Exhibit 99.1
MEDIA CONTACT:
151 Farmington Avenue Roy E. Clason, Jr.
Hartford, Conn. 06156 (860) 273-7392
clasonr@aetna.com
INVESTOR CONTACT:
David W. Entrekin
(860) 273-7830
entrekind@aetna.com
AETNA REPORTS FOURTH QUARTER AND FULL-YEAR 2003 RESULTS
2004 operating earnings guidance increased to between $6.25 and $6.35 per share
- - Fourth-quarter operating earnings, excluding favorable reserve
development, of $1.32 per share, compared with Thompson/First Call mean of
$1.18, a 71% increase over fourth quarter 2002 on a comparable basis
- - Fourth-quarter operating earnings of $1.50 per share, including favorable
reserve development
- - Fourth-quarter net income of $1.56 per share
- - Full-year operating earnings, excluding favorable reserve development, of
$5.18 per share, more than double 2002 on a comparable basis
- - Full-year net income of $5.91 per share
HARTFORD, CONN., FEBRUARY 12, 2004 - Aetna (NYSE: AET) today announced its
eighth consecutive quarter of strong financial performance, which led to
full-year operating earnings that more than doubled those of the prior year.
Operating earnings exclude net realized capital gains and losses and other
items.(1)
"2003 was a tremendously successful year for Aetna," said John W. Rowe, M.D.,
chairman and CEO. "Clearly, Aetna is back. Now, in the home stretch of our
turnaround, we will continue to build on the strong foundation we have
established for success during 2004. Based on our success in the marketplace,
combined with our heightened focus on disciplined pricing and cost management,
we are increasing our guidance for 2004 operating earnings to between $6.25 and
$6.35 per share."(2)
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QUARTERLY FINANCIAL RESULTS AT A GLANCE
THREE MONTHS ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002 CHANGE
Total revenues $4.6 billion $4.7 billion
============ ============
Operating earnings* $239.9 million $142.6 million
============== ==============
Per share operating earnings* $1.50 $0.92 63%
Less:
Per share favorable development of
prior-period health care cost estimates $(0.18) $(0.15)
------- -------
Per share operating earnings,
excluding development $1.32 $0.77 71%
===== =====
Net income $249.5 million $98.2 million
============== =============
Per share net income $1.56 $0.63 148%
===== =====
* For full description of operating earnings and per share operating earnings,
please see footnote 1 at end of press release.
2003 FINANCIAL RESULTS AT A GLANCE
TWELVE MONTHS ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002 CHANGE
Total revenues $18.0 billion $19.9 billion
============= =============
Operating earnings* $966.8 million $450.3 million
============== ==============
Per share operating earnings* $6.12 $2.94 108%
Less:
Per share favorable development of
prior-period health care cost estimates $(0.94) $(0.30)
Per share favorable resolution of
prior-period contract matters for a
large customer -- $(0.14)
----- -------
Per share operating earnings,
excluding development $5.18 $2.50 107%
===== =====
Net income (loss) $933.8 million $(2.52) billion**
============== =================
Per share net income (loss) $5.91 $(16.49)*
===== =========
* For full description of operating earnings and per share operating earnings,
please see footnote 1 at end of press release.
** The net loss for 2002 reflected the recording of a noncash impairment of
goodwill in the first quarter, resulting from the adoption of a new accounting
standard.
"In addition, Aetna is continuing to deliver on the commitments we made to
investors, customers, members and physicians," Dr. Rowe said. "In 2003, we
expanded our
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leadership in consumer-directed care with the first offering to combine medical,
pharmacy, dental and long-term care benefits. We introduced Aexcel, a provider
network based on quality and effective use of health care resources, and we
launched Vital Savings, our discount dental card for the dental uninsured. In
addition, we acquired the Chickering Group, a broker and administrator of
student health plans, and our pharmacy mail order delivery facility in Kansas
City.
"We showed leadership in being the first company in the industry to reach final
settlement of the physician class action litigation and by reaching agreement on
a dentist class action settlement. And we believe our medical cost management
and the use of our extensive data warehouse in disease management programs have
been positive differentiators in the marketplace."
"One of our foremost goals for 2004 is to grow profitably," said Ronald A.
Williams, president. "We believe our value proposition, which is tailored to the
specific needs of each of our customer markets, is driving increased customer
interest, acceptance and satisfaction. We believe that this value proposition,
combined with our disciplined approach to underwriting and pricing, will drive
profitable growth."
