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Segment Information
 9 Months Ended
Sep. 30, 2019
Segment Information [Abstract]  
Segment Information [Text Block]

Note 18 – Segment Information

 

See Note 1 for a description of our segments that changed effective with the fourth quarter of 2018. Prior year segment information reported in this Form 10-Q was adjusted to reflect these changes. In addition, effective with the first quarter of 2019, the Company began allocating compensation cost for stock options to the segments. Prior year segment information was not restated for this change. A description of our basis for reporting segment operating results is outlined below. Intersegment transactions primarily reflect pharmacy sales to insured customers of the Integrated Medical segment. These and other transactions are eliminated in consolidation.

 

The Company uses “pre-tax adjusted income from operations” and “adjusted revenues” as its principal financial measures of segment operating performance because management believes they best reflect the underlying results of business operations and permit 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 Anthem and Coventry Health Care, Inc. (the “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.

 

Adjusted revenues is defined as revenues excluding: 1) revenue contributions from transitioning clients; 2) the Company’s share of certain realized investment results of its joint ventures reported in the International Markets segment using the equity method of accounting; and 3) special items, if any.

 

The following tables present the special items recorded by the Company for the three and nine months ended September 30, 2019 and 2018.

 

 

Three Months Ended

(In millions)

September 30, 2019

 

September 30, 2018

Description of Special Item Charges (Benefits) and Financial Statement Line Item(s)

 

After-tax

 

 

Before-tax

 

 

After-tax

 

 

Before-tax

Integration and transaction-related costs (See Note 4)

$

88

 

$

114

 

$

108

 

$

128

Charges (benefits) associated with litigation matters (1)

 

(23)

 

 

(30)

 

 

35

 

 

45

Charges (benefits) associated with U.S. Tax Reform

 

-

 

 

-

 

 

(5)

 

 

2

Total impact from special items

$

65

 

$

84

 

$

138

 

$

175

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

(In millions)

September 30, 2019

 

September 30, 2018

Description of Special Item Charges (Benefits) and Financial Statement Line Item(s)

 

After-tax

 

 

Before-tax

 

 

After-tax

 

 

Before-tax

Integration and transaction-related costs (See Note 4)

$

311

 

$

405

 

$

267

 

$

318

Charges associated with litigation matters (1) (2)

 

41

 

 

51

 

 

35

 

 

45

Charges (benefits) associated with U.S. Tax Reform

 

-

 

 

-

 

 

(5)

 

 

2

Total impact from special items

$

352

 

$

456

 

$

297

 

$

365

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) See Note 16 for additional information.

(2) The Company recorded a charge in the second quarter of 2019 related to the sale of a subsidiary and is appealing.

Summarized segment financial information for the three and nine months ended September 30 was as follows:

(In millions)

Health Services

Integrated Medical

International Markets

Group Disability and Other

Corporate and Eliminations

Total

Three months ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers (1)

$

27,084

$

8,648

$

1,368

$

1,107

$

-

$

38,207

Inter-segment revenues

 

499

 

376

 

-

 

7

 

(882)

 

-

Net investment income

 

15

 

124

 

39

 

170

 

1

 

349

Total revenues

 

27,598

 

9,148

 

1,407

 

1,284

 

(881)

 

38,556

Revenue contributions from transitioning clients

 

(2,718)

 

-

 

-

 

-

 

-

 

(2,718)

Net realized investment results from certain equity method investments (2)

 

-

 

-

 

(5)

 

-

 

-

 

(5)

Adjusted revenues

$

24,880

$

9,148

$

1,402

$

1,284

$

(881)

$

35,833

Income (loss) before taxes

$

965

$

1,011

$

184

$

159

$

(556)

$

1,763

Pre-tax adjustments to reconcile to adjusted income from operations

Adjustment for transitioning clients

 

(274)

 

-

 

-

 

-

 

-

 

(274)

(Income) attributable to noncontrolling interests

 

-

 

-

 

(4)

 

-

 

-

 

(4)

Net realized investment (gains) losses (2)

 

-

 

(43)

 

5

 

(18)

 

-

 

(56)

Amortization of acquired intangible assets

 

708

 

15

 

9

 

2

 

-

 

734

Special items

 

 

 

 

 

 

 

 

 

 

 

 

Integrated and transaction-related costs

 

-

 

-

 

-

 

-

 

114

 

114

Charges associated with litigation matters

 

-

 

(30)

 

-

 

-

 

-

 

(30)

Pre-tax adjusted income (loss) from operations

$

1,399

$

953

$

194

$

143

$

(442)

$

2,247

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In millions)

Health Services

Integrated Medical

International Markets

Group Disability and Other

Corporate and Eliminations

Total

Three months ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers (1)

