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
Consolidated Balance Sheets 6
Combining Balance Sheets 7
Condensed Combining Statements of Cash Flows 8
Reconciliations of Certain Reported Amounts to the Most Directly Comparable GAAP Measure 9-11
Restated Earnings Summary (Restated to include Stock-Based Compensation Expense and Adjusted for Stock Split) 12-13
Definitions 14
This document is supplemental to the Company’s first quarter 2006 earnings press release and should be read in conjunction therewith and in conjunction with the Company's March 31, 2006
Quarterly Report on Form 10-Q to be filed with the U.S. Securities and Exchange Commission. Please direct questions with respect to this material to David Entrekin, Vice President -
Investor Relations, Aetna Inc., 151 Farmington Avenue, RT21, Hartford, Connecticut 06156. Telephone: 860-273-7830. Email: entrekind@aetna.com.
Table of Contents
3. Change
Mar. 31, Mar. 31, Mar. 31, 2006 -
2006 2005 Mar. 31, 2005
Operating Earnings (2)
Aetna Inc. 380.3$ 386.4$ (1.6) %
Aetna Inc. per common share .64$ .63$ 1.6 %
Health Care 360.6$ 370.5$ (2.7) %
Group Insurance 32.2$ 29.5$ 9.2 %
Large Case Pensions 9.3$ 4.1$ 126.8 %
Operating Earnings - Adjusted (2)
Aetna Inc. 380.3$ 302.4$ 25.8 %
Aetna Inc. per common share .64$ .49$ 30.6 %
Health Care 360.6$ 286.5$ 25.9 %
Pretax Operating Margin (2)
Aetna Inc. 10.3 % 11.8 % (1.5) pts.
Aetna Inc. - Adjusted 10.3 % 9.4 % .9 pts.
After-tax Operating Margin (2)
Aetna Inc. 6.7 % 7.6 % (.9) pts.
Aetna Inc. - Adjusted 6.7 % 6.0 % .7 pts.
Revenue by Segment (2)
Health Care 5,490.2$ 4,691.9$ 17.0 %
Group Insurance 531.9 532.6 (.1) %
Large Case Pensions 195.0 198.0 (1.5) %
Total Revenue 6,217.1$ 5,422.5$ 14.7 %
Operating Expenses as % of Revenue (2)
Aetna Inc. 19.1 % 20.6 % (1.5) pts.
Health Care 20.4 % 22.3 % (1.9) pts.
Group Insurance 12.0 % 11.9 % .1 pts.
Large Case Pensions 2.3 % 2.5 % (.2) pts.
Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31,
2006 2005 2005 2005 2005
Membership (Members in Thousands) (3)
Medical 15,418 14,755 14,650 14,435 14,375
Dental 13,331 13,098 13,031 12,976 12,833
Pharmacy 10,151 9,445 9,337 9,117 9,006
Group Insurance 13,089 13,618 13,675 13,662 14,040
(1) Effective January 1, 2006, the Company adopted FAS 123R applying the modified retrospective approach. Accordingly, all prior period financial information was adjusted to reflect the Company's stock-based
compensation activity. Additionally, results per common share have been adjusted to reflect the February 17, 2006 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 other items 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 the Company's 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. For a reconciliation of financial measures calculated under U.S. generally accepted accounting principles ("GAAP"), refer to pages 9-11.
(3) Refer to page 3 for more details.
Refer to page 14 for definitions of terms used.
Three Months Ended
Financial Highlights (1)
($ in Millions, except per common share data)
1
4. Change
Mar. 31, Mar. 31, Mar. 31, 2006 -
2006 2005 Mar. 31, 2005
Health Care
Premiums
Health Care Risk (A) 4,726.1$ 4,053.5$ 16.6 %
Commercial Risk (B) 4,296.5$ 3,805.8$ 12.9 %
Medicare (C) 429.6$ 247.7$ 73.4 %
Fees and Other Revenue 680.5$ 567.8$ 19.8 %
Health Care Costs
Health Care Risk
Health care costs (GAAP measure) (D) 3,786.2$ 3,048.5$ 24.2 %
Favorable development of prior-period health care cost estimates - 133.0
Health care costs - Adjusted (E) 3,786.2$ 3,181.5$ 19.0 %
Commercial Risk
Health care costs (GAAP measure) (F) 3,411.2$ 2,837.9$ 20.2 %
Favorable development of prior-period health care cost estimates - 127.0
Health care costs - Adjusted (G) 3,411.2$ 2,964.9$ 15.1 %
Medicare
Health care costs (GAAP measure) (H) 375.0$ 210.6$ 78.1 %
Favorable development of prior-period health care cost estimates - 6.0
Health care costs - Adjusted (I) 375.0$ 216.6$ 73.1 %
Health Care Medical Cost Ratios
Health Care Risk (GAAP measure) (D)/(A) 80.1 % 75.2 % 4.9 pts.
Health Care Risk - Adjusted (E)/(A) 80.1 % 78.5 % 1.6 pts.
Commercial Risk (GAAP measure) (F)/(B) 79.4 % 74.6 % 4.8 pts.
Commercial Risk - Adjusted (G)/(B) 79.4 % 77.9 % 1.5 pts.
Medicare (GAAP measure) (H)/(C) 87.3 % 85.0 % 2.3 pts.