HEALTH CARE BUSINESS RESULTS
Health Care, which provides a full range of fully and self-insured health care
and dental products and services, reported:
- Operating earnings of $214.1 million for the fourth quarter 2003,
compared with fourth quarter 2002 operating earnings of $120.7
million. Health care operating earnings included approximately $28
million, after tax, of favorable development of prior-period health
care cost estimates in the fourth quarter of 2003 and approximately
$23 million, after tax, in the fourth quarter of 2002. Health care
operating earnings were higher primarily because of improved
underwriting results in Commercial Risk products and a decrease in
operating expenses.
- Net income of $219.4 million for the fourth quarter 2003, compared
with $88.5 million in the fourth quarter 2002. Net income includes
net realized capital gains and losses and other items.
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- A Commercial Risk Medical Cost Ratio (MCR) of 78.0 percent for the
fourth quarter of 2003, compared with 81.6 percent for the fourth
quarter of 2002, excluding favorable development of prior-period
health care cost estimates in both periods. Including development,
the Commercial Risk MCR was 76.6 percent for the fourth quarter 2003
and 80.5 percent for the fourth quarter 2002.
- A Medicare HMO MCR of 85.9 percent for the fourth quarter 2003,
compared with 86.4 percent for the fourth quarter 2002. There was no
significant favorable development of prior-period health care cost
estimates in either period.
- Total medical membership of approximately 13.0 million at December
31, 2003, consistent with September 30, 2003.
Full-year 2003 operating earnings for Health Care were $862.4 million, compared
with 2002 operating earnings of $361.6 million. Excluding favorable reserve
development of approximately $148 million, after tax, in 2003 and approximately
$67 million, after tax, in 2002, operating earnings of $714.4 million in 2003
more than doubled the $294.6 million of operating earnings in 2002. This
increase primarily reflects improved underwriting results and reductions in
operating expenses offset in part by lower net investment income and a higher
effective income tax rate. Full-year net income for 2003 was $809.6 million,
compared with a net loss of ($2.65) billion. The net loss for 2002 reflected the
recording of a $(2.97) billion noncash impairment of goodwill in the first
quarter, resulting from the adoption of a new accounting standard. Net
income/loss includes net realized capital gains and losses and other items.
GROUP INSURANCE BUSINESS RESULTS
Group Insurance, which includes Group Life, Disability and Long-Term Care
products, reported:
- Operating earnings of $33.4 million for the fourth quarter 2003,
compared with $34.7 million for the fourth quarter 2002. Operating
earnings were lower than fourth quarter 2002, due primarily to
increased expenses associated with expanded marketing efforts,
offset in part by a lower effective income tax rate and a lower
benefit cost ratio.
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- Net income of $38.9 million for the fourth quarter 2003, compared
with $25.4 million for the fourth quarter 2002. Net income includes
net realized capital gains and losses and other items.
- Total revenues for the fourth quarter 2003 of $468.0 million,
compared with $436.8 million for the fourth quarter 2002, reflecting
a higher level of premiums associated with an increase in group life
membership.
For full-year 2003, Group Insurance reported operating earnings of $134.8
million, compared with $142.2 million in 2002. The decline was primarily due to
higher operating expenses resulting from increased marketing activities, offset
in part by an improved benefit cost ratio and a lower effective income tax rate.
Full-year net income for 2003 was $149.3 million, compared with $125.0 million
in 2002. Net income includes net realized capital gains and losses and other
items.
LARGE CASE PENSIONS BUSINESS RESULTS
Large Case Pensions, which manages a variety of discontinued and other
retirement and savings products primarily for defined benefit and defined
contribution plan customers, reported:
- Operating earnings of $9.3 million for the fourth quarter 2003,
compared with $7.1 million for the fourth quarter 2002.
- Net income of $8.1 million for the fourth quarter 2003, compared
with $4.2 million in the fourth quarter 2002. Net income includes
net realized capital gains and losses and other items.
For full-year 2003, Large Case Pensions reported operating earnings of $36.5
million, compared with $24.2 million in 2002. The year-over-year increase is
mainly due to higher investment partnership income. Full-year net income for
2003 was $41.8 million, compared with $29.5 million in 2002. Net income includes
net realized capital gains and losses and other items.
TOTAL COMPANY RESULTS
- TOTAL REVENUES. Revenues were $4.6 billion for the fourth quarter
2003, compared with $4.7 billion for the fourth quarter 2002. For
full-year 2003, total revenues were $18.0 billion, compared with
$19.9 billion in 2002. The decline in 2003 reflects lower
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health membership and reduced net investment income, partially
offset by higher per-member premiums.
