10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2011

OR

o 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 CAREMARK CORPORATION

(Exact name of Registrant as specified in its charter)

Delaware	050494040
(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)

(401) 765-1500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Common Stock, par value $0.01 per share	New York Stock Exchange
Title of each class	Name of each exchange on which registered

Securities registered pursuant to Section 12(g) of the Exchange Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes x No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o No x

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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer   x	Accelerated filer  o
Non-accelerated filer  o	Smaller reporting company  o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o No x

The aggregate market value of the registrant’s common stock held by non-affiliates was approximately $50,513,379,248 as of June 30, 2011, based on the closing price of the common stock on the New York Stock Exchange. For purposes of this calculation, only executive officers and directors are deemed to be the affiliates of the registrant.

As of February 10, 2012, the registrant had 1,302,378,570 shares of common stock issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Filings made by companies with the Securities and Exchange Commission sometimes “incorporate information by reference.” This means that the company is referring you to information that was previously filed or is to be filed with the SEC, and this information is considered to be part of the filing you are reading. The following materials are incorporated by reference into this Form 10-K:

·  Portions of our Annual Report to Stockholders for the fiscal year ended December 31, 2011 is incorporated by reference in our response to Items 7, 8 and 9 of Part II.

·  Information contained in our Proxy Statement for the 2012 Annual Meeting of Stockholders is incorporated by reference in our response to Items 10 through 14 of Part III.

TABLE OF CONTENTS

			Page
Part I
	Item 1:	Business	3
	Item 1A:	Risk Factors	21
	Item 1B:	Unresolved Staff Comments	26
	Item 2:	Properties	26
	Item 3:	Legal Proceedings	28
	Item 4:	Submission of Matters to a Vote of Security Holders	30
	Executive Officers of the Registrant		31
Part II
	Item 5:	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	33
	Item 6:	Selected Financial Data	34
	Item 7:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
	Item 7A:	Quantitative and Qualitative Disclosures About Market Risk	35
	Item 8:	Financial Statements and Supplementary Data	35
	Item 9:	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	35
	Item 9A:	Controls and Procedures	35
	Item 9B:	Other Information	35
Part III
	Item 10:	Directors, Executive Officers and Corporate Governance	36
	Item 11:	Executive Compensation	36
	Item 12:	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	36
	Item 13:	Certain Relationships and Related Transactions, and Director Independence	36
	Item 14:	Principal Accountant Fees and Services	36
Part IV
	Item 15:	Exhibits and Financial Statement Schedules	37
	Signatures		43

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PART I

Item 1. Business

Overview

CVS Caremark Corporation (“CVS Caremark”, the “Company”, “we” or “us”), together with its subsidiaries, is the largest pharmacy health care provider in the United States, with integrated offerings across the entire spectrum of pharmacy care. CVS Caremark is uniquely positioned to deliver significant benefits to health plan sponsors through effective cost management solutions and innovative programs that engage plan members and promote healthier and more cost-effective behaviors. Our integrated pharmacy services model enhances our ability to offer plan members and consumers expanded choice, greater access and more personalized services to help them on their path to better health.

We effectively manage pharmaceutical costs and improve health care outcomes through our pharmacy benefit management (“PBM”), mail order and specialty pharmacy division, CVS Caremark® Pharmacy Services; our approximately 7,300 CVS/pharmacy® retail stores; our retail-based health clinic subsidiary, MinuteClinic®; and our online retail pharmacy, CVS.com®.

We currently have three reportable business segments: Pharmacy Services, Retail Pharmacy and Corporate.

Pharmacy Services Segment

The Pharmacy Services segment provides a full range of PBM services, as described more fully below, to our clients consisting primarily of employers, insurance companies, unions, government employee groups, managed care organizations and other sponsors of health benefit plans and individuals throughout the United States. In addition, through our SilverScript Insurance Company (“SilverScript”), Accendo Insurance Company (“Accendo”) and Pennsylvania Life Insurance Company (“Pennsylvania Life”) subsidiaries, we are a national provider of drug benefits to eligible beneficiaries under the Federal Government’s Medicare Part D program. Currently, the Pharmacy Services business operates under the CVS Caremark® Pharmacy Services, Caremark®, CVS Caremark®, CarePlus CVS/pharmacy®, CarePlus™, RxAmerica® and Accordant® names. As of December 31, 2011, the Pharmacy Services segment operated 31 retail specialty pharmacy stores, 12 specialty mail order pharmacies and four mail service pharmacies located in 22 states, the District of Columbia and Puerto Rico.

Pharmacy Services Business Strategy - Our business strategy centers on providing innovative pharmaceutical solutions and quality client service in order to enhance clinical outcomes for our clients’ health benefit plan members while assisting our clients and their plan members in better managing overall health care costs. We produce superior results for our clients and their plan members by leveraging our expertise in core PBM services, including: plan design and administration, formulary management, discounted drug purchase arrangements, Medicare Part D services, mail order and specialty pharmacy services, retail pharmacy network management services, prescription management systems, clinical services, disease management services and pharmacogenomics.

In addition, as a fully integrated pharmacy services company, we are able to offer our clients and their plan members a variety of programs and plan designs that benefit from our integrated information systems and the ability of our more than 25,000 pharmacists, nurse practitioners and physician assistants to interact personally with the many plan members who shop our stores every day. Through our multiple member touch points (retail stores, mail order and specialty pharmacies, retail clinics, call centers and proprietary websites), we seek to engage plan members in behaviors that lower cost and improve health care outcomes. Examples of these programs and services include: Maintenance Choice®, a program where eligible client plan members can elect to fill their maintenance prescriptions at our retail pharmacy stores for the same price as mail order; Pharmacy Advisor®, a program that uses our Consumer Engagement EngineTM technology to facilitate face-to-face and telephone counseling by our pharmacists to help participating plan members with certain chronic diseases, such as diabetes and cardiovascular conditions, to identify gaps in care, adhere to their prescribed medications and manage their health conditions; compliance and persistency programs designed to ensure that patients take their medications in the proper manner; enhanced disease management programs that are targeted at managing chronic disease states; and an ExtraCare® Health Card program which offers discounts to eligible plan members on certain over-the-counter health care products sold in our CVS/pharmacy stores. In addition, we are working with our clients to (i) decrease unnecessary and expensive emergency room visits by encouraging plan members to use MinuteClinic locations for everyday common ailments and (ii) create pilot programs that offer convenient and unique services available at MinuteClinic, such as injection training for specialty pharmacy services.

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PBM Services - Our PBM services are described more fully below.

Plan Design and Administration - Our clients sponsor pharmacy benefit plans that facilitate the ability of eligible members in these plans to receive prescribed medications. We assist our clients in designing pharmacy benefit plans that minimize the costs to the client while prioritizing the welfare and safety of the clients’ members. We also administer these benefit plans for our clients and assist them in monitoring the effectiveness of these plans through frequent, informal communications as well as through a formal annual client review.

We make recommendations to our clients encouraging them to design benefit plans promoting the use of the lowest cost, most clinically appropriate drug. We believe that we help our clients control costs by recommending plan designs that encourage the use of generic equivalents of brand name drugs when such equivalents are available. Our clients also have the option, through plan design, to further lower their pharmacy benefit plan costs by setting different member payment levels for different products on their drug lists.

Formulary Management - We utilize an independent panel of doctors, pharmacists and other medical experts, referred to as our Pharmacy and Therapeutics Committee, to select drugs that meet the highest standards of safety and efficacy for inclusion on our drug lists. Our drug lists provide recommended products in numerous drug classes to ensure member access to clinically appropriate alternatives under the client’s pharmacy benefit plan. To improve clinical outcomes for members and clients, we conduct ongoing, independent reviews of all drugs, including, but not limited to, those appearing on the drug lists and generic equivalent products, as well as our clinical programs. Many of our clients choose to adopt our drug lists as part of their plan design.

Discounted Drug Purchase Arrangements - We negotiate with pharmaceutical companies to obtain discounted acquisition costs for many of the products on our drug lists, and these negotiated discounts enable us to offer reduced costs to clients that choose to adopt our drug lists. The discounted drug purchase arrangements we negotiate typically provide for volume discounts and/or the payment by the pharmaceutical companies of retroactive discounts, or rebates, from established list prices. For certain products that are purchased by our pharmacies, we receive discounts at the time of purchase and/or discounts for prompt payment of invoices. We also receive various purchase discounts under our wholesale contracts, which may include retroactive discounts, or rebates, if we exceed contractually-defined purchase volumes. We record these discounts, regardless of their form, as a reduction of our cost of revenues.

Medicare Part D Services - We participate in the administration of the drug benefit added to the Medicare program under Part D of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“MMA”) (“Medicare Part D”) through the provision of PBM services to our health plan clients and other clients that have qualified as Medicare Part D prescription drug plans (“PDP”). We also participate (i) by offering Medicare Part D pharmacy benefits through our subsidiaries, SilverScript, Accendo and Pennsylvania Life, which have been approved by the Centers for Medicare and Medicaid Services (“CMS”), as PDPs, and (ii) by assisting employer, union and other health plan clients that qualify for the retiree drug subsidy available under Medicare Part D by collecting and submitting eligibility and/or drug cost data to CMS in order for them to obtain the subsidy. On April 29, 2011, the Company acquired the Medicare prescription drug business of Universal American Corp. (the “UAM Medicare Part D Business”) for approximately $1.3 billion.

Mail Order Pharmacy - As of December 31, 2011, we operated four large, automated mail service pharmacies in the United States. Plan members or their prescribers submit prescriptions or refill requests, primarily for maintenance medications, to these pharmacies via mail, telephone, fax, e-prescribing or the Internet. We also operate a network of smaller mail service specialty pharmacies described below. Our staff pharmacists review mail service prescriptions and refill requests with the assistance of our prescription management systems. This review may involve communications with the prescriber and, with the prescriber’s approval, can result in generic substitution, therapeutic interchange or other actions designed to reduce cost and improve quality of treatment.

Specialty Pharmacy - Our specialty pharmacies support individuals that require complex and expensive drug therapies. As of December 31, 2011, our specialty pharmacies were comprised of 12 specialty mail order pharmacies located throughout the United States that are used for delivery of advanced medications to individuals with chronic or genetic diseases and disorders. Substantially all of these pharmacies have been accredited by the Joint Commission, which is an independent, not-for-profit organization that accredits and certifies more than 19,000 health care organizations and programs in the United States. As of December 31, 2011, the Company operated a network of 31 retail specialty pharmacy stores, which operate under the CarePlus CVS/pharmacy® name. These stores average 2,000 square feet in size and sell prescription drugs and a limited assortment of front store items such as alternative medications, homeopathic remedies and vitamins.

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Retail Pharmacy Network Management- We maintain a national network of approximately 65,000 retail pharmacies, including CVS/pharmacy stores. When a customer fills a prescription in a retail pharmacy, the pharmacy sends prescription data electronically to us from the point-of-sale. This data interfaces with our proprietary prescription management systems, which verify relevant plan member data and eligibility, while also performing a drug utilization review to evaluate clinical appropriateness and safety and confirming that the pharmacy will receive payment for the prescription.

Prescription Management Systems - We dispense prescription drugs both directly, through one of our mail service or specialty pharmacies, or through a network of retail pharmacies. All prescriptions, whether they are filled through one of our mail service pharmacies or through a pharmacy in our retail network, are analyzed, processed and documented by our proprietary prescription management systems. These systems assist staff and network pharmacists in processing prescriptions by automating review of various items, including, but not limited to, plan eligibility, early refills, duplicate dispensing, appropriateness of dosage, drug interactions or allergies, over-utilization and potential fraud.

Clinical Services - We offer multiple clinical programs and services to help clients manage overall pharmacy and health care costs in a clinically appropriate manner. Our programs are primarily designed to promote safety, and to target inappropriate utilization and non-adherence to medication, each of which may result in adverse medical events that negatively impact members’ health and the client’s pharmacy and medical spend. In this regard, we offer various utilization management, medication management, quality assurance, adherence and counseling programs to complement the client’s plan design and clinical strategies.

Disease Management Programs - Our clinical services utilize advanced protocols and offer clients convenience in working with health care providers and other third parties. Our Accordant® health management programs include integrated rare disease management programs, which cover diseases such as rheumatoid arthritis, Parkinson’s disease, seizure disorders and multiple sclerosis. The majority of these integrated programs are accredited by the National Committee for Quality Assurance (“NCQA”), a private, not-for-profit organization that evaluates, accredits and certifies a wide range of health care organizations. In addition, we have entered into a strategic alliance with Alere, L.L.C. for the management of our common disease management program offerings, which cover such chronic diseases as asthma, diabetes, congestive heart failure and coronary artery disease.

Pharmacogenomic Services - We own a majority interest in Generation Health, Inc., a genetic benefit management company, that will allow us to expand our offering of pharmacogenomic clinical and testing services to our PBM clients. Pharmacogenomics is the study of how genetic makeup affects an individual’s response to drug therapies. Through genetic testing, doctors are able to evaluate a patient’s genetic makeup to determine the effectiveness of specific drugs, drug dosages and drug combinations. Through this relationship, we expect to use genetic testing to apply greater precision to client prescription management, with the goal of improving individual health outcomes and reducing overall medical costs. We began to offer these services for certain drug therapies on a limited pilot basis to clients during 2010 and rolled out these services to additional clients during 2011.

Pharmacy Services Information Systems - We currently operate multiple information systems platforms to support our Pharmacy Services segment. These information systems incorporate architecture that centralizes the data generated from filling mail service prescriptions, adjudicating retail pharmacy claims and fulfilling other PBM clients’ service contracts. As part of our streamlining initiative, we are consolidating our adjudication platforms to one destination platform with enhanced capabilities.

Pharmacy Services Clients - Our clients are primarily sponsors of health benefit plans (employers, unions, government employee groups, insurance companies and managed care organizations) and individuals located throughout the United States. We provide pharmaceuticals to eligible members in benefit plans maintained by our clients and utilize our information systems, among other things, to perform safety checks, drug interaction screening and generic substitution. We generate substantially all of our Pharmacy Services segment net revenue from dispensing prescription drugs to eligible members in benefit plans maintained by our clients. No single PBM client accounted for 10% or more of our total consolidated revenues in 2011. Our client agreements are subject to renegotiation of terms. See “Risk Factors — Efforts to reduce reimbursement levels and alter health care financing practices” and “- Risks of declining gross margins in the PBM industry.” During the year ended December 31, 2011, our PBM filled or managed approximately 775 million prescriptions.

Seasonality - The majority of our Pharmacy Services segment revenues are not seasonal in nature.

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Pharmacy Services Competition - We believe the primary competitive factors in the industry include: (i) the ability to negotiate favorable discounts from drug manufacturers; (ii) the ability to negotiate favorable discounts from, and access to, retail pharmacy networks; (iii) responsiveness to clients’ needs; (iv) the ability to identify and apply effective cost management programs utilizing clinical strategies; (v) the ability to develop and utilize preferred drug lists; (vi) the ability to market PBM products and services; (vii) the commitment to provide flexible, clinically-oriented services to clients; and (viii) the quality, scope and costs of products and services offered to clients and their members. The Pharmacy Services segment competes with a number of large, national PBM companies, including Express Scripts, Inc. (“ESI”) and Medco Health Solutions, Inc. (“Medco”), as well as many smaller local or regional PBMs. In 2011, ESI and Medco announced plans to merge their businesses, subject to various closing conditions and regulatory approvals. It remains unclear whether the merger will be completed. We also compete with several large health insurers/managed care plans (e.g., United Healthcare and CIGNA), which have their own PBM capabilities, as well as with several other national and regional companies which provide services similar to ours.

Retail Pharmacy Segment

As of December 31, 2011, the Retail Pharmacy segment included 7,327 retail drugstores, of which 7,271 operated a pharmacy, our online retail pharmacy website, CVS.com, 30 onsite pharmacy stores and our retail health care clinics. The retail drugstores are located in 41 states, Puerto Rico and the District of Columbia operating primarily under the CVS/pharmacy® name. We currently operate in 92 of the top 100 U.S. drugstore markets and hold the number one or number two market share in 73 of these markets. CVS/pharmacy stores sell prescription drugs and a wide assortment of general merchandise, which we refer to as “front store” products. Existing retail stores range in size from approximately 5,000 to 25,000 square feet, although most new stores range in size from approximately 8,000 to 13,000 square feet and typically include a drive-thru pharmacy. During 2011, we filled approximately 658 million retail prescriptions, or approximately 20% of the U.S. retail pharmacy market.

As of December 31, 2011, we operated 657 retail health care clinics in 25 states and the District of Columbia under the MinuteClinic® name, of which 648 were located within CVS/pharmacy stores.

Retail Pharmacy Business Strategy - Our integrated pharmacy services model has enhanced the ability of our retail pharmacy stores to expand customer access to care while helping to lower overall health care costs and improve health outcomes. In that regard, the role of our retail pharmacist is shifting from primarily dispensing prescriptions to also providing services, including flu vaccinations as well as face-to-face patient counseling with respect to adherence to drug therapies, closing gaps in care and more cost effective drug therapies. In addition, we seek to be the easiest pharmacy retailer for customers to use. We believe that ease of use means convenience for the time-starved customer. As such, our strategy is to have conveniently-located stores, many of which are open extended —hours or 24-hours per day, and to offer drive-through pharmacy services where practicable. We also provide a broad assortment of quality merchandise at competitive prices using a retail format that emphasizes service, innovation and convenience (easy-to-access, clean, well-lit and well stocked). One of the keys to our strategy is technology, which allows us to focus on constantly improving service and exploring ways to provide more personalized product offerings and services. We believe that continuing to be the first to market with new and unique products and services, using innovative marketing and adjusting our mix of merchandise to match our customers’ needs and preferences is very important to our ability to continue to improve customer satisfaction.

Retail Pharmacy Products and Services - A typical CVS/pharmacy store sells prescription drugs and a wide assortment of high-quality, nationally advertised brand name and private label merchandise. Front store categories include over-the-counter drugs, beauty products and cosmetics, film and photo finishing services, seasonal merchandise, greeting cards and convenience foods. We purchase our merchandise from numerous manufacturers and distributors. We believe that competitive sources are readily available for substantially all of the products we carry and the loss of any one supplier would not have a material effect on the business.

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Consolidated net revenues by major product group are as follows:

	Percentage of Net Revenues(1)
	2011	2010	2009
Prescription drugs	68.3%	68.0%	67.7%
Over-the-counter and personal care	10.9	10.9	11.0
Beauty/cosmetics	5.2	5.1	5.1
General merchandise and other	15.6	16.0	16.2
	100.0%	100.0%	100.0%

(1)Percentages are estimates based on store point-of-sale data.

Pharmacy - Pharmacy revenues represented more than two-thirds of Retail Pharmacy revenues in each of 2011, 2010 and 2009. We believe that our pharmacy operations will continue to represent a critical part of our business due to favorable industry trends (e.g., an aging American population consuming a greater number of prescription drugs, pharmaceuticals being used more often as the first line of defense for managing illness, the impact of health care reform), the proliferation of new pharmaceutical products, Medicare Part D and our ongoing program of purchasing customer lists from independent pharmacies. We believe our pharmacy business benefits from our investment in both people and technology. Given the nature of prescriptions, people want their prescriptions filled accurately and ready when promised, by professional pharmacists using the latest tools and technology. Consumers need medication management programs and better information to help them get the most out of their health care dollars. To assist our customers with these needs, we have introduced integrated pharmacy health care services that provide an earlier, easier and more effective approach to engaging them in behaviors that can help lower costs, improve health, and save lives. Examples include: our Patient Care Initiative, an enhanced medication adherence program; our Customer Savings Initiative, which educates customers about cost savings opportunities; Maintenance Choice (a flexible fulfillment option that affords eligible PBM plan members the convenient choice of filling their 90-day supply of maintenance medications at any CVS/pharmacy store or obtaining them through mail order, in either case at the cost of mail, which is typically lower for both the plan member and payor); Pharmacy Advisor, our program that uses our Consumer Engagement Engine technology to facilitate pharmacist counseling, both face-to-face and over the telephone, to help participating plan members with certain chronic diseases, such as diabetes and cardiovascular conditions, to identify gaps in care, adhere to their prescribed medications and manage their health conditions; and the ExtraCare Health Card program. Further evidencing our belief in the importance of pharmacy service is our continuing investment in technology, such as our Drug Utilization Review system that checks for harmful interactions between prescription drugs, over-the-counter products, vitamins and herbal remedies; our pharmacy fulfillment system, Rx Connect; our touch-tone telephone reorder system, Rapid RefillTM; and our online business, CVS.com.

Front Store - Front store revenues benefited from our strategy to be the first to market with new and unique products and services, using innovative marketing and adjusting our mix of merchandise to match our customers’ needs and preferences. A key component of our front store strategy is our ExtraCare® card program, which is helping us continue to build our loyal customer base. The ExtraCare program is one of the largest and most successful retail loyalty programs in the United States. In addition, the ExtraCare program allows us to balance our marketing efforts so we can reward our best customers by providing them automatic sale prices, customized coupons, ExtraBucks® rewards and other benefits. Another component of our front store strategy is our unique product offerings, which include a full range of high-quality CVS/pharmacy® and proprietary brand products that are only available through CVS/pharmacy stores. We currently carry over 4,400 CVS/pharmacy and proprietary brand products, which accounted for approximately 18% of our front store revenues during 2011. Furthermore, we are tailoring certain groups of stores to better meet the needs of our customers, such as our urban cluster stores.

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MinuteClinic - As of December 31, 2011, we operated 657 MinuteClinic® locations in 25 states and the District of Columbia; of which 648 were located in CVS/pharmacy stores. MinuteClinics are staffed by nurse practitioners and physician assistants who utilize nationally recognized protocols to diagnose and treat minor health conditions, perform health screenings, monitor chronic conditions and deliver vaccinations. Many locations have also begun treating a variety of chronic conditions. Insurers value MinuteClinic because it provides convenient, high-quality, cost-effective care, in many cases offering an attractive alternative to the far more expensive emergency room. As a result, visits paid for by employers, health insurers or other third parties accounted for approximately 84% of MinuteClinic’s total revenues in 2011. We anticipate opening up approximately 100 new clinics in CVS/pharmacy stores during 2012. MinuteClinic is collaborating with our Pharmacy Services segment to help meet the needs of CVS Caremark plan members by offering programs that can improve member health and lower costs.

Onsite Pharmacies - We also operate a limited number of small pharmacies located at client sites under the CarePlus CVS/pharmacy®, CarePlusTM or CVS/pharmacy® name, which provide certain health plan members and customers with a convenient alternative for filling their prescriptions.

Retail Pharmacy Store Development - The addition of new stores has played, and will continue to play, a major role in our continued growth and success. Our store development program focuses on three areas: entering new markets, adding stores within existing markets and relocating stores to more convenient, freestanding sites. During 2011, we opened 161 new retail pharmacy stores, relocated 86 stores and closed 16 stores. During the last five years, we opened more than 1,400 new and relocated stores, and acquired approximately 500 stores. During 2012, we expect to open between 225 and 250 new or relocated stores, and close approximately 20 stores. We believe that continuing to grow our store base and locating stores in desirable geographic markets are essential components to compete effectively in the current managed care environment. As a result, we believe that our store development program is an integral part of our ability to maintain our leadership position in the retail drugstore industry.

Retail Pharmacy Information Systems - We have continued to invest in information systems to enable us to deliver a high level of customer service while lowering costs and increasing operating efficiency. In 2010, we completed the rollout of Rx Connect, which reengineered the way our pharmacists communicate and fill prescriptions. Our Consumer Engagement Engine technology enables us to message pharmacists at the point of care which facilitates face-to-face counseling regarding patient health and safety matters, including adherence issues, gaps in care and management of certain chronic health conditions. We were one of the first in the industry to introduce Drug Utilization Review technology that checks for harmful interactions between prescription drugs, over-the-counter products, vitamins and herbal remedies. We were also one of the first in the industry to install a chain-wide automatic prescription refill system, CVS Rapid Refill, which enables customers to order prescription refills 24 hours a day using a touch-tone telephone. We continue to enhance our Visible Improvement in Profits, Execution and Results (“VIPER”) system, a transaction-monitoring application designed to mitigate inventory losses attributable to process deficiencies or fraudulent behavior by providing visibility to transactions processed through our point-of-sale systems. In addition, we operate distribution centers with fully integrated technology solutions for storage, product retrieval and order picking.

Retail Pharmacy Customers - Managed care organizations, government-funded health care programs (including state Medicaid plans and Medicare Part D drug plans), commercial employers and other third party plans accounted for 97.8% of our 2011 pharmacy revenues. The loss of any one payor should not have a material effect on our business. No single retail payor accounts for 10% or more of our total consolidated revenues. However, the success of our retail drugstore business is dependent upon our ability to establish and maintain contractual relationships with PBMs and other payors on acceptable terms. In 2011, two of the nation’s largest PBMs, Medco and ESI, together accounted for approximately 22% of our Retail Pharmacy Segment revenues. During 2011, Medco and ESI announced plans to merge their businesses, subject to various closing conditions and regulatory approvals. It remains unclear whether the merger will occur, and we cannot predict the impact of the proposed merger if completed, on the competitive landscape. See Item 1A., “Risk Factors — An extremely competitive business environment.” Our contracts with commercial payors and government-funded programs are subject to renegotiation of reimbursement rates. See “Government Regulation — Reimbursement” and Item 1A., “Risk Factors — Efforts to reduce reimbursement levels and alter health care financing practices.”

Retail Pharmacy Seasonality - The majority of our revenues, particularly pharmacy revenues, are generally not seasonal in nature. However, front store revenues tend to be higher during the December holiday season. For additional information, we refer you to the Note “Quarterly Financial Information” in our Annual Report to Stockholders for the year ended December 31, 2011, which section is incorporated by reference herein.

Retail Pharmacy Competition - The retail drugstore business is highly competitive. We believe that we compete principally on the basis of: (i) store location and convenience, (ii) customer service and satisfaction, (iii) product selection and variety and (iv) price. In the markets we serve, we compete with other drugstore chains, supermarkets, discount retailers, independent pharmacies, membership clubs, Internet companies, and retail health clinics, as well as other mail order pharmacies and PBMs.

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Corporate Segment

Our Corporate segment provides management and administrative services to support the overall operations of the Company. The Corporate segment consists of certain aspects of our executive management, corporate relations, legal, compliance, human resources, corporate information technology and finance departments.

Working Capital Practices

We fund the growth of our business through a combination of cash flow from operations, commercial paper, proceeds from sales-lease-back transactions, and long-term borrowings. For additional information on our working capital practices, we refer you to the caption “Liquidity and Capital Resources” in our Annual Report to Stockholders for the year ended December 31, 2011, which section is incorporated by reference herein. The majority of our non-pharmacy revenues are paid in cash, debit or credit cards, while managed care and other third party insurance programs, which typically settle in less than 30 days, represented approximately 99.1% of our consolidated pharmacy revenues, including both Retail Pharmacy and Pharmacy Services combined, in 2011. Our customer returns are not significant.

Associate Development

As of December 31, 2011, we employed approximately 202,000 associates, which included more than 25,000 pharmacists, nurse practitioners and physician assistants. In addition, approximately 78,000 associates were part-time employees who work less than 30 hours per week. To deliver the highest levels of service to our customers, we devote considerable time and attention to our people and service standards. We emphasize attracting and training knowledgeable, friendly and helpful associates to work in our organization.

Intellectual Property

We have registered and/or applied to register a variety of our trademarks and service marks used throughout our business. We regard our intellectual property as having significant value in our Pharmacy Services and Retail Pharmacy segments. We are not aware of any facts that could materially impact our continuing use of any of our intellectual property.

Government Regulation

Overview - As a participant in the health care industry, our retail and pharmacy services businesses are subject to federal and state laws and regulations that govern the purchase, sale and distribution of prescription drugs and related services, including administration and management of prescription drug benefits. Many of our PBM clients, including insurers and managed care organizations (“MCOs”), are themselves subject to extensive regulations that affect the design and implementation of prescription drug benefit plans that they sponsor. The application of these complex legal and regulatory requirements to the detailed operation of our business creates areas of uncertainty. There are numerous proposed health care laws and regulations at the federal and state levels, some of which could adversely affect our business if they are enacted. We are unable to predict what federal or state legislation or regulatory initiatives may be enacted in the future relating to our business or the health care industry in general, or what effect any such legislation or regulations might have on our business. Any failure or alleged failure to comply with applicable laws and regulations, or any adverse applications of, or changes in, the laws and regulations affecting our business, could have a material adverse effect on our operating results and/or financial condition.

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Anti-Remuneration Laws - Federal law prohibits, among other things, an entity from knowingly and willfully offering, paying, soliciting or receiving, subject to certain exceptions and “safe harbors,” any remuneration to induce the referral of individuals or the purchase, lease or order (or the arranging for or recommending of the purchase, lease or order) of items or services for which payment may be made under Medicare, Medicaid or certain other federal health care programs. A number of states have similar laws, some of which are not limited to services paid for with government funds. State laws and exceptions or safe harbors vary and have been infrequently interpreted by courts or regulatory agencies. Sanctions for violating these federal and state anti-remuneration laws may include imprisonment, criminal and civil fines, and exclusion from participation in Medicare, Medicaid and other government-sponsored health care programs. The federal anti-remuneration law has been interpreted broadly by some courts, the Office of Inspector General (the “OIG”) within the United States Department of Health and Human Services (“HHS”) and administrative bodies. A broad interpretation of the federal anti-remuneration law is supported by the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act (collectively, “PPACA”), which codified a reduced standard of “knowingly and willfully” by stating that this standard does not require that a person have actual knowledge of the federal anti-remuneration law or specific intent to violate this law. PPACA also provides that a violation of the federal anti-remuneration law constitutes a false or fraudulent act under the Federal False Claims Act (“FCA”). Because of the federal statute’s broad scope, HHS established certain safe harbor regulations that specify various practices that are protected from criminal or civil liability. Safe harbors exist for certain discounts offered to purchasers, certain personal services arrangements, certain payments made by vendors to group purchasing organizations, in certain cases the provision of electronic prescribing technology to physicians, and certain other transactions and relationships. A practice that does not fall within a safe harbor is not necessarily unlawful but may be subject to challenge by HHS. In addition, as part of PPACA, additional statutory exceptions have been created to permit the provision of certain incentives to federal health care program beneficiaries, including retailer coupons, rebates or other rewards and incentives offered to promote access to care. Also, waivers have been granted by the OIG and CMS to allow Affordable Care Organization (“ACO”) providers to give certain free items and services to beneficiaries that encourage adherence to clinical goals, such as a drug regimen, as long as such items or services do not encourage the beneficiary to seek care from an ACO provider. See Item 3, “Legal Proceedings” for further information.

Antitrust and Unfair Competition - The Federal Trade Commission (“FTC”) has authority under Section 5 of the Federal Trade Commission Act (“FTCA”) to investigate and prosecute practices that are “unfair trade practices” or “unfair methods of competition.” Relief under the FTCA can encompass equitable relief and consumer redress. In addition, numerous lawsuits have been filed throughout the United States against pharmaceutical manufacturers, retail pharmacies and/or PBMs under various state and federal antitrust and unfair competition laws challenging, among other things: (i) brand drug pricing practices of pharmaceutical manufacturers, (ii) the maintenance of retail pharmacy networks by PBMs, and (iii) various other business practices of PBMs and retail pharmacies. To the extent that we appear to have actual or potential market power in a relevant market, our business arrangements and practices may be subject to heightened scrutiny from an anti-competitive perspective and possible challenge by state or federal regulators or private parties. See Item 3, “Legal Proceedings” for further information.

Compliance Programs - PPACA requires that health care providers enrolled in Medicare and Medicaid must establish and maintain compliance programs that satisfy core requirements to be established by the Secretary of HHS in consultation with the OIG. The Secretary of HHS has not yet published information concerning these compliance programs or the timeframe for implementation. In addition, certain state government health care programs have compliance program requirements, and we are subject to various government agreements described under “Government Agreements” below that also contain requirements relating to the maintenance of compliance programs.

Consumer Protection Laws - The federal government and most states have consumer protection laws that have been the basis for investigations, lawsuits and multi-state settlements relating to, among other matters, the marketing of loyalty programs and health care services, and financial incentives provided by drug manufacturers to pharmacies in connection with therapeutic interchange programs. In addition, the FTCA bars unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce. The Federal Postal Service Act generally prohibits the mailing of, and billing for, unordered merchandise. The FTC’s Telemarketing Sales Rule also imposes extensive requirements and restrictions in connection with telemarketing of plans or programs that encourage the purchase of goods or services by consumers. (See the Telemarketing and Other Outbound Contacts section below for further disclosures.)

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Contract Audits - We are subject to audits of many of our contracts, including our PBM client contracts, our PBM rebate contracts, our pharmacy provider agreements and our contracts relating to Medicare Part D. Audits are typically conducted pursuant to certain provisions in our PBM contracts and provider agreements that grant audit rights and set forth applicable audit procedures. Because some of our contracts are with state or federal governments or with entities contracted with state or federal agencies, audits of these agreements are often regulated by the federal or state agencies responsible for administering federal or state benefits programs, including those which operate Medicaid fee for service plans, Managed Medicaid plans, Medicare Part D plans or Medicare Advantage organizations. The audits generally focus on, among other things, compliance with the applicable terms of our contracts and applicable legal requirements.

Disease Management Services Regulation - We provide or arrange for PBM plan members to receive clinical services in the form of disease management programs for common and rare medical conditions. Nurses, pharmacists and other clinicians, as needed, develop and implement these programs. State laws regulate the practice of medicine, the practice of pharmacy and the practice of nursing, and clinicians engaged in a professional practice must satisfy applicable state licensing requirements.

Electronic Prescribing - The federal government has implemented different programs to promote electronic prescribing, including the eRx Incentive Program established under the Medicare Improvements for Patients and Providers Act of 2008, which provides a combination of incentive payments and payment adjustments through 2014 to eligible professionals who are successful electronic prescribers. While this program sunsets after 2014, the American Recovery and Reinvestment Act of 2009 (“ARRA”) established an incentive program for eligible professionals and hospitals participating in the Medicare or Medicaid program that adopt and meaningfully use certified electronic health records (“EHR”) technology beginning in 2011. ARRA also provides for downward payment adjustments beginning in 2015 for eligible professionals in the Medicare program that fail to adopt and meaningfully use certified EHR technology such as electronic prescribing. A final rule implementing the EHR incentive program was issued in July 2010 which requires that at least 40% of permissible prescriptions be sent electronically in order to qualify for the incentive payments. In March 2010, the U.S. Drug Enforcement Administration (“DEA”) issued an interim final rule allowing electronic prescribing of controlled substances beginning June 1, 2010. These changes, together with the requirement for Medicare Part D plans to support electronic prescribing, should result in a growing number of prescribers adopting electronic prescribing.

Environmental Regulation - Our business is subject to various federal, state and local laws, regulations and other requirements pertaining to protection of the environment and public health, including, for example, regulations governing the management of waste materials and waste waters. Governmental agencies on the federal, state and local levels have, in recent years, increasingly focused on the retail sector’s compliance with such laws and regulations, and have at times pursued enforcement activities. There is also an increased interest by regulators in better managing photo processing as well as pharmaceutical and other wastes. Our retail pharmacies have been subject to various state environmental agency enforcement actions, and we periodically receive information requests and notices of potential noncompliance with environmental laws and regulations from governmental agencies.

ERISA Regulation - The Employee Retirement Income Security Act of 1974, as amended (“ERISA”), provides for comprehensive federal regulation of certain employee pension and benefit plans, including private employer and union sponsored health plans and certain other plans that contract with us to provide PBM services. In general, we assist plan sponsors in the administration of the prescription drug portion of their health benefit plans, in accordance with the plan designs adopted by the plan sponsors. We do not believe that the conduct of our business subjects us to the fiduciary obligations of ERISA, except when we have specifically contracted with a plan sponsor to accept limited fiduciary responsibility, such as for the adjudication of initial prescription drug benefit claims and/or the appeals of denied claims under a plan. We and other PBMs have been named in lawsuits alleging that we act as a fiduciary, as such term is defined by ERISA, with respect to health benefit plans and that we have breached certain fiduciary obligations under ERISA.

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ERISA fiduciaries may be held personally liable for entering into service contracts or arrangements, like PBM contracts, on behalf of ERISA plans if the terms of the contract are not reasonable or if the service provider receives more than reasonable compensation for the services provided. In such cases, the service provider may also be required to disgorge any unreasonable compensation received and may be subject to civil penalties imposed by the U.S. Department of Labor (“DOL”).

In addition to its fiduciary provisions, ERISA imposes civil and criminal liability on service providers to health plans and certain other persons if certain forms of illegal remuneration are made or received. These provisions of ERISA are similar, but not identical, to the health care anti-remuneration statutes discussed above, although ERISA lacks the statutory and regulatory “safe harbor” exceptions incorporated into the health care statutes. Similar to these health care statutes, the corresponding provisions of ERISA are broadly written and their application to specific business practices is often uncertain.

Most pension and welfare plans subject to ERISA are required to report to the DOL compensation paid to service providers. In addition, the DOL announced a project in 2009 to promulgate regulations under ERISA that could require service providers, including PBMs, to provide detailed disclosure regarding all direct and indirect compensation to be received in connection with the services provided as well as potential conflicts of interest. The DOL issued supplemental “frequently asked questions” in 2010 that specifically addressed PBM disclosure of certain compensation, including: (i) fees for services, such as dispensing fees and administrative fees, which are reportable as direct compensation, and (ii) discounts and rebates received by PBMs from pharmaceutical companies, which pending further guidance from the DOL generally do not need to be treated as reportable indirect compensation. Further guidance is expected from the DOL, and we cannot be certain of the extent to which possible future disclosure regulations may impact our business.

State laws discussed in this Government Regulation section that may be applicable to us or to plan sponsors that are our customers may be preempted in whole or in part by ERISA. However, the scope of ERISA preemption is uncertain and is subject to conflicting court rulings.

False Claims and Fraudulent Billing Statutes - A range of federal civil and criminal laws target false claims and fraudulent billing activities. One of the most significant of these laws is the FCA, which prohibits the submission of a false claim or the making of a false record or statement in order to secure reimbursement from, or limit reimbursement to, a government-sponsored program. The Fraud Enforcement and Recovery Act of 2009 (“FERA”) implemented substantial changes to the FCA which expand the scope of FCA liability, provide for new investigative tools and make it easier for qui tam relators (often referred to as “whistleblowers”) to bring and maintain FCA suits on behalf of the government. PPACA further eased the burden for whistleblowers to bring and maintain FCA suits by modifying the “public disclosure” and “original source” provisions of the FCA. Some states have passed substantially similar acts. In recent years, federal and state governments have launched several initiatives aimed at uncovering practices that violate false claims or fraudulent billing laws. FERA also expanded the FCA to cover improperly avoiding an obligation to pay money to the government, and PPACA clarified that the retention of overpayments beyond the repayment deadline is a violation of the FCA. In addition, PPACA provides that a violation of the federal anti-remuneration law constitutes a false or fraudulent act under the FCA and expands the jurisdiction of the FCA to the health insurance exchanges to be created under PPACA. PPACA also provides for the imposition of civil monetary penalties for knowingly making or causing to be made any false or fraudulent record or statement material to a false or fraudulent claim for payment under a government-sponsored program, for knowingly failing to report and return an overpayment, and for false statements in provider enrollment applications. The Federal Deficit Reduction Act of 2005 (“DRA”), for example, requires certain entities that receive or make annual Medicaid payments over a certain amount to provide their employees and certain contractors and agents with certain information regarding the federal and state false claims acts, whistleblower protections, and the entity’s processes for detecting and preventing fraud, waste and abuse. Claims under these laws may be brought either by the government or by private individuals on behalf of the government through a qui tam or “whistleblower” action, as discussed in more detail elsewhere in this Government Regulation section. In recent years, federal and state government authorities have launched several initiatives aimed at uncovering practices that violate false claims or fraudulent billing laws, and they have conducted numerous investigations of pharmaceutical manufacturers, PBMs, pharmacies and health care providers with respect to false claims, fraudulent billing and related matters. See Item 3, “Legal Proceedings” for further information.

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FDA Regulation - The United States Food and Drug Administration (“FDA”) generally has authority to regulate drugs, drug classifications and drug promotional information and materials that are disseminated by a drug manufacturer or by other persons on behalf of a drug manufacturer. The FDA also has the regulatory authority over many of the products sold through retail pharmacies, including certain food items, cosmetics, dietary supplements and OTC medications. We previously operated a FDA-regulated repackaging facility where we repackaged certain drugs into the most common prescription quantities dispensed from our mail service pharmacies, but we closed this repackaging facility in April 2010. The FDA also may inspect facilities in connection with procedures implemented to effect recalls of prescription drugs or other FDA-regulated products, as well as procedures to comply with food safety regulations. In addition, the FDA has authority to require the submission and implementation of a risk evaluation and mitigation strategy (“REMS”) if the FDA determines that that a REMS is necessary for the safe and effective marketing of a drug. To the extent we dispense products subject to REMS requirements or provide REMS services to pharmaceutical manufacturers, we are subject to audit by the FDA and the pharmaceutical manufacturer. The FDA also has regulatory authority over medical devices such as OTC genetic tests and genetic tests conducted by medical laboratories, and the FDA continues to evaluate the need for further regulation of such tests.

Federal Employee Health Benefits Program - We have a contractual arrangement with the BlueCross BlueShield Association (“BCBSA”) to provide pharmacy services to federal employees, postal workers, annuitants, and their dependents under the Government-wide Service Benefit Plan, as authorized by the Federal Employees Health Benefits Act (“FEHBA”) and as part of the Federal Employees Health Benefits Program (“FEHBP”). This arrangement subjects us to FEHBA, FEHBA regulations, including the Federal Employees Health Benefits Acquisition Regulation, the Office of Personnel Management guidelines, and certain Federal Acquisition Regulations. These laws, regulations and guidelines govern the process by which the federal government contracts with health insurance carriers, such as BCBSA, that participate in the FEHBP, and obligate such health insurance carriers to impose various contractual requirements on their contract vendors, including, among other things, requirements relating to transparency, performance standards, drug interchanges, patient safety, consumer access, coordination of benefits, pricing adjustments, recordkeeping and audits.

Formulary Regulation - A number of states have begun to regulate the administration of prescription drug benefits. For example, some states have passed laws mandating coverage for off-label uses of drug products where those uses are recognized in peer-reviewed medical journals or reference compendia. Other states have enacted laws that regulate the development and use of formularies by insurers, MCOs and other third party payors. These laws have included requirements on the development, review and update of formularies, the role and composition of pharmacy and therapeutics committees, the disclosure of formulary information to health plan members, and a process for allowing members to obtain non-preferred drugs without additional cost-sharing when they are medically necessary and are determined to be clinically appropriate. Additionally, the National Association of Insurance Commissioners (“NAIC”) has developed a model law, the “Health Carriers Prescription Drug Benefit Management Model Act,” that addresses formulary regulation issues for risk-bearing entities regulated by state insurance commissioners and could form the basis of state legislation. The MMA also regulates how formularies are developed for and administered to beneficiaries of Medicare Part D. In July 2008, Congress enacted the Medicare Improvements for Patients and Providers Act which requires the Secretary for HHS to identify certain classes and categories of drugs for which, subject to certain exceptions, all the drugs in any such class or category must be included in a Medicare Part D plan’s formulary. The increasing government regulation of formularies could significantly affect our ability to develop and administer formularies on behalf of our insurer, MCO and other clients.

Government Agreements - Our PBM business is subject to the terms of a 2008 consent order entered into with a number of states impacting certain of our PBM business practices, including matters relating to our relationships with clients, pharmaceutical manufacturers, retail pharmacies, plan members, prescribers and pharmacists.

In March 2008, the Company entered into a settlement agreement with the federal government and a number of states related to the dispensing of the generic drug ranitidine at its retail pharmacies. At the same time, the Company entered into a corporate integrity agreement with the OIG for a period of five years applicable to certain retail and mail service operations of the Company. This 2008 corporate integrity agreement requires, among other things, maintenance of our compliance program, employee training, specific reviews by an independent review organization and various government reporting obligations. In April 2011, we entered into an amendment of the corporate integrity agreement in connection with the previously announced settlement of a federal and state government investigation of certain retail pharmacy billing practices with respect to “dual eligible” customers having both Medicaid coverage and other third-party insurance coverage. This amendment requires the Company to comply with the corporate integrity agreement, as amended, for a period of three years and further requires, among other things, additional employee training obligations, additional reporting obligations and periodic Medicaid billing reviews by an independent review organization. Failure to meet our obligations under this corporate integrity agreement, as amended, could result in stipulated financial penalties, and failure to comply with material terms could lead to exclusion of our applicable business from participation in federal health care programs.

In January 2009, we entered into separate settlement agreements with the FTC and the HHS Office for Civil Rights (“OCR”) resolving a joint investigation prompted by 2006 media reports of disposal of patient information in dumpsters at a limited number of CVS/pharmacy locations. As part of the FTC settlement, we agreed to maintain appropriate enterprise-wide information security policies and procedures during the twenty-year term of the agreement. The FTC settlement also provides for periodic compliance

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monitoring by an external assessor. As part of the OCR settlement, we agreed to maintain appropriate waste disposal policies and procedures, training and employee sanctions at our retail stores. The OCR settlement has a three-year term and provides for annual compliance monitoring by an external assessor.

In October 2010, the Company entered into a non-prosecution agreement and civil settlement agreement with the U.S. Department of Justice (“DOJ”) and various United States Attorneys’ Offices relating to the sale and distribution of pseudoephedrine products at certain CVS/pharmacy stores, primarily in California and Nevada. The Company also entered into a related memorandum of agreement with the DEA. The non-prosecution agreement and the memorandum of agreement contain certain ongoing compliance requirements for the Company, and failure to comply with the terms of these documents could lead to civil or criminal remedies, financial penalties and/or administrative remedies against the DEA registrations for our retail pharmacies and distribution centers.

In January 2012, the Company announced an agreement with the FTC to enter into a proposed consent order that would prohibit the Company from misrepresenting the prices or costs of Medicare Part D prescription drugs or other prices or costs associated with Medicare Part D prescription drug plans. This proposed consent order has been accepted by the FTC for public comment and remains subject to final approval.

In addition to the government agreements described above, the Company and/or its various affiliates are subject to other consent decrees or settlement agreements with various federal, state and local authorities that may contain certain ongoing reporting, monitoring or other compliance requirements for the Company. These agreements relate to such matters as privacy practices, waste disposal practices, selling expired products, environmental and safety matters, tobacco sales, marketing and advertising practices, pharmacy operations and various other business practices.

Health Reform Legislation - Congress passed major health reform legislation in 2010 known as PPACA. This legislation affects the entire health insurance system and virtually every aspect of health care in the country, although many provisions of PPACA were not effective immediately. Given that many of the regulations implementing PPACA are still being finalized and that ongoing sub-regulatory guidance is still being issued, there is considerable uncertainty as to its full impact. Further, aspects of the legislation are being challenged in lawsuits across the country, and some in Congress are seeking to repeal the law or portions of it. There have already been a number of conflicting court rulings calling into question the constitutionality of all or certain portions of PPACA, and additional judicial review, including review by the United States Supreme Court, is expected. In addition to establishing the framework for every individual to have health coverage beginning in 2014, PPACA enacted a number of significant health care reforms. While these reforms may not affect our business directly, they affect the coverage and plan designs that are or will be provided by many of our health plan clients. As a result, they could indirectly impact many of our services and business practices.

Among the more significant PPACA provisions is the requirement for health insurers to meet a minimum medical loss ratio (“MLR”) to avoid having to pay rebates to enrollees. The MLR requires insurers to break out clinical, quality improvement and administrative costs. HHS issued an interim final regulation on the MLR in December 2010 that includes an example that could be interpreted to suggest that the differential between the drug price charged by PBMs to health plans and the amount reimbursed to retail pharmacies (commonly referred to as “differential” or “spread”) should be excluded from claims costs. Subsequent sub-regulatory guidance remained consistent with this interpretation, although it made clear that clinical services performed by a PBM could be included in claims costs. Health plan clients that are subject to the MLR requirements may request pricing modifications, include requests to contract with our PBM using pass-through retail network pricing.

Another PPACA provision requires PBMs that contract with a Medicare Part D plan or a qualified health plan offered through a health insurance exchange to disclose certain information to HHS, the Medicare Part D plan or the health insurance exchange. Among the information that must be disclosed is the generic dispensing rate for different types of pharmacies, the aggregate amount and types of rebates and other discounts negotiated on behalf of, and passed through to, the plan, and the aggregate amount of any differential. Although some of these items, such as differential, were required to be reported for Part D in 2011 per CMS guidance, the full reporting will be required for Medicare Part D upon the issuance of a final rule implementing the requirements, which is expected in 2012 and for qualified health plans in 2014 upon the implementation of the health insurance exchanges to be established under PPACA. PPACA also increases the obligations of Part D plan sponsors to report rebates and other price concessions from pharmaceutical manufacturers to enable calculation of new annual fees being imposed on pharmaceutical manufacturers related to branded drug sales. PPACA also made significant changes to the Medicare and Medicaid programs, fraud and abuse laws and tax provisions, some of which are discussed elsewhere in this Government Regulation section.

Managed Care Reform - In addition to health reforms enacted by PPACA, proposed legislation has been considered at the state level, and legislation has been enacted in several states, aimed primarily at providing additional rights and access to drugs to individuals enrolled in managed care plans. This legislation may impact the design and implementation of prescription drug benefit plans sponsored by our PBM health plan clients and/or the services we provide to them. Some of these initiatives would, among other things: (i) require that health plan members have greater access to drugs not included on a plan’s formulary; (ii) give health plan members the right to sue their health plans for malpractice if they have been denied care; and/or (iii) mandate the content of the appeals or grievance process when a health plan member is denied coverage. Both the scope of the managed care reform proposals

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considered by state legislatures and reforms enacted by states to date vary greatly, and the scope of future legislation that may be enacted is uncertain.

Medicare Part D - The MMA created Medicare Part D, the Medicare drug benefit program, in January 2006. Medicare beneficiaries entitled to Medicare benefits under Part A or enrolled in Medicare Part B are eligible for drug coverage under Medicare Part D. Regulations implementing Medicare Part D included requirements relating to developing and administering formularies, establishing pharmacy networks, marketing of Medicare Part D plans, processing and adjudicating claims at point of sale and compliance with electronic prescribing standards. The Medicare Part D program has undergone significant legislative and regulatory changes since its inception, including changes made by PPACA. Effective for the 2010 plan year, CMS issued a regulation requiring that any “differential” or “spread” be reported as an administrative cost rather than a drug cost of the plan sponsor for purposes of calculating certain government subsidy payments and the drug price to be charged to enrollees. This change resulted in Medicare Part D plan sponsors contracting for pass-through pricing for their retail networks rather than pricing that included the use of retail network “differential” or “spread”.

PPACA expanded the Medicare Part D benefit effective for the 2011 plan year by implementing the coverage gap discount program under which participating manufacturers fund discounts of 50% on brand drugs obtained during the coverage gap or “donut hole,” and starting the phase-out of the coverage gap for generic drugs, which is to be completed by 2020.

PPACA also requires the Secretary of HHS to develop rules for shorter dispensing periods for enrollees in long-term care facilities in order to reduce waste. Several of the PPACA changes will require significant adjudication and reporting systems modifications. In October 2011, CMS issued a proposed rule on Part D that, among other things, would establish a daily cost sharing rate as a form of drug utilization management and certain fraud, waste and abuse controls. The proposed rule also permits CMS to terminate a Part D sponsor’s contract if it performs poorly against CMS performance criteria, known as “star ratings,” for three consecutive years.

Medicare Part D continues to attract a high degree of legislative and regulatory scrutiny, and the applicable government rules and regulations continue to evolve. Accordingly, it is possible that legislative and regulatory developments could materially affect our Medicare Part D business or profitability.

Mental Health Parity Legislation - The Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008, and its implementing regulations require group health plans that provide both medical/surgical benefits and mental health or substance abuse disorder benefits to ensure that the financial requirements and treatment limitations that apply to the mental health and substance abuse disorder benefits are no more restrictive than those that apply to the medical/surgical benefits. While the implementing regulations contain a special rule allowing for “multi-tiered prescription drug benefits” that meet certain conditions, there is considerable uncertainty regarding the application of this rule. This has caused some group health plans to consider dropping mental health benefits, including drugs that treat these conditions, to avoid being found in violation of the regulation.

Network Access Legislation - A majority of states now have some form of legislation affecting the ability to limit access to a pharmacy provider network or remove network providers. Certain “any willing provider” legislation may require us or our clients to admit a non-participating pharmacy if such pharmacy is willing and able to meet the plan’s price and other applicable terms and conditions for network participation. These laws vary significantly from state to state in regard to scope, requirements and application. ERISA plans and payors have challenged the application of such laws on the basis of ERISA preemption. However, the scope of ERISA preemption is uncertain and is subject to conflicting court rulings. In addition, the MMA contains an “any willing provider” requirement for pharmacy participation in Medicare Part D, and CMS has interpreted this as requiring that a Medicare Part D sponsor, for each type of pharmacy in its network, allow participation by any pharmacy that meets the applicable terms and conditions for participation. To the extent any state or federal any willing provider laws are determined to apply to us or to certain of our clients or to the pharmacy networks we manage for our PBM clients, such laws could negatively impact the services and economic benefits achievable through a limited pharmacy provider network.

Some states also have enacted “due process” legislation that may (i) prohibit the removal of a provider from a pharmacy network and/or (ii) impact how we conduct audits of network pharmacies and recover audit discrepancies, except in compliance with certain procedures. Other state legislation prohibits days’ supply limitations or co-payment or other pricing differentials between mail service and retail pharmacy providers. In addition, under Medicare Part D, CMS requires that if a Part D sponsor offers a 90-day supply at mail, it must allow retail network pharmacies to also offer a 90-day supply on the same terms.

PBM Laws and Regulation - Legislation seeking to regulate PBM activities in a comprehensive manner has been introduced or enacted in a number of states. This legislation varies in scope and often contains provisions that: (i) impose certain fiduciary duties upon PBMs to clients and plan members; (ii) require PBMs to disclose and/or remit to clients or their plan members certain rebates, discounts and other amounts received by PBMs related to the sale of drugs; (iii) regulate product substitution and intervention; (iv) impose broad disclosure obligations upon PBMs to clients and their plan members and/or (v) impose licensing or registration requirements. To the extent states or other government entities enact legislation regulating PBMs that survive legal challenges to their

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enforceability, such legislation could adversely impact our ability to conduct business on commercially reasonable terms in locations where the legislation is in effect.

In addition, certain quasi-regulatory organizations, including the National Association of Boards of Pharmacy and the NAIC have issued model regulations or may propose future regulations concerning PBMs and/or PBM activities. Similarly, credentialing organizations such as the National Committee for Quality Assurance and the Utilization Review Accreditation Commission (“URAC”) may establish voluntary standards regarding PBM or specialty pharmacy activities. For example, URAC has issued PBM accreditation standards for PBMs serving the commercially insured market, and Caremark is currently accredited as a PBM by URAC. While the actions of these quasi-regulatory or standard-setting organizations do not have the force of law, they may influence states to adopt their requirements or recommendations and influence client requirements for PBM or specialty pharmacy services. Moreover, any standards established by these organizations could also impact our health plan clients and/or the services we provide to them.

In addition to state statutes and regulations, we are also subject to state common laws to the extent applied to PBMs through judicial interpretation or otherwise. Potential common law claims could involve, for example, breach of fiduciary duty, constructive fraud, fraud or unjust enrichment.

Pharmacy and Professional Licensure and Regulation - We are subject to state and federal statutes and regulations governing the operation of retail and mail pharmacies, repackaging of drug products, wholesale distribution, dispensing of controlled substance and listed chemical products, and medical and controlled substance waste disposal. Federal and state statutes and regulations govern the labeling, packaging, advertising and adulteration of prescription drugs and the dispensing of controlled substances, and some state regulations require compliance with standards established by the United States Pharmacopeia with respect to the packaging, storing and shipping of pharmaceuticals. Federal and state controlled substance laws require us to register our pharmacies and distribution centers with the DEA and state controlled substances agencies and to comply with security, recordkeeping, inventory control, personnel and labeling standards in order to possess and dispense controlled substances and listed chemical products.

We also are subject to regulation by the DEA and state pharmacy boards in connection with our online pharmacies because we dispense prescription drugs pursuant to refill orders received through our Internet websites, among other methods. Numerous state laws also exist affecting our receipt and processing of electronic prescription drug orders.

Certain violations of the federal controlled substances laws can subject the Company, its pharmacies and distribution centers, and individual pharmacy personnel to criminal and civil penalties and can also result in administrative action by the DEA, including suspension or revocation of a pharmacy’s or distribution center’s registration to distribute controlled substances and/or listed chemical products. State authorities and state boards of pharmacy similarly have the authority to impose both monetary penalties and disciplinary sanctions, including revocation of a pharmacy’s or individual pharmacist’s license to dispense controlled substances, and these penalties and sanctions are in addition to sanctions imposed under the federal controlled substances laws. Certain violations of these federal and state legal requirements can also trigger other consequences for the Company’s business and could potentially impact our eligibility to participate in federal health care programs.

Other statutes and regulations may affect our mail service operations. For example, the FTC requires mail service sellers of goods generally to engage in truthful advertising, to stock a reasonable supply of the products to be sold, to fill mail service orders within thirty days and to provide clients with refunds when appropriate. In addition, the United States Postal Service and the Department of Transportation each has regulatory authority to restrict the transmission of drugs and medicines through the mail or in commerce, and state licensing authorities may restrict the types of personnel who may work in mail service operations.

Our pharmacists, technicians and certain other health care professionals are subject to state regulation of their profession, and our employees who are engaged in a professional practice must satisfy applicable state licensing or registration requirements and comply with applicable professional standards. In addition, they must comply with any applicable federal or state requirements for participation in government-sponsored health care programs. Failure to comply with these requirements could subject us and our employees to disciplinary action, including fines, penalties or sanctions, could impact our ability to obtain or retain reimbursement for services provided to participants of government-sponsored health care programs and/or could cause our licenses and permits and our employees’ licenses to be suspended or revoked.

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Plan Design Legislation - Some states have enacted legislation that prohibits a health plan sponsor from implementing certain restrictive design features, and many states have introduced legislation to regulate various aspects of managed care plans, including provisions relating to pharmacy benefits. For example, some states have adopted “freedom of choice” legislation, which provides that: (i) members of a plan may not be required to use network providers but must instead be provided with benefits even if they choose to use non-network providers or (ii) a plan member may sue his or her health plan if care is denied. Various states have enacted, or have considered enacting, legislation regarding plan design mandates, including legislation that prohibits or restricts therapeutic interchange, requires coverage of all drugs approved by the FDA or prohibits denial of coverage for non-FDA approved uses. Some states mandate coverage of certain benefits or conditions, and PPACA requires the coverage of certain preventive services at no cost sharing. Such legislation does not generally apply to us, but it may apply to certain of our clients (generally, MCOs and health insurers). Other states have enacted legislation purporting to prohibit health plans not covered by ERISA from requiring or offering members financial incentives for use of mail service pharmacies or for use of certain health care providers. Legislation imposing plan design mandates may apply to certain of our clients and could have the effect of limiting the economic benefits achievable through PBM services we provide.

Privacy and Confidentiality Requirements - Many of our activities involve the receipt, use and disclosure by us of personally identifiable information (“PII”) as permitted in accordance with applicable federal and state privacy and data security laws, which require organizations to provide appropriate privacy protections and security safeguards for such information. In addition to PII, we use and disclose de-identified data for analytical and other purposes.

The federal Health Insurance Portability and Accountability Act of 1996 and the regulations issued thereunder (collectively “HIPAA”) impose extensive requirements on the way in which health plans, health care providers, health care clearinghouses (known as “covered entities”) and their business associates use, disclose and safeguard protected health information (“PHI”). HIPAA also gives individuals certain rights with respect to their PHI. For most uses and disclosures of PHI other than for treatment, payment, health care operations or certain public policy purposes, HIPAA generally requires that covered entities obtain the individual’s written authorization, Criminal penalties and civil sanctions may be imposed for failing to comply with HIPAA standards.

During 2011, OCR continued to promulgate new and updated non-final regulations in response to the 2010 Health Information Technology for Economic and Clinical Health Act (the “HITECH Act”), as part of ARRA, which contained significant legislative changes to the HIPAA privacy and security rules. These changes included restrictions on the use of PHI without an individual’s written authorization, a requirement to account for routine disclosures of PHI held in an electronic health record, a requirement to notify individuals of breaches to their PHI, enforcement rights of state attorneys general, extension of the federal privacy and security law provisions and penalties to business associates of covered entities, and increased penalties for violation of the law. While some of the provisions of the HITECH Act are already in effect, final regulations regarding the HIPAA privacy, security, enforcement and data breach rules are yet to be issued. In May 2011, HHS published a Notice of Proposed Rulemaking (“NPRM”) to address changes to the requirements surrounding the accounting of disclosures that included a new requirement that a HIPAA-covered entity report to an individual all internal uses and disclosures of electronic PHI. If HHS adopts the NPRM as currently written, it could generate substantial burdens and costs for the Company and our business associates to implement fully. Nevertheless, since the rules implementing this proposal and much of the HITECH Act have not yet been finalized, we cannot at this time determine the extent to which these changes may apply to, or impact, our business.

In addition to HIPAA, most states have enacted health care information confidentiality laws which limit the disclosure of confidential medical information. These state laws supersede HIPAA to the extent they are more protective of individual privacy than is HIPAA. Most states have also enacted legislation and regulations governing the security of PII and specifying notification requirements for any security breaches involving PII.

In addition to HIPAA and HITECH, the Genetic Information Nondiscrimination Act (“GINA”) was signed into law in May 2008, and proposed and interim final regulations were issued under it in 2009 and 2010. GINA prohibits discrimination based on genetic information in health coverage (Title I) and employment (Title II). Under GINA, health plans are not permitted to use or disclose genetic information for underwriting purposes, which includes eligibility determinations. They also may not collect genetic information, such as by requiring genetic testing, except in very limited circumstances.

Reimbursement - A significant portion of our net revenue is derived directly from Medicare, Medicaid and other government-sponsored health care programs, and we are therefore subject to, among other laws and regulations, federal and state reimbursement laws and regulatory requirements, anti-remuneration laws, the Stark Law and/or federal and state false claims laws. Sanctions for violating these federal and/or state laws may include, without limitation, recoupment or reduction of government reimbursement amounts, criminal and civil penalties and exclusion from participation in Medicare, Medicaid and other government health care programs. Also, we provide products and services to managed care entities that provide services to beneficiaries of Medicare, Medicaid and other government-sponsored health care programs, as well as employers and other entities that qualify for the Medicare Part D drug subsidy and/or the early retiree reinsurance program created under PPACA. Some of these federal and state laws and regulations impose requirements on our PBM and our retail pharmacies to coordinate benefits among private health plans and

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government-sponsored health care programs when a customer or plan member has benefits coverage through more than one insurance company or other payor. In addition, our PBM has contractual agreements to process, on behalf of PBM clients, reimbursement claims submitted by or on behalf of federal and state government agencies following payment by the government agencies of claims that should have been submitted by members to private health plans as the primary source of benefits coverage. These claims are commonly known as “pay and chase” claims, and we and our PBM clients are subject to federal and state laws and regulations impacting how these claims are processed and reimbursed. See Item 3, “Legal Proceedings,” for further information.

The federal government and numerous state governments have given increased attention to how pharmaceutical manufacturers develop and report pricing information, which, in turn, is used in setting payments under the Medicare and Medicaid programs. One element common to most payment formulas, Average Wholesale Price (“AWP”), has come under criticism for allegedly inaccurately reflecting prices actually charged and paid at the wholesale level. The calculation and reporting of AWP have been the subject of investigations by federal and state governments and litigation brought against pharmaceutical manufacturers and data services that report AWP. We are not responsible for calculations, reports or payments of AWP; however, such investigations or lawsuits could impact our business because many of our client contracts, pharmaceutical purchase agreements, retail network contracts and other agreements use AWP as a pricing benchmark. In conjunction with a class action settlement implemented in September 2009 involving First DataBank (“FDB”) and Medi-Span, two entities that publish the AWP of pharmaceuticals, the methodology used to calculate AWP was modified in a manner that reduced AWP for many brand drugs and some generic drugs. We have reached understandings with most of our PBM clients and other third party payors to adjust reimbursements to account for this change in methodology, but most state Medicaid programs that utilize AWP as a pricing reference have not taken action to make similar adjustments. As a result, we have experienced reduced Medicaid reimbursement for certain products since the settlement was implemented. In addition, FDB discontinued the publishing of AWP in September 2011. Although Medi-Span continues to publish AWP, it is possible that the pharmaceutical industry may evaluate and/or develop an alternative pricing reference to replace AWP. We will continue to work with our PBM clients and other payors to anticipate and mitigate the impact of possible future changes to applicable references for pricing pharmaceuticals. AWP has already been replaced by Average Sales Price (“ASP”) as the basis for reimbursing physicians, and sometimes pharmacies, for outpatient prescription drugs under Medicare Part B. The federal Medicaid rebate program requires participating drug manufacturers to provide rebates on all drugs purchased by state Medicaid programs. Investigations have commenced by certain governmental entities that question whether the best price available to essentially any client other than the Medicaid program, or “best price,” was properly calculated, reported and paid by the manufacturers to the Medicaid programs. We are not responsible for calculations, reports or payments of “best price”; however, these investigations could impact our ability to negotiate rebates from drug manufacturers. PPACA increased the amount of rebates required to be paid by manufacturers under the Medicaid program and also imposes certain annual fees on pharmaceutical manufacturers. We do not anticipate the increased Medicaid rebate levels or the annual fees to impact the discounts we obtain from pharmaceutical companies.

PPACA made several other significant changes to the Medicaid rebates and to reimbursement. One of these was to revise the definition of Average Manufacturer Price (“AMP”) and the reimbursement formula for multi-source (i.e., generic) drugs, which is based on Federal Upper Limits (“FUL”) established by CMS. On January 27, 2012, CMS released a proposed rule to interpret and implement these changes. CMS is proposing to set the FUL for multi-source drug reimbursement at 175% of AMP. The FUL would be established for each multi-source drug for which the FDA has rated three or more products therapeutically and pharmaceutically equivalent and would be based on the weighted average of the most recently reported monthly AMPs for such products. Among other things, the proposed CMS rule also proposes changes to Medicaid drug reimbursement payment methodologies and to Medicaid best price regulations. It is uncertain as to what extent these proposed changes may impact Medicaid reimbursement rates. CMS is seeking comments on the proposed rule through April 2, 2012, and has stated that it intends to issue a final rule in 2013. Because of the proposed status of the rule, we cannot yet predict the impact of the proposed rule on the Company. CMS has also issued a “Draft Affordable Care Act FUL Methodology and Data Elements Guide” together with draft files of FULs. CMS is seeking comment prior to publishing the final FULs. The final FULs will take effect without regard to whether or not final regulations have been promulgated. CMS has not provided guidance on when the final FULs will be published.

Certain state Medicaid programs only allow for reimbursement to pharmacies residing in the state or in a border state. While we believe that we can service our current Medicaid customers through our existing pharmacies, there can be no assurance that additional states will not enact in-state dispensing requirements for their Medicaid programs. Some states have adopted legislation and regulations requiring that a pharmacy participating in the state Medicaid program give the state the “best price” that the pharmacy makes available to any third party payor, and some states have enacted legislation and regulations impacting the definition of a pharmacy’s “usual and customary” price (U&C), including whether pricing offered by pharmacies pursuant to discount card or similar programs should be considered in determining U&C. These requirements are sometimes referred to as “most favored nation pricing” payment systems. Other states have enacted “unitary pricing” legislation, which mandates that all wholesale purchasers of drugs within the state be given access to the same discounts and incentives. A number of states have also recently introduced legislation seeking to control drug prices through various statutory limits, rebates or discounts extending to one or more categories of the state’s population.

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Changes in reporting of AWP, AMP, ASP or other adjustments that may be made regarding the reimbursement of drug payments by Medicaid and Medicare, could impact our pricing to customers and other payors and/or could impact our ability to negotiate discounts or rebates with manufacturers, wholesalers, PBMs or retail and mail pharmacies. In some circumstances, such changes could also impact the reimbursement that we receive from Medicare or Medicaid programs for drugs covered by such programs and from MCOs that contract with government health programs to provide prescription drug benefits.

Reimportation - The MMA amended the Food, Drug and Cosmetic Act by providing that the FDA should promulgate rules that would permit pharmacists and wholesalers to import prescription drugs from Canada into the United States under certain circumstances. However, the promulgation of such rules is subject to a precondition that the FDA certify to Congress that such reimportation would not pose any additional risk to the public’s health and safety and that it would result in a significant cost reduction. To date, the FDA has not provided such a certification. Under certain defined circumstances, the FDA has used its discretion to permit individuals and their physicians to bring into the U.S. small quantities of drugs for treatment of a patient’s serious condition for which effective treatment is not available in the U.S. Congress then expanded this personal use policy in very specific circumstances to allow individuals to personally transport from Canada for their personal use a 90-day supply of any prescription drug, regardless of availability in the U.S. The language does not allow purchases by mail order or via the Internet, and excludes biologics and controlled substances. The FDA continues to strongly oppose efforts to allow the widespread importation of drugs from Canada and elsewhere, citing concerns that such activities undermine the FDA’s ability to oversee the quality and safety of the nation’s drug supply. If the FDA changes its position and permits the broader importation of drugs from Canada in the future, or if new or pending health legislation or regulations permit the importation of drugs from the European Union or other countries in the future, our pharmacy services could be impacted.

Retail Clinics - States also regulate retail clinics operated by nurse practitioners or physician assistants through physician oversight, lab licensing and the prohibition of the corporate practice of medicine. A number of states have implemented or proposed laws or regulations that impact certain components of retail clinic operations such as physician oversight, signage, third party contracting requirements, bathroom facilities, and scope of services. These laws and regulations may affect the operation and expansion of our owned and managed retail clinics.

Retiree Drug Subsidy - The MMA created a drug subsidy program available to certain employer, union and other group plans that provides retiree coverage to Medicare Part D eligible individuals that is at least equivalent to Medicare Part D coverage. The subsidy is equal to 28% of drug costs, and is currently tax-free. However, for plan years beginning in 2013, PPACA eliminates the tax deductibility of the retiree drug subsidy payment received by sponsors of retiree drug plans. This may cause some employers to transition their retirees to employer-sponsored Medicare Part D plans. As part of PPACA, Congress established a new temporary early retiree reinsurance program providing reimbursement to employer and union sponsors of participating employment-based plans for a portion of the cost of health benefits for early retirees aged 55 to 64 and their spouses, surviving spouses, and dependents. The program reimburses sponsors for certain claims between $15,000 and $90,000. Congress appropriated funding of $5 billion for this temporary program, which became effective June 1, 2010. The program ends when the funding is exhausted, but no later than January 1, 2014.

Safety Regulation - The Occupational Safety and Health Act of 1970, as amended (“OSHA”), establishes certain employer responsibilities, including maintenance of a workplace free of recognized hazards likely to cause death or serious injury, compliance with standards promulgated under OSHA, and various record keeping, reporting and procedural requirements. Many of these OSHA standards, as well as various state and local laws and regulations pertaining to employee safety and health, apply to our operations. Any failure to comply with these regulations could result in fines or other sanctions by government authorities.

Self-Referral Laws - The federal law commonly known as the “Stark Law” prohibits a physician from referring Medicare or Medicaid beneficiaries for “designated health services” (which include, among other things, outpatient prescription drugs, home health services and durable medical equipment and supplies) to an entity with which the physician or an immediate family member of the physician has a “financial relationship” and prohibits the entity receiving a prohibited referral from presenting a claim to Medicare or Medicaid for the designated health service furnished under the prohibited referral. Possible penalties for violation of the Stark Law include denial of payment, refund of amounts collected in violation of the statute, civil monetary penalties and Medicare and Medicaid program exclusion. The Stark Law contains certain statutory and regulatory exceptions for physician referrals and physician financial relationships, including certain physician consulting arrangements, fair market value purchases by physicians and the provision of electronic prescribing technology to physicians.

State statutes and regulations also prohibit payments for the referral of individuals by physicians to health care providers with whom the physicians have a financial relationship. Some of these state statutes and regulations apply to services reimbursed by governmental as well as private payors. Violation of these laws may result in prohibition of payment for services rendered, loss of pharmacy or health care provider licenses, fines and criminal penalties. The laws and exceptions or safe harbors may vary from the federal Stark Law and vary significantly from state to state. The laws are often vague, and, in many cases, have not been interpreted by courts or regulatory agencies.

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State Insurance Laws - Fee-for-service PDPs and our PBM service contracts, including those in which we assume certain risk under performance guarantees or similar arrangements, are generally not subject to insurance regulation by the states. However, if a PBM offers to provide prescription drug coverage on a capitated basis or otherwise accepts material financial risk in providing pharmacy benefits, laws and regulations in various states may be applicable. Such laws may require that the party at risk become licensed as an insurer, establish reserves or otherwise demonstrate financial viability. Laws that may apply in such cases include insurance laws and laws governing MCOs and limited prepaid health service plans.

During 2011, the Company offered PDPs through its SilverScript and Accendo insurance subsidiaries and through Pennsylvania Life, the insurance subsidiary acquired as part of the UAM Medicare Part D Business in April 2011. These insurance subsidiaries each must be licensed as a risk-bearing entity under applicable state laws or they must have obtained a waiver of the licensing requirement from CMS. Each of these subsidiaries is licensed in all states in which they offer PDPs and do not operate under any Medicare Part D waivers. As licensed insurance companies, they are subject to various state insurance regulations that generally require, among other things, maintenance of capital and surplus requirements, review of certain material transactions and the filing of various financial, licensing and operational reports. Pursuant to the MMA, state insurance licensing, insurance agent/broker licensure and solvency laws and regulations are generally applicable to PDPs, but the application of other state laws to Medicare Part D is generally preempted by Medicare Part D to the extent that Medicare Part D regulates the issue.

Some states have laws that prohibit submitting a false claim or making a false record or statement in order to secure reimbursement from an insurance company. These state laws vary, and violation of them may lead to the imposition of civil or criminal penalties. Additionally, several states have passed legislation governing the prompt payment of claims that requires, among other things, that health plans and payors pay claims within certain prescribed time periods or pay specified interest penalties. These laws vary from state to state in regard to scope, requirements and application, and it is not clear the extent to which they may apply to our clients or to us. Certain health plans and payors may be exempt from such laws on the basis of ERISA preemption, but the scope of ERISA preemption is unclear.

