Aetna Reports First-Quarter 2005 Results.HARTFORD Hartford, city (1990 pop. 139,739), state capital, Hartford co., central Conn., on the west bank of the Connecticut River; settled as Newtown 1635–36 on the site of a Dutch trading post (1633; abandoned 1654), inc. 1784. , Conn. -- Aetna Aetna, volcano: see Etna, Italy. (NYSE NYSE See: New York Stock Exchange : AET AET Aetna, Inc. AET After Extra Time AET Actual Evapotranspiration AET Alliance for Environmental Technology AET Alpha-Ethyltryptamine AET Applied Extrusion Technologies, Inc. ) --First-quarter operating earnings Operating Earnings Profits after subtracting expenses such as marketing, cost of goods sold, administration and general operating costs from revenue. Notes: Tax and interest expenses are not subtracted - operating earnings are synonymous with EBIT (earnings before of $1.38 per share, $1.10 per share excluding prior-period favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. reserve development, compared with Thompson/First Call mean of $1.07, a 25 percent increase over first-quarter 2004 on a comparable basis --First-quarter net income of $1.39 per share --First-quarter medical membership growth of 719,000 to 14.4 million --Guidance increased for full-year 2005 operating earnings per share to $4.52 to $4.57 from prior guidance of $4.38 to $4.45, an increase of 24% to 26% over 2004; and for full-year net medical membership growth to 1.0 million to 1.075 million from prior guidance of 950,000 to 1.05 million Aetna (NYSE: AET) today announced first-quarter operating earnings of $1.38 per share. Operating earnings, excluding favorable reserve development, were $1.10 per share. Favorable reserve development was $84 million after tax, or $0.28 per share, of which $34 million, or $0.11 per share, resulted from the previously announced reserve release associated with the New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of State Market Stabilization Stabilization The action undertakes a country when it buys and sells its own currency to protect its exchange value. Actions registered competitive traders undertake by on the NYSE to meet the exchange requirement that 75% of their traded be stabilizing, meaning that sell orders Pool. The increase in operating earnings primarily reflects growth in revenues from higher membership levels and continued strong underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. results, as well as continued general and administrative expense efficiencies. Operating earnings exclude net realized capital gains and losses.(1) "These excellent results reflect the solid execution of our profitable growth strategy and demonstrate our strong momentum in the marketplace," said John W. Rowe, M.D., chairman and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. . "Aetna's integrated approach to health care, which includes comprehensive product and service solutions, is increasingly being valued by both plan sponsors and members, who are seeing demonstrated results in medical costs and quality.
Quarterly Financial Results at a Glance
Three Months Ended
March 31, 2005 March 31, 2004(a) Change
Total revenues $5.4 billion $4.8 billion 13%
================= =================
Operating earnings(b) $421.1 million $308.8 million 36%
================= =================
Net income $424.0 million $365.8 million 16%
================= =================
Per share results:
Operating earnings(b) $1.38 $0.96 44%
Favorable development
of prior-period health
care cost estimates (0.28) (0.08)
----------------- -----------------
Operating earnings,
excluding
development(b) $1.10 $0.88 25%
================= =================
Income from continuing
operations $1.39 $1.02
Income from discontinued
operations(c) -- -- 0.12
----------------- -----------------
Net income $1.39 $1.14 22%
================= =================
Weighted average common
shares (diluted) 306.0 million 320.8 million (4.6%)
================= =================
(a) Prior-period results per common share have been adjusted to
reflect the March 11, 2005, two-for-one stock split.
(b) For a full description of operating earnings and per share
operating earnings, please see footnote 1 at end of press release.
(c) Income from discontinued operations of $40 million for first
quarter 2004 reflects the completion of certain Internal Revenue
Services audits associated with businesses previously sold.
