Aetna Reports Third Quarter 2004 Results.HARTFORD, Conn. -- Aetna-- --Operating earnings of $1.84 per share, $1.75 per share excluding favorable reserve development, compared with Thompson/First Call mean of $1.73, a 38 percent increase over the prior-year quarter --Income from continuing operations of $1.92 per share, a 42 percent increase over the prior-year quarter --Net income of $8.21 per share, reflecting previously announced tax refund and favorable tax adjustments --Third-quarter medical membership increase of 131,000 to approximately 13.6 million --Full-year 2004 operating earnings per share guidance raised to $7.00 from earlier range of $6.75 to $6.85 --Preliminary full-year 2005 operating earnings per share projected to be approximately $8.40, an increase of 20 percent over 2004 guidance, with projected 2005 full-year net medical membership growth of 700,000 to 800,000 Aetna (NYSE: AET) today announced third- quarter operating earnings of $1.84 per share. Operating earnings, excluding favorable reserve development, were $1.75 per share, an increase of 38 percent compared to the prior year. Favorable reserve development was approximately $22 million, before tax, or $14 million, after tax. The increase in operating earnings primarily reflects growth in revenues from increased premiums and fees, higher membership levels and continued general and administrative expense efficiencies. Operating earnings exclude net realized capital gains and other items.(1) Income from continuing operations for the quarter was $1.92 per share compared to $1.35 per share in the prior-year quarter. Third-quarter net income was $8.21 per share, reflecting the previously announced $740 million tax refund and favorable tax reserve adjustments of $250 million(2) related to discontinued operations.
Quarterly Financial Results at a Glance
----------------------------------------------------------------------
Three Months Ended
----------------------------------------------------------------------
Sept. 30, 2004 Sept. 30, 2003 Change
-------------------- ------------------- ------
Total revenues $5.0 billion $4.5 billion 13%
==================== ===================
Operating earnings(a) $289.5 million $207.1 million 40%
==================== ===================
Income from continuing $302.3 million $215.9 million
operations 40%
==================== ===================
Net income $1.292 billion $215.9 million
==================== ===================
Per share results:
Operating
earnings(a) $1.84 $1.29 43%
Favorable
development of
prior-period
health care cost
estimates (0.09) (0.02)
-------------------- -------------------
Operating
earnings,
excluding
development(a) $1.75 $1.27 38%
==================== ===================
Income from
continuing
operations $1.92 $1.35 42%
Income from
discontinued
operations(b) 6.29 ----
-------------------- -------------------
Net income $8.21 $1.35
==================== ===================
(a) For full description of operating earnings and per share operating
earnings, refer to footnote 1 at the end of the press release.
(b) Refer to footnote 2 at the end of the press release.
"Aetna's strong results reflect our sustained progress in achieving growth in membership, revenue and earnings, " said John W. Rowe, M.D., chairman and CEO. "We increased our medical membership by 131,000 in the third quarter to approximately 13.6 million. For the year, we have added 568,000 net new medical members and we are solidly on track to meet our projections of between 600,000 and 750,000 net new members for 2004. In addition, our top-line revenue growth was strong, increasing 13 percent from the year-ago period to $5 billion. "We continued our disciplined capital management strategy in the quarter, which included repurchasing 8.3 million shares, demonstrating our commitment to shareholders. We also announced an agreement to acquire Strategic Resource Company, one of the largest providers of benefits to part-time and hourly workers, for $250 million, as well as a joint venture with Priority Healthcare to develop a specialty pharmacy operation and facility to serve Aetna's members. "In light of our strengthened capital position, we believe it is important now to make some other valuable investments. So, in addition to repurchasing shares, we have made a $310 million voluntary contribution to strengthen the pension plan for our employees and retirees and we expect to make a voluntary contribution of $45 million to the Aetna Foundation in the fourth quarter.(3) "As a result of our strong third-quarter performance and our solid outlook for the balance of 2004, we are increasing our full-year operating earnings guidance to $7.00 per share from our prior range of $6.75 to $6.85 per share,"(3) Rowe said. "Our level of new business activity for 2005 is very promising," said Aetna President Ronald A. Williams. "We are projecting net medical membership growth of 700,000 to 800,000 for 2005, with approximately 450,000 additional members in the first quarter. These projections reflect a solid selling season primarily in the National Account market as well as the larger end of Middle Market accounts. We anticipate an increase in operating earnings per share for 2005 of 20 percent, to approximately $8.40, over the full-year 2004 guidance."