Segment Information

12 Months Ended

Dec. 31, 2018

Note 21 – Segment Information

See Note 1 for a description of our segments. Effective with the fourth quarter of 2018, the Company uses adjusted income from operations on a before-tax basis as its principal financial measure of segment operating performance. Prior year segment information has been adjusted to reflect this change and a description of our basis for reporting segment operating results is outlined below. Intersegment transactions primarily reflect home delivery pharmacy sales to insured customers of the Integrated Medical segment. These transactions are eliminated in consolidation.

The Company uses “pre-tax adjusted income from operations” as its principal financial measure of segment operating performance because management believes it best reflects the underlying results of business operations and permits analysis of trends in underlying revenue, expenses and profitability. Pre-tax adjusted income from operations is defined as income before taxes excluding realized investment results, amortization of acquired intangible assets, results of transitioning clients and special items. Income or expense amounts that are excluded from adjusted income from operations because they are not indicative of underlying performance or the responsibility of operating segment management include:

Realized investment gains (losses), including changes in market values of certain financial instruments between balance sheet dates, as well as gains and losses associated with invested asset sales
Amortization of acquired intangible assets, because these relate to costs incurred for acquisitions
Results of transitioning clients, because those results are not indicative of ongoing results
Special items, if any, that management believes are not representative of the underlying results of operations due to the nature or size of these matters. Further context about these items is provided in the footnotes listed in the table below.

The following table presents the special items recorded by the Company for the years ended December 31, 2018, 2017 and 2016.

(In millions)
Description of Special Item Charges (Benefits) and Financial Statement Line Item(s)			After-tax		Before-tax
Year ended December 31, 2018
	Transaction-related costs
	- Selling, general and administrative expenses (see Note 3)	$	587	$	748
	- Interest expense and other (see Note 3)		179		227
	- Net investment income (see Note 3)		(97)		(123)
	Total transaction-related costs	$	669	$	852
	Charges associated with litigation matters (Selling, general and administrative expenses, see Note 19D.)	$	19	$	25
	Total charges associated with U.S. tax reform
	- Selling, general and administrative expenses	$	1	$	2
	- Tax expense		(3)		-
	Total charges associated with U.S. tax reform	$	(2)	$	2
Year ended December 31, 2017
	Transaction-related costs (see Note 3)	$	33	$	126
	Charges associated with U.S. tax reform
	- Selling, general and administrative expenses	$	(36)	$	(56)
	- Tax expense (see Note 18)		232		-
	Total charges associated with U.S. tax reform	$	196	$	(56)
	Debt extinguishment costs (see Note 5)	$	209	$	321
	Long-term care guaranty fund assessment (Selling, general and administrative expenses, see Note 19D. for details)	$	83	$	129
Year ended December 31, 2016
	Transaction-related costs (see Note 3)	$	147	$	166
	Charges associated with litigation matters (Selling, general and administrative expenses, see Note 19D. for details)	$	25	$	40
	Risk corridor allowance (Selling, general and administrative expenses)	$	80	$	124

Summarized segment financial information for the years ended December 31, was as follows:

(In millions)	Integrated Medical		Health Services		International Markets		Group Disability and Other		Corporate and Eliminations		Total
2018
Revenues from external customers⁽¹⁾	$	31,759	$	5,902	$	5,174	$	4,335	$	-	$	47,170
Inter-segment revenues		573		1,154		-		14		(1,741)		-
Net investment income		459		9		149		712		151		1,480
Total revenues		32,791		7,065		5,323		5,061		(1,590)		48,650
Revenue contributions from transitioning clients		-		(459)		-		-		-		(459)
Net realized investment results from equity method subsidiaries⁽²⁾		-		-		43		-		-		43
Special items reported in transaction-related costs		-		-		-		-		(123)		(123)
Adjusted revenues	$	32,791	$	6,606	$	5,366	$	5,061	$	(1,713)	$	48,111
Depreciation and amortization	$	466	$	120	$	55	$	53	$	1	$	695
Income (loss) before taxes	$	3,342	$	329	$	670	$	497	$	(1,257)	$	3,581
Pre-tax adjustments to reconcile to adjusted income from operations
Adjustment for transitioning clients		-		(62)		-		-		-		(62)
(Income) loss attributable to noncontrolling interests		-		-		(14)		-		-		(14)
Net realized investment (gains) losses⁽²⁾		36		-		61		25		2		124
Amortization of acquired intangible assets		99		113		18		5		-		235
Special items
Transaction-related costs		-		-		-		-		852		852
Charges associated with litigation matters		25		-		-		-		-		25
U.S. tax reform		-		-		-		2		-		2
Pre-tax adjusted income (loss) from operations	$	3,502	$	380	$	735	$	529	$	(403)	$	4,743



