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ANNUAL REPORT 2003

Table of contents

  • Page 1
    ANNUAL REPORT 2003

  • Page 2

  • Page 3
    ... 2003 Humana continued to advance its strategy of disrupting the industry, transforming the company and accelerating our growth. In the process, each of our business segments - serving our diversified customer base of national accounts, middle-market, small group, individual, dental, senior products...

  • Page 4
    ... applied across the board to our traditional Commercial, Medicare and TRICARE membership. A Strategic Acquisition In December, we announced our intent to acquire Ochsner Health Plan of Louisiana, a market leader both in New Orleans and throughout the state. The addition of Ochsner provides us the...

  • Page 5
    ... options as full service, network rentals, pharmacy, dental, disease management, utilization management, or call center services. We are now positioned to provide any and all of these services to meet market demand. Total commercial medical membership - fully insured and ASO combined - has increased...

  • Page 6
    ...doctor's office or pharmacy. Funds are then deducted directly from the member's account, which eliminates the need for members to pay cash at the point of service, complete forms and await reimbursement checks. In January 2003, we launched an improved version of our innovative Personal Nurse service...

  • Page 7
    ... health conditions or who have the propensity for illness. Nurses guide members to various Web-based company and community resources on a variety of topics, including diet control and medications. Since the program's inception, the nurses have interacted with nearly 30,000 members. Humana Personal...

  • Page 8
    ... $ $ Humana Inc., headquartered in Louisville, Kentucky, is one of the nation's largest publicly traded health benefits companies, with approximately 6.8 million medical members located primarily in 18 states and Puerto Rico. Humana offers coordinated health insurance coverage and related services...

  • Page 9
    ... as specified in its charter) HUMANA INC. Delaware (State of incorporation) 61-0647538 (I.R.S. Employer Identification Number) 500 West Main Street Louisville, Kentucky (Address of principal executive offices) 40202 (Zip Code) Registrant's telephone number, including area code: (502) 580-1000...

  • Page 10
    HUMANA INC. INDEX TO ANNUAL REPORT ON FORM 10-K For the Year Ended December 31, 2003 Page Item 1. Item 2. Item 3. Item 4. Item 5. Item 6. Item 7. Item 7a. Item 8. Item 9. Item 9a. Item 10. Item 11. Item 12. Item 13. Item 14. Item 15. Part I Business Properties Legal Proceedings Submission of ...

  • Page 11
    ...programs. We have approximately 463,300 contracts with physicians, hospitals, dentists, and other providers to provide health care to our members. In 2003, approximately 70% of our premiums and administrative services fees resulted from members located in Florida, Illinois, Texas, Kentucky, and Ohio...

  • Page 12
    ... Prescription Drug, Improvement, and Modernization Act, or DIMA. Our strategy to increase Commercial segment profitability focuses on providing solutions for employers to the rising cost of health care through the use of innovative and consumer-choice product designs which are supported by service...

  • Page 13
    ... from or approved by the member's primary care physician. For the year ended December 31, 2003, commercial HMO premium revenues totaled approximately $2.9 billion, or 23.7% of our total premiums and ASO fees. PPO Our preferred provider organization, or PPO, products, which are marketed primarily to...

  • Page 14
    ..., or ASO, product to those who self-insure their employee health plans. We receive fees to provide administrative services which generally include the processing of claims, offering access to our provider networks and clinical programs, and responding to customer service inquiries from members of...

  • Page 15
    ... 74,100 Medicaid members in Florida and Illinois, or 16% of total Medicaid members. TRICARE TRICARE provides health insurance coverage to the dependents of active duty military personnel and to retired military personnel and their dependents. In November 1995, the United States Department of Defense...

  • Page 16
    ... certain pharmacy benefits not covered under Medicare. On October 1, 2001, the TRICARE for Life program expanded coverage to include medical benefits as well. For the year ended December 31, 2003, TRICARE administrative services fees totaled $148.8 million, or 1.2% of our total premiums and ASO fees...

  • Page 17
    ... our total medical membership at December 31, 2003, by market and product: Commercial HMO PPO ASO Government Medicare+ Choice Medicaid TRICARE (in thousands) Percent of Total Total Florida ...Illinois ...Texas ...Puerto Rico ...Ohio ...Kentucky ...Wisconsin ...Georgia ...Virginia ...North Carolina...

