Humana Inc. Reports Third Quarter 2006 Financial Results including Earnings per Share of $0.95
Humana Inc. Reports Third Quarter 2006 Financial Results including Earnings per Share of $0.95
October 30, 2006 at 5:01 AM EST
View Press Release in PDF format
-- Consolidated revenues up 48 percent to $5.65 billion
-- Medical membership up 57 percent year to date
-- Year-to-date cash flows from operations of over $1.1 billion
-- 2006 cash flow guidance raised to $1.6 billion to $1.8 billion
-- 2007 EPS guidance of $3.90 to $4.10
Business Editors/Healthcare Writers
MULTIMEDIA AVAILABLE:
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LOUISVILLE, Ky.--(BUSINESS WIRE)--Oct. 30, 2006--Humana Inc. (NYSE: HUM) today reported $0.95 in diluted earnings per common share (EPS) for the quarter ended September 30, 2006 (3Q06), within the range of the company's previous guidance of $0.95 to $1.00. The 3Q06 EPS compares to $0.28(a)(d)(e) EPS for the quarter ended September 30, 2005 (3Q05). Excluding 3Q05 expenses related to the settlement of class action litigation(d) and Hurricane Katrina(e), EPS for 3Q06 is up 64 percent(b) versus the prior year. The year-over-year improvement in the quarter results from substantial earnings increases in both of the company's business segments.
The company continues to estimate EPS for the year ending December 31, 2006 (FY06E) in the range of $2.82 to $2.88(f) versus $1.79(a)(d)(e)(g) for the year ended December 31, 2005 (FY05), a growth rate of approximately 60 percent. The company also anticipates significant growth in its earnings for the year ending December 31, 2007 (FY07E) with EPS projected to be in the range of $3.90 to $4.10, a growth rate of 35 to 45 percent.
"Our third-quarter results kept us on track to increase earnings per share by approximately 60 percent over 2005," said Michael B. McCallister, Humana's president and chief executive officer. "With year-to-date revenues up nearly 50 percent, 2006 is playing out as planned and positioning us for another year of robust earnings and revenue growth in 2007."
For the nine months ended September 30, 2006 (YTD06) the company reported $1.98(f) in EPS compared to $1.42(a)(d)(e)(g) for the nine months ended September 30, 2005 (YTD05), a growth rate of 39 percent. Excluding 1Q06 excess net investment gains(f), the first quarter 2005 favorable tax contingency(g) and 3Q05 expenses related to the settlement of class action litigation(d) and Hurricane Katrina(e), EPS for YTD06 is up 18 percent(b) versus the prior year driven by improvement in operating results in both of the company's business segments.
Revenues - 3Q06 consolidated revenues rose 48 percent to $5.65 billion from $3.82 billion in 3Q05, with total premium and administrative services fees up 47 percent compared to the prior year's quarter. These 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.
YTD06 consolidated revenues rose 47 percent to $15.76 billion from $10.76 billion YTD05 with total premium and administrative services fees up 46 percent compared to the prior year's period, also primarily driven by enrollment in the company's Medicare Advantage plans and stand-alone PDPs.
Medical costs - The company's medical expense ratio (medical expenses as a percent of premium revenue or MER) of 84.1 percent in 3Q06 was 70 basis points higher than the 3Q05 MER of 83.4 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 primarily results from the introduction of the stand-alone PDP results in 2006, as described more fully in the Government Segment results discussion below.
The consolidated MER for YTD06 of 84.3 percent was 70 basis points higher than the YTD05 consolidated MER of 83.6 percent(e), driven by the same factors impacting the third 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 13.1 percent for 3Q06 from 16.3 percent(a)(d)(e) in 3Q05. This resulted primarily from litigation(d) and hurricane charges(e) incurred in 3Q05 that did not recur in 3Q06. Further, the 3Q06 growth in revenues continued to outpace the related increase in administrative spending on a consolidated basis leading to a 60 basis-point improvement in the SG&A expense ratio compared to the second quarter of 2006.
The SG&A expense ratio for YTD06 of 14.2 percent was 70 basis points lower than the YTD05 ratio of 14.9 percent(a)(d)(e), primarily due to the benefit of administrative costs YTD05 for the settlement of class action litigation(d) and Hurricane Katrina(e) which did not recur in YTD06. Partially offsetting that benefit was the increase in the YTD06 Medicare administrative costs associated with the build out of infrastructure and support functions in advance of the escalation in enrollment during the first half of 2006, as well as sales and marketing spending occurring in a more concentrated 2006 Medicare selling season.
Government Segment Results Summary
Pretax results:
-- Government Segment pretax earnings were $207.0 million in 3Q06
compared to $87.9 million(a)(d)(e) in 3Q05. 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, and approximately $34.9 million in 3Q05 expenses related
to the settlement of class action litigation (d) and Hurricane
Katrina(e) that did not recur in 3Q06.
-- For YTD06, pretax earnings for the Government Segment of
$326.6 million(f) were $65.7 million higher than YTD05 pretax
earnings for the segment of $260.9 million(a)(d)(e) with the
YTD06 results also impacted primarily by the same factors
driving the 3Q06 year-over-year improvement.
Enrollment:
-- Medicare Advantage membership grew to 993,000 at September 30,
2006, an increase of 489,900, or 97 percent, from September
30, 2005 and 33,200, or 3 percent, from June 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.
-- Membership in the company's stand-alone PDPs totaled 3,521,000
at September 30, 2006, a sequential increase of 62,200, or 2
percent.
-- As expected, TRICARE membership of 2,862,700 at September 30,
2006 was essentially unchanged from both September 30, 2005
and June 30, 2006.
-- Medicaid membership of 412,600 at September 30, 2006 declined
46,800 from September 30, 2005 and 5,900 from June 30, 2006
due primarily to eligible Puerto Rico Medicaid members opting
into the Medicare Advantage program.
Revenues:
-- Medicare Advantage premiums of $2.37 billion in 3Q06 increased
82 percent compared to $1.30 billion in 3Q05, primarily the
result of higher enrollment and the expanded geography across
which Medicare Advantage products were offered. Medicare
Advantage premiums per member decreased 9 percent year over
year during 3Q06, primarily due to an increase in the
percentage of Medicare Advantage members in the company's
lower per-member premium Private Fee-for-Service products and
a more diverse geographic mix than in the prior year. At
September 30, 2006 approximately 47 percent of the company's
Medicare Advantage members were in Private Fee-For-Service
plans versus 15 percent at September 30, 2005.
