Aetna Reports Third Quarter 2003 Results.Business Editors HARTFORD Hartford, city (1990 pop. 139,739), state capital, Hartford co., central Conn., on the west bank of the Connecticut River; settled as Newtown 1635–36 on the site of a Dutch trading post (1633; abandoned 1654), inc. 1784. , Conn.--(BUSINESS WIRE)--Oct. 30, 2003 Third-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 $1.29 per share (compared with Thompson/First Call estimate of $1.22); 74% increase in earnings per share on a comparable basis; Third-quarter net income of $1.35 per share Aetna Aetna, volcano: see Etna, Italy. (NYSE NYSE See: New York Stock Exchange : AET AET Aetna, Inc. AET After Extra Time AET Actual Evapotranspiration AET Alliance for Environmental Technology AET Alpha-Ethyltryptamine AET Applied Extrusion Technologies, Inc. ) today announced third quarter 2003 operating earnings of $1.29 per share. Operating earnings, excluding development and other items, were $1.27 per share, an increase of 74 percent from third quarter 2002. Operating earnings exclude net realized capital gains and other items.(1) Aetna's net income for the third quarter of 2003 was $1.35 per share, compared with $0.64 per share for the third quarter of 2002.
Quarterly Financial Results at a Glance
Three Months Ended
September 30, September 30, Change
2003 2002
Total revenues $4.5 billion $4.8 billion
Operating Earnings(1) $207.1 million $151.5 million
Per share operating earnings(1) $1.29 $0.98 32%
Less:
Favorable development of
prior-period medical cost
estimates ($0.02) ($0.11)
Favorable resolution of prior-
period contract matters for a
large customer ---- ($0.14)
Operating earnings, excluding
development and other items $1.27 $0.73 74%
Net income $215.9 million $98.8 million
Per share net income $1.35 $0.64 111%
"This marks Aetna's seventh-consecutive quarter of strong performance on all key financial measures," 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 solid earnings for the third quarter are the result of successful efforts in several areas, including our disciplined 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. and medical cost-management efforts and significant reductions in 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. . We continue to move beyond the issues unique to our turnaround Turnaround A situation where a company that has had poor performance for an extended period of time experiences a positive reversal. Notes: A speculator may profit from a turnaround if he or she accurately anticipates the improvement of a poorly performing company. ; and are focused on enhancing the value of the Aetna franchise through profitable growth, increased operating efficiency and disciplined capital management. "Given these results, we are increasing our operating earnings guidance for full-year 2003 to approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $5.00 to $5.05 per share, excluding prior-period development, doubling the comparable full-year 2002 operating earnings. Looking ahead to 2004, we are confident that our positive momentum will continue as a result of our enhanced competitive position and anticipate an increase of approximately 15 percent in operating earnings per share over full-year 2003, excluding prior-period development." (2) "We continue to enhance our sales and distribution capabilities with the offering of innovative new products and services," said Ronald A. Williams, president. "Aetna is well positioned to realize sustainable, profitable growth across all customer markets and to benefit from continued efficiencies." Health Care business results Health Care, which provides a full range of fully and self-insured self-insured Self fund Health insurance adjective Referring to the practice of carrying an individual health insurance policy for oneself; self insurance is usually more expensive than group insurance health care and dental dental /den·tal/ (den´t'l) pertaining to a tooth or teeth. den·tal adj. 1. Of, relating to, or for the teeth. 2. Of, relating to, or intended for dentistry. products and services, reported: -- Operating earnings of $179.3 million for the third quarter 2003, compared with third quarter 2002 operating earnings of $127.9 million and second quarter 2003 operating earnings of $175.7 million. Health care operating earnings included approximately $3 million after tax of net favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. development of prior-period medical cost estimates in the third quarter of 2003 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. HMO HMO health maintenance organization. HMO n. A corporation that is financed by insurance premiums and has member physicians and professional staff who provide curative and preventive medicine within certain