Cigna 2014 Annual Report Download - page 70

PART II
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources
Financial Summary
(In millions) 2014 2013 2012
Short-term investments $ 163 $ 631 $ 154
Cash and cash equivalents $ 1,420 $ 2,795 $ 2,978
Short-term debt $ 147 $ 233 $ 201
Long-term debt $ 5,005 $ 5,014 $ 4,986
Shareholders’ equity $ 10,774 $ 10,567 $ 9,769
Consolidated short-term investments decreased in 2014 compared with 2013 as a result of the Company reinvesting proceeds from maturities of
short-term investments in longer-term holdings. The increase in short-term investments in 2013 compared with 2012 was driven by purchases of
liquid commercial paper and United States Government obligations.
Liquidity
We maintain liquidity at two levels: the subsidiary level and the parent company level.
Liquidity requirements at the subsidiary level generally consist of:
claim and benefit payments to policyholders; and
operating expense requirements, primarily for employee compensation and benefits, information technology and real estate.
Our subsidiaries normally meet their operating requirements by:
maintaining appropriate levels of cash, cash equivalents and short-term investments;
using cash flows from operating activities;
selling investments;
matching investment durations to those estimated for the related insurance and contractholder liabilities; and
borrowing from the parent company.
Liquidity requirements at the parent company level generally consist of:
debt service and dividend payments to shareholders; and
pension plan funding.
The parent company normally meets its liquidity requirements by:
maintaining appropriate levels of cash, cash equivalents and short-term investments;
collecting dividends from its subsidiaries;
using proceeds from issuance of debt (including commercial paper) and equity securities; and
borrowing from its subsidiaries.
Cash flows for the years ended December 31, were as follows:
(In millions) 2014 2013 2012
Net cash provided by operating activities $ 1,994 $ 719 $ 2,350
Net cash provided by (used in) investing activities $ (1,755) $ 15 $ (3,857)
Net cash used in financing activities $ (1,582) $ (930) $ (228)
Cash flows from operating activities consist of cash receipts and proceeds on the issuance of common stock resulting from stock
disbursements for premiums and fees, mail order pharmacy, other option exercises, and stock repurchases. In addition, the subsidiaries
revenues, investment income, taxes, benefits and expenses, and, prior report deposits to and withdrawals from investment contract liabilities
to February 4, 2013, gains and losses recognized in connection with (including universal life insurance liabilities) because such liabilities
our GMDB and GMIB equity hedge programs. Because certain are considered financing activities with policyholders.
income and expense transactions do not generate cash, and because
Operating activities
cash transactions related to revenues and expenses may occur in
Cash flows from operating activities increased substantially in 2014
periods different from when those revenues and expenses are
compared with 2013, primarily due to the absence of the 2013
recognized in shareholders’ net income, cash flows from operating
reinsurance payments totaling $2.2 billion to Berkshire. Excluding
activities can be significantly different from shareholders’ net income.
those payments and tax benefits realized in connection with the
Cash flows from investing activities generally consist of net Berkshire transaction, cash flows from operating activities in 2014
investment purchases or sales and net purchases of property and decreased by $0.6 billion, compared with 2013. This decrease was
equipment including capitalized software, as well as cash used to primarily related to the volume and timing of reimbursements
acquire businesses. prescribed by government programs.
Cash flows from financing activities are generally comprised of
issuances and re-payment of debt at the parent company level,
38 CIGNA CORPORATION - 2014 Form 10-K
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