LOUISVILLE, Ky.--()--Humana Inc. (NYSE: HUM) today reported diluted earnings per common share (EPS) for the quarter ended December 31, 2008 (4Q08) of $1.03 compared to $1.43 per share for the quarter ended December 31, 2007 (4Q07). This year-over-year decline primarily reflects higher stand-alone Prescription Drug Plan (PDP) claim expenses and lower net investment income including $0.04 per share in other-than-temporary investment impairments(a) in 4Q08.
“We continued to make substantial operational progress in 2008 that enables us to forecast significant growth in 2009 EPS”
Looking ahead to the year ending December 31, 2009 (FY09), the company continues to anticipate a significant increase in earnings with EPS guidance for FY09 remaining in the range of $5.90 to $6.10. This compares to EPS of $3.83 for the year ended December 31, 2008 (FY08).
“We continued to make substantial operational progress in 2008 that enables us to forecast significant growth in 2009 EPS,” said Michael B. McCallister, Humana’s president and chief executive officer. “And as we look to continued growth beyond 2009, our preparations for the future Medicare Advantage operating model are showing meaningful progress toward our stated objectives with nearly 60 percent of our January Medicare Advantage membership enrolled in network-based products.”
Consolidated Highlights
Revenues – 4Q08 consolidated revenues rose 18 percent to $7.49 billion from $6.34 billion in 4Q07, with total premium and administrative services fees up 19 percent compared to the prior year’s quarter, primarily driven by a 24 percent increase in average Medicare Advantage membership and a 7 percent increase in average Commercial medical membership for the quarter together with low-single-digit premium yields across the company’s various Medicare Advantage and Commercial fully-insured offerings.
FY08 consolidated revenues rose 15 percent to $28.95 billion from $25.29 billion in FY07 with total premium and administrative services fees up 15 percent compared to the prior year’s period, primarily driven by a 19 percent increase in average Medicare Advantage membership and a 7 percent increase in average Commercial medical membership for the full year together with low-single-digit premium yields across the company’s various Medicare Advantage and Commercial fully-insured offerings.
Benefit expenses – The 4Q08 consolidated benefit ratio (benefit expenses as a percent of premium revenues) was higher than that for the prior year’s quarter, as expected. The 4Q08 consolidated benefit ratio of 83.3 percent compares to 80.3 percent in 4Q07. This year-over-year increase was primarily driven by a 320 basis point increase in the Government Segment benefit ratio primarily associated with higher stand-alone PDP claim expenses.
The consolidated benefit ratio for FY08 of 84.5 percent was 150 basis points higher than the FY07 consolidated benefit ratio of 83.0 percent, primarily due to a 210 basis point increase in the Government Segment benefit ratio resulting primarily from higher stand-alone PDP claim expenses.
Selling, general, & administrative (SG&A) expenses – The 4Q08 consolidated SG&A expense ratio (SG&A expenses as a percent of premiums, administrative services fees and other revenue) of 14.8 percent for 4Q08 compares to 16.0 percent in 4Q07. The 120 basis-point year-over-year decrease was primarily driven by leverage associated with higher average Medicare Advantage and Commercial medical membership versus the prior year. This leverage was partially offset by growth in certain of the company’s businesses that carry a higher administrative expense load such as mail-order pharmacy, individual and small group medical products and specialty products.
The SG&A expense ratio for FY08 of 13.7 percent was 20 basis points lower than that for FY07 of 13.9 percent primarily driven by the same factors which impacted the quarterly year-over-year change.
Government Segment Results
Pretax results:
- Government segment pretax income decreased by 12 percent to $267.3 million in 4Q08 from $304.6 million in 4Q07 primarily driven by the previously announced lower 2008 stand-alone PDP operating results and lower net investment income.
- For FY08, pretax earnings for the Government Segment of $785.2 million were $242.3 million, or 24 percent lower than FY07 pretax earnings for the segment of $1.03 billion. The net decline also reflects the previously announced lower 2008 stand-alone PDP operating results and lower net investment income, partially offset by higher operating earnings in the company’s Medicare Advantage business.
Enrollment:
- Medicare Advantage membership grew to 1,435,900 at December 31, 2008, an increase of 292,900 members, or 26 percent from December 31, 2007, and up 67,900, or 5 percent versus September 30, 2008. The increased Medicare Advantage membership includes 46,900 members from acquisitions during 4Q08 and 94,900 such members acquired during 2008.
- Membership in the company’s stand-alone PDPs totaled 3,066,600 at December 31, 2008 compared to 3,442,000 at December 31, 2007 and 3,089,000 at September 30, 2008.
- January 2009 Medicare Advantage membership approximated 1,446,000 with 59 percent in network-based products, up from 51 percent of Medicare Advantage membership in such products at December 31, 2008. PPO membership grew 57 percent to approximately 285,000 in January 2009 versus 181,100 at December 31, 2008. HMO membership grew 3 percent to approximately 573,000 in January 2009 compared to 557,300 at December 31, 2008.
- January 2009 stand-alone PDP membership declined substantially to approximately 2,143,000, a decrease of 924,000 members from December 31, 2008. This decline resulted primarily from the company’s competitive positioning as it realigned stand-alone PDP premium and benefit structures to correspond with its pharmacy claims experience.
- Military services membership at December 31, 2008 of 2,964,700 was up approximately 3 percent from 2,865,900 at December 31, 2007 and essentially unchanged from 2,953,900 at September 30, 2008.
Premiums and administrative services fees:
- Medicare Advantage premiums of $3.62 billion in 4Q08 increased 29 percent compared to $2.80 billion in 4Q07, primarily the combined result of a 24 percent increase in average Medicare Advantage membership and low-single-digit premium yields across the company’s various Medicare Advantage offerings.
