Aetna Reports Second Quarter 2005 Results.HARTFORD Hartford, city (1990 pop. 139,739), state capital, Hartford co., central Conn., on the west bank of the Connecticut River; settled as Newtown 1635–36 on the site of a Dutch trading post (1633; abandoned 1654), inc. 1784. , Conn. -- Aetna Aetna, volcano: see Etna, Italy. (NYSE NYSE See: New York Stock Exchange : AET AET Aetna, Inc. AET After Extra Time AET Actual Evapotranspiration AET Alliance for Environmental Technology AET Alpha-Ethyltryptamine AET Applied Extrusion Technologies, Inc. ) --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 $1.20 per share, $1.08 per share excluding reserve development, a 27 percent increase over the prior-year quarter, compared with Thompson/First Call mean of $1.08 --Second-quarter net income of $1.35 per share, a 50 percent increase over the prior-year quarter --Second-quarter medical membership increase of 60,000 to nearly 780,000 year to date and more than 14.4 million overall Aetna (NYSE: AET) today announced second-quarter operating earnings of $1.20 per share. Operating earnings, excluding favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. reserve development, were $1.08 per share, an increase of 27 percent compared to the prior-year quarter. Favorable reserve development was $35 million after tax, or $0.12 per share, related primarily to the resolution of matters associated with the New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of State Market Stabilization Stabilization The action undertakes a country when it buys and sells its own currency to protect its exchange value. Actions registered competitive traders undertake by on the NYSE to meet the exchange requirement that 75% of their traded be stabilizing, meaning that sell orders Pool. The increase in operating earnings reflects a 13 percent growth in revenues from higher membership levels, strong underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. results, and continued general and administrative expense efficiencies. Operating earnings exclude net realized capital gains and other items(1). Net income for the quarter was $1.35 per share compared to $0.90 per share in the prior-year quarter, a 50 percent increase. "Our results this quarter demonstrate the continued, strong growth of Aetna in the marketplace," said John W. Rowe, M.D., chairman and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. . "Operating earnings per share increased by 27 percent from the prior-year period and medical membership increased by another 60,000, bringing our total growth to nearly 780,000 so far in 2005. In addition, we continue to see solid growth in our specialty A contract under seal. A specialty is a written document that has been sealed and delivered and is given as security for the payment of a specifically indicated debt. products, where we gained an additional 111,000 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. members and 143,000 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. members in the quarter. "Regarding future profitable growth, Aetna has ramped up for broader participation in 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. , including the new Medicare Part D prescription drug prescription drug Prescription medication Pharmacology An FDA-approved drug which must, by federal law or regulation, be dispensed only pursuant to a prescription–eg, finished dose form and active ingredients subject to the provisos of the Federal Food, Drug, plan on a national basis and Individual Medicare Advantage plan options in selected regions," Rowe said. "We now anticipate Aetna will spend approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $50 million to prepare for these opportunities, nearly double our original plan. In addition, we expect interest rate expense will increase for the remainder of the year, due to the termination The point where a line, channel or circuit ends. See SCSI termination and hybrid. of interest rate swaps 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. . Despite these additional expenses, we are very pleased to reaffirm re·af·firm tr.v. re·af·firmed, re·af·firm·ing, re·af·firms To affirm or assert again. re our full-year EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. projection projection, in psychology: see defense mechanism. See rear-projection TV, front-projection TV and LCD panel. (theory) projection - In domain theory, a function, f, which is (a) idempotent, i.e. of $4.52 to $4.57."
Quarterly Financial Results at a Glance
----------------------------------------------------------------------
Three Months Ended
----------------------------------------------------------------------
June 30, June 30, Change
2005 2004(a)
-------------------------------------
Total revenues $5.5 $4.9
billion billion 13%
===============================
Operating earnings(b) $362.6 $282.6
million million 28%
===============================
Net income $409.7 $286.3
million million 43%
===============================
Per share results:
Operating earnings(b) $1.20 $0.89 35%
Favorable reserve development (0.12) (0.04)
-------------------------------
Operating earnings,
excluding development(b) $1.08 $0.85 27%
===============================
Net income $1.35 $0.90 50%
===============================
Weighted average common shares 303.1 319.9
(diluted) million million (5.3%)
---------------------------------===============================------
(a) Prior-period results per common share have been adjusted to
reflect the March 11, 2005, two-for-one stock split.
