Aetna Updates Full-Year Earnings Guidance.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)--July 30, 2003 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 it is revising its earnings guidance for the balance of 2003. Highlights include Aetna projects: -- Total company 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 , excluding other items, of approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $884-$909 million, or approximately $5.55-$5.70 per share, including the $0.70 per share of prior-period favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. development reported in the first and second quarters. This compares to our previous full year guidance of $4.75-$4.90 per share. -- Membership expected to be stable with this quarter's level, at approximately 13 million, as new business growth will be largely off-set by additional losses within existing accounts this year due to continued sluggish employment levels. -- Our 2003 expense reduction target to remain in the range of $200 million. A full summary of earnings guidance and GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). reconciliation information follows: The following is a summary of certain 2002 financial information and 2003 projected financial information and 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. provided on Aetna's investor conference calls on April 24, 2003 or July July: see month. 30, 2003. This information is provided for reference only. Aetna does not assume any responsibility to update the information to reflect subsequent events. Please also refer to the Cautionary Statement below for additional information regarding important risk factors that may affect the forward looking and other information. A live audio Webcast and replays as well as financial, statistical and other information related to the July 30 conference call will be available today at 5:30 p.m. EDT EDT abbr. Eastern Daylight Time EDT Eastern Daylight Time EDT n abbr (US) (= Eastern Daylight Time) → hora de verano de Nueva York EDT through Aetna's Investor Information link on the 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 at www.aetna.com. A transcript A generic term for any kind of copy, particularly an official or certified representation of the record of what took place in a court during a trial or other legal proceeding. A transcript of record of the prepared remarks portion of the call will be available at 8:30 p.m. today on www.aetna.com. The public also can access the second-quarter conference call today at 5:30 p.m. EDT by dialing 800-210-9006, or for international callers, 719-457-2621. You should read this information in conjunction conjunction, in astronomy conjunction, in astronomy, alignment of two celestial bodies as seen from the earth. Conjunction of the moon and the planets is often determined by reference to the sun. with Aetna's earnings press release issued July 30, 2003 and should review the replay of the related investor call in full, since the press release provides further discussion of the Company's results, and the investor call provides important context for the forward looking information.
Aetna Inc. Aetna Inc. Aetna Inc.
2002 Actuals Guidance as of Guidance as of
(Full-year unless 4/24/2003 7/30/2003
otherwise noted,(Full-year unless(Full-year unless
as previously otherwise noted) otherwise noted)
reported)
Aetna Inc.
Operating Earnings $450.3 million $755 - $780 $884 - $909
(1) $2.94 per share million(a) million(a)
$4.75 - $4.90 $5.55 - $5.70
per share(a) per share(a)
$0.85 per share
(2Q03)(a)
Revenue (excluding $19.8 billion $18.0 billion(a) $17.8 billion(a)
net realized
capital gains or
losses) (2)
Operating Expenses $4,232.6 million $200 million $200 million
(3) lower(a) lower(a)
Pretax Operating 4.6% 6.5%(a) 8%(a)
Margin (4)
Effective Tax Rate 32.6% 36%(a) 36%(a)
(5)
Long-term Debt $1.6 billion $1.6 billion $1.6 billion
(12/31/02) (12/31/03)(a) (12/31/03)(a)
Weighted Average 152,960,047 159 million(a) 160 million(a)
Common Shares
Diluted
Employee Level 28,400 (12/31/02)27,500 (12/31/03)27,500 (12/31/03)
(a) (a) (a)
Information by
Segment:
Health Care
Operating Earnings $446.6 million $710 - $730 $830 - $850
(before million(a) million(a)
Intangibles) (1)
Amortization of $85.0 million $33 million(a) $33 million(a)
other acquired
intangible assets
Medical Membership 13.678 million 13.2 million 13.0 million
(6) (12/31/02) (12/31/03)(a) (12/31/03)(a)
36.7% Risk / 35% Risk / 65% 35% Risk / 65%
63.3% ASC ASC ASC
(12/31/02) (12/31/03)(a) (12/31/03)(a)
Commercial Risk 19%(a) 14%(a) 13% - 14%(a)
Premium Yield (6)
(7)
Commercial Risk 14.5%(a) 10%(a) 8%(a)
Cost Trend (6) (8) 10%-11% (2Q03- 8% (3Q03-
4Q03)(a) 4Q03)(a)
Commercial Risk MCR 82.9% 80%(a) 78% - 79% (3Q03-
