
and 1,061 shares outstanding at December 31, 2016 and 1,699 shares issued and
1,101 shares outstanding at December 31, 2015
Treasury stock, at cost: 643 shares at December 31, 2016 and 597 shares
at December 31, 2015
Shares held in trust: 1 share at December 31, 2016 and 2015
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 ,
2016
2015
$
3,371
$
2,459
87
12,164
14,760
660
31,042
10,175
38,249
13,511
1,485
88
11,888
14,001
722
29,158
9,855
38,106
13,878
1,440
$ 94,462
$
92,437
$
7,946
9,451
6,937
1,874
42
26,250
25,615
4,214
1,549
—
—
—
17
(33,452)
(31)
31,618
38,983
(305)
36,830
4
36,834
$
7,490
7,653
6,829
—
1,197
23,169
26,267
4,217
1,542
—
39
—
17
(28,886)
(31)
30,948
35,506
(358)
37,196
7
37,203
Total liabilities and shareholders’ equity
$ 94,462
$
92,437
See accompanying notes to consolidated financial statements.
47
2016 Annual Report
Consolidated Statements of Cash Flows
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
Purchase of noncontrolling interest in subsidiary
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 (used in) provided by 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
Cash and cash equivalents at the end of the year
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
Y EA R EN DED DE CE MB E R 3 1 ,
2016
2015
2014
$ 172,310
$
148,954
$
132,406
(142,511)
(15,550)
20
(1,140)
(3,060)
10,069
(2,224)
230
37
(539)
(65)
91
(2,470)
1,874
3,455
(5,943)
(39)
(26)
(1,840)
224
72
(4,461)
(5)
(6,689)
2
912
2,459
3,371
5,319
2,475
222
643
153
(243)
(742)
35
(43)
2,189
59
2
$
$
(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
2,459
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
$
$
Net cash provided by operating activities
$ 10,069
$
8,412
$
8,137
See accompanying notes to consolidated financial statements.
48
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 C EM BE R 3 1,
DO L L AR S
Y EA R EN DED DE C EM BE R 31,
2016
2015
2014
2016
2015
2014
1,699
1,691
1,680
$
17
$
17
$
6
8
11
1,705
1,699
1,691
$
—
17
$
—
17
$
17
—
17
(597)
(47)
1
(643)
(550)
(48)
1
(597)
(500)
(51)
1
(550)
$ (28,886) $ (24,078)
(4,856)
48
(4,606)
40
$ (20,169)
(4,001)
92
$ (33,452) $ (28,886)
$ (24,078)
Balance at beginning and end of year
(1)
(1)
(1)
$
(31) $
(31)
$
(31)
Capital surplus:
Beginning of year
Stock option activity, stock awards and other
Excess tax benefit on stock options and stock awards
2015 accelerated share repurchase not settled until 2016
End of year
Retained earnings:
Beginning of year
Changes in inventory accounting principles
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
$ 30,948
449
76
145
$ 30,418
533
142
(145)
$ 29,777
535
106
—
$ 31,618
$ 30,948
$ 30,418
$ 35,506
—
5,317
(1,840)
$ 31,849
(4)
5,237
(1,576)
$ 28,493
—
4,644
(1,288)
$ 38,983
$ 35,506
$ 31,849
$
(358) $
38
2
13
$
(217)
(100)
2
(43)
$
(305) $
(358)
$
(149)
(35)
4
(37)
(217)
Total CVS Health shareholders’ equity
$ 36,830
$ 37,196
$ 37,958
Noncontrolling interest:
Beginning of year
Business combinations
Capital contributions
Net income attributable to noncontrolling interest (1)
Distributions
End of year
Total shareholders’ equity
$
$
7
—
1
1
(5)
$
4
$
5
1
2
1
(2)
7
$
$
—
5
—
—
—
5
$ 36,834
$ 37,203
$ 37,963
(1) Excludes $1 million attributable to redeemable noncontrolling interest in 2016 and 2015 (See Note 1 “Significant Accounting Policies”).
See accompanying notes to consolidated financial statements.
49
2016 Annual Report
Notes to Consolidated Financial Statements
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.
Pharmacy Services Segment (the “PSS”) The PSS provides a full range of pharmacy benefit management services
including plan design offerings 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. The Company’s clients
are primarily employers, insurance companies, unions, government employee groups, health plans, Medicare Part D,
Managed Medicaid plans, plans offered on the public and private exchanges, 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 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 (“ACS Pharmacy”) 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 (collectively, “Coram”). In August 2015, the Company further
expanded its specialty offerings with the acquisition of ACS Pharmacy which was part of the Omnicare, Inc.
(“Omnicare”) acquisition. See Note 2 “Acquisitions.”
The PSS also provides health management programs, which include integrated disease management for 18 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 PSS operates under the CVS Caremark® Pharmacy Services, Caremark®, CVS CaremarkTM, CarePlus CVS
PharmacyTM, Accordant®, SilverScript®, Coram®, CVS SpecialtyTM, NovoLogix®, Navarro® Health Services and ACS
Pharmacy names. As of December 31, 2016, the PSS operated 23 retail specialty pharmacy stores, 13 specialty
mail order pharmacies and four mail order dispensing pharmacies, and 84 branches for infusion and enteral services,
including 73 ambulatory infusion suites and three centers of excellence, located in 41 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, personal care products, convenience foods,
photo finishing services, seasonal merchandise, and greeting cards, through the Company’s CVS Pharmacy®, CVS®,
CVS Pharmacy y más®, Longs Drugs®, Navarro Discount Pharmacy® and Drogaria OnofreTM retail stores and online
through CVS.com®, Navarro.com and Onofre.com.br.
50
CVS Health 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 provides long-term care (“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 December 2015 acquisition of the pharmacies and clinics of Target Corporation (“Target”),
the Company added 1,672 pharmacies and approximately 79 clinics.
As of December 31, 2016, the retail pharmacy business included 9,709 retail stores (of which 7,980 were our stores
that operated a pharmacy and 1,674 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, CVS Pharmacy y
más®, Longs Drugs, Navarro Discount Pharmacy and Drogaria Onofre names, the online retail websites, CVS.com,
Navarro.com and Onofre.com.br, and 1,139 retail health care clinics operating under the MinuteClinic name (of
which 1,053 were located in our retail pharmacy stores, 79 were located in Target stores and seven were located
in corporate campuses or other locations). LTC operations is comprised of 152 spoke pharmacies that primarily
handle new prescription orders and 32 hub pharmacies that use proprietary automation to support spoke pharma-
cies 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, 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 material intercompany balances and transactions have been eliminated.
The Company continually evaluates its investments to determine if they represent variable interests in a VIE. If the
Company determines that it has a variable interest in a VIE, the Company then evaluates if it is the primary 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.
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.
51
2016 Annual Report • 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 accompa-
nying 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, 2016 and 2015.
Fair value of financial instruments As of December 31, 2016, 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 $25.7 billion and
$26.5 billion, respectively, as of December 31, 2016. 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. There were no outstanding derivative financial instruments as of December 31, 2016 and 2015.
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.
52
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
2016
161
221
(96)
286
$
$
2015
256
216
(311)
161
$
$
2014
256
185
(185)
256
$
$
Inventories Inventories are stated at the lower of weighted average cost or market. 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 inven-
tory 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
$
2016
1,734
3,226
10,956
4,494
2,392
22,802
(12,627)
$
2015
1,635
3,168
10,001
4,015
2,217
21,036
(11,181)
$ 10,175
$
9,855
The gross amount of property and equipment under capital leases was $547 million and $528 million as of
December 31, 2016 and 2015, respectively. Accumulated amortization of property and equipment under capital
lease was $119 million and $97 million as of December 31, 2016 and 2015, respectively. Amortization of property
and equipment under capital lease is included within depreciation expense. Depreciation expense totaled $1.7 billion
in 2016, $1.5 billion in 2015 and $1.4 billion in 2014.
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 3 “Goodwill and Other
Intangibles” 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 remain-
ing life of the lease. See Note 3 “Goodwill and Other Intangibles” for additional information about intangible assets.
