Aetna 2012 Annual Report Download - page 136

Annual Report- Page 130
A reconciliation of operating earnings (1) to net income in 2012, 2011 and 2010 was as follows:
(Millions) 2012 2011 2010
Operating earnings $ 1,769.6 $ 1,965.7 $ 1,555.4
Net realized capital gains, net of tax 71.0 109.1 183.8
Litigation-related settlement, net of tax (78.0) — —
Transaction and integration-related costs, net of tax (25.4) — (43.1)
Loss on early extinguishment of long-term debt, net of tax (55.2) — —
Severance and/or facilities charge, net of tax (24.1) — (30.8)
Voluntary early retirement program, net of tax —(89.1) —
Litigation-related insurance proceeds, net of tax —— 101.5
Net income $ 1,657.9 $ 1,985.7 $ 1,766.8
(1) In addition to net realized capital gains, the following other items are excluded from operating earnings because we believe they neither
relate to the ordinary course of our business nor reflect our underlying business performance:
• In 2012, we recorded a charge of $78.0 million ($120.0 million pretax) related to the settlement of purported class action
litigation regarding Aetna's payment practices related to out-of-network health care providers.
• In 2012, we incurred transaction and integration-related costs of $25.4 million ($32.6 million pretax) related to the proposed
acquisition of Coventry. Transaction costs include advisory, legal and other professional fees which are not deductible for tax
purposes and are reflected in our Consolidated Statements of Income in general and administrative expenses. Transaction costs
also include the cost of a bridge credit agreement that was in place prior to permanent financing that was obtained in November
2012 for the proposed Coventry acquisition as well as the negative cost of carry associated with such permanent financing. The
cost of the bridge credit agreement is reflected in our Consolidated Statements of Income in interest expense. The components of
negative cost of carry associated with the permanent financing are reflected in our Consolidated Statements of Income in interest
expense, net investment income, and general and administrative expenses.
• In 2012, we incurred a loss on the early extinguishment of long-term debt of $55.2 million ($84.9 million pretax) related to
repurchases of certain of our outstanding senior notes.
• In 2012, we recorded a severance charge of $24.1 million ($37.0 million pretax). In 2010, we recorded severance and facilities
charges of $30.8 million ($47.4 million pretax). The 2012 severance charge and the 2010 severance and facilities charges each
related to actions taken that year or committed to be taken in the following year.
• In 2011, we announced a voluntary early retirement program. In connection with the voluntary early retirement program, we
recorded a charge of $89.1 million ($137.0 million pretax) during 2011.
• In 2010, we recorded transaction related costs of $43.1 million ($66.2 million pretax). These costs related to our Pharmacy
Benefit Management Subcontract Agreement with CVS Caremark Corporation and the announced acquisition of Medicity.
• Following a Pennsylvania Supreme Court ruling in June 2009, we recorded litigation-related insurance proceeds of $101.5
million ($156.3 million pretax) in 2010 from our liability insurers related to certain litigation we settled in 2003.
Revenues from external customers by product in 2012, 2011 and 2010 were as follows:
(Millions) 2012 2011 2010
Health care premiums $ 28,872.0 $ 27,189.2 $ 27,610.6
Health care fees and other revenue 3,736.9 3,604.7 3,413.3
Group life 1,070.1 1,036.7 1,084.9
Group disability 726.0 632.6 639.1
Group long-term care 45.9 45.9 52.1
Large case pensions, excluding a group annuity contract conversion premium 176.6 172.0 162.2
Group annuity contract conversion premium (1) 941.4 — —
Total revenue from external customers (2) (3) $ 35,568.9 $ 32,681.1 $ 32,962.2
(1) In the fourth quarter of 2012, pursuant to a contractual right exercised by a contract holder, an existing group annuity contract converted
from a participating to a non-participating contract. Upon conversion, we recorded a $941.4 million one-time non-cash group annuity
conversion premium for this contract and a corresponding $941.4 million one-time non-cash benefit expense on group annuity
conversion for this contract.
(2) All within the U.S., except approximately $775 million, $590 million and $429 million in 2012, 2011 and 2010, respectively, which
were derived from foreign customers.
(3) Revenue from the U.S. federal government was $7.4 billion, $7.0 billion and $7.5 billion in 2012, 2011 and 2010, respectively, in the
Health Care and Group Insurance segments. These amounts exceeded 10 percent of our total revenue from external customers in each of
2012, 2011 and 2010.