Page | ||||
Management’s Discussion and Analysis of Financial Condition and Results of Operations: | ||||
Overview | 1 | |||
Health Care | 5 | |||
Group Insurance | 9 | |||
Large Case Pensions | 10 | |||
Corporate Interest | 15 | |||
Investments | 15 | |||
Liquidity and Capital Resources | 19 | |||
Critical Accounting Estimates | 24 | |||
New Accounting Standards | 27 | |||
Regulatory Environment | 27 | |||
Forward-Looking Information/Risk Factors | 33 | |||
Selected Financial Data | 41 | |||
Consolidated Financial Statements | 42 | |||
Notes to Consolidated Financial Statements | 46 | |||
Management’s Report on Internal Control Over Financial Reporting | 87 | |||
Management’s Responsibility for Financial Statements | 87 | |||
Audit Committee Oversight | 87 | |||
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting | 88 | |||
Report of Independent Registered Public Accounting Firm | 89 | |||
Quarterly Data (unaudited) | 90 |
Ø | Growth in medical membership and our specialty products combined with premium and fee rate increases contributed to increases in total revenues. | ||
Ø | Disciplined pricing and our continued focus on managing medical costs led to improved health care underwriting results. | ||
Ø | Consistent focus on operating expenses led to greater efficiencies. | ||
Ø | Effective deployment of substantial capital for share repurchases, strategic acquisitions and pension plan funding. |
Page 1
(Millions, except per share amounts) | 2005 | 2004 | 2003 | |||||||||
Total revenues | $ | 22,491.9 | $ | 19,904.1 | $ | 17,976.4 | ||||||
Income from continuing operations(1) | 1,634.5 | 1,215.1 | 933.8 | |||||||||
Net income(2) | 1,634.5 | 2,245.1 | 933.8 | |||||||||
Income from continuing operations per common share | 2.70 | 1.94 | 1.48 | |||||||||
Net income per common share | 2.70 | 3.58 | 1.48 | |||||||||
(1) | Income from continuing operations reflects favorable development of prior period health care cost estimates of approximately $159 million ($250 million pretax) (including approximately $65 million ($103 million pretax) related to the release of reserves related to the New York Market Stabilization Pool) for 2005, approximately $57 million ($90 million pretax) for 2004 and approximately $148 million ($228 million pretax) for 2003. This development was recorded in the Health Care segment and is discussed in further detail below in the discussion of Health Care’s results. Other items reflected in income from continuing operations include: | |
Ø | In 2005, we reduced the reserve for anticipated future losses on discontinued products in the Large Case Pensions segment by $43 million ($67 million pretax). | |
Ø | In 2003, we recorded a charge of $75 million ($115 million pretax) in connection with a physician class action settlement, net of an estimated insurance recoverable of $72 million pretax, reflected in the Health Care segment. | |
(2) | Net income for 2005, 2004 and 2003 includes net realized capital gains of $21 million, $46 million and $42 million, respectively. Additionally, net income for 2004 includes income from discontinued operations of $1.03 billion related to the completion of certain Internal Revenue Service audits associated with businesses previously sold (refer to Note 21 of Notes to Consolidated Financial Statements for additional information). |
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(Millions) | 2005 | 2004 | 2003 | |||||||||
Premiums: | ||||||||||||
Commerical Risk(1) | $ | 15,919.6 | $ | 13,924.1 | $ | 12,329.3 | ||||||
Medicare | 1,005.1 | 938.7 | 906.2 | |||||||||
Total premiums | 16,924.7 | 14,862.8 | 13,235.5 | |||||||||
Fees and other revenue | 2,385.8 | 2,051.6 | 1,862.6 | |||||||||
Net investment income | 295.0 | 262.1 | 244.6 | |||||||||
Net realized capital gains | 10.6 | 24.1 | 34.4 | |||||||||
Total revenue | 19,616.1 | 17,200.6 | 15,377.1 | |||||||||
Health care costs(2) | 13,107.9 | 11,637.7 | 10,135.8 | |||||||||
Operating expenses: | ||||||||||||
Selling expenses | 763.3 | 630.9 | 510.7 | |||||||||
General and administrative expenses(3) | 3,334.0 | 3,155.0 | 3,408.7 | |||||||||
Total operating expenses | 4,097.3 | 3,785.9 | 3,919.4 | |||||||||
Amortization of other acquired intangible assets | 57.4 | 42.5 | 50.8 | |||||||||
Total benefits and expenses | 17,262.6 | 15,466.1 | 14,106.0 | |||||||||
Income before income taxes | 2,353.5 | 1,734.5 | 1,271.1 | |||||||||
Income taxes | 859.6 | 639.5 | 461.5 | |||||||||
Net income | $ | 1,493.9 | $ | 1,095.0 | $ | 809.6 | ||||||
(1) | Commercial Risk includes all medical and dental risk products, except Medicare and Medicaid. | |
(2) | The percentage of health care costs related to capitated arrangements with primary care physicians (a fee arrangement where we pay providers a monthly fixed fee for each member, regardless of the medical services provided to the member) was 7.9% for 2005 compared to 9.1% for 2004 and 10.9% for 2003. | |
(3) | Includes salaries and related benefit expenses of $2.0 billion in 2005, $1.9 billion in 2004 and $2.0 billion in 2003. |
(Millions, after tax) | 2005 | 2004 | 2003 | |||||||||
Net income | $ | 1,493.9 | $ | 1,095.0 | $ | 809.6 | ||||||
Other items included in net income: | ||||||||||||
Net realized capital gains | (7.0 | ) | (15.6 | ) | (22.2 | ) | ||||||
Physician class action settlement(1) | — | — | 75.0 | |||||||||
Operating earnings | $ | 1,486.9 | $ | 1,079.4 | $ | 862.4 | ||||||
(1) | In 2003, we entered into a settlement agreement with representatives of over 900,000 physicians, state and other medical societies resolving a national class action lawsuit as well as multiple state court actions filed against us. As a result of this physician class action settlement, we recorded a charge of $75 million ($115 million pretax), net of an estimated insurance recoverable of $72 million pretax (refer to Note 18 of Notes to Consolidated Financial Statements for additional information). We believe the settlement of this significant litigation does not relate to the ordinary course of our business and does not reflect the underlying performance of our business and have excluded it from net income to arrive at operating earnings. |
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(Millions) | 2005 | 2004 | 2003 | |||||||||
Commercial Risk health care costs (included in total health care costs above) | $ | 12,244.1 | $ | 10,828.8 | $ | 9,365.4 | ||||||
Approximate favorable development of prior period health care cost estimates: | ||||||||||||
Favorable development of prior period health care cost estimates | 130.0 | 78.0 | 215.0 | |||||||||
Release of reserves related to participation in the New York Market Stabilization Pool | 103.0 | — | — | |||||||||
Subtotal approximate favorable development of prior period health care cost estimates | 233.0 | 78.0 | 215.0 | |||||||||
Adjusted Commercial Risk health care costs | $ | 12,477.1 | $ | 10,906.8 | $ | 9,580.4 | ||||||
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(Millions) | 2005 | 2004 | 2003 | |||||||||
Medicare health care costs (included in total health care costs above) | $ | 863.9 | $ | 809.0 | $ | 771.8 | ||||||
Approximate favorable development of prior period health care cost estimates | 17.0 | 12.0 | 13.0 | |||||||||
Adjusted Medicare health care costs | $ | 880.9 | $ | 821.0 | $ | 784.8 | ||||||
2005 | 2004 | |||||||||||||||||||||||
(Thousands) | Risk | ASC | Total | Risk | ASC | Total | ||||||||||||||||||
Medical: | ||||||||||||||||||||||||
Commercial | 5,115 | 9,406 | 14,521 | 4,684 | 8,762 | 13,446 | ||||||||||||||||||
Medicare | 101 | 19 | (1) | 120 | 97 | — | 97 | |||||||||||||||||
Medicaid | — | 114 | 114 | — | 113 | 113 | ||||||||||||||||||
Total medical membership | 5,216 | 9,539 | 14,755 | 4,781 | 8,875 | 13,656 | ||||||||||||||||||
Dental(2) | 5,078 | 8,020 | 13,098 | 4,708 | 7,259 | 11,967 | ||||||||||||||||||
Pharmacy(3) | 9,445 | 8,447 | ||||||||||||||||||||||
Consumer-directed health plans(4) | 453 | 224 | ||||||||||||||||||||||
(1) | Medicare ASC members represent those served through our participation in the Medicare Health Support Program. | |
(2) | In 2005, we began including Aetna Global Benefits dental membership. Dental membership for 2004 has been revised accordingly. | |
(3) | At December 31, 2005 and 2004, pharmacy members (in thousands) include 8,885 and 7,989 members, respectively, receiving pharmacy benefit management services and 560 and 458 members, respectively, who purchased medications through our mail order pharmacy during the fourth quarter of 2005 and 2004, respectively. | |
(4) | Represents our consumer-directed membership included in Commercial medical membership above. |
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(Millions) | 2005 | 2004 | 2003 | |||||||||
Premiums: | ||||||||||||
Life | $ | 1,329.1 | $ | 1,226.4 | $ | 1,146.7 | ||||||
Disability | 379.7 | 315.1 | 287.3 | |||||||||
Long-term care | 94.9 | 83.4 | 73.2 | |||||||||
Total premiums | 1,803.7 | 1,624.9 | 1,507.2 | |||||||||
Fees and other revenue | 31.6 | 30.6 | 34.4 | |||||||||
Net investment income | 293.1 | 274.1 | 268.7 | |||||||||
Net realized capital gains | 13.4 | 30.5 | 22.6 | |||||||||
Total revenue | 2,141.8 | 1,960.1 | 1,832.9 | |||||||||
Current and future benefits | 1,708.0 | 1,531.1 | 1,406.2 | |||||||||
Operating expenses: | ||||||||||||
Selling expenses | 80.2 | 69.1 | 56.7 | |||||||||
General and administrative expenses(1) | 163.0 | 153.9 | 159.5 | |||||||||
Total operating expenses | 243.2 | 223.0 | 216.2 | |||||||||
Total benefits and expenses | 1,951.2 | 1,754.1 | 1,622.4 | |||||||||
Income before income taxes | 190.6 | 206.0 | 210.5 | |||||||||
Income taxes | 52.2 | 59.7 | 61.2 | |||||||||
Net income | $ | 138.4 | $ | 146.3 | $ | 149.3 | ||||||
(1) | Includes salaries and related benefit expenses of $103.4 million in 2005, $88.5 million in 2004 and $90.5 million in 2003. |
(Millions, after tax) | 2005 | 2004 | 2003 | |||||||||
Net income | $ | 138.4 | $ | 146.3 | $ | 149.3 | ||||||
Net realized capital gains | (8.7 | ) | (19.8 | ) | (14.5 | ) | ||||||
Operating earnings | $ | 129.7 | $ | 126.5 | $ | 134.8 | ||||||
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(Thousands) | 2005 | 2004 | ||||||
Life | 10,812 | 10,930 | ||||||
Disability | 2,571 | 2,341 | ||||||
Long-term care | 235 | 223 | ||||||
Total | 13,618 | 13,494 | ||||||
(Millions) | 2005 | 2004 | 2003 | |||||||||
Premiums | $ | 199.3 | $ | 189.0 | $ | 161.3 | ||||||
Net investment income | 514.9 | 526.3 | 581.7 | |||||||||
Other revenue | 11.5 | 11.9 | 15.2 | |||||||||
Net realized capital gains | 8.3 | 16.2 | 8.2 | |||||||||
Total revenue | 734.0 | 743.4 | 766.4 | |||||||||
Current and future benefits | 656.5 | 660.4 | 684.6 | |||||||||
General and administrative expenses(1) | 18.1 | 19.9 | 18.9 | |||||||||
Reduction of reserve for anticipated future losses on discontinued products | (66.7 | ) | — | — | ||||||||
Total benefits and expenses | 607.9 | 680.3 | 703.5 | |||||||||
Income before income taxes | 126.1 | 63.1 | 62.9 | |||||||||
Income taxes | 44.1 | 21.3 | 21.1 | |||||||||
Net income | $ | 82.0 | $ | 41.8 | $ | 41.8 | ||||||
Assets under management:(2) | ||||||||||||
Fully guaranteed discontinued products | $ | 4,466.9 | $ | 4,584.2 | $ | 4,578.3 | ||||||
Experience-rated | 4,268.1 | 4,509.4 | 5,146.1 | |||||||||
Non-guaranteed(3) | 12,229.6 | 10,632.9 | 9,234.1 | |||||||||
Total assets under management | $ | 20,964.6 | $ | 19,726.5 | $ | 18,958.5 | ||||||
(1) | Includes salaries and related benefit expenses of $14.6 million, $14.3 million and $14.4 million for 2005, 2004, and 2003, respectively. | |
(2) | Excludes net unrealized capital gains of $362.6 million, $558.8 million and $537.6 million at December 31, 2005, 2004 and 2003, respectively. Refer to Note 2 of Notes to Consolidated Financial Statements for information on expected future reductions in these assets. | |
(3) | The increases in non-guaranteed assets under management in 2005 and 2004 primarily reflect investment appreciation and additional deposits accepted from customers. |
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(Millions) | 2005 | 2004 | 2003 | |||||||||
Net income | $ | 82.0 | $ | 41.8 | $ | 41.8 | ||||||
Other items included in net income: | ||||||||||||
Net realized capital gains | (5.4 | ) | (10.5 | ) | (5.3 | ) | ||||||
Reduction of the reserve for anticipated future losses on discontinued products(1) | (43.4 | ) | — | — | ||||||||
Operating earnings | $ | 33.2 | $ | 31.3 | $ | 36.5 | ||||||
