Humana Inc. (ticker: HUM, exchange: New York Stock Exchange (.N))
News Release -
28-Jul-2003
Humana Reports Second Quarter and First Half 2003 Results
LOUISVILLE, Ky., July 28 /PRNewswire-FirstCall/ -- Humana Inc. (NYSE: HUM)
today reported results for the second quarter ended June 30, 2003 and
comparative amounts for the quarter ended June 30, 2002 as follows:
2Q03 2Q02 2Q03
GAAP(1) GAAP(1) Adjusted(2)
Earnings per diluted share $.43 $.27 $.37
Net income (in thousands) $69,276 $45,359 $59,168
Pre-tax margin 3.4% 2.4% 3.0%
(See "Footnote Definitions" section of this press release.)
Second quarter 2003 adjusted earnings per diluted share of $.37 increased
37 percent compared to the same period in the prior year. The improvement was
driven primarily by increasing operating margins in the company's Commercial
segment, as well as TRICARE revenue adjustments which were both earlier and
greater than had previously been expected. Adjusted net income for the second
quarter improved 30 percent compared to that for the same period in the prior
year. The adjusted pre-tax margin of 3.0 percent increased 60 basis points
from the second quarter of 2002.
Results for the six months ended June 30, 2003 and 2002 are as follows:
First Half First Half First Half
2003 2002 2003
GAAP(1) GAAP(1) Adjusted(2)
Earnings per
diluted share $.62 $.55 $.68
Net income
(in thousands) $100,506 $92,129 $109,192
Pre-tax margin 2.5% 2.4% 2.8%
(See "Footnote Definitions" section of this press release.)
Adjusted earnings per diluted share for the six months ended June 30, 2003
of $.68 increased 24 percent compared to $.55 for the six months ended June
30, 2002. Net income on an adjusted basis improved 19 percent for the first
half of 2003 versus the first half of 2002.
"We are particularly pleased with this quarter's results as they provide
further evidence of the soundness of our Commercial strategy," said Michael B.
McCallister, Humana's chief executive officer. "Humana's reputation in the
Commercial segment as an innovator in solutions for employers is not only
growing, it is leading to an increase in sales activity. That activity,
combined with consistent pricing discipline, has helped drive the improved
results for our second quarter. We anticipate our innovative products will
continue to accelerate interest in all of our products and, in turn, improved
results for Humana."
Unusual Items
During the first half of 2003, the company recorded the following items
that were not reflective of the run-rate operations of the company.
Management believes these unusual items should be excluded to properly reflect
the run-rate operations of the company and to provide better comparability to
prior year results.
One unusual item was recorded during the second quarter ended June 30,
2003 as follows:
(in thousands, except Statement of
per share amounts) Income Earnings per
Line Item Pre-tax After-tax diluted
Impacted Impact Impact share Impact
Gain on sale of
venture capital
investment Investment income $15,200 $10,108 $.06
(See "Footnote Definitions" section of this press release.)
Unusual items recorded during the six months ended June 30, 2003 were as
follows:
(in thousands, except per share amounts)
Statement of Earnings per
Income Line Pre-tax After-tax diluted share
Item Impacted Impact Impact Impact
Gain on sale
of venture Investment
capital investment income $15,200 $10,108 $.06
Building and Restructuring
equipment writedown charge (17,233) (10,529) (.07)
Software abandonment Restructuring (13,527) (8,265) (.05)
charge
Total unusual items(4) $(15,560) $(8,686) $(.05)
(See "Footnote Definitions" section of this press release.)
Segment Results
Pre-tax income and margins for the company's business segments for the
second quarters and six months ended June 30, 2003 and 2002 were as follows:
Pre-tax income
(in thousands) 2Q03 2Q02 2Q03
GAAP(1) GAAP(1) Adjusted(2)
Commercial segment $43,757 $14,893 $31,334
Government segment 60,433 51,812 57,656
Consolidated $ 104,190 $66,705 $88,990
Pre-tax margins
2Q03 2Q02 2Q03
GAAP(1) GAAP(1) Adjusted(2)
Commercial segment 2.6% 1.0% 1.9%
Government segment 4.5% 3.8% 4.3%
Consolidated 3.4% 2.4% 3.0%
Pre-tax income
(in thousands) First Half 2003 First Half 2002 First Half 2003
GAAP(1) GAAP(1) Adjusted(2)
Commercial segment $ 80,996 $40,988 $86,425
Government segment 70,596 94,496 80,727
Consolidated $151,592 $135,484 $167,152
Pre-tax margins
First Half 2003 First Half 2002 First Half 2003
GAAP(1) GAAP(1) Adjusted(2)
Commercial segment 2.4% 1.4% 2.6%
Government segment 2.7% 3.6% 3.1%
Consolidated 2.5% 2.4% 2.8%
(See "Footnote Definitions" section of this press release.)
