Humana Inc. Reports Financial Results for Fourth Quarter And Full Year 2006; Raises 2007 EPS Guidance
Humana Inc. Reports Financial Results for Fourth Quarter And Full Year 2006; Raises 2007 EPS Guidance
February 5, 2007 at 5:02 AM EST
View Press Release in PDF format
-- Raising 2007 EPS estimate to a range of $4.00 to $4.20
-- 2006 EPS of $2.90, above company's expectations
-- 2006 consolidated revenues of $21.4 billion, up nearly 50
percent
-- Medical membership grew 4.2 million in 2006 to 11.3 million
LOUISVILLE, Ky.--(BUSINESS WIRE)--Feb. 5, 2007--Humana Inc. (NYSE:HUM) today reported $0.92 in diluted earnings per common share (EPS) for the quarter ended December 31, 2006 (4Q06), above the company's previous guidance for EPS of $0.84 to $0.90. The 4Q06 EPS compares to $0.37(a)(e) EPS for the quarter ended December 31, 2005 (4Q05). Excluding 4Q05 expenses of $0.07 per share related to Hurricane Katrina(e), EPS for 4Q06 is up 109 percent(b) versus the prior year. The year-over-year improvement in the quarter results from substantial earnings increases from membership growth in the company's Government segment.
For the year ended December 31, 2006 (FY06), the company reported EPS of $2.90(f) versus $1.79(a)(d)(e)(g) for the year ended December 31, 2005 (FY05), an increase of 62 percent.
Humana now estimates EPS for the year ending December 31, 2007 (FY07E) in the range of $4.00 to $4.20 versus the company's previous estimate of $3.90 to $4.10. The company's revised outlook for 2007 equates to a growth rate of 38 to 45 percent over the FY06 EPS of $2.90(f).
"Strong fourth quarter results capped off a record-breaking year in which Medicare membership growth dramatically increased Humana's size, geographic reach and brand awareness," said Michael B. McCallister, Humana's president and chief executive officer. "This enabled us to exceed our EPS estimates for the quarter and the year. Just as importantly, it positioned us for further progress in 2007, as shown by our raising full-year EPS guidance this morning."
Revenues - 4Q06 consolidated revenues rose 54 percent to $5.66 billion from $3.66 billion in 4Q05, with total premium and administrative services fees up 53 percent compared to the prior year's quarter. Investment income increased by 87 percent year over year in 4Q06 to $79.9 million driven by higher invested balances during 4Q06 and the timing of venture capital investment gains in FY06 versus FY05. Other income increased to $25.9 million in 4Q06 from $4.6 million in 4Q05 primarily because of operations of the company's mail order pharmacy facility which opened during the first half of FY06.
FY06 consolidated revenues rose 49 percent to $21.42 billion from $14.42 billion in FY05 with total premium and administrative services fees up 48 percent compared to the prior year's period. Both the quarter and full year increases were primarily the result of higher enrollment in the company's Medicare Advantage plans and new 2006 revenues from stand-alone Prescription Drug Plans (PDPs) for Medicare beneficiaries.
Medical costs - The company's consolidated medical expense ratio (medical expenses as a percent of premium revenue or MER) of 83.2 percent in 4Q06 was 110 basis points higher than the 4Q05 MER of 82.1 percent(e) due to an increase in the Government Segment MER outweighing an improvement in that for the Commercial Segment. The change in MER in the Government Segment was primarily due to the stand-alone PDP results in 2006, as described more fully in the Government Segment results discussion below.
The consolidated MER for FY06 of 84.0 percent was 80 basis points higher than the FY05 consolidated MER of 83.2 percent(e), driven by the same factors impacting the fourth quarter year-over-year comparison.
Selling, general, & administrative (SG&A) expenses - The company's consolidated SG&A expense ratio (SG&A expenses as a percent of premiums plus administrative services fees) decreased to 14.7 percent for 4Q06 from 16.9 percent(a) in 4Q05. The year-over-year decline of 220 basis points was primarily the result of administrative cost leverage associated with revenues from higher average medical membership. Administrative spending associated with the 2007 open enrollment period for Medicare primarily led to a 160 basis-point increase in the consolidated SG&A expense ratio in 4Q06 compared to the third quarter of 2006.
The SG&A expense ratio for FY06 of 14.3 percent was 110 basis points lower than the FY05 ratio of 15.4 percent(a)(d)(e), primarily due to the administrative cost leverage provided by revenues from higher average medical membership. Additionally, the FY06 ratio improved year-over-year as a result of administrative costs in FY05 for the settlement of class action litigation(d) which did not recur in FY06.
Government Segment Results Summary
Pretax results:
-- Government Segment pretax earnings were $187.3 million in 4Q06
compared to $55.8 million(a)(e) in 4Q05. This increase
reflects higher earnings in the company's Medicare Advantage
plans resulting from significantly higher membership,
partially offset by results for new Medicare PDP offerings in
2006.
-- For FY06, pretax earnings for the Government Segment of $513.8
million were 62 percent higher than FY05 pretax earnings for
the segment of $316.7 million(a)(d)(e) with the increase in
results year over year primarily due to higher earnings in the
company's Medicare Advantage plans resulting from
significantly higher membership, partially offset by results
for new Medicare PDP offerings in 2006. In addition, the
year-over-year improvement was impacted by approximately $39.3
million of FY05 expenses related to the settlement of class
action litigation(d) and Hurricane Katrina(e) that did not
recur in FY06.
Enrollment:
-- Medicare Advantage membership grew to 1,002,600 at December
31, 2006, an increase of 444,800, or 80 percent, from December
31, 2005 and 9,600, or 1 percent, from September 30, 2006. The
company's expanded participation in various Medicare products
and markets combined with the company's increased sales and
marketing efforts for these programs led to the higher
membership level year over year. Medicare Advantage membership
for January 2007 approximated 1.1 million members.
-- Membership in the company's stand-alone PDPs totaled 3,536,600
at December 31, 2006. January 2007 stand-alone PDP membership
also approximated 3.5 million.
-- As expected, TRICARE membership of 2,880,000 at December 31,
2006 was essentially unchanged from both December 31, 2005 and
September 30, 2006.
-- Medicaid membership of 569,100 at December 31, 2006 increased
111,200 from December 31, 2005 and 156,500 from September 30,
2006 due primarily to the award of a new Puerto Rico regional
ASO contract during 4Q06, partially offset by eligible Puerto
Rico Medicaid members choosing to move into the Medicare
Advantage program.
Revenues:
-- Medicare Advantage premiums of $2.30 billion in 4Q06 increased
89 percent compared to $1.22 billion in 4Q05, primarily the
result of the expanded geography across which Medicare
Advantage products were offered together with higher
enrollment in geographies where these products were offered in
FY05. Medicare Advantage premiums per member increased 1
percent year over year during 4Q06, reflecting the shift in
membership mix to a higher percentage of lower premium Private
Fee-for-Service products.
-- Medicare PDP premiums added $882.0 million in new revenues in
4Q06 versus 4Q05.
-- TRICARE premiums and administrative services fees during 4Q06
of $660.4 million compared to $585.3 million in 4Q05.
Medical Expenses:
-- The Government Segment MER increased 240 basis points to 83.7
percent in 4Q06 compared to 81.3 percent(e) in the prior
year's quarter. This increase is primarily the result of the
stand-alone PDPs first offered in January 2006.
-- The FY06 MER for the company's stand-alone PDP business was
92.5 percent, primarily driven by a FY06 MER of 115.9 percent
in the company's Complete plan offering.
SG&A Expenses:
-- The Government Segment's SG&A expense ratio for 4Q06 of 12.3
percent was 330 basis points lower than that for 4Q05 of 15.6
percent(a) primarily driven by the expense leverage provided
by revenues associated with higher average membership for this
segment. On a sequential basis, the segment's SG&A expense
ratio increased 220 basis points, primarily driven by the
expenses associated with the 2007 Medicare open enrollment
period.
