Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended September 30, 2012

 

OR

 

o 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.

 

R

 

o

 

· 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).

 

R

 

o

 

· 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 R

Accelerated filer o

Non-accelerated filer o

Smaller Reporting Company o

 

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

 

 

o

 

 

R

 

As of October 15, 2012, 285,890,413 shares of the issuer’s common stock were outstanding.

 



Table of Contents

 

Cigna Corporation

 

INDEX

 

 

 

Page

PART I

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

 

Consolidated Statements of Income

1

 

Consolidated Statements of Comprehensive Income

2

 

Consolidated Balance Sheets

3

 

Consolidated Statements of Changes in Total Equity

4

 

Consolidated Statements of Cash Flows

6

 

Notes to the Consolidated Financial Statements

7

Item 2.

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

51

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

85

Item 4.

Controls and Procedures

86

 

 

 

 

 

 

PART II

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

87

Item 1.A.

Risk Factors

88

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

89

Item 6.

Exhibits

90

SIGNATURE

91

INDEX TO EXHIBITS

E-1

 

 

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

 



Table of Contents

 

 

 

 

 

Part I.   FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.   FINANCIAL STATEMENTS

 

 

Cigna Corporation

Consolidated Statements of Income

 

 

 

 

Unaudited

 

Unaudited

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

(In millions, except per share amounts)

 

2012

 

2011

 

2012

 

2011

 

Revenues

 

 

 

 

 

 

 

 

 

Premiums and fees

 

$

6,637

 

$

4,748

 

$

19,464

 

$

14,267

 

Net investment income

 

283

 

297

 

854

 

860

 

Mail order pharmacy revenues

 

401

 

368

 

1,189

 

1,056

 

Other revenues

 

26

 

184

 

76

 

289

 

Realized investment gains (losses):

 

 

 

 

 

 

 

 

 

Other-than-temporary impairments on fixed maturities, net

 

-

 

(23)

 

(6)

 

(25)

 

Other realized investment gains

 

11

 

36

 

26

 

81

 

Total realized investment gains

 

11

 

13

 

20

 

56

 

Total revenues

 

7,358

 

5,610

 

21,603

 

16,528

 

Benefits and Expenses

 

 

 

 

 

 

 

 

 

Health Care medical claims expense

 

3,269

 

2,014

 

9,711

 

6,125

 

Other benefit expenses

 

1,203

 

1,272

 

3,521

 

3,324

 

Mail order pharmacy cost of goods sold

 

324

 

309

 

975

 

874

 

GMIB fair value (gain) loss

 

(53)

 

224

 

(33)

 

245

 

Other operating expenses

 

1,897

 

1,518

 

5,571

 

4,516

 

Total benefits and expenses

 

6,640

 

5,337

 

19,745

 

15,084

 

Income before Income Taxes

 

718

 

273

 

1,858

 

1,444

 

Income taxes:

 

 

 

 

 

 

 

 

 

Current

 

228

 

114

 

574

 

274

 

Deferred

 

24

 

(24)

 

67

 

182

 

Total income taxes

 

252

 

90

 

641

 

456

 

Net Income

 

466

 

183

 

1,217

 

988

 

Less: Net Income Attributable to Noncontrolling Interest

 

-

 

-

 

-

 

1

 

Shareholders’ Net Income

 

$

466

 

$

183

 

$

1,217

 

$

987

 

Shareholders’ Net Income Per Share:

 

 

 

 

 

 

 

 

 

Basic

 

$

1.64

 

$

0.68

 

$

4.27

 

$

3.67

 

Diluted

 

$

1.61

 

$

0.67

 

$

4.20

 

$

3.62

 

Dividends Declared Per Share

 

$

-

 

$

-

 

$

0.04

 

$

0.04

 

 

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

 

1



Table of Contents

 

Cigna Corporation

Consolidated Statements of Comprehensive Income

 

 

 

 

Unaudited

 

Unaudited

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

(In millions, except per share amounts)

 

2012

 

2011

 

2012

 

2011

 

Shareholders’ net income

 

$

466

 

$

183

 

$

1,217

 

$

987

 

Shareholders’ other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

Net unrealized appreciation on securities:

 

 

 

 

 

 

 

 

 

Fixed maturities

 

83

 

94

 

169

 

175

 

Equity securities

 

-

 

(3)

 

2

 

(3)

 

Net unrealized appreciation on securities

 

83

 

