Aetna Reports Fourth-Quarter and Full-Year 2017 Results
“Aetna’s strong 2017 results demonstrate the power and versatility of our core businesses,” said
“We closed 2017 with a strong fourth quarter performance,” said Shawn M. Guertin,
(In millions, except per share data) |
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Fourth-Quarter 2017 | Full-Year 2017 | ||||||||||||||||||||||||||||||||||
Revenue | Earnings | EPS | Revenue | Earnings | EPS | ||||||||||||||||||||||||||||||
GAAP | $ | 14,853 | $ | 244 | $ | 0.74 | $ | 60,535 | $ | 1,904 | $ | 5.68 | |||||||||||||||||||||||
Non-GAAP (Adjusted) | $ | 14,742 | $ | 411 | $ | 1.25 | $ | 60,675 | $ | 3,309 | $ | 9.86 | |||||||||||||||||||||||
Medical Membership totaled 22.2 million at |
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Fourth-Quarter and Full-Year Financial Results at a Glance | ||||||||||||||||||||||||||||||||||
Fourth-Quarter | Full-Year | |||||||||||||||||||||||||||||||||
(Millions, except per common share data) | 2017 | 2016 | Change | 2017 | 2016 | Change | ||||||||||||||||||||||||||||
Total revenue | $ | 14,853 | $ | 15,727 | (6 | )% | $ | 60,535 | $ | 63,155 | (4 | )% | ||||||||||||||||||||||
Adjusted revenue(3) | 14,742 | 15,717 | (6 | )% | 60,675 | 63,046 | (4 | )% | ||||||||||||||||||||||||||
Net income(1) | 244 | 139 | 76 | % | 1,904 | 2,271 | (16 | )% | ||||||||||||||||||||||||||
Adjusted earnings(2) | 411 | 578 | (29 | )% | 3,309 | 2,917 | 13 | % | ||||||||||||||||||||||||||
Per share results: | ||||||||||||||||||||||||||||||||||
Net income(1) | $ | 0.74 | $ | 0.39 | 90 | % | $ | 5.68 | $ | 6.41 | (11 | )% | ||||||||||||||||||||||
Adjusted earnings(2) | 1.25 | 1.63 | (23 | )% | 9.86 | 8.23 | 20 | % | ||||||||||||||||||||||||||
Weighted average common shares - diluted | 329.2 | 354.9 | 335.4 | 354.3 | ||||||||||||||||||||||||||||||
On
In connection with the CVS Health transaction, CVS Health filed a registration statement on Form S-4, as amended, which contains unaudited prospective financial information about
- As a result of the pending CVS Health transaction,
Aetna has suspended repurchases of its common shares. AtDecember 31, 2017 ,Aetna had 326.8 million common shares outstanding.Aetna projects that its 2018 weighted average diluted share count will be approximately 330 million shares. - Effective
January 1, 2018 ,Aetna adopted Financial Accounting Standards Board Accounting Standards Codification Topic 606 (“ASC 606”) on a modified retrospective basis.Aetna projects that the adoption of ASC 606 will increase both its revenue and its expenses by approximately$1.5 billion to$2.0 billion for 2018 related to modifications to principal versus agent guidance for Aetna’s home delivery and specialty pharmacy operations. However,Aetna does not expect the adoption of ASC 606 to cause any material changes in the timing of its recognition of revenue or net income. - As a result of the Tax Cuts and Jobs Act of 2017 (the "TCJA") which became effective in
December 2017 ,Aetna projects its corporate income tax rate will decline compared to the corporate income tax rate used in theAetna management projections.Aetna estimates the TCJA will increase gross 2018 adjusted earnings(9) by approximately$800 million , of whichAetna projects at least 50% will accrue to adjusted earnings as presented in theAetna management projections after the impact of reduced premium revenue due to minimum MLR rebates and lower recapture of the health insurer fee ("HIF") and accelerated investment spending onAetna 's growth initiatives. -
Aetna projects that the suspension of the HIF for 2019 enacted onJanuary 22, 2018 , will decrease 2018 adjusted earnings as presented in theAetna management projections by approximately$30 million to$50 million due to reduced premiums for 2018 medical customer renewals that have member months in 2019.
Total Company Results
- Net income(1) was
$244 million for fourth-quarter 2017 compared with$139 million for fourth-quarter 2016. Full year 2017 net income was$1.9 billion compared with$2.3 billion for full year 2016. The increase in net income during fourth-quarter 2017 was primarily due to lower restructuring and transaction and integration-related costs in 2017 compared to 2016, partially offset by the decrease in adjusted earnings described below and the unfavorable impact of the TCJA described below. The decrease in net income during the full-year 2017 was primarily due to costs associated with the termination of the Humana Merger Agreement during first-quarter 2017, partially offset by the increase in adjusted earnings described below.
- Adjusted earnings(2) were
$411 million for fourth-quarter 2017 compared with$578 million for fourth-quarter 2016. Full year 2017 adjusted earnings were$3.3 billion compared with$2.9 billion for the full year 2016. The decrease in adjusted earnings during fourth-quarter 2017 was primarily due to lower favorable development of prior-period health care costs estimates inAetna 's Health Care segment and targeted investment spending onAetna 's growth initiatives, partially offset by reduced losses inAetna 's individual commercial products. The increase in adjusted earnings during full-year 2017 was primarily due to strong performance inAetna 's Health Care segment. - Total revenue and adjusted revenue(3) were
$14.9 billion and$14.7 billion , respectively, for fourth-quarter 2017 and were each$15.7 billion for fourth-quarter 2016. Full-year 2017 total revenue and adjusted revenue were$60.5 billion and$60.7 billion respectively, compared with$63.2 billion and$63.0 billion respectively, for the full-year 2016. The decrease in total revenue and adjusted revenue during fourth-quarter and full-year 2017 was primarily due to lower premiums inAetna 's Health Care segment, including lower membership inAetna 's ACA compliant individual and small group products and the temporary suspension of the HIF in 2017. The sale ofAetna 's domestic group life insurance, group disability insurance, and absence management businesses (the "Group Insurance sale") onNovember 1, 2017 also contributed to fourth-quarter and full-year 2017 decreases in total revenue and adjusted revenue. - Total company expense ratio was 20.5 percent and 22.9 percent for the fourth quarters of 2017 and 2016, respectively. The decrease for fourth quarter 2017 was primarily due to the temporary suspension of the HIF, lower restructuring and transaction and integration-related costs and the continued execution of
Aetna 's expense management initiatives in 2017, partially offset by targeted investment spending onAetna 's growth initiatives.Aetna 's total company expense ratio was 19.9 percent and 19.1 percent for full-years 2017 and 2016, respectively. The increase for full year 2017 was primarily due to costs associated with the termination of the Humana Merger Agreement during the first-quarter 2017 and targeted investment spending onAetna 's growth initiatives, partially offset by the temporary suspension of the HIF and the continued execution ofAetna 's expense management initiatives in 2017. - Adjusted expense ratio(4) remained relatively consistent at 20.0 percent and 19.8 percent for the fourth quarters of 2017 and 2016, respectively. The 2017 ratio reflects targeted investment spending on
Aetna 's growth initiatives, largely offset by the temporary suspension of the HIF and the continued execution ofAetna 's expense management initiatives.Aetna 's adjusted expense ratio was 17.5 percent and 18.1 percent for the full-years 2017 and 2016, respectively. The decrease for the full-year 2017 was primarily due to the temporary suspension of the HIF and the continued execution ofAetna 's expense management initiatives in 2017, partially offset by targeted investment spending onAetna 's growth initiatives. - After-tax net income margin was 1.6 percent and 0.9 percent for the fourth quarters of 2017 and 2016, respectively. The increase in the after-tax net income margin for fourth-quarter 2017 was primarily due to lower restructuring costs and transaction and integration-related costs in fourth-quarter 2017 compared to 2016, partially offset by the unfavorable impact of the TCJA described below. For the full-years 2017 and 2016, the after-tax net income margin was 3.1 percent and 3.6 percent, respectively. The decrease in the after-tax net income margin for full-year 2017 was primarily due to costs associated with the termination of the Humana Merger Agreement during the first-quarter 2017.