Commercial Segment Results Summary
Pretax results:
-- Commercial Segment pretax earnings were $53.9 million in 4Q06
compared to $38.9 million(a)(e) in 4Q05. Commercial Segment
operating earnings in 4Q06 continue to reflect the company's
commitment to underwriting discipline and the strategic shift
to a higher mix of ASO members. Additionally, 4Q05 results
included approximately $15.9 million in expenses related to
Hurricane Katrina(e) that did not recur in 4Q06.
-- For FY06, pretax earnings for the Commercial Segment of $248.2
million(f) were 188 percent higher than FY05 pretax earnings
for the segment of $86.2 million(a)(d)(e) primarily reflecting
the absence of litigation(d) and Hurricane Katrina(e) expenses
incurred in FY05 that did not recur in FY06 together with
higher-than-usual annual venture capital gains, continued
underwriting discipline, and year-over-year improvement in
medical cost utilization trends.
Enrollment:
-- Commercial Segment medical membership of 3,283,800 at December
31, 2006 increased approximately 113,000 or 4 percent, from
December 31, 2005 and declined 8,100, or less than 1 percent,
from September 30, 2006.
-- Membership in the company's Smart plans and other consumer
offerings increased year over year by 51,900 or 13 percent to
437,900 at December 31, 2006. Medical members in these
products comprise over 13 percent of Commercial medical
membership at December 31, 2006 compared to 12 percent at
December 31, 2005.
Revenues:
-- Premiums and administrative services fees for the Commercial
Segment decreased 6 percent to $1.57 billion in 4Q06 compared
to $1.67 billion in the prior year's quarter, as an increase
in administrative services fees resulting from a 31 percent
increase in ASO membership was more than offset by lower
premiums due to declines in at-risk enrollment.
-- Commercial Segment medical premiums for fully insured groups
increased approximately 6 percent on a per-member basis during
4Q06 compared to 4Q05. This increase primarily reflects a
higher percentage of lower-premium small group members in 4Q06
than in 4Q05.
Medical Expenses:
-- In 4Q06, the Commercial Segment MER of 82.1 percent was 80
basis points lower than the 4Q05 MER of 82.9 percent(e),
primarily reflecting improving medical cost utilization trends
and the company's commitment to underwriting discipline.
-- The company experienced commercial medical cost same-store
trend components for FY06 as follows: inpatient hospital
utilization - flat to 1 percent; inpatient and outpatient
hospital rates - upper single digits; outpatient hospital
utilization - low to mid single digits; physician - mid single
digits; and pharmacy - high single digits to low double
digits. This is also consistent with the same-store medical
cost trend components the company is projecting for FY07.
SG&A Expenses:
-- The Commercial Segment SG&A expense ratio of 20.8 percent for
4Q06 compares to 18.3 percent(a) in 4Q05, primarily the result
of lower average fully-insured medical enrollment and an
increase in the percentage of Commercial medical membership
related to ASO. The segment's SG&A expense ratio increased 10
basis points from that for the third quarter of 2006.
Balance Sheet
-- Cash and cash equivalents of $1.74 billion increased $559.1
million or 47 percent sequentially primarily as a result of an
increase in operating cash flows during 4Q06.
-- Parent company cash and investments increased to $424.4
million at December 31, 2006 from $419.6 million at December
31, 2005.
-- Debt-to-total capitalization at December 31, 2006 was 29.4
percent, up 430 basis points from September 30, 2006 due
primarily to 4Q06 borrowings against the company's credit
facility.
-- The company's working capital at December 31, 2006 included
approximately $738.7 million in net Part D risk-share payables
to CMS associated with the company's Medicare Advantage and
stand-alone PDP offerings.
-- Days in claims payable declined one day on a sequential basis
to 60.2 days at December 31, 2006 from 61.2 days at September
30, 2006. This sequential decline primarily related to the
timing of payments to the company's pharmacy benefit manager.
Cash Flows from Operations
Cash flows provided by operations for 4Q06 of $534.9 million compared to cash used in operations of $250.8 million(a) in 4Q05. The company also evaluates operating cash flows on a non-GAAP basis(b)(c).
Cash flows from operations ($ in millions) 4Q06 4Q05(a) FY06 FY05(a) ---------------------------------------------------------------------- GAAP cash flows provided by (used in) operations $534.9 ($250.8) $1,686.7 $610.1 ---------------------------------------------------------------------- Timing of premium payment from CMS(c) - 384.8 - 19.8 ---------------------------------------------------------------------- Non-GAAP cash flows provided by operations(b)(c) $534.9 $134.0 $1,686.7 $629.9 ----------------------------------------------------------------------
Non-GAAP cash flows provided by operations rose to $534.9 million in 4Q06 from $134.0 million(a)(b)(c) in 4Q05 driven by growth in the company's Medicare operations including the associated increase in Part D risk-share payables to CMS.
Footnotes
(a) In accordance with Generally Accepted Accounting Principles (GAAP), Humana adopted the retrospective method for implementing new stock option accounting rules on January 1, 2006. Consequently, prior period results in this news release have been adjusted to retrospectively reflect the expensing of stock options.
(b) The company has included certain financial measures that are not in accordance with GAAP within this news release. The company believes that these non-GAAP measures, 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.
(c) 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.
(d) On October 18, 2005, the company announced it had reached an agreement to settle a nationwide class action suit that had been pending in U.S. District Court in Miami for more than six years. Pursuant to the settlement, Humana's 3Q05 financial results included pretax expenses of $72 million ($45 million after tax or $0.27 per share) in connection with the settlement and other related litigation costs.
(e) During the latter half of 2005, certain of Humana's operations were affected by the unusually harsh impact of Hurricane Katrina. Expenses related to Hurricane Katrina primarily stem from the company's efforts, in close cooperation with Departments of Insurance in the affected states, to help our members by offering participating-provider benefits at non-participating providers, paying claims for members who were unable at that time to meet their premium obligations and similar measures. Hurricane Katrina related pretax expenses of $7 million ($4 million after tax or $0.03 per share) were included in the company's 3Q05 financial results with another $20 million in pretax expenses ($13 million after tax or $0.07 per share) included in the company's 4Q05 financial results.
(f) During the first quarter of 2006, the company realized a gain on the sale of an investment totaling approximately $52 million on a pretax basis, which was $34 million higher than the pretax capital gains anticipated for 2006. The company, in turn, donated $0.02 per share of the $0.13 per share in excess capital gains to the Humana Foundation.
(g) During the first quarter of 2005, the company realized a favorable tax contingency of $23 million or $0.14 per share.
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 will be available in the Historical Presentations section of the Investor Relations page at www.humana.com.
Cautionary Statement
This news release contains forward-looking statements and earnings guidance points. The forward-looking statements herein 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 filed by Humana with the Securities and Exchange Commission:
-- Form 10-K for the year ended December 31, 2005,
-- Form 10-Qs for the quarters ended March 31, 2006, June 30,
2006, and September 30, 2006.
About Humana
Humana Inc., headquartered in Louisville, Kentucky, is one of the nation's largest publicly traded health benefits companies, with over 11 million medical members. Humana offers a diversified portfolio of health insurance products and related services - through traditional and consumer-choice plans - to employer groups, government-sponsored plans, and individuals.
Over its 46-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 report to stockholders;
-- Securities and Exchange Commission filings;
-- Most recent investor conference presentation;
-- Quarterly earnings news releases;
-- Replay of most recent earnings release conference call;
-- Calendar of events (includes upcoming earnings conference call
dates, times, and access number, as well as planned
interaction with research analysts and institutional
investors);
-- Corporate Governance information.
Humana Inc.
