Humana 2006 Annual Report Download - page 71

year, approximately 97% are within 5% of recovering fair value up to cost. No single issue was below cost by
more than 15%. The unrealized losses at December 31, 2006 primarily were caused by increases in interest rates.
All issuers of securities trading at an unrealized loss remain current on all contractual payments and we believe it
is probable that we will be able to collect all amounts due according to the contractual terms of the debt
securities. After taking into account these and other factors, including the severity of the decline and our ability
and intent to hold these securities until recovery or maturity, we determined the unrealized losses on these
investment securities were temporary and, as such, no impairment was required.
There were impairment losses of $0.2 million in 2006, and none in 2005 or 2004.
Goodwill and Long-lived Assets
At December 31, 2006, goodwill and other long-lived assets represented 19% of total assets and 64% of
total stockholders’ equity.
SFAS No. 142, Goodwill and Other Intangible Assets, requires that we not amortize goodwill to earnings,
but instead that we test goodwill at least annually for impairment at a level of reporting referred to as the
reporting unit and more frequently if adverse events or changes in circumstances indicate that the asset may be
impaired. A reporting unit is one level below our Commercial and Government segments. The Commercial
segment’s two reporting units consist of medical (fully and self insured) and specialty. The Government
segment’s three reporting units consist of Medicare, TRICARE and Medicaid. Goodwill is assigned to the
reporting unit that is expected to benefit from a specific acquisition.
Our strategy, long-range business plan, and annual planning process support our goodwill impairment tests.
These tests are based primarily on an evaluation of future discounted cash flows under several scenarios.
Outcomes from the discounted cash flow analysis were compared to other market approach valuation
methodologies for reasonableness. We used a range of discount rates that correspond to a market-based
weighted-average cost of capital. Key assumptions, including changes in membership, premium yields, medical
cost trends and certain government contract extensions, are consistent with those utilized in our long-range
business plan and annual planning process. If these assumptions differ from actual, the estimates underlying our
goodwill impairment tests could be adversely affected. Goodwill impairment tests completed in each of the last
three years did not result in an impairment loss.
Long-lived assets consist of property and equipment and other finite-lived intangible assets. These assets are
depreciated or amortized over their estimated useful life, and are subject to impairment reviews. We periodically
review long-lived assets whenever adverse events or changes in circumstances indicate the carrying value of the
asset may not be recoverable. In assessing recoverability, we must make assumptions regarding estimated future
cash flows and other factors to determine if an impairment loss may exist, and, if so, estimate fair value. We also
must estimate and make assumptions regarding the useful life we assign to our long-lived assets. If these
estimates or their related assumptions change in the future, we may be required to record impairment losses or
change the useful life, including accelerating depreciation or amortization for these assets. There were no
impairment losses in 2006 or 2005. We recognized losses due to accelerated depreciation from changes in
estimated useful life of $9.3 million in 2004. See Note 6 to the consolidated financial statements included in
Item 8.—Financial Statements and Supplementary Data.
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