UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
| þ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, for the quarter ended September 30, 2002. |
Or
| o | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File Number 1-16095
Aetna Inc.
(Exact name of registrant as specified in its charter)
| Pennsylvania | 23-2229683 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) | |
| 151 Farmington Avenue | 06156 | |
| Hartford, Connecticut | (ZIP Code) | |
| (Address of principal executive offices) |
(860) 273-0123
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes þ No o
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Common Capital Stock (par value $.01) | 150,540,858 | |||
(Class) |
Shares Outstanding at September 30, 2002 | |||
Page 1
TABLE OF CONTENTS
| Page | ||||
| PART I. | FINANCIAL INFORMATION | |||
| Item 1. | Financial Statements | |||
| Consolidated Statements of Income | 3 | |||
| Consolidated Balance Sheets | 4 | |||
| Consolidated Statements of Shareholders’ Equity | 5 | |||
| Consolidated Statements of Cash Flows | 6 | |||
| Condensed Notes to Consolidated Financial Statements | 7 | |||
| Independent Accountants’ Review Report | 27 | |||
| Item 2. | Management’s Discussion and Analysis of | |||
| Financial Condition and Results of Operations | 28 | |||
| Item 3. | Quantitative and Qualitative Disclosures | |||
| About Market Risk | 49 | |||
| Item 4. | Controls and Procedures | 49 | ||
| PART II. | OTHER INFORMATION | |||
| Item 1. | Legal Proceedings | 51 | ||
| Item 2. | Changes in Securities | 54 | ||
| Item 5. | Other Information | 55 | ||
| Item 6. | Exhibits and Reports on Form 8-K | 56 | ||
| Signatures | 57 | |||
| Certification | 58 |
Page 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF INCOME
| Three Months Ended | Nine Months Ended | |||||||||||||||||
| September 30, | September 30, | |||||||||||||||||
| (Millions, except per common share data) | 2002 | 2001 | 2002 | 2001 | ||||||||||||||
Revenue: |
||||||||||||||||||
Health care premiums |
$ | 3,635.5 | $ | 4,955.6 | $ | 11,497.8 | $ | 15,064.1 | ||||||||||
Other premiums |
422.8 | 396.9 | 1,256.2 | 1,425.1 | ||||||||||||||
Administrative services contract fees |
459.4 | 457.6 | 1,386.6 | 1,390.1 | ||||||||||||||
Net investment income |
296.7 | 335.8 | 932.3 | 1,107.8 | ||||||||||||||
Other income |
10.9 | 36.8 | 30.5 | 64.2 | ||||||||||||||
Net realized capital gains |
6.8 | 3.2 | 57.6 | 99.7 | ||||||||||||||
Total revenue |
4,832.1 | 6,185.9 | 15,161.0 | 19,151.0 | ||||||||||||||
Benefits and expenses: |
||||||||||||||||||
Health care costs |
2,953.2 | 4,434.1 | 9,591.1 | 13,605.1 | ||||||||||||||
Current and future benefits |
544.2 | 556.2 | 1,666.8 | 1,921.9 | ||||||||||||||
Operating expenses: |
||||||||||||||||||
Salaries and related benefits |
575.9 | 555.6 | 1,686.5 | 1,741.3 | ||||||||||||||
Other |
478.0 | 562.4 | 1,501.0 | 1,626.1 | ||||||||||||||
Interest expense |
28.5 | 38.0 | 89.0 | 101.9 | ||||||||||||||
Amortization of goodwill |
— | 49.5 | — | 148.6 | ||||||||||||||
Amortization of other acquired intangible assets |
19.8 | 52.1 | 118.1 | 167.5 | ||||||||||||||
Severance and facilities charges |
89.0 | — | 116.0 | — | ||||||||||||||
