Cigna Reports Strong 2015 Results, Expects Revenue and Earnings Growth in 2016

BLOOMFIELD, Conn., 04 February, 2016 - Cigna Corporation (NYSE: CI) today reported strong fourth quarter and full year 2015 results with revenue and earnings contributions across the Company’s diversified portfolio of businesses driven by the continued effective execution of our strategy. Consolidated revenues for 2015 were $37.9 billion, an increase of 8% over 2014.

Cigna's adjusted income from operations for full year 2015 was $2.3 billion, or $8.66 per share, compared with $2.1 billion, or $7.87 per share, for 2014. This represents per share growth of 10% and reflects strong revenue growth and continued favorable medical and operating costs in the Global Health Care segment. For the fourth quarter of 2015, adjusted income from operations1 was $486 million, or $1.87 per share, compared to $475 million, or $1.80 per share, for the fourth quarter of 2014.

“The strong results we delivered in 2015 reflect our proven ability to create sustained value for customers and clients,” said David M. Cordani, President and Chief Executive Officer. “The effective execution of our global strategy and our differentiated capabilities provide us with strong momentum as we begin 2016. Our pending combination with Anthem will further accelerate our strategy to improve quality, choice, and affordability in the marketplace.”

Cigna also reported shareholders’ net income in 2015 of $2.1 billion, or $8.04 per share, compared to $2.1 billion, or $7.83 per share, for 2014. Shareholders’ net income for 2015 included special items1, which resulted in after-tax charges of $122 million, or $0.47 per share, for costs associated with the early redemption of long term debt as well as transaction costs related to Cigna’s proposed merger with Anthem.

For the fourth quarter of 2015, shareholders’ net income was $426 million, or $1.64 per share, compared with $467 million, or $1.77 per share, for the fourth quarter of 2014. Fourth quarter 2015 shareholders’ net income included a special item1 charge of $28 million after-tax, or $0.11 per share, for transaction costs related to Cigna’s proposed merger with Anthem.

CONSOLIDATED HIGHLIGHTS

The following table includes highlights of results and a reconciliation of adjusted income from operations1 to shareholders’ net income:

 
Consolidated Financial Results (dollars in millions, customers in thousands):
 
 

 

 

Year

Three Months Ended Ended

December 31,

 

September 30,

December 31,
2015   2014   2015   2015
 
Consolidated Revenues $ 9,528 $ 8,928 $ 9,389 $ 37,876
 
Consolidated Earnings, net of taxes
Adjusted income from operations1 $ 486 $ 475 $ 593 $ 2,256
Net realized investment gains (losses) (28) 21 7 40
Amortization of other acquired intangible assets, net1 (4) (29) (24) (80)
Special items1   (28)     -     (29)     (122)
Shareholders' net income $ 426   $ 467   $ 547   $ 2,094
 
Adjusted income from operations1, per share $ 1.87   $ 1.80   $ 2.28   $ 8.66
Shareholders' net income, per share $ 1.64   $ 1.77   $ 2.10   $ 8.04
 
As of the Periods Ended

December 31,

September 30,

2015   2014   2015
 
Global Medical Customers 14,999 14,456 14,849
 

HIGHLIGHTS OF SEGMENT RESULTS

See Exhibit 2 for a reconciliation of adjusted income (loss) from operations1 to shareholders’ net income.

Global Health Care

This segment includes Cigna’s Commercial and Government businesses that deliver medical and specialty health care products and services to domestic and multi-national clients and customers using guaranteed cost, retrospectively experience-rated and administrative services only (“ASO”) funding arrangements. Specialty health care includes behavioral, dental, disease and medical management, stop loss and pharmacy-related products and services.