- TOTAL OPERATING EXPENSES. Operating expenses were $1.02 billion for
the fourth quarter 2003, $21.8 million less than the fourth quarter
2002. For full-year 2003, operating expenses were $4.04 billion,
$194 million lower than the $4.23 billion reported for full-year
2002, consistent with ongoing cost-containment efforts and a decline
in membership. Operating expenses for full-year 2003 exclude the
physician class-action settlement of $115.4 million pretax.
Including the settlement, expenses were $4.15 billion.
- CORPORATE INTEREST expense was $16.9 million after tax for the
fourth quarter 2003, compared with $19.9 million for the fourth
quarter 2002. Corporate interest expense was $66.9 million for
full-year 2003, compared with $77.7 million for 2002.
- NET INCOME. Aetna reported net income of $249.5 million for the
fourth quarter 2003, compared with $98.2 million for the fourth
quarter 2002. For full-year 2003, Aetna reported net income of
$933.8 million, compared with a net loss of ($2.52) billion for
2002. The net loss for 2002 reflected the recording of a $2.97
billion noncash impairment of goodwill in the first quarter,
resulting from the adoption of a new accounting standard. Net
income/loss include net realized capital gains and losses and other
items.
- PRETAX OPERATING MARGIN(3) improved to 7.7 percent for the fourth
quarter 2003, from 4.7 percent in the fourth quarter 2002. The
after-tax operating margin, which represents income from continuing
operations divided by total revenue, was 5.5 percent for the fourth
quarter 2003, compared with 2.1 percent in fourth quarter 2002. For
full-year 2003, pretax operating margin improved to 7.9 percent,
from 4.1 percent in 2002. The after-tax operating margin was 5.2
percent for 2003, compared with 2.0 percent in 2002.
A live audio webcast of the fourth-quarter results conference call will begin at
8:30 a.m. ET today. The public may access the conference call through a live
audio webcast available on Aetna's Internet Investor Information link at
www.aetna.com. Financial, statistical and
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other information related to the conference call, including additional GAAP
reconciliations, will be available on Aetna's Investor Information site.
The conference call also can be accessed by dialing 800-210-9006, or
719-457-2621 for international callers. The company suggests participants dial
in approximately 10 minutes prior to the call. Individuals who dial in will be
asked to identify themselves and their affiliations.
A replay of the call may be accessed through Aetna's Investor Information link
on the Internet at www.aetna.com or by dialing 888-203-1112, or 719-457-0820 for
international callers. The replay access code is 399301. Telephone replays will
be available from 11:30 a.m. ET on Feb.12 until midnight ET on Feb. 19.
Aetna is one of the nation's leading providers of health care, dental, pharmacy,
group life, disability and long-term care benefits, serving approximately 13.0
million medical members, 10.9 million dental members, 7.4 million pharmacy
members and 12.3 million group insurance customers, as of December 31, 2003. The
company has expansive nationwide networks of more than 600,000 health care
services providers, including over 362,000 primary care and specialist
physicians and 3,626 hospitals. For more information about Aetna, please visit
the company's web site at www.aetna.com.
(1) Operating earnings exclude the following from net income (loss): net
realized capital gains (losses) and other items discussed below. Although the
excluded items may recur, management believes that operating earnings and
operating earnings per share provide a useful comparison of its underlying
business performance from period to period. Management uses operating earnings
to assess business performance and to make decisions regarding its operations
and allocation of resources among its businesses. Operating earnings is also the
measure reported to the Chief Executive Officer for these purposes. Each of
these excluded items is discussed below:
- Realized capital gains and losses arise from various types of
transactions primarily in the course of managing a portfolio of
assets that support the payment of liabilities, but these
transactions do not directly relate to the underwriting or servicing
of products for customers and are not directly related to the core
performance of the company's business operations.
- Settlement of a physician class-action lawsuit of approximately $75
million after tax ($115.4 million pretax) is included as the other
item in 2003 and represents an estimate of 2003 net settlement costs
of that litigation. Management believes this settlement was not in
the ordinary course of business and its impact does not reflect
underlying 2003 business performance.
- An income tax reserve release of $19.8 million is included in other
items in 2002 and represents the favorable conclusion of several
state tax audits relating to prior periods; accordingly, this
reserve release does not reflect the underlying performance of the
company's 2002 business performance.
- A reduction of the reserve for anticipated future losses on
discontinued products of $5.4 million after tax is included in other
items by the company in 2002 and represents a reduction of reserves
previously established for certain products no longer offered;
accordingly the reduction of the reserve does not reflect ongoing
business performance.
- Severance and facilities charges of $29.2 million after tax ($45.0
million pretax) for the fourth quarter of 2002 and $104.6 million
after tax ($161.0 million pretax) for the full year 2002 are
included as other items and represent an estimate of costs related
to reductions in staff or exiting of facilities that are not direct
expenses supporting ongoing business operations.
