CVS HEALTH CORPORATION 
Reconciliation of Non-GAAP Financial Measures to the Most Directly Comparable
GAAP Financial Measure
Q1 2021 ACTUAL RESULTS
CVS Health Corporation (the "Company") uses non-GAAP financial measures to analyze underlying business performance and trends. The Company believes that providing these non-GAAP financial measures enhances the Company's and investors' ability to compare the Company's past financial performance with its current performance. These non-GAAP financial measures are provided as supplemental information to the financial measures the Company discloses that are calculated and presented in accordance with GAAP. Non-GAAP financial measures should not be considered a substitute for, or superior to, financial measures determined or calculated in accordance with GAAP. The Company's definitions of its non-GAAP financial measures may not be comparable to similarly titled measurements reported by other companies.
Non-GAAP financial measures such as consolidated adjusted operating income, adjusted earnings per share (EPS), adjusted income attributable to CVS Health, adjusted operating expenses, adjusted effective income tax rate and adjusted revenue exclude from the relevant GAAP metrics, as applicable: amortization of intangible assets and other items, if any, that neither relate to the ordinary course of the Company's business nor reflect the Company's underlying business performance.
ADJUSTED OPERATING EXPENSES
The following are reconciliations of operating expenses to adjusted operating expenses:
CONSOLIDATED
(Unaudited) | ||||
Quarter Ended | ||||
March 31, | ||||
In millions | 2021 | 2020 | ||
Operating expenses (GAAP measure) | $ | 8,922 | $ | 8,563 |
Non-GAAP adjustments: | ||||
Amortization of intangible assets | (587) | (586) | ||
Acquisition-related integration costs (1) | (41) | (69) | ||
Adjusted operating expenses | $ | 8,294 | $ | 7,908 |
- During the three months ended March 31, 2021 and 2020, acquisition-related integration costs relate to the Aetna acquisition. The acquisition-related integration costs are reflected in the Company's condensed consolidated statements of operations in operating expenses within the Corporate/Other segment.
Page 1 of 7 | May 4, 2021 |
Proprietary
Reconciliation of Non-GAAP Financial Measures to the Most Directly Comparable
GAAP Financial Measure
ADJUSTED EFFECTIVE INCOME TAX RATE
The following are reconciliations of the effective income tax rate to the adjusted effective income tax rate:
CONSOLIDATED
(Unaudited)
Quarter Ended
March 31,
2021 | 2020 | |
Effective income tax rate (GAAP measure) | 25.1% | 27.6% |
Impact of non-GAAP adjustments (1) | (0.1) | (0.6) |
Adjusted effective income tax rate | 25.0% | 27.0% |
- Removes the corresponding tax benefit or expense related to the items excluded from adjusted income attributable to CVS Health in the Company's first quarter 2021 earnings press release that neither relate to the ordinary course of the Company's business nor reflect the Company's underlying business performance: amortization of intangible assets and acquisition- related integration costs. The nature of each non-GAAP adjustment is evaluated to determine whether a discrete adjustment should be made to the adjusted income tax provision.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of the Company. The information on pages 3 to 7 of this document is forward-looking. By their nature, all forward-looking statements are not guarantees of future performance or results and are subject to risks and uncertainties that are difficult to predict and/or quantify. Actual results may differ materially from those contemplated by the forward-looking statements due to the risks and uncertainties related to the coronavirus disease 2019 ("COVID-19") pandemic, the geographies impacted and the severity and duration of the pandemic, the pandemic's impact on the U.S. and global economies and consumer behavior and health care utilization patterns, and the timing, scope and impact of stimulus legislation and other federal, state and local governmental responses to the pandemic, as well
as the risks and uncertainties described in the Company's Securities and Exchange Commission ("SEC") filings, including those set forth in the Risk Factors section and under the heading "Cautionary Statement Concerning Forward-Looking Statements" in the Company's most recently filed Annual Report on Form
10-K and in its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021.
You are cautioned not to place undue reliance on the Company's forward-looking statements. The
Company's 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 does not assume any duty to update or revise forward-looking statements, whether as a result of new information, future events, uncertainties or otherwise.
