A     2007 First Quarter




Financial
Supplement
Table of Contents




Financial Highlights                                                                                ...
Financial Highlights
                                                                                     (in Millions, ex...
Health Care and Group Insurance Statistics
                                                                               ...
Health Care Membership
                                                                                              (in T...
Statements of Income (Loss) from Continuing Operations by Segment
                                                        ...
Balance Sheets
                                                                                                (in Million...
Condensed Statements of Cash Flows
                                                                                       ...
Reconciliations of Certain Reported Amounts to the Most Directly Comparable GAAP Measure
                                 ...
Reconciliations of Certain Reported Amounts to the Most Directly Comparable GAAP Measure (Continued)
                     ...
Footnotes

(1)
   In order to provide a comparison that the Company believes provides useful information regarding its und...
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aetna Download Documentation Financial Supplement2007 1st

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aetna Download Documentation Financial Supplement2007 1st

  1. 1. A 2007 First Quarter Financial Supplement
  2. 2. Table of Contents Financial Highlights 1 Health Care and Group Insurance Statistics 2 Health Care Insurance Membership 3 Statements of Income (Loss) from Continuing Operations by Segment 4 Balance Sheets 5 Condensed Statements of Cash Flows 6 Reconciliations of Certain Reported Amounts to the Most Directly Comparable GAAP Measure 7-8 Footnotes and Definitions 9 This document is supplemental to the Company’s first quarter 2007 earnings press release and should be read in conjunction therewith and in conjunction with the Company's March 31, 2007 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.
  3. 3. Financial Highlights (in Millions, except per common share data) Three Months Ended Change March 31, March 31, March 31, 2007 - 2007 2006 March 31, 2006 (1) Operating Earnings Aetna Inc. $ 435.4 $ 380.3 14.5 % Aetna Inc. per common share $ .81 $ .64 26.6 % Health Care $ 422.7 $ 360.6 17.2 % Group Insurance $ 31.1 $ 32.2 (3.4) % Large Case Pensions $ 9.1 $ 9.3 (2.2) % Net Income Aetna Inc. $ 434.6 $ 401.7 8.2 % Aetna Inc. per common share $ .81 $ .68 19.1 % Weighted average common shares - diluted 536.4 593.1 (9.6) % (1) Operating Margin Pretax Operating Margin 10.9 % 10.3 % .6 pts. After-tax Operating Margin 7.1 % 6.7 % .4 pts. (1) Revenue by Segment Health Care $ 5,969.1 $ 5,490.2 8.7 % Group Insurance 544.1 531.9 2.3 % Large Case Pensions 188.0 195.0 (3.6) % Total Revenue $ 6,701.2 $ 6,217.1 7.8 % (1) Operating Expenses as % of Revenue 18.0 % 19.1 % (1.1) pts. March 31, December 31, September 30, June 30, March 31, 2007 2006 2006 2006 2006 Membership (in Thousands) Medical 15,703 15,433 15,383 15,407 15,418 Dental 13,655 13,472 13,396 13,374 13,331 Pharmacy 10,496 10,215 10,202 10,213 10,151 Health Care Statistics Days claims payable 46.2 45.9 46.8 44.8 46.5 Refer to page 9 for an explanation of footnotes and definitions of terms used. 1