-- Medicare PDP premiums added $851.4 million in new revenues in
3Q06 versus 3Q05.
-- TRICARE premiums and administrative services fees during 3Q06
of $650.8 million compared to $670.1 million in 3Q05. The 3
percent year-over-year decrease primarily reflects 3Q06
premiums associated with lower incurred claims.
Medical Expenses:
-- The Government Segment MER increased 250 basis points to 85.0
percent in 3Q06 compared to 82.5 percent(e) in the prior
year's quarter. The change is primarily the result of the
establishment of the stand-alone PDPs in January 2006. The MER
for the company's PDP business was 93.0 percent for 3Q06,
primarily driven by an MER of 133.0 percent in the company's
Complete PDP offering.
SG&A Expenses:
-- The Government Segment's SG&A expense ratio for 3Q06 of 10.1
percent was 310 basis points lower than that for 3Q05 of 13.2
percent(a)(d)(e) primarily driven by the favorable comparison
against litigation(d) and hurricane expenses(e) in 3Q05 that
did not recur in 3Q06 together with expense leverage provided
by revenues associated with higher average membership for this
segment. On a sequential basis, the segment's SG&A expense
ratio improved 140 basis points, primarily driven by the
expense leverage associated with higher average membership.
Commercial Segment Results Summary
Pretax results:
-- Results for the Commercial Segment during 3Q06 reflect pretax
income of $42.4 million compared to a pretax loss of $21.2
million(a)(d)(e) in 3Q05. Commercial Segment operating
earnings in 3Q06 primarily reflect year-over-year improvements
in medical cost utilization trends and the company's
commitment to underwriting discipline. Additionally, 3Q05
results reflected approximately $43.7 million in expenses
related to the settlement of class action litigation(d) and
Hurricane Katrina(e) that did not recur in 3Q06.
-- For YTD06, pretax earnings for the Commercial Segment of
$194.3 million(f) were $147.0 million higher than YTD05 pretax
earnings for the segment of $47.3 million(a)(d)(e) primarily
reflecting the same drivers which impacted 3Q06 earnings
improvement year over year combined with higher-than-average
capital gains in the first quarter of 2006(f).
Enrollment:
-- Commercial Segment medical membership of 3,291,900 at
September 30, 2006 increased approximately 114,000, or 4
percent, from September 30, 2005 and declined 22,000, or 1
percent, from June 30, 2006.
-- Membership in the company's Smart plans and other consumer
offerings increased year over year to 432,700 at September 30,
2006, representing over 13 percent of Commercial medical
membership compared to 11 percent at September 30, 2005 and 13
percent at June 30, 2006.
Revenues:
-- Premiums and administrative services fees for the Commercial
Segment decreased 6 percent to $1.58 billion in 3Q06 compared
to $1.67 billion in the prior year's quarter, as an increase
in administrative services fees resulting from a 29 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 5 percent on a per-member basis during
3Q06 compared to 3Q05. This increase primarily includes the
effect of a greater percentage of the company's fully-insured
group block being weighted towards small groups, as its large
group business becomes more weighted towards ASO. Premium
yield and medical cost trends for the small group business
generally include a higher level of benefit buy-downs versus
larger employers.
Medical Expenses:
-- In 3Q06, the Commercial Segment MER of 81.7 percent was 270
basis points lower than the 3Q05 MER of 84.4 percent(e),
primarily reflecting improving medical cost utilization trends
and the company's commitment to underwriting discipline.
-- The company continues to experience individual components of
commercial medical cost same-store trend for 2006 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.
SG&A Expenses:
-- The Commercial Segment SG&A expense ratio of 20.7 percent for
3Q06 compares to 20.2 percent(a)(d)(e) in 3Q05, primarily the
result of lower average fully-insured medical enrollment and
an increase in the percentage of Commercial medical membership
related to ASO, outweighing the benefit of the favorable
comparison against litigation(d) and hurricane expenses(e) in
3Q05 that did not recur in 3Q06. On a sequential basis, the
segment's SG&A expense ratio increased 190 basis points
primarily due to a higher percentage of Commercial medical
members in ASO accounts, with ASO comprising 46 percent of
Commercial medical members at September 30, 2006 versus 43
percent at June 30, 2006.
Balance Sheet
-- Cash and cash equivalents declined $1.08 billion or 48 percent
sequentially as a result of CMS opting to remit the October
2006 revenue payment one business day later than the
traditional payment pattern. Consequently, the company
experienced a corresponding sequential decline in unearned
premium revenues during 3Q06.
-- On August 1, 2006, the company's $300 million, 7.25 percent
senior notes matured and were repaid, reducing current
liabilities. Debt-to-total capitalization at September 30,
2006 was 25.1 percent, down 390 basis points from June 30,
2006.
-- The company's working capital at September 30, 2006 included
approximately $432.5 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 rose 1.7 days on a sequential basis to
61.2 days at September 30, 2006 from 59.5 days at June 30,
2006. Favorable prior-year reserve development year-to-date of
$173.2 million increased sequentially by $54.6 million
primarily driven by further actuarial development on medical
claims. This sequential change had no impact on Humana's 3Q06
results given the consistent reserving methodology used by the
company.
Cash Flows from Operations
Cash flows used in operations for 3Q06 of $391.0 million compared to cash provided by operations of $586.0 million(a) in 3Q05. The company also evaluates operating cash flows on a non-GAAP basis(b)(c).
Cash flows from operations ($ in millions) 3Q06 3Q05(a) YTD06 YTD05(a) ---------------------------------------------------------------------- GAAP cash flows (used in) provided by operations ($391.0) $586.0 $1,151.8 $860.9 ---------------------------------------------------------------------- Timing of premium payment from CMS(c) 1,031.8 (384.8) - (365.0) ---------------------------------------------------------------------- Non-GAAP cash flows provided by operations(b)(c) $640.8 $201.2 $1,151.8 $495.9 ---------------------------------------------------------------------- Non-GAAP cash flows provided by operations rose to $640.8 million in 3Q06 from $201.2 million(a) in 3Q05 driven by growth in the company's Medicare operations.
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 $71.9 million ($44.8 million after tax or $0.27 per share) in connection with the settlement and other related litigation costs. Detail of the related segment impacts is included in the statistical pages accompanying this news release.
