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AETNA INC.
(Name of Registrant as Specified in Its Charter)
(Name of Persons Filing Proxy Statement, if Other Than the Registrant)
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Aetna Inc. issued the following press release today:
Media Contact:
151 Farmington Avenue Roy E. Clason, Jr.
Hartford, Conn. 06156 (860) 273-7392
Clasonr@aetna.com
Investor Contact:
Dennis Oakes
(860) 273-6184
Oakesd@aetna.com
AETNA REPORTS FIRST QUARTER 2002 RESULTS
o Company reports positive operating earnings in all segments
o Commercial HMO medical cost ratio improved to 86.2 percent
o Previously announced $2.97 billion noncash impairment of Goodwill recorded
o Company to provide full-year earnings guidance during 9 a.m. call
HARTFORD, CT, April 25, 2002 -- Aetna (NYSE: AET) today announced first quarter
2002 operating earnings, excluding other items1, of $64.9 million, or $0.44 per
share.
"Aetna's turnaround strategy clearly has taken root, as evidenced by these
positive first-quarter results," Chairman, President and CEO John W. Rowe,
M.D., said. "And while we have made significant progress, we view this as only
one milestone in an effort that will continue throughout this year and 2003.
Our goal is to become a more cost-effective, efficient organization, with the
right consumer-focused products and services to return the company to a
position of industry leadership."
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Aetna/2
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Quarterly Financial Results at a glance
Three Months Ended
March 31, 2002 March 31, 2001 December 31, 2001
Revenues $5.26 billion $6.43 billion $6.04 billion
Operating earnings (loss) $64.9 million $(36.6) million $(84.6) million
excluding other items(1)
Per share operating $0.44 $(0.26) $(0.59)
earnings (loss)
excluding other items
Operating margin* 3.2 percent 1.7 percent 0.4 percent
*Pretax operating margin is calculated by dividing pretax operating results
excluding other items, interest expense and goodwill/intangibles amortization
by total revenue, excluding net realized capital gains or losses.
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FAS No. 142 Pro Forma Basis
Financial Accounting Standard No. 142, "Goodwill and Other Intangibles," was
implemented on January 1, 2002. This standard requires the elimination of
goodwill and certain types of intangible asset amortization on a prospective
basis. Accordingly, operating earnings for 2002 do not include amortization of
goodwill. The following supplemental table provides operating results for the
2001 period on a comparable basis to that of 2002:
Three Months Ended
March 31, 2002 March 31, 2001 December 31, 2001
Operating earnings (loss) $64.9 million $15.0 million $(34.6) million
excluding other items
Per share operating $0.44 $0.10 $(0.24)
earnings (loss)
excluding other items
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Health Care business results
----------------------------
Health Care, which provides a full range of insured and self-insured health
care, indemnity, and dental products and services, reported:
o Operating earnings of $44.7 million, compared with a first quarter 2001
loss of $(72.7) million and fourth quarter 2001 loss of $(98.1) million.
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Aetna/3
o A commercial HMO medical cost ratio of 86.2 percent in the first quarter
2002, compared with 90.0 percent for the first quarter 2001 and 89.7
percent for the fourth quarter 2001. This significant improvement resulted
primarily from premium increases outpacing increased medical costs.
o A reduction in health care operating expenses of $44.0 million from the
first quarter 2001 and $76.9 million from the fourth quarter 2001,
resulting from ongoing cost-reduction efforts.
o A Medicare HMO medical cost ratio of 80.5 percent, compared with 93.7
percent for the first quarter 2001 and 92.9 percent for the fourth quarter
2001. These decreases were due primarily to lower utilization, a small
amount of favorable reserve development and benefit plan changes.
o Total health membership of approximately 15.0 million at March 31, 2002.
Group Insurance business results
--------------------------------
Group Insurance, which includes Group Life, Disability and Long-Term Care
products, reported:
o Operating earnings of $33.0 million, compared with $45.2 million in the
first quarter 2001 and $36.3 million in the fourth quarter 2001. The
decline from first quarter 2001 was driven by lower net investment income.
The decline from the fourth quarter 2001 was primarily the result of
seasonally higher Group Life claim experience.
o Membership of approximately 11.9 million, an increase of approximately
400,000 from fourth quarter 2001.