- Adjusted pre-tax margin(5) was 4.8 percent and 6.4 percent for the fourth quarters of 2017 and 2016, respectively. The decrease in the adjusted pre-tax margin for fourth-quarter 2017 was primarily due to increased investment spending on
Aetna 's growth initiatives and the negative impact of the temporary suspension of the HIF in 2017. For the full-years 2017 and 2016, the adjusted pre-tax margin was 9.0 percent and 8.3 percent, respectively. The full-year 2017 improvement was primarily due to strong performance inAetna 's Health Care segment, partially offset by increased investment spending onAetna 's growth initiatives and the negative impact of the temporary suspension of the HIF. - Total debt to consolidated capitalization ratio(6) was 37.0 percent at
December 31, 2017 compared with 53.6 percent atDecember 31, 2016 . The total debt to consolidated capitalization ratio atDecember 31, 2017 reflects financing activity during 2017 including the repayment of approximately$12.6 billion aggregate principal amount of senior notes and the issuance of$1.0 billion aggregate principal amount of senior notes. - Effective tax rate was 51.7 percent for fourth-quarter 2017 compared with 53.5 percent for fourth-quarter 2016. The effective tax rate was 36.3 percent for the full-year 2017 compared to 43.5 percent for the full-year 2016. Fourth-quarter and full-year 2017 results each include an incremental tax expense of
$99 million related to the estimated reduction in net deferred tax assets as a result of the enactment of the TCJA inDecember 2017 . Excluding the impact of the TCJA, the effective tax rate was 32.9 percent and 33.0 percent for fourth-quarter and full-year 2017, respectively. The decrease inAetna 's effective tax rate for fourth-quarter 2017 and full-year 2017 was primarily due to the temporary suspension of the non-deductible HIF in 2017 and increased tax benefits for share based compensation, largely offset by the unfavorable impact of the TCJA described above. -
Health Care and Group Insurance cash flows used for operations were approximately$178 million during full-year 2017. The full-year 2017 cash flows primarily reflect cash payments associated with the termination of the Humana Merger Agreement, the timing of cash collections inAetna 's Medicare products and a tax payment associated with theGroup Insurance sale. - Cash and investments at the parent were approximately
$2.2 billion atDecember 31, 2017 .-
Aetna started the quarter with approximately$1.2 billion ; - Net subsidiary dividends to the parent, including the proceeds received from the
Group Insurance sale, were$2.1 billion in the quarter; -
Aetna repaid$1.0 billion in debt during the quarter; -
Aetna paid a shareholder dividend of$163 million in the quarter; and - After other sources and uses,
Aetna ended the quarter with approximately$2.2 billion of cash and investments at the parent.
-
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:
- Income before income taxes(1) of
$587 million for fourth-quarter 2017 compared with$905 million for fourth-quarter 2016. Pre-tax adjusted earnings(2) were$662 million for fourth-quarter 2017 compared with$964 million fourth-quarter 2016. The decrease in income before income taxes and pre-tax adjusted earnings was primarily due to lower favorable development of prior-period health care costs estimates, higher targeted investment spending onAetna 's growth initiatives and the negative impact of the temporary suspension of the HIF in 2017, partially offset by reduced losses inAetna 's individual commercial products. - Total revenue was
$14.5 billion for fourth-quarter 2017 and$15.0 billion for fourth-quarter 2016. Adjusted revenue(3) was$14.4 billion for fourth-quarter 2017 and$15.0 billion for fourth-quarter 2016. The decrease in total revenue and adjusted revenue was primarily due to lower membership inAetna 's ACA compliant individual and small group products, lower membership inAetna 's Medicaid products and the temporary suspension of the HIF in 2017. The decrease was partially offset by higher premium yields inAetna 's Commercial and Government businesses and membership growth inAetna 's Medicare products. - Medical membership at
December 31, 2017 increased slightly compared withSeptember 30, 2017 . The increase primarily reflects increases inAetna 's Commercial ASC products, largely offset by decreases inAetna 's Commercial Insured products. - Medical benefit ratios ("MBRs") for the fourth-quarter and full-year 2017 and 2016 were as follows:
Fourth-Quarter | Full-Year | |||||||||||||||||||||||||||||||
2017 | 2016 | Change | 2017 | 2016 | Change | |||||||||||||||||||||||||||
Commercial | 85.9 | % | 83.0 | % | 2.9 | pts. | 81.3 | % | 82.0 | % | (0.7 | ) | pts. | |||||||||||||||||||
Government | 82.9 | % | 81.2 | % | 1.7 | pts. | 83.0 | % | 81.5 | % | 1.5 | pts. | ||||||||||||||||||||
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84.3 | % | 82.1 | % | 2.2 | pts. | 82.2 | % | 81.8 | % | 0.4 | pts. | ||||||||||||||||||||
-
Aetna 's fourth-quarter 2017 Commercial MBR increased compared with fourth-quarter 2016 primarily due to prior-periods' health care cost estimates developing largely in-line withAetna 's reserve estimates atSeptember 30, 2017 during fourth-quarter 2017, compared to favorable development of prior-periods' health care cost estimates during fourth-quarter 2016. The increase was also due to the unfavorable impact of the temporary suspension of the HIF in 2017, partially offset by reduced losses inAetna 's individual Commercial products. -
Aetna 's fourth-quarter 2017 Government MBR increased compared with fourth-quarter 2016 primarily due to the unfavorable impact of the temporary suspension of the HIF in 2017.
- In fourth-quarter 2017,
Aetna experienced favorable development of prior-periods' health care cost estimates. During that period,Aetna experienced favorable development of prior-periods' health care cost estimates in its Medicare and Medicaid products primarily attributable to third-quarter 2017 performance and development in its Commercial products largely in-line with its reserve estimates atSeptember 30, 2017 . - Prior year's health care costs payable estimates developed favorably by
$814 million and$764 million during 2017 and 2016, respectively. This development is reported on a basis consistent with the prior years' development reported in the health care costs payable table inAetna 's annual audited financial statements, and does not directly correspond to an increase in 2017 operating results. - Days claims payable(6) was 49 days at
December 31, 2017 , a decrease of five days compared withDecember 31, 2016 andSeptember 30, 2017 . The sequential and year-over-year decreases were primarily driven by the timing of provider payments, lower development of prior periods' health care cost estimates, changes in business mix reflecting lower individual and higher stop loss membership inAetna 's Commercial products and reduced pharmacy payables. The sequential decrease also was due to the reduction of the 2017 premium deficiency reserve.
Full-year 2017 income before income taxes(1) for Health Care was
Group Insurance Segment Results
On
- Income before income taxes(1) was
$103 million for fourth-quarter 2017 compared with$36 million for fourth-quarter 2016. Income before income taxes increased primarily due to a gain recognized during fourth-quarter 2017 as a result of theGroup Insurance sale. - Pre-tax adjusted earnings(2) were
$16 million for fourth-quarter 2017 compared with$37 million for fourth-quarter 2016. Pre-tax adjusted earnings decreased primarily due to theGroup Insurance sale during fourth-quarter 2017. - Total revenue was
$324 million and$620 million for the fourth quarters of 2017 and 2016, respectively. Adjusted revenue(3) was$237 million and$621 million for the fourth quarters of 2017 and 2016, respectively. The decrease in total revenue and adjusted revenue was primarily due to theGroup Insurance sale during fourth-quarter 2017. The decrease in total revenue was partially offset by a gain recognized during fourth-quarter 2017 as a result of theGroup Insurance sale.
