Aetna Reports Fourth Quarter and Full-Year 2002 Results.Business Editors 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.--(BUSINESS WIRE)--Feb. 11, 2003 -- Operating earnings, excluding other items, of $120.7 million for the fourth quarter 2002, compared with a fourth quarter 2001 loss of ($48.1) million, and third quarter 2002 earnings of $127.9 million. Fourth quarter 2002 health care operating earnings include approximately $23 million of Commercial HMO favorable development of prior-period medical cost estimates. Third quarter 2002 health care operating earnings include approximately $38 million of aggregate favorable development of prior-period medical cost estimates for both the Commercial HMO and Medicare HMO products, as well as the favorable resolution of prior-period contract matters for a large customer. -- A decline in the medical cost trend for Commercial HMO of 200 basis points from the third-quarter level to approximately 12 percent, including a pharmacy trend of approximately 11 percent, 400 basis points lower than the third quarter. For full-year 2002, the medical cost trend for Commercial HMO declined to approximately 14 percent, more than 300 basis points better than the medical cost trend reported for the full year 2001. For combined Commercial Risk products, the full-year cost trend was approximately 14.5 percent. -- Improved pretax operating margin, driven by an increase in the net premium yield; a continuation of the previously noted decline in the medical cost trend; and continued reductions in operating costs. -- A Commercial HMO medical cost ratio (MCR) of 80.4 percent for the fourth quarter 2002, compared with 89.7 percent for the fourth quarter 2001 and 81.4 percent for the third quarter 2002. Excluding the favorable prior-period developments noted above, the MCR was 81.8 percent for the fourth quarter 2002 and 83.0 percent for the third quarter 2002. -- A Medicare HMO MCR of 86.4 percent for the fourth quarter 2002, compared with 92.9 percent for the fourth quarter 2001 and 79.3 percent for the third quarter 2002 (84.2 percent excluding the favorable prior-period development). -- A decrease in health care operating expenses of approximately $98.9 million from the fourth quarter 2001 and $3.3 million from third quarter 2002, primarily resulting from lower membership levels and ongoing expense-reduction initiatives. -- Total medical membership of approximately 13.7 million at December 31, 2002, a decrease of approximately 270,000 from September 30, 2002. This year-end membership level was somewhat higher than previously estimated in October 2002. 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. ) today announced fourth quarter 2002 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 , excluding other items(1), of $142.6 million, or $0.92 per share. These results include approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $120 million, or $0.77 per share for the quarter, and approximately $23 million, or $0.15 per share, of favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. development of prior-period medical cost estimates. Aetna reported net income of $98.2 million, or $0.63 per share for the fourth quarter 2002. On a full-year 2002 basis, excluding other items, Aetna reported operating earnings of $450.3 million, or $2.94 per share, compared with a full-year 2001 operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. (2), excluding other items, of ($63.0) million, or ($0.44) per share. For 2002, Aetna recorded a net loss of ($2.52) billion, or ($16.49) per share, compared with a net loss for 2001 of ($76.2) million, or ($0.53) per share. The net loss for 2002 reflects the recording of a $2.97 billion noncash impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. of goodwill in the first quarter. "In 2002, Aetna improved its financial performance," 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. . "This success was built on a seven-point reduction in the medical cost ratio, as well as lower administrative costs administrative costs, n.pl the overhead expenses incurred in the operation of a dental benefits program, excluding costs of dental services provided. . This decline in MCR MCR My Chemical Romance (band) MCR Minimum Capital Requirement MCR Minimum Cell Rate MCR Middle Common Room (UK universities) MCR Multivariate Curve Resolution was driven by three factors: reduction of membership with historically higher MCRs; price increases that better aligned our prices with competitors' and with our own costs; and more effective contracting, benefit plan designs and medical management programs. "This substantial improvement in financial performance gives us the momentum needed for the next phase of our turnaround Turnaround A situation where a company that has had poor performance for an extended period of time experiences a positive reversal. Notes: A speculator may profit from a turnaround if he or she accurately anticipates the improvement of a poorly performing company. , which will be built on new customer-focused products and service improvements that we expect will lead to profitable growth." "Aetna delivered on its promises in 2002, and we believe the company is now firmly re-established as a top-tier competitor in the health care arena," President Ronald A. Williams said. "Our broad operational goal for 2003 and beyond is to build on our competitive advantages and grow profitably."
