What drove revenue growth in 2005?

Growth came mainly from the Government segment, where premium revenues rose 31.8% to $7.5 billion. Medicare Advantage premiums increased 48.7% to $4.59 billion, reflecting new PFFS products, membership growth, and the February 2005 CarePlus acquisition. Commercial premiums fell 7.3% because fully insured membership declined.

How concentrated is Humana's business in government programs?

The filing states that 51% of 2005 premiums and administrative services fees came from federal government contracts. TRICARE accounted for about 17% and the Florida CMS Medicare Advantage contracts for about 20%. The filing warns that losing these contracts or significant program changes could materially affect results.

What is the outlook for 2006?

Management expects Medicare Advantage enrollment of 900,000 to 1,100,000 and PDP enrollment of 1,900,000 to 2,200,000 at December 31, 2006. It expects Medicare premium revenue to more than double from 2005, with lower earnings and margins in the first half of 2006 than in the second half. The 2006 effective tax rate is expected to be 35% to 37%, and the SG&A expense ratio is expected to be 12% to 13%.

Did Humana pay dividends or repurchase stock?

Humana has not declared or paid cash dividends since February 1993 and does not presently intend to pay them. In 2005 it repurchased no shares in open-market transactions; it acquired 68,296 shares in connection with employee stock plans for $2.4 million. The open-market repurchase authorization expired in January 2005.

What were the main one-time charges in 2005?

The company recorded a pretax charge of $71.9 million ($0.27 per diluted share after tax) for the managed care physician class action settlement and $27.0 million pretax ($0.10 per diluted share) for Hurricane Katrina costs. A $22.8 million contingent tax benefit partly offset these charges, and the company said it does not anticipate significant additional Katrina costs in 2006.

HUM 10-K FY2005 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 3, 2006. Cited figures are marked; the original filing is the authoritative source.

Humana Inc. (NYSE: HUM), headquartered in Louisville, Kentucky, reported 2005 total revenues of $14.42 billion^a and net income of $308.5 million, or $1.87 per diluted share, up from $280.0 million, or $1.72 per diluted share, in 2004.

Premium revenues rose 10.3% to $14.0 billion^b, driven by the Government segment, where premium revenues increased 31.8% to $7.5 billion on Medicare Advantage growth and the CarePlus acquisition. Medicare Advantage membership grew 47.9% to 557,800, while Commercial premium revenues fell 7.3% to $6.5 billion as fully insured membership declined. The consolidated medical expense ratio improved to 83.2% from 84.1%, while the SG&A expense ratio rose to 15.3% from 14.5%.

The filing highlights concentration risk: 51% of 2005 premiums and ASO fees came from federal contracts, including 17% from TRICARE and about 20% from Florida CMS contracts. Management expects 2006 Medicare premium revenues to more than double, with lower earnings and margins in the first half of 2006 as Medicare enrollment ramps. Capital contributions to subsidiaries of $450 million to $650 million^c are expected in 2006, and the company expects a 2006 effective tax rate of 35% to 37%.

Humana has paid no cash dividends since February 1993. The filing also discloses a $71.9 million^d pretax charge for the settlement of the managed care physician class action, and $27.0 million of pretax expenses related to Hurricane Katrina. Cash flow from operations rose to $625.6 million in 2005 from $347.8 million in 2004, and total debt was $815.0 million at year end.

02—Key points

Key Highlights

2005 total revenues of $14.42 billion; net income of $308.5 million, or $1.87 per diluted share, versus $1.72 in 2004
Premium revenues up 10.3% to $14.0 billion; Government segment premiums up 31.8% to $7.5 billion, Commercial premiums down 7.3% to $6.5 billion
Medicare Advantage membership up 47.9% to 557,800 members, including 50,400 from the CarePlus acquisition
Consolidated medical expense ratio improved to 83.2% from 84.1%; SG&A expense ratio rose to 15.3% from 14.5%
51% of premiums and ASO fees derived from federal government contracts, including 17% TRICARE and about 20% Florida CMS contracts
Management expects 2006 Medicare premium revenues to more than double, with lower first-half 2006 earnings and margins during Medicare enrollment ramp-up
$71.9 million pretax class action settlement charge and $27.0 million pretax Hurricane Katrina expenses recorded in 2005

03—Questions

Frequently Asked Questions

What drove revenue growth in 2005?
Growth came mainly from the Government segment, where premium revenues rose 31.8% to $7.5 billion. Medicare Advantage premiums increased 48.7% to $4.59 billion, reflecting new PFFS products, membership growth, and the February 2005 CarePlus acquisition. Commercial premiums fell 7.3% because fully insured membership declined.
How concentrated is Humana's business in government programs?
The filing states that 51% of 2005 premiums and administrative services fees came from federal government contracts. TRICARE accounted for about 17% and the Florida CMS Medicare Advantage contracts for about 20%. The filing warns that losing these contracts or significant program changes could materially affect results.
What is the outlook for 2006?
Management expects Medicare Advantage enrollment of 900,000 to 1,100,000 and PDP enrollment of 1,900,000 to 2,200,000 at December 31, 2006. It expects Medicare premium revenue to more than double from 2005, with lower earnings and margins in the first half of 2006 than in the second half. The 2006 effective tax rate is expected to be 35% to 37%, and the SG&A expense ratio is expected to be 12% to 13%.
Did Humana pay dividends or repurchase stock?
Humana has not declared or paid cash dividends since February 1993 and does not presently intend to pay them. In 2005 it repurchased no shares in open-market transactions; it acquired 68,296 shares in connection with employee stock plans for $2.4 million. The open-market repurchase authorization expired in January 2005.
What were the main one-time charges in 2005?
The company recorded a pretax charge of $71.9 million ($0.27 per diluted share after tax) for the managed care physician class action settlement and $27.0 million pretax ($0.10 per diluted share) for Hurricane Katrina costs. A $22.8 million contingent tax benefit partly offset these charges, and the company said it does not anticipate significant additional Katrina costs in 2006.

04—Continue

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