AETNA INC /PA/ - 10-Q Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q


[ü]		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, for the quarterly period ended *March 31, 2003.*


[ ]		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 Section 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 [ü]

No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes [ü]

No [ ]

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)		151,861,968

(Class)		Shares Outstanding at March 31, 2003

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
		CONSOLIDATED STATEMENTS OF INCOME
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
		Independent Accountants’ Review Report
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
CERTIFICATION
EXHIBIT INDEX
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION

TABLE OF CONTENTS


		Page

PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Statements of Income	1
	Consolidated Balance Sheets	2
	Consolidated Statements of Shareholders’ Equity	3
	Consolidated Statements of Cash Flows	4
	Condensed Notes to Consolidated Financial Statements	5
	Independent Accountants’ Review Report	16
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	33
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	33
Item 5.	Other Information	35
Item 6.	Exhibits and Reports on Form 8-K	36
SIGNATURES		37
CERTIFICATIONS		38

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED STATEMENTS OF INCOME


			Three Months Ended
			March 31,

(Millions, except per common share data)			2003			2002

Revenue:
	Health care premiums		$	3,269.0		$	4,044.8
	Other premiums			417.6			421.9
	Administrative services contract fees			475.5			464.6
	Net investment income			276.0			317.4
	Other income			6.7			10.6
	Net realized capital gains			21.7			5.4

Total revenue				4,466.5			5,264.7

Benefits and expenses:
	Health care costs			2,367.9			3,448.2
	Current and future benefits			527.6			567.6
	Operating expenses:
		Salaries and related benefits		564.6			557.4
		Other		455.8			515.3
	Interest expense			25.9			29.3
	Amortization of other acquired intangible assets			12.7			49.2

Total benefits and expenses				3,954.5			5,167.0

Income from continuing operations before income taxes (benefits)				512.0			97.7
Income taxes (benefits):
	Current			193.4			21.5
	Deferred			(11.4	)		(11.8	)

Total income taxes				182.0			9.7

Income from continuing operations				330.0			88.0
Income from discontinued operations, net of tax				—			50.0

Income before cumulative effect adjustment				330.0			138.0
Cumulative effect adjustment, net of tax (Note 4)				—			(2,965.7	)

Net income (loss)			$	330.0		$	(2,827.7	)

Earnings (loss) per common share (Note 3):
Basic:
	Income from continuing operations		$	2.19		$	.61
	Income from discontinued operations, net of tax			—			.34

	Income before cumulative effect adjustment			2.19			.95
	Cumulative effect adjustment, net of tax			—			(20.45	)

	Net income (loss)		$	2.19		$	(19.50	)

Diluted:
	Income from continuing operations		$	2.12		$	.59
	Income from discontinued operations, net of tax			—			.34

	Income before cumulative effect adjustment			2.12			.93
	Cumulative effect adjustment, net of tax			—			(19.93	)

	Net income (loss)		$	2.12		$	(19.00	)

See Condensed Notes to Consolidated Financial Statements.

Page 1

CONSOLIDATED BALANCE SHEETS


		March 31,			December 31,
(Millions, except share data)		2003			2002

Assets
Current assets:
	Cash and cash equivalents	$	1,923.4		$	1,802.9
	Investment securities		14,072.9			14,013.5
	Other investments		429.1			358.0
	Premiums receivable, net		346.5			392.0
	Other receivables, net		573.0			286.2
	Accrued investment income		216.4			214.3
	Collateral received under securities loan agreements		767.9			969.0
	Loaned securities		750.7			948.2
	Deferred income taxes		256.2			311.3
	Other current assets		194.3			163.9

Total current assets			19,530.4			19,459.3

Long-term investments			1,769.5			1,754.9
Mortgage loans			1,312.9			1,514.9
Investment real estate			331.8			308.8
Reinsurance recoverables			1,231.2			1,251.8
Goodwill, net			3,618.4			3,618.4
Other acquired intangible assets, net			534.2			546.9
Property and equipment, net			230.8			244.8
Deferred income taxes			516.0			472.5
Other long-term assets			253.9			211.0
Separate Accounts assets			10,900.9			10,664.2

Total assets		$	40,230.0		$	40,047.5

Liabilities and shareholders’ equity
Current liabilities:
	Health care costs payable	$	1,961.6		$	2,194.1
	Future policy benefits		762.5			778.1
	Unpaid claims		612.7			590.0
	Unearned premiums		178.8			184.1
	Policyholders’ funds		1,192.1			1,072.2
	Collateral payable under securities loan agreements		767.9			969.0
	Income taxes payable		449.7			322.5
	Accrued expenses and other current liabilities		1,672.6			1,608.8

Total current liabilities			7,597.9			7,718.8

Future policy benefits			8,300.7			8,333.3
Unpaid claims			1,191.3			1,177.8
Policyholders’ funds			1,635.6			1,867.3
Long-term debt			1,633.2			1,633.2
Other long-term liabilities			1,598.1			1,672.9
Separate Accounts liabilities			10,900.9			10,664.2

Total liabilities			32,857.7			33,067.5

Commitments and contingent liabilities (Note 14)
Shareholders’ equity:
	Common stock and additional paid-in capital ($.01 par value, 755,962,772 shares authorized, 151,861,968 shares issued and outstanding in 2003 and $.01 par value, 756,277,772 shares authorized, 149,966,082 shares issued and outstanding in 2002)		4,113.7			4,070.9
	Accumulated other comprehensive loss		(450.9	)		(470.4	)
	Retained earnings		3,709.5			3,379.5

Total shareholders’ equity			7,372.3			6,980.0

Total liabilities and shareholders’ equity		$	40,230.0		$	40,047.5

See Condensed Notes to Consolidated Financial Statements.

Page 2

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY


									Accumulated Other
									Comprehensive
						Common Stock and Additional Paid-in Capital			Income (Loss)

									Unrealized								Minimum
(Millions, except share data)									Gains (Losses)			Foreign					Pension			Retained
Three Months Ended March 31, 2003			Total						on Securities			Currency		Derivatives			Liability			Earnings

Balances at December 31, 2002			$	6,980.0		$	4,070.9		$	282.0		$	5.5	$	(2.7	)	$	(755.2	)	$	3,379.5
Comprehensive income:
	Net income			330.0																	330.0
	Other comprehensive income, net of tax:
		Net unrealized gains on securities ($27.7 pretax) (1)		18.0						18.0
		Foreign currency gains ($2.2 pretax)		1.4									1.4
		Derivative gains ($.1 pretax)		.1											.1

		Other comprehensive income		19.5

	Total comprehensive income			349.5

Common shares issued for benefit plans (2,210,886 shares)				56.5			56.5
Repurchase of common shares (315,000 shares)				(13.7	)		(13.7	)

Balances at March 31, 2003			$	7,372.3		$	4,113.7		$	300.0		$	6.9	$	(2.6	)	$	(755.2	)	$	3,709.5

Three Months Ended March 31, 2002

Balances at December 31, 2001			$	9,890.3		$	3,913.8		$	66.6		$	5.0	$	(3.1	)	$	—		$	5,908.0
Comprehensive loss:
	Net loss			(2,827.7	)																(2,827.7	)
	Other comprehensive loss, net of tax:
		Net unrealized losses on securities ($(113.8) pretax) (1)		(74.0	)					(74.0	)
		Foreign currency gains ($1.1 pretax)		.7									.7
		Derivative gains ($.1 pretax)		.1											.1

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