Medicare - Adjusted (I)/(C) 87.3 % 87.4 % (.1) pts.
Group Insurance
Total revenue, excluding net realized capital gains (losses) 531.9$ 532.6$ (.1) %
Benefit cost ratios 94.8 % 95.3 % (.5) pts.
Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31,
Other Health Care Statistics 2006 2005 2005 2005 2005
Health care costs payable 1,934.9$ 1,817.0$ 1,864.8$ 1,864.3$ 1,885.0$
Days claims payable (1) 46.5 48.3 50.1 52.3 56.3
(1) The decrease of 1.8 days from December 31, 2005 to March 31, 2006 was due to the delayed effect of the favorable reserve development reported in the fourth quarter of 2005 and an increase in
per-day medical costs related to the new Medicare PDP product which completes more quickly than the average of the Company's other medical components and requires less reserves at period end.
During the first quarter of 2006, the Company began calculating this statistic assuming ninety-one calendar days in each quarter, which eliminates calculation differences that arise when the number
of calendar days are different in a given quarter, despite the number of work days being level. Previously reported information has been revised to reflect this calculation methodology.
Refer to page 14 for definitions of terms used.
Three Months Ended
Health Care and Group Insurance Statistics
($ in Millions)
2
5. Products Risk ASC Total Risk ASC Total Risk ASC Total
Medical:
Commercial 5,127 10,049 15,176 4,841 9,321 14,162 5,115 9,406 14,521
Medicare (1) 117 15 132 101 - 101 101 19 120
Medicaid - 110 110 - 112 112 - 114 114
Total Medical 5,244 10,174 15,418 4,942 9,433 14,375 5,216 9,539 14,755
Dental 4,995 8,336 13,331 4,958 7,875 12,833 5,078 8,020 13,098
Pharmacy: (2)
Pharmacy Benefit Management Services 9,557 8,505 8,885
Mail Order 594 501 560
Total Pharmacy 10,151 9,006 9,445
Medicare PDP (stand-alone) 278
Medicare Advantage PDP 107
Consumer-Directed Health Plans(3) 614 404 453
Group Insurance:
Life 10,186 11,160 10,812
Disability (4) 2,665 2,653 2,571
Long-Term Care 238 227 235
Total Group Insurance 13,089 14,040 13,618
Regions
Northeast 1,211 1,442 2,653 1,140 1,373 2,513 1,205 1,365 2,570
Mid-Atlantic 1,083 1,658 2,741 1,070 1,538 2,608 1,122 1,505 2,627
Southeast 918 1,683 2,601 854 1,541 2,395 894 1,565 2,459
North Central 547 2,255 2,802 512 2,126 2,638 542 2,173 2,715
Southwest 604 1,690 2,294 571 1,533 2,104 596 1,554 2,150
West 768 1,403 2,171 693 1,299 1,992 748 1,312 2,060
Other 113 43 156 102 23 125 109 65 174
Total Medical 5,244 10,174 15,418 4,942 9,433 14,375 5,216 9,539 14,755
Risk/ASC % 34.0% 66.0% 100.0% 34.4% 65.6% 100.0% 35.4% 64.6% 100.0%
(1) Medicare ASC members represent those served through the Company's participation in the Medicare Health Support Program.
(2) Includes 278 thousand Medicare PDP (stand-alone) and 107 thousand Medicare Advantage PDP members at March 31, 2006. Mail Order represents members who purchased medications through
the Company's mail order pharmacy during the quarterly period.
(3) Represents members in consumer-directed health plans included in the Company's Commercial medical membership.
(4) Excludes approximately 2.4 million members acquired from Broadspire on March 31, 2006.
Refer to page 14 for definitions of terms used.
December 31, 2005
Health Care and Group Insurance Enrollment
(Members in Thousands)
March 31, 2006 March 31, 2005
3
6. Mar. 31, Mar. 31,
2006 2005
Summary of Results
Health Care 360.6$ 370.5$
Group Insurance 32.2 29.5
Large Case Pensions 9.3 4.1
Corporate Interest Expense (21.8) (17.7)
Operating earnings 380.3 386.4
Acquisition related software charge (6.2) -
Net realized capital gains 11.5 2.9
Income from continuing operations (GAAP measure) 385.6 389.3
Income from discontinued operations (2) 16.1 -
Net income (GAAP measure) 401.7$ 389.3$
Operating earnings - Adjusted 380.3$ 302.4$
Favorable development of prior-period health care cost estimates - 84.0
Operating earnings 380.3$ 386.4$
Health Care operating earnings - Adjusted 360.6$ 286.5$
Favorable development of prior-period health care cost estimates - 84.0
Health Care operating earnings 360.6$ 370.5$
Weighted average common shares - basic 567.4 586.6
Weighted average common shares - diluted 593.1 613.0
Summary of Results Per Common Share
Operating earnings - Adjusted .64$ .49$
Favorable development of prior-period health care cost estimates - .14
Operating earnings .64 .63
Acquisition related software charge (.01) -
Net realized capital gains .02 .01
Income from continuing operations (GAAP measure) .65 .64
Income from discontinued operations .03 -
Net income (GAAP measure) .68$ .64$
(1) Effective January 1, 2006, the Company adopted FAS 123R applying the modified retrospective approach. Accordingly, all prior period financial information was adjusted to reflect the
Company's stock-based compensation activity. Additionally, results per common share and weighted average common shares have been adjusted to reflect the February 17, 2006
two-for-one stock split.