The company also displays certain metrics (e.g., medical cost ratios, operating
earnings, operating earnings per share and pretax operating margins) excluding
changes to prior-period health care cost estimates and the favorable
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resolution of a prior-period contract matter for a large customer. Each quarter,
the company re-examines previously established health care cost payable
estimates based on actual claim submissions and other changes in facts and
circumstances. Decreases (increases) in prior periods' estimates represent the
effect of favorable (unfavorable) development of prior period health care cost
estimates on current period results of operations, at each financial statement
date. The company believes excluding changes to prior period health care cost
estimates better reflects the underlying current-period health care costs. The
company believes excluding the favorable resolution of prior-period contract
matters for a large customer better reflects the premium generated from
underlying current-period performance.
For a reconciliation of these items to financial measures calculated under
accounting principles generally accepted in the United States of America (GAAP),
refer to the tables on pages 9 to 13 of this release.
(2)Projected operating earnings per share for 2004 exclude any future net
realized capital gains or losses. The company is not able to project the amount
of future net realized capital gains or losses and, cannot therefore reconcile
projected 2004 operating earnings to projected net income.
(3) In order to provide useful information regarding profitability of the
company on a basis comparable to others in the industry, without regard to
financing decisions, income taxes and amortization of other acquired intangible
assets (each of which may vary for reasons not directly related to performance
of the underlying business), the company's pretax operating margin excludes
interest expense, income taxes and amortization of other acquired intangible
assets. Management also uses pretax operating margin to assess its performance,
including performance versus competitors. Operating earnings used in the pretax
margin calculation also exclude the items noted in footnote 1. For a
reconciliation to margin calculated under GAAP, refer to the tables on page 12
of this release.
ADDITIONAL INFORMATION; CAUTIONARY STATEMENT -- Certain information in this
press release is forward looking, including the projection of 2004 operating
earnings per share and other statements regarding the company's outlook for
2004. Forward-looking information is based on management's estimates,
assumptions and projections, and is subject to significant uncertainties and
other factors, many of which are beyond Aetna's control. Important risk factors
could cause actual future results and other future events to differ materially
from those currently estimated by management. Those risk factors include, but
are not limited to: unanticipated increases in medical costs (including
increased medical utilization, increased pharmacy costs, increases resulting
from unfavorable changes in contracting or re-contracting with providers,
changes in membership mix to lower-premium or higher-cost products or
membership-adverse selection; as well as changes in medical cost estimates due
to the necessary extensive judgment that is used in the medical cost estimation
process, the considerable variability inherent in such estimates, and the
sensitivity of such estimates to changes in medical claims payment patterns and
changes in medical cost trends); decreases in membership or failure to achieve
desired membership growth due to significant competition or other factors;
increases in medical costs or Group Insurance claims resulting from any acts of
terrorism; the ability to reduce administrative expenses while maintaining
targeted levels of service and operating performance, and to improve relations
with providers while taking actions to reduce medical costs; the ability to
successfully implement Aetna's new operating model to a projected growing
membership base; lower levels of investment income from continued low interest
rates; adverse government regulation (including legislative proposals or court
decisions eliminating or reducing ERISA pre-emption of state laws that would
increase potential litigation exposure, and other proposals, such as patients'
rights legislation, that would increase potential litigation exposure or mandate
coverage of certain health benefits); adverse pricing actions by government
payors; changes in size, product mix and medical cost experience of membership
in key markets; and the outcome, including any negotiated resolution, of various
litigation and regulatory matters, including ongoing reviews of business
practices by various regulatory agencies. For more discussion of important
factors that may materially affect Aetna, please see the risk factors contained
in Aetna's 2002 Annual Report on Form 10-K, on file with the Securities and
Exchange Commission. You also should read Aetna's 2003 Annual Report on Form
10-K when filed with the Securities and Exchange Commission for a discussion of
Aetna's historical results of operations and financial condition.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
($ IN MILLIONS)
Three Months Ended Twelve Months Ended
---------------------------- -----------------------------
December 31, December 31, December 31, December 31,
2003 2002 2003 2002
---------- ---------- ---------- -----------
REVENUE:
Health care premiums (1) $ 3,388.7 $ 3,538.3 $13,235.5 $15,036.1
Other premiums 415.1 420.4 1,668.5 1,676.6
Administrative services contract fees 471.7 456.0 1,884.7 1,842.6
Net investment income 277.6 318.4 1,095.0 1,250.7
Other income 6.3 7.9 27.5 38.4