Quarterly Financial Results at a Glance
Three Months Ended
December 31, December 31, September 30,
2002 2001 2002
Revenues $4.7 billion $6.0 billion $4.8 billion
Operating earnings
(loss) excluding
other items(1) $142.6 million(a) $(84.6) million $151.5 million(b)
Per share operating
earnings (loss)
excluding other
items(1) $0.92(a) $(0.59) $0.98(b)
Net income
(loss)(1) $98.2 million(a) $(187.6) million $98.8 million(b)
(a) Includes approximately $23 million, or $0.15 per share, of
favorable development of prior-period medical cost estimates.
(b) Includes approximately $17 million, or $0.11 per share, of
favorable development of prior-period medical cost estimates and
approximately $21 million, or $0.14 per share, related to the
favorable resolution of prior-period contract matters for a large
customer.
FAS No. 142 Pro Forma Basis
Financial Accounting Standard No. 142, "Goodwill and Other
Intangibles" (FAS No.142), was implemented on January 1, 2002. This
standard requires the elimination of goodwill and certain types of
intangible asset amortization on a prospective basis. Accordingly,
operating earnings for 2002 do not include amortization of goodwill.
The following supplemental table provides operating results for the
2001 period on a comparable basis to that of 2002:
Three Months Ended
December 31, December 31, September 30,
2002 2001 2002
Operating earnings
(loss)excluding
other items(1) $142.6 million $ (34.6) million $151.5 million
Per share operating
earnings (loss)
excluding other
items(1) $ 0.92 $(0.24) $ 0.98
Net income
(loss)(1) $98.2 million $(137.6) million $98.8 million
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 health care and 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. products and services, reported: -- Operating earnings, excluding other items, of $120.7 million for the fourth quarter 2002, compared with a fourth quarter 2001 loss of ($48.1) million, and third quarter 2002 earnings of $127.9 million. Fourth quarter 2002 health care operating earnings include approximately $23 million of Commercial HMO favorable development of prior-period medical cost estimates. Third quarter 2002 health care operating earnings include approximately $38 million of aggregate favorable development of prior-period medical cost estimates for both the Commercial HMO and Medicare HMO products, as well as the favorable resolution of prior-period contract matters for a large customer. -- A decline in the medical cost trend for Commercial HMO of 200 basis points from the third-quarter level to approximately 12 percent, including a pharmacy trend of approximately 11 percent, 400 basis points lower than the third quarter. For full-year 2002, the medical cost trend for Commercial HMO declined to approximately 14 percent, more than 300 basis points better than the medical cost trend reported for the full year 2001. For combined Commercial Risk products, the full-year cost trend was approximately 14.5 percent. -- Improved pretax operating margin, driven by an increase in the net premium yield; a continuation of the previously noted decline in the medical cost trend; and continued reductions in operating costs. -- A Commercial HMO medical cost ratio (MCR) of 80.4 percent for the fourth quarter 2002, compared with 89.7 percent for the fourth quarter 2001 and 81.4 percent for the third quarter 2002. Excluding the favorable prior-period developments noted above, the MCR was 81.8 percent for the fourth quarter 2002 and 83.0 percent for the third quarter 2002. -- A Medicare HMO MCR of 86.4 percent for the fourth quarter 2002, compared with 92.9 percent for the fourth quarter 2001 and 79.3 percent for the third quarter 2002 (84.2 percent excluding the favorable prior-period development). -- A decrease in health care operating expenses of approximately $98.9 million from the fourth quarter 2001 and $3.3 million from third quarter 2002, primarily resulting from lower membership levels and ongoing expense-reduction initiatives. -- Total medical membership of approximately 13.7 million at December 31, 2002, a decrease of approximately 270,000 from September 30, 2002. This year-end membership level was somewhat higher than previously estimated in October 2002. Full-year 2002 results for Health Care show operating earnings, excluding other items, of $361.6 million, compared with an operating loss, excluding other items, of ($161.9) million for full-year 2001, primarily reflecting improved 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, driven by an increase in the premium yield and a decline in the medical cost trend, combined with continued reductions in operating costs operating costs npl → gastos mpl operacionales and a decrease in amortization of intangibles Property that is a "right" such as a patent, Copyright, or trademark, or one that is lacking physical existence, such as good will. . 