Full-year 2017 income before income taxes(1) for
Large Case Pensions Segment Results
Large Case Pensions, which manages a variety of discontinued and other retirement and savings products, primarily for qualified pension plans, reported:
- Income before income taxes(1) of
$6 million and$3 million for the fourth quarters of 2017 and 2016, respectively. Pre-tax adjusted earnings(2) were each$3 million for the fourth quarters of 2017 and 2016. - Total revenue of
$74 million and$64 million for the fourth quarters of 2017 and 2016, respectively. Adjusted revenue(3) was$71 million and$64 million for the fourth quarters of 2017 and 2016, respectively. The increase in total revenue and adjusted revenue was primarily due to higher premiums in fourth-quarter 2017.
Full-year 2017 income before income taxes(1) for Large Case Pensions was
Given the pending transaction with CVS Health,
About
Condensed Consolidated Balance Sheets | |||||||||||
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(Millions) | 2017 | 2016 | |||||||||
(unaudited) | |||||||||||
Assets: | |||||||||||
Cash and short-term investments | $ | 6,356 | $ | 21,042 | |||||||
Accounts receivable, net | 5,071 | 4,580 | |||||||||
Other current assets | 4,080 | 2,827 | |||||||||
Total current assets | 15,507 | 28,449 | |||||||||
Long-term investments | 17,793 | 21,833 | |||||||||
Other long-term assets | 21,837 | 18,864 | |||||||||
Total assets | $ | 55,137 | $ | 69,146 | |||||||
Liabilities and shareholders’ equity: | |||||||||||
Health care costs payable | $ | 5,815 | $ | 6,558 | |||||||
Current portion of long-term debt | 999 | 1,634 | |||||||||
Other current liabilities | 10,009 | 10,502 | |||||||||
Total current liabilities | 16,823 | 18,694 | |||||||||
Long-term debt, less current portion | 8,160 | 19,027 | |||||||||
Other long-term liabilities | 14,317 | 13,482 | |||||||||
Total |
15,580 | 17,881 | |||||||||
Non-controlling interests | 257 | 62 | |||||||||
Total liabilities and equity | $ | 55,137 | $ | 69,146 | |||||||
Consolidated Statements of Income | ||||||||||||||||||||||||||
Three Months Ended |
Year Ended |
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(Millions) | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||||
Health care premiums | $ | 12,870 | $ | 13,493 | $ | 52,022 | $ | 54,116 | ||||||||||||||||||
Other premiums | 214 | 546 | 1,872 | 2,182 | ||||||||||||||||||||||
Fees and other revenue | 1,526 | 1,465 | 5,930 | 5,861 | ||||||||||||||||||||||
Net investment income | 220 | 223 | 950 | 910 | ||||||||||||||||||||||
Net realized capital gains (losses) | 23 | — | (239 | ) | 86 | |||||||||||||||||||||
Total revenue | 14,853 | 15,727 | 60,535 | 63,155 | ||||||||||||||||||||||
Benefits and expenses: | ||||||||||||||||||||||||||
Health care costs | 10,848 | 11,083 | 42,753 | 44,255 | ||||||||||||||||||||||
Current and future benefits | 243 | 512 | 1,875 | 2,101 | ||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||
Selling expenses | 374 | 433 | 1,598 | 1,678 | ||||||||||||||||||||||
General and administrative expenses | 2,673 | 3,175 | 10,466 | 10,407 | ||||||||||||||||||||||
Total operating expenses | 3,047 | 3,608 | 12,064 | 12,085 | ||||||||||||||||||||||
Interest expense | 93 | 189 | 442 | 604 | ||||||||||||||||||||||
Amortization of other acquired intangible assets | 96 | 60 | 272 | 247 | ||||||||||||||||||||||
Loss on early extinguishment of long-term debt | — | — | 246 | — | ||||||||||||||||||||||
Reduction of reserve for anticipated future losses on discontinued products | — | — | (109 | ) | (128 | ) | ||||||||||||||||||||
Total benefits and expenses | 14,327 | 15,452 | 57,543 | 59,164 | ||||||||||||||||||||||
Income before income taxes | 526 | 275 | 2,992 | 3,991 | ||||||||||||||||||||||
Income tax expense | 272 | 147 | 1,087 | 1,735 | ||||||||||||||||||||||
Net income including non-controlling interests | 254 | 128 | 1,905 | 2,256 | ||||||||||||||||||||||
Less: Net income (loss) attributable to non-controlling interests | 10 | (11 | ) | 1 | (15 | ) | ||||||||||||||||||||
Net income attributable to |
$ | 244 | $ | 139 | $ | 1,904 | $ | 2,271 | ||||||||||||||||||
Consolidated Statements of Cash Flows | ||||||||||||||
Year Ended |
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(Millions) | 2017 | 2016 | ||||||||||||
(unaudited) | ||||||||||||||
Cash flows from operating activities: | ||||||||||||||
Net income including non-controlling interests | $ | 1,905 | $ | 2,256 | ||||||||||
Adjustments to reconcile net income to net cash (used for) provided by operating activities: | ||||||||||||||
Net realized capital losses (gains) | 239 | (86 | ) | |||||||||||
Depreciation and amortization | 705 | 681 | ||||||||||||
Debt fair value amortization | (17 | ) | (30 | ) | ||||||||||
Equity in earnings of affiliates, net | (105 | ) | (6 | ) | ||||||||||
Stock-based compensation expense | 187 | 191 | ||||||||||||
Reduction of reserve for anticipated future losses on discontinued products | (109 | ) | (128 | ) | ||||||||||
Amortization of net investment premium | 69 | 79 | ||||||||||||
Loss on early extinguishment of long-term debt | 246 | — | ||||||||||||
Gain on sale of businesses | (88 | ) | — | |||||||||||
Changes in assets and liabilities: | ||||||||||||||
Premiums due and other receivables | (794 | ) | (153 | ) | ||||||||||
Income taxes | (672 | ) | 155 | |||||||||||
Other assets and other liabilities | (1,460 | ) | 669 | |||||||||||
Health care and insurance liabilities | (624 | ) | 91 | |||||||||||
Distributions from partnership investments | 54 | — | ||||||||||||
Net cash (used for) provided by operating activities | (464 | ) | 3,719 | |||||||||||
Cash flows from investing activities: | ||||||||||||||
Proceeds from sales and maturities of investments | 12,144 | 14,741 | ||||||||||||
Cost of investments | (10,370 | ) | (14,852 | ) | ||||||||||
Additions to property, equipment and software | (410 | ) | (270 | ) | ||||||||||
Proceeds from sale of businesses, net of cash transferred | 1,390 | — | ||||||||||||
Cash used for acquisitions, net of cash acquired | (24 | ) | — | |||||||||||
Net cash provided by (used for) investing activities | 2,730 | (381 | ) | |||||||||||
Cash flows from financing activities: | ||||||||||||||
Issuance of long-term debt | 988 | 12,886 | ||||||||||||
Repayment of long-term debt | (12,734 | ) | — | |||||||||||
Deposits and interest credited to investment contracts net of (withdrawals) | 1 | 1 | ||||||||||||
Common shares issued under benefit plans, net | (180 | ) | (139 | ) | ||||||||||
Common shares repurchased | (3,845 | ) | — | |||||||||||
Dividends paid to shareholders | (583 | ) | (351 | ) | ||||||||||
Net payment on interest rate derivatives | — | (274 | ) | |||||||||||
Contributions, non-controlling interests | 167 | 11 | ||||||||||||
Net cash (used for) provided by financing activities | (16,186 | ) | 12,134 | |||||||||||
Net (decrease) increase in cash and cash equivalents | (13,920 | ) | 15,472 | |||||||||||
Cash and cash equivalents, beginning of period | 17,996 | 2,524 | ||||||||||||
Cash and cash equivalents, end of period | $ | 4,076 | $ | 17,996 | ||||||||||
Reconciliation of the Most Directly Comparable GAAP Measure to Certain Reported Amounts | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended |
Three Months Ended |
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(Millions, except per common share data)
Reconciliation of net income to adjusted earnings |
