Aetna Reports Second-Quarter 2009 Results.* Second-quarter 2009 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 per share ((1)) of $.68, as compared to the Thomson-First Call mean of $.78 per share * Net income per share in the second quarter 2009 of $.77 * Higher than projected Commercial medical costs and a Commercial medical benefit ratio of 85.9 percent, 84.6 percent excluding unfavorable reserve development * Medical membership totaled 19.1 million members at June June: see month. 30, 2009 * Aetna now projects full-year 2009 operating earnings per share of $2.75 to $2.90 ((2)) HARTFORD, Conn. -- Aetna (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 second-quarter 2009 operating earnings of $308.5 million, or $.68 per share, a 28 percent decrease from the prior-year quarter. Operating earnings (1) exclude net realized capital gains (losses) and an other item. Second-quarter 2009 net income was $346.6 million, or $.77 per share, a 21 percent decrease from the prior-year quarter. The second-quarter 2009 operating earnings were affected by significantly higher Commercial medical costs, which reflect higher second-quarter 2009 medical costs and additional unfavorable reserve development, primarily from 2008. These factors resulted in a lower Commercial 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. margin in the company's Health Care business. The second-quarter operating earnings also reflect the impact of lower-than-projected 2009 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. revenue, which the company previously disclosed. The higher-than-projected medical costs experienced were not fully captured in 2009 pricing, which resulted in a higher Commercial medical benefit ratio for the second quarter of 2009. The company is taking appropriate actions to address higher medical costs, including pricing actions, enhanced medical management and provider contracting. The company expects that full-year 2009 operating earnings will continue to be adversely affected by a higher Commercial medical benefit ratio. As a result, the company has revised its full-year 2009 operating earnings per share projection to a range of $2.75 to $2.90. [TABLE OMITTED] "Our second-quarter results do not meet our expectations or the standards we have established over several years of strong operational execution and financial performance," said Ronald A. Williams, 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. . "We continue to see upward pressure on medical costs beyond what we projected in early June, which we believe is driven in part by changing provider behavior in the face of a deep recession. We did not fully capture the impact of these forces in our 2009 pricing. This is disappointing, but it can be fixed." Mark Bertolini, president, said, "We believe these increases in Commercial medical costs are largely the result of continued higher claim intensity, such as services rendered in a higher cost setting and more tests and procedures per visit, resulting in higher costs for emergency room, ambulatory Movable; revocable; subject to change; capable of alteration. An ambulatory court was the former name of the Court of King's Bench in England. It would convene wherever the king who presided over it could be found, moving its location as the king moved. , laboratory and preventive services the duty performed by the armed police in guarding the coast against smuggling. See also: Preventive . We are taking immediate actions to address these issues." "We have factored the most recent medical cost experience into our actuarial ac·tu·ar·y n. pl. ac·tu·ar·ies A statistician who computes insurance risks and premiums. [Latin methodologies in setting our June 30 reserves and into our revised full-year outlook," said Joseph M. Zubretsky, executive vice president and CFO See Chief Financial Officer. . "Meanwhile, we continue to have a very strong financial profile and capital position, and our health care revenue growth is strong. In addition, we continue to effectively manage our 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. while making the appropriate investments to ensure our long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. competitive strength. "Given our updated outlook, we now project operating earnings per share for full-year 2009 to be in the range of $2.75 to $2.90 and our full-year 2009 Commercial medical benefit ratio to be in the range of 84.0 percent to 84.5 percent," Zubretsky said. "Aetna has a sound strategy. We have built a diverse portfolio of high-performing businesses; our brand continues to resonate res·o·nate v. res·o·nat·ed, res·o·nat·ing, res·o·nates v.intr. 1. To exhibit or produce resonance or resonant effects. 2. in our key markets; and we have a sound business model. We are confident that we can achieve our goal of long-term profitable growth," Williams said. Health Care business 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, 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. , dental 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 $336.0 million for the second quarter of 2009, compared with $430.9 million for the second quarter of 2008. The decrease in operating earnings reflects an 18 percent increase in medical costs partially offset by an 11 percent increase in revenue. * Revenues for the second quarter of 2009 increased by 11 percent to $8.0 billion from $7.2 billion for the second quarter of 2008. Premium revenues grew by 12 percent primarily from membership growth and rate increases for renewing membership. Fees and other revenue increased 7 percent in 2009 primarily driven by membership growth. * Medical benefit ratios ("MBRs") for second-quarter 2009 and 2008 were as follows:
