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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-5975
HUMANA INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 61-0647538
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
500 WEST MAIN STREET
LOUISVILLE, KENTUCKY 40202
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 502-580-1000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $.16 2/3 par value New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of the Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in the Registrant's definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. X
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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The aggregate market value of voting stock held by non-affiliates of the
Registrant as of March 1, 1996, was $3,826,436,136 calculated using the average
price on such date of $25.1875. The number of shares outstanding of the
Registrant's Common Stock as of March 1, 1996, was 162,253,571.
DOCUMENTS INCORPORATED BY REFERENCE
Part II and portions of Part IV incorporate herein by reference the
Registrant's 1995 Annual Report to Stockholders; Part III incorporates herein by
reference portions of the Registrant's Proxy Statement filed pursuant to
Regulation 14A covering the Annual Meeting of Stockholders scheduled to be held
May 9, 1996.
The Exhibit Index begins on page 13.
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PART I
ITEM 1. BUSINESS
GENERAL
Humana Inc. is a Delaware corporation organized in 1961. Its principal
executive offices are located at 500 West Main Street, Louisville, Kentucky
40202 and its telephone number at that address is (502) 580-1000. As used
herein, the terms "the Company" or "Humana" include Humana Inc. and its
subsidiaries. This Annual Report on Form 10-K 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 the Company can duplicate its past performance or that
expected future results will be achieved. Readers are cautioned that a number of
factors, which are described herein, could adversely affect the Company's
ability to obtain these results, including the effects of healthcare reform,
renewal of the Company's Medicare risk contracts with the government, the
effects of accreditation reviews, the implementation and renewal of the
Company's CHAMPUS contract, and the effects of other general business
conditions, including but not limited to, competition, medical cost trends,
terms of provider contracts, premium rate changes, government regulation,
capital requirements, administrative costs, general economic conditions and the
retention of key employees.
Since 1983, the Company has offered managed health care products which
integrate management with the delivery of health care services through a network
of providers, who in their delivery of quality medical services, may share
financial risk or who have incentives to deliver cost-effective medical
services. These products are marketed primarily through health maintenance
organizations ("HMOs") and preferred provider organizations ("PPOs") that
encourage or require use of contracting providers. HMOs and PPOs control health
care costs by various means, including utilization controls such as
pre-admission approval for hospital inpatient services, pre-authorization of
outpatient surgical procedures, and utilization of contracted physicians. The
Company also offers various specialty and administrative services products
including group life, dental, disability income, workers' compensation, and
pharmacy management services.
On October 11, 1995, the Company completed its acquisition of EMPHESYS
Financial Group, Inc. ("EMPHESYS"), for a total purchase price of approximately
$650 million. The aggregate purchase price was funded through available cash of
$400 million and bank borrowings of $250 million. EMPHESYS is a leading provider
of a broad range of managed care products to small businesses. EMPHESYS, at the
date of acquisition, had approximately 1.3 million medical members, including
216,900 administrative services ("ASO") members. The information contained
herein includes the results of operations of EMPHESYS for the period from
October 11, 1995 through December 31, 1995.
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 Company's Commercial products are marketed in 40 states and the
District of Columbia. At December 31, 1995, the Company had a total of 2,883,900
fully-insured Commercial customers with an average group size of 29 members.
Commercial membership at December 31, 1995, includes 49,000 Medicaid-eligible
individuals. The products marketed to Medicare-eligible individuals are either
HMO products that provide health care services which include all Medicare
benefits, and in certain circumstances, additional health care services that are
not included in traditional Medicare benefits ("Medicare risk") or indemnity
insurance policies that supplement Medicare benefits ("Medicare supplement"). At
December 31, 1995, the Company had 310,400 Medicare risk members and 115,000
Medicare supplement members. The Company also offers ASO to employers who self-
insure their employee health benefits. At December 31, 1995, the Company
provided claims processing, utilization review and other administrative services
to approximately 495,100 members.
On November 28, 1995, the Company was awarded a potential five-year, $3.8
billion contract (a one-year contract renewable annually for up to four
additional years at approximately $750 million per year) with the United States
Department of Defense to provide services under the Civilian Health and Medical
Program of the Uniformed Services (the "CHAMPUS Contract"). Under the CHAMPUS
Contract, which is expected
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to begin July 1, 1996, the Company will provide managed health care services to
approximately 1 million eligible military beneficiaries in eight southeastern
states.
COMMERCIAL PRODUCTS
HMOs
An HMO provides prepaid health care services to its members through primary
care and specialty physicians employed by the HMO at facilities owned by the
HMO, and/or through a network of independent primary care and specialty
physicians and other health care providers who contract with the HMO to furnish
such services. Primary care physicians include internists, family practitioners
and pediatricians. Generally, access to specialty physicians and other health
care providers must be approved by the member's primary care physician. These
other health care providers include, among others, hospitals, nursing homes,
home health agencies, pharmacies, mental health and substance abuse centers,
diagnostic centers, optometrists, outpatient surgery centers, dentists, urgent
care centers, and durable medical equipment suppliers. Because access to these
other health care providers must be approved by the primary care physician, the
HMO product is the most restrictive form of managed care.
At December 31, 1995, the Company owned and operated 17 HMOs, which
contract with approximately 40,800 physicians (including approximately 10,200
primary care physicians) and 630 hospitals. In addition, the Company has
approximately 2,410 contracts with other providers to provide services to HMO
members. The Company also employed approximately 500 physicians in its staff
model HMOs at December 31, 1995.
An HMO member, typically through the member's employer, pays a monthly fee
which generally covers, with minimal co-payments, health care services received
from or approved by the member's primary care physician. For the year ended
December 31, 1995, Commercial HMO premium revenues totaled approximately $2
billion or 43 percent of the Company's premium revenues. Approximately $266
million of the Company's Commercial premium revenues for the year ended December
31, 1995, were derived from contracts with the United States Office of Personnel
Management ("OPM") under which the Company provides health care benefits to
approximately 176,800 federal civilian employees and their dependents. Pursuant
to these contracts, payments made by OPM may be retrospectively adjusted
downward by OPM if an audit discloses that a comparable product was offered by
the Company to a similar size subscriber group using a rating formula which
resulted in a lower premium rate than that offered to OPM. Management believes
that any retrospective adjustments as a result of OPM audits will not have a
material impact on the Company's results of operations, financial position or
cash flows.
PPOs
PPO products include many elements of managed health care. PPOs are also
similar to traditional health insurance because they provide a member with the
freedom to choose a physician or other health care provider. In a PPO, the
member is encouraged, through financial incentives, to use participating health
care providers which have contracted with the PPO to provide services at
favorable rates. In the event a member chooses not to use a participating health
care provider, the member may be required to pay a greater portion of the
provider's fees.
At December 31, 1995, approximately 44,400 physicians and 700 hospitals
contracted directly with the Company to provide services to PPO members. The
Company also has approximately 2,400 contracts (including certain contracts
which also service the Company's HMOs) with other providers to provide services
to PPO members. In addition, the Company has access to 28 leased provider
networks throughout the country which provide services to approximately 80
percent of EMPHESYS' PPO membership.
For the year ended December 31, 1995, premium revenues from Commercial PPOs
totaled $831 million or 18 percent of the Company's premium revenues. During the
year ended December 31, 1995, the Company's PPO membership increased
approximately 1.2 million members to approximately 1.4 million members,
primarily as a result of the acquisition of EMPHESYS. Management believes PPO
premium revenues for the year ended December 31, 1996 will become a more
significant percentage of overall Company premium revenues.
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Over the previous four years, changes in the Company's Commercial premium
rates have ranged between approximately an 11 percent increase for the year
ended December 31, 1992, to approximately a 2 percent decrease for the year
ended December 31, 1995. Given the continued competitive environment, the
Company expects that 1996 Commercial premium rates will decline approximately 1
percent from 1995 levels.
MEDICAID PRODUCT
Medicaid is a state-operated program which utilizes both state and federal
funding to provide health care services to low-income residents. Each state
which chooses to do so develops through a state specific regulatory agency, a
Medicaid managed care initiative which must be approved by the federal
government's Health Care Financing Administration ("HCFA"). HCFA requires that
Medicaid managed care plans meet federal standards and cost no more than the
amount that would have been spent on a comparable fee-for-service basis. States
currently use either a formal proposal process reviewing many bidders or award
individual contracts to qualified bidders which apply for entry to the program.
In either case, the contractual relationship with the state is generally for a
one-year period. Management believes that the risks associated with
participation in a state Medicaid managed care initiative are similar to the
risks associated with the Medicare risk product discussed below. In both
instances, the Company receives a fixed monthly payment from a government agency
for which it is required to provide managed health care services to enrolled
members. For the year ended December 31, 1995, premium revenues from the
Company's Medicaid products totaled $51 million or 1 percent of the Company's
premium revenues. At December 31, 1995, the Company had approximately 49,000
Medicaid members in three markets. Due to the increased emphasis on state health
care reform, management believes that more states will utilize a managed care
product in their Medicaid programs.
MEDICARE PRODUCTS
Medicare is a federal program that provides persons age 65 and over and
some disabled persons certain hospital and medical insurance benefits, which
include hospitalization benefits for up to 90 days per incident of illness plus
a lifetime reserve aggregating 60 days. Each Medicare-eligible individual is
entitled to receive inpatient hospital care ("Part A") without the payment of
any premium, but is required to pay a premium to the federal government, which
is adjusted annually, to be eligible for physician and other services ("Part
B").
Even though participating in both Part A and Part B of the traditional
Medicare program, beneficiaries are still required to pay certain deductible and
co-insurance amounts. They may, if they choose, supplement their Medicare
coverage by purchasing Medicare supplement policies which pay these deductibles
and co-insurance amounts. Many of these policies also cover other services (such
as prescription drugs) which are not included in Medicare coverage.
Certain managed care companies which operate HMOs contract with HCFA to
provide medical benefits to Medicare-eligible individuals residing in the
geographic areas in which their HMOs operate in exchange for a fixed monthly
payment per member from HCFA. Individuals who elect to participate in these
Medicare risk programs are relieved of the obligation to pay some or all of the
deductible or co-insurance amounts but are generally required to use exclusively
the services provided by the HMO and are required to pay a Part B premium to the
Medicare program. The enrollee pays the HMO a premium only in cases where the
HMO provides additional benefits and where competitive market conditions permit.
Medicare Risk
A Medicare risk product involves a contract between an HMO and HCFA
pursuant to which HCFA makes a fixed monthly payment to the HMO on behalf of
each Medicare-eligible individual who chooses to enroll for coverage in the HMO.
Membership may be terminated by the member upon 30 days' notice. The fixed
monthly payment is determined and adjusted annually by HCFA, and takes into
account, among other things, the cost of providing medical care in the
geographic area where the member resides.
The Company markets a variety of Medicare risk HMO products. All of these
products provide an enrolled individual with all of the benefits covered by the
Medicare program but relieve the enrolled individual of the obligation to pay
deductibles and co-insurance that would otherwise apply. Some of these products
also
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provide additional benefits not covered by Medicare, such as vision and dental
care services and prescription drugs.
Where competitive conditions permit, the Company charges a premium to
members (in addition to the payment from HCFA) for some of its Medicare risk
products. At December 31, 1995, approximately 65,500 members in 13 markets were
paying premiums which totaled $38 million for the year ended December 31, 1995.
The Company provides Medicare risk services under 10 contracts with HCFA
("HCFA Contracts") in 14 markets. During 1995, the Company was approved by HCFA
to sell its Medicare risk product in Jacksonville and Tampa, Florida as well as
Houston, Texas and Las Vegas, Nevada. Management believes that additional
opportunities exist because only approximately 7 percent of the country's
Medicare-eligible beneficiaries are enrolled in managed care programs similar to
those of the Company. The Company intends to pursue these additional
opportunities in under-penetrated markets.
At December 31, 1995, HCFA Contracts covered approximately 310,400 Medicare
risk members for which the Company received HCFA revenues of approximately $1.5
billion or 33 percent of the Company's premium revenues for the year ended
December 31, 1995. At December 31, 1995, one such HCFA Contract covered
approximately 209,800 members in Florida. For the year ended December 31, 1995,
this Florida HCFA Contract accounted for premium revenues of $1.1 billion, which
represented 73 percent of the Company's HCFA revenues and 24 percent of the
Company's total premium revenues. Each HCFA Contract is renewed each December 31
unless HCFA or the Company terminates it upon at least 90 days' notice prior
thereto. Management believes termination of the HCFA Contract covering the
members in Florida would have a material adverse effect on the Company's
revenues, profitability and business prospects.
Current legislative proposals are being considered which include
modification of future reimbursement rates under the Medicare program and
proposals 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. Changes in the Medicare risk program as a result of
legislative change, such as a reduction in payments by HCFA or mandated
increases in benefits without corresponding increases in HCFA payments, could
also have a material adverse effect on the Company's revenues, profitability and
business prospects.
The Company's average rate of increase under the 1996 HCFA Contracts is
approximately 8 to 9 percent, a significant portion of which is expected to be
paid to the Company's providers. Over the last five years, annual increases have
ranged from as low as 3 percent in January 1994 to as high as 12 percent in
January 1993, with an average of approximately 7 percent, including the January
1996 increase.
Medicare Supplement
The Company's Medicare supplement product is an insurance policy which pays
for hospital deductibles, co-payments and co-insurance for which an individual
enrolled in the traditional Medicare program is responsible.
Under the terms of existing Medicare supplement policies, the Company may
not reduce or cancel the benefits contracted for by policyholders. These
policies are renewable annually by the insured at the Company's prevailing
rates, which may increase subject to approval by appropriate state insurance
regulators.
At December 31, 1995, the Company provided Medicare supplement benefits to
approximately 115,000 members. Premium revenues derived from this product for
the year ended December 31, 1995, totaled $102 million.
CHAMPUS
In 1993, the Company established Humana Military Healthcare Services, Inc.
(a wholly owned subsidiary of the Company), to bid on contracts to provide
managed care services to active and retired military
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personnel and their dependents. In November 1995, the Company was awarded its
first contract covering approximately 1 million eligible military beneficiaries
in Florida, Georgia, South Carolina, Mississippi, Alabama, Tennessee, Eastern
Louisiana, and a portion of Arkansas. The Company has subcontracted with third
parties to provide certain administration and specialty services under the
contract. Subsequent to a transition period, expected to be completed by July 1,
1996, three health benefit options will be made available to CHAMPUS
beneficiaries. In addition to a traditional indemnity option, participants may
enroll in a point-of-service plan or take advantage of reduced co-payments by
using a network of preferred providers.
Subsequent to the award of the contract to the Company, the award was
protested with the General Accounting Office. Protests under similar contracts
have historically been commonplace, although a large majority of the protests
have been disallowed. Management is unable to predict the outcome of the
protest.
The use of managed care under CHAMPUS is a new and evolving program and is
the Company's first endeavor operating under the Department of Defense
guidelines. Management is unable to determine the Company's degree of success in
managing the implementation and delivery of services under the CHAMPUS Contract,
and what effect, if any, this contract may have on the Company's results of
operations, financial position or cash flows.
The Company continues to actively seek opportunities where it can provide
managed care services to beneficiaries of federal and state programs, including
other CHAMPUS contracts.
OTHER RELATED PRODUCTS
The Company offers various specialty and administrative services products
including group life, dental, disability income, and workers' compensation
services. Specialty product membership at December 31, 1995, totaled
approximately 1.9 million members including 602,900 members for which the
Company provides administrative services. Specialty administrative membership
includes dental, workers' compensation, flexible benefit and purchasing pool
administration services. Total premiums and other income related to these
specialty and administrative services products were $85 million for the year
ended December 31, 1995. The Company also operates a prescription drug
management service which administers drug benefit programs for various HMOs and
PPOs, including those of the Company.
PROVIDER ARRANGEMENTS
The Company's HMOs contract with individual or groups of primary care
physicians, generally for an actuarially determined, fixed, per-member-per-month
fee called a "capitation" payment. These contracts typically obligate primary
care physicians to provide or arrange for the provision of all covered managed
health care services to HMO members, including services provided by specialty
physicians and other providers. The capitation payment does not vary with the
nature or extent of services arranged for or provided to the member. The degree
to which the Company uses capitation arrangements varies by provider. The
Company also employs approximately 500 physicians in markets where it operates
staff model HMOs. In order to control costs, improve quality and create
comprehensive networks, the Company also contracts with medical specialists and
other providers to which a primary care physician may refer a member. Typically,
payments by the Company to these specialists and other providers reduce the
ultimate payment that otherwise would be made to a primary care physician. The
Company remains financially responsible for the provision of or payment for such
services if a primary care or specialty physician fails to perform his or her
obligations under the contract.
The focal point for cost control in the Company's HMOs is the primary care
physician, whether employed or under contract, who provides services and
controls utilization of appropriate services by directing or approving
hospitalization and referrals to specialists and other providers. Cost control
is further achieved by directly negotiating provider discounts. Cost control in
the Company's PPOs is achieved primarily by establishing a cost-effective
network of participating health care providers and providing incentives for
members to use such providers. With respect to both HMO and PPO products, cost
control is further achieved through the use of a utilization review system
designed to allow only necessary hospital admissions, lengths of stay and
necessary and appropriate medical procedures.
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The Company's HMOs and PPOs generally contract for hospital services under
per-diem arrangements for inpatient hospital services and discounted
fee-for-service arrangements for outpatient services. During the year ended
December 31, 1995, approximately 41 percent of the Company's total medical costs
were for services provided to its members in hospitals or related facilities.
