Aetna Reports Second Quarter 2004 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. ): --Second-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 $1.77 per share, $1.70 per share excluding reserve development, compared with Thompson/First Call mean of $1.66, a 34 percent increase over the prior-year quarter --Second-quarter net income of $1.79 per share, a 106 percent increase --Second-quarter medical membership increase of 95,000 to more than 13.4 million --Full-year 2004 operating earnings per share guidance raised to $6.75 to $6.85 from earlier range of $6.60 to $6.75 Aetna (NYSE: AET) today announced second-quarter operating earnings of $1.77 per share. Operating earnings, excluding reserve development, were $1.70 per share, an increase of 34 percent compared to the prior year. This increase primarily reflects growth in revenues from increased fees and premiums and higher membership levels, along with reduced 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 earnings exclude net realized capital gains and other items.(1) Net income for the quarter was $1.79 per share compared to $0.87 in the prior-year quarter. The previously announced $740 million tax refund Tax refund Money back from the government when too much tax has been paid or withheld from a salary. will be recorded in the third quarter and, therefore, did not affect net income in the second quarter. "These results demonstrate our continued success in the marketplace, which has resulted in further membership gains and top-line growth," 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. . "Our second-quarter membership growth represents both higher customer sales and increased retention, and brings our year-to-date Year-to-date (YTD) The period beginning at the start of the calendar year up to the current date. net membership increase to 437,000, a 3.4 percent increase. "As we continue to grow the top line, both in premium and fee income, we are also achieving increased operating efficiencies. This combination has led to an expanded operating margin Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: for the second quarter of 2004 compared to the second quarter of 2003. Given these strong results, we are increasing our full-year operating earnings guidance to $6.75 to $6.85 per share from our prior range of $6.60 to $6.75 per share.(2) "Also, we remain committed to our capital deployment Installing, setting up, testing and running. This military term, which means the placement of troops and equipment in the field, is widely used with computers as an alternate to the word "implementation. objectives, particularly share buybacks, and the recently announced $740 million tax refund will further add to our existing strong capital position."
Quarterly Financial Results at a Glance
---------------------------------------------------------------------
Three Months Ended
---------------------------------------------------------------------
June 30, 2004 June 30, 2003 Change
-------------- ------------- ------
Total revenues $4.9 $4.5
billion billion 9%
============== =============
Operating earnings(a) $282.6 $203.9
million million 39%
============== =============
Net income $286.3 $138.4
million million 107%
============== =============
Per share results:
Operating earnings(a) $1.77 $1.28
Reserve development(b) (0.07) (0.01)
-------------- -------------
Operating earnings,
excluding development(a) $1.70 $1.27 34%
============== =============
Income from continuing
operations $1.79 $0.87
============== =============
Net income $1.79 $0.87 106%
============== =============
(a) For full description of operating earnings and per share operating
earnings, refer to footnote 1 at end of press release.
(b) Reserve development includes favorable development of prior-period
health care cost estimates in Health Care of $18 million, after
tax, in 2004 ($2 million, after tax, in 2003), and unfavorable
prior-period mortality development in Group Insurance of $7
million, after tax, in 2004.
