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to the Company's Current Report on Form 8-K filed with the SEC on

Wednesday, February 12, 2020 10 min read
Key Takeaway: Investor Valerie Haertel Media T.J. Crawford Contact: Senior Vice President Contact: Vice President Investor Relations External Affairs (401) 770-4050 (212) 457-0583 CVS HEALTH REPORTS FOURTH QUARTER AND FULL-YEAR 2019 RESULTS, REFLECTING STRONG EXECUTION ACROSS THE ENTERPR

Full Press Release Details

Investor Valerie Haertel Media T.J. Crawford
Contact: Senior Vice President Contact: Vice President
Investor Relations External Affairs
(401) 770-4050 (212) 457-0583
CVS HEALTH REPORTS FOURTH QUARTER AND FULL-YEAR 2019 RESULTS,
REFLECTING STRONG EXECUTION ACROSS THE ENTERPRISE
BUSINESS MOMENTUM DRIVES IMPROVED OUTLOOK FOR 2020
Fourth Quarter Highlights:
Full Year Highlights:
2020 Full Year Guidance:
WOONSOCKET, RHODE ISLAND, February 12, 2020 - CVS Health Corporation (NYSE: CVS) today announced operating results for the three months and year ended December 31, 2019.
"As we work to transform the way health care is delivered to millions of Americans, we are driving continued business performance and generating positive momentum across the enterprise. Our fourth quarter and full-year financial results reflect strong financial and operational execution and a successful first year of integrating the Aetna business. We're using our unmatched capabilities to create a higher-quality, simpler and more affordable health care experience, which benefits patients, clients and consumers and positions the company for continued success," said President and Chief Executive Officer Larry Merlo.
Merlo continued, "As a result of the significant progress we made in 2019, and meeting or exceeding our expectations for the year, we raised our outlook for 2020. Client, patient and consumer reception to our innovative product and service offerings, including our HealthHUB locations, has been positive. We are confident that we're on the right path to delivering significant value for all our stakeholders, which is a testament to the efforts of the nearly 300,000 CVS Health employees who work tirelessly to deliver these results while staying true to our purpose of helping people on their path to better health."
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The Company presents both GAAP and non-GAAP financial measures in this press release to assist in the comparison of the Company's past financial performance with its current financial performance. See "Non-GAAP Financial Information" on pages 11 through 12 and endnotes (1) through (4) on page 26 for explanations of non-GAAP financial measures presented in this press release. See pages 13 through 17 and 24 through 25 for reconciliations of each non-GAAP financial measure to the most directly comparable GAAP financial measure.
Consolidated Fourth Quarter and Full Year Results
Three Months Ended December 31, Year Ended December 31,
In millions, except per share amounts 2019 2018 Change 2019 2018 Change
Total revenues $ 66,889 $ 54,424 $ 12,465 $ 256,776 $ 194,579 $ 62,197
Operating income 3,037 824 2,213 11,987 4,021 7,966
Adjusted operating income (1) 3,766 3,719 47 15,339 11,261 4,078
Net income (loss) 1,744 (421 ) 2,165 6,631 (596 ) 7,227
Diluted earnings (loss) per share from continuing operations $ 1.33 $ (0.37 ) $ 1.70 $ 5.08 $ (0.57 ) $ 5.65
Adjusted EPS (2) $ 1.73 $ 2.14 $ (0.41 ) $ 7.08 $ 7.08 $ -
Enterprise prescriptions (5) (6) 708.2 685.2 23.0 2,757.7 2,658.0 99.7
Pharmacy Services Segment
The Pharmacy Services segment provides a full range of pharmacy benefit management solutions to employers, health plans, government employee groups and government sponsored programs. The segment results for the three months and year ended December 31, 2019 and 2018 were as follows:
Three Months Ended December 31, Year Ended December 31,
In millions 2019 2018 Change 2019 2018 Change
Total revenues $ 37,073 $ 34,899 $ 2,174 $ 141,491 $ 134,736 $ 6,755
Operating income 1,348 1,339 9 4,735 4,607 128
Adjusted operating income (1) 1,447 1,425 22 5,129 4,955 174
Total pharmacy claims processed (6) 533.9 484.6 49.3 2,014.2 1,889.8 124.4
Pharmacy network (7) 454.0 409.2 44.8 1,704.0 1,601.4 102.6
Mail choice (8) 79.9 75.4 4.5 310.2 288.4 21.8
See the supplemental information on page 20 for additional information regarding the performance of the Pharmacy Services segment.
