Humana Reports Second Quarter and First Half 2002 Results And Authorizes $100 Million Share Repurchase Program
* Second quarter net income of $45.4 million, or $.27 per diluted share Net income for the second quarter of 2002 was $45.4 million versus adjusted net income of $38.1 million for the same period in the prior year, a 19.2 percent increase. Net income for the first six months of $92.1 million compares with $77.6 million adjusted net income in the same period a year ago, an 18.7 percent increase. Income before income taxes for the second quarter increased to $66.7 million versus adjusted income before income taxes of $52.8 million a year ago, a 26.3 percent increase. Comparable amounts for the six months ended June 30, 2002 and 2001 were $135.5 million and $108.0 million, respectively, an improvement of $27.5 million, or 25.5 percent. The Commercial segment contributed $14.9 million in pre-tax income during the second quarter of 2002 compared with adjusted pre-tax income of $4.4 million for the same period in the prior year. "Our strategy of growing our business through a wide variety of consumer-directed products, backed by industry-leading technology and innovation, continued to produce favorable results in the second quarter," said Michael B. McCallister, Humana's president and chief executive officer. "We were especially pleased with the more than three-fold increase in the profitability of our Commercial segment year-over-year." Humana's pre-tax margin improved to 2.4 percent in the second quarter 2002 compared with 2.1 percent in the prior year's quarter, on an adjusted basis. Revenues and Membership Revenues in the second quarter were $2.83 billion versus $2.50 billion in the second quarter of 2001, an increase of 13.2 percent. Second quarter revenues increased sequentially from $2.73 billion in the first quarter of 2002. Total medical membership at June 30, 2002 was 6,572,000 versus 6,463,000 a year ago and 6,534,900 at March 31, 2002. Second quarter premium revenues and administrative services fees for the Commercial segment totaled $1.46 billion, an increase over both the second quarter of 2001 and the first quarter of 2002. Commercial segment premium revenues and administrative services fees were $1.31 billion in the second quarter 2001 and $1.45 billion in the first quarter 2002. Medical membership for the Commercial segment increased by 55,700 members to 2,947,100 at June 30, 2002 from 2,891,400 a year earlier. Fully insured medical business within the Commercial segment averaged premium yields of 12 to 14 percent for the second quarter of 2002 consistent with those for the first quarter 2002. Government segment premium revenues and administrative services fees totaled $1.34 billion in the second quarter of 2002 versus $1.16 billion for the prior year's quarter and $1.26 billion in the first quarter of 2002. Medicare+Choice membership at June 30, 2002 was 354,100 versus 418,000 at June 30, 2001, a decline of 63,900 members. As anticipated, the company's Medicare+Choice line averaged premium yields of 5 to 7 percent during the second quarter versus 6 to 8 percent in the first quarter of 2002. TRICARE premium revenues and administrative services fees increased to $569.2 million in the second quarter of 2002 versus $300.0 million in the prior year's quarter. TRICARE premium revenues and administrative services fees for the first quarter of 2002 were $472.3 million. The year-over-year increase in TRICARE premium revenues and administrative service fees primarily is attributable to the company's acquisition of the TRICARE regions 2 and 5 business on May 31, 2001 as well as an increase in Congressionally legislated benefits, an increase in eligible beneficiaries, and a decrease in the use of military treatment facilities. TRICARE risk-based membership increased year-over-year by 35,200, or 2.0 percent, totaling 1,761,000 at June 30, 2002 versus 1,725,800 at June 30, 2001. TRICARE ASO membership also increased by 82,500, or 8.8 percent, year-over-year. As of June 30, 2002, 1,021,900 TRICARE members were in ASO programs compared to 939,400 at June 30, 2001. Medical and SG&A Expenses The company's medical expense ratio (medical expenses as a percent of premium revenues) for the second quarter of 2002 was 84.4 percent versus a ratio of 83.9 percent for the same period in 2001. Medical cost trends for the commercial fully insured medical line of business were in the 11 to 13 percent range for the second quarter of 2002, unchanged from the first quarter 2002. Medicare+Choice medical cost trends for the second quarter 2002 ranged from 4 to 6 percent compared to a range of 6 to 8 percent in the first quarter 2002. The company's selling, general and administrative ("SG&A") expense ratio (SG&A expenses as a percent of premiums and administrative services fees) declined 130 basis points sequentially to 14.8 percent. This compares to 16.1 percent in the first quarter of 2002 and a ratio of 14.8 percent in the year-ago quarter. Days in Claims Payable Days in claims payable for the second quarter of 2002 of 46.9 were essentially flat with days in claims payable for the first quarter of 2002. Cash Flows Normalized cash flows used in operations totaled $43.8 million in the second quarter of 2002 compared to cash provided by operations of $45.9 million in the second quarter 2001. (Normalized cash flows from operations give effect to the usual adjustment for the