Humana 2002 Annual Report Download - page 30

on providing solutions for employers to the rising cost of health care through the use of innovative and
consumer-centric product designs which are supported by service excellence and industry-leading electronic
capabilities, including education, tools and technologies provided primarily through the Internet. The intent of
our Commercial segment strategy is to enable us to further penetrate high potential commercial markets and to
transform the traditional consumer experience for both employers and members to result in a high degree of
consumer satisfaction, loyalty and brand awareness. We are in the process of reducing our administrative cost
structure primarily to support our Commercial strategy.
Restructuring Charge
During the fourth quarter of 2002, we finalized a plan to reduce our administrative cost structure with the
consolidation of seven customer service centers into four and an enterprise-wide workforce reduction.
The following table presents the components of the restructuring charge we recorded for the year ended
December 31, 2002:
2002
Charge
Cash
Payments Non-cash
Balance at
December 31,
2002
Expected
Future Cash
Outlays
(in thousands)
Severance and related employee benefits ........... $32,105 $910 $ — $31,195 $31,195
Long-lived asset impairment .................... 2,448 — 2,448 — —
Leased equipment discontinuance costs ............ 1,324 — — 1,324 1,324
Total restructuring charges .................. $35,877 $910 $2,448 $32,519 $32,519
Severance
During the fourth quarter of 2002, we recorded severance and related employee benefit costs of
$32.1 million ($19.6 million after tax) in connection with customer service center consolidation and an
enterprise-wide workforce reduction. Severance costs were estimated based upon the provisions of the
Company’s existing employee benefit plans and policies. The plan to reduce our administrative cost structure is
expected to affect approximately 2,600 positions throughout the entire organization including customer service,
claim administrations, clinical operations, provider network administration, as well as other corporate and field-
based positions. As part of the plan, we expect to hire approximately 300 employees to support newly
consolidated operations, thereby resulting in a net reduction of approximately 2,300 employees. As of
December 31, 2002, approximately 500 positions had been eliminated. We expect the remaining positions to be
eliminated by December 31, 2003, with most of the severance being paid in 2003.
As a result of these actions, we expect a reduction in historical compensation expense will improve our
pretax results by approximately $70 million ($43 million after tax) in 2003 and $110 million ($67 million after
tax) annually thereafter and after tax cash flows from operating activities by approximately $13 million in 2003
including estimated severance payments of approximately $30 million and $65 million annually thereafter.
Long-lived Asset Impairment
Our decision to eliminate three customer service centers prompted a review during the fourth quarter of
2002 for the possible impairment of long-lived assets used in these operations. We will continue to use some
long-lived assets associated with these customer service center operations until mid-2003, the expected
completion date for consolidating these operations. We are currently evaluating alternatives with respect to future
use of these long-lived assets, including possible sale.
Our impairment review indicated that future estimated undiscounted cash flows attributable to our business
supported by our San Antonio, Texas customer service operations were insufficient to recover the carrying value
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