(b) For a full description of operating earnings and per share
operating earnings, refer to footnote 1 at the end of the press
release.
"With the completion of our strategic acquisitions of ActiveHealth Management and HMS HMS abbr. Her (or His) Majesty's Ship HMS (Brit) abbr (= His (or Her) Majesty's Ship) → Namensteil von Schiffen der Kriegsmarine Healthcare during the second quarter, we have expanded our capabilities and reach in some important markets," said Ronald A. Williams, president. "ActiveHealth provides vital evidence-based medical management and data analytics products and services to a broad range of customers, and HMS strengthens Aetna's local market presence -- particularly in Michigan Michigan (mĭsh`ĭgən), upper midwestern state of the United States. It consists of two peninsulas thrusting into the Great Lakes and has borders with Ohio and Indiana (S), Wisconsin (W), and the Canadian province of Ontario (N,E). and Colorado Colorado, state, United States Colorado (kŏlərăd`ə, –răd`ō, –rä`dō), state, W central United States, one of the Rocky Mt. states. -- by providing access to highly competitive health care networks. With these additional resources, we are well-positioned to build upon our integrated approach to health care, with its strong focus on medical costs and quality." Health Care 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 $343.6 million in the second quarter of 2005, compared with $264.0 million in the second quarter of 2004. Excluding favorable development of $35 million, after tax, in the second quarter of 2005 and $18 million, after tax, in the second quarter of 2004, operating earnings increased 25.4 percent to $308.6 million in the second quarter of 2005, from $246.0 million in the second quarter of 2004. This increase primarily reflects growth in revenues from higher membership levels, strong underwriting results and continued general and administrative expense efficiencies. Second-quarter 2005 favorable reserve development was $35 million, after tax, or $0.12 per share, related primarily to the resolution of matters associated with the New York State Market Stabilization Pool. --Net income of $346.1 million in the second quarter of 2005, compared with $262.6 million in the second quarter of 2004. --A Commercial Risk Medical Cost Ratio (MCR MCR My Chemical Romance (band) MCR Minimum Capital Requirement MCR Minimum Cell Rate MCR Middle Common Room (UK universities) MCR Multivariate Curve Resolution ) of 78.9 percent in the second quarter of 2005, compared with 79.1 percent in the second quarter of 2004, excluding favorable reserve development in both periods. Including development, the Commercial Risk MCR was 77.6 percent in the second quarter of 2005 and 78.3 percent in the second quarter of 2004. --A Medicare MCR of 90.2 percent in the second quarter of 2005, compared with 86.8 percent in the second quarter of 2004, excluding favorable reserve development in both periods. Medicare currently represents less than 1 percent of our membership. Including development, the Medicare MCR was 89.3 percent in the second quarter of 2005, compared with 85.6 percent in the second quarter of 2004. --Total medical membership of approximately 14.435 million at June June: see month. 30, 2005, compared with 14.375 million at March 31, 2005, an increase of 60,000 members, bringing the total membership increase from December December: see month. 31, 2004 to 779,000. Second-quarter dental membership increased by 143,000 and pharmacy membership increased by 111,000 from March 31, 2005. --Total revenues in the second quarter of 2005 increased 13.5 percent to $4.8 billion from $4.2 billion in the second quarter of 2004. 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 $31.3 million in the second quarter of 2005, compared with $27.2 million in the second quarter of 2004, reflecting higher revenue from increased membership and an improved overall benefit cost ratio, offset in part by lower net investment income and higher operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. associated with new business initiatives. --Net income of $33.2 million in the second quarter of 2005, compared with $29.5 million in the second quarter of 2004. --Total revenues of $522.8 million in the second quarter of 2005, compared with $463.7 million in the second quarter of 2004. 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 $7.5 million in the second quarter of 2005, compared with $7.9 million in the second quarter of 2004, 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 $50.2 million in the second quarter of 2005, compared with $10.7 million in the second quarter of 2004. Net income for the second quarter of 2005 includes a $43.4 million 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. benefit related to the reduction of reserves for discontinued products. Total Company results --Total Revenues. Revenues were $5.5 billion in the second quarter of 2005, an increase of 12.8 percent from $4.9 billion in the second quarter of 2004. The growth in revenue reflects premium and fee rate increases and higher levels of medical, dental and pharmacy membership. Premiums increased by 13.8 percent and fees increased by 10.7 percent. --Total Operating Expenses. Operating expenses were $1.058 billion for the second quarter of 2005, compared with $979.3 million for the second quarter of 2004, reflecting higher new membership and related selling expenses. Operating expenses as a percentage of revenue(2) improved to 19.3 percent in the second quarter of 