Humana Reports Second Quarter and First Half 2001 Results
LOUISVILLE, Ky., July 30 /PRNewswire/ -- Humana Inc. (NYSE: HUM) today reported $.15 earnings per diluted share for the second quarter ended June 30, 2001 versus $.11 earnings per diluted share for the second quarter of 2000. Earnings per diluted share for the first six months were $.31 compared to $.24 a year ago.
Net income for the second quarter of 2001 was $25 million compared to net income of $19 million for the same period in the prior year, a 32 percent increase. Net income for the first six months of $52 million compares with $40 million in the same period a year ago. Income before income taxes for the quarter was up 63 percent to $39 million versus $24 million a year ago. Comparable amounts for the six months ended June 30, 2001 and 2000 were $81 million and $51 million, respectively.
"Our operational improvements continue to be reflected in our financial results," said Michael B. McCallister, Humana's president and chief executive officer. "Our commitment to health benefit innovation through product design, process design, and technology has positioned the company for growth. We believe continued operational improvement and commitment to innovation are the surest routes to improved shareholder value."
Revenue and Membership
Revenue in the second quarter was $2.48 billion versus $2.70 billion in the second quarter of 2000. Humana exited numerous non-core markets and products in the latter part of 2000, accounting for the decline in second quarter revenues. Those markets and products were deemed non-core because they either lacked potential for profitability or did not fit into the company's strategic focus, or both.
Second quarter premium revenues for the Commercial segment totaled $1.29 billion compared to $1.41 billion for the same period in 2000. Fully insured medical business within the segment averaged premium yields of 12.7 percent for the second quarter of 2001 compared to 12.0 percent for the second quarter of 2000 and 14.1 percent in the first quarter 2001. Membership for the fully insured medical line declined by 1.9 percent to 2,343,300 at June 30, 2001 from 2,387,900 at March 31, 2001, as the company continued to focus on pricing discipline in certain non-strategic markets where the majority of the company's business is in the small group line, and continued to exit certain unprofitable markets.
Government segment premium revenues totaled $1.16 billion in the second quarter of 2001 versus $1.25 billion for the prior year's quarter. The company's Medicare+Choice line averaged premium yields of 8.8 percent during the second quarter versus 6.3 percent in the prior year's quarter and 7.0 percent in the first quarter 2001. Medicare+Choice membership at June 30, 2001 was 418,000 versus 428,100 at March 31, 2001, a decline of 10,100 members. TRICARE premium revenues increased to $300 million in the second quarter versus $227 million in the prior year's quarter. The company's TRICARE membership base expanded sequentially by 1.6 million members primarily through the acquisition of the TRICARE regions 2 and 5 business on May 31, 2001 and the addition of the TRICARE senior pharmacy program during the quarter. Of the 2.7 million TRICARE members, approximately 940,000 are in self-funded type arrangements which have correspondingly higher administrative expenses.
Medical and Administrative Expenses and Taxes
The company's medical expense ratio for the second quarter was 83.7 percent, versus a ratio of 85.0 percent for the same period in 2000 and a ratio of 83.2 percent in the first quarter of 2001. The company's exit from numerous non-core markets and products in the latter part of 2000 (as well as 45 Medicare+Choice counties on January 1, 2001) drove much of the year-over-year improvement in its medical expense ratio.
Medical cost trends for the commercial fully insured medical line of business were in the 9 to 10 percent range for the second quarter of 2001, unchanged from both the first quarter 2001 and the second quarter of 2000. Medicare+Choice medical cost trends for the second quarter 2001 ranged from 3 to 4 percent, down significantly from 7 to 8 percent for the second quarter of 2000. The exit from the 45 Medicare+Choice counties combined with the effect of significant benefit reductions, both effective January 1, 2001, helped drive the lower cost trends.
Continued emphasis on controlling administrative costs resulted in a sequential decrease of 30 basis points in the company's selling, general and administrative ("SG&A") expense ratio to 14.2 percent. This compares to 14.5 percent in the first quarter of 2001 and a ratio of 13.6 percent from the year-ago quarter.
"We remain focused on our administrative spending while we continue to invest in infrastructure and technology," McCallister said. "Our technology spending is anticipated to positively impact our SG&A ratio, with potential for also impacting our medical costs as we provide employers with plan designs that help engage the consumer in the cost of health care."
