Humana 2003 Annual Report Download - page 45

Download and view the complete annual report

Please find page 45 of the 2003 Humana annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 118

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118

The Commercial and Government segments’ SG&A expense ratios likewise were impacted by the same
items described previously. Operational efficiencies gained from completing 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 ratio to a range of 11.0% to 12.0% in 2004.
Depreciation and amortization was $126.8 million in 2003, an increase of $6.1 million, or 5.0%, from
$120.7 million in 2002. The increase results from accelerated depreciation of software in 2003 of $13.5 million,
as more fully described in Note 4 to the consolidated financial statements, partially offset by lower amortization
related to other intangible assets as costs associated with the government contract acquired with the TRICARE 2
and 5 transaction became fully amortized in the second quarter of 2003.
Interest Expense
Interest expense was $17.4 million in 2003, an increase of $0.1 million from $17.3 million in 2002. This
increase primarily resulted from higher average outstanding debt due to the issuance of $300 million senior notes
in August 2003 offset by lower interest rates.
Income Taxes
Our effective tax rate in 2003 of 33.6% increased 1.6% compared to the 32% effective tax rate in 2002. The
increase in the effective tax rate primarily resulted from a lower proportion of tax-exempt investment income to
pretax income. During 2002, the Internal Revenue Service completed their audit of all open years prior to 2000
which resulted in a favorable adjustment to the estimated accrual for income taxes of approximately $32.6
million. This was offset by an increase of approximately $24.5 million in the capital loss valuation allowance
after we reevaluated probable capital gain realization in the allowable carryforward period based upon our capital
gain experience beginning in 2000 and consideration of alternative tax planning strategies. See Note 7 to the
consolidated financial statements for a complete reconciliation to the federal statutory rate.
37