  4. 4. Health Care and Group Insurance Statistics (in Millions) Three Months Ended Change March 31, March 31, March 31, 2007 - 2007 2006 March 31, 2006 Health Care Premiums Commercial $ 4,512.6 $ 4,296.5 5.0 % Medicare $ 651.4 $ 429.6 51.6 % Health Care $ 5,178.5 $ 4,726.1 9.6 % Health Care Costs Commercial $ 3,591.0 $ 3,411.2 5.3 % Medicare $ 573.3 $ 375.0 52.9 % Health Care $ 4,177.1 $ 3,786.2 10.3 % Medical Benefit Ratios Commercial 79.6 % 79.4 % .2 pts. Medicare 88.0 % 87.3 % .7 pts. Total 80.7 % 80.1 % .6 pts. Group Insurance Total revenue, excluding net realized capital gains $ 544.1 $ 531.9 2.3 % Benefit ratio 94.9 % 94.8 % .1 pts. Refer to page 9 for an explanation of footnotes and definitions of terms used. 2
  5. 5. Health Care Membership (in Thousands) March 31, 2007 March 31, 2006 December 31, 2006 Products Insured ASC Total Insured ASC Total Insured ASC Total Medical: Commercial 5,179 10,172 15,351 5,127 10,049 15,176 5,088 10,053 15,141 Medicare Advantage 178 - 178 117 - 117 123 - 123 Medicare Health Support Program - 16 16 - 15 15 - 17 17 Medicaid 28 130 158 - 110 110 22 130 152 Total Medical 5,385 10,318 15,703 5,244 10,174 15,418 5,233 10,200 15,433 Consumer-Directed Health Plans (2) 910 614 676 Dental: Commercial 5,142 7,215 12,357 4,995 7,217 12,212 5,057 7,205 12,262 (3) Network Access - 1,298 1,298 - 1,119 1,119 - 1,210 1,210 Total Dental 5,142 8,513 13,655 4,995 8,336 13,331 5,057 8,415 13,472 Pharmacy: Commercial 9,417 9,172 9,161 Medicare PDP (stand-alone) 321 278 314 Medicare Advantage PDP 137 107 115 Total Pharmacy Benefit Management Services 9,875 9,557 9,590 (4) Mail Order 621 594 625 Total Pharmacy 10,496 10,151 10,215 Regions Northeast 1,158 1,460 2,618 1,211 1,442 2,653 1,159 1,443 2,602 Mid-Atlantic 1,006 1,645 2,651 1,083 1,658 2,741 1,007 1,642 2,649 Southeast 929 1,699 2,628 918 1,683 2,601 906 1,681 2,587 North Central 653 2,256 2,909 547 2,255 2,802 571 2,284 2,855 Southwest 639 1,790 2,429 604 1,690 2,294 655 1,719 2,374 West 861 1,396 2,257 768 1,403 2,171 811 1,364 2,175 Other 139 72 211 113 43 156 124 67 191 Total Medical 5,385 10,318 15,703 5,244 10,174 15,418 5,233 10,200 15,433 Insured/ASC % 34.3% 65.7% 100.0% 34.0% 66.0% 100.0% 33.9% 66.1% 100.0% Refer to page 9 for an explanation of footnotes and definitions of terms used. 3
  6. 6. Statements of Income (Loss) from Continuing Operations by Segment (in Millions) Health Group Large Case Corporate Three Months Ended March 31, 2007 Care Insurance Pensions Interest Consolidated Revenue: Premiums $ 5,178.5 $ 439.6 $ 55.8 $ - $ 5,673.9 Fees and other revenue 703.5 26.1 3.2 - 732.8 Net investment income 87.1 78.4 129.0 - 294.5 (1) Total revenue, excluding net realized capital (losses) gains 5,969.1 544.1 188.0 - 6,701.2 Benefits and expenses: Health care costs 4,177.1 - - - 4,177.1 Current and future benefits - 417.2 173.2 - 590.4 Operating expenses: Selling expenses 247.6 22.2 - - 269.8 General and administrative expenses 869.3 61.8 3.6 - 934.7 Total operating expenses 1,116.9 84.0 3.6 - 1,204.5 Interest expense - - - 42.3 42.3 Amortization of other acquired intangible assets 20.1 1.7 - - 21.8 Total benefits and expenses 5,314.1 502.9 176.8 42.3 6,036.1 Operating earnings (loss), excluding income taxes (benefits) 655.0 41.2 11.2 (42.3) 665.1 Income taxes (benefits) 232.3 10.1 2.1 (14.8) 229.7 Operating earnings (loss) 422.7 31.1 9.1 (27.5) 435.4 Net realized capital (losses) gains, net of tax (2.3) .2 1.3 - (.8) Net income (loss) $ 420.4 $ 31.3 $ 10.4 $ (27.5) $ 434.6 Three Months Ended March 31, 2006 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 (1) Total revenue, excluding net realized capital gains 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 Inome from discontinued operations 16.1 Net income (loss) $ 401.7 Refer to page 9 for an explanation of footnotes and definitions of terms used. 4