Approximately 9 percent of these medical costs were for services provided in
hospitals ("Galen Hospitals") which were spun off by the Company (the "Spinoff")
on March 1, 1993, and are now a part of Columbia/HCA Healthcare Corporation
("Columbia/HCA"). Following the Spinoff, these services were provided pursuant
to a three-year agreement with the Galen Hospitals, which expired March 1, 1996.
The Company has replaced the original agreement with various individual market
agreements with subsidiaries of Columbia/HCA for the provisions of services at
Columbia/HCA hospitals (including the Galen Hospitals). Management believes the
inpatient and outpatient hospital rates under the new agreements reflect current
competitive market conditions.
QUALITY ASSESSMENT AND CUSTOMER SERVICE
Physician participation in the Company's HMOs and PPOs is conditioned upon
the physician meeting the Company's requirements concerning the physician's
professional qualifications. When considering whether to contract with a
physician, the Company performs rigorous, on-going credentialing verifications
and peer review that meet both regulatory and accrediting agency standards.
The Company has a program in place to monitor important aspects of HMO
plan-wide service and quality indicators with oversight by a senior management
committee. Such indicators as credentialing, quality concerns, customer service,
disenrollment, and satisfaction are measured against standards. Another measure
of quality is the reporting of Health Plan Employer Data Information Sets
("HEDIS") which the Company has been reporting since June 1994. HEDIS is useful
to purchasers of managed health care services to measure individual health plan
quality and service. The Company has also implemented a monthly reporting
process which monitors levels of customer satisfaction across all the Company's
plans. Indicators used to measure customer satisfaction include satisfaction
surveys, types and number of grievances, timeliness of claims processing and
reasons for customer disenrollment.
HEALTH MAINTENANCE ORGANIZATION ACCREDITATION
With the increasing significance of managed care in the health care
industry, several independent organizations have been formed with the purpose of
responding to external demands for accountability over the managed care
industry. The organizations utilized by the Company are the National Committee
for Quality Assurance ("NCQA") and the Joint Commission on Accreditation of
Healthcare Organizations ("JCAHO"). NCQA performs site reviews of standards
established for quality assurance, credentialing, utilization management,
medical records, preventive services and member rights and responsibilities.
JCAHO reviews rights, responsibilities and ethics, continuum of care, education
and communication, leadership, management of information and human resources and
network performance. Both organizations evaluate the mechanisms the organization
has established to ensure continuous quality improvement.
In the states of Kansas and Florida, where the Company operates in seven
markets, accreditation is mandatory and is generally required for licensure. At
December 31, 1995, five of these markets had received various levels of
accreditation and in February 1996, the Company was notified that Humana Medical
Plan's South Florida market received full accreditation by NCQA. The Company has
now received full accreditation from NCQA in the Florida markets of South
Florida, Orlando and Daytona. The Company has received a three-year
accreditation from JCAHO in Ft. Walton. The Jacksonville market which was
previously denied accreditation is awaiting results from the NCQA review. The
Company's Kansas City market is operating under a one-year NCQA accreditation
and has a new accreditation status pending. The Company is also currently
developing a plan for accreditation of its Milwaukee, Wisconsin plan which was
previously denied accreditation (prior to purchase in December 1994). Management
believes the South Florida, Jacksonville and Milwaukee denials have not had a
material adverse impact on the Company's results of operations, financial
position or cash flows.
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MANAGEMENT INFORMATION SYSTEMS
The Company's managed care health plans use a single set of integrated
information systems developed and/or customized specifically to meet the
Company's needs and to allow for aggregation of data and comparison across
markets. These information systems support marketing, sales, underwriting,
contract administration, billing, financial and other administrative functions
as well as customer service, appointment scheduling, authorization and referral
management, concurrent review, physician capitation and claims administration,
provider management, quality management and utilization review.
Key to the Company's information systems is the decision support database,
used by market office and corporate personnel for such items as physician
profiling, utilization review, quality assessment, member satisfaction
measurement and employer reporting. Clinical software is used as well to assess
appropriateness of medical care provided to the Company's members. The Company's
information systems are continually being upgraded to support new products in an
integrated manner as well as to take advantage of the latest advances in
technology.
MARKETING
Individuals become members of the Company's Commercial HMOs and PPOs
through their employer or other groups which typically offer employees or
members a selection of managed health care products, pay for all or part of the
premiums and make payroll deductions for any premiums payable by the employees.
The Company attempts to become an employer's or group's exclusive source of
managed health care benefits by offering HMO and PPO products that provide
cost-effective quality care consistent with the needs and expectations of the
employees or members.
The Company uses various methods to market its Commercial and Medicare
products, including television, radio, telemarketing and mailings. At December
31, 1995, the Company used approximately 32,800 independently licensed brokers
and agents and 380 licensed employees to sell the Company's Commercial products.
Many of the Company's employer group customers are represented by insurance
brokers and consultants who assist these groups in the design and purchase of
health care products. The Company generally pays brokers a commission based on
premiums, with commissions varying by market and premium volume.
In addition to the above, at December 31, 1995, approximately 40
independently licensed brokers and 530 employed sales representatives, who are
each paid a salary and/or per member commission, marketed the Company's Medicaid
and Medicare products. The Company also uses approximately 400 telemarketing
representatives who assist in the marketing of Medicaid and Medicare products by
making appointments for broker/sales representatives with prospective members.
The following table lists the Company's medical membership at December 31,
1995, by state and product:
<TABLE>
<CAPTION>
MEDICAL MEMBERSHIP
(IN THOUSANDS)
------------------------------------------------------------------------
COMMERCIAL
----------------- MEDICARE MEDICARE PERCENT OF
PPO HMO(1) RISK SUPPLEMENT ASO TOTAL TOTAL
------- ------- -------- ---------- ----- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Florida...................... 171.8 354.4 209.8 12.3 17.4 765.7 20.1%
Illinois..................... 159.7 304.2 37.8 0.1 62.8 564.6 14.8%
Wisconsin.................... 91.8 132.0 -- -- 208.3 432.1 11.4%
Kentucky..................... 29.1 295.5 5.1 37.9 14.3 381.9 10.0%
Texas........................ 171.5 96.5 24.0 15.5 7.6 315.1 8.3%
Missouri/Kansas.............. 67.1 114.3 11.5 7.5 44.4 244.8 6.4%
District of Columbia......... 64.1 107.3 4.2 -- 9.3 184.9 4.9%
Other........................ 643.4 81.2 18.0 41.7 131.0 915.3 24.1%
------- ------- -------- ---------- ----- ------- ----------
Total medical
membership....... 1,398.5 1,485.4 310.4 115.0 495.1 3,804.4 100.0%
====== ====== ======== ========== ===== ====== =========
</TABLE>
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(1) Includes 49,000 Medicaid members at December 31, 1995, located in Wisconsin,
Illinois and Missouri/Kansas.
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The Company's 25 largest group contracts at December 31, 1995, accounted
for approximately 21 percent of total Commercial membership. No one group
contract accounted for as much as 5 percent of the Company's Commercial product
premium revenues; however, certain employer groups accounted for a significant
percentage of Commercial insurance premiums in certain markets. The loss of one
or more of these contracts in a particular market could have a material adverse
effect on the Company's operations in that market.
RISK MANAGEMENT
Through the use of internally developed underwriting criteria, the Company
determines the risk it is willing to assume and the amount of premium to charge
for its Commercial products. In most instances, employer and other groups must
meet the Company's underwriting standards in order to qualify to contract with
the Company for coverage. Small group reform laws in some states have imposed
regulations which provide for guaranteed issue of certain health insurance
products and prescribe certain limitations on the variation in rates charged
based upon assessment of health conditions.
Underwriting techniques are not employed in connection with Medicare risk
HMO products because of HCFA regulations that require the Company to accept all
Medicare-eligible applicants regardless of their health or prior medical
history. The Company also is not permitted to employ underwriting criteria for
the Medicaid product but rather follows HCFA and state requirements. In
addition, with respect to the CHAMPUS Contract, no underwriting techniques are
employed because the Company must accept all eligible beneficiaries that choose
to participate.
COMPETITION
The managed health care industry is highly competitive and contracts for
the sale of Commercial products are generally bid or renewed annually. The
Company's competitors vary by local market and include Blue Cross/Blue Shield
(including HMOs and PPOs owned by Blue Cross/Blue Shield plans), national
insurance companies and other HMOs and PPOs. Many of the Company's competitors
have larger membership in local markets or greater financial resources. In
addition, provider-based networks which could compete directly with the Company
may increase in size and significance. The Company's ability to sell its
products and to retain customers is or may be influenced by such factors as
benefits, pricing, contract terms, number and quality of participating
physicians and other managed health care providers, utilization review, claims
processing, administrative efficiency, relationships with agents, quality of
customer service, and accreditation results.
GOVERNMENT REGULATION
Of the Company's 17 licensed HMO subsidiaries, eight are qualified under
the Federal Health Maintenance Organization Act of 1973, as amended. Five of
these federally qualified subsidiaries are parties to HCFA contracts to provide
Medicare risk HMO products.
To obtain federal qualification, an HMO must meet certain requirements,
including conformance with financial criteria, a standard method of rate
setting, a comprehensive benefit package, and prohibition of medical
underwriting of individuals. In certain markets, and for certain products, the
Company operates HMOs that are not federally qualified because this provides
greater flexibility with respect to product design and pricing than is possible
for federally qualified HMOs.
HCFA audits Medicare risk HMOs at least biannually and may perform other
reviews more frequently to determine compliance with federal regulations and
contractual obligations. These audits include review of the HMO's administration
and management (including management information and data collection systems),
fiscal stability, utilization management and incentive arrangements with
providers, health services delivery, quality assurance, marketing, enrollment
and disenrollment activity, claims processing, and complaint systems. HCFA
regulations require quarterly and annual submission of financial statements and
restrict the number of Medicare risk and Medicaid members to no more than the
HMO's Commercial membership in a specified service area. HCFA regulations also
require independent review of medical records and quality of care, review and
approval by HCFA of all advertising, marketing and communication materials, and
independent review of all denied claims and service complaints which are not
resolved in favor of a member.
8
<PAGE> 10
During 1994, HCFA performed an investigation of the Company's South Florida
health plan. HCFA's findings, which focused primarily on the collection and use
of data, indicated the plan was not fully meeting HCFA requirements in the areas
of utilization management, quality assurance and availability/accessibility. In
July 1995, HCFA notified the Company that it had successfully restored
compliance with these requirements.
The Company's Medicaid product is regulated by the applicable state agency
in the state which the Company sells its Medicaid product and is subject to
periodic reviews by these agencies. The reviews are similar in nature to those
performed by HCFA.
Laws in each of the states in which the Company operates its HMOs and PPOs
regulate the Company's operations, including the scope of benefits, rate
formulas, delivery systems, utilization review procedures, quality assurance,
enrollment requirements, claim payments, marketing, and advertising. The PPO
products offered by the Company are generally sold under insurance licenses
issued by the applicable state insurance regulators. The Company's HMOs and PPOs
are required to be in compliance with certain minimum capital requirements.
These requirements must be satisfied by investing in approved investments that
generally cannot be used for other purposes. Under state laws, the Company's
HMOs and PPOs are audited by state departments of insurance for financial and
contractual compliance, and its HMOs are audited for compliance with health
services standards by respective state departments of health. Most states' laws
require such audits to be performed at least triennially.
The Company and its licensed subsidiaries are subject to regulation under
state insurance holding company regulations. These regulations require among
other things, prior approval and/or notice of certain material transactions, and
the filing of various financial and operational reports.
Management believes that the Company is in substantial compliance with all
governmental laws and regulations affecting the Company's business.
HEALTH CARE REFORM
There continues to be diverse legislative and regulatory initiatives at
both the federal and state levels to address aspects of the nation's health care
system.
National
Although subsequently vetoed by the President, during 1995, Congress passed
a budget reconciliation package which provided for significant changes to the
Medicare and Medicaid programs, including offering Medicare beneficiaries
additional health plan alternatives such as HMOs, PPOs and point-of-service
plans. Management believes that because of on-going concerns over health care
accessibility and the cost of the Medicare and Medicaid programs in their
current form, there will be continued legislative efforts to reform health care.
Current legislative proposals being considered include health insurance
portability, guaranteed group coverage, limits on medical malpractice awards,
modification of future reimbursement rates under the Medicare program, proposals
that would encourage provider-based networks to compete directly with licensed
insurers and HMOs, and proposals which encourage the use of managed health care
for Medicare and Medicaid beneficiaries.
State
Legislation enacted in some states has included, among other things,
universal access, employer purchasing pools and statewide purchasing alliances.
Other managed care legislation which some states have adopted and others have
considered include any willing provider, laws that restrict the ability of
managed care companies to limit their networks, guaranteed renewal, portability,
rating restrictions, standardization of managed care alternatives, mandatory
lengths of stay, direct access to specialists, and freedom of choice
requirements.
Management believes that managed care and health care in general will
continue to be scrutinized and may lead to additional legislative health care
reform initiatives. Management is unable to predict how existing federal or
state laws and regulations may be changed or interpreted, what additional laws
or regulations affecting the Company's businesses may be enacted or proposed,
when and which of the proposed laws will be adopted or what effect any such new
laws and regulations will have on the Company's revenues, profitability and
business prospects.
9
<PAGE> 11
OTHER BUSINESSES
Hospital
The Company owns a 170-bed hospital in Lexington, Kentucky, which provides
care primarily to members of the Company's managed care plans in Lexington. The
Company has contracted with an independent hospital management company, whereby
effective March 1, 1995, all operational functions of the hospital are managed
by the management company.
Professional Liability Risks
The Company insures substantially all of its professional liability risks
through a wholly owned Vermont subsidiary (the "Subsidiary"). The annual
premiums paid to the Subsidiary are determined by independent actuaries. The
Subsidiary reinsures levels of coverage for losses in excess of its retained
limits with various unrelated insurance carriers.
Centralized Management Services
Centralized management services are provided to each health plan from the
Company's headquarters. These services include management information systems,
product administration, financing, personnel, development, accounting, legal
advice, public relations, marketing, insurance, purchasing, risk management,
actuarial, underwriting, and claims processing.
EMPLOYEES
As of December 31, 1995, the Company had approximately 16,800 employees of
which approximately 1,300 employees of the Company were covered by collective
bargaining agreements. The Company has not experienced any work stoppages and
believes it has good relations with its employees.
ITEM 2. PROPERTIES
The Company owns its principal executive office, which is located in the
Humana Building, 500 West Main Street, Louisville, Kentucky 40202.
The Company provides medical services in owned or leased medical centers
ranging in size from approximately 1,200 to 80,000 square feet. The Company's
administrative market offices are generally leased, with square footage ranging
from 500 to 75,000. The following chart lists the location of properties by
state used in the operation of the Company at December 31, 1995:
<TABLE>
<CAPTION>
MEDICAL ADMINISTRATIVE
CENTERS OFFICES
-------------- --------------
OWNED LEASED OWNED LEASED TOTAL
----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Florida.................................... 6 91 -- 28 125
Illinois................................... 8 19 -- 9 36
Kentucky................................... 8 3 1 5 17
Missouri/Kansas............................ 3 11 -- 6 20
Texas...................................... 5 3 1 11 20
District of Columbia....................... -- 2 -- 1 3
Wisconsin.................................. -- -- -- 9 9
Other...................................... 4 7 1 55 67
----- ------ ----- ------ -----
TOTAL............................ 34 136 3 124 297
===== ===== ===== ===== ====
</TABLE>
In addition, the Company owns buildings in Louisville, Kentucky, San
Antonio, Texas, and Green Bay, Wisconsin, and leases facilities in Jacksonville,
Florida, all of which are used for customer service and claims processing. The
Louisville and Green Bay facilities also perform enrollment processing and other
corporate functions.
The Company also owns a hospital and medical office building in Lexington,
Kentucky.
ITEM 3. LEGAL PROCEEDINGS
1. A class action law suit styled Mary Forsyth, et al v. Humana Inc., et
al, Case #CV-5-89-249-PMP (L.R.L.), (now restyled Marietta Cade, et al
v. Humana Health Insurance of Nevada, Inc., et al) was filed on March
29, 1989, in the United States District Court for the District of Nevada
(the "Forsyth"
10
<PAGE> 12
case). There have been no material changes since those described in the
Company's Form 10-Q for the quarterly period ended June 30, 1994.
Two other lawsuits involving allegations similar to those in the
Forsyth case have been filed in United States District Courts in Texas. A
purported class action suit which seeks to represent nationwide classes,
styled James Taylor et al. v. Humana Health Insurance et al was filed in
the Southern District in Corpus Christi, Texas on February 10, 1995. On
September 11, 1995, another purported class action suit, styled Del Bruns
v. Humana Insurance Company (the "Bruns" case), was filed in the Eastern
District in Marshall, Texas. The Bruns case seeks to represent nationwide
classes of insureds other than those in Nevada and Florida.
2. On April 22, 1993, an alleged stockholder of the Company filed a
purported shareholder derivative action in the Court of Chancery of the
State of Delaware, County of New Castle, styled Lewis v. Austen, et al,
Civil Action No. 12937. There have been no changes since those described
in the Company's Form 10-K for the fiscal year ended December 31, 1993.
