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Leases

12 Months Ended

Dec. 31, 2021

The Company leases most of its retail stores and mail order facilities and certain distribution centers and corporate offices under operating or finance leases, typically with initial terms of 15 to 25 years. The Company also leases certain equipment and other assets under operating or finance leases, typically with initial terms of 3 to 10 years.

In addition, the Company leases pharmacy space at the stores of another retail chain for which the noncancelable contractual term of the pharmacy lease arrangement exceeds the remaining estimated economic life of the buildings. For these pharmacy lease arrangements, the Company concluded that for accounting purposes the lease term was the remaining estimated economic life of the buildings. Consequently, most of these individual pharmacy leases are finance leases.

The following table is a summary of the components of net lease cost for the years ended December 31, 2021, 2020 and 2019:


In millions	2021		2020		2019
Operating lease cost	$	2,633	$	2,670	$	2,720
Finance lease cost:
Amortization of right-of-use assets	62		56		38
Interest on lease liabilities	62		58		44
Total finance lease costs	124		114		82
Short-term lease costs	25		22		24
Variable lease costs	604		599		581
Less: sublease income	59		55		50
Net lease cost	$	3,327	$	3,350	$	3,357

Supplemental cash flow information related to leases for the years ended December 31, 2021, 2020 and 2019 is as follows:


In millions	2021		2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows paid for operating leases	$	2,714	$	2,724	$	2,701
Operating cash flows paid for interest portion of finance leases	62		58		44
Financing cash flows paid for principal portion of finance leases	50		34		26
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	1,254		1,679		1,824
Finance leases	278		313		283

Supplemental balance sheet information related to leases as of December 31, 2021 and 2020 is as follows:


In millions, except remaining lease term and discount rate	2021			2020
Operating leases:
Operating lease right-of-use assets	$	19,122		$	20,729

Current portion of operating lease liabilities	$	1,646		$	1,638
Long-term operating lease liabilities	18,177			18,757
Total operating lease liabilities	$	19,823		$	20,395

Finance leases:
Property and equipment, gross	$	1,375		$	1,107
Accumulated depreciation	(188)			(106)
Property and equipment, net	$	1,187		$	1,001

Current portion of long-term debt	$	50		$	33
Long-term debt	1,250			1,050
Total finance lease liabilities	$	1,300		$	1,083

Weighted average remaining lease term (in years)
Operating leases	12.8			13.3
Finance leases	20.0			20.3

Weighted average discount rate
Operating leases	4.4		%	4.5		%
Finance leases	5.0		%	5.6		%

The following table summarizes the maturity of lease liabilities under finance and operating leases as of December 31, 2021:


In millions	Finance Leases		Operating Leases (1)		Total
2022	$	122	$	2,685	$	2,807
2023	121		2,613		2,734
2024	111		2,398		2,509
2025	110		2,217		2,327
2026	109		2,054		2,163
Thereafter	1,495		14,103		15,598
Total lease payments (2)	2,068		26,070		28,138
Less: imputed interest	(768)		(6,247)		(7,015)
Total lease liabilities	$	1,300	$	19,823	$	21,123

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(1)Future operating lease payments have not been reduced by minimum sublease rentals of $311 million due in the future under noncancelable subleases.

(2)The Company leases pharmacy and clinic space from Target Corporation. Amounts related to such finance and operating leases are reflected above. Pharmacy lease amounts due in excess of the remaining estimated economic life of the buildings of approximately $2.4 billion are not reflected in this table since the estimated economic life of the buildings is shorter than the contractual term of the pharmacy lease arrangement.

Sale-Leaseback Transactions

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 tables above. 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. There were no sale-leaseback transactions in 2021. Proceeds from sale-leaseback transactions totaled $101 million and $5 million in the years ended December 31, 2020 and 2019, respectively. Gains from sale-leaseback transactions totaled $3 million in the year ended December 31, 2020. There were no material gains from sale-leaseback transactions in the year ended December 31, 2019.

Store Impairment Charges

The Company evaluates its retail store right-of-use and property and equipment assets for impairment at the retail store level, which is the lowest level at which cash flows can be identified. For retail stores where there is an indicator of impairment present, the Company first compares the carrying amount of the asset group to the estimated future cash flows associated with the asset group (undiscounted). If the estimated undiscounted future cash flows used in the 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 its estimated fair value which is the greater of the asset group’s estimated future cash flows (discounted), or the consideration of what a market participant would pay to lease the assets, net of leasing costs. The Company’s estimate of fair value considers historical results, current operating trends, consolidated sales, profitability and cash flow results and forecasts. For assets which the Company has determined it will be able to sublease, the estimated future cash flows include the estimated sublease income, net of estimated leasing costs.

When the carrying value of an asset group exceeds its estimated fair value, an impairment loss is recorded to reduce the value of the asset group to its estimated fair value. As the impaired assets are measured at fair value on a nonrecurring basis primarily using unobservable inputs as of the measurement date, the assets are classified in Level 3 of the fair value hierarchy.

During the fourth quarter of 2021, the Company completed a strategic review of its retail business and announced the creation of new formats for its stores to continue to drive higher engagement with customers. As part of this review, the Company evaluated changes in population, consumer buying patterns and future health needs to ensure it has the right kinds of stores in the right locations for consumers and for the business. In connection with this initiative, on November 17, 2021, the Board of Directors of CVS Health Corporation (the “Board”) authorized the closing of approximately 900 retail stores over the next three years. The Company expects to close approximately 300 stores each year between 2022 and 2024. As a result, management determined that there were indicators of impairment with respect to the impacted stores’ asset groups, including the associated operating lease right-of-use assets and property and equipment. A long-lived asset impairment test was performed during the fourth quarter of 2021 and the results of the impairment test indicated that the fair value of certain retail store asset groups was lower than their respective carrying values. Accordingly, in the three months ended December 31, 2021, the Company recorded a store impairment charge of approximately $1.4 billion, consisting of a write down of approximately $1.1 billion related to operating lease right-of-use assets and $261 million related to property and equipment, within the Retail/LTC segment. Subsequent to the impairment loss, the fair value of the associated operating lease right-of use assets and property and equipment were $356 million and $185 million, respectively.

During 2019, the Company performed reviews of its retail stores and determined it would close 68 underperforming retail pharmacy stores. As a result, management determined that there were indicators of impairment with respect to the impacted stores, including the associated operating lease right-of-use assets. Long-lived asset impairment tests were performed and the results indicated that the fair value of those underperforming retail stores were lower than their respective carrying values. Accordingly, the Company recorded store impairment charges of $231 million during the year ended December 31, 2019, primarily related to these operating lease right-of-use asset impairment charges, within the Retail/LTC segment.

Leases