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A 2005 Second Quarter
Financial
Supplement
Financial Highlights 1
Health Care and Group Insurance Statistics 2
Health Care and Group Insurance Enrollment 3
Earnings Summary 4
Consolidating Statements of Income (Loss) from Continuing Operations by Segment 5-6
Consolidated Balance Sheets 7
Combining Balance Sheets 8
Condensed Combining Statements of Cash Flows 9-10
Reconciliations of Certain Reported Amounts to the Most Directly Comparable GAAP Measure 11-13
Definitions 14
This document is supplemental to the Company’s second quarter 2005 earnings press release and should be read in conjunction therewith and in conjunction with the Company's
June 30, 2005 Quarterly Report on Form 10-Q to be filed with the Securities and Exchange Commission. Please direct questions with respect to this material to David Entrekin, Vice
President - Investor Relations, Aetna Inc., 151 Farmington Avenue, RE2T, Hartford, Connecticut 06156. Telephone: 860-273-7830. Email: entrekind@aetna.com.
Table of Contents
Change Change
Jun. 30, Jun. 30, Jun. 30, 2005 - Jun. 30, Jun. 30, Jun. 30, 2005 -
2005 2004 (1) Jun. 30, 2004 2005 2004 (1) Jun. 30, 2004
Operating Earnings (2)
Aetna Inc. 362.6$ 282.6$ 28.3 % 783.7$ 591.4$ 32.5 %
Aetna Inc. Per Common Share 1.20$ .89$ 34.8 % 2.58$ 1.85$ 39.5 %
Health Care 343.6$ 264.0$ 30.2 % 747.6$ 552.4$ 35.3 %
Group Insurance 31.3$ 27.2$ 15.1 % 62.0$ 58.0$ 6.9 %
Large Case Pensions 7.5$ 7.9$ (5.1) % 11.6$ 14.0$ (17.1) %
Operating Earnings - Adjusted (2)
Aetna Inc. 327.6$ 271.6$ 20.6 %
Aetna Inc. Per Common Share 1.08$ .85$ 27.1 %
Health Care 308.6$ 246.0$ 25.4 %
Pretax Operating Margin (2)
Aetna Inc. 11.1 % 9.9 % 1.2 pts. 11.9 % 10.4 % 1.5 pts.
Aetna Inc. - Adjusted 10.0 % 9.5 % .5 pts.
After-tax Operating Margin (2)
Aetna Inc. 7.1 % 6.3 % .8 pts. 7.7 % 6.6 % 1.1 pts.
Aetna Inc. - Adjusted 6.5 % 6.1 % .4 pts.
Revenue by Segment (2)
Health Care 4,793.1$ 4,228.3$ 13.4 % 9,485.0$ 8,364.2$ 13.4 %
Group Insurance 519.9 460.0 13.0 % 1,052.5 932.8 12.8 %
Large Case Pensions 178.2 180.9 (1.5) % 376.2 367.4 2.4 %
Total Revenue 5,491.2$ 4,869.2$ 12.8 % 10,913.7$ 9,664.4$ 12.9 %
Operating Expenses as % of Revenue (2)
Aetna Inc. 19.3 % 20.1 % (.8) pts. 19.4 % 20.3 % (.9) pts.
Health Care 20.8 % 21.8 % (1.0) pts. 21.0 % 22.1 % (1.1) pts.
Group Insurance 11.5 % 11.2 % .3 pts. 11.5 % 11.4 % .1 pts.
Large Case Pensions 1.9 % 2.8 % (.9) pts. 2.2 % 2.7 % (.5) pts.
Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30,
2005 2005 2004 2004 2004
Membership (Members in Thousands) (3)
Medical 14,435 14,375 13,656 13,570 13,439
Dental 12,976 12,833 11,967 11,670 11,461
Pharmacy 9,117 9,006 8,447 8,323 8,148
Group Insurance 13,662 14,040 13,494 13,287 12,594
(1) Prior period results per common share have been adjusted to reflect the March 11, 2005 two-for-one stock split.
(2) In order to provide a comparison that the Company believes provides useful information regarding its underlying performance, all operating earnings exclude an other item and net realized capital gains (losses) from
income from continuing operations. In addition, operating margins exclude interest expense and amortization of other acquired intangibles; furthermore, pretax operating margin also excludes income taxes. Also,
revenue excludes net realized capital gains (losses). Management uses these measures to assess business performance and to make decisions regarding its operations and allocation of resources among its
businesses. The Company also displays certain metrics (e.g., medical cost ratios, operating earnings, operating earnings per common share and operating margins) excluding reserve development to reflect underlying
current period health care costs and current and future benefits. For a reconciliation of financial measures calculated under accounting principles generally accepted in the United States of America (GAAP), refer to
pages 11-13.
(3) Refer to page 3 for more details.
Refer to page 14 for definitions of terms used.
Three Months Ended Six Months Ended
Financial Highlights
($ in Millions, except per common share data)
1
Change Change
Jun. 30, Jun. 30, Jun. 30, 2005 - Jun. 30, Jun. 30, Jun. 30, 2005 -
2005 2004 Jun. 30, 2004 2005 2004 Jun. 30, 2004
Health Care
Premiums
Health Care Risk (A) 4,145.7$ 3,648.0$ 13.6 % 8,199.2$ 7,205.8$ 13.8 %
Commercial Risk (B) 3,896.9$ 3,411.0$ 14.2 % 7,702.7$ 6,737.2$ 14.3 %
Medicare (C) 248.8$ 237.0$ 5.0 % 496.5$ 468.6$ 6.0 %
Administrative Services Contract Fees 565.6$ 510.5$ 10.8 % 1,126.6$ 1,015.8$ 10.9 %
Health Care Costs
Health Care Risk
Health care costs (GAAP measure) (D) 3,244.7$ 2,875.1$ 12.9 % 6,293.2$ 5,616.9$ 12.0 %
Favorable development of prior-period health care cost estimates 55.0 29.0
Health care costs - Adjusted (E) 3,299.7$ 2,904.1$ 13.6 %
Commercial Risk
Health care costs (GAAP measure) (F) 3,022.5$ 2,672.1$ 13.1 % 5,860.4$ 5,218.4$ 12.3 %
Favorable development of prior-period health care cost estimates 53.0 26.0
Health care costs - Adjusted (G) 3,075.5$ 2,698.1$ 14.0 %
Medicare
Health care costs (GAAP measure) (H) 222.3$ 202.8$ 9.6 % 432.9$ 398.4$ 8.7 %
Favorable development of prior-period health care cost estimates 2.0 3.0
Health care costs - Adjusted (I) 224.3$ 205.8$ 9.0 %
Health Care Medical Cost Ratios
Health Care Risk (GAAP measure) (D)/(A) 78.3 % 78.8 % (.5) pts. 76.8 % 77.9 % (1.1) pts.
Health Care Risk - Adjusted (E)/(A) 79.6 % 79.6 % - pts.
Commercial Risk (GAAP measure) (F)/(B) 77.6 % 78.3 % (.7) pts. 76.1 % 77.5 % (1.4) pts.
Commercial Risk - Adjusted (G)/(B) 78.9 % 79.1 % (.2) pts.
Medicare (GAAP measure) (H)/(C) 89.3 % 85.6 % 3.7 pts. 87.2 % 85.0 % 2.2 pts.
Medicare - Adjusted (I)/(C) 90.2 % 86.8 % 3.4 pts.
Group Insurance
Total Revenue, Excluding Net Realized Capital Gains (Losses) 519.9$ 460.0$ 13.0 % 1,052.5$ 932.8$ 12.8 %
Benefit Cost Ratios 93.1 % 96.0 % (2.9) pts. 94.2 % 95.6 % (1.4) pts.
Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30,
Other Health Care Statistics 2005 2005 2004 2004 2004
Health Care Costs Payable 1,864.3$ 1,885.0$ 1,927.1$ 1,945.6$ 1,913.6$
Days Claims Payable 52.3 (1) 55.7 58.6 59.8 60.6
(1) The decline of 3.4 days from March 31, 2005 was primarily due to an approximate 2.4 day decline associated with the delayed effect on this quarter of the favorable reserve development reported in the first quarter of 2005 (including
the release of reserves related to the Company's participation in the New York State Market Stabilization Pool), a .6 day decline due to current period favorable reserve development as well as a .4 day decline due to a reduction in
various provider liabilities and the timing of pharmacy payments.
Refer to page 14 for definitions of terms used.
Three Months Ended Six Months Ended
Health Care and Group Insurance Statistics
($ in Millions)
2
Products Risk ASC Total Risk ASC Total Risk ASC Total Risk ASC Total
Medical:
Commercial 4,872 9,349 14,221 4,503 8,726 13,229 4,684 8,762 13,446 4,841 9,321 14,162
Medicare 101 - 101 100 - 100 97 - 97 101 - 101
Medicaid - 113 113 - 110 110 - 113 113 - 112 112
Total Medical 4,973 9,462 14,435 4,603 8,836 13,439 4,781 8,875 13,656 4,942 9,433 14,375
Dental (1) 4,986 7,990 12,976 4,648 6,813 11,461 4,708 7,259 11,967 4,958 7,875 12,833
Pharmacy:
Pharmacy Benefit Management Services 8,579 7,743 7,989 8,505
Mail Order (2) 538 405 458 501
Total Pharmacy 9,117 8,148 8,447 9,006
Group Insurance:
Life 10,904 10,158 10,930 11,160
Disability 2,525 2,223 2,341 2,653
Long-Term Care 233 213 223 227
Total Group Insurance 13,662 12,594 13,494 14,040
Aetna HealthFund®
(3) 370 197 222 361
Regions
Northeast 1,144 1,367 2,511 1,095 1,295 2,390 1,143 1,298 2,441 1,140 1,373 2,513
Mid-Atlantic 1,088 1,511 2,599 1,000 1,468 2,468 1,043 1,470 2,513 1,070 1,538 2,608
Southeast 858 1,554 2,412 781 1,424 2,205 809 1,433 2,242 854 1,541 2,395
North Central 519 2,124 2,643 424 2,060 2,484 471 2,079 2,550 512 2,126 2,638
Southwest 572 1,548 2,120 558 1,376 1,934 557 1,376 1,933 571 1,533 2,104
West 692 1,300 1,992 664 1,206 1,870 673 1,211 1,884 693 1,299 1,992
Other 100 58 158 81 7 88 85 8 93 102 23 125
Total Medical 4,973 9,462 14,435 4,603 8,836 13,439 4,781 8,875 13,656 4,942 9,433 14,375
Risk/ASC % 34.5% 65.5% 100.0% 34.3% 65.7% 100.0% 35.0% 65.0% 100.0% 34.4% 65.6% 100.0%
(1) At June 30, 2005, the Company began including Aetna Global Benefits dental membership. Prior period dental membership has been revised accordingly.
(2) Represents members who purchased medications through Aetna's mail order pharmacy during the quarterly period.
(3) Represents members in consumer-directed health plan products included in Aetna's Commercial medical membership.
