EXHIBIT 13
FINANCIAL SECTION
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Humana Inc.
1 Selected Financial Data
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
3 Consolidated Balance Sheets
4 Consolidated Statements of Income
5 Consolidated Statements of Stockholders' Equity
6 Consolidated Statements of Cash Flows
7 Notes to Consolidated Financial Statements
8 Report of Independent Accountants
9 Quarterly Financial Information (Unaudited)
10 Board of Directors
11 Corporate Officers
12 Additional Information
SELECTED FINANCIAL DATA
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Humana Inc.
Dollars in millions, except per share results
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For the years ended December 31, 1997 (a) 1996 (b) 1995 (c) 1994 (d) 1993
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SUMMARY OF OPERATIONS
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Revenues:
Premiums:
Commercial $4,387 $4,255 $2,883 $2,054 $1,709
Medicare risk 2,426 1,907 1,569 1,406 1,296
TRICARE 764 351 - - -
Medicaid 224 71 51 2 -
Medicare supplement 79 93 102 114 132
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Total premiums 7,880 6,677 4,605 3,576 3,137
Interest and other income 156 111 97 78 58
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Total revenues 8,036 6,788 4,702 3,654 3,195
Income before income taxes 270 18 288 257 143
Net income 173 12 190 176 89
Earnings per common share 1.06 .07 1.17 1.10 .56
Earnings per common share -
assuming dilution 1.05 .07 1.16 1.07 .55
Net cash provided by operations 289 341 150 298 185
FINANCIAL POSITION
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Cash and investments $2,646 $1,727 $1,518 $1,203 $1,134
Total assets 5,418 3,153 2,878 1,957 1,731
Medical and other costs payable 2,075 1,099 866 527 448
Debt and other long-term
obligations 1,057 361 399 83 71
Stockholders' equity 1,501 1,292 1,287 1,058 889
OPERATING DATA
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Medical loss ratio 82.8% 84.3% 81.7% 81.6% 83.8%
Administrative cost ratio 15.5% 15.5% 13.9% 13.6% 13.2%
Medical membership:
Commercial 3,258,600 2,759,600 2,834,900 1,500,800 1,214,000
Medicare risk 480,800 364,500 310,400 287,400 270,800
TRICARE 1,112,200 1,103,000 - - -
Medicaid 635,200 55,200 49,000 27,500 -
Medicare supplement 68,800 97,700 115,000 131,700 153,600
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5,555,600 4,380,000 3,309,300 1,947,400 1,638,400
Administrative services 651,200 471,000 495,100 93,500 63,700
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Total 6,206,800 4,851,000 3,804,400 2,040,900 1,702,100
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Specialty membership:
Dental 936,400 844,800 797,000
Group life 717,300 642,700 576,300
Workers' compensation 507,100 132,700 234,200
Other 279,800 264,000 252,500
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Total 2,440,600 1,884,200 1,860,000
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(a) Includes the operations of Health Direct, Inc., Physician Corporation of
America and ChoiceCare Corporation since their dates of acquisition,
February 28, 1997, September 8, 1997 and October 17, 1997, respectively.
(b) Includes special charges of $215 million pretax ($140 million after tax or
$.85 per diluted share) 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.
(c) Includes the operations of EMPHESYS Financial Group, Inc. since October 11,
1995, the date of acquisition.
(d) Includes nonrecurring income of $11 million pretax ($17 million after tax or
$.10 per diluted share) related to the favorable settlement of income tax
disputes with the Internal Revenue Service, partially offset by the write-
down of a nonoperational asset.
1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Humana Inc.
The consolidated financial statements of Humana Inc. (the "Company") in this
Annual Report present the Company's financial position, results of operations
and cash flows, and should be read in conjunction with the following discussion
and analysis. This discussion and analysis contains both historical and
forward-looking information. The forward-looking statements may be
significantly impacted by risks and uncertainties, and are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
There can be no assurance that anticipated future results will be achieved
because actual results may differ materially from those projected in the
forward-looking statements. Readers are cautioned that a number of factors,
which are described herein and in the Company's Annual Report on Form 10-K for
the year ended December 31, 1997, could adversely affect the Company's ability
to obtain these results. These include the effects of either federal or state
health care reform or other legislation, renewal of the Company's Medicare risk
contracts with the federal government, renewal of the Company's contract with
the federal government to administer the TRICARE program (formerly the Civilian
Health and Medical Program of the Uniformed Services), renewal of the Company's
Medicaid contracts with various state governments and the Commonwealth of Puerto
Rico, and the effects of other general business conditions, including but not
limited to the Company's ability to integrate its acquisitions, the Company's
ability to appropriately address the "Year 2000" computer system issue,
government regulation, competition, premium rate changes, retrospective premium
adjustments relating to federal government contracts, medical cost trends,
changes in Commercial and Medicare risk membership, capital requirements, the
ability of health care providers to assume financial risk, general economic
conditions and the retention of key employees. In addition, past financial
performance is not necessarily a reliable indicator of future performance and
investors should not use historical performance to anticipate results or future
period trends.
INTRODUCTION
The Company offers managed health care products that integrate medical
management with the delivery of health care services through a network of
providers. This network of providers may share financial risk or have
incentives to deliver quality medical services in a cost-effective manner.
These products are marketed primarily though health maintenance organizations
("HMOs") and preferred provider organizations ("PPOs") that encourage or require
the use of contracting providers. HMOs and PPOs control health care costs by
various means, including pre-admission approval for hospital inpatient services
and pre-authorization of outpatient surgical procedures. The Company also
offers various specialty and administrative service products including dental,
group life and workers' compensation.
The Company's HMO and PPO products are marketed primarily to employer and other
groups ("Commercial"), as well as Medicare- and Medicaid-eligible individuals.
The products marketed to Medicare-eligible individuals are either HMO products
("Medicare risk") or indemnity insurance policies that supplement Medicare
benefits ("Medicare supplement"). The Medicare risk product provides managed
care services that include all Medicare benefits and, in certain circumstances,
additional managed care services. The Company also maintains annual contracts
with various states and a two-year contract with the Commonwealth of Puerto
Rico, expiring March 31, 1999, to provide health care to Medicaid-eligible
individuals. The Company also offers administrative services ("ASO") to
employers who self-insure their employee health plans. In total, the Company's
products are licensed in 47 states, the District of Columbia and Puerto Rico,
with approximately 23 percent of its membership in the state of Florida.
The Company is in the second year of its managed care support contract with the
United States Department of Defense to administer the TRICARE program. Under
the TRICARE contract, which is renewable annually for up to three additional
years, the Company provides managed care services to the beneficiaries of active
military personnel and retired military personnel and their beneficiaries
located in the southeastern United States.
2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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Humana Inc.
On October 17, 1997, the Company acquired ChoiceCare Corporation ("ChoiceCare")
for approximately $250 million in cash. The purchase was funded with borrowings
under the Company's commercial paper program. ChoiceCare provides health
services products to approximately 250,000 medical members in the Greater
Cincinnati, Ohio, area. This transaction was recorded using the purchase method
of accounting.
On September 8, 1997, the Company acquired Physician Corporation of America
("PCA") for total consideration of $411 million in cash, consisting primarily of
$7 per share for PCA's outstanding common stock and the assumption of $121
million in debt. The purchase was funded with borrowings under the Company's
commercial paper program. PCA serves approximately 1.1 million medical members
and provides comprehensive health services through its HMOs in Florida, Texas
and Puerto Rico. In addition, PCA provides workers' compensation third-party
administrative management services. Prior to November 1996, PCA also was a
direct writer of workers' compensation insurance in Florida. Long-term medical
and other costs payable in the accompanying consolidated balance sheets includes
the long-term portion of workers' compensation liabilities related to this
business. This transaction was recorded using the purchase method of
accounting.
On February 28, 1997, the Company acquired Health Direct, Inc. ("Health Direct")
from Advocate Health Care for $23 million in cash. This transaction, which was
recorded using the purchase method of accounting, added approximately 50,000
medical members to the Company's Chicago, Illinois, membership.
On January 31, 1997, the Company completed the sale of its Washington, D.C.,
health plan to Kaiser Foundation Health Plan of the Mid-Atlantic States, Inc.
