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 FIRST QUARTER RESULTS
- FIRST-QUARTER OPERATING EARNINGS OF $1.92 PER SHARE
- FIRST-QUARTER OPERATING EARNINGS, EXCLUDING FAVORABLE RESERVE
DEVELOPMENT, OF $1.75 PER SHARE, COMPARED WITH THOMPSON/FIRST CALL
MEAN OF $1.72, A 31 PERCENT INCREASE OVER PRIOR-YEAR QUARTER
- FIRST QUARTER NET INCOME OF $2.28 PER SHARE
- MEDICAL MEMBERSHIP INCREASE OF 342,000 FROM YEAR-END 2003
HARTFORD, CONN., APRIL 29, 2004 - Aetna (NYSE: AET) today announced first
quarter operating earnings of $1.92 per share. Operating earnings, excluding
favorable reserve development, were $1.75 per share, an increase of 31 percent
compared to the prior year. This increase primarily reflects growth in revenues
in part from increased medical membership, solid underwriting results, and
reduced operating expenses. Net income for the quarter was $2.28 per share
compared to $2.12 in the prior-year period. Operating earnings exclude net
realized capital gains.(1)
"This quarter marks the achievement of two very significant milestones in
Aetna's turnaround: top-line revenue growth and membership growth," said John W.
Rowe, M.D., chairman and CEO. "For the first time in the turnaround, our revenue
increased, by 8 percent to $4.8 billion from the first quarter of 2003. Medical
membership increased by 342,000, or 2.6 percent, to more than 13.3 million from
December 2003, reflecting both momentum in new customer sales and higher
customer retention. We also experienced meaningful increases in membership in
our dental, pharmacy and group insurance products. Our comprehensive medical
cost management programs and our ongoing operating expense management efforts
continue to have a favorable impact on our results.
Aetna/2
"With our strong first quarter performance, we reaffirm our full-year operating
earnings guidance of $6.60 to $6.75 per share."(2)
QUARTERLY FINANCIAL RESULTS AT A GLANCE
THREE MONTHS ENDED
MARCH 31, 2004 MARCH 31, 2003 CHANGE
Total revenues $4.8 billion $4.5 billion 8%
============== ==============
Operating earnings* $308.8 million $315.9 million (2)%
============== ==============
Net income $365.8 million $330.0 million 11%
============== ==============
Per share results:
Operating earnings* $1.92 $2.03
Favorable development of prior-
period health care cost estimates (0.17) (0.69)
----- -----
Operating earnings,
excluding development* $1.75 $1.34 31%
===== =====
Income from continuing operations $2.03 $2.12
Income from discontinued operations** 0.25 --
----- -----
Net income $2.28 $2.12 8%
===== =====
* For full description of operating earnings and per share operating earnings,
refer to footnote 1 at end of press release.
** Refer to footnote 3 at end of press release.
"We announced this quarter that Aetna will offer the new Medicare-approved
prescription drug discount card on a national basis and that we will improve our
Medicare Advantage offerings to be more competitive.
"We also announced several new initiatives to reduce complexity for and improve
communications with physicians, including a new information resource, a billing
dispute mechanism, and dedicated service centers. And the National Advisory
Committee of Practicing Physicians, recently formed as a direct result of our
`new era of cooperation' agreement with physicians, held its first meeting.
"Finally, we announced Aetna Integrated Health and Disability, an
industry-leading approach to the coordination and delivery of benefits across
medical, disability, behavioral health and pharmacy," Rowe said.
Aetna/3
"The execution of our strategy, which centers on a commitment to disciplined
pricing to achieve profitable growth while focusing on the unique needs of each
of our customer markets, is yielding positive results and contributing to solid
top-line growth," said Ronald A. Williams, president.
