1
EXHIBIT 13
FINANCIAL SECTION
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Humana Inc.
18 Selected Financial Data
19 Management's Discussion and Analysis of Financial
Condition and Results of Operations
23 Consolidated Balance Sheet
24 Consolidated Statement of Operations
25 Consolidated Statement of Common
Stockholders' Equity
26 Consolidated Statement of Cash Flows
27 Notes to Consolidated Financial Statements
33 Report of Independent Accountants
34 Quarterly Financial Information (Unaudited)
35 Directors
36 Executive Management and Officers
37 Additional Information
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SELECTED FINANCIAL DATA
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Humana Inc.
Dollars in millions except per share results
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December 31, August 31,
----------------- ------------------------------------------------
For the years ended 1993 1992 1992 1991 1990 1989
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SUMMARY OF OPERATIONS
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Revenues:
Premiums:
Commercial $1,709 $1,642 $1,576 $1,239 $ 776 $ 560
Medicare risk 1,296 1,112 1,073 898 653 486
Medicare supplement 132 127 122 94 65 42
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Total premiums 3,137 2,881 2,771 2,231 1,494 1,088
Interest 48 36 37 36 31 28
Other income 10 4 3 2
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Total revenues 3,195 2,921 2,811 2,269 1,525 1,116
Income (loss) before income taxes 143 (154)(a) (164)(a) 14 (9) (38)
Net income (loss) 89 (107)(a) (114)(a) 9 (4) (23)
Earnings (loss) per common share .56 (.68)(a) (.72)(a) .06 (.03) (.15)
Net cash provided by (used in) operations 185 124 (57) 66 165 61
FINANCIAL POSITION
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Total assets $1,731 $1,189 $1,011 $1,005 $ 704 $ 650
Cash, cash equivalents and
marketable securities 1,134 614 431 486 411 328
Equity 889 376 367 407 216 269
OPERATING DATA
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Medical loss ratio 83.8% 86.3% 86.0% 84.4% 86.1% 88.1%
Administrative cost ratio 13.2% 14.1% 14.7% 16.1% 16.9% 17.9%
Membership:
Commercial 1,214,000 1,219,800 1,237,500 1,208,100 819,600 653,500
Medicare risk 270,800 266,300 262,300 249,900 193,400 147,000
Medicare supplement 153,600 198,900 203,900 203,100 159,100 126,400
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Total membership 1,638,400 1,685,000 1,703,700 1,661,100 1,172,100 926,900
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(a) Includes $171 million ($118 million or $.75 per share, net of tax) of
charges related to restructuring and unusual charges.
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3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Humana Inc.
The selected financial data of the Company in this Annual Report sets
forth certain information with respect to the Company's financial position,
results of operations and cash flows and should be read in conjunction with the
following discussion and analysis.
INTRODUCTION
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On March 1, 1993, Humana Inc. ("Humana" or the "Company") separated its
acute-care hospital and managed care health plan businesses into two
independent publicly-held companies (the "Spinoff"). The Spinoff was effected
through the distribution to Humana stockholders of record as of the close of
business on March 1, 1993, of all of the outstanding shares of common stock of
a new hospital company, Galen Health Care, Inc. ("Galen"). Galen was
subsequently merged, through an unrelated transaction, with a subsidiary of
Columbia Healthcare Corporation (now Columbia/HCA Healthcare Corporation)
("Columbia") and, therefore, became a wholly-owned subsidiary of Columbia. The
Humana Inc. legal entity continues to operate the health plan business. Because
of the relative significance of the acute-care hospital business to Humana
prior to the Spinoff, the Spinoff was recorded as a discontinuance of the
health plan business in the historical consolidated financial statements of
pre-Spinoff Humana. For this reason, the historical consolidated financial
statements of pre-Spinoff Humana became the historical consolidated financial
statements of Galen. The financial information contained herein for periods
prior to the Spinoff represents the financial information of what had
historically been the health plan business of Humana and does not correspond
with or represent the historical financial information of Humana.
In conjunction with the Spinoff, the Company changed its fiscal year
end from August 31 to December 31. This action was taken because, among other
reasons, the Company and its subsidiaries are subject to regulations which
require the periodic reporting of financial information on a calendar year
basis and because many of the contracts between the Company and its customers
are on a calendar year basis. For purposes of comparability, the following
discussion of "Results of Operations" compares the year ended December 31,
1993, to the twelve months ended December 31, 1992 (the "year ended December
31, 1992"), and the year ended August 31, 1992, to the year ended August 31,
1991.
The Company offers managed health care products which integrate
financing and management with the delivery of health care services through a
network of providers who share financial risk or who have incentives to deliver
cost-effective medical services. These products are marketed primarily through
health maintenance organizations ("HMOs") and preferred provider organizations
("PPOs").
Humana's HMO and PPO products are primarily marketed to employer and
other groups ("Commercial") and Medicare-eligible individuals. The products
marketed to Medicare-eligible individuals are either HMO products that provide
health care services which include all Medicare benefits and, in certain
circumstances, additional health care services that are not included in
Medicare benefits ("Medicare risk") or indemnity insurance policies that
supplement Medicare benefits ("Medicare supplement").
COMPARISON OF RESULTS OF OPERATIONS
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Years Ended December 31, 1993 and 1992
In order to enhance comparability, the following discussion comparing
the year ended December 31, 1993, to the year ended December 31, 1992, excludes
the impact of the $171 million in restructuring and unusual charges recorded in
August 1992. With respect to these charges, $77 million was used to write-down
assets, and $42 million was used to pay restructuring and unusual costs. The
remaining $52 million, primarily related to contract disputes, product
discontinuances and market closures, is expected to be resolved within two to
three years. The asset write-downs discussed above had the effect of reducing
depreciation and amortization expense by $5 million for the year ended December
31, 1993. Management regularly evaluates the continued reasonableness of the
charges discussed above, and to the extent adjustments are necessary, earnings
are charged or credited in the current period.
The Company's premium revenues increased 9% to $3.1 billion for the
year ended December 31, 1993, compared to $2.9 billion for the year ended
December 31, 1992, due to Commercial product premium rate increases of 7% and
Medicare risk product premium rate increases of 14%. Commercial and Medicare
risk product premium increases during 1994 are projected to range between 3%
and 4%. The impact of the 1993 premium rate increases on premium revenues was
partially offset by the membership reductions discussed below. Membership data
for the respective periods follows:
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Amounts in thousands 1993 1992
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Beginning membership 1,685.0 1,673.7
Sales 267.9 280.8
Acquisitions (divestitures) (6.4) 79.9
Cancellations (308.1) (349.4)
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Ending membership 1,638.4 1,685.0
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Average membership 1,637.9 1,699.4
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Membership declined 3% during the year ended December 31, 1993,
primarily due to a decline in Medicare supplement product membership. This
decline was the result of management's decision to increase Medicare supplement
product premium rates effective January 1, 1993, to more closely approximate
competitive levels. Commercial product membership increased during the third
and fourth quarters of 1993 as medical cost improvements allowed the Company to
be more competitive in its pricing. The increase in Commercial product
membership in the last six months of 1993 offsets the decline in Commercial
product enrollment during the first six months of 1993. The decline resulted
primarily from the Company's pricing policy which attempted to maintain
operating margins during a period when the Company's cost structure was high.
