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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, 2021
or

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

For the transition period from _________ to_________

Commission File Number: 001-01011

cvs-20210331_g1.jpg
CVS HEALTH CORPORATION
(Exact name of registrant as specified in its charter)
Delaware05-0494040
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
One CVS Drive,Woonsocket, Rhode Island02895
 (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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareCVSNew 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 filerAccelerated filer
Non-accelerated filerSmaller 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, 2021, the registrant had 1,316,567,871 shares of common stock issued and outstanding.




TABLE OF CONTENTS
Page
Part IFinancial Information
 
Item 1.
Item 2.
Item 3.
Item 4.
   
Part IIOther 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, 2021 and 2020
Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three months ended March 31, 2021 and 2020
Condensed Consolidated Balance Sheets (Unaudited) as of March 31, 2021 and December 31, 2020
Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2021 and 2020
Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) for the three months ended March 31, 2021 and 2020
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 amounts20212020
Revenues:
Products$47,387 $47,003 
Premiums18,960 17,640 
Services2,453 1,950 
Net investment income297 162 
Total revenues69,097 66,755 
Operating costs:
Cost of products sold40,894 40,347 
Benefit costs15,704 14,387 
Operating expenses8,922 8,563 
Total operating costs65,520 63,297 
Operating income3,577 3,458 
Interest expense657 733 
Other income(50)(54)
Income before income tax provision2,970 2,779 
Income tax provision746 767 
Net income 2,224 2,012 
Net income attributable to noncontrolling interests(1)(5)
Net income attributable to CVS Health$2,223 $2,007 
Net income per share attributable to CVS Health:
Basic$1.69 $1.54 
Diluted$1.68 $1.53 
Weighted average shares outstanding:
Basic1,313 1,306 
Diluted1,322 1,312 
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 millions20212020
Net income $2,224 $2,012 
Other comprehensive loss, net of tax:
Net unrealized investment losses(386)(311)
Foreign currency translation adjustments(2)(12)
Net cash flow hedges(4)(9)
Other comprehensive loss(392)(332)
Comprehensive income1,832 1,680 
Comprehensive income attributable to noncontrolling interests(1)(5)
Comprehensive income attributable to CVS Health$1,831 $1,675 

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 amountsMarch 31,
2021
December 31,
2020
Assets: 
Cash and cash equivalents$5,598 $7,854 
Investments3,190 3,000 
Accounts receivable, net23,855 21,742 
Inventories17,618 18,496 
Other current assets5,458 5,277 
Total current assets55,719 56,369 
Long-term investments21,025 20,812 
Property and equipment, net12,611 12,606 
Operating lease right-of-use assets20,542 20,729 
Goodwill79,552 79,552 
Intangible assets, net30,639 31,142 
Separate accounts assets4,692 4,881 
Other assets4,826 4,624 
Total assets$229,606 $230,715 
Liabilities:
Accounts payable$10,804 $11,138 
Pharmacy claims and discounts payable16,282 15,795 
Health care costs payable 8,272 7,936 
Policyholders’ funds4,440 4,270 
Accrued expenses14,312 14,243 
Other insurance liabilities1,534 1,557 
Current portion of operating lease liabilities1,786 1,638 
Short-term debt252  
Current portion of long-term debt2,422 5,440 
Total current liabilities60,104 62,017 
Long-term operating lease liabilities18,587 18,757 
Long-term debt59,270 59,207 
Deferred income taxes6,610 6,794 
Separate accounts liabilities4,692 4,881 
Other long-term insurance liabilities6,870 7,007 
Other long-term liabilities2,309 2,351 
Total liabilities158,442 161,014 
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; 1,735 shares issued and 1,313 shares outstanding at March 31, 2021 and 1,733 shares issued and 1,310 shares outstanding at December 31, 2020 and capital surplus
46,727 46,513 
Treasury stock, at cost: 422 shares at March 31, 2021 and 423 shares at December 31, 2020
(28,102)(28,178)
Retained earnings51,203 49,640 
Accumulated other comprehensive income1,022 1,414 
Total CVS Health shareholders’ equity70,850 69,389 
Noncontrolling interests314 312 
Total shareholders’ equity71,164 69,701 
Total liabilities and shareholders’ equity$229,606 $230,715 

