Full-year 2007 operating earnings increased by 20 percent over the prior year to $3.49 per share. Net income was $3.47 per share, an increase of 16 percent over the prior year.
"We are very pleased to have delivered another year of strong results in 2007," said Ronald A. Williams, chairman and CEO. "Our disciplined focus on providing innovative products, integrated solutions and best-in-class customer service has resulted in consistent, profitable growth and a platform for continued success in 2008.
"These accomplishments have been the direct result of the execution of our strategy, the efforts of our dedicated workforce and our unwavering focus on the people who use our services. Continued growth across product lines; our ongoing work to identify and reach underserved segments of the marketplace; and broadening our product portfolio, whether through recent acquisitions or innovation, have positioned Aetna well for future growth. It is through the combination of all of these factors, as well as targeting our growth by better understanding the needs of our customers through market segmentation, that we will attain industry leadership. That's our goal."
"Aetna's excellent results in 2007 validate our winning strategy," said Joseph M. Zubretsky, executive vice president and CFO. "We continue to effectively manage medical costs, to increase our membership and revenues and to effectively deploy capital, three keys to delivering sustained profitable growth.
"For full-year 2008, we project operating earnings to be $4.00 per share, in line with our prior guidance. We project our first-quarter 2008 operating earnings per share to be $0.92 per share, a 14 percent increase over the 2007 first-quarter level. We believe Aetna is very well positioned to continue to sustain long-term operating earnings per-share growth of 15 percent," Zubretsky said.2
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 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 web site.
The conference call also can be accessed by dialing 866-454-4207, or 913-312-0824 for international callers. The Company suggests participants dial in approximately 10 minutes before 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 8490606. Telephone replays will be available from 11:30 a.m. ET on February 7 until midnight ET on February 20, 2008.
Aetna is one of the nation's leading diversified health care benefits companies, serving approximately 36.7 million people with information and resources to help them make better informed decisions about their health care. Aetna offers a broad range of traditional and consumer-directed health insurance products and related services, including medical, pharmacy, dental, behavioral health, group life and disability plans, and medical management capabilities and health care management services for Medicaid plans. Our customers include employer groups, individuals, college students, part-time and hourly workers, health plans, governmental units, government-sponsored plans, labor groups and expatriates. www.aetna.com
1 Operating earnings exclude net realized capital gains and losses and other items, if any, from income from continuing operations as discussed below. Although the excluded items may recur, management believes that operating earnings and operating earnings per share provide a more useful comparison of the Company's underlying business performance from period to period. Management uses operating earnings to assess business performance and to make decisions regarding the Company's operations and allocation of resources among the Company's businesses. Operating earnings is also the measure reported to the Chief Executive Officer for these purposes. Each of the excluded items is discussed below:
Net 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. However, 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.
Release of reserves for anticipated future losses on discontinued products of $41.8 million and $75.0 million, after tax, are considered other items for the years ended December 31, 2007 and 2006, respectively, as they represent a reduction of reserves previously established for certain products no longer offered by the Company that do not benefit ongoing business operations.
A debt refinancing charge of $8.1 million, after tax ($12.4 million pretax), represents the net charge from the write-off of debt issuance costs and the recognition of deferred gains on terminated interest rate swaps in connection with the redemption of the Company's 8.5 percent senior notes due 2041. This is an other item for the year ended December 31, 2006, as it does not reflect underlying 2006 business performance.
The write-off of a $47.1 million, after tax ($72.4 million pretax), insurance recoverable related to a prior-year physician class action settlement as a result of a trial court summary judgment ruling. This is an other item for the year ended December 31, 2006, as it does not reflect underlying 2006 business performance.
As a result of the acquisition of Broadspire's disability business in 2006, the Company impaired approximately $6.2 million, after tax ($8.3 million pretax), of the Company's previously capitalized software, due to the acquisition of a more multifunctional system. This is an other item for the year ended December 31, 2006 as it does not reflect underlying 2006 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 8 through 10 and page 12 of this press release.
2 Projected operating earnings per share exclude any future net realized capital gains or losses and other items, if any, from income from continuing operations. The Company is not able to project the amount of future net realized capital gains or losses and therefore cannot reconcile projected operating earnings to projected income from continuing operations, or to a projected change in income from continuing operations, in any period. Projected operating earnings per share for the full-year 2008 assumes approximately 505 million weighted-average diluted shares.
3 Operating expenses as a percentage of revenue excludes net realized capital gains and losses from total revenue. Net realized capital gains and losses do not directly relate to underwriting or servicing of products for customers and are not directly related to the core performance of the Company's business operations. Operating expenses exclude the other items described in footnote (1).
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 or amortization of other acquired intangible assets (each of which may vary for reasons not directly related to the 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 the Company's performance, including performance versus competitors. Operating earnings used in the pretax margin calculation also exclude the other items described in footnote (1).
5 General and administrative expenses for the year ended December 31, 2006 include the debt refinancing charge, insurance-related charge and the acquisition-related software charge discussed in footnote (1) above.
6 Actual common shares outstanding were 496.3 million and 516.0 million at December 31, 2007 and 2006, respectively.
7 Revenue and operating expense information is presented before income taxes. Operating earnings information is presented net of income taxes.
8 Includes approximately 600,000 and 575,000 Medicaid (112,000 and 111,000 Insured and 488,000 and 464,000 ASC) and 44,000 and 43,000 Commercial ASC members at December 31, 2007 and September 30, 2007, respectively, from the Schaller Anderson acquisition and approximately 58,000 Commercial members (1,000 Insured and 57,000 ASC) at December 31, 2007 from the Goodhealth Worldwide acquisition.
9 Represents members in consumer-directed health plans included in the Company's Commercial medical membership.
10 Represents members in products that allow these members access to the Company's dental provider network for a nominal fee.
11 Represents members who purchased medications through Aetna Rx Home Delivery®, our mail order pharmacy, during the fourth quarter of the applicable year.
ADDITIONAL INFORMATION; CAUTIONARY STATEMENT -- Certain information in this press release is forward looking, including our projections as to operating earnings and weighted-average diluted shares. 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, including failure to achieve desired rate increases and/or profitable membership growth due to significant competition, reputational issues or other factors in key geographic markets where membership is concentrated; 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); and the ability to reduce administrative expenses while maintaining targeted levels of service and operating performance. Other important risk factors include, but are not limited to: the ability to improve relations with providers while taking actions to reduce medical costs; the ability to successfully implement multiple strategic and operational initiatives simultaneously; reduced levels of investment income from low interest rates; adverse government regulation (including legislative proposals eliminating or reducing ERISA pre-emption of state laws that would increase potential litigation exposure, legislative proposals that would limit our ability to price for the risk we assume and/or reflect reasonable costs or profits in our pricing, 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 or medical cost experience of membership in key markets; our ability to integrate, simplify, and enhance our existing information technology systems and platforms to keep pace with changing customer and regulatory needs; the outcome of various litigation and regulatory matters, including litigation and ongoing reviews of business practices by various regulatory authorities; and increases in medical costs or Group Insurance claims resulting from any acts of terrorism, epidemics or other extreme events. For more discussion of important risk factors that may materially affect Aetna, please see the risk factors contained in Aetna's 2006 Annual Report on Form 10-K, on file with the Securities and Exchange Commission ("SEC"), and Aetna's 2007 Annual Report on Form 10-K when filed with the SEC. You also should read Aetna's 2006 Annual Report on Form 10-K and September 30, 2007 Quarterly Report on Form 10-Q on file with the SEC, and Aetna's 2007 Annual Report on Form 10-K when filed with the SEC for a discussion of Aetna's historical results of operations and financial condition.