SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report: September 8, 1997
(Date of Earliest Event Reported)
HUMANA INC.
(Exact name of Registrant as specified in its Charter)
Delaware 1-5975 61-0647538
(State of (Commission (I.R.S. Employer
Incorporation) File Number) Tax Identification No.)
500 West Main Street
Louisville, KY 40202
(Address of principal executive offices)
(502) 580-1000
(Registrant's telephone number, including area code)
Item 2. Acquisition or Disposition of Assets
On September 8, 1997, (the "Effective Time") HUMNOV, Inc., a wholly
owned subsidiary of Humana Inc., a Delaware corporation (the "Company"),
merged with and into Physician Corporation of America, a Delaware corporation
("PCA"). Pursuant to the Agreement and Plan of Merger dated as of June 2,
1997 among Humana Inc., PCA and HUMNOV, Inc. (the "Merger Agreement") each
share of PCA's outstanding Common Stock was converted into the right to
receive $7.00 cash, without interest.
The aggregate purchase price of approximately $409 million, which
includes the purchase of PCA's outstanding Common Stock for approximately
$272 million, the assumption of approximately $122 million of debt and
acquisition costs of approximately $15 million was funded by the Company
through proceeds from the Company's commercial paper program.
For information regarding terms of the merger, reference is made to the
Proxy Statement filed by PCA with the Securities and Exchange Commission on
August 8, 1997, and Humana Inc.'s Current Report on Form 8-K dated June 17,
1997.
Item 5. Other Events
As of August 13, 1997, the Company entered into a $1.5 billion revolving
credit facility (the "Credit Facility") with Chase Manhattan Bank which acts
as sole administrative agent. The Credit Facility contains customary
conditions to borrowing, representations and warranties, covenants and events
of default. Amounts under the Credit Facility will generally be able to be
borrowed, repaid and reborrowed from time to time. The Credit Facility
replaced an existing $600 million credit facility that the Company had with
a syndicate of lenders. The Credit Facility is attached hereto as
Exhibit 10.
As of September 11, 1997, the Company's Board of Directors authorized
an increase in the maximum borrowing limit under the Company's commercial
paper program from $600 million to $1.5 billion. Borrowings under the
commercial paper program are backed by the Credit Facility. The Commercial
Paper Private Placement Memoranda with Chase Securities Inc. and Merrill
Lynch Money Markets Inc. are attached hereto as Exhibits 4a and 4b,
respectively.
Item 7. Financial Statements and Exhibits.
The unaudited pro forma condensed consolidated balance sheet of the
Company and PCA (collectively the "Combined Entities") as of June 30, 1997,
is presented assuming the Merger had occurred on June 30, 1997. The
unaudited pro forma condensed consolidated statements of operations of the
Combined Entities for the six months ended June 30,1997, and for the year
ended December 31, 1996, present the results of operations of the Combined
Entities assuming the merger and related transactions had occurred on January
1, 1996. All material adjustments required to reflect the merger and related
transactions are set forth in the "Pro Forma Adjustments" column. The pro
forma adjustments are based on preliminary assumptions of the allocation of
the purchase price and are subject to substantial revision once appraisals,
evaluations and other studies of the fair value of PCA's assets and
liabilities are completed. Actual purchase accounting adjustments may
differ from the pro forma adjustments presented herein.
The unaudited pro forma condensed consolidated financial statements
should be read in conjunction with the historical consolidated financial
statements of the Company and PCA. The pro forma data is for informational
purposes only and may not necessarily reflect future results of operations
and financial position or what the results of operations or financial
position would have been had the Company and PCA merged at January 1, 1996
or June 30,1997, respectively.
FINANCIAL STATEMENTS
(1) Unaudited Pro Forma Condensed Consolidated Balance Sheet at
June 30, 1997
(2) Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the six months ended June 30, 1997
(3) Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the year ended December 31, 1996
(4) PCA's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, is incorporated by reference herein.
(5) PCA's Quarterly Report on Form 10-Q for the quarter ended June
30, 1997, is incorporated by reference herein.
EXHIBITS
4a. The $1.5 Billion Commercial Paper Private Placement Memorandum
between the Company and Chase Securities Inc.
4b. The $1.5 Billion Commercial Paper Private Placement Memorandum
between the Company and Merrill Lynch Money Markets Inc.