Total |
Per |
Total |
Per |
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Net income(1) (GAAP measure) | $ | 244 | $ | 0.74 | $ | 139 | $ | 0.39 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Gain related to sale of certain domestic group insurance businesses | (88 | ) | (0.27 | ) | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Transaction and integration-related costs | 38 | 0.12 | 184 | 0.52 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring costs | 60 | 0.18 | 404 | 1.14 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of other acquired intangible assets | 96 | 0.29 | 60 | 0.17 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net realized capital gains | (23 | ) | (0.07 | ) | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income tax expense (benefit) | 84 | 0.26 | (209 | ) | (0.59 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Adjusted earnings(2) | $ | 411 | $ | 1.25 | $ | 578 | $ | 1.63 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Weighted average common shares - diluted | 329.2 | 354.9 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended |
Three Months Ended |
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(Millions)
Reconciliation of total revenue to adjusted revenue |
Health |
Group |
Large |
Corporate |
Total |
Health |
Group |
Large |
Corporate |
Total |
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Total revenue (GAAP measure) | $ | 14,455 | $ | 324 | $ | 74 | $ | — | $ | 14,853 | $ | 15,033 | $ | 620 | $ | 64 | $ | 10 | $ | 15,727 | ||||||||||||||||||||||||||||||||||||||||
Gain related to sale of certain domestic group insurance businesses | — | (88 | ) | — | — | (88 | ) | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest income on proceeds of transaction-related debt | — | — | — | — | — | — | — | — | (10 | ) | (10 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Net realized capital (gains) losses | (21 | ) | 1 | (3 | ) | — | (23 | ) | (1 | ) | 1 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
Adjusted revenue(3) (excludes net realized capital (gains) losses and other items) | $ | 14,434 | $ | 237 | $ | 71 | $ | — | $ | 14,742 | $ | 15,032 | $ | 621 | $ | 64 | $ | — | $ | 15,717 | ||||||||||||||||||||||||||||||||||||||||
Reconciliation of income before income taxes to pre-tax adjusted earnings | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income (loss) before income taxes (GAAP measure) | $ | 583 | $ | 103 | $ | 6 | $ | (166 | ) | $ | 526 | $ | 889 | $ | 36 | $ | 4 | $ | (654 | ) | $ | 275 | ||||||||||||||||||||||||||||||||||||||
Less: (Loss) income before income taxes attributable to non-controlling interests (GAAP measure) | (4 | ) | — | — | — | (4 | ) | (16 | ) | — | 1 | — | (15 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Income (loss) before income taxes attributable to |
587 | 103 | 6 | (166 | ) | 530 | 905 | 36 | 3 | (654 | ) | 290 | ||||||||||||||||||||||||||||||||||||||||||||||||
Gain related to sale of certain domestic group insurance businesses | — | (88 | ) | — | — | (88 | ) | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Transaction and integration-related costs | — | — | — | 38 | 38 | — | — | — | 184 | 184 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring costs | — | — | — | 60 | 60 | — | — | — | 404 | 404 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of other acquired intangible assets | 96 | — | — | — | 96 | 60 | — | — | — | 60 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net realized capital (gains) losses | (21 | ) | 1 | (3 | ) | — | (23 | ) | (1 | ) | 1 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
Pre-tax adjusted earnings (loss)(2) | $ | 662 | $ | 16 | $ | 3 | $ | (68 | ) | $ | 613 | $ | 964 | $ | 37 | $ | 3 | $ | (66 | ) | $ | 938 | ||||||||||||||||||||||||||||||||||||||
Reconciliation of the Most Directly Comparable GAAP Measure to Certain Reported Amounts | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year Ended |
Year Ended |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Millions, except per common share data)
Reconciliation of net income to adjusted earnings |
Total |
Per |
Total |
Per |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income(1) (GAAP measure) | $ | 1,904 | $ | 5.68 | $ | 2,271 | $ | 6.41 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Gain related to sale of certain domestic group insurance businesses | (88 | ) | (0.26 | ) | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loss on early extinguishment of long-term debt | 246 | 0.73 | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Penn Treaty-related guaranty fund assessments | 231 | 0.69 | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Transaction and integration-related costs | 1,240 | 3.70 | 517 | 1.46 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring costs | 60 | 0.18 | 404 | 1.14 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reduction of reserve for anticipated future losses on discontinued products | (109 | ) | (0.33 | ) | (128 | ) | (0.36 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of other acquired intangible assets | 272 | 0.81 | 247 | 0.70 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net realized capital losses (gains) | 239 | 0.71 | (86 | ) | (0.24 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income tax benefit | (686 | ) | (2.05 | ) | (308 | ) | (0.87 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Adjusted earnings(2) | $ | 3,309 | $ | 9.86 | $ | 2,917 | $ | 8.23 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Weighted average common shares - diluted | 335.4 | 354.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year Ended |
Year Ended |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Millions)
Reconciliation of total revenue to adjusted revenue |
Health |
Group |
Large |
Corporate |
Total |
Health |
Group |
Large |
Corporate |
Total |
||||||||||||||||||||||||||||||||||||||||||||||||||
Total revenue (GAAP measure) | $ | 58,302 | $ | 2,237 | $ | 321 | $ | (325 | ) | $ | 60,535 | $ | 60,347 | $ | 2,501 | $ | 284 | $ | 23 | $ | 63,155 | |||||||||||||||||||||||||||||||||||||||
Gain related to sale of certain domestic group insurance businesses | — | (88 | ) | — | — | (88 | ) | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest income on proceeds of transaction-related debt | — | — | — | (11 | ) | (11 | ) | — | — | — | (23 | ) | (23 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Net realized capital (gains) losses | (55 | ) | (35 | ) | (7 | ) | 336 | 239 | (52 | ) | (24 | ) | (10 | ) | — | (86 | ) | |||||||||||||||||||||||||||||||||||||||||||
Adjusted revenue(3) (excludes net realized capital (gains) losses and other items) | $ | 58,247 | $ | 2,114 | $ | 314 | $ | — | $ | 60,675 | $ | 60,295 | $ | 2,477 | $ | 274 | $ | — | $ | 63,046 | ||||||||||||||||||||||||||||||||||||||||
Reconciliation of income before income taxes to pre-tax adjusted earnings | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income (loss) before income taxes (GAAP measure) | $ | 4,748 | $ | 248 | $ | 132 | $ | (2,136 | ) | $ | 2,992 | $ | 4,858 | $ | 165 | $ | 148 | $ | (1,180 | ) | $ | 3,991 | ||||||||||||||||||||||||||||||||||||||
Less: (Loss) income before income taxes attributable to non-controlling interests (GAAP measure) | (11 | ) | — | 1 | — | (10 | ) | (20 | ) | — | — | — | (20 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Income (loss) before income taxes attributable to |