Revenues and Membership
Consolidated revenues and membership for the second quarters and the six
months ended June 30, 2003 and 2002 were as follows:
Consolidated
(in thousands) 2003 2002 2003
GAAP(1) GAAP(1) Adjusted(2)
Second quarter -
total revenues $3,029,958 $2,831,940 $3,014,758
First Half -
total revenues $5,961,674 $5,564,522 $5,946,474
Second quarter -
Ending medical
membership 6,640,900 6,572,000 6,640,900
(See "Footnote Definitions" section of this press release.)
Commercial segment premiums and administrative services fees and
membership for the second quarters and the six months ended June 30, 2003 and
2002 were as follows:
Commercial Segment
First Half First Half
(in thousands) 2Q03 2Q02 2003 2002
GAAP(1) GAAP(1) GAAP(1) GAAP(1)
Premiums $1,630,554 $1,437,087 $3,246,110 $2,863,075
Administrative
services fees 30,356 25,576 59,946 50,723
Total premiums and
administrative
services fees $1,660,910 $1,462,663 $3,306,056 $2,913,798
Ending medical
membership 3,020,700 2,947,100 3,020,700 2,947,100
(See "Footnote Definitions" section of this press release.)
Commercial segment medical membership grew by 2.5 percent from June 30,
2002 to June 30, 2003. Commercial premium yields were within the 13 to
15 percent range for the second quarter of 2003. These factors contributed to
a year-over-year increase in total premiums and administrative services fees
for the Commercial segment of 14 percent for the second quarter of 2003 and
13 percent for the six months ended June 30, 2003.
Government segment premiums and administrative services fees and
membership for the second quarters and the six months ended June 30, 2003 and
2002 were as follows:
Government Segment
(in thousands) First Half First Half
2Q03 2Q02 2003 2002
GAAP(1) GAAP(1) GAAP(1) GAAP(1)
Premiums $ 1,282,851 $1,306,652 $2,510,244 $2,522,476
Administrative
services fees 41,312 38,255 72,858 78,121
Total premiums
and administrative
services fees $1,324,163 $1,344,907 $2,583,102 $2,600,597
Ending medical
membership 3,620,200 3,624,900 3,620,200 3,624,900
(See "Footnote Definitions" section of this press release.)
As expected, government segment premiums and administrative services fees
decreased year-over-year by 2 percent in the second quarter of 2003 and by
1 percent during the six months ended June 30, 2003.
Medicare+Choice membership totaled 324,200 at June 30, 2003, a decline of
29,900 members from the prior year's quarter. Medicare+Choice premium yield
for the second quarter of 2003 was within the 4 to 6 percent range.
TRICARE's insured membership totaled 1,750,800 at June 30, 2003, essentially
flat versus the June 30, 2002 level. TRICARE ASO membership was 1,052,500 at
the end of the second quarter of 2003, up 3 percent from the second quarter of
2002. TRICARE premium revenues and administrative services fees increased
year-over-year by approximately 1 percent during the second quarter of 2003
and increased approximately 4 percent for the six months of 2003 versus the
same period in the prior year.
Medicaid membership of 492,700 at June 30, 2003 grew by approximately
1 percent from June 30, 2002. Approximately 85 percent of the company's
Medicaid membership is in Puerto Rico.
Medical and SG&A Expenses
The company's medical expense ratio (medical expenses as a percent of
premiums) and SG&A expense ratio (SG&A expenses as a percent of premiums and
administrative services fees) for the quarters and six months ended June 30,
2003 and 2002 were as follows:
First Half First Half
2Q03 2Q02 2003 2002
Medical expense
ratio - GAAP(1) 83.9% 84.4% 83.7% 83.8%
SG&A expense
ratio - GAAP(1) 15.0% 14.8% 15.2% 15.4%
(See "Footnote Definitions" section of this press release.)
The company continues to experience favorable development in its estimates
of prior years' medical claims liabilities. However, management has
consistently applied the same level of conservatism in its reserving
methodology. Consequently, these prior year favorable developments had no
favorable impact on the company's year-to-date results from operations.
Cash flows from operations
Cash flows provided by (used in) operations for the second quarters and
the six months ended June 30, 2003 and 2002 were as follows:
(in thousands) First Half First Half
2Q03 2Q02 2003 2002
GAAP(1) $161,496 $(43,778) $ 53,266 $(183,915)
Normalized(3 ) $161,496 $(43,778) $259,021 $32,713
(See "Footnote Definitions" section of this press release.)
