Cigna 2012 Annual Report Download - page 138

PART II
ITEM 8 Financial Statements and Supplementary Data
There was minimal change in the level of unrecognized tax benefits for certain reinsurance contracts. Trial was held before the United
during 2012. States Tax Court for the 2004 tax year in September 2011. Prior to
trial, the IRS conceded the underlying adjustments but continued to
The December 31, 2012 unrecognized tax benefit balance included challenge the Company’s reserve methodology as a matter of law. The
$29 million that would increase shareholders’ net income if United States Tax Court issued its opinion for the 2004 year on
recognized. The Company has determined it is at least reasonably September 13, 2012. While declining to rule on the broader legal
possible that within the next twelve months there could be a