  7. 7. Balance Sheets (in Millions) March 31, 2007 December 31, 2006 Health Care Health Care and Group Large Case and Group Large Case Insurance Pensions Consolidated Insurance Pensions Consolidated Assets Current assets: Cash and cash equivalents $ 1,324.3 $ 105.5 $ 1,429.8 $ 790.3 $ 89.7 $ 880.0 Investment securities 8,139.8 5,158.5 13,298.3 8,217.4 5,219.8 13,437.2 Other investments 32.4 60.9 93.3 51.2 159.2 210.4 Premiums receivable, net 453.6 - 453.6 363.1 - 363.1 Other receivables, net 563.1 58.8 621.9 468.1 62.0 530.1 Accrued investment income 109.0 80.3 189.3 106.2 76.9 183.1 Collateral received under securities loan agreements 596.8 436.2 1,033.0 687.0 367.3 1,054.3 Loaned securities 577.0 422.5 999.5 663.4 354.7 1,018.1 Deferred income taxes 149.3 3.8 153.1 115.4 5.4 120.8 Other current assets 516.3 37.2 553.5 469.5 37.2 506.7 Total current assets 12,461.6 6,363.7 18,825.3 11,931.6 6,372.2 18,303.8 Long-term investments 1,209.6 718.9 1,928.5 1,156.9 683.7 1,840.6 Mortgage loans 636.3 805.8 1,442.1 564.6 816.2 1,380.8 Reinsurance recoverables 1,100.2 14.7 1,114.9 1,092.1 15.3 1,107.4 Goodwill 4,603.6 - 4,603.6 4,603.6 - 4,603.6 Other acquired intangible assets, net 669.8 - 669.8 691.6 - 691.6 Property and equipment, net 223.4 59.7 283.1 220.5 63.1 283.6 Deferred income taxes 110.6 260.5 371.1 99.5 242.9 342.4 Other long-term assets 1,116.6 - 1,116.6 868.7 - 868.7 Separate Accounts assets 2.8 18,278.8 18,281.6 2.8 18,201.1 18,203.9 Total assets $ 22,134.5 $ 26,502.1 $ 48,636.6 $ 21,231.9 $ 26,394.5 $ 47,626.4 Liabilities and shareholders' equity Current liabilities: Health care costs payable $ 2,120.6 $ - $ 2,120.6 $ 1,927.5 $ - $ 1,927.5 Future policy benefits 123.5 661.0 784.5 121.6 664.4 786.0 Unpaid claims 602.9 .6 603.5 597.8 .5 598.3 Unearned premiums 437.5 12.7 450.2 179.6 6.0 185.6 Policyholders' funds 478.0 116.0 594.0 441.3 126.3 567.6 Collateral payable under securities loan agreements 596.8 436.2 1,033.0 687.0 367.3 1,054.3 Short-term debt 4.7 5.1 9.8 25.1 19.9 45.0 Income taxes payable 170.6 12.9 183.5 20.4 22.2 42.6 Accrued expenses and other current liabilities 1,503.1 250.5 1,753.6 1,664.6 231.5 1,896.1 Total current liabilities 6,037.7 1,495.0 7,532.7 5,664.9 1,438.1 7,103.0 Future policy benefits 1,961.4 5,470.6 7,432.0 1,942.8 5,520.9 7,463.7 Unpaid claims 1,189.6 - 1,189.6 1,174.6 - 1,174.6 Policyholders' funds 555.0 756.1 1,311.1 562.4 734.0 1,296.4 Long-term debt 2,442.5 - 2,442.5 2,442.3 - 2,442.3 Income taxes payable 154.5 - 154.5 - - - Other long-term liabilities 777.0 32.2 809.2 770.1 27.3 797.4 Separate Accounts liabilities 2.8 18,278.8 18,281.6 2.8 18,201.1 18,203.9 Total liabilities 13,120.5 26,032.7 39,153.2 12,559.9 25,921.4 38,481.3 Shareholders' equity 9,014.0 469.4 9,483.4 8,672.0 473.1 9,145.1 Total liabilities and shareholders' equity $ 22,134.5 $ 26,502.1 $ 48,636.6 $ 21,231.9 $ 26,394.5 $ 47,626.4 Refer to page 9 for an explanation of footnotes and definitions of terms used. 5
  8. 8. Condensed Statements of Cash Flows (in Millions) Three Months Ended March 31, 2007 March 31, 2006 Health Care Health Care and Group Large Case and Group Large Case Insurance Pensions Consolidated Insurance Pensions Consolidated Cash flows from operating activities: Net income $ 424.2 $ 10.4 $ 434.6 $ 386.8 $ 14.9 $ 401.7 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 72.3 - 72.3 65.2 - 65.2 Amortization (accretion) of net investment premium (discount) 8.5 (1.7) 6.8 6.1 (3.3) 2.8 Equity in earnings of affiliates, net (5.2) (21.7) (26.9) (10.3) (26.1) (36.4) Stock-based compensation expense 25.2 - 25.2 38.1 - 38.1 Net realized capital losses (gains) 3.3 (2.1) 1.2 (9.0) (8.6) (17.6) Cash flows from operating activities