State Prescription Drug Assistance Programs - Many states have established or modified their drug assistance programs for the elderly so that they constitute qualified state pharmacy assistance programs (“SPAPs”) that supplement Medicare Part D. Payments by qualified SPAPs on behalf of a Medicare Part D enrollee are treated under Medicare Part D as if they were made by the enrollees themselves, thereby counting towards the enrollees’ true out-of-pocket costs and helping them qualify for catastrophic coverage sooner. Medicare Part D plans are required to coordinate benefits with SPAPs, including allowing SPAPs to subsidize the Medicare Part D premiums of their members and/or their Medicare Part D cost sharing. Some qualified SPAPs with state authorization have also received permission from CMS to enroll members who do not choose their own Medicare Part D plans into PDPs.

Telemarketing and Other Outbound Contacts - Certain federal and state laws give the FTC, Federal Communications Commission and state attorneys general law enforcement tools to regulate telemarketing practices and certain automated outbound contacts such as phone calls, texts or emails. These laws may, among other things, impose registration requirements, require disclosures of specific information, prohibit misrepresentations, limit when, where and how consumers may be contacted, require consumer consent prior to being contacted, require transmission of Caller ID information, prohibit certain abandoned outbound calls, prohibit unauthorized billing, set payment restrictions for the sale of certain goods and services, require the establishment of certain policies and training of personnel and require the retention of specific business records.

Third Party Administration and Other State Licensure Laws - Many states have licensure or registration laws governing certain types of administrative organizations, such as preferred provider organizations, third party administrators and companies that provide utilization review services. Several states also have licensure or registration laws governing the organizations that provide or administer consumer card programs (also known as cash card or discount card programs). The scope of these laws differs significantly from state to state, and the application of such laws to our activities often is unclear.

Whistleblower Statutes - Certain federal and state laws, including the FCA, contain provisions permitting the filing of qui tam or “whistleblower” lawsuits alleging violations of such laws. Whistleblower provisions allow private individuals to bring lawsuits on behalf of the federal or state government alleging that the defendant has defrauded the government, and there is generally no minimum evidentiary or legal threshold required for bringing such a lawsuit. These lawsuits are typically filed under seal with the applicable federal or state enforcement authority, and such authority is required to review the allegations made and to determine whether it will intervene in the lawsuit and take the lead in the litigation. If the government intervenes in the lawsuit and prevails, the whistleblower plaintiff filing the initial complaint may share in any settlement or judgment. If the government does not intervene in the lawsuit, the whistleblower plaintiff may pursue the action independently. Because a qui tam lawsuit typically is filed under seal pending a government review of the allegations, the defendant generally may not be aware of the lawsuit until the government determines whether or not it will intervene or until the lawsuit is otherwise unsealed, a process which may take years. See Item 3, “Legal Proceedings,” for further information.

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We believe that we are in material compliance with existing laws and regulations applicable to our retail and PBM businesses. We have implemented standard operating procedures, internal controls and a compliance and integrity program designed to help ensure such compliance, and we monitor legislative and judicial developments that could impact our business practices in an effort to ensure future compliance.

We can give no assurance, however, that our business, financial condition and results of operations will not be materially adversely affected, or that we will not be required to materially change our business practices, based on: (i) future enactment of new health care or other laws or regulations; (ii) the interpretation or application of existing laws or regulations, including the laws and regulations described in this Government Regulation section, as they may relate to our business, the pharmacy services, retail pharmacy or retail clinic industry or to the health care industry generally; (iii) pending or future federal or state governmental investigations of our business or the pharmacy services, retail pharmacy or retail clinic industry or of the health care industry generally; (iv) institution of government enforcement actions against us; (v) adverse developments in any pending qui tam lawsuit against us, whether sealed or unsealed, or in any future qui tam lawsuit that may be filed against us; or (vi) adverse developments in other pending or future legal proceedings against us or affecting the pharmacy services, retail pharmacy or retail clinic industry or the health care industry generally.

Available Information

CVS Caremark Corporation is a Delaware corporation. Our corporate office is located at One CVS Drive, Woonsocket, Rhode Island 02895, telephone (401) 765-1500. Our common stock is listed on the New York Stock Exchange under the trading symbol “CVS.” General information about CVS Caremark is available through the Company’s Web site at http://info.cvscaremark.com. Our financial press releases and filings with the Securities and Exchange Commission are available free of charge within the Investors section of our Web site at http://www.cvscaremark.com/investors. In addition, the SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers, such as the Company, that file electronically with the SEC. The address of that Web site is http://www.sec.gov.

Item 1A. Risk Factors

Our business is subject to various industry, economic, regulatory and other risks and uncertainties. Our business, financial position and results of operations could be materially adversely affected by any one or more of the following risk factors and by additional risks and uncertainties not presently known to us or that we currently deem to be immaterial:

The health of the economy in general and in the markets we serve.

Our business is affected by the economy in general, including changes in consumer purchasing power, preferences and/or spending patterns. These changes could affect drug utilization trends as well as the financial health and number of covered lives of our PBM clients, resulting in an adverse effect on our business and financial results.

In that regard, the economic recession resulted in declining drug utilization trends which continued in 2011. Although a recovery might be underway, it is possible that a worsening of the economic environment will cause further decline in drug utilization, and dampen demand for pharmacy benefit management services as well as consumer demand for products sold in our retail stores. Further, interest rate fluctuations, changes in capital market conditions and regulatory changes may affect our ability to obtain necessary financing on acceptable terms, our ability to secure suitable store locations under acceptable terms and our ability to execute sale-leaseback transactions under acceptable terms.

Efforts to reduce reimbursement levels and alter health care financing practices.

The continued efforts of health maintenance organizations, managed care organizations, PBM companies, government entities, and other third party payors to reduce prescription drug costs and pharmacy reimbursement rates may impact our profitability. In particular, increased utilization of generic pharmaceuticals (which normally yield a higher gross profit rate than equivalent brand named drugs), has resulted in pressure to decrease reimbursement payments to retail and mail order pharmacies for generic drugs, causing a reduction in the generic profit rate. Historically, the effect of this trend on generic profitability has been mitigated by the Company’s efforts to negotiate reduced acquisition costs of generic pharmaceuticals with manufacturers. However, in recent years, there has been significant consolidation within the generic manufacturer industry, and it is possible that this dynamic may enhance the ability of manufacturers to sustain or increase pricing of generic pharmaceuticals and diminish the ability of the Company to negotiate reduced acquisition costs.

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In addition, during the past several years, the U.S. health care industry has been subject to an increase in governmental regulation at both the federal and state levels. Efforts to control health care costs, including prescription drug costs, are underway at the federal and state government levels. Changing political, economic and regulatory influences may significantly affect health care financing and reimbursement practices.

PPACA made several significant changes to Medicaid rebates and to reimbursement. One of these changes was to revise the definition of AMP and the reimbursement formula for multi-source (i.e., generic) drugs. CMS has recently issued a proposed rule to interpret and implement these changes, and the proposed rule also proposes changes to Medicaid drug reimbursement payment methodologies and to Medicaid best price regulations. CMS is seeking comments on the proposed rule through April 2, 2012, and has stated that it intends to issue a final rule in 2013. Because of the proposed status of the rule, we cannot yet predict its impact on the Company. In addition, PPACA made other changes that affect the coverage and plan designs that are or will be provided by many of our health plan clients, including the requirement for health insurers to meet a minimum MLR to avoid having to pay rebates to enrollees. These PPACA changes may not affect our business directly, but they could indirectly impact our services and/or business practices.

The possibility of PBM client loss and/or the failure to win new PBM business.

Our PBM business generates net revenues primarily by contracting with clients to provide prescription drugs and related health care services to plan members. PBM client contracts often have terms of approximately three years in duration, so approximately one third of a PBM’s client base typically is subject to renewal each year. In some cases, however, PBM clients may negotiate a shorter or longer contract term or may require early or periodic renegotiation of pricing prior to expiration of a contract. Therefore, we face challenges in competing for new PBM business and retaining or renewing PBM business. None of our PBM clients represented more than 10% of our Company’s consolidated revenues in 2011. There can be no assurance that we will be able to win new business or secure renewal business on terms as favorable to the Company as the present terms.

Risks related to the frequency and rate of the introduction of generic drugs and brand name prescription products.

The profitability of retail and mail order pharmacy businesses are dependent upon the utilization of prescription drug products. Utilization trends are affected by, among other factors, the introduction of new and successful prescription pharmaceuticals as well as lower priced generic alternatives to existing brand name products. Accordingly, our business could be impacted by a slowdown in the introduction of new and successful prescription pharmaceuticals and/or generic alternatives (the sale of which normally yield higher gross profit margins than brand name equivalents).

Risks of declining gross margins in the PBM industry.

The PBM industry has been experiencing margin pressure as a result of competitive pressures and increased client demands for lower prices, enhanced service offerings and/or higher service levels. In that regard, our Company maintains contractual relationships with generic pharmaceutical manufacturers and brand name pharmaceutical manufacturers that provide for purchase discounts and/or rebates on drugs dispensed by pharmacies in our retail network and by our mail order pharmacies (all or a portion of which may be passed on to clients). Manufacturer rebates often depend on a PBM’s ability to meet contractual market share or other requirements, including in some cases the placement of a manufacturer’s products on the PBM’s formularies. Competitive pressures in the PBM industry have caused Caremark and other PBMs to share with clients a larger portion of rebates and/or discounts received from pharmaceutical manufacturers. In addition, market dynamics and regulatory changes have impacted our ability to offer plan sponsors pricing that includes the use of retail “differential” or “spread”, which could negatively impact our future profitability. Further, changes in existing federal or state laws or regulations or the adoption of new laws or regulations relating to patent term extensions, purchase discount and rebate arrangements with pharmaceutical manufacturers, or to formulary management or other PBM services could also reduce the discounts or rebates we receive.

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Regulatory and business changes relating to our participation in Medicare Part D.

Since its inception in 2006, Medicare Part D has resulted in increased utilization and decreased pharmacy gross margin rates as higher margin business, such as cash and state Medicaid customers, migrated to Medicare Part D coverage. Further, as a result of Medicare Part D and as a result of the expected elimination in 2013 of the tax deductibility of the retiree drug subsidy payment received by sponsors of retiree drug plans, our PBM clients could decide to discontinue providing prescription drug benefits to their Medicare-eligible members. To the extent this occurs, the adverse effects of increasing customer migration into Medicare Part D may outweigh the benefits we realize from growth of our Medicare Part D business. In addition, if the cost and complexity of Medicare Part D exceed management’s expectations or prevent effective program implementation or administration; if changes to the regulations regarding how drug costs are reported for Medicare Part D and retiree drug subsidy purposes are implemented in a manner that impacts the profitability of our Medicare Part D business; if the government alters Medicare program requirements or reduces funding because of the higher-than-anticipated cost to taxpayers of Medicare Part D or for other reasons; if we fail to design and maintain programs that are attractive to Medicare participants; if CMS imposes sanctions or other restrictions on our Medicare Part D business as a result of audits or other regulatory actions; if we fail to effectively integrate and operate the Medicare Part D businesses we have acquired; or if we are not successful in retaining enrollees, or winning contract renewals or new contracts under Medicare Part D’s competitive bidding process, our Medicare Part D services and the ability to expand our Medicare Part D services could be impacted.

Possible changes in industry pricing benchmarks.

Implementation of the FDB and Medi-Span settlements, described in the Government Regulation section, have resulted in changes in the methodology used to calculate AWP, which is the pricing reference used for many of our PBM client contracts, pharmaceutical purchase agreements, retail network contracts, specialty payor agreements and other contracts with third party payors. Following these settlements, FDB discontinued the publishing of AWP in September 2011. Although Medi-Span continues to publish AWP, it is possible that the pharmaceutical industry may evaluate and/or develop an alternative pricing reference to replace AWP. Future changes to the use of AWP or to other published pricing benchmarks used to establish pharmaceutical pricing, including changes in the basis for calculating reimbursement by federal and state health programs and/or other payors, could impact the reimbursement we receive from Medicare and Medicaid programs, the reimbursement we receive from PBM clients and other payors and/or our ability to negotiate rebates and/or discounts with pharmaceutical manufacturers, wholesalers, PBMs and retail pharmacies. The effect of these possible changes on our business cannot be predicted at this time.

An extremely competitive business environment.

Each of the retail pharmacy business and the PBM business currently operates in a highly competitive and evolving health care environment. Our competitive success is impacted by the ability of our retail pharmacy business to establish and maintain contractual relationships with PBMs and other payors on acceptable terms and by the ability of our PBM business to establish and maintain contractual relationships with network pharmacies on acceptable terms.

As a pharmacy retailer, we compete with other drugstore chains, supermarkets, discount retailers, independent pharmacies, membership clubs, Internet companies and retail health clinics, as well as other mail order pharmacies and PBMs. In that regard, many pharmacy benefit plans have implemented plan designs that mandate or provide incentives to fill maintenance medications through mail order pharmacies. To the extent this trend continues, our retail pharmacy business could be adversely affected (although the effect of this would likely be mitigated by an increase in our own mail order business and/or an increase in participation in our Maintenance Choice program). In addition, some of these competitors may offer services and pricing terms that we may not be willing or able to offer. Competition may also come from other sources in the future.

Competitors in the PBM industry include large national PBM companies, such as Medco and ESI, as well as many local or regional PBMs. In addition, there are several large health insurers and managed care plans (e.g., United Healthcare and CIGNA) which have their own PBM capabilities as well as several other national and regional companies that provide some or all of the same services. Some of these competitors may offer services and pricing terms that we may not be willing or able to offer. In addition, competition may also come from other sources in the future. In 2011, Medco and ESI announced plans to merge their businesses, subject to various closing conditions and regulatory approvals. It remains unclear whether the merger will occur, and we cannot predict the impact of the proposed merger, if completed, on the competitive landscape.

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Reform of the U.S. health care system.

Congressional efforts to reform the U.S. health care system finally came to fruition in 2010 with the passage of PPACA, which will bring about the most significant structural changes to the health insurance system in decades. While the bulk of the structural changes enacted by PPACA will not be implemented until 2014, and some of the key changes, such as the individual mandate, are already being challenged at the judicial and legislative levels, it is expected that there will be increased government regulation and involvement in health care. While these reforms may not affect our business directly, they affect the coverage and plan designs that are or will be provided by many of our health plan clients. As a result, they could indirectly impact many of our services and business practices. The Company cannot predict what effect, if any, the PPACA changes may have on its retail pharmacy and pharmacy services businesses, and it is possible that other legislative or market-driven changes in the health care system that the Company cannot anticipate could also occur.

The failure to properly maintain our information technology systems, our information security systems and our infrastructure to support our business and to protect the privacy and security of sensitive customer and business information.

Many aspects of our operations are dependent on our information systems and the information collected, processed, stored, and handled by these systems. Throughout our operations, we receive, retain and transmit certain confidential information, including personal information that our customers and clients provide to purchase products or services, enroll in programs or services, register on our websites, interact with our personnel, or otherwise communicate with us. In addition, for these operations, we depend in part on the secure transmission of confidential information over public networks. Our information systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, security breaches, vandalism, catastrophic events and human error. Although we have developed systems and processes that are designed to protect confidential information against security breaches, a compromise of our information security controls or those of businesses with whom we interact, which results in confidential information being accessed, obtained, or used by unauthorized or improper persons, could harm our reputation and expose us to regulatory actions and claims from customers and clients, financial institutions, payment card associations and other persons, any of which could adversely affect our business, financial position, and results of operations. Moreover, a security breach could require that we expend significant resources related to our information systems and infrastructure, and could distract management and other key personnel from performing their primary operational duties. If our information systems are damaged, fail to work properly or otherwise become unavailable, or if we are unable to successfully complete our planned consolidation of our PBM claims adjudication platforms, we may incur substantial costs to repair or replace them, and may experience loss of critical information, customer disruption and interruptions or delays in our ability to perform essential functions. In addition, compliance with changes in privacy and information security laws and standards may result in considerable expense due to increased investment in technology and the development of new operational processes.

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Risks related to compliance with a broad and complex regulatory framework.

The PBM business and retail pharmacy business are subject to numerous federal, state and local laws and regulations. See “Business — Government Regulation.” Changes in these regulations may require extensive system and operating changes that may be difficult to implement. Untimely compliance or noncompliance with applicable laws and regulations could adversely affect the continued operation of our business, including, but not limited to: imposition of civil or criminal penalties; suspension or disgorgement of payments from government programs; loss of required government certifications or approvals; loss of authorizations to participate in or exclusion from government reimbursement programs, such as the Medicare and Medicaid programs; or loss of licensure. The regulations to which we are subject include, but are not limited to: the laws and regulations described in the Government Regulation section; accounting standards; securities laws and regulations; tax laws and regulations; laws and regulations relating to the protection of the environment and health and safety matters, including those governing exposure to, and the management and disposal of, hazardous materials and wastes; and regulations of the FDA, the FTC, the DEA, and the Consumer Product Safety Commission, as well as state regulatory authorities, governing the sale, advertisement and promotion of products that we sell. We are also subject to the terms of the government agreements described in the Government Regulation section. In that regard, our business, financial position and results of operations could be affected by existing and new government legislative and regulatory action, including, without limitation, any one or more of the following:

·federal and state laws and regulations governing the purchase, distribution, management, dispensing and reimbursement of prescription drugs and related services, whether at retail or mail, and applicable licensing requirements;

·the effect of the expiration of patents covering brand name drugs and the introduction of generic products;

·the frequency and rate of approvals by the FDA of new brand named and generic drugs, or of over-the-counter status for brand name drugs;

·FDA regulation affecting the retail or PBM industry;

·rules and regulations issued pursuant to HIPAA and the HITECH Act; and other federal and state laws affecting the collection, use, disclosure and transmission of health or other personal information, such as federal laws on information privacy precipitated by concerns about information collection through the Internet, state security breach laws and state laws limiting the use and disclosure of prescriber information;

·administration of Medicare Part D, including legislative changes and/or CMS rulemaking and interpretation;

·government regulation of the development, administration, review and updating of formularies and drug lists;

·federal, state and local waste management laws and regulations applicable to our business, including the management of pharmaceutical wastes and photo processing solutions, as well as the storage and transportation of hazardous materials;

·state laws and regulations establishing or changing prompt payment requirements for payments to retail pharmacies;

·impact of network access legislation, including “any willing provider” laws, on our ability to manage pharmacy networks;

·managed care reform and plan design legislation;

·insurance licensing and other insurance regulatory requirements applicable to offering Medicare Part D programs and services; and

·direct regulation of pharmacies or PBMs by regulatory and quasi-regulatory bodies.

Risks related to litigation and other legal proceedings.

Pharmacy services and retail pharmacy are highly regulated and litigious industries. Our Company is currently subject to various litigation matters and legal proceedings. As such, we refer you to Item 3. “Legal Proceedings” for additional information.

The foregoing is not a comprehensive listing and there can be no assurance that we have correctly identified and appropriately assessed all factors affecting the business. As such, we refer you to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which includes our “Cautionary Statement Concerning Forward-Looking Statements” at the end of such section of our Annual Report to Stockholders for the year ended December 31, 2011, which section is incorporated by reference.

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Item 1B. Unresolved Staff Comments

There are no unresolved SEC Staff Comments.

Item 2. Properties

We lease most of our stores under long-term leases that vary as to rental amounts, expiration dates, renewal options and other rental provisions. For additional information on the amount of our rental obligations for our leases, we refer you to the Note “Leases” in our Annual Report to Stockholders for the year ended December 31, 2011, which section is incorporated by reference herein.

As of December 31, 2011, we owned approximately 6% of our 7,327 retail stores. Net selling space for our retail drugstores increased to 71.5 million square feet as of December 31, 2011. Nearly one half of our store base was opened or significantly remodeled within the last five years.

We own eleven distribution centers located in Alabama, California, Hawaii, New York, Rhode Island, South Carolina, Tennessee and Texas and lease nine additional facilities located in Arizona, Florida, Indiana, Michigan, New Jersey, Pennsylvania, Texas and Virginia. The 20 distribution centers total approximately 11.5 million square feet as of December 31, 2011. During 2011, we opened two new distribution centers, one in Chemung County, New York, and one in Kapolei, Hawaii.

As of December 31, 2011, we owned one mail service pharmacy located in Texas and leased three additional mail service pharmacies located in Florida, Illinois and Pennsylvania. We leased call centers located in Missouri, Pennsylvania, Tennessee and Texas. As of December 31, 2011, we also had 30 onsite pharmacy stores, which we leased, 31 specialty pharmacy stores, which we leased, and 12 specialty mail order pharmacies, one of which we owned.

We own our corporate offices located in Woonsocket, Rhode Island, which totals approximately 920,000 square feet. During 2011, we expanded our corporate offices in the State of Rhode Island. In addition, we lease large corporate offices in Scottsdale, Arizona, Northbrook, Illinois and Irving, Texas.

In connection with certain business dispositions completed between 1991 and 1997, we continue to guarantee lease obligations for approximately 75 former stores. We are indemnified for these guarantee obligations by the respective purchasers. These guarantees generally remain in effect for the initial lease term and any extension thereof pursuant to a renewal option provided for in the lease prior to the time of the disposition. For additional information, we refer you to Note 13 “Commitments and Contingencies” in our Annual Report to Stockholders for the year ended December 31, 2011, which section is incorporated by reference herein.

Management believes that its owned and leased facilities are suitable and adequate to meet the Company’s anticipated needs. At the end of the existing lease terms, management believes the leases can be renewed or replaced by alternate space.

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The following is a breakdown by state, District of Columbia and Puerto Rico of our retail stores, onsite pharmacy stores, specialty pharmacy stores and our specialty mail order pharmacy locations as of December 31, 2011:

	Retail Stores	Onsite PharmacyStores	Specialty PharmacyStores	Specialty Mail OrderPharmacies	Total
Alabama	150	—	1	—	151
Arizona	133	—	1	—	134
California	833	—	5	1	839
Colorado	—	—	1	—	1
Connecticut	140	—	—	—	140
Delaware	5	—	—	—	5
District of Columbia	58	—	1	—	59
Florida	718	—	3	1	722
Georgia	312	2	1	—	315
Hawaii	49	—	1	—	50
Iowa	12	2	—	—	14
Illinois	268	3	1	1	273
Indiana	294	—	—	—	294
Kansas	32	—	—	1	33
Kentucky	59	—	—	—	59
Louisiana	100	—	—	—	100
Maine	22	—	—	—	22
Maryland	169	1	—	—	170
Massachusetts	345	7	3	1	356
Michigan	244	1	—	1	246
Minnesota	49	1	—	—	50
Mississippi	45	—	—	—	45
Missouri	54	1	1	—	56
Montana	14	—	—	—	14
Nebraska	13	—	—	—	13
Nevada	85	—	—	—	85
New Hampshire	36	—	—	—	36
New Jersey	266	3	—	1	270
New Mexico	12	—	—	—	12
New York	457	—	2	—	459
North Carolina	306	—	1	1	308
North Dakota	6	—	—	—	6
Ohio	316	2	—	—	318
Oklahoma	45	—	—	—	45
Oregon	—	—	1	—	1
Pennsylvania	396	1	1	1	399
Puerto Rico	13	—	—	1	14
Rhode Island	59	1	1	—	61
South Carolina	195	—	1	—	196
Tennessee	129	2	1	1	133
Texas	538	2	3	1	544
Vermont	3	—	—	—	3
Virginia	262	—	—	—	262
Washington	—	—	1	—	1
West Virginia	50	—	—	—	50
Wisconsin	35	1	—	—	36
	7,327	30	31	12	7,400

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Item 3. Legal Proceedings

I.    Legal Proceedings

1.Caremark (the term “Caremark” being used herein to generally refer to any one or more pharmacy benefit management subsidiaries of the Company, as applicable) is a defendant in a qui tam lawsuit initially filed by a relator on behalf of various state and federal government agencies in Texas federal court in 1999. The case was unsealed in May 2005. The case seeks monetary damages and alleges that Caremark’s processing of Medicaid and certain other government claims on behalf of its clients (which allegedly resulted in underpayments from our clients to the applicable government agencies) on one of Caremark’s adjudication platforms violates applicable federal or state false claims acts and fraud statutes. The United States and the States of Texas, Tennessee, Florida, Arkansas, Louisiana and California intervened in the lawsuit, but Tennessee and Florida withdrew from the lawsuit in August 2006 and May 2007, respectively. Thereafter, in 2008, the Company prevailed on several motions for partial summary judgment and, following an appellate ruling from the Fifth Circuit Court of Appeals in 2011 which affirmed in part and reversed in part these prior rulings, the claims asserted in the case against Caremark have been substantially narrowed. In April 2009, the State of Texas filed a purported civil enforcement action against Caremark for injunctive relief, damages and civil penalties in Travis County, Texas alleging that Caremark violated the Texas Medicaid Fraud Prevention Act and other state laws based on our processing of Texas Medicaid claims on behalf of PBM clients. In September 2011, the Company prevailed on a motion for partial summary judgment against the State of Texas and narrowed the remaining claims in the lawsuit. The claims and issues raised in this lawsuit are related to the claims and issues pending in the federal qui tam lawsuit described above.

2.In December 2007, the Company received a document subpoena from the OIG, requesting information relating to the processing of Medicaid and other government agency claims on a different adjudication platform of Caremark. In October 2009 and October 2010, the Company received civil investigative demands from the Office of the Attorney General of the State of Texas requesting, respectively, information produced under this OIG subpoena and other information related to the processing of Medicaid claims. These civil investigative demands state that the Office of the Attorney General of the State of Texas is investigating allegations currently pending under seal relating to two of Caremark’s adjudication platforms. The Company has been producing documents on a rolling basis in response to the requests for information contained in the OIG subpoena and in these civil investigative demands. The Company cannot predict with certainty the timing or outcome of any review of such information.

3.Caremark was named in a putative class action lawsuit filed in October 2003 in Alabama state court by John Lauriello, purportedly on behalf of participants in the 1999 settlement of various securities class action and derivative lawsuits against Caremark and others. Other defendants include insurance companies that provided coverage to Caremark with respect to the settled lawsuits. The Lauriello lawsuit seeks approximately $3.2 billion in compensatory damages plus other non-specified damages based on allegations that the amount of insurance coverage available for the settled lawsuits was misrepresented and suppressed. A similar lawsuit was filed in November 2003 by Frank McArthur, also in Alabama state court, naming as defendants Caremark, several insurance companies, attorneys and law firms involved in the 1999 settlement. This lawsuit was stayed as a later-filed class action, but McArthur was subsequently allowed to intervene in the Lauriello action. The attorneys and law firms named as defendants in McArthur’s intervention pleadings have been dismissed from the case, and discovery on class certification and adequacy issues is underway.

4.Various lawsuits have been filed alleging that Caremark has violated applicable antitrust laws in establishing and maintaining retail pharmacy networks for client health plans. In August 2003, Bellevue Drug Co., Robert Schreiber, Inc. d/b/a Burns Pharmacy and Rehn-Huerbinger Drug Co. d/b/a Parkway Drugs #4, together with Pharmacy Freedom Fund and the National Community Pharmacists Association filed a putative class action against Caremark in Pennsylvania federal court, seeking treble damages and injunctive relief. This case was initially sent to arbitration based on the contract terms between the pharmacies and Caremark. In October 2003, two independent pharmacies, North Jackson Pharmacy, Inc. and C&C, Inc. d/b/a Big C Discount Drugs, Inc., filed a putative class action complaint in Alabama federal court against Caremark and two PBM competitors, seeking treble damages and injunctive relief. The North Jackson Pharmacy case against two of the Caremark entities named as defendants was transferred to Illinois federal court, and the case against a separate Caremark entity was sent to arbitration based on contract terms between the pharmacies and Caremark. The Bellevue arbitration was then stayed by the parties pending developments in the North Jackson Pharmacy court case.

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In August 2006, the Bellevue case and the North Jackson Pharmacy case were both transferred to Pennsylvania federal court by the Judicial Panel on Multidistrict Litigation for coordinated and consolidated proceedings with other cases before the panel, including cases against other PBMs. Caremark appealed the decision which vacated the order compelling arbitration and staying the proceedings in the Bellevue case and, following the appeal, the Court of Appeals reinstated the order compelling arbitration of the Bellevue case. Motions for class certification in the coordinated cases within the multidistrict litigation, including the North Jackson Pharmacy case, remain pending. The consolidated action is now known as the In Re Pharmacy Benefit Managers Antitrust Litigation.

5.In August 2009, the Company was notified by the FTC that it was conducting a non-public investigation under the FTCA into certain of the Company’s business practices. In March 2010, the Company learned that various State Attorneys General offices and certain other government agencies were conducting a multi-state investigation of the Company regarding issues similar to those being investigated by the FTC. At this time, 28 states, the District of Columbia, and the County of Los Angeles, are known to be participating in this multi-state investigation. On January 3, 2012, the FTC accepted for public comment, subject to final approval, a consent order. The proposed consent order would prohibit the Company from misrepresenting the price or cost of Medicare Part D prescription drugs, or other prices of costs associated with Medicare Part D prescription drug plans. The proposed order would also require the Company to pay $5 million in consumer redress, to be distributed to impacted RxAmerica Medicare Part D beneficiaries. The proposed order contains no allegations of antitrust law violations or anti-competitive behavior related to the Company’s business practices or its products or service offerings. In addition, the Company has received a formal letter from the FTC closing all other aspects of the investigation. With respect to the multi-state investigation, the Company continues to cooperate in this investigation. The Company is not able to predict with certainty the timing or outcome of the multi-state investigation. However, it remains confident that its business practices and service offerings (which are designed to reduce health care costs and expand consumer choice) are being conducted in compliance with the antitrust laws.

6.In March 2009, the Company received a subpoena from the OIG requesting information concerning the Medicare Part D prescription drug plans of RxAmerica, the PBM subsidiary of Longs Drug Stores Corporation which was acquired by the Company in October 2008. The Company continues to respond to the request for information and has been producing responsive documents on a rolling basis. The Company cannot predict with certainty the timing or outcome of any review by the government of such information.

7.Since March 2009, the Company has been named in a series of putative collective and class action lawsuits filed in federal courts around the country, purportedly on behalf of current and former assistant store managers working in the Company’s stores at various locations outside California. The lawsuits allege that the Company failed to pay overtime to assistant store managers as required under the Fair Labor Standards Act (“FLSA”) and under certain state statutes. The lawsuits also seek other relief, including liquidated damages, punitive damages, attorneys’ fees, costs and injunctive relief arising out of the state and federal claims for overtime pay. The Company has aggressively challenged both the merits of the lawsuits and the allegation that the cases should be certified as class or collective actions. In light of the cost and uncertainty involved in this litigation, however, the Company has reached an agreement with plaintiffs’ counsel to settle the series of lawsuits. The court preliminarily approved the settlement in December 2011 and the Company anticipates that final court approval will be granted in the second quarter of 2012. The Company has established legal reserves related to these matters to fully cover the settlement payments.

8.In November 2009, a securities class action lawsuit was filed in the United States District Court for the District of Rhode Island purportedly on behalf of purchasers of CVS Caremark Corporation stock between May 5, 2009 and November 4, 2009. The lawsuit names the Company and certain officers as defendants and includes allegations of securities fraud relating to public disclosures made by the Company concerning the PBM business and allegations of insider trading. In addition, a shareholder derivative lawsuit was filed in December 2009 in the same court against the directors and certain officers of the Company. A derivative lawsuit is a lawsuit filed by a shareholder purporting to assert claims on behalf of a corporation against directors and officers of the corporation. This lawsuit includes allegations of, among other things, securities fraud, insider trading and breach of fiduciary duties and further alleges that the Company was damaged by the purchase of stock at allegedly inflated prices under its share repurchase program. In January 2011, both lawsuits were transferred to the United States District Court for the District of New Hampshire. The Company believes these lawsuits are without merit, and the Company plans to defend them vigorously. The Company received a subpoena dated February 28, 2011 from the SEC requesting, among other corporate records, information relating to public disclosures made by the Company in 2009 concerning its PBM and Medicare Part D businesses and information concerning ownership and transactions in the Company’s securities by certain officers of the Company. The Company received a related subpoena dated September 20, 2011 from the SEC seeking, among other things, additional information concerning securities transactions by certain employees of the Company and public disclosures made by the Company during 2009. The Company is cooperating with these requests for information and is providing documents and other information to the SEC as requested.

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9.In March 2010, the Company received a subpoena from the OIG requesting information about programs under which the Company has offered customers remuneration conditioned upon the transfer of prescriptions for drugs or medications to our pharmacies in the form of gift cards, cash, non-prescription merchandise or discounts or coupons for non-prescription merchandise. The subpoena relates to an investigation of possible false or otherwise improper claims for payment under the Medicare and Medicaid programs. The Company continues to respond to this request for information and has been producing responsive documents on a rolling basis. We cannot predict with certainty the timing or outcome of any reviews by the government of such information.

10.In January 2012, the Company received a subpoena from OIG requesting information about its Health Savings Pass program, a prescription drug discount program for uninsured or under insured individuals, in connection with an investigation of possible false or otherwise improper claims for payment involving HHS programs. In February 2012, the Company also received a civil investigative demand from the Office of the Attorney General of the State of Texas requesting a copy of information produced under this OIG subpoena and other information related to prescription drug claims submitted by our pharmacies to Texas Medicaid for reimbursement. The Company will respond to these requests for information and cooperate with each of these investigations. We cannot predict with certainty the timing or outcome of any review by the applicable government agency of the requested information.

The Company is also a party to other legal proceedings and inquiries arising in the normal course of its business, none of which is expected to be material to the Company. We can give no assurance, however, that our business, financial condition and results of operations will not be materially adversely affected, or that we will not be required to materially change our business practices, based on: (i) future enactment of new health care or other laws or regulations; (ii) the interpretation or application of existing laws or regulations, including the laws and regulations described in this Government Regulation section, as they may relate to our business, the pharmacy services, retail pharmacy or retail clinic industry or to the health care industry generally; (iii) pending or future federal or state governmental investigations of our business or the pharmacy services, retail pharmacy or retail clinic industry or of the health care industry generally; (iv) institution of government enforcement actions against us; (v) adverse developments in any pending qui tam lawsuit against us, whether sealed or unsealed, or in any future qui tam lawsuit that may be filed against us; or (vi) adverse developments in other pending or future legal proceedings against us or affecting the pharmacy services, retail pharmacy or retail clinic industry or the health care industry generally.

II.    Environmental Matters

1.Item 103 of SEC Regulation S-K requires disclosure of certain environmental legal proceedings if management reasonably believes that the proceedings involve potential monetary sanctions of $100,000 or more. Negotiations remain ongoing with the State of Connecticut regarding a Consent Order resolving alleged noncompliance with hazardous waste regulations by certain of the Company’s stores in Connecticut. The Company cannot predict the ultimate outcome of these negotiations; however, management does not believe that the outcome will have a material adverse effect on the Company.

2.The Company has also received notices of violation and information requests from governmental authorities in California, and is currently working with several local governments regarding statewide compliance with environmental regulations governing the management of hazardous waste. The resolution of these issues may require payment of civil penalties, performance of one or more supplemental environmental projects and operational changes within stores in California. The Company cannot predict the ultimate outcome of these negotiations; however, management does not believe that the outcome will have a material adverse effect on the Company.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the three months ended December 31, 2011.

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Executive Officers of the Registrant

Executive Officers of the Registrant

The following sets forth the name, age and biographical information for each of our executive officers as of February 17, 2012. In each case the officer’s term of office extends to the date of the board of directors meeting following the next annual meeting of stockholders of the Company. Previous positions and responsibilities held by each of the executive officers over the past five years are indicated below:

Lisa G. Bisaccia, age 55, Senior Vice President and Chief Human Resources Officer of CVS Caremark Corporation since January 2010; Vice President, Human Resources of CVS Pharmacy, Inc. from September 2004 through December 2009.

Troyen A. Brennan, M.D., age 57, Executive Vice President and Chief Medical Officer of CVS Caremark Corporation since November 2008; Executive Vice President and Chief Medical Officer of Aetna, Inc. from February 2006 through November 2008; President and Chief Executive Officer of Brigham and Women’s Physician Hospital Organization from 1997 through February 2006; also President and Chief Executive Officer of Brigham and Women’s Physicians Organization from 2000 through February 2006.

Mark S. Cosby, age 53, Executive Vice President of CVS Caremark Corporation and President of CVS/pharmacy since September 2011; President of Stores of Macy’s, Inc., a retail chain, from April 2009 through August 2011; President of Macy’s East from April 2007 through March 2009; Executive Vice President of Real Estate and Development of Macy’s from July 2006 through March 2007.

Laird K. Daniels, age 43, Senior Vice President and Controller and Chief Accounting Officer of CVS Caremark Corporation since January 2010; Vice President of Finance and Retail Controller of CVS Pharmacy, Inc. from May 2009 through December 2009; Vice President of Finance-Corporate Budgeting and Analysis of CVS Pharmacy, Inc. from November 2006 until April 2009.

David M. Denton, age 46, Executive Vice President and Chief Financial Officer of CVS Caremark Corporation and CVS Pharmacy, Inc. since January 2010; Senior Vice President and Controller/Chief Accounting Officer of CVS Caremark Corporation from March 2008 until December 2009; Senior Vice President, Financial Administration of CVS Caremark Corporation and CVS Pharmacy, Inc. from April 2007 to March 2008; Senior Vice President, Finance and Controller of PharmaCare Management Services, Inc. from October 2005 through April 2007.

Helena B. Foulkes, age 47, Executive Vice President and Chief Health Care Strategy and Marketing Officer of CVS Caremark Corporation since March 2011; Executive Vice President and Chief Marketing Officer of CVS Caremark Corporation from January 2009 through February 2011; Senior Vice President of Health Services of CVS Caremark Corporation from May 2008 through January 2009, and of CVS Pharmacy, Inc. from October 2007 through January 2009; Senior Vice President, Marketing and Operations Services of CVS Pharmacy, Inc. from January 2007 through October 2007.

J. David Joyner, age 47, Executive Vice President of CVS Caremark Corporation since March 2011 and Executive Vice President of Sales and Account Services, Caremark Pharmacy Services since March 2004.

Per G.H. Lofberg, age 64, Executive Vice President of CVS Caremark Corporation and President of Caremark Pharmacy Services since January 2010; President and Chief Executive Officer of Generation Health, Inc., a pharmacogenomics company, from November 2008 through December 2009; President and Chief Executive Officer of Merck Capital Ventures, LLC, a venture capital investment company focused on the pharmaceutical industry, from January 2001 through July 2008.

Stuart M. McGuigan, age 53, Senior Vice President and Chief Information Officer of CVS Caremark Corporation since January 2009 and Senior Vice President and Chief Information Officer of CVS Pharmacy, Inc. since December 2008; Senior Vice President and Chief Information Officer of Liberty Mutual Group from September 2004 to November 2008; also a director of NetScout Systems, Inc., a leading provider of integrated network and application performance management solutions.

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Larry J. Merlo, age 56, President and Chief Executive Officer of CVS Caremark Corporation since March 2011; President and Chief Operating Officer of CVS Caremark Corporation from May 2010 through March 2011; President of CVS/pharmacy from January 2007 through August 2011; Executive Vice President of CVS Caremark Corporation from January 2007 through May 2010; Executive Vice President—Stores of CVS Corporation from April 2000 to January 2007; and Executive Vice President—Stores of CVS Pharmacy, Inc. from March 1998 to January 2007; also a director of CVS Caremark Corporation since May 2010.

Jonathan C. Roberts, age 56, Executive Vice President of CVS Caremark Corporation and Chief Operating Officer of Caremark Pharmacy Services since October 2010; Executive Vice President, Rx Purchasing, Pricing and Network Relations of CVS Caremark Corporation from January 2009 through October 2010; Senior Vice President and Chief Information Officer of CVS Caremark Corporation from May 2008 until January 2009, and of CVS Pharmacy, Inc. from January 2006 until January 2009.

Douglas A. Sgarro, age 52, Executive Vice President and Chief Legal Officer of CVS Caremark Corporation and CVS Pharmacy, Inc. since March 2004; President of CVS Realty Co., a real estate development company and a division of CVS Pharmacy, Inc., from October 1999 through August 2009.

Andrew J. Sussman, M.D., age 46, Senior Vice President and Associate Chief Medical Officer of CVS Caremark Corporation since March 2011 and President of MinuteClinic, L.L.C., the Company’s retail-based health clinic subsidiary, since September 2009; Executive Vice President and Chief Operating Officer of the University of Massachusetts Memorial Medical Center, the major teaching affiliate of UMass Medical School, from May 2004 through August 2009.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock is listed on the New York Stock Exchange under the symbol “CVS.” The table below sets forth the high and low sale prices of our common stock on the New York Stock Exchange Composite Tape and the quarterly cash dividends declared per share of common stock during the periods indicated.

		First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Fiscal Year
2011	High	$	35.95	$	39.50	$	38.82	$	41.35	$	41.35
	Low	$	32.08	$	34.21	$	31.30	$	32.28	$	31.30
	Cash dividends per common share	$	0.12500	$	0.12500	$	0.12500	$	0.12500	$	0.50000
2010	High	$	37.32	$	37.82	$	32.09	$	35.46	$	37.82
	Low	$	30.36	$	29.22	$	26.84	$	29.45	$	26.84
	Cash dividends per common share	$	0.08750	$	0.08750	$	0.08750	$	0.08750	$	0.35000

CVS Caremark has paid cash dividends every quarter since becoming a public company. Future dividend payments will depend on the Company’s earnings, capital requirements, financial condition and other factors considered relevant by the Company’s Board of Directors. As of February 10, 2012, there were 22,250 registered shareholders according to the records maintained by our transfer agent.

On August 23, 2011, our Board of Directors authorized a share repurchase program for up to $4.0 billion of our outstanding common stock (the “2011 Repurchase Program”). The share repurchase authorization under the 2011 Repurchase Program, which was effective immediately, permits us to effect repurchases from time to time through a combination of open market repurchases, privately negotiated transactions, accelerated share repurchase transactions, and/or other derivative transactions. The share repurchase program may be modified, extended or terminated by the Board of Directors at any time.

Pursuant to the authorization under the 2011 Repurchase Program, on August 24, 2011, the Company entered into a $1.0 billion fixed dollar accelerated share repurchase (“ASR”) agreement with Barclays Bank PLC (“Barclays”). The ASR agreement contained provisions that establish the minimum and maximum number of shares to be repurchased during its term. Pursuant to the ASR agreement, on August 25, 2011, the Company paid $1.0 billion to Barclays in exchange for Barclays delivering 20.3 million shares of common stock to the Company. On September 16, 2011, upon establishment of the minimum number of shares to be repurchased, Barclays delivered an additional 5.4 million shares of common stock to the Company. The Company received an additional 1.6 million shares of common stock on December 29, 2011, due to the fluctuation in market price of common stock over the term of the ASR agreement, which concluded on December 28, 2011. The total of 27.3 million shares of common stock delivered to the Company by Barclays over the term of the ASR agreement were placed into treasury stock.

On June 14, 2010, the Company’s Board of Directors authorized a share repurchase program for up to $2.0 billion of outstanding common stock (the “2010 Repurchase Program”). During the year ended December 31, 2011, the Company repurchased an aggregate of 56.4 million shares of common stock for approximately $2.0 billion, completing the 2010 Repurchase Program.

Fiscal Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
October 1, 2011 through October 31, 2011	7,009,429	$	34.18	7,009,429	$	3,209,624,610
November 1, 2011 through November 30, 2011	4,898,600	$	37.75	4,898,600	$	3,024,695,642
December 1, 2011 through December 31, 2011	2,260,587	$	37.05	2,260,587	$	2,998,750,000

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Item 6. Selected Financial Data

The selected consolidated financial data of CVS Caremark Corporation as of and for the periods indicated in the five-year period ended December 31, 2011 have been derived from the consolidated financial statements of CVS Caremark Corporation. The selected consolidated financial data should be read in conjunction with the consolidated financial statements and the audit reports of Ernst & Young LLP, which are incorporated elsewhere herein.

In millions, except per share amounts	2011(1)			2010(1)		2009(1)			2008(1)			2007(1)(2)
Statement of operations data:
Net revenues	$	107,100		$	95,778	$	98,215		$	87,005		$	76,078
Gross profit	20,561			20,219		20,358			18,272			16,098
Operating expenses	14,231			14,082		13,933			12,237			11,309
Operating profit	6,330			6,137		6,425			6,035			4,789
Interest expense, net	584			536		525			509			435
Income tax provision(3)	2,258			2,179		2,200			2,189			1,720
Income from continuing operations	3,488			3,422		3,700			3,337			2,634
Income (loss) from discontinued operations, net of tax (4)	(31		)	2		(4		)	(125		)	3
Net income	3,457			3,424		3,696			3,212			2,637
Net loss attributable to noncontrolling interest(5)	4			3		—			—			—
Preference dividends, net of income tax benefit	—			—		—			(14		)	(14		)
Net income attributable to CVS Caremark	$	3,461		$	3,427	$	3,696		$	3,198		$	2,623
Per common share data:
Basic earnings per common share:
Income from continuing operations attributable to CVS Caremark	$	2.61		$	2.51	$	2.58		$	2.32		$	1.97
Loss from discontinued operations attributable to CVS Caremark	(0.02		)	—		—			(0.09		)	—
Net income attributable to CVS Caremark	$	2.59		$	2.51	$	2.58		$	2.23		$	1.97
Diluted earnings per common share:
Income from continuing operations attributable to CVS Caremark	$	2.59		$	2.49	$	2.55		$	2.27		$	1.92
Loss from discontinued operations attributable to CVS Caremark	(0.02		)	—		—			(0.09		)	—
Net income attributable to CVS Caremark	$	2.57		$	2.49	$	2.55		$	2.18		$	1.92
Cash dividends per common share	$	0.50000		$	0.35000	$	0.30500		$	0.25800		$	0.22875
Balance sheet and other data:
Total assets	$	64,543		$	62,169	$	61,641		$	60,960		$	54,722
Long-term debt	$	9,208		$	8,652	$	8,756		$	8,057		$	8,350
Total shareholders’ equity	$	38,051		$	37,700	$	35,768		$	34,574		$	31,322
Number of stores (at end of year)	7,388			7,248		7,095			6,997			6,301

(1)On December 23, 2008, our Board of Directors approved a change in our fiscal year-end from the Saturday nearest December 31 of each year to December 31 of each year to better reflect our position in the health care, rather than the retail, industry. The fiscal year change was effective beginning with the fourth quarter of fiscal 2008. As you review our operating performance, please consider that fiscal 2011, 2010 and 2009 include 365 days; fiscal 2008 includes 368 days, and fiscal 2007 include 364 days.

(2)Effective March 22, 2007, Caremark Rx, Inc. was merged into a newly formed subsidiary of CVS Corporation, with Caremark Rx, L.L.C., continuing as the surviving entity (the “Caremark Merger”). Following the Caremark Merger, the name of the Company was changed to “CVS Caremark Corporation.” By virtue of the Caremark Merger, each issued and outstanding share of Caremark common stock, par value $0.001 per share, was converted into the right to receive 1.67 shares of CVS Caremark’s common stock, par value $0.01 per share. Cash was paid in lieu of fractional shares.

(3)Income tax provision includes the effect of the following: (i) in 2010, the recognition of $47 million of previously unrecognized tax benefits, including interest, relating to the expiration of various statutes of limitation and settlements with tax authorities, (ii) in 2009, the recognition of $167 million of previously unrecognized tax benefits, including interest, relating to the expiration of various statutes of limitation and settlements with tax authorities.

(4)As discussed in Note 3 to the consolidated financial statements, the results of the Theracom business are presented as discontinued operations and have been excluded from continuing operations for all periods presented.

In connection with certain business dispositions completed between 1991 and 1997, the Company retained guarantees on store lease obligations for a number of former subsidiaries, including Linens ‘n Things which filed for bankruptcy in 2008. The Company’s income (loss) from discontinued operations includes lease-related costs which the Company believes it will likely be required to satisfy pursuant to its Linens ‘n Things lease guarantees.

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Below is a summary of the results of discontinued operations:

	Fiscal Year
In millions	2011			2010			2009			2008			2007
Income from operations of TheraCom	$	18		$	28		$	13		$	11		$	5
Gain on disposal of TheraCom	53			—			—			—			—
Loss on disposal of Linens ‘n Things	(7		)	(24		)	(19		)	(214		)	—
Income tax benefit (provision)	(95		)	(2		)	2			78			(2		)
Income (loss) from discontinued operations, net of tax	$	(31	)	$	2		$	(4	)	$	(125	)	$	3

(5)Represents the minority shareholders’ portion of the net loss from our majority owned subsidiary, Generation Health, Inc., acquired in the fourth quarter of 2009.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

We refer you to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which includes our “Cautionary Statement Concerning Forward-Looking Statements” at the end of such section of our Annual Report to Stockholders for the year ended December 31, 2011, which section is incorporated by reference herein.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

As of December 31, 2011, the Company had no derivative financial instruments or derivative commodity instruments in place and believes that its exposure to market risk associated with other financial instruments, principally interest rate risk inherent in its debt portfolio, is not material.

Item 8. Financial Statements and Supplementary Data

We refer you to the “Consolidated Statements of Income,” “Consolidated Balance Sheets,” “Consolidated Statements of Shareholders’ Equity,” “Consolidated Statements of Cash Flows,” and “Notes to Consolidated Financial Statements,” and “Report of Independent Registered Public Accounting Firm” of our Annual Report to Stockholders for the fiscal year ended December 31, 2011, which sections are incorporated by reference herein.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of disclosure controls and procedures: The Company’s Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (f) and 15d-15(f)) as of December 31, 2011, have concluded that as of such date the Company’s disclosure controls and procedures were adequate and effective and designed to ensure that material information relating to the Company and its subsidiaries would be made known to such officers on a timely basis.

Internal control over financial reporting: We refer you to “Management’s Report on Internal Control Over Financial Reporting” and “Report of Independent Registered Public Accounting Firm” of our Annual Report to Stockholders for the fiscal year ended December 31, 2011, which are incorporated by reference herein, for Management’s report on the Registrant’s internal control over financial reporting and the Independent Registered Public Accounting Firm’s report with respect to the effectiveness of internal control over financial reporting.

Changes in internal control over financial reporting: There have been no changes in our internal controls over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 that occurred during the fourth quarter ended December 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

No events have occurred during the fourth quarter that would require disclosure under this item.

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PART III

Item 10. Directors and Executive Officers of the Registrant

We refer you to our Proxy Statement for the 2012 Annual Meeting of Stockholders under the captions “Committees of the Board,” “Code of Conduct,” “Director Nominations,” “Audit Committee Report,” “Biographies of our Board Nominees,” and “Section 16(a) Beneficial Ownership Reporting Compliance,” which sections are incorporated by reference herein. Biographical information on our executive officers is contained in Part I of this Annual Report on Form 10-K.

Item 11. Executive Compensation

We refer you to our Proxy Statement for the 2012 Annual Meeting of Stockholders under the captions “Executive Compensation and Related Matters,” including “Compensation Discussion & Analysis” and “Management Planning and Development Committee Report,” which sections are incorporated by reference herein.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

We refer you to our Proxy Statement for the 2012 Annual Meeting of Stockholders under the captions “Share Ownership of Directors and Certain Executive Officers,” and “Share Ownership of Principal Stockholders” which sections are incorporated by reference herein, for information concerning security ownership of certain beneficial owners and management and related stockholder matters.

The following table summarizes information about the Company’s common stock that may be issued upon the exercise of options, warrants and rights under all of our equity compensation plans as of December 31, 2011.

	Number of securities to be issued upon exercise of outstanding options, warrants and rights(1)	Weighted average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in first column) (1)
Equity compensation plans approved by stockholders (2)	59,107	$	33.40	57,547
Equity compensation plans not approved by stockholders	—	—		—
Total	59,107	$	33.40	57,547

(1)Shares in thousands.

(2)The number of shares available for delivery under the 2010 Incentive Compensation Plan (the “2010 ICP”) is subject to adjustment in the event shares subject to awards under either the 2010 ICP or a predecessor plan are cancelled or forfeited; in such event the shares shall again be available for grants or awards.

Item 13. Certain Relationships and Related Transactions and Director Independence

We refer you to our Proxy Statement for the 2012 Annual Meeting of Stockholders under the caption “Independence Determinations for Directors” and “Certain Transactions with Directors and Officers,” which sections are incorporated by reference herein.

Item 14. Principal Accountant Fees and Services

We refer you to our Proxy Statement for the 2012 Annual Meeting of Stockholders under the caption “Item 2: Ratification of Appointment of Independent Registered Public Accounting Firm,” which section is incorporated by reference herein.

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PART IV

Item 15. Exhibits, Financial Statement Schedules

A. Documents filed as part of this report:

1.Financial Statements:

The following financial statements are incorporated by reference from our Annual Report to Stockholders for the fiscal year ended December 31, 2011, as provided in Item 8 hereof:

Consolidated Statements of Income for the Years Ended December 31, 2011, 2010 and 2009	24
Consolidated Balance Sheets as of December 31, 2011 and 2010	25
Consolidated Statements of Cash Flows for the Years Ended December 31, 2011, 2010 and 2009	26
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2011, 2010 and 2009	27
Notes to Consolidated Financial Statements	28
Report of Independent Registered Public Accounting Firm	56

2.Financial Statement Schedules

All financial statement schedules are omitted because they are not applicable, not required under the instructions, or the information is included in the consolidated financial statements or related notes.

B. Exhibits

Exhibits marked with an asterisk (*) are hereby incorporated by reference to exhibits or appendices previously filed by the Registrant as indicated in brackets following the description of the exhibit.

Exhibit	Description
2.1*	Agreement and Plan of Merger dated as of November 1, 2006 among, the Registrant, Caremark Rx, Inc. and Twain MergerSub Corp. [incorporated by reference to Exhibit 2.1 to the Registrant’s Registration Statement No. 333-139470 on Form S-4 filed December 19, 2006].
2.2*	Amendment No. 1 dated as of January 16, 2007 to the Agreement and Plan of Merger dated as of November 1, 2006 among the Registrant, Caremark Rx, Inc. and Twain Merger Sub Corp. [incorporated by reference to Exhibit 2.2 to the Registrant’s Registration Statement No. 333-139470 on Form S-4/A filed January 16, 2007].
2.3*	Waiver Agreement dated as of January 16, 2007 between the Registrant and Caremark Rx, Inc. with respect to the Agreement and Plan Merger dated as of November 1, 2006 by and between Registrant and Caremark Rx, Inc [incorporated by reference to Exhibit 2.3 to the Registrant’s Registration Statement No. 333-139470 on Form S-4/A filed January 16, 2007].
2.4*	Amendment to Waiver Agreement, dated as of February 12, 2007, between Registrant and Caremark Rx, Inc. [incorporated by reference to Exhibit 99.2 to the Registrant’s Current Report on Form 8-K dated February 13, 2007 (Commission File No. 001-01011)].
2.5*	Amendment to Waiver Agreement, dated as of March 8, 2007, between Registrant and Caremark Rx, Inc. [incorporated by reference to Exhibit 99.2 to the Registrants’ Current Report on Form 8-K dated March 8, 2007 (Commission File No. 001-01011)].
2.6*	Agreement and Plan of Merger dated as of August 12, 2008 among, the Registrant, Longs Drug Stores Corporation and Blue MergerSub Corp. [incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K dated August 13, 2008 (Commission File No. 001-01011)].
3.1*	Amended and Restated Certificate of Incorporation of the Registrant [incorporated by reference to Exhibit 3.1 of CVS Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (Commission File No. 001-01011)].

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3.1A*	Certificate of Amendment to the Amended and Restated Certificate of Incorporation, effective May 13, 1998 [incorporated by reference to Exhibit 4.1A to Registrant’s Registration Statement No. 333-52055 on Form S-3/A dated May 18, 1998].
3.1B*	Certificate of Amendment to the Amended and Restated Certificate of Incorporation [incorporated by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K dated March 22, 2007 (Commission File No. 001-01011)].
3.1C*	Certificate of Merger dated May 9, 2007 [incorporated by reference to Exhibit 3.1C to Registrant’s Quarterly Report on Form 10-Q dated November 1, 2007 (Commission File No. 001-01011)].
3.1D*	Certificate of Amendment to the Amended and Restated Certificate of Incorporation [incorporated by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K dated May 13, 2010 (Commission File No. 001-01011)].
3.2*	By-laws of the Registrant, as amended and restated [incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K dated May 13, 2011 (Commission File No. 001-01011)].
4	Pursuant to Regulation S-K, Item 601(b)(4)(iii)(A), no instrument which defines the rights of holders of long-term debt of the Registrant and its subsidiaries is filed with this report. The Registrant hereby agrees to furnish a copy of any such instrument to the Securities and Exchange Commission upon request.
4.1*	Specimen common stock certificate [incorporated by reference to Exhibit 4.1 to the Registration Statement of the Registrant on Form 8-B dated November 4, 1996 (Commission File No. 001-01011)].
4.2*	Specimen First Supplemental Indenture between Registrant and The Bank of New York Trust Company, N. A., a national banking association [incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated May 22, 2007 (Commission File No. 001-01011)].
4.3*	Specimen ECAPSSM [incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K dated May 22, 2007 (Commission File No. 001-01011)].
10.1*	Stock Purchase Agreement dated as of October 14, 1995 between The TJX Companies, Inc. and Melville Corporation, as amended November 17, 1995 [incorporated by reference to Exhibits 2.1 and 2.2 to Melville’s Current Report on Form 8-K dated December 4, 1995 (Commission File No. 001-01011)].
10.2*	Stock Purchase Agreement dated as of March 25, 1996 between Melville Corporation and Consolidated Stores Corporation, as amended May 3, 1996 [incorporated by reference to Exhibits 2.1 and 2.2 to Melville’s Current Report on Form 8-K dated May 5, 1996 (Commission File No. 001-01011)].
10.3*	Distribution Agreement dated as of September 24, 1996 among Melville Corporation, Footstar, Inc. and Footstar Center, Inc. [incorporated by reference to Exhibit 99.1 to Melville’s Current Report on Form 8-K dated October 28, 1996 (Commission File No. 001-01011)].
10.4*	Tax Disaffiliation Agreement dated as of September 24, 1996 among Melville Corporation, Footstar, Inc. and certain subsidiaries named therein [incorporated by reference to Exhibit 99.2 to Melville’s Current Report on Form 8-K dated October 28, 1996 (Commission File No. 001-01011)].
10.5*	Stockholder Agreement dated as of December 2, 1996 between the Registrant, Nashua Hollis CVS, Inc. and Linens ‘n Things, Inc. [incorporated by reference to Exhibit 10(i)(6) to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (Commission File No. 001-01011)].

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10.6*	Tax Disaffiliation Agreement dated as of December 2, 1996 between the Registrant and Linens ‘n Things, Inc. and certain of their respective affiliates [incorporated by reference to Exhibit 10(i)(7) to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (Commission File No. 001-01011)].
10.7*	Supplemental Retirement Plan for Select Senior Management of CVS Caremark Corporation I as amended and restated in December 2008 [incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 (Commission File No. 001-01011)].
10.8*	CVS Corporation 1996 Directors Stock Plan, as amended and restated November 5, 2002 [incorporated by reference to Exhibit 10.18 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 28, 2002 (Commission File No. 001-01011)].
10.9*	CVS Caremark Deferred Stock Compensation Plan, as amended and restated [incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 (Commission File No. 001-01011)].
10.10*	1997 Incentive Compensation Plan as amended through December 2008 [incorporated by reference to Exhibit 10.8 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 (Commission File No. 001-01011)].
10.11*	2007 Incentive Plan, as amended and restated through December 2008 [incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 (Commission File No. 001-01011)].
10.12*	Caremark Rx, Inc. 2004 Incentive Stock Plan [incorporated by reference to Exhibit 99.2 of the Registrant’s Registration Statement No. 333-141481 on Form S-8 filed March 22, 2007].
10.13*	Caremark Rx, Inc. Deferred Compensation Plan, effective April 1, 2005, as amended and restated through December 2008 [incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 (Commission File No. 001-01011)].
10.14*	CVS Caremark Deferred Compensation Plan as amended and restated through December 2008 [incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 (Commission File No. 001-01011)].
10.15*	CVS Partnership Equity Program [incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 27, 1998 (Commission File No. 001-01011)].
10.16*	2007 Employee Stock Purchase Plan [incorporated by reference to Exhibit D of the Registrant’s Definitive Proxy Statement filed April 4, 2007 (Commission File No. 001-01011)].
10.17*	Retention Agreement dated as of August 5, 2005 between the Registrant and the Registrant’s former Chief Executive Officer [incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended October 1, 2005 (Commission File No. 001-01011)].
10.18*	Form of Restricted Stock Unit Agreement between the Registrant and the Registrant’s former Chief Executive Officer [incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended October 1, 2005 (Commission File No. 001-01011)].

39

10.19*	Amended and Restated Employment Agreement dated as of December 22, 2008 between the Registrant and the Registrant’s former Chairman of the Board and Chief Executive Officer [incorporated by reference to Exhibit 10.36 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (Commission File No. 001-01011)].
10.20*	Amended and Restated Employment Agreement dated as of December 22, 2008 between the Registrant and the Registrant’s President and Chief Executive Officer [incorporated by reference to Exhibit 10.38 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (Commission File No. 001-01011)].
10.21*	Amended and Restated Employment Agreement dated as of December 22, 2008 between the Registrant and the Registrant’s Executive Vice President and Chief Legal Officer [incorporated by reference to Exhibit 10.39 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (Commission File No. 001-01011)].
10.22*	Five Year Credit Agreement dated as of March 12, 2007 by and among the Registrant, the lenders party thereto, Lehman Commercial Paper Inc., and Wachovia Bank, N.A., as Co-Syndication Agents, Morgan Stanley Senior Funding, Inc. as Documentation Agent, and the Bank of New York, as Administrative Agent [incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated March 22, 2007 (Commission File No. 001-01011)].
10.23*	Global Amendment dated as of March 15, 2007, to (i) Five Year Credit Agreement dated as of June 11, 2004, (ii) Five Year Credit Agreement dated as of June 2, 2005, (iii) Five Year Credit Agreement dated as of May 12, 2006, (iv) Five Year Credit Agreement, dated as of March 12, 2007, and (v) 364 Day Credit Agreement, dated as of March 12, 2007 [incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K dated March 22, 2007 (Commission File No. 001-01011)].
10.24*	Universal 409A Definition Document dated December 31, 2008 [incorporated by reference to Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 (Commission File No. 001-01011)].
10.25*	Form of Non-Qualified Stock Option Agreements between the Registrant and the selected employees of the Registrant. [incorporated by reference to Exhibit 10.36 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 (Commission File No. 001-01011)].
10.26*	Form of Restricted Stock Unit Agreement between the Registrant and the selected employees of the Registrant [incorporated by reference to Exhibit 10.37 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 (Commission File No. 001-01011)].
10.27*	CVS Caremark Long-Term Incentive Plan [incorporated by reference to Exhibit 10.38 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 (Commission File No. 001-01011)].

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10.28*	Partnership Equity Program Purchased Share, Matching Restricted Stock Unit and Stock Option Agreement between the Registrant and selected employees of the Registrant [incorporated by reference to Exhibit 10.40 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 (Commission File No. 001-01011)].
10.29*	2010 Incentive Compensation Plan [incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated May 13, 2010 (Commission File No. 001-01011)].
10.30*	Three Year Credit Agreement dated as of May 27, 2010 by and among the Registrant, the lenders party hereto, Barclays Capital and JP Morgan Chase Bank, N.A., as Co-Syndication Agents, Bank of America, N.A. and Wells Fargo Bank, N.A., as Co-Documentation Agents, and the Bank of New York Mellon, as Administrative Agent [incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2010 (Commission File No. 001-01011)].
10.31*	Employment Agreement between the Registrant and the Registrant’s Executive Vice President and President of Caremark Pharmacy Services effective as of January 1, 2010 [incorporated by reference to Exhibit 10.34 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010 (Commission File No. 001-01011)].
10.32*	Change in Control Agreement between the Registrant and the Registrant’s Executive Vice President and President of Caremark Pharmacy Services effective as of January 1, 2010 [incorporated by reference to Exhibit 10.34 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010 (Commission File No. 001-01011)].
10.33*	Long Term Incentive Plan — President, Pharmacy Benefit Management [incorporated by reference to Exhibit 10.36 of the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010 (Commission File No. 001-01011)].
10.34*	2010-2011 Return on Net Assets Long Term Incentive Plan [incorporated by reference to Exhibit 10.37 of the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010 (Commission File No. 001-01011)].
10.35*	Change in Control Agreement dated December 22, 2008 between the Registrant and the Registrant’s Executive Vice President and Chief Financial Officer [incorporated by reference to Exhibit 10.39 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010 (Commission File No. 001-01011)].
10.36*	Letter Agreement dated January 23, 2011 between the Registrant and the Registrant’s former Chairman and Chief Executive Officer [incorporated by reference to Exhibit 10.40 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2011 (Commission File No. 001-01011)].
10.37*	Four Year Credit Agreement dated as of May 12, 2011 by and among the Registrant, the lenders party thereto, Barclays Capital and JP Morgan Chase Bank, N.A., as Co-Syndication Agents, Bank of America, N.A. and Wells Fargo Bank, N.A., as Co-Documentation Agents, and the Bank of New York Mellon, as Administrative Agent [incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2011 (Commission File No. 001-01011)].
10.38*	Letter Agreement dated January 23, 2011 between the Registrant and the Registrant’s former Chairman and Chief Executive Officer [incorporated by reference to Exhibit 10.40 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2011 (Commission File No. 001-01011)].
10.39	Executive Severance Policy effective March 31, 2011.
10.40	2011 Management Incentive Plan.
10.41	Letter Agreement dated August 5, 2011 between the Registrant and the Registrant’s Executive Vice President and President — CVS/pharmacy.
10.42	Change in Control Agreement dated September 1, 2011 between the Registrant and the Registrant’s Executive Vice President and President — CVS/pharmacy.
10.43	Amendment No. 1, dated as of November 22, 2011, to the Five Year Credit Agreement dated as of March 12, 2007 by and among the Registrant, the Lenders party thereto, the Co-Syndication Agents and Documentation Agent named therein, and The Bank of New York Mellon, as Administrative Agent.
10.44	Amendment No. 1, dated as of November 22, 2011, to the Three Year Credit Agreement dated as of May 27, 2010 by and among the Registrant, the Lenders party thereto, the Co-Syndication Agents and Co-Documentation Agents

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	named therein, and The Bank of New York Mellon, as Administrative Agent.
10.45	Amendment No. 1, dated as of November 22, 2011, to the Credit Agreement dated as of May 12, 2011 by and among the Registrant, the Lenders party thereto, the Co-Syndication Agents and Co-Documentation Agents named therein, and The Bank of New York Mellon, as Administrative Agent.
10.46	Form of Performance-Based Restricted Stock Unit Agreement.
10.47	Form of Partnership Equity Plan Purchased and Matching Restricted Stock Unit and Stock Option Agreement.
13	Portions of the 2011 Annual Report to Stockholders of CVS Caremark Corporation, which are specifically designated in this Form 10-K as being incorporated by reference.
21	Subsidiaries of the Registrant.
23	Consent of Ernst & Young LLP.
31.1	Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	The following materials from the CVS Caremark Corporation Annual Report on Form 10-K for the year ended December 31, 2011 formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Statements of Income, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Cash Flows and (iv) related notes.

42

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

	CVS CAREMARK CORPORATION
Date: February 17, 2012	By:	/s/  DAVID M. DENTON
		David M. Denton
		Executive Vice President and Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title(s)	Date
/s/  EDWIN M. BANKS	Director	February 17, 2012
Edwin M. Banks
/s/  C. DAVID BROWN II	Director	February 17, 2012
C.David Brown II
/s/  LAIRD K. DANIELS	Senior Vice President —	February 17, 2012
Laird K. Daniels	Finance and Controller
	(Principal Accounting Officer)
/s/  DAVID M. DENTON	Executive Vice President and Chief	February 17, 2012
David M. Denton	Financial Officer
	(Principal Financial Officer)
/s/  DAVID W. DORMAN	Chairman of the Board and Director	February 17, 2012
David W. Dorman
/s/  ANNE M. FINUCANE	Director	February 17, 2012
Anne M. Finucane
/s/  KRISTEN GIBNEY WILLIAMS	Director	February 17, 2012
Kristen Gibney Williams
/s/  MARIAN L. HEARD	Director	February 17, 2012
Marian L. Heard
/s/  LARRY J. MERLO	President and Chief Executive	February 17, 2012
Larry J. Merlo	Officer (Principal Executive
	Officer) and Director

43

Signature	Title(s)	Date
/s/  JEAN-PIERRE MILLON	Director	February 17, 2012
Jean-Pierre Millon
/s/  TERRENCE MURRAY	Director	February 17, 2012
Terrence Murray
/s/  C.A. LANCE PICCOLO	Director	February 17, 2012
C.A. Lance Piccolo
/s/  RICHARD J. SWIFT	Director	February 17, 2012
Richard J. Swift
/s/  TONY L. WHITE	Director	February 17, 2012
Tony L. White

44

EX-10.39

EXHIBIT 10.39

CVS Caremark Corporation

Senior Executive Severance Policy

It is the policy of CVS Caremark Corporation (the “Company”) that the Company shall not enter into a Future Severance Agreement with a Senior Executive providing Benefits in an amount exceeding the Severance Benefits Limitation unless such Future Severance Agreement receives shareholder approval.

For purposes of this Policy the following terms shall have the indicated meanings:

“Benefits” means the (i) cash amounts payable by the Company in the event of termination of the Senior Executive’s employment, (ii) special benefits or perquisites provided in the event of termination of the Senior Executive’s employment, and (iii) payments, including tax gross-ups, related to offsetting the Senior Executive’s excise taxes under Section 4999 of the Internal Revenue Code.  The term “Benefits” includes both lump-sum payments and the estimated present value of any periodic payments made or special benefits or perquisites provided following the date of termination of a Senior Executive’s employment with the Company.

Notwithstanding the foregoing, the term “Benefits” does not include:

·Salary, incentive compensation, vacation pay and other compensation and benefits earned or accrued prior to the date of the termination of the Senior Executive’s employment including, without limitation, the pro-rata portion (based on the portion of the performance period elapsed through the date of termination) of any outstanding annual or long-term incentive award;

·Compensation and awards provided under the terms of any deferred compensation, retirement or savings plans;

·The payment, vesting, acceleration or other handling of previously granted equity or equity-based awards (including payment of cash in lieu of issuing shares in connection with the vesting or exercise of an equity or equity-based award) provided under plans, programs or arrangements applicable to one or more groups of employees in addition to the Senior Executives;

·The value of health and welfare benefits provided for up to 2.99 years following termination or amounts paid in lieu thereof;

·Post-termination and other special benefits or perquisites provided under plans, programs or arrangements of the Company applicable to one or more groups of employees in addition to the Senior Executives;

·Amounts paid for post-termination covenants (such as a covenant not to compete);

·Amounts payable under retention plans implemented in connection with corporate transactions;

·Amounts paid to “make-whole” any forfeiture of benefits from a prior employer; or

·Any payment that the Management Planning and Development Committee (the “Committee”) determines in good faith to be a reasonable settlement of any potential claims against the Company.

“Effective Date”means March 31, 2011, the effective date of this Policy.

“Future Severance Agreement” means an employment, severance or termination agreement between the Company (or one of its subsidiaries) and a Senior Executive relating to termination of employment entered into after the Effective Date, including any material modification (but excluding any mere extension or renewal) made after the Effective Date to an employment, severance or termination agreement with a Senior Executive that is in effect as of the Effective Date.

“Senior Executive” means a person who at the time of entering into a Future Severance Agreement has been determined by the Company to be subject to the reporting requirements of Section 16 of the Securities Exchange Act of 1934, as amended.

“Severance Benefits Limitation” means 2.99 times the sum of (i) the Senior Executive’s annual base salary, plus (ii) the Senior Executive’s target annual bonus, each as in effect immediately prior to the date of the Senior Executive’s termination of employment.  For purposes of clause (ii) of the preceding sentence, the amount of annual bonus shall be determined without regard to form of payment (e.g., cash, equity or other property).

The Committee shall make any necessary determinations regarding the interpretation of the provisions of this Policy, in its sole discretion, including but not limited to determination of the value of any Benefits provided.

The Committee shall have the right to amend, waive or cancel this Policy at any time if it determines in its sole discretion that such action would be in the best interests of the Company, provided that any such action shall be promptly disclosed.

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EX-10.40

EXHIBIT 10.40

2011 Management Incentive Plan

I.Objectives and Summary

CVS Caremark Corporation’s Management Incentive Plan (the “MIP”) is designed to reward incentive-eligible employees (“Eligible Participants”) of CVS Caremark Corporation and its subsidiaries (together, “the Company”) for their role in driving performance and to encourage Eligible Participants’ continued employment with the Company.  Funding for the payment of incentive awards will be based on actual results measured against pre-established financial goals.  The amount of each incentive award will be based on the performance of the Company, the business unit in which the Eligible Participant works, and the performance of the individual Eligible Participant.

The Management Planning and Development Committee (the “Committee”) of the Board of Directors (the “Board”) may delegate to officers of CVS Caremark the authority to perform administrative functions of the MIP as the Committee may determine and may appoint officers and others to assist it in administering the MIP.

II.Plan Year

The MIP is a calendar year plan, which runs from January 1 to December 31, 2011 (“Plan Year”).  All dates in this document occur during the Plan Year unless otherwise stated.

III.Eligibility

A.  Eligibility for Participation

The Chief Executive Officer of CVS Caremark Corporation (“CEO”) will determine those employees who are eligible for participation in the MIP, provided that the Committee shall determine the eligibility of employees who are subject to Section 162(m) of the Internal Revenue Code (“Section 162(m)”) or who have been identified by the Committee as individuals who may be subject to Section 162(m) (collectively, “162(m) Eligible Participants” and each of whom will also be included in the term “Eligible Participants” unless otherwise noted).  In general, Eligible Participants include all exempt employees who are not covered by any other incentive plans.

Eligibility for participation in the MIP is contingent upon the Eligible Participant being employed in an incentive-eligible position on the last day of the Plan Year.  The CEO (or, as to 162(m) Eligible Participants, the Committee) may, for any reason and in his or her sole discretion, at any time prior to the end of the Plan Year, determine an employee’s eligibility for participation in the Plan.  Eligible Participants are subject to the terms and conditions relating to incentive awards set forth in the MIP.

B.  162(m) Eligible Participants

162(m) Eligible Participants shall be subject to the limitations required to comply with the provisions of Section 162(m).  Subject to the requirements of Section 162(m), the Committee shall retain sole discretion to determine a 162(m) Eligible Participant’s eligibility for an award, the target award, and the amount of the actual award.  In no event shall a 162(m) Eligible Participant’s award exceed the amount permitted by Section 162(m).