The company's effective tax rate of 36 percent for the second quarter of 2001 is unchanged from the first quarter 2001 and compares to 21 percent for each of the 2000 quarters. The lower effective tax rate for 2000 related to the disposition of the company's workers' compensation business.
Cash flows
Excluding the timing of the receipt of the Medicare premium payment from the Centers for Medicare and Medicaid Services ("CMS"), previously the Health Care Financing Administration, cash flows provided by operations totaled $45 million in the second quarter of 2001. Cash flows during the quarter include the negative impact of a $39 million reduction in claims inventories as the percentage of claims both received and paid electronically accelerated, and $42 million primarily related to the timing of payments to the company's pharmacy benefit management company and run-off payments for terminated members. All of these had a corresponding impact on the company's days in claims payable and reserves.
Summary of operating results for the three months ended June 30:
2001 2000
Revenues $ 2,479,000,000 $ 2,696,000,000
Income before income taxes $ 39,000,000 $ 24,000,000
Net income $ 25,000,000 $ 19,000,000
Basic earnings per common share $ .15 $ .11
Diluted earnings per common share $ .15 $ .11
Shares used in basic earnings
per common share computation 164,099,000 167,740,000
Shares used in diluted earnings
per common share computation 166,475,000 167,740,000
Summary of operating results for the six months ended June 30:
2001 2000
Revenues $ 4,924,000,000 $ 5,338,000,000
Income before income taxes $ 81,000,000 $ 51,000,000
Net income $ 52,000,000 $ 40,000,000
Basic earnings per common share $ .31 $ .24
Diluted earnings per common share $ .31 $ .24
Shares used in basic earnings
per common share computation 164,077,000 167,746,000
Shares used in diluted earnings
per common share computation 166,924,000 167,796,000
Humana will host a conference call, as well as a virtual slide presentation at 9:00 a.m. EDT today to discuss its financial results for the quarter and updated earnings guidance.
All parties interested in the audio only portion of the conference call are invited to dial 888-625-7430. No password is required. The company suggests participants dial in approximately ten minutes in advance of the call.
A live virtual presentation (audio with slides) will be available and may be accessed via Humana's Investor Relations page at www.humana.com . The company suggests web participants sign on approximately 15 minutes in advance of the call. The company also suggests web participants visit the site well in advance of the call to run a system test and to download any free software needed to view the presentation.
For those unable to participate in the live event, the virtual presentation archive will be available in the Presentations section of the Investor Relations page at www.humana.com , approximately two hours following the live web cast. An audio recording of the conference call will be available in the Audio Archives located on the Investor Relations page at www.humana.com approximately two hours after the live call.
This news release contains forward-looking statements. The forward-looking statements made in this news release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be significantly impacted by certain risks and uncertainties described in the following documents, as filed by Humana with the Securities and Exchange Commission: Form 10-K for the year ended December 31, 2000; Form 10-Q for the quarter ended March 31, 2001; Amendment No. 1 to Form S-3 (No. 333-63384) filed July 26, 2001.
Humana Inc., headquartered in Louisville, Kentucky, is one of the nation's largest publicly traded health benefits companies, with approximately 6.5 million medical members located primarily in 18 states and Puerto Rico. Humana offers coordinated health insurance coverage and related services through traditional and Internet based plans -- to employer groups and government-sponsored plans.
Humana Inc.
Dollars in millions, except per share results
Three months Six months
ended ended
June 30, June 30,
Summarized Operating Results 2001 2000 2001 2000
Revenues:
Premiums $ 2,447 $ 2,666 $ 4,860 $ 5,277
Investment income 29 27 58 56
Other income 3 3 6 5
Total revenues 2,479 2,696 4,924 5,338
Operating expenses:
Medical 2,047 2,265 4,054 4,485
Selling, general and administrative 347 363 697 716
Depreciation 22 21 45 40
Goodwill amortization 14 14 28 27
Other intangible amortization 3 2 5 4
Total operating expenses 2,433 2,665 4,829 5,272
Income from operations 46 31 95 66
Interest expense 7 7 14 15
Income before income taxes 39 24 81 51
Provision for income taxes 14 5 29 11
Net income $ 25 $ 19 $ 52 $ 40
Basic earnings per common share $ 0.15 $ 0.11 $ 0.31 $ 0.24
Diluted earnings per common share $ 0.15 $ 0.11 $ 0.31 $ 0.24
Shares used in basic earnings per
common share computation (000) 164,099 167,740 164,077 167,746
Shares used in diluted earnings per
common share computation (000) 166,475 167,740 166,924 167,796
Medical expense ratio 83.7% 85.0% 83.4% 85.0%
Selling, general and administrative
expense ratio 14.2% 13.6% 14.3% 13.6%
Premiums
Commercial:
Fully insured $ 1,217 $ 1,327 $ 2,453 $ 2,670
Specialty 75 73 150 146
Medicare supplement - 14 - 29
Total Commercial 1,292 1,414 2,603 2,845
Government:
Medicare+Choice 735 837 1,469 1,640
Medicaid 120 188 244 359
TRICARE 300 227 544 433
Total Government 1,155 1,252 2,257 2,432
Total premiums $ 2,447 $ 2,666 $ 4,860 $ 5,277
Humana Inc.
