Aetna Reports Third Quarter 2005 Results.HARTFORD Hartford, city (1990 pop. 139,739), state capital, Hartford co., central Conn., on the west bank of the Connecticut River; settled as Newtown 1635–36 on the site of a Dutch trading post (1633; abandoned 1654), inc. 1784. , Conn. -- Aetna Aetna, volcano: see Etna, Italy. (NYSE NYSE See: New York Stock Exchange : AET AET Aetna, Inc. AET After Extra Time AET Actual Evapotranspiration AET Alliance for Environmental Technology AET Alpha-Ethyltryptamine AET Applied Extrusion Technologies, Inc. ) --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 $1.24 per share; $1.19 per share excluding reserve development, a 35 percent increase over the prior-year quarter and $.02 above Thomson/First Call mean of $1.17 --Net income of $1.26 per share, a 31 percent increase over the prior-year quarter after excluding third-quarter 2004 tax-related benefits --Fourth quarter 2005 earnings per share projected to be $1.23; full-year 2005 earnings per share now projected to advance to $4.60 from prior range of $4.52 to $4.57 --Full-year 2006 earnings per share expected to increase nearly 20 percent over 2005 to approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $5.45 to $5.50 Aetna (NYSE: AET) today announced third-quarter operating earnings of $1.24 per share. Operating earnings, excluding prior-period favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. reserve development, were $1.19 per share, an increase of 35 percent compared to the prior-year quarter. Favorable reserve development was $15 million after tax, or $.05 per share. The increase in operating earnings reflects a 13.4 percent increase in revenue from strong membership growth, as well as strong underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. results and continued general and administrative expense efficiencies. Operating earnings exclude net realized capital gains.(1) Net income for the quarter increased by 31 percent to $1.26 per share, compared to $0.96 per share in the prior-year quarter after excluding third-quarter 2004 tax-related benefits. Third-quarter 2004 net income was $4.10 per share.
Quarterly Financial Results at a Glance
---------------------------------------
Three Months Ended
------------------
Sept. 30, 2005 Sept. 30, 2004 Change
--------------------- --------------- ------
Total revenues $5.7 billion $5.0 billion 13%
===================== ===============
Operating earnings(a) $372.3 million $289.5 million 29%
===================== ===============
Income from continuing $377.8 million $302.3 million
operations 25%
===================== ===============
Net income $377.8 million $1.292 billion
===================== ===============
Per share results:
Operating earnings(a) $1.24 $.92 35%
Favorable development
of prior-period
health care cost
estimates (.05) (.04)
--------------------- ---------------
Operating earnings,
excluding
development(a) $1.19 $.88 35%
===================== ===============
Income from
continuing
operations $1.26 $.96 31%
Income from
discontinued
operations(b) ----- 3.14
--------------------- ---------------
Net income $1.26 $4.10
===================== ===============
(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 4 at the end of the press release.
"Our exceptional year-over-year earnings growth of 35 percent can be attributed largely to two factors," 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. . "First, we have added nearly 1 million medical members since January January: see month. . Secondly, our continued diligence Vigilant activity; attentiveness; or care, of which there are infinite shades, from the slightest momentary thought to the most vigilant anxiety. Attentive and persistent in doing a thing; steadily applied; active; sedulous; laborious; unremitting; untiring. around medical cost management has allowed us to have among the lowest medical cost ratios in the industry. "It is clear that the value proposition we offer is being widely accepted and appreciated by customers and that our strategy is working as we continue to deliver strong, consistent growth for our shareholders. We believe this is a winning combination that validates our strategy and will allow Aetna to extend its success in the future. "As such, we now expect our fourth-quarter 2005 earnings per share to be approximately $1.23, and our full-year 2005 earnings to be approximately $4.60 per share," Rowe said. "Looking ahead, we believe that 2006 will be yet another year of strong growth and increasing profitability. We project an increase in operating earnings per share of nearly 20 percent to approximately $5.45 to $5.50."(2) "In the third quarter of 2005, Aetna continued its industry leadership in providing innovative solutions," said Ronald A. Williams, president. "We extended our performance-based Aexcel network of specialists to 20 markets. We became the first health plan to enable consumers to find out the actual rates paid to doctors in advance of office visits, an effort to support consumers in making well-informed well-informed Adjective knowing a lot about a great variety of subjects or about one particular subject Adj. 1. well-informed - possessing sound knowledge; "well-informed readers" intelligent health care decisions. In addition, our recently announced agreement with MedVantx, allowing Philadelphia-area doctors to dispense dispense /dis·pense/ (-pens´) to prepare medicines for and distribute them to their users. dis·pense v. To prepare and give out medicines. certain generic Generic Describes the characteristics and/or experience of the total universe of a coupon of MBS sector type; that is, in contrast to a specific pool or collateral group, as in a specific CMO issue. medications through an ATM-like Sample Center,(TM) has attracted substantial attention. "Late yesterday, we also made an important announcement regarding Aetna Specialty A contract under seal. A specialty is a written document that has been sealed and delivered and is given as security for the payment of a specifically indicated debt. 