[July 29, 2014] |
|
Aetna Reports Second-Quarter 2014 Results
HARTFORD, Conn. --(Business Wire)--
Aetna (NYSE: AET)
announced second-quarter 2014 operating earnings (1) of
$610.0 million, or $1.69 per share, a per share increase of 4 percent
over the second quarter of 2013. Net income (2) for the
second quarter of 2014 was $548.8 million, or $1.52 per share. Net
income for the quarter includes $0.17 per share of net charges, which
are detailed in the Summary of Results table.
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Second-Quarter Financial Results at a Glance
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(Millions, except per share results)
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2014
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2013
|
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Change
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Operating revenue (3)
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|
|
|
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$
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14,485.6
|
|
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$
|
11,559.4
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|
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25
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%
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Total revenue
|
|
|
|
|
|
14,509.4
|
|
|
|
11,537.4
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|
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26
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%
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Operating earnings (1)
|
|
|
|
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610.0
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582.6
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|
5
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%
|
Net income (2)
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|
|
|
|
|
548.8
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|
|
|
536.0
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|
|
2
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%
|
|
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|
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|
|
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|
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Per share results:
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Operating earnings (1)
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|
|
|
|
$
|
1.69
|
|
|
$
|
1.62
|
|
|
4
|
%
|
Net income (2)
|
|
|
|
|
|
1.52
|
|
|
|
1.49
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares - diluted
|
|
|
|
|
|
360.3
|
|
|
|
360.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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"Aetna reported solid results across multiple business lines this
quarter, achieving record results for medical membership of 23.1 million
members and operating revenues of $14.5 billion," said Mark T.
Bertolini, Aetna chairman, CEO and president. "Based on our
second-quarter performance, we are raising our projection for full-year
2014 operating earnings per share to a range of $6.45 to $6.60 from our
previous projection of $6.35 to $6.55 per share.
"Our results speak to the strength of our diversified portfolio of
businesses and our ability to succeed across many fronts. We also
continue to experience moderate medical cost trends, and now project
Aetna's standalone 2014 Commercial medical cost trend will be in the
lower half of our projected range of 6 percent to 7 percent. Our
year-to-date results give us increased confidence in our ability to
achieve our targeted high single-digit pretax operating margin again in
2014," said Bertolini.
"We also continued to make headway in accelerating Coventry synergies
into this year, and for the second time are increasing our 2014
operating earnings per share accretion projection," said Shawn M.
Guertin, Aetna executive vice president and CFO. "Based on our progress
to date, and our current projections of operating expense savings, we
are raising our 2014 Coventry accretion projection by $0.05 to $0.10 per
share to a range of $0.55 to $0.60 per share. We continue to project
$0.90 per share of accretion in 2015.
"We are pleased with our second-quarter operating results, which were
supported by strong operating revenue growth and cash flow, as well as
solid operating margins. With this solid performance, we are increasing
both our year-end medical membership projection to approximately 23.4
million members from the previous projection of more than 23 million and
our full-year 2014 operating revenue projection to at least $57 billion
from our previous range of $56 billion to $57 billion," said Guertin.
Total company results
-
Operating earnings (1) were $610.0 million
for the second quarter of 2014 compared with $582.6 million for the
second quarter of 2013. The increase in operating earnings is
primarily due to the inclusion of approximately one additional month
of Coventry financial results in 2014 as well as higher underwriting
margins in our Group Insurance segment partially offset by the
year-over-year decrease in favorable development of prior-period
health care cost estimates in 2014.
-
Operating revenues (3) for the second quarter
of 2014 were $14.5 billion compared with $11.6 billion for the second
quarter of 2013. The 25 percent increase in operating revenues is
primarily the result of higher Health Care premiums from approximately
one additional month of revenue in 2014 from the Coventry acquisition,
membership growth in our Health Care businesses and the effects of
pricing actions designed to recover Health Care Reform mandated fees
and taxes. Total revenue was $14.5 billion and $11.5 billion for the
second quarters of 2014 and 2013, respectively.
-
Operating Expenses (1) were $2.5
billion for the second quarter of 2014. The operating expense ratio (5)
was 17.6 percent and 17.7 percent for the second quarters of 2014 and
2013, respectively. The operating expense ratio was relatively flat as
improvement from the operating revenue growth described above and
continued execution of our expense initiatives, including execution on
our Coventry-related cost synergies, were almost entirely offset by
the inclusion of Health Care Reform mandated fees. The total company
expense ratio was 17.9 percent and 18.2 percent for the second
quarters of 2014 and 2013, respectively.
-
Pretax Operating Margin (6) was 7.6 percent
for the second quarter of 2014 compared with 8.4 percent for the
second quarter of 2013. The decrease in the pretax operating margin is
primarily driven by a higher percentage of our 2014 operating revenue
being derived from our Government business and our 2014 public
exchange membership, partially offset by pricing actions designed to
recover the income tax effects of the non-deductible Health Care
Reform mandated health insurer fee. For the second quarter of 2014,
the after-tax net income margin was 3.8 percent compared with 4.6
percent for the second quarter of 2013.
-
Effective tax rate for the second quarter of 2014 was 41
percent compared with 37 percent for the second quarter of 2013. The
increase in the effective tax rate is primarily driven by the
non-deductibility of the Health Care Reform mandated health insurer
fee.
-
Share Repurchases totaled 3.3 million shares at a cost of $255
million for the second quarter of 2014.
Health Care business results
Health Care, which provides a full range of insured and self-insured
medical, pharmacy, dental and behavioral health products and services,
reported:
-
Operating earnings (1) of $584.3 million for the second
quarter of 2014 compared with $592.1 million for the second quarter of
2013. Operating earnings were relatively flat in the second quarter of
2014 when compared to the second quarter of 2013 primarily as a result
of the year-over-year decrease in favorable development of
prior-period health care cost estimates in 2014 substantially offset
by the inclusion of approximately one additional month of Coventry
financial results in 2014.
-
Net income (2) was $521.1 million for the second quarter of
2014 compared with $466.3 million for the second quarter of 2013.
-
Operating revenues (3) of $13.8 billion for the second
quarter of 2014 compared with $10.9 billion for the second quarter of
2013. The 27 percent increase is due primarily to the inclusion of
approximately one additional month of revenue in 2014 from the
Coventry acquisition and membership growth, in both our Commercial and
Government businesses, as well as the effects of pricing actions
designed to recover Health Care Reform mandated fees and taxes. Total
revenue was $13.8 billion and $10.8 billion for the second quarters of
2014 and 2013, respectively.
