Aetna 2014 Annual Report Download - page 140

Annual Report- Page 134
A reconciliation of operating earnings (1) to net income attributable to Aetna in 2014, 2013 and 2012 was as follows.
(Millions) 2014 2013 2012
Operating earnings $ 2,404.6 $ 2,241.1 $ 1,861.9
Transaction, integration-related and restructuring costs, net of tax (134.2) (233.5) (25.4)
Loss on early extinguishment of long-term debt, net of tax (117.8) — (55.2)
Pension settlement charge, net of tax (72.5) — —
Release of litigation-related reserve, net of tax 67.0 — —
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)
Severance charge, net of tax —— (24.1)
Amortization of other acquired intangible assets, net of tax (158.2) (139.5) (92.3)
Net realized capital gains (losses), net of tax 51.9 (6.8) 71.0
Net income attributable to Aetna $ 2,040.8 $ 1,913.6 $ 1,657.9
(1) In addition to net realized capital gains (losses) 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:
• We incurred transaction and integration-related costs of $134.2 million ($200.7 million pretax) related to the acquisitions of Coventry,
bSwift and InterGlobal during 2014. 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, related to the acquisition of Coventry, respectively. Restructuring
costs, primarily comprised of severance and real estate consolidation costs, are related to the acquisition of Coventry and our 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 Acquisition Date, that negative cost of carry 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 2014 and 2012, we incurred losses on the early extinguishment of long-term debt of $117.8 million ($181.2 million pretax) and $55.2
million ($84.9 million pretax) related to the redemption and/or repurchase of certain of our outstanding senior notes, respectively.
• During 2014, we enhanced the Aetna Pension Plan to allow certain current and former employees to elect a 100% lump-sum distribution.
In addition, we also announced a limited-time offer permitting certain former employees with deferred vested balances to elect a 100%
lump-sum distribution. The distributions in 2014 were funded from existing Aetna Pension Plan assets and we recorded a related non-cash
settlement charge of $72.5 million ($111.6 million pretax) during 2014 in general and administrative expenses. Refer to Note 11 beginning
on page 109 for additional information on the pension settlement charge.
• In the fourth quarter of 2012, we recorded a charge of $78.0 million ($120.0 million pretax) related to the settlement of purported class
action litigation regarding our 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 the first quarter of 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 first quarter 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 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 127 for
additional information on the changes in our 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 135 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 reversed 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 severance charge of $24.1 million ($37.0 million pretax) related to actions taken in 2012 and 2013.