Effective April 1, 1997, the Company also completed the sale of its Alabama
operations, exclusive of its small group business and Alabama TRICARE
operations, to PrimeHealth of Alabama, Inc. On October 31, 1997, the Company
also sold The Lexington Hospital in Lexington, Kentucky, to Jewish Hospital
Healthcare Services, Inc. These sale transactions did not have a material
impact on the Company's financial position, results of operations or cash flows.
SPECIAL CHARGES
During the second quarter of 1996, the Company recognized special charges of
$200 million pretax ($130 million after tax or $.79 per diluted share). The
special charges included provisions for expected future losses on insurance
contracts ($105 million), as well as estimated costs to be incurred in
restructuring the Washington, D.C., health plan (which was sold January 31,
1997) and closing markets or discontinuing product lines in 16 market areas.
The special charges also included the write-off of miscellaneous assets, a
litigation settlement and other costs. During the years ended December 31, 1997
and 1996, the beneficial effect of these charges approximated $25 million pretax
($17 million after tax or $.10 per diluted share) and $30 million pretax ($20
million after tax or $.12 per diluted share), respectively. These beneficial
effects consisted primarily of charges against liabilities for expected future
losses on insurance contracts and amounts related to foregone depreciation and
amortization on asset write-downs.
The second quarter special charges are presented in the accompanying
consolidated statements of income for the year ended December 31, 1996 as
follows: the provision for expected future losses on insurance contracts has
been included in medical costs ($105 million); asset write-downs, restructuring
costs, market closing and product discontinuance costs have been included in
asset write-downs and other special charges ($81 million); and litigation and
certain other costs have been included in selling, general and administrative
expenses ($14 million).
During the fourth quarter of 1996, the Company recognized an additional special
charge of $15 million pretax ($10 million after tax or $.06 per diluted share).
This charge included severance and facility costs related to planned workforce
reductions, scheduled to be completed throughout 1997. The fourth quarter
special charge
3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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Humana Inc.
has been included in the accompanying consolidated statements of income in asset
write-downs and other special charges.
For additional information, see Note 3 of Notes to Consolidated Financial
Statements.
COMPARISON OF RESULTS OF OPERATIONS
In order to enhance comparability, the following discussions comparing the
results for the years ended December 31, 1997, 1996 and 1995 exclude the impact
of the $215 million pretax ($140 million after tax or $.85 per diluted share)
asset write-downs and other special charges recorded in 1996, as previously
discussed.
Years Ended December 31, 1997 and 1996
Income before income taxes totaled $270 million for the year ended December 31,
1997, compared to $234 million for the year ended December 31, 1996, excluding
the aforementioned special charges. Net income, also excluding the special
charges, was $173 million or $1.05 per diluted share in 1997, compared to $152
million or $.92 per diluted share in 1996. The earnings increase was primarily
a result of increasing Commercial premium rates, an improvement in hospital
utilization and providing a full year of health care services under the TRICARE
contract, which commenced during the third quarter of 1996. These favorable
items were partially offset by higher than anticipated medical costs in the
Company's new Medicare risk markets and increased pharmacy costs system wide.
The aforementioned acquisitions of PCA and ChoiceCare did not significantly
impact 1997 earnings.
The Company's premium revenues increased 18 percent to $7.9 billion for the year
ended December 31, 1997, from $6.7 billion for the year ended December 31, 1996.
The premium revenue increase is primarily attributable to the full year impact
of the TRICARE contract, the acquisitions of PCA and ChoiceCare and increased
premium rates. TRICARE premium revenues totaled approximately $764 million for
the year ended December 31, 1997, compared to approximately $351 million for the
period July 1 through December 31, 1996. PCA and ChoiceCare premium revenues
totaled approximately $512 million since their dates of acquisition. Premium
rate changes contributed approximately $276 million to the 1997 premium
increase, as same-plan Commercial and Medicare risk premium rates increased 4.2
percent and 4.3 percent, respectively. For 1998, Commercial premium rates are
expected to increase approximately 4 to 5 percent, while Medicare risk premium
rates are expected to increase by approximately 2 percent. The changing
geographical mix of the Company's membership resulting from acquisitions and the
growth of the Medicare risk product in new markets will impact the Company's
1998 per member revenue trends.
Same-plan Medicare risk membership increased 65,800 or 19 percent in 1997. This
increase primarily resulted from sales in new Medicare risk markets and compares
to an increase of 54,100 or 17 percent in 1996. Offsetting this membership
increase were same-plan membership declines in the Company's fully insured
Commercial line of business. Reflecting the effects of a premium pricing
discipline begun during the second half of 1996 and intended to maintain
adequate profitability, same-plan membership in the Company's fully insured
Commercial products declined 62,500 or 2 percent, compared to a 75,300 or 3
percent decline in 1996. Commercial same-plan ASO membership increased 130,000
or 28 percent during 1997, compared to a 24,100 or 5 percent decline during
1996.
In addition to the changes in same-plan membership discussed above, the Health
Direct, PCA and ChoiceCare acquisitions added 673,000 Commercial members,
599,000 Medicaid members, 60,000 Medicare risk members and 63,000 ASO members.
Same-plan membership results also exclude the sale of the Washington, D.C.,
health plan and the Company's Alabama operations. As illustrated in the
following table, during 1997 the Company's total medical membership increased 28
percent to over 6.2 million members.
4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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Humana Inc.
Medical membership data at December 31, 1997 and 1996 follows:
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In thousands 1997 1996
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Beginning medical membership 4,851 3,804
Same-plan sales 828 783
Same-plan cancellations (729) (839)
Acquisitions 1,395 -
Dispositions (147) -
TRICARE 9 1,103
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Ending medical membership 6,207 4,851
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Management expects same-plan Commercial membership to increase at a low to mid
single digit rate during 1998, while Medicare risk membership is expected to
increase approximately 20 percent.
During 1997, the Company's medical loss ratio increased to 82.8 percent from
82.7 percent (excluding special charges) for the year ended December 31, 1996 as
a result of the PCA and ChoiceCare acquisitions. Excluding the effect of these
acquisitions, the Company's medical loss ratio improved to 82.4 percent,
reflecting the aforementioned premium rate increases, favorable physician cost
trends (compared to premium rate increases) in the Company's Commercial products
and an overall improvement in hospital utilization. These medical cost
improvements were partially offset by higher than anticipated medical costs in
the Company's new Medicare risk markets (where a large portion of Medicare risk
membership growth is taking place) and increased pharmacy costs system wide.
During 1998, the Company must experience medical cost improvements, particularly
in the Medicare risk product, to maintain its medical loss ratio.
The Company's administrative cost ratio was 15.5 percent and 15.3 percent
(excluding special charges) for the years ended December 31, 1997 and 1996,
respectively. Although investment spending in such areas as customer service,
information systems and Medicare risk product growth initiatives resulted in
this year-over-year increase, efforts to rationalize the Company's staffing
levels and streamline the organizational structure have resulted in sequential
quarterly improvements in the administrative cost ratio throughout 1997.
Continued improvement is expected in the administrative cost ratio in 1998.
Interest income totaled $131 million for the year ended December 31, 1997,
compared to $101 million for the year ended December 31, 1996. The increase is
primarily attributable to a larger investment portfolio resulting from the
addition of TRICARE, PCA and ChoiceCare. The tax equivalent yield on invested
assets approximated 7.5 percent and 8 percent for the years ended December 31,
1997 and 1996, 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 weighted average investment life decreased
to 2.6 years at December 31, 1997, from 3.1 years at December 31, 1996.
Years Ended December 31, 1996 and 1995
Income before income taxes, excluding the $215 million special charges, totaled
$234 million for the year ended December 31, 1996, compared to $288 million for
the year ended December 31, 1995. Net income, also excluding the special
charges, was $152 million or $.92 per diluted share in 1996, compared to $190
million or $1.16 per diluted share in 1995. The earnings decline was primarily
a result of increasing Commercial and Medicare risk medical costs in a period of
declining Commercial premium rates, partially offset by earnings from the
commencement of TRICARE operations.
The Company's premium revenues increased 46 percent to $6.7 billion for the year
ended December 31, 1996, from $4.6 billion for the year ended December 31, 1995.
The premium revenue increase is primarily attributable to the acquisition of
EMPHESYS Financial Group, Inc. ("EMPHESYS") in the fourth quarter of 1995 and
the commencement of health care services under the TRICARE contract during the
third quarter of 1996. EMPHESYS premium revenues totaled approximately $1.7
billion for the year ended December 31, 1996, compared to approximately $370
million for the period October 11 through December 31, 1995.