HEALTH CARE RESULTS
Health Care, which provides a full range of insured and self-insured medical,
dental, pharmacy and behavioral health products and services, reported:
- Operating earnings of $288.4 million in the first quarter of 2004,
compared with $293.3 million in the first quarter of 2003. Excluding
favorable reserve development of approximately $27 million after tax
in the first quarter of 2004 and approximately $107 million after
tax in the first quarter of 2003, operating earnings were $261.4
million in the first quarter of 2004 and $186.3 million in the first
quarter of 2003. This increase was due to higher revenue in part
from increased medical membership, solid underwriting results and a
decrease in operating expenses.
- Net income of $295.5 million in the first quarter of 2004, compared
with $301.9 million in the first quarter of 2003.
- A Commercial Risk Medical Cost Ratio (MCR) of 77.6 percent in the
first quarter of 2004, compared with 77.0 percent in the first
quarter of 2003, excluding favorable reserve development in both
periods, reflecting a slightly higher percentage increase in
per-member medical costs over premiums. Including development, the
Commercial Risk MCR was 76.6 percent in the first quarter of 2004
and 72.0 percent in the first quarter of 2003.
- A Medicare MCR of 86.6 percent in the first quarter of 2004,
compared with 84.4 percent in the first quarter of 2003, excluding
favorable reserve development in both periods, reflecting higher
utilization of health care services in the first quarter of 2004.
Including development, the Medicare MCR was 84.5 percent in the
first quarter of 2004, compared with 79.0 percent in the first
quarter of 2003.
- Total medical membership of approximately 13.3 million at March 31,
2004, compared with 13.0 million at December 31, 2003, an increase
of 2.6 percent.
- Total revenues in the first quarter of 2004 of $4.1 billion,
compared with $3.8 billion in the first quarter of 2003.
Aetna/4
GROUP INSURANCE RESULTS
Group Insurance, which includes Group Life, Disability and Long-Term Care
products, reported:
- Operating earnings of $30.8 million in the first quarter of 2004,
compared with $32.6 million in the first quarter of 2003. Operating
earnings were lower because of a slightly higher benefit cost ratio
and higher operating expenses offset in part by higher net
investment income.
- Net income of $38.7 million in the first quarter of 2004, compared
with $35.1 million in the first quarter of 2003.
- Total revenues in the first quarter of 2004 of $484.9 million,
compared with $457.4 million in the first quarter of 2003,
reflecting higher premiums associated with an increase in group life
membership.
LARGE CASE PENSIONS 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 $6.1 million in the first quarter of 2004,
compared with $6.8 million in the first quarter of 2003.
- Net income of $8.1 million in the first quarter of 2004, compared
with $9.8 million in the first quarter of 2003.
TOTAL COMPANY RESULTS
- TOTAL REVENUES. Revenues were $4.8 billion in the first quarter of
2004, compared with $4.5 billion in the first quarter of 2003. The
growth in revenue reflects both rate increases and a higher level of
membership, which resulted in an increase of 9 percent in premiums
and 8 percent in fees.
- TOTAL OPERATING EXPENSES. Operating expenses, which include selling
and general and administrative expenses, were $983.7 million in the
first quarter of 2004, $36.7 million less than in the first quarter
of 2003. General and administrative expenses declined by
approximately $54 million due to ongoing expense initiatives,
partially offset by approximately $18 million of increased selling
expenses associated with membership growth.
Aetna/5
- CORPORATE INTEREST expense was $16.5 million after tax in the first
quarter of 2004, compared with $16.8 million in the first quarter of
2003.
- NET INCOME. Aetna reported net income of $365.8 million in the first
quarter of 2004, compared with $330.0 million in the first quarter
of 2003.
- PRETAX OPERATING MARGIN(4) improved to 10.0 percent in the first
quarter of 2004, from 8.2 percent in the first quarter of 2003. The
after-tax operating margin, which represents income from continuing
operations divided by total revenue, was 6.8 percent in the first
quarter of 2004, compared with 7.4 percent in the first quarter of
2003.
A live audio webcast of the first-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 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 800-810-0924, or
913-981-4900 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 413436. Telephone replays will
be available from 11:30 a.m. ET on April 29 until midnight ET on May 6.
