Humana 2004 Annual Report Download - page 49

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monitor an entity’s solvency. This calculation indicates recommended minimum levels of required capital and
surplus and signals regulatory measures should actual surplus fall below these recommended levels. If RBC were
adopted by all states at December 31, 2004, each of our subsidiaries would be in compliance and we would have
$405.6 million of aggregate capital and surplus above any of the levels that require corrective action under RBC.
Contractual Obligations
We are contractually obligated to make payments for years subsequent to December 31, 2004 as follows:
Payments Due by Period
Total
Less than
1 Year 1-3 Years 3-5 Years
More than
5 Years
(in thousands)
Debt(1) ................................... $ 898,288 $ 648 $301,114 $295,080 $301,446
Interest(2) ................................. 229,563 43,439 56,804 40,518 88,802
Operating leases(3) .......................... 232,654 65,088 84,931 52,775 29,860
Purchase and other obligations(4) ............... 43,787 27,693 13,154 2,044 896
Total ............................. $1,404,292 $136,868 $456,003 $390,417 $421,004
(1) Debt includes $294 million of borrowings under the Credit Agreement which matures on September 28,
2009 related to the February 16, 2005 CarePlus acquisition. Debt payments could be accelerated upon
violation of debt covenants. We believe the likelihood of debt covenant violation is remote.
(2) Interest includes the estimated contractual interest payments under our debt agreements net of the effect of
the associated swapagreements assuming no change in the variable LIBOR rate as of December 31, 2004.
(3) We lease facilities, computer hardware, and other equipment under long-term operating leases that are
noncancelable and expire on various dates through 2017. We sublease facilities or partial facilities to third
party tenants for space not used in our operations which partially mitigates our operating lease
commitments. An operating lease, accounted for under the provisions of Statement of Financial Accounting
Standards No. 13, Accounting for Leases, is a type of off-balance sheet arrangement. Assuming we acquired
the asset, rather than leased, we would have recognized a liability for the financing of these assets. See also
Note 14 to the consolidated financial statements.
(4) Purchase and other obligations include agreements to purchase services, primarily information technology
related services, or to make improvements to real estate that are enforceable and legally binding on us and
that specify all significant terms, including: fixed or minimum levels of service to be purchased; fixed,
minimum or variable price provisions; and the appropriate timing of the transaction. Purchase obligations
exclude agreements that are cancelable without penalty.
Indemnifications and Guarantees
Our operating lease of an airplane, which expires January 1, 2010, provides for a residual value payment of
no more than $4.8 million at the end of the lease term. At the end of the term we have the right to exercise a
purchase option or the airplane can be sold to a third party. If we decide not to exercise our purchase option, we
must pay the lessor a maximum amount of $4.8 million. This amount will be reduced by the net sales proceeds in
excess of $4.2 million from the sale of the airplane to a third party.
Through indemnity agreements approved by the state regulatory authorities, certain of our regulated
subsidiaries generally are guaranteed by Humana Inc., our parent company, in the event of insolvency for (1),
member coverage for which premium payment has been made prior to insolvency; (2), benefits for members then
hospitalized until discharged; and (3), payment to providers for services rendered prior to insolvency. Our parent
also has guaranteed the obligations of our TRICARE subsidiaries.
In the ordinary course of business, we enter into contractual arrangements under which we may agree to
indemnify a third party to such arrangement from any losses incurred relating to the services they perform on
behalf of us, or for losses arising from certain events as defined within the particular contract, which may
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