AETNA INC /PA/ - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


[ü]		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended		September 30, 2003.


[ ]		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from				to


Commission File Number:		1-16095

Aetna Inc.

(Exact name of registrant as specified in its charter)


Pennsylvania		23-2229683

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


151 Farmington Avenue, Hartford, Connecticut			06156

(Address of principal executive offices)			(ZIP Code)

(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. þ Yes o No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). þ Yes o 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)		152,569,235

(Class)		Shares Outstanding at September 30, 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
EXHIBIT INDEX
AMENDED & RESTATED AETNA 2002 STOCK INCENTIVE PLAN
STATEMENT RE COMPUTATION OF RATIOS
LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION
CHIEF EXECUTIVE OFFICER CERTIFICATION
CHIEF FINANCIAL OFFICER CERTIFICATION
CHIEF EXECUTIVE OFFICER CERTIFICATION
CHIEF FINANCIAL OFFICER CERTIFICATION

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		19

Item 2.	Management’s Discussion and Analysis of




	Financial Condition and Results of Operations		20

Item 3.	Quantitative and Qualitative Disclosures




	About Market Risk		38

Item 4.	Controls and Procedures		38

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings		39

Item 5.	Other Information		41

Item 6.	Exhibits and Reports on Form 8-K		42

SIGNATURES			43

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)			2003			2002			2003			2002

Revenue:
	Health care premiums		$	3,301.7		$	3,635.5		$	9,846.8		$	11,497.8
	Other premiums			411.4			422.8			1,253.4			1,256.2
	Administrative services contract fees			466.3			459.4			1,413.0			1,386.6
	Net investment income			268.1			296.7			817.4			932.3
	Other income			8.1			10.9			21.2			30.5
	Net realized capital gains			13.5			6.8			49.8			57.6

Total revenue				4,469.1			4,832.1			13,401.6			15,161.0

Benefits and expenses:
	Health care costs			2,598.0			2,953.2			7,519.3			9,591.1
	Current and future benefits			512.3			544.2			1,565.8			1,666.8
	Operating expenses:
		Salaries and related benefits		532.5			575.9			1,639.9			1,686.5
		Other		453.2			478.0			1,491.3			1,501.0
	Interest expense			25.6			28.5			77.0			89.0
	Amortization of other acquired intangible assets			12.7			19.8			38.1			118.1
	Severance and facilities charges			—			89.0			—			116.0
	Reduction of reserve for anticipated future losses on discontinued products			—			—			—			(8.3	)

Total benefits and expenses				4,134.3			4,688.6			12,331.4			14,760.2

Income from continuing operations before income taxes (benefits)				334.8			143.5			1,070.2			400.8
Income taxes (benefits):
	Current			147.5			46.3			435.4			104.5
	Deferred			(28.6	)		(1.6	)		(49.5	)		1.3

Total income taxes				118.9			44.7			385.9			105.8

Income from continuing operations				215.9			98.8			684.3			295.0
Income from discontinued operations, net of tax				—			—			—			50.0

Income before cumulative effect adjustment				215.9			98.8			684.3			345.0
Cumulative effect adjustment, net of tax (Note 4)				—			—			—			(2,965.7	)

Net income (loss)			$	215.9		$	98.8		$	684.3		$	(2,620.7	)

Earnings (loss) per common share (Note 3):
	Basic:
		Income from continuing operations	$	1.41		$	.66		$	4.49		$	1.99
		Income from discontinued operations, net of tax		—			—			—			.34

		Income before cumulative effect adjustment		1.41			.66			4.49			2.33
		Cumulative effect adjustment, net of tax		—			—			—			(20.02	)

		Net income (loss)	$	1.41		$	.66		$	4.49		$	(17.69	)

	Diluted:
		Income from continuing operations	$	1.35		$	.64		$	4.33		$	1.93
		Income from discontinued operations, net of tax		—			—			—			.33

		Income before cumulative effect adjustment		1.35			.64			4.33			2.26
		Cumulative effect adjustment, net of tax		—			—			—			(19.45	)

		Net income (loss)	$	1.35		$	.64		$	4.33		$	(17.19	)

See Condensed Notes to Consolidated Financial Statements.

Page 1

CONSOLIDATED BALANCE SHEETS


		September 30,			December 31,
(Millions, except share data)		2003			2002

Assets
Current assets:
	Cash and cash equivalents	$	1,780.3		$	1,802.9
	Investment securities		14,616.4			14,013.5
	Other investments		321.1			358.0
	Premiums receivable, net		389.0			392.0
	Other receivables, net		348.2			286.2
	Accrued investment income		217.6			214.3
	Collateral received under securities loan agreements		910.4			969.0
	Loaned securities		892.0			948.2
	Deferred income taxes		251.1			311.3
	Other current assets		190.7			163.9

Total current assets			19,916.8			19,459.3

Long-term investments			1,641.4			1,754.9
Mortgage loans			1,328.0			1,514.9
Investment real estate			287.8			308.8
Reinsurance recoverables			1,207.9			1,251.8
Goodwill, net			3,618.4			3,618.4
Other acquired intangible assets, net			508.8			546.9
Property and equipment, net			274.3			244.8
Deferred income taxes			510.4			472.5
Other long-term assets			347.5			211.0
Separate Accounts assets			11,414.0			10,664.2

Total assets		$	41,055.3		$	40,047.5

Liabilities and shareholders’ equity
Current liabilities:
	Health care costs payable	$	1,899.0		$	2,194.1
	Future policy benefits		710.4			778.1
	Unpaid claims		642.6			590.0
	Unearned premiums		137.4			184.1
	Policyholders’ funds		1,098.4			1,072.2
	Collateral payable under securities loan agreements		910.4			969.0
	Income taxes payable		251.4			322.5
	Accrued expenses and other current liabilities		2,194.5			1,608.8

Total current liabilities			7,844.1			7,718.8

Future policy benefits			8,257.2			8,333.3
Unpaid claims			1,173.2			1,177.8
Policyholders’ funds			1,589.1			1,867.3
Long-term debt			1,626.7			1,633.2
Other long-term liabilities			1,459.0			1,672.9
Separate Accounts liabilities			11,414.0			10,664.2

Total liabilities			33,363.3			33,067.5

Commitments and contingent liabilities (Note 14)
Shareholders’ equity:
	Common stock and additional paid-in capital ($.01 par value, 750,163,322 shares authorized, 152,569,235 shares issued and outstanding in 2003; 756,277,772 shares authorized, 149,966,082 shares issued and outstanding in 2002)		4,058.6			4,070.9
	Accumulated other comprehensive loss		(424.3	)		(470.4	)
	Retained earnings		4,057.7			3,379.5

Total shareholders’ equity			7,692.0			6,980.0

Total liabilities and shareholders’ equity		$	41,055.3		$	40,047.5

See Condensed Notes to Consolidated Financial Statements.

Page 2

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY


								Accumulated Other
								Comprehensive
						Common Stock and		Income (Loss)
						Additional		Net Unrealized		Foreign		Derivatives			Minimum
(Millions, except share data)						Paid-in		Gains on		Currency		Gains			Pension			Retained
Nine Months Ended September 30, 2003				Total		Capital		Securities		Gains		(Losses)			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			684.3														684.3
		Other comprehensive income, net of tax:
			Net unrealized gains on securities ($67.4 pretax) (1)		43.8				43.8
			Net foreign currency gains ($2.8 pretax)

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