UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-5975
HUMANA INC.
(Exact name of registrant as specified in its charter)
Delaware 61-0647538
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 West Main Street,
Louisville, Kentucky 40202
(Address of principal executive offices) (Zip Code)
(502) 580-1000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for the
past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Outstanding at
Class of Common Stock August 12, 1996
$.16 2/3 par value 162,441,760 shares
1 of 18
HUMANA INC.
FORM 10-Q
June 30, 1996
Page of
Form 10-Q
Part I: Financial Information
Item 1. Financial Statements
Condensed Consolidated Statement of
Operations for the quarters and six
months ended June 30, 1996 and 1995 3
Condensed Consolidated Balance Sheet at
June 30, 1996 and December 31, 1995 4
Condensed Consolidated Statement of
Cash Flows for the six months
ended June 30, 1996 and 1995 5
Notes to Condensed Consolidated
Financial Statements 6-8
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 9-16
Part II: Other Information
Items 1 to 6 17-18
Exhibits
Exhibit 12 - Ratio of Earnings to Fixed Charges
Exhibit 27 - Financial Data Schedule
<TABLE>
HUMANA INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the quarters and six months ended June 30, 1996 and 1995
Unaudited
(Dollars in millions except per share results)
Quarter Six Months
<S> <C> <C> <C> <C>
1996 1995 1996 1995
Revenues:
Premiums $ 1,578 $ 1,048 $ 3,138 $ 2,073
Interest 25 19 50 38
Other income 2 3 5 7
Total revenues 1,605 1,070 3,193 2,118
Operating expenses:
Medical costs 1,415 860 2,689 1,686
Selling, general
and administra-
tive 228 125 431 250
Depreciation and
amortization 24 15 49 30
Asset write-downs
and other unusual
charges 81 81
Total operating
expenses 1,748 1,000 3,250 1,966
Income (loss) from
operations (143) 70 (57) 152
Interest expense 3 2 8 4
Income (loss) before
income taxes (146) 68 (65) 148
Income tax provision
(benefit) (51) 23 (23) 50
Net income (loss) $ (95) $ 45 $ (42) $ 98
Earnings (loss) per
common share $ (.58) $ .28 $ (.26) $ .60
Shares used in
earnings (loss)
per common share
computation (000) 162,455 162,255 162,417 162,148
</TABLE>
See accompanying notes.
HUMANA INC.
CONDENSED CONSOLIDATED BALANCE SHEET
Unaudited
(Dollars in millions except per share amounts)
<TABLE>
<S> <C> <C>
June 30, December 31,
1996 1995
Assets
Current assets:
Cash and cash equivalents $ 194 $ 182
Marketable securities 1,209 1,156
Premiums receivable, less
allowance for doubtful
accounts of $36 for
June 30, 1996 and
December 31, 1995 141 131
Other 173 124
Total current assets 1,717 1,593
Long-term marketable securities 129 180
Property and equipment, net 378 382
Cost in excess of net tangible
assets acquired 495 536
Other 190 187
Total assets $ 2,909 $ 2,878
Liabilities and Common Stockholders' Equity
Current liabilities:
Medical costs payable $ 1,045 $ 866
Trade accounts payable and
accrued expenses 296 291
Income taxes payable 16 35
Total current liabilities 1,357 1,192
Long-term debt 177 250
Professional liability and
other obligations 141 149
Total liabilities 1,675 1,591
Contingencies
Common stockholders' equity:
Common stock, $.16 2/3 par;
authorized 300,000,000
shares; issued and outstand-
ing 162,433,676 shares -
June 30, 1996 and 162,099,403
shares - December 31, 1995 27 27
Other 1,207 1,260
Total common stock-
holders' equity 1,234 1,287
Total liabilities and
common stockholders'
equity $ 2,909 $ 2,878
</TABLE>
See accompanying notes.
HUMANA INC.
