Fitch Affirms Humana's Ratings.Business EditorsNEW YORK--(BUSINESS WIRE)--May 15, 2001 Fitch affirms its 'BBB' bank credit facility and long term issuer rating of Humana Inc. (Humana). At the same time, Fitch affirms Humana's commercial paper rating of 'F2'. The Rating Outlook is Stable. Humana's ratings reflect the company's good balance sheet fundamentals and large, well diversified health operations. Humana's operations are conducted primarily through 6 insurance and 10 HMO HMO health maintenance organization. HMO n. A corporation that is financed by insurance premiums and has member physicians and professional staff who provide curative and preventive medicine within certain financial, subsidiaries which have established strong competitive positions in several markets and product lines. The subsidiaries are subject to a high degree of regulation that varies significantly by market and product line. Fitch's ratings reflect the competitive market conditions and the potential for adverse regulatory and legal issues that face Humana and the health care industry as a whole. Humana is in a transitional period, with a focus on reducing the non-core segments of its business to improve profitability. The non-core businesses include select parts of Medicare and Medicaid Medicare and Medicaid U.S. government programs in effect since 1966. Medicare covers most people 65 or older and those with long-term disabilities. Part A, a hospital insurance plan, also pays for home health visits and hospice care. , and small group and large group commercial business that have been unprofitable due to lack of critical size, market presence, or inadequate pricing potential. The company is concentrating on the lines of business that provide steady performance, good profitability, growth potential and significant contracting leverage. In addition, the profitability initiatives include adequate re-pricing and the elimination of ineffective risk arrangements with its providers. Profitability improved considerably in 2000, with GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). pretax income pretax income Reported income before the deduction of income taxes. Pretax income is sometimes considered a better measure of a firm's performance than aftertax income because taxes in one period may be influenced by activities in earlier periods. of $114 million compared with a pretax loss pretax loss A loss reported before tax benefits are considered. of $404 million in 1999. The losses in 1999 occurred mainly from a $340 million write-down in goodwill and a $120 million loss associated with the sale of its workers comp comp See comparison. business. Humana's pretax pre·tax adj. Existing before tax deductions: pretax income. pretax adj [profit] → vor (Abzug der) Steuern operating margin Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: of 1.0% in 2000 is expected to improve, ranging between 1.8% and 2.0% for year-end 2001. The company's first quarter 2001 pretax income of $42 million was an increase 56% over the $27 million earned during the same period in 2000. Financial leverage, as measured by the ratio of total debt to capital, was 30% at year-end 2000, down from 35% at year-end 1999. Fitch expects it to trend downward, ranging between 25% and 27% by year-end 2001. Outstanding debt at year-end consisted of $520 million of bank debt and $80 million of commercial paper. The commercial paper program is backed 100% by a $1 billion line of credit that expires in August 2002. Fitch considers Humana's operating subsidiaries An operating subsidiary is a business term frequently used within the United States railroad industry. In the case of a railroad, it refers to a company that is a subsidiary but operates with its own identity and rolling stock. to be adequately capitalized relative to statutory requirements and to have good dividend capacity. Based on this, Fitch anticipates consolidated GAAP based EBIT/interest coverage to be in the 5 times (x) to 6x range in 2001. Humana Inc. -- Bank credit facility and long term issuer 'BBB', -- Commercial Paper, 'F2'. |
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