2005 from 20.1 percent in the second quarter of 2004, reflecting continued expense efficiencies. --Corporate Interest expense was $19.8 million, after tax, in the second quarter of 2005, compared with $16.5 million, after tax, in the second quarter of 2004. Interest expense in the second quarter of 2005 increased due to higher interest rates and the termination of interest rate swap agreements associated with the $700 million, 8 1/2 percent retail notes callable Callable Applies mainly to convertible securities. Redeemable by the issuer before the scheduled maturity under specific conditions and at a stated price, which usually begins at a premium to par and declines annually. in 2006. --Net Income. Aetna reported net income of $409.7 million in the second quarter of 2005, compared with $286.3 million in the second quarter of 2004. Net income for the second quarter of 2005 includes a $43.4 million after-tax benefit related to the reduction of reserves for discontinued products. --Pretax operating margin Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: (3), excluding development, improved to 10.0 percent in the second quarter of 2005 from 9.5 percent in the second quarter of 2004. The after-tax operating margin, which represents income from continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the divided by total revenue, was 7.5 percent in the second quarter of 2005, compared with 5.9 percent in the second quarter of 2004. 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 877-502-9274, or 913-981-5584 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 1869846. Telephone replays will be available from 11:30 a.m. ET on July July: see month. 28th until midnight ET on Aug. 4. As one of the nation's leading providers of health care, dental, pharmacy, group life, disability and long-term care benefits, Aetna puts information and helpful resources to work for its approximately 14.435 million medical members, 12.976 million dental members, 9.117 million pharmacy members and 13.662 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 684,000 health care professionals, including over 405,000 primary care and specialist doctors and 4,135 hospitals. For more information, please visit www.aetna.com. (Figures as of June 30, 2005) (1) Operating earnings exclude an other item and net realized capital gains and losses from income from continuing operations, as discussed below. Although the excluded items may recur, management believes that operating earnings and operating earnings per share provide a more 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: --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 . --Release of reserves of $43.4 million, after tax, for anticipated future losses on discontinued products, included as an other item by the Company for second quarter 2005, represents a reduction of reserves previously established for certain products no longer offered by the Company and does not benefit ongoing business operations. The Company also displays certain metrics metrics Managed care A popular term for standards by which the quality of a product, service, or outcome of a particular form of Pt management is evaluated. See TQM. (e.g., medical cost ratios, operating earnings, operating earnings per share and pretax pre·tax adj. Existing before tax deductions: pretax income. pretax adj [profit] → vor (Abzug der) Steuern operating margins) excluding 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 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) Operating expenses as a percentage of revenue excludes net realized capital gains and losses from total revenue. Net realized capital gains and losses do not directly relate to the underwriting or servicing of products for customers and are not directly related to the core performance of the Company's business operations. For a reconciliation to operating expense Operating Expense The essential things that a company must purchase in order to maintain business. Notes: For example, the payment of employees wages are an operating expense. Also known as OPEX. as a percentage of revenue calculated under GAAP, refer to the tables on page 12 at the end of this press release. (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 12 of this release. ADDITIONAL INFORMATION; CAUTIONARY STATEMENT -- Certain information in this press release is forward looking, including our projection as to 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 or other factors; increases in medical costs or Group Insurance claims resulting from any acts of terrorism terrorism, the threat or use of violence, often against the civilian population, to achieve political or social ends, to intimidate opponents, or to publicize grievances. or otherwise; the ability to reduce administrative expenses while maintaining targeted levels of service and operating performance, and to improve relations with providers while taking actions to reduce medical costs; the ability to successfully implement Aetna's operating model Operating Model is a term that is used in many contexts. In essence an operating model describes how an organization operates across both business and technology domains. The Operating Model describes what is important for the organization. to a projected growing membership base and to successfully implement multiple strategic and operational initiatives simultaneously si·mul·ta·ne·ous adj. 1. Happening, existing, or done at the same time. See Synonyms at contemporary. 