(3) Health Care results Health Care, which provides a full range of insured and self-insured medical, dental, pharmacy and behavioral health products and services, reported: --Operating earnings of $268.1 million in the third quarter of 2004, compared with $179.3 million in the third quarter of 2003. Excluding favorable reserve development of approximately $14 million, after tax, in the third quarter of 2004 and $3 million, after tax, in the third quarter of 2003, operating earnings increased 44 percent to $254.1 million in the third quarter of 2004, from $176.3 million in the third quarter of 2003. This increase was due to higher revenue from increased premiums and fees and higher medical membership, combined with a decrease in general and administrative expenses. --Net income of $275.1 million in the third quarter of 2004, compared with $182.3 million in the third quarter of 2003. --A Commercial Risk Medical Cost Ratio (MCR) of 79.2 percent in the third quarter of 2004, compared with 78.2 percent in the third quarter of 2003, excluding favorable reserve development for the third quarter of 2004. Including development, the Commercial Risk MCR was 78.6 percent in the third quarter of 2004. There was no significant Commercial Risk reserve development in the third quarter of 2003. --A Medicare MCR of 87.0 percent in the third quarter of 2004, compared with 88.0 percent in the third quarter of 2003, excluding favorable reserve development in both periods. Including development, the Medicare MCR was 86.2 percent in the third quarter of 2004, compared with 85.8 percent in the third quarter of 2003. --Total medical membership of 13.570 million at September 30, 2004, compared with 13.439 million at June 30, 2004, an increase of 131,000 members. Third quarter dental membership increased sequentially by 208,000 to 11.636 million and pharmacy membership increased by 175,000 to 8.323 million from June 30, 2004. --Total revenues in the third quarter of 2004 increased 14 percent to $4.4 billion from $3.8 billion in the third quarter of 2003. Group Insurance results Group Insurance, which includes group life, disability and long-term care products, reported: --Operating earnings of $30.5 million in the third quarter of 2004, compared with $33.4 million in the third quarter of 2003, reflecting a higher overall benefit cost ratio. --Net income of $34.1 million in the third quarter of 2004, compared with $38.8 million in the third quarter of 2003. --Total Group membership of 13.287 million at September 30, 2004, compared with 12.594 million at June 30, 2004, an increase of 693,000 members. --Total revenues in the third quarter of 2004 of $492.2 million, compared with $448.0 million in the third quarter of 2003. Large Case Pensions results Large Case Pensions, which manages a variety of discontinued and other retirement and savings products primarily for defined benefit and defined contribution plan customers, reported: --Operating earnings of $7.7 million in the third quarter of 2004, compared with $11.0 million in the third quarter of 2003. Results were lower primarily due to lower investment income on invested assets, consistent with the expected decline in general account liabilities and a lower level of partnership income. --Net income of $9.9 million in the third quarter of 2004, compared with $11.4 million in the third quarter of 2003. Total Company results --Total Revenues. Revenues were $5.0 billion in the third quarter of 2004, an increase of 13 percent from $4.5 billion in the third quarter of 2003. The growth in revenue reflects premium and fee rate increases and a higher level of membership, which resulted in an increase of 14.5 percent in premiums and 8.7 percent in fees. --Total Operating Expenses. Total operating expenses, which include selling and general and administrative expenses, were $989.7 million in the third quarter of 2004, compared with $985.7 million in the third quarter of 2003. General and administrative expenses declined by $37.6 million due to ongoing expense initiatives. Selling expenses associated with new membership increased by $41.6 million. --Corporate Interest expense was $16.8 million, after tax, in the third quarter of 2004, compared with $16.6 million in the third quarter of 2003. --Income from continuing operations. Aetna reported income from continuing operations of $302.3 million in the third quarter of 2004, compared with $215.9 million in the third quarter of 2003. --Net income. Aetna reported net income of $1.292 billion in the third quarter of 2004, compared with $215.9 million in the third quarter of 2003, reflecting the previously announced $740 million tax refund and favorable tax reserve adjustments of $250 million(2) related to discontinued operations. --Pretax operating margin(4), excluding development, improved to 9.3 percent in the third quarter of 2004 from 8.0 percent in the third quarter of 2003. The after-tax operating margin, which