|Aetna Reports First-Quarter 2013 Results|
HARTFORD, Conn., Apr 30, 2013 (BUSINESS WIRE) --Aetna (NYSE: AET) today announced first-quarter 2013 operating earnings (1) of $495.4 million, or $1.50 per share, a per share increase of 12 percent over the first quarter of 2012. Net income (2) for the first quarter of 2013 was $490.1 million, or $1.48 per share, and includes $.08 per share of transaction and integration-related costs related to the proposed acquisition of Coventry Health Care, Inc., offset by $.06 per share of net realized capital gains.
“Aetna's strong first-quarter results demonstrate the strength of our diversified business model,” said Mark T. Bertolini, Aetna chairman, CEO and president. “Operating revenues increased for the company, and we grew membership for the fourth consecutive quarter fueled by strong growth in our Medicare business. We also introduced Healthagen, a new business brand that combines our population health management solutions and health information technologies to help improve care quality, costs and patient engagement.
“Looking ahead to the remainder of 2013, we continue to expect solid operating performance and project that medical membership will increase to 18.4 million by year end. Based on our results, we now project our 2013 operating earnings will be $5.50 to $5.60 per share, up from our previous projection of at least $5.40 per share. Membership and earnings will also increase following the closing of the Coventry acquisition," said Bertolini.
“Aetna's first-quarter results demonstrate that our businesses are growing and performing well,” said Shawn M. Guertin, Aetna senior vice president and CFO. “Year-over-year, we grew operating earnings per share by 12 percent, increased operating revenues by more than 7 percent, and improved our operating expense ratio. During the quarter we continued to aggressively deploy capital to create shareholder value, repurchasing $184 million of Aetna's shares and paying a dividend totaling $66 million. Our operating cash flow generation was excellent.
“Our core business is executing well, and we are well-positioned for the Coventry integration. Our Accountable Care Solutions business continues to work to transform the network model, improve our cost structure and drive additional membership growth. Our capital generation remains strong, and is expected to be stronger once we close the Coventry acquisition,” said Guertin.
Total company results
Health Care business results
Health Care, which provides a full range of insured and self-insured medical, pharmacy, dental and behavioral health products and services, reported:
Group Insurance business results
Group Insurance, which includes group life, disability and long-term care products, reported:
Large Case Pensions business results
Large Case Pensions, which manages a variety of discontinued and other retirement and savings products, primarily for qualified pension plans, reported:
Aetna's conference call to discuss first-quarter 2013 results 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 Investor Information link on the Internet at www.aetna.com. Financial, statistical and other information, including GAAP reconciliations, related to the conference call also will be available on Aetna's Investor Information website.
The conference call also can be accessed by dialing 1-877-856-1965 or +1-719-325-4794 for international callers. The company suggests participants dial in approximately 10 minutes before the call. The access code is 6144177. 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 1-888-203-1112, or +1-719-457-0820 for international callers. The replay access code is 6144177. Telephone replays will be available until 11 p.m. ET on May 14, 2013.
Aetna is one of the nation's leading diversified health care benefits companies, serving approximately 38.3 million people with information and resources to help them make better informed decisions about their health care. Aetna offers a broad range of traditional, voluntary and consumer-directed health insurance products and related services, including medical, pharmacy, dental, behavioral health, group life and disability plans, and medical management capabilities, Medicaid health care management services, workers' compensation administrative services and health information technology services. Aetna's customers include employer groups, individuals, college students, part-time and hourly workers, health plans, health care providers, governmental units, government-sponsored plans, labor groups and expatriates. For more information, see www.aetna.com.
* Interest expense of $41.0 million ($63.1 million pretax) for the quarter ended March 31, 2013 excludes the negative cost of carry on transaction-related debt issued in connection with the proposed acquisition of Coventry Health Care, Inc. ("Coventry"). Those costs are presented within transaction and integration-related costs.
(1) Operating earnings and operating earnings per share exclude from net income net realized capital gains and losses and other items, if any, that neither relate to the ordinary course of our business nor reflect our underlying business performance. Although the excluded items may recur, management believes that operating earnings and operating earnings per share provide a more useful comparison of Aetna's underlying business performance from period to period. Management uses operating earnings to assess business performance and to make decisions regarding Aetna's operations and allocation of resources among Aetna's businesses. Operating earnings is also the measure reported to the Chief Executive Officer for these purposes.