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, excluding other items, of $34.7 million for the fourth quarter 2002, compared with $36.3 million for the fourth quarter 2001 and $38.2 million for the third quarter 2002. Results were lower than fourth quarter 2001, primarily reflecting higher benefit costs offset in part by favorable 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. levels. Results were lower than third quarter 2002, primarily reflecting an increase in disability benefit cost ratio and lower net investment income. -- Revenues for the fourth quarter 2002, excluding net realized capital gains and losses of $449.7 million, compared with $417.1 million for the fourth quarter of 2001 and $440.3 million for the third quarter of 2002. For full-year 2002, Group Insurance reported operating earnings, excluding other items, of $142.2 million, compared with $160.1 million in 2001. The decline was primarily the result of lower net investment income and a higher benefit cost ratio. 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 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 $7.1 million for the fourth quarter 2002 compared with $3.8 million for the fourth quarter 2001 and $3.9 million for the third quarter 2002. The quarter-over-quarter and sequential One after the other in some consecutive order such as by name or number. increases were driven primarily by higher income on certain commercial mortgage loan investments. For full-year 2002, Large Case Pensions reported operating earnings, excluding other items, of $24.2 million, compared with $31.6 million in 2001. Operating earnings were lower than the prior year mainly due to lower investment income, consistent with the continued decline in underlying liabilities and related assets, in keeping with the run-off run-off n (in contest, election) → desempate m (= extra race); carrera de desempate run-off n (in contest, election) → nature of the business. Total company results -- Total Revenues. Revenues were $4.7 billion for the fourth quarter 2002, compared with $6.0 billion for the fourth quarter 2001 and $4.8 billion for the third quarter 2002. For full-year 2002, total revenues were $19.9 billion, compared with $25.2 billion in 2001. Both the quarterly and annual decreases reflect lower health membership, partially offset by higher per-member premiums to cover rising medical costs. -- 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. . Pretax pre·tax adj. Existing before tax deductions: pretax income. pretax adj [profit] → vor (Abzug der) Steuern operating expenses were $1.05 billion for the fourth quarter 2002, approximately $105 million less than fourth quarter 2001 and $8.8 million less than third quarter 2002. For full-year 2002, operating expenses were $4.23 billion, compared with $4.52 billion for full-year 2001. Operating expenses for all periods exclude severance The act of dividing, or the state of being divided. The term severance has unique meanings in different branches of the law. Courts use the term in both civil and criminal litigation in two ways: first, when dividing a lawsuit into two or more parts, and second, when and facilities charges. -- Corporate Interest expense was $19.9 million after tax for the fourth quarter 2002, compared with $26.6 million for the fourth quarter 2001 and $18.5 million for the third quarter 2002. -- Net Income/Loss. Aetna reported net income of $98.2 million for the fourth quarter 2002, compared with a net loss of ($137.6) million for the fourth quarter 2001 and net income of $98.8 million for the third quarter of 2002. Net income also includes net realized capital losses of ($15.2) million for the fourth quarter 2002. For full-year 2002, Aetna recorded a net loss of ($2.52) billion, or ($16.49) per share, compared with a net loss of ($76.2) million, or ($0.53) per share, for 2001. The net loss for 2002 reflects the recording of a $2.97 billion noncash impairment of goodwill in the first quarter. The public can access the fourth-quarter conference call today at 8:30 a.m. EDT EDT abbr. Eastern Daylight Time EDT Eastern Daylight Time EDT n abbr (US) (= Eastern Daylight Time) → hora de verano de Nueva York EDT by dialing 800-946-0719, or for international callers, 719-457-2645. At that time, Aetna will provide its 2003 earnings guidance. A live audio Webcast and replays will be available through 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. A transcript A generic term for any kind of copy, particularly an official or certified representation of the record of what took place in a court during a trial or other legal proceeding. A transcript of record of the call will be available at 11 a.m. today on www.aetna.com. Aetna is one of the nation's leading providers of health care, dental, 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, disability and long-term care products, serving approximately 13.7 million medical members, 11.8 million dental members and 11.7 million group insurance customers, as of December December: see month. 31, 2002. The company has expansive nationwide networks of more than 552,000 health care services providers, including over 332,000 primary care and specialist physicians and 3,373 hospitals. For more information about Aetna, please visit the company's Web site at www.aetna.com.