timing of the receipt of the Medicare premium payment from the Centers for Medicare and Medicaid Services (CMS).) Excluding the impact of a $132.4 million increase in TRICARE receivables during the quarter, normalized cash flows provided by operations totaled $88.6 million in the second quarter 2002. The company anticipates collection of substantially all of the TRICARE receivables outstanding as of June 30, 2002, during 2002. For the first six months of 2002, normalized cash flows provided by operations were $32.7 million versus a use of $29.3 million for the first half of 2001, an increase of $62.0 million. Guidance The company now anticipates diluted earnings per share of $1.17 to $1.19 for 2002, revising its previous guidance of $1.15 to $1.19. The company further expects a growth rate in earnings per diluted share for 2003 of at least 15 percent. Share Repurchase Program The company also announced that its board of directors authorized the use of $100 million in total for the repurchase of its common shares. The company had 169.5 million shares outstanding as of June 30, 2002. The company said that the shares may be purchased from time to time at prevailing prices in the open-market, by block purchases, or in privately-negotiated transactions. Conference Call Humana will host a conference call, as well as a virtual slide presentation, at 8:30 a.m. EDT today to discuss its financial results for the quarter and earnings guidance. All parties interested in the audio only portion of the conference call are invited to dial 888-625-7430. No password is required. The company suggests participants dial in approximately ten minutes in advance of the call. A live virtual presentation (audio with slides) will be available and may be accessed via Humana's Investor Relations page at http://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 http://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 http://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 Humana's Form 10-K for the year ended December 31, 2001, and its Form 10-Q for the quarter ended March 31, 2002, as filed by Humana with the Securities and Exchange Commission.
Summary of operating results for the three months ended June 30:
2002 Adjusted 2001
Revenues $2,831,940,000 $2,497,298,000
Income before income taxes $66,705,000 $52,831,000
Net income $45,359,000 $38,066,000
Basic earnings per common share $.28 $.23
Diluted earnings per common share $.27 $.23
Summary of operating results for the six months ended June 30:
2002 Adjusted 2001
Revenues $5,564,522,000 $4,961,296,000
Income before income taxes $135,484,000 $107,983,000
Net income $92,129,000 $77,622,000
Basic earnings per common share $.56 $.47
Diluted earnings per common share $.55 $.47
Humana Inc., headquartered in Louisville, Ky., is one of the nation's largest
publicly traded health benefits companies, with approximately 6.6 million
medical members located primarily in 18 states and Puerto Rico. Humana offers
coordinated health insurance coverage and related services -- through
traditional and Internet-based plans -- to employer groups, government-sponsored
plans and individuals.
More information regarding Humana is available via the Internet at http://www.humana.com, including online:
* Copies of annual report to stockholders;
* Securities and Exchange Commission filings including the company's
Form 10-K, Form 10-Qs, and proxy statement;
* Copy of the most recent investor presentation;
* Copies of quarterly earnings press releases;
* Audio archive of the most recent earnings release conference call;
* Calendar of events (includes upcoming earnings conference call dates,
related conference call access number, and planned participation in
investor conferences).
Humana Inc.
In thousands
June 30, Percent
Ending Medical Membership 2002 2001 Difference Change
Commercial:
Fully insured 2,319.6 2,343.3 (23.7) (1.0)
ASO 627.5 548.1 79.4 14.5
Total Commercial 2,947.1 2,891.4 55.7 1.9
Government:
Medicare+Choice 354.1 418.0 (63.9) (15.3)
Medicaid 487.9 488.4 (0.5) (0.1)
TRICARE 1,761.0 1,725.8 35.2 2.0
TRICARE ASO 1,021.9 939.4 82.5 8.8
Total Government 3,624.9 3,571.6 53.3 1.5
Total ending medical
membership 6,572.0 6,463.0 109.0 1.7
June 30, Percent
Ending Specialty Membership 2002 2001 Difference Change
Commercial:
Dental 1,670.4 1,629.7 40.7 2.5
Group life 529.7 582.5 (52.8) (9.1)
Short-term disability 22.8 28.5 (5.7) (20.0)
Total ending specialty
membership 2,222.9 2,240.7 (17.8) (0.8)
Three months ended Six months ended
June 30, June 30,
Premiums 2002 2001 2002 2001
Commercial:
Fully insured medical $1,353,273 $1,216,664 $2,696,534 $2,452,590
Specialty 83,814 74,844 166,541 149,585
Total Commercial 1,437,087 1,291,508 2,863,075 2,602,175
Government:
Medicare+Choice 662,480 734,944 1,334,666 1,469,412
Medicaid 113,234 120,099 224,487 243,902
TRICARE 530,938 293,757 963,323 537,603
Total Government 1,306,652 1,148,800 2,522,476 2,250,917
Total premiums $2,743,739 $2,440,308 $5,385,551 $4,853,092
Average Medical Membership
Commercial:
Fully insured 2,323.0 2,356.2 2,332.0 2,384.0
ASO 622.8 546.0 621.6 548.1
Total Commercial 2,945.8 2,902.2 2,953.6 2,932.1
Government:
Medicare+Choice 356.8 422.0 361.5 426.6
Medicaid 485.9 489.9 481.2 505.4
TRICARE 1,764.1 1,293.6 1,747.3 1,182.1
TRICARE ASO 1,018.8 544.8 1,010.8 272.4
Total Government 3,625.6 2,750.3 3,600.8 2,386.5
Total average medical
membership 6,571.4 5,652.5 6,554.4 5,318.6
Humana Inc.