-
Sequentially, second-quarter 2014 medical membership increased by
385,000 due to growth in our Commercial Insured and Government
products as well as the inclusion of membership from our acquisition
of the InterGlobal group.
-
Medical benefit ratios (MBRs) for the three and six months ended June
30, 2014 and 2013 were as follows:
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Three Months Ended
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Six Months Ended
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June 30,
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June 30,
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2014
|
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2013
|
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2014
|
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2013
|
|
|
|
|
|
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Commercial
|
|
|
|
|
80.6
|
%
|
|
79.1
|
%
|
|
|
78.9
|
%
|
|
79.0
|
%
|
|
|
|
|
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Government (7)
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|
|
|
|
86.5
|
%
|
|
88.3
|
%
|
|
|
85.6
|
%
|
|
88.2
|
%
|
|
|
|
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Health Care
|
|
|
|
|
83.1
|
%
|
|
82.5
|
%
|
|
|
81.8
|
%
|
|
82.3
|
%
|
|
|
|
|
|
|
|
|
|
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|
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Our second-quarter 2014 Commercial MBR increased primarily as a result
of the year-over-year decrease in favorable development of prior-period
health care cost estimates in 2014, costs associated with new hepatitis
C treatments, and our 2014 public exchange membership, partially offset
by higher premiums driven in part by pricing actions designed to recover
Health Care Reform mandated fees and taxes. Our second-quarter 2014
Government MBR improved primarily from actions impacting revenue and
medical costs designed to solve for the gap between Medicare premiums
and medical costs and other expenses, including the health insurer fee.
-
In the second quarter of 2014, we experienced favorable development of
prior-period health care cost estimates in both our Commercial and
Government businesses, primarily attributable to 2014 performance.
-
Prior-years' health care costs payable estimates developed favorably
by $531.9 million and $369.6 million during the first half of 2014 and
2013, respectively. The May 7, 2013 acquisition of Coventry
significantly impacts the year-over-year comparability of prior years'
development. This development is reported on a basis consistent with
the prior years' development reported in the health care costs payable
table in our annual audited financial statements and does not directly
correspond to an increase in our 2014 operating results.
Group Insurance business results
Group Insurance, which includes group life, disability and long-term
care products, reported:
-
Operating earnings (1) of $60.6 million for the second
quarter of 2014 compared with $30.6 million for the second quarter of
2013, primarily due to higher underwriting margins, reflecting
improved experience in our Life and Disability products. The second
quarter of 2014 life underwriting margin is more consistent with
historical experience than the second quarter of 2013.
-
Net income (2) of $61.4 million for the second quarter of
2014 compared with $60.3 million for the second quarter of 2013. Net
income for the second quarter of 2013 included a $32.1 million
after-tax benefit related to the settlement of a reinsurance
recoverable.
-
Operating revenues (3) of $626.4 million for the second
quarter of 2014, an 8 percent increase over $582.4 million for the
second quarter of 2013. Total revenue was $627.7 million in the second
quarter of 2014 and $587.1 million in the second quarter of 2013.
Large Case Pensions business results
Large Case Pensions, which manages a variety of discontinued and other
retirement and savings products, primarily for qualified pension plans,
reported:
-
Operating earnings (1) of $5.4 million for the second
quarter of 2014 compared with $3.8 million for the second quarter of
2013.
-
Net income (2) of $6.6 million for the second quarter of
2014 compared with $57.5 million for the second quarter of 2013. Net
income for the second quarter of 2013 included a $55.9 million
after-tax benefit related to the reduction of reserves for anticipated
future losses on discontinued products primarily due to favorable
investment performance as well as favorable retirement experience
compared to assumptions we previously made in estimating the reserve.
Aetna's conference call to discuss second-quarter 2014 results will
begin at 8:30 a.m. ET today. The public may access the conference call
through a live audio webcast available on Aetna's Investor Information
link on the Internet at www.aetna.com.
Financial, statistical and other information, including GAAP
reconciliations, related to the conference call also will be available
on Aetna's Investor Information website.
The conference call also can be accessed by dialing 1-888-318-7456 or
+1-719-457-2600 for international callers. The company suggests
participants dial in approximately 10 minutes before the call. The
access code is 5816607. 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 1-888-203-1112, or +1-719-457-0820 for international
callers. The replay access code is 5816607. Telephone replays will be
available until 11 p.m. ET on August 12, 2014.
About Aetna
Aetna is one of the nation's leading diversified health care benefits
companies, serving an estimated 45 million people with information and
resources to help them make better informed decisions about their health
care. Aetna offers a broad range of traditional, voluntary and
consumer-directed health insurance products and related services,
including medical, pharmacy, dental, behavioral health, group life and
disability plans, and medical management capabilities, Medicaid health
care management services, workers' compensation administrative services
and health information technology products and services. Aetna's
customers include employer groups, individuals, college students,
part-time and hourly workers, health plans, health care providers,
governmental units, government-sponsored plans, labor groups and
expatriates. For more information, see www.aetna.com
and the 2014
Aetna story about how Aetna is helping to build a healthier world.
