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Comprehensive Financial Data

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Next Results Announcement

CVS Health

Revenues

$54.2b

Adjusted EPS

$2.14

For the three months ended 12.31.18

Quarterly Highlights

In millions, except per share amounts 12.31.18 12.31.17 +/- Variance
Revenues:
Products 47,875.3 47,234.3 1.4%
Premiums 5,500.0 825.9 566.0%
Services 873.4 325.0 168.8%
Net investment income(1) (2) 174.0 6.1 2,752.1%
Total revenues(1) $ 54,422.8 $ 48,391.2 12.5%
Operating costs:
Cost of products sold(1) (3) 40,563.1 40,097.1 1.2%
Benefit costs 4,194.3 395.2 961.4%
Goodwill impairments(4) 2,228.1 46.0 4,743.6%
Operating expenses(1) (5) 6,613.1 4,738.7 39.6%
Total operating costs 53,599.6 45,277.0 (18.4%)
Operating income(1) $ 823.1 $ 3,114.3 (73.6%)
operating margin 1.5% 6.4% (492) bps
Interest expense(1) (2) 732.4 303.1 (141.6%)
Other expenses(8) (10.4) 2.5 521.7%
Income before income tax provision 101.2 2,808.7 (96.4%)
Income tax provision 523.0 (478.2) 209.4%
effective tax rate(6) 517.1% -17.0% (53410) bps
Income from continuing operations (421.9) 3,286.9
Income from discontinued operations (0.1) (0.2) 66.1%
Net income (loss) (422.0) 3,286.7 (112.8%)
as a % of net revenues -0.8% 6.8% (757) bps
Net income (loss) attributable to noncontrolling interest 2.8 -
Net income (loss) attributable to CVS Health $ (419.2) $ 3,286.6 (112.8%)
as a % of net revenues -0.8% 6.8% (756) bps
Earnings allocated to participating securities (0.8) (7.5) 89.4%
Income (loss) available for common shareholders (420.0) 3,279.2 (112.8%)
Weighted average diluted shares outstanding(7) 1,121.2 1,017.6 (10.2%)
GAAP diluted earnings (loss) per share from continuing ops $ (0.37) $ 3.22 (111.6%)

Footnotes

Adj. retail prescriptions filled
Totals may not foot due to rounding.

(1)The consolidated statements of operations for the three months and year ended December 31, 2017 have been retrospectively adjusted to reflect (i) a change to the Company's cost allocation methodology effective January 1, 2018 and (ii) the reclassification of interest income from interest expense, net, to net investment income within revenues to conform with insurance company presentation.

(2)The three months and year ended December 31, 2018 include interest expense of $280 million and $1.4 billion, respectively, related to (i) bridge financing costs, (ii) interest expense on the $40 billion of 2018 Senior Notes and (iii) the $5 billion term loan facility. Net investment income includes interest income of $83 million and $536 million, respectively, earned on the proceeds of the 2018 Senior Notes. The three months and year ended December 31, 2017 each include interest expense of $56 million related to bridge financing costs. All amounts are for the periods prior to the close of the acquisition of Aetna, which occurred on November 28, 2018.

(3)Cost of products sold for the three months ended December 31, 2017 includes a $5 million reduction in integration costs for a change in estimate. Cost of products sold for the year ended December 31, 2017 includes $2 million of acquisition-related integration costs. Those integration costs are related to the acquisition of Omnicare.

(4)In 2018, the goodwill impairments relate to the LTC reporting unit within the Retail/LTC segment. In 2017, the goodwill impairments relate to the RxCrossroads reporting unit within the Retail/LTC Segment.

(5)The three months ended December 31, 2018 includes the following: $340 million of acquisition-related transaction and integration costs associated with the Aetna and Omnicare acquisitions; $43 million loss on impairment of long-lived asset impairment primarily related to property and equipment in Retail/LTC. The three months ended December 31, 2017 include $39 million of acquisition-related transaction and integration costs associated with the Aetna and Omnicare acquisitions; $9 million of transaction costs related to the divestiture of the Company's RxCrossroads subsidiary; and $4 million related to the closure of stores in connection with our enterprise streamlining initiative. The year ended December 31, 2018 includes $492 million of acquisition-related transaction and integration costs associated with the Aetna and Omnicare acquisitions; $43 million loss on impairment of long-lived asset impairment primarily related to property and equipment in Retail/LTC; and $86 million of loss related to the divestiture of the Company's RxCrossroads subsidiary. The year ended December 31, 2017 includes $63 million of acquisition-related transaction and integration costs associated with the Aetna and Omnicare acquisitions; $9 million of transaction costs related to the divestiture of the RxCrossroads subsidiary; and $215 million related to the closure of stores in connection with our enterprise streamlining initiative.