GAAP Guidance For the year ending December Comments
Points as of 31, 2007
February 5, 2007
----------------------------------------------------------------------
Diluted earnings FY07: $4.00 to $4.20 2007 growth rate of
per common share 1Q07: $0.35 to $0.40 38% to 45%
----------------------------------------------------------------------
Revenues Consolidated revenues: $24
billion to $26 billion;
Medicare Advantage: $10.5
billion to $12.0 billion;
Medicare stand-alone PDPs:
$3.0 billion to $3.5
billion;
TRICARE: $2.7 billion to $3.0
billion;
Commercial: $6.0 billion to
$7.0 billion
----------------------------------------------------------------------
Ending medical Medicare Advantage:
membership approximately 1,130,000 to
1,200,000;
Medicare stand-alone PDPs:
approximately 3.6 million;
TRICARE: No material change
from prior year;
Medicaid: No material change
from prior year;
Commercial: Up approximately Commercial represents
50,000 to 75,000 from prior combined ASO and
year fully insured medical
membership
----------------------------------------------------------------------
Medical costs Total Medicare products
(Medicare Advantage and
stand-alone PDP combined)
MER in the range of 82% to
84%;
Commercial fully insured 2007 same-store trends
groups: Medical cost trends for Commercial
in the range of 5% to 6%; medical cost detailed
premium yields in line with components are not
medical cost trends anticipated to be
materially different
from 2006
----------------------------------------------------------------------
Selling, general & Consolidated SG&A expense
administrative ratio of 13% to 14%
expenses
----------------------------------------------------------------------
Investment income Investment income of $280 2007 is not forecast
and interest million to $290 million with to include any
expense no material benefit from material gains from
venture capital gains; venture capital
Interest expense of investments due to
approximately $70 million fewer such
investments now held
by the company
Net investment income by Investment income (net
segment: of interest expense)
55% to 60% Government is recorded to the
Segment; 40% to 45% business segments
Commercial Segment based upon changes in
working capital that
fund cash available
for investment
----------------------------------------------------------------------
Pretax results Total Medicare products Investment and other
(Medicare Advantage and income and interest
stand-alone PDP combined): expense are recorded
4% to 5% pretax margin at the segment level
including pretax income on but not at the line-
stand-alone PDP; of-business level
TRICARE: Approximately 3% to
4% pretax margin;
Commercial Segment: $190
million to $210 million
including no material
benefit from venture capital
gains
----------------------------------------------------------------------
Cash flows from $1.0 billion to $1.8 billion Updated to reflect
operations detailed review of
12/31/06 balance
sheet and intricacies
of Part D risk-share
calculations
----------------------------------------------------------------------
Capital Approximately $200 million
expenditures
----------------------------------------------------------------------
Effective tax rate Approximately 36% to 37%
----------------------------------------------------------------------
Shares used in Approximately 171 million
computing EPS
----------------------------------------------------------------------
Humana Inc.
Statistical Schedules
And
Supplementary Information
4Q06 Earnings Release
Statistical Schedules and Supplementary Information
4Q06 Earnings Release
Contents
Page Description
--------------------------------------------------------------------
S-3 4th Quarter Consolidated Statements of Income
S-4 YTD Consolidated Statements of Income
S-5 Consolidated Balance Sheets
S-6 4th Quarter Consolidated Statements of Cash Flows
S-7 YTD Consolidated Statements of Cash Flows
S-8 Key Income Statement Ratios and Segment Operating Results
S-9 Membership Detail
S-10 4th Quarter Premiums and Administrative Services Fees
Detail
S-11 YTD Premiums and Administrative Services Fees Detail
S-12 Percentage of Ending Membership under Capitation
Arrangements
S-13 Detail of Medical and Other Expenses Payable Balance and
Year-to-Date Changes
S-14-15 Medical Claims Reserves Statistics
S-16 4Q05 GAAP to Non-GAAP Reconciliation
S-17 YTD GAAP to Non-GAAP Reconciliation
S-18 2005 Quarters Adjusted to Reflect Retrospective Application
of Expensing Stock Options
S-19 2003 Through 2005 Adjusted to Reflect Retrospective
Application of Expensing Stock Options
S-20 Footnotes
S-3
Humana Inc.
4th Quarter Consolidated Statements of Income
In thousands, except per common share results
----------------------
Three Months Ended
December 31,
----------------------
Dollar Percentage
-----------
2006 2005 (A) Change Change
---------------------- ---------------------
Revenues:
Premiums $5,456,853 $3,552,393 $1,904,460 53.6%
Administrative services
fees 92,490 63,197 29,293 46.4%
Investment income 79,937 42,856 37,081 86.5%
Other revenue 25,939 4,634 21,305 459.8%
---------------------- -----------
Total revenues 5,655,219 3,663,080 1,992,139 54.4%
---------------------- -----------
Operating expenses:
Medical 4,541,775 2,914,831 1,626,944 55.8%
Selling, general and
administrative 817,038 609,519 207,519 34.0%
Depreciation 34,607 28,769 5,838 20.3%
Other intangible
amortization 4,812 4,958 (146) -2.9%
---------------------- -----------
Total operating
expenses 5,398,232 3,558,077 1,840,155 51.7%
---------------------- -----------
Income from operations 256,987 105,003 151,984 144.7%
Interest expense 15,806 10,329 5,477 53.0%
---------------------- -----------
Income before income taxes 241,181 94,674 146,507 154.7%
Provision for income taxes 86,160 32,898 53,262 161.9%
---------------------- -----------
Net income $155,021 $61,776 $93,245 150.9%
====================== ===========
Basic earnings per common
share $0.94 $0.38 $0.56 147.4%
Diluted earnings per
common share $0.92 $0.37 $0.55 148.6%
Shares used in computing
basic earnings per common
share 165,338 162,405
Shares used in computing
diluted earnings per
common share 168,748 166,521
S-4
Humana Inc.
YTD Consolidated Statements of Income
In thousands, except per common share results
------------------------
Twelve Months Ended
December 31,
------------------------
Dollar Percentage
------------
2006 2005 (A) Change Change
------------------------ ---------------------
Revenues:
Premiums $20,729,182 $14,001,591 $6,727,591 48.0%
Administrative services
fees 341,211 259,437 $81,774 31.5%
Investment income 291,880 142,976 $148,904 104.1%
Other revenue 54,264 14,123 $40,141 284.2%
------------------------ -----------
Total revenues 21,416,537 14,418,127 $6,998,410 48.5%
------------------------ -----------
Operating expenses:
Medical 17,421,204 11,651,470 $5,769,734 49.5%
Selling, general and
administrative 3,021,509 2,195,604 $825,905 37.6%
Depreciation 128,634 105,051 $23,583 22.4%
Other intangible
amortization 19,964 23,807 ($3,843) -16.1%
------------------------ -----------
Total operating
expenses 20,591,311 13,975,932 $6,615,379 47.3%
------------------------ -----------
Income from operations 825,226 442,195 $383,031 86.6%
Interest expense 63,141 39,315 $23,826 60.6%
------------------------ -----------
Income before income
taxes 762,085 402,880 $359,205 89.2%
Provision for income
taxes 274,662 106,150 $168,512 158.7%
------------------------ -----------
Net income $487,423 $296,730 $190,693 64.3%
======================== ===========
Basic earnings per
common share $2.97 $1.83 $1.14 62.3%
Diluted earnings per
common share $2.90 $1.79 $1.11 62.0%
Shares used in computing
basic earnings per
common share 164,137 161,714
Shares used in computing
diluted earnings per
common share 167,996 165,560
S-5
Humana Inc.
