01—Abstract
Summary
Summary of the 10-K filed February 19, 2010. Cited figures are marked; the original filing is the authoritative source.
Humana Inc., headquartered in Louisville, Kentucky, reported 2009 total revenues of $30.96 billiona and net income of $1,039.7 million, or $6.15 per diluted common share, compared with $647.2 million, or $3.83 per diluted share, in 2008.
The year-over-year increase primarily reflects higher operating earnings in the Government segment, driven by significantly lower prescription drug claims expenses associated with Medicare stand-alone PDP products. Government segment income before income taxes rose to $1,497.6 millionb from $785.2 million, while Commercial segment income before income taxes fell to $104.2 million from $207.6 million. Premiums and ASO fees of $30.4 billion were 75.3% Government, with Medicare Advantage representing 54.0% of the total.
Medical membership was 10,283,300 at December 31, 2009, down 11.0%c from 11,559,100 a year earlier, mainly from declines in Medicare stand-alone PDP membership (down 37.1%) and fully-insured Commercial membership (down 7.0%). Medicare Advantage membership grew 5.1% to 1,508,500. The company expects Medicare Advantage membership to rise by 240,000 to 260,000 in 2010, while expecting Commercial medical membership to decline by 160,000 to 180,000.
Cash and investments totaled $9.1 billiond, and long-term debt was $1,678.2 million, or 22.5% of total capitalization, down from 30.3% a year earlier. The filing highlights several risks: the TRICARE South Region contract, which accounted for about 97% of military services premiums and ASO fees, was extended through March 31, 2011 by option exercise, but Humana lost the third-generation TRICARE award and the GAO protest outcome remains unresolved; the company may take a goodwill impairment in the second half of 2010 if the contract is not further extended; CMS Medicare Advantage audits could lead to retroactive payment adjustments; and the pending federal health reform legislation could lower Medicare payment rates and add non-deductible insurer taxes. The company has not paid cash dividends since February 1993, and its board renewed a $250 million share repurchase authorization through December 31, 2011, with no shares repurchased under it as of the filing.
02—Key points
Key Highlights
- Net income of $1,039.7 million, or $6.15 per diluted share, in 2009, up from $647.2 million, or $3.83 per diluted share, in 2008
- Total revenues of $30.96 billion in 2009, up from $28.95 billion in 2008
- Government segment income before income taxes rose to $1,497.6 million from $785.2 million, largely from lower stand-alone PDP prescription drug claims; Commercial segment income fell to $104.2 million from $207.6 million
- Medical membership declined 11.0% to 10,283,300 at year-end 2009, while Medicare Advantage membership grew 5.1% to 1,508,500
- Cash, cash equivalents and investment securities totaled $9.1 billion, with a debt-to-capitalization ratio of 22.5%, down from 30.3% in 2008
- TRICARE South Region contract, about 97% of military services premiums and ASO fees, extended through March 31, 2011, but the company was not awarded the third-generation contract and a goodwill impairment is possible in the second half of 2010 if the contract is not further extended
- Pending federal health reform legislation and CMS Medicare Advantage audits could materially affect Medicare payment rates and results
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2009filed February 19, 2010Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $30.74B$28.95B | +6.2% |
| SG&A Expenses | $4.01B$3.94B | +1.8% |
| Operating Income | $1.71B$1.07B | +59.2% |
| Interest Expense | $106.00M$80.29M | +32.0% |
| Net Income | $1.04B$647.15M | +60.7% |
| EPS (Basic) | $6.21$3.87 | +60.5% |
| EPS (Diluted) | $6.15$3.83 | +60.6% |
| Shares Outstanding (Basic) | 167.36M167.17M | +0.1% |
| Shares Outstanding (Diluted) | 169.07M169.19M | −0.1% |
05—Questions
Frequently Asked Questions
Why did Humana's earnings increase significantly in 2009?
The filing attributes the increase primarily to higher Government segment operating earnings, which resulted from significantly lower prescription drug claims expenses for Medicare stand-alone PDP products. Benefit ratio for the Government segment fell to 83.5% from 85.9%, and the consolidated benefit ratio fell to 82.8% from 84.5%.
How is Humana's revenue concentrated?
Government programs are the core of the business. The Government segment accounted for 75.3% of 2009 premiums and ASO fees, and contracts with the federal government represented 73% of premiums and ASO fees. Medicare Advantage alone accounted for 54.0%, and the company says its Medicare business represented approximately 62% of total premiums and ASO fees.
What are the main risks to Humana's military business?
The TRICARE South Region contract was extended through March 31, 2011 by option periods, and TMA intends to exercise options seven and eight. However, Humana was not awarded the third-generation TRICARE contract, and a GAO protest was upheld with corrective action pending, so the company cannot determine the outcome. Goodwill of $49.8 million tied to the military services reporting unit could be impaired if the contract is not extended further.
Does Humana pay dividends or repurchase shares?
Humana has not declared or paid cash dividends on its common stock since February 1993 and does not presently intend to pay them. Its board renewed a $250 million share repurchase authorization on December 10, 2009 through December 31, 2011. No shares had been repurchased under that authorization as of the filing, and none were repurchased in 2008 or 2009 under the prior July 2008 authorization.
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