4,759 | 248 | 131 | (2,136 | ) | 3,002 | 4,878 | 165 | 148 | (1,180 | ) | 4,011 | ||||||||||||||||||||||||||||||||||||||||||||||||
Gain related to sale of certain domestic group insurance businesses | — | (88 | ) | — | — | (88 | ) | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Loss on early extinguishment of long-term debt | — | — | — | 246 | 246 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
Penn Treaty-related guaranty fund assessments | 231 | — | — | — | 231 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
Transaction and integration-related costs | — | — | — | 1,240 | 1,240 | — | — | — | 517 | 517 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring costs | — | — | — | 60 | 60 | — | — | — | 404 | 404 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Reduction of reserve for anticipated future losses on discontinued products | — | — | (109 | ) | — | (109 | ) | — | — | (128 | ) | — | (128 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Amortization of other acquired intangible assets | 272 | — | — | — | 272 | 247 | — | — | — | 247 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net realized capital (gains) losses | (55 | ) | (35 | ) | (7 | ) | 336 | 239 | (52 | ) | (24 | ) | (10 | ) | — | (86 | ) | |||||||||||||||||||||||||||||||||||||||||||
Pre-tax adjusted earnings (loss)(2) | $ | 5,207 | $ | 125 | $ | 15 | $ | (254 | ) | $ | 5,093 | $ | 5,073 | $ | 141 | $ | 10 | $ | (259 | ) | $ | 4,965 | ||||||||||||||||||||||||||||||||||||||
Margins and Ratios | ||||||||||||||||||||||||||
Three Months Ended |
Year Ended |
|||||||||||||||||||||||||
(Millions) | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||
Reconciliation of income before income taxes to adjusted earnings before income taxes, excluding interest expense: | ||||||||||||||||||||||||||
Income before income taxes (GAAP measure) | $ | 526 | $ | 275 | $ | 2,992 | $ | 3,991 | ||||||||||||||||||
Interest expense(8) | 93 | 80 | 357 | 317 | ||||||||||||||||||||||
Gain related to sale of certain domestic group insurance businesses | (88 | ) | — | (88 | ) | — | ||||||||||||||||||||
Loss on early extinguishment of long-term debt | — | — | 246 | — | ||||||||||||||||||||||
Penn Treaty-related guaranty fund assessments | — | — | 231 | — | ||||||||||||||||||||||
Transaction and integration-related costs | 38 | 184 | 1,240 | 517 | ||||||||||||||||||||||
Restructuring costs | 60 | 404 | 60 | 404 | ||||||||||||||||||||||
Reduction of reserve for anticipated future losses on discontinued products | — | — | (109 | ) | (128 | ) | ||||||||||||||||||||
Amortization of other acquired intangible assets | 96 | 60 | 272 | 247 | ||||||||||||||||||||||
Net realized capital (gains) losses | (23 | ) | — | 239 | (86 | ) | ||||||||||||||||||||
Adjusted earnings(2) before income taxes, excluding interest expense | (A) | $ | 702 | $ | 1,003 | $ | 5,440 | $ | 5,262 | |||||||||||||||||
Reconciliation of net income to adjusted earnings excluding interest expense, net of tax: | ||||||||||||||||||||||||||
Net income(1) (GAAP measure) | (B) | $ | 244 | $ | 139 | $ | 1,904 | $ | 2,271 | |||||||||||||||||
Interest expense(8) | 93 | 80 | 357 | 317 | ||||||||||||||||||||||
Gain related to sale of certain domestic group insurance businesses | (88 | ) | — | (88 | ) | — | ||||||||||||||||||||
Loss on early extinguishment of long-term debt | — | — | 246 | — | ||||||||||||||||||||||
Penn Treaty-related guaranty fund assessments | — | — | 231 | — | ||||||||||||||||||||||
Transaction and integration-related costs | 38 | 184 | 1,240 | 517 | ||||||||||||||||||||||
Restructuring costs | 60 | 404 | 60 | 404 | ||||||||||||||||||||||
Reduction of reserve for anticipated future losses on discontinued products | — | — | (109 | ) | (128 | ) | ||||||||||||||||||||
Amortization of other acquired intangible assets | 96 | 60 | 272 | 247 | ||||||||||||||||||||||
Net realized capital (gains) losses | (23 | ) | — | 239 | (86 | ) | ||||||||||||||||||||
Income tax expense (benefit) | 51 | (237 | ) | (811 | ) | (419 | ) | |||||||||||||||||||
Adjusted earnings(2) excluding interest expense, net of tax | $ | 471 | $ | 630 | $ | 3,541 | $ | 3,123 | ||||||||||||||||||
Reconciliation of total revenue to adjusted revenue: | ||||||||||||||||||||||||||
Total revenue (GAAP measure) | (C) | $ | 14,853 | $ | 15,727 | $ | 60,535 | $ | 63,155 | |||||||||||||||||
Gain related to sale of certain domestic group insurance businesses | (88 | ) | — | (88 | ) | — | ||||||||||||||||||||
Interest income on proceeds of transaction-related debt | — | (10 | ) | (11 | ) | (23 | ) | |||||||||||||||||||
Net realized capital (gains) losses | (23 | ) | — | 239 | (86 | ) | ||||||||||||||||||||
Adjusted revenue(3) (excludes net realized capital (gains) losses and other items) | (D) | $ | 14,742 | $ | 15,717 | $ | 60,675 | $ | 63,046 | |||||||||||||||||
Reconciliation of total operating expenses to adjusted operating expenses: | ||||||||||||||||||||||||||
Total operating expenses (GAAP measure) | (E) | $ | 3,047 | $ | 3,608 | $ | 12,064 | $ | 12,085 | |||||||||||||||||
Penn Treaty-related guaranty fund assessments | — | — | (231 | ) | — | |||||||||||||||||||||
Transaction and integration-related costs | (38 | ) | (85 | ) | (1,166 | ) | (253 | ) | ||||||||||||||||||
Restructuring costs | (60 | ) | (404 | ) | (60 | ) | (404 | ) | ||||||||||||||||||
Adjusted operating expenses | (F) | $ | 2,949 | $ | 3,119 | $ | 10,607 | $ | 11,428 | |||||||||||||||||
Net income and adjusted pre-tax margins: | ||||||||||||||||||||||||||
After-tax net income margin (GAAP measure) | (B)/(C) | 1.6 | % | 0.9 | % | 3.1 | % | 3.6 | % | |||||||||||||||||
Adjusted pre-tax margin(5) | (A)/(D) | 4.8 | % | 6.4 | % | 9.0 | % | 8.3 | % | |||||||||||||||||
Expense ratios: | ||||||||||||||||||||||||||
Total company expense ratio (GAAP measure) | (E)/(C) | 20.5 | % | 22.9 | % | 19.9 | % | 19.1 | % | |||||||||||||||||
Adjusted expense ratio(4) | (F)/(D) | 20.0 | % | 19.8 | % | 17.5 | % | 18.1 | % | |||||||||||||||||
Health Care, Group Insurance and Corporate Financing Operating Cash Flow as a Percentage of Net Income | |||||||||||||
Year Ended |
|||||||||||||
(Millions) | 2017 | 2016 | |||||||||||
Net cash (used for) provided by operating activities (GAAP measure) | $ | (464 | ) | $ | 3,719 | ||||||||
Less: Net cash used for operating activities: Large Case Pensions | (286 | ) | (269 | ) | |||||||||
Net cash (used for) provided by operating activities: Health Care, Group Insurance and Corporate Financing | (A) | (178 | ) | 3,988 | |||||||||
Net income(1) (GAAP Measure) | 1,904 | 2,271 | |||||||||||
Less: Net income: Large Case Pensions | 40 | 104 | |||||||||||
Net income: Health Care, Group Insurance and Corporate Financing | (B) | $ | 1,864 | $ | 2,167 | ||||||||
Operating cash flow as a percentage of net income: | |||||||||||||
Operating cash flow as a percentage of net income(1) (GAAP Measure) | (A)/(B) | N/M * | 184.0 | % |
* Not meaningful due to cash used for operating activities for the year ended
Footnotes
(1) Net income refers to net income attributable to
(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:
- Amortization of other acquired intangible assets;
- Net realized capital gains or losses; and
- Other items, if any, that neither relate to the ordinary course of
Aetna 's business nor reflectAetna 's underlying business performance.