Refer to page 14 for definitions of terms used.
March 31, 2005
Health Care and Group Insurance Enrollment
(Members in Thousands)
June 30, 2005 June 30, 2004 December 31, 2004
3
Jun. 30, Jun. 30, Jun. 30, Jun. 30,
2005 2004 (1) 2005 2004 (1)
Summary of Results
Health Care 343.6$ 264.0$ 747.6$ 552.4$
Group Insurance 31.3 27.2 62.0 58.0
Large Case Pensions 7.5 7.9 11.6 14.0
Corporate Interest Expense (19.8) (16.5) (37.5) (33.0)
Operating earnings, excluding other item 362.6 282.6 783.7 591.4
Reduction of reserve for anticipated future losses on discontinued products 43.4 - 43.4 -
Operating earnings, including other item 406.0 282.6 827.1 591.4
Net realized capital gains 3.7 3.7 6.6 20.7
Income from continuing operations (GAAP measure) 409.7 286.3 833.7 612.1
Income from discontinued operations (2) - - - 40.0
Net income (GAAP measure) 409.7$ 286.3$ 833.7$ 652.1$
Operating earnings - Adjusted 327.6$ 271.6$
Favorable development of prior-period health care cost estimates 35.0 18.0
Unfavorable prior-period mortality development - (7.0)
Operating earnings, excluding other item 362.6$ 282.6$
Health Care operating earnings - Adjusted 308.6$ 246.0$
Favorable development of prior-period health care cost estimates 35.0 18.0
Health Care operating earnings 343.6$ 264.0$
Weighted average common shares - basic 290,663,128 306,350,590 291,983,775 307,102,976
Weighted average common shares - diluted 303,072,306 319,939,126 303,915,023 319,947,412
Summary of Results Per Common Share
Operating earnings - Adjusted 1.08$ .85$
Favorable development of prior-period health care cost estimates .12 .06
Unfavorable prior-period mortality development - (.02)
Operating earnings, excluding other item 1.20 .89 2.58$ 1.85$
Reduction of reserve for anticipated future losses on discontinued products .14 - .14 -
Operating earnings, including other item 1.34 .89 2.72 1.85
Net realized capital gains .01 .01 .02 .06
Income from continuing operations (GAAP measure) 1.35 .90 2.74 1.91
Income from discontinued operations - - - .13
Net income (GAAP measure) 1.35$ .90$ 2.74$ 2.04$
(1) Prior period weighted average common shares and results per common share have been adjusted to reflect the March 11, 2005 two-for-one stock split.
(2) Income from discontinued operations of approximately $40 million for the six months ended June 30, 2004 reflects the completion of certain Internal Revenue Service audits associated with businesses that
were sold in the 1990s by the Company's predecessor (former Aetna).
Refer to page 14 for definitions of terms used.
Earnings Summary
Six Months Ended
($ in Millions, except per common share data)
Three Months Ended
4
Health Group Large Case Corporate
Three Months Ended June 30, 2005 Care Insurance Pensions Interest Consolidated
Revenue:
Premiums 4,145.7$ 448.8$ 52.9$ -$ 4,647.4$
Administrative services contract fees 565.6 6.8 - - 572.4
Net investment income 70.7 63.5 122.4 - 256.6
Other income 11.1 .8 2.9 - 14.8
Total revenue, excluding net realized capital gains (losses) (1) 4,793.1 519.9 178.2 - 5,491.2
Benefits and expenses:
Health care costs (2) 3,244.7 - - - 3,244.7
Current and future benefits - 417.9 163.4 - 581.3
Operating expenses:
Selling expenses 185.1 20.8 - - 205.9
General and administrative expenses 810.4 38.8 3.3 - 852.5
Total operating expenses 995.5 59.6 3.3 - 1,058.4
Interest expense - - - 30.5 30.5
Amortization of other acquired intangible assets 11.5 - - - 11.5
Total benefits and expenses 4,251.7 477.5 166.7 30.5 4,926.4
Operating earnings (loss), excluding income taxes (benefits) 541.4 42.4 11.5 (30.5) 564.8
Income taxes (benefits) 197.8 11.1 4.0 (10.7) 202.2
Operating earnings (loss), excluding other item 343.6 31.3 7.5 (19.8) 362.6
Reduction of reserve for anticipated future losses on discontinued products, net of tax - - 43.4 - 43.4
Operating earnings (loss), including other item 343.6 31.3 50.9 (19.8) 406.0
Net realized capital gains (losses), net of tax 2.5 1.9 (.7) - 3.7
Income (loss) from continuing operations 346.1$ 33.2$ 50.2$ (19.8)$ 409.7$
Three Months Ended June 30, 2004
Revenue:
Premiums 3,648.0$ 386.5$ 47.9$ -$ 4,082.4$
Administrative services contract fees 510.5 6.7 - - 517.2
Net investment income 63.9 66.0 130.3 - 260.2
Other income 5.9 .8 2.7 - 9.4
Total revenue, excluding net realized capital gains (losses) (1) 4,228.3 460.0 180.9 - 4,869.2
Benefits and expenses:
Health care costs (3) 2,875.1 - - - 2,875.1
Current and future benefits (4) - 370.9 164.1 - 535.0
Operating expenses:
Selling expenses 153.8 15.7 - - 169.5
General and administrative expenses 769.1 35.7 5.0 - 809.8
Total operating expenses 922.9 51.4 5.0 - 979.3
Interest expense - - - 25.2 25.2
Amortization of other acquired intangible assets 12.7 - - - 12.7
Total benefits and expenses 3,810.7 422.3 169.1 25.2 4,427.3
Operating earnings (loss), excluding income taxes (benefits) 417.6 37.7 11.8 (25.2) 441.9
Income taxes (benefits) 153.6 10.5 3.9 (8.7) 159.3
Operating earnings (loss) 264.0 27.2 7.9 (16.5) 282.6
Net realized capital gains (losses), net of tax (1.4) 2.3 2.8 - 3.7
Income (loss) from continuing operations 262.6$ 29.5$ 10.7$ (16.5)$ 286.3$
(1) Refer to pages 11-13 for reconciliations of revenue calculated under GAAP for all periods.
(2) Includes favorable development of prior-period health care cost estimates of approximately $55 million pretax (approximately $35 million after tax) in the Health Care Segment.
(3) Includes favorable development of prior-period health care cost estimates of approximately $29 million pretax (approximately $18 million after tax) in the Health Care Segment.
(4) Includes unfavorable prior-period mortality development of approximately $10 million pretax (approximately $7 million after tax) in the Group Insurance Segment.
Refer to page 14 for definitions of terms used.
Consolidating Statements of Income (Loss) from Continuing Operations by Segment
($ in Millions)
5
Health Group Large Case Corporate
Six Months Ended June 30, 2005 Care Insurance Pensions Interest Consolidated
Revenue:
Premiums 8,199.2$ 898.6$ 101.6$ -$ 9,199.4$
Administrative services contract fees 1,126.6 14.7 - - 1,141.3
Net investment income 141.3 137.4 269.1 - 547.8
Other income 17.9 1.8 5.5 - 25.2
Total revenue, excluding net realized capital gains (losses) (1) 9,485.0 1,052.5 376.2 - 10,913.7
Benefits and expenses:
Health care costs 6,293.2 - - - 6,293.2
Current and future benefits - 846.4 350.2 - 1,196.6
Operating expenses:
Selling expenses 369.0 39.9 - - 408.9
General and administrative expenses 1,622.7 81.4 8.2 - 1,712.3
Total operating expenses 1,991.7 121.3 8.2 - 2,121.2
Interest expense - - - 57.7 57.7
Amortization of other acquired intangible assets 22.2 - - - 22.2
Total benefits and expenses 8,307.1 967.7 358.4 57.7 9,690.9
Operating earnings (loss), excluding income taxes (benefits) 1,177.9 84.8 17.8 (57.7) 1,222.8
Income taxes (benefits) 430.3 22.8 6.2 (20.2) 439.1
Operating earnings (loss), excluding other item 747.6 62.0 11.6 (37.5) 783.7
Reduction of reserve for anticipated future losses on discontinued products, net of tax - - 43.4 - 43.4
Operating earnings (loss), including other item 747.6 62.0 55.0 (37.5) 827.1
Net realized capital gains (losses), net of tax 3.8 3.3 (.5) - 6.6
Income (loss) from continuing operations 751.4$ 65.3$ 54.5$ (37.5)$ 833.7$
Six Months Ended June 30, 2004
Revenue:
Premiums 7,205.8$ 780.2$ 96.9$ -$ 8,082.9$
Administrative services contract fees 1,015.8 13.6 - - 1,029.4
Net investment income 129.6 137.3 264.8 - 531.7
Other income 13.0 1.7 5.7 - 20.4
Total revenue, excluding net realized capital gains (1) 8,364.2 932.8 367.4 - 9,664.4
Benefits and expenses:
Health care costs 5,616.9 - - - 5,616.9
Current and future benefits - 745.5 336.5 - 1,082.0
Operating expenses:
Selling expenses 302.6 30.5 - - 333.1
General and administrative expenses 1,544.5 75.4 10.0 - 1,629.9
Total operating expenses 1,847.1 105.9 10.0 - 1,963.0
Interest expense - - - 50.7 50.7
Amortization of other acquired intangible assets 25.4 - - - 25.4
Total benefits and expenses 7,489.4 851.4 346.5 50.7 8,738.0
Operating earnings (loss), excluding income taxes (benefits) 874.8 81.4 20.9 (50.7) 926.4
Income taxes (benefits) 322.4 23.4 6.9 (17.7) 335.0
Operating earnings (loss) 552.4 58.0 14.0 (33.0) 591.4
Net realized capital gains, net of tax 5.7 10.2 4.8 - 20.7
Income (loss) from continuing operations 558.1$ 68.2$ 18.8$ (33.0)$ 612.1$
(1) Refer to pages 11-13 for reconciliations of revenue calculated under GAAP for all periods.
Refer to page 14 for definitions of terms used.