"Our marketplace strategy continues to place a strong emphasis on innovation," said Ronald A. Williams, president. "During the quarter we announced the expansion of our Aexcel(SM) quality-based network to a total of nine markets. Our membership growth is predominantly pre·dom·i·nant adj. 1. Having greatest ascendancy, importance, influence, authority, or force. See Synonyms at dominant. 2. in fully 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. products resulting from momentum in our Middle Market business and rollout of new initiatives in our Consumer markets business, as we continue to strive to provide our members and their employers new product choices. In addition, we believe the release of our recent Aetna HealthFund(R) study clearly outlines the positive effects of consumerism consumerism Movement or policies aimed at regulating the products, services, methods, and standards of manufacturers, sellers, and advertisers in the interests of the buyer. and validates Aetna's decision to be a leader in this important market category." Health Care results Health Care, which provides a full range of insured 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 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 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 $264.0 million in the second quarter of 2004, compared with $175.7 million in the second quarter of 2003. Excluding favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. development of approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $18 million, after tax, in the second quarter of 2004 and $2 million, after tax, in the second quarter of 2003, operating earnings increased 42 percent to $246.0 million in the second quarter of 2004, from $173.7 million in the second quarter of 2003. This increase was due to higher revenue from increased fees and premiums and higher medical membership, along with a decrease in operating expenses. --Net income of $262.6 million in the second quarter of 2004, compared with $106.0 million in the second quarter of 2003. --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 79.1 percent in the second quarter of 2004, compared with 77.3 percent in the second quarter of 2003, excluding favorable reserve development in both periods. Consistent with our expectation for 2004 and prior guidance, the MCR increased in the second quarter from the seasonally low first quarter level. It is anticipated that the MCR will be essentially flat with the second quarter level for the balance of 2004. Including development, the Commercial Risk MCR was 78.3 percent in the second quarter of 2004 and 77.0 percent in the second quarter of 2003. --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 86.8 percent in the second quarter of 2004, compared with 87.2 percent in the second quarter of 2003, excluding reserve development in both periods. Including development, the Medicare MCR was 85.6 percent in the second quarter of 2004, compared with 89.8 percent in the second quarter of 2003. --Total medical membership of approximately 13.4 million at June June: see month. 30, 2004, compared with 13.3 million at March 31, 2004, an increase of 95,000 members. Second quarter dental membership increased by 214,000 and pharmacy membership increased by 91,000 from March 31, 2004. --Total revenues in the second quarter of 2004 increased 11 percent to $4.2 billion from $3.8 billion in the second quarter of 2003. Group Insurance 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 $27.2 million in the second quarter of 2004, compared with $35.4 million in the second quarter of 2003. Operating earnings in the second quarter of 2004 reflect unfavorable prior-period mortality development of $7 million, after tax, primarily related to the first quarter 2004, in term life insurance products. This mortality experience is consistent with first quarter national data and has subsequently returned to expected levels. Excluding this unfavorable development, operating earnings were $34.2 million and reflect a higher overall benefit cost ratio and lower net investment income, offset in part by lower expense levels. --Net income of $29.5 million in the second quarter of 2004, compared with $36.5 million in the second quarter of 2003. --Total revenues in the second quarter of 2004 of $463.7 million, compared with $459.5 million in the second quarter of 2003. Large Case Pensions 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 $7.9 million in the second quarter of 2004, compared with $9.4 million in the second quarter of 2003. Results were lower primarily due to lower investment income, consistent with the continued decline in underlying liabilities, 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. --Net income of $10.7 million in the second quarter of 2004, compared with $12.5 million in the second quarter of 2003. Total company results --Total Revenues. Revenues were $4.9 billion in the second quarter of 2004, an increase of 9.2 percent from $4.5 billion in the second quarter of 2003. The growth in revenue reflects premium and fee rate increases and a higher level of membership, which resulted in an increase of 10.3 percent in premiums and 9.8 percent in fees. --Total Operating Expenses. Total operating expenses, which include selling and general and administrative expenses, were $979.3 million in the second quarter of 2004, $30.4 million less than in the second quarter of 2003. General and administrative expenses declined by $58.6 million due to ongoing expense initiatives, partially offset by $28.2 million of increased selling expenses associated with membership growth. Operating expenses for the second quarter of 2003 exclude the physician class action settlement of $115.4 million, pretax pre·tax adj. Existing before tax deductions: pretax income. pretax adj [profit] → vor (Abzug der) Steuern . Including the settlement, expenses were $1.1 billion. --Corporate Interest expense was $16.5 million, after tax, in the second quarter of 2004, compared with $16.6 million in the second quarter of 2003. --Net Income. Aetna reported net income of $286.3 million in the second quarter of 2004, compared with $138.4 million in the second quarter of 2003. --Pretax operating margin(3), excluding development, improved to 9.5 percent in the second quarter of 2004 from 8.1 percent in the second quarter of 2003. 