$

828

$

7,907

$

1,285

$

1,082

$

-

$

11,102

Inter-segment revenues

 

279

 

150

 

-

 

4

 

(433)

 

-

Net investment income

 

2

 

117

 

40

 

176

 

20

 

355

Total revenues

 

1,109

 

8,174

 

1,325

 

1,262

 

(413)

 

11,457

Net realized investment results from certain equity method investments (2)

 

-

 

-

 

1

 

-

 

-

 

1

Special items reported in transaction-related costs

 

-

 

-

 

-

 

-

 

(13)

 

(13)

Adjusted revenues

$

1,109

$

8,174

$

1,326

$

1,262

$

(426)

$

11,445

Income (loss) before taxes

$

67

$

848

$

194

$

135

$

(211)

$

1,033

Pre-tax adjustments to reconcile to adjusted income from operations

 

 

 

 

 

 

 

 

 

(Income) attributable to noncontrolling interests

 

-

 

-

 

(3)

 

-

 

-

 

(3)

Net realized investment (gains) losses

 

-

 

(3)

 

(1)

 

5

 

-

 

1

Amortization of acquired intangible assets

 

-

 

42

 

5

 

1

 

-

 

48

Special items

 

 

 

 

 

 

 

 

 

 

 

 

Integrated and transaction-related costs

 

-

 

-

 

-

 

-

 

128

 

128

Charges associated with litigation matters

 

-

 

45

 

-

 

-

 

-

 

45

Charges associated with U.S. tax reform

 

-

 

-

 

-

 

2

 

-

 

2

Pre-tax adjusted income (loss) from operations

$

67

$

932

$

195

$

143

$

(83)

$

1,254

 

(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) Includes the Company’s share of certain realized investment gains (losses) of its joint ventures reported in the International Markets segment using the equity method of accounting.

(In millions)

 

Health Services

Integrated Medical

International Markets

Group Disability and Other

Corporate and Eliminations

Total

Nine months ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers (1)

$

80,618

$

26,226

$

4,095

$

3,347

$

-

$

114,286

Inter-segment revenues

 

1,869

 

727

 

-

 

21

 

(2,617)

 

-

Net investment income (loss)

 

47

 

358

 

117

 

521

 

(8)

 

1,035

Total revenues

 

82,534

 

27,311

 

4,212

 

3,889

 

(2,625)

 

115,321

Revenue contributions from transitioning clients

 

(11,657)

 

-

 

-

 

-

 

-

 

(11,657)

Net realized investment results from certain equity method investments (2)

 

-

 

-

 

(27)

 

-

 

-

 

(27)

Adjusted revenues

$

70,877

$

27,311

$

4,185

$

3,889

$

(2,625)

$

103,637

Income (loss) before taxes

$

3,015

$

3,157

$

601

$

407

$

(1,871)

$

5,309

Pre-tax adjustments to reconcile to adjusted income from operations

 

 

 

 

 

 

 

 

Adjustment for transitioning clients

 

(1,589)

 

-

 

-

 

-

 

-

 

(1,589)

(Income) attributable to noncontrolling interests

 

(1)

 

-

 

(12)

 

-

 

-

 

(13)

Net realized investment (gains) (2)

 

-

 

(65)

 

(10)

 

(36)

 

-

 

(111)

Amortization of acquired intangible assets

 

2,130

 

51

 

28

 

5

 

-

 

2,214

Special items

 

 

 

 

 

 

 

 

 

 

 

 

Integration and transaction-related costs

 

-

 

-

 

-

 

-

 

405

 

405

Charges associated with litigation matters

 

-

 

(30)

 

-

 

-

 

81

 

51

Pre-tax adjusted income (loss) from operations

$

3,555

$

3,113

$

607

$

376

$

(1,385)

$

6,266

 

 

 

 

 

 

 

 

 

 

 

 

 

(In millions)

 

Health Services

Integrated Medical

International Markets

Group Disability and Other

Corporate and Eliminations

Total

Nine months ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers (1)

$

2,447

$

23,725

$

3,875

$

3,267

$

-

$

33,314

Inter-segment revenues

 

841

 

421

 

-

 

10

 

(1,272)

 

-

Net investment income

 

5

 

348

 

113

 

538

 

32

 

1,036

Total revenues

 

3,293

 

24,494

 

3,988

 

3,815

 

(1,240)

 

34,350

Net realized investment results from certain equity method investments (2)

 

-

 

-

 

23

 

-

 

-

 

23

Special items reported in transaction-related costs

 

-

 

-

 

-

 

-

 

(13)

 

(13)

Adjusted revenues

$

3,293

$

24,494

$

4,011

$

3,815

$

(1,253)