Net realized capital gains (losses) 15.4 (23.3) 65.2 34.3
--------- --------- --------- ---------
Total revenue 4,574.8 4,717.7 17,976.4 19,878.7
--------- --------- --------- ---------
BENEFITS AND EXPENSES:
Health care costs (2) 2,616.5 2,861.7 10,135.8 12,452.8
Current and future benefits 525.0 578.7 2,090.8 2,245.5
Operating expenses (3) 1,023.3 1,045.1 4,154.5 4,232.6
Interest expense 25.9 30.5 102.9 119.5
Amortization of other acquired intangible assets 12.7 12.7 50.8 130.8
Severance and facilities charge -- 45.0 -- 161.0
Reduction of reserve for anticipated future
losses on discontinued products -- -- -- (8.3)
--------- --------- --------- ---------
Total benefits and expenses 4,203.4 4,573.7 16,534.8 19,333.9
--------- --------- --------- ---------
Income from continuing operations before
income taxes 371.4 144.0 1,441.6 544.8
Income taxes 121.9 45.8 507.8 151.6
--------- --------- --------- ---------
Income from continuing operations 249.5 98.2 933.8 393.2
Income from discontinued operations, net of
tax (4) -- -- -- 50.0
--------- --------- --------- ---------
Income before cumulative effect adjustment 249.5 98.2 933.8 443.2
Cumulative effect adjustment, net of tax (5) -- -- -- (2,965.7)
--------- --------- --------- ---------
Net income (loss) $ 249.5 $ 98.2 $ 933.8 $(2,522.5)
========= ========= ========= =========
Shareholders' equity $ 7,924.0 $ 6,980.0
========= =========
(1) The twelve months ended December 31, 2002 include a benefit of
approximately $32 million pretax (approximately $21 million after tax) due
to favorable resolution of prior-period contract matters for a large
customer in the Health Care segment.
(2) The three months ended December 31, 2003 and December 31, 2002 include
favorable development of prior-period health care cost estimates of
approximately $43 million pretax (approximately $28 million after tax) and
approximately $35 million pretax (approximately $23 million after tax),
respectively, in the Health Care segment. The twelve months ended December
31, 2003 and December 31, 2002 include favorable development of
prior-period health care cost estimates of approximately $228 million
pretax (approximately $148 million after tax) and approximately $71 million
pretax (approximately $46 million after tax), respectively, in the Health
Care segment.
(3) The twelve months ended December 31, 2003 include $115.4 million pretax
(approximately $75 million after tax) for the physician class action
settlement in the Health Care segment.
(4) During the twelve months ended December 31, 2002, the Company released
$50.0 million of federal tax reserves resulting from the resolution of
several Internal Revenue Service audit issues related to former Aetna's
property and casualty business.
(5) Relates to the adoption of a new accounting standard, FAS 142, Goodwill and
Other Intangible Assets.
SUMMARY OF RESULTS
($ in Millions)
Three Months Ended Twelve Months Ended
---------------------------- ------------------------------
December 31, December 31, December 31, December 31,
2003 2002 2003 2002
----------- ------------ ----------- ------------
Operating earnings, excluding other items and
favorable items $ 211.9 $ 119.6 $ 818.8 $ 383.3
Favorable development of prior-period health
care cost estimates 28.0 23.0 148.0 46.0
Favorable resolution of prior-period
contract matters for a large customer -- -- -- 21.0
----------- ----------- ----------- -----------
Operating earnings, excluding other items 239.9 142.6 966.8 450.3
Physician class action settlement -- -- (75.0) --
Income tax reserve release (prior period related) -- -- -- 19.8
Severance and facilities charge -- (29.2) -- (104.6)
Reduction of reserve for anticipated future
losses on discontinued products -- -- -- 5.4
----------- ----------- ----------- -----------
Operating earnings, including other items 239.9 113.4 891.8 370.9
Net realized capital gains (losses) 9.6 (15.2) 42.0 22.3
----------- ----------- ----------- -----------
Income from continuing operations (GAAP 249.5 98.2 933.8 393.2
measure)
Income from discontinued operations (1) -- -- -- 50.0
----------- ----------- ----------- -----------
Income before cumulative effect adjustment 249.5 98.2 933.8 443.2
Cumulative effect adjustment (2) -- -- -- (2,965.7)
----------- ----------- ----------- -----------
Net income (loss) (GAAP measure) $ 249.5 $ 98.2 $ 933.8 $ (2,522.5)
=========== =========== =========== ===========
Weighted average common shares - basic 153,086,405 151,179,125 152,681,613 148,920,668
=========== =========== =========== ===========
Weighted average common shares - diluted 159,704,773 154,885,692 158,081,582 152,960,047
=========== =========== =========== ===========
SUMMARY OF RESULTS PER COMMON SHARE
Operating earnings, excluding other items and
favorable items $ 1.32 $ .77 $ 5.18 $ 2.50
====== ====== ====== =======
Favorable development of prior-period health care
cost estimates $ .18 $ .15 $ .94 $ .30
====== ====== ====== =======
Favorable resolution of prior-period contract
matters for a large customer $- $- $- $ .14
====== ====== ====== =======
Operating earnings, excluding other items $ 1.50 $ .92 $ 6.12 $ 2.94
====== ====== ====== =======
Operating earnings, including other items $ 1.50 $ .73 $ 5.64 $ 2.42
====== ====== ====== =======
Income from continuing operations (GAAP measure) $ 1.56 $ .63 $ 5.91 $ 2.57
====== ====== ====== =======
Income from discontinued operations (1) $- $- $- $ .33
====== ====== ====== =======
Net income (loss) (GAAP measure) $ 1.56 $ .63 $ 5.91 $(16.49)
====== ====== ====== =======
Shareholders' equity (3) $51.95 $ 46.54
====== =======
(1) During the twelve months ended December 31, 2002, the Company released
$50.0 million of federal tax reserves resulting from the resolution of
several Internal Revenue Service audit issues related to former Aetna's
property and casualty business.
