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Business Wire 2-Aug-2018 6:30 AM
Aetna (NYSE:AET) announced second-quarter 2018 net income(1) of approximately $1.2 billion, or $3.67 per share. Adjusted earnings(2) for second-quarter 2018 were approximately $1.1 billion, or $3.43 per share. Aetna's performance for the six months ended June 30, 2018 resulted in net income of approximately $2.4 billion, or $7.34 per share, and adjusted earnings of approximately $2.2 billion, or $6.62 per share, for the six months ended June 30, 2018.
"Our solid second quarter results reflect an ongoing commitment to operational excellence and to improving the health and wellbeing of the people we serve," said Mark T. Bertolini, Aetna chairman and CEO. "Our strategy is focused on placing the consumer at the center of everything we do, and I am pleased with our progress toward building a simpler, more affordable and responsive health care experience for our members."
"Disciplined pricing and moderate medical cost trend contributed to our strong second quarter results," said Shawn M. Guertin, Aetna executive vice president and CFO. "Steady business fundamentals, focused execution and healthy cash flow position the company for continued solid performance in the second half of 2018."
(In millions, except per share data) |
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Second-Quarter 2018 | ||||||||||||||
Revenue | Earnings | EPS | ||||||||||||
GAAP | $ | 15,561 | $ | 1,212 | $ | 3.67 | ||||||||
Non-GAAP (Adjusted) | $ | 15,463 | $ | 1,132 | $ | 3.43 | ||||||||
Medical Membership totaled 22.1 million at June 30, 2018 |
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Aetna presents both GAAP and non-GAAP financial measures in this press release to provide investors with additional information. Refer to footnotes (1) through (5) for definitions of non-GAAP financial measures and pages 9 through 11 for reconciliations of the most directly comparable GAAP financial measures to non-GAAP financial measures.
Second-Quarter Financial Results at a Glance | ||||||||||||||
Second-Quarter | ||||||||||||||
(Millions, except per common share data) | 2018 | 2017 | Change | |||||||||||
Total revenue | $ | 15,561 | $ | 15,523 | — | % | ||||||||
Adjusted revenue(3) | 15,463 | 15,498 | — | % | ||||||||||
Net income(1) | 1,212 | 1,203 | 1 | % | ||||||||||
Adjusted earnings(2) | 1,132 | 1,145 | (1 | )% | ||||||||||
Per common share results: | ||||||||||||||
Net income(1) | $ | 3.67 | $ | 3.60 | 2 | % | ||||||||
Adjusted earnings(2) | 3.43 | 3.42 | — | % | ||||||||||
Weighted average common shares - diluted | 329.8 | 334.5 | ||||||||||||
Total Company Results
Health Care Segment Results
Health Care, which provides a full range of insured and self-insured medical, pharmacy, dental and behavioral health products and services, reported:
Second-Quarter | Year-to-Date | |||||||||||||||||||||||||
2018 | 2017 | Change | 2018 | 2017 | Change | |||||||||||||||||||||
Commercial | 77.1 | % | 78.5 | % | (1.4 | ) | pts. | 76.9 | % | 78.9 | % | (2.0 | ) | pts. | ||||||||||||
Government | 81.8 | % | 81.3 | % | 0.5 | pts. | 82.2 | % | 83.3 | % | (1.1 | ) | pts. | |||||||||||||
Total Health Care | 79.7 | % | 80.0 | % | (0.3 | ) | pts. | 79.9 | % | 81.3 | % | (1.4 | ) | pts. | ||||||||||||
Given the pending transaction with CVS Health, Aetna is not hosting a conference call in conjunction with its second-quarter 2018 earnings release and does not expect to do so for future quarters. Please direct any questions regarding this press release to Aetna Investor Relations or Aetna Communications.
About AetnaAetna is one of the nation's leading diversified health care benefits companies, serving an estimated 38.8 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 and behavioral health plans, and medical management capabilities, Medicaid health care management services, workers' compensation administrative services and health information technology products and 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 and learn about how Aetna is helping to build a healthier world. @AetnaNews
Condensed Consolidated Balance Sheets(Unaudited) | |||||||||
(Millions) |
At June 30,2018 |
At December 31,2017 |
|||||||
Assets: | |||||||||
Cash and short-term investments | $ | 10,058 | $ | 6,356 | |||||
Accounts receivable, net | 5,176 | 5,071 | |||||||
Other current assets | 4,391 | 4,096 | |||||||
Total current assets | 19,625 | 15,523 | |||||||
Long-term investments | 16,375 | 17,793 | |||||||
Other long-term assets | 22,316 | 21,835 | |||||||
Total assets | $ | 58,316 | $ | 55,151 | |||||
Liabilities and shareholders' equity: | |||||||||
Health care costs payable | $ | 5,666 | $ | 5,815 | |||||
Current portion of long-term debt | 375 | 999 | |||||||
Other current liabilities | 11,950 | 10,023 | |||||||
Total current liabilities | 17,991 | 16,837 | |||||||
Long-term debt, less current portion | 7,784 | 8,160 | |||||||
Other long-term liabilities | 14,870 | 14,317 | |||||||
Total Aetna shareholders' equity | 17,403 | 15,580 | |||||||
Non-controlling interests | 268 | 257 | |||||||
Total liabilities and equity | $ | 58,316 | $ | 55,151 | |||||
Consolidated Statements of Income(Unaudited) | ||||||||||||||||||||
Three MonthsEnded June 30, | Six MonthsEnded June 30, | |||||||||||||||||||
