Humana 2010 Annual Report Download - page 65

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Income Taxes
Our effective tax rate for 2009 of 35.1% compared to the effective tax rate of 34.8% for 2008. The increase
was due to a lower proportion of tax exempt investment income to pretax income substantially offset by the
reduction of the $16.8 million liability for unrecognized tax benefits in the first quarter of 2009 as a result of
audit settlements. See Note 10 to the consolidated financial statements included in Item 8.—Financial Statements
and Supplementary Data for a complete reconciliation of the federal statutory rate to the effective tax rate.
Liquidity
Our primary sources of cash include receipts of premiums, ASO fees, and investment and other income, as
well as proceeds from the sale or maturity of our investment securities and borrowings. Our primary uses of cash
include disbursements for claims payments, SG&A expenses, interest on borrowings, taxes, purchases of
investment securities, acquisitions, capital expenditures, repayments on borrowings, and share repurchases.
Because premiums generally are collected in advance of claim payments by a period of up to several months, our
business normally should produce positive cash flows during periods of increasing premiums and enrollment.
Conversely, cash flows would be negatively impacted during periods of decreasing premiums and enrollment.
The use of operating cash flows may be limited by regulatory requirements which require, among other items,
that our regulated subsidiaries maintain minimum levels of capital.
Cash and cash equivalents increased to $1,673.1 million at December 31, 2010 from $1,613.6 million at
December 31, 2009. The change in cash and cash equivalents for the years ended December 31, 2010, 2009 and
2008 is summarized as follows:
2010 2009 2008
(in thousands)
Net cash provided by operating activities ............. $2,241,794 $ 1,421,582 $ 982,310
Net cash used in investing activities ................. (1,810,989) (1,859,261) (498,324)
Net cash (used in) provided by financing activities ...... (371,256) 80,844 (554,016)
Increase (decrease) in cash and cash equivalents ........ $ 59,549 $ (356,835) $ (70,030)
Cash Flow from Operating Activities
The increase in operating cash flows over the three year period primarily results from the corresponding
change in earnings, enrollment activity, and changes in working capital items. Cash flows were positively
impacted by Medicare enrollment gains in 2010 because premiums generally are collected in advance of claim
payments by a period of up to several months. Conversely, during 2009, cash flows were negatively impacted by
the payment of run-off claims associated with enrollment losses in our stand-alone PDP business. Our 2008
operating cash flows and earnings were impacted by significantly higher prescription drug claim payments for
our Medicare stand-alone PDPs.
Comparisons of our operating cash flows also are impacted by other changes in our working capital. The
most significant drivers of changes in our working capital are typically the timing of payments of benefit
expenses and receipts for premiums. We illustrate these changes with the following summaries of benefits
payable and receivables.
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