Dollars in thousands, except per share results
Three months Six months
ended ended
June 30, June 30,
Consolidated Statements of Operations
2002 2001 2002 2001
Revenues:
Premiums $2,743,739 $2,440,308 $5,385,551 $4,853,092
Administrative services
fees 63,831 26,987 128,844 47,830
Investment and other
income 24,370 30,003 50,127 60,374
Total revenues 2,831,940 2,497,298 5,564,522 4,961,296
Operating expenses:
Medical 2,316,188 2,047,245 4,510,727 4,054,374
Selling, general and
administrative 414,433 365,088 849,497 733,861
Depreciation 26,306 22,325 52,171 45,130
Goodwill amortization -- 13,640 -- 27,150
Other intangible
amortization 3,931 2,964 7,862 5,425
Total operating
expenses 2,760,858 2,451,262 5,420,257 4,865,940
Income from operations 71,082 46,036 144,265 95,356
Interest expense 4,377 6,845 8,781 14,523
Income before income taxes 66,705 39,191 135,484 80,833
Provision for income taxes 21,346 14,109 43,355 29,100
Net income $45,359 $25,082 $92,129 $51,733
Add back: Goodwill
amortization expense,
net of tax -- 12,984 -- 25,889
Adjusted net income $45,359 $38,066 $92,129 $77,622
Basic earnings per
common share $0.28 $0.15 $0.56 $0.32
Add back: Goodwill
amortization expense,
net of tax -- 0.08 -- 0.16
Adjusted basic earnings
per common share $0.28 $0.23 $0.56 $0.47
Diluted earnings per
common share $0.27 $0.15 $0.55 $0.31
Add back: Goodwill
amortization expense,
net of tax -- 0.08 -- 0.16
Adjusted diluted earnings
per common share $0.27 $0.23 $0.55 $0.47
Shares used in basic
earnings per common
share computation (000) 164,853 164,099 164,555 164,077
Shares used in diluted
earnings per common
share computation (000) 168,860 166,475 168,274 166,924
Pretax Results by Segment
Commercial, as reported $14,893 $(4,242) $40,988 $10,471
Add back: Goodwill
amortization expense -- 8,615 -- 17,272
Commercial, as adjusted $14,893 $4,373 $40,988 $27,743
Government, as reported $51,812 $43,433 $94,496 $70,362
Add back: Goodwill
amortization expense -- 5,025 -- 9,878
Government, as adjusted $51,812 $48,458 $94,496 $80,240
Key Ratios
Medical expense ratio
Commercial 83.9% 83.3% 82.9% 82.5%
Government 85.0% 84.6% 84.7% 84.8%
Total 84.4% 83.9% 83.8% 83.5%
Selling, general, and administrative
expense ratio
Commercial 16.4% 17.6% 17.0% 17.7%
Government 13.0% 11.6% 13.6% 11.8%
Total 14.8% 14.8% 15.4% 15.0%
EBITDA *
Commercial $35,553 $24,596 $81,874 $68,834
Government 65,766 60,369 122,424 104,227
Total EBITDA $101,319 $84,965 $204,298 $173,061
*EBITDA is defined as earnings (including investment and other income)
before interest expense, income taxes, depreciation and amortization.
Humana Inc.
