Aetna Reports First-Quarter 2006 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 $0.64 per share; a 31 percent increase over the prior-year quarter, excluding reserve development, $0.02 per share above prior guidance and $.01 above Thomson/First Call mean of $0.63 per share --First-quarter net income of $0.68 per share --Medical membership increased 663,000 in the first quarter to 15.418 million --Guidance increased for full-year 2006 operating earnings per share to $2.74 to $2.76 from prior guidance of $2.71 to $2.74, a per-share increase of 23 percent to 24 percent over 2005 levels --All per-share amounts give effect to the February February: see month. 17 stock split Aetna (NYSE: AET) today announced first-quarter 2006 operating earnings of $0.64 per share. Operating earnings increased 31 percent compared to the prior-year quarter, excluding favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. reserve development of $0.14 per share in the first quarter of 2005. There was no significant prior-period reserve development in the first quarter of 2006. The increase in operating earnings reflects a 15 percent increase in revenue primarily from strong membership growth and premium and fee rate increases, as well as solid 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 and continued general and administrative expense efficiencies. Operating earnings exclude net realized capital gains and other items.(1) First-quarter 2006 net income of $0.68 per share includes $0.03 per share 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. for the final resolution of a tax refund Tax refund Money back from the government when too much tax has been paid or withheld from a salary. related to businesses previously sold.
Quarterly Financial Results at a Glance
Three Months Ended
March 31, 2006 March 31, 2005(a) Change
Total revenues $6.2 billion $5.4 billion 15%
=============== =================
Operating earnings, excluding $380.3 million $302.4 million
development (b) 26%
=============== =================
Income from continuing $385.6 million $389.3 million
operations (1)%
Income from discontinued 16.1 million
operations (c) --
--------------- -----------------
Net income $401.7 million $389.3 million
=============== =================
Per share results:
Operating earnings (b) $0.64 $0.63 2%
Favorable development
of prior-period health
care cost estimates -- (0.14)
--------------- -----------------
Operating earnings,
excluding development (b) $0.64 $0.49 31%
=============== =================
Income from continuing
operations $0.65 $0.64 2%
Income from discontinued
operations (c) 0.03 --
--------------- -----------------
Net income $0.68 $0.64
=============== =================
(a) Restated for FAS123R and stock split. Refer to footnote 2 at the
end of this press release.
(b) For a full description of operating earnings and per-share
operating earnings, refer to footnote 1 at the end of this press
release.
(c) Refer to footnote 3 at the end of this press release.
"Aetna continues to deliver superior financial results, with another quarter of strong growth in membership, revenue and earnings," said Ronald A. Williams, 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. and president. "Our operating earnings per share increased by 31 percent over the prior-year quarter. Our medical membership increased by approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 663,000, well above our prior guidance of 575,000. In fact, we experienced strong growth across all of our health care product lines: 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. and behavioral behavioral pertaining to behavior. behavioral disorders see vice. behavioral seizure see psychomotor seizure. . And our administrative cost administrative cost Managed care A cost incurred by the 'business' end of a health care facility or university–eg, staffing and personnel costs, nursing home and hospital administration, insurance, and overhead expenses. Cf Indirect costs. ratio declined by 150 basis points. "In addition to delivering strong results, we continue to innovate in·no·vate v. in·no·vat·ed, in·no·vat·ing, in·no·vates v.tr. To begin or introduce (something new) for or as if for the first time. v.intr. To begin or introduce something new. to be a market leader. A significant achievement in recent weeks was our launch of Aetna Health Connections(SM). This new approach to medical management differentiates Aetna by taking an innovative, comprehensive view of each covered member, incorporating health status, benefit plan design and other information to help people understand and engage in attaining their optimal health. Through 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. and broad-based broad-based Of or relating to an index or average that provides a good representation of the overall market. The S&P 500 and NYSE Composite are generally regarded as broad-based stock indexes, while the popular Dow Jones Industrial Average is biased initiatives such as this, we believe the value proposition that Aetna represents in the marketplace will help us to be preferred by customers." "In the context of these results, we are increasing our guidance for full-year 2006 operating earnings per share to $2.74 to $2.76 from our prior guidance of $2.71 to $2.74."