- Medicare stand-alone PDP premiums of $817.5 million in 4Q08 decreased less than one percent compared to $820.3 million in 4Q07, as the average membership decline of approximately 11 percent year over year was significantly offset by lower risk-share premium adjustments given the widening of the risk-share corridors in 2008.
- Military services premiums and administrative services fees during 4Q08 increased $157.9 million to $848.9 million compared to $691.0 million in 4Q07.
Benefit Expenses:
- The Government Segment benefit ratio increased 320 basis points to 83.3 percent in 4Q08 compared to 80.1 percent in the prior year’s quarter primarily driven by a substantial increase in the stand-alone PDP benefit ratio.
SG&A Expenses:
- The Government Segment’s SG&A expense ratio decreased 190 basis points to 11.8 percent in 4Q08 compared to 13.7 percent in the prior year’s quarter driven primarily by increased leverage from higher average medical membership in the company’s Medicare Advantage and military services businesses.
Commercial Segment Results
Pretax results:
- Commercial Segment pretax earnings decreased 112 percent year over year, to a loss of $6.3 million in 4Q08 compared to a profit of $54.4 million in 4Q07, driven primarily by the impact of growth in high-deductible health plan membership together with a $10.3 million, or 37 percent, year-over-year decrease in net investment income. High-deductible benefit design plan membership increased as a percent of the fully insured membership by approximately 3 percent over the prior year’s quarter. High-deductible health plan utilization is heavily weighted to the fourth quarter as annual plan deductibles for some members are generally exhausted by that time.
- For FY08, pretax earnings for the Commercial Segment of $207.6 million were $54.2 million, or 21 percent lower than FY07 pretax earnings for the segment of $261.8 million as the favorable impact of a 20 basis point improvement in the Commercial Segment benefit ratio was more than offset by a $44.9 million, or 45 percent decline in net investment income. The decrease in net investment income was primarily driven by realized investment losses of $63.1 million primarily associated with other-than-temporary impairments(a) in the company’s investment and securities lending portfolios as well as sales of distressed financial institution securities.
Enrollment:
- Commercial Segment medical membership grew 169,200 members to 3,620,800 at December 31, 2008, an increase of 5 percent from the December 31, 2007 medical membership for the segment of 3,451,600. On an organic basis, Commercial Segment medical membership grew 32,600 members, or 1 percent year-over-year.
- Organic medical membership growth in strategic commercial lines of business for 4Q08 compared to 4Q07 were as follows: HumanaOne membership increased 32 percent, Smart plans and other consumer offerings membership grew 19 percent, Small Group business membership increased 1 percent.
- Membership in Commercial Segment specialty products(b) of 6,817,000 at December 31, 2008 was essentially unchanged from 6,783,800 at December 31, 2007.
Premiums and administrative services fees:
- Premiums and administrative services fees for the Commercial Segment increased 11 percent to $1.92 billion in 4Q08 compared to $1.74 billion in the prior year’s quarter, primarily due to revenues associated with companies acquired during 2008 and growth in strategic lines of business.
- As expected, Commercial Segment medical premiums for fully insured group accounts increased approximately 3 percent on a per-member basis during 4Q08 compared to 4Q07.
Benefit Expenses:
- The Commercial Segment benefit ratio for 4Q08 of 83.1 percent was 210 basis points higher than the 4Q07 benefit ratio of 81.0 percent, primarily due to higher membership in the company’s high deductible health plan and individual products.
SG&A Expenses:
- The Commercial Segment SG&A expense ratio of 23.0 percent for 4Q08 compares to 21.8 percent in 4Q07, primarily driven by increases in certain of the company’s businesses that carry a higher administrative expense load such as mail-order pharmacy, individual and small group medical products and specialty products.
Balance Sheet
- At December 31, 2008, the company had cash, cash equivalents, and investment securities of $7.19 billion, up 11 percent from $6.46 billion at September 30, 2008 and up 7 percent from $6.69 billion at December 31, 2007. Additionally, the company held securities under the company’s securities lending program of $402.4 million at December 31, 2008 compared to $488.4 million at September 30, 2008 and $1.34 billion at December 31, 2007.
- Parent company cash and investments decreased $285.2 million to $250.5 million at December 31, 2008 from $535.7 million at December 31, 2007, reflecting 2008 acquisitions and capital contributions to subsidiaries as well as share repurchase activity during the first half of 2008.
- Debt-to-total capitalization at December 31, 2008 was 30.3 percent, up 220 basis points from September 30, 2008 due primarily to the completion of an acquisition during 4Q08. This ratio was up 80 basis points compared to December 31, 2007.
Cash Flows from Operations
Cash flows provided by operations for 4Q08 of $296.6 million compared to cash flows used in operations of $189.8 million in 4Q07 primarily due to lower payments to CMS for PDP risk-share accruals partially offset by lower net income.
FY08 cash flows from operations of $995.7(c)(d) million versus $1.22 billion for FY07 reflect the decrease in earnings associated with the previously mentioned higher stand-alone PDP claims expense.
The company also evaluates operating cash flows on a non-GAAP basis(c)(d).
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Cash flows from operations
($ in millions) |
4Q08 | 4Q07 | 2008 | 2007 | ||||||||||||
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GAAP cash flows provided by (used in) operations |
$ | 296.6 |
($189.8 |
) |
$ | 982.3 | $ | 1,224.3 | ||||||||
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Timing of premium payment from CMS(c)(d) |
13.4 | — | 13.4 | — | ||||||||||||
| Non-GAAP cash flows provided by (used in) operations(c)(d) | $ | 310.0 | ($189.8 | ) | $ | 995.7 | $ | 1,224.3 | ||||||||
Acquisition Activity
During 4Q08, the company completed its acquisition of PHP Companies, Inc. (d/b/a Cariten Healthcare), from Knoxville, Tennessee-based Covenant Health for $252.9 million in cash.