  • Page 18
    ...monthly fixed-fee per member, known as a capitation payment, to coordinate substantially all of the medical care for their capitated HMO membership, including some health benefit administrative functions and claims processing. For these capitated HMO arrangements, we generally agree to reimbursement...

  • Page 19
    ... 2002: Commercial Segment Fully Total Insured ASO Segment Medical Membership: December 31, 2003 Capitated HMO hospital system based ...Capitated HMO physician group based ...Risk-sharing ...Other ...Total ...December 31, 2002 Capitated HMO hospital system based ...Capitated HMO physician group based...

  • Page 20
    ... operations providing personal nurse services, pharmacy management, and disease management. Sales and Marketing Individuals become members of our commercial HMOs and PPOs through their employers or other groups which typically offer employees or members a selection of health insurance products, pay...

  • Page 21
    ...contract terms, number and quality of participating physicians and other providers, utilization review, claims processing, administrative efficiency, relationships with agents, quality of customer service, and accreditation results. Government Regulation Government regulation of health care products...

  • Page 22
    ...a Medicare+Choice program to sell a private fee-for-service product in eleven states and a pilot PPO product in three counties in Florida. CMS conducts audits of HMOs qualified under its Medicare+Choice program at least biannually and may perform other reviews more frequently to determine compliance...

  • Page 23
    ...utilization review procedures, quality assurance, complaint systems, enrollment requirements, claim payments, marketing and advertising. The HMO, PPO and other health insurance-related products we offer are sold under licenses issued by the applicable insurance regulators. Under state laws, our HMOs...

  • Page 24
    ...Medicare fee-for-service and Medicare+Choice programs, as well as other changes to the commercial health insurance marketplace. Most significantly, DIMA creates a prescription drug benefit for Medicare beneficiaries, establishes a new Medicare Advantage program to replace the Medicare+Choice program...

  • Page 25
    ... centers. These services include management information systems, product administration, financing, personnel, development, accounting, legal advice, public relations, marketing, insurance, purchasing, risk management, actuarial, underwriting, and claims processing. Employees As of December 31, 2003...

  • Page 26
    ... own buildings in Louisville, Kentucky, and Green Bay, Wisconsin, and lease facilities in Cincinnati, Ohio and Puerto Rico, all of which are used for customer service, enrollment, and claims processing. During 2003, we completed the consolidation of the San Antonio, Texas, Jacksonville, Florida, and...

  • Page 27
    ... the Butler County Medical Society, the Northern Kentucky Medical Society, and several physicians filed antitrust suits in state courts in Ohio and Kentucky against Aetna Health, Inc., Humana Health Plan of Ohio, Inc., Anthem Blue Cross Blue Shield, and United Healthcare of Ohio, Inc., alleging that...

  • Page 28
    ... we entered into a five-year Corporate Integrity Agreement, or CIA, with the Office of Inspector General, or OIG, of the Department of Health and Human Services. Under the CIA, we are obligated to, among other things, provide training, conduct periodic audits and make periodic reports to the OIG. In...

  • Page 29
    ... of our industry, adds to this uncertainty. Therefore, such legal actions and government audits and investigations could have a material adverse effect on our financial position, results of operations, and cash flows. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 21

  • Page 30
    ... MATTERS Market Information Our common stock trades on the New York Stock Exchange under the symbol HUM. The following table shows the range of high and low closing sales prices as reported on the New York Stock Exchange Composite Tape for each quarter in the years ended December 31, 2003 and...

  • Page 31
    ... Membership by Segment Commercial: Fully insured ...Administrative services only ...Medicare supplement ...Total Commercial ...Government: Medicare+Choice ...Medicaid ...TRICARE ...TRICARE ASO ...Total Government ...Total Medical Membership ...Commercial Specialty Membership Dental ...Other ...Total...

  • Page 32
    ... provide health insurance coverage to TRICARE beneficiaries and our contracts with the Centers for Medicare and Medicaid Services, or CMS, to provide health insurance coverage for our Medicare+Choice members. We manage our business with two segments: Commercial and Government. The Commercial segment...

  • Page 33
    ... States as defined by the Department of Defense's new contract alignment. Under the terms of the award, HMHS will be the Managed Care Support Contractor serving approximately 2.8 million TRICARE beneficiaries in Tennessee, South Carolina, Georgia, Alabama, Mississippi, Florida, Arkansas, Louisiana...