Although the excluded items may recur, management believes the non-GAAP financial measures
For the periods covered in this press release, the following items are excluded from the non-GAAP financial measures described above, as applicable, because
- During the three months and year ended
December 31, 2017 ,Aetna sold a substantial portion of itsGroup Insurance segment consisting of its domestic group life insurance, group disability insurance and absence management businesses. The transaction is being accomplished through an indemnity reinsurance arrangement. The sale is expected to result in an after-tax gain of approximately$710 million ($1.1 billion pre-tax), a significant portion of which will be deferred and amortized into earnings: (a) over the remaining contract period (estimated to be approximately 3 years) in proportion to the amount of insurance protection provided for the prospective reinsurance portion of the gain and (b) as we recover amounts due from the buyer over a period estimated to be approximately 30 years for the retrospective reinsurance portion of the gain. The gain recognized does not directly relate to the underwriting or servicing of products for customers and is not directly related to the core performance ofAetna 's business operations. - During the year ended
December 31, 2017 ,Aetna incurred losses on the early extinguishment of long-term debt due to (a) the mandatory redemption of$10.2 billion aggregate principal amount of certain of its senior notes issued inJune 2016 (collectively, the "SMR Notes") following the termination of the definitive agreement (the "Humana Merger Agreement") to acquire Humana Inc. ("Humana") and (b) the early redemption of$750 million aggregate principal amount of its outstanding senior notes due 2020. - During the year ended
December 31, 2017 ,Aetna recorded an expense for estimated future guaranty fund assessments related toPenn Treaty Network America Insurance Company and one of its subsidiaries (collectively, "Penn Treaty"), which was placed in rehabilitation in 2009 and placed in liquidation inMarch 2017 . This expense does not directly relate to the underwriting or servicing of products for customers and is not directly related to the core performance ofAetna 's business operations. -
Aetna recorded transaction-related costs during the three months and year endedDecember 31, 2017 related to its proposed acquisition by CVS Health.Aetna also recorded transaction and integration-related costs during the year endedDecember 31, 2017 and the three months and year endedDecember 31, 2016 primarily related to its proposed acquisition of Humana (the "Humana Transaction"). Transaction costs include costs associated with the transactions contemplated by the CVS Health merger agreement, the termination of the Humana Merger Agreement, the termination ofAetna 's agreement to sell certain assets to Molina Healthcare, Inc. and advisory, legal and other professional fees which are reflected inAetna 's GAAP Consolidated Statements of Income in general and administrative expenses. Transaction costs also include the negative cost of carry associated with the debt financing thatAetna obtained inJune 2016 for the Humana Transaction. Prior to the mandatory redemption of the SMR Notes, the negative cost of carry associated with these senior notes was excluded from adjusted earnings and pre-tax adjusted earnings. The negative cost of carry associated with the$2.8 billion aggregate principal amount ofAetna 's senior notes issued inJune 2016 that are not subject to mandatory redemption (the "Other 2016 Senior Notes") was excluded from adjusted earnings and pre-tax adjusted earnings through the date of the termination of the Humana Merger Agreement. The components of the negative cost of carry are reflected inAetna 's GAAP Consolidated Statements of Income in interest expense and net investment income. Subsequent to the termination of the Humana Merger Agreement, the interest expense and net investment income associated with the Other 2016 Senior Notes were no longer excluded from adjusted earnings and pre-tax adjusted earnings. - Restructuring costs for the three months and year ended
December 31, 2017 include severance costs associated withAetna 's expense management and cost control initiatives. Restructuring costs for the three months and year endedDecember 31, 2016 include costs related toAetna 's voluntary early retirement program, severance and real estate consolidation costs associated withAetna 's expense management and cost control initiatives and an accrual for minimum volume commitments which requireAetna to make payments to suppliers if the level of medical membership subject to the agreements falls below specified levels.Aetna no longer expected to meet these minimum volume commitments as a result ofAetna 's previously announced reduced participation on the ACA's individual public health insurance exchanges in 2017. The 2017 and 2016 restructuring costs are reflected inAetna 's GAAP Consolidated Statements of Income in general and administrative expenses. - In 1993,
Aetna discontinued the sale of fully guaranteed large case pensions products and established a reserve for anticipated future losses on these products, whichAetna reviews quarterly. During both the year endedDecember 31, 2017 and 2016,Aetna reduced the reserve for anticipated future losses on discontinued products.Aetna believes excluding any changes in the reserve for anticipated future losses on discontinued products from adjusted earnings provides more useful information as toAetna 's continuing products and is consistent with the treatment of the operating results of these discontinued products, which are credited or charged to the reserve and do not affectAetna 's operating results. - Other acquired intangible assets relate to
Aetna 's acquisition activities and are amortized over their useful lives. However, this amortization does not directly relate to the underwriting or servicing of products for customers and is not directly related to the core performance ofAetna 's business operations. - 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
Aetna 's business operations. - The corresponding tax benefit or expense related to the items excluded from adjusted earnings discussed above and the TCJA. The corresponding tax benefit or expense related to excluded items was calculated utilizing the appropriate tax rate for each individual item excluded from adjusted earnings. The three months and year ended
December 31, 2017 also include an incremental tax expense of$99 million which reflects the estimated impact of the enactment of the TCJA onDecember 22 . 2017. The TCJA reduced the corporate tax rate to 21 percent, effectiveJanuary 1, 2018 . Accordingly, we remeasured our deferred income taxes as of the enactment date, and, as the measurement of the income tax effect could be reasonably estimated, we recognized the change in our deferred income taxes in our income tax expense from continuing operations. The year endedDecember 31, 2017 also includes a$29 million tax benefit which reflects anticipated incremental tax benefits related to certain costs associated with the Humana Transaction. Neither the income tax benefit or expense on the excluded items nor the TCJA tax expense directly relates to the underwriting or servicing of products for customers, and neither is directly related to the core performance ofAetna 's business operations.
For a reconciliation of financial measures calculated under GAAP to these items, refer to the tables on pages 12 through 14 of this press release.
(3) Adjusted revenue excludes net realized capital gains and losses, gain related to the
(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 14 of this press release.
(5) In order to provide useful information regarding
(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 consolidated capitalization ratio is calculated by dividing total long-term debt and short-term debt ("Total Debt") by the sum of Total Debt and total
(7)
(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 year ended
(9) For more information about the
No Offer or Solicitation
This communication is for informational purposes only and not intended to and does not constitute an offer to subscribe for, buy or sell, the solicitation of an offer to subscribe for, buy or sell or an invitation to subscribe for, buy or sell any securities or the solicitation of any vote or approval in any jurisdiction pursuant to or in connection with the proposed transaction or otherwise, nor shall there be any sale, issuance or transfer of securities in any jurisdiction in contravention of applicable law. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended, and otherwise in accordance with applicable law.