Share Repurchase Program
The company announced that its Board of Directors authorized the use of up
to $100 million for the repurchase of its common shares, replacing the
outstanding share repurchase program under which the company repurchased
8.6 million shares for an aggregate purchase price of $94.9 million, an
average price of $10.98 per share. The company had 161.7 million shares
outstanding as of June 30, 2003. The company said that the shares may be
purchased from time to time at prevailing prices in the open market or in
privately-negotiated transactions.
Guidance
The company offered the following earnings guidance for the investor
community:
For the Full Year 2003: Projected
Earnings per diluted share - GAAP(1) $1.39 to $1.42
Earnings per diluted share - Adjusted(2) $1.44 to $1.47
Consolidated revenues - GAAP(1) Over $12 billion
Commercial segment pretax income - GAAP(1) Over $125 million
Commercial segment pretax
income - Adjusted(2) Over $130 million
Commercial segment medical
membership (fully insured
and ASO combined) Organic growth of 2% to 3%
Commercial premium yields 13% to 15%
Commercial medical cost trends 12% to 14%
Commercial segment SG&A
expense ratio - GAAP(1) 16.3% to 16.5%
Medicare+Choice membership 310,000 to 320,000
by year end
Medicare+Choice premium yields 4% to 6%
Medicare+Choice medical cost trends 4% to 6%
TRICARE pretax margin Approximately 3%
TRICARE receivables $300 million to $325 million
Government segment SG&A
expense ratio - GAAP(1) Relatively unchanged year
over year
Cash flows from operations -
GAAP(1) and Normalized(3) $375 million to $400 million
Capital expenditures Approximately $95 million
Effective tax rate 34%
For the Third Quarter of 2003: Projected
Earnings per diluted share - GAAP(1) $.37 to $.38
Effective tax rate 33.5%
For the Full Year 2004: Projected
Earnings per diluted share - GAAP(1) Approximately $1.60
(range of $1.55 to $1.65)
Effective tax rate 36%
(See "Footnote Definitions" section of this press release.)
Footnote Definitions
1 - Generally Accepted Accounting Principles ("GAAP")
2 - Adjusted results exclude from GAAP results the impact of unusual
items recorded during the first and second quarters of 2003. The
statistics pages at the end of this press release provide a
reconciliation of GAAP to adjusted results for the quarter and six
months ended June 30, 2003. The detail of the adjustments also is
described in the "Unusual Items" section of this press release.
3 - Normalized cash flows from operations give effect to the usual
adjustment for the timing of the receipt of the Medicare+Choice
premium payment from the Centers for Medicare and Medicaid Services
("CMS"). The fixed monthly payment from CMS is payable to Humana on
the first day of each month. However, if the first of the month
falls on a weekend or a holiday, the company receives that payment
early, often resulting in a significant impact on cash flows from
operations. The statistics pages at the end of this press release
provide a reconciliation of GAAP to normalized cash flows from
operations.
4 - Mathematical differences due to rounding in earnings per share
calculations.
Conference Call
Humana will host a conference call, as well as a virtual slide
presentation, at 9:00 a.m. EDT today to discuss its financial results for the
quarter and earnings guidance.
All parties interested in the audio only portion of the conference call
are invited to dial 888-625-7430. No password is required. The company
suggests participants dial in approximately ten minutes in advance of the
call.
A live virtual presentation (audio with slides) will be available and may
be accessed via Humana's Investor Relations page at www.humana.com. The
company suggests web participants sign on approximately 15 minutes in advance
of the call. The company also suggests web participants visit the site well in
advance of the call to run a system test and to download any free software
needed to view the presentation.
For those unable to participate in the live event, the virtual
presentation archive will be available in the Presentations section of the
Investor Relations page at www.humana.com, approximately two hours following
the live web cast. An audio recording of the conference call will also be
available in the Audio Archives located on the Investor Relations page at
www.humana.com approximately two hours after the live call.
This news release contains forward-looking statements. The
forward-looking statements made in the news release are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Forward-looking statements may be significantly impacted by certain
risks and uncertainties described in the following documents, as filed by
Humana with the Securities and Exchange Commission:
* Form 10-K for the year ended December 31, 2002;
* Form 10-Q for the quarter ended March 31, 2003.
Humana Inc., headquartered in Louisville, Kentucky, is one of the nation's
largest publicly traded health benefits companies, with approximately
6.6 million medical members located primarily in 18 states and Puerto Rico.
Humana offers coordinated health insurance coverage and related services -
through traditional and Internet-based plans - to employer groups, government-
sponsored plans, and individuals.
More information regarding Humana is available via the Internet at
www.humana.com, including copies of:
* Annual report to stockholders;
* Securities and Exchange Commission filings;
* Most recent investor conference presentation;
* Quarterly earnings press releases;
* Audio archive of most recent earnings release conference call;
* Calendar of events (includes upcoming earnings conference call dates,
times, and access number, as well as planned participation in investor
conferences).