(6)The income tax provision for the three months and year ended December 31, 2018 and 2017, include the effects of the items described in footnotes 2 through 5.

(7)There were 5 million and 3 million of potential common shares in the three months and year ended December 31, 2018 that were excluded from the calculation of GAAP loss per share, as the shares would have had an anti-dilutive effect as a result of the GAAP net loss incurred.

(8)Includes $187 million of losses on settlements of defined benefit pension plans in the year ended December 31, 2017.

In millions, except per share amounts 12.31.18 12.31.17 +/- Variance
Revenues:
Products 47,875.3 47,234.3 1.4%
Premiums 5,500.0 825.9 566.0%
Services 873.4 325.0 168.8%
Net investment income (1) (2) 90.3 6.1 1,380.2%
Total revenues(1) $ 54,339.1 $ 48,391.2 12.3%
Operating costs:
Cost of products sold(1) (3) 40,563.1 40,101.6 1.2%
Benefit costs 4,194.3 395.2 961.4%
Goodwill impairments(4) - - 0.0%
Operating expenses(1) (5) 6,230.1 4,687.5 32.9%
Total operating costs(1) 50,987.5 45,184.2 (12.8%)
Operating income(1) $ 3,351.5 $ 3,207.0 4.5%
operating margin (1) 6.2% 6.6% (46) bps
Interest expense(1) (2) 451.5 246.6 (83.1%)
Other expenses(8) (10.4) 2.5 521.7%
Income before income tax provision 2,910.4 2,958.0 (1.6%)
Amortization 366.9 208.7 (75.8%)
Adjusted net income before income tax provision 3,277.4 3,166.7 (3.5%)
Adjusted Income tax provision 861.8 1,212.6 28.9%
effective tax rate(6) 26.3% 38.3% 1200 bps
Adjusted net income (loss) 2,415.6 1,954.1 23.6%
as a % of net revenues 4.4% 4.0% 41 bps
Earnings allocated to participating securities (3.2) (4.6) (29.7%)
Net income (loss) attributable to noncontrolling interest 2.8 - (5,746.1%)
Adjusted net income (loss) attributable to CVS Health $ 2,415.1 $ 1,949.4 23.9%
as a % of net revenues 4.4% 4.0% 42 bps
Weighted average diluted shares outstanding(7) 1,125.9 1,017.6 (10.6%)
Adjusted earnings (loss) per share from continuing ops $ 2.14 $ 1.92 12.0%

Footnotes

Totals may not foot due to rounding.

(1)The consolidated statements of operations for the three months and year ended December 31, 2017 have been retrospectively adjusted to reflect (i) a change to the Company's cost allocation methodology effective January 1, 2018 and (ii) the reclassification of interest income from interest expense, net, to net investment income within revenues to conform with insurance company presentation.

(2)The three months and year ended December 31, 2018 exclude interest expense of $280 million and $1.4 billion, respectively, related to (i) bridge financing costs, (ii) interest expense on the $40 billion of 2018 Senior Notes and (iii) the $5 billion term loan facility. Net investment income excludes interest income of $83 million and $536 million, respectively, earned on the proceeds of the 2018 Senior Notes. The three months and year ended December 31, 2017 each exclude interest expense of $56 million related to bridge financing costs. All amounts are for the periods prior to the close of the acquisition of Aetna, which occurred on November 28, 2018.

(3)Cost of products sold for the three months ended December 31, 2017 excludes a $5 million reduction in integration costs for a change in estimate. Cost of products sold for the year ended December 31, 2017 excludes $2 million of acquisition-related integration costs. Those integration costs are related to the acquisition of Omnicare.

(4)The three months and year ended December 31, 2018 exclude $2.2 billion and $6.1 billion of goodwill impairments relate to the LTC reporting unit within the Retail/LTC segment. The three months and year ended December 31, 2017 exclude $46 million and $181 million of goodwill impairments relate to the RxCrossroads reporting unit within the Retail/LTC Segment.