"Based on our success in attracting new customers, and the continued strength of our operating fundamentals, we are increasing our guidance for 2005 operating earnings to $4.52 to $4.57 per share from our prior guidance of $4.38 to $4.45 per share. We also are increasing our guidance for membership growth to 1.0 million to 1.075 million from our prior guidance of 950,000 to 1.05 million."(2) "Our strategy and business operations Business operations are those activities involved in the running of a business for the purpose of producing value for the stakeholders. Compare business processes. The outcome of business operations is the harvesting of value from assets are squarely square·ly adv. 1. Mathematics At right angles: sawed the beam squarely. 2. In a square shape. 3. focused on positioning Aetna as a market leader," said Ronald A. Williams, president. "Our continued momentum in the marketplace is reflected in the particularly strong performance of our January January: see month. 1 National Accounts renewal season for all our products: medical, dental dental /den·tal/ (den´t'l) pertaining to a tooth or teeth. den·tal adj. 1. Of, relating to, or for the teeth. 2. Of, relating to, or intended for dentistry. , pharmacy pharmacy, art of compounding and dispensing drugs and medication. The term is also applied to an establishment used for such purposes. Until modern times medication was prepared and dispensed by the physician himself. In the 18th cent. , group life and disability. Key drivers of this growth continue to be leadership in consumer-directed products, where we added 139,000 new members in the first quarter, and our integrated approach to health care, which led to an increase of 215,000 members in our Aexcel performance-based network. "In addition, Aetna Specialty A contract under seal. A specialty is a written document that has been sealed and delivered and is given as security for the payment of a specifically indicated debt. Pharmacy, the joint venture between Aetna and Priority Healthcare, opened its new 63,000-square-foot specialty pharmacy distribution center in Florida Florida, state, United States Florida (flôr`ĭdə, flŏr`–), state in the extreme SE United States. A long, low peninsula between the Atlantic Ocean (E) and the Gulf of Mexico (W), Florida is bordered by Georgia and in March. We also announced that our pharmacy management business will open a second prescription second prescription, n the homeopathic remedy given after the initial remedy. See also remedy, following; repetition of dose; response to prescription; single dose; and homeopathy, unicist. drug mail-order mail order n. An order for goods to be shipped through the mail.  -or facility in Pompano Beach Pompano Beach (pŏm`pənō), city (1990 pop. 72,411), Broward co., SE Fla., on the Atlantic coast and the Intracoastal Waterway; inc. 1908. It is a resort city with ocean beaches, excellent fishing, and a harness-racing track. later this year,
which will add needed capacity to our existing mail order
business."Health Care business results Health Care, which provides a full range of insured The person who obtains or is otherwise covered by insurance on his or her health, life, or property. The insured in a policy is not limited to the insured named in the policy but applies to anyone who is insured under the policy. insured n. and self-insured self-insured Self fund Health insurance adjective Referring to the practice of carrying an individual health insurance policy for oneself; self insurance is usually more expensive than group insurance medical, dental, pharmacy and behavioral health Behavioral health was first used in the 1980's to name the combination of the fields mental health and substance abuse. As an example, an organization serving both mental health and substance abuse clients might refer to its practice as behavioral health or products and services, reported: --Operating earnings of $404.0 million for the first quarter of 2005, compared with first quarter of 2004 operating earnings of $288.4 million. Excluding favorable reserve development of $84 million after tax in the first quarter of 2005 and $27 million after tax in the first quarter of 2004, operating earnings were $320.0 million in the first quarter of 2005 and $261.4 million in the first quarter of 2004. First-quarter 2005 favorable reserve development includes $34 million after tax, from the previously announced reserve release associated with the New York State Market Stabilization Pool. The increase in first-quarter 2005 operating earnings primarily reflects growth in revenues from higher membership levels and continued strong underwriting results as well as continued general and administrative expense efficiencies. --Net income of $405.3 million for the first quarter of 2005, compared with $295.5 million in the first quarter of 2004. --A Commercial Risk Medical Cost Ratio (MCR MCR My Chemical Romance (band) MCR Minimum Capital Requirement MCR Minimum Cell Rate MCR Middle Common Room (UK universities) MCR Multivariate Curve Resolution ) of 77.9 percent for the first quarter of 2005, compared with 77.6 percent for the first quarter of 2004, excluding favorable development of prior-period health care cost estimates in both periods. Including development, the Commercial Risk MCR was 74.6 percent for the first quarter of 2005 and 76.6 percent for the first quarter of 2004. --A Medicare Medicare, national health insurance program in the United States for persons aged 65 and over and the disabled. It was established in 1965 with passage of the Social Security Amendments and is now run by the Centers for Medicare and Medicaid Services. MCR of 87.4 percent for the first quarter of 2005, compared with 86.6 percent for the first quarter of 2004, excluding favorable reserve development in both periods. Including development, the Medicare MCR was 85.0 percent for the first quarter of 2005 and 84.5 percent in the first quarter of 2004. --Total medical membership of 14.4 million at March 31, 2005, compared with 13.7 million at December December: see month. 