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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 1-5975
HUMANA INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 61-0647538
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
500 WEST MAIN STREET
LOUISVILLE, KENTUCKY 40202
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 502-580-1000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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COMMON STOCK, $.16 2/3 PAR VALUE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of the Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in the Registrant's definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
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The aggregate market value of voting stock held by non-affiliates of the
Registrant as of March 1, 1994, was $2,933,544,705 calculated using the average
price on such date of $19.50. The number of shares outstanding of the
Registrant's Common Stock as of March 1, 1994, was 160,534,362.
DOCUMENTS INCORPORATED BY REFERENCE
Part II and portions of Part IV incorporate herein by reference the
Registrant's 1993 Annual Report to Stockholders; a portion of Part III
incorporates herein by reference the Registrant's Proxy Statement to be filed
pursuant to Regulation 14A covering the Annual Meeting of Stockholders scheduled
to be held May 26, 1994.
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PART I
ITEM 1. BUSINESS
GENERAL
Humana Inc. is a Delaware corporation organized in 1961. Its principal
executive offices are located at 500 West Main Street, Louisville, Kentucky
40202, and its telephone number at that address is (502) 580-1000. As used
herein, the term "the Company" includes Humana Inc. and its subsidiaries.
On March 1, 1993, the Company separated its acute-care hospital and managed
care health plan businesses into two independent publicly-held companies (the
"Spinoff"). The Spinoff was effected through the distribution to Humana
stockholders of record as of the close of business on March 1, 1993, of all of
the outstanding shares of common stock of a new hospital company, Galen Health
Care, Inc. ("Galen"). Galen was subsequently merged, through an unrelated
transaction, with a subsidiary of Columbia Healthcare Corporation (now
Columbia/HCA Healthcare Corporation) ("Columbia") and, therefore, became a
wholly-owned subsidiary of Columbia. The Company continues to operate the
managed care health plan business. In conjunction with the Spinoff, the Company
changed its fiscal year end from August 31 to December 31.
Since 1983, the Company has offered managed health care products which
integrate financing and management with the delivery of health care services
through a network of providers who share financial risk or who have incentives
to deliver cost-effective medical services. These products are marketed
primarily through health maintenance organizations ("HMOs") and preferred
provider organizations ("PPOs") that encourage, and in most HMO products
require, use of contracting providers. HMOs and PPOs also control health care
costs by various other means, including the use of utilization controls such as
pre-admission approval for hospital inpatient services and pre-authorization of
outpatient surgical procedures.
The HMO and PPO products of the Company are primarily marketed to employer
and other groups ("Commercial") and Medicare-eligible individuals. The products
marketed to Medicare-eligible individuals are either HMO products that provide
health care services which include all Medicare benefits, and in certain
circumstances, additional health care services that are not included in Medicare
benefits ("Medicare risk") or indemnity insurance policies that supplement
Medicare benefits ("Medicare supplement"). Since 1983, the growth in the
Company's HMO business has been primarily attributable to acquisitions, while
the growth in its PPO business has been exclusively from internally produced
sales.
COMMERCIAL PRODUCTS
HMOs
An HMO provides prepaid health care services to its members through primary
care and specialty physicians employed by the HMO at facilities owned by the
HMO, or through a network of independent primary care and specialty physicians
and other health care providers who contract with the HMO or the primary care
physician to furnish such services. Primary care physicians include internists,
family practitioners and pediatricians. Generally, access to specialty
physicians and other health care providers must be approved by the member's
primary care physician. These other health care providers include, among others,
hospitals, nursing homes, home health agencies, pharmacies, mental health and
substance abuse centers, diagnostic centers, optometrists, outpatient surgery
centers, dentists, urgent care centers, and durable medical equipment suppliers.
Because access to these other health care providers must be approved by the
primary care physician, the HMO product is the most restrictive form of managed
care.
At December 31, 1993, the Company owned and operated ten HMOs, which
contract with approximately 27,400 physicians (including approximately 5,900
primary care physicians) and 480 hospitals. In addition, the Company has
approximately 1,300 contracts with other providers to provide services to HMO
members. The Company also employed approximately 450 physicians in its HMOs.
An HMO member pays a monthly fee which generally covers, with minimal
co-payments, health care services received or approved by the member's primary
care physician. For the year ended December 31, 1993, Commercial HMO premium
revenues totaled approximately $1.4 billion or 43 percent of the Company's
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premium revenues of $3.1 billion. Approximately $168 million of the Company's
premium revenues for the year ended December 31, 1993, were derived from
contracts with the United States Office of Personnel Management ("OPM") under
which the Company provides health care benefits to approximately 122,700 federal
civilian employees and their dependents. Pursuant to these contracts, payments
made by OPM may be retrospectively adjusted downward by OPM if an audit
discloses that a comparable product was offered by the Company to a similarly
sized subscriber group using a rating formula which resulted in a lower premium
rate than that offered to OPM.
PPOs
PPO products include many elements of managed health care. In a PPO, the
enrollee is encouraged, through financial incentives, to use preferred health
care providers which have contracted with the PPO to provide services at
favorable rates. PPOs are also similar to traditional health insurance because
they provide an enrollee with the freedom to choose a physician or other health
care provider.
At December 31, 1993, approximately 24,300 physicians and 480 hospitals
contracted with the Company to provide services to PPO enrollees. In addition,
the Company has approximately 1,300 contracts with other providers to provide
services to PPO enrollees.
For the year ended December 31, 1993, premium revenues from Commercial PPOs
totaled $357 million or 11 percent of the Company's premium revenues of $3.1
billion.
MEDICARE PRODUCTS
Medicare is a federal program that provides persons age 65 and over and
some disabled persons certain hospital and medical insurance benefits, which
include hospitalization benefits for up to 90 days per incident of illness plus
a lifetime reserve aggregating 60 days. Each Medicare eligible individual is
entitled to receive inpatient hospital care (Part A) without the payment of any
premium, but is required to pay a premium to the federal government, which is
annually adjusted, to be eligible for physician and other services (Part B).
Even though participating in both Part A and Part B of Medicare,
beneficiaries are still required to pay certain deductible and co-insurance
amounts. They may, if they choose, supplement their Medicare coverage by
purchasing policies which pay these deductibles and co-insurance amounts. Many
of these policies also cover other services (such as prescription drugs) which
are not included in Medicare coverage. These policies are known as Medicare
supplement policies.
Certain managed care companies which operate HMOs contract with the federal
government's Health Care Financing Administration ("HCFA") to provide medical
benefits to Medicare-eligible individuals residing in the geographic areas in
which their HMOs operate in exchange for a fixed monthly payment from HCFA per
enrollee. Individuals who elect to participate in these Medicare risk programs
are relieved of the obligation to pay some or all of the deductible or
co-insurance amounts but are required to use exclusively the services provided
by the HMO. Other than the Part B premium paid by the enrollee to the Medicare
program, the enrollee does not pay the HMO a premium for these services except
where the benefits provided by the HMO exceed the benefits provided by the
Medicare program.
Medicare Risk
As discussed above, a Medicare risk product involves a contract between an
HMO and HCFA pursuant to which HCFA makes a fixed monthly payment to the HMO on
behalf of each Medicare-eligible individual who chooses to enroll for coverage
by the HMO. Enrollment may be terminated by the member upon 30 days' notice. The
fixed monthly payment is determined and adjusted annually by HCFA, and takes
into account, among other things, the cost of providing medical care in the
geographic area where the member resides.
