Humana Reports Fourth Quarter and Full Year 2012 Financial Results; Reaffirms 2013 Financial Guidance *4Q12 EPS of $1.19; FY12 EPS of $7.47, both above management’s expectations *FY13 EPS guidance of $7.60 to $7.80 reaffirmed *FY12 consolidated revenues grew 6 percent to over $39 billion *FY12 cash flows from operations of $1.9 billion Business Wire LOUISVILLE, Ky. -- February 4, 2013 Humana Inc. (NYSE: HUM) today reported diluted earnings per common share (EPS) for the quarter ended December 31, 2012 (4Q12) of $1.19, compared to $1.20 per share for the quarter ended December 31, 2011 (4Q11). Results for 4Q12 were relatively unchanged versus those for 4Q11, but exceeded management’s previous expectations. For the year ended December 31, 2012 (FY12) the company reported $7.47 in EPS compared to $8.46 for the year ended December 31, 2011 (FY11), which was higher than management’s previous expectations for FY12 EPS in the range of $7.25 to $7.35. FY12 consolidated results included $0.48 per share of benefit from favorable prior period medical claims reserve development compared to $0.77 per share in FY11. The company continues to anticipate EPS for the year ending December 31, 2013 (FY13) in the range of $7.60 to $7.80 as improving operating results and modest accretion from the Metropolitan Health Networks, Inc. (Metropolitan) acquisition that closed in late FY12 are expected to be generally offset by slightly higher flu-related medical costs than previously anticipated, as well as additional interest expense associated with the company’s recent senior notes offering. “The progress we made building our clinical capabilities in 2012 positions us strongly for success in 2014 and beyond,” said Bruce D. Broussard, President and Chief Executive Officer of Humana. “For 2013, we will continue to enhance our integrated care delivery model, which we believe represents the future of health care delivery, as we forecast another year of growth in revenues, earnings and Medicare membership.” Consolidated Highlights Revenues – 4Q12 consolidated revenues were $9.56 billion, an increase of 6 percent from $9.06 billion in 4Q11, with total premiums and services revenue up 5 percent compared to the prior year’s quarter. The year-over-year increase in premiums and services revenue was primarily driven by higher Retail and Employer Group segment revenues resulting from higher average individual and group Medicare membership, partially offset by the company’s new South Region TRICARE contract being accounted for as self-funded versus fully-insured for the previous contract. The new contract became effective on April 1, 2012. FY12 consolidated revenues increased 6 percent to $39.13 billion from $36.83 billion in FY11 with total premiums and services revenue also up 6 percent compared to the prior year period, as a result of similar segment-level changes as those affecting the fourth quarter year-over-year change. Benefits expense – The 4Q12 consolidated benefit ratio (benefits expense as a percent of premiums) of 83.7 percent increased by 190 basis points from 81.8 percent for the prior year’s quarter due primarily to a 360 basis point increase in the Retail Segment benefit ratio, as discussed more fully below. The consolidated benefit ratio for FY12 of 83.7 percent increased by 160 basis points from the FY11 consolidated benefit ratio of 82.1 percent also primarily due to a 290 basis point increase in the benefit ratio for the Retail Segment. Operating expenses – The consolidated operating cost ratio (operating costs as a percent of total revenues less investment income) of 17.5 percent for 4Q12 declined from 17.7 percent in 4Q11 primarily due to substantial reductions in this operating metric for the Retail and Employer Group Segments nearly offset by the impact of the accounting for the company’s new South Region TRICARE contract in the company’s Other Businesses. The FY12 consolidated operating cost ratio of 15.1 percent increased 30 basis points from 14.8 percent for FY11 primarily due to the impact of the new South Region TRICARE contract discussed above, partially offset by lower year-over-year operating cost ratios for the Retail and Employer Group Segments. Strategic transaction update – On December 21, 2012, Humana completed its previously disclosed acquisition of Metropolitan, a Medical Services Organization that coordinates medical care for Medicare Advantage and Medicaid beneficiaries, primarily in Florida. Retail Segment Highlights Pretax results: *Retail Segment pretax income of $256 million in 4Q12 compares to $326 million in 4Q11, a decline of $70 million. This decrease was primarily due to a higher benefit ratio, partially offset by a lower operating cost ratio. *For FY12, pretax earnings for the Retail Segment of $1.16 billion decreased by $425 million from FY11 pretax earnings of $1.59 billion. The full-year decrease reflects the same factors impacting the fourth quarter year-over-year comparison. FY12 Retail Segment pretax results included $110 million of benefit from favorable prior period medical claims reserve development compared to $147 million in FY11. Enrollment: *Individual Medicare Advantage membership was 1,927,600 at December 31, 2012, an increase of 287,300 members, or 18 percent from 1,640,300 at December 31, 2011, primarily due to a successful enrollment season associated with the 2012 plan year as well as age-in enrollment throughout the year. *Effective March 31, 2012, the company added approximately 62,600 members from the acquisition of Arcadian Management Services, Inc. (Arcadian). As previously announced, the