(2) Income from discontinued operations of approximately $16 million for the three months ended March 31, 2006 reflects the Company's receipt in February 2006 of an approximately $50 million
refund, including interest, from the completion of certain Internal Revenue Service audits associated with businesses previously sold by the Company's former parent company. The Company
previously recorded $735 million of this refund. The $50 million refund resulted in an additional $16 million in income from discontinued operations.
Refer to page 14 for definitions of terms used.
Earnings Summary (1)
(in Millions, except per common share data)
Three Months Ended
4
7. Health Group Large Case Corporate
Three Months Ended March 31, 2006 Care Insurance Pensions Interest Consolidated
Revenue:
Premiums 4,726.1$ 447.9$ 54.2$ -$ 5,228.2$
Fees and other revenue 680.5 7.6 2.8 - 690.9
Net investment income 83.6 76.4 138.0 - 298.0
Total revenue, excluding net realized capital gains (2) 5,490.2 531.9 195.0 - 6,217.1
Benefits and expenses:
Health care costs 3,786.2 - - - 3,786.2
Current and future benefits - 424.4 176.3 - 600.7
Operating expenses:
Selling expenses 221.4 22.1 - - 243.5
General and administrative expenses 899.0 41.9 4.4 - 945.3
Total operating expenses 1,120.4 64.0 4.4 - 1,188.8
Interest expense - - - 33.5 33.5
Amortization of other acquired intangible assets 19.9 - - - 19.9
Total benefits and expenses 4,926.5 488.4 180.7 33.5 5,629.1
Operating earnings (loss), excluding income taxes (benefits) 563.7 43.5 14.3 (33.5) 588.0
Income taxes (benefits) 203.1 11.3 5.0 (11.7) 207.7
Operating earnings (loss) 360.6 32.2 9.3 (21.8) 380.3
Acquisition related software charge, net of tax - (6.2) - - (6.2)
Net realized capital gains, net of tax 3.7 2.2 5.6 - 11.5
Income (loss) from continuing operations 364.3$ 28.2$ 14.9$ (21.8)$ 385.6$
Three Months Ended March 31, 2005
Revenue:
Premiums 4,053.5$ 449.8$ 48.7$ -$ 4,552.0$
Fees and other revenue 567.8 8.9 2.6 - 579.3
Net investment income 70.6 73.9 146.7 - 291.2
Total revenue, excluding net realized capital gains (2) 4,691.9 532.6 198.0 - 5,422.5
Benefits and expenses:
Health care costs (3) 3,048.5 - - - 3,048.5
Current and future benefits - 428.5 186.8 - 615.3
Operating expenses:
Selling expenses 183.9 19.1 - - 203.0
General and administrative expenses 863.9 44.4 4.9 - 913.2
Total operating expenses 1,047.8 63.5 4.9 - 1,116.2
Interest expense - - - 27.2 27.2
Amortization of other acquired intangible assets 10.7 - - - 10.7
Total benefits and expenses 4,107.0 492.0 191.7 27.2 4,817.9
Operating earnings (loss), excluding income taxes (benefits) 584.9 40.6 6.3 (27.2) 604.6
Income taxes (benefits) 214.4 11.1 2.2 (9.5) 218.2
Operating earnings (loss) 370.5 29.5 4.1 (17.7) 386.4
Net realized capital gains, net of tax 1.3 1.4 .2 - 2.9
Income (loss) from continuing operations 371.8$ 30.9$ 4.3$ (17.7)$ 389.3$
(1) Effective January 1, 2006, the Company adopted FAS 123R applying the modified retrospective approach. Accordingly, all prior period financial information was adjusted to reflect the Company's
stock-based compensation activity.
(2) Refer to pages 9-11 for reconciliations of revenue calculated under GAAP for all periods.
(3) Includes favorable development of prior-period health care cost estimates of approximately $133 million pretax (approximately $84 million after tax) in the Health Care Segment.
Refer to page 14 for definitions of terms used.