(5)The three months ended December 31, 2018 excludes the following: $340 million of acquisition-related transaction and integration costs associated with the Aetna and Omnicare acquisitions; $43 million loss on impairment of long-lived asset impairment primarily related to property and equipment in Retail/LTC. The three months ended December 31, 2017 excludes $39 million of acquisition-related transaction and integration costs associated with the Aetna and Omnicare acquisitions; $9 million of transaction costs related to the divestiture of the Company's RxCrossroads subsidiary; and $4 million related to the closure of stores in connection with our enterprise streamlining initiative. The year ended December 31, 2018 excludes $492 million of acquisition-related transaction and integration costs associated with the Aetna and Omnicare acquisitions; $43 million loss on impairment of long-lived asset impairment primarily related to property and equipment in Retail/LTC; and $86 million of loss related to the divestiture of the Company's RxCrossroads subsidiary. The year ended December 31, 2017 excludes $63 million of acquisition-related transaction and integration costs associated with the Aetna and Omnicare acquisitions; $9 million of transaction costs related to the divestiture of RxCrossroads; and $215 million related to the closure of stores in connection with our enterprise streamlining initiative.

(6)The income tax provision for the three months and year ended December 31, 2018 and 2017, exclude the effects of the items described in footnotes 2 through 5.

(7)The Adjusted earnings per share for the three months and year ended December 31, 2018 are calculated utilizing weighted average diluted shares outstanding, which include 5 million and 3 million, respectively, potential common shares, as the impact of the potential common shares was dilutive.

(8)Excludes $187 million of losses on settlements of defined benefit pension plans in the year ended December 31, 2017.

(In millions) 12.31.18 12.31.17 +/- Variance
Revenues:
Products 21,792.9 20,666.7 5.4%
Services 235.2 242.7 (3.1%)
Total revenues(6) $22,028.1 $20,909.4 5.4%
Cost of products sold (1) (2) 15,586.8 14,624.5 (6.6%)
Operating expenses (2) (3) 6,711.3 4,168.9 (61.0%)
as a % of revenues(2) 30.5% 19.9% (1053) bps
Operating income (loss) (2) $(270.0) $2,116.1 (112.8%)
operating margin(2)(6) NM 10.1%
RETAIL STATISTICS
Same-store increase (decrease)(4):
Total sales 5.7% 0.1% 560 bps
Retail pharmacy sales 7.4% 0.4% 700 bps
Retail front store sales 0.5% (0.7%) 120 bps
Total prescription volume 3.1% (1.7%) 480 bps
Total adjusted prescription volume(5) 9.1% 2.5% 660 bps
SEGMENT STATISTICS
Revenues increase (decrease):
Total 5.4% 0.3% 510 bps
Pharmacy 7.2% 0.5% 668 bps
Front store 1.7% (0.3%) 201 bps
Generic dispensing rate (5) 86.7% 86.8% (10) bps
Rx % of revenues 76.0% 74.7% 130 bps
FS % of revenues 23.0% 23.8% (82) bps
Adjusted retail/LTC prescriptions filled (5) 349.4 321.8 8.6%

Footnotes

Totals may not foot due to rounding.

(1)Cost of products sold for the three months ended December 31, 2017 includes a $5 million reduction in integration costs for a change in estimate. Cost of products sold for the year ended December 31, 2017 includes $2 million of acquisition-related integration costs. Those integration costs are related to the acquisition of Omnicare.

(2)Amounts revised to reflect a change to the company's cost allocation methodology effective January 1, 2018.

(3)Includes $7 million of acquisition-related integration costs during the year ended December 31, 2018, related to the acquisition of Omnicare. Includes $5 million and $32 million of acquisition-related integration costs during the three months and year ended December 31, 2017, respectively, related to the acquisition of Omnicare. Includes $2.2 billion and $6.1 billion of goodwill impairment charges for the three months and year ended December 31, 2018, respectively, related to the LTC reporting unit. Includes $46 million and $181 million of goodwill impairment charges for the three months and year ended December 31, 2017, respectively, related to the RxCrossroads reporting unit. Includes $43 million loss on impairment of long-lived assets primarily related to the impairment of property and equipment. The year ended December 31, 2018 includes $86 million loss on the divestiture of the Company's RxCrossroads subsidiary. Includes $4 million and $215 million of charges associated with stores closures during the three months and year ended December 31, 2017, respectively.

