Humana 2006 Annual Report Download - page 121

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Humana Inc.
SCHEDULE I—PARENT COMPANY FINANCIAL INFORMATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Parent company financial information has been derived from our consolidated financial statements and
excludes the accounts of all operating subsidiaries. This information should be read in conjunction with our
consolidated financial statements.
We adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment,or
SFAS 123R, on January 1, 2006. We have adjusted prior period amounts to reflect the effect of expensing stock
awards under the modified retrospective application method of SFAS 123R as discussed in Note 11 of the notes
to consolidated financial statements in the Annual Report on Form 10-K.
2. TRANSACTIONS WITH SUBSIDIARIES
Management Fee
Through intercompany service agreements approved, if required, by state regulatory authorities, Humana
Inc., our parent company, charges a management fee for reimbursement of certain centralized services provided
to its subsidiaries including information systems, disbursement, investment and cash administration, marketing,
legal, finance, and medical and executive management oversight.
Dividends
Cash dividends received from subsidiaries and included as a component of net cash provided by operating
activities were $247.5 million in 2006, $236.0 million in 2005 and $126.0 million in 2004.
Guarantee
Through indemnity agreements approved by state regulatory authorities, certain of our regulated
subsidiaries generally are guaranteed by 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 has also
guaranteed the obligations of our TRICARE subsidiaries.
Notes Receivables from Operating Subsidiaries
We funded certain subsidiaries with surplus note agreements. These notes are generally non-interest bearing
and may not be entered into or repaid without the prior approval of the applicable Departments of Insurance.
Notes Payable to Operating Subsidiaries
We borrowed funds from certain subsidiaries with notes generally collateralized by real estate. These notes,
which have various payment and maturity terms, bear interest ranging from 5.65% to 6.65% and are payable
between 2007 and 2009. We recorded interest expense of $2.6 million, $2.2 million and $1.7 million related to
these notes for the years ended December 31, 2006, 2005 and 2004, respectively.
3. REGULATORY REQUIREMENTS
Certain of our subsidiaries operate in states that regulate the payment of dividends, loans, or other cash
transfers to Humana Inc., our parent company, and require minimum levels of equity as well as limit investments
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