Humana 2010 Annual Report Download - page 69

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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.
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 for
at least the next twelve months, as well as to refinance or repay debt and repurchase shares.
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, 2010 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
decreased $112.0 million to $553.6 million at December 31, 2010 compared to $665.6 million at December 31,
2009, primarily due to cash paid for the Concentra acquisition partially offset by dividends from our subsidiaries.
We continue to maintain significant levels of aggregate excess statutory capital and surplus in our state-regulated
operating subsidiaries. During 2010, our subsidiaries paid dividends of $746.6 million to the parent compared to
$774.1 million in 2009 and $296.0 million in 2008. In addition, the parent made capital contributions to our
subsidiaries of $230.0 million in 2010 compared to $132.3 million in 2009 and $242.8 million in 2008. The
parent paid cash to fund acquisitions of $839.6 million in 2010, $5.9 million in 2009, and $566.3 million in 2008
primarily related to the Concentra acquisition in 2010 and the SecureHorizons, OSF, and Cariten acquisitions in
2008.
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