CVS 2014 Annual Report Download - page 42

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Management’s Discussion and Analysis
of Financial Condition and Results of Operations
40
CVS Health
Below is a summary of our significant contractual obligations as of December 31, 2014:
PAYMENTS DUE BY PERIOD
2016 to 2018 to
IN MILLIONS Total 2015 2017 2019 Thereafter
Operating leases $ 27,282 $ 2,279 $ 4,341 $ 3,868 $ 16,794
Lease obligations from discontinued operations 51 16 24 6 5
Capital lease obligations 810 47 94 96 573
Long-term debt 11,879 563 2,276 2,494 6,546
Interest payments on long-term debt (1) 5,173 484 867 689 3,133
Other long-term liabilities reflected in our
consolidated balance sheet 652 48 254 100 250
$ 45,847 $ 3,437 $ 7,856 $ 7,253 $ 27,301
(1) Interest payments on long-term debt are calculated on outstanding balances and interest rates in effect on December 31, 2014.
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 dispensing pharmacies
and indirectly through our retail pharmacy network. We recognize revenues in our Pharmacy Services Segment from
prescription drugs sold by our mail service dispensing 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. Sales taxes
are not included in revenue.