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. , communicating that we intend to exercise our option to purchase the remaining portion of the joint venture." Williams said. "Fully functioning and performing at a high level, Aetna Specialty Pharmacy is significantly expanding our strategic capabilities and, coupled with other actions we are taking, such as launching a full-service full-ser·vice adj. Associated with or offering complete service: full-service gasoline pumps; full-service banks. 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 business at the end of this year, will better position us to provide integrated solutions for our customers," Williams said. Health Care results Health Care, which provides a full range of insured The person who obtains or is otherwise covered by insurance on his or her health, life, or property. The insured in a policy is not limited to the insured named in the policy but applies to anyone who is insured under the policy. insured n. and self-insured self-insured Self fund Health insurance adjective Referring to the practice of carrying an individual health insurance policy for oneself; self insurance is usually more expensive than group insurance medical, dental dental /den·tal/ (den´t'l) pertaining to a tooth or teeth. den·tal adj. 1. Of, relating to, or for the teeth. 2. Of, relating to, or intended for dentistry. , pharmacy and behavioral health products and services, reported: --Operating earnings of $351.3 million in the third quarter of 2005, compared with $268.1 million in the third quarter of 2004. Excluding favorable development of $15 million, after tax, in the third quarter of 2005 and $14 million, after tax, in the third quarter of 2004, operating earnings increased 32.3 percent to $336.3 million in the third quarter of 2005, from $254.1 million in the third quarter of 2004. This increase primarily reflects growth in revenues from higher membership levels, as well as strong underwriting results and continued general and administrative expense efficiencies. Net income of $352.5 million in the third quarter of 2005, compared with $275.1 million in the third quarter of 2004. --A Commercial Risk Medical Cost Ratio (MCR MCR My Chemical Romance (band) MCR Minimum Capital Requirement MCR Minimum Cell Rate MCR Middle Common Room (UK universities) MCR Multivariate Curve Resolution ) of 78.6 percent in the third quarter of 2005, level with 78.6 percent in the third quarter of 2004. Excluding favorable reserve development, the Commercial Risk MCR was 79.0 percent in the third quarter of 2005, compared to 79.2 percent in the third quarter of 2004. --A Medicare Medicare, national health insurance program in the United States for persons aged 65 and over and the disabled. It was established in 1965 with passage of the Social Security Amendments and is now run by the Centers for Medicare and Medicaid Services. MCR of 85.5 percent in the third quarter of 2005, compared with 86.2 percent in the third quarter of 2004. Excluding favorable reserve development, the Medicare MCR was 89.1 percent in the third quarter of 2005, compared with 87.0 percent in the third quarter of 2004. Medicare currently represents less than 1 percent of our medical membership. --Total medical membership of approximately 14.650 million at September September: see month. 30, 2005, an increase of 215,000 members over the 14.435 million reported at June June: see month. 30, 2005, bringing the total membership increase from December December: see month. 31, 2004 to 994,000. Third-quarter dental membership increased by 55,000 to 13.0 million and pharmacy membership increased by 220,000 to 9.3 million from June 30, 2005. --Total revenues in the third quarter of 2005 increased over 14 percent to $5.0 billion from $4.4 billion in the third quarter of 2004. Group Insurance results Group Insurance, which includes group life, disability and long-term care long-term care (LTC), n the provision of medical, social, and personal care services on a recurring or continuing basis to persons with chronic physical or mental disorders. products, reported: --Operating earnings of $32.5 million in the third quarter of 2005, an increase of 6.6 percent, compared with $30.5 million in the third quarter of 2004, reflecting higher net investment income and increased premiums from business in force, offset in part by a higher overall benefit cost ratio. --Net income of $35.8 million in the third quarter of 2005, compared with $34.1 million in the third quarter of 2004. --Total revenues of $529.8 million in the third quarter of 2005, compared with $492.2 million in the third quarter of 2004. --Membership of 13.675 million, an increase of 13,000 from June 30, 2005. Large Case Pensions results Large Case Pensions, which manages a variety of discontinued dis·con·tin·ue v. dis·con·tin·ued, dis·con·tin·u·ing, dis·con·tin·ues v.tr. 1. To stop doing or providing (something); end or abandon: and other retirement and savings products primarily for defined benefit and defined contribution plan Defined contribution plan A pension plan whose sponsor is responsible only for making specified contributions into the plan on behalf of qualifying participants. Related: Defined benefit plan customers, reported: --Operating earnings of $9.6 million in the third quarter of 2005, compared with $7.7 million in the third quarter of 2004. The increase in operating earnings over third quarter 2004 is due primarily to higher net investment income in continuing products. --Net income of $10.6 million in the third quarter of 2005, compared with $9.9 million in the third quarter of 2004. Total Company results --Total Revenues. Revenues were $5.7 billion in the third quarter of 2005, compared with $5.0 billion in the third quarter of 2004. The growth in revenue reflects premium and fee rate increases and higher levels of medical, dental and pharmacy membership. Premiums increased by 12.6 percent and fees increased by 15.0 percent. --Total Operating Expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. . Operating expenses were $1.092 billion for the third quarter of 2005, compared with $989.7 million for the third quarter of 2004, reflecting higher new membership and related selling expenses as well as acquisitions. Operating expenses as a percentage of revenue(3) improved to 19.2 percent in the third quarter of 2005 from 19.7 percent in the third quarter of 2004, reflecting continued expense efficiencies. Including net