2. Mathematics ; lower levels of investment income from continued low interest rates; adverse government regulation (including legislative proposals eliminating or reducing ERISA See Employee Retirement Income Security Act. ERISA See Employee Retirement Income Security Act (ERISA). pre-emption PRE-EMPTION, intern. law. The right of preemption is the right of a nation to detain the merchandise of strangers passing through her territories or seas, in order to afford to her subjects the preference of purchase. 1 Chit. Com. Law, 103; 1 Bl. Com. 287. 2. of state laws that would increase potential litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. exposure, and other proposals, such as patients' rights The legal interests of persons who submit to medical treatment. For many years, common medical practice meant that physicians made decisions for their patients. This paternalistic view has gradually been supplanted by one promoting patient autonomy, whereby patients and legislation, that would increase potential litigation exposure or mandate A judicial command, order, or precept, written or oral, from a court; a direction that a court has the authority to give and an individual is bound to obey. A mandate might be issued upon the decision of an appeal, which directs that a particular action be taken, or upon a coverage of certain health benefits); adverse pricing actions by government payors; changes in size, product mix and medical cost experience of membership in key markets; our ability to integrate, simplify, and enhance our existing information technology system and platform to keep pace with changing customer and regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. needs; and the outcome of various litigation and regulatory matters, including litigation and ongoing reviews of business practices by various regulatory authorities Noun 1. regulatory authority - a governmental agency that regulates businesses in the public interest regulatory agency administrative body, administrative unit - a unit with administrative responsibilities (including the current industry wide investigation into insurance brokerage BROKERAGE, contracts. The trade or occupation of a broker; the commissions paid to a broker for his services. practices concerning broker compensation arrangements, bid quoting practices and potential antitrust Antitrust The antitrust laws apply to virtually all industries and to every level of business, including manufacturing, transportation, distribution, and marketing. They prohibit a variety of practices that restrain trade. violations being conducted by the New York Attorney General, the Connecticut Connecticut, state, United States Connecticut (kənĕt`ĭkət), southernmost of the New England states of the NE United States. It is bordered by Massachusetts (N), Rhode Island (E), Long Island Sound (S), and New York (W). Attorney General, and others, and for which the Company has received and may receive subpoenas, and may be subject to related litigation). For more discussion of important risk factors that may materially affect Aetna, please see the risk factors contained in Aetna's 2004 Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. , on file with the Securities and Exchange Commission. You also should read Aetna's 2004 Annual Report on Form 10-K and Aetna's 2005 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,
2005 2004 2005 2004
---------- --------- ---------- ---------
Revenue:
Health care premiums $4,145.7 $3,648.0 $8,199.2 $7,205.8
Other premiums 501.7 434.4 1,000.2 877.1
Administrative services
contract fees 572.4 517.2 1,141.3 1,029.4
Net investment income 256.6 260.2 547.8 531.7
Other income 14.8 9.4 25.2 20.4
Net realized capital gains 5.7 5.8 10.1 31.9
---------- --------- ---------- ---------
Total revenue 5,496.9 4,875.0 10,923.8 9,696.3
Benefits and expenses:
Health care costs (1) 3,244.7 2,875.1 6,293.2 5,616.9
Current and future
benefits (2) 581.3 535.0 1,196.6 1,082.0
Operating expenses:
Selling expenses 205.9 169.5 408.9 333.1
General and
administrative expenses 852.5 809.8 1,712.3 1,629.9
---------- --------- ---------- ---------
Total operating
expenses 1,058.4 979.3 2,121.2 1,963.0
Interest expense 30.5 25.2 57.7 50.7
Amortization of other
acquired intangible assets 11.5 12.7 22.2 25.4
Reduction of reserve for
anticipated future losses on
discontinued products (66.7) - (66.7) -
---------- --------- ---------- ---------
Total benefits and
expenses 4,859.7 4,427.3 9,624.2 8,738.0
---------- --------- ---------- ---------
Income from continuing
operations before income
taxes 637.2 447.7 1,299.6 958.3
Income taxes 227.5 161.4 465.9 346.2
---------- --------- ---------- ---------
Income from continuing
operations 409.7 286.3 833.7 612.1
Income from discontinued
operations, net of tax (3) - - - 40.0
---------- --------- ---------- ---------
Net income $409.7 $286.3 $833.7 $652.1
========== ========= ========== =========
Shareholders' equity $9,444.9 $8,308.2
========== =========
(1) The three months ended June 30, 2005 and June 30, 2004 include
favorable development of prior-period health care cost estimates
of approximately $55 million pretax (approximately $35 million
after tax) and approximately $29 million pretax (approximately $18
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) Income from discontinued operations of approximately $40 million
for the six months ended June 30, 2004 reflects the completion of
certain Internal Revenue Service audits associated with businesses
that were sold in the 1990s by the Company's predecessor (former
Aetna).
