Note 10 – Segment Reporting

The Company has two operating segments, Pharmacy Services and Retail/LTC, as well as a Corporate 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 and six months ended June 30, 2017, has been retrospectively adjusted to reflect this change to the cost allocation methodology as shown below:


	Three Months Ended June 30, 2017
	Pharmacy						Intersegment		Consolidated
In millions	Services		Retail/LTC		Corporate		Eliminations		Totals
Cost of revenues, as previously reported	$	30,856	$	13,879			$	(5,985)	$	38,750
Adjustments		12		(3)				—		9
Cost of revenues, as adjusted	$	30,868	$	13,876			$	(5,985)	$	38,759

Gross profit, as previously reported	$	1,469	$	5,675			$	(209)	$	6,935
Adjustments		(12)		3				—		(9)
Gross profit, as adjusted	$	1,457	$	5,678			$	(209)	$	6,926

Operating expenses, as previously reported	$	334	$	4,264	$	240	$	(20)	$	4,818
Adjustments		11		(14)		(6)		—		(9)
Operating expenses, as adjusted	$	345	$	4,250	$	234	$	(20)	$	4,809

Operating profit (loss), as previously reported	$	1,135	$	1,411	$	(240)	$	(189)	$	2,117
Adjustments		(23)		17		6		—		—
Operating profit (loss), as adjusted	$	1,112	$	1,428	$	(234)	$	(189)	$	2,117


	Six Months Ended June 30, 2017
	Pharmacy						Intersegment		Consolidated
In millions	Services		Retail/LTC		Corporate		Eliminations		Totals
Cost of revenues, as previously reported	$	60,983	$	27,544			$	(11,843)	$	76,684
Adjustments		26		(8)				—		18
Cost of revenues, as adjusted	$	61,009	$	27,536			$	(11,843)	$	76,702

Gross profit, as previously reported	$	2,565	$	11,351			$	(401)	$	13,515
Adjustments		(26)		8				—		(18)
Gross profit, as adjusted	$	2,539	$	11,359			$	(401)	$	13,497

Operating expenses, as previously reported	$	646	$	8,529	$	466	$	(36)	$	9,605
Adjustments		24		(31)		(11)		—		(18)
Operating expenses, as adjusted	$	670	$	8,498	$	455	$	(36)	$	9,587

Operating profit (loss), as previously reported	$	1,919	$	2,822	$	(466)	$	(365)	$	3,910
Adjustments		(50)		39		11		—		—
Operating profit (loss), as adjusted	$	1,869	$	2,861	$	(455)	$	(365)	$	3,910

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


	Pharmacy						Intersegment		Consolidated
In millions	Services(1)		Retail/LTC		Corporate		Eliminations(2)		Totals
Three Months Ended
June 30, 2018:
Net revenues	$	33,247	$	20,672	$	—	$	(7,211)	$	46,708
Gross profit		1,495		5,912		—		(206)		7,201
Operating profit (loss) (3)(4)		1,088		(2,225)		(263)		(187)		(1,587)
June 30, 2017:
Net revenues		32,325		19,554		—		(6,194)		45,685
Gross profit (5)		1,457		5,678		—		(209)		6,926
Operating profit (loss) (3)(6)		1,112		1,428		(234)		(189)		2,117
Six Months Ended
June 30, 2018:
Net revenues	$	65,465	$	41,104	$	—	$	(14,168)	$	92,401
Gross profit		2,633		11,828		—		(401)		14,060
Operating profit (loss) (3)(4)(6)		1,849		(601)		(527)		(362)		359
June 30, 2017:
Net revenues		63,548		38,895		—		(12,244)		90,199
Gross profit (5)		2,539		11,359		—		(401)		13,497
Operating profit (loss) (3)(6)		1,869		2,861		(455)		(365)		3,910

(1)

Net revenues of the Pharmacy Services Segment include approximately $2.8 billion and $2.7 billion of retail co‑payments for the three months ended June 30, 2018 and 2017, respectively, as well as $6.1 billion and $5.8 billion of retail co‑payments for the six months ended June 30, 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 stand-alone basis.

(3)

The Retail/LTC Segment operating profit (loss) for the three and six months ended June 30, 2018 and 2017 include goodwill impairment charges of $3.9 billion related to the LTC reporting unit and $135 million related to the RxCrossroads reporting unit, respectively. See “Note 3 – Goodwill” to the condensed consolidated financial statements. The Retail/LTC Segment operating loss for the six months ended June 30, 2018 also includes an $86 million loss on the divestiture of the RxCrossroads subsidiary. The Retail/LTC Segment operating profit for the three and six months ended June 30, 2017 also includes $6 million and $205 million, respectively, of charges associated with store closures.

(4)

The Corporate Segment operating loss for the three and six months ended June 30, 2018 include $39 million and $79 million, respectively, in acquisition-related transaction and integration costs related to the proposed Aetna acquisition.

(5)

The Retail/LTC Segment gross profit for the three and six months ended June 30, 2017 each include $5 million of acquisition-related integration costs related to the acquisition of Omnicare.

(6)

The Retail/LTC Segment operating profit (loss) for the six months ended June 30, 2018 and 2017 include $3 million and $25 million, respectively, of acquisition-related integration costs. The Retail/LTC Segment operating profit for the three months ended June 30, 2017 includes $10 million of acquisition-related integration costs. The integration costs are related to the acquisition of Omnicare.