represents income from continuing operations divided by total revenue, was 6.0 percent in the third quarter of 2004, compared with 4.8 percent in the third quarter of 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 Investor Information link at www.aetna.com. Financial, statistical and other information related to the conference call, including additional GAAP reconciliations, will be available on Aetna's Investor Information site. The conference call also can be accessed by dialing 888-202-2422, or 913-981-5592 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 821374. Telephone replays will be available from 11:30 a.m. ET on October 28 until midnight ET on November 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 13.6 million medical members, 11.6 million dental members, 8.3 million pharmacy members and 13.3 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 health care through a nationwide network of more than 646,000 health care professionals, including over 385,000 primary care and specialist doctors and 3,908 hospitals. For more information, please visit www.aetna.com. (Figures as of September 30, 2004) (1) Operating earnings exclude net realized capital gains from income from continuing operations. Although excluded items may recur, management believes that operating earnings and operating earnings per share provide a useful comparison of its underlying business performance from period to period. Management uses operating earnings to assess business performance and to make decisions regarding its operations and allocation of resources among its businesses. Operating earnings is also the measure reported to the Chief Executive Officer for these purposes. Realized capital gains 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. Operating earnings for the nine months ended September 30, 2003 also exclude an other item related to the settlement of a physician class action lawsuit of approximately $75 million, after tax ($115.4 million pretax). Management believes this settlement was not in the ordinary course of business and its impact does not reflect underlying 2003 business performance. The Company also displays certain metrics (e.g., medical cost ratios, operating earnings, operating earnings per share and pretax operating margins) excluding changes to prior-period health care cost estimates. 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. 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 changes to prior-period health care cost estimates 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 (GAAP), refer to the tables on pages 9 to 13 of this release. (2) On July 8, 2004, the Company was notified that the Congressional Joint Committee on Taxation approved a tax refund of approximately $740 million after tax, including interest, relating to businesses that were sold in the 1990s by the Company's predecessor. The Company received approximately $666 million of the tax refund during the third quarter of 2004 and expects to receive the remaining refund in 2004 and 2005. The refund was recorded as income from discontinued operations. This approval also finalized the Internal Revenue Service's audit of the Company's tax returns for the years 1991 through 2001. As a result of the resolution of these audits, the Company also recorded favorable adjustments of $250 million to existing tax liabilities as income from discontinued operations. (3) Projected operating earnings per share for full-year 2004 exclude $33.5 million of net realized capital gains for the nine months ended September 30, 2004 and projected operating earnings per share for full-year 2004 and 2005 also exclude any future net realized capital gains or losses. The Company is not able to project the amount of future net realized capital gains or losses and cannot therefore reconcile projected full-year 2004 and 2005 operating earnings to projected income from continuing operations or to a projected change in income from continuing operations. The projected operating earnings per share for full-year 2004 also exclude approximately $27 million, after tax, of favorable development of prior-period health care cost estimates for the first quarter of 2004, approximately $18 million, after tax, of favorable development of prior-period health care cost estimates and approximately $7 million, after tax, of unfavorable prior-period mortality development for the second quarter of 2004, and approximately $14 million, after tax, of favorable development of prior-period health care cost estimates for the third quarter of 2004. The Company believes excluding these reserve developments better reflects the underlying current-period health care costs and current and future benefits. Projected operating earnings per share for full-year 2004 also excludes a pre-funding of the Aetna Foundation of approximately $45 million pretax ($29 million after tax), or $0.19, after tax, per share, that the Company expects to make in the fourth quarter of 2004. This represents a voluntary contribution that is over and above the Company's normal level of contributions for 2004. Projected operating earnings per share for full-year 2004 assume approximately 157 million weighted average diluted shares. (4) 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, income taxes and amortization of other acquired intangible 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. Operating earnings used in the pretax margin calculation also exclude the items noted in footnote 1. For 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 projections as to earnings and membership. 