53
2016 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 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 was recorded as a redeemable noncontrolling interest at
fair value. During 2016, the noncontrolling shareholder of the LLC exercised its option to sell its ownership interest
and the Company purchased the noncontrolling interest in the LLC for approximately $39 million.
Below is a summary of the changes in redeemable noncontrolling interest for the years ended December 31:
I N M I L L I O N S
Beginning balance
Acquisition of noncontrolling interest
Net income attributable to noncontrolling interest
Distributions
Purchase of noncontrolling interest
Reclassification to capital surplus in connection with purchase of noncontrolling interest
Ending balance
Revenue Recognition
PHARMACY SERVICES SEGMENT
2016
2015
$
$
39
—
1
(2)
(39)
1
—
$
$
—
39
1
(1)
—
—
39
The PSS sells prescription drugs directly through its mail service dispensing pharmacies 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) administra-
tive fees for retail pharmacy network contracts where the PSS is not the principal as discussed below. 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.
54
CVS HealthNotes to Consolidated Financial Statements
• 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.
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 pharmacy,
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 dispensing. 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 pro-
spective 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).
55
2016 Annual Report 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 the
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. The Company monitors its revenues and receivables from
these reimbursement sources, as well as other third party insurance payors, and record an estimated contractual
allowance 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 on-line 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 revenue 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 12 “Segment Reporting” 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
56
CVS HealthNotes to Consolidated Financial Statements 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” below) 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 12 “Segment Reporting” for additional information about the cost of revenues of the Company’s
business segments.
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-
insurance 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.
57
2016 Annual Report 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 unrecoverable
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 $181 million and $217 million in 2016 and 2015, respectively.
Advertising costs Advertising costs are expensed when the related advertising takes place. Advertising costs, net
of vendor funding (included in operating expenses), were $216 million, $221 million and $212 million in 2016, 2015
and 2014, respectively.
Interest expense, net The following are the components of net interest expense for the years ended December 31:
I N M I L L I O N S
Interest expense
Interest income
Interest expense, net
2016
$
1,078
(20)
$
1,058
2015
859
(21)
838
$
$
2014
615
(15)
600
$
$
Capitalized interest totaled $13 million, $12 million and $19 million in 2016, 2015 and 2014, respectively.
Shares held in trust The Company maintains grantor trusts, which held approximately one million shares of its
common stock at December 31, 2016 and 2015, 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 $284 million pre-tax ($173 million after-tax) as of
December 31, 2016 and $305 million pre-tax ($186 million after-tax) as of December 31, 2015. The net impact on
cash flow hedges totaled $9 million pre-tax ($5 million after-tax) and $14 million pre-tax ($7 million after-tax) as of
December 31, 2016 and 2015, respectively. Cumulative foreign currency translation adjustments at December 31,
2016 and 2015 were $127 million and $165 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 6 ( 1)
Losses on
Cash Flow
Hedges
Pension
and Other
Postretirement
Benefits
Foreign
Currency
Total
Balance, December 31, 2015
$
(165)
$
(7)
$
(186)
$
(358)
Other comprehensive income before
reclassifications
Amounts reclassified from accumulated other
comprehensive income (2)
Net other comprehensive income
38
—
38
—
2
2
—
13
13
38
15
53
Balance, December 31, 2016
$
(127)
$
(5)
$
(173)
$
(305)
58
CVS HealthNotes to Consolidated Financial Statements
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
$
(1) All amounts are net of tax.
(100)
—
(100)
(165)
$
—
2
2
(7)
(56)
13
(43)
$
(186)
$
(156)
15
(141)
(358)
(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.
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 $163 million, $122 million and $26 million
from Cardinal during the years ended December 31, 2016, 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, 2016,
2015 and 2014, as well as amounts due to or due from Cardinal at December 31, 2016 and 2015 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 $39 million in the year ended December 31, 2016, and $50 million in the
years ended December 31, 2015 and 2014, for the use of this network. The Company’s investment in and equity in
earnings of SureScripts for all periods presented is immaterial.
59
2016 Annual Report
The Company has an equity method investment in Heartland Healthcare Services (“Heartland”). Heartland operates
several long-term care pharmacies in four states. Heartland paid the Company approximately $140 million and
$25 million for pharmaceutical inventory purchases during the years ended December 31, 2016 and 2015, respec-
tively. 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
years ended December 31, 2016 and 2015, is immaterial.
In 2016 and 2014, the Company made charitable contributions of $32 million and $25 million, respectively, to the
CVS Foundation (the “Foundation”) to fund future giving. The Foundation is a non-profit entity managed by employ-
ees of the Company that focuses on health, education and community involvement programs. The charitable
contributions were recorded as operating expenses in the Company’s consolidated statements of income for the
years ended December 31, 2016 and 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 or years in which the differences are expected to reverse. The
effect of a change in the tax rates on deferred tax assets 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.
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 Bob’s
Stores and Linens ‘n Things which filed for bankruptcy in 2016 and 2008, respectively. The Company’s loss from
discontinued operations in 2016 and 2014 includes lease-related costs which the Company believes it will likely be
required to satisfy pursuant to its lease guarantees. 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.
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 (loss) from discontinued operations
Income tax expense
Income (loss) from discontinued operations, net of tax
2016
2015
2014
$
$
(2)
1
(1)
$
$
15
(6)
9
$
$
(1)
—
(1)
60
CVS HealthNotes to Consolidated Financial Statements
Earnings per common share Earnings per share is computed using the two-class method. Options to purchase
6.7 million, 2.7 million and 2.1 million shares of common stock were outstanding as of December 31, 2016, 2015
and 2014, 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 pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09
outlines a single comprehensive model for companies to use in accounting for revenue arising from contracts with
customers and supersedes most current revenue recognition guidance, including industry-specific guidance. In
March 2016, the FASB issued ASU 2016-08, “Principal Versus Agent Considerations (Reporting Revenue Gross
Versus Net),” which amends the principal-versus-agent implementation guidance and in April 2016 the FASB issued
ASU 2016-10, “Identifying Performance Obligations and Licensing,” which amends the guidance in those areas in
the new revenue recognition standard. Both ASUs were issued in response to feedback received from the FASB-
International Accounting Standards Board joint revenue recognition transition resource group. This new standard
could impact the timing and amounts of revenue recognized. The new revenue standard is effective for annual
reporting periods (including interim reporting periods within those periods) beginning January 1, 2018. Early adop-
tion of the standard in 2017 is permitted; however, the Company does not intend to early adopt the new standard.
Companies have the option of using either a full retrospective or a modified retrospective approach to adopt the
guidance. The Company formed a project team to assess and implement the new standard. While the Company
is continuing to assess all of the potential impacts of the new standard including the potential impact from recent
acquisitions, the Company does not expect the implementation of the standard will have a material effect on the
Company’s consolidated results of operations, cash flows or financial position. The Company intends to adopt the
new standard on a modified retrospective basis.
In July 2015, the FASB issued ASU 2015-11, Inventory, which amends ASU Topic 330. This ASU simplifies current
accounting treatments by requiring entities to measure most inventories at “the lower of cost and net realizable
value” rather than using lower of cost or market. This guidance does not apply to inventories measured using
the last-in, first-out method or the retail inventory method. This ASU is effective prospectively for annual periods
beginning after December 15, 2016 and interim periods thereafter with early adoption permitted. Upon transition,
entities must disclose the accounting change. The Company is evaluating the effect of adopting this new accounting
guidance but does not expect the adoption will have a material impact on the Company’s results of operations,
financial position or cash flows.
