Humana 2009 Annual Report Download - page 61

spread, currently 50 basis points, varies depending on our credit ratings ranging from 27 to 80 basis points. We
also pay an annual facility fee regardless of utilization. This facility fee, currently 12.5 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 $3,387.9
million at December 31, 2009 and a maximum leverage ratio of 3.0:1. We are in compliance with the financial
covenants, with actual net worth of $5,776.0 million and a leverage ratio of 0.8:1, as measured in accordance
with the credit agreement as of December 31, 2009.
At December 31, 2009, we had no borrowings outstanding under the credit agreement. We have outstanding
letters of credit of $3.5 million secured under the credit agreement. No amounts have ever been drawn on these
letters of credit. Accordingly, as of December 31, 2009, we had $996.5 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 $37.5 million at December 31, 2009 represent junior subordinated debt
assumed in the 2007 KMG acquisition of $36.1 million and financing for the renovation of a building of $1.4
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 or repay debt. 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, 2009 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, or annual interest expense by $1.9 million, up to a maximum 100 basis points, or
annual interest expense by $7.5 million.
In addition, we operate as a holding company in a highly regulated industry. The 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 increased $415.1
million to $665.6 million at December 31, 2009 compared to $250.5 million at December 31, 2008. We continue to
maintain significant levels of aggregate excess statutory capital and surplus in our state-regulated operating
subsidiaries. During 2009, our subsidiaries paid dividends of $774.1 million to the parent compared to $296.0
million in 2008 and $377.0 million in 2007. In addition, the parent made capital contributions to our subsidiaries of
$132.3 million in 2009 compared to $242.8 million in 2008 and $307.3 million in 2007.
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