Consolidating Statements of Income (Loss) from Continuing Operations by Segment (Continued)
($ in Millions)
6
Jun. 30, Dec. 31, Jun. 30, Dec. 31,
2005 2004 2005 2004
Assets Liabilities and shareholders' equity
Current assets: Current liabilities:
Cash and cash equivalents 1,118.9$ 1,396.0$ Health care costs payable 1,864.3$ 1,927.1$
Investment securities 13,786.2 14,242.6 Future policy benefits 806.3 837.6
Other investments 220.1 57.7 Unpaid claims 741.7 707.7
Premiums receivable, net 319.0 256.1 Unearned premiums 156.8 121.8
Other receivables, net 513.5 314.0 Policyholders' funds 655.8 672.5
Accrued investment income 186.3 198.6 Collateral payable under securities loan agreements 1,255.9 1,173.8
Collateral received under securities loan agreements 1,255.9 1,173.8 Current portion of long-term debt 449.8 -
Loaned securities 1,230.4 1,150.1 Accrued expenses and other current liabilities 1,593.5 1,570.8
Income taxes receivable 97.2 226.8 Total current liabilities 7,524.1 7,011.3
Deferred income taxes 200.4 196.0
Other current assets 393.7 304.5
Total current assets 19,321.6 19,516.2 Future policy benefits 7,745.1 7,859.5
Unpaid claims 1,116.8 1,081.5
Policyholders' funds 1,490.2 1,453.1
Long-term investments 1,762.9 1,718.1 Long-term debt, less current portion 1,155.7 1,609.7
Mortgage loans 1,291.1 1,348.2 Other long-term liabilities 865.0 1,021.4
Investment real estate 275.7 274.8 Separate Accounts liabilities 13,732.0 13,015.8
Reinsurance recoverables 1,158.7 1,173.0 Total liabilities 33,628.9 33,052.3
Goodwill 4,103.3 3,687.8
Other acquired intangible assets, net 637.1 460.3
Property and equipment, net 241.6 233.6 Shareholders' equity
Deferred income taxes 116.8 300.0 Common stock and additional paid-in capital 2,586.5 3,076.5
Other long-term assets 433.0 405.9 Retained earnings 7,380.1 6,546.4
Separate Accounts assets 13,732.0 13,015.8 Accumulated other comprehensive loss (1) (521.7) (541.5)
Total shareholders' equity 9,444.9 9,081.4
Total assets 43,073.8$ 42,133.7$ Total liabilities and shareholders' equity 43,073.8$ 42,133.7$
(1) Includes net unrealized capital gains related to available for sale securities under FAS No. 115 of $266.5 million and $245.7 million at June 30, 2005 and December 31, 2004, respectively, and a minimum pension liability
adjustment of ($797.7) million at June 30, 2005 and December 31, 2004.
Refer to page 14 for definitions of terms used.
Consolidated Balance Sheets
($ in Millions)
7
Health Care Health Care
and Group Large Case and Group Large Case
Insurance Pensions Total Insurance Pensions Total
Assets
Current assets:
Cash and cash equivalents 1,050.6$ 68.3$ 1,118.9$ 1,300.5$ 95.5$ 1,396.0$
Investment securities 8,008.1 5,778.1 13,786.2 8,259.8 5,982.8 14,242.6
Other investments .7 219.4 220.1 1.5 56.2 57.7
Premiums receivable, net 319.0 - 319.0 256.1 - 256.1
Other receivables, net 434.1 79.4 513.5 279.2 34.8 314.0
Accrued investment income 100.0 86.3 186.3 103.5 95.1 198.6
Collateral received under securities loan agreements 535.0 720.9 1,255.9 620.1 553.7 1,173.8
Loaned securities 524.2 706.2 1,230.4 607.6 542.5 1,150.1
Income taxes receivable 85.7 11.5 97.2 228.1 (1.3) 226.8
Deferred income taxes 187.6 12.8 200.4 183.9 12.1 196.0
Other current assets 378.9 14.8 393.7 283.0 21.5 304.5
Total current assets 11,623.9 7,697.7 19,321.6 12,123.3 7,392.9 19,516.2
Long-term investments 1,247.3 515.6 1,762.9 1,238.7 479.4 1,718.1
Mortgage loans 538.6 752.5 1,291.1 491.7 856.5 1,348.2
Investment real estate 131.4 144.3 275.7 137.9 136.9 274.8
Reinsurance recoverables 1,142.6 16.1 1,158.7 1,156.0 17.0 1,173.0
Goodwill 4,103.3 - 4,103.3 3,687.8 - 3,687.8
Other acquired intangible assets, net 637.1 - 637.1 460.3 - 460.3
Property and equipment, net 157.0 84.6 241.6 140.3 93.3 233.6
Deferred income taxes 30.2 86.6 116.8 160.9 139.1 300.0
Other long-term assets 433.0 - 433.0 405.9 - 405.9
Separate Accounts assets 4.1 13,727.9 13,732.0 4.5 13,011.3 13,015.8
Total assets 20,048.5$ 23,025.3$ 43,073.8$ 20,007.3$ 22,126.4$ 42,133.7$
Liabilities and shareholders' equity
Current liabilities:
Health care costs payable 1,864.3$ -$ 1,864.3$ 1,927.1$ -$ 1,927.1$
Future policy benefits 115.9 690.4 806.3 111.5 726.1 837.6
Unpaid claims 741.0 .7 741.7 707.1 .6 707.7
Unearned premiums 147.2 9.6 156.8 115.9 5.9 121.8
Policyholders' funds 403.6 252.2 655.8 383.5 289.0 672.5
Collateral payable under securities loan agreements 535.0 720.9 1,255.9 620.1 553.7 1,173.8
Current portion of long-term debt 449.8 - 449.8 - - -
Accrued expenses and other current liabilities 1,131.2 462.3 1,593.5 1,226.0 344.8 1,570.8
Total current liabilities 5,388.0 2,136.1 7,524.1 5,091.2 1,920.1 7,011.3
Future policy benefits 1,883.9 5,861.2 7,745.1 1,871.2 5,988.3 7,859.5
Unpaid claims 1,116.8 - 1,116.8 1,081.5 - 1,081.5
Policyholders' funds 596.7 893.5 1,490.2 594.0 859.1 1,453.1
Long-term debt, less current portion 1,155.7 - 1,155.7 1,609.7 - 1,609.7
Other long-term liabilities 781.5 83.5 865.0 947.3 74.1 1,021.4
Separate Accounts liabilities 4.1 13,727.9 13,732.0 4.5 13,011.3 13,015.8
Total liabilities 10,926.7 22,702.2 33,628.9 11,199.4 21,852.9 33,052.3
Shareholders' equity
Total shareholders' equity 9,121.8 323.1 9,444.9 8,807.9 273.5 9,081.4
Total liabilities and shareholder's equity 20,048.5$ 23,025.3$ 43,073.8$ 20,007.3$ 22,126.4$ 42,133.7$
Refer to page 14 for definitions of terms used.
Combining Balance Sheets
($ in Millions)
June 30, 2005 December 31, 2004
8
Health Care Health Care
and Group Large Case and Group Large Case
Insurance Pensions Total Insurance Pensions Total
Cash flows from operating activities:
Net income 359.5$ 50.2$ 409.7$ 275.6$ 10.7$ 286.3$
Adjustments to reconcile net income to net cash provided
by (used for) operating activities:
Amortization of other acquired intangible assets 11.5 - 11.5 12.7 - 12.7
Depreciation and other amortization 37.3 - 37.3 36.5 - 36.5
Amortization (accretion) of net investment premium (discount) 7.4 (.3) 7.1 10.4 .5 10.9
Net realized capital (gains) losses (6.7) 1.0 (5.7) (1.5) (4.3) (5.8)
Cash flow from operating activities before balance
sheet changes 409.0 50.9 459.9 333.7 6.9 340.6
Changes in assets and liabilities:
Decrease in accrued investment income .1 7.1 7.2 5.2 3.4 8.6
(Increase) decrease in premiums due and other receivables (31.1) 2.2 (28.9) 36.1 .2 36.3
Net change in income taxes 156.7 9.4 166.1 (26.8) 7.2 (19.6)
Net change in other assets and other liabilities 69.0 9.4 78.4 46.6 7.8 54.4
Net increase (decrease) in health care and insurance liabilities 34.0 (124.1) (1) (90.1) (93.5) (104.2) (1) (197.7)
Other, net 12.4 (2.2) 10.2 3.6 (3.0) .6
Net cash provided by (used for) operating activities 650.1 (47.3) 602.8 304.9 (81.7) 223.2
Cash flows from investing activities:
Proceeds from sales and investment maturities 2,109.2 1,152.8 3,262.0 2,234.1 1,160.4 3,394.5
Cost of investments (1,881.3) (1,129.6) (3,010.9) (2,073.5) (952.7) (3,026.2)
Increase in property, equipment and software (61.4) - (61.4) (39.5) - (39.5)
Cash used for acquisition, net of cash acquired (389.4) - (389.4) - - -
Net cash (used for) provided by investing activities (222.9) 23.2 (199.7) 121.1 207.7 328.8
Cash flows from financing activities:
Withdrawals of investment contracts, net - (.6) (.6) - (96.5) (96.5)
Common shares issued under benefit plans 60.4 - 60.4 43.6 - 43.6
Common shares repurchased (274.0) - (274.0) (53.6) - (53.6)
Other, net (15.4) 15.4 - (4.8) .8 (4.0)
Net cash (used for) provided by financing activities (229.0) 14.8 (214.2) (14.8) (95.7) (110.5)
Net increase (decrease) in cash and cash equivalents 198.2 (9.3) 188.9 411.2 30.3 441.5
Cash and cash equivalents, beginning of period 852.4 77.6 930.0 659.2 48.8 708.0
Cash and cash equivalents, end of period 1,050.6$ 68.3$ 1,118.9$ 1,070.4$ 79.1$ 1,149.5$
(1) Includes a reduction of the reserve for anticipated future losses on discontinued products of $67 million for the three months ended June 30, 2005. Changes in insurance liabilities are satisfied by sales of related
investment assets included in net cash provided by investment activities.
Refer to page 14 for definitions of terms used.
Jun. 30, 2005 Jun. 30, 2004
Condensed Combining Statements of Cash Flows
($ in Millions)
Three Months Ended
9
Health Care Health Care
and Group Large Case and Group Large Case
Insurance Pensions Total Insurance Pensions Total
Cash flows from operating activities:
Net income 779.2$ 54.5$ 833.7$ 633.3$ 18.8$ 652.1$
Adjustments to reconcile net income to net cash provided
by (used for) operating activities:
Income from discontinued operations - - - (40.0) - (40.0)
Amortization of other acquired intangible assets 22.2 - 22.2 25.4 - 25.4
Depreciation and other amortization 71.7 - 71.7 71.6 - 71.6
Amortization (accretion) of net investment premium (discount) 18.0 (.6) 17.4 22.1 .6 22.7
Net realized capital (gains) losses (10.8) .7 (10.1) (24.5) (7.4) (31.9)
Cash flow from operating activities before balance
sheet changes 880.3 54.6 934.9 687.9 12.0 699.9
Changes in assets and liabilities:
Decrease in accrued investment income 3.5 8.8 12.3 3.6 5.1 8.7
(Increase) Decrease in premiums due and other receivables (112.8) 3.1 (109.7) 7.9 (.3) 7.6
Net change in income taxes 373.7 5.5 379.2 173.9 12.0 185.9
Net change in other assets and other liabilities (386.9) (1) 29.1 (357.8) (405.8) 21.7 (384.1)
Net increase (decrease) in health care and insurance liabilities 76.7 (164.2) (2) (87.5) (61.3) (162.9) (2) (224.2)
Other, net 1.4 (25.5) (24.1) (1.9) (9.3) (11.2)
Net cash provided by (used for) operating activities 835.9 (88.6) 747.3 404.3 (121.7) 282.6
Cash flows from investing activities:
Proceeds from sales and investment maturities 3,982.5 1,875.3 5,857.8 4,581.7 2,170.0 6,751.7
Cost of investments (3,692.2) (1,824.0) (5,516.2) (4,935.7) (1,828.7) (6,764.4)
Increase in property and equipment (108.5) - (108.5) (73.7) - (73.7)
Cash used for acquisition, net of cash acquired (631.1) - (631.1) - - -
Net cash (used for) provided by investing activities (449.3) 51.3 (398.0) (427.7) 341.3 (86.4)
Cash flows from financing activities:
Withdrawals of investment contracts, net - (3.3) (3.3) - (252.7) (252.7)
Common shares issued under benefit plans 179.1 - 179.1 184.0 - 184.0
Common shares repurchased (802.2) - (802.2) (417.4) - (417.4)
Other, net (13.4) 13.4 - (1.1) 7.1 6.0
Net cash (used for) provided by financing activities (636.5) 10.1 (626.4) (234.5) (245.6) (480.1)
Net decrease in cash and cash equivalents (249.9) (27.2) (277.1) (257.9) (26.0) (283.9)
Cash and cash equivalents, beginning of period 1,300.5 95.5 1,396.0 1,328.3 105.1 1,433.4
Cash and cash equivalents, end of period 1,050.6$ 68.3$ 1,118.9$ 1,070.4$ 79.1$ 1,149.5$
(1) Includes voluntary pension plan contributions of approximately $180 million and physician class action settlement payment of approximately $150 million for the six months ended June 30, 2005.
