XNYS:CI Cigna Corp Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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CIGNA CORPORATION - FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from ______________ to ______________

Commission file number 1-08323

CIGNA CORPORATION

(Exact name of registrant as specified in its charter)

DELAWARE

06-1059331

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

900 Cottage Grove Road

Bloomfield, Connecticut

06002

(Address of principal executive offices)

(Zip Code)

(860) 226-6000

(Registrant’s telephone number, including area code)

(860) 226-6741

(Registrant’s facsimile number, including area code)

NOT APPLICABLE

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark

YES

NO

whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  

Accelerated filer  

Non-accelerated filer  

Smaller Reporting Company  

whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

As of April 16, 2012, 288,321,052 shares of the issuer’s common stock were outstanding.



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Cigna Corporation

Index

Page

PART I

FINANCIAL INFORMATION

1

ITEM 1

Financial Statements

1

Consolidated Statements of Income

1

Consolidated Statements of Comprehensive Income

2

Consolidated Balance Sheets

3

Consolidated Statement of Changes in Total Equity

4

Consolidated Statements of Cash Flows

5

Notes to the Consolidated Financial Statements

6

ITEM 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

46

ITEM 3

Quantitative and Qualitative Disclosures About Market Risk

80

ITEM 4

Controls and Procedures

81

PART II

OTHER INFORMATION

82

ITEM 1

Legal Proceedings

82

ITEM 1A

Risk Factors

83

ITEM 2

Unregistered Sales of Equity Securities and Use of Proceeds

84

ITEM 6

Exhibits

85

Signature

86

Index to Exhibits

E-1




As used herein, “Cigna” for the “Company” refers to one or more of Cigna Corporation and its consolidated subsidiaries.



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PART I     FINANCIAL INFORMATION

ITEM 1   Financial Statements

Cigna Corporation

Consolidated Statements of Income

(In millions, except per share amounts)

Unaudited

Three Months Ended

March 31,

2012

2011

Revenues

Premiums and fees

$

6,141

$

4,733

Net investment income

288

279

Mail order pharmacy revenues

386

339

Other revenues

(40)

34

Realized investment gains (losses):

Other-than-temporary impairments on fixed maturities, net

(3)

-

Other realized investment gains

16

26

Total realized investment gains

13

26

TOTAL REVENUES

 

6,788

 

5,411

Benefits and Expenses

Health Care medical claims expense

3,037

2,077

Other benefit expenses

1,104

994

Mail order pharmacy cost of goods sold

321

276

GMIB fair value (gain)

(67)

(16)

Other operating expenses

1,841

1,501

TOTAL BENEFITS AND EXPENSES

 

6,236

 

4,832

Income before Income Taxes

552

579

Income taxes:

Current

135

22

Deferred

46

143

TOTAL TAXES

 

181

 

165

Net Income

 

371

 

414

Less: Net Income Attributable to Noncontrolling Interest

 

-

 

1

Shareholders’ Net Income

$

371

$

413

Shareholders’ Net Income Per Share:

 

 

 

 

Basic

$

1.30

$

1.53

Diluted

$

1.28

$

1.51

Dividends Declared Per Share

$

0.04

$

0.04

The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.

CIGNA CORPORATION – Form 10-Q – 1


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Cigna Corporation

Consolidated Statements of Comprehensive Income

(In millions, except per share amounts)

Unaudited

Three Months Ended March 31,

2012

2011

Shareholders’ net income

$

371

$

413

Shareholders’ Other Comprehensive Income (Loss):

 

 

 

 

Net unrealized appreciation (depreciation) on securities:

 

 

 

 

Fixed maturities

23

(8)

Equity securities

1

2

Net unrealized appreciation (depreciation) on securities

24

(6)

Net unrealized depreciation, derivatives

(5)

(5)

Net translation of foreign currencies

35

48

Postretirement benefits liability adjustment

11

4

Shareholders’ Other comprehensive income

65

41

Shareholders’ comprehensive income

436

454

Comprehensive income attributable to noncontrolling interest:

 

 

 

 

Net income attributable to noncontrolling interest

-

1

Total Comprehensive income

$

436

$

455

The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.