financial, . This compares to approximately $10 million after tax in Commercial Risk, and approximately $7 million after tax in Medicare HMO, in the third quarter 2002. In the second quarter 2003, net favorable development was approximately $2 million after tax. Health care operating earnings were higher due to a decrease in operating expenses and improved underwriting results in Commercial Risk products, compared with third quarter 2002. Operating earnings were consistent with the second quarter of 2003. -- Net income of $182.3 million for the third quarter 2003, compared with net income of $81.9 million in the third quarter 2002 and $106.0 million in the second quarter 2003. These amounts include net realized capital gains for all periods, and other items for third quarter 2002 and second quarter 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 78.2 percent for the third quarter of 2003, compared with 82.5 percent for the third quarter of 2002 and 77.3 percent for the second quarter of 2003, excluding prior-period reserve development in third quarter 2002 and second quarter 2003, and favorable resolution of a 2002 contract matter. Including these amounts, the reported Commercial Risk MCR was 81.3 percent for the third quarter 2002 and 77.0 percent for the second quarter 2003. -- A Medicare HMO MCR of 88.0 percent for the third quarter 2003, compared with 84.2 percent for the third quarter 2002 and 87.2 percent for the second quarter 2003, excluding reserve development. Including reserve development, the reported Medicare HMO MCR was 85.8 percent for the third quarter 2003, 79.3 percent for the third quarter 2002 and 89.8 percent for the second quarter 2003. -- Total medical membership of approximately 13.0 million at September September: see month. 30, 2003, which was consistent with June June: see month. 30, 2003. 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 $33.4 million for the third quarter 2003, compared with $38.2 million for the third quarter 2002 and $35.4 million for the second quarter 2003. Operating earnings were lower than third quarter 2002, due primarily to increased expenses associated with expanded marketing efforts and lower net investment income due to lower interest rates. Operating earnings were lower than second quarter 2003, due primarily to lower net investment income. -- Net income of $38.8 million for the third quarter 2003, compared with $30.1 million for the third quarter 2002 and $36.5 million for the second quarter 2003. These amounts include net realized capital gains and losses for all periods, as well as other items for third quarter 2002. -- Total revenues for the third quarter 2003 of $448.0 million, compared with $431.2 million for the third quarter 2002 and $459.5 million for the second quarter 2003. 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 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 $11.0 million for the third quarter 2003, compared with $3.9 million for the third quarter 2002 and $9.4 million for the second quarter 2003. The year-over-year increase is primarily related to higher investment partnership income. -- Net income of $11.4 million for the third quarter 2003, compared with $5.3 million in the third quarter 2002 and $12.5 million in the second quarter 2003. These amounts include net realized capital gains for all periods. Total company results -- Total Revenues. Revenues were $4.5 billion for the third quarter 2003, compared with $4.8 billion for the third quarter 2002 and $4.5 billion for the second quarter 2003. The year-over-year decrease reflects lower health membership and lower net investment income due to the lower interest rate environment, partially offset by higher per-member premiums. -- Total Operating Expenses. Operating expenses, excluding other items for the second quarter 2003, were $985.7 million for the third quarter 2003, $68.2 million less than the third quarter 2002 and $24.0 million less than the second quarter 2003. Including other items, operating expenses were $1.13 billion for the second quarter 2003. -- Corporate Interest expense was $16.6 million after tax for the third quarter 2003, compared with $18.5 million for the third quarter 2002 and $16.6 million for the second quarter 2003. -- Net Income. Aetna reported net income of $215.9 million for the third quarter 2003, compared with $98.8 million for the third quarter 2002 and $138.4 million for the second quarter 2003. -- Pretax pre·tax adj. Existing before tax deductions: pretax income. pretax adj [profit] → vor (Abzug der) Steuern operating margin Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: (3) improved to 8.0 percent for the third quarter 2003, from 4.5 percent in the third quarter 2002. The pretax operating margin was 8.1 percent in second quarter 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 net income divided by total revenue, was 4.8 percent for the third quarter 2003. A live audio webcast of the third-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 800-210-9006, or 719-457-2621 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 509060. Telephone replays will be available from 11:30 a.m. ET on October October: see month. 