Dollars in thousands, except per share results
June 30, March 31, December 31,
Consolidated Balance Sheets 2002 2002 2001
Assets
Current assets:
Cash and cash equivalents $450,700 $485,882 $651,420
Investment securities 1,337,776 1,409,047 1,389,596
Receivables, net:
Premiums 454,855 325,611 299,601
Administrative services fees 62,606 46,467 26,667
Deferred income taxes 59,082 68,603 64,221
Other 214,858 206,044 191,433
Total current assets 2,579,877 2,541,654 2,622,938
Property and equipment, net 462,786 467,954 461,761
Other assets:
Long-term investment securities 301,792 281,132 280,320
Goodwill 776,874 776,874 776,874
Deferred income taxes 14,277 24,620 36,582
Other 225,897 211,673 225,163
Total other assets 1,318,840 1,294,299 1,318,939
Total assets $4,361,503 $4,303,907 $4,403,638
Liabilities and Stockholders' Equity
Current liabilities:
Medical and other expenses payable $1,194,689 $1,150,363 $1,086,386
Trade accounts payable and accrued
expenses 472,122 500,049 479,996
Book overdraft 133,279 163,430 152,757
Unearned premium revenues 82,962 87,282 325,040
Short-term debt 265,000 263,000 263,000
Total current liabilities 2,148,052 2,164,124 2,307,179
Long-term debt 323,366 306,955 315,489
Professional liability risks 237,298 251,029 241,431
Other long-term liabilities 31,649 32,147 31,590
Total liabilities 2,740,365 2,754,255 2,895,689
Commitments and contingencies
Stockholders' equity:
Preferred stock -- -- --
Common stock 28,579 28,473 28,449
Capital in excess of par value 931,834 923,978 922,439
Retained earnings 670,252 624,893 578,122
Accumulated other comprehensive
income (loss) 18,635 3,303 11,670
Unearned restricted stock
compensation (12,209) (15,042) (17,882)
Treasury stock, at cost (15,953) (15,953) (14,849)
Total stockholders' equity 1,621,138 1,549,652 1,507,949
Total liabilities and stockholders'
equity $4,361,503 $4,303,907 $4,403,638
Debt to total capitalization ratio 26.6% 26.9% 27.8%
Claims Data:
Number of claims on-hand 513,100 559,600 518,100
Estimated value of claims on-hand 110,300 122,496 125,448
Humana Inc.
Dollars in thousands
Three months Six months
ended ended
June 30, June 30,
Consolidated Statements of Cash
Flows 2002 2001 2002 2001
Cash flows from operating activities
Net income $45,359 $25,082 $92,129 $51,733
Adjustments to reconcile
net income to net
cash (used in) provided by
operating activities:
Depreciation and amortization 30,236 38,929 60,032 77,705
Provision for deferred income
taxes 10,158 10,110 23,038 25,815
Payment for government audit
settlement -- (8,000) -- (8,000)
Changes in operating assets
and liabilities excluding
effects of acquisitions and
divestitures:
Receivables (145,383) 76,658 (191,193) 28,155
Other assets (25,330) 88 (27,728) 3,980
Medical and other
expenses payable 44,326 (86,423) 108,303 (164,529)
Other liabilities (5,878) 12,909 (16,682) (13,635)
Unearned premium revenues (4,320) (26,753) (242,078) (25,384)
Other 7,054 (226) 10,264 (2,652)
Net cash (used in) provided
by operating activities (43,778) 42,374 (183,915) (26,812)
Timing of Medicare+Choice
premium payment from CMS -- 3,496 216,628 (2,454)
Pro forma net cash (used in)
provided by operating
activities (43,778) 45,870 32,713 (29,266)
Cash flows from investing activities
Acquisitions, net of cash and
cash equivalents acquired -- (31,180) -- (32,950)
Divestitures, net of cash and
cash equivalents disposed -- -- 1,109 1,000
Purchases of property and
equipment (24,592) (26,563) (57,007) (54,301)
Proceeds from sale of
property and equipment 227 519 277 548
Purchases of marketable
securities (572,962) (390,098) (998,097) (868,678)
Proceeds from maturities of
marketable securities 62,017 87,873 177,971 256,299
Proceeds from sales of
marketable securities 565,540 320,267 869,436 671,717
Net cash provided by (used
in) investing activities 30,230 (39,182) (6,311) (26,365)
Cash flows from financing activities
Revolving credit agreement
(repayments) borrowings -- 10,000 -- --
Net commercial paper conduit
borrowings 2,000 -- 2,000 --
Net commercial paper repayments -- (19,766) -- (20,183)
Debt issue costs -- -- (559) --
Change in book overdraft (30,151) 39,248 (19,478) 18,681
Other 6,517 (275) 7,543 (143)
Net cash (used in) provided
by financing activities (21,634) 29,207 (10,494) (1,645)
(Decrease) increase in cash
and cash equivalents (35,182) 32,399 (200,720) (54,822)
Cash and cash equivalents at
beginning of period 485,882 570,341 651,420 657,562
Cash and cash equivalents at
end of period $450,700 $602,740 $450,700 $602,740
SOURCE Humana Inc.
CONTACT: Regina Nethery, Humana Investor Relations, +1-502-580-3644,
Rnethery@humana.com, or Tom Noland, Humana Corporate Communications,
+1-502-580-3674, Tnoland@humana.com
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