realized capital gains, these percentages were 19.1 percent in the third quarter of 2005 and 19.6 percent in the third quarter of 2004. --Corporate Interest expense was $21.1 million, after tax, in the third quarter of 2005, compared with $16.8 million, after tax, in the third quarter of 2004. Interest expense in the third quarter of 2005 increased due to the termination The point where a line, channel or circuit ends. See SCSI termination and hybrid. of interest rate swap Interest Rate Swap A deal between banks or companies where borrowers switch floating-rate loans for fixed rate loans in another country. These can be either the same or different currencies. agreements in the second quarter of 2005. --Income from continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the . Aetna reported income from continuing operations of $377.8 million in the third quarter of 2005, compared with $302.3 million in the third quarter of 2004. --Net Income. Aetna reported net income of $377.8 million in the third quarter of 2005, compared with $1.292 billion in the third quarter of 2004. Net income for the third quarter of 2004 reflects a $740 million tax refund Tax refund Money back from the government when too much tax has been paid or withheld from a salary. and favorable tax reserve adjustments of $250 million(4) related to discontinued operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. . --Operating margin, excluding reserve development, improved to 10.6 percent in the third quarter of 2005 from 9.3 percent in the third quarter of 2004, pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta .(5) 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 Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: , which represents income from continuing operations divided by total revenue, was 6.6 percent in the third quarter of 2005, compared with 6.0 percent in the third quarter of 2004. 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 877-502-9276, or 913-981-5591 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 2248890. Telephone replays will be available from 11:30 a.m. ET on Oct. 27 until midnight ET on Nov. 3. As one of the nation's leading providers of health care, dental, pharmacy, group life, disability and long-term care benefits, Aetna puts information and helpful resources to work for its approximately 14.65 million medical members, 13.03 million dental members, 9.34 million pharmacy members and 13.68 million group insurance members to help them make better informed decisions about their health care and protect their finances against health-related risks. Aetna provides easy access to cost-effective cost-effective, n the minimal expenditure of dollars, time, and other elements necessary to achieve the health care result deemed necessary and appropriate. health care through a nationwide network of more than 700,000 health care professionals, including over 418,000 primary care and specialist doctors and 4,231 hospitals. For more information, please visit. (Figures as of September 30, 2005) (1) Operating earnings exclude net realized capital gains and losses from income from continuing operations, as discussed below. Although the excluded items may recur, management believes that operating earnings and operating earnings per share provide a more useful comparison of its underlying business performance from period to period. Management uses operating earnings to assess business performance and to make decisions regarding its operations and allocation of resources allocation of resources Apportionment of productive assets among different uses. The issue of resource allocation arises as societies seek to balance limited resources (capital, labour, land) against the various and often unlimited wants of their members. among its businesses. Operating earnings is also the measure reported to the Chief Executive Officer for these purposes. The excluded item is discussed below: --Net realized capital gains and losses arise from various types of transactions primarily in the course of managing a portfolio of assets that support the payment of liabilities, but these transactions do not directly relate to the underwriting or servicing of products for customers and are not directly related to the core performance of the Company's business operations Business operations are those activities involved in the running of a business for the purpose of producing value for the stakeholders. Compare business processes. The outcome of business operations is the harvesting of value from assets . The Company also displays certain metrics metrics Managed care A popular term for standards by which the quality of a product, service, or outcome of a particular form of Pt management is evaluated. See TQM. (e.g., medical cost ratios, operating earnings, operating earnings per share and pretax pre·tax adj. Existing before tax deductions: pretax income. pretax adj [profit] → vor (Abzug der) Steuern operating margins) excluding reserve development. Each quarter, the Company re-examines previously established health care cost payable estimates based on actual claim submissions and other changes in facts and circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or . Decreases (increases) in prior periods' estimates represent the effect of favorable (unfavorable) development of prior-period health care cost estimates on current period results of operations, at each financial statement date. The Company believes excluding reserve development better reflects the underlying current-period health care costs. For a reconciliation of these items to financial measures calculated under accounting principles generally accepted in the United States of America UNITED STATES OF AMERICA. The name of this country. The United States, now thirty-one in number, are Alabama, Arkansas, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Missouri, New Hampshire, (GAAP), refer to the tables on pages 9 to 13 of this release. (2) Projected operating earnings per share for full-year 2005 exclude $12.1 million of net realized capital gains for the nine months ended September 30, 2005 and projected operating earnings per share for fourth quarter 2005 and full-year 2005 and 2006 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. . The