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. Those risk factors include, but are not limited to: unanticipated increases in medical costs (including increased medical utilization, 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 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 or otherwise; the ability to reduce administrative expenses while maintaining targeted levels of service and operating performance, and to improve relations with providers while taking actions to reduce medical costs; the ability to successfully implement Aetna's new operating model to a projected growing membership base; lower levels of investment income from continued low interest rates; adverse government regulation (including legislative proposals eliminating or reducing ERISA pre-emption of state laws that would increase potential litigation exposure, and other proposals, such as patients' rights legislation, that would increase potential litigation exposure or mandate 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 needs; and the outcome of various litigation and regulatory matters, including litigation and ongoing reviews of business practices by various regulatory authorities (including the current industry wide investigation into insurance brokerage practices concerning broker compensation arrangements, bid quoting practices and potential antitrust violations being conducted by the New York Attorney General and the Connecticut Attorney General, and for which the Company has received and may receive subpoenas, and related litigation). For more discussion of important risk factors that may materially affect Aetna, please see the risk factors contained in Aetna's 2003 Annual Report on Form 10-K, on file with the Securities and Exchange Commission. You also should read Aetna's 2003 Annual Report on Form 10-K and Aetna's 2004 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
($ in Millions)
Three Months Ended Nine Months Ended
------------------- --------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2004 2003 2004 2003
--------- --------- ---------- ---------
Revenue:
Health care premiums $3,786.6 $3,301.7 $10,992.4 $9,846.8
Other premiums 463.5 411.4 1,340.6 1,253.4
Administrative services
contract fees 507.1 466.3 1,536.5 1,413.0
Net investment income 253.9 268.1 785.6 817.4
Other income 8.8 8.1 29.2 21.2
Net realized capital gains 19.6 13.5 51.5 49.8
--------- --------- ---------- ---------
Total revenue 5,039.5 4,469.1 14,735.8 13,401.6
Benefits and expenses:
Health care costs (a) 2,994.3 2,598.0 8,611.2 7,519.3
Current and future benefits 548.6 512.3 1,630.6 1,565.8
Operating expenses:
Selling expenses 178.0 136.4 511.1 423.6
General and administrative
expenses (b) 811.7 849.3 2,441.6 2,707.6
--------- --------- ---------- ---------
Total operating
expenses 989.7 985.7 2,952.7 3,131.2
Interest expense 25.9 25.6 76.6 77.0
Amortization of other
acquired intangible assets 9.3 12.7 34.7 38.1
--------- --------- ---------- ---------
Total benefits and
expenses 4,567.8 4,134.3 13,305.8 12,331.4
--------- --------- ---------- ---------
Income from continuing
operations before income
taxes 471.7 334.8 1,430.0 1,070.2
Income taxes 169.4 118.9 515.6 385.9
--------- --------- ---------- ---------
Income from continuing
operations 302.3 215.9 914.4 684.3
Income from discontinued
operations, net of tax (c) 990.0 - 1,030.0 -
--------- --------- ---------- ---------
Net income $1,292.3 $215.9 $1,944.4 $684.3
========= ========= ========== =========
Shareholders' equity $9,084.6 $7,692.0
========== =========
(a) The three months ended September 30, 2004 and September 30, 2003
include favorable development of prior-period health care cost
estimates of approximately $22 million pretax (approximately $14
million after tax) and approximately $5 million pretax
(approximately $3 million after tax), respectively, in the Health
Care segment.
(b) The nine months ended September 30, 2003 include $115.4 million
pretax for the physician class action settlement.
(c) Income from discontinued operations for the three and nine months
ended September 30, 2004 includes approximately $740 million after
tax, including interest, related to the Congressional Joint
Committee on Taxation's approval of a tax refund and $250 million
related to the completion of certain Internal Revenue Service
audits associated with businesses that were sold in the 1990s by
the Company's predecessor (former Aetna). Income from discontinued
operations for the nine months ended September 30, 2004 also
includes $40 million related to the completion of certain Internal
Revenue Service audits associated with former Aetna.