 
Financial Results (dollars in millions, customers in thousands):
 
    Year
Three Months Ended Ended
December 31,   September 30, December 31,
2015   2014   2015   2015
 
Premiums and Fees $ 6,721 $ 6,254 $ 6,619 $ 26,803
Adjusted Income from Operations1 $ 394 $ 397 $ 482 $ 1,848
Adjusted Margin, After-Tax5 5.2% 5.7% 6.5% 6.2%
 
As of the Periods Ended
December 31, September 30,

Customers:

2015   2014   2015
Commercial 14,432 13,938 14,291
Government   567     518     558
Medical 14,999 14,456 14,849
 
Behavioral Care 24,674 23,853 24,591
Dental4 13,869 13,571 13,872
Pharmacy 8,068 7,542 7,980
Medicare Part D 1,476 1,188 1,472
 

Global Supplemental Benefits

This segment includes Cigna’s global individual supplemental health, life and accident insurance business, primarily in Asia, and Medicare supplement coverage in the United States.

       

Financial Results (dollars in millions, policies in thousands):

 
Year
Three Months Ended Ended
December 31, September 30, December 31,
2015   2014   2015   2015
 
Premiums and Fees7 $ 776 $ 726 $ 761 $ 3,021
Adjusted Income from Operations1 $ 54 $ 36 $ 62 $ 262
Adjusted Margin, After-Tax5 6.7% 4.8% 7.8% 8.3%
 
As of the Periods Ended
December 31, September 30,
2015   2014   2015
 
Policies7 12,888 12,342 12,808
 

Group Disability and Life

This segment includes Cigna’s group disability, life and accident insurance operations.

       

Financial Results (dollars in millions):

 
Year
Three Months Ended Ended
December 31, September 30, December 31,
2015   2014   2015   2015
 
Premiums and Fees $ 998 $ 920 $ 980 $ 3,932
Adjusted Income from Operations1 $ 83 $ 85 $ 84 $ 324
Adjusted Margin, After-Tax5 7.6% 8.4% 7.9% 7.6%
 

Corporate & Other Operations

Adjusted income (loss) from operations1 for Cigna's remaining operations is presented below:

 

Financial Results (dollars in millions):

 
    Year
Three Months Ended Ended
December 31,   September 30, December 31,
2015   2014   2015   2015
 
Corporate & Other Operations $ (45) $ (43) $ (35) $ (178)
 

2016 OUTLOOK

Cigna's outlook for full year 2016 consolidated adjusted income from operations1, 2 is in the range of $8.85 to $9.25 per share. This outlook excludes the impact of prior year reserve development and the potential effects of future capital deployment.3

 

Full-Year Ending

Projected 2016 Growth in:

December 31, 2016

 
Consolidated Revenue Mid-single digit percentage range
 
Consolidated Adjusted Income (Loss) from Operations1,2,11 High single digit percentage range
 
Global Medical Customers10 Low single digit percentage range
 
 
 
Consolidated Adjusted Income (Loss) from Operations, per share1,2,3

$8.85 to 9.25

 

Effective January 21, 2016, the Centers for Medicare & Medicaid Services (“CMS”) imposed sanctions suspending Cigna's enrollment and marketing activities related to all Cigna Medicare Advantage and standalone prescription drug plan contracts. The suspension does not impact current Cigna Medicare Advantage and Medicare Part D enrollees’ benefits or plans. Cigna is committed to ensuring that its customers have access to the quality healthcare, customer service and prescription drugs that they need and is working to resolve these matters as quickly as possible in full cooperation with CMS. The expected impact from these sanctions is reflected in Cigna's 2016 outlook for growth in revenue, adjusted income from operations1,2, adjusted income from operations per share1,2, and global medical customers.

The foregoing statements represent the Company’s current estimates of Cigna's 2016 consolidated and segment adjusted income from operations1,2 and other key metrics as of the date of this release. Actual results may differ materially depending on a number of factors. Investors are urged to read the Cautionary Note Regarding Forward-Looking Statements included in this release. Management does not assume any obligation to update these estimates.

This quarterly earnings release and the Quarterly Financial Supplement are available on Cigna’s website in the Investor Relations section (http://www.cigna.com/aboutcigna/investors).

   

Notes:

 

1.

 

Effective January 1, 2015, adjusted income (loss) from operations is defined as shareholders’ net income (loss) excluding the following after-tax adjustments: net realized investment results, net amortization of other acquired intangible assets and special items. Prior year amounts have been adjusted for the exclusion of net amortization of other acquired intangible assets. Net amortization of other acquired intangible assets in 2015 includes the after-tax impact of $23 million from the one-time benefit of an acquisition in which the fair value of acquired net assets exceeded the purchase price. Special items are identified in Exhibit 2 of this earnings release.