> > > > > > > > > >
2009
2008
Commercial > > > > > > > > > >
85.9
%
80.5
%
Medicare > > > > > > > > > >
89.4
%
86.9
%
Medicaid > > > > > > > > > >
92.2
%
89.8
%
Total > > > > > > > > > >
86.8
%
81.9
%
* The Commercial MBR (Master Boot Record) See boot sector. reflects approximately $65 million ($42 million after tax) of unfavorable development of prior-period health care cost estimates, primarily related to 2008 dates of service. Excluding this development, the Commercial MBR for the second quarter of 2009 was 84.6 percent, reflecting medical cost increases that were significantly higher than premium increases. * The Medicare MBR reflects the impact of lower-than-projected 2009 Medicare revenue, which the company previously disclosed. * Sequentially, second-quarter medical membership remained essentially flat at 19.052 million; pharmacy membership remained essentially flat at 11.234 million; and dental membership increased by 33,000 to 14.569 million. * Net income of $362.8 million for the second quarter of 2009, compared with $424.3 million for the second quarter of 2008. Group Insurance business results Group Insurance, which includes group life, disability and long-term care long-term care (LTC), n the provision of medical, social, and personal care services on a recurring or continuing basis to persons with chronic physical or mental disorders. products, reported: * Operating earnings of $42.5 million for the second quarter of 2009, compared with $38.5 million for the second quarter of 2008, primarily due to higher life underwriting margins partially offset by lower disability underwriting margins. * The Group Insurance benefit ratio was 87.0 percent for the second quarter of 2009, compared with 85.9 percent for the second quarter of 2008. * Net income of $52.0 million for the second quarter of 2009, compared with net income of $33.3 million for the second quarter of 2008. * Revenues excluding net realized capital gains (losses) for the second quarter of 2009 were $535.7 million, compared with $503.8 million for the second quarter of 2008. Second-quarter total revenue, which includes net realized capital gains (losses), was $545.2 million and $495.8 million in 2009 and 2008, respectively. Large Case Pensions business results Large Case Pensions, which manages a variety of discontinued dis·con·tin·ue v. dis·con·tin·ued, dis·con·tin·u·ing, dis·con·tin·ues v.tr. 1. To stop doing or providing (something); end or abandon: and other retirement and savings products, primarily qualified pension plans, reported: * Operating earnings of $7.7 million for the second quarter of 2009, compared with $9.7 million for the second quarter of 2008, reflecting the run-off mode of this business. * Net income of $9.5 million for the second quarter of 2009, compared with net income of $35.7 million for the second quarter of 2008. Net income for the second-quarter 2008 included a $28.5 million after-tax benefit related to the reduction of reserves for discontinued products. Total company results * Revenues excluding net realized capital gains (losses) increased 10 percent to $8.7 billion for the second quarter of 2009, compared with $7.9 billion for the second quarter of 2008. The growth in second-quarter revenue reflects an 11 percent increase in premium revenue and an 8 percent increase in fees and other revenue. This revenue growth reflects a higher level of membership and premium rate increases. * Total Operating Expenses were $1.5 billion for the second quarter of 2009, $66.0 million higher than the second quarter of 2008, reflecting a previously disclosed increase in the financing component of pension expense partially offset by $38.2 million in insurance proceeds related to certain 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. we settled in 2003. The 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. ratio (3)was 17.4 percent and 17.8 percent for the second quarter of 2009 and 2008, respectively. Including net realized capital gains (losses) and the litigation-related insurance proceeds, these percentages were 16.9 percent for the second quarter of 2009 and 17.9 percent for the second quarter of 2008. * Corporate Financing Interest Expense was $39.5 million after tax for the second quarter of 2009, compared with $36.8 million after tax for the second quarter of 2008. The increase for second quarter was due to higher average debt levels in 2009. * Net Income was $346.6 million for the second quarter of 2009, compared with $480.5 million for the second quarter of 2008. Net income includes $13.2 million of net realized capital gains in the second quarter of 2009 and $14.3 million of net realized capital losses in the second quarter of 2008. * Pre-tax Operating Margin Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: ((4)) was 6.3 percent for the second quarter of 2009, compared with 10.2 percent for the second quarter of 2008. For the second quarter of 2009, the after tax net income margin was 4.0 percent compared to 6.1 percent for 2008. The decrease in year-over-year operating margin is due primarily to the decrease in operating earnings. * Share Repurchases Share Repurchase A program by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares. This is usually an indication that the company's management thinks the shares are undervalued. totaled 10.9 million shares at a cost of $271 million in the second quarter of 2009. Aetna's conference call to discuss second-quarter 2009 results and full-year 2009 guidance will begin at 8:30 a.m. ET today. The public may access the conference call through a live audio webcast available on Aetna's Investor Information link on the internet at www.aetna.com. Financial, statistical and other information, including GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). reconciliations, related to the conference call also will be available on Aetna's Investor Information web site. The conference call also can be accessed by dialing 888-318-7470 or 719-325-2383 for international callers. The company suggests participants dial in approximately 10 minutes before the call. The access code is 5460217. 