Aetna is one of the nation's leading providers of health care, dental, pharmacy,
group life, disability and long-term care benefits, serving approximately 13.3
million medical members, 11.2 million dental members, 8.1 million pharmacy
members and 12.4 million group insurance customers, as of March 31, 2004. The
company has extensive nationwide networks of more than 618,000 health care
services providers, including over 370,000 primary care and specialist
physicians and 3,783 hospitals. For more information about Aetna, please visit
the company's web site at www.aetna.com.
(1) Operating earnings exclude net realized capital gains from income from
continuing operations. Although the excluded item 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
Aetna/6
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. 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.
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. 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.
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 7 to 11 of this release.
(2) Projected operating earnings per share for full year 2004 exclude $17.0
million of net realized capital gains for the first quarter of 2004 and 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 full year 2004 operating earnings to projected income from
continuing operations. The projected operating earnings per share for full year
2004 also exclude approximately $27 million, after tax, of favorable development
of prior-period health care cost estimates for the first quarter of 2004.
(3) Income from discontinued operations of approximately $40 million for first
quarter 2004 reflects the completion of certain Internal Revenue Service audits
associated with businesses previously sold (former Aetna).
(4) 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 10
of this release.
ADDITIONAL INFORMATION; CAUTIONARY STATEMENT -- Certain information in this
press release is forward looking, including, without limitation, the projection
of 2004 operating earnings. 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 risk factors that may materially affect Aetna, please see the risk
factors contained in Aetna's 2003 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 and Aetna's 2004 first quarter report on Form 10-Q when
filed with the Securities and Exchange Commission for a discussion of Aetna's
historical results of operations and financial condition.
Aetna/7
CONSOLIDATED STATEMENTS OF INCOME
($ in Millions)
Three Months Ended
-------------------
March 31, March 31,
2004 2003
-------- --------
REVENUE:
Health care premiums $3,557.8 $3,269.0
Other premiums 442.7 417.6
Administrative services contract fees 512.2 475.5
Net investment income 271.5 276.0
Other income 11.0 6.7
Net realized capital gains 26.1 21.7
-------- --------
Total revenue 4,821.3 4,466.5
BENEFITS AND EXPENSES:
Health care costs (1) 2,741.8 2,367.9
Current and future benefits 547.0 527.6
Operating expenses:
Selling expenses 163.6 145.9
General and administrative expenses 820.1 874.5
-------- --------
Total operating expenses 983.7 1,020.4
Interest expense 25.5 25.9
Amortization of other acquired intangible assets 12.7 12.7
-------- --------
Total benefits and expenses 4,310.7 3,954.5
-------- --------
Income from continuing operations before income taxes 510.6 512.0
Income taxes 184.8 182.0
-------- --------
Income from continuing operations 325.8 330.0
Income from discontinued operations, net of tax (2) 40.0 --
-------- --------
Net income $ 365.8 $ 330.0
======== ========
Shareholders' equity $8,175.3 $7,372.3
======== ========
(1) The three months ended March 31, 2004 and March 31, 2003 include favorable
development of prior-period health care cost estimates of approximately
$41 million pretax (approximately $27 million after tax) and approximately
$164 million pretax (approximately $107 million after tax), respectively,
in the Health Care segment.
(2) Income from discontinued operations of approximately $40 million for the
three months ended March 31, 2004 reflects the completion of certain
Internal Revenue Service audits associated with businesses previously sold
(former Aetna).