(4)Same store sales and prescriptions exclude revenues from MinuteClinic®, and revenue and prescriptions from stores in Brazil, LTC operations and, in 2017, from commercialization services provided through RxCrossroads.

(5)Includes the adjustment to convert 90-day non-specialty prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal 30-day prescription.

(6)Percentage for the three months ended December 31, 2018 is not meaningful.

(In millions) 12.31.18 12.31.17 +/- Variance
Revenues:
Products 21,792.9 20,666.7 5.4%
Services 235.2 242.7 (3.1%)
Total revenues(6) $22,028.1 $20,909.4 5.3%
Cost of products sold (1) (2) 15,586.8 14,629.0 (6.5%)
Operating expenses (2) (3) 4,439.7 4,114.9 (7.9%)
as a % of revenues (2) 20.2% 19.7% (48) bps
Operating income (loss)(2) $2,001.6 $2,165.6 (7.6%)
operating margin(2) 9.1% 10.4% (127) bps
RETAIL STATISTICS
Same-store increase (decrease)(4):
Total sales 5.7% 0.1% 560 bps
Retail pharmacy sales 7.4% 0.4% 700 bps
Retail front store sales 0.5% (0.7%) 120 bps
Total prescription volume 3.1% (1.7%) 480 bps
Total adjusted prescription volume(5) 9.1% 2.5% 660 bps
SEGMENT STATISTICS
Revenues:
Total 22,028.1 20,909.4 5.3%
Pharmacy 16,750.6 15,627.3 7.2%
Front store 5,065.4 4,980.3 1.7%
Generic dispensing rate(5) 86.7% 86.8% (4) bps
Rx % of revenues 76.0% 74.7% 130 bps
FS % of revenues 23.0% 23.8% (82) bps
Adjusted retail/LTC prescriptions filled (5) 349.4 321.8 8.6%

Footnotes

Totals may not foot due to rounding.

(1)Cost of products sold for the three months ended December 31, 2017 excludes a $5 million reduction in integration costs for a change in estimate. Cost of products sold for the year ended December 31, 2017 excludes $2 million of acquisition-related integration costs. Those integration costs are related to the acquisition of Omnicare.

(2)Amounts revised to reflect a change to the company's cost allocation methodology effective January 1, 2018.

(3)Excludes $7 million of acquisition-related integration costs during the year ended December 31, 2018, related to the acquisition of Omnicare. Excludes $5 million and $32 million of acquisition-related integration costs during the three months and year ended December 31, 2017, respectively, related to the acquisition of Omnicare. Excludes $2.2 billion and $6.1 billion of goodwill impairment charges for the three months and year ended December 31, 2018, respectively, related to the LTC reporting unit. Excludes $46 million and $181 million of goodwill impairment charges for the three months and year ended December 31, 2017, respectively, related to the RxCrossroads reporting unit. Excludes $43 million loss on impairment of long-lived assets primarily related to the impairment of property and equipment. The year ended December 31, 2018 excludes $86 million loss on the divestiture of the Company's RxCrossroads subsidiary. Excludes $4 million and $215 million of charges associated with stores closures during the three months and year ended December 31, 2017, respectively.

(4)Same store sales and prescriptions exclude revenues from MinuteClinic®, and revenue and prescriptions from stores in Brazil, LTC operations and, in 2017, from commercialization services provided through RxCrossroads.

(5)Excludes the adjustment to convert 90-day non-specialty prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal 30-day prescription.

(In millions) 12.31.18 12.31.17 +/- Variance
Revenues:
Products 34,093.2 33,243.8 2.6%
Premiums 677.4 825.9 (18.0%)
Services 116.7 82.3 41.9%
Net investment income (1) 2.6 1.5 79.8%
Total revenues(1) $34,889.9 $34,153.4 2.2%
Cost of products sold(1) 32,648.9 31,941.9 2.2%
Benefit costs 405.4 395.2 2.6%
Operating expenses(1) 341.4 358.8 (4.8%)
as a % of revenues (1) 1.0% 1.1% 7 bps
Operating income (1) $1,494.3 $1,457.6 2.5%
operating margin(1) 4.3% 4.3% 2 bps
Revenues by distribution channel(6) :
Pharmacy network(2) (3) 21,958.5 21,444.3 2.4%
Mail choice (5) 12,127.0 11,759.2 3.1%
Other(2) 801.8 948.4 (15.5%)
Pharmacy claims processed(4) :
Total (3) 484.6 458.7 5.6%
Adjusted pharmacy network(3) 409.2 389.7 5.0%
Adjusted mail choice(5) 75.4 69.0 9.2%
Generic dispensing rate(4) :
Total 86.9% 86.9% (1) bps
Pharmacy network (3) 87.5% 87.5% (5) bps
Mail Choice(5) 83.6% 83.2% 35 bps
Mail choice penetration rate(4) 15.6% 15.0% 50 bps