  • Page 34
    ... purchase Ochsner Health Plan from Ochsner Clinic Foundation having approximately 152,000 Commercial medical members, primarily in fully insured large group accounts, and approximately 36,000 members in the Medicare+Choice program. This transaction, which is subject to state regulatory approval, is...

  • Page 35
    ... payable caused by changes in annualized claims trend used for the estimation of per member per month incurred claims for the most recent three months. Most medical claims are paid within a few months of the member receiving service from a physician or other health care provider. As a result, these...

  • Page 36
    ... the number of eligible beneficiaries, changes in the utilization of military treatment facilities and changes in levels of benefits versus the original contract provisions. Many of these variables are impacted significantly by an increase or decrease in military activity involving the United States...

  • Page 37
    ... utilization of medical services by TRICARE beneficiaries in the second half of 2002. Revenue Recognition We generally establish one-year contracts with commercial employer groups, subject to cancellation by the employer group's 30-day written notice. Our contracts with federal or state governments...

  • Page 38
    ... revenue applicable to change orders when these amounts are determinable and the collectibility is reasonably assured. Unlike BPAs, where settlement only occurs at specified intervals, change orders may be negotiated and settled at any time throughout the year. Total TRICARE premium and ASO fee...

  • Page 39
    ... the value ascribed to the most recent financing, comparing the security with securities of publicly traded companies in a similar line of business, and reviewing the underlying financial performance including estimating discounted cash flows. Unrealized holding gains and losses, net of applicable...

  • Page 40
    ... of discount rates that correspond to our weighted-average cost of capital. Key assumptions including changes in membership, premium yields, medical cost trends and certain government contract extensions are consistent with those utilized in our long-range business plan and annual planning process...

  • Page 41
    ... to apply FIN 46-R to those postJanuary 31, 2003 entities as of the end of the first interim or annual reporting period ending after March 15, 2004. As part of our ongoing business, we do not participate or knowingly seek to participate in transactions that generate relationships with unconsolidated...

  • Page 42
    ...years ended December 31, 2003 and 2002: 2003 Change 2002 Dollars Percentage (in thousands, except ratios) Premium revenues: Fully insured ...Specialty ...Total Commercial ...Medicare+Choice ...TRICARE ...Medicaid ...Total Government ...Total ...Administrative services fees: Commercial ...Government...

  • Page 43
    ... in TRICARE premiums. Items impacting per member premiums include changes in premium and government reimbursement rates, as well as changes in geographic mix of membership, the mix of product offerings, and the mix of benefit plans selected by our membership. Commercial segment premium revenues...

  • Page 44
    ... the prior year. SG&A Expense Total selling, general and administrative, or SG&A, expenses as a percentage of premium revenues and administrative services fees, or SG&A expense ratio, decreased 50 basis points in 2003 primarily because of a decrease in severance and related employee benefit costs of...

  • Page 45
    ...the consolidation of the service centers and workforce reductions, as well as increases in premiums in excess of inflationary trends on administrative expenses, are expected to decrease the Commercial segment's SG&A expense ratio to a range of 15.5% to 16.5% and the Government segment's SG&A expense...

  • Page 46
    ...years ended December 31, 2002 and 2001: Change 2002 2001 Dollars Percentage (in thousands, except ratios) Premium revenues: Fully insured ...Specialty ...Total Commercial ...Medicare+Choice ...TRICARE ...Medicaid ...Total Government ...Total ...Administrative services fees: Commercial ...Government...

  • Page 47
    ... in TRICARE premiums. Items impacting per member premiums include changes in premium and government reimbursement rates, as well as changes in geographic mix of membership, the mix of product offerings, and the mix of benefit plans selected by our membership. Commercial segment premium revenues...

  • Page 48
    ... small group membership. The Government segment medical expense ratio for 2002 was 83.8%, increasing 20 basis points from 83.6% in 2001. This increase primarily was attributable to TRICARE. As discussed previously, TRICARE medical expense increased due to expanded benefits for TRICARE beneficiaries...

  • Page 49
    ... above and a change in the mix of revenues. A higher proportion of revenues was generated from administrative services fees, primarily from the TRICARE Regions 2 and 5 acquisition and the implementation of the TRICARE for Life benefit programs effective October 1, 2001. ASO business carries a much...