(2) Includes a reduction of the reserve for anticipated future losses on discontinued products of $67 million for the six months ended June 30, 2005. Changes in insurance liabilities are satisfied by sales of related
investment assets included in net cash provided by investment activities.
Refer to page 14 for definitions of terms used.
Jun. 30, 2005 Jun. 30, 2004
Condensed Combining Statements of Cash Flows (Continued)
($ in Millions)
Six Months Ended
10
Jun. 30, Jun. 30, Jun. 30, Jun. 30,
2005 2004 2005 2004
Reconciliation to Income from continuing operations before income taxes
Operating earnings before income taxes, excluding interest expense, amortization of
other acquired intangible assets, other item and net favorable development (A) 551.8$ 460.8$
Favorable development of prior-period health care cost estimates 55.0 29.0
Unfavorable prior-period mortality development - (10.0)
Operating earnings before income taxes, excluding interest expense, amortization
of other acquired intangible assets and other item (B) 606.8 479.8 1,302.7$ 1,002.5$
Interest expense (30.5) (25.2) (57.7) (50.7)
Amortization of other acquired intangible assets (11.5) (12.7) (22.2) (25.4)
Reduction of reserve for anticipated future losses on discontinued products 66.7 - 66.7 -
Net realized capital gains 5.7 5.8 10.1 31.9
Income from continuing operations before income taxes (GAAP measure) (C) 637.2$ 447.7$ 1,299.6$ 958.3$
Reconciliation to Income from continuing operations
Operating earnings, excluding interest expense, amortization of other acquired
intangible assets, other item and net favorable development (D) 354.9$ 296.3$
Favorable development of prior-period health care cost estimates, net of tax 35.0 18.0
Unfavorable prior-period mortality development, net of tax - (7.0)
Operating earnings, excluding interest expense, amortization of other acquired
intangible assets and other item (E) 389.9 307.3 835.7$ 640.9$
Interest expense, net of tax (19.8) (16.5) (37.5) (33.0)
Amortization of other acquired intangible assets, net of tax (7.5) (8.2) (14.5) (16.5)
Reduction of reserve for anticipated future losses on discontinued products, net of tax 43.4 - 43.4 -
Net realized capital gains, net of tax 3.7 3.7 6.6 20.7
Income from continuing operations (GAAP measure) (F) 409.7$ 286.3$ 833.7$ 612.1$
Reconciliation of Revenue
Revenue, excluding net realized capital gains (G) 5,491.2$ 4,869.2$ 10,913.7$ 9,664.4$
Net realized capital gains 5.7 5.8 10.1 31.9
Total revenue (GAAP measure) (H) 5,496.9$ 4,875.0$ 10,923.8$ 9,696.3$
Operating margin
Pretax operating margin (B)/(G) 11.1 % 9.9 % 11.9 % 10.4 %
Pretax operating margin - Adjusted (A)/(G) 10.0 % 9.5 %
Pretax operating margin (GAAP measure) (C)/(H) 11.6 % 9.2 % 11.9 % 9.9 %
After-tax operating margin (E)/(G) 7.1 % 6.3 % 7.7 % 6.6 %
After-tax operating margin - Adjusted (D)/(G) 6.5 % 6.1 %
After-tax operating margin (GAAP measure) (F)/(H) 7.5 % 5.9 % 7.6 % 6.3 %
Refer to page 14 for definitions of terms used.
Six Months EndedThree Months Ended
Reconciliations of Certain Reported Amounts to the Most Directly Comparable GAAP Measure
($ in Millions, except per common share data)
11
Jun. 30, Jun. 30, Jun. 30, Jun. 30,
2005 2004 2005 2004
Aetna Inc.
Total operating expenses (GAAP measure) (A) 1,058.4$ 979.3$ 2,121.2$ 1,963.0$
Reconciliation of Revenue
Revenue, excluding net realized capital gains (B) 5,491.2$ 4,869.2$ 10,913.7$ 9,664.4$
Net realized capital gains 5.7 5.8 10.1 31.9
Total revenue (GAAP measure) (C) 5,496.9$ 4,875.0$ 10,923.8$ 9,696.3$
Operating expenses as a % of revenue
Operating expenses as a % of revenue (A)/(B) 19.3 % 20.1 % 19.4 % 20.3 %
Total operating expenses as a % of total revenue (GAAP measure) (A)/(C) 19.3 % 20.1 % 19.4 % 20.2 %
Health Care
Total operating expenses (GAAP measure) (D) 995.5$ 922.9$ 1,991.7$ 1,847.1$
Reconciliation of Revenue
Revenue, excluding net realized capital gains (losses) (E) 4,793.1$ 4,228.3$ 9,485.0$ 8,364.2$
Net realized capital gains (losses) 3.8 (2.2) 5.8 8.7
Total revenue (GAAP measure) (F) 4,796.9$ 4,226.1$ 9,490.8$ 8,372.9$
Operating expenses as a % of revenue
Operating expenses as a % of revenue (D)/(E) 20.8 % 21.8 % 21.0 % 22.1 %
Total operating expenses as a % of total revenue (GAAP measure) (D)/(F) 20.8 % 21.8 % 21.0 % 22.1 %
Refer to page 14 for definitions of terms used.
Six Months Ended
Reconciliations of Certain Reported Amounts to the Most Directly Comparable GAAP Measure (Continued)
($ in Millions)
Three Months Ended
12
Jun. 30, Jun. 30, Jun. 30, Jun. 30,
2005 2004 2005 2004
Group Insurance
Total operating expenses (GAAP measure) (A) 59.6$ 51.4$ 121.3$ 105.9$
Reconciliation of Revenue
Revenue, excluding net realized capital gains (B) 519.9$ 460.0$ 1,052.5$ 932.8$
Net realized capital gains 2.9 3.7 5.0 15.8
Total revenue (GAAP measure) (C) 522.8$ 463.7$ 1,057.5$ 948.6$
Operating expenses as a % of revenue
Operating expenses as a % of revenue (A)/(B) 11.5 % 11.2 % 11.5 % 11.4 %
Total operating expenses as a % of total revenue (GAAP measure) (A)/(C) 11.4 % 11.1 % 11.5 % 11.2 %
Large Case Pensions
Total operating expenses (GAAP measure) (D) 3.3$ 5.0$ 8.2$ 10.0$
Reconciliation of Revenue
Revenue, excluding net realized capital gains (losses) (E) 178.2$ 180.9$ 376.2$ 367.4$
Net realized capital gains (losses) (1.0) 4.3 (.7) 7.4
Total revenue (GAAP measure) (F) 177.2$ 185.2$ 375.5$ 374.8$
Operating expenses as a % of revenue
Operating expenses as a % of revenue (D)/(E) 1.9 % 2.8 % 2.2 % 2.7 %
Total operating expenses as a % of total revenue (GAAP measure) (D)/(F) 1.9 % 2.7 % 2.2 % 2.7 %
Refer to page 14 for definitions of terms used.
Six Months Ended
Reconciliations of Certain Reported Amounts to the Most Directly Comparable GAAP Measure (Continued)
($ in Millions)
Three Months Ended
13
Adjusted noted on a financial statistic indicates that the statistic excludes favorable development of prior-period health care cost estimates and unfavorable prior-period mortality development.
Administrative Services Contracts ("ASC") include all medical, dental and disability products 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 or other risk.
After-tax Operating Margins are calculated by dividing after-tax operating earnings, excluding interest expense, amortization of other acquired intangible assets and other items by revenue, excluding net
realized gains (losses).
Benefit Cost Ratios are calculated by dividing group insurance current and future benefits by group insurance premiums.
Commercial includes HMO, POS, PPO and Indemnity products.
Commercial Risk includes all medical and dental risk products except Medicare and Medicaid.
Days Claims Payable is calculated by dividing the health care costs payable at each quarter end by the health care costs per day in each respective quarter. Health care costs per day is derived by dividing
health care costs by the number of days in the quarter.
Development of Prior-Period Health Care Cost Estimates reflects management's estimate of the extent by which reported health care costs in the current period are affected by changes in estimates for
health care costs payable during the period which relate to prior periods.
Health Care Medical Cost Ratios are calculated by dividing health care costs by health care premiums.
Health Care Risk includes all medical and dental risk products.
Operating Earnings exclude net realized capital gains (losses) and other items from income from continuing operations.
Operating Expenses as a % of Revenue are calculated by dividing operating expenses, excluding other items by revenue, excluding net realized capital gains (losses).
Pretax Operating Margins are calculated by dividing pretax operating earnings, excluding interest expense, amortization of other acquired intangible assets and other items by revenue, excluding net
realized gains (losses).
Risk includes all medical and dental products for which the Company assumes all or a majority of health care cost, utilization or other risk.
Selling Expenses are comprised of broker commissions, the variable component of our internal sales force compensation and premium taxes.
Health Case Costs Payable consist principally of unpaid fee-for-service claims, capitation costs and other amounts due to health care providers pursuant to risk-sharing arrangements.
Future Policy Benefits consist primarily of reserves for limited payment pension and annuity contracts in the Large Case Pension business and long-duration group paid-up life and long-term care
insurance contracts in the Group Insurance business.
Unpaid Claims consist primarily of reserves associated with certain short-duration group disability and term life insurance contracts in the Group Insurance business.
Policyholders' Funds consist primarily of reserves for pension and annuity investment contracts in the Large Case Pension business and customer funds associated with group life and health contracts
in the Health Care and Group Insurance business.