|
Consolidated Statements of Income
|
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For the Three Months
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For the Six Months
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Ended June 30,
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Ended June 30,
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(Millions)
|
|
|
|
|
2014
|
|
2013
|
|
|
2014
|
|
2013
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health care premiums
|
|
|
|
|
$
|
12,416.1
|
|
|
$
|
9,701.3
|
|
|
|
$
|
24,327.8
|
|
$
|
17,487.1
|
|
Other premiums
|
|
|
|
|
551.7
|
|
|
514.3
|
|
|
|
1,113.3
|
|
1,035.6
|
|
Fees and other revenue
|
|
|
|
|
1,289.5
|
|
|
1,126.6
|
|
|
|
2,538.3
|
|
2,093.0
|
|
Net investment income
|
|
|
|
|
228.3
|
|
|
225.0
|
|
|
|
472.5
|
|
460.1
|
|
Net realized capital gains (losses)
|
|
|
|
|
23.8
|
|
|
(29.8
|
)
|
|
|
52.3
|
|
.5
|
|
Total revenue
|
|
|
|
|
14,509.4
|
|
|
11,537.4
|
|
|
|
28,504.2
|
|
21,076.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and expenses:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health care costs
|
|
|
|
|
10,314.8
|
|
|
8,006.9
|
|
|
|
19,891.1
|
|
14,386.4
|
|
Current and future benefits
|
|
|
|
|
525.6
|
|
|
539.1
|
|
|
|
1,104.3
|
|
1,098.4
|
|
Operating expenses:
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|
|
|
|
|
|
|
|
|
|
|
|
|
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Selling expenses
|
|
|
|
|
413.0
|
|
|
332.2
|
|
|
|
815.8
|
|
629.4
|
|
General and administrative expenses
|
|
|
|
|
2,188.2
|
|
|
1,762.2
|
|
|
|
4,235.8
|
|
3,204.2
|
|
Total operating expenses
|
|
|
|
|
2,601.2
|
|
|
2,094.4
|
|
|
|
5,051.6
|
|
3,833.6
|
|
Interest expense
|
|
|
|
|
81.3
|
|
|
83.5
|
|
|
|
166.9
|
|
161.3
|
|
Amortization of other acquired intangible assets
|
|
|
|
|
61.9
|
|
|
51.8
|
|
|
|
124.1
|
|
84.2
|
|
Loss on early extinguishment of long-term debt
|
|
|
|
|
-
|
|
|
-
|
|
|
|
91.9
|
|
-
|
|
Reduction of reserve for anticipated future losses on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
discontinued products
|
|
|
|
|
-
|
|
|
(86.0
|
)
|
|
|
-
|
|
(86.0
|
)
|
Total benefits and expenses
|
|
|
|
|
13,584.8
|
|
|
10,689.7
|
|
|
|
26,429.9
|
|
19,477.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
|
924.6
|
|
|
847.7
|
|
|
|
2,074.3
|
|
1,598.4
|
|
Income taxes
|
|
|
|
|
377.4
|
|
|
314.5
|
|
|
|
857.7
|
|
574.3
|
|
Net income including non-controlling interests
|
|
|
|
|
547.2
|
|
|
533.2
|
|
|
|
1,216.6
|
|
1,024.1
|
|
Less: Net (loss) income attributable to non-controlling interests
|
|
|
|
|
(1.6
|
)
|
|
(2.8
|
)
|
|
|
2.3
|
|
(2.0
|
)
|
Net income attributable to Aetna
|
|
|
|
|
$
|
548.8
|
|
|
$
|
536.0
|
|
|
|
$
|
1,214.3
|
|
$
|
1,026.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary of Results
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|
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|
|
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|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
(Millions)
|
|
|
|
|
2014
|
|
2013
|
|
|
2014
|
|
2013
|
Operating earnings (1)
|
|
|
|
|
$
|
610.0
|
|
|
$
|
582.6
|
|
|
|
$
|
1,332.0
|
|
|
$
|
1,099.1
|
|
Transaction and integration-related costs, net of tax
|
|
|
|
|
(36.3
|
)
|
|
(81.4
|
)
|
|
|
(78.2
|
)
|
|
(106.0
|
)
|
Loss on early extinguishment of long-term debt, net of tax
|
|
|
|
|
-
|
|
|
-
|
|
|
|
(59.7
|
)
|
|
-
|
|
Release of litigation-related reserve, net of tax
|
|
|
|
|
-
|
|
|
-
|
|
|
|
67.0
|
|
|
-
|
|
Reduction of reserve for anticipated future losses on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
discontinued products, net of tax
|
|
|
|
|
-
|
|
|
55.9
|
|
|
|
-
|
|
|
55.9
|
|
Reversal of allowance and gain on sale of reinsurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
recoverable, net of tax
|
|
|
|
|
-
|
|
|
32.1
|
|
|
|
-
|
|
|
32.1
|
|
Amortization of other acquired intangible assets, net of tax
|
|
|
|
|
(40.3
|
)
|
|
(33.6
|
)
|
|
|
(80.7
|
)
|
|
(54.7
|
)
|
Net realized capital gains (losses), net of tax
|
|
|
|
|
15.4
|
|
|
(19.6
|
)
|
|
|
33.9
|
|
|
(.3
|
)
|
Net income (2) (GAAP measure)
|
|
|
|
|
$
|
548.8
|
|
|
$
|
536.0
|
|
|
|
$
|
1,214.3
|
|
|
$
|
1,026.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares - basic
|
|
|
|
|
356.8
|
|
|
356.2
|
|
|
|
359.2
|
|
|
342.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares - diluted
|
|
|
|
|
360.3
|
|
|
360.1
|
|
|
|
362.6
|
|
|
345.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (1)
|
|
|
|
|
$
|
1.69
|
|
|
$
|
1.62
|
|
|
|
$
|
3.67
|
|
|
$
|
3.18
|
|
Transaction and integration-related costs, net of tax
|
|
|
|
|
(.10
|
)
|
|
(.23
|
)
|
|
|
(.22
|
)
|
|
(.30
|
)
|
Loss on early extinguishment of long-term debt, net of tax
|
|
|
|
|
-
|
|
|
-
|
|
|
|
(.16
|
)
|
|
-
|
|
Release of litigation-related reserve, net of tax
|
|
|
|
|
-
|
|
|
-
|
|
|
|
.19
|
|
|
-
|
|
Reduction of reserve for anticipated future losses on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
discontinued products, net of tax
|
|
|
|
|
-
|
|
|
.16
|
|
|
|
-
|
|
|
.16
|
|
Reversal of allowance and gain on sale of reinsurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