(e) During 3Q05, certain of Humana's operations were affected by the impact of Hurricane Katrina. Expenses related to Hurricane Katrina primarily stem from the company's efforts, in close cooperation with the Departments of Insurance in the affected states, to help Humana's 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. The company recorded $6.7 million in pretax expenses ($4.2 million after tax or $0.03 per share) in hurricane-related medical and administrative costs during 3Q05. Detail of the related segment impacts is included in the statistical pages accompanying this news release.
(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 realized in 2005. The company, in turn, donated $0.02 per share of the $0.13 per share in excess capital gains to the Humana Foundation. Detail of the related segment impacts is included in the statistical pages accompanying this news release.
(g) During the first quarter of 2005, the company realized a favorable tax contingency of $22.8 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 and June 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 45-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 Points as For the year ending December 31, 2006
of October 30, 2006
----------------------------------------------------------------------
Diluted earnings per Full year EPS: $2.82 to $2.88;
common share (EPS) Fourth quarter EPS: $0.84 to $0.90
----------------------------------------------------------------------
Revenues Consolidated revenues: $21 billion to $22
billion;
Medicare Advantage: $8.5 billion to $9.0
billion;
Medicare stand-alone PDPs: $2.8 billion to
$3.2 billion;
TRICARE: $2.5 billion to $2.9 billion;
Commercial: $6.5 billion to $7.0 billion
----------------------------------------------------------------------
Ending medical membership Medicare Advantage: approximately 1 million;
Medicare stand-alone PDPs: approximately 3.5
million;
TRICARE: No material change from prior year;
Medicaid: Down approximately 40,000 from
prior year;
Commercial: Up approximately 110,000 to
120,000 from prior year including the
benefit of members acquired via the CHA
Health acquisition
----------------------------------------------------------------------
Medical costs Total Medicare products (Medicare Advantage
and stand-alone PDP) MER in the range of
84% to 85%;
Commercial fully insured groups: Medical
cost trends in the range of 5% to 6%;
premium yields in line with medical cost
trends
----------------------------------------------------------------------
Selling, general & Consolidated SG&A expense ratio of 13.5% to
administrative expenses 14.5%
----------------------------------------------------------------------
Investment income and Investment income of $280 million to $290
interest expense million including approximately $75 million
in venture capital gains;
Interest expense of approximately $64
million
Net investment income by segment:
35% to 40% Government Segment; 60% to 65%
Commercial Segment
----------------------------------------------------------------------
Pretax results Total Medicare products (Medicare Advantage
and stand-alone PDP): 2.5% to 3.5% pretax
margin including a pretax loss on stand-
alone PDP;
TRICARE: Approximately 3% to 4% pretax
margin;
Commercial Segment: $210 million to $230
million including approximately $45 million
in venture capital investment gains
----------------------------------------------------------------------
Cash flows from $1.6 billion to $1.8 billion
operations
----------------------------------------------------------------------
Capital expenditures $190 million to $200 million
----------------------------------------------------------------------
Effective tax rate Approximately 35% to 37%
----------------------------------------------------------------------
Shares used in computing Approximately 168 million
EPS
----------------------------------------------------------------------
GAAP Guidance Points as For the year ending December 31, 2007
of October 30, 2006
----------------------------------------------------------------------
Diluted earnings per Full year EPS: $3.90 to $4.10
common share (EPS)
----------------------------------------------------------------------
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: $2.5 billion to $3.5 billion;
Commercial: $6.0 billion to $7.0 billion
----------------------------------------------------------------------
Ending medical membership Medicare Advantage: approximately 1.1
million to 1.2 million;
Medicare stand-alone PDPs: approximately 3.5
million including the anticipated loss of
approximately 300,000 Complete plan
members;
TRICARE: No material change from prior year;
Medicaid: No material change from prior
year;
Commercial: Up approximately 50,000 to
75,000 from prior year
----------------------------------------------------------------------
Medical costs Total Medicare products (Medicare Advantage
and stand-alone PDP) MER in the range of
82% to 84%;
Commercial fully insured groups: Medical
cost trends in the range of 5% to 6%;
premium yields in line with medical cost
trends
----------------------------------------------------------------------
Selling, general & Consolidated SG&A expense ratio of 13% to
administrative expenses 14%
----------------------------------------------------------------------
Investment income and Investment income of $280 million to $290
interest expense million with no material benefit from
venture capital gains;
Interest expense of approximately $70
million
Net investment income by segment:
55% to 60% Government Segment; 40% to 45%
Commercial Segment
----------------------------------------------------------------------
Pretax results Total Medicare products (Medicare Advantage
and stand-alone PDP): 4% to 5% pretax
margin including a pretax gain on stand-
alone PDP;
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 At least $1.8 billion
operations
----------------------------------------------------------------------
Capital expenditures Approximately $200 million
----------------------------------------------------------------------
Effective tax rate Approximately 36% to 38%
----------------------------------------------------------------------
Shares used in computing Approximately 171 million
EPS
----------------------------------------------------------------------
GAAP Guidance Points as Comments
of October 30, 2006
----------------------------------------------------------------------
Diluted earnings per 2006 EPS growth rate of 58% to 61%
common share (EPS) 2007 EPS growth rate of 35% to 45%
----------------------------------------------------------------------
Revenues
----------------------------------------------------------------------
Ending medical membership Commercial represents combined ASO and fully
insured medical membership
----------------------------------------------------------------------
Medical costs 2007 same-store trend for individual medical
cost trend components is not anticipated to
be materially different from 2006
----------------------------------------------------------------------
Selling, general &
administrative expenses
----------------------------------------------------------------------
Investment income and 2007 is not forecast to include any material
interest expense gains from venture capital investments due
to fewer such investments now held by the
company
Investment income (net of interest expense)
is recorded to the business segments based
upon changes in working capital that fund
cash available for investment
----------------------------------------------------------------------
Pretax results Investment and other income and interest
expense are not recorded at the line-of-
business level
----------------------------------------------------------------------
Cash flows from 2006 cash flows from operations is
operations anticipated to be used towards capital
expenditures (approximately 10%), net Part
D risk-share payment to be remitted in 2007
(approximately 40%), and capital
contributions into the subsidiaries
(approximately 50%)
2007 cash flows from operations include the
forecasted payment to CMS of the net Part D
risk-share payable related to the 2006 plan
year
----------------------------------------------------------------------
Capital expenditures
----------------------------------------------------------------------
Effective tax rate
----------------------------------------------------------------------
Shares used in computing
EPS
----------------------------------------------------------------------
S-1
Humana Inc.