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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Humana Inc.
TRICARE premium revenues were approximately $351 million for the period July 1
through December 31, 1996. Premium rate changes also contributed approximately
$127 million to the 1996 premium increase as Commercial premium rates declined
0.6 percent and the Medicare risk premium rates increased 7.8 percent. In
addition, membership changes added approximately $260 million to 1996 premium
revenues.
The membership changes which positively impacted premium revenues included
Medicare risk membership growth and the beneficial effect on 1996 premium
revenues of 1995 Commercial membership growth, partially offset by 1996
Commercial membership declines. Membership in the Company's fully insured
Commercial products declined 75,300 or 3 percent during 1996, due to the closing
or sale of certain markets and the pricing of products at rates intended to
maintain adequate profitability. This decline compares to an increase
(excluding the EMPHESYS acquisition) of 276,900 or 19 percent for the year ended
December 31, 1995. Medicare risk membership increased, in both core and new
markets, by 54,100 or 17 percent for the year ended December 31, 1996, compared
to an increase of 23,000 or 8 percent in 1995. ASO membership declined 24,100
during 1996, compared to an increase of 184,700 during 1995.
Medical membership data at December 31, 1996 and 1995 follows:
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In thousands 1996 1995
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Beginning medical membership 3,804 2,041
Same-plan sales 783 739
Same-plan cancellations (839) (320)
Acquisitions - 1,344
TRICARE 1,103 -
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Ending medical membership 4,851 3,804
=============================================
The Company's medical loss ratio increased to 82.7 percent (excluding special
charges) for the year ended December 31, 1996, from 81.7 percent for the year
ended December 31, 1995. The increase in the medical loss ratio was due to
increased medical costs during a Commercial pricing environment which saw
premium rates decline 0.6 percent. Medical cost increases were most notable in
hospital outpatient, physician and pharmacy services in both the Commercial and
Medicare risk products. Partially offsetting these cost increases were
improvements in hospital inpatient utilization in both products.
The Company's administrative cost ratio was 15.3 percent (excluding special
charges) and 13.9 percent for the years ended December 31, 1996 and 1995,
respectively. The increase in the administrative cost ratio was the result of
higher administrative costs associated with both the EMPHESYS small-group and
TRICARE businesses. Excluding the effect of the EMPHESYS acquisition and the
addition of the TRICARE business, the Company's administrative cost ratio was
13.2 percent and 13.3 percent for the years ended December 31, 1996 and 1995,
respectively.
Interest income totaled $101 million for the year ended December 31, 1996,
compared to $87 million for the year ended December 31, 1995. The increase is
primarily attributable to a larger investment portfolio resulting from the
addition of EMPHESYS and TRICARE. The tax equivalent yield on invested assets
approximated 8 percent for the years ended December 31, 1996 and 1995. Tax
equivalent yield is the rate earned on invested assets, excluding unrealized
gains and losses, adjusted for the benefit of nontaxable investment income. The
weighted average investment life decreased to 3.1 years at December 31, 1996,
from 4.0 years at December 31, 1995.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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Humana Inc.
LIQUIDITY
Cash provided by the Company's operations totaled $289 million, $341 million and
$150 million for the years ended December 31, 1997, 1996 and 1995, respectively.
The 1997 decline in net cash provided by operations was due to changes in
operating assets and liabilities, the result of increased TRICARE premiums
receivable and more timely medical claim processing. The 1996 increase in
operating cash flows was primarily attributable to the timing of payments for
medical costs and other liabilities, due to the commencement of operations under
the TRICARE contract. Also impacting 1996 operating cash flows was a decrease
in net income.
Due in large part to the Company's 1997 acquisitions, cash used in investing
activities totaled $664 million in 1997, a $490 million increase over 1996.
Similarly, reflecting the debt incurred to fund such acquisitions (as discussed
below), cash provided by 1997 financing activities totaled $680 million,
compared to a $27 million net use of cash in 1996.
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 of the subsidiaries' ability to obtain regulatory
approval to pay dividends.
In August 1997, the Company entered into a five-year revolving credit agreement
("Credit Agreement") which provides a line of credit of up to $1.5 billion. The
Credit Agreement replaced an existing $600 million revolving line of credit.
Principal amounts outstanding under the Credit Agreement bear interest at rates
ranging from LIBOR plus 12 basis points to LIBOR plus 30 basis points, depending
on the ratio of debt to debt plus net worth. The Credit Agreement, under which
$300 million was outstanding at December 31, 1997 bearing interest at a rate of
6.2 percent, contains customary covenants and events of default.
The Company also maintains a commercial paper program and issues debt securities
thereunder. At December 31, 1997 and 1996, borrowings under the commercial
paper program totaled approximately $589 million and $222 million, respectively.
The average interest rate for 1997 and 1996 borrowings was 5.9 percent and 5.6
percent, respectively. The commercial paper program is backed by the Credit
Agreement. Borrowings under both the Credit Agreement and commercial paper
program have been classified as long-term debt based on management's ability and
intent to refinance borrowings on a long-term basis.
Management believes that existing working capital, future operating cash flows
and funds available under the existing revolving Credit Agreement and commercial
paper program are sufficient to meet future liquidity needs. Management also
believes the aforementioned sources of funds are adequate to allow the Company
to pursue strategic acquisition and expansion opportunities, as well as to fund
capital requirements.
RISK SENSITIVE FINANCIAL INSTRUMENTS AND POSITIONS
The Company's risk of fluctuation in earnings due to changes in interest income
from its fixed income portfolio is partially mitigated by the Company's long-
term debt position, as well as the short duration of the fixed income portfolio.
The Company has evaluated the interest income and debt expense impact resulting
from a hypothetical change in interest rates of 100, 200 and 300 basis points
over the next 12-month period, as reflected in the table below. In the past 10
years, annual changes in commercial paper rates have equaled or exceeded 300
basis points one time, were between 200 and 300 basis points two times, and were
between 100 and 200 basis points two times. The modeling technique used to
calculate the pro forma net change considered the cash flows related to fixed
income investments and debt which are subject to interest rate changes during a
prospective 12-month period.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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Humana Inc.
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Increase (decrease) in earnings Increase (decrease) in earnings
given an interest rate given an interest rate
Dollars in millions decrease of X basis points increase of X basis points
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(300) (200) (100) 100 200 300
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Fixed income portfolio $(15.1) $(10.0) $(5.0) $ 4.9 $ 9.9 $ 14.8
Long-term debt 12.3 8.2 4.1 (4.1) (8.2) (12.3)
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Total $ (2.8) $ (1.8) $ (.9) $ .8 $ 1.7 $ 2.5
=============================================================================================================
The following table presents the hypothetical change in fair market values of
common equity securities held by the Company at December 31, 1997 which are
sensitive to changes in stock market values. These common equity securities are
held for purposes other than trading.
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Decrease in Increase in
valuation of security Fair value valuation of security
given an X% decrease in as of given an X% increase in
Dollars in millions each equity security's value December 31, 1997 each equity security's value
- ---------------------------------------------------------------------------------------------------------------
(30%) (20%) (10%) 10% 20% 30%
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Common equity securities $(15.5) $(10.4) $(5.2) $51.8 $5.2 $10.4 $15.5
===============================================================================================================
Changes in equity valuations (based upon the Standard & Poor's 500 stock index)
over the past 10 years which were in excess of 30 percent occurred two times,
between 20 percent and 30 percent occurred three times, and between 10 percent
and 20 percent occurred one time.
CAPITAL RESOURCES
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 information systems necessary for
activities such as claims processing, billing and collections, medical
utilization review and customer service. Total capital expenditures, excluding
acquisitions, were $73 million, $72 million and $54 million for the years ended
December 31, 1997, 1996 and 1995, respectively.
Excluding acquisitions, planned capital spending in 1998 will approximate $70 to
$80 million for the expansion and improvement of medical care facilities,
administrative facilities and related information systems.
EFFECTS OF INFLATION AND CHANGING PRICES
The Company's operations are regulated by various state and federal government
agencies. Actuarially determined premium rate increases for Commercial and
Medicare supplement products are generally approved by the respective state
insurance commissioners, while increases in premiums for Medicare risk products
are established and implemented by the Health Care Financing Administration.