The Retail/LTC segment fulfills prescriptions for medications, provides patient care programs, sells a wide assortment of general merchandise, provides health care services through walk-in medical clinics and provides services to long-term care facilities. The segment results for the three months and year ended December 31, 2019 and 2018 were as follows:
Three Months Ended December 31, Year Ended December 31,
In millions 2019 2018 Change 2019 2018 Change
Total revenues $ 22,580 $ 22,029 $ 551 $ 86,608 $ 83,989 $ 2,619
Operating income (loss) 1,909 (270 ) 2,179 5,793 620 5,173
Adjusted operating income (1) 2,031 2,124 (93 ) 6,705 7,403 (698 )
Prescriptions filled (6) 369.0 349.4 19.6 1,417.2 1,339.1 78.1
See the supplemental information on page 21 for additional information regarding the performance of the Retail/LTC segment.
Health Care Benefits Segment
The Health Care Benefits segment provides a full range of insured and self-insured ("ASC") medical, pharmacy, dental and behavioral health products and services. For periods prior to the Aetna Acquisition Date, the Health Care Benefits segment was comprised of the Company's SilverScript Medicare Part D prescription drug plan ("PDP") business. The segment results for the three months and year ended December 31, 2019 and 2018 were as follows:
Three Months Ended December 31, Year Ended December 31,
In millions, except percentages 2019 2018 Change 2019 2018 Change
Total revenues $ 17,150 $ 6,239 $ 10,911 $ 69,604 $ 8,962 $ 60,642
Operating income 386 432 (46 ) 3,639 368 3,271
Adjusted operating income (1) 779 590 189 5,202 528 4,674
Medical benefit ratio ("MBR") (a) 85.7 % NM 84.2 % NM
Medical membership 22.9 22.1 0.8
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See the supplemental information on page 22 for additional information regarding the performance of the Health Care Benefits segment.
2020 Full Year Guidance
The Company's full year 2020 consolidated GAAP operating income is projected to be in the range of $12.8 billion to $13.0 billion and full year 2020 adjusted operating income is projected to be in the range of $15.5 billion to $15.8 billion. Full year 2020 GAAP diluted EPS from continuing operations is projected to be in the range of $5.47 to $5.60, and full year 2020 Adjusted EPS is projected to be in the range of $7.04 to $7.17.
The adjustments between GAAP operating income and GAAP diluted EPS from continuing operations and adjusted operating income and Adjusted EPS include, as applicable, adding back amortization of intangible assets and integration costs related to the Aetna Acquisition.
Teleconference and Webcast
The Company will be holding a conference call today for investors at 8:00 a.m. (Eastern Time) to discuss its fourth quarter and full year results. An audio webcast of the call will be broadcast simultaneously for all interested parties through the Investor Relations section of the CVS Health website at http://investors.cvshealth.com. This webcast will be archived and available on the website for a one-year period following the conference call.
CVS Health employees are united around a common goal of becoming the most consumer-centric health company in the world. We're evolving based on changing consumer needs and meeting people where they are, whether that's in the community at one of our nearly 10,000 local touchpoints, in the home, or in the palm of their hand. Our newest offerings - from HealthHUB locations that are redefining what a pharmacy can be, to innovative programs that help manage chronic conditions - are designed to create a higher-quality, simpler and more affordable experience. Learn more about how we're transforming health at http://www.cvshealth.com.
Cautionary Statement Concerning Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of CVS Health Corporation. Statements in this press release that are forward-looking include the information under the heading "2020 Full Year Guidance" and the related endnotes and reconciliations and the information in Mr. Merlo's quoted statement. 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 as described in our Securities and Exchange Commission ("SEC") filings, including those set forth in the Risk Factors section and under the section entitled "Cautionary Statement Concerning Forward-Looking Statements" in our most recently filed Annual Report on Form 10-K and in our most recently filed Quarterly Report on Form 10-Q.
You are cautioned not to place undue reliance on CVS Health's forward looking statements. These 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. CVS Health does not assume any duty to update or revise forward-looking statements, whether as a result of new information, future events or otherwise, as of any future date.