31, 2004, an increase of 719,000. First quarter dental membership increased sequentially se·quen·tial adj. 1. Forming or characterized by a sequence, as of units or musical notes. 2. Sequent. se·quen by 859,000 to 12.8 million. Pharmacy membership increased sequentially by 559,000 to 9.0 million. --Total revenues in the first quarter of 2005 increased by 13.2 percent to $4.7 billion from $4.1 billion in the first quarter of 2004. Group Insurance business results Group Insurance, which includes group life, disability and long-term care long-term care (LTC), n the provision of medical, social, and personal care services on a recurring or continuing basis to persons with chronic physical or mental disorders. products, reported: --Operating earnings of $30.7 million for the first quarter of 2005, compared with $30.8 million for the first quarter of 2004. Operating earnings reflect higher revenue associated with increased membership, offset primarily by higher operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. resulting in part from investments in improving the business. --Net income of $32.1 million for the first quarter of 2005, compared with $38.7 million for the first quarter of 2004. --Total revenues for the first quarter of 2005 were $534.7 million, compared with $484.9 million for the first quarter of 2004. --Total Group membership of 14.0 million at March 31, 2005, compared with 13.5 million as of December 31, 2004, an increase of 546,000 members. Large Case Pensions business results Large Case Pensions, which manages a variety of discontinued dis·con·tin·ue v. dis·con·tin·ued, dis·con·tin·u·ing, dis·con·tin·ues v.tr. 1. To stop doing or providing (something); end or abandon: and other retirement and savings products primarily for defined benefit and defined contribution plan Defined contribution plan A pension plan whose sponsor is responsible only for making specified contributions into the plan on behalf of qualifying participants. Related: Defined benefit plan customers, reported: --Operating earnings of $4.1 million for the first quarter of 2005, compared with $6.1 million for the first quarter of 2004, consistent with the runoff Runoff The procedure of printing the end-of-day prices for every stock on an exchange onto ticker tape. Notes: If the "tape is late" then it can take a long time to print off all the closing prices. nature of the business. --Net income of $4.3 million for the first quarter of 2005, compared with $8.1 million for the first quarter of 2004. Total Company results --Total Revenues. Revenues were $5.4 billion for the first quarter of 2005, compared with $4.8 billion for the first quarter of 2004. The growth in first quarter 2005 revenue reflects a higher level of membership and premium and fee rate increases. Premiums increased by 13.8 percent, and fees increased by 11.1 percent. --Total Operating Expenses. Operating expenses were $1.063 billion for the first quarter of 2005, compared with $983.7 million for the first quarter of 2004, reflecting higher new membership and the related selling expenses. Operating expenses as a percentage of revenue(3) improved to 19.6 percent in the first quarter of 2005 from 20.5 percent in the first quarter of 2004, reflecting continued expense efficiencies. --Corporate Interest expense was $17.7 million after tax for the first quarter of 2005, compared with $16.5 million for the first quarter of 2004. --Net Income. Aetna reported net income of $424.0 million for the first quarter of 2005, compared with $365.8 million for the first quarter of 2004. First quarter 2004 results included $40 million of income from discontinued operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. . --Pretax operating margin Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: (4) improved to 10.4 percent for the first quarter of 2005, from 10.0 percent for the first quarter of 2004. The after-tax af·ter-tax also af·ter·tax adj. Relating to or being that which remains after payment, especially of income taxes: after-tax profits. operating margin, which represents income from continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the divided by total revenue, was 7.8 percent for the first quarter of 2005, compared with 6.8 percent in first quarter of 2004. The public may access the conference call through a live audio webcast available on Aetna's Investor Information link on the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the at www.aetna.com. Financial, statistical and other information, including GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). reconciliations, related to the conference call also will