Summary of Results (1)
($ in Millions)
Three Months Ended Six Months Ended
------------------------- -------------------------
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
------------ ------------ ------------ ------------
Operating earnings,
excluding other
item and net
favorable
development $327.6 $271.6
Favorable
development of
prior-period
health care cost
estimates 35.0 18.0
Unfavorable prior-
period mortality
development - (7.0)
------------ ------------
Operating
earnings,
excluding other
item 362.6 282.6 $783.7 $591.4
Reduction of
reserve for
anticipated
future losses on
discontinued
products 43.4 - 43.4 -
------------ ------------ ------------ ------------
Operating
earnings,
including other
item 406.0 282.6 827.1 591.4
Net realized
capital gains 3.7 3.7 6.6 20.7
------------ ------------ ------------ ------------
Income from
continuing
operations
(GAAP measure) 409.7 286.3 833.7 612.1
Income from
discontinued
operations (2) - - - 40.0
------------ ------------ ------------ ------------
Net income
(GAAP measure) $409.7 $286.3 $833.7 $652.1
============ ============ ============ ============
Weighted average
common shares -
basic 290,663,128 306,350,590 291,983,775 307,102,976
============ ============ ============ ============
Weighted average
common shares -
diluted 303,072,306 319,939,126 303,915,023 319,947,412
============ ============ ============ ============
Summary of Results
Per Common Share (1)
Operating earnings,
excluding other
item and net
favorable
development $1.08 $.85
Favorable
development of
prior-period
health care cost
estimates .12 .06
Unfavorable prior-
period mortality
development - (.02)
------------ ------------
Operating
earnings,
excluding other
item 1.20 .89 $2.58 $1.85
Reduction of
reserve for
anticipated
future losses on
discontinued
products .14 - .14 -
------------ ------------ ------------ ------------
Operating
earnings,
including other
item 1.34 .89 2.72 1.85
Net realized
capital gains .01 .01 .02 .06
------------ ------------ ------------ ------------
Income from
continuing
operations
(GAAP measure) 1.35 .90 2.74 1.91
Income from
discontinued
operations (2) - - - .13
------------ ------------ ------------ ------------
Net income
(GAAP measure) $1.35 $.90 $2.74 $2.04
============ ============ ============ ============
Shareholders'
equity (3) $32.57 $27.05
============ ============
(1) Prior-period results per common share and weighted average common
shares have been adjusted to reflect the March 11, 2005 two-for-
one stock split.
(2) Income from discontinued operations of approximately $40 million
for the six months ended June 30, 2004 reflects the completion of
certain Internal Revenue Service audits associated with former
Aetna.
(3) Actual common shares outstanding were 290.0 million at June 30,
2005 and 307.1 million at June 30, 2004.
