Humana 2002 Annual Report Download - page 85

Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
claims and challenges to the use of certain software products in processing claims. Pending state and federal
legislative activity may increase our exposure for any of these types of claims. In addition, some courts recently
have issued decisions which could have the effect of eroding the scope of ERISA preemption, thereby exposing
us to greater liability for medical negligence claims.
Personal injury claims and claims for extracontractual damages arising from medical benefit denials are
covered by insurance from our wholly owned captive insurance subsidiary and excess carriers, except to the
extent that claimants seek punitive damages, which may not be covered by insurance in certain states in which
insurance coverage for punitive damages is not permitted. In addition, insurance coverage for all or certain forms
of liability has become increasingly costly and may become unavailable or prohibitively expensive in the future.
Beginning January 1, 2002, we reduced the amount of coverage purchased from third party insurance carriers and
increased the amount of risk we retain due to substantially higher insurance rates.
We do not believe that any pending or threatened legal actions against us or audits by agencies will have a
material adverse effect on our financial position, results of operations, or cash flows. However, the likelihood or
outcome of current or future suits, like the purported class action lawsuits described above, or governmental
investigations, cannot be accurately predicted with certainty. In addition, the increased litigation, which has
accompanied the negative publicity and public perception of our industry, adds to this uncertainty. Therefore,
such legal actions could have a material adverse effect on our financial position, results of operations and cash
flows.
13. ACQUISITIONS AND DIVESTITURES
Acquisitions
On May 31, 2001, we acquired the outstanding shares of common stock of a newly-formed Anthem Health
Insurance Company subsidiary responsible for administering TRICARE benefits in Regions 2 and 5 for
$43.5 million in cash, net of direct transaction costs.
During 2000, in separate transactions, we acquired a Houston-based health plan, two operating shell entities
for future business initiatives, and a hospital in-patient management services firm for $76.3 million in cash, net of
direct transaction costs.
We accounted for each of these acquisitions under the purchase method of accounting and accordingly, our
consolidated results of operations include the results of the acquired businesses from the date of acquisition. For
each acquisition, we allocated the purchase price to net tangible and other intangible assets based upon their fair
values. Any remaining value not assigned to net tangible or other intangible assets was then allocated to
goodwill. Other intangible assets primarily relate to government, subscriber and provider contracts and the cost
of the acquired licenses. Goodwill and other intangible assets recorded in connection with the acquisitions were
$44.8 million in 2001 and $52.1 million in 2000. The other intangible assets are being amortized over periods
ranging from 2 to 20 years, with a weighted average life of 5.7 years. Unaudited pro forma results of operations
information have not been presented because the effects of these acquisitions, individually or in the aggregate,
were not significant to our results of operations or financial position.
Divestitures
During 2000, we completed transactions to divest our workers’ compensation, north Florida Medicaid and
Medicare supplement businesses. We estimated and recorded a $117.2 million loss in 1999 related to these
divestitures. There was no subsequent change in the estimated loss. Divested assets, consisting primarily of
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