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 5460217. Telephone replays will be available from 11:00 a.m. ET on July 27, 2009 until midnight ET on August 10, 2009. About Aetna Aetna is one of the nation's leading diversified diversified (di·verˑ·s health care benefits companies, serving approximately 36.8 million people with information and resources to help them make better informed decisions about their health care. Aetna offers a broad range of traditional and consumer-directed health insurance products and related services, including medical, pharmacy, dental, behavioral health, group life and disability plans, and medical management capabilities and health care management services for Medicaid Medicaid, national health insurance program in the United States for low-income persons; established in 1965 with passage of the Social Security Amendments and now run by the Centers for Medicare and Medicaid Services. plans. Our customers include employer groups employer group Association of employers Managed care An entity with a current group benefits agreement in effect with a health plan to provide covered health care services to its employee-subscribers and eligible dependents. , individuals, college students, part-time and hourly workers, health plans, governmental units, government-sponsored plans, labor groups and expatriates. For more information, see www.aetna.com. [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] (1) Operating earnings exclude net realized capital gains and losses and other items, if any, from net income. Although the excluded items may recur, management believes that operating earnings and operating earnings per share provide a more useful comparison of Aetna's underlying business performance from period to period. Management uses operating earnings to assess business performance and to make decisions regarding Aetna's operations and allocation of resources allocation of resources Apportionment of productive assets among different uses. The issue of resource allocation arises as societies seek to balance limited resources (capital, labour, land) against the various and often unlimited wants of their members. among Aetna's businesses. Operating earnings is also the measure reported to the Chief Executive Officer for these purposes. Each of the 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. However, 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 Aetna'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 . * Following a Pennsylvania Pennsylvania (pĕnsəlvā`nyə), one of the Middle Atlantic states of the United States. It is bordered by New Jersey, across the Delaware River (E), Delaware (SE), Maryland (S), West Virginia (SW), Ohio (W), and Lake Erie and New York Supreme Court ruling in June 2009, we received $38.2 million ($24.9 million after tax) from one of our liability insurers related to certain litigation we settled in 2003. We believe these litigation-related insurance proceeds neither relate to the ordinary course of our business nor reflect our underlying business performance, and therefore, we consider these to be an other item for the three and six months ended June 30, 2009. * Release of reserves for anticipated future losses on discontinued products in Large Case Pensions of $28.5 million, after tax, is considered an other item for the three and six months ended June 30, 2008, as it represents a reduction of reserves previously established for certain products no longer offered by Aetna that do not benefit ongoing business operations. Revenue excludes net realized capital gains and losses. For a reconciliation of these items to financial measures calculated under U.S. generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting ("GAAP"), refer to the tables on pages 8 through 10 and page 12 of this press release. (2)Projected operating earnings per share exclude any future net realized capital gains or losses capital gains or losses n. particularly when calculating the tax liability of an individual or business, this is the difference between the original cost plus the cost of capital improvements, excluding maintenance, called "basis" and the sales price. and other items, if any, from net income. Aetna is not able to project the amount of future net realized capital gains or losses and therefore cannot reconcile projected operating earnings to projected net income in any period. Projected operating earnings per share for the full year 2009 assumes approximately 450 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)The operating expense ratio excludes net realized capital gains and losses and other items, if any. Refer to a reconciliation of this metric to the comparable GAAP measure on page 10. (4)In order to provide useful information regarding Aetna's profitability 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 or 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 the