recoverable, net of tax
|
|
|
|
|
-
|
|
|
.09
|
|
|
|
-
|
|
|
.09
|
|
Amortization of other acquired intangible assets, net of tax
|
|
|
|
|
(.11
|
)
|
|
(.10
|
)
|
|
|
(.22
|
)
|
|
(.16
|
)
|
Net realized capital gains (losses), net of tax
|
|
|
|
|
.04
|
|
|
(.05
|
)
|
|
|
.09
|
|
|
-
|
|
Net income (2) (GAAP measure)
|
|
|
|
|
$
|
1.52
|
|
|
$
|
1.49
|
|
|
|
$
|
3.35
|
|
|
$
|
2.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Information (8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
(Millions)
|
|
|
|
|
2014
|
|
2013
|
|
|
2014
|
|
2013
|
Health Care:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue (3) (excludes net realized capital gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(losses) and an other item)
|
|
|
|
|
$
|
13,766.0
|
|
|
$
|
10,870.7
|
|
|
|
$
|
26,984.3
|
|
|
$
|
19,665.4
|
|
Interest income on proceeds of transaction-related debt
|
|
|
|
|
-
|
|
|
.6
|
|
|
|
-
|
|
|
2.5
|
|
Net realized capital gains (losses)
|
|
|
|
|
20.6
|
|
|
(23.8
|
)
|
|
|
47.3
|
|
|
2.5
|
|
Total revenue (GAAP measure)
|
|
|
|
|
$
|
13,786.6
|
|
|
$
|
10,847.5
|
|
|
|
$
|
27,031.6
|
|
|
$
|
19,670.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Medical Benefit Ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
|
|
|
$
|
7,195.5
|
|
|
$
|
6,068.0
|
|
|
|
$
|
14,010.1
|
|
|
$
|
11,282.0
|
|
Health care costs
|
|
|
|
|
$
|
5,797.2
|
|
|
$
|
4,797.5
|
|
|
|
$
|
11,054.7
|
|
|
$
|
8,912.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial MBR (GAAP measure)
|
|
|
|
|
80.6
|
%
|
|
79.1
|
%
|
|
|
78.9
|
%
|
|
79.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Medical Benefit Ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
|
|
|
$
|
5,220.6
|
|
|
$
|
3,633.3
|
|
|
|
$
|
10,317.7
|
|
|
$
|
6,205.1
|
|
Health care costs
|
|
|
|
|
$
|
4,517.6
|
|
|
$
|
3,209.4
|
|
|
|
$
|
8,836.4
|
|
|
$
|
5,473.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government MBR (7) (GAAP measure)
|
|
|
|
|
86.5
|
%
|
|
88.3
|
%
|
|
|
85.6
|
%
|
|
88.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Medical Benefit Ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
|
|
|
$
|
12,416.1
|
|
|
$
|
9,701.3
|
|
|
|
$
|
24,327.8
|
|
|
$
|
17,487.1
|
|
Health care costs
|
|
|
|
|
$
|
10,314.8
|
|
|
$
|
8,006.9
|
|
|
|
$
|
19,891.1
|
|
|
$
|
14,386.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBR (GAAP measure)
|
|
|
|
|
83.1
|
%
|
|
82.5
|
%
|
|
|
81.8
|
%
|
|
82.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (1)
|
|
|
|
|
$
|
584.3
|
|
|
$
|
592.1
|
|
|
|
$
|
1,303.3
|
|
|
$
|
1,105.3
|
|
Transaction and integration-related costs, net of tax
|
|
|
|
|
(36.3
|
)
|
|
(77.2
|
)
|
|
|
(78.2
|
)
|
|
(92.0
|
)
|
Release of litigation-related reserve, net of tax
|
|
|
|
|
-
|
|
|
-
|
|
|
|
67.0
|
|
|
-
|
|
Amortization of other acquired intangible assets, net of tax
|
|
|
|
|
(40.3
|
)
|
|
(32.9
|
)
|
|
|
(80.0
|
)
|
|
(53.3
|
)
|
Net realized capital gains (losses), net of tax
|
|
|
|
|
13.4
|
|
|
(15.7
|
)
|
|
|
30.7
|
|
|
1.0
|
|
Net income (2) (GAAP measure)
|
|
|
|
|
$
|
521.1
|
|
|
$
|
466.3
|
|
|
|
$
|
1,242.8
|
|
|
$
|
961.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Information continued (8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
(Millions)
|
|
|
|
|
2014
|
|
2013
|
|
|
2014
|
|
2013
|
Group Insurance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue (3) (excludes net realized capital gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(losses) and an other item)
|
|
|
|
|
$
|
626.4
|
|
|
$
|
582.4
|
|
|
|
$
|
1,238.4
|
|
|
$
|
1,163.7
|
|
Gain on sale of reinsurance recoverable
|
|
|
|
|
-
|
|
|
7.2
|
|
|
|
-
|
|
|
7.2
|
|
Net realized capital gains (losses)
|
|
|
|
|
1.3
|
|
|
(2.5
|
)
|
|
|
4.2
|
|
|
3.0
|
|
Total revenue (GAAP measure)
|
|
|
|
|
$
|
627.7
|
|
|
$
|
587.1
|
|
|
|
$
|
1,242.6
|
|
|
$
|
1,173.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (1)
|
|
|
|
|
$
|
60.6
|
|
|
$
|
30.6
|
|
|
|
$
|
101.8
|
|
|
$
|
62.5
|
|
Reversal of allowance and gain on sale of reinsurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
recoverable, net of tax
|
|
|
|
|
-
|
|
|
32.1
|
|
|
|
-
|
|
|
32.1
|
|
Amortization of other acquired intangible assets, net of tax
|
|
|
|
|
-
|
|
|
(.7
|
)
|
|
|
(.7
|
)
|
|
(1.4
|
)
|
Net realized capital gains (losses), net of tax
|
|
|
|
|
.8
|
|
|
(1.7
|
)
|
|
|
2.7
|
|
|
1.9
|
|
Net income (2) (GAAP measure)
|
|
|
|
|
$
|
61.4
|
|
|
$
|
60.3
|
|
|
|
$
|
103.8
|
|
|
$
|
95.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large Case Pensions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue (3) (excludes net realized capital
gains (losses))
|
|
|
|
|
$
|
93.2
|
|
|
$
|
106.3
|
|
|
|
$
|
229.2
|
|
|
$
|
237.0
|
|
Net realized capital gains (losses)
|
|
|
|
|
1.9
|
|
|
(3.5
|
)
|
|
|
.8
|
|
|
(5.0
|
)
|
Total revenue (GAAP measure)
|
|
|
|
|
$
|
95.1
|
|
|
$
|
102.8
|
|
|
|
$
|
230.0
|
|
|
$
|
232.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (1)
|
|
|
|
|
$
|
5.4
|
|
|
$
|
3.8
|
|
|
|
$
|
10.2
|
|
|
$
|
10.0
|
|
Reduction of reserve for anticipated future losses on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
discontinued products, net of tax