Reduction of reserve for anticipated future losses on discontinued
products |
— | — | (8.3 | ) | (94.5 | ) | ||||||||||||
Total benefits and expenses |
4,688.6 | 6,247.9 | 14,760.2 | 19,217.9 | ||||||||||||||
Income (loss) from continuing operations before income taxes
(benefits) |
143.5 | (62.0 | ) | 400.8 | (66.9 | ) | ||||||||||||
Income taxes (benefits): |
||||||||||||||||||
Current |
46.3 | (10.8 | ) | 104.5 | 19.0 | |||||||||||||
Deferred |
(1.6 | ) | 3.2 | 1.3 | 6.6 | |||||||||||||
Total income taxes (benefits) |
44.7 | (7.6 | ) | 105.8 | 25.6 | |||||||||||||
Income (loss) from continuing operations |
98.8 | (54.4 | ) | 295.0 | (92.5 | ) | ||||||||||||
Income from discontinued operations, net of tax (Note 14) |
— | — | 50.0 | — | ||||||||||||||
Income (loss) before cumulative effect adjustments |
98.8 | (54.4 | ) | 345.0 | (92.5 | ) | ||||||||||||
Cumulative effect adjustments, net of tax (Note 2) |
— | — | (2,965.7 | ) | .5 | |||||||||||||
Net income (loss) |
$ | 98.8 | $ | (54.4 | ) | $ | (2,620.7 | ) | $ | (92.0 | ) | |||||||
Earnings (loss) per common share (Note 3): |
||||||||||||||||||
Basic: |
||||||||||||||||||
Income (loss) from continuing operations |
$ | .66 | $ | (.38 | ) | $ | 1.99 | $ | (.65 | ) | ||||||||
Income from discontinued operations, net of tax |
— | — | .34 | — | ||||||||||||||
Income (loss) before cumulative effect adjustments |
.66 | (.38 | ) | 2.33 | (.65 | ) | ||||||||||||
Cumulative effect adjustments, net of tax |
— | — | (20.02 | ) | .01 | |||||||||||||
Net income (loss) |
$ | .66 | $ | (.38 | ) | $ | (17.69 | ) | $ | (.64 | ) | |||||||
Diluted: |
||||||||||||||||||
Income from continuing operations |
$ | .64 | $ | — | $ | 1.93 | $ | — | ||||||||||
Income from discontinued operations, net of tax |
— | — | .33 | — | ||||||||||||||
Income before cumulative effect adjustments |
.64 | — | 2.26 | — | ||||||||||||||
Cumulative effect adjustments, net of tax |
— | — | (19.45 | ) | — | |||||||||||||
Net income (loss) |
$ | .64 | $ | — | $ | (17.19 | ) | $ | — | |||||||||
See Condensed Notes to Consolidated Financial Statements.
Page 3
Item 1. Financial Statements (Continued)
CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | ||||||||
| (Millions, except share data) | 2002 | 2001 | |||||||
Assets |
|||||||||
Current assets: |
|||||||||
Cash and cash equivalents |
$ | 1,834.2 | $ | 1,398.2 | |||||
Investment securities |
13,215.0 | 14,260.1 | |||||||
Other investments |
492.7 | 171.7 | |||||||
Premiums receivable, net |
493.2 | 572.7 | |||||||
Other receivables, net |
418.2 | 528.0 | |||||||
Accrued investment income |
217.0 | 232.3 | |||||||
Collateral received under securities loan agreements |
1,004.5 | 621.7 | |||||||
Loaned securities |
982.3 | 608.1 | |||||||
Deferred income taxes |
84.2 | 114.1 | |||||||
Other current assets |
178.8 | 185.9 | |||||||
Total current assets |
18,920.1 | 18,692.8 | |||||||
Long-term investments |
1,773.3 | 1,575.6 | |||||||
Mortgage loans |
1,514.7 | 1,887.8 | |||||||
Investment real estate |
324.4 | 359.7 | |||||||
Reinsurance recoverables |
1,247.7 | 1,269.7 | |||||||
Goodwill, net |
3,618.4 | 6,583.8 | |||||||
Other acquired intangible assets, net |