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 5.9 percent in the second quarter of 2004, compared with 3.1 percent in the second quarter of 2003. A live audio webcast of the second-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 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 Investor Information link at www.aetna.com. Financial, statistical and other information related to the conference call, including additional GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). reconciliations, will be available on Aetna's Investor Information 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 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 737430. Telephone replays will be available from 11:30 a.m. ET on July July: see month. 29 until midnight ET on August 6. 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 13.4 million medical members, 11.4 million dental members, 8.1 million pharmacy members and 12.6 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 633,000 health care professionals, including over 377,000 primary care and specialist doctors and 3,866 hospitals. For more information, please visit www.aetna.com. (Figures as of June 30, 2004) (1) Operating earnings exclude an other item and net realized capital gains and losses from income from continuing operations. 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. Each of these excluded items is discussed below: --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 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. 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 . --Settlement of the physician class action lawsuit class action lawsuit A lawsuit in which one party or a limited number of parties sue on behalf of a larger group to which the parties belong. For example, investors may bring a class action lawsuit against a brokerage firm that has actively promoted a tax of approximately $75 million, after tax ($115.4 million pretax), included as the other item by the company for second quarter 2003, represents an estimate of 2003 net settlement costs of significant 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. . Management believes this settlement was not in the ordinary course of business and its impact does not reflect underlying 2003 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 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 also re-examines previously estimated group insurance unpaid claims based on recent experience and other facts and circumstances. Decreases (increases) in prior periods' estimates represent the effect of favorable (unfavorable) development of prior-period current and future benefits 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 and current and future benefits. 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 8 to 12 of this release. (2)Projected operating earnings per share for full year 2004 exclude $20.7 million of net realized capital gains for the six months ended June 30, 2004 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. . The company is not able to project the amount of future net realized capital gains or losses and cannot therefore reconcile projected full-year 2004 operating earnings to projected income from continuing operations. The projected operating earnings per share for full year 2004 also exclude approximately $27 million, after tax, of favorable development of prior-period health care cost estimates for the first quarter of 2004 and approximately $18 million, after tax, of favorable development of prior-period health care cost estimates and approximately $7 million, after tax, of unfavorable prior-period mortality development for the second quarter of 2004. Projected operating earnings per share for full year 2004 assumes 160 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) 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 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 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 operating margin calculated under GAAP, refer to the tables on page 11 of this release. ADDITIONAL INFORMATION; CAUTIONARY STATEMENT -- Certain information in this press release is forward looking, including our projections as to earnings for the full year and medical cost ratio for the remainder of the year. 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 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. to a projected growing membership base; 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 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, including any negotiated resolution, of various litigation and regulatory matters, including 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 risk factors that may materially affect Aetna, please see the risk factors contained in Aetna's 2003 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 2003 Annual Report on Form 10-K and Aetna's 2004 second 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 Six Months Ended
------------------- -------------------
June 30, June 30, June 30, June 30,
2004 2003 2004 2003
--------- --------- --------- ---------
Revenue:
Health care premiums $3,648.0 $3,276.1 $7,205.8 $6,545.1
Other premiums 434.4 424.4 877.1 842.0
Administrative services
contract fees 517.2 471.2 1,029.4 946.7
Net investment income 260.2 273.3 531.7 549.3
Other income 9.4 6.4 20.4 13.1
Net realized capital gains 5.8 14.6 31.9 36.3
--------- --------- --------- ---------
Total revenue 4,875.0 4,466.0 9,696.3 8,932.5
Benefits and expenses:
Health care costs (1) 2,875.1 2,553.4 5,616.9 4,921.3
Current and future benefits(2) 535.0 525.9 1,082.0 1,053.5
Operating expenses:
Selling expenses 169.5 141.3 333.1 287.2
General and administrative
expenses(3) 809.8 983.8 1,629.9 1,858.3
--------- --------- --------- ---------
Total operating expenses 979.3 1,125.1 1,963.0 2,145.5
Interest expense 25.2 25.5 50.7 51.4
Amortization of other acquired
intangible assets 12.7 12.7 25.4 25.4
--------- --------- --------- ---------
Total benefits and
expenses 4,427.3 4,242.6 8,738.0 8,197.1
--------- --------- --------- ---------
Income from continuing operations
before income taxes 447.7 223.4 958.3 735.4
Income taxes 161.4 85.0 346.2 267.0
--------- --------- --------- ---------
Income from continuing operations 286.3 138.4 612.1 468.4
Income from discontinued
operations, net of tax (4) - - 40.0 -
--------- --------- --------- ---------
Net income $286.3 $138.4 $652.1 $468.4
========= ========= ========= =========
Shareholders' equity $8,308.2 $7,697.1
========= =========
(1) The three months ended June 30, 2004 and June 30, 2003 include
favorable development of prior-period health care cost estimates
of approximately $29 million pretax (approximately $18 million
after tax) and approximately $3 million pretax (approximately $2
million after tax), respectively, in the Health Care segment.