Page 2 of 7 | May 4, 2021 |
Proprietary
Reconciliation of Non-GAAP Financial Measures to the Most Directly Comparable
GAAP Financial Measure
ADJUSTED EARNINGS PER SHARE
GAAP diluted EPS and Adjusted EPS, respectively, are calculated by dividing income from continuing operations attributable to CVS Health and adjusted income from continuing operations attributable to CVS Health by the Company's weighted average diluted shares outstanding. The Company defines adjusted income from continuing operations attributable to CVS Health as income from continuing operations attributable to CVS Health (GAAP measure) excluding the impact of amortization of intangible assets and other items, if any, that neither relate to the ordinary course of the Company's business nor reflect the Company's underlying business performance, such as acquisition-related integration costs, gains/losses on divestitures, receipt of amounts owed to the Company under the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the "ACA") risk corridor program, losses on early extinguishment of debt, the corresponding tax benefit or expense related to the items excluded from adjusted income from continuing operations attributable to CVS Health. The following are reconciliations of GAAP diluted EPS to Adjusted EPS:
2021P | 2020 | |||||||||||
Low | High | Actual | ||||||||||
Per | Per | Per | ||||||||||
Total | Common | Total | Common | Total | Common | |||||||
In millions, except per share amounts | Company | Share | Company | Share | Company | Share | ||||||
Income from continuing operations (GAAP measure) | $ | 8,300 | $ | 8,460 | $ | 7,201 | ||||||
Net income attributable to noncontrolling interests (GAAP measure) | (5) | (5) | (13) | |||||||||
Income from continuing operations attributable to CVS Health (GAAP | ||||||||||||
measure) | 8,295 | $ | 6.24 | 8,455 | $ | 6.36 | 7,188 | $ | 5.47 | |||
Non-GAAP adjustments: | ||||||||||||
Amortization of intangible assets | 2,300 | 1.73 | 2,300 | 1.73 | 2,341 | 1.78 | ||||||
Acquisition-related integration costs (1) | 130 | 0.10 | 130 | 0.10 | 332 | 0.25 | ||||||
Gain on divestiture of subsidiary (2) | - | - | - | - | (269) | (0.20) | ||||||
Receipt of fully reserved ACA risk corridor receivable (3) | - | - | - | - | (307) | (0.23) | ||||||
Loss on early extinguishment of debt (4) | - | - | - | - | 1,440 | 1.09 | ||||||
Tax impact of non-GAAP adjustments (5) | (675) | (0.51) | (675) | (0.51) | (877) | (0.67) | ||||||
Receipt of ACA risk corridor receivable attributable to noncontrolling | ||||||||||||
interest, net of tax (3) | - | - | - | - | 12 | 0.01 | ||||||
Adjusted income from continuing operations attributable to CVS Health | $ | 10,050 | $ | 7.56 | $ | 10,210 | $ | 7.68 | $ | 9,860 | $ | 7.50 |
Weighted average diluted shares outstanding | 1,330 | 1,330 | 1,314 |
- Acquisition-relatedintegration costs relate to the Aetna acquisition.
- In 2020, gain on divestiture of subsidiary represents the pre-tax gain on the sale of the Workers' Compensation business, sold on July 31, 2020 for approximately $850 million.
- Reflects the receipt of $313 million owed to the Company under the ACA's risk corridor program during October 2 020 that was previously fully reserved for as payment was uncertain. After considering offsetting items such as the ACA's minimum medical loss ratio ("MLR") rebate requirements and premium taxes, the Company recognized pre-tax income of approximately
$307 million within the Health Care Business during the fourth quarter of 2020. The portion of the ACA risk corridor payment attributable to noncontrolling interest was $12 million related to third party ownership interests in the Company's consolidated operating entities. - During the year ended December 31, 2020, the loss on early extinguishment of debt relates to the Company's repayment of $4.5 billion of its outstanding senior notes in December 2020 pursuant to its tender offers for such senior notes and the
Company's repayment of $6.0 billion of its outstanding senior notes in August 2020 pursuant to its tender offer for such seni or notes. - Represents the corresponding tax benefit or expense related to the items excluded from Adjusted EPS above. The nature of each non-GAAP adjustment is evaluated to determine whether a discrete adjustment should be made to the adjusted income tax provision.