91

 

171

 

172

 

Net unrealized appreciation (depreciation), derivatives

 

(4)

 

13

 

(4)

 

3

 

Net translation of foreign currencies

 

31

 

(95)

 

23

 

(7)

 

Postretirement benefits liability adjustment

 

8

 

4

 

44

 

13

 

Shareholders’ other comprehensive income

 

118

 

13

 

234

 

181

 

Shareholders’ comprehensive income

 

584

 

196

 

1,451

 

1,168

 

Comprehensive income attributable to noncontrolling interest:

 

 

 

 

 

 

 

 

 

Net income attributable to noncontrolling interest

 

-

 

-

 

-

 

1

 

Total comprehensive income

 

$

 584

 

$

 196

 

$

 1,451

 

$

 1,169

 

 

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

 

2



Table of Contents

 

Cigna Corporation

Consolidated Balance Sheets

 

 

(In millions, except per share amounts)

 

Unaudited
As of
September 30, 2012

 

As of
December 31, 2011

 

Assets

 

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

 

Fixed maturities, at fair value (amortized cost, $15,577; $14,257)

 

 

 

$

17,868

 

 

 

$

16,217

 

Equity securities, at fair value (cost, $121; $124)

 

 

 

109

 

 

 

100

 

Commercial mortgage loans

 

 

 

2,946

 

 

 

3,301

 

Policy loans

 

 

 

1,519

 

 

 

1,502

 

Real estate

 

 

 

83

 

 

 

87

 

Other long-term investments

 

 

 

1,197

 

 

 

1,058

 

Short-term investments

 

 

 

151

 

 

 

225

 

Total investments

 

 

 

23,873

 

 

 

22,490

 

Cash and cash equivalents

 

 

 

2,236

 

 

 

4,690

 

Accrued investment income

 

 

 

283

 

 

 

252

 

Premiums, accounts and notes receivable, net

 

 

 

1,714

 

 

 

1,358

 

Reinsurance recoverables

 

 

 

6,391

 

 

 

6,256

 

Deferred policy acquisition costs

 

 

 

1,022

 

 

 

817

 

Property and equipment

 

 

 

1,136

 

 

 

1,024

 

Deferred income taxes, net

 

 

 

407

 

 

 

803

 

Goodwill

 

 

 

5,878

 

 

 

3,164

 

Other assets, including other intangibles

 

 

 

2,229

 

 

 

1,750

 

Separate account assets

 

 

 

8,362

 

 

 

8,093

 

Total assets

 

 

 

$

53,531

 

 

 

$

50,697

 

Liabilities

 

 

 

 

 

 

 

 

 

Contractholder deposit funds

 

 

 

$

8,537

 

 

 

$

8,553

 

Future policy benefits

 

 

 

9,209

 

 

 

8,593

 

Unpaid claims and claim expenses

 

 

 

4,253

 

 

 

4,146

 

Health Care medical claims payable

 

 

 

1,581

 

 

 

1,095

 

Unearned premiums and fees

 

 

 

474

 

 

 

502

 

Total insurance and contractholder liabilities

 

 

 

24,054

 

 

 

22,889

 

Accounts payable, accrued expenses and other liabilities

 

 

 

6,373

 

 

 

6,627

 

Short-term debt

 

 

 

226

 

 

 

104

 

Long-term debt

 

 

 

4,986

 

 

 

4,990

 

Separate account liabilities

 

 

 

8,362

 

 

 

8,093

 

Total liabilities

 

 

 

44,001

 

 

 

42,703

 

Contingencies — Note 18

 

 

 

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

 

 

 

 

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

 

 

 

92

 

 

 

92

 

Additional paid-in capital

 

 

 

3,282

 

 

 

3,188

 

Net unrealized appreciation, fixed maturities

 

$

908

 

 

 

$

739

 

 

 

Net unrealized appreciation, equity securities

 

3

 

 

 

1

 

 

 

Net unrealized depreciation, derivatives

 

(27)

 

 

 

(23)

 

 

 

Net translation of foreign currencies

 

26

 

 

 

3

 

 

 

Postretirement benefits liability adjustment

 

(1,463)

 

 

 

(1,507)

 

 

 

Accumulated other comprehensive loss

 

 

 

(553)

 

 

 

(787)

 

Retained earnings

 

 

 

11,962

 

 

 

10,787

 

Less treasury stock, at cost

 

 

 