30 until midnight ET on November November: see month. 6. Anyone listening to the Aetna Inc. call and/or and/or conj. Used to indicate that either or both of the items connected by it are involved. Usage Note: And/or is widely used in legal and business writing. webcast is encouraged to read Aetna's 2002 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. , filed with the Securities and Exchange Commission, and its 2003 Third Quarter Form 10-Q Form 10-Q See 10-Q. , to be filed with the SEC in connection with the third-quarter announcement, including the discussion of risk factors and Aetna's historical results of operations and financial condition. Aetna is one of the nation's leading providers of health care, dental, pharmacy pharmacy, art of compounding and dispensing drugs and medication. The term is also applied to an establishment used for such purposes. Until modern times medication was prepared and dispensed by the physician himself. In the 18th cent. , group life, disability and long-term care benefits, serving approximately 13.0 million medical members, 11.0 million dental members, 7.4 million pharmacy members and 12.1 million group insurance customers, as of September 30, 2003. The company has expansive nationwide networks of more than 590,000 health care services providers, including over 355,000 primary care and specialist physicians and 3,577 hospitals. For more information about Aetna, please visit the company's web site at www.aetna.com. (1) In order to provide a comparison that the company believes provides useful information regarding its underlying performance, operating earnings exclude the following from net income: other items and net realized capital gains (losses). The company believes it is appropriate to exclude these items from operating earnings for the reasons set forth below, and management uses operating earnings to assess performance and make operating decisions. Capital gains and losses arise from various types of transactions that arise 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 . Settlement of the physician class-action lawsuit lawsuit: see procedure; tort. of approximately $75 million, after tax ($115.4 million pretax), included as the Other Item by the company for the 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. not in the ordinary course of business. Severance The act of dividing, or the state of being divided. The term severance has unique meanings in different branches of the law. Courts use the term in both civil and criminal litigation in two ways: first, when dividing a lawsuit into two or more parts, and second, when and facilities charges of $57.9 million, after tax ($89.0 million pretax), included in Other Items by the company for the third quarter of 2002, represents an estimate of costs related to reductions in staff or exiting of facilities and are not direct expenses supporting 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 and pretax operating margins) excluding changes to prior-period medical cost estimates to reflect underlying current-period health care costs and favorable resolution of prior-period contract matter for a large customer to reflect underlying current-period premium. 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 7 to 11 of this release. (2)Full-year 2002 operating earnings of $450.3 million exclude an income tax reserve release of $19.8 million, a reduction of reserves for anticipated future losses on discontinued products of $5.4 million after tax, severance and facilities charges of $104.6 million after tax, and net realized capital gains of $22.3 million after tax. The full-year 2002 operating earnings include a benefit of approximately $21 million after tax due to favorable resolution of prior-period contract matters for a large customer and favorable development of prior-period medical cost estimates of approximately $46 million after tax. Projected operating earnings for full-year 2003 exclude net realized capital gains reported to date in 2003 of $32.4 million after tax, prior-period reserve development reported by the company in each quarter to date in 2003 (approximately $107 million after tax in first quarter 2003, approximately $2 million after tax in second quarter 2003 and approximately $3 million after tax in third quarter 2003), and the settlement of the physician class-action