C.  Newly-Eligible Employees

An employee will be eligible for a prorated incentive award if he or she becomes an Eligible Participant on or before November 1 of the Plan Year; provided, however, that a 162(m) Eligible Participant shall be eligible for an award for the Plan Year in which he or she was hired or otherwise becomes a 162(m) participant only to the extent that such award does not violate the requirements of Section 162(m).

D.  Transfers

Participants who become newly eligible during the Plan Year may be eligible for a prorated MIP award.  If a change in assignments results in an Eligible Participant being eligible for the MIP for part of the Plan Year and other incentives during other parts of the Plan Year, the participant may be eligible to receive a prorated award for the amount of time in each incentive eligible position, subject to the terms of the other applicable incentive plans.  Change in assignments from one MIP-eligible position to another during the Plan Year does not result in pro rata award but rather an award funded on the base salary of the Eligible Participant on December 31 and the individual award opportunity as of that date.

E.  Demotions

If a previously Eligible Participant is demoted to a non-incentive eligible position due to his or her violation of CVS Caremark policy or his/her performance, or if he or she voluntarily transfers to a non-incentive eligible position during the Plan Year, and is in the non-incentive eligible position on the last day of the Plan Year, he or she will not be eligible to earn an incentive award for the Plan Year under this plan.

F.  Terminations

Unless otherwise stated in Section VII of the MIP, if an Eligible Participant’s employment terminates prior to the final determination of incentive awards for the Plan Year, he or she will not be eligible to receive an incentive award under the MIP.   The final determination of incentive awards generally occurs in February of the year following the Plan Year.

G.  Rehires

Eligible Participants who are rehired on or before November 1 of the Plan Year may be eligible for a prorated incentive award.  For purposes of proration, credit will only be given for time worked during the Plan Year in incentive-eligible positions.

IV.Administration

A.  Consolidated Company Funding

MIP funding is based on consolidated Company Performance, measured by operating profit, Retail Customer Service and Pharmacy Benefit Management (“PBM”) Customer Satisfaction.  Achievement of the Company’s consolidated operating profit target will determine 80% of the total corporate funding; achievement of the Retail Customer Service target, as measured by ‘Triple S’ scores, will determine 10% of the total corporate funding; and achievement of PBM Customer Satisfaction targets will determine the remaining 10% of the total corporate funding.

1.  Operating Profit

Operating profit may be adjusted by the permitted financial adjustments as approved by the Committee prior to the end of the first fiscal quarter of the applicable Plan Year (the “Permitted Financial Adjustments”).

Confidential & Proprietary             

2

If Operating Profit is below the minimum threshhold, (see Exhibit A) no formulaic funding will be made available for incentive awards, regardless of Business Unit performance, and there is no requirement that incentive awards be paid under the MIP.

2.  Pharmacy Services Customer Satisfaction

Achievement of the PBM Customer Satisfaction segment of the incentive will be determined by the aggregate actual performance against target of the weighted composite of the following surveys:

·Client Relationship and Loyalty Survey (weight = 50%)

·Customer Care Survey (weight = 20%)

·Mail Service Pharmacy Survey (weight = 20%)

·Specialty Survey (weight = 10%)

Pharmacy Services Customer Satisfaction funding is subject to adjustment based on the Operating Profit.

3.  Retail Customer Service

The Retail Customer Service segment of the incentive will be measured using the Total Triple ‘S’ actual performance against the target.  The Triple ‘S’ Score Card consists of performance in three elements of customer satisfaction:  Stock, Shop and Service.

Retail Customer Service funding is subject to adjustment based on the Operating Profit.

Measurement	Percent Weight	Measurement Tool	Achievement Measured Against	Modifier
Consolidated Operating Profit	80%	Earnings Before Interest and Taxes (“EBIT”)	2011 EBIT Goal	CEO & Committee Discretion (1) Permitted Financial Adjustments
Pharmacy Services Customer Satisfaction	10%	Client Relationship and Loyalty, Customer Care, Mail Service and Specialty Surveys	2011 PBM Customer Satisfaction Target	Operating Profit Funding
Retail Customer Service	10%	Triple “S” Scorecard	2011 Triple “S” Target	Operating Profit Funding

(1)  May not modify pool for 162(m) Eligible Participants

B.  Business Unit Funding

After the achievement of consolidated corporate performance level is determined, performance will be calculated for each of the business units (i.e., Retail, Pharmacy Benefit Management and Shared Services) based on the achievement of the respective business unit’s actual EBIT compared to the EBIT target for the performance period.

The total funding for the Retail and PBM Business Units will be based on is a combination of the respective Business Unit’s EBIT results compared to target, which funds seventy-five percent (75%) of the respective Business Unit’s total pool, and the consolidated Company Operating Profit/Customer Service and Satisfaction performance, which funds the remaining twenty-five percent (25%) of the Business Unit’s total pool.  The total funding for the Shared Services Business Units will fully based (100%) on corporate EBIT performance.

3

The CEO may adjust Business Unit and Shared Services pool funding at his discretion resulting from (a) input from the Business Unit Presidents and Finance regarding the performance of the Business Unit to assist the CEO and the Committee in their assessment of the overall performance; and (b) the CEO’s (or, in the case of 162(m) Eligible Participants’s, the Committee’s) assessment of the achievement of Plan Year performance goals by the business unit.

C.  Management Discretion

The Total Pool will be available for managers to award to Eligible Participants, taking into account the aggregate contributions made by the Eligible Participants. The amount, if any, of the calculated incentive award for an Eligible Participant shall be detemined in the sole discretion of CVS Caremark management.   The amount, if any, of the calculated incentive award for a 162(m) Eligible Participant shall be determined in the sole discretion of the Committee.

V.MIP Earnings and Payout

A.  Timing

Incentive awards will be paid to Eligible Participants as soon as administratively feasible following the date the Total Pool is funded and calculation of incentive payments may be ascertained, which will be in the year following the Plan Year, on or before March 15.  Payments may be subject to delay to comply with garnishments and other state or federal requirements.

B.  Calculations

Calculations for full and partial awards will be based on each Eligible Participant’s annual base salary and individual target opportunity on the last day of the Plan Year.

For purposes of proration, the 15th of the month will be used to determine if the month is included or excluded from the incentive calculation, as follows:

1.If an Eligible Participant is hired or returns to work from an authorized leave of absence on or before the 15th of the month, the month will be included in the incentive calculations.

2.If an Eligible Participant is hired or returns to work from an authorized leave of absence after the 15th of the month, then such month will be excluded from the incentive calculations.

3.If an Eligible Participant’s employment is terminated on or before the 15th of the month and the Eligible Employee remains eligible for an award pursuant to this plan, then the month will be excluded from incentive calculations.

4.If an Eligible Participant’s employment is terminated after the 15th of the month and the Eligible Participant remains eligible for an award pursuant to this plan, then the month will be included in the incentive calculations.

Examples:

a.An Eligible Participant is hired on September 14th.  Because the Eligible Participant is actively employed prior to the 15th of September, the month of September will be included in his/her prorated incentive award and the Eligible Participant will receive a prorated incentive award covering a total of four months.  The award will be calculated using the Eligible Participant’s individual award opportunity target and base salary as of December 31st.

4

bAn Eligible Participant begins a personal leave of absence on June 3rd and returns to active status on July 22nd.  Assuming the Eligible Participant was incentive eligible for the entire year, the months of June and July will be excluded from the Eligible Participant’s incentive award and the Eligible Participant will receive a prorated incentive award covering a total of 10 months.  The award will be calculated using the Eligible Participant’s individual award opportunity target and base salary as of December 31st.

C.  Award Opportunity

Individual target awards will be determined by position and may vary based on the Eligible Participant’s level in the organization.

D.  Obligation to Pay Total Pool

Eligible Participants, as a group, have a right to receive an amount at least equal to the Total Pool, but no individual Eligible Participant shall be entitled to receive an award or any specific amount of the Total Pool.  In no event will the aggregate of the total awards paid from the MIP be less than the amount of the Total Pool.

VI.Corrections to Incentive Awards

Any corrections to incentive calculations must be submitted through the Human Resources Business Partner to Compensation by April 15 of the year following the Plan Year.

VII.Eligible Participant Status

A.  Performance

An Eligible Participant’s eligibility for a MIP award is discretionary and his or her individual performance throughout the Plan Year will be considered by a manager in the final determination of the Eligible Participant’s incentive award.

B.  Leaves of Absence

An Eligible Participant on a Company-approved leave of absence at any time during the Plan Year who remains employed in an eligible position as of the last day of the Plan Year will earn a prorated incentive award based on the number of months actively worked (including time compensated as vacation or Paid Time Off (“PTO”)) during the Plan Year, provided he or she meets all other eligibility criteria for an incentive award.  For purposes of proration, the 15th of the month will be used to determine if the month is included or excluded from the incentive calculation, as set forth above.

C.  Reduction in Force, Retirement and Death

1.  Reduction in Force

If an Eligible Participant is separated from employment by the Company on or before the last day of the Plan Year due to a reduction in force, he or she will earn a prorated incentive award based on the number of months worked during the Plan Year, provided the Eligible Participant meets all other eligibility criteria for an incentive award.  For purposes of proration, the 15th of the month will be used to determine if the month is included or excluded from the incentive calculation, as set forth above.

2.  Retirement

If an Eligible Participant is at least age 55 and has a minimum of 10 years of service with CVS Caremark or a predecessor company/subsidiary or is at least age 60 and has a minimum of 5 years of service with CVS Caremark or a predecessor company/subsidiary and the Eligible

5

Participant retires before the end of the Plan Year, he/she will earn a prorated incentive based on the number of months worked during the Plan Year, provided he/she meets all other eligibility criteria for an incentive award.  Earned incentives will be paid at the same time as other incentives are paid under this Plan.  Eligible Participants who do not meet the minimum retirement requirements at the time of retirement and who retire before the end of the Plan Year will not be eligible to earn an incentive award.

3.  Death

In case of the death of an Eligible Participant, a pro rated incentive award shall be paid to the Eligible Participant’s spouse, if living; otherwise, in equal shares to surviving children of the Eligible Participant.  If there are no surviving children, the benefit shall be paid to the Eligible Participant’s parents in equal shares; and in the event none of the above-named individuals survives the Eligible Participant, the death benefit shall be paid to the executor or administrator of the Eligible Participant’s estate.  The incentive award will be prorated based on the number of months the Eligible Participant worked during the Plan Year and shall be paid as soon as administratively practicable following the death of the Eligible Participant but no later than March 15 of the year following the Plan Year.  If final performance numbers are not available at the time of the employee’s death, the incentive award will be calculated using the incentive target and the number of months worked.

VIII.   Employment Rights

The MIP does not create an express or implied contract of employment between CVS Caremark and an Eligible Participant.  Both CVS Caremark and the Eligible Participant retain the right to terminate the employment relationship at will, at any time and for any reason.

A.  Rights are Non-Assignable

Neither the Eligible Participant, nor any beneficiary, nor any other person shall have any right to assign, in whole or in part, the right to receive payments under the MIP.  Payments are non-assignable and non-transferable, whether voluntarily or involuntarily.

B.  Compliance with Applicable Regulations

An Eligible Participant must comply with all applicable state and federal regulations and CVS Caremark policies to be eligible to receive an incentive award under the MIP.

C.  Change in Control

In the event of a change in control of CVS Caremark, as defined in the 2010 Incentive Compensation Plan (“ICP”), the MIP shall remain in full force and effect.  Any amendments, modifications, termination or dissolution of the MIP by the acquiring entity may only occur prospectively and will not affect incentive earnings or eligibility before the date of the change in control, or such date as it may be modified or dissolved by the acquiring entity.

Provisions regarding the payment of annual incentive awards that are set forth in Change in Control agreements shall supersede those appearing in the MIP.

D.  2010 Incentive Compensation Plan

Capitalized terms not otherwise defined herein shall have the meaning assigned to such defined term(s) in the ICP.   In the event of any conflict between the ICP and the MIP, the terms of the ICP shall govern.

6

E.  Withholding

All required deductions will be withheld from the incentive awards prior to distribution. This includes all applicable federal, state, or local taxes, as well as any eligible 401(k) deductions and deferred compensation contributions as defined by the applicable plans.  Incentive awards that are deferred will be taxed according to applicable federal and state tax law.

F.  MIP Amendment/Modification/Termination

CVS Caremark retains the right to amend, modify, or terminate the MIP at any time on or before the last day of the Plan Year for any reason, with or without notice to Eligible Participants.

G.  MIP Interpretation

All requests for interpretation of any provision in the MIP must be submitted to the CVS Caremark Compensation Department.  Failure to submit a request for resolution of a dispute or question within 30 days of distribution of the incentive award may result in a waiver of the Eligible Participant’s rights to dispute the MIP provision or amount of the incentive award.

CVS Caremark will comply with all applicable laws concerning incentive awards; the MIP and its administration are not intended to conflict with any applicable state or federal law.

H.  Recoupment of Incentive Awards Due to Fraud or Financial Misconduct

If the Board determines that fraud or financial misconduct has occurred in a manner which subjects a recipient of a MIP award to recoupment under the Company’s recoupment policy, as in effect from time to time, the MIP award recipient shall immediately repay to the Company the entire incentive award received by the MIP award recipient, or a portion thereof as determined by the Board.  If a MIP award recipient fails to repay his or her incentive award (or portion thereof) immediately upon request by the Board, the Company may seek reimbursement of such amount from the MIP award recipient by reducing salary or any other payments that may be due to the MIP award recipient, to the extent legally permissible, and/or through initiating a legal action to recover such amount, which recovery shall include any reasonable attorneys fees incurred by the Company in bringing such action.  If a MIP award recipient has deferred payment of any portion of an incentive award that is subject to repayment hereunder, the amount of the MIP award recipient’s deferred compensation accrual shall be reduced by the amount subject to repayment, plus all Company matching amounts and earnings on such amount.

I.  Section 409A of the Internal Revenue Code

The Company intends that this Plan not violate any applicable provision of, or result in any additional tax or penalty under, Section 409A of the Internal Revenue Code of 1986 (the “Code”), as amended, and that to the extent any provisions of the 162(m) Plan do not comply with Code Section 409A the Company will make such changes in order to comply with Code Section 409A.  In all events, to the extent required to avoid a violation of the applicable rules under Section 409A by reason of Section 409A(a)(2)(B)(i) of the Code, payment of any amounts subject to Section 409A of the Code shall be delayed until the relevant date of payment that will result in compliance with the rules of Section 409A(a)(2)(B)(i) of the Code.

7

Exhibit A — Corporate MIP Funding

Consolidated
Operating Profit

Results	% Payout
106%	200%
105%	180%
104%	160%
103%	140%
102%	120%
99% -101%	100%
98%	90%
97%	83%
96%	75%
95%	68%
94%	60%
93%	53%
92%	45%
91%	38%
90%	30%
89%	25%
<89%	0%

Customer Service
Retail Triple ‘S’
(10%)

Results	% Payout
100.0%	100%
99.0%	95%
98.0%	90%
97.0%	85%
96.0%	80%
95.0%	75%
94.0%	70%
93.0%	65%
92.0%	60%
91.0%	55%
90.0%	50%
89.0%	25%
<89.0%	0%

PBM Customer
Satisfaction
(10%)

Results	% Payout
100.0%	100%
99.0%	95%
98.0%	90%
97.0%	85%
96.0%	80%
95.0%	75%
94.0%	70%
93.0%	65%
92.0%	60%
91.0%	55%
90.0%	50%
89.0%	25%
<89.0%	0%

8

EX-10.41

EXHIBIT 10.41

August 5, 2011

Mr. Mark Cosby

***********

***********

Dear Mark,

On behalf of CVS Caremark, I am pleased to offer you the position of President of CVS Pharmacy and Executive Vice President of CVS Caremark.  You will be an employee of CVS Pharmacy, Inc. (“CVS”), a subsidiary of CVS Caremark Corporation (“CVS Caremark”), and will report to Larry Merlo, President and Chief Executive Officer of CVS Caremark.  If you accept this offer, we anticipate that your first day of employment will be in late August or early September, 2011; you and CVS will agree upon a specific starting date in the near future.

This letter sets forth the basic components of your compensation and the conditions of this offer.  It is not intended to be a comprehensive description of all benefits available to you or to provide all of the details of the plans that govern the administration of benefits, as our benefit offerings change periodically.  As an employee, you will be able to access information about your benefits at any time through our employee portal.  In the meantime, if you have questions about your compensation or benefits, please contact me.

Compensation

Subject to the conditions of your employment set forth below and the commencement of your employment, you will be eligible for the following:

·Salary:  Your initial annualized base salary will be $900,000.  Paydays are monthly, in the middle of the month.

·Annual Cash Incentive:  You will be eligible to participate in the CVS Caremark Management Incentive Plan (“MIP”), our annual cash bonus program designed to reward employees for their role in achieving company success.  Your target award will be 150% of your annual base salary.  The actual award amount will be determined in accordance with the provisions of the MIP, based on measures of CVS Caremark’s performance as well as your individual performance.  Notwithstanding the foregoing, for the 2011 performance year only, the amount of your MIP award will be the target amount (i.e., $1,350,000).

·Annual Equity Award Program:  You will be eligible to participate in CVS Caremark’s Annual Equity Awards program.  The target value of your 2012 Annual Equity Award will be $1,500,000; the actual award will be based on your individual performance and CVS Caremark’s performance, and the awards will be granted in early April 2012.  Based on your position, 50% of the value of your 2012 equity award will be delivered in stock options and 50% will be delivered in restricted stock units (RSUs).  Please note that your receipt of each annual RSU award will be contingent on your

acceptance of certain restrictive covenants, including non-competition, non-solicitation and confidentiality covenants.  Eligibility, target opportunity levels, vesting schedules and the portion of the award allocated to RSUs and stock options are reviewed and subject to adjustment on an annual basis.  The grant date for the Annual Equity Awards program typically occurs in April of each year.  All equity awards are subject to the 2010 Incentive Compensation Plan of CVS Caremark Corporation as well as the terms of the agreements granting stock options and RSUs.

·Long Term Incentive Plan:  You will be eligible to participate in the CVS Caremark Long Term Incentive Plan (“LTIP”) beginning with the 2011-2013 performance cycle.  Your target LTIP award value for the 2011-2013 performance cycle will be $2,000,000 and your target LTIP award value for the 2012-2014 performance cycle will be $1,500,000.  Under the terms of the LTIP, 50% of the actual award is payable in cash and 50% is payable in CVS Caremark common stock, subject to a two-year hold period.  The actual LTIP award amounts will be determined in accordance with the terms of the LTIP.  Eligibility and target award levels are reviewed and subject to adjustment on an annual basis.  If the Company terminates your employment without Cause (as defined below) and you receive severance, then you will be eligible for the LTIP award, determined in accordance with the LTIP and pro-rated based on the length of the performance cycle completed as of the last day of your employment.

·Sign-on Equity Award:  Contingent upon the commencement of your employment with CVS, you will be granted an award of RSUs and an award of stock options at the time you begin working for the Company.  The value of the RSUs as of the grant date will be $4,500,000, of which one third will vest on the date you begin work, one third will vest on the first anniversary of your start date, and one third will vest on the second anniversary of your start date.  Disposition of the RSUs will be subject to a two-year hold period following each vesting date.  The Black-Scholes value of the stock options as of the grant date will be $1,500,000.  One third of the options will vest on the first anniversary of your start date, one third of the options will vest on the second anniversary of your start date, and one third of the options will vest on the third anniversary of your start date.  These sign-on equity awards will be subject to the 2010 Incentive Compensation Plan of CVS Caremark Corporation as well as the terms of the agreements granting the RSUs and stock options.  If your employment is terminated by the Company without Cause and you receive severance, then, provided that you remain compliant at all times with your obligations under the Non-Competition, Non-Disclosure and Developments Agreement:  (a) the sign-on equity awards will continue to vest during the severance period; (b) any portions of the sign-on equity awards that have not vested as of the last day of the severance period shall accelerate and vest on the last day of the severance period, and (c) you will have one year from the end of the severance period to exercise such options, not to exceed the maximum term of the option.

·Return on Net Assets Long Term Incentive Plan (“RoNA LTIP”):  You will be eligible to participate in the RoNA LTIP for the July 2010 through December 2011 cycle.  The target value of this award will be $1,000,000 and will be paid in cash.  The actual award amount will be determined in accordance with the terms of the RoNA LTIP, provided that the award will not be prorated based on your service with the Company except as follows:  if the Company terminates your employment without Cause during the performance period and you receive severance, then you will be eligible for a RoNA LTIP award, determined in accordance with the RoNA LTIP and

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pro-rated based on the length of the performance period completed as of the last day of your employment.

·Benefits:  CVS Caremark offers a wide range of benefits to our employees, including medical and dental insurance, a 401(k) plan, an Employee Stock Purchase Plan, and many other benefits as set forth on the enclosed benefits summary.  Your benefits will include an annual financial planning allowance of $15,000 per year and the installation and maintenance of a home security system selected by the Company.  You will also be eligible for our executive relocation benefit plan, including reimbursement for a home-finding trip for a maximum of six nights, temporary living accommodations for up to 90 days, home sale assistance, reimbursement of closing costs on a home purchase, and moving expenses.  Following the commencement of your employment with CVS, for business travel you will be eligible to use the Company jet or for reimbursement for First Class or Business Class seating if the Company jet is not available.  Please note that certain benefits require minimum tenure before you are eligible to participate and that our benefit offerings are subject to change.  If you incur extra costs to continue your health insurance coverage pursuant to COBRA until you become eligible to participate in CVS Caremark’s medical insurance program, you will be eligible to receive reimbursement for your additional costs, up to a maximum of $2,500.00.

·Deferred Compensation Plan:  You will be eligible to participate in the CVS Caremark Deferred Compensation Plan, which allows you to defer, on a pre-tax basis and with some limitations, up to 100% of your annual cash incentive and up to 85% of your annual base salary, and receive up to a 5% match of eligible compensation after one year of employment.

·Deferred Stock Compensation Plan: You will be eligible to participate in the CVS Caremark Deferred Stock Compensation Plan, which allows you to defer up to 100% of restricted stock units you receive.

·Vacation:  You will be eligible to accrue up to four weeks of vacation per calendar year, pro-rated for any partial years.  You will begin accruing vacation as of your first day of employment.  More information about your vacation accrual and usage is set forth in the CVS Caremark vacation policy.

·Change in Control Agreement: You will be eligible for CVS Caremark’s standard Change in Control Agreement.  As set forth in the Change in Control Agreement, you would be eligible for a severance benefit equal to 1.5 times your base salary and annual target bonus in the event that you were terminated involuntarily after a change in control (as defined in the Change in Control Agreement).

·Eligibility for Severance Pay.  In the event that your employment is terminated by the Company without Cause, CVS will offer you a separation agreement in a form provided by the Company that will include monthly severance payments in an amount equal to your monthly base salary in effect immediately prior to your separation, a pro rata MIP award for the year of termination (payable when MIP awards are ordinarily paid), as well as the opportunity to continue participating in the Company’s medical, prescription and dental insurance plans (collectively, the “health benefits”) on the same terms available during your employment, for 18 months or the date on which you obtain employment elsewhere, whichever occurs first.  In addition, if your employment is

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terminated by the Company without Cause and you receive severance, you will also be eligible for benefits in accordance with the terms described above in the sections of this offer letter labeled “Long Term Incentive Plan,” “Sign-on Equity Award” and “Return on Net Assets Long Term Incentive Plan.”  The separation agreement will also include a general release of claims and other standard provisions.  For purposes of this offer letter, Cause shall mean that the Company, in its sole discretion, has determined that you have: (a) violated the terms of your Non-Competition, Non-Disclosure and Developments Agreement; (b) willfully violated the CVS Caremark Code of Conduct or any of CVS Caremark’s other policies; (c) engaged in dishonest or fraudulent conduct; or (d) willfully engaged in conduct that is detrimental to CVS Caremark’s reputation.  If you resign from your employment with CVS or are terminated with Cause, you will not be eligible for severance pay.

Conditions of Offer

This offer and your employment are contingent upon the successful results of a drug-screening test as well as a criminal background check.  We will provide instructions for scheduling a drug testing appointment, which must be completed within 48 hours of your receiving this written offer.

In addition, as a condition of this offer and your employment with CVS, you are required to sign the Non-Competition, Non-Disclosure and Developments Agreement attached hereto prior to beginning your employment.  Further, you agree that you will not disclose or use, except in the course of your duties for CVS, any Confidential Information (as defined in the Non-Competition, Non-Disclosure and Developments Agreement) that is or has been provided to you by CVS prior to your employment with the Company.

CVS prohibits its employees from using or disclosing trade secrets or other confidential information from prior employers in connection with their employment at CVS.  Accordingly, as a further condition of your employment with CVS, you may not use or disclose any confidential information or trade secrets from Macy’s, Inc. (“Macy’s”) or any other former employer.

We understand that you have entered into a Noncompetition, Nonsolicitation and Confidential Information Agreement with Macy’s (the “Macy’s Noncompete Agreement”).  As you know, we have shared CVS’s confidential information with you regarding CVS’s aggregate sales revenue for FY 2010 for the categories of Cosmetics, Fragrances and Skin Care.  You have represented to us that, based on the information that we provided you, in the aggregate, CVS does not derive revenue in excess of 50% of Macy’s total revenues for the most recently completed fiscal year from the same categories of merchandise that are offered by Macy’s.  Based on this representation, CVS believes that the Macy’s Noncompete Agreement will not prevent you from accepting this offer or fulfilling your job duties in the position offered.  In recognition thereof, this offer, the commencement of your employment at CVS and your entitlement to any proposed compensation and benefits set forth herein are contingent upon your material representations, and by signing below you hereby represent and warrant, that all information you have communicated to CVS bearing upon the applicability of the Macy’s Noncompete Agreement is accurate and complete.

It is essential to CVS that any potential dispute with Macy’s regarding your Macy’s Noncompete Agreement be avoided or resolved promptly and amicably and, as a condition of this offer, you agree to act in good faith and cooperate fully with CVS in the event of such

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dispute.  You and CVS acknowledge that it is possible that unanticipated delays may occur in connection with your departure from Macy’s, including but not limited to delays related to the exercise of your Macy’s stock options or sale of Macy’s stock, delays in discussing the matter of your Macy’s Noncompete Agreement with Macy’s, and/or delays arising from a dispute with Macy’s concerning your Macy’s Noncompete Agreement.  Accordingly, CVS expressly reserves the right (a) to delay the commencement of your employment and/or (b) to withdraw this offer in the event that a dispute with Macy’s arises concerning your Macy’s Noncompete Agreement and CVS determines that a resolution of the dispute cannot be reached in a manner or in an amount of time that is satisfactory to the Company.  In making such decision, CVS will act reasonably and in good faith.

In the event that CVS withdraws this offer and you do not become an employee of CVS because of a dispute regarding the Macy’s Noncompete Agreement and do not remain an employee of Macy’s or otherwise retain the value of your equity with Macy’s, CVS will pay you the total amount of $3.375 Million, paid in equal monthly installments over the course of eighteen (18) months, provided that no such payments shall be due if any of the representations made by you and upon which CVS has relied in assessing the applicability of the Macy’s Noncompete Agreement to your employment with CVS are inaccurate.  This payment is further conditioned on (a) your execution of a release of claims against the Company in the form provided by the Company and (b) your agreement, subject to any limitations placed on you by the Macy’s Noncompete Agreement, to provide consulting services to CVS during the 18-month payment period at no additional fee.  Further, in the event that a dispute with Macy’s arises after you have started work with CVS and CVS decides to suspend your employment while the issue is resolved, CVS will continue to pay your salary and provide benefits during the period of such suspension, and such time will count as active employment for the purpose of vesting periods associated with your equity awards and incentive payments.  In the event that your employment is terminated by the Company without Cause while you are suspended due to a dispute with Macy’s concerning the Macy’s Noncompete Agreement, CVS will offer you a separation agreement in a form provided by the Company that will offer the benefits described above in the section of this offer letter labeled “Eligibility for Severance Pay.”  In the event that you resign from your employment with CVS or are terminated with Cause while you are suspended due to a dispute with Macy’s concerning the Macy’s Noncompete Agreement, you will not be eligible for severance pay.

Also in connection with our discussions regarding this offer you have provided copies of various Nonqualified Stock Option Agreements between you and Macy’s dated March 23, 2007, March 20, 2009, March 19, 2010, and March 25, 2011 (the “Macy’s NQSO’s”), as well as various Performance-Based Restricted Stock Unit Agreements between you and Macy’s dated March 20, 2009, March 19, 2010, and March 25, 2011 (the “Macy’s RSUs”).  You have represented that, apart from these Macy’s NQSO’s, these Macy’s RSUs and the Macy’s Noncompete Agreement, you have no other agreements in your possession between you and Macy’s relating to your current terms, conditions and benefits of employment with Macy’s.  CVS has materially and substantially relied upon your representations in this regard in making this offer.  In recognition thereof, this offer, the commencement of your employment at CVS and your entitlement to any proposed compensation and benefits set forth herein are contingent upon your material representations, and by signing below you hereby represent and warrant, that apart from the Macy’s NQSO’s, the Macy’s RSUs and the Macy’s Noncompete Agreement, you have no other agreements in your possession between you and Macy’s relating to your terms, conditions and benefits of employment with Macy’s,

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and that you are not aware of any other agreements between you and Macy’s relating to your terms, conditions and benefits of employment with Macy’s.

While we anticipate that you will have a long, successful and rewarding career with CVS Caremark, this offer is for “at will” employment, and either you or CVS Caremark may terminate the employment relationship at any time and for any reason.

Please indicate your acceptance of this offer by countersigning this letter and returning the original to me, along with the requested new hire paperwork in this package, including the Non-Competition, Non-Disclosure and Developments Agreement.  Please remember to retain a copy of this letter as well as a copy of the Non-Competition, Non-Disclosure and Developments Agreement.

Sincerely,

/s/ Lisa G. Bisaccia

Lisa G. Bisaccia

Senior Vice President, Chief Human Resources Officer

CVS Caremark

Attachments

Accepted and agreed to on the 8th day of August, 2011.

/s/ Mark Cosby

Mark Cosby

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EX-10.42

EXHIBIT 10.42

CVS CAREMARK CORPORATION

Change in Control Agreement for

Mark Cosby

CONFIDENTIAL As revised through August 2011

		Page
1.	Definitions	1
2.	Term of Agreement	4
3.	Entitlement to Severance Benefit	5
4.	Confidentiality; Cooperation with Regard to Litigation; Non-disparagement	7
5.	Non-solicitation	8
6.	Remedies	8
7.	Effect of Agreement on Other Benefits	9
8.	Not an Employment Agreement	9
9.	Resolution of Disputes	9
10.	Assignability; Binding Nature	9
11.	Representation	9
12.	Amendment or Waiver; Section 409A	9
13.	Severability	10
14.	Survivorship	10
15.	Beneficiaries/References	10
16.	Governing Law/Jurisdiction	10
17.	Notices	10
18.	Headings	11
19.	Counterparts	11

This Change in Control Agreement (“Agreement”) is made and entered into as of September 1, 2011 between CVS Pharmacy, Inc. (“CVS”) and Mark Cosby (the “Executive”).

WHEREAS, the Board of Directors (the “Board”) of CVS Caremark Corporation (“CVS Caremark” or the “Company”) believes it is necessary and desirable for the Company to be able to rely upon Executive to continue serving in Executive’s position with the Company in the event of a pending or actual change in control of CVS Caremark;

WHEREAS, Executive is employed by a Subsidiary of CVS Caremark, and this Agreement shall not alter Executive’s status as an employee at will;

NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein and for other good and valuable consideration, the receipt of which is mutually acknowledged, CVS and the Executive (individually a “Party” and together the “Parties”) agree as follows:

1.Definitions.

a.“Base Salary” shall mean Executive’s annual rate of base salary at the time of Executive’s termination of employment or, if greater, as in effect immediately prior to a Change in Control.

b.“Cause” shall exist if:

i.Executive willfully and materially breaches Sections 4 or 5 of this Agreement;

ii.Executive is convicted of a felony involving moral turpitude; or

iii.Executive engages in conduct that constitutes willful gross neglect or willful gross misconduct in carrying out Executive’s duties under this Agreement, resulting, in either case, in material harm to the financial condition or reputation of the Company.

For purposes of this Agreement, an act or failure to act on Executive’s part shall be considered “willful” if it was done or omitted to be done by Executive not in good faith, and shall not include any act or failure to act resulting from any incapacity of Executive. A termination for Cause shall not take effect absent compliance with the provisions of this paragraph. Executive shall be given written notice by the Company of its intention to terminate Executive’s employment for Cause, such notice (A) to state in detail the particular act or acts or failure or failures to act that constitute the grounds on which the proposed termination for Cause is based and (B) to be given within 90 days of the Company’s learning of such act or acts or failure or failures to act. Executive shall have 20 days after the date that such written notice has been given to Executive in which to cure such conduct, to extent such cure is possible. If Executive fails to cure such conduct, Executive shall then be entitled to a hearing before the Committee, or an officer or officers designated by the Committee, at which Executive is entitled to appear. Such hearing shall be held within 25 days of such notice to Executive, provided Executive requests such hearing within 10 days of the written notice from the Company of the intention to terminate Executive for Cause. If, within five days following such hearing, Executive is furnished written notice by the Committee confirming that, in its judgment, grounds for Cause on the basis of the original notice exist, Executive shall thereupon be terminated for Cause. Executive’s right to cure in accordance with this provision applies only in the event of a Change in Control as defined in Section 1(c) below and does not alter Executive’s “at will” employment status.

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c.A “Change in Control” shall be deemed to have occurred if:

(i)any Person (other than (w) the Company, (x) any trustee or other fiduciary holding securities under any employee benefit plan of the Company, (y) any company owned, directly or indirectly, by the stockholders of the Company immediately after the occurrence with respect to which the evaluation is being made in substantially the same proportions as their ownership of the common stock of the Company immediately prior to such occurrence or (z) any surviving or resulting entity from a merger or consolidation referred to in clause (iii)  below that does not constitute a Change of Control under clause (iii) below) becomes the Beneficial Owner (except that a Person shall be deemed to be the Beneficial Owner of all shares that any such Person has the right to acquire pursuant to any agreement or arrangement or upon exercise of conversion rights, warrants or options or otherwise, without regard to the sixty day period referred to in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company or of any subsidiary owning directly or indirectly all or substantially all of the consolidated assets of the Company (a “Significant Subsidiary”), representing 30% or more of the combined voting power of the Company’s or such Significant Subsidiary’s then outstanding securities;

(ii)during any period of twelve (12) consecutive months, individuals who at the beginning of such period constitute the Board, and any new director whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the twelve (12) month period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board;

(iii)the consummation of a merger or consolidation of the Company or any Significant Subsidiary with any other entity, other than a merger or consolidation which would result in the voting securities of the Company or a Significant Subsidiary outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving or resulting entity) more than 50% of the combined voting power of the surviving or resulting entity outstanding immediately after such merger or consolidation; or

(iv)the consummation of a transaction (or series of transactions within a 12 month period) which constitutes the sale or disposition of all or substantially all of the consolidated assets of the Company but in no event assets having a gross fair market value of less than 40% of the total gross fair market value of all of the consolidated assets of the Company (other than such a sale or disposition immediately after which such assets will be owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the common stock of the Company immediately prior to such sale or disposition).

For purposes of this definition:

(A)The term “Beneficial Owner” shall have the meaning ascribed to such term in Rule 13d-3 under the Exchange Act (including any successor to such Rule).

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(B)The term “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, or any successor act thereto.

(C)The term “Person” shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including “group” as defined in Section 13(d) thereof.

d.“Committee” shall mean the Management Planning and Development Committee of the Board, or the corresponding committee of the board of directors of a successor to CVS Caremark.

e.“Company” shall mean, collectively, CVS Caremark and any Subsidiary or affiliate of CVS Caremark.

f.“Confidential Information” shall have the meaning set forth in Section 4 below.

g.“Constructive Termination Without Cause” shall mean a termination of the Executive’s employment at Executive’s initiative following the occurrence, without the Executive’s written consent, of one or more of the following events (except as a result of a prior termination):

i.an assignment of any duties to Executive that is inconsistent with Executive’s status as a member of the senior management of CVS Caremark;

ii.a decrease in Executive’s annual base salary or target annual incentive award opportunity;

iii.any failure to secure the agreement of any successor to CVS Caremark to fully assume the Company’s obligations under this Agreement; or

iv.a relocation of Executive’s principal place of employment more than 35 miles from Executive’s place of employment before such relocation.

h.“Disability” shall mean disability as that term is defined in the Company’s Long-Term Disability Plan.

i.“Effective Date” shall have the meaning set forth in Section 2 below.

j.“Original Term” shall have the meaning set forth in Section 2 below.

k.“Renewal Term” shall have the meaning set forth in Section 2 below.

l.“Severance Period” shall mean the period of 18 months following the termination of Executive’s employment with the Company.

m.“Subsidiary” shall have the meaning set forth in Section 4 below.

n.“Term” shall have the meaning set forth in Section 2 below.

o.“termination of employment”, “employment is terminated” and other similar words shall mean with respect to Executive

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(i)            for any plan or arrangement that is subject to the rules of Section 409A of the Internal Revenue Code (the “Code”) a “Separation from Service” as such term is defined in the Income Tax Regulations under Section 409A (the “409A Regulations”) of the Code as modified by the rules described below:

(A)except in the case where Executive is on a bona fide leave of absence pursuant to the Company’s policies as provided below, Executive is deemed to have incurred a Separation from Service on a date if the company and Executive reasonably anticipate that the level of services to be performed by Executive after such date would be permanently reduced to 20% or less of the average services rendered by Executive during the immediately preceding 36-month period (or the total period of employment, if less than 36 months), disregarding periods during which Executive was on a bona fide leave of absence;

(B)if Executive is absent from work due to military leave, sick leave, or other bona fide leave of absence pursuant to the Company’s policies, Executive shall incur a Separation from Service on the first date that the rules of (A), above, are satisfied following the later of (i) the six-month anniversary of the commencement of the leave or (ii) the expiration of Executive’s right, if any, to reemployment under statute, contract or Company policy;

(C)Executive shall be considered to continue employment and to not have a Separation from Service while on a bona fide leave of absence pursuant to the Company’s policies if the leave does not exceed 6 consecutive months (12) months for a disability leave of absence) or, if longer, so long as the Executive retains a right to reemployment with the Company or an Affiliate under an applicable statute, contract or Company policy.  For this purpose, a “disability leave of absence” is an absence due to any medically determinable physical or mental impairment of Executive that can be expected to result in death or can be expected to last for a continuous period of not less than 6 months, where such impairment causes Executive to be unable to perform the duties of Executive’s job or a substantially similar job;

(D)for purposes of determining whether another organization is an Affiliate of the Company, common ownership of at least 50% shall be determinative;

(E)the Company specifically reserves the right to determine whether a sale or other disposition of substantial assets to an unrelated party constitutes a Separation from Service with respect to Executive providing services to the seller immediately prior to the transaction and providing services to the buyer after the transaction.  Such determination shall be made in accordance with the requirements of Section 409A of the Code; or

(ii)for any plan or arrangement that is not subject to the rules of Section 409A of the Code, the complete cessation of providing service to the Company or any Affiliate as an employee.

2.Term of Agreement.

The term of this Agreement shall commence on the date of this Agreement (the “Effective Date”) and end on the third anniversary of such date (the “Original Term”).  The Original Term shall be automatically renewed for successive one-year terms (the “Renewal Terms”) unless at least 180

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days prior to the expiration of the Original Term or any Renewal Term, either Party notifies the other Party in writing that he/she or it is electing to terminate this Agreement at the expiration of the then current Term. “Term” shall mean the Original Term and all Renewal Terms.  If a Change in Control shall have occurred during the Term, notwithstanding any other provision of this Section 2, the Term shall not expire earlier than two years after such Change in Control.

3.Entitlement to Severance Benefit.

a.Severance Benefit.  In the event Executive’s employment with the Company is Terminated Without Cause, other than due to death, or Disability, or in the event there is a Constructive Termination Without Cause within two years following a Change in Control, Executive shall be entitled to receive:

i.Base Salary through the date of termination of Executive’s employment, which shall be paid in a cash lump sum not later than 15 days following Executive’s termination of employment;

ii.An amount equal to 1.5 times Executive’s Base Salary in effect on the date of termination of Executive’s employment (or in the event a reduction in Base Salary is a basis for a Constructive Termination Without Cause, then the Base Salary in effect immediately prior to such reduction), payable in a cash lump sum promptly (but in no event later than 15 days) following Executive’s termination of employment;

iii.An amount equal to the sum of (A) the most recently established target annual cash incentive bonus amount, pro rated based on the portion of the performance year that Executive has worked as of the date of Executive’s termination, plus (B) 25% of Base Salary (which represents an amount equal to the cash value of the target annual Performance-Based Restricted Stock unit award for the year in which termination occurs), pro rated based on the portion of the performance year that Executive has worked as of the date of Executive’s termination.  The Base Salary will be determined in accordance with Section 3.a.ii. Such payment of a pro rata annual cash incentive bonus and cash in lieu of Performance-Based Restricted Stock will be payable in a cash lump sum promptly (but in no event later than 15 days) following Executive’s termination of employment;

iv.An amount equal to 1.5 times the sum of (A) the most recently established target annual incentive cash bonus amount, plus (B) 25% of Base Salary (determined in accordance with Section 3.a.ii above), payable in a cash lump sum promptly (but in no event later than 15 days) following the Executive’s termination of employment;

v.Elimination of all restrictions on any restricted stock or restricted .stock unit awards outstanding at the time of termination of employment (other than awards under the Company’s Partnership Equity Program, which shall be governed by the terms of such awards);

vi.Immediate vesting of all outstanding stock options and the right to exercise such stock options for the remainder of the full term of such option (other than awards under the Company’s Partnership Equity Program, which shall be governed by the terms of such awards);

vii.The balance of any incentive awards earned as of December 31 of the prior year (but not yet paid), which shall be paid in a single lump sum not later than 15 days following Executive’s termination of employment;

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viii.Settlement of all deferred compensation arrangements in accordance with any then applicable deferred compensation plan or election form;

ix.Continued participation in all medical, health and life insurance plans at the same benefit level at which Executive was participating on the date of termination of Executive’s employment until the earlier of:

1.the end of the Severance Period; or

2.the date, or dates, Executive receives equivalent coverage and benefits under the plans and programs of a subsequent employer (such coverage and benefits to be determined on a coverage-by-coverage, or benefit-by-benefit, basis);

provided that (1) if Executive is precluded from continuing Executive’s participation in any employee benefit plan or program as provided in this clause (ix) of this Section 3.a, Executive shall receive cash payments equal on an after-tax basis to the cost to Executive of obtaining the benefits provided under the plan or program in which Executive is unable to participate for the period specified in this clause (ix) of this Section 3.a, (2) such cost shall be deemed to be the lowest reasonable cost that would be incurred by Executive in obtaining such benefit on an individual basis, and (3) payment of such amounts shall be made quarterly in advance; and

x.other or additional benefits then due or earned in accordance with applicable plans and programs of the Company.

b.Change in Control Best Payments Determination.  In the event the Severance Benefits described in Section 3(a) are payable to Executive in connection with a Change in Control and, if paid, could subject Executive to an excise tax under Section 4999 of the Internal Revenue Code (the “Excise Tax”), then notwithstanding the provisions of Section 3(a) the Company shall reduce the Severance Benefits (the “Benefit Reduction”) under Section 3(a) by the amount necessary to result in the Executive not being subject to the Excise Tax if such reduction would result in the Executive’s “Net After-Tax Amount” attributable to the Severance Benefits described in Section 3(a) being greater than it would be if no Benefit Reduction was effected.  For this purpose “Net After-Tax Amount” shall mean the net amount of Severance Benefits Executive is entitled to receive under this Agreement after giving effect to all Federal, state and local taxes which would be applicable to such payments, including, but not limited to, the Excise Tax.  The determination of whether any such Benefit Reduction shall be effected shall be made by a nationally recognized public accounting firm selected by the Company (the “Accounting Firm”) prior to the occurrence of the Change in Control and such determination shall be binding on both Executive and the Company.  In the event it is determined that a Benefit Reduction is required, such reduction of items described in Section 3(a) above shall be done first by reducing cash severance determined in accordance with Section 3(a)(ii), 3(a)(iii) and 3(a)(iv); to the extent a further Benefit Reduction is necessary, then Severance Benefits will be reduced from the amounts determined in accordance with Section 3(a)(v) and 3(a)(vi), all as determined by the Accounting Firm.

c.No Mitigation; No Offset.  In the event of any termination of employment under this Section 4, Executive shall be under no obligation to seek other employment, and the amounts due Executive under this Agreement shall not be offset by any remuneration attributable to any subsequent employment that Executive may obtain.

d.Nature of Payments.  Any amounts due under this Section 3 are in the nature of severance payments considered to be reasonable by the Company and are not in the nature of a penalty.

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e.Exclusivity of Severance Benefit.  Upon termination of Executive’s employment during the Term, Executive shall not be entitled to any severance payments or severance benefits from the Company, or any other payments by the Company, other than the Severance Benefit provided in this Section 3, except as required by law.

f.General Release of Claims.  Executive agrees, as a condition of payment of the Severance Benefit provided for in this Section 3, that Executive will execute within 60 days of Executive’s termination of employment a separation agreement, in a form reasonably satisfactory to the Company, that includes a general release of any and all claims arising out of Executive’s employment or termination of employment with the Company, other than claims for (i) enforcement of this Agreement, (ii) enforcement of Executive’s rights under any of the Company’s incentive compensation, equity and/or employee benefit plans and programs to which Executive is entitled under this Agreement, and (iii) any tort for personal injury not arising out of or related to Executive’s employment or termination of employment.

g.Subject to the provisions of Section 12(b), all payments to be made pursuant to this Section 3 upon the termination of employment of Executive shall be made or commence, as the case may be, within 75 days after the Executive’s termination of employment provided, however, that if such termination of employment is after October 15 of a year, the payout or first payment, as the case may be, shall be made at the end of such 75 day period.

4.Confidentiality; Cooperation with Regard to Litigation; Non-disparagement.

a.During the Term and thereafter, Executive shall not, without the prior written consent of the Company, disclose to anyone (except in good faith in the ordinary course of business to a person who will be advised by Executive to keep such information confidential) or make use of any confidential information except in the performance of Executive’s duties hereunder or when required to do so by legal process, by any governmental agency having supervisory authority over the business of the Company or by any administrative or legislative body (including a committee thereof) that requires Executive to divulge, disclose or make accessible such information. In the event that Executive is so ordered, Executive shall give prompt written notice to the Company in order to allow the Company the opportunity to object to or otherwise resist such order.

b.During the Term and thereafter, Executive shall not disclose the existence or contents of this Agreement beyond what is disclosed in the proxy statement or documents filed with the government unless and to the extent such disclosure is required by law, by a governmental agency, or in a document required by law to be filed with a governmental agency or in connection with enforcement of Executive’s rights under this Agreement. In the event that disclosure is so required, Executive shall give prompt written notice to the Company in order to allow the Company the opportunity to object to or otherwise resist such requirement. This restriction shall not apply to such disclosure by Executive to members of Executive’s immediate family, Executive’s tax, legal or financial advisors, any lender, or tax authorities, or to potential future employers to the extent necessary, each of whom shall be advised not to disclose such information.

c.Confidential Information” shall mean all information concerning the business of the Company or any Subsidiary relating to any of their products, product development, trade secrets, customers, suppliers, finances, and business plans and strategies. Excluded from the definition of Confidential Information is information (i) that is or becomes part of the public domain, other than through the breach of this Agreement by Executive or (ii) regarding the Company’s business or industry properly acquired by Executive in the course of Executive’s career as an Executive in the Company’s industry and independent of Executive’s employment by the Company. For this purpose, information known or available generally within the trade or industry of the Company or any Subsidiary shall be deemed to be known or available to the public.

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d.“Subsidiary” shall mean any corporation or other business entity owned or controlled directly or indirectly by CVS Caremark.

e.Executive agrees to cooperate with the Company, during the Term and thereafter (including following Executive’s termination of employment for any reason), by being reasonably available to testify on behalf of the Company or any Subsidiary in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, and to assist the Company, or any Subsidiary, in any such action, suit, or proceeding, by providing information and meeting and consulting with the Board or its representatives or counsel, or representatives or counsel to the Company, or any Subsidiary as requested; provided, however that the same does not materially interfere with Executive’s then current professional activities. The Company agrees to reimburse Executive on an after tax basis, for all reasonable expenses actually incurred in connection with Executive’s provision of testimony or assistance.

f.Executive agrees that, during the Term and thereafter (including following Executive’s termination of employment for any reason) Executive will not make statements or representations, or otherwise communicate, directly or indirectly, in writing, orally, or otherwise, or take any action which may, directly or indirectly, disparage or be damaging to the Company or any Subsidiary or their respective officers, directors, employees, advisors, businesses or reputations. Notwithstanding the foregoing, nothing in this Agreement shall preclude Executive from making truthful statements or disclosures that are required by applicable law, regulation or legal process.

5.Non-solicitation.

During the period beginning with the Effective Date and ending 18 months following the termination of Executive’s employment with the Company, Executive, whether acting on Executive’s own behalf or by, through or on behalf of any third party, shall not (a) hire any employees of the Company or any Subsidiary, or recruit or solicit any such employees or encourage them to terminate their employment with the Company or any Subsidiary; (b) accept business from any customers of the Company or any Subsidiary, or solicit or encourage any customers, joint venture partners or investors of the Company or any Subsidiary to terminate or diminish their relationship with the Company or any Subsidiary or to violate any agreement with the Company or any Subsidiary. For purposes of subsection 5(a), an employee of the Company or any Subsidiary means any person who was employed by the Company or any Subsidiary within 180 days of such hiring, recruitment, solicitation or encouragement. Executive agrees to make any employer with whom Executive becomes employed during the 18-month period following Executive’s termination with the Company aware of this non-solicitation obligation upon commencing employment with such subsequent entity.

6.Remedies.

In addition to whatever other rights and remedies the Company may have at equity or in law, the Company (a) shall have the right to immediately terminate all payments and benefits due under this Agreement if Executive breaches any of the provisions contained in Sections 4 or 5 above, and (b) shall have the right to seek injunctive relief in any court of competent jurisdiction if Executive breaches or threatens to breach any of the provisions contained in Sections 4 or 5 above. Executive acknowledges that such a breach would cause irreparable injury and that money damages would not provide an adequate remedy for the Company; provided, however, the foregoing shall not prevent Executive from contesting the issuance of any such injunction on the ground that no violation or threatened violation of Sections 4 or 5 has occurred.

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7.Effect of Agreement on Other Benefits.

Except as specifically provided in this Agreement, the existence of this Agreement shall not be interpreted to preclude, prohibit or restrict the Executive’s participation in any other employee benefit or other plans or programs in which he /she currently participates.

8.Not an Employment Agreement.

This Agreement is not, and nothing herein shall be deemed to create, a contract of employment between Executive and the Company. The Company may terminate the employment of Executive at any time and for any reason, subject to the terms of any employment agreement between the Company and Executive that may then be in effect.

9.Resolution of Disputes.

Any controversy or claim arising out of or relating to this Agreement or any breach or asserted breach hereof or questioning the validity and binding effect hereof arising under or in connection with this Agreement, other than seeking injunctive relief under Sections 4 or 5, shall be resolved by binding arbitration, to be held at an office closest to the Company’s principal offices in accordance with the rules and procedures of the American Arbitration Association.  Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.  Pending the resolution of any arbitration or court proceeding, the company shall continue payment of all amounts and benefits due Executive under this Agreement.  All reasonable costs and expenses of any arbitration or court proceeding (including fees and disbursements of counsel) shall be paid on behalf of or reimbursed to Executive promptly by the Company; provided, however, that no reimbursement shall be made of such expenses if and to the extent the arbitrator(s) determine(s) that any of Executive’s litigation assertions or defenses were in bad faith or frivolous.

10.Assignability; Binding Nature.

This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors, heirs (in the case of Executive) and permitted assigns. No rights or obligations of the Company under this Agreement may be assigned or transferred by the Company except that such rights or obligations may be assigned or transferred in connection with the sale or transfer of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the assets of the Company and such assignee or transferee assumes the liabilities, obligations and duties of the Company, as contained in this agreement, either contractually or as a matter of law. The Company further agrees that, in the event of a sale or transfer of assets as described in the preceding sentence, it shall take whatever action it legally can in order to cause such assignee or transferee to expressly assume the liabilities, obligations and duties of the Company hereunder. No rights or obligations of Executive under this Agreement may be assigned or transferred by Executive other than Executive’s, rights to compensation and benefits, which may be transferred only by will or operation of law, except as provided in Section 15 below.

11.Representation.

The Company represents and warrants that it is fully authorized and empowered to enter into this Agreement and that the performance of its obligations under this Agreement will not violate any agreement between it and any other person, firm or organization.

12.Amendment or Waiver; Section 409A.

(a)No provision in this Agreement may be amended unless such amendment is agreed to in writing and signed by Executive and an authorized officer of the Company. No waiver by

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either Party of any breach by the other Party of any condition or provision contained in this Agreement to be performed by such other Party shall be deemed a waiver of a similar or dissimilar condition or provision at the same or any prior or subsequent time. Any waiver must be in writing and signed by Executive or an authorized officer of the Company, as the case may be.

(b)Executive and Company agree that it is the intent of the parties that this Agreement not violate any applicable provision of, or result in any additional tax or penalty under, Section 409A of the Code, as amended, and that to the extent any provisions of this Agreement do not comply with such Code Section 409A the parties will make such changes as are mutually agreed upon in order to comply with Code Section 409A.  In all events, to the extent required to avoid a violation of the applicable rules under all Section 409A by reason of Code Section 409A(a)(2)(B)(i), payment of any amounts subject to Code Section 409A shall be delayed until the relevant date of payment that will result in compliance with the rules of Code Section 409A(a)(2)(B)(i).

13.Severability.

In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law.

14.Survivorship.

The respective rights and obligations of the Parties hereunder shall survive any termination of Executive’s employment to the extent necessary to the intended preservation of such rights and obligations.

15.Beneficiaries/References.

Executive shall be entitled, to the extent permitted under any applicable law, to select and change a beneficiary or beneficiaries to receive any compensation or benefit payable hereunder following Executive’s death by giving the Company written notice thereof. In the event of Executive’s death or a judicial determination of Executive’s incompetence, references in this Agreement to Executive shall be deemed, where appropriate, to refer to Executive’s beneficiary, estate or other legal representative.

16.Governing Law/Jurisdiction.

This Agreement shall be governed by and construed and interpreted in accordance with the laws of Rhode Island without reference to principles of conflict of laws. Subject to Section 6, the Company and Executive hereby consent to the jurisdiction of any or all of the following courts for purposes of resolving any dispute under this Agreement: (i) the United States District Court for Rhode Island or (ii) any of the courts of the State of Rhode Island. The Company and Executive further agree that any service of process or notice requirements in such proceeding shall be satisfied if the rules of such court relating thereto have been substantially satisfied. The Company and Executive hereby waive, to the fullest extent permitted by applicable law, any objection which it or he/she may now or hereafter have to such jurisdiction and any defense of inconvenient forum.

17.Notices.

Any notice given to a Party shall be in writing and shall be deemed to have been given when delivered personally or sent by certified or registered mail, postage prepaid, return receipt requested, duly addressed to the Party concerned at the address indicated below or to, such changed address as such Party may subsequently give such notice of:

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If to CVS:

CVS Pharmacy, Inc.
One CVS Drive
Woonsocket, RI 02895
Attention: Corporate Secretary

If to Executive:

Mark Cosby
78 Doubling Road
Greenwich, CT 06830

18.Headings.

The headings of the sections contained in this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement.

19.Counterparts.

This Agreement may be executed in two or more counterparts.

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In WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above.

CVS Pharmacy, Inc.
By:	/s/ Lisa Bisaccia
	Lisa Bisaccia
	SVP and Chief Human Resources Officer
Executive
/s/ Mark Cosby
Mark Cosby
EVP, CVS Caremark and President, CVS/pharmacy

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EX-10.43

EXHIBIT 10.43

CVS CAREMARK CORPORATION

AMENDMENT NO. 1 TO 2007 CREDIT AGREEMENT

AMENDMENT NO. 1 (this “Amendment”), dated as of November 22, 2011, to the Five Year Credit Agreement, dated as of March 12, 2007, by and among CVS Caremark Corporation (formerly, CVS Corporation)(the “Borrower”), the Lenders party thereto, the Co-Syndication Agents and Documentation Agent named therein, and The Bank of New York Mellon (formerly, The Bank of New York), as Administrative Agent (the “Credit Agreement”);

Except as otherwise provided herein, capitalized terms used herein which are not defined herein shall have the meanings set forth in the Credit Agreement.

In consideration of the covenants, conditions and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and pursuant to Section 11.1 of the Credit Agreement, the parties hereto hereby agree as follows:

1.Section 1.1 of the Credit Agreement is hereby amended to delete the definitions of “Net Worth” and “Tangible Net Worth”.

2.Section 1.1 of the Credit Agreement is hereby amended to add the definitions of “Intangible Assets” and “Net Tangible Assets”, as follows:

“Intangible Assets”: at any date, the value, as shown on the most recent Consolidated balance sheet of the Borrower and the Subsidiaries as at the end of the fiscal quarter ending not more than 135 days prior to such date, prepared in accordance with GAAP, of: (i) all trade names, trademarks, licenses, patents, copyrights, service marks, goodwill and other like intangibles, (ii) organizational and development costs, (iii) deferred charges (other than prepaid items, such as insurance, taxes, interest, commissions, rents, pensions, compensation and similar items and tangible assets being amortized), and (iv) unamortized debt discount and expense, less unamortized premium.

“Net Tangible Assets”: at any date, the total assets as shown on the most recent Consolidated balance sheet of the Borrower and the Subsidiaries as at the end of the fiscal quarter ending not more than 135 days prior to such date, prepared in accordance with GAAP, less (i) all current liabilities (due within one year) as shown on such balance sheet and (ii) Intangible Assets and liabilities relating thereto.

3.Section 8.1 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

8.1Subsidiary Indebtedness

Permit the Indebtedness of all Subsidiaries (excluding Indebtedness under capital leases incurred in connection with a sale leaseback transaction) to exceed (on a combined basis) 15% of Net Tangible Assets.

4.Section 8.2 of the Credit Agreement is hereby amended to amend and restate clause (k) thereof in its entirety to read as follows:

(k) additional Liens securing Indebtedness of the Borrower and the Subsidiaries in an aggregate outstanding Consolidated principal amount not exceeding 15% of Net Tangible Assets.

5.Each Default or Event of Default that may have occurred under the Credit Agreement prior to the effectiveness of this Amendment solely as a result of the failure of the Borrower to be in compliance with Section 8.1 or Section 8.2(k) of the Credit Agreement, including as a result of the failure of the Borrower to provide notice of the occurrence of any such Default or Event of Default as required by Section 7.7(g) of the Credit Agreement or as a result of any certification or representation or warranty made by the Borrower (or any of its officers on its behalf) that no such Default or Event of Default existed, is hereby waived.

6.This Amendment shall become effective on and as of the date hereof upon the receipt by The Bank of New York Mellon, as Administrative Agent, of counterparts of this Amendment executed by the Borrower and the written consent of the Required Lenders under the Credit Agreement to this Amendment.

7.Except as amended hereby, the Credit Agreement and the other Loan Documents shall remain in full force and effect.

8.This Amendment may be executed in any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same agreement.  It shall not be necessary in making proof of this Amendment to produce or account for more than one counterpart signed by the party to be charged.  A set of the copies of this Amendment signed by all of the parties hereto shall be lodged with each of the Borrower and The Bank of New York Mellon, as Administrative Agent.  Any party to this Amendment may rely upon the signatures of any other party hereto which are transmitted by fax or other electronic means to the same extent as if originally signed.

9.This Amendment shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York.

[signature pages follow]

CVS CAREMARK CORPORATION

AMENDMENT NO 1. TO 2007 CREDIT AGREEMENT

The parties have caused this Amendment to be duly executed as of the date first written above.

CVS CAREMARK CORPORATION
By:	/s/ Carol DeNale
Name:	Carol DeNale
Title:	Senior Vice President, Treasurer
THE BANK OF NEW YORK MELLON, as Administrative Agent
By:
Name:
Title:

CVS CAREMARK CORPORATION

AMENDMENT NO. 1 TO 2007 CREDIT AGREEMENT

The undersigned Lender hereby consents to Amendment No. 1 to the Credit Agreement.

By:

Name:

Title:

EX-10.44

EXHIBIT 10.44

CVS CAREMARK CORPORATION

AMENDMENT NO. 1 TO 2010 CREDIT AGREEMENT

AMENDMENT NO. 1 (this “Amendment”), dated as of November 22, 2011, to the Three Year Credit Agreement, dated as of May 27, 2010, by and among CVS Caremark Corporation (the “Borrower”), the Lenders party thereto, the Co-Syndication Agents and Co-Documentation Agents named therein, and The Bank of New York Mellon, as Administrative Agent (the “Credit Agreement”);

Except as otherwise provided herein, capitalized terms used herein which are not defined herein shall have the meanings set forth in the Credit Agreement.

In consideration of the covenants, conditions and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and pursuant to Section 11.1 of the Credit Agreement, the parties hereto hereby agree as follows:

1.Section 1.1 of the Credit Agreement is hereby amended to delete the definitions of “Net Worth” and “Tangible Net Worth”.

2.Section 1.1 of the Credit Agreement is hereby amended to add the definitions of “Intangible Assets” and “Net Tangible Assets”, as follows:

“Intangible Assets”: at any date, the value, as shown on the most recent Consolidated balance sheet of the Borrower and the Subsidiaries as at the end of the fiscal quarter ending not more than 135 days prior to such date, prepared in accordance with GAAP, of: (i) all trade names, trademarks, licenses, patents, copyrights, service marks, goodwill and other like intangibles, (ii) organizational and development costs, (iii) deferred charges (other than prepaid items, such as insurance, taxes, interest, commissions, rents, pensions, compensation and similar items and tangible assets being amortized), and (iv) unamortized debt discount and expense, less unamortized premium.

“Net Tangible Assets”: at any date, the total assets as shown on the most recent Consolidated balance sheet of the Borrower and the Subsidiaries as at the end of the fiscal quarter ending not more than 135 days prior to such date, prepared in accordance with GAAP, less (i) all current liabilities (due within one year) as shown on such balance sheet and (ii) Intangible Assets and liabilities relating thereto.

3.Section 8.1 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

8.1Subsidiary Indebtedness

Permit the Indebtedness of all Subsidiaries (excluding Indebtedness under capital leases incurred in connection with a sale leaseback transaction) to exceed (on a combined basis) 15% of Net Tangible Assets.

4.Section 8.2 of the Credit Agreement is hereby amended to amend and restate clause (k) thereof in its entirety to read as follows:

(k) additional Liens securing Indebtedness of the Borrower and the Subsidiaries in an aggregate outstanding Consolidated principal amount not exceeding 15% of Net Tangible Assets.

5.Each Default or Event of Default that may have occurred under the Credit Agreement prior to the effectiveness of this Amendment solely as a result of the failure of the Borrower to be in compliance with Section 8.1 or Section 8.2(k) of the Credit Agreement, including as a result of the failure of the Borrower to provide notice of the occurrence of any such Default or Event of Default as required by Section 7.7(g) of the Credit Agreement or as a result of any certification or representation or warranty made by the Borrower (or any of its officers on its behalf) that no such Default or Event of Default existed, is hereby waived.

6.This Amendment shall become effective on and as of the date hereof upon the receipt by The Bank of New York Mellon, as Administrative Agent, of counterparts of this Amendment executed by the Borrower and the written consent of the Required Lenders under the Credit Agreement to this Amendment.

7.Except as amended hereby, the Credit Agreement and the other Loan Documents shall remain in full force and effect.

8.This Amendment may be executed in any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same agreement.  It shall not be necessary in making proof of this Amendment to produce or account for more than one counterpart signed by the party to be charged.  A set of the copies of this Amendment signed by all of the parties hereto shall be lodged with each of the Borrower and The Bank of New York Mellon, as Administrative Agent.  Any party to this Amendment may rely upon the signatures of any other party hereto which are transmitted by fax or other electronic means to the same extent as if originally signed.

9.This Amendment shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York.

[signature pages follow]

CVS CAREMARK CORPORATION

AMENDMENT NO 1. TO 2010 CREDIT AGREEMENT

The parties have caused this Amendment to be duly executed as of the date first written above.

CVS CAREMARK CORPORATION
By:	/s/ Carol DeNale
Name:	Carol DeNale
Title:	Senior Vice President, Treasurer
THE BANK OF NEW YORK MELLON, as Administrative Agent
By:
Name:
Title:

CVS CAREMARK CORPORATION

AMENDMENT NO. 1 TO 2010 CREDIT AGREEMENT

The undersigned Lender hereby consents to Amendment No. 1 to the Credit Agreement.

By:

Name:

Title:

EX-10.45

EXHIBIT 10.45

CVS CAREMARK CORPORATION

AMENDMENT NO. 1 TO 2011 CREDIT AGREEMENT

AMENDMENT NO. 1 (this “Amendment”), dated as of November 22, 2011, to the Credit Agreement, dated as of May 12, 2011, by and among CVS Caremark Corporation (the “Borrower”), the Lenders party thereto, the Co-Syndication Agents and Co-Documentation Agents named therein, and The Bank of New York Mellon, as Administrative Agent (the “Credit Agreement”);

Except as otherwise provided herein, capitalized terms used herein which are not defined herein shall have the meanings set forth in the Credit Agreement.

In consideration of the covenants, conditions and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and pursuant to Section 11.1 of the Credit Agreement, the parties hereto hereby agree as follows:

1.             Section 1.1 of the Credit Agreement is hereby amended to delete the definitions of “Net Worth” and “Tangible Net Worth”.

2.             Section 1.1 of the Credit Agreement is hereby amended to add the definitions of “Intangible Assets” and “Net Tangible Assets”, as follows:

“Intangible Assets”: at any date, the value, as shown on the most recent Consolidated balance sheet of the Borrower and the Subsidiaries as at the end of the fiscal quarter ending not more than 135 days prior to such date, prepared in accordance with GAAP, of: (i) all trade names, trademarks, licenses, patents, copyrights, service marks, goodwill and other like intangibles, (ii) organizational and development costs, (iii) deferred charges (other than prepaid items, such as insurance, taxes, interest, commissions, rents, pensions, compensation and similar items and tangible assets being amortized), and (iv) unamortized debt discount and expense, less unamortized premium.

“Net Tangible Assets”: at any date, the total assets as shown on the most recent Consolidated balance sheet of the Borrower and the Subsidiaries as at the end of the fiscal quarter ending not more than 135 days prior to such date, prepared in accordance with GAAP, less (i) all current liabilities (due within one year) as shown on such balance sheet and (ii) Intangible Assets and liabilities relating thereto.

3.             Section 8.1 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

8.1           Subsidiary Indebtedness

Permit the Indebtedness of all Subsidiaries (excluding Indebtedness under capital leases incurred in connection with a sale leaseback transaction) to exceed (on a combined basis) 15% of Net Tangible Assets.

4.             Section 8.2 of the Credit Agreement is hereby amended to amend and restate clause (k) thereof in its entirety to read as follows:

(k) additional Liens securing Indebtedness of the Borrower and the Subsidiaries in an aggregate outstanding Consolidated principal amount not exceeding 15% of Net Tangible Assets.

5.             Each Default or Event of Default that may have occurred under the Credit Agreement prior to the effectiveness of this Amendment solely as a result of the failure of the Borrower to be in compliance with Section 8.1 or Section 8.2(k) of the Credit Agreement, including as a result of the failure of the Borrower to provide notice of the occurrence of any such Default or Event of Default as required by Section 7.7(g) of the Credit Agreement or as a result of any certification or representation or warranty made by the Borrower (or any of its officers on its behalf) that no such Default or Event of Default existed, is hereby waived.

6.             This Amendment shall become effective on and as of the date hereof upon the receipt by The Bank of New York Mellon, as Administrative Agent, of counterparts of this Amendment executed by the Borrower and the written consent of the Required Lenders under the Credit Agreement to this Amendment.

7.             Except as amended hereby, the Credit Agreement and the other Loan Documents shall remain in full force and effect.

8.             This Amendment may be executed in any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same agreement.  It shall not be necessary in making proof of this Amendment to produce or account for more than one counterpart signed by the party to be charged.  A set of the copies of this Amendment signed by all of the parties hereto shall be lodged with each of the Borrower and The Bank of New York Mellon, as Administrative Agent.  Any party to this Amendment may rely upon the signatures of any other party hereto which are transmitted by fax or other electronic means to the same extent as if originally signed.

9.             This Amendment shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York.

[signature pages follow]

CVS CAREMARK CORPORATION

AMENDMENT NO 1. TO 2011 CREDIT AGREEMENT

The parties have caused this Amendment to be duly executed as of the date first written above.

CVS CAREMARK CORPORATION
By:	/s/ Carol DeNale
Name:	Carol DeNale
Title:	Senior Vice President, Treasurer
THE BANK OF NEW YORK MELLON, as Administrative Agent
By:
Name:
Title:

CVS CAREMARK CORPORATION

AMENDMENT NO. 1 TO 2011 CREDIT AGREEMENT

The undersigned Lender hereby consents to Amendment No. 1 to the Credit Agreement.

By:

Name:

Title:

EX-10.46

EXHIBIT 10.46

CVS CAREMARK CORPORATION

PERFORMANCE-BASED RESTRICTED STOCK UNIT AGREEMENT

GRANT DATE:

1.Pursuant to the provisions of the 2010 Incentive Compensation Plan (the “ICP”) of CVS Caremark Corporation (the “Company”), on the date set forth above (the “Grant Date”), the Company has awarded and hereby evidences the Performance-Based Restricted Stock (“PBRS”) unit award (the “Award”) to the person named below (the “Participant”), subject to the terms and conditions set forth and incorporated in this PBRS Agreement (the “PBRS Agreement”), the Restricted Stock Units (“RSUs”) set forth below. The ICP is hereby made a part hereof and Participant agrees to be bound by all the provisions of the ICP. Capitalized terms not otherwise defined herein shall have the meaning assigned to such term(s) in the ICP. On the Grant Date specified above, the Fair Market Value (the “FMV”) of a share of Stock equals $xx.xx, which is the closing price on such date.

Participant

Employee Number

RSUs (#)

2.Each RSU represents a right to a future payment of one share (“Share”) of Common Stock ($0.01 par value) of the Company. Subject to required tax withholding, if applicable, such payment shall be in Shares.

3.(a)           To the extent dividends are paid on Shares while the RSUs remain outstanding and prior to the Settlement Date (as defined below), Participant shall be entitled to receive a cash payment in an amount equivalent to the cash dividends with respect to the number of Shares covered by the RSUs; provided, however, that if such dividend is paid prior to an RSU’s Vesting Date, as set forth in Paragraph 4 below, Participant shall not be entitled to any payment in respect of such dividend unless Participant is still employed by the Company on such dividend payment date.

(b)           Participant hereby agrees that, prior to the Settlement Date, the Company may withhold from the dividend equivalent amounts referred to in Paragraph 3(a) above amounts sufficient to satisfy the applicable tax withholding in respect of such dividend equivalent payments.

4.Subject to the terms and conditions of the ICP and this PBRS Agreement, and subject to Participant’s continued employment, Participant shall be entitled to receive (and the Company shall deliver to Participant) within sixty (60) days following the Vesting Date(s) set forth herein (such delivery being hereafter referred to as the “Settlement Date”), the number of Shares underlying the RSUs on the date(s) set forth below:

(a)             on the first anniversary of the Grant Date, one-third of the Shares underlying the RSU;

(b)  on the second anniversary of the Grant Date, one-third of the Shares underlying the RSU;

(c)             on the third anniversary of the Grant Date, one-third of the Shares underlying the RSU.

5.(a)           In accordance with rules promulgated by the Management Planning and Development Committee of the Board of Directors (the “Committee”), Participant, to the extent eligible under the CVS Caremark Deferred Stock Compensation Plan, may elect to defer delivery of Shares in settlement of RSUs covered by this PBRS Agreement. Any such deferred delivery date elected by Participant shall become the Settlement Date for purposes of this PBRS Agreement.

(b)           To the extent dividends are paid on such deferred Shares prior to the Settlement Date, Participant shall be entitled to receive an additional RSU equal to: (x) the amount of dividend per Share as declared by the Company’s Board of Directors on the Company’s common stock multiplied

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by (y) the number of deferred RSUs held by Participant on the record date of such dividend, divided by (z) the FMV of a Share on such record date.

6.Except as may be elected by Participant, at the Settlement Date for any RSUs, the number of Shares to be delivered by the Company to Participant shall be reduced by the smallest number of Shares having a FMV at least equal to the dollar amount of Federal, state or local tax withholding required to be withheld by the Company with respect to such RSUs on such date. In lieu of having the number of Shares underlying the RSU reduced, Participant may elect to pay the Company for any amounts required to be withheld by the Company in connection with the settlement of the RSUs or delivery of the Shares pursuant to the PBRS Agreement. Such election may be made electronically at any time prior to the Settlement Date of the RSUs.

7.(a)           Except as provided in Paragraphs 7 (b) — (g) below, if, for any reason, Participant ceases to be employed by the Company or a subsidiary of the Company, all RSUs not then vested in accordance with Paragraph 4 above, shall be immediately forfeited.

(b)           In the event Participant ceases to be employed by the Company, or any subsidiary of the Company, by reason of death, RSUs not then vested in accordance with Paragraph 4 will become immediately vested.

(c)           In the event Participant ceases to be employed by the Company, or any subsidiary of the Company, by reason of a “Qualified Retirement,” which shall mean attainment of age fifty-five (55) with at least ten (10) years of continuous service, or attainment of age sixty (60) with at least five (5) years of continuous service, RSUs not yet vested in accordance with Paragraph 4 will become immediately vested.

(d)           In the event Participant ceases to be employed by the Company, or any subsidiary of the Company, by reason of total and permanent disability (as defined in the Company’s Long-Term Disability Plan, or, if not defined in the Plan, as defined by the Social Security Administration), the RSUs shall vest on a pro rata basis as follows: the total number of RSUs vested as of the Separation Date, which is the last day that the Participant is employed by the Company or any subsidiary of the Company, including RSUs previously vested, shall be equal to the number of RSUs granted on the Grant Date multiplied by the following fraction: (A) the numerator shall be the whole number of months elapsed since the Grant Date and (B) the denominator shall be thirty-six (36). For purposes of this calculation, the number of months in the numerator in sub-section (A) above shall include any partial month in which Participant has worked. For example, if the time elapsed between the Grant Date and the Separation Date is eight months and five days, the numerator in sub-section (A) above shall be nine.

