Unum 2008 Annual Report Download - page 86

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acquisition expenses associated with new business. The level of paid claims is due partially to the growth and aging of the block of
business and also to the general economy, as previously discussed in the operating results by segment. Included in operating cash flows
for 2008, 2007, and 2006 are voluntary pension contributions to our U.S. qualified defined benefit plan of $130.0 million, $110.0 million,
and $92.0 million, respectively. We also had increased cash inflows of approximately $211.4 million in 2007 due to the reinsurance
recapture of a small block of individual disability business.
The fluctuation in the income tax adjustment to reconcile net income to net cash provided by operating activities is due primarily to
the deferred tax asset established during 2008 related to the change in the fair value of the DIG Issue B36 derivative and a tax benefit
recognized during 2006 which resulted from the reversal of tax liabilities related to group relief benefits recognized from the use of net
operating losses in a foreign jurisdiction. The decrease in the “Other, Net” adjustment to reconcile net income to net cash provided by
operating activities in 2008 compared to the prior two years is due primarily to the 2007 and 2006 reclassification of costs related to early
retirement of debt to cash flows from financing activities.
Investing Cash Flows
Investing cash inflows consist primarily of the proceeds from the sales and maturities of investments. Investing cash outflows consist
primarily of payments for purchases of investments. Net cash used by investing activities was $424.7 million for the year ended December 31,
2008 compared to $1,855.0 million and $1,222.0 million for the comparable periods of 2007 and 2006, respectively.
Proceeds from sales and maturities of available-for-sale securities in 2008 were consistent with the level of 2007 primarily due to
an increase in bond maturities and bonds that were called at par, offset by a decrease in sales of fixed maturity securities, a lower level of
proceeds from mortgage-backed securities prepayments, and the translation of investment proceeds from our U.K. operations at lower
exchange rates. Proceeds from sales and maturities of other investments decreased in 2008 primarily due to lower proceeds from the sale
of common stock investments and a reduction in commercial mortgage loan maturities and prepayments. The reduction in cash flows
received on other investments was partially offset by higher proceeds in 2008 from terminations of derivatives within our cash flow
hedging programs.
Purchases of available-for-sale securities decreased during 2008 relative to 2007 in part due to the lower exchange rate for translation
of purchases within our U.K. operations and to investing more heavily in short-term investments rather than fixed maturity securities during
the last half of 2008. During the first half of 2008, we invested more heavily in fixed maturity securities as we continued to transition out of
short-term investments into floating rate fixed maturity securities to support the floating rate debt issued during the fourth quarter of 2007.
Net sales of short-term investments increased during 2008 due in part to the sale of investments to fund the $700.0 million accelerated
share repurchase agreements executed one half in each of January and August 2008, as well as the transition to floating rate fixed maturity
securities in lieu of short-term investments during the first half of 2008.
Proceeds from acquisitions relate to the second quarter of 2008 Unum UK acquisition of a group long-term disability claims portfolio.
We had lower proceeds from sales and maturities of available-for-sale securities in 2007 compared to 2006, primarily due to a decrease
in scheduled maturities of fixed maturity securities as well as a lower level of proceeds from principal prepayments on mortgage-backed
securities. Somewhat offsetting this decline was the sale of a block of available-for-sale securities to generate the liquidity needed to
repurchase debt in the fourth quarter of 2007 as part of our capital redeployment plan.
Purchases of available-for-sale securities increased during 2007 in comparison to 2006, in part due to the investing of the net cash
inflows of $98.8 million from the sale of GENEX and the $211.4 million cash inflows from the reinsurance recapture. Purchases of other
investments declined during 2007 relative to 2006 due to a decline in the purchase of commercial mortgage loans.
During the second quarter of 2007, a portion of the proceeds from the issuance of the 17.7 million shares of common stock was invested
in short-term investments, thereby contributing to the higher purchase of short-term investments in 2007. Also, during the third quarter of 2007,
there was an increase in net purchases of short-term investments to provide liquidity needed for the capital redeployment plan announced
in the fourth quarter of 2007 in conjunction with the issuance of the Northwind Holdings debt.