Damages for claims for personal injuries and medical benefit denials are
usual in the Company's business. Personal injury claims are covered by insurance
from the Subsidiary and excess carriers, except to the extent that claimants
seek punitive damages, which may not be covered by insurance if awarded.
Punitive damages generally are not paid where claims are settled and generally
are awarded only where a court determines there has been a willful act or
omission to act.
Management does not believe that any pending actions will have a material
adverse effect on the Company's consolidated results of operations, financial
position or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below are names and ages of all of the current executive officers
of the Company as of March 1, 1996, their positions, date of election to such
position and the date first elected an officer of the Company:
<TABLE>
<CAPTION>
SERVED IN
SUCH FIRST
CAPACITY ELECTED
NAME AGE POSITION SINCE OFFICER
- -------------------------- --- ---------------------------------------- --------- -----
<S> <C> <C> <C> <C>
David A. Jones 64 Chairman of the Board and Chief 08/69 09/64(1)
Executive Officer
Wayne T. Smith 50 President and Chief Operating Officer 03/93 06/78
and Director
W. Larry Cash 47 Senior Vice President -- Finance and 09/88 08/82
Operations
Karen A. Coughlin 48 Senior Vice President -- Region II 02/93 09/88
W. Roger Drury 49 Chief Financial Officer 05/92 08/83
Philip B. Garmon 52 Senior Vice President -- Region I 09/88 11/82
Arthur P. Hipwell 47 Senior Vice President and General 06/94 08/90(2)
Counsel
Ronald S. Lankford, M.D. 44 Senior Vice President -- Medical Affairs 03/93 08/87
Gregory H. Wolf 39 Senior Vice President -- Sales 10/95 10/95(3)
and Marketing
James E. Murray 42 Vice President -- Finance 03/93 08/90
</TABLE>
- ---------------
(1) Elected an officer of a predecessor corporation in 1961.
(2) Mr. Hipwell was initially elected an officer of the Company in 1990 and
previously served in his present capacity since July 1992. Effective with
the Spinoff, he became Senior Vice President and General Counsel of Galen
Health Care Inc. ("Galen"). Mr. Hipwell returned to the Company in January
1994 and was named Senior Vice President and General Counsel of the Company
on June 15, 1994.
(3) Mr. Wolf was elected an officer of the Company at the time of the
acquisition of EMPHESYS. Mr. Wolf has been President and Chief Operating
Officer of EMPHESYS (now a wholly owned subsidiary of the Company) since
November 1994. Mr. Wolf was named Executive Vice President for Employers
Health
11
<PAGE> 13
Insurance (a wholly owned subsidiary of EMPHESYS) in 1993 and was named
Senior Vice President for Employers Health Insurance in 1990 for Marketing,
Sales and Business Development.
Executive officers are elected annually by the Company's Board of Directors
and serve until their successors are elected or until resignation or removal.
There are no family relationships among any of the directors or executive
officers of the Company, except that Mr. Jones is the father of David A. Jones,
Jr., a director of the Company. Except for Mr. Hipwell and Mr. Wolf, all of the
above-named executive officers have been employees of the Company for more than
five consecutive years.
PART II
Information for Items 5 through 8 of this report, which appears in the 1995
Annual Report to Stockholders as indicated on the following table, is
incorporated by reference herein in this report and filed as an exhibit hereto:
<TABLE>
<CAPTION>
ANNUAL REPORT TO
STOCKHOLDERS
PAGE
----------------
<S> <C> <C>
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS......................................................... 36
ITEM 6. SELECTED FINANCIAL DATA......................................... 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS........................................... 19-22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements............................. 23-32
Report of independent accountants............................. 33
Quarterly financial information (unaudited)................... 33
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
</TABLE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item other than the information set forth
in Part I under the Section entitled "EXECUTIVE OFFICERS OF THE COMPANY," is
herein incorporated by reference from the Registrant's Proxy Statement for the
Annual Meeting of Stockholders scheduled to be held on May 9, 1996, appearing
under the caption "ELECTION OF DIRECTORS OF THE COMPANY FOR 1996" of such Proxy
Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is herein incorporated by reference
from the Registrant's Proxy Statement for the Annual Meeting of Stockholders to
be held on May 9, 1996, appearing under the caption "EXECUTIVE COMPENSATION OF
THE COMPANY" of such Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is herein incorporated by reference
from the Registrant's Proxy Statement for the Annual Meeting of Stockholders to
be held on May 9, 1996, appearing under the caption "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS OF COMPANY COMMON STOCK" of such Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is herein incorporated by reference
from the Registrant's Proxy Statement for the Annual Meeting of Stockholders to
be held on May 9, 1996 appearing under the caption "CERTAIN TRANSACTIONS WITH
MANAGEMENT AND OTHERS" of such Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The financial statements, financial statement schedules and exhibits
set forth below are filed as part of this report.
12
<PAGE> 14
(1) Financial Statements -- The response to this portion of Item 14 is
submitted as Item 8 of this report.
(2) Financial Statement Schedules
All schedules are omitted because they are not applicable, not
required or because the required information is included in the
consolidated financial statements or notes thereto.
(3) Exhibits:
<TABLE>
<C> <S>
3(a) Restated Certificate of Incorporation filed with the Secretary of State
of Delaware on November 9, 1989, as restated to incorporate the amendment
of January 9, 1992, and the correction of March 23, 1992. Exhibit 4(i) to
the Company's Post-Effective Amendment to the Registration Statement on
Form S-8 (Reg. No. 33-49305) filed February 2, 1994, is incorporated by
reference herein.
(b) By-laws, as amended. Exhibit 3(a) to the Company's Current Report on Form
8-K (File No. 1-5975) filed March 5, 1993, is incorporated by reference
herein.
4(a) Restated Certificate of Incorporation as amended and corrected and
By-laws as amended. (See 3(a) and 3(b) above.)
(b) Form of Amended and Restated Rights Agreement dated February 14, 1996,
between Humana Inc. and Mid-America Bank of Louisville and Trust Company
(the "Rights Agreement"). Exhibit 1.3 to the Registration Statement (File
No. 1-5975) on Form 8-A/A dated February 14, 1996, is incorporated by
reference herein.
(c) There are no instruments defining the rights of holders with respect to
long-term debt in excess of 10 percent of the total assets of the Company
on a consolidated basis. Other long-term indebtedness of the Company is
described in Note 6 of Notes to Consolidated Financial Statements in the
Company's 1995 Annual Report to Stockholders. The Company agrees to
furnish copies of all such instruments defining the rights of the holders
of such indebtedness to the Commission upon request.
10(a)* 1981 Non-Qualified Stock Option Plan, as amended. Exhibit 10(c) to the
Company's Form SE filed on November 25, 1987, is incorporated by
reference herein.
(b)* Amendment No. 2 to the 1981 Non-Qualified Stock Option Plan, as amended.
Annex A to the Company's Proxy Statement covering the Annual Meeting of
Stockholders held on February 18, 1993, is incorporated by reference
herein.
(c)* 1989 Stock Option Plan for Employees. Exhibit A to the Company's Proxy
Statement covering the Annual Meeting of Stockholders held on January 11,
1990, is incorporated by reference herein.
(d)* Amendment No. 1 to the 1989 Stock Option Plan for Employees. Annex B to
the Company's Proxy Statement covering the Annual Meeting of Stockholders
held on February 18, 1993, is incorporated by reference herein.
(e)* Amendment No. 2 to the 1989 Stock Option Plan for Employees. Exhibit
10(e) to the Company's Form 10-K for the year ended December 31, 1993, is
incorporated by reference herein.
(f)* 1989 Stock Option Plan for Non-Employee Directors. Exhibit B to the
Company's Proxy Statement covering the Annual Meeting of Stockholders
held on January 11, 1990, is incorporated by reference herein.
(g)* Amendment No. 1 to the 1989 Stock Option Plan for Non-Employee Directors.
Annex C to the Company's Proxy Statement covering the Annual Meeting of
Stockholders held on February 18, 1993, is incorporated by reference
herein.
(h)* Amendment No. 2 to the 1989 Stock Option Plan for Non-Employee Directors.
Exhibit 10(h) to the Company's Form 10-K for the year ended December 31,
1993, is incorporated by reference herein.
</TABLE>
- ---------------
* Exhibits 10(a) through and including 10(w) are compensatory plans or
management contracts.
13
<PAGE> 15
<TABLE>
<C> <S>
10(i)* Executive Management Incentive Compensation Plan -- Group A, Corporate.
Exhibit C to the Company's Proxy Statement covering the Annual Meeting of
Stockholders held on May 26, 1994, is incorporated by reference herein.
(j)* Executive Management Incentive Compensation Plan -- Group I, Corporate.
Exhibit 10(j) to the Company's Form 10-K for the year ended December 31,
1993, is incorporated by reference herein.
(k)* Regional Incentive Compensation Plan -- Group I, Regional Senior Vice
President. Exhibit 10(k) to the Company's Form 10-K for the year ended
December 31, 1993, is incorporated by reference herein.
(l)* Senior Management Incentive Compensation Plan -- Group II, Corporate.
Exhibit 10(l) to the Company's Form 10-K for the year ended December 31,
1993, is incorporated by reference herein.
(m)* Restated agreement providing for termination benefits in the event of a
change of control. Exhibit 10(m) to the Company's Form 10-K for the year
ended December 31, 1994, is incorporated by reference herein.
(n)* Employment Agreement -- Wayne T. Smith. Exhibit 10(n) to the Company's
Form 10-K for the year ended December 31, 1994, is incorporated by
reference herein.
(o)* Employment Agreement -- David A. Jones, as amended. Exhibit 10(m) to the
Company's Form 10-K for the fiscal year ended August 31, 1991, is
incorporated by reference herein.
(p)* Directors' Retirement Policy as amended, filed herewith.
(q)* Humana Officers' Target Retirement Plan as amended. Exhibit 10(q) to the
Company's Form 10-K for the year ended December 31, 1994, is incorporated
by reference herein.
(r)* Form Letter Agreement concerning Humana Officers' Target Retirement Plan
dated June 18, 1992, for David A. Jones. Exhibit 10(s) to the Company's
Form 10-K for the year ended December 31, 1993, is incorporated by
reference herein.
(s)* Humana Thrift Excess Plan as amended. Exhibit 10(s) to the Company's Form
10-K for the year ended December 31, 1994, is incorporated by reference
herein.
(t)* Humana Supplemental Executive Retirement Plan as amended. Exhibit 10(t)
to the Company's Form 10-K for the year ended December 31, 1994, is
incorporated by reference herein.
(u)* Letter agreement with Company officers concerning health insurance
availability. Exhibit 10(mm) to the Company's Form 10-K for the year
ended December 31, 1994, is incorporated by reference herein.
(v)* Employment Agreement between Gregory H. Wolf and Employers Health
Insurance, Co., a wholly owned subsidiary of the Company, filed herewith.
(w)* Retention Bonus Agreement between Gregory H. Wolf and the Company, filed
herewith.
(x) Indemnity Agreement. Appendix B to the Company's Proxy Statement covering
the Annual Meeting of Stockholders held on January 8, 1987, is
incorporated by reference herein.
(y) Agreement between the Secretary of the Department of Health and Human
Services and Humana Medical Plan, Inc. Exhibit 10(w) to the Company's
Form 10-K for the year ended December 31, 1993, is incorporated by
reference herein.
(z) Humana Inc. Amendment and Restatement of Credit Agreement dated as of
September 26, 1995. Exhibit (b)(2) to Amendment No. 4 of the Company's
Schedule 14D-1 and 13D is incorporated by reference herein.
</TABLE>
- ---------------
* Exhibits 10(a) through and including 10(w) are compensatory plans or
management contracts.
14
<PAGE> 16
<TABLE>
<C> <S>
10(aa) Assumption of Liabilities and Indemnification Agreement between the
Company and Galen. Exhibit 10(g) to the Company's Current Report on Form
8-K filed on March 5, 1993, is incorporated by reference herein.
(bb) Loss Portfolio Reinsurance Agreement between Health Care Indemnity, Inc.
and Managed Care Indemnity, Inc. Exhibit 10(j) to the Company's Current
Report on Form 8-K filed on March 5, 1993, is incorporated by reference
herein.
(cc) Alternative Dispute Resolution Agreement between the Company and Galen
dated March 8, 1993. Exhibit 10(qq) to the Company's Form 10-K for the
year ended December 31, 1993, is incorporated by reference herein.
(dd) Agreement between the United States Department of Defense and Humana
Military Healthcare Services, Inc., a wholly owned subsidiary of the
Company, filed herewith.
12 Statement re: Computation of Ratio of Earnings to Fixed Charges, filed
herewith.
13 1995 Annual Report to Stockholders, filed herewith. The Annual Report
shall not be deemed to be filed with the Commission except to the extent
that information is specifically incorporated by reference herein.
21 List of Subsidiaries, filed herewith.
23 Consent of Coopers & Lybrand L.L.P., filed herewith.
27 Financial Data Schedule, filed herewith.
</TABLE>
(b) Reports on Form 8-K:
On October 25, 1995, the Company filed a report on Form 8-K regarding the
acquisition of EMPHESYS Financial Group, Inc. ("EMPHESYS"), which was
consummated on October 11, 1995. The Form 8-K included certain unaudited
financial statements extracted from EMPHESYS' Form 10-Q for the period ended
June 30, 1995 and EMPHESYS' audited financial statements included in their
Annual Report on Form 10-K for the year ended December 31, 1994. The Form 8-K
also included unaudited pro forma financial statements as required by Article 11
of Regulation S-X.
15
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized.
HUMANA INC.
By: /s/ W. ROGER DRURY
-----------------------
W. Roger Drury
Chief Financial Officer
Date: March 29, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- --------------------------------------------- ------------------------------- ---------------
<C> <S> <C>
/s/ JAMES E. MURRAY Vice President -- Finance March 29, 1996
- --------------------------------------------- (Principal Accounting Officer)
James E. Murray
/s/ DAVID A. JONES Chairman of the Board and Chief March 29, 1996
- --------------------------------------------- Executive Officer
David A. Jones
/s/ WAYNE T. SMITH President and Chief Operating March 29, 1996
- --------------------------------------------- Officer and Director
Wayne T. Smith
/s/ K. FRANK AUSTEN, M.D. Director March 29, 1996
- ---------------------------------------------
K. Frank Austen, M.D.
/s/ MICHAEL E. GELLERT Director March 29, 1996
- ---------------------------------------------
Michael E. Gellert
/s/ JOHN R. HALL Director March 29, 1996
- ---------------------------------------------
John R. Hall
/s/ DAVID A. JONES, JR. Director March 29, 1996
- ---------------------------------------------
David A. Jones, Jr.
/s/ IRWIN LERNER Director March 29, 1996
- ---------------------------------------------
Irwin Lerner
/s/ W. ANN REYNOLDS, PH.D. Director March 29, 1996
- ---------------------------------------------
W. Ann Reynolds, Ph.D.
</TABLE>
16
<PAGE> 18
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
3(a) Restated Certificate of Incorporation filed with the Secretary of State
of Delaware on November 9, 1989, as restated to incorporate the amendment
of January 9, 1992, and the correction of March 23, 1992. Exhibit 4(i) to
the Company's Post-Effective Amendment to the Registration Statement on
Form S-8 (Reg. No. 33-49305) filed February 2, 1994, is incorporated by
reference herein.
(b) By-laws, as amended. Exhibit 3(a) to the Company's Current Report on Form
8-K (File No. 1-5975) filed March 5, 1993, is incorporated by reference
herein.
4(a) Restated Certificate of Incorporation as amended and corrected and
By-laws as amended. (See 3(a) and 3(b) above.)
(b) Form of Amended and Restated Rights Agreement dated February 14, 1996,
between Humana Inc. and Mid-America Bank of Louisville and Trust Company
(the "Rights Agreement"). Exhibit 1.3 to the Registration Statement (File
No. 1-5975) on Form 8-A/A dated February 14, 1996, is incorporated by
reference herein.
(c) There are no instruments defining the rights of holders with respect to
long-term debt in excess of 10 percent of the total assets of the Company
on a consolidated basis. Other long-term indebtedness of the Company is
described in Note 6 of Notes to Consolidated Financial Statements in the
Company's 1995 Annual Report to Stockholders. The Company agrees to
furnish copies of all such instruments defining the rights of the holders
of such indebtedness to the Commission upon request.
10(a)* 1981 Non-Qualified Stock Option Plan, as amended. Exhibit 10(c) to the
Company's Form SE filed on November 25, 1987, is incorporated by
reference herein.
(b)* Amendment No. 2 to the 1981 Non-Qualified Stock Option Plan, as amended.
Annex A to the Company's Proxy Statement covering the Annual Meeting of
Stockholders held on February 18, 1993, is incorporated by reference
herein.
(c)* 1989 Stock Option Plan for Employees. Exhibit A to the Company's Proxy
Statement covering the Annual Meeting of Stockholders held on January 11,
1990, is incorporated by reference herein.
(d)* Amendment No. 1 to the 1989 Stock Option Plan for Employees. Annex B to
the Company's Proxy Statement covering the Annual Meeting of Stockholders
held on February 18, 1993, is incorporated by reference herein.
(e)* Amendment No. 2 to the 1989 Stock Option Plan for Employees. Exhibit
10(e) to the Company's Form 10-K for the year ended December 31, 1993, is
incorporated by reference herein.