(1) | In 1993, we discontinued the sale of our fully guaranteed large case pension products and established a reserve for anticipated future losses on these products, which we review quarterly. Changes in this reserve are recognized when deemed appropriate. In 2005, we reduced the reserve for anticipated future losses on discontinued products by $43.4 million ($66.7 million pretax). We believe excluding any changes to the reserve for anticipated future losses on discontinued products provides more useful information as to our continuing products and is consistent with the treatment of the results of operations of these discontinued products, which are credited/charged to the reserve and do not affect our results of operations. |
(Millions) | 2005 | 2004 | 2003 | |||||||||
Scheduled contract maturities and benefit payments(1) | $ | 379.6 | $ | 731.5 | $ | 768.0 | ||||||
Contractholder withdrawals other than scheduled contract maturities and benefit payments(2) | 45.6 | 81.9 | 78.9 | |||||||||
Participant-directed withdrawals(2) | 18.4 | 25.7 | 27.6 | |||||||||
(1) | Includes payments made upon contract maturity and other amounts distributed in accordance with contract schedules. | |
(2) | Approximately $674.4 million, $638.7 million and $644.1 million at December 31, 2005, 2004 and 2003, respectively, of experience-rated pension contracts allowed for unscheduled contract holder withdrawals, subject to timing restrictions and formula-based market value adjustments. Further, approximately $312.4 million, $339.0 million and $700.7 million at December 31, 2005, 2004 and 2003, respectively, of experience-rated pension contracts supported by general account assets could be withdrawn or transferred to other plan investment options at the direction of plan participants, without market value adjustment, subject to plan, contractual and income tax provisions. |
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(Millions) | 2005 | 2004 | 2003 | |||||||||
Interest deficit(1) | $ | (12.1 | ) | $ | (23.1 | ) | $ | (25.0 | ) | |||
Net realized capital gains | 14.3 | 24.4 | 72.3 | |||||||||
Interest earned on receivable from continuing products | 19.9 | 19.6 | 18.4 | |||||||||
Other, net | 9.2 | 9.2 | 21.8 | |||||||||
Results of discontinued products, after tax | $ | 31.3 | $ | 30.1 | $ | 87.5 | ||||||
Results of discontinued products, pretax | $ | 39.1 | $ | 44.0 | $ | 132.9 | ||||||
Net realized capital gains from bonds, after tax (included above) | $ | 6.4 | $ | 12.8 | $ | 53.8 | ||||||
(1) | The interest deficit is the difference between earnings on invested assets and interest credited to contract holders. |
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(Millions) | 2005 | 2004 | 2003 | |||||||||
Reserve for anticipated future losses on discontinued products, beginning of period | $ | 1,079.8 | $ | 1,035.8 | $ | 902.9 | ||||||
Operating income (loss) | 12.4 | (6.6 | ) | (3.3 | ) | |||||||
Net realized capital gains | 22.0 | 37.5 | 111.3 | |||||||||
Mortality and other | 4.7 | 13.1 | 24.9 | |||||||||
Reserve reduction | (66.7 | ) | — | — | ||||||||
Reserve for anticipated future losses on discontinued products, end of period | $ | 1,052.2 | $ | 1,079.8 | $ | 1,035.8 | ||||||
(Millions) | ||||
2006 | $ | 41.4 | ||
2007 | 41.5 | |||
2008 | 41.8 | |||
2009 | 42.0 | |||
2010 | 42.0 | |||
2011-2015 | 206.0 | |||
2016-2020 | 184.4 | |||
2021-2025 | 149.7 | |||
2026-2030 | 113.9 | |||
Thereafter | 189.5 | |||
Expected | Actual | |||||||||||||||
(Millions) | GIC | SPA | GIC | SPA | ||||||||||||
2003 | $ | 51.7 | $ | 3,984.7 | $ | 35.2 | $ | 4,217.9 | ||||||||
2004 | 31.8 | 3,849.1 | 24.0 | 4,065.6 | ||||||||||||
2005 | 30.0 | 3,708.6 | 23.5 | 3,908.4 | ||||||||||||
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2005 | 2004 | |||||||||||||||
(Millions) | Amount | Percent | Amount | Percent | ||||||||||||
Debt securities available for sale | $ | 3,032.3 | 64.3 | % | $ | 3,383.6 | 68.3 | % | ||||||||
Loaned securities(1) | 289.3 | 6.1 | 322.8 | 6.5 | ||||||||||||
Total debt securities | 3,321.6 | 70.4 | 3,706.4 | 74.8 | ||||||||||||
Mortgage loans | 644.9 | 13.7 | 560.3 | 11.3 | ||||||||||||
Investment real estate | 103.6 | 2.2 | 114.8 | 2.3 | ||||||||||||
Equity securities available for sale | 43.1 | .9 | 57.2 | 1.2 | ||||||||||||
Other(2) | 603.3 | 12.8 | 514.4 | 10.4 | ||||||||||||
Total | $ | 4,716.5 | 100.0 | % | $ | 4,953.1 | 100.0 | % | ||||||||
(1) | Refer to Note 2 of Notes to Consolidated Financial Statements for further discussion of our securities lending program. | |
(2) | Amount includes restricted debt securities on deposit as required by regulatory authorities of $21.3 million at December 31, 2005 and $20.9 million at December 31, 2004 included in long-term investments on the Consolidated Balance Sheets. |
(Millions) | 2005 | 2004 | 2003 | |||||||||
Scheduled contract maturities, settlements and benefit payments | $ | 492.2 | $ | 515.6 | $ | 566.9 | ||||||
Participant-directed withdrawals | .2 | .3 | .2 | |||||||||
(Millions) | ||||
2006 | $ | 495.8 | ||
2007 | 483.3 | |||
2008 | 474.4 | |||
2009 | 459.7 | |||
2010 | 444.1 | |||
2011-2015 | 1,996.5 | |||
2016-2020 | 1,584.1 | |||
2021-2025 | 1,178.1 | |||
2026-2030 | 826.2 | |||
Thereafter | 1,162.6 | |||
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2005 | 2004 | |||||||||||||||||||||||
(Millions) | Current | Long-term | Total | Current | Long-term | Total | ||||||||||||||||||
Debt securities available for sale: | ||||||||||||||||||||||||
Available for use in current operations | $ | 13,216.9 | $ | — | $ | 13,216.9 | $ | 14,013.6 | $ | — | $ | 14,013.6 | ||||||||||||
Loaned securities | 1,115.7 | — | 1,115.7 | 1,150.1 | — | 1,150.1 | ||||||||||||||||||
On deposit, as required by regulatory authorities | — | 522.4 | 522.4 | — | 553.4 | 553.4 | ||||||||||||||||||
Debt securities available for sale | 14,332.6 | 522.4 | 14,855.0 | 15,163.7 | 553.4 | 15,717.1 | ||||||||||||||||||
Equity securities available for sale | 34.5 | 26.7 | 61.2 | 34.5 | 40.2 | 74.7 | ||||||||||||||||||
Short-term investments | 114.8 | — | 114.8 | 194.5 | — | 194.5 | ||||||||||||||||||
Mortgage loans | 86.7 | 1,460.8 | 1,547.5 | 52.7 | 1,348.2 | 1,400.9 | ||||||||||||||||||
Investment real estate | 7.4 | 207.2 | 214.6 | — | 274.8 | 274.8 | ||||||||||||||||||
Other investments | 2.7 | 1,113.0 | 1,115.7 | 5.0 | 1,124.5 | 1,129.5 | ||||||||||||||||||
Total investments | $ | 14,578.7 | $ | 3,330.1 | $ | 17,908.8 | $ | 15,450.4 | $ | 3,341.1 | $ | 18,791.5 | ||||||||||||
(Millions) | 2005 | 2004 | ||||||
Supporting discontinued products | $ | 3,342.9 | $ | 3,727.3 | ||||
Supporting experience-rated products | 1,920.8 | 2,083.9 | ||||||
Supporting remaining products | 9,591.3 | 9,905.9 | ||||||
Total debt securities | $ | 14,855.0 | $ | 15,717.1 | ||||
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2005 | 2004 | |||||||||||||||
(Millions) | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||
Debt securities: | ||||||||||||||||
Supporting discontinued and experience-rated products | $ | 1,242.0 | $ | 36.9 | $ | 473.4 | $ | 9.5 | ||||||||
Supporting remaining products | 4,718.0 | 92.5 | 2,682.2 | 29.9 | ||||||||||||
Total | $ | 5,960.0 | $ | 129.4 | $ | 3,155.6 | $ | 39.4 | ||||||||
Equity securities: | ||||||||||||||||
Supporting discontinued and experience-rated products | $ | 4.1 | $ | .2 | $ | 4.3 | $ | — | ||||||||
Supporting remaining products | — | — | — | — | ||||||||||||
Total | $ | 4.1 | $ | .2 | $ | 4.3 | $ | — | ||||||||
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Supporting discontinued | Supporting remaining | |||||||||||||||||||||||
and experience-rated products | products | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
(Millions) | Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
Due to mature: | ||||||||||||||||||||||||
Less than one year | $ | 12.4 | $ | .1 | $ | 210.0 | $ | 1.3 | $ | 222.4 | $ | 1.4 | ||||||||||||
One year through five years | 162.2 | 5.5 | 1,250.0 | 19.5 | 1,412.2 | 25.0 | ||||||||||||||||||
After five years through ten years | 496.4 | 12.2 | 1,158.4 | 20.3 | 1,654.8 | 32.5 | ||||||||||||||||||
Greater than ten years | 494.2 | 17.4 | 1,306.5 | 33.5 | 1,800.7 | 50.9 | ||||||||||||||||||
Mortgage-backed securities | 76.8 | 1.7 | 793.1 | 17.9 | 869.9 | 19.6 | ||||||||||||||||||
Total | $ | 1,242.0 | $ | 36.9 | $ | 4,718.0 | $ | 92.5 | $ | 5,960.0 | $ | 129.4 | ||||||||||||
2005 | 2004 | |||||||||||||||||||||||
Debt | Equity | Debt | Equity | |||||||||||||||||||||
(Millions) | Securities | Securities | Total | Securities | Securities | Total | ||||||||||||||||||
Debt securities: | ||||||||||||||||||||||||
Supporting discontinued and experience-rated products | $ | 199.3 | $ | 26.6 | $ | 225.9 | $ | 289.8 | $ | 39.9 | $ | 329.7 | ||||||||||||
Supporting remaining products | 2.4 | .2 | 2.6 | 10.3 | .3 | 10.6 | ||||||||||||||||||
Total non-traded securities | $ | 201.7 | $ | 26.8 | $ | 228.5 | $ | 300.1 | $ | 40.2 | $ | 340.3 | ||||||||||||
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(Millions) | 2005 | 2004 | ||||||
Supporting discontinued products | $ | 644.9 | $ | 560.3 | ||||
Supporting experience-rated products | 320.8 | 305.3 | ||||||
Supporting remaining products | 581.8 | 535.3 | ||||||
Total mortgage loans | $ | 1,547.5 | $ | 1,400.9 | ||||
(Millions) | ||||
2006 | $ | 74.3 | ||
2007 | 192.0 | |||
2008 | 41.6 | |||
2009 | 105.5 | |||
2010 | 107.7 | |||
Thereafter | 1,026.4 | |||
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Health Care | Large | |||||||||||
and Group | Case | |||||||||||
(Millions) | Insurance(1) | Pensions | Total | |||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 1,552.5 | $ | 82.0 | $ | 1,634.5 | ||||||
Adjustments to reconcile net income to net cash provided by (used for) operating activities: | ||||||||||||
Depreciation and amortization | 204.4 | — | 204.4 | |||||||||
Amortization (accretion) of net investment premium (discount) | 34.4 | (11.8 | ) | 22.6 | ||||||||
Net realized capital gains | (24.0 | ) | (8.3 | ) | (32.3 | ) | ||||||
Changes in assets and liabilities: | ||||||||||||
Decrease in accrued investment income | .9 | 12.8 | 13.7 | |||||||||
(Increase) decrease in premiums due and other receivables | (97.6 | ) | 2.0 | (95.6 | ) | |||||||
Net change in income taxes | 567.1 | 29.4 | 596.5 | |||||||||
Net change in other assets and other liabilities | (240.7 | ) | (10.9 | ) | (251.6 | ) | ||||||
Net increase (decrease) in health care and insurance liabilities | 75.4 | (299.1 | ) | (223.7 | ) | |||||||
Other, net | (4.9 | ) | (39.0 | ) | (43.9 | ) | ||||||
Net cash provided by (used for) operating activities of continuing operations | 2,067.5 | (242.9 | ) | 1,824.6 | ||||||||
Discontinued operations | 68.8 | — | 68.8 | |||||||||
Net cash provided by (used for) operating activities | $ | 2,136.3 | $ | (242.9 | ) | $ | 1,893.4 | |||||
(1) | Includes corporate interest |
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(Millions) | 2006 | 2007 - 2008 | 2009 - 2010 | Thereafter | Total | |||||||||||||||
Long-term debt obligations(1) | $ | 550.5 | $ | 189.9 | $ | 189.9 | $ | 2,980.6 | $ | 3,910.9 | ||||||||||
Operating lease obligations(2) | 159.6 | 244.0 | 147.0 | 68.8 | 619.4 | |||||||||||||||
Purchase obligations(3) | 274.9 | 157.3 | 35.9 | — | 468.1 | |||||||||||||||
Other long-term liabilities reflected on the Consolidated Balance Sheet:(4) | ||||||||||||||||||||
Future policy benefits(5) | 794.5 | 1,297.4 | 1,046.5 | 4,192.9 | 7,331.3 | |||||||||||||||
Unpaid claims(5) | 737.7 | 336.8 | 233.8 | 523.2 | 1,831.5 | |||||||||||||||
Policyholders’ funds(6) | 653.8 | 177.7 | 115.5 | 432.4 | 1,379.4 | |||||||||||||||
Other long-term liabilities(7) | 1,734.7 | 80.1 | 81.0 | 164.7 | 2,060.5 | |||||||||||||||
Total | $ | 4,905.7 | $ | 2,483.2 | $ | 1,849.6 | $ | 8,362.6 | $ | 17,601.1 | ||||||||||
(1) | Debt payments include interest payments and exclude the cumulative fair value adjustment amount associated with terminated interest rate swap agreements. Debt payments could be accelerated upon violation of debt covenants, the likelihood of which we believe is remote. Refer to Note 13 of Notes to Consolidated Financial Statements for additional information. | |
(2) | We did not have any material capital lease obligations as of December 31, 2005. We have operating leases for office space and certain computer and other equipment. | |
(3) | Purchase obligations include investment commitments and purchase obligations with a total minimum remaining commitment in excess of $1 million at December 31, 2005 which meet the following criteria: |
• | Commitments to purchase goods or services of either fixed or minimum quantities that are noncancellable. | ||
• | Commitments to purchase goods or services where we could incur a penalty if the agreement was cancelled. If the agreement is cancelable with a penalty, the amount of the penalty is included. | ||