(2) Relates to the adoption of a new accounting standard, FAS 142, Goodwill and
Other Intangible Assets.
(3) Actual common shares outstanding were 152.5 million at December 31, 2003
and 150.0 million at December 31, 2002.
SEGMENT INFORMATION (1)
($ in Millions)
Three Months Ended Twelve Months Ended
--------------------------- ---------------------------
December 31, December 31, December 31, December 31,
2003 2002 2003 2002
----------- ------------ ------------ ------------
TOTAL COMPANY:
Total revenue (GAAP measure) $ 4,574.8 $ 4,717.7 $17,976.4 $19,878.7
========= ========= ========= =========
Operating expenses, excluding physician class action
settlement $ 1,023.3 $ 1,045.1 $ 4,039.1 $ 4,232.6
Physician class action settlement -- -- 115.4 --
--------- --------- --------- ---------
Total operating expenses (GAAP measure) $ 1,023.3 $ 1,045.1 $ 4,154.5 $ 4,232.6
========= ========= ========= =========
HEALTH CARE:
Total revenue (GAAP measure) $ 3,926.2 $ 4,048.9 $15,377.1 $17,210.0
========= ========= ========= =========
Operating expenses, excluding physician class action
settlement $ 962.5 $ 999.5 $ 3,804.0 $ 4,034.5
Physician class action settlement -- -- 115.4 --
--------- --------- --------- ---------
Total operating expenses (GAAP measure) $ 962.5 $ 999.5 $ 3,919.4 $ 4,034.5
========= ========= ========= =========
Operating earnings, excluding other items, favorable items and
amortization of other acquired intangible assets $ 194.4 $ 105.9 $ 747.4 $ 379.6
Amortization of other acquired intangible assets (8.3) (8.2) (33.0) (85.0)
--------- --------- --------- ---------
Operating earnings, excluding other items and favorable items 186.1 97.7 714.4 294.6
Favorable development of prior-period health care cost
estimates 28.0 23.0 148.0 46.0
Favorable resolution of prior-period contract matters for a
large customer -- -- -- 21.0
--------- --------- --------- ---------
Operating earnings, excluding other items 214.1 120.7 862.4 361.6
Physician class action settlement -- -- (75.0) --
Income tax reserve release (prior period related) -- -- -- 19.8
Severance and facilities charge -- (28.3) -- (101.4)
--------- --------- --------- ---------
Operating earnings, including other items 214.1 92.4 787.4 280.0
Net realized capital gains (losses) 5.3 (3.9) 22.2 36.4
--------- --------- --------- ---------
Income from continuing operations (GAAP measure) 219.4 88.5 809.6 316.4
Cumulative effect adjustment -- -- -- (2,965.7)
--------- --------- --------- ---------
Net income (loss) (GAAP measure) $ 219.4 $ 88.5 $ 809.6 $(2,649.3)
========= ========= ========= =========
GROUP INSURANCE:
Total revenue (GAAP measure) $ 468.0 $ 436.8 $ 1,832.9 $ 1,745.3
========= ========= ========= =========
Total operating expenses (GAAP measure) $ 55.9 $ 40.3 $ 216.2 $ 177.2
========= ========= ========= =========
Operating earnings, excluding other item $ 33.4 $ 34.7 $ 134.8 $ 142.2
Severance and facilities charge -- (.9) -- (3.2)
--------- --------- --------- ---------
Operating earnings, including other item 33.4 33.8 134.8 139.0
Net realized capital gains (losses) 5.5 (8.4) 14.5 (14.0)
--------- --------- --------- ---------
Net income (GAAP measure) $ 38.9 $ 25.4 $ 149.3 $ 125.0
========= ========= ========= =========
LARGE CASE PENSIONS:
Total revenue (GAAP measure) $ 180.6 $ 232.0 $ 766.4 $ 923.4
========= ========= ========= =========
Operating earnings, excluding other item $ 9.3 $ 7.1 $ 36.5 $ 24.2
Reduction of reserve for anticipated future losses on
discontinued products -- -- -- 5.4
--------- --------- --------- ---------
Operating earnings, including other item 9.3 7.1 36.5 29.6
Net realized capital gains (losses) (1.2) (2.9) 5.3 (.1)
--------- --------- --------- ---------
Net income (GAAP measure) $ 8.1 $ 4.2 $ 41.8 $ 29.5
========= ========= ========= =========
(1) Revenue and operating expense information is presented before income taxes.