The Company markets a variety of Medicare risk HMO products. All of these
products provide an enrolled individual with all of the benefits covered by the
Medicare program but relieve the enrolled individual of the obligation to pay
deductibles and co-insurance that would otherwise apply. Some of these products
also
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provide additional benefits not covered by Medicare, such as vision and dental
care services and prescription drugs.
Where competitive conditions permit, the Company also charges a premium to
members (in addition to the payment from HCFA) for some of the Medicare risk
products. At December 31, 1993, approximately 73,300 members in nine markets
were paying premiums which totaled $51 million for the year ended December 31,
1993.
The Company provides Medicare risk services under seven contracts with HCFA
("HCFA Contracts") in 10 markets. At December 31, 1993, HCFA Contracts covered
approximately 270,800 Medicare risk members for which the Company received HCFA
revenues of approximately $1.2 billion or 40 percent of the Company's premium
revenues for the year ended December 31, 1993, of $3.1 billion. At December 31,
1993, one such HCFA Contract covered approximately 210,000 members in Florida.
For the year ended December 31, 1993, this Florida HCFA Contract accounted for
$1 billion or 80 percent of the Company's HCFA revenues of approximately $1.2
billion or 32 percent of the Company's total premium revenues. Each HCFA
Contract is renewed each December 31 unless HCFA or the Company terminates it
upon at least 90 days' notice prior thereto. Management believes termination of
the HCFA Contract covering the members in Florida would have a material adverse
effect on the Company's revenues, profitability and business prospects.
Moreover, changes in the Medicare risk program, such as reduction in payments by
HCFA or mandated increases in benefits without corresponding increases in
payments, could also have a material adverse effect on the Company's revenues,
profitability and business prospects.
Effective January 1, 1994, payments under the Company's HCFA Contracts
increased by an average of approximately 3 percent. Although annual increases
have varied significantly, increases have averaged approximately 7 percent over
the last five years, including the increase of January 1994.
Medicare Supplement
The Company's Medicare supplement product is an insurance policy which pays
for hospital deductibles, co-payments and co-insurance for which the Medicare
program participant is responsible.
Under the terms of existing Medicare supplement policies, the Company may
not reduce or cancel the benefits contracted for by policyholders. These
policies are annually renewable by the insured at the Company's prevailing
rates, which may increase subject to approval by appropriate state insurance
regulators.
At December 31, 1993, the Company provided Medicare supplement benefits to
approximately 153,600 members. Premium revenues derived from this product for
the year ended December 31, 1993, totaled $132 million.
PROVIDER ARRANGEMENTS
The Company's HMOs contract with individual or groups of primary care
physicians, generally for an actuarially determined, fixed, per-member-per-month
fee called a "capitation" payment. These contracts typically obligate primary
care physicians to provide or arrange for the provision of all covered health
care services to HMO members, including health care services provided by
specialty physicians and other health care providers. The capitation payment
does not vary with the nature or extent of health care services arranged for or
provided to the member and is generally designed to shift all or part of the
HMO's financial risk to the primary care physician. However, the degree to which
the Company shifts its risk varies by provider. The Company remains financially
responsible for the provision of or payment for such health care services if a
primary care physician fails to perform his or her obligations under the
contract. The Company also employs 450 physicians in markets where it operates
staff model HMOs. The Company is directly responsible for all health care
services provided by these employed physicians. In order to control costs,
improve quality and create comprehensive networks, the Company also contracts
with medical specialists and other providers to which a primary care physician
may refer a member. Typically, payments by the Company to these specialists and
other providers reduce the ultimate payment that otherwise would be made to a
primary care physician.
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The Company's HMOs and PPOs contract for hospital services generally under
a per diem payment arrangement for inpatient hospital services and a discounted
fee-for-service payment arrangement for outpatient services. The Company's PPOs
contract on a per diem or discounted basis with other health care providers.
Many of the physicians who contract with the Company's HMOs also contract
with its PPOs to provide services to enrollees at discounted fees. In addition,
in a number of markets the Company's PPOs contract with physicians who have not
contracted with its HMOs.
Physician participation in the Company's HMOs and PPOs is conditioned upon
meeting its HMOs' and PPOs' requirements concerning the physician's professional
qualifications.
Effective with the consummation of the Spinoff, the Company entered into a
three-year operating agreement with Galen whereby the Company will use the
services of Galen's hospitals guaranteeing certain minimum utilization levels.
The rate increases charged for such services are defined under the terms of the
agreement. Commercial rate increases are limited to the lesser of the increase
in the hospital Consumer Price Index or the Company's premium rate increases,
less 1 percent. The Medicare risk rate increases are equal to the percentage
adjustment in HCFA's market specific hospital payment rate to the Company.
During the year ended December 31, 1993, 16 percent of the Company's total
medical costs were incurred in Galen's hospitals.
MARKETING
Individuals become members of the Company's Commercial HMOs and PPOs
through their employer or other groups which typically offer employees or
members a selection of health care products, pay for all or part of the premiums
and make payroll deductions for any premiums payable by the employees. The
Company attempts to become an employer's or group's exclusive source of health
care benefits by offering HMO and PPO products that provide cost-effective
quality care consistent with the health care needs and expectations of the
employees or members.
The Company uses various methods to market its Commercial and Medicare
products, including television, radio, telemarketing and mailings. At December
31, 1993, the Company used approximately 2,000 independent licensed brokers and
agents and 160 licensed employees to sell its Commercial products. Many employer
groups are represented by insurance brokers and consultants who assist these
groups in the design and purchase of health care products. The Company generally
pays brokers a commission based on premiums, with commissions varying by market
and premium volume. At December 31, 1993, approximately 260 independent licensed
brokers and 430 employed sales representatives, who are each paid a salary
and/or per member commission, marketed the Company's Medicare products.
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The following table lists the Company's Commercial, Medicare risk and
Medicare supplement membership at December 31, 1993, by market and product:
MEMBERS
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COMMERCIAL
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MARKET PPO HMO RISK SUPPLEMENT TOTAL
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Chicago, IL 25,900 266,900 23,700 100 316,600
Corpus Christi, TX 11,200 21,400 5,200 3,900 41,700
Daytona, FL 4,100 15,800 18,000 3,500 41,400
Kansas City, MO 3,000 84,900 6,700 5,100 99,700
Las Vegas, NV 7,600 14,100 4,600 26,300
Lexington, KY 38,400 35,400 7,600 81,400
Louisville, KY 15,300 177,300 2,600 28,000 223,200
Orlando, FL 7,400 30,700 22,300 3,700 64,100
Phoenix, AZ 2,900 19,700 12,400 3,900 38,900
San Antonio, TX 28,700 60,600 10,200 5,600 105,100
South Florida, FL(1) 53,900 152,200 107,600 3,300 317,000
Tampa, FL 15,100 66,300 62,100 6,100 149,600
Others 14,500 40,700 78,200 133,400
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TOTAL 228,000 986,000 270,800 153,600 1,638,400
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(1) Includes Dade, Broward and Palm Beach counties.
The Company acquired an HMO in Washington, D.C., with approximately 125,000
members for $55 million on February 28, 1994.
The Company's 25 largest group contracts at December 31, 1993, accounted
for approximately 33 percent of total Commercial membership. No one group
contract accounted for as much as 5 percent of the Company's Commercial product
premium revenues; however, certain employer groups accounted for a significant
percentage of Commercial insurance premiums in some markets. The loss of one or
more of these contracts in a particular market could have a material adverse
effect on the Company's operations in that market.