• | Commitments to purchase goods or services whereby we must make specified minimum payments even if we do not take delivery of the products or services. In these cases, the minimum amount specified in the contract is included. Ordinary course of business contracts that do not specify fixed or minimum quantities to be purchased are not considered purchase obligations. |
(4) | Payments of other long-term liabilities exclude Separate Account liabilities of approximately $14.5 billion. Separate Account liabilities represent funds maintained to meet specific investment objectives of contract holders who bear the investment risk. These liabilities are supported by assets that are legally segregated (i.e., Separate Account assets) and are not subject to claims that arise out of our business. The timing of the related cash flows is unpredictable due to contract holder discretion. | |
(5) | Future policy benefits consist primarily of reserves for limited payment pension and annuity contracts in the Large Case Pensions 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, including an estimate for claims incurred but not reported as of December 31, 2005. Refer to Note 2 in Notes to Consolidated Financial Statements for additional information. Estimated payments for reserves for future policy benefits and unpaid claims are computed in accordance with actuarial standards and certain reserves are based on the present value of future net payments. Future policy benefits and unpaid claims also include certain reserves ceded to other independent insurance companies through reinsurance contracts. Reserves for contracts subject to reinsurance have been excluded from the table above. The reinsurance carrier, not us, is responsible for cash flows associated with the reinsured contract. Our reinsured reserves are supported by reinsurance recoverables included in total assets. In the event of insolvency of the reinsurance carrier, we would be primarily responsible for cash flows. We monitor the solvency of our reinsurance carriers and do not believe the risk of insolvency is significant. Approximately $1.2 billion (of which, approximately $25 million is included in current liabilities) of ceded insurance liabilities have been excluded from the table. | |
(6) | Policyholders’ funds consist primarily of reserves for pension and annuity investment contracts in the Large Case Pensions business and customer funds associated with group life and health contracts in the Health Care and Group Insurance businesses (refer to Note 2 of the Notes to Consolidated Financial Statements for additional information). Policyholders’ funds include approximately $187 million related to reserves ceded to other independent insurance companies through reinsurance contracts. Reserves for contracts subject to reinsurance have been excluded from the table above. The reinsurance carrier, not us, is responsible for cash flows associated with the reinsured contract. Our reinsured reserves are supported by reinsurance recoverables included in total assets. In the event of insolvency of the reinsurance carrier, we would be primarily responsible for cash flows. We monitor the solvency of our reinsurance carriers and do not believe the risk of insolvency is significant. Customer funds associated with group life and health contracts of approximately $391 million have been excluded from the table, as such funds may be used primarily at the customer’s discretion to offset future premiums and/or refunds, and the timing of the related cash flows cannot be determined. Additionally, net unrealized capital gains on debt and equity securities supporting experience-rated products of $104 million have been excluded from the table. | |
(7) | Other long-term liabilities include the following liabilities excluded from the table above: |
• | Employee-related benefit obligations of approximately $665 million including our pension, other post retirement and post employment benefit obligations and certain deferred compensation arrangements. These liabilities do not necessarily represent future cash payments required to be made by us, or such payment patterns cannot be determined. However, the payments for other long-term liabilities include anticipated voluntary pension contributions to our defined pension plan of approximately $245 million in 2006 and the expected benefit payments of approximately $286 million for the next ten years for our non qualified pension plan and our post-retirement benefit plans, which are primarily funded by us when paid by the plans. | ||
• | Deferred gains of approximately $113 million related to prior cash payments which will be recognized in earnings in accordance with GAAP. | ||
• | Net unrealized capital gains on debt and equity securities of $210 million supporting discontinued products. | ||
• | Minority interest of approximately $23 million represents subsidiaries less than 100% owned by us and does not represent future cash payments required by us. |
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Moody’s Investors | Standard | |||||||||||||||
A.M. Best | Fitch | Service | & Poor’s | |||||||||||||
Aetna Inc. (senior debt)(1) | bbb+ | BBB+ | A3 | BBB+ | ||||||||||||
Aetna Inc. (commercial paper)(1) | AMB-2 | F2 | P-2 | A-2 | ||||||||||||
ALIC (financial strength)(1) | A | A+ | Aa3 | A | ||||||||||||
(1) | A.M. Best’s outlook for the senior debt rating of Aetna Inc. and the financial strength rating of ALIC is stable. Fitch’s outlook for the senior debt rating of Aetna Inc. and the financial strength rating of ALIC is positive. Moody’s outlook for the senior debt rating of Aetna Inc. and the financial strength rating of ALIC is stable. Standard & Poor’s outlook for the senior debt rating of Aetna Inc. and the financial strength rating of ALIC is positive. |
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(Millions) | 2005 | 2004 | ||||||
Commercial Risk | $ | 1,737.5 | $ | 1,834.7 | ||||
Medicare | 79.5 | 92.4 | ||||||
Total health care costs payable | $ | 1,817.0 | $ | 1,927.1 | ||||
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• | Grant, suspend and revoke our licenses to transact business; | ||
• | Regulate many aspects of the products and services we offer; | ||
• | Assess fines, penalties and/or sanctions; | ||
• | Monitor our solvency and reserve adequacy; and | ||
• | Regulate our investment activities on the basis of quality, diversification and other quantitative criteria. |
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• | Licensure | ||
• | Policy forms, including plan design and disclosures | ||
• | Premium rates and rating methodologies | ||
• | Underwriting rules and procedures | ||
• | Benefit mandates | ||
• | Eligibility requirements | ||
• | Service areas | ||
• | Market conduct | ||
• | Utilization review activities | ||
• | Payment of claims, including timeliness and accuracy of payment | ||
• | Member rights and responsibilities | ||
• | Sales and marketing activities | ||
• | Quality assurance procedures | ||
• | Disclosure of medical and other information | ||
• | Provider rates of payment | ||
• | Surcharges on provider payments | ||
• | Provider contract forms | ||
• | Pharmacy operations | ||
• | Delegation of risk and other financial arrangements | ||
• | Producer licensing and compensation | ||
• | Financial condition (including reserves) and | ||
• | Corporate governance | ||
• | Required participation in coverage arrangements for high-risk insureds, either directly or through an assessment or other risk pooling mechanism. |
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• | Amending or supplementing ERISA to impose greater requirements on the administration of employer-funded benefit plans or limit the scope of current ERISA pre-emption, which would among other things expose health plans to expanded liability for punitive and other extra-contractual damages. |
• | Imposing assessments on (or to be collected by) health plans or health carriers, which may or may not be passed onto their customers. These assessments may include assessments for insolvency, assessments for uninsured or high-risk pools, assessments for uncompensated care, or assessments to defray provider medical malpractice insurance costs. |
• | Extending malpractice and other liability exposure for decisions made by health plans. |
• | Mandating coverage for certain conditions and/or specified procedures, drugs or devices (for example, infertility treatment and experimental pharmaceuticals). |
• | Mandating direct access to specialists for patients with chronic conditions, and direct access to OB/GYNs, chiropractors or other practitioners. |
• | Mandating expanded employer and consumer disclosures and notices. |
• | Mandating expanded coverage for emergency services. |
• | Prohibiting or limiting certain types of financial arrangements with providers, including among other things incentives based on utilization of services. |
• | Imposing substantial penalties for failure to pay claims within specified time periods. |
• | Regulating the composition of provider networks, such as any willing provider and pharmacy laws (which generally provide that providers and pharmacies cannot be denied participation in a managed care plan where the providers and pharmacies are willing to abide by the terms and conditions of that plan). |
• | Imposing payment levels for out-of-network care. |
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• | Exempting physicians from the antitrust laws that prohibit price fixing, group boycotts and other horizontal restraints on competition. |
• | Restricting health plan claim processing, review, payment and related procedures. |
• | Requiring the application of treatment and financial parity between mental health benefits and medical benefits within the same health plan. |
• | Extending benefits available to workers who lose their jobs and other uninsured. |
• | Mandating liberalized definitions of medical necessity. |
• | Mandating internal and external grievance and appeal procedures (including expedited decision making and access to external claim review). |
• | Enabling the creation of new types of health plans or health carriers, which in some instances would not be subject to the regulations or restrictions that govern our operations. |
• | Allowing individuals and small groups to collectively purchase health care coverage without any other affiliations. |
• | Imposing requirements and restrictions on operations of pharmacy benefit managers, including restricting or eliminating the use of formularies for prescription drugs. |
• | Making health plans responsible for provider payments in the event of financial failure by a capitated physician group or other intermediary. |
• | Creating or expanding state-sponsored health benefit purchasing pools, in which we may be required to participate. |
• | Creating a single payer system where the government oversees or manages the provision of health care coverage. |
• | Imposing employer or individual health coverage mandates. |
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• | Expects | • | Intends | • | Seeks | • | Will | • | Potential | ||||||||||
• | Projects | • | Plans | • | Estimates | • | Should | • | Continue | ||||||||||
• | Anticipates | • | Believes | • | May |
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• | The acquired business may not perform as projected; | ||
• | We may assume liabilities, including those that were not disclosed to us; | ||
• | We may be unable to successfully integrate acquired businesses and other processes to realize anticipated economic and other benefits on a timely basis, which could result in substantial costs or delays or other operational or financial problems; | ||
• | Acquisitions could disrupt our ongoing business, distract management, divert resources and make it difficult to maintain our current business standards, controls and procedures; | ||
• | We may finance future acquisitions by issuing common stock for some or all of the purchase price, which could dilute the ownership interests of our shareholders; | ||
• | We may also incur additional debt related to future acquisitions; and | ||
• | We could be competing with other firms, some of which may have greater financial and other resources, to acquire attractive companies. |
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• | Adversely affecting the Aetna brand particularly, | ||
• | Adversely affecting our ability to market our products and/or services, | ||
• | Requiring us to change our products and/or services, or | ||
• | Increasing the regulatory and legislative requirements with which we must comply. |
