Humana 2002 Annual Report Download - page 68

Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
related to fixed-based stock option awards because these options had an exercise price equal to the market value
of the underlying common stock on the date of grant. Compensation expense is recorded for restricted stock
grants over their vesting periods based on fair value, which is equal to the market price of Humana common
stock on the date of the grant. The following table illustrates the effects on net income and earnings per share if
we had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based
Compensation, to our fixed-based stock option awards.
For the years ended
2002 2001 2000
(in thousands, except per share results)
Net income, as reported ................................ $142,755 $117,171 $90,052
Add: Restricted stock compensation expense included in
reported net income, net of related tax ................... 5,495 5,800 4,319
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all fixed-based options and restricted stock awards,
net of related tax .................................... (9,484) (9,544) (9,260)
Adjusted net income ................................... $138,766 $113,427 $85,111
Earnings per share:
Basic, as reported ................................. $ 0.87 $ 0.71 $ 0.54
Basic, pro forma .................................. $ 0.85 $ 0.69 $ 0.51
Diluted, as reported ............................... $ 0.85 $ 0.70 $ 0.54
Diluted,proforma ................................ $ 0.83 $ 0.68 $ 0.51
Earnings Per Common Share
We compute basic earnings per common share on the basis of the weighted average number of unrestricted
common shares outstanding. Diluted earnings per common share is computed on the basis of the weighted
average number of unrestricted common shares outstanding plus the dilutive effect of outstanding employee
stock options and restricted shares using the treasury stock method.
Recently Issued Accounting Pronouncements
On January 1, 2003, we adopted Statement of Financial Accounting Standards No. 146, Accounting for Exit
or Disposal Activities, or Statement 146. Statement 146 addresses the recognition, measurement, and reporting of
costs that are associated with exit and disposal activities, including certain lease termination costs and severance-
type costs under a one-time benefit arrangement rather than an ongoing benefit arrangement or an individual
deferred-compensation contract. Statement 146 requires liabilities associated with exit and disposal activities to
be expensed as incurred and will impact the timing of recognition for exit or disposal activities that are initiated
after December 31, 2002. The effect of the adoption is dependent on exit or disposal activities, if any, initiated
after December 31, 2002.
In November 2002, the Financial Accounting Standards Board, or FASB, issued FASB Interpretation
No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, an interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB
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