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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
    
FORM 10-Q

(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020
or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to_________

Commission File Number: 001-01011

cvshealtha29.jpg
CVS HEALTH CORPORATION
(Exact name of registrant as specified in its charter)
Delaware

05-0494040
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
One CVS Drive,
Woonsocket,
Rhode Island
 
02895
 (Address of principal executive offices)
 
 (Zip Code)
 
 
 
 
 
Registrant’s telephone number, including area code:     
 
(401)
765-1500
Former name, former address and former fiscal year, if changed since last report:
N/A
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
CVS
New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).      Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of April 27, 2020, the registrant had 1,307,090,830 shares of common stock issued and outstanding.




TABLE OF CONTENTS
Page
 
 
 
Part I
Financial Information
 
 
 
 
Item 1.
Item 2.
Item 3.
Item 4.
 
 
 
Part II
Other Information
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 3
Item 4.
Item 5.
Item 6.
 
 
 



Form 10-Q Table of Contents

Part I.
Financial Information

Item 1.
Financial Statements

Index to Condensed Consolidated Financial Statements
 
Page
Condensed Consolidated Statements of Operations (Unaudited) for the three months ended March 31, 2020 and 2019
 
 
Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three months ended March 31, 2020 and 2019
 
 
Condensed Consolidated Balance Sheets (Unaudited) as of March 31, 2020 and December 31, 2019
 
 
Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2020 and 2019
 
 
Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) for the three months ended March 31, 2020 and 2019
 
 
Notes to Condensed Consolidated Financial Statements (Unaudited)
 
 
Report of Independent Registered Public Accounting Firm



1

Index to Condensed Consolidated Financial Statements

CVS Health Corporation
Condensed Consolidated Statements of Operations
(Unaudited)
 
Three Months Ended
March 31,
In millions, except per share amounts
2020
 
2019
Revenues:
 
 
 
Products
$
47,003

 
$
43,343

Premiums
17,640

 
16,282

Services
1,950

 
1,772

Net investment income
162

 
249

Total revenues
66,755

 
61,646

Operating costs:
 
 
 
Cost of products sold
40,347

 
37,247

Benefit costs
14,387

 
13,459

Operating expenses
8,563

 
8,250

Total operating costs
63,297

 
58,956

Operating income
3,458

 
2,690

Interest expense
733

 
782

Other income
(54
)
 
(31
)
Income before income tax provision
2,779

 
1,939

Income tax provision
767

 
512

Net income
2,012

 
1,427

Net income attributable to noncontrolling interests
(5
)
 
(6
)
Net income attributable to CVS Health
$
2,007

 
$
1,421

 
 
 
 
Net income per share attributable to CVS Health:
 
 
 
Basic
$
1.54

 
$
1.09

Diluted
$
1.53

 
$
1.09

Weighted average shares outstanding:
 
 
 
Basic
1,306

 
1,298

Diluted
1,312

 
1,302

Dividends declared per share
$
0.50

 
$
0.50


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

2

Index to Condensed Consolidated Financial Statements

CVS Health Corporation
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
 
Three Months Ended
March 31,
In millions
2020
 
2019
Net income
$
2,012

 
$
1,427

Other comprehensive income (loss), net of tax:
 
 
 
Net unrealized investment gains (losses)
(311
)
 
334

Foreign currency translation adjustments
(12
)
 
1

Net cash flow hedges
(9
)
 
(4
)
Other comprehensive income (loss)
(332
)
 
331

Comprehensive income
1,680

 
1,758

Comprehensive income attributable to noncontrolling interests
(5
)
 
(6
)
Comprehensive income attributable to CVS Health
$
1,675

 
$
1,752


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

3

Index to Condensed Consolidated Financial Statements

CVS Health Corporation
Condensed Consolidated Balance Sheets
(Unaudited)
In millions, except per share amounts
March 31,
2020
 
December 31,
2019
Assets:
 
 
 
Cash and cash equivalents
$
10,081

 
$
5,683

Investments
2,632

 
2,373

Accounts receivable, net
23,037

 
19,617

Inventories
16,976

 
17,516

Other current assets
6,232

 
5,113

Total current assets
58,958

 
50,302

Long-term investments
16,840

 
17,314

Property and equipment, net
12,146

 
12,044

Operating lease right-of-use assets
20,672

 
20,860

Goodwill
79,993

 
79,749

Intangible assets, net
32,727

 
33,121

Separate accounts assets
4,555

 
4,459

Other assets
4,748

 
4,600

Total assets
$
230,639

 
$
222,449

 
 
 
 
Liabilities:
 
 
 