Statistical Schedules
And
Supplementary Information
3Q06 Earnings Release
S-2
Humana Inc.
Statistical Schedules and Supplementary Information
3Q06 Earnings Release
Contents
Page Description
-------- -------------------------------------------------------------
S-3 3Q06 Consolidated Statements of Income
S-4 YTD Consolidated Statements of Income
S-5 Consolidated Balance Sheets
S-6 3Q06 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 3Q06 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 3Q05 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.
3Q06 Consolidated Statements of Income
In thousands, except per common share results
----------------------
Three Months Ended
September 30,
----------------------
----------- Dollar Percentage
2006 2005 (A) Change Change
---------------------- ---------------------
Revenues:
Premiums $5,486,368 $3,712,364 $1,774,004 47.8%
Administrative services
fees 86,332 66,072 20,260 30.7%
Investment income 62,474 38,778 23,696 61.1%
Other revenue 14,610 4,247 10,363 244.0%
---------------------- -----------
Total revenues 5,649,784 3,821,461 1,828,323 47.8%
---------------------- -----------
Operating expenses:
Medical 4,616,002 3,094,397 1,521,605 49.2%
Selling, general and
administrative 729,722 616,126 113,596 18.4%
Depreciation 32,562 26,661 5,901 22.1%
Other intangible
amortization 5,115 7,458 (2,343) -31.4%
---------------------- -----------
Total operating
expenses 5,383,401 3,744,642 1,638,759 43.8%
---------------------- -----------
Income from operations 266,383 76,819 189,564 246.8%
Interest expense 17,009 10,141 6,868 67.7%
---------------------- -----------
Income before income taxes 249,374 66,678 182,696 274.0%
Provision for income taxes 90,176 19,871 70,305 353.8%
---------------------- -----------
Net income $159,198 $46,807 $112,391 240.1%
====================== ===========
Basic earnings per common
share $0.97 $0.29 $0.68 234.5%
Diluted earnings per
common share $0.95 $0.28 $0.67 239.3%
Shares used in computing
basic earnings per common
share 164,387 162,048
Shares used in computing
diluted earnings per
common share 168,376 166,076
-----------
S-4
Humana Inc.
YTD Consolidated Statements of Income
In thousands, except per common share results
------------------------
Nine Months Ended
September 30,
------------------------
------------ Dollar Percentage
2006 2005 (A) Change Change
------------------------ ------------------------
Revenues:
Premiums $15,272,329 $10,449,198 $4,823,131 46.2%
Administrative
services fees 248,721 196,240 $52,481 26.7%
Investment income 211,943 100,120 $111,823 111.7%
Other revenue 28,325 9,489 $18,836 198.5%
------------------------ --------------
Total revenues 15,761,318 10,755,047 $5,006,271 46.5%
------------------------ --------------
Operating expenses:
Medical 12,879,429 8,736,639 $4,142,790 47.4%
Selling, general and
administrative 2,204,471 1,586,085 $618,386 39.0%
Depreciation 94,027 76,282 $17,745 23.3%
Other intangible
amortization 15,152 18,849 ($3,697) -19.6%
------------------------ --------------
Total operating
expenses 15,193,079 10,417,855 $4,775,224 45.8%
------------------------ --------------
Income from
operations 568,239 337,192 $231,047 68.5%
Interest expense 47,335 28,986 $18,349 63.3%
------------------------ --------------
Income before income
taxes 520,904 308,206 $212,698 69.0%
Provision for income
taxes 188,502 73,252 $115,250 157.3%
------------------------ --------------
Net income $332,402 $234,954 $97,448 41.5%
======================== ==============
Basic earnings per
common share $2.03 $1.45 $0.58 40.0%
Diluted earnings per
common share $1.98 $1.42 $0.56 39.4%
Shares used in
computing basic
earnings per common
share 163,736 161,484
Shares used in
computing diluted
earnings per common
share 167,746 165,240
------------
S-5
Humana Inc.
Consolidated Balance Sheets
Dollars in thousands, except share amounts
----------- -----------------
Sequential Change
Sept. 30, June 30, Dec. 31, -----------------
2006 2006 2005 (A) Dollar Percent
--------------------------------- -----------------
Assets
Current assets:
Cash and cash
equivalents $1,181,234 $2,258,464 $732,016
Investment
securities 3,242,711 2,998,440 2,354,904
Receivables, net:
Premiums 729,949 767,610 723,190
Administrative
services fees 15,055 14,842 15,462
Securities lending
collateral 917,325 240,849 47,610
Other 1,066,731 778,821 333,004
---------------------------------
Total current
assets 7,153,005 7,059,026 4,206,186 $93,979 1.3%
Property and
equipment 518,930 505,721 484,412
Other assets:
Long-term
investment
securities 408,281 387,362 391,035
Goodwill 1,307,231 1,307,650 1,264,575
Other 569,718 576,841 523,406
---------------------------------
Total other
assets 2,285,230 2,271,853 2,179,016
---------------------------------
Total assets $9,957,165 $9,836,600 $6,869,614 $120,565 1.2%
=================================
Liabilities and
Stockholders'
Equity
Current
liabilities:
Medical and other
expenses payable $2,562,943 $2,457,643 $1,909,682
Trade accounts
payable and
accrued expenses 1,528,991 1,102,919 560,550
Book overdraft 281,244 271,824 280,005
Securities lending
payable 917,325 240,849 47,610
Unearned revenues 146,320 1,170,278 120,489
Current portion of
long-term debt - 299,941 301,254
---------------------------------
Total current
liabilities 5,436,823 5,543,454 3,219,590 ($106,631) -1.9%
Long-term debt 970,144 784,399 513,790
Other long-term
liabilities 657,735 849,952 627,360
---------------------------------
Total
liabilities 7,064,702 7,177,805 4,360,740 ($113,103) -1.6%
---------------------------------
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;
182,346,635
issued at
September 30,
2006 30,391 30,170 29,843
Capital in excess
of par value 1,333,503 1,285,399 1,235,888
Retained earnings 1,754,077 1,594,879 1,421,675
Accumulated other
comprehensive
(loss) income (6,574) (43,352) 24,832
Treasury stock, at
cost, 16,118,177
shares at
September 30,
2006 (218,934) (208,301) (203,364)
---------------------------------
Total
stockholders'
equity 2,892,463 2,658,795 2,508,874 $233,668 8.8%
---------------------------------
Total liabilities
and stockholders'
equity $9,957,165 $9,836,600 $6,869,614 $120,565 1.2%
=================================
Debt to total
capitalization
ratio 25.1% 29.0% 24.5%
S-6
Humana Inc.
