Humana Reports First Quarter 2002 Results
First quarter net income of $46.8 million, or $.28 per diluted share
Cash flows from operating activities of $76.5 million (including the usual adjustment for the timing of the CMS premium payment)
Commercial segment medical membership increases 60,400 members sequentially
* Total medical membership of 6,534,900 at March 31, 2002
LOUISVILLE, Ky., April 29 /PRNewswire-FirstCall/ -- Humana Inc. (NYSE: HUM) today reported earnings of $.28 per diluted share for the first quarter ended March 31, 2002 versus $.24 adjusted earnings per diluted share for the first quarter of 2001. (Adjusted earnings for 2001 exclude amortization expense for goodwill. New accounting rules require all companies to cease amortizing goodwill effective January 1, 2002.)
Net income for the first quarter of 2002 was $46.8 million versus adjusted net income of $39.6 million for the same period in the prior year. Income before income taxes for the first quarter increased to $68.8 million versus adjusted income before income taxes of $55.2 million a year ago.
"Steady increases in premium and administrative services fees revenues and medical membership, combined with a continued decline in our medical expense ratio resulted in a significant year-over-year improvement in net income, further evidencing the continuing success of our growth-through-innovation strategy," said Michael B. McCallister, Humana's president and chief executive officer. "We believe the combination of new products -- such as SmartSuite(SM), which we launched in the first quarter -- and our service and technology capabilities, further position our company for growth."
Pre-tax earnings increased to $68.8 million versus adjusted pre-tax earnings of $55.2 million for the first quarter of 2001. Pre-tax margin improved to 2.5 percent compared with 2.2 percent in the prior year's quarter, on an adjusted basis.
Revenue and Membership
Revenues in the first quarter were $2.73 billion versus $2.46 billion in the first quarter of 2001. First quarter revenues increased sequentially from $2.62 billion in the fourth quarter of 2001. Total medical membership at March 31, 2002 was 6,534,900 versus 4,927,300 a year ago and 6,435,800 at December 31, 2001.
First quarter premium revenues and administrative services fees for the Commercial segment totaled $1.45 billion, an increase over both the first and fourth quarters of 2001. Commercial segment premium revenues and administrative services fees for the first quarter 2001 were $1.33 billion and $1.36 billion in the fourth quarter 2001. Medical membership for the Commercial segment increased by 60,400 members to 2,954,200 at March 31, 2002 from 2,893,800 at December 31, 2001. Fully insured medical business within the segment averaged premium yields of 12 to 14 percent for the first quarter of 2002 compared to 10 to 11 percent in the fourth quarter of 2001.
Government segment premium revenues and administrative services fees totaled $1.26 billion in the first quarter of 2002 versus $1.10 billion for the prior year's quarter and $1.24 billion in the fourth quarter of 2001. Medicare+Choice membership at March 31, 2002 was 363,700 versus 393,900 at December 31, 2001, a decline of 30,200 members. The company's Medicare+Choice line averaged premium yields of 6 to 8 percent during the first quarter versus 10 to 11 percent in the fourth quarter of 2001 as new Medicare+Choice benefit designs and related premiums became effective on January 1, 2002.
TRICARE premium revenues and administrative services fees increased to $472.3 million in the first quarter of 2002 versus $243.8 million in the prior year's quarter. TRICARE premium revenues and administrative services fees for the fourth quarter of 2001 were $432.9 million. The year over year increase in TRICARE premium revenues and administrative service fees is primarily attributable to the company's acquisition of the TRICARE regions 2 and 5 business on May 31, 2001 and the implementation of the TRICARE for Life medical benefits program effective October 1, 2001. TRICARE risk-based membership increased sequentially by 27,700, totaling 1,742,300 at March 31, 2002 versus 1,714,600 at December 31, 2001 and 1,070,900 at March 31, 2001. TRICARE ASO membership also increased sequentially. As of March 31, 2002, 997,900 TRICARE members were in ASO programs compared to 942,700 at December 31, 2001 and none in the prior year's quarter.
Medical and SG&A Expenses
The company's medical expense ratio (medical expenses as a percent of premium revenues) for the first quarter of 2002 was 83.1 percent versus a ratio of 83.2 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 first quarter of 2002. Medicare+Choice medical cost trends for the first quarter 2002 ranged from 6 to 8 percent.
An increase in the percentage of revenues from administrative services fees resulted in a sequential increase of 20 basis points in the company's selling, general and administrative ("SG&A") expense ratio (SG&A expenses as a percent of premiums and administrative services fees) to 16.1 percent. This compares to 15.9 percent in the fourth quarter of 2001 and a ratio of 15.2 percent in the year-ago quarter.