CONTROL OF HEALTH CARE COSTS
The focal point for cost control in the Company's HMOs is the primary care
physician, whether employed or under contract, who provides services and
controls utilization of services by directing or approving hospitalization and
referrals to specialists and other health care providers. Cost control in the
Company's PPOs is achieved through obtaining discounts from participating health
care providers. With respect to both HMO and PPO products, cost control is
further achieved through use of a utilization review system managed by the
Company designed to reduce unnecessary hospital admissions and lengths of stay
and unnecessary or inappropriate medical procedures.
New technologies (which typically require substantial expenditures),
inflation, increasing hospital costs and numerous other external factors may
adversely affect the ability of the Company to control health care costs in the
future.
RISK MANAGEMENT
Through the use of internally developed underwriting criteria, the Company
determines the risk it is willing to assume and the amount of premium to charge
for its Commercial products. Employer and other groups must meet the Company's
underwriting standards in order to qualify to contract with the Company for
coverage. Underwriting techniques are not employed in connection with Medicare
risk HMO products
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because of HCFA regulations that require the Company to accept all eligible
Medicare applicants regardless of their health or prior medical history.
COMPETITION
The health care benefit industry is highly competitive and contracts for
the sale of Commercial products are generally bid or renewed annually. The
Company's competitors vary by local market and include Blue Cross/Blue Shield
(including HMOs and PPOs owned by Blue Cross/Blue Shield plans), national
insurance companies and other HMOs and PPOs. Many of the Company's competitors
have larger enrollments in local markets or greater financial resources. The
Company's ability to sell its products and to retain customers is influenced by
such factors as benefits, pricing, contract terms, number and quality of
participating physicians and other health care providers, utilization review,
claims processing and administrative efficiency.
GOVERNMENT REGULATION
Of the Company's 13 licensed HMO subsidiaries, six are qualified under the
Federal Health Maintenance Organization Act of 1973, as amended. Four of these
six subsidiaries are parties to HCFA Contracts to provide Medicare risk HMO
products in 10 markets.
An HMO which is federally qualified may require employers with more than 25
employees that offer health insurance benefits to include federally qualified
HMO products as an option available to their employees. To obtain federal
qualification, an HMO must meet certain requirements, including conformance with
financial criteria, a standard method of rate setting, a comprehensive benefit
package, and prohibition of medical underwriting of individuals. In certain
markets, and for certain products, the Company operates HMOs that are not
federally qualified because this provides greater flexibility with respect to
product design and pricing than is possible for federally qualified HMOs.
HCFA audits Medicare risk HMOs at least biannually and may perform other
reviews more frequently to determine compliance with federal regulations and
contractual obligations. These audits include review of the HMOs' administration
and management (including management information and data collection systems),
fiscal stability, utilization management and incentive arrangements, health
services delivery, quality assurance, marketing, enrollment activity, claims
processing and complaint systems. HCFA regulations require quarterly and annual
submission of financial statements and restrict the number of Medicare risk
enrollees to no more than the HMO's Commercial enrollment in a specified service
area. HCFA regulations also require independent review of medical records and
quality of care, review and approval by HCFA of all advertising, marketing and
communication materials, and independent review of all denied claims and service
complaints which are not resolved in favor of a member.
Laws in each of the states in which the Company operates its HMOs and PPOs
regulate its operations, including the scope of benefits, rate formula, delivery
systems, utilization review procedures, quality assurance, enrollment
requirements, claim payments, marketing and advertising. The PPO products
offered by the Company are sold under insurance licenses issued by the
applicable state insurance regulators. The Company's HMOs and PPOs are required
to be in compliance with certain minimum capital requirements. These
requirements must be satisfied by investing in approved investments that
generally cannot be used for other purposes. Under state laws, the Company's
HMOs and PPOs are audited by state departments of insurance for financial and
contractual compliance, and its HMOs are audited for compliance with health
services standards by respective state departments of health.
Management believes that the Company is in substantial compliance with all
governmental laws and regulations affecting its business.
NATIONAL HEALTH CARE REFORM
Congress is in the process of evaluating a number of legislative proposals
that would effect major changes in the United States health care system. Among
the proposals under consideration are government imposed cost controls, measures
to increase the availability of group health insurance coverage to employees,
and the
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creation of statewide health alliances that would cover individuals and families
not enrolled in large employer health plans. Legislative reform is not
anticipated before the latter part of 1994 and implementation of any reform
package could take several additional years. In general, managed care is being
considered as a means by which health care costs may be reduced. Although
management believes the Company is well positioned to take advantage of the
opportunities which will be afforded by national health care reform, it is not
possible to predict the final form these proposals will take or the affect these
proposals may have on the Company's operations.
STATE HEALTH CARE REFORM
During 1993, the State of Florida adopted health care reform legislation
which, among other things, established a mechanism through which small employers
and self-employed individuals may acquire health care coverage through state
chartered non-profit entities known as Community Health Purchasing Alliances
(CHPAs). It is intended the CHPAs will also be used to acquire insurance for
state employees and Medicaid beneficiaries in the future. The legislation
divides the state into 11 geographic areas and establishes a separate CHPA in
each area. Humana intends to offer products in each of these geographic areas.
In order to sell health care coverage to CHPA membership, an entity must
register as an Accountable Health Partnership (AHP). An AHP may be either an
insurer or an HMO and must specify in which geographic areas it wishes to offer
its product. There are other requirements relating to organization, grievance
procedures, terminations and product offerings for AHPs. Applicable Company HMOs
and PPOs are in the process of registering as AHPs.
Certain other states in which the Company operates are also actively
pursuing health care reform; however, at this time it is not possible to predict
the ultimate impact on the Company's operations.
OTHER RELATED PRODUCTS
The Company offers administrative services to employers who self-insure
their employee health benefits. At December 31, 1993, the Company provided
claims processing, utilization review and other administrative services to 40
self-insured employer groups, for approximately 63,700 employees and employee
dependents. For the year ended December 31, 1993, revenues from these services
totaled approximately $5 million.
The Company operates a prescription drug management service which
administers drug benefit programs for various HMOs and PPOs, including those of
the Company. For the year ended December 31, 1993, prescription drug management
service revenues from third-party customers totaled approximately $3 million.
On June 30, 1993, the Company acquired the operations of a dental services
company which provides dental products to employer groups, HMOs and PPOs,
including those of the Company. Since the acquisition, dental service revenues
from third-party customers totaled approximately $2 million.
On March 3, 1994, the Company acquired a minority interest in a mental
health HMO, which will provide services to the Company's members in certain
markets as well as to third-party customers.
OTHER BUSINESSES
Hospital
The Company operates a 170-bed hospital in Lexington, Kentucky, which was
contributed to the Company by Galen in connection with the Spinoff. The hospital
provides care primarily to members of the Company's managed care plans in
Lexington. The Company is currently reviewing alternatives for the ultimate sale
or third-party management of the hospital.
Captive Insurance Company
The Company insures substantially all professional liability risks through
a wholly-owned subsidiary (the "Captive Subsidiary") which was incorporated in
January 1993 in the State of Vermont. Previous to the Captive Subsidiary
beginning operations in February 1993, professional liability risks were insured
by a
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subsidiary of Galen. In connection with the Spinoff, the Captive Subsidiary and
the Galen subsidiary entered into a loss portfolio reinsurance agreement whereby
the Captive Subsidiary will indemnify the Galen subsidiary, subject to aggregate
limits, against all liabilities incurred by the Galen subsidiary related to the
professional liability risks of the Company prior to September 1, 1993.
Centralized Management Services
Centralized management services are provided to each health plan from the
Company's headquarters. These services include management information systems,
financing, personnel, development, accounting, legal advice, public relations,
marketing, insurance, purchasing, risk management, actuarial, underwriting and
claims processing.
EMPLOYEES
As of December 31, 1993, the Company and its subsidiaries had approximately
8,800 full-time employees.
