Humana Reports Third Quarter and First Nine Months Of 2002 Results
* Third quarter net income of $52.3 million, or $.31 per diluted share Net income for the third quarter of 2002 was $52.3 million versus adjusted net income of $43.5 million for the same period in the prior year, a 20.2 percent increase. Net income for the first nine months of $144.5 million compares with $121.1 million adjusted net income in the same period a year ago, a 19.3 percent increase. Income before income taxes for the quarter was up 25.4 percent to $77.0 million versus adjusted income before income taxes of $61.4 million a year ago. Comparable amounts for the nine months ended September 30, 2002 and 2001 were $212.4 million and $169.3 million, respectively, an improvement of $43.1 million, or 25.5 percent. "We are pleased with the improvement in our earnings," said Michael B. McCallister, Humana's president and chief executive officer. "In addition, we have opportunities to further enhance our existing operational processes and thereby align our administrative costs with our current membership levels, enabling improved earnings from the Commercial segment while maintaining our strength in the Government segment." Humana's pretax margin improved to 2.7 percent in the third quarter of 2002 compared with 2.4 percent in the prior year's quarter, on an adjusted basis. Revenue and Membership Revenues in the third quarter were $2.84 billion versus $2.61 billion in the third quarter of 2001, an increase of 8.8 percent. Total medical membership at September 30, 2002 was 6,631,400 versus 6,428,600 a year ago. Third quarter 2002 premium revenues and administrative service fees for the Commercial segment totaled $1.49 billion, an increase over $1.33 billion in the third quarter 2001. Medical membership at September 30, 2002 for the Commercial segment of 2,982,200 increased by 71,700 members year-over-year and by 35,100 members sequentially. Year-to-date Commercial segment medical membership has increased 88,400 members, or 3.1 percent. Premium yields for fully insured medical business within the segment continued to fall within a range of 12 to 14 percent for the third quarter of 2002. Government segment premium revenues and administrative services fees totaled $1.32 billion in the third quarter of 2002 versus $1.25 billion for the prior year's quarter. Medicare+Choice membership at September 30, 2002 was 349,000 versus 406,100 at September 30, 2001, a decline of 57,100 members. The company's Medicare+Choice premium yields ranged from 4 to 6 percent during the third quarter of 2002. TRICARE premium revenues and administrative services fees increased to $556.0 million in the third quarter versus $417.7 million in the prior year's quarter. The year-over-year increase in TRICARE premium revenues and administrative services fees primarily is attributable to Congressionally legislated benefits, an increase in eligible beneficiaries, and a decrease in the use of military treatment facilities. TRICARE's insured membership increased year over year by 43,000, or 2.5 percent, totaling 1,755,700 as of September 30, 2002 versus 1,712,700 at September 30, 2001. TRICARE ASO membership also increased by 95,700, or 10.2 percent, year over year. As of September 30, 2002, 1,038,400 TRICARE members were in ASO programs compared to 942,700 at September 30, 2001. Medical and SG&A Expenses The company's medical expense ratio (medical expenses as a percent of premium revenues) for the third quarter was 83.6 percent, versus a ratio of 83.3 percent for the same period in 2001. Medical cost trends experienced for the third quarter and year-to-date 2002 were in the range of 11 to 13 percent for the commercial fully insured medical line of business and in the range of 4 to 6 percent for the Medicare+Choice line of business. The company's selling, general and administrative ("SG&A") expense ratio (SG&A expenses as a percent of premiums and administrative service fees) of 15.2 percent in the third quarter of 2002 compares favorably to a ratio of 15.4 percent in the year-ago quarter. Segment Results Pre-tax income for the Commercial segment was $4.5 million in the third quarter of 2002 compared to adjusted pre-tax income of $6.4 million in the prior year period. Increased unit medical costs in the company's Chicago market resulted in a 250 basis point increase year-over-year in the medical expense ratio for that market, equating to higher medical expenses for Chicago of approximately $8 million during the third quarter of 2002. Same-store Commercial segment results excluding Chicago improved more than $7 million on a pre-tax basis when comparing the third quarter of 2002 to the third quarter of 2001. Pre-tax income for the Government segment increased to $72.4 million in the third quarter of 2002 from $54.9 million in the third quarter of 2001. Improving segment pre-tax profits related to incremental TRICARE premiums during the third quarter of 2002. Days in Claims Payable Days in claims payable for the third quarter of 2002 of 46.6 were essentially flat with days in claims payable for the second quarter of 2002. Cash Flows Normalized cash flows provided by operations totaled $82.6 million in the third quarter of 2002 compared to normalized cash flows provided by operations of $94.9 million in the third quarter 2001. (Normalized cash flows provided by 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)). For the first nine months of 2002, normalized cash flows provided by operations were $115.3 million versus $65.6 million for the first nine months of 2001, an increase of $49.7 million. Guidance The company now anticipates diluted earnings per share for the fourth quarter of 2002 of $.32 to $.33, and continues to anticipate diluted earnings per share of $1.35 to $1.40 for 2003. Conference Call Humana will host a conference call, as well as a virtual slide presentation, at 10:00 a.m. EST 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 the following documents as filed by Humana with the Securities and Exchange Commission:
* Form 10-K for the year ended December 31, 2001,
* Form 10-Qs for the quarters ended March 31, 2002 and June 30, 2002, and
* Form S-3 (No. 333-100419) filed October 8, 2002.