(5,253)

 

 

 

(5,286)

 

Total shareholders’ equity

 

 

 

9,530

 

 

 

7,994

 

Total liabilities and shareholders’ equity

 

 

 

$

53,531

 

 

 

$

50,697

 

Shareholders’ Equity Per Share

 

 

 

$

33.24

 

 

 

$

28.00

 

 

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

 

3


 


Table of Contents

 

Cigna Corporation

Consolidated Statements of Changes in Total Equity

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Unaudited

 

 

 

Additional

 

Other

 

 

 

 

 

 

 

 

 

 

 

For the three months ended September 30, 2012

Common

 

Paid-in

 

Comprehensive

 

Retained

 

Treasury

 

Shareholders’

 

Noncontrolling

 

Total

 

(In millions, except per share amounts)

 

Stock

 

Capital

 

Loss

 

Earnings

 

Stock

 

Equity

 

Interest

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at July 1, 2012, as retrospectively adjusted

 

$

92

 

$

3,276

 

$

(671)

 

$

11,501

 

$

(5,176)

 

$

9,022

 

$

-

 

$

9,022

 

Effect of issuing stock for employee benefit plans

 

 

 

6

 

 

 

(5)

 

8

 

9

 

 

 

9

 

Other comprehensive income

 

 

 

 

 

118

 

 

 

 

 

118

 

 

 

118

 

Net income

 

 

 

 

 

 

 

466

 

 

 

466

 

-

 

466

 

Repurchase of common stock

 

 

 

 

 

 

 

 

 

(85)

 

(85)

 

 

 

(85)

 

Balance at September 30, 2012

 

$

92

 

$

3,282

 

$

(553)

 

$

11,962

 

$

(5,253)

 

$

9,530

 

$

-

 

$

9,530

 

 

 

 

For the three months ended September 30, 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 July 1, 2011, as retrospectively adjusted

 

$

88

 

$

2,556

 

$

(446)

 

$

10,336

 

$

(5,318)

 

$

7,216

 

$

-

 

$

7,216

 

Effect of issuing stock for employee benefit plans

 

 

 

5

 

 

 

(3)

 

16

 

18

 

 

 

18

 

Other comprehensive income

 

 

 

 

 

13

 

 

 

 

 

13

 

 

 

13

 

Net income

 

 

 

 

 

 

 

183

 

 

 

183

 

-

 

183

 

Balance at September 30, 2011

 

$

88

 

$

2,561

 

$

(433)

 

$

10,516

 

$

(5,302)

 

$

7,430

 

$

-

 

$

7,430

 

 

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

 

4



Table of Contents

 

Cigna Corporation

Consolidated Statements of Changes in Total Equity

 

 

 

Unaudited

For the nine months ended September 30, 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

 

 

 

94

 

 

 

(31)

 

118

 

181

 

 

 

181

 

Other comprehensive income

 

 

 

 

 

234

 

 

 

 

 

234

 

 

 

234

 

Net income

 

 

 

 

 

 

 

1,217

 

 

 

1,217

 

-

 

1,217

 

Common dividends declared (per share: $0.04)

 

 

 

 

 

 

 

(11)

 

 

 

(11)

 

 

 

(11)

 

Repurchase of common stock

 

 

 

 

 

 

 

-

 

(85)

 

(85)

 

 

 

(85)

 

Balance at September 30, 2012

 

$

92

 

$

3,282

 

$

(553)

 

$

11,962

 

$

(5,253)

 

$

9,530

 

$

-

 

$

9,530

 

 

 

 

For the nine months ended September 30, 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

 

 

 

23

 

 

 

(50)

 

165

 

138

 

 

 

138

 

Effect of acquiring noncontrolling interest

 

 

 

4

 

 

 

 

 

 

 

4

 

(19)

 

(15)

 

Other comprehensive income

 

 

 

 

 

181

 

 

 

 

 

181

 

 

 

181

 

Net income

 

 

 

 

 

 

 

987

 

 

 

987

 

1

 

988

 

Common dividends declared (per share: $0.04)

 

 

 

 

 

 

 

(11)

 

 

 

(11)

 

 

 

(11)

 

Repurchase of common stock

 

 

 

 

 

 

 

 

 

(225)

 

(225)

 

 

 

(225)

 

Balance at September 30, 2011

 

$

88

 

$

2,561

 

$

(433)

 

$

10,516

 

$

(5,302)

 