|
|
|
|
|
-
|
|
|
55.9
|
|
|
|
-
|
|
|
55.9
|
|
Net realized capital gains (losses), net of tax
|
|
|
|
|
1.2
|
|
|
(2.2
|
)
|
|
|
.5
|
|
|
(3.2
|
)
|
Net income (2) (GAAP measure)
|
|
|
|
|
$
|
6.6
|
|
|
$
|
57.5
|
|
|
|
$
|
10.7
|
|
|
$
|
62.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Financing: (9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss (1)
|
|
|
|
|
$
|
(40.3
|
)
|
|
$
|
(43.9
|
)
|
|
|
$
|
(83.3
|
)
|
|
$
|
(78.7
|
)
|
Transaction and integration-related costs, net of tax
|
|
|
|
|
-
|
|
|
(4.2
|
)
|
|
|
-
|
|
|
(14.0
|
)
|
Loss on early extinguishment of long-term debt, net of tax
|
|
|
|
|
-
|
|
|
-
|
|
|
|
(59.7
|
)
|
|
-
|
|
Net loss (GAAP measure)
|
|
|
|
|
$
|
(40.3
|
)
|
|
$
|
(48.1
|
)
|
|
|
$
|
(143.0
|
)
|
|
$
|
(92.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue (3) (excludes net realized capital
gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and other items) (A)
|
|
|
|
|
$
|
14,485.6
|
|
|
$
|
11,559.4
|
|
|
|
$
|
28,451.9
|
|
|
$
|
21,066.1
|
|
Interest income on proceeds of transaction-related debt
|
|
|
|
|
-
|
|
|
.6
|
|
|
|
-
|
|
|
2.5
|
|
Gain on sale of reinsurance recoverable
|
|
|
|
|
-
|
|
|
7.2
|
|
|
|
-
|
|
|
7.2
|
|
Net realized capital gains (losses)
|
|
|
|
|
23.8
|
|
|
(29.8
|
)
|
|
|
52.3
|
|
|
.5
|
|
Total revenue (GAAP measure) (B)
|
|
|
|
|
$
|
14,509.4
|
|
|
$
|
11,537.4
|
|
|
|
$
|
28,504.2
|
|
|
$
|
21,076.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses (C)
|
|
|
|
|
$
|
2,545.4
|
|
|
$
|
2,040.7
|
|
|
|
$
|
5,035.1
|
|
|
$
|
3,755.6
|
|
Transaction and integration-related costs
|
|
|
|
|
55.8
|
|
|
95.9
|
|
|
|
119.5
|
|
|
120.2
|
|
Release of litigation-related reserve
|
|
|
|
|
-
|
|
|
-
|
|
|
|
(103.0
|
)
|
|
-
|
|
Reversal of allowance on reinsurance recoverable
|
|
|
|
|
-
|
|
|
(42.2
|
)
|
|
|
-
|
|
|
(42.2
|
)
|
Total operating expenses (GAAP measure) (D)
|
|
|
|
|
$
|
2,601.2
|
|
|
$
|
2,094.4
|
|
|
|
$
|
5,051.6
|
|
|
$
|
3,833.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expense Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense ratio (5) (C)/(A)
|
|
|
|
|
17.6
|
%
|
|
17.7
|
%
|
|
|
17.7
|
%
|
|
17.8
|
%
|
Total company expense ratio (D)/(B) (GAAP measure)
|
|
|
|
|
17.9
|
%
|
|
18.2
|
%
|
|
|
17.7
|
%
|
|
18.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Membership
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
June 30,
|
(Thousands)
|
|
|
|
|
2014
|
|
|
2014
|
|
|
2013
|
|
|
2013
|
Medical Membership:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
19,503
|
|
|
19,226
|
|
|
18,821
|
|
|
18,634
|
Medicare Advantage
|
|
|
|
|
1,113
|
|
|
1,101
|
|
|
968
|
|
|
948
|
Medicare Supplement
|
|
|
|
|
434
|
|
|
417
|
|
|
386
|
|
|
341
|
Medicaid
|
|
|
|
|
2,054
|
|
|
1,975
|
|
|
2,015
|
|
|
2,045
|
Total Medical Membership
|
|
|
|
|
23,104
|
|
|
22,719
|
|
|
22,190
|
|
|
21,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer-Directed Health Plans (10)
|
|
|
|
|
3,566
|
|
|
3,528
|
|
|
3,254
|
|
|
3,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dental Membership:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Dental Membership
|
|
|
|
|
14,439
|
|
|
14,565
|
|
|
14,145
|
|
|
14,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pharmacy Benefit Management Membership:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
10,840
|
|
|
10,525
|
|
|
10,191
|
|
|
10,062
|
Medicare Prescription Drug Plan (stand-alone)
|
|
|
|
|
1,609
|
|
|
1,632
|
|
|
2,166
|
|
|
2,084
|
Medicare Advantage Prescription Drug Plan
|
|
|
|
|
735
|
|
|
725
|
|
|
588
|
|
|
572
|
Medicaid
|
|
|
|
|
2,105
|
|
|
1,301
|
|
|
1,214
|
|
|
1,128
|
Total Pharmacy Benefit Management Services
|
|
|
|
|
15,289
|
|
|
14,183
|
|
|
14,159
|
|
|
13,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Margins
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
(Millions)
|
|
|
|
|
2014
|
|
2013
|
|
|
2014
|
|
2013
|
Reconciliation to Income Before Income Taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (1) before income taxes, excluding
interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expense (A)
|
|
|
|
|
$
|
1,099.8
|
|
|
$
|
972.7
|
|
|
|
$
|
2,421.4
|
|
|
$
|
1,825.7
|
|
Interest expense *
|
|
|
|
|
(81.3
|
)
|
|
(77.5
|
)
|
|
|
(166.9
|
)
|
|
(140.6
|
)
|
Transaction and integration-related costs
|
|
|
|
|
(55.8
|
)
|
|
(101.3
|
)
|
|
|
(119.5
|
)
|
|
(138.4
|
)
|
Loss on early extinguishment of long-term debt
|
|
|
|
|
-
|
|
|
-
|
|
|
|
(91.9
|
)
|
|
-
|
|
Release of litigation-related reserve
|
|
|
|
|
-
|
|
|
-
|
|
|
|
103.0
|
|
|
-
|
|
Reduction of reserve for anticipated future losses on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
discontinued products
|
|
|
|
|
-
|
|
|
86.0
|
|
|
|
-
|
|
|
86.0
|
|
Reversal of allowance and gain on sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of reinsurance recoverable
|
|
|
|
|
-
|
|
|
49.4
|
|
|
|
-
|
|
|
49.4
|
|
Amortization of other acquired intangible assets
|
|
|
|
|
(61.9
|
)
|
|
(51.8
|
)
|
|
|
(124.1
|
)
|
|
(84.2
|
)
|
Net realized capital gains (losses)
|
|
|
|
|
23.8
|
|
|
(29.8
|
)
|
|
|
52.3
|
|
|
.5
|
|
Income before income taxes (GAAP measure)
|
|
|
|
|
$
|
924.6
|