Accounts payable
$
10,223

 
$
10,492

Pharmacy claims and discounts payable
15,449

 
13,601

Health care costs payable
7,585

 
6,879

Policyholders’ funds
3,110

 
2,991

Accrued expenses
13,574

 
12,133

Other insurance liabilities
1,774

 
1,830

Current portion of operating lease liabilities
1,762

 
1,596

Short-term debt
255

 

Current portion of long-term debt
5,828

 
3,781

Total current liabilities
59,560

 
53,303

Long-term operating lease liabilities
18,739

 
18,926

Long-term debt
65,735

 
64,699

Deferred income taxes
7,121

 
7,294

Separate accounts liabilities
4,555

 
4,459

Other long-term insurance liabilities
7,338

 
7,436

Other long-term liabilities
2,117

 
2,162

Total liabilities
165,165

 
158,279

 
 
 
 
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; 1,729 shares issued and 1,305 shares outstanding at March 31, 2020 and 1,727 shares issued and 1,302 shares outstanding at December 31, 2019 and capital surplus
46,180

 
45,972

Treasury stock, at cost: 424 shares at March 31, 2020 and 425 shares at December 31, 2019
(28,182
)
 
(28,235
)
Retained earnings
46,455

 
45,108

Accumulated other comprehensive income
687

 
1,019

Total CVS Health shareholders’ equity
65,140

 
63,864

Noncontrolling interests
334

 
306

Total shareholders’ equity
65,474

 
64,170

Total liabilities and shareholders’ equity
$
230,639

 
$
222,449



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

4

Index to Condensed Consolidated Financial Statements

CVS Health Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Three Months Ended
March 31,
In millions
2020
 
2019
Cash flows from operating activities:
 
 
 
Cash receipts from customers
$
63,751

 
$
58,873

Cash paid for inventory and prescriptions dispensed by retail network pharmacies
(36,969
)
 
(35,645
)
Insurance benefits paid
(14,303
)
 
(12,951
)
Cash paid to other suppliers and employees
(8,187
)
 
(7,403
)
Interest and investment income received
206

 
250

Interest paid
(1,128
)
 
(1,123
)
Income taxes paid
(65
)
 
(53
)
Net cash provided by operating activities
3,305

 
1,948

 
 
 
 
Cash flows from investing activities:
 
 
 
Proceeds from sales and maturities of investments
1,288

 
1,986

Purchases of investments
(1,535
)
 
(2,047
)
Purchases of property and equipment
(742
)
 
(716
)
Acquisitions (net of cash acquired)
(613
)
 
(124
)
Other
5

 
10

Net cash used in investing activities
(1,597
)
 
(891
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Net borrowings of short-term debt
255

 
2,285

Proceeds from issuance of long-term debt
3,946

 

Repayments of long-term debt
(1,008
)
 
(882
)
Dividends paid
(652
)
 
(649
)
Proceeds from exercise of stock options
154

 
101

Payments for taxes related to net share settlement of equity awards
(16
)
 
(44
)
Other
(4
)
 
5

Net cash provided by financing activities
2,675

 
816

Net increase in cash, cash equivalents and restricted cash
4,383

 
1,873

Cash, cash equivalents and restricted cash at the beginning of the period
5,954

 
4,295

Cash, cash equivalents and restricted cash at the end of the period
$
10,337

 
$
6,168



5

Index to Condensed Consolidated Financial Statements

CVS Health Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Three Months Ended
March 31,
In millions
2020
 
2019
Reconciliation of net income to net cash provided by operating activities:
 
 
 
Net income
$
2,012

 
$
1,427

Adjustments required to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
1,086

 
1,111

Stock-based compensation
96

 
114

Deferred income taxes and other noncash items
(35
)
 
153

Change in operating assets and liabilities, net of effects from acquisitions:
 
 
 
Accounts receivable, net
(2,715
)
 
(1,989
)
Inventories
541

 
1,001

Other assets
(1,119
)
 
(389
)
Accounts payable and pharmacy claims and discounts payable
1,928

 
(22
)
Health care costs payable and other insurance liabilities
139

 
553

Other liabilities
1,372

 
(11
)
Net cash provided by operating activities
$
3,305

 
$
1,948


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


6

Index to Condensed Consolidated Financial Statements

CVS Health Corporation
Condensed Consolidated Statements of Shareholders’ Equity
(Unaudited)
 
 
 
Attributable to CVS Health
 
 
 
Number of shares outstanding
 
Common
Stock and
Capital
Surplus (2)
Treasury
Stock (1)
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Total CVS
Health
Shareholders
 Equity
Noncontrolling
Interests
Total
Shareholders’
Equity
 