(Millions) | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||
Revenue: | ||||||||||||||||||||
Premiums | $ | 13,301 | $ | 13,775 | $ | 26,426 | $ | 27,538 | ||||||||||||
Fees and other revenue | 2,077 | 1,486 | 4,084 | 2,961 | ||||||||||||||||
Net investment income | 206 | 237 | 403 | 497 | ||||||||||||||||
Net realized capital (losses) gains | (23 | ) | 25 | (17 | ) | (308 | ) | |||||||||||||
Total revenue | 15,561 | 15,523 | 30,896 | 30,688 | ||||||||||||||||
Benefits and expenses: | ||||||||||||||||||||
Benefit costs | 10,670 | 11,116 | 21,244 | 22,577 | ||||||||||||||||
Cost of products sold | 391 | — | 764 | — | ||||||||||||||||
Operating expenses | 2,769 | 2,552 | 5,556 | 6,405 | ||||||||||||||||
Interest expense | 88 | 86 | 177 | 259 | ||||||||||||||||
Amortization of other acquired intangible assets | 47 | 58 | 94 | 118 | ||||||||||||||||
Loss on early extinguishment of long-term debt | — | — | — | 246 | ||||||||||||||||
Reduction of reserve for anticipated future losses on discontinued products | (70 | ) | (109 | ) | (70 | ) | (109 | ) | ||||||||||||
Total benefits and expenses | 13,895 | 13,703 | 27,765 | 29,496 | ||||||||||||||||
Income before income taxes | 1,666 | 1,820 | 3,131 | 1,192 | ||||||||||||||||
Income tax expense | 449 | 637 | 695 | 389 | ||||||||||||||||
Net income including non-controlling interests | 1,217 | 1,183 | 2,436 | 803 | ||||||||||||||||
Less: Net income (loss) attributable to non-controlling interests | 5 | (20 | ) | 15 | (19 | ) | ||||||||||||||
Net income attributable to Aetna | $ | 1,212 | $ | 1,203 | $ | 2,421 | $ | 822 | ||||||||||||
Consolidated Statements of Cash Flows(Unaudited) | ||||||||||
For the Six MonthsEnded June 30, | ||||||||||
(Millions) | 2018 | 2017 | ||||||||
Cash flows from operating activities: | ||||||||||
Net income including non-controlling interests | $ | 2,436 | $ | 803 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||
Net realized capital losses | 17 | 308 | ||||||||
Depreciation and amortization | 264 | 339 | ||||||||
Debt fair value amortization | (7 | ) | (10 | ) | ||||||
Equity in earnings of affiliates, net | (23 | ) | (60 | ) | ||||||
Stock-based compensation expense | 83 | 94 | ||||||||
Reduction of reserve for anticipated future losses on discontinued products | (70 | ) | (109 | ) | ||||||
Amortization of net investment premium | 28 | 37 | ||||||||
Loss on early extinguishment of long-term debt | — | 246 | ||||||||
Gain on sale of businesses | (234 | ) | — | |||||||
Changes in assets and liabilities: | ||||||||||
Premiums due and other receivables | 43 | (1,335 | ) | |||||||
Income taxes | 387 | (222 | ) | |||||||
Other assets and other liabilities | 36 | (432 | ) | |||||||
Health care and insurance liabilities | 1,425 | 1,033 | ||||||||
Net cash provided by operating activities | 4,385 | 692 | ||||||||
Cash flows from investing activities: | ||||||||||
Proceeds from sales and maturities of investments | 5,157 | 6,091 | ||||||||
Cost of investments | (4,543 | ) | (5,736 | ) | ||||||
Additions to property, equipment and software | (219 | ) | (180 | ) | ||||||
Cash used for acquisitions, net of cash acquired | (7 | ) | — | |||||||
Net cash provided by investing activities | 388 | 175 | ||||||||
Cash flows from financing activities: | ||||||||||
Repayment of long-term debt | (1,000 | ) | (11,734 | ) | ||||||
Common shares issued under benefit plans, net | (87 | ) | (126 | ) | ||||||
Common shares repurchased | — | (3,300 | ) | |||||||
Dividends paid to shareholders | (327 | ) | (254 | ) | ||||||
Contributions, non-controlling interests | 12 | 125 | ||||||||
Net cash used for financing activities | (1,402 | ) | (15,289 | ) | ||||||
Net increase (decrease) in cash and cash equivalents | 3,371 | (14,422 | ) | |||||||
Cash and cash equivalents, beginning of period | 4,076 | 17,996 | ||||||||
Cash and cash equivalents, end of period | $ | 7,447 | $ | 3,574 | ||||||
Reconciliation of the Most Directly Comparable GAAP Measure to Certain Reported Amounts | ||||||||||||||||||||||||||||||
(Millions, except per common share data) |
Three Months EndedJune 30, 2018 |
Three Months EndedJune 30, 2017 |
||||||||||||||||||||||||||||
Reconciliation of net income to adjusted earnings |
TotalCompany |
PerCommonShare |
TotalCompany |
PerCommonShare |
||||||||||||||||||||||||||
Net income(1) (GAAP measure) | $ | 1,212 | $ | 3.67 | $ | 1,203 | $ | 3.60 | ||||||||||||||||||||||
Gain related to sale of certain domestic group insurance businesses | (121 | ) | (0.37 | ) | — | — | ||||||||||||||||||||||||
Transaction and integration-related costs | 19 | 0.06 | (10 | ) | (0.03 | ) | ||||||||||||||||||||||||
Reduction of reserve for anticipated future losses on discontinued products | (70 | ) | (0.21 | ) | (109 | ) | (0.33 | ) | ||||||||||||||||||||||
Amortization of other acquired intangible assets | 47 | 0.14 | 58 | 0.17 | ||||||||||||||||||||||||||
Net realized capital losses (gains) | 23 | 0.07 | (25 | ) | (0.08 | ) | ||||||||||||||||||||||||
Income tax expense | 22 | 0.07 | 28 | 0.09 | ||||||||||||||||||||||||||
Adjusted earnings(2) | $ | 1,132 | $ | 3.43 | $ | 1,145 | $ | 3.42 | ||||||||||||||||||||||
Weighted average common shares - diluted | 329.8 | 334.5 | ||||||||||||||||||||||||||||
Three Months EndedJune 30, 2018 |
Three Months EndedJune 30, 2017 |