Share Repurchase Program
On July 28, 2008, the company’s Board of Directors increased its share repurchase authorization for use of up to $250 million for this program, excluding the $92.8 million used year to date in connection with the Board of Directors’ prior authorization in February 2008. These discretionary repurchases may be made from time to time in the open market or in privately negotiated transactions. The program has an end date of December 31, 2009. Due to current conditions in the financial markets, the company has not yet repurchased shares under the July 2008 authorization.
Footnotes
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(a) |
Other-than-temporary investment impairments realized in the 2008 third and fourth quarters resulted from portfolio valuations associated with financial market conditions and do not primarily relate to the underwriting or servicing of the company’s products. | |
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(b) |
The Commercial Segment provides a full range of insured specialty products including dental, vision and other supplemental products. Members included in these products may not be unique to each product since members have the ability to enroll in multiple products. Other supplemental benefits include life, disability, and fixed-benefit products including cancer and critical illness policies. | |
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(c) |
The company believes that the non-GAAP measures included in this release, when presented in conjunction with comparable GAAP measures, are useful to both management and its investors in analyzing the company's ongoing business and operating performance. Internally, management uses these non-GAAP financial measures as indicators of business performance, as well as for operational planning and decision making purposes. Non-GAAP financial measures should be considered in addition to, but not as a substitute for, or superior to, financial measures prepared in accordance with GAAP. | |
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(d) |
When reviewing and analyzing Humana’s operating cash flows, company management applies the CMS premium payment in each month to match the corresponding disbursements. To do otherwise distorts meaningful analysis of the company’s operating cash flow. Therefore, decisions such as management’s forecasting and business plans regarding cash flow use this non-GAAP financial measure. |
Conference Call & Virtual Slide Presentation
Humana will host a conference call, as well as a virtual slide presentation, at 9:00 a.m. eastern time today to discuss its financial results for the quarter and the company’s expectations for future earnings. A live virtual presentation (audio with slides) 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.
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. For those unable to participate in the live event, the virtual presentation archive may be accessed via the Historical Webcasts & Presentations section of the Investor Relations page at www.humana.com.
Cautionary Statement
This news release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. When used in investor presentations, press releases, Securities and Exchange Commission (SEC) filings, and in oral statements made by or with the approval of one of our executive officers, the words or phrases like "expects," "anticipates," "intends," "likely will result," "estimates," "projects" or variations of such words and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and assumptions, including, among other things, information set forth in the "Risk Factors" section of our SEC filings, a summary of which includes but is not limited to the following:
- If Humana does not design and price its products properly and competitively, the premiums Humana charges are insufficient to cover the cost of health care services delivered to its members, or if its estimates of benefits payable or future policy benefits payable based upon its estimates of future benefit claims are inadequate, Humana's profitability could be materially adversely affected. Humana estimates the costs of its benefit expense payments, and designs and prices its products accordingly, using actuarial methods and assumptions based upon, among other relevant factors, claim payment patterns, medical cost inflation, and historical developments such as claim inventory levels and claim receipt patterns. These estimates, however, involve extensive judgment, and have considerable inherent variability that is extremely sensitive to payment patterns and medical cost trends.
- If Humana fails to effectively implement its operational and strategic initiatives, including its Medicare initiatives, Humana's business could be materially adversely affected.
- If Humana fails to properly maintain the integrity of its data, to strategically implement new information systems, or to protect Humana's proprietary rights to its systems, the company's business could be materially adversely affected.
- Humana is involved in various legal actions, which, if resolved unfavorably to Humana, could result in substantial monetary damages. Increased litigation and negative publicity could increase Humana's cost of doing business.
- As a government contractor, Humana is exposed to additional risks including reimbursement and payment changes that could adversely affect its business or its willingness to participate in government health care programs.
- Humana's industry is currently subject to substantial government regulation, which along with possible increased governmental regulation or legislative reform, could increase the company's cost of doing business and could adversely affect Humana's profitability.
- Humana is also subject to potential changes in the political environment that can affect public policy and can adversely affect the markets for its products.
- Any failure to manage administrative costs could hamper Humana's profitability.
- Any failure by Humana to manage acquisitions and other significant transactions successfully could harm the company's financial results, business and prospects.
- If Humana fails to develop and maintain satisfactory relationships with the providers of care to its members, Humana's business could be adversely affected.
- Humana's mail order pharmacy business subjects it to regulations in addition to those the company faces with its core health benefits businesses.
- Humana's ability to obtain funds from its subsidiaries is restricted by state insurance regulations.
- Downgrades in Humana's debt ratings, should they occur, may adversely affect Humana's cost and availability of funds.
- Extreme volatility and disruption in the securities and credit markets may adversely affect Humana's business, results of operations, and financial condition.
- Changes in economic conditions could adversely affect Humana's business and results of operations.
In making forward-looking statements, Humana is not undertaking to address or update them in future filings or communications regarding its business or results. In light of these risks, uncertainties, and assumptions, the forward-looking events discussed herein might not occur. There also may be other risks that we are unable to predict at this time. Any of these risks and uncertainties may cause actual results to differ materially from the results discussed in the forward-looking statements.
Humana advises investors to read the following documents as filed by the company with the SEC for further discussion both of the risks it faces and its historical performance:
- Form 10-K for the year ended December 31, 2007;
- Form 10-Qs for the quarters ended March 31, 2008, June 30, 2008, and September 30, 2008;
- Form 8-Ks filed during 2008 and 2009.
About Humana
Humana Inc., headquartered in Louisville, Kentucky, is one of the nation’s largest publicly traded health and supplemental benefits companies, with approximately 10.6 million medical members. Humana is a full-service benefits solutions company, offering a wide array of health and supplemental benefit plans for employer groups, government programs and individuals.
Over its 48-year history, Humana has consistently seized opportunities to meet changing customer needs. Today, the company is a leader in consumer engagement, providing guidance that leads to lower costs and a better health plan experience throughout its diversified customer portfolio.