(4) 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 $360.6 million in the first quarter of 2006, compared with $286.5 million, excluding $84 million, after tax, of favorable development in the first quarter of 2005. The increase in operating earnings, excluding development, primarily reflects higher membership levels across all products and premium and fee rate increases, as well as solid underwriting results and continued general and administrative expense efficiencies. --Net income of $364.3 million for the first quarter of 2006, compared with $371.8 million in the first quarter of 2005. --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 79.4 percent in the first quarter of 2006, compared to 77.9 percent in the first quarter of 2005, excluding favorable development in the first quarter of 2005. Including favorable reserve development, the Commercial Risk MCR was 74.6 percent in the first quarter of 2005. --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 87.3 percent in the first quarter of 2006, compared with 87.4 percent in the first quarter of 2005, excluding favorable development in the first quarter of 2005. Including favorable reserve development, the Medicare MCR was 85.0 percent in the first quarter of 2005. Medicare currently represents less than 1 percent of our medical membership. --Total medical membership of 15.418 million at March 31, 2006, compared with 14.755 million at December December: see month. 31, 2005, an increase of approximately 663,000. 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 233,000 to 13.331 million. Pharmacy membership increased by 706,000 to 10.151 million from December 31, 2005. --Total revenues in the first quarter of 2006 increased by 17 percent to $5.5 billion from $4.7 billion in the first quarter of 2005. 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 $32.2 million for the first quarter of 2006, compared with $29.5 million for the first quarter of 2005, reflecting improved underwriting margins, higher levels of investment income and lower general and administrative expenses. --Net income of $28.2 million for the first quarter of 2006, compared with $30.9 million for the first quarter of 2005. Net income for first quarter 2006 includes an other item of $6.2 million, after tax, for the write-off Write-Off A reduction in the value of an asset or earnings by the amount of an expense or loss. Companies are able to write off certain expenses that are required to run the business, or have been incurred in the operation of the business and detract from retained revenues. of previously capitalized Capitalized Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures for items with useful lives longer than one year. software costs as a result of the acquisition of Broadspire's disability business in 2006. --Total revenues of $535.2 million for the first quarter of 2006, compared with $534.7 million for the first quarter of 2005. --Total Group Insurance membership of 13.089 million at March 31, 2006, compared with 13.618 million at December 31, 2005. Group Insurance membership does not include the disability business of Broadspire, which was acquired on March 31, 2006. 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 qualified pension plans, reported: --Operating earnings of $9.3 million for the first quarter of 2006, compared with $4.1 million for the first quarter of 2005, primarily reflecting higher net investment income in continuing products due to increased private equity partnership income. --Net income of $14.9 million for the first quarter of 2006, compared with $4.3 million for the first quarter of 2005. Total Company results --Total Revenues. Revenues increased 15 percent to $6.2 billion for the first quarter of 2006, compared with $5.4 billion for the first quarter of 2005. The growth in first quarter revenue reflects a higher level of membership and premium and fee rate increases that resulted in an increase of 15 percent in premiums and 19 percent in fees and other revenue. --Total 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. . Operating expenses were $1.2 billion for the first quarter of 2006, $72.6 million higher than the first quarter of 2005, excluding the Broadspire acquisition-related software write-off of $8.3 million, pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta . Including the acquisition related software write-off, operating expenses were $80.9 million higher than the first quarter of 2005. Operating expenses as a percentage of revenue(5) improved to 19.1 percent in the first quarter of 2006 from 20.6 percent in the first quarter of 2005, reflecting continued expense efficiencies. Including net realized capital gains and the acquisition-related software write-off, these percentages were 19.2 percent in the first quarter of 2006 and 20.6 percent in the first quarter of 2005. --Corporate Interest Expense was $21.8 million after tax for the first quarter of 2006, compared with $17.7 million after tax for the first quarter of 2005. The increase in interest expense reflects the termination The point where a line, channel or circuit ends. See SCSI termination and hybrid. of interest rate swap Interest Rate Swap A deal between banks or companies where borrowers switch floating-rate loans for fixed rate loans in another country. These can be either the same or different currencies. agreements in the second quarter of 2005. --Net Income. Aetna reported net income of $401.7 million for the first quarter of 2006, compared with $389.3 million for the first quarter of 2005. Excluding income from discontinued operations related to the final resolution of a tax refund related to businesses previously sold, Aetna reported net income of $385.6 million for first quarter of 2006. --Operating Margin, excluding reserve development, was 10.3 percent in the first quarter of 2006, compared with 9.4 percent in the first quarter of 2005, pre-tax.