Condensed Consolidated Statement of Cash Flows
For the six months ended June 30, 1996 and 1995
Unaudited
(Dollars in millions)
<TABLE>
<S> <C> <C>
1996 1995
Cash flows from operating activities:
Net income (loss) $ (42) $ 98
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Asset write-downs 70
Depreciation and amortization 49 30
Deferred income taxes (35) (1)
Changes in operating assets and
liabilities 156 71
Other (12) (1)
Net cash provided by operating
activities 186 197
Cash flows from investing activities:
Purchases and dispositions of property
and equipment, net (43) (25)
Acquisition of health plan assets (3) (3)
Purchases, sales and maturities
of marketable securities, net (41) 2
Other (11)
Net cash used for investing
activities (98) (26)
Cash flows from financing activities:
Change in commercial paper 173
Repayment of credit revolver (250)
Other 1 4
Net cash provided by (used for)
financing activities (76) 4
Increase in cash and cash equivalents 12 175
Cash and cash equivalent at beginning
of period 182 272
Cash and cash equivalents at
end of period $ 194 $ 447
Interest payments, net $ 7 $ 2
Income tax payments, net $ 28 $ 52
</TABLE>
See accompanying notes.
HUMANA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
(A) Basis of Presentation
The accompanying condensed consolidated financial statements are
presented in accordance with the requirements of Form 10-Q and
consequently do not include all of the disclosures normally
required by generally accepted accounting principles or those
normally made in an annual report on Form 10-K. Accordingly,
for further information, the reader of this Form 10-Q may wish
to refer to the Form 10-K of Humana Inc. (the "Company") for the
year ended December 31, 1995.
The preparation of the Company's condensed consolidated
financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the (a) 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.
The financial information has been prepared in accordance with
the Company's customary accounting practices and has not been
audited. In the opinion of management, the information
presented reflects all adjustments necessary for a fair
statement of interim results. All such adjustments, with the
exception of the special charges described below, are of a
normal and recurring nature.
(B) Special Charges
During the second quarter of 1996, the Company recognized
special charges of $200 million pretax ($130 million after tax
or $.80 per share). The special charges include provisions for
expected future losses on insurance contracts ($105 million) as
well as an estimate of the costs to be incurred in
restructuring the Washington, D.C. health plan and closing or
discontinuing product lines in 16 market areas ($70 million).
The special charges also include the write-off of miscellaneous
assets, a litigation settlement and other costs ($25 million).
The provision for expected future losses on insurance contracts
relates primarily to the Washington, D.C. health plan and markets
generally characterized as service area expansion markets.
The special charges include $70 million of asset write-downs,
related to long-lived assets, primarily associated with the
Company's Washington, D.C. health plan. In accordance with
Financial Accounting Standards Board Statement No. 121
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of", the Company
conducted a review of the carrying value of its Washington, D.C.
HUMANA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
Unaudited
(B) Special Charges, continued
health plan assets. This review was initiated because the
health plan was experiencing significant operating losses. A
forecast of expected undiscounted future cash flows was prepared
to determine whether an impairment existed and fair values were
used to measure the amount of the impairment. As a result of
the review, the Washington, D.C. health plan assets were written
down to their estimated fair value.
The special charge provision for expected future losses on
insurance contracts ($105 million) has been included in medical
costs in the accompanying condensed consolidated statement of
operations; asset write-downs, restructuring, market closing and product
discontinuance costs have been included in asset write-downs and
other unusual charges ($81 million) and litigation and certain other
costs have been included in selling, general and administrative expenses
($14 million).
(C) Long-Term Debt
During April 1996, the Company implemented a commercial paper
program and began issuing debt securities therewith. At June
30, 1996, borrowings under the commercial paper program totaled
$173 million. The average interest rate since the inception of
the commercial paper program through June 30, 1996, was 5.5
percent. The commercial paper program is backed by the
Company's existing $600 million revolving line of credit.
Borrowings under the commercial paper program have been
classified as long-term debt based on management's ability and
intent to refinance borrowings on a long-term basis through the
continued use of the commercial paper program backed by the
revolving credit agreement.
(D) 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
HUMANA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
Unaudited
(D) Contingencies, continued
material adverse affect on the revenues, profitability and
business prospects of the Company. On July 23, 1996, the Health
Care Financing Administration's Office of the Actuary announced
the projected national average rate of increase for 1997 under
these contracts to be 7.2 percent. The final rate of increase
is expected to be announced in September 1996. When the final
rate increase is determined, geographic and other adjustments
could significantly affect the Company's actual 1997 increase.
Over the last five years, annual increases realized by the
Company 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.