(e)           In the event Participant ceases to be employed by the Company, or any subsidiary of the Company, and receives severance pay, RSUs not yet vested shall continue to vest during the severance period set forth in the agreement providing such severance pay, and vested RSUs shall settle in accordance with Paragraph 4 of this PBRS Agreement. During any severance period, Participant is eligible to receive dividend equivalents as described in Section 3(a) above. All RSUs not vested by the last day of the severance period shall be forfeited.

(f)            Notwithstanding the above, (i) the provisions of Section 10 of the ICP shall apply in the event of a Change in Control (as defined in Section 10) and (ii) the provisions of Section 7(e)(iv) of the ICP shall apply.

(g)           For purposes of this Section 7, transfer of employment of Participant from the Company to a subsidiary of the Company, transfer among or between subsidiaries, or transfer from a subsidiary to the Company shall not be treated as cessation of employment.

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8.An RSU does not represent an equity interest in the Company and carries no voting rights. Participant shall have no rights of a shareholder with respect to the RSUs until the Shares have been delivered to Participant.

9.Neither the execution and delivery hereof nor the granting of the award evidenced hereby shall constitute or be evidence of any agreement or understanding, express or implied, on the part of the Company or its subsidiaries to employ Participant for any specific period.

10.Any notice required to be given hereunder to the Company shall be addressed to:

CVS Caremark Corporation

Senior Vice President, Chief Human Resources Officer

One CVS Drive

Woonsocket, RI 02895

and any notice required to be given hereunder to Participant shall be addressed to such Participant at the address shown on the records of the Company, subject to the right of either party hereafter to designate, in writing, to the other, some other address.

11.All decisions and interpretations made by the Board of Directors or the Committee concerning this PBRS Agreement and/or the ICP shall be binding and conclusive on all persons. In the event of any inconsistency between the terms hereof and the provisions of the ICP, this Agreement shall govern.

12.By accepting this Award, Participant acknowledges receipt of a copy of the ICP, and agrees to be bound by the terms and conditions set forth in this Agreement and the ICP, as in effect from time to time.

13.By accepting this Award, Participant further acknowledges that the Federal securities laws and/or Company’s policies regarding trading in its securities may limit or restrict Participant’s right to buy or sell Shares, including without limitation, sales of Shares acquired in connection with RSUs. Participant agrees to comply with such Federal securities law requirements and Company policies, as such laws and policies may be amended from time to time.

14.The company intends that this Agreement not violate any applicable provision of, or result in any additional tax or penalty under, Section 409A of the Internal Revenue Code of 1986 (the “Code”), as amended, and that to the extent any provisions of this Agreement do not comply with Code Section 409A the Company will make such changes in order to comply with Code Section 409A. In all events, the provisions of CVS Caremark Corporation’s Universal Definitions Document are hereby incorporated by reference and to the extent required to avoid a violation of the applicable rules under all Section 409A by reason of Section 409A(a)(2)(B)(i) of the Code, payment of any amounts subject to Section 409A of the Code shall be delayed until the relevant date of payment that will result in compliance with the rules of Section 409A(a)(2)(B)(i) of the Code.

15.Recoupment of Restricted Stock Unit Award Due to Material Fraud or Financial Misconduct.

Participant shall immediately repay to the Company the value of any pre-tax economic benefit that Participant derived from such RSUs, if the Board determines that material fraud or financial misconduct has occurred in a manner which subjects Participant to recoupment under the Company’s recoupment policy, as in effect from time to time. The amount to be repaid by Participant shall be the amount necessary to disgorge the value enjoyed or realized by Participant from the RSUs and the underlying Shares, as determined by the Board, or a portion of such value as may be determined by the Board in its sole discretion. In making its determinations under this paragraph, the Board may, by way of example only, (i) with respect to any Shares which have been transferred to Participant in settlement of the RSUs and which are beneficially owned by Participant as of a date the repayment obligation arises, require Participant to repay to the Company the Fair Market Value of such Shares as of the date of such repayment and/or (ii) with respect to any Shares which were transferred to Participant in settlement of the RSUs and as to which beneficial ownership has been transferred by

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Participant as of the date a repayment obligation arises, require Participant to repay to the Company the Fair Market Value of such Shares as of the date such Shares were transferred by Participant. In each case the amount to be repaid by Participant shall also include any dividends (including any economic benefit thereof) or distributions received by Participant with respect to any RSU Shares and, in calculating the value to be repaid, adjustments may be made for stock splits or other capital changes or corporate transactions, as determined by the Board. If Participant has deferred payment of any portion of the amounts relating to an RSU that are subject to repayment hereunder, the amount of Participant’s deferred stock compensation accrual shall be reduced by the amount subject to repayment, plus all Company matching amounts and earnings on such amount. If Participant fails to repay the required value immediately upon request by the Board, the Company may seek reimbursement of such value from Participant by reducing salary or any other payments that may be due to Participant, to the extent legally permissible, and/or through initiating a legal action to recover such amount, which recovery shall include any reasonable attorneys fees incurred by the Company in bringing such action.

16.This Agreement shall be governed by the laws of the State of Rhode Island, without giving effect to its choice of law provisions.

By:
	Senior Vice President, Chief Human Resources Officer
	CVS Caremark Corporation

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EX-10.47

Exhibit 10.47

PARTNERSHIP EQUITY PROGRAM

Purchased and Matching Restricted Stock Unit
and Stock Option Agreement

AGREEMENT, by and between CVS Caremark Corporation, a Delaware corporation (the “Company”), and                          (“Executive”), effective on                       , herein after known as the “Purchase Date”.

WHEREAS, Executive has been selected as an employee eligible to invest under the Company’s Partnership Equity Program (the “PEP Plan”), and has elected to invest $                 in the PEP Plan, subject to the terms and conditions set forth in the PEP Plan and in this Purchased and Matching Restricted Stock Unit and Stock Option Agreement (the “Agreement”);

WHEREAS, the Company desires to provide Executive with written evidence acknowledging Executive’s investment under the PEP Plan, his or her acquisition of Purchased Restricted Stock Units (“Executive Purchased RSUs”) and the corresponding grant of Matching Restricted Stock Units (“Company Matching RSUs”) and Matching Stock Options (“Options”) under the PEP Plan.

WHEREAS, the provisions of the PEP Plan and the Company’s 2010 Incentive Compensation Plan (the “ICP”) are hereby incorporated by reference and shall have the same force and effect as though fully set forth herein.  Executive hereby acknowledges receipt of a copy of the PEP Plan and the ICP at the time of receipt of this Agreement and agrees to be bound by such provisions (as presently in effect or hereafter amended).  If any provision of the PEP Plan is inconsistent with a provision of this Agreement or the ICP, this Agreement and the ICP, or any successor thereto, shall control.  Capitalized terms used in this Agreement but not defined herein shall have the same meanings as in the PEP Plan.

On the Purchase Date specified above, the Fair Market Value (the “FMV”) of a share of CVS Caremark Common Stock equals $        , which is the closing price on such date.

NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the parties hereto agree as follows:

I.  EXECUTIVE PURCHASED RSUs AND COMPANY MATCHING RSUs

(A)Executive Purchased RSUs.  The Company has received from Executive an election made in compliance with Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”) to apply designated future compensation of $           as Executive’s commitment to invest the amount set forth in this Agreement, on the Purchase Date under the PEP Plan, in consideration of which the Company has credited to Executive’s Account under the stock administration system as may be maintained by the Company, the Executive Purchased RSUs.  The Executive Purchased RSUs (including any Executive Purchased RSUs credited to Executive pursuant to Section I(C)(ii)) shall be fully vested at all times.

(B)Crediting of Company Matching RSUs.   Pursuant to the PEP Plan, on the Purchase Date the Company has awarded and hereby evidences the Award to the Executive, subject to the terms and conditions set forth and incorporated in this Agreement,            Company Matching RSUs.

(C)Additional Transactions in Executive Accounts.

(i)Each Executive Purchased RSU and Company Matching RSU represents a right to a future payment of one share of common stock ($0.01 par value) of the Company (each, a “Share”), subject to applicable tax withholding.

(ii)To the extent that dividends are declared and paid on Shares while the Executive

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Purchased RSUs and Company Matching RSUs remain outstanding and prior to a Settlement Date (as defined below), the Company shall credit to Executive’s Purchased Share Account and Matching Account (as applicable) an additional number of Executive Purchased RSUs and Company Matching RSUs calculated by multiplying (a) the amount of dividend per Share as declared by the Company’s Board of Directors by (b) the number of Executive Purchased RSUs and Company Matching RSUs held by Executive on the record date of such dividend, and dividing each product by (c) the FMV of a Share on such record date:

(iii)provided, however, that if such dividend is paid prior to the vesting of the Company Matching RSUs, Executive shall not be entitled to any Company Matching RSUs credited to the Executive’s Matching Account pursuant to Section I(C)(ii) in respect of such dividend unless the Company Matching RSUs vest in accordance with the terms of this Agreement.

(iv)Executive hereby agrees that, prior to the Settlement Date, the Company may withhold from the dividend equivalent amounts referred to in Section I(C)(ii) amounts sufficient to satisfy the applicable tax withholding in respect of such dividend equivalent payments, as applicable.

(D)Vesting of Company Matching RSUs.  Subject to the terms and conditions of the PEP Plan and this Agreement, and to Executive’s continued employment through such date, the Company Matching RSUs shall vest on the fifth anniversary of the Purchase Date.

(E)Settlement.

(i)A “Settlement Date” shall mean a date Shares are delivered to Executive pursuant to this Agreement.

(ii)Within sixty (60) days following the earliest of the fifth anniversary of the Purchase Date, Executive’s termination of employment or a Change in Control (as defined in Section 10 of the ICP), Executive shall be entitled to receive and the Company shall deliver to Executive the total number of Shares (giving effect to Sections I(C)(ii) and I(C)(iv)) underlying the Executive Purchased RSUs.  Notwithstanding the foregoing, no Shares shall be delivered upon termination of employment unless such termination of employment is considered a “separation from service” (within the meaning given of Treasury Regulation §1.409A-1(h) or successor guidance thereto).

(iii)Within sixty (60) days following the earliest of the fifth anniversary of the Purchase Date, Executive’s death, termination of employment due to Executive’s total and permanent disability (as defined in the Company’s Long-Term Disability Plan, or, if not defined in such plan, as defined by the Social Security Administration), or a Change in Control, Executive shall be entitled to receive and the Company shall deliver to Executive the total number of Shares (giving effect to Sections I(C)(ii) and I(C)(iv)) underlying the Company Matching RSUs vested as of such date.  Notwithstanding the foregoing, no Shares shall be delivered upon termination of employment unless such termination of employment is considered a “separation from service” (within the meaning given of Treasury Regulation §1.409A-1(h) or successor guidance thereto).

(iv)In accordance with rules promulgated by the Committee, the terms of the CVS Caremark Deferred Stock Compensation Plan and Section 409A, Executive may elect to defer delivery of Shares in settlement of RSUs covered by this Agreement.

II.OPTION TO PURCHASE COMMON STOCK

(A)Grant of Option.  The Company has granted and hereby evidences the grant to Executive, subject to the terms and conditions incorporated in this Agreement, the right, and option, to purchase from the Company              Shares, with an exercise price equal to the FMV of

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the Shares on the Purchase Date, such Option to be exercised as hereinafter provided.  The Option is a nonqualified option as defined in the ICP.

(B)Term of Option.  The term of this Option shall be for a period of ten (10) years from the Purchase Date, subject to the earlier termination of the Option, as set forth in the ICP and in this Agreement.

(C)Exercise of Option.

(i)The Option, subject to the provisions of the ICP, shall be exercised by submitting a request to exercise to the Company’s stock option administrator, in accordance with the Company’s current exercise policies and procedures, specifying the number of Shares to be purchased, which number may not be less than one hundred (100) Shares (unless the number of Shares purchased is the total balance which is then exercisable).  Unless the Company, in its discretion, establishes “cashless exercise” procedures and permits Executive entitled to exercise the Option to utilize such “cashless exercise” procedures, Executive so exercising all or part of this Option shall, at the time of exercise, tender to the Company cash or cash equivalent for the aggregate option price of the Shares Executive has elected to purchase or certificates for Shares of Common Stock of the Company owned by Executive for at least six (6) months with a FMV at least equal to the aggregate option price of the Shares Executive has elected to purchase, or a combination of the foregoing.

(ii)Prior to its expiration or termination, and except as otherwise provided herein, the Option may be exercised by Executive, provided Executive has maintained continuous employment with the Company or a subsidiary of the Company immediately following the Purchase Date, within the following time limitations:

a.On or after three (3) years from the Purchase Date, the Option may be exercised as to not more than one-third (1/3) of the Shares originally subject to the Option;

b.On or after four (4) years from the Purchase Date, the Option may be exercised as to not more than an aggregate of two-thirds (2/3) of the Shares originally subject to the Option; and

c.On or after five (5) years from the Purchase Date, the Option may be exercised as to any part or all of the Shares originally subject to the Option.

(D)Option Expiration.  The Option shall be and become exercisable only as provided above, and shall expire at the earlier of the close of business on the day before the tenth anniversary of their respective Purchase Date or such earlier termination as described in Section III below.

III.TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL

(A)Except as provided in Sections III(B) - (E) below, if, for any reason, Executive ceases to be employed by the Company, or a subsidiary of the Company, all Company Matching RSUs and Options not then vested in accordance with Sections I(D) and II(C)(ii) above, shall be immediately forfeited.

(B)In the event Executive ceases to be employed by the Company, or any subsidiary of the Company, by reason of death, Company Matching RSUs and Options not then vested in accordance with Section I(D) and II(C)(ii) will become immediately vested.

(C)In the event Executive ceases to be employed by the Company, or any subsidiary of the Company, by reason of total and permanent disability (as defined in the Company’s Long-Term Disability Plan, or, if not defined in such plan, as defined by the Social Security Administration), the Company Matching RSUs and the Options shall vest on a pro rata basis as follows:

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(i)the total number of Company Matching RSUs vested as of the Separation              Date (which is the last day that the Executive is employed by the Company or any subsidiary of the Company), shall be equal to the number of Company Matching RSUs multiplied by the following fraction:  (A) the numerator shall be the whole number of months elapsed since the Purchase Date and (B) the denominator shall be sixty (60).  For purposes of this calculation, the number of months in the numerator in sub-section (A) above shall include any partial month in which Executive has worked.  For example, if the time elapsed between the Purchase Date and the Separation Date is eight months and five days, the numerator in sub-section (A) above shall be nine.

(ii)the total number of Options vested as of the Separation Date (which is the last day that the Executive is employed by the Company or any subsidiary of the Company), including Options previously vested, shall be equal to the number of Options granted on the Purchase Date multiplied by the following fraction:  (A) the numerator shall be the whole number of months elapsed since the Purchase Date and (B) the denominator shall be sixty (60).  For purposes of this calculation, the number of months in the numerator in sub-section (A) above shall include any partial month in which Executive has worked.   For example, if the time elapsed between the Purchase Date and the Separation Date is eight months and five days, the numerator in sub-section (A) above shall be nine.

(D)Termination of Employment without Cause.

(i)In the event that Executive’s employment is terminated without cause, as that term is defined in Executive’s Change in Control agreement (“Cause”), by the Company or any subsidiary thereof, and Executive receives severance pay following Executive’s employment, vesting of Executive’s Company Matching RSU and the Option shall continue through the last day of the severance period (to the extent that a relevant vesting date occurs within the severance period) and the vested portion of the Option shall be exercisable on or before the ninetieth (90th) day following the last day of the severance period, as long as no government regulations or rules are violated by such continued vesting or exercise period; provided, however, that no Option will be exercisable beyond its original term.

(ii)In the event Executive’s employment is terminated without Cause by the Company or any subsidiary thereof and Executive does not receive severance pay following Executive’s employment, any vested Option shall be exercisable on or before the ninetieth (90th) day following the last day of Executive’s employment, as long as no government regulations or rules are violated by such continued exercise period; provided, however, that no Option will be exercisable beyond its original option term.

(E)Retirement.  An Executive shall be a “Qualified Retiree” if he or she (i) is at least age fifty-five (55) and has at least ten (10) years of continuous service, or (ii) is at least age sixty (60) and has at least five (5) years of continuous service at the time of his or her Retirement Date; provided, however, that an Executive who (a) voluntarily terminates his or her employment, or (b) is terminated without Cause by the Company or one of its subsidiaries, each at a time when Executive has satisfied the age and service requirements set forth above, shall be deemed a Qualified Retiree and such termination date shall be deemed a Retirement Date.

(i)A Qualified Retiree may exercise a vested Option, to the extent that Executive shall be entitled to do so as of Executive’s Retirement Date, at any time within two (2) years after Executive’s Retirement Date, but not beyond the original term of the Option.  Options unvested at the Retirement Date are forfeited.  The Committee shall have the authority in its sole discretion to make any interpretations, determinations, and/or take any administrative actions with respect to whether Executive shall be deemed a Qualified Retiree.

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(ii)Company Matching RSUs that are unvested as of the Retirement Date are forfeited.

(F)The provisions of Section 10 of the ICP, or any successor thereto, shall apply in the event of a Change in Control.

(G)For purposes of this Section III, transfer of employment by Executive from the Company to a subsidiary of the Company, transfer among or between subsidiaries, or transfer from a subsidiary to the Company shall not be treated as cessation of employment.

IV.NON-COMPETITION.  As a condition of receiving the benefits of this Agreement, Executive acknowledges that he has previously executed the CVS Caremark Corporation Employee Non-Competition, Non-Disclosure and Developments Agreement and reaffirms his intent to be bound by and to comply with his obligations in that agreement.

V.MISCELLANEOUS.

(A)Withholding Tax.  Executive may be subject to withholding taxes as a result of the exercise of an Option or settlement of Executive Purchased or Company Matching Restricted Stock Units.  Except as may otherwise be elected by Executive, the number of Shares to be delivered by the Company to Executive shall be reduced by the smallest number of Shares having a FMV at least equal to the dollar amount of Federal, state or local tax withholding required to be withheld by the Company with respect to such exercise or settlement.  Any Shares so withheld or tendered will be valued as of the date they are withheld or tendered.  In lieu of having the number of Shares underlying the applicable award reduced, Executive may elect to pay to the Company in cash, promptly when the amount of such obligations become determinable, all applicable federal, state, local and foreign withholding taxes that result from each such exercise or settlement.  Such election may be made [electronically] at any time prior to the exercise date or Settlement Date, as applicable.

(B)Recoupment.The provisions of this Section V(B) shall apply to all Matching Restricted Stock Units and Options awarded to Executive under the PEP Plan.  If the Board determines that material fraud or financial misconduct has occurred in a manner that subjects an Executive to recoupment of any Company Matching RSUs or Options under the Company’s recoupment policy, as in effect from time to time, then (a) any portion of the Option that has not vested or been exercised (or a portion therefore, as determined by the Board) shall be forfeited and cancelled, and Executive shall immediately repay to the Company the value, or a portion thereof as determined by the Board, of any pre-tax economic benefit that Executive derived from the Option (the “Option Recoupment Amount”), and (b) Executive shall immediately repay to the Company the value, or a portion thereof as determined by the Board, of any pre-tax economic benefit that the Executive derived from any Company Matching RSUs issued in to Executive under the PEP Plan that is subject to recoupment (the “Matching RSU Recoupment Value”).

The Option Recoupment Amount shall be the portion and amount necessary to disgorge the value enjoyed or realized by Executive from the Option and the Shares underlying the Option, as determined by the Board, or a portion of such value as may be determined by the Board in its sole discretion.  In making its determinations under this paragraph, the Board may, by way of example only, (i) with respect to any portion of the Option which has been exercised and as to which beneficial ownership of the Shares obtained on exercise has not been transferred by Executive as of the date the repayment obligation arises, require Executive to repay to the Company an amount equal to the Fair Market Value of such Shares as of the date of such repayment, less the exercise price paid by Executive to acquire such Shares; and (ii) with respect to any portion of the Option which has been exercised and as to which beneficial ownership of the Shares obtained on exercise has been transferred by Executive as of the date the repayment obligation arises, require Executive to repay to the Company an amount equal to the Fair Market Value of such Shares as of the date such Shares were

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transferred by Executive, less the exercise price paid by Executive to acquire such Shares.  In each case the amount to be repaid by Executive shall also include any dividends (including any economic benefit thereof) or distributions received by Executive with respect to any Option Shares and, in calculating the value to be repaid, adjustments may be made for stock splits or other capital changes or corporate transactions, as determined by the Board.

The Company Matching RSU Recoupment Value to be repaid by Executive shall be the amount necessary to disgorge the value enjoyed or realized by Executive from the Company Matching RSUs and the underlying Shares, as determined by the Board, or a portion of such value as may be determined by the Board in its sole discretion.  In making its determinations under this paragraph, the Board may, by way of example only, (i) with respect to any Shares which have been transferred to Executive in settlement of the Company Matching RSUs and which are beneficially owned by Executive as of a date the repayment obligation arises, require Executive to repay to the Company the Fair Market Value of such Shares as of the date of such repayment and/or (ii) with respect to any Shares which were transferred to Executive in settlement of the Company Matching RSUs and as to which beneficial ownership has been transferred by Executive as of the date a repayment obligation arises, require Executive to repay to the Company the Fair Market Value of such Shares as of the date such Shares were transferred by Executive.  In each case the amount to be repaid by Executive shall also include any dividends (including any economic benefit thereof) or distributions received by Executive with respect to any Company Matching RSU shares and, in calculating the value to be repaid, adjustments may be made for stock splits or other capital changes or corporate transactions, as determined by the Board.  If Executive has deferred payment of any portion of the amounts relating to a Company Matching RSU that are subject to repayment hereunder, the amount of Executive’s deferred stock compensation accrual shall be reduced by the amount subject to repayment, plus all Company matching amounts and earnings on such amount.

If the Executive fails to repay the required Option Recoupment Amount and/or the Matching RSU Recoupment Value immediately upon request by the Board, the Company may seek reimbursement of such amounts from the Executive by reducing salary or any other payments that may be due to the Executive, to the extent legally permissible, and/or by initiating a legal action to recover such amount, which recovery shall include any reasonable attorneys fees incurred by the Company in bringing such action.

(C)Certain Terms and Conditions of Program.  Executive acknowledges and agrees that terms and conditions of the program preclude all transfers of Executive Purchased RSUs, all Company Matching RSUs, and all Options, except in limited circumstances in the event of Executive’s death, impose a risk of forfeiture on Company Matching RSUs and Options, relieve the Company of certain obligations unless and until laws and regulations have been complied with, provide for adjustments to Executive Purchased RSUs, Company Matching RSUs, and Options upon the occurrence of certain events, and specify the state law which shall govern this Agreement, without giving effect to principles of conflict of laws.

(D)Binding Agreement.  This Agreement shall be binding upon the heirs, executors, administrators, and successors of the parties.  In particular, Executive’s heirs, executors, administrators, and successors shall be subject to the terms and conditions of the Program, Plan, and this Agreement, and the Company may require any such person to execute an agreement or other documents acknowledging and agreeing to such terms and conditions as a condition precedent to any transfer of rights hereunder or shares of Common Stock issuable under the Program, including upon exercise of an Option, into the name of any such person.

(E)Integration Clause; Amendments to Agreement.  This Agreement, together with the PEP Plan and the ICP, constitutes the entire Agreement between the parties with respect to the Program, and supersedes any prior agreements or documents with respect thereto.  This Agreement may be amended, but no amendment or other change which may impose any additional obligation upon the Company or materially impair the rights of Executive with respect to the Program shall be valid unless contained in a writing signed by the party to be bound thereby.

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(F)Employment.  Neither the execution and delivery hereof nor the granting of the Company Matching RSUs nor Options evidenced hereby shall constitute or be evidenced of any agreement or understanding, expressed or implied, on the part of the Company or its subsidiaries to employ the Executive for any specific period.

(G)Acceptance of Award.Acceptance may be submitted either electronically, if available, or in writing. The Option may not be exercised unless and until the Company has received acceptance by the Executive of the terms and conditions set forth.

(H)Company Matching RSUs.  Neither a Company Matching RSU nor an Executive Purchased RSU represents an equity interest in the Company and neither carries any voting rights.  Executive shall have no rights of a shareholder with respect to the RSUs until the Shares have been delivered to Executive.

(I)Section 409A.   The Company intends that this Agreement not violate any applicable provision of, or result in any additional tax or penalty under, Section 409A, and that to the extent any provisions of this Agreement do not comply with Section 409A the Company will make any remedial changes in order to comply with Section 409A.  In all events, the provisions of CVS Caremark Corporation’s 409A Universal Definitions Document are hereby incorporated by reference and to the extent required to avoid a violation of the applicable rules under Section 409A by reason of Section 409A(a)(2)(B)(i) of the Internal Revenue Code, payment of any amounts subject to Section 409A shall be delayed until the relevant date of payment that will result in compliance with Section 409A(a)(2)(B)(i).

(J)Notices.  Any notice hereunder to the Company shall be addressed to One CVS Drive, Woonsocket, RI 02895, Attention: Senior Vice President, Chief Human Resources Officer, and any notice required to be given hereunder to the Executive shall be addressed to such Executive at the address as shown on the records of the Company, subject to the right of either party to designate in writing some other address for notices.

By:
	Senior Vice President
	Chief Human Resources Officer
	CVS CAREMARK CORPORATION

Accepted by:
	[Name]
	[Title]

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EX-13

Exhibit 13

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our audited consolidated financial statements and Cautionary Statement Concerning Forward-Looking Statements that are included in this Annual Report.

Overview of Our Business

CVS Caremark Corporation (“CVS Caremark”, the “Company”, “we” or “us”), together with its subsidiaries is the largest pharmacy health care provider in the United States. We are uniquely positioned to deliver significant benefits to health plan sponsors through effective cost management solutions and innovative programs that engage plan members and promote healthier and more cost-effective behaviors. Our integrated pharmacy services model enhances our ability to offer plan members and consumers expanded choice, greater access and more personalized services to help them on their path to better health. We effectively manage pharmaceutical costs and improve health care outcomes through our pharmacy benefit management, mail order and specialty pharmacy division, CVS Caremark® Pharmacy Services (“Caremark”); our approximately 7,300 CVS/pharmacy® retail stores; our retail-based health clinic subsidiary, MinuteClinic®; and our online retail pharmacy, CVS.com®. The Company has three business segments: Pharmacy Services, Retail Pharmacy and Corporate.

Overview of Our Pharmacy Services Segment

Our Pharmacy Services business provides a full range of pharmacy benefit management (“PBM”) services, including plan design and administration, formulary management, discounted drug purchase arrangements, Medicare Part D services, mail order and specialty pharmacy services, retail pharmacy network management services, prescription management systems, clinical services, disease management services and pharmacogenomics.

Our clients are primarily employers, insurance companies, unions, government employee groups, managed care organizations and other sponsors of health benefit plans and individuals throughout the United States.

As a pharmacy benefits manager, we manage the dispensing of pharmaceuticals through our mail order pharmacies and national network of approximately 65,000 retail pharmacies (which include our CVS/pharmacy stores) to eligible members in the benefit plans maintained by our clients and utilize our information systems to perform, among other things, safety checks, drug interaction screenings and brand to generic substitutions.

Our specialty pharmacies support individuals that require complex and expensive drug therapies. Our specialty pharmacy business includes mail order and retail specialty pharmacies that operate under the CVS Caremark® and CarePlus CVS/pharmacy® names. Substantially all of our mail service specialty pharmacies have been accredited by The Joint Commission.

We also provide health management programs, which include integrated disease management for 28 conditions, through our strategic alliance with Alere, L.L.C. and our Accordant® health management offering. The majority of these integrated programs are accredited by the National Committee for Quality Assurance.

In addition, through our SilverScript Insurance Company (“SilverScript”), Accendo Insurance Company (“Accendo”) and Pennsylvania Life Insurance Company (“Pennsylvania Life”) subsidiaries, we are a national provider of drug benefits to eligible beneficiaries under the Federal Government’s Medicare Part D program. The Company acquired Accendo as part of the acquisition of Longs Drug Store Corporation in 2008 (the “Longs Acquisition”), and on April 29, 2011, we acquired Pennsylvania Life in our acquisition of the Medicare prescription drug business of Universal American Corp. (the “UAM Medicare Part D Business”) for approximately $1.3 billion. The UAM Medicare Part D Business offers prescription drug plan benefits to Medicare beneficiaries throughout the United States through its Community CCRxsm prescription drug plan. We currently provide Medicare Part D plan benefits to approximately 3.6 million beneficiaries through the above mentioned insurance companies.

Our Pharmacy Services segment generates net revenues primarily by contracting with clients to provide prescription drugs to plan members. Prescription drugs are dispensed by our mail order pharmacies, specialty pharmacies and national network of retail pharmacies. Net revenues are also generated by providing additional services to clients, including administrative services such as claims processing and formulary management, as well as health care-related services such as disease management.

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The Pharmacy Services segment operates under the CVS Caremark® Pharmacy Services, Caremark®, CVS Caremark®, CarePlus CVS/pharmacy®, CarePlus™, RxAmerica ® and Accordant® names. As of December 31, 2011, the Pharmacy Services segment operated 31 retail specialty pharmacy stores, 12 specialty mail order pharmacies and four mail service pharmacies located in 22 states, Puerto Rico and the District of Columbia.

On November 1, 2011, we sold our TheraCom, L.L.C. (“TheraCom”) subsidiary to AmerisourceBergen Corporation for $250 million, subject to a working capital adjustment. TheraCom is a provider of commercialization support services to the biotech and pharmaceutical industry. The TheraCom business had historically been part our Pharmacy Services segment. The results of the TheraCom business are presented as discontinued operations and have been excluded from both continuing operations and segment results for all periods presented. See Note 3 to the consolidated financial statements.

Overview of Our Retail Pharmacy Segment

Our Retail Pharmacy segment sells prescription drugs and a wide assortment of general merchandise, including over-the-counter drugs, beauty products and cosmetics, photo finishing, seasonal merchandise, greeting cards and convenience foods through our CVS/pharmacy® and Longs Drugs® retail stores and online through CVS.com. Our Retail Pharmacy segment derives more than two-thirds of its revenues through the sale of prescription drugs, which are dispensed by our more than 22,000 retail pharmacists. The role of our retail pharmacists is shifting from primarily dispensing prescriptions to also providing services, including flu vaccinations as well as face-to-face patient counseling with respect to adherence to drug therapies, closing gaps in care, and more cost-effective drug therapies. Our integrated pharmacy services model enables us to enhance access to care while helping to lower overall health care costs and improve health outcomes.

Our Retail Pharmacy segment also provides health care services through our MinuteClinic® health care clinics. MinuteClinics are staffed by nurse practitioners and physician assistants who utilize nationally recognized protocols to diagnose and treat minor health conditions, perform health screenings, monitor chronic conditions, and deliver vaccinations. We believe our clinics provide quality services that are quick, affordable and convenient.

Our proprietary loyalty card program, ExtraCare®, has well over 68 million active cardholders, making it one of the largest and most successful retail loyalty card programs in the country.

As of December 31, 2011, our Retail Pharmacy segment included 7,327 retail drugstores (of which 7,271 operated a pharmacy) located in 41 states, the District of Columbia, and Puerto Rico operating primarily under the CVS/pharmacy® or Longs Drugs® names, our online retail website, CVS.com, 30 onsite pharmacies and 657 retail health care clinics operating under the MinuteClinic® name (of which 648 were located in CVS/pharmacy stores).

Overview of Our Corporate Segment

The Corporate segment provides management and administrative services to support the Company. The Corporate segment consists of certain aspects of our executive management, corporate relations, legal, compliance, human resources, corporate information technology and finance departments.

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Results of Operations

Summary of our Consolidated Financial Results

	Year Ended December 31,
In millions, except per common share amounts	2011			2010		2009
Net revenues	$	107,100		$	95,778	$	98,215
Gross profit	20,561			20,219		20,358
Operating expenses	14,231			14,082		13,933
Operating profit	6,330			6,137		6,425
Interest expense, net	584			536		525
Income before income tax provision	5,746			5,601		5,900
Income tax provision	2,258			2,179		2,200
Income from continuing operations	3,488			3,422		3,700
Income (loss) from discontinued operations, net of tax	(31		)	2		(4		)
Net income	3,457			3,424		3,696
Net loss attributable to noncontrolling interest	4			3		—
Net income attributable to CVS Caremark	$	3,461		$	3,427	$	3,696
Diluted earnings per common share:
Income from continuing operations attributable to CVS Caremark	$	2.59		$	2.49	$	2.55
Loss from discontinued operations attributable to CVS Caremark	(0.02		)	—		—
Net income attributable to CVS Caremark	$	2.57		$	2.49	$	2.55

Net revenues increased $11.3 billion in 2011 compared to 2010, and decreased $2.4 billion in 2010 compared to 2009. As you review our performance in this area, we believe you should consider the following important information:

·During 2011, net revenues in our Retail Pharmacy segment increased 3.9% and net revenues in our Pharmacy Services segment increased 24.9% compared to the prior year.

·During 2010, net revenues in our Retail Pharmacy segment increased by 3.6% which was offset by a decline in our Pharmacy Services segment of 6.7%, compared to the prior year.

·The increase in our generic dispensing rates in both of our operating segments continues to have an adverse effect on net revenue in 2011 as compared to 2010, as well as in 2010 as compared to 2009.

Please see the Segment Analysis later in this document for additional information about our net revenues.

Gross profit increased $342 million in 2011, to $20.6 billion or 19.2% of net revenues as compared to $20.2 billion in 2010. Gross profit decreased $139 million in 2010, to $20.2 billion or 21.1% of net revenues, as compared to 2009.

·During 2011, gross profit in our Retail Pharmacy segment increased by 2.5% offset by declines in our Pharmacy Services segment of 1.1%, compared to the prior year.

·During 2010, gross profit in our Retail Pharmacy segment increased by 2.7% offset by declines in our Pharmacy Services segment of 13.1%, compared to the prior year.

·The decline in gross profit as a percent of net revenues was driven by the increased weighting toward Pharmacy Services whose gross profit margin tends to be lower than that of the Retail Pharmacy segment.

·In addition, for the three years 2009 through 2011, our gross profit continued to benefit from the increased utilization of generic drugs (which normally yield a higher gross profit rate than equivalent brand name drugs) in both the Pharmacy Services and Retail Pharmacy segments.

Please see the Segment Analysis later in this document for additional information about our gross profit.

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Operating expenses increased $149 million, or 1.1% in the year ended December 31, 2011, as compared to the prior year. Operating expenses as a percent of net revenues improved approximately 140 basis points to 13.3% in the year ended December 31, 2011. The increase in operating expenses in the year ended December 31, 2011 was primarily due to incremental store operating costs associated with a higher store count as compared to the prior year period, as well as costs associated with changes designed to streamline our Pharmacy Services segment and expenses associated with the acquisition and integration of the UAM Medicare Part D Business.

Operating expenses also increased $149 million in the year ended December 31, 2010 as compared to the prior year. Operating expenses as a percent of net revenues increased approximately 50 basis points to 14.7% in the year ended December 31, 2010. During 2010, operating expenses increased as a result of increases in our Corporate segment expenses of $87 million, and an increase in our Retail Pharmacy segment expenses of $68 million, partially offset by a decrease in our Pharmacy Services segment expenses of $6 million, compared to the prior year.

Please see the Segment Analysis later in this document for additional information about operating expenses.

Interest expense, net consisted of the following:

In millions	2011			2010			2009
Interest expense	$	588		$	539		$	530
Interest income	(4		)	(3		)	(5		)
Interest expense, net	$	584		$	536		$	525

Net interest expense increased $48 million during the year ended December 31, 2011, which resulted from a higher average interest rate during the period as we shifted from short-term debt to long-term debt. During 2010, net interest expense increased by $11 million, to $536 million compared to 2009, due to an increase in our average debt balances and average interest rates.

Income tax provision - Our effective income tax rate was 39.3%, 38.9% and 37.3% in 2011, 2010 and 2009, respectively. The annual fluctuations in our effective income tax rate are primarily related to changes in the recognition of previously unrecognized tax benefits relating to the expiration of various statutes of limitation and settlements with tax authorities. In 2010 and 2009 we recognized $47 million and $167 million, respectively, of income tax benefits related to the expiration of various statutes of limitation and settlements with tax authorities.

Income from continuing operations increased $66 million or 1.9% to $3.5 billion in 2011. Income from continuing operations decreased $278 million or 7.5% to $3.4 billion in 2010 as compared to $3.7 billion in 2009. As previously noted, income from continuing operations in 2010 and 2009 both benefited from previously unrecognized tax benefits.

Income (loss) from discontinued operations

In connection with certain business dispositions completed between 1991 and 1997, the Company retained guarantees on store lease obligations for a number of former subsidiaries, including Linens ‘n Things which filed for bankruptcy in 2008. The Company’s income (loss) from discontinued operations includes lease-related costs which the Company believes it will likely be required to satisfy pursuant to its Linens ‘n Things lease guarantees.

We incurred a loss from discontinued operations of $31 million in 2011 versus income from discontinued operations of $2 million in 2010 and a loss from discontinued operations of $4 million in 2009. The loss from discontinued operations in 2011 was primarily due to the disposition of our TheraCom subsidiary. We recognized a $53 million pre-tax gain and a $37 million after-tax loss on the sale of TheraCom. The after-tax loss was caused by the income tax treatment of TheraCom’s nondeductible goodwill. Income from discontinued operations (net of tax) increased by $6 million in 2010 versus 2009 primarily due to a $15 million increase in income from operations of TheraCom partially offset by a $5 million increase in costs associated with our Linen’n Things lease guarantees.

See Note 3 “Discontinued Operations” to the consolidated financial statements for additional information about discontinued operations and Note 13 “Commitments and Contingencies” for additional information about our lease guarantees.

Net loss attributable to noncontrolling interest represents the minority shareholders’ portion of the net loss from our majority owned subsidiary, Generation Health, Inc., which we acquired in the fourth quarter of 2009. The net loss attributable to noncontrolling interest for the years ended December 31, 2011 and 2010 was $4 million and $3 million, respectively, and was de minimis in 2009.

Net income attributable to CVS Caremark increased $34 million or 1.0% to $3.5 billion (or $2.57 per diluted share) in 2011. This compares to $3.4 billion (or $2.49 per diluted share) in 2010 and $3.7 billion (or $2.55 per diluted share) in 2009. As previously noted, net income attributable to CVS Caremark in 2010 and 2009 both benefited from previously unrecognized tax benefits.

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Segment Analysis

We evaluate the performance of our Pharmacy Services and Retail Pharmacy segments based on net revenues, gross profit and operating profit before the effect of certain intersegment activities and charges. The Company evaluates the performance of its Corporate segment based on operating expenses before the effect of discontinued operations and certain intersegment activities and charges. The following is a reconciliation of the Company’s business segments to the consolidated financial statements:

In millions	Pharmacy Services Segment (1)(2)(3)		Retail Pharmacy Segment (2)		Corporate Segment			Intersegment Eliminations(2)			Consolidated Totals
2011:
Net revenues	$	58,874	$	59,599	$	—		$	(11,373	)	$	107,100
Gross profit	3,279		17,468		—			(186		)	20,561
Operating profit	2,220		4,912		(616		)	(186		)	6,330
2010:
Net revenues	$	47,145	$	57,345	$	—		$	(8,712	)	$	95,778
Gross profit	3,315		17,039		—			(135		)	20,219
Operating profit	2,361		4,537		(626		)	(135		)	6,137
2009:
Net revenues	$	50,551	$	55,355	$	—		$	(7,691	)	$	98,215
Gross profit	3,813		16,593		—			(48		)	20,358
Operating profit	2,853		4,159		(539		)	(48		)	6,425

(1)Net revenues of the Pharmacy Services segment include approximately $7.9 billion, $6.6 billion and $6.9 billion of Retail Co-Payments for 2011, 2010 and 2009, respectively. See Note 1 to the consolidated financial statements for additional information about Retail Co-Payments.

(2)Intersegment eliminations relate to two types of transactions: (i) Intersegment revenues that occur when Pharmacy Services segment customers use Retail Pharmacy segment stores to purchase covered products. When this occurs, both the Pharmacy Services and Retail Pharmacy segments record the revenue on a standalone basis, and (ii) Intersegment revenues, gross profit and operating profit that occur when Pharmacy Services segment customers, through the Company’s intersegment activities (such as the Maintenance Choice® program), elect to pick-up their maintenance prescriptions at Retail Pharmacy segment stores instead of receiving them through the mail. When this occurs, both the Pharmacy Services and Retail Pharmacy segments record the revenue, gross profit and operating profit on a standalone basis. Beginning in the fourth quarter of 2011, the Maintenance Choice eliminations reflect all discounts available for the purchase of mail order prescription drugs. The following amounts are eliminated in consolidation in connection with the item (ii) intersegment activity: net revenues of $2.6 billion, $1.8 billion and $0.7 billion for the years ended December 31, 2011, 2010 and 2009, respectively; gross profit and operating profit of $186 million, $135 million and $48 million for the years ended December 31, 2011, 2010 and 2009, respectively.

(3)The results of the Pharmacy Services segment for the years ended December 31, 2010 and 2009 have been revised to reflect the results of TheraCom as discontinued operations. See Note 3 to the consolidated financial statements.

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Pharmacy Services Segment

The following table summarizes our Pharmacy Services segment’s performance for the respective periods:

	Year Ended December 31,
In millions	2011			2010(4)			2009(4)
Net revenues	$	58,874		$	47,145		$	50,551
Gross profit	3,279			3,315			3,813
Gross profit % of net revenues	5.6		%	7.0		%	7.5		%
Operating expenses	1,059			954			960
Operating expenses % of net revenues	1.8		%	2.0		%	1.9		%
Operating profit	2,220			2,361			2,853
Operating profit % of net revenues	3.8		%	5.0		%	5.6		%
Net revenues(1) :
Mail choice(2)	$	18,616		$	16,159		$	16,241
Pharmacy network(3)	40,040			30,681			34,004
Other	218			305			306
Pharmacy claims processed(1) :
Total	774.6			584.7			658.3
Mail choice(2)	70.6			64.1			65.8
Pharmacy network(3)	704.0			520.6			592.5
Generic dispensing rate(1) :
Total	74.1		%	71.5		%	68.2		%
Mail choice(2)	64.9		%	61.3		%	56.5		%
Pharmacy network(3)	75.0		%	72.7		%	69.3		%
Mail choice penetration rate	22.3		%	25.8		%	23.8		%

(1)Pharmacy network net revenues, claims processed and generic dispensing rates do not include Maintenance Choice, which are included within the mail choice category.

(2)Mail choice is defined as claims filled at a Pharmacy Services’ mail facility, which includes specialty mail claims, as well as 90-day claims filled at retail under the Maintenance Choice program.

(3)Pharmacy network is defined as claims filled at retail pharmacies, including our retail drugstores, but excluding Maintenance Choice activity.

(4)The results of the Pharmacy Services segment for the years ended December 31, 2010 and 2009, have been revised to reflect the results of TheraCom as discontinued operations.

Net revenues in our Pharmacy Services Segment increased $11.7 billion, or 24.9%, to $58.9 billion for the year ended December 31, 2011, as compared to the prior year. The increase in net revenues was primarily due to the addition of the previously announced long-term contract with Aetna Inc. (“Aetna”), which became effective on January 1, 2011, as well as activity resulting from our April 29, 2011 acquisition of the UAM Medicare Part D Business. Additionally, the increase in our generic dispensing rate had a negative impact on our revenue in 2011 as it did in 2010.

Net revenues decreased $3.4 billion, or 6.7%, to $47.1 billion for the year ended December 31, 2010, as compared to the prior year. The decrease in 2010 was primarily due to the termination of a few large client contracts effective January 1, 2010 and the decrease of covered lives under our Medicare Part D program as a result of the 2010 Medicare Part D competitive bidding process, partially offset by new client starts on January 1, 2010.

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As you review our Pharmacy Services segment’s revenue performance, we believe you should also consider the following important information:

·Our mail choice claims processed increased 10.2% to 70.6 million claims in the year ended December 31, 2011, compared to 64.1 million claims in the prior year. The increase in mail choice claim volume was primarily due to the addition of the previously announced long-term contract with Aetna, which became effective on January 1, 2011. During 2010, our mail choice claims processed decreased 2.6% to 64.1 million claims. This decrease was primarily due to the termination of a few large client contracts effective January 1, 2010, partially offset by new client starts on January 1, 2010.

·During 2011 and 2010, our average revenue per mail choice claim increased by 4.6% and 2.2%, compared to 2010 and 2009, respectively. This increase was primarily due to drug cost inflation and claims mix, partially offset by an increase in the percentage of generic prescription drugs dispensed and changes in client pricing.

·Our mail choice generic dispensing rate increased to 64.9% in the year ended December 31, 2011, compared to 61.3% in the prior year. During 2010, our mail choice generic dispensing rate increased to 61.3%, compared to our mail choice generic dispensing rate of 56.5% in 2009.

·Our pharmacy network generic dispensing rate increased to 75.0% in the year ended December 31, 2011, compared to 72.7% in the prior year. During 2010, our pharmacy network generic dispensing rate increased to 72.7% compared to our pharmacy network generic dispensing rate of 69.3% in 2009. These continued increases in both mail choice and pharmacy network generic dispensing rates were primarily due to the impact of new generic drug introductions and our continuous efforts to encourage plan members to use generic drugs when they are available. We believe our generic dispensing rates will continue to increase in future periods. This increase will be affected by, among other things, the number of new generic drug introductions and our success at encouraging plan members to utilize generic drugs when they are available.

·Our pharmacy network claims processed increased 35.2% to 704.0 million claims in the year ended December 31, 2011, compared to 520.6 million claims in the prior year. The increase in the pharmacy network claim volume was primarily due to the addition of the previously announced long-term contract with Aetna, which became effective on January 1, 2011. Additionally, we experienced higher claims activity associated with our Medicare Part D program as a result of our acquisition of the UAM Medicare Part D Business completed during the second quarter of 2011 and increases in covered lives under our legacy Medicare Part D program.  During 2010, our pharmacy network claims processed decreased 12.1% to 520.6 million compared to 592.5 million pharmacy network claims processed in 2009. The decrease in 2010 was primarily due to the termination of a few large client contracts effective January 1, 2010 and the decrease of covered lives under our Medicare Part D program as a result of the 2010 Medicare Part D competitive bidding process.

·Our average revenue per pharmacy network claim processed decreased 3.5%, in the year ended December 31, 2011 as compared to the prior year. This decrease was primarily due to increases in the percentage of generic prescription drugs dispensed, changes in client pricing, and the impact of our acquisition of the UAM Medicare Part D Business, partially offset by our previously announced long-term contract with Aetna, which became effective on January 1, 2011. During 2010, our average revenue per pharmacy network claim processed increased by 2.7%, compared to 2009. The increase was primarily due to the conversion of RxAmerica’s pharmacy network contracts from net to gross on April 1, 2009, (ii) a change in the revenue recognition method from net to gross for a large health plan on March 1, 2009 and (iii) higher drug costs, partially offset by an increase in our pharmacy network generic dispensing rate and changes in client pricing.

·During 2011, 2010, and 2009, we generated net revenues from our participation in the administration of the Medicare Part D drug benefit by providing PBM services to our health plan clients and other clients that have qualified as a Medicare Part D Prescription Drug Plan (a “PDP”) under regulations promulgated by the Centers for Medicare and Medicaid Services (“CMS”). We are also a national provider of drug benefits to eligible beneficiaries under the Medicare Part D program through our subsidiaries, SilverScript, Pennsylvania Life and Accendo (which have been approved by CMS as PDPs). On April 29, 2011, the Company acquired the UAM Medicare Part D Business for approximately $1.3 billion. The UAM Medicare Part D Business offers prescription drug plan benefits to Medicare beneficiaries throughout the United States through its Community CCRxSM prescription drug plan.

·The Pharmacy Services segment recognizes revenues for its pharmacy network transactions based on individual contract terms. In accordance with ASC 605, Revenue Recognition (formerly Emerging Issues Task Force (“EITF”) EITF No. 99-19, “Reporting Revenue Gross as a Principal vs Net as an Agent”), Caremark’s contracts are predominantly accounted for using the gross method. Prior to April 1, 2009, RxAmerica’s contracts were accounted for using the net method. Effective April 1, 2009, we converted a number of RxAmerica’s retail pharmacy network contracts and a large health plan to the Caremark contract structure, which resulted in those contracts being accounted for using the gross method. As a result, net revenues increased by $1.1 billion during 2010 as compared to 2009.

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Gross profit in our Pharmacy Services Segment includes net revenues less cost of revenues. Cost of revenues includes (i) the cost of pharmaceuticals dispensed, either directly through our mail service and specialty retail pharmacies or indirectly through our pharmacy network, (ii) shipping and handling costs and (iii) the operating costs of our mail service pharmacies, customer service operations and related information technology support.

Gross profit decreased $36 million, or 1.1%, to $3.3 billion in the year ended December 31, 2011, as compared to the prior year. Gross profit as a percentage of net revenues was 5.6% for the year ended December 31, 2011, compared to 7.0% in the prior year. The decrease in gross profit dollars in the year ended December 31, 2011 was primarily driven by pricing compression relating to contract renewals and in particular the renewal of a large government client contract that took effect during the third quarter of 2010 partially offset by activity associated with our April 2011 acquisition of the UAM Medicare Part D Business.

During the year ended December 31, 2011, the decrease in gross profit as a percentage of net revenues was also driven by the previously mentioned client pricing compression, as well as the profitability associated with our previously announced long-term contract with Aetna, which became effective on January 1, 2011. Additionally, gross profit as a percentage of net revenue continues to be positively impacted by the above mentioned increases in our generic dispensing rates as compared to the prior year.

During 2010, gross profit decreased $498 million, or 13.1%, to $3.3 billion for the year ended December 31, 2010, as compared to the prior year. Gross profit as a percentage of net revenues was 7.0% for the year ended December 31, 2010, compared to 7.5% in the prior year. The decrease in our gross profit dollars is a result of the loss of “differential” or “spread” resulting from a change in CMS regulations described more fully below, the termination of a few large client contracts effective January 1, 2010 and the decrease of covered lives under our Medicare Part D program, partially offset by new client starts on January 1, 2010. The decrease in gross profit as a percentage of net revenues is primarily due to the loss of “differential” or “spread”, pricing compression related to a large client renewal that took effect during the third quarter of 2010, and the change in the revenue recognition method from net to gross associated with the RxAmerica pharmacy network contracts on April 1, 2009 and a large health plan on March 1, 2009. This was partially offset by an increase in our generic dispensing rate for the year ended December 31, 2010, as compared to the prior year.

As you review our Pharmacy Services segment’s performance in this area, we believe you should consider the following important information:

·Our gross profit dollars and gross profit as a percentage of net revenues continued to be impacted by our efforts to (i) retain existing clients, (ii) obtain new business and (iii) maintain or improve the purchase discounts we received from manufacturers, wholesalers and retail pharmacies. In particular, competitive pressures in the PBM industry has caused us and other PBMs to continue to share a larger portion of rebates and/or discounts received from pharmaceutical manufacturers. In addition, market dynamics and regulatory changes have impacted our ability to offer plan sponsors pricing that includes retail network “differential” or “spread”. We expect these trends to continue.

·As discussed previously in this document, we review our network contracts on an individual basis to determine if the related revenues should be accounted for using the gross method or net method under the applicable accounting rules. Caremark’s network contracts are predominantly accounted for using the gross method, which results in higher revenues, higher cost of revenues and lower gross profit rates. The conversion of certain RxAmerica contracts to the Caremark contract structure increased our net revenues, increased our cost of revenues and lowered our gross profit rates in 2010 and 2009. Although this change did not affect our gross profit dollars, it did reduce our gross profit rates by approximately 40 basis points in each of the years ended December 31, 2010 and 2009.

·Our gross profit as a percentage of revenues benefited from the increase in our total generic dispensing rate, which increased to 74.1% and 71.5% in 2011 and 2010, respectively, compared to our generic dispensing rate of 68.2% in 2009. These increases were primarily due to new generic drug introductions and our continued efforts to encourage plan members to use generic drugs when they are available.

·Effective January 1, 2010, CMS issued a regulation requiring that any difference between the drug price charged to Medicare Part D plan sponsors by a PBM and the price paid for the drug by the PBM to the dispensing provider (commonly called “differential” or “spread”) be reported as an administrative cost rather than a drug cost of the plan sponsor for purposes of calculating certain government subsidy payments and the drug price to be charged to enrollees. As noted above, these changes have impacted our ability to offer Medicare Part D plan sponsors pricing that includes the use of retail network “differential” or “spread.” This change impacted both our gross profit dollars and gross profit as a percentage of net revenues in 2011 and 2010 compared to 2009.

Operating expenses in our Pharmacy Services Segment, which include selling, general and administrative expenses, depreciation and amortization related to selling, general and administrative activities and retail specialty pharmacy store and administrative payroll, employee benefits and occupancy costs, decreased to 1.8% of net revenues in 2011 compared to 2.0% and 1.9% in 2010 and 2009, respectively.

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As you review our Pharmacy Services segment’s performance in this area, we believe you should consider the following important information:

·Operating expenses increased $105 million to $1.1 billion, in the year ended December 30, 2011, compared to $954 million in the prior year. The increase in operating expenses is primarily related to normal operating expenses of the acquired UAM Medicare Part D Business, costs associated with changes designed to streamline our business, expenses associated with the acquisition and integration of the UAM Medicare Part D Business, partially offset by disciplined expense management.

·During 2010, the decrease in operating expenses of $6 million or approximately 1.0%, to $954 million compared to 2009, is primarily related to lower bad debt expense, and lower operating costs associated with our Medicare Part D program, partially offset by an increase in costs associated with changes designed to streamline our business.

Retail Pharmacy Segment

The following table summarizes our Retail Pharmacy segment’s performance for the respective periods:

	Year Ended December 31,
In millions	2011			2010			2009
Net revenues	$	59,599		$	57,345		$	55,355
Gross profit	17,468			17,039			16,593
Gross profit % of net revenues	29.3		%	29.7		%	30.0		%
Operating expenses	12,556			12,502			12,434
Operating expenses % of net revenues	21.1		%	21.8		%	22.5		%
Operating profit	4,912			4,537			4,159
Operating profit % of net revenues	8.2		%	7.9		%	7.5		%
Net revenue increase:
Total	3.9		%	3.6		%	13.0		%
Pharmacy	4.4		%	4.1		%	13.1		%
Front Store	3.0		%	2.6		%	12.7		%
Same store sales increase:(1)
Total	2.3		%	2.1		%	5.0		%
Pharmacy	3.1		%	2.9		%	6.9		%
Front Store	0.8		%	0.5		%	1.2		%
Generic dispensing rates	75.6		%	73.0		%	69.9		%
Pharmacy % of net revenues	68.3		%	68.0		%	67.5		%
Third party % of pharmacy revenue	97.8		%	97.4		%	96.9		%
Retail prescriptions filled	657.8			636.3			616.5

(1)Same store sales increase includes the Longs Drug Stores beginning in November 2009.

Net revenues increased $2.3 billion, or 3.9%, to $59.6 billion for the year ended December 31, 2011, as compared to the prior year. This increase was primarily driven by a same store sales increase of 2.3% and net revenues from new stores, which accounted for approximately 130 basis points of our total net revenue percentage increase during the year. Additionally, we continue to see a positive impact on our net revenues due to the growth of our Maintenance Choice program.

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Net revenues in our Retail Pharmacy Segment increased $2.0 billion, or 3.6% to $57.3 billion for the year ended December 31, 2010, as compared to the prior year. This increase was primarily driven by the same store sales increase of 2.1%, and net revenues from new stores, which accounted for approximately 140 basis points of our total net revenue percentage increase for the year ended December 31, 2010.

As you review our Retail Pharmacy segment’s performance in this area, we believe you should consider the following important information:

·Pharmacy revenues continued to benefit from incremental prescription volume associated with our Maintenance Choice program. Pharmacy same store sales rose 3.1% in the year ended December 31, 2011, as compared to the prior year. The year ended December 31, 2011, includes a positive impact from Maintenance Choice of approximately 160 basis points on a net basis, (i.e., a positive impact of approximately 190 basis points on a gross basis, net of approximately 30 basis points from the conversion of 30-day prescriptions at retail to 90-day prescriptions under the Maintenance Choice program).

·Pharmacy revenues continue to be negatively impacted by the conversion of brand name drugs to equivalent generic drugs, which typically have a lower selling price. Pharmacy same store sales were negatively impacted by approximately 215 basis points for the year ended December 31, 2011, respectively, due to recent generic introductions. In addition, our pharmacy growth has also been adversely affected by the lack of significant new brand name drug introductions, higher consumer co-payments and co-insurance arrangements and an increase in the number of over-the-counter remedies that were historically only available by prescription.

·As of December 31, 2011, we operated 7,327 retail stores compared to 7,182 retail stores as of December 31, 2010 and 7,025 retail stores as of December 31, 2009. Total net revenues from new stores (excluding acquired stores) contributed approximately 1.3%, 1.4% and 1.6% to our total net revenue percentage increase in 2011, 2010, and 2009, respectively.

·Pharmacy revenue growth continued to benefit from increased utilization by Medicare Part D beneficiaries, the ability to attract and retain managed care customers and favorable industry trends. These trends include an aging American population; many “baby boomers” are now in their fifties and sixties and are consuming a greater number of prescription drugs. In addition, the increased use of pharmaceuticals as the first line of defense for individual health care also contributed to the growing demand for pharmacy services. We believe these favorable industry trends will continue.

Gross profit in our Retail Pharmacy Segment includes net revenues less the cost of merchandise sold during the reporting period and the related purchasing costs, warehousing costs, delivery costs and actual and estimated inventory losses.

Gross profit increased $429 million, or 2.5%, to $17.5 billion in the year ended December 31, 2011, as compared to the prior year. Gross profit as a percentage of net revenues decreased to 29.3% in year ended December 31, 2011, from 29.7% in 2010. The increase in gross profit dollars in the year ended December 31, 2011, was primarily driven by increases in net revenue. Gross profit as a percentage of revenue was negatively impacted during 2011 by lower pharmacy margins due to continued reimbursement pressure which was partially offset by the positive impact of increased generic drugs dispensed.

Gross profit increased $446 million, or 2.7%, to $17.0 billion for the year ended December 31, 2010, as compared to the prior year. Gross profit as a percentage of net revenues decreased to 29.7% for the year ended December 31, 2010, compared to 30.0% for the prior year. The decline in gross profit as a percentage of net revenues was driven by declines in the gross profit of our pharmacy sales, partially offset by increases in the gross profit of our front store sales.

As you review our Retail Pharmacy segment’s performance in this area, we believe you should consider the following important information:

·On average, our gross profit on front-store revenues is generally higher than our average gross profit on pharmacy revenues. Front-store revenues were 31.7%, 32.0% and 32.5% of total revenues, in 2011, 2010 and 2009, respectively. Pharmacy revenues were 68.3%, 68.0% and 67.5% of total revenues, in 2011, 2010 and 2009, respectively. This shift in sales mix had a negative effect on our overall gross profit for the year ended December 31, 2011.

·During 2011 and 2010, our front-store gross profit rate was positively impacted by increases in private label and proprietary brand product sales, which normally yield a higher gross profit rate than other front-store products.

·During 2011, 2010 and 2009, our pharmacy gross profit rate continued to benefit from an increase in generic drug revenues, which normally yield a higher gross profit rate than equivalent brand name drug revenues.

·Our pharmacy gross profit rates have been adversely affected by the efforts of managed care organizations, pharmacy benefit managers and governmental and other third-party payors to reduce their prescription drug costs. In the event this trend continues, we may not be able to sustain our current rate of revenue growth and gross profit dollars could be adversely impacted.

·The increased use of generic drugs has positively impacted our gross profit margins but has resulted in third party payors augmenting their efforts to reduce reimbursement payments to retail pharmacies for prescriptions. This trend, which we expect to continue, reduces the benefit we realize from brand to generic product conversions.

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·Sales to customers covered by third party insurance programs have continued to increase and, thus, have become a larger component of our total pharmacy business. On average, our gross profit on third party pharmacy revenues is lower than our gross profit on cash pharmacy revenues. Third party pharmacy revenues were 97.8% of pharmacy revenues in 2011, compared to 97.4% and 96.9% of pharmacy revenues in 2010 and 2009, respectively.

·The Federal Government’s Medicare Part D benefit is increasing prescription utilization. However, it is also decreasing our pharmacy gross profit rates as our higher gross profit business (e.g., cash customers) continued to migrate to Part D coverage during 2011, 2010 and 2009.

·The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act (collectively, “PPACA”) made several significant changes to Medicaid rebates and to reimbursement. One of these changes was to revise the definition of Average Manufacturer Price and the reimbursement formula for multi-source drugs. CMS has not yet issued regulations implementing these changes. Therefore, we cannot predict the effect these changes will have on Medicaid reimbursement or their impact on the Company.

Operating expenses in our Retail Pharmacy Segment include store payroll, store employee benefits, store occupancy costs, selling expenses, advertising expenses, depreciation and amortization expense and certain administrative expenses.

Operating expenses increased $54 million, or less than 1% to $12.6 billion, or 21.1% as a percentage of net revenues, in the year ended December 31, 2011, as compared to $12.5 billion, or 21.8% as a percentage of net revenues, in the prior year. We continue to see improvement in operating expenses as a percentage of net revenues for the year ended December 31, 2011, due to improved expense leverage from our same store sales growth and expense control initiatives.

Operating expenses increased $68 million, or less than 1%, to $12.5 billion, or 21.8% as a percentage of net revenues, in the year ended December 31, 2010, as compared to $12.4 billion, or 22.5% as a percentage of net revenues, in the prior year. The increase in operating expenses in 2010 was the result of higher store operating costs associated with our increased store count, partially offset by the absence of costs incurred related to the integration of the Longs Acquisition which were incurred in 2009. The improvement in operating expenses as a percentage of net revenues for the year ended December 31, 2010, was primarily due to improved expense leverage from our same store sale growth and expense control initiatives.

Corporate Segment

Operating expenses decreased $10 million, or 1.6%, to $616 million in the year ended December 31, 2011, as compared to the prior year. Operating expenses increased $87 million, or 16.3% during 2010. Operating expenses within the Corporate segment include executive management, corporate relations, legal, compliance, human resources, corporate information technology and finance related costs.

The decrease in operating expenses in 2011 was primarily driven by lower professional fees for legal services and lower consulting costs. Operating expenses increased during 2010 primarily due to higher professional fees, primarily for legal services associated with increased litigation activity, information technology services associated with enterprise initiatives, compensation and benefit costs, and depreciation.

Liquidity and Capital Resources

We maintain a level of liquidity sufficient to allow us to cover our cash needs in the short-term. Over the long-term, we manage our cash and capital structure to maximize shareholder return, maintain our financial position and maintain flexibility for future strategic initiatives. We continuously assess our working capital needs, debt and leverage levels, capital expenditure requirements, dividend payouts, potential share repurchases and future investments or acquisitions. We believe our operating cash flows, commercial paper program, sale-leaseback program, as well as any potential future borrowings, will be sufficient to fund these future payments and long-term initiatives.

Net cash provided by operating activities was $5.9 billion for the year ended December 31, 2011, compared to $4.8 billion in 2010, and $4.0 billion in 2009. The increase in 2011 was related to improvements in inventory and accounts payable management, increases in accrued expenses due to the timing of payments and growth in claims payable due to increased volume of activity in our Pharmacy Services segment, partially offset by increased accounts receivable. The increase in net cash provided by operating activities during 2010 was primarily due to increases in cash receipts from customers, decreases in inventory purchases, partially offset by cash paid to other suppliers.

Net cash used in investing activities was $2.4 billion, representing an increase of $770 million in 2011. This compares to approximately $1.6 billion and $1.1 billion in 2010 and 2009, respectively. In 2011, the increase in net cash used in investing activities was primarily due to the cash paid to acquire the UAM Medicare Part D Business, partially offset by the proceeds from the sale of our TheraCom subsidiary, increased proceeds from sale-lease back transactions and lower purchases of property and equipment. In 2010,

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the increase in net cash used in investing activities was primarily due to a reduction in the amount of proceeds received from sale-leaseback transactions, partially offset by less cash used for purchases of property and equipment.

In 2011, gross capital expenditures totaled $1.9 billion, a decrease of $133 million compared to the prior year. During 2011, approximately 45.8% of our total capital expenditures were for new store construction, 18.3% were for store expansion and improvements and 35.9% were for technology and other corporate initiatives. Gross capital expenditures totaled approximately $2.0 billion during 2010, compared to approximately $2.5 billion in 2009. The decrease in gross capital expenditures during 2010 was primarily due to the absence of spending which occurred in 2009 related to resets of stores acquired as part of the Longs Acquisition. During 2010, approximately 52.0% of our total capital expenditures were for new store construction, 14.5% were for store expansion and improvements and 33.5% were for technology and other corporate initiatives.

Proceeds from sale-leaseback transactions totaled $592 million in 2011. This compares to $507 million in 2010 and $1.6 billion in 2009. Under the sale-leaseback transactions, the properties are generally sold at net book value, which generally approximates fair value, and the resulting leases qualify and are accounted for as operating leases. The specific timing and amount of future sale-leaseback transactions will vary depending on future market conditions and other factors. The decrease in 2010 was primarily due to higher transaction volume in 2009 as a result of a deferral of transactions from 2008, due to market conditions.

Following is a summary of our store development activity for the respective years:

	2011(2)		2010(2)		2009(2)
Total stores (beginning of year)	7,248		7,095		6,997
New and acquired stores(1)	162		183		180
Closed stores(1)	(22	)	(30	)	(82	)
Total stores (end of year)	7,388		7,248		7,095
Relocated stores	86		106		110

(1)Relocated stores are not included in new or closed store totals.

(2)Excludes specialty mail order facilities.

Net cash used in financing activities was approximately $3.5 billion in 2011, compared to net cash used in financing activities of $2.8 billion in 2010 and net cash used in financing activities of $3.2 billion in 2009. Net cash used in financing activities during 2011, was primarily due to $3.0 billion of share repurchases associated with the share repurchase program outlined below, as well as a net reduction in our outstanding debt of $209 million. Net cash used in financing activities during 2010, was primarily due to the repayment of long-term-debt of approximately $2.1 billion, $1.5 billion of share repurchases associated with the share repurchase programs described below, partially offset by the proceeds received of $991 million related to the issuance of long-term debt. Net cash used in financing activities during 2009 was primarily due to approximately $2.5 billion of share repurchases associated with the share repurchase programs described below, the net reduction of approximately $2.2 billion of our outstanding commercial paper borrowings, the repayment of $500 million of borrowings outstanding under our bridge credit facility used to finance the Longs Acquisition, and the payment of $439 million of dividends on our common stock. This was partially offset by the net increase in long-term debt of approximately $2.1 billion and proceeds from the exercise of stock options of $250 million.

Share repurchase programs - On August 23, 2011, our Board of Directors authorized a share repurchase program for up to $4.0 billion of outstanding common stock (the “2011 Repurchase Program”). The share repurchase authorization, which was effective immediately, permits us to effect repurchases from time to time through a combination of open market repurchases, privately negotiated transactions, accelerated share repurchase transactions, and/or other derivative transactions. The 2011 Repurchase Program may be modified or terminated by the Board of Directors at any time.

Pursuant to the authorization under the 2011 Repurchase Program, on August 24, 2011, we entered into a $1.0 billion fixed dollar accelerated share repurchase (“ASR”) agreement with Barclays Bank PLC (“Barclays”). The ASR agreement contained provisions that establish the minimum and maximum number of shares to be repurchased during its term. Pursuant to the ASR agreement, on August 25, 2011, we paid $1.0 billion to Barclays in exchange for Barclays delivering 20.3 million shares of common stock to us. On September 16, 2011, upon establishment of the minimum number of shares to be repurchased, Barclays delivered an additional 5.4 million shares of common stock to us. At the conclusion of the transaction on December 28, 2011, Barclays delivered a final installment of 1.6 million shares of common stock on December 29, 2011. The aggregate 27.3 million shares of common stock delivered to us by Barclays, were placed into treasury stock. As of December 31, 2011, we had approximately $3.0 billion remaining under the 2011 Repurchase Program.

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On June 14, 2010, our Board of Directors authorized a share repurchase program for up to $2.0 billion of our outstanding common stock (the “2010 Repurchase Program”). During the year ended December 31, 2011, we repurchased an aggregate of 56.4 million shares of common stock for approximately $2.0 billion, completing the 2010 Repurchase Program.

On November 4, 2009, our Board of Directors authorized a share repurchase program for up to $2.0 billion of our outstanding common stock (the “2009 Repurchase Program”). In 2009, we repurchased 16.1 million shares of common stock for approximately $500 million pursuant to the 2009 Repurchase Program. During 2010, we repurchased 42.4 million shares of common stock for approximately $1.5 billion, completing the 2009 Repurchase Program.

On May 7, 2008, our Board of Directors authorized, effective May 21, 2008, a share repurchase program for up to $2.0 billion of our outstanding common stock (the “2008 Repurchase Program”). From May 21, 2008 through December 31, 2008, we repurchased approximately 0.6 million shares of common stock for $23 million under the 2008 Repurchase Program. During the year ended December 31, 2009, we repurchased approximately 57.0 million shares of common stock for approximately $2.0 billion completing the 2008 Repurchase Program.

Short-term borrowings - We had $750 million of commercial paper outstanding at a weighted average interest rate of 0.37% as of December 31, 2011. In connection with our commercial paper program, we maintain a $1.3 billion, five-year unsecured back-up credit facility, which expires on March 12, 2012, and a $1.0 billion three-year unsecured back-up credit facility, which expires on May 27, 2013, and a $1.3 billion, four-year unsecured back-up credit facility which expires on May 12, 2015. The credit facilities allow for borrowings at various rates that are dependent, in part, on our public debt ratings and require us to pay a weighted average quarterly facility fee of approximately 0.04%, regardless of usage. As of December 31, 2011, there were no borrowings outstanding under the back-up credit facilities. We intend to renew our back-up credit facility which expires in March 2012.

Long-term borrowings — In connection with our acquisition of the UAM Medicare Part D Business in April 2011, we assumed $110 million of long-term debt in the form of Trust Preferred Securities that mature through 2037. During the year ended December 31, 2011, we repaid $60 million of the Trust Preferred Securities at par and intend to repay the remaining $50 million at par in 2012.

On May 12, 2011, we issued $550 million of 4.125% unsecured senior notes due May 15, 2021 and issued $950 million of 5.75% unsecured senior notes due May 15, 2041 (collectively, the “2011 Notes”) for total proceeds of approximately $1.5 billion, net of discounts and underwriting fees. The 2011 Notes pay interest semi-annually and may be redeemed, in whole at any time, or in part from time to time, at our option at a defined redemption price plus accrued and unpaid interest to the redemption date. The net proceeds of the 2011 Notes were used to repay commercial paper borrowings and certain other corporate debt, and were used for general corporate purposes.

On December 8, 2011, we repurchased $958 million of the principal amount of our Enhanced Capital Advantaged Preferred Securities (“ECAPS”) at par. The fees and write-off of deferred issuance costs associated with the early extinguishment of the ECAPS were de minimis. The remaining $42 million of outstanding ECAPS are due in 2062 and bear interest at 6.302% per year until June 1, 2012, at which time they will pay interest based on a floating rate. The ECAPS pay interest semi-annually and may be redeemed at any time, in whole or in part at a defined redemption price plus accrued interest.

On May 13, 2010, we issued $550 million of 3.25% unsecured senior notes due May 18, 2015 and issued $450 million of 4.75% unsecured senior notes due May 18, 2020 (collectively, the “2010 Notes”) for total proceeds of $991 million, which was net of discounts and underwriting fees. The 2010 Notes pay interest semiannually and may be redeemed, in whole at any time, or in part from time to time, at the Company’s option at a defined redemption price plus accrued and unpaid interest to the redemption date. The net proceeds of the 2010 Notes were used to repay a portion of the Company’s outstanding commercial paper borrowings, certain other corporate debt and for general corporate purposes.

On March 10, 2009, we issued $1.0 billion of 6.60% unsecured senior notes due March 15, 2019 (the “March 2009 Notes”). The March 2009 Notes pay interest semi-annually and may be redeemed, in whole or in part, at a defined redemption price plus accrued interest. The net proceeds were used to repay the bridge credit facility, a portion of our outstanding commercial paper borrowings and for general corporate purposes.

On July 1, 2009, we issued $300 million of unsecured floating rate senior notes due January 30, 2011 (the “2009 Floating Rate Notes”). The 2009 Floating Rate Notes pay interest quarterly. The net proceeds from the 2009 Floating Rate Notes were used for general corporate purposes.

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On September 8, 2009, we issued $1.5 billion of 6.125% unsecured senior notes due September 15, 2039 (the “September 2009 Notes”). The September 2009 Notes pay interest semi-annually and may be redeemed, in whole or in part, at a defined redemption price plus accrued interest. The net proceeds were used to repay a portion of our outstanding commercial paper borrowings, $650 million of unsecured senior notes and for general corporate purposes.

Our backup credit facility, unsecured senior notes and Enhanced Capital Advantaged Preferred Securities (see Note 6 to the Consolidated Financial Statements) contain customary restrictive financial and operating covenants.

These covenants do not include a requirement for the acceleration of our debt maturities in the event of a downgrade in our credit rating. We do not believe the restrictions contained in these covenants materially affect our financial or operating flexibility.

As of December 31, 2011 and 2010 we had no outstanding derivative financial instruments.

Debt Ratings - As of December 31, 2011, our long-term debt was rated “Baa2” by Moody’s with a stable outlook and “BBB+” by Standard & Poor’s with a stable outlook, and our commercial paper program was rated “P-2” by Moody’s and “A-2” by Standard & Poor’s. In assessing our credit strength, we believe that both Moody’s and Standard & Poor’s considered, among other things, our capital structure and financial policies as well as our consolidated balance sheet, our historical acquisition activity and other financial information. Although we currently believe our long-term debt ratings will remain investment grade, we cannot guarantee the future actions of Moody’s and/or Standard & Poor’s. Our debt ratings have a direct impact on our future borrowing costs, access to capital markets and new store operating lease costs.

Quarterly Dividend Increase - In December 2011, our Board of Directors authorized a 30% increase in our quarterly common stock dividend to $0.1625 per share. This increase equates to an annual dividend rate of $0.65 per share. On January 11, 2011, our Board of Directors authorized a 43% increase in our quarterly common stock dividend to $0.125 per share. This increase equated to an annual dividend rate of $0.50 per share. In January 2010, our Board of Directors authorized a 15% increase in our quarterly common stock dividend to $0.0875 per share. This increase equated to an annual dividend rate of $0.35 per share.

Off-Balance Sheet Arrangements

In connection with executing operating leases, we provide a guarantee of the lease payments. We also finance a portion of our new store development through sale-leaseback transactions, which involve selling stores to unrelated parties and then leasing the stores back under leases that qualify and are accounted for as operating leases. We do not have any retained or contingent interests in the stores, and we do not provide any guarantees, other than a guarantee of the lease payments, in connection with the transactions. In accordance with generally accepted accounting principles, our operating leases are not reflected on our consolidated balance sheets.