CVS HEALTH CORPORATION
Condensed Consolidated Statements of Operations
Three Months Ended December 31, Year Ended December 31,
In millions, except per share amounts 2019 2018 2019 2018
Revenues:
Products $ 49,213 $ 47,875 $ 185,236 $ 183,910
Premiums 15,510 5,500 63,122 8,184
Services 1,960 874 7,407 1,825
Net investment income 206 175 1,011 660
Total revenues 66,889 54,424 256,776 194,579
Operating costs:
Cost of products sold 42,065 40,564 158,719 156,447
Benefit costs 13,133 4,195 52,529 6,594
Goodwill impairments - 2,228 - 6,149
Operating expenses 8,654 6,613 33,541 21,368
Total operating costs 63,852 53,600 244,789 190,558
Operating income 3,037 824 11,987 4,021
Interest expense 734 733 3,035 2,619
Loss on early extinguishment of debt - - 79 -
Other income (31 ) (11 ) (124 ) (4 )
Income before income tax provision 2,334 102 8,997 1,406
Income tax provision 590 524 2,366 2,002
Income (loss) from continuing operations 1,744 (422 ) 6,631 (596 )
Income from discontinued operations, net of tax - 1 - -
Net income (loss) 1,744 (421 ) 6,631 (596 )
Net loss attributable to noncontrolling interests 3 2 3 2
Net income (loss) attributable to CVS Health $ 1,747 $ (419 ) $ 6,634 $ (594 )
Basic earnings (loss) per share:
Income (loss) from continuing operations attributable to CVS Health $ 1.34 $ (0.37 ) $ 5.10 $ (0.57 )
Income from discontinued operations attributable to CVS Health $ - $ - $ - $ -
Net income (loss) attributable to CVS Health $ 1.34 $ (0.37 ) $ 5.10 $ (0.57 )
Weighted average basic shares outstanding 1,303 1,121 1,301 1,044
Diluted earnings (loss) per share:
Income (loss) from continuing operations attributable to CVS Health $ 1.33 $ (0.37 ) $ 5.08 $ (0.57 )
Income from discontinued operations attributable to CVS Health $ - $ - $ - $ -
Net income (loss) attributable to CVS Health $ 1.33 $ (0.37 ) $ 5.08 $ (0.57 )
Weighted average diluted shares outstanding 1,310 1,121 1,305 1,044
Dividends declared per share $ 0.50 $ 0.50 $ 2.00 $ 2.00
CVS HEALTH CORPORATION
Condensed Consolidated Balance Sheets
At December 31,
In millions 2019 2018
Assets:
Cash and cash equivalents $ 5,683 $ 4,059
Investments 2,373 2,522
Accounts receivable, net 19,617 17,631
Inventories 17,516 16,450
Other current assets 5,113 4,581
Total current assets 50,302 45,243
Long-term investments 17,314 15,732
Property and equipment, net 12,044 11,349
Operating lease right-of-use assets 20,860 -
Goodwill 79,749 78,678
Intangible assets, net 33,121 36,524
Separate accounts assets 4,459 3,884
Other assets 4,600 5,046
Total assets $ 222,449 $ 196,456
Liabilities:
Accounts payable $ 10,492 $ 8,925
Pharmacy claims and discounts payable 13,601 11,365
Health care costs payable 6,879 6,147
Policyholders' funds 2,991 2,939
Accrued expenses 12,133 10,711
Other insurance liabilities 1,830 1,937
Current portion of operating lease liabilities 1,596 -
Short-term debt - 720
Current portion of long-term debt 3,781 1,265
Total current liabilities 53,303 44,009
Long-term operating lease liabilities 18,926 -
Long-term debt 64,699 71,444
Deferred income taxes 7,294 7,677
Separate accounts liabilities 4,459 3,884
Other long-term insurance liabilities 7,436 8,119
Other long-term liabilities 2,162 2,780
Total liabilities 158,279 137,913
Shareholders' equity:
Preferred stock - -
Common stock and capital surplus 45,972 45,440
Treasury stock (28,235 ) (28,228 )
Retained earnings 45,108 40,911
Accumulated other comprehensive income 1,019 102
Total CVS Health shareholders' equity 63,864 58,225
Noncontrolling interests 306 318
Total shareholders' equity 64,170 58,543
Total liabilities and shareholders' equity $ 222,449 $ 196,456
CVS HEALTH CORPORATION
Condensed Consolidated Statements of Cash Flows
Year Ended December 31,
In millions 2019 2018
Cash flows from operating activities:
Cash receipts from customers $ 248,393 $ 186,519
Cash paid for inventory and prescriptions dispensed by retail network pharmacies (149,655 ) (148,981 )
Insurance benefits paid (52,242 ) (6,897 )
Cash paid to other suppliers and employees (28,932 ) (17,234 )
Interest and investment income received 955 644