CIGNA CORPORATION – Form 10-Q – 2


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Cigna Corporation

Consolidated Balance Sheets

(In millions, except per share amounts)

Unaudited

As of

March 31, 2012

As of

December 31, 2011

ASSETS

Investments:

Fixed maturities, at fair value (amortized cost, $15,170; $14,257)

$

17,049

$

16,217

Equity securities, at fair value (cost, $124; $124)

107

100

Commercial mortgage loans

3,259

3,301

Policy loans

1,488

1,502

Real estate

79

87

Other long-term investments

1,095

1,058

Short-term investments

187

225

Total investments

23,264

22,490

Cash and cash equivalents

2,111

4,690

Accrued investment income

291

252

Premiums, accounts and notes receivable, net

1,897

1,358

Reinsurance recoverables

6,187

6,256

Deferred policy acquisition costs

884

817

Property and equipment

1,083

1,024

Deferred income taxes, net

533

803

Goodwill

5,726

3,164

Other assets, including other intangibles

2,328

1,750

Separate account assets

8,481

8,093

TOTAL ASSETS

 

 

$

52,785

 

 

$

50,697

LIABILITIES

Contractholder deposit funds

$

8,566

$

8,553

Future policy benefits

8,404

8,593

Unpaid claims and claim expenses

4,176

4,146

Health Care medical claims payable

1,698

1,095

Unearned premiums and fees

1,050

502

Total insurance and contractholder liabilities

23,894

22,889

Accounts payable, accrued expenses and other liabilities

6,632

6,627

Short-term debt

227

104

Long-term debt

4,990

4,990

Separate account liabilities

8,481

8,093

TOTAL LIABILITIES

 

 

 

44,224

 

 

 

42,703

Contingencies — Note 17

SHAREHOLDERS’ EQUITY

Common stock (par value per share, $0.25; shares issued, 366; authorized, 600)

92

92

Additional paid-in capital

3,268

3,188

Net unrealized appreciation, fixed maturities

 

 

$

762

 

 

$

739

Net unrealized appreciation, equity securities

 

 

2

 

 

1

Net unrealized depreciation, derivatives

 

 

(28)

 

 

(23)

Net translation of foreign currencies

 

 

38

 

 

3

Postretirement benefits liability adjustment

 

 

(1,496)

 

 

(1,507)

Accumulated other comprehensive loss

(722)

(787)

Retained earnings

11,123

10,787

Less treasury stock, at cost

(5,200)

(5,286)

Total shareholders’ equity

8,561

7,994

Total liabilities and shareholders’ equity

$

52,785

$

50,697

SHAREHOLDERS’ EQUITY PER SHARE

 

 

$

29.69

 

 

$

28.00

The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.

CIGNA CORPORATION – Form 10-Q – 3


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Cigna Corporation

Consolidated Statement of Changes in Total Equity

Unaudited

For the three months ended March 31, 2012

(In millions, except per share amounts)

Common

Stock

Additional

Paid-in Capital

Accumulated Other

Comprehensive Loss

Retained

Earnings

Treasury

Stock

Shareholders’

Equity

Noncontrolling

Interest

Total

Equity

Balance at January 1, 2012, as retrospectively adjusted

$

92

$

3,188

$

(787)

$

10,787

$

(5,286)

$

7,994

$

-

$

7,994

Effect of issuing stock for employee benefit plans

80

(24)

86

142

142

Other comprehensive income

65

65

65

Net income

371

371

-

371

Common dividends declared (per share: $0.04)

(11)

(11)

(11)

BALANCE AT MARCH 31, 2012

$

92

$

3,268

$

(722)

$

11,123

$

(5,200)

$

8,561

$

-

$

8,561

For the three months ended March 31, 2011

(In millions, except per share amounts)

Common

Stock

Additional

Paid-in Capital

Accumulated Other

Comprehensive Loss

Retained

Earnings

Treasury

Stock

Shareholders’

Equity

Noncontrolling

Interest

Total

Equity

Balance at January 1, 2011, as previously reported

$

88

$

2,534

$

(614)

$

9,879

$

(5,242)

$

6,645

$

18

$

6,663

Cumulative effect of amended accounting guidance for deferred policy acquisition costs

(289)

(289)

(289)

Balance at January 1, 2011, as retrospectively adjusted

88

2,534

(614)

9,590

(5,242)

6,356

18

6,374

Effect of issuing stock for employee benefit plans

9

(27)

93

75

75

Effect of acquiring noncontrolling interest

4

4

(19)

(15)

Other comprehensive income

41

41

41

Net income

413

413

1

414

Common dividends declared (per share: $0.04)

(11)

(11)

(11)

Repurchase of common stock

(163)

(163)

(163)

BALANCE AT MARCH 31, 2011

$

88

$

2,547

$

(573)

$

9,965

$

(5,312)

$

6,715

$

-

$

6,715

The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.