Medicare risk membership levels remained relatively constant during 1993.
The medical loss ratio for the year ended December 31, 1993, was 83.8%
compared to 86.3% for the year ended December 31, 1992. Principal factors
contributing to the improvement in the medical loss ratio included Medicare
product premium rate increases, improved hospital utilization and favorable
other medical services costs experience in the Commercial and Medicare risk
products. Because 1994 premium rate increases are projected to range from 3%
to 4%, additional improvements in hospital and other medical services costs are
necessary to achieve further reductions in the medical loss ratio.
The administrative cost ratio was 13.2% and 14.1% for the years ended
December 31, 1993 and 1992, respectively. The improvement in the
administrative cost ratio is attributable to the impact of 1992 work force
reductions and an emphasis by management in controlling administrative costs.
Interest income totaled $48 million for the year ended December 31,
1993, compared to $36 million for the year ended December 31, 1992. The
increase in interest income is attributable to interest being earned on notes
receivable and cash payments from Galen received in connection with the
Spinoff. The notes were repaid in September 1993. Tax equivalent yield on
invested assets approximated 6% and 8% for the years ended December 31, 1993
and 1992, respectively. Tax equivalent yield is the rate earned on invested
assets, excluding unrealized gains and losses, adjusted for the benefit of
nontaxable investment income.
The Company's income before income taxes totaled $143 million for the
year ended December 31, 1993, compared to income of $17 million (excluding the
impact of the previously mentioned restructuring and unusual charges) for the
year ended December 31, 1992.
Years Ended August 31, 1992 and 1991
In order to enhance comparability, the following discussion comparing
the year ended August 31, 1992, to the year ended August 31, 1991, excludes the
impact of the $171 million in restructuring and unusual charges recorded in
August 1992.
The Company's premium revenues increased 24% to $2.8 billion for the year
ended August 31, 1992, compared to $2.2 billion for the year ended
August 31, 1991, due to the effect of acquisitions as well as Commercial
product premium rate increases of 11% and Medicare risk product premium rate
increases of 5%. Membership data for the respective periods follows:
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Amounts in thousands 1992 1991
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Beginning membership 1,661.1 1,172.1
Sales 292.8 364.1
Acquisitions 61.4 339.1
Cancellations (311.6) (214.2)
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Ending membership 1,703.7 1,661.1
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Average membership 1,690.6 1,479.1
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Excluding acquisitions, enrollment declined slightly during the year ended
August 31, 1992, due primarily to management's decision to continue pricing its
products at levels which attempted to maintain operating margins. Management
also believes that enrollment was adversely affected by the economic recession
during this period.
In August 1992, the Company recorded restructuring and unusual charges
amounting to $171 million primarily in connection with the board of directors'
decision to effect the Spinoff. Included in these restructuring and unusual
charges were write-downs of $77 million related to the impairment of
operational and administrative assets, $79 million primarily related to
contract disputes, product discontinuances and anticipated market closures, and
$15 million related to costs associated with the Spinoff from Galen.
The medical loss ratio for the year ended August 31, 1992, was 86.0% compared
to 84.4% for the year ended August 31, 1991. The deterioration in the medical
loss ratio resulted primarily from increased utilization of hospital and other
medical services costs in the Medicare risk product.
The administrative cost ratio was 14.7% and 16.1% for the years ended August
31, 1992, and August 31, 1991, respectively. The improvement in the
administrative cost ratio was primarily a result of the increase in premium
revenues during these periods.
Interest income totaled $37 million for the year ended August 31, 1992,
compared to $36 million for the year ended August 31, 1991. The tax equivalent
yield on invested assets approximated 8% in 1992 and 9% in 1991.
Excluding restructuring and unusual charges, the Company's income before
income taxes totaled $7 million for the year ended August 31, 1992,
compared to $14 million for the year ended August 31, 1991.
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LIQUIDITY
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Net cash provided by operations for the year ended December 31, 1993,
totaled $185 million compared to $124 million for the year ended December 31,
1992. The improvement in 1993 operating cash flows is a result of increased
net income, improved premiums receivable collections, and the timing of
payments for medical costs and other expenses. In addition, net cash provided
by operations for the year ended December 31, 1992, was reduced due to a
payment to the Internal Revenue Service (the "IRS") of taxes and interest
totaling $91 million of disputed amounts for fiscal years 1988 and 1989,
primarily related to the current deductibility of medical costs payable.
For the year ended August 31, 1992, net cash used by operations totaled $57
million compared to cash provided by operations of $66 million for the year
ended August 31, 1991. The decline resulted primarily from the timing of the
receipt of Medicare risk premiums, changes in other operating assets and
liabilities and the payment to the IRS.
The Company's current assets exceeded current liabilities by $231 million at
December 31, 1993. At December 31, 1992, the Company's current liabilities
exceeded current assets by $245 million. The increase in working capital
resulted, in part, from the $383 million in cash contributions from Galen and
the improvement in operating cash flows described above. In addition, a portion
of the increase is due to management's re-evaluation of the balance sheet
classification of marketable securities. At December 31, 1993, the Company
reclassified its marketable securities in conjunction with the implementation
of Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Marketable securities are now
classified based upon management's intent regarding the ultimate use of these
securities. Marketable equity and debt securities available for current
operations are classified in the balance sheet as current assets while
securities held for non-current uses, such as, acquisitions, capital spending
and funding of professional liability risks are classified as long-term assets.
Prior to December 31, 1993, marketable securities were classified in the
balance sheet based upon their contractual maturity.
Management believes that existing working capital and cash flows from
operations will be sufficient to meet future liquidity needs.
The Company's subsidiaries operate in states which require certain levels of
equity and regulate the payment of dividends to the parent company. As a
result, the Company's ability to use operating subsidiaries' cash flows is
restricted to the extent that the subsidiaries' ability to pay dividends to its
parent company requires regulatory approval. At December 31, 1993, the Company
had approximately $247 million of unrestricted cash, cash equivalents and
marketable securities.