Consolidating Statements of Income (Loss) from Continuing Operations by Segment (1)
($ in Millions)
5
8. Mar. 31, Dec. 31, Mar. 31, Dec. 31,
2006 2005 (1) 2006 2005 (1)
Assets Liabilities and shareholders' equity
Current assets: Current liabilities:
Cash and cash equivalents 1,340.8$ 1,192.6$ Health care costs payable 1,934.9$ 1,817.0$
Investment securities 13,033.7 13,366.2 Future policy benefits 801.9 806.1
Other investments 83.3 96.8 Unpaid claims 746.2 752.1
Premiums receivable, net 440.8 349.2 Unearned premiums 353.3 156.9
Other receivables, net 471.0 366.7 Policyholders' funds 736.1 757.7
Accrued investment income 189.4 184.9 Collateral payable under securities loan agreements 1,064.2 1,138.8
Collateral received under securities loan agreements 1,064.2 1,138.8 Short-term debt 460.4 -
Loaned securities 1,023.8 1,115.7 Current portion of long-term debt - 450.0
Deferred income taxes 25.5 - Income taxes payable 144.5 36.7
Other current assets 504.1 423.8 Deferred income taxes - 10.4
Total current assets 18,176.6 18,234.7 Accrued expenses and other current liabilities 1,497.4 1,691.1
Total current liabilities 7,738.9 7,616.8
Long-term investments 1,679.8 1,662.1 Future policy benefits 7,627.2 7,642.1
Mortgage loans 1,480.0 1,460.8 Unpaid claims 1,148.4 1,144.9
Investment real estate 199.6 207.2 Policyholders' funds 1,298.8 1,304.2
Reinsurance recoverables 1,128.9 1,143.7 Long-term debt, less current portion 1,155.7 1,155.7
Goodwill 4,610.4 4,523.2 Other long-term liabilities 832.9 848.5
Other acquired intangible assets, net 766.9 724.9 Separate Accounts liabilities 15,407.5 14,532.4
Property and equipment, net 275.8 272.8 Total liabilities 35,209.4 34,244.6
Deferred income taxes 148.8 68.7
Other long-term assets 1,788.1 1,602.8
Separate Accounts assets 15,407.5 14,532.4 Shareholders' equity
Common stock and additional paid-in capital 2,381.9 2,414.7
Retained earnings 8,125.4 7,723.7
Accumulated other comprehensive (loss) income (2) (54.3) 50.3
Total shareholders' equity 10,453.0 10,188.7
Total assets 45,662.4$ 44,433.3$ Total liabilities and shareholders' equity 45,662.4$ 44,433.3$
(1) Effective January 1, 2006, the Company adopted FAS 123R applying the modified retrospective approach. Accordingly, all prior period financial information was adjusted to reflect the Company's stock-based
compensation activity.
(2) Includes net unrealized capital losses related to available for sale securities under FAS No. 115 of $10.9 million at March 31, 2006 and net unrealized capital gains of $104.1 million at December 31, 2005, and a
minimum pension liability adjustment of ($64.7) million at March 31, 2006 and December 31, 2005.
Refer to page 14 for definitions of terms used.
Consolidated Balance Sheets
($ in Millions)
6
9. 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 1,248.2$ 92.6$ 1,340.8$ 1,036.1$ 156.5$ 1,192.6$
Investment securities 7,613.4 5,420.3 13,033.7 7,845.6 5,520.6 13,366.2
Other investments 9.6 73.7 83.3 17.8 79.0 96.8
Premiums receivable, net 440.8 - 440.8 349.2 - 349.2
Other receivables, net 436.8 34.2 471.0 349.0 17.7 366.7
Accrued investment income 101.1 88.3 189.4 102.6 82.3 184.9
Collateral received under securities loan agreements 613.2 451.0 1,064.2 632.5 506.3 1,138.8
Loaned securities 592.6 431.2 1,023.8 619.8 495.9 1,115.7
Deferred income taxes .6 24.9 25.5 - - -
Other current assets 473.2 30.9 504.1 396.1 27.7 423.8
Total current assets 11,529.5 6,647.1 18,176.6 11,348.7 6,886.0 18,234.7
Long-term investments 1,100.1 579.7 1,679.8 1,115.4 546.7 1,662.1
Mortgage loans 557.5 922.5 1,480.0 538.8 922.0 1,460.8
Investment real estate 92.7 106.9 199.6 94.1 113.1 207.2
Reinsurance recoverables 1,113.3 15.6 1,128.9 1,128.1 15.6 1,143.7
Goodwill 4,610.4 - 4,610.4 4,523.2 - 4,523.2
Other acquired intangible assets, net 766.9 - 766.9 724.9 - 724.9
Property and equipment, net 202.9 72.9 275.8 196.5 76.3 272.8
Deferred income taxes (42.6) 191.4 148.8 (79.3) 148.0 68.7
Other long-term assets 1,788.1 - 1,788.1 1,602.8 - 1,602.8
Separate Accounts assets 4.1 15,403.4 15,407.5 4.3 14,528.1 14,532.4
Total assets 21,722.9$ 23,939.5$ 45,662.4$ 21,197.5$ 23,235.8$ 44,433.3$
Liabilities and shareholders' equity
Current liabilities:
Health care costs payable 1,934.9$ -$ 1,934.9$ 1,817.0$ -$ 1,817.0$
Future policy benefits 120.1 681.8 801.9 118.4 687.7 806.1
Unpaid claims 745.6 .6 746.2 751.5 .6 752.1
Unearned premiums 341.1 12.2 353.3 151.1 5.8 156.9
Policyholders' funds 449.1 287.0 736.1 415.3 342.4 757.7
Collateral payable under securities loan agreements 613.2 451.0 1,064.2 632.5 506.3 1,138.8
Short-term debt 457.1 3.3 460.4 - - -
Current portion of long-term debt - - - 450.0 - 450.0
Income taxes payable 127.6 16.9 144.5 26.2 10.5 36.7
Deferred income taxes - - - 21.0 (10.6) 10.4
Accrued expenses and other current liabilities 1,259.6 237.8 1,497.4 1,381.6 309.5 1,691.1
Total current liabilities 6,048.3 1,690.6 7,738.9 5,764.6 1,852.2 7,616.8
Future policy benefits 1,911.9 5,715.3 7,627.2 1,904.1 5,738.0 7,642.1
Unpaid claims 1,148.4 - 1,148.4 1,144.9 - 1,144.9
Policyholders' funds 570.8 728.0 1,298.8 580.9 723.3 1,304.2
Long-term debt, less current portion 1,155.7 - 1,155.7 1,155.7 - 1,155.7
Other long-term liabilities 795.9 37.0 832.9 816.2 32.3 848.5
Separate Accounts liabilities 4.1 15,403.4 15,407.5 4.3 14,528.1 14,532.4
Total liabilities 11,635.1 23,574.3 35,209.4 11,370.7 22,873.9 34,244.6
Shareholders' equity
Total shareholders' equity 10,087.8 365.2 10,453.0 9,826.8 361.9 10,188.7
Total liabilities and shareholders' equity 21,722.9$ 23,939.5$ 45,662.4$ 21,197.5$ 23,235.8$ 44,433.3$
(1) Effective January 1, 2006, the Company adopted FAS 123R applying the modified retrospective approach. Accordingly, all prior period financial information was adjusted to reflect the Company's stock-based
compensation activity.