3Q06 Consolidated Statements of Cash Flows
Dollars in thousands
--------------------
Three Months Ended
September 30,
--------------------
----------- Dollar Percentage
2006 2005 (A) Change Change
-------------------- ------------------------
Cash flows from operating
activities
Net income $159,198 $46,807
Adjustments to reconcile
net income to net cash
(used in) provided by
operating activities:
Depreciation and
amortization 37,677 34,119
Stock-based
compensation 9,350 8,067
Provision (benefit)
for deferred income
taxes 23,495 (40,409)
Changes in operating
assets and
liabilities
excluding the
effects of
acquisitions:
Receivables 37,448 (102,986)
Other assets (29,713) (2,773)
Medical and
other expenses
payable 105,300 139,675
Other
liabilities 293,274 97,277
Unearned
revenues (1,023,958) 412,760
Other (3,088) (6,531)
--------------------
Net cash (used in)
provided by operating
activities (391,017) 586,006 ($977,023) -166.7%
--------------------
Cash flows from investing
activities
Acquisitions, net of
cash acquired (431) (90)
Purchases of property
and equipment (54,629) (45,091)
Proceeds from sales of
property and equipment 7,296 2,610
Purchases of investment
securities (1,246,843)(448,518)
Proceeds from maturities
of investment
securities 467,620 202,664
Proceeds from sales of
investment securities 506,870 232,585
Change in securities
lending collateral (676,476) (40,555)
--------------------
Net cash used in
investing activities (996,593) (96,395) ($900,198) -933.9%
--------------------
Cash flows from financing
activities
Receipts from CMS
contract deposits 382,787 -
Withdrawals from CMS
contract deposits (634,437) -
Borrowings under credit
agreement 150,000 -
Repayments under credit
agreement - (244,000)
Repayment of senior
notes (300,000) -
Debt issue costs (1,971) -
Change in book overdraft 9,420 75,940
Change in securities
lending payable 676,476 40,555
Common stock repurchases (10,633) (380)
Tax benefit from stock-
based compensation 17,135 5,033
Proceeds from stock
option exercises and
other 21,603 8,387
--------------------
Net cash provided by
(used in) financing
activities 310,380 (114,465) $424,845 371.2%
--------------------
(Decrease)/increase in
cash and cash
equivalents (1,077,230) 375,146
Cash and cash equivalents
at beginning of period 2,258,464 603,790
--------------------
Cash and cash equivalents
at end of period $1,181,234 $978,936
====================
S-7
Humana Inc.
YTD Consolidated Statements of Cash Flows
Dollars in thousands
----------------------
Nine Months Ended
September 30,
----------------------
----------- Dollar Percentage
2006 2005 (A) Change Change
---------------------- ------------------------
Cash flows from
operating activities
Net income $332,402 $234,954
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization 109,179 95,131
Stock-based
compensation 24,401 22,437
Provision
(benefit) for
deferred income
taxes 22,269 (29,223)
Changes in
operating assets
and liabilities
excluding the
effects of
acquisitions:
Receivables (5,509) (129,236)
Other assets (389,013) (31,287)
Medical and
other
expenses
payable 632,063 357,841
Other
liabilities 465,993 (20,629)
Unearned
revenues 20,892 367,809
Other (60,866) (6,931)
----------------------
Net cash provided by
operating activities 1,151,811 860,866 $290,945 33.8%
----------------------
Cash flows from
investing activities
Acquisitions, net of
cash acquired (26,362) (352,816)
Purchases of property
and equipment (136,602) (112,318)
Proceeds from sales of
property and
equipment 9,452 2,648
Purchases of
investment securities(3,505,391)(1,694,123)
Proceeds from
maturities of
investment securities 1,478,017 596,276
Proceeds from sales of
investment securities 1,219,555 992,420
Change in securities
lending collateral (869,715) (39,713)
----------------------
Net cash used in
investing activities (1,831,046) (607,626) ($1,223,420) -201.3%
----------------------
Cash flows from
financing activities
Receipts from CMS
contract deposits 1,427,849 -
Withdrawals from CMS
contract deposits (1,370,862) -
Borrowings under
credit agreement 250,000 294,000
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 (5,796) -
Change in book
overdraft 1,239 66,373
Change in securities
lending payable 869,715 39,713
Common stock
repurchases (15,570) (2,071)
Tax benefit from
stock-based
compensation 30,791 11,258
Proceeds from stock
option exercises and
other 42,542 30,344
----------------------
Net cash provided by
financing activities 1,128,453 145,617 $982,836 674.9%
----------------------
Increase in cash and
cash equivalents 449,218 398,857
Cash and cash
equivalents at
beginning of period 732,016 580,079
----------------------
Cash and cash
equivalents at end of
period $1,181,234 $978,936
======================
S-8
Humana Inc.
Key Income Statement Ratios and Segment Operating Results
Dollars in thousands
-----------------
Three Months
Ended
September 30,
-----------------
---------
Percentage
2006 2005 (A) Difference Change
----------------- --------------------
Medical expense ratio
Government Segment 85.0% 82.5% 2.5%
Commercial Segment 81.7% 84.4% -2.7%
Consolidated 84.1% 83.4% 0.7%
Selling, general, and
administrative expense ratio
Government Segment 10.1% 13.2% -3.1%
Commercial Segment 20.7% 20.2% 0.5%
Consolidated 13.1% 16.3% -3.2%
Detail of Pretax Income (loss)
Government Segment $207,004 $87,868 $119,136 135.6%
Commercial Segment 42,370 (21,190) 63,560 300.0%
----------------- ----------
Consolidated $249,374 $66,678 $182,696 274.0%
================= ==========
Detail of Pretax Margins
Government Segment 5.1% 4.2% 0.9%
Commercial Segment 2.6% -1.2% 3.8%
Consolidated 4.4% 1.7% 2.7%
------------------
Nine Months
Ended
September 30,
------------------
---------
Percentage
2006 2005 (A) Difference Change
------------------ --------------------
Medical expense ratio
Government Segment 85.5% 83.7% 1.8%
Commercial Segment 81.6% 83.5% -1.9%
Consolidated 84.3% 83.6% 0.7%
Selling, general, and
administrative expense ratio
Government Segment 11.6% 11.7% -0.1%
Commercial Segment 20.0% 18.6% 1.4%
Consolidated 14.2% 14.9% -0.7%
Detail of Pretax Income (loss)
Government Segment $326,557 $260,871 $65,686 25.2%
Commercial Segment 194,347 47,335 147,012 310.6%
------------------ ----------
Consolidated $520,904 $308,206 $212,698 69.0%
================== ==========
Detail of Pretax Margins
Government Segment 3.0% 4.6% -1.6%
Commercial Segment 3.9% 0.9% 3.0%
Consolidated 3.3% 2.9% 0.4%
S-9
Humana Inc.