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(Millions) |
HealthCare |
Corporate/Other(7) |
TotalCompany |
HealthCare |
Corporate/Other (7) |
TotalCompany |
||||||||||||||||||||||||
Reconciliation of total revenue to adjusted revenue | ||||||||||||||||||||||||||||||
Total revenue (GAAP measure) | $ | 15,355 | $ | 206 | $ | 15,561 | $ | 14,821 | $ | 702 | $ | 15,523 | ||||||||||||||||||
Gain related to sale of certain domestic group insurance businesses | — | (121 | ) | (121 | ) | — | — | — | ||||||||||||||||||||||
Net realized capital losses (gains) | 17 | 6 | 23 | (7 | ) | (18 | ) | (25 | ) | |||||||||||||||||||||
Adjusted revenue(3) (excludes net realized capital losses (gains) and an other item) | $ | 15,372 | $ | 91 | $ | 15,463 | $ | 14,814 | $ | 684 | $ | 15,498 | ||||||||||||||||||
Reconciliation of income before income taxes to pre-tax adjusted earnings (loss) | ||||||||||||||||||||||||||||||
Income before income taxes (GAAP measure) | $ | 1,545 | $ | 121 | $ | 1,666 | $ | 1,700 | $ | 120 | $ | 1,820 | ||||||||||||||||||
Less: Income (loss) before income taxes attributable to non-controlling interests (GAAP measure) | 7 | — | 7 | (23 | ) | — | (23 | ) | ||||||||||||||||||||||
Income before income taxes attributable to Aetna (GAAP measure) | 1,538 | 121 | 1,659 | 1,723 | 120 | 1,843 | ||||||||||||||||||||||||
Gain related to sale of certain domestic group insurance businesses | — | (121 | ) | (121 | ) | — | — | — | ||||||||||||||||||||||
Transaction and integration-related costs | — | 19 | 19 | — | (10 | ) | (10 | ) | ||||||||||||||||||||||
Reduction of reserve for anticipated future losses on discontinued products | — | (70 | ) | (70 | ) | — | (109 | ) | (109 | ) | ||||||||||||||||||||
Amortization of other acquired intangible assets | 47 | — | 47 | 58 | — | 58 | ||||||||||||||||||||||||
Net realized capital losses (gains) | 17 | 6 | 23 | (7 | ) | (18 | ) | (25 | ) | |||||||||||||||||||||
Pre-tax adjusted earnings (loss)(2) | $ | 1,602 | $ | (45 | ) | $ | 1,557 | $ | 1,774 | $ | (17 | ) | $ | 1,757 | ||||||||||||||||
Reconciliation of the Most Directly Comparable GAAP Measure to Certain Reported Amounts | ||||||||||||||||||||||||||||||
(Millions, except per common share data) |
Six Months Ended
June 30, 2018 |
Six Months Ended
June 30, 2017 |
||||||||||||||||||||||||||||
TotalCompany |
PerCommonShare |
TotalCompany |
PerCommonShare |
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Net income(1) (GAAP measure) | $ | 2,421 | $ | 7.34 | $ | 822 | $ | 2.42 | ||||||||||||||||||||||
Gain related to sale of certain domestic group insurance businesses | (234 | ) | (0.71 | ) | — | — | ||||||||||||||||||||||||
Transaction and integration-related costs | 77 | 0.23 | 1,202 | 3.53 | ||||||||||||||||||||||||||
Reduction of reserve for anticipated future losses on discontinued products | (70 | ) | (0.21 | ) | (109 | ) | (0.32 | ) | ||||||||||||||||||||||
Loss on early extinguishment of long-term debt | — | — | 246 | 0.72 | ||||||||||||||||||||||||||
Penn Treaty-related guaranty fund assessments | — | — | 231 | 0.68 | ||||||||||||||||||||||||||
Amortization of other acquired intangible assets | 94 | 0.29 | 118 | 0.35 | ||||||||||||||||||||||||||
Net realized capital losses | 17 | 0.05 | 308 | 0.90 | ||||||||||||||||||||||||||
Income tax benefit | (122 | ) | (0.37 | ) | (734 | ) | (2.16 | ) | ||||||||||||||||||||||
Adjusted earnings(2) | $ | 2,183 | $ | 6.62 | $ | 2,084 | $ | 6.12 | ||||||||||||||||||||||
Weighted average common shares - diluted | 329.7 | 340.3 | ||||||||||||||||||||||||||||
Six Months EndedJune 30, 2018 |
Six Months EndedJune 30, 2017 |
|||||||||||||||||||||||||||||
(Millions) |
HealthCare |
Corporate/Other( 7) |
TotalCompany |
HealthCare |
Corporate/Other (7) |
TotalCompany |
||||||||||||||||||||||||
Reconciliation of total revenue to adjusted revenue | ||||||||||||||||||||||||||||||
Total revenue (GAAP measure) | $ | 30,482 | $ | 414 | $ | 30,896 | $ | 29,627 | $ | 1,061 | $ | 30,688 | ||||||||||||||||||
Gain related to sale of certain domestic group insurance businesses | — | (234 | ) | (234 | ) | — | — | — | ||||||||||||||||||||||
Interest income on proceeds of transaction-related debt | — | — | — | — | (11 | ) | (11 | ) | ||||||||||||||||||||||
Net realized capital losses (gains) | 12 | 5 | 17 | (8 | ) | 316 | 308 | |||||||||||||||||||||||
Adjusted revenue(3) (excludes net realized capital losses (gains) and other items) | $ | 30,494 | $ | 185 | $ | 30,679 | $ | 29,619 | $ | 1,366 | $ | 30,985 | ||||||||||||||||||
Reconciliation of income (loss) before income taxes to pre-tax adjusted earnings (loss) | ||||||||||||||||||||||||||||||
Income (loss) before income taxes (GAAP measure) | $ | 3,002 | $ | 129 | $ | 3,131 | $ | 2,893 | $ | (1,701 | ) | $ | 1,192 | |||||||||||||||||
Less: Income (loss) before income taxes attributable to non-controlling interests (GAAP measure) | 20 | — | 20 | (21 | ) | 1 | (20 | ) | ||||||||||||||||||||||
Income (loss) before income taxes attributable to Aetna (GAAP measure) | 2,982 | 129 | 3,111 | 2,914 | (1,702 | ) | 1,212 | |||||||||||||||||||||||
Gain related to sale of certain domestic group insurance businesses | — | (234 | ) | (234 | ) | — | — | — | ||||||||||||||||||||||
Transaction and integration-related costs | — | 77 | 77 | — | 1,202 | 1,202 | ||||||||||||||||||||||||