company divested approximately 12,600 members acquired with Arcadian effective January 1, 2013 in accordance with the company’s previously disclosed agreement with the United States Department of Justice. *January 2013 individual Medicare Advantage membership approximated 2,011,000, up approximately 83,400 from December 31, 2012, reflecting net membership additions in line with the company’s expectations for the recently completed 2013 Annual Election Period (AEP) for Medicare beneficiaries and the Arcadian-related membership divestitures discussed above. *Membership in the company’s individual stand-alone Prescription Drug Plans (PDPs) was 2,985,600 at December 31, 2012, up 445,200, or 18 percent compared to 2,540,400 at December 31, 2011. These increases resulted primarily from higher gross sales primarily during the 2012 enrollment season, particularly for the company’s innovative Humana-Walmart plan offering, supplemented by dual-eligible and age-in enrollments throughout the year. *January 2013 individual stand-alone PDP membership grew to approximately 3,113,000, an increase of approximately 127,400 from December 31, 2012, in line with the company’s expectations for net additions during the AEP. *HumanaOne® medical membership increased to 444,000 at December 31, 2012, an increase of 10,400, or 2 percent, from 433,600 at December 31, 2011. *Membership in individual specialty products^(a) of 948,700 at December 31, 2012 increased 21 percent from 782,500 at December 31, 2011, driven primarily by increased membership in dental offerings. Premiums and services revenue: *4Q12 premiums and services revenue for the Retail Segment was $6.11 billion, an increase of 15 percent from $5.31 billion in 4Q11. The increase was primarily the result of 19 percent higher average individual Medicare Advantage membership year over year. Benefits expense: *The 4Q12 benefit ratio for the Retail Segment was 82.6 percent, an increase of 360 basis points from 79.0 percent in 4Q11. The year-over-year increase was primarily due to a higher Medicare Advantage benefit ratio associated with new members and increased outpatient utilization for both new and existing members. Operating costs: *The Retail Segment’s operating cost ratio of 13.1 percent in 4Q12 decreased 160 basis points from 14.7 percent in 4Q11. The decrease was primarily the result of cost efficiencies resulting from higher average membership together with the company’s continued focus on operating cost efficiencies. Employer Group Segment Highlights Pretax results: *Employer Group Segment pretax loss of $25 million in 4Q12 compares to a pretax loss of $51 million in 4Q11, and reflects an improved operating cost ratio partially offset by a year-over-year increase in the benefit ratio for this segment. *For FY12, pretax earnings for the Employer Group Segment of $253 million increased by $11 million versus FY11 pretax earnings of $242 million with the same factors impacting fourth quarter results also driving the year-over-year increase. Enrollment: *Group Medicare Advantage membership was 398,500 at December 31, 2012, an increase of 80,300 members, or 25 percent, from 318,200 at December 31, 2011 primarily due to the addition of a large retiree account during FY12. *Group fully-insured commercial medical membership increased to 1,211,800 at December 31, 2012, an increase of 31,600, or 3 percent, from 1,180,200 at December 31, 2011. This increase primarily reflected small group business membership gains partially offset by lower membership in large group accounts. Approximately 59 percent of group fully-insured commercial medical membership was in small group accounts at December 31, 2012 versus 56 percent at December 31, 2011. *Group administrative services only (ASO) commercial medical membership declined to 1,237,700 at December 31, 2012, a decrease of 54,600, or 4 percent, from 1,292,300 at December 31, 2011. This decline reflected a continuation of discipline in pricing services for self-funded accounts amid a highly competitive environment. *Membership in Employer Group specialty products^(a) increased to 7,136,200 at December 31, 2012, an increase of 603,600, or 9 percent, from 6,532,600 at December 31, 2011. This increase primarily resulted from increased cross-sales of the company’s specialty products to its medical membership and growth in stand-alone specialty product sales. Premiums and services revenue: *4Q12 premiums and services revenue for the Employer Group Segment were $2.63 billion, up approximately 14 percent from $2.30 billion in 4Q11 primarily reflecting the impacts of higher average group Medicare Advantage and commercial fully-insured membership. Benefits expense: *4Q12 benefit ratio for the Employer Group Segment was 87.1 percent, an increase of 70 basis points from 86.4 percent for 4Q11. The year-over-year increase in the benefit ratio primarily reflected a higher percentage of members in group Medicare Advantage plans (which carry a higher benefit ratio than commercial fully-insured group accounts). Operating costs: *The Employer Group Segment’s operating cost ratio was 16.7 percent in 4Q12, a decline of 210 basis points from 18.8 percent in 4Q11, primarily reflecting a higher percentage of members in group Medicare Advantage plans (which carry a lower operating cost ratio than commercial fully-insured group accounts) as well as cost savings associated with operating cost reduction initiatives. Health and Well-Being Services Segment Highlights Pretax results: *Health and Well-Being Services Segment pretax income of $75 million in 4Q12 declined $10 