(6) (9) 4Q03)(a)
Medicare Risk MCR 82.2% 86%(a) 87% - 88% (3Q03-
(9) 4Q03)(a)
Group
Insurance
Operating Earnings $142.2 million $137 - $140 $137 - $140
(1) million(a) million(a)
Revenue (excluding $1,766.9 million 5% growth(a) 5% growth(a)
net realized
capital gains or
losses) (2)
LCP
Operating Earnings $24.2 million $16 - $18 $18 - $20
(1) million(a) million(a)
Corporate Interest $77.7 million $75 million(a) $68 million(a)
Expense (AFIT)
Footnotes (1) In order to provide information that the company believes is useful regarding its underlying business performance and which is used by management to assess performance and make operating decisions, all operating earnings and operating earnings per share (including projected 2003 operating earnings and projected 2003 operating earnings per share) exclude the following from net income (loss): other items, net realized capital gains (losses), income from discontinued operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. and cumulative effect adjustments. For a reconciliation of full year 2002 actual operating earnings to net income (loss) 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 4 and 5 of this document. Aetna Inc. and the Health Care segment full year 2002 actual results include: a) a benefit of approximately $32 million pretax pre·tax adj. Existing before tax deductions: pretax income. pretax adj [profit] → vor (Abzug der) Steuern (approximately $21 million after tax) due to favorable resolution of prior-period contract matters for a large customer; b) favorable development of prior-period medical cost estimates of approximately $89 million after tax, of which approximately 50% relates to underlying performance for 2002 and the balance relates to 2001. The April 24, 2003 projected 2003 operating earnings exclude the following after tax net realized capital gains reported by the company for first quarter 2003: Aetna Inc. $14.1 million; Health Care $8.6 million; Group Insurance $2.5 million and Large Case Pensions $3.0 million. The July 30, 2003 projected 2003 operating earnings exclude the following after tax net realized capital gains reported by the company for the six months ended June June: see month. 30, 2003: Aetna Inc. $23.6 million; Health Care $13.9 million; Group Insurance $3.6 million and Large Case Pensions $6.1 million. The company is not able to project the amount of future net realized capital gains or losses capital gains or losses n. particularly when calculating the tax liability of an individual or business, this is the difference between the original cost plus the cost of capital improvements, excluding maintenance, called "basis" and the sales price. and cannot therefore, reconcile projected 2003 operating earnings to projected 2003 net income. The July 30, 2003 projected 2003 operating earnings for Aetna Inc. and Health Care also exclude the estimate of the cost of settlement of physician class action 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. of approximately $75 million after tax reported by the company for the second quarter 2003. The projected 2003 operating earnings for the Health Care segment for both April 24, 2003 and July 30, 2003 also exclude approximately $33 million of after tax intangibles Property that is a "right" such as a patent, Copyright, or trademark, or one that is lacking physical existence, such as good will. amortization, which would reduce net income by that amount. The April 24, 2003 projected 2003 operating earnings for Aetna Inc. and the Health Care segment also include favorable development of prior-period medical cost estimates of approximately $164 million pretax (approximately $107 million after tax), which were included in the results reported for the first quarter 2003. The July 30, 2003 projected 2003 operating earnings for Aetna Inc. and the Health Care segment also include additional net favorable development of prior-period medical cost estimates of approximately $3 million pretax (approximately $2 million after tax), which were included in the results reported for the second quarter 2003. (2) Aetna Inc. and the Group Insurance segment revenues exclude net realized capital gains or losses (pretax), which are included in reported GAAP revenue. Net realized capital losses excluded from full year 2002 actual revenue are as follows: Aetna Inc. $(23.3) million and Group Insurance $(12.9) million. Net realized capital gains for the 2003 first quarter (pretax) excluded from the April 24, 2003 projected 2003 revenue are as follows: Aetna Inc. $21.7 million and Group Insurance $3.8 million. Net realized capital gains for the six months ended June 30, 2003 (pretax) excluded from the July 30, 2003 projected 2003 