Reduction of reserve for anticipated future losses on discontinued products | — | (70 | ) | (70 | ) | — | (109 | ) | (109 | ) | ||||||||||||||||||||
Loss on early extinguishment of long-term debt | — | — | — | — | 246 | 246 | ||||||||||||||||||||||||
Penn Treaty-related guaranty fund assessments | — | — | — | 231 | — | 231 | ||||||||||||||||||||||||
Amortization of other acquired intangible assets | 94 | — | 94 | 118 | — | 118 | ||||||||||||||||||||||||
Net realized capital losses (gains) | 12 | 5 | 17 | (8 | ) | 316 | 308 | |||||||||||||||||||||||
Pre-tax adjusted earnings (loss)(2) | $ | 3,088 | $ | (93 | ) | $ | 2,995 | $ | 3,255 | $ | (47 | ) | $ | 3,208 | ||||||||||||||||
Margins and Ratios | |||||||||||||||||||||
Three MonthsEnded June 30, | Six MonthsEnded June 30, | ||||||||||||||||||||
(Millions) | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||
Reconciliation of income before income taxes to adjusted earnings before income taxes, excluding interest expense: | |||||||||||||||||||||
Income before income taxes (GAAP measure) | $ | 1,666 | $ | 1,820 | $ | 3,131 | $ | 1,192 | |||||||||||||
Interest expense(8) | 88 | 86 | 177 | 174 | |||||||||||||||||
Gain related to sale of certain domestic group insurance businesses | (121 | ) | — | (234 | ) | — | |||||||||||||||
Transaction and integration-related costs | 19 | (10 | ) | 77 | 1,202 | ||||||||||||||||
Reduction of reserve for anticipated future losses on discontinued products | (70 | ) | (109 | ) | (70 | ) | (109 | ) | |||||||||||||
Loss on early extinguishment of long-term debt | — | — | — | 246 | |||||||||||||||||
Penn Treaty-related guaranty fund assessments | — | — | — | 231 | |||||||||||||||||
Amortization of other acquired intangible assets | 47 | 58 | 94 | 118 | |||||||||||||||||
Net realized capital losses (gains) | 23 | (25 | ) | 17 | 308 | ||||||||||||||||
Adjusted earnings(2) before income taxes, excluding interest expense | (A) | $ | 1,652 | $ | 1,820 | $ | 3,192 | $ | 3,362 | ||||||||||||
Reconciliation of net income to adjusted earnings excluding interest expense, net of tax: | |||||||||||||||||||||
Net income(1) (GAAP measure) | (B) | $ | 1,212 | $ | 1,203 | $ | 2,421 | $ | 822 | ||||||||||||
Interest expense(8) | 88 | 86 | 177 | 174 | |||||||||||||||||
Gain related to sale of certain domestic group insurance businesses | (121 | ) | — | (234 | ) | — | |||||||||||||||
Transaction and integration-related costs | 19 | (10 | ) | 77 | 1,202 | ||||||||||||||||
Reduction of reserve for anticipated future losses on discontinued products | (70 | ) | (109 | ) | (70 | ) | (109 | ) | |||||||||||||
Loss on early extinguishment of long-term debt | — | — | — | 246 | |||||||||||||||||
Penn Treaty-related guaranty fund assessments | — | — | — | 231 | |||||||||||||||||
Amortization of other acquired intangible assets | 47 | 58 | 94 | 118 | |||||||||||||||||
Net realized capital losses (gains) | 23 | (25 | ) | 17 | 308 | ||||||||||||||||
Income tax expense (benefit) | 4 | (2 | ) | (159 | ) | (795 | ) | ||||||||||||||
Adjusted earnings(2) excluding interest expense, net of tax | $ | 1,202 | $ | 1,201 | $ | 2,323 | $ | 2,197 | |||||||||||||
Reconciliation of total revenue to adjusted revenue: | |||||||||||||||||||||
Total revenue (GAAP measure) | (C) | $ | 15,561 | $ | 15,523 | $ | 30,896 | $ | 30,688 | ||||||||||||
Gain related to sale of certain domestic group insurance businesses | (121 | ) | — | (234 | ) | — | |||||||||||||||
Interest income on proceeds of transaction-related debt | — | — | — | (11 | ) | ||||||||||||||||
Net realized capital losses (gains) | 23 | (25 | ) | 17 | 308 | ||||||||||||||||
Adjusted revenue(3) (excludes net realized capital losses (gains) and other items) | (D) | $ | 15,463 | $ | 15,498 | $ | 30,679 | $ | 30,985 | ||||||||||||
Reconciliation of total operating expenses to adjusted operating expenses: | |||||||||||||||||||||
Total operating expenses (GAAP measure) | (E) | $ | 2,769 | $ | 2,552 | $ | 5,556 | $ | 6,405 | ||||||||||||
Transaction and integration-related costs | (19 | ) | 10 | (77 | ) | (1,128 | ) | ||||||||||||||
Penn Treaty-related guaranty fund assessments | — | — | — | (231 | ) | ||||||||||||||||
Adjusted operating expenses | (F) | $ | 2,750 | $ | 2,562 | $ | 5,479 | $ | 5,046 | ||||||||||||
After-tax net income and adjusted pre-tax margins: | |||||||||||||||||||||
After-tax net income margin (GAAP measure) | (B)/(C) | 7.8 | % | 7.7 | % | 7.8 | % | 2.7 | % | ||||||||||||
Adjusted pre-tax margin(5) | (A)/(D) | 10.7 | % | 11.7 | % | 10.4 | % | 10.9 | % | ||||||||||||
Expense ratios: | |||||||||||||||||||||
Total company expense ratio (GAAP measure) | (E)/(C) | 17.8 | % | 16.4 | % | 18.0 | % | 20.9 | % | ||||||||||||
Adjusted expense ratio(4) | (F)/(D) | 17.8 | % | 16.5 | % | 17.9 | % | 16.3 | % | ||||||||||||
Operating Cash Flow excluding Large Case Pensions Products as a Percentage of Net Income | |||||||||||
Six MonthsEnded June 30, | |||||||||||
(Millions) | 2018 | 2017 | |||||||||
Net cash provided by operating activities | $ | 4,385 | $ | 692 | |||||||
Less: Net cash used for operating activities: Large case pensions products | (155 | ) | (128 | ) | |||||||
Net cash provided by operating activities excluding large case pensions products |
(A) | 4,540 | 820 | ||||||||