ITEM 2. PROPERTIES
The Company owns its principal executive office, which is located in the
Humana Building, 500 West Main Street, Louisville, Kentucky 40202.
The Company provides medical services in medical centers owned or leased
ranging in size from approximately 1,200 to 80,000 square feet. The Company's
administrative market offices are generally leased, with square footage ranging
from 1,000 to 75,000. The following chart lists the location of properties used
in the operation of the Company at December 31, 1993:
MEDICAL ADMINISTRATIVE
CENTERS OFFICES
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STATES AND DISTRICTS OWNED LEASED OWNED LEASED TOTAL
--------------------------- ----- ------ ----- ------ -----
Alabama 2 2
Arizona 2 2
District of Columbia 2 2
Florida 7 51 16 74
Illinois 7 19 5 31
Indiana 1 1
Kansas 1 5 6
Kentucky 8 3 1 12
Missouri 2 8 1 11
Nevada 1 1
Ohio 1 1
Texas 5 2 4 11
----- -- ----- -- -----
TOTAL 31 88 1 34 154
----- -- ----- -- -----
----- -- ----- -- -----
In addition, the Company owns buildings in Louisville, Kentucky, and San
Antonio, Texas, and leases a facility in Jacksonville, Florida, which are used
for customer service and claims processing. The Louisville facility also
performs enrollment processing and other corporate functions.
The Company also owns a hospital and medical office building in Lexington,
Kentucky.
ITEM 3. LEGAL PROCEEDINGS
1. A class action law suit styled Mary Forsyth, et al v. Humana Inc., et al,
Case #CV-5-89-249-PMP(L.R.L.), was filed on March 29, 1989, in the United
States District Court for the District of Nevada (the "Forsyth" case). The
claims asserted by plaintiffs included an ERISA count seeking $49,440,000 of
damages plus approximately $15,396,000 of interest, a RICO count seeking
$103,562,165 of damages (before trebling) plus approximately $31,800,000 of
interest, and an antitrust count for an unspecified
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amount of damages which appears to be similar to those sought in the RICO
count. Despite allegations made by the plaintiffs, the Company considered the
substance of these claims to be a dispute concerning the calculation of
health insurance benefits and believed the claimed damages were greatly in
excess of any possible recovery even if plaintiffs were successful on every
claim asserted.
On July 21, 1993, summary judgment was entered in favor of the Company on all
counts, although the court granted the co-payer class until August 24, 1993,
to file a third amended complaint in which its members could seek to recover
the difference between their co-insurance payments and what those payments
would have been if co-insurance obligations of the co-payer class had
originally been based on the discounted payments made by Humana Health
Insurance Company of Nevada to Sunrise Hospital and Medical Center, Las
Vegas, Nevada, (now owned by Columbia).
On August 24, 1993, a third amended complaint styled Marietta Cade, et al vs.
Humana Health Insurance of Nevada, Inc., et al was filed seeking damages as
described above. On January 28, 1994, summary judgment was entered in favor
of plaintiffs on this third amended complaint. A subsequent hearing will
ascertain the amount of damages suffered by the co-payer class. The Company
believes the final resolution of this litigation will not have a material
adverse effect on its operations or financial position.
2. On April 22, 1993, an alleged stockholder of the Company filed a purported
shareholder derivative action in the Court of Chancery of the State of
Delaware, County of New Castle, styled Lewis v. Austen, et al, Civil Action
No. 12937. The action was purportedly brought on behalf of the Company and
Galen against all of the directors of both companies at the time of the
Spinoff alleging, among other things, that the defendants had improperly
amended the Company's existing stock option plans in connection with the
Spinoff. The plaintiff claims that the amendment to the stock option plans
constituted a waste of corporate assets to the extent that employees of each
company received options in the stock of the other company. (The challenged
amendment to the plan was approved by the Company's stockholders at the 1993
Annual Meeting of Stockholders.) The plaintiff requests, among other things,
an injunction prohibiting the exercise of Galen (now Columbia) stock options
by the Company's personnel and the exercise of Company stock options by Galen
(now Columbia) personnel and an award of damages. On June 14, 1993, the
defendants filed a motion to dismiss the plaintiff's complaint. That motion
is still pending. The Company believes that the complaint is without merit.
Damages for claims for personal injuries and medical benefit denials are
usual in the Company's business. Personal injury claims are covered by insurance
from the Captive Subsidiary and excess carriers, except to the extent that
claimants seek punitive damages, which may not be covered by insurance if
awarded. Punitive damages generally are not paid where claims are settled and
generally are awarded only where there has been a willful act or omission to
act. The Company does not believe that any pending actions will have a material
adverse effect on its consolidated financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
9
11
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below are names and ages of all of the current executive officers
of the Company as of March 1, 1994, their positions, date of election to such
position and the date first elected an officer of the Company:
SERVED
IN SUCH FIRST
CAPACITY ELECTED
NAME AGE POSITION SINCE OFFICER
- ------------------------------ --- ------------------------------- -------- -------
David A. Jones(1) 62 Chairman of the Board and Chief 08/69 09/64
Executive Officer
Wayne T. Smith 48 President and Chief Operating 03/93 06/78
Officer and Director
W. Larry Cash 45 Senior Vice 09/91 09/82
President -- Finance and
Operations
Karen A. Coughlin 46 Senior Vice President -- Region 02/93 09/88
II
W. Roger Drury 47 Chief Financial Officer 05/92 09/83
Philip B. Garmon 50 Senior Vice President -- Region 09/88 11/82
I
Ronald S. Lankford, M.D. 42 Senior Vice 03/93 08/87
President -- Medical Affairs
James E. Murray(2) 40 Vice President and Controller 03/93 08/90
Walter E. Neely 50 Vice President, General Counsel 03/93 09/88
and Secretary
- ---------------
(1) Elected an officer of a predecessor corporation in 1961.
(2) Mr. Murray was appointed Controller of the Company at the time of the
Spinoff, previous to which he served in the capacity of Vice President and
Controller -- Health Plans since August 1990 and Controller -- Health Care
Division since October 1989. From October 1985 to October 1989, he was a
Certified Public Accountant with Coopers & Lybrand.
Executive officers are elected annually by the Company's Board of Directors
and serve until their successors are elected or until resignation or removal.
There are no family relationships among any of the directors or executive
officers of the Company, except that Mr. Jones is the father of David A. Jones,
Jr., a director of the Company. Except for Mr. Murray, all of the above-named
executive officers have been employees of the Company for more than five years.
10
12
PART II
Information for Items 5 through 8 of this Report which appears in the 1993
Annual Report to Stockholders as indicated on the following table is
incorporated by reference in this report:
ANNUAL REPORT
TO
STOCKHOLDERS
PAGE
-------------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 37
ITEM 6. SELECTED FINANCIAL DATA 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 19-22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
Consolidated Financial Statements. 23-33
Quarterly Financial Information. 34
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item other than the information set forth
in Part I under the Section entitled "EXECUTIVE OFFICERS OF THE COMPANY", is
herein incorporated by reference from the Registrant's Proxy Statement for the
Annual Meeting of Stockholders scheduled to be held on May 26, 1994, appearing
under the caption "ELECTION OF DIRECTORS OF THE COMPANY FOR 1994" on pages 3
through 6 of the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is herein incorporated by reference
from the Registrant's Proxy Statement for the Annual Meeting of Stockholders
scheduled to be held on May 26, 1994, appearing under the caption "EXECUTIVE
COMPENSATION OF THE COMPANY" on pages 9 through 15 of the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is herein incorporated by reference
from the Registrant's Proxy Statement for the Annual Meeting of Stockholders
scheduled to be held on May 26, 1994, appearing under the caption "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF COMPANY COMMON STOCK" on pages 6
through 8 of the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
11
13
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The financial statements, financial statement schedules and exhibits set forth below are
filed as part of this report.
