Cigna 2014 Annual Report Download - page 104

PART II
ITEM 8. Financial Statements and Supplementary Data
outcome. For strategic performance shares with payment dependent
S. Fees, Related Expenses and Mail Order
on performance conditions, expense is initially accrued based on the
Pharmacy Revenues and Costs
most likely outcome, but evaluated for adjustment each period for
updates in the expected outcome. At the end of the performance
Contract fees for administrative services only (‘‘ASO’’) programs and period, expense is adjusted to the actual outcome (number of shares
pharmacy programs and services are recognized in fees and other awarded times the share price at the grant date).
revenues as services are provided, net of pharmaceutical manufacturer
rebates payable to clients and estimated refunds under performance
guarantees. In some cases, the Company provides performance
U. Participating Business
guarantees associated with meeting certain service standards, clinical
The Company’s participating life insurance policies entitle
outcomes or financial metrics. If these service standards, clinical
policyholders to earn dividends that represent a portion of the
outcomes or financial metrics are not met, the Company may be
earnings of the Company’s life insurance subsidiaries. Participating
financially at risk up to a stated percentage of the contracted fee or a
insurance accounted for approximately 1% of the Company’s total life
stated dollar amount. The Company establishes deferred revenues for
insurance in force at the end of 2014, 2013 and 2012.
estimated payouts associated with these performance guarantees.
Approximately 12% of ASO fees reported for the year ended
December 31, 2014 were at risk, with reimbursements estimated to be
V. Income Taxes
approximately 1%. Expenses associated with these programs and
Deferred income tax assets and liabilities are recognized for differences
services are recognized in other operating expenses as incurred, net of
between the financial and income tax reporting bases of the
pharmaceutical rebates from manufacturers.
underlying assets and liabilities and established based upon enacted
Revenue for investment-related products is recognized as follows: tax rates and laws. Deferred income tax assets are recognized when
available evidence indicates that realization is more likely than not.
Net investment income on assets supporting investment-related
The deferred income tax provision generally represents the net change
products is recognized as earned.
in deferred income tax assets and liabilities during the year, exclusive
Contract fees based upon related administrative expenses are of amounts reported as adjustments to accumulated other
recognized in fees and other revenues as they are earned ratably over comprehensive income or amounts initially recorded due to business
the contract period. combinations. The current income tax provision generally represents
the estimated amounts due on the various income tax returns for the
Benefits and expenses for investment-related products consist year reported plus the effect of any uncertain tax positions. Uncertain
primarily of income credited to policyholders in accordance with tax positions are evaluated in accordance with the model set forth in
contract provisions. FASB guidance.
Mail order pharmacy revenues and the cost of prescriptions are Income tax provisions related to the Company’s foreign operations are
recognized as each prescription is shipped. generally determined based upon the local country income tax rate.
Note 19 contains detailed information about the Company’s income
T. Stock Compensation
taxes.
The Company records compensation expense for stock awards and
options over their vesting periods primarily based on the estimated fair
W. Earnings Per Share
value at the grant date. For stock options, fair value is estimated using
an option-pricing model, whereas for restricted stock grants and units, The Company computes basic earnings per share using the weighted-
fair value is equal to the market price of the Company’s common stock average number of unrestricted common and deferred shares
on the date of grant. Compensation expense for strategic performance outstanding. Diluted earnings per share also includes the dilutive
shares is recorded over the performance period. For strategic effect of outstanding employee stock options and unvested restricted
performance shares with payment dependent on a market condition, stock granted after 2009 using the treasury stock method and the
fair value is determined at the grant date using a Monte Carlo effect of strategic performance shares.
simulation model and not subsequently adjusted regardless of the final
72 CIGNA CORPORATION - 2014 Form 10-K
•
•