Humana Inc.
In thousands
June 30, Percent
Ending Medical Membership 2003 2002 Difference Change
Commercial:
Fully insured 2,350.4 2,319.6 30.8 1.3
ASO 670.3 627.5 42.8 6.8
Total Commercial 3,020.7 2,947.1 73.6 2.5
Government:
Medicare+Choice 324.2 354.1 (29.9) (8.4)
Medicaid 492.7 487.9 4.8 1.0
TRICARE 1,750.8 1,761.0 (10.2) (0.6)
TRICARE ASO 1,052.5 1,021.9 30.6 3.0
Total Government 3,620.2 3,624.9 (4.7) (0.1)
Total ending
medical membership 6,640.9 6,572.0 68.9 1.0
June 30, Percent
Ending Specialty Membership 2003 2002 Difference Change
Commercial:
Dental-fully insured 745.7 777.4 (31.7) (4.1)
Dental-ASO 365.1 308.3 56.8 18.4
Total Dental 1,110.8 1,085.7 25.1 2.3
Group life 510.5 529.7 (19.2) (3.6)
Short-term disability 20.7 22.8 (2.1) (9.2)
Total ending
specialty membership 1,642.0 1,638.2 3.8 0.2
Three months ended Six months ended
June 30, June 30,
Premiums 2003 2002 2003 2002
Commercial:
Fully insured medical $1,551,619 $1,353,273 $3,088,572 $2,696,534
Specialty 78,935 83,814 157,538 166,541
Total Commercial 1,630,554 1,437,087 3,246,110 2,863,075
Government:
Medicare+Choice 630,432 662,480 1,266,274 1,334,666
Medicaid 116,005 113,234 237,235 224,487
TRICARE 536,414 530,938 1,006,735 963,323
Total Government 1,282,851 1,306,652 2,510,244 2,522,476
Total premiums $2,913,405 $2,743,739 $5,756,354 $5,385,551
Three months ended Six months ended
June 30, June 30,
Administrative services fees 2003 2002 2003 2002
Commercial $30,356 $25,576 $59,946 $50,723
Government 41,312 38,255 72,858 78,121
Total Administrative
services fees $71,668 $63,831 $132,804 $128,844 Humana Inc.
Dollars in thousands, except per share results
Three months ended
Adjusted
Consolidated Statements June 30, Unusual June 30, June 30,
of Income 2003 Item 2003 2002
Revenues:
Premiums $2,913,405 $ -- $2,913,405 $2,743,739
Administrative services
fees 71,668 -- 71,668 63,831
Investment income 43,228 (15,200) 28,028 22,681
Other income 1,657 -- 1,657 1,689
Total revenues 3,029,958 (15,200) 3,014,758 2,831,940
Operating expenses:
Medical 2,444,977 -- 2,444,977 2,316,188
Selling, general and
administrative 448,537 -- 448,537 414,433
Depreciation 25,550 -- 25,550 26,306
Other intangible
amortization 2,903 -- 2,903 3,931
Restructuring charge - -- -- --
Total operating expenses 2,921,967 -- 2,921,967 2,760,858
Income from operations 107,991 (15,200) 92,791 71,082
Interest expense 3,801 -- 3,801 4,377
Income before income taxes 104,190 (15,200) 88,990 66,705
Provision for income taxes 34,914 (5,092) 29,822 21,346
Net income $69,276 $(10,108) $59,168 $45,359
Basic earnings per common
share $0.44 $(0.06) $0.38 $0.28
Diluted earnings per common
share $0.43 $(0.06) $0.37 $0.27
Shares used in computing
basic earnings per common
share (000's) 157,395 157,395 157,395 164,853
Shares used in computing
diluted earnings per common
share (000's) 161,149 161,149 161,149 168,860
Key Ratios
Medical expense ratio
Commercial 83.0% -- 83.0% 83.9%
Government 85.1% -- 85.1% 85.0%
Total 83.9% -- 83.9% 84.4%
Selling, general, and
administrative expense
ratio
Commercial 16.8% -- 16.8% 16.4%
Government 12.7% -- 12.7% 13.0%
Total 15.0% -- 15.0% 14.8%
Humana Inc.
