Note 9 – Segment Reporting

The Company has three reportable segments: Pharmacy Services, Retail/LTC and Corporate. As discussed in “Note 3- Goodwill”, during the three months ended March 31, 2018, the Company sold its RxC operations which were previously included in the Retail/LTC reportable segment.

In conjunction with the Company’s implementation of a new enterprise resource planning system in the first quarter of 2018, the Company changed the manner in which certain shared functional costs are allocated to its reportable segments. Segment financial information for the three months ended March 31, 2017, has been retrospectively adjusted to reflect this change to the cost allocation methodology as shown below:


	Pharmacy
	Services		Retail/LTC		Corporate		Intersegment		Consolidated
In millions	Segment		Segment		Segment		Eliminations		Totals
Cost of revenues, as previously reported	$	30,127	$	13,665			$	(5,858)	$	37,934
Adjustments		14		(5)				—		9
Cost of revenues, as adjusted	$	30,141	$	13,660			$	(5,858)	$	37,943

Gross profit, as previously reported	$	1,096	$	5,676			$	(192)	$	6,580
Adjustments		(14)		5				—		(9)
Gross profit, as adjusted	$	1,082	$	5,681			$	(192)	$	6,571

Operating expenses, as previously reported	$	312	$	4,265	$	226	$	(16)	$	4,787
Adjustments		13		(17)		(5)		—		(9)
Operating expenses, as adjusted	$	325	$	4,248	$	221	$	(16)	$	4,778

Operating profit (loss), as previously reported	$	784	$	1,411	$	(226)	$	(176)	$	1,793
Adjustments		(27)		22		5		—		—
Operating profit (loss), as adjusted	$	757	$	1,433	$	(221)	$	(176)	$	1,793

The following is a reconciliation of the Company’s segments to the accompanying condensed consolidated financial statements:


	Pharmacy
	Services		Retail/LTC		Corporate		Intersegment		Consolidated
In millions	Segment(1)		Segment		Segment		Eliminations(2)		Totals
Three Months Ended
March 31, 2018:
Net revenues	$	32,218	$	20,432	$	—	$	(6,957)	$	45,693
Gross profit		1,138		5,916		—		(195)		6,859
Operating profit (loss) (3)(4)		761		1,624		(264)		(175)		1,946
March 31, 2017:
Net revenues		31,223		19,341		—		(6,050)		44,514
Gross profit		1,082		5,681		—		(192)		6,571
Operating profit (loss) (5)		757		1,433		(221)		(176)		1,793

(1)

Net revenues of the Pharmacy Services Segment include approximately $3.3 billion and $3.1 billion of retail co‑payments for the three months ended March 31, 2018 and 2017, respectively.

(2)

Intersegment eliminations relate to intersegment revenue generating activities that occur between the Pharmacy Services Segment and the Retail/LTC Segment. These occur in the following ways: when members of Pharmacy Services Segment clients (“members”) fill prescriptions at the Company’s retail pharmacies to purchase covered products, when members enrolled in programs such as Maintenance Choice® elect to pick up maintenance prescriptions at one of the Company’s retail pharmacies instead of receiving them through the mail, or when members have prescriptions filled at the Company’s long-term care pharmacies. When these occur, both the Pharmacy Services and Retail/LTC segments record the revenues, gross profit and operating profit on a standalone basis.

(3)

The Retail/LTC Segment operating profit for the three months ended March 31, 2018 includes an $86 million loss on the divestiture of the RxCrossroads subsidiary (see “Note 3 – Goodwill” to the condensed consolidated financial statements) and $3 million of acquisition-related integration costs related to the acquisition of Omnicare.

(4)

The Corporate Segment operating loss for the three months ended March 31, 2018 includes $40 million in acquisition-related transaction and integration costs related to the proposed Aetna acquisition.

(5)

The Retail/LTC Segment operating profit for the three months ended March 31, 2017 includes a $199 million charge associated with store closures and $15 million of acquisition-related integration costs related to the acquisition of Omnicare.