be available on Aetna's Investor Information web site. The conference call also can be accessed by dialing 800-818-5264, or 913-981-4910 for international callers. The company suggests participants dial in approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 10 minutes prior to the call. Individuals who dial in will be asked to identify themselves and their affiliations. A replay of the call may be accessed through Aetna's Investor Information link on the Internet at www.aetna.com or by dialing 888-203-1112, or 719-457-0820 for international callers. The replay access code is 1994950. Telephone replays will be available from 11:30 a.m. ET on April 28 until midnight ET on May 5. As one of the nation's leading providers of health care, dental, pharmacy, group life, disability and long-term care benefits, Aetna puts information and helpful resources to work for its approximately 14.4 million medical members, 12.8 million dental members, 9.0 million pharmacy members and 14.0 million group insurance members to help them make better informed decisions about their health care and protect their finances against health-related risks. Aetna provides easy access to cost-effective cost-effective, n the minimal expenditure of dollars, time, and other elements necessary to achieve the health care result deemed necessary and appropriate. health care through a nationwide network of more than 672,000 health care professionals, including approximately 400,000 primary care and specialist doctors and 4,084 hospitals. For more information, please visit www.aetna.com. (Figures as of March 31, 2005) (1) Operating earnings exclude net realized capital gains and losses from income from continuing operations as discussed below. Although the excluded items may recur, management believes that operating earnings and operating earnings per share provide a useful comparison of its underlying business performance from period to period. Management uses operating earnings to assess business performance and to make decisions regarding its operations and allocation of resources allocation of resources Apportionment of productive assets among different uses. The issue of resource allocation arises as societies seek to balance limited resources (capital, labour, land) against the various and often unlimited wants of their members. among its businesses. Operating earnings is also the measure reported to the Chief Executive Officer for these purposes. The excluded item is discussed below: --Net realized capital gains and losses arise from various types of transactions primarily in the course of managing a portfolio of assets that support the payment of liabilities, but these transactions do not directly relate to the underwriting or servicing of products for customers and are not directly related to the core performance of the Company's business operations. The Company also displays certain metrics metrics Managed care A popular term for standards by which the quality of a product, service, or outcome of a particular form of Pt management is evaluated. See TQM. (e.g., medical cost ratios, operating earnings, operating earnings per share and pretax pre·tax adj. Existing before tax deductions: pretax income. pretax adj [profit] → vor (Abzug der) Steuern operating margins) excluding changes to prior-period health care cost estimates. Each quarter, the Company re-examines previously established health care cost payable estimates based on actual claim submissions and other changes in facts and circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or . Decreases (increases) in prior periods' estimates represent the effect of favorable (unfavorable) development of prior-period health care cost estimates on current-period results of operations, at each financial statement date. The Company believes excluding changes to prior-period health care cost estimates better reflects the underlying current-period health care costs. For a reconciliation of these items to financial measures calculated under accounting principles generally accepted in the United States of America UNITED STATES OF AMERICA. The name of this country. The United States, now thirty-one in number, are Alabama, Arkansas, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Missouri, New Hampshire, (GAAP), refer to the tables on pages 9 to 13 of this release. (2) Projected operating earnings per share for full-year 2005 exclude $2.9 million of net realized capital gains for the three months ended March 31, 2005 and also exclude any future net realized capital gains or losses capital gains or losses n. particularly when calculating the tax liability of an individual or business, this is the difference between the original cost plus the cost of capital improvements, excluding maintenance, called "basis" and the sales price. . The Company is not able to project the amount of future net realized capital gains or losses and cannot therefore reconcile projected 2005 operating earnings to projected income from continuing operations. Projected operating earnings per share for full-year 2005 also exclude approximately $84 million, after tax, of favorable development of prior-period health care cost estimates. The Company believes excluding this reserve development better reflects the underlying current-period health care costs. Projected operating earnings per share reflect