million from $85 million in 4Q11 primarily due to transaction costs associated with the closings of the Metropolitan and MCCI Holdings, LLC (MCCI) strategic transactions announced in November 2012. *For FY12, pretax earnings for the Health and Well-Being Services Segment of $486 million increased by $133 million from FY11 pretax earnings of $353 million, primarily from higher earnings in the company’s RightSource® mail order operations. Revenues: *Revenues of $3.26 billion in 4Q12 for the Health and Well-Being Services Segment increased 13 percent from $2.90 billion in 4Q11. This increase was primarily due to growth in the company’s pharmacy solutions business. Operating costs: *The Health and Well-Being Services Segment’s operating cost ratio of 96.8 percent in 4Q12 increased by 50 basis points from 96.3 percent in 4Q11, primarily due to costs associated with the 4Q12 closings of the previously announced Metropolitan and MCCI strategic transactions. Other Businesses Highlights Pretax results: *Other Businesses incurred a pretax loss of $31 million in 4Q12 versus pretax income of $1 million in 4Q11, primarily due to a reserve strengthening for the company’s closed block of long-term-care business in 4Q12 *For FY12, a pretax loss for Other Businesses of $19 million compares to pretax income of $84 million in FY11. This year-over-year decline primarily reflected the combined effect of approximately $46 million in benefits expense related to the settlement of previously disclosed litigation involving Humana Military Healthcare Services, Inc., the 4Q12 adjustments to long-term-care reserves described above and the change in profitability under the new South Region TRICARE contract described below. *On April 1, 2012, the company’s new South Region TRICARE contract became effective with the Department of Defense (DoD). The company’s new contract is structured similar to self-funded products versus a fully-insured structure for the company’s previous South Region TRICARE contract with the DoD. This change resulted in significant volatility in year-over-year comparisons for the company’s Other Businesses. Balance Sheet *At December 31, 2012, the company had cash, cash equivalents, and investment securities of $11.15 billion, up approximately $320 million from $10.83 billion at December 31, 2011 reflecting higher balances associated with increased revenues for FY12 versus FY11. *In early December 2012, the company announced it had completed its public offering of $1 billion of senior notes. A substantial portion of the proceeds from that debt offering was used to complete the Metropolitan transaction, including the retirement of Metropolitan’s indebtedness and for related transaction fees and expenses, all in late December 2012. *Parent company cash and short-term investments of $346 million at December 31, 2012 decreased $176 million from $522 million at September 30, 2012, primarily reflecting strategic transaction activity and cash dividends to stockholders during 4Q12 partially offset by the net proceeds from the issuance of debt. Cash and short-term investments at the parent decreased $148 million year over year from $494 million held at the parent at December 31, 2011 as increased dividends from subsidiaries and net proceeds from the issuance of debt during 4Q12 were more than offset by strategic transaction activity, share repurchases and cash dividends to stockholders. *Days in claims payable of 48.5 at December 31, 2012 decreased 3.1 days from 51.6 days at September 30, 2012 primarily due to a decline in processed and unprocessed claims on hand as well as certain provider capitation payment settlements during 4Q12. *Debt-to-total capitalization at December 31, 2012 was 22.8 percent, up 710 basis points from 15.7 percent at September 30, 2012, and up 570 basis points from 17.1 percent at December 31, 2011 primarily driven by the 4Q12 issuance of senior notes described above. Cash Flows from Operations Cash flows provided by operations for 4Q12 were $205 million compared to cash flows used in operations of $1.80 billion in 4Q11. The company also evaluates operating cash flows on a non-GAAP basis: Net cash from operating activities 4Q12 4Q11 (in millions) Cash Flows Cash Flows GAAP $ 205 ($1,797) Timing of premium payment from CMS (b) - 1,796 Non-GAAP (c) $ 205 ($1) The year-over-year increase in the non-GAAP cash flows from operations is due primarily to the effect on cash flows of changes in working capital accounts. FY12 cash flows from operations of $1.92 billion compared to $2.08 billion for FY11, primarily due to lower net income year over year. Share Repurchase Program *During FY12, under the company’s current share repurchase authorization and a previously approved share repurchase authorization, the company executed share repurchases of approximately $460 million, or approximately 6,252,900 of its outstanding shares, at an average price of $73.66 per share. *As of February 4, 2013, approximately $640 million of the $1 billion April 2012 share repurchase authorization remained, with an expiration date of June 30, 2014. Footnotes (a) The company provides a full range of insured specialty products including dental, vision and other supplemental health and financial protection products. Members included in these products may not be unique to each product since members have the ability to enroll in multiple products. Other supplemental benefits include life, disability, and fixed benefit products including cancer and critical illness policies. (b) Generally, when the first day of a month falls on a weekend or holiday, with