10. The $1.5 Billion Credit Facility between the Company and Chase
Manhattan Bank (agent and CAF loan agent)
Humana Inc.
Pro forma Condensed Consolidated Balance Sheet
June 30, 1997
(Unaudited)
(Dollars in millions except per share amounts)
Historical
Physician Humana
Corporation Pro forma Pro forma
Humana of America Adjustments Combined
ASSETS
Current assets:
Cash and cash equivalents $ 55 $ 88 $ 143
Marketable securities 1,261 138 1,399
Premiums receivable, net 256 66 322
Reinsurance recoverable 109 109
Deferred income taxes 83 18 101
Other 125 25 150
Total current assets 1,780 444 2,224
Long-term marketable securities 157 222 $151 (a) 530
Property and equipment, net 375 50 (5) (b) 420
Reinsurance recoverable 218 218
Identifiable intangible assets 81 25 (c) 106
Cost in excess of net assets
acquired 502 118 359 (d) 979
Deferred income taxes 17 4 (e) 21
Other 46 78 124
Total assets $2,958 $1,130 $ 534 $4,622
LIABILITIES and COMMON
STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Medical and Workers'
Compensation claims
payable $ 997 $ 341 $1,338
Accounts payable and
accrued expenses 370 84 $ 55 (f) 509
Current portion of long-term
debt 122 (122)(g)
Income taxes payable 66 4 70
Total current liabilities 1,433 551 (67) 1,917
Debt 3 9 545 (h) 557
Other 138 626 764
Total liabilities 1,574 1,186 478 3,238
Contingencies
Common stockholders' equity:
Common stock, $.16 2/3
par; authorized
300,000,000 shares;
issued and outstanding
163,428,687 shares -
June 30, 1997
and 162,681,123 shares -
December 31, 1996 27 1 (1)(i) 27
Other 1,357 (57) 57 (i) 1,357
Total common stockholders'
equity 1,384 (56) 56 1,384
Total liabilities and common
stockholders' equity $2,958 $1,130 $534 $4,622
See notes to pro forma condensed consolidated financial statements.
Pro forma Condensed Consolidated Statement of Operations
For the six months ended June 30, 1997
(Unaudited)
(Dollars in millions except per share results)
Historical
Physician Humana
Corporation Pro forma Pro forma
Humana of America Adjustments Combined
Revenues:
Premiums $3,608 $ 723 $4,331
Interest 53 17 70
Other income 7 3 10
Total revenues 3,668 743 4,411
Operating expenses:
Medical costs 2,971 588 3,559
Selling, general and
administrative 519 124 643
Depreciation and amortization 49 9 $ 4 (j) 62
Total operating expenses 3,539 721 4 4,264
Income from operations 129 22 (4) 147
Interest expense 4 9 14 (k) 27
Income before income taxes 125 13 (18) 120
Income tax provision (benefit) 44 2 (5) (l) 41
Net income (loss) $ 81 $ 11 ($13) $ 79
Earnings (loss) per common
share $0.49 $ 0.48
Shares used in earnings
per common share
computation (000) 162,980 162,980
See notes to pro forma condensed consolidated financial statements.
Humana Inc.
Notes To Pro forma Condensed Consolidated Financial Statements
As of and for the six months ended June 30, 1997
(Unaudited)
Note 1: Pro forma Adjustments - Condensed Consolidated Balance Sheet
as of June 30, 1997
(a) To record a payment (ultimate purchase of investments)
representing the funding of the statutory deficit
of PCA Property & Casualty Insurance Company, a wholly
owned subsidiary of PCA, ("P&C") as of June 30, 1997.
(b) To adjust property and equipment to estimated fair market value.
(c) To record the estimated purchase price in excess of net tangible
and identifiable intangible assets acquired:
Purchase price $272
Estimated acquisition liabilities (see F/N f) 55
Stockholders' deficit and common stock cancellation 56
Property and equipment adjustment to fair market value 5
Deferred taxes (4)
Identifiable intangible assets (25)
$359
(d) To record identifiable intangible assets.
(e) To record deferred taxes related to purchase accounting
adjustments.
(f) To record estimated liabilities associated with the acquisition
transaction including severance, stock option payouts, lease
obligations and professional fees.
(g) To record the refinancing of debt and capital lease obligations
of PCA.