In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740). The new guidance simplifies the
presentation of deferred income taxes by requiring that deferred tax assets and liabilities be classified as noncurrent
in a classified statement of financial position. The updated standard is effective for the Company beginning on
January 1, 2017 with early application permitted as of the beginning of any interim or annual reporting period. The
Company elected to early adopt this standard as of January 1, 2016 and has, accordingly, reclassified the current
deferred tax assets to noncurrent deferred tax liabilities for all periods presented. The following is a reconciliation
of the effect of the reclassification on the Company’s consolidated balance sheet as of December 31, 2015:
I N M I L L I O N S
Deferred tax assets - current
Total current assets
Total assets
Deferred tax liabilities - noncurrent
Total liabilities and shareholders’ equity
As Previously Reported
Adjustments
As Revised
$
1,220
$
30,378
93,657
5,437
93,657
(1,220)
(1,220)
(1,220)
(1,220)
(1,220)
$
—
29,158
92,437
4,217
92,437
61
2016 Annual Report
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Lessees will be required to recognize a
right-of-use asset and a lease liability for virtually all of their leases (other than leases that meet the definition of
a short-term lease). The liability will be equal to the present value of lease payments. The asset will be based on
the liability, subject to adjustment, such as for initial direct costs. For income statement purposes, a dual model
was retained, requiring leases to be classified as either operating or finance leases. Operating leases will result in
straight-line expense (similar to current operating leases) while finance leases will result in a front-loaded expense
pattern (similar to current capital leases). Lessor accounting is similar to the current model, but updated to align
with certain changes to the lessee model (e.g., certain definitions, such as initial direct costs, have been updated)
and the new revenue recognition standard. The standard is effective for public companies for fiscal years, and
interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The
Company believes that the new standard will have a material impact on its consolidated balance sheet. The Company
is currently evaluating the effect that implementation of this standard will have on the Company’s consolidated
results of operations, cash flows, financial position and related disclosures.
In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting,
which amends Accounting Standard Codification Topic 718, Compensation—Stock Compensation, in three areas.
(1) The new guidance eliminates accounting for tax benefits and deficiencies through equity to the extent of previous
windfalls, and then to the income statement. The new requirement is to record all tax benefits and deficiencies
through the income statement. This amendment is required to be applied prospectively. The amendment also
requires the presentation of excess tax benefits on the statements of cash flows as operating activities, a change
which may be applied prospectively or retrospectively at the election of the Company. The amendment requires the
presentation of employee taxes paid on the statement of cash flows when an employer withholds shares for tax
withholding purposes as financing activities, a change which must be applied retrospectively. (2) The new guidance
also permits companies to withhold an amount up to the employees’ maximum individual tax rate in the relevant
jurisdiction without resulting in liability classification of the award. (3) Finally, the new guidance provides companies
with an accounting policy election for the impact of forfeitures on the recognition of expense for share-based
payment awards. Forfeitures can be estimated, as required today, or recognized when they occur. If elected, the
change to recognize forfeitures when they occur needs to be adopted using a modified retrospective approach, with
a cumulative effect adjustment recorded to beginning retained earnings. The ASU is effective for annual reporting
periods beginning after December 15, 2016, including interim periods within that annual reporting period. The
Company is currently evaluating the effect of adopting this new accounting guidance.
In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments.
ASU 2016-15 is intended to add or clarify guidance on the classification of certain cash receipts and payments
in the statement of cash flows and to eliminate the diversity in practice related to such classifications. The guidance
in ASU 2016-15 is required for annual reporting periods beginning after December 15, 2017, with early adoption
permitted. The Company is currently evaluating the effect on its consolidated statement of cash flows of adopting
this new accounting guidance.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows, which amends ASU Topic 230.
This ASU requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted
cash equivalents in the statement of cash flows. As a result, entities will no longer be required to present transfers
between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash
flows. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one
line item on the balance sheet, the new guidance requires a reconciliation of the totals in the statement of cash flows
to the related captions in the balance sheet. Entities will also have to disclose the nature of their restricted cash and
restricted cash equivalent balances. The guidance is effective for fiscal years beginning after December 15, 2017
and interim periods within those years. Early adoption is permitted. Entities are required to apply the guidance
retrospectively. The Company is currently evaluating the effect of adopting this new accounting guidance.
62
CVS HealthNotes to Consolidated Financial Statements 2 | 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. 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 ACS Pharmacy, and provides
commercialization services under the name of RxCrossroads®. The Company includes LTC and the commercializa-
tion services business in the Retail/LTC Segment, and includes 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 following table summarizes the 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
$
1,657
313
9,139
3,962
63
(773)
(3,110)
(1,498)
(69)
(39)
$
9,645
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 $8.7 billion was allocated to the Retail/LTC Segment and
the remaining goodwill of $0.4 billion was allocated to the Pharmacy Services Segment. Approximately $0.4 billion
of the goodwill is deductible 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.
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.
63
2016 Annual Report
The following unaudited pro forma information presents a summary of the Company’s combined results of opera-
tions for the years 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 $60 million based on future prescription growth over a three year
period. 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 were rebranded as MinuteClinic. The Company acquired the Target pharmacy and clinic businesses primarily
to expand the geographic reach of its retail pharmacy business.
The 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
467
9
490
900
$
1,868
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 consideration has been recorded based on current projections for future prescription growth
over the relevant period.
64
CVS HealthNotes to Consolidated Financial Statements
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 6 “Leases” 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.
3 | 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 2016, 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,
2016 and 2015:
I N M I L L I O N S
Balance, December 31, 2014
Acquisitions
Foreign currency translation adjustments
Other (1)
Balance, December 31, 2015
Acquisitions
Foreign currency translation adjustments
Other (1)
Pharmacy Services
Retail/LTC
Total
$
21,234
$
452
—
(1)
6,908
9,554
(40)
(1)
$
28,142
10,006
(40)
(2)
21,685
16,421
38,106
—
—
(48)
126
17
48
126
17
—
Balance, December 31, 2016
$ 21,637
$ 16,612
$ 38,249
(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
impairment loss is recognized and the asset is written down to its estimated fair value. During the third quarter of
2016, 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, 2016 and 2015.
65
2016 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 life of the Company’s cus-
tomer contracts and relationships and covenants not to compete is 15.5 years. The weighted average life of the
Company’s favorable leases and other intangible assets is 15.9 years. Amortization expense for intangible assets
totaled $795 million, $611 million and $518 million in 2016, 2015 and 2014, 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
2017
2018
2019
2020
2021
$
780
748
704
534
473
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
2016
2015
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
11,485
1,123
(4,802)
(693)
6,683
430
10,594
1,595
(4,092)
(617)
6,502
978
$ 19,006
$
(5,495) $ 13,511
$ 18,587
$
(4,709) $ 13,878
4 | 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
November 2, 2016 (“2016 Repurchase Program”)
December 15, 2014 (“2014 Repurchase Program”)
December 17, 2013 (“2013 Repurchase Program”)
September 19, 2012 (“2012 Repurchase Program”)
Authorized
Remaining
$
$
$
$
15.0
10.0
6.0
6.0
$
$
$
$
15.0
3.2
—
—
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 2016 and 2014
Repurchase Programs may be modified or terminated by the Board of Directors at any time.
Pursuant to the authorization under the 2014 Repurchase Program, effective August 29, 2016, the Company
entered into two fixed dollar ASRs with Barclays Bank PLC (“Barclays”) for a total of $3.6 billion. Upon payment
of the $3.6 billion purchase price on January 6, 2017, the Company received a number of shares of its common
stock equal to 80% of the $3.6 billion notional amount of the ASRs or approximately 36.1 million shares at a price
of $80.34 per share, which were placed into treasury stock in January 2017. At the conclusion of the ASRs, the
Company may receive additional shares equal to the remaining 20% of the $3.6 billion notional amount. The ultimate
66
CVS HealthNotes to Consolidated Financial Statements
number of shares the Company may receive will fluctuate based on changes in the daily volume-weighted average
price of the daily volume-weighted average price of the Company’s common stock, less a discount (the “forward
price”), during the ASRs falls below $80.34 per share, the Company will receive a higher number of shares from
Barclays. If the forward price rises above $80.34 per share, the Company will either receive fewer shares from
Barclays or, potentially have an obligation to Barclays which, at the Company’s option, could be settled in additional
cash or by issuing shares. Under the terms of the ASRs, the maximum number of shares that could be received or
delivered is 90.1 million.
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. 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. 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 of $580 million and a forward contract of $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 of
$1.6 billion and a forward contract of $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.