The Company's 1998 average rate of statutory increase under the Medicare risk
contracts is approximately 2 percent. Over the last five years, annual increases
have ranged from as low as the January 1998 increase of 2 percent to as high as
9 percent in January 1996, with an average of approximately 5 percent. 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. Current
legislative proposals are being considered which include modification of future
reimbursement rates under the Medicare program and which encourage the use of
managed health care for Medicare beneficiaries. Management is
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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Humana Inc.
unable to predict the outcome of these proposals or the impact they may have on
the Company's financial position, results of operations or cash flows. The
Company also maintains annual contracts with various states and a two-year
contract with the Commonwealth of Puerto Rico, expiring March 31, 1999, to
provide health care to Medicaid-eligible individuals. Additionally, the
Company's TRICARE contract is a one-year contract renewable annually for up to
three additional years. The loss of these contracts or significant changes in
these programs as a result of legislative action, 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.
During the years ended December 31, 1997, 1996 and 1995, combined premium
revenues from the Company's Medicare risk, Medicaid and TRICARE lines of
business represented approximately 43 percent, 35 percent and 35 percent,
respectively, of total premium revenues.
IMPACT OF THE YEAR 2000 ISSUE
The Company has conducted an assessment of its computer systems to identify the
systems that could be affected by the "Year 2000" issue, which results from
computer programs having been written to define the applicable year using two
digits rather than four digits. The Company believes that, with modifications
to existing software, the Year 2000 issue will not pose significant operational
problems for its computer system as so modified. The Company plans to complete
the majority of the Year 2000 modifications by December 31, 1998. At present,
the Company anticipates that the incremental costs incurred in connection with
the Year 2000 project will approximate $12 to $15 million.
The costs of the project and the date on which the Company plans to complete the
necessary Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events including the
continued availability of certain resources and other factors. However, there
can be no guarantee that these estimates will be achieved and actual results
could differ materially from those plans. Specific factors that might cause
such material differences include, but are not limited to, the availability and
cost of personnel trained in this area, the ability to locate and correct all
relevant computer codes, the ability of the Company's significant suppliers,
customers and others with which it conducts business to identify and resolve
their own Year 2000 issues and similar uncertainties.
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS No. 130"). SFAS No. 130 establishes standards for reporting and display
of comprehensive income and its components in the financial statements.
Comprehensive income is defined as all changes in equity during a period except
those resulting from investments by owners and distribution to owners. This
statement is effective for periods beginning after December 15, 1997. Given
that the components required to be included in comprehensive income are
currently presented in the Company's consolidated financial statements, adoption
of SFAS No. 130 will have little impact on the Company.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"). SFAS No. 131 requires, if certain quantitative thresholds are
met, public companies to report separate financial information about operating
segments, as well as certain information about their products and services, the
geographic areas in which they operate and their major customers. This statement
is effective for financial statements for fiscal years beginning after December
15, 1997. The Company is continuing to assess the disclosure impacts of
adopting SFAS No. 131.
OTHER INFORMATION
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 the Company's financial position, results of
operations or cash flows.
9
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
Humana Inc.
Dollars in millions, except per share amounts
- -------------------------------------------------------------------------------
December 31, 1997 1996
- -------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 627 $ 322
Marketable securities 1,507 1,262
Premiums receivable, less allowance for doubtful
accounts of $48 in 1997 and $38 in 1996 351 211
Deferred income taxes 34 94
Other 231 113
- -------------------------------------------------------------------------------
Total current assets 2,750 2,002
- -------------------------------------------------------------------------------
Property and equipment, net 420 371
Other assets:
Long-term marketable securities 512 143
Cost in excess of net assets acquired 1,224 488
Deferred income taxes 160 17
Other 352 132
- -------------------------------------------------------------------------------
Total other assets 2,248 780
- -------------------------------------------------------------------------------
Total Assets $5,418 $3,153
===============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Medical and other costs payable $1,478 $1,099
Trade accounts payable and accrued expenses 471 333
Unearned premium revenues 304 36
Income taxes payable 10 32
- -------------------------------------------------------------------------------
Total current liabilities 2,263 1,500
Long-term medical and other costs payable 597 -
Long-term debt 889 225
Professional liability and other obligations 168 136
- -------------------------------------------------------------------------------
Total liabilities 3,917 1,861
- -------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1 par; authorized 10,000,000
shares; none issued - -
Common stock, $.16 2/3 par; authorized 300,000,000
shares; issued and outstanding 164,058,225 shares -
1997 and 162,681,123 shares - 1996 27 27
Capital in excess of par value 841 822
Retained earnings 624 451
Net unrealized investment gains (losses) 9 (8)
- -------------------------------------------------------------------------------
Total stockholders' equity 1,501 1,292
- --------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $5,418 $3,153
================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
10
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
Humana Inc.
Dollars in millions, except per share results
- --------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
Revenues:
Premiums $7,880 $6,677 $4,605
Interest and other income 156 111 97
- --------------------------------------------------------------------------------
Total revenues 8,036 6,788 4,702
- --------------------------------------------------------------------------------
Operating expenses:
Medical costs 6,522 5,625 3,762
Selling, general and administrative 1,116 940 571
Depreciation and amortization 108 98 70
Asset write-downs and other special charges - 96 -
- --------------------------------------------------------------------------------
Total operating expenses 7,746 6,759 4,403
- --------------------------------------------------------------------------------
Income from operations 290 29 299
Interest expense 20 11 11
- -------------------------------------------------------------------------------
Income before income taxes 270 18 288
Provision for income taxes 97 6 98
- --------------------------------------------------------------------------------
Net income $ 173 $ 12 $ 190
================================================================================
Earnings per common share $1.06 $ .07 $ 1.17
================================================================================
Earnings per common share - assuming dilution $1.05 $ .07 $ 1.16
================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
11
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Humana Inc.
In millions
- -------------------------------------------------------------------------------------------------------------------
Common Stock Capital In Net Unrealized Total
----------------- Excess of Retained Investment Stockholders'
Shares Amount Par Value Earnings Gains (Losses) Equity
- -------------------------------------------------------------------------------------------------------------------
Balances, January 1, 1995 161 $27 $803 $249 $(21) $1,058
Net income - - 190 - 190
Other 1 - 12 - 27 39
- -------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1995 162 27 815 439 6 1,287
Net income - - 12 - 12
Other 1 - 7 - (14) (7)
- -------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1996 163 27 822 451 (8) 1,292
NET INCOME - - 173 - 173
OTHER 1 - 19 - 17 36
- -------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1997 164 $27 $841 $624 $ 9 $1,501
===================================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
12
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
Humana Inc.
Dollars in millions
- --------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 173 $ 12 $ 190
Adjustments to reconcile net income
to net cash provided by operating activities:
Asset write-downs - 70 -
Depreciation and amortization 108 98 70
Deferred income taxes 40 (25) 13
Changes in operating assets and liabilities:
Premiums receivable (102) (81) (27)
Other assets (47) (31) (4)
Medical and other costs payable (149) 215 (9)
Other liabilities 57 84 (78)
Unearned premium revenues 203 (3) (5)
Other 6 2 -
- --------------------------------------------------------------------------------
Net cash provided by operating activities 289 341 150
- --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of health plan assets (669) (6) (697)
Purchases of property and equipment (73) (72) (54)
Dispositions of property and equipment 15 5 5
Purchases of marketable securities (608) (440) (402)
Maturities and sales of marketable securities 648 356 731
Other 23 (17) (33)
- --------------------------------------------------------------------------------
Net cash used in investing activities (664) (174) (450)
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt 300 - 250
Repayment of long-term debt - (250) (51)
Net commercial paper borrowings 367 222 -
Other 13 1 11
- --------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 680 (27) 210
- --------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 305 140 (90)
Cash and cash equivalents at beginning of period 322 182 272
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of period $627 $322 $182
================================================================================
Interest payments, net $ 15 $ 11 $ 12
Income tax payments, net 8 39 94
The accompanying notes are an integral part of the consolidated financial
statements.
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Humana Inc.
1. REPORTING ENTITY
Nature of Operations
Humana Inc. (the "Company") offers managed health care products that integrate
medical management with the delivery of health care services through a network
of providers. This network of providers may share financial risk or have
incentives to deliver quality medical services in a cost-effective manner.
