Cigna 2009 Annual Report Download - page 71
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51
Initiatives to Lower Operating Expenses
As part of its strategy, the Company has undertaken several initiatives to realign its organization and consolidate support functions in
an effort to increase efficiency and responsiveness to customers and to reduce costs.
During 2008 and 2009, the Company conducted a comprehensive review to reduce the operating expenses of its ongoing businesses
(“cost reduction program”). As a result, the Company recognized severance-related and real estate charges in other operating
expenses.
Severance charges in 2008 and 2009 resulted from reductions of approximately 2,350 positions in the Company’s workforce.
Cost reduction activity for 2008 and 2009 was as follows:
Pre-tax (In millions) Severance Real estate Total
Fourth quarter 2008 charge (balance carried to January 1, 2009) $ 44 $ 11 $ 55
Second quarter 14 - 14
Third quarter 10 - 10
Fourth quarter 20 - 20
Subtotal - 2009 charges 44 - 44
Less: Payments 55 3 58
Balance, December 31, 2009 $ 33 $ 8 $ 41
The Health Care segment recorded $37 million pre-tax ($24 million after-tax) of the 2009 charges and $44 million pre-tax ($27
million after-tax) of the 2008 charge. The remainder of the 2009 and 2008 charges were reported as follows: Disability and Life: $5
million pre-tax ($4 million after-tax) in 2009 and $3 million pre-tax ($2 million after-tax) in 2008; and International: $2 million pre-
tax ($1 million after-tax) in 2009 and $8 million pre-tax ($6 million after-tax) in 2008.
Substantially all severance is expected to be paid by the end of 2010. Upon completion of the job eliminations, the Company expects
annualized after-tax savings from this cost reduction program to be approximately $130 million in 2011 and beyond. A portion of the
savings was realized in 2009 while most is expected to be realized in 2010.