Aetna 2013 Annual Report Download - page 142

Annual Report- Page 136
Non-GAAP financial measures we disclose, such as operating earnings, should not be considered a substitute for, or
superior to, financial measures determined or calculated in accordance with GAAP. A reconciliation of operating
earnings (1) to net income attributable to Aetna in 2013, 2012 and 2011 was as follows.
(Millions) 2013 2012 2011
Operating earnings $ 2,101.6 $ 1,769.6 $ 1,965.7
Transaction, integration-related and restructuring costs, net of tax (233.5) (25.4) —
Charge for changes in our life insurance claim payment practices, net of tax (35.7) — —
Reduction of reserve for anticipated future losses on discontinued products, net of tax 55.9 — —
Reversal of allowance and gain on sale of reinsurance recoverable, net of tax 32.1 — —
Litigation-related settlement, net of tax —(78.0) —
Loss on early extinguishment of long-term debt, net of tax —(55.2) —
Severance charge, net of tax —(24.1) —
Voluntary early retirement program, net of tax —— (89.1)
Net realized capital (losses) gains, net of tax (6.8) 71.0 109.1
Net income attributable to Aetna $ 1,913.6 $ 1,657.9 $ 1,985.7
(1) In addition to net realized capital (losses) 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:
• We incurred transaction, integration-related and restructuring costs of $233.5 million ($332.8 million pretax) and $25.4 million
($32.6 million pretax) during 2013 and 2012, respectively. Transaction and integration-related costs are related to the acquisition
of Coventry. Restructuring costs, primarily comprised of severance and real estate consolidation costs, are related to the
acquisition of Coventry and Aetna's expense management and cost control initiatives. Transaction costs include advisory, legal
and other professional fees which are not deductible for tax purposes and are reflected in our GAAP Consolidated Statements of
Income in general and administrative expenses, as well as the cost of the bridge credit agreement that was in effect prior to the
Coventry acquisition, which is reflected in the GAAP Consolidated Statements of Income in interest expense. Transaction costs
also include transaction-related payments as well as expenses related to the negative cost of carry associated with the permanent
financing that we obtained in November 2012 for the Coventry acquisition. Prior to the Effective Date, the negative cost of carry
associated with the permanent financing was excluded from operating earnings. The components of the negative cost of carry are
reflected in our GAAP Consolidated Statements of Income in interest expense, net investment income, and general and
administrative expenses. On and after the Effective Date, the interest expense and general and administrative expenses associated
with the permanent financing are no longer excluded from operating earnings.
• In the fourth quarter of 2013, we increased our estimated liability for unpaid life insurance claims with respect to insureds who
passed away on or before December 31, 2013, and recorded in current and future benefits a charge of $35.7 million ($55.0
million pretax) as a result of changes during the fourth quarter of 2013 in our life insurance claim payment practices (including
related escheatment practices) based on evolving industry practices and regulatory expectations and interpretations. Refer to Note
18 beginning on page 130 for additional information on the increase in our estimated liability for life insurance claim payment
practices.
• We reduced the reserve for anticipated future losses on discontinued products by $55.9 million ($86.0 million pretax) in the
second quarter of 2013. We believe excluding any changes in the reserve for anticipated future losses on discontinued products
from operating earnings provides more useful information as to our continuing products and is consistent with the treatment of
the operating results of these discontinued products, which are credited or charged to the reserve and do not affect our operating
results. Refer to Note 20 beginning on page 137 for additional information on the reduction of the reserve for anticipated future
losses on discontinued products.
• In 2008, as a result of the liquidation proceedings of Lehman Re, a subsidiary of Lehman Brothers Holdings Inc., we recorded an
allowance against our reinsurance recoverable from Lehman Re of $27.4 million ($42.2 million pretax). This reinsurance was
placed in 1999 and was on a closed book of paid-up group whole life insurance business. In 2013, we sold our claim against
Lehman Re to an unrelated third party (including the reinsurance recoverable) and terminated the reinsurance arrangement.
Upon the sale of the claim and termination of the arrangement, we released the related allowance thereby reducing other general
and administrative expenses by $27.4 million ($42.2 million pretax) and recognized a $4.7 million ($7.2 million pretax) gain on
the sale in fees and other revenue.
• 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 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) related to actions taken in 2012 and 2013.
• 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.