CAPITAL RESOURCES
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The Company's ongoing capital expenditures relate primarily to medical care
facilities used by either employed or affiliated physicians as well as
administrative facilities and related computer information systems necessary
for activities such as claims processing, billing and collections, medical
utilization review and customer service. Total capital expenditures amounted
to $28 million, $34 million, $47 million and $107 million for the years ended
December 31 , 1993, December 31, 1992, August 31, 1992, and August 31, 1991,
respectively.
Excluding acquisitions, planned capital spending in 1994 will approximate $40
to $45 million, most of which will relate to the expansion and improvement of
medical care facilities and equipment. Management believes that its capital
spending program is adequate to expand, improve and equip its existing markets.
During the year ended December 31, 1992, the Company acquired three HMOs with
approximately 80,000 members for $38 million. During the year ended August 31,
1991, the Company acquired three HMOs with approximately 339,000 members for
$60 million. In addition, the Company acquired an HMO in Washington, D.C.,
with approximately 125,000 members for $55 million on February 28, 1994. The
Company may make acquisitions from time to time and is currently reviewing
various acquisition opportunities.
On January 12, 1994, the Company entered into a $200 million line of credit
with a group of banks which will be available, in addition to the Company's
$247 million of unrestricted cash, to pursue acquisition and expansion
opportunities.
The health care industry is changing and consolidating rapidly, providing
significant growth potential. As a result, management intends to retain
operating cash flows and available cash for acquisition and expansion
opportunities and has no current plans to initiate the payment of dividends.
EFFECTS OF INFLATION AND CHANGING PRICES
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The Company's operations are regulated by various state and federal
government agencies. Actuarially determined premium rate increases for
Commercial and Medicare supplement products generally must be approved by the
respective state insurance commissions, while increases in premiums for
Medicare risk products are determined by the Health Care Financing
Administration ("HCFA"). Medicare risk premiums approximated 41%, 39%, 39% and
40% of the Company's premium revenues for the years ended December 31, 1993,
December 31, 1992, August 31, 1992, and August 31, 1991, respectively.
Effective January 1, 1994, the average rate of increase under the Medicare risk
contract was approximately 3%. Although annual increases have varied
significantly, increases have averaged approximately 7% over the last five
years, including the increase of January 1994.
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Effective with the consummation of the Spinoff, the Company entered into
a three-year operating agreement with Galen whereby the Company will use the
services of Galen's hospitals guaranteeing certain minimum utilization levels.
The rate increases charged for such services are defined under the terms of the
agreement. Commercial product rate increases for hospital services are limited
to the lesser of the increase in the hospital component of the U.S. Consumer
Price Index or the Company's Commercial product premium rate increases, less
one percent. The Medicare risk product rate increases for hospital services
are equal to the percentage adjustment in HCFA's market specific hospital
payment rate to the Company. During the years ended December 31, 1993, December
31, 1992, August 31, 1992, and August 31, 1991, 16%, 18%, 18% and 20%,
respectively, of the Company's total medical costs were incurred in Galen
hospitals.
OTHER INFORMATION
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The Company's Medicare risk contracts with the federal government are renewed
for a one-year term each December 31 unless terminated 90 days prior thereto.
The loss of these contracts or significant changes in the Medicare program,
including reductions in payments or increases in benefits without corresponding
increases in payments, would have a material adverse effect on the revenues,
profitability and business prospects of the Company.
Congress is in the process of evaluating a number of legislative proposals
that would effect major changes in the United States health care
system. Among the proposals under consideration are government imposed cost
controls, measures to increase the availability of group health insurance
coverage to employees, and the creation of statewide health alliances that
would cover individuals and families not enrolled in large employer health
plans. Legislative reform, if any, is not anticipated before the latter part
of 1994 and implementation of any reform package could take several additional
years. In general, managed care is being considered as a means by which health
care costs may be reduced. Although management believes the Company is well
positioned to take advantage of the opportunities which will be afforded by
health care reform, it is not possible to predict the final form these
proposals will take or the affect these proposals may have on the Company.
In addition to federal reform, various states in which the Company operates
have implemented or are in the process of implementing changes in the delivery
of health care. Again, it is not possible to predict the final form these
proposals will take or the effect these changes may have on the Company.
Resolution of various loss contingencies, including litigation pending
against the Company in the ordinary course of business, is not expected to
have a material adverse effect on its financial position or results of
operations.
Net cash provided by operating activities in the accompanying consolidated
statement of cash flows for the four month period ended December 31, 1992,
includes the receipt of five Medicare risk premium payments.
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CONSOLIDATED BALANCE SHEET
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Humana Inc.
Dollars in millions except per share amounts
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December 31, 1993 1992
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ASSETS
Current assets:
Cash and cash equivalents $ 372 $ 233
Marketable securities 427 60
Premiums receivable, less allowance for doubtful
accounts of $17 in 1993 and $14 in 1992 37 53
Deferred income taxes 129 120
Other 37 22
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Total current assets 1,002 488
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Property and equipment, net 300 290
Other assets:
Long-term marketable securities 335 321
Cost in excess of net tangible assets acquired 60 67
Deferred income taxes 16 10
Other 18 13
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Total other assets 429 411
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Total Assets $1,731 $1,189
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LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Medical costs payable $ 448 $ 400
Trade accounts payable and accrued expenses 154 186
Unearned premium revenues 110 102
Income taxes payable 59 45
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Total current liabilities 771 733
Long-term obligations 71 80
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Total liabilities 842 813
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Contingencies
Common stockholders' equity:
Equity funding 376
Common stock, $.16 2/3 par; authorized 300,000,000 shares;
issued and outstanding 160,343,788 shares - December 31, 1993 27
Capital in excess of par value 785
Retained earnings 73
Net unrealized investment gains 4
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Total common stockholders' equity 889 376
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TOTAL LIABILITIES AND COMMON STOCKHOLDERS' EQUITY $1,731 $1,189
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The accompanying notes are an integral part of the consolidated financial
statements.
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CONSOLIDATED STATEMENT OF OPERATIONS
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Humana Inc.
Dollars in millions except per share results
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Four
Years Ended Months Ended Years Ended
December 31, December 31, August 31,
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1993 1992 1992 1992 1991
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Revenues:
Premiums $3,137 $2,881 $ 976 $2,771 $2,231
Interest 48 36 12 37 36
Other 10 4 2 3 2
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Total revenues 3,195 2,921 990 2,811 2,269
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Operating expenses:
Medical costs 2,630 2,485 837 2,383 1,885
Selling, general and administrative 368 355 119 357 321
Depreciation and amortization 47 52 17 52 38
Restructuring and unusual charges 171 171
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Total operating expenses 3,045 3,063 973 2,963 2,244
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Income (loss) from operations 150 (142) 17 (152) 25
Interest expense 7 12 2 12 11
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Income (loss) before income taxes 143 (154) 15 (164) 14
Provision (benefit) for income taxes 54 (47) 6 (50) 5
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Net income (loss) $ 89 $ (107) $ 9 $ (114) $ 9
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Earnings (loss) per common share $ .56 $ (.68) $ .06 $ (.72) $ .06
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The accompanying notes are an integral part of the consolidated financial
statements.
