Humana 2008 Annual Report Download - page 60

also pay an annual facility fee regardless of utilization. This facility fee, currently 10 basis points, may fluctuate
between 8 and 20 basis points, depending upon our credit ratings. In addition, a utilization fee of 10 basis points
is payable for each day in which borrowings under the facility exceed 50% of the total $1.0 billion commitment.
The competitive advance portion of any borrowings will bear interest at market rates prevailing at the time of
borrowing on either a fixed rate or a floating rate based on LIBOR, at our option.
The terms of the credit agreement include standard provisions related to conditions of borrowing, including
a customary material adverse event clause which could limit our ability to borrow additional funds. In addition,
the credit agreement contains customary restrictive and financial covenants as well as customary events of
default, including financial covenants regarding the maintenance of a minimum level of net worth of $2,868.1
million at December 31, 2008 and a maximum leverage ratio of 3.0:1. We are in compliance with the financial
covenants, with actual net worth of $4,457.2 million and a leverage ratio of 1.4:1, as measured in accordance
with the credit agreement as of December 31, 2008.
At December 31, 2008, we had $250 million of borrowings outstanding under the credit agreement at an
interest rate, which varies with LIBOR, of 0.98%. In addition, we have outstanding letters of credit of $3.1
million secured under the credit agreement. No amounts have ever been drawn on these letters of credit.
Accordingly, as of December 31, 2008, we had $746.9 million of remaining borrowing capacity under the credit
agreement, none of which would be restricted by our financial covenant compliance requirement. We have other
customary, arms-length relationships, including financial advisory and banking, with some parties to the credit
agreement.
Other Long-Term Borrowings
Other long-term borrowings of $38.1 million at December 31, 2008 represent junior subordinated debt
assumed in the 2007 KMG acquisition of $36.1 million and financing for the renovation of a building of $2.0
million. The junior subordinated debt, which is due in 2037, may be called by us in 2012 and bears a fixed annual
interest rate of 8.02% payable quarterly until 2012, and then payable at a floating rate based on LIBOR plus 310
basis points. The debt associated with the building renovation bears interest at 2.00%, is collateralized by the
building, and is payable in various installments through 2014.
Liquidity Requirements
We believe our cash balances, investment securities, operating cash flows, and funds available under our
credit agreement or from other public or private financing sources, taken together, provide adequate resources to
fund ongoing operating and regulatory requirements, future expansion opportunities, and capital expenditures in
the foreseeable future, and to refinance debt as it matures. See the section entitled “Risk Factors” in this report.
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, 2008 was BBB according
to Standard & Poor’s Rating Services, or S&P, and Baa3 according to Moody’s Investors Services, Inc., or
Moody’s. A downgrade by S&P to BB+ or by Moody’s to Ba1 triggers an interest rate increase of 25 basis points
with respect to $750 million of our senior notes. Successive one notch downgrades increase the interest rate an
additional 25 basis points up to a maximum 100 basis points.
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
subject to regulatory restrictions. Cash, cash equivalents and short-term investments at the parent company
decreased $285.2 million to $250.5 million at December 31, 2008 compared to $535.7 million at December 31,
2007, primarily due to cash consideration paid for our 2008 acquisitions. We continue to maintain significant
levels of aggregate excess statutory capital and surplus in our state-regulated operating subsidiaries. Subject to
appropriate regulatory approval, we expect to dividend approximately $500 million from our subsidiaries to the
parent during 2009 compared to $296.0 million in 2008. In addition, we expect capital contributions to our
subsidiaries to be less than the $242.8 million contributed in 2008.
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