Cigna 2010 Annual Report Download - page 135

CIGNA CORPORATION  2010 Form 10K 115
PART II
ITEM 8 Financial Statements and Supplementary Data
As a result, shareholders’ net income for the year ended
December 31, 2010, increased by $31 million, which included
$20 million relative to South Korea and $11 million relative to Hong
Kong.  e Hong Kong amount includes $6 million associated with
fi rst quarter transition. Shareholders’ net income for the year ended
December 31, 2009 increased by $23 million, all attributable to
South Korea. Permanent investment of foreign operation earnings
has resulted in cumulative unrecognized deferred tax liabilities of
$54 million though December 31, 2010.
Change in Valuation Allowance
 e decline in the valuation allowance primarily refl ects the resolution
of a disputed federal income tax matter. See the “Deferred Income
Taxes” section of this footnote for further discussion.
B. Deferred Income Taxes
Deferred income tax assets and liabilities as of December 31 are shown below.
(In millions) 2010 2009
Deferred tax assets
Employee and retiree benefi t plans $ 746 $ 774
Investments, net 100 111
Other insurance and contractholder liabilities 391 430
Deferred gain on sale of business 58 67
Policy acquisition expenses 143 144
Loss carryforwards 76 104
Other accrued liabilities 107 111
Bad debt expense 18 16
Other 37 34
Deferred tax assets before valuation allowance 1,676 1,791
Valuation allowance for deferred tax assets (23) (116)
Deferred tax assets, net of valuation allowance 1,653 1,675
Deferred tax liabilities
Depreciation and amortization 314 291
Foreign operations, net 267 151
Unrealized appreciation on investments and foreign currency translation 290 204
Total deferred tax liabilities 871 646
NET DEFERRED INCOME TAX ASSETS $ 782 $ 1,029
Management believes consolidated taxable income expected to be
generated in the future will be suffi cient to support realization of
the Company’s net deferred tax assets.  is determination is based
upon the Company’s consistent overall earnings history and future
earnings expectations. Other than deferred tax benefi ts attributable
to operating loss carryforwards, there are no time constraints within
which the Company’s deferred tax assets must be realized. Federal
operating losses of $205 million were available to off set taxable
income of the generating companies, and begin to expire in 2022.
As of December 31, 2010, the Company had no foreign tax credit
carryforwards.
 e Company’s deferred tax asset is net of a federal and state valuation
allowance.  e valuation allowance refl ects management’s assessment
that certain deferred tax assets may not be realizable. As described
above, the signifi cant decline in the valuation allowance was primarily
due to the resolution of a disputed federal income tax matter through
an administrative appeals process, as well as an available tax planning
strategy, which indicated that future recognition of the underlying
operating loss in the run-off reinsurance operations is now more
likely than not.
C. Uncertain Tax Positions
A reconciliation of unrecognized tax benefi ts for the years ended December 31 is as follows:
(In millions) 2010 2009 2008
Balance at January 1, $ 214 $ 164 $ 260
Increase (decrease) due to prior year positions (55) 5 (119)
Increase due to current year positions 34 76 34
Reduction related to settlements with taxing authorities (13) (28) (5)
Reduction related to lapse of applicable statute of limitations (3) (3) (6)
BALANCE AT DECEMBER31, $ 177 $ 214 $ 164
Unrecognized tax benefi ts decreased during 2010 primarily due to
the resolution of the disputed federal income tax matter for tax years 2005 and 2006 previously described as contributing to the decline in the valuation allowance.