Footnotes

Totals may not foot due to rounding.

(1)The three months and year ended December 31, 2017 have been retrospectively adjusted to reflect (i) a change to the Company's cost allocation methodology effective January 1, 2018 and (ii) the reclassification of interest income from interest expense, net, to net investment income within revenues to conform with insurance company presentation.

(2)Amounts revised for the three months and year ended December 31, 2017, to reflect the reclassification of Medicare Part D premium revenues from pharmacy network revenues to other revenues.

(3)Pharmacy network revenues, pharmacy claims processed and generic dispensing rate do not include Maintenance Choice activity, which is included within the mail choice category. Pharmacy network is defined as claims filled at retail and specialty retail pharmacies, including the Company’s retail pharmacies and long-term care pharmacies, but excluding Maintenance Choice activity.

(4)Includes the adjustment to convert 90-day prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal prescription.

(5)Mail choice is defined as claims filled at a Pharmacy Services mail facility, which includes specialty mail claims inclusive of Specialty Connect® claims picked up at retail, as well as prescriptions filled at the Company’s retail pharmacies under the Maintenance Choice® program.

(6)Excludes net investment income.

(In millions) 12.31.18 12.31.17 +/- Variance
Revenues:
Products 34,093.2 33,243.8 2.6%
Premiums 667.4 825.9 (18.0%)
Services 116.7 82.3 41.9%
Net investment income (1) 2.6 1.5 79.8%
Total revenues (1) 34,889.9 34,153.4 2.2%
Cost of products sold (1) 32,648.9 31,941.95 2.2%
Benefit costs 405.4 395.2 2.6%
Operating expenses (1) 341.4 358.8 (4.8%)
as a % of revenues (1) 4.3% 4.3% 2 bps
Operating income (1) $ 1,494.3 $ 1,457.6 2.5%
operating margin (1) 4.3% 4.3% 2 bps
Revenues by distribution channel(6)
Pharmacy network (3) (4) 21,958.5 21,444.3 2.4%
Mail choice (5) 12,127.0 11,759.2 3.1%
Other (2) 801.8 948.4 (15.5%)
Pharmacy claims processed (4)
Total adjusted claims 484.6 458.7 5.6%
Adjusted pharmacy network (3) 409.2 389.6 5.0%
Adjusted mail choice (5) 75.4 69.0 9.2%
Generic dispensing rate (4):
Total 86.9% 86.9% (1) bps
Pharmacy network 87.5% 87.5% (5) bps
Mail Choice(5) 83.6% 83.2% 35 bps
Mail choice penetration rate (4) 15.6% 15.0% 50 bps
Totals may not foot due to rounding.

(1)The three months and year ended December 31, 2017 have been retrospectively adjusted to reflect (i) a change to the Company's cost allocation methodology effective January 1, 2018 and (ii) the reclassification of interest income from interest expense, net, to net investment income within revenues to conform with insurance company presentation.

(2)Amounts revised for the three months and year ended December 31, 2017, to reflect the reclassification of Medicare Part D premium revenues from pharmacy network revenues to other revenues.

(3)Pharmacy network revenues, pharmacy claims processed and generic dispensing rate do not include Maintenance Choice activity, which is included within the mail choice category. Pharmacy network is defined as claims filled at retail and specialty retail pharmacies, including the Company’s retail pharmacies and long-term care pharmacies, but excluding Maintenance Choice activity.

(4)Includes the adjustment to convert 90-day prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal prescription.

(5)Mail choice is defined as claims filled at a Pharmacy Services mail facility, which includes specialty mail claims inclusive of Specialty Connect® claims picked up at retail, as well as prescriptions filled at the Company’s retail pharmacies under the Maintenance Choice® program.