(1) Financial Statements -- The response to this portion of Item 14 is submitted as Item 8
of this report.
(2) Index to Consolidated Financial Statement Schedules:
Consolidated schedules as of and for the years ended December 31, 1993, December 31,
1992, August 31, 1992, and August 31, 1991, and the four months ended December 31,
1992:
II Amounts Receivable from Related Parties and Underwriters, Promoters and
Employees Other Than Related Parties
III Parent Company Financial Information
VIII Valuation and Qualifying Accounts
All other schedules have been omitted because they are not applicable, not required
or because the required information is contained in the Consolidated Financial
Statements or notes thereto.
(3) Exhibits:
3(a) Restated Certificate of Incorporation filed with the Secretary of State
of Delaware on November 9, 1989, as restated pursuant to Item 102(c) of
regulation S-T to incorporate the amendment of January 9, 1992, and the
correction of March 23, 1992. Exhibit 4.(i) to the Company's
Post-Effective Amendment to the Registration Statement on Form S-8 (Reg.
No. 33-49305) filed February 2, 1994, is incorporated by reference
herein.
(b) By-laws, as amended. Exhibit 3(a) to the Company's Current Report on Form
8-K (File No. 1-5975) filed March 5, 1993, is incorporated by reference
herein.
4(a) Restated Certificate of Incorporation as amended and corrected and
By-laws as amended. (See 3(a) and (b) above.)
(b) Form of Rights Agreement dated March 5, 1987, between Humana Inc. and
Mid-America Bank of Louisville and Trust Company (the "Rights
Agreement"). Exhibit 1 to the Form SE for the Registration Statement
(File No. 1-5975) on Form 8-A dated March 9, 1987, is incorporated by
reference herein.
(c) Amendment No. 1, dated December 7, 1992, to the Rights Agreement. Exhibit
1.1 to the Company's Form 8 (File No. 1-5975) filed December 16, 1992, is
incorporated by reference herein.
(d) Amendment No. 2, dated March 2, 1993, to the Rights Agreement. Exhibit
1.2 to the Company's Form 8 (File No. 1-5975) filed March 2, 1993, is
incorporated by reference herein.
(e) There are no instruments defining the rights of holders with respect to
long-term debt in excess of 10% of the total assets of the Company and
its subsidiaries on a consolidated basis. Other long-term indebtedness of
the Company is described in Note 7 of Notes to Consolidated Financial
Statements. The Company agrees to furnish copies of all such instruments
defining the rights of the holders of such indebtedness to the Commission
upon request.
10(a)* 1981 Non-Qualified Stock Option Plan, as amended. Exhibit 10(c) to Form
SE filed on November 25, 1987, is incorporated by reference herein.
(b)* Amendment No. 2 to the 1981 Non-Qualified Stock Option Plan, as amended.
Annex A to the Company's Proxy Statement covering the Annual Meeting of
Stockholders on February 18, 1993, is incorporated by reference herein.
(c)* 1989 Stock Option Plan for Employees. Exhibit A to the Proxy Statement
covering the Annual Meeting of Stockholders on January 11, 1990, is
incorporated by reference herein.
(d)* Amendment No. 1 to the 1989 Stock Option Plan for Employees. Annex B to
the Company's Proxy Statement covering the Annual Meeting of the
Stockholders on February 18, 1993, is incorporated by reference herein.
(e)* Amendment No. 2 to the 1989 Stock Option Plan for Employees, filed
herewith.
12
14
10(f)* 1989 Stock Option Plan for Non-Employee Directors. Exhibit B to the Proxy
Statement covering the Annual Meeting of the Stockholders on January 11,
1990, is incorporated by reference herein.
(g)* Amendment No. 1 to the 1989 Stock Option Plan for Non-Employee Directors.
Annex C to the Company's Proxy Statement covering the Annual Meeting of
Stockholders on February 18, 1993, is incorporated by reference herein.
(h)* Amendment No. 2 to the 1989 Stock Option Plan for Non-Employee Directors,
filed herewith.
(i)* Executive Management Incentive Compensation Plan -- Group A, Corporate,
filed herewith.
(j)* Executive Management Incentive Compensation Plan -- Group I, Corporate,
filed herewith.
(k)* Regional Incentive Compensation Plan -- Group I, Regional Senior Vice
President, filed herewith.
(l)* Senior Management Incentive Compensation Plan -- Group II, Corporate,
filed herewith.
(m)* Stock Bonus Plan. Exhibit A to the Company's Proxy Statement covering the
Annual Meeting of Stockholders on January 10, 1991, is incorporated by
reference herein.
(n)* Agreement providing for termination benefits in the event of a change of
control, filed herewith.
(o)* First Amendment to the change of control agreement, filed herewith.
(p)* Employment Agreement as amended. Exhibit 10(m) to the Company's Annual
Report on Form 10-K filed for the fiscal year ended August 31, 1991,
(File No. 1-5975) is incorporated by reference herein.
(q)* Directors' Retirement Policy as amended. Exhibit 10(m) to the Company's
Annual Report on Form 10-K filed for the fiscal year ended August 31,
1992, (File No. 1-5975) is incorporated by reference herein.
(r)* Humana Officers' Target Retirement Plan as amended. Exhibit 10(n) to the
Company's Annual Report on Form 10-K for the fiscal year ended August 31,
1992, (File No. 1-5975) is incorporated by reference herein.
(s)* Form Letter Agreement concerning Officer's Target Retirement Plan dated
June 18, 1992 for Messrs. Jones and Smith, filed herewith.
(t)* Humana Thrift Excess Plan. Exhibit 10(hh) to Form SE filed on November
29, 1989, is incorporated by reference herein.
(u)* Humana Supplemental Executive Retirement Plan. Exhibit 10(ii) to Form SE
filed on November 29, 1989, is incorporated by reference herein.
(v) Indemnity Agreement. Appendix B to the Proxy Statement covering the
Annual Meeting of the Stockholders held on January 8, 1987, is
incorporated by reference herein.
(w) Agreement between The Secretary of the Department of Health and Human
Services and Humana Medical Plan, Inc., filed herewith.
(x) Humana Inc. $200 million Credit Agreement dated January 12, 1994, filed
herewith.
(y) Operating Agreement between the Company and Galen Health Care, Inc., now
known as Columbia/HCA Healthcare Corporation ("Galen"). Exhibit 10(d) to
the Company's Current Report on Form 8-K filed on March 5, 1993, (the
"8-K"), is incorporated by reference herein.
(z) Form of Hospital Services Agreement between the Company, Galen and
certain of their respective subsidiaries. Exhibit 10(e) to the 8-K is
incorporated by reference herein.
(aa) Medicare Supplement Agreement between the Company and Galen. Exhibit
10(f) to the 8-K is incorporated by reference herein.
(bb) Assumption of Liabilities and Indemnification Agreement between the
Company and Galen. Exhibit 10(g) to the 8-K is incorporated by reference
herein.
- ---------------
* Exhibits 10(a) through and including 10(u) are compensatory plans or
management contracts.
13
15
(cc) Employee Benefits Allocation Agreement between the Company and Galen.
Exhibit 10(h) to the 8-K is incorporated by reference herein.
(dd) Tax Sharing and Indemnification Agreement between the Company and Galen.
Exhibit 10(i) to the 8-K is incorporated by reference herein.