Refer to page 14 for definitions of terms used.
Combining Balance Sheets
($ in Millions)
March 31, 2006 December 31, 2005 (1)
7
10. 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 386.8$ 14.9$ 401.7$ 385.0$ 4.3$ 389.3$
Adjustments to reconcile net income to net cash provided
by (used for) operating activities:
Income from discontinued operations (16.1) - (16.1) - - -
Depreciation and amortization 65.2 - 65.2 45.1 - 45.1
Amortization (accretion) of net investment premium (discount) 6.1 (3.3) 2.8 10.6 (.3) 10.3
Stock-based compensation expense 38.1 - 38.1 53.4 - 53.4
Net realized capital gains (9.0) (8.6) (17.6) (4.1) (.3) (4.4)
Cash flow from operating activities before balance
sheet changes 471.1 3.0 474.1 490.0 3.7 493.7
Changes in assets and liabilities:
Decrease (increase) in accrued investment income 1.5 (6.0) (4.5) 3.4 1.7 5.1
(Increase) decrease in premiums due and other receivables (95.0) 1.4 (93.6) (81.7) .9 (80.8)
Net change in income taxes 60.0 (1.3) 58.7 126.8 (3.9) 122.9
Net change in other assets and other liabilities (366.8) (2) 8.0 (358.8) (455.9) (2) 19.7 (436.2)
Net increase (decrease) in health care and insurance liabilities 311.3 (36.6) (3) 274.7 42.7 (40.1) (3) 2.6
Other, net (10.1) (26.1) (36.2) (11.0) (23.3) (34.3)
Net cash provided by (used for) operating activities of continuing
operations 372.0 (57.6) 314.4 114.3 (41.3) 73.0
Discontinued operations, net 49.7 - 49.7 - - -
Net cash provided by (used for) operating activities 421.7 (57.6) 364.1 114.3 (41.3) 73.0
Cash flows from investing activities:
Proceeds from sales and investment maturities 2,377.9 960.2 3,338.1 1,873.3 722.5 2,595.8
Cost of investments (2,312.0) (966.0) (3,278.0) (1,810.9) (694.4) (2,505.3)
Increase in property, equipment and software (62.6) - (62.6) (47.1) - (47.1)
Cash used for acquisitions, net of cash acquired (157.0) - (157.0) (241.7) - (241.7)
Net cash (used for) provided by investing activities (153.7) (5.8) (159.5) (226.4) 28.1 (198.3)
Cash flows from financing activities:
Deposits and interest credited for investment contracts - 9.0 9.0 - 9.0 9.0
Withdrawals of investment contracts - (5.5) (5.5) - (11.7) (11.7)
Proceeds from net issuance of short-term debt 457.1 3.3 460.4 - - -
Repayment of long-term debt (450.0) - (450.0) - - -
Common shares issued under benefit plans 37.8 - 37.8 118.7 - 118.7
Excess benefits from stock-based compensation 42.8 - 42.8 71.5 - 71.5
Common shares repurchased (150.9) - (150.9) (528.2) - (528.2)
Other, net 7.3 (7.3) - 2.0 (2.0) -
Net cash used for financing activities (55.9) (.5) (56.4) (336.0) (4.7) (340.7)
Net increase (decrease) in cash and cash equivalents 212.1 (63.9) 148.2 (448.1) (17.9) (466.0)
Cash and cash equivalents, beginning of period 1,036.1 156.5 1,192.6 1,300.5 95.5 1,396.0
Cash and cash equivalents, end of period 1,248.2$ 92.6$ 1,340.8$ 852.4$ 77.6$ 930.0$
(1) Effective January 1, 2006, the Company adopted FAS 123R applying the modified retrospective approach. Accordingly, all prior period financial information was adjusted to reflect the Company's stock-based
compensation activity.
(2) Includes voluntary pension plan contributions of approximately $180 million for both the three months ended March 31, 2006 and March 31, 2005 and physician class action settlement payment of approximately
$150 million for the three months ended March 31, 2005.
(3) Changes in insurance liabilities are satisfied by sales of related investment assets included in net cash provided by investment activities.
Refer to page 14 for definitions of terms used.