Company is not able to project the amount of future net realized capital gains or losses and cannot therefore reconcile projected fourth-quarter 2005 and full-year 2005 and 2006 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 2005 also exclude approximately $84 million, after tax, of favorable development of prior-period health care cost estimates for the first quarter of 2005, approximately $35 million, after tax, of favorable development of prior-period health care cost estimates for the second quarter of 2005, and approximately $15 million, after tax, of favorable development of prior-period health care cost estimates for the third quarter of 2005. The Company believes excluding these reserve developments better reflects the underlying current-period health care costs. Projected operating earnings per share for full-year 2005 also excludes the $43.4 million, after tax, reduction of reserves for anticipated future losses on discontinued products, included as an other item by the Company for second quarter of 2005. This 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 per share for the full-year 2006 also exclude the effect of expensing stock options which will become effective for the Company in the first quarter of 2006, to provide comparability to 2005. Projected operating earnings per share for fourth-quarter 2005 and full-year 2005 and 2006 assume approximately 298 million, 301 million and 298 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, respectively. (3) Operating expenses as a percentage of revenue excludes net realized capital gains and losses from total revenue. Net realized capital gains and losses do not directly relate to the underwriting or servicing of products for customers and are not directly related to the core performance of the Company's business operations. For a reconciliation to operating expense Operating Expense The essential things that a company must purchase in order to maintain business. Notes: For example, the payment of employees wages are an operating expense. Also known as OPEX. as a percentage of revenue calculated under GAAP, refer to the tables on page 13 at the end of this press release. (4) On July July: see month. 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 relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc businesses that were sold in the 1990s by the Company's predecessor predecessor - parent . The Company received approximately $666 million of the tax refund during the third quarter of 2004 and expects to receive the remaining refund TO REFUND. To pay back by the party who has received it, to the party who has paid it, money which ought not to have been paid. 2. On a deficiency of assets, executors and administrators cum testamento annexo, are entitled to have refunded to them legacies in 2005. The refund was recorded as income from discontinued operations. This approval also finalized See finalization. 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. (5) In order to provide useful information regarding profitability of the Company on a basis comparable to others in the industry, without regard to financing decisions Financing decisions Decisions concerning the liabilities and stockholders' equity side of the firm's balance sheet, such as a decision to issue bonds. , income taxes and amortization of other acquired intangible assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. (each of which may vary for reasons not directly related to performance of the underlying business), the Company's pretax operating margin excludes interest expense, income taxes and amortization of other acquired intangible assets. Management also uses pretax operating margin to assess its performance, including performance versus competitors COMPETITORS, French law. Persons who compete or aspire to the same office, rank or employment. As an English word in common use, it has a much wider application. Ferriere, Dict. de Dr. h.t. . Operating earnings used in the pretax margin calculation also exclude the items noted in footnote Text that appears at the bottom of a page that adds explanation. It is often used to give credit to the source of information. When accumulated and printed at the end of a document, they are called "endnotes." 1. For a reconciliation to operating margin calculated under GAAP, refer to the tables on page 13 of this release. ADDITIONAL INFORMATION; CAUTIONARY STATEMENT -- Certain information in this press release is forward looking, including our projections as to earnings. Forward-looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. information is based on management's estimates, assumptions and projections, and is subject to significant uncertainties and other factors, many of which are beyond Aetna's control. Important risk factors could cause actual future results and other future events to differ materially from those currently estimated by management. Those risk factors include, but are not limited to: unanticipated increases in medical costs (including increased medical utilization utilization, n 1. the extent to which a given group uses a particular service in a specified period. Although usually expressed as the number of services used per year per 100 or per 1000 persons eligible for the service, utilization rates may be , increased pharmacy costs, increases resulting from unfavorable changes in contracting or re-contracting with providers, changes in membership mix to lower-premium or higher-cost products or membership-adverse selection; as well as changes in medical cost estimates due to the necessary extensive judgment that is used in the medical cost estimation estimation In mathematics, use of a function or formula to derive a solution or make a prediction. Unlike approximation, it has precise connotations. In statistics, for example, it connotes the careful selection and testing of a function called an estimator. process, the considerable variability inherent in such estimates, and the sensitivity of such estimates to changes in medical claims payment patterns and changes in medical cost trends); decreases in membership or failure to achieve desired membership growth due to significant competition, reputational issues or other factors; increases in medical costs or Group Insurance claims resulting from any acts of terrorism terrorism, the threat or use of violence, often against the civilian population, to achieve political or social ends, to intimidate opponents, or to publicize grievances. , epidemics This article is a list of major epidemics. Worldwide Pandemics