(6) 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 Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: , 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 6.2 percent in the first quarter of 2006, compared with 7.2 percent in the first quarter of 2005. A live audio webcast of the first-quarter results conference call will begin at 8:30 a.m. ET today. 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 800-810-0924, or 913-981-4900 for international callers. The company suggests participants dial in approximately 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 5158457. Telephone replays will be available from 11:30 a.m. ET on April 27th until midnight ET on May 11. Aetna is one of the nation's leading diversified diversified (di·verˑ·s health care benefits companies, serving approximately 28.3 million people with information and resources to help them make better informed decisions about their health care. Aetna offers a broad range of traditional and consumer-directed health insurance products and related services, including medical, pharmacy, dental, behavioral health, group life, long-term care and disability plans, and medical management capabilities. Our customers include employer groups employer group Association of employers Managed care An entity with a current group benefits agreement in effect with a health plan to provide covered health care services to its employee-subscribers and eligible dependents. , individuals, college students, part-time part-time adj. For or during less than the customary or standard time: a part-time job. part and hourly workers, health plans and government-sponsored plans. www.aetna.com. (1) Operating earnings exclude net realized capital gains and losses and an other item 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 more useful comparison of the Company's underlying business performance from period to period. Management uses operating earnings to assess business performance and to make decisions regarding the Company's 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 the Company's businesses. Operating earnings is also the measure reported to the Chief Executive Officer for these purposes. Each of these excluded items 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 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 . --As a result of the acquisition of Broadspire's disability business in the first quarter of 2006, the Company impaired See assistive technology. approximately $6.2 million after tax ($8.3 million pre-tax) of its previously capitalized software, due to the acquisition of a more multifunctional system. This is an other item in the first quarter of 2006 and does not reflect underlying 2006 business performance. 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 reserve development. 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 reserve development better reflects the underlying current-period health care costs. For a reconciliation of these items to financial measures calculated under U.S. generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting (GAAP), refer to the tables on pages 8 to 12 of this press release. (2) Effective January January: see month. 1, 2006, the Company adopted FAS 123R applying the modified mod·i·fy v. mod·i·fied, mod·i·fy·ing, mod·i·fies v.tr. 1. To change in form or character; alter. 2. retrospective LAW, RETROSPECTIVE. A retrospective law is one that is to take effect, in point of time, before it was passed. 2. Whenever a law of this kind impairs the obligation of contracts, it is void. 3 Dall. 391. approach. Accordingly, all prior period financial information was adjusted to reflect the Company's stock-based compensation activity since 1995. Additionally, results per common share and weighted average common shares have been adjusted to reflect the February 17, 2006 two-for-one stock split. (3) Income from discontinued operations for the three months ended March 31, 2006 reflects the Company's receipt in February 2006 of a $50 million refund TO REFUND. To pay back by the party who has received it, to the party who has paid it, money which ought not to have been paid. 2. On a deficiency of assets, executors and administrators cum testamento annexo, are entitled to have refunded to them legacies , including interest, from the completion of certain Internal Revenue Service audits associated with businesses previously sold by the Company's former parent company. The Company previously recorded $735 million of this refund. The $50 million refund resulted in an additional $16 million in income from discontinued operations. (4) Projected operating earnings per share for 2006 exclude $11.5 million of net realized capital gains for the three months ended March 31, 2006 and 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. from income from continuing operations. The Company is not able to project the amount of future net realized capital gains or losses and cannot therefore reconcile projected 2006 operating earnings to projected income from continuing operations, or to a projected change in income from continuing operations. Projected operating earnings per share for 2006 also excludes an acquisition-related software charge, as described 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. Projected operating earnings per share for 2006 assume approximately 592 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. (5)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 underwriting or servicing of products for customers and are not directly related to the core performance of the Company's business operations. Operating expenses for 2006 exclude an acquisition-related software charge as described in footnote 1. For a reconciliation to operating expenses as a percentage of revenue calculated under GAAP, refer to the tables on page 12 of this press release. (6)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 the Company's performance, including performance versus 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 described in footnote 1. For a reconciliation to operating margin calculated under GAAP, refer to the tables on page 12 of this press release. ADDITIONAL INFORMATION; CAUTIONARY STATEMENT -- Certain information in this press release is forward looking, including our projections as to operating earnings. 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, reputational issues 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. , epidemics This article is a list of major epidemics. Worldwide Pandemics