Interest paid (2,954 ) (2,803 )
Income taxes paid (2,717 ) (2,383 )
Net cash provided by operating activities 12,848 8,865
Cash flows from investing activities:
Proceeds from sales and maturities of investments 7,049 817
Purchases of investments (7,534 ) (692 )
Purchases of property and equipment (2,457 ) (2,037 )
Proceeds from sale-leaseback transaction 5 -
Acquisitions (net of cash acquired) (444 ) (42,226 )
Proceeds from sale of subsidiary and other assets - 832
Other 42 21
Net cash used in investing activities (3,339 ) (43,285 )
Cash flows from financing activities:
Net repayments of short-term debt (720 ) (556 )
Proceeds from issuance of long-term debt 3,736 44,343
Repayments of long-term debt (8,336 ) (5,522 )
Derivative settlements (25 ) 446
Dividends paid (2,603 ) (2,038 )
Proceeds from exercise of stock options 210 242
Payments for taxes related to net share settlement of equity awards (112 ) (97 )
Other - 1
Net cash provided by (used in) financing activities (7,850 ) 36,819
Effect of exchange rate changes on cash, cash equivalents and restricted cash - (4 )
Net increase in cash, cash equivalents and restricted cash 1,659 2,395
Cash, cash equivalents and restricted cash at the beginning of the period 4,295 1,900
Cash, cash equivalents and restricted cash at the end of the period $ 5,954 $ 4,295
CVS HEALTH CORPORATION
Condensed Consolidated Statements of Cash Flows
Year Ended December 31,
In millions 2019 2018
Reconciliation of net income (loss) to net cash provided by operating activities:
Net income (loss) $ 6,631 $ (596 )
Adjustments required to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 4,371 2,718
Goodwill impairments - 6,149
Stock-based compensation 453 280
Loss on sale of subsidiary 205 86
Loss on early extinguishment of debt 79 -
Deferred income taxes (654 ) 87
Other noncash items 264 253
Change in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable, net (2,158 ) (1,139 )
Inventories (1,075 ) (1,153 )
Other assets (614 ) (3 )
Accounts payable and pharmacy claims and discounts payable 3,550 2,329
Health care costs payable and other insurance liabilities 320 (311 )
Other liabilities 1,476 165
Net cash provided by operating activities $ 12,848 $ 8,865
Non-GAAP Financial Information
The Company uses non-GAAP financial measures to analyze underlying business performance and trends. The Company believes that providing these non-GAAP financial measures enhances the Company's and investors' ability to compare the Company's past financial performance with its current performance. These non-GAAP financial measures are provided as supplemental information to the financial measures presented in this press release that are calculated and presented in accordance with GAAP. Non-GAAP financial measures should not be considered a substitute for, or superior to, financial measures determined or calculated in accordance with GAAP. The Company's definitions of its non-GAAP financial measures may not be comparable to similarly titled measurements reported by other companies.
Non-GAAP financial measures such as adjusted operating income, adjusted earnings per share (EPS), adjusted income from continuing operations attributable to CVS Health, adjusted revenues and adjusted operating expenses exclude from the relevant GAAP metrics, as applicable: amortization of intangible assets and other items, if any, that neither relate to the ordinary course of the Company's business nor reflect the Company's underlying business performance.
For the periods covered in this press release, the following items are excluded from the non-GAAP financial measures described above, as applicable, because the Company believes they neither relate to the ordinary course of the Company's business nor reflect the Company's underlying business performance:
See endnotes (1) through (4) for definitions of non-GAAP financial measures. Reconciliations of each of these non-GAAP financial measures to the most directly comparable GAAP financial measure are presented on pages 13 through 17 and 24 through 25.