(ee) Loss Portfolio Reinsurance Agreement between Health Care Indemnity, Inc.
and Managed Care Indemnity, Inc. Exhibit 10(j) to the 8-K is incorporated
by reference herein.
10(ff) Lease Agreement between the Company and Galen regarding 500 West Main
Street, Louisville, Kentucky. Exhibit 10(k) to the 8-K is incorporated by
reference herein.
(gg) Lease Agreement between the Company and Galen regarding 516 West Main
Street, Louisville, Kentucky. Exhibit 10(l) to the 8-K is incorporated by
reference herein.
(hh) Lease Agreement between the Company and Galen regarding 101 West Main
Street, Louisville, Kentucky. Exhibit 10(m) to the 8-K is incorporated by
reference herein.
(ii) Lease Agreement between the Company and Galen regarding 708 West Magazine
Street, Louisville, Kentucky. Exhibit 10(n) to the 8-K is incorporated by
reference herein.
(jj) Lease Agreement between the Company and Galen regarding 8119 Data Point
Drive, San Antonio, Texas. Exhibit 10(o) to the 8-K is incorporated by
reference herein.
(kk) Intellectual Property Agreement between the Company and Galen. Exhibit
10(p) to the 8-K is incorporated by reference herein.
(ll) Aircraft Management Agreement between the Company and Galen. Exhibit
10(q) to the 8-K is incorporated by reference herein.
(mm) Aircraft Interchange Agreement between the Company and Galen. Exhibit
10(r) to the 8-K is incorporated by reference herein.
(nn) Information Systems Split Agreement between the Company and Galen.
Exhibit 10(s) to the 8-K is incorporated by reference herein.
(oo) Intercompany Information Systems Agreement between the Company and Galen.
Exhibit 10(t) to the 8-K is incorporated by reference herein.
(pp) Intercompany Communications Agreement between the Company and Galen.
Exhibit 10(u) to the 8-K is incorporated by reference herein.
(qq) Alternative Dispute Resolution Agreement between the Company and Galen
dated March 8, 1993, filed herewith.
(rr) Workers Compensation Administrative Services Agreement between Humana
Health Insurance Company of Florida, Inc., a wholly-owned subsidiary of
the Company, and Galen. Exhibit 10(w) to the 8-K is incorporated by
reference herein.
(ss) Administrative Services Agreement between Humana Insurance Company, a
wholly-owned subsidiary of the Company, and Galen. Exhibit 10(x) to the
8-K is incorporated by reference herein.
12 Statement re Computation of Ratio of Earnings to Fixed Charges.
13 1993 Annual Report to Stockholders. The Annual Report shall not be deemed
to be filed with the Commission except to the extent that information is
specifically incorporated herein by reference.
21 List of Subsidiaries, filed herewith.
23 Consent of Coopers & Lybrand, filed herewith.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the last quarter of
the period covered by this report.
14
16
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized.
HUMANA INC.
By: /s/ W. ROGER DRURY
------------------------------------
W. Roger Drury
Chief Financial Officer
Date: March 29, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
- --------------------------------------------- ------------------------------- ---------------
/s/ JAMES E. MURRAY Vice President and Controller March 29, 1994
- --------------------------------------------- (Principal Accounting
James E. Murray Officer)
/s/ DAVID A. JONES Chairman of the Board and Chief March 29, 1994
- --------------------------------------------- Executive Officer
David A. Jones
/s/ WAYNE T. SMITH President and Chief Operating March 29, 1994
- --------------------------------------------- Officer and Director
Wayne T. Smith
/s/ K. FRANK AUSTEN, M.D. Director March 29, 1994
- ---------------------------------------------
K. Frank Austen, M.D.
/s/ MICHAEL E. GELLERT Director March 29, 1994
- ---------------------------------------------
Michael E. Gellert
/s/ JOHN R. HALL Director March 29, 1994
- ---------------------------------------------
John R. Hall
/s/ DAVID A. JONES, JR. Director March 29, 1994
- ---------------------------------------------
David A. Jones, Jr.
/s/ IRWIN LERNER Director March 29, 1994
- ---------------------------------------------
Irwin Lerner
/s/ W. ANN REYNOLDS, Ph.D. Director March 29, 1994
- ---------------------------------------------
W. Ann Reynolds, Ph.D.
15
17
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Humana Inc.
We have audited the consolidated financial statements and the financial
statement schedules of Humana Inc. as listed in Item 14(a) of this Form 10-K.
These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Humana Inc. as
of December 31, 1993, and 1992, and the consolidated results of operations and
cash flows for the years ended December 31, 1993, December 31, 1992, August 31,
1992, and August 31, 1991, and for the four-month period ended December 31,
1992, in conformity with generally accepted accounting principles. In addition,
in our opinion the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
As discussed in Note 2 to the consolidated financial statements, Humana
Inc. adopted the provisions of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes", effective September 1, 1991, and the
provisions of Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities", effective December 31,
1993.
COOPERS & LYBRAND
Louisville, Kentucky
January 31, 1994
16
18
HUMANA INC.
SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES
AND UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
FOR THE YEARS ENDED DECEMBER 31, 1993, DECEMBER 31, 1992, AUGUST 31, 1992, AND
AUGUST 31, 1991,
AND THE FOUR MONTHS ENDED DECEMBER 31, 1992
(DOLLARS IN THOUSANDS)
BALANCE AT
BALANCE AT END OF PERIOD
BEGINNING AMOUNTS ----------------------
OF PERIOD ADDITIONS COLLECTED CURRENT NOT CURRENT
---------- --------- --------- ------- -----------
Year ended August 31, 1991:
David K. Jarboe $ $ 283 $ 223 $ $ 60
---------- --------- --------- ------- -----------
$ $ 283 $ 223 $ $ 60
---------- --------- --------- ------- -----------
---------- --------- --------- ------- -----------
Year ended August 31, 1992:
David K. Jarboe $ 60 $ 60
Michael McCallister $ 188 $ $ 188
---------- --------- --------- ------- -----------
$ 60 $ 188 $ $ 188 $ 60
---------- --------- --------- ------- -----------
---------- --------- --------- ------- -----------
Four months ended December 31, 1992:
David K. Jarboe $ 60 $ 60
Michael McCallister 188 $ $ 188 $
---------- --------- --------- ------- -----------
$248 $ $ 188 $ $ 60
---------- --------- --------- ------- -----------
---------- --------- --------- ------- -----------
Year ended December 31, 1992:
David K. Jarboe $ 60 $ 60
Michael McCallister $ 188 $ 188 $
---------- --------- --------- ------- -----------
$ 60 $ 188 $ 188 $ $ 60
---------- --------- --------- ------- -----------
---------- --------- --------- ------- -----------
Year ended December 31, 1993:
David K. Jarboe $ 60 $ 60(a)
George E. Bennett $ 125 $ $ 125(b)
---------- --------- --------- ------- -----------
$ 60 $ 125 $ $ $ 185
---------- --------- --------- ------- -----------
---------- --------- --------- ------- -----------
- ---------------
(a) Noninterest bearing ; collateralized by deed of trust on personal
residence; payable either in periodic installments or upon termination of
employment, sale of residence or default on any collateral instrument
having priority over Humana Inc.'s deed of trust.
(b) Bears interest at the rate of three percent; collateralized by second
mortgage on personal residence; payable upon sale of residence, termination
of employment or default on any other financing arrangement which is
secured by a mortgage on the residence.
17
19
HUMANA INC.