(f)* 1989 Stock Option Plan for Non-Employee Directors. Exhibit B to the
Company's Proxy Statement covering the Annual Meeting of Stockholders
held on January 11, 1990, is incorporated by reference herein.
(g)* Amendment No. 1 to the 1989 Stock Option Plan for Non-Employee Directors.
Annex C to the Company's Proxy Statement covering the Annual Meeting of
Stockholders held on February 18, 1993, is incorporated by reference
herein.
(h)* Amendment No. 2 to the 1989 Stock Option Plan for Non-Employee Directors.
Exhibit 10(h) to the Company's Form 10-K for the year ended December 31,
1993, is incorporated by reference herein.
</TABLE>
- ---------------
* Exhibits 10(a) through and including 10(w) are compensatory plans or
management contracts.
<PAGE> 19
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10(i)* Executive Management Incentive Compensation Plan -- Group A, Corporate.
Exhibit C to the Company's Proxy Statement covering the Annual Meeting of
Stockholders held on May 26, 1994, is incorporated by reference herein.
(j)* Executive Management Incentive Compensation Plan -- Group I, Corporate.
Exhibit 10(j) to the Company's Form 10-K for the year ended December 31,
1993, is incorporated by reference herein.
(k)* Regional Incentive Compensation Plan -- Group I, Regional Senior Vice
President. Exhibit 10(k) to the Company's Form 10-K for the year ended
December 31, 1993, is incorporated by reference herein.
(l)* Senior Management Incentive Compensation Plan -- Group II, Corporate.
Exhibit 10(l) to the Company's Form 10-K for the year ended December 31,
1993, is incorporated by reference herein.
(m)* Restated agreement providing for termination benefits in the event of a
change of control. Exhibit 10(m) to the Company's Form 10-K for the year
ended December 31, 1994, is incorporated by reference herein.
(n)* Employment Agreement -- Wayne T. Smith. Exhibit 10(n) to the Company's
Form 10-K for the year ended December 31, 1994, is incorporated by
reference herein.
(o)* Employment Agreement -- David A. Jones, as amended. Exhibit 10(m) to the
Company's Form 10-K for the fiscal year ended August 31, 1991, is
incorporated by reference herein.
(p)* Directors' Retirement Policy as amended, filed herewith.
(q)* Humana Officers' Target Retirement Plan as amended. Exhibit 10(q) to the
Company's Form 10-K for the year ended December 31, 1994, is incorporated
by reference herein.
(r)* Form Letter Agreement concerning Humana Officers' Target Retirement Plan
dated June 18, 1992, for David A. Jones. Exhibit 10(s) to the Company's
Form 10-K for the year ended December 31, 1993, is incorporated by
reference herein.
(s)* Humana Thrift Excess Plan as amended. Exhibit 10(s) to the Company's Form
10-K for the year ended December 31, 1994, is incorporated by reference
herein.
(t)* Humana Supplemental Executive Retirement Plan as amended. Exhibit 10(t)
to the Company's Form 10-K for the year ended December 31, 1994, is
incorporated by reference herein.
(u)* Letter agreement with Company officers concerning health insurance
availability. Exhibit 10(mm) to the Company's Form 10-K for the year
ended December 31, 1994, is incorporated by reference herein.
(v)* Employment Agreement between Gregory H. Wolf and Employers Health
Insurance, Co., a wholly owned subsidiary of the Company, filed herewith.
(w)* Retention Bonus Agreement between Gregory H. Wolf and the Company, filed
herewith.
(x) Indemnity Agreement. Appendix B to the Company's Proxy Statement covering
the Annual Meeting of Stockholders held on January 8, 1987, is
incorporated by reference herein.
(y) Agreement between the Secretary of the Department of Health and Human
Services and Humana Medical Plan, Inc. Exhibit 10(w) to the Company's
Form 10-K for the year ended December 31, 1993, is incorporated by
reference herein.
(z) Humana Inc. Amendment and Restatement of Credit Agreement dated as of
September 26, 1995. Exhibit (b)(2) to Amendment No. 4 of the Company's
Schedule 14D-1 and 13D is incorporated by reference herein.
</TABLE>
- ---------------
* Exhibits 10(a) through and including 10(w) are compensatory plans or
management contracts.
<PAGE> 20
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10(aa) Assumption of Liabilities and Indemnification Agreement between the
Company and Galen. Exhibit 10(g) to the Company's Current Report on Form
8-K filed on March 5, 1993, is incorporated by reference herein.
(bb) Loss Portfolio Reinsurance Agreement between Health Care Indemnity, Inc.
and Managed Care Indemnity, Inc. Exhibit 10(j) to the Company's Current
Report on Form 8-K filed on March 5, 1993, is incorporated by reference
herein.
(cc) Alternative Dispute Resolution Agreement between the Company and Galen
dated March 8, 1993. Exhibit 10(qq) to the Company's Form 10-K for the
year ended December 31, 1993, is incorporated by reference herein.
(dd) Agreement between the United States Department of Defense and Humana
Military Healthcare Services, Inc., a wholly owned subsidiary of the
Company, filed herewith.
12 Statement re: Computation of Ratio of Earnings to Fixed Charges, filed
herewith.
13 1995 Annual Report to Stockholders, filed herewith. The Annual Report
shall not be deemed to be filed with the Commission except to the extent
that information is specifically incorporated by reference herein.
21 List of Subsidiaries, filed herewith.
23 Consent of Coopers & Lybrand L.L.P., filed herewith.
27 Financial Data Schedule, filed herewith.
</TABLE>
<PAGE> 1
Exhibit 10(p)
DIRECTORS RETIREMENT POLICY
Effective July 13, 1995, the Humana Inc. Directors Retirement Policy
shall be as follows: Each director of the Company shall not stand for
re-election after his or her 73rd birthday.
Any retiring non-employee director, who has served at least ten years
on Humana's Board of Directors, shall receive the full basic retainer fee in
effect at the time of his or her retirement. For service less than ten years,
the basic retainer fee shall be multiplied by a fraction (not to exceed one),
the numerator of which is such retiring director's years of service with the
Company's Board and the denominator of which is ten. The full or pro-rated basic
retainer fee shall be the retiring director's retirement benefit until the death
of such retired director ("Director Retirement Benefit"). The retiring director
may choose, at the time of his/her retirement, as to the form of payment between
a regular monthly payment during his/her lifetime or a joint survivor annuity
payment.
In addition, a retired director shall be eligible to participate in the
Company's matching charitable contributions program. For so long as the program
exists or until death, each retired director shall be eligible for annual
matching contributions of up to 50% of his or her Directors Retirement Benefit.
<PAGE> 1
Exhibit 10(v)
AGREEMENT
AGREEMENT made as of March 9, 1994, as amended and restated as of March
17, 1995, by and between EMPHESYS FINANCIAL GROUP, INC. (hereinafter called "the
Company"), a Delaware corporation having its principal place of business in
Green Bay, Wisconsin, and Gregory H. Wolf (hereinafter called "Employee"):
WITNESSETH:
WHEREAS, Employee desires to render faithful and efficient service to
the Company; and
WHEREAS, the Company desires to receive the benefit of Employee's
service; and
WHEREAS, Employee is willing to be employed by the Company; and
WHEREAS, the Company deems it essential to formalize the conditions of
Employee's employment by written agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, the parties agree as follows:
1. Office. The Company hereby employs Employee and as a President and
Chief Operating Officer; and Employee hereby agrees to serve the
Company in such capacity.
2. Term of Employment. Employee's employment shall be for the
"Employment Period," with the initial term commencing at Closing
Date of the Initial Public Offering, and extending to the third
anniversary of such Closing Date. The initial term shall be
automatically renewed and extended upon the expiration thereof for
successive periods of one (1) year until such time as the
Employment Period shall terminate pursuant to the terms of this
Agreement, or until the Company on the one hand, or Employee on
the other hand, shall terminate the Employment Period by giving
written notice to the other party on or before 60 days last
preceding the date upon which this Agreement would otherwise be
renewed and extended, whichever date of termination shall first
occur. If the remaining term of this Agreement is less than one
year on the
<PAGE> 2
date of a Change in Control (as hereinafter defined), such term
shall automatically be extended, effective on the date of such
Change in Control. The renewal and extension of this Agreement
shall also be referred to as the "Employment Period."
3. Incapacity. If during the employment Period, Employee should be
prevented from performing his duties or fulfilling his
responsibilities by reason of any incapacity or disability for a
continuous period of six (6) months then the Company, in its sole
and absolute discretion, may, based on the opinion of a qualified
physician, consider such incapacity or disability to be total and
may on ninety (90) days written notice to Employee terminate the
Employment Period. Benefits and payments shall be made under this
Agreement following incapacity as if it were a termination without
Good Cause in accordance with paragraph 9(a) or (b), as
applicable.
4. Death. The Employment Period shall automatically terminate upon
the death of Employee, and payments will be made to the Employee's
estate as if it was a termination without Good Cause in accordance
with paragraph 9(a) or (b), as applicable.
5. Responsibilities. During the Employment Period, Employee shall
devote his entire business time and attention, except during
reasonable vacation periods, to, and exert his best efforts to
promote, the affairs of the Company, and shall render such
services to the Company as may be required by the Board of
Directors of the Company consistent with services be required by
virtue of the office set forth in paragraph 1 hereof and shall
perform such other services as may now or hereafter be specified
or enumerated in the By-Laws of the Company consistent with such
office. Nothing herein contained shall preclude service by
Employee on boards of directors or trustees of other entities not
engaged in any business competitive with the business of the
Company.
6. Compensation. During the Employment Period, Employee shall receive
a base salary that shall be at an annual rate of not less than
$250,000, payable in accordance with the payroll practices of the
Company as from time to time in effect with regard to executive
personnel, plus, commencing with January 1, 1995, any annual
increase to such salary as determined by the Company.
7. Benefit Plans and Programs. During the Employment Period, Employee
shall
<PAGE> 3
be eligible for participation in all benefit plans and programs,
including those for executive employees, made available by the
Company to its respective employees.
8. Stock Options and Restricted Stock Awards. Among the benefit plans
and programs made available by the Company to certain of its
employees is the Company's 1994 Stock Incentive Plan. Effective on
the Closing Date, Employee shall be awarded stock options to
purchase, at the Initial Offering Price, 25,000 shares of the
Company's Stock. Such Option Agreement shall have the terms and
conditions set forth in the Nonqualified Stock Option Agreement
dated March 21, 1994 by and between the Company and Employee, as
such agreement may be amended from time to time (the "Option
Agreement"). Employee shall also be awarded a restricted stock
award of 25,893 shares with terms and conditions set forth in the
Restricted Stock Award Agreement and Stock Power dated March 21,
1994 by and between the Company and Employee, as such agreement
may be amended from time to time (the "Restricted Stock
Agreement").
9. Severance Payments.
(a) Subject to paragraph 9(b), in the event that (i) Employee's
employment is terminated by the Company while this Agreement
is in effect without Good Cause, (ii) the Employment Period
is terminated by reason incapacity or disability in
accordance with paragraph 3 or (iii) the employment period is
terminated by reason of death in accordance with paragraph 4:
(1) With respect to subparagraphs 9(a), (i), (ii) and (iii),
the Company shall pay to Employee, no later than ten
calendar days after the effective date of such
termination of employment or date of death, as the case
may be (the "Termination Date"), an amount equal to his
then current annual base salary accrued through the
Termination Date, his bonus for the most recently
completed fiscal year prorated for the current fiscal
year through the Termination Date plus one times the sum
of his then current annual base salary and bonus
(without proration) for the most recently completed
fiscal year, and the Company shall continue to keep in
full force and effect all plans or policies of medical,
<PAGE> 4
accident and life insurance benefits with respect to
Employee and his dependents with the same level of
coverage available to employees under the terms of those
employee benefit plans for a period of twelve months,
upon the same terms, costs and otherwise to the same
extent as such plans are in effect for employees of the
Company who were similarly situated to Employee as of
the Termination Date, in addition to any amounts payable
to the Employee under any severance pay plan maintained
by the Company for its employees;
(2) With respect to subparagraphs 9(a) (i) and (ii), to the
extent restricted shares awarded to him as provided in
paragraph 8 of this Agreement do not become fully vested
and nonforfeitable as of the Termination Date in
accordance with paragraph 5 of the Restricted Stock
Agreement, such restricted shares shall become fully
vested and non-forfeitable as of the Termination Date;
provided, that with respect to subparagraph 9(a) (iii),
such restricted shares shall become vested and non-
forfeitable in accordance with paragraph 5 of the
Restricted Stock Agreement; and
(3) With respect to subparagraphs 9(a) (i) and (ii), to the
extent options granted to him under paragraph 8 of this
Agreement do not become fully vested and exercisable as
of the Termination Date in accordance with paragraph 2
of the Option Agreement, such options shall become
vested and exercisable for three months commencing on
the Termination Date; provided, that with respect to
subparagraph 9(a) (iii), such options shall become
vested and exercisable in accordance with paragraph 2 of
the Option Agreement.
(b) (i) In the event that Employee's employment is terminated by
the Company while this Agreement is in effect within two
years following a Change in Control (as hereinafter defined)
with or without Good Cause or (ii) if Employee terminates his
own employment within 6 months after a 25% or more reduction
in his base annual salary or of the board significantly
reducing his responsibilities and removing his title as
President and Chief Operating Officer (other than in
anticipation
<PAGE> 5
of Employee's retirement):
(1) With respect to subparagraphs 9(b) (i) and (ii), the
Company shall pay to Employee, no later than ten days
after the Termination Date, an amount equal to his then
current annual base salary accrued through the
Termination Date, his bonus for the most recently
completed fiscal year prorated for the current fiscal
year through the Termination Date plus one and one half
times the sum of his then current annual base salary and
bonus for the most recently completed fiscal year
(without proration) and the Company shall continue to
keep in full force and effect all plans or policies of
medical, accident and life insurance benefits with
respect to Employee and his dependents with the same
level of coverage available to employees under the terms
of those employee benefit plans for a period of eighteen
months, upon the same terms, costs and otherwise to the
same extent as such plans are in effect for employees of
the Company who were similarly situated to Employee as
of the Termination Date, in addition to any amounts
payable to the Employee under any severance pay plan
maintained by the Company for its employees;
(2) With respect to subparagraph 9(b) (ii), all restricted
shares awarded to him as provided in paragraph 8 of this
Agreement shall become fully vested and non-forfeitable
as of the Termination Date; provided, that with respect
to subparagraph 9(b) (i), such restricted shares shall
become vested and non-forfeitable in accordance with
paragraph 5 of the Restricted Stock Agreement; and
(3) With respect to subparagraph 9(b) (ii), all options
granted to him under paragraph 8 of this Agreement shall
become vested and exercisable for three months
commencing on the Termination Date; provided, that with
respect to subparagraph 9(b) (i), such options shall
become vested and exercisable in accordance with
paragraph 2 of the Option Agreement.
(c) Subject to paragraph 9(b), in the event that Employee's
employment is
<PAGE> 6
terminated by the Company with Good Cause:
(1) the Company shall pay to Employee, no later than ten
days after the Termination Date, an amount equal to his
then current annual base salary accrued through the
Termination Date;
(2) all restricted shares awarded to him as provided in
paragraph 8 of this Agreement shall become fully vested
and non-forfeitable as of the Termination Date; and
(3) all options granted to him under paragraph 8 of this
Agreement shall become vested and exercisable for three
months commencing on the Termination Date.
(d) Good Cause means the Board of Directors of the Company has
determined in good faith, without being bound by the
Company's progressive discipline policy for employees,
(1) that Employee has engaged in acts or omissions against
the Company or any of its subsidiaries constituting
dishonesty, intentional breach of fiduciary obligation
or intentional wrongdoing or misfeasance;
(2) that Employee has been arrested or indicted in a
possible criminal violation involving fraud or
dishonesty;
(3) after due consideration and with notice to the Employee,
that Employee has performed poorly;
(4) that Employee has failed or refused to perform his
duties set forth in paragraph 5 hereof, or willfully
failed to execute any reasonable instruction relating to
his duties with the Company given him by the Chief
Executive Officer of the Company if either such failure
or refusal is not corrected within ten business days
after his receipt of written notification of such
failure or refusal; or
(5) that Employee has intentionally and in bad faith acted
in a
<PAGE> 7
manner which results in a material detriment to the
assets, business or prospects of the Company or any of
its subsidiaries.
(e) A "Change in Control" shall be deemed to have occurred if,
during, or following the consummation of, a stock purchase
program, tender offer, exchange offer, merger, consolidation,
sale of assets, contested election, or any combination of the
foregoing transactions, any person, entity, or group of
persons acting in concert, directly or indirectly, (i)
acquires ownership of the power to vote in excess of 40% of
the voting securities of EFG and one or more of its
representatives are elected to the Board, (ii) acquires
ownership of the power to vote in excess of 50% of the voting
power of EFG, or (iii) otherwise acquires effective control
of the business and affairs of EFG; provided however, that an
acquisition of shares pursuant to the sale or transfer of any
interest in EFG by Lincoln National Corporation, any of its
subsidiaries or affiliates, to a subsidiary or affiliate
shall not be used to compute the percentage ownership for
purposes of defining Change in Control, nor shall such
transfer to an unrelated third party be used in computing the
40% percentage ownership of (i).