lawsuit of approximately $75 million after tax reported in the second quarter 2003. These amounts are excluded for the reasons stated 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. Additionally, the income tax reserve release, included in Other Items by the company for the first quarter of 2002, represents the favorable conclusion of several state tax audits relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc prior periods; accordingly, this reserve release does not reflect the underlying performance of the company's business. The reduction of the reserve for anticipated future losses on discontinued products, included in Other Items by the company for the second quarter of 2002, represents a reduction of reserves previously established for certain products no longer offered by the company and does not benefit ongoing business operations. Projected operating earnings for 2003 and 2004 also 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. or future reserve development. The company is not able to project the amount of future net realized capital gains or losses or reserve development and cannot, therefore, reconcile projected 2003 and 2004 operating earnings to projected net income. (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 1. For a reconciliation to margin calculated under GAAP, refer to the tables on page 10 of this release. ADDITIONAL INFORMATION; CAUTIONARY STATEMENT -- Certain information in this press release is forward looking, including the projections of 2003 and 2004 operating earnings. Forward-looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. information is based on management's estimates, assumptions and projections, and is subject to significant uncertainties and other factors, many of which are beyond Aetna's control. Important risk factors could cause actual future results and other future events to differ materially from those currently estimated by management. Those risk factors include, but are not limited to: unanticipated increases in medical costs (including increased medical utilization utilization, n 1. the extent to which a given group uses a particular service in a specified period. Although usually expressed as the number of services used per year per 100 or per 1000 persons eligible for the service, utilization rates may be , increased pharmacy costs, increases resulting from unfavorable changes in contracting or recontracting with providers, changes in membership mix to lower-premium or higher-cost products or membership-adverse selection; as well as changes in medical cost estimates due to the necessary extensive judgment that is used in the medical cost estimation estimation In mathematics, use of a function or formula to derive a solution or make a prediction. Unlike approximation, it has precise connotations. In statistics, for example, it connotes the careful selection and testing of a function called an estimator. process, the considerable variability inherent in such estimates, and the sensitivity of such estimates to changes in medical claims payment patterns and changes in medical cost trends); decreases in membership levels; 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. ; the ability to achieve targeted savings from work force reductions and to otherwise reduce administrative expenses in light of significant membership reductions recently experienced; the ability to maintain targeted levels of service, and improve relations with providers, as well as operating performance, while making significant staff reductions and taking actions to reduce medical costs; the ability to continue to successfully implement Aetna's new operating model Operating Model is a term that is used in many contexts. In essence an operating model describes how an organization operates across both business and technology domains. The Operating Model describes what is important for the organization. ; lower levels of investment income from continued lower interest rates; adverse government regulation (including legislative proposals to eliminate or reduce ERISA See Employee Retirement Income Security Act. ERISA See Employee Retirement Income Security Act (ERISA). pre-emption PRE-EMPTION, intern. law. The right of preemption is the right of a nation to detain the merchandise of strangers passing through her territories or seas, in order to afford to her subjects the preference of purchase. 1 Chit. Com. Law, 103; 1 Bl. Com. 287. 