Aetna/8
SUMMARY OF RESULTS
($ in Millions)
Three Months Ended
------------------------------
March 31, March 31,
2004 2003
------------- ------------
Operating earnings, excluding favorable development $ 281.8 $ 208.9
Favorable development of prior-period health care cost estimates 27.0 107.0
------------- ------------
Operating earnings 308.8 315.9
Net realized capital gains 17.0 14.1
------------- ------------
Income from continuing operations (GAAP measure) 325.8 330.0
Income from discontinued operations (1) 40.0 --
------------- ------------
Net income (GAAP measure) $ 365.8 $ 330.0
============= ============
Weighted average common shares - basic 153,918,359 150,981,679
============= ============
Weighted average common shares - diluted 160,417,693 155,404,140
============= ============
SUMMARY OF RESULTS PER COMMON SHARE
Operating earnings, excluding favorable development $ 1.75 $ 1.34
Favorable development of prior-period health care cost estimates .17 .69
------------- ------------
Operating earnings 1.92 2.03
Net realized capital gains .11 .09
------------- ------------
Income from continuing operations (GAAP measure) 2.03 2.12
Income from discontinued operations (1) .25 --
------------- ------------
Net income (GAAP measure) $ 2.28 $ 2.12
============= ============
Shareholders' equity (2) $ 53.65 $ 48.55
============= ============
(1) Income from discontinued operations of approximately $40 million for the
three months ended March 31, 2004 reflects the completion of certain
Internal Revenue Service audits associated with businesses previously sold
(former Aetna).
(2) Actual common shares outstanding were 152.4 million at March 31, 2004 and
151.9 million at March 31, 2003.
Aetna/9
SEGMENT INFORMATION (1)
($ in Millions)
Three Months Ended
-------------------
March 31, March 31,
2004 2003
-------- --------
HEALTH CARE:
Total revenue $4,146.8 $3,814.8
======== ========
Selling expenses $ 148.8 $ 133.1
General and administrative expenses 775.4 829.4
-------- --------
Total operating expenses $ 924.2 $ 962.5
======== ========
Operating earnings, excluding favorable development $ 261.4 $ 186.3
Favorable development of prior-period health care cost estimates 27.0 107.0
-------- --------
Operating earnings 288.4 293.3
Net realized capital gains 7.1 8.6
-------- --------
Net income (GAAP measure) $ 295.5 $ 301.9
======== ========
GROUP INSURANCE:
Total revenue $ 484.9 $ 457.4
======== ========
Selling expenses $ 14.8 $ 12.8
General and administrative expenses 39.7 40.0
-------- --------
Total operating expenses $ 54.5 $ 52.8
======== ========
Operating earnings $ 30.8 $ 32.6
Net realized capital gains 7.9 2.5
-------- --------
Net income (GAAP measure) $ 38.7 $ 35.1
======== ========
LARGE CASE PENSIONS:
Total revenue $ 189.6 $ 194.3
======== ========
Operating earnings $ 6.1 $ 6.8
Net realized capital gains 2.0 3.0
-------- --------
Net income (GAAP measure) $ 8.1 $ 9.8
======== ========
TOTAL COMPANY:
Total revenue $4,821.3 $4,466.5
======== ========
Selling expenses $ 163.6 $ 145.9
General and administrative expenses 820.1 874.5
-------- --------
Total operating expenses $ 983.7 $1,020.4
======== ========
(1) Revenue and operating expense information is presented before income
taxes. Operating earnings information is presented net of income taxes.