Additional Information and Where to Find It
In connection with the proposed transaction between CVS Health Corporation (“CVS Health”) and
Participants in Solicitation
CVS Health,
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 progress toward completion of CVS Health’s proposed acquisition of
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
Supplementary Information |
||||||||||||||||||||||||||||||
Statements of Income Before Income Taxes Attributable to |
||||||||||||||||||||||||||||||
Health | Group | Large Case | Corporate | |||||||||||||||||||||||||||
(Millions) | Care | Insurance | Pensions | Financing | Total | |||||||||||||||||||||||||
Three Months Ended December 31, 2017 | ||||||||||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||||||||
Health care premiums | $ | 12,870 | $ | — | $ | — | $ | — | $ | 12,870 | ||||||||||||||||||||
Other premiums | — | 197 | 17 | — | 214 | |||||||||||||||||||||||||
Fees and other revenue | 1,427 | 97 | 2 | — | 1,526 | |||||||||||||||||||||||||
Net investment income | 137 | 31 | 52 | — | 220 | |||||||||||||||||||||||||
Net realized capital gains (losses) | 21 | (1 | ) | 3 | — | 23 | ||||||||||||||||||||||||
Total revenue | 14,455 | 324 | 74 | — | 14,853 | |||||||||||||||||||||||||
Benefits and expenses: | ||||||||||||||||||||||||||||||
Health care costs | 10,848 | — | — | — | 10,848 | |||||||||||||||||||||||||
Current and future benefits | — | 177 | 66 | — | 243 | |||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||
Selling expenses | 363 | 11 | — | — | 374 | |||||||||||||||||||||||||
General and administrative expenses | 2,565 | 33 | 2 | 73 | 2,673 | |||||||||||||||||||||||||
Total operating expenses | 2,928 | 44 | 2 | 73 | 3,047 | |||||||||||||||||||||||||
Interest expense | — | — | — | 93 | 93 | |||||||||||||||||||||||||
Amortization of other acquired intangible assets | 96 | — | — | — | 96 | |||||||||||||||||||||||||
Total benefits and expenses | 13,872 | 221 | 68 | 166 | 14,327 | |||||||||||||||||||||||||
Income (loss) before income taxes including non-controlling interests | 583 | 103 | 6 | (166 | ) | 526 | ||||||||||||||||||||||||
Less: Loss before income taxes attributable to non-controlling interests | (4 | ) | — | — | — | (4 | ) | |||||||||||||||||||||||
Income (loss) before income taxes attributable to |
$ | 587 | $ | 103 | $ | 6 | $ | (166 | ) | $ | 530 | |||||||||||||||||||
Three Months Ended December 31, 2016 | ||||||||||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||||||||
Health care premiums | $ | 13,493 | $ | — | $ | — | $ | — | $ | 13,493 | ||||||||||||||||||||
Other premiums | — | 539 | 7 | — | 546 | |||||||||||||||||||||||||
Fees and other revenue | 1,435 | 28 | 2 | — | 1,465 | |||||||||||||||||||||||||
Net investment income | 104 | 54 | 55 | 10 | 223 | |||||||||||||||||||||||||
Net realized capital gains (losses) | 1 | (1 | ) | — | — | — | ||||||||||||||||||||||||
Total revenue | 15,033 | 620 | 64 | 10 | 15,727 | |||||||||||||||||||||||||
Benefits and expenses: | ||||||||||||||||||||||||||||||
Health care costs | 11,083 | — | — | — | 11,083 | |||||||||||||||||||||||||
Current and future benefits | — | 455 | 57 | — | 512 | |||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||
Selling expenses | 395 | 38 | — | — | 433 | |||||||||||||||||||||||||
General and administrative expenses | 2,606 | 91 | 3 | 475 | 3,175 | |||||||||||||||||||||||||
Total operating expenses | 3,001 | 129 | 3 | 475 | 3,608 | |||||||||||||||||||||||||
Interest expense | — | — | — | 189 | 189 | |||||||||||||||||||||||||
Amortization of other acquired intangible assets | 60 | — | — | — | 60 | |||||||||||||||||||||||||
Total benefits and expenses | 14,144 | 584 | 60 | 664 | 15,452 | |||||||||||||||||||||||||
Income (loss) before income taxes including non-controlling interests | 889 | 36 | 4 | (654 | ) | 275 | ||||||||||||||||||||||||
Less: (Loss) income before income taxes attributable to non-controlling interests | (16 | ) | — | 1 | — | (15 | ) | |||||||||||||||||||||||
Income (loss) before income taxes attributable to |
$ | 905 | $ | 36 | $ | 3 | $ | (654 | ) | $ | 290 | |||||||||||||||||||
Statements of Income Before Income Taxes Attributable to |
||||||||||||||||||||||||||||||
Health | Group | Large Case | Corporate | |||||||||||||||||||||||||||
(Millions) | Care | Insurance | Pensions | Financing | Total | |||||||||||||||||||||||||
Year Ended December 31, 2017 | ||||||||||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||||||||
Health care premiums | $ | 52,022 | $ | — | $ | — | $ | — | $ | 52,022 | ||||||||||||||||||||
Other premiums | — | 1,819 | 53 | — | 1,872 | |||||||||||||||||||||||||
Fees and other revenue | 5,749 | 173 | 8 | — | 5,930 | |||||||||||||||||||||||||
Net investment income | 476 | 210 | 253 | 11 | 950 | |||||||||||||||||||||||||
Net realized capital gains (losses) | 55 | 35 | 7 | (336 | ) | (239 | ) | |||||||||||||||||||||||
Total revenue | 58,302 | 2,237 | 321 | (325 | ) | 60,535 | ||||||||||||||||||||||||
Benefits and expenses: | ||||||||||||||||||||||||||||||
Health care costs | 42,753 | — | — | — | 42,753 | |||||||||||||||||||||||||
Current and future benefits | — | 1,588 | 287 | — | 1,875 | |||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||
Selling expenses | 1,479 | 119 | — | — | 1,598 | |||||||||||||||||||||||||
General and administrative expenses | 9,050 | 282 | 11 | 1,123 | 10,466 | |||||||||||||||||||||||||
Total operating expenses | 10,529 | 401 | 11 | 1,123 | 12,064 | |||||||||||||||||||||||||
Interest expense | — | — | — | 442 | 442 | |||||||||||||||||||||||||
Amortization of other acquired intangible assets | 272 | — | — | — | 272 | |||||||||||||||||||||||||
Loss on early extinguishment of long-term debt | — | — | — | 246 | 246 | |||||||||||||||||||||||||
Reduction of reserve for anticipated future losses on discontinued products | — | — | (109 | ) | — | (109 | ) | |||||||||||||||||||||||
Total benefits and expenses | 53,554 | 1,989 | 189 | 1,811 | 57,543 | |||||||||||||||||||||||||
Income (loss) before income taxes including non-controlling interests | 4,748 | 248 | 132 | (2,136 | ) | 2,992 | ||||||||||||||||||||||||
Less: (Loss) income before income taxes attributable to non-controlling interests | (11 | ) | — | 1 | — | (10 | ) | |||||||||||||||||||||||
Income (loss) before income taxes attributable to |
$ | 4,759 | $ | 248 | $ | 131 | $ | (2,136 | ) | $ | 3,002 | |||||||||||||||||||
Year Ended December 31, 2016 | ||||||||||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||||||||
Health care premiums | $ | 54,116 | $ | — | $ | — | $ | — | $ | 54,116 | ||||||||||||||||||||
Other premiums | — | 2,143 | 39 | — | 2,182 | |||||||||||||||||||||||||