Segment Information (1)
($ in Millions)
Three Months Ended Six Months Ended
----------------------- ---------------------
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
------------ ---------- ----------- ---------
Health Care:
Total revenue $4,796.9 $4,226.1 $9,490.8 $8,372.9
============ ========== =========== =========
Selling expenses $185.1 $153.8 $369.0 $302.6
General and
administrative expenses 810.4 769.1 1,622.7 1,544.5
------------ ---------- ----------- ---------
Total operating expenses $995.5 $922.9 $1,991.7 $1,847.1
============ ========== =========== =========
Operating earnings,
excluding favorable
development $308.6 $246.0
Favorable development of
prior-period health care
cost estimates 35.0 18.0
------------ ----------
Operating earnings 343.6 264.0 $747.6 $552.4
Net realized capital
gains (losses) 2.5 (1.4) 3.8 5.7
------------ ---------- ----------- ---------
Net income
(GAAP measure) $346.1 $262.6 $751.4 $558.1
============ ========== =========== =========
Group Insurance:
Total revenue $522.8 $463.7 $1,057.5 $948.6
============ ========== =========== =========
Selling expenses $20.8 $15.7 $39.9 $30.5
General and
administrative expenses 38.8 35.7 81.4 75.4
------------ ---------- ----------- ---------
Total operating expenses $59.6 $51.4 $121.3 $105.9
============ ========== =========== =========
Operating earnings,
excluding unfavorable
development $31.3 $34.2
Unfavorable prior-period
mortality development - (7.0)
------------ ----------
Operating earnings 31.3 27.2 $62.0 $58.0
Net realized capital
gains 1.9 2.3 3.3 10.2
------------ ---------- ----------- ---------
Net income
(GAAP measure) $33.2 $29.5 $65.3 $68.2
============ ========== =========== =========
Large Case Pensions:
Total revenue $177.2 $185.2 $375.5 $374.8
============ ========== =========== =========
Operating earnings,
excluding other item $7.5 $7.9 $11.6 $14.0
Reduction of reserve for
anticipated future
losses on discontinued
products 43.4 - 43.4 -
------------ ---------- ----------- ---------
Operating earnings,
including other item 50.9 7.9 55.0 14.0
Net realized capital
gains (losses) (.7) 2.8 (.5) 4.8
------------ ---------- ----------- ---------
Net income
(GAAP measure) $50.2 $10.7 $54.5 $18.8
============ ========== =========== =========
Corporate Interest:
Interest expense,
net of tax $19.8 $16.5 $37.5 $33.0
============ ========== =========== =========
Total Company:
Total revenue $5,496.9 $4,875.0 $10,923.8 $9,696.3
============ ========== =========== =========
Selling expenses $205.9 $169.5 $408.9 $333.1
General and
administrative expenses 852.5 809.8 1,712.3 1,629.9
------------ ---------- ----------- ---------
Total operating expenses $1,058.4 $979.3 $2,121.2 $1,963.0
============ ========== =========== =========
(1) Revenue and operating expense information is presented before
income taxes. Operating earnings information is presented net of
income taxes.
Enrollment
(Members in Thousands)
June 30, June 30, Dec. 31, March 31,
2005 2004 2004 2005
-------- --------- --------- ---------
Medical Membership:
Commercial 14,221 13,229 13,446 14,162
Medicare 101 100 97 101
Medicaid 113 110 113 112
-------- --------- --------- ---------
Total Medical
Membership 14,435 13,439 13,656 14,375
======== ========= ========= =========
Dental Membership(1) 12,976 11,461 11,967 12,833
======== ========= ========= =========
Pharmacy Membership:
Pharmacy Benefit
Management
Services 8,579 7,743 7,989 8,505
Mail Order (2) 538 405 458 501
-------- --------- --------- ---------
Total Pharmacy
Membership 9,117 8,148 8,447 9,006
======== ========= ========= =========
Group Insurance
Membership 13,662 12,594 13,494 14,040
======== ========= ========= =========
Aetna
HealthFund(R)(3) 370 197 222 361
======== ========= ========= =========
Health Care Medical Cost Ratios (4)
($ in Millions)
Three Months Ended Six Months Ended
------------------- -------------------
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
--------- --------- --------- ---------
Health Care
Premiums:
Health Care Risk (A) $4,145.7 $3,648.0 $8,199.2 $7,205.8
Commercial Risk (B) $3,896.9 $3,411.0 $7,702.7 $6,737.2
Medicare (C) $248.8 $237.0 $496.5 $468.6
Health Care Costs:
Health Care Risk
-------------------
Health care costs (D)
(GAAP measure) $3,244.7 $2,875.1 $6,293.2 $5,616.9
Favorable development of
prior-period health care
cost estimates 55.0 29.0
--------- ---------
Health care costs -
Adjusted (E) $3,299.7 $2,904.1
========= =========
Commercial Risk
-------------------
Health care costs (F)
(GAAP measure) $3,022.5 $2,672.1 $5,860.4 $5,218.4
Favorable development of
prior-period health care
cost estimates 53.0 26.0
--------- ---------
Health care costs -
Adjusted (G) $3,075.5 $2,698.1
========= =========
Medicare
-------------------
Health care costs (H)
(GAAP measure) $222.3 $202.8 $432.9 $398.4
Favorable development of
prior-period health care
cost estimates 2.0 3.0
--------- ---------
Health care costs -
Adjusted (I) $224.3 $205.8
========= =========
Health Care Medical
Cost Ratios:
Health Care Risk (D)/(A)
(GAAP measure) 78.3% 78.8% 76.8% 77.9%
Health Care Risk -
Adjusted (E)/(A) 79.6% 79.6%
Commercial Risk (F)/(B)
(GAAP measure) 77.6% 78.3% 76.1% 77.5%
Commercial Risk -
Adjusted (G)/(B) 78.9% 79.1%
Medicare (H)/(C)
(GAAP measure) 89.3% 85.6% 87.2% 85.0%
Medicare - Adjusted (I)/(C) 90.2% 86.8%
(1) At June 30, 2005, the Company began including Aetna Global
Benefits dental membership. Prior period dental membership has
been revised accordingly.