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• | Affecting premium rates, | ||
• | Reducing our ability to manage medical costs, | ||
• | Increasing medical costs and operating expenses, | ||
• | Increasing our exposure to lawsuits and other adverse legal proceedings, | ||
• | Regulating levels and permitted lines of business, | ||
• | Imposing financial assessments, and | ||
• | Regulating business practices. |
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• | Any requirement to restate financial results in the event of inappropriate application of accounting principles; | ||
• | Financial loss from inadequate insurance coverage due to self insurance levels or unavailability of coverage for credit or other reasons; | ||
• | Failure of our processes to prevent and detect unethical conduct of employees; | ||
• | A significant failure of internal controls over financial reporting; | ||
• | Failure of our prevention and control systems related to employee compliance with internal policies, including data system security; | ||
• | Provider fraud that is not prevented or detected and impacts our medical costs or those of self-insured customers; and | ||
• | Failure of our corporate governance policies or procedures. |
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For the Years Ended December 31, | ||||||||||||||||||||
(Millions, except per common share data) | 2005 | 2004 | 2003 | 2002 | 2001 | |||||||||||||||
Total revenue | $ | 22,491.9 | $ | 19,904.1 | $ | 17,976.4 | $ | 19,878.7 | $ | 25,190.8 | ||||||||||
Income (loss) from continuing operations | 1,634.5 | 1,215.1 | 933.8 | 393.2 | (291.5 | ) | ||||||||||||||
Net income (loss) | 1,634.5 | 2,245.1 | 933.8 | (2,522.5 | ) | (279.6 | ) | |||||||||||||
Net realized capital gains, net of tax (included above) | 21.1 | 45.9 | 42.0 | 22.3 | 73.6 | |||||||||||||||
Total assets | 44,364.6 | 42,133.7 | 40,950.2 | 40,047.5 | 43,196.7 | |||||||||||||||
Short-term debt | — | — | — | — | 109.7 | |||||||||||||||
Long-term debt | 1,605.7 | 1,609.7 | 1,613.7 | 1,633.2 | 1,591.3 | |||||||||||||||
Shareholders’ equity | 10,104.9 | 9,081.4 | 7,924.0 | 6,980.0 | 9,890.3 | |||||||||||||||
Per common share data: | ||||||||||||||||||||
Dividends declared | $ | .02 | $ | .01 | $ | .01 | $ | .01 | $ | .01 | ||||||||||
Earnings (loss) per share: | ||||||||||||||||||||
Income (loss) from continuing operations: | ||||||||||||||||||||
Basic | 2.82 | 2.01 | 1.53 | .66 | (.51 | ) | ||||||||||||||
Diluted(1) | 2.70 | 1.94 | 1.48 | .64 | (.51 | ) | ||||||||||||||
Net income (loss): | ||||||||||||||||||||
Basic | 2.82 | 3.71 | 1.53 | (4.23 | ) | (.49 | ) | |||||||||||||
Diluted(1) | 2.70 | 3.58 | 1.48 | (4.12 | ) | (.49 | ) | |||||||||||||
(1) | Since the Company reported a loss from continuing operations in 2001, the effect of common stock equivalents has been excluded from earnings per common share computations for that year since including such securities would be anti-dilutive. As a result, diluted and basic per common share amounts for 2001 are the same. |
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For the Years Ended December 31, | ||||||||||||
(Millions, except per common share data) | 2005 | 2004 | 2003 | |||||||||
Revenue: | ||||||||||||
Health care premiums | $ | 16,924.7 | $ | 14,862.8 | $ | 13,235.5 | ||||||
Other premiums | 2,003.0 | 1,813.9 | 1,668.5 | |||||||||
Fees and other revenue * | 2,428.9 | 2,094.1 | 1,912.2 | |||||||||
Net investment income | 1,103.0 | 1,062.5 | 1,095.0 | |||||||||
Net realized capital gains | 32.3 | 70.8 | 65.2 | |||||||||
Total revenue | 22,491.9 | 19,904.1 | 17,976.4 | |||||||||
Benefits and expenses: | ||||||||||||
Health care costs ** | 13,107.9 | 11,637.7 | 10,135.8 | |||||||||
Current and future benefits | 2,364.5 | 2,191.5 | 2,090.8 | |||||||||
Operating expenses: | ||||||||||||
Selling expenses | 843.5 | 700.0 | 567.4 | |||||||||
General and administrative expenses | 3,515.1 | 3,328.8 | 3,587.1 | |||||||||
Total operating expenses | 4,358.6 | 4,028.8 | 4,154.5 | |||||||||
Interest expense | 122.8 | 104.7 | 102.9 | |||||||||
Amortization of other acquired intangible assets | 57.4 | 42.5 | 50.8 | |||||||||
Reduction of reserve for anticipated future losses on discontinued products | (66.7 | ) | — | — | ||||||||
Total benefits and expenses | 19,944.5 | 18,005.2 | 16,534.8 | |||||||||
Income from continuing operations before income taxes | 2,547.4 | 1,898.9 | 1,441.6 | |||||||||
Income taxes | 912.9 | 683.8 | 507.8 | |||||||||
Income from continuing operations | 1,634.5 | 1,215.1 | 933.8 | |||||||||
Discontinued operations, net of tax (Note 21) | — | 1,030.0 | — | |||||||||
Net income | $ | 1,634.5 | $ | 2,245.1 | $ | 933.8 | ||||||
Earnings per common share: | ||||||||||||
Basic: | ||||||||||||
Income from continuing operations | $ | 2.82 | $ | 2.01 | $ | 1.53 | ||||||
Discontinued operations, net of tax | — | 1.70 | — | |||||||||
Net income | $ | 2.82 | $ | 3.71 | $ | 1.53 | ||||||
Diluted: | ||||||||||||
Income from continuing operations | $ | 2.70 | $ | 1.94 | $ | 1.48 | ||||||
Discontinued operations, net of tax | — | 1.64 | — | |||||||||
Net income | $ | 2.70 | $ | 3.58 | $ | 1.48 | ||||||
* | Fees and other revenue includes administrative services contract member co-payment revenue and plan sponsor reimbursements related to the Company’s mail order pharmacy of $21.3 million, $14.7 million and $1.3 million (net of pharmaceutical and processing costs of $884.5 million, $632.7 million and $137.5 million) for 2005, 2004 and 2003, respectively. | |
** | Health care costs have been reduced by fully insured member co-payment revenue related to the Company’s mail order pharmacy of $78.5 million, $59.5 million and $38.8 million for 2005, 2004 and 2003, respectively. |
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As of December 31, | ||||||||
(Millions) | 2005 | 2004 | ||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 1,192.6 | $ | 1,396.0 | ||||
Investment securities | 13,366.2 | 14,242.6 | ||||||
Other investments | 96.8 | 57.7 | ||||||
Premiums receivable, net | 349.2 | 256.1 | ||||||
Other receivables, net | 366.7 | 314.0 | ||||||
Accrued investment income | 184.9 | 198.6 | ||||||
Collateral received under securities loan agreements | 1,138.8 | 1,173.8 | ||||||
Loaned securities | 1,115.7 | 1,150.1 | ||||||
Income taxes receivable | — | 226.8 | ||||||
Deferred income taxes | — | 196.0 | ||||||
Other current assets | 423.8 | 304.5 | ||||||
Total current assets | 18,234.7 | 19,516.2 | ||||||
Long-term investments | 1,662.1 | 1,718.1 | ||||||
Mortgage loans | 1,460.8 | 1,348.2 | ||||||
Investment real estate | 207.2 | 274.8 | ||||||
Reinsurance recoverables | 1,143.7 | 1,173.0 | ||||||
Goodwill | 4,523.2 | 3,687.8 | ||||||
Other acquired intangible assets, net | 724.9 | 460.3 | ||||||
Property and equipment, net | 272.8 | 233.6 | ||||||
Deferred income taxes | — | 300.0 | ||||||
Other long-term assets | 1,602.8 | 405.9 | ||||||
Separate Accounts assets | 14,532.4 | 13,015.8 | ||||||
Total assets | $ | 44,364.6 | $ | 42,133.7 | ||||
Liabilities and shareholders’ equity | ||||||||
Current liabilities: | ||||||||
Heath care costs payable | $ | 1,817.0 | $ | 1,927.1 | ||||
Future policy benefits | 806.1 | 837.6 | ||||||
Unpaid claims | 752.1 | 707.7 | ||||||
Unearned premiums | 156.9 | 121.8 | ||||||
Policyholders’ funds | 757.7 | 672.5 | ||||||
Collateral payable under securities loan agreements | 1,138.8 | 1,173.8 | ||||||
Current portion of long-term debt | 450.0 | — | ||||||
Income taxes payable | 36.7 | — | ||||||
Deferred income taxes | 10.4 | — | ||||||
Accrued expenses and other current liabilities | 1,691.1 | 1,570.8 | ||||||
Total current liabilities | 7,616.8 | 7,011.3 | ||||||
Future policy benefits | 7,642.1 | 7,859.5 | ||||||
Unpaid claims | 1,144.9 | 1,081.5 | ||||||
Policyholders’ funds | 1,304.2 | 1,453.1 | ||||||
Long-term debt, less current portion | 1,155.7 | 1,609.7 | ||||||
Deferred income taxes | 15.1 | — | ||||||
Other long-term liabilities | 848.5 | 1,021.4 | ||||||
Separate Accounts liabilities | 14,532.4 | 13,015.8 | ||||||
Total liabilities | 34,259.7 | 33,052.3 | ||||||
Commitments and contingencies (Note 18) | ||||||||
Shareholders’ equity: | ||||||||
Common stock and additional paid-in capital ($.01 par value, 1.4 billion shares authorized, 566.5 million shares issued and outstanding in 2005; 732.5 million shares authorized, 586.0 million shares issued and outstanding in 2004) | 1,885.1 | 3,076.5 | ||||||
Retained earnings | 8,169.5 | 6,546.4 | ||||||
Accumulated other comprehensive income (loss) | 50.3 | (541.5 | ) | |||||
Total shareholders’ equity | 10,104.9 | 9,081.4 | ||||||
Total liabilities and shareholders’ equity | $ | 44,364.6 | $ | 42,133.7 | ||||
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Common | ||||||||||||||||||||||||
Number of | Stock and | Accumulated | ||||||||||||||||||||||
Common | Additional | Other | Total | |||||||||||||||||||||
Shares | Paid-in | Retained | Comprehensive | Shareholders’ | Comprehensive | |||||||||||||||||||
(Millions) | Outstanding | Capital | Earnings | Income (Loss) | Equity | Income | ||||||||||||||||||
Balance at December 31, 2002 | 599.9 | $ | 4,070.9 | $ | 3,379.5 | $ | (470.4 | ) | $ | 6,980.0 | ||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||
Net income | — | — | 933.8 | — | 933.8 | $ | 933.8 | |||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||
Net unrealized gains on securities(1) | — | — | — | 5.6 | 5.6 | |||||||||||||||||||
Net foreign currency gains | — | — | — | 4.3 | 4.3 | |||||||||||||||||||
Net derivative gains(1) | — | — | — | .7 | .7 | |||||||||||||||||||
Pension liability adjustment | — | — | — | 51.8 | 51.8 | |||||||||||||||||||
Other comprehensive income | — | — | — | 62.4 | 62.4 | 62.4 | ||||||||||||||||||
Total comprehensive income | $ | 996.2 | ||||||||||||||||||||||
Common shares issued for benefit plans | 41.0 | 399.1 | — | — | 399.1 | |||||||||||||||||||
Repurchases of common shares | (30.6 | ) | (445.2 | ) | — | — | (445.2 | ) | ||||||||||||||||
Dividends declared ($.01 per share) | — | — | (6.1 | ) | — | (6.1 | ) | |||||||||||||||||
Balance at December 31, 2003 | 610.3 | 4,024.8 | 4,307.2 | (408.0 | ) | 7,924.0 | ||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||
Net income | — | — | 2,245.1 | — | 2,245.1 | $ | 2,245.1 | |||||||||||||||||
Other comprehensive loss: | ||||||||||||||||||||||||
Net unrealized losses on securities(1) | — | — | — | (41.9 | ) | (41.9 | ) | |||||||||||||||||
Net foreign currency gains | — | — | — | 1.5 | 1.5 | |||||||||||||||||||
Net derivative gains(1) | — | — | — | 1.2 | 1.2 | |||||||||||||||||||
Pension liability adjustment | — | — | — | (94.3 | ) | (94.3 | ) | |||||||||||||||||
Other comprehensive loss | — | — | — | (133.5 | ) | (133.5 | ) | (133.5 | ) | |||||||||||||||
Total comprehensive income | $ | 2,111.6 | ||||||||||||||||||||||
Common shares issued for benefit plans | 40.2 | 546.5 | — | — | 546.5 | |||||||||||||||||||
Repurchases of common shares and other | (64.5 | ) | (1,494.8 | ) | — | — | (1,494.8 | ) | ||||||||||||||||
Dividends declared ($.01 per share) | — | — | (5.9 | ) | — | (5.9 | ) | |||||||||||||||||
Balance at December 31, 2004 | 586.0 | 3,076.5 | 6,546.4 | (541.5 | ) | 9,081.4 | ||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||
Net income | — | — | 1,634.5 | — | 1,634.5 | $ | 1,634.5 | |||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||
Net unrealized losses on securities(1) | — | — | — | (141.6 | ) | (141.6 | ) | |||||||||||||||||
Net foreign currency gains | — | — | — | .7 | .7 | |||||||||||||||||||
Net derivative losses(1) | — | — | — | (.3 | ) | (.3 | ) | |||||||||||||||||
Pension liability adjustment | — | — | — | 733.0 | 733.0 | |||||||||||||||||||
Other comprehensive income | — | — | — | 591.8 | 591.8 | 591.8 | ||||||||||||||||||
Total comprehensive income | $ | 2,226.3 | ||||||||||||||||||||||
Common shares issued for benefit plans | 22.3 | 477.7 | — | — | 477.7 | |||||||||||||||||||
Repurchases of common shares | (41.8 | ) | (1,669.1 | ) | — | — | (1,669.1 | ) | ||||||||||||||||
Dividends declared ($.02 per share) | — | — | (11.4 | ) | — | (11.4 | ) | |||||||||||||||||
Balance at December 31, 2005 | 566.5 | $ | 1,885.1 | $ | 8,169.5 | $ | 50.3 | $ | 10,104.9 | |||||||||||||||
(1) | Net of reclassification adjustments (refer to Note 10). |
Page 44
For the Years Ended December 31, | ||||||||||||
(Millions) | 2005 | 2004 | 2003 | |||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 1,634.5 | $ | 2,245.1 | $ | 933.8 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Discontinued operations | — | (1,030.0 | ) | — | ||||||||