(1) All operating results exclude other items, net realized capital
gains (losses) and income from discontinued operations, in order
to provide a comparison that the company believes better reflects
its underlying business performance. Set forth below is an
itemization of other items excluded from operating results and a
reconciliation of operating results to net income (loss) under
accounting principles generally accepted in the United States of
America for each period shown (all amounts are presented net of
tax). For a reconciliation of operating results to net income
(loss) for the 12 months ended December 31, 2002 and 2001, refer
to the tables on page 10 of this release, under Segment
Information.
Three Months Ended
December 31, December 31, September 30,
2002 2001 2002
Operating earnings(loss)
from continuing
operations excluding
other items $ 142.6 $ (84.6) $151.5
Other items:
Health Care Segment:
Severance and facilities
charges (28.3) (125.1) (55.6)
Favorable reserve
developments related to
Medicare markets exited
January 1, 2001 - 1.1 -
Group Insurance Segment:
Severance and facilities
charges (.9) - (2.3)
Net realized capital
gains (losses) (15.2) 9.6 5.2
Income (loss) from continuing
operations 98.2 (199.0) 98.8
Income from discontinued
operations - 11.4 -
Net income (loss) $ 98.2 $(187.6) $ 98.8
(2) All 2001 results are presented on a FAS No. 142 pro forma basis, a
comparable basis to that used in 2002. Refer to pages 12 and 13 of
this press release.
ADDITIONAL INFORMATION; CAUTIONARY STATEMENT -- Certain information in this press release is forward looking, including the statements regarding the turnaround and management's goal of profitable growth. 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 recontracting 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); continued decreases in membership levels; increases in medical costs or Group Insurance claims resulting from any future 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. ; the ability to achieve targeted savings from work force reductions and to otherwise reduce administrative expenses in light of significant membership reductions being experienced; the ability to maintain targeted levels of service, and improve relations with providers, as well as operating performance, while making significant staff reductions and taking actions to reduce medical costs; the ability to successfully implement Aetna's new 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. ; lower levels of investment income from continued lower interest rates; adverse government regulation (including legislative proposals to eliminate or reduce 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 the Patients' Bill of Rights, 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; and the outcome of various litigation 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. matters, including multiple health care class actions and ongoing reviews of business practices by various regulatory agencies regulatory agency Independent government commission charged by the legislature with setting and enforcing standards for specific industries in the private sector. The concept was invented by the U.S. . For more discussion of important factors that may materially affect Aetna, please see the risk factors contained in Aetna's 2001 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 2002 Annual Report on Form 10-K when filed with the Securities and Exchange Commission for further discussion of risk factors and a discussion of Aetna's historical results of operations and financial condition.
Consolidated Statements of Income (Loss)
($ in Millions)
Three Months Ended Twelve Months Ended
December 31, December 31,
2002 2001 2002 2001
Revenue:
Health care premiums (1) $3,538.3 $4,876.3 $15,036.1 $19,940.4
Other premiums 420.4 406.5 1,676.6 1,831.6
Administrative services
contract fees 456.0 445.1 1,842.6 1,835.2
Net investment income 318.4 303.8 1,250.7 1,411.6
Other income (2) 7.9 14.4 38.4 75.9
Net realized capital
gains (loss) (23.3) (3.6) 34.3 96.1
Total revenue 4,717.7 6,042.5 19,878.7 25,190.8
Benefits and expenses:
Health care costs (3) 2,861.7 4,333.7 12,452.8 17,938.8
Current and future
benefits (4) 578.7 536.4 2,245.5 2,458.3
Operating expenses 1,045.1 1,150.3 4,232.6 4,515.0
Interest expense 30.5 40.9 119.5 142.8
Amortization of goodwill (5) - 49.5 - 198.1
Amortization of other
acquired intangible assets 12.7 51.0 130.8 218.5
Severance and facilities
charges 45.0 192.5 161.0 192.5
Reductions of reserve for
anticipated future losses on
discontinued products - - (8.3) (94.5)
Total benefits and expenses 4,573.7 6,354.3 19,333.9 25,569.5
Income (loss) from continuing
operations before income
taxes (benefits) 144.0 (311.8) 544.8 (378.7)
Income taxes (benefits) 45.8 (112.8) 151.6 (87.2)
Income (loss) from
continuing operations 98.2 (199.0) 393.2 (291.5)
Income from discontinued
operations, net of tax (6) - 11.4 50.0 11.4
Income (loss) before
cumulative effect
adjustments 98.2 (187.6) 443.2 (280.1)
Cumulative effect
adjustments, net
of tax (7) - - (2,965.7) .5
Net income (loss) $98.2 $(187.6) $(2,522.5) $(279.6)
Shareholders' equity $6,980.0 $9,890.3
(1) The twelve months ended December 31, 2002 include a benefit of
approximately $32 million pretax (approximately $21 million after
tax) due to favorable resolution of prior-period contract matters
for a large customer in the Health Care segment.