Mar. 31, 2006 Mar. 31, 2005 (1)
Condensed Combining Statements of Cash Flows
($ in Millions)
Three Months Ended
8
11. Mar. 31, Mar. 31,
2006 2005 (1)
Reconciliation to Income from continuing operations before income taxes
Operating earnings before income taxes, excluding interest expense, amortization of
other acquired intangible assets and favorable development (A) 641.4$ 509.5$
Favorable development of prior-period health care cost estimates - 133.0
Operating earnings before income taxes, excluding interest expense and amortization
of other acquired intangible assets (B) 641.4 642.5
Interest expense (33.5) (27.2)
Amortization of other acquired intangible assets (19.9) (10.7)
Acquisition related software charge (8.3) -
Net realized capital gains 17.6 4.4
Income from continuing operations before income taxes (GAAP measure) (C) 597.3$ 609.0$
Reconciliation to Income from continuing operations
Operating earnings, excluding interest expense, amortization of other acquired
intangible assets and favorable development (D) 415.0$ 327.1$
Favorable development of prior-period health care cost estimates, net of tax - 84.0
Operating earnings, excluding interest expense and amortization of other acquired
intangible assets (E) 415.0 411.1
Interest expense, net of tax (21.8) (17.7)
Amortization of other acquired intangible assets, net of tax (12.9) (7.0)
Acquisition related software charge, net of tax (6.2) -
Net realized capital gains, net of tax 11.5 2.9
Income from continuing operations (GAAP measure) (F) 385.6$ 389.3$
Reconciliation of Revenue
Revenue, excluding net realized capital gains (G) 6,217.1$ 5,422.5$
Net realized capital gains 17.6 4.4
Total revenue (GAAP measure) (H) 6,234.7$ 5,426.9$
Operating margin
Pretax operating margin (B)/(G) 10.3 % 11.8 %
Pretax operating margin - Adjusted (A)/(G) 10.3 % 9.4 %
Pretax operating margin (GAAP measure) (C)/(H) 9.6 % 11.2 %
After-tax operating margin (E)/(G) 6.7 % 7.6 %
After-tax operating margin - Adjusted (D)/(G) 6.7 % 6.0 %
After-tax operating margin (GAAP measure) (F)/(H) 6.2 % 7.2 %
(1) Effective January 1, 2006, the Company adopted FAS 123R applying the modified retrospective approach. Accordingly, all prior period financial information was adjusted to reflect
the Company's stock-based compensation activity.
Refer to page 14 for definitions of terms used.
Three Months Ended
Reconciliations of Certain Reported Amounts to the Most Directly Comparable GAAP Measure
($ in Millions, except per common share data)
9
12. Mar. 31, Mar. 31, Dec. 31,
2006 2005 2005
Aetna Inc.
Reconciliation of Operating Expenses
Operating expenses, excluding other item (A) 1,188.8$ 1,116.2$ 1,156.2$
Acquisition related software charge 8.3 - -
Total operating expenses (GAAP measure) (B) 1,197.1$ 1,116.2$ 1,156.2$
Reconciliation of Revenue
Revenue, excluding net realized capital gains (C) 6,217.1$ 5,422.5$ 5,853.7$
Net realized capital gains 17.6 4.4 13.7
Total revenue (GAAP measure) (D) 6,234.7$ 5,426.9$ 5,867.4$
Operating expenses as a % of revenue
Operating expenses as a % of revenue (A)/(C) 19.1 % 20.6 % 19.8 %
Total operating expenses as a % of total revenue (GAAP measure) (B)/(D) 19.2 % 20.6 % 19.7 %
Health Care
Total operating expenses (GAAP measure) (E) 1,120.4$ 1,047.8$ 1,091.2$
Reconciliation of Revenue
Revenue, excluding net realized capital gains (F) 5,490.2$ 4,691.9$ 5,136.3$
Net realized capital gains 5.7 2.0 2.9
Total revenue (GAAP measure) (G) 5,495.9$ 4,693.9$ 5,139.2$
Operating expenses as a % of revenue
Operating expenses as a % of revenue (E)/(F) 20.4 % 22.3 % 21.2 %
Total operating expenses as a % of total revenue (GAAP measure) (E)/(G) 20.4 % 22.3 % 21.2 %
(1) Effective January 1, 2006, the Company adopted FAS 123R applying the modified retrospective approach. Accordingly, all prior period financial information was adjusted
to reflect the Company's stock-based compensation activity.
Refer to page 14 for definitions of terms used.
Reconciliations of Certain Reported Amounts to the Most Directly Comparable GAAP Measure (Continued) (1)
($ in Millions)
Three Months Ended
10
13. Mar. 31, Mar. 31, Dec. 31,
2006 2005 2005
Group Insurance
Reconciliation of Operating Expenses
Operating expenses, excluding other item (A) 64.0$ 63.5$ 60.2$
Acquisition related software charge 8.3 - -
Total operating expenses (GAAP measure) (B) 72.3$ 63.5$ 60.2$
Reconciliation of Revenue
Revenue, excluding net realized capital gains (C) 531.9$ 532.6$ 551.2$
Net realized capital gains 3.3 2.1 3.3
Total revenue (GAAP measure) (D) 535.2$ 534.7$ 554.5$
Operating expenses as a % of revenue
Operating expenses as a % of revenue (A)/(C) 12.0 % 11.9 % 10.9 %
Total operating expenses as a % of total revenue (GAAP measure) (B)/(D) 13.5 % 11.9 % 10.9 %
Large Case Pensions
Total operating expenses (GAAP measure) (E) 4.4$ 4.9$ 4.8$
Reconciliation of Revenue
Revenue, excluding net realized capital gains (F) 195.0$ 198.0$ 166.2$
Net realized capital gains 8.6 .3 7.5
Total revenue (GAAP measure) (G) 203.6$ 198.3$ 173.7$
Operating expenses as a % of revenue
Operating expenses as a % of revenue (E)/(F) 2.3 % 2.5 % 2.9 %
Total operating expenses as a % of total revenue (GAAP measure) (E)/(G) 2.2 % 2.5 % 2.8 %
(1) Effective January 1, 2006, the Company adopted FAS 123R applying the modified retrospective approach. Accordingly, all prior period financial information was adjusted
to reflect the Company's stock-based compensation activity.