Net income(1) | 2,421 | 822 | |||||||||
Less: Net income: Large case pensions products | 66 | 81 | |||||||||
Net income(1) excluding large case pensions products | (B) | $ | 2,355 | $ | 741 | ||||||
Operating cash flow excluding large case pensions products as a percentage of net income: | |||||||||||
Operating cash flow as a percentage of net income (1) | (A)/(B) | 192.8 | % | 110.7 | % | ||||||
Footnotes
(1) Net income refers to net income attributable to Aetna reported in Aetna's Consolidated Statements of Income in accordance with U.S. generally accepted accounting principles ("GAAP"). Income before income taxes refers to income before income taxes attributable to Aetna in accordance with GAAP. Unless otherwise indicated, all references in this press release to net income, net income per share and income before income taxes exclude amounts attributable to non-controlling interests.
(2) Non-GAAP financial measures such as adjusted earnings, adjusted earnings per share, pre-tax adjusted earnings, adjusted operating expenses, adjusted revenue, adjusted expense ratio and adjusted pre-tax margin exclude from the relevant GAAP metrics, as applicable:
Although the excluded items may recur, management believes the non-GAAP financial measures Aetna discloses, including those described above, provide a more useful comparison of Aetna's underlying business performance from period to period. The chief executive officer assesses consolidated Aetna results based on adjusted earnings and assesses business segment results based on pre-tax adjusted earnings because income taxes are recorded in Aetna's Corporate/Other category and are not allocated to Aetna's business operations. Non-GAAP financial measures Aetna discloses, including those described above, should not be considered a substitute for, or superior to, financial measures determined or calculated in accordance with GAAP.
For the periods covered in this press release, the following items are excluded from the non-GAAP financial measures described above, as applicable, because Aetna believes they neither relate to the ordinary course of Aetna's business nor reflect Aetna's underlying business performance:
For a reconciliation of financial measures calculated under GAAP to these items, refer to the tables on pages 9 through 11 of this press release.
(3) Adjusted revenue excludes net realized capital gains and losses, gain related to the Group Insurance sale and interest income on the proceeds of Aetna's senior notes issued in June 2016 as noted in (2) above. Refer to the tables on pages 9 through 11 of this press release for a reconciliation of total revenue calculated under GAAP to adjusted revenue.
(4) The adjusted expense ratio excludes net realized capital gains and losses and other items, if any, that are excluded from adjusted revenue or adjusted operating expenses, as noted in (2) above. For a reconciliation of the comparable GAAP measure to this metric for the periods covered by this press release, refer to page 11 of this press release.
(5) 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 adjusted pre-tax margin is based on adjusted earnings excluding interest expense and income taxes. Management also uses adjusted pre-tax margin to assess Aetna's performance, including performance versus competitors.
(6) Days claims payable is calculated by dividing the health care costs payable at each quarter end by the average health care costs per day in each respective quarter. The total debt to capitalization ratio is calculated by dividing total long-term debt and short-term debt ("Total Debt") by the sum of Total Debt and total Aetna shareholders' equity.
(7) Aetna's Corporate/Other category is not a business segment. It is added to Aetna's business segments to reconcile segment reporting to Aetna's consolidated results. The Corporate/Other category consists of:
As described in (2) above, the pre-tax adjusted earnings of the Corporate/Other category exclude other items, if any, that neither relate to the ordinary course of Aetna's business nor reflect Aetna's underlying business performance.
(8) Interest expense included in the reconciliation to adjusted earnings before income taxes, excluding interest expense and the reconciliation to adjusted earnings excluding interest expense, net of tax, for the six months ended June 30, 2017 excludes costs associated with the term loan credit agreement executed in connection with the Humana Transaction and the negative cost of carry on transaction-related debt incurred in connection with the Humana Transaction. These costs are included within transaction and integration-related costs. Refer to (2) above for further discussion.
Cautionary Statement Regarding Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. You can generally identify forward-looking statements by the use of forward-looking terminology such as "anticipate," "believe," "can," "continue," "could," "estimate," "evaluate," "expect," "explore," "forecast," "guidance," "intend," "likely," "may," "might," "outlook," "plan," "potential," "predict," "probable," "project," "seek," "should," "view," or "will," or the negative thereof or other variations thereon or comparable terminology. These forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond Aetna's control.