(2) The twelve months ended December 31, 2001 include $20.2 million
pretax ($13.1 million after tax) of proceeds from the sale of the
Company's New Jersey Medicaid membership in the Health Care
segment.
(3) The three months ended December 31, 2002 include favorable
development of prior-period medical cost estimates of
approximately $35 million pretax (approximately $23 million after
tax) in the Health Care segment. The three months ended December
31, 2001 include $1.7 million pretax ($1.1 million after tax) of
favorable reserve developments related to Medicare markets the
Company exited January 1, 2001 in the Health Care segment. The
twelve months ended December 31, 2001 include $39.9 million pretax
($26.0 million after tax) of unfavorable reserve developments
related to these markets.
(4) The twelve months ended December 31, 2001 include $13.8 million
pretax ($9.0 million after tax) of life insurance costs, net of
reinsurance, related to the events of September 11, 2001 in the
Group Insurance segment.
(5) As a result of adopting FAS 142, subsequent to January 1, 2002,
goodwill is no longer amortized.
(6) During the twelve months ended December 31, 2002, the Company
released $50.0 million of federal tax reserves resulting from the
resolution of several Internal Revenue Service audit issues
related to former Aetna's property and casualty business. During
the three months and the twelve months ended December 31, 2001,
the Company released $11.4 million of reserves for net costs
associated with former Aetna's sale of its financial services and
international businesses in 2000.
(7) For 2002, this relates to the adoption of FAS 142. For 2001, this
relates to the adoption of Accounting for Derivative Instruments
and Hedging Activities (FAS 133).
Per Common Share Data (1)
Three Months Ended Twelve Months Ended
December 31, December 31,
2002(2) 2001(3) 2002(4) 2001(3)
Results per common share:
Operating earnings
(loss) from continuing
operations excluding
other items (5) $.92 $(.59) $2.94 $(1.86)
Operating earnings
(loss) from continuing
operations including
other items (5) $.73 $(1.45) $2.42 $(2.55)
Income (loss) from
continuing operations $.63 $(1.38) $2.57 $(2.03)
Income from discontinued
operations (6) $- $.08 $.33 $.08
Net income (loss) $.63 $(1.30) $(16.49) $(1.95)
Shareholders' equity (7) $46.54 $68.56
Weighted average
common shares -
basic 151,179,125 143,806,461 148,920,668 143,217,710
Weighted average
common shares -
diluted 154,885,692 146,498,254 152,960,047 145,740,082
(1) The three and twelve months ended December 31, 2001 reflect per
common share amounts as reported. For FAS 142 Pro Forma per common
share amounts, refer to pages 12 and 13.
(2) The three months ended December 31, 2002 include favorable
development of prior-period medical cost estimates of
approximately $.15 per share in the Health Care segment.
(3) Since the Company reported a loss from continuing operations for
the three and twelve months ended December 31, 2001, the effect of
common stock equivalents has been excluded from per common share
computations for these periods, since including such securities
would be anti-dilutive.
(4) The twelve months ended December 31, 2002 include a benefit of
approximately $.14 per share due to favorable resolution of
prior-period contract matters for a large customer in the Health
Care segment.
(5) Other items are displayed by Segment on Page 10.
(6) During the twelve months ended December 31, 2002, the Company
released $50.0 million of federal tax reserves resulting from the
resolution of several Internal Revenue Service audit issues
related to former Aetna's property and casualty business. During
the three months and the twelve months ended December 31, 2001,
the Company released $11.4 million of reserves for net costs
associated with former Aetna's sale of its financial services and
international businesses of 2000.
(7) Actual common shares outstanding were 150.0 million at December
31, 2002 and 144.3 million at December 31, 2001.