Refer to page 14 for definitions of terms used.
Reconciliations of Certain Reported Amounts to the Most Directly Comparable GAAP Measure (Continued) (1)
($ in Millions)
Three Months Ended
11
14. As Reported Restated As Reported Restated As Reported Restated
Summary of Results
Operating earnings - Adjusted 818.8$ 777.9$ 1,141.5$ 1,051.2$ 1,411.0$ 1,349.8$
Favorable development of prior-period health care cost estimates 148.0 148.0 57.0 57.0 159.0 159.0
Operating earnings 966.8 925.9 1,198.5 1,108.2 1,570.0 1,508.8
Reduction of reserve for anticipated future losses on discontinued products - - - - 43.4 43.4
Aetna Foundation, Inc. contribution - - (29.3) (29.3) - -
Physician class action settlement (75.0) (75.0) - - - -
Net realized capital gains 42.0 42.0 45.9 45.9 21.1 21.1
Income from continuing operations (GAAP measure) 933.8 892.9 1,215.1 1,124.8 1,634.5 1,573.3
Income from discontinued operations - - 1,030.0 1,030.0 - -
Net income (GAAP measure) 933.8$ 892.9$ 2,245.1$ 2,154.8$ 1,634.5$ 1,573.3$
Stock-based compensation expense, pretax 62.9$ 138.9$ 94.1$
Weighted average common shares - basic 610.7 610.7 605.6 605.6 579.0 579.0
Weighted average common shares - diluted 632.3 633.4 627.8 628.7 604.9 606.0
Summary of Results Per Common Share
Operating earnings - Adjusted 1.29$ 1.23$ 1.82$ 1.67$ 2.33$ 2.23$
Favorable development of prior-period health care cost estimates .24 .23 .09 .09 .27 .26
Operating earnings 1.53 1.46 1.91 1.76 2.60 2.49
Reduction of reserve for anticipated future losses on discontinued products - - - - .07 .07
Aetna Foundation, Inc. contribution - - (.05) (.05) - -
Physician class action settlement (.12) (.12) - - - -
Net realized capital gains .07 .07 .08 .08 .03 .04
Income from continuing operations (GAAP measure) 1.48 1.41 1.94 1.79 2.70 2.60
Income from discontinued operations - - 1.64 1.64 - -
Net income (GAAP measure) 1.48$ 1.41$ 3.58$ 3.43$ 2.70$ 2.60$
Operating Expenses as a % of Revenue
Reconciliation of Operating Expenses
Operating expenses, excluding other item (A) 4,039.1$ 4,102.0$ 3,983.8$ 4,122.7$ 4,358.6$ 4,452.7$
Aetna Foundation, Inc. contribution - - 45.0 45.0 - -
Physician class action settlement 115.4 115.4 - - - -
Total operating expenses (GAAP measure) (B) 4,154.5$ 4,217.4$ 4,028.8$ 4,167.7$ 4,358.6$ 4,452.7$
Reconciliation of Revenue
Revenue, excluding net realized capital gains (C) 17,911.2$ 17,911.2$ 19,833.3$ 19,833.3$ 22,459.6$ 22,459.6$
Net realized capital gains, net of tax 65.2 65.2 70.8 70.8 32.3 32.3
Total revenue (GAAP measure) (D) 17,976.4$ 17,976.4$ 19,904.1$ 19,904.1$ 22,491.9$ 22,491.9$
Operating expenses as a % of revenue
Operating expenses as a % of revenue (A)/(C) 22.6% 22.9% 20.1% 20.8% 19.4% 19.8%
Total operating expenses as a % of total revenue (GAAP measure) (B)/(D) 23.1% 23.5% 20.2% 20.9% 19.4% 19.8%
(1) Effective January 1, 2006, the Company adopted FAS 123R applying the modified retrospective approach. Accordingly, all prior period financial information was adjusted to reflect the Company's
stock-based compensation activity. Additionally, results per common share and weighted average common shares have been adjusted to reflect the February 17, 2006 two-for-one stock split.
Refer to page 14 for definitions of terms used.