These products are marketed primarily through health maintenance organizations
("HMOs") and preferred provider organizations ("PPOs") that encourage or require
the use of contracting providers. HMOs and PPOs control health care costs by
various means, including pre-admission approval for hospital inpatient services
and pre-authorization of outpatient surgical procedures. The Company also
offers various specialty and administrative service products including dental,
group life and workers' compensation.
The Company's HMO and PPO products are marketed primarily to employer and other
groups ("Commercial") as well as Medicare- and Medicaid-eligible individuals.
The products marketed to Medicare-eligible individuals are either HMO products
("Medicare risk") or indemnity insurance policies that supplement Medicare
benefits ("Medicare supplement"). The Medicare risk product provides managed
care services that include all Medicare benefits and, in certain circumstances,
additional managed care services. In addition, the Company maintains annual
contracts with various states and a two-year contract with the Commonwealth of
Puerto Rico, expiring March 31, 1999, to provide health care to Medicaid-
eligible individuals. The Company also offers administrative services ("ASO")
to employers who self-insure their employee health plans. The Company's
products are licensed in 47 states, the District of Columbia and Puerto Rico,
with approximately 23 percent of its membership in the state of Florida.
On July 1, 1996, the Company began providing managed health care services to
approximately 1.1 million eligible beneficiaries under a contract with the
United States Department of Defense under the TRICARE program (formerly the
Civilian Health and Medical Program of the Uniformed Services). The government
exercised its option to extend the contract for one year effective July 1, 1997.
Under the TRICARE contract, which is renewable annually for up to three
additional years, the Company provides managed care services to the
beneficiaries of active military personnel and retired military personnel and
their beneficiaries located in the southeastern United States. The Company has
subcontracted with third parties to provide certain administration and specialty
services under the contract. Three health benefit options are available to
TRICARE beneficiaries. In addition to a traditional indemnity option,
participants may enroll in an HMO-like plan with a point-of-service option or
take advantage of reduced co-payments by using a network of preferred providers.
During the years ended December 31, 1997, 1996 and 1995, premium revenues from
the Company's Medicare risk, Medicaid and TRICARE lines of business represented
approximately 43 percent, 35 percent and 35 percent, respectively, of total
premium revenues.
Basis of Presentation
The preparation of the Company's consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect (a) the reported amounts of assets and
liabilities, (b) disclosure of contingent assets and liabilities at the date of
the financial statements and (c) reported amounts of revenues and expenditures
during the reporting period. Actual results could differ from those estimates.
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.
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Humana Inc.
Cash and Cash Equivalents
Cash and cash equivalents include cash, time deposits, money market funds,
commercial paper and certain U.S. Government securities with an original
maturity of three months or less. Carrying value approximates fair value due to
the short-term maturities of the investments.
Marketable Securities
At December 31, 1997 and 1996, marketable debt and equity securities have been
categorized as available for sale and, as a result, are stated at fair value
based generally on quoted market prices. Commercial mortgage loans are carried
at cost. Marketable debt and equity securities available for current operations
are classified as current assets. Marketable securities available for the
Company's capital spending, professional liability, long-term insurance product
requirements and payment of long-term workers' compensation claims are
classified as long-term assets. Unrealized holding gains and losses, net of
applicable deferred taxes, are included as a component of stockholders' equity
until realized.
For the purpose of determining gross realized gains and losses, the cost of
securities sold is based upon specific identification.
Property and Equipment
Property and equipment is carried at cost and comprises the following at
December 31, 1997 and 1996:
- -----------------------------------------
Dollars in millions 1997 1996
- -----------------------------------------
Land $ 33 $ 33
Buildings 302 278
Equipment 393 370
- -----------------------------------------
728 681
Accumulated depreciation (308) (310)
- -----------------------------------------
$ 420 $ 371
=========================================
Depreciation is computed using the straight-line method over estimated useful
lives ranging from three to 10 years for equipment and 20 years for buildings.
Depreciation expense was $66 million, $59 million and $50 million for the years
ended December 31, 1997, 1996 and 1995, respectively.
Cost in Excess of Net Assets Acquired
Cost in excess of net assets acquired represents the unamortized excess of cost
over the fair value of tangible and identifiable intangible assets acquired and
is being amortized on a straight-line basis over varying periods not exceeding
40 years. The carrying values of all intangible assets are periodically reviewed
by management and impairments are recognized when the expected undiscounted
future operating cash flows derived from operations associated with such
intangible assets are less than their carrying value. Accumulated amortization
totaled $37 million and $18 million at December 31, 1997 and 1996, respectively.
Revenue and Medical Cost Recognition
Premium revenues are recognized as income in the period members are entitled to
receive services. Premiums received prior to such periods are recorded as
unearned premium revenues.
Medical costs include claim payments, capitation payments, physician salaries
and various other costs incurred to provide medical care to members, as well as
estimates of future payments to hospitals and others for medical care provided
prior to the balance sheet date. Capitation payments represent monthly prepaid
fees disbursed to participating primary care physicians and other providers who
are responsible for providing medical care to members. The estimates of future
medical claim payments are developed using actuarial methods and assumptions
based upon payment patterns, medical inflation, historical development and other
relevant factors. Estimates of future payments relating to services incurred in
the current and prior periods are continually reviewed by management and
adjusted as necessary. Management believes the Company's medical and other
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Humana Inc.
costs payable are adequate to cover future claims payments required; however,
such estimates are subject to changes in assumptions, and, therefore, the actual
liability could differ from amounts provided.
Stock Options
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123") and continues to apply Accounting Principles Board Opinion No. 25 and
related interpretations in the accounting for its stock option plans. No
compensation expense has been recognized in connection with the granting of
stock options. See Note 8 for discussion of stock options and the disclosures
required by SFAS No. 123.
Earnings Per Common Share
The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128") which
specifies the computation, presentation and disclosure requirements for earnings
per share effective for periods ending after December 15, 1997. In accordance
with SFAS No. 128, all prior-period earnings per share data have been restated.
Detail supporting the computation of earnings per common share and earnings per
common share-assuming dilution follows:
Dollars in millions, except per share results
- -----------------------------------------------------------------------------------
Per Share
Year Ended December 31, 1997 Net Income Shares Results
- -----------------------------------------------------------------------------------
Earnings per common share $ 173 163,406,460 $1.06
Effect of dilutive stock options 2,436,019
Earnings per common share - assuming dilution $ 173 165,842,479 $1.05
- -----------------------------------------------------------------------------------
Year Ended December 31, 1996
- -----------------------------------------------------------------------------------
Earnings per common share $ 12 162,531,524 $ .07
Effect of dilutive stock options 2,747,294
Earnings per common share - assuming dilution $ 12 165,278,818 $ .07
- -----------------------------------------------------------------------------------
Year Ended December 31, 1995
- -----------------------------------------------------------------------------------
Earnings per common share $ 190 162,268,815 $1.17
Effect of dilutive stock options 2,325,637
Earnings per common share - assuming dilution $ 190 164,594,452 $1.16
- -----------------------------------------------------------------------------------
Options to purchase 2,414,148, 1,580,891 and 1,229,500 shares for the years
ended December 31, 1997, 1996 and 1995, respectively, were not included in the
computation of earnings per common share-assuming dilution because the options'
exercise prices were greater than the average market price of the common shares.
Reclassifications
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform with the current year presentation.
3. SPECIAL CHARGES
During the second quarter of 1996, the Company recognized special charges of
$200 million pretax ($130 million after tax or $.79 per diluted share). The
second quarter special charges included provisions for expected future losses on
insurance contracts ($105 million) as well as an estimate of the costs to be
incurred
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Humana Inc.
in restructuring the Washington, D.C., health plan (which was sold January 31,
1997; see below) and closing markets or discontinuing product lines in 16 market
areas. The special charges also included the write-off of miscellaneous assets,
a litigation settlement and other costs.
The 1996 special charges included $70 million of asset write-downs related to
long-lived assets, primarily associated with the Company's Washington, D.C.,
health plan. In accordance with Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," the Company conducted a review of the carrying value
of its Washington, D.C., health plan's long-lived assets. This review was
initiated because the health plan was experiencing significant operating losses.
A forecast of expected undiscounted future cash flows was prepared to determine
whether an impairment existed and fair values were used to measure the amount of
the impairment. As a result of the review, the Washington, D.C., health plan's
long-lived assets were written down to their estimated fair value.