In addition to the arrangements made pursuant to this
paragraph 9
(1) if on the Termination Date, following termination for
any reason, Employee shall not be fully vested in the
employer matching contributions made on his behalf under
the Company's profit sharing plan, the Company shall pay
to Employee within 30 days following the Termination
Date a lump sum cash amount equal to the value of the
unvested portion of such employer matching
contributions; provided, however, that if any payment
pursuant to this paragraph (9) (d) may or would result
in such payment being deemed a transaction which is
subject to Section 16(b) of the Securities Exchange Act
of 1934, as amended, the Company shall make such payment
so as to meet the conditions for an exemption from such
Section 16(b) as set forth in the rules (and
interpretive and no-action letters relating thereto)
under Section 16. The value of any such unvested
employer matching contributions shall be determined as
of the Termination Date.
<PAGE> 8
(2) All options granted to Employee under paragraph 8 of
this Agreement shall, to the extent not then vested and
exercisable, become vested and exercisable for three
months commencing on the Termination Date.
(f) Notwithstanding anything herein to the contrary, in the event
Employee's employment is terminated and Employee is not
entitled to any benefit or severance payment in accordance
with (A) the last sentence of paragraph 3 or (B) paragraph 4,
9(a), 9(b) or 9(c), Employee shall not be entitled to any
benefit or severance payment under paragraph 9, except (x) as
set forth in paragraph 9(e) and (y) the Company shall pay to
Employee an amount equal to his then current annual base
salary accrued through the Termination Date.
10. Expenses. During the Employment Period the Company shall allow
Employee his reasonable expense of travel and business
entertainment incurred in the performance of his duties hereunder,
subject to the rules and regulations adopted by the Company for
the handling of such business expenses.
11. Restrictive Covenants. Employee shall not during the Employment
Period, directly or indirectly, alone or as a member of a
partnership or association, or as an officer, director, advisor,
consultant, agent or employee of any other company, be engaged in
or concerned with any other duties or pursuits requiring his
personal services except with the prior written consent of the
Board of Directors of the Company. Nothing herein contained shall
preclude the ownership by Employee of stocks or other investment
securities. Nothing herein contained shall preclude service by
Employee on boards of directors or trustees of other entities not
engaged in any business competitive with the business of the
Company.
12. Trade Secrets and Non-compete. (a) Employee acknowledges that as a
result of his employment by the Company, he may develop, obtain or
learn about specific confidential information or trade secrets
which are the property of the Company. Employee hereby covenants
and agrees to use his best efforts and the utmost diligence to
guard and protect such confidential information and trade secrets
and that he will not, without the prior written consent of the
Company, as the case may be or, for a period of two (2) years
following the Termination Date use for himself or others or
disclose or permit to be
<PAGE> 9
disclosed to any third party by any method whatsoever any such
confidential information or trade secret, unless disclosure is
required by law, regulation or order of any court or regulatory
commission, department or agency. For purposes of this paragraph,
confidential information or trade secrets shall include, but not
be limited to, any and all records, notes, memoranda, data, ideas,
processes, methods, devices, programs, computer software,
writings, research, personnel information, customer information,
financial information, plans or any information of whatever
nature, in the possession or control of the Company which give to
the Company an opportunity to obtain an advantage over competitors
who do not know or use it.
(b) Employee further covenants that for a period of two years
after ceasing employment with the Company, he shall not:
(i) Interfere with the relationship of the Company and any
employee, agent or representative.
(ii) Divert or attempt to cause the diversion from the Company any
business with which the Company has been actively engaged in
during the past two years nor interfere with relationships of
the Company with policyholders, dealers, distributors,
marketers, sources of supply, or customers.
Employee further specifically acknowledges that the geographic
area to which the covenants contained in 12(b) (i) and 12(b) (ii)
apply is the same geographic area in which he performed services
for the Company the past two years. In the event that Employee is
terminated without Good Cause, Employee will not be subject to the
covenants contained in 12(b) (i) and 12(b) (ii) above.
13. Grounds for Termination of Employment. The Company may terminate
the Employment Period by written notice to Employee, specifying
the ground or grounds for such termination, if any, but should the
Employee's termination be without Good Cause, the provisions of
Section 5, 11 and the noncompete provisions of Section 12(b) (i)
and 12(b) (ii) of this Agreement will not be applicable.
14. Effect of Termination of the Employment Period. Upon the
termination of the Employment Period, this Agreement shall
terminate, and all of the parties'
<PAGE> 10
obligations hereunder shall forthwith terminate, except that
rights and remedies accruing prior to such termination or arising
out of this Agreement shall survive.
15. Notice. Any notice required to be given by the Company hereunder
to Employee shall be in proper form and signed by an officer or
Director of the Company. Until one party shall advise the other in
writing to the contrary, notices shall be deemed delivered:
(a) to the Company if delivered to the Secretary of the Board of
EMPHESYS FINANCIAL GROUP, INC., or, if mailed, certified or
registered mail, postage prepaid, at 1100 Employers Blvd.,
Green Bay, WI 54344, and
(b) to Employee if delivered to Employee, or if mailed to him,
certified or registered mail, postage prepaid, at 4588
Choctaw Trail, Green Bay, WI 54313.
16. Alternative Dispute Resolution. Any controversy, dispute or
questions arising out of, in connection with or in relation to
this Agreement or its interpretation, performance or
nonperformance or any breach thereof shall be resolved through
mediation. In the event mediation fails to resolve the dispute
within 60 days after a mediator has been agreed upon or such other
longer period as may be agreed to by the parties, such
controversy, dispute or question shall be settled by arbitration
in accordance with the Center for Public Resources Rules for Non-
Administered Arbitration of Business Disputes, by a sole
arbitrator. The arbitration shall be governed by the United States
Arbitration Act, 9 U.S.C. Sec. 1-16, and judgment upon the award
rendered by the arbitrator may be entered by any court having
jurisdiction thereof. The place of the arbitration shall be Green
Bay, Wisconsin. In any such controversy or dispute, regardless of
the party by whom such controversy or dispute is initiated, the
Company shall, if written notice is given and upon presentation of
appropriate vouchers, pay all legal expenses, including reasonable
attorneys' fees, court costs and ordinary and necessary
out-of-pocket costs of attorneys, billed to an payable by the
Employee in connection with the bringing, prosecuting, defending,
litigating, negotiating, or settling such controversy or dispute;
provided, however, that such expenses, fees and costs shall not be
paid by the Company unless and until the Employee is successful on
the
<PAGE> 11
merits; further provided, however, that in the event such
controversy or dispute is settled, the settlement agreement shall
provide for the allocation of such expenses, fees and costs
between the parties.
17. Benefit. This Agreement shall bind and inure to the benefit of the
Company and the Employee, their respective heirs, successors and
assigns.
18. Conditions. This Agreement, as amended and restated, shall become
effective upon approval by Compensation Committee of the Board of
Directors.
19. Effect on Previous Agreements. Should this Agreement, as amended
and restated, become effective, it will supersede all employment
related agreements between Employee and the Company or any member
of the Lincoln National Corporation controlled group of companies.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
Attest: EMPHESYS FINANCIAL GROUP, INC.
/s/ DOLLY WILLEM By: /s/ WILLIAM J. LAWSON
------------------------------ -----------------------------
Dolly Willem William J. Lawson
Signed, sealed and delivered
in the presence of:
/s/ Merrill, Lynch, Pierce,
Fenner & Smith, Inc. /s/ GREGORY H. WOLF
------------------------------ -----------------------------
Gregory H. Wolf
<PAGE> 1
Exhibit 10(w)
RETENTION BONUS AGREEMENT
THIS AGREEMENT is entered into this 16th day of October, 1995, by and
between HUMANA INC., a Delaware corporation, and Gregory H. Wolf ("Employee").
If Employee remains in the employ of Humana Inc. or EMPHESYS Financial
Group, Inc., or any subsidiary or affiliate thereof (collectively "Humana")
through calendar year 1996 (the "First Bonus Period"), and performs all of the
duties and obligations of Employee as reasonably requested, Employee shall
receive from Humana a retention bonus equal to the sum of Two Hundred Thousand
Dollars ($200,000), less applicable withholdings (the "Bonus"). In addition, if
Employee remains in the employ of Humana from the end of the First Bonus Period
through calendar year 1997 (the "Second Bonus Period") and performs all of the
duties and obligations of Employee as reasonably requested, Employee shall
receive from Humana an additional retention bonus equal to the sum of Two
Hundred Thousand Dollars ($200,000), less applicable withholdings (the
"Additional Bonus").
If Employee's employment with Humana is terminated for Cause or if
Employee voluntarily terminates his employment prior to the end of the relevant
First or Second Bonus Period, Employee's rights under this Agreement for that
(and any subsequent) Bonus Period shall be automatically and completely
forfeited. If Employee's employment with Humana is terminated by Humana other
than for Cause prior to the end of the relevant First or Second Bonus Period,
Employee shall be entitled to a prorata portion of (his) Bonus or Additional
Bonus for that portion of the First or Second Bonus Period, as applicable,
worked prior to termination. Said Bonus and/or Additional Bonus, or prorata
portion thereof, will be paid within sixty (60) days after the end of the
applicable Bonus Period or after termination by Humana other than for Cause,
whichever is applicable.
This Agreement is not intended to be nor should it be construed as an
employment contract. Either party may terminate the employment relationship at
any time, with or without cause.
"Cause" as used in this Agreement shall mean:
(1) that Employee has engaged in acts or omissions against Humana
constituting dishonesty, intentional breach of fiduciary
obligation or intentional wrongdoing or misfeasance;
<PAGE> 2
(2) that Employee has been arrested or indicted in a possible criminal
violation involving fraud or dishonesty;
(3) that Employee has failed or refused to perform the duties
reasonably within the scope of his employment or willfully failed
to execute any reasonable instruction relating to his duties with
Humana; or
(4) that Employee has intentionally and in bad faith acted in a manner
which results in a material detriment to the assets, business or
prospects of Humana.
This Agreement shall not be effective nor legally binding on Humana
until reviewed and approved by Humana's Vice President- Humana Resources.
EMPLOYEE REVIEWED AND APPROVED:
/s/ GREGORY H. WOLF BY: /s/ ROBERT A. HORRAR
- --------------------------------- ---------------------------------
Gregory H. Wolf Robert A. Horrar
Humana Inc.'s Vice President-
Human Resources
<PAGE> 1
Exhibit 10(dd)
AWARD \ CONTRACT PAGE OF PAGES
1 241
1. THIS CONTRACT IS A RATED ORDER RATING
UNDER DPAS (15 CFR 350)
2. CONTRACT (Proc. Inst. Ident.) NO.
MDA 906-96-C-0002
3. EFFECTIVE DATE
11/28/95
4. REQUISITION PURCHASE REQUEST/PROJECT NO
MDA 906-94-R-0002
5. ISSUED BY CODE CMP
DEPARTMENT OF DEFENSE
OCHAMPUS/CMP
BLDG 225
AURORA CO 80045-6900
Gene C. Mays S02
303-361-1185
6. ADMINISTERED BY (If other than Item 5) CODE CMA
DEPARTMENT OF DEFENSE
OCHAMPUS/CMA
BLDG 225
AURORA CO 80045-6900
7. NAME AND ADDRESS OF CONTRACTOR (No., Street, City, County, State and ZIP
Code)
HUMANA MILITARY HEALTHCARE SERVICES, INC.
500 WEST MAIN STREET
LOUISVILLE KY 40202-
Vendor ID: 00001256
CEC: 80635929F
Cage Code:
Tax ID # : 61-1241225
8. DELIVERY
__ FOB ORIGIN __ OTHER (See below)
9. DISCOUNT FOR PROMPT PAYMENT
00.000% 00 Net 030
10. SUBMIT INVOICES ITEM
(4 copies unless other- 12
wise specified) TO THE
ADDRESS SHOWN IN:
CODE FACILITY CODE
11. SHIP TO/MARK FOR CODE CM
DEPARTMENT OF DEFENSE
OCHAMPUS/CM
BLDG 225
AURORA CO 80045-6900
12. PAYMENT WILL BE MADE BY CODE RMF
DEPARTMENT OF DEFENSE/OCHAMPUS
FINANCE AND ACCOUNTING BRANCH (RMF)
BLDG 611
AURORA CO 80045-6900
13. AUTHORITY FOR USING OTHER THAN FULL AND OPEN COMPETITION:
___ 10 U.S.C2304(c) ( ) ____ 41 U.S.C 253(c) ( )
14. ACCOUNTING AND APPROPRIATION DATA
See Schedule
15A. ITEM NO.
15B. SUPPLIES/SERVICES
See attached Schedule (s)
15C. QUANTITY
15D. UNIT
15E. UNIT PRICE
15F. AMOUNT
15G. TOTAL AMOUNT OF CONTRACT $26,027,592.00
<PAGE> 2
16. TABLE OF CONTENTS
<TABLE>
<CAPTION>
(X) SEC. DESCRIPTION PAGE (S)
<S> <C> <C> <C>
PART I- THE SCHEDULE
X A SOLICITATION/CONTRACT FORM 1
X B SUPPLIES OR SERVICES AND PRICES/COSTS 17
X C DESCRIPTION/SPECS.WORK STATEMENT 124
X D PACKAGING AND MARKING 1
X E INSPECTION AND ACCEPTANCE 5
X F DELIVERIES OR PERFORMANCE 12
X G CONTRACT ADMINISTRATION DATA 25
X H SPECIAL CONTRACT REQUIREMENTS 7
</TABLE>
<TABLE>
<CAPTION>
X SEC. DESCRIPTION PAGE (S)
PART II - CONTRACT CLAUSE
<S> <C> <C> <C>
X I CONTRACT CLAUSE 44
PART III - LIST OF DOCUMENTS, EXHIBITS AND OTHER ATTACH.
X J LIST OF ATTACHMENTS 5
PART IV - REPRESENTATIONS AND INSTRUCTIONS
K REPRESENTATIONS, CERTIFICATIONS AND
OTHER STATEMENTS OF OFFERORS
L INSTRS., CONDS., AND NOTICES TO OFFERORS
M EVALUATION FACTORS FOR AWARD
CONTRACTING OFFICER WILL COMPLETE ITEM 17 OR 18 AS APPLICABLE
</TABLE>
17. X CONTRACTOR'S NEGOTIATED AGREEMENT (Contractor is re-
quired to sign this document and return 02 Copies to issuing office.)
Contractor agrees to furnish and deliver all items or perform all the services
set forth or otherwise identified above and on any continuation sheets for the
consideration stated herein. The rights and obligations of the parties to this
award/contract, (b) the solicitation, if any, and (c) such provisions,
representations, certifications, and spectifications, as are attached or
incorporated by reference herein. (Attachments are lised herein.)
18. __ AWARD (Contractor is not required to sign this document.) Your
offer on Solicitation Number ______________________________,
including the additions or changes made by you which additions or changes
are set forth in full above, is hereby accepted as to the items listed above and
on any continuation sheets. This award consummates the contract which con-
sists of the following documents: (a) the Goverment's solicitation and you
offer, and (b) this award/contract. No further contractual document is neces-
sary.
19A. NAME AND TITLE OF SIGNER (Type or print)
W. LARRY CASH
SENIOR VICE PRESIDENT FINANCE & OPERATIONS
19B. NAME OF CONTRACTOR
By /S/ W. Larry Cash
----------------------------------
(Signature of Contracting Officer)
19C. DATE SIGNED
1/23/96
20A. NAME OF CONTRACTION OFFICER
Doris A. Navarro KO5 303-361-1290
20B. UNITED STATES OF AMERICA
BY /S/ Doris A. Navarro
----------------------------------
20C. DATE SIGNED
1/23/96
MSN 7540-01-152-8069 25-106 STANDARD FORM 26 (REV. 4-85)
PREVIOUS EDITION UNUSABLE Prescribed by GSA -FAR (48 CFR) 53.214 (a)
<PAGE> 1
EXHIBIT 12
HUMANA INC.
RATIO OF EARNINGS TO FIXED CHARGES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(UNAUDITED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1995 1994 1993
<S> <C> <C> <C>
Earnings:
Income before income taxes $ 288 $ 257 $ 143
Fixed charges 17 9 11
----- ----- -----
$ 305 $ 266 $ 154
===== ===== =====
Fixed charges:
Interest charged to expense $ 11 $ 4 (a) $ 7
One-third of rent expense (b) 6 5 4
----- ----- -----
$ 17 $ 9 $ 11
===== ===== =====
Ratio of earnings to fixed charges 17.9 28.9 14.1
===== ===== =====
</TABLE>
(a) Interest expense for the year ended December 31, 1994, excludes the impact
of the nonrecurring item related to the second quarter favorable settlement
of tax disputes with the Internal Revenue Service.
(b) One-third of rent expense is considered representative of the underlying
interest.
<PAGE> 1
Exhibit 13
FINANCIAL SECTION
- --------------------------------------------------------------------------------
Humana Inc.
Selected Financial Data
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Consolidated Balance Sheet
Consolidated Statement of Income
Consolidated Statement of Common
Stockholders' Equity
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Accountants
Quarterly Financial Information (Unaudited)
Directors
Executive Management and Officers
Additional Information
<PAGE> 2
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Humana Inc.
