01—Abstract
Summary
Summary of the 10-K filed February 20, 2009. Cited figures are marked; the original filing is the authoritative source.
Humana Inc. (NYSE: HUM), headquartered in Louisville, Kentucky, reported 2008 total revenues of $28.9 billiona and net income of $647.2 million, or $3.83 per diluted share, down from $833.7 million, or $4.91 per diluted share, in 2007.
The decline primarily reflected lower operating earnings in the Government segment from higher expenses tied to its Medicare stand-alone prescription drug plan (PDP) products, along with lower net investment income from $103.1 millionb of other-than-temporary impairments, including $68.7 million related to Lehman Brothers. Premium revenues rose 14.9% to $28.1 billion, and the consolidated benefit ratio increased to 84.5% from 83.0%, while the SG&A expense ratio improved to 13.7% from 13.9%. The company's revenue base is concentrated in government programs: 72% of 2008 premiums and administrative services fees came from federal government contracts, including 16% from its CMS Medicare contracts in Florida and 12% from military (TRICARE) services.
Medicare Advantage membership grew 25.6% to 1,435,900 members, and total medical membership reached 11.6 million. Management expects the consolidated SG&A expense ratio to be 13% to 14% in 2009 and the 2009 effective tax rate to be 34% to 35%. Balance sheet and cash flow measures show cash and investments of $7.19 billionc, long-term debt of $1.94 billion, and stockholders' equity of $4.46 billion at December 31, 2008.
Operating cash flow fell to $982.3 milliond from $1,224.3 million. The company has not paid cash dividends since February 1993, and it did not repurchase shares under its July 2008 authorization as of year-end because of market volatility. The TRICARE South Region contract was extended for a sixth option period through March 31, 2010, and the company's bid for a new nationwide TRICARE contract remains pending.
02—Key points
Key Highlights
- 2008 total revenues of $28.9 billion; net income of $647.2 million, or $3.83 per diluted share, versus $4.91 in 2007
- Government segment income before taxes fell to $785.2 million from $1,027.5 million, driven by higher Medicare stand-alone PDP claims
- Medicare Advantage membership rose to 1,435,900 members at December 31, 2008, up 25.6% from 1,143,000, and PDP membership declined 10.9%
- Consolidated benefit ratio rose to 84.5% from 83.0%, while the SG&A expense ratio improved to 13.7% from 13.9%
- Other-than-temporary impairments of $103.1 million in 2008, including $68.7 million tied to Lehman Brothers
- Senior notes issued in 2008: $500 million of 7.20% notes due 2018 and $250 million of 8.15% notes due 2038; interest-rate swaps terminated for $93.0 million cash
- Operating cash flow of $982.3 million in 2008 versus $1,224.3 million in 2007; cash and investments of $7.19 billion at year-end
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2008filed February 20, 2009Financial Statements
FY2008 against FY2007
| Line item | FY2008FY2007 | Change |
|---|---|---|
| Revenue | $28.95B$25.29B | +14.5% |
| SG&A Expenses | $3.94B$3.48B | +13.5% |
| Operating Income | $1.07B$1.36B | −21.0% |
| Interest Expense | $80.29M$68.88M | +16.6% |
| Net Income | $647.15M$833.68M | −22.4% |
| EPS (Basic) | $3.87$5.00 | −22.6% |
| EPS (Diluted) | $3.83$4.91 | −22.0% |
| Shares Outstanding (Basic) | 167.17M— | — |
| Shares Outstanding (Diluted) | 169.19M— | — |
05—Questions
Frequently Asked Questions
How much of Humana's revenue depends on government contracts?
During 2008, 72% of premiums and administrative services fees came from contracts with the federal government, including 16% from CMS Medicare contracts in Florida and 12% from military services contracts. The Government segment accounted for approximately 74% of total premiums and ASO fees.
Why did earnings decline in 2008?
The filing attributes the decline primarily to lower operating earnings in the Government segment from higher expenses for Medicare stand-alone PDP products, and to lower net investment income from other-than-temporary impairments of $65.3 million after tax, or $0.39 per diluted share, in the investment portfolio.
What is the status of the TRICARE contract?
The five-year South Region contract was set to expire March 31, 2009. On January 16, 2009, the company amended it to add a sixth one-year option period through March 31, 2010, plus two six-month options through March 31, 2011. The government notified Humana on January 22, 2009 that it would exercise the sixth option. Humana submitted final proposal revisions in January 2009 for a new nationwide TRICARE contract, and the filing states that failure to win it could have a material adverse effect.
What is Humana's outlook for 2009 as stated in the filing?
The company expects Medicare Advantage membership to increase by 25,000 to 75,000 members in 2009, a consolidated SG&A expense ratio of 13% to 14%, an effective tax rate of 34% to 35%, capital expenditures of approximately $260 million excluding acquisitions, and dividends of approximately $500 million from subsidiaries to the parent company.
Does Humana pay dividends or repurchase shares?
Humana has not declared or paid cash dividends since February 1993 and does not presently intend to pay dividends. In 2008 it repurchased 2.1 million shares for $92.8 million under the February 2008 authorization. Due to market volatility it had not repurchased any shares under the $250 million July 2008 authorization, which expires December 31, 2009.
06—Continue