$

7,430

 

$

-

 

$

7,430

 

 

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

 

5



Table of Contents

 

Cigna Corporation

Consolidated Statements of Cash Flows

 

 

 

 

Unaudited

 

 

 

Nine Months Ended
September 30,

 

(In millions)

 

2012

 

 

2011

 

Cash Flows from Operating Activities

 

 

 

 

 

 

Net income

 

$

1,217

 

 

$

988

 

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

 

 

 

 

 

 

Depreciation and amortization

 

406

 

 

252

 

Realized investment gains

 

(20)

 

 

(56)

 

Deferred income taxes

 

67

 

 

182

 

Gains on sale of businesses (excluding discontinued operations)

 

(14)

 

 

(20)

 

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

 

 

 

 

 

 

Premiums, accounts and notes receivable

 

(20)

 

 

(133)

 

Reinsurance recoverables

 

50

 

 

8

 

Deferred policy acquisition costs

 

(106)

 

 

(106)

 

Other assets

 

166

 

 

(292)

 

Insurance liabilities

 

75

 

 

380

 

Accounts payable, accrued expenses and other liabilities

 

(394)

 

 

293

 

Current income taxes

 

141

 

 

(202)

 

Other, net

 

(11)

 

 

(51)

 

Net cash provided by operating activities

 

1,557

 

 

1,243

 

Cash Flows from Investing Activities

 

 

 

 

 

 

Proceeds from investments sold:

 

 

 

 

 

 

Fixed maturities

 

439

 

 

452

 

Equity securities

 

8

 

 

5

 

Commercial mortgage loans

 

325

 

 

166

 

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

 

649

 

 

999

 

Investment maturities and repayments:

 

 

 

 

 

 

Fixed maturities

 

1,030

 

 

943

 

Commercial mortgage loans

 

311

 

 

274

 

Investments purchased:

 

 

 

 

 

 

Fixed maturities

 

(1,907)

 

 

(2,309)

 

Equity securities

 

(8)

 

 

(18)

 

Commercial mortgage loans

 

(314)

 

 

(279)

 

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

 

(600)

 

 

(1,169)

 

Property and equipment purchases

 

(329)

 

 

(291)

 

Acquisitions and dispositions, net of cash acquired

 

(3,468)

 

 

1

 

Net cash used in investing activities

 

(3,864)

 

 

(1,226)

 

Cash Flows from Financing Activities

 

 

 

 

 

 

Deposits and interest credited to contractholder deposit funds

 

999

 

 

1,002

 

Withdrawals and benefit payments from contractholder deposit funds

 

(927)

 

 

(895)

 

Change in cash overdraft position

 

19

 

 

(57)

 

Net change in short-term debt

 

123

 

 

(222)

 

Issuance of long-term debt

 

-

 

 

587

 

Repayment of long-term debt

 

(326)

 

 

(2)

 

Repurchase of common stock

 

(85)

 

 

(225)

 

Issuance of common stock

 

58

 

 

100

 

Common dividends paid

 

(11)

 

 

(11)

 

Net cash (used in) / provided by financing activities

 

(150)

 

 

277

 

Effect of foreign currency rate changes on cash and cash equivalents

 

3

 

 

3

 

Net (decrease) / increase in cash and cash equivalents

 

(2,454)

 

 

297

 

Cash and cash equivalents, January 1,

 

4,690

 

 

1,605

 

Cash and cash equivalents, September 30,

 

$

2,236

 

 

$

1,902

 

Supplemental Disclosure of Cash Information:

 

 

 

 

 

 

 

 

Income taxes paid, net of refunds

 

$

414

 

 

$

466

 

Interest paid

 

$

186

 

 

$

124

 

 

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

 

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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 dedicated to helping its customers improve their health, well-being and sense of security.  Its insurance subsidiaries are major providers of medical, dental, disability, life and accident insurance and related products and services,  the majority of which are offered through employers and other groups (e.g. governmental and non-governmental organizations, unions and associations). Cigna also offers Medicare and Medicaid products and health, life and accident insurance coverages primarily to individuals in the U.S. and selected international markets.  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 filed on February 27, 2012 and as updated by Cigna’s Current Report on Form 8-K filed on August 8, 2012 (collectively, the “2011 Annual Report”).

 

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 August 31, 2012, the Company acquired Great American Supplemental Benefits Group for approximately $310 million, and on January 31, 2012, the Company acquired HealthSpring, Inc. for approximately $3.8 billion.

