Aetna 2014 Annual Report Download - page 14

Annual Report- Page 8
The table presented below reconciles net income attributable to Aetna to operating earnings (1):
(Millions) 2014 2013 2012
Net income attributable to Aetna $ 2,193.4 $ 1,912.5 $ 1,692.5
Net realized capital gains, net of tax (41.5) (.7) (56.6)
Amortization of other acquired intangible assets, net of tax 157.4 136.6 89.4
Transaction, integration-related and restructuring costs, net of tax 134.2 219.0 14.1
Release of litigation-related reserve, net of tax (67.0) — —
Litigation-related settlement, net of tax —— 78.0
Severance charge, net of tax —— 24.1
Operating earnings $ 2,376.5 $ 2,267.4 $ 1,841.5
(1) In addition to net realized capital gains and amortization of other acquired intangible assets, 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 2014, we incurred transaction and integration-related costs related to the acquisitions of Coventry, InterGlobal and bSwift of
$134.2 million ($200.7 million pretax), which was entirely recorded in the Health Care segment. In 2013 and 2012, we incurred
transaction, integration-related and restructuring costs related to the acquisition of Coventry of $233.5 million ($332.8 million
pretax) and $25.4 million ($32.6 million pretax), respectively, of which $219.0 million ($310.5 million pretax) and $14.1 million
($15.2 million pretax), respectively, were recorded in the Health Care segment. 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. 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 Acquisition Date, that
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 Acquisition Date, the interest expense and general and administrative
expenses associated with the permanent financing are no longer excluded from operating earnings.
• 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. That charge included the estimated
cost of legal fees of plaintiffs’ counsel and the costs of administering the settlement. In 2014, we exercised our right to terminate
the settlement agreement. As a result, we released the reserve established in connection with the settlement agreement, net of
amounts due to the settlement administrator, which reduced 2014 other general and administrative expenses by $67.0 million
($103.0 million pretax). Refer to Note 18 beginning on page 127 for additional information on the termination of the settlement
agreement.
• In 2012, we recorded a severance charge of $24.1 million ($37.0 million pretax) related to actions taken in 2012 and 2013.
Operating earnings in 2014 increased compared to 2013.
In 2014, operating earnings increased compared to the corresponding period in 2013, primarily due to the May 2013
acquisition of Coventry, as well as higher underwriting margins in both our Government and Commercial
businesses, partially offset by increased investment spend to support our growth initiatives, primarily in our
Government, Healthagen® and Consumer businesses. In 2013, operating earnings increased compared to the
corresponding period in 2012, primarily due to the acquisition of Coventry in May 2013, as well as higher
underwriting margins primarily in our Commercial business, partially offset by lower underwriting margins in our
Government business. Refer to our discussion of Commercial and Government results below for additional
information.
We calculate our medical benefit ratio (“MBR”) by dividing health care costs by health care premiums. Our MBRs
by product for the last three years were:
2014 2013 2012
Commercial 80.2% 80.1% 81.1%
Government 84.9% 87.5% 84.9%
Total 82.2% 82.9% 82.2%