Humana 2013 Annual Report Download - page 113

Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
securities or discounted cash flow analyses, incorporating inputs that are currently observable in the markets for
similar securities. Inputs that are often used in the valuation methodologies include benchmark yields, reported
trades, credit spreads, broker quotes, default rates, and prepayment speeds. We are responsible for the
determination of fair value and as such we perform analysis on the prices received from the third party pricing
service to determine whether the prices are reasonable estimates of fair value. Our analysis includes a review of
monthly price fluctuations as well as a quarterly comparison of the prices received from the pricing service to
prices reported by our third party investment advisor. In addition, on a quarterly basis we examine the underlying
inputs and assumptions for a sample of individual securities across asset classes, credit rating levels, and various
durations.
Fair value of privately held debt securities, as well as auction rate securities, are estimated using a variety of
valuation methodologies, including both market and income approaches, where an observable quoted market
does not exist and are generally classified as Level 3. For privately-held debt securities, such methodologies
include reviewing the value ascribed to the most recent financing, comparing the security with securities of
publicly-traded companies in similar lines of business, and reviewing the underlying financial performance
including estimating discounted cash flows. Auction rate securities are debt instruments with interest rates that
reset through periodic short-term auctions. From time to time, liquidity issues in the credit markets have led to
failed auctions. Given the liquidity issues, fair value could not be estimated based on observable market prices,
and as such, unobservable inputs were used. For auction rate securities, valuation methodologies include
consideration of the quality of the sector and issuer, underlying collateral, underlying final maturity dates, and
liquidity.
Recently Issued Accounting Pronouncements
There are no recently issued accounting standards that apply to us or that will have a material impact on our
results of operations, financial condition, or cash flows.
3. ACQUISITIONS
On September 6, 2013, we acquired American Eldercare Inc., or American Eldercare, the largest provider of
nursing home diversion services in the state of Florida, serving frail and elderly individuals in home and
community-based settings. American Eldercare complements our core capabilities and strength in serving seniors
and disabled individuals with a unique focus on individualized and integrated care, and has contracts to provide
Medicaid long-term support services across the entire state of Florida. The enrollment effective dates for the
various regions range from August 2013 to March 2014. The allocation of the purchase price resulted in goodwill
of $76 million and other intangible assets of $75 million. The goodwill was assigned to the Retail segment and is
deductible for tax purposes. The other intangible assets, which primarily consist of customer contracts and
technology, have a weighted average useful life of 9.3 years. The purchase price allocation is preliminary, subject
to completion of valuation analyses, including, for example, refining assumptions used to calculate the fair value
of other intangible assets.
On December 21, 2012, we acquired Metropolitan Health Networks, Inc., or Metropolitan, a Medical
Services Organization, or MSO, that coordinates medical care for Medicare Advantage beneficiaries and
Medicaid recipients, primarily in Florida. We acquired all of the outstanding shares of Metropolitan and repaid
all outstanding debt of Metropolitan for a transaction value of $851 million, plus transaction expenses. The total
consideration of $851 million exceeded our estimated fair value of the net tangible assets acquired by
approximately $827 million, of which we allocated $263 million to other intangible assets and $564 million to
goodwill. A majority of the goodwill was assigned to the Healthcare Services segment and a portion to our Retail
segment. The goodwill is not deductible for tax purposes. The other intangible assets, which primarily consist of
customer contracts and trade names, have a weighted average useful life of 8.4 years.
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