 

Note 2     Recent Accounting Pronouncements

 

 

Fees Paid to the Federal Government by Health Insurers (Accounting Standards Update (“ASU”) 2011-06)  In 2011, the Financial Accounting Standards Board (“FASB”) issued accounting guidance for the health insurance industry assessment (the “fee”) mandated by the Patient Protection and Affordable Care Act of 2010 (“Health Care Reform”).  The fee will be levied on health insurers beginning in 2014 based on a ratio of an insurer’s net health insurance premiums written for the previous calendar year compared to the U.S. health insurance industry total. In addition, because these fees will generally not be tax deductible, the Company’s effective tax rate is expected to be adversely impacted in future periods.  Under the guidance, the liability for the fee will be estimated and recorded in full each year beginning in 2014 when health insurance is first provided.  A corresponding deferred cost will be recorded and amortized over the calendar year.  The amount of the fees is expected to be material, although the Company is unable to estimate the impact of these fees on shareholders’ net income and the effective tax rate because guidance for these calculations has not been finalized.

 

Deferred policy acquisition costs.  Effective January 1, 2012, the Company adopted the FASB’s 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 supplemental health, life and accident business reported in the 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 and nine months ended September 30, 2011.  This implementation had no impact on the underlying economic value or cash flows of the Company’s businesses, nor did it impact the Company’s liquidity or the statutory surplus of its insurance subsidiaries.

 

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Table of Contents

 

Condensed Consolidated Statement of Income

Three Months Ended September 30, 2011

 

 

 

As previously

 

Effect of amended

 

As retrospectively

 

(in millions)

 

reported

 

accounting guidance

 

adjusted

 

Revenues, excluding other revenues

 

$

5,426

 

$

 

 

$

5,426

 

Other revenues

 

187

 

(3)

 

184

 

Total revenues

 

5,613

 

(3)

 

5,610

 

Benefits and expenses, excluding other operating expenses

 

3,819

 

 

 

3,819

 

Other operating expenses

 

1,497

 

21

 

1,518

 

Total benefits and expenses

 

5,316

 

21

 

5,337

 

Income before income taxes

 

297

 

(24)

 

273

 

Current income taxes

 

114

 

 

 

114

 

Deferred income taxes

 

(17)

 

(7)

 

(24)

 

Total taxes

 

97

 

(7)

 

90

 

Net income

 

200

 

(17)

 

183

 

Less: net income attributable to noncontrolling interest

 

-

 

 

 

-

 

Shareholders’ Net Income

 

$

200

 

$

(17)

 

$

183

 

Earnings per share:

 

 

 

 

 

 

 

Basic

 

$

0.74

 

$

(0.06)

 

$

0.68

 

Diluted

 

$

0.74

 

$

(0.07)

 

$

0.67

 

 

 

Condensed Consolidated Statement of Income

Nine Months Ended September 30, 2011

 

 

 

As previously

 

Effect of amended

 

As retrospectively

 

(in millions)

 

reported

 

accounting guidance

 

adjusted

 

Revenues, excluding other revenues

 

$   

16,239

 

$

 

 

$

16,239

 

Other revenues

 

296

 

(7)

 

289

 

Total revenues

 

16,535

 

(7)

 

16,528

 

Benefits and expenses, excluding other operating expenses

 

10,568

 

 

 

10,568

 

Other operating expenses

 

4,454

 

62

 

4,516

 

Total benefits and expenses

 

15,022

 

62

 

15,084

 

Income before income taxes

 

1,513

 

(69)

 

1,444

 

Current income taxes

 

274

 

 

 

274

 

Deferred income taxes

 

201

 

(19)

 

182

 

Total taxes

 

475

 

(19)

 

456

 

Net income

 

1,038

 

(50)

 

988

 

Less: net income attributable to noncontrolling interest

 

1

 

 

 

1

 

Shareholders’ Net Income

 

$   

1,037

 

$

(50)

 

$

987

 

Earnings per share:

 

 

 

 

 

 

 

Basic

 

$   

3.85

 

$

(0.18)

 

$

3.67

 

Diluted

 

$   

3.80

 

$

(0.18)

 

$

3.62

 

 

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Table of Contents

 

Condensed Consolidated Balance sheet

As of December 31, 2011

 

 

 

As previously

 

Effect of amended

 

As retrospectively

 

(in millions)