Statements in this press release that are forward-looking, including Aetna's projections as to its performance in the second half of 2018, are based on management's estimates, assumptions and projections, and are 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, but not limited to: the timing to consummate the CVS Health Transaction; the risk that a regulatory approval that may be required for the CVS Health Transaction is delayed, is not obtained or is obtained subject to conditions that are not anticipated; the risk that a condition to the closing of the CVS Health Transaction may not be satisfied; the ability to achieve the synergies and value creation from the CVS Health Transaction contemplated by management; CVS Health's ability to promptly and effectively integrate Aetna's businesses; the diversion of and attention of management of both CVS Health and Aetna on transaction-related issues; unanticipated increases in medical costs (including increased intensity or medical utilization as a result of flu or otherwise; changes in membership mix to higher cost or lower-premium products or membership adverse selection; medical cost increases resulting from unfavorable changes in contracting or re-contracting with providers (including as a result of provider consolidation and/or integration); and/or increased pharmacy costs); the profitability of Aetna's Medicaid products; 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 changes in Aetna's future cash requirements, capital requirements, results of operations, financial condition and/or cash flows. As currently enacted, health care reform will continue to significantly impact Aetna's business operations and financial results, including Aetna's pricing and medical benefit ratios, and certain components of the legislation will continue to be phased in until 2022. Aetna will be required to dedicate significant resources and incur significant expenses during 2018 to implement health care reform. Significant parts of the legislation continue to evolve through the promulgation of executive orders, regulations and guidance, including the collection and payment of amounts under the ACA's risk adjustment program. In addition, pending efforts in the U.S. Congress to repeal, amend, replace or restrict funding for various aspects of health care reform and pending litigation challenging aspects of the law and its implementation continue to create additional uncertainty about the ultimate impact of health care reform. As a result, many of the impacts of health care reform are unknown. Other important risk factors include: adverse changes in federal or state government policies, legislation or regulations (including legislative, judicial or regulatory measures that would affect Aetna's business model, repeal, restrict funding for or amend various aspects of health care reform, limit Aetna's ability to price for the risk it assumes and/or reflect reasonable costs or profits in its pricing, such as mandated minimum medical benefit ratios, or eliminate or reduce ERISA pre-emption of state laws (increasing Aetna's potential litigation exposure)); the implementation of health care reform legislation, collection of ACA fees, assessments and taxes through increased premiums; adverse legislative, regulatory and/or judicial changes to or interpretations of existing health care reform legislation and/or regulations (including those relating to minimum medical loss ratio ("MLR") rebates); the timing and amount of and payment methods for satisfying assessments for Penn Treaty Network America Insurance Company and other insolvent payors under state guaranty fund laws; adverse and less predictable economic conditions in the U.S. and abroad (including unanticipated levels of, or increases in the rate of, unemployment); reputational or financial issues arising from Aetna's social media activities, data security breaches, other cybersecurity risks or other causes; adverse program, pricing, funding or audit actions by federal or state government payors, including as a result of changes to or curtailment or elimination of the Centers for Medicare & Medicaid Services' ("CMS") star rating bonus payments; Aetna's ability to maintain and/or enhance its CMS star ratings; Aetna's ability to diversify Aetna's sources of revenue and earnings (including by developing and expanding Aetna's consumer health and services businesses and expanding Aetna's foreign operations), transform Aetna's business model, develop new products and optimize Aetna's business platforms; the success of Aetna's consumer health and services 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, an uncertain economy and/or significant competition, especially in key geographic areas where membership is concentrated, including successful protests of business awarded to Aetna; failure to adequately implement health care reform and/or repeal or replacement of or changes in health care reform; the outcome of various litigation and regulatory matters, including audits, challenges to Aetna's minimum MLR rebate methodology and/or reports, intellectual property litigation and litigation concerning, and ongoing reviews by various regulatory authorities of, certain of Aetna's payment practices with respect to out-of-network providers and/or other providers; Aetna's ability to integrate, simplify, and enhance Aetna's existing products, processes and information technology systems and platforms to keep pace with changing customer and regulatory needs; Aetna's ability to successfully integrate Aetna's businesses (including businesses Aetna may acquire in the future), separate divested businesses and implement multiple strategic and operational initiatives simultaneously; Aetna's ability to manage health care and other benefit costs; Aetna's ability to reduce administrative expenses while maintaining targeted levels of service and operating performance; failure by a service provider to meet its obligations to Aetna; Aetna's ability to develop and maintain relationships (including joint ventures or other collaborative risk-sharing agreements) with providers while taking actions to reduce medical costs and/or expand the services Aetna offers; Aetna's ability to demonstrate that Aetna's products and processes lead to access to quality affordable care by Aetna's members; Aetna's ability to maintain its relationships with third-party brokers, consultants and agents who sell its products; increases in medical costs resulting from any epidemics, acts of terrorism or other extreme events; a downgrade in Aetna's financial ratings; and adverse impacts from any failure to raise the U.S. Federal government's debt ceiling or any sustained U.S. Federal government shut down. For more discussion of important risk factors that may materially affect Aetna, please see the risk factors contained in Aetna's 2017 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, 2018, each on file with the SEC, and Aetna's Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, when filed with the SEC, for a discussion of Aetna's historical results of operations and financial condition.
No assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do occur, what impact they will have on the results of operations, financial condition or cash flows of Aetna. You are cautioned not to place undue reliance on Aetna's forward-looking statements. These forward-looking statements are and will be based on management's then-current views and assumptions regarding future events and operating performance, and are applicable only as of the dates of such statements. Aetna does not assume any duty to update or revise forward-looking statements, whether as a result of new information, future events or otherwise, as of any future date.