 
 
Common
Shares
Treasury
Shares (1)
 
In millions
 
Three Months Ended March 31, 2020
 
 
 
 
 
 
 
 
Balance at December 31, 2019
1,727

(425
)
 
$
45,972

$
(28,235
)
$
45,108

$
1,019

$
63,864

$
306

$
64,170

Adoption of new accounting standard (Note 1)


 


(3
)

(3
)

(3
)
Net income


 


2,007


2,007

5

2,012

Other comprehensive loss (Note 7)


 



(332
)
(332
)

(332
)
Stock option activity, stock awards and other
2


 
208




208


208

Purchase of treasury shares, net of ESPP issuances

1

 

53



53


53

Common stock dividends


 


(657
)

(657
)

(657
)
Other increases in noncontrolling interests


 





23

23

Balance at March 31, 2020
1,729

(424
)
 
$
46,180

$
(28,182
)
$
46,455

$
687

$
65,140

$
334

$
65,474

 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2019
 
 
 
 
 
 
 
 
Balance at December 31, 2018
1,720

(425
)
 
$
45,440

$
(28,228
)
$
40,911

$
102

$
58,225

$
318

$
58,543

Adoption of new accounting standard (3)


 


178


178


178

Net income


 


1,421


1,421

6

1,427

Other comprehensive income (Note 7)


 



331

331


331

Stock option activity, stock awards and other
2


 
175




175


175

Purchase of treasury shares, net of ESPP issuances

1

 

7



7


7

Common stock dividends


 


(651
)

(651
)

(651
)
Other decreases in noncontrolling interests


 





(4
)
(4
)
Balance at March 31, 2019
1,722

(424
)
 
$
45,615

$
(28,221
)
$
41,859

$
433

$
59,686

$
320

$
60,006

_____________________________________________ 
(1)
Treasury shares include 1 million shares held in trust and treasury stock includes $29 million related to shares held in trust as of March 31, 2020 and 2019 and December 31, 2019 and 2018.
(2)
Common stock and capital surplus includes the par value of common stock of $17 million as of March 31, 2020 and 2019 and December 31, 2019 and 2018.
(3)
Reflects the adoption of Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), which resulted in an increase to retained earnings of $178 million during the three months ended March 31, 2019.

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


7

Index to Condensed Consolidated Financial Statements

Notes to Condensed Consolidated Financial Statements

1.
Significant Accounting Policies

Description of Business 

CVS Health Corporation (“CVS Health”), together with its subsidiaries (collectively, the “Company”), has approximately 9,900 retail locations, approximately 1,100 walk-in medical clinics, a leading pharmacy benefits manager with approximately 102 million plan members, a dedicated senior pharmacy care business serving more than one million patients per year and expanding specialty pharmacy services. The Company also serves an estimated 34 million people through traditional, voluntary and consumer-directed health insurance products and related services, including expanding Medicare Advantage offerings and a leading standalone Medicare Part D prescription drug plan (“PDP”). The Company believes its innovative health care model increases access to quality care, delivers better health outcomes and lowers overall health care costs.

The coronavirus disease 2019 (“COVID-19”) pandemic has severely impacted the economies of the U.S. and other countries around the world. The impact of COVID-19 on the Company’s businesses, operating results, cash flows and financial condition in the three months ended March 31, 2020, as well as information regarding certain expected impacts of COVID-19 on the Company, is discussed throughout this Quarterly Report on Form 10-Q.

The Company has four reportable segments: Pharmacy Services, Retail/LTC, Health Care Benefits and Corporate/Other, which are described below.

Pharmacy Services Segment
The Pharmacy Services segment provides a full range of pharmacy benefit management (“PBM”) solutions, including plan design offerings and administration, formulary management, retail pharmacy network management services, mail order pharmacy, specialty pharmacy and infusion services, clinical services, disease management services and medical spend management. The Pharmacy Services segment’s clients are primarily employers, insurance companies, unions, government employee groups, health plans, PDPs, Medicaid managed care plans, plans offered on public health insurance exchanges (“Public Exchanges”) and private health insurance exchanges, other sponsors of health benefit plans and individuals throughout the United States. The Pharmacy Services segment operates retail specialty pharmacy stores, specialty mail order pharmacies, mail order dispensing pharmacies, compounding pharmacies and branches for infusion and enteral nutrition services.