In the ASR transactions described above, the initial repurchase of the shares and delivery of the remainder of the
shares to conclude the 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, 2016, the Company repurchased an aggregate of 47.5 million shares of
common stock for approximately $4.5 billion under the 2014 Repurchase Program. As of December 31, 2016, there
remained an aggregate of approximately $18.2 billion available for future repurchases under the 2016 and 2014
Repurchase Programs.
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.
67
2016 Annual Report 5 | 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
Short-term debt
Commercial paper
Long-term debt
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
2.125% senior notes due 2021
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
2.875% senior notes due 2026
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
68
2016
2015
$
1,874
$
—
—
—
—
2,250
1,250
850
—
2,750
—
1,750
550
1,250
1,500
399
1,250
650
299
2,828
1,750
372
1
652
447
133
750
3,500
648
23
27,726
33
(228)
27,531
(1,874)
(42)
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)
$ 25,615
$
26,267
CVS HealthNotes to Consolidated Financial Statements
The Company had approximately $1.9 billion of commercial paper outstanding at a weighted average interest rate
of 1.22% as of December 31, 2016. 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, 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, 2016, there were no borrowings
outstanding under the back-up credit facilities.
On January 3, 2017, the Company entered into a $2.5 billion revolving credit facility. The credit facility allows for
borrowings at various rates that are dependent, in part, on the Company’s debt ratings and require the Company to
pay a weighted average quarterly facility fee of approximately 0.03%, regardless of usage. The maximum available
under the credit facility decreases by $750 million on both March 31, 2017 and June 30, 2017 and by $500 million
on September 30, 2017. The credit facility expires on December 31, 2017.
On May 16, 2016, the Company issued $1.75 billion aggregate principal amount of 2.125% unsecured senior notes
due June 1, 2021 and $1.75 billion aggregate principal amount of 2.875% unsecured senior notes due June 1, 2026
(collectively, the “2016 Notes”) for total proceeds of approximately $3.5 billion, net of discounts and underwriting
fees. The 2016 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 2016 Notes were used for general corporate purposes and to repay certain corporate debt.
On May 16, 2016, the Company announced tender offers for (1) any and all of its 5.75% Senior Notes due 2017,
its 6.60% Senior Notes due 2019 and its 4.75% Senior Notes due 2020 (collectively, the “Any and All Notes”) and
(2) up to $1.5 billion aggregate principal amount of its 6.25% Senior Notes due 2027, its 6.125% Senior Notes due
2039, its 5.75% Senior Notes due 2041, the 5.00% Senior Notes due 2024 issued by its wholly-owned subsidiary,
Omnicare, Inc. (“Omnicare”), the 4.75% Senior Notes due 2022 issued by Omnicare, its 4.875% Senior Notes
due 2035 and its 3.875% Senior Notes due 2025 (collectively, the “Maximum Tender Offer Notes” and together
with the Any and All Notes, the “Notes”). On May 31, 2016, the Company increased the aggregate principal amount
of the tender offers for the Maximum Tender Offer Notes to $2.25 billion. The Company purchased approximately
$835 million aggregate principal amount of the Any and All Notes and $2.25 billion aggregate principal amount of
the Maximum Tender Offer Notes pursuant to the tender offers, which expired on June 13, 2016. The Company paid
a premium of $486 million in excess of the debt principal in connection with the purchase of the Notes, wrote off
$50 million of unamortized deferred financing costs and incurred $6 million in fees, for a total loss on the early
extinguishment of debt of $542 million which was recorded in income from continuing operations in the consolidated
statement of income for the year ended December 31, 2016.
On June 27, 2016, the Company notified the holders of the remaining Any and All Notes that the Company was
exercising its option to redeem the outstanding Any and All Notes pursuant to the terms of the Any and All Notes
and the Indenture dated as of August 15, 2006, between the Company and The Bank of New York Mellon Trust
Company, N.A. Approximately $1.1 billion aggregate principal amount of Any and All Notes was redeemed on
July 27, 2016. The Company paid a premium of $97 million in excess of the debt principal and wrote off $4 million
of unamortized deferred financing costs, for a total loss on early extinguishment of debt of $101 million during the
year ended December 31, 2016.
The Company recorded a total loss on the early extinguishment of debt of $643 million which was recorded in the
income from continuing operations in the consolidated statement of income for the year ended December 31, 2016.
69
2016 Annual Report 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%
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 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
of $388 million of the 4.75% senior notes due 2022 and $296 million of the 5% senior notes due 2024 were validly
tendered and exchanged for notes issued by the Company. The Company recorded this exchange transaction as a
modification of the original debt instruments. Consequently, no gain or loss on extinguishment was recognized in the
Company’s consolidated income statement as a result of this exchange transaction and the issuance costs of the
new debt 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 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 redemp-
tion 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 consolidated statement of income for the year ended December 31, 2014.
70
CVS HealthNotes to Consolidated Financial Statements 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.
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. As of
December 31, 2016, the Company is in compliance with all debt covenants.
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, 2016:
I N M I L L I O N S
2017
2018
2019
2020
2021
Thereafter
Total
$
1,916
3,521
872
2,774
2,326
16,317
$
27,726
6 | Leases
The Company leases most of its retail and mail order locations, 11 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 noncancel-
able 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
2016
2015
2014
$
2,418
$
2,317
$
2,320
35
2,453
(24)
34
2,351
(22)
36
2,356
(21)
$
2,429
$
2,329
$
2,335
71
2016 Annual Report
The following table is a summary of the future minimum lease payments under capital and operating leases as of
December 31, 2016:
I N M I L L I O N S
2017
2018
2019
2020
2021
Thereafter
Total future lease payments (2)
Less: imputed interest
Present value of capital lease obligations
Capital
Leases
Operating
Leases (1)
$
2,458
2,361
2,209
2,040
1,910
16,368
$
27,346
$
$
74
72
71
71
70
956
1,314
(666)
648
(1) Future operating lease payments have not been reduced by minimum sublease rentals of $176 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.
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 above 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 $230 million in 2016, $411 million in 2015 and
$515 million in 2014.
7 | 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-
bearing 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
reconciliation 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.
72
CVS HealthNotes to Consolidated Financial Statements
8 | 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 compen-
sation 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 $295 million, $251 million and $238 million in 2016, 2015 and
2014, respectively.
Defined Benefit Pension Plans
As of December 31, 2016 and 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, 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.
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. The settlement of the
terminated plan is expected to occur around the third quarter of 2017. The pension liability for the terminated plan
will be settled in either lump sum payments or purchased annuities. Since the amount of the settlement depends
on a number of factors determined as of the liquidation date, including the annuity pricing interest rate environment,
lump sum election rates, and asset experience, the Company is currently unable to determine the ultimate cost of
the settlement. 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 $225 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
Interest cost
Actuarial loss
Benefit payments
Settlements
Benefit obligation at end of year
$
844
$
2016
2015
$
844
$
796
—
27
13
(37)
(3)
8
31
45
(36)
—
844
73
2016 Annual Report
I N M I L L I O N S
Change in plan assets:
2016
2015
Fair value of plan assets at the beginning of the year
$
613
$
635
Acquisitions
Actual return on plan assets
Employer contributions
Benefit payments
Settlements
Fair value of plan assets at the end of the year
Funded status
—
26
25
(37)
(3)
624
$
(220)
$
5
(13)
22
(36)
—
613
(231)
The components of net periodic benefit costs for the years ended December 31 are shown below:
I N M I L L I O N S
2016
2015
2014
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
Pension Plan Assumptions
$
$
27
(32)
32
—
—
27
$
$
31
(33)
21
—
—
19
$
$
32
(31)
16
3
1
21
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-interest,
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 is 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 4.0% in 2016 and 4.25% in 2015 for all plans except
the terminated qualified plan. The discount rate for the terminated qualified plan was 3.09% and 3.25% in 2016 and
2015, respectively. The expected long-term rate of return for the plans ranged from 4.0% to 5.5% in 2016 and ranged
from 5.75% to 6.75% in 2015. The rate of compensation increases for certain of the plans with active participants
ranged from 4.0% to 6.0% in 2016 and 2015.