adj. 1. Happening, existing, or done at the same time. See Synonyms at contemporary. 2. Mathematics ; lower levels of investment income from continued low interest rates; adverse government regulation (including legislative proposals eliminating or reducing ERISA See Employee Retirement Income Security Act. ERISA See Employee Retirement Income Security Act (ERISA). pre-emption PRE-EMPTION, intern. law. The right of preemption is the right of a nation to detain the merchandise of strangers passing through her territories or seas, in order to afford to her subjects the preference of purchase. 1 Chit. Com. Law, 103; 1 Bl. Com. 287. 2. of state laws that would increase potential litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. exposure, and other proposals, such as patients' rights The legal interests of persons who submit to medical treatment. For many years, common medical practice meant that physicians made decisions for their patients. This paternalistic view has gradually been supplanted by one promoting patient autonomy, whereby patients and legislation, that would increase potential litigation exposure or mandate A judicial command, order, or precept, written or oral, from a court; a direction that a court has the authority to give and an individual is bound to obey. A mandate might be issued upon the decision of an appeal, which directs that a particular action be taken, or upon a coverage of certain health benefits); adverse pricing actions by government payors; changes in size, product mix and medical cost experience of membership in key markets; our ability to integrate, simplify, and enhance our existing information technology system and platform to keep pace with changing customer and regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. needs; and the outcome of various litigation and regulatory matters, including litigation and ongoing reviews of business practices by various regulatory authorities Noun 1. regulatory authority - a governmental agency that regulates businesses in the public interest regulatory agency administrative body, administrative unit - a unit with administrative responsibilities (including the current industry wide investigation into insurance brokerage BROKERAGE, contracts. The trade or occupation of a broker; the commissions paid to a broker for his services. practices concerning broker compensation arrangements, bid quoting practices and potential antitrust Antitrust The antitrust laws apply to virtually all industries and to every level of business, including manufacturing, transportation, distribution, and marketing. They prohibit a variety of practices that restrain trade. violations being conducted by the New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of Attorney General, the Connecticut Connecticut, state, United States Connecticut (kənĕt`ĭkət), southernmost of the New England states of the NE United States. It is bordered by Massachusetts (N), Rhode Island (E), Long Island Sound (S), and New York (W). Attorney General, and others, and for which the Company has received and may receive subpoenas, and may be subject to related litigation). For more discussion of important risk factors that may materially affect Aetna, please see the risk factors contained in Aetna's 2004 Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. , on file with the Securities and Exchange Commission. You also should read Aetna's 2004 Annual Report on Form 10-K and Aetna's 2005 third quarter report on Form 10-Q Form 10-Q See 10-Q. when filed with the Securities and Exchange Commission for a discussion of Aetna's historical results of operations and financial condition. In addition, Aetna's intended exercise of its option to purchase the remaining interest in Aetna Specialty Pharmacy is subject to federal antitrust regulatory approval.
Consolidated Statements of Income
($ in Millions)
Three Months Ended Nine Months Ended
------------------- ---------------------
September September September September
30, 30, 30, 30,
2005 2004 2005 2004
-------- -------- --------- ---------
Revenue:
Health care premiums $4,291.3 $3,786.6 $12,490.5 $10,992.4
Other premiums 494.2 463.5 1,494.4 1,340.6
Administrative services
contract fees 583.1 507.1 1,724.4 1,536.5
Net investment income 279.9 253.9 827.7 785.6
Other revenue 43.7 8.8 68.9 29.2
Net realized capital gains 8.5 19.6 18.6 51.5
-------- -------- --------- ---------
Total revenue 5,700.7 5,039.5 16,624.5 14,735.8
Benefits and expenses:
Health care costs (1) 3,390.4 2,994.3 9,683.6 8,611.2
Current and future benefits 581.8 548.6 1,778.4 1,630.6
Operating expenses:
Selling expenses 214.1 178.0 623.0 511.1
General and
administrative
expenses 877.4 811.7 2,589.7 2,441.6
-------- -------- --------- ---------
Total operating
expenses 1,091.5 989.7 3,212.7 2,952.7
Interest expense 32.5 25.9 90.2 76.6
Amortization of other
acquired intangible assets 15.9 9.3 38.1 34.7
Reduction of reserve for
anticipated future losses
on discontinued products - - (66.7) -
-------- -------- --------- ---------
Total benefits
and expenses 5,112.1 4,567.8 14,736.3 13,305.8
-------- -------- --------- ---------
Income from continuing
operations before income
taxes 588.6 471.7 1,888.2 1,430.0
Income taxes 210.8 169.4 676.7 515.6
-------- -------- --------- ---------
Income from continuing
operations 377.8 302.3 1,211.5 914.4
Income from discontinued
operations, net of tax (2) - 990.0 - 1,030.0
-------- -------- --------- ---------
Net income $ 377.8 $1,292.3 $ 1,211.5 $ 1,944.4
======== ======== ========= =========
Shareholders' equity $ 9,320.1 $ 9,084.6
========= =========
(1) The three months ended September 30, 2005 and September 30, 2004
include favorable development of prior-period health care cost
estimates of approximately $24 million pretax (approximately $15
million after tax) and approximately $22 million pretax
(approximately $14 million after tax), respectively, in the Health
Care segment.