The Company began providing managed health care services on July
1, 1996 pursuant to 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 under the
Civilian Health and Medical Program of the Uniformed Services
("CHAMPUS"). The use of managed health care under CHAMPUS is a
new program and this is the Company's first endeavor operating
under the United States 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.
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.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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. There
can be no assurance that the Company can duplicate its past
performance or that expected future results will be achieved.
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'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 July 1, 1996, the Company began providing managed health care
services to military dependents under 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 under the Civilian
Health and Medical Program of the Uniformed Services
("CHAMPUS").
Special Charges
During the second quarter of 1996, the Company recognized
special charges of $200 million pretax ($130 million after tax
or $.80 per share). The special charges include provisions for
expected future losses on insurance contracts ($105 million) as
well as an estimate of the costs to be incurred in
restructuring the Washington, D.C. health plan and closing or
discontinuing product lines in 16 market areas ($70 million).
The special charges also include the write-off of miscellaneous
assets, a litigation settlement and other costs ($25 million).
The provision for expected future losses on insurance contracts
relates primarily to the Washington, D.C. health plan and markets
generally characterized as service area expansion markets.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The special charge provision for expected future losses on
insurance contracts ($105 million) has been included in medical
costs in the accompanying condensed consolidated statement of
operations; asset write-downs, restructuring, market closing and
product discontinuance costs have been included in asset write-
downs and other unusual charges ($81 million) and litigation and
certain other costs have been included in selling, general and
administrative expenses ($14 million).
The following discussions comparing the quarter ended June 30,
1996 to June 30, 1995, and the six months ended June 30, 1996,
to the corresponding six-month period ended June 30, 1995,
exclude the special charges described above. The quarter ended
June 30, 1996, includes the beneficial effect of these charges,
which approximated $.04 per share. The beneficial effect
consists primarily of charges against reserves for losses on
insurance contracts and amounts related to depreciation and
amortization on asset write-downs.
Results of Operations
Quarters Ended June 30, 1996 and 1995
The Company's premium revenues increased 50.7 percent to $1.6
billion for the quarter ended June 30, 1996, compared to $1.0
billion for the same period in 1995. This increase was due
primarily to the fourth quarter of 1995 acquisition of EMPHESYS
Financial Group, Inc. ("EMPHESYS"). EMPHESYS' premium revenues
for the quarter ended June 30, 1996 totaled approximately $427
million. In addition to the acquisition of EMPHESYS, premium
revenues increased as a result of the beneficial effect on 1996
of fiscal 1995 membership growth partially offset by the first
quarter of 1996 Commercial membership declines. Commercial
product same-store membership increased to 1,792,800 from
1,719,300 for the period between June 30, 1995 and June 30,
1996, while Medicare risk membership increased to 332,900 from
296,600 during the same period. The Medicare risk premium rate
increased approximately 8.0 percent but was partially offset by
Commercial premium rate reductions of 1.0 percent. The weighted
average Medicare risk premium rate increase for calendar year
1996 is expected to approximate 8 percent. Management antici-
pates that the 1996 weighted average Commercial premium rates
for calendar year 1996 will range from a decline of 1 percent to
flat with 1995.
Membership in the Company's Commercial products decreased 1,000
during the second quarter ended June 30, 1996 compared to an
increase of 54,700 for the same period in 1995. The decrease is
primarily the result of the Company's plan to price its products
based on anticipated medical cost trends. Medicare risk members
increased by 10,600 during the second quarter compared to 4,100 for
the same period in 1995. The Medicare risk membership growth is
primarily the result of sales in new Medicare markets. As a
result of management's decisions to exit 13 market areas
(comprising 121,700 members) and discontinue certain products in
3 other markets (comprising 19,500 members), Commercial
membership is expected to decrease during the remainder of 1996.
Medicare risk membership gains are expected to approximate 14
to 15 percent for all of 1996.
The Company anticipates that during the remainder of 1996, its
CHAMPUS contract will result in additional premium revenues of
approximately $340 million.
The medical loss ratio for the quarter ended June 30, 1996 was
82.9 percent (excluding the effect of the special charges)
compared to 82.1 percent for the same period in 1995. The
increase was concentrated in the Company's Commercial product
and was the result of declining premium rates combined with
increasing outpatient hospital, physician and pharmacy services
costs. Although the Company is continuing its efforts to
control medical costs, given the competitive pricing environment
and lack of improving medical cost trends, the Company's medical
loss ratio is not expected to improve during the remainder of
1996.