Fees and other revenue | 5,744 | 108 | 9 | — | 5,861 | |||||||||||||||||||||||||
Net investment income | 435 | 226 | 226 | 23 | 910 | |||||||||||||||||||||||||
Net realized capital gains | 52 | 24 | 10 | — | 86 | |||||||||||||||||||||||||
Total revenue | 60,347 | 2,501 | 284 | 23 | 63,155 | |||||||||||||||||||||||||
Benefits and expenses: | ||||||||||||||||||||||||||||||
Health care costs | 44,255 | — | — | — | 44,255 | |||||||||||||||||||||||||
Current and future benefits | — | 1,850 | 251 | — | 2,101 | |||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||
Selling expenses | 1,545 | 133 | — | — | 1,678 | |||||||||||||||||||||||||
General and administrative expenses | 9,442 | 353 | 13 | 599 | 10,407 | |||||||||||||||||||||||||
Total operating expenses | 10,987 | 486 | 13 | 599 | 12,085 | |||||||||||||||||||||||||
Interest expense | — | — | — | 604 | 604 | |||||||||||||||||||||||||
Amortization of other acquired intangible assets | 247 | — | — | — | 247 | |||||||||||||||||||||||||
Reduction of reserve for anticipated future losses on discontinued products | — | — | (128 | ) | — | (128 | ) | |||||||||||||||||||||||
Total benefits and expenses | 55,489 | 2,336 | 136 | 1,203 | 59,164 | |||||||||||||||||||||||||
Income (loss) before income taxes including non-controlling interests | 4,858 | 165 | 148 | (1,180 | ) | 3,991 | ||||||||||||||||||||||||
Less: Loss before income taxes attributable to non-controlling interests | (20 | ) | — | — | — | (20 | ) | |||||||||||||||||||||||
Income (loss) before income taxes attributable to |
$ | 4,878 | $ | 165 | $ | 148 | $ | (1,180 | ) | $ | 4,011 | |||||||||||||||||||
Membership | ||||||||||||||||||||||||||||||||||||||||||||
December 31, 2017 | September 30, 2017 | December 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||
(Thousands) | Insured | ASC | Total | Insured | ASC | Total | Insured | ASC | Total | |||||||||||||||||||||||||||||||||||
Medical Membership: | ||||||||||||||||||||||||||||||||||||||||||||
Commercial | 4,504 | 13,596 | 18,100 | 4,584 | 13,470 | 18,054 | 5,457 | 13,132 | 18,589 | |||||||||||||||||||||||||||||||||||
Medicare Advantage | 1,473 | — | 1,473 | 1,467 | — | 1,467 | 1,362 | — | 1,362 | |||||||||||||||||||||||||||||||||||
Medicare Supplement | 740 | — | 740 | 733 | — | 733 | 685 | — | 685 | |||||||||||||||||||||||||||||||||||
Medicaid | 1,316 | 608 | 1,924 | 1,311 | 600 | 1,911 | 1,668 | 806 | 2,474 | |||||||||||||||||||||||||||||||||||
Total Medical Membership | 8,033 | 14,204 | 22,237 | 8,095 | 14,070 | 22,165 | 9,172 | 13,938 | 23,110 | |||||||||||||||||||||||||||||||||||
Dental Membership: | ||||||||||||||||||||||||||||||||||||||||||||
Total Dental Membership | 5,421 | 8,006 | 13,427 | 5,538 | 7,930 | 13,468 | 6,086 | 8,386 | 14,472 | |||||||||||||||||||||||||||||||||||
Pharmacy Benefit Management Services Membership: | ||||||||||||||||||||||||||||||||||||||||||||
Commercial | 8,034 | 7,994 | 9,400 | |||||||||||||||||||||||||||||||||||||||||
Medicare Prescription Drug Plan (stand-alone) | 2,077 | 2,074 | 2,067 | |||||||||||||||||||||||||||||||||||||||||
Medicare Advantage Prescription Drug Plan | 1,129 | 1,124 | 953 | |||||||||||||||||||||||||||||||||||||||||
Medicaid | 2,525 | 2,493 | 2,783 | |||||||||||||||||||||||||||||||||||||||||
Total Pharmacy Benefit Management Services Membership | 13,765 | 13,685 | 15,203 |
Health Care Medical Benefit Ratios | ||||||||||||||||||||||||
Three Months Ended December 31, |
Year Ended December 31, |
|||||||||||||||||||||||
(Millions) | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||
Premiums (GAAP measure) | ||||||||||||||||||||||||
Commercial | $ | 6,129 | $ | 6,949 | $ | 24,548 | $ | 27,916 | ||||||||||||||||
Government | 6,741 | 6,544 | 27,474 | 26,200 | ||||||||||||||||||||
Health Care | $ | 12,870 | $ | 13,493 | $ | 52,022 | $ | 54,116 | ||||||||||||||||
Health Care Costs (GAAP measure) | ||||||||||||||||||||||||
Commercial | $ | 5,263 | $ | 5,768 | $ | 19,952 | $ | 22,896 | ||||||||||||||||
Government | 5,585 | 5,315 | 22,801 | 21,359 | ||||||||||||||||||||
Health Care | $ | 10,848 | $ | 11,083 | $ | 42,753 | $ | 44,255 | ||||||||||||||||
Medical Benefit Ratios "MBRs" | ||||||||||||||||||||||||
Commercial | 85.9 | % | 83.0 | % | 81.3 | % | 82.0 | % | ||||||||||||||||
Government | 82.9 | % | 81.2 | % | 83.0 | % | 81.5 | % | ||||||||||||||||
Health Care | 84.3 | % | 82.1 | % | 82.2 | % | 81.8 | % | ||||||||||||||||
Roll Forward of Health Care Costs Payable | ||||||||||||
(Unaudited) | ||||||||||||
Year Ended December 31, |
||||||||||||
(Millions) | 2017 | 2016 | ||||||||||
Health care costs payable, beginning of period | $ | 6,558 | $ | 6,306 | ||||||||
Less: reinsurance recoverables | 5 | 4 | ||||||||||
Health care costs payable, beginning of period, net | 6,553 | 6,302 | ||||||||||
Add: Components of incurred health care costs: | ||||||||||||
Current year | 43,551 | 45,019 | ||||||||||
Prior years(a) | (814 | ) | (764 | ) | ||||||||
Total incurred health care costs (b) | 42,737 | 44,255 | ||||||||||
Less: Claims paid | ||||||||||||
Current year | 37,974 | 38,700 | ||||||||||
Prior years | 5,523 | 5,304 | ||||||||||
Total claims paid | 43,497 | 44,004 | ||||||||||
Health care costs payable, end of period, net | 5,793 | 6,553 | ||||||||||
Add: premium deficiency reserve | 16 | — | ||||||||||
Add: reinsurance recoverables | 6 | 5 | ||||||||||
Health care costs payable, end of period | $ | 5,815 | $ | 6,558 |
(a) Negative amounts reported for incurred health care costs related to prior years result from claims being settled for amounts less than originally estimated.
(b) Total incurred health care costs exclude from the table above $16 million related to the premium deficiency reserve recorded during the year ended December 31, 2017 for the 2018 coverage year related to
Days Claims Payable (Unaudited) | ||||||||||||||||||||
December 31, 2017 | September 30, 2017 | June 30, 2017 | March 31, 2017 | December 31, 2016 | ||||||||||||||||
Days Claims Payable | 49 | 54 | 54 | 53 | 54 |
Health Care Reform's Reinsurance, Risk Adjustment and Risk Corridor (the “3Rs”)(a) Net Receivable (Payable) | ||||||||||||||||||||||||||||||||||||
December 31, 2017 | December 31, 2016 | |||||||||||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||||||||
(Millions) | Reinsurance | Risk Adjustment | Risk Corridor(b) | Reinsurance | Risk Adjustment | Risk Corridor | ||||||||||||||||||||||||||||||
Current | $ | 37 | $ | (41 | ) | $ | — | $ | 202 | $ | (690 | ) | $ | (10 | ) | |||||||||||||||||||||
Long-term | — | 2 | — | — | — | — | ||||||||||||||||||||||||||||||
Total net receivable (payable) | $ | 37 | $ | (39 | ) | $ | — | $ | 202 | $ | (690 | ) | $ | (10 | ) |
(a)
(b)
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