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 millions20212020
Cash flows from operating activities:
Cash receipts from customers$66,487 $63,751 
Cash paid for inventory and prescriptions dispensed by retail network pharmacies(39,171)(36,969)
Insurance benefits paid (15,456)(14,303)
Cash paid to other suppliers and employees(8,270)(8,187)
Interest and investment income received222 206 
Interest paid(876)(1,128)
Income taxes paid(44)(65)
Net cash provided by operating activities2,892 3,305 
Cash flows from investing activities:
Proceeds from sales and maturities of investments2,177 1,288 
Purchases of investments(3,131)(1,535)
Purchases of property and equipment(829)(742)
Acquisitions (net of cash acquired)(84)(613)
Other 5 
Net cash used in investing activities(1,867)(1,597)
Cash flows from financing activities:
Net borrowings of short-term debt252 255 
Proceeds from issuance of long-term debt 3,946 
Repayments of long-term debt(3,049)(1,008)
Dividends paid(656)(652)
Proceeds from exercise of stock options212 154 
Payments for taxes related to net share settlement of equity awards(3)(16)
Other (4)
Net cash provided by (used in) financing activities(3,244)2,675 
Net increase (decrease) in cash, cash equivalents and restricted cash(2,219)4,383 
Cash, cash equivalents and restricted cash at the beginning of the period8,130 5,954 
Cash, cash equivalents and restricted cash at the end of the period$5,911 $10,337 

5

Index to Condensed Consolidated Financial Statements
CVS Health Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
In millions20212020
Reconciliation of net income to net cash provided by operating activities:
Net income $2,224 $2,012 
Adjustments required to reconcile net income to net cash provided by operating activities:
Depreciation and amortization1,126 1,086 
Stock-based compensation87 96 
Deferred income taxes and other noncash items(166)(35)
Change in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable, net(2,093)(2,715)
Inventories879 541 
Other assets(223)(1,119)
Accounts payable and pharmacy claims and discounts payable576 1,928 
Health care costs payable and other insurance liabilities294 139 
Other liabilities188 1,372 
Net cash provided by operating activities$2,892 $3,305 

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
Balance at December 31, 20201,733 (423)$46,513 $(28,178)$49,640 $1,414 $69,389 $312 $69,701 
Net income— — — — 2,223 — 2,223 1 2,224 
Other comprehensive loss (Note 6)— — — — — (392)(392)— (392)
Stock option activity, stock awards and other2 — 214 — — — 214 — 214 
ESPP issuances, net of purchase of treasury shares— 1 — 76 — — 76 — 76 
Common stock dividends— — — — (660)— (660)— (660)
Other increases in noncontrolling interests— — — — — — — 1 1 
Balance at March 31, 20211,735 (422)$46,727 $(28,102)$51,203 $1,022 $70,850 $314 $71,164 
Balance at December 31, 20191,727 (425)$45,972 $(28,235)$45,108 $1,019 $63,864 $306 $64,170 
Adoption of new accounting standard (3)
— — — — (3)— (3)— (3)
Net income— — — — 2,007 — 2,007 5 2,012 
Other comprehensive loss (Note 6)— — — — — (332)(332)— (332)
Stock option activity, stock awards and other2 — 208 — — — 208 — 208 
ESPP issuances, net of purchase of treasury shares— 1 — 53 — — 53 — 53 
Common stock dividends— — — — (657)— (657)— (657)
Other increases in noncontrolling interests— — — — — — — 23 23 
Balance at March 31, 20201,729 (424)$46,180 $(28,182)$46,455 $687 $65,140 $334 $65,474 
_____________________________________________
(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, 2021 and 2020 and December 31, 2020 and 2019.
(2)Common stock and capital surplus includes the par value of common stock of $17 million as of March 31, 2021 and 2020 and December 31, 2020 and 2019.
(3)Reflects the adoption of Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326), which resulted in a decrease to retained earnings of $3 million during the three months ended March 31, 2020.

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

7

Index to Condensed Consolidated Financial Statements
Notes to Condensed Consolidated Financial Statements (Unaudited)

1.Significant Accounting Policies

Description of Business 

CVS Health Corporation (“CVS Health”), together with its subsidiaries (collectively, the “Company”), has more than 9,900 retail locations, approximately 1,100 walk-in medical clinics, a leading pharmacy benefits manager with approximately 108 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”) continues to impact the economies of the U.S. and other countries around the world. The impact of COVID-19 on the Company’s businesses, operating results, cash flows and financial condition, as well as information regarding certain expected impacts of COVID-19 on the Company, is discussed throughout this Quarterly Report on Form 10-Q.

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

Health Care Benefits Segment
The Health Care Benefits segment 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 and health information technology products and services. The Health Care Benefits segment also provided workers’ compensation administrative services through its Coventry Health Care Workers’ Compensation business (“Workers’ Compensation business”) prior to the sale of this business on July 31, 2020. 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.”

