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SCHEDULE I-PARENT COMPANY FINANCIAL INFORMATION
 12 Months Ended
Dec. 31, 2018
Condensed Financial Information Disclosure [Abstract]  
SCHEDULE I-PARENT COMPANY FINANCIAL INFORMATION
SCHEDULE I—PARENT COMPANY FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS
 
December 31,
 
2018
 
2017
 
(in millions, except share
amounts)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
265

 
$
383

Investment securities
313

 
305

Receivable from operating subsidiaries
1,306

 
1,042

Other current assets
628

 
245

Total current assets
2,512

 
1,975

Property and equipment, net
1,209

 
1,091

Investments in subsidiaries
16,951

 
16,810

Equity method investment in Kindred at Home
1,047


—

Other long-term assets
359

 
426

Total assets
$
22,078

 
$
20,302

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Payable to operating subsidiaries
$
4,487

 
$
4,311

Current portion of notes payable to operating subsidiaries
28

 
28

Book overdraft
38

 
41

Short-term debt
1,694

 
150

Other current liabilities
791

 
896

Total current liabilities
7,038

 
5,426

Long-term debt
4,375

 
4,770

Other long-term liabilities
504

 
264

Total liabilities
11,917

 
10,460

Commitments and contingencies

 

Stockholders’ equity:
 
 
 
Preferred stock, $1 par; 10,000,000 shares authorized; none issued
—

 
—

Common stock, $0.16 2/3 par; 300,000,000 shares authorized;
198,594,841 shares issued at December 31, 2018 and 198,572,458
shares issued at December 31, 2017
33

 
33

Capital in excess of par value
2,535

 
2,445

Retained earnings
15,072

 
13,670

Accumulated other comprehensive income (loss)
(159
)
 
19

Treasury stock, at cost, 63,028,169 shares at December 31, 2018
and 60,893,762 shares at December 31, 2017
(7,320
)
 
(6,325
)
Total stockholders’ equity
10,161

 
9,842

Total liabilities and stockholders’ equity
$
22,078

 
$
20,302


See accompanying notes to the parent company financial statements.
SCHEDULE I—PARENT COMPANY FINANCIAL INFORMATION
CONDENSED STATEMENTS OF INCOME
 

 
For the year ended December 31,
 
2018
 
2017
 
2016
 
(in millions)
Revenues:
 
 
 
 
 
Management fees charged to operating subsidiaries
$
1,666

 
$
1,864

 
$
1,683

Investment and other income, net
30

 
57

 
42

 
1,696

 
1,921

 
1,725

Expenses:
 
 
 
 
 
Operating costs
1,468

 
1,801

 
1,519

Merger termination fee and related costs, net
—

 
(936
)
 
104

Depreciation
342

 
332

 
302

Interest
218

 
243

 
189

 
2,028

 
1,440

 
2,114

Other expense, net
33


—


—

Loss on sale of business
782

 
—

 
—

(Loss) income before income taxes and equity in net earnings of subsidiaries
(1,147
)
 
481

 
(389
)
(Benefit) provision for income taxes
(542
)
 
61

 
(107
)
(Loss) income before equity in net earnings of subsidiaries
(605
)
 
420

 
(282
)
Equity in net earnings of subsidiaries
2,277

 
2,028

 
896

Equity in net earnings of Kindred at Home
11


—


—

Net income
$
1,683

 
$
2,448

 
$
614


See accompanying notes to the parent company financial statements.
SCHEDULE I—PARENT COMPANY FINANCIAL INFORMATION
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
 
For the year ended December 31,
 
2018
 
2017
 
2016
 
(in millions)
Net income
$
1,683

 
$
2,448

 
$
614

Other comprehensive income (loss):
 
 
 
 
 
Change in gross unrealized investment losses/gains
(189
)
 
149

 
(101
)
Effect of income taxes
51

 
(55
)
 
38

Total change in unrealized investment
gains/losses, net of tax
(138
)
 
94

 
(63
)
Reclassification adjustment for net realized
gains included in investment income
(53
)
 
(14
)
 
(96
)
Effect of income taxes
17

 
5

 
35

Total reclassification adjustment, net of tax
(36
)
 
(9
)
 
(61
)
Other comprehensive (loss) income, net of tax
(174
)
 
85

 
(124
)
Comprehensive income attributable to our equity method
investment in Kindred at Home
(4
)
 
—

 
—

Comprehensive income
$
1,505

 
$
2,533

 
$
490

See accompanying notes to the parent company financial statements.
SCHEDULE I—PARENT COMPANY FINANCIAL INFORMATION
CONDENSED STATEMENTS OF CASH FLOWS
 
For the year ended December 31,
 
2018
 
2017
 
2016
 
(in millions)
Net cash provided by operating activities
$
2,719

 
$
2,423

 
$
1,848

Cash flows from investing activities:
 
 
 
 
 
Acquisitions, net of cash acquired
(354
)

—


—

Acquisitions, equity method investment in Kindred at Home
(1,095
)

—


—

Capital contributions to operating subsidiaries
(697
)
 
(695
)
 
(895
)
Purchases of investment securities
(145
)
 