revenue are as follows: Aetna Inc. $36.3 million and Group Insurance $5.6 million. Refer to 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 above. (3) Aetna Inc. full year 2002 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. exclude a 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 charge (pretax), which is included in reported GAAP operating expenses. Including the severance and facilities charge of $161.0 million in full year 2002 actual results, GAAP operating expenses were $4.4 billion. The projected decline in operating expenses to $4.0 billion for 2003 excludes the estimate of the cost of settlement of physician class action litigation of approximately $115.4 million pretax ($75 million after tax) recorded in the 2003 second quarter. The projected 2003 GAAP operating expenses are $4.1 billion. (4) Pretax operating margins Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: are calculated by dividing pretax operating earnings, excluding other items, net realized capital gains or losses, interest expense 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. by total revenue excluding net realized capital gains or losses. For a reconciliation of the pretax operating margin for the full year 2002 actual results to a GAAP measure refer to the tables on pages 4 and 5 of this document. The projected 2003 pretax operating margins also exclude the favorable development of prior-period medical cost estimates reported in the 2003 first and second quarters. The company cannot reconcile the projected 2003 pretax operating margins to a comparable GAAP measure, as it cannot project net realized capital gains or losses. (5) Effective tax rates are calculated by dividing income taxes, excluding income taxes on other items, amortization of other acquired intangible assets and net realized capital gains or losses, by operating earnings excluding income taxes, other items, amortization of other acquired intangible assets, and net realized capital gains or losses. For a reconciliation of the effective tax rate for the full year 2002 actual results to the GAAP effective tax rate refer to the tables on pages 4 and 5 of this document. The company cannot reconcile the projected 2003 effective tax rates to a comparable GAAP measure, as it cannot project net realized capital gains or losses. (6) Commercial Risk includes all medical 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. risk products except Medicare and Medicaid Medicare and Medicaid U.S. government programs in effect since 1966. Medicare covers most people 65 or older and those with long-term disabilities. Part A, a hospital insurance plan, also pays for home health visits and hospice care. . Risk includes all medical members for which the company assumes all or a majority of health care cost, 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 , mortality, morbidity morbidity /mor·bid·i·ty/ (mor-bid´it-e) 1. a diseased condition or state. 2. the incidence or prevalence of a disease or of all diseases in a population. mor·bid·i·ty n. , or other risk. Administrative Services Contracts ("ASC ASC Ambulatory surgery center, see there ") include all medical membership offered on an employer-funded basis. Under employer-funded plans, the plan sponsor, not the company, assumes all or a majority of health care cost, utilization, mortality, morbidity, or other risk. (7) The rate of increase in premiums, for all Commercial Risk products, after benefit plan changes and the impact of regional differences. (8) The rate of increase in health care costs for all Commercial Risk products excluding the favorable development of prior-period medical cost estimates referred to in Footnote 1 above. (9) The full year 2002 actual Medical Cost Ratios ("MCRs") include the favorable development of prior-period medical cost estimates referred to in Footnote 1 above. The projected 2003 MCRs exclude the 2003 favorable or unfavorable development of prior-period medical cost estimates reported for the first and second quarters 2003 and any further prior-period reserve development, which the company cannot project. Note: The symbol (a) means "approximately". ADDITIONAL INFORMATION; CAUTIONARY STATEMENT - The 2003 information in this document is forward looking. 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, increased 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. 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 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 2002 Annual Report on Form 10-K, and Aetna's 2003 Second Quarter Report on Form 10-Q Form 10-Q See 10-Q. when filed with the Securities and Exchange Commission for a discussion of Aetna's historical results of operations and financial condition.