Summary of Results
($ in Millions)
Three Months Ended Nine Months Ended
------------------------- -------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2004 2003 2004 2003
------------ ------------ ------------ ------------
Operating earnings,
excluding other
item and favorable
development $275.5 $204.1
Favorable
development
of prior-
period health
care cost
estimates 14.0 3.0
------------ ------------
Operating
earnings,
excluding other
item 289.5 207.1 $880.9 $726.9
Physician
class action
settlement - - - (75.0)
------------ ------------ ------------ ------------
Operating
earnings,
including other
item 289.5 207.1 880.9 651.9
Net realized
capital gains 12.8 8.8 33.5 32.4
------------ ------------ ------------ ------------
Income from
continuing
operations
(GAAP measure) 302.3 215.9 914.4 684.3
Income from
discontinued
operations(a) 990.0 - 1,030.0 -
------------ ------------ ------------ ------------
Net income
(GAAP measure) $1,292.3 $215.9 $1,944.4 $684.3
============ ============ ============ ============
Weighted average
common shares -
basic 151,150,515 153,458,074 152,738,969 152,544,189
============ ============ ============ ============
Weighted average
common shares -
diluted 157,420,897 160,342,416 158,535,200 158,033,631
============ ============ ============ ============
Summary of Results Per Common Share
Operating
earnings,
excluding other
item and
favorable
development $1.75 $1.27
Favorable
development
of prior-
period health
care cost
estimates .09 .02
------------ ------------
Operating
earnings,
excluding other
item 1.84 1.29 $5.56 $4.60
Physician
class action
settlement - - - (.47)
------------ ------------ ------------ ------------
Operating
earnings,
including other
item 1.84 1.29 5.56 4.13
Net realized
capital gains .08 .06 .21 .20
------------ ------------ ------------ ------------
Income from
continuing
operations
(GAAP measure) 1.92 1.35 5.77 4.33
Income from
discontinued
operations
(a) 6.29 - 6.50 -
------------ ------------ ------------ ------------
Net income
(GAAP measure) $8.21 $1.35 $12.27 $4.33
============ ============ ============ ============
Shareholders'
equity (b) $61.53 $50.40
============ ============
(a) Income from discontinued operations for the three and nine months
ended September 30, 2004 includes approximately $740 million after
tax, including interest, related to the Congressional Joint
Committee on Taxation's approval of a tax refund and $250 million
related to the completion of certain Internal Revenue Service
audits associated with businesses that were sold in the 1990s by
the Company's predecessor (former Aetna). Income from discontinued
operations for the nine months ended September 30, 2004 also
includes $40 million related to the completion of certain Internal
Revenue Service audits associated with former Aetna.
(b) Actual common shares outstanding were 147.7 million at September
30, 2004 and 152.6 million at September 30, 2003.
Segment Information (a)
($ in Millions)
Three Months Ended Nine Months Ended
------------------- ---------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2004 2003 2004 2003
--------- --------- ---------- ----------
Health Care:
Total revenue $4,367.2 $3,828.1 $12,740.1 $11,450.9
========= ========= ========== ==========
Selling expenses $161.0 $123.9 $463.6 $382.7
General and administrative
expenses 767.3 804.9 2,311.8 2,458.8
--------- --------- ---------- ----------
Operating expenses, excluding
physician class action
settlement 928.3 928.8 2,775.4 2,841.5
Physician class action
settlement - - - 115.4
--------- --------- ---------- ----------
Total operating expenses
(GAAP measure) $928.3 $928.8 $2,775.4 $2,956.9
========= ========= ========== ==========
Operating earnings, excluding
other item and favorable
development $254.1 $176.3
Favorable development of
prior-period health care
cost estimates 14.0 3.0