Operating earnings information is presented net of income taxes.
ENROLLMENT
(Members in Thousands)
December 31, December 31,
MEDICAL: 2003 2002
------ ------
Commercial
HMO 4,712 5,297
POS 2,287 2,615
PPO 4,378 3,924
Indemnity 1,406 1,623
------ ------
Total Commercial Membership 12,783 13,459
Medicare HMO 105 117
Medicaid HMO 114 102
------ ------
Total Medical Membership 13,002 13,678
====== ======
TOTAL DENTAL MEMBERSHIP 10,942 11,767
====== ======
TOTAL GROUP INSURANCE MEMBERSHIP 12,288 11,664
====== ======
OPERATING MARGINS
($ in Millions)
Three Months Ended Twelve Months Ended
---------------------------- ----------------------------
December 31, December 31, December 31, December 31,
2003 2002 2003 2002
------------ ------------ ------------ ------------
RECONCILIATION TO INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES:
Operating earnings, excluding interest expense,
amortization of other acquired intangible assets,
other items and favorable items (A) $ 351.6 $ 220.5 $ 1,417.5 $ 810.5
Favorable development of prior-period health care
cost estimates 43.0 35.0 228.0 71.0
Favorable resolution of prior-period contract matters
for a large customer -- -- -- 32.0
--------- --------- --------- ---------
Operating earnings, excluding interest expense, amortization
of other acquired intangible assets and other items (B) 394.6 255.5 1,645.5 913.5
Interest expense (25.9) (30.5) (102.9) (119.5)
Amortization of other acquired intangible assets (12.7) (12.7) (50.8) (130.8)
Physician class action settlement -- -- (115.4) --
Severance and facilities charge -- (45.0) -- (161.0)
Reduction of reserve for anticipated future losses on
discontinued products -- -- -- 8.3
Net realized capital gains (losses) 15.4 (23.3) 65.2 34.3
--------- --------- --------- ---------
Income from continuing operations before income taxes (C)
(GAAP measure) $ 371.4 $ 144.0 $ 1,441.6 $ 544.8
========= ========= ========= =========
RECONCILIATION TO INCOME FROM CONTINUING OPERATIONS:
Operating earnings, excluding interest expense,
amortization of other acquired intangible assets,
other items and favorable items (D) $ 237.1 $ 147.7 $ 918.7 $ 546.0
Favorable development of prior-period health care cost
estimates, net of tax 28.0 23.0 148.0 46.0
Favorable resolution of prior-period contract matters
for a large customer, net of tax -- -- -- 21.0
--------- --------- --------- ---------
Operating earnings, excluding interest expense,
amortization of other acquired intangible assets and
other items (E) 265.1 170.7 1,066.7 613.0
Interest expense, net of tax (16.9) (19.9) (66.9) (77.7)
Amortization of other acquired intangible assets,
net of tax (8.3) (8.2) (33.0) (85.0)
Physician class action settlement, net of tax -- -- (75.0) --
Income tax reserve release (prior period related) -- -- -- 19.8
Severance and facilities charge, net of tax -- (29.2) -- (104.6)
Reduction of reserve for anticipated future losses on
discontinued products, net of tax -- -- -- 5.4
Net realized capital gains (losses), net of tax 9.6 (15.2) 42.0 22.3
--------- --------- --------- ---------
Income from continuing operations (F) (GAAP measure) $ 249.5 $ 98.2 $ 933.8 $ 393.2
========= ========= ========= =========
RECONCILIATION OF REVENUE:
Revenue, excluding net realized capital gains and
favorable item (G) $ 4,559.4 $ 4,741.0 $17,911.2 $19,812.4
Favorable resolution of prior-period contract matters
for a large customer -- -- -- 32.0