Retail/LTC Segment
The Retail/LTC segment sells prescription drugs and a wide assortment of general merchandise, including over-the-counter drugs, beauty products, cosmetics and personal care products, provides health care services through its MinuteClinic® walk-in medical clinics and conducts long-term care pharmacy (“LTC”) operations, which distribute prescription drugs and provide related pharmacy consulting and other ancillary services to long-term care facilities and other care settings. As of March 31, 2020, the Retail/LTC segment operated approximately 9,900 retail locations, approximately 1,100 MinuteClinic locations as well as online retail pharmacy websites, LTC pharmacies and onsite pharmacies.

Health Care Benefits Segment
The Health Care Benefits segment is one of the nation’s leading diversified health care benefits providers. The Health Care Benefits segment has the information and resources to help members, in consultation with their health care professionals, make more informed decisions about their health care. The Health Care Benefits segment offers a broad range of traditional, voluntary and consumer-directed health insurance products and related services, including medical, pharmacy, dental and behavioral health plans, medical management capabilities, Medicare Advantage and Medicare Supplement plans, PDPs, Medicaid health care management services, workers’ compensation administrative services and health information technology products and services. The Health Care Benefits segment’s customers include employer groups, individuals, college students, part-time and hourly workers, health plans, health care providers (“providers”), governmental units, government-sponsored plans, labor groups and expatriates. The Company refers to insurance products (where it assumes all or a majority of the risk for medical and dental care costs) as “Insured” and administrative services contract products (where the plan sponsor assumes all or a majority of the risk for medical and dental care costs) as “ASC.”

Corporate/Other Segment
The Company presents the remainder of its financial results in the Corporate/Other segment, which consists of:

Management and administrative expenses to support the Company’s overall operations, which include certain aspects of executive management and the corporate relations, legal, compliance, human resources, information technology and

8


finance departments, expenses associated with the Company’s investments in its transformation and Enterprise modernization programs and acquisition-related integration costs; and
Products for which the Company no longer solicits or accepts new customers such as its large case pensions and long-term care insurance products.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of CVS Health and its subsidiaries have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. In accordance with such rules and regulations, certain information and accompanying note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted, although the Company believes the disclosures included herein are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”).
 
In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods presented. Because of the influence of various factors on the Company’s operations, including business combinations, certain holidays and other seasonal influences, net income for any interim period may not be comparable to the same interim period in previous years or necessarily indicative of income for the full year.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries and variable interest entities (“VIEs”) for which the Company is the primary beneficiary. All material intercompany balances and transactions have been eliminated.
 
The Company continually evaluates its investments to determine if they represent variable interests in a VIE. If the Company determines that it has a variable interest in a VIE, the Company then evaluates if it is the primary beneficiary of the VIE. The evaluation is a qualitative assessment as to whether the Company has the ability to direct the activities of a VIE that most significantly impact the entity’s economic performance. The Company consolidates a VIE if it is considered to be the primary beneficiary.

Assets and liabilities of VIEs for which the Company is the primary beneficiary were not significant to the Company’s unaudited condensed consolidated financial statements. VIE creditors do not have recourse against the general credit of the Company.

Reclassifications

Certain prior year amounts have been reclassified to conform with the current year presentation.

Restricted Cash

Restricted cash included in other assets on the unaudited condensed consolidated balance sheets represents amounts held in a trust in one of the Company’s captive insurance companies to satisfy collateral requirements associated with the assignment of certain insurance policies. All restricted cash is invested in time deposits, money market funds or commercial paper.

The following is a reconciliation of cash and cash equivalents on the unaudited condensed consolidated balance sheets to total cash, cash equivalents and restricted cash on the unaudited condensed consolidated statements of cash flows:
In millions
March 31,
2020
    
December 31,
2019
Cash and cash equivalents
$
10,081

 
$
5,683

Restricted cash (included in other assets)
256

 
271

Total cash, cash equivalents and restricted cash in the statements of cash flows
$
10,337

 
$
5,954




9


Accounts Receivable

Accounts receivable are stated net of allowances for credit losses, customer credit allowances, contractual allowances and estimated terminations. Accounts receivable, net is composed of the following:
In millions
March 31,
2020
    
December 31,
2019
Trade receivables
$
7,698

 
$
6,717

Vendor and manufacturer receivables
8,585

 
7,856

Premium receivables
3,916

 
2,663

Other receivables
2,838

 
2,381

   Total accounts receivable, net
$
23,037

 
$
19,617



The Company’s allowance for credit losses was $340 million as of March 31, 2020. When developing an estimate of the Company’s expected credit losses, the Company considers all available relevant information regarding the collectability of cash flows, including historical information, current conditions and reasonable and supportable forecasts of future economic conditions over the contractual life of the receivable. The Company’s accounts receivable are short duration in nature and typically settle in less than 30 days. The Company’s allowance for doubtful accounts was $319 million as of December 31, 2019.