2. of state laws that would increase potential litigation exposure, and other proposals, such as the Patients' Bill of Rights, that would increase potential litigation exposure or mandate A judicial command, order, or precept, written or oral, from a court; a direction that a court has the authority to give and an individual is bound to obey. A mandate might be issued upon the decision of an appeal, which directs that a particular action be taken, or upon a coverage of certain health benefits); adverse pricing actions by government payors; changes in size, product mix and medical cost experience of membership in key markets; and the outcome, including any negotiated resolution, of various litigation and regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. matters, including ongoing reviews of business practices by various regulatory agencies regulatory agency Independent government commission charged by the legislature with setting and enforcing standards for specific industries in the private sector. The concept was invented by the U.S. . For more discussion of important factors that may materially affect Aetna, please see the risk factors contained in Aetna's 2002 Annual Report on Form 10-K, on file with the Securities and Exchange Commission. You also should read Aetna's 2002 Annual Report on Form 10-K and Aetna's 2003 Third Quarter Report on Form 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 (Loss)
($ in Millions)
Three Months Ended Nine Months Ended
September September June September September
30, 30, 30, 30, 30,
2003 2002 2003 2003 2002
Revenue:
Health care
premiums(1) $3,301.7 $3,635.5 $3,276.1 $9,846.8 $11,497.8
Other premiums 411.4 422.8 424.4 1,253.4 1,256.2
Administrative
services contract
fees 466.3 459.4 471.2 1,413.0 1,386.6
Net investment
income 268.1 296.7 273.3 817.4 932.3
Other income 8.1 10.9 6.4 21.2 30.5
Net realized capital
gains 13.5 6.8 14.6 49.8 57.6
Total revenue 4,469.1 4,832.1 4,466.0 13,401.6 15,161.0
Benefits and expenses:
Health care costs(2) 2,598.0 2,953.2 2,553.4 7,519.3 9,591.1
Current and future
benefits 512.3 544.2 525.9 1,565.8 1,666.8
Operating expenses(3) 985.7 1,053.9 1,125.1 3,131.2 3,187.5
Interest expense 25.6 28.5 25.5 77.0 89.0
Amortization of
other acquired
intangible assets 12.7 19.8 12.7 38.1 118.1
Severance and
facilities charge - 89.0 - - 116.0
Reduction of reserve
for anticipated
future losses on
discontinued
products - - - - (8.3)
Total benefits and
expenses 4,134.3 4,688.6 4,242.6 12,331.4 14,760.2
Income from continuing
operations before
income taxes 334.8 143.5 223.4 1,070.2 400.8
Income taxes 118.9 44.7 85.0 385.9 105.8
Income from continuing
operations 215.9 98.8 138.4 684.3 295.0
Income from discontinued
operations, net of
tax (4) - - - - 50.0
Income before cumulative
effect adjustment 215.9 98.8 138.4 684.3 345.0
Cumulative effect
adjustment, net of
tax (5) - - - - (2,965.7)
Net income (loss) $215.9 $98.8 $138.4 $684.3 $(2,620.7)
Shareholders' equity $7,692.0 $7,629.1
(1)The three and nine months ended September 30, 2002 include a
benefit of approximately $32 million pretax (approximately $21 million
after tax) due to favorable resolution of prior-period contract
matters for a large customer in the Health Care segment.
(2)The three months ended September 30, 2003 include favorable
development of prior-period medical cost estimates of approximately $5
million pretax (approximately $3 million after tax) in the Health Care
segment. The three months ended September 30, 2002 include favorable
development of prior-period medical cost estimates of approximately
$27 million pretax (approximately $17 million after tax) in the Health
Care segment. The three months ended June 30, 2003 include favorable
development of prior-period medical cost estimates of approximately
$9 million pretax (approximately $6 million after tax) for Commercial
Risk and unfavorable development of prior-period medical cost
estimates of approximately $6 million pretax (approximately $4 million
after tax) for Medicare HMO, or net favorable development of
prior-period medical cost estimates of approximately $3 million pretax
(approximately $2 million after tax) in the Health Care segment.
(3)The three months ended June 30, 2003 and the nine months ended
September 30, 2003 include $115.4 million pretax (approximately $75
million after tax) for the physician class action settlement.
(4)During the nine months ended September 30, 2002, the Company
released $50.0 million of federal tax reserves resulting from the
resolution of several Internal Revenue Service audit issues related to
former Aetna's property and casualty business.
(5)Relates to the adoption of a new accounting standard, FAS 142,
Goodwill and Other Intangible Assets.
Summary of Results
($ in Millions)
Three Months Ended Nine Months Ended
September September June September September
30, 30, 30, 30, 30,
2003 2002 2003 2003 2002
Operating
earnings,
excluding other
items and
favorable items $204.1 $113.5 $201.9
Favorable
development
of prior-
period
medical cost
estimates 3.0 17.0 2.0
Favorable
resolution
of prior-
period
contract
