Humana 2003 Annual Report Download - page 87

Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The carrying value of our 7.25% senior notes has been increased $26.2 million by the remaining deferred swap
gain balance at December 31, 2003.
At December 31, 2003, the $12.8 million fair value of our swap agreements is included in other long-term
assets. Likewise, the carrying value of our senior notes has been increased $12.8 million to reflect its fair value.
The counterparties to our swap agreements are major financial institutions with which we also have other
financial relationships.
Credit Agreements
We maintain two unsecured revolving credit agreements consisting of a $265 million, 4-year revolving
credit agreement and a $265 million, 364-day revolving credit agreement with a one-year term-out option. A one-
year term-out option converts the outstanding borrowings, if any, under the credit agreement to a one-year term
loan upon expiration. The 4-year revolving credit agreement expires in October 2005. In October 2003, we
renewed the 364-day revolving credit agreement which expires in October 2004, unless extended.
There were no balances outstanding under either agreement at December 31, 2003 or 2002. Under these
agreements, at our option, we can borrow on either a competitive advance basis or a revolving credit basis. The
revolving credit portion of both agreements bear interest at either a fixed rate or floating rate based on LIBOR
plus a spread. The spread, which varies depending on our credit ratings, ranges from 80 to 125 basis points for
our 4-year agreement, and 85 to 137.5 basis points for our 364-day agreement. We also pay an annual facility fee
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, and the agreement relating to the conduit commercial paper program described
below, contain customary restrictive and financial covenants as well as customary events of default, including
financial covenants regarding the maintenance of net worth, minimum interest coverage, and maximum leverage
ratios. At December 31, 2003, we were in compliance with all applicable financial covenant requirements. 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.
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.
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. Under the terms of our credit
agreements, aggregate borrowings under both the credit agreements and commercial paper program cannot
exceed $530 million.
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