Consolidated Balance Sheets
Dollars in thousands, except share amounts
------------ -----------------
Dec. 31, Sept. 30, Dec. 31, Sequential Change
-----------------
2006 2006 2005 (A) Dollar Percent
---------------------------------------------------
Assets
Current assets:
Cash and cash
equivalents $1,740,304 $1,181,234 $732,016
Investment
securities 3,192,273 3,242,711 2,354,904
Receivables, net:
Premiums 667,657 729,949 723,190
Administrative
services fees 13,284 15,055 15,462
Securities lending
collateral 627,990 917,325 47,610
Other 1,091,465 1,015,717 333,004
----------------------------------
Total current
assets 7,332,973 7,101,991 4,206,186 $230,982 3.3%
Property and
equipment 545,004 518,930 484,412
Other assets:
Long-term
investment
securities 414,877 408,281 391,035
Goodwill 1,310,631 1,307,231 1,264,575
Other 524,011 569,718 523,406
----------------------------------
Total other
assets 2,249,519 2,285,230 2,179,016
----------------------------------
Total assets $10,127,496 $9,906,151 $6,869,614 $221,345 2.2%
==================================
Liabilities and
Stockholders'
Equity
Current
liabilities:
Medical and other
expenses payable $2,488,261 $2,562,943 $1,909,682
Trade accounts
payable and
accrued expenses 1,626,658 1,477,977 560,550
Book overdraft 293,605 281,244 280,005
Securities lending
payable 627,990 917,325 47,610
Unearned revenues 155,298 146,320 120,489
Current portion of
long-term debt - - 301,254
----------------------------------
Total current
liabilities 5,191,812 5,385,809 3,219,590 ($193,997) -3.6%
Long-term debt 1,269,100 970,144 513,790
Other long-term
liabilities 612,698 657,735 627,360
----------------------------------
Total
liabilities 7,073,610 7,013,688 4,360,740 $59,922 0.9%
----------------------------------
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;
182,947,691
issued at
December 31,
2006 30,491 30,391 29,843
Capital in excess
of par value 1,357,077 1,333,503 1,235,888
Retained earnings 1,909,098 1,754,077 1,421,675
Accumulated other
comprehensive
(loss) income (13,205) (6,574) 24,832
Treasury stock, at
cost, 16,314,151
shares at
December 31, 2006 (229,575) (218,934) (203,364)
----------------------------------
Total
stockholders'
equity 3,053,886 2,892,463 2,508,874 $161,423 5.6%
----------------------------------
Total liabilities
and stockholders'
equity $10,127,496 $9,906,151 $6,869,614 $221,345 2.2%
==================================
Debt to total
capitalization
ratio 29.4% 25.1% 24.5%
S-6
Humana Inc.
4th Quarter Consolidated Statements of Cash Flows
Dollars in thousands
-----------------------
Three Months Ended
December 31,
-----------------------
Dollar Percentage
-----------
2006 2005 (A) Change Change
---------------------- --------------------
Cash flows from operating
activities
Net income $155,021 $61,776
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities:
Depreciation and
amortization 39,419 33,727
Stock-based
compensation 8,157 7,716
Provision (benefit)
for deferred income
taxes 47,793 (9,784)
Changes in operating
assets and
liabilities excluding
the effects of
acquisitions:
Receivables 64,063 (27,512)
Other assets 23,559 (32,675)
Medical and other
expenses payable (74,682) 92,456
Other liabilities 268,725 46,246
Unearned revenues 8,978 (413,419)
Other (6,132) (9,315)
----------------------
Net cash provided by (used
in) operating activities 534,901 (250,784) $785,685 313.3%
----------------------
Cash flows from investing
activities
Acquisitions, net of cash
acquired (1,700) (50,028)
Purchases of property and
equipment (56,549) (53,528)
Proceeds from sales of
property and equipment 171 1,849
Purchases of investment
securities (763,830)(2,023,793)
Proceeds from maturities
of investment securities 186,315 1,165,312
Proceeds from sales of
investment securities 523,238 730,595
Change in securities
lending collateral 289,335 69,943
----------------------
Net cash provided by (used
in) investing activities 176,980 (159,650) $336,630 210.9%
----------------------
Cash flows from financing
activities
Receipts from CMS contract
deposits 574,602 -
Withdrawals from CMS
contract deposits (753,855) -
Borrowings under credit
agreement 300,000 200,000
Debt issue costs (184) -
Change in book overdraft 12,361 21,572
Change in securities
lending payable (289,335) (69,943)
Common stock repurchases (10,641) (293)
Tax benefit from stock-
based compensation 8,048 4,287
Proceeds from stock option
exercises and other 6,193 7,891
----------------------
Net cash (used in) provided
by financing activities (152,811) 163,514 ($316,325) -193.5%
----------------------
Increase/(decrease) in cash
and cash equivalents 559,070 (246,920)
Cash and cash equivalents
at beginning of period 1,181,234 978,936
----------------------
Cash and cash equivalents
at end of period $1,740,304 $732,016
======================
S-7
Humana Inc.
YTD Consolidated Statements of Cash Flows
Dollars in thousands
----------------------
Twelve Months Ended
December 31,
----------------------
Dollar Percentage
2006 2005 (A) Change Change
---------------------- ---------------------
Cash flows from operating
activities
Net income $487,423 $296,730
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 148,598 128,858
Stock-based
compensation 32,558 30,153
Provision (benefit)
for deferred income
taxes 70,062 (39,007)
Changes in operating
assets and
liabilities
excluding the
effects of
acquisitions:
Receivables 58,554 (156,748)
Other assets (365,454) (63,962)
Medical and other
expenses payable 557,381 450,297
Other liabilities 734,718 25,617
Unearned revenues 29,870 (45,610)
Other (66,998) (16,246)
----------------------
Net cash provided by
operating activities 1,686,712 610,082 $1,076,630 176.5%
----------------------
Cash flows from investing
activities
Acquisitions, net of cash
acquired (28,062) (402,844)
Purchases of property and
equipment (193,151) (165,846)
Proceeds from sales of
property and equipment 9,623 4,497
Purchases of investment
securities (4,269,221)(3,717,916)
Proceeds from maturities
of investment securities 1,664,332 1,761,588
Proceeds from sales of
investment securities 1,742,793 1,723,015
Change in securities
lending collateral (580,380) 30,230
----------------------
Net cash used in investing
activities (1,654,066) (767,276) ($886,790) -115.6%
----------------------
Cash flows from financing
activities
Receipts from CMS
contract deposits 2,002,451 -
Withdrawals from CMS
contract deposits (2,124,717) -
Borrowings under credit
agreement 550,000 494,000
Repayments under credit
agreement (300,000) (294,000)
Proceeds from issuance of
senior notes 498,545 -
Repayment of senior notes (300,000) -
Debt issue costs (5,980) -
Change in book overdraft 13,600 87,945
Change in securities
lending payable 580,380 (30,230)
Common stock repurchases (26,211) (2,364)
Tax benefit from stock-
based compensation 38,839 15,545
Proceeds from stock
option exercises and
other 48,735 38,235
----------------------
Net cash provided by
financing activities 975,642 309,131 $666,511 215.6%
----------------------
Increase in cash and cash
equivalents 1,008,288 151,937
Cash and cash equivalents
at beginning of period 732,016 580,079
----------------------
Cash and cash equivalents
at end of period $1,740,304 $732,016
======================
S-8
Humana Inc.