the effect of the stock split. Projected operating earnings per share for full year 2005 assume approximately 304 million weighted-average diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. shares. (3) Operating expenses as a percentage of revenue excludes net realized capital gains and losses from total revenue. Net realized capital gains and losses do not directly relate to the underwriting or servicing of products for customers and are not directly related to the core performance of the Company's business operations. For a reconciliation to operating expense Operating Expense The essential things that a company must purchase in order to maintain business. Notes: For example, the payment of employees wages are an operating expense. Also known as OPEX. as a percentage of revenue calculated under GAAP, refer to the tables on page 13 at the end of this press release. (4) In order to provide useful information regarding profitability of the Company on a basis comparable to others in the industry, without regard to financing decisions Financing decisions Decisions concerning the liabilities and stockholders' equity side of the firm's balance sheet, such as a decision to issue bonds. , income taxes and amortization of other acquired intangible assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. (each of which may vary for reasons not directly related to performance of the underlying business), the Company's pretax operating margin excludes interest expense, income taxes and amortization of other acquired intangible assets. Management also uses pretax operating margin to assess its performance, including performance vs. competitors COMPETITORS, French law. Persons who compete or aspire to the same office, rank or employment. As an English word in common use, it has a much wider application. Ferriere, Dict. de Dr. h.t. . Operating earnings used in the pretax margin calculation also exclude the items noted in footnote Text that appears at the bottom of a page that adds explanation. It is often used to give credit to the source of information. When accumulated and printed at the end of a document, they are called "endnotes." 1. For a reconciliation to margin calculated under GAAP, refer to the tables on page 13 of this release. ADDITIONAL INFORMATION; CAUTIONARY STATEMENT -- Certain information in this press release is forward looking, including our projections as to earnings and membership. Forward-looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. information is based on management's estimates, assumptions and projections, and is subject to significant uncertainties and other factors, many of which are beyond Aetna's control. Important risk factors could cause actual future results and other future events to differ materially from those currently estimated by management. Those risk factors include, but are not limited to: unanticipated increases in medical costs (including increased medical utilization utilization, n 1. the extent to which a given group uses a particular service in a specified period. Although usually expressed as the number of services used per year per 100 or per 1000 persons eligible for the service, utilization rates may be , increased pharmacy costs, increases resulting from unfavorable changes in contracting or re-contracting with providers, changes in membership mix to lower-premium or higher-cost products or membership-adverse selection; as well as changes in medical cost estimates due to the necessary extensive judgment that is used in the medical cost estimation estimation In mathematics, use of a function or formula to derive a solution or make a prediction. Unlike approximation, it has precise connotations. In statistics, for example, it connotes the careful selection and testing of a function called an estimator. process, the considerable variability inherent in such estimates, and the sensitivity of such estimates to changes in medical claims payment patterns and changes in medical cost trends); decreases in membership or failure to achieve desired membership growth due to significant competition or other factors; increases in medical costs or Group Insurance claims resulting from any acts of terrorism terrorism, the threat or use of violence, often against the civilian population, to achieve political or social ends, to intimidate opponents, or to publicize grievances. or otherwise; the ability to reduce administrative expenses while maintaining targeted levels of service and operating performance, and to improve relations with providers while taking actions to reduce medical costs; the ability to successfully implement Aetna's operating model Operating Model is a term that is used in many contexts. In essence an operating model describes how an organization operates across both business and technology domains. The Operating Model describes what is important for the organization. to a projected growing membership base and to successfully implement multiple strategic and operational initiatives simultaneously si·mul·ta·ne·ous adj. 1. Happening, existing, or done at the same time. See Synonyms at contemporary. 