The second quarter special charges have been included in the accompanying
consolidated statement of income for the year ended December 31, 1996 as
follows: the provision for expected future losses on insurance contracts has
been included in medical costs ($105 million); asset write-downs, restructuring
costs, market closing and product discontinuance costs have been included in
asset write-downs and other special charges ($81 million); and litigation and
certain other costs have been included in selling, general and administrative
expenses ($14 million).
During the fourth quarter of 1996, the Company recognized an additional special
charge of $15 million pretax ($10 million after tax or $.06 per diluted share).
This charge included severance and facility costs related to planned workforce
reductions, scheduled to be completed throughout 1997. The fourth quarter
special charge has been included in the accompanying consolidated statement of
income in asset write-downs and other special charges.
The components and usage of the 1996 special charges follows:
- --------------------------------------------------------------------------------------
Liability For Asset
Expected Future Write-downs &
Losses On Workforce
Dollars in millions Insurance Contracts Reductions Other Total
- --------------------------------------------------------------------------------------
Provision for special charges $105 $ 96 $ 14 $215
1996 usage (cash) (30) (11) (10) (51)
1996 usage (non-cash) - (70) - (70)
- --------------------------------------------------------------------------------------
Balances at December 31, 1996 75 15 4 94
1997 usage (cash) (59) (12) (1) (72)
- --------------------------------------------------------------------------------------
Balances at December 31, 1997 $ 16 $ 3 $ 3 $ 22
======================================================================================
On January 31, 1997, the Company completed the sale of its Washington, D.C.,
health plan to Kaiser Foundation Health Plan of the Mid-Atlantic States, Inc.
Effective April 1, 1997, the Company also completed the sale of its Alabama
operations, exclusive of its small group business and Alabama TRICARE
operations, to PrimeHealth of Alabama, Inc. These sale transactions did not
have a material impact on the Company's financial position, results of
operations or cash flows.
At December 31, 1997 and 1996, there were additional liabilities totaling
approximately $46 million and $50 million, respectively, included in the
accompanying consolidated balance sheets, primarily related to contract
disputes. This liability was originally recognized in August 1992. Management
regularly evaluates the continued reasonableness of this liability, as well as
the 1996 special charges, and to the extent adjustments are necessary, current
earnings are charged or credited.
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Humana Inc.
4. MARKETABLE SECURITIES
Marketable securities classified as current assets at December 31, 1997 and 1996
included the following:
- -----------------------------------------------------------------------------------------------------------------------
1997 1996
----------------------------------------- -------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Dollars in millions Cost Gains Losses Value Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------------
U.S. Government obligations $ 178 $ 1 $ - $ 179 $ 68 $ - $ (1) $ 67
Tax exempt municipal bonds 723 5 (2) 726 613 3 (6) 610
Corporate bonds 282 6 - 288 313 1 (3) 311
Redeemable preferred stocks 113 1 (2) 112 117 - (1) 116
Collateralized mortgage
obligations 35 1 - 36 54 1 - 55
Marketable equity securities 114 5 (1) 118 79 2 (3) 78
Other 45 3 - 48 22 6 (3) 25
- -----------------------------------------------------------------------------------------------------------------------
$1,490 $22 $(5) $1,507 $1,266 $13 $(17) $1,262
=======================================================================================================================
Marketable securities classified as long-term assets at December 31, 1997 and
1996 included the following:
- -----------------------------------------------------------------------------------------------------------------------
1997 1996
----------------------------------------- --------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Dollars in millions Cost Gains Losses Value Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------------
U.S. Government obligations $146 $ - $ - $ 146 $ 3 $ - $ - $ 3
Tax exempt municipal bonds 284 3 (2) 285 77 - (1) 76
Redeemable preferred stocks 16 - - 16 9 - - 9
Marketable equity securities 19 1 - 20 5 - - 5
Other 45 - - 45 49 1 - 50
- -----------------------------------------------------------------------------------------------------------------------
$510 $ 4 $(2) $ 512 $143 $ 1 $(1) $143
=======================================================================================================================
The contractual maturities of debt securities available for sale at December 31,
1997, regardless of their balance sheet classification, are shown below.
Expected maturities may differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or prepayment
penalties.
- -----------------------------------------------------------------------------------------------------------------------
Amortized Fair
Dollars in millions Cost Value
- -----------------------------------------------------------------------------------------------------------------------
Due within one year $ 330 $ 332
Due after one year through five years 685 680
Due after five years through ten years 328 335
Due after ten years 145 153
Not due at a single maturity date 379 381
- -----------------------------------------------------------------------------------------------------------------------
$1,867 $1,881
=======================================================================================================================
Gross realized gains and losses for the years ended December 31, 1997, 1996 and
1995 were immaterial.
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Humana Inc.
5. INCOME TAXES
The provision for income taxes consisted of the following:
Years Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------
Dollars in millions 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
Current provision:
Federal $ 51 $ 30 $ 78
State 6 1 7
- -----------------------------------------------------------------------------------------------------------------------
57 31 85
- -----------------------------------------------------------------------------------------------------------------------
Deferred provision (benefit):
Federal 36 (23) 11
State 4 (2) 2
- -----------------------------------------------------------------------------------------------------------------------
40 (25) 13
- -----------------------------------------------------------------------------------------------------------------------
$ 97 $ 6 $ 98
=======================================================================================================================
The provision for income taxes was different from the amount computed using the
federal statutory income tax rate due to the following:
Years Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------
Dollars in millions 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
Income tax provision at federal statutory rate $ 95 $ 6 $ 101
State income taxes, net of federal benefit 10 1 7
Tax exempt investment income (13) (12) (12)
Amortization 10 12 6
Other items, net (5) (1) (4)
- -----------------------------------------------------------------------------------------------------------------------
$ 97 $ 6 $ 98
=======================================================================================================================
Cumulative temporary differences which gave rise to deferred tax assets and
liabilities at December 31, 1997 and 1996 were as follows:
Assets (Liabilities)
- -----------------------------------------------------------------------------------------------------------------------
Dollars in millions 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
Marketable securities $ (6) $ 2
Long-term assets (42) (41)
Medical and other costs payable 126 28
Liabilities for special charges 14 46
Professional liability risks 41 34
Other 61 42
- -----------------------------------------------------------------------------------------------------------------------
$ 194 $ 111
=======================================================================================================================
Management believes that the deferred tax assets are realizable based primarily
on the existence of taxable income within the allowable carryback periods.
During 1995, the Company made a $30 million payment to the IRS to stop the
accrual of interest expense and resolve disputed amounts related to tax periods
September 1, 1991 through December 31, 1993.
At December 31, 1997, the Company has available tax net operating loss
carryforwards of approximately $69 million related to prior acquisitions. These
loss carryforwards, if unused to offset future taxable income of the acquired
subsidiaries, will expire in 2002 through 2011.
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Humana Inc.
6. LONG-TERM DEBT
In August 1997, the Company entered into a five-year revolving credit agreement
("Credit Agreement") which provides a line of credit of up to $1.5 billion. The
Credit Agreement replaced an existing $600 million revolving line of credit,
under which there were no outstanding borrowings at December 31, 1996.
Principal amounts outstanding under the Credit Agreement bear interest at rates
ranging from LIBOR plus 12 basis points to LIBOR plus 30 basis points, depending
on the ratio of debt to debt plus net worth. The Credit Agreement, under which
$300 million was outstanding at December 31, 1997 bearing interest at a rate of
6.2 percent, contains customary covenants and events of default.
The Company also maintains a commercial paper program and issues debt securities
thereunder. At December 31, 1997 and 1996, borrowings under the commercial
paper program totaled approximately $589 million and $222 million, respectively.
The average interest rate for 1997 and 1996 borrowings was 5.9 percent and 5.6
percent, respectively. The commercial paper program is backed by the Credit
Agreement.
Borrowings under both the Credit Agreement and commercial paper program have
been classified as long-term debt based on management's ability and intent to
refinance borrowings on a long-term basis.
7. PROFESSIONAL LIABILITY AND OTHER OBLIGATIONS
The Company insures substantially all professional liability risks through a
wholly-owned subsidiary (the "Subsidiary"). Provisions for such risks, including
expenses incident to claim settlements, were $32 million, $31 million and $27
million for the years ended December 31, 1997, 1996 and 1995, respectively. The
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 sheets were $111
million and $95 million at December 31, 1997 and 1996, respectively.