the exception of January 1 (New Year’s Day), the company receives this payment on the last business day of the previous month. Consequently, 4Q11 cash flows included two monthly Medicare payments compared to three monthly Medicare payments during 4Q12. (c) The Company has included certain financial measures that are not in accordance with Generally Accepted Accounting Principles (GAAP) in its summary of financial results within this earnings press release. The company believes that these non-GAAP measures, when presented in conjunction with comparable GAAP measures, are useful to both management and its investors in analyzing the company's ongoing business and operating performance. Internally, management uses these non-GAAP financial measures as indicators of business performance, as well as for operational planning and decision making purposes. Non-GAAP financial measures should be considered in addition to, but not as a substitute for, or superior to, financial measures prepared in accordance with GAAP. Conference Call & Virtual Slide Presentation Humana will host a conference call, as well as a virtual slide presentation, at 9:00 a.m. eastern time today to discuss its financial results for the quarter and the company’s expectations for future earnings. A live virtual presentation (audio with slides) may be accessed via Humana’s Investor Relations page at www.humana.com. The company suggests web participants sign on at least 15 minutes in advance of the call. The company also suggests web participants visit the site well in advance of the call to run a system test and to download any free software needed to view the presentation. All parties interested in the audio-only portion of the conference call are invited to dial 888-625-7430. No password is required. The company suggests participants dial in at least ten minutes in advance of the call. For those unable to participate in the live event, the virtual presentation archive may be accessed via the Historical Webcasts & Presentations section of the Investor Relations page at www.humana.com. Cautionary Statement This news release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. When used in investor presentations, press releases, Securities and Exchange Commission (SEC) filings, and in oral statements made by or with the approval of one of Humana’s executive officers, the words or phrases like “expects,” “anticipates,” “intends,” “likely will result,” “estimates,” “projects” or variations of such words and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and assumptions, including, among other things, information set forth in the “Risk Factors” section of the company’s SEC filings, a summary of which includes but is not limited to the following: *If Humana does not design and price its products properly and competitively, if the premiums Humana charges are insufficient to cover the cost of health care services delivered to its members, if the company is unable to implement clinical initiatives to provide a better health care experience for its members, lower costs and appropriately document the risk profile of its members, or if its estimates of benefits expense are inadequate, Humana’s profitability could be materially adversely affected. Humana estimates the costs of its benefit expense payments, and designs and prices its products accordingly, using actuarial methods and assumptions based upon, among other relevant factors, claim payment patterns, medical cost inflation, and historical developments such as claim inventory levels and claim receipt patterns. These estimates, however, involve extensive judgment, and have considerable inherent variability because they are extremely sensitive to changes in payment patterns and medical cost trends. *If Humana fails to effectively implement its operational and strategic initiatives, particularly its Medicare initiatives (given the concentration of the company’s revenues in the Medicare business), the company’s business may be materially adversely affected. *If Humana fails to properly maintain the integrity of its data, to strategically implement new information systems, to protect Humana’s proprietary rights to its systems, or to defend against cyber-security attacks, the company’s business may be materially adversely affected. *Humana’s business may be materially adversely impacted by CMS’s adoption of a new coding set for diagnoses. *Humana is involved in various legal actions and governmental and internal investigations, any of which, if resolved unfavorably to the company, could result in substantial monetary damages. Increased litigation and negative publicity could also increase the company’s cost of doing business. *As a government contractor, Humana is exposed to risks that may materially adversely affect its business or its willingness or ability to participate in government health care programs. *Recently enacted health insurance reform, including The Patient Protection and Affordable Care Act and The Health Care and Education Reconciliation Act of 2010, could have a material adverse effect on Humana’s results of operations, including restricting revenue, enrollment and premium growth in certain products and market segments, restricting the company’s ability to expand into new markets, increasing the company's medical and operating costs by, among other things, requiring a minimum benefit ratio on insured products (and particularly how the ratio may apply to Medicare plans, including aggregation, credibility thresholds, and its possible application to prescription drug plans), lowering the company’s