Humana Inc.

SCHEDULE I—PARENT COMPANY FINANCIAL INFORMATION

CONDENSED BALANCE SHEETS


	December 31,
	2011			2010
	(in millions, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	187		$	314
Investment securities		307			239
Receivable from operating subsidiaries		572			494
Other current assets		75			56

Total current assets		1,141			1,103
Property and equipment, net		543			479
Investments in subsidiaries		9,971			8,759
Other long-term assets		55			36

Total assets	$	11,710		$	10,377

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Payable to operating subsidiaries	$	1,364		$	1,241
Current portion of notes payable to operating subsidiaries		28			28
Book overdraft		44			65
Other current liabilities		400			366

Total current liabilities		1,836			1,700
Long-term debt		1,623			1,633
Notes payable to operating subsidiaries		9			9
Other long-term liabilities		179			111

Total liabilities		3,647			3,453

Commitments and contingencies
Stockholders' equity:
Preferred stock, $1 par; 10,000,000 shares authorized; none issued		0			0
Common stock, $0.16 ²/3 par; 300,000,000 shares authorized; 193,230,310 shares issued in 2011 and 190,244,741 shares issued in 2010		32			32
Capital in excess of par value		1,938			1,737
Retained earnings		6,825			5,529
Accumulated other comprehensive income		303			120
Treasury stock, at cost, 29,225,996 shares in 2011 and 21,795,051 shares in 2010		(1,035	)		(494	)

Total stockholders' equity		8,063			6,924

Total liabilities and stockholders' equity	$	11,710		$	10,377

See accompanying notes to the parent company financial statements.

Humana Inc.

SCHEDULE I—PARENT COMPANY FINANCIAL INFORMATION

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME


	For the year ended December 31,
	2011			2010			2009
	(in millions)
Revenues:
Management fees charged to operating subsidiaries	$	1,272		$	1,175		$	1,057
Investment and other income, net		8			14			4

		1,280			1,189			1,061
Expenses:
Operating costs		1,270			956			836
Depreciation		164			166			162
Interest		107			103			104

		1,541			1,225			1,102

Loss before income taxes and equity in net earnings of subsidiaries		(261	)		(36	)		(41	)
(Benefit) provision for income taxes		(81	)		35			(44	)

(Loss) income before equity in net earnings of subsidiaries		(180	)		(71	)		3
Equity in net earnings of subsidiaries		1,599			1,170			1,037

Net income	$	1,419		$	1,099		$	1,040

Other comprehensive income, net of tax:
Net unrealized investment gains, net of tax expense of $109 million in 2011, $47 million in 2010, and $131 million in 2009	$	190		$	82		$	230
Less: Reclassification adjustment for net realized gains included in net income, net of tax expense of $4 million in 2011, $2 million in 2010, and $7 million in 2009		(7	)		(4	)		(13	)

Other comprehensive income, net of tax		183			78			217

Comprehensive income	$	1,602		$	1,177		$	1,257

See accompanying notes to the parent company financial statements.

Humana Inc.

SCHEDULE I—PARENT COMPANY FINANCIAL INFORMATION

CONDENSED STATEMENTS OF CASH FLOWS


	For the year ended December 31,
	2011			2010			2009
	(in millions)
Net cash provided by operating activities	$	1,106		$	1,219		$	911
Cash flows from investing activities:
Acquisitions		(223	)		(840	)		(6	)
Purchases of investment securities		(632	)		(633	)		(597	)
Proceeds from sale of investment securities		10			16			2
Maturities of investment securities		548			697			278
Purchases of property and equipment, net		(225	)		(166	)		(143	)
Capital contributions to operating subsidiaries		(214	)		(230	)		(132	)
Change in securities lending collateral		0			1			0

Net cash used in investing activities		(736	)		(1,155	)		(598	)

Cash flows from financing activities:
Repayments under credit agreement		0			0			(250	)
Change in book overdraft		(21	)		2			35
Change in securities lending payable		0			(1	)		0
Common stock repurchases		(541	)		(108	)		(23	)
Dividends paid		(82	)		0			0
Tax benefit from stock-based compensation		15			2			5
Proceeds from stock option exercises and other		132			9			17

Net cash used in financing activities		(497	)		(96	)		(216	)

(Decrease) increase in cash and cash equivalents		(127	)		(32	)		97
Cash and cash equivalents at beginning of year		314			346			249

Cash and cash equivalents at end of year	$	187		$	314		$	346

See accompanying notes to the parent company financial statements.

Humana Inc.

SCHEDULE I—PARENT COMPANY FINANCIAL INFORMATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

1. 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. Certain prior period amounts have been reclassified to conform to current period presentation.

2. 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 $1.1 billion in 2011, $747 million in 2010, and $774 million in 2009.

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.

Notes Receivables from Operating Subsidiaries

We funded certain subsidiaries with surplus note agreements. These notes are generally non-interest bearing and may not be entered into or repaid without the prior approval of the applicable Departments of Insurance.

Notes Payable to Operating Subsidiaries

We borrowed funds from certain subsidiaries with notes generally collateralized by real estate. These notes, which have various payment and maturity terms, bear interest ranging from 1.11% to 6.65% and are payable in 2012 and 2014. We recorded interest expense of $1 million related to these notes for each of the years ended December 31, 2011, 2010 and 2009.

3. 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, is limited based on the entity's level of statutory income and statutory capital and surplus. 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 can vary significantly at the state level. Our state regulated subsidiaries had aggregate statutory capital and surplus of approximately $4.7 billion and $4.3 billion as of December 31, 2011 and 2010, respectively, which exceeded aggregate minimum regulatory requirements. The amount of dividends that may be paid to our parent company in 2012 without prior approval by state regulatory authorities is approximately $970 million in the aggregate. This compares to dividends that were able to be paid in 2011 without prior regulatory approval of approximately $740 million.

4. ACQUISITIONS

Refer to Note 3 of the notes to consolidated financial statements in this Annual Report on Form 10-K for a description of acquisitions.

5. INCOME TAXES

Refer to Note 10 of the notes to consolidated financial statements in this Annual Report on Form 10-K for a description of income taxes. The release of the liability for unrecognized tax benefits in 2009 as a result of settlements associated with the completion of the audit of our U.S. income tax returns for 2005 and 2006, reduced tax expense $17 million in 2009.

6. DEBT

Refer to Note 11 of the notes to consolidated financial statements in this Annual Report on Form 10-K for a description of debt.

7. STOCKHOLDER'S EQUITY

Refer to Note 14 of the notes to consolidated financial statements in this Annual Report on Form 10-K for a description of stockholders' equity, including stock repurchases and the April 2011 approval by our Board of Directors of the initiation of a quarterly cash dividend policy.