74
CVS HealthNotes to Consolidated Financial Statements
Return on Plan Assets
The Company’s investment strategy is liability management driven. The qualified pension plan asset allocations
targets are to hold fixed income investments based upon this strategy. As of December 31, 2016, 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,
2016 and 2015.
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
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
FAI R VAL U E O F P L AN AS SE T S AT DE C E M BE R 3 1 , 2016
Level 1
Level 2
Level 3
Total
8
3
33
44
$
—
$
580
—
$
580
$
—
—
—
—
$
$
8
583
33
624
FAI R VAL U E O F P L AN AS SE T S AT DE C E M BE R 3 1 , 2015
Level 1
Level 2
Level 3
Total
10
$
—
$
4
115
129
484
—
$
484
$
—
—
—
—
$
$
10
488
115
613
$
$
$
$
As of December 31, 2016, the Company’s qualified defined benefit pension plan assets consisted of 5% equity, 94%
fixed income and 1% money market securities of which 7% were classified as Level 1 and 93% as Level 2 in the fair
value hierarchy. The Company’s qualified defined benefit pension plan assets as of December 31, 2015 consisted of
19% equity, 79% 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 continued to have no investments in Level 3 alternative investments during the years ended
December 31, 2016 and 2015.
Cash Flows
The Company contributed $25 million, $22 million and $42 million to the pension plans during 2016, 2015 and 2014,
respectively. The Company plans to make approximately $39 million in contributions to the pension plans during
2017. 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, 2016:
I N M I L L I O N S
2017(1)
2018
2019
2020
2021
Thereafter
(1) Excludes any payments associated with the ultimate settlement of the terminated plan discussed above.
$
39
52
50
49
61
236
75
2016 Annual Report
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 participating employers, and (iii) if the Company chooses to stop participating in some of its multiem-
ployer 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 $15 million in 2016 and $14 million
in 2015 and 2014.
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, 2016 and 2015, the Company’s other postretirement
benefits have an accumulated postretirement benefit obligation of $24 million and $33 million, respectively. Net
periodic benefit costs related to these other postretirement benefits were $1 million, $2 million and $1 million in
2016, 2015 and 2014, respectively.
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 multi-
employer health and welfare plans were $52 million, $60 million and $58 million in 2016, 2015 and 2014, respectively.
9 | Stock Incentive Plans
Stock-based compensation 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. The following table is a summary of stock-based compensation for each of the respective periods:
I N M I L L I O N S
Stock options (1)
Restricted stock awards (2)
Total stock-based compensation
2016
79
143
222
$
$
2015
90
140
230
$
$
2014
103
62
165
$
$
(1) Includes the Employee Stock Purchase Plan (the “ESPP”)
(2) 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 recognized tax benefit was $22 million, $26 million and $33 million for 2016, 2015 and 2014, respectively.
76
CVS HealthNotes to Consolidated Financial Statements
The ESPP provides for the purchase of up to 30 million shares of common stock. Under the ESPP in 2016, eligible
employees could purchase common stock at the end of each six month offering period at a purchase price equal
to 90% of the lower of the fair market value on the first day or the last day of the offering period. Prior to 2016, the
purchase price was equal to 85% of the lower of the fair market value on the first day or the last day of the offering
period. During 2016, approximately 1 million shares of common stock were purchased under the provisions of the
ESPP at an average price of $84.68 per share. As of December 31, 2016, approximately 12 million shares of com-
mon 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)
2016
0.88 %
20.64 %
0.45 %
0.5
2015
0.71 %
13.92 %
0.11 %
0.5
2014
0.75 %
14.87 %
0.08 %
0.5
Weighted-average grant date fair value
$
14.98
$
18.72
$
13.74
(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., six 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. As of December 31, 2016, there were
approximately 18 million shares available for future grants under the ICP.
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 1,992,000,
2,695,000 and 2,708,000 restricted stock units with a weighted average fair value of $103.26, $100.81 and $73.60 in
2016, 2015 and 2014, respectively. As of December 31, 2016, there was $327 million of total unrecognized compen-
sation 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 2.29 years. The total fair value of restricted shares vested during 2016, 2015 and
2014 was $218 million, $164 million and $57 million, respectively.
77
2016 Annual Report
The following table is a summary of the restricted stock unit and restricted share award activity for the year ended
December 31, 2016.
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
$
$
$
$
$
59.22
103.26
102.47
89.71
55.56
Units
5,418
1,992
(2,219)
(316)
4,875
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 $72 million, $127 million and $106 million were included in financing activities in the accompa-
nying consolidated statements of cash flow during 2016, 2015 and 2014, respectively. Cash received from stock
options exercised, which includes the ESPP, totaled $224 million, $299 million and $421 million during 2016, 2015
and 2014, respectively. The total intrinsic value of stock options exercised was $244 million, $394 million and
$372 million in 2016, 2015 and 2014, respectively. The total fair value of stock options vested during 2016, 2015
and 2014 was $298 million, $334 million and $292 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)
2016
1.62 %
17.22 %
1.24 %
4.2
2015
1.37 %
18.07 %
1.24 %
4.2
2014
1.47 %
19.92 %
1.35 %
4.0
Weighted-average grant date fair value
$
13.00
$
14.01
$
11.04
(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.
As of December 31, 2016, unrecognized compensation expense related to unvested options totaled $79 million,
which the Company expects to be recognized over a weighted-average period of 1.79 years. After considering
anticipated forfeitures, the Company expects approximately 11 million of the unvested stock options to vest over
the requisite service period.
78
CVS HealthNotes to Consolidated Financial Statements
The following table is a summary of the Company’s stock option activity for the year ended December 31, 2016:
S H A R E S I N T H O U S A N D S
Outstanding at December 31, 2015
Granted
Exercised
Forfeited
Expired
Outstanding at December 31, 2016
Exercisable at December 31, 2016
Vested at December 31, 2016 and expected
to vest in the future
Shares
24,341
4,343
(4,328)
(768)
(313)
23,275
12,196
22,734
Weighted
Average
Exercise Price
Weighted
Average
Remaining
Contractual Term
Aggregate
Intrinsic Value
$
$
$
$
$
$
$
$
42.17
104.62
42.07
85.34
39.73
68.60
49.22
67.86
3.69
2.35
$ 427,311,414
$ 375,563,490
3.64
$ 426,628,851
10 | 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
2016
2015
2014
$
2,803
$
3,065
$
2,581
511
3,314
5
(2)
3
555
3,620
(180)
(54)
(234)
495
3,076
(43)
—
(43)
$
3,317
$
3,386
$
3,033
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
2016
35.0 %
4.1
(0.7)
38.4 %
2015
35.0 %
4.0
0.3
2014
35.0 %
4.3
0.2
39.3 %
39.5 %
79
2016 Annual Report
The Company has $4.2 billion of net deferred tax liabilities as of December 31, 2016 and 2015. The following table is
a summary of the 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:
Depreciation and amortization
Total deferred tax liabilities
Net deferred tax liabilities
2016
2015
$
375
57
400
301
65
125
144
336
(135)
1,668
(5,882)
(5,882)
$
378
99
359
279
105
115
83
498
(115)
1,801
(6,018)
(6,018)
$
(4,214)
$
(4,217)
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.
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
2016
2015
$
338
$
68
70
(100)
(22)
(47)
$
188
57
122
(11)
(13)
(5)
2014
117
32
70
(15)
(15)
(1)
$
307
$
338
$
188
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
collaboratively 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 2015 and
2016 consolidated 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, 2016, 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.
80
CVS HealthNotes to Consolidated Financial Statements
Substantially all material state and local income tax matters have been concluded for fiscal years through 2010.
Certain state exams will be concluded and certain state statutes will lapse in 2017, and 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 change within the next twelve months due to the anticipated conclusion 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 $10 million in 2016, $5 million in 2015 and $6 million in 2014.