The administrative cost ratio was 15.2 percent and 13.4 percent
for the quarters ended June 30, 1996 and 1995, respectively.
The increase was due to higher administrative costs associated
with EMPHESYS' small group business. In addition, costs
associated with the integration of EMPHESYS, the reengineering
of the Medicare risk product offering and claim center
expenditures designed to improve customer service also
contributed to the higher administrative cost ratio. Management
anticipates that the administrative cost ratio will be flat to
down for the remainder of 1996 when compared to the second
quarter of 1996.
Interest income totaled $25 million and $19 million for the
quarters ended June 30, 1996 and 1995, respectively. The
increase is primarily attributable to increased levels of cash,
cash equivalents and marketable securities and the addition of
EMPHESYS' portfolio. The tax equivalent yield on invested
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, continued
assets approximated 8 percent for each of the quarters ended
June 30, 1996 and 1995.
Excluding the special charges, the Company's income before
income taxes totaled $54 million for the quarter ended June 30,
1996, compared to $68 million for the quarter ended June 30,
1995. Also excluding the special charges, net income was $35
million or $.22 per share and $45 million or $.28 per share for
each of the quarters ended June 30, 1996 and 1995, respectively.
Six Months Ended June 30, 1996 and 1995
The Company's premium revenues increased 51.4 percent to $3.1
billion for the six months ended June 30, 1996, compared to $2.1
billion for the same period in 1995. This increase was due
primarily to the fourth quarter of 1995 acquisition of EMPHESYS.
EMPHESYS' premium revenues for the six months ended June 30,
1996 totaled approximately $850 million. In addition to the
acquisition of EMPHESYS, premium revenues increased as a result
of the beneficial effect on 1996 of fiscal 1995 membership
growth partially offset by the first quarter of 1996 Commercial
membership declines. The Medicare risk premium rate increased
approximately 8.0 percent but was partially offset by Commercial
premium rate reductions of 1.4 percent.
Membership in the Company's Commercial products decreased 22,000
during the six months ended June 30, 1996 compared to an
increase of 191,000 for the same period in 1995. The decrease
is primarily the result of the loss of approximately 50,000
members in the first quarter of 1996 related to one customer
group as well as the Company's plan to price its products based
on anticipated medical cost trends. Medicare risk members
increased by 22,500 during the six months ended June 30, 1996,
compared to 9,200 for the same period in 1995.
The medical loss ratio for the six months ended June 30, 1996
was 82.3 percent (excluding the effect of the special charges)
compared to 81.3 percent for the same period in 1995. The
increase was concentrated in the Company's Commercial product
and was the result of declining premium rates combined with
increasing outpatient hospital, physician and pharmacy services
costs.
The administrative cost ratio was 15.0 percent and 13.5 percent
for the six months ended June 30, 1996 and 1995, respectively.
The increase was due to higher administrative costs associated
with EMPHESYS' small group business. In addition, costs
associated with the integration of EMPHESYS, reengineering of
the Medicare risk product offering and claim center expenditures
designed to improve customer service also contributed to the
higher administrative cost ratio.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, continued
Interest income totaled $50 million and $38 million for the six
months ended June 30, 1996 and 1995, respectively. The increase
is primarily attributable to increased levels of cash, cash
equivalents and marketable securities and the addition of
EMPHESYS' portfolio. The tax equivalent yield on invested
assets approximated 8 percent for each of the six months ended
June 30, 1996 and 1995.
Excluding the special charges, the Company's income before
income taxes totaled $135 million for the six months ended June
30, 1996, compared to $148 million for the six months ended June
30, 1995. Also excluding the special charges, net income was
$88 million or $.54 per share and $98 million or $.60 per share
for each of the six months ended June 30, 1996 and 1995,
respectively.
Liquidity
Cash provided by the Company's operations totaled $186 million
and $197 million for the six months ended June 30, 1996 and
1995, respectively. The receipt of Medicare risk premiums
increased cash provided by operations by $127 million for the
six months ended June 30, 1995. Excluding the effect of the
timing of Medicare risk premiums, cash provided by operations
was $186 million and $70 million for the six months ended June
30, 1996 and 1995, respectively.