Separate Accounts are primarily assets and liabilities representing funds maintained for the Large Case Pension business to meet specific obligations of contract holders who bear the investment risk.
Definitions
Balance Sheet Terms
14

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aetna Download Documentation Financial Supplement 2005 4th

  • 1. A 2005 Second Quarter Financial Supplement
  • 2. Financial Highlights 1 Health Care and Group Insurance Statistics 2 Health Care and Group Insurance Enrollment 3 Earnings Summary 4 Consolidating Statements of Income (Loss) from Continuing Operations by Segment 5-6 Consolidated Balance Sheets 7 Combining Balance Sheets 8 Condensed Combining Statements of Cash Flows 9-10 Reconciliations of Certain Reported Amounts to the Most Directly Comparable GAAP Measure 11-13 Definitions 14 This document is supplemental to the Company’s second quarter 2005 earnings press release and should be read in conjunction therewith and in conjunction with the Company's June 30, 2005 Quarterly Report on Form 10-Q to be filed with the Securities and Exchange Commission. Please direct questions with respect to this material to David Entrekin, Vice President - Investor Relations, Aetna Inc., 151 Farmington Avenue, RE2T, Hartford, Connecticut 06156. Telephone: 860-273-7830. Email: entrekind@aetna.com. Table of Contents
  • 3. Change Change Jun. 30, Jun. 30, Jun. 30, 2005 - Jun. 30, Jun. 30, Jun. 30, 2005 - 2005 2004 (1) Jun. 30, 2004 2005 2004 (1) Jun. 30, 2004 Operating Earnings (2) Aetna Inc. 362.6$ 282.6$ 28.3 % 783.7$ 591.4$ 32.5 % Aetna Inc. Per Common Share 1.20$ .89$ 34.8 % 2.58$ 1.85$ 39.5 % Health Care 343.6$ 264.0$ 30.2 % 747.6$ 552.4$ 35.3 % Group Insurance 31.3$ 27.2$ 15.1 % 62.0$ 58.0$ 6.9 % Large Case Pensions 7.5$ 7.9$ (5.1) % 11.6$ 14.0$ (17.1) % Operating Earnings - Adjusted (2) Aetna Inc. 327.6$ 271.6$ 20.6 % Aetna Inc. Per Common Share 1.08$ .85$ 27.1 % Health Care 308.6$ 246.0$ 25.4 % Pretax Operating Margin (2) Aetna Inc. 11.1 % 9.9 % 1.2 pts. 11.9 % 10.4 % 1.5 pts. Aetna Inc. - Adjusted 10.0 % 9.5 % .5 pts. After-tax Operating Margin (2) Aetna Inc. 7.1 % 6.3 % .8 pts. 7.7 % 6.6 % 1.1 pts. Aetna Inc. - Adjusted 6.5 % 6.1 % .4 pts. Revenue by Segment (2) Health Care 4,793.1$ 4,228.3$ 13.4 % 9,485.0$ 8,364.2$ 13.4 % Group Insurance 519.9 460.0 13.0 % 1,052.5 932.8 12.8 % Large Case Pensions 178.2 180.9 (1.5) % 376.2 367.4 2.4 % Total Revenue 5,491.2$ 4,869.2$ 12.8 % 10,913.7$ 9,664.4$ 12.9 % Operating Expenses as % of Revenue (2) Aetna Inc. 19.3 % 20.1 % (.8) pts. 19.4 % 20.3 % (.9) pts. Health Care 20.8 % 21.8 % (1.0) pts. 21.0 % 22.1 % (1.1) pts. Group Insurance 11.5 % 11.2 % .3 pts. 11.5 % 11.4 % .1 pts. Large Case Pensions 1.9 % 2.8 % (.9) pts. 2.2 % 2.7 % (.5) pts. Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, 2005 2005 2004 2004 2004 Membership (Members in Thousands) (3) Medical 14,435 14,375 13,656 13,570 13,439 Dental 12,976 12,833 11,967 11,670 11,461 Pharmacy 9,117 9,006 8,447 8,323 8,148 Group Insurance 13,662 14,040 13,494 13,287 12,594 (1) Prior period results per common share have been adjusted to reflect the March 11, 2005 two-for-one stock split. (2) In order to provide a comparison that the Company believes provides useful information regarding its underlying performance, all operating earnings exclude an other item and net realized capital gains (losses) from income from continuing operations. In addition, operating margins exclude interest expense and amortization of other acquired intangibles; furthermore, pretax operating margin also excludes income taxes. Also, revenue excludes net realized capital gains (losses). Management uses these measures to assess business performance and to make decisions regarding its operations and allocation of resources among its businesses. The Company also displays certain metrics (e.g., medical cost ratios, operating earnings, operating earnings per common share and operating margins) excluding reserve development to reflect underlying current period health care costs and current and future benefits. For a reconciliation of financial measures calculated under accounting principles generally accepted in the United States of America (GAAP), refer to pages 11-13. (3) Refer to page 3 for more details. Refer to page 14 for definitions of terms used. Three Months Ended Six Months Ended Financial Highlights ($ in Millions, except per common share data) 1
  • 4. Change Change Jun. 30, Jun. 30, Jun. 30, 2005 - Jun. 30, Jun. 30, Jun. 30, 2005 - 2005 2004 Jun. 30, 2004 2005 2004 Jun. 30, 2004 Health Care Premiums Health Care Risk (A) 4,145.7$ 3,648.0$ 13.6 % 8,199.2$ 7,205.8$ 13.8 % Commercial Risk (B) 3,896.9$ 3,411.0$ 14.2 % 7,702.7$ 6,737.2$ 14.3 % Medicare (C) 248.8$ 237.0$ 5.0 % 496.5$ 468.6$ 6.0 % Administrative Services Contract Fees 565.6$ 510.5$ 10.8 % 1,126.6$ 1,015.8$ 10.9 % Health Care Costs Health Care Risk Health care costs (GAAP measure) (D) 3,244.7$ 2,875.1$ 12.9 % 6,293.2$ 5,616.9$ 12.0 % Favorable development of prior-period health care cost estimates 55.0 29.0 Health care costs - Adjusted (E) 3,299.7$ 2,904.1$ 13.6 % Commercial Risk Health care costs (GAAP measure) (F) 3,022.5$ 2,672.1$ 13.1 % 5,860.4$ 5,218.4$ 12.3 % Favorable development of prior-period health care cost estimates 53.0 26.0 Health care costs - Adjusted (G) 3,075.5$ 2,698.1$ 14.0 % Medicare Health care costs (GAAP measure) (H) 222.3$ 202.8$ 9.6 % 432.9$ 398.4$ 8.7 % Favorable development of prior-period health care cost estimates 2.0 3.0 Health care costs - Adjusted (I) 224.3$ 205.8$ 9.0 % Health Care Medical Cost Ratios Health Care Risk (GAAP measure) (D)/(A) 78.3 % 78.8 % (.5) pts. 76.8 % 77.9 % (1.1) pts. Health Care Risk - Adjusted (E)/(A) 79.6 % 79.6 % - pts. Commercial Risk (GAAP measure) (F)/(B) 77.6 % 78.3 % (.7) pts. 76.1 % 77.5 % (1.4) pts. Commercial Risk - Adjusted (G)/(B) 78.9 % 79.1 % (.2) pts. Medicare (GAAP measure) (H)/(C) 89.3 % 85.6 % 3.7 pts. 87.2 % 85.0 % 2.2 pts. Medicare - Adjusted (I)/(C) 90.2 % 86.8 % 3.4 pts. Group Insurance Total Revenue, Excluding Net Realized Capital Gains (Losses) 519.9$ 460.0$ 13.0 % 1,052.5$ 932.8$ 12.8 % Benefit Cost Ratios 93.1 % 96.0 % (2.9) pts. 94.2 % 95.6 % (1.4) pts. Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, Other Health Care Statistics 2005 2005 2004 2004 2004 Health Care Costs Payable 1,864.3$ 1,885.0$ 1,927.1$ 1,945.6$ 1,913.6$ Days Claims Payable 52.3 (1) 55.7 58.6 59.8 60.6 (1) The decline of 3.4 days from March 31, 2005 was primarily due to an approximate 2.4 day decline associated with the delayed effect on this quarter of the favorable reserve development reported in the first quarter of 2005 (including the release of reserves related to the Company's participation in the New York State Market Stabilization Pool), a .6 day decline due to current period favorable reserve development as well as a .4 day decline due to a reduction in various provider liabilities and the timing of pharmacy payments. Refer to page 14 for definitions of terms used. Three Months Ended Six Months Ended Health Care and Group Insurance Statistics ($ in Millions) 2
  • 5. Products Risk ASC Total Risk ASC Total Risk ASC Total Risk ASC Total Medical: Commercial 4,872 9,349 14,221 4,503 8,726 13,229 4,684 8,762 13,446 4,841 9,321 14,162 Medicare 101 - 101 100 - 100 97 - 97 101 - 101 Medicaid - 113 113 - 110 110 - 113 113 - 112 112 Total Medical 4,973 9,462 14,435 4,603 8,836 13,439 4,781 8,875 13,656 4,942 9,433 14,375 Dental (1) 4,986 7,990 12,976 4,648 6,813 11,461 4,708 7,259 11,967 4,958 7,875 12,833 Pharmacy: Pharmacy Benefit Management Services 8,579 7,743 7,989 8,505 Mail Order (2) 538 405 458 501 Total Pharmacy 9,117 8,148 8,447 9,006 Group Insurance: Life 10,904 10,158 10,930 11,160 Disability 2,525 2,223 2,341 2,653 Long-Term Care 233 213 223 227 Total Group Insurance 13,662 12,594 13,494 14,040 Aetna HealthFund® (3) 370 197 222 361 Regions Northeast 1,144 1,367 2,511 1,095 1,295 2,390 1,143 1,298 2,441 1,140 1,373 2,513 Mid-Atlantic 1,088 1,511 2,599 1,000 1,468 2,468 1,043 1,470 2,513 1,070 1,538 2,608 Southeast 858 1,554 2,412 781 1,424 2,205 809 1,433 2,242 854 1,541 2,395 North Central 519 2,124 2,643 424 2,060 2,484 471 2,079 2,550 512 2,126 2,638 Southwest 572 1,548 2,120 558 1,376 1,934 557 1,376 1,933 571 1,533 2,104 West 692 1,300 1,992 664 1,206 1,870 673 1,211 1,884 693 1,299 1,992 Other 100 58 158 81 7 88 85 8 93 102 23 125 Total Medical 4,973 9,462 14,435 4,603 8,836 13,439 4,781 8,875 13,656 4,942 9,433 14,375 Risk/ASC % 34.5% 65.5% 100.0% 34.3% 65.7% 100.0% 35.0% 65.0% 100.0% 34.4% 65.6% 100.0% (1) At June 30, 2005, the Company began including Aetna Global Benefits dental membership. Prior period dental membership has been revised accordingly. (2) Represents members who purchased medications through Aetna's mail order pharmacy during the quarterly period. (3) Represents members in consumer-directed health plan products included in Aetna's Commercial medical membership. Refer to page 14 for definitions of terms used. March 31, 2005 Health Care and Group Insurance Enrollment (Members in Thousands) June 30, 2005 June 30, 2004 December 31, 2004 3