The Company had approximately $30 million and $16 million accrued for interest and penalties as of December 31,
2016 and 2015, respectively.
There are no material uncertain tax positions as of December 31, 2016 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, 2016, the total amount of unrecognized tax benefits that, if recognized, would affect the
effective income tax rate is approximately $276 million, after considering the federal benefit of state income taxes.
11 | 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 subsidiaries 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, 2016, the Company guaranteed
approximately 87 such store leases (excluding the lease guarantees related to Linens ‘n Things, which are discussed
in Note 1 “Significant Accounting Policies”), with the maximum remaining lease term extending through 2047.
In April 2016, the parent entity of Bob’s Stores filed for Chapter 11 bankruptcy protection. As described above, the
Company, through one or more of its affiliates, is alleged to have guaranteed certain of the Bob’s Stores’ leases (the
“Bob’s Leases”). On June 20, 2016, the bankruptcy court approved the sale of substantially all of the assets of Bob’s
Stores and certain other assets to a new entity (“Buyer”), which designated Buyer’s affiliate Bob’s Stores, LLC, a
Delaware limited liability company (“New Bob’s”), to acquire substantially all of the assets of Bob’s Stores.
The Company, through its subsidiary, CVS Pharmacy, Inc., and New Bob’s entered into an agreement in October
2016, pursuant to which, in exchange for an immaterial payment to be made by CVS Pharmacy, Inc., New Bob’s
agreed to accept the assignment of the Bob’s Leases and to be bound by certain restrictions regarding renewals,
extensions and modifications to the Bob’s Leases. The Company believed these restrictions would potentially
reduce the Company’s exposure to liability under guarantees of the Bob’s Leases in the future. The bankruptcy
court approved the assignment of the Bob’s Leases to New Bob’s on November 7, 2016, and all of the Bob’s
Leases were assigned to New Bob’s.
On February 5, 2017, New Bob’s and certain of its affiliates (collectively, the “Debtors”) filed for Chapter 11 bank-
ruptcy protection. Certain documents filed in connection with the Debtors’ bankruptcy case suggest that the
Debtors may enter into an asset purchase agreement with Sports Direct Retail Ltd. (“Sports Direct”), for Sports
Direct to serve as an initial bidder in an asset sale process to be conducted pursuant to Section 363 of the
Bankruptcy Code. The Company will monitor the Debtors’ bankruptcy proceedings.
81
2016 Annual Report Legal Matters
The Company is a party to legal proceedings, investigations and claims in the ordinary course of its business,
including the matters described below. The Company records accruals for outstanding legal matters when it
believes it is probable that a loss will be incurred and the amount can be reasonably estimated. The Company
evaluates, on a quarterly basis, developments in legal matters that could affect the amount of any accrual and
developments that would make a loss contingency both probable and reasonably estimable. If a loss contingency
is not both probable and 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.
• In re Pharmacy Benefit Managers Antitrust Litigation (U.S. District Court for the Eastern District of Pennsylvania)
(consolidating North Jackson Pharmacy, Inc. et al v. Caremark Rx Inc. et al. (U.S. District Court for the Northern
District of Alabama)). Beginning in August 2003, various lawsuits were filed by pharmacies alleging that various
PBMs were violating certain antitrust laws. In October 2003, two independent pharmacies, North Jackson
Pharmacy, Inc. and C&C, Inc. filed three putative class action complaints seeking treble damages and injunctive
relief against Caremark (the term “Caremark” as used herein refers to one or more PBM subsidiaries of the
Company, as applicable). 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. The consolidated action is now known as In re Pharmacy Benefit Managers Antitrust Litigation.
On January 18, 2017, the court denied the plaintiffs’ motion for class certification filed against Caremark, denied
a similar motion filed against another PBM, and decertified classes that had been previously certified against
other PBMs.
• Indiana State District Council of Laborers and HOD Carriers Pension and Welfare Fund v. Omnicare, Inc. et al.
(U.S. District Court for the Eastern District of Kentucky). In February 2006, two substantially similar putative class
action lawsuits were filed and subsequently consolidated. 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 2016, Omnicare filed an answer to plaintiffs’ third amended complaint, and discovery commenced.
82
CVS HealthNotes to Consolidated Financial Statements • Claims Processing Matter. 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 underpayments 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 concluded its discussions with the OIG concerning other claim processing issues and
resolved those additional matters on December 22, 2016 for the payment of an immaterial amount.
• FTC and Multi-State Investigation. 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 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.
• United States ex rel. Jack Chin v. Walgreen Company et al. (U.S. District Court for the Central District of California).
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. In October 2016, the U.S. District Court for the Central
District of California unsealed a qui tam complaint, filed in April 2009 against CVS Pharmacy and other retail
pharmacies, alleging that the Company violated the federal False Claims Act, and the false claims acts of several
states, by offering such programs. The federal government has declined intervention in the case.
• United States ex rel. James Banigan and Richard Templin v. Organon USA Inc. et al. (U.S. District Court for the
District of Massachusetts). On October 29, 2010, the court unsealed a qui tam complaint, which had been under
seal since 2007, against Organon, Omnicare, Inc. and PharMerica Corporation. The suit was brought by two
former employees of Organon, as relators on behalf of the federal government and several state and local govern-
ments. The action alleges civil violations of the federal 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 Company has tentatively agreed with the Department of Justice to resolve this matter
for $23 million plus interest. 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. 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.
• United States ex rel. Anthony R. Spay v. CVS Caremark Corporation et al. (U.S. District Court for the Eastern
District of Pennsylvania). In January 2012, the court 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 judgment 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; that court heard oral arguments on the appeal in November 2016.
83
2016 Annual Report • State of Texas ex rel. Myron Winkelman and Stephani Martinson et al. v. CVS Health Corporation (Travis County
District Court). In February 2012, the Attorney General of the State of Texas issued Civil Investigative Demands
and has issued a series of subsequent requests for documents and information in connection with its investigation
concerning the Health Savings Pass program and other pricing practices with respect to claims for reimbursement
from the Texas Medicaid program. In January 2017, the court unsealed a first amended petition. The amended
petition alleges the Company violated the Texas Medicaid Fraud Prevention Act by submitting false claims for
reimbursement to Texas Medicaid by, among other things, failing to use the price available to members of the
CVS Health Savings Pass program as the usual and customary price. The amended petition was unsealed
following the Company’s filing of CVS Pharmacy, Inc. v. Charles Smith et al. (Travis County District Court), a
declaratory judgment action against the State of Texas in December 2016 seeking a declaration that the prices
charged to members of the Health Savings Pass program do not constitute usual and customary prices under
the Medicaid regulation.
• California ReadyFill Subpoena. In November 2012, the Company received a subpoena for documents from the
OIG requesting information concerning automatic refill programs used by pharmacies to refill prescriptions for
customers. The subpoena was issued in connection with an investigation conducted out of the U.S. Attorney’s
Office for the Central District of California. The Company produced documents and data.
• Pure Services Subpoena. In 2013, Omnicare received a subpoena seeking information regarding Omnicare’s
May 2008 acquisition of Pure Service Pharmacy. In 2016, Omnicare reached an agreement regarding financial
terms to resolve, for $1.5 million plus interest, the subpoena regarding the acquisition of Pure Service Pharmacy.
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. 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.
• Auto Label Subpoena. In 2014, Omnicare received a subpoena seeking information regarding Omnicare’s Auto
Label Verification system. In 2016, Omnicare reached an agreement regarding financial terms to resolve, for
$8 million plus interest, the subpoena regarding Omnicare’s Auto Label Verification system. These financial terms
are contingent on approval by authorized officials at the Department of Justice, negotiation of terms of a settle-
ment agreement, approval and releases from the OIG, the National Association of Medicaid Fraud Control Units,
and the Department of Justice. 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.
• Subpoena Concerning PBM Administrative Fees. 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.
• ReadyFill Subpoena (Minnesota). 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.