(In millions)	Integrated Medical		Health Services		International Markets		Group Disability and Other		Corporate and Eliminations		Total
2017
Revenues from external customers⁽¹⁾	$	28,193	$	3,250	$	4,774	$	4,363	$	-	$	40,580
Inter-segment revenues		476		988		-		12		(1,476)		-
Net investment income		366		3		127		700		30		1,226
Total revenues	$	29,035	$	4,241	$	4,901	$	5,075	$	(1,446)	$	41,806
Adjusted revenues	$	29,035	$	4,241	$	4,901	$	5,075	$	(1,446)	$	41,806
Depreciation and amortization	$	470	$	-	$	61	$	31	$	4	$	566
Income (loss) before taxes	$	2,859	$	288	$	667	$	614	$	(822)	$	3,606
Pre-tax adjustments to reconcile to adjusted income from operations
(Income) loss attributable to noncontrolling interests		1		-		1		-		-		2
Net realized investment (gains) losses		(137)		-		(31)		(69)		-		(237)
Amortization of acquired intangible assets		93		-		17		5		-		115
Special items
Transaction-related costs		-		-		-		-		126		126
U.S. tax reform		-		-		-		(56)		-		(56)
Debt extinguishment costs		-		-		-		-		321		321
Long-term care guaranty fund assessment		106		-		-		23		-		129
Pre-tax adjusted income (loss) from operations	$	2,922	$	288	$	654	$	517	$	(375)	$	4,006

(1) Includes the Company’s share of the earnings of its joint ventures reported in the International Markets segment using the equity method of accounting.
(2) Beginning in 2018, includes the Company's share of the realized investment gains (losses) of its joint ventures reported using the equity method of accounting.















(In millions)	Integrated Medical		Health Services		International Markets		Group Disability and Other		Corporate and Eliminations		Total
2016
Revenues from external customers⁽¹⁾	$	26,695	$	3,169	$	4,424	$	4,403	$	-	$	38,691
Inter-segment revenues		395		894		-		-		(1,289)		-
Net investment income		305		3		113		705		21		1,147
Total revenues	$	27,395	$	4,066	$	4,537	$	5,108	$	(1,268)	$	39,838
Adjusted revenues	$	27,395	$	4,066	$	4,537	$	5,108	$	(1,268)	$	39,838
Depreciation and amortization	$	519	$	-	$	61	$	29	$	1	$	610
Income (loss) before taxes	$	2,417	$	268	$	497	$	324	$	(527)	$	2,979
Pre-tax adjustments to reconcile to adjusted income from operations
(Income) loss attributable to noncontrolling interests		2		-		18		-		-		20
Net realized investment (gains) losses		(116)		-		2		(54)		(1)		(169)
Amortization of acquired intangible assets		125		-		21		5		-		151
Special items
Transaction-related costs		-		-		-		-		166		166
Risk corridor allowance		124		-		-		-		-		124
Charges associated with litigation matters		40		-		-		-		-		40
Pre-tax adjusted income (loss) from operations	$	2,592	$	268	$	538	$	275	$	(362)	$	3,311

(1) Includes the Company’s share of the earnings of its joint ventures reported in the International Markets segment using the equity method of accounting.

Revenue from external customers includes premiums, pharmacy revenues, and fees and other revenues. The following table presents these revenues by premium, service and product type for the years ended December 31:

(In millions)	2018		2017		2016
Insurance premiums
Integrated Medical premiums (ASC 944)
Commercial Premiums
Risk	$	10,710	$	9,439	$	7,911
Stop loss		4,008		3,483		3,082
Other		1,038		917		886
Government
Medicare Advantage		5,832		5,534		6,621
Medicare Part D		764		764		1,122
Other		4,496		3,494		2,640
Total Integrated Medical premiums		26,848		23,631		22,262
International Markets premiums		5,043		4,619		4,273
Domestic disability, life and accident premiums		4,000		3,973		4,002
Other premiums		222		268		287
Total premiums		36,113		32,491		30,824
Services (ASC 606)
Fees		5,558		5,053		4,844
Other external revenues		20		57		57
2016-2017 other revenues adjustment				57		57

Total services		5,578		5,110		4,901
Products (Pharmacy revenues) (ASC 606)
Home delivery and specialty revenues		3,997		2,979		2,966
Network revenues		1,415		-		-
Other		67		-		-
Total pharmacy revenues		5,479		2,979		2,966
Total revenues from external customers	$	47,170	$	40,580	$	38,691

Foreign and U.S. revenues from external customers for the three years ended December 31 are shown below. The Company’s foreign revenues are generated by its foreign operating entities. In the periods shown, no foreign country contributed more than 5% of consolidated revenues from external customers.

(In millions)	2018		2017		2016
United States	$	42,773	$	36,555	$	35,011
South Korea		2,093		1,892		1,666
All other foreign countries		2,304		2,133		2,014
Total	$	47,170	$	40,580	$	38,691

Revenues from CMS were 16% of consolidated revenues in 2018 and 2017, compared with 19% in 2016. These amounts were reported in the Integrated Medical segment.