Restated Earnings Summary
Restated to reflect FAS 123R and adjusted for the 2-for-1 stock split on February 17, 2006 (1)
(in Millions, except per common share data)
Dec. 31, 2003 Dec. 31, 2004 Dec. 31, 2005
Twelve Months Ended
12
15. As Reported Restated As Reported Restated As Reported Restated As Reported Restated
Summary of Results
Operating earnings - Adjusted 337.1$ 302.4$ 327.6$ 312.8$ 357.3$ 352.3$ 374.0$ 367.3$
Favorable development of prior-period health care cost estimates 84.0 84.0 35.0 35.0 15.0 15.0 40.0 40.0
Operating earnings 421.1 386.4 362.6 347.8 372.3 367.3 414.0 407.3
Reduction of reserve for anticipated future losses on discontinued products - - 43.4 43.4 - - - -
Net realized capital gains 2.9 2.9 3.7 3.7 5.5 5.5 9.0 9.0
Income from continuing operations (GAAP measure) 424.0 389.3 409.7 394.9 377.8 372.8 423.0 416.3
Income from discontinued operations - - - - - - - -
Net income (GAAP measure) 424.0$ 389.3$ 409.7$ 394.9$ 377.8$ 372.8$ 423.0$ 416.3$
Stock-based compensation expense, pretax 53.4$ 22.7$ 7.7$ 10.3$
Weighted average common shares - basic 586.6 586.6 581.3 581.3 577.4 577.4 570.8 570.8
Weighted average common shares - diluted 612.0 613.0 606.1 607.0 601.4 602.6 595.5 596.9
Summary of Results Per Common Share
Operating earnings - Adjusted .55$ .49$ .54$ .52$ .59$ .58$ .63$ .62$
Favorable development of prior-period health care cost estimates .14 .14 .06 .05 .03 .03 .07 .06
Operating earnings .69 .63 .60 .57 .62 .61 .70 .68
Reduction of reserve for anticipated future losses on discontinued products - - .07 .07 - - - -
Net realized capital gains - .01 .01 .01 .01 .01 .01 .02
Income from continuing operations (GAAP measure) .69 .64 .68 .65 .63 .62 .71 .70
Income from discontinued operations - - - - - - - -
Net income (GAAP measure) .69$ .64$ .68$ .65$ .63$ .62$ .71$ .70$
As Reported Restated As Reported Restated As Reported Restated As Reported Restated
Summary of Results
Operating earnings - Adjusted 281.8$ 265.9$ 271.6$ 247.4$ 275.5$ 251.6$ 279.6$ 253.3$
Favorable development of prior-period health care cost estimates 27.0 27.0 18.0 18.0 14.0 14.0 38.0 38.0
Unfavorable prior-period mortality development - - (7.0) (7.0) - - - -
Operating earnings 308.8 292.9 282.6 258.4 289.5 265.6 317.6 291.3
Reduction of reserve for anticipated future losses on discontinued products - - - - - - - -
Aetna Foundation, Inc. contribution - - - - - - (29.3) (29.3)
Net realized capital gains 17.0 17.0 3.7 3.7 12.8 12.8 12.4 12.4
Income from continuing operations (GAAP measure) 325.8 309.9 286.3 262.1 302.3 278.4 300.7 274.4
Income from discontinued operations 40.0 40.0 - - 990.0 990.0 - -
Net income (GAAP measure) 365.8$ 349.9$ 286.3$ 262.1$ 1,292.3$ 1,268.4$ 300.7$ 274.4$
Stock-based compensation expense, pretax 24.5$ 37.1$ 36.8$ 40.5$
Weighted average common shares - basic 615.7 615.7 612.7 612.7 604.6 604.6 589.5 589.5
Weighted average common shares - diluted 641.7 640.3 639.9 638.2 629.7 629.6 615.7 617.2
Summary of Results Per Common Share
Operating earnings - Adjusted .44$ .42$ .42$ .39$ .44$ .40$ .45$ .41$
Favorable development of prior-period health care cost estimates .04 .04 .03 .02 .02 .02 .07 .06
Unfavorable prior-period mortality development - - (.01) (.01) - - - -
Operating earnings .48 .46 .44 .40 .46 .42 .52 .47
Reduction of reserve for anticipated future losses on discontinued products - - - - - - - -
Aetna Foundation, Inc. contribution - - - - - - (.05) (.05)
Net realized capital gains .03 .02 .01 .01 .02 .02 .02 .02
Income from continuing operations (GAAP measure) .51 .48 .45 .41 .48 .44 .49 .44
Income from discontinued operations .06 .07 - - 1.57 1.57 - -
Net income (GAAP measure) .57$ .55$ .45$ .41$ 2.05$ 2.01$ .49$ .44$
(1) Effective January 1, 2006, the Company adopted FAS 123R applying the modified retrospective approach. Accordingly, all prior period financial information was adjusted to reflect the Company's stock-based compensation activity.
Additionally, results per common share and weighted average common shares have been adjusted to reflect the February 17, 2006 two-for-one stock split.
Refer to page 14 for definitions of terms used.
Three Months Ended
Restated Earnings Summary (Continued)
Restated to reflect FAS 123R and adjusted for the 2-for-1 stock split on February 17, 2006 (1)
(in Millions, except per common share data)
Three Months Ended
Mar. 31, 2005 Jun. 30, 2005 Sep. 30, 2005 Dec. 31, 2005
Mar. 31, 2004 Jun. 30, 2004 Sep. 30, 2004 Dec. 31, 2004
13
16. Adjusted noted on a financial statistic indicates that the statistic excludes favorable development of prior-period health care cost estimates.
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 ninety-one days.
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 the Company's internal sales force compensation and premium taxes.
Health Care 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 Account assets and liabilities in the Large Case Pensions business generally represent funds maintained to meet specific objectives of contract holders who bear the investment risk.
Definitions
Balance Sheet Terms
14