84
CVS HealthNotes to Consolidated Financial Statements • Corcoran et al. v. CVS Health Corporation (U.S. District Court for the Northern District of California) and Podgorny
et al. v. CVS Health Corporation (U.S. District Court for the Northern District of Illinois). These putative class
actions were filed against the Company in July and September 2015. The cases were consolidated in United
States District Court in the Northern District of California. Plaintiffs seek damages and injunctive relief on behalf
of a class of consumers who purchased certain prescription drugs under the consumer protection statutes and
common laws of certain states. Several third-party payors filed similar putative class actions on behalf of payors
captioned Sheet Metal Workers Local No. 20 Welfare and Benefit Fund v. CVS Health Corp. (U.S. District Court for
the District of Rhode Island) and Plumbers Welfare Fund, Local 130 v. CVS Health Corporation (U.S. District Court
for the District of Rhode Island) in February and August 2016. In all of these cases the plaintiffs allege the Company
overcharged for certain prescription drugs by not submitting as the pharmacy’s usual and customary price the
price available to members of the CVS Health Savings Pass program. The Company is defending these actions.
• Omnicare DEA Subpoena. In September 2015, Omnicare was served with an administrative subpoena by the
U.S. Drug Enforcement Agency (“DEA”). The subpoena seeks documents related to controlled substance policies,
procedures, and practices at eight pharmacy locations from May 2012 to the present. The Company has been
cooperating and providing documents in response to this administrative subpoena.
• Omnicare Cycle Fill CID. 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.
• PBM Pricing CID. 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 cooper-
ating with the government and providing documents and information in response to the Civil Investigative Demand.
• United States ex rel. Sally Schimelpfenig and John Segura v. Dr. Reddy’s Laboratories Limited and Dr. Reddy’s
Laboratories, Inc. (U.S. District Court for the Eastern District of Pennsylvania). In November 2015, the court
unsealed a second amended qui tam complaint filed in September 2015. 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’s motion to dismiss remains pending.
• Barchock et al. v. CVS Health Corporation et al. (U.S. District Court for the District of Rhode Island). In February
2016, an ERISA class action lawsuit was filed against the Company, the Benefit Plans Committee of the Company,
and Galliard Capital Management, Inc., by Mary Barchock, Thomas Wasecko, and Stacy Weller, purportedly on
behalf of the 401(k) Plan and the Employee Stock Ownership Plan of the Company (the “Plan”), and participants
in the Plan. The complaint alleges that the defendants breached fiduciary duties owed to the plaintiffs and the
Plan by investing too much of the Plan’s Stable Value Fund in short-term money market funds and cash manage-
ment accounts. The Company has moved to dismiss the plaintiffs’ amended complaint.
• State of California ex rel. Matthew Omlansky v. CVS Caremark Corporation (Superior Court of the State of
California, County of Sacramento). In April 2016, the court unsealed a first amended qui tam complaint filed in
July 2013. The government has declined intervention in this case. The relator alleges that the Company submitted
false claims for payment to California Medicaid in connection with reimbursement for drugs available through
the Health Savings Pass program as well as certain other generic drugs. The Company’s motion to dismiss the
complaint was denied.
85
2016 Annual Report • DEA Matters. In October 2016, the Company reached an agreement in principle with the U.S. Attorney’s Office
for the Eastern District of California to resolve alleged violations of the Controlled Substances Act (“CSA”) for
$5 million. The settlement is contingent on the negotiation of terms of a settlement agreement. The Company is
also undergoing several audits by the 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.
• State of Mississippi v. CVS Health Corporation et al. (Chancery Court of Desoto County, Mississippi, Third Judicial
District). In July 2016, the Company was served with a complaint filed on behalf of the State of Mississippi alleging
that CVS retail pharmacies in Mississippi submitted false claims for reimbursement to Mississippi Medicaid by
not submitting as the pharmacy’s usual and customary price the price available to members of the CVS Health
Savings Pass program. The Company has responded to the complaint, filed a counterclaim, and moved to
transfer the case to circuit court.
The Company is also a party to other legal proceedings, government investigations, inquiries and audits, and has
received and is cooperating with subpoenas or similar process from various governmental agencies requesting
information, all 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,
specialty pharmacy, 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, specialty pharmacy, retail pharmacy, long-term care pharmacy or retail clinic industry or of
the health care industry generally; (iv) pending or future government enforcement actions against the Company;
(v) adverse developments in any pending qui tam lawsuit against the Company, whether sealed or unsealed, or in
any future qui tam lawsuit that may be filed against the Company; or (vi) adverse developments in pending or future
legal proceedings against the Company or affecting the pharmacy services, specialty pharmacy, retail pharmacy,
long-term care pharmacy or retail clinic industry or the health care industry generally.
12 | 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/RxCrossroads operating
segments as the operations and economics characteristics are similar. The Company’s segments maintain separate
financial information 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 segments’ performance based on net revenue, 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 nonrecurring charges and gains and certain intersegment activities. The chief operating decision maker does not
use total assets by segment to make decisions regarding resources, therefore the total asset disclosure by segment
has not been included. See Note 1 “Significant Accounting Policies” for a description of the Pharmacy Services,
Retail/LTC and Corporate segments and related significant accounting policies.
86
CVS HealthNotes to Consolidated Financial Statements In 2016, approximately 11.2% of the Company’s consolidated net revenues were from Aetna, a Pharmacy Services
Segment client. In 2015 and 2014, no single customer accounted for 10% or more of the Company’s consolidated
net revenues. More than 99% of the Company’s consolidated net revenues are earned and long-lived assets are
located in the United States.
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
2016:
Net revenues
Gross profit (3)
Operating profit (4)(5)(6)
Depreciation and amortization
Additions to property and equipment
2015:
Net revenues
Gross profit
Operating profit (5)(6)
Depreciation and amortization
Additions to property and equipment
2014:
Net revenues
Gross profit
Operating profit
Depreciation and amortization
Additions to property and equipment
Pharmacy
Services
Segment (1)(2)
Retail/LTC
Segment (2)
Corporate
Segment
Intersegment
Eliminations (2)
Consolidated
Totals
$ 119,963
$ 81,100
$
5,901
4,672
714
295
100,363
5,227
3,989
654
359
88,440
4,771
3,514
630
308
23,738
7,281
1,642
1,732
72,007
21,992
7,130
1,336
1,883
67,798
21,277
6,762
1,205
1,745
—
—
(894)
119
252
—
—
(1,037)
102
125
—
—
(796)
96
83
$ (23,537)
$ 177,526
(782)
(721)
—
—
28,857
10,338
2,475
2,279
(19,080)
153,290
(691)
(628)
—
—
26,528
9,454
2,092
2,367
(16,871)
139,367
(681)
(681)
—
—
25,367
8,799
1,931
2,136
(1) Net revenues of the Pharmacy Services Segment include approximately $10.5 billion, $8.9 billion and $8.1 billion of Retail Co-Payments for 2016,
2015 and 2014, respectively. See Note 1 “Significant Accounting Policies” 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 the Company’s
retail pharmacies to purchase covered products, when members enrolled in programs such as Maintenance Choice ® elect to pick up maintenance
prescriptions at one of the Company’s retail pharmacies instead of receiving them through the mail, or when members have prescriptions filled at
the Company’s long-term care pharmacies. When these occur, both the Pharmacy Services and Retail/LTC segments record the revenues, gross
profit and operating profit on a standalone basis.
(3) The Retail/LTC Segment gross profit for the year ended December 31, 2016 includes $46 million of acquisition-related integration costs. The
integration costs are related to the acquisitions of Omnicare and the pharmacies and clinics of Target.
(4) The Pharmacy Services Segment operating profit for the year ended December 31, 2016 includes the reversal of an accrual of $88 million in
connection with a legal settlement.
(5) The Retail/LTC Segment operating profit for the three months and year ended December 31, 2016 includes a $34 million asset impairment charge
in connection with planned store closures in 2017 related to the Company’s enterprise streamlining initiative. The Retail/LTC Segment operating
profit for the 2016 and 2015 include $281 million and $64 million, respectively, of acquisition-related integration costs. The integration costs are
related to the acquisitions of Omnicare and the pharmacies and clinics of Target.