Large Case Pensions business results
------------------------------------
Large Case Pensions, which manages a variety of discontinued and other
retirement and savings products for defined benefit and defined contribution
plan customers, reported:
o Operating earnings of $6.3 million, compared with $10.6 million in the
first quarter 2001 and $3.8 million in the fourth quarter 2001. The
year-over-year decrease was consistent with the continued decline in
underlying liabilities and related assets in keeping with the run-off
nature of the business. The sequential increase was driven primarily by
higher interest margins and lower expenses.
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Aetna/4
Total company results
---------------------
o Total Revenues. Revenues were $5.26 billion in the first quarter 2002,
compared with $6.43 billion in the first quarter 2001 and $6.04 billion in
the fourth quarter 2001. These decreases primarily were the result of
lower health membership, partially offset by higher per-member premiums.
o Total Operating Expenses. Pretax operating expenses were $1.07 billion in
the first quarter 2002, compared with $1.11 billion in the first quarter
2001 and $1.15 billion in the fourth quarter 2001.
o Corporate Interest expense was $19.1 million after tax in the first
quarter 2002, compared with $19.7 million after tax in the first quarter
2001 and $26.6 million after tax in the fourth quarter 2001.
o Net Income/Loss. Aetna reported a net loss of $2.83 billion in the first
quarter of 2002, primarily as a result of recording a $2.97 billion
noncash impairment of goodwill. In the first quarter 2002 Aetna adopted
Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets." This standard requires companies to value goodwill assets and to
record any impairment on those assets. Goodwill no longer will be
amortized as a result of implementing this standard. This impairment has
the effect of reducing the goodwill asset and a corresponding amount of
shareholders' equity. This impairment does not affect operating earnings,
but is factored into the company's net results.
The public can access the first-quarter conference call today at 9 a.m. EDT by
dialing 888-209-4007. At that time, Aetna will give its full 2002 earnings
outlook. A live audio Webcast and replays will be available through Aetna's
Investor Information link on the Internet at www.aetna.com. A transcript of the
call will be available at 3 p.m. today on www.aetna.com.
Aetna is one of the nation's leading providers of health care and related group
benefits, serving approximately 15.0 million health care members, 12.1 million
dental members and 11.9 million group insurance customers, as of March 31,
2002. Information about Aetna is available at www.aetna.com.
- more -
(1) All operating results exclude discontinued operations, net realized capital
gains and losses, cumulative effect adjustments and other items, in order to
provide a comparison that the company believes better reflects its underlying
business performance. Set forth below is an itemization of other items excluded
from operating results and a reconciliation of operating results to net loss
under generally accepted accounting principles for each period shown:
Three Months Ended:
-------------------------------------------------
March 31, March 31, December 31,
2002 2001 2001
------------- ------------- -------------
Operating earnings (loss) from continuing
operations before other items $ 64.9 $ (36.6) $ (84.6)
Other items, net of tax:
Health Care Segment:
Income tax reserve release (prior
period related) 19.8 - -
Favorable (unfavorable) reserve
developments related to Medicare
markets exited January 1, 2001 - (34.3) 1.1
Severance and facilities charge - - (125.1)
Net realized capital gains 3.3 22.2 9.6
--------- -------- --------
Income (loss) from continuing operations 88.0 (48.7) (199.0)
Income from discontinued operations, net of
tax 50.0 - 11.4
--------- -------- --------
Income (loss) before cumulative effect
adjustments 138.0 (48.7) (187.6)
Cumulative effect adjustments, net of tax (2,965.7) .5 -
--------- -------- --------
Net loss $(2,827.7) $ (48.2) $ (187.6)
========= ======== ========
ADDITIONAL INFORMATION; CAUTIONARY STATEMENT -- Aetna's 2002 Proxy Statement was
filed with the Securities and Exchange Commission on March 18, 2002 and mailed
to Aetna's shareholders on or about March 20, 2002. Aetna filed additional
participant information with the SEC on April 4, 2002. Aetna's shareholders
should read these materials and all additional materials that Aetna files with
the SEC, because they contain important information relating to the 2002 Annual
Meeting. Certain information in this press release is forward looking.