Dollars in millions except per share results
- -----------------------------------------------------------------------------------------------------------------------------------
December 31, August 31,
---------------------------------------------------- --------------------------
For the years ended 1995(a) 1994 1993 1992 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Premiums:
Commercial $ 2,934 $ 2,056 $ 1,709 $ 1,642 $ 1,576 $ 1,239
Medicare risk 1,569 1,406 1,296 1,112 1,073 898
Medicare supplement 102 114 132 127 122 94
- -----------------------------------------------------------------------------------------------------------------------------------
Total premiums 4,605 3,576 3,137 2,881 2,771 2,231
Interest 87 62 48 36 37 36
Other income 10 16 10 4 3 2
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenues 4,702 3,654 3,195 2,921 2,811 2,269
Income (loss) before income taxes 288 246(b) 143 (154)(c) (164)(c) 14
Net income (loss) 190 159(b) 89 (107)(c) (114)(c) 9
Earnings (loss) per common share 1.17 1.00(b) .56 (.68)(c) (.72)(c) .06
Net cash provided by
(used in) operations 150 298 185 124 (57) 66
FINANCIAL POSITION
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and investments $ 1,518 $ 1,203 $ 1,134 $ 614 $ 431 $ 486
Total assets 2,878 1,957 1,731 1,189 1,011 1,005
Medical costs payable 866 527 448 400 381 317
Stockholders' equity 1,287 1,058 889 376 367 407
OPERATING DATA
- -----------------------------------------------------------------------------------------------------------------------------------
Medical loss ratio 81.7% 81.6% 83.8% 86.3% 86.0% 84.4%
Administrative cost ratio 13.9% 13.6% 13.2% 14.1% 14.7% 16.1%
Medical membership:
Commercial 2,883,900 1,528,300 1,214,000 1,219,800 1 ,237,500 1,208,100
Medicare risk 310,400 287,400 270,800 266,300 262,300 249,900
Medicare supplement 115,000 131,700 153,600 198,900 203,900 203,100
--------------------------------------------------------------------------------------------
3,309,300 1,947,400 1,638,400 1,685,000 1 ,703,700 1,661,100
Administrative services 495,100 93,500 63,700 30,600 30,400 29,900
--------------------------------------------------------------------------------------------
Total 3,804,400 2,040,900 1,702,100 1,715,600 1 ,734,100 1,691,000
============================================================================================
</TABLE>
(a) Includes the operations of EMPHESYS Financial Group, Inc. since the date of
acquisition.
(b) Excludes $11 million before income tax ($17 million or $.10 per share, net
of tax) related to the favorable settlement of income tax disputes with the
Internal Revenue Service partially offset by the write-down of a
nonoperational asset.
(c) Includes $171 million before income tax ($118 million or $.75 per share,
net of tax) of restructuring and unusual charges.
1
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Humana Inc.
The consolidated financial statements of Humana Inc. ("Humana" or the "Company")
in this Annual Report set forth 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 are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward looking statements may be significantly impacted by
certain risks and uncertainties described herein, and in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
INTRODUCTION
The Company offers managed health care products which integrate management with
the delivery of health care services through a network of providers, who in
their delivery of quality medical services, may share financial risk or have
incentives to deliver cost-effective medical services. 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 the use of utilization controls such as 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 group life, dental, disability income, workers' compensation,
and pharmacy management services.
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 that
provide managed care services which include all Medicare benefits and, in
certain circumstances, additional managed care services that are not included in
Medicare benefits ("Medicare risk") or indemnity insurance policies that
supplement Medicare benefits ("Medicare supplement").
On October 11, 1995, the Company completed its acquisition of EMPHESYS Financial
Group, Inc. ("EMPHESYS"), for a total purchase price of approximately $650
million. The aggregate purchase price was funded through available cash of $400
million and bank borrowings of $250 million. EMPHESYS is a leading provider of a
broad range of managed care products to small businesses. EMPHESYS' medical loss
and administrative cost ratios tend to be different from Humana's because of
variances in the nature of each entity's products, customer base and the manner
in which products and services are distributed to customers.
On November 28, 1995, the Company was awarded a potential five-year $3.8 billion
contract (a one-year contract renewable annually for up to four additional years
at approximately $750 million per year) with the United States Department of
Defense to provide services under the Civilian Health and Medical Program of the
Uniformed Services (the "CHAMPUS Contract"). Under the CHAMPUS Contract, which
is expected to begin July 1, 1996, the Company will provide managed health care
services to approximately 1 million eligible military beneficiaries in eight
southeastern states.
2
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
Humana Inc.
COMPARISON OF RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
The Company's premium revenues increased 29 percent to $4.6 billion for the year
ended December 31, 1995, compared to $3.6 billion for the year ended December
31, 1994. The increase in premium revenues is attributable to the acquisition of
EMPHESYS, same-store membership gains, and the 1994 acquisitions of CareNetwork,
Inc. and Group Health Association ("GHA"). The Company's 5 percent increase in
Medicare risk premium rates was offset by a 2 percent reduction in Commercial
premium rates. EMPHESYS' premium revenues, since the date of acquisition,
totaled approximately $370 million while premium revenues related to the 1994
acquisitions totaled approximately $343 million for the year ended December 31,
1995, compared to approximately $170 million for the year ended December 31,
1994. Commercial premium rates for 1996 are expected to decline by approximately
1 percent from 1995 levels. The weighted average 1996 Medicare risk premium rate
increase will approximate 8 to 9 percent.
Membership in the Company's Commercial products increased 1,355,600 or 89
percent during the year ended December 31, 1995, which included 1.1 million
fully-insured members related to the acquisition of EMPHESYS. On a same-store
basis, Commercial membership for the year ended December 31, 1995, increased
276,900 or 19 percent compared to 113,200 or 9 percent in 1994. The Company also
added 23,000 Medicare risk members compared to 16,600 in 1994. Medicare
supplement membership declined 16,700 members during the year ended December 31,
1995. Administrative services only ("ASO") membership, at December 31, 1995,
increased to 495,100 members, including 216,900 members related to the EMPHESYS
acquisition from 93,500 members at December 31, 1994.
January 1996 Commercial membership declined 25,000 (including EMPHESYS) compared
to an increase of 106,900 in January 1995. The January 1996 membership decline
is the result of the loss of approximately 50,000 members in one customer group
and also reflects Humana's plan to price its products at rates which attempt to
maintain adequate profitability. Medical membership data at December 31, 1995
and 1994 follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
In thousands 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C>
Beginning medical membership 2,040.9 1,702.1
Same-store sales 739.0 396.6
Acquisitions 1,344.3 224.1
Same-store cancellations (319.8) (281.9)
- ----------------------------------------------------------------------------
Ending medical membership 3,804.4 2,040.9
- ----------------------------------------------------------------------------
</TABLE>
Excluding EMPHESYS, the medical loss ratio increased to 82.0 percent for the
year ended December 31, 1995, compared to 81.6 percent for the year ended
December 31, 1994. The increase in the Company's medical loss ratio was related
primarily to an increase in physician, hospital outpatient, and pharmacy
services utilization associated with the Company's Commercial product. In
addition, the Company experienced greater than expected costs related to its
growth in Commercial membership in areas contiguous to existing markets. During
the second and third quarters of 1995, the Company initiated various programs
aimed at controlling medical costs in these and other areas. Partially as a
result of these cost control initiatives, the Company's medical loss ratio
declined from the third quarter to the fourth quarter of 1995. Including
EMPHESYS, the Company's 1995 medical loss ratio was 81.7 percent.
3
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
Humana Inc.
The administrative cost ratio was 13.9 percent and 13.6 percent for the years
ended December 31, 1995 and 1994, respectively. The increase in the
administrative cost ratio is the result of higher administrative costs
associated with EMPHESYS' small-group business. Excluding the effect of the
EMPHESYS acquisition, the Company's administrative cost ratio was 13.3 percent
for the year ended December 31, 1995. The reduction from 1994 is the result of
increased premium revenues due to same-store enrollment increases.
Interest income totaled $87 million for the year ended December 31, 1995,
compared to $62 million for the year ended December 31, 1994. The increase is
primarily attributable to higher yields, increased levels of cash, cash
equivalents and marketable securities and the addition of EMPHESYS. The tax
equivalent yield on invested assets approximated 8 percent and 6 percent for the
years ended December 31, 1995 and 1994, 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 increased to 4.0 years at December 31, 1995, from 2.3 years at
December 31, 1994, primarily related to the inclusion of EMPHESYS' portfolio.
The Company's income before income taxes totaled $288 million for the year ended
December 31, 1995, compared to $246 million for the year ended December 31,
1994. Income before income taxes for 1994 excludes $29 million related to the
favorable settlement of tax disputes with the Internal Revenue Service ( the
"IRS") and an $18 million charge related to the write-down of a nonoperational
asset. Excluding the effects of the nonrecurring items described above, net
income increased to $190 million or $1.17 per share from $159 million or $1.00
per share for the years ended December 31, 1995 and 1994, respectively. The
fourth quarter acquisition of EMPHESYS was modestly accretive during the year
ended December 31, 1995. Management anticipates that EMPHESYS will continue to
be accretive in 1996 (after consideration of depreciation, amortization and
interest costs associated with the acquisition).
YEARS ENDED DECEMBER 31, 1994 AND 1993
The Company's premium revenues increased 14 percent to $3.6 billion for the year
ended December 31, 1994, compared to $3.1 billion for the year ended December
31, 1993. The increase in premium revenues is attributable to same-store
Commercial and Medicare risk membership gains, average premium rate increases of
3 percent for the Commercial product and 4 percent for the Medicare risk product
and the February 1994 acquisition of GHA. GHA premium revenues during the year
ended December 31, 1994, totaled approximately $164 million.
On a same-store basis, Commercial membership for the year ended December 31,
1994, increased 113,200 or 9 percent while Medicare risk membership increased
16,600 or 6 percent. The same-store increase in Commercial membership was the
result of increased penetration in areas contiguous to the Company's existing
markets and expanded hospital and physician delivery networks. Medicare
supplement membership declined by 21,900 members during the year ended December
31, 1994, as anticipated, continuing the decline first experienced in 1993. ASO
membership at December 31, 1994 and 1993, was 93,500 and 63,700, respectively.
4
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
Humana Inc.
Medical membership data at December 31, 1994 and 1993, follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
In thousands 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
Beginning medical membership 1,702.1 1,715.6
Same-store sales 396.6 311.3
Acquisitions (divestitures) 224.1 (6.4)
Same-store cancellations (281.9) (318.4)
- --------------------------------------------------------------------------------
Ending medical membership 2,040.9 1,702.1
- --------------------------------------------------------------------------------
</TABLE>
The medical loss ratio for the year ended December 31, 1994, was 81.6 percent
compared to 83.8 percent for the year ended December 31, 1993. This improvement
is primarily due to decreased hospital utilization in both the Commercial and
Medicare risk products.
The administrative cost ratio was 13.6 percent and 13.2 percent for the years
ended December 31, 1994 and 1993, respectively. This increase is the result of
increased marketing efforts, costs associated with the integration of acquired
health plans and the expansion of market service areas.
Interest income totaled $62 million for the year ended December 31, 1994,
compared to $48 million for the year ended December 31, 1993. The increase in
interest income is primarily attributable to increased levels of cash, cash
equivalents and marketable securities. Tax equivalent yield on invested assets
approximated 6 percent for the years ended December 31, 1994 and 1993. The
weighted average investment life was 2.3 and 2.0 years at December 31, 1994 and
1993, respectively.
The Company's income before income taxes totaled $246 million for the year ended
December 31, 1994, compared to $143 million for the year ended December 31,
1993. Income before income taxes for 1994 excludes $29 million related to the
favorable settlement of tax disputes with the IRS and an $18 million charge
related to the write-down of a nonoperational asset. Excluding the effects of
nonrecurring items described above, net income increased to $159 million or
$1.00 per share from $89 million or $.56 per share for the years ended December
31, 1994 and 1993, respectively. As a result of the tax settlement and asset
write-down, the Company's interest, depreciation and income tax expenses
decreased. The recurring effect of these expense reductions during the year
ended December 31, 1994, was $7 million or $.04 per share.
LIQUIDITY
Cash provided by the Company's operations totaled $150 million and $298 million
for the years ended December 31, 1995 and 1994, respectively. Operating cash
flows for 1995 were below those of 1994 primarily as a result of the combined
$101 million effect of 1995 payments and the 1994 settlement related to tax
disputes with the IRS. In addition, the timing of recurring cash receipts and
disbursements related to premiums receivable, medical costs and other
liabilities further reduced 1995 operating cash flows.
Cash provided by the Company's operations totaled $298 million and $185 million
for the years ended December 31, 1994 and 1993, respectively. Operating cash
flows for 1994 were above those of 1993 primarily as a result of increased net
income, a $71 million favorable settlement of tax disputes with the IRS and the
timing of recurring cash receipts and disbursements related to medical costs and
other liabilities.
5
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
Humana Inc.
On September 26, 1995, the Company amended and restated its revolving credit
agreement (the "Credit Agreement"). The Credit Agreement, which expires in
September 2000, provides for a $600 million revolving line of credit, which the
Company used to fund $250 million of the EMPHESYS purchase price.
On November 30, 1995, the Company repaid $51 million of long-term debt assumed
in connection with the acquisition of EMPHESYS. The debt was repaid with
EMPHESYS' available cash.
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 that the subsidiaries' ability to pay dividends to their parent
company requires regulatory approval.
Management believes that existing working capital, future operating cash flows
and the availability of the Credit Agreement are sufficient to meet liquidity
needs, allow the Company to pursue strategic acquisition and expansion
opportunities as well as fund capital requirements.
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 computer information systems necessary for
activities such as claims processing, billing and collections, medical
utilization review, and customer service. Total capital expenditures, excluding
acquisitions, amounted to $54 million, $39 million and $28 million for the years
ended December 31, 1995, 1994 and 1993, respectively.
Excluding acquisitions, planned capital spending in 1996 will approximate $60
million to $65 million, which will relate primarily to the expansion and
improvement of medical care facilities, administrative facilities and related
computer information systems.
In addition to the acquisition of EMPHESYS during October 1995, the Company
acquired 47 primary care centers in South Florida and Tampa previously owned by
Coastal Physician Group, Inc. for approximately $50 million. During February
1994, the Company acquired GHA, a health plan in Washington, D.C., with 116,700
members for approximately $55 million. During December 1994, the Company also
acquired CareNetwork, Inc., a health plan in Milwaukee, Wisconsin, with 84,400
members for approximately $126 million.
6
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
Humana Inc.
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 statutorily established and implemented by the Health Care Financing
Administration ("HCFA"). Medicare risk premiums approximated 34 percent, 39
percent and 41 percent of the Company's premium revenues for the years ended
December 31, 1995, 1994 and 1993, respectively. The Company's 1996 average rate
of increase under the Medicare risk contracts is approximately 8 to 9 percent.
Over the last five years, annual increases have ranged from as low as 3 percent
in January 1994 to as high as 12 percent in January 1993, with an average of
approximately 7 percent, including the January 1996 increase. 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 proposals 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 loss of
these contracts or significant changes in the Medicare program 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.
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 results of operations, financial
position or cash flows.
In February 1996, the Company was notified that its South Florida health plan
received a full three-year accreditation by the National Committee for Quality
Assurance.
7
<PAGE> 9
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
- -----------------------------------------------------------------------------------------------------------------------------
Humana Inc.
Dollars in millions except per share amounts December 31
- -----------------------------------------------------------------------------------------------------------------------------
1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 182 $ 272
Marketable securities 1,156 609
Premiums receivable, less allowance for doubtful
accounts of $36 in 1995 and $20 in 1994 131 74
Deferred income taxes 52 45
Other 72 38
- -----------------------------------------------------------------------------------------------------------------------------
Total current assets 1,593 1,038
- -----------------------------------------------------------------------------------------------------------------------------
Property and equipment, net 382 317
Other assets:
Long-term marketable securities 180 322
Cost in excess of net assets acquired 536 155
Deferred income taxes 25 56
Other 162 69
- -----------------------------------------------------------------------------------------------------------------------------
Total other assets 903 602
- -----------------------------------------------------------------------------------------------------------------------------
Total Assets $ 2,878 $ 1,957
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Medical costs payable $ 866 $ 527
Trade accounts payable and accrued expenses 291 233
Income taxes payable 35 56
- -----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,192 816
Long-term debt 250
Professional liability and other obligations 149 83
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,591 899
- -----------------------------------------------------------------------------------------------------------------------------
Contingencies
Common stockholders' equity:
Common stock, $.16 2/3 par; authorized 300,000,000 shares; issued and
outstanding 162,099,403 shares - 1995
and 161,330,064 shares - 1994 27 27
Capital in excess of par value 815 803
Retained earnings 439 249
Net unrealized investment gains (losses) 6 (21)
- -----------------------------------------------------------------------------------------------------------------------------
Total common stockholders' equity 1,287 1,058
- -----------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Common Stockholders' Equity $ 2,878 $ 1,957
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
8
<PAGE> 10
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
- -----------------------------------------------------------------------------------------------------------------------------
Humana Inc.
Dollars in millions except per share results
- -----------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Premiums $ 4,605 $ 3,576 $ 3,137
Interest 87 62 48
Other income 10 16 10
- -----------------------------------------------------------------------------------------------------------------------------
Total revenues 4,702 3,654 3,195
- -----------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Medical costs 3,762 2,918 2,630
Selling, general and administrative 571 436 368
Depreciation and amortization 70 50 47
Unusual charge 18 (a)
- -----------------------------------------------------------------------------------------------------------------------------
Total operating expenses 4,403 3,422 3,045
- -----------------------------------------------------------------------------------------------------------------------------
Income from operations 299 232 150
Interest expense (recovery) 11 (25)(a) 7
- -----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 288 257 (a) 143
Provision for income taxes 98 81 (a) 54
- -----------------------------------------------------------------------------------------------------------------------------
Net income $ 190 $ 176 (a) $ 89
- -----------------------------------------------------------------------------------------------------------------------------
Earnings per common share $ 1.17 $ 1.10 (a) $ .56
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------------
(a) Net income for the year ended December 31, 1994, includes the favorable
settlement of tax disputes with the Internal Revenue Service partially
offset by the write-down of a nonoperational asset.