Between 1991 and 1997, the Company sold or spun off a number of subsidiaries, including Bob’s Stores, Linens’n Things, Marshalls, Kay-Bee Toys, This End Up and Footstar. In many cases, when a former subsidiary leased a store, the Company provided a guarantee of the store’s lease obligations. When the subsidiaries were disposed of, the Company’s guarantees remained in place, although each initial purchaser has indemnified the Company for any lease obligations the Company was required to satisfy. If any of the purchasers or any of the former subsidiaries were to become insolvent and failed to make the required payments under a store lease, the Company could be required to satisfy these obligations.

As of December 31, 2011, the Company guaranteed approximately 75 such store leases (excluding the lease guarantees related to Linens ‘n Things), with the maximum remaining lease term extending through 2022. Management believes the ultimate disposition of any of the remaining lease guarantees will not have a material adverse effect on the Company’s consolidated financial condition or future cash flows. Please see “Income (loss) from discontinued operations” previously in this document for further information regarding our guarantee of certain Linens ‘n Things’ store lease obligations.

Following is a summary of our significant contractual obligations as of December 31, 2011:

	Payments Due by Period
In millions	Total		2012		2013 to 2014		2015 to 2016		Thereafter
Operating leases	$	27,625	$	2,230	$	4,079	$	3,686	$	17,630
Leases from discontinued operations	130		25		43		35		27
Long-term debt	9,096		53		551		1,250		7,242
Interest payments on long-term debt(1)	6,998		547		1,023		933		4,495
Other long-term liabilities reflected in our consolidated balance sheet	455		44		96		96		219
Capital lease obligations	337		20		40		40		237
	$	44,641	$	2,919	$	5,832	$	6,040	$	29,850

(1)Interest payments on long-term debt are calculated on outstanding balances and interest rates in effect on December 31, 2011.

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Critical Accounting Policies

We prepare our consolidated financial statements in conformity with generally accepted accounting principles, which require management to make certain estimates and apply judgment. We base our estimates and judgments on historical experience, current trends and other factors that management believes to be important at the time the consolidated financial statements are prepared. On a regular basis, we review our accounting policies and how they are applied and disclosed in our consolidated financial statements. While we believe the historical experience, current trends and other factors considered, support the preparation of our consolidated financial statements in conformity with generally accepted accounting principles, actual results could differ from our estimates, and such differences could be material.

Our significant accounting policies are discussed in Note 1 to our consolidated financial statements. We believe the following accounting policies include a higher degree of judgment and/or complexity and, thus, are considered to be critical accounting policies. We have discussed the development and selection of our critical accounting policies with the Audit Committee of our Board of Directors and the Audit Committee has reviewed our disclosures relating to them.

Revenue Recognition

Pharmacy Services Segment

Our Pharmacy Services segment sells prescription drugs directly through our mail service pharmacies and indirectly through our retail pharmacy network. We recognize revenues in our Pharmacy Services segment from prescription drugs sold by our mail service pharmacies and under retail pharmacy network contracts where we are the principal using the gross method at the contract prices negotiated with our clients. Net revenue from our Pharmacy Services segment includes: (i) the portion of the price the client pays directly to us, net of any volume-related or other discounts paid back to the client, (ii) the price paid to us (“Mail Co-Payments”) or a third party pharmacy in our retail pharmacy network (“Retail Co-Payments”) by individuals included in our clients’ benefit plans, and (iii) administrative fees for retail pharmacy network contracts where we are not the principal.

We recognize revenue in the Pharmacy Services segment when: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the seller’s price to the buyer is fixed or determinable, and (iv) collectability is reasonably assured. We recognize revenues generated from prescription drugs sold by mail service pharmacies when the prescription is shipped. At the time of shipment, we have performed substantially all of our obligations under the client contract and do not experience a significant level of reshipments. We recognize revenues generated from prescription drugs sold by third party pharmacies in our retail pharmacy network and associated administrative fees are recognized at the point-of-sale, which is when we adjudicate the claim in our online claims processing system.

We determine whether we are the principal or agent for our retail pharmacy network transactions on a contract by contract basis. In the majority of our contracts, we have determined we are the principal due to us: (i) being the primary obligor in the arrangement, (ii) having latitude in establishing the price, changing the product or performing part of the service, (iii) having discretion in supplier selection, (iv) having involvement in the determination of product or service specifications, and (v) having credit risk. Our obligations under our client contracts for which revenues are reported using the gross method are separate and distinct from our obligations to the third party pharmacies included in our retail pharmacy network contracts. Pursuant to these contracts, we are contractually required to pay the third party pharmacies in our retail pharmacy network for products sold, regardless of whether we are paid by our clients. Our responsibilities under these client contracts typically include validating eligibility and coverage levels, communicating the prescription price and the co-payments due to the third party retail pharmacy, identifying possible adverse drug interactions for the pharmacist to address with the physician prior to dispensing, suggesting clinically appropriate generic alternatives where appropriate and approving the prescription for dispensing. Although we do not have credit risk with respect to Retail Co-Payments, we believe that all of the other indicators of gross revenue reporting are present. For contracts under which we act as an agent, we record revenues using the net method.

We deduct from our revenues the manufacturers’ rebates that are earned by our clients based on their members’ utilization of brand-name formulary drugs. We estimate these rebates at period-end based on actual and estimated claims data and our estimates of the manufacturers’ rebates earned by our clients. We base our estimates on the best available data at period-end and recent history for the various factors that can affect the amount of rebates due to the client. We adjust our rebates payable to clients to the actual amounts paid when these rebates are paid or as significant events occur. We record any cumulative effect of these adjustments against revenues as identified, and adjust our estimates prospectively to consider recurring matters. Adjustments generally result from contract changes with our clients or manufacturers, differences between the estimated and actual product mix subject to rebates or whether the product was included in the applicable formulary. We also deduct from our revenues pricing guarantees and guarantees regarding the level of service we will provide to the client or member as well as other payments made to our clients. Because the inputs to most of these estimates are not subject to a high degree of subjectivity or volatility, the effect of adjustments between estimated and actual amounts have not been material to our results of operations or financial position.

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We participate in the Federal Government’s Medicare Part D program as a PDP. Our net revenues include insurance premiums earned by the PDP, which are determined based on the PDP’s annual bid and related contractual arrangements with CMS. The insurance premiums include a beneficiary premium, which is the responsibility of the PDP member, but is subsidized by CMS in the case of low-income members, and a direct premium paid by CMS. Premiums collected in advance are initially deferred as accrued expenses and are then recognized ratably as revenue over the period in which members are entitled to receive benefits.

In addition to these premiums, our net revenues include co-payments, coverage gap benefits, deductibles and co-insurance (collectively, the “Member Co-Payments”) related to PDP members’ actual prescription claims. In certain cases, CMS subsidizes a portion of these Member Co-Payments and we are paid an estimated prospective Member Co-Payment subsidy, each month. The prospective Member Co-Payment subsidy amounts received from CMS are also included in our net revenues. We assume no risk for these amounts, which represented 3.1%, 2.6% and 3.5% of consolidated net revenues in 2011, 2010 and 2009, respectively. If the prospective Member Co-Payment subsidies received differ from the amounts based on actual prescription claims, the difference is recorded in either accounts receivable or accrued expenses. We account for CMS obligations and Member Co-Payments (including the amounts subsidized by CMS) using the gross method consistent with our revenue recognition policies for Mail Co-Payments and Retail Co-Payments. We have recorded estimates of various assets and liabilities arising from our participation in the Medicare Part D program based on information in our claims management and enrollment systems. Significant estimates arising from our participation in the Medicare Part D program include: (i) estimates of low-income cost subsidy and reinsurance amounts ultimately payable to or receivable from CMS based on a detailed claims reconciliation, (ii) an estimate of amounts payable to CMS under a risk-sharing feature of the Medicare Part D program design, referred to as the risk corridor and (iii) estimates for claims that have been reported and are in the process of being paid or contested and for our estimate of claims that have been incurred but have not yet been reported. Actual amounts of Medicare Part D-related assets and liabilities could differ significantly from amounts recorded. Historically, the effect of these adjustments has not been material to our results of operations or financial position.

Retail Pharmacy Segment

Our Retail Pharmacy segment recognizes revenue from the sale of merchandise (other than prescription drugs) at the time the merchandise is purchased by the retail customer. We recognize revenue from the sale of prescription drugs at the time the prescription is filled, which is or approximates when the retail customer picks up the prescription. Customer returns are not material. Revenue from the performance of services in our health care clinics is recognized at the time the services are performed.

We have not made any material changes in the way we recognize revenue during the past three years.

Vendor Allowances and Purchase Discounts

Pharmacy Services Segment

Our Pharmacy Services segment receives purchase discounts on products purchased. Contractual arrangements with vendors, including manufacturers, wholesalers and retail pharmacies, normally provide for the Pharmacy Services segment to receive purchase discounts from established list prices in one, or a combination of, the following forms: (i) a direct discount at the time of purchase, (ii) a discount for the prompt payment of invoices or (iii) when products are purchased indirectly from a manufacturer (e.g., through a wholesaler or retail pharmacy), a discount (or rebate) paid subsequent to dispensing. These rebates are recognized when prescriptions are dispensed and are generally calculated and billed to manufacturers within 30 days of the end of each completed quarter. Historically, the effect of adjustments resulting from the reconciliation of rebates recognized to the amounts billed and collected has not been material to the results of operations. We account for the effect of any such differences as a change in accounting estimate in the period the reconciliation is completed. The Pharmacy Services segment also receives additional discounts under its wholesaler contract if it exceeds contractually defined annual purchase volumes. In addition, the Pharmacy Services segment receives fees from pharmaceutical manufacturers for administrative services. Purchase discounts and administrative service fees are recorded as a reduction of “Cost of revenues”.

Retail Pharmacy Segment

Vendor allowances received by the Retail Pharmacy segment reduce the carrying cost of inventory and are recognized in cost of revenues when the related inventory is sold, unless they are specifically identified as a reimbursement of incremental costs for promotional programs and/or other services provided. Amounts that are directly linked to advertising commitments are recognized as a reduction of advertising expense (included in operating expenses) when the related advertising commitment is satisfied. Any such allowances received in excess of the actual cost incurred also reduce the carrying cost of inventory. The total value of any upfront payments received from vendors that are linked to purchase commitments is initially deferred. The deferred amounts are then amortized to reduce cost of revenues over the life of the contract based upon purchase volume. The total value of any upfront payments received from vendors that are not linked to purchase commitments is also initially deferred. The deferred amounts are then amortized to reduce cost of revenues on a straight-line basis over the life of the related contract.

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We have not made any material changes in the way we account for vendor allowances and purchase discounts during the past three years.

Inventory

Our inventory is stated at the lower of cost or market on a first-in, first-out basis using the retail method of accounting to determine cost of sales and inventory in our CVS/pharmacy stores, weighted average cost to determine cost of sales and inventory in our mail service and specialty pharmacies and the cost method of accounting on a first-in, first-out basis to determine inventory in our distribution centers. Under the retail method, inventory is stated at cost, which is determined by applying a cost-to-retail ratio to the ending retail value of our inventory. Since the retail value of our inventory is adjusted on a regular basis to reflect current market conditions, our carrying value should approximate the lower of cost or market. In addition, we reduce the value of our ending inventory for estimated inventory losses that have occurred during the interim period between physical inventory counts. Physical inventory counts are taken on a regular basis in each store and a continuous cycle count process is the primary procedure used to validate the inventory balances on hand in each distribution center and mail facility to ensure that the amounts reflected in the accompanying consolidated financial statements are properly stated. The accounting for inventory contains uncertainty since we must use judgment to estimate the inventory losses that have occurred during the interim period between physical inventory counts. When estimating these losses, we consider a number of factors, which include, but are not limited to, historical physical inventory results on a location-by-location basis and current physical inventory loss trends.

Our total reserve for estimated inventory losses covered by this critical accounting policy was $179 million as of December 31, 2011. Although we believe we have sufficient current and historical information available to us to record reasonable estimates for estimated inventory losses, it is possible that actual results could differ. In order to help you assess the aggregate risk, if any, associated with the uncertainties discussed above, a ten percent (10%) pre-tax change in our estimated inventory losses, which we believe is a reasonably likely change, would increase or decrease our total reserve for estimated inventory losses by about $18 million as of December 31, 2011.

We have not made any material changes in the accounting methodology used to establish our inventory loss reserves during the past three years. Although we believe that the estimates discussed above are reasonable and the related calculations conform to generally accepted accounting principles, actual results could differ from our estimates, and such differences could be material.

Goodwill and Intangible Assets

Identifiable intangible assets consist primarily of trademarks, client contracts and relationships, favorable leases and covenants not to compete. These intangible assets arise primarily from the allocation of the purchase price of businesses acquired to identifiable intangible assets based on their respective fair market values at the date of acquisition.

Amounts assigned to identifiable intangible assets, and their related useful lives, are derived from established valuation techniques and management estimates. Goodwill represents the excess of amounts paid for acquisitions over the fair value of the net identifiable assets acquired.

We evaluate the recoverability of certain long-lived assets, including intangible assets with finite lives, but excluding goodwill and intangible assets with indefinite lives, which are tested for impairment using separate tests, whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. We group and evaluate these long-lived assets for impairment at the lowest level at which individual cash flows can be identified. When evaluating these long-lived assets for potential impairment, we first compare the carrying amount of the asset group to the asset group’s estimated future cash flows (undiscounted and without interest charges). If the estimated future cash flows 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 the asset group’s estimated future cash flows (discounted and with interest charges). If required, an impairment loss is recorded for the portion of the asset group’s carrying value that exceeds the asset group’s estimated future cash flows (discounted and with interest charges). Our long-lived asset impairment loss calculation contains uncertainty since we must use judgment to estimate each asset group’s future sales, profitability and cash flows. When preparing these estimates, we consider historical results and current operating trends and our consolidated sales, profitability and cash flow results and forecasts.

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These estimates can be affected by a number of factors including, but not limited to, general economic and regulatory conditions, efforts of third party organizations to reduce their prescription drug costs and/or increased member co-payments, the continued efforts of competitors to gain market share and consumer spending patterns.

Goodwill and indefinitely-lived intangible assets are subject to annual impairment reviews, or more frequent reviews if events or circumstances indicate that the carrying value may not be recoverable.

Indefinitely-lived intangible assets are tested by comparing the estimated fair value of the asset to its carrying value. If the carrying value of the asset exceeds its estimated fair value, an impairment loss is recognized and the asset is written down to its estimated fair value.

Our indefinitely-lived intangible asset impairment loss calculation contains uncertainty since we must use judgment to estimate the fair value based on the assumption that in lieu of ownership of an intangible asset, the Company would be willing to pay a royalty in order to utilize the benefits of the asset. Value is estimated by discounting the hypothetical royalty payments to their present value over the estimated economic life of the asset. These estimates can be affected by a number of factors including, but not limited to, general economic conditions, availability of market information as well as the profitability of the Company.

Goodwill is tested for impairment on a reporting unit basis using a two-step process. The first step of the impairment test is to identify potential impairment by comparing the reporting unit’s fair value with its net book value (or carrying amount), including goodwill. The fair value of our reporting units is estimated using a combination of the discounted cash flow valuation model and comparable market transaction models. If the fair value of the reporting unit exceeds its carrying amount, the reporting unit’s goodwill is not considered to be impaired and the second step of the impairment test is not performed. If the carrying amount of the reporting unit’s carrying amount exceeds its fair value, the second step of the impairment test is performed to measure the amount of impairment loss, if any. The second step of the impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of the goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of the goodwill, an impairment loss is recognized in an amount equal to that excess.

The determination of the fair value of our reporting units requires the Company to make significant assumptions and estimates. These assumptions and estimates primarily include, but are not limited to, the selection of appropriate peer group companies; control premiums and valuation multiples appropriate for acquisitions in the industries in which the Company competes; discount rates, terminal growth rates; and forecasts of revenue, operating profit, depreciation and amortization, capital expenditures and future working capital requirements. When determining these assumptions and preparing these estimates, we consider each reporting unit’s historical results and current operating trends and our consolidated revenues, profitability and cash flow results and forecasts. Our estimates can be affected by a number of factors including, but not limited to, general economic and regulatory conditions, our market capitalization, efforts of third party organizations to reduce their prescription drug costs and/or increase member co-payments, the continued efforts of competitors to gain market share and consumer spending patterns.

The carrying value of goodwill and other intangible assets covered by this critical accounting policy was $26.5 billion and $9.9 billion as of December 31, 2011, respectively. We did not record any impairment losses related to goodwill or other intangible assets during 2011, 2010 or 2009. During the third quarter of 2011, we performed our required annual impairment tests of goodwill and indefinitely-lived trademarks. The results of the impairment tests concluded that there was no impairment of goodwill or trademarks. The goodwill impairment test resulted in the fair value of our Retail Pharmacy reporting unit exceeding its carrying value by a substantial margin and the fair value of our Pharmacy Services reporting unit exceeding its carrying value by approximately 15%. The carrying value of goodwill as of December 31, 2011, in our Retail Pharmacy and Pharmacy Services reporting units was $6.8 billion and $19.7 billion, respectively.

Although we believe we have sufficient current and historical information available to us to test for impairment, it is possible that actual results could differ from the estimates used in our impairment tests.

We have not made any material changes in the methodologies utilized to test the carrying values of goodwill and intangible assets for impairment during the past three years.

Closed Store Lease Liability

We account for closed store lease termination costs when a leased store is closed. When a leased store is closed, we record a liability for the estimated present value of the remaining obligation under the noncancelable lease, which includes future real estate taxes, common area maintenance and other charges, if applicable. The liability is reduced by estimated future sublease income.

The initial calculation and subsequent evaluations of our closed store lease liability contain uncertainty since we must use judgment to estimate the timing and duration of future vacancy periods, the amount and timing of future lump sum settlement payments and the

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amount and timing of potential future sublease income. When estimating these potential termination costs and their related timing, we consider a number of factors, which include, but are not limited to, historical settlement experience, the owner of the property, the location and condition of the property, the terms of the underlying lease, the specific marketplace demand and general economic conditions.

Our total closed store lease liability covered by this critical accounting policy was $430 million as of December 31, 2011. This amount is net of $239 million of estimated sublease income that is subject to the uncertainties discussed above. Although we believe we have sufficient current and historical information available to us to record reasonable estimates for sublease income, it is possible that actual results could differ.

In order to help you assess the risk, if any, associated with the uncertainties discussed above, a ten percent (10%) pre-tax change in our estimated sublease income, which we believe is a reasonably likely change, would increase or decrease our total closed store lease liability by about $24 million as of December 31, 2011.

We have not made any material changes in the reserve methodology used to record closed store lease reserves during the past three years.

Self-Insurance Liabilities

We are self-insured for certain losses related to general liability, workers’ compensation and auto liability, although we maintain stop loss coverage with third party insurers to limit our total liability exposure. We are also self-insured for certain losses related to health and medical liabilities.

The estimate of our self-insurance liability contains uncertainty since we must use judgment to estimate the ultimate cost that will be incurred to settle reported claims and unreported claims for incidents incurred but not reported as of the balance sheet date. When estimating our self-insurance liability, we consider a number of factors, which include, but are not limited to, historical claim experience, demographic factors, severity factors and other standard insurance industry actuarial assumptions. On a quarterly basis, we review to determine if our self-insurance liability is adequate as it relates to our general liability, workers’ compensation and auto liability. Similar reviews are conducted semi-annually to determine if our self-insurance liability is adequate for our health and medical liability.

Our total self-insurance liability covered by this critical accounting policy was $509 million as of December 31, 2011. Although we believe we have sufficient current and historical information available to us to record reasonable estimates for our self-insurance liability, it is possible that actual results could differ. In order to help you assess the risk, if any, associated with the uncertainties discussed above, a ten percent (10%) pre-tax change in our estimate for our self-insurance liability, which we believe is a reasonably likely change, would increase or decrease our self-insurance liability by about $51 million as of December 31, 2011.

We have not made any material changes in the accounting methodology used to establish our self-insurance liability during the past three years.

New Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-06, Fair Value Measurements and Disclosures: Improving Disclosures about Fair Value Measurements, (“ASU 2010-06”). ASU 2010-06 expanded the required disclosures about fair value measurements by requiring (i) separate disclosure of the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements along with the reasons for such transfers, (ii) information about purchases, sales, issuances and settlements to be presented separately in the reconciliation for Level 3 fair value measurements, (iii) expanded fair value measurement disclosures for each class of assets and liabilities, and (iv) disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3. ASU 2010-06 was effective for annual reporting periods beginning after December 15, 2009, except for (ii) above which is effective for fiscal years beginning after December 15, 2010. The adoption of ASU 2010-06 did not have a material impact on our financial statement disclosures.

In May 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 eliminates the current option to report other comprehensive income and its components in the statement of shareholders’ equity. Instead, an entity will have the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 also required entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which net income is presented and the statement in which other comprehensive is presented. In December 2011, the FASB issued ASU 2011-12 Deferral of the Effective Date for Amendments to the Presentation of Reclassification of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05, which

19

indefinitely defers the guidance related to the presentation of reclassification adjustments. ASU 2011-05 is effective for interim and annual periods beginning after December 15, 2011 and should be applied retrospectively. The Company is still evaluating which of the two alternatives it will apply in reporting comprehensive income. Neither alternative is expected to have a material impact on the Company’s consolidated results of operations and neither alternative will have an impact on the Company’s financial condition or cash flows.

In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment (“ASU 2011-08”). ASU 2011-08 allows entities to use a qualitative approach to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If after performing the qualitative assessment an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step goodwill impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step goodwill impairment test. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. We do not expect the adoption of ASU 2011-08 will have a material impact on our consolidated results of operations, financial condition or cash flows.

In September 2011, the FASB issued ASU 2011-09, Disclosures about an Employer’s Participation in a Multiemployer Plan (“ASU 2011-09”). ASU 2011-09 requires additional quantitative and qualitative disclosures of entities who participate in multiemployer pension and other postretirement plans. ASU 2011-09 is effective for annual periods ending after December 15, 2011 and should be applied retrospectively. The adoption of ASU 2011-09 did not have a material impact on our financial statement disclosures.

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Cautionary Statement Concerning Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 (the “Reform Act”) provides a safe harbor for forward-looking statements made by or on behalf of CVS Caremark Corporation. The Company and its representatives may, from time to time, make written or verbal forward-looking statements, including statements contained in the Company’s filings with the Securities and Exchange Commission (“SEC”) and in its reports to stockholders. Generally, the inclusion of the words “believe,” “expect,” “intend,” “estimate,” “project,” “anticipate,” “will,” “should” and similar expressions identify statements that constitute forward-looking statements. All statements addressing operating performance of CVS Caremark Corporation or any subsidiary, events or developments that the Company expects or anticipates will occur in the future, including statements relating to revenue growth, earnings or earnings per common share growth, adjusted earnings or adjusted earnings per common share growth, free cash flow, debt ratings, inventory levels, inventory turn and loss rates, store development, relocations and new market entries, PBM business and sales trends, Medicare Part D competitive bidding and enrollment and new product development, as well as statements expressing optimism or pessimism about future operating results or events, are forward-looking statements within the meaning of the Reform Act.

The 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 undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

By their nature, all forward-looking statements involve risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements for a number of reasons, including, but not limited to:

·Risks relating to the health of the economy in general and in the markets we serve, which could impact consumer purchasing power, preferences and/or spending patterns, drug utilization trends, the financial health of our PBM clients and our ability to secure necessary financing, suitable store locations and sale-leaseback transactions on acceptable terms

·Efforts to reduce reimbursement levels and alter health care financing practices, including pressure to reduce reimbursement levels for generic drugs.

·The possibility of PBM client loss and/or the failure to win new PBM business.

·Risks related to the frequency and rate of the introduction of generic drugs and brand name prescription products.

·Risks of declining gross margins in the PBM industry attributable to increased competitive pressures, increased client demand for lower prices, enhanced service offerings and/or higher service levels and market dynamics and regulatory changes that impact our ability to offer plan sponsors pricing that includes the use of retail “differential” or “spread.”

·Regulatory and business changes relating to our participation in Medicare Part D.

·Possible changes in industry pricing benchmarks.

·An extremely competitive business environment.

·Reform of the U.S. health care system.

·Risks relating to our failure to properly maintain our information technology systems, our information security systems and our infrastructure to support our business and to protect the privacy and security of sensitive customer and business information.

·Risks related to compliance with a broad and complex regulatory framework, including compliance with new and existing federal, state and local laws and regulations relating to health care, accounting standards, corporate securities, tax, environmental and other laws and regulations affecting our business.

·Risks related to litigation and other legal proceedings as they relate to our business, the pharmacy services, retail pharmacy or retail clinic industry or to the health care industry generally.

·Other risks and uncertainties detailed from time to time in our filings with the SEC.

The foregoing list is not exhaustive. There can be no assurance that the Company has correctly identified and appropriately assessed all factors affecting its business. Additional risks and uncertainties not presently known to the Company or that it currently believes to be immaterial also may adversely impact the Company. Should any risks and uncertainties develop into actual events, these developments could have a material adverse effect on the Company’s business, financial condition and results of operations. For these reasons, you are cautioned not to place undue reliance on the Company’s forward-looking statements.

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Management’s Report on Internal Control Over Financial Reporting

We are responsible for establishing and maintaining adequate internal control over financial reporting. Our Company’s internal control over financial reporting includes those policies and procedures that pertain to the Company’s ability to record, process, summarize and report a system of internal accounting controls and procedures to provide reasonable assurance, at an appropriate cost/benefit relationship, that the unauthorized acquisition, use or disposition of assets are prevented or timely detected and that transactions are authorized, recorded and reported properly to permit the preparation of financial statements in accordance with generally accepted accounting principles (GAAP) and receipt and expenditures are duly authorized. In order to ensure the Company’s internal control over financial reporting is effective, management regularly assesses such controls and did so most recently for its financial reporting as of December 31, 2011.

We conducted an assessment of the effectiveness of our internal controls over financial reporting based on the criteria set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation, evaluation of the design effectiveness and testing of the operating effectiveness of controls. Our system of internal control over financial reporting is enhanced by periodic reviews by our internal auditors, written policies and procedures and a written Code of Conduct adopted by our Company’s Board of Directors, applicable to all employees of our Company. In addition, we have an internal Disclosure Committee, comprised of management from each functional area within the Company, which performs a separate review of our disclosure controls and procedures. There are inherent limitations in the effectiveness of any system of internal controls over financial reporting.

Based on our assessment, we conclude our Company’s internal control over financial reporting is effective and provides reasonable assurance that assets are safeguarded and that the financial records are reliable for preparing financial statements as of December 31, 2011.

Ernst & Young LLP, independent registered public accounting firm, is appointed by the Board of Directors and ratified by our Company’s shareholders. They were engaged to render an opinion regarding the fair presentation of our consolidated financial statements as well as conducting an audit of internal control over financial reporting. Their accompanying report is based upon an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States).

February 17, 2012

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

CVS Caremark Corporation

We have audited CVS Caremark Corporation’s internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). CVS Caremark Corporation’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on CVS Caremark Corporation’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, CVS Caremark Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of CVS Caremark Corporation as of December 31, 2011 and 2010 and the related consolidated statements of income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2011 of CVS Caremark Corporation and our report dated February 17, 2012 expressed an unqualified opinion thereon.

	/s/ Ernst & Young LLP
Boston, Massachusetts
February 17, 2012

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Consolidated Statements of Income

	Year Ended December 31,
In millions, except per share amounts	2011			2010		2009
Net revenues	$	107,100		$	95,778	$	98,215
Cost of revenues	86,539			75,559		77,857
Gross profit	20,561			20,219		20,358
Operating expenses	14,231			14,082		13,933
Operating profit	6,330			6,137		6,425
Interest expense, net	584			536		525
Income before income tax provision	5,746			5,601		5,900
Income tax provision	2,258			2,179		2,200
Income from continuing operations	3,488			3,422		3,700
Income (loss) from discontinued operations, net of tax	(31		)	2		(4		)
Net income	3,457			3,424		3,696
Net loss attributable to noncontrolling interest	4			3		—
Net income attributable to CVS Caremark	$	3,461		$	3,427	$	3,696
Basic earnings per common share:
Income from continuing operations attributable to CVS Caremark	$	2.61		$	2.51	$	2.58
Loss from discontinued operations attributable to CVS Caremark	(0.02		)	—		—
Net income attributable to CVS Caremark	$	2.59		$	2.51	$	2.58
Weighted average common shares outstanding	1,338			1,367		1,434
Diluted earnings per common share:
Income from continuing operations attributable to CVS Caremark	$	2.59		$	2.49	$	2.55
Loss from discontinued operations attributable to CVS Caremark	(0.02		)	—		—
Net income attributable to CVS Caremark	$	2.57		$	2.49	$	2.55
Weighted average common shares outstanding	1,347			1,377		1,450
Dividends declared per common share	$	0.500		$	0.350	$	0.305

See accompanying notes to consolidated financial statements.

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Consolidated Balance Sheets

	December 31,
In millions, except per share amounts	2011			2010
Assets:
Cash and cash equivalents	$	1,413		$	1,427
Short-term investments	5			4
Accounts receivable, net	6,047			4,925
Inventories	10,046			10,695
Deferred income taxes	503			511
Other current assets	580			144
Total current assets	18,594			17,706
Property and equipment, net	8,467			8,322
Goodwill	26,458			25,669
Intangible assets, net	9,869			9,784
Other assets	1,155			688
Total assets	$	64,543		$	62,169
Liabilities:
Accounts payable	$	4,370		$	4,026
Claims and discounts payable	3,487			2,569
Accrued expenses	3,293			3,070
Short-term debt	750			300
Current portion of long-term debt	56			1,105
Total current liabilities	11,956			11,070
Long-term debt	9,208			8,652
Deferred income taxes	3,853			3,655
Other long-term liabilities	1,445			1,058
Commitments and contingencies (Note 13)
Redeemable noncontrolling interest	30			34
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; 1,640 shares issued and 1,298 shares outstanding at December 31, 2011 and 1,624 shares issued and 1,363 shares outstanding at December 31, 2010	16			16
Treasury stock, at cost: 340 shares at December 31, 2011 and 259 shares at December 31, 2010	(11,953		)	(9,030		)
Shares held in trust: 2 shares at December 31, 2011 and 2010	(56		)	(56		)
Capital surplus	28,126			27,610
Retained earnings	22,090			19,303
Accumulated other comprehensive loss	(172		)	(143		)
Total shareholders’ equity	38,051			37,700
Total liabilities and shareholders’ equity	$	64,543		$	62,169

See accompanying notes to consolidated financial statements.

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Consolidated Statements of Cash Flows

	Year Ended December 31,
In millions	2011			2010			2009
Cash flows from operating activities:
Cash receipts from customers	$	97,688		$	94,503		$	93,568
Cash paid for inventory and prescriptions dispensed by retail network pharmacies	(75,148		)	(73,143		)	(73,536		)
Cash paid to other suppliers and employees	(13,635		)	(13,778		)	(13,121		)
Interest received	4			4			5
Interest paid	(647		)	(583		)	(542		)
Income taxes paid	(2,406		)	(2,224		)	(2,339		)
Net cash provided by operating activities	5,856			4,779			4,035
Cash flows from investing activities:
Purchases of property and equipment	(1,872		)	(2,005		)	(2,548		)
Proceeds from sale-leaseback transactions	592			507			1,562
Proceeds from sale of property and equipment	4			34			23
Acquisitions (net of cash acquired) and other investments	(1,441		)	(177		)	(101		)
Purchase of available-for-sale investments	(3		)	—			(5		)
Sale or maturity of available-for-sale investments	60			1			—
Proceeds from sale of subsidiary	250			—			—
Net cash used in investing activities	(2,410		)	(1,640		)	(1,069		)
Cash flows from financing activities:
Increase (decrease) in short-term debt	450			(15		)	(2,729		)
Proceeds from issuance of long-term debt	1,463			991			2,800
Repayments of long-term debt	(2,122		)	(2,103		)	(653		)
Dividends paid	(674		)	(479		)	(439		)
Derivative settlements	(19		)	(5		)	(3		)
Proceeds from exercise of stock options	431			285			250
Excess tax benefits from stock-based compensation	21			28			19
Repurchase of common stock	(3,001		)	(1,500		)	(2,477		)
Other	(9		)	—			—
Net cash used in financing activities	(3,460		)	(2,798		)	(3,232		)
Net increase (decrease) in cash and cash equivalents	(14		)	341			(266		)
Cash and cash equivalents at the beginning of the year	1,427			1,086			1,352
Cash and cash equivalents at the end of the year	$	1,413		$	1,427		$	1,086
Reconciliation of net income to net cash provided by operating activities:
Net income	$	3,457		$	3,424		$	3,696
Adjustments required to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,568			1,469			1,389
Stock-based compensation	135			150			165
Gain on sale of subsidiary	(53		)	—			—
Deferred income taxes and other noncash items	144			30			48
Change in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable, net	(748		)	532			(86		)
Inventories	607			(352		)	(1,199		)
Other current assets	(420		)	(4		)	48
Other assets	(49		)	(210		)	(2		)
Accounts payable	1,128			(40		)	4
Accrued expenses	85			(176		)	(66		)
Other long-term liabilities	2			(44		)	38
Net cash provided by operating activities	$	5,856		$	4,779		$	4,035

See accompanying notes to consolidated financial statements.

26

Consolidated Statements of Shareholders’ Equity

	Shares						Dollars
	Year Ended December 31,						Year Ended December 31,
In millions	2011		2010		2009		2011			2010			2009
Preference stock:
Beginning of year	—		—		4		$	—		$	—		$	191
Conversion to common stock	—		—		(4	)	—			—			(191		)
End of year	—		—		—		$	—		$	—		$	—
Common stock:
Beginning of year	1,624		1,612		1,603		$	16		$	16		$	16
Stock options exercised and issuance of stock awards	16		12		9		—			—			—
End of year	1,640		1,624		1,612		$	16		$	16		$	16
Treasury stock:
Beginning of year	(259	)	(219	)	(165	)	$	(9,030	)	$	(7,610	)	$	(5,812	)
Purchase of treasury shares	(84	)	(42	)	(73	)	(3,001		)	(1,500		)	(2,477		)
Conversion of preference stock	—		—		17		—			—			583
Employee stock purchase plan issuances	3		2		2		78			80			96
End of year	(340	)	(259	)	(219	)	$	(11,953	)	$	(9,030	)	$	(7,610	)
Shares held in trust:
Beginning of year	(2	)	(2	)	(2	)	$	(56	)	$	(56	)	$	(56	)
End of year	(2	)	(2	)	(2	)	$	(56	)	$	(56	)	$	(56	)
Capital surplus:
Beginning of year							$	27,610		$	27,198		$	27,280
Stock option activity and stock awards							495			384			291
Tax benefit on stock options and stock awards							21			28			19
Conversion of preference stock							—			—			(392		)
End of year							$	28,126		$	27,610		$	27,198
Retained earnings:
Beginning of year							$	19,303		$	16,355		$	13,098
Net income attributable to CVS Caremark							3,461			3,427			3,696
Common stock dividends							(674		)	(479		)	(439		)
End of year							$	22,090		$	19,303		$	16,355
Accumulated other comprehensive loss:
Beginning of year							$	(143	)	$	(135	)	$	(143	)
Net cash flow hedges, net of income tax							(9		)	(1		)	1
Pension liability adjustment, net of income tax							(20		)	(7		)	7
End of year							$	(172	)	$	(143	)	$	(135	)
Total shareholders’ equity							$	38,051		$	37,700		$	35,768
Comprehensive income:
Net income							$	3,457		$	3,424		$	3,696
Other comprehensive income:
Net cash flow hedges, net of income tax							(9		)	(1		)	1
Pension liability adjustment, net of income tax							(20		)	(7		)	7
Comprehensive income							3,428			3,416			3,704
Comprehensive loss attributable to noncontrolling interest							4			3			—
Comprehensive income attributable to CVS Caremark							$	3,432		$	3,419		$	3,704

See accompanying notes to consolidated financial statements.

27

Notes to Consolidated Financial Statements

1Significant Accounting Policies

Description of business - CVS Caremark Corporation and its subsidiaries (the “Company”) is the largest pharmacy health care provider in the United States based upon revenues and prescriptions filled. The Company currently has three reportable business segments, Pharmacy Services, Retail Pharmacy and Corporate, which are described below.

Pharmacy Services Segment (the “PSS”) - The PSS provides a full range of pharmacy benefit management services including mail order pharmacy services, specialty pharmacy services, plan design and administration, formulary management and claims processing. The Company’s clients are primarily employers, insurance companies, unions, government employee groups, managed care organizations and other sponsors of health benefit plans and individuals throughout the United States.

As a pharmacy benefits manager, the PSS manages the dispensing of pharmaceuticals through the Company’s mail order pharmacies and national network of approximately 65,000 retail pharmacies to eligible members in the benefits plans maintained by the Company’s clients and utilizes its information systems to perform, among other things, safety checks, drug interaction screenings and brand to generic substitutions.

The PSS’ specialty pharmacies support individuals that require complex and expensive drug therapies. The specialty pharmacy business includes mail order and retail specialty pharmacies that operate under the CVS Caremark® and CarePlus CVS/pharmacy® names.

The PSS also provides health management programs, which include integrated disease management for 28 conditions, through our strategic alliance with Alere, L.L.C. and the Company’s Accordant® health management offering.

In addition, through the Company’s SilverScript Insurance Company (“SilverScript”), Accendo Insurance Company (“Accendo”) and Pennsylvania Life Insurance Company (“Pennsylvania Life”) subsidiaries, the PSS is a national provider of drug benefits to eligible beneficiaries under the Federal Government’s Medicare Part D program.

The PSS generates net revenues primarily by contracting with clients to provide prescription drugs to plan members. Prescription drugs are dispensed by the mail order pharmacies, specialty pharmacies and national network of retail pharmacies. Net revenues are also generated by providing additional services to clients, including administrative services such as claims processing and formulary management, as well as health care related services such as disease management.

The pharmacy services business operates under the CVS Caremark® Pharmacy Services, Caremark®, CVS Caremark®, CarePlus CVS/pharmacy®, CarePlusTM, RxAmerica® and Accordant® names. As of December 31, 2011, the PSS operated 31 retail specialty pharmacy stores, 12 specialty mail order pharmacies and four mail service pharmacies located in 22 states, Puerto Rico and the District of Columbia.

Retail Pharmacy Segment (the “RPS”) - The RPS sells prescription drugs and a wide assortment of general merchandise, including over-the-counter drugs, beauty products and cosmetics, photo finishing, seasonal merchandise, greeting cards and convenience foods, through the Company’s CVS/pharmacy® and Longs Drugs® retail stores and online through CVS.com®.

The RPS also provides health care services through its MinuteClinic® health care clinics. MinuteClinics are staffed by nurse practitioners and physician assistants who utilize nationally recognized protocols to diagnose and treat minor health conditions, perform health screenings, monitor chronic conditions and deliver vaccinations.

As of December 31, 2011, the retail pharmacy business included 7,327 retail drugstores (of which 7,271 operated a pharmacy) located in 41 states the District of Columbia and Puerto Rico operating primarily under the CVS/pharmacy® name, the online retail website, CVS.com and 657 retail health care clinics operating under the MinuteClinic® name (of which 648 were located in CVS/pharmacy stores).

Corporate Segment - The Corporate segment provides management and administrative services to support the Company. The Corporate segment consists of certain aspects of the Company’s executive management, corporate relations, legal, compliance, human resources, corporate information technology and finance departments.

28

Notes to Consolidated Financial Statements (continued)

Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. All intercompany balances and transactions have been eliminated.

Use of estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Fair Value Hierarchy - The Company utilizes the three-level valuation hierarchy for the recognition and disclosure of fair value measurements. The categorization of assets and liabilities within this hierarchy is based upon the lowest level of input that is significant to the measurement of fair value. The three levels of the hierarchy consist of the following:

·Level 1 - Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

·Level 2 - Inputs to the valuation methodology are quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active or inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the instrument.

·Level 3 - Inputs to the valuation methodology are unobservable inputs based upon management’s best estimate of inputs market participants could use in pricing the asset or liability at the measurement date, including assumptions about risk.

Cash and cash equivalents - Cash and cash equivalents consist of cash and temporary investments with maturities of three months or less when purchased. The Company invests in short-term money market funds, commercial paper, time deposits, as well as other debt securities that are classified as cash equivalents within the accompanying consolidated balance sheets, as these funds are highly liquid and readily convertible to known amounts of cash. These investments are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices.

Short-term investments - The Company’s short-term investments consist of certificate of deposits with initial maturities of greater than three months when purchased. These investments, which were classified as available-for-sale within Level 1 of the fair value hierarchy, were carried at historical cost, which approximated fair value at December 31, 2011 and 2010.

Fair value of financial instruments - As of December 31, 2011, the Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable and short-term debt. Due to the short-term nature of these instruments, the Company’s carrying value approximates fair value. The carrying amount and estimated fair value of total long-term debt was $9.3 billion and $10.8 billion, respectively, as of December 31, 2011. The fair value of long-term debt was estimated based on rates currently offered to the Company for debt with similar terms and maturities. The Company had outstanding letters of credit, which guaranteed foreign trade purchases, with a fair value of $6 million as of December 31, 2011 and 2010. There were no outstanding derivative financial instruments as of December 31, 2011 and 2010.

Accounts receivable - Accounts receivable are stated net of an allowance for doubtful accounts. The accounts receivable balance primarily includes trade amounts due from third party providers (e.g., pharmacy benefit managers, insurance companies and governmental agencies), clients and members, as well as vendors and manufacturers.

The activity in the allowance for doubtful trade accounts receivable is as follows:

	Year Ended December 31,
In millions	2011			2010			2009
Beginning balance	$	182		$	224		$	189
Additions charged to bad debt expense	129			73			135
Write-offs charged to allowance	(122		)	(115		)	(100		)
Ending balance	$	189		$	182		$	224

29

Notes to Consolidated Financial Statements (continued)

Inventories - Inventories are stated at the lower of cost or market on a first-in, first-out basis using the retail inventory method in the retail pharmacy stores, the weighted average cost method in the mail service and specialty pharmacies, and the cost method on a first-in, first-out basis in the distribution centers. Physical inventory counts are taken on a regular basis in each store and a continuous cycle count process is the primary procedure used to validate the inventory balances on hand in each distribution center and mail facility to ensure that the amounts reflected in the accompanying consolidated financial statements are properly stated. During the interim period between physical inventory counts, the Company accrues for anticipated physical inventory losses on a location-by-location basis based on historical results and current trends.

Property and equipment - Property, equipment and improvements to leased premises are depreciated using the straight-line method over the estimated useful lives of the assets, or when applicable, the term of the lease, whichever is shorter. Estimated useful lives generally range from 10 to 40 years for buildings, building improvements and leasehold improvements and 3 to 10 years for fixtures, equipment and internally developed software. Repair and maintenance costs are charged directly to expense as incurred. Major renewals or replacements that substantially extend the useful life of an asset are capitalized and depreciated. Application development stage costs for significant internally developed software projects are capitalized and depreciated.

The following are the components of property and equipment at December 31:

In millions	2011			2010
Land	$	1,295		$	1,247
Building and improvements	2,404			2,265
Fixtures and equipment	7,582			7,148
Leasehold improvements	3,021			2,866
Software	1,098			757
	15,400			14,283
Accumulated depreciation and amortization	(6,933		)	(5,961		)
	$	8,467		$	8,322

The gross amount of property and equipment under capital leases was $211 million and $191 million as of December 31, 2011 and 2010, respectively.

Goodwill - Goodwill and other indefinite-lived assets are not amortized, but are subject to impairment reviews annually, or more frequently if necessary. See Note 4 for additional information on goodwill.

Intangible assets - Purchased customer contracts and relationships are amortized on a straight-line basis over their estimated useful lives between 10 and 20 years. Purchased customer lists are amortized on a straight-line basis over their estimated useful lives of up to 10 years. Purchased leases are amortized on a straight-line basis over the remaining life of the lease. See Note 4 for additional information about intangible assets.

Impairment of long-lived assets - The Company groups and evaluates fixed and finite-lived intangible assets, excluding goodwill, for impairment at the lowest level at which individual cash flows can be identified. When evaluating assets for potential impairment, the Company first compares the carrying amount of the asset group to the estimated future cash flows associated with the asset group (undiscounted and without interest charges). If the estimated future cash flows used in this 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 the asset group’s estimated future cash flows (discounted and with interest charges). If required, an impairment loss is recorded for the portion of the asset group’s carrying value that exceeds the asset group’s estimated future cash flows (discounted and with interest charges).

30

Notes to Consolidated Financial Statements (continued)

Redeemable noncontrolling interest - The Company has an approximately 60% ownership interest in Generation Health, Inc. (“Generation Health”) and consolidates Generation Health in its consolidated financial statements. The noncontrolling shareholders of Generation Health hold put rights for the remaining interest in Generation Health that if exercised would require the Company to purchase the remaining interest in Generation Health in 2015 for a minimum of $27 million and a maximum of $159 million, depending on certain financial metrics of Generation Health in 2014. Since the noncontrolling shareholders of Generation Health have a redemption feature as a result of the put rights, the Company has classified the redeemable noncontrolling interest in Generation Health in the mezzanine section of the consolidated balance sheet outside of shareholders’ equity. The Company initially recorded the redeemable noncontrolling interest at a fair value of $37 million on the date of acquisition which was determined using inputs classified as Level 3 in the fair value hierarchy. At the end of each reporting period, if the estimated accreted redemption value exceeds the carrying value of the noncontrolling interest, the difference is recorded as a reduction of retained earnings. Any such reductions in retained earnings would also reduce income attributable to CVS Caremark in the Company’s earnings per share calculations.

The following is a reconciliation of the changes in the redeemable noncontrolling interest:

In millions	2011			2010			2009
Beginning balance	$	34		$	37		$	—
Acquisition of Generation Health	—			—			37
Net loss attributable to noncontrolling interest	(4		)	(3		)	—
Ending balance	$	30		$	34		$	37

Revenue Recognition

Pharmacy Services Segment - The PSS sells prescription drugs directly through its mail service pharmacies and indirectly through its retail pharmacy network. The PSS recognizes revenues from prescription drugs sold by its mail service pharmacies and under retail pharmacy network contracts where the PSS is the principal using the gross method at the contract prices negotiated with its clients. Net revenue from the PSS includes: (i) the portion of the price the client pays directly to the PSS, net of any volume-related or other discounts paid back to the client (see “Drug Discounts” later in this document), (ii) the price paid to the PSS (“Mail Co-Payments”) or a third party pharmacy in the PSS’ retail pharmacy network (“Retail Co-Payments”) by individuals included in its clients’ benefit plans, and (iii) administrative fees for retail pharmacy network contracts where the PSS is not the principal as discussed below.

The PSS recognizes revenue when: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the seller’s price to the buyer is fixed or determinable, and (iv) collectability is reasonably assured. The Company has established the following revenue recognition policies for the PSS:

·Revenues generated from prescription drugs sold by mail service pharmacies are recognized when the prescription is shipped. At the time of shipment, the Company has performed substantially all of its obligations under its client contracts and does not experience a significant level of reshipments.

·Revenues generated from prescription drugs sold by third party pharmacies in the PSS’ retail pharmacy network and associated administrative fees are recognized at the PSS’ point-of-sale, which is when the claim is adjudicated by the PSS’ online claims processing system.

The PSS determines whether it is the principal or agent for its retail pharmacy network transactions on a contract by contract basis. In the majority of its contracts, the PSS has determined it is the principal due to it: (i) being the primary obligor in the arrangement, (ii) having latitude in establishing the price, changing the product or performing part of the service, (iii) having discretion in supplier selection, (iv) having involvement in the determination of product or service specifications, and (v) having credit risk. The PSS’ obligations under its client contracts for which revenues are reported using the gross method are separate and distinct from its obligations to the third party pharmacies included in its retail pharmacy network contracts. Pursuant to these contracts, the PSS is contractually required to pay the third party pharmacies in its retail pharmacy network for products sold, regardless of whether the PSS is paid by its clients. The PSS’ responsibilities under its client contracts typically include validating eligibility and coverage levels, communicating the prescription price and the co-payments due to the third party retail pharmacy, identifying possible adverse drug interactions for the pharmacist to address with the physician prior to dispensing, suggesting clinically appropriate generic alternatives where appropriate and approving the prescription for dispensing. Although the PSS does not have credit risk with respect to Retail Co-Payments, management believes that all of the other indicators of gross revenue reporting are present. For contracts under which the PSS acts as an agent, the PSS records revenues using the net method.

31

Notes to Consolidated Financial Statements (continued)

Drug Discounts - The PSS deducts from its revenues any rebates, inclusive of discounts and fees, earned by its clients. The PSS pays rebates to its clients in accordance with the terms of its client contracts, which are normally based on fixed rebates per prescription for specific products dispensed or a percentage of manufacturer discounts received for specific products dispensed. The liability for rebates due to the PSS’ clients is included in “Claims and discounts payable” in the accompanying consolidated balance sheets.

Medicare Part D - The PSS participates in the Federal Government’s Medicare Part D program as a Prescription Drug Plan (“PDP”). The PSS’ net revenues include insurance premiums earned by the PDP, which are determined based on the PDP’s annual bid and related contractual arrangements with the Centers for Medicare and Medicaid Services (“CMS”). The insurance premiums include a beneficiary premium, which is the responsibility of the PDP member, but is subsidized by CMS in the case of low-income members, and a direct premium paid by CMS. Premiums collected in advance are initially deferred in accrued expenses and are then recognized in net revenues over the period in which members are entitled to receive benefits.

In addition to these premiums, the PSS’ net revenues include co-payments, coverage gap benefits, deductibles and co-insurance (collectively, the “Member Co-Payments”) related to PDP members’ actual prescription claims. In certain cases, CMS subsidizes a portion of these Member Co-Payments and pays the PSS an estimated prospective Member Co-Payment subsidy amount each month. The prospective Member Co-Payment subsidy amounts received from CMS are also included in the PSS’ net revenues. The Company assumes no risk for these amounts, which represented 3.1%, 2.6% and 3.5% of consolidated net revenues in 2011, 2010 and 2009, respectively. If the prospective Member Co-Payment subsidies received differ from the amounts based on actual prescription claims, the difference is recorded in either accounts receivable or accrued expenses.

The PSS accounts for CMS obligations and Member Co-Payments (including the amounts subsidized by CMS) using the gross method consistent with its revenue recognition policies for Mail Co-Payments and Retail Co-Payments (discussed previously in this document). See Note 8 for additional information about Medicare Part D.

Retail Pharmacy Segment - The RPS recognizes revenue from the sale of merchandise (other than prescription drugs) at the time the merchandise is purchased by the retail customer. Revenue from the sale of prescription drugs is recognized at the time the prescription is filled, which is or approximates when the retail customer picks up the prescription. Customer returns are not material. Revenue generated from the performance of services in the RPS’ health care clinics is recognized at the time the services are performed. See Note 14 for additional information about the revenues of the Company’s business segments.

Cost of revenues

Pharmacy Services Segment - The PSS’ cost of revenues includes: (i) the cost of prescription drugs sold during the reporting period directly through its mail service pharmacies and indirectly through its retail pharmacy network, (ii) shipping and handling costs, and (iii) the operating costs of its mail service pharmacies and client service operations and related information technology support costs including depreciation and amortization. The cost of prescription drugs sold component of cost of revenues includes: (i) the cost of the prescription drugs purchased from manufacturers or distributors and shipped to members in clients’ benefit plans from the PSS’ mail service pharmacies, net of any volume-related or other discounts (see “Drug Discounts” previously in this document) and (ii) the cost of prescription drugs sold (including Retail Co-Payments) through the PSS’ retail pharmacy network under contracts where it is the principal, net of any volume-related or other discounts.

Retail Pharmacy Segment - The RPS’ cost of revenues includes: the cost of merchandise sold during the reporting period and the related purchasing costs, warehousing and delivery costs (including depreciation and amortization) and actual and estimated inventory losses. See Note 14 for additional information about the cost of revenues of the Company’s business segments.

Vendor allowances and purchase discounts

The Company accounts for vendor allowances and purchase discounts as follows:

Pharmacy Services Segment - The PSS receives purchase discounts on products purchased. The PSS’ contractual arrangements with vendors, including manufacturers, wholesalers and retail pharmacies, normally provide for the PSS to receive purchase discounts from established list prices in one, or a combination of, the following forms: (i) a direct discount at the time of purchase, (ii) a discount for the prompt payment of invoices, or (iii) when products are purchased indirectly from a manufacturer (e.g., through a wholesaler or retail pharmacy), a discount (or rebate) paid subsequent to dispensing. These rebates are recognized when prescriptions are dispensed and are generally calculated and billed to manufacturers within 30 days of the end of each completed quarter. Historically, the effect of adjustments resulting from the reconciliation of rebates recognized to the amounts billed and collected has not been material to the PSS’ results of operations. The PSS accounts for the effect of any such differences as a change in accounting estimate in the period the

32

Notes to Consolidated Financial Statements (continued)

reconciliation is completed. The PSS also receives additional discounts under its wholesaler contract if it exceeds contractually defined annual purchase volumes. In addition, the PSS receives fees from pharmaceutical manufacturers for administrative services. Purchase discounts and administrative service fees are recorded as a reduction of “Cost of revenues”.

Retail Pharmacy Segment - Vendor allowances received by the RPS reduce the carrying cost of inventory and are recognized in cost of revenues when the related inventory is sold, unless they are specifically identified as a reimbursement of incremental costs for promotional programs and/or other services provided. Amounts that are directly linked to advertising commitments are recognized as a reduction of advertising expense (included in operating expenses) when the related advertising commitment is satisfied. Any such allowances received in excess of the actual cost incurred also reduce the carrying cost of inventory. The total value of any upfront payments received from vendors that are linked to purchase commitments is initially deferred. The deferred amounts are then amortized to reduce cost of revenues over the life of the contract based upon purchase volume. The total value of any upfront payments received from vendors that are not linked to purchase commitments is also initially deferred. The deferred amounts are then amortized to reduce cost of revenues on a straight-line basis over the life of the related contract. The total amortization of these upfront payments was not material to the accompanying consolidated financial statements.

Insurance - The Company is self-insured for certain losses related to general liability, workers’ compensation and auto liability. The Company obtains third party insurance coverage to limit exposure from these claims. The Company is also self-insured for certain losses related to health and medical liabilities. The Company’s self-insurance accruals, which include reported claims and claims incurred but not reported, are calculated using standard insurance industry actuarial assumptions and the Company’s historical claims experience.

Facility opening and closing costs - New facility opening costs, other than capital expenditures, are charged directly to expense when incurred. When the Company closes a facility, the present value of estimated unrecoverable costs, including the remaining lease obligation less estimated sublease income and the book value of abandoned property and equipment, are charged to expense. The long-term portion of the lease obligations associated with facility closings was $327 million and $368 million in 2011 and 2010, respectively.

Advertising costs - Advertising costs are expensed when the related advertising takes place. Advertising costs, net of vendor funding (included in operating expenses), were $211 million, $234 million and $317 million in 2011, 2010 and 2009, respectively.

Interest expense, net - Interest expense, net of capitalized interest, was $588 million, $539 million and $530 million, and interest income was $4 million, $3 million and $5 million in 2011, 2010 and 2009, respectively. Capitalized interest totaled $37 million, $47 million and $39 million in 2011, 2010 and 2009, respectively.

Shares held in trust - The Company maintains grantor trusts, which held approximately 2 million shares of its common stock at December 31, 2011 and 2010. These shares are designated for use under various employee compensation plans. Since the Company holds these shares, they are excluded from the computation of basic and diluted shares outstanding.

Accumulated other comprehensive loss - Accumulated other comprehensive loss consists of changes in the net actuarial gains and losses associated with pension and other postretirement benefit plans, and unrealized losses on derivatives. The amount included in accumulated other comprehensive loss related to the Company’s pension and postretirement plans was $250 million pre-tax ($152 million after-tax) as of December 31, 2011 and $217 million pre-tax ($132 million after-tax) as of December 31, 2010. The net impact on cash flow hedges totaled $32 million pre-tax ($20 million after-tax) and $18 million pre-tax ($11 million after-tax) as of December 31, 2011 and 2010, respectively.

Stock-based compensation - Stock-based compensation expense is measured at the grant date based on the fair value of the award and is recognized as expense over the applicable requisite service period of the stock award (generally 3 to 5 years) using the straight-line method. Stock-based compensation costs are included in selling, general and administrative expenses.

Income taxes - The Company provides for federal and state income taxes currently payable, as well as for those deferred because of timing differences between reported income and expenses for financial statement purposes versus tax purposes. Federal and state tax credits are recorded as a reduction of income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recoverable or settled. The effect of a change in tax rates is recognized as income or expense in the period of the change.

33

Notes to Consolidated Financial Statements (continued)

Earnings per common share - Basic earnings per common share is computed by dividing: (i) net earnings by (ii) the weighted average number of common shares outstanding during the year (the “Basic Shares”).

Diluted earnings per common share is computed by dividing: (i) net earnings by (ii) Basic Shares plus the additional shares that would be issued assuming that all dilutive stock awards are exercised. Options to purchase 30.5 million, 34.3 million and 37.7 million shares of common stock were outstanding as of December 31, 2011, 2010 and 2009, respectively, but were not included in the calculation of diluted earnings per share because the options’ exercise prices were greater than the average market price of the common shares and, therefore, the effect would be antidilutive.

New Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-06, Fair Value Measurements and Disclosures: Improving Disclosures about Fair Value Measurements, (“ASU 2010-06”). ASU 2010-06 expanded the required disclosures about fair value measurements by requiring (i) separate disclosure of the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements along with the reasons for such transfers, (ii) information about purchases, sales, issuances and settlements to be presented separately in the reconciliation for Level 3 fair value measurements, (iii) expanded fair value measurement disclosures for each class of assets and liabilities, and (iv) disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3. ASU 2010-06 was effective for annual reporting periods beginning after December 15, 2009, except for (ii) above which is effective for fiscal years beginning after December 15, 2010. The adoption of ASU 2010-06 did not have a material impact on the Company’s financial statement disclosures.

In May 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 eliminates the current option to report other comprehensive income and its components in the statement of shareholders’ equity. Instead, an entity will have the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 also required entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which net income is presented and the statement in which other comprehensive is presented. In December 2011, the FASB issued ASU 2011-12 Deferral of the Effective Date for Amendments to the Presentation of Reclassification of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05, which indefinitely defers the guidance related to the presentation of reclassification adjustments. ASU 2011-05 is effective for interim and annual periods beginning after December 15, 2011 and should be applied retrospectively. The Company is still evaluating which of the two alternatives it will apply in reporting comprehensive income. Neither alternative is expected to have a material impact on the Company’s consolidated results of operations and neither alternative will have an impact on the Company’s financial condition or cash flows.

In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment (“ASU 2011-08”). ASU 2011-08 allows entities to use a qualitative approach to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If after performing the qualitative assessment an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step goodwill impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step goodwill impairment test. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company does not expect the adoption of ASU 2011-08 will have a material impact on the Company’s consolidated results of operations, financial condition or cash flows.

In September 2011, the FASB issued ASU 2011-09, Disclosures about an Employer’s Participation in a Multiemployer Plan (“ASU 2011-09”). ASU 2011-09 requires additional quantitative and qualitative disclosures of entities who participate in multiemployer pension and other postretirement plans. ASU 2011-09 is effective for annual periods ending after December 15, 2011 and should be applied retrospectively. The adoption of ASU 2011-09 did not have a material impact on the Company’s financial statement disclosures.

34

Notes to Consolidated Financial Statements (continued)

2Business Combination

On April 29, 2011, the Company acquired the Medicare prescription drug business of Universal American Corp. (the “UAM Medicare Part D Business”) for approximately $1.3 billion. The UAM Medicare Part D Business offers prescription drug plan benefits to Medicare beneficiaries throughout the United States through its Community CCRxSM prescription drug plan. The fair value of assets acquired and liabilities assumed were $2.4 billion and $1.1 billion, respectively, which included identifiable intangible assets of approximately $0.4 billion and goodwill of approximately $1.0 billion that were recorded in the PSS. The allocation of the purchase price is preliminary and is based on information that was available to management at the time the consolidated financial statements were prepared, accordingly, the allocation may change. The Company’s results of operations and cash flows include the UAM Medicare Part D Business beginning on April 29, 2011.

3Discontinued Operations

On November 1, 2011, the Company sold its TheraCom, L.L.C. (“TheraCom”) subsidiary to AmerisourceBergen Corporation for $250 million, subject to a working capital adjustment. TheraCom is a provider of commercialization support services to the biotech and pharmaceutical industry. As of December 31, 2010, TheraCom had approximately $0.1 billion of current assets consisting primarily of accounts receivable and $0.1 billion of current liabilities consisting primarily of accounts payable. The sale of TheraCom resulted in the derecognition of approximately $0.2 billion of nondeductible goodwill. The TheraCom business had historically been part of the Company’s Pharmacy Services segment. The results of the TheraCom business are presented as discontinued operations and have been excluded from both continuing operations and segment results for all periods presented.

In connection with certain business dispositions completed between 1991 and 1997, the Company retained guarantees on store lease obligations for a number of former subsidiaries, including Linens ‘n Things which filed for bankruptcy in 2008. The Company’s income (loss) from discontinued operations includes lease-related costs which the Company believes it will likely be required to satisfy pursuant to its Linens ‘n Things lease guarantees.

Below is a summary of the results of discontinued operations:

	Year Ended December 31,
In millions	2011			2010			2009
Net revenues of TheraCom	$	650		$	635		$	514
Income from operations of TheraCom	$	18		$	28		$	13
Gain on disposal of TheraCom	53			—			—
Loss on disposal of Linens ‘n Things	(7		)	(24		)	(19		)
Income tax benefit (provision)	(95		)	(2		)	2
Income (loss) from discontinued operations, net of tax	$	(31	)	$	2		$	(4	)

35

Notes to Consolidated Financial Statements (continued)

4Goodwill and Other Intangibles

Goodwill and other indefinitely-lived assets are not amortized, but are subject to annual impairment reviews, or more frequent reviews if events or circumstances indicate impairment may exist.

When evaluating goodwill for potential impairment, the Company first compares the fair value of its two reporting units, the PSS and RPS, to their respective carrying amounts. The Company estimates the fair value of its reporting units using a combination of a future discounted cash flow valuation model and a comparable market transaction model. As the Company utilizes internal financial projections for the determination of future cash flows, the fair value methodology is considered to use inputs classified as Level 3 in the fair value hierarchy. If the estimated fair value of the reporting unit is less than its carrying amount, an impairment loss calculation is prepared. The impairment loss calculation compares the implied fair value of a reporting unit’s goodwill with the carrying amount of its goodwill. If the carrying amount of the goodwill exceeds the implied fair value, an impairment loss is recognized in an amount equal to the excess. During the third quarter of 2011, the Company performed its required annual goodwill impairment tests. The Company concluded there were no goodwill impairments as of the testing date. The carrying amount of goodwill was $26.5 billion and $25.7 billion as of December 31, 2011 and 2010, respectively (see Note 14 for a breakdown of Goodwill by segment). The $0.8 billion increase in goodwill in 2011 was primarily due to an increase of approximately $1.0 billion related to the acquisition of the UAM Medicare Part D Business, partially offset by the derecognition of approximately $0.2 billion of goodwill associated with the sale of TheraCom. These changes to goodwill affected the PSS.

Indefinitely-lived intangible assets are tested for impairment by comparing the estimated fair value of the asset to its carrying value. The Company estimates the fair value of its indefinitely-lived trademark using the relief from royalty method under the income approach. As this method of estimating fair value utilizes internal financial projections for determination of future cash flows, the fair value methodology is considered to use inputs classified as Level 3 in the fair value hierarchy. If the carrying value of the asset exceeds its estimated fair value, an impairment loss is recognized and the asset is written down to its estimated fair value. During the third quarter of 2011, the Company performed its annual impairment test of the indefinitely-lived trademark and concluded there was no impairment as of the testing date. The carrying amount of its indefinitely-lived trademark was $6.4 billion as of December 31, 2011 and 2010.

The Company amortizes intangible assets with finite lives over the estimated useful lives of the respective assets, which have a weighted average useful life of 13.3 years. The weighted average useful lives of the Company’s customer contracts and relationships and covenants not to compete are 12.8 years. The weighted average lives of the Company’s favorable leases and other intangible assets are 16.4 years. Amortization expense for intangible assets totaled $452 million, $427 million and $430 million in 2011, 2010 and 2009, respectively. The anticipated annual amortization expense for these intangible assets for the next five years is $456 million in 2012, $433 million in 2013, $400 million in 2014, $372 million in 2015 and $344 million in 2016.

The following table is a summary of the Company’s intangible assets as of December 31:

	2011							2010
In millions	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Trademark (indefinitely-lived)	$	6,398	$	—		$	6,398	$	6,398	$	—		$	6,398
Customer contracts and relationships and covenants not to compete	5,427		(2,386		)	3,041		4,903		(1,982		)	2,921
Favorable leases and other	769		(339		)	430		762		(297		)	465
	$	12,594	$	(2,725	)	$	9,869	$	12,063	$	(2,279	)	$	9,784

36

Notes to Consolidated Financial Statements (continued)

5Share Repurchase Programs

On August 23, 2011, the Company’s Board of Directors authorized a share repurchase program for up to $4.0 billion of outstanding common stock (the “2011 Repurchase Program”). The share repurchase authorization under the 2011 Repurchase Program, which was effective immediately, permits the Company to effect repurchases from time to time through a combination of open market repurchases, privately negotiated transactions, accelerated share repurchase transactions, and/or other derivative transactions. The 2011 Repurchase Program may be modified or terminated by the Board of Directors at any time.

Pursuant to the authorization under the 2011 Repurchase Program, on August 24, 2011, the Company entered into a $1.0 billion fixed dollar accelerated share repurchase (“ASR”) agreement with Barclays Bank PLC (“Barclays”). The ASR agreement contained provisions that establish the minimum and maximum number of shares to be repurchased during its term. Pursuant to the ASR agreement, on August 25, 2011, the Company paid $1.0 billion to Barclays in exchange for Barclays delivering 20.3 million shares of common stock to the Company. On September 16, 2011, upon establishment of the minimum number of shares to be repurchased, Barclays delivered an additional 5.4 million shares of common stock to the Company. The Company received an additional 1.6 million shares of common stock on December 29, 2011, due to the fluctuation in market price of common stock over the term of the ASR agreement, which concluded on December 28, 2011. The total of 27.3 million shares of common stock delivered to the Company by Barclays over the term of the ASR agreement were placed into treasury stock. The Company accounted for the ASR agreement as two separate transactions: (i) as shares of common stock acquired in a treasury stock transaction and (ii) as a forward contract indexed to the Company’s own common stock. As such, the Company accounted for the shares that it received under the ASR agreement as a repurchase of its common stock for the purpose of calculating earnings per share. The Company has determined that the forward contract indexed to the Company’s common stock met all of the applicable criteria for equity classification.

On June 14, 2010, the Company’s Board of Directors authorized a share repurchase program for up to $2.0 billion of outstanding common stock (the “2010 Repurchase Program”). The share repurchase authorization under the 2010 Repurchase Program, which was effective immediately and expired at the end of 2011, permitted the Company to effect repurchases from time to time through a combination of open market repurchases, privately negotiated transactions, accelerated share repurchase transactions, and/or other derivative transactions. During the year ended December 31, 2011, the Company repurchased an aggregate of 56.4 million shares of common stock for approximately $2.0 billion, completing the 2010 Repurchase Program. The Company did not make any share repurchases under the 2010 Repurchase Program during the year ended December 31, 2010.

On November 4, 2009, the Company’s Board of Directors authorized a share repurchase program for up to $2.0 billion of its outstanding common stock (the “2009 Repurchase Program”). From November 4, 2009 through December 31, 2009, the Company repurchased 16.1 million shares of common stock for approximately $500 million under the 2009 Repurchase Program. During the year ended December 31, 2010, the Company repurchased 42.4 million shares of common stock for approximately $1.5 billion, completing the 2009 Repurchase Program.

On May 7, 2008, the Company’s Board of Directors authorized, effective May 21, 2008, a share repurchase program for up to $2.0 billion of its outstanding common stock (the “2008 Repurchase Program”). From May 21, 2008 through December 31, 2008, the Company repurchased approximately 0.6 million shares of common stock for $23 million under the 2008 Repurchase Program. During the year ended December 31, 2009, the Company repurchased approximately 57.0 million shares of common stock for approximately $2.0 billion, completing the 2008 Repurchase Program.

37

Notes to Consolidated Financial Statements (continued)

6              Borrowing and Credit Agreements

The following table is a summary of the Company’s borrowings as of December 31:

In millions	2011			2010
Commercial paper	$	750		$	300
5.75% senior notes due 2011	—			800
Floating rate notes due 2011	—			300
4.875% senior notes due 2014	550			550
3.25% senior notes due 2015	550			550
6.125% senior notes due 2016	700			700
5.75% senior notes due 2017	1,750			1,750
6.6% senior notes due 2019	1,000			1,000
4.75% senior notes due 2020	450			450
4.125% senior notes due 2021	550			—
6.25% senior notes due 2027	1,000			1,000
Trust Preferred Securities due 2037	50			—
6.125% senior notes due 2039	1,500			1,500
5.75% senior notes due 2041	950			—
6.302% Enhanced Capital Advantage Preferred Securities due 2062	42			1,000
Mortgage notes payable	4			6
Capital lease obligations	168			151
	10,014			10,057
Less:
Short-term debt (commercial paper)	(750		)	(300		)
Current portion of long-term debt	(56		)	(1,105		)
	$	9,208		$	8,652

In connection with its commercial paper program, the Company maintains a $1.25 billion, five-year unsecured back-up credit facility, which expires on March 12, 2012, a $1.0 billion, three-year unsecured back-up credit facility which expires on May 27, 2013, and a $1.25 billion, four-year unsecured back-up credit facility which expires on May 12, 2015. The credit facilities allow for borrowings at various rates depending on the Company’s public debt ratings and require the Company to pay a weighted average quarterly facility fee of approximately 0.04%, regardless of usage. As of December 31, 2011 and 2010, the Company had no outstanding borrowings against the back-up credit facilities. The weighted average interest rate for short-term debt was 0.37% as of December 31, 2011 and 0.40% as of December 31, 2010.

In connection with the Company’s acquisition of the UAM Medicare Part D Business in April 2011, the Company assumed $110 million of long-term debt in the form of Trust Preferred Securities that mature through 2037. During the year ended December 31, 2011, the Company repaid $60 million of the Trust Preferred Securities at par and intends to repay the remaining $50 million at par in 2012.

On May 12, 2011, the Company issued $550 million of 4.125% unsecured senior notes due May 15, 2021 and issued $950 million of 5.75% unsecured senior notes due May 15, 2041 (collectively, the “2011 Notes”) for total proceeds of approximately $1.5 billion, net of discounts and underwriting fees. The 2011 Notes pay interest semi-annually and may be redeemed, in whole at any time, or in part from time to time, at the Company’s option at a defined redemption price plus accrued and unpaid interest to the redemption date. The net proceeds of the 2011 Notes were used to repay commercial paper borrowings and certain other corporate debt, and were used for general corporate purposes.

On December 8, 2011, the Company repurchased $958 million of the principal amount of its Enhanced Capital Advantaged Preferred Securities (“ECAPS”) at par. The fees and write-off of deferred issuance costs associated with the early extinguishment of the ECAPS were de minimis. The remaining $42 million of outstanding ECAPS are due in 2062 and bear interest at 6.302% per year until June 1, 2012, at which time they will pay interest based on a floating rate. The ECAPS pay interest semi-annually and may be redeemed at any time, in whole or in part at a defined redemption price plus accrued interest.

38

Notes to Consolidated Financial Statements (continued)

On May 13, 2010, the Company issued $550 million of 3.25% unsecured senior notes due May 18, 2015 and issued $450 million of 4.75% unsecured senior notes due May 18, 2020 (collectively, the “2010 Notes”) for total proceeds of $991 million, which was net of discounts and underwriting fees. The 2010 Notes pay interest semiannually and may be redeemed, in whole at any time, or in part from time to time, at the Company’s option at a defined redemption price plus accrued and unpaid interest to the redemption date. The net proceeds of the 2010 Notes were used to repay a portion of the Company’s outstanding commercial paper borrowings and certain other corporate debt, and were used for general corporate purposes.

On March 10, 2009, the Company issued $1.0 billion of 6.6% unsecured senior notes due March 15, 2019 (the “March 2009 Notes”). The March 2009 Notes pay interest semi-annually and may be redeemed, in whole or in part, at a defined redemption price plus accrued interest. The net proceeds were used to repay the existing bridge credit facility, a portion of the Company’s outstanding commercial paper borrowings and for general corporate purposes.

On July 1, 2009, the Company issued $300 million of unsecured floating rate senior notes due January 30, 2011 (the “2009 Floating Rate Notes”). The 2009 Floating Rate Note pays interest quarterly. The net proceeds from the 2009 Floating Rate Note were used for general corporate purposes.

On September 8, 2009, the Company issued $1.5 billion of 6.125% unsecured senior notes due September 15, 2039 (the “September 2009 Notes”). The September 2009 Notes pay interest semi-annually and may be redeemed, in whole or in part, at a defined redemption price plus accrued interest. The net proceeds were used to repay a portion of the Company’s outstanding commercial paper borrowings, $650 million of unsecured senior notes and were used for general corporate purposes.

The credit facilities, back-up credit facilities, unsecured senior notes and ECAPS contain customary restrictive financial and operating covenants. The covenants do not materially affect the Company’s financial or operating flexibility.

The aggregate maturities of long-term debt for each of the five years subsequent to December 31, 2011 are $56 million in 2012, $5 million in 2013, $556 million in 2014, $556 million in 2015, and $707 million in 2016.

7Leases

The Company leases most of its retail and mail order locations, ten of its distribution centers and certain corporate offices under non-cancelable operating leases, typically with initial terms of 15 to 25 years and with options that permit renewals for additional periods. The Company also leases certain equipment and other assets under noncancelable operating leases, typically with initial terms of 3 to 10 years. Minimum rent is expensed on a straight-line basis over the term of the lease. In addition to minimum rental payments, certain leases require additional payments based on sales volume, as well as reimbursement for real estate taxes, common area maintenance and insurance, which are expensed when incurred.