  • 6. Jun. 30, Jun. 30, Jun. 30, Jun. 30, 2005 2004 (1) 2005 2004 (1) Summary of Results Health Care 343.6$ 264.0$ 747.6$ 552.4$ Group Insurance 31.3 27.2 62.0 58.0 Large Case Pensions 7.5 7.9 11.6 14.0 Corporate Interest Expense (19.8) (16.5) (37.5) (33.0) Operating earnings, excluding other item 362.6 282.6 783.7 591.4 Reduction of reserve for anticipated future losses on discontinued products 43.4 - 43.4 - Operating earnings, including other item 406.0 282.6 827.1 591.4 Net realized capital gains 3.7 3.7 6.6 20.7 Income from continuing operations (GAAP measure) 409.7 286.3 833.7 612.1 Income from discontinued operations (2) - - - 40.0 Net income (GAAP measure) 409.7$ 286.3$ 833.7$ 652.1$ Operating earnings - Adjusted 327.6$ 271.6$ Favorable development of prior-period health care cost estimates 35.0 18.0 Unfavorable prior-period mortality development - (7.0) Operating earnings, excluding other item 362.6$ 282.6$ Health Care operating earnings - Adjusted 308.6$ 246.0$ Favorable development of prior-period health care cost estimates 35.0 18.0 Health Care operating earnings 343.6$ 264.0$ Weighted average common shares - basic 290,663,128 306,350,590 291,983,775 307,102,976 Weighted average common shares - diluted 303,072,306 319,939,126 303,915,023 319,947,412 Summary of Results Per Common Share Operating earnings - Adjusted 1.08$ .85$ Favorable development of prior-period health care cost estimates .12 .06 Unfavorable prior-period mortality development - (.02) Operating earnings, excluding other item 1.20 .89 2.58$ 1.85$ Reduction of reserve for anticipated future losses on discontinued products .14 - .14 - Operating earnings, including other item 1.34 .89 2.72 1.85 Net realized capital gains .01 .01 .02 .06 Income from continuing operations (GAAP measure) 1.35 .90 2.74 1.91 Income from discontinued operations - - - .13 Net income (GAAP measure) 1.35$ .90$ 2.74$ 2.04$ (1) Prior period weighted average common shares and results per common share have been adjusted to reflect the March 11, 2005 two-for-one stock split. (2) Income from discontinued operations of approximately $40 million for the six months ended June 30, 2004 reflects the completion of certain Internal Revenue Service audits associated with businesses that were sold in the 1990s by the Company's predecessor (former Aetna). Refer to page 14 for definitions of terms used. Earnings Summary Six Months Ended ($ in Millions, except per common share data) Three Months Ended 4
  • 7. Health Group Large Case Corporate Three Months Ended June 30, 2005 Care Insurance Pensions Interest Consolidated Revenue: Premiums 4,145.7$ 448.8$ 52.9$ -$ 4,647.4$ Administrative services contract fees 565.6 6.8 - - 572.4 Net investment income 70.7 63.5 122.4 - 256.6 Other income 11.1 .8 2.9 - 14.8 Total revenue, excluding net realized capital gains (losses) (1) 4,793.1 519.9 178.2 - 5,491.2 Benefits and expenses: Health care costs (2) 3,244.7 - - - 3,244.7 Current and future benefits - 417.9 163.4 - 581.3 Operating expenses: Selling expenses 185.1 20.8 - - 205.9 General and administrative expenses 810.4 38.8 3.3 - 852.5 Total operating expenses 995.5 59.6 3.3 - 1,058.4 Interest expense - - - 30.5 30.5 Amortization of other acquired intangible assets 11.5 - - - 11.5 Total benefits and expenses 4,251.7 477.5 166.7 30.5 4,926.4 Operating earnings (loss), excluding income taxes (benefits) 541.4 42.4 11.5 (30.5) 564.8 Income taxes (benefits) 197.8 11.1 4.0 (10.7) 202.2 Operating earnings (loss), excluding other item 343.6 31.3 7.5 (19.8) 362.6 Reduction of reserve for anticipated future losses on discontinued products, net of tax - - 43.4 - 43.4 Operating earnings (loss), including other item 343.6 31.3 50.9 (19.8) 406.0 Net realized capital gains (losses), net of tax 2.5 1.9 (.7) - 3.7 Income (loss) from continuing operations 346.1$ 33.2$ 50.2$ (19.8)$ 409.7$ Three Months Ended June 30, 2004 Revenue: Premiums 3,648.0$ 386.5$ 47.9$ -$ 4,082.4$ Administrative services contract fees 510.5 6.7 - - 517.2 Net investment income 63.9 66.0 130.3 - 260.2 Other income 5.9 .8 2.7 - 9.4 Total revenue, excluding net realized capital gains (losses) (1) 4,228.3 460.0 180.9 - 4,869.2 Benefits and expenses: Health care costs (3) 2,875.1 - - - 2,875.1 Current and future benefits (4) - 370.9 164.1 - 535.0 Operating expenses: Selling expenses 153.8 15.7 - - 169.5 General and administrative expenses 769.1 35.7 5.0 - 809.8 Total operating expenses 922.9 51.4 5.0 - 979.3 Interest expense - - - 25.2 25.2 Amortization of other acquired intangible assets 12.7 - - - 12.7 Total benefits and expenses 3,810.7 422.3 169.1 25.2 4,427.3 Operating earnings (loss), excluding income taxes (benefits) 417.6 37.7 11.8 (25.2) 441.9 Income taxes (benefits) 153.6 10.5 3.9 (8.7) 159.3 Operating earnings (loss) 264.0 27.2 7.9 (16.5) 282.6 Net realized capital gains (losses), net of tax (1.4) 2.3 2.8 - 3.7 Income (loss) from continuing operations 262.6$ 29.5$ 10.7$ (16.5)$ 286.3$ (1) Refer to pages 11-13 for reconciliations of revenue calculated under GAAP for all periods. (2) Includes favorable development of prior-period health care cost estimates of approximately $55 million pretax (approximately $35 million after tax) in the Health Care Segment. (3) Includes favorable development of prior-period health care cost estimates of approximately $29 million pretax (approximately $18 million after tax) in the Health Care Segment. (4) Includes unfavorable prior-period mortality development of approximately $10 million pretax (approximately $7 million after tax) in the Group Insurance Segment. Refer to page 14 for definitions of terms used. Consolidating Statements of Income (Loss) from Continuing Operations by Segment ($ in Millions) 5
  • 8. Health Group Large Case Corporate Six Months Ended June 30, 2005 Care Insurance Pensions Interest Consolidated Revenue: Premiums 8,199.2$ 898.6$ 101.6$ -$ 9,199.4$ Administrative services contract fees 1,126.6 14.7 - - 1,141.3 Net investment income 141.3 137.4 269.1 - 547.8 Other income 17.9 1.8 5.5 - 25.2 Total revenue, excluding net realized capital gains (losses) (1) 9,485.0 1,052.5 376.2 - 10,913.7 Benefits and expenses: Health care costs 6,293.2 - - - 6,293.2 Current and future benefits - 846.4 350.2 - 1,196.6 Operating expenses: Selling expenses 369.0 39.9 - - 408.9 General and administrative expenses 1,622.7 81.4 8.2 - 1,712.3 Total operating expenses 1,991.7 121.3 8.2 - 2,121.2 Interest expense - - - 57.7 57.7 Amortization of other acquired intangible assets 22.2 - - - 22.2 Total benefits and expenses 8,307.1 967.7 358.4 57.7 9,690.9 Operating earnings (loss), excluding income taxes (benefits) 1,177.9 84.8 17.8 (57.7) 1,222.8 Income taxes (benefits) 430.3 22.8 6.2 (20.2) 439.1 Operating earnings (loss), excluding other item 747.6 62.0 11.6 (37.5) 783.7 Reduction of reserve for anticipated future losses on discontinued products, net of tax - - 43.4 - 43.4 Operating earnings (loss), including other item 747.6 62.0 55.0 (37.5) 827.1 Net realized capital gains (losses), net of tax 3.8 3.3 (.5) - 6.6 Income (loss) from continuing operations 751.4$ 65.3$ 54.5$ (37.5)$ 833.7$ Six Months Ended June 30, 2004 Revenue: Premiums 7,205.8$ 780.2$ 96.9$ -$ 8,082.9$ Administrative services contract fees 1,015.8 13.6 - - 1,029.4 Net investment income 129.6 137.3 264.8 - 531.7 Other income 13.0 1.7 5.7 - 20.4 Total revenue, excluding net realized capital gains (1) 8,364.2 932.8 367.4 - 9,664.4 Benefits and expenses: Health care costs 5,616.9 - - - 5,616.9 Current and future benefits - 745.5 336.5 - 1,082.0 Operating expenses: Selling expenses 302.6 30.5 - - 333.1 General and administrative expenses 1,544.5 75.4 10.0 - 1,629.9 Total operating expenses 1,847.1 105.9 10.0 - 1,963.0 Interest expense - - - 50.7 50.7 Amortization of other acquired intangible assets 25.4 - - - 25.4 Total benefits and expenses 7,489.4 851.4 346.5 50.7 8,738.0 Operating earnings (loss), excluding income taxes (benefits) 874.8 81.4 20.9 (50.7) 926.4 Income taxes (benefits) 322.4 23.4 6.9 (17.7) 335.0 Operating earnings (loss) 552.4 58.0 14.0 (33.0) 591.4 Net realized capital gains, net of tax 5.7 10.2 4.8 - 20.7 Income (loss) from continuing operations 558.1$ 68.2$ 18.8$ (33.0)$ 612.1$ (1) Refer to pages 11-13 for reconciliations of revenue calculated under GAAP for all periods. Refer to page 14 for definitions of terms used. Consolidating Statements of Income (Loss) from Continuing Operations by Segment (Continued) ($ in Millions) 6
  • 9. Jun. 30, Dec. 31, Jun. 30, Dec. 31, 2005 2004 2005 2004 Assets Liabilities and shareholders' equity Current assets: Current liabilities: Cash and cash equivalents 1,118.9$ 1,396.0$ Health care costs payable 1,864.3$ 1,927.1$ Investment securities 13,786.2 14,242.6 Future policy benefits 806.3 837.6 Other investments 220.1 57.7 Unpaid claims 741.7 707.7 Premiums receivable, net 319.0 256.1 Unearned premiums 156.8 121.8 Other receivables, net 513.5 314.0 Policyholders' funds 655.8 672.5 Accrued investment income 186.3 198.6 Collateral payable under securities loan agreements 1,255.9 1,173.8 Collateral received under securities loan agreements 1,255.9 1,173.8 Current portion of long-term debt 449.8 - Loaned securities 1,230.4 1,150.1 Accrued expenses and other current liabilities 1,593.5 1,570.8 Income taxes receivable 97.2 226.8 Total current liabilities 7,524.1 7,011.3 Deferred income taxes 200.4 196.0 Other current assets 393.7 304.5 Total current assets 19,321.6 19,516.2 Future policy benefits 7,745.1 7,859.5 Unpaid claims 1,116.8 1,081.5 Policyholders' funds 1,490.2 1,453.1 Long-term investments 1,762.9 1,718.1 Long-term debt, less current portion 1,155.7 1,609.7 Mortgage loans 1,291.1 1,348.2 Other long-term liabilities 865.0 1,021.4 Investment real estate 275.7 274.8 Separate Accounts liabilities 13,732.0 13,015.8 Reinsurance recoverables 1,158.7 1,173.0 Total liabilities 33,628.9 33,052.3 Goodwill 4,103.3 3,687.8 Other acquired intangible assets, net 637.1 460.3 Property and equipment, net 241.6 233.6 Shareholders' equity Deferred income taxes 116.8 300.0 Common stock and additional paid-in capital 2,586.5 3,076.5 Other long-term assets 433.0 405.9 Retained earnings 7,380.1 6,546.4 Separate Accounts assets 13,732.0 13,015.8 Accumulated other comprehensive loss (1) (521.7) (541.5) Total shareholders' equity 9,444.9 9,081.4 Total assets 43,073.8$ 42,133.7$ Total liabilities and shareholders' equity 43,073.8$ 42,133.7$ (1) Includes net unrealized capital gains related to available for sale securities under FAS No. 115 of $266.5 million and $245.7 million at June 30, 2005 and December 31, 2004, respectively, and a minimum pension liability adjustment of ($797.7) million at June 30, 2005 and December 31, 2004. Refer to page 14 for definitions of terms used. Consolidated Balance Sheets ($ in Millions) 7
