Aetna to Restate Earnings for 1998, Three Quarters of ’99

HARTFORD, Conn. — Aetna Inc. said Tuesday that it will restate earnings for 1998 and the first three quarters of 1999 after a U.S. Securities and Exchange Commission review.

Changes related to Aetna’s 1997 sale of Human Affairs International Inc. to Magellan Health Services Inc. will reduce profit from operations by $10 million each for the first three quarters of 1999, the insurance company said. A similar reduction is expected for the fourth quarter. Profit for 1998 will be cut by $39 million as Aetna reclassifies some money earned from Magellan as a capital gain.

Aetna said in October that the SEC was reviewing its filings from the last three years, adding it believed the accounting it used for acquisitions and sales was appropriate.

Aetna’s shares rose $3.38 to close at $56.63 on the New York Stock Exchange, as analysts said the announcement removed some uncertainty surrounding the stock. The shares had declined 35% the last 12 months.

Aetna said before announcing the restatement that operating profit was $168.2 million, or $1.08 a share, for the first quarter of 1999; $170.6 million, or $1.10, for the second quarter; and $193.1 million, or $1.27, for the third quarter. It reported profit of $4.53 a share for 1998.

Accounting changes at its money-losing Prudential HealthCare unit will boost third-quarter 1999 profit by less than $1 million and lower fourth-quarter results by $7 million.

The moves won’t affect 1998 net income. For each of the first two quarters of 1999, though, net income will be reduced by about $10 million, or 7 cents a share. A $39-million capital gain helped boost third-quarter net income about $30 million, or 20 cents, Hartford, Conn.-based Aetna said.

“It’s good news because it won’t affect cash flow, but earnings estimates will have to be adjusted downward because of the accounting changes,” said Todd Richter, an analyst at Banc of America Securities.

The company expects to report fourth-quarter earnings Tuesday.