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 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 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 related litigation). For more discussion of important risk factors that may materially affect Aetna, please see the risk factors contained in Aetna's 2005 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 2005 Annual Report on Form 10-K and Aetna's 2006 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,
2006 2005 (1)
---------- ----------
Revenue:
Health care premiums $4,726.1 $4,053.5
Other premiums 502.1 498.5
Fees and other revenue 690.9 579.3
Net investment income 298.0 291.2
Net realized capital gains 17.6 4.4
---------- ----------
Total revenue 6,234.7 5,426.9
Benefits and expenses:
Health care costs (2) 3,786.2 3,048.5
Current and future benefits 600.7 615.3
Operating expenses:
Selling expenses 243.5 203.0
General and administrative expenses (3) 953.6 913.2
---------- ----------
Total operating expenses 1,197.1 1,116.2
Interest expense 33.5 27.2
Amortization of other acquired intangible assets 19.9 10.7
---------- ----------
Total benefits and expenses 5,637.4 4,817.9
---------- ----------
Income from continuing operations before income
taxes 597.3 609.0
Income taxes 211.7 219.7
---------- ----------
Income from continuing operations 385.6 389.3
Income from discontinued operations, net of tax
(4) 16.1 -
---------- ----------
Net income $401.7 $389.3
========== ==========
Shareholders' equity $10,453.0 $9,124.0
========== ==========
(1) Effective January 1, 2006, the Company adopted FAS 123R applying
the modified retrospective approach. Accordingly, all prior period
financial information was adjusted to reflect the Company's
stock-based compensation activity.
(2) The three months ended March 31, 2005 include favorable
development of prior-period health care cost estimates of
approximately $133 million pretax (approximately $84 million after
tax) in the Health Care segment. The three months ended March 31,
2006 had no significant development.
(3) As a result of the acquisition of Broadspire's disability business
in the first quarter of 2006, the Company impaired approximately
$8.3 million (pretax) of previously capitalized software.
(4) Income from discontinued operations of approximately $16 million
for the three months ended March 31, 2006 reflects the Company's
receipt in February 2006 of a $50 million refund, including
interest, from the completion of certain Internal Revenue Service
audits associated with businesses previously sold by the Company's
former parent company. The Company previously recorded $735
million of this refund. The $50 million refund resulted in an
additional $16 million in income from discontinued operations.
Summary of Results
(in Millions)
Three Months Ended
-----------------------
March 31, March 31,
2006 2005 (1)
------------ ----------
Operating earnings, excluding favorable
development $380.3 $302.4
Favorable development of prior-period
health care cost estimates - 84.0
------------ ----------
Operating earnings 380.3 386.4
Acquisition related software charge (6.2) -
Net realized capital gains 11.5 2.9
------------ ----------
Income from continuing operations
(GAAP measure) 385.6 389.3
Income from discontinued operations (2) 16.1 -
------------ ----------
Net income (GAAP measure) $401.7 $389.3
============ ==========
Weighted average common shares - basic 567.4 586.6
============ ==========
Weighted average common shares - diluted 593.1 613.0
============ ==========
Summary of Results Per Common Share
Operating earnings, excluding favorable
development $.64 $.49
Favorable development of prior-period
health care cost estimates - .14
------------ ----------
Operating earnings .64 .63
Acquisition related software charge (.01) -
Net realized capital gains .02 .01
------------ ----------
Income from continuing operations
(GAAP measure) .65 .64
Income from discontinued operations (2) .03 -
------------ ----------
Net income (GAAP measure) $.68 $.64
============ ==========
Shareholders' equity (3) $18.44 $15.71
============ ==========
(1) Effective January 1, 2006, the Company adopted FAS 123R applying
the modified retrospective approach. Accordingly, all prior period
financial information was adjusted to reflect the Company's stock-
based compensation activity. Additionally, results per common
share and weighted average common shares have been adjusted to
reflect the February 17, 2006 two-for-one stock split.
(2) Income from discontinued operations of approximately $16 million
for the three months ended March 31, 2006 reflects the Company's
receipt in February 2006 of a $50 million refund, including
interest, from the completion of certain Internal Revenue Service
audits associated with businesses previously sold by the Company's
former parent company. The Company previously recorded $735
million of this refund. The $50 million refund resulted in an
additional $16 million in income from discontinued operations.
