Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-5975 HUMANA INC. (Exact name of registrant as specified in its charter) Delaware 61-0647538 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 500 West Main Street Louisville, Kentucky 40202 (Address of principal executive offices, including zip code) (502) 580-1000 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol Name of each exchange on which registered Common stock, $0.16 2/3 par value HUM New York Stock Exchange Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 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 ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒ Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date. Class of Common Stock Outstanding at September 30, 2020 $0.16 2/3 par value 132,341,451 shares Table of Contents Humana Inc. FORM 10-Q SEPTEMBER 30, 2020 INDEX Page Part I: Financial Information Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets at September 30, 2020 and December 31, 2019 3 Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2020 and 2019 4 Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2020 and 2019 5 Condensed Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2020 and 2019 6 Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019 8 Notes to Condensed Consolidated Financial Statements 9 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 35 Item 3. Quantitative and Qualitative Disclosures about Market Risk 58 Item 4. Controls and Procedures 58 Part II: Other Information Item 1. Legal Proceedings 59 Item 1A. Risk Factors 59 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 60 Item 3. Defaults Upon Senior Securities 61 Item 4. Mine Safety Disclosures 61 Item 5. Other Information 61 Item 6. Exhibits 62 Signatures 63 Certifications Humana Inc. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) September 30, 2020 December 31, 2019 (in millions, except share amounts) ASSETS Current assets: Cash and cash equivalents $ 7,985 $ 4,054 Investment securities 12,741 10,972 Receivables, less allowance for doubtful accounts of $78 in 2020 and $69 in 2019 1,135 1,056 Other current assets 5,170 3,806 Total current assets 27,031 19,888 Property and equipment, net 2,228 1,955 Long-term investment securities 1,105 406 Equity method investments 1,160 1,063 Goodwill 4,443 3,928 Other long-term assets 2,510 1,834 Total assets $ 38,477 $ 29,074 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Benefits payable $ 8,208 $ 6,004 Trade accounts payable and accrued expenses 4,472 3,754 Book overdraft 214 225 Unearned revenues 287 247 Short-term debt 1,724 699 Total current liabilities 14,905 10,929 Long-term debt 6,059 4,967 Future policy benefits payable 202 206 Other long-term liabilities 1,543 935 Total liabilities 22,709 17,037 Stockholders’ equity: Preferred stock, $1 par; 10,000,000 shares authorized; none issued — — Common stock, $0.16 2/3 par; 300,000,000 shares authorized; 198,648,742 shares issued at September 30, 2020 and 198,629,992 shares issued at December 31, 2019 33 33 Capital in excess of par value 2,940 2,820 Retained earnings 20,872 17,483 Accumulated other comprehensive income 370 156 Treasury stock, at cost, 66,307,291 shares at September 30, 2020 and 66,524,771 shares at December 31, 2019 (8,447) (8,455) Total stockholders’ equity 15,768 12,037 Total liabilities and stockholders’ equity $ 38,477 $ 29,074 See accompanying notes to condensed consolidated financial statements. 3 Humana Inc. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three months ended Nine months ended September 30, September 30, 2020 2019 2020 2019 (in millions, except per share results) Revenues: Premiums $ 18,904 $ 15,712 $ 55,822 $ 47,139 Services 457 393 1,331 1,103 Investment income 714 136 940 351 Total revenues 20,075 16,241 58,093 48,593 Operating expenses: Benefits 15,611 13,357 45,415 40,168 Operating costs 2,513 1,889 6,984 5,252 Depreciation and amortization 128 127 362 343 Total operating expenses 18,252 15,373 52,761 45,763 Income from operations 1,823 868 5,332 2,830 Interest expense 75 62 211 184 Other (income) expense, net (7) (82) 63 (217) Income before income taxes and equity in net earnings 1,755 888 5,058 2,863 Provision for income taxes 450 200 1,485 684 Equity in net earnings 35 1 68 16 Net income $ 1,340 $ 689 $ 3,641 $ 2,195 Basic earnings per common share $ 10.12 $ 5.16 $ 27.53 $ 16.31 Diluted earnings per common share $ 10.05 $ 5.14 $ 27.37 $ 16.24 See accompanying notes to condensed consolidated financial statements. 4 Humana Inc. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Three months ended Nine months ended September 30, September 30, 2020 2019 2020 2019 (in millions) Net income $ 1,340 $ 689 $ 3,641 $ 2,195 Other comprehensive income: Change in gross unrealized investment gains/losses 66 87 332 452 Effect of income taxes (15) (20) (78) (105) Total change in unrealized investment gains/losses, net of tax 51 67 254 347 Reclassification adjustment for net realized gains (1) (1) (48) (7) Effect of income taxes — — 10 2 Total reclassification adjustment, net of tax (1) (1) (38) (5) Other comprehensive income, net of tax 50 66 216 342 Comprehensive income (loss) attributable to equity method investments 3 (1) (2) (6) Comprehensive income $ 1,393 $ 754 $ 3,855 $ 2,531 See accompanying notes to condensed consolidated financial statements. 5 Humana Inc. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) Accumulated Common Stock Capital In Other Total Issued Excess of Retained Comprehensive Treasury Stockholders’ Shares Amount Par Value Earnings Income (Loss) Stock Equity (dollars in millions, share amounts in thousands) Three months ended September 30, 2020 Balances, June 30, 2020 198,630 $ 33 $ 2,898 $ 19,616 $ 317 $ (8,448) $ 14,416 Net income 1,340 1,340 Other comprehensive loss 53 53 Common stock repurchases 19 — (5) (5) Dividends and dividend equivalents (84) (84) Stock-based compensation 47 47 Restricted stock unit vesting — (6) 6 — Stock option exercises — 1 — 1 Balances, September 30, 2020 198,649 $ 33 $ 2,940 $ 20,872 $ 370 $ (8,447) $ 15,768 Three months ended September 30, 2019 Balances, June 30, 2019 198,628 $ 33 $ 2,763 $ 16,429 $ 112 $ (7,465) $ 11,872 Net income 689 689 Other comprehensive income 65 65 Common stock repurchases — (200) (800) (1,000) Dividends and dividend equivalents (73) (73) Stock-based compensation 43 43 Restricted stock unit vesting — — — — Stock option exercises 1 2 3 5 Balances, September 30, 2019 198,629 $ 33 $ 2,608 $ 17,045 $ 177 $ (8,262) $ 11,601 See accompanying notes to condensed consolidated financial statements. 6 Humana Inc. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY — (Continued) (Unaudited) Common Stock Accumulated Capital In Other Total Issued Excess of Retained Comprehensive Treasury Stockholders’ Shares Amount Par Value Earnings Income (Loss) Stock Equity (dollars in millions, share amounts in thousands) Nine months ended September 30, 2020 Balances, December 31, 2019 198,630 $ 33 $ 2,820 $ 17,483 $ 156 $ (8,455) $ 12,037 Net income 3,641 3,641 Impact of adopting ASC 326 - Current expected credit loss standard (CECL) (2) (2) Other comprehensive income 214 214 Common stock repurchases 19 — (30) (30) Dividends and dividend equivalents (250) (250) Stock-based compensation 129 129 Restricted stock unit vesting — (21) 21 — Stock option exercises — 12 17 29 Balances, September 30, 2020 198,649 $ 33 $ 2,940 $ 20,872 $ 370 $ (8,447) $ 15,768 Nine months ended September 30, 2019 Balances, December 31, 2018 198,595 $ 33 $ 2,535 $ 15,072 $ (159) $ (7,320) $ 10,161 Net income 2,195 2,195 Other comprehensive loss 336 336 Common stock repurchases — (50) (960) (1,010) Dividends and dividend equivalents (222) (222) Stock-based compensation 119 119 Restricted stock unit vesting 32 (3) 3 — Stock option exercises 2 7 15 22 Balances, September 30, 2019 198,629 $ 33 $ 2,608 $ 17,045 $ 177 $ (8,262) $ 11,601 7 Humana Inc.