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CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY
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Humana Inc.
In millions
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Capital in Net Unrealized
Common Stock Excess of Retained Investment Equity Total
Shares Amount Par Value Earnings Gains Funding Equity
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Balance, September 1, 1990 $ 216 $ 216
Net income 9 9
Equity funding from Galen 176 176
Other 6 6
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Balance, August 31, 1991 407 407
Net loss (114) (114)
Equity funding from Galen 74 74
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Balance, August 31, 1992 367 367
Net income 9 9
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Balance, December 31, 1992 376 376
Net income $ 73 16 89
Capital contributions from Galen $160 160
Cash received from Galen in
satisfaction of Notes 248 248
Spinoff capitalization 159 $ 26 366 (392)
Other 1 1 11 $ 4 16
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Balance, December 31, 1993 160 $ 27 $785 $ 73 $ 4 $ 889
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The accompanying notes are an integral part of the consolidated financial
statements.
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CONSOLIDATED STATEMENT OF CASH FLOWS
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Humana Inc.
Dollars in millions
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Four
Years Ended Months Ended Years Ended
December 31, December 31, August 31,
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1993 1992 1992 1992 1991
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 89 $(107) $ 9 $(114) $ 9
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Restructuring and unusual charges 171 171
Depreciation and amortization 47 52 17 52 38
Deferred income taxes (13) (126) (1) (126) (4)
Changes in operating assets and liabilities:
Premiums receivable 16 1 (17) (4) (15)
Other current assets (16) 1 (2) 6 (5)
Medical costs payable 58 41 29 3 (6)
Trade accounts payable and accrued expenses (27) 56 47 18 9
Unearned premium revenues 8 14 102 (83) 19
Income taxes payable 9 19 6 16 19
Other 14 2 (1) 4 2
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Net cash provided by (used in) operating activities 185 124 189 (57) 66
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of health plan assets (5) (43) (1) (42) (60)
Purchase of property and equipment (28) (34) (10) (47) (107)
Disposition of property and equipment 8 7 8 2 2
Change in marketable securities (368) (21) (20) (7) (86)
Other (23) 2 (4) (4)
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Net cash used in investing activities (416) (91) (21) (98) (255)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions from Galen 383 72 74 176
Other (13) (9) (4) (4) (3)
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Net cash provided by (used in) financing activities 370 63 (4) 70 173
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Increase (decrease) in cash and cash equivalents 139 96 164 (85) (16)
Cash and cash equivalents at beginning of period 233 137 69 154 170
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Cash and cash equivalents at end of period $372 $ 233 $233 $ 69 $154
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Interest payments $ 1 $ 25 $ 27
Income tax payments (refunds), net 58 58 $ 1 55 $(23)
The accompanying notes are an integral part of the consolidated financial
statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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Humana Inc.
1. REPORTING ENTITY
Basis of Presentation
On March 1, 1993, Humana Inc. ("Humana" or the "Company") separated its
acute-care hospital and managed care health plan businesses into two
independent publicly-held companies (the "Spinoff"). The Spinoff was effected
through the distribution to Humana stockholders of record as of the close of
business on March 1, 1993, of all the outstanding shares of common stock of a
new hospital company, Galen Health Care, Inc. ("Galen"). Galen was
subsequently merged, through an unrelated transaction, with a subsidiary of
Columbia Healthcare Corporation (now Columbia/HCA Healthcare
Corporation)("Columbia") and, therefore, became a wholly-owned subsidiary of
Columbia. The Humana Inc. legal entity continues to operate the health plan
business. Because of the relative significance of the acute-care hospital
business to Humana prior to the Spinoff, the Spinoff was recorded as a
discontinuance of the health plan business in the historical consolidated
financial statements of pre-Spinoff Humana. For this reason, the historical
consolidated financial statements of pre-Spinoff Humana became the historical
consolidated financial statements of Galen. The consolidated financial
statements contained herein are the separate financial statements of what had
historically been the health plan business of Humana and do not correspond with
or represent the historical consolidated financial statements of Humana.
In conjunction with the Spinoff, the Company changed its fiscal year end
from August 31 to December 31. This action was taken because, among other
reasons, the Company and its subsidiaries are subject to regulations which
require the periodic reporting of financial information on a calendar year
basis and because many of the contracts between the Company and its customers
are on a calendar year basis.
For the fiscal years ended August 31, 1992, and prior, certain allocations
and estimates have been made by management in the accompanying consolidated
financial statements to present the results of operations of the Company as a
separate entity. The operating results of the Company for the years ended
August 31, 1992, and prior, include corporate costs and net interest expense
which were not previously allocated between the Company and Galen. Corporate
costs include shared administrative costs such as management information
systems, financing, recruiting, personnel development, accounting, legal
advice, public relations, marketing, insurance, purchasing, and risk and
quality management. Total costs allocated to the Company were $94 million and
$85 million for the years ended August 31, 1992 and 1991, respectively. Net
interest expense amounting to $12 million and $11 million for the years ended
August 31, 1992 and 1991, respectively, has also been allocated to the Company
and relates primarily to disputed income tax issues in connection with current
deductibility of medical costs payable. (See Note 5)
Organization and Operations
The Company operates health maintenance organizations ("HMOs") and preferred
provider organizations ("PPOs") which provide managed care services to
commercial customer groups and individuals eligible for the Medicare Program
under contractual agreements between the Company and the Health Care Financing
Administration.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include all subsidiaries of the
Company. All significant intercompany accounts and transactions have been
eliminated.
Cash and Cash Equivalents
Cash and cash equivalents include cash, money market funds, commercial paper
and certain U.S. Government securities with an original maturity of three
months or less.
Marketable Securities
The Company adopted Statement of Financial Accounting Standards No. 115
("SFAS No.115"), "Accounting for Certain Investments in Debt and Equity
Securities," effective December 31, 1993. The adoption of SFAS No. 115 resulted
in an increase in stockholders' equity of $4 million. The consolidated balance
sheet at December 31, 1992, was not restated to give effect to the adoption of
this statement.
At December 31, 1993, marketable equity and debt securities have been
categorized as available for sale and as a result are stated at fair value.
Marketable equity and debt securities available for current operations are
classified in the balance sheet as current assets while securities held for
non-current uses, such as acquisitions, capital spending and funding of
professional liability risks are classified as long-term assets. Unrealized
holding gains and losses are included as a component of stockholders' equity
until realized. At December 31, 1992, marketable equity securities were stated
at the lower of aggregate cost or market, while marketable debt securities were
carried at amortized cost which approximated market.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Humana Inc.
