Humana 2007 Annual Report Download - page 60

(2) We lease facilities, computer hardware, and other equipment under long-term operating leases that are
noncancelable and expire on various dates through 2018. 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 SFAS No. 13, Accounting for
Leases, is a type of off-balance sheet arrangement. Assuming we acquired the asset, rather than leased such
asset, we would have recognized a liability for the financing of these assets. See also Note 14 to the
consolidated financial statements included in Item 8.—Financial Statements and Supplementary Data.
(3) Purchase obligations include agreements to purchase services, primarily information technology related
services, or to make improvements to real estate, in each case 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.
(4) Excludes future policy benefits payable ceded to third parties through a 100% coinsurance agreement as
more fully described in Note 16 to the consolidated financial statements included in Item 8.—Financial
Statements and Supplementary Data. The reinsurance carrier, not us, is responsible for cash flows associated
with the reinsured contract. Our reinsured reserves are supported by reinsurance recoverables included in
other long-term assets. Our potential liability is limited to the credit exposure which exists should the
reinsurer be unable to meet its obligations assumed under these reinsurance arrangements. We evaluate the
financial condition of these reinsurers on a regular basis.
Off-Balance Sheet Arrangements
As part of our ongoing business, we do not participate or knowingly seek to participate in transactions that
generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as
structured finance or special purpose entities (SPEs), which would have been established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of
December 31, 2007, we are not involved in any SPE transactions.
Guarantees and Indemnifications
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 military services 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
include, for example, litigation or claims relating to past performance. Such indemnification obligations may not
be subject to maximum loss clauses. Historically, payments made related to these indemnifications have been
immaterial.
Related Parties
No related party transactions had a material effect on our financial position, results of operations, or cash
flows. Certain related party transactions not having a material effect are discussed in our Proxy Statement for the
meeting to be held April 24, 2008—see “Certain Transactions with Management and Others.”
Government Contracts
Our Medicare business, which accounted for approximately 60% of our total premiums and ASO fees for
the year ended December 31, 2007, primarily consisted of products covered under the Medicare Advantage and
Medicare Part D Prescription Drug Plan contracts with the federal government. These contracts are renewed
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