SCHEDULE III -- PARENT COMPANY FINANCIAL INFORMATION(A)
CONDENSED BALANCE SHEET
DECEMBER 31, 1993 AND 1992
(DOLLARS IN MILLIONS)
ASSETS DECEMBER 31,
---------------
1993 1992
------ ----
Cash and cash equivalents $ 27 $
Marketable securities 103 5
Other current assets 168 158
------ ----
Total current assets 298 163
Property and equipment, net 125 142
Investments in subsidiaries 509 271
Long-term marketable securities 110
Other 35 5
------ ----
TOTAL ASSETS $1,077 $581
------ ----
------ ----
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities $ 164 $195
Other 24 10
------ ----
Total liabilities 188 205
Contingencies(b)
Common stock 16 2/3 cents par; authorized 300,000,000 shares; issued
and outstanding 160,343,788 shares -- December 31, 1993 27
Other stockholders' equity 862 376
------ ----
Total common stockholders' equity 889 376
------ ----
TOTAL LIABILITIES AND COMMON STOCKHOLDERS' EQUITY $1,077 $581
------ ----
------ ----
- ---------------
(a) Parent company financial information has been derived from the consolidated
financial statements of the Company and excludes the accounts of all
operating subsidiaries. This information should be read in conjunction with
the consolidated financial statements of the Company.
(b) In the normal course of business the parent company indemnifies certain of
its subsidiaries for their health plan obligations.
18
20
HUMANA INC.
SCHEDULE III -- PARENT COMPANY FINANCIAL INFORMATION(A)
CONDENSED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, DECEMBER 31, 1992,
AUGUST 31, 1992, AND AUGUST 31, 1991,
AND THE FOUR MONTHS ENDED DECEMBER 31, 1992
(DOLLARS IN MILLIONS)
YEARS ENDED FOUR MONTHS YEARS ENDED
DECEMBER 31, ENDED AUGUST 31,
---------------- DECEMBER 31, ----------------
1993 1992 1992 1992 1991
---- ----- ------------ ----- ----
Revenues:
Management fees charged to operating
subsidiaries $121 $ 87 $ 38 $ 71 $ 54
Interest income 14 1 1
---- ----- --- ----- ----
135 87 38 72 55
---- ----- --- ----- ----
Expenses:
Selling, general and administrative 147 101 30 116 117
Depreciation and amortization 18 19 6 19 12
Restructuring and unusual charges 58 58
Interest expense 16 11 2 13 12
---- ----- --- ----- ----
181 189 38 206 141
---- ----- --- ----- ----
Loss before income taxes and equity in
income (loss) of subsidiaries (46) (102) (134) (86)
Income tax benefit 17 34 45 31
---- ----- --- ----- ----
Loss before equity in income (loss) of
subsidiaries (29) (68) (89) (55)
Equity in income (loss) of subsidiaries 118 (39) 9 (25) 64
---- ----- --- ----- ----
Net income (loss) $ 89 $(107) $ 9 $(114) $ 9
---- ----- --- ----- ----
---- ----- --- ----- ----
- ---------------
(a) Parent company financial information has been derived from the consolidated
financial statements of the Company and excludes the accounts of all
operating subsidiaries. This information should be read in conjunction with
the consolidated financial statements of the Company.
19
21
HUMANA INC.
SCHEDULE III -- PARENT COMPANY FINANCIAL INFORMATION(A)
CONDENSED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, DECEMBER 31, 1992,
AUGUST 31, 1992, AND AUGUST 31, 1991,
AND THE FOUR MONTHS ENDED DECEMBER 31, 1992
(DOLLARS IN MILLIONS)
YEARS ENDED FOUR YEARS ENDED
DECEMBER 31, MONTHS ENDED AUGUST 31,
--------------- DECEMBER 31, --------------
1993 1992 1992 1992 1991
----- ----- ------------ ---- -----
Net cash provided by (used in) operating
activities $ 20 $ (79) $(64) $ 9 $ (34)
----- ----- ------ ---- -----
Cash flows from investing activities:
Net change in property and equipment (1) 3 5 (18) (74)
Change in marketable securities (208) 6 30 (7) (5)
Parent funding of operating
subsidiaries (160) (19) (9) (77) (103)
Dividends from operating subsidiaries 40 24 24 44
Other (21) (39) 18
----- ----- ------ ---- -----
Net cash (used in) provided by
investing activities (350) (25) 44 (78) (138)
----- ----- ------ ---- -----
Cash flows from financing activities:
Equity funding from Galen 383 72 74 176
Other (26) 32 20 (5) (4)
----- ----- ------ ---- -----
Net cash provided by financing
activities 357 104 20 69 172
----- ----- ------ ---- -----
Increase in cash and cash equivalents 27
Cash and cash equivalents at beginning
of period
----- ----- ------ ---- -----
Cash and cash equivalents at end of
period $ 27 $ $ $ $
----- ----- ------ ---- -----
----- ----- ------ ---- -----
- ---------------
(a) Parent company financial information has been derived from the consolidated
financial statements of the Company and excludes the accounts of all
operating subsidiaries. This information should be read in conjunction with
the consolidated financial statements of the Company.
20
22
HUMANA INC.
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1993, DECEMBER 31, 1992,
AUGUST 31, 1992, AND AUGUST 31, 1991,
AND THE FOUR MONTHS ENDED DECEMBER 31, 1992
(DOLLARS IN MILLIONS)
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND DEDUCTIONS AT END OF
OF PERIOD EXPENSES OR WRITEOFFS PERIOD
---------- ---------- ------------ ---------
Allowance for loss on premiums receivable:
Year ended August 31, 1991 $ 10 $3 $ (4) $ 9
Year ended August 31, 1992 9 7 (5) 11
Four months ended December 31, 1992 11 3 14
Year ended December 31, 1992 10 8 (4) 14
Year ended December 31, 1993 14 4 (1) 17
21
23
Exhibit Index
Exhibit No. Description
----------- -----------
3(a) Restated Certificate of Incorporation filed with the Secretary of State
of Delaware on November 9, 1989, as restated pursuant to Item 102(c) of
regulation S-T to incorporate the amendment of January 9, 1992, and the
correction of March 23, 1992. Exhibit 4.(i) to the Company's
Post-Effective Amendment to the Registration Statement on Form S-8 (Reg.
No. 33-49305) filed February 2, 1994, is incorporated by reference
herein.
(b) By-laws, as amended. Exhibit 3(a) to the Company's Current Report on Form
8-K (File No. 1-5975) filed March 5, 1993, is incorporated by reference
herein.
4(a) Restated Certificate of Incorporation as amended and corrected and
By-laws as amended. (See 3(a) and (b) above.)
(b) Form of Rights Agreement dated March 5, 1987, between Humana Inc. and
Mid-America Bank of Louisville and Trust Company (the "Rights
Agreement"). Exhibit 1 to the Form SE for the Registration Statement
(File No. 1-5975) on Form 8-A dated March 9, 1987, is incorporated by
reference herein.
(c) Amendment No. 1, dated December 7, 1992, to the Rights Agreement. Exhibit
1.1 to the Company's Form 8 (File No. 1-5975) filed December 16, 1992, is
incorporated by reference herein.
(d) Amendment No. 2, dated March 2, 1993, to the Rights Agreement. Exhibit
1.2 to the Company's Form 8 (File No. 1-5975) filed March 2, 1993, is
incorporated by reference herein.
(e) There are no instruments defining the rights of holders with respect to
long-term debt in excess of 10% of the total assets of the Company and
its subsidiaries on a consolidated basis. Other long-term indebtedness of
the Company is described in Note 7 of Notes to Consolidated Financial
Statements. The Company agrees to furnish copies of all such instruments
defining the rights of the holders of such indebtedness to the Commission
upon request.