Dollars in thousands, except per share results
Six months ended
Adjusted
Consolidated Statements June 30, Unusual June 30, June 30,
of Income 2003 Items 2003 2002
Revenues:
Premiums $5,756,354 $ -- $5,756,354 $5,385,551
Administrative
services fees 132,804 -- 132,804 128,844
Investment income 69,045 (15,200) 53,845 46,989
Other income 3,471 -- 3,471 3,138
Total revenues 5,961,674 (15,200) 5,946,474 5,564,522
Operating expenses:
Medical 4,816,411 -- 4,816,411 4,510,727
Selling, general and
administrative 895,582 -- 895,582 849,497
Depreciation 52,759 -- 52,759 52,171
Other intangible
amortization 6,834 -- 6,834 7,862
Restructuring charge 30,760 (30,760) -- --
Total operating
expenses 5,802,346 (30,760) 5,771,586 5,420,257
Income from operations 159,328 15,560 174,888 144,265
Interest expense 7,736 -- 7,736 8,781
Income before
income taxes 151,592 15,560 167,152 135,484
Provision for
income taxes 51,086 6,874 57,960 43,355
Net income $100,506 $8,686 $109,192 $92,129
Basic earnings
per common share (A) $0.64 $0.06 $0.69 $0.56
Diluted earnings
per common share (A) $0.62 $0.05 $0.68 $0.55
Shares used in
computing basic earnings
per common share (000's) 157,565 157,565 157,565 164,555
Shares used in computing
diluted earnings
per common
share (000's) 160,982 160,982 160,982 168,274
Key Ratios
Medical expense ratio
Commercial 82.2% -- 82.2% 82.9%
Government 85.6% -- 85.6% 84.7%
Total 83.7% -- 83.7% 83.8%
Selling, general, and
administrative expense ratio
Commercial 16.8% -- 16.8% 17.0%
Government 13.2% -- 13.2% 13.6%
Total 15.2% -- 15.2% 15.4%
(A) Mathematical differences due to rounding in earnings per share
calculations.
Humana Inc.
Dollars in thousands, except per share results
Three months ended
Adjusted
June 30, Unusual June 30, June 30,
Operating Results by Segment 2003 Item 2003 2002
Commercial:
Income before income taxes $43,757 $(12,423) $31,334 $14,893
Interest expense 3,105 -- 3,105 3,197
Depreciation and amortization 17,744 -- 17,744 17,463
Commercial EBITDA * 64,606 (12,423) 52,183 35,553
Government:
Income before income taxes 60,433 (2,777) 57,656 51,812
Interest expense 696 -- 696 1,180
Depreciation and amortization 10,709 -- 10,709 12,774
Government EBITDA * 71,838 (2,777) 69,061 65,766
Consolidated:
Net income 69,276 (10,108) 59,168 45,359
Provision for income taxes 34,914 (5,092) 29,822 21,346
Income before income taxes 104,190 (15,200) 88,990 66,705
Interest expense 3,801 -- 3,801 4,377
Depreciation and amortization 28,453 -- 28,453 30,237
Consolidated EBITDA * $136,444 $(15,200) $121,244 $101,319
Six months ended
Adjusted
June 30, Unusual June 30, June 30,
Operating Results by Segment 2003 Items 2003 2002
Commercial:
Income before income taxes $80,996 $5,429 $86,425 $40,988
Interest expense 6,168 -- 6,168 6,256
Depreciation and amortization 36,972 -- 36,972 34,630
Commercial EBITDA * 124,136 5,429 129,565 81,874
Government:
Income before income taxes 70,596 10,131 80,727 94,496
Interest expense 1,568 -- 1,568 2,525
Depreciation and amortization 22,621 -- 22,621 25,403
Government EBITDA * 94,785 10,131 104,916 122,424
Consolidated:
Net income 100,506 8,686 109,192 92,129
Provision for income taxes 51,086 6,874 57,960 43,355
Income before income taxes 151,592 15,560 167,152 135,484
Interest expense 7,736 -- 7,736 8,781
Depreciation and amortization 59,593 -- 59,593 60,033
Consolidated EBITDA * $218,921 $15,560 $234,481 $204,298
* EBITDA represents earnings (including investment and other income)
before interest expense, income taxes, depreciation and amortization.
EBITDA is not a measure under accounting principles generally
accepted in the United States and may not be similar to EBITDA measures
of other companies. We believe EBITDA is an important indicator of the
cash content of the Company's operating income, and as such the quality
of net income. Accordingly, we believe the most directly comparable GAAP
measure is net income and, therefore, we have reconciled consolidated
EBITDA to consolidated net income. Because income taxes are not
allocated to the segments, we have reconciled segment EBITDA to income
before income taxes.
Humana Inc.