(6)Excludes net investment income.

In millions 12.31.18 12.31.17 +/- Variance
Revenues: – – -
Premiums 3.2 - 100.0%
Services 0.9 – 100.0%
Net investment income (3) 126.2 4.6 (2,624.8%)
Total revenues (3) $130.3 4.6 (2,712.9%)
Benefit costs(3) 21.9 - 100.0%
Operating expenses(1) (2) 575.3 275.0 (109.2%)
as a % of net revenues N/A N/A N/A
Operating loss(1) (2) ($467.0) (270.3) (72.8%)
operating margin N/A N/A N/A
Totals may not foot due to rounding.

(1)Amounts revised to reflect a change to the company's cost allocation methodology effective January 1, 2018.

(2) Includes $340 million and $485 million of acquisition-related transaction and integration costs for the three months and year ended December 31, 2018, respectively, related to the acquisition of Aetna. Includes $34 million and $31 million of acquisition-related transaction and integration costs for the three months and year ended December 31, 2017, respectively, related to the acquisitions of Aetna and Omnicare. Includes $9 million in both the three months and year ended December 31, 2017 of transaction costs related to the divestiture of RxCrossroads.

(3) The three months and year ended December 31, 2017 have been retrospectively adjusted to reflect the reclassification of interest income from interest expense, net, to net investment income within revenues to conform with insurance company presentation. Net investment income includes interest income of $83 million and $536 million, respectively, related to the 2018 Senior Notes. All such amounts are for the periods prior to the close of the acquisition of Aetna, which occurred on November 28, 2018.

In millions 12.31.18 12.31.17 +/- Variance
Revenues: – – -
Premiums 3.2 - N/A
Services 0.9 – N/A
Net investment income (3) 42.5 4.6 N/A
Total revenues(3) $46.6 $4.6 N/A
Benefit costs 21.9 - N/A
Operating expenses (1) (2) 234.8 231.7 (1.3%)
as of % of net revenue N/A N/A N/A
Operating loss (1) (2) ($210.2) ($227.1) 7.4%
operating margin N/A N/A N/A
Totals may not foot due to rounding.

(1)Amounts revised to reflect a change to the company's cost allocation methodology effective January 1, 2018.

(2)Excludes $340 million and $485 million of acquisition-related transaction and integration costs for the three months and year ended December 31, 2018, respectively, related to the acquisition of Aetna. Excludes $34 million and $31 million of acquisition-related transaction and integration costs for the three months and year ended December 31, 2017, respectively, related to the acquisitions of Aetna and Omnicare. Excludes $9 million in both the three months and year ended December 31, 2017 of transaction costs related to the divestiture of RxCrossroads.

(3)The three months and year ended December 31, 2017 have been retrospectively adjusted to reflect the reclassification of interest income from interest expense, net, to net investment income within revenues to conform with insurance company presentation. Net investment income excludes interest income of $83 million and $536 million, respectively, related to the 2018 Senior Notes. All such amounts are for the periods prior to the close of the acquisition of Aetna, which occurred on November 28, 2018.

From 11.28.18 to 12.31.18
(In millions)
Revenues:
Products 163.8
Premiums 4,819.4
Services 520.7
Net investment income 45.2
Total revenues $5,549.0
Cost of products sold 147.0
Benefit costs 3,872.6
Operating expenses 1,253.6
Operating income $275.8
MEMBERSHIP STATISTICS(in thousands)
Medical membership:
Insured ASC (1) Total
Commercial 3,871 13,888 17,759
Medicare Advantage 1,758 - 1,758
Medicare Supplement 793 - 793
Medicaid 1,128 663 1,791
Total medical membership 7,550 14,551 22,101

Footnotes

Totals may not foot due to rounding.

(1) Includes self-insured membership under Administrative Service Contracts.

From 11.28.18 to 12.31.18
(In millions)
Revenues:
Products 163.8
Premiums 4,819.4
Services 520.7
Net investment income 45.2
Total revenues $5,549
Cost of products sold 147.0
Benefit costs 3,872.6
Operating expenses 1,253.6
Operating Income $275.8
Membership Statistics (in thousands)
Medical membership:
Insured ASC (1) Total
Commercial 3,871 13,888 17,759
Medicare Advantage 1,758 1,758
Medicare Supplement 793 793
Medicaid 1,128 663 1,791
Total medical membership 7,550 14,551 22,101
Totals may not foot due to rounding.

