Cigna 2011 Annual Report Download - page 79

57CIGNA CORPORATION2011 Form10K
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cash ows from operating activities increased by $998million in 2010
compared with 2009. Excluding the results of the GMDB equity hedge
program (that did not aect net income), cash ows from operating
activities increased by $873million. is increase in 2010 primarily
reects premium growth in the Health Care segment’s risk businesses
as noted above and earnings growth in the Health Care, Disability and
Life and International segments as well as lower contributions to the
qualied domestic pension plan ($212million in 2010, compared with
$410million in 2009). ese favorable eects were partially oset by
higher management compensation and income tax payments in 2010
compared with 2009.
Investing activities
Cash used in investing activities was $1.3billion. is use of cash
primarily consisted of net purchases of investments of $503million,
cash used to fund acquisitions (net of cash acquired) of $344million,
net cash used to transfer the run-o workers’ compensation and personal
accident assumed reinsurance business via a reinsurance transaction
of $190million, and net purchases of property and equipment of
$300million.
Financing activities
Cash provided from nancing activities primarily consisted of net
proceeds from the issuance of long-term debt of $543million, partially
oset by debt repayments of $270million primarily to retire a portion
of the 8.5% Notesdue 2019 and the 6.35% Notesdue 2018 as a result
of the tender oers to bondholders. See the Capital Resources section
for more information. Financing activities also included net deposits to
contractholder deposit funds of $90million and proceeds on issuances
of common stock of $64million. ese inows were partially oset
by common stock repurchases of $201million.
Interest Expense
Interest expense on long-term debt, short-term debt and capital leases
was as follows:
(In millions) 2011 2010 2009
Interest expense $ 202 $ 182 $ 166
e increase in interest expense in 2011 was primarily due to higher average borrowings in 2011 from issuing debt in Marchand November2011.
Capital Resources
e Company’s capital resources (primarily retained earnings and
the proceeds from the issuance of debt and equity securities) provide
protection for policyholders, furnish the nancial strength to underwrite
insurance risks and facilitate continued business growth.
Management, guided by regulatory requirements and rating agency
capital guidelines, determines the amount of capital resources that
the Company maintains. Management allocates resources to new
long-term business commitments when returns, considering the risks,
look promising and when the resources available to support existing
business are adequate.
e Company prioritizes its use of capital resources to:
•
provide capital necessary to support growth and maintain or improve
the nancial strength ratings of subsidiaries;
•
consider acquisitions that are strategically and economically
advantageous; and
•return capital to investors through share repurchase.
e availability of capital resources will be impacted by equity and
credit market conditions. Extreme volatility in credit or equity market
conditions may reduce the Company’s ability to issue debt or equity
securities.
Sources of Capital
Debt Financings
During 2011 and 2010, the Company entered into the following
debt nancings. For further information on these debt nancings, see
Note15 to the Consolidated Financial Statements.
•
On November10,2011, the Company issued $2.1billion of long-term
debt to fund the HealthSpring acquisition as follows: $600million
of 5-Year Notesat 2.75%, $750million of 10-Year Notesat 4%, and
$750million of 30-Year Notesat 5.375%.
•
In June2011, the Company entered into a new ve-year revolving
credit and letter of credit agreement for $1.5billion that permits up
to $500million to be used for letters of credit. e credit agreement
includes options that are subject to consent by the administrative agent
and the committing banks, to increase the commitment amount to
$2billion and to extend the term past June2016.
•
In March2011, the Company issued $300million of 10-Year Notesat
4.5% and $300million of 30-Year Notesat 5.875%. e proceeds
were used for general corporate purposes, including the repayment
of maturing debt in 2011.
•
In December2010, the Company issued $250million of 10-Year
Notesat 4.375%. e proceeds of this debt were used to fund the
tender oer for the Company’s 8.5% Senior Notesdue 2019 and
the 6.35% Senior Notesdue 2018 (described further below under
uses of capital).
•
In May2010, the Company issued $300million of 10-Year Notesat
5.125%. e proceeds of this debt were used for general corporate
purposes.
Equity Financing
On November16,2011, the Company issued 15.2million shares of
its common stock at $42.75 per share. Proceeds were $650million
($629million net of underwriting discount and fees). e proceeds
were used to fund the HealthSpring acquisition in January2012.
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