Cigna 2011 Annual Report Download - page 78

56 CIGNA CORPORATION2011 Form10K
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cash ows for the years ended December31, were as follows:
(In millions) 2011 2010 2009
Operating activities $ 1,491 $ 1,743 $ 745
Investing activities $ (1,270) $ (1,342) $ (1,485)
Financing activities $ 2,867 $ 274 $ 307
Cash ows from operating activities consist of cash receipts and
disbursements for premiums and fees, mail order pharmacy and other
revenues, gains (losses) recognized in connection with the Company’s
GMDB equity hedge program, investment income, taxes, and benets
and expenses.
Because certain income and expense transactions do not generate cash,
and because cash transactions related to revenue and expenses may
occur in periods dierent from when those revenues and expenses are
recognized in shareholders’ net income, cash ows from operating
activities can be signicantly dierent from shareholders’ net income.
Cash ows from investing activities generally consist of net investment
purchases or sales and net purchases of property and equipment, which
includes capitalized software, as well as cash used to acquire businesses.
Cash ows from nancing activities are generally comprised of issuances
and re-payment of debt at the parent level, proceeds on the issuance
of common stock in the open market and resulting from stock option
exercises, and stock repurchases. In addition, the subsidiaries report
net deposits/withdrawals to/from investment contract liabilities (that
include universal life insurance liabilities) because such liabilities are
considered nancing activities with policyholders.
2011:
Operating activities
For the year ended December31,2011, cash ows from operating
activities were greater than net income by $163million. Net income
contains certain pre-tax income and expense items that neither provide
nor use operating cash ow, including:
•GMIB fair value loss of $ 234million;
•net charges related to special items of $40million;
•
tax benets related to resolution of a federal tax matter of $33million;
•depreciation and amortization charges of $ 345million; and
•realized investment gains of $ 62million.
Cash ows from operating activities were lower than net income
excluding the items noted above by $361million. Excluding cash
outows of $45million associated with the GMDB equity hedge
program (which did not aect shareholders’ net income), cash ows
from operating activities were lower than net income by $316million.
is result primarily reects domestic qualied pension contributions
of $250million as well as signicant claim run-out from the Medicare
IPFFS business, that the Company exited in 2011.
Cash ows from operating activities decreased by $252million in 2011
compared with 2010. Excluding the results of the GMDB equity hedge
program (that did not aect net income), cash ows from operating
activities decreased by $364million. is decrease in 2011 primarily
reects higher management compensation, income tax and pension
payments in 2011 compared with 2010 and unfavorable operating
cash ows in the Medicare IPFFS business in 2011 due to signicant
claim run-out compared to signicant favorable operating cash ows
from the growth of this business in 2010. Operating cash ows were
favorably aected in 2010 because paid claims on this business growth
lagged premium collections.
Investing activities
Cash used in investing activities was $1.3billion. is use of cash
primarily consisted of net purchases of investments of $746million,
cash used to fund acquisitions (net of cash acquired) of $114million,
and net purchases of property and equipment of $422million.
Financing activities
Cash provided from nancing activities primarily consisted of net
proceeds from the issuance of long-term debt of $2.7billion and
proceeds on issuances of common stock of $734million, primarily used
to fund the acquisition of Healthspring,Inc. See the Capital Resources
section for further information. Financing activities also included net
deposits to contractholder deposit funds of $145million. ese inows
were partially oset by scheduled payments of debt of $451million
and common stock repurchases of $225million.
2010:
Operating activities
For the year ended December31,2010, cash ows from operating
activities were greater than net income by $394million. Net income
contains certain income and expense items that neither provide nor
use operating cash ow, including:
•GMIB fair value loss of $ 55million;
•
a pre-tax loss on the transfer of the workers’ compensation and
personal accident business of $31million;
•
tax benets related to the resolution of a federal tax matter of
$101million;
•depreciation and amortization charges of $ 292million; and
•realized investment gains of $ 75million.
Cash ows from operating activities were greater than net income
excluding the items noted above by $192million. Excluding cash
outows of $157million associated with the GMDB equity hedge
program, (that did not aect shareholders’ net income) cash ows from
operating activities were higher than net income by $349million. is
result primarily reects premium growth in the Health Care segment’s
risk businesses due to signicant new business in 2010 and tax payments
lower than expense due to favorable eects of benet plans (primarily
pension) and deferred foreign earnings, partially oset by pension
contributions of $212million.
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