matters for
a large
customer - 21.0 -
Operating
earnings,
excluding other
items 207.1 151.5 203.9 $726.9 $307.7
Physician
class action
settlement - - (75.0) (75.0) -
Income tax
reserve
release
(prior
period
related) - - - - 19.8
Severance and
facilities
charge - (57.9) - - (75.4)
Reduction of
reserve for
anticipated
future
losses on
discontinued
products - - - - 5.4
Operating
earnings,
including other
items 207.1 93.6 128.9 651.9 257.5
Net realized
capital
gains 8.8 5.2 9.5 32.4 37.5
Income from
continuing
operations
(GAAP measure) 215.9 98.8 138.4 684.3 295.0
Income from
discontinued
operations (1) - - - - 50.0
Income before
cumulative
effect
adjustment 215.9 98.8 138.4 684.3 345.0
Cumulative
effect
adjustment(2) - - - - (2,965.7)
Net income
(loss)
(GAAP measure) $215.9 $98.8 $138.4 $684.3 $(2,620.7)
Weighted average
common shares -
basic 153,458,074 150,530,207 153,180,761 152,544,189 148,160,025
Weighted average
common shares -
diluted 160,342,416 155,075,987 159,626,738 158,033,631 152,471,590
Summary of Results Per Common Share
Operating
earnings,
excluding other
items and
favorable items $1.27 $.73 $1.27
Favorable
development of
prior-period
medical cost
estimates $.02 $.11 $.01
Favorable
resolution of
prior-period
contract
matters for a
large customer $- $.14 $-
Operating
earnings,
excluding other
items $1.29 $.98 $1.28 $4.60 $2.02
Operating
earnings,
including other
items $1.29 $.60 $.81 $4.13 $1.69
Income from
continuing
operations
(GAAP measure) $1.35 $.64 $.87 $4.33 $1.93
Income from
discontinued
operations (1) $- $- $- $- $.33
Net income
(loss)
(GAAP measure) $1.35 $.64 $.87 $4.33 $(17.19)
Shareholders'
equity (3) $50.42 $50.68
(1)During the nine months ended September 30, 2002, the Company
released $50.0 million of federal tax reserves resulting from the
resolution of several Internal Revenue Service audit issues related to
former Aetna's property and casualty business.
(2)Relates to the adoption of a new accounting standard, FAS 142,
Goodwill and Other Intangible Assets.
(3)Actual common shares outstanding were 152.6 million at
September 30, 2003, 150.5 million at September 30, 2002 and 153.9
million at June 30, 2003.
Segment Information (1)
($ in Millions)
Three Months Ended Nine Months Ended
September September June September September
30, 30, 30, 30, 30,
2003 2002 2003 2003 2002
Total Company:
Total revenue
(GAAP measure) $4,469.1 $4,832.1 $4,466.0 $13,401.6 $15,161.0
Operating expenses,
excluding physician
class action
settlement $985.7 $1,053.9 $1,009.7 $3,015.8 $3,187.5
Physician class
action settlement - - 115.4 115.4 -
Total operating
expenses (GAAP
measure) $985.7 $1,053.9 $1,125.1 $3,131.2 $3,187.5
Health Care:
Total revenue
(GAAP measure) $3,828.1 $4,181.6 $3,808.0 $11,450.9 $13,161.1
Operating expenses,
excluding
physician class
action settlement $928.8 $1,002.8 $950.2 $2,841.5 $3,035.0
Physician class
action settlement - - 115.4 115.4 -
Total operating
expenses (GAAP
measure) $928.8 $1,002.8 $1,065.6 $2,956.9 $3,035.0
Operating earnings,
excluding
amortization of
other acquired
intangible assets
and other items $187.5 $140.8 $184.0 $673.0 $317.7
Amortization of
other acquired
intangible assets (8.2) (12.9) (8.3) (24.7) (76.8)
Operating earnings,
excluding other
items 179.3 127.9 175.7 648.3 240.9
Physician class
action settlement - - (75.0) (75.0) -
Income tax
reserve release
(prior period
related) - - - - 19.8
Severance and
facilities charge - (55.6) - - (73.1)
Operating earnings,
including other
items 179.3 72.3 100.7 573.3 187.6
Net realized
capital gains 3.0 9.6 5.3 16.9 40.3
Income from continuing
operations
(GAAP measure) 182.3 81.9 106.0 590.2 227.9
Cumulative effect
adjustment - - - - (2,965.7)
Net income (loss)
(GAAP measure) $182.3 $81.9 $106.0 $590.2 $(2,737.8)
Group Insurance:
Total revenue
(GAAP measure) $448.0 $431.2 $459.5 $1,364.9 $1,308.5
Total operating
expenses (GAAP
measure) $52.6 $46.0 $54.9 $160.3 $136.9
Operating earnings,
excluding other
item $33.4 $38.2 $35.4 $101.4 $107.5
Severance and
facilities charge - (2.3) - - (2.3)
Operating earnings,
including other
item $33.4 $35.9 $35.4 $101.4 $105.2
Net realized
capital gains
(losses) 5.4 (5.8) 1.1 9.0 (5.6)
Net income
(GAAP measure) $38.8 $30.1 $36.5 $110.4 $99.6
Large Case Pensions:
Total revenue
(GAAP measure) $193.0 $219.3 $198.5 $585.8 $691.4
Operating earnings,
excluding other
item $11.0 $3.9 $9.4 $27.2 $17.1
Reduction of
reserve for
anticipated
future losses
on discontinued
products - - - - 5.4
Operating earnings,
including other
item 11.0 3.9 9.4 27.2 22.5
Net realized
capital gains .4 1.4 3.1 6.5 2.8
Net income
(GAAP measure) $11.4 $5.3 $12.5 $33.7 $25.3
(1)Revenue and operating expense information is presented before
income taxes. Operating earnings information is presented net of
income taxes.