Premium Revenue Recognition
Premium revenues are reported as revenues in the period in which members are
entitled to receive managed care services. Premiums received prior to such
period are recorded as unearned premium revenues.
Property and Equipment
Property and equipment is carried at cost and is comprised of the following
at December 31, 1993 and 1992:
- -------------------------------------------------------------------------------------
Dollars in millions 1993 1992
- -------------------------------------------------------------------------------------
Land $ 25 $ 23
Buildings 224 193
Equipment 248 218
- -------------------------------------------------------------------------------------
497 434
Accumulated depreciation (197) (144)
- -------------------------------------------------------------------------------------
$ 300 $ 290
- -------------------------------------------------------------------------------------
Depreciation is computed using the straight-line method over estimated useful
lives generally ranging from three to 25 years. Depreciation expense was $35
million, $34 million, $34 million and $22 million for the years ended December
31, 1993, December 31, 1992, August 31, 1992, and August 31, 1991, and $12
million for the four months ended December 31, 1992.
Cost in Excess of Net Tangible Assets Acquired
Cost in excess of net tangible assets acquired represents the unamortized
excess of the cost over the fair value of net tangible assets acquired, which
is amortized on a straight-line basis over periods of expected benefit, which
generally have been seven to 14 years. Accumulated amortization totaled $30
million and $59 million, as of December 31, 1993 and 1992, respectively.
Medical Costs
Medical costs include claim payments and estimates of future payments to be
made for medical claims incurred prior to the balance sheet date. Estimates of
future payments relating to services incurred in current and prior periods are
continually reviewed by management, and to the extent necessary, adjustments
are reflected in current operations. In addition to medical claims, the
Company pays physician salaries and capitation costs. Capitation costs
represent monthly prepaid fees paid to participating primary care physicians
and other medical specialists for the provision of medical care to the
Company's members.
Income Taxes
The provision for income taxes reflected in the consolidated financial
statements for the fiscal years ended August 31, 1992, and prior, represents
the Company's proportionate share of historical Humana's income tax expense
which approximates the expense which would have been recognized had the Company
and Galen filed separate tax returns.
The adoption by the Company, effective September 1, 1991, of the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," did not have a material impact on the financial position or results of
operations of the Company.
Common Stock
At the time of the Spinoff, the market value of common stock of historical
Humana was adjusted to give effect to the distribution to Humana stockholders
of all the outstanding common stock of Galen. The market values of the Company
and Galen common stock on March 1, 1993, were $7 3/4 and $12 1/8, respectively.
(See Note 1)
At December 31, 1992, historical Humana had 158,855,196 shares of common
stock outstanding.
Common Stockholders' Equity
Equity of the Company, prior to the Spinoff, resulted from the cumulative
net income or loss of the health plan business as well as funding from Galen.
Therefore, pre-Spinoff equity is referred to as "Equity Funding" in the
accompanying consolidated balance sheet and consolidated statement of common
stockholders' equity.
Earnings per Common Share
A 3-for-2 stock split of Humana common stock was distributed in August 1991.
Retroactive recognition has been given to this split in the consolidated
financial statements and notes.
Earnings per common share are based upon the weighted average number of
Humana common shares outstanding. Shares used in computing earnings per common
share were 159,283,680, 158,619,551, 158,490,279 and 157,359,253, for the years
ended December 31, 1993, December 31, 1992, August 31, 1992, and August 31,
1991, respectively and 158,777,886 for the four months ended December 31, 1992.
Reclassifications
Certain prior year amounts have been reclassified to conform to the 1993
financial statement presentation.
28
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Humana Inc.
3. RESTRUCTURING AND UNUSUAL CHARGES
In August 1992, the Company recorded restructuring and unusual charges
amounting to $171 million primarily in connection with the board of directors'
decision to effect the Spinoff. Included in these restructuring and unusual
charges were write-downs of $77 million related to impairment of operational
and administrative assets, $79 million primarily related to contract disputes,
product discontinuances and anticipated market closures, and $15 million
related to costs associated with the Spinoff from Galen.
With respect to the these charges, $77 million was used to write-down assets
as described above, and $42 million was used to pay restructuring and unusual
costs. The remaining $52 million, primarily related to contract disputes,
product discontinuances and market closures is expected to be resolved within
two to three years. Management regularly evaluates the continued
reasonableness of these charges, and to the extent adjustments are necessary,
earnings are charged or credited in the current period.
4. INVESTMENTS
Marketable securities classified as current assets at December 31, 1993,
include the following:
- ----------------------------------------------------------------------------------
Fair
Dollars in millions Value Cost
- ----------------------------------------------------------------------------------
U.S. Government securities $ 21 $ 20
Tax exempt municipal bonds 394 391
Corporate bonds 10 10
Other 2 2
- ----------------------------------------------------------------------------------
$ 427 $ 423
- ----------------------------------------------------------------------------------
Marketable securities classified as long-term assets at December 31, 1993,
include the following:
- ----------------------------------------------------------------------------------
Fair
Dollars in millions Value Cost
- ----------------------------------------------------------------------------------
U.S. Government securities $ 29 $ 29
Tax exempt municipal bonds 158 158
Marketable equity securities 105 103
Collateralized mortgage obligations 11 11
Other 32 31
- ----------------------------------------------------------------------------------
$ 335 $ 332
- ----------------------------------------------------------------------------------
The contractual maturities of debt securities available for sale at December
31, 1993, regardless of their balance sheet classification, follows:
- ----------------------------------------------------------------------------------
Fair
Dollars in millions Value Cost
- ----------------------------------------------------------------------------------
Due within one year $ 125 $ 124
Due after one year through five years 222 220
Due after five years through 10 years 91 91
Due after 10 years 9 8
Not due at a single maturity date 210 209
- ----------------------------------------------------------------------------------
$ 657 $ 652
- ----------------------------------------------------------------------------------
Gross unrealized holding gains and losses at December 31, 1993, were $10
million and $3 million, respectively. Proceeds and gross realized gains from
the sale of securities classified as available for sale for the year ended
December 31, 1993, were $116 million and $1 million, respectively. For the
purpose of determining gross realized gains and losses, the cost of securities
sold is based upon specific identification.
Marketable securities at December 31, 1992, include the following:
- ----------------------------------------------------------------------------------
Fair
Dollars in millions Cost Value
- ----------------------------------------------------------------------------------
U.S. Government securities $ 24 $ 25
Tax exempt municipal bonds 22 22
Other 14 14
- ----------------------------------------------------------------------------------
$ 60 $ 61
- ----------------------------------------------------------------------------------
Long-term marketable securities at December 31, 1992, include the following:
- ----------------------------------------------------------------------------------
Fair
Dollars in millions Cost Value
- ----------------------------------------------------------------------------------
U.S. Government securities $ 26 $ 26
Tax exempt municipal bonds 210 212
Marketable equity securities 28 28
Collateralized mortgage obligations 22 23
Other 35 36
- ----------------------------------------------------------------------------------
$ 321 $ 325
- ----------------------------------------------------------------------------------
29
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Humana Inc.