Reconciliations of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures
Adjusted Operating Income
The following are reconciliations of operating income to adjusted operating income:
Three Months Ended December 31, 2019
In millions Pharmacy Services Retail/ LTC Health Care Benefits Corporate/ Other Intersegment Eliminations Consolidated Totals
Operating income (loss) (GAAP measure) $ 1,348 $ 1,909 $ 386 $ (430 ) $ (176 ) $ 3,037
Non-GAAP adjustments:
Amortization of intangible assets 99 122 393 - - 614
Acquisition-related integration costs - - - 115 - 115
Adjusted operating income (loss) (1) $ 1,447 $ 2,031 $ 779 $ (315 ) $ (176 ) $ 3,766
Three Months Ended December 31, 2018
In millions Pharmacy Services Retail/ LTC Health Care Benefits Corporate/ Other Intersegment Eliminations Consolidated Totals
Operating income (loss) (GAAP measure) $ 1,339 $ (270 ) $ 432 $ (466 ) $ (211 ) $ 824
Non-GAAP adjustments:
Amortization of intangible assets 86 123 158 - - 367
Acquisition-related transaction and integration costs - - - 340 - 340
Goodwill impairment - 2,228 - - - 2,228
Impairment of long-lived assets - 43 - - - 43
Interest income on financing for the Aetna Acquisition - - - (83 ) - (83 )
Adjusted operating income (loss) (1) $ 1,425 $ 2,124 $ 590 $ (209 ) $ (211 ) $ 3,719
Year Ended December 31, 2019
In millions Pharmacy Services Retail/ LTC Health Care Benefits Corporate/ Other Intersegment Eliminations Consolidated Totals
Operating income (loss) (GAAP measure) $ 4,735 $ 5,793 $ 3,639 $ (1,483 ) $ (697 ) $ 11,987
Non-GAAP adjustments:
Amortization of intangible assets 394 476 1,563 3 - 2,436
Acquisition-related integration costs - - - 480 - 480
Store rationalization charges - 231 - - - 231
Loss on divestiture of subsidiary - 205 - - - 205
Adjusted operating income (loss) (1) $ 5,129 $ 6,705 $ 5,202 $ (1,000 ) $ (697 ) $ 15,339
Year Ended December 31, 2018
In millions Pharmacy Services Retail/ LTC Health Care Benefits Corporate/ Other Intersegment Eliminations Consolidated Totals
Operating income (loss) (GAAP measure) $ 4,607 $ 620 $ 368 $ (805 ) $ (769 ) $ 4,021
Non-GAAP adjustments:
Amortization of intangible assets 348 498 160 - - 1,006
Acquisition-related transaction and integration costs - 7 - 485 - 492
Loss on divestiture of subsidiary - 86 - - - 86
Goodwill impairments - 6,149 - - - 6,149
Impairment of long-lived assets - 43 - - - 43
Interest income on financing for the Aetna Acquisition - - - (536 ) - (536 )
Adjusted operating income (loss) (1) $ 4,955 $ 7,403 $ 528 $ (856 ) $ (769 ) $ 11,261
Adjusted Earnings Per Share
The following are reconciliations of income (loss) from continuing operations attributable to CVS Health to adjusted income from continuing operations attributable to CVS Health and calculations of GAAP diluted EPS from continuing operations and Adjusted EPS:
Three Months Ended December 31, 2019 Three Months Ended December 31, 2018
In millions, except per share amounts Total Company Per Common Share Total Company Per Common Share
Income (loss) from continuing operations (GAAP measure) $ 1,744 $ (422 )
Net loss attributable to noncontrolling interests (GAAP measure) 3 2
Income allocable to participating securities (GAAP measure) (1 ) -
Income (loss) from continuing operations attributable to CVS Health (GAAP measure) 1,746 $ 1.33 (420 ) $ (0.37 )
Non-GAAP adjustments:
Amortization of intangible assets 614 0.47 367 0.32
Acquisition-related transaction and integration costs 115 0.09 340 0.30
Goodwill impairment - - 2,228 1.98
Impairment of long-lived assets - - 43 0.04
Net interest expense on financing for the Aetna Acquisition - - 197 0.17
Income tax benefit (204 ) (0.16 ) (338 ) (0.30 )
Income allocable to participating securities, net of tax (a) (1 ) - (2 ) -
Adjusted income from continuing operations attributable to CVS Health (2) $ 2,270 $ 1.73 $ 2,415 $ 2.14
Weighted average diluted shares outstanding (GAAP) (2) 1,310 1,121
Adjusted weighted average diluted shares outstanding (non-GAAP) (2) 1,310 1,126
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Year Ended December 31, 2019 Year Ended December 31, 2018
In millions, except per share amounts Total Company Per Common Share Total Company Per Common Share