--------- ---------
Operating earnings, excluding
other item 268.1 179.3 $820.5 $648.3
Physician class action
settlement - - - (75.0)
--------- --------- ---------- ----------
Operating earnings, including
other item 268.1 179.3 820.5 573.3
Net realized capital
gains 7.0 3.0 12.7 16.9
--------- --------- ---------- ----------
Net income (GAAP measure) $275.1 $182.3 $833.2 $590.2
========= ========= ========== ==========
Group Insurance:
Total revenue $492.2 $448.0 $1,440.8 $1,364.9
========= ========= ========== ==========
Selling expenses $17.0 $12.5 $47.5 $40.9
General and administrative
expenses 39.3 40.1 114.7 119.4
--------- --------- ---------- ----------
Total operating expenses $56.3 $52.6 $162.2 $160.3
========= ========= ========== ==========
Operating earnings $30.5 $33.4 $88.5 $101.4
Net realized capital
gains 3.6 5.4 13.8 9.0
--------- --------- ---------- ----------
Net income (GAAP measure) $34.1 $38.8 $102.3 $110.4
========= ========= ========== ==========
Large Case Pensions:
Total revenue $180.1 $193.0 $554.9 $585.8
========= ========= ========== ==========
Operating earnings $7.7 $11.0 $21.7 $27.2
Net realized capital
gains 2.2 .4 7.0 6.5
--------- --------- ---------- ----------
Net income (GAAP measure) $9.9 $11.4 $28.7 $33.7
========= ========= ========== ==========
Corporate Interest:
Interest expense, net of tax $16.8 $16.6 $49.8 $50.0
========= ========= ========== ==========
Total Company:
Total revenue $5,039.5 $4,469.1 $14,735.8 $13,401.6
========= ========= ========== ==========
Selling expenses $178.0 $136.4 $511.1 $423.6
General and administrative
expenses 811.7 849.3 2,441.6 2,592.2
--------- --------- ---------- ----------
Operating expenses, excluding
physician class action
settlement 989.7 985.7 2,952.7 3,015.8
Physician class action
settlement - - - 115.4
--------- --------- ---------- ----------
Total operating expenses
(GAAP measure) $989.7 $985.7 $2,952.7 $3,131.2
========= ========= ========== ==========
(a) Revenue and operating expense information is presented before
income taxes. Operating earnings information is presented net of
income taxes.
Enrollment
(Members in Thousands)
Sept. 30, Sept. 30, Dec. 31, June 30,
2004 2003 2003 2004
--------- ---------- --------- ---------
Medical Membership:
Commercial 13,358 12,779 12,783 13,229
Medicare 99 107 105 100
Medicaid 113 116 114 110
--------- ---------- --------- ---------
Total Medical
Membership 13,570 13,002 13,002 13,439
========= ========== ========= =========
Dental Membership 11,636 10,985 10,942 11,428
========= ========== ========= =========
Pharmacy Membership (a) 8,323 7,313 7,521 8,148
========= ========== ========= =========
Group Insurance Membership 13,287 12,053 12,288 12,594
========= ========== ========= =========
Aetna HealthFund(R) (b) 212 43 44 197
========= ========== ========= =========
Operating Margins
($ in Millions)
Three Months Ended Nine Months Ended
------------------- ---------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2004 2003 2004 2003
--------- --------- ---------- ----------
Reconciliation to Income
from continuing operations
before income taxes:
Operating earnings before
income taxes, excluding
interest expense,
amortization of other
acquired intangible assets,
other item and favorable
development (A) $465.3 $354.6
Favorable development of
prior-period health
care cost estimates 22.0 5.0
--------- ---------
Operating earnings before
income taxes, excluding
interest expense,
amortization of other
acquired intangible assets
and other item (B) 487.3 359.6 $1,489.8 $1,250.9
Interest expense (25.9) (25.6) (76.6) (77.0)
Amortization of other
acquired intangible
assets (9.3) (12.7) (34.7) (38.1)
Physician class action
settlement (other item) - - - (115.4)
Net realized capital
gains 19.6 13.5 51.5 49.8
--------- --------- ---------- ----------
Income from continuing