(2) Represents members who purchased medications through Aetna's mail
order pharmacy during the quarterly period.
(3) Represents members in consumer-directed health plan products
included in Aetna's Commercial medical membership.
(4) Health Care Risk includes all medical and dental risk products.
Commercial Risk includes all medical and dental risk products
except Medicare and Medicaid. Risk includes all medical and dental
products for which the Company assumes all or a majority of health
care cost, utilization or other risk.
Operating Margins
($ in Millions)
Three Months Ended Six Months Ended
------------------- --------------------
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
--------- --------- ---------- ---------
Reconciliation to Income
from continuing operations
before income taxes:
Operating earnings before
income taxes, excluding
interest expense,
amortization of other
acquired intangible
assets, other item and
net favorable
development (A) $551.8 $460.8
Favorable development of
prior-period health care
cost estimates 55.0 29.0
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) 606.8 479.8 $1,302.7 $1,002.5
Interest expense (30.5) (25.2) (57.7) (50.7)
Amortization of other
acquired intangible assets (11.5) (12.7) (22.2) (25.4)
Reduction of reserve for
anticipated future losses
on discontinued products 66.7 - 66.7 -
Net realized capital gains 5.7 5.8 10.1 31.9
--------- --------- ---------- ---------
Income from continuing
operations before income
taxes (C) (GAAP measure) $637.2 $447.7 $1,299.6 $958.3
========= ========= ========== =========
Reconciliation to Income
from continuing operations:
Operating earnings, excluding
interest expense, amortization
of other acquired intangible
assets, other item and
net favorable
development (D) $354.9 $296.3
Favorable development of
prior-period health care
cost estimates, net of tax 35.0 18.0
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) 389.9 307.3 $835.7 $640.9
Interest expense, net of tax (19.8) (16.5) (37.5) (33.0)
Amortization of other
acquired intangible assets,
net of tax (7.5) (8.2) (14.5) (16.5)
Reduction of reserve for
anticipated future losses on
discontinued products, net
of tax 43.4 - 43.4 -
Net realized capital gains,
net of tax 3.7 3.7 6.6 20.7
--------- --------- ---------- ---------
Income from continuing
operations (F) (GAAP measure) $409.7 $286.3 $833.7 $612.1
========= ========= ========== =========
Reconciliation of Revenue:
Revenue, excluding net
realized capital gains (G) $5,491.2 $4,869.2 $10,913.7 $9,664.4
Net realized capital gains 5.7 5.8 10.1 31.9
--------- --------- ---------- ---------
Total revenue (H)
(GAAP measure) $5,496.9 $4,875.0 $10,923.8 $9,696.3
========= ========= ========== =========
Operating Margins:
Pretax operating margin (B)/(G) 11.1% 9.9% 11.9% 10.4%
Pretax operating margin -
Adjusted (A)/(G) 10.0% 9.5%
Pretax operating margin (C)/(H)
(GAAP measure) 11.6% 9.2% 11.9% 9.9%
After-tax operating margin
(E)/(G) 7.1% 6.3% 7.7% 6.6%
After-tax operating margin -
Adjusted (D)/(G) 6.5% 6.1%
After-tax operating margin
(F)/(H) (GAAP measure) 7.5% 5.9% 7.6% 6.3%
Operating Expenses
($ in Millions)
Total operating expenses (I)
(GAAP measure) $1,058.4 $979.3 $2,121.2 $1,963.0
========= ========= ========== =========
Operating Expenses
Percentages:
Operating expenses as a % of
revenue (I)/(G) 19.3% 20.1% 19.4% 20.3%
Total operating expenses as
a % of total revenue (I)/(H)
(GAAP measure) 19.3% 20.1% 19.4% 20.2%
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