(2) 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 $40 million related to the completion of certain Internal
Revenue Service audits associated with former Aetna.
Summary of Results (1)
($ in Millions)
Three Months Ended Nine Months Ended
------------------------- -------------------------
September September September September
30, 30, 30, 30,
2005 2004 2005 2004
------------ ------------ ------------ ------------
Operating
earnings,
excluding other
item and
favorable
development $357.3 $275.5
Favorable
development of
prior-period
health care
cost estimates 15.0 14.0
------------ ------------
Operating
earnings,
excluding other
item 372.3 289.5 $1,156.0 $880.9
Reduction of
reserve for
anticipated
future losses
on
discontinued
products - - 43.4 -
------------ ------------ ------------ ------------
Operating
earnings,
including other
item 372.3 289.5 1,199.4 880.9
Net realized
capital gains 5.5 12.8 12.1 33.5
------------ ------------ ------------ ------------
Income from
continuing
operations
(GAAP measure) 377.8 302.3 1,211.5 914.4
Income from
discontinued
operations (2) - 990.0 - 1,030.0
------------ ------------ ------------ ------------
Net income
(GAAP measure) $377.8 $1,292.3 $1,211.5 $1,944.4
============ ============ ============ ============
Weighted average
common shares -
basic 288,724,679 302,301,031 290,884,090 305,477,938
============ ============ ============ ============
Weighted average
common shares -
diluted 300,724,634 314,841,794 302,416,466 317,070,400
============ ============ ============ ============
Summary of Results Per Common Share (1)
Operating
earnings,
excluding other
item and
favorable
development $1.19 $.88
Favorable
development of
prior-period
health care
cost estimates .05 .04
------------ ------------
Operating
earnings,
excluding other
item 1.24 .92 $3.82 $2.78
Reduction of
reserve for
anticipated
future losses
on
discontinued
products - - .15 -
------------ ------------ ------------ ------------
Operating
earnings,
including other
item 1.24 .92 3.97 2.78
Net realized
capital gains .02 .04 .04 .10
------------ ------------ ------------ ------------
Income from
continuing
operations
(GAAP measure) 1.26 .96 4.01 2.88
Income from
discontinued
operations (2) - 3.14 - 3.25
------------ ------------ ------------ ------------
Net income
(GAAP measure) $1.26 $4.10 $4.01 $6.13
============ ============ ============ ============
Shareholders'
equity (3) $32.59 $30.76
============ ============
(1) Prior-period results per common share and weighted average common
shares have been adjusted to reflect the March 11, 2005 two-for-
one stock split.
(2) Income from discontinued operations 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
former Aetna. Income from discontinued operations for the nine
months ended September 30, 2004 also includes $40 million related
to the completion of certain Internal Revenue Service audits
associated with former Aetna.
(3) Actual common shares outstanding were 286.0 million at September
30, 2005 and 295.3 million at September 30, 2004.