5. INCOME TAXES
The provision for income taxes consists of the following:
Four
Years Ended Months Ended Years Ended
December 31, December 31, August 31,
- ------------------------------------------------------------------------------------------------------------
Dollars in millions 1993 1992 1992 1992 1991
- ------------------------------------------------------------------------------------------------------------
Current provision (benefit):
Federal $ 57 $ 80 $ 6 $ 78 $ 10
State 6 (1) 1 (2) (1)
- ------------------------------------------------------------------------------------------------------------
63 79 7 76 9
Deferred provision (benefit):
Federal (8) (138) (1) (138) (3)
State (1) 12 12 (1)
- ------------------------------------------------------------------------------------------------------------
(9) (126) (1) (126) (4)
- ------------------------------------------------------------------------------------------------------------
$ 54 $ (47) $ 6 $ (50) $ 5
- ------------------------------------------------------------------------------------------------------------
The income tax provision (benefit) was different from the amount computed
using the federal statutory income tax rate due to the following:
Four
Years Ended Months Ended Years Ended
December 31, December 31, August 31,
- ------------------------------------------------------------------------------------------------------------
Dollars in millions 1993 1992 1992 1992 1991
- ------------------------------------------------------------------------------------------------------------
Income tax provision (benefit) at federal statutory rate $ 50 $ (52) $ 5 $ (56) $ 5
State income taxes, net of federal benefit 4 (4) 1 (4) 1
Tax exempt investment income (7) (4) (1) (4) (4)
Amortization 4 18 2 19 8
Other items, net 3 (5) (1) (5) (5)
- -----------------------------------------------------------------------------------------------------------
$ 54 $ (47) $ 6 $ (50) $ 5
- -----------------------------------------------------------------------------------------------------------
Cumulative temporary differences which give rise to deferred tax assets and
liabilities at December 31, 1993 and 1992, were as follows:
- ------------------------------------------------------------------------------------------------------------
Assets Assets
(Liabilities) (Liabilities)
Dollars in millions 1993 1992
- ------------------------------------------------------------------------------------------------------------
Medical costs payable $112 $ 86
Depreciation (19) (18)
Deferred compensation 7 4
Accrued interest 6 4
Doubtful accounts 7 7
Restructuring and unusual charges 17 27
Other 15 20
- ------------------------------------------------------------------------------------------------------------
$145 $130
- ------------------------------------------------------------------------------------------------------------
Management believes that the deferred tax assets will ultimately be realized
based primarily on the existence of sufficient taxable income within the
allowable carryback periods.
During 1992, the Company paid the IRS $91 million, including interest,
of disputed amounts for fiscal years 1988 and 1989, primarily related to the
current deductibility of medical costs payable. The Company is currently
pursuing a favorable resolution of this issue.
At December 31, 1993, the Company had net operating loss carryforwards
of approximately $32 million related to a 1992 acquisition. These loss
carryforwards, if unused to offset future taxable income of the acquired
subsidiary, will expire in the years 2000 through 2007.
30
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Humana Inc.
6. PROFESSIONAL LIABILITY RISKS
The Company insures substantially all professional liability risks through a
wholly-owned subsidiary (the "Captive Subsidiary") which was incorporated in
January 1993. Prior to the formation of the Captive Subsidiary, professional
liability risks were insured by a subsidiary of Galen. In connection with the
Spinoff, the Captive Subsidiary and the Galen subsidiary effected a loss
portfolio reinsurance agreement (the "Reinsurance Agreement") whereby the
Captive Subsidiary indemnified the Galen subsidiary, subject to aggregate
limits, against all liabilities incurred by the Galen subsidiary related to
professional liability risks of the Company prior to September 1, 1993. As a
result of the Captive Subsidiary entering into the Reinsurance Agreement, all
Company professional liability risks recorded on the financial statements of
the Galen subsidiary were transferred to the Captive Subsidiary in February
1993. Provisions for such risks, including expenses incident to claim
settlements, were $13 million, $12 million, $11 million and $8 million for the
years ended December 31, 1993, December 31, 1992, August 31, 1992, and August
31, 1991, respectively, and $4 million for the four months ended December 31,
1992.
The Captive Subsidiary reinsures levels of coverage for losses in excess of
its retained limits with unrelated insurance carriers.
Allowance for professional liability risks and the equivalent amounts of
marketable securities related to the funding thereof included in the
accompanying consolidated balance sheet were $50 million at December 31, 1993.
7. LONG-TERM OBLIGATIONS
Long-term obligations at December 31, 1993 and 1992, include a note payable
of $2 million and $20 million to the State of Florida Department of Insurance
(the "Department") related to the 1987 acquisition of a health plan which was
being held in receivership by the Department at the time it was acquired by the
Company. Other long-term obligations include professional liability risks and
capital lease obligations.
In connection with the Spinoff, Galen assumed substantially all of
historical Humana's long-term debt outstanding at the time of the Spinoff;
however, the Company remains contingently liable as guarantor for approximately
$55 million of this debt.
On January 12, 1994, the Company entered into an unsecured credit agreement
with a group of banks which provides for a $200 million revolving line of
credit (the "Credit Agreement") expiring January 12, 1997. Principal amounts
outstanding under the Credit Agreement will bear interest, depending on average
borrowings over a six-month period, at rates ranging from LIBOR plus 32.5
basis points to LIBOR plus 57.5 basis points. The Credit Agreement contains
customary events of default and covenant terms.
8. COMMON STOCKHOLDERS' EQUITY
For accounting purposes, the historical equity of the Company at the time of
the Spinoff consisted of the cumulative net income or loss, as well as the net
assets contributed by Galen. In connection with the Spinoff, Galen contributed
$135 million of cash and a hospital with a book value of $25 million to the
Company. Also in connection with the Spinoff, certain subsidiaries of Galen
issued promissory notes (the "Notes") to the Company. Under the terms of the
Notes, the full principal amount of $250 million became due upon certain
"change of control" transactions. As a result of the Columbia acquisition of
Galen, the Company received $248 million in cash in full satisfaction of the
Notes.
The Company has plans under which options to purchase common stock have been
granted to officers, certain directors and key employees. Options were granted
at not less than market price on the date of grant. Exercise provisions vary,
but most options are exercisable in whole or in part beginning one to three
years after grant and ending 10 years after grant.