The following table is a summary of the Company’s net rental expense for operating leases for the respective years:

In millions	2011			2010			2009
Minimum rentals	$	2,087		$	2,001		$	1,857
Contingent rentals	49			53			61
	2,136			2,054			1,918
Less: sublease income	(19		)	(19		)	(19		)
	$	2,117		$	2,035		$	1,899

39

Notes to Consolidated Financial Statements (continued)

The following table is a summary of the future minimum lease payments under capital and operating leases as of December 31, 2011:

In millions	Capital Leases			Operating Leases(1)
2012	$	20		$	2,230
2013	20			2,143
2014	20			1,936
2015	20			1,880
2016	20			1,806
Thereafter	237			17,630
Total future lease payments	337			$	27,625
Less: imputed interest	(169		)
Present value of capital lease obligations	$	168

(1)Future operating lease payments have not been reduced by minimum sublease rentals of $246 million due in the future under noncancelable subleases.

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 qualify and are accounted for as operating leases. The operating leases that resulted from these transactions are included in the above table. 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. Proceeds from sale-leaseback transactions totaled $592 million in 2011, $507 million in 2010 and $1.6 billion in 2009.

8Medicare Part D

The Company offers Medicare Part D benefits through SilverScript, Accendo and Pennsylvania Life, which have contracted with CMS to be a PDP and, pursuant to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“MMA”), must be risk-bearing entities regulated under state insurance laws or similar statutes.

SilverScript, Accendo and Pennsylvania Life are licensed domestic insurance companies under the applicable laws and regulations. Pursuant to these laws and regulations, SilverScript, Accendo and Pennsylvania Life must file quarterly and annual reports with the National Association of Insurance Commissioners (“NAIC”) and certain state regulators, must maintain certain minimum amounts of capital and surplus under a formula established by the NAIC and must, in certain circumstances, request and receive the approval of certain state regulators before making dividend payments or other capital distributions to the Company. The Company does not believe these limitations on dividends and distributions materially impact its financial position.

The Company has recorded estimates of various assets and liabilities arising from its participation in the Medicare Part D program based on information in its claims management and enrollment systems. Significant estimates arising from its participation in this program include: (i) estimates of low-income cost subsidy and reinsurance amounts ultimately payable to or receivable from CMS based on a detailed claims reconciliation that will occur in the following year; (ii) an estimate of amounts receivable from or payable to CMS under a risk-sharing feature of the Medicare Part D program design, referred to as the risk corridor and (iii) estimates for claims that have been reported and are in the process of being paid or contested and for our estimate of claims that have been incurred but have not yet been reported.

40

Notes to Consolidated Financial Statements (continued)

9Employee Stock Ownership Plan

The Company sponsored a defined contribution Employee Stock Ownership Plan (the “ESOP”) that covered full-time employees with at least one year of service. In 1989, the ESOP Trust issued and sold $358 million of 20-year, 8.52% notes, which were due and retired on December 31, 2008 (the “ESOP Notes”). The proceeds from the ESOP Notes were used to purchase 7 million shares of Series One ESOP Convertible Preference Stock (the “ESOP Preference Stock”) from the Company. Since the ESOP Notes were guaranteed by the Company, the outstanding balance was reflected as long-term debt, and a corresponding guaranteed ESOP obligation was reflected in shareholders’ equity in the consolidated balance sheet.

Each share of ESOP Preference Stock had a guaranteed minimum liquidation value of $53.45, was convertible into 4.628 shares of common stock and was entitled to receive an annual dividend of $3.90 per share. The ESOP Trust used the dividends received and contributions from the Company to repay the ESOP Notes. As the ESOP Notes were repaid, ESOP Preference Stock was allocated to plan participants based on (i) the ratio of each year’s debt service payment to total current and future debt service payments multiplied by (ii) the number of unallocated shares of ESOP Preference Stock in the plan.

ESOP expense recognized is equal to (i) the interest incurred on the ESOP Notes plus (ii) the higher of (a) the principal repayments or (b) the cost of the shares allocated, less (iii) the dividends paid. Similarly, the guaranteed ESOP obligation is reduced by the higher of (i) the principal payments or (ii) the cost of shares allocated.

On January 30, 2009, pursuant to the Company’s Amended and Restated Certificate of Incorporation (the “Charter”), the Company informed the trustee of the ESOP Trust of its intent to redeem for cash all of the outstanding shares of ESOP Preference Stock on February 24, 2009 (the “Redemption Date”). Under the Charter, at any time prior to the Redemption Date, the trustee had the right to convert the ESOP Preference Stock into shares of the Company’s common stock. The conversion rate at the time of the notice was 4.628 shares of common stock for each share of ESOP Preference Stock. The trustee exercised its right of conversion on February 23, 2009, and all of the approximately 4 million outstanding shares of ESOP Preference Stock were converted into approximately 17 million shares of common stock which were recorded as treasury stock. As of December 31, 2011, 2010 and 2009, no shares of ESOP Preference Stock were outstanding and allocated to plan participants.

10Pension Plans and Other Postretirement Benefits

Defined Contribution Plans

The Company sponsors voluntary 401(k) savings plans that cover substantially all employees who meet plan eligibility requirements. The Company makes matching contributions consistent with the provisions of the plans.

At the participant’s option, account balances, including the Company’s matching contribution, can be moved without restriction among various investment options, including the Company’s common stock. The Company also maintains a nonqualified, unfunded Deferred Compensation Plan for certain key employees. This plan provides participants the opportunity to defer portions of their eligible compensation and receive matching contributions equivalent to what they could have received under the CVS Caremark 401(k) Plan absent certain restrictions and limitations under the Internal Revenue Code. The Company’s contributions under the above defined contribution plans were $187 million, $186 million and $173 million in 2011, 2010 and 2009, respectively.

Other Postretirement Benefits

The Company provides postretirement health care and life insurance benefits to certain retirees who meet eligibility requirements. The Company’s funding policy is generally to pay covered expenses as they are incurred. For retiree medical plan accounting, the Company reviews external data and its own historical trends for health care costs to determine the health care cost trend rates. As of December 31, 2011 and 2010, the Company’s postretirement medical plans have an accumulated postretirement benefit obligation of $17 million. Net periodic benefit costs related to these postretirement medical plans were approximately $1 million for 2011, 2010 and 2009.

Pursuant to various labor agreements, the Company also contributes to multiemployer health and welfare plans that cover union-represented employees. The plans provide postretirement health care and life insurance benefits to certain employees who meet eligibility requirements. Total Company contributions to multiemployer health and welfare plans were $47 million, $46 million and $47 million in 2011, 2010 and 2009, respectively.

41

Notes to Consolidated Financial Statements (continued)

Pension Plans

The Company sponsors nine defined benefit pension plans that cover certain full-time employees. Three of the plans are tax-qualified plans that are funded based on actuarial calculations and applicable federal laws and regulations. The other six plans are unfunded nonqualified supplemental retirement plans. All of the plans were frozen in prior periods, except one of the nonqualified plans.

As of December 31, 2011, the Company’s pension plans had a projected benefit obligation of $685 million and plan assets of $463 million. As of December 31, 2010, the Company’s pension plans had a projected benefit obligation of $659 million and plan assets of $426 million. Actual return on plan assets was $37 million and $45 million in 2011 and 2010, respectively. Net periodic pension costs related to these pension plans were $49 million, $36 million and $16 million in 2011, 2010 and 2009, respectively. The net periodic pension costs for 2011 and 2010 includes settlement losses of $25 million and $12 million, respectively, due to the impact of lump sum payouts.

The discount rate is determined by examining the current yields observed on the measurement date of fixed-interest, high quality investments expected to be available during the period to maturity of the related benefits on a plan by plan basis. The discount rate for the plans was 4.75% in 2011 and 5.5% in 2010. The expected long-term rate of return on plan assets is determined by using the plan’s target allocation and historical returns for each asset class on a plan by plan basis. The expected long-term rate of return for all plans was 7.25% in 2011 and 2010 and 8.5% in 2009.

Historically, the Company used an investment strategy, which emphasized equities in order to produce higher expected returns, and in the long run, lower expected expense and cash contribution requirements. The qualified pension plan asset allocation targets were 60% equity and 40% fixed income. As the result of a detailed asset liability study performed during 2009, the Company revised the pension plan target asset allocation to 50% equity and 50% fixed income with the transition to the new targets beginning in 2010.

As of December 31, 2011, the Company’s qualified defined benefit pension plan assets consisted of 47% equity, 51% fixed income, and 2% money market securities of which 82% were classified as Level 1 and 18% as Level 2 in the fair value hierarchy. The Company’s qualified defined benefit pension plan assets as of December 31, 2010 consisted of 57% equity, 42% fixed income, and 1% money market securities of which 71% were classified as Level 1 and 29% as Level 2 in the fair value hierarchy.

The Company contributed $92 million, $65 million and $50 million to the pension plans during 2011, 2010 and 2009, respectively. The Company plans to make approximately $34 million in contributions to the pension plans during 2012.

The Company also contributes to a number of multiemployer pension plans under the terms of collective-bargaining agreements that cover its union-represented employees. The risks of participating in these multiemployer plans are different from single-employer pension plans in the following aspects: (i) assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers, (ii) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers, and (iii) if the Company chooses to stop participating in some of its multiemployer plans, the Company may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

None of the multiemployer pension plans the Company participates in are individually significant to the Company. Total Company contributions to multiemployer pension plans were $11 million, $12 million and $10 million in 2011, 2010 and 2009, respectively.

42

Notes to Consolidated Financial Statements (continued)

11Stock Incentive Plans

Stock-based compensation expense is measured at the grant date based on the fair value of the award and is recognized as expense over the applicable requisite service period of the stock award (generally three to five years) using the straight-line method. Stock-based compensation costs are included in selling, general and administrative expenses.

Compensation expense related to stock options, which includes the 2007 Employee Stock Purchase Plan (the “2007 ESPP”) totaled $112 million, $127 million and $136 million for 2011, 2010 and 2009, respectively. The recognized tax benefit was $38 million, $42 million and $45 million for 2011, 2010 and 2009, respectively. Compensation expense related to restricted stock awards totaled $21 million, $23 million and $29 million for 2011, 2010 and 2009, respectively.

The 2007 ESPP provides for the purchase of up to 15 million shares of common stock. Under the 2007 ESPP, eligible employees may purchase common stock at the end of each six month offering period at a purchase price equal to 85% of the lower of the fair market value on the first day or the last day of the offering period. During 2011, approximately 3 million shares of common stock were purchased under the provisions of the 2007 ESPP at an average price of $26.90 per share. As of December 31, 2011, approximately 5 million shares of common stock were available for issuance under the 2007 ESPP.

The fair value of stock-based compensation associated with the 2007 ESPP is estimated on the date of grant (i.e., the beginning of the offering period) using the Black-Scholes Option Pricing Model.

The following table is a summary of the assumptions used to value the ESPP awards for each of the respective periods:

	2011			2010			2009
Dividend yield (1)	0.69		%	0.57		%	0.50		%
Expected volatility(2)	20.42		%	32.58		%	48.89		%
Risk-free interest rate(3)	0.15		%	0.21		%	0.31		%
Expected life (in years)(4)	0.5			0.5			0.5
Weighted-average grant date fair value	$	7.21		$	7.31		$	8.51

(1)The dividend yield is calculated based on semi-annual dividends paid and the fair market value of the Company’s stock at the grant date.

(2)The expected volatility is based on the historical volatility of the Company’s daily stock market prices over the previous six month period.

(3)The risk-free interest rate is based on the Treasury constant maturity interest rate whose term is consistent with the expected term of ESPP options (i.e., 6 months).

(4)The expected life is based on the semi-annual purchase period.

In May 2010, the Company’s Board of Directors adopted and the shareholders approved the 2010 Incentive Compensation Plan (the “2010 ICP”), which superseded the 1997 Incentive Compensation Plan (the “1997 ICP”). The terms of the 2010 ICP provide for grants of annual incentive and long-term performance awards to executive officers and other officers and employees of the Company or any subsidiary of the Company. Payment of such annual incentive and long-term performance awards will be in cash, stock, other awards or other property, at the discretion of the Management Planning and Development Committee of the Company’s Board of Directors. The 2010 ICP allows for a maximum of 74 million shares to be reserved and available for grants, plus the number of shares subject to awards under the Company’s 1997 ICP which become available due to cancellation or forfeiture. Following approval and adoption of the 2010 ICP, no new grants can be made under the 2007 ICP or 1997 ICP. The 2010 ICP is the only compensation plan under which the Company grants stock options, restricted stock and other stock-based awards to its employees, with the exception of the Company’s 2007 ESPP. As of December 31, 2011, there were approximately 58 million shares available for future grants under the 2010 ICP.

43

Notes to Consolidated Financial Statements (continued)

The Company’s restricted awards are considered non-vested share awards and require no payment from the employee. Compensation cost is recorded based on the market price on the grant date and is recognized on a straight-line basis over the requisite service period. The Company granted 1,121,000, 1,095,000 and 1,284,000 restricted stock units with a weighted average fair value of $34.84, $35.25 and $27.77 in 2011, 2010 and 2009, respectively. As of December 31, 2011, there was $39 million of total unrecognized compensation costs related to the restricted stock units that are expected to vest. These costs are expected to be recognized over a weighted-average period of 1.94 years. The total fair value of restricted shares vested during 2011, 2010 and 2009 was $33 million, $44 million and $18 million, respectively.

The following table is a summary of the restricted unit and restricted share award activity for the year ended December 31, 2011:

Units in thousands	Units		Weighted Average Grant Date Fair Value
Nonvested at beginning of year	2,688		$	34.16
Granted	1,121		34.84
Vested	(969	)	35.55
Forfeited	(234	)	35.00
Nonvested at end of year	2,606		$	32.80

All grants under the 2010 ICP are awarded at fair market value on the date of grant. The fair value of stock options is estimated using the Black-Scholes Option Pricing Model and stock-based compensation is recognized on a straight-line basis over the requisite service period. Options granted prior to 2004 generally become exercisable over a four-year period from the grant date and expire ten years after the date of grant. Options granted between 2004 and 2010 generally become exercisable over a three-year period from the grant date and expire seven years after the date of grant. Beginning in 2011, options granted generally become exercisable over a four-year period from the grant date and expire seven years after the date of grant.

Excess tax benefits of $21 million, $28 million and $19 million were included in financing activities in the accompanying consolidated statements of cash flow during 2011, 2010 and 2009, respectively. Cash received from stock options exercised, which includes the 2007 ESPP, totaled $431 million, $285 million and $250 million during 2011, 2010 and 2009, respectively. The total intrinsic value of options exercised was $161 million, $118 million and $104 million in 2011, 2010 and 2009, respectively. The total fair value of options vested during 2011, 2010 and 2009 was $452 million, $445 million and $383 million, respectively.

The fair value of each stock option is estimated using the Black-Scholes option pricing model based on the following assumptions at the time of grant:

	2011			2010			2009
Dividend yield (1)	1.43		%	1.00		%	1.07		%
Expected volatility(2)	32.62		%	33.15		%	31.34		%
Risk-free interest rate(3)	1.81		%	1.85		%	1.65		%
Expected life (in years)(4)	4.7			4.3			4.3
Weighted-average grant date fair value	$	9.19		$	9.49		$	7.20

(1)The dividend yield is based on annual dividends paid and the fair market value of the Company’s stock at the grant date.

(2)The expected volatility is estimated using the Company’s historical volatility over a period equal to the expected life of each option grant after adjustments for infrequent events such as stock splits.

(3)The risk-free interest rate is selected based on yields from U.S. Treasury zero-coupon issues with a remaining term equal to the expected term of the options being valued.

(4)The expected life represents the number of years the options are expected to be outstanding from grant date based on historical option holder exercise experience.

44

Notes to Consolidated Financial Statements (continued)

As of December 31, 2011, unrecognized compensation expense related to unvested options totaled $174 million, which the Company expects to be recognized over a weighted-average period of 1.97 years. After considering anticipated forfeitures, the Company expects approximately 26 million of the unvested options to vest over the requisite service period.

The following table is a summary of the Company’s stock option activity for the year ended December 31, 2011:

Shares in thousands	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at December 31, 2010	66,017		$	31.39	4.16	$	313,163,000
Granted	13,466		$	34.88	—	—
Exercised	(14,738	)	$	25.32	—	—
Forfeited	(3,152	)	$	33.47	—	—
Expired	(2,486	)	$	35.59	—	—
Outstanding at December 31, 2011	59,107		$	33.40	4.11	$	439,671,000
Exercisable at December 31, 2011	32,202		$	33.13	2.88	$	249,947,000

12Income Taxes

The income tax provision for continuing operations consisted of the following for the respective years:

In millions	2011		2010			2009
Current:
Federal	$	1,807	$	1,884		$	1,761
State	338		344			397
	2,145		2,228			2,158
Deferred:
Federal	101		(44		)	38
State	12		(5		)	4
	113		(49		)	42
Total	$	2,258	$	2,179		$	2,200

The following table is a reconciliation of the statutory income tax rate to the Company’s effective income tax rate for continuing operations for the respective years:

	2011		2010		2009
Statutory income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal tax benefit	3.9		4.1		4.5
Other	0.4		0.6		0.6
Subtotal	39.3		39.7		40.1
Recognition of previously unrecognized tax benefits	—		(0.8	)	(2.8	)
Effective income tax rate	39.3	%	38.9	%	37.3	%

45

Notes to Consolidated Financial Statements (continued)

The following table is a summary of the significant components of the Company’s deferred tax assets and liabilities as of December 31:

In millions	2011			2010
Deferred tax assets:
Lease and rents	$	325		$	325
Inventories	77			69
Employee benefits	253			261
Allowance for doubtful accounts	112			96
Retirement benefits	114			99
Net operating losses	6			6
Other	315			307
Total deferred tax assets	1,202			1,163
Deferred tax liabilities:
Depreciation and amortization	(4,552		)	(4,307		)
Net deferred tax liabilities	$	(3,350	)	$	(3,144	)

Net deferred tax assets (liabilities) are presented on the consolidated balance sheets as follows as of December 31:

In millions	2011			2010
Deferred tax assets—current	$	503		$	511
Deferred tax liabilities—noncurrent	(3,853		)	(3,655		)
Net deferred tax liabilities	$	(3,350	)	$	(3,144	)

The Company believes it is more likely than not the deferred tax assets will be realized during future periods.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

In millions	2011			2010			2009
Beginning balance	$	35		$	61		$	257
Additions based on tax positions related to the current year	3			1			1
Additions based on tax positions related to prior years	13			2			12
Reductions for tax positions of prior years	—			(10		)	(6		)
Expiration of statutes of limitation	(7		)	(16		)	(155		)
Settlements	(6		)	(3		)	(48		)
Ending balance	$	38		$	35		$	61

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of numerous state and local jurisdictions. Substantially all material income tax matters have been concluded for fiscal years through 2006. The Company and its subsidiaries anticipate that a number of income tax examinations will conclude and statutes of limitation for open years will expire over the next twelve months, which may cause a utilization or reduction of the Company’s reserve for uncertain tax positions of up to approximately $10 million.

During 2011, the Internal Revenue Service (the “IRS”) completed an examination of the Company’s 2010 consolidated U.S. income tax return pursuant to the Compliance Assurance Process (“CAP”) program. The CAP program is a voluntary program under which taxpayers seek to resolve all or most issues with the IRS prior to or soon after the filing of their U.S. income tax returns, in lieu of being audited in the traditional manner. The IRS is currently examining the Company’s 2011 consolidated U.S. income tax year pursuant to the CAP program. The Company and its subsidiaries are also currently under income tax examinations by a number of state and local tax authorities. As of December 31, 2011, no examination has resulted in any proposed adjustments that would result in a material change to the Company’s results of operations, financial condition or liquidity.

46

Notes to Consolidated Financial Statements (continued)

The Company recognizes interest accrued related to unrecognized tax benefits and penalties in income tax expense. During the years ended December 31, 2011, 2010 and 2009, the Company recognized interest of approximately $2 million, $3 million and $5 million, respectively. The Company had approximately $8 million and $11 million accrued for interest and penalties as of December 31, 2011 and 2010, respectively.

There are no material reserves established at December 31, 2011 for income tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. If present, such items would impact deferred tax accounting, not the annual effective income tax rate, and would accelerate the payment of cash to the taxing authority to an earlier period.

The total amount of unrecognized tax benefits that, if recognized, would affect the effective income tax rate is approximately $25 million, after considering the federal benefit of state income taxes.

13Commitments and Contingencies

Lease Guarantees

Between 1991 and 1997, the Company sold or spun off a number of subsidiaries, including Bob’s Stores, Linens ‘n Things, Marshalls, Kay-Bee Toys, Wilsons, This End Up and Footstar. In many cases, when a former subsidiary leased a store, the Company provided a guarantee of the store’s lease obligations. When the subsidiaries were disposed of, the Company’s guarantees remained in place, although each initial purchaser has indemnified the Company for any lease obligations the Company was required to satisfy. If any of the purchasers or any of the former subsidiaries were to become insolvent and failed to make the required payments under a store lease, the Company could be required to satisfy these obligations.

As of December 31, 2011, the Company guaranteed approximately 75 such store leases (excluding the lease guarantees related to Linens ‘n Things, which are discussed in Note 3 previously in this document), with the maximum remaining lease term extending through 2022. Management believes the ultimate disposition of any of the remaining guarantees will not have a material adverse effect on the Company’s consolidated financial condition, results of operations or future cash flows.

Legal Matters

Caremark (the term “Caremark” being used herein to generally refer to any one or more pharmacy benefit management subsidiaries of the Company, as applicable) is a defendant in a qui tam lawsuit initially filed by a relator on behalf of various state and federal government agencies in Texas federal court in 1999. The case was unsealed in May 2005. The case seeks monetary damages and alleges that Caremark’s processing of Medicaid and certain other government claims on behalf of its clients (which allegedly resulted in underpayments from our clients to the applicable government agencies) on one of Caremark’s adjudication platforms violates applicable federal or state false claims acts and fraud statutes. The United States and the States of Texas, Tennessee, Florida, Arkansas, Louisiana and California intervened in the lawsuit, but Tennessee and Florida withdrew from the lawsuit in August 2006 and May 2007, respectively. Thereafter, in 2008, the Company prevailed on several motions for partial summary judgment and, following an appellate ruling from the Fifth Circuit Court of Appeals in 2011 which affirmed in part and reversed in part these prior rulings, the claims asserted in the case against Caremark have been substantially narrowed. In April 2009, the State of Texas filed a purported civil enforcement action against Caremark for injunctive relief, damages and civil penalties in Travis County, Texas alleging that Caremark violated the Texas Medicaid Fraud Prevention Act and other state laws based on our processing of Texas Medicaid claims on behalf of PBM clients. In September 2011, the Company prevailed on a motion for partial summary judgment against the State of Texas and narrowed the remaining claims in the lawsuit. The claims and issues raised in this lawsuit are related to the claims and issues pending in the federal qui tam lawsuit described above.

47

Notes to Consolidated Financial Statements (continued)

In December 2007, the Company received a document subpoena from the Office of Inspector General, United States Department of Health and Human Services (“OIG”), requesting information relating to the processing of Medicaid and other government agency claims on a different adjudication platform of Caremark. In October 2009 and October 2010, the Company received civil investigative demands from the Office of the Attorney General of the State of Texas requesting, respectively, information produced under this OIG subpoena, and other information related to the processing of Medicaid claims. These civil investigative demands state that the Office of the Attorney General of the State of Texas is investigating allegations currently pending under seal relating to two of Caremark’s adjudication platforms. The Company has been producing documents on a rolling basis in response to the requests for information contained in the OIG subpoena and in these civil investigative demands. The Company cannot predict with certainty the timing or outcome of any review of such information.

Caremark was named in a putative class action lawsuit filed in October 2003 in Alabama state court by John Lauriello, purportedly on behalf of participants in the 1999 settlement of various securities class action and derivative lawsuits against Caremark and others. Other defendants include insurance companies that provided coverage to Caremark with respect to the settled lawsuits. The Lauriello lawsuit seeks approximately $3.2 billion in compensatory damages plus other non-specified damages based on allegations that the amount of insurance coverage available for the settled lawsuits was misrepresented and suppressed. A similar lawsuit was filed in November 2003 by Frank McArthur, also in Alabama state court, naming as defendants Caremark, several insurance companies, attorneys and law firms involved in the 1999 settlement. This lawsuit was stayed as a later-filed class action, but McArthur was subsequently allowed to intervene in the Lauriello action. The attorneys and law firms named as defendants in McArthur’s intervention pleadings have been dismissed from the case, and discovery on class certification and adequacy issues is underway.

Various lawsuits have been filed alleging that Caremark has violated applicable antitrust laws in establishing and maintaining retail pharmacy networks for client health plans. In August 2003, Bellevue Drug Co., Robert Schreiber, Inc. d/b/a Burns Pharmacy and Rehn-Huerbinger Drug Co. d/b/a Parkway Drugs #4, together with Pharmacy Freedom Fund and the National Community Pharmacists Association filed a putative class action against Caremark in Pennsylvania federal court, seeking treble damages and injunctive relief. This case was initially sent to arbitration based on the contract terms between the pharmacies and Caremark. In October 2003, two independent pharmacies, North Jackson Pharmacy, Inc. and C&C, Inc. d/b/a Big C Discount Drugs, Inc. filed a putative class action complaint in Alabama federal court against Caremark and two PBM competitors, seeking treble damages and injunctive relief. The North Jackson Pharmacy case against two of the Caremark entities named as defendants was transferred to Illinois federal court, and the case against a separate Caremark entity was sent to arbitration based on contract terms between the pharmacies and Caremark. The Bellevue arbitration was then stayed by the parties pending developments in the North Jackson Pharmacy court case.

In August 2006, the Bellevue case and the North Jackson Pharmacy case were both transferred to Pennsylvania federal court by the Judicial Panel on Multidistrict Litigation for coordinated and consolidated proceedings with other cases before the panel, including cases against other PBMs. Caremark appealed the decision which vacated the order compelling arbitration and staying the proceedings in the Bellevue case and, following the appeal, the Court of Appeals reinstated the order compelling arbitration of the Bellevue case. Motions for class certification in the coordinated cases within the multidistrict litigation, including the North Jackson Pharmacy case, remain pending. The consolidated action is now known as the In Re Pharmacy Benefit Managers Antitrust Litigation.

In August 2009, the Company was notified by the Federal Trade Commission (“FTC”) that it was conducting a non-public investigation under the Federal Trade Commission Act into certain of the Company’s business practices. In March 2010, the Company learned that various State Attorneys General offices and certain other government agencies were conducting a multi-state investigation of the Company regarding issues similar to those being investigated by the FTC. At this time, 28 states, the District of Columbia, and the County of Los Angeles are known to be participating in this multi-state investigation. On January 3, 2012, the FTC accepted for public comment, subject to final approval, a consent order. The proposed consent order would prohibit the Company from misrepresenting the price or cost of Medicare Part D prescription drugs, or other prices of costs associated with Medicare Part D prescription drug plans. The proposed order would also require the Company to pay $5 million in consumer redress, to be distributed to impacted RxAmerica Medicare Part D beneficiaries. The proposed order contains no allegations of antitrust law violations or anti-competitive behavior related to the Company’s business practices or its products or service offerings. In addition, the Company has received a formal letter from the FTC closing all other aspects of the investigation. With respect to the multi-state investigation, the Company continues to cooperate in this investigation. The Company is not able to predict with certainty the timing or outcome of the multi-state investigation. However, it remains confident that its business practices and service offerings (which are designed to reduce health care costs and expand consumer choice) are being conducted in compliance with the antitrust laws.

48

Notes to Consolidated Financial Statements (continued)

In March 2009, the Company received a subpoena from the OIG requesting information concerning the Medicare Part D prescription drug plans of RxAmerica, the PBM subsidiary of Longs Drug Stores Corporation which was acquired by the Company in October 2008. The Company continues to respond to the request for information and has been producing responsive documents on a rolling basis. The Company cannot predict with certainty the timing or outcome of any review by the government of such information.

Since March 2009, the Company has been named in a series of putative collective and class action lawsuits filed in federal courts around the country, purportedly on behalf of current and former assistant store managers working in the Company’s stores at various locations outside California. The lawsuits allege that the Company failed to pay overtime to assistant store managers as required under the Fair Labor Standards Act (“FLSA”) and under certain state statutes. The lawsuits also seek other relief, including liquidated damages, punitive damages, attorneys’ fees, costs and injunctive relief arising out of the state and federal claims for overtime pay. The Company has aggressively challenged both the merits of the lawsuits and the allegation that the cases should be certified as class or collective actions. In light of the cost and uncertainty involved in this litigation, however, the Company has reached an agreement with plaintiffs’ counsel to settle the series of lawsuits. The court preliminarily approved the settlement in December 2011 and the Company anticipates that final court approval will be granted in the second quarter of 2012. The Company has established legal reserves related to these matters to cover fully the settlement payments.

In November 2009, a securities class action lawsuit was filed in the United States District Court for the District of Rhode Island purportedly on behalf of purchasers of CVS Caremark Corporation stock between May 5, 2009 and November 4, 2009. The lawsuit names the Company and certain officers as defendants and includes allegations of securities fraud relating to public disclosures made by the Company concerning the PBM business and allegations of insider trading. In addition, a shareholder derivative lawsuit was filed in December 2009 in the same court against the directors and certain officers of the Company. A derivative lawsuit is a lawsuit filed by a shareholder purporting to assert claims on behalf of a corporation against directors and officers of the corporation. This lawsuit includes allegations of, among other things, securities fraud, insider trading and breach of fiduciary duties and further alleges that the Company was damaged by the purchase of stock at allegedly inflated prices under its share repurchase program. In January 2011, both lawsuits were transferred to the United States District Court for the District of New Hampshire. The Company believes these lawsuits are without merit, and the Company plans to defend them vigorously. The Company received a subpoena dated February 28, 2011 from the SEC requesting, among other corporate records, information relating to public disclosures made by the Company in 2009 concerning its PBM and Medicare Part D businesses and information concerning ownership and transactions in the Company’s securities by certain officers of the Company. The Company received a related subpoena dated September 20, 2011 from the SEC seeking, among other things, additional information concerning securities transactions by certain employees of the Company and public disclosures made by the Company during 2009. The Company is cooperating with these requests for information and is providing documents and other information to the SEC as requested.

In March 2010, the Company received a subpoena from the OIG requesting information about programs under which the Company has offered customers remuneration conditioned upon the transfer of prescriptions for drugs or medications to our pharmacies in the form of gift cards, cash, non-prescription merchandise or discounts or coupons for non-prescription merchandise. The subpoena relates to an investigation of possible false or otherwise improper claims for payment under the Medicare and Medicaid programs. The Company continues to respond to this request for information and has been producing responsive documents on a rolling basis. We cannot predict with certainty the timing or outcome of any reviews by the government of such information.

In January 2012, the Company received a subpoena from OIG requesting information about its Health Savings Pass program, a prescription drug discount program for uninsured or under insured individuals, in connection with an investigation of possible false or otherwise improper claims for payment involving United States Department of Health and Human Services programs. In February 2012, the Company also received a civil investigative demand from the Office of the Attorney General of the State of Texas requesting a copy of information produced under this OIG subpoena and other information related to prescription drug claims submitted by our pharmacies to Texas Medicaid for reimbursement. The Company will respond to these requests for information and cooperate with each of these investigations. We cannot predict with certainty the timing or outcome of any review by the applicable government agency of the requested information.

In addition to the legal matters described above, the Company is also a party to other legal proceedings and inquiries arising in the normal course of its business, none of which is expected to be material to the Company. The Company can give no assurance, however, that its business, financial condition and results of operations will not be materially adversely affected, or that the Company will not be required to materially change our business practices, based on: (i) future enactment of new health care or other laws or regulations; (ii) the interpretation or application of existing laws or regulations, as they may relate to our business, the pharmacy services, retail pharmacy or retail clinic industry or to the health care industry generally; (iii) pending or future federal or state governmental investigations of our business or the pharmacy services, retail pharmacy or retail clinic industry or of the health care industry generally; (iv) institution of government enforcement actions against us; (v) adverse developments in any pending qui tam lawsuit against us, whether sealed or unsealed, or in any future qui tam lawsuit that may be filed against us; or (vi) adverse developments in other pending or future legal proceedings against us or affecting the pharmacy services, retail pharmacy or retail clinic industry or the health care industry generally.

49

 Notes to Consolidated Financial Statements (continued)

14Segment Reporting

The Company currently has three reportable segments: Pharmacy Services, Retail Pharmacy and Corporate.

The Company evaluates its Pharmacy Services and Retail Pharmacy segment performance based on net revenue, gross profit and operating profit before the effect of certain intersegment activities and charges. The Company evaluates the performance of its Corporate segment based on operating expenses before the effect of discontinued operations and certain intersegment activities and charges. See Note 1 for a description of the Pharmacy Services, Retail Pharmacy and Corporate segments and related significant accounting policies.

The following table is a reconciliation of the Company’s business segments to the consolidated financial statements:

In millions	Pharmacy Services Segment(1)(2)(3)		Retail Pharmacy Segment(2)		Corporate Segment			Intersegment Eliminations(2)			Consolidated Totals
2011:
Net revenues	$	58,874	$	59,599	$	—		$	(11,373	)	$	107,100
Gross profit	3,279		17,468		—			(186		)	20,561
Operating profit	2,220		4,912		(616		)	(186		)	6,330
Depreciation and amortization	433		1,060		75			—			1,568
Total assets	35,704		28,323		1,121			(605		)	64,543
Goodwill	19,657		6,801		—			—			26,458
Additions to property and equipment	461		1,353		58			—			1,872
2010:
Net revenues	$	47,145	$	57,345	$	—		$	(8,712	)	$	95,778
Gross profit	3,315		17,039		—			(135		)	20,219
Operating profit	2,361		4,537		(626		)	(135		)	6,137
Depreciation and amortization	390		1,016		63			—			1,469
Total assets	32,254		28,927		1,439			(451		)	62,169
Goodwill	18,868		6,801		—			—			25,669
Additions to property and equipment	234		1,708		63			—			2,005
2009:
Net revenues	$	50,551	$	55,355	$	—		$	(7,691	)	$	98,215
Gross profit	3,813		16,593		—			(48		)	20,358
Operating profit	2,853		4,159		(539		)	(48		)	6,425
Depreciation and amortization	377		965		47			—			1,389
Total assets	33,082		28,302		774			(517		)	61,641
Goodwill	18,879		6,801		—			—			25,680
Additions to property and equipment	218		2,183		147			—			2,548

(1)Net revenues of the Pharmacy Services segment include approximately $7.9 billion, $6.6 billion and $6.9 billion of Retail co-payments for the years ended December 31, 2011, 2010 and 2009, respectively.

(2)Intersegment eliminations relate to two types of transactions: (i) Intersegment revenues that occur when Pharmacy Services segment clients use Retail Pharmacy segment stores to purchase covered products. When this occurs, both the Pharmacy Services and Retail Pharmacy segments record the revenue on a standalone basis and (ii) Intersegment revenues, gross profit and operating profit that occur when Pharmacy Services segment clients, through the Company’s intersegment activities (such as the Maintenance Choice program), elect to pick up their maintenance prescriptions at Retail Pharmacy segment stores instead of receiving them through the mail. When this occurs, both the Pharmacy Services and Retail Pharmacy segments record the revenue, gross profit and operating profit on a standalone basis. Beginning in the fourth quarter of 2011, the Maintenance Choice eliminations reflect all discounts available for the purchase of mail order prescription drugs. The following amounts are eliminated in consolidation in connection with the item (ii) intersegment activity: net revenues of $2.6 billion, $1.8 billion and $0.7 billion for the years ended December 31, 2011, 2010 and 2009, respectively; gross profit and operating profit of $186 million, $135 million and $48 million for the years ended December 31, 2011, 2010 and 2009, respectively.

(3)The results of the Pharmacy Services segment for the years ended December 31, 2010 and 2009 have been revised to reflect the results of TheraCom as discontinued operations. See Note 3.

50

Notes to Consolidated Financial Statements (continued)

15Earnings Per Common Share

The following is a reconciliation of basic and diluted earnings per common share for the respective years:

In millions, except per share amounts	2011			2010		2009
Numerator for earnings per common share calculation:
Income from continuing operations	$	3,488		$	3,422	$	3,700
Net loss attributable to noncontrolling interest	4			3		—
Income from continuing operations attributable to CVS Caremark, basic	3,492			3,425		3,700
Income (loss) from discontinued operations, net of tax	(31		)	2		(4		)
Net income attributable to CVS Caremark, basic and diluted	$	3,461		$	3,427	$	3,696
Denominator for earnings per common share calculation:
Weighted average common shares, basic	1,338			1,367		1,434
Preference stock	—			—		1
Stock options	8			8		10
Restricted stock units	1			2		5
Weighted average common shares, diluted	1,347			1,377		1,450
Basic earnings per common share:
Income from continuing operations attributable to CVS Caremark	$	2.61		$	2.51	$	2.58
Loss from discontinued operations attributable to CVS Caremark	(0.02		)	—		—
Net income attributable to CVS Caremark	$	2.59		$	2.51	$	2.58
Diluted earnings per common share:
Income from continuing operations attributable to CVS Caremark	$	2.59		$	2.49	$	2.55
Loss from discontinued operations attributable to CVS Caremark	(0.02		)	—		—
Net income attributable to CVS Caremark	$	2.57		$	2.49	$	2.55

51

Notes to Consolidated Financial Statements (continued)

16Quarterly Financial Information (Unaudited)

In millions, except per share amounts	First Quarter(1)		Second Quarter(1)		Third Quarter		Fourth Quarter			Year
2011:
Net revenues	$	25,695	$	26,414	$	26,674	$	28,317		$	107,100
Gross profit	4,742		5,086		5,178		5,555			20,561
Operating profit	1,305		1,484		1,584		1,957			6,330
Income from continuing operations	709		813		867		1,099			3,488
Income (loss) from discontinued operations, net of tax	3		2		—		(36		)	(31		)
Net income	712		815		867		1,063			3,457
Net loss attributable to noncontrolling interest	1		1		1		1			4
Net income attributable to CVS Caremark	$	713	$	816	$	868	$	1,064		$	3,461
Basic earnings per common share:
Income from continuing operations attributable to CVS Caremark	$	0.52	$	0.60	$	0.65	$	0.84		$	2.61
Loss from discontinued operations attributable to CVS Caremark	$	—	$	—	$	—	$	(0.03	)	$	(0.02	)
Net income attributable to CVS Caremark	$	0.52	$	0.60	$	0.65	$	0.82		$	2.59
Diluted Earnings per common share:
Income from continuing operations attributable to CVS Caremark	$	0.52	$	0.60	$	0.65	$	0.84		$	2.59
Loss from discontinued operations attributable to CVS Caremark	$	—	$	—	$	—	$	(0.03	)	$	(0.02	)
Net income attributable to CVS Caremark	$	0.52	$	0.60	$	0.65	$	0.81		$	2.57
Dividends per common share	$	0.125	$	0.125	$	0.125	$	0.125		$	0.500
Stock price: (New York Stock Exchange)
High	$	35.95	$	39.50	$	38.82	$	41.35		$	41.35
Low	$	32.08	$	34.21	$	31.30	$	32.28		$	31.30

(1)   The results of operations previously filed have been revised to reflect the results of TheraCom as discontinued operations. See Note 3.

52

Notes to Consolidated Financial Statements (continued)

In millions, except per share amounts	First Quarter(1)		Second Quarter(1)		Third Quarter(1)			Fourth Quarter(1)		Year(1)
2010:
Net revenues	$	23,593	$	23,885	$	23,711		$	24,589	$	95,778
Gross profit	4,738		5,012		5,015			5,454		20,219
Operating profit	1,404		1,494		1,478			1,761		6,137
Income from continuing operations	768		819		815			1,020		3,422
Income (loss) from discontinued operations, net of tax	2		2		(7		)	5		2
Net income	770		821		808			1,025		3,424
Net loss attributable to noncontrolling interest	1		—		1			1		3
Net income attributable to CVS Caremark	$	771	$	821	$	809		$	1,026	$	3,427
Basic earnings per common share:
Income from continuing operations attributable to CVS Caremark	$	0.56	$	0.60	$	0.60		$	0.75	$	2.51
Income (loss) from discontinued operations attributable to CVS Caremark	$	—	$	—	$	(0.01	)	$	—	$	—
Net income attributable to CVS Caremark	$	0.56	$	0.61	$	0.59		$	0.75	$	2.51
Diluted Earnings per common share:
Income from continuing operations attributable to CVS Caremark	$	0.55	$	0.60	$	0.60		$	0.74	$	2.49
Income (loss) from discontinued operations attributable to CVS Caremark	$	—	$	—	$	(0.01	)	$	—	$	—
Net income attributable to CVS Caremark	$	0.55	$	0.60	$	0.59		$	0.75	$	2.49
Dividends per common share	$	0.0875	$	0.0875	$	0.0875		$	0.0875	$	0.3500
Stock price: (New York Stock Exchange)
High	$	37.32	$	37.82	$	32.09		$	35.46	$	37.82
Low	$	30.36	$	29.22	$	26.84		$	29.45	$	26.84

(1)The results of operations previously filed have been revised to reflect the results of TheraCom as discontinued operations. See Note 3.

53

Five-Year Financial Summary

In millions, except per share amounts	2011(1)			2010(1)		2009(1)			2008(1)			2007(1)(2)
Statement of operations data:
Net revenues	$	107,100		$	95,778	$	98,215		$	87,005		$	76,078
Gross profit	20,561			20,219		20,358			18,272			16,098
Operating expenses	14,231			14,082		13,933			12,237			11,309
Operating profit	6,330			6,137		6,425			6,035			4,789
Interest expense, net	584			536		525			509			435
Income tax provision(3)	2,258			2,179		2,200			2,189			1,720
Income from continuing operations	3,488			3,422		3,700			3,337			2,634
Income (loss) from discontinued operations, net of tax benefit(4)	(31		)	2		(4		)	(125		)	3
Net income	3,457			3,424		3,696			3,212			2,637
Net loss attributable to noncontrolling interest(5)	4			3		—			—			—
Preference dividends, net of income tax benefit	—			—		—			(14		)	(14		)
Net income attributable to CVS Caremark	$	3,461		$	3,427	$	3,696		$	3,198		$	2,623
Per common share data:
Basic earnings per common share:
Income from continuing operations attributable to CVS Caremark	$	2.61		$	2.51	$	2.58		$	2.32		$	1.97
Loss from discontinued operations attributable to CVS Caremark	(0.02		)	—		—			(0.09		)	—
Net income attributable to CVS Caremark	$	2.59		$	2.51	$	2.58		$	2.23		$	1.97
Diluted earnings per common share:
Income from continuing operations attributable to CVS Caremark	$	2.59		$	2.49	$	2.55		$	2.27		$	1.92
Loss from discontinued operations attributable to CVS Caremark	(0.02		)	—		—			(0.09		)	—
Net income attributable to CVS Caremark	$	2.57		$	2.49	$	2.55		$	2.18		$	1.92
Cash dividends per common share	$	0.50000		$	0.35000	$	0.30500		$	0.25800		$	0.22875
Balance sheet and other data:
Total assets	$	64,543		$	62,169	$	61,641		$	60,960		$	54,722
Long-term debt	$	9,208		$	8,652	$	8,756		$	8,057		$	8,350
Total shareholders’ equity	$	38,051		$	37,700	$	35,768		$	34,574		$	31,322
Number of stores (at end of year)	7,388			7,248		7,095			6,997			6,301

(1)On December 23, 2008, our Board of Directors approved a change in our fiscal year-end from the Saturday nearest December 31 of each year to December 31 of each year to better reflect our position in the health care, rather than the retail, industry. The fiscal year change was effective beginning with the fourth quarter of fiscal 2008. As you review our operating performance, please consider that 2011, 2010 and 2009 include 365 days; fiscal 2008 includes 368 days, and fiscal 2007 includes 364 days.

(2)Effective March 22, 2007, Caremark Rx, Inc. was merged into a newly formed subsidiary of CVS Corporation, with Caremark Rx, L.L.C., continuing as the surviving entity (the “Caremark Merger”). Following the Caremark Merger, the name of the Company was changed to “CVS Caremark Corporation.” By virtue of the Caremark Merger, each issued and outstanding share of Caremark common stock, par value $0.001 per share, was converted into the right to receive 1.67 shares of CVS Caremark’s common stock, par value $0.01 per share. Cash was paid in lieu of fractional shares.

(3)Income tax provision includes the effect of the following: (i) in 2010, the recognition of $47 million of previously unrecognized tax benefits, including interest, relating to the expiration of various statutes of limitation and settlements with tax authorities and (ii) in 2009, the recognition of $167 million of previously unrecognized tax benefits, including interest, relating to the expiration of various statutes of limitation and settlements with tax authorities.

54

(4)As discussed in Note 3 to the consolidated financial statements, the results of the Theracom business are presented as discontinued operations and have been excluded from continuing operations for all periods presented.

In connection with certain business dispositions completed between 1991 and 1997, the Company retained guarantees on store lease obligations for a number of former subsidiaries, including Linens ‘n Things which filed for bankruptcy in 2008. The Company’s income (loss) from discontinued operations includes lease-related costs which the Company believes it will likely be required to satisfy pursuant to its Linens ‘n Things lease guarantees.

Below is a summary of the results of discontinued operations:

	Fiscal Year
In millions	2011			2010			2009			2008			2007
Income from operations of TheraCom	$	18		$	28		$	13		$	11		$	5
Gain on disposal of TheraCom	53			—			—			—			—
Loss on disposal of Linens ‘n Things	(7		)	(24		)	(19		)	(214		)	—
Income tax benefit (provision)	(95		)	(2		)	2			78			(2		)
Income (loss) from discontinued operations, net of tax	$	(31	)	$	2		$	(4	)	$	(125	)	$	3

(5)Represents the minority shareholders’ portion of the net loss from our majority owned subsidiary, Generation Health, Inc., acquired in the fourth quarter of 2009.

55

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

CVS Caremark Corporation

We have audited the accompanying consolidated balance sheets of CVS Caremark Corporation as of December 31, 2011 and 2010, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of CVS Caremark Corporation at December 31, 2011 and 2010, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), CVS Caremark Corporation’s internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 17, 2012 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Boston, Massachusetts

February 17, 2012

56

EX-21

Exhibit 21

SUBSIDIARIES OF THE REGISTRANT

As of December 31, 2011, CVS Caremark Corporation had the following significant subsidiaries:

Accendo Insurance Company (a Utah corporation)

Caremark, L.L.C. (a California limited liability company)

CaremarkPCS Health, L.L.C. (a Delaware limited liability company)

Caremark PhC, L.L.C. (a Delaware limited liability company)

Caremark Rx, L.L.C. (a Delaware limited liability company)(2)

CVS Albany, L.L.C. (a New York limited liability company)

CVS Caremark Part D Services, L.L.C. (a Delaware limited liability company)

CVS Pharmacy, Inc. (a Rhode Island corporation)(1)

Garfield Beach CVS, L.L.C. (a California limited liability company)

Holiday CVS, L.L.C. (a Florida limited liability company)

Longs Drug Stores California, L.L.C. (a California limited liability company)

MemberHealth LLC (a Delaware limited liability company)

Pennsylvania CVS Pharmacy, L.L.C. (a Pennsylvania limited liability company)

Pennsylvania Life Insurance Company (a Pennsylvania corporation)

RxAmerica, LLC (a Delaware limited liability company)

SilverScript Insurance Company (a Tennessee corporation)

(1)CVS Pharmacy, Inc. is the immediate or indirect parent of approximately 51 entities that operate drugstores, all of which drugstores are in the United States and its territories.

(2)Caremark Rx, L.L.C., the parent of the Registrant’s pharmacy services subsidiaries, is the immediate or indirect parent of several mail order, specialty mail and retail specialty pharmacy subsidiaries, all of which operate in the United States and its territories.

EX-23

Exhibit 23

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statements (Nos. 333-49407, 333-34927, 333-28043, 333-91253, 333-63664, 333-139470, 333-141481, and 333-167746 on Form S-8 and 333-165672 on Form S-3) of CVS Caremark Corporation and in the related Prospectuses of our reports dated February 17, 2012, with respect to the consolidated financial statements of CVS Caremark Corporation, and the effectiveness of internal control over financial reporting of CVS Caremark Corporation, included in this Annual Report (Form 10-K) for the year ended December 31, 2011 and to the reference to our firm under the heading “Selected Financial Data”, included therein, filed with the Securities and Exchange Commission.

/s/ Ernst & Young LLP

Boston, Massachusetts

February 17, 2012

EX-31.1

Exhibit 31.1

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Larry J. Merlo, President and Chief Executive Officer of CVS Caremark Corporation, certify that:

1.I have reviewed this annual report on Form 10-K of CVS Caremark Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 17, 2012	By:	/S/     LARRY J. MERLO
		Larry J. Merlo President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, David M. Denton, Executive Vice President and Chief Financial Officer of CVS Caremark Corporation, certify that:

1.I have reviewed this annual report on Form 10-K of CVS Caremark Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 17, 2012	By:	/S/     DAVID M. DENTON
		David M. Denton
		Executive Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The certification set forth below is being submitted in connection with the Annual Report of CVS Caremark Corporation (the “Company”) on Form 10-K for the period ended December 31, 2011 (the “Report”), for the purpose of complying with Rule 13(a)-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.

I, Larry J. Merlo, President and Chief Executive Officer of the Company, certify that, to the best of my knowledge:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

February 17, 2012	/S/     LARRY J. MERLO
	Larry J. Merlo
	President and Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The certification set forth below is being submitted in connection with the Annual Report of CVS Caremark Corporation (the “Company”) on Form 10-K for the period ended December 31, 2011 (the “Report”), for the purpose of complying with Rule 13(a)-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.

I, David M. Denton, Executive Vice President and Chief Financial Officer of the Company, certify that, to the best of my knowledge:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

February 17, 2012	/S/    DAVID M. DENTON
	David M. Denton
	Executive Vice President and Chief Financial Officer

XML

Business Combination (Details) (UAM Medicare Part D Business, USD $) In Billions, unless otherwise specified	Apr. 29, 2011
UAM Medicare Part D Business
Business combinations
Purchase price consideration of acquired entity	$ 1.3
Fair value of assets acquired	2.4
Fair value of liabilities assumed	1.1
Fair value of acquired intangible assets	0.4
Fair value of goodwill	$ 1.0

XML

Earnings Per Common Share (Details) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2010	Sep. 30, 2010	Jun. 30, 2010	Mar. 31, 2010	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Numerator for earnings per common share calculation::
Income from continuing operations (in dollars)	$ 1,099	$ 867	$ 813	$ 709	$ 1,020	$ 815	$ 819	$ 768	$ 3,488	$ 3,422	$ 3,700
Net loss attributable to noncontrolling interest	1	1	1	1	1	1		1	4	3
Income from continuing operations attributable to CVS Caremark, basic (in dollars)									3,492	3,425	3,700
Income (loss) from discontinued operations, net of tax	(36)		2	3	5	(7)	2	2	(31)	2	(4)
Net income attributable to CVS Caremark	$ 1,064	$ 868	$ 816	$ 713	$ 1,026	$ 809	$ 821	$ 771	$ 3,461	$ 3,427	$ 3,696
Denominator for earnings per common share calculation:
Weighted average common shares, basic									1,338	1,367	1,434
Preference stock (in shares)											1
Stock options (in shares)									8	8	10
Restricted stock units (in shares)									1	2	5
Weighted average common shares, diluted (in shares)									1,347	1,377	1,450
Basic earnings per common share:
Income from continuing operations attributable to CVS Caremark (in dollars per share)	$ 0.84	$ 0.65	$ 0.60	$ 0.52	$ 0.75	$ 0.60	$ 0.60	$ 0.56	$ 2.61	$ 2.51	$ 2.58
Loss from discontinued operations attributable to CVS Caremark (in dollars per share)	$ (0.03)					$ (0.01)			$ (0.02)
Net income attributable to CVS Caremark (in dollars per share)	$ 0.82	$ 0.65	$ 0.60	$ 0.52	$ 0.75	$ 0.59	$ 0.61	$ 0.56	$ 2.59	$ 2.51	$ 2.58
Diluted earnings per common share:
Income from continuing operations attributable to CVS Caremark (in dollars per share)	$ 0.84	$ 0.65	$ 0.60	$ 0.52	$ 0.74	$ 0.60	$ 0.60	$ 0.55	$ 2.59	$ 2.49	$ 2.55
Loss from discontinued operations attributable to CVS Caremark (in dollars per share)	$ (0.03)					$ (0.01)			$ (0.02)
Net income attributable to CVS Caremark (in dollars per share)	$ 0.81	$ 0.65	$ 0.60	$ 0.52	$ 0.75	$ 0.59	$ 0.60	$ 0.55	$ 2.57	$ 2.49	$ 2.55

XML

Stock Incentive Plans (Details) (USD $) In Millions, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2011 Y	Dec. 31, 2010 Y	Dec. 31, 2009 Y
Minimum
Compensation
Requisite service period of the stock award (in years)	3 years
Maximum
Compensation
Requisite service period of the stock award (in years)	5 years
ESPP
Compensation
Compensation expense related to share-based compensation	$ 112	$ 127	$ 136
Recognized tax benefit on compensation expense	38	42	45
Fair value of each stock option estimated using the Black-Scholes Option Pricing Model
Dividend yield (as a percent)	0.69%	0.57%	0.50%
Expected volatility (as a percent)	20.42%	32.58%	48.89%
Risk-free interest rate (as a percent)	0.15%	0.21%	0.31%
Expected life (in years)	0.5	0.5	0.5
Weighted-average grant date fair value (in dollars per share)	$ 7.21	$ 7.31	$ 8.51
2007 ESPP
Compensation
Maximum number of shares that can be purchased under ESPP	15
Offering period for stock purchase plan (in months)	6
Employee purchase price, percentage of fair market value of ordinary shares	85.00%
Shares of common stock purchased for ESPP	3
Average price of shares of common stock purchased for ESPP (in dollars per share)	$ 26.90
Shares of common stock available for issue under ESPP	5
Restricted stock awards
Compensation
Compensation expense related to share-based compensation	$ 21	$ 23	$ 29

XML

Quarterly Financial Information (Unaudited) (Details) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2010	Sep. 30, 2010	Jun. 30, 2010	Mar. 31, 2010	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Quarterly financial information
Net revenues	$ 28,317	$ 26,674	$ 26,414	$ 25,695	$ 24,589	$ 23,711	$ 23,885	$ 23,593	$ 107,100	$ 95,778	$ 98,215
Gross profit	5,555	5,178	5,086	4,742	5,454	5,015	5,012	4,738	20,561	20,219	20,358
Operating profit	1,957	1,584	1,484	1,305	1,761	1,478	1,494	1,404	6,330	6,137	6,425
Income from continuing operations	1,099	867	813	709	1,020	815	819	768	3,488	3,422	3,700
Income (loss) from discontinued operations, net of tax	(36)		2	3	5	(7)	2	2	(31)	2	(4)
Net income	1,063	867	815	712	1,025	808	821	770	3,457	3,424	3,696
Net loss attributable to noncontrolling interest	1	1	1	1	1	1		1	4	3
Net income attributable to CVS Caremark	$ 1,064	$ 868	$ 816	$ 713	$ 1,026	$ 809	$ 821	$ 771	$ 3,461	$ 3,427	$ 3,696
Basic earnings per common share:
Income from continuing operations attributable to CVS Caremark (in dollars per share)	$ 0.84	$ 0.65	$ 0.60	$ 0.52	$ 0.75	$ 0.60	$ 0.60	$ 0.56	$ 2.61	$ 2.51	$ 2.58
Income (loss) from discontinued operations attributable to CVS Caremark (in dollars per share)	$ (0.03)					$ (0.01)			$ (0.02)
Net income attributable to CVS Caremark (in dollars per share)	$ 0.82	$ 0.65	$ 0.60	$ 0.52	$ 0.75	$ 0.59	$ 0.61	$ 0.56	$ 2.59	$ 2.51	$ 2.58
Diluted earnings per common share:
Income from continuing operations attributable to CVS Caremark (in dollars per share)	$ 0.84	$ 0.65	$ 0.60	$ 0.52	$ 0.74	$ 0.60	$ 0.60	$ 0.55	$ 2.59	$ 2.49	$ 2.55
Income (loss) from discontinued operations attributable to CVS Caremark (in dollars per share)	$ (0.03)					$ (0.01)			$ (0.02)
Net income attributable to CVS Caremark (in dollars per share)	$ 0.81	$ 0.65	$ 0.60	$ 0.52	$ 0.75	$ 0.59	$ 0.60	$ 0.55	$ 2.57	$ 2.49	$ 2.55
Dividends per common share	$ 0.125	$ 0.125	$ 0.125	$ 0.125	$ 0.08750	$ 0.08750	$ 0.08750	$ 0.08750	$ 0.500	$ 0.350	$ 0.305
Minimum
Diluted earnings per common share:
NYSE Stock Price (in dollars per share)	$ 32.28	$ 31.30	$ 34.21	$ 32.08	$ 29.45	$ 26.84	$ 29.22	$ 30.36	$ 31.30	$ 26.84
Maximum
Diluted earnings per common share:
NYSE Stock Price (in dollars per share)	$ 41.35	$ 38.82	$ 39.50	$ 35.95	$ 35.46	$ 32.09	$ 37.82	$ 37.32	$ 41.35	$ 37.82

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Employee Stock Ownership Plan (Details) (USD $) In Millions, except Share data, unless otherwise specified	1 Months Ended	12 Months Ended
	Feb. 28, 2009	Dec. 31, 2011 Y	Dec. 31, 1989 Y	Jan. 30, 2009
Employee Stock Ownership Plan
Minimum requisite service period under ESOP (in years)		1
ESOP notes issued by ESOP Trust			$ 358
ESOP notes, maturity term (in years)			20
Interest rate on ESOP notes (as a percent)			8.52%
Series One ESOP Convertible Preference Stock (the ESOP Preference Stock) purchased by ESOP Trust (in shares)			7,000,000
ESOP Preference Stock, guaranteed minimum liquidation value (in dollars per share)		$ 53.45
Number of shares of common stock for each share of ESOP Preferred Stock		4.628		4.628
Annual dividend per share of common stock held by an ESOP (in dollars per share)		$ 3.9
Number of ESOP Preference Stock converted into common stock	4,000,000
Shares of common stock issued upon conversion of ESOP Preference Stock	17,000,000

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Quarterly Financial Information (Unaudited) (Tables)

12 Months Ended

Dec. 31, 2011

Quarterly Financial Information (Unaudited)

Quarterly Financial Information (Unaudited)

In millions, except per share amounts	First Quarter(1)		Second Quarter(1)		Third Quarter		Fourth Quarter			Year
2011:
Net revenues	$	25,695	$	26,414	$	26,674	$	28,317		$	107,100
Gross profit	4,742		5,086		5,178		5,555			20,561
Operating profit	1,305		1,484		1,584		1,957			6,330
Income from continuing operations	709		813		867		1,099			3,488
Income (loss) from discontinued operations, net of tax	3		2		—		(36		)	(31		)
Net income	712		815		867		1,063			3,457
Net loss attributable to noncontrolling interest	1		1		1		1			4
Net income attributable to CVS Caremark	$	713	$	816	$	868	$	1,064		$	3,461
Basic earnings per common share:
Income from continuing operations attributable to CVS Caremark	$	0.52	$	0.60	$	0.65	$	0.84		$	2.61
Loss from discontinued operations attributable to CVS Caremark	$	—	$	—	$	—	$	(0.03	)	$	(0.02	)
Net income attributable to CVS Caremark	$	0.52	$	0.60	$	0.65	$	0.82		$	2.59
Diluted Earnings per common share:
Income from continuing operations attributable to CVS Caremark	$	0.52	$	0.60	$	0.65	$	0.84		$	2.59
Loss from discontinued operations attributable to CVS Caremark	$	—	$	—	$	—	$	(0.03	)	$	(0.02	)
Net income attributable to CVS Caremark	$	0.52	$	0.60	$	0.65	$	0.81		$	2.57
Dividends per common share	$	0.125	$	0.125	$	0.125	$	0.125		$	0.500
Stock price: (New York Stock Exchange)
High	$	35.95	$	39.50	$	38.82	$	41.35		$	41.35
Low	$	32.08	$	34.21	$	31.30	$	32.28		$	31.30

(1)   The results of operations previously filed have been revised to reflect the results of TheraCom as discontinued operations. See Note 3.

In millions, except per share amounts	First Quarter(1)		Second Quarter(1)		Third Quarter(1)			Fourth Quarter(1)		Year(1)
2010:
Net revenues	$	23,593	$	23,885	$	23,711		$	24,589	$	95,778
Gross profit	4,738		5,012		5,015			5,454		20,219
Operating profit	1,404		1,494		1,478			1,761		6,137
Income from continuing operations	768		819		815			1,020		3,422
Income (loss) from discontinued operations, net of tax	2		2		(7		)	5		2
Net income	770		821		808			1,025		3,424
Net loss attributable to noncontrolling interest	1		—		1			1		3
Net income attributable to CVS Caremark	$	771	$	821	$	809		$	1,026	$	3,427
Basic earnings per common share:
Income from continuing operations attributable to CVS Caremark	$	0.56	$	0.60	$	0.60		$	0.75	$	2.51
Income (loss) from discontinued operations attributable to CVS Caremark	$	—	$	—	$	(0.01	)	$	—	$	—
Net income attributable to CVS Caremark	$	0.56	$	0.61	$	0.59		$	0.75	$	2.51
Diluted Earnings per common share:
Income from continuing operations attributable to CVS Caremark	$	0.55	$	0.60	$	0.60		$	0.74	$	2.49
Income (loss) from discontinued operations attributable to CVS Caremark	$	—	$	—	$	(0.01	)	$	—	$	—
Net income attributable to CVS Caremark	$	0.55	$	0.60	$	0.59		$	0.75	$	2.49
Dividends per common share	$	0.0875	$	0.0875	$	0.0875		$	0.0875	$	0.3500
Stock price: (New York Stock Exchange)
High	$	37.32	$	37.82	$	32.09		$	35.46	$	37.82
Low	$	30.36	$	29.22	$	26.84		$	29.45	$	26.84

(1)The results of operations previously filed have been revised to reflect the results of TheraCom as discontinued operations. See Note 3.

Five-Year Financial Summary

In millions, except per share amounts	2011(1)			2010(1)		2009(1)			2008(1)			2007(1)(2)
Statement of operations data:
Net revenues	$	107,100		$	95,778	$	98,215		$	87,005		$	76,078
Gross profit	20,561			20,219		20,358			18,272			16,098
Operating expenses	14,231			14,082		13,933			12,237			11,309
Operating profit	6,330			6,137		6,425			6,035			4,789
Interest expense, net	584			536		525			509			435
Income tax provision(3)	2,258			2,179		2,200			2,189			1,720
Income from continuing operations	3,488			3,422		3,700			3,337			2,634
Income (loss) from discontinued operations, net of tax benefit(4)	(31		)	2		(4		)	(125		)	3
Net income	3,457			3,424		3,696			3,212			2,637
Net loss attributable to noncontrolling interest(5)	4			3		—			—			—
Preference dividends, net of income tax benefit	—			—		—			(14		)	(14		)
Net income attributable to CVS Caremark	$	3,461		$	3,427	$	3,696		$	3,198		$	2,623
Per common share data:
Basic earnings per common share:
Income from continuing operations attributable to CVS Caremark	$	2.61		$	2.51	$	2.58		$	2.32		$	1.97
Loss from discontinued operations attributable to CVS Caremark	(0.02		)	—		—			(0.09		)	—
Net income attributable to CVS Caremark	$	2.59		$	2.51	$	2.58		$	2.23		$	1.97
Diluted earnings per common share:
Income from continuing operations attributable to CVS Caremark	$	2.59		$	2.49	$	2.55		$	2.27		$	1.92
Loss from discontinued operations attributable to CVS Caremark	(0.02		)	—		—			(0.09		)	—
Net income attributable to CVS Caremark	$	2.57		$	2.49	$	2.55		$	2.18		$	1.92
Cash dividends per common share	$	0.50000		$	0.35000	$	0.30500		$	0.25800		$	0.22875
Balance sheet and other data:
Total assets	$	64,543		$	62,169	$	61,641		$	60,960		$	54,722
Long-term debt	$	9,208		$	8,652	$	8,756		$	8,057		$	8,350
Total shareholders’ equity	$	38,051		$	37,700	$	35,768		$	34,574		$	31,322
Number of stores (at end of year)	7,388			7,248		7,095			6,997			6,301

(1)On December 23, 2008, our Board of Directors approved a change in our fiscal year-end from the Saturday nearest December 31 of each year to December 31 of each year to better reflect our position in the health care, rather than the retail, industry. The fiscal year change was effective beginning with the fourth quarter of fiscal 2008. As you review our operating performance, please consider that 2011, 2010 and 2009 include 365 days; fiscal 2008 includes 368 days, and fiscal 2007 includes 364 days.

(2)Effective March 22, 2007, Caremark Rx, Inc. was merged into a newly formed subsidiary of CVS Corporation, with Caremark Rx, L.L.C., continuing as the surviving entity (the “Caremark Merger”). Following the Caremark Merger, the name of the Company was changed to “CVS Caremark Corporation.” By virtue of the Caremark Merger, each issued and outstanding share of Caremark common stock, par value $0.001 per share, was converted into the right to receive 1.67 shares of CVS Caremark’s common stock, par value $0.01 per share. Cash was paid in lieu of fractional shares.

(3)Income tax provision includes the effect of the following: (i) in 2010, the recognition of $47 million of previously unrecognized tax benefits, including interest, relating to the expiration of various statutes of limitation and settlements with tax authorities and (ii) in 2009, the recognition of $167 million of previously unrecognized tax benefits, including interest, relating to the expiration of various statutes of limitation and settlements with tax authorities.

(4)As discussed in Note 3 to the consolidated financial statements, the results of the Theracom business are presented as discontinued operations and have been excluded from continuing operations for all periods presented.

In connection with certain business dispositions completed between 1991 and 1997, the Company retained guarantees on store lease obligations for a number of former subsidiaries, including Linens ‘n Things which filed for bankruptcy in 2008. The Company’s income (loss) from discontinued operations includes lease-related costs which the Company believes it will likely be required to satisfy pursuant to its Linens ‘n Things lease guarantees.

Below is a summary of the results of discontinued operations:

	Fiscal Year
In millions	2011			2010			2009			2008			2007
Income from operations of TheraCom	$	18		$	28		$	13		$	11		$	5
Gain on disposal of TheraCom	53			—			—			—			—
Loss on disposal of Linens ‘n Things	(7		)	(24		)	(19		)	(214		)	—
Income tax benefit (provision)	(95		)	(2		)	2			78			(2		)
Income (loss) from discontinued operations, net of tax	$	(31	)	$	2		$	(4	)	$	(125	)	$	3

(5)Represents the minority shareholders’ portion of the net loss from our majority owned subsidiary, Generation Health, Inc., acquired in the fourth quarter of 2009.

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Discontinued Operations (Tables)

12 Months Ended

Dec. 31, 2011

Discontinued Operations

Summary of results of discontinued operations

	Year Ended December 31,
In millions	2011			2010			2009
Net revenues of TheraCom	$	650		$	635		$	514
Income from operations of TheraCom	$	18		$	28		$	13
Gain on disposal of TheraCom	53			—			—
Loss on disposal of Linens ‘n Things	(7		)	(24		)	(19		)
Income tax benefit (provision)	(95		)	(2		)	2
Income (loss) from discontinued operations, net of tax	$	(31	)	$	2		$	(4	)

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Stock Incentive Plans (Details 3) (Stock option, USD $) Share data in Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2011 Y	Dec. 31, 2010 Y	Dec. 31, 2009 Y
Stock option
Fair value of each stock option estimated using the Black-Scholes Option Pricing Model
Dividend yield (as a percent)	1.43%	1.00%	1.07%
Expected volatility (as a percent)	32.62%	33.15%	31.34%
Risk-free interest rate (as a percent)	1.81%	1.85%	1.65%
Expected life (in years)	4.7	4.3	4.3
Weighted-average grant date fair value (in dollars per share)	$ 9.19	$ 9.49	$ 7.20
Unrecognized compensation expense related to unvested options	$ 174,000,000
Unrecognized compensation expense related to unvested options, period of recognition (in years)	1.97
Unvested options to vest over the requisite service period	26,000,000
Summary of option activities
Outstanding at the beginning of the period (in shares)	66,017
Granted (in shares)	13,466
Exercised (in shares)	(14,738)
Forfeited (in shares)	(3,152)
Expired (in shares)	(2,486)
Outstanding at the end of the period (in shares)	59,107	66,017
Options exercisable (in shares)	32,202
Weighted Average Exercise Price
Weighted Average Exercise Price, options outstanding at the beginning of the period (in dollars per share)	$ 31.39
Weighted Average Exercise Price, options granted (in dollars per share)	$ 34.88
Weighted Average Exercise Price, options exercised (in dollars per share)	$ 25.32
Weighted Average Exercise Price, options forfeited (in dollars per share)	$ 33.47
Weighted Average Exercise Price, options expired (in dollars per share)	$ 35.59
Weighted Average Exercise Price, options outstanding at the end of the period (in dollars per share)	$ 33.40	$ 31.39
Weighted Average Exercise Price, options exercisable (in dollars per share)	$ 33.13
Weighted Average Remaining Contractual Term (in years)
Weighted Average Remaining Contractual Term, options outstanding (in years)	4.11	4.16
Weighted Average Remaining Contractual Term, Options, options exercisable (in years)	2.88
Aggregate Intrinsic Value
Aggregate Intrinsic Value, options outstanding	439,671,000	313,163,000
Aggregate Intrinsic Value, options exercisable	$ 249,947,000

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Share Repurchase Programs (Details) (August 24, 2011, USD $) In Billions, except Share data in Millions, unless otherwise specified	1 Months Ended
	Dec. 31, 2011	Sep. 16, 2011	Aug. 25, 2011	Aug. 24, 2011
August 24, 2011
Accelerated share repurchases
Amount under ASR agreement entered with Barclays				$ 1.0
Price paid under ASR agreement with Barclays			$ 1.0
Shares repurchased under ASR agreement with Barclays			20.3
Additional shares repurchased under ASR agreement with Barclays		5.4
Additional shares receivable under ASR agreement with Barclays	1.6
Shares repurchased under ASR agreement with Barclays & placed into treasury stock	27.3

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Significant Accounting Policies (Details 4) (USD $) In Millions, unless otherwise specified	3 Months Ended							12 Months Ended
	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2010	Sep. 30, 2010	Mar. 31, 2010	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2011 Generation Health, Inc.	Dec. 31, 2010 Generation Health, Inc.	Dec. 31, 2009 Generation Health, Inc.	Dec. 31, 2011 Generation Health, Inc. Minimum	Dec. 31, 2011 Generation Health, Inc. Maximum
Redeemable Noncontrolling Interest
Ownership interest in Generation Health, Inc. (as a percent)										60.00%
Purchase price for redeemable noncontrolling interest on exercise of put rights by noncontrolling owners													$ 27	$ 159
Redeemable noncontrolling interest at fair value on acquisition date	30				34			30	34	30	34	37
Reconciliation of the changes in the redeemable noncontrolling interest:
Beginning balance				34				34		34	37
Acquisition of Generation Health												37
Net loss attributable to noncontrolling interest	1	1	1	1	1	1	1	4	3	(4)	(3)
Ending balance	$ 30				$ 34			$ 30	$ 34	$ 30	$ 34	$ 37

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Commitments and Contingencies (Details) (USD $)	1 Months Ended	12 Months Ended
	Oct. 31, 2003 competitor pharmacy	Dec. 31, 2011 state platform case store	Dec. 31, 2011 Lauriello Lawsuit	Jan. 03, 2012 Multi-state investigation under FTC
Commitments and Contingencies
Number of store leases guaranteed		75
Number of adjudication platforms under investigation		2
Loss contingencies
Lauriello lawsuit, amount sought in compensatory damages plus other non-specified damages			$ 3,200,000,000
Amount required to be paid in consumer redress, to be distributed to impacted RxAmerica Medicare Part D beneficiaries				$ 5,000,000
Number of pharmacies filing putative action	2
Number of competitors against whom putative actions are filed	2
Number of cases filed by independent pharmacies that were transferred to Illinois federal court		2
Number of states participating in multi-state investigation		28

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Pension Plans and Other Postretirement Benefits (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Pension Plans and Other Postretirement Benefits
Employer's contributions under defined contribution plans	$ 187	$ 186	$ 173
Other Postretirement Benefits
Defined benefit plan
Benefit obligation	17	17
Net periodic benefit cost	1	1	1
Actual plan asset allocations
Total Company contributions to multiemployer pension plans	47	46	47
Pension Plans
Defined benefit plan
Number of defined benefit plans	9
Benefit obligation	685	659
Fair value of plan assets	463	426
Actual return on plan assets	37	45
Net periodic benefit cost	49	36	16
Settlements losses included in net periodic costs	25	12
Weighted-average assumptions used to determine net periodic cost
Discount rate (as a percent)	4.75%	5.50%
Expected long-term rate of return on plan assets (as a percent)	7.25%	7.25%	8.50%
Target plan asset allocations
Equity securities target allocation (as a percent)		50.00%	60.00%
Debt securities target allocation (as a percent)		50.00%	40.00%
Actual plan asset allocations
Equity securities (as a percent)	47.00%	57.00%
Debt securities (as a percent)	51.00%	42.00%
Money market securities (as a percent)	2.00%	1.00%
Employer's contributions under defined benefit plans	92	65	50
Estimated future employer contributions in next fiscal year	34
Total Company contributions to multiemployer pension plans	$ 11	$ 12	$ 10
Pension Plans | Level 1
Actual plan asset allocations
Actual plan assets (as a percent)	82.00%	71.00%
Pension Plans | Level 2
Actual plan asset allocations
Actual plan assets (as a percent)	18.00%	29.00%
Tax-qualified funded pension plans
Defined benefit plan
Number of defined benefit plans	3
Unfunded nonqualified supplemental retirement plans
Defined benefit plan
Number of defined benefit plans	6
Number of defined benefit plans not frozen in prior periods	1

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Discontinued Operations

12 Months Ended

Dec. 31, 2011

Discontinued Operations

Discontinued Operations

3Discontinued Operations

On November 1, 2011, the Company sold its TheraCom, L.L.C. (“TheraCom”) subsidiary to AmerisourceBergen Corporation for $250 million, subject to a working capital adjustment. TheraCom is a provider of commercialization support services to the biotech and pharmaceutical industry. As of December 31, 2010, TheraCom had approximately $0.1 billion of current assets consisting primarily of accounts receivable and $0.1 billion of current liabilities consisting primarily of accounts payable. The sale of TheraCom resulted in the derecognition of approximately $0.2 billion of nondeductible goodwill. The TheraCom business had historically been part of the Company’s Pharmacy Services segment. The results of the TheraCom business are presented as discontinued operations and have been excluded from both continuing operations and segment results for all periods presented.