performance of the underlying business), Aetna's pretax pre·tax adj. Existing before tax deductions: pretax income. pretax adj [profit] → vor (Abzug der) Steuern operating margin is based on operating earnings excluding interest expense, income taxes and amortization of other acquired intangible assets. Management also uses pre-tax operating margin to assess Aetna's performance, including performance versus competitors. (5)Our Corporate Financing segment is not a business segment. It is added to our business segments to reconcile to our consolidated results. The Corporate Financing segment includes interest expense on our outstanding debt and, beginning in 2009, the financing components of our pension and other postretirement benefit plan expenses (referred to herein as "pension expense") (the service cost (or operating component) of this expense is allocated to our business segments). The service cost component allocated to our business segments for the three and six months ended June 30, 2009 was $10.7 million ($6.9 million after tax) and $21.3 million ($13.8 million after tax), respectively, and $9.4 million ($6.1 million after tax) and $18.8 million ($12.2 million after tax) for the three and six months ended June 30, 2008, respectively. Prior periods have been reclassified to reflect this change. (6) Revenue and operating expense information is presented before income taxes. Operating earnings information is presented net of income taxes. (7) Represents members in consumer-directed health plans included in Aetna's Commercial medical membership. (8) Represents members in products that allow these members access to Aetna's dental provider network for a nominal fee. (9) Represents members who purchased medications through Aetna Rx Home Delivery([R]), our mail order pharmacy, during the quarterly period and are included in pharmacy membership above. CAUTIONARY STATEMENT; ADDITIONAL INFORMATION -- -- Certain information in this press release is forward- looking, including our projections as to operating earnings per share, medical benefit ratios, weighted average diluted shares, the impact of actions designed to address higher medical costs and the impact of our Commercial medical benefit ratio on operating earnings. Forward-looking 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, including unanticipated increases in medical costs (including increased intensity or medical utilization; changes in membership mix to higher cost or lower-premium products or membership-adverse selection; 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; increases resulting from unfavorable changes in contracting or re-contracting with providers; and increased pharmacy costs); adverse and less predictable economic conditions in the U.S. and abroad (including unanticipated levels of or rate of increase in the unemployment rate) which can significantly and adversely affect Aetna's business and profitability; failure to achieve desired rate increases and/or profitable membership growth due to the slowing economy and/or significant competition, especially in key geographic markets where membership is concentrated; continued volatility and further deterioration de·te·ri·o·ra·tion n. The process or condition of becoming worse. of the U.S. and global capital markets, including fluctuations in interest rates, fixed income and equity prices and the value of financial assets Financial assets Claims on real assets. , along with the general deterioration in the commercial paper, capital and credit markets, which can adversely impact the value of Aetna's investment portfolio, Aetna's profitability by reducing net investment income and/or Aetna's financial position by causing us to realize additional impairments on our investments; adverse pricing or funding actions by federal or state government payors; and adverse changes in federal or state government policies or regulation (including legislative proposals that would affect our business model and/or limit our ability to price for the risk we assume and/or reflect reasonable costs or profits in our pricing and other proposals, such as initiatives 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 exposure or mandate coverage of certain health benefits). Other important risk factors include, but are not limited to: adverse changes in size, product mix or medical cost experience of membership; increases in medical costs or Group Insurance claims resulting from any epidemics This article is a list of major epidemics. Worldwide Pandemics
regulatory agency administrative body, administrative unit - a unit with administrative responsibilities of, certain of our payment practices with respect to out-of-network out-of-network Managed care adjective Referring to a provider/service that is not part of an MCO's network of contracted providers/services. See Managed care organization. providers; and reputational issues arising from data security breaches or other means. For more discussion of important risk factors that may materially affect Aetna, please see the risk factors contained in Aetna's 2008 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 ("SEC"), Aetna's 2009 Quarterly Report on Form 10-Q Form 10-Q See 10-Q. for the quarter ended March 31, 2009 and Aetna's Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 (Aetna's "Second Quarter 10-Q"), when filed with the SEC. You also should read Aetna's Second Quarter 10-Q, when filed with the SEC, for a discussion of Aetna's historical results of operations and financial condition. |
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