Segment Information (1)
($ in Millions)
Three Months Ended Nine Months Ended
------------------- ---------------------
September September September September
30, 30, 30, 30,
2005 2004 2005 2004
-------- -------- --------- ---------
Health Care:
Total revenue $4,986.1 $4,367.2 $14,476.9 $12,740.1
======== ======== ========= =========
Selling expenses $ 193.5 $ 161.0 $ 562.5 $ 463.6
General and administrative
expenses 830.8 767.3 2,453.5 2,311.8
-------- -------- --------- ---------
Total operating expenses $1,024.3 $ 928.3 $ 3,016.0 $ 2,775.4
======== ======== ========= =========
Operating earnings,
excluding favorable
development $ 336.3 $ 254.1
Favorable development of
prior-period health care
cost estimates 15.0 14.0
-------- --------
Operating earnings 351.3 268.1 $ 1,098.9 $ 820.5
Net realized capital
gains 1.2 7.0 5.0 12.7
-------- -------- --------- ---------
Net income (GAAP measure) $ 352.5 $ 275.1 $ 1,103.9 $ 833.2
======== ======== ========= =========
Group Insurance:
Total revenue $ 529.8 $ 492.2 $ 1,587.3 $ 1,440.8
======== ======== ========= =========
Selling expenses $ 20.6 $ 17.0 $ 60.5 $ 47.5
General and administrative
expenses 41.5 39.3 122.9 114.7
-------- -------- --------- ---------
Total operating expenses $ 62.1 $ 56.3 $ 183.4 $ 162.2
======== ======== ========= =========
Operating earnings $ 32.5 $ 30.5 $ 94.5 $ 88.5
Net realized capital
gains 3.3 3.6 6.6 13.8
-------- -------- --------- ---------
Net income (GAAP measure) $ 35.8 $ 34.1 $ 101.1 $ 102.3
======== ======== ========= =========
Large Case Pensions:
Total revenue $ 184.8 $ 180.1 $ 560.3 $ 554.9
======== ======== ========= =========
Operating earnings,
excluding other item $ 9.6 $ 7.7 $ 21.2 $ 21.7
Reduction of reserve for
anticipated future
losses on discontinued
products - - 43.4 -
-------- -------- --------- ---------
Operating earnings,
including other item 9.6 7.7 64.6 21.7
Net realized capital
gains 1.0 2.2 .5 7.0
-------- -------- --------- ---------
Net income (GAAP measure) $ 10.6 $ 9.9 $ 65.1 $ 28.7
======== ======== ========= =========
Corporate Interest:
Interest expense, net of tax $ 21.1 $ 16.8 $ 58.6 $ 49.8
======== ======== ========= =========
Total Company:
Revenue, excluding net
realized capital gains $5,692.2 $5,019.9 $16,605.9 $14,684.3
Net realized capital
gains 8.5 19.6 18.6 51.5
-------- -------- --------- ---------
Total revenue (GAAP measure) $5,700.7 $5,039.5 $16,624.5 $14,735.8
======== ======== ========= =========
Selling expenses $ 214.1 $ 178.0 $ 623.0 $ 511.1
General and administrative
expenses 877.4 811.7 2,589.7 2,441.6
-------- -------- --------- ---------
Total operating expenses $1,091.5 $ 989.7 $ 3,212.7 $ 2,952.7
======== ======== ========= =========
(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 September December June
30, 30, 31, 30,
2005 2004 2004 2005
--------- --------- -------- -------
Medical Membership:
Commercial 14,415 13,358 13,446 14,221
Medicare (1) 122 99 97 101
Medicaid 113 113 113 113
--------- --------- -------- -------
Total Medical Membership 14,650 13,570 13,656 14,435
========= ========= ======== =======
Dental Membership (2) 13,031 11,670 11,967 12,976
========= ========= ======== =======
Pharmacy Membership:
Pharmacy Benefit Management
Services 8,791 7,896 7,989 8,579
Mail Order (3) 546 427 458 538
--------- --------- -------- -------
Total Pharmacy Membership 9,337 8,323 8,447 9,117
========= ========= ======== =======
Group Insurance Membership 13,675 13,287 13,494 13,662
========= ========= ======== =======
Consumer-Directed Health Plans
(4) 433 214 224 420
========= ========= ======== =======
Health Care Medical Cost Ratios (5)
($ in Millions)
Three Months Ended Nine Months Ended
------------------- ---------------------
September September September September
30, 30, 30, 30,
2005 2004 2005 2004
-------- -------- --------- ---------
Health Care Premiums:
Health Care Risk (A) $4,291.3 $3,786.6 $12,490.5 $10,992.4
Commercial Risk (B) $4,039.3 $3,545.7 $11,742.0 $10,282.9
Medicare (C) $ 252.0 $ 240.9 $ 748.5 $ 709.5
Health Care Costs:
Health Care Risk
----------------------------
Health care costs (D)
(GAAP measure) $3,390.4 $2,994.3 $ 9,683.6 $ 8,611.2
Favorable development of
prior-period health care
cost estimates 24.0 22.0
-------- --------
Health care costs - Adjusted
(E) $3,414.4 $3,016.3
======== ========
Commercial Risk
----------------------------
Health care costs (F)
(GAAP measure) $3,174.9 $2,786.6 $ 9,035.3 $ 8,005.0
Favorable development of
prior-period health care
cost estimates 15.0 20.0
-------- --------
Health care costs - Adjusted
(G) $3,189.9 $2,806.6
======== ========
Medicare
----------------------------
Health care costs (H)
(GAAP measure) $ 215.5 $ 207.7 $ 648.4 $ 606.1
Favorable development of
prior-period health care
cost estimates 9.0 2.0
-------- --------
Health care costs - Adjusted
(I) $ 224.5 $ 209.7
======== ========
Health Care Medical Cost Ratios:
Health Care Risk (D)/(A)
(GAAP measure) 79.0% 79.1% 77.5% 78.3%
Health Care Risk - Adjusted
(E)/(A) 79.6% 79.7%
Commercial Risk (F)/(B)
(GAAP measure) 78.6% 78.6% 76.9% 77.8%
Commercial Risk - Adjusted
(G)/(B) 79.0% 79.2%
Medicare (H)/(C) (GAAP
measure) 85.5% 86.2% 86.6% 85.4%
Medicare - Adjusted (I)/(C) 89.1% 87.0%
(1) Includes Medicare ASC members that represent those served through
the Company's participation in the Medicare Chronic Care
Improvement Program.