(1)Includes self-insured membership under Administrative Service Contracts.

In millions 12.31.18 12.31.17 +/- Variance
Total revenues $ (8,174.5) $ (6,676.2) (22.4%)
Cost of products sold (7,819.6) (6,469.63) (20.9%)
Benefit Costs (105.5) - 100.0%
Operating expenses (39.5) (17.9) (120.7%)
as of % of net revenues 0.5% 0.3% 21 bps
Operating income $ (210.0) $ (189.1) (11.1%)
operating margin 2.6% 2.8% (26) bps
Totals may not foot due to rounding.

Consolidated

As a result of the acquisition of Aetna Inc. (“Aetna”), which closed November 28, 2018, the Company established a new Health Care Benefits segment, which is the equivalent of the former Aetna Health Care segment. Certain aspects of Aetna's operations, including products for which the Company no longer solicits or accepts new customers, such as large case pensions and long-term care products, are included in the Company's Corporate/Other segment.

Revenues increased 12.5% and 5.3% for the three months and year ended December 31, 2018, respectively, compared to the prior year. Revenue growth was primarily driven by increased pharmacy network claims in the Pharmacy Services segment, increased prescription volume in the Retail/LTC segment and the addition of Aetna. The increase was partially offset by continued price compression in the Pharmacy Services segment and reimbursement pressure in the Retail/LTC segment, as well as increased generic dispensing.

Operating income declined in both the three months and year ended December 31, 2018 compared to the prior year primarily due to the goodwill impairment charges in the Retail/LTC segment discussed below.

Adjusted operating income increased 4.5% and 2.5% for the three months and year ended December 31, 2018, respectively, compared to the prior year. Earnings growth was primarily driven by increased prescription volume, improved purchasing economics and the addition of Aetna, partially offset by continued price compression in the Pharmacy Services segment and reimbursement pressure in the Retail/LTC segment.

Net loss for both the three months and year ended December 31, 2018 was driven primarily by the goodwill impairment charges in the Retail/LTC segment discussed below, the majority of which are not deductible for income tax purposes, and the increase in interest expense due to the 2018 financing associated with the acquisition of Aetna.

The effective income tax rate was 517.1% and 142.4% for the three months and year ended December 31, 2018, respectively, compared to (17.0)% and 19.8% for the three months and year ended December 31, 2017, respectively. The increase for both periods is due to the goodwill impairment charges in the Retail/LTC segment discussed below, the majority of which are not deductible for income tax purposes, and an income tax benefit of $1.5 billion recorded in the three months and year ended December 31, 2017 which reflected the remeasurement of the Company's net deferred income tax liabilities as a result of the enactment of the Tax Cuts and Jobs Act (“TCJA”). The increase was partially offset by a lower federal corporate income tax rate in 2018 compared to the prior year as a result of the enactment of the TCJA, which reduced the federal corporate income tax rate in 2018 from 35% to 21%.

Pharmacy Services Segment

Revenues increased 2.2% and 2.7% in the three months and year ended December 31, 2018, respectively, compared to the prior year due to increased total pharmacy claims volume, partially offset by continued client pricing pressures.

Total pharmacy claims processed increased 5.6% and 6.1%, on a 30-day equivalent basis, in the three months and year ended December 31, 2018, respectively, compared to the prior year primarily driven by net new business and the continued adoption of Maintenance Choice® offerings.

Operating income increased 2.6% and 0.9% in the three months and year ended December 31, 2018, respectively, compared to the prior year driven by continued pricing compression.

Retail/LTC Segment

Revenues increased 5.4% and 5.8% in the three months and year ended December 31, 2018, respectively, compared to the prior year. The increase in revenues was primarily driven by increased prescription volume and branded drug price inflation, partially offset by continued reimbursement pressure and the impact of recent generic introductions.

Front store revenues remain approximately 23% of total Retail/LTC segment revenues. Front store revenues increased in the three months and year ended December 31, 2018 compared to the prior year primarily driven by increases in health product sales.