(6) The Corporate Segment operating loss for the year ended December 31, 2016 includes $10 million of integration costs. 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.
87
2016 Annual Report
13 | 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
2016
2015
2014
Numerator for earnings per share calculation:
Income from continuing operations
Income allocated to participating securities
Net income attributable to noncontrolling interest
Income from continuing operations attributable
to CVS Health
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
$
5,320
$
5,230
$
4,645
(27)
(2)
(26)
(2)
(19)
—
$
5,291
$
5,202
$
4,626
1,073
6
1,079
1,118
8
1,126
1,161
8
1,169
$
$
4.93
4.91
$
$
4.65
4.62
$
$
3.98
3.96
14 | 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
2016:
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)
High
Low
88
$ 43,215
$ 43,725
$ 44,615
$ 45,971
$ 177,526
6,744
2,176
1,147
—
1,146
7,015
2,350
924
—
924
7,492
2,817
1,542
7,606
2,995
1,707
28,857
10,338
5,320
(1)
—
(1)
1,540
1,707
5,317
$
1.04
$
0.86
$
1.44
$
1.60
$
4.93
$
$
—
1.04
$
$
—
0.86
$
$
—
1.44
$
$
—
1.60
$
$
—
4.93
$
1.04
$
0.86
$
1.43
$
1.59
$
4.91
$
$
—
1.04
$
$
—
0.86
$
$
—
1.43
$
$
—
1.59
$ 0.425
$ 0.425
$ 0.425
$ 0.425
$
$
$
—
4.90
1.70
$ 104.05
$ 106.10
$ 98.06
$ 88.80
$ 106.10
$ 89.65
$ 93.21
$ 88.99
$ 73.53
$ 73.53
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
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)
High
Low
$
36,332
$
37,169
$ 38,644
$
41,145
$ 153,290
6,164
2,132
1,221
—
1,221
6,402
2,262
1,272
—
1,272
6,661
2,331
1,237
10
1,246
1.08
$
1.13
$
1.10
—
1.08
$
$
—
1.13
$
$
0.01
1.11
1.07
$
1.12
$
1.10
—
1.07
0.35
104.56
94.16
$
$
$
$
$
—
1.12
0.35
$
$
$
0.01
1.11
0.35
106.47
$ 113.45
98.74
$
95.12
$
$
$
$
$
$
$
$
$
7,301
2,729
1,500
(1)
1,498
26,528
9,454
5,230
9
5,237
1.35
$
4.65
—
1.35
$
$
0.01
4.66
1.34
$
4.62
—
1.34
0.35
$
$
$
0.01
4.63
1.40
105.29
$ 113.45
91.56
$
91.56
$
$
$
$
$
$
$
$
$
89
2016 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
2016
2015
2014
2013
2012
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
$ 177,526
$ 153,290
$ 139,367
$ 126,761
$ 123,120
28,857
18,519
10,338
1,058
643
3,317
5,320
(1)
5,319
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)
4,644
(8)
4,592
(7)
3,862
interest
(2)
(2)
—
—
2
Net income attributable to CVS Health
$
5,317
$
5,237
$
4,644
$
4,592
$
3,864
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
Total shareholders’ equity
$
$
$
$
$
$
$
4.93
$
4.65
$
3.98
—
4.93
$
$
0.01
4.66
$
$
—
3.98
4.91
$
4.62
$
3.96
—
4.90
1.70
$ 94,462
$ 25,615
$ 36,834
$
$
$
$
$
$
0.01
4.63
1.40
$
$
$
—
3.96
1.10
92,437
$ 73,202
26,267
$ 11,630
37,203
$ 37,963
$
$
$
$
$
$
$
$
$
$
3.78
$
3.05
(0.01) $
(0.01)
3.77
$
3.04
3.75
$
3.02
(0.01) $
(0.01)
3.74
0.90
$
$
3.02
0.65
70,550
$ 65,474
12,767
$
9,079
37,938
$ 37,653
Number of stores (at end of year)
9,750
9,681
7,866
7,702
7,508
(1) As of January 1, 2016, the Company early adopted Accounting Standard Update No. 2015-17, Income Taxes (Topic 740) issued by the Financial
Accounting Standards Board in November 2015. The effect of the retrospective adoption on the Company’s historical consolidated balance sheets
is a reduction in current assets and deferred income taxes of $1.2 billion, $985 million, $902 million and $693 million as of December 31, 2015,
2014, 2013 and 2012, respectively.
90
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,
2016 and 2015, 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, 2016. 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, 2016 and 2015, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended December 31, 2016, in conformity
with U.S. generally accepted accounting principles.
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, 2016, 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, 2017 expressed an unqualified
opinion thereon.
Boston, Massachusetts
February 9, 2017
91
2016 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 2011 – Annual
DECEMBER 31, 2011 TO DE CE MBE R 3 1, 20 16
$325
$300
$275
$250
$225
$200
$175
$150
$125
$100
$75
$50
$25
$0
2011
2012
2013
2014
2015
2016
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
2011
2012
2013
2014
2015
2016
2015-16
2013-16
2011-16
CVS Health
S&P 500 (1)
S&P 500 Food & Staples
Retail Group Index (2)
S&P 500 Healthcare (3)
$100
$100
$120
$116
$181
$154
$247
$174
$254
$177
$209
$198
-17.8%
11.9%
$100
$100
$118
$118
$157
$167
$193
$209
$190
$223
$189
$217
-0.8%
-2.7%
4.9%
8.8%
6.4%
9.2%
15.9%
14.6%
13.6%
16.8%
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.
92
CVS Health
We deliver value to all health
care stakeholders.
The CVS Health “heart mark” is a ubiquitous presence across our enterprise, representing
the unique value we provide to patients, payors, and providers alike. We accomplish
this through our unmatched suite of leading assets and our success at integrating them
to offer innovative health care solutions. This annual report describes some of the ways
in which our model allows us to enhance access, improve health outcomes, and lower
overall health care costs, while positioning CVS Health for long-term growth. We think
you will agree that health really is where the heart is when seeking affordable, accessible,
and effective care.
Shareholder Information
Officers
Larry J. Merlo
President and Chief Executive Officer
Lisa G. Bisaccia
Executive Vice President and
Chief Human Resources Officer
Eva C. Boratto
Executive Vice President – Controller
and Chief Accounting 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
Directors
J. David Joyner
Executive Vice President, Sales and
Account Services – CVS Caremark
Robert O. Kraft
Executive Vice President and
President – Omnicare
Thomas M. Moriarty
Executive Vice President, Chief Policy
Officer and General Counsel
Jonathan C. Roberts
Executive Vice President and
Chief Operating Officer
Andrew J. Sussman, M.D.
Executive Vice President, Clinical Services
and Associate Chief Medical Officer
Nancy R. Christal
Senior Vice President – Investor Relations
Carol A. DeNale
Senior Vice President and Treasurer
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, Corporate Secretary
and Assistant General Counsel
Thomas S. Moffatt
Vice President, Assistant Secretary and
Assistant General Counsel
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, 2016.
After our 2016 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).
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)
Former 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 10, 2017
CVS Health Corporate Headquarters
Stock Market Listing
The New York Stock Exchange
Symbol: CVS
e
y
e
e
e
s
e
e
s
y
b
d
e
c
u
d
o
r
p
d
n
a
d
e
n
g
s
e
d
i
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.
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
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.
2016 Annual Report
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
C
C
V
V
S
S
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2
2
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1
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5
6
A
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t
The CVS Health 2016 Annual Report achieved the following
results by printing on paper containing 10 percent post-
consumer recycled content. FSC® is not responsible for any
calculations of results from choosing this paper.
Trees
Saved
82
fully grown
Water
Saved
38,287
gallons
Energy
Saved
Solid Waste
Not Produced
Greenhouse Gases
Not Produced
Hazardous Air
Pollutants
Not Produced
31,000,000
MM BTUs
2,563
pounds
7,059
pounds
7
pounds
CVS Health, One CVS Drive, Woonsocket, RI 02895 | 401.765.1500 | cvshealth.com
Health is where the heart is.