Key Income Statement Ratios and Segment Operating Results
Dollars in thousands
--------------------
Three Months Ended
December 31,
--------------------
-----------
Percentage
2006 2005 (A) Difference Change
-------------------- --------------------
Medical expense ratio
Government Segment 83.7% 81.3% 2.4%
Commercial Segment 82.1% 82.9% -0.8%
Consolidated 83.2% 82.1% 1.1%
Selling, general, and
administrative expense ratio
Government Segment 12.3% 15.6% -3.3%
Commercial Segment 20.8% 18.3% 2.5%
Consolidated 14.7% 16.9% -2.2%
Detail of Pretax Income
Government Segment $187,288 $55,805 $131,483 235.6%
Commercial Segment 53,893 38,869 15,024 38.7%
-------------------- ----------
Consolidated $241,181 $94,674 $146,507 154.7%
==================== ==========
Detail of Pretax Margins
Government Segment 4.6% 2.9% 1.7%
Commercial Segment 3.3% 2.3% 1.0%
Consolidated 4.3% 2.6% 1.7%
-------------------
Twelve Months Ended
December 31,
-------------------
----------
Percentage
2006 2005 (A) Difference Change
------------------- --------------------
Medical expense ratio
Government Segment 85.0% 83.1% 1.9%
Commercial Segment 81.7% 83.3% -1.6%
Consolidated 84.0% 83.2% 0.8%
Selling, general, and
administrative expense ratio
Government Segment 11.8% 12.7% -0.9%
Commercial Segment 20.2% 18.5% 1.7%
Consolidated 14.3% 15.4% -1.1%
Detail of Pretax Income
Government Segment $513,845 $316,676 $197,169 62.3%
Commercial Segment 248,240 86,204 162,036 188.0%
------------------- ----------
Consolidated $762,085 $402,880 $359,205 89.2%
=================== ==========
Detail of Pretax Margins
Government Segment 3.5% 4.2% -0.7%
Commercial Segment 3.7% 1.3% 2.4%
Consolidated 3.6% 2.8% 0.8%
S-9
Humana Inc.
Membership Detail
In thousands
--------------
Ending Ending
December 31, Average - 4Q06 December 31,
2006 2005
-------------------------------------------
Medical Membership:
Government Segment:
Medicare Advantage - HMO 457.9 457.1 427.9
Medicare Advantage - PPO 71.7 72.1 8.6
Medicare Advantage - PFFS 473.0 472.7 121.3
-------------------------------------------
Total Medicare
Advantage 1,002.6 1,001.9 557.8
-------------------------------------------
Medicare - PDP - Standard 2,097.2 2,093.9 -
Medicare - PDP - Enhanced 1,025.4 1,027.9 -
Medicare - PDP - Complete 414.0 418.1 -
-------------------------------------------
Total Medicare stand-
alone PDPs 3,536.6 3,539.9 -
-------------------------------------------
Total Medicare 4,539.2 4,541.8 557.8
-------------------------------------------
TRICARE insured 1,716.4 1,718.1 1,750.9
TRICARE ASO 1,163.6 1,158.7 1,138.2
-------------------------------------------
Total TRICARE 2,880.0 2,876.8 2,889.1
-------------------------------------------
Medicaid insured 390.7 398.7 457.9
Medicaid ASO 178.4 121.0 -
-------------------------------------------
Total Medicaid 569.1 519.7 457.9
-------------------------------------------
Total Government Segment 7,988.3 7,938.3 3,904.8
-------------------------------------------
Commercial Segment:
Fully insured medical:
Group 1,563.9 1,565.0 1,836.9
Individual 182.6 180.3 158.1
Medicare supplement 7.7 7.7 4.8
-------------------------------------------
Total fully insured
medical 1,754.2 1,753.0 1,999.8
ASO 1,529.6 1,526.4 1,171.0
-------------------------------------------
Total Commercial Segment 3,283.8 3,279.4 3,170.8
-------------------------------------------
Total medical membership 11,272.1 11,217.7 7,075.6
===========================================
Specialty Membership (all
Commercial Segment)
---------------------------
Dental - fully insured 959.8 960.0 960.5
Dental - ASO 492.2 490.8 496.0
-------------------------------------------
Total dental 1,452.0 1,450.8 1,456.5
Group life 436.8 437.1 429.2
Short-term disability 14.0 14.5 16.4
-------------------------------------------
Total specialty membership 1,902.8 1,902.4 1,902.1
===========================================
--------------------------
Year-over-year Change Ending
--------------------------
September 30,
Amount Percent 2006
-------------------------- ---------------
Medical Membership:
Government Segment:
Medicare Advantage - HMO 30.0 7.0% 455.4
Medicare Advantage - PPO 63.1 733.7% 71.1
Medicare Advantage - PFFS 351.7 289.9% 466.5
-------------- ---------------
Total Medicare
Advantage 444.8 79.7% 993.0
-------------- ---------------
Medicare - PDP - Standard 2,097.2 100.0% 2,081.7
Medicare - PDP - Enhanced 1,025.4 100.0% 1,021.6
Medicare - PDP - Complete 414.0 100.0% 417.7
-------------- ---------------
Total Medicare stand-
alone PDPs 3,536.6 100.0% 3,521.0
-------------- ---------------
Total Medicare 3,981.4 713.8% 4,514.0
-------------- ---------------
TRICARE insured (34.5) -2.0% 1,721.3
TRICARE ASO 25.4 2.2% 1,141.4
-------------- ---------------
Total TRICARE (9.1) -0.3% 2,862.7
-------------- ---------------
Medicaid insured (67.2) -14.7% 412.6
Medicaid ASO 178.4 100.0% -
-------------- ---------------
Total Medicaid 111.2 24.3% 412.6
-------------- ---------------
Total Government Segment 4,083.5 104.6% 7,789.3
-------------- ---------------
Commercial Segment:
Fully insured medical:
Group (273.0) -14.9% 1,597.1
Individual 24.5 15.5% 175.4
Medicare supplement 2.9 60.4% 7.4
-------------- ---------------
Total fully insured
medical (245.6) -12.3% 1,779.9
ASO 358.6 30.6% 1,512.0
-------------- ---------------
Total Commercial Segment 113.0 3.6% 3,291.9
-------------- ---------------
Total medical membership 4,196.5 59.3% 11,081.2
============== ===============
Specialty Membership (all
Commercial Segment)
---------------------------
Dental - fully insured (0.7) -0.1% 960.5
Dental - ASO (3.8) -0.8% 488.2
-------------- ---------------
Total dental (4.5) -0.3% 1,448.7
Group life 7.6 1.8% 436.1
Short-term disability (2.4) -14.6% 14.9
-------------- ---------------
Total specialty membership 0.7 0.0% 1,899.7
============== ===============
-------------------------------
Sequential Change
-------------------------------
Amount Percent
-------------------------------
Medical Membership:
Government Segment:
Medicare Advantage - HMO 2.5 0.5%
Medicare Advantage - PPO 0.6 0.8%
Medicare Advantage - PFFS 6.5 1.4%
-----------------
Total Medicare Advantage 9.6 1.0%
-----------------
Medicare - PDP - Standard 15.5 0.7%
Medicare - PDP - Enhanced 3.8 0.4%
Medicare - PDP - Complete (3.7) -0.9%
-----------------
Total Medicare stand-alone PDPs 15.6 0.4%
-----------------
Total Medicare 25.2 0.6%
-----------------
TRICARE insured (4.9) -0.3%
TRICARE ASO 22.2 1.9%
-----------------
Total TRICARE 17.3 0.6%
-----------------
Medicaid insured (21.9) -5.3%
Medicaid ASO 178.4 100.0%
-----------------
Total Medicaid 156.5 37.9%
-----------------
Total Government Segment 199.0 2.6%
-----------------
Commercial Segment:
Fully insured medical:
Group (33.2) -2.1%
Individual 7.2 4.1%
Medicare supplement 0.3 4.1%
-----------------
Total fully insured medical (25.7) -1.4%
ASO 17.6 1.2%
-----------------
Total Commercial Segment (8.1) -0.2%
-----------------
Total medical membership 190.9 1.7%
=================
Specialty Membership (all Commercial
Segment)
--------------------------------------
Dental - fully insured (0.7) -0.1%
Dental - ASO 4.0 0.8%
-----------------
Total dental 3.3 0.2%
Group life 0.7 0.2%
Short-term disability (0.9) -6.0%
-----------------
Total specialty membership 3.1 0.2%
=================
S-10
Humana Inc.