The accompanying notes are an integral part of the consolidated financial
statements.
9
<PAGE> 11
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------------------------
Humana Inc.
In millions
- --------------------------------------------------------------------------------------------------------------------------------
Total
Common Stock Capital In Net Unrealized Common
------------ Excess of Retained Investment Equity Stockholders'
Shares Amount Par Value Earnings Gains (Losses) Funding Equity
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 $ 376 $ 376
Net income $ 73 16 89
Capital contributions $ 408 408
Spinoff capitalization 159 $ 26 366 (392)
Other 1 1 11 $ 4 16
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 160 27 785 73 4 889
Net income 176 176
Other 1 18 (25) (7)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 161 27 803 249 (21) 1,058
Net income 190 190
Other 1 12 27 39
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 162 $ 27 $ 815 $ 439 $ 6 $ 1,287
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
10
<PAGE> 12
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Humana Inc.
Dollars in millions
- -------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
- -------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 190 $ 176 $ 89
Adjustments to reconcile net income
to net cash provided by operating activities:
Unusual charge 18
Depreciation and amortization 70 50 47
Deferred income taxes 13 58 (13)
Changes in operating assets and liabilities:
Premiums receivable (27) (8) 16
Other assets (4) 8 (16)
Medical costs payable (9) 36 58
Other liabilities (83) 67 (18)
Unearned premium revenues (110) 8
Other 3 14
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 150 298 185
- -------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of health plan assets (697) (162) (5)
Purchases of property and equipment (54) (39) (28)
Dispositions of property and equipment 5 13 8
Purchases of marketable securities (402) (523) (1,667)
Maturities and sales of marketable securities 731 337 1,299
Other (33) (28) (23)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (450) (402) (416)
- -------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt 250
Repayment of long-term debt (51)
Capital contributions 383
Other 11 4 (13)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 210 4 370
- -------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (90) (100) 139
Cash and cash equivalents at beginning of period 272 372 233
- -------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 182 $ 272 $ 372
- -------------------------------------------------------------------------------------------------------------------------------
Interest payments (refunds), net $ 12 $ (20) $ 1
Income tax payments, net 94 21 58
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
11
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Humana Inc.
1. REPORTING ENTITY
Nature of Operations
Humana Inc. ("Humana" or the "Company") offers managed health care products
which integrate management with the delivery of health care services through a
network of providers, who in their delivery of quality medical services, may
share financial risk or have incentives to deliver cost-effective medical
services. 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 the use of utilization controls
such as 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 group life,
dental, disability income, workers' compensation, and pharmacy management
services.
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 that
provide managed care services which include all Medicare benefits and, in
certain circumstances, additional managed care services that are not included in
Medicare benefits ("Medicare risk") or indemnity insurance policies that
supplement Medicare benefits ("Medicare supplement").
Basis of Presentation
On March 1, 1993, Humana separated its managed care health plan and acute-care
hospital businesses into two independent publicly-held companies (the
"Spinoff"), one to operate the managed care health plan business and the other
to operate the acute-care hospital business. The Spinoff was effected through
the distribution to Humana stockholders of record as of the close of business on
March 1, 1993, of all the outstanding shares of common stock of a new hospital
company (the "Hospital Company"). Humana retained and continues to operate the
managed care health plan business.
The consolidated financial statements contained herein are the separate
financial statements of what historically had been the managed care health plan
business of Humana and do not correspond with or represent the consolidated
financial statements of Humana prior to the Spinoff.
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.
12
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Humana Inc.
Cash and Cash Equivalents
Cash and cash equivalents include cash, money market funds, commercial paper,
and certain U.S. Government securities with an original maturity of three months
or less.
Marketable Securities
The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," effective
December 31, 1993.
At December 31, 1995 and 1994, 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 mortgages are carried at
cost. Marketable debt and equity securities available for current operations are
classified as current assets. Marketable securities being held for the Company's
future acquisition, capital spending, professional liability, and long-term
insurance product requirements are classified as long-term assets. Unrealized
holding gains and losses, net of applicable deferred taxes, are included as a
component of common stockholders' equity until realized.
Property and Equipment
Property and equipment is carried at cost and was comprised of the following at
December 31, 1995 and 1994:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Dollars in millions 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Land $ 34 $ 29
Buildings 282 231
Equipment 333 278
- --------------------------------------------------------------------------------
649 538
Accumulated depreciation (267) (221)
- --------------------------------------------------------------------------------
$ 382 $ 317
- --------------------------------------------------------------------------------
</TABLE>
Depreciation is computed using the straight-line method over estimated useful
lives generally ranging from 3 to 25 years. Depreciation expense was $50
million, $39 million and $35 million, for the years ended December 31, 1995,
1994 and 1993, 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 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 $8
million and $2 million, at December 31, 1995 and 1994, respectively.
13
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Humana Inc.
Revenue and Medical Cost Recognition
Premium revenues are recognized as income in the period members are entitled to
receive managed care services. Premiums received prior to such periods are
recorded as unearned premium revenues. Revenues from specialty and
administrative services products are recognized on a pro rata basis over the
period of coverage or service.
Medical costs include claim payments, capitation payments, physician salaries,
and various other costs incurred to provide medical care to members, and
estimates of future payments to hospitals and others for medical care provided
prior to the balance sheet date. Capitation payments represent monthly prepaid
fees paid 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 costs
payable are adequate to cover claims incurred; however, such estimates are
subject to changes in assumption, and therefore, the actual liability could
differ from amounts provided.
Common Stockholders' Equity
The Company's equity, prior to the Spinoff, was the result of the managed care
health plan business net income or loss, as well as funding from the Hospital
Company. Therefore, pre-Spinoff equity is referred to as "Equity Funding" in the
accompanying consolidated statement of common stockholders' equity.
Earnings per Common Share
Earnings per common share are based upon the weighted average number of common
shares outstanding. Shares used in computing earnings per common share were
162,268,815, 160,910,641 and 159,283,680 for the years ended December 31, 1995,
1994 and 1993, respectively.
3. UNUSUAL CHARGES
In June 1994, the Company recorded an $18 million charge before income tax ($11
million or $.07 per share, net of tax) to reduce the net book value of a
nonoperational asset to its estimated fair value.
At December 31, 1995, there were liabilities totaling $52 million included in
the accompanying consolidated balance sheet, primarily related to contract
disputes, for which final resolution is expected in two to three years.
Management regularly evaluates the continued reasonableness of these charges,
and to the extent adjustments are necessary, current earnings are charged or
credited.
14
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Humana Inc.
4. MARKETABLE SECURITIES
<TABLE>
<CAPTION>
Marketable securities classified as current assets at December 31, 1995 and
1994, included the following:
- -------------------------------------------------------------------------------------------------------------------
1995 1994
----------------------------------------- --------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Dollars in millions Cost Gains Losses Value Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government securities $ 77 $ 1 $ (1) $ 77 $ 35 $ (2) $ 33
Tax exempt municipal bonds 560 6 (3) 563 472 $ 2 (17) 457
Corporate bonds 331 9 340 4 4
Collateralized mortgage
obligations 90 2 92 7 7
Marketable equity securities 57 1 (4) 54 52 (5) 47
Other 29 1 30 65 (4) 61
- -------------------------------------------------------------------------------------------------------------------
$ 1,144 $ 20 $ (8) $ 1,156 $ 635 $ 2 $(28) $ 609
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Marketable securities classified as long-term assets at December 31, 1995 and
1994, included the following:
- -------------------------------------------------------------------------------------------------------------------
1995 1994
---------------------------------------- --------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Dollars in millions Cost Gains Losses Value Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government securities $ 5 $ 5
Tax exempt municipal bonds $ 65 $ 1 $ (3) $ 63 252 $ (9) 243
Redeemable preferred stocks 50 50 2 2
Marketable equity securities 8 8 64 (1) 63
Other 59 59 9 9
- -------------------------------------------------------------------------------------------------------------------
$ 182 $ 1 $ (3) $ 180 $ 332 $(10) $ 322
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The contractual maturities of debt securities available for sale at December 31,
1995, 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.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Amortized Fair
Dollars in millions Cost Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Due within one year $ 68 $ 69
Due after one year through five years 435 440
Due after five years through ten years 251 256
Due after ten years 152 154
Not due at a single maturity date 355 355
- -------------------------------------------------------------------------------------------------------------------
$ 1,261 $ 1,274
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Gross realized gains and losses for the years ended December 31, 1995 and 1994,
were immaterial. For the purpose of determining gross realized gains and losses,
the cost of securities sold is based upon specific identification.
15
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Humana Inc.
5. INCOME TAXES
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
- ----------------------------------------------------------------------------------------------------------
Dollars in millions 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current provision:
Federal $ 78 $ 72 $ 57
State 7 11 6
- ----------------------------------------------------------------------------------------------------------
85 83 63
- ----------------------------------------------------------------------------------------------------------
Deferred provision (benefit):
Federal 11 (2) (8)
State 2 (1)
- ----------------------------------------------------------------------------------------------------------
13 (2) (9)
- ----------------------------------------------------------------------------------------------------------
$ 98 $ 81 $ 54
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The income tax provision was different from the amount computed using the
federal statutory income tax rate due to the following:
<TABLE>
<CAPTION>
Years Ended December 31,
- ----------------------------------------------------------------------------------------------------------
Dollars in millions 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax provision at federal statutory rate $ 101 $ 90 $ 50
State income taxes, net of federal benefit 7 7 4
Tax exempt investment income (12) (12) (7)
Amortization 6 1 4
Other items, net (4) (5) 3
- ----------------------------------------------------------------------------------------------------------
$ 98 $ 81 $ 54
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Cumulative temporary differences which gave rise to deferred tax assets and
liabilities at December 31, 1995 and 1994, were as follows:
<TABLE>
<CAPTION>
Assets
(Liabilities)
- -------------------------------------------------------------------------------------------------------------------
Dollars in millions 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Marketable securities $ (9) $ 15
Long-term assets (35) (4)
Medical costs payable 27 4
Unusual charges 25 25
Professional liability risks 28 25
Other 41 36
- -------------------------------------------------------------------------------------------------------------------
$ 77 $ 101
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Humana Inc.
Management believes that the deferred tax assets ultimately will be realized
based primarily on the existence of sufficient taxable income within the
allowable carryback periods.
During 1994, the Company received $71 million in income tax refunds for the
settlement of disputes with the Internal Revenue Service related to the timing
of medical claims deductions and the deductibility of intangible amortization
for tax years 1988 through 1991. The Company had previously prepaid tax and
interest for these issues for the 1988 and 1989 tax years to stop the accrual of
interest on the disputed amounts. As a result of the settlement, the Company
recognized a $29 million reduction of interest expense ($18 million or $.11 per
share, net of tax) and a $10 million reduction of tax expense ($.06 per share),
both of which represented the cumulative effect from 1988 to present of amounts
previously provided. During 1995, the Company made a $30 million payment to the
IRS to stop the accrual of interest for disputed amounts related to tax periods
September 1, 1991 through December 31, 1993.
At December 31, 1995, the Company had net operating loss carryforwards of
approximately $31 million related to prior acquisitions. These loss
carryforwards, if unused to offset future taxable income of the acquired
subsidiaries, will expire in 2002 through 2008.
6. LONG-TERM DEBT
On September 26, 1995, the Company amended and restated its revolving credit
agreement (the "Credit Agreement"). The Credit Agreement, which expires in
September 2000, provides for a $600 million revolving line of credit. Principal
amounts outstanding under the Credit Agreement bear interest depending on the
ratio of debt to debt plus net worth at rates ranging from LIBOR plus 16 basis
points to LIBOR plus 40 basis points. The interest rate at December 31, 1995,
was 6.1 percent. The Credit Agreement, under which $250 million was outstanding
at December 31, 1995, contains customary covenants and events of default.
On November 30, 1995, the Company repaid $51 million of long-term debt assumed
in connection with the acquisition of EMPHESYS Financial Group, Inc.,
("EMPHESYS"). The debt was repaid with EMPHESYS' available cash.
7. PROFESSIONAL LIABILITY AND OTHER OBLIGATIONS
The Company insures substantially all professional liability risks through a
wholly owned subsidiary (the "Captive Subsidiary"). Provisions for such risks,
including expenses incident to claim settlements, were $27 million, $22 million
and $17 million for the years ended December 31, 1995, 1994 and 1993,
respectively. The Captive 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
sheet were $78 million and $63 million at December 31, 1995 and 1994,
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 sheet includes liabilities for disability and other
long-term insurance products and the Company's retirement and employee benefit
plans. These liabilities totaled $72 million and $18 million at December 31,
1995 and 1994, respectively.
17
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Humana Inc.
8. COMMON STOCKHOLDERS' EQUITY
For financial reporting purposes, the historical equity of the Company at the
time of the Spinoff consisted of the cumulative net income or loss of the
managed care health plan business, as well as $408 million of cash and other
assets contributed by the Hospital Company.
The Company has plans under which options to purchase common stock have been
granted to officers, certain directors and key employees. Options were granted
at not less than the market price on the date of grant. Exercise provisions
vary, but most options are exercisable in whole or in part one to four years
after grant and expire ten years after grant.
The following shares of common stock of the Company were reserved at December
31, 1995:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Shares
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Stock option plans 10,528,648
Other 973,308
- -------------------------------------------------------------------------------------------------------------------
11,501,956
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company's option plan activity for the years ended December 31, 1995, 1994
and 1993, is summarized below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Shares Option Price
Under Option Per Share
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1, 1993 3,343,820 $ 4.32 to $ 12.12
Granted 6,467,500 6.56 to 14.44
Exercised (967,446) 4.32 to 11.01
Cancelled or lapsed (324,139) 6.56 to 12.12
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 8,519,735 4.32 to 14.44
Granted 419,500 16.94 to 17.94
Exercised (931,701) 4.32 to 11.01
Cancelled or lapsed (337,333) 6.56 to 17.94
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 7,670,201 4.32 to 17.94
Granted 3,107,000 18.94 to 23.06
Exercised (751,096) 4.32 to 11.90
Cancelled or lapsed (190,250) 6.56 to 23.06
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 9,835,855 $ 4.32 to $ 23.06
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1995, options for 2,079,980 shares of common stock were
exercisable while 692,793 shares of common stock were available for future
grants.
As a result of current and pending state regulatory requirements, the Company
must maintain various levels of equity in certain of its subsidiaries which
indirectly limit the Company's ability to pay dividends from its subsidiaries to
their parent. At December 31, 1995, $369 million of equity was restricted under
these regulations.
18
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Humana Inc.
In 1987, the Company adopted a stockholders' rights plan designed to deter
takeover initiatives not in the best interests of the Company's stockholders. On
February 14, 1996, the Company amended and restated its stockholder rights plan
to increase the exercise price of the rights to $145 per share from $25 per
share, extend the plan's expiration to February 14, 2006, from March 4, 1997,
and reduce the threshold at which the rights are triggered to 15 percent from 20
percent of the outstanding shares of the Company's common stock. 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.
9. 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 proposals 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
loss of these contracts or significant changes in the Medicare risk program as a
result of legislative action, including reductions in payments or increases in
benefits without corresponding increases in payments, would have a material
adverse affect on the revenues, profitability and business prospects of the
Company.
On February 14, 1996, the Company was notified that its South Florida health
plan received a full three year accreditation by the National Committee for
Quality Assurance.
During the ordinary course of business, the Company is subject to pending and
threatened legal actions. In addition, for periods prior to the Spinoff, the
Company assumed liability for specified claims and continues to share risks with
the Hospital Company with respect to certain litigation and other contingencies,
both identified and unknown, existing at the time of the Spinoff. Management of
the Company does not believe that any of these actions will have a material
adverse effect on the Company's results of operations, financial position or
cash flows.
The Company remains contingently liable as guarantor for approximately $55
million of debt incurred by Humana prior to the Spinoff and retained by the
Hospital Company subsequent to the Spinoff.
10. ACQUISITIONS
On October 11, 1995, the Company acquired EMPHESYS, for a total purchase price
of approximately $650 million. The purchase was funded with available cash of
$400 million and borrowings of $250 million under the Company's Credit
Agreement.
19
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Humana Inc.
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.
During the year ended December 31, 1994, the Company acquired two health plans
for approximately $181 million.
The above acquisitions, and certain other minor acquisitions, were accounted for
by the purchase method. In connection with these acquisitions, the Company
allocated the acquisition cost 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 sheet,
generally include subscriber and provider contracts, and at December 31, 1995
and 1994, totaled $124 million and $58 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 $387 million in 1995 and $155 million in 1994.
Subscriber and provider contracts are amortized over their estimated useful
lives (7 to 14 years) while cost in excess of net assets acquired is amortized
over periods not exceeding 40 years.