Enrollment
(Members in Thousands)
September 30, September 30, June 30,
Medical: 2003 2002 2003
Commercial
HMO 4,681 5,456 4,706
POS 2,286 2,658 2,284
PPO 4,338 3,910 4,306
Indemnity 1,474 1,640 1,507
Total Commercial Membership 12,779 13,664 12,803
Medicare HMO 107 121 108
Medicaid HMO 116 160 116
Total Medical Membership 13,002 13,945 13,027
Total Dental Membership 10,985 11,863 11,293
Total Group Insurance Membership 12,053 11,690 11,698
Operating Margins
($ in Millions)
Three Months Ended Nine Months Ended
September September June September September
30, 30, 30, 30, 30,
2003 2002 2003 2003 2002
Reconciliation to
Income from continuing
operations before income
taxes:
Operating earnings,
excluding interest
expense, amortization
of other acquired
intangible assets,
other items and
favorable items(A) $354.6 $215.0 $359.4
Favorable
development of
prior-period
medical cost
estimates 5.0 27.0 3.0
Favorable
resolution of
prior-period
contract
matters for a
large customer - 32.0 -
Operating earnings,
excluding
interest expense,
amortization of other
acquired intangible
assets and other
items (B) 359.6 274.0 362.4 $1,250.9 $658.0
Interest expense (25.6) (28.5) (25.5) (77.0) (89.0)
Amortization of
other acquired
intangible
assets (12.7) (19.8) (12.7) (38.1) (118.1)
Physician class
action
settlement - - (115.4) (115.4) -
Severance and
facilities
charge - (89.0) - - (116.0)
Reduction of
reserve for
anticipated
future losses
on discontinued
products - - - - 8.3
Net realized
capital gains 13.5 6.8 14.6 49.8 57.6
Income from
continuing
operations before
income taxes (C)
(GAAP measure) $334.8 $143.5 $223.4 $1,070.2 $400.8
Reconciliation to
Income from
continuing
operations:
Operating earnings,
excluding
interest expense,
amortization of other
acquired intangible
assets, other
items and
favorable items(D) $228.9 $144.9 $226.8
Favorable
development of
prior-period
medical cost
estimates, net
of tax 3.0 17.0 2.0
Favorable
resolution of
prior-period
contract
matters for a
large customer,
net of tax - 21.0 -
Operating earnings,
excluding
interest expense,
amortization of other
acquired intangible
assets and other
items (E) 231.9 182.9 228.8 $801.6 $442.3
Interest expense,
net of tax (16.6) (18.5) (16.6) (50.0) (57.8)
Amortization of
other acquired
intangible
assets, net of
tax (8.2) (12.9) (8.3) (24.7) (76.8)
Physician class
action
settlement, net
of tax - - (75.0) (75.0) -
Income tax
reserve release
(prior period
related) - - - - 19.8
Severance and
facilities
charge, net of
tax - (57.9) - - (75.4)
Reduction of
reserve for
anticipated
future losses
on discontinued
products, net of
tax - - - - 5.4
Net realized
capital gains,
net of tax 8.8 5.2 9.5 32.4 37.5
Income from
continuing
operations (F)
(GAAP measure) $215.9 $98.8 $138.4 $684.3 $295.0
Reconciliation of