Forward-looking information is based on management's estimates, assumptions and
projections, and is subject to significant uncertainties and other factors,
many of which are beyond Aetna's control. Important risk factors could cause
actual future results and other future events to differ materially from those
currently estimated by management. Those risk factors include, but are not
limited to: unanticipated increases in medical costs (including increased
medical utilization, increased pharmacy costs, increases resulting from
unfavorable changes in contracting or 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 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); increases in medical costs or Group Insurance claims
resulting from the aftermath of the events of September 11, 2001 and the
continued threat of terrorism; the ability to achieve targeted savings from
Aetna/6
work force reductions and to otherwise reduce administrative expenses in light
of significant membership reductions being experienced in 2002; 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 successfully implement
Aetna's new customer model approach; lower levels of investment income from
continued lower interest rates; adverse government regulation (including
legislative proposals to eliminate or reduce ERISA pre-emption 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 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, particularly given the significant membership
reductions being experienced in 2002; and the outcome of litigation and
regulatory matters, including numerous purported health care class actions and
ongoing reviews of business practices by various regulatory agencies. For more
discussion of important factors that may materially affect Aetna, please see
the risk factors contained in Aetna's 2001 Report on Form 10-K, on file with
the Securities and Exchange Commission. You also should read Aetna's 2002 first
quarter Form 10-Q when filed with the Securities and Exchange Commission for a
discussion of Aetna's historical results of operations and financial condition.
# # #
In connection with this press release, Aetna issued the following financial
supplement:
Aetna/6
Consolidated Statements of Income (Loss)
($ in Millions)
Three Months Ended March 31,
----------------------------
2002 2001
---------- ---------
Continuing operations
Revenue:
Health care premiums $ 4,044.8 $ 5,067.7
Other premiums 421.9 434.7
Administrative services contract fees 464.6 466.6
Net investment income 317.4 411.0
Other income 10.6 14.2
Net realized capital gains 5.4 34.5
---------- ---------
Total revenue 5,264.7 6,428.7
---------- ---------
Benefits and expenses:
Health care costs (1) 3,448.2 4,604.2
Current and future benefits 567.6 621.3
Operating expenses 1,072.7 1,114.2
Interest expense 29.3 30.3
Goodwill amortization (3) - 49.5
Other acquired intangible assets amortization 49.2 57.7
---------- ---------
Total benefits and expenses 5,167.0 6,477.2
---------- ---------
Income (loss) from continuing operations before
income taxes and cumulative effect adjustments 97.7 (48.5)
Income taxes 9.7 0.2
---------- ---------
Income (loss) from continuing operations 88.0 (48.7)
Income from discontinued operations, net of tax (2) 50.0 -
---------- ---------
Income (loss) before cumulative effect adjustments 138.0 (48.7)
Cumulative effect adjustments, net of tax (3) (2,965.7) 0.5
---------- ---------
Net loss $ (2,827.7) $ (48.2)
========== =========
Shareholders' equity $ 7,027.8 $10,117.9
========== =========
(1) Includes an other item of $52.7 million ($34.3 million after-tax) for the
three months ended March 31, 2001, of unfavorable reserve developments
related to Medicare markets the Company exited January 1, 2001.
(2) During the three months ended March 31, 2002, the Company released $50
million of federal tax reserves resulting from the resolution of several
Internal Revenue Service audit issues related to former Aetna's property
and casualty business.
(3) For 2002, this relates to the adoption of a new accounting standard,
Goodwill and Other Intangible Assets (FAS 142). Subsequent to January 1,
2002, goodwill is no longer amortized under FAS 142. For 2001, this
relates to the adoption of Accounting for Derivative Instruments and
Hedging Activities (FAS 133).
Aetna/7
Per Share Data
Three Months Ended March 31,
----------------------------
2002 2001(1)
---------- ---------
Results per common share:
Operating earnings (loss) from continuing
operations excluding other items (2) $ .44 $ (0.26)
========== =========
Operating earnings (loss) from continuing
operations including other items (2) $ .57 $ (0.49)
========== =========
Income (loss) from continuing operations $ .59 $ (0.34)
========== =========
Income from discontinued operations $ .34 $ -
========== =========
Net loss $ (19.00) $ (0.34)
========== =========
Shareholders' equity $ 48.16 $ 71.02
========== =========
Weighted average common shares - basic 144,980,117 143,375,253
=========== ===========
Weighted average common shares - diluted (1) 148,800,140 147,592,490
=========== ===========
(1) Since the Company reported a loss before cumulative effect adjustments for
the three months ended March 31, 2001, the effect of dilutive securities
has been excluded from per common share computations for that period, as
including such securities would be anti-dilutive. Actual common shares
outstanding at March 31, 2002 were 145.9 million.
(2) Other items are displayed by Segment on Page 8.