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 and other sponsors of health benefit plans 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 health and wellness products and general merchandise, provides health care services through its MinuteClinic® walk-in medical clinics, provides medical diagnostic testing, administers vaccinations for illnesses such as influenza, COVID-19 and shingles and conducts long-term care pharmacy (“LTC”) operations, which distribute prescription drugs and provide related pharmacy consulting and other ancillary services to long-term care facilities and other care settings. As of March 31, 2021, the Retail/LTC segment operated more than 9,900 retail locations, approximately 1,100 MinuteClinic locations as well as online retail pharmacy websites, LTC pharmacies and on-site pharmacies.




8


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

Management and administrative expenses to support the Company’s overall operations, which include certain aspects of executive management and the corporate relations, legal, compliance, human resources, information technology and finance departments, expenses associated with the Company’s investments in its transformation and enterprise modernization programs and acquisition-related integration costs; and
Products for which the Company no longer solicits or accepts new customers such as its large case pensions and long-term care insurance products.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of CVS Health and its subsidiaries have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. In accordance with such rules and regulations, certain information and accompanying note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted, although the Company believes the disclosures included herein are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 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.

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 millionsMarch 31,
2021
December 31,
2020
Cash and cash equivalents$5,598 $7,854 
Restricted cash (included in other assets)313 276 
Total cash, cash equivalents and restricted cash in the statements of cash flows$5,911 $8,130 

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 millionsMarch 31,
2021
December 31,
2020
Trade receivables$7,748 $7,101 
Vendor and manufacturer receivables10,556 9,815 
Premium receivables3,101 2,628 
Other receivables2,450 2,198 
   Total accounts receivable, net $23,855 $21,742 

The Company’s allowance for credit losses was $375 million and $358 million as of March 31, 2021 and December 31,
2020, respectively. When developing an estimate of the Company’s expected credit losses, the Company considers all available relevant information regarding the collectability of cash flows, including historical information, current conditions and reasonable and supportable forecasts of future economic conditions over the contractual life of the receivable. The Company’s accounts receivable are short duration in nature and typically settle in less than 30 days.
10


Revenue Recognition

Disaggregation of Revenue
The following table disaggregates the Company’s revenue by major source in each segment for the three months ended March 31, 2021 and 2020:
In millionsHealth Care
Benefits
Pharmacy
Services
Retail/
LTC
Corporate/
Other
Intersegment
Eliminations
Consolidated
Totals
Three Months Ended March 31, 2021
Major goods/services lines:
Pharmacy$ $36,141 $17,885 $ $(11,074)$42,952 
Front Store  4,642   4,642 
Premiums18,942   18  18,960 
Net investment income148  46 103  297 
Other1,393 180 701 14 (42)2,246 
Total$20,483 $36,321 $23,274 $135 $(11,116)$69,097 
Pharmacy Services distribution channel:
Pharmacy network (1)
$21,893 
Mail choice (2)
14,248 
Other180 
Total$36,321 
Three Months Ended March 31, 2020
Major goods/services lines:
Pharmacy$ $34,774 $17,355 $ $(10,257)$41,872 
Front Store  5,208   5,208 
Premiums17,621   19  17,640 
Net investment income93   69  162 
Other1,484 209 186 2 (8)1,873 
Total$19,198 $34,983 $22,749 $90 $(10,265)$66,755 
Pharmacy Services distribution channel:
Pharmacy network (1)
$21,100 
Mail choice (2)
13,674 
Other209 
Total$34,983 
_____________________________________________
(1)Pharmacy Services pharmacy network is defined as claims filled at retail and specialty retail pharmacies, including the Company’s retail pharmacies and LTC pharmacies, but excluding Maintenance Choice® activity, which is included within the mail choice category. Maintenance Choice permits eligible client plan members to fill their maintenance prescriptions through mail order delivery or at a CVS Pharmacy retail store for the same price as mail order.
(2)Pharmacy Services mail choice is defined as claims filled at a Pharmacy Services mail order facility, which includes specialty mail claims inclusive of Specialty Connect® claims picked up at a retail pharmacy, as well as prescriptions filled at the Company’s retail pharmacies under the Maintenance Choice program.

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


11


The following table provides information about receivables and contract liabilities from contracts with customers:
In millionsMarch 31,
2021
December 31,
2020
Trade receivables (included in accounts receivable, net)$7,748 $7,101 
Contract liabilities (included in accrued expenses)80 71 

During the three months ended March 31, 2021 and 2020, 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 millions20212020
Contract liabilities, beginning of the period$71 $73 
Rewards earnings and gift card issuances93 99 
Redemption and breakage(84)(87)
Contract liabilities, end of the period$80 $85 

Health Insurer Fee

Since January 1, 2014, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the “ACA”) has imposed an annual premium-based health insurer fee (the “HIF”). The HIF, which is payable each September, is not deductible for federal income tax purposes. In December 2019, the HIF was repealed for calendar years after 2020, therefore there was no expense related to the HIF in the three months ended March 31, 2021. In the three months ended March 31, 2020, operating expenses included $271 million related to the Company’s estimated share of the 2020 HIF.