Summary of operating results for the three months ended September 30:
2002 Adjusted 2001
Revenues $ 2,841,627,000 $ 2,610,874,000
Income before income taxes $ 76,957,000 $ 61,357,000
Net income $ 52,331,000 $ 43,514,000
Basic earnings per common share $ .32 $ .27
Diluted earnings per common share $ .31 $ .26
Summary of operating results for the nine months ended September 30:
2002 Adjusted 2001
Revenues $ 8,406,149,000 $ 7,572,170,000
Income before income taxes $ 212,441,000 $ 169,340,000
Net income $ 144,460,000 $ 121,136,000
Basic earnings per common share $ .88 $ .74
Diluted earnings per common share $ .86 $ .73
Humana Inc., headquartered in Louisville, Kentucky, 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 on-line:
* Copies of annual reports to stockholders;
* Securities and Exchange Commission filings including Form 10-Ks, Form
10-Qs, proxy statements, Form 4s, Form S-3s, and Form 8-Ks;
* Copy of 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
September 30, Percent
Ending Medical Membership 2002 2001 Difference Change
Commercial:
Fully insured 2,323.6 2,332.7 (9.1) (0.4)
ASO 658.6 577.8 80.8 14.0
Total Commercial 2,982.2 2,910.5 71.7 2.5
Government:
Medicare+Choice 349.0 406.1 (57.1) (14.1)
Medicaid 506.1 456.6 49.5 10.8
TRICARE 1,755.7 1,712.7 43.0 2.5
TRICARE ASO 1,038.4 942.7 95.7 10.2
Total Government 3,649.2 3,518.1 131.1 3.7
Total ending medical
membership 6,631.4 6,428.6 202.8 3.2
September 30, Percent
Ending Specialty Membership 2002 2001 Difference Change
Commercial:
Dental 1,672.8 1,676.4 (3.6) (0.2)
Group life 522.1 564.2 (42.1) (7.5)
Short-term disability 23.0 27.1 (4.1) (15.1)
Total ending specialty
membership 2,217.9 2,267.7 (49.8) (2.2)
Three months ended Nine months ended
September 30, September 30,
Premiums 2002 2001 2002 2001
Commercial:
Fully insured medical $1,379,897 $1,230,769 $4,076,431 $3,683,358
Specialty 84,806 76,954 251,347 226,540
Total Commercial 1,464,703 1,307,723 4,327,778 3,909,898
Government:
Medicare+Choice 647,265 721,079 1,981,931 2,190,491
Medicaid 118,902 113,991 343,389 357,893
TRICARE 521,466 398,690 1,484,789 936,293
Total Government 1,287,633 1,233,760 3,810,109 3,484,677
Total premiums $2,752,336 $2,541,483 $8,137,887 $7,394,575
September 30,
Percentage of Ending Membership
Under Capitation Arrangements 2002 2001 Difference
Fully-insured Commercial:
Capitated HMO - hospital system based 6.5% 6.8% -0.3%
Capitated HMO - physician group based 3.0% 4.0% -1.0%
Risk-sharing 3.0% 3.6% -0.6%
Total risk-sharing arrangements 12.5% 14.4% -1.9%
Fee-for-service (no risk-sharing) 87.5% 85.6% 1.9%
Total fully-insured Commercial 100.0% 100.0% n/a
Medicare+Choice:
Capitated HMO - hospital system based 13.5% 14.5% -1.0%
Capitated HMO - physician group based 3.3% 4.4% -1.1%
Risk-sharing 42.8% 30.5% 12.3%
Total risk-sharing arrangements 59.6% 49.4% 10.2%
Fee-for-service (no risk-sharing) 40.4% 50.6% -10.2%
Total Medicare+Choice 100.0% 100.0% n/a
Providers under hospital-based capitated HMO arrangements generally
receive a monthly payment for all of the services within their system
for their HMO membership. Providers under physician group-based
capitated HMO arrangements generally have subcontracted directly with
hospitals and specialist physicians, and are responsible for
reimbursement to their downstream providers for a portion of the
medical expenses for their HMO membership.
