Aetna 2015 Annual Report Download - page 151

Annual Report- Page 145
A reconciliation of operating earnings (1) to net income attributable to Aetna in 2015, 2014 and 2013 was as follows.
(Millions) 2015 2014 2013
Operating earnings $ 2,717.1 $ 2,404.6 $ 2,241.1
Transaction, integration-related and restructuring costs, net of tax (189.8) (134.2) (233.5)
Litigation-related proceeds, net of tax 71.3 — —
Loss on early extinguishment of long-term debt, net of tax —(117.8) —
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
Amortization of other acquired intangible assets, net of tax (166.0) (158.2) (139.5)
Net realized capital (losses) gains, net of tax (42.4) 51.9 (6.8)
Net income attributable to Aetna $ 2,390.2 $ 2,040.8 $ 1,913.6
(1) In addition to net realized capital gains and 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, integration-related and restructuring costs of $189.8 million ($273.3 million pretax) during 2015. Transaction and
integration-related costs relate to the acquisitions of Coventry, InterGlobal and bswift and the Proposed Acquisition. 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) during 2013 related to the acquisition of
Coventry. 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 and the
Term Loan Agreement and the bridge credit agreement that was in effect prior to the Coventry acquisition, which are reflected in our GAAP
Consolidated Statements of Income in interest expense. In 2013, 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 Coventry 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 Coventry Acquisition Date, the interest expense and general and administrative expenses associated with the permanent
financing are no longer excluded from operating earnings. Restructuring costs in 2015 primarily consist of severance costs associated with our
expense management and cost control initiatives. Restructuring costs in 2013, primarily comprised of severance and real estate consolidation costs,
are related to the acquisition of Coventry and our expense management and cost control initiatives. Restructuring costs are reflected in our GAAP
Consolidated Statements of Income in general and administrative expenses.
• In 2015, we received proceeds of $71.3 million ($109.6 million pretax), net of legal costs, in connection with a litigation settlement. These net
proceeds were recorded in fees and other revenue in our GAAP Consolidated Statements of Income.
• In 2014, we incurred losses on the early extinguishment of long-term debt of $117.8 million ($181.2 million pretax) related to the redemption of
certain of our outstanding senior notes.
• 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 12 beginning on page 118 for
additional information on the pension settlement charge.
• In 2012, we recorded a charge of $78 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 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 19 beginning on page 138 for additional information
on the termination of the settlement agreement.
• In 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 19 beginning on page 138 for additional information on the changes in our life insurance claim
payment practices.
• In 1993, we discontinued the sale of our fully guaranteed large case pensions products and established a reserve for anticipated future losses on
these products, which we review quarterly. In 2013, we reduced the reserve for anticipated future losses on discontinued products by $55.9 million
($86.0 million pretax). 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 21 beginning on page
146 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.