In addition to the long-term portion of the allowance for professional liability
risks, professional liability and other obligations in the accompanying
consolidated balance sheets consist primarily of liabilities for disability and
other long-term insurance products and the Company's employee retirement and
benefit plans. These liabilities totaled $57 million and $61 million at
December 31, 1997 and 1996, respectively.
8. STOCKHOLDERS' EQUITY
As a result of state regulatory requirements, the Company must maintain certain
levels of capital in its licensed subsidiaries. The Company's ability to make
use of the capital of its subsidiaries is subject to these restrictions, as well
as regulatory approval.
In 1987, the Company adopted, and in 1996 amended, a stockholders' rights plan
designed to deter takeover initiatives not considered to be in the best
interests of the Company's stockholders. The rights are redeemable by action of
the Company's Board of Directors at a price of $.01 per right at any time prior
to their becoming exercisable. Pursuant to the plan, under certain conditions,
each share of stock has a right to acquire 1/100th of a share of Series A
Participating Preferred Stock at a price of $145 per share. The plan expires in
2006.
The Company has plans under which options to purchase common stock have been
granted to officers, directors and key employees. Options are granted at the
market price on the date of grant. Exercise provisions vary, but most options
vest in whole or in part one to five years after grant and expire 10 years after
grant. At December 31, 1997, there were 14,870,811 shares reserved for employee
and director stock option plans. At December 31, 1997, there were 1,825,166
shares of common stock available for future grants. In January 1998, a total of
1,714,350 options were granted.
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Humana Inc.
The Company's option plan activity for the years ended December 31, 1997, 1996
and 1995 is summarized below:
- ---------------------------------------------------------------------------------------------------------------------------
Weighted
Shares Exercise Price Average
Under Option Per Share Exercise Price
- ---------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1995 7,670,201 $ 4.32 to $17.94 $ 7.75
Granted 3,107,000 18.94 to 23.06 22.84
Exercised (751,096) 4.32 to 11.90 8.35
Canceled or lapsed (190,250) 6.56 to 23.06 13.11
- ---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 9,835,855 4.32 to 23.06 12.37
Granted 1,888,500 15.63 to 27.56 19.74
Exercised (454,044) 4.32 to 23.06 8.11
Canceled or lapsed (348,424) 6.56 to 27.56 15.87
- ---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 10,921,887 4.32 to 26.94 13.71
Granted 2,819,000 18.31 to 23.69 19.79
Exercised (1,247,793) 4.32 to 23.06 8.67
Canceled or lapsed (270,830) 6.56 to 23.06 17.32
- ---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 12,222,264 $ 5.80 to $26.94 $15.54
===========================================================================================================================
A summary of stock options outstanding and exercisable at December 31, 1997
follows:
- ---------------------------------------------------------------------------------------------------------------------------
Stock Options Outstanding Stock Options Exercisable
- ---------------------------------------------------------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Contractual Exercise Exercise
Exercise Prices Shares Life Price Shares Price
- ---------------------------------------------------------------------------------------------------------------------------
$ 5.80 to $ 6.87 3,462,410 3.9 years $ 6.56 2,669,910 $ 6.56
8.00 to 9.64 1,031,307 4.9 years 8.18 720,932 8.26
10.54 to 14.44 174,350 3.3 years 11.23 171,100 11.24
15.63 to 18.94 2,626,833 8.6 years 18.38 266,672 17.21
19.19 to 22.97 2,329,700 8.7 years 20.54 790,094 19.89
23.06 to 26.94 2,597,664 6.4 years 23.39 1,597,068 23.24
- ---------------------------------------------------------------------------------------------------------------------------
$ 5.80 to $26.94 12,222,264 6.4 years $15.54 6,215,776 $13.32
============================================================================================================================
As of December 31, 1996 and 1995, there were 4,786,969 and 2,079,980 options
exercisable, respectively. The weighted average exercise price of options
exercisable during 1996 and 1995 was $11.05 and $7.51, respectively.
If the Company had adopted the expense recognition provisions of SFAS No. 123
for purposes of determining compensation expense related to stock options
granted during the years ended December 31, 1997, 1996 and 1995, net income and
earnings per common share would have been changed to the pro forma amounts shown
below:
Years Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------
Dollars in millions, except per share results 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
Net income As reported $ 173 $ 12 $ 190
Pro forma 159 4 181
- ---------------------------------------------------------------------------------------------------------------------------
Earnings per common share As reported $1.06 $ .07 $1.17
Pro forma .97 .02 1.11
- ---------------------------------------------------------------------------------------------------------------------------
Earnings per common share - As reported $1.05 $ .07 $1.16
assuming dilution Pro forma .96 .02 1.10
- ---------------------------------------------------------------------------------------------------------------------------
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Humana Inc.
The fair value of each option granted during 1997, 1996 and 1995 was estimated
on the date of grant using an option-pricing model (Black-Scholes) with the
following weighted average assumptions:
- --------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
Dividend yield None None None
Expected volatility 38.5% 40.2% 40.2%
Risk-free interest rate 6.1% 7.0% 7.0%
Expected option life (years) 5.4 5.8 5.8
Weighted average fair value at grant date $8.88 $8.92 $9.57
- --------------------------------------------------------------------------------
The effects of applying SFAS No. 123 in the pro forma disclosures are not likely
to be representative of the effects on pro forma net income for future years
because variables such as option grants, exercises and stock price volatility
included in the disclosures may not be indicative of future activity.
9. COMMITMENTS AND CONTINGENCIES
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.
Current legislative proposals are being considered which include modification of
future reimbursement rates under the Medicare program and which encourage the
use of managed health care for Medicare beneficiaries. Management is unable to
predict the outcome of these proposals or the impact they may have on the
Company's financial position, results of operations or cash flows. The Company
also maintains annual contracts with various states and a two-year contract with
the Commonwealth of Puerto Rico, expiring March 31, 1999, to provide health care
to Medicaid-eligible individuals. Additionally, the Company's TRICARE contract
is a one-year contract renewable annually for up to three additional years. The
loss of these contracts or significant changes in these programs as a result of
legislative action, 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.
During the ordinary course of business, the Company is subject to pending and
threatened legal actions. Management of the Company does not believe that any
of these actions will have a material adverse effect on the Company's financial
position, results of operations or cash flows.
10. ACQUISITIONS
On October 17, 1997, the Company acquired ChoiceCare Corporation ("ChoiceCare")
for approximately $250 million in cash. The purchase was funded with borrowings
under the Company's commercial paper program. ChoiceCare provides health
services products to approximately 250,000 medical members in the Greater
Cincinnati, Ohio, area.
On September 8, 1997, the Company acquired Physician Corporation of America
("PCA") for total consideration of $411 million in cash, consisting primarily of
$7 per share for PCA's outstanding common stock and the assumption of $121
million in debt. The purchase was funded with borrowings under the Company's
commercial paper program. PCA serves approximately 1.1 million medical members
and provides comprehensive health services through its HMOs in Florida, Texas
and Puerto Rico. In addition, PCA provides workers' compensation third-party
administrative management services. Prior to November 1996, PCA also was a
direct writer of workers' compensation insurance in Florida. Long-term medical
and other costs payable in the accompanying consolidated balance sheets
includes the long-term portion of workers' compensation liabilities related to
this business.
On February 28, 1997, the Company acquired Health Direct, Inc. ("Health Direct")
from Advocate Health Care for $23 million in cash. This transaction added
approximately 50,000 medical members to the Company's Chicago, Illinois,
membership.
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Humana Inc.
On October 11, 1995, the Company acquired EMPHESYS Financial Group, Inc.
("EMPHESYS") for a total purchase price of approximately $650 million. The
purchase was funded though available cash of $400 million and bank borrowings of
$250 million under the Company's revolving line of credit in existence at that
time. On November 30, 1995, the Company acquired certain primary care centers
in South Florida and Tampa previously owned by Coastal Physician Group, Inc. for
approximately $50 million.
The above acquisitions, and certain other minor acquisitions, were accounted for
under the purchase method of accounting. In connection with these acquisitions,
the Company allocated the acquisition costs to tangible and identifiable
intangible assets based upon their fair values. Identifiable intangible assets,
which are included in other long-term assets in the accompanying consolidated
balance sheets, include subscriber and provider contracts and, at December 31,
1997 and 1996, totaled $93 million and $88 million, respectively. Any remaining
value not assigned to tangible or identifiable intangible assets was then
allocated to cost in excess of net assets acquired. Cost in excess of net
tangible and identifiable intangible assets acquired, recorded in connection
with the acquisitions, was $754 million in 1997 and $387 million in 1995.