10(a)* 1981 Non-Qualified Stock Option Plan, as amended. Exhibit 10(c) to Form
SE filed on November 25, 1987, is incorporated by reference herein.
(b)* Amendment No. 2 to the 1981 Non-Qualified Stock Option Plan, as amended.
Annex A to the Company's Proxy Statement covering the Annual Meeting of
Stockholders on February 18, 1993, is incorporated by reference herein.
(c)* 1989 Stock Option Plan for Employees. Exhibit A to the Proxy Statement
covering the Annual Meeting of Stockholders on January 11, 1990, is
incorporated by reference herein.
(d)* Amendment No. 1 to the 1989 Stock Option Plan for Employees. Annex B to
the Company's Proxy Statement covering the Annual Meeting of the
Stockholders on February 18, 1993, is incorporated by reference herein.
(e)* Amendment No. 2 to the 1989 Stock Option Plan for Employees, filed
herewith.
24
Exhibit No. Description
----------- -----------
10(f)* 1989 Stock Option Plan for Non-Employee Directors. Exhibit B to the Proxy
Statement covering the Annual Meeting of the Stockholders on January 11,
1990, is incorporated by reference herein.
(g)* Amendment No. 1 to the 1989 Stock Option Plan for Non-Employee Directors.
Annex C to the Company's Proxy Statement covering the Annual Meeting of
Stockholders on February 18, 1993, is incorporated by reference herein.
(h)* Amendment No. 2 to the 1989 Stock Option Plan for Non-Employee Directors,
filed herewith.
(i)* Executive Management Incentive Compensation Plan -- Group A, Corporate,
filed herewith.
(j)* Executive Management Incentive Compensation Plan -- Group I, Corporate,
filed herewith.
(k)* Regional Incentive Compensation Plan -- Group I, Regional Senior Vice
President, filed herewith.
(l)* Senior Management Incentive Compensation Plan -- Group II, Corporate,
filed herewith.
(m)* Stock Bonus Plan. Exhibit A to the Company's Proxy Statement covering the
Annual Meeting of Stockholders on January 10, 1991, is incorporated by
reference herein.
(n)* Agreement providing for termination benefits in the event of a change of
control, filed herewith.
(o)* First Amendment to the change of control agreement, filed herewith.
(p)* Employment Agreement as amended. Exhibit 10(m) to the Company's Annual
Report on Form 10-K filed for the fiscal year ended August 31, 1991,
(File No. 1-5975) is incorporated by reference herein.
(q)* Directors' Retirement Policy as amended. Exhibit 10(m) to the Company's
Annual Report on Form 10-K filed for the fiscal year ended August 31,
1992, (File No. 1-5975) is incorporated by reference herein.
(r)* Humana Officers' Target Retirement Plan as amended. Exhibit 10(n) to the
Company's Annual Report on Form 10-K for the fiscal year ended August 31,
1992, (File No. 1-5975) is incorporated by reference herein.
(s)* Form Letter Agreement concerning Officer's Target Retirement Plan dated
June 18, 1992 for Messrs. Jones and Smith, filed herewith.
(t)* Humana Thrift Excess Plan. Exhibit 10(hh) to Form SE filed on November
29, 1989, is incorporated by reference herein.
(u)* Humana Supplemental Executive Retirement Plan. Exhibit 10(ii) to Form SE
filed on November 29, 1989, is incorporated by reference herein.
(v) Indemnity Agreement. Appendix B to the Proxy Statement covering the
Annual Meeting of the Stockholders held on January 8, 1987, is
incorporated by reference herein.
(w) Agreement between The Secretary of the Department of Health and Human
Services and Humana Medical Plan, Inc., filed herewith.
(x) Humana Inc. $200 million Credit Agreement dated January 12, 1994, filed
herewith.
(y) Operating Agreement between the Company and Galen Health Care, Inc., now
known as Columbia/HCA Healthcare Corporation ("Galen"). Exhibit 10(d) to
the Company's Current Report on Form 8-K filed on March 5, 1993, (the
"8-K"), is incorporated by reference herein.
(z) Form of Hospital Services Agreement between the Company, Galen and
certain of their respective subsidiaries. Exhibit 10(e) to the 8-K is
incorporated by reference herein.
(aa) Medicare Supplement Agreement between the Company and Galen. Exhibit
10(f) to the 8-K is incorporated by reference herein.
(bb) Assumption of Liabilities and Indemnification Agreement between the
Company and Galen. Exhibit 10(g) to the 8-K is incorporated by reference
herein.
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* Exhibits 10(a) through and including 10(u) are compensatory plans or
management contracts.
25
Exhibit No. Description
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(cc) Employee Benefits Allocation Agreement between the Company and Galen.
Exhibit 10(h) to the 8-K is incorporated by reference herein.
(dd) Tax Sharing and Indemnification Agreement between the Company and Galen.
Exhibit 10(i) to the 8-K is incorporated by reference herein.
(ee) Loss Portfolio Reinsurance Agreement between Health Care Indemnity, Inc.
and Managed Care Indemnity, Inc. Exhibit 10(j) to the 8-K is incorporated
by reference herein.
10(ff) Lease Agreement between the Company and Galen regarding 500 West Main
Street, Louisville, Kentucky. Exhibit 10(k) to the 8-K is incorporated by
reference herein.
(gg) Lease Agreement between the Company and Galen regarding 516 West Main
Street, Louisville, Kentucky. Exhibit 10(l) to the 8-K is incorporated by
reference herein.
(hh) Lease Agreement between the Company and Galen regarding 101 West Main
Street, Louisville, Kentucky. Exhibit 10(m) to the 8-K is incorporated by
reference herein.
(ii) Lease Agreement between the Company and Galen regarding 708 West Magazine
Street, Louisville, Kentucky. Exhibit 10(n) to the 8-K is incorporated by
reference herein.
(jj) Lease Agreement between the Company and Galen regarding 8119 Data Point
Drive, San Antonio, Texas. Exhibit 10(o) to the 8-K is incorporated by
reference herein.
(kk) Intellectual Property Agreement between the Company and Galen. Exhibit
10(p) to the 8-K is incorporated by reference herein.
(ll) Aircraft Management Agreement between the Company and Galen. Exhibit
10(q) to the 8-K is incorporated by reference herein.
(mm) Aircraft Interchange Agreement between the Company and Galen. Exhibit
10(r) to the 8-K is incorporated by reference herein.
(nn) Information Systems Split Agreement between the Company and Galen.
Exhibit 10(s) to the 8-K is incorporated by reference herein.
(oo) Intercompany Information Systems Agreement between the Company and Galen.
Exhibit 10(t) to the 8-K is incorporated by reference herein.
(pp) Intercompany Communications Agreement between the Company and Galen.
Exhibit 10(u) to the 8-K is incorporated by reference herein.
(qq) Alternative Dispute Resolution Agreement between the Company and Galen
dated March 8, 1993, filed herewith.
(rr) Workers Compensation Administrative Services Agreement between Humana
Health Insurance Company of Florida, Inc., a wholly-owned subsidiary of
the Company, and Galen. Exhibit 10(w) to the 8-K is incorporated by
reference herein.
(ss) Administrative Services Agreement between Humana Insurance Company, a
wholly-owned subsidiary of the Company, and Galen. Exhibit 10(x) to the
8-K is incorporated by reference herein.
12 Statement re Computation of Ratio of Earnings to Fixed Charges.
13 1993 Annual Report to Stockholders. The Annual Report shall not be deemed
to be filed with the Commission except to the extent that information is
specifically incorporated herein by reference.
21 List of Subsidiaries, filed herewith.
23 Consent of Coopers & Lybrand, filed herewith.