Physician class action settlement charge | — | — | 115.4 | |||||||||
Depreciation and amortization | 204.4 | 182.2 | 199.6 | |||||||||
Amortization of net investment premium | 22.6 | 45.5 | 54.2 | |||||||||
Net realized capital gains | (32.3 | ) | (70.8 | ) | (65.2 | ) | ||||||
Changes in assets and liabilities: | ||||||||||||
Decrease (increase) in accrued investment income | 13.7 | 22.9 | (7.2 | ) | ||||||||
(Increase) decrease in premiums due and other receivables | (95.6 | ) | 34.0 | 150.1 | ||||||||
Net change in income taxes | 596.5 | 350.9 | 16.3 | |||||||||
Net change in other assets and other liabilities | (251.6 | ) | (621.7 | ) | (369.4 | ) | ||||||
Decrease in health care and insurance liabilities | (223.7 | ) | (366.3 | ) | (597.2 | ) | ||||||
Other, net | (43.9 | ) | (21.2 | ) | (59.8 | ) | ||||||
Net cash provided by operating activities of continuing operations | 1,824.6 | 770.6 | 370.6 | |||||||||
Discontinued operations (Note 21) | 68.8 | 666.2 | — | |||||||||
Net cash provided by operating activities | 1,893.4 | 1,436.8 | 370.6 | |||||||||
Cash flows from investing activities: | ||||||||||||
Proceeds from sales and investment maturities of: | ||||||||||||
Debt securities available for sale | 10,604.7 | 9,471.7 | 12,623.6 | |||||||||
Other investments | 1,302.9 | 2,495.9 | 3,113.2 | |||||||||
Cost of investments in: | ||||||||||||
Debt securities available for sale | (10,108.5 | ) | (9,469.3 | ) | (13,250.3 | ) | ||||||
Other investments | (1,130.0 | ) | (2,231.1 | ) | (2,386.6 | ) | ||||||
Increase in property, equipment and software | (271.6 | ) | (190.3 | ) | (210.8 | ) | ||||||
Cash used for acquisitions, net of cash acquired | (1,107.6 | ) | (9.5 | ) | (53.5 | ) | ||||||
Net cash (used for) provided by investing activities | (710.1 | ) | 67.4 | (164.4 | ) | |||||||
Cash flows from financing activities: | ||||||||||||
Deposits and interest credited for investment contracts | 41.6 | 54.5 | 94.4 | |||||||||
Withdrawals of investment contracts | (54.5 | ) | (423.2 | ) | (502.4 | ) | ||||||
Common shares issued under benefit plans | 271.3 | 316.0 | 293.6 | |||||||||
Common shares repurchased | (1,650.0 | ) | (1,493.0 | ) | (445.2 | ) | ||||||
Dividends paid to shareholders | (11.4 | ) | (5.9 | ) | (6.1 | ) | ||||||
Other, net | 16.3 | 10.0 | (10.0 | ) | ||||||||
Net cash used for financing activities | (1,386.7 | ) | (1,541.6 | ) | (575.7 | ) | ||||||
Net decrease in cash and cash equivalents | (203.4 | ) | (37.4 | ) | (369.5 | ) | ||||||
Cash and cash equivalents, beginning of period | 1,396.0 | 1,433.4 | 1,802.9 | |||||||||
Cash and cash equivalents, end of period | $ | 1,192.6 | $ | 1,396.0 | $ | 1,433.4 | ||||||
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(Millions, except per common share data) | 2005 | 2004 | 2003 | |||||||||
Net income, as reported | $ | 1,634.5 | $ | 2,245.1 | $ | 933.8 | ||||||
Add: Stock-based employee compensation expense included in reported net income, net of related taxes | .4 | 11.9 | 40.1 | |||||||||
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related taxes | (61.6 | ) | (102.2 | ) | (81.0 | ) | ||||||
Pro forma net income | $ | 1,573.3 | $ | 2,154.8 | $ | 892.9 | ||||||
Earnings per common share: | ||||||||||||
Basic — as reported | $ | 2.82 | $ | 3.71 | $ | 1.53 | ||||||
Basic — pro forma | 2.72 | 3.56 | 1.46 | |||||||||
Diluted — as reported | 2.70 | 3.58 | 1.48 | |||||||||
Diluted — pro forma | 2.60 | 3.43 | 1.41 | |||||||||
2005 | 2004 | 2003 | ||||||||||
Dividend yield | .1 | % | .1 | % | .1 | % | ||||||
Expected volatility | 31 | % | 34 | % | 40 | % | ||||||
Risk-free interest rate | 4 | % | 3 | % | 3 | % | ||||||
Expected life | 5 years | 4 years | 5 years | |||||||||
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(Millions, except per common share data) | 2005 | 2004 | 2003 | |||||||||
Income from continuing operations | $ | 1,634.5 | $ | 1,215.1 | $ | 933.8 | ||||||
Weighted average shares used to compute basic EPS | 579.0 | 605.6 | 610.7 | |||||||||
Dilutive effect of stock options and other | 25.9 | 22.2 | 21.6 | |||||||||
Weighted average shares used to compute diluted EPS | 604.9 | 627.8 | 632.3 | |||||||||
Basic EPS | $ | 2.82 | $ | 2.01 | $ | 1.53 | ||||||
Diluted EPS | $ | 2.70 | $ | 1.94 | $ | 1.48 | ||||||
(Millions) | 2005 | 2004 | 2003 | |||||||||
Selling expenses | $ | 843.5 | $ | 700.0 | $ | 567.4 | ||||||
General and administrative expenses: | ||||||||||||
Salaries and related benefits | 2,153.1 | 2,016.5 | (1) | 2,111.0 | ||||||||
Other general and administrative expenses | 1,362.0 | 1,312.3 | 1,476.1 | (2) | ||||||||
Total general and administrative expenses | 3,515.1 | 3,328.8 | 3,587.1 | |||||||||
Total operating expenses | $ | 4,358.6 | $ | 4,028.8 | $ | 4,154.5 | ||||||
(1) | Salaries and related benefits for the year ended December 31, 2004 include a curtailment benefit of $31.8 million related to the elimination of the dental subsidy for all retirees. | |
(2) | Other general and administrative expenses for the year ended December 31, 2003 include a charge of $115.4 million in connection with the settlement of a national class action lawsuit by physicians. Refer to Note 18 for further information. |
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(Millions) | 2005 | 2004 | 2003 | |||||||||
Health care costs payable, beginning of the period | $ | 1,927.1 | $ | 1,888.7 | $ | 2,194.1 | ||||||
Less: Reinsurance recoverables | 5.6 | 6.5 | 6.7 | |||||||||
Health care costs payable, beginning of the period — net | 1,921.5 | 1,882.2 | 2,187.4 | |||||||||
Acquisition of business | 18.6 | — | — | |||||||||
Add: Components of incurred health care costs | ||||||||||||
Current period health care costs | 13,357.6 | 11,727.2 | 10,363.5 | |||||||||
Changes in prior periods’ estimates(1) | (249.7 | )(2) | (89.5 | ) | (227.7 | ) | ||||||
Total incurred health care costs | 13,107.9 | 11,637.7 | 10,135.8 | |||||||||
Less: Claims paid | ||||||||||||
Current period | 11,745.8 | 10,097.2 | 8,806.5 | |||||||||
Prior periods | 1,490.7 | 1,501.2 | 1,634.5 | |||||||||
Total claims paid | 13,236.5 | 11,598.4 | 10,441.0 | |||||||||
Health care costs payable, end of period — net | 1,811.5 | 1,921.5 | 1,882.2 | |||||||||
Add: Reinsurance recoverables | 5.5 | 5.6 | 6.5 | |||||||||
Health care costs payable, end of the period | $ | 1,817.0 | $ | 1,927.1 | $ | 1,888.7 | ||||||
(1) | Changes in prior periods’ estimates represents the effect of favorable development of prior period health care cost estimates on current year results of operations, at each financial statement date. The favorable development is primarily a result of the actual claim submission time being shorter than the Company had anticipated, and lower than expected health care cost trends, in determining health care costs payable at the prior financial statement date. | |
(2) | Included in the favorable development of prior period health care cost estimates reflected in 2005 is approximately $103 million related to the release of reserves related to the New York Market Stabilization Pool (refer to Note 18 for additional information). |
(Millions) | 2005 | 2004 | ||||||
Balance, beginning of the period | $ | 3,687.8 | $ | 3,679.5 | ||||
Goodwill acquired: | ||||||||
Active Health | 309.1 | — | ||||||
HMS | 290.8 | — | ||||||
SRC | 139.8 | — | ||||||
Other | 95.7 | (1) | 8.3 | |||||
Balance, end of the period | $ | 4,523.2 | $ | 3,687.8 | ||||
(1) | Primarily includes goodwill recorded related to the 2005 acquisitions of certain assets from Magellan and the remaining interest in ASP. Refer to Note 3 for additional information. |
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Accumulated | Amortization | |||||||||||||||
(Millions) | Cost | Amortization | Net Balance | Period (Years) | ||||||||||||
2005 | ||||||||||||||||
Other acquired intangible assets: | ||||||||||||||||
Customer lists | $ | 1,132.4 | $ | 937.5 | $ | 194.9 | 4-9 | |||||||||
Provider networks | 696.2 | 253.2 | 443.0 | 12-25 | ||||||||||||
Technology | 44.1 | 6.2 | 37.9 | 3-5 | ||||||||||||
Other | 29.9 | 3.1 | 26.8 | 3-12 | ||||||||||||
Trademarks and tradenames | 22.3 | — | 22.3 | Indefinite | ||||||||||||
Total other acquired intangible assets | $ | 1,924.9 | $ | 1,200.0 | $ | 724.9 | ||||||||||
2004 | ||||||||||||||||
Other acquired intangible assets: | ||||||||||||||||
Customer lists | $ | 919.0 | $ | 917.5 | $ | 1.5 | 5-7 | |||||||||
Provider networks | 679.9 | 225.1 | 454.8 | 20-25 | ||||||||||||
Technology | 4.0 | — | 4.0 | 3-5 | ||||||||||||
Total other acquired intangible assets | $ | 1,602.9 | $ | 1,142.6 | $ | 460.3 | ||||||||||
(Millions) | ||||
2006 | $ | 82.9 | ||
2007 | 79.7 | |||
2008 | 70.1 | |||
2009 | 61.5 | |||
2010 | 56.1 | |||
2005 | 2004 | |||||||||||||||||||||||
(Millions) | Current | Long-term | Total | Current | Long-term | Total | ||||||||||||||||||
Debt securities: | ||||||||||||||||||||||||
Available for use in current operations | $ | 13,216.9 | (1) | $ | — | $ | 13,216.9 | $ | 14,013.6 | (1) | $ | — | $ | 14,013.6 | ||||||||||
Loaned securities | 1,115.7 | — | 1,115.7 | 1,150.1 | — | 1,150.1 | ||||||||||||||||||
On deposit, as required by regulatory authorities | — | 522.4 | (3) | 522.4 | — | 553.4 | (3) | 553.4 | ||||||||||||||||
Debt securities | 14,332.6 | 522.4 | 14,855.0 | 15,163.7 | 553.4 | 15,717.1 | ||||||||||||||||||
Equity securities | 34.5 | (1) | 26.7 | (3) | 61.2 | 34.5 | (1) | 40.2 | (3) | 74.7 | ||||||||||||||
Short-term investments | 114.8 | (1) | — | 114.8 | 194.5 | (1) | — | 194.5 | ||||||||||||||||
Mortgage loans | 86.7 | (2) | 1,460.8 | 1,547.5 | 52.7 | (2) | 1,348.2 | 1,400.9 | ||||||||||||||||
Investment real estate | 7.4 | (2) | 207.2 | 214.6 | — | 274.8 | 274.8 | |||||||||||||||||
Other investments | 2.7 | (2) | 1,113.0 | (3) | 1,115.7 | 5.0 | (2) | 1,124.5 | (3) | 1,129.5 | ||||||||||||||
Total investments | $ | 14,578.7 | $ | 3,330.1 | $ | 17,908.8 | $ | 15,450.4 | $ | 3,341.1 | $ | 18,791.5 | ||||||||||||
(1) | Included in investment securities on the Consolidated Balance Sheets totaling $13.4 billion and $14.2 billion for 2005 and 2004, respectively. | |
(2) | Included in other investments on the Consolidated Balance Sheets totaling $96.8 million and $57.7 million for 2005 and 2004, respectively. | |
(3) | Included in long-term investments on the Consolidated Balance Sheets totaling $1.7 billion for each of 2005 and 2004. |
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Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
(Millions) | Cost | Gains | Losses | Value | ||||||||||||
Bonds: | ||||||||||||||||
U.S. government and government agencies and authorities | $ | 1,222.6 | $ | 22.1 | $ | 11.2 | $ | 1,233.5 | ||||||||
States, municipalities, and political subdivisions | 1,584.1 | 23.1 | 9.4 | 1,597.8 | ||||||||||||
U.S. corporate securities: | ||||||||||||||||
Utilities | 761.5 | 40.5 | 7.6 | 794.4 | ||||||||||||
Financial | 2,064.8 | 50.8 | 14.1 | 2,101.5 | ||||||||||||
Transportation and capital goods | 774.0 | 62.4 | 4.8 | 831.6 | ||||||||||||
Health care and consumer products | 769.3 | 32.4 | 12.7 | 789.0 | ||||||||||||
Natural resources | 626.2 | 54.8 | 5.4 | 675.6 | ||||||||||||
Other corporate securities | 1,186.1 | 94.5 | 7.7 | 1,272.9 | ||||||||||||
Total U.S. corporate securities | 8,988.6 | 380.6 | 72.9 | 9,296.3 | ||||||||||||
Foreign: | ||||||||||||||||
Government, including political subdivisions | 653.6 | 39.8 | 2.8 | 690.6 | ||||||||||||
Utilities and other | 1,585.3 | 119.2 | 10.3 | 1,694.2 | ||||||||||||
Total foreign securities | 2,238.9 | 159.0 | 13.1 | 2,384.8 | ||||||||||||
Residential mortgage-backed securities | 1,170.4 | 7.3 | 19.1 | 1,158.6 | ||||||||||||
Commercial and multifamily mortgage-backed securities(1) | 1,170.2 | 48.9 | 15.2 | 1,203.9 | ||||||||||||
Other asset-backed securities | 542.7 | 1.8 | 9.1 | 535.4 | ||||||||||||
Total bonds | 14,110.8 | 597.6 | 129.4 | 14,579.0 | ||||||||||||
Redeemable preferred stocks | 250.7 | 25.3 | — | 276.0 | ||||||||||||
Total debt securities | 14,361.5 | 622.9 | 129.4 | 14,855.0 | ||||||||||||
Equity securities | 50.9 | 10.5 | .2 | 61.2 | ||||||||||||
Total debt and equity securities | $ | 14,412.4 | $ | 633.4 | $ | 129.6 | $ | 14,916.2 | ||||||||
(1) | Includes approximately $137.4 million of subordinate and residual certificates at December 31, 2005 from a 1997 commercial mortgage loan securitization which was retained by the Company. |
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
(Millions) | Cost | Gains | Losses | Value | ||||||||||||
Bonds: | ||||||||||||||||
U.S. government and government agencies and authorities | $ | 1,355.9 | $ | 32.6 | $ | 4.9 | $ | 1,383.6 | ||||||||
States, municipalities, and political subdivisions | 1,403.1 | 39.8 | 2.7 | 1,440.2 | ||||||||||||