2. Mathematics ; lower levels of investment income from continued low interest rates; adverse government regulation (including legislative proposals eliminating or reducing ERISA See Employee Retirement Income Security Act. ERISA See Employee Retirement Income Security Act (ERISA). pre-emption PRE-EMPTION, intern. law. The right of preemption is the right of a nation to detain the merchandise of strangers passing through her territories or seas, in order to afford to her subjects the preference of purchase. 1 Chit. Com. Law, 103; 1 Bl. Com. 287. 2. of state laws that would increase potential litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. exposure, and other proposals, such as patients' rights The legal interests of persons who submit to medical treatment. For many years, common medical practice meant that physicians made decisions for their patients. This paternalistic view has gradually been supplanted by one promoting patient autonomy, whereby patients and legislation, that would increase potential litigation exposure or mandate A judicial command, order, or precept, written or oral, from a court; a direction that a court has the authority to give and an individual is bound to obey. A mandate might be issued upon the decision of an appeal, which directs that a particular action be taken, or upon a coverage of certain health benefits); adverse pricing actions by government payors; changes in size, product mix and medical cost experience of membership in key markets; our ability to integrate, simplify, and enhance our existing information technology system and platform to keep pace with changing customer and regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. needs; and the outcome of various litigation and regulatory matters, including litigation and ongoing reviews of business practices by various regulatory authorities Noun 1. regulatory authority - a governmental agency that regulates businesses in the public interest regulatory agency administrative body, administrative unit - a unit with administrative responsibilities (including the current industry wide investigation into insurance brokerage BROKERAGE, contracts. The trade or occupation of a broker; the commissions paid to a broker for his services. practices concerning broker compensation arrangements, bid quoting practices and potential antitrust Antitrust The antitrust laws apply to virtually all industries and to every level of business, including manufacturing, transportation, distribution, and marketing. They prohibit a variety of practices that restrain trade. violations being conducted by the New York Attorney General, the Connecticut Connecticut, state, United States Connecticut (kənĕt`ĭkət), southernmost of the New England states of the NE United States. It is bordered by Massachusetts (N), Rhode Island (E), Long Island Sound (S), and New York (W). Attorney General, and others, and for which the Company has received and may receive subpoenas, and may be subject to related litigation). For more discussion of important risk factors that may materially affect Aetna, please see the risk factors contained in Aetna's 2004 Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. , on file with the Securities and Exchange Commission. You also should read Aetna's 2004 Annual Report on Form 10-K and Aetna's 2004 first quarter report on Form 10-Q Form 10-Q See 10-Q. when filed with the Securities and Exchange Commission for a discussion of Aetna's historical results of operations and financial condition.
Consolidated Statements of Income
($ in Millions)
Three Months Ended
---------------------------
March 31, March 31,
2005 2004
-------------- ------------
Revenue:
Health care premiums $4,053.5 $3,557.8
Other premiums 498.5 442.7
Administrative services contract fees 568.9 512.2
Net investment income 291.2 271.5
Other income 10.4 11.0
Net realized capital gains 4.4 26.1
-------------- ------------
Total revenue 5,426.9 4,821.3
Benefits and expenses:
Health care costs (1) 3,048.5 2,741.8
Current and future benefits 615.3 547.0
Operating expenses:
Selling expenses 203.0 163.6
General and administrative expenses 859.8 820.1
-------------- ------------
Total operating expenses 1,062.8 983.7
Interest expense 27.2 25.5
Amortization of other acquired intangible
assets 10.7 12.7
-------------- ------------
Total benefits and expenses 4,764.5 4,310.7
-------------- ------------
Income from continuing operations before
income taxes 662.4 510.6
Income taxes 238.4 184.8
-------------- ------------
Income from continuing operations 424.0 325.8
Income from discontinued operations, net
of tax (2) - 40.0
-------------- ------------
Net income $424.0 $365.8
============== ============
Shareholders' equity $9,039.1 $8,175.3
============== ============
(1) The three months ended March 31, 2005 and March 31, 2004 include
favorable development of prior-period health care cost estimates
of approximately $133 million pretax (approximately $84 million
after tax) and approximately $41 million pretax (approximately $27
million after tax), respectively, in the Health Care segment. The
three months ended March 31, 2005 development includes
approximately $54 million pretax (approximately $34 million after
tax) related to the release of reserves associated with the New
York Market Stabilization Pool.
(2) Income from discontinued operations of approximately $40 million
for the three months ended March 31, 2004 reflects the completion
of certain Internal Revenue Service audits associated with
businesses that were sold in the 1990s by the Company's
predecessor (former Aetna).