Dollars in thousands, except per share results
June 30, March 31, December 31,
Consolidated Balance Sheets 2003 2003 2002
Assets
Current assets:
Cash and cash equivalents $754,942 $532,652 $721,357
Investment securities 1,399,220 1,411,356 1,405,833
Receivables, net:
Premiums 402,821 472,972 348,562
Administrative services fees 36,688 55,726 68,316
Other 223,800 258,481 250,857
Total current assets 2,817,471 2,731,187 2,794,925
Property and equipment, net 417,446 423,465 459,842
Other assets:
Long-term investment securities 329,178 312,517 288,724
Goodwill 776,874 776,874 776,874
Other 152,885 185,144 279,665
Total other assets 1,258,937 1,274,535 1,345,263
Total assets $4,493,854 $4,429,187 $4,600,030
Liabilities and Stockholders' Equity
Current liabilities:
Medical and other expenses payable $1,287,364 $1,226,043 $1,142,131
Trade accounts payable and accrued
expenses 455,541 512,723 552,689
Book overdraft 79,536 84,579 94,882
Unearned premium revenues 100,445 117,604 335,757
Short-term debt 265,000 265,000 265,000
Total current liabilities 2,187,886 2,205,949 2,390,459
Long-term debt 334,610 334,328 339,913
Other long-term liabilities 265,098 268,131 263,184
Total liabilities 2,787,594 2,808,408 2,993,556
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1 par; 10,000,000
shares authorized; none issued -- -- --
Common stock, $0.16 2/3 par;
300,000,000 shares authorized;
172,263,921 shares issued at June
30, 2003 28,708 28,562 28,556
Capital in excess of par value 938,648 931,460 931,089
Retained earnings 821,383 752,107 720,877
Accumulated other comprehensive
income 29,839 23,257 22,455
Unearned restricted stock
compensation (1,469) (3,961) (6,516)
Treasury stock, at cost, 10,606,303
shares at June 30, 2003 (110,849) (110,646) (89,987)
Total stockholders' equity 1,706,260 1,620,779 1,606,474
Total liabilities and stockholders'
equity $4,493,854 $4,429,187 $4,600,030
Debt to total capitalization ratio 26.0% 27.0% 27.4%
Humana Inc.
Dollars in thousands
Three months ended Six months ended
Consolidated Statements June 30, June 30,
of Cash Flows 2003 2002 2003 2002
Cash flows from
operating activities
Net income $69,276 $45,359 $100,506 $92,129
Adjustments to
reconcile net income
to net cash provided by
operating activities:
Non-cash restructuring
charge -- -- 30,760 --
Depreciation and
amortization 28,453 30,237 59,593 60,033
Provision for deferred
income taxes 7,408 10,158 11,054 23,038
Changes in operating
assets and
liabilities:
Receivables 89,189 (145,383) 40,636 (191,193)
Other assets (28,312) (25,330) (22,627) (27,728)
Medical and other
expenses payable 61,321 44,326 145,233 108,303
Other liabilities (31,057) (5,878) (60,069) (16,682)
Unearned revenues (17,159) (4,320) (235,312) (242,078)
Other (17,623) 7,053 (16,508) 10,263
Net cash provided by
(used in) operating
activities 161,496 (43,778) 53,266 (183,915)
Timing of
Medicare+Choice
premium payment from
CMS -- -- 205,755 216,628
Normalized net cash
provided by (used in)
operating activities 161,496 (43,778) 259,021 32,713
Cash flows from
investing activities
Purchases of property
and equipment, net (20,843) (24,365) (42,477) (56,730)
Divestiture -- -- -- 1,109
Purchases of
investment securities (716,035) (572,962) (2,261,276) (998,097)
Proceeds from
maturities of
investment securities 188,003 62,017 384,926 177,971
Proceeds from sales of
investment securities 576,928 565,540 1,897,174 869,436
Net cash provided by
(used in) investing
activities 28,053 30,230 (21,653) (6,311)
Cash flows from
financing activities
Proceeds from swap
exchange 31,556 -- 31,556 --
Net commercial paper
conduit borrowings -- 2,000 -- 2,000
Change in book
overdraft (5,043) (30,151) (15,346) (19,478)
Common stock
repurchases (203) -- (21,020) --
Other 6,431 6,517 6,782 6,984
Net cash provided by
(used in) provided by
financing activities 32,741 (21,634) 1,972 (10,494)
Increase (decrease) in
cash and cash
equivalents 222,290 (35,182) 33,585 (200,720)
Cash and cash
equivalents at
beginning of period 532,652 485,882 721,357 651,420
Cash and cash
equivalents at end of
period $754,942 $450,700 $754,942 $450,700
Humana Inc.