4th Quarter Premiums and Administrative Services Fees Detail
Dollars in thousands, except per member per month
-----------------------
Three Months Ended
December 31,
-----------------------
Dollar Percentage
2006 2005 Change Change
----------------------- ---------------------
Premium revenues
Government Segment:
Medicare Advantage $2,302,609 $1,218,036 $1,084,573 89.0%
Medicare stand-alone
PDPs 881,994 - 881,994 100.0%
----------------------- -----------
Total Medicare 3,184,603 1,218,036 1,966,567 161.5%
TRICARE insured (C) 645,892 575,127 70,765 12.3%
Medicaid insured 133,877 139,609 (5,732) -4.1%
----------------------- -----------
Total Government Segment
premiums 3,964,372 1,932,772 2,031,600 105.1%
----------------------- -----------
Commercial Segment:
Fully insured medical 1,387,855 1,518,472 (130,617) -8.6%
Specialty 104,626 101,149 3,477 3.4%
----------------------- -----------
Total Commercial Segment
premiums 1,492,481 1,619,621 (127,140) -7.8%
----------------------- -----------
Total premium revenues $5,456,853 $3,552,393 $1,904,460 53.6%
======================= ===========
Administrative services
fees
TRICARE ASO (C) $14,548 $10,189 $4,359 42.8%
Medicaid ASO 1,423 - 1,423 100.0%
----------------------- -----------
Total Government Segment 15,971 10,189 5,782 56.7%
Commercial Segment 76,519 53,008 23,511 44.4%
----------------------- -----------
Total administrative
services fees $92,490 $63,197 $29,293 46.4%
======================= ===========
-----------------------------------
Per Member per Month (B)
Three Months Ended December 31,
-----------------------------------
2006 2005
-----------------------------------
Premium revenues
Government Segment:
Medicare Advantage $766 $755
Medicare stand-alone PDPs $83 -
Total Medicare
TRICARE insured (C) $125 $110
Medicaid insured $112 $101
Total Government Segment premiums
Commercial Segment:
Fully insured medical $264 $253
Specialty $21 $20
Total Commercial Segment premiums
Total premium revenues
Administrative services fees
TRICARE ASO (C) $4 $3
Medicaid ASO $4 -
Total Government Segment
Commercial Segment $13 $11
Total administrative services fees
S-11
Humana Inc.
YTD Premiums and Administrative Services Fees Detail
Dollars in thousands, except per member per month
------------------------
Twelve Months Ended
December 31,
------------------------
Dollar Percentage
2006 2005 Change Change
------------------------ ---------------------
Premium revenues
Government Segment:
Medicare Advantage $8,499,064 $4,590,362 $3,908,702 85.2%
Medicare stand-alone
PDPs 3,050,304 - 3,050,304 100.0%
------------------------ -----------
Total Medicare 11,549,368 4,590,362 6,959,006 151.6%
TRICARE insured (C) 2,543,930 2,407,653 136,277 5.7%
Medicaid insured 520,520 548,714 (28,194) -5.1%
------------------------ -----------
Total Government
Segment premiums 14,613,818 7,546,729 7,067,089 93.6%
------------------------ -----------
Commercial Segment:
Fully insured medical 5,704,378 6,068,115 (363,737) -6.0%
Specialty 410,986 386,747 24,239 6.3%
------------------------ -----------
Total Commercial
Segment premiums 6,115,364 6,454,862 (339,498) -5.3%
------------------------ -----------
Total premium revenues $20,729,182 $14,001,591 $6,727,591 48.0%
======================== ===========
Administrative services
fees
TRICARE ASO (C) $48,019 $50,059 ($2,040) -4.1%
Medicaid ASO 1,423 - 1,423 100.0%
------------------------ -----------
Total Government
Segment 49,442 50,059 (617) -1.2%
Commercial Segment 291,769 209,378 82,391 39.4%
------------------------ -----------
Total administrative
services fees $341,211 $259,437 $81,774 31.5%
======================== ===========
---------------------------------
Per Member per Month (B)
Twelve Months Ended December 31,
---------------------------------
2006 2005
---------------------------------
Premium revenues
Government Segment:
Medicare Advantage $794 $799
Medicare stand-alone PDPs $88 -
Total Medicare
TRICARE insured (C) $123 $115
Medicaid insured $104 $97
Total Government Segment premiums
Commercial Segment:
Fully insured medical $260 $249
Specialty $21 $20
Total Commercial Segment premiums
Total premium revenues
Administrative services fees
TRICARE ASO (C) $3 $4
Medicaid ASO $4 -
Total Government Segment
Commercial Segment $12 $10
Total administrative services fees
S-12
Humana Inc.
Percentage of Ending Membership under Capitation Arrangements
-----------------------------------------------
Government Segment
-----------------------------------------------
December 31, 2006 Medicare Medicare TRICARE Medicaid Total
Advantage stand- Govt.
alone PDPs Segment
----------------------------------------------------------------------
Capitated HMO hospital
system based (D) 3.0% - - - 0.4%
Capitated HMO physician
group based (D) 2.4% - - 26.1% 2.2%
Risk-sharing (E) 27.9% - - 42.1% 6.4%
All other membership 66.7% 100.0% 100.0% 31.8% 91.0%
-----------------------------------------------
Total medical
membership 100.0% 100.0% 100.0% 100.0% 100.0%
===============================================
December 31, 2005
-----------------------
Capitated HMO hospital
system based (D) 6.3% - - - 0.9%
Capitated HMO physician
group based (D) 4.2% - - 37.2% 5.0%
Risk-sharing (E) 41.3% - - 59.9% 12.9%
All other membership 48.2% - 100.0% 2.9% 81.2%
-----------------------------------------------
Total medical
membership 100.0% - 100.0% 100.0% 100.0%
===============================================
-----------------------------
Commercial Segment
-----------------------------
December 31, 2006 Fully ASO Total Total
insured Comm. Medical
Segment Membership
----------------------------- ----------------------------------------
Capitated HMO hospital system
based (D) 1.9% - 1.0% 0.6%
Capitated HMO physician group
based (D) 1.7% - 0.9% 1.8%
Risk-sharing (E) 1.5% - 0.8% 4.8%
All other membership 94.9% 100.0% 97.3% 92.8%
----------------------------------------
Total medical membership 100.0% 100.0% 100.0% 100.0%
========================================
December 31, 2005
-----------------------------
Capitated HMO hospital system
based (D) 2.1% - 1.3% 1.1%
Capitated HMO physician group
based (D) 2.0% - 1.2% 3.3%
Risk-sharing (E) 2.5% - 1.6% 7.8%
All other membership 93.4% 100.0% 95.9% 87.8%
----------------------------------------
Total medical membership 100.0% 100.0% 100.0% 100.0%
========================================
S-13
Humana Inc.
Detail of Medical and Other Expenses Payable Balance and Year-to-Date
Changes
Dollars in thousands
Dec. 31, Sept. 30, Dec. 31,
2006 2006 2005
------------------------------------------
Detail of medical and other
expenses payable
IBNR and other medical
expenses payable (F) $1,686,051 $1,715,791 $1,125,205
TRICARE IBNR (G) 318,583 332,962 409,413
TRICARE other medical
expenses payable (H) 94,699 95,593 88,443
Unprocessed claim
inventories (I) 218,400 187,900 148,200
Processed claim inventories
(J) 115,424 89,500 83,635
Payable to pharmacy benefit
administrator (K) 55,104 141,197 54,786
------------------------------------------
Total medical and other
expenses payable $2,488,261 $2,562,943 $1,909,682
==========================================
Nine Months
Year Ended Ended Year Ended
Dec. 31, 2006 Sept. 30, 2006 Dec. 31, 2005
------------------------------------------
Year-to-date changes in
medical and other expenses
payable
Balances at January 1 $1,909,682 $1,909,682 $1,422,010
Acquisitions 21,198 21,198 37,375
Incurred related to:
Current year (L) 17,696,654 13,163,725 11,765,662
Prior years - non-
TRICARE (L) (178,998) (173,223) (72,868)
Prior years - TRICARE
(M) (96,452) (111,073) (41,324)
------------------------------------------
Total incurred 17,421,204 12,879,429 11,651,470
------------------------------------------
Paid related to:
Current year (15,532,079) (10,912,017) (9,979,449)
Prior years (1,331,744) (1,335,349) (1,221,724)
------------------------------------------
Total paid (16,863,823) (12,247,366) (11,201,173)
------------------------------------------
Balances at end of period $2,488,261 $2,562,943 $1,909,682
==========================================
S-14
Humana Inc.
