Humana Inc.

SCHEDULE I—PARENT COMPANY FINANCIAL INFORMATION

CONDENSED BALANCE SHEETS


	December 31,
	2012			2011
	(in millions, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	151		$	187
Investment securities		195			307
Receivable from operating subsidiaries		523			572
Other current assets		97			75

Total current assets		966			1,141
Property and equipment, net		660			543
Investments in subsidiaries		12,136			9,971
Other long-term assets		69			55

Total assets	$	13,831		$	11,710

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Payable to operating subsidiaries	$	1,713		$	1,364
Current portion of notes payable to operating subsidiaries		28			28
Book overdraft		52			44
Other current liabilities		376			400

Total current liabilities		2,169			1,836
Long-term debt		2,611			1,623
Notes payable to operating subsidiaries		9			9
Other long-term liabilities		195			179

Total liabilities		4,984			3,647

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; 194,470,820 shares issued in 2012 and 193,230,310 shares issued in 2011		32			32
Capital in excess of par value		2,101			1,938
Retained earnings		7,881			6,825
Accumulated other comprehensive income		386			303
Treasury stock, at cost, 36,138,955 shares in 2012 and 29,225,996 shares in 2011		(1,553	)		(1,035	)

Total stockholders’ equity		8,847			8,063

Total liabilities and stockholders’ equity	$	13,831		$	11,710

See accompanying notes to the parent company financial statements.

Humana Inc.

SCHEDULE I—PARENT COMPANY FINANCIAL INFORMATION

CONDENSED STATEMENTS OF INCOME


	For the year ended December 31,
	2012			2011			2010
	(in millions)
Revenues:
Management fees charged to operating subsidiaries	$	1,220		$	1,272		$	1,175
Investment and other income, net		5			8			14

		1,225			1,280			1,189
Expenses:
Operating costs		1,229			1,270			956
Depreciation		172			164			166
Interest		106			107			103

		1,507			1,541			1,225

Loss before income taxes and equity in net earnings of subsidiaries		(282	)		(261	)		(36	)
(Benefit) provision for income taxes		(102	)		(81	)		35

Loss before equity in net earnings of subsidiaries		(180	)		(180	)		(71	)
Equity in net earnings of subsidiaries		1,402			1,599			1,170

Net income	$	1,222		$	1,419		$	1,099

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,
	2012			2011			2010
	(in millions)
Net income	$	1,222		$	1,419		$	1,099
Other comprehensive income:
Gross unrealized investment gain		164			299			129
Effect of income taxes		(60	)		(109	)		(47	)

Total unrealized investment gain, net of tax		104			190			82

Reclassification adjustment for net realized gains included in net income		(33	)		(11	)		(6	)
Effect of income taxes		12			4			2

Total reclassification adjustment, net of tax		(21	)		(7	)		(4	)

Other comprehensive income, net of tax		83			183			78

Comprehensive income	$	1,305		$	1,602		$	1,177

Humana Inc.

SCHEDULE I—PARENT COMPANY FINANCIAL INFORMATION

CONDENSED STATEMENTS OF CASH FLOWS


	For the year ended December 31,
	2012			2011			2010
	(in millions)
Net cash provided by operating activities	$	1,611		$	1,106		$	1,219
Cash flows from investing activities:
Acquisitions		(1,235	)		(223	)		(840	)
Purchases of investment securities		(338	)		(632	)		(633	)
Proceeds from sale of investment securities		127			10			16
Maturities of investment securities		316			548			698
Purchases of property and equipment, net		(284	)		(225	)		(166	)
Capital contributions to operating subsidiaries		(629	)		(214	)		(230	)

Net cash used in investing activities		(2,043	)		(736	)		(1,155	)

Cash flows from financing activities:
Proceeds from issuance of senior notes, net		990			0			0
Change in book overdraft		7			(21	)		2
Common stock repurchases		(518	)		(541	)		(108	)
Dividends paid		(165	)		(82	)		0
Tax benefit from stock-based compensation		22			15			2
Proceeds from stock option exercises and other		60			132			8

Net cash provided by (used in) financing activities		396			(497	)		(96	)

Decrease in cash and cash equivalents		(36	)		(127	)		(32	)
Cash and cash equivalents at beginning of year		187			314			346

Cash and cash equivalents at end of year	$	151		$	187		$	314

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.

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 $1.2 billion in 2012, $1.1 billion in 2011, and $747 million in 2010.

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 1.40% to 6.65% and are payable in 2013 and 2014. We recorded interest expense of $1 million related to these notes for each of the years ended December 31, 2012, 2011 and 2010.

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, or ordinary dividends, 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. Actual dividends paid may vary due to consideration of excess statutory capital and surplus and expected future surplus requirements related to, for example, premium volume and product mix.

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 subsidiaries had aggregate statutory capital and surplus of approximately $5.1 billion and $4.7 billion as of December 31, 2012 and 2011, respectively, which exceeded aggregate minimum regulatory requirements. Excluding Puerto Rico subsidiaries, the amount of ordinary dividends that may be paid to our parent company in 2013 is approximately $911 million in the aggregate. This compares to ordinary dividends that were able to be paid in 2012 of approximately $860 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.

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 stockholder dividends.