U.S. corporate securities: | ||||||||||||||||
Utilities | 690.6 | 55.3 | 1.1 | 744.8 | ||||||||||||
Financial | 1,745.1 | 78.4 | 5.3 | 1,818.2 | ||||||||||||
Transportation and capital goods | 830.7 | 86.0 | .5 | 916.2 | ||||||||||||
Health care and consumer products | 1,161.2 | 88.3 | 3.4 | 1,246.1 | ||||||||||||
Natural resources | 688.5 | 77.8 | .2 | 766.1 | ||||||||||||
Other corporate securities | 1,244.4 | 147.8 | 1.0 | 1,391.2 | ||||||||||||
Total U.S. corporate securities | 9,119.5 | 606.0 | 19.1 | 9,706.4 | ||||||||||||
Foreign: | ||||||||||||||||
Government, including political subdivisions | 682.4 | 40.5 | .4 | 722.5 | ||||||||||||
Utilities and other | 1,283.6 | 144.0 | 1.8 | 1,425.8 | ||||||||||||
Total foreign securities | 1,966.0 | 184.5 | 2.2 | 2,148.3 | ||||||||||||
Residential mortgage-backed securities | 1,628.3 | 23.8 | 4.4 | 1,647.7 | ||||||||||||
Commercial and multifamily mortgage-backed securities(1) | 1,254.8 | 95.2 | 9.2 | 1,340.8 | ||||||||||||
Other asset-backed securities | 587.8 | 5.2 | 4.5 | 588.5 | ||||||||||||
Total bonds | 14,556.4 | 914.7 | 39.4 | 15,431.7 | ||||||||||||
Redeemable preferred stocks | 250.9 | 34.5 | — | 285.4 | ||||||||||||
Total debt securities | 14,807.3 | 949.2 | 39.4 | 15,717.1 | ||||||||||||
Equity securities | 61.5 | 13.2 | — | 74.7 | ||||||||||||
Total debt and equity securities | $ | 14,868.8 | $ | 962.4 | $ | 39.4 | $ | 15,791.8 | ||||||||
(1) | Includes approximately $143.8 million and $70.3 million of subordinate and residual certificates at December 31, 2004 from a 1997 and 1995, respectively, commercial mortgage loan securitization which were retained by the Company. |
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Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
(Millions) | Cost | Gains | Losses | Value | ||||||||||||
2005 | ||||||||||||||||
Supporting discontinued products | $ | 3,093.3 | $ | 269.7 | $ | 20.1 | $ | 3,342.9 | ||||||||
Supporting experience-rated products | 1,817.9 | 119.7 | 16.8 | 1,920.8 | ||||||||||||
Supporting remaining products | 9,450.3 | 233.5 | 92.5 | 9,591.3 | ||||||||||||
Total available for sale debt securities | $ | 14,361.5 | $ | 622.9 | $ | 129.4 | $ | 14,855.0 | ||||||||
2004 | ||||||||||||||||
Supporting discontinued products | $ | 3,358.3 | $ | 374.2 | $ | 5.2 | $ | 3,727.3 | ||||||||
Supporting experience-rated products | 1,907.1 | 181.1 | 4.3 | 2,083.9 | ||||||||||||
Supporting remaining products | 9,541.9 | 393.9 | 29.9 | 9,905.9 | ||||||||||||
Total available for sale debt securities | $ | 14,807.3 | $ | 949.2 | $ | 39.4 | $ | 15,717.1 | ||||||||
Fair | ||||
(Millions) | Value | |||
Due to mature: | ||||
One year or less | $ | 666.7 | ||
After one year, through five years | 2,456.2 | |||
After five years, through ten years | 3,471.1 | |||
After ten years | 5,363.1 | |||
Mortgage-backed securities | 2,362.5 | |||
Other asset-backed securities | 535.4 | |||
Total | $ | 14,855.0 | ||
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Less than 12 months | Greater than 12 months(1) | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
(Millions) | Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
2005 | ||||||||||||||||||||||||
Debt securities: | ||||||||||||||||||||||||
U.S. treasury obligations | $ | 350.9 | $ | 3.4 | $ | 213.1 | $ | 5.5 | $ | 564.0 | $ | 8.9 | ||||||||||||
States and political subdivisions | 623.1 | 5.8 | 76.5 | 1.9 | 699.6 | 7.7 | ||||||||||||||||||
Foreign governments | 199.5 | 3.3 | 36.3 | .8 | 235.8 | 4.1 | ||||||||||||||||||
Corporate | 2,330.3 | 54.6 | 387.6 | 10.2 | 2,717.9 | 64.8 | ||||||||||||||||||
Federal agency mortgage-backed securities | 578.5 | 10.4 | 291.3 | 9.1 | 869.8 | 19.5 | ||||||||||||||||||
Other | 570.4 | 11.4 | 302.5 | 13.0 | 872.9 | 24.4 | ||||||||||||||||||
Total debt securities | 4,652.7 | 88.9 | 1,307.3 | 40.5 | 5,960.0 | 129.4 | ||||||||||||||||||
Equity securities | 4.1 | .2 | — | — | 4.1 | .2 | ||||||||||||||||||
Total debt and equity securities | $ | 4,656.8 | $ | 89.1 | $ | 1,307.3 | $ | 40.5 | $ | 5,964.1 | $ | 129.6 | ||||||||||||
2004 | ||||||||||||||||||||||||
Debt securities: | ||||||||||||||||||||||||
U.S. treasury obligations | $ | 712.1 | $ | 5.1 | $ | 7.0 | $ | .1 | $ | 719.1 | $ | 5.2 | ||||||||||||
States and political subdivisions | 164.2 | 2.1 | 8.0 | .2 | 172.2 | 2.3 | ||||||||||||||||||
Foreign governments | 117.6 | .7 | 8.2 | .1 | 125.8 | .8 | ||||||||||||||||||
Corporate | 876.5 | 10.3 | 77.3 | 2.7 | 953.8 | 13.0 | ||||||||||||||||||
Federal agency mortgage-backed securities | 424.7 | 2.5 | 85.1 | 1.8 | 509.8 | 4.3 | ||||||||||||||||||
Other | 612.6 | 8.3 | 62.3 | 5.5 | 674.9 | 13.8 | ||||||||||||||||||
Total debt securities | 2,907.7 | 29.0 | 247.9 | 10.4 | 3,155.6 | 39.4 | ||||||||||||||||||
Equity securities | — | — | 4.3 | — | 4.3 | — | ||||||||||||||||||
Total debt and equity securities | $ | 2,907.7 | $ | 29.0 | $ | 252.2 | $ | 10.4 | $ | 3,159.9 | $ | 39.4 | ||||||||||||
(1) | At December 31, 2005 and 2004, debt and equity securities in an unrealized loss position for greater than twelve months of $7 million and $3 million, respectively, and related fair value of $186 million and $78 million, respectively, related to discontinued and experience-rated products. |
(Millions) | 2005 | 2004 | ||||||
South Atlantic | $ | 373.3 | $ | 414.5 | ||||
Middle Atlantic | 308.7 | 232.4 | ||||||
New England | 100.7 | 60.7 | ||||||
South Central | 69.1 | 31.8 | ||||||
North Central | 259.0 | 280.6 | ||||||
Pacific and Mountain | 436.7 | 380.8 | ||||||
Non-U.S. | — | .1 | ||||||
Total | $ | 1,547.5 | $ | 1,400.9 | ||||
(Millions) | 2005 | 2004 | ||||||
Office | $ | 578.3 | $ | 448.6 | ||||
Retail | 227.9 | 249.9 | ||||||
Apartment | 239.7 | 241.3 | ||||||
Hotel/Motel | 25.5 | 28.9 | ||||||
Industrial | 421.6 | 386.3 | ||||||
Mixed Use | 54.4 | 45.8 | ||||||
Other | .1 | .1 | ||||||
Total | $ | 1,547.5 | $ | 1,400.9 | ||||
Page 61
(Millions) | 2005 | 2004 | ||||||
Properties held for sale | $ | 7.4 | $ | — | ||||
Investment real estate | 220.7 | 285.8 | ||||||
Gross carrying value of real estate | 228.1 | 285.8 | ||||||
Valuation reserve | (13.5 | ) | (11.0 | ) | ||||
Investment real estate | $ | 214.6 | $ | 274.8 | ||||
(Millions) | 2005 | 2004 | 2003 | |||||||||
Debt securities | $ | 838.2 | $ | 872.4 | $ | 855.0 | ||||||
Mortgage loans | 136.8 | 133.2 | 129.5 | |||||||||
Other | 166.2 | 95.4 | 160.5 | |||||||||
Gross investment income | 1,141.2 | 1,101.0 | 1,145.0 | |||||||||
Less: Investment expenses | (38.2 | ) | (38.5 | ) | (50.0 | ) | ||||||
Net investment income(1) | $ | 1,103.0 | $ | 1,062.5 | $ | 1,095.0 | ||||||
(1) | Includes amounts related to experience-rated contract holders of $143.6 million, $156.4 million and $167.5 million during the years ended December 31, 2005, 2004 and 2003, respectively. Interest credited to contract holders is included in current and future benefits in the Consolidated Statements of Income. |
(Millions) | 2005 | 2004 | 2003 | |||||||||
Debt securities | $ | 15.8 | $ | 57.0 | $ | 81.7 | ||||||
Equity securities | .8 | 13.0 | (.5 | ) | ||||||||
Other | 15.7 | .8 | (16.0 | ) | ||||||||
Pretax net realized capital gains | $ | 32.3 | $ | 70.8 | $ | 65.2 | ||||||
After tax net realized capital gains | $ | 21.1 | $ | 45.9 | $ | 42.0 | ||||||
Page 62
(Millions) | 2005 | 2004 | 2003 | |||||||||
Proceeds on sales | $ | 10,324.9 | $ | 9,269.4 | $ | 12,328.0 | ||||||
Gross realized capital gains | 66.5 | 101.5 | 139.2 | |||||||||
Gross realized capital losses | 53.8 | 44.0 | 53.5 | |||||||||
Net Unrealized Gains (Losses) | Minimum | Total Other | ||||||||||||||||||
Foreign | Pension | Comprehensive | ||||||||||||||||||
(Millions) | Securities | Currency | Derivatives | Liability | Income (Loss) | |||||||||||||||
Balance at December 31, 2002 | $ | 282.0 | $ | 5.5 | $ | (2.7 | ) | $ | (755.2 | ) | $ | (470.4 | ) | |||||||
Net unrealized gains on securities ($35.7 pretax) | 23.2 | - | - | - | 23.2 | |||||||||||||||
Net foreign currency gains ($6.7 pretax) | - | 4.3 | - | - | 4.3 | |||||||||||||||
Net derivative gains ($.5 pretax) | - | - | .3 | - | .3 | |||||||||||||||
Pension liability adjustment ($79.6 pretax) | - | - | - | 51.8 | 51.8 | |||||||||||||||
Reclassification to earnings ($(26.5) pretax) | (17.6 | ) | - | .4 | - | (17.2 | ) | |||||||||||||
Balance at December 31, 2003 | 287.6 | 9.8 | (2.0 | ) | (703.4 | ) | (408.0 | ) | ||||||||||||
Net unrealized losses on securities ($(40.0) pretax) | (26.0 | ) | - | - | - | (26.0 | ) | |||||||||||||
Net foreign currency gains ($2.4 pretax) | - | 1.5 | - | - | 1.5 | |||||||||||||||
Net derivative gains ($1.2 pretax) | - | - | .8 | - | .8 | |||||||||||||||
Pension liability adjustment ($(145.0) pretax) | - | - | - | (94.3 | ) | (94.3 | ) | |||||||||||||
Reclassification to earnings ($(23.9) pretax) | (15.9 | ) | - | .4 | - | (15.5 | ) | |||||||||||||
Balance at December 31, 2004 | 245.7 | 11.3 | (.8 | ) | (797.7 | ) | (541.5 | ) | ||||||||||||
Net unrealized losses on securities ($(223.9) pretax) | (145.5 | ) | - | - | - | (145.5 | ) | |||||||||||||
Net foreign currency gains ($1.1 pretax) | - | .7 | - | - | .7 | |||||||||||||||
Net derivative losses ($(4.0) pretax) | - | - | (2.6 | ) | - | (2.6 | ) | |||||||||||||
Pension liability adjustment ($1,127.7 pretax) | - | - | - | 733.0 | 733.0 | |||||||||||||||
Reclassification to earnings ($9.6 pretax) | 3.9 | - | 2.3 | - | 6.2 | |||||||||||||||
Balance at December 31, 2005 | $ | 104.1 | $ | 12.0 | $ | (1.1 | ) | $ | (64.7 | ) | $ | 50.3 | ||||||||
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(Millions) | 2005 | 2004 | 2003 | |||||||||
Current taxes: | ||||||||||||
Federal | $ | 674.4 | $ | 450.7 | $ | 352.4 | ||||||
State | 52.1 | 39.5 | 44.6 | |||||||||
Total current taxes | 726.5 | 490.2 | 397.0 | |||||||||
Deferred taxes (benefits): | ||||||||||||
Federal | 187.5 | 206.2 | 94.6 | |||||||||
State | (1.1 | ) | (12.6 | ) | 16.2 | |||||||
Total deferred income taxes | 186.4 | 193.6 | 110.8 | |||||||||
Total income taxes | $ | 912.9 | $ | 683.8 | $ | 507.8 | ||||||
(Millions) | 2005 | 2004 | 2003 | |||||||||
Income from continuing operations before income taxes | $ | 2,547.4 | $ | 1,898.9 | $ | 1,441.6 | ||||||
Tax rate | 35 | % | 35 | % | 35 | % | ||||||
Application of the tax rate | 891.6 | 664.6 | 504.6 | |||||||||
Tax effect of: | ||||||||||||
State income taxes | 38.0 | 26.4 | 33.1 | |||||||||
Tax credits | (27.1 | ) | (21.8 | ) | (22.5 | ) | ||||||
Tax-exempt interest | (13.4 | ) | (11.5 | ) | (10.1 | ) | ||||||
Other, net | 23.8 | 26.1 | 2.7 | |||||||||
Income taxes | $ | 912.9 | $ | 683.8 | $ | 507.8 | ||||||
(Millions) | 2005 | 2004 | ||||||
Deferred tax assets: | ||||||||
Reserve for anticipated future losses on discontinued products | $ | 219.1 | $ | 199.6 | ||||
Employee and post-retirement benefits (including minimum pension liability) | — | 278.8 | ||||||
Deferred income | 23.3 | 22.1 | ||||||
Deferred policy costs | 49.2 | 44.3 | ||||||
Investments, net | 97.6 | 98.8 | ||||||
Net operating loss carry forwards | 28.2 | 35.1 | ||||||
Insurance reserves | 66.2 | 60.4 | ||||||
Physician class action settlement | — | 30.2 | ||||||
Other | 65.4 | 51.9 | ||||||
Total gross assets | 549.0 | 821.2 | ||||||
Less: Valuation allowance | 15.7 | 32.8 | ||||||
Assets, net of valuation allowance | 533.3 | 788.4 | ||||||
Deferred tax liabilities: | ||||||||
Goodwill and other acquired intangible assets | 166.8 | 81.5 | ||||||
Accumulated other comprehensive income | 61.9 | 137.9 | ||||||
Depreciation and amortization | 101.9 | 70.6 | ||||||
Employee and post-retirement benefits | 205.3 | — | ||||||
Physician class action settlement | 22.6 | — | ||||||
Other | .3 | 2.4 | ||||||
Total gross liabilities | 558.8 | 292.4 | ||||||
Net deferred tax (liability) asset(1) | $ | (25.5 | ) | $ | 496.0 | |||
(1) | Includes ($10.4) million and $196.0 million classified as current (liabilities) assets at December 31, 2005 and 2004, respectively, and ($15.1) million and $300.0 million classified as noncurrent (liabilities) assets at December 31, 2005 and 2004, respectively. |
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Pension Plans | OPEB Plans | |||||||||||||||
(Millions) | 2005 | 2004 | 2005 | 2004 | ||||||||||||
Benefit obligation, beginning of year | $ | 4,699.7 | $ | 4,302.9 | $ | 494.6 | $ | 477.8 | ||||||||
Service cost | 92.7 | 75.9 | .4 | .4 | ||||||||||||
Interest cost | 273.9 | 261.4 | 28.2 | 24.7 | ||||||||||||
Actuarial losses/other | 240.1 | 328.5 | 16.9 | 79.6 | ||||||||||||
Plan amendments/other | — | — | (13.8 | ) | (10.7 | ) | ||||||||||
Curtailment benefit | — | — | — | (30.7 | ) | |||||||||||
Benefits paid | (262.0 | ) | (269.0 | ) | (49.9 | ) | (46.5 | ) | ||||||||