(2) At June 30, 2005, the Company began including Aetna Global
Benefits dental membership. Prior period dental membership has
been revised accordingly.
(3) Represents members who purchased medications through the Company's
mail order pharmacy during the quarterly period.
(4) Represents members in consumer-directed health plans included in
the Company's Commercial medical membership.
(5) Health Care Risk includes all medical and dental risk products.
Commercial Risk includes all medical and dental risk products
except Medicare and Medicaid. Risk includes all medical and dental
products for which the Company assumes all or a majority of health
care cost, utilization or other risk.
Operating Margins
($ in Millions)
Three Months Ended Nine Months Ended
------------------- ---------------------
September September September September
30, 30, 30, 30,
2005 2004 2005 2004
-------- -------- --------- ---------
Reconciliation to Income from continuing operations before income
taxes:
Operating earnings before
income taxes, excluding
interest expense,
amortization of other
acquired intangible assets,
other item and favorable
development (A) $ 604.5 $ 465.3
Favorable development of
prior-period health care
cost estimates 24.0 22.0
-------- --------
Operating earnings before
income taxes, excluding
interest expense,
amortization of other
acquired intangible assets
and other item (B) 628.5 487.3 $ 1,931.2 $ 1,489.8
Interest expense (32.5) (25.9) (90.2) (76.6)
Amortization of other
acquired intangible
assets (15.9) (9.3) (38.1) (34.7)
Reduction of reserve for
anticipated future losses
on discontinued products - - 66.7 -
Net realized capital gains 8.5 19.6 18.6 51.5
-------- -------- --------- ---------
Income from continuing
operations before income
taxes (C) (GAAP measure) $ 588.6 $ 471.7 $ 1,888.2 $ 1,430.0
======== ======== ========= =========
Reconciliation to Income from continuing operations:
Operating earnings,
excluding interest expense,
amortization of other
acquired intangible assets,
other item and favorable
development (D) $ 388.7 $ 298.4
Favorable development of
prior-period health care
cost estimates, net of
tax 15.0 14.0
-------- --------
Operating earnings,
excluding interest expense,
amortization of other
acquired intangible assets
and other item (E) 403.7 312.4 $ 1,239.4 $ 953.3
Interest expense, net of
tax (21.1) (16.8) (58.6) (49.8)
Amortization of other
acquired intangible
assets, net of tax (10.3) (6.1) (24.8) (22.6)
Reduction of reserve for
anticipated future losses
on discontinued products,
net of tax - - 43.4 -
Net realized capital
gains, net of tax 5.5 12.8 12.1 33.5
-------- -------- --------- ---------
Income from continuing
operations (F) (GAAP
measure) $ 377.8 $ 302.3 $ 1,211.5 $ 914.4
======== ======== ========= =========
Reconciliation of Revenue:
Revenue, excluding net
realized capital gains (G) $5,692.2 $5,019.9 $16,605.9 $14,684.3
Net realized capital gains 8.5 19.6 18.6 51.5
-------- -------- --------- ---------
Total revenue (H) (GAAP
measure) $5,700.7 $5,039.5 $16,624.5 $14,735.8
======== ======== ========= =========
Operating Margins:
Pretax operating margin
(B)/(G) 11.0% 9.7% 11.6% 10.1%
Pretax operating margin -
Adjusted (A)/(G) 10.6% 9.3%
Pretax operating margin
(C)/(H) (GAAP measure) 10.3% 9.4% 11.4% 9.7%
After-tax operating margin
(E)/(G) 7.1% 6.2% 7.5% 6.5%
After-tax operating margin -
Adjusted (D)/(G) 6.8% 5.9%
After-tax operating margin
(F)/(H) (GAAP measure) 6.6% 6.0% 7.3% 6.2%
Operating Expenses
($ in Millions)
Total operating expenses (I)
(GAAP measure) $1,091.5 $ 989.7 $ 3,212.7 $ 2,952.7
======== ======== ========= =========
Operating Expenses Percentages:
Operating expenses as a % of
revenue (I)/(G) 19.2% 19.7% 19.3% 20.1%
Total operating expenses as
a % of total revenue
(I)/(H) (GAAP measure) 19.1% 19.6% 19.3% 20.0%
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