Humana 2010 Annual Report Download - page 114

Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The terms of the new 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 $5,257.9
million at December 31, 2010 and a maximum leverage ratio of 3.0:1. We are in compliance with the financial
covenants, with actual net worth of $6,924.1 million and a leverage ratio of 0.8:1, as measured in accordance
with the credit agreement as of December 31, 2010. In addition, the new credit agreement includes an
uncommitted $250 million incremental loan facility.
At December 31, 2010, we had no borrowings outstanding under the credit agreement. We have outstanding
letters of credit of $10.4 million secured under the credit agreement. No amounts have ever been drawn on these
letters of credit. Accordingly, as of December 31, 2010, we had $989.6 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 $37.0 million at December 31, 2010 represent junior subordinated debt of
$36.1 million and financing for the renovation of a building of $0.9 million. The junior subordinated debt, which
is due in 2037, may be called by us without penalty 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.
12. DERIVATIVE FINANCIAL INSTRUMENTS
We entered into interest-rate swap agreements with major financial institutions upon issuance of our senior
notes. These 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.
During 2008, we terminated all of our interest-rate swap agreements for cash consideration of $93.0 million.
We recognized a $10.4 million impairment charge as a realized investment loss associated with the termination
of a swap with a subsidiary of Lehman, which subsequently filed for bankruptcy protection.
13. EMPLOYEE BENEFIT PLANS
Employee Savings Plan
We have defined contribution retirement and savings plans covering eligible employees. Our contribution to
these plans is based on various percentages of compensation, and in some instances, on the amount of our
employees’ contributions to the plans. The cost of these plans amounted to approximately $108.6 million in
2010, $109.5 million in 2009, and $79.6 million in 2008, all of which was funded currently to the extent it was
deductible for federal income tax purposes. The Company’s cash match is invested pursuant to the participant’s
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