|
|
$
|
847.7
|
|
|
|
$
|
2,074.3
|
|
|
$
|
1,598.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to Net Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings,(1) excluding interest expense, net of
tax
|
|
|
|
|
$
|
662.9
|
|
|
$
|
633.0
|
|
|
|
$
|
1,440.5
|
|
|
$
|
1,190.5
|
|
Interest expense, net of tax *
|
|
|
|
|
(52.9
|
)
|
|
(50.4
|
)
|
|
|
(108.5
|
)
|
|
(91.4
|
)
|
Transaction and integration-related costs, net of tax
|
|
|
|
|
(36.3
|
)
|
|
(81.4
|
)
|
|
|
(78.2
|
)
|
|
(106.0
|
)
|
Loss on early extinguishment of long-term debt, net of tax
|
|
|
|
|
-
|
|
|
-
|
|
|
|
(59.7
|
)
|
|
-
|
|
Release of litigation-related reserve, net of tax
|
|
|
|
|
-
|
|
|
-
|
|
|
|
67.0
|
|
|
-
|
|
Reduction of reserve for anticipated future losses on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
discontinued products, net of tax
|
|
|
|
|
-
|
|
|
55.9
|
|
|
|
-
|
|
|
55.9
|
|
Reversal of allowance and gain on sale of reinsurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
recoverable, net of tax
|
|
|
|
|
-
|
|
|
32.1
|
|
|
|
-
|
|
|
32.1
|
|
Amortization of other acquired intangible assets, net of tax
|
|
|
|
|
(40.3
|
)
|
|
(33.6
|
)
|
|
|
(80.7
|
)
|
|
(54.7
|
)
|
Net realized capital gains (losses), net of tax
|
|
|
|
|
15.4
|
|
|
(19.6
|
)
|
|
|
33.9
|
|
|
(.3
|
)
|
Net income (2) (GAAP measure) (B)
|
|
|
|
|
$
|
548.8
|
|
|
$
|
536.0
|
|
|
|
$
|
1,214.3
|
|
|
$
|
1,026.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue (3) (excludes net realized capital
gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and other items) (C)
|
|
|
|
|
$
|
14,485.6
|
|
|
$
|
11,559.4
|
|
|
|
$
|
28,451.9
|
|
|
$
|
21,066.1
|
|
Interest income on proceeds of transaction-related debt
|
|
|
|
|
-
|
|
|
.6
|
|
|
|
-
|
|
|
2.5
|
|
Gain on sale of reinsurance recoverable
|
|
|
|
|
-
|
|
|
7.2
|
|
|
|
-
|
|
|
7.2
|
|
Net realized capital gains (losses)
|
|
|
|
|
23.8
|
|
|
(29.8
|
)
|
|
|
52.3
|
|
|
.5
|
|
Total revenue (GAAP measure) (D)
|
|
|
|
|
$
|
14,509.4
|
|
|
$
|
11,537.4
|
|
|
|
$
|
28,504.2
|
|
|
$
|
21,076.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating and Net Income Margins:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax operating margin (6) (A)/(C)
|
|
|
|
|
7.6
|
%
|
|
8.4
|
%
|
|
|
8.5
|
%
|
|
8.7
|
%
|
After-tax net income margin (B)/(D) (GAAP measure)
|
|
|
|
|
3.8
|
%
|
|
4.6
|
%
|
|
|
4.3
|
%
|
|
4.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Interest expense of $50.4 million ($77.5 million pretax) and $91.4
million ($140.6 million pretax) for the three and six months ended June
30, 2013, respectively, excludes the negative cost of carry on
transaction-related debt, which was issued in connection with the
acquisition of Coventry Health Care, Inc. ("Coventry"). Those costs are
presented within transaction and integration-related costs prior to the
closing of the acquisition of Coventry, which occurred on May 7, 2013
(the "Acquisition Date"). After the Acquisition Date, the interest
expense associated with the transaction-related debt is included in
interest expense.
(1) Operating earnings and operating earnings per share
exclude from net income attributable to Aetna and operating expenses and
operating revenues exclude, as applicable, amortization of other
acquired intangible assets, net realized capital gains and losses and
other items, if any, that neither relate to the ordinary course of our
business nor reflect our underlying business performance. Although the
excluded items may recur, management believes that operating earnings,
operating earnings per share, operating revenue, operating expenses and
our operating expense ratio provide a more useful comparison of Aetna's
underlying business performance from period to period. Management uses
operating earnings to assess business performance and to make decisions
regarding Aetna's operations and the allocation of resources among
Aetna's businesses. Operating earnings is also the measure reported to
the Chief Executive Officer for these purposes. Non-GAAP financial
measures we disclose, such as operating earnings, operating earnings per
share, operating revenue, operating expenses, pretax operating margin
and our operating expense ratio, should not be considered a substitute
for, or superior to, financial measures determined or calculated in
accordance with U.S. generally accepted accounting principles ("GAAP").
For the periods covered in this press release, the following items are
excluded from operating earnings, operating expenses and operating
revenues, as applicable, because we believe they neither relate to the
ordinary course of our business nor reflect our underlying business
performance:
-
We incurred transaction and integration-related costs of $36.3 million
($55.8 million pretax) and $78.2 million ($119.5 million pretax)
during the three and six months ended June 30, 2014, respectively,
related to the acquisitions of Coventry and the InterGlobal group
("InterGlobal"), and $81.4 million ($101.3 million pretax) and $106.0
million ($138.4 million pretax) during the three and six months ended
June 30, 2013, respectively, related to the acquisition of Coventry.