Segment Information (1)
($ in Millions)
Three Months Ended Twelve Months Ended
December 31, December 31,
2002 2001 2002 2001
Health Care:
Revenue $4,054.9 $5,398.6 $17,154.0 $22,167.8
Operating earnings (loss)
before amortization of
goodwill/other acquired
intangible assets and
other items (2)(3)(4) $128.9 $(16.1) $446.6 $(27.6)
Amortization of
goodwill (5) - (48.9) - (195.3)
Amortization of other
acquired intangible
assets (8.2) (33.1) (85.0) (142.4)
Operating earnings (loss)
excluding other items 120.7 (98.1) 361.6 (365.3)
Other items (see detail
below) (28.3) (124.0) (81.6) (151.1)
Operating earnings (loss)
including other items $92.4 $(222.1) $280.0 $(516.4)
Group Insurance:
Revenue $449.7 $417.1 $1,766.9 $1,700.9
Operating earnings
excluding other items $34.7 $36.3 $142.2 $160.1
Other items (see detail
below) (.9) - (3.2) (9.0)
Operating earnings
including other items $33.8 $36.3 $139.0 $151.1
Large Case Pensions:
Revenue $236.4 $230.4 $923.5 $1,226.0
Operating earnings
excluding other item $7.1 $3.8 $24.2 $31.6
Other item (see detail
below) - - 5.4 61.4
Operating earnings
including other item $7.1 $3.8 $29.6 $93.0
Corporate Interest Expense $(19.9) $(26.6) $(77.7) $(92.8)
Total Company:
Operating earnings (loss)
from continuing operations
excluding other items $142.6 $(84.6) $450.3 $(266.4)
Other items:
Health Care Segment:
Severance and facilities
charges (28.3) (125.1) (101.4) (125.1)
Favorable (unfavorable)
reserve developments related
to Medicare markets exited
January 1, 2001 - 1.1 - (26.0)
Income tax reserve release
(prior period related) - - 19.8 -
Group Insurance Segment:
Severance and facilities
charges (.9) - (3.2) -
Events of September 11, 2001 - - - (9.0)
Large Case Pensions Segment:
Reductions of reserve for
anticipated future losses on
discontinued products - - 5.4 61.4
Operating earnings (loss)
from continuing operations
including other items 113.4 (208.6) 370.9 (365.1)
Net realized capital gains
(loss) (15.2) 9.6 22.3 73.6
Income (loss) from
continuing operations 98.2 (199.0) 393.2 (291.5)
Income from discontinued
operations (6) - 11.4 50.0 11.4
Income (loss) before
cumulative effect
adjustments 98.2 (187.6) 443.2 (280.1)
Cumulative effect
adjustments (7) - - (2,965.7) .5
Net income (loss) $98.2 $(187.6) $(2,522.5) $(279.6)
(1) All amounts, except revenue, are presented net of taxes. Revenue
and operating earnings (loss) exclude net realized capital gains
or losses.
(2) The twelve months ended December 31, 2002 include a benefit of
approximately $32 million pretax (approximately $21 million after
tax) due to favorable resolution of prior-period contract matters
for a large customer.
(3) The three months ended December 31, 2002 include favorable
development of prior-period medical cost estimates of
approximately $35 million pretax (approximately $23 million after
tax).
(4) The twelve months ended December 31, 2001 include $20.2 million
pretax ($13.1 million after tax) of proceeds from the sale of the
Company's New Jersey Medicaid membership.
(5) As a result of adopting FAS 142, subsequent to January 1, 2002,
goodwill is no longer amortized.
(6) During the twelve months ended December 31, 2002, the Company
released $50.0 million of federal tax reserves resulting from the
resolution of several Internal Revenue Service audit issues
related to former Aetna's property and casualty business. During
the three months and the twelve months ended December 31, 2001,
the Company released $11.4 million of reserves for net costs
associated with former Aetna's sale of its financial services and
international businesses in 2000.
(7) For 2002, this relates to the adoption of FAS 142. For 2001, this
relates to the adoption of FAS 133.