More information regarding Humana is available to investors via the Investor Relations page of the company’s web site at www.humana.com, including copies of:
- Annual reports to stockholders;
- Securities and Exchange Commission filings;
- Most recent investor conference presentations;
- Quarterly earnings news releases;
- Replays of most recent earnings release conference calls;
- Calendar of events (including upcoming earnings conference call dates and times, as well as planned interaction with research analysts and institutional investors);
- Corporate Governance information.
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Humana Inc. – Earnings Guidance Points as of February 2, 2009 |
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(in accordance with Generally Accepted Accounting Principles) |
For the year ending December 31, 2009 | Comments | ||
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Diluted earnings per common share |
Full year 2009: $5.90 to $6.10 1Q09: $1.10 to $1.20 |
Excludes impact of future share repurchases |
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| Revenues |
Consolidated revenues: $30 billion to $32 billion |
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| Premiums and ASO fees: | ||||
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Medicare Advantage: $15.75 billion to $16.25 billion |
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Medicare stand-alone PDPs: Approximately $2.4 billion |
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| Military services: $3.5 billion to $3.6 billion; | ||||
| Commercial Segment: $7.7 billion to $8.0 billion | ||||
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Consolidated investment income: $325 million to $345 million |
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Consolidated other revenue: $270 million to $290 million |
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Ending medical membership (fully- insured and ASO combined)
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Medicare Advantage: Up 25,000 to 75,000 from prior year
Medicare stand-alone PDPs: Down 1.1 million to 1.2 million from prior year
Military services: No material change from prior year |
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Medicaid: Down approximately 86,000 from prior year |
Expected decline in Medicaid membership relates to a contract assumed in connection with the FY08 Cariten Healthcare acquisition that terminated effective December 31, 2008. |
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Commercial: No material change from prior year |
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| Benefit expenses |
Medicare Advantage & stand-alone PDP combined: benefit ratio in the range of 83.5% to 84.0% |
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Commercial fully insured group accounts: |
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| Same-store net benefit expense trends and premium yields of 6% to 7% (3% to 4% including the impact of changes in business mix) | ||||
| Secular Commercial benefit expense trend components: inpatient hospital utilization – relatively flat; inpatient and outpatient hospital rates – mid to upper single digits; outpatient hospital utilization – mid single digits; physician – mid single digits; pharmacy – mid to upper single digits |
Secular trends exclude the impact of benefit buy-downs
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Selling, general & administrative expense ratio |
13% to 14% |
SG&A expenses as a percent of premiums, administrative services fees, and other revenue |
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Depreciation & amortization |
$240 million to $260 million | |||
| Interest expense | $105 million to $110 million | |||
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Government Segment operating margins |
Medicare Advantage & stand-alone PDP combined: 5.0% to 5.5% |
Line-of-business-level results exclude the impact of investment income and interest expense |
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| Military services: 2.5% to 3.0% | ||||
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Commercial Segment pretax earnings |
$270 million to $290 million | Segment-level results include the impact of investment income and interest expense | ||
| Cash flows from operations | $1.2 billion to $1.4 billion | |||
| Capital expenditures | Approximately $260 million | |||
| Effective tax rate | 34% to 35% | |||
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Shares used in computing full-year EPS |
Approximately 170 million |
Excludes impact of future share repurchases |
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Humana Inc. Statistical Schedules And Supplementary Information 4Q08 Earnings Release
S-1 |
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| Humana Inc. | ||||||
| Statistical Schedules and Supplementary Information | ||||||
| 4Q08 Earnings Release | ||||||
| Contents | ||||||
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Page |