In connection with the Spinoff and Columbia transactions, each Humana
employee who held options in Humana prior to the Spinoff retained his options
to purchase Company stock and also received a like number of first Galen and
subsequently Columbia options for which the exercise price and number of
shares were adjusted based upon the terms of the Spinoff and acquisition
transactions. The percentages used to adjust the exercise price for the
Spinoff, which were based on the relative market values of the underlying
Company and Galen common stock for a specified period after the Spinoff, were
37.8% and 62.2%, respectively. In addition, each Galen and subsequently
Columbia employee maintained options to purchase Company shares at the adjusted
exercise price. The Columbia options held by Humana employees and the Company
options held by Columbia employees expire on the earlier to occur of (a) two
years from the date of the Spinoff or (b) the expiration of the exercise period
of the original option.
The following shares of common stock of the Company, including 7,000,000
shares representing increases in the number of authorized shares under the
Company's stock option plan subject to stockholder approval, were reserved on a
pro-forma basis at December 31, 1993:
- -------------------------------------------------------------------------------
Shares
- -------------------------------------------------------------------------------
Stock option plans 12,211,459
Thrift and retirement plans 5,059,589
Other 2,063,859
- -------------------------------------------------------------------------------
19,334,907
- -------------------------------------------------------------------------------
31
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Humana Inc.
The Company's option plan activity for the years ended December 31, 1993,
August 31, 1992, and August 31, 1991, and the four months ended December 31,
1992, are summarized below. Included in the 1993 grant of 6,467,500 options are
3,837,000 options which were issued on a conditional basis, subject to
stockholder approval.
- --------------------------------------------------------------------------------
Shares Option Price
Under Per Share
Option (See Note 2)
- --------------------------------------------------------------------------------
Balance, August 31, 1990 4,563,303 $ 3.12 to $12.12
Granted 896,475 9.64 to 11.90
Exercised (2,067,397) 3.12 to 8.65
Cancelled or lapsed (33,557) 4.32 to 11.01
- --------------------------------------------------------------------------------
Balance, August 31, 1991 3,358,824 3.88 to 12.12
Granted 817,650 8.91 to 10.73
Exercised (659,288) 3.88 to 11.01
Cancelled or lapsed (31,871) 4.32 to 11.01
- --------------------------------------------------------------------------------
Balance, August 31, 1992 3,485,315 4.32 to 12.12
Exercised (135,195) 4.32 to 6.87
Cancelled or lapsed (6,300) 11.01
- --------------------------------------------------------------------------------
Balance, December 31, 1992 3,343,820 4.32 to 12.12
Granted 6,467,500 6.56 to 14.44
Exercised (967,446) 4.32 to 11.01
Cancelled or lapsed (324,139) 6.56 to 12.12
- --------------------------------------------------------------------------------
Balance, December 31, 1993 8,519,735 $ 4.32 to $14.44
- --------------------------------------------------------------------------------
At December 31, 1993, options for 2,124,889 shares were exercisable.
Shares of common stock available for future grants were 3,691,724, which
include 3,312,500 shares conditional upon stockholder approval to increase the
authorized shares under the Company's stock option plans.
As a result of current and pending state regulatory requirements, the
Company must maintain various levels of equity in certain of its subsidiaries,
which limits the Company's ability to pay dividends. At December 31, 1993,
$148 million of equity was restricted under these regulations.
9. CONTINGENCIES
During the ordinary course of business, the Company is subject to pending
and threatened legal actions. In addition, for periods prior to the Spinoff,
the Company assumed liability for specified claims and continues to share risks
with Galen with respect to certain litigation and other contingencies, both
identified and unknown, existing at the time of the Spinoff. Management of the
Company does not believe that any of these actions will have a material adverse
effect on its operations or financial position.
The Company's Medicare risk contracts with the federal government are
renewed for a one-year term each December 31 unless terminated 90 days prior
thereto. The loss of these contracts or significant changes in the Medicare
risk program, including reductions in payments or increases in benefits without
corresponding increases in payments, would have a material adverse effect on
the revenues, profitability and business prospects of the Company.
32
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Humana Inc.
10. ACQUISITIONS
During the year ended December 31, 1992, the Company acquired three HMOs
with approximately 80,000 members for $38 million. During the year ended
August 31, 1991, the Company acquired three HMOs with approximately 339,000
members for $60 million.
Each of the above acquisitions and certain other minor acquisitions were
accounted for by the purchase method. The total cost in excess of net tangible
assets acquired for all acquisitions totaled approximately $50 million and is
being amortized over periods of expected benefit, which generally have been
seven to 14 years.
The results of operations associated with all the previously mentioned
acquisitions have been included in the accompanying consolidated statement of
operations since the date of the respective acquisitions.
The Company acquired an HMO in Washington, D.C., with approximately 125,000
members for $55 million on February 28, 1994.
11. TRANSACTIONS WITH GALEN
The Company and Galen entered into various agreements in connection with the
Spinoff. These agreements include a hospital services operating agreement,
liability and tax sharing agreements and various administrative services
agreements. Total medical costs incurred by the Company for hospital services
provided by Galen amounted to $426 million, $444 million, $434 million and $368
million for the years ended December 31, 1993, December 31, 1992, August 31,
1992, and August 31, 1991, and $150 million for the four months ended December
31, 1992. At December 31, 1993 and 1992, medical costs payable to Galen
totaled $50 million and $35 million, respectively.
Interest income on amounts due from Galen was $8 million, $12 million, $13
million and $10 million for the years ended December 31, 1993, December 31,
1992, August 31, 1992, and August 31, 1991, and $4 million for the four months
ended December 31, 1992.
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Stockholders
Humana Inc.
We have audited the accompanying consolidated balance sheet of Humana Inc. as
of December 31, 1993 and 1992, and the related statements of operations, common
stockholders' equity and cash flows for the years ended December 31, 1993,
December 31, 1992, August 31, 1992, and August 31, 1991, and for the four month
period ended December 31, 1992. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Humana Inc. as of
December 31, 1993 and 1992, and the consolidated results of operations and cash
flows for the years ended December 31, 1993, December 31, 1992, August 31,
1992, and August 31, 1991, and for the four month period ended December 31,
1992, in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, Humana Inc.
adopted the provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," effective September 1, 1991, and the provisions
of Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," effective December 31, 1993.
COOPERS & LYBRAND
Louisville, Kentucky
January 31, 1994
33
18
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
Humana Inc.
In conjunction with the Spinoff, the Company changed its fiscal year end
from August 31 to December 31. This action was taken because, among other
reasons, the Company and its subsidiaries are subject to regulations that
require the periodic reporting of financial information on a calendar year
basis and because many of the contracts between the Company and its customers
are on a calendar year basis. The quarterly information represented below is on
the same basis as the Company's Form 10-Qs filed with the Securities and
Exchange Commission.