  • Page 50
    ... expenses, interest expense and taxes. During 2003, our operating cash flows were not substantially impacted by a change in the timing of premium and ASO fee collections or medical claim payments, as both amounts generally increased with inflation and membership growth. However, during 2002, our...

  • Page 51
    ... relate to our technology initiatives and administrative facilities necessary for activities such as claims processing, billing and collections, medical utilization review, and customer service. Total capital expenditures, excluding acquisitions, were $101.3 million in 2003, $112.1 million 43

  • Page 52
    ... reduced for the cost of the offering, were approximately $295.8 million. The net proceeds were used for general corporate purposes, including the funding of our short term cash needs. In order to hedge the risk of changes in the fair value of our $300 million 6.30% senior notes and our $300 million...

  • Page 53
    ... default, including financial covenants regarding the maintenance of net worth, minimum interest coverage, and maximum leverage ratios. At December 31, 2003, we were in compliance with all applicable financial covenant requirements. The terms of each of these credit agreements also include standard...

  • Page 54
    ...million, 364-day revolving credit agreement supports the conduit commercial paper financing program of up to $265 million. We also maintain and may issue short-term debt securities under a commercial paper program when market conditions allow. The program is backed by our credit agreements described...

  • Page 55
    ...subsidiaries generally are guaranteed by Humana Inc., our parent company, in the event of insolvency for (1), member coverage for which premium payment has been made prior to insolvency; (2), benefits for members then hospitalized until discharged; and (3), payment to providers for services rendered...

  • Page 56
    ... by all states at December 31, 2003, each of our subsidiaries would be in compliance and we would have $381.9 million of aggregate capital and surplus above any of the levels that require corrective action under RBC. One TRICARE subsidiary under the Regions 3 and 4 contract with the Department of...

  • Page 57
    ... the Puerto Rico Medicaid contracts regarding a premium rate increase for the annual period ending June 30, 2004. Our other Medicaid contracts are in Florida and Illinois, and are annual contracts. As of December 31, 2003, Puerto Rico accounted for approximately 84% of our total Medicaid membership...

  • Page 58
    ... other costs incurred to provide health insurance coverage to our members. These costs also include estimates of future payments to hospitals and others for medical care provided to our members. Generally, premiums in the health care business are fixed for one-year periods. Accordingly, costs we...

  • Page 59
    ..., in e-commerce insurance or benefit programs and in consumer-directed health plans. Contracts for the sale of commercial products are generally bid upon or renewed annually. While health plans compete on the basis of many factors, including service and the quality and depth of provider networks, we...

  • Page 60
    ...and changing customer preferences. We depend on independent third parties for significant portions of our systems-related support, equipment, facilities, and certain data, including data center operations, data network, voice communication services and pharmacy data processing. This dependence makes...

  • Page 61
    ... legal actions relating to our business operations, including the design, management and offering of products and services. These include and could include in the future claims relating to the methodologies for calculating premiums; claims relating to the denial of health care benefits; challenges...

  • Page 62
    ... and cash flows; at December 31, 2003, under one of our contracts with the Centers for Medicare and Medicaid Services, or CMS, we provided health insurance coverage to approximately 229,100 members in Florida. This contract accounted for approximately 15% of our total premiums and ASO fees for...

  • Page 63
    ... to providers; product flexibility and use of innovative technology; disclosure of provider quality information; health plan liability to members who fail to receive appropriate care; disclosure and composition of physician networks; formation of regional/national association health plans for small...

  • Page 64
    ... by our business associates. Another area receiving increased focus is the time in which various laws require the payment of health care claims. Many states already have legislation in place covering payment of claims within a specific number of days. However, due to provider groups advocating for...

  • Page 65
    ... to market products or to be profitable in those areas could be adversely affected. In some situations, we have contracts with individual or groups of primary care physicians for an actuarially determined, fixed, per-member-per-month fee under which physicians are paid an amount to provide all...

  • Page 66
    ... publicity and perception have been accompanied by increased litigation, including some large jury awards, legislative activity, regulation and governmental review of industry practices. These factors may adversely affect our ability to market our products or services, may require us to change our...

  • Page 67
    ...) ASSETS Current assets: Cash and cash equivalents ...Investment securities ...Receivables, less allowance for doubtful accounts of $40,400 in 2003 and $30,178 in 2002 Premiums ...Administrative services fees ...Other ...Total current assets ...Property and equipment, net ...Other assets: Long...