  • 10. Health Care Health Care and Group Large Case and Group Large Case Insurance Pensions Total Insurance Pensions Total Assets Current assets: Cash and cash equivalents 1,050.6$ 68.3$ 1,118.9$ 1,300.5$ 95.5$ 1,396.0$ Investment securities 8,008.1 5,778.1 13,786.2 8,259.8 5,982.8 14,242.6 Other investments .7 219.4 220.1 1.5 56.2 57.7 Premiums receivable, net 319.0 - 319.0 256.1 - 256.1 Other receivables, net 434.1 79.4 513.5 279.2 34.8 314.0 Accrued investment income 100.0 86.3 186.3 103.5 95.1 198.6 Collateral received under securities loan agreements 535.0 720.9 1,255.9 620.1 553.7 1,173.8 Loaned securities 524.2 706.2 1,230.4 607.6 542.5 1,150.1 Income taxes receivable 85.7 11.5 97.2 228.1 (1.3) 226.8 Deferred income taxes 187.6 12.8 200.4 183.9 12.1 196.0 Other current assets 378.9 14.8 393.7 283.0 21.5 304.5 Total current assets 11,623.9 7,697.7 19,321.6 12,123.3 7,392.9 19,516.2 Long-term investments 1,247.3 515.6 1,762.9 1,238.7 479.4 1,718.1 Mortgage loans 538.6 752.5 1,291.1 491.7 856.5 1,348.2 Investment real estate 131.4 144.3 275.7 137.9 136.9 274.8 Reinsurance recoverables 1,142.6 16.1 1,158.7 1,156.0 17.0 1,173.0 Goodwill 4,103.3 - 4,103.3 3,687.8 - 3,687.8 Other acquired intangible assets, net 637.1 - 637.1 460.3 - 460.3 Property and equipment, net 157.0 84.6 241.6 140.3 93.3 233.6 Deferred income taxes 30.2 86.6 116.8 160.9 139.1 300.0 Other long-term assets 433.0 - 433.0 405.9 - 405.9 Separate Accounts assets 4.1 13,727.9 13,732.0 4.5 13,011.3 13,015.8 Total assets 20,048.5$ 23,025.3$ 43,073.8$ 20,007.3$ 22,126.4$ 42,133.7$ Liabilities and shareholders' equity Current liabilities: Health care costs payable 1,864.3$ -$ 1,864.3$ 1,927.1$ -$ 1,927.1$ Future policy benefits 115.9 690.4 806.3 111.5 726.1 837.6 Unpaid claims 741.0 .7 741.7 707.1 .6 707.7 Unearned premiums 147.2 9.6 156.8 115.9 5.9 121.8 Policyholders' funds 403.6 252.2 655.8 383.5 289.0 672.5 Collateral payable under securities loan agreements 535.0 720.9 1,255.9 620.1 553.7 1,173.8 Current portion of long-term debt 449.8 - 449.8 - - - Accrued expenses and other current liabilities 1,131.2 462.3 1,593.5 1,226.0 344.8 1,570.8 Total current liabilities 5,388.0 2,136.1 7,524.1 5,091.2 1,920.1 7,011.3 Future policy benefits 1,883.9 5,861.2 7,745.1 1,871.2 5,988.3 7,859.5 Unpaid claims 1,116.8 - 1,116.8 1,081.5 - 1,081.5 Policyholders' funds 596.7 893.5 1,490.2 594.0 859.1 1,453.1 Long-term debt, less current portion 1,155.7 - 1,155.7 1,609.7 - 1,609.7 Other long-term liabilities 781.5 83.5 865.0 947.3 74.1 1,021.4 Separate Accounts liabilities 4.1 13,727.9 13,732.0 4.5 13,011.3 13,015.8 Total liabilities 10,926.7 22,702.2 33,628.9 11,199.4 21,852.9 33,052.3 Shareholders' equity Total shareholders' equity 9,121.8 323.1 9,444.9 8,807.9 273.5 9,081.4 Total liabilities and shareholder's equity 20,048.5$ 23,025.3$ 43,073.8$ 20,007.3$ 22,126.4$ 42,133.7$ Refer to page 14 for definitions of terms used. Combining Balance Sheets ($ in Millions) June 30, 2005 December 31, 2004 8
  • 11. Health Care Health Care and Group Large Case and Group Large Case Insurance Pensions Total Insurance Pensions Total Cash flows from operating activities: Net income 359.5$ 50.2$ 409.7$ 275.6$ 10.7$ 286.3$ Adjustments to reconcile net income to net cash provided by (used for) operating activities: Amortization of other acquired intangible assets 11.5 - 11.5 12.7 - 12.7 Depreciation and other amortization 37.3 - 37.3 36.5 - 36.5 Amortization (accretion) of net investment premium (discount) 7.4 (.3) 7.1 10.4 .5 10.9 Net realized capital (gains) losses (6.7) 1.0 (5.7) (1.5) (4.3) (5.8) Cash flow from operating activities before balance sheet changes 409.0 50.9 459.9 333.7 6.9 340.6 Changes in assets and liabilities: Decrease in accrued investment income .1 7.1 7.2 5.2 3.4 8.6 (Increase) decrease in premiums due and other receivables (31.1) 2.2 (28.9) 36.1 .2 36.3 Net change in income taxes 156.7 9.4 166.1 (26.8) 7.2 (19.6) Net change in other assets and other liabilities 69.0 9.4 78.4 46.6 7.8 54.4 Net increase (decrease) in health care and insurance liabilities 34.0 (124.1) (1) (90.1) (93.5) (104.2) (1) (197.7) Other, net 12.4 (2.2) 10.2 3.6 (3.0) .6 Net cash provided by (used for) operating activities 650.1 (47.3) 602.8 304.9 (81.7) 223.2 Cash flows from investing activities: Proceeds from sales and investment maturities 2,109.2 1,152.8 3,262.0 2,234.1 1,160.4 3,394.5 Cost of investments (1,881.3) (1,129.6) (3,010.9) (2,073.5) (952.7) (3,026.2) Increase in property, equipment and software (61.4) - (61.4) (39.5) - (39.5) Cash used for acquisition, net of cash acquired (389.4) - (389.4) - - - Net cash (used for) provided by investing activities (222.9) 23.2 (199.7) 121.1 207.7 328.8 Cash flows from financing activities: Withdrawals of investment contracts, net - (.6) (.6) - (96.5) (96.5) Common shares issued under benefit plans 60.4 - 60.4 43.6 - 43.6 Common shares repurchased (274.0) - (274.0) (53.6) - (53.6) Other, net (15.4) 15.4 - (4.8) .8 (4.0) Net cash (used for) provided by financing activities (229.0) 14.8 (214.2) (14.8) (95.7) (110.5) Net increase (decrease) in cash and cash equivalents 198.2 (9.3) 188.9 411.2 30.3 441.5 Cash and cash equivalents, beginning of period 852.4 77.6 930.0 659.2 48.8 708.0 Cash and cash equivalents, end of period 1,050.6$ 68.3$ 1,118.9$ 1,070.4$ 79.1$ 1,149.5$ (1) Includes a reduction of the reserve for anticipated future losses on discontinued products of $67 million for the three months ended June 30, 2005. Changes in insurance liabilities are satisfied by sales of related investment assets included in net cash provided by investment activities. Refer to page 14 for definitions of terms used. Jun. 30, 2005 Jun. 30, 2004 Condensed Combining Statements of Cash Flows ($ in Millions) Three Months Ended 9
  • 12. Health Care Health Care and Group Large Case and Group Large Case Insurance Pensions Total Insurance Pensions Total Cash flows from operating activities: Net income 779.2$ 54.5$ 833.7$ 633.3$ 18.8$ 652.1$ Adjustments to reconcile net income to net cash provided by (used for) operating activities: Income from discontinued operations - - - (40.0) - (40.0) Amortization of other acquired intangible assets 22.2 - 22.2 25.4 - 25.4 Depreciation and other amortization 71.7 - 71.7 71.6 - 71.6 Amortization (accretion) of net investment premium (discount) 18.0 (.6) 17.4 22.1 .6 22.7 Net realized capital (gains) losses (10.8) .7 (10.1) (24.5) (7.4) (31.9) Cash flow from operating activities before balance sheet changes 880.3 54.6 934.9 687.9 12.0 699.9 Changes in assets and liabilities: Decrease in accrued investment income 3.5 8.8 12.3 3.6 5.1 8.7 (Increase) Decrease in premiums due and other receivables (112.8) 3.1 (109.7) 7.9 (.3) 7.6 Net change in income taxes 373.7 5.5 379.2 173.9 12.0 185.9 Net change in other assets and other liabilities (386.9) (1) 29.1 (357.8) (405.8) 21.7 (384.1) Net increase (decrease) in health care and insurance liabilities 76.7 (164.2) (2) (87.5) (61.3) (162.9) (2) (224.2) Other, net 1.4 (25.5) (24.1) (1.9) (9.3) (11.2) Net cash provided by (used for) operating activities 835.9 (88.6) 747.3 404.3 (121.7) 282.6 Cash flows from investing activities: Proceeds from sales and investment maturities 3,982.5 1,875.3 5,857.8 4,581.7 2,170.0 6,751.7 Cost of investments (3,692.2) (1,824.0) (5,516.2) (4,935.7) (1,828.7) (6,764.4) Increase in property and equipment (108.5) - (108.5) (73.7) - (73.7) Cash used for acquisition, net of cash acquired (631.1) - (631.1) - - - Net cash (used for) provided by investing activities (449.3) 51.3 (398.0) (427.7) 341.3 (86.4) Cash flows from financing activities: Withdrawals of investment contracts, net - (3.3) (3.3) - (252.7) (252.7) Common shares issued under benefit plans 179.1 - 179.1 184.0 - 184.0 Common shares repurchased (802.2) - (802.2) (417.4) - (417.4) Other, net (13.4) 13.4 - (1.1) 7.1 6.0 Net cash (used for) provided by financing activities (636.5) 10.1 (626.4) (234.5) (245.6) (480.1) Net decrease in cash and cash equivalents (249.9) (27.2) (277.1) (257.9) (26.0) (283.9) Cash and cash equivalents, beginning of period 1,300.5 95.5 1,396.0 1,328.3 105.1 1,433.4 Cash and cash equivalents, end of period 1,050.6$ 68.3$ 1,118.9$ 1,070.4$ 79.1$ 1,149.5$ (1) Includes voluntary pension plan contributions of approximately $180 million and physician class action settlement payment of approximately $150 million for the six months ended June 30, 2005. (2) Includes a reduction of the reserve for anticipated future losses on discontinued products of $67 million for the six months ended June 30, 2005. Changes in insurance liabilities are satisfied by sales of related investment assets included in net cash provided by investment activities. Refer to page 14 for definitions of terms used. Jun. 30, 2005 Jun. 30, 2004 Condensed Combining Statements of Cash Flows (Continued) ($ in Millions) Six Months Ended 10