Benefit obligation, end of year | $ | 5,044.4 | $ | 4,699.7 | $ | 476.4 | $ | 494.6 | ||||||||
Pension Plans | OPEB Plans | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Discount rate | 5.77 | % | 6.00 | % | 5.59 | % | 6.00 | % | ||||||||
Rate of increase in future compensation levels | 4.51 | 3.00 | — | — | ||||||||||||
Pension Plans | OPEB Plans | |||||||||||||||
(Millions) | 2005 | 2004 | 2005 | 2004 | ||||||||||||
Fair value of plan assets, beginning of year | $ | 4,221.2 | $ | 3,494.5 | $ | 70.2 | $ | 69.0 | ||||||||
Actual return of plan assets | 597.6 | 421.4 | 2.7 | 3.4 | ||||||||||||
Employer contributions | 264.9 | 574.3 | 47.9 | 44.3 | ||||||||||||
Benefits paid | (262.0 | ) | (269.0 | ) | (49.9 | ) | (46.5 | ) | ||||||||
Fair value of plan assets, end of year | $ | 4,821.7 | $ | 4,221.2 | $ | 70.9 | $ | 70.2 | ||||||||
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Pension Plans | OPEB Plans | |||||||||||||||
(Millions) | 2005 | 2004 | 2005 | 2004 | ||||||||||||
Funded status at September 30 | $ | (222.7 | ) | $ | (478.5 | ) | $ | (405.5 | ) | $ | (424.4 | ) | ||||
Unrecognized net losses | 1,228.2 | 1,290.0 | 157.6 | 144.8 | ||||||||||||
Unrecognized prior service cost | 27.7 | 30.7 | (32.0 | ) | (19.6 | ) | ||||||||||
Net amount recognized at September 30 | 1,033.2 | 842.2 | (279.9 | ) | (299.2 | ) | ||||||||||
Contributions made in the fourth quarter | 5.8 | 4.7 | 13.4 | 13.2 | ||||||||||||
Net amount recognized at December 31 | $ | 1,039.0 | $ | 846.9 | $ | (266.5 | ) | $ | (286.0 | ) | ||||||
Pension Plans | OPEB Plans | |||||||||||||||
(Millions) | 2005 | 2004 | 2005 | 2004 | ||||||||||||
Prepaid pension asset(1) | $ | 1,199.6 | $ | — | $ | — | $ | — | ||||||||
Accrued benefit liabilities(2) | (260.1 | ) | (413.5 | ) | (266.5 | ) | (286.0 | ) | ||||||||
Intangible asset | — | 33.3 | — | — | ||||||||||||
Accumulated other comprehensive income | 99.5 | 1,227.1 | — | — | ||||||||||||
Net amount recognized | $ | 1,039.0 | $ | 846.9 | $ | (266.5 | ) | $ | (286.0 | ) | ||||||
(1) | Included in other long-term assets on the Company’s Consolidated Balance Sheets. | |
(2) | Included in other long-term liabilities on the Company’s Consolidated Balance Sheets. |
Pension Plans | OPEB Plans | |||||||||||||||||||||||
(Millions) | 2005 | 2004 | 2003 | 2005 | 2004 | 2003 | ||||||||||||||||||
Service cost | $ | 92.7 | $ | 75.9 | $ | 74.8 | $ | .4 | $ | .4 | $ | .3 | ||||||||||||
Interest cost | 273.9 | 261.4 | 258.5 | 28.2 | 24.7 | 28.2 | ||||||||||||||||||
Expected return on plan assets | (370.2 | ) | (310.6 | ) | (255.4 | ) | (4.5 | ) | (4.4 | ) | (4.7 | ) | ||||||||||||
Amortization of prior service cost | 5.3 | 5.6 | 4.6 | (1.3 | ) | (1.3 | ) | (.6 | ) | |||||||||||||||
Recognized net actuarial loss | 74.5 | 64.2 | 76.0 | 5.8 | 2.5 | .2 | ||||||||||||||||||
Net periodic benefit cost before curtailment benefit | 76.2 | 96.5 | 158.5 | 28.6 | 21.9 | 23.4 | ||||||||||||||||||
Curtailment benefit | (2.3 | )(1) | — | — | — | (31.8 | )(2) | (34.0 | )(3) | |||||||||||||||
Net periodic benefit cost (income) | $ | 73.9 | $ | 96.5 | $ | 158.5 | $ | 28.6 | $ | (9.9 | ) | $ | (10.6 | ) | ||||||||||
(1) | Reflects a plan amendment eliminating the accrual of new benefits under the Supplemental Pension Plan, as discussed above. | |
(2) | Reflects a plan amendment eliminating the dental subsidy for all retirees, as discussed above. | |
(3) | Reflects plan amendments related to the phase-out of the retiree medical subsidy for certain employees and elimination of the retiree dental subsidy for certain employees, as discussed above. |
Pension Plans | OPEB Plans | |||||||||||||||||||||||
2005 | 2004 | 2003 | 2005 | 2004 | 2003 | |||||||||||||||||||
Discount rate | 6.00 | % | 6.25 | % | 6.75 | % | 6.00 | % | 6.25 | % | 6.75 | % | ||||||||||||
Expected long-term return on plan assets | 8.75 | 8.75 | 9.00 | 6.50 | 6.50 | 7.00 | ||||||||||||||||||
Rate of increase in future compensation levels | 3.00 | 3.25 | 3.75 | — | — | — | ||||||||||||||||||
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Pension Plans | OPEB Plans | |||||||||||||||||||||||
Target | Target | |||||||||||||||||||||||
(Millions) | 2005 | 2004 | Allocation | 2005 | 2004 | Allocation | ||||||||||||||||||
Equity securities | 68 | % | 67 | % | 60-70 | % | 10 | % | 12 | % | 5-15 | % | ||||||||||||
Debt securities | 25 | 26 | 20-30 | 87 | 85 | 80-90 | ||||||||||||||||||
Real estate/other | 7 | 7 | 5-15 | 3 | 3 | 2-10 | ||||||||||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||||||
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(Millions) | Pension Plans | OPEB Plans | ||||||
2006 | $ | 274.6 | $ | 45.7 | ||||
2007 | 285.3 | 43.6 | ||||||
2008 | 291.9 | 39.9 | ||||||
2009 | 298.2 | 39.1 | ||||||
2010 | 397.9 | 38.3 | ||||||
2011-2015 | 1,723.0 | 172.6 | ||||||
2005 | 2004 | 2003 | ||||||||||||||||||||||
Weighted | Weighted | Weighted | ||||||||||||||||||||||
Average | Average | Average | ||||||||||||||||||||||
Number of | Exercise | Number of | Exercise | Number of | Exercise | |||||||||||||||||||
(Number of shares in millions) | Shares | Price | Shares | Price | Shares | Price | ||||||||||||||||||
Outstanding, beginning of year | 67.2 | $ | 11.21 | 91.3 | $ | 8.74 | 113.1 | $ | 8.14 | |||||||||||||||
Granted | 8.8 | 33.61 | 15.2 | 19.47 | 21.2 | 10.61 | ||||||||||||||||||
Exercised | (21.5 | ) | 11.34 | (37.6 | ) | 8.45 | (38.4 | ) | 7.90 | |||||||||||||||
Expired or forfeited | (1.1 | ) | 14.49 | (1.7 | ) | 13.61 | (4.6 | ) | 9.56 | |||||||||||||||
Outstanding, end of year | 53.4 | $ | 14.80 | 67.2 | $ | 11.21 | 91.3 | $ | 8.74 | |||||||||||||||
Options exercisable, end of year | 42.7 | $ | 12.76 | 50.6 | $ | 11.50 | 60.0 | $ | 8.10 | |||||||||||||||
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Options Outstanding | ||||||||||||||||||||
Weighted | Options Exercisable | |||||||||||||||||||
Average | Weighted | Weighted | ||||||||||||||||||
Remaining | Average | Average | ||||||||||||||||||
Number | Contractual | Exercise | Number | Exercise | ||||||||||||||||
Range of Exercise Prices | Outstanding | Life (Years) | Price | Exercisable | Price | |||||||||||||||
$4.53 - $9.06 | 17.5 | 4.8 | $ | 7.68 | 17.5 | $ | 7.68 | |||||||||||||
9.06 - 13.59 | 17.8 | 5.7 | 10.45 | 13.1 | 10.44 | |||||||||||||||
13.59 - 18.12 | .3 | 7.6 | 15.39 | .1 | 15.36 | |||||||||||||||
18.12 - 22.65 | 9.3 | 7.7 | 19.47 | 9.2 | 19.46 | |||||||||||||||
22.65 - 27.18 | .1 | 8.4 | 23.43 | — | 23.68 | |||||||||||||||
27.18 - 31.71 | .1 | 9.0 | 30.50 | — | 27.54 | |||||||||||||||
31.71 - 36.24 | 8.0 | 8.7 | 33.38 | 2.8 | 33.38 | |||||||||||||||
36.24 - 40.77 | .2 | 9.4 | 38.60 | — | 36.84 | |||||||||||||||
40.77 - 45.30 | .1 | 9.6 | 42.08 | — | — | |||||||||||||||
$4.53 - $45.30 | 53.4 | 6.2 | $ | 14.80 | 42.7 | $ | 12.76 | |||||||||||||
Number of Incentive Units | ||||||||||||
(Millions) | 2005 | 2004 | 2003 | |||||||||
Outstanding, beginning of year | .2 | — | 1.9 | |||||||||
Granted | .3 | .2 | — | |||||||||
Vested | (.2 | ) | — | (1.9 | ) | |||||||
Expired or forfeited | (.1 | ) | — | — | ||||||||
Outstanding, end of year | .2 | .2 | — | |||||||||
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Approximate | Per Share | |||||||
Number of | Purchase | |||||||
Six-month Accumulation Period (Offering Period) | Shares Purchased | Price(1) | ||||||
January 3, 2003 to June 20, 2003 | .4 | $ | 9.53 | |||||
July 3, 2003 to December 19, 2003 | .4 | 13.94 | ||||||
January 2, 2004 to June 18, 2004 | .4 | 15.23 | ||||||
June 21, 2004 to December 17, 2004 | .3 | 18.89 | ||||||
December 20, 2004 to June 17, 2005 | .3 | 27.80 | ||||||
June 20, 2005 to December 16, 2005 | .3 | 38.29 | ||||||
(1) | The purchase price of the stock is based on the lesser of the fair market value of the stock price at the beginning or end of the offering period, reduced by the discount offered. The shares were purchased at the end of the offering period. |
(Millions) | 2005 | 2004 | ||||||
Senior notes, 7.375%, due 2006 | $ | 450.0 | $ | 449.6 | ||||
Senior notes, 7.875%, due 2011 | 448.1 | 447.7 | ||||||
Senior notes, 8.50%, due 2041 | 707.6 | 712.4 | ||||||
Total long-term debt | 1,605.7 | 1,609.7 | ||||||
Less current portion of long-term debt(1) | (450.0 | ) | — | |||||
Long-term debt, less current portion | $ | 1,155.7 | $ | 1,609.7 | ||||
(1) | At December 31, 2005, there were no short-term borrowings outstanding. The 7.375% senior notes due March 2006 have been classified as current in the accompanying Consolidated Balance Sheet at December 31, 2005. |
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Shares Purchased | ||||||||||||||||||||||||||||||||
2003 | 2004 | 2005 | ||||||||||||||||||||||||||||||
Number of | Purchase | |||||||||||||||||||||||||||||||
Shares | Not to | |||||||||||||||||||||||||||||||
(Millions) | Authorized | Exceed | Shares | Cost | Shares | Cost | Shares | Cost | ||||||||||||||||||||||||
Authorization date: | ||||||||||||||||||||||||||||||||
June 28, 2002 | 20.0 | $ | 250.0 | 13.2 | $ | 189.0 | — | $ | — | — | $ | — | ||||||||||||||||||||
June 27, 2003 | 30.0 | 500.0 | 17.0 | 249.2 | — | — | — | — | ||||||||||||||||||||||||
December 5, 2003(1) | 40.0 | 750.0 | .4 | 7.0 | 34.0 | 743.0 | — | — | ||||||||||||||||||||||||
April 30, 2004 | N/A | (2) | 750.0 | — | — | 30.4 | 750.0 | — | — | |||||||||||||||||||||||
September 24, 2004 | N/A | (2) | 750.0 | — | — | — | — | 20.4 | 750.0 | |||||||||||||||||||||||
February 25, 2005 | N/A | (2) | 750.0 | — | — | — | — | 17.8 | 750.0 | |||||||||||||||||||||||
September 29, 2005 | N/A | (2) | 750.0 | — | — | — | — | 3.6 | 169.1 | |||||||||||||||||||||||
Total repurchases | 30.6 | $ | 445.2 | 64.4 | $ | 1,493.0 | 41.8 | $ | 1,669.1 | (3) | ||||||||||||||||||||||
Repurchase authorization remaining as of December 31, | 39.6 | $ | 743.0 | N/A | (2) | $ | 750.0 | N/A | (2) | $ | 580.9 | |||||||||||||||||||||
(1) | The December 5, 2003 Board authorization replaced the June 27, 2003 authorization. | |
(2) | The 2004 and 2005 Board authorizations do not limit the number of shares of common stock that may be repurchased. | |
(3) | Approximately $19 million of the 2005 repurchases were settled in early January 2006. |
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2005 | 2004 | |||||||||||||||
Estimated | Estimated | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
(Millions) | Value | Value | Value | Value | ||||||||||||
Assets: | ||||||||||||||||
Debt securities | $ | 14,885.0 | $ | 14,885.0 | $ | 15,717.1 | $ | 15,717.1 | ||||||||
Equity securities | 61.2 | 61.2 | 74.7 | 74.7 | ||||||||||||
Mortgage loans | 1,547.5 | 1,599.9 | 1,400.9 | 1,464.4 | ||||||||||||
Derivatives | 3.9 | 6.3 | 23.2 | 24.1 | ||||||||||||
Liabilities: | ||||||||||||||||
Investment contract liabilities: | ||||||||||||||||
With a fixed maturity | 93.2 | 95.1 | 128.6 | 127.0 | ||||||||||||
Without a fixed maturity | 696.4 | 579.0 | 667.2 | 606.7 | ||||||||||||
Derivatives | .7 | 3.0 | 4.1 | 4.1 | ||||||||||||
Long-term debt | 1,605.7 | 1,674.4 | 1,609.7 | 1,743.9 | ||||||||||||
• | With a fixed maturity: Fair value is estimated by discounting cash flows at interest rates currently being offered by, or available to, the Company for similar contracts. | |
• | Without a fixed maturity: Fair value is estimated as the amount payable to the contract holder upon demand. However, the Company has the right under such contracts to delay payment of withdrawals that may ultimately result in paying an amount different than that determined to be payable on demand. |
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(Millions) | 2005 | 2004 | 2003 | |||||||||
Statutory net income | $ | 1,568.3 | $ | 1,276.6 | $ | 1,084.5 | ||||||
Statutory capital and surplus | 4,547.3 | 4,001.6 | 3,902.2 | |||||||||
Percentage | ||||||||||||||||||||
Ceded to | Assumed | of Amount | ||||||||||||||||||
Direct | Other | from Other | Net | Assumed | ||||||||||||||||
(Millions) | Amount | Companies | Companies | Amount | to Net | |||||||||||||||
2005(1) | ||||||||||||||||||||
Accident and Health Insurance-HMO(2) | $ | 11,640.8 | $ | — | $ | — | $ | 11,640.8 | — | % | ||||||||||
Accident and Health Insurance-Other(3) | 5,609.8 | 8.8 | 157.5 | 5,758.5 | 2.7 | |||||||||||||||
Life Insurance | 1,482.2 | 62.1 | 108.3 | 1,528.4 | 7.1 | |||||||||||||||
Total premiums | $ | 18,732.8 | $ | 70.9 | $ | 265.8 | $ | 18,927.7 | 1.4 | % | ||||||||||
2004(1) | ||||||||||||||||||||
Accident and Health Insurance-HMO(2) | $ | 10,894.6 | $ | — | $ | — | $ | 10,894.6 | — | % | ||||||||||
Accident and Health Insurance-Other(3) | 4,361.9 | 8.8 | 13.6 | 4,366.7 | .3 | |||||||||||||||
Life Insurance | 1,408.4 | 79.0 | 86.0 | 1,415.4 | 6.1 | |||||||||||||||