Aetna/8
Segment Information (1)
($ in Millions)
Three Months Ended March 31,
----------------------------
2002 2001
---------- ---------
Health Care:
Revenue $ 4,581.7 $ 5,640.0
========== =========
Operating earnings before goodwill amortization
and other items $ 76.7 $ 13.7
Goodwill amortization - (48.8)
Other acquired intangible assets amortization (32.0) (37.6)
---------- ---------
Operating earnings (loss) before other items 44.7 (72.7)
Other items (see detail below) 19.8 (34.3)
---------- ---------
Operating income (loss) after other items $ 64.5 $ (107.0)
========== =========
Group Insurance:
Revenue $ 438.1 $ 439.5
========== =========
Operating earnings after other items $ 33.0 $ 45.2
========== =========
Large Case Pensions:
Revenue $ 239.5 $ 314.7
========== =========
Operating earnings after other items $ 6.3 $ 10.6
========== =========
Corporate Interest Expense (after-tax) $ (19.1) $ (19.7)
========== =========
Total Company:
Operating earnings (loss) from continuing
operations before other items $ 64.9 $ (36.6)
Other items:
Health Care Segment:
Income tax reserve release (prior
period related) 19.8 -
Unfavorable reserve runoff - exited
Medicare markets - (34.3)
---------- ---------
Operating earnings (loss) from continuing
operations including other items 84.7 (70.9)
Net realized capital gains 3.3 22.2
---------- ---------
Income (loss) from continuing operations 88.0 (48.7)
Income from discontinued operations 50.0 -
---------- ---------
Income (loss) before cumulative effect
adjustments 138.0 (48.7)
Cumulative effect adjustments (2) (2,965.7) 0.5
---------- ---------
Net loss $ (2,827.7) $ (48.2)
========== =========
(1) All amounts, except revenue, are presented net of taxes. Revenue and
operating earnings exclude net realized capital gains.
(2) For 2002, this relates to the adoption of a new accounting standard,
Goodwill and Other Intangible Assets (FAS 142). Subsequent to January 1,
2002, goodwill is no longer amortized under FAS 142. For 2001, this
relates to the adoption of Accounting for Derivative Instruments and
Hedging Activities(FAS 133).
Aetna/9
Enrollment and Other Statistics
% Change From:
----------------------------
March 31, March 31, December 31, March 31, December 31,
2002 2001 2001 2001 2001
----------- ----------- ------------- ------------ -------------
Membership by Product:
(Thousands)
Health Care
Commercial
HMO 6,340 8,490 7,798 (25.3) (18.7)
POS 2,712 3,175 3,003 (14.6) (9.7)
PPO 3,980 4,121 4,075 (3.4) (2.3)
Indemnity 1,722 2,016 1,895 (14.6) (9.1)
---------- ---------- ------------
Total Commercial Membership 14,754 17,802 16,771 (17.1) (12.0)
Medicare HMO 135 283 255 (52.3) (47.1)
Medicaid HMO 155 239 144 (35.1) 7.6
---------- ---------- ------------
Total Health Care Membership 15,044 18,324 17,170 (17.9) (12.4)
========== ========== ============
Dental Membership 12,127 14,193 13,459 (14.6) (9.9)
========== ========== ============
Total Group Insurance 11,875 11,524 11,480 3.0 3.4
========== ========== ============
Three Months Ended
------------------------------------------
March 31, March 31, December 31,
2002 2001 2001
----------- ----------- -------------
Medical Cost Ratios:
Commercial Risk (1) 85.7% 89.2% 89.0%
Commercial HMO (1) 86.2% 90.0% 89.7%
Medicare HMO (2) 80.5% 93.7% 92.9%
Operating Margins (3):
Total Company
Pretax 3.2% 1.7% 0.4%
After-tax 2.2% 1.1% 0.4%
(1) Commercial Risk includes all medical and dental risk products except
Medicare and Medicaid. Commercial HMO includes all medical HMO products
except Medicare and Medicaid.
(2) The three months ended March 31, 2001 excludes $52.7 million pretax ($34.3
million after-tax) of unfavorable reserve developments related to Medicare
markets the Company exited January 1, 2001. The three months ended
December 31, 2001 excludes $1.7 million pretax ($1.1 million after-tax) of
favorable reserve developments related to these markets.
(3) Pretax and After-tax Operating Margins are calculated by dividing
pretax/after-tax operating earnings (loss) excluding other items, net
realized capital gains or losses, interest expense, and amortization of
goodwill and other acquired intangible assets by total revenue excluding
net realized capital gains or losses.