During April 1996, the Company implemented and began issuing
debt under its commercial paper program. In conjunction with
the implementation, the Company repaid all amounts outstanding
($230 million at March 31, 1996) under the revolving credit
agreement. At June 30, 1996, the Company had borrowed $173
million under the commercial paper program. The reduction in
total debt outstanding for the six months ended June 30, 1996,
was funded using cash generated from operations.
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 Company's
commercial paper program and revolving credit agreement are
sufficient to meet future liquidity needs, allow the Company to
pursue acquisition and expansion opportunities and fund capital
requirements.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, continued
Capital Resources
The Company's ongoing capital expenditures relate primarily to
the addition or expansion of 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.
Excluding acquisitions, planned capital spending in 1996 will
approximate $65 million to $70 million compared to $54 million
in 1995. Capital spending generally relates to the expansion
and improvement of medical care facilities and related computer
information systems.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, continued
Humana Inc.
<TABLE>
<S> <C> <C>
1996 1995
Commercial members enrolled at:
March 31 2,862,900 1,664,600
June 30 2,861,900 1,719,300
September 30 1,780,200
December 31 2,883,900
Medicare risk members
enrolled at:
March 31 322,300 292,500
June 30 332,900 296,600
September 30 304,300
December 31 310,400
Medicare supplement members
enrolled at:
March 31 109,600 126,100
June 30 106,000 121,900
September 30 119,100
December 31 115,000
Administrative services members
enrolled at:
March 31 444,700 228,400
June 30 447,900 264,400
September 30 262,800
December 31 495,100
Total members enrolled at:
March 31 3,739,500 2,311,600
June 30 3,748,700 2,402,200
September 30 2,466,400
December 31 3,804,400
</TABLE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, continued
HUMANA INC.
SUPPLEMENTAL CONSOLIDATED STATEMENT OF QUARTERLY INCOME (Unaudited)
(Dollars in millions except per share results)
<TABLE>
<S> <C> <C> <C>
1996
First Second Total
Revenues:
Premiums:
Commercial $ 1,082 $ 1,088 $ 2,170
Medicare risk 454 466 920
Medicare supplement 24 24 48
Total premiums 1,560 1,578 3,138
Interest 25 25 50
Other income 3 2 5
Total revenues 1,588 1,605 3,193
Operating expenses:
Medical costs 1,274 1,308 2,582
Selling, general and
administrative 203 216 419
Depreciation and amorti-
zation 25 24 49
Total operating expenses 1,502 1,548 3,050
Income from operations 86 57 143
Interest expense 5 3 8
Income before income taxes 81 54 135
Provision for income taxes 28 19 47
Net income $ 53 $ 35 $ 88
Earnings per common share $ .32 $ .22 $ .54
Medical loss ratio 81.7% 82.9% 82.3%
Administrative cost ratio 14.7% 15.2% 15.0%
</TABLE>
Note: Second quarter and year-to-date results exclude the special
charges related primarily to the restructuring of the
Company's Washington, D.C. health plan, provision for
expected losses on insurance contracts, closing 13 service
areas, discontinuing unprofitable products in three
markets, and a provision for a litigation settlement.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, continued
HUMANA INC.
SUPPLEMENTAL CONSOLIDATED STATEMENT OF QUARTERLY INCOME
(Unaudited)
(Dollars in millions except per share results)
<TABLE>
1995
<S> <C> <C> <C> <C> <C>
First Second Third Fourth Total
Revenues:
Premiums:
Commercial $ 614 $ 633 $ 652 $ 1,035 $ 2,934
Medicare risk 384 389 395 401 1,569
Medicare supplement 27 26 25 24 102
Total premiums 1,025 1,048 1,072 1,460 4,605
Interest 19 19 20 29 87
Other income 4 3 2 1 10
Total revenues 1,048 1,070 1,094 1,490 4,702
Operating expenses:
Medical costs 826 860 885 1,191 3,762
Selling, general and
administrative 125 125 126 195 571
Depreciation and
amortization 15 15 16 24 70
Total operating
expenses 966 1,000 1,027 1,410 4,403
Income from operations 82 70 67 80 299
Interest expense 2 2 2 5 11
Income before income
taxes 80 68 65 75 288
Provision for income
taxes 27 23 22 26 98
Net income $ 53 $ 45 $ 43 $ 49 $ 190
Earnings per common
share $ .32 $ .28 $ .27 $ .30 $ 1.17
Medical loss ratio 80.6% 82.1% 82.6% 81.5% 81.7%
Administrative cost
ratio 13.7% 13.4% 13.3% 14.9% 13.9%
</TABLE>
Part II: Other Information
Item 1: Legal Proceedings
On May 16, 1996, preliminary approval was given to the
settlement of a class action lawsuit filed on September
11, 1995, against Humana Insurance Company, styled Del
Bruns v. Humana Insurance Company (the "Bruns" case).
