Aetna Reports Fourth Quarter And Full-year 2003 Results

2004 operating earnings guidance increased to between $6.25 and $6.35 per share



HARTFORD, CT, February 12, 2004 — Aetna (NYSE: ΑET) 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

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 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:


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:


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:


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


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 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: 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 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.




Related Links:

4Q03 Financial Supplement
(PDF: 976 KB / 16 pages)

4Q03 Earnings Tables
(PDF: 76 KB / 5 pages)

Guidance Summary
2/12/04

(PDF: 150 KB / 3 pages)




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