Revenue:
Revenue, excluding
net realized
capital gains and
favorable item (G) $4,455.6 $4,793.3 $4,451.4
Favorable
resolution of
prior-period
contract
matters for a
large customer - 32.0 -
Revenue, excluding
net realized
capital gains (H) $4,455.6 4,825.3 4,451.4 $13,351.8 $15,103.4
Net realized
capital gains 13.5 6.8 14.6 49.8 57.6
Total revenue (I)
(GAAP measure) $4,469.1 $4,832.1 $4,466.0 $13,401.6 $15,161.0
Total Company
Operating Margins:
Pretax operating
margin (B)/(H) 8.1% 5.7% 8.1% 9.4% 4.4%
Pretax operating
margin - Adjusted
(A)/(G) 8.0% 4.5% 8.1%
Pretax operating
margin (C)/(I)
(GAAP measure) 7.5% 3.0% 5.0% 8.0% 2.6%
After-tax operating
margin (E)/(H) 5.2% 3.8% 5.1% 6.0% 2.9%
After-tax operating
margin - Adjusted
(D)/(G) 5.1% 3.0% 5.1%
After-tax operating
margin (F)/(I)
(GAAP measure) 4.8% 2.0% 3.1% 5.1% 1.9%
Health Care Medical Cost Ratios (1)
($ in Millions)
Three Months Ended Nine Months Ended
September September June September September
30, 30, 30, 30, 30,
Health Care Premiums: 2003 2002 2003 2003 2002
Health Care Risk
Premiums (A) (GAAP
measure) $3,301.7 $3,635.5 $3,276.1 $9,846.8 $11,497.8
Favorable
resolution of
prior-period
contract matters
related to a
large customer - (32.0) -
Premiums - Adjusted
(B) $3,301.7 $3,603.5 $3,276.1
Commercial Risk
Premiums (C) (GAAP
measure) $3,078.5 $3,391.4 $3,044.6 $9,168.3 $10,715.1
Favorable
resolution of
prior-period
contract matters
related to a
large customer - (32.0) -
Premiums - Adjusted
(D) $3,078.5 $3,359.4 $3,044.6
Medicare HMO
Premiums (E) (GAAP
measure) $223.2 $245.1 $231.5 $678.5 $774.4
Health Care Costs:
Health Care Risk
Health care costs
(F)(GAAP measure) $2,598.0 $2,953.2 $2,553.4 $7,519.3 $9,591.1
Favorable
development of
prior-period
medical cost
estimates 5.0 27.0 3.0
Health care costs -
Adjusted (G) $2,603.0 $2,980.2 $2,556.4
Commercial Risk
Health care costs
(H)(GAAP measure) $2,406.7 $2,757.7 $2,345.5 $6,943.5 $8,958.2
Favorable
development of
prior-period
medical cost
estimates - 15.0 9.0
Health care costs -
Adjusted (I) $2,406.7 $2,772.7 $2,354.5
Medicare HMO
Health care costs
(J)(GAAP measure) $191.4 $194.4 $207.9 $576.2 $626.4
Favorable
(unfavorable)
development of
prior-period
medical cost
estimates 5.0 12.0 (6.0)
Health care costs -
Adjusted (K) $196.4 $206.4 $201.9
Health Care Medical
Cost Ratios:
Health Care Risk
(F)/(A) (GAAP
measure) 78.7% 81.2% 77.9% 76.4% 83.4%
Health Care Risk -
Adjusted (G)/(B) 78.8% 82.7% 78.0%
Commercial Risk
(H)/(C) (GAAP
measure) 78.2% 81.3% 77.0% 75.7% 83.6%
Commercial Risk -
Adjusted (I)/(D) 82.5% 77.3%
Medicare HMO (J)/(E)
(GAAP measure) 85.8% 79.3% 89.8% 84.9% 80.9%
Medicare HMO -
Adjusted (K)/(E) 88.0% 84.2% 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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