  • Page 68
    Humana Inc. CONSOLIDATED STATEMENTS OF INCOME For the year ended December 31, 2003 2002 2001 (in thousands, except per share results) Revenues: ...Premiums ...Administrative services fees ...Investment and other income ...Total revenues ...Operating expenses: ...Medical ...Selling, general and ...

  • Page 69
    Humana Inc. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Accumulated Common Stock Capital In Other Unearned Total Issued Excess of Retained Comprehensive Stock Treasury Stockholders' Shares Amount Par Value Earnings Income (Loss) Compensation Stock Equity (in thousands) Balances, January 1, 2001 ...

  • Page 70
    ... cash and cash equivalents ...Cash and cash equivalents at beginning of year ...Cash and cash equivalents at end of year ...Supplemental cash flow disclosures: Interest payments ...Income tax payments, net ...Details of businesses acquired in purchase transactions: Fair value of assets acquired, net...

  • Page 71
    ... contract with the Centers for Medicare and Medicaid Services, or CMS, we provide health insurance coverage for Medicare+Choice members in Florida, accounting for approximately 15% of our total premiums and administrative services fees in 2003. We manage our business with two segments: Commercial...

  • Page 72
    ... and Cash Equivalents Cash and cash equivalents include cash, time deposits, money market funds, commercial paper, other money market instruments, and certain U.S. Government securities with an original maturity of three months or less. Carrying value approximates fair value due to the short-term...

  • Page 73
    ... commercial membership contracts with employer groups, subject to cancellation by a 30 day written notice. Our TRICARE contracts with the federal government and our contracts with various state Medicaid programs generally are multi-year contracts subject to annual renewal provisions. Our Medicare...

  • Page 74
    ... and Government segments. The Commercial segment's two reporting units consist of health insurance and specialty products. The Government segment's three reporting units consist of Medicare+Choice, TRICARE and Medicaid. Goodwill was assigned to the reporting unit that was expected to benefit from...

  • Page 75
    ... such as professional and general liability, employee workers' compensation, and officer and director errors and omissions risks. Professional and general liability risks may include, for example, medical malpractice claims and disputes with members regarding benefit coverage. We retain these risks...

  • Page 76
    ... Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations, or APB No. 25. No employee compensation cost is reflected in net income related to fixed-based stock option awards because these options had an exercise price equal to the market value...

  • Page 77
    ... of outstanding employee stock options and restricted shares using the treasury stock method. Recently Issued Accounting Pronouncements On December 17, 2003, the Staff of the Securities and Exchange Commission ("SEC" or the "Staff") issued Staff Accounting Bulletin No. 104, Revenue Recognition, or...

  • Page 78
    ... 31, 2003 and 2002: 2003 Gross Gross Amortized Unrealized Unrealized Cost Gains Losses U.S. Government obligations ...Tax exempt municipal securities ...Corporate and other securities ...Mortgage-backed securities ...Redeemable preferred stocks ...Debt securities ...Non-redeemable preferred stocks...

  • Page 79
    ...value of our consolidated investment securities have been in an unrealized loss position greater than one year. The unrealized losses at December 31, 2003 generally can be attributed to changes in interest rates. All securities trading at an unrealized loss remain current on all contractual payments...

  • Page 80
    ... in 2003 includes the impact of accelerating depreciation related to abandoned software more fully described at the end of Note 4. A decision to eliminate the Jacksonville, Florida, San Antonio, Texas and Madison, Wisconsin customer service centers during the fourth quarter of 2002 prompted a review...

  • Page 81
    ... value of the buildings. The non-cash impairment expenses are included with selling, general and administrative expenses in the accompanying consolidated statements of income. Based upon our decision to sell some of the buildings previously used in our Jacksonville and San Antonio customer service...

  • Page 82
    ... 2002: Weighted Average Useful Life (years) 2003 Accumulated Amortization 2002 Accumulated Amortization Cost Net Cost (in thousands) Net Other intangible assets: Subscriber contracts ...Provider contracts ...Government contracts ...Licenses and other ...Total other intangible assets ... 9 5 2 26...

  • Page 83
    ... to prior years resulted from establishing the reserves resulting from the enhanced benefits for TRICARE beneficiaries as discussed above as well as lower than originally estimated utilization of medical services by TRICARE beneficiaries in the second half of 2002. Our TRICARE contracts contain risk...