 

Adjusted income (loss) from operations is a measure of profitability used by Cigna’s management because it presents the underlying results of operations of Cigna’s businesses and permits analysis of trends in underlying revenue, expenses and shareholders’ net income. This consolidated measure is not determined in accordance with accounting principles generally accepted in the United States of America (GAAP) and should not be viewed as a substitute for the most directly comparable GAAP measure, shareholders’ net income. See Exhibit 2 for a reconciliation of adjusted income from operations to shareholders’ net income.

 

2.

Management is unable to provide a forward-looking reconciliation of adjusted income (loss) from operations to shareholders’ net income for full year 2016 because future net realized investment results, net amortization of other acquired intangible assets and special items cannot be identified or reasonably estimated at this time.

 

3.

The Company’s outlook excludes the potential effects of any share repurchases or business combinations that may occur after the date of this earnings release.

 

4.

Prior period dental customers have been revised to conform to current presentation.

 

5.

Adjusted margin, after-tax, is calculated by dividing adjusted income (loss) from operations by operating revenues for each segment.

 

6.

Global Health Care medical costs payable are presented net of reinsurance and other recoverables. The gross Global Health Care medical costs payable balance was $2.36 billion as of December 31, 2015 and $2.18 billion as of December 31, 2014.

 

7.

Cigna owns a 50% noncontrolling interest in its China joint venture. Cigna's 50% share of the joint venture’s earnings is reported in Other Revenues using the equity method of accounting under GAAP. As such, the premiums and fees and policy counts for the Global Supplemental Benefits segment do not include the China joint venture.

 

8.

Impact of foreign currency movements was determined by applying actual 2015 currency exchange rates to results for the full year 2014.

 

9.

Operating ratios are defined as follows:

 

 

Total Commercial medical care ratio represents medical costs as a percentage of premiums for all commercial risk products, including medical, pharmacy, dental, stop loss and behavioral products provided through guaranteed cost or experience-rated funding arrangements in both the United States and internationally.

Total Government medical care ratio represents medical costs as a percentage of premiums for Medicare Advantage, Medicare Part D, and Medicaid products.

Global Health Care Operating Expense Ratio represents operating expenses excluding acquisition related amortization expense as a percentage of operating revenue in the Global Health Care segment.

 

10.

Global medical customers include individuals who meet any one of the following criteria: are covered under a medical insurance policy, managed care arrangement, or service agreement issued by Cigna; have access to Cigna's provider network for covered services under their medical plan; or have medical claims and services that are administered by Cigna.

 

11.

The percentage growth projected in 2016 for Consolidated Adjusted Income (Loss) from Operations reflects an increase over such metric for 2015, excluding prior year reserve development of $60 million after-tax recognized in 2015.

 

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This press release, and oral statements made with respect to information contained in this release, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on Cigna's current expectations and projections about future trends, events and uncertainties. These statements are not historical facts. Forward-looking statements may include, among others, statements concerning our projected consolidated adjusted income (loss) from operations outlook for 2016; projected consolidated revenue growth and global medical customer growth, each over year end 2015; future financial or operating performance, including our ability to deliver personalized and innovative solutions for our customers and clients and future growth, business strategy, strategic or operational initiatives; economic, regulatory or competitive environments, particularly with respect to the pace and extent of change in these areas; financing or capital deployment plans; our prospects for growth in the coming years; statements regarding the proposed merger between Cigna and Anthem, Inc. (Anthem); statements regarding the timing of resolution of the issues raised by CMS; and other statements regarding Cigna’s and Anthem’s future beliefs, expectations, plans intentions, financial condition or performance. You may identify forward-looking statements by the use of words such as “believe,” “expect,” “plan,” “intend,” “anticipate,” “estimate,” “predict,” “potential,” “may,” “should,” “will” or other words or expressions of similar meaning, although not all forward-looking statements contain such terms.