Membership Detail
In thousands
------------
Ending Ending
Sept. 30, Average Sept. 30,
2006 3Q06 2005
--------------------------------
Medical Membership:
Government Segment:
Medicare Advantage - HMO 455.4 454.6 421.2
Medicare Advantage - PPO 71.1 70.3 6.0
Medicare Advantage - PFFS 466.5 462.3 75.9
--------------------------------
Total Medicare Advantage 993.0 987.2 503.1
--------------------------------
Medicare - PDP - Standard 2,081.7 2,063.9 -
Medicare - PDP - Enhanced 1,021.6 989.1 -
Medicare - PDP - Complete 417.7 415.1 -
--------------------------------
Total Medicare stand-alone PDPs 3,521.0 3,468.1 -
--------------------------------
Total Medicare 4,514.0 4,455.3 503.1
--------------------------------
TRICARE insured 1,721.3 1,724.5 1,747.1
TRICARE ASO 1,141.4 1,141.6 1,127.3
--------------------------------
Total TRICARE 2,862.7 2,866.1 2,874.4
Medicaid 412.6 413.4 459.4
--------------------------------
Total Government Segment 7,789.3 7,734.8 3,836.9
--------------------------------
Commercial Segment:
Fully insured medical:
Group 1,597.1 1,612.2 1,850.3
Individual 175.4 173.1 152.8
Medicare supplement 7.4 7.1 4.3
--------------------------------
Total fully insured medical 1,779.9 1,792.4 2,007.4
ASO 1,512.0 1,510.3 1,170.5
--------------------------------
Total Commercial Segment 3,291.9 3,302.7 3,177.9
--------------------------------
Total medical membership 11,081.2 11,037.5 7,014.8
================================
Specialty Membership (all Commercial
Segment)
------------------------------------- ------------
Dental - fully insured 960.5 959.7 918.3
Dental - ASO 488.2 496.1 493.0
--------------------------------
Total dental 1,448.7 1,455.8 1,411.3
Group life 436.1 438.2 427.7
Short-term disability 14.9 15.1 16.5
--------------------------------
Total specialty membership 1,899.7 1,909.1 1,855.5
================================
--------------- ---------------
Year-over-year Sequential
Change Ending Change
--------------- June 30, ---------------
Amount Percent 2006 Amount Percent
--------------- --------- ---------------
Medical Membership:
Government Segment:
Medicare Advantage - HMO 34.2 8.1% 457.0 (1.6) -0.4%
Medicare Advantage - PPO 65.1 1085.0% 64.6 6.5 10.1%
Medicare Advantage - PFFS 390.6 514.6% 438.2 28.3 6.5%
-------- --------- --------
Total Medicare
Advantage 489.9 97.4% 959.8 33.2 3.5%
-------- --------- --------
Medicare - PDP - Standard 2,081.7 100.0% 2,066.5 15.2 0.7%
Medicare - PDP - Enhanced 1,021.6 100.0% 977.2 44.4 4.5%
Medicare - PDP - Complete 417.7 100.0% 415.1 2.6 0.6%
-------- --------- --------
Total Medicare stand-
alone PDPs 3,521.0 100.0% 3,458.8 62.2 1.8%
-------- --------- --------
Total Medicare 4,010.9 797.2% 4,418.6 95.4 2.2%
-------- --------- --------
TRICARE insured (25.8) -1.5% 1,732.6 (11.3) -0.7%
TRICARE ASO 14.1 1.3% 1,141.9 (0.5) 0.0%
-------- --------- --------
Total TRICARE (11.7) -0.4% 2,874.5 (11.8) -0.4%
Medicaid (46.8) -10.2% 418.5 (5.9) -1.4%
-------- --------- --------
Total Government Segment 3,952.4 103.0% 7,711.6 77.7 1.0%
-------- --------- --------
Commercial Segment:
Fully insured medical:
Group (253.2) -13.7% 1,716.4 (119.3) -7.0%
Individual 22.6 14.8% 170.0 5.4 3.2%
Medicare supplement 3.1 72.1% 6.7 0.7 10.4%
-------- --------- --------
Total fully insured
medical (227.5) -11.3% 1,893.1 (113.2) -6.0%
ASO 341.5 29.2% 1,420.8 91.2 6.4%
-------- --------- --------
Total Commercial Segment 114.0 3.6% 3,313.9 (22.0) -0.7%
-------- --------- --------
Total medical membership 4,066.4 58.0% 11,025.5 55.7 0.5%
======== ========= ========
Specialty Membership (all
Commercial Segment)
---------------------------
Dental - fully insured 42.2 4.6% 955.6 4.9 0.5%
Dental - ASO (4.8) -1.0% 496.5 (8.3) -1.7%
-------- --------- --------
Total dental 37.4 2.7% 1,452.1 (3.4) -0.2%
Group life 8.4 2.0% 427.2 8.9 2.1%
Short-term disability (1.6) -9.7% 15.6 (0.7) -4.5%
-------- --------- --------
Total specialty membership 44.2 2.4% 1,894.9 4.8 0.3%
======== ========= ========
S-10
Humana Inc.