For the periods covered in this press release, the following items are excluded from operating earnings because we believe they neither relate to the ordinary course of our business nor reflect our underlying business performance:
For a reconciliation of these items to financial measures calculated under U.S. generally accepted accounting principles (“GAAP”), refer to the tables on pages 7 through 9 and 11 of this press release.
(2) Net Income refers to net income attributable to Aetna reported in the GAAP Consolidated Statements of Income. Unless otherwise indicated, all references in this press release to operating earnings, operating earnings per share, net income, and net income per share are based upon net income attributable to Aetna, which exclude amounts attributable to non-controlling interests.
(3) Operating revenue excludes net realized capital gains and losses and interest income on the proceeds of the transaction-related debt as noted in (1) above. Refer to the tables on pages 8, 9 and 11 of this press release for a reconciliation of operating revenue excluding net realized capital gains and losses and an other item to total revenue calculated under GAAP.
(4) All Aetna's projections, including operating earnings per share, exclude the impact of the proposed Coventry acquisition unless specifically otherwise noted. Projected operating earnings per share exclude from net income any future net realized capital gains and losses and other items, if any, that neither relate to the ordinary course of our business nor reflect our underlying business performance. Projected operating earnings per share also exclude projected transaction and integration-related costs related to the proposed Coventry acquisition. Aetna is not able to project the amount of future net realized capital gains and losses or any such other items (other than projected transaction and integration-related costs related to the proposed Coventry acquisition) and therefore cannot reconcile projected operating earnings per share to projected net income per share in any period. Projected operating earnings per share for the full year 2013 assume approximately 328 million weighted average diluted shares.
(5) The operating expense ratio excludes net realized capital gains and losses and other items, if any. For a reconciliation of this metric to the comparable GAAP measure refer to page 9 of this press release.
(6) In order to provide useful information regarding Aetna's profitability on a basis comparable to others in the industry, without regard to financing decisions, income taxes or amortization of other acquired intangible assets (each of which may vary for reasons not directly related to the performance of the underlying business), Aetna's pretax operating margin is based on operating earnings excluding interest expense, income taxes and amortization of other acquired intangible assets. Management also uses pretax operating margin to assess Aetna's performance, including performance versus competitors.
(7) Operating revenue and operating expense information is presented before income taxes. Operating earnings is presented net of income taxes.
(8) Our Corporate Financing segment is not a business segment. It is added to our business segments to reconcile to our consolidated results. Net loss of the Corporate Financing segment includes interest expense on our outstanding debt and the financing components of our pension and other postretirement benefit plan expenses (benefits). As described in (1) above, operating earnings of the Corporate Financing segment exclude other items, if any, that neither relate to the ordinary course of our business nor reflect our underlying business performance. During the first quarter of 2013, Corporate Financing operating earnings excluded the interest expense components of transaction-related costs.