Providers under risk-sharing arrangements 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, we process substantially all of the claims under these
arrangements.
Humana Inc.
Dollars in thousands, except per share results
Three months ended Nine months ended
September 30, September 30,
Consolidated Statements
of Operations 2002 2001 2002 2001
Revenues:
Premiums $2,752,336 $2,541,483 $8,137,887 $7,394,575
Administrative services
fees 61,056 39,943 189,900 87,773
Investment and other
income 28,235 29,448 78,362 89,822
Total revenues 2,841,627 2,610,874 8,406,149 7,572,170
Operating expenses:
Medical 2,301,021 2,117,283 6,811,748 6,171,657
Selling, general and
administrative 429,019 398,799 1,278,516 1,132,660
Depreciation 26,592 23,497 78,763 68,627
Goodwill amortization -- 13,966 -- 41,116
Other intangible
amortization 3,931 3,993 11,793 9,418
Total operating
expenses 2,760,563 2,557,538 8,180,820 7,423,478
Income from operations 81,064 53,336 225,329 148,692
Interest expense 4,107 5,945 12,888 20,468
Income before income taxes 76,957 47,391 212,441 128,224
Provision for income taxes 24,626 17,061 67,981 46,161
Net income $52,331 $30,330 $144,460 $82,063
Add back: Goodwill
amortization expense,
net of tax -- 13,184 -- 39,073
Adjusted net income $52,331 $43,514 $144,460 $121,136
Basic earnings per
common share $0.32 $0.18 $0.88 $0.50
Add back: Goodwill
amortization expense,
net of tax -- 0.08 -- 0.24
Adjusted basic earnings
per common share $0.32 $0.27 $0.88 $0.74
Diluted earnings per
common share $0.31 $0.18 $0.86 $0.49
Add back: Goodwill
amortization expense,
net of tax -- 0.08 -- 0.23
Adjusted diluted
earnings per common share $0.31 $0.26 $0.86 $0.73
Shares used in basic
earnings per common
share computation (000) 163,933 164,110 164,348 164,088
Shares used in diluted
earnings per common
share computation (000) 167,534 166,743 168,242 166,864
Pretax Results by
Segment
Commercial, as reported $4,540 $(1,728) $45,528 $8,743
Add back: Goodwill
amortization expense -- 8,155 -- 25,427
Commercial, as adjusted $4,540 $6,427 $45,528 $34,170
Government, as reported $72,417 $49,119 $166,913 $119,481
Add back: Goodwill
amortization expense -- 5,811 -- 15,689
Government, as adjusted $72,417 $54,930 $166,913 $135,170
Key Ratios
Medical expense ratio
Commercial 84.3% 83.2% 83.4% 82.7%
Government 82.8% 83.4% 84.1% 84.3%
Total 83.6% 83.3% 83.7% 83.5%
Selling, general, and
administrative expense ratio
Commercial 17.0% 17.5% 17.0% 17.6%
Government 13.3% 13.2% 13.5% 12.3%
Total 15.2% 15.4% 15.4% 15.1%
EBITDA *
Commercial $25,986 $26,049 $107,860 $94,883
Government 85,601 68,743 208,025 172,970
Total EBITDA $111,587 $94,792 $315,885 $267,853
*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
September 30, June 30, December 31,
Consolidated Balance Sheets 2002 2002 2001
Assets
Current assets:
Cash and cash equivalents $375,736 $450,700 $651,420
Investment securities 1,420,524 1,337,776 1,389,596
Receivables, net:
Premiums 489,518 454,855 299,601
Administrative services fees 67,762 62,606 26,667
Deferred income taxes 50,691 59,082 64,221
Other 180,272 214,858 191,433
Total current assets 2,584,503 2,579,877 2,622,938
Property and equipment, net 462,453 462,786 461,761
Other assets:
Long-term investment securities 317,346 301,792 280,320
Goodwill 776,874 776,874 776,874
Deferred income taxes 147 14,277 36,582
Other 238,007 225,897 225,163
Total other assets 1,332,374 1,318,840 1,318,939
Total assets $4,379,330 $4,361,503 $4,403,638
Liabilities and Stockholders' Equity
Current liabilities:
Medical and other expenses payable $1,164,431 $1,194,689 $1,086,386
Trade accounts payable and accrued
expenses 475,885 472,122 479,996
Book overdraft 104,402 133,279 152,757
Unearned premium revenues 89,977 82,962 325,040