Reconciliations of Full Year 2002 Actual Results
($ in Millions, except per common share data)
Full Year
2002 Actuals
Aetna Inc.
Reconciliation of Operating Earnings and
Per Share (Footnote 1)
Operating earnings, excluding other items (A) $450.3
Income tax reserve release (prior period related) 19.8
Reduction of reserve for anticipated future
losses on discontinued products, net of tax 5.4
Severance and facilities charge, net of tax (104.6)
Net realized capital gains, net of tax 22.3
Income from continuing operations (B) (GAAP measure) 393.2
Income from discontinued operations 50.0
Income before cumulative effect adjustment 443.2
Cumulative effect adjustment (2,965.7)
Net loss (GAAP measure) $(2,522.5)
Weighted average common shares - diluted (C) 152,960,047
Operating earnings per common share:
Operating earnings, excluding other items (A)/(C) $2.94
Income from continuing operations (B)/(C) (GAAP measure) $2.57
Reconciliation of Pretax Operating Margin (Footnote 4)
Cash operating earnings, excluding interest expense
and other items, before income taxes (D) $913.5
Interest expense (119.5)
Cash operating earnings, excluding other items,
before income taxes (E) 794.0
Amortization of other acquired intangible assets (130.8)
Reduction of reserve for anticipated future
losses on discontinued products 8.3
Severance and facilities charge (161.0)
Net realized capital gains 34.3
Income from continuing operations
before income taxes (F) (GAAP measure) $544.8
Revenue, excluding net realized capital gains (G) $19,844.4
Net realized capital gains 34.3
Total revenue (H) (GAAP measure) $19,878.7
Pretax operating margin (D)/(G) 4.6%
Pretax operating margin (F)/(H) (GAAP measure) 2.7%
Reconciliation of Effective Tax Rate (Footnote 5)
Income taxes (I) $258.7
Tax on amortization of other acquired intangible assets (45.8)
Income tax reserve release (prior period related) (19.8)
Tax on reduction of reserve for anticipated
future losses on discontinued products 2.9
Tax on severance and facilities charge (56.4)
Tax on net realized capital gains 12.0
Income taxes (J)(GAAP measure) $151.6
Effective tax rate (I)/(E) 32.6%
Effective tax rate (J)/(F) (GAAP measure) 27.8%
Reconciliations of Full Year 2002 Actual Results
($ in Millions)
Full Year
2002 Actuals
Health Care
Reconciliation of Operating Earnings (Footnote 1)
Operating earnings, excluding amortization of other
acquired intangible assets and other items $446.6
Amortization of other acquired intangible
assets, net of tax (85.0)
Income tax reserve release (prior period related) 19.8
Severance and facilities charge, net of tax (101.4)
Net realized capital gains, net of tax 36.4
Income from continuing operations (GAAP measure) 316.4
Cumulative effect adjustment (2,965.7)
Net loss (GAAP measure) $(2,649.3)
Group Insurance
Reconciliation of Operating Earnings (Footnote 1)
Operating earnings, excluding other items $142.2
Severance and facilities charge, net of tax (3.2)
Net realized capital loss, net of tax (14.0)
Net income (GAAP measure) $125.0
Large Case Pensions
Reconciliation of Operating Earnings (Footnote 1)
Operating earnings, excluding other items $24.2
Reduction of reserve for anticipated future
losses on discontinued products, net of tax 5.4
Net realized capital loss, net of tax (.1)
Net income (GAAP measure) $29.5
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