In connection with certain business dispositions completed between 1991 and 1997, the Company retained guarantees on store lease obligations for a number of former subsidiaries, including Linens ‘n Things which filed for bankruptcy in 2008. The Company’s income (loss) from discontinued operations includes lease-related costs which the Company believes it will likely be required to satisfy pursuant to its Linens ‘n Things lease guarantees.

Below is a summary of the results of discontinued operations:

	Year Ended December 31,
In millions	2011			2010			2009
Net revenues of TheraCom	$	650		$	635		$	514
Income from operations of TheraCom	$	18		$	28		$	13
Gain on disposal of TheraCom	53			—			—
Loss on disposal of Linens ‘n Things	(7		)	(24		)	(19		)
Income tax benefit (provision)	(95		)	(2		)	2
Income (loss) from discontinued operations, net of tax	$	(31	)	$	2		$	(4	)

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Share Repurchase Programs (Details 2) (USD $) Share data in Millions, unless otherwise specified	1 Months Ended		12 Months Ended	1 Months Ended	2 Months Ended	12 Months Ended	1 Months Ended	7 Months Ended	12 Months Ended
	Aug. 31, 2011 2011 Repurchase Program	Jun. 30, 2010 2010 Repurchase Program	Dec. 31, 2011 2010 Repurchase Program	Nov. 30, 2009 2009 Repurchase Program	Dec. 31, 2009 2009 Repurchase Program	Dec. 31, 2010 2009 Repurchase Program	May 31, 2008 2008 Repurchase Program	Dec. 31, 2008 2008 Repurchase Program	Dec. 31, 2009 2008 Repurchase Program
Share repurchase program
Maximum authorization under share repurchase program	$ 4,000,000,000	$ 2,000,000,000		$ 2,000,000,000			$ 2,000,000,000
Repurchase of common stock (in shares)			56.4		16.1	42.4		0.6	57.0
Repurchase of common stock			$ 2,000,000,000		$ 500,000,000	$ 1,500,000,000		$ 23,000,000	$ 2,000,000,000

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Stock Incentive Plans (Tables)

12 Months Ended

Dec. 31, 2011

Stock Incentive Plans

Summary of the assumptions used to value the ESPP awards

	2011			2010			2009
Dividend yield (1)	0.69		%	0.57		%	0.50		%
Expected volatility(2)	20.42		%	32.58		%	48.89		%
Risk-free interest rate(3)	0.15		%	0.21		%	0.31		%
Expected life (in years)(4)	0.5			0.5			0.5
Weighted-average grant date fair value	$	7.21		$	7.31		$	8.51

(1)The dividend yield is calculated based on semi-annual dividends paid and the fair market value of the Company’s stock at the grant date.

(2)The expected volatility is based on the historical volatility of the Company’s daily stock market prices over the previous six month period.

(3)The risk-free interest rate is based on the Treasury constant maturity interest rate whose term is consistent with the expected term of ESPP options (i.e., 6 months).

(4)The expected life is based on the semi-annual purchase period.

Summary of the restricted unit and restricted share award activity

Units in thousands	Units		Weighted Average Grant Date Fair Value
Nonvested at beginning of year	2,688		$	34.16
Granted	1,121		34.84
Vested	(969	)	35.55
Forfeited	(234	)	35.00
Nonvested at end of year	2,606		$	32.80

Black-Scholes Option Pricing Model, assumptions

	2011			2010			2009
Dividend yield (1)	1.43		%	1.00		%	1.07		%
Expected volatility(2)	32.62		%	33.15		%	31.34		%
Risk-free interest rate(3)	1.81		%	1.85		%	1.65		%
Expected life (in years)(4)	4.7			4.3			4.3
Weighted-average grant date fair value	$	9.19		$	9.49		$	7.20

(1)The dividend yield is based on annual dividends paid and the fair market value of the Company’s stock at the grant date.

(2)The expected volatility is estimated using the Company’s historical volatility over a period equal to the expected life of each option grant after adjustments for infrequent events such as stock splits.

(3)The risk-free interest rate is selected based on yields from U.S. Treasury zero-coupon issues with a remaining term equal to the expected term of the options being valued.

(4)The expected life represents the number of years the options are expected to be outstanding from grant date based on historical option holder exercise experience.

Summary of the Company's stock option activity

Shares in thousands	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at December 31, 2010	66,017		$	31.39	4.16	$	313,163,000
Granted	13,466		$	34.88	—	—
Exercised	(14,738	)	$	25.32	—	—
Forfeited	(3,152	)	$	33.47	—	—
Expired	(2,486	)	$	35.59	—	—
Outstanding at December 31, 2011	59,107		$	33.40	4.11	$	439,671,000
Exercisable at December 31, 2011	32,202		$	33.13	2.88	$	249,947,000

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Leases (Tables)

12 Months Ended

Dec. 31, 2011

Leases

Summary of net rental expense for operating leases

In millions	2011			2010			2009
Minimum rentals	$	2,087		$	2,001		$	1,857
Contingent rentals	49			53			61
	2,136			2,054			1,918
Less: sublease income	(19		)	(19		)	(19		)
	$	2,117		$	2,035		$	1,899

Summary of future minimum lease payments under capital and operating leases

In millions	Capital Leases			Operating Leases(1)
2012	$	20		$	2,230
2013	20			2,143
2014	20			1,936
2015	20			1,880
2016	20			1,806
Thereafter	237			17,630
Total future lease payments	337			$	27,625
Less: imputed interest	(169		)
Present value of capital lease obligations	$	168

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Borrowing and Credit Agreements (Details) (USD $)	12 Months Ended							1 Months Ended				1 Months Ended								1 Months Ended				1 Months Ended					1 Months Ended		1 Months Ended				1 Months Ended			1 Months Ended							12 Months Ended				1 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009	Dec. 31, 2011 Commercial paper	Dec. 31, 2010 Commercial paper	Dec. 31, 2011 5.75% senior notes due 2011	Dec. 31, 2010 5.75% senior notes due 2011	Jul. 31, 2009 Floating rate notes due 2011	Dec. 31, 2010 Floating rate notes due 2011	Dec. 31, 2011 4.875% senior notes due 2014	Dec. 31, 2010 4.875% senior notes due 2014	May 31, 2010 3.25% senior notes due 2015	Dec. 31, 2011 3.25% senior notes due 2015	Dec. 31, 2010 3.25% senior notes due 2015	May 13, 2010 3.25% senior notes due 2015	Dec. 31, 2011 6.125% senior notes due 2016	Dec. 31, 2010 6.125% senior notes due 2016	Dec. 31, 2011 5.75% senior notes due 2017	Dec. 31, 2010 5.75% senior notes due 2017	May 31, 2010 4.75% senior notes due 2020	Dec. 31, 2011 4.75% senior notes due 2020	Dec. 31, 2010 4.75% senior notes due 2020	May 13, 2010 4.75% senior notes due 2020	May 31, 2011 4.125% senior notes due 2021	Dec. 31, 2011 4.125% senior notes due 2021	May 12, 2011 4.125% senior notes due 2021	Dec. 31, 2011 6.25% senior notes due 2027	Dec. 31, 2010 6.25% senior notes due 2027	Dec. 31, 2011 Trust Preferred Securities due 2037	Apr. 30, 2011 Trust Preferred Securities due 2037 UAM Medicare Part D Business	Sep. 30, 2009 6.125% senior notes due 2039	Dec. 31, 2011 6.125% senior notes due 2039	Dec. 31, 2010 6.125% senior notes due 2039	Sep. 08, 2009 6.125% senior notes due 2039	May 31, 2011 5.75% senior notes due 2041	Dec. 31, 2011 5.75% senior notes due 2041	May 12, 2011 5.75% senior notes due 2041	Dec. 31, 2011 6.302% Enhanced Capital Advantage Preferred Securities Due 2062	Dec. 08, 2011 6.302% Enhanced Capital Advantage Preferred Securities Due 2062	Dec. 31, 2010 6.302% Enhanced Capital Advantage Preferred Securities Due 2062	Dec. 31, 2011 Mortgage notes payable	Dec. 31, 2010 Mortgage notes payable	Dec. 31, 2011 Capital lease obligations	Dec. 31, 2010 Capital lease obligations	Dec. 31, 2011 Unsecured back-up credit facilities	Dec. 31, 2011 Unsecured back-up credit facility expiring on March 2012 Y	Dec. 31, 2011 Unsecured back-up credit facility expiring on May 2013 Y	Dec. 31, 2011 Unsecured back-up credit facility expiring on May 2015 Y	May 31, 2011 2011 Notes	May 31, 2010 2010 Notes	Mar. 31, 2009 6.6% senior notes due 2019	Dec. 31, 2011 6.6% senior notes due 2019	Dec. 31, 2010 6.6% senior notes due 2019	Mar. 10, 2009 6.6% senior notes due 2019
Debt instrument
Total debt	$ 10,014,000,000	$ 10,057,000,000		$ 750,000,000	$ 300,000,000		$ 800,000,000		$ 300,000,000	$ 550,000,000	$ 550,000,000		$ 550,000,000	$ 550,000,000		$ 700,000,000	$ 700,000,000	$ 1,750,000,000	$ 1,750,000,000		$ 450,000,000	$ 450,000,000			$ 550,000,000		$ 1,000,000,000	$ 1,000,000,000	$ 50,000,000			$ 1,500,000,000	$ 1,500,000,000			$ 950,000,000		$ 42,000,000	$ 42,000,000	$ 1,000,000,000	$ 4,000,000	$ 6,000,000	$ 168,000,000	$ 151,000,000								$ 1,000,000,000	$ 1,000,000,000
Short-term debt (commercial paper)	(750,000,000)	(300,000,000)
Current portion of long-term debt	(56,000,000)	(1,105,000,000)
Long-term debt	9,208,000,000	8,652,000,000
Maximum borrowing capacity under unsecured back-up credit facility																																														1,250,000,000	1,000,000,000	1,250,000,000
Term of unsecured back-up credit facility (in years)																																														5	3	4
Facility fee under unsecured back-up credit facility (as a percent)																																													0.04%
Short-term debt, weighted average interest rate (as a percent)	0.37%	0.40%
Long-term debt assumed in connection with business acquisition																														110,000,000
Repayment of long term debt	2,122,000,000	2,103,000,000	653,000,000																										60,000,000		650,000,000
Repurchase of outstanding Enhanced Capital Advantaged Preferred Securities through tender offer																																						958,000,000
Principal amount of unsecured notes issued								300,000,000				550,000,000								450,000,000				550,000,000							1,500,000,000				950,000,000																1,000,000,000
Debt instrument interest rate stated percentage						5.75%				4.875%			3.25%		3.25%	6.125%		5.75%			4.75%		4.75%		4.125%	4.125%	6.25%					6.125%		6.125%		5.75%	5.75%	6.302%	6.302%													6.60%		6.60%
Proceeds from issuance of long-term debt	1,463,000,000	991,000,000	2,800,000,000																																														1,500,000,000	991,000,000
Aggregate maturities of long-term debt:
2012	56,000,000																												50,000,000
2013	5,000,000
2014	556,000,000
2015	556,000,000
2016	$ 707,000,000

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2011

Income Taxes

Schedule of income tax provision for continuing operations

In millions	2011		2010			2009
Current:
Federal	$	1,807	$	1,884		$	1,761
State	338		344			397
	2,145		2,228			2,158
Deferred:
Federal	101		(44		)	38
State	12		(5		)	4
	113		(49		)	42
Total	$	2,258	$	2,179		$	2,200

Reconciliation of the statutory income tax rate to the Company's effective income tax rate for continuing operations

	2011		2010		2009
Statutory income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal tax benefit	3.9		4.1		4.5
Other	0.4		0.6		0.6
Subtotal	39.3		39.7		40.1
Recognition of previously unrecognized tax benefits	—		(0.8	)	(2.8	)
Effective income tax rate	39.3	%	38.9	%	37.3	%

Summary of the significant components of the Company's deferred tax assets and liabilities

In millions	2011			2010
Deferred tax assets:
Lease and rents	$	325		$	325
Inventories	77			69
Employee benefits	253			261
Allowance for doubtful accounts	112			96
Retirement benefits	114			99
Net operating losses	6			6
Other	315			307
Total deferred tax assets	1,202			1,163
Deferred tax liabilities:
Depreciation and amortization	(4,552		)	(4,307		)
Net deferred tax liabilities	$	(3,350	)	$	(3,144	)

Schedule of net deferred tax assets (liabilities)

In millions	2011			2010
Deferred tax assets—current	$	503		$	511
Deferred tax liabilities—noncurrent	(3,853		)	(3,655		)
Net deferred tax liabilities	$	(3,350	)	$	(3,144	)

Reconciliation of the beginning and ending amount of unrecognized tax benefits

In millions	2011			2010			2009
Beginning balance	$	35		$	61		$	257
Additions based on tax positions related to the current year	3			1			1
Additions based on tax positions related to prior years	13			2			12
Reductions for tax positions of prior years	—			(10		)	(6		)
Expiration of statutes of limitation	(7		)	(16		)	(155		)
Settlements	(6		)	(3		)	(48		)
Ending balance	$	38		$	35		$	61

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Segment Reporting (Tables)

12 Months Ended

Dec. 31, 2011

Segment Reporting

Reconciliation of the Company's business segments to the consolidated financial statements

In millions	Pharmacy Services Segment(1)(2)(3)		Retail Pharmacy Segment(2)		Corporate Segment			Intersegment Eliminations(2)			Consolidated Totals
2011:
Net revenues	$	58,874	$	59,599	$	—		$	(11,373	)	$	107,100
Gross profit	3,279		17,468		—			(186		)	20,561
Operating profit	2,220		4,912		(616		)	(186		)	6,330
Depreciation and amortization	433		1,060		75			—			1,568
Total assets	35,704		28,323		1,121			(605		)	64,543
Goodwill	19,657		6,801		—			—			26,458
Additions to property and equipment	461		1,353		58			—			1,872
2010:
Net revenues	$	47,145	$	57,345	$	—		$	(8,712	)	$	95,778
Gross profit	3,315		17,039		—			(135		)	20,219
Operating profit	2,361		4,537		(626		)	(135		)	6,137
Depreciation and amortization	390		1,016		63			—			1,469
Total assets	32,254		28,927		1,439			(451		)	62,169
Goodwill	18,868		6,801		—			—			25,669
Additions to property and equipment	234		1,708		63			—			2,005
2009:
Net revenues	$	50,551	$	55,355	$	—		$	(7,691	)	$	98,215
Gross profit	3,813		16,593		—			(48		)	20,358
Operating profit	2,853		4,159		(539		)	(48		)	6,425
Depreciation and amortization	377		965		47			—			1,389
Total assets	33,082		28,302		774			(517		)	61,641
Goodwill	18,879		6,801		—			—			25,680
Additions to property and equipment	218		2,183		147			—			2,548

(1)Net revenues of the Pharmacy Services segment include approximately $7.9 billion, $6.6 billion and $6.9 billion of Retail co-payments for the years ended December 31, 2011, 2010 and 2009, respectively.

(2)Intersegment eliminations relate to two types of transactions: (i) Intersegment revenues that occur when Pharmacy Services segment clients use Retail Pharmacy segment stores to purchase covered products. When this occurs, both the Pharmacy Services and Retail Pharmacy segments record the revenue on a standalone basis and (ii) Intersegment revenues, gross profit and operating profit that occur when Pharmacy Services segment clients, through the Company’s intersegment activities (such as the Maintenance Choice program), elect to pick up their maintenance prescriptions at Retail Pharmacy segment stores instead of receiving them through the mail. When this occurs, both the Pharmacy Services and Retail Pharmacy segments record the revenue, gross profit and operating profit on a standalone basis. Beginning in the fourth quarter of 2011, the Maintenance Choice eliminations reflect all discounts available for the purchase of mail order prescription drugs. The following amounts are eliminated in consolidation in connection with the item (ii) intersegment activity: net revenues of $2.6 billion, $1.8 billion and $0.7 billion for the years ended December 31, 2011, 2010 and 2009, respectively; gross profit and operating profit of $186 million, $135 million and $48 million for the years ended December 31, 2011, 2010 and 2009, respectively.

(3)The results of the Pharmacy Services segment for the years ended December 31, 2010 and 2009 have been revised to reflect the results of TheraCom as discontinued operations. See Note 3.

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Business Combination

12 Months Ended

Dec. 31, 2011

Business Combination

Business Combination

2Business Combination

On April 29, 2011, the Company acquired the Medicare prescription drug business of Universal American Corp. (the “UAM Medicare Part D Business”) for approximately $1.3 billion. The UAM Medicare Part D Business offers prescription drug plan benefits to Medicare beneficiaries throughout the United States through its Community CCRxSM prescription drug plan. The fair value of assets acquired and liabilities assumed were $2.4 billion and $1.1 billion, respectively, which included identifiable intangible assets of approximately $0.4 billion and goodwill of approximately $1.0 billion that were recorded in the PSS. The allocation of the purchase price is preliminary and is based on information that was available to management at the time the consolidated financial statements were prepared, accordingly, the allocation may change. The Company’s results of operations and cash flows include the UAM Medicare Part D Business beginning on April 29, 2011.

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Earnings Per Common Share (Tables)

12 Months Ended

Dec. 31, 2011

Earnings Per Common Share

Reconciliation of basic and diluted earnings per common share

In millions, except per share amounts	2011			2010		2009
Numerator for earnings per common share calculation:
Income from continuing operations	$	3,488		$	3,422	$	3,700
Net loss attributable to noncontrolling interest	4			3		—
Income from continuing operations attributable to CVS Caremark, basic	3,492			3,425		3,700
Income (loss) from discontinued operations, net of tax	(31		)	2		(4		)
Net income attributable to CVS Caremark, basic and diluted	$	3,461		$	3,427	$	3,696
Denominator for earnings per common share calculation:
Weighted average common shares, basic	1,338			1,367		1,434
Preference stock	—			—		1
Stock options	8			8		10
Restricted stock units	1			2		5
Weighted average common shares, diluted	1,347			1,377		1,450
Basic earnings per common share:
Income from continuing operations attributable to CVS Caremark	$	2.61		$	2.51	$	2.58
Loss from discontinued operations attributable to CVS Caremark	(0.02		)	—		—
Net income attributable to CVS Caremark	$	2.59		$	2.51	$	2.58
Diluted earnings per common share:
Income from continuing operations attributable to CVS Caremark	$	2.59		$	2.49	$	2.55
Loss from discontinued operations attributable to CVS Caremark	(0.02		)	—		—
Net income attributable to CVS Caremark	$	2.57		$	2.49	$	2.55

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Discontinued Operations (Details) (USD $)	3 Months Ended							12 Months Ended			1 Months Ended	12 Months Ended
	Dec. 31, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2010	Sep. 30, 2010	Jun. 30, 2010	Mar. 31, 2010	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009	Nov. 30, 2011 TheraCom	Dec. 31, 2011 TheraCom	Dec. 31, 2010 TheraCom	Dec. 31, 2009 TheraCom	Dec. 31, 2011 TheraCom Pharmacy Services Segment	Dec. 31, 2011 Linens n Things	Dec. 31, 2010 Linens n Things	Dec. 31, 2009 Linens n Things
Discontinued operation disclosures
Proceeds from sale of business											$ 250,000,000
Current assets of discontinued operations													100,000,000
Current liabilities of discontinued operations													100,000,000
Goodwill expected to be eliminated								200,000,000							200,000,000
Net revenues												650,000,000	635,000,000	514,000,000
Income from operations												18,000,000	28,000,000	13,000,000
Gain Loss on disposal												53,000,000				(7,000,000)	(24,000,000)	(19,000,000)
Income tax benefit (provision)								(95,000,000)	(2,000,000)	2,000,000
Income (loss) from discontinued operations, net of tax	$ (36,000,000)	$ 2,000,000	$ 3,000,000	$ 5,000,000	$ (7,000,000)	$ 2,000,000	$ 2,000,000	$ (31,000,000)	$ 2,000,000	$ (4,000,000)

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Segment Reporting (Details) (USD $)	3 Months Ended								12 Months Ended
	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2010	Sep. 30, 2010	Jun. 30, 2010	Mar. 31, 2010	Dec. 31, 2011 segment	Dec. 31, 2010	Dec. 31, 2009
Segment Reporting
Number of segments									3
Segment reporting information
Net revenues	$ 28,317,000,000	$ 26,674,000,000	$ 26,414,000,000	$ 25,695,000,000	$ 24,589,000,000	$ 23,711,000,000	$ 23,885,000,000	$ 23,593,000,000	$ 107,100,000,000	$ 95,778,000,000	$ 98,215,000,000
Gross profit	5,555,000,000	5,178,000,000	5,086,000,000	4,742,000,000	5,454,000,000	5,015,000,000	5,012,000,000	4,738,000,000	20,561,000,000	20,219,000,000	20,358,000,000
Operating profit	1,957,000,000	1,584,000,000	1,484,000,000	1,305,000,000	1,761,000,000	1,478,000,000	1,494,000,000	1,404,000,000	6,330,000,000	6,137,000,000	6,425,000,000
Depreciation and amortization									1,568,000,000	1,469,000,000	1,389,000,000
Total assets	64,543,000,000				62,169,000,000				64,543,000,000	62,169,000,000	61,641,000,000
Goodwill	26,458,000,000				25,669,000,000				26,458,000,000	25,669,000,000	25,680,000,000
Additions to property and equipment									1,872,000,000	2,005,000,000	2,548,000,000
Intersegment eliminations, intersegment revenues									2,600,000,000	1,800,000,000	700,000,000
Pharmacy Services Segment
Segment reporting information
Net revenues									58,874,000,000	47,145,000,000	50,551,000,000
Gross profit									3,279,000,000	3,315,000,000	3,813,000,000
Operating profit									2,220,000,000	2,361,000,000	2,853,000,000
Depreciation and amortization									433,000,000	390,000,000	377,000,000
Total assets	35,704,000,000				32,254,000,000				35,704,000,000	32,254,000,000	33,082,000,000
Goodwill	19,657,000,000				18,868,000,000				19,657,000,000	18,868,000,000	18,879,000,000
Additions to property and equipment									461,000,000	234,000,000	218,000,000
Net revenues, retail co-payments									7,900,000,000	6,600,000,000	6,900,000,000
Intersegment eliminations, intersegment revenues										1,800,000,000	700,000,000
Intersegment eliminations, intersegment gross profit									186,000,000	135,000,000	48,000,000
Retail Pharmacy Segment
Segment reporting information
Net revenues									59,599,000,000	57,345,000,000	55,355,000,000
Gross profit									17,468,000,000	17,039,000,000	16,593,000,000
Operating profit									4,912,000,000	4,537,000,000	4,159,000,000
Depreciation and amortization									1,060,000,000	1,016,000,000	965,000,000
Total assets	28,323,000,000				28,927,000,000				28,323,000,000	28,927,000,000	28,302,000,000
Goodwill	6,801,000,000				6,801,000,000				6,801,000,000	6,801,000,000	6,801,000,000
Additions to property and equipment									1,353,000,000	1,708,000,000	2,183,000,000
Intersegment eliminations, intersegment revenues										1,800,000,000	700,000,000
Intersegment eliminations, intersegment gross profit									186,000,000	135,000,000	48,000,000
Corporate Segment
Segment reporting information
Operating profit									(616,000,000)	(626,000,000)	(539,000,000)
Depreciation and amortization									75,000,000	63,000,000	47,000,000
Total assets	1,121,000,000				1,439,000,000				1,121,000,000	1,439,000,000	774,000,000
Additions to property and equipment									58,000,000	63,000,000	147,000,000
Intersegment Eliminations
Segment reporting information
Net revenues									(11,373,000,000)	(8,712,000,000)	(7,691,000,000)
Gross profit									(186,000,000)	(135,000,000)	(48,000,000)
Operating profit									(186,000,000)	(135,000,000)	(48,000,000)
Total assets	$ (605,000,000)				$ (451,000,000)				$ (605,000,000)	$ (451,000,000)	$ (517,000,000)
Number of type of transactions related to intersegment eliminations									2

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Consolidated Statements of Income (USD $) In Millions, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Net revenues	$ 107,100	$ 95,778	$ 98,215
Cost of revenues	86,539	75,559	77,857
Gross profit	20,561	20,219	20,358
Operating expenses	14,231	14,082	13,933
Operating profit	6,330	6,137	6,425
Interest expense, net	584	536	525
Income before income tax provision	5,746	5,601	5,900
Income tax provision	2,258	2,179	2,200
Income from continuing operations	3,488	3,422	3,700
Income (loss) from discontinued operations, net of tax	(31)	2	(4)
Net income	3,457	3,424	3,696
Net loss attributable to noncontrolling interest	4	3
Net income attributable to CVS Caremark	$ 3,461	$ 3,427	$ 3,696
Basic earnings per common share:
Income from continuing operations attributable to CVS Caremark (in dollars per share)	$ 2.61	$ 2.51	$ 2.58
Loss from discontinued operations attributable to CVS Caremark (in dollars per share)	$ (0.02)
Net income attributable to CVS Caremark (in dollars per share)	$ 2.59	$ 2.51	$ 2.58
Weighted average common shares outstanding (in shares)	1,338	1,367	1,434
Diluted earnings per common share:
Income from continuing operations attributable to CVS Caremark (in dollars per share)	$ 2.59	$ 2.49	$ 2.55
Loss from discontinued operations attributable to CVS Caremark (in dollars per share)	$ (0.02)
Net income attributable to CVS Caremark (in dollars per share)	$ 2.57	$ 2.49	$ 2.55
Weighted average common shares outstanding (in shares)	1,347	1,377	1,450
Dividends declared per common share (in dollars per share)	$ 0.500	$ 0.350	$ 0.305

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Leases (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Net rental expense for operating leases
Minimum rentals	$ 2,087	$ 2,001	$ 1,857
Contingent rentals	49	53	61
Gross lease rental expense	2,136	2,054	1,918
Less: sublease income	(19)	(19)	(19)
Net lease rental expense	2,117	2,035	1,899
Future minimum lease payments under capital leases
2012	20
2013	20
2014	20
2015	20
2016	20
Thereafter	237
Total future lease payments	337
Less: imputed interest	(169)
Present value of capital lease obligations	168
Future minimum lease payments under operating leases
2012	2,230
2013	2,143
2014	1,936
2015	1,880
2016	1,806
Thereafter	17,630
Total future lease payments	27,625
Minimum sublease rentals due in future under non-cancelable subleases	246
Proceeds from sale-leaseback transactions	$ 592	$ 507	$ 1,562
Retail and mail order locations, distribution centers and corporate offices
Operating leased assets
Number of distribution centers leased	10
Retail and mail order locations, distribution centers and corporate offices | Minimum
Operating leased assets
Non-cancelable operating leases, initial term (in years)	15
Retail and mail order locations, distribution centers and corporate offices | Maximum
Operating leased assets
Non-cancelable operating leases, initial term (in years)	25
Equipment and other assets | Minimum
Operating leased assets
Non-cancelable operating leases, initial term (in years)	3
Equipment and other assets | Maximum
Operating leased assets
Non-cancelable operating leases, initial term (in years)	10

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Consolidated Statements of Shareholders' Equity (USD $) In Millions, except Share data, unless otherwise specified	Total	Preference stock:	Common stock:	Treasury stock:	Shares held in trust:	Capital surplus:	Retained earnings:	Accumulated other comprehensive loss:	Comprehensive income:
Balance at Dec. 31, 2008		$ 191	$ 16	$ (5,812)	$ (56)	$ 27,280	$ 13,098	$ (143)
Balance (in shares) at Dec. 31, 2008		4,000,000	1,603,000,000	(165,000,000)	(2,000,000)
Increase (Decrease) in Stockholders' Equity
Conversion to common stock		(191)
Conversion to common stock (in shares)		(4,000,000)
Stock options exercised and issuance of stock awards (in shares)			9,000,000
Purchase of treasury shares				(2,477)
Purchase of treasury shares (in shares)				(73,000,000)
Conversion of preference stock				583		(392)
Conversion of preference stock (in shares)				17,000,000
Employee stock purchase plan issuances				96
Employee stock purchase plan issuances (in shares)				2,000,000
Stock options activity and stock awards						291
Net income attributable to CVS Caremark	3,696						3,696
Tax benefit on stock options and stock awards						19
Common stock dividends							(439)
Net income	3,696								3,696
Net cash flow hedges, net of income tax								1	1
Pension liability adjustment, net of income tax								7	7
Comprehensive income									3,704
Comprehensive income attributable to CVS Caremark									3,704
Balance at Dec. 31, 2009	35,768		16	(7,610)	(56)	27,198	16,355	(135)
Balance (in shares) at Dec. 31, 2009			1,612,000,000	(219,000,000)	(2,000,000)
Increase (Decrease) in Stockholders' Equity
Stock options exercised and issuance of stock awards (in shares)			12,000,000
Purchase of treasury shares				(1,500)
Purchase of treasury shares (in shares)				(42,000,000)
Employee stock purchase plan issuances				80
Employee stock purchase plan issuances (in shares)				2,000,000
Stock options activity and stock awards						384
Net income attributable to CVS Caremark	3,427						3,427
Tax benefit on stock options and stock awards						28
Common stock dividends							(479)
Net income	3,424								3,424
Net cash flow hedges, net of income tax								(1)	(1)
Pension liability adjustment, net of income tax								(7)	(7)
Comprehensive income									3,416
Comprehensive loss attributable to noncontrolling interest									3
Comprehensive income attributable to CVS Caremark									3,419
Balance at Dec. 31, 2010	37,700		16	(9,030)	(56)	27,610	19,303	(143)
Balance (in shares) at Dec. 31, 2010			1,624,000,000	(259,000,000)	(2,000,000)
Increase (Decrease) in Stockholders' Equity
Stock options exercised and issuance of stock awards (in shares)			16,000,000
Purchase of treasury shares				(3,001)
Purchase of treasury shares (in shares)				(84,000,000)
Employee stock purchase plan issuances				78
Employee stock purchase plan issuances (in shares)				3,000,000
Stock options activity and stock awards						495
Net income attributable to CVS Caremark	3,461						3,461
Tax benefit on stock options and stock awards						21
Common stock dividends							(674)
Net income	3,457								3,457
Net cash flow hedges, net of income tax								(9)	(9)
Pension liability adjustment, net of income tax								(20)	(20)
Comprehensive income									3,428
Comprehensive loss attributable to noncontrolling interest									4
Comprehensive income attributable to CVS Caremark									3,432
Balance at Dec. 31, 2011	$ 38,051		$ 16	$ (11,953)	$ (56)	$ 28,126	$ 22,090	$ (172)
Balance (in shares) at Dec. 31, 2011			1,640,000,000	(340,000,000)	(2,000,000)

XML

Significant Accounting Policies (Details 2) (USD $)	12 Months Ended
	Dec. 31, 2011 M	Dec. 31, 2010	Dec. 31, 2009
Cash and cash equivalents
Cash and cash equivalents, maximum maturity period (in months)	3
Short-term investments
Minimum initial maturities of short-term investments (in months)	3
Fair Value of Financial Instruments
Carrying amount of long-term debt	$ 9,300,000,000
Estimated fair value of long-term debt	10,800,000,000
Fair value of outstanding letters of credit	6,000,000	6,000,000
Activity in the allowance for doubtful trade accounts receivable
Beginning balance	182,000,000	224,000,000	189,000,000
Additions charged to bad debt expense	129,000,000	73,000,000	135,000,000
Write-offs charged to allowance	(122,000,000)	(115,000,000)	(100,000,000)
Ending balance	189,000,000	182,000,000	224,000,000
Components of property and equipment
Property and equipment, gross	15,400,000,000	14,283,000,000
Accumulated depreciation and amortization	(6,933,000,000)	(5,961,000,000)
Property and equipment, net	8,467,000,000	8,322,000,000
Property and equipment under capital leases	211,000,000	191,000,000
Building
Components of property and equipment
Estimated useful life, minimum (in years)	10
Estimated useful life, maximum (in years)	40
Building improvements
Components of property and equipment
Estimated useful life, minimum (in years)	10
Estimated useful life, maximum (in years)	40
Property and equipment, gross	2,404,000,000	2,265,000,000
Leasehold improvements
Components of property and equipment
Estimated useful life, minimum (in years)	10
Estimated useful life, maximum (in years)	40
Property and equipment, gross	3,021,000,000	2,866,000,000
Fixtures
Components of property and equipment
Estimated useful life, minimum (in years)	3
Estimated useful life, maximum (in years)	10
Equipment
Components of property and equipment
Estimated useful life, minimum (in years)	3
Estimated useful life, maximum (in years)	10
Internally developed software
Components of property and equipment
Estimated useful life, minimum (in years)	3
Estimated useful life, maximum (in years)	10
Land
Components of property and equipment
Property and equipment, gross	1,295,000,000	1,247,000,000
Fixtures and equipment
Components of property and equipment
Property and equipment, gross	7,582,000,000	7,148,000,000
Software
Components of property and equipment
Property and equipment, gross	$ 1,098,000,000	$ 757,000,000

XML

Quarterly Financial Information (Unaudited)

12 Months Ended

Dec. 31, 2011

Quarterly Financial Information (Unaudited)

Quarterly Financial Information (Unaudited)

16Quarterly Financial Information (Unaudited)

In millions, except per share amounts	First Quarter(1)		Second Quarter(1)		Third Quarter		Fourth Quarter			Year
2011:
Net revenues	$	25,695	$	26,414	$	26,674	$	28,317		$	107,100
Gross profit	4,742		5,086		5,178		5,555			20,561
Operating profit	1,305		1,484		1,584		1,957			6,330
Income from continuing operations	709		813		867		1,099			3,488
Income (loss) from discontinued operations, net of tax	3		2		—		(36		)	(31		)
Net income	712		815		867		1,063			3,457
Net loss attributable to noncontrolling interest	1		1		1		1			4
Net income attributable to CVS Caremark	$	713	$	816	$	868	$	1,064		$	3,461
Basic earnings per common share:
Income from continuing operations attributable to CVS Caremark	$	0.52	$	0.60	$	0.65	$	0.84		$	2.61
Loss from discontinued operations attributable to CVS Caremark	$	—	$	—	$	—	$	(0.03	)	$	(0.02	)
Net income attributable to CVS Caremark	$	0.52	$	0.60	$	0.65	$	0.82		$	2.59
Diluted Earnings per common share:
Income from continuing operations attributable to CVS Caremark	$	0.52	$	0.60	$	0.65	$	0.84		$	2.59
Loss from discontinued operations attributable to CVS Caremark	$	—	$	—	$	—	$	(0.03	)	$	(0.02	)
Net income attributable to CVS Caremark	$	0.52	$	0.60	$	0.65	$	0.81		$	2.57
Dividends per common share	$	0.125	$	0.125	$	0.125	$	0.125		$	0.500
Stock price: (New York Stock Exchange)
High	$	35.95	$	39.50	$	38.82	$	41.35		$	41.35
Low	$	32.08	$	34.21	$	31.30	$	32.28		$	31.30

(1)   The results of operations previously filed have been revised to reflect the results of TheraCom as discontinued operations. See Note 3.

In millions, except per share amounts	First Quarter(1)		Second Quarter(1)		Third Quarter(1)			Fourth Quarter(1)		Year(1)
2010:
Net revenues	$	23,593	$	23,885	$	23,711		$	24,589	$	95,778
Gross profit	4,738		5,012		5,015			5,454		20,219
Operating profit	1,404		1,494		1,478			1,761		6,137
Income from continuing operations	768		819		815			1,020		3,422
Income (loss) from discontinued operations, net of tax	2		2		(7		)	5		2
Net income	770		821		808			1,025		3,424
Net loss attributable to noncontrolling interest	1		—		1			1		3
Net income attributable to CVS Caremark	$	771	$	821	$	809		$	1,026	$	3,427
Basic earnings per common share:
Income from continuing operations attributable to CVS Caremark	$	0.56	$	0.60	$	0.60		$	0.75	$	2.51
Income (loss) from discontinued operations attributable to CVS Caremark	$	—	$	—	$	(0.01	)	$	—	$	—
Net income attributable to CVS Caremark	$	0.56	$	0.61	$	0.59		$	0.75	$	2.51
Diluted Earnings per common share:
Income from continuing operations attributable to CVS Caremark	$	0.55	$	0.60	$	0.60		$	0.74	$	2.49
Income (loss) from discontinued operations attributable to CVS Caremark	$	—	$	—	$	(0.01	)	$	—	$	—
Net income attributable to CVS Caremark	$	0.55	$	0.60	$	0.59		$	0.75	$	2.49
Dividends per common share	$	0.0875	$	0.0875	$	0.0875		$	0.0875	$	0.3500
Stock price: (New York Stock Exchange)
High	$	37.32	$	37.82	$	32.09		$	35.46	$	37.82
Low	$	30.36	$	29.22	$	26.84		$	29.45	$	26.84

(1)The results of operations previously filed have been revised to reflect the results of TheraCom as discontinued operations. See Note 3.

Five-Year Financial Summary

In millions, except per share amounts	2011(1)			2010(1)		2009(1)			2008(1)			2007(1)(2)
Statement of operations data:
Net revenues	$	107,100		$	95,778	$	98,215		$	87,005		$	76,078
Gross profit	20,561			20,219		20,358			18,272			16,098
Operating expenses	14,231			14,082		13,933			12,237			11,309
Operating profit	6,330			6,137		6,425			6,035			4,789
Interest expense, net	584			536		525			509			435
Income tax provision(3)	2,258			2,179		2,200			2,189			1,720
Income from continuing operations	3,488			3,422		3,700			3,337			2,634
Income (loss) from discontinued operations, net of tax benefit(4)	(31		)	2		(4		)	(125		)	3
Net income	3,457			3,424		3,696			3,212			2,637
Net loss attributable to noncontrolling interest(5)	4			3		—			—			—
Preference dividends, net of income tax benefit	—			—		—			(14		)	(14		)
Net income attributable to CVS Caremark	$	3,461		$	3,427	$	3,696		$	3,198		$	2,623
Per common share data:
Basic earnings per common share:
Income from continuing operations attributable to CVS Caremark	$	2.61		$	2.51	$	2.58		$	2.32		$	1.97
Loss from discontinued operations attributable to CVS Caremark	(0.02		)	—		—			(0.09		)	—
Net income attributable to CVS Caremark	$	2.59		$	2.51	$	2.58		$	2.23		$	1.97
Diluted earnings per common share:
Income from continuing operations attributable to CVS Caremark	$	2.59		$	2.49	$	2.55		$	2.27		$	1.92
Loss from discontinued operations attributable to CVS Caremark	(0.02		)	—		—			(0.09		)	—
Net income attributable to CVS Caremark	$	2.57		$	2.49	$	2.55		$	2.18		$	1.92
Cash dividends per common share	$	0.50000		$	0.35000	$	0.30500		$	0.25800		$	0.22875
Balance sheet and other data:
Total assets	$	64,543		$	62,169	$	61,641		$	60,960		$	54,722
Long-term debt	$	9,208		$	8,652	$	8,756		$	8,057		$	8,350
Total shareholders’ equity	$	38,051		$	37,700	$	35,768		$	34,574		$	31,322
Number of stores (at end of year)	7,388			7,248		7,095			6,997			6,301

(1)On December 23, 2008, our Board of Directors approved a change in our fiscal year-end from the Saturday nearest December 31 of each year to December 31 of each year to better reflect our position in the health care, rather than the retail, industry. The fiscal year change was effective beginning with the fourth quarter of fiscal 2008. As you review our operating performance, please consider that 2011, 2010 and 2009 include 365 days; fiscal 2008 includes 368 days, and fiscal 2007 includes 364 days.

(2)Effective March 22, 2007, Caremark Rx, Inc. was merged into a newly formed subsidiary of CVS Corporation, with Caremark Rx, L.L.C., continuing as the surviving entity (the “Caremark Merger”). Following the Caremark Merger, the name of the Company was changed to “CVS Caremark Corporation.” By virtue of the Caremark Merger, each issued and outstanding share of Caremark common stock, par value $0.001 per share, was converted into the right to receive 1.67 shares of CVS Caremark’s common stock, par value $0.01 per share. Cash was paid in lieu of fractional shares.

(3)Income tax provision includes the effect of the following: (i) in 2010, the recognition of $47 million of previously unrecognized tax benefits, including interest, relating to the expiration of various statutes of limitation and settlements with tax authorities and (ii) in 2009, the recognition of $167 million of previously unrecognized tax benefits, including interest, relating to the expiration of various statutes of limitation and settlements with tax authorities.

(4)As discussed in Note 3 to the consolidated financial statements, the results of the Theracom business are presented as discontinued operations and have been excluded from continuing operations for all periods presented.

In connection with certain business dispositions completed between 1991 and 1997, the Company retained guarantees on store lease obligations for a number of former subsidiaries, including Linens ‘n Things which filed for bankruptcy in 2008. The Company’s income (loss) from discontinued operations includes lease-related costs which the Company believes it will likely be required to satisfy pursuant to its Linens ‘n Things lease guarantees.

Below is a summary of the results of discontinued operations:

	Fiscal Year
In millions	2011			2010			2009			2008			2007
Income from operations of TheraCom	$	18		$	28		$	13		$	11		$	5
Gain on disposal of TheraCom	53			—			—			—			—
Loss on disposal of Linens ‘n Things	(7		)	(24		)	(19		)	(214		)	—
Income tax benefit (provision)	(95		)	(2		)	2			78			(2		)
Income (loss) from discontinued operations, net of tax	$	(31	)	$	2		$	(4	)	$	(125	)	$	3

(5)Represents the minority shareholders’ portion of the net loss from our majority owned subsidiary, Generation Health, Inc., acquired in the fourth quarter of 2009.

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Significant Accounting Policies (Details 3)	12 Months Ended
	Dec. 31, 2011 Y
Purchased customer contracts and relationships
Intangible assets
Estimated useful life, minimum (in years)	10
Estimated useful life, maximum (in years)	20
Purchased customer lists
Intangible assets
Estimated useful life, maximum (in years)	10

XML

Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2011

Significant Accounting Policies

Activity in allowance for doubtful trade accounts receivable

	Year Ended December 31,
In millions	2011			2010			2009
Beginning balance	$	182		$	224		$	189
Additions charged to bad debt expense	129			73			135
Write-offs charged to allowance	(122		)	(115		)	(100		)
Ending balance	$	189		$	182		$	224

Components of property and equipment

In millions	2011			2010
Land	$	1,295		$	1,247
Building and improvements	2,404			2,265
Fixtures and equipment	7,582			7,148
Leasehold improvements	3,021			2,866
Software	1,098			757
	15,400			14,283
Accumulated depreciation and amortization	(6,933		)	(5,961		)
	$	8,467		$	8,322

Reconciliation of the changes in the redeemable noncontrolling interest

In millions	2011			2010			2009
Beginning balance	$	34		$	37		$	—
Acquisition of Generation Health	—			—			37
Net loss attributable to noncontrolling interest	(4		)	(3		)	—
Ending balance	$	30		$	34		$	37

XML

Significant Accounting Policies

12 Months Ended

Dec. 31, 2011

Significant Accounting Policies

Significant Accounting Policies

1Significant Accounting Policies

Description of business - CVS Caremark Corporation and its subsidiaries (the “Company”) is the largest pharmacy health care provider in the United States based upon revenues and prescriptions filled. The Company currently has three reportable business segments, Pharmacy Services, Retail Pharmacy and Corporate, which are described below.

Pharmacy Services Segment (the “PSS”) - The PSS provides a full range of pharmacy benefit management services including mail order pharmacy services, specialty pharmacy services, plan design and administration, formulary management and claims processing. The Company’s clients are primarily employers, insurance companies, unions, government employee groups, managed care organizations and other sponsors of health benefit plans and individuals throughout the United States.

As a pharmacy benefits manager, the PSS manages the dispensing of pharmaceuticals through the Company’s mail order pharmacies and national network of approximately 65,000 retail pharmacies to eligible members in the benefits plans maintained by the Company’s clients and utilizes its information systems to perform, among other things, safety checks, drug interaction screenings and brand to generic substitutions.

The PSS’ specialty pharmacies support individuals that require complex and expensive drug therapies. The specialty pharmacy business includes mail order and retail specialty pharmacies that operate under the CVS Caremark® and CarePlus CVS/pharmacy® names.

The PSS also provides health management programs, which include integrated disease management for 28 conditions, through our strategic alliance with Alere, L.L.C. and the Company’s Accordant® health management offering.

In addition, through the Company’s SilverScript Insurance Company (“SilverScript”), Accendo Insurance Company (“Accendo”) and Pennsylvania Life Insurance Company (“Pennsylvania Life”) subsidiaries, the PSS is a national provider of drug benefits to eligible beneficiaries under the Federal Government’s Medicare Part D program.

The PSS generates net revenues primarily by contracting with clients to provide prescription drugs to plan members. Prescription drugs are dispensed by the mail order pharmacies, specialty pharmacies and national network of retail pharmacies. Net revenues are also generated by providing additional services to clients, including administrative services such as claims processing and formulary management, as well as health care related services such as disease management.

The pharmacy services business operates under the CVS Caremark® Pharmacy Services, Caremark®, CVS Caremark®, CarePlus CVS/pharmacy®, CarePlusTM, RxAmerica® and Accordant® names. As of December 31, 2011, the PSS operated 31 retail specialty pharmacy stores, 12 specialty mail order pharmacies and four mail service pharmacies located in 22 states, Puerto Rico and the District of Columbia.

Retail Pharmacy Segment (the “RPS”) - The RPS sells prescription drugs and a wide assortment of general merchandise, including over-the-counter drugs, beauty products and cosmetics, photo finishing, seasonal merchandise, greeting cards and convenience foods, through the Company’s CVS/pharmacy® and Longs Drugs® retail stores and online through CVS.com®.

The RPS also provides health care services through its MinuteClinic® health care clinics. MinuteClinics are staffed by nurse practitioners and physician assistants who utilize nationally recognized protocols to diagnose and treat minor health conditions, perform health screenings, monitor chronic conditions and deliver vaccinations.

As of December 31, 2011, the retail pharmacy business included 7,327 retail drugstores (of which 7,271 operated a pharmacy) located in 41 states the District of Columbia and Puerto Rico operating primarily under the CVS/pharmacy® name, the online retail website, CVS.com and 657 retail health care clinics operating under the MinuteClinic® name (of which 648 were located in CVS/pharmacy stores).

Corporate Segment - The Corporate segment provides management and administrative services to support the Company. The Corporate segment consists of certain aspects of the Company’s executive management, corporate relations, legal, compliance, human resources, corporate information technology and finance departments.

Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. All intercompany balances and transactions have been eliminated.

Use of estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Fair Value Hierarchy - The Company utilizes the three-level valuation hierarchy for the recognition and disclosure of fair value measurements. The categorization of assets and liabilities within this hierarchy is based upon the lowest level of input that is significant to the measurement of fair value. The three levels of the hierarchy consist of the following:

·Level 1 - Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

·Level 2 - Inputs to the valuation methodology are quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active or inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the instrument.

·Level 3 - Inputs to the valuation methodology are unobservable inputs based upon management’s best estimate of inputs market participants could use in pricing the asset or liability at the measurement date, including assumptions about risk.

Cash and cash equivalents - Cash and cash equivalents consist of cash and temporary investments with maturities of three months or less when purchased. The Company invests in short-term money market funds, commercial paper, time deposits, as well as other debt securities that are classified as cash equivalents within the accompanying consolidated balance sheets, as these funds are highly liquid and readily convertible to known amounts of cash. These investments are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices.

Short-term investments - The Company’s short-term investments consist of certificate of deposits with initial maturities of greater than three months when purchased. These investments, which were classified as available-for-sale within Level 1 of the fair value hierarchy, were carried at historical cost, which approximated fair value at December 31, 2011 and 2010.

Fair value of financial instruments - As of December 31, 2011, the Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable and short-term debt. Due to the short-term nature of these instruments, the Company’s carrying value approximates fair value. The carrying amount and estimated fair value of total long-term debt was $9.3 billion and $10.8 billion, respectively, as of December 31, 2011. The fair value of long-term debt was estimated based on rates currently offered to the Company for debt with similar terms and maturities. The Company had outstanding letters of credit, which guaranteed foreign trade purchases, with a fair value of $6 million as of December 31, 2011 and 2010. There were no outstanding derivative financial instruments as of December 31, 2011 and 2010.

Accounts receivable - Accounts receivable are stated net of an allowance for doubtful accounts. The accounts receivable balance primarily includes trade amounts due from third party providers (e.g., pharmacy benefit managers, insurance companies and governmental agencies), clients and members, as well as vendors and manufacturers.

The activity in the allowance for doubtful trade accounts receivable is as follows:

	Year Ended December 31,
In millions	2011			2010			2009
Beginning balance	$	182		$	224		$	189
Additions charged to bad debt expense	129			73			135
Write-offs charged to allowance	(122		)	(115		)	(100		)
Ending balance	$	189		$	182		$	224

Inventories - Inventories are stated at the lower of cost or market on a first-in, first-out basis using the retail inventory method in the retail pharmacy stores, the weighted average cost method in the mail service and specialty pharmacies, and the cost method on a first-in, first-out basis in the distribution centers. Physical inventory counts are taken on a regular basis in each store and a continuous cycle count process is the primary procedure used to validate the inventory balances on hand in each distribution center and mail facility to ensure that the amounts reflected in the accompanying consolidated financial statements are properly stated. During the interim period between physical inventory counts, the Company accrues for anticipated physical inventory losses on a location-by-location basis based on historical results and current trends.

Property and equipment - Property, equipment and improvements to leased premises are depreciated using the straight-line method over the estimated useful lives of the assets, or when applicable, the term of the lease, whichever is shorter. Estimated useful lives generally range from 10 to 40 years for buildings, building improvements and leasehold improvements and 3 to 10 years for fixtures, equipment and internally developed software. Repair and maintenance costs are charged directly to expense as incurred. Major renewals or replacements that substantially extend the useful life of an asset are capitalized and depreciated. Application development stage costs for significant internally developed software projects are capitalized and depreciated.

The following are the components of property and equipment at December 31:

In millions	2011			2010
Land	$	1,295		$	1,247
Building and improvements	2,404			2,265
Fixtures and equipment	7,582			7,148
Leasehold improvements	3,021			2,866
Software	1,098			757
	15,400			14,283
Accumulated depreciation and amortization	(6,933		)	(5,961		)
	$	8,467		$	8,322

The gross amount of property and equipment under capital leases was $211 million and $191 million as of December 31, 2011 and 2010, respectively.

Goodwill - Goodwill and other indefinite-lived assets are not amortized, but are subject to impairment reviews annually, or more frequently if necessary. See Note 4 for additional information on goodwill.

Intangible assets - Purchased customer contracts and relationships are amortized on a straight-line basis over their estimated useful lives between 10 and 20 years. Purchased customer lists are amortized on a straight-line basis over their estimated useful lives of up to 10 years. Purchased leases are amortized on a straight-line basis over the remaining life of the lease. See Note 4 for additional information about intangible assets.

Impairment of long-lived assets - The Company groups and evaluates fixed and finite-lived intangible assets, excluding goodwill, for impairment at the lowest level at which individual cash flows can be identified. When evaluating assets for potential impairment, the Company first compares the carrying amount of the asset group to the estimated future cash flows associated with the asset group (undiscounted and without interest charges). If the estimated future cash flows used in this 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 the asset group’s estimated future cash flows (discounted and with interest charges). If required, an impairment loss is recorded for the portion of the asset group’s carrying value that exceeds the asset group’s estimated future cash flows (discounted and with interest charges).

Redeemable noncontrolling interest - The Company has an approximately 60% ownership interest in Generation Health, Inc. (“Generation Health”) and consolidates Generation Health in its consolidated financial statements. The noncontrolling shareholders of Generation Health hold put rights for the remaining interest in Generation Health that if exercised would require the Company to purchase the remaining interest in Generation Health in 2015 for a minimum of $27 million and a maximum of $159 million, depending on certain financial metrics of Generation Health in 2014. Since the noncontrolling shareholders of Generation Health have a redemption feature as a result of the put rights, the Company has classified the redeemable noncontrolling interest in Generation Health in the mezzanine section of the consolidated balance sheet outside of shareholders’ equity. The Company initially recorded the redeemable noncontrolling interest at a fair value of $37 million on the date of acquisition which was determined using inputs classified as Level 3 in the fair value hierarchy. At the end of each reporting period, if the estimated accreted redemption value exceeds the carrying value of the noncontrolling interest, the difference is recorded as a reduction of retained earnings. Any such reductions in retained earnings would also reduce income attributable to CVS Caremark in the Company’s earnings per share calculations.

The following is a reconciliation of the changes in the redeemable noncontrolling interest:

In millions	2011			2010			2009
Beginning balance	$	34		$	37		$	—
Acquisition of Generation Health	—			—			37
Net loss attributable to noncontrolling interest	(4		)	(3		)	—
Ending balance	$	30		$	34		$	37

Revenue Recognition

Pharmacy Services Segment - The PSS sells prescription drugs directly through its mail service pharmacies and indirectly through its retail pharmacy network. The PSS recognizes revenues from prescription drugs sold by its mail service pharmacies and under retail pharmacy network contracts where the PSS is the principal using the gross method at the contract prices negotiated with its clients. Net revenue from the PSS includes: (i) the portion of the price the client pays directly to the PSS, net of any volume-related or other discounts paid back to the client (see “Drug Discounts” later in this document), (ii) the price paid to the PSS (“Mail Co-Payments”) or a third party pharmacy in the PSS’ retail pharmacy network (“Retail Co-Payments”) by individuals included in its clients’ benefit plans, and (iii) administrative fees for retail pharmacy network contracts where the PSS is not the principal as discussed below.

The PSS recognizes revenue when: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the seller’s price to the buyer is fixed or determinable, and (iv) collectability is reasonably assured. The Company has established the following revenue recognition policies for the PSS:

·Revenues generated from prescription drugs sold by mail service pharmacies are recognized when the prescription is shipped. At the time of shipment, the Company has performed substantially all of its obligations under its client contracts and does not experience a significant level of reshipments.

·Revenues generated from prescription drugs sold by third party pharmacies in the PSS’ retail pharmacy network and associated administrative fees are recognized at the PSS’ point-of-sale, which is when the claim is adjudicated by the PSS’ online claims processing system.

The PSS determines whether it is the principal or agent for its retail pharmacy network transactions on a contract by contract basis. In the majority of its contracts, the PSS has determined it is the principal due to it: (i) being the primary obligor in the arrangement, (ii) having latitude in establishing the price, changing the product or performing part of the service, (iii) having discretion in supplier selection, (iv) having involvement in the determination of product or service specifications, and (v) having credit risk. The PSS’ obligations under its client contracts for which revenues are reported using the gross method are separate and distinct from its obligations to the third party pharmacies included in its retail pharmacy network contracts. Pursuant to these contracts, the PSS is contractually required to pay the third party pharmacies in its retail pharmacy network for products sold, regardless of whether the PSS is paid by its clients. The PSS’ responsibilities under its client contracts typically include validating eligibility and coverage levels, communicating the prescription price and the co-payments due to the third party retail pharmacy, identifying possible adverse drug interactions for the pharmacist to address with the physician prior to dispensing, suggesting clinically appropriate generic alternatives where appropriate and approving the prescription for dispensing. Although the PSS does not have credit risk with respect to Retail Co-Payments, management believes that all of the other indicators of gross revenue reporting are present. For contracts under which the PSS acts as an agent, the PSS records revenues using the net method.

Drug Discounts - The PSS deducts from its revenues any rebates, inclusive of discounts and fees, earned by its clients. The PSS pays rebates to its clients in accordance with the terms of its client contracts, which are normally based on fixed rebates per prescription for specific products dispensed or a percentage of manufacturer discounts received for specific products dispensed. The liability for rebates due to the PSS’ clients is included in “Claims and discounts payable” in the accompanying consolidated balance sheets.

Medicare Part D - The PSS participates in the Federal Government’s Medicare Part D program as a Prescription Drug Plan (“PDP”). The PSS’ net revenues include insurance premiums earned by the PDP, which are determined based on the PDP’s annual bid and related contractual arrangements with the Centers for Medicare and Medicaid Services (“CMS”). The insurance premiums include a beneficiary premium, which is the responsibility of the PDP member, but is subsidized by CMS in the case of low-income members, and a direct premium paid by CMS. Premiums collected in advance are initially deferred in accrued expenses and are then recognized in net revenues over the period in which members are entitled to receive benefits.

In addition to these premiums, the PSS’ net revenues include co-payments, coverage gap benefits, deductibles and co-insurance (collectively, the “Member Co-Payments”) related to PDP members’ actual prescription claims. In certain cases, CMS subsidizes a portion of these Member Co-Payments and pays the PSS an estimated prospective Member Co-Payment subsidy amount each month. The prospective Member Co-Payment subsidy amounts received from CMS are also included in the PSS’ net revenues. The Company assumes no risk for these amounts, which represented 3.1%, 2.6% and 3.5% of consolidated net revenues in 2011, 2010 and 2009, respectively. If the prospective Member Co-Payment subsidies received differ from the amounts based on actual prescription claims, the difference is recorded in either accounts receivable or accrued expenses.

The PSS accounts for CMS obligations and Member Co-Payments (including the amounts subsidized by CMS) using the gross method consistent with its revenue recognition policies for Mail Co-Payments and Retail Co-Payments (discussed previously in this document). See Note 8 for additional information about Medicare Part D.

Retail Pharmacy Segment - The RPS recognizes revenue from the sale of merchandise (other than prescription drugs) at the time the merchandise is purchased by the retail customer. Revenue from the sale of prescription drugs is recognized at the time the prescription is filled, which is or approximates when the retail customer picks up the prescription. Customer returns are not material. Revenue generated from the performance of services in the RPS’ health care clinics is recognized at the time the services are performed. See Note 14 for additional information about the revenues of the Company’s business segments.

Cost of revenues

Pharmacy Services Segment - The PSS’ cost of revenues includes: (i) the cost of prescription drugs sold during the reporting period directly through its mail service pharmacies and indirectly through its retail pharmacy network, (ii) shipping and handling costs, and (iii) the operating costs of its mail service pharmacies and client service operations and related information technology support costs including depreciation and amortization. The cost of prescription drugs sold component of cost of revenues includes: (i) the cost of the prescription drugs purchased from manufacturers or distributors and shipped to members in clients’ benefit plans from the PSS’ mail service pharmacies, net of any volume-related or other discounts (see “Drug Discounts” previously in this document) and (ii) the cost of prescription drugs sold (including Retail Co-Payments) through the PSS’ retail pharmacy network under contracts where it is the principal, net of any volume-related or other discounts.

Retail Pharmacy Segment - The RPS’ cost of revenues includes: the cost of merchandise sold during the reporting period and the related purchasing costs, warehousing and delivery costs (including depreciation and amortization) and actual and estimated inventory losses. See Note 14 for additional information about the cost of revenues of the Company’s business segments.

Vendor allowances and purchase discounts

The Company accounts for vendor allowances and purchase discounts as follows:

Pharmacy Services Segment - The PSS receives purchase discounts on products purchased. The PSS’ contractual arrangements with vendors, including manufacturers, wholesalers and retail pharmacies, normally provide for the PSS to receive purchase discounts from established list prices in one, or a combination of, the following forms: (i) a direct discount at the time of purchase, (ii) a discount for the prompt payment of invoices, or (iii) when products are purchased indirectly from a manufacturer (e.g., through a wholesaler or retail pharmacy), a discount (or rebate) paid subsequent to dispensing. These rebates are recognized when prescriptions are dispensed and are generally calculated and billed to manufacturers within 30 days of the end of each completed quarter. Historically, the effect of adjustments resulting from the reconciliation of rebates recognized to the amounts billed and collected has not been material to the PSS’ results of operations. The PSS accounts for the effect of any such differences as a change in accounting estimate in the period the reconciliation is completed. The PSS also receives additional discounts under its wholesaler contract if it exceeds contractually defined annual purchase volumes. In addition, the PSS receives fees from pharmaceutical manufacturers for administrative services. Purchase discounts and administrative service fees are recorded as a reduction of “Cost of revenues”.

Retail Pharmacy Segment - Vendor allowances received by the RPS reduce the carrying cost of inventory and are recognized in cost of revenues when the related inventory is sold, unless they are specifically identified as a reimbursement of incremental costs for promotional programs and/or other services provided. Amounts that are directly linked to advertising commitments are recognized as a reduction of advertising expense (included in operating expenses) when the related advertising commitment is satisfied. Any such allowances received in excess of the actual cost incurred also reduce the carrying cost of inventory. The total value of any upfront payments received from vendors that are linked to purchase commitments is initially deferred. The deferred amounts are then amortized to reduce cost of revenues over the life of the contract based upon purchase volume. The total value of any upfront payments received from vendors that are not linked to purchase commitments is also initially deferred. The deferred amounts are then amortized to reduce cost of revenues on a straight-line basis over the life of the related contract. The total amortization of these upfront payments was not material to the accompanying consolidated financial statements.

Insurance - The Company is self-insured for certain losses related to general liability, workers’ compensation and auto liability. The Company obtains third party insurance coverage to limit exposure from these claims. The Company is also self-insured for certain losses related to health and medical liabilities. The Company’s self-insurance accruals, which include reported claims and claims incurred but not reported, are calculated using standard insurance industry actuarial assumptions and the Company’s historical claims experience.

Facility opening and closing costs - New facility opening costs, other than capital expenditures, are charged directly to expense when incurred. When the Company closes a facility, the present value of estimated unrecoverable costs, including the remaining lease obligation less estimated sublease income and the book value of abandoned property and equipment, are charged to expense. The long-term portion of the lease obligations associated with facility closings was $327 million and $368 million in 2011 and 2010, respectively.

Advertising costs - Advertising costs are expensed when the related advertising takes place. Advertising costs, net of vendor funding (included in operating expenses), were $211 million, $234 million and $317 million in 2011, 2010 and 2009, respectively.

Interest expense, net - Interest expense, net of capitalized interest, was $588 million, $539 million and $530 million, and interest income was $4 million, $3 million and $5 million in 2011, 2010 and 2009, respectively. Capitalized interest totaled $37 million, $47 million and $39 million in 2011, 2010 and 2009, respectively.

Shares held in trust - The Company maintains grantor trusts, which held approximately 2 million shares of its common stock at December 31, 2011 and 2010. These shares are designated for use under various employee compensation plans. Since the Company holds these shares, they are excluded from the computation of basic and diluted shares outstanding.

Accumulated other comprehensive loss - Accumulated other comprehensive loss consists of changes in the net actuarial gains and losses associated with pension and other postretirement benefit plans, and unrealized losses on derivatives. The amount included in accumulated other comprehensive loss related to the Company’s pension and postretirement plans was $250 million pre-tax ($152 million after-tax) as of December 31, 2011 and $217 million pre-tax ($132 million after-tax) as of December 31, 2010. The net impact on cash flow hedges totaled $32 million pre-tax ($20 million after-tax) and $18 million pre-tax ($11 million after-tax) as of December 31, 2011 and 2010, respectively.

Stock-based compensation - Stock-based compensation expense is measured at the grant date based on the fair value of the award and is recognized as expense over the applicable requisite service period of the stock award (generally 3 to 5 years) using the straight-line method. Stock-based compensation costs are included in selling, general and administrative expenses.

Income taxes - The Company provides for federal and state income taxes currently payable, as well as for those deferred because of timing differences between reported income and expenses for financial statement purposes versus tax purposes. Federal and state tax credits are recorded as a reduction of income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recoverable or settled. The effect of a change in tax rates is recognized as income or expense in the period of the change.

Earnings per common share - Basic earnings per common share is computed by dividing: (i) net earnings by (ii) the weighted average number of common shares outstanding during the year (the “Basic Shares”).

Diluted earnings per common share is computed by dividing: (i) net earnings by (ii) Basic Shares plus the additional shares that would be issued assuming that all dilutive stock awards are exercised. Options to purchase 30.5 million, 34.3 million and 37.7 million shares of common stock were outstanding as of December 31, 2011, 2010 and 2009, respectively, but were not included in the calculation of diluted earnings per share because the options’ exercise prices were greater than the average market price of the common shares and, therefore, the effect would be antidilutive.

New Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-06, Fair Value Measurements and Disclosures: Improving Disclosures about Fair Value Measurements, (“ASU 2010-06”). ASU 2010-06 expanded the required disclosures about fair value measurements by requiring (i) separate disclosure of the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements along with the reasons for such transfers, (ii) information about purchases, sales, issuances and settlements to be presented separately in the reconciliation for Level 3 fair value measurements, (iii) expanded fair value measurement disclosures for each class of assets and liabilities, and (iv) disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3. ASU 2010-06 was effective for annual reporting periods beginning after December 15, 2009, except for (ii) above which is effective for fiscal years beginning after December 15, 2010. The adoption of ASU 2010-06 did not have a material impact on the Company’s financial statement disclosures.

In May 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 eliminates the current option to report other comprehensive income and its components in the statement of shareholders’ equity. Instead, an entity will have the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 also required entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which net income is presented and the statement in which other comprehensive is presented. In December 2011, the FASB issued ASU 2011-12 Deferral of the Effective Date for Amendments to the Presentation of Reclassification of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05, which indefinitely defers the guidance related to the presentation of reclassification adjustments. ASU 2011-05 is effective for interim and annual periods beginning after December 15, 2011 and should be applied retrospectively. The Company is still evaluating which of the two alternatives it will apply in reporting comprehensive income. Neither alternative is expected to have a material impact on the Company’s consolidated results of operations and neither alternative will have an impact on the Company’s financial condition or cash flows.

In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment (“ASU 2011-08”). ASU 2011-08 allows entities to use a qualitative approach to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If after performing the qualitative assessment an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step goodwill impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step goodwill impairment test. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company does not expect the adoption of ASU 2011-08 will have a material impact on the Company’s consolidated results of operations, financial condition or cash flows.

In September 2011, the FASB issued ASU 2011-09, Disclosures about an Employer’s Participation in a Multiemployer Plan (“ASU 2011-09”). ASU 2011-09 requires additional quantitative and qualitative disclosures of entities who participate in multiemployer pension and other postretirement plans. ASU 2011-09 is effective for annual periods ending after December 15, 2011 and should be applied retrospectively. The adoption of ASU 2011-09 did not have a material impact on the Company’s financial statement disclosures.

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Consolidated Balance Sheets (USD $) In Millions, unless otherwise specified	Dec. 31, 2011	Dec. 31, 2010
Assets:
Cash and cash equivalents	$ 1,413	$ 1,427
Short-term investments	5	4
Accounts receivable, net	6,047	4,925
Inventories	10,046	10,695
Deferred income taxes	503	511
Other current assets	580	144
Total current assets	18,594	17,706
Property and equipment, net	8,467	8,322
Goodwill	26,458	25,669
Intangible assets, net	9,869	9,784
Other assets	1,155	688
Total assets	64,543	62,169
Liabilities:
Accounts payable	4,370	4,026
Claims and discounts payable	3,487	2,569
Accrued expenses	3,293	3,070
Short-term debt	750	300
Current portion of long-term debt	56	1,105
Total current liabilities	11,956	11,070
Long-term debt	9,208	8,652
Deferred income taxes	3,853	3,655
Other long-term liabilities	1,445	1,058
Commitments and contingencies (Note 13)
Redeemable noncontrolling interest	30	34
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; 1,640 shares issued and 1,298 shares outstanding at December 31, 2011 and 1,624 shares issued and 1,363 shares outstanding at December 31, 2010	16	16
Treasury stock, at cost: 340 shares at December 31, 2011 and 259 shares at December 31, 2010	(11,953)	(9,030)
Shares held in trust: 2 shares at December 31, 2011 and 2010	(56)	(56)
Capital surplus	28,126	27,610
Retained earnings	22,090	19,303
Accumulated other comprehensive loss	(172)	(143)
Total shareholders' equity	38,051	37,700
Total liabilities and shareholders' equity	$ 64,543	$ 62,169

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Stock Incentive Plans

12 Months Ended

Dec. 31, 2011

Stock Incentive Plans

Stock Incentive Plans

11Stock Incentive Plans

Stock-based compensation expense is measured at the grant date based on the fair value of the award and is recognized as expense over the applicable requisite service period of the stock award (generally three to five years) using the straight-line method. Stock-based compensation costs are included in selling, general and administrative expenses.

Compensation expense related to stock options, which includes the 2007 Employee Stock Purchase Plan (the “2007 ESPP”) totaled $112 million, $127 million and $136 million for 2011, 2010 and 2009, respectively. The recognized tax benefit was $38 million, $42 million and $45 million for 2011, 2010 and 2009, respectively. Compensation expense related to restricted stock awards totaled $21 million, $23 million and $29 million for 2011, 2010 and 2009, respectively.

The 2007 ESPP provides for the purchase of up to 15 million shares of common stock. Under the 2007 ESPP, eligible employees may purchase common stock at the end of each six month offering period at a purchase price equal to 85% of the lower of the fair market value on the first day or the last day of the offering period. During 2011, approximately 3 million shares of common stock were purchased under the provisions of the 2007 ESPP at an average price of $26.90 per share. As of December 31, 2011, approximately 5 million shares of common stock were available for issuance under the 2007 ESPP.

The fair value of stock-based compensation associated with the 2007 ESPP is estimated on the date of grant (i.e., the beginning of the offering period) using the Black-Scholes Option Pricing Model.

The following table is a summary of the assumptions used to value the ESPP awards for each of the respective periods:

	2011			2010			2009
Dividend yield (1)	0.69		%	0.57		%	0.50		%
Expected volatility(2)	20.42		%	32.58		%	48.89		%
Risk-free interest rate(3)	0.15		%	0.21		%	0.31		%
Expected life (in years)(4)	0.5			0.5			0.5
Weighted-average grant date fair value	$	7.21		$	7.31		$	8.51

(1)The dividend yield is calculated based on semi-annual dividends paid and the fair market value of the Company’s stock at the grant date.

(2)The expected volatility is based on the historical volatility of the Company’s daily stock market prices over the previous six month period.

(3)The risk-free interest rate is based on the Treasury constant maturity interest rate whose term is consistent with the expected term of ESPP options (i.e., 6 months).

(4)The expected life is based on the semi-annual purchase period.

In May 2010, the Company’s Board of Directors adopted and the shareholders approved the 2010 Incentive Compensation Plan (the “2010 ICP”), which superseded the 1997 Incentive Compensation Plan (the “1997 ICP”). The terms of the 2010 ICP provide for grants of annual incentive and long-term performance awards to executive officers and other officers and employees of the Company or any subsidiary of the Company. Payment of such annual incentive and long-term performance awards will be in cash, stock, other awards or other property, at the discretion of the Management Planning and Development Committee of the Company’s Board of Directors. The 2010 ICP allows for a maximum of 74 million shares to be reserved and available for grants, plus the number of shares subject to awards under the Company’s 1997 ICP which become available due to cancellation or forfeiture. Following approval and adoption of the 2010 ICP, no new grants can be made under the 2007 ICP or 1997 ICP. The 2010 ICP is the only compensation plan under which the Company grants stock options, restricted stock and other stock-based awards to its employees, with the exception of the Company’s 2007 ESPP. As of December 31, 2011, there were approximately 58 million shares available for future grants under the 2010 ICP.

The Company’s restricted awards are considered non-vested share awards and require no payment from the employee. Compensation cost is recorded based on the market price on the grant date and is recognized on a straight-line basis over the requisite service period. The Company granted 1,121,000, 1,095,000 and 1,284,000 restricted stock units with a weighted average fair value of $34.84, $35.25 and $27.77 in 2011, 2010 and 2009, respectively. As of December 31, 2011, there was $39 million of total unrecognized compensation costs related to the restricted stock units that are expected to vest. These costs are expected to be recognized over a weighted-average period of 1.94 years. The total fair value of restricted shares vested during 2011, 2010 and 2009 was $33 million, $44 million and $18 million, respectively.

The following table is a summary of the restricted unit and restricted share award activity for the year ended December 31, 2011:

Units in thousands	Units		Weighted Average Grant Date Fair Value
Nonvested at beginning of year	2,688		$	34.16
Granted	1,121		34.84
Vested	(969	)	35.55
Forfeited	(234	)	35.00
Nonvested at end of year	2,606		$	32.80

All grants under the 2010 ICP are awarded at fair market value on the date of grant. The fair value of stock options is estimated using the Black-Scholes Option Pricing Model and stock-based compensation is recognized on a straight-line basis over the requisite service period. Options granted prior to 2004 generally become exercisable over a four-year period from the grant date and expire ten years after the date of grant. Options granted between 2004 and 2010 generally become exercisable over a three-year period from the grant date and expire seven years after the date of grant. Beginning in 2011, options granted generally become exercisable over a four-year period from the grant date and expire seven years after the date of grant.

Excess tax benefits of $21 million, $28 million and $19 million were included in financing activities in the accompanying consolidated statements of cash flow during 2011, 2010 and 2009, respectively. Cash received from stock options exercised, which includes the 2007 ESPP, totaled $431 million, $285 million and $250 million during 2011, 2010 and 2009, respectively. The total intrinsic value of options exercised was $161 million, $118 million and $104 million in 2011, 2010 and 2009, respectively. The total fair value of options vested during 2011, 2010 and 2009 was $452 million, $445 million and $383 million, respectively.

The fair value of each stock option is estimated using the Black-Scholes option pricing model based on the following assumptions at the time of grant:

	2011			2010			2009
Dividend yield (1)	1.43		%	1.00		%	1.07		%
Expected volatility(2)	32.62		%	33.15		%	31.34		%
Risk-free interest rate(3)	1.81		%	1.85		%	1.65		%
Expected life (in years)(4)	4.7			4.3			4.3
Weighted-average grant date fair value	$	9.19		$	9.49		$	7.20

(1)The dividend yield is based on annual dividends paid and the fair market value of the Company’s stock at the grant date.

(2)The expected volatility is estimated using the Company’s historical volatility over a period equal to the expected life of each option grant after adjustments for infrequent events such as stock splits.

(3)The risk-free interest rate is selected based on yields from U.S. Treasury zero-coupon issues with a remaining term equal to the expected term of the options being valued.

(4)The expected life represents the number of years the options are expected to be outstanding from grant date based on historical option holder exercise experience.

As of December 31, 2011, unrecognized compensation expense related to unvested options totaled $174 million, which the Company expects to be recognized over a weighted-average period of 1.97 years. After considering anticipated forfeitures, the Company expects approximately 26 million of the unvested options to vest over the requisite service period.