Percentage of Ending Membership Under Capitation Arrangements
Commercial Segment
Fully Total
Insured ASO Segment
June 30, 2003
Capitated HMO
hospital system based A 6.2% -- 4.8%
Capitated HMO
physician group based A 3.1% -- 2.4%
Risk-sharing B 2.9% -- 2.2%
All other membership 87.8% 100.0% 90.6%
Total 100.0% 100.0% 100.0%
June 30, 2002
Capitated HMO
hospital system based A 6.7% -- 5.3%
Capitated HMO
physician group based A 3.9% -- 3.1%
Risk-sharing B 3.1% -- 2.4%
All other membership 86.3% 100.0% 89.2%
Total 100.0% 100.0% 100.0%
Government Segment
Medicare TRICARE Total
+Choice Medicaid TRICARE ASO Segment
June 30, 2003
Capitated HMO
hospital system based A 12.5% 2.6% -- -- 1.5%
Capitated HMO
physician group based A 1.9% 57.5% -- -- 8.0%
Risk-sharing B 48.1% 33.8% -- -- 8.9%
All other membership 37.5% 6.1% 100.0% 100.0% 81.6%
Total 100.0% 100.0% 100.0% 100.0% 100.0%
June 30, 2002
Capitated HMO
hospital system based A 13.3% 2.2% -- -- 1.6%
Capitated HMO
physician group based A 3.3% 56.7% -- -- 8.0%
Risk-sharing B 45.7% 34.3% -- -- 9.1%
All other membership 37.7% 6.8% 100.0% 100.0% 81.3%
Total 100.0% 100.0% 100.0% 100.0% 100.0%
Consol.
Total
Medical
June 30, 2003
Capitated HMO
hospital system based A 3.0%
Capitated HMO
physician group based A 5.5%
Risk-sharing B 5.9%
All other membership 85.6%
Total 100.0%
June 30, 2002
Capitated HMO
hospital system based A 3.3%
Capitated HMO
physician group based A 5.8%
Risk-sharing B 6.1%
All other membership 84.8%
Total 100.0%
A - In a limited number of circumstances, we contract with hospitals and
physicians to accept financial risk for a defined set of HMO
membership. In transferring this risk, we prepay these
providers a monthly fixed-fee per member to coordinate substantially
all of the medical care for their capitated HMO membership, including
some health benefit administrative functions and claims processing.
For these capitated HMO arrangements, we generally agree to
reimbursement rates that target a medical expense ratio ranging from
82% to 89%. Providers participating in hospital-based capitated HMO
arrangements generally receive a monthly payment for all of the
services within their system for their HMO membership. Providers
participating in physician-based capitated HMO arrangements generally
have subcontracted specialist physicians and are responsible for
reimbursing such hospitals and physicians for services
rendered to their HMO membership.
B - In some circumstances, we contract with physicians under risk-
sharing arrangements whereby physicians have assumed some level of
risk for all or a portion of the medical costs of their HMO
membership. Although these arrangements do include capitation
payments for services rendered, we process substantially all of the
claims under these arrangements.
Humana Inc.
Medical Claim Reserves - Details and Statistics
Change in medical and other expenses payable:
The change in medical and other expenses payable is summarized as
follows:
For the Six For the Twelve
Months Ended Months Ended
June 30, December 31,
2003 2002
Balances at January 1 $1,142,131 $1,086,386
Incurred related to:
Current year 4,884,188 9,125,915
Prior years - TRICARE (29,466) 25,685(1)
Prior years - non-
TRICARE (2) (38,311) (13,404)
Total incurred 4,816,411 9,138,196
Paid related to:
Current year (3,684,801) (8,002,610)
Prior years (986,377) (1,079,841)
Total paid (4,671,178) (9,082,451)
Balances at end of period $1,287,364 $1,142,131
(1) Changes in estimates of medical expenses payable for TRICARE may
result from issues that entitle us to additional revenues derived
from change orders or the bid price adjustment process, which was the
case with substantially all of the unfavorable development for prior
periods recognized during 2002.
(2) Changes in estimates of non-TRICARE incurred claims for prior years
recognized during 2003 and 2002 related primarily to our commercial
lines of business. The impact of any reduction of "incurred related
to prior years" claims may be offset as we re-establish the
"incurred related to current year". Our reserving practice is to
consistently recognize the actuarial best estimate of our ultimate
liability for our claims within a level of confidence required to
meet actuarial standards. Thus, only when the release of a prior
year reserve is not offset with the same level of conservatism in
estimating the current year reserve will the redundancy reduce
medical expense. We have consistently applied this methodology in
determining our best estimate for unpaid claims liability in each
period.
Humana Inc.
Dollars in thousands
Medical Claim Reserves - Details and Statistics
Medical and Other Expenses Payable Detail:
June 30, March 31, December 31,
2003 2003 2002
A IBNR and other medical
expenses payable $778,460 $703,910 $650,606
B TRICARE IBNR 232,591 232,249 212,826
C TRICARE other medical
expenses payable 24,677 30,055 37,793
D Unprocessed claim inventories 92,100 99,000 92,300
E Processed claim inventories 126,516 118,300 105,422
F Payable to pharmacy benefit
administrator 33,020 42,529 43,184
Total medical and other
expenses payable $1,287,364 $1,226,043 $1,142,131
A IBNR represents an estimate of medical expenses payable for claims
incurred but not reported (IBNR) at the balance sheet date. The level
of IBNR is primarily impacted by membership levels, medical claim
trends and the receipt cycle time, which represents the length of time
between when a claim is initially incurred and when the claim form is
received (i.e. a shorter time span results in lower reserves for claims
IBNR).