Transaction costs include advisory, legal and other professional fees
which are not deductible for tax purposes and are reflected in our
GAAP Consolidated Statements of Income in general and administrative
expenses. Transaction costs also include transaction-related payments
as well as expenses related to the negative cost of carry associated
with the permanent financing that we obtained in November 2012 for the
Coventry acquisition. Prior to the Acquisition Date, the negative cost
of carry was excluded from operating earnings and operating earnings
per share. The components of the negative cost of carry are reflected
in our GAAP Consolidated Statements of Income in interest expense, net
investment income, and general and administrative expenses. On and
after the Acquisition Date, the interest expense and general and
administrative expenses associated with the permanent financing are no
longer excluded from operating earnings or operating earnings per
share.
-
In the first quarter of 2014, we incurred a loss on the early
extinguishment of long-term debt of $59.7 million ($ 91.9 million
pretax) related to the redemption of our 6.0% senior notes due 2016.
-
In the fourth quarter of 2012, we recorded a charge of $78.0 million
($120.0 million pretax) related to the settlement of purported class
action litigation regarding Aetna's payment practices related to
out-of-network health care providers. That charge included the
estimated cost of legal fees of plaintiffs' counsel and the costs of
administering the settlement. In the first quarter of 2014, we
exercised our right to terminate the settlement agreement. As a
result, we released the reserve established in connection with the
settlement agreement, net of amounts due to the settlement
administrator, which reduced first quarter 2014 other general and
administrative expenses by $67.0 million ($103.0 million pretax).
-
In the second quarter of 2013, we reduced the reserve for anticipated
future losses on discontinued products by $55.9 million ($86.0 million
pretax). We believe excluding any changes in the reserve for
anticipated future losses on discontinued products from operating
earnings provides more useful information as to our continuing
products and is consistent with the treatment of the operating results
of these discontinued products, which are credited or charged to the
reserve and do not affect our operating results.
-
In 2008, as a result of the liquidation proceedings of Lehman Re Ltd.
("Lehman Re"), a subsidiary of Lehman Brothers Holdings Inc., we
recorded an allowance against our reinsurance recoverable from Lehman
Re of $27.4 million ($42.2 million pretax). This reinsurance was
placed in 1999 and was on a closed book of paid-up group whole life
insurance business. In the second quarter of 2013, we sold our claim
against Lehman Re to an unrelated third party (including the
reinsurance recoverable) and terminated the reinsurance arrangement.
Upon the sale of the claim and termination of the arrangement, we
released the related allowance thereby reducing other general and
administrative expenses by $27.4 million ($42.2 million pretax) and
recognized a $4.7 million ($7.2 million pretax) gain on the sale in
fees and other revenue.
-
Other acquired intangible assets relate to our acquisition activities
and are amortized over their useful lives. However, this amortization
does not directly relate to the underwriting or servicing of products
for customers and is not directly related to the core performance of
Aetna's business operations.
-
Net realized capital gains and losses arise from various types of
transactions, primarily in the course of managing a portfolio of
assets that support the payment of liabilities. However, these
transactions do not directly relate to the underwriting or servicing
of products for customers and are not directly related to the core
performance of Aetna's business operations.
For a reconciliation of these items to financial measures calculated
under GAAP, refer to the tables on pages 9 through 11 and 13 of this
press release.
(2) Net Income refers to net income attributable to Aetna
reported in our GAAP Consolidated Statements of Income. Unless otherwise
indicated, all references in this press release to operating earnings,
operating earnings per share, net income and net income per share are
based upon net income attributable to Aetna, which excludes amounts
attributable to non-controlling interests.
(3) Operating revenue excludes net realized capital gains and
losses, interest income on the proceeds of the transaction-related debt
and the gain on sale of a reinsurance recoverable from Lehman Re as
noted in (1) above. Refer to the tables on pages 10, 11 and
13 of this press release for a reconciliation of operating revenue to
total revenue calculated under GAAP. Projected operating revenue
excludes net realized capital gains of $52.3 million pretax reported by
Aetna for the six months ended June 30, 2014. Projected operating
revenue also excludes any future net realized capital gains or losses
and other items, if any, from total revenue. Aetna is not able to
project the amount of future net realized capital gains or losses or any
such other items (other than integration-related costs related to the
Coventry and InterGlobal acquisitions) and therefore cannot reconcile
projected operating revenue to projected total revenue in any period.
(4) Projected 2014 operating earnings per share exclude from
net income estimated after-tax amortization of other acquired intangible
assets of approximately $157 million ($241 million pretax), projected
integration-related costs related to the Coventry and InterGlobal
acquisitions, any future net realized capital gains and losses and other
items, if any, that neither relate to the ordinary course of our
business nor reflect our underlying business performance. After-tax
amortization of other acquired intangible assets relates to our
acquisition activities, including Coventry and InterGlobal. Aetna is not
able to project the amount of future net realized capital gains and
losses or any such other items (other than projected integration-related
costs related to the Coventry and InterGlobal acquisitions) and
therefore cannot reconcile projected operating earnings per share to
projected net income per share in any period. Projected full-year 2014
operating earnings per share reflect a range of 359 million to 360
million weighted average diluted shares.
(5) The operating expense ratio excludes net realized capital
gains and losses and other items, if any, that are excluded from
operating revenues or operating expenses, as noted in (1)
above. For a reconciliation of this metric to the comparable GAAP
measure refer to page 11 of this press release.
(6) In order to provide useful information regarding Aetna's
profitability on a basis comparable to others in the industry, without
regard to financing decisions, income taxes or amortization of other
acquired intangible assets (each of which may vary for reasons not
directly related to the performance of the underlying business), Aetna's
pretax operating margin is based on operating earnings excluding
interest expense and income taxes. Management also uses pretax operating
margin to assess Aetna's performance, including performance versus
competitors.
(7) Our Government MBR is the combined MBR of our Medicare
and Medicaid businesses.
(8) Operating revenue and operating expense information is
presented before income taxes. Operating earnings information is
presented net of income taxes.
(9) Our Corporate Financing segment is not a business
segment. It is added to our business segments to reconcile our segment
reporting to our consolidated results. The net loss of the Corporate
Financing segment includes interest expense on our outstanding debt and
the financing components of our pension and other postretirement benefit
plan expenses (benefits). As described in (1) above, the
operating earnings of the Corporate Financing segment exclude other
items, if any, that neither relate to the ordinary course of our
business nor reflect our underlying business performance. Prior to the
Acquisition Date, the Corporate Financing segment operating loss
excluded the interest expense components of transaction-related costs.