--------- --------- --------- ---------
Revenue, excluding net realized capital gains (H) 4,559.4 4,741.0 17,911.2 19,844.4
Net realized capital gains (losses) 15.4 (23.3) 65.2 34.3
--------- --------- --------- ---------
Total revenue (I) (GAAP measure) $ 4,574.8 $ 4,717.7 $17,976.4 $19,878.7
========= ========= ========= =========
TOTAL COMPANY OPERATING MARGINS:
Pretax operating margin (B)/(H) 8.7% 5.4% 9.2% 4.6%
Pretax operating margin - Adjusted (A)/(G) 7.7% 4.7% 7.9% 4.1%
Pretax operating margin (C)/(I) (GAAP measure) 8.1% 3.1% 8.0% 2.7%
After-tax operating margin (E)/(H) 5.8% 3.6% 6.0% 3.1%
After-tax operating margin - Adjusted (D)/(G) 5.2% 3.1% 5.1% 2.8%
After-tax operating margin (F)/(I) (GAAP measure) 5.5% 2.1% 5.2% 2.0%
HEALTH CARE MEDICAL COST RATIOS (1)
($ in Millions)
Three Months Ended Twelve Months Ended
-------------------------- ---------------------------
December 31, December 31, December 31, December 31,
2003 2002 2003 2002
------------ ------------ ------------ ------------
HEALTH CARE PREMIUMS:
Health Care Risk
Premiums (A) (GAAP measure) $ 3,388.7 $ 3,538.3 $13,235.5 $15,036.1
Favorable resolution of prior-period contract matters related to a
large customer -- -- -- (32.0)
--------- --------- --------- ---------
Premiums - Adjusted (B) $ 3,388.7 $ 3,538.3 $13,235.5 $15,004.1
========= ========= ========= =========
Commercial Risk
Premiums (C) (GAAP measure) $ 3,161.0 $ 3,299.5 $12,329.3 $14,014.6
Favorable resolution of prior-period contract matters related to a
large customer -- -- -- (32.0)
--------- --------- --------- ---------
Premiums - Adjusted (D) $ 3,161.0 $ 3,299.5 $12,329.3 $13,982.6
========= ========= ========= =========
Medicare HMO
Premiums (E) (GAAP measure) $ 227.7 $ 238.7 $ 906.2 $ 1,013.1
HEALTH CARE COSTS:
Health Care Risk
Health care costs (F) (GAAP measure) $ 2,616.5 $ 2,861.7 $10,135.8 $12,452.8
Favorable development of prior-period health care cost estimates 43.0 35.0 228.0 71.0
--------- --------- --------- ---------
Health care costs - Adjusted (G) $ 2,659.5 $ 2,896.7 $10,363.8 $12,523.8
========= ========= ========= =========
Commercial Risk
Health care costs (H) (GAAP measure) $ 2,421.9 $ 2,657.1 $ 9,365.4 $11,615.3
Favorable development of prior-period health care cost estimates 43.0 35.0 215.0 36.0
--------- --------- --------- ---------
Health care costs - Adjusted (I) $ 2,464.9 $ 2,692.1 $ 9,580.4 $11,651.3
========= ========= ========= =========
Medicare HMO
Health care costs (J) (GAAP measure) $ 195.6 $ 206.2 $ 771.8 $ 832.6
Favorable development of prior-period health care cost estimates -- -- 13.0 35.0
--------- --------- --------- ---------
Health care costs - Adjusted (K) $ 195.6 $ 206.2 $ 784.8 $ 867.6
========= ========= ========= =========
HEALTH CARE MEDICAL COST RATIOS:
Health Care Risk (F)/(A) (GAAP measure) 77.2% 80.9% 76.6% 82.8%
Health Care Risk - Adjusted (G)/(B) 78.5% 81.9% 78.3% 83.5%
Commercial Risk (H)/(C) (GAAP measure) 76.6% 80.5% 76.0% 82.9%
Commercial Risk - Adjusted (I)/(D) 78.0% 81.6% 77.7% 83.3%
Medicare HMO (J)/(E) (GAAP measure) 85.9% 86.4% 85.2% 82.2%
Medicare HMO - Adjusted (K)/(E) 86.6% 85.6%
(1) Health Care Risk includes all medical and dental risk products. Commercial
Risk includes all medical and dental risk products except Medicare and
Medicaid. Risk includes all medical and dental products for which the
Company assumes all or a majority of health care cost, utilization or other
risk.