Subscriber and provider contracts are amortized over their estimated useful
lives (seven to 14 years), while cost in excess of net assets acquired is
amortized over periods not exceeding 40 years.
The results of operations for the previously mentioned acquisitions have been
included in the accompanying consolidated statements of income since the date of
acquisition. The following unaudited pro forma consolidated results of
operations give effect to those acquisitions as if they had occurred at the
beginning of the year preceding the year of acquisition:
Years Ended December 31,
- ----------------------------------------------------------------------------------
Dollars in millions, except per share results 1997 1996 1995
- ----------------------------------------------------------------------------------
Revenues $9,272 $8,581 $5,968
Net income (loss) 64 (271) 200
- ----------------------------------------------------------------------------------
Earnings (loss) per common share $ .39 $(1.67) $ 1.23
Earnings (loss) per common share - assuming dilution .39 (1.67) 1.22
- ----------------------------------------------------------------------------------
The unaudited pro forma information may not necessarily reflect future results
of operations or what the results of operations would have been had the
acquisitions actually been consummated at the beginning of the year preceding
the year of acquisition.
23
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors
Humana Inc.
We have audited the accompanying consolidated balance sheets of Humana Inc. as
of December 31, 1997 and 1996, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1997. 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, 1997 and 1996, and the consolidated results of operations and cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Louisville, Kentucky
February 10, 1998
24
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
Humana Inc.
A summary of the Company's quarterly results of operations follows:
- ---------------------------------------------------------------------------------------------------
Dollars in millions, except per share results 1997 (a)
- ---------------------------------------------------------------------------------------------------
First Second Third Fourth
- ---------------------------------------------------------------------------------------------------
Revenues $1,832 $1,836 $1,968 $2,400
Income before income taxes 60 65 69 76
Net income 39 42 44 48
Earnings per common share .24 .26 .27 .29
Earnings per common share -
assuming dilution .24 .25 .27 .29
- ---------------------------------------------------------------------------------------------------
Dollars in millions, except per share results 1996
- ---------------------------------------------------------------------------------------------------
First Second (b) Third Fourth (c)
- ---------------------------------------------------------------------------------------------------
Revenues $1,588 $1,605 $1,784 $1,811
Income (loss) before income taxes 81 (146) 48 35
Net income (loss) 53 (95) 32 22
Earnings (loss) per common share .32 (.58) .20 .13
Earnings (loss) per common share -
assuming dilution .32 (.58) .19 .13
(a) Includes the results of Health Direct, Inc., Physician Corporation of
America and ChoiceCare Corporation since their dates of acquisition,
February 28, 1997, September 8, 1997 and October 17, 1997, respectively.
(b) Includes special charges of $200 million pretax ($130 million after tax or
$.79 per diluted share) 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 and a litigation settlement.
(c) Includes a special charge of $15 million pretax ($10 million after tax or
$.06 per diluted share) related to planned workforce reductions.
25
BOARD OF DIRECTORS
- -----------------------------------------------------------------------------------------------------------------------------
K. FRANK AUSTEN, M.D. MICHAEL E. GELLERT JOHN R. HALL
Theodore B. Bayles Professor of Medicine, General Partner, Windcrest Chairman of the Board,
Harvard Medical School and the Partners, private investment Arch Coal, Inc.
Brigham and Women's Hospital partnership Retired Chairman of the Board
and Chief Executive Officer,
Ashland Inc.
DAVID A. JONES DAVID A. JONES, JR. IRWIN LERNER
Chairman of the Board, Humana Inc. Vice Chairman, Humana Inc. Retired Chairman of the Board
Managing Director, and Executive Committee,
Chrysalis Ventures, Inc., Hoffmann-La Roche Inc.
venture capital firm
W. ANN REYNOLDS, PH.D. GREGORY H. WOLF
President, University of Alabama at President and Chief Executive
Birmingham Officer, Humana Inc.
BOARD COMMITTEES
- -----------------------------------------------------------------------------------------------------------------------------
Executive Committee Audit Committee Investment Committee
DAVID A. JONES, Chairman MICHAEL E. GELLERT, Chairman W. ANN REYNOLDS, PH.D., Chairwoman
MICHAEL E. GELLERT K. FRANK AUSTEN, M.D. MICHAEL E. GELLERT
DAVID A. JONES, JR. JOHN R. HALL JOHN R. HALL
GREGORY H. WOLF IRWIN LERNER DAVID A. JONES, JR.
Organization and Compensation Medical Affairs Committee Nominating Committee
Committee K. FRANK AUSTEN, M.D., Chairman JOHN R. HALL, Chairman
K. FRANK AUSTEN, M.D., Chairman DAVID A. JONES, JR. K. FRANK AUSTEN, M.D.
MICHAEL E. GELLERT IRWIN LERNER DAVID A. JONES, JR.
IRWIN LERNER W. ANN REYNOLDS, PH.D.
W. ANN REYNOLDS, PH.D.
CORPORATE OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------
GREGORY H. WOLF
President and Chief Executive
Officer
VICTOR M. AGRUSO DAVID R. ASTAR GEORGE G. BAUERNFEIND
Vice President - Organization Vice President - Customer Service Vice President - Tax
Development and Corporate
Relations
DOUGLAS R. CARLISLE JAMES W. DOUCETTE KENNETH J. FASOLA
Vice President - Health System Vice President - Investment Vice President - Sales and Marketing
Management (Central) Management and Treasurer
ARTHUR P. HIPWELL MITZI R. KROCKOVER, M.D. JOAN O. LENAHAN
Senior Vice President and General Vice President - Women's Health Corporate Secretary
Counsel
THOMAS J. LISTON HEIDI S. MARGULIS MICHAEL B. MCCALLISTER
Vice President - Corporate Vice President - Government Affairs Senior Vice President - Health
Development System Management
CORPORATE OFFICERS (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------
SHERI E. MITCHELL JAMES E. MURRAY WALTER E. NEELY
Vice President - Accreditation and Vice President and Chief Financial Vice President and Associate
Compliance Officer General Counsel
DAVID R. NELSON THOMAS J. NOLAND, JR. BRUCE D. PERKINS
Vice President and Chief Actuary Vice President - Corporate Senior Vice President - National
Communications Contracting
JERRY D. REEVES, M.D. GREGORY K. ROTHERHAM KIRK E. ROTHROCK
Senior Vice President and Chief Vice President and General Vice President - Specialty Products
Medical Officer Manager - Medstep and Businesses
R. EUGENE SHIELDS GEORGE W. VIETH, JR. DAVID W. WILLE
President - Humana Military Vice President - Strategy and Vice President - Actuarial Services
Healthcare Services Systems Development
TOD J. ZACHARIAS
Vice President - Product
Development
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
TRANSFER AGENT CORPORATE HEADQUARTERS
Bank of Louisville Humana Inc.
Security Transfer Department The Humana Building
Post Office Box 1497 500 West Main Street
Louisville, Kentucky 40201 Louisville, Kentucky 40202
(800) 925-0810 (502) 580-1000
(800) 486-2620
FORM 10-K ANNUAL MEETING
Copies of the Company's Form 10-K The Company's Annual Meeting of
filed with the Securities and Exchange Stockholders will be held on
Commission may be obtained, without Thursday, May 14, 1998, at 10:00
charge, by writing: a.m. in the Auditorium on the
25th floor of the Humana
Investor Relations Building.
Humana Inc.
Post Office Box 1438
Louisville, Kentucky 40201-1438
Copies of the Company's Form 10-K and
other Company information can also be
obtained through the Internet at the
following address:
http://www.humana.com
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 closing sales
prices as reported on the New York Stock
Exchange Composite Tape.
1997 HIGH LOW
- ---------------------------------------
First Quarter 23 17-3/4
Second Quarter 24-1/4 20-1/8
Third Quarter 24-15/16 22-13/16
Fourth Quarter 24-5/8 18-7/8
1996 HIGH LOW
- ---------------------------------------
First Quarter 28-3/4 24
Second Quarter 26-1/2 17-5/8
Third Quarter 21-1/4 15-5/8
Fourth Quarter 21-1/4 17-3/4