before balance sheet changes 528.3 (15.1) 513.2 460.8 (23.1) 437.7 Changes in assets and liabilities: Accrued investment income (2.8) (3.4) (6.2) 1.5 (6.0) (4.5) Premiums due and other receivables (152.2) .4 (151.8) (95.0) 1.4 (93.6) Income taxes 192.1 (17.6) 174.5 60.0 (1.3) 58.7 (5) Other assets and other liabilities (150.6) .1 (150.5) (366.8) 8.0 (358.8) (6) (6) Health care and insurance liabilities 490.5 (40.1) 450.4 311.3 (36.6) 274.7 Other, net (1.0) .1 (.9) .2 - .2 Net cash provided by (used for) operating activities of continuing operations 904.3 (75.6) 828.7 372.0 (57.6) 314.4 Discontinued operations, net - - - 49.7 - 49.7 Net cash provided by (used for) operating activities 904.3 (75.6) 828.7 421.7 (57.6) 364.1 Cash flows from investing activities: Proceeds from sales and maturities of investments 1,420.9 851.3 2,272.2 2,377.9 960.2 3,338.1 Cost of investments (1,471.1) (735.1) (2,206.2) (2,312.0) (966.0) (3,278.0) Increase in property, equipment and software (79.4) - (79.4) (62.6) - (62.6) Cash used for acquisitions, net of cash acquired - - - (157.0) - (157.0) Net cash (used for) provided by investing activities (129.6) 116.2 (13.4) (153.7) (5.8) (159.5) Cash flows from financing activities: Net (repayment) issuance of short-term debt (20.4) (14.8) (35.2) 457.1 3.3 460.4 Repayment of long-term debt - - - (450.0) - (450.0) Deposits and interest credited for investment contracts - 2.6 2.6 - 9.0 9.0 Withdrawals of investment contracts - (1.2) (1.2) - (5.5) (5.5) Common shares issued under benefit plans 40.3 - 40.3 37.8 - 37.8 Stock-based compensation tax benefits 30.2 - 30.2 42.8 - 42.8 Common shares repurchased (302.2) - (302.2) (150.9) - (150.9) Other, net 11.4 (11.4) - 7.3 (7.3) - Net cash used for financing activities (240.7) (24.8) (265.5) (55.9) (.5) (56.4) Net increase (decrease) in cash and cash equivalents 534.0 15.8 549.8 212.1 (63.9) 148.2 Cash and cash equivalents, beginning of period 790.3 89.7 880.0 1,036.1 156.5 1,192.6 Cash and cash equivalents, end of period $ 1,324.3 $ 105.5 $ 1,429.8 $ 1,248.2 $ 92.6 $ 1,340.8 Refer to page 9 for an explanation of footnotes and definitions of terms used. 6
  9. 9. Reconciliations of Certain Reported Amounts to the Most Directly Comparable GAAP Measure (in Millions, except per common share data) Three Months Ended March 31, March 31, 2007 2006 Summary of Results Operating earnings $ 435.4 $ 380.3 Acquisition-related software charge - (6.2) Net realized capital (losses) gains (.8) 11.5 Income from continuing operations (GAAP measure) 434.6 385.6 Income from discontinued operations - 16.1 Net income (GAAP measure) $ 434.6 $ 401.7 Weighted average common shares - basic 516.1 567.4 Weighted average common shares - diluted 536.4 593.1 Summary of Results Per Common Share Operating earnings $ .81 $ .64 Acquisition-related software charge - (.01) Net realized capital gains - .02 Income from continuing operations (GAAP measure) .81 .65 Income from discontinued operations - .03 Net income (GAAP measure) $ .81 $ .68 Refer to page 9 for an explanation of footnotes and definitions of terms used. 7
  10. 10. Reconciliations of Certain Reported Amounts to the Most Directly Comparable GAAP Measure (Continued) (in Millions) Three Months Ended March 31, March 31, 2007 2006 Reconciliation to Income from continuing operations before income taxes Operating earnings before income taxes, excluding interest expense and amortization of other acquired intangible assets (A) $ 729.2 $ 641.4 Interest expense (42.3) (33.5) Amortization of other acquired intangible assets (21.8) (19.9) Acquisition-related software charge - (8.3) Net realized capital (losses) gains (1.2) 17.6 Income