Forward-looking statements are subject to risks and uncertainties, both known and unknown, that could cause actual results to differ materially from those expressed or implied in forward-looking statements. Such risks and uncertainties include, but are not limited to: our ability to achieve our financial, strategic and operational plans or initiatives; our ability to predict and manage medical costs and price effectively and develop and maintain good relationships with physicians, hospitals and other health care providers; our ability to identify potential strategic acquisitions or transactions and realize the expected benefits of such transactions; the substantial level of government regulation over our business and the potential effects of new laws or regulations, or changes in existing laws or regulations; the outcome of litigation, regulatory audits, including the CMS review and sanctions, investigations and actions and/or guaranty fund assessments; uncertainties surrounding participation in government-sponsored programs such as Medicare; the effectiveness and security of our information technology and other business systems; and unfavorable industry, economic or political conditions, including foreign currency movements; the timing and likelihood of completion of the proposed merger, including the timing, receipt and terms and conditions of any required governmental and regulatory approvals for the proposed merger that could reduce anticipated benefits or cause the parties to abandon the transaction; the possibility that the expected synergies and value creation from the proposed merger will not be realized or will not be realized within the expected time period; the risk that the businesses of Cigna and Anthem will not be integrated successfully; disruption from the proposed merger making it more difficult to maintain business and operational relationships; the risk that unexpected costs will be incurred; the possibility that the proposed merger does not close, including due to the failure to satisfy the closing conditions; the risk that financing for the proposed merger may not be available on favorable terms, as well as more specific risks and uncertainties discussed in our most recent report on Form 10-K and subsequent reports on Forms 10-Q and 8-K available on the Investor Relations section of www.cigna.com as well as on Anthem’s most recent report on Form 10-K and subsequent reports on Forms 10-Q and 8-K available on the Investor Relations section of www.antheminc.com. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made, are not guarantees of future performance or results, and are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Cigna undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required by law.

 

CIGNA CORPORATION

COMPARATIVE SUMMARY OF FINANCIAL RESULTS (unaudited)

Exhibit 1

(Dollars in millions, except per share amounts)

         
  Three Months Ended Year Ended
December 31, December 31,
    2015   2014   2015   2014
   
REVENUES
 
Premiums $ 7,461 $ 6,906 $ 29,642 $ 27,214
Fees 1,056 1,021 4,217 3,880
Net investment income 295 303 1,153 1,166
Mail order pharmacy revenues 690 614 2,536 2,239
Other revenues   73   60   271   261
Total operating revenues 9,575 8,904 37,819 34,760
Net realized investment gains (losses) (47) 24 57 154
                 
Total   $ 9,528   $ 8,928   $ 37,876   $ 34,914
 
ADJUSTED INCOME (LOSS) FROM OPERATIONS (1)
 
Global Health Care $ 394 $ 397 $ 1,848 $ 1,752
Global Supplemental Benefits 54 36 262 243
Group Disability and Life   83   85   324   317
Ongoing Operations 531 518 2,434 2,312
Corporate and Other (45) (43) (178) (197)
                 
Total $ 486 $ 475 $ 2,256 $ 2,115
 
After-tax adjustments to reconcile to shareholders' net income:
Realized investment gains (losses) (28) 21 40 106
Amortization of other acquired intangible assets, net (4) (29) (80) (119)
Special items (28) - (122) -
                 
Shareholders' net income   $ 426   $ 467   $ 2,094   $ 2,102
 
 
DILUTED EARNINGS PER SHARE
 
Adjusted income from operations (1) $ 1.87 $ 1.80 $ 8.66 $ 7.87
After-tax adjustments to reconcile to shareholders' net income:
Realized investment gains (losses) (0.11) 0.08 0.15 0.40
Amortization of other acquired intangible assets, net (0.01) (0.11) (0.30) (0.44)
Special items     (0.11)     -     (0.47)     -
Shareholders' net income   $ 1.64   $ 1.77   $ 8.04   $ 7.83
Weighted average shares (in thousands)     260,518     264,284     260,592     268,603
Common shares outstanding (in thousands)             256,544     259,276
 
SHAREHOLDERS' EQUITY at December 31,           $ 12,035   $ 10,774
 
SHAREHOLDERS' EQUITY PER SHARE at December 31,           $ 46.91   $ 41.55
 

(1) Adjusted income (loss) from operations is defined as shareholders' net income (loss) excluding the following after-tax adjustments: realized investment results; net amortization of other acquired intangible assets; and special items (identified and quantified on Exhibit 2).