B TRICARE IBNR has increased primarily due to an increase in claim
inventories at our third party claim administrator for claims not
submitted electronically.
C TRICARE other medical expense payable may include liabilities to
subcontractors and/or risk share payables to the Department of Defense.
The level of these balances may fluctuate from period to period due to
the timing of payment (cutoff) and whether or not the balances are
payables or receivables (receivables from the Department of Defense
are classified as "receivables" in our balance sheet).
D Unprocessed claim inventories represent the estimated valuation of
claims received but not yet fully processed. TRICARE claim inventories
are not included in this amount as an independent third party
administrator processes all TRICARE medical claims on our behalf.
Reserves for TRICARE claims inventory are included in TRICARE IBNR.
E Processed claim inventories represent the estimated valuation of
processed claims that are in the post claim adjudication process, which
consists of administrative functions such as audit and check batching
and handling.
F The balance due to our pharmacy benefit administrator fluctuates due to
bi-weekly payments and the month-end cutoff.
Receipt Cycle Time:
Due to increasing electronic connectivity and other efficiencies gained by
our providers with regards to the claim submission process, the average length
of time between when a claim was initially incurred and when the claim form
was received has generally shortened over the past several years. Below is a
summary:
Average # of Days from Incurred Date to Receipt Date (1)
2003 2002 Change % Change
1st Quarter Average 17.1 19.0 (1.9) -10.0%
2nd Quarter Average 16.7 18.1 (1.4) -7.7%
3rd Quarter Average -- 17.3 n/a n/a
4th Quarter Average -- 16.9 n/a n/a
Full Year Average 16.9 17.8 (0.9) -5.1%
(1) Receipt cycle time data for our 2 largest claim processing
platforms representing approximately 90% of our claims volume.
Humana Inc.
Medical Claim Reserves - Details and Statistics
Unprocessed Claim Inventories:
The estimated valuation and number of claims on hand that are yet to be
processed are as follows:
Estimated Number
Valuation Claim Item of Days
Date (000) Counts On Hand
12/31/2001 $125,400 518,100 5.0
3/31/2002 $121,000 559,600 5.2
6/30/2002 $110,300 513,100 4.8
9/30/2002 $108,800 496,200 4.8
12/31/2002 $92,300 424,200 4.5
3/31/2003 $99,000 421,700 4.4
6/30/2003 $92,100 446,600 4.7
Days in Claims Payable (Quarterly):
A common metric for monitoring medical claim reserve levels relative to
the medical claim expenses is days in claims payable, or DCP, which represents
the medical claim liabilities at the end of the period divided by average
medical expenses per day in the quarterly period. Since we have some providers
under capitation payment arrangements (which do not require a medical claim
IBNR reserve), we have also summarized this metric excluding capitation
expenses.
Days
in Claims DCP
Payable Annual Excluding Annual
Quarter Ended (DCP) Change % Change Capitation Change % Change
12/31/2001 47.4 (3.9) -7.6% 57.1 (4.4) -7.2%
3/31/2002 47.2 (2.3) -4.6% 56.2 (3.4) -5.7%
6/30/2002 46.8 (3.1) -6.2% 55.3 (4.7) -7.8%
9/30/2002 46.6 (2.5) -5.1% 55.3 (3.9) -6.6%
12/31/2002 45.2 (2.2) -4.6% 53.3 (3.8) -6.7%
3/31/2003 46.5 (0.7) -1.5% 54.7 (1.5) -2.7%
6/30/2003 47.9 1.1 2.4% 56.2 0.9 1.6%
This metric fluctuates due to all of the issues reviewed above, including
the change in the receipt cycle time, the change in medical claim inventories,
the change in TRICARE liability balances, and the timing of our bi-weekly
payment to our pharmacy benefits administrator. An annual recap follows:
2003 2002
4th quarter-prior year 45.2 47.4
Impact of change in claim receipt
cycle time (0.3) (2.6)
Impact of change in unprocessed
claim inventories 0.0 (1.3)
Impact of changing TRICARE reserve
balances 0.7 0.3
Impact of change in pharmacy
payment cutoff (0.4) 0.7
All other 2.7 0.7
Year to date-current year 47.9 45.2
SOURCE Humana Inc.
CONTACT: Regina Nethery of Humana Investor Relations, +1-502-580-3644,
Rnethery@humana.com; or Tom Noland, Humana Corporate Communications,
+1-502-580-3674, Tnoland@humana.com |
Humana Inc.