559.6 | 703.0 | |||||||
Property and equipment, net |
285.5 | 327.0 | |||||||
Deferred income taxes |
297.1 | 360.5 | |||||||
Other long-term assets |
162.5 | 146.8 | |||||||
Separate accounts assets |
10,462.7 | 11,290.0 | |||||||
Total assets |
$ | 39,166.0 | $ | 43,196.7 | |||||
Liabilities and shareholders’ equity |
|||||||||
Current liabilities: |
|||||||||
Health care costs payable |
$ | 2,265.3 | $ | 2,986.7 | |||||
Future policy benefits |
778.1 | 800.5 | |||||||
Unpaid claims |
559.4 | 544.4 | |||||||
Unearned premiums |
100.1 | 208.0 | |||||||
Policyholders’ funds |
922.4 | 1,052.8 | |||||||
Collateral payable under securities loan agreements |
1,004.5 | 621.7 | |||||||
Short-term debt |
— | 109.7 | |||||||
Income taxes payable |
96.2 | 147.4 | |||||||
Accrued expenses and other liabilities |
1,708.7 | 1,590.6 | |||||||
Total current liabilities |
7,434.7 | 8,061.8 | |||||||
Future policy benefits |
8,445.4 | 8,621.5 | |||||||
Unpaid claims |
1,210.1 | 1,203.6 | |||||||
Policyholders’ funds |
2,094.4 | 2,245.1 | |||||||
Long-term debt |
1,623.3 | 1,591.3 | |||||||
Other long-term liabilities |
266.3 | 293.1 | |||||||
Separate accounts liabilities |
10,462.7 | 11,290.0 | |||||||
Total liabilities |
31,536.9 | 33,306.4 | |||||||
Commitments and contingent liabilities (Note 13) |
|||||||||
Shareholders’ equity: |
|||||||||
Common stock and additional paid-in capital ($.01 par
value, 757,482,772 shares authorized, 150,540,858 shares issued
and outstanding in 2002; 759,900,000 shares authorized,
144,265,912 shares issued and outstanding in 2001) |
4,097.0 | 3,913.8 | |||||||
Accumulated other comprehensive income |
250.8 | 68.5 | |||||||
Retained earnings |
3,281.3 | 5,908.0 | |||||||
Total shareholders’ equity |
7,629.1 | 9,890.3 | |||||||
Total liabilities and shareholders’ equity |
$ | 39,166.0 | $ | 43,196.7 | |||||
See Condensed Notes to Consolidated Financial Statements.
Page 4
Item 1. Financial Statements (Continued)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
| Accumulated Other | |||||||||||||||||||||||||||
| Comprehensive | |||||||||||||||||||||||||||
| Income (Loss) | |||||||||||||||||||||||||||
| Common | |||||||||||||||||||||||||||
| Stock and | |||||||||||||||||||||||||||
| Additional | Net Unrealized | ||||||||||||||||||||||||||
| (Millions, except share data) | Paid-in | Gains on | Foreign | Retained | |||||||||||||||||||||||
| Nine Months Ended September 30, 2002 | Total | Capital | Securities | Currency | Derivatives | Earnings | |||||||||||||||||||||
Balances at December 31, 2001 |
$ | 9,890.3 | $ | 3,913.8 | $ | 66.6 | $ | 5.0 | $ | (3.1 | ) | $ | 5,908.0 | ||||||||||||||
Comprehensive loss: |
|||||||||||||||||||||||||||
Net loss |
(2,620.7 | ) | (2,620.7 | ) | |||||||||||||||||||||||
Other comprehensive income, net of
tax: |
|||||||||||||||||||||||||||
Net
unrealized gains on securities $(279.5 pretax) (Note 6) |
181.7 | 181.7 | |||||||||||||||||||||||||
Foreign currency ($.4 pretax) |
.3 | .3 | |||||||||||||||||||||||||
Derivatives ($.4 pretax) |
.3 | .3 | |||||||||||||||||||||||||
Other comprehensive income |
182.3 | ||||||||||||||||||||||||||
Total comprehensive loss |
(2,438.4 | ) | |||||||||||||||||||||||||