CIGNA CORPORATION – Form 10-Q – 4


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Cigna Corporation

Consolidated Statements of Cash Flows

(In millions)

Unaudited

Three Months Ended March 31,

2012

2011

Cash Flows from Operating Activities

 

 

 

 

Net income

$

371

$

414

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

126

83

Realized investment gains

(13)

(26)

Deferred income taxes

46

143

Gains on sale of businesses (excluding discontinued operations)

(5)

(5)

Net changes in assets and liabilities, net of non-operating effects:

Premiums, accounts and notes receivable

(215)

(129)

Reinsurance recoverables

(30)

(2)

Deferred policy acquisition costs

(47)

(48)

Other assets

155

41

Insurance liabilities

637

77

Accounts payable, accrued expenses and other liabilities

(166)

(366)

Current income taxes

105

(87)

Other, net

(23)

(44)

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

941

 

51

Cash Flows from Investing Activities

 

 

 

 

Proceeds from investments sold:

Fixed maturities

221

155

Commercial mortgage loans

165

28

Other (primarily short-term and other long-term investments)

300

221

Investment maturities and repayments:

Fixed maturities

317

319

Commercial mortgage loans

36

75

Investments purchased:

Fixed maturities

(831)

(790)

Equity securities

-

(8)

Commercial mortgage loans

(180)

(18)

Other (primarily short-term and other long-term investments)

(167)

(213)

Property and equipment purchases

(81)

(73)

Acquisitions, net of cash acquired

(3,199)

(12)

NET CASH USED IN INVESTING ACTIVITIES

 

(3,419)

 

(316)

Cash Flows from Financing Activities

 

 

 

 

Deposits and interest credited to contractholder deposit funds

261

321

Withdrawals and benefit payments from contractholder deposit funds

(231)

(303)

Change in cash overdraft position

22

6

Net change in short-term debt

123

(222)

Issuance of long-term debt

-

591

Repayment of long-term debt

(326)

(2)

Repurchase of common stock

-

(152)

Issuance of common stock

45

66

NET CASH (USED IN) / PROVIDED BY FINANCING ACTIVITIES

 

(106)

 

305

Effect of foreign currency rate changes on cash and cash equivalents

5

11

Net (decrease) / increase in cash and cash equivalents

(2,579)

51

Cash and cash equivalents, January 1,

4,690

1,605

Cash and cash equivalents, March 31,

$

2,111

$

1,656

Supplemental Disclosure of Cash Information:

Income taxes paid, net of refunds

$

22

$

106

Interest paid

$

54

$

27

The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.

CIGNA CORPORATION – Form 10-Q – 5


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Cigna Corporation

Notes to the Consolidated Financial Statements (Unaudited)

NOTE 1     Basis of Presentation

Cigna Corporation is a holding company and is not an insurance company. Its subsidiaries conduct various businesses, that are described in its Annual Report on Form 10-K for the year ended December 31, 2011 (“2011 Form 10-K”). As used in this document, “Cigna” or “the Company” may refer to Cigna Corporation itself, one or more of its subsidiaries, or Cigna Corporation and its consolidated subsidiaries. The Consolidated Financial Statements include the accounts of Cigna Corporation and its significant subsidiaries. Intercompany transactions and accounts have been eliminated in consolidation. These Consolidated Financial Statements were prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

The Company is a global health services organization with insurance subsidiaries that are major providers of medical, dental, disability, life and accident insurance and related products and services. In the U.S., the majority of these products and services are offered through employers and other groups (e.g. unions and associations) and, in selected international markets, Cigna offers supplemental health, life and accident insurance products and international health care coverage and services to businesses, governmental and non governmental organizations and individuals. In addition to its ongoing operations described above, the Company also has certain run off operations, including a Run off Reinsurance segment.

The interim consolidated financial statements are unaudited but include all adjustments (including normal recurring adjustments) necessary, in the opinion of management, for a fair statement of financial position and results of operations for the periods reported. The interim consolidated financial statements and notes should be read in conjunction with the Consolidated Financial Statements and Notes in the Company’s 2011 Form 10-K.

The preparation of interim consolidated financial statements necessarily relies heavily on estimates. This and certain other factors, such as the seasonal nature of portions of the health care and related benefits business as well as competitive and other market conditions, call for caution in estimating full year results based on interim results of operations. Certain reclassifications have been made to prior period amounts to conform to the current presentation.

As explained further in Note 3, on January 31, 2012, the Company acquired HealthSpring, Inc. for approximately $3.8 billion.