Medicare payment rates and increasing the company’s expenses associated with a non-deductible federal premium tax and other assessments; financial position, including the company's ability to maintain the value of its goodwill; and cash flows. In addition, if the new non-deductible federal premium tax and other assessments, including a three-year commercial reinsurance fee, were imposed as enacted, and if Humana is unable to adjust its business model to address these new taxes and assessments, such as through the reduction of the company’s operating costs, there can be no assurance that the non-deductible federal premium tax and other assessments would not have a material adverse effect on the company’s results of operations, financial position, and cash flows. *Humana’s business activities are subject to substantial government regulation. New laws or regulations, or changes in existing laws or regulations or their manner of application could increase the company’s cost of doing business and may adversely affect the company’s business, profitability and cash flows. *Any failure to manage operating costs could hamper Humana’s profitability. *Any failure by Humana to manage acquisitions and other significant transactions successfully may have a material adverse effect on its results of operations, financial position, and cash flows. *If Humana fails to develop and maintain satisfactory relationships with the providers of care to its members, the company’s business may be adversely affected. *Humana’s pharmacy business is highly competitive and subjects it to regulations in addition to those the company faces with its core health benefits businesses. *Changes in the prescription drug industry pricing benchmarks may adversely affect Humana’s financial performance. *If Humana does not continue to earn and retain purchase discounts and volume rebates from pharmaceutical manufacturers at current levels, Humana’s gross margins may decline. *Humana’s ability to obtain funds from its subsidiaries is restricted by state insurance regulations. *Downgrades in Humana’s debt ratings, should they occur, may adversely affect its business, results of operations, and financial condition. *Changes in economic conditions could adversely affect Humana’s business and results of operations. *The securities and credit markets may experience volatility and disruption, which may adversely affect Humana’s business. *Given the current economic climate, Humana’s stock and the stock of other companies in the insurance industry may be increasingly subject to stock price and trading volume volatility. In making forward-looking statements, Humana is not undertaking to address or update them in future filings or communications regarding its business or results. In light of these risks, uncertainties, and assumptions, the forward-looking events discussed herein may or may not occur. There also may be other risks that the company is unable to predict at this time. Any of these risks and uncertainties may cause actual results to differ materially from the results discussed in the forward-looking statements. Humana advises investors to read the following documents as filed by the company with the SEC for further discussion both of the risks it faces and its historical performance: *Form 10-K for the year ended December 31, 2011; *Form 10-Qs for the quarters ended March 31, 2012, June 30, 2012 and September 30, 2012 (as amended by the Form 10-Q/A filed on December 4, 2012); *Form 8-Ks filed during 2012 and 2013. About Humana Humana Inc., headquartered in Louisville, Kentucky, is a leading health care company that offers a wide range of insurance products and health and wellness services that incorporate an integrated approach to lifelong well-being. By leveraging the strengths of its core businesses, Humana believes it can better explore opportunities for existing and emerging adjacencies in health care that can further enhance wellness opportunities for the millions of people across the nation with whom the company has relationships. More information regarding Humana is available to investors via the Investor Relations page of the company’s web site at www.humana.com, including copies of: *Annual reports to stockholders; *Securities and Exchange Commission filings; *Most recent investor conference presentations; *Quarterly earnings news releases; *Replays of most recent earnings release conference calls; *Calendar of events (including upcoming earnings conference call dates and times, as well as planned interaction with research analysts and institutional investors); *Corporate Governance information Humana Inc. – Earnings Guidance Points as of February 4, 2013 (in accordance with For the year ending Comments Generally Accepted December 31, 2013 Accounting Principles) Diluted earnings per common share (EPS) FY13 includes Full Year $7.60 to $7.80 approximately $0.30 per share in investment spending First Quarter $1.75 to $1.85 Revenues $41.0 billion to $41.5 Includes expected Consolidated billion investment income in the range of $365 million to $385 million for 2013 Retail Segment $26.25 billion to Segment-level revenues $26.75 billion include intersegment Employer Group Segment $11.0 billion to $11.5 amounts that eliminate billion in consolidation Health and Well-Being Services Segment $15.0 billion to $15.5 billion Other Businesses $1.8 billion to $2.1 billion Ending medical membership versus prior year end Retail Segment Up 100,000 to 120,000 Includes the January 1, 2013 disposition of 12,600 Medicare Medicare Advantage Advantage members acquired in