Humana Inc.

SCHEDULE I—PARENT COMPANY FINANCIAL INFORMATION

CONDENSED BALANCE SHEETS


	December 31,
	2013			2012
	(in millions, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	161		$	151
Investment securities		347			195
Receivable from operating subsidiaries		777			523
Other current assets		186			97

Total current assets		1,471			966
Property and equipment, net		709			660
Investments in subsidiaries		12,959			12,136
Other long-term assets		82			69

Total assets	$	15,221		$	13,831

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Payable to operating subsidiaries	$	2,570		$	1,713
Current portion of notes payable to operating subsidiaries		28			28
Book overdraft		59			52
Other current liabilities		452			376

Total current liabilities		3,109			2,169
Long-term debt		2,600			2,611
Notes payable to operating subsidiaries		9			9
Other long-term liabilities		187			195

Total liabilities		5,905			4,984

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; 196,275,506 shares issued in 2013 and 194,470,820 shares issued in 2012		33			32
Capital in excess of par value		2,267			2,101
Retained earnings		8,942			7,881
Accumulated other comprehensive income		158			386
Treasury stock, at cost, 42,245,097 shares in 2013 and 36,138,955 shares in 2012		(2,084	)		(1,553	)

Total stockholders’ equity		9,316			8,847

Total liabilities and stockholders’ equity	$	15,221		$	13,831

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,
	2013			2012			2011
	(in millions)
Revenues:
Management fees charged to operating subsidiaries	$	1,370		$	1,220		$	1,272
Investment and other income, net		3			5			8

		1,373			1,225			1,280
Expenses:
Operating costs		1,366			1,229			1,270
Depreciation		193			172			164
Interest		141			106			107

		1,700			1,507			1,541

Loss before income taxes and equity in net earnings of subsidiaries		(327	)		(282	)		(261	)
Benefit for income taxes		(107	)		(102	)		(81	)

Loss before equity in net earnings of subsidiaries		(220	)		(180	)		(180	)
Equity in net earnings of subsidiaries		1,451			1,402			1,599

Net income	$	1,231		$	1,222		$	1,419

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,
	2013			2012			2011
	(in millions)
Net income	$	1,231		$	1,222		$	1,419
Other comprehensive (loss) income:
Change in gross unrealized investment gains/losses		(338	)		164			299
Effect of income taxes		124			(60	)		(109	)

Total change in unrealized investment gains/losses, net of tax		(214	)		104			190

Reclassification adjustment for net realized gains included in investment income		(22	)		(33	)		(11	)
Effect of income taxes		8			12			4

Total reclassification adjustment, net of tax		(14	)		(21	)		(7	)

Other comprehensive (loss) income, net of tax		(228	)		83			183

Comprehensive income	$	1,003		$	1,305		$	1,602

Humana Inc.

SCHEDULE I—PARENT COMPANY FINANCIAL INFORMATION

CONDENSED STATEMENTS OF CASH FLOWS


	For the year ended December 31,
	2013			2012			2011
	(in millions)
Net cash provided by operating activities	$	1,554		$	1,611		$	1,106
Cash flows from investing activities:
Acquisitions		0			(1,235	)		(223	)
Capital contributions to operating subsidiaries		(521	)		(629	)		(214	)
Purchases of investment securities		(320	)		(338	)		(632	)
Proceeds from sale of investment securities		35			127			10
Maturities of investment securities		104			316			548
Purchases of property and equipment, net		(223	)		(284	)		(225	)

Net cash used in investing activities		(925	)		(2,043	)		(736	)

Cash flows from financing activities:
Proceeds from issuance of senior notes, net		0			990			0
Change in book overdraft		7			7			(21	)
Common stock repurchases		(531	)		(518	)		(541	)
Dividends paid		(168	)		(165	)		(82	)
Tax benefit from stock-based compensation		8			22			15
Proceeds from stock option exercises and other		65			60			132

Net cash (used in) provided by financing activities		(619	)		396			(497	)

Increase (decrease) in cash and cash equivalents		10			(36	)		(127	)
Cash and cash equivalents at beginning of year		151			187			314

Cash and cash equivalents at end of year	$	161		$	151		$	187

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 $967 million in 2013, $1.2 billion in 2012, and $1.1 billion in 2011.

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 1.13% to 6.65% and are payable in 2014 and 2019. We recorded interest expense of $1 million related to these notes for each of the years ended December 31, 2013, 2012 and 2011.

3. REGULATORY REQUIREMENTS

Certain of our insurance 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 insurance 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 insurance subsidiaries had aggregate statutory capital and surplus of approximately $5.5 billion and $5.1 billion as of December 31, 2013 and 2012, respectively, which exceeded aggregate minimum regulatory requirements of $3.5 billion and $3.4 billion, respectively. Excluding Puerto Rico subsidiaries, the amount of ordinary dividends that may be paid to our parent company in 2014 is approximately $840 million in the aggregate. This compares to dividends that were paid to our parent company in 2013 of approximately $967 million. However, actual dividends paid from the subsidiaries to the parent in 2014 could be reduced as a result of the proposed statutory accounting for the health insurance industry fee, discussed below, combined with higher surplus requirements associated with premium growth due to increases in membership.

The NAIC is continuing discussions regarding the statutory accounting for the health insurance industry fee required by the Health Care Reform Law which in its present form would restrict surplus in the year preceding payment, beginning in 2014. Accordingly, in addition to recording the full-year 2014 assessment in the first quarter of 2014, we may be required to restrict surplus for the 2015 assessment ratably in 2014. This proposal does not affect our financial statements prepared in accordance with generally accepted accounting principles, under which the fee is expensed ratably throughout the payment year.

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. During 2013, we funded certain non-regulated subsidiary acquisitions, including the acquisition of American Eldercare Inc., with contributions from Humana Inc., our parent company, of approximately $181 million, included in capital contributions in the condensed statement of cash flows.

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.