Supplementary InformationStatements of Income Before Income Taxes Attributable to Aetna by Segment (Unaudited) |
|||||||||||||||
(Millions) |
HealthCare |
Corporate/Other |
Total |
||||||||||||
Three months ended June 30, 2018 | |||||||||||||||
Revenue: | |||||||||||||||
Premiums | $ | 13,283 | $ | 18 | $ | 13,301 | |||||||||
Fees and other revenue | 1,954 | 123 | 2,077 | ||||||||||||
Net investment income | 135 | 71 | 206 | ||||||||||||
Net realized capital losses | (17 | ) | (6 | ) | (23 | ) | |||||||||
Total revenue | 15,355 | 206 | 15,561 | ||||||||||||
Benefits and expenses: | |||||||||||||||
Benefit costs | 10,591 | 79 | 10,670 | ||||||||||||
Cost of products sold | 391 | — | 391 | ||||||||||||
Operating expenses | 2,781 | (12 | ) | 2,769 | |||||||||||
Interest expense | — | 88 | 88 | ||||||||||||
Amortization of other acquired intangible assets | 47 | — | 47 | ||||||||||||
Reduction of reserve for anticipated future losses on discontinued products | — | (70 | ) | (70 | ) | ||||||||||
Total benefits and expenses | 13,810 | 85 | 13,895 | ||||||||||||
Income before income taxes including non-controlling interests | 1,545 | 121 | 1,666 | ||||||||||||
Less: Income before income taxes attributable to non-controlling interests | 7 | — | 7 | ||||||||||||
Income before income taxes attributable to Aetna | $ | 1,538 | $ | 121 | $ | 1,659 | |||||||||
Three months ended June 30, 2017 | |||||||||||||||
Revenue: | |||||||||||||||
Premiums | $ | 13,242 | $ | 533 | $ | 13,775 | |||||||||
Fees and other revenue | 1,458 | 28 | 1,486 | ||||||||||||
Net investment income | 114 | 123 | 237 | ||||||||||||
Net realized capital gains | 7 | 18 | 25 | ||||||||||||
Total revenue | 14,821 | 702 | 15,523 | ||||||||||||
Benefits and expenses: | |||||||||||||||
Benefit costs | 10,591 | 525 | 11,116 | ||||||||||||
Operating expenses | 2,472 | 80 | 2,552 | ||||||||||||
Interest expense | — | 86 | 86 | ||||||||||||
Amortization of other acquired intangible assets | 58 | — | 58 | ||||||||||||
Reduction of reserve for anticipated future losses on discontinued products | — |
|
(109 | ) | (109 | ) | |||||||||
Total benefits and expenses | 13,121 | 582 | 13,703 | ||||||||||||
Income before income taxes including non-controlling interests | 1,700 | 120 | 1,820 | ||||||||||||
Less: Loss before income taxes attributable to non-controlling interests | (23 | ) | — | (23 | ) | ||||||||||
Income before income taxes attributable to Aetna | $ | 1,723 | $ | 120 | $ | 1,843 | |||||||||
Statements of Income Before Income Taxes Attributable to Aetna by Segment (Unaudited) | |||||||||||||||
(Millions) | HealthCare | Corporate/Other | Total | ||||||||||||
Six months ended June 30, 2018 | |||||||||||||||
Revenue: | |||||||||||||||
Premiums | $ | 26,386 | $ | 40 | $ | 26,426 | |||||||||
Fees and other revenue | 3,846 | 238 | 4,084 | ||||||||||||
Net investment income | 262 | 141 | 403 | ||||||||||||
Net realized capital losses | (12 | ) | (5 | ) | (17 | ) | |||||||||
Total revenue | 30,482 | 414 | 30,896 | ||||||||||||
Benefits and expenses: | |||||||||||||||
Benefit costs | 21,082 | 162 | 21,244 | ||||||||||||
Cost of products sold | 764 | — | 764 | ||||||||||||
Operating expenses | 5,540 | 16 | 5,556 | ||||||||||||
Interest expense | — | 177 | 177 | ||||||||||||
Amortization of other acquired intangible assets | 94 | — | 94 | ||||||||||||
Reduction of reserve for anticipated future loss on discontinued products | — | (70 | ) | (70 | ) | ||||||||||
Total benefits and expenses | 27,480 | 285 | 27,765 | ||||||||||||
Income before income taxes including non-controlling interests | 3,002 | 129 | 3,131 | ||||||||||||
Less: Income before income taxes attributable to non-controlling interests | 20 | — | 20 | ||||||||||||
Income before income taxes attributable to Aetna | $ | 2,982 | $ | 129 | $ | 3,111 | |||||||||
Six months ended June 30, 2017 | |||||||||||||||
Revenue: | |||||||||||||||
Premiums | $ | 26,482 | $ | 1,056 | $ | 27,538 | |||||||||
Fees and other revenue | 2,906 | 55 | 2,961 | ||||||||||||
Net investment income | 231 | 266 | 497 | ||||||||||||
Net realized capital gains (losses) | 8 | (316 | ) | (308 | ) | ||||||||||
Total revenue | 29,627 | 1,061 | 30,688 | ||||||||||||
Benefits and expenses: | |||||||||||||||
Benefit costs | 21,519 | 1,058 | 22,577 | ||||||||||||
Operating expenses | 5,097 | 1,308 | 6,405 | ||||||||||||
Interest expense | — | 259 | 259 | ||||||||||||
Amortization of other acquired intangible assets | 118 | — | 118 | ||||||||||||
Loss on early extinguishment of long-term debt | — | 246 | 246 | ||||||||||||
Reduction of reserve for anticipated future loss on discontinued products | — | (109 | ) | (109 | ) | ||||||||||
Total benefits and expenses | 26,734 | 2,762 | 29,496 | ||||||||||||
Income (loss) before income taxes including non-controlling interests | 2,893 | (1,701 | ) | 1,192 | |||||||||||
Less: (Loss) income before income taxes attributable to non-controlling interests | (21 | ) | 1 | (20 | ) | ||||||||||
Income (loss) before income taxes attributable to Aetna | $ | 2,914 | $ | (1,702 | ) | $ | 1,212 | ||||||||