(53
)
 
(151
)
Proceeds from sale of investment securities
35

 
—

 
25

Maturities of investment securities
59

 
51

 
143

Purchases of property and equipment, net
(465
)
 
(359
)
 
(382
)
Net cash used in investing activities
(2,662
)
 
(1,056
)
 
(1,260
)
Cash flows from financing activities:
 
 
 
 
 
Proceeds from issuance of senior notes, net
—

 
1,779

 
—

Proceeds from issuance (repayments) of commercial paper, net
485

 
(153
)
 
(2
)
Proceeds from term loan
1,000


—


—

Repayment of term loan
(350
)

—


—

Repayment of long-term debt
—

 
(800
)
 
—

Change in book overdraft
(3
)
 
3

 
5

Common stock repurchases
(1,090
)
 
(3,365
)
 
(104
)
Dividends paid
(265
)
 
(220
)
 
(177
)
Proceeds from stock option exercises and other
48

 
62

 
11

Net cash used in financing activities
(175
)
 
(2,694
)
 
(267
)
(Decrease) increase in cash and cash equivalents
(118
)
 
(1,327
)
 
321

Cash and cash equivalents at beginning of year
383

 
1,710

 
1,389

Cash and cash equivalents at end of year
$
265

 
$
383

 
$
1,710

See accompanying notes to the parent company financial statements.
SCHEDULE I—PARENT COMPANY FINANCIAL INFORMATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
Parent company financial information has been derived from our consolidated financial statements and excludes the accounts of all operating subsidiaries. This information should be read in conjunction with our consolidated financial statements.
TRANSACTIONS WITH SUBSIDIARIES
Management Fee
Through intercompany service agreements approved, if required, by state regulatory authorities, Humana Inc., our parent company, charges a management fee for reimbursement of certain centralized services provided to its subsidiaries including information systems, disbursement, investment and cash administration, marketing, legal, finance, and medical and executive management oversight.
Dividends
Cash dividends received from subsidiaries and included as a component of net cash provided by operating activities were $2.3 billion in 2018, $1.4 billion in 2017, and $0.8 billion in 2016.
Guarantee
Through indemnity agreements approved by state regulatory authorities, certain of our regulated subsidiaries generally are guaranteed by our parent company in the event of insolvency for: (1) member coverage for which premium payment has been made prior to insolvency; (2) benefits for members then hospitalized until discharged; and (3) payment to providers for services rendered prior to insolvency. Our parent has also guaranteed the obligations of our military services subsidiaries and funding to maintain required statutory capital levels of certain other regulated subsidiaries.
REGULATORY REQUIREMENTS
Certain of our subsidiaries operate in states that regulate the payment of dividends, loans, or other cash transfers to Humana Inc., our parent company, and require minimum levels of equity as well as limit investments to approved securities. The amount of dividends that may be paid to Humana Inc. by these subsidiaries, without prior approval by state regulatory authorities, or ordinary dividends, is limited based on the entity’s level of statutory income and statutory capital and surplus. If the dividend, together with other dividends paid within the preceding twelve months, exceeds a specified statutory limit or is paid from sources other than earned surplus, it is generally considered an extraordinary dividend requiring prior regulatory approval. In most states, prior notification is provided before paying a dividend even if approval is not required.
Although minimum required levels of equity are largely based on premium volume, product mix, and the quality of assets held, minimum requirements vary significantly at the state level. Our state regulated insurances subsidiaries had aggregate statutory capital and surplus of approximately $7.6 billion and $8.0 billion as of December 31, 2018 and 2017, respectively, which exceeded aggregate minimum regulatory requirements of $5.2 billion and $4.8 billion, respectively. The amount of ordinary dividends that may be paid to our parent company in 2019 is approximately $1 billion in the aggregate. The amount, timing and mix of ordinary and extraordinary dividend payments will vary due to state regulatory requirements, the level of excess statutory capital and surplus and expected future surplus requirements related to, for example, premium volume and product mix. Actual dividends that were paid to our parent company were approximately $2.3 billion in 2018, $1.4 billion in 2017, and $0.8 billion in 2016.
Our use of operating cash flows derived from our non-insurance subsidiaries, such as in our Healthcare Services segment, is generally not restricted by state departments of insurance (or comparable state regulators).
ACQUISITIONS AND DIVESTITURES
Refer to Note 3 of the notes to consolidated financial statements in this Annual Report on Form 10-K for a description of certain acquisitions and divestitures. During 2018, 2017 and 2016, we funded certain non-regulated subsidiary acquisitions with contributions from Humana Inc., our parent company, included in capital contributions in the condensed statement of cash flows.
INCOME TAXES
Refer to Note 11 of the notes to consolidated financial statements included in this Annual Report on Form 10-K for a description of income taxes.
DEBT
Refer to Note 12 of the notes to consolidated financial statements included in this Annual Report on Form 10-K for a description of debt.
STOCKHOLDER’S EQUITY
Refer to Note 15 of the notes to consolidated financial statements included in this Annual Report on Form 10-K for a description of stockholders’ equity, including stock repurchases and stockholder dividends.