The results of operations for all the previously mentioned acquisitions have
been included in the accompanying consolidated statement of income since the
date of acquisition. The following unaudited pro forma consolidated results of
operations give effect to the above acquisitions as if they had occurred on
January 1, 1994:
<TABLE>
<CAPTION>
Year Ended
Dollars in millions except per share results: December 31,
1995 1994
---- ----
<S> <C> <C>
Revenues $ 5,968 $ 5,243
Net income 200 215
Earnings per common share 1.23 1.33
</TABLE>
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 on January 1, 1994.
20
<PAGE> 22
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors
Humana Inc.
We have audited the accompanying consolidated balance sheet of Humana
Inc. as of December 31, 1995 and 1994, and the related consolidated statements
of income, common stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1995. 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, 1995 and 1994, and the consolidated results of
operations and cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, Humana
Inc. adopted the provisions of Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities,"
effective December 31, 1993.
COOPERS & LYBRAND L.L.P.
Louisville, Kentucky
February 14, 1996
21
<PAGE> 23
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
Humana Inc.
A summary of the Company's quarterly results of operations follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Dollars in millions except per share results 1995
- -------------------------------------------------------------------------------------------------------------------
First Second Third Fourth (a)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 1,048 $ 1,070 $ 1,094 $ 1,490
Income before income taxes 80 68 65 75
Net income 53 45 43 49
Earnings per common share .32 .28 .27 .30
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Dollars in millions except per share results 1994
- -------------------------------------------------------------------------------------------------------------------
First Second (b) Third Fourth
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 869 $ 917 $ 926 $ 942
Income before income taxes 51 57 65 73
Net income 32 37 42 48
Earnings per common share .20 .23 .27 .30
</TABLE>
(a) Includes the results of EMPHESYS Financial Group, Inc. since the date of
acquisition.
(b) Excludes $11 million before income tax ($17 million or $.10 per share, net
of tax) related to the favorable settlement of income tax disputes with the
Internal Revenue Service partially offset by the write-down of a
nonoperational asset.
22
<PAGE> 24
DIRECTORS
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
K. FRANK AUSTEN, M.D. MICHAEL E. GELLERT JOHN R. HALL
Theodore B. Bayles Professor of Medicine, General Partner, Windcrest Partners, Chairman of the Board
Harvard Medical School and the private investment partnership and Chief Executive Officer,
Brigham and Women's Hospital Ashland Inc.
DAVID A. JONES DAVID A. JONES, JR. IRWIN LERNER
Chairman of the Board and Chief Managing Director, Retired Chairman of the Board
Executive Officer, Humana Inc. Chrysalis Ventures, Inc., and Executive Committee,
venture capital firm Hoffmann-La Roche Inc.
W. ANN REYNOLDS, PH.D. WAYNE T. SMITH
Chancellor - City University of President and Chief Operating Officer,
New York Humana Inc.
EXECUTIVE COMMITTEE
- --------------------------------------------------------------------------------------------------------------------------
DAVID A. JONES MICHAEL E. GELLERT WAYNE T. SMITH
Chairman
AUDIT COMMITTEE
- --------------------------------------------------------------------------------------------------------------------------
MICHAEL E. GELLERT K. FRANK AUSTEN, M.D. JOHN R. HALL
Chairman
IRWIN LERNER
COMPENSATION COMMITTEE
- --------------------------------------------------------------------------------------------------------------------------
K. FRANK AUSTEN, M.D. MICHAEL E. GELLERT IRWIN LERNER
Chairman
W. ANN REYNOLDS, PH.D.
INVESTMENT COMMITTEE
- --------------------------------------------------------------------------------------------------------------------------
W. ANN REYNOLDS, PH.D. MICHAEL E. GELLERT JOHN R. HALL
Chairwoman
DAVID A. JONES, JR.
NOMINATING COMMITTEE
- --------------------------------------------------------------------------------------------------------------------------
JOHN R. HALL K. FRANK AUSTEN, M.D. DAVID A. JONES, JR.
Chairman
W. ANN REYNOLDS, PH.D.
</TABLE>
<PAGE> 25
EXECUTIVE MANAGEMENT
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
DAVID A. JONES WAYNE T. SMITH
Chairman of the Board President and
and Chief Executive Officer Chief Operating Officer
W. LARRY CASH KAREN A. COUGHLIN
Senior Vice President - Finance and Operations Senior Vice President - Region II
W. ROGER DRURY PHILIP B. GARMON
Chief Financial Officer Senior Vice President - Region I
ARTHUR P. HIPWELL RONALD S. LANKFORD, M.D.
Senior Vice President and General Counsel Senior Vice President - Medical Affairs
GREGORY H. WOLF
Senior Vice President - Sales and Marketing
OFFICERS
- --------------------------------------------------------------------------------------------------------------------------
JOSE G. ABREU GEORGE G. BAUERNFEIND
Vice President - Medicare Sales Vice President - Taxes
DOUGLAS R. CARLISLE JAMES W. DOUCETTE
Vice President Operations - Region I Vice President and Treasurer
PHILLIP B. DOUGLAS ROBERT A. HORRAR
Vice President - Venture Capital Vice President - Human Resources
GAIL H. KNOPF JOAN O. KROGER
Vice President and Chief Information Officer Secretary
HEIDI S. MARGULIS JERRY L. MCCLELLAN
Vice President - Government Affairs Vice President - Financial Services
MARY M. MCKINNEY SHERI E. MITCHELL
Vice President - Internal Audit Vice President - Quality and Service Excellence
JAMES E. MURRAY WALTER E. NEELY
Vice President - Finance Vice President and Associate General Counsel
BRUCE D. PERKINS R. EUGENE SHIELDS
Vice President Operations - Region II Vice President - Military Healthcare Services
THOMAS D. STROUD GEORGE W. VIETH, JR.
Vice President - Sales and Marketing Vice President - Development and Planning
DAVID W. WILLE
Vice President and Chief Actuary
</TABLE>
<PAGE> 26
ADDITIONAL INFORMATION
- -------------------------------------------------------------------------------
TRANSFER AGENT
Bank of Louisville
Security Transfer Department
Post Office Box 1497
Louisville, Kentucky 40201
800-925-0810
FORM 10-K
Copies of the Company's Form 10-K filed with the Securities and Exchange
Commission may be obtained, without charge, by writing:
Investor Relations
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.
<TABLE>
<CAPTION>
1995 HIGH LOW
- -------------------------------------------------------------------------------
<S> <C> <C>
First Quarter 26-1/2 21-7/8
Second Quarter 27-1/8 17-3/8
Third Quarter 20-3/8 17-1/2
Fourth Quarter 28 18-5/8
</TABLE>
<TABLE>
<CAPTION>
1994 HIGH LOW
- -------------------------------------------------------------------------------
<S> <C> <C>
First Quarter 22-1/8 16-7/8
Second Quarter 20-3/4 16-1/8
Third Quarter 23-5/8 16-3/8
Fourth Quarter 24-7/8 18-1/2
</TABLE>
CORPORATE HEADQUARTERS
Humana Inc.
The Humana Building
500 West Main Street
Louisville, Kentucky 40202
(502) 580-1000
ANNUAL MEETING
The Company's Annual Meeting of Stockholders will be held on Thursday, May 9,
1996, at 10:00 a.m. in the Auditorium on the 25th floor of the Humana Building.
<PAGE> 1
Exhibit 21
LIST OF SUBSIDIARIES
ALABAMA
1. Humana Health Plan of Alabama, Inc.
ALASKA
1. Humana Health Plan of Alaska, Inc.
ARKANSAS
1. Humana Health Plan of Arkansas, Inc.
CALIFORNIA
1. Centerstone Insurance and Financial Services (Marketpoint is a Division of
CFS)
2. HMO California
3. Humana Medical Plan of California, Inc.
DELAWARE
1. EMPHESYS Financial Group, Inc.
2. Health Value Management, Inc.
3. Humana Compensation Management Source, Inc.
4. Humana Enterprises, Inc.
5. Humana HealthChicago, Inc. - Doing Business As:
a. HC Services (IL)
b. Goldcare 65 (IL)
6. Humana Inc. - Doing Business As:
a. H.A.C. Inc.
7. Humana Military Healthcare Services, Inc. - Doing Business As:
a. Humana Military Health Services, Inc. (IL)
8. Humrealty, Inc.
9. Managed Prescription Services, Inc.
10. MedBenefixx, Inc.
FLORIDA
1. Bloomingdale Health Management Associates, Inc.
2. Boca Raton Health Management Associates, Inc.
3. Boynton Health Systems, Inc.
4. Canna Corporation of Deerfield
5. Carrollwood Health Care Center, Inc.
6. Coastal Internal Medicine Associates of Dade, Inc. - Doing Business As:
a. Coastal Internal Medicine Associates of Hialeah
b. Coastal Internal Medicine Associates of Larkin
c. Coastal Internal Medicine Associates of Miami
d. Coastal Internal Medicine Associates of Miami Beach
e. Coastal Internal Medicine Associates of Miami Lakes
f. Coastal Internal Medicine Associates of Miami Springs
g. Coastal Internal Medicine Associates at Midway
(FL - Cont. Next Page)
<PAGE> 2
FLORIDA Cont.
7. Coastal Internal Medicine Associates of the Palm Beaches, Inc. - Doing
Business As:
a. Coastal Internal Medicine Associates of JFK Circle
b. Coastal Internal Medicine Associates of North Dixie Highway
c. Coastal Internal Medicine Associates at Riverbridge
d. Coastal Internal Medicine Associates of South Dixie Highway
8. Coastal Managed Care of Lake Worth, Inc.
9. Coastal Managed Care of West Palm Beach, Inc. - Doing Business As:
a. Coastal Managed Care of West Palm Beach
10. Coastal Physician Group Management, Inc.
11. Coastal Physician Group of Hillsborough County, Inc.
12. Coastal Physician Group of Jacaranda, Inc.
13. Coastal Physician Group of North Davie, Inc.
14. Coastal Physician Group of Pembroke Pines, Inc.
15. Coastal Physician Group of South Davie, Inc.
16. Coastal Physician Group of South Florida, Inc.
17. Deerfield Health Systems, Inc.
18. Delray Harbor Medical Center, Inc.
19. Delray Beach Health Management Associates, Inc.
20. Health Inclusive Plan of Florida, Inc.
21. Health Management Associates of America, Inc.
22. Humana Health Insurance Company of Florida, Inc.
23. Humana Health Plan of Florida, Inc.
24. Humana Medical Plan, Inc. - Doing Business As:
a. Advanced Orthopaedics
b. Apopka Health Care
c. Atlantic Family Practice
d. Casselberry Health Care
e. Coastal Pediatrics
f. Community Medical Associates
g. Daytona Gastroenterology
h. Deland Family Health Care
i. Edgewood Health Care
j. Flagler Family Practice
k. Internal Medicine of Daytona Beach
l. Ormond Primary Care
m. Palm Coast Family Health Care
n. Personal Care Physicians of Casselberry
o. Personal Care Physicians of Orlando
p. Personal Care Physicians of St. Mary
q. Professional Dermatology
r. Rosemont Health Care
s. Sugar Mill Medical Associates
t. Suncoast Medical Associates
25. Lakeside Medical Center Management, Inc. - Doing Business As:
a. University Medical Center
26. Lantana Health Systems, Inc.
27. Lavernia Enterprises, Inc.
28. Lutz Medical Care, Inc.
29. MA of Deerfield, Inc.
30. Medical Associates Systems, Inc.
31. Medical Associates of Boca Raton, Inc.
32. Medical Associates of West Boca Raton, Inc.
33. Medical Associates of West Palm Beach, Inc.
34. Medical Management Associates, Inc.
35. Medical Management Associates of Coconut Creek, Inc.
(FL - Cont. Next Page)
<PAGE> 3
FLORIDA Cont.
36. Medical Management Associates of Deerfield, Inc.
37. Medical Management Associates of Lauderdale, Inc.
38. Medical Management Associates of Lauderhill, Inc.
39. Medical Management Associates of Margate, Inc.
40. Medical Management Associates of New Port Richey, Inc.
41. Medical Management Associates of Pompano, Inc.
42. Medical Management Associates of Riverland, Inc.
43. Medical Management Associates of Tamarac, Inc.
44. Medical Specialty Associates, Inc.
45. Midtown Health Care Center Management, Inc.
46. NFM Acquisition Company
47. North Federal Medical Center, Inc.
48. North Federal Medical Center II, Inc.
49. Palm Beach Gardens Health Management Associates, Inc.
50. Pompano Health Systems, Inc.
51. Seffner Health Management Associates, Inc.
52. South Dade Mabry Health Care Center, Inc.
53. Southeast Health Systems, Inc.
54. Sun City Health Management Associates, Inc.
55. Trelles Management, Inc.
56. West Boca Raton Health Management Associates, Inc.
GEORGIA
1. EMPHESYS Healthcare of Georgia, Inc.
2. Humana Health Plan of Georgia, Inc.
ILLINOIS
1. Humana HealthChicago Insurance Company
2. Randmark of Illinois, Inc.
3. The Dental Concern, Ltd.
KENTUCKY
1. HMPK, INC.
2. HPLAN, INC.
3. Humana Broadway Corp.
4. Humana Health Plan, Inc. - Doing Business As:
a. Bluegrass Family Practice
b. Central Kentucky Family Practice (KY)
c. Franklin Medical Center
d. Humana MedFirst (KY)
e. Humana Health Care Plans of Indiana (IN)
f. Madison Family and Industrial Medicine
5. KPLAN, Inc. (in process of withdrawing from AZ)
6. Humco, Inc. - Doing Business As:
a. Eagle Creek Medical Plaza
b. Humana Hospital - Lexington
7. Randmark, Inc.
LOUISIANA
1. Humana Health Plan of Louisiana, Inc.
MARYLAND
1. Humana Health Plan of Maryland, Inc.
<PAGE> 4
MICHIGAN
1. Humana Health Plan of Michigan, Inc.
MISSOURI
1. Humana Kansas City, Inc. - Doing Business As:
a. Humana Prime Health Plan
2. Humana Insurance Company - Doing Business As:
a. Dental Care Affiliates (GA)
b. Managed Prescription Services (CA)
c. Managed Prescription Services (MO)
d. Managed Prescription Services, Inc. (NJ)
3. Humana/Med-Pay, Inc.
NEVADA
1. Humana Health Insurance of Nevada, Inc.
NORTH CAROLINA
1. Humana Health Plan of North Carolina, Inc.
OHIO
1. Humana Health Plan of Ohio, Inc.
PENNSYLVANIA
1. Humana Health Plan of Pennsylvania, Inc.
TEXAS
1. Humana HMO Texas, Inc.
2. Humana Health Plan of Texas, Inc. - Doing Business As:
a. Humana Health Plan of Corpus Christi
b. Humana Health Plan of Dallas
c. Humana Health Plan of Houston
d. Humana Health Plan of San Antonio
e. Humana Regional Service Center
f. Leon Valley Health Center
g. MedCentre Plaza Health Center
h. Nacogdoches Family Medical Center
i. Perrin Oaks Health Center
j. Val Verde Health Center
k. West Lakes Health Center
l. Wurzbach Family Medical Center
3. Prescription Benefits, Inc.
UTAH
1. Humana Health Plan of Utah, Inc.
VERMONT
1. Managed Care Indemnity, Inc. - Doing Business As:
a. Witherspoon Parking Garage (KY)
<PAGE> 5
VIRGINIA
1. Humana Group Health Plan, Inc.
WASHINGTON
1. Humana Health Plan of Washington, Inc.
WISCONSIN
1. CareNetwork, Inc. - Doing Business As:
a. CARENETWORK
2. EMPHESYS Wisconsin Insurance Company
3. Employers Health Insurance Company
4. Humana Wisconsin Health Organization Insurance Corporation - Doing Business
As:
a. WHOIC
b. WHO
5. Independent Care, Inc.
6. Network EPO, Inc.
7. The Barrington Group, LTD (f/k/a Plan Management Administrators, Inc./now a
Div. of TBG)
8. Wisconsin Employers Group, Inc.
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Humana Inc. on Form S-8 (Registration No. 2-39061, No. 2-79239, No. 2-96154, No.
33-33072, No. 33-49305, No. 33-52593 and No. 33-54455), of our report dated
February 14, 1996, which includes an explanatory paragraph relating to a change
in 1993 in the method of accounting for certain investments in debt and equity
securities, on our audits of the consolidated financial statements and financial
statement schedules of Humana Inc. as of December 31, 1995 and 1994, and for the
years ended December 31, 1995, 1994 and 1993, which report is incorporated by
reference in this Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
Louisville, Kentucky
March 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HUMANA
INC.'S FORM 10-K FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT.
</LEGEND>
<CIK> 0000049071
<NAME> HUMANA INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 182
<SECURITIES> 1,156
<RECEIVABLES> 167
<ALLOWANCES> 36
<INVENTORY> 0
<CURRENT-ASSETS> 1,593
<PP&E> 649
<DEPRECIATION> 267
<TOTAL-ASSETS> 2,878
<CURRENT-LIABILITIES> 1,192
<BONDS> 250
0
0
<COMMON> 27
<OTHER-SE> 1,260
<TOTAL-LIABILITY-AND-EQUITY> 2,878
<SALES> 4,605
<TOTAL-REVENUES> 4,702
<CGS> 3,762
<TOTAL-COSTS> 4,403
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11
<INCOME-PRETAX> 288
<INCOME-TAX> 98
<INCOME-CONTINUING> 190
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 190
<EPS-PRIMARY> 1.17
<EPS-DILUTED> 1.17
</TABLE>