 
 
CIGNA CORPORATION

 

RECONCILIATION OF ADJUSTED INCOME (LOSS) FROM OPERATIONS TO SHAREHOLDERS' NET INCOME   Exhibit 2
(Dollars in millions, except per share amounts)
 
  Diluted     Global   Group Corporate
Earnings   Global Supplemental Disability and
Per Share Consolidated Health Care Benefits and Life Other
Three Months Ended December 31, 4Q15   4Q14   3Q15   4Q15   4Q14   3Q15   4Q15   4Q14   3Q15   4Q15   4Q14   3Q15   4Q15   4Q14   3Q15   4Q15   4Q14   3Q15
                       
Adjusted income (loss) from operations $ 1.87 $ 1.80 $ 2.28 $ 486 $ 475 $ 593 $ 394 $ 397 $ 482 $ 54 $ 36 $ 62 $ 83 $ 85 $ 84 $ (45) $ (43) $ (35)
After-tax adjustments to reconcile to shareholders' net income:
Realized investment gains (losses) (0.11) 0.08 0.02 (28) 21 7 (20) 14 14 2 3 (1) (9) (1) (6) (1) 5 -
Amortization of other acquired intangible assets, net (0.01) (0.11) (0.09) (4) (29) (24) (20) (26) (21) 16 (3) (3) - - - - - -
Special items:
Merger-related transaction costs   (0.11)     -     (0.11)     (28)     -     (29)     -     -     -     -     -     -     -     -     -     (28)     -     (29)
Shareholders' net income $ 1.64   $ 1.77   $ 2.10   $ 426   $ 467   $ 547   $ 354   $ 385   $ 475   $ 72   $ 36   $ 58   $ 74   $ 84   $ 78   $ (74)   $ (38)   $ (64)
Weighted average shares (in thousands)
Special Items, pre-tax: 260,518 264,284 260,519
Merger-related transaction costs $ (31)   $ -   $ (35)   $ -   $ -   $ -   $ -   $ -   $ -   $ -   $ -   $ -   $ (31)   $ -   $ (35)
Total $ (31)   $ -   $ (35)   $ -   $ -   $ -   $ -   $ -   $ -   $ -   $ -   $ -   $ (31)   $ -   $ (35)
 
Diluted Global Group Corporate
Earnings Global Supplemental Disability and
Per Share Consolidated Health Care Benefits and Life Other
Year Ended December 31, 2015       2014   2015       2014   2015       2014   2015       2014   2015       2014   2015       2014
 
Adjusted income (loss) from operations $ 8.66 $ 7.87 $ 2,256 $ 2,115 $ 1,848 $ 1,752 $ 262 $ 243 $ 324 $ 317 $ (178) $ (197)
After-tax adjustments to reconcile to shareholders' net income:
Realized investment gains (losses) 0.15 0.40 40 106 30 54 1 3 4 14 5 35
Amortization of other acquired intangible assets, net (0.30) (0.44) (80) (119) (84) (106) 4 (13) - - - -
Special items:
Debt extinguishment costs (0.25) - (65) - - - - - - - (65) -
Merger-related transaction costs   (0.22)         -     (57)         -     -         -     -         -     -         -     (57)         -
Shareholders' net income $ 8.04       $ 7.83   $ 2,094       $ 2,102   $ 1,794       $ 1,700   $ 267       $ 233   $ 328       $ 331   $ (295)       $ (162)
Weighted average shares (in thousands) 260,592 268,603
Common shares outstanding as of December 31, (in thousands) 256,544 259,276
Special Items, pre-tax:
Debt extinguishment costs $ (100) $ - $ - $ - $ - $ - $ - $ - $ (100) $ -
Merger-related transaction costs   (66)         -     -         -     -         -     -         -     (66)         -
Total $ (166)       $ -   $ -       $ -   $ -       $ -   $ -       $ -   $ (166)       $ -
 

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