  • Page 84
    ...revenue adjustments through the change order and bid price adjustment process. As a result of the above contract provisions, the impact of changes in estimates for prior year TRICARE medical claims payable on our results of operations is reduced substantially, whether positive or negative. 7. INCOME...

  • Page 85
    ... credit ...Net operating loss carryforwards ...Capital loss carryforward ...Valuation allowance-capital loss carryforward ...Total net deferred income tax assets ...Amounts recognized in the consolidated balance sheets: Other current assets ...Other long-term liabilities ...Total net deferred income...

  • Page 86
    ... reduced for the cost of the offering, were approximately $295.8 million. The net proceeds were used for general corporate purposes, including the funding of our short term cash needs. In order to hedge the risk of changes in the fair value of our $300 million 6.30% senior notes and our $300 million...

  • Page 87
    ...million, 364-day revolving credit agreement supports the conduit commercial paper financing program of up to $265 million. We also maintain and may issue short-term debt securities under a commercial paper program when market conditions allow. The program is backed by our credit agreements described...

  • Page 88
    ... incurred claims for prior years did not change during 2003, the individual components of this liability did fluctuate. Favorable development associated with our professional and general liability exposures was completely offset by the need for additional reserves for our director and officer errors...

  • Page 89
    ... to consolidate our customer service centers and our enterprise-wide workforce reduction plan. The 2002 plan affected approximately 2,600 positions throughout the entire organization, including customer service, claim administration, clinical operations, provider network administration, as well as...

  • Page 90
    ... been granted to officers, directors, key employees and consultants. Activity for our restricted stock awards was as follows for the years ended December 31, 2003, 2002 and 2001: 2003 2002 2001 Balance, January 1, ...Granted-treasury issuance ...Granted-original issuance ...Total granted ...Vested...

  • Page 91
    ... the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to our fixed-based stock option awards is included in Note 2. The weighted average fair value of each option granted during 2003, 2002 and 2001 is provided below. The fair value was estimated...

  • Page 92
    ... by all states at December 31, 2003, each of our subsidiaries would be in compliance and we would have $381.9 million of aggregate capital and surplus above any of the levels that require corrective action under RBC. One TRICARE subsidiary under the Regions 3 and 4 contract with the Department of...

  • Page 93
    ...subsidiaries generally are guaranteed by Humana Inc., our parent company, in the event of insolvency for (1), member coverage for which premium payment has been made prior to insolvency; (2), benefits for members then hospitalized until discharged; and (3), payment to providers for services rendered...

  • Page 94
    ... the Puerto Rico Medicaid contracts regarding a premium rate increase for the annual period ending June 30, 2004. Our other Medicaid contracts are in Florida and Illinois, and are annual contracts. As of December 31, 2003, Puerto Rico accounted for approximately 84% of our total Medicaid membership...

  • Page 95
    ... In late 1997, three purported class action complaints were filed in the United States District Court for the Southern District of Florida by former stockholders of Physician Corporation of America, or PCA, against PCA and certain of its former directors and officers. We acquired PCA by a merger...

  • Page 96
    ... the Butler County Medical Society, the Northern Kentucky Medical Society, and several physicians filed antitrust suits in state courts in Ohio and Kentucky against Aetna Health, Inc., Humana Health Plan of Ohio, Inc., Anthem Blue Cross Blue Shield, and United Healthcare of Ohio, Inc., alleging that...

  • Page 97
    ...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. We accounted for this acquisition under the purchase method of...

  • Page 98
    ... We manage our business with two segments: Commercial and Government. The Commercial segment consists of members enrolled in products marketed to employer groups and individuals, and includes three lines of business: fully insured medical, administrative services only, or ASO, and specialty. The...

  • Page 99
    ...) 2003 Government Segment 2002 (in thousands) 2001 Revenues: Premiums: Medicare+Choice ...TRICARE ...Medicaid ...Total premiums ...Administrative services fees ...Investment and other income ...Total revenues ...Operating expenses: Medical ...Selling, general and administrative ...Depreciation...

  • Page 100
    ... well-known and well-established, as evidenced by the strong financial ratings at December 31, 2003 presented below: Reinsurer Total Recoverable (in thousands) Rating (a) Protective Life Insurance Company ...All others ... $234,123 37,964 $272,087 A+ (superior) A to A- (excellent) (a) Ratings are...