Description |
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| S-3-4 | Consolidated Statements of Income | |||||
| S-5 | Consolidated Balance Sheets | |||||
| S-6-7 | Consolidated Statements of Cash Flows | |||||
| S-8 | Key Income Statement Ratios and Segment Operating Results | |||||
| S-9 | Membership Detail | |||||
| S-10-11 | Premiums and Administrative Services Fees Detail | |||||
| S-12 | Percentage of Ending Membership under Capitation Arrangements | |||||
| S-13 | Investments | |||||
| S-14-16 | Benefits Payable | |||||
| S-17 | Footnotes | |||||
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S-2 |
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| Humana Inc. | |||||||||||
| Consolidated Statements of Income | |||||||||||
| In thousands, except per common share results | |||||||||||
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Three Months Ended December 31, |
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| Dollar | Percentage | ||||||||||
| 2008 | 2007 | Change | Change | ||||||||
| Revenues: | |||||||||||
| Premiums | $7,253,922 | $6,113,693 | $1,140,229 | 18.7 | % | ||||||
| Administrative services fees | 112,535 | 97,027 | 15,508 | 16.0 | % | ||||||
| Investment income | 66,208 | 86,298 | (20,090 | ) | -23.3 | % | |||||
| Other revenue | 54,971 | 41,777 | 13,194 | 31.6 | % | ||||||
| Total revenues | 7,487,636 | 6,338,795 | 1,148,841 | 18.1 | % | ||||||
| Operating expenses: | |||||||||||
| Benefits | 6,041,104 | 4,912,251 | 1,128,853 | 23.0 | % | ||||||
| Selling, general and administrative | 1,098,943 | 1,000,376 | 98,567 | 9.9 | % | ||||||
| Depreciation | 49,788 | 40,297 | 9,491 | 23.6 | % | ||||||
| Other intangible amortization | 10,020 | 7,937 | 2,083 | 26.2 | % | ||||||
| Total operating expenses | 7,199,855 | 5,960,861 | 1,238,994 | 20.8 | % | ||||||
| Income from operations | 287,781 | 377,934 | (90,153 | ) | -23.9 | % | |||||
| Interest expense | 26,735 | 18,947 | 7,788 | 41.1 | % | ||||||
| Income before income taxes | 261,046 | 358,987 | (97,941 | ) | -27.3 | % | |||||
| Provision for income taxes | 86,966 | 115,768 | (28,802 | ) | -24.9 | % | |||||
| Net income | $174,080 | $243,219 | ($69,139 | ) | -28.4 | % | |||||
| Basic earnings per common share | $1.04 | $1.45 | ($0.41 | ) | -28.3 | % | |||||
| Diluted earnings per common share | $1.03 | $1.43 | ($0.40 | ) | -28.0 | % | |||||
| Shares used in computing basic earnings per common share | 166,704 | 167,871 | |||||||||
| Shares used in computing diluted earnings per common share | 168,569 | 170,677 | |||||||||
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S-3 |
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| Humana Inc. | |||||||||||
| Consolidated Statements of Income | |||||||||||
| In thousands, except per common share results | |||||||||||
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Twelve Months Ended December 31, |
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| Dollar | Percentage | ||||||||||
| 2008 | 2007 | Change | Change | ||||||||
| Revenues: | |||||||||||
| Premiums | $28,064,844 | $24,434,347 | $3,630,497 | 14.9 | % | ||||||
| Administrative services fees | 451,879 | 391,515 | 60,364 | 15.4 | % | ||||||
| Investment income | 220,215 | 314,239 | (94,024 | ) | -29.9 | % | |||||
| Other revenue | 209,434 | 149,888 | 59,546 | 39.7 | % | ||||||
| Total revenues | 28,946,372 | 25,289,989 | 3,656,383 | 14.5 | % | ||||||
| Operating expenses: | |||||||||||
| Benefits | 23,708,233 | 20,270,531 | 3,437,702 | 17.0 | % | ||||||
| Selling, general and administrative | 3,944,652 | 3,476,468 | 468,184 | 13.5 | % | ||||||
| Depreciation | 183,257 | 162,397 | 20,860 | 12.8 | % | ||||||
| Other intangible amortization | 37,093 | 22,415 | 14,678 | 65.5 | % | ||||||
| Total operating expenses | 27,873,235 | 23,931,811 | 3,941,424 | 16.5 | % | ||||||
| Income from operations | 1,073,137 | 1,358,178 | (285,041 | ) | -21.0 | % | |||||
| Interest expense | 80,289 | 68,878 | 11,411 | 16.6 | % | ||||||
| Income before income taxes | 992,848 | 1,289,300 | (296,452 | ) | -23.0 | % | |||||
| Provision for income taxes | 345,694 | 455,616 | (109,922 | ) | -24.1 | % | |||||
| Net income | $647,154 | $833,684 | ($186,530 | ) | -22.4 | % | |||||
| Basic earnings per common share | $3.87 | $5.00 | ($1.13 | ) | -22.6 | % | |||||
| Diluted earnings per common share | $3.83 | $4.91 | ($1.08 | ) | -22.0 | % | |||||
| Shares used in computing basic earnings per common share | 167,172 | 166,871 | |||||||||
| Shares used in computing diluted earnings per common share | 169,187 | 169,820 | |||||||||
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S-4 |
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| Humana Inc. | ||||||||||||||||
| Consolidated Balance Sheets | ||||||||||||||||
| Dollars in thousands, except share amounts | ||||||||||||||||
| December 31, | September 30, | December 31, | Sequential Change | |||||||||||||
| 2008 | 2008 | 2007 | Dollar | Percent | ||||||||||||
| Assets | ||||||||||||||||
| Current assets: | ||||||||||||||||