Total premiums | $ | 16,664.9 | $ | 87.8 | $ | 99.6 | $ | 16,676.7 | .6 | % | ||||||||||
2003(1) | ||||||||||||||||||||
Accident and Health Insurance-HMO(2) | $ | 10,053.2 | $ | — | $ | .1 | $ | 10,053.3 | — | % | ||||||||||
Accident and Health Insurance-Other(3) | 3,519.3 | 14.1 | 37.4 | 3,542.6 | 1.1 | |||||||||||||||
Life Insurance | 1,360.3 | 115.1 | 62.9 | 1,308.1 | 4.8 | |||||||||||||||
Total premiums | $ | 14,932.8 | $ | 129.2 | $ | 100.4 | $ | 14,904.0 | .6 | % | ||||||||||
(1) | Excludes intercompany transactions. | |
(2) | Includes Commercial HMO (includes premiums related to POS members who access primary care physicians and referred care through an HMO Network), Medicare HMO and Medicaid HMO business. | |
(3) | Includes all other medical, dental and Group Insurance products offered by the Company, except life insurance and HMO products. |
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Health | Group | Large Case | Corporate | Total | ||||||||||||||||
(Millions) | Care | Insurance | Pensions | Interest | Company | |||||||||||||||
2005 | ||||||||||||||||||||
Revenue from external customers(1) | $ | 19,310.5 | $ | 1,835.3 | $ | 210.8 | $ | — | $ | 21,356.6 | ||||||||||
Net investment income | 295.0 | 293.1 | 514.9 | — | 1,103.0 | |||||||||||||||
Interest expense | — | — | — | 122.8 | 122.8 | |||||||||||||||
Depreciation and amortization expense | 204.4 | — | — | — | 204.4 | |||||||||||||||
Income taxes (benefits) | 859.6 | 52.2 | 44.1 | (43.0 | ) | 912.9 | ||||||||||||||
Operating earnings (loss)(2) | 1,486.9 | 129.7 | 33.2 | (79.8 | ) | 1,570.0 | ||||||||||||||
Segment assets(3) | 15,389.6 | 5,887.2 | 23,087.8 | — | 44,364.6 | |||||||||||||||
2004 | ||||||||||||||||||||
Revenue from external customers(1) | $ | 16,914.4 | $ | 1,655.5 | $ | 200.9 | $ | — | $ | 18,770.8 | ||||||||||
Net investment income | 262.1 | 274.1 | 526.3 | — | 1,062.5 | |||||||||||||||
Interest expense | — | — | — | 104.7 | 104.7 | |||||||||||||||
Depreciation and amortization expense | 182.2 | — | — | — | 182.2 | |||||||||||||||
Income taxes (benefits) | 639.5 | 59.7 | 21.3 | (36.7 | ) | 683.8 | ||||||||||||||
Operating earnings (loss)(2) | 1,079.4 | 126.5 | 31.3 | (68.0 | ) | 1,169.2 | ||||||||||||||
Segment assets(3) | 14,684.7 | 5,322.6 | 22,126.4 | — | 42,133.7 | |||||||||||||||
2003 | ||||||||||||||||||||
Revenue from external customers(1) | $ | 15,098.1 | $ | 1,541.6 | $ | 176.5 | $ | — | $ | 16,816.2 | ||||||||||
Net investment income | 244.6 | 268.7 | 581.7 | �� | — | 1,095.0 | ||||||||||||||
Interest expense | — | — | — | 102.9 | 102.9 | |||||||||||||||
Depreciation and amortization expense | 199.6 | — | — | — | 199.6 | |||||||||||||||
Income taxes (benefits) | 461.5 | 61.2 | 21.1 | (36.0 | ) | 507.8 | ||||||||||||||
Operating earnings (loss)(2) | 862.4 | 134.8 | 36.5 | (66.9 | ) | 966.8 | ||||||||||||||
Segment assets(3) | 14,302.9 | 5,251.5 | 21,395.8 | — | 40,950.2 | |||||||||||||||
(1) | Revenues from external customers include revenues earned from one major customer (the federal government) amounting to 9.8%, 9.9% and 10.1% of total revenue from external customers for the years ended December 31, 2005, 2004 and 2003, respectively. These revenues were generated in the Health Care and Group Insurance segments. | |
(2) | Operating earnings (loss) excludes net realized capital gains or losses and the other items described in the reconciliation below. | |
(3) | Large Case Pensions assets include $5.1 billion, $5.4 billion and $5.2 billion attributable to discontinued products at December 31, 2005, 2004 and 2003, respectively (excluding the receivable from Large Case Pensions’ continuing products which is eliminated in consolidation). |
(Millions) | 2005 | 2004 | 2003 | |||||||||
Operating earnings | $ | 1,570.0 | $ | 1,169.2 | $ | 966.8 | ||||||
Net realized capital gains, net of tax | 21.1 | 45.9 | 42.0 | |||||||||
Reduction of reserve for anticipated future losses on discontinued products(1) | 43.4 | — | — | |||||||||
Other item(2) | — | — | (75.0 | ) | ||||||||
Income from continuing operations | $ | 1,634.5 | $ | 1,215.1 | $ | 933.8 | ||||||
(1) | Refer to Note 20 for additional information on the $43.4 million after tax ($66.7 million pretax) reduction of reserve for anticipated future losses in the Large Case Pensions segment. | |
(2) | The other item excluded from operating earnings in 2003 is the $75.0 million after tax charge in the Health Care segment related to the Physician Class Action Settlement (refer to Note 18 for additional information). |
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(Millions) | 2005 | 2004 | 2003 | |||||||||
Health risk | $ | 16,924.7 | $ | 14,862.8 | $ | 13,235.5 | ||||||
Health fees and other revenue | 2,385.8 | 2,051.6 | 1,862.6 | |||||||||
Group life | 1,332.2 | 1,229.8 | 1,150.3 | |||||||||
Group disability | 408.1 | 342.2 | 318.1 | |||||||||
Group long-term care | 95.0 | 83.5 | 73.2 | |||||||||
Large case pensions | 210.8 | 200.9 | 176.5 | |||||||||
Total revenue from external customers(1) | $ | 21,356.6 | $ | 18,770.8 | $ | 16,816.2 | ||||||
(1) | All within the United States, except approximately $6 million, $5 million and $6 million in 2005, 2004 and 2003, respectively, which were derived from customers in Canada. |
(Millions) | 2005 | 2004 | 2003 | |||||||||
Revenue from external customers | $ | 21,356.6 | $ | 18,770.8 | $ | 16,816.2 | ||||||
Net investment income | 1,103.0 | 1,062.5 | 1,095.0 | |||||||||
Net realized capital gains | 32.3 | 70.8 | 65.2 | |||||||||
Total revenue | $ | 22,491.9 | $ | 19,904.1 | $ | 17,976.4 | ||||||
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Charged (Credited) | ||||||||||||
to Reserve for | ||||||||||||
(Millions) | Results | Future Losses | Net(1) | |||||||||
2005 | ||||||||||||
Net investment income | $ | 324.2 | $ | — | $ | 324.2 | ||||||
Net realized capital gains | 22.0 | (22.0 | ) | — | ||||||||
Interest earned on receivable from continuing products | 30.6 | — | 30.6 | |||||||||
Other revenue | 16.3 | — | 16.3 | |||||||||
Total revenue | 393.1 | (22.0 | ) | 371.1 | ||||||||
Current and future benefits | 342.8 | 17.1 | 359.9 | |||||||||
Operating expenses | 11.2 | — | 11.2 | |||||||||
Total benefits and expenses | 354.0 | 17.1 | 371.1 | |||||||||
Results of discontinued products | $ | 39.1 | $ | (39.1 | ) | $ | — | |||||
2004 | ||||||||||||
Net investment income | $ | 320.6 | $ | — | $ | 320.6 | ||||||
Net realized capital gains | 37.5 | (37.5 | ) | — | ||||||||
Interest earned on receivable from continuing products | 30.2 | — | 30.2 | |||||||||
Other revenue | 24.8 | — | 24.8 | |||||||||
Total revenue | 413.1 | (37.5 | ) | 375.6 | ||||||||
Current and future benefits | 356.1 | 6.5 | 362.6 | |||||||||
Operating expenses | 13.0 | — | 13.0 | |||||||||
Total benefits and expenses | 369.1 | 6.5 | 375.6 | |||||||||
Results of discontinued products | $ | 44.0 | $ | (44.0 | ) | $ | — | |||||
2003 | ||||||||||||
Net investment income | $ | 334.6 | $ | — | $ | 334.6 | ||||||
Net realized capital gains | 111.3 | (111.3 | ) | — | ||||||||
Interest earned on receivable from continuing products | 28.3 | — | 28.3 | |||||||||
Other revenue | 36.9 | — | 36.9 | |||||||||
Total revenue | 511.1 | (111.3 | ) | 399.8 | ||||||||
Current and future benefits | 373.1 | 21.6 | 394.7 | |||||||||
Operating expenses | 5.1 | — | 5.1 | |||||||||
Total benefits and expenses | 378.2 | 21.6 | 399.8 | |||||||||
Results of discontinued products | $ | 132.9 | $ | (132.9 | ) | $ | — | |||||
(1) | Amounts are reflected in the 2005, 2004 and 2003 Consolidated Statements of Income, except for interest earned on the receivable from continuing products, which was eliminated in consolidation. |
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(Millions) | 2005 | 2004 | ||||||
Assets: | ||||||||
Debt securities available for sale | $ | 3,032.3 | $ | 3,383.6 | ||||
Equity securities available for sale | 43.1 | 57.2 | ||||||
Mortgage loans | 644.9 | 560.3 | ||||||
Investment real estate | 103.6 | 114.8 | ||||||
Loaned securities | 289.3 | 322.8 | ||||||
Other investments(2) | 603.3 | 514.4 | ||||||
Total investments | 4,716.5 | 4,953.1 | ||||||
Collateral received under securities loan agreements | 295.4 | 329.6 | ||||||
Current and deferred income taxes | 88.9 | 120.8 | ||||||
Receivable from continuing products(3) | 498.8 | 511.6 | ||||||
Total assets | $ | 5,599.6 | $ | 5,915.1 | ||||
Liabilities: | ||||||||
Future policy benefits | $ | 3,908.4 | $ | 4,065.6 | ||||
Policyholders’ funds | 23.5 | 24.0 | ||||||
Reserve for anticipated future losses on discontinued products | 1,052.2 | 1,079.8 | ||||||
Collateral payable under securities loan agreements | 295.4 | 329.6 | ||||||
Other liabilities | 320.1 | 416.1 | ||||||
Total liabilities | $ | 5,599.6 | $ | 5,915.1 | ||||
(1) | Assets supporting the discontinued products are distinguished from assets supporting continuing products. | |
(2) | Includes debt securities on deposit as required by regulatory authorities of $21.3 million and $20.9 million at December 31, 2005 and 2004, respectively. These securities are considered restricted assets and were included in long-term investments on the Consolidated Balance Sheets. | |
(3) | The receivable from continuing products is eliminated in consolidation. |
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(Millions) | 2005 | 2004 | 2003 | |||||||||
Reserve for anticipated future losses on discontinued products, beginning of period | $ | 1,079.8 | $ | 1,035.8 | $ | 902.9 | ||||||
Operating income (loss) | 12.4 | (6.6 | ) | (3.3 | ) | |||||||
Net realized capital gains | 22.0 | 37.5 | 111.3 | |||||||||
Mortality and other | 4.7 | 13.1 | 24.9 | |||||||||
Reserve reduction | (66.7 | ) | — | — | ||||||||
Reserve for anticipated future losses on discontinued products, end of period | $ | 1,052.2 | $ | 1,079.8 | $ | 1,035.8 | ||||||
(Millions) | ||||
2006 | $ | 41.4 | ||
2007 | 41.5 | |||
2008 | 41.8 | |||
2009 | 42.0 | |||
2010 | 42.0 | |||
2011-2015 | 206.0 | |||
2016-2020 | 184.4 | |||
2021-2025 | 149.7 | |||
2026-2030 | 113.9 | |||
Thereafter | 189.5 | |||
Expected | Actual | |||||||||||||||
(Millions) | GIC | SPA | GIC | SPA | ||||||||||||
2003 | $ | 51.7 | $ | 3,984.7 | $ | 35.2 | $ | 4,217.9 | ||||||||
2004 | 31.8 | 3,849.1 | 24.0 | 4,065.6 | ||||||||||||
2005 | 30.0 | 3,708.6 | 23.5 | 3,908.4 | ||||||||||||
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(Millions, except per common share data) | First | Second | Third | Fourth | ||||||||||||
2005 | ||||||||||||||||
Total revenue | $ | 5,426.9 | $ | 5,496.9 | $ | 5,700.7 | $ | 5,867.4 | ||||||||
Income from continuing operations before income taxes | $ | 662.4 | $ | 637.2 | $ | 588.6 | $ | 659.2 | ||||||||
Income taxes | (238.4 | ) | (227.5 | ) | (210.8 | ) | (236.2 | ) | ||||||||
Net income | $ | 424.0 | $ | 409.7 | $ | 377.8 | $ | 423.0 | ||||||||
Per common share results:(1) | ||||||||||||||||
Net income | ||||||||||||||||
Basic | $ | .72 | $ | .70 | $ | .65 | $ | .74 | ||||||||
Diluted | .69 | .68 | .63 | .71 | ||||||||||||
Common stock data: | ||||||||||||||||
Dividends declared | $ | — | $ | — | $ | .02 | $ | — | ||||||||
Common stock prices, high | 38.67 | 43.24 | 43.31 | 49.68 | ||||||||||||
Common stock prices, low | 29.93 | 33.70 | 37.14 | 40.00 | ||||||||||||
2004 | ||||||||||||||||
Total revenue | $ | 4,821.3 | $ | 4,875.0 | $ | 5,039.5 | $ | 5,168.3 | ||||||||
Income from continuing operations before income taxes | $ | 510.6 | $ | 447.7 | $ | 471.7 | $ | 468.9 | ||||||||
Income taxes | (184.8 | ) | (161.4 | ) | (169.4 | ) | (168.2 | ) | ||||||||
Income from discontinued operations, net of tax | 40.0 | (2) | — | 990.0 | (2) | — | ||||||||||
Net income | $ | 365.8 | $ | 286.3 | $ | 1,292.3 | $ | 300.7 | ||||||||
Per common share results:(1) | ||||||||||||||||
Net income | ||||||||||||||||
Basic | $ | .59 | $ | .47 | $ | 2.14 | $ | .51 | ||||||||
Diluted | .57 | .45 | 2.05 | .49 | ||||||||||||
Common stock data: | ||||||||||||||||
Dividends declared | $ | — | $ | — | $ | .01 | $ | — | ||||||||
Common stock prices, high | 22.48 | 23.68 | 24.98 | 31.72 | ||||||||||||
Common stock prices, low | 16.50 | 19.44 | 19.75 | 20.82 | ||||||||||||
(1) | Calculation of the earnings per share is based on weighted average shares outstanding during each quarter and, accordingly, the sum may not equal the total for the year. | |
(2) | Income from discontinued operations of $40 million and $990 million for the first and third quarters of 2004, respectively, related to the completion of certain Internal Revenue Service audits associated with businesses previously sold. (Refer to Note 21 for additional information). |
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