$

34,360

Income (loss) before taxes

$

227

$

2,720

$

580

$

400

$

(574)

$

3,353

Pre-tax adjustments to reconcile to adjusted income from operations

 

 

 

 

 

 

 

 

(Income) attributable to noncontrolling interests

 

-

 

-

 

(10)

 

-

 

-

 

(10)

Net realized investment losses (2)

 

-

 

12

 

32

 

14

 

1

 

59

Amortization of acquired intangible assets

 

-

 

82

 

13

 

4

 

-

 

99

Special items

 

 

 

 

 

 

 

 

 

 

 

 

Integration and transaction-related costs

 

-

 

-

 

-

 

-

 

318

 

318

Charges associated with litigation matters

 

-

 

45

 

-

 

-

 

-

 

45

Charges associated with U.S. tax reform

 

-

 

-

 

-

 

2

 

-

 

2

Pre-tax adjusted income (loss) from operations

$

227

$

2,859

$

615

$

420

$

(255)

$

3,866

 

 

 

 

 

 

 

 

 

 

 

 

 

(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) Includes the Company’s share of certain realized investment gains (losses) of its joint ventures reported in the International Markets segment using the equity method of accounting.

Revenue from external customers includes pharmacy revenues, premiums and fees and other revenues. The following table presents these revenues by product, premium and service type for the three and nine months ended September 30:

 

Three Months Ended

 

Nine Months Ended

 

September 30,

 

September 30,

(In millions)

2019

 

2018

 

2019

 

2018

Products (Pharmacy revenues) (ASC 606)

 

 

 

 

 

 

 

 

 

 

 

 

 

Home delivery and specialty revenues

$

 

11,837

$

 

747

 

$

 

35,893

 

$

2,222

Network revenues

 

 

12,923

 

 

-

 

 

 

37,954

 

 

-

Other

 

 

1,227

 

 

-

 

 

 

3,607

 

 

-

Total pharmacy revenues

 

 

25,987

 

 

747

 

 

 

77,454

 

 

2,222

Insurance premiums (ASC 944)

 

 

 

 

 

 

 

 

 

 

 

 

 

Integrated Medical premiums

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk

 

 

3,174

 

 

2,697

 

 

 

9,278

 

 

7,951

Stop loss

 

 

1,085

 

 

1,010

 

 

 

3,221

 

 

2,983

Other

 

 

260

 

 

260

 

 

 

779

 

 

777

Government

 

 

 

 

 

 

 

 

 

 

 

 

 

Medicare Advantage

 

 

1,562

 

 

1,455

 

 

 

4,779

 

 

4,414

Medicare Part D

 

 

404

 

 

157

 

 

 

1,329

 

 

574

Other

 

 

1,059

 

 

1,114

 

 

 

3,137

 

 

3,355

Total Integrated Medical premiums

 

 

7,544

 

 

6,693

 

 

 

22,523

 

 

20,054

International Markets premiums

 

 

1,309

 

 

1,245

 

 

 

3,914

 

 

3,767

Domestic disability, life and accident premiums

 

 

1,049

 

 

1,006

 

 

 

3,165

 

 

3,013

Other premiums

 

 

33

 

 

50

 

 

 

107

 

 

171

Total premiums

 

 

9,935

 

 

8,994

 

 

 

29,709

 

 

27,005

Services (ASC 606)

 

 

 

 

 

 

 

 

 

 

 

 

 

Fees

 

 

2,249

 

 

1,350

 

 

 

7,015

 

 

4,064

Other external revenues

 

 

36

 

 

11

 

 

 

108

 

 

23

Total services

 

 

2,285

 

 

1,361

 

 

 

7,123

 

 

4,087

Total revenues from external customers

$

 

38,207

 

$

11,102

 

$

 

114,286

 

$

33,314

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Health Services segment may provide certain financial and performance guarantees in its pharmacy benefit management contracts including a minimum level of discounts a client may receive, generic utilization rates and various service levels. Clients may be entitled to receive performance penalties if we fail to meet guarantees. Actual performance is compared to the guarantee for each measure throughout the period and the Company defers revenue for any estimated payouts within accrued expenses and other liabilities (current). These estimates are adjusted at the end of the guarantee period. Historically, adjustments to original estimates have not been material. The deferred revenue balance was $ 973 million as of September 30, 2019 and $895 million as of December 31, 2018.

 

The Company’s Health Services segment reported revenues as follows from Anthem and the Department of Defense for the nine months ended September 30, 2019. Amounts presented below reflect the percentage of consolidated revenues. The Company did not report revenue from these two customers in periods before the Merger.

 

Nine Months Ended

 

September 30, 2019

Anthem

10%

Department of Defense

8%