10


Revenue Recognition

Disaggregation of Revenue
The following table disaggregates the Company’s revenue by major source in each segment for the three months ended March 31, 2020 and 2019:
In millions
Pharmacy
Services
    
Retail/
LTC
    
Health Care
Benefits
 
Corporate/
Other
 
Intersegment
Eliminations
    
Consolidated
Totals
Three Months Ended March 31, 2020
 
 
 
 
 
 
 
 
 
 
Major goods/services lines:
 
 
 
 
 
 
 
 
 
 
 
Pharmacy
$
34,774

 
$
17,355

 
$

 
$

 
$
(10,257
)
 
$
41,872

Front Store

 
5,208

 

 

 

 
5,208

Premiums

 

 
17,621

 
19

 

 
17,640

Net investment income

 

 
93

 
69

 

 
162

Other
209

 
186

 
1,484

 
2

 
(8
)
 
1,873

Total
$
34,983

 
$
22,749

 
$
19,198

 
$
90

 
$
(10,265
)
 
$
66,755

 
 
 
 
 
 
 
 
 
 
 
 
Pharmacy Services distribution channel:
 
 
 
 
 
 
 
 
 
 
Pharmacy network (1)
$
21,100

 
 
 
 
 
 
 
 
 
 
Mail choice (2)
13,674

 
 
 
 
 
 
 
 
 
 
Other
209

 
 
 
 
 
 
 
 
 
 
Total
$
34,983

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2019
 
 
 
 
 
 
 
 
 
 
Major goods/services lines:
 
 
 
 
 
 
 
 
 
 
 
Pharmacy (3)
$
33,413

 
$
16,118

 
$

 
$

 
$
(11,001
)
 
$
38,530

Front Store

 
4,799

 

 

 

 
4,799

Premiums

 

 
16,259

 
23

 

 
16,282

Net investment income

 

 
164

 
85

 

 
249

Other (3)
145

 
198

 
1,447

 
2

 
(6
)
 
1,786

Total
$
33,558

 
$
21,115

 
$
17,870

 
$
110

 
$
(11,007
)
 
$
61,646

 
 
 
 
 
 
 
 
 
 
 
 
Pharmacy Services distribution channel:
 
 
 
 
 
 
 
 
 
 
Pharmacy network (1) (3)
$
21,532

 
 
 
 
 
 
 
 
 
 
Mail choice (2) (3)
11,881

 
 
 
 
 
 
 
 
 
 
Other
145

 
 
 
 
 
 
 
 
 
 
Total
$
33,558

 
 
 
 
 
 
 
 
 
 
_____________________________________________ 
(1)
Pharmacy Services pharmacy network is defined as claims filled at retail and specialty retail pharmacies, including the Company’s retail pharmacies and LTC pharmacies, but excluding Maintenance Choice® activity, which is included within the mail choice category. Maintenance Choice permits eligible client plan members to fill their maintenance prescriptions through mail order delivery or at a CVS Pharmacy retail store for the same price as mail order.
(2)
Pharmacy Services mail choice is defined as claims filled at a Pharmacy Services mail order facility, which includes specialty mail claims inclusive of Specialty Connect® claims picked up at a retail pharmacy, as well as prescriptions filled at the Company’s retail pharmacies under the Maintenance Choice program.
(3)
Certain prior year amounts have been reclassified for consistency with the current period presentation.

Contract Balances
Contract liabilities primarily represent the Company’s obligation to transfer additional goods or services to a customer for which the Company has received consideration, and include ExtraBucks Rewards and unredeemed Company gift cards. The consideration received remains a contract liability until goods or services have been provided to the customer. In addition, the Company recognizes breakage on Company gift cards based on historical redemption patterns.



11




The following table provides information about receivables and contract liabilities from contracts with customers:
In millions
March 31,
2020
    
December 31,
2019
Trade receivables (included in accounts receivable, net)
$
7,698

 
$
6,717

Contract liabilities (included in accrued expenses)
85

 
73



During the three months ended March 31, 2020 and 2019, the contract liabilities balance includes increases related to customers’ earnings in ExtraBucks Rewards or issuances of Company gift cards and decreases for revenues recognized during the period as a result of the redemption of ExtraBucks Rewards or Company gift cards and breakage of Company gift cards. Below is a summary of such changes:
 
Three Months Ended
March 31,
In millions
2020
    
2019
Contract liabilities, beginning of the period
$
73

 
$
67

Rewards earnings and gift card issuances
99

 
90

Redemption and breakage
(87
)
 
(82
)
Contract liabilities, end of the period
$
85