Total prescription volume grew 8.6% and 8.8%, on a 30-day equivalent basis, for the three months and year ended December 31, 2018, respectively, compared to the prior year. The growth was driven mainly by the continued adoption of patient care programs and collaborations with PBMs as well as preferred status in a number of Medicare Part D networks during 2018.

Operating income (loss) for the three months and year ended December 31, 2018 reflects goodwill impairment charges of $2.2 billion and $6.1 billion, respectively, related to the LTC reporting unit (described further below). In addition to the goodwill impairment charges, the decline in operating income also was due to increased operating expenses as a result of the investment of a portion of the savings from the TCJA in wages and benefits.

The LTC business has continued to experience industry wide challenges that have impacted our ability to grow the business at the rate that was originally estimated when the Company acquired Omnicare, Inc. in 2015. These challenges include lower occupancy rates in skilled nursing facilities, significant deterioration in the financial health of numerous skilled nursing facility customers which resulted in a number of customer bankruptcies in 2018, and continued facility reimbursement pressures. As a result of these challenges, a goodwill impairment charge of $3.9 billion was recorded during the second quarter of 2018. During the fourth quarter of 2018, the LTC reporting unit missed its forecast primarily due to operational issues and customer liquidity issues, including one significant customer bankruptcy. Additionally, LTC management submitted an updated final budget for 2019 which showed significant additional deterioration in the reporting unit's projected financial results for 2019 compared to the analysis performed in the second quarter of 2018, primarily due to continued industry and operational challenges, which also caused management to make further updates to their long term forecast beyond 2019. Based on these updated financial projections, management determined that there were indicators that the goodwill of the LTC business may be further impaired, and accordingly, an interim goodwill impairment test was performed as of December 31, 2018. The results of the impairment test showed that the fair value of the LTC business was lower than the carrying value resulting in a $2.2 billion goodwill impairment charge. In addition to the lower financial projections, lower market multiples of the peer group companies contributed to the amount of the goodwill impairment charge.

Health Care Benefits Segment

Revenues and operating income for the Health Care Benefits segment include results for the period from November 28, 2018 to December 31, 2018 and therefore are not directly comparable to the former Aetna Health Care segment results for the fourth quarter of 2017.

Medical membership as of December 31, 2018 remained relatively consistent compared with September 30, 2018, reflecting decreases in Commercial insured and Medicaid products, largely offset by increases in Commercial ASC and Medicare products.

Guidance

The Company expects 2019 to be a year of transition as it integrates Aetna and focuses on the key pillars of its growth strategy to create a more consumer-centric health care experience. The Company faces certain headwinds that are having a disproportionate impact on 2019 compared to prior years. Pharmacy reimbursement pressure without the full benefit of traditional offsets is the most significant driver. Historically, reimbursement pressure has been primarily offset by growth in generics as well as inflation on branded pharmaceuticals. The Company will experience a large year-over-year headwind from a lower contribution from break open generics as well as lower branded drug inflation. Additionally, the Company is facing challenges in the long-term care space.

As a result, the Company is taking certain steps to mitigate these headwinds. First, the Retail/LTC segment is enhancing product and service offerings in the front store, while working on a new contract strategy that aligns reimbursement with the products and services it provides to increase adherence and save patients money. Second, the Pharmacy Services Segment will continue to focus on its new Guaranteed Net Cost pricing model, which provides more transparency, simplicity for and alignment with its clients. Third, the Company continues to make progress on its plan to improve its long-term care operations, focusing on operating efficiencies and opportunities with assisting living facilities. Fourth, the Company is expanding its cost reduction efforts across the enterprise, leveraging the legacy productivity initiative work that has already been started. And last, the Company is evaluating all of its assets and the roles they play in enabling the core strategies of the new company.

Taking into account these factors, the Company’s full year 2019 consolidated GAAP operating income is projected to be in the range of approximately $11.8 billion to $12.1 billion and adjusted operating income in the range of approximately $14.8 billion to $15.2 billion. GAAP diluted EPS from continuing operations is projected to be in the range of $4.88 to $5.08 and Adjusted EPS is projected to be in the range of $6.68 to $6.88. The adjustments between GAAP operating income and GAAP diluted EPS from continuing operations and adjusted operating income and Adjusted EPS include adding back amortization of intangible assets and integration costs related to the acquisition of Aetna. The Company expects to continue to generate strong cash flows in 2019, with projected cash flows from operations of between approximately $9.8 billion and $10.3 billion.