Summary of Results (1)
($ in Millions)
Three Months Ended
-------------------------
March 31, March 31,
2005 2004
------------ ------------
Operating earnings, excluding favorable
development $337.1 $281.8
Favorable development of prior-period
health care cost estimates 84.0 27.0
------------ ------------
Operating earnings 421.1 308.8
Net realized capital gains 2.9 17.0
------------ ------------
Income from continuing operations (GAAP
measure) 424.0 325.8
Income from discontinued operations(2) - 40.0
------------ ------------
Net income (GAAP measure) $424.0 $365.8
============ ============
Weighted average common shares - basic 293,304,437 307,836,718
============ ============
Weighted average common shares - diluted 306,006,348 320,835,386
============ ============
Summary of Results Per Common Share (1)
Operating earnings, excluding favorable
development $1.10 $.88
Favorable development of prior-period
health care cost estimates .28 .08
------------ ------------
Operating earnings 1.38 .96
Net realized capital gains .01 .06
------------ ------------
Income from continuing operations (GAAP
measure) 1.39 1.02
Income from discontinued operations(2) - .12
------------ ------------
Net income (GAAP measure) $1.39 $1.14
============ ============
Shareholders' equity (3) $31.12 $26.82
============ ============
(1) Prior period results per common share and weighted average common
shares have been adjusted to reflect the March 11, 2005
two-for-one stock split.
(2) Income from discontinued operations of approximately $40 million
for the three months ended March 31, 2004 reflects the completion
of certain Internal Revenue Service audits associated with former
Aetna.
(3) Actual common shares outstanding were 290.4 million at March 31,
2005 and 304.9 million at March 31, 2004.
Segment Information (1)
($ in Millions)
Three Months Ended
---------------------------
March 31, March 31,
2005 2004
-------------- ------------
Health Care:
Total revenue $4,693.9 $4,146.8
============== ============
Selling expenses $183.9 $148.8
General and administrative expenses 812.3 775.4
-------------- ------------
Total operating expenses $996.2 $924.2
============== ============
Operating earnings, excluding favorable
development $320.0 $261.4
Favorable development of prior-period
health care cost estimates 84.0 27.0
-------------- ------------
Operating earnings 404.0 288.4
Net realized capital gains 1.3 7.1
-------------- ------------
Net income (GAAP measure) $405.3 $295.5
============== ============
Group Insurance:
Total revenue $534.7 $484.9
============== ============
Selling expenses $19.1 $14.8
General and administrative expenses 42.6 39.7
-------------- ------------
Total operating expenses $61.7 $54.5
============== ============
Operating earnings $30.7 $30.8
Net realized capital gains 1.4 7.9
-------------- ------------
Net income (GAAP measure) $32.1 $38.7
============== ============
Large Case Pensions:
Total revenue $198.3 $189.6
============== ============
Operating earnings $4.1 $6.1
Net realized capital gains .2 2.0
-------------- ------------
Net income (GAAP measure) $4.3 $8.1
============== ============
Corporate Interest:
Interest expense, net of tax $17.7 $16.5
============== ============
Total Company:
Total revenue $5,426.9 $4,821.3
============== ============
Selling expenses $203.0 $163.6
General and administrative expenses 859.8 820.1
-------------- ------------
Total operating expenses $1,062.8 $983.7
============== ============
(1) Revenue and operating expense information is presented before
income taxes. Operating earnings information is presented net of
income taxes.
Enrollment
(Members in Thousands)
March 31, March 31, December 31,
2005 2004 2004
----------- ---------- ------------
Medical Membership:
Commercial 14,162 13,136 13,446
Medicare 101 102 97
Medicaid 112 106 113
----------- ---------- ------------
Total Medical Membership 14,375 13,344 13,656
=========== ========== ============
Dental Membership 12,791 11,214 11,932
=========== ========== ============
Pharmacy Membership:
Pharmacy Benefit Management
Services 8,505 7,693 7,989
Mail Order (1) 501 364 458
----------- ---------- ------------
Total Pharmacy Membership 9,006 8,057 8,447
=========== ========== ============
Group Insurance Membership 14,040 12,394 13,494
=========== ========== ============
Aetna HealthFund(R) (2) 361 183 222
=========== ========== ============
Health Care Medical Cost Ratios (3)