The following table is a summary of the Company’s stock option activity for the year ended December 31, 2011:

Shares in thousands	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at December 31, 2010	66,017		$	31.39	4.16	$	313,163,000
Granted	13,466		$	34.88	—	—
Exercised	(14,738	)	$	25.32	—	—
Forfeited	(3,152	)	$	33.47	—	—
Expired	(2,486	)	$	35.59	—	—
Outstanding at December 31, 2011	59,107		$	33.40	4.11	$	439,671,000
Exercisable at December 31, 2011	32,202		$	33.13	2.88	$	249,947,000

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Document and Entity Information (USD $)	12 Months Ended
	Dec. 31, 2011	Feb. 10, 2012	Jun. 30, 2011
Document and Entity Information
Entity Registrant Name	CVS CAREMARK CORP
Entity Central Index Key	0000064803
Document Type	10-K
Document Period End Date	Dec. 31, 2011
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Public Float			$ 50,513,379,248
Entity Common Stock, Shares Outstanding		1,302,378,570
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	FY

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Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes

Income Taxes

12Income Taxes

The income tax provision for continuing operations consisted of the following for the respective years:

In millions	2011		2010			2009
Current:
Federal	$	1,807	$	1,884		$	1,761
State	338		344			397
	2,145		2,228			2,158
Deferred:
Federal	101		(44		)	38
State	12		(5		)	4
	113		(49		)	42
Total	$	2,258	$	2,179		$	2,200

The following table is a reconciliation of the statutory income tax rate to the Company’s effective income tax rate for continuing operations for the respective years:

	2011		2010		2009
Statutory income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal tax benefit	3.9		4.1		4.5
Other	0.4		0.6		0.6
Subtotal	39.3		39.7		40.1
Recognition of previously unrecognized tax benefits	—		(0.8	)	(2.8	)
Effective income tax rate	39.3	%	38.9	%	37.3	%

The following table is a summary of the significant components of the Company’s deferred tax assets and liabilities as of December 31:

In millions	2011			2010
Deferred tax assets:
Lease and rents	$	325		$	325
Inventories	77			69
Employee benefits	253			261
Allowance for doubtful accounts	112			96
Retirement benefits	114			99
Net operating losses	6			6
Other	315			307
Total deferred tax assets	1,202			1,163
Deferred tax liabilities:
Depreciation and amortization	(4,552		)	(4,307		)
Net deferred tax liabilities	$	(3,350	)	$	(3,144	)

Net deferred tax assets (liabilities) are presented on the consolidated balance sheets as follows as of December 31:

In millions	2011			2010
Deferred tax assets—current	$	503		$	511
Deferred tax liabilities—noncurrent	(3,853		)	(3,655		)
Net deferred tax liabilities	$	(3,350	)	$	(3,144	)

The Company believes it is more likely than not the deferred tax assets will be realized during future periods.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

In millions	2011			2010			2009
Beginning balance	$	35		$	61		$	257
Additions based on tax positions related to the current year	3			1			1
Additions based on tax positions related to prior years	13			2			12
Reductions for tax positions of prior years	—			(10		)	(6		)
Expiration of statutes of limitation	(7		)	(16		)	(155		)
Settlements	(6		)	(3		)	(48		)
Ending balance	$	38		$	35		$	61

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of numerous state and local jurisdictions. Substantially all material income tax matters have been concluded for fiscal years through 2006. The Company and its subsidiaries anticipate that a number of income tax examinations will conclude and statutes of limitation for open years will expire over the next twelve months, which may cause a utilization or reduction of the Company’s reserve for uncertain tax positions of up to approximately $10 million.

During 2011, the Internal Revenue Service (the “IRS”) completed an examination of the Company’s 2010 consolidated U.S. income tax return pursuant to the Compliance Assurance Process (“CAP”) program. The CAP program is a voluntary program under which taxpayers seek to resolve all or most issues with the IRS prior to or soon after the filing of their U.S. income tax returns, in lieu of being audited in the traditional manner. The IRS is currently examining the Company’s 2011 consolidated U.S. income tax year pursuant to the CAP program. The Company and its subsidiaries are also currently under income tax examinations by a number of state and local tax authorities. As of December 31, 2011, no examination has resulted in any proposed adjustments that would result in a material change to the Company’s results of operations, financial condition or liquidity.

The Company recognizes interest accrued related to unrecognized tax benefits and penalties in income tax expense. During the years ended December 31, 2011, 2010 and 2009, the Company recognized interest of approximately $2 million, $3 million and $5 million, respectively. The Company had approximately $8 million and $11 million accrued for interest and penalties as of December 31, 2011 and 2010, respectively.

There are no material reserves established at December 31, 2011 for income tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. If present, such items would impact deferred tax accounting, not the annual effective income tax rate, and would accelerate the payment of cash to the taxing authority to an earlier period.

The total amount of unrecognized tax benefits that, if recognized, would affect the effective income tax rate is approximately $25 million, after considering the federal benefit of state income taxes.

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Consolidated Balance Sheets (Parenthetical) (USD $) In Millions, except Per Share data, unless otherwise specified	Dec. 31, 2011	Dec. 31, 2010
Consolidated Balance Sheets
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized	0.1	0.1
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	3,200	3,200
Common stock, shares issued	1,640	1,624
Common stock, shares outstanding	1,298	1,363
Treasury stock, shares	340	259
Shares held in trust, shares	2	2

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Borrowing and Credit Agreements

12 Months Ended

Dec. 31, 2011

Borrowing and Credit Agreements

Borrowing and Credit Agreements

6              Borrowing and Credit Agreements

The following table is a summary of the Company’s borrowings as of December 31:

In millions	2011			2010
Commercial paper	$	750		$	300
5.75% senior notes due 2011	—			800
Floating rate notes due 2011	—			300
4.875% senior notes due 2014	550			550
3.25% senior notes due 2015	550			550
6.125% senior notes due 2016	700			700
5.75% senior notes due 2017	1,750			1,750
6.6% senior notes due 2019	1,000			1,000
4.75% senior notes due 2020	450			450
4.125% senior notes due 2021	550			—
6.25% senior notes due 2027	1,000			1,000
Trust Preferred Securities due 2037	50			—
6.125% senior notes due 2039	1,500			1,500
5.75% senior notes due 2041	950			—
6.302% Enhanced Capital Advantage Preferred Securities due 2062	42			1,000
Mortgage notes payable	4			6
Capital lease obligations	168			151
	10,014			10,057
Less:
Short-term debt (commercial paper)	(750		)	(300		)
Current portion of long-term debt	(56		)	(1,105		)
	$	9,208		$	8,652

In connection with its commercial paper program, the Company maintains a $1.25 billion, five-year unsecured back-up credit facility, which expires on March 12, 2012, a $1.0 billion, three-year unsecured back-up credit facility which expires on May 27, 2013, and a $1.25 billion, four-year unsecured back-up credit facility which expires on May 12, 2015. The credit facilities allow for borrowings at various rates depending on the Company’s public debt ratings and require the Company to pay a weighted average quarterly facility fee of approximately 0.04%, regardless of usage. As of December 31, 2011 and 2010, the Company had no outstanding borrowings against the back-up credit facilities. The weighted average interest rate for short-term debt was 0.37% as of December 31, 2011 and 0.40% as of December 31, 2010.

In connection with the Company’s acquisition of the UAM Medicare Part D Business in April 2011, the Company assumed $110 million of long-term debt in the form of Trust Preferred Securities that mature through 2037. During the year ended December 31, 2011, the Company repaid $60 million of the Trust Preferred Securities at par and intends to repay the remaining $50 million at par in 2012.

On May 12, 2011, the Company issued $550 million of 4.125% unsecured senior notes due May 15, 2021 and issued $950 million of 5.75% unsecured senior notes due May 15, 2041 (collectively, the “2011 Notes”) for total proceeds of approximately $1.5 billion, net of discounts and underwriting fees. The 2011 Notes pay interest semi-annually and may be redeemed, in whole at any time, or in part from time to time, at the Company’s option at a defined redemption price plus accrued and unpaid interest to the redemption date. The net proceeds of the 2011 Notes were used to repay commercial paper borrowings and certain other corporate debt, and were used for general corporate purposes.

On December 8, 2011, the Company repurchased $958 million of the principal amount of its Enhanced Capital Advantaged Preferred Securities (“ECAPS”) at par. The fees and write-off of deferred issuance costs associated with the early extinguishment of the ECAPS were de minimis. The remaining $42 million of outstanding ECAPS are due in 2062 and bear interest at 6.302% per year until June 1, 2012, at which time they will pay interest based on a floating rate. The ECAPS pay interest semi-annually and may be redeemed at any time, in whole or in part at a defined redemption price plus accrued interest.

On May 13, 2010, the Company issued $550 million of 3.25% unsecured senior notes due May 18, 2015 and issued $450 million of 4.75% unsecured senior notes due May 18, 2020 (collectively, the “2010 Notes”) for total proceeds of $991 million, which was net of discounts and underwriting fees. The 2010 Notes pay interest semiannually and may be redeemed, in whole at any time, or in part from time to time, at the Company’s option at a defined redemption price plus accrued and unpaid interest to the redemption date. The net proceeds of the 2010 Notes were used to repay a portion of the Company’s outstanding commercial paper borrowings and certain other corporate debt, and were used for general corporate purposes.

On March 10, 2009, the Company issued $1.0 billion of 6.6% unsecured senior notes due March 15, 2019 (the “March 2009 Notes”). The March 2009 Notes pay interest semi-annually and may be redeemed, in whole or in part, at a defined redemption price plus accrued interest. The net proceeds were used to repay the existing bridge credit facility, a portion of the Company’s outstanding commercial paper borrowings and for general corporate purposes.

On July 1, 2009, the Company issued $300 million of unsecured floating rate senior notes due January 30, 2011 (the “2009 Floating Rate Notes”). The 2009 Floating Rate Note pays interest quarterly. The net proceeds from the 2009 Floating Rate Note were used for general corporate purposes.

On September 8, 2009, the Company issued $1.5 billion of 6.125% unsecured senior notes due September 15, 2039 (the “September 2009 Notes”). The September 2009 Notes pay interest semi-annually and may be redeemed, in whole or in part, at a defined redemption price plus accrued interest. The net proceeds were used to repay a portion of the Company’s outstanding commercial paper borrowings, $650 million of unsecured senior notes and were used for general corporate purposes.

The credit facilities, back-up credit facilities, unsecured senior notes and ECAPS contain customary restrictive financial and operating covenants. The covenants do not materially affect the Company’s financial or operating flexibility.

The aggregate maturities of long-term debt for each of the five years subsequent to December 31, 2011 are $56 million in 2012, $5 million in 2013, $556 million in 2014, $556 million in 2015, and $707 million in 2016.

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Share Repurchase Programs

12 Months Ended

Dec. 31, 2011

Share Repurchase Programs

Share Repurchase Programs

5Share Repurchase Programs

On August 23, 2011, the Company’s Board of Directors authorized a share repurchase program for up to $4.0 billion of outstanding common stock (the “2011 Repurchase Program”). The share repurchase authorization under the 2011 Repurchase Program, which was effective immediately, permits the Company to effect repurchases from time to time through a combination of open market repurchases, privately negotiated transactions, accelerated share repurchase transactions, and/or other derivative transactions. The 2011 Repurchase Program may be modified or terminated by the Board of Directors at any time.

Pursuant to the authorization under the 2011 Repurchase Program, on August 24, 2011, the Company entered into a $1.0 billion fixed dollar accelerated share repurchase (“ASR”) agreement with Barclays Bank PLC (“Barclays”). The ASR agreement contained provisions that establish the minimum and maximum number of shares to be repurchased during its term. Pursuant to the ASR agreement, on August 25, 2011, the Company paid $1.0 billion to Barclays in exchange for Barclays delivering 20.3 million shares of common stock to the Company. On September 16, 2011, upon establishment of the minimum number of shares to be repurchased, Barclays delivered an additional 5.4 million shares of common stock to the Company. The Company received an additional 1.6 million shares of common stock on December 29, 2011, due to the fluctuation in market price of common stock over the term of the ASR agreement, which concluded on December 28, 2011. The total of 27.3 million shares of common stock delivered to the Company by Barclays over the term of the ASR agreement were placed into treasury stock. The Company accounted for the ASR agreement as two separate transactions: (i) as shares of common stock acquired in a treasury stock transaction and (ii) as a forward contract indexed to the Company’s own common stock. As such, the Company accounted for the shares that it received under the ASR agreement as a repurchase of its common stock for the purpose of calculating earnings per share. The Company has determined that the forward contract indexed to the Company’s common stock met all of the applicable criteria for equity classification.

On June 14, 2010, the Company’s Board of Directors authorized a share repurchase program for up to $2.0 billion of outstanding common stock (the “2010 Repurchase Program”). The share repurchase authorization under the 2010 Repurchase Program, which was effective immediately and expired at the end of 2011, permitted the Company to effect repurchases from time to time through a combination of open market repurchases, privately negotiated transactions, accelerated share repurchase transactions, and/or other derivative transactions. During the year ended December 31, 2011, the Company repurchased an aggregate of 56.4 million shares of common stock for approximately $2.0 billion, completing the 2010 Repurchase Program. The Company did not make any share repurchases under the 2010 Repurchase Program during the year ended December 31, 2010.

On November 4, 2009, the Company’s Board of Directors authorized a share repurchase program for up to $2.0 billion of its outstanding common stock (the “2009 Repurchase Program”). From November 4, 2009 through December 31, 2009, the Company repurchased 16.1 million shares of common stock for approximately $500 million under the 2009 Repurchase Program. During the year ended December 31, 2010, the Company repurchased 42.4 million shares of common stock for approximately $1.5 billion, completing the 2009 Repurchase Program.

On May 7, 2008, the Company’s Board of Directors authorized, effective May 21, 2008, a share repurchase program for up to $2.0 billion of its outstanding common stock (the “2008 Repurchase Program”). From May 21, 2008 through December 31, 2008, the Company repurchased approximately 0.6 million shares of common stock for $23 million under the 2008 Repurchase Program. During the year ended December 31, 2009, the Company repurchased approximately 57.0 million shares of common stock for approximately $2.0 billion, completing the 2008 Repurchase Program.

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Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2011

Significant Accounting Policies

Principles of Consolidation

Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. All intercompany balances and transactions have been eliminated.

Use of estimates

Use of estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Fair value Hierarchy

Fair Value Hierarchy - The Company utilizes the three-level valuation hierarchy for the recognition and disclosure of fair value measurements. The categorization of assets and liabilities within this hierarchy is based upon the lowest level of input that is significant to the measurement of fair value. The three levels of the hierarchy consist of the following:

·Level 1 - Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

·Level 2 - Inputs to the valuation methodology are quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active or inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the instrument.

·Level 3 - Inputs to the valuation methodology are unobservable inputs based upon management’s best estimate of inputs market participants could use in pricing the asset or liability at the measurement date, including assumptions about risk.

Cash and cash equivalents

Cash and cash equivalents - Cash and cash equivalents consist of cash and temporary investments with maturities of three months or less when purchased. The Company invests in short-term money market funds, commercial paper, time deposits, as well as other debt securities that are classified as cash equivalents within the accompanying consolidated balance sheets, as these funds are highly liquid and readily convertible to known amounts of cash. These investments are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices.

Short-term investments

Short-term investments - The Company’s short-term investments consist of certificate of deposits with initial maturities of greater than three months when purchased. These investments, which were classified as available-for-sale within Level 1 of the fair value hierarchy, were carried at historical cost, which approximated fair value at December 31, 2011 and 2010.

Fair Value of Financial Instruments

Fair value of financial instruments - As of December 31, 2011, the Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable and short-term debt. Due to the short-term nature of these instruments, the Company’s carrying value approximates fair value. The carrying amount and estimated fair value of total long-term debt was $9.3 billion and $10.8 billion, respectively, as of December 31, 2011. The fair value of long-term debt was estimated based on rates currently offered to the Company for debt with similar terms and maturities. The Company had outstanding letters of credit, which guaranteed foreign trade purchases, with a fair value of $6 million as of December 31, 2011 and 2010. There were no outstanding derivative financial instruments as of December 31, 2011 and 2010.

Accounts receivable

Accounts receivable - Accounts receivable are stated net of an allowance for doubtful accounts. The accounts receivable balance primarily includes trade amounts due from third party providers (e.g., pharmacy benefit managers, insurance companies and governmental agencies), clients and members, as well as vendors and manufacturers.

Inventories

Inventories - Inventories are stated at the lower of cost or market on a first-in, first-out basis using the retail inventory method in the retail pharmacy stores, the weighted average cost method in the mail service and specialty pharmacies, and the cost method on a first-in, first-out basis in the distribution centers. Physical inventory counts are taken on a regular basis in each store and a continuous cycle count process is the primary procedure used to validate the inventory balances on hand in each distribution center and mail facility to ensure that the amounts reflected in the accompanying consolidated financial statements are properly stated. During the interim period between physical inventory counts, the Company accrues for anticipated physical inventory losses on a location-by-location basis based on historical results and current trends.

Property and equipment

Property and equipment - Property, equipment and improvements to leased premises are depreciated using the straight-line method over the estimated useful lives of the assets, or when applicable, the term of the lease, whichever is shorter. Estimated useful lives generally range from 10 to 40 years for buildings, building improvements and leasehold improvements and 3 to 10 years for fixtures, equipment and internally developed software. Repair and maintenance costs are charged directly to expense as incurred. Major renewals or replacements that substantially extend the useful life of an asset are capitalized and depreciated. Application development stage costs for significant internally developed software projects are capitalized and depreciated.

Goodwill

Goodwill - Goodwill and other indefinite-lived assets are not amortized, but are subject to impairment reviews annually, or more frequently if necessary. See Note 4 for additional information on goodwill.

Intangible assets

Intangible assets - Purchased customer contracts and relationships are amortized on a straight-line basis over their estimated useful lives between 10 and 20 years. Purchased customer lists are amortized on a straight-line basis over their estimated useful lives of up to 10 years. Purchased leases are amortized on a straight-line basis over the remaining life of the lease. See Note 4 for additional information about intangible assets.

Impairment of long-lived assets

Impairment of long-lived assets - The Company groups and evaluates fixed and finite-lived intangible assets, excluding goodwill, for impairment at the lowest level at which individual cash flows can be identified. When evaluating assets for potential impairment, the Company first compares the carrying amount of the asset group to the estimated future cash flows associated with the asset group (undiscounted and without interest charges). If the estimated future cash flows used in this 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 the asset group’s estimated future cash flows (discounted and with interest charges). If required, an impairment loss is recorded for the portion of the asset group’s carrying value that exceeds the asset group’s estimated future cash flows (discounted and with interest charges).

Redeemable noncontrolling interest

Redeemable noncontrolling interest - The Company has an approximately 60% ownership interest in Generation Health, Inc. (“Generation Health”) and consolidates Generation Health in its consolidated financial statements. The noncontrolling shareholders of Generation Health hold put rights for the remaining interest in Generation Health that if exercised would require the Company to purchase the remaining interest in Generation Health in 2015 for a minimum of $27 million and a maximum of $159 million, depending on certain financial metrics of Generation Health in 2014. Since the noncontrolling shareholders of Generation Health have a redemption feature as a result of the put rights, the Company has classified the redeemable noncontrolling interest in Generation Health in the mezzanine section of the consolidated balance sheet outside of shareholders’ equity. The Company initially recorded the redeemable noncontrolling interest at a fair value of $37 million on the date of acquisition which was determined using inputs classified as Level 3 in the fair value hierarchy. At the end of each reporting period, if the estimated accreted redemption value exceeds the carrying value of the noncontrolling interest, the difference is recorded as a reduction of retained earnings. Any such reductions in retained earnings would also reduce income attributable to CVS Caremark in the Company’s earnings per share calculations.

Revenue Recognition:

Revenue Recognition

Pharmacy Services Segment - The PSS sells prescription drugs directly through its mail service pharmacies and indirectly through its retail pharmacy network. The PSS recognizes revenues from prescription drugs sold by its mail service pharmacies and under retail pharmacy network contracts where the PSS is the principal using the gross method at the contract prices negotiated with its clients. Net revenue from the PSS includes: (i) the portion of the price the client pays directly to the PSS, net of any volume-related or other discounts paid back to the client (see “Drug Discounts” later in this document), (ii) the price paid to the PSS (“Mail Co-Payments”) or a third party pharmacy in the PSS’ retail pharmacy network (“Retail Co-Payments”) by individuals included in its clients’ benefit plans, and (iii) administrative fees for retail pharmacy network contracts where the PSS is not the principal as discussed below.

The PSS recognizes revenue when: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the seller’s price to the buyer is fixed or determinable, and (iv) collectability is reasonably assured. The Company has established the following revenue recognition policies for the PSS:

·Revenues generated from prescription drugs sold by mail service pharmacies are recognized when the prescription is shipped. At the time of shipment, the Company has performed substantially all of its obligations under its client contracts and does not experience a significant level of reshipments.

·Revenues generated from prescription drugs sold by third party pharmacies in the PSS’ retail pharmacy network and associated administrative fees are recognized at the PSS’ point-of-sale, which is when the claim is adjudicated by the PSS’ online claims processing system.

The PSS determines whether it is the principal or agent for its retail pharmacy network transactions on a contract by contract basis. In the majority of its contracts, the PSS has determined it is the principal due to it: (i) being the primary obligor in the arrangement, (ii) having latitude in establishing the price, changing the product or performing part of the service, (iii) having discretion in supplier selection, (iv) having involvement in the determination of product or service specifications, and (v) having credit risk. The PSS’ obligations under its client contracts for which revenues are reported using the gross method are separate and distinct from its obligations to the third party pharmacies included in its retail pharmacy network contracts. Pursuant to these contracts, the PSS is contractually required to pay the third party pharmacies in its retail pharmacy network for products sold, regardless of whether the PSS is paid by its clients. The PSS’ responsibilities under its client contracts typically include validating eligibility and coverage levels, communicating the prescription price and the co-payments due to the third party retail pharmacy, identifying possible adverse drug interactions for the pharmacist to address with the physician prior to dispensing, suggesting clinically appropriate generic alternatives where appropriate and approving the prescription for dispensing. Although the PSS does not have credit risk with respect to Retail Co-Payments, management believes that all of the other indicators of gross revenue reporting are present. For contracts under which the PSS acts as an agent, the PSS records revenues using the net method.

Drug Discounts - The PSS deducts from its revenues any rebates, inclusive of discounts and fees, earned by its clients. The PSS pays rebates to its clients in accordance with the terms of its client contracts, which are normally based on fixed rebates per prescription for specific products dispensed or a percentage of manufacturer discounts received for specific products dispensed. The liability for rebates due to the PSS’ clients is included in “Claims and discounts payable” in the accompanying consolidated balance sheets.

Medicare Part D - The PSS participates in the Federal Government’s Medicare Part D program as a Prescription Drug Plan (“PDP”). The PSS’ net revenues include insurance premiums earned by the PDP, which are determined based on the PDP’s annual bid and related contractual arrangements with the Centers for Medicare and Medicaid Services (“CMS”). The insurance premiums include a beneficiary premium, which is the responsibility of the PDP member, but is subsidized by CMS in the case of low-income members, and a direct premium paid by CMS. Premiums collected in advance are initially deferred in accrued expenses and are then recognized in net revenues over the period in which members are entitled to receive benefits.

In addition to these premiums, the PSS’ net revenues include co-payments, coverage gap benefits, deductibles and co-insurance (collectively, the “Member Co-Payments”) related to PDP members’ actual prescription claims. In certain cases, CMS subsidizes a portion of these Member Co-Payments and pays the PSS an estimated prospective Member Co-Payment subsidy amount each month. The prospective Member Co-Payment subsidy amounts received from CMS are also included in the PSS’ net revenues. The Company assumes no risk for these amounts, which represented 3.1%, 2.6% and 3.5% of consolidated net revenues in 2011, 2010 and 2009, respectively. If the prospective Member Co-Payment subsidies received differ from the amounts based on actual prescription claims, the difference is recorded in either accounts receivable or accrued expenses.

The PSS accounts for CMS obligations and Member Co-Payments (including the amounts subsidized by CMS) using the gross method consistent with its revenue recognition policies for Mail Co-Payments and Retail Co-Payments (discussed previously in this document). See Note 8 for additional information about Medicare Part D.

Retail Pharmacy Segment - The RPS recognizes revenue from the sale of merchandise (other than prescription drugs) at the time the merchandise is purchased by the retail customer. Revenue from the sale of prescription drugs is recognized at the time the prescription is filled, which is or approximates when the retail customer picks up the prescription. Customer returns are not material. Revenue generated from the performance of services in the RPS’ health care clinics is recognized at the time the services are performed. See Note 14 for additional information about the revenues of the Company’s business segments.

Cost of revenues:

Cost of revenues

Pharmacy Services Segment - The PSS’ cost of revenues includes: (i) the cost of prescription drugs sold during the reporting period directly through its mail service pharmacies and indirectly through its retail pharmacy network, (ii) shipping and handling costs, and (iii) the operating costs of its mail service pharmacies and client service operations and related information technology support costs including depreciation and amortization. The cost of prescription drugs sold component of cost of revenues includes: (i) the cost of the prescription drugs purchased from manufacturers or distributors and shipped to members in clients’ benefit plans from the PSS’ mail service pharmacies, net of any volume-related or other discounts (see “Drug Discounts” previously in this document) and (ii) the cost of prescription drugs sold (including Retail Co-Payments) through the PSS’ retail pharmacy network under contracts where it is the principal, net of any volume-related or other discounts.

Retail Pharmacy Segment - The RPS’ cost of revenues includes: the cost of merchandise sold during the reporting period and the related purchasing costs, warehousing and delivery costs (including depreciation and amortization) and actual and estimated inventory losses. See Note 14 for additional information about the cost of revenues of the Company’s business segments.

Vendor allowances and purchase discounts:

Vendor allowances and purchase discounts

The Company accounts for vendor allowances and purchase discounts as follows:

Pharmacy Services Segment - The PSS receives purchase discounts on products purchased. The PSS’ contractual arrangements with vendors, including manufacturers, wholesalers and retail pharmacies, normally provide for the PSS to receive purchase discounts from established list prices in one, or a combination of, the following forms: (i) a direct discount at the time of purchase, (ii) a discount for the prompt payment of invoices, or (iii) when products are purchased indirectly from a manufacturer (e.g., through a wholesaler or retail pharmacy), a discount (or rebate) paid subsequent to dispensing. These rebates are recognized when prescriptions are dispensed and are generally calculated and billed to manufacturers within 30 days of the end of each completed quarter. Historically, the effect of adjustments resulting from the reconciliation of rebates recognized to the amounts billed and collected has not been material to the PSS’ results of operations. The PSS accounts for the effect of any such differences as a change in accounting estimate in the period the reconciliation is completed. The PSS also receives additional discounts under its wholesaler contract if it exceeds contractually defined annual purchase volumes. In addition, the PSS receives fees from pharmaceutical manufacturers for administrative services. Purchase discounts and administrative service fees are recorded as a reduction of “Cost of revenues”.

Retail Pharmacy Segment - Vendor allowances received by the RPS reduce the carrying cost of inventory and are recognized in cost of revenues when the related inventory is sold, unless they are specifically identified as a reimbursement of incremental costs for promotional programs and/or other services provided. Amounts that are directly linked to advertising commitments are recognized as a reduction of advertising expense (included in operating expenses) when the related advertising commitment is satisfied. Any such allowances received in excess of the actual cost incurred also reduce the carrying cost of inventory. The total value of any upfront payments received from vendors that are linked to purchase commitments is initially deferred. The deferred amounts are then amortized to reduce cost of revenues over the life of the contract based upon purchase volume. The total value of any upfront payments received from vendors that are not linked to purchase commitments is also initially deferred. The deferred amounts are then amortized to reduce cost of revenues on a straight-line basis over the life of the related contract. The total amortization of these upfront payments was not material to the accompanying consolidated financial statements.

Insurance

Insurance - The Company is self-insured for certain losses related to general liability, workers’ compensation and auto liability. The Company obtains third party insurance coverage to limit exposure from these claims. The Company is also self-insured for certain losses related to health and medical liabilities. The Company’s self-insurance accruals, which include reported claims and claims incurred but not reported, are calculated using standard insurance industry actuarial assumptions and the Company’s historical claims experience.

Facility opening and closing costs

Facility opening and closing costs - New facility opening costs, other than capital expenditures, are charged directly to expense when incurred. When the Company closes a facility, the present value of estimated unrecoverable costs, including the remaining lease obligation less estimated sublease income and the book value of abandoned property and equipment, are charged to expense. The long-term portion of the lease obligations associated with facility closings was $327 million and $368 million in 2011 and 2010, respectively.

Advertising costs

Advertising costs - Advertising costs are expensed when the related advertising takes place. Advertising costs, net of vendor funding (included in operating expenses), were $211 million, $234 million and $317 million in 2011, 2010 and 2009, respectively.

Interest expense, net

Interest expense, net - Interest expense, net of capitalized interest, was $588 million, $539 million and $530 million, and interest income was $4 million, $3 million and $5 million in 2011, 2010 and 2009, respectively. Capitalized interest totaled $37 million, $47 million and $39 million in 2011, 2010 and 2009, respectively.

Shares held in trust

Shares held in trust - The Company maintains grantor trusts, which held approximately 2 million shares of its common stock at December 31, 2011 and 2010. These shares are designated for use under various employee compensation plans. Since the Company holds these shares, they are excluded from the computation of basic and diluted shares outstanding.

Accumulated other comprehensive loss

Accumulated other comprehensive loss - Accumulated other comprehensive loss consists of changes in the net actuarial gains and losses associated with pension and other postretirement benefit plans, and unrealized losses on derivatives. The amount included in accumulated other comprehensive loss related to the Company’s pension and postretirement plans was $250 million pre-tax ($152 million after-tax) as of December 31, 2011 and $217 million pre-tax ($132 million after-tax) as of December 31, 2010. The net impact on cash flow hedges totaled $32 million pre-tax ($20 million after-tax) and $18 million pre-tax ($11 million after-tax) as of December 31, 2011 and 2010, respectively.

Stock-based compensation

Stock-based compensation - Stock-based compensation expense is measured at the grant date based on the fair value of the award and is recognized as expense over the applicable requisite service period of the stock award (generally 3 to 5 years) using the straight-line method. Stock-based compensation costs are included in selling, general and administrative expenses.

Income taxes

Income taxes - The Company provides for federal and state income taxes currently payable, as well as for those deferred because of timing differences between reported income and expenses for financial statement purposes versus tax purposes. Federal and state tax credits are recorded as a reduction of income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recoverable or settled. The effect of a change in tax rates is recognized as income or expense in the period of the change.

Earnings per common share

Earnings per common share - Basic earnings per common share is computed by dividing: (i) net earnings by (ii) the weighted average number of common shares outstanding during the year (the “Basic Shares”).

Diluted earnings per common share is computed by dividing: (i) net earnings by (ii) Basic Shares plus the additional shares that would be issued assuming that all dilutive stock awards are exercised. Options to purchase 30.5 million, 34.3 million and 37.7 million shares of common stock were outstanding as of December 31, 2011, 2010 and 2009, respectively, but were not included in the calculation of diluted earnings per share because the options’ exercise prices were greater than the average market price of the common shares and, therefore, the effect would be antidilutive.

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Commitments and Contingencies

12 Months Ended

Dec. 31, 2011

Commitments and Contingencies

Commitments and Contingencies

13Commitments and Contingencies

Lease Guarantees

Between 1991 and 1997, the Company sold or spun off a number of subsidiaries, including Bob’s Stores, Linens ‘n Things, Marshalls, Kay-Bee Toys, Wilsons, This End Up and Footstar. In many cases, when a former subsidiary leased a store, the Company provided a guarantee of the store’s lease obligations. When the subsidiaries were disposed of, the Company’s guarantees remained in place, although each initial purchaser has indemnified the Company for any lease obligations the Company was required to satisfy. If any of the purchasers or any of the former subsidiaries were to become insolvent and failed to make the required payments under a store lease, the Company could be required to satisfy these obligations.

As of December 31, 2011, the Company guaranteed approximately 75 such store leases (excluding the lease guarantees related to Linens ‘n Things, which are discussed in Note 3 previously in this document), with the maximum remaining lease term extending through 2022. Management believes the ultimate disposition of any of the remaining guarantees will not have a material adverse effect on the Company’s consolidated financial condition, results of operations or future cash flows.

Legal Matters

Caremark (the term “Caremark” being used herein to generally refer to any one or more pharmacy benefit management subsidiaries of the Company, as applicable) is a defendant in a qui tam lawsuit initially filed by a relator on behalf of various state and federal government agencies in Texas federal court in 1999. The case was unsealed in May 2005. The case seeks monetary damages and alleges that Caremark’s processing of Medicaid and certain other government claims on behalf of its clients (which allegedly resulted in underpayments from our clients to the applicable government agencies) on one of Caremark’s adjudication platforms violates applicable federal or state false claims acts and fraud statutes. The United States and the States of Texas, Tennessee, Florida, Arkansas, Louisiana and California intervened in the lawsuit, but Tennessee and Florida withdrew from the lawsuit in August 2006 and May 2007, respectively. Thereafter, in 2008, the Company prevailed on several motions for partial summary judgment and, following an appellate ruling from the Fifth Circuit Court of Appeals in 2011 which affirmed in part and reversed in part these prior rulings, the claims asserted in the case against Caremark have been substantially narrowed. In April 2009, the State of Texas filed a purported civil enforcement action against Caremark for injunctive relief, damages and civil penalties in Travis County, Texas alleging that Caremark violated the Texas Medicaid Fraud Prevention Act and other state laws based on our processing of Texas Medicaid claims on behalf of PBM clients. In September 2011, the Company prevailed on a motion for partial summary judgment against the State of Texas and narrowed the remaining claims in the lawsuit. The claims and issues raised in this lawsuit are related to the claims and issues pending in the federal qui tam lawsuit described above.

In December 2007, the Company received a document subpoena from the Office of Inspector General, United States Department of Health and Human Services (“OIG”), requesting information relating to the processing of Medicaid and other government agency claims on a different adjudication platform of Caremark. In October 2009 and October 2010, the Company received civil investigative demands from the Office of the Attorney General of the State of Texas requesting, respectively, information produced under this OIG subpoena, and other information related to the processing of Medicaid claims. These civil investigative demands state that the Office of the Attorney General of the State of Texas is investigating allegations currently pending under seal relating to two of Caremark’s adjudication platforms. The Company has been producing documents on a rolling basis in response to the requests for information contained in the OIG subpoena and in these civil investigative demands. The Company cannot predict with certainty the timing or outcome of any review of such information.

Caremark was named in a putative class action lawsuit filed in October 2003 in Alabama state court by John Lauriello, purportedly on behalf of participants in the 1999 settlement of various securities class action and derivative lawsuits against Caremark and others. Other defendants include insurance companies that provided coverage to Caremark with respect to the settled lawsuits. The Lauriello lawsuit seeks approximately $3.2 billion in compensatory damages plus other non-specified damages based on allegations that the amount of insurance coverage available for the settled lawsuits was misrepresented and suppressed. A similar lawsuit was filed in November 2003 by Frank McArthur, also in Alabama state court, naming as defendants Caremark, several insurance companies, attorneys and law firms involved in the 1999 settlement. This lawsuit was stayed as a later-filed class action, but McArthur was subsequently allowed to intervene in the Lauriello action. The attorneys and law firms named as defendants in McArthur’s intervention pleadings have been dismissed from the case, and discovery on class certification and adequacy issues is underway.

Various lawsuits have been filed alleging that Caremark has violated applicable antitrust laws in establishing and maintaining retail pharmacy networks for client health plans. In August 2003, Bellevue Drug Co., Robert Schreiber, Inc. d/b/a Burns Pharmacy and Rehn-Huerbinger Drug Co. d/b/a Parkway Drugs #4, together with Pharmacy Freedom Fund and the National Community Pharmacists Association filed a putative class action against Caremark in Pennsylvania federal court, seeking treble damages and injunctive relief. This case was initially sent to arbitration based on the contract terms between the pharmacies and Caremark. In October 2003, two independent pharmacies, North Jackson Pharmacy, Inc. and C&C, Inc. d/b/a Big C Discount Drugs, Inc. filed a putative class action complaint in Alabama federal court against Caremark and two PBM competitors, seeking treble damages and injunctive relief. The North Jackson Pharmacy case against two of the Caremark entities named as defendants was transferred to Illinois federal court, and the case against a separate Caremark entity was sent to arbitration based on contract terms between the pharmacies and Caremark. The Bellevue arbitration was then stayed by the parties pending developments in the North Jackson Pharmacy court case.

In August 2006, the Bellevue case and the North Jackson Pharmacy case were both transferred to Pennsylvania federal court by the Judicial Panel on Multidistrict Litigation for coordinated and consolidated proceedings with other cases before the panel, including cases against other PBMs. Caremark appealed the decision which vacated the order compelling arbitration and staying the proceedings in the Bellevue case and, following the appeal, the Court of Appeals reinstated the order compelling arbitration of the Bellevue case. Motions for class certification in the coordinated cases within the multidistrict litigation, including the North Jackson Pharmacy case, remain pending. The consolidated action is now known as the In Re Pharmacy Benefit Managers Antitrust Litigation.

In August 2009, the Company was notified by the Federal Trade Commission (“FTC”) that it was conducting a non-public investigation under the Federal Trade Commission Act into certain of the Company’s business practices. In March 2010, the Company learned that various State Attorneys General offices and certain other government agencies were conducting a multi-state investigation of the Company regarding issues similar to those being investigated by the FTC. At this time, 28 states, the District of Columbia, and the County of Los Angeles are known to be participating in this multi-state investigation. On January 3, 2012, the FTC accepted for public comment, subject to final approval, a consent order. The proposed consent order would prohibit the Company from misrepresenting the price or cost of Medicare Part D prescription drugs, or other prices of costs associated with Medicare Part D prescription drug plans. The proposed order would also require the Company to pay $5 million in consumer redress, to be distributed to impacted RxAmerica Medicare Part D beneficiaries. The proposed order contains no allegations of antitrust law violations or anti-competitive behavior related to the Company’s business practices or its products or service offerings. In addition, the Company has received a formal letter from the FTC closing all other aspects of the investigation. With respect to the multi-state investigation, the Company continues to cooperate in this investigation. The Company is not able to predict with certainty the timing or outcome of the multi-state investigation. However, it remains confident that its business practices and service offerings (which are designed to reduce health care costs and expand consumer choice) are being conducted in compliance with the antitrust laws.

In March 2009, the Company received a subpoena from the OIG requesting information concerning the Medicare Part D prescription drug plans of RxAmerica, the PBM subsidiary of Longs Drug Stores Corporation which was acquired by the Company in October 2008. The Company continues to respond to the request for information and has been producing responsive documents on a rolling basis. The Company cannot predict with certainty the timing or outcome of any review by the government of such information.

Since March 2009, the Company has been named in a series of putative collective and class action lawsuits filed in federal courts around the country, purportedly on behalf of current and former assistant store managers working in the Company’s stores at various locations outside California. The lawsuits allege that the Company failed to pay overtime to assistant store managers as required under the Fair Labor Standards Act (“FLSA”) and under certain state statutes. The lawsuits also seek other relief, including liquidated damages, punitive damages, attorneys’ fees, costs and injunctive relief arising out of the state and federal claims for overtime pay. The Company has aggressively challenged both the merits of the lawsuits and the allegation that the cases should be certified as class or collective actions. In light of the cost and uncertainty involved in this litigation, however, the Company has reached an agreement with plaintiffs’ counsel to settle the series of lawsuits. The court preliminarily approved the settlement in December 2011 and the Company anticipates that final court approval will be granted in the second quarter of 2012. The Company has established legal reserves related to these matters to cover fully the settlement payments.

In November 2009, a securities class action lawsuit was filed in the United States District Court for the District of Rhode Island purportedly on behalf of purchasers of CVS Caremark Corporation stock between May 5, 2009 and November 4, 2009. The lawsuit names the Company and certain officers as defendants and includes allegations of securities fraud relating to public disclosures made by the Company concerning the PBM business and allegations of insider trading. In addition, a shareholder derivative lawsuit was filed in December 2009 in the same court against the directors and certain officers of the Company. A derivative lawsuit is a lawsuit filed by a shareholder purporting to assert claims on behalf of a corporation against directors and officers of the corporation. This lawsuit includes allegations of, among other things, securities fraud, insider trading and breach of fiduciary duties and further alleges that the Company was damaged by the purchase of stock at allegedly inflated prices under its share repurchase program. In January 2011, both lawsuits were transferred to the United States District Court for the District of New Hampshire. The Company believes these lawsuits are without merit, and the Company plans to defend them vigorously. The Company received a subpoena dated February 28, 2011 from the SEC requesting, among other corporate records, information relating to public disclosures made by the Company in 2009 concerning its PBM and Medicare Part D businesses and information concerning ownership and transactions in the Company’s securities by certain officers of the Company. The Company received a related subpoena dated September 20, 2011 from the SEC seeking, among other things, additional information concerning securities transactions by certain employees of the Company and public disclosures made by the Company during 2009. The Company is cooperating with these requests for information and is providing documents and other information to the SEC as requested.

In March 2010, the Company received a subpoena from the OIG requesting information about programs under which the Company has offered customers remuneration conditioned upon the transfer of prescriptions for drugs or medications to our pharmacies in the form of gift cards, cash, non-prescription merchandise or discounts or coupons for non-prescription merchandise. The subpoena relates to an investigation of possible false or otherwise improper claims for payment under the Medicare and Medicaid programs. The Company continues to respond to this request for information and has been producing responsive documents on a rolling basis. We cannot predict with certainty the timing or outcome of any reviews by the government of such information.

In January 2012, the Company received a subpoena from OIG requesting information about its Health Savings Pass program, a prescription drug discount program for uninsured or under insured individuals, in connection with an investigation of possible false or otherwise improper claims for payment involving United States Department of Health and Human Services programs. In February 2012, the Company also received a civil investigative demand from the Office of the Attorney General of the State of Texas requesting a copy of information produced under this OIG subpoena and other information related to prescription drug claims submitted by our pharmacies to Texas Medicaid for reimbursement. The Company will respond to these requests for information and cooperate with each of these investigations. We cannot predict with certainty the timing or outcome of any review by the applicable government agency of the requested information.

In addition to the legal matters described above, the Company is also a party to other legal proceedings and inquiries arising in the normal course of its business, none of which is expected to be material to the Company. The Company can give no assurance, however, that its business, financial condition and results of operations will not be materially adversely affected, or that the Company will not be required to materially change our business practices, based on: (i) future enactment of new health care or other laws or regulations; (ii) the interpretation or application of existing laws or regulations, as they may relate to our business, the pharmacy services, retail pharmacy or retail clinic industry or to the health care industry generally; (iii) pending or future federal or state governmental investigations of our business or the pharmacy services, retail pharmacy or retail clinic industry or of the health care industry generally; (iv) institution of government enforcement actions against us; (v) adverse developments in any pending qui tam lawsuit against us, whether sealed or unsealed, or in any future qui tam lawsuit that may be filed against us; or (vi) adverse developments in other pending or future legal proceedings against us or affecting the pharmacy services, retail pharmacy or retail clinic industry or the health care industry generally.

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Employee Stock Ownership Plan

12 Months Ended

Dec. 31, 2011

Employee Stock Ownership Plan

Employee Stock Ownership Plan

9Employee Stock Ownership Plan

The Company sponsored a defined contribution Employee Stock Ownership Plan (the “ESOP”) that covered full-time employees with at least one year of service. In 1989, the ESOP Trust issued and sold $358 million of 20-year, 8.52% notes, which were due and retired on December 31, 2008 (the “ESOP Notes”). The proceeds from the ESOP Notes were used to purchase 7 million shares of Series One ESOP Convertible Preference Stock (the “ESOP Preference Stock”) from the Company. Since the ESOP Notes were guaranteed by the Company, the outstanding balance was reflected as long-term debt, and a corresponding guaranteed ESOP obligation was reflected in shareholders’ equity in the consolidated balance sheet.

Each share of ESOP Preference Stock had a guaranteed minimum liquidation value of $53.45, was convertible into 4.628 shares of common stock and was entitled to receive an annual dividend of $3.90 per share. The ESOP Trust used the dividends received and contributions from the Company to repay the ESOP Notes. As the ESOP Notes were repaid, ESOP Preference Stock was allocated to plan participants based on (i) the ratio of each year’s debt service payment to total current and future debt service payments multiplied by (ii) the number of unallocated shares of ESOP Preference Stock in the plan.

ESOP expense recognized is equal to (i) the interest incurred on the ESOP Notes plus (ii) the higher of (a) the principal repayments or (b) the cost of the shares allocated, less (iii) the dividends paid. Similarly, the guaranteed ESOP obligation is reduced by the higher of (i) the principal payments or (ii) the cost of shares allocated.

On January 30, 2009, pursuant to the Company’s Amended and Restated Certificate of Incorporation (the “Charter”), the Company informed the trustee of the ESOP Trust of its intent to redeem for cash all of the outstanding shares of ESOP Preference Stock on February 24, 2009 (the “Redemption Date”). Under the Charter, at any time prior to the Redemption Date, the trustee had the right to convert the ESOP Preference Stock into shares of the Company’s common stock. The conversion rate at the time of the notice was 4.628 shares of common stock for each share of ESOP Preference Stock. The trustee exercised its right of conversion on February 23, 2009, and all of the approximately 4 million outstanding shares of ESOP Preference Stock were converted into approximately 17 million shares of common stock which were recorded as treasury stock. As of December 31, 2011, 2010 and 2009, no shares of ESOP Preference Stock were outstanding and allocated to plan participants.

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Leases

12 Months Ended

Dec. 31, 2011

Leases

Leases

7Leases

The Company leases most of its retail and mail order locations, ten of its distribution centers and certain corporate offices under non-cancelable operating leases, typically with initial terms of 15 to 25 years and with options that permit renewals for additional periods. The Company also leases certain equipment and other assets under noncancelable operating leases, typically with initial terms of 3 to 10 years. Minimum rent is expensed on a straight-line basis over the term of the lease. In addition to minimum rental payments, certain leases require additional payments based on sales volume, as well as reimbursement for real estate taxes, common area maintenance and insurance, which are expensed when incurred.

The following table is a summary of the Company’s net rental expense for operating leases for the respective years:

In millions	2011			2010			2009
Minimum rentals	$	2,087		$	2,001		$	1,857
Contingent rentals	49			53			61
	2,136			2,054			1,918
Less: sublease income	(19		)	(19		)	(19		)
	$	2,117		$	2,035		$	1,899

The following table is a summary of the future minimum lease payments under capital and operating leases as of December 31, 2011:

In millions	Capital Leases			Operating Leases(1)
2012	$	20		$	2,230
2013	20			2,143
2014	20			1,936
2015	20			1,880
2016	20			1,806
Thereafter	237			17,630
Total future lease payments	337			$	27,625
Less: imputed interest	(169		)
Present value of capital lease obligations	$	168

(1)Future operating lease payments have not been reduced by minimum sublease rentals of $246 million due in the future under noncancelable subleases.

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 qualify and are accounted for as operating leases. The operating leases that resulted from these transactions are included in the above table. 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. Proceeds from sale-leaseback transactions totaled $592 million in 2011, $507 million in 2010 and $1.6 billion in 2009.

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Medicare Part D

12 Months Ended

Dec. 31, 2011

Medicare Part D

Medicare Part D

8Medicare Part D

The Company offers Medicare Part D benefits through SilverScript, Accendo and Pennsylvania Life, which have contracted with CMS to be a PDP and, pursuant to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“MMA”), must be risk-bearing entities regulated under state insurance laws or similar statutes.

SilverScript, Accendo and Pennsylvania Life are licensed domestic insurance companies under the applicable laws and regulations. Pursuant to these laws and regulations, SilverScript, Accendo and Pennsylvania Life must file quarterly and annual reports with the National Association of Insurance Commissioners (“NAIC”) and certain state regulators, must maintain certain minimum amounts of capital and surplus under a formula established by the NAIC and must, in certain circumstances, request and receive the approval of certain state regulators before making dividend payments or other capital distributions to the Company. The Company does not believe these limitations on dividends and distributions materially impact its financial position.

The Company has recorded estimates of various assets and liabilities arising from its participation in the Medicare Part D program based on information in its claims management and enrollment systems. Significant estimates arising from its participation in this program include: (i) estimates of low-income cost subsidy and reinsurance amounts ultimately payable to or receivable from CMS based on a detailed claims reconciliation that will occur in the following year; (ii) an estimate of amounts receivable from or payable to CMS under a risk-sharing feature of the Medicare Part D program design, referred to as the risk corridor and (iii) estimates for claims that have been reported and are in the process of being paid or contested and for our estimate of claims that have been incurred but have not yet been reported.

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Pension Plans and Other Postretirement Benefits

12 Months Ended

Dec. 31, 2011

Pension Plans and Other Postretirement Benefits

Pension Plans and Other Postretirement Benefits

10Pension Plans and Other Postretirement Benefits

Defined Contribution Plans

The Company sponsors voluntary 401(k) savings plans that cover substantially all employees who meet plan eligibility requirements. The Company makes matching contributions consistent with the provisions of the plans.

At the participant’s option, account balances, including the Company’s matching contribution, can be moved without restriction among various investment options, including the Company’s common stock. The Company also maintains a nonqualified, unfunded Deferred Compensation Plan for certain key employees. This plan provides participants the opportunity to defer portions of their eligible compensation and receive matching contributions equivalent to what they could have received under the CVS Caremark 401(k) Plan absent certain restrictions and limitations under the Internal Revenue Code. The Company’s contributions under the above defined contribution plans were $187 million, $186 million and $173 million in 2011, 2010 and 2009, respectively.

Other Postretirement Benefits

The Company provides postretirement health care and life insurance benefits to certain retirees who meet eligibility requirements. The Company’s funding policy is generally to pay covered expenses as they are incurred. For retiree medical plan accounting, the Company reviews external data and its own historical trends for health care costs to determine the health care cost trend rates. As of December 31, 2011 and 2010, the Company’s postretirement medical plans have an accumulated postretirement benefit obligation of $17 million. Net periodic benefit costs related to these postretirement medical plans were approximately $1 million for 2011, 2010 and 2009.

Pursuant to various labor agreements, the Company also contributes to multiemployer health and welfare plans that cover union-represented employees. The plans provide postretirement health care and life insurance benefits to certain employees who meet eligibility requirements. Total Company contributions to multiemployer health and welfare plans were $47 million, $46 million and $47 million in 2011, 2010 and 2009, respectively.

Pension Plans

The Company sponsors nine defined benefit pension plans that cover certain full-time employees. Three of the plans are tax-qualified plans that are funded based on actuarial calculations and applicable federal laws and regulations. The other six plans are unfunded nonqualified supplemental retirement plans. All of the plans were frozen in prior periods, except one of the nonqualified plans.

As of December 31, 2011, the Company’s pension plans had a projected benefit obligation of $685 million and plan assets of $463 million. As of December 31, 2010, the Company’s pension plans had a projected benefit obligation of $659 million and plan assets of $426 million. Actual return on plan assets was $37 million and $45 million in 2011 and 2010, respectively. Net periodic pension costs related to these pension plans were $49 million, $36 million and $16 million in 2011, 2010 and 2009, respectively. The net periodic pension costs for 2011 and 2010 includes settlement losses of $25 million and $12 million, respectively, due to the impact of lump sum payouts.

The discount rate is determined by examining the current yields observed on the measurement date of fixed-interest, high quality investments expected to be available during the period to maturity of the related benefits on a plan by plan basis. The discount rate for the plans was 4.75% in 2011 and 5.5% in 2010. The expected long-term rate of return on plan assets is determined by using the plan’s target allocation and historical returns for each asset class on a plan by plan basis. The expected long-term rate of return for all plans was 7.25% in 2011 and 2010 and 8.5% in 2009.

Historically, the Company used an investment strategy, which emphasized equities in order to produce higher expected returns, and in the long run, lower expected expense and cash contribution requirements. The qualified pension plan asset allocation targets were 60% equity and 40% fixed income. As the result of a detailed asset liability study performed during 2009, the Company revised the pension plan target asset allocation to 50% equity and 50% fixed income with the transition to the new targets beginning in 2010.

As of December 31, 2011, the Company’s qualified defined benefit pension plan assets consisted of 47% equity, 51% fixed income, and 2% money market securities of which 82% were classified as Level 1 and 18% as Level 2 in the fair value hierarchy. The Company’s qualified defined benefit pension plan assets as of December 31, 2010 consisted of 57% equity, 42% fixed income, and 1% money market securities of which 71% were classified as Level 1 and 29% as Level 2 in the fair value hierarchy.

The Company contributed $92 million, $65 million and $50 million to the pension plans during 2011, 2010 and 2009, respectively. The Company plans to make approximately $34 million in contributions to the pension plans during 2012.

The Company also contributes to a number of multiemployer pension plans under the terms of collective-bargaining agreements that cover its union-represented employees. The risks of participating in these multiemployer plans are different from single-employer pension plans in the following aspects: (i) assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers, (ii) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers, and (iii) if the Company chooses to stop participating in some of its multiemployer plans, the Company may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

None of the multiemployer pension plans the Company participates in are individually significant to the Company. Total Company contributions to multiemployer pension plans were $11 million, $12 million and $10 million in 2011, 2010 and 2009, respectively.

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Significant Accounting Policies (Details)	12 Months Ended
	Dec. 31, 2011 segment	Dec. 31, 2011 Pharmacy Services Segment D pharmacy condition state	Dec. 31, 2011 Pharmacy Services Segment Net revenues CMS	Dec. 31, 2010 Pharmacy Services Segment Net revenues CMS	Dec. 31, 2009 Pharmacy Services Segment Net revenues CMS	Dec. 31, 2011 Pharmacy Services Segment Specialty stores pharmacy	Dec. 31, 2011 Pharmacy Services Segment Specialty mail order pharmacy	Dec. 31, 2011 Pharmacy Services Segment Mail service pharmacy	Dec. 31, 2011 Retail Pharmacy Segment state drugstore	Dec. 31, 2011 Retail Pharmacy Segment MinuteClinic within CVS Pharmacy Stores drugstore	Dec. 31, 2011 Retail Pharmacy Segment MinuteClinic drugstore	Dec. 31, 2011 Retail Pharmacy Segment CVS/pharmacy drugstore
Significant Accounting Policies
Number of segments	3
Segment reporting information
Number of pharmacies		65,000				31	12	4
Number of conditions for integrated disease management		28
Number of states pharmacies operated		22							41
Number of drugstores									7,327	648	657	7,271
Revenue recognition
Percentage of consolidated net revenues			3.10%	2.60%	3.50%
Cost of Revenue
Number of days from end of each completed quarter within which rebates are calculated and billed to manufacturers		30

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Income Taxes (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Current
Federal	$ 1,807	$ 1,884	$ 1,761
State	338	344	397
Total current income tax provision	2,145	2,228	2,158
Deferred
Federal	101	(44)	38
State	12	(5)	4
Total deferred income tax provision	113	(49)	42
Total	2,258	2,179	2,200
Reconciliation of the statutory income tax rate to the Company's effective income tax rate
Statutory income tax rate (as a percent)	35.00%	35.00%	35.00%
State income taxes, net of federal tax benefit (as a percent)	3.90%	4.10%	4.50%
Other (as a percent)	0.40%	0.60%	0.60%
Subtotal	39.30%	39.70%	40.10%
Recognition of previously unrecognized tax benefits (as a percent)		(0.80%)	(2.80%)
Effective income tax rate (as a percent)	39.30%	38.90%	37.30%
Deferred tax assets:
Lease and rents	325	325
Inventories	77	69
Employee benefits	253	261
Allowance for doubtful accounts	112	96
Retirement benefits	114	99
Net operating losses	6	6
Other	315	307
Total deferred tax assets	1,202	1,163
Deferred tax liabilities:
Depreciation and amortization	(4,552)	(4,307)
Net deferred tax liabilities	(3,350)	(3,144)
Net deferred tax assets (liabilities) presented on the consolidated balance sheets
Deferred tax assets-current	503	511
Deferred tax liabilities-noncurrent	(3,853)	(3,655)
Net deferred tax liabilities	(3,350)	(3,144)
Reconciliation of the beginning and ending amount of unrecognized tax benefits
Beginning balance	35	61	257
Additions based on tax positions related to the current year	3	1	1
Additions based on tax positions related to prior years	13	2	12
Reductions for tax positions of prior years		(10)	(6)
Expiration of statutes of limitation	(7)	(16)	(155)
Settlements	(6)	(3)	(48)
Ending balance	38	35	61
Utilization or reduction of the company's reserve for uncertain tax positions over the next twelve months	10
Interest recognized related to unrecognized tax benefits	2	3	5
Accrued interest and penalties related to unrecognized tax benefits	8	11
Unrecognized tax benefits that would impact effective tax rate	$ 25

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Earnings Per Common Share

12 Months Ended

Dec. 31, 2011

Earnings Per Common Share

Earnings Per Common Share

15Earnings Per Common Share

The following is a reconciliation of basic and diluted earnings per common share for the respective years:

In millions, except per share amounts	2011			2010		2009
Numerator for earnings per common share calculation:
Income from continuing operations	$	3,488		$	3,422	$	3,700
Net loss attributable to noncontrolling interest	4			3		—
Income from continuing operations attributable to CVS Caremark, basic	3,492			3,425		3,700
Income (loss) from discontinued operations, net of tax	(31		)	2		(4		)
Net income attributable to CVS Caremark, basic and diluted	$	3,461		$	3,427	$	3,696
Denominator for earnings per common share calculation:
Weighted average common shares, basic	1,338			1,367		1,434
Preference stock	—			—		1
Stock options	8			8		10
Restricted stock units	1			2		5
Weighted average common shares, diluted	1,347			1,377		1,450
Basic earnings per common share:
Income from continuing operations attributable to CVS Caremark	$	2.61		$	2.51	$	2.58
Loss from discontinued operations attributable to CVS Caremark	(0.02		)	—		—
Net income attributable to CVS Caremark	$	2.59		$	2.51	$	2.58
Diluted earnings per common share:
Income from continuing operations attributable to CVS Caremark	$	2.59		$	2.49	$	2.55
Loss from discontinued operations attributable to CVS Caremark	(0.02		)	—		—
Net income attributable to CVS Caremark	$	2.57		$	2.49	$	2.55

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Goodwill and Other Intangibles (Tables)

12 Months Ended

Dec. 31, 2011

Goodwill and Other Intangibles

Summary of the Company's intangible assets

	2011							2010
In millions	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Trademark (indefinitely-lived)	$	6,398	$	—		$	6,398	$	6,398	$	—		$	6,398
Customer contracts and relationships and covenants not to compete	5,427		(2,386		)	3,041		4,903		(1,982		)	2,921
Favorable leases and other	769		(339		)	430		762		(297		)	465
	$	12,594	$	(2,725	)	$	9,869	$	12,063	$	(2,279	)	$	9,784

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Stock Incentive Plans (Details 2) (USD $) In Millions, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Weighted Average Grant Date Fair Value
Excess tax benefits from stock-based compensation	$ 21	$ 28	$ 19
Cash received from stock options exercised	431	285	250
Total intrinsic value of options exercised	161	118	104
ESPP
Weighted Average Grant Date Fair Value
Fair value of options vested	452	445	383
Restricted stock awards
Compensation
Total fair value of restricted shares vested	33	44	18
Restricted unit and restricted share award
Compensation
Number of units granted (in shares)	1,121,000
Weighted average fair value of units granted (in dollars per share)	$ 34.84
Summary of the restricted unit and restricted share award activity under the ICPs
Nonvested at beginning of year (in shares)	2,688,000
Granted (in shares)	1,121,000
Vested (in shares)	(969,000)
Forfeited (in shares)	(234,000)
Nonvested at end of year (in shares)	2,606,000
Weighted Average Grant Date Fair Value
Weighted-Average Grant-Date Fair Value, Nonvested at beginning of year (in dollars per share)	$ 34.16
Weighted-Average Grant-Date Fair Value, Granted (in dollars per share)	$ 34.84
Weighted-Average Grant-Date Fair Value, Vested (in dollars per share)	$ 35.55
Weighted-Average Grant-Date Fair Value, Forfeited (in dollars per share)	$ 35.00
Weighted-Average Grant-Date Fair Value, Nonvested at end of year (in dollars per share)	$ 32.80
Restricted stock units
Compensation
Number of units granted (in shares)	1,121,000	1,095,000	1,284,000
Weighted average fair value of units granted (in dollars per share)	$ 34.84	$ 35.25	$ 27.77
Unrecognized compensation expense related to unvested options	$ 39
Unrecognized compensation expense related to unvested options, period of recognition (in years)	1.94
Summary of the restricted unit and restricted share award activity under the ICPs
Granted (in shares)	1,121,000	1,095,000	1,284,000
Weighted Average Grant Date Fair Value
Weighted-Average Grant-Date Fair Value, Granted (in dollars per share)	$ 34.84	$ 35.25	$ 27.77
Options granted prior to 2004
Weighted Average Grant Date Fair Value
Expiration period for options granted (in years)	P10Y
Exercisable period (in years)	4 years
Options granted during and subsequent to fiscal 2004
Weighted Average Grant Date Fair Value
Expiration period for options granted (in years)	P7Y
Exercisable period (in years)	3 years
Options granted at the Beginning of 2011
Weighted Average Grant Date Fair Value
Expiration period for options granted (in years)	P7Y
Exercisable period (in years)	4 years
2010 ICP
Compensation
Number of common shares authorized	74,000,000
Shares available for future grants under the ICP	58,000,000

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Goodwill and Other Intangibles (Details) (USD $)	12 Months Ended
	Dec. 31, 2011 Y unit	Dec. 31, 2010	Dec. 31, 2009
Intangible assets
Number of reporting units	2
Finite-lived intangible asset, gross carrying amount	$ 26,500,000,000	$ 25,700,000,000
Increase in goodwill	800,000,000
Goodwill related to the acquisition of UAM Medicare Part D Business	1,000,000,000
Goodwill associated with TheraCom business held for sale	200,000,000
Finite-lived intangible assets weighted average useful life (in years)	13.3
Amortization expense related to finite-lived intangible assets	452,000,000	427,000,000	430,000,000
Anticipated annual amortization expenses
Anticipated annual amortization expenses, 2012	456,000,000
Anticipated annual amortization expenses, 2013	433,000,000
Anticipated annual amortization expenses, 2014	400,000,000
Anticipated annual amortization expenses, 2015	372,000,000
Anticipated annual amortization expenses, 2016	344,000,000
Intangible assets, gross carrying amount	12,594,000,000	12,063,000,000
Finite-lived intangible asset, accumulated amortization	(2,725,000,000)	(2,279,000,000)
Intangible assets, net carrying amount	9,869,000,000	9,784,000,000
Customer contracts and relationships and covenants not to compete
Intangible assets
Finite-lived intangible assets weighted average useful life (in years)	12.8
Anticipated annual amortization expenses
Intangible assets, gross carrying amount	5,427,000,000	4,903,000,000
Finite-lived intangible asset, accumulated amortization	(2,386,000,000)	(1,982,000,000)
Intangible assets, net carrying amount	3,041,000,000	2,921,000,000
Favorable leases and other
Intangible assets
Finite-lived intangible assets weighted average useful life (in years)	16.4
Anticipated annual amortization expenses
Intangible assets, gross carrying amount	769,000,000	762,000,000
Finite-lived intangible asset, accumulated amortization	(339,000,000)	(297,000,000)
Intangible assets, net carrying amount	430,000,000	465,000,000
Trademarks (indefinitely-lived)
Anticipated annual amortization expenses
Indefinite-lived intangible assets	6,400,000,000	6,400,000,000
Intangible assets, gross carrying amount	6,398,000,000	6,398,000,000
Intangible assets, net carrying amount	$ 6,398,000,000	$ 6,398,000,000

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Consolidated Statements of Cash Flows (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Cash flows from operating activities:
Cash receipts from customers	$ 97,688	$ 94,503	$ 93,568
Cash paid for inventory and prescriptions dispensed by retail network pharmacies	(75,148)	(73,143)	(73,536)
Cash paid to other suppliers and employees	(13,635)	(13,778)	(13,121)
Interest received	4	4	5
Interest paid	(647)	(583)	(542)
Income taxes paid	(2,406)	(2,224)	(2,339)
Net cash provided by operating activities	5,856	4,779	4,035
Cash flows from investing activities:
Purchases of property and equipment	(1,872)	(2,005)	(2,548)
Proceeds from sale-leaseback transactions	592	507	1,562
Proceeds from sale of property and equipment	4	34	23
Acquisitions (net of cash acquired) and other investments	(1,441)	(177)	(101)
Purchase of available-for-sale investments	(3)		(5)
Sale or maturity of available-for-sale investments	60	1
Proceeds from sale of subsidiary	250
Net cash used in investing activities	(2,410)	(1,640)	(1,069)
Cash flows from financing activities:
Increase (decrease) in short-term debt	450	(15)	(2,729)
Proceeds from issuance of long-term debt	1,463	991	2,800
Repayments of long-term debt	(2,122)	(2,103)	(653)
Dividends paid	(674)	(479)	(439)
Derivative settlements	(19)	(5)	(3)
Proceeds from exercise of stock options	431	285	250
Excess tax benefits from stock-based compensation	21	28	19
Repurchase of common stock	(3,001)	(1,500)	(2,477)
Other	(9)
Net cash used in financing activities	(3,460)	(2,798)	(3,232)
Net increase (decrease) in cash and cash equivalents	(14)	341	(266)
Cash and cash equivalents at the beginning of the year	1,427	1,086	1,352
Cash and cash equivalents at the end of the year	1,413	1,427	1,086
Reconciliation of net income to net cash provided by operating activities:
Net income	3,457	3,424	3,696
Adjustments required to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,568	1,469	1,389
Stock-based compensation	135	150	165
Gain on sale of subsidiary	(53)
Deferred income taxes and other noncash items	144	30	48
Change in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable, net	(748)	532	(86)
Inventories	607	(352)	(1,199)
Other current assets	(420)	(4)	48
Other assets	(49)	(210)	(2)
Accounts payable	1,128	(40)	4
Accrued expenses	85	(176)	(66)
Other long-term liabilities	2	(44)	38
Net cash provided by operating activities	$ 5,856	$ 4,779	$ 4,035

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Goodwill and Other Intangibles

12 Months Ended

Dec. 31, 2011

Goodwill and Other Intangibles

Goodwill and Other Intangibles

4Goodwill and Other Intangibles

Goodwill and other indefinitely-lived assets are not amortized, but are subject to annual impairment reviews, or more frequent reviews if events or circumstances indicate impairment may exist.

When evaluating goodwill for potential impairment, the Company first compares the fair value of its two reporting units, the PSS and RPS, to their respective carrying amounts. The Company estimates the fair value of its reporting units using a combination of a future discounted cash flow valuation model and a comparable market transaction model. As the Company utilizes internal financial projections for the determination of future cash flows, the fair value methodology is considered to use inputs classified as Level 3 in the fair value hierarchy. If the estimated fair value of the reporting unit is less than its carrying amount, an impairment loss calculation is prepared. The impairment loss calculation compares the implied fair value of a reporting unit’s goodwill with the carrying amount of its goodwill. If the carrying amount of the goodwill exceeds the implied fair value, an impairment loss is recognized in an amount equal to the excess. During the third quarter of 2011, the Company performed its required annual goodwill impairment tests. The Company concluded there were no goodwill impairments as of the testing date. The carrying amount of goodwill was $26.5 billion and $25.7 billion as of December 31, 2011 and 2010, respectively (see Note 14 for a breakdown of Goodwill by segment). The $0.8 billion increase in goodwill in 2011 was primarily due to an increase of approximately $1.0 billion related to the acquisition of the UAM Medicare Part D Business, partially offset by the derecognition of approximately $0.2 billion of goodwill associated with the sale of TheraCom. These changes to goodwill affected the PSS.

Indefinitely-lived intangible assets are tested for impairment by comparing the estimated fair value of the asset to its carrying value. The Company estimates the fair value of its indefinitely-lived trademark using the relief from royalty method under the income approach. As this method of estimating fair value utilizes internal financial projections for determination of future cash flows, the fair value methodology is considered to use inputs classified as Level 3 in the fair value hierarchy. If the carrying value of the asset exceeds its estimated fair value, an impairment loss is recognized and the asset is written down to its estimated fair value. During the third quarter of 2011, the Company performed its annual impairment test of the indefinitely-lived trademark and concluded there was no impairment as of the testing date. The carrying amount of its indefinitely-lived trademark was $6.4 billion as of December 31, 2011 and 2010.

The Company amortizes intangible assets with finite lives over the estimated useful lives of the respective assets, which have a weighted average useful life of 13.3 years. The weighted average useful lives of the Company’s customer contracts and relationships and covenants not to compete are 12.8 years. The weighted average lives of the Company’s favorable leases and other intangible assets are 16.4 years. Amortization expense for intangible assets totaled $452 million, $427 million and $430 million in 2011, 2010 and 2009, respectively. The anticipated annual amortization expense for these intangible assets for the next five years is $456 million in 2012, $433 million in 2013, $400 million in 2014, $372 million in 2015 and $344 million in 2016.

The following table is a summary of the Company’s intangible assets as of December 31:

	2011							2010
In millions	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Trademark (indefinitely-lived)	$	6,398	$	—		$	6,398	$	6,398	$	—		$	6,398
Customer contracts and relationships and covenants not to compete	5,427		(2,386		)	3,041		4,903		(1,982		)	2,921
Favorable leases and other	769		(339		)	430		762		(297		)	465
	$	12,594	$	(2,725	)	$	9,869	$	12,063	$	(2,279	)	$	9,784

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Borrowing and Credit Agreements (Tables)

12 Months Ended

Dec. 31, 2011

Borrowing and Credit Agreements

Summary of the Company's borrowings

In millions	2011			2010
Commercial paper	$	750		$	300
5.75% senior notes due 2011	—			800
Floating rate notes due 2011	—			300
4.875% senior notes due 2014	550			550
3.25% senior notes due 2015	550			550
6.125% senior notes due 2016	700			700
5.75% senior notes due 2017	1,750			1,750
6.6% senior notes due 2019	1,000			1,000
4.75% senior notes due 2020	450			450
4.125% senior notes due 2021	550			—
6.25% senior notes due 2027	1,000			1,000
Trust Preferred Securities due 2037	50			—
6.125% senior notes due 2039	1,500			1,500
5.75% senior notes due 2041	950			—
6.302% Enhanced Capital Advantage Preferred Securities due 2062	42			1,000
Mortgage notes payable	4			6
Capital lease obligations	168			151
	10,014			10,057
Less:
Short-term debt (commercial paper)	(750		)	(300		)
Current portion of long-term debt	(56		)	(1,105		)
	$	9,208		$	8,652

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Significant Accounting Policies (Details 5) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Facility, opening and closing costs
Long-term portion of lease obligations associated with facility closings	$ 327	$ 368
Advertising costs
Advertising costs, net of vendor funding	211	234	317
Interest expense, net
Interest expense, net of capitalized interest	588	539	530
Interest income	4	3	5
Capitalized interest	37	47	39
Shares held in trust
Common stock, shares held in trust	2	2
Accumulated other comprehensive loss
Amount included in accumulated other comprehensive loss related to pension and postretirement plans, pre-tax	250	217
Amount included in accumulated other comprehensive loss related to pension and postretirement plans, after-tax	152	132
Net impact on cash flow hedges, pre-tax	32	18
Net impact on cash flow hedges, after-tax	$ 20	$ 11
Earnings per common share
Common stock outstanding but not included in the calculation of diluted earnings per share (in shares)	30.5	34.3	37.7
Minimum
Stock-Based Compensation
Requisite service period of the stock award (in years)	3 years
Maximum
Stock-Based Compensation
Requisite service period of the stock award (in years)	5 years

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Segment Reporting

12 Months Ended

Dec. 31, 2011

Segment Reporting

Segment Reporting

14Segment Reporting

The Company currently has three reportable segments: Pharmacy Services, Retail Pharmacy and Corporate.

The Company evaluates its Pharmacy Services and Retail Pharmacy segment performance based on net revenue, gross profit and operating profit before the effect of certain intersegment activities and charges. The Company evaluates the performance of its Corporate segment based on operating expenses before the effect of discontinued operations and certain intersegment activities and charges. See Note 1 for a description of the Pharmacy Services, Retail Pharmacy and Corporate segments and related significant accounting policies.

The following table is a reconciliation of the Company’s business segments to the consolidated financial statements:

In millions	Pharmacy Services Segment(1)(2)(3)		Retail Pharmacy Segment(2)		Corporate Segment			Intersegment Eliminations(2)			Consolidated Totals
2011:
Net revenues	$	58,874	$	59,599	$	—		$	(11,373	)	$	107,100
Gross profit	3,279		17,468		—			(186		)	20,561
Operating profit	2,220		4,912		(616		)	(186		)	6,330
Depreciation and amortization	433		1,060		75			—			1,568
Total assets	35,704		28,323		1,121			(605		)	64,543
Goodwill	19,657		6,801		—			—			26,458
Additions to property and equipment	461		1,353		58			—			1,872
2010:
Net revenues	$	47,145	$	57,345	$	—		$	(8,712	)	$	95,778
Gross profit	3,315		17,039		—			(135		)	20,219
Operating profit	2,361		4,537		(626		)	(135		)	6,137
Depreciation and amortization	390		1,016		63			—			1,469
Total assets	32,254		28,927		1,439			(451		)	62,169
Goodwill	18,868		6,801		—			—			25,669
Additions to property and equipment	234		1,708		63			—			2,005
2009:
Net revenues	$	50,551	$	55,355	$	—		$	(7,691	)	$	98,215
Gross profit	3,813		16,593		—			(48		)	20,358
Operating profit	2,853		4,159		(539		)	(48		)	6,425
Depreciation and amortization	377		965		47			—			1,389
Total assets	33,082		28,302		774			(517		)	61,641
Goodwill	18,879		6,801		—			—			25,680
Additions to property and equipment	218		2,183		147			—			2,548

(1)Net revenues of the Pharmacy Services segment include approximately $7.9 billion, $6.6 billion and $6.9 billion of Retail co-payments for the years ended December 31, 2011, 2010 and 2009, respectively.

(2)Intersegment eliminations relate to two types of transactions: (i) Intersegment revenues that occur when Pharmacy Services segment clients use Retail Pharmacy segment stores to purchase covered products. When this occurs, both the Pharmacy Services and Retail Pharmacy segments record the revenue on a standalone basis and (ii) Intersegment revenues, gross profit and operating profit that occur when Pharmacy Services segment clients, through the Company’s intersegment activities (such as the Maintenance Choice program), elect to pick up their maintenance prescriptions at Retail Pharmacy segment stores instead of receiving them through the mail. When this occurs, both the Pharmacy Services and Retail Pharmacy segments record the revenue, gross profit and operating profit on a standalone basis. Beginning in the fourth quarter of 2011, the Maintenance Choice eliminations reflect all discounts available for the purchase of mail order prescription drugs. The following amounts are eliminated in consolidation in connection with the item (ii) intersegment activity: net revenues of $2.6 billion, $1.8 billion and $0.7 billion for the years ended December 31, 2011, 2010 and 2009, respectively; gross profit and operating profit of $186 million, $135 million and $48 million for the years ended December 31, 2011, 2010 and 2009, respectively.

(3)The results of the Pharmacy Services segment for the years ended December 31, 2010 and 2009 have been revised to reflect the results of TheraCom as discontinued operations. See Note 3.