operations before income
taxes (C)(GAAP measure) $471.7 $334.8 $1,430.0 $1,070.2
========= ========= ========== ==========
Reconciliation to Income
from continuing operations:
Operating earnings, excluding
interest expense,
amortization of other
acquired intangible assets,
other item and favorable
development (D) $298.4 $228.9
Favorable development of
prior-period health
care cost estimates,
net of tax 14.0 3.0
--------- ---------
Operating earnings, excluding
interest expense,
amortization of other
acquired intangible assets
and other item (E) 312.4 231.9 $953.3 $801.6
Interest expense, net of
tax (16.8) (16.6) (49.8) (50.0)
Amortization of other
acquired intangible
assets, net of tax (6.1) (8.2) (22.6) (24.7)
Physician class action
settlement, net of tax
(other item) - - - (75.0)
Net realized capital
gains, net of tax 12.8 8.8 33.5 32.4
--------- --------- ---------- ----------
Income from continuing
operations (F)(GAAP
measure) $302.3 $215.9 $914.4 $684.3
========= ========= ========== ==========
Reconciliation of Revenue:
Revenue, excluding net
realized capital gains (G) $5,019.9 $4,455.6 $14,684.3 $13,351.8
Net realized capital
gains 19.6 13.5 51.5 49.8
--------- --------- ---------- ----------
Total revenue (H)(GAAP
measure) $5,039.5 $4,469.1 $14,735.8 $13,401.6
========= ========= ========== ==========
Total Company Operating
Margins:
Pretax operating margin
(B)/(G) 9.7% 8.1% 10.1% 9.4%
Pretax operating margin -
Adjusted (A)/(G) 9.3% 8.0%
Pretax operating margin
(C)/(H)(GAAP measure) 9.4% 7.5% 9.7% 8.0%
After-tax operating margin
(E)/(G) 6.2% 5.2% 6.5% 6.0%
After-tax operating margin -
Adjusted (D)/(G) 5.9% 5.1%
After-tax operating margin
(F)/(H)(GAAP measure) 6.0% 4.8% 6.2% 5.1%
(a) Pharmacy membership includes 7,896; 7,125; 7,244 and 7,743
thousand members receiving pharmacy benefit management services
and 427; 188; 277 and 405 thousand members who purchased
medications through Aetna's mail order pharmacy during the
quarterly period at September 30, 2004; September 30, 2003;
December 31, 2003 and June 30, 2004, respectively.
(b) Represents Aetna's consumer- directed membership included in
Commercial medical membership.
Health Care Medical Cost Ratios (a)
($ in Millions)
Three Months Ended Nine Months Ended
------------------- --------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2004 2003 2004 2003
--------- --------- ---------- ---------
Health Care Premiums:
Health Care Risk (A) $3,786.6 $3,301.7 $10,992.4 $9,846.8
Commercial Risk (B) $3,545.7 $3,078.5 $10,282.9 $9,168.3
Medicare (C) $240.9 $223.2 $709.5 $678.5
Health Care Costs:
Health Care Risk
-----------------------------
Health care costs (D)
(GAAP measure) $2,994.3 $2,598.0 $8,611.2 $7,519.3
Favorable development of
prior-period health care
cost estimates 22.0 5.0
--------- ---------
Health care costs - Adjusted
(E) $3,016.3 $2,603.0
========= =========
Commercial Risk
-----------------------------
Health care costs (F)
(GAAP measure) $2,786.6 $2,406.7 $8,005.0 $6,943.5
Favorable development of
prior-period health care
cost estimates 20.0 -
--------- ---------
Health care costs - Adjusted
(G) $2,806.6 $2,406.7
========= =========
Medicare
-----------------------------
Health care costs (H)
(GAAP measure) $207.7 $191.4 $606.1 $576.2
Favorable development of
prior-period health care
cost estimates 2.0 5.0
--------- ---------
Health care costs - Adjusted
(I) $209.7 $196.4
========= =========
Health Care Medical Cost
Ratios:
Health Care Risk (D)/(A)(GAAP
measure) 79.1% 78.7% 78.3% 76.4%
Health Care Risk - Adjusted
(E)/(A) 79.7% 78.8%
Commercial Risk (F)/(B)(GAAP
measure) 78.6% 78.2% 77.8% 75.7%
Commercial Risk - Adjusted
(G)/(B) 79.2%
Medicare (H)/(C)(GAAP measure) 86.2% 85.8% 85.4% 84.9%
Medicare - Adjusted (I)/(C) 87.0% 88.0%
(a) 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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