CAUTIONARY STATEMENT; ADDITIONAL INFORMATION -- -- Certain information in this press release is forward-looking, including our projections as to operating earnings per share; weighted average diluted shares; 2013 operating performance; year-end 2013 medical membership; and the impact of the proposed Coventry acquisition on our membership, earnings and capital generation. 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 our control. Important risk factors could cause actual future results and other future events to differ materially from those currently estimated by management, including, but not limited to: the implementation of health care reform legislation; the timing to consummate the proposed acquisition of Coventry; the risk that a condition to closing of the proposed acquisition may not be satisfied; the risk that one of the applicable required regulatory approvals for the proposed acquisition is delayed, is not obtained or is obtained subject to conditions that are not anticipated; the outcome of pending or future litigation relating to the proposed transaction; our ability to achieve the synergies and value creation contemplated by the proposed acquisition; our ability to promptly and effectively integrate Coventry's business; the diversion of management time on acquisition- and/or divestiture-related issues; and changes in our future cash requirements, capital requirements, results of operations, financial condition and/or cash flows. Health care reform will significantly impact our business operations and financial results, including our pricing and medical benefit ratios. Components of the legislation will be phased in over the next several years, and we will be required to dedicate material resources and incur material expenses during that time to implement health care reform. Many significant parts of the legislation, including health insurance exchanges, Medicaid expansion, employer penalties and the implementation of minimum medical loss ratios, require further guidance and clarification at both the federal level and/or in the form of regulations and actions by state legislatures to implement the law. In addition, pending efforts in the U.S. Congress to amend or restrict funding for various aspects of health care reform, and the possibility of additional litigation challenging aspects of the law continue to create additional uncertainty about the ultimate impact of health care reform. As a result, many of the impacts of health care reform will not be known for the next several years. Other important risk factors include: adverse changes in health care reform and/or other federal or state government policies or regulations as a result of health care reform or otherwise (including legislative, judicial or regulatory measures that would affect our business model, restrict funding for or amend various aspects of health care reform, limit our ability to price for the risk we assume and/or reflect reasonable costs or profits in our pricing, such as mandated minimum medical benefit ratios, eliminate or reduce ERISA pre-emption of state laws (increasing our potential litigation exposure) or mandate coverage of certain health benefits); adverse and less predictable economic conditions in the U.S. and abroad (including unanticipated levels of, or increases in the rate of, unemployment); our ability to diversify our sources of revenue and earnings (including by expanding our foreign operations), transform our business model and optimize our business platforms; the success of our HealthagenSM, Accountable Care Solutions and health information technology initiatives; adverse changes in size, product or geographic mix or medical cost experience of membership; managing executive succession and key talent retention, recruitment and development; failure to achieve and/or delays in achieving desired rate increases and/or profitable membership growth due to regulatory review or other regulatory restrictions, the difficult economy and/or significant competition, especially in key geographic areas where membership is concentrated, including successful protests of business awarded to us; failure to adequately implement Health Care Reform; reputational issues arising from our social media activities, data security breaches, other cybersecurity risks or other causes; the outcome of various litigation and regulatory matters, including audits, challenges to our minimum MLR rebate methodology and/or reports, guaranty fund assessments, intellectual property litigation and litigation concerning, and ongoing reviews by various regulatory authorities of, certain of our payment practices with respect to out-of-network providers and/or life insurance policies; our ability to integrate, simplify, and enhance our existing information technology systems and platforms to keep pace with changing customer and regulatory needs; our ability to successfully integrate our businesses (including Medicity, Prodigy Health Group, PayFlex, and Genworth Financial Inc.'s Medicare Supplement business and other businesses we may acquire in the future, including Coventry) and implement multiple strategic and operational initiatives simultaneously; unanticipated increases in medical costs (including increased intensity or medical utilization as a result of flu, increased COBRA participation rates or otherwise; changes in membership mix to higher cost or lower-premium products or membership-adverse selection; increases resulting from unfavorable changes in contracting or re-contracting with providers, and increased pharmacy costs); our ability to manage health care and other benefit costs; adverse program, pricing, funding or audit actions by federal or state government payors, including as a result of sequestration and/or curtailment or elimination of the Centers for Medicare & Medicaid Services' star rating bonus payments; our ability to reduce administrative expenses while maintaining targeted levels of service and operating performance; a downgrade in our financial ratings; our ability to develop and maintain relations with providers while taking actions to reduce medical costs and/or expand the services we offer; our ability to demonstrate that our products lead to access to quality care by our members; our ability to maintain our relationships with third party brokers, consultants and agents who sell our products; increases in medical costs or Group Insurance claims resulting from any epidemics, acts of terrorism or other extreme events; 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; and the ability to successfully implement our agreement with CVS Caremark Corporation on a timely basis and in a cost-efficient manner and to achieve projected operating efficiencies for the agreement. For more discussion of important risk factors that may materially affect Aetna, please see the risk factors contained in Aetna's 2012 Annual Report on Form 10-K ("Aetna's Annual Report") on file with the Securities and Exchange Commission (the “SEC”). You also should read Aetna's Annual Report and Aetna's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 when filed with the SEC for a discussion of Aetna's historical results of operations and financial condition.