Page 3 of 7 | May 4, 2021 |
Proprietary
Reconciliation of Non-GAAP Financial Measures to the Most Directly Comparable
GAAP Financial Measure
ADJUSTED OPERATING INCOME
The Company defines adjusted operating income as operating income (GAAP measure) excluding the impact of amortization of intangible assets and other items, if any, that neither relate to the ordinary course of the Company's business nor reflect the Company's underlying business performance, such as acquisition-related integration costs, gains/losses on divestitures and the receipt of amounts owed to the Company under the ACA risk corridor program. The Company uses adjusted operating income as its principal measure of segment performance as it enhances the Company's ability to compare past financial performance with current performance and analyze underlying business performance and trends. The consolidated measure is not determined in accordance with GAAP and should not be considered a substitute for, or superior to, the most directly comparable GAAP measure, consolidated operating income. The following are reconciliations of projected operating income to projected adjusted operating income:
FULL-YEAR 2021
CONSOLIDATED
Year Ending | ||||||
December 31, | ||||||
2021P | 2020 | |||||
In millions | Low | High | Actual | |||
Operating income (GAAP measure) | $ | 13,440 | $ | 13,670 | $ | 13,911 |
Amortization of intangible assets | 2,300 | 2,300 | 2,341 | |||
Acquisition-related integration costs (1) | 130 | 130 | 332 | |||
Gain on divestiture of subsidiary (2) | - | - | (269) | |||
Receipt of fully reserved ACA risk corridor receivable (3) | - | - | (307) | |||
Adjusted operating income | $ | 15,870 | $ | 16,100 | $ | 16,008 |
- Acquisition-relatedintegration costs relate to the Aetna acquisition.
- During the year ended December 31, 2020, the gain on divestiture of subsidiary represents the pre -tax gain on the sale of the
Workers' Compensation business, which the Company sold on July 31, 2020 for approximately $850 million. The gain on divestiture is reflected as a reduction in operating expenses in the Company's condensed consolidated statements of operations within the Health Care Benefits segment in the year ended December 31, 2020. - During the year ended December 31, 2020, the Company received $313 million owed to it under the ACA's risk corridor program that was previously fully reserved for as payment was uncertain. After considering offsetting items such as the ACA's
MLR rebate requirements and premium taxes, the Company recognized pre -tax income of $307 million in the Company's condensed consolidated statements of operations within the Health Care Benefits segment.
Page 4 of 7 | May 4, 2021 |
Proprietary
Reconciliation of Non-GAAP Financial Measures to the Most Directly Comparable
GAAP Financial Measure
HEALTH CARE BENEFITS SEGMENT
Year Ending | ||||||
December 31, | ||||||
2021P | 2020 | |||||
In millions | Low | High | Actual | |||
Operating income (GAAP Measure) | $ | 3,700 | $ | 3,800 | $ | 5,166 |
Amortization of intangible assets | 1,550 | 1,550 | 1,598 | |||
Gain on divestiture of subsidiary (1) | - | - | (269) | |||
Receipt of fully reserved ACA risk corridor receivable (2) | - | - | (307) | |||
Adjusted operating income | $ | 5,250 | $ | 5,350 | $ | 6,188 |
- During the year ended December 31, 2020, the gain on divestiture of subsidiary represents the pre -tax gain on the sale of the
Workers' Compensation business, which the Company sold on July 31, 2020 for approximately $850 million. The gain on divestiture is reflected as a reduction in operating expenses in the Company's condensed consolidated statements of operations within the Health Care Benefits segment in the year ended December 31, 2020. - During the year ended December 31, 2020, the Company received $313 million owed to it under the ACA's risk corridor program that was previously fully reserved for as payment was uncertain. After considering offsetting items such as the ACA's
MLR rebate requirements and premium taxes, the Company recognized pre -tax income of $307 million in the Company's condensed consolidated statements of operations within the Health Care Benefits segment.
PHARMACY SERVICES SEGMENT
Year Ending | |||
December 31, | |||
2021P | 2020 | ||
In millions | Low | High | Actual |
Operating income (GAAP Measure) | $ | 5,950 | $ | 6,050 | $ | 5,454 |
Amortization of intangible assets | 200 | 200 | 234 | |||
Adjusted operating income | $ | 6,150 | $ | 6,250 | $ | 5,688 |
RETAIL/LTC SEGMENT
Year Ending | ||||||
December 31, | ||||||
2021P | 2020 | |||||
In millions | Low | High | Actual | |||
Operating income (GAAP Measure) | $ | 6,050 | $ | 6,150 | $ | 5,640 |
Amortization of intangible assets | 550 | 550 | 506 | |||
Adjusted operating income | $ | 6,600 | $ | 6,700 | $ | 6,146 |
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CVS Health Corporation published this content on 04 May 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 04 May 2021 11:10:03 UTC.
