Humana 2005 Annual Report Download - page 58

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. At this time, we do not believe the
material adverse effect clause poses a material funding risk to us. We have other relationships, including
financial advisory and banking, with some of the parties to the credit agreement.
At December 31, 2005, we had $200 million of borrowings under the credit agreement outstanding at an
interest rate of 5.04%. In addition, we have outstanding letters of credit of $35.1 million secured under the credit
agreement. No amounts have ever been drawn on these letters of credit. As of December 31, 2005, we had $364.9
million of remaining borrowing capacity under the credit agreement.
Commercial Paper Program
We maintain and may issue short-term debt securities under a commercial paper program when market
conditions allow. The program is backed by our credit agreement described above. Aggregate borrowings under
both the credit agreement and commercial paper program generally may not exceed $600 million.
At December 31, 2005 and 2004, we had no commercial paper borrowings outstanding.
Other Borrowings
Other borrowings of $3.6 million at December 31, 2005 represent financing for the renovation of a building,
bear interest at 2% per annum, are collateralized by the building, and are payable in various installments through
2014.
Shelf Registration
Our universal shelf registration with the Securities and Exchange Commission allows us to register the sale
of debt or equity securities, from time to time, with the amount, price and terms to be determined at the time of
the sale. We have up to $300 million remaining from a total of $600 million under the universal shelf
registration. The net proceeds from any future sales of our debt securities under the universal shelf registration
may be used 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. Given revised rules relating to universal shelf registration statements, we are exploring our options to
file a new shelf registration statement.
Liquidity Requirements
We believe our cash balances, investment securities, operating cash flows, access to debt and equity markets
and borrowing capacity, taken together, provide adequate resources to fund ongoing operating and regulatory
requirements and fund future expansion opportunities and capital expenditures in the foreseeable future.
Adverse changes in our credit rating may increase the rate of interest we pay and may impact the amount of
credit available to us in the future. Our investment-grade credit rating at December 31, 2005 was Baa3 according
to Moody’s Investors Services, Inc., or Moody’s, and BBB, according to Standard & Poor’s Ratings Services, or
S&P. A downgrade to Ba2 or lower by Moody’s and BB or lower by S&P would give the counterparties of three
of our interest rate swap agreements with a $300 million notional amount, the right, but not the obligation, to
cancel the interest rate swap agreement. If cancelled, we would pay or receive an amount based on the fair
market value of the swap agreement. Assuming these swap agreements had been cancelled on December 31,
2005, we would have received $5.8 million, net, and future net interest payments would increase assuming
LIBOR does not change. Other than the swap agreements, adverse changes in our credit ratings may not create,
increase, or accelerate any liabilities.
In addition, we operate as a holding company in a highly regulated industry. Our parent company is
dependent upon dividends and administrative expense reimbursements from our subsidiaries, most of which are
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