| Cash and cash equivalents | $1,970,423 | $1,542,900 | $2,040,453 | |||||||||||||
| Investment securities | 4,203,538 | 3,982,564 | 3,635,317 | |||||||||||||
| Receivables, net: | ||||||||||||||||
| Premiums | 777,672 | 697,497 | 592,761 | |||||||||||||
| Administrative services fees | 12,010 | 12,156 | 12,780 | |||||||||||||
| Securities lending invested collateral | 402,399 | 488,431 | 1,337,049 | |||||||||||||
| Other | 1,030,000 | 1,476,439 | 1,114,486 | |||||||||||||
| Total current assets | 8,396,042 | 8,199,987 | 8,732,846 | $196,055 | 2.4 | % | ||||||||||
| Property and equipment, net | 711,492 | 677,882 | 637,241 | |||||||||||||
| Other assets: | ||||||||||||||||
| Long-term investment securities | 1,011,904 | 930,450 | 1,015,050 | |||||||||||||
| Goodwill | 1,963,111 | 1,823,280 | 1,663,939 | |||||||||||||
| Other | 959,211 | 932,271 | 829,998 | |||||||||||||
| Total other assets | 3,934,226 | 3,686,001 | 3,508,987 | |||||||||||||
| Total assets | $13,041,760 | $12,563,870 | $12,879,074 | $477,890 | 3.8 | % | ||||||||||
| Liabilities and Stockholders' Equity | ||||||||||||||||
| Current liabilities: | ||||||||||||||||
| Benefits payable | $3,205,579 | $3,068,587 | $2,696,833 | |||||||||||||
| Trade accounts payable and accrued expenses | 1,077,027 | 1,240,631 | 1,268,963 | |||||||||||||
| Book overdraft | 224,542 | 257,680 | 269,226 | |||||||||||||
| Securities lending payable | 438,699 | 535,531 | 1,337,049 | |||||||||||||
| Unearned revenues | 238,098 | 220,509 | 219,780 | |||||||||||||
| Total current liabilities | 5,183,945 | 5,322,938 | 5,791,851 | ($138,993 | ) | -2.6 | % | |||||||||
| Long-term debt | 1,937,032 | 1,668,233 | 1,687,823 | |||||||||||||
| Future policy benefits payable | 1,164,758 | 988,672 | 980,686 | |||||||||||||
| Other long-term liabilities | 298,835 | 313,495 | 389,777 | |||||||||||||
| Total liabilities | 8,584,570 | 8,293,338 | 8,850,137 | $291,232 | 3.5 | % | ||||||||||
| 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; 187,856,684 issued at December 31, 2008 |
31,309 | 31,289 | 31,123 | |||||||||||||
| Capital in excess of par value | 1,574,245 | 1,558,625 | 1,497,998 | |||||||||||||
| Retained earnings | 3,389,936 | 3,215,856 | 2,742,782 | |||||||||||||
| Accumulated other comprehensive (loss) income | (175,243 | ) | (172,484 | ) | 14,021 | |||||||||||
| Treasury stock, at cost, 19,031,229 shares at December 31, 2008 | (363,057 | ) | (362,754 | ) | (256,987 | ) | ||||||||||
| Total stockholders' equity | 4,457,190 | 4,270,532 | 4,028,937 | $186,658 | 4.4 | % | ||||||||||
| Total liabilities and stockholders' equity | $13,041,760 | $12,563,870 | $12,879,074 | $477,890 | 3.8 | % | ||||||||||
| Debt-to-total capitalization ratio | 30.3 | % | 28.1 | % | 29.5 | % | ||||||||||
|
S-5 |
||||||||||||||||
| Humana Inc. | |||||||||||||
| Consolidated Statements of Cash Flows | |||||||||||||
| Dollars in thousands | |||||||||||||
|
Three Months Ended December 31, |
|||||||||||||
| Dollar | Percentage | ||||||||||||
| 2008 | 2007 | Change | Change | ||||||||||
| Cash flows from operating activities | |||||||||||||
| Net income | $174,080 | $243,219 | |||||||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |||||||||||||
| Depreciation and amortization | 59,808 | 48,234 | |||||||||||
| Stock-based compensation | 13,534 | 11,264 | |||||||||||
| (Benefit) provision for deferred income taxes | (594 | ) | 443 | ||||||||||
|
Changes in operating assets and liabilities excluding the effects of acquisitions: |
|||||||||||||
| Receivables | (54,175 | ) | 106,524 | ||||||||||
| Other assets | 66,044 | 162,761 | |||||||||||
| Benefits payable | 75,093 | (134,659 | ) | ||||||||||
| Other liabilities | (45,772 | ) | (666,022 | ) | |||||||||
| Unearned revenues | (1,182 | ) | 42,700 | ||||||||||
| Other | 9,737 | (4,296 | ) | ||||||||||
| Net cash provided by (used in) operating activities | 296,573 | (189,832 | ) | $486,405 | 256.2 | % | |||||||
| Cash flows from investing activities | |||||||||||||
| Acquisitions, net of cash acquired | (160,568 | ) | (465,987 | ) | |||||||||
| Purchases of property and equipment | (82,025 | ) | (83,188 | ) | |||||||||
| Proceeds from sales of property and equipment | 4 | 10,580 | |||||||||||
| Purchases of investment securities | (598,962 | ) | (856,641 | ) | |||||||||
| Proceeds from maturities of investment securities | 80,087 | 296,707 | |||||||||||
| Proceeds from sales of investment securities | 385,289 | 415,677 | |||||||||||
| Change in securities lending collateral | 70,163 | (506,460 | ) | ||||||||||
| Net cash used in investing activities | (306,012 | ) | (1,189,312 | ) | $883,300 | 74.3 | % | ||||||
| Cash flows from financing activities | |||||||||||||
| Receipts from CMS contract deposits | 986,895 | 918,108 | |||||||||||
| Withdrawals from CMS contract deposits | (764,672 | ) | (941,718 | ) | |||||||||
| Borrowings under credit agreement | 750,000 | 500,000 | |||||||||||
| Repayments under credit agreement | (500,000 | ) | (175,000 | ) | |||||||||
| Debt issue costs | (34 | ) | - | ||||||||||
| Proceeds from swap termination | 93,008 | - | |||||||||||
