Humana 2004 Annual Report Download - page 45

Liquidity
Our primary sources of cash include receipts of premiums, administrative services fees, investment income,
and proceeds from the sale or maturity of our investment securities and from borrowings. Our primary uses of
cash include disbursements for claims payments, administrative expenses, interest expense, and taxes, purchases
of investment securities and capital expenditures and payments on borrowings.
Cash and cash equivalents decreased to $580.1 million at December 31, 2004 from $931.4 million at
December 31, 2003. The change in cash and cash equivalents for the years ended December 31, 2004, 2003 and
2002 is summarized as follows:
2004 2003 2002
(in thousands)
Net cash provided by operating activities ................ $347,809 $ 413,140 $ 321,408
Net cash used in investing activities .................... (624,081) (382,837) (204,974)
Net cash (used in) provided by financing activities ........ (75,053) 179,744 (46,497)
(Decrease) increase in cash and cash equivalents .......... $(351,325) $ 210,047 $ 69,937
Cash Flow from Operating Activities
Our operating cash flows in 2004 were significantly impacted by the timing of the Medicare Advantage
premium remittance which is payable to us on the first day of each month. When the first day of a month falls on
a weekend or holiday, we have historically received this payment at the end of the previous month. As such, the
Medicare Advantage receipts for January 2004 of $211.9 million and January 2003 of $205.8 million were
received in December 2003 and December 2002, respectively, because January 1 is a holiday. This timing
accounts for a significant portion of the unearned revenues balance on our consolidated balance sheet at
December 31, 2003.
Beginning in 2005, the monthly premium payment schedule includes a change in timing from previous
practice. As a result of this change, the January 2005 payment of $290.3 million originally scheduled to be
received on Friday, December 31, 2004, was changed to Monday, January 3, 2005, or one business day later.
Therefore, we received only 11 monthly Medicare Advantage premium remittances during 2004 versus 12
monthly premium remittances during 2003.
Other than the impact from the timing of the Medicare Advantage premium receipts, the increase in net
income and cash generated from changes in working capital increased our operating cash flow in 2004 compared
to 2003. The most significant drivers of changes in our working capital are typically the timing of receipts for
premiums and administrative services fees and payments of medical expenses. We illustrate these changes with
the following summary of receivables and medical and other expenses payable.
The detail of total net receivables was as follows at December 31, 2004, 2003 and 2002:
Change
2004 2003 2002 2004 2003
(in thousands)
TRICARE:
Base receivable ...................... $396,355 $266,656 $197,544 $129,699 $ 69,112
Bid price adjustments (BPAs) .......... 25,601 92,875 104,044 (67,274) (11,169)
Change orders ....................... 6,021 7,073 57,630 (1,052) (50,557)
427,977 366,604 359,218 61,373 7,386
Less: long-term portion of BPAs ........ — (38,794) (86,471) 38,794 47,677
TRICARE subtotal ............... 427,977 327,810 272,747 100,167 55,063
Commercial and other .................... 186,144 178,577 146,882 7,567 31,695
Allowance for doubtful accounts ............ (34,506) (40,400) (30,178) 5,894 (10,222)
Total net receivables ............. $579,615 $465,987 $389,451 113,628 76,536
Reconciliation to cash flow statement:
Change in long-term receivables .......... (52,583) (61,316)
Provision for doubtful accounts ........... 6,433 7,416
Receivables from acquisition ............. (16,420) —
Change in receivables in cash flow statement . . $ 51,058 $ 22,636
35