from continuing operations before income taxes (GAAP measure) (B) $ 663.9 $ 597.3 Reconciliation to Income from continuing operations Operating earnings, excluding interest expense and amortization of other acquired intangible assets (C) $ 477.1 $ 415.0 Interest expense, net of tax (27.5) (21.8) Amortization of other acquired intangible assets, net of tax (14.2) (12.9) Acquisition-related software charge, net of tax - (6.2) Net realized capital (losses) gains, net of tax (.8) 11.5 Income from continuing operations (GAAP measure) (D) $ 434.6 $ 385.6 Reconciliation of Revenue Revenue, excluding net realized capital (losses) gains (E) $ 6,701.2 $ 6,217.1 Net realized capital (losses) gains (1.2) 17.6 Total revenue (GAAP measure) (F) $ 6,700.0 $ 6,234.7 Operating margin Pretax operating margin (A)/(E) 10.9 % 10.3 % Pretax operating margin (GAAP measure) (B)/(F) 9.9 % 9.6 % After-tax operating margin (C)/(E) 7.1 % 6.7 % After-tax operating margin (GAAP measure) (D)/(F) 6.5 % 6.2 % Reconciliation of Operating Expenses Operating expenses, excluding other item (G) $ 1,204.5 $ 1,188.8 Acquisition-related software charge - 8.3 Total operating expenses (GAAP measure) (H) $ 1,204.5 $ 1,197.1 Operating expenses as a % of revenue Operating expenses as a % of revenue (G)/(E) 18.0 % 19.1 % Total operating expenses as a % of total revenue (GAAP measure) (H)/(F) 18.0 % 19.2 % Refer to page 9 for an explanation of footnotes and definitions of terms used. 8
  11. 11. Footnotes (1) 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 and losses from income from continuing operations. In addition, operating margins exclude interest expense and amortization of other acquired intangibles; futhermore, pretax operating margin also excludes income taxes. Also, revenue excludes net realized capital gains and 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. For a reconciliation of financial measures calculated under U.S. generally accepted accounting principles (quot;GAAPquot;), refer to pages 7-8. (2) Represents members in consumer-directed health plans included in the Company's Commercial medical membership. (3) Represents members with dental products that are allowed access to the Company's network for a nominal fee. (4) ® Represents members who purchased medications through Aetna Rx Home Delivery , the Company's mail order pharmacy, during the quarterly period. (5) Includes voluntary pension plan contributions of approximately $180 million for the three months ended March 31, 2006. (6) Changes in insurance liabilities are satisfied by sales of related investment assets included in net cash provided by investment activities. Definitions Administrative Services Contracts (quot;ASCquot;) include all medical and dental 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 Ratios are calculated by dividing benefit costs by premiums. Various product level versions of this metric are provided and are calculated using this base formula. For example, Medical Benefit Ratio is calculated by dividing health care costs by health care premiums. Commercial includes all medical, dental and other health care 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 Insured includes all medical, dental and other health care products for which the Company assumes all or a majority of health care cost, utilization or other risk. 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). Selling Expenses are comprised of broker commissions, the variable component of the Company's internal sales force compensation and premium taxes. Balance Sheet Terms 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. 9

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