Related Party Transactions

The Company has an equity method investment in SureScripts, LLC (“SureScripts”), which operates a clinical health information network. The Company utilizes this clinical health information network in providing services to its client plan members and retail customers. The Company expensed fees for the use of this network of $9 million and $20 million in the three months ended March 31, 2021 and 2020, respectively. The Company’s investment in and equity in the earnings of SureScripts for all periods presented is immaterial.

The Company has an equity method investment in Heartland Healthcare Services, LLC (“Heartland”). Heartland operates several LTC pharmacies in four states. Heartland paid the Company $18 million and $21 million for pharmaceutical inventory purchases during the three months ended March 31, 2021 and 2020, respectively. Additionally, the Company performs certain collection functions for Heartland and then transfers those customer cash collections to Heartland. The Company’s investment in and equity in the earnings of Heartland for all periods presented is immaterial.

New Accounting Pronouncements Recently Adopted

Simplifying the Accounting for Income Taxes
In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). This standard simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Accounting Standards Codification (“ASC”) 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The Company adopted this new accounting standard on January 1, 2021. The adoption of this standard did not have a material impact on the Company’s consolidated operating results, cash flows, financial condition or related disclosures.



12


New Accounting Pronouncements Not Yet Adopted

Targeted Improvements to the Accounting for Long-Duration Insurance Contracts
In August 2018, the FASB issued ASU 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts (Topic 944). This standard requires the Company to review cash flow assumptions for its long-duration insurance contracts at least annually and recognize the effect of changes in future cash flow assumptions in net income. This standard also requires the Company to update discount rate assumptions quarterly and recognize the effect of changes in these assumptions in other comprehensive income. The rate used to discount the Company’s liability for future policy benefits will be based on an estimate of the yield for an upper-medium grade fixed-income instrument with a duration profile matching that of the Company’s liabilities. In addition, this standard changes the amortization method for deferred acquisition costs and requires additional disclosures regarding the long duration insurance contract liabilities in the Company’s interim and annual financial statements. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. The Company will adopt the new standard on January 1, 2023, using the modified retrospective transition method as of the earliest period presented for changes to the liability for future policy benefits and deferred acquisition costs. While the Company is still evaluating the impact of the new standard on its financial statements, the Company anticipates an increase to its liability for future policy benefits with a corresponding change in accumulated other comprehensive income as a result of updating the rate used to discount the liabilities to reflect the yield for an upper-medium grade fixed-income instrument compared to the Company’s expected investment yield under the existing guidance.
13



2.Investments

Total investments at March 31, 2021 and December 31, 2020 were as follows:
 March 31, 2021December 31, 2020
In millionsCurrentLong-termTotalCurrentLong-termTotal
Debt securities available for sale$3,003 $18,501 $21,504 $2,774 $18,414 $21,188 
Mortgage loans187 810 997 226 821 1,047 
Other investments 1,714 1,714  1,577 1,577 
Total investments$3,190 $21,025 $24,215 $3,000 $20,812 $23,812 

Debt Securities

Debt securities available for sale at March 31, 2021 and December 31, 2020 were as follows:
In millions
Amortized
 Cost (1)
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
March 31, 2021
Debt securities:  
U.S. government securities$2,236 $72 $(2)$2,306 
States, municipalities and political subdivisions2,778 142 (4)2,916 
U.S. corporate securities8,671 689 (36)9,324 
Foreign securities2,655 215 (12)2,858 
Residential mortgage-backed securities744 24 (6)762 
Commercial mortgage-backed securities943 55 (13)985 
Other asset-backed securities2,295 30 (2)2,323 
Redeemable preferred securities27 3  30 
Total debt securities (2)
$20,349 $1,230 $(75)$21,504 
December 31, 2020
Debt securities:
U.S. government securities$2,341 $128 $ $2,469 
States, municipalities and political subdivisions2,556 172  2,728 
U.S. corporate securities7,879 1,023 (8)8,894 
Foreign securities2,595 324 (1)2,918 
Residential mortgage-backed securities673 32  705 
Commercial mortgage-backed securities962 84  1,046 
Other asset-backed securities2,369 36 (2)2,403 
Redeemable preferred securities21 4  25