01—Abstract
Summary
Summary of the 10-K filed February 22, 2013. Cited figures are marked; the original filing is the authoritative source.
Humana Inc. (NYSE: HUM), headquartered in Louisville, Kentucky, reported net income of $1.2 billiona, or $7.47 per diluted common share, for 2012, down from $1.4 billion, or $8.46 per diluted share, in 2011.
Total revenues rose 6.2% to $39.1 billionb, with premiums revenue of $37.0 billion. The decline was driven mainly by a higher consolidated benefit ratio of 83.7% (up 160 basis points from 82.1%), primarily from the Retail segment, where the benefit ratio rose to 84.1% from 81.2% on individual Medicare Advantage products. Retail segment pretax income fell 26.8% to $1.2 billion, while the Health and Well-Being Services segment pretax income rose 37.7% to $486 million.
As of December 31, 2012, Humana had approximately 12.1 million medical members and 8.1 million specialty members, and 75% of premiums and services revenue came from federal government contracts. Individual Medicare Advantage membership grew 17.5% to 1,927,600, and the Metropolitan Health Networks acquisition for a transaction value of $851 millionc closed on December 21, 2012. The filing notes that CMS's February 15, 2013 Advance Notice indicates a mid-single-digit decline in 2014 Medicare Advantage benchmark payment rates, and that Health Insurance Reform Legislation will add material new fees and taxes beginning in 2014.
Balance sheet and capital position: total assets were $19.98 billion, debt rose to $2.61 billiond after $1 billion of senior notes were issued in December 2012, and stockholders' equity was $8.85 billion. The company repurchased $460 million of shares during 2012 and paid dividends of $1.03 per share. The Board declared a $0.26 quarterly dividend in October 2012, and $640 million remained under the share repurchase authorization as of February 1, 2013.
02—Key points
Key Highlights
- Net income fell to $1.22 billion ($7.47 diluted EPS) from $1.42 billion ($8.46) in 2011, driven by a higher benefit ratio.
- Consolidated benefit ratio rose 160 basis points to 83.7%; Retail segment benefit ratio rose 290 basis points to 84.1%, mainly on individual Medicare Advantage.
- Total revenues increased 6.2% to $39.1 billion, with premiums of $37.0 billion and services revenue up 26.9% to $1.7 billion.
- Individual Medicare Advantage membership reached 1,927,600 (up 17.5%); 75% of premiums and services revenue came from federal government contracts.
- Health and Well-Being Services pretax income rose 37.7% to $486 million, and Metropolitan Health Networks was acquired for $851 million on December 21, 2012.
- CMS's February 2013 Advance Notice indicates a mid-single-digit decline in 2014 Medicare Advantage benchmark payment rates.
- Issued $1 billion of senior notes in December 2012; debt rose to $2.61 billion and the company repurchased $460 million of shares.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2012filed February 22, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $39.13B$36.83B | +6.2% |
| SG&A Expenses | $5.83B$5.39B | +8.1% |
| Operating Income | $2.02B$2.34B | −14.0% |
| Interest Expense | $105.00M$109.00M | −3.7% |
| Net Income | $1.22B$1.42B | −13.9% |
| EPS (Basic) | $7.56$8.58 | −11.9% |
| EPS (Diluted) | $7.47$8.46 | −11.7% |
| Shares Outstanding (Basic) | 161.48M165.41M | −2.4% |
| Shares Outstanding (Diluted) | 163.46M167.83M | −2.6% |
05—Questions
Frequently Asked Questions
Why did Humana's earnings decline in 2012?
Diluted EPS fell to $7.47 from $8.46. The filing attributes the decline mainly to a significant increase in the Retail segment benefit ratio, primarily tied to individual Medicare Advantage products, due to a planned increase in the target benefit ratio for Health Insurance Reform funding changes and minimum benefit ratio requirements, plus higher benefit ratios on new membership than assumed in 2012 Medicare bids.
How much of Humana's revenue depends on government programs?
The filing states that approximately 75% of total premiums and services revenue in 2012 came from contracts with the federal government, including 15% from Medicare Advantage contracts with CMS in Florida. Government programs (Medicare, military and Medicaid) accounted for approximately 78% of total premiums and services revenue.
What regulatory risks does the filing highlight for 2014 and beyond?
CMS's February 15, 2013 Advance Notice indicates a mid-single-digit decline in 2014 Medicare Advantage benchmark rates, with final rates due April 1, 2013. The Health Insurance Reform Legislation will impose a non-deductible annual industry premium-based assessment and a three-year commercial reinsurance fee beginning in 2014, and the filing says these could have a material adverse effect on results.
How is Humana's balance sheet and capital return position?
Total assets were $19.98 billion and stockholders' equity was $8.85 billion at December 31, 2012. Long-term debt rose to $2.61 billion after the December 2012 notes issuance, and the unused $1.0 billion revolving credit agreement had $995 million of remaining borrowing capacity. The company paid $165 million in dividends in 2012, and $640 million remained under the share repurchase authorization as of February 1, 2013.
06—Continue