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Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Interpretation No. 34, or FIN 45. Fin 45 requires that upon issuance of a guarantee, the entity must recognize a
liability for the fair value of the obligation it assumes under that guarantee. FIN 45 requires disclosure about each
guarantee even if the likelihood of the guarantor’s having to make any payments under the guarantee is remote.
The provisions for initial recognition and measurement are effective on a prospective basis for guarantees that are
issued or modified after December 31, 2002. We do not expect the adoption of the recognition provision of
FIN 45 will have a material impact on our financial position, results of operations or cash flows. The disclosure
provisions of FIN 45 are effective for our December 31, 2002 financial statements. See Note 12 for guarantee
disclosures.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an
interpretation of ARB 51, or FIN 46. The primary objectives of FIN 46 are to provide guidance on the
identification of entities for which control is achieved through means other than through voting right (variable
interest entities, or VIEs) and how to determine when and which business enterprise should consolidate the VIE
(the primary beneficiary). The provisions of FIN 46 are effective immediately for VIEs created after January 31,
2003 and no later than July 1, 2003 for VIEs created before February 1, 2003. In addition, FIN 46 requires that
both the primary beneficiary and all other enterprises with a significant variable interest make additional
disclosure in filings issued after January 31, 2003. The adoption of FIN 46 is not expected to have a material
impact on our financial position, results of operations or cash flows.
In January 2003, the FASB issued Statement No. 148, Accounting for Stock-Based Compensation—
Transition and Disclosure, or Statement 148. This Statement amends FASB Statement No. 123, Accounting for
Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation. In addition, Statement 148 amends the
disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee compensation and the effect of the method
used on reported results. See Notes 2 and 9 for our stock option accounting policy and required disclosures. As
now required by Statement 148, these disclosures will be updated each reporting period beginning with the first
quarter of 2003.
3. INVESTMENT SECURITIES
Investment securities classified as current assets at December 31, 2002 and 2001 included the following:
2002 2001
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
(in thousands)
U.S. Government obligations . . $ 469,551 $ 9,379 $ — $ 478,930 $ 374,421 $ 4,254 $ (2,249) $ 376,426
Tax exempt municipal
securities ................ 510,991 13,712 (544) 524,159 637,898 7,706 (2,354) 643,250
Corporate and other
securities ................ 313,868 12,070 (5,597) 320,341 266,931 2,594 (2,878) 266,647
Mortgage-backed securities . . . 13,890 661 — 14,551 904 13 — 917
Redeemable preferred stocks . . 19,887 61 (565) 19,383 29,773 36 (1,597) 28,212
Debt securities .......... 1,328,187 35,883 (6,706) 1,357,364 1,309,927 14,603 (9,078) 1,315,452
Equity securities ............ 52,060 427 (4,018) 48,469 80,275 894 (7,025) 74,144
Investment securities ..... $1,380,247 $36,310 $(10,724) $1,405,833 $1,390,202 $15,497 $(16,103) $1,389,596
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