(3) Actual common shares outstanding were 567.0 million at March 31,
2006 and 580.9 million at March 31, 2005.
Segment Information (1)
($ in Millions)
Three Months Ended
---------------------------
March 31, March 31,
2006 2005 (2)
-------------- ------------
Health Care:
Total revenue $5,495.9 $4,693.9
============== ============
Selling expenses $221.4 $183.9
General and administrative expenses 899.0 863.9
-------------- ------------
Total operating expenses $1,120.4 $1,047.8
============== ============
Operating earnings, excluding favorable
development $360.6 $286.5
Favorable development of prior-period
health care cost estimates - 84.0
-------------- ------------
Operating earnings 360.6 370.5
Net realized capital gains 3.7 1.3
-------------- ------------
Net income (GAAP measure) $364.3 $371.8
============== ============
Group Insurance:
Total revenue $535.2 $534.7
============== ============
Selling expenses $22.1 $19.1
General and administrative expenses 41.9 44.4
-------------- ------------
Operating expenses, excluding other item 64.0 63.5
Acquisition related software charge 8.3 -
-------------- ------------
Total operating expenses (GAAP measure) $72.3 $63.5
============== ============
Operating earnings $32.2 $29.5
Acquisition related software charge (6.2) -
Net realized capital gains 2.2 1.4
-------------- ------------
Net income (GAAP measure) $28.2 $30.9
============== ============
Large Case Pensions:
Total revenue $203.6 $198.3
============== ============
Operating earnings $9.3 $4.1
Net realized capital gains 5.6 .2
-------------- ------------
Net income (GAAP measure) $14.9 $4.3
============== ============
Corporate Interest:
Interest expense, net of tax $21.8 $17.7
============== ============
Total Company:
Total revenue $6,234.7 $5,426.9
============== ============
Selling expenses $243.5 $203.0
General and administrative expenses 945.3 913.2
-------------- ------------
Operating expenses, excluding other item 1,188.8 1,116.2
Acquisition related software charge 8.3 -
-------------- ------------
Total operating expenses (GAAP measure) $1,197.1 $1,116.2
============== ============
(1) Revenue and operating expense information is presented before
income taxes. Operating earnings information is presented net of
income taxes.
(2) Effective January 1, 2006, the Company adopted FAS 123R applying
the modified retrospective approach. Accordingly, all prior period
financial information was adjusted to reflect the Company's
stock-based compensation activity.
Enrollment
(Members in Thousands)
March 31, March 31, December
31,
2006 2005 2005
------------ --------- ----------
Medical Membership:
Commercial 15,176 14,162 14,521
Medicare (1) 132 101 120
Medicaid 110 112 114
------------ --------- ----------
Total Medical Membership 15,418 14,375 14,755
============ ========= ==========
Dental Membership 13,331 12,833 13,098
============ ========= ==========
Pharmacy Membership: (2)
Pharmacy Benefit Management
Services 9,557 8,505 8,885
Mail Order 594 501 560
------------ --------- ----------
Total Pharmacy Membership 10,151 9,006 9,445
============ ========= ==========
Medicare PDP (stand-alone) 278 - -
============ ========= ==========
Medicare Advantage PDP 107 - -
============ ========= ==========
Consumer-Directed Health Plans (3) 614 404 453
============ ========= ==========
Group Insurance Membership (4) 13,089 14,040 13,618
============ ========= ==========
Health Care Medical Cost Ratios (5)
($ in Millions)
Three Months Ended
--------------------
March 31, March 31,
2006 2005
--------- ----------
Health Care Premiums:
Health Care Risk (A) $4,726.1 $4,053.5
Commercial Risk (B) $4,296.5 $3,805.8
Medicare (C) $429.6 $247.7
Health Care Costs:
Health Care Risk
----------------------------------
Health care costs (D) (GAAP
measure) $3,786.2 $3,048.5
Favorable development of prior-
period health care cost estimates - 133.0
--------- ----------
Health care costs - Adjusted (E) $3,786.2 $3,181.5
========= ==========
Commercial Risk
----------------------------------
Health care costs (F) (GAAP
measure) $3,411.2 $2,837.9
Favorable development of prior-
period health care cost estimates - 127.0
--------- ----------
Health care costs - Adjusted (G) $3,411.2 $2,964.9
========= ==========
Medicare
----------------------------------
Health care costs (H) (GAAP
measure) $375.0 $210.6
Favorable development of prior-
period health care cost estimates - 6.0
--------- ----------
Health care costs - Adjusted (I) $375.0 $216.6
========= ==========
Health Care Medical Cost Ratios:
Health Care Risk (D)/(A) (GAAP
measure) 80.1% 75.2%
Health Care Risk - Adjusted (E)/(A) 80.1% 78.5%
Commercial Risk (F)/(B) (GAAP
measure) 79.4% 74.6%
Commercial Risk - Adjusted (G)/(B) 79.4% 77.9%
Medicare (H)/(C) (GAAP measure) 87.3% 85.0%
Medicare - Adjusted (I)/(C) 87.3% 87.4%
(1) Includes 15 thousand and 19 thousand Medicare ASC members at March
31, 2006 and December 31, 2005, respectively, that represent those
members served through the Company's participation in the Medicare
Health Support Program.