Short-term debt 265,000 265,000 263,000
Total current liabilities 2,099,695 2,148,052 2,307,179
Long-term debt 334,061 323,366 315,489
Professional liability risks 247,690 237,298 241,431
Other long-term liabilities 30,440 31,649 31,590
Total liabilities 2,711,886 2,740,365 2,895,689
Commitments and contingencies
Stockholders' equity:
Preferred stock -- -- --
Common stock 28,551 28,579 28,449
Capital in excess of par value 930,942 931,834 922,439
Retained earnings 722,583 670,252 578,122
Accumulated other comprehensive
income 35,819 18,635 11,670
Unearned restricted stock
compensation (9,059) (12,209) (17,882)
Treasury stock, at cost (41,392) (15,953) (14,849)
Total stockholders' equity 1,667,444 1,621,138 1,507,949
Total liabilities and stockholders'
equity $4,379,330 $4,361,503 $4,403,638
Debt to total capitalization ratio 26.4% 26.6% 27.8%
Claims Data:
Number of claims on-hand 496,200 513,100 518,100
Estimated value of claims on-hand $108,800 $110,300 $125,448
Humana Inc.
Dollars in thousands
Three months ended Nine months ended
September 30, September 30,
Consolidated Statements of
Cash Flows 2002 2001 2002 2001
Cash flows from operating
activities
Net income $52,331 $30,330 $144,460 $82,063
Adjustments to reconcile
net income to net
cash provided by (used in)
operating activities:
Depreciation and
amortization 30,523 41,456 90,556 119,161
Provision for deferred
income taxes 11,183 14,473 34,221 40,288
Payment for government
audit settlement -- -- -- (8,000)
Changes in operating
assets and liabilities
excluding effects of
acquisitions and
divestitures:
Receivables (39,819) (13,904) (231,012) 14,251
Other assets 27,996 9,859 268 13,839
Medical and other
expenses payable (30,258) 8,622 78,045 (155,907)
Other liabilities 21,424 23,871 4,742 10,236
Unearned premium
revenues 7,015 (30,107) (235,063) (55,491)
Other 2,218 2,050 12,481 (602)
Net cash provided by (used
in) operating activities 82,613 86,650 (101,302) 59,838
Timing of Medicare+Choice
premium payment from CMS -- 8,220 216,628 5,766
Normalized net cash
provided by operating
activities 82,613 94,870 115,326 65,604
Cash flows from investing
activities
Acquisitions, net of cash
and cash equivalents acquired -- -- -- (32,700)
Divestitures, net of cash
and cash equivalents disposed -- -- 1,109 1,050
Purchases of property and
equipment (26,851) (28,120) (83,581) (82,173)
Purchases of marketable
securities (641,706) (490,998) (1,639,803) (1,359,676)
Proceeds from maturities
of marketable securities 95,228 165,199 273,199 421,498
Proceeds from sales of
marketable securities 469,688 292,803 1,339,124 964,520
Net cash used in investing
activities (103,641) (61,116) (109,952) (87,481)
Cash flows from financing
activities
Revolving credit agreement
(repayments) borrowings -- (250,000) -- (250,000)
Net commercial paper
conduit borrowings -- -- 2,000 --
Net commercial paper
repayments -- (59,769) -- (79,952)
Proceeds from issuance of
senior notes -- 299,277 -- 299,277
Proceeds from other
borrowings -- 5,700 -- 5,700
Debt issue costs -- (3,240) (559) (3,240)
Change in book overdraft (28,877) (26,311) (48,355) (7,630)
Common stock repurchases (25,439) (1,867) (25,439) (1,867)
Other 380 (231) 7,923 (374)
Net cash used in financing
activities (53,936) (36,441) (64,430) (38,086)
Decrease in cash and cash
equivalents (74,964) (10,907) (275,684) (65,729)
Cash and cash equivalents
at beginning of period 450,700 602,740 651,420 657,562
Cash and cash equivalents
at end of period $375,736 $591,833 $375,736 $591,833
SOURCE Humana Inc.
CONTACT: Regina Nethery, Investor Relations, +1-502-580-3644, or
Rnethery@humana.com; or Tom Noland, Corporate Communications,
+1-502-580-3674, or Tnoland@humana.com, both of Human
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