Medical Claims Reserves Statistics
Receipt Cycle Time (N)
Percentage
2006 2005 Change Change
--------------------------------------------------
1st Quarter Average 16.1 16.6 (0.5) -3.0%
2nd Quarter Average 15.8 15.9 (0.1) -0.6%
3rd Quarter Average 16.0 16.7 (0.7) -4.2%
4th Quarter Average 15.8 16.9 (1.1) -6.5%
----------------------------------------
Full Year Average 15.9 16.5 (0.6) -3.6%
========================================
Unprocessed Claims Inventories
Estimated
Valuation Claim Item Number of Days on
Date (000's) Counts Hand
---------------------------------------------------------------------
12/31/2004 $115,300 394,400 3.7
3/31/2005 $111,200 393,200 3.6
6/30/2005 $119,500 443,600 4.0
9/30/2005 $136,700 512,800 4.7
12/31/2005 $148,200 498,400 4.6
3/31/2006 $185,300 683,900 5.6
6/30/2006 $193,700 702,000 4.8
9/30/2006 $187,900 623,900 5.4
---------------------------------------------------------------------
12/31/2006 $218,400 757,700 6.1
---------------------------------------------------------------------
S-15
Humana Inc.
Medical Claims Reserves Statistics (Continued)
Days in Claims Payable (O)
Days in
Claim DCP
Quarter Payable Annual Percentage Excluding Annual Percentage
Ended (DCP) Change Change Capitation Change Change
---------------------------------------------------------------------
12/31/2004 49.5 3.3 7.1% 54.8 1.6 3.0%
3/31/2005 50.5 3.1 6.5% 56.1 1.8 3.3%
6/30/2005 52.8 5.4 11.4% 58.6 4.5 8.3%
9/30/2005 54.0 2.2 4.2% 60.8 1.7 2.9%
12/31/2005 60.3 10.8 21.8% 66.6 11.8 21.5%
3/31/2006 59.1 8.6 17.0% 65.5 9.4 16.8%
6/30/2006 59.5 6.7 12.7% 65.5 6.9 11.8%
9/30/2006 61.2 7.2 13.3% 67.1 6.3 10.4%
---------------------------------------------------------------------
12/31/2006 60.2 (0.1) -0.2% 66.5 (0.1) -0.2%
---------------------------------------------------------------------
Year-to-Date Change in Days in Claims Payable (P) (Q)
2006 2005
-------------
DCP - 4th quarter of prior year 60.3 49.5
Components of year-to-date change in DCP:
Change in claims receipt cycle time (1.6) 0.2
Change in unprocessed claims inventories 1.7 1.0
Change in processed claims inventories 0.8 (0.4)
Change in TRICARE reserve balances (2.1) 3.9
Change in pharmacy payment cutoff (1.3) 1.5
Change in provider payables under risk arrangements 1.9 1.4
All other 0.5 3.2
-------------
DCP - current quarter 60.2 60.3
=============
S-16
Humana Inc.
4Q05 GAAP to Non-GAAP Reconciliation
Dollars in thousands, except EPS
4Q06 4Q05
---------- --------------------------------
GAAP (A) Adjustments Non-GAAP
---------- ----------- ---------
Hurricane
Katrina
--------------------------------
Consolidated
Pretax income $241,181 $94,674 $20,314 $114,988
Pretax margin 4.3% 2.6% 0.5% 3.1%
Net income $155,021 $61,776 $12,676 $74,452
EPS $0.92 $0.37 $0.07 $0.44
Growth rate vs. P/Y GAAP 148.6%
Growth rate vs. P/Y Non-
GAAP 109.1%
MER 83.2% 82.1% -0.6% 81.5%
SG&A ratio 14.7% 16.9% - 16.9%
Government Segment
Pretax income $187,288 $55,805 $4,388 $60,193
Pretax margin 4.6% 2.9% 0.2% 3.1%
MER 83.7% 81.3% -0.2% 81.1%
SG&A ratio 12.3% 15.6% - 15.6%
Commercial Segment
Pretax income $53,893 $38,869 $15,926 $54,795
Pretax margin 3.3% 2.3% 0.9% 3.2%
MER 82.1% 82.9% -1.0% 81.9%
SG&A ratio 20.8% 18.3% - 18.3%
S-17
Humana Inc.
YTD GAAP to Non-GAAP Reconciliation
Dollars in thousands, except EPS
FY06
---------------------------------------------------
GAAP Adjustments Non-GAAP
--------------- --------------------- -------------
Excess Net Realized
Capital Gains - 1Q06
---------------------------------------------------
Consolidated
Pretax income $762,085 ($29,113) $732,972
Pretax margin 3.6% -0.2% 3.4%
Net income 487,423 ($18,167) $469,256
EPS $2.90 ($0.11) $2.79
Growth rate 62.0% 38.1%
MER 84.0% - 84.0%
SG&A ratio 14.3% - 14.3%
Government Segment
Pretax income $513,845 ($1,872) $511,973
Pretax margin 3.5% - 3.5%
MER 85.0% - 85.0%
SG&A ratio 11.8% - 11.8%
Commercial Segment
Pretax income $248,240 ($27,241) $220,999
Pretax margin 3.7% -0.4% 3.3%
MER 81.7% - 81.7%
SG&A ratio 20.2% -0.1% 20.1%
FY05
----------------------------------------------------
GAAP (A) Adjustments Non-GAAP
--------- -------------------------------- ---------
Realization Class Hurricane
of Tax Gain Action Katrina
Contingency Litigation
Settlement
----------------------------------------------------
Consolidated
Pretax income $402,880 - $71,850 $27,013 $501,743
Pretax
margin 2.8% - 0.5% 0.2% 3.5%
Net income $296,730 ($22,800) $44,834 $16,857 $335,621
EPS $1.79 ($0.14) $0.27 $0.10 $2.02
Growth rate
MER 83.2% - - -0.2% 83.0%
SG&A ratio 15.4% - -0.5% - 14.9%
Government
Segment
Pretax income $316,676 - $33,360 $5,917 $355,953
Pretax
margin 4.2% - 0.4% 0.1% 4.7%
MER 83.1% - - -0.1% 83.0%
SG&A ratio 12.7% - -0.5% - 12.2%
Commercial
Segment
Pretax income $86,204 - $38,490 $21,096 $145,790
Pretax
margin 1.3% - 0.5% 0.3% 2.1%
MER 83.3% - - -0.3% 83.0%
SG&A ratio 18.5% - -0.6% - 17.9%
S-18
Humana Inc.