(2) The three months ended June 30, 2004 include unfavorable prior-
period mortality development of approximately $10 million pretax
(approximately $7 million after tax) in the Group Insurance
segment.
(3) The three and six months ended June 30, 2003 include $115.4
million pretax for the physician class action settlement.
(4) Income from discontinued operations of approximately $40 million
for the six months ended June 30, 2004 reflects the completion of
certain Internal Revenue Service audits associated with business
previously sold (former Aetna).
Summary of Results
($ in Millions)
Three Months Ended Six Months Ended
------------------------- -------------------------
June 30, June 30, June 30, June 30,
2004 2003 2004 2003
------------ ------------ ------------ ------------
Operating earnings,
excluding other
item and net
favorable
development $271.6 $201.9
Favorable
development of
prior-period
health care cost
estimates 18.0 2.0
Unfavorable prior-
period mortality
development (7.0) -
------------ ------------
Operating earnings,
excluding other item 282.6 203.9 $591.4 $519.8
Physician class
action settlement - (75.0) - (75.0)
------------ ------------ ------------ ------------
Operating earnings,
including other item 282.6 128.9 591.4 444.8
Net realized
capital gains 3.7 9.5 20.7 23.6
------------ ------------ ------------ ------------
Income from continuing
operations (GAAP
measure) 286.3 138.4 612.1 468.4
Income from discontinued
operations (1) - - 40.0 -
------------ ------------ ------------ ------------
Net income
(GAAP measure) $286.3 $138.4 $652.1 $468.4
============ ============ ============ ============
Weighted average
common shares -
basic 153,175,295 153,180,761 153,551,488 152,085,422
============ ============ ============ ============
Weighted average
common shares -
diluted 159,969,563 159,626,738 159,973,706 157,154,652
============ ============ ============ ============
Summary of Results Per Common Share
Operating earnings,
excluding other
item and net
favorable
development $1.70 $1.27
Favorable
development of
prior-period
health care cost
estimates .11 .01
Unfavorable prior-
period mortality
development (.04) -
------------ ------------
Operating earnings,
excluding other item $1.77 1.28 $3.70 $3.31
Physician class
action settlement - (.47) - (.48)
------------ ------------ ------------ ------------
Operating earnings,
including other item 1.77 .81 3.70 2.83
Net realized
capital gains .02 .06 .13 .15
------------ ------------ ------------ ------------
Income from continuing
operations (GAAP
measure) 1.79 .87 3.83 2.98
Income from discontinued
operations (1) - - .25 -
------------ ------------ ------------ ------------
Net income
(GAAP measure) $1.79 $.87 $4.08 $2.98
============ ============ ============ ============
Shareholders' equity(2) $54.10 $50.02
============ ============
(1) Income from discontinued operations of approximately $40 million
for the six months ended June 30, 2004 reflects the completion of
certain Internal Revenue Service audits associated with businesses
previously sold (former Aetna).
(2) Actual common shares outstanding were 153.6 million at June 30,
2004 and 153.9 million at June 30, 2003.