Dollars in millions
June 30, December 31,
Financial Position 2001 2000
Assets:
Cash and investments $ 2,224 $ 2,307
Property and equipment, net 449 435
Other assets 1,487 1,425
Total assets $ 4,160 $ 4,167
Liabilities and equity:
Medical and other expenses payable $ 1,122 $ 1,181
Other liabilities 1,038 1,026
Debt 580 600
Equity 1,420 1,360
Total liabilities and equity $ 4,160 $ 4,167
Three months Six months
ended ended
June 30, June 30,
Operating Cash Flows 2001 2000 2001 2000
Net income $ 25 $ 19 $ 52 $ 40
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation and amortization 39 37 78 71
Provision for deferred income
taxes 10 (4) 26 1
Payment for government audit
settlement (8) (15) (8) (15)
Changes in operating assets and
liabilities excluding
effects of acquisitions and
divestitures:
Premiums receivable 78 9 30 (39)
Other assets (1) (8) 2 (16)
Medical and other expenses
payable (87) 7 (165) (19)
Workers' compensation run-
out claims reduction - - - (30)
Other liabilities 13 17 (14) (54)
Unearned premium revenues (26) (5) (25) 48
Other (1) (5) (3) (5)
Net cash provided by (used in)
operating activities $ 42 $ 52 $ (27) $ (18)
Timing of Medicare+Choice
premium payment from CMS 3 - (3) (19)
Workers' compensation run-out
claims reduction - - - 30
Pro forma net cash provided by
(used in) operating activities $ 45 $ 52 $ (30) $ (7)
Humana Inc.
In thousands
June 30, Percent
Ending Medical Membership 2001 2000 Difference Change
Commercial:
Fully insured 2,343.3 2,844.5 (501.2) (17.6)
ASO 548.1 655.7 (107.6) (16.4)
Medicare supplement - 38.8 (38.8) (100.0)
Total Commercial 2,891.4 3,539.0 (647.6) (18.3)
Government:
Medicare+Choice 418.0 522.1 (104.1) (19.9)
Medicaid 488.4 675.1 (186.7) (27.7)
TRICARE 1,725.8 1,049.1 676.7 64.5
TRICARE ASO 939.4 - 939.4 100.0
Total Government 3,571.6 2,246.3 1,325.3 59.0
Total ending medical
membership 6,463.0 5,785.3 677.7 11.7
June 30, Percent
Ending Specialty Membership 2001 2000 Difference Change
Commercial:
Dental 1,629.7 1,714.0 (84.3) (4.9)
Group life 582.5 737.5 (155.0) (21.0)
Short-term disability 28.5 40.0 (11.5) (28.8)
Total ending specialty
membership 2,240.7 2,491.5 (250.8) (10.1)
Three months Six months
ended ended
June 30, June 30,
Average Medical Membership 2001 2000 2001 2000
Commercial:
Fully insured 2,356.2 2,895.7 2,384.0 2,935.6
ASO 546.0 656.9 548.1 653.8
Medicare supplement - 39.7 - 40.9
Total Commercial 2,902.2 3,592.3 2,932.1 3,630.3
Government:
Medicare+Choice 422.0 522.8 426.6 510.3
Medicaid 489.9 667.6 505.4 650.9
TRICARE 1,509.5 1,051.7 1,290.1 1,055.4
TRICARE ASO 742.1 - 742.1 -
Total Government 3,163.5 2,242.1 2,964.2 2,216.6
Total average medical
membership 6,065.7 5,834.4 5,896.3 5,846.9
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SOURCE Humana Inc.