Aetna/10
ENROLLMENT
(Members in Thousands)
March 31, March 31, December 31,
2004 2003 2003
------ ------ ------
MEDICAL MEMBERSHIP:
Commercial 13,136 12,815 12,783
Medicare 102 108 105
Medicaid 106 108 114
------ ------ ------
Total Medical Membership 13,344 13,031 13,002
====== ====== ======
DENTAL MEMBERSHIP 11,214 11,378 10,942
====== ====== ======
PHARMACY MEMBERSHIP (1) 8,057 7,431 7,521
====== ====== ======
GROUP INSURANCE MEMBERSHIP 12,394 11,773 12,288
====== ====== ======
AETNA HEALTH FUND SM MEMBERSHIP (2) 183 38 44
====== ====== ======
OPERATING MARGINS
($ in Millions)
Three Months Ended
------------------------
March 31, March 31,
2004 2003
-------- --------
RECONCILIATION TO INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES:
Operating earnings, excluding interest expense, amortization of other acquired
intangible assets and favorable development (A) $ 481.7 $ 364.9
Favorable development of prior-period health care cost estimates 41.0 164.0
-------- --------
Operating earnings, excluding interest expense and amortization of other acquired intangible
assets (B) 522.7 528.9
Interest expense (25.5) (25.9)
Amortization of other acquired intangible assets (12.7) (12.7)
Net realized capital gains 26.1 21.7
-------- --------
Income from continuing operations before income taxes (C) (GAAP measure) $ 510.6 $ 512.0
======== ========
RECONCILIATION TO INCOME FROM CONTINUING OPERATIONS:
Operating earnings, excluding interest expense, amortization of other acquired intangible
assets and favorable development (D) $ 306.6 $ 233.9
Favorable development of prior-period health care cost estimates, net of tax 27.0 107.0
-------- --------
Operating earnings, excluding interest expense and amortization of other acquired intangible
assets (E) 333.6 340.9
Interest expense, net of tax (16.5) (16.8)
Amortization of other acquired intangible assets, net of tax (8.3) (8.2)
Net realized capital gains, net of tax 17.0 14.1
-------- --------
Income from continuing operations (F) (GAAP measure) $ 325.8 $ 330.0
======== ========
RECONCILIATION OF REVENUE:
Revenue, excluding net realized capital gains (G) $4,795.2 $4,444.8
Net realized capital gains 26.1 21.7
-------- --------
Total revenue (H) (GAAP measure) $4,821.3 $4,466.5
======== ========
TOTAL COMPANY OPERATING MARGINS:
Pretax operating margin (B)/(G) 10.9% 11.9%
Pretax operating margin - Adjusted (A)/(G) 10.0% 8.2%
Pretax operating margin (C)/(H) (GAAP measure) 10.6% 11.5%
After-tax operating margin (E)/(G) 7.0% 7.7%
After-tax operating margin - Adjusted (D)/(G) 6.4% 5.3%
After-tax operating margin (F)/(H) (GAAP measure) 6.8% 7.4%
(1) Pharmacy membership includes 7,693; 7,361 and 7,244 thousand members
receiving pharmacy benefit management services and 364; 70 and 277
thousand members who purchased medications through Aetna's mail order
pharmacy during the quarterly period at March 31, 2004; March 31, 2003 and
December 31, 2003, respectively.
(2) Represents Aetna's Commercial members in consumer-directed health plan
products.
Aetna/11
HEALTH CARE MEDICAL COST RATIOS (1)
($ in Millions)
Three Months Ended
------------------------
March 31, March 31,
2004 2003
-------- --------
HEALTH CARE PREMIUMS:
Health Care Risk (A) $3,557.8 $3,269.0
Commercial Risk (B) $3,326.2 $3,045.2
Medicare (C) $ 231.6 $ 223.8
HEALTH CARE COSTS:
Health Care Risk
Health care costs (D) (GAAP measure) $2,741.8 $2,367.9
Favorable development of prior-period health care cost estimates 41.0 164.0
-------- --------
Health care costs - Adjusted (E) $2,782.8 $2,531.9
======== ========
Commercial Risk
Health care costs (F) (GAAP measure) $2,546.3 $2,191.3
Favorable development of prior-period health care cost estimates 36.0 152.0
-------- --------
Health care costs - Adjusted (G) $2,582.3 $2,343.3
======== ========
Medicare
Health care costs (H) (GAAP measure) $ 195.6 $ 176.9
Favorable development of prior-period health care cost estimates 5.0 12.0
-------- --------
Health care costs - Adjusted (I) $ 200.6 $ 188.9
======== ========
HEALTH CARE MEDICAL COST RATIOS:
Health Care Risk (D)/(A) (GAAP measure) 77.1% 72.4%
Health Care Risk - Adjusted (E)/(A) 78.2% 77.5%
Commercial Risk (F)/(B) (GAAP measure) 76.6% 72.0%
Commercial Risk - Adjusted (G)/(B) 77.6% 77.0%
Medicare (H)/(C) (GAAP measure) 84.5% 79.0%
Medicare - Adjusted (I)/(C) 86.6% 84.4%
(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.