Aetna 2012 Annual Report Download - page 26

Annual Report- Page 20
Other Liquidity Information
From time to time, we use short-term commercial paper borrowings to address timing differences between cash
receipts and disbursements. At December 31, 2012, we did not have any commercial paper outstanding. At
December 31, 2011, we had approximately $426 million commercial paper outstanding with a weighted average
interest rate of .38%. The maximum amount of commercial paper borrowings outstanding during 2012 was $721
million. We expect to issue approximately $500 million of commercial paper in 2013 to finance a portion of the
cash purchase price for the proposed Coventry acquisition.
Our debt to capital ratio (calculated as the sum of all short- and long-term debt outstanding (“total debt”) divided by
the sum of shareholders' equity plus total debt) was approximately 38% and 30% at December 31, 2012 and 2011,
respectively. The ratio increased in 2012 primarily due to long-term debt financing activity during 2012, including
issuance of the 2012 Coventry-related senior notes. At the completion of the proposed acquisition of Coventry, we
project our debt to capital ratio will be approximately 40% following the issuance of approximately $500 million of
commercial paper to partially finance the cash portion of the proposed acquisition. Following the announcement of
the proposed acquisition of Coventry in August 2012, each of A.M. Best, Fitch and Moody’s placed certain of our
debt, financial strength and other credit ratings under review for possible downgrade. S&P has affirmed certain of
our ratings and revised its outlook to stable from positive. Consistent with our expectations, Moody's has said it
anticipates downgrading our long-term debt and financial strength ratings following the closing of the proposed
acquisition of Coventry. We intend to lower our debt to capital ratio to approximately 35% over two years
following the completion of the proposed Coventry acquisition. We continually monitor existing and alternative
financing sources to support our capital and liquidity needs, including, but not limited to, debt issuance, preferred or
common stock issuance, reinsurance and pledging or selling of assets.
Interest expense was $269 million, $247 million and $255 million for 2012, 2011 and 2010, respectively. The
increase in interest expense during 2012 compared with 2011 was due to the higher average long-term debt levels
as a result of the issuance of the 2012 senior notes in May 2012 and the 2012 Coventry-related senior notes in
November 2012. The decrease in interest expense during 2011 compared with 2010 was due to lower overall
average long-term debt levels primarily as a result of the repayments of senior notes in 2011.
In connection with the proposed Coventry acquisition, we expect to incur pretax transaction-related costs of
approximately $120 million. In addition, we expect to record pretax integration-related costs of approximately
$250 million to $300 million between 2013 and 2015. Pre-tax transaction and integration-related costs incurred in
2012 were $32.6 million.
Effective December 31, 2010, our employees no longer earn future pension service credits in the Aetna Pension
Plan (i.e., the plan was “frozen”). The Aetna Pension Plan will continue to operate and account balances will
continue to earn annual interest credits. The decrease in our pension cost for 2012 and 2011 compared to 2010 is
primarily the result of freezing the Aetna Pension Plan. We expect our future pension expense to continue to be
lower than 2010.
Our current funding strategy is to fund an amount at least equal to the minimum funding requirement as determined
under applicable regulatory requirements with consideration of factors such as the maximum tax deductibility of
such amounts. In the fourth quarter of 2011, we elected the 15 year amortization period for funding minimum
required contributions which is allowed under the Preservation of Access to Care for Medicare Beneficiaries and
Pension Relief Act of 2010. We do not have any mandatory contribution requirements for 2013; however, we may
make a voluntary contribution of approximately $60 million to the Aetna Pension Plan in 2013. During both 2012
and 2011, we made voluntary cash contributions of $60 million to the Aetna Pension Plan, and in 2010, we made a
voluntary cash contribution of $505 million to the Aetna Pension Plan.
Refer to Note 14 of Notes to Consolidated Financial Statements on page 120 for additional information on our
short-term and long-term debt.