| Change in book overdraft | (33,138 | ) | 15,870 | ||||||||||
| Change in securities lending payable | (96,832 | ) | 506,460 | ||||||||||
| Common stock repurchases | (303 | ) | (13,395 | ) | |||||||||
| Excess tax benefit from stock-based compensation | 118 | 10,617 | |||||||||||
| Proceeds from stock option exercises and other | 1,920 | 12,985 | |||||||||||
| Net cash provided by financing activities | 436,962 | 833,927 | ($396,965 | ) | -47.6 | % | |||||||
| Increase/(decrease) in cash and cash equivalents | 427,523 | (545,217 | ) | ||||||||||
| Cash and cash equivalents at beginning of period | 1,542,900 | 2,585,670 | |||||||||||
| Cash and cash equivalents at end of period | $1,970,423 | $2,040,453 | |||||||||||
|
S-6 |
|||||||||||||
| Humana Inc. | |||||||||||||
| Consolidated Statements of Cash Flows | |||||||||||||
| Dollars in thousands | |||||||||||||
|
Twelve Months Ended December 31, |
|||||||||||||
| Dollar | Percentage | ||||||||||||
| 2008 | 2007 | Change | Change | ||||||||||
| Cash flows from operating activities | |||||||||||||
| Net income | $647,154 | $833,684 | |||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||
| Depreciation and amortization | 220,350 | 184,812 | |||||||||||
| Loss (gain) on sale of investment securities, net | 79,417 | (11,668 | ) | ||||||||||
| Stock-based compensation | 55,369 | 42,132 | |||||||||||
| Benefit for deferred income taxes | (22,005 | ) | (32,736 | ) | |||||||||
|
Changes in operating assets and liabilities excluding the effects of acquisitions: |
|||||||||||||
| Receivables | (147,495 | ) | 89,667 | ||||||||||
| Other assets | (100,887 | ) | 105,689 | ||||||||||
| Benefits payable | 412,725 | 245,397 | |||||||||||
| Other liabilities | (170,140 | ) | (317,855 | ) | |||||||||
| Unearned revenues | (10,280 | ) | 64,482 | ||||||||||
| Other | 18,102 | 20,658 | |||||||||||
| Net cash provided by operating activities | 982,310 | 1,224,262 | ($241,952 | ) | -19.8 | % | |||||||
| Cash flows from investing activities | |||||||||||||
| Acquisitions, net of cash acquired | (422,915 | ) | (493,493 | ) | |||||||||
| Purchases of property and equipment | (261,572 | ) | (239,244 | ) | |||||||||
| Proceeds from sales of property and equipment | 6 | 26,514 | |||||||||||
| Purchases of investment securities | (5,681,103 | ) | (3,488,631 | ) | |||||||||
| Proceeds from maturities of investment securities | 498,650 | 1,387,967 | |||||||||||
| Proceeds from sales of investment securities | 4,496,929 | 1,670,555 | |||||||||||
| Change in securities lending collateral | 871,681 | (709,059 | ) | ||||||||||
| Net cash used in investing activities | (498,324 | ) | (1,845,391 | ) | $1,347,067 | 73.0 | % | ||||||
| Cash flows from financing activities | |||||||||||||
| Receipts from CMS contract deposits | 2,761,276 | 2,866,170 | |||||||||||
| Withdrawals from CMS contract deposits | (2,572,624 | ) | (3,051,241 | ) | |||||||||
| Borrowings under credit agreement | 1,175,000 | 1,685,000 | |||||||||||
| Repayments under credit agreement | (1,725,000 | ) | (1,335,000 | ) | |||||||||
| Proceeds from issuance of senior notes | 749,247 | - | |||||||||||
| Debt issue costs | (6,696 | ) | - | ||||||||||
| Proceeds from swap termination | 93,008 | - | |||||||||||
| Change in book overdraft | (44,684 | ) | (24,379 | ) | |||||||||
| Change in securities lending payable | (898,350 | ) | 709,059 | ||||||||||
| Common stock repurchases | (106,070 | ) | (27,412 | ) | |||||||||
| Excess tax benefit from stock-based compensation | 9,912 | 37,443 | |||||||||||
| Proceeds from stock option exercises and other | 10,965 | 61,638 | |||||||||||
| Net cash (used in) provided by financing activities | (554,016 | ) | 921,278 | ($1,475,294 | ) | -160.1 | % | ||||||
| (Decrease)/increase in cash and cash equivalents | (70,030 | ) | 300,149 | ||||||||||
| Cash and cash equivalents at beginning of period | 2,040,453 | 1,740,304 | |||||||||||
| Cash and cash equivalents at end of period | $1,970,423 | $2,040,453 | |||||||||||
|
S-7 |
|||||||||||||
| Humana Inc. | |||||||||||||||||||||||||||||
| Key Income Statement Ratios and Segment Operating Results | |||||||||||||||||||||||||||||
| Dollars in thousands | |||||||||||||||||||||||||||||
|
Three Months Ended December 31, |
Twelve Months Ended December 31, |
||||||||||||||||||||||||||||
| Percentage | Percentage | ||||||||||||||||||||||||||||
| 2008 | 2007 | Difference | Change | 2008 | 2007 | Difference | Change | ||||||||||||||||||||||
| Benefit ratio | |||||||||||||||||||||||||||||
| Government Segment | 83.3 | % | 80.1 | % | 3.2 | % | 85.9 | % | 83.8 | % | 2.1 | % | |||||||||||||||||
| Commercial Segment | 83.1 | % | 81.0 | % | 2.1 | % | 80.3 | % | 80.5 | % | -0.2 | % | |||||||||||||||||
| Consolidated | 83.3 | % | 80.3 | % | 3.0 | % | 84.5 | % | 83.0 | % | 1.5 | % | |||||||||||||||||
|
Selling, general, and administrative expense ratio (A) |
|||||||||||||||||||||||||||||
| Government Segment | 11.8 | % | 13.7 | % | -1.9 | % | 10.6 | % | 11.2 | % | -0.6 | % | |||||||||||||||||