2005 Quarters Adjusted to Reflect Retrospective Application of
Expensing Stock Options
In thousands, except per common share results
------------------------- ------------------------
1Q05 2Q05
------------------------- ------------------------
Reported Adjusted (A) Reported Adjusted (A)
------------ ------------ ----------- ------------
Revenues $3,387,225 $3,387,225 $3,546,361 $3,546,361
Pretax income
(loss):
Government $72,224 $70,472 $104,092 $102,531
Commercial 49,463 46,208 25,215 22,317
------------ ------------ ----------- ------------
Consolidated $121,687 $116,680 $129,307 $124,848
Net income $109,795 $106,735 $84,137 $81,412
Diluted earnings per
common share $0.67 $0.65 $0.51 $0.49
Shares used in 164,179 164,496 164,908 165,149
computing diluted
earnings per common
share
SG&A expense ratio:
Government 10.8% 10.9% 10.6% 10.6%
Commercial 17.6% 17.8% 17.5% 17.7%
Consolidated 14.1% 14.3% 13.8% 14.0%
Total assets $6,149,593 $6,149,593 $6,277,907 $6,277,907
Total liabilities $3,949,788 $3,916,471 $3,961,719 $3,927,862
Total stockholders'
equity $2,199,805 $2,233,122 $2,316,188 $2,350,045
Net cash provided by
(used in) operating
activities $99,228 $95,573 $181,857 $179,287
Net cash used in
investing
activities ($451,322) ($451,322) ($59,909) ($59,909)
Net cash provided by
(used in) financing
activities $332,279 $335,934 ($78,422) ($75,852)
------------------------ ------------------------
3Q05 4Q05
------------------------ ------------------------
Reported Adjusted (A) Reported Adjusted (A)
----------- ------------ ----------- ------------
Revenues $3,821,461 $3,821,461 $3,663,080 $3,663,080
Pretax income (loss):
Government $89,557 $87,868 $57,395 $55,805
Commercial (18,053) (21,190) 41,821 38,869
----------- ------------ ----------- ------------
Consolidated $71,504 $66,678 $99,216 $94,674
Net income $49,944 $46,807 $64,607 $61,776
Diluted earnings per
common share $0.30 $0.28 $0.39 $0.37
Shares used in 166,037 166,076 166,371 166,521
computing diluted
earnings per common
share
SG&A expense ratio:
Government 13.1% 13.2% 15.5% 15.6%
Commercial 20.0% 20.2% 18.1% 18.3%
Consolidated 16.2% 16.3% 16.7% 16.9%
Total assets $6,832,421 $6,832,421 $6,869,614 $6,869,614
Total liabilities $4,466,451 $4,432,166 $4,395,509 $4,360,740
Total stockholders'
equity $2,365,970 $2,400,255 $2,474,105 $2,508,874
Net cash provided by
(used in) operating
activities $591,039 $586,006 ($246,497) ($250,784)
Net cash used in
investing activities ($96,395) ($96,395) ($159,650) ($159,650)
Net cash provided by
(used in) financing
activities ($119,498) ($114,465) $159,227 $163,514
S-19
Humana Inc.
2003 Through 2005 Adjusted to Reflect Retrospective Application of
Expensing Stock Options
In thousands, except per common share results
------------------------- -------------------------
For the year ended For the year ended
December 31, 2005 December 31, 2004
------------------------- -------------------------
Reported Adjusted (A) Reported Adjusted (A)
------------ ------------ ------------ ------------
Revenues $14,418,127 $14,418,127 $13,104,325 $13,104,325
Pretax income:
Government $323,268 $316,676 $273,840 $269,063
Commercial 98,446 86,204 142,010 130,315
------------ ------------ ------------ ------------
Consolidated $421,714 $402,880 $415,850 $399,378
Net income $308,483 $296,730 $280,012 $269,947
Diluted earnings
per common share $1.87 $1.79 $1.72 $1.66
Shares used in
computing diluted
earnings per
common share 165,374 165,560 162,456 162,905
SG&A expense
ratio:
Government 12.6% 12.7% 12.2% 12.3%
Commercial 18.3% 18.5% 16.4% 16.5%
Consolidated 15.3% 15.4% 14.5% 14.6%
Total assets $6,869,614 $6,869,614 $5,657,617 $5,657,617
Total liabilities $4,395,509 $4,360,740 $3,567,493 $3,533,369
Total
stockholders'
equity $2,474,105 $2,508,874 $2,090,124 $2,124,248
Net cash provided
by operating
activities $625,627 $610,082 $347,809 $344,061
Net cash used in
investing
activities ($767,276) ($767,276) ($624,081) ($624,081)
Net cash provided
by (used in)
financing
activities $293,586 $309,131 ($75,053) ($71,305)
-------------------------
For the year ended
December 31, 2003
-------------------------
Reported Adjusted (A)
------------ ------------
Revenues $12,226,311 $12,226,311
Pretax income:
Government $223,706 $221,240
Commercial 121,010 114,973
------------ ------------
Consolidated $344,716 $336,213
Net income $228,934 $223,739
Diluted earnings per common share $1.41 $1.38
Shares used in computing diluted earnings
per common share 161,960 162,406
SG&A expense ratio:
Government 13.4% 13.5%
Commercial 16.9% 17.0%
Consolidated 15.4% 15.4%
Total assets $5,379,814 $5,379,814
Total liabilities $3,543,865 $3,510,842
Total stockholders' equity $1,835,949 $1,868,972
Net cash provided by operating activities $413,140 $397,921
Net cash used in investing activities ($382,837) ($382,837)
Net cash provided by (used in) financing
activities $179,744 $194,963
S-20
Humana Inc.
Footnotes to Statistical Schedules and Supplementary Information
4Q06 Earnings Release
Footnote
--------
(A) Adjusted to include stock-based compensation expense. Under
SFAS 123R, which the company adopted effective January 1,
2006 using the modified retrospective method, stock-based
compensation expense is recognized based on the grant date
fair value over the vesting period.
(B) Computed based on average membership for the period (i.e.,
monthly ending membership during the period divided by the
number of months in the period).
(C) TRICARE revenues are not contracted on a per member basis.
(D) In a limited number of circumstances, the company contracts
with hospitals and physicians to accept financial risk for a
defined set of HMO membership. In transferring this risk, the
company prepays 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, the company generally
agrees 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.
(E) In some circumstances, the company contracts 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, the company processes substantially all of the
claims under these arrangements.
(F) 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). Other medical expenses payable includes amounts
payable to providers under capitation arrangements.
(G) TRICARE IBNR decreased since the prior year end due to
favorable development as more fully discussed in Footnote M
below.
(H) TRICARE other medical expenses 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 the company's balance sheet).
(I) 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 the company's behalf. Reserves for
TRICARE unprocessed claims inventory are included in TRICARE
IBNR.
(J) 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.
(K) The balance due to the company's pharmacy benefit
administrator fluctuates as a result of the number of
business days in the last payment cycle of the month. Payment
cycles are every 10 days (10th & 20th of month) and the last
day of the month.
(L) Amounts incurred related to prior years vary from previously
estimated liabilities as the claims ultimately are settled.
Negative amounts reported for incurred related to prior years
result from claims being ultimately settled for amounts less
than originally estimated (favorable development). There were
no changes in the approach used to determine our estimate of
claim reserves during the quarter.
(M) Changes in estimates of TRICARE incurred claims for prior
years recognized during 2006 and 2005 resulted primarily from
claim costs and utilization levels developing favorably from
the levels originally estimated for the second half of the
prior year. As a result of substantial risk-sharing
provisions with the Department of Defense and with
subcontractors, any resulting impact on operations from the
change in estimates of incurred related to prior years is
substantially reduced, whether positive or negative.
(N) The receipt cycle time measures the average length of time
between when a claim was initially incurred and when the
claim form was received. Receipt cycle time data for our
largest claim processing platforms represents approximately
70% of the company's fully insured claims volume. Pharmacy
claims are excluded from this measurement.
(O) A common metric for monitoring medical claim reserve levels
relative to the medical claims expense 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 the
company has some providers under capitation payment
arrangements (which do not require a medical claim IBNR
reserve), the company has also summarized this metric
excluding capitation expense. In addition, this calculation
excludes the impact of the company's stand-alone PDP
business.
(P) Excludes the impact of Medicare stand-alone PDPs.
(Q) DCP fluctuates due to a number of issues, the more significant
of which are detailed in the rollforward of DCP from the
fourth quarter of the prior year. Growth in certain product
lines can also impact DCP for the quarter since a provision
for claims would not have been recorded for members that had
not yet enrolled earlier in the quarter, yet those members
would have a provision and corresponding reserve recorded
upon enrollment later in the quarter.
CONTACT: Humana Inc.
Investor Relations:
Regina Nethery, 502-580-3644
Rnethery@humana.com
or
Corporate Communications:
Tom Noland, 502-580-3674
Tnoland@humana.com
SOURCE: Humana Inc.