Humana 2002 Annual Report Download - page 47

regardless of utilization. This facility fee, currently 25 basis points, may fluctuate between 15 and 50 basis
points, depending upon our credit ratings. The competitive advance portion of any borrowings under either credit
agreement will bear interest at market rates prevailing at the time of borrowing on either a fixed rate or a floating
rate basis, at our option.
These credit agreements contain customary restrictive and financial covenants as well as customary events
of default, including financial covenants regarding the maintenance of net worth, and minimum interest coverage
and maximum leverage ratios. The terms of each of these credit agreements also include standard provisions
related to conditions of borrowing, including a customary material adverse effect clause which could limit our
ability to borrow. We have not experienced a material adverse effect and we know of no circumstances or events
which would be reasonably likely to result in a material adverse effect. We do not believe the material adverse
effect clause poses a material funding risk to Humana in the future. The minimum net worth requirement was
$1,163.4 million at December 31, 2002 and increases by 50% of consolidated net income each quarter. The
minimum interest coverage ratio is generally calculated by dividing interest expense into earnings before interest
and tax expense, or EBIT. The maximum leverage ratio is generally calculated by dividing debt into earnings
before interest, taxes, depreciation and amortization expense, or EBITDA. EBIT and EBITDA used to calculate
compliance with these financial covenants is based upon four consecutive quarters. The current minimum interest
coverage ratio of 3.5, increases to 4.0 effective December 31, 2003. The current maximum leverage ratio of
2.75 declines to 2.5 effective December 31, 2003. At December 31, 2002, our net worth of $1,606.5 million,
interest coverage ratio of 13.7, and leverage ratio of 1.7 were all in compliance with the applicable requirements.
Additionally, we would have been in compliance assuming the more restrictive future financial covenant
requirements were applicable at December 31, 2002.
Commercial Paper Programs
We maintain indirect access to the commercial paper market through our conduit commercial paper
financing program. Under this program, a third party issues commercial paper and loans the proceeds of those
issuances to us so that the interest and principal payments on the loans match those on the underlying commercial
paper. The $265 million, 364-day revolving credit agreement supports the conduit commercial paper financing
program of up to $265 million. The weighted average interest rate on our conduit commercial paper borrowings
was 1.76% at December 31, 2002. The carrying value of these borrowings approximates fair value as the interest
rate on the borrowings varies at market rates.
We also maintain and may issue short-term debt securities under a commercial paper program when market
conditions allow. The program is backed by our credit agreements described above. Aggregate borrowing under
both the credit agreements and commercial paper program cannot exceed $530 million.
Other Borrowings
Other borrowings of $5.5 million at December 31, 2002 represent financing for the renovation of a building,
bear interest at 2% and are payable in various installments through 2014.
Shelf Registration
On October 8, 2002, we filed a universal shelf registration with the SEC to register debt or equity securities,
from time to time, up to a total of $600 million, with the amount, price and terms to be determined at the time of
the sale. Once it becomes effective, we will have the ability to use the net proceeds from any future sales of our
securities for our operations and for other general corporate purposes, including repayment or refinancing of
borrowings, working capital, capital expenditures, investments, acquisitions, or the repurchase of our outstanding
securities.
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