Segment Information (1)
($ in Millions)
Three Months Ended Six Months Ended
------------------- -------------------
June 30, June 30, June 30, June 30,
2004 2003 2004 2003
--------- --------- --------- ---------
Health Care:
Total revenue $4,226.1 $3,808.0 $8,372.9 $7,622.8
========= ========= ========= =========
Selling expenses $153.8 $125.7 $302.6 $258.8
General and administrative
expenses 769.1 824.5 1,544.5 1,653.9
--------- --------- --------- ---------
Operating expenses, excluding
physician class action
settlement 922.9 950.2 1,847.1 1,912.7
Physician class action
settlement - 115.4 - 115.4
--------- --------- --------- ---------
Total operating expenses
(GAAP measure) $922.9 $1,065.6 $1,847.1 $2,028.1
========= ========= ========= =========
Operating earnings, excluding
other item and favorable
development $246.0 $173.7
Favorable development of prior-
period health care cost
estimates 18.0 2.0
--------- ---------
Operating earnings, excluding
other item 264.0 175.7 $552.4 $469.0
Physician class action
settlement - (75.0) - (75.0)
--------- --------- --------- ---------
Operating earnings, including
other item 264.0 100.7 552.4 394.0
Net realized capital gains
(losses) (1.4) 5.3 5.7 13.9
--------- --------- --------- ---------
Net income (GAAP measure) $262.6 $106.0 $558.1 $407.9
========= ========= ========= =========
Group Insurance:
Total revenue $463.7 $459.5 $948.6 $916.9
========= ========= ========= =========
Selling expenses $15.7 $15.6 $30.5 $28.4
General and administrative
expenses 35.7 39.3 75.4 79.3
--------- --------- --------- ---------
Total operating expenses $51.4 $54.9 $105.9 $107.7
========= ========= ========= =========
Operating earnings, excluding
unfavorable development $34.2 $35.4
Unfavorable prior-period
mortality development (7.0) -
--------- ---------
Operating earnings 27.2 35.4 $58.0 $68.0
Net realized capital gains 2.3 1.1 10.2 3.6
--------- --------- --------- ---------
Net income (GAAP measure) $29.5 $36.5 $68.2 $71.6
========= ========= ========= =========
Large Case Pensions:
Total revenue $185.2 $198.5 $374.8 $392.8
========= ========= ========= =========
Operating earnings $7.9 $9.4 $14.0 $16.2
Net realized capital gains 2.8 3.1 4.8 6.1
--------- --------- --------- ---------
Net income (GAAP measure) $10.7 $12.5 $18.8 $22.3
========= ========= ========= =========
Corporate Interest:
Interest expense, net of tax $16.5 $16.6 $33.0 $33.4
========= ========= ========= =========
Total Company:
Total revenue $4,875.0 $4,466.0 $9,696.3 $8,932.5
========= ========= ========= =========
Selling expenses $169.5 $141.3 $333.1 $287.2
General and administrative
expenses 809.8 868.4 1,629.9 1,742.9
--------- --------- --------- ---------
Operating expenses, excluding
physician class action
settlement 979.3 1,009.7 1,963.0 2,030.1
Physician class action
settlement - 115.4 - 115.4
--------- --------- --------- ---------
Total operating expenses
(GAAP measure) $979.3 $1,125.1 $1,963.0 $2,145.5
========= ========= ========= =========
(1) Revenue and operating expense information is presented before
income taxes. Operating earnings information is presented net of
income taxes.
Enrollment
(Members in Thousands)
June 30, June 30, Dec. 31, March 31,
2004 2003 2003 2004
------- --------- --------- ---------
Medical Membership:
Commercial 13,229 12,803 12,783 13,136
Medicare 100 108 105 102
Medicaid 110 116 114 106
------- --------- --------- ---------
Total Medical
Membership 13,439 13,027 13,002 13,344
======= ========= ========= =========
Dental Membership 11,428 11,293 10,942 11,214
======= ========= ========= =========
Pharmacy Membership (1) 8,148 7,382 7,521 8,057
======= ========= ========= =========
Group Insurance
Membership 12,594 11,698 12,288 12,394
======= ========= ========= =========
Aetna HealthFund(R) (2) 197 40 44 183
======= ========= ========= =========
Operating Margins
($ in Millions)
Three Months Ended Six Months Ended
------------------- -------------------
June 30, June 30, June 30, June 30,
2004 2003 2004 2003
--------- --------- --------- ---------
Reconciliation to Income from
continuing operations before
income taxes:
Operating earnings before
income taxes, excluding
interest expense, amortization
of other acquired intangible
assets, other item and net
favorable development (A) $460.8 $359.4
Favorable development
of prior-period health
care cost estimates 29.0 3.0