| Commercial Segment | 23.0 | % | 21.8 | % | 1.2 | % | 22.4 | % | 21.5 | % | 0.9 | % | |||||||||||||||||
| Consolidated | 14.8 | % | 16.0 | % | -1.2 | % | 13.7 | % | 13.9 | % | -0.2 | % | |||||||||||||||||
| Investment income | |||||||||||||||||||||||||||||
| Government Segment | $34,232 | $47,238 | ($13,006 | ) | -27.5 | % | $115,162 | $182,616 | ($67,454 | ) | -36.9 | % | |||||||||||||||||
| Commercial Segment |
31,976 |
39,060 |
(7,084 |
) | -18.1 | % |
105,053 |
131,623 |
(26,570 |
) | -20.2 | % | |||||||||||||||||
| Consolidated | $66,208 | $86,298 | ($20,090 | ) | -23.3 | % | $220,215 | $314,239 | ($94,024 | ) | -29.9 | % | |||||||||||||||||
|
|
|||||||||||||||||||||||||||||
|
Realized losses from other-than-temporary impairment and sales of distressed financials (included in Investment income) |
|||||||||||||||||||||||||||||
| Government Segment | $4,271 | $0 | $4,271 | 100.0 | % | $56,327 | $0 | $56,327 | 100.0 | % | |||||||||||||||||||
| Commercial Segment |
5,646 |
0 |
5,646 |
100.0 | % |
63,146 |
0 |
63,146 |
100.0 | % | |||||||||||||||||||
| Consolidated | $9,917 | $0 | $9,917 | 100.0 | % | $119,473 | $0 | $119,473 | 100.0 | % | |||||||||||||||||||
| Interest expense | |||||||||||||||||||||||||||||
| Government Segment | $12,538 | $7,923 | $4,615 | 58.2 | % | $30,622 | $37,525 | ($6,903 | ) | -18.4 | % | ||||||||||||||||||
| Commercial Segment |
14,197 |
11,024 |
3,173 |
28.8 | % |
49,667 |
31,353 |
18,314 |
58.4 | % | |||||||||||||||||||
| Consolidated | $26,735 | $18,947 | $7,788 | 41.1 | % | $80,289 | $68,878 | $11,411 | 16.6 | % | |||||||||||||||||||
| Detail of pretax income (loss) | |||||||||||||||||||||||||||||
| Government Segment | $267,327 | $304,577 | ($37,250 | ) | -12.2 | % | $785,240 | $1,027,531 | ($242,291 | ) | -23.6 | % | |||||||||||||||||
| Commercial Segment | (6,281 | ) | 54,410 | (60,691 | ) | -111.5 | % | 207,608 | 261,769 | (54,161 | ) | -20.7 | % | ||||||||||||||||
| Consolidated | $261,046 | $358,987 | ($97,941 | ) | -27.3 | % | $992,848 | $1,289,300 | ($296,452 | ) | -23.0 | % | |||||||||||||||||
| Detail of pretax margins | |||||||||||||||||||||||||||||
| Government Segment | 4.9 | % | 6.7 | % | -1.8 | % | 3.7 | % | 5.6 | % | -1.9 | % | |||||||||||||||||
| Commercial Segment | -0.3 | % | 3.0 | % | -3.3 | % | 2.7 | % | 3.9 | % | -1.2 | % | |||||||||||||||||
| Consolidated | 3.5 | % | 5.7 | % | -2.2 | % | 3.4 | % | 5.1 | % | -1.7 | % | |||||||||||||||||
|
S-8 |
|||||||||||||||||||||||||||||
| Humana Inc. | |||||||||||||||||||||||
| Membership Detail | |||||||||||||||||||||||
| In thousands | |||||||||||||||||||||||
| Ending |
Average |
Ending | Year-over-year Change | Ending | Sequential Change | ||||||||||||||||||
| December 31, 2008 |
4Q08 |
December 31, 2007 | Amount | Percent | September 30, 2008 | Amount | Percent | ||||||||||||||||
| Medical Membership: | |||||||||||||||||||||||
| Government Segment: | |||||||||||||||||||||||
| Medicare Advantage - HMO | 557.3 | 542.7 | 453.1 | 104.2 | 23.0 | % | 502.3 | 55.0 | 10.9 | % | |||||||||||||
| Medicare Advantage - PPO | 181.1 | 179.6 | 74.1 | 107.0 | 144.4 | % | 171.0 | 10.1 | 5.9 | % | |||||||||||||
| Medicare Advantage - PFFS | 697.5 | 696.9 | 615.8 | 81.7 | 13.3 | % | 694.7 | 2.8 | 0.4 | % | |||||||||||||
| Total Medicare Advantage | 1,435.9 | 1,419.2 | 1,143.0 | 292.9 | 25.6 | % | 1,368.0 | 67.9 | 5.0 | % | |||||||||||||
| Medicare - PDP - Standard | 1,471.8 | 1,482.2 | 2,131.9 | (660.1 | ) | -31.0 | % | 1,495.7 | (23.9 | ) | -1.6 | % | |||||||||||
| Medicare - PDP - Enhanced | 1,439.8 | 1,441.2 | 1,091.5 | 348.3 | 31.9 | % | 1,433.8 | 6.0 | 0.4 | % | |||||||||||||
| Medicare - PDP - Complete | 155.0 | 156.6 | 218.6 | (63.6 | ) | -29.1 | % | 159.5 | (4.5 | ) | -2.8 | % | |||||||||||
| Total Medicare stand-alone PDPs | 3,066.6 | 3,080.0 | 3,442.0 | (375.4 | ) | -10.9 | % | 3,089.0 | (22.4 | ) | -0.7 | % | |||||||||||
| Total Medicare | 4,502.5 | 4,499.2 | 4,585.0 | (82.5 | ) | -1.8 | % | 4,457.0 | 45.5 | 1.0 | % | ||||||||||||
| Military services insured | 1,736.4 | 1,738.1 | 1,719.1 | 17.3 | 1.0 | % | 1,734.4 | 2.0 | 0.1 | % | |||||||||||||
| Military services ASO | 1,228.3 | 1,227.9 | 1,146.8 | 81.5 | 7.1 | % | 1,219.5 | 8.8 | 0.7 | % | |||||||||||||
| Total military services | 2,964.7 | 2,966.0 | 2,865.9 | 98.8 | 3.4 | % | 2,953.9 | 10.8 | 0.4 | % | |||||||||||||
| Medicaid insured | 385.4 | 383.9 | 384.4 | 1.0 | 0.3 | % | 385.1 | 0.3 | 0.1 | % | |||||||||||||
| Medicaid ASO | 85.7 | 116.1 | 180.6 | (94.9 | ) | -52.5 | % | 177.3 | (91.6 | ) | -51.7 | % | |||||||||||
| Total Medicaid | 471.1 | 500.0 | 565.0 | (93.9 | ) | -16.6 | % | 562.4 | (91.3 | ) | -16.2 | % | |||||||||||
| Total Government Segment | 7,938.3 | 7,965.2 | 8,015.9 | (77.6 | ) | -1.0 | % | 7,973.3 | (35.0 | ) | -0.4 | % | |||||||||||
| Commercial Segment: | |||||||||||||||||||||||
| Fully-insured medical: | |||||||||||||||||||||||
| Group | 1,633.6 | 1,621.6 | 1,547.0 | 86.6 | 5.6 | % | 1,596.0 | 37.6 | 2.4 | % | |||||||||||||
| Individual | 325.1 | 322.4 | 246.9 | 78.2 | 31.7 | % | 316.8 | 8.3 | 2.6 | % | |||||||||||||
| Medicare supplement | |||||||||||||||||||||||