A summary of the Company's quarterly results of operations follows:
1993 (Calendar Year Basis)
- -----------------------------------------------------------------------------------------------------------------
Four Month
Transitional 1993
Dollars in millions except per share results Period Ended Quarter
- -----------------------------------------------------------------------------------------------------------------
December 31, 1992 First Second Third Fourth
- -----------------------------------------------------------------------------------------------------------------
Revenues $990 $798 $795 $796 $806
Income before income taxes 15 29 30 38 46
Net income 9 18 19 23 29
Earnings per common share $.06 $.11 $.12 $.15 $.18
1992 (Fiscal Year Basis) (a) (b)
- -----------------------------------------------------------------------------------------------------------------
1992
Dollars in millions except per share results Quarter
- -----------------------------------------------------------------------------------------------------------------
First Second Third Fourth
- -----------------------------------------------------------------------------------------------------------------
Revenues $658 $693 $ 724 $ 736
Income (loss) before income taxes 3 9 (5) (171)(c)
Net income (loss) 2 5 (3) (118)(c)
Earnings (loss) per common share $.01 $.04 $(.02) $(.75)(c)
(a) For the fiscal year ended August 31, 1992.
(b) Certain allocations and estimates have been made to present the quarterly
results of the Company. These allocations and estimates include certain
corporate expenses not allocated to the Company in prior years. These
corporate expenses include shared administrative costs such as management
information systems, financing, recruiting, personnel development,
accounting, legal advice, public relations, marketing, insurance,
purchasing, and risk and quality management as well as net interest
expense.
(c) Includes $171 million ($118 million or $.75 per share, net of tax) of
restructuring and unusual charges.
34
19
DIRECTORS
- ----------------------------------------------------------------------------------------------------------------------------------
K. FRANK AUSTEN, M.D. MICHAEL E. GELLERT JOHN R. HALL
Chairperson of the Department of General Partner, Windcrest Partners, Chairman of the Board
Rheumatology and Immunology, private investment partnership and Chief Executive Officer,
Brigham and Women's Hospital, Ashland Oil, Inc.
and Professor of Medicine,
Harvard Medical School
DAVID A. JONES DAVID A. JONES, JR. IRWIN LERNER
Chairman of the Board and Chief Principal, Chrysalis Ventures, Inc., Retired Chairman of the Board
Executive Officer, Humana Inc. venture capital firm and Executive Committee,
Hoffmann-La Roche Inc.
W. ANN REYNOLDS, PH.D. WAYNE T. SMITH
Chancellor, City University of President and Chief Operating Officer,
New York Humana Inc.
EXECUTIVE COMMITTEE
- ----------------------------------------------------------------------------------------------------------------------------------
DAVID A. JONES MICHAEL E. GELLERT WAYNE T. SMITH
Chairman
AUDIT COMMITTEE
- ----------------------------------------------------------------------------------------------------------------------------------
MICHAEL E. GELLERT K. FRANK AUSTEN, M.D. JOHN R. HALL
Chairman
IRWIN LERNER
COMPENSATION COMMITTEE
- ----------------------------------------------------------------------------------------------------------------------------------
K. FRANK AUSTEN, M.D. MICHAEL E. GELLERT IRWIN LERNER
Chairman
W. ANN REYNOLDS, PH.D.
INVESTMENT COMMITTEE
- ----------------------------------------------------------------------------------------------------------------------------------
W. ANN REYNOLDS, PH.D. MICHAEL E. GELLERT JOHN R. HALL
Chairwoman
DAVID A. JONES, JR.
NOMINATING COMMITTEE
- ----------------------------------------------------------------------------------------------------------------------------------
JOHN R. HALL K. FRANK AUSTEN, M.D. DAVID A. JONES, JR.
Chairman
W. ANN REYNOLDS, PH.D.
35
20
EXECUTIVE MANAGEMENT
- -----------------------------------------------------------------------------------------------------------
DAVID A. JONES WAYNE T. SMITH
Chairman of the Board President and
and Chief Executive Officer Chief Operating Officer
- -----------------------------------------------------------------------------------------------------------
W. LARRY CASH KAREN A. COUGHLIN
Senior Vice President - Finance and Operations Senior Vice President - Region II
W. ROGER DRURY PHILIP B. GARMON
Chief Financial Officer Senior Vice President - Region I
RONALD S. LANKFORD, M.D.
Senior Vice President - Medical Affairs
OFFICERS
- -----------------------------------------------------------------------------------------------------------
JOSE G. ABREU GEORGE G. BAUERNFEIND
Vice President - Medicare Sales Vice President - Taxes
GEORGE E. BENNETT GLENN D. BOSSMEYER
Vice President - Sales Vice President, Associate General Counsel
and Assistant Secretary
DOUGLAS R. CARLISLE JAMES W. DOUCETTE
Vice President Vice President - Investments and Treasurer
ROBERT A. HORRAR GAIL H. KNOPF
Vice President - Human Resources Vice President - Information Systems
JERRY L. MCCLELLAN MARY M. MCKINNEY
Vice President - Financial Services Vice President - Internal Audit
JAMES E. MURRAY WALTER E. NEELY
Vice President and Controller Vice President, General Counsel and Secretary
WILLIAM P. SCHREIBER THOMAS D. STROUD
Vice President - Information Systems Vice President - Sales and Marketing
DAVID W. WILLE
Vice President and Chief Actuary
36
21
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
TRANSFER AGENTS CORPORATE HEADQUARTERS
For change of address information: Humana Inc.
The Humana Building
Bank of Louisville 500 West Main Street
Security Transfer Department P.O. Box 1438
P.O. Box 1497 Louisville, Kentucky 40201-1438
Louisville, Kentucky 40201 502/580-1000
800/925-0810
Chemical Bank
New York, New York
FORM 10-K ANNUAL MEETING
Copies of Form 10-K filed with the The Company's Annual Meeting of
Securities and Exchange Commission Stockholders will be held on Thursday,
may be obtained, without charge, May 26,1994, in the Auditorium on the
by writing: 25th floor of the Humana Building at
10:00 a.m.
Investor Relations
Humana Inc.
P.O. Box 1438
Louisville, KY 40201-1438
STOCK LISTING
The Company's common stock trades on
the New York Stock Exchange under the
symbol HUM. The following table shows
the range of high and low sales prices
as reported on the New York Stock
Exchange Composite Tape beginning
March 1, 1993, the date of the Spinoff
of Galen from the Company.
1993 High Low
- ---------------------------------------
First Quarter 8 1/4 6 1/8
Second Quarter 12 6 5/8
Third Quarter 13 3/4 10 5/8
Fourth Quarter 18 5/8 12 5/8
37