(h) To record the incremental debt incurred to finance the
acquisition including the purchase of PCA's outstanding
shares ($272 million), to fund the statutory deficit of
P & C ($151 million), and the refinancing of the debt and
capital lease obligations of PCA ($122 million).
(i) To eliminate the acquired deficit of PCA as of June 30, 1997.
Note 2: Pro forma Adjustments - Condensed Consolidated Statement of
Operations for the six months ended June 30, 1997
(j) To record amortization related to the excess of purchase
price over net tangible assets acquired. The excess of
purchase price over net tangible assets acquired will be
amortized over 40 years.
(k) To record estimated interest expense related to the incremental
debt incurred to finance the acquisition and fund the statutory
deficit of P & C. The debt has an assumed annualized interest
rate of 6.5%.
(l) Estimated pro forma income taxes were recorded at an assumed
combined federal and state income tax rate of 35.0 percent.
Humana Inc.
Pro forma Condensed Consolidated Statement of Operations
For the year ended December 31, 1996
(Unaudited)
(Dollars in millions except per share results)
Historical
Physician Humana
Corporation Pro forma Pro forma
Humana of America Adjustments Combined
Revenues:
Premiums $6,677 $1,415 $8,092
Interest 101 26 127
Other income 10 23 33
Total revenues 6,788 1,464 8,252
Operating expenses:
Medical costs 5,625 1,131 6,756
Selling, general and
administrative 940 390 1,330
Depreciation and
amortization 98 22 $ 9 (m) 129
Asset write-downs and
other special charges 96 39 135
Loss on assumption of
Workers' Compensation
related liabilities 181 181
Total operating expenses 6,759 1,763 9 8,531
Income (loss) from operations 29 (299) (9) (279)
Interest expense 11 14 27 (n) 52
Income (loss) before income
taxes 18 (313) (36) (331)
Income tax provision (benefit) 6 (35) (9)(o) (38)
Net income (loss) $ 12 ($ 278) ($ 27) ($ 293)
Earnings (loss) per common
share $0.07 ($1.80)
Shares used in earnings
per common share
computation (000) 162,532 162,532
See notes to pro forma condensed consolidated financial statements.
Humana Inc.
Notes To Pro forma Condensed Consolidated Statement of Operations
For the year ended December 31, 1996
(Unaudited)
Note 3: Pro forma Adjustments - Condensed Consolidated
Statement of Income for the year ended December 31, 1996
(m) To record amortization related to the excess of purchase price
over net tangible assets acquired. The excess of purchase price
over net tangible assets acquired will be amortized over 40
years.
(n) To record estimated interest expense related to the incremental
debt incurred to finance the acquisition and fund the statutory
deficit of P & C. The debt has an assumed annualized interest
rate of 6.5%.
(o) Estimated pro forma income taxes were recorded at an assumed
combined federal and state income tax rate of 35.0 percent.
Note 4: Condensed Consolidated Statement of Income for the year ended
December 31, 1996
Operations for 1996 include nonrecurring items as follows:
(i) Net income for Humana includes special charges of $215 million
pretax related to the restructuring of the Washington, D.C.,
health plan, provision for expected future losses on insurance
contracts, closing 13 service areas, discontinuing unprofitable
products in three markets, a litigation settlement, and planned
workforce reductions.
(ii) Net loss for PCA includes nonrecurring items of $232 million
pretax related to loss on assumption of net Workers'
Compensation related liabilities, loss on long lived assets,
and gain on sales of subsidiaries.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf
by the undersigned hereunto duly authorized.
HUMANA INC.
_________________________________
By: Arthur P. Hipwell
Senior Vice President
and General Counsel
Dated: September 23, 1997
Exhibit Index
FINANCIAL STATEMENTS
(1) Unaudited Pro Forma Condensed Consolidated Balance Sheet at
June 30, 1997
(2) Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the six months ended June 30, 1997
(3) Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the year ended December 31, 1996
(4) PCA's Annual Report on Form 10-K for the fiscal year ended December
31, 1996, is incorporated by reference herein.
(5) PCA's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997, is incorporated by reference herein.
EXHIBITS
4a. The $1.5 Billion Commercial Paper Private Placement Memorandum
between the Company and Chase Securities Inc.
4b. The $1.5 Billion Commercial Paper Private Placement Memorandum
between the Company and Merrill Lynch Money Markets Inc.
10. The $1.5 Billion Credit Facility between the Company and Chase
Manhattan Bank (agent and CAF loan agent)