the March 2012 Arcadian transaction in accordance with the company’s previously disclosed agreement with the United States Department of Justice. Medicare stand-alone Up 135,000 to 175,000 PDPs HumanaOne Down approximately 50,000 Medicare Supplement Up 15,000 to 25,000 Employer Group Segment Medicare Advantage Up approximately 20,000 Commercial Flat to up 5,000 Fully-Insured Commercial ASO Down 25,000 to 45,000 Benefit ratios Benefits expense as a percent of premiums Retail Segment 84.5% to 85.0% Employer Group Segment 85.0% to 86.0% Operating costs as a Operating cost ratios percent of total revenues excluding investment income Consolidated 15.0% to 15.5% Health and Well-Being Services Segment 95.5% to 96.0% Consolidated Certain D&A is included depreciation and in benefits expense on amortization Income statement $330 million to $350 the income statement million but shown as a non-cash Cash flows statement $415 million to $435 item on the cash flows million statement Consolidated interest $140 million to $145 expense million Segment-level pretax Detailed pretax results results and margins include the impact of net investment income Retail Segment $1.29 billion to $1.33 billion; approximately 5% pretax margin Employer Group Segment $105 million to $155 million; 1.0% to 1.2% pretax margin Health and Well-Being Services Segment $500 million to $550 million; 3.0% to 3.5% pretax margin Effective Tax Rate Approximately 37% Diluted shares Approximately 161.5 Projections exclude the million impact of future share repurchases Cash flows from $1.8 billion to $2.0 operations billion Capital expenditures $425 million to $450 million Humana Inc. Statistical Schedules And Supplementary Information 4Q12 Earnings Release S-1 Humana Inc. Statistical Schedules and Supplementary Information 4Q12 Earnings Release Contents Page Description S-3-4 Consolidated Statements of Income S-5-6 Quarterly Segment Financial Information S-7-8 FY Segment Financial Information S-9 Consolidated Balance Sheets S-10-11 Consolidated Statements of Cash Flows S-12 Key Income Statement Ratios and Segment Operating Results S-13-14 Health and Well-Being Services Segment Metrics S-15 Membership Detail S-16-17 Premiums and Services Revenue Detail S-18 Medicare Summary S-19 Investments S-20-22 Benefits Payable Detail and Statistics S-23 Footnotes S-2 Humana Inc. Consolidated Statements of Income In millions, except per common share results Three Months Ended December 31, Dollar Percentage 2012 2011 Change Change Revenues: Premiums $ 8,980 $ 8,638 $ 342 4.0 % Services 475 325 150 46.2 % Investment income 102 93 9 9.7 % Total 9,557 9,056 501 5.5 % revenues Operating expenses: Benefits 7,516 7,062 454 6.4 % Operating costs 1,655 1,585 70 4.4 % Depreciation and 77 69 8 11.6 % amortization Total operating 9,248 8,716 532 6.1 % expenses Income from operations 309 340 (31 ) -9.1 % Interest expense 27 27 0 0.0 % Income before income 282 313 (31 ) -9.9 % taxes Provision for income 90 114 (24 ) -21.1 % taxes Net income $ 192 $ 199 $ (7 ) -3.5 % Basic earnings per $ 1.21 $ 1.22 $ (0.01 ) -0.8 % common share Diluted earnings per $ 1.19 $ 1.20 $ (0.01 ) -0.8 % common share Shares used in computing basic earnings per 158,764 163,238 common share (000's) Shares used in computing diluted earnings per 160,682 165,632 common share (000's) S-3 Humana Inc. Consolidated Statements of Income In millions, except per common share results Twelve Months Ended December 31, Dollar Percentage 2012 2011 Change Change Revenues: Premiums $ 37,009 $ 35,106 $ 1,903 5.4% Services 1,726 1,360 366 26.9% Investment income 391 366 25 6.8% Total revenues 39,126 36,832 2,294 6.2% Operating expenses: Benefits 30,985 28,823 2,162 7.5% Operating costs 5,830 5,395 435 8.1% Depreciation and 295 270 25 9.3% amortization Total operating 37,110 34,488 2,622 7.6% expenses Income from operations 2,016 2,344 (328) -14.0% Interest expense 105 109 (4) -3.7% Income before income taxes 1,911 2,235 (324) -14.5% Provision for income taxes 689 816 (127) -15.6% Net income $ 1,222 $ 1,419 $ (197) -13.9% Basic earnings per common $ 7.56 $ 8.58 $ (1.02) -11.9% share Diluted earnings per common $ 7.47 $ 8.46 $ (0.99) -11.7% share Shares used in computing basic earnings per common 161,484 165,413 share (000's) Shares used in computing diluted earnings per common 163,457 167,827 share (000's) S-4 Humana Inc. 4Q12 Segment Financial Information In millions Health and Employer Well-Being Other Eliminations/ Retail Group Services Businesses Corporate Consolidated Revenues - external customers Premiums: Medicare $ 5,184 $ 1,005 $ - $ - $ - $ 6,189 Advantage Medicare stand-alone 620 2 - 63 - 685 PDP Total 5,804 1,007 - 63 - 6,874 Medicare Fully-insured 255 1,251 - - - 1,506 Specialty 46 277 - - - 323 Military - - - 11 - 11 services Medicaid and - - - 266 - 266 other (A) Total 6,105 2,535 - 340 - 8,980 premiums Services revenue: Provider - - 271 - - 271 ASO and other 7 92 - 100 - 199 (B) Pharmacy - - 5 - - 5 Total services 7 92 276 100 - 475 revenue Total revenues - 6,112 2,627 276 440 - 9,455 external customers Intersegment revenues Services - 4 2,423 - (2,427 ) - Products - - 565 - (565 ) - Total intersegment - 4 2,988 - (2,992 ) - revenues Investment 21 11 - 15 55 102 income Total 6,133 2,642 3,264 455 (2,937 ) 9,557 revenues Operating expenses: Benefits 5,042 2,208 - 354 (88 ) 7,516 Operating 800 439 3,161 128 (2,873 ) 1,655 costs Depreciation and 35 20 28 4 (10 ) 77 amortization Total operating 5,877 2,667 3,189 486 (2,971 ) 9,248 expenses Income (loss) from 256 (25 ) 75 (31 ) 34 309 operations Interest - - - - 27 27 expense Income (loss) before income $ 256 $ (25 ) $ 75 $ (31 ) $ 7 $ 282 taxes Benefit ratio 82.6 % 87.1 % 104.1 % 83.7 % Operating cost ratio 13.1 % 16.7 % 96.8 % 29.1 % 17.5 % (C) S-5 Humana Inc. 4Q11 Segment Financial Information In millions Health and Employer Well-Being Other Eliminations/ Retail Group Services Businesses Corporate Consolidated Revenues - external customers Premiums: Medicare $ 4,454 $ 789 $ - $ - $ - $ 5,243 Advantage Medicare stand-alone 580 2 - 57 - 639 PDP Total 5,034 791 - 57 - 5,882 Medicare Fully-insured 233 1,181 - - - 1,414 Specialty 35 237 - - - 272 Military - - - 814 - 814 services Medicaid and - - - 256 - 256 other (A) Total 5,302 2,209 - 1,127 - 8,638 premiums Services revenue: Provider - - 222 - - 222 ASO and other 4 87 - 9 - 100 (B) Pharmacy - - 3 - - 3 Total services 4 87 225 9 - 325 revenue Total revenues - 5,306 2,296 225 1,136 - 8,963 external customers Intersegment revenues Services - 4 2,185 - (2,189 ) - Products - - 490 - (490 ) - Total intersegment - 4 2,675 - (2,679 ) - revenues Investment 19 12 - 14 48 93 income Total 5,325 2,312 2,900 1,150 (2,631 ) 9,056 revenues Operating expenses: Benefits 4,190 1,909 - 1,036 (73 ) 7,062 Operating 779 433 2,794 110 (2,531 ) 1,585 costs Depreciation and 30 21 21 3 (6 ) 69 amortization Total operating 4,999 2,363 2,815 1,149 (2,610 ) 8,716 expenses Income (loss) from 326 (51 ) 85 1 (21 ) 340 operations Interest - - - - 27 27 expense Income (loss) before income $ 326 $ (51 ) $ 85 $ 1 $ (48 ) $ 313 taxes Benefit ratio 79.0 % 86.4 % 91.9 % 81.8 % Operating cost ratio 14.7 % 18.8 % 96.3 % 9.7 % 17.7 % (C) S-6 Humana Inc. FY 12 Segment Financial Information In millions Health and Employer Well-Being Other Eliminations/ Retail Group Services Businesses Corporate Consolidated Revenues - external customers Premiums: Medicare $ 20,788 $ 4,064 $ - $ - $ - $ 24,852 Advantage Medicare stand-alone 2,587 8 - 266 - 2,861 PDP Total 23,375 4,072 - 266 - 27,713 Medicare Fully-insured 1,004 4,996 - - - 6,000 Specialty 171 1,070 - - - 1,241 Military - - - 1,017 - 1,017 services Medicaid and - - - 1,038 - 1,038 other (A) Total 24,550 10,138 - 2,321 - 37,009 premiums Services revenue: Provider - - 1,020 - - 1,020 ASO and other 24 358 - 308 - 690 (B) Pharmacy - - 16 - - 16 Total services 24 358 1,036 308 - 1,726 revenue Total revenues - 24,574 10,496 1,036 2,629 - 38,735 external customers Intersegment revenues Services 2 15 9,610 - (9,627 ) - Products - - 2,342 - (2,342 ) - Total intersegment 2 15 11,952 - (11,969 ) - revenues Investment 79 42 - 58 212 391 income Total 24,655 10,553 12,988 2,687 (11,757 ) 39,126 revenues Operating expenses: Benefits 20,651 8,524 - 2,198 (388 ) 30,985 Operating 2,711 1,696 12,407 492 (11,476 ) 5,830 costs Depreciation and 131 80 95 16 (27 ) 295 amortization Total operating 23,493 10,300 12,502 2,706 (11,891 ) 37,110 expenses Income (loss) from 1,162 253 486 (19 ) 134 2,016 operations Interest - - - - 105 105 expense Income (loss) before income $ 1,162 $ 253 $ 486 $ (19 ) $ 29 $ 1,911 taxes Benefit ratio 84.1 % 84.1 % 94.7 % 83.7 % Operating cost ratio 11.0 % 16.1 % 95.5 % 18.7 % 15.1 % (C) S-7 Humana Inc. FY 11 Segment Financial Information In millions Health and Employer Well-Being Other Eliminations/ Retail Group Services Businesses Corporate Consolidated Revenues - external customers Premiums: Medicare $ 18,100 $ 3,152 $ - $ - $ - $ 21,252 Advantage Medicare stand-alone 2,317 8 - 253 - 2,578 PDP Total 20,417 3,160 - 253 - 23,830 Medicare Fully-insured 861 4,782 - - - 5,643 Specialty 124 935 - - - 1,059 Military - - - 3,616 - 3,616 services Medicaid and - - - 958 - 958 other (A) Total 21,402 8,877 - 4,827 - 35,106 premiums Services revenue: Provider - - 892 - - 892 ASO and other 16 356 - 85 - 457 (B) Pharmacy - - 11 - - 11 Total services 16 356 903 85 - 1,360 revenue Total revenues - 21,418 9,233 903 4,912 - 36,466 external customers Intersegment revenues Services - 14 8,510 - (8,524 ) - Products - - 1,820 - (1,820 ) - Total intersegment - 14 10,330 - (10,344 ) - revenues Investment 76 48 - 54 188 366 income Total 21,494 9,295 11,233 4,966 (10,156 ) 36,832 revenues Operating expenses: Benefits 17,383 7,318 - 4,411 (289 ) 28,823 Operating 2,405 1,650 10,798 461 (9,919 ) 5,395 costs Depreciation and 119 85 82 10 (26 ) 270 amortization Total operating 19,907 9,053 10,880 4,882 (10,234 ) 34,488 expenses Income from 1,587 242 353 84 78 2,344 operations Interest - - - - 109 109 expense Income (loss) before income $ 1,587 $ 242 $ 353 $ 84 $ (31 ) $ 2,235 taxes Benefit ratio 81.2 % 82.4 % 91.4 % 82.1 % Operating cost ratio 11.2 % 17.8 % 96.1 % 9.4 % 14.8 % (C) S-8 Humana Inc. Consolidated Balance Sheets Dollars in millions, except share amounts December 31, December 31, YOY Change 2012 2011 Dollar Percent Assets Current assets: Cash and cash equivalents $ 1,306 $ 1,377 Investment securities 8,001 7,743 Receivables, net 733 1,034 Other 1,670 1,027 Total current assets 11,710 11,181 $ 529 4.7 % Property and equipment, net 1,098 912 Long-term investment 1,846 1,710 securities Goodwill 3,640 2,740 Other 1,685 1,165 Total assets 19,979 17,708 $ 2,271 12.8 % Liabilities and Stockholders' Equity Current liabilities: Benefits payable 3,779 3,754 Trade accounts payable and 2,042 1,783 accrued expenses Book overdraft 324 306 Unearned revenues 230 213 Total current liabilities 6,375 6,056 $ 319 5.3 % Long-term debt 2,611 1,659 Future policy benefits 1,858 1,663 payable Other long-term liabilities 288 267 Total liabilities 11,132 9,645 $ 1,487 15.4 % Commitments and contingencies Stockholders' equity: Preferred stock, $1 par; 10,000,000 shares - - authorized, none