Days in Claims Payable
Days in claims payable for the first quarter of 2002 of 47.2 were essentially flat with days in claims payable for the fourth quarter of 2001.
Cash Flows
After giving 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), cash flows provided by operations totaled $76.5 million in the first quarter of 2002 compared to a use of cash in operations of $75.1 million in the first quarter 2001, an improvement of $151.6 million.
Guidance
The company continues to anticipate diluted earnings per share of $1.15 to $1.19 for 2002.
Conference Call
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 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, as filed by Humana with the Securities and Exchange Commission.
Summary of operating results for the three months ended March 31:
2002 Adjusted 2001
Revenues $2,732,582,000 $2,463,998,000
Income before income taxes $68,779,000 $55,152,000
Net income $46,770,000 $39,556,000
Basic earnings per common share $.28 $.24
Diluted earnings per common share $.28 $.24
Medical expense ratio 83.1 % 83.2 %
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.
More information regarding Humana is available via the Internet at http://www.humana.com , including on-line:
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Copies of annual report to stockholders, Form 10-K, Form 10-Qs, and proxy statement;
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Copy of most recent investor presentation;
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Copies of quarterly earnings press releases;
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Audio archive of the most recent earnings release conference call;
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Calendar of events (includes upcoming earnings conference call dates, related conference call access number, and planned participation in investor conferences).
Humana Inc.
In thousands
March 31, Percent
Ending Medical Membership 2002 2001 Difference Change
Commercial:
Fully insured 2,332.4 2,387.9 (55.5) (2.3)
ASO 621.8 547.2 74.6 13.6
Total Commercial 2,954.2 2,935.1 19.1 0.7
Government:
Medicare+Choice 363.7 428.1 (64.4) (15.0)
Medicaid 476.8 493.2 (16.4) (3.3)
TRICARE 1,742.3 1,070.9 671.4 62.7
TRICARE ASO 997.9 -- 997.9 100.0
Total Government 3,580.7 1,992.2 1,588.5 79.7
Total ending
medical membership 6,534.9 4,927.3 1,607.6 32.6
March 31, Percent
Ending Specialty Membership 2002 2001 Difference Change
Commercial:
Dental 1,680.2 1,626.1 54.1 3.3
Group life 542.1 610.3 (68.2) (11.2)
Short-term disability 23.9 30.2 (6.3) (20.9)
Total ending
specialty membership 2,246.2 2,266.6 (20.4) (0.9)
Three months ended
March 31,
Premiums 2002 2001
Commercial:
Fully insured medical $1,343,261 $1,235,926
Specialty 82,727 74,741
Total Commercial 1,425,988 1,310,667
Government:
Medicare+Choice 672,186 734,469
Medicaid 111,253 123,803
TRICARE 432,385 243,845
Total Government 1,215,824 1,102,117
Total premiums $2,641,812 $2,412,784
Average Medical Membership
Commercial:
Fully insured 2,341.0 2,411.7
ASO 620.3 550.2
Total Commercial 2,961.3 2,961.9
Government:
Medicare+Choice 366.2 431.2
Medicaid 476.4 520.9
TRICARE 1,730.6 1,070.7
TRICARE ASO 1,002.8 --
Total Government 3,576.0 2,022.8
Total average medical membership 6,537.3 4,984.7
Humana Inc.