The settlement is expected to resolve all similar
claims involving Humana Insurance Company's parent,
subsidiaries, affiliates and predecessors.
The settlement agreement requires Humana Insurance
Company to contribute $7,525,000 to a class settlement
fund, from which class members who submit timely claims
can receive up to two times the difference between co-
insurance payments calculated using discounted and non-
discounted hospital charges. The settlement excludes
residents of Florida and Nevada, whose claims already
have been addressed in other proceedings. The court is
scheduled to consider final approval of the settlement
in September 1996. The accrual for this settlement is
included in the special charges described in Note B of
the Notes to the Condensed Consolidated Financial Statements.
Items 2 - 5:
None
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 12 - Statement re: Computation of Ratio of
Earnings to Fixed Charges
Exhibit 27 - Financial Data Schedule
(b) On June 7, 1996, the Company filed a report on
Form 8-K regarding the anticipated decline in 1996
second quarter results.
On July 10, 1996, the Company filed a report on
Form 8-K regarding the retirement of the
Company's president and chief operating officer,
Wayne T. Smith and the appointment of Gregory H.
Wolf as chief operating officer.
On July 29, 1996, the Company filed a report on
Form 8-K regarding a management reorganization,
including the resignation of the Company's chief
financial officer, W. Roger Drury.
Signatures
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
HUMANA INC.
Date: August 14, 1996 /s/ James E. Murray
James E. Murray
Vice President -
Finance
(Principal Accounting
Officer)
Date: August 14, 1996 /s/ Arthur P. Hipwell
Arthur P. Hipwell
Senior Vice President
and General Counsel
Exhibit 12
HUMANA INC.
RATIO OF EARNINGS TO FIXED CHARGES
For the quarters and six months ended June 30, 1996 and 1995
<TABLE>
<S> <C> <C> <C> <C>
Quarter Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
Earnings:
Income (loss) before
income taxes $(146) $ 68 $ (65) $ 148
Fixed charges 5 3 11 7
$ (141) $ 71 $ (54) $ 155
Fixed charges:
Interest charged to
expense $ 3 $ 2 $ 8 $ 4
One-third of rent
expense 2 1 3 3
$ 5 $ 3 $ 11 $ 7
Ratio of earnings to fixed
charges (a) 21.5 (a) 23.5
</TABLE>
For the purpose of determining earnings in the calculation of the ratio
of earnings to fixed charges (the "Ratio"), earnings have been increased
by the provision for income taxes and fixed charges. Fixed charges consist
of interest expense on borrowings and one-third (the proportion deemed
representative of the interest portion) of rent expense.
(a) Exclusive of the special charges of $200 million before income taxes,
the ratio of earnings to fixed charges for the quarter and six months
ended June 30, 1996, would have been 12.3 and 13.2, respectively.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM HUMANA INC.'S FORM 10-Q
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 194
<SECURITIES> 1,209
<RECEIVABLES> 177
<ALLOWANCES> 36
<INVENTORY> 0
<CURRENT-ASSETS> 1,717
<PP&E> 658
<DEPRECIATION> 280
<TOTAL-ASSETS> 2,909
<CURRENT-LIABILITIES> 1,357
<BONDS> 177
<COMMON> 27
0
0
<OTHER-SE> 1,207
<TOTAL-LIABILITY-AND-EQUITY> 2,909
<SALES> 3,138
<TOTAL-REVENUES> 3,193
<CGS> 2,689
<TOTAL-COSTS> 3,250
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8
<INCOME-PRETAX> (65)
<INCOME-TAX> (23)
<INCOME-CONTINUING> (42)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (42)
<EPS-PRIMARY> (.26)
<EPS-DILUTED> (.26)
</TABLE>