Enrollment and Other Statistics
% Change From:
December December September December September
31, 31, 30, 31, 30,
2002 2001 2002 2001 2002
(Members in Thousands)
Medical:
Commercial
HMO 5,297 7,798 5,456 (32.1) (2.9)
POS 2,615 3,003 2,658 (12.9) (1.6)
PPO 3,924 4,075 3,910 (3.7) .4
Indemnity 1,623 1,895 1,640 (14.4) (1.0)
Total Commercial
Membership 13,459 16,771 13,664 (19.7) (1.5)
Medicare HMO 117 255 121 (54.1) (3.3)
Medicaid HMO 102 144 160 (29.2) (36.3)
Total Medical
Membership 13,678 17,170 13,945 (20.3) (1.9)
Total Dental Membership 11,767 13,459 11,863 (12.6) (.8)
Total Group Insurance
Membership 11,664 11,480 11,690 1.6 (.2)
Three Months Twelve Months
Ended Ended
December December September December December
31, 31, 30, 31, 31,
2002 2001 2002 2002 2001
Health Care Medical Cost
Ratios (1)(2)(3):
Health Care Risk (4) 80.9% 88.9% 81.2% 82.8% 89.8%
Commercial Risk 80.5% 89.0% 81.3% 82.9% 89.3%
Commercial HMO 80.4% 89.7% 81.4% 83.2% 90.3%
Medicare HMO (4) 86.4% 92.9% 79.3% 82.2% 93.7%
Adjusted Medical Cost
Ratios (5):
Health Care Risk 81.9% 82.7%
Commercial Risk 81.6% 82.5%
Commercial HMO 81.8% 83.0%
Medicare HMO 84.2%
Total Company Operating
Margins (2)(3)(6):
Pretax 5.4% .4% 5.7% 4.6% .9%
After-tax 3.6% .4% 3.8% 3.1% .7%
Adjusted Operating
Margins (5):
Pretax 4.7% 4.5%
After-tax 3.1% 3.0%
(1) Health Care Risk includes all medical and dental risk products.
Commercial Risk includes all medical and dental risk products
except Medicare and Medicaid. Commercial HMO includes all medical
HMO products except Medicare and Medicaid.
(2) Commercial HMO premiums for the twelve months ended December 31,
2002 include a benefit of approximately $32 million pretax
(approximately $21 million after tax) due to favorable resolution
of prior-period contract matters for a large customer.
(3) Includes favorable development of prior-period medical cost
estimates of approximately $35 million pretax (approximately $23
million after tax) for the three months ended December 31, 2002
and approximately $27 million pretax (approximately $17 million
after tax) for the three months ended September 30, 2002.
(4) The three months ended December 31, 2001 excludes $1.7 million
pretax ($1.1 million after tax) of favorable reserve developments
related to Medicare markets the Company exited January 1, 2001.
The twelve months ended December 31, 2001 excludes $39.9 million
pretax ($26.0 million after tax) of unfavorable reserve
developments related to these markets.
(5) Excludes impact of favorable items noted in footnotes (2) and (3)
above.
(6) Pretax/After-tax Operating Margins are calculated by dividing
pretax/after-tax operating earnings (loss) excluding other items,
net realized capital gains or losses, interest expense and
amortization of goodwill and other acquired intangible assets by
total revenue excluding net realized capital gains or losses.
Quarterly Segment Operating Results Summary -
FAS 142 Pro Forma Basis (1)
($ in Millions, except per common share data)
Three Months Ended
Reported December 31, December 31, September 30,
2002 2001 2002
Health Care before amortization
of goodwill/other acquired
intangible assets (2)(3) $128.9 $(16.1) $140.8
Amortization of goodwill (4) - (48.9) -
Amortization of other
acquired intangible
assets (8.2) (33.1) (12.9)
Health Care 120.7 (98.1) 127.9
Group Insurance 34.7 36.3 38.2
Large Case Pensions 7.1 3.8 3.9
Corporate Interest
Expense (19.9) (26.6) (18.5)
Operating earnings (loss)
from continuing
operations $142.6 $(84.6) $151.5
Cash operating earnings
(loss) $150.8 $(2.6) $164.4
Net income (loss) $98.2 $(187.6) $98.8
Operating earnings (loss) per common share:
Operating earnings (loss)
from continuing
operations (6) $.92 $(.59) $.98
Cash operating earnings
(loss) (6) $.97 $(.02) $1.06
Net income (loss) (6) $.63 $(1.30) $.64
Three Months Ended
FAS 142 Pro Forma December 31, December 31, September 30,
2002 2001 2002
Health Care before
amortization of other
acquired intangible assets
(2) (3) $128.9 $(16.1) $140.8
Amortization of other
acquired intangible
assets (5) (8.2) (32.0) (12.9)
Health Care 120.7 (48.1) 127.9
Group Insurance 34.7 36.3 38.2
Large Case Pensions 7.1 3.8 3.9
Corporate Interest
Expense (19.9) (26.6) (18.5)
Operating earnings (loss)
from continuing
operations $142.6 $(34.6) $151.5
Cash operating earnings
(loss) $150.8 $(2.6) $164.4
Net income (loss) $98.2 $(137.6) $98.8
Operating earnings (loss) per common share:
Operating earnings (loss)
from continuing
operations (6) $.92 $(.24) $.98
Cash operating earnings
(loss) (6) $.97 $(.02) $1.06
Net income (loss) (6) $.63 $(.96) $.64
Shares for calculation:
Weighted average common
shares - basic 151,179,125 143,806,461 150,530,207
Weighted average common
shares - diluted 154,885,692 146,498,254 155,075,987
(1) Excludes other items, net realized capital gains or losses and
income from discontinued operations.