Dollars in thousands, except per share results
Three months ended
March 31,
Consolidated Statements of Operations 2002 2001
Revenues:
Premiums $2,641,812 $2,412,784
Administrative services fees 65,013 20,843
Investment and other income 25,757 30,371
Total revenues 2,732,582 2,463,998
Operating expenses:
Medical 2,194,539 2,007,129
Selling, general and administrative 435,064 368,773
Depreciation 25,865 22,805
Goodwill amortization -- 13,510
Other intangible amortization 3,931 2,461
Total operating expenses 2,659,399 2,414,678
Income from operations 73,183 49,320
Interest expense 4,404 7,678
Income before income taxes 68,779 41,642
Provision for income taxes 22,009 14,991
Net income $46,770 $26,651
Add back: Goodwill amortization
expense, net of tax -- 12,905
Adjusted net income $46,770 $39,556
Basic earnings per common share $0.28 $0.16
Add back: Goodwill amortization
expense, net of tax -- 0.08
Adjusted basic earnings per common
share $0.28 $0.24
Diluted earnings per common share $0.28 $0.16
Add back: Goodwill amortization
expense, net of tax -- 0.08
Adjusted diluted earnings per common
share $0.28 $0.24
Shares used in basic earnings per
common share computation (000) 164,255 164,055
Shares used in diluted earnings per
common share computation (000) 167,704 167,373
Pretax Results by Segment
Commercial, as reported $26,095 $14,713
Add back: Goodwill amortization
expense -- 8,657
Commercial, as adjusted $26,095 $23,370
Government, as reported $42,684 $26,929
Add back: Goodwill amortization
expense -- 4,853
Government, as adjusted $42,684 $31,782
Key Ratios
Medical expense ratio
Commercial 81.9% 81.6%
Government 84.5% 85.0%
Total 83.1% 83.2%
Selling, general, and administrative
expense ratio
Commercial 17.6% 17.7%
Government 14.3% 12.0%
Total 16.1% 15.2%
EBITDA *
Commercial $46,321 $44,238
Government 56,658 43,858
Total EBITDA $102,979 $88,096
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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
March 31, December 31,
Consolidated Balance Sheets 2002 2001
Assets
Current assets:
Cash and cash equivalents $485,882 $651,420
Investment securities 1,409,047 1,389,596
Receivables, net:
Premiums 325,611 299,601
Administrative services fees 46,467 26,667
Deferred income taxes 68,603 64,221
Other 206,044 191,433
Total current assets 2,541,654 2,622,938
Property and equipment, net 467,954 461,761
Other assets:
Long-term investment securities 281,132 280,320
Goodwill 776,874 776,874
Deferred income taxes 24,620 36,582
Other 211,673 225,163
Total other assets 1,294,299 1,318,939
Total assets $4,303,907 $4,403,638
Liabilities and Stockholders' Equity
Current liabilities:
Medical and other expenses payable $1,150,363 $1,086,386
Trade accounts payable and accrued
expenses 500,049 479,996
Book overdraft 163,430 152,757
Unearned premium revenues 87,282 325,040
Short-term debt 263,000 263,000
Total current liabilities 2,164,124 2,307,179
Long-term debt 306,955 315,489
Professional liability risks 251,029 241,431
Other long-term liabilities 32,147 31,590
Total liabilities 2,754,255 2,895,689
Commitments and contingencies
Stockholders' equity:
Preferred stock -- --
Common stock 28,473 28,449
Capital in excess of par value 923,978 922,439
Retained earnings 624,893 578,122
Accumulated other comprehensive
income 3,303 11,670
Unearned restricted stock
compensation (15,042) (17,882)
Treasury stock, at cost (15,953) (14,849)
Total stockholders' equity 1,549,652 1,507,949
Total liabilities and stockholders'
equity $4,303,907 $4,403,638
Debt to total capitalization ratio 26.9% 27.8%
Claims Data:
Number of claims on-hand 559,600 518,100
Estimated value of claims on-hand $122,496 $125,448
Humana Inc.
Dollars in thousands
Three months ended
March 31,
Consolidated Statements of Cash Flows 2002 2001
Cash flows from operating activities
Net income $46,770 $26,651
Adjustments to reconcile net
income to net
cash provided by (used in)
operating activities:
Depreciation and amortization 29,796 38,776
Provision for deferred income
taxes 12,880 15,705
Changes in operating assets and
liabilities excluding
effects of acquisitions and
divestitures:
Receivables (45,810) (48,503)
Other assets (2,398) 3,892
Medical and other expenses
payable 63,977 (78,106)
Other liabilities (10,804) (26,544)
Unearned premium revenues (237,758) 1,369
Other 3,210 (2,426)
Net cash used in operating
activities (140,137) (69,186)
Timing of Medicare+Choice
premium payment from CMS 216,628 (5,950)
Pro forma net cash provided by
(used in) operating activities 76,491 (75,136)
Cash flows from investing
activities
Acquisitions, net of cash and
cash equivalents acquired -- (1,770)
Divestitures, net of cash and
cash equivalents disposed 1,109 1,000
Purchases of property and
equipment (32,365) (27,709)
Purchases of marketable
securities (425,135) (478,580)
Proceeds from maturities of
marketable securities 115,954 168,426
Proceeds from sales of
marketable securities 303,896 351,450
Net cash (used in) provided by
investing activities (36,541) 12,817
Cash flows from financing
activities
Revolving credit agreement
(repayments) borrowings -- (10,000)
Net commercial paper conduit
borrowings -- --
Net commercial paper repayments -- (417)
Debt issue costs (559) --
Change in book overdraft 10,673 (20,567)
Other 1,026 132
Net cash provided by (used in)
financing activities 11,140 (30,852)
Decrease in cash and cash
equivalents (165,538) (87,221)
Cash and cash equivalents at
beginning of period 651,420 657,562
Cash and cash equivalents at end
of period $485,882 $570,341
SOURCE Humana Inc.
-0- 04/29/2002
/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 Humana/