Membership | |||||||||||||||||||||||||||||||||||||||||||||||
June 30, 2018 | March 31, 2018 | December 31, 2017 | June 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||
(Thousands) | Insured | ASC | Total | Insured | ASC | Total | Insured | ASC | Total | Insured | ASC | Total | |||||||||||||||||||||||||||||||||||
Medical Membership: | |||||||||||||||||||||||||||||||||||||||||||||||
Commercial | 3,976 | 13,793 | 17,769 | 4,068 | 13,737 | 17,805 | 4,504 | 13,596 | 18,100 | 4,407 | 13,375 | 17,782 | |||||||||||||||||||||||||||||||||||
Medicare Advantage | 1,734 | — | 1,734 | 1,722 | — | 1,722 | 1,473 | — | 1,473 | 1,453 | — | 1,453 | |||||||||||||||||||||||||||||||||||
Medicare Supplement | 757 | — | 757 | 748 | — | 748 | 740 | — | 740 | 724 | — | 724 | |||||||||||||||||||||||||||||||||||
Medicaid | 1,104 | 711 | 1,815 | 1,104 | 728 | 1,832 | 1,316 | 608 | 1,924 | 1,307 | 822 | 2,129 | |||||||||||||||||||||||||||||||||||
Total Medical Membership | 7,571 | 14,504 | 22,075 | 7,642 | 14,465 | 22,107 | 8,033 | 14,204 | 22,237 | 7,891 | 14,197 | 22,088 | |||||||||||||||||||||||||||||||||||
Dental Membership: | |||||||||||||||||||||||||||||||||||||||||||||||
Total Dental Membership | 5,006 | 7,674 | 12,680 | 5,058 | 7,665 | 12,723 | 5,421 | 8,006 | 13,427 | 5,534 | 8,078 | 13,612 | |||||||||||||||||||||||||||||||||||
Pharmacy Benefit Management Services Membership: | |||||||||||||||||||||||||||||||||||||||||||||||
Commercial | 7,412 | 7,442 | 8,034 | 8,087 | |||||||||||||||||||||||||||||||||||||||||||
Medicare Prescription Drug Plan (stand-alone) | 2,174 | 2,156 | 2,077 | 2,062 | |||||||||||||||||||||||||||||||||||||||||||
Medicare Advantage Prescription Drug Plan | 1,258 | 1,243 | 1,129 | 1,116 | |||||||||||||||||||||||||||||||||||||||||||
Medicaid | 2,235 | 2,256 | 2,525 | 2,832 | |||||||||||||||||||||||||||||||||||||||||||
Total Pharmacy Benefit Management Services Membership | 13,079 | 13,097 | 13,765 | 14,097 | |||||||||||||||||||||||||||||||||||||||||||
Health Care Medical Benefit Ratios | ||||||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||||||
(Millions) | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||
Health Care Premiums (GAAP measure) | ||||||||||||||||||||
Commercial | $ | 5,807 | $ | 6,287 | $ | 11,442 | $ | 12,416 | ||||||||||||
Government | 7,476 | 6,955 | 14,944 | 14,066 | ||||||||||||||||
Health Care | $ | 13,283 | $ | 13,242 | $ | 26,386 | $ | 26,482 | ||||||||||||
Health Care Benefit Costs (GAAP measure) | ||||||||||||||||||||
Commercial | $ | 4,475 | $ | 4,938 | $ | 8,798 | $ | 9,798 | ||||||||||||
Government | 6,116 | 5,653 | 12,284 | 11,721 | ||||||||||||||||
Health Care | $ | 10,591 | $ | 10,591 | $ | 21,082 | $ | 21,519 | ||||||||||||
Medical Benefit Ratios "MBRs" | ||||||||||||||||||||
Commercial | 77.1 | % | 78.5 | % | 76.9 | % | 78.9 | % | ||||||||||||
Government | 81.8 | % | 81.3 | % | 82.2 | % | 83.3 | % | ||||||||||||
Health Care | 79.7 | % | 80.0 | % | 79.9 | % | 81.3 | % | ||||||||||||
Roll Forward of Health Care Costs Payable(Unaudited) | ||||||||||
Six Months Ended June 30, | ||||||||||
(Millions) | 2018 | 2017 | ||||||||
Health care costs payable, beginning of period | $ | 5,815 | $ | 6,558 | ||||||
Less: reinsurance recoverables | 6 | 5 | ||||||||
Health care costs payable, beginning of period, net | 5,809 | 6,553 | ||||||||
Add: Components of incurred health care costs | ||||||||||
Current year | 21,598 | 22,123 | ||||||||
Prior years(a) | (548 | ) | (750 | ) | ||||||
Total incurred health care costs (b) | 21,050 | 21,373 | ||||||||
Less: Claims paid | ||||||||||
Current year | 16,493 | 16,580 | ||||||||
Prior years | 4,711 | 5,224 | ||||||||
Total claims paid | 21,204 | 21,804 | ||||||||
Health care costs payable, end of period, net | 5,655 | 6,122 | ||||||||
Add: premium deficiency reserve | 8 | 120 | ||||||||
Add: reinsurance recoverables | 3 | 4 | ||||||||
Health care costs payable, end of period | $ | 5,666 | $ | 6,246 | ||||||
(a) Negative amounts reported for incurred health care costs related to prior years result from claims being settled for less than originally estimated.(b) Total incurred health care costs during the six months ended June 30, 2018 in the table above exclude $8 million related to a premium deficiency reserve for the 2018 coverage year related to Aetna's Medicaid products. Total incurred health care costs during the six months ended June 30, 2017 in the table above exclude $120 million related to a premium deficiency reserve for the 2017 coverage year related to Aetna's individual Commercial products. Total incurred health care costs for the six months ended June 30, 2018 and 2017 in the table above also exclude $24 million and $26 million, respectively, of benefit costs recorded in Aetna's Health Care segment that are included in Aetna's unpaid claims liability.
Days Claims Payable (Unaudited) | |||||||||||||||||||
June 30, 2018 | March 31, 2018 | December 31, 2017 | September 30, 2017 | June 30, 2017 | |||||||||||||||
Days Claims Payable | 49 | 50 | 49 | 54 | 54 | ||||||||||||||
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