Humana 2010 Annual Report Download - page 113

Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Our U.S. income tax returns for 2007 and 2008 are currently under examination by the Internal Revenue
Service (IRS). Beginning with the 2009 tax year, as well as 2010, we are participating in the Compliance
Assurance Process (CAP) with the IRS. Under CAP, the IRS does advance reviews during the tax year and as the
return is being prepared for filing, thereby reducing the need for post-filing examinations. We expect the IRS will
conclude its audits of the 2007, 2008, 2009 and 2010 tax years during 2011. As of December 31, 2010, we are
not aware of any material adjustments the IRS may propose.
11. DEBT
The carrying value of long-term debt outstanding was as follows at December 31, 2010 and 2009:
2010 2009
(in thousands)
Long-term debt:
Senior notes:
$500 million, 6.45% due June 1, 2016 ........ $ 535,342 $ 540,907
$500 million, 7.20% due June 15, 2018 ....... 508,005 508,799
$300 million, 6.30% due August 1, 2018 ...... 321,622 323,862
$250 million, 8.15% due June 15, 2038 ....... 266,892 267,070
Total senior notes .................... 1,631,861 1,640,638
Other long-term borrowings ................ 36,988 37,528
Total long-term debt .............. $1,668,849 $1,678,166
Senior Notes
Our senior notes, which are unsecured, may be redeemed at our option at any time at 100% of the principal
amount plus accrued interest and a specified make-whole amount. The 7.20% and 8.15% senior notes are subject
to an interest rate adjustment if the debt ratings assigned to the notes are downgraded (or subsequently upgraded)
and contain a change of control provision that may require us to purchase the notes under certain circumstances.
We had been parties to interest-rate swap agreements to exchange the fixed interest rate under our senior
notes for a variable interest rate based on LIBOR. As a result, the carrying value of the senior notes had been
adjusted to reflect changes in value caused by an increase or decrease in interest rates. During 2008, we
terminated all of our swap agreements. The cumulative adjustment to the carrying value of our senior notes was
$103.4 million as of the termination date which is being amortized as a reduction to interest expense over the
remaining term of the senior notes, resulting in a weighted-average effective interest rate fixed at 6.08%. The
unamortized carrying value adjustment was $83.8 million as of December 31, 2010 and $92.9 million as of
December 31, 2009.
Credit Agreement
In December 2010, we replaced our 5-year $1.0 billion unsecured revolving credit agreement which was set
to expire in July 2011 with a 3-year $1.0 billion unsecured revolving agreement expiring December 2013. Under
the new credit agreement, at our option, we can borrow on either a competitive advance basis or a revolving
credit basis. The revolving credit portion bears interest at either LIBOR or the base rate plus a spread. The
spread, currently 200 basis points, varies depending on our credit ratings ranging from 150 to 262.5 basis points.
We also pay an annual facility fee regardless of utilization. This facility fee, currently 37.5 basis points, may
fluctuate between 25 and 62.5 basis points, depending upon our credit ratings. 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.
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