Unfavorable prior-
period mortality
development (10.0) -
--------- ---------
Operating earnings before
income taxes, excluding
interest expense, amortization
of other acquired intangible
assets and other item (B) 479.8 362.4 $1,002.5 $891.3
Interest expense (25.2) (25.5) (50.7) (51.4)
Amortization of other
acquired intangible assets (12.7) (12.7) (25.4) (25.4)
Physician class action
settlement - (115.4) - (115.4)
Net realized capital gains 5.8 14.6 31.9 36.3
--------- --------- --------- ---------
Income from continuing
operations before income
taxes (C)(GAAP measure) $447.7 $223.4 $958.3 $735.4
========= ========= ========= =========
Reconciliation to Income from
continuing operations:
Operating earnings, excluding
interest expense, amortization
of other acquired intangible
assets, other item and net
favorable development (D) $296.3 $226.8
Favorable development of
prior-period health care cost
estimates, net of tax 18.0 2.0
Unfavorable prior- period
mortality development,
net of tax (7.0) -
--------- ---------
Operating earnings, excluding
interest expense, amortization
of other acquired intangible
assets and other item (E) 307.3 228.8 $640.9 $569.7
Interest expense, net of tax (16.5) (16.6) (33.0) (33.4)
Amortization of other acquired
intangible assets, net of tax (8.2) (8.3) (16.5) (16.5)
Physician class action
settlement, net of tax - (75.0) - (75.0)
Net realized capital
gains, net of tax 3.7 9.5 20.7 23.6
--------- --------- --------- ---------
Income from continuing
operations (F) (GAAP measure) $286.3 $138.4 $612.1 $468.4
========= ========= ========= =========
Reconciliation of Revenue:
Revenue, excluding net
realized capital gains(G) $4,869.2 $4,451.4 $9,664.4 $8,896.2
Net realized capital gains 5.8 14.6 31.9 36.3
--------- --------- --------- ---------
Total revenue (H)
(GAAP measure) $4,875.0 $4,466.0 $9,696.3 $8,932.5
========= ========= ========= =========
Total Company Operating Margins:
Pretax operating margin (B)/(G) 9.9% 8.1% 10.4% 10.0%
Pretax operating margin
- Adjusted (A)/(G) 9.5% 8.1%
Pretax operating margin
(C)/(H) (GAAP measure) 9.2% 5.0% 9.9% 8.2%
After-tax operating margin (E)/(G) 6.3% 5.1% 6.6% 6.4%
After-tax operating margin
- Adjusted (D)/(G) 6.1% 5.1%
After-tax operating
margin (F)/(H) (GAAP measure) 5.9% 3.1% 6.3% 5.2%
(1) Pharmacy membership includes 7,743; 7,248; 7,244 and 7,693
thousand members receiving pharmacy benefit management services
and 405; 134; 277 and 364 thousand members who purchased
medications through Aetna's mail order pharmacy during the
quarterly period at June 30, 2004; June 30, 2003; December 31,
2003 and March 31, 2004, respectively.
(2) Represents Aetna's Commercial members in consumer-directed health
plan products.
Health Care Medical Cost Ratios(1)
($ in Millions)
Three Months Ended Six Months Ended
------------------- -------------------
June 30, June 30, June 30, June 30,
2004 2003 2004 2003
--------- --------- --------- ---------
Health Care Premiums:
Health Care Risk (A) $3,648.0 $3,276.1 $7,205.8 $6,545.1
Commercial Risk (B) $3,411.0 $3,044.6 $6,737.2 $6,089.8
Medicare (C) $237.0 $231.5 $468.6 $455.3
Health Care Costs:
Health Care Risk
----------------
Health care costs (D)
(GAAP measure) $2,875.1 $2,553.4 $5,616.9 $4,921.3
Favorable development of prior-
period health care cost
estimates 29.0 3.0
--------- ---------
Health care costs - Adjusted(E)$2,904.1 $2,556.4
========= =========
Commercial Risk
---------------
Health care costs (F)
(GAAP measure) $2,672.1 $2,345.5 $5,218.4 $4,536.8
Favorable development of prior-
period health care cost
estimates 26.0 9.0
--------- ---------
Health care costs - Adjusted(G)$2,698.1 $2,354.5
========= =========
Medicare
--------
Health care costs (H)
(GAAP measure) $202.8 $207.9 $398.4 $384.8
Favorable (unfavorable)
development of prior-period
health care cost estimates 3.0 (6.0)
--------- ---------
Health care costs - Adjusted(I) $205.8 $201.9
========= =========
Health Care Medical Cost Ratios:
Health Care Risk (D)/(A)
(GAAP measure) 78.8% 77.9% 77.9% 75.2%
Health Care Risk - Adjusted
(E)/(A) 79.6% 78.0%
Commercial Risk (F)/(B)
(GAAP measure) 78.3% 77.0% 77.5% 74.5%
Commercial Risk - Adjusted
(G)/(B) 79.1% 77.3%
Medicare (H)/(C)(GAAP measure) 85.6% 89.8% 85.0% 84.5%
Medicare - Adjusted (I)/(C) 86.8% 87.2%
(1) 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.
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