($ in Millions)
Three Months Ended
-----------------------
March 31, March 31,
2005 2004
---------- ------------
Health Care Premiums:
Health Care Risk (A) $4,053.5 $3,557.8
Commercial Risk (B) $3,805.8 $3,326.2
Medicare (C) $247.7 $231.6
Health Care Costs:
Health Care Risk
----------------------------------
Health care costs (D)(GAAP measure) $3,048.5 $2,741.8
Favorable development of prior-
period health care cost
estimates 133.0 41.0
---------- ------------
Health care costs - Adjusted (E) $3,181.5 $2,782.8
========== ============
Commercial Risk
----------------------------------
Health care costs (F)(GAAP measure) $2,837.9 $2,546.3
Favorable development of prior-
period health care cost
estimates 127.0 36.0
---------- ------------
Health care costs - Adjusted (G) $2,964.9 $2,582.3
========== ============
Medicare
----------------------------------
Health care costs (H)(GAAP measure) $210.6 $195.6
Favorable development of prior-
period health care cost
estimates 6.0 5.0
---------- ------------
Health care costs - Adjusted (I) $216.6 $200.6
========== ============
Health Care Medical Cost Ratios:
Health Care Risk (D)/(A)(GAAP
measure) 75.2% 77.1%
Health Care Risk - Adjusted (E)/(A) 78.5% 78.2%
Commercial Risk (F)/(B)(GAAP
measure) 74.6% 76.6%
Commercial Risk - Adjusted (G)/(B) 77.9% 77.6%
Medicare (H)/(C)(GAAP measure) 85.0% 84.5%
Medicare - Adjusted (I)/(C) 87.4% 86.6%
(1) Represents members who purchased medications through Aetna's mail
order pharmacy during the quarterly period.
(2) Represents members in consumer-directed health plan products
included in Aetna's Commercial medical membership. Health Care
Risk includes all medical and dental risk products.
(3) Commercial Risk includes all medical and dental risk products
except Medicare and Medicaid. Risk includes all medical and dental
products for which the Company assumes all or a majority of health
care cost, utilization or other risk.
Operating Margins
($ in Millions)
Three Months Ended
--------------------------
March 31, March 31,
2005 2004
------------- ------------
Reconciliation to Income from continuing
operations before income taxes:
Operating earnings before income taxes,
excluding interest expense, amortization
of other acquired intangible assets and
favorable development (A) $562.9 $481.7
Favorable development of prior-period
health care cost estimates 133.0 41.0
------------- ------------
Operating earnings before income taxes,
excluding interest expense and
amortization of other acquired intangible
assets (B) 695.9 522.7
Interest expense (27.2) (25.5)
Amortization of other acquired
intangible assets (10.7) (12.7)
Net realized capital gains 4.4 26.1
------------- ------------
Income from continuing operations before
income taxes (C)(GAAP measure) $662.4 $510.6
============= ============
Reconciliation to Income from continuing
operations:
Operating earnings, excluding interest
expense, amortization of other acquired
intangible assets and favorable
development (D) $361.8 $306.6
Favorable development of prior-period
health care cost estimates, net of tax 84.0 27.0
------------- ------------
Operating earnings, excluding interest
expense and amortization of other acquired
intangible assets (E) 445.8 333.6
Interest expense, net of tax (17.7) (16.5)
Amortization of other acquired
intangible assets, net of tax (7.0) (8.3)
Net realized capital gains, net of tax 2.9 17.0
------------- ------------
Income from continuing operations (F)(GAAP
measure) $424.0 $325.8
============= ============
Reconciliation of Revenue:
Revenue, excluding net realized capital
gains (G) $5,422.5 $4,795.2
Net realized capital gains 4.4 26.1
------------- ------------
Total revenue (H)(GAAP measure) $5,426.9 $4,821.3
============= ============
Operating Margins:
Pretax operating margin (B)/(G) 12.8% 10.9%
Pretax operating margin - Adjusted (A)/(G) 10.4% 10.0%
Pretax operating margin (C)/(H)(GAAP
measure) 12.2% 10.6%
After-tax operating margin (E)/(G) 8.2% 7.0%
After-tax operating margin - Adjusted
(D)/(G) 6.7% 6.4%
After-tax operating margin (F)/(H)(GAAP
measure) 7.8% 6.8%
Operating Expenses
($ in Millions)
Total operating expenses (I)(GAAP measure) $1,062.8 $983.7
============= ============
Operating Expenses Percentages:
Operating expenses as a % of revenue
(I)/(G) 19.6% 20.5%
Total operating expenses as a % of total
revenue (I)/(H)(GAAP measure) 19.6% 20.4%
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