Aetna/10
Quarterly Segment Earnings Summary - FAS 142 Comparative Basis (1)
($ in Millions, except per share data)
3 Months Ended
-------------------------------------------------
REPORTED March 31, 2002 March 31, 2001 December 31, 2001
-------------- -------------- -----------------
Health Care before Goodwill/Other Acquired Intangible
Assets Amortization $ 76.7 $ 13.7 $ (16.1)
Goodwill Amortization 0.0 (48.8) (48.9)
Other Acquired Intangible Assets Amortization (32.0) (37.6) (33.1)
-------------- -------------- -----------------
Health Care 44.7 (72.7) (98.1)
Group Insurance 33.0 45.2 36.3
Large Case Pensions 6.3 10.6 3.8
Corporate Interest Expense (19.1) (19.7) (26.6)
-------------- -------------- -----------------
Operating Earnings (Loss) From Continuing Operations $ 64.9 $ (36.6) $ (84.6)
============== ============== =================
Cash Operating Earnings (Loss) $ 96.9 $ 49.8 $ (2.6)
============== ============== =================
Earnings (Loss) Per Share:
Operating Earnings (Loss) From Continuing Operations $ 0.44 $ (0.26) $ (0.59)
Cash Operating Earnings (Loss) $ 0.65 $ 0.34 $ (0.02)
3 Months Ended
-------------------------------------------------
ADJUSTED March 31, 2002 March 31, 2001 December 31, 2001
-------------- -------------- -----------------
Health Care before Other Acquired Intangible Assets
Amortization $ 76.7 $ 13.7 $ (16.1)
Other Acquired Intangible Assets Amortization (2) (32.0) (34.8) (32.0)
-------------- -------------- -----------------
Health Care 44.7 (21.1) (48.1)
Group Insurance 33.0 45.2 36.3
Large Case Pensions 6.3 10.6 3.8
Corporate Interest Expense (19.1) (19.7) (26.6)
-------------- -------------- -----------------
Operating Earnings (Loss) From Continuing Operations $ 64.9 $ 15.0 $ (34.6)
============== ============== =================
Cash Operating Earnings (Loss) $ 96.9 $ 49.8 $ (2.6)
============== ============== =================
Earnings (Loss) Per Share:
Operating Earnings (Loss) From Continuing Operations $ 0.44 $ 0.10 $ (0.24)
Cash Operating Earnings (Loss) $ 0.65 $ 0.34 $ (0.02)
Shares for Calculation:
Weighted Average Common Shares - Basic 144,980,117 143,375,253 143,806,461
Weighted Average Common Shares - Diluted 148,800,140 147,592,490 146,498,254
(1) Excludes other items, realized capital gains or losses, income from
discontinued operations and cumulative effect adjustments.
(2) Reflects reclassification of workforce intangible asset to goodwill upon
adoption of FAS 142.
#####
ADDITIONAL INFORMATION; CAUTIONARY STATEMENT -- Aetna's 2002 Proxy Statement
was filed with the Securities and Exchange Commission on March 18, 2002 and
mailed to Aetna's shareholders on or about March 20, 2002. Aetna filed
additional participant information with the SEC on April 4, 2002. Aetna's
shareholders should read these materials and all additional materials that
Aetna files with the SEC, because they contain important information relating
to the 2002 Annual Meeting. Certain information contained herein is forward
looking. Forward-looking information is based on management's estimates,
assumptions and projections, and is subject to significant uncertainties and
other factors, many of which are beyond Aetna's control. Important risk factors
could cause actual future results and other future events to differ materially
from those currently estimated by management. Those risk factors include, but
are not limited to: unanticipated increases in medical costs (including
increased medical utilization, increased pharmacy costs, increases resulting
from unfavorable changes in contracting or 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
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); increases in medical costs or Group Insurance
claims resulting from the aftermath of the events of September 11, 2001 and the
continued threat of terrorism; the ability to achieve targeted savings from
work force reductions and to otherwise reduce administrative expenses in light
of significant membership reductions being experienced in 2002; 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 successfully implement
Aetna's new customer model approach; lower levels of investment income from
continued lower interest rates; adverse government regulation (including
legislative proposals to eliminate or reduce ERISA pre-emption 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 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, particularly given the significant membership
reductions being experienced in 2002; and the outcome of litigation and
regulatory matters, including numerous purported health care class actions and
ongoing reviews of business practices by various regulatory agencies. For more
discussion of important factors that may materially affect Aetna, please see
the risk factors contained in Aetna's 2001 Report on Form 10-K, on file with
the Securities and Exchange Commission. You also should read Aetna's 2002 first
quarter Form 10-Q when filed with the Securities and Exchange Commission for a
discussion of Aetna's historical results of operations and financial condition.