3Q06 Premiums and Administrative Services Fees Detail
Dollars in thousands, except per member per month
---------------------------
Three Months Ended
September 30,
---------------------------
--------------
2006 2005
---------------------------
Premium revenues
Government Segment:
Medicare Advantage $2,366,206 $1,296,743
Medicare stand-alone PDPs 851,398 -
---------------------------
Total Medicare 3,217,604 1,296,743
TRICARE insured (C) 639,657 659,019
Medicaid 128,018 139,961
---------------------------
Total Government Segment premiums 3,985,279 2,095,723
---------------------------
Commercial Segment:
Fully insured medical 1,397,945 1,519,971
Specialty 103,144 96,670
---------------------------
Total Commercial Segment premiums 1,501,089 1,616,641
---------------------------
Total premium revenues $5,486,368 $3,712,364
===========================
Administrative services fees
Government Segment (TRICARE-related) (C) $11,136 $11,076
Commercial Segment 75,196 54,996
---------------------------
Total administrative services fees $86,332 $66,072
===========================
---------------
Per Member per
Month (B)
Three Months
Ended
September 30,
---------------
Dollar Percentage
Change Change 2006 2005
------------------------ ---------------
Premium revenues
Government Segment:
Medicare Advantage $1,069,463 82.5% $799 $876
Medicare stand-alone PDPs 851,398 100.0% $82 -
-------------
Total Medicare 1,920,861 148.1%
TRICARE insured (C) (19,362) -2.9% $124 $126
Medicaid (11,943) -8.5% $103 $100
-------------
Total Government Segment
premiums 1,889,556 90.2%
-------------
Commercial Segment:
Fully insured medical (122,026) -8.0% $260 $251
Specialty 6,474 6.7% $21 $20
-------------
Total Commercial Segment
premiums (115,552) -7.1%
-------------
Total premium revenues $1,774,004 47.8%
=============
Administrative services fees
Government Segment (TRICARE-
related) (C) $60 0.5% $3 $3
Commercial Segment 20,200 36.7% $12 $11
-------------
Total administrative services
fees $20,260 30.7%
=============
S-11
Humana Inc.
YTD Premiums and Administrative Services Fees Detail
Dollars in thousands, except per member per month
--------------------------------
Nine Months Ended September 30,
--------------------------------
-----------------
2006 2005
--------------------------------
Premium revenues
Government Segment:
Medicare Advantage $6,196,455 $3,372,326
Medicare stand-alone PDPs 2,168,310 -
--------------------------------
Total Medicare 8,364,765 3,372,326
TRICARE insured (C) 1,898,038 1,832,526
Medicaid 386,643 409,105
--------------------------------
Total Government Segment premiums 10,649,446 5,613,957
--------------------------------
Commercial Segment:
Fully insured medical 4,316,523 4,549,643
Specialty 306,360 285,598
--------------------------------
Total Commercial Segment premiums 4,622,883 4,835,241
--------------------------------
Total premium revenues $15,272,329 $10,449,198
================================
Administrative services fees
Government Segment (TRICARE-
related) (C) $33,471 $39,870
Commercial Segment 215,250 156,370
--------------------------------
Total administrative services fees $248,721 $196,240
================================
-----------------
Per Member per
Month (B)
Nine Months Ended
September 30,
-----------------
Dollar Percentage
Change Change 2006 2005
---------------------- -----------------
Premium revenues
Government Segment:
Medicare Advantage $2,824,129 83.7% $805 $816
Medicare stand-alone PDPs 2,168,310 100.0% $90 -
-----------
Total Medicare 4,992,439 148.0%
TRICARE insured (C) 65,512 3.6% $122 $116
Medicaid (22,462) -5.5% $101 $96
-----------
Total Government Segment
premiums 5,035,489 89.7%
-----------
Commercial Segment:
Fully insured medical (233,120) -5.1% $259 $248
Specialty 20,762 7.3% $21 $20
-----------
Total Commercial Segment
premiums (212,358) -4.4%
-----------
Total premium revenues $4,823,131 46.2%
===========
Administrative services fees
Government Segment (TRICARE-
related) (C) ($6,399) -16.0% $3 $4
Commercial Segment 58,880 37.7% $12 $10
-----------
Total administrative services
fees $52,481 26.7%
===========
S-12
Humana Inc.
Percentage of Ending Membership under Capitation Arrangements
-------------------------------------------
Government Segment
-------------------------------------------
Medicare
stand- Total
Medicare alone Govt.
September 30, 2006 Advantage PDPs TRICARE Medicaid Segment
----------------------------------------------------------------------
Capitated HMO hospital
system based (D) 3.1% - - - 0.4%
Capitated HMO physician
group based (D) 2.4% - - 34.8% 2.2%
Risk-sharing (E) 27.8% - - 64.5% 7.0%
All other membership 66.7% 100.0% 100.0% 0.7% 90.4%
-------------------------------------------
Total medical
membership 100.0% 100.0% 100.0% 100.0% 100.0%
===========================================
September 30, 2005
---------------------------
Capitated HMO hospital
system based (D) 7.0% - - - 0.9%
Capitated HMO physician
group based (D) 4.6% - - 37.2% 5.1%
Risk-sharing (E) 44.1% - - 59.1% 12.9%
All other membership 44.3% - 100.0% 3.7% 81.1%
-------------------------------------------
Total medical
membership 100.0% - 100.0% 100.0% 100.0%
===========================================
------------------------------
Commercial Segment
------------------------------
Total Total
Fully Comm. Medical
September 30, 2006 insured ASO Segment Membership
----------------------------------------------------------------------
Capitated HMO hospital
system based (D) 1.9% - 1.0% 0.6%
Capitated HMO physician
group based (D) 1.8% - 1.0% 1.8%
Risk-sharing (E) 1.4% - 0.8% 5.1%
All other membership 94.9% 100.0% 97.2% 92.5%
------------------------------------------
Total medical membership 100.0% 100.0% 100.0% 100.0%
==========================================
September 30, 2005
----------------------------
Capitated HMO hospital
system based (D) 2.6% - 1.6% 1.2%
Capitated HMO physician
group based (D) 2.2% - 1.4% 3.4%
Risk-sharing (E) 2.6% - 1.6% 7.8%
All other membership 92.6% 100.0% 95.4% 87.6%
------------------------------------------
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
------------
Sept. 30, June 30, Dec. 31,
2006 2006 2005
------------------------------------
Detail of medical and other
expenses payable
IBNR and other medical expenses
payable (F) $1,715,791 $1,580,587 $1,125,205
TRICARE IBNR (G) 332,962 316,251 409,413
TRICARE other medical expenses
payable (H) 95,593 92,963 88,443
Unprocessed claim inventories (I) 187,900 193,700 148,200
Processed claim inventories (J) 89,500 128,926 83,635
Payable to pharmacy benefit
administrator (K) 141,197 145,216 54,786
------------------------------------
Total medical and other expenses
payable $2,562,943 $2,457,643 $1,909,682
====================================
------------
Nine Months Six Months
Ended Ended Year Ended
Sept. 30, June 30, Dec. 31,
2006 2006 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) 13,163,725 8,465,493 11,765,662
Prior years - non-TRICARE (L) (173,223) (118,602) (72,868)
Prior years - TRICARE (M) (111,073) (83,464) (41,324)
------------------------------------
Total incurred 12,879,429 8,263,427 11,651,470
------------------------------------
Paid related to:
Current year (11,193,784) (6,724,304) (9,979,449)
Prior years (1,053,582) (1,012,360) (1,221,724)
------------------------------------
Total paid (12,247,366) (7,736,664)(11,201,173)
------------------------------------
Balances at end of period $2,562,943 $2,457,643 $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 - 16.9 N/A N/A
---------------------------------------
Full Year Average 15.9 16.5 (0.6) -3.6%
=======================================
Unprocessed Claims Inventories
Number of
Estimated Claim Item Days on
Date Valuation (000's) Counts Hand
-----------------------------------------------------------
9/30/2004 $122,300 453,300 4.4
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
-----------------------------------------------------------
S-15
Humana Inc.