issued Common stock, $0.16 2/3 par; 300,000,000 shares authorized; 194,470,820 32 32 issued at December 31, 2012 Capital in excess of par 2,101 1,938 value Retained earnings 7,881 6,825 Accumulated other 386 303 comprehensive income Treasury stock, at cost, 36,138,955 shares at (1,553 ) (1,035 ) December 31, 2012 Total stockholders' equity 8,847 8,063 $ 784 9.7 % Total liabilities and $ 19,979 $ 17,708 $ 2,271 12.8 % stockholders' equity Debt-to-total capitalization 22.8 % 17.1 % ratio S-9 Humana Inc. Consolidated Statements of Cash Flows Dollars in millions Three Months Ended December 31, Dollar Percentage 2012 2011 Change Change Cash flows from operating activities Net income $ 192 $ 199 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and 100 78 amortization Net realized (13 ) (4 ) capital gains Stock-based 14 14 compensation (Benefit from) provision for (74 ) 10 deferred income taxes Changes in operating assets and liabilities excluding the effects of acquisitions: Receivables (84 ) 2 Other assets (17 ) 22 Benefits payable (172 ) (143 ) Other liabilities 179 (198 ) Unearned revenues 52 (1,794 ) Other 28 17 Net cash provided by (used in) 205 (1,797 ) $ 2,002 111.4 % operating activities Cash flows from investing activities Acquisitions, net (947 ) (212 ) of cash acquired Purchases of property and (106 ) (120 ) equipment Purchases of investment (1,055 ) (1,011 ) securities Proceeds from maturities of 386 494 investment securities Proceeds from sales of 510 634 investment securities Net cash used in investing (1,212 ) (215 ) ($997 ) -463.7 % activities Cash flows from financing activities Receipts (withdrawals) (50 ) (603 ) from contract deposits, net Proceeds from issuance of 990 - senior notes, net Change in book 47 7 overdraft Common stock (5 ) - repurchases Excess tax benefit from 1 3 stock-based compensation Dividends paid (41 ) (41 ) Proceeds from stock option 8 4 exercises and other Net cash provided by (used in) 950 (630 ) $ 1,580 250.8 % financing activities Decrease in cash and cash (57 ) (2,642 ) equivalents Cash and cash equivalents at 1,363 4,019 beginning of period Cash and cash equivalents at end $ 1,306 $ 1,377 of period S-10 Humana Inc. Consolidated Statements of Cash Flows Dollars in millions Twelve Months Ended December 31, Dollar Percentage 2012 2011 Change Change Cash flows from operating activities Net income $ 1,222 $ 1,419 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and 338 303 amortization Net realized (33 ) (11 ) capital gains Stock-based 82 67 compensation (Benefit from) provision for (80 ) 22 deferred income taxes Changes in operating assets and liabilities excluding the effects of acquisitions: Receivables 352 (75 ) Other assets (253 ) (183 ) Benefits payable (41 ) 256 Other liabilities 300 194 Unearned revenues (43 ) 26 Other 79 61 Net cash provided by 1,923 2,079 ($156 ) -7.5 % operating activities Cash flows from investing activities Acquisitions, net (1,235 ) (226 ) of cash acquired Purchases of property and (410 ) (336 ) equipment Purchases of investment (3,221 ) (3,678 ) securities Proceeds from maturities of 1,497 1,623 investment securities Proceeds from sales of 1,404 1,259 investment securities Net cash used in (1,965 ) (1,358 ) ($607 ) -44.7 % investing activities Cash flows from financing activities Receipts (withdrawals) from (397 ) (378 ) contract deposits, net Repayment of (36 ) - long-term debt Proceeds from issuance of senior 990 - notes, net Change in book 18 (103 ) overdraft Common stock (518 ) (541 ) repurchases Excess tax benefit from stock-based 22 15 compensation Dividends paid (165 ) (82 ) Proceeds from stock option 57 72 exercises and other Net cash provided by (used) in financing (29 ) (1,017 ) $ 988 97.1 % activities Decrease in cash and (71 ) (296 ) cash equivalents Cash and cash equivalents at 1,377 1,673 beginning of period Cash and cash equivalents at end $ 1,306 $ 1,377 of period S-11 Humana Inc. Key Income Statement Ratios and Segment Operating Results Dollars in millions Three Months Ended Twelve Months Ended December 31, December 31, Percentage Percentage 2012 2011 Difference Change 2012 2011 Difference Change Benefit ratio Retail 82.6 % 79.0 % 3.6 % 84.1 % 81.2 % 2.9 % Employer 87.1 % 86.4 % 0.7 % 84.1 % 82.4 % 1.7 % Group Other 104.1 % 91.9 % 12.2 % 94.7 % 91.4 % 3.3 % Businesses Consolidated 83.7 % 81.8 % 1.9 % 83.7 % 82.1 % 1.6 % Operating cost ratio (C) Retail 13.1 % 14.7 % -1.6 % 11.0 % 11.2 % -0.2 % Employer 16.7 % 18.8 % -2.1 % 16.1 % 17.8 % -1.7 % Group Health and Well-Being 96.8 % 96.3 % 0.5 % 95.5 % 96.1 % -0.6 % Services Other 29.1 % 9.7 % 19.4 % 18.7 % 9.4 % 9.3 % Businesses Consolidated 17.5 % 17.7 % -0.2 % 15.1 % 14.8 % 0.3 % Detail of pretax income (loss) Retail $ 256 $ 326 ($70 ) -21.5 % $ 1,162 $ 1,587 ($425 ) -26.8 % Employer ($25 ) ($51 ) $ 26 51.0 % $ 253 $ 242 $ 11 4.5 % Group Health and Well-Being $ 75 $ 85 ($10 ) -11.8 % $ 486 $ 353 $ 133 37.7 % Services Other ($31 ) $ 1 ($32 ) -3200.0 % ($19 ) $ 84 ($103 ) -122.6 % Businesses Consolidated $ 282 $ 313 ($31 ) -9.9 % $ 1,911 $ 2,235 ($324 ) -14.5 % S-12 *Story too large* Humana Inc. Health and Well-Being Services Segment Metrics Year Ended December 31, 2012 2011 Difference Primary Care Providers: Risk Owned / JV 2,500 900 1,600 177.8 % Contracted 2,900 2,900 - 0.0 % Path-to-Risk 18,200 12,000 6,200 51.7 % Other 84,900 76,400 8,500 11.1 % Total 108,500 92,200 16,300 17.7 % Care Management Clinicians: [TRUNCATED]
Humana Reports Fourth Quarter and Full Year 2012 Financial Results; Reaffirms 2013 Financial Guidance
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