NOTE 2     Recent Accounting Pronouncements

Deferred policy acquisition costs. Effective January 1, 2012, the Company adopted the Financial Accounting Standards Board’s (“FASB”) amended guidance (ASU 2010-26) on accounting for costs to acquire or renew insurance contracts. This guidance requires certain sales compensation and telemarketing costs related to unsuccessful efforts and any indirect costs to be expensed as incurred. The Company’s deferred acquisition costs arise from sales and renewal activities primarily in its International segment. This amended guidance was implemented through retrospective adjustment of comparative prior periods. As reported in the Consolidated Statement of Equity, the cumulative effect of adopting the amended accounting guidance as of January 1, 2011 was a reduction in Total Shareholders’ Equity of $289 million. Full-year 2011 shareholders’ net income on a retrospectively adjusted basis was reduced by $67 million, partially offset by increased foreign currency translation of $6 million, resulting in a cumulative impact on Total Shareholders’ Equity as of December 31, 2011 of $350 million. Summarized below are the effects of the amended guidance on previously reported amounts for the three months ended March 31, 2011.

CIGNA CORPORATION – Form 10-Q – 6


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Condensed Consolidated Statement of Income

Three Months Ended March 31, 2011

(in millions)

As previously

reported

Effect of amended

accounting guidance

As retrospectively

adjusted

Revenues, excluding other revenues

$

5,377

$

-

$

5,377

Other revenues

36

(2)

34

Total Revenues

5,413

(2)

5,411

Benefits and expenses, excluding other operating expenses

3,331

3,331

Other operating expenses

1,482

19

1,501

Total benefits and expenses

4,813

19

4,832

Income before Income Taxes

600

(21)

579

Current income taxes

22

22

Deferred income taxes

148

(5)

143

Total taxes

170

(5)

165

Net income

430

(16)

414

Less: Net income attributable to Noncontrolling Interest

1

-

1

SHAREHOLDERS’ NET INCOME

$

429

$

(16)

$

413

Earnings per share:

Basic

$

1.59

$

(0.06)

$

1.53

Diluted

$

1.57

$

(0.06)

$

1.51

Condensed Consolidated Balance sheet

As of December 31, 2011

(in millions)

As previously

reported

Effect of amended

accounting guidance

As retrospectively

adjusted

Deferred policy acquisition costs

$

1,312

$

(495)

$

817

Deferred income taxes, net

632

171

803

Other assets, including other intangibles

1,776

(26)

1,750

All other assets

47,327

47,327

TOTAL ASSETS

$

51,047

$

(350)

$

50,697

Net translation of foreign currencies

$

(3)

$

6

$

3

Retained earnings

11,143

(356)

10,787

Other shareholders’ equity

(2,796)

(2,796)

TOTAL SHAREHOLDERS’ EQUITY

$

8,344

$

(350)

$

7,994

CIGNA CORPORATION – Form 10-Q – 7


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Condensed Consolidated Statement of Cash Flows

Three Months Ended March 31, 2011

(in millions)

As previously

reported

Effect of amended

accounting guidance

As retrospectively

adjusted

Net income

$

430

$

(16)

$

414

Deferred income taxes

148

(5)

143

Deferred policy acquisition expenses

(67)

19

(48)

Other assets

39

2

41

Note 16

Segment information: International

Three Months Ended March 31, 2011

(in millions)

 

As previously

reported

 

Effect of amended

accounting guidance

 

As retrospectively

adjusted

Premiums and fees and other revenues

$

706

$

(2)

$

704

Segment earnings

77

(16)

61

Presentation of Comprehensive Income. Effective January 1, 2012, the Company adopted the FASB’s amended guidance (ASU 2011-05) that requires presenting net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive statements. Neither measurement of comprehensive income nor disclosure requirements for reclassification adjustments between other comprehensive income and net income were affected by this amended guidance. The Company has elected to present a separate statement of comprehensive income following the statement of income and has retrospectively adjusted prior periods to conform to the new presentation, as required.

Amendments to Fair Value Measurement and Disclosure. Effective January 1, 2012, the Company adopted the FASB’s amended guidance on fair value measurement and disclosure (ASU 2011-04) on a prospective basis. A key objective was to achieve common fair value measurement and disclosure requirements between U.S. GAAP and IFRS. The amended guidance changes certain fair value measurement principles and expands required disclosures to include quantitative and qualitative information about unobservable inputs in Level 3 measurements and leveling for financial instruments not carried at fair value in the financial statements. Upon adoption, there were no effects on the Company’s fair value measurements. See Note 7 for expanded fair value disclosures.

CIGNA CORPORATION – Form 10-Q – 8


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NOTE 3     Acquisitions

The Company may from time to time acquire or dispose of assets, subsidiaries or lines of business. Significant transactions are described below.

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