Medical Claims Reserves Statistics (Continued)
Days in Claims Payable (O) (P)
Days in
Claim DCP
Payable Annual Percentage Excluding Annual Percentage
Quarter Ended (DCP) Change Change Capitation Change Change
----------------------------------------------------------------------
9/30/2004 51.8 4.6 9.7% 59.1 4.6 8.4%
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%
----------------------------------------------------------------------
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 (2.0) 0.2
Change in unprocessed claims
inventories 1.0 1.0
Change in processed claims
inventories 0.1 (0.4)
Change in TRICARE reserve
balances (4.6) 3.9
Change in pharmacy payment
cutoff (0.2) 1.5
Growth in Medicare PFFS
membership 6.1 1.2
Growth in individual
membership 0.4 0.9
Change in provider payables
under risk arrangements 1.9 1.4
All other (1.8) 1.1
---------------------
DCP - current quarter 61.2 60.3
=====================
S-16
Humana Inc.
3Q05 GAAP to Non-GAAP Reconciliation
Dollars in thousands, except EPS
---------
3Q06 3Q05
--------- -----------------------------------------
GAAP (A) Adjustments Non-GAAP
--------- --------------------- ---------
Class
Action
Litigation Hurricane
Settlement Katrina
-----------------------------------------
Consolidated
Pretax income $249,374 $66,678 $71,850 $6,699 $145,227
Pretax margin 4.4% 1.7% 1.9% 0.2% 3.8%
Net income $159,198 $46,807 $44,834 $4,181 $95,822
EPS $0.95 $0.28 $0.27 $0.03 $0.58
Growth rate vs.
P/Y GAAP 239.3%
Growth rate vs.
P/Y Non-GAAP 63.8%
MER 84.1% 83.4% - -0.2% 83.2%
SG&A ratio 13.1% 16.3% -1.9% - 14.4%
Government Segment
Pretax income $207,004 $87,868 $33,360 $1,529 $122,757
Pretax margin 5.1% 4.2% 1.5% 0.1% 5.8%
MER 85.0% 82.5% - - 82.5%
SG&A ratio 10.1% 13.2% -1.6% - 11.6%
Commercial Segment
Pretax (loss)
income $42,370 ($21,190) $38,490 $5,170 $22,470
Pretax margin 2.6% -1.2% 2.2% 0.3% 1.3%
MER 81.7% 84.4% - -0.3% 84.1%
SG&A ratio 20.7% 20.2% -2.3% - 17.9%
S-17
Humana Inc.
YTD GAAP to Non-GAAP Reconciliation
Dollars in thousands, except EPS
---------------------------------------------------
3Q06 YTD
-------------------------------------------------
GAAP Adjustments Non-GAAP
-------------- ------------------ ---------------
Excess Net
Realized Capital
Gains - 1Q06
-------------------------------------------------
Consolidated
Pretax income $520,904 ($29,113) $491,791
Pretax margin 3.3% -0.2% 3.1%
Net income 332,402 ($18,167) $314,235
EPS $1.98 ($0.11) $1.87
Growth rate 39.4% 18.4%
MER 84.3% - 84.3%
SG&A ratio 14.2% - 14.2%
Government Segment
Pretax income $326,557 ($1,872) $324,685
Pretax margin 3.0% - 3.0%
MER 85.5% - 85.5%
SG&A ratio 11.6% - 11.6%
Commercial Segment
Pretax income $194,347 ($27,241) $167,106
Pretax margin 3.9% -0.5% 3.4%
MER 81.6% - 81.6%
SG&A ratio 20.0% -0.1% 19.9%
------------------------------------------------------
3Q05 YTD
-----------------------------------------------------
GAAP (A) Adjustments Non-GAAP
--------- --------------------------------- ---------
Realization Class Action
of Tax Gain Litigation Hurricane
Contingency Settlement Katrina
-----------------------------------------------------
Consolidated
Pretax income $308,206 - $71,850 $6,699 $386,755
Pretax margin 2.9% - 0.6% 0.1% 3.6%
Net income $234,954 ($22,800) $44,834 $4,181 $261,169
EPS $1.42 ($0.14) $0.27 $0.03 $1.58
Growth rate
MER 83.6% - - - 83.6%
SG&A ratio 14.9% - -0.7% - 14.2%
Government
Segment
Pretax income $260,871 - $33,360 $1,529 $295,760
Pretax margin 4.6% - 0.6% - 5.2%
MER 83.7% - - - 83.7%
SG&A ratio 11.7% - -0.6% - 11.1%
Commercial
Segment
Pretax income $47,335 - $38,490 $5,170 $90,995
Pretax margin 0.9% - 0.8% 0.1% 1.8%
MER 83.5% - - -0.1% 83.4%
SG&A ratio 18.6% - -0.8% - 17.8%
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
computing diluted
earnings per 164,179 164,496 164,908 165,149
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
computing diluted
earnings per 166,037 166,076 166,371 166,521
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
3Q06 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) The impact of any change in "incurred related to prior years"
claims is offset as the company re-establishes such amounts in the
"incurred related to current year".
(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 the company's largest claim
processing platforms representing approximately 72% 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.
(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.
MULTIMEDIA AVAILABLE:
http://www.businesswire.com/cgi-bin/mmg.cgi?eid=5260698
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.