Income (loss) from continuing operations (GAAP measure) $ 6,631 $ (596 )
Net loss attributable to noncontrolling interests (GAAP measure) 3 2
Income allocable to participating securities (GAAP measure) (5 ) (3 )
Income (loss) from continuing operations attributable to CVS Health (GAAP measure) 6,629 $ 5.08 (597 ) $ (0.57 )
Non-GAAP adjustments:
Amortization of intangible assets 2,436 1.87 1,006 0.96
Acquisition-related transaction and integration costs 480 0.37 492 0.47
Store rationalization charges 231 0.17 - -
Loss on divestiture of subsidiary 205 0.16 86 0.08
Loss on early extinguishment of debt 79 0.06 - -
Goodwill impairments - - 6,149 5.87
Impairment of long-lived assets - - 43 0.04
Net interest expense on financing for the Aetna Acquisition - - 894 0.86
Income tax benefit (815 ) (0.63 ) (658 ) (0.62 )
Income allocable to participating securities, net of tax (a) (1 ) - (9 ) (0.01 )
Adjusted income from continuing operations attributable to CVS Health (2) $ 9,244 $ 7.08 $ 7,406 $ 7.08
Weighted average diluted shares outstanding (GAAP) (2) 1,305 1,044
Adjusted weighted average diluted shares outstanding (non-GAAP) (2) 1,305 1,047
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Adjusted Revenues and Adjusted Operating Expenses
The following is a reconciliation of total revenues to adjusted revenues:
Three Months Ended December 31, Year Ended December 31,
In millions 2019 2018 2019 2018
Total revenues (GAAP measure) $ 66,889 $ 54,424 $ 256,776 $ 194,579
Non-GAAP adjustment:
Interest income on financing for the Aetna Acquisition - (83 ) - (536 )
Adjusted revenues (3) $ 66,889 $ 54,341 $ 256,776 $ 194,043
The following is a reconciliation of operating expenses to adjusted operating expenses:
Three Months Ended December 31, Year Ended December 31,
In millions 2019 2018 2019 2018
Operating expenses (GAAP measure) $ 8,654 $ 6,613 $ 33,541 $ 21,368
Non-GAAP adjustments:
Amortization of intangible assets (614 ) (367 ) (2,436 ) (1,006 )
Acquisition-related transaction and integration costs (115 ) (340 ) (480 ) (492 )
Store rationalization charges - - (231 ) -
Loss on divestiture of subsidiary - - (205 ) (86 )
Impairment of long-lived assets - (43 ) - (43 )
Adjusted operating expenses (4) $ 7,925 $ 5,863 $ 30,189 $ 19,741
Supplemental Information
The Company's segments maintain separate financial information, and the Company's chief operating decision maker (the "CODM") evaluates the segments' operating results on a regular basis in deciding how to allocate resources among the segments and in assessing segment performance. The CODM evaluates the performance of the Company's segments based on adjusted operating income. Effective for the first quarter of 2019, adjusted operating income is defined as operating income (GAAP measure) excluding the impact of amortization of intangible assets and other items, if any, that neither relate to the ordinary course of the Company's business nor reflect the Company's underlying business performance as further described in endnote (1). Segment financial information for the three months and year ended December 31, 2018 has been retrospectively adjusted to conform with the current period presentation. The Company uses adjusted operating income as its principal measure of segment performance as it enhances the Company's ability to compare past financial performance with current performance and analyze underlying business performance and trends.
Effective for the first quarter of 2019, the Company realigned the composition of its segments to correspond with changes to its operating model and reflect how the CODM reviews information and manages the business. As a result of this realignment, the Company's SilverScript PDP moved from the Pharmacy Services segment to the Health Care Benefits segment. In addition, the Company moved Aetna's mail order and specialty pharmacy operations from the Health Care Benefits segment to the Pharmacy Services segment. Segment financial information for the year ended December 31, 2018 was retrospectively adjusted to reflect these changes as reported in Exhibit 99.2 to the Company's Current Report on Form 8-K filed with the SEC on August 8, 2019. Segment financial information for the three months ended December 31, 2018, has been retrospectively adjusted to reflect these changes as shown below:
Three Months Ended December 31, 2018
In millions Pharmacy Services Retail/ LTC Health Care Benefits Corporate/ Other Intersegment Eliminations Consolidated Totals
Revenues, as previously reported $ 34,890 $ 22,029 $ 5,549 $ 131 $ (8,175 ) $ 54,424
Adjustments 9 - 690 - (699 ) -
Revenues, as adjusted $ 34,899 $ 22,029 $ 6,239 $ 131 $ (8,874 ) $ 54,424
Cost of products sold (a) $ 32,648 $ 15,588 $ 147 $ - $ (7,819 ) $ 40,564
Adjustments 611 - - - (611 ) -
Cost of products sold, as adjusted $ 33,259 $ 15,588 $ 147 $ - $ (8,430 ) $ 40,564
Benefit costs (a) $ 406 $ - $ 3,873 $ 22 $ (106 ) $ 4,195
Adjustments (406 ) - 406 - - -
Benefit costs, as adjusted $ - $ - $ 4,279 $ 22 $ (106 ) $ 4,195
Operating expenses, as previously reported $ 341 $ 4,483 $ 1,253 $ 575 $ (39 ) $ 6,613
Adjustments (40 ) - 128 - (88 ) -
Operating expenses, as adjusted $ 301 $ 4,483 $ 1,381 $ 575 $ (127 ) $ 6,613
Operating income (loss), as previously reported $ 1,495 $ (270 ) $ 276 $ (466 ) $ (211 ) $ 824
Adjustments (156 ) - 156 - - -
Operating income (loss), as adjusted 1,339 (270 ) 432 (466 ) (211 ) 824
Segment measure adjustments 86 2,394 158 257 - 2,895
Adjusted operating income (loss) $ 1,425 $ 2,124 $ 590 $ (209 ) $ (211 ) $ 3,719
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The following is a reconciliation of financial measures of the Company's segments to the consolidated totals:
In millions Pharmacy Services (a) Retail/ LTC Health Care Benefits Corporate/ Other Intersegment Eliminations (b) Consolidated Totals
Three Months Ended
December 31, 2019
Total revenues $ 37,073 $ 22,580 $ 17,150 $ 89 $ (10,003 ) $ 66,889
Operating income (loss) 1,348 1,909 386 (430 ) (176 ) 3,037
Adjusted operating income (loss) (1) 1,447 2,031 779 (315 ) (176 ) 3,766
December 31, 2018
Total revenues 34,899 22,029 6,239 131 (8,874 ) 54,424
Operating income (loss) 1,339 (270 ) 432 (466 ) (211 ) 824
Adjusted operating income (loss) (1) 1,425 2,124 590 (209 ) (211 ) 3,719
Year Ended
December 31, 2019
Total revenues $ 141,491 $ 86,608 $ 69,604 $ 512 $ (41,439 ) $ 256,776
Operating income (loss) 4,735 5,793 3,639 (1,483 ) (697 ) 11,987
Adjusted operating income (loss) (1) 5,129 6,705 5,202 (1,000 ) (697 ) 15,339
December 31, 2018
Total revenues 134,736 83,989 8,962 606 (33,714 ) 194,579
Operating income (loss) 4,607 620 368 (805 ) (769 ) 4,021
Adjusted operating income (loss) (1) 4,955 7,403 528 (856 ) (769 ) 11,261
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Supplemental Information
Pharmacy Services Segment
The following table summarizes the Pharmacy Services segment's performance for the respective periods:
Three Months Ended December 31, Year Ended December 31,
In millions, except percentages 2019 2018 2019 2018
Revenues:
Products $ 36,890 $ 34,792 $ 140,946 $ 134,285
Services 183 107 545 451
Total revenues 37,073 34,899 141,491 134,736
Cost of products sold 35,327 33,259 135,245 128,777
Operating expenses 398 301 1,511 1,352
Operating expenses as a % of total revenues 1.1 % 0.9 % 1.1 % 1.0 %
Operating income $ 1,348 $ 1,339 $ 4,735 $ 4,607
Operating income as a % of total revenues 3.6 % 3.8 % 3.3 % 3.4 %
Adjusted operating income (1) $ 1,447 $ 1,425 $ 5,129 $ 4,955
Adjusted operating income as a % of total revenues 3.9 % 4.1 % 3.6 % 3.7 %
Revenues (by distribution channel):
Pharmacy network (7) (10) $ 22,838 $ 22,609 $ 88,755 $ 87,167
Mail choice (8) (10) 14,075 12,175 52,141 47,049
Other 160 115 595 520
Pharmacy claims processed: (6)
Total 533.9 484.6 2,014.2 1,889.8
Pharmacy network (7) 454.0 409.2 1,704.0 1,601.4
Mail choice (8) 79.9 75.4 310.2 288.4
Generic dispensing rate: (6)
Total 87.8 % 86.9 % 88.2 % 87.3 %
Pharmacy network (7) 88.3 % 87.5 % 88.7 % 87.9 %
Mail choice (8) 85.2 % 83.6 % 85.1 % 83.9 %
Mail choice penetration rate (6) (8) 15.0 % 15.6 % 15.4 % 15.3 %
Supplemental Information
The following table summarizes the Retail/LTC segment's performance for the respective periods:
Three Months Ended December 31, Year Ended December 31,