  • Page 101
    ... of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under...

  • Page 102
    ...diluted share) for the writedown of building and equipment and software abandonment expenses due to the elimination of three customer service centers. See Note 4 for the impact on the individual expense categories. (b) Includes a gain on the sale of a venture capital investment of $15.2 million ($10...

  • Page 103
    ... required by Sections 302 and 906 of the Sarbanes-Oxley Act. These certifications are filed as Exhibits to this Annual Report on Form 10-K. Additionally, our CEO will sign the certificate as to compliance with the Corporate Governance Listing Standards adopted by the New York Stock Exchange. 95

  • Page 104
    ... Human Resources Officer Senior Vice President-General Counsel Senior Vice President-Strategy and Corporate Development Senior Vice President-Chief Innovation Officer Senior Vice President-Government Relations Senior Vice President-Chief Marketing Officer Senior Vice President-Government Programs...

  • Page 105
    ...14 to this Annual Report on Form 10-K and may also be viewed on our web site at www.humana.com. Any amendment to or waiver of the application of the Code of Ethics for the Chief Executive Officer and Senior Financial Officers will be promptly disclosed on the Company's web site at www.humana.com. 97

  • Page 106
    ... upon a written request addressed to Humana Inc. Corporate Secretary at 500 West Main Street, 27th Floor, Louisville, Kentucky 40202. Any waiver of the application of the Humana Inc. Principles of Business Ethics to directors or executive officers must be made by the Board of Directors and will be...

  • Page 107
    ...'s Annual Report for the fiscal year ended December 31, 1997, is incorporated by reference herein. Form of Amended and Restated Rights Agreement dated February 14, 1996, between Humana Inc. and Mid-America Bank of Louisville and Trust Company. Exhibit 1.3 to the Registration Statement (File No...

  • Page 108
    ...Non-Employee Directors, filed herewith. Severance policy. Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, is incorporated by reference herein. Humana Officers' Target Retirement Plan, as amended. Exhibit 10(p) to the Company's Annual Report on Form...

  • Page 109
    ... herein. Humana Supplemental Executive Retirement and Savings Plan, as amended and restated on December 31, 2003, filed herewith. Letter agreement with Company officers concerning health insurance availability. Exhibit 10(mm) to the Company's Annual Report on Form 10-K for the fiscal year ended...

  • Page 110
    ... CONDENSED BALANCE SHEETS December 31, 2003 2002 (in thousands, except share amounts) ASSETS Current assets: Cash and cash equivalents ...Investment securities ...Receivable from operating subsidiaries ...Other current assets ...Total current assets ...Property and equipment, net ...Investments...

  • Page 111
    ... For the year ended December 31, 2003 2002 2001 (in thousands) Revenues: Management fees charged to operating subsidiaries ...Investment income (loss) and other income, net ... $458,373 19,883 478,256 $428,426 $397,075 (6,279) 7,225 422,147 404,300 Expenses: Selling, general and administrative...

  • Page 112
    ... For the year ended December 31, 2003 2002 2001 (in thousands) Net cash provided by operating activities ...Cash flows from investing activities: Acquisitions ...Purchases of investment securities ...Proceeds from sale of investment securities ...Purchases of property and equipment, net ...Capital...

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    ... approved, if required, by state regulatory authorities, Humana Inc., our parent company, charges a management fee for reimbursement of certain centralized services provided to its subsidiaries including information systems, disbursement, investment and cash administration, marketing, legal...

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    ... at December 31, 2003, each of our subsidiaries would be in compliance, and we would have $381.9 million of aggregate capital and surplus above any of the levels that require corrective action under RBC. One TRICARE subsidiary under the Regions 3 and 4 contract with the Department of Defense is...

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    ...this report has been signed below by the following persons on behalf of the Company and in the capacities and on the date indicated. Signature Title Date /s/ JAMES H. BLOEM James H. Bloem Senior Vice President and Chief Financial Officer (Principal Accounting Officer) Chairman of the Board March...

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    ... for Community Outreach and Development - The University of Alabama at Birmingham Corporate Headquarters The Humana Building 500 West Main Street Louisville, Kentucky 40202 (502) 580-1000 More Information About Humana Inc. Copies of the Company's filings with the Securities and Exchange Commission...

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