Acquisitions (Notes)

9 Months Ended

Sep. 30, 2015

Business Combinations [Abstract]

Acquisitions

Acquisitions

Omnicare Acquisition

On August 18, 2015, the Company acquired 100% of the outstanding common shares and voting interests of Omnicare, Inc. (“Omnicare”), for $98 per share for a total of $9.6 billion and assumed long-term debt with a fair value of approximately $3.1 billion. Additionally, holders of Omnicare restricted stock units and performance based restricted stock units received 738,765 CVS Health Corporation restricted stock awards with a fair value of approximately $80 million as replacement awards. Omnicare is a leading health care services company that specializes in the management of complex pharmaceutical care. Omnicare’s long-term care (“LTC”) business is the nation’s largest provider of pharmaceuticals, related pharmacy consulting and other ancillary services to chronic care facilities and other care settings. In addition, Omnicare has a specialty pharmacy business operating under the name of Advanced Care Scripts^®, and provides commercialization services operating under the name of RxCrossroads^®. The Company will include LTC and the commercialization services in its former Retail Pharmacy Segment, which has been renamed the “Retail/LTC Segment,” and will include the specialty pharmacy business in its Pharmacy Services Segment. The Company acquired Omnicare to expand its operations in dispensing prescription drugs to assisted-living and long-term care facilities, and to broaden its presence in the specialty pharmacy business as the Company seeks to serve a greater percentage of the growing senior patient population in the United States.

The fair value of the consideration transferred on the date of acquisition consisted of the following:

(in millions)
Cash paid to Omnicare shareholders	$	9,636
Fair value of replacement equity awards issued to Omnicare employees
for precombination services	9
Total consideration	$	9,645

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:

(in millions)
Current assets (including cash of $298)	$	1,682
Property and equipment	314
Goodwill	9,035
Intangible assets	3,962
Other noncurrent assets	64
Current liabilities	(704		)
Long-term debt	(3,110		)
Deferred income tax liabilities	(1,533		)
Other noncurrent liabilities	(65		)
Total consideration	$	9,645

The assessment of fair value is preliminary and is based on information that was available to management at the time the condensed consolidated financial statements were prepared. Accordingly, such amounts may change. The most significant open items included the accounting for deferred income taxes and contingencies as management is awaiting additional information to complete its assessment of these matters. The goodwill represents future economic benefits expected to arise from the Company’s expanded presence in the pharmaceutical care market, the assembled workforce acquired, expected purchasing and revenue synergies, as well as operating efficiencies and cost savings. Goodwill of $8.6 billion was allocated to the Retail/LTC Segment and the remaining goodwill of $0.4 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.

The fair value of trade accounts receivable acquired is $600 million, with the gross contractual amount being $857 million. The Company expects $257 million of trade accounts receivable to be uncollectible. The fair value of other receivables acquired is $147 million, with the gross contractual amount being $161 million. The Company expects $14 million of other receivables to be uncollectible.

During the three and nine months ended September 30, 2015, the Company incurred transaction costs of $52 million and $68 million, respectively, associated with the acquisition of Omnicare that were recorded within operating expenses.

The Company’s consolidated results of operations for the three and nine months ended September 30, 2015, include $710 million of revenue and a net loss of $3 million associated with the operating results of Omnicare from August 18, 2015 to September 30, 2015. These Omnicare operating results include severance costs and accelerated stock-based compensation.

The following unaudited pro forma information presents a summary of the Company’s combined results of operations for the three and nine months ended September 30, 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.

	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions, except per share data)	2015		2014		2015		2014
Total revenues	$	39,374	$	36,390	$	115,652	$	106,391
Income from continuing operations	1,318		929		3,774		3,261
Basic earnings per share from continuing operations	$	1.18	$	0.80	$	3.35	$	2.78
Diluted earnings per share from continuing operations	$	1.17	$	0.79	$	3.32	$	2.76

Pro forma income from continuing operations for the three and nine months ended September 30, 2015, excludes $113 million and $129 million, respectively, 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 three and nine months ended September 30, 2014, includes a $521 million loss on the early extinguishment of debt recorded by CVS Health.

Proposed Target Pharmacy Asset Acquisition

On June 12, 2015, CVS Pharmacy, Inc. (“CVS Pharmacy”), a wholly owned subsidiary of CVS Health, entered into an Asset Purchase Agreement with Target Corporation (“Target”) pursuant to which Target agreed to sell its pharmacy and clinic businesses to CVS Pharmacy (the “Target Pharmacy Acquisition”). The purchase price is $1.887 billion, payable in cash at closing and is subject to certain adjustments. The timing of the closing is uncertain, and is subject to receipt of regulatory approval and other customary conditions.