In millions, except percentages 2019 2018 2019 2018
Revenues:
Products $ 22,326 $ 21,793 $ 85,729 $ 83,175
Services 254 236 879 814
Total revenues 22,580 22,029 86,608 83,989
Cost of products sold 16,184 15,588 62,688 59,906
Goodwill impairments - 2,228 - 6,149
Operating expenses 4,487 4,483 18,127 17,314
Operating expenses as a % of total revenues 19.9 % 20.4 % 20.9 % 20.6 %
Operating income (loss) $ 1,909 $ (270 ) $ 5,793 $ 620
Operating income (loss) as a % of total revenues 8.5 % (1.2 )% 6.7 % 0.7 %
Adjusted operating income (1) $ 2,031 $ 2,124 $ 6,705 $ 7,403
Adjusted operating income as a % of total revenues 9.0 % 9.6 % 7.7 % 8.8 %
Revenues (by major goods/service lines):
Pharmacy $ 17,245 $ 16,751 $ 66,442 $ 64,179
Front Store 5,134 5,066 19,422 19,055
Other 201 212 744 755
Prescriptions filled (6) 369.0 349.4 1,417.2 1,339.1
Revenues increase:
Total 2.5 % 5.4 % 3.1 % 5.8 %
Pharmacy 2.9 % 7.2 % 3.5 % 7.8 %
Front Store 1.3 % 1.7 % 1.9 % 1.5 %
Total prescription volume increase (6) 5.6 % 8.6 % 5.8 % 8.8 %
Same store sales increase: (9)
Total 3.2 % 5.7 % 3.7 % 6.0 %
Pharmacy 4.1 % 7.4 % 4.5 % 7.9 %
Front Store 0.7 % 0.5 % 1.1 % 0.5 %
Prescription volume (6) 6.9 % 9.1 % 7.2 % 9.1 %
Generic dispensing rate (6) 87.5 % 86.7 % 88.3 % 87.5 %
Supplemental Information
Health Care Benefits Segment
The following table summarizes the Health Care Benefits segment's performance for the respective periods:
Three Months Ended December 31, Year Ended December 31,
In millions, except percentages 2019 2018 2019 2018
Revenues:
Products $ - $ 164 $ - $ 164
Premiums 15,488 5,496 63,031 8,180
Services 1,521 531 5,974 560
Net investment income 141 48 599 58
Total revenues 17,150 6,239 69,604 8,962
Cost of products sold - 147 - 147
Benefit costs 13,277 4,279 53,092 6,678
MBR (Benefit costs as a % of premium revenues) (a) 85.7 % NM 84.2 % NM
Operating expenses $ 3,487 $ 1,381 $ 12,873 $ 1,769
Operating expenses as a % of total revenues 20.3 % 22.1 % 18.5 % 19.7 %
Operating income $ 386 $ 432 $ 3,639 $ 368
Operating income as a % of total revenues 2.3 % 6.9 % 5.2 % 4.1 %
Adjusted operating income (1) $ 779 $ 590 $ 5,202 $ 528
Adjusted operating income as a % of total revenues 4.5 % 9.5 % 7.5 % 5.9 %
_____________________________________________
The following table summarizes the Health Care Benefits segment's medical membership for the respective periods:
December 31, 2019 September 30, 2019 December 31, 2018
In thousands Insured ASC Total Insured ASC Total Insured ASC Total
Medical membership:
Commercial 3,591 14,159 17,750 3,560 14,159 17,719 3,871 13,888 17,759
Medicare Advantage 2,321 - 2,321 2,304 - 2,304 1,758 - 1,758
Medicare Supplement 881 - 881 842 - 842 793 - 793
Medicaid 1,398 558 1,956 1,382 562 1,944 1,128 663 1,791
Total medical membership 8,191 14,717 22,908 8,088 14,721 22,809 7,550 14,551 22,101
Supplemental membership information:
Medicare Prescription Drug Plan (standalone) (a) 5,994 5,998 6,134
_____________________________________________
Supplemental Information
The following table shows the components of the change in health care costs payable during the years ended December 31, 2019 and 2018:
In millions 2019 2018
Health care costs payable, beginning of period $ 6,147 $ 5
Less: Reinsurance recoverables 4 -
Health care costs payable, beginning of period, net 6,143 5
Acquisitions, net - 5,357
Reclassification from pharmacy claims and discounts payable (a) - 776
Add: Components of incurred health care costs
Current year 52,723 6,594
Prior years (b) (524 ) (42 )
Total incurred health care costs (c) 52,199 6,552
Less: Claims paid
Current year 46,158 6,303
Prior years 5,314 260
Total claims paid 51,472 6,563
Add: Premium deficiency reserve 4 16
Health care costs payable, end of period, net 6,874 6,143
Add: Reinsurance recoverables 5 4
Health care costs payable, end of period $ 6,879 $ 6,147
_____________________________________________
Days Claims Payable
December 31, 2019 September 30, 2019 June 30, 2019 March 31, 2019
Days Claims Payable (a) 48 51 48 45
_____________________________________________
Adjusted Operating Income Guidance
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Last updated: Feb 12, 2020