Humana 2008 Annual Report Download - page 98

Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 and a
maximum leverage ratio. We are in compliance with the financial covenants.
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.
Fair Value
The fair value of our long-term debt was $1,503.4 million at December 31, 2008. The carrying value of our
debt at December 31, 2007 of $1,687.8 million, which was variable, primarily due to our now terminated
interest-rate swap agreements, approximated fair value.
12. DERIVATIVE FINANCIAL INSTRUMENTS
Upon issuance of our senior notes, we entered into interest-rate swap agreements with major financial
institutions to convert our interest-rate exposure on our senior notes from fixed rates to variable rates to more
closely align interest costs with floating interest rates received on our cash equivalents and investment securities.
Our swap agreements, which were considered derivative instruments, exchanged the fixed interest rate under all
our senior notes for a variable interest rate based on LIBOR. The notional amount of the swap agreements was
equal to the par amount of our senior notes. These swap agreements were qualified and designated as a fair value
hedge. The gain or loss on the swap agreements as well as the offsetting loss or gain on the senior notes was
recognized in current earnings. We included the gain or loss on the swap agreements in interest expense, the
same line item as the offsetting loss or gain on the related senior notes. The gain or loss due to hedge
ineffectiveness was not material for 2008, 2007, or 2006. The fair value of our swap agreements of $51.5 million
at December 31, 2007 was included in other long-term assets on the consolidated balance sheet.
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