  • 13. Jun. 30, Jun. 30, Jun. 30, Jun. 30, 2005 2004 2005 2004 Reconciliation to Income from continuing operations before income taxes Operating earnings before income taxes, excluding interest expense, amortization of other acquired intangible assets, other item and net favorable development (A) 551.8$ 460.8$ Favorable development of prior-period health care cost estimates 55.0 29.0 Unfavorable prior-period mortality development - (10.0) Operating earnings before income taxes, excluding interest expense, amortization of other acquired intangible assets and other item (B) 606.8 479.8 1,302.7$ 1,002.5$ Interest expense (30.5) (25.2) (57.7) (50.7) Amortization of other acquired intangible assets (11.5) (12.7) (22.2) (25.4) Reduction of reserve for anticipated future losses on discontinued products 66.7 - 66.7 - Net realized capital gains 5.7 5.8 10.1 31.9 Income from continuing operations before income taxes (GAAP measure) (C) 637.2$ 447.7$ 1,299.6$ 958.3$ Reconciliation to Income from continuing operations Operating earnings, excluding interest expense, amortization of other acquired intangible assets, other item and net favorable development (D) 354.9$ 296.3$ Favorable development of prior-period health care cost estimates, net of tax 35.0 18.0 Unfavorable prior-period mortality development, net of tax - (7.0) Operating earnings, excluding interest expense, amortization of other acquired intangible assets and other item (E) 389.9 307.3 835.7$ 640.9$ Interest expense, net of tax (19.8) (16.5) (37.5) (33.0) Amortization of other acquired intangible assets, net of tax (7.5) (8.2) (14.5) (16.5) Reduction of reserve for anticipated future losses on discontinued products, net of tax 43.4 - 43.4 - Net realized capital gains, net of tax 3.7 3.7 6.6 20.7 Income from continuing operations (GAAP measure) (F) 409.7$ 286.3$ 833.7$ 612.1$ Reconciliation of Revenue Revenue, excluding net realized capital gains (G) 5,491.2$ 4,869.2$ 10,913.7$ 9,664.4$ Net realized capital gains 5.7 5.8 10.1 31.9 Total revenue (GAAP measure) (H) 5,496.9$ 4,875.0$ 10,923.8$ 9,696.3$ Operating margin Pretax operating margin (B)/(G) 11.1 % 9.9 % 11.9 % 10.4 % Pretax operating margin - Adjusted (A)/(G) 10.0 % 9.5 % Pretax operating margin (GAAP measure) (C)/(H) 11.6 % 9.2 % 11.9 % 9.9 % After-tax operating margin (E)/(G) 7.1 % 6.3 % 7.7 % 6.6 % After-tax operating margin - Adjusted (D)/(G) 6.5 % 6.1 % After-tax operating margin (GAAP measure) (F)/(H) 7.5 % 5.9 % 7.6 % 6.3 % Refer to page 14 for definitions of terms used. Six Months EndedThree Months Ended Reconciliations of Certain Reported Amounts to the Most Directly Comparable GAAP Measure ($ in Millions, except per common share data) 11
  • 14. Jun. 30, Jun. 30, Jun. 30, Jun. 30, 2005 2004 2005 2004 Aetna Inc. Total operating expenses (GAAP measure) (A) 1,058.4$ 979.3$ 2,121.2$ 1,963.0$ Reconciliation of Revenue Revenue, excluding net realized capital gains (B) 5,491.2$ 4,869.2$ 10,913.7$ 9,664.4$ Net realized capital gains 5.7 5.8 10.1 31.9 Total revenue (GAAP measure) (C) 5,496.9$ 4,875.0$ 10,923.8$ 9,696.3$ Operating expenses as a % of revenue Operating expenses as a % of revenue (A)/(B) 19.3 % 20.1 % 19.4 % 20.3 % Total operating expenses as a % of total revenue (GAAP measure) (A)/(C) 19.3 % 20.1 % 19.4 % 20.2 % Health Care Total operating expenses (GAAP measure) (D) 995.5$ 922.9$ 1,991.7$ 1,847.1$ Reconciliation of Revenue Revenue, excluding net realized capital gains (losses) (E) 4,793.1$ 4,228.3$ 9,485.0$ 8,364.2$ Net realized capital gains (losses) 3.8 (2.2) 5.8 8.7 Total revenue (GAAP measure) (F) 4,796.9$ 4,226.1$ 9,490.8$ 8,372.9$ Operating expenses as a % of revenue Operating expenses as a % of revenue (D)/(E) 20.8 % 21.8 % 21.0 % 22.1 % Total operating expenses as a % of total revenue (GAAP measure) (D)/(F) 20.8 % 21.8 % 21.0 % 22.1 % Refer to page 14 for definitions of terms used. Six Months Ended Reconciliations of Certain Reported Amounts to the Most Directly Comparable GAAP Measure (Continued) ($ in Millions) Three Months Ended 12
  • 15. Jun. 30, Jun. 30, Jun. 30, Jun. 30, 2005 2004 2005 2004 Group Insurance Total operating expenses (GAAP measure) (A) 59.6$ 51.4$ 121.3$ 105.9$ Reconciliation of Revenue Revenue, excluding net realized capital gains (B) 519.9$ 460.0$ 1,052.5$ 932.8$ Net realized capital gains 2.9 3.7 5.0 15.8 Total revenue (GAAP measure) (C) 522.8$ 463.7$ 1,057.5$ 948.6$ Operating expenses as a % of revenue Operating expenses as a % of revenue (A)/(B) 11.5 % 11.2 % 11.5 % 11.4 % Total operating expenses as a % of total revenue (GAAP measure) (A)/(C) 11.4 % 11.1 % 11.5 % 11.2 % Large Case Pensions Total operating expenses (GAAP measure) (D) 3.3$ 5.0$ 8.2$ 10.0$ Reconciliation of Revenue Revenue, excluding net realized capital gains (losses) (E) 178.2$ 180.9$ 376.2$ 367.4$ Net realized capital gains (losses) (1.0) 4.3 (.7) 7.4 Total revenue (GAAP measure) (F) 177.2$ 185.2$ 375.5$ 374.8$ Operating expenses as a % of revenue Operating expenses as a % of revenue (D)/(E) 1.9 % 2.8 % 2.2 % 2.7 % Total operating expenses as a % of total revenue (GAAP measure) (D)/(F) 1.9 % 2.7 % 2.2 % 2.7 % Refer to page 14 for definitions of terms used. Six Months Ended Reconciliations of Certain Reported Amounts to the Most Directly Comparable GAAP Measure (Continued) ($ in Millions) Three Months Ended 13
  • 16. Adjusted noted on a financial statistic indicates that the statistic excludes favorable development of prior-period health care cost estimates and unfavorable prior-period mortality development. Administrative Services Contracts ("ASC") include all medical, dental and disability products 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 or other risk. After-tax Operating Margins are calculated by dividing after-tax operating earnings, excluding interest expense, amortization of other acquired intangible assets and other items by revenue, excluding net realized gains (losses). Benefit Cost Ratios are calculated by dividing group insurance current and future benefits by group insurance premiums. Commercial includes HMO, POS, PPO and Indemnity products. Commercial Risk includes all medical and dental risk products except Medicare and Medicaid. Days Claims Payable is calculated by dividing the health care costs payable at each quarter end by the health care costs per day in each respective quarter. Health care costs per day is derived by dividing health care costs by the number of days in the quarter. Development of Prior-Period Health Care Cost Estimates reflects management's estimate of the extent by which reported health care costs in the current period are affected by changes in estimates for health care costs payable during the period which relate to prior periods. Health Care Medical Cost Ratios are calculated by dividing health care costs by health care premiums. Health Care Risk includes all medical and dental risk products. Operating Earnings exclude net realized capital gains (losses) and other items from income from continuing operations. Operating Expenses as a % of Revenue are calculated by dividing operating expenses, excluding other items by revenue, excluding net realized capital gains (losses). Pretax Operating Margins are calculated by dividing pretax operating earnings, excluding interest expense, amortization of other acquired intangible assets and other items by revenue, excluding net realized gains (losses). Risk includes all medical and dental products for which the Company assumes all or a majority of health care cost, utilization or other risk. Selling Expenses are comprised of broker commissions, the variable component of our internal sales force compensation and premium taxes. Health Case Costs Payable consist principally of unpaid fee-for-service claims, capitation costs and other amounts due to health care providers pursuant to risk-sharing arrangements. Future Policy Benefits consist primarily of reserves for limited payment pension and annuity contracts in the Large Case Pension business and long-duration group paid-up life and long-term care insurance contracts in the Group Insurance business. Unpaid Claims consist primarily of reserves associated with certain short-duration group disability and term life insurance contracts in the Group Insurance business. Policyholders' Funds consist primarily of reserves for pension and annuity investment contracts in the Large Case Pension business and customer funds associated with group life and health contracts in the Health Care and Group Insurance business. Separate Accounts are primarily assets and liabilities representing funds maintained for the Large Case Pension business to meet specific obligations of contract holders who bear the investment risk. Definitions Balance Sheet Terms 14