Humana 2004 Annual Report Download - page 4

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These฀outstanding฀financial฀results฀are฀evidence฀of฀progress฀in฀many฀operational฀areas฀within฀our฀diversified฀
portfolio฀of฀business฀segments฀and฀products.
•฀ We฀were฀able฀to฀grow฀membership฀and฀revenues฀profitably฀in฀both฀our฀government฀and฀commercial฀
businesses.
•฀ We฀announced฀our฀expansion฀into฀14฀new฀Medicare฀PPO฀markets฀and฀are฀making฀the฀necessary฀
investments฀ to฀ expand฀ Medicare฀ profitably฀ in฀ 2005฀ and฀ 2006,฀ based฀ in฀ large฀ part฀ on฀ the฀ many฀
opportunities฀inherent฀in฀the฀Medicare฀Modernization฀Act฀of฀2003.
•฀ Our฀TRICARE฀business฀for฀military฀families฀and฀retirees฀successfully฀transitioned฀to฀a฀new฀contract฀
with฀no฀earnings฀or฀operating฀performance฀missteps.
•฀ In฀ our฀ commercial฀ segment,฀ we฀ achieved฀ growth฀ despite฀ the฀ challenges฀ of฀ a฀ difficult฀ pricing฀
environment฀by฀focusing฀on฀profitability฀and฀business฀mix.฀We฀exited฀unprofitable฀accounts฀and฀shifted฀
our฀portfolio฀toward฀increased฀administrative฀services฀only฀(ASO)฀and฀individual฀membership.
•฀ We฀ grew฀ our฀ consumer-choice฀ products฀ and฀ maintained฀ the฀ SmartSuite฀ medical฀ cost฀ trend฀ at฀
approximately฀5฀percent,฀well฀below฀market฀levels,฀on฀a฀growing฀base฀of฀membership.
•฀ We฀introduced฀a฀number฀of฀important฀ new฀ products฀including฀SmartExpress,฀which฀for฀the฀first฀
time฀offers฀small฀business฀many฀consumer-oriented฀advantages฀that฀large฀employers฀typically฀enjoy,฀
and฀a฀high-deductible฀health฀plan฀for฀individuals฀which฀includes฀the฀ability฀to฀use฀the฀health-savings฀
account฀ (HSA)฀ funding฀ mechanism.฀ This฀ product฀ introduction฀ paved฀ the฀ way฀ for฀ our฀ planned฀
expansion฀into฀the฀group฀HSA฀market฀in฀2005.
•฀ Over฀the฀course฀of฀less฀than฀10฀months,฀we฀successfully฀acquired,฀integrated฀and฀–฀importantly฀–฀
converted฀all฀of฀the฀Ochsner฀Health฀Plan฀membership฀in฀Louisiana฀to฀Humana’s฀technology฀platform.฀
We฀also฀announced฀our฀agreement฀to฀acquire฀CarePlus฀Health฀Plans฀in฀Miami,฀which฀closed฀February฀
16,฀2005.
In฀reviewing฀2004฀and฀at฀the฀same฀time฀looking฀ahead,฀we’re฀convinced฀this฀is฀the฀right฀time฀for฀Humana.
To฀our฀Stockholders:
In฀ 2004,฀ as฀ in฀ 2003,฀ Humana฀ achieved฀ record฀ levels฀ of฀ revenues฀ and฀
membership.฀Earnings฀per฀share฀rose฀to฀$1.72,฀a฀22฀percent฀increase฀over฀
the฀prior฀year.฀Consolidated฀pretax฀margin฀increased฀40฀basis฀points฀to฀3.2฀
percent฀ –฀ the฀ highest฀ achieved฀ by฀ Humana฀ in฀ its฀ history฀ as฀ a฀ stand-alone฀
health฀benefits฀company฀–฀while฀cash฀flows฀from฀operations฀approximated฀
$348฀million,฀1.2฀times฀our฀net฀income฀for฀the฀year.
The฀right฀time฀for฀Humana
There฀are฀a฀number฀of฀converging฀forces,฀both฀internal฀and฀external,฀that฀point฀to฀continued฀success฀for฀our฀
company.฀The฀two฀key฀elements฀are฀that฀we฀see฀a฀significant฀opportunity฀in฀Medicare฀in฀2005฀and฀an฀even฀
greater฀one฀in฀the฀years฀ahead;฀and,฀on฀the฀commercial฀side,฀we฀believe฀that฀aggressive฀competitor฀pricing฀
is฀starting฀to฀ease.฀฀As฀this฀happens,฀customers฀will฀pay฀even฀greater฀attention฀to฀our฀innovative,฀consumer-
choice฀ total฀ solutions฀ that฀ reduce฀ health฀ care฀ costs฀ while฀ offering฀ employers฀ and฀ employees฀ a฀ superior฀
health฀plan฀experience.฀We฀believe฀we฀have฀a฀significant฀market฀advantage฀in฀both฀Medicare฀and฀innovative฀
commercial฀products,฀and฀that฀conditions฀are฀right฀for฀us฀to฀extend฀this฀“dual฀lead”฀in฀the฀near฀term.