Since the Acquisition Date, the Corporate Financing segment operating
loss has included the interest expense component of transaction-related
costs.
(10) Represents members in consumer-directed health plans
included in Commercial medical membership.
CAUTIONARY STATEMENT; ADDITIONAL INFORMATION -- -- Certain information
in this press release is forward-looking, including our projections as
to operating earnings per share, Commercial medical cost trend, pretax
operating margin, operating earnings per share accretion related to the
acquisition of Coventry, year-end 2014 medical membership, operating
revenue, amortization of other acquired intangible assets, and weighted
average diluted shares. 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
our control. Important risk factors could cause actual future results
and other future events to differ materially from those currently
estimated by management, including, but not limited to: the
implementation of health care reform legislation, including collection
of Health Care Reform fees, assessments and taxes through increased
premiums; the implementation of health insurance exchanges;
unanticipated increases in medical costs (including increased intensity
or medical utilization as a result of flu or otherwise; changes in
membership mix to higher cost or lower-premium products or
membership-adverse selection; medical cost increases resulting from
unfavorable changes in contracting or re-contracting with providers
(including as a result of provider consolidation and/or integration);
and increased pharmacy costs (including in our health insurance exchange
products)); the profitability of our public health insurance exchange
and Medicare Advantage products, where membership is greater than our
initial projections and may have more adverse health status and/or
higher medical benefit utilization than we projected; our ability to
achieve the synergies and value creation contemplated by the Coventry
acquisition; our ability to effectively integrate Coventry's businesses;
the diversion of management time on Coventry integration-related issues;
our ability to offset Medicare Advantage and PDP rate pressures; and
changes in our future cash requirements, capital requirements, results
of operations, financial condition and/or cash flows. Health care reform
will continue to significantly impact our business operations and
financial results, including our pricing and medical benefit ratios.
Components of the legislation will be phased in over the next several
years, with the most significant changes occurring in 2014, and we will
be required to dedicate material resources and incur material expenses
during that time to implement health care reform. Many significant parts
of the legislation, including aspects of public health insurance
exchanges, Medicaid expansion, enforcement related reporting for the
individual and employer mandates, and reinsurance, risk corridor and
risk adjustment, require further guidance and clarification at the
federal level and/or in the form of regulations and actions by state
legislatures to implement the law. In addition, pending efforts in the
U.S. Congress to amend or restrict funding for various aspects of health
care reform, and litigation challenging aspects of the law continue to
create additional uncertainty about the ultimate impact of health care
reform. As a result, many of the impacts of health care reform will not
be known for the next several years. Other important risk factors
include: adverse changes in health care reform and/or other federal or
state government policies or regulations as a result of health care
reform or otherwise (including legislative, judicial or regulatory
measures that would affect our business model, restrict funding for or
amend various aspects of health care reform, limit our ability to price
for the risk we assume and/or reflect reasonable costs or profits in our
pricing, such as mandated minimum medical benefit ratios, or eliminate
or reduce ERISA pre-emption of state laws (increasing our potential
litigation exposure)); adverse and less predictable economic conditions
in the U.S. and abroad (including unanticipated levels of, or increases
in the rate of, unemployment); our ability to diversify our sources of
revenue and earnings (including by expanding our direct-to-consumer
sales and capabilities and our foreign operations), transform our
business model, develop new products and optimize our business
platforms; the success of our HealthagenSM, Accountable Care
Solutions and health information technology initiatives; adverse changes
in size, product or geographic mix or medical cost experience of
membership; managing executive succession and key talent retention,
recruitment and development; failure to achieve and/or delays in
achieving desired rate increases and/or profitable membership growth due
to regulatory review or other regulatory restrictions, the difficult
economy and/or significant competition, especially in key geographic
areas where membership is concentrated, including successful protests of
business awarded to us; failure to adequately implement Health Care
Reform; reputational or financial issues arising from our social media
activities, data security breaches, other cybersecurity risks or other
causes; the outcome of various litigation and regulatory matters,
including audits, challenges to our minimum MLR rebate methodology
and/or reports, guaranty fund assessments, intellectual property
litigation and litigation concerning, and ongoing reviews by various
regulatory authorities of, certain of our payment practices with respect
to out-of-network providers and/or life insurance policies; our ability
to integrate, simplify, and enhance our existing information technology
systems and platforms to keep pace with changing customer and regulatory
needs; our ability to successfully integrate our businesses (including
Coventry, the InterGlobal group and other businesses we may acquire in
the future) and implement multiple strategic and operational initiatives
simultaneously; our ability to manage health care and other benefit
costs; adverse program, pricing, funding or audit actions by federal or
state government payors, including as a result of sequestration and/or
curtailment or elimination of the Centers for Medicare & Medicaid
Services' star rating bonus payments; our ability to reduce
administrative expenses while maintaining targeted levels of service and
operating performance; failure by a service provider to meet its
obligations to us; our ability to develop and maintain relationships
(including collaborative risk-sharing agreements) with providers while
taking actions to reduce medical costs and/or expand the services we
offer; our ability to demonstrate that our products lead to access to
quality care by our members; our ability to maintain our relationships
with third-party brokers, consultants and agents who sell our products;
increases in medical costs or Group Insurance claims resulting from any
epidemics, acts of terrorism or other extreme events; 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; the ability to successfully complete the implementation of our
agreement with CVS Caremark Corporation on a timely basis and to achieve
projected operating efficiencies for the agreement; a downgrade in our
financial ratings; and adverse impacts from any failure to raise the
U.S. Federal government's debt ceiling or any sustained U.S. Federal
government shut down. For more discussion of important risk factors that
may materially affect Aetna, please see the risk factors contained in
Aetna's 2013 Annual Report on Form 10-K ("Aetna's 2013 Annual Report")
on file with the Securities and Exchange Commission (the "SEC"). You
also should read Aetna's 2013 Annual Report and Aetna's Quarterly Report
on Form 10-Q for the quarter ended March 31, 2014, on file with the SEC,
and Aetna's Quarterly Report on Form 10-Q for the quarter ended June 30,
2014, when filed with the SEC, for a discussion of Aetna's historical
results of operations and financial condition.
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