(2) Includes 278 thousand Medicare PDP (stand-alone) and 107 thousand
Medicare Advantage PDP members at March 31, 2006. Mail Order
represents members who purchased medications through the Company's
mail order pharmacy during the quarterly period.
(3) Represents members in consumer-directed health plans included in
the Company's Commercial medical membership.
(4) Excludes approximately 2.4 million disability members acquired
from Broadspire on March 31, 2006.
(5) Health Care Risk includes all medical and dental risk products.
Commercial Risk includes all medical and dental risk products
except Medicare and Medicaid. Risk includes all medical and dental
products for which the Company assumes all or a majority of health
care cost, utilization or other risk.
Operating Margins
($ in Millions)
Three Months Ended
-------------------
March 31, March 31,
2006 2005 (1)
--------- ---------
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) $641.4 $509.5
Favorable development of prior-period health care
cost estimates - 133.0
--------- ---------
Operating earnings before income taxes, excluding
interest expense and amortization of other
acquired intangible assets (B) 641.4 642.5
Interest expense (33.5) (27.2)
Amortization of other acquired intangible assets (19.9) (10.7)
Acquisition related software charge (8.3) -
Net realized capital gains 17.6 4.4
--------- ---------
Income from continuing operations before income
taxes (C) (GAAP measure) $597.3 $609.0
========= =========
Reconciliation to Income from continuing
operations:
Operating earnings, excluding interest expense,
amortization of other acquired intangible
assets and favorable development (D) $415.0 $327.1
Favorable development of prior-period health care
cost estimates, net of tax - 84.0
--------- ---------
Operating earnings, excluding interest expense and
amortization of other acquired intangible
assets (E) 415.0 411.1
Interest expense, net of tax (21.8) (17.7)
Amortization of other acquired intangible assets,
net of tax (12.9) (7.0)
Acquisition related software charge, net of tax (6.2) -
Net realized capital gains, net of tax 11.5 2.9
--------- ---------
Income from continuing operations (F) (GAAP
measure) $385.6 $389.3
========= =========
Reconciliation of Revenue:
Revenue, excluding net realized capital gains (G) $6,217.1 $5,422.5
Net realized capital gains 17.6 4.4
--------- ---------
Total revenue (H) (GAAP measure) $6,234.7 $5,426.9
========= =========
Operating Margins:
Pretax operating margin (B)/(G) 10.3% 11.8%
Pretax operating margin - Adjusted (A)/(G) 10.3% 9.4%
Pretax operating margin (C)/(H) (GAAP
measure) 9.6% 11.2%
After-tax operating margin (E)/(G) 6.7% 7.6%
After-tax operating margin - Adjusted (D)/(G) 6.7% 6.0%
After-tax operating margin (F)/(H) (GAAP
measure) 6.2% 7.2%
Operating Expenses
($ in Millions)
Reconciliation of Operating Expenses:
Operating expenses, excluding other item (I) $1,188.8 $1,116.2
Acquisition related software charge 8.3 -
--------- ---------
Total operating expenses (J) (GAAP measure) $1,197.1 $1,116.2
========= =========
Operating Expenses Percentages:
Operating expenses as a % of revenue (I)/(G) 19.1% 20.6%
Total operating expenses as a % of total revenue
(J)/(H) (GAAP measure) 19.2% 20.6%
(1) Effective January 1, 2006, the Company adopted FAS 123R applying
the modified retrospective approach. Accordingly, all prior period
financial information was adjusted to reflect the Company's
stock-based compensation activity.
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