(2) The three months ended September 30, 2002 include a benefit of
approximately $32 million pretax (approximately $21 million after
tax) due to favorable resolution of prior-period contract matters
for a large customer.
(3) Includes favorable development of prior-period medical cost
estimates of approximately $35 million pretax (approximately $23
million after tax) for the three months ended December 31, 2002
and approximately $27 million pretax (approximately $17 million
after tax) for the three months ended September 30, 2002.
(4) As a result of adopting FAS 142, subsequent to January 1, 2002,
goodwill is no longer amortized.
(5) Reflects reclassification of workforce intangible asset to
goodwill upon adoption of FAS 142.
(6) Since the Company reported a loss from continuing operations for
the three months ended December 31, 2001, the effect of common
stock equivalents has been excluded from per common share
computations for this period, since including such securities
would be anti-dilutive.
Segment Operating Results Summary - FAS 142 Pro Forma Basis (1)
($ in Millions, except per common share data)
Twelve Months Ended
December 31, December 31,
Reported 2002 2001
Health Care before amortization of
goodwill/other acquired
intangible assets (2) $446.6 $(27.6)
Amortization of goodwill (3) - (195.3)
Amortization of other acquired intangible
assets (85.0) (142.4)
Health Care 361.6 (365.3)
Group Insurance 142.2 160.1
Large Case Pensions 24.2 31.6
Corporate Interest Expense (77.7) (92.8)
Operating earnings (loss) from continuing
operations $450.3 $(266.4)
Cash operating earnings $535.3 $71.3
Net loss $(2,522.5) $(279.6)
Operating earnings (loss) per common share:
Operating earnings (loss) from continuing
operations (5) $2.94 $(1.86)
Cash operating earnings (5) $3.50 $.49
Net loss (5) $(16.49) $(1.95)
Twelve Months Ended
December 31, December 31,
FAS 142 Pro Forma 2002 2001
Health Care before amortization of other
acquired intangible assets (2) $446.6 $(27.6)
Amortization of other acquired intangible
assets (4) (85.0) (134.3)
Health Care 361.6 (161.9)
Group Insurance 142.2 160.1
Large Case Pensions 24.2 31.6
Corporate Interest Expense (77.7) (92.8)
Operating earnings (loss) from continuing
operations $450.3 $(63.0)
Cash operating earnings $535.3 $71.3
Net loss $(2,522.5) $(76.2)
Operating earnings (loss) per common share:
Operating earnings (loss) from continuing
operations (5) $2.94 $(.44)
Cash operating earnings (5) $3.50 $.49
Net loss (5) $(16.49) $(.53)
Shares for calculation:
Weighted average common shares - basic 148,920,668 143,217,710
Weighted average common shares - diluted 152,960,047 145,740,082
(1) Excludes other items, net realized capital gains or losses and
income from discontinued operations.
(2) The twelve months ended December 31, 2002 include a benefit of
approximately $32 million pretax (approximately $21 million after
tax) due to favorable resolution of prior-period contract matters
for a large customer.
(3) As a result of adopting FAS 142, subsequent to January 1, 2002,
goodwill is no longer amortized.
(4) Reflects reclassification of workforce intangible asset to
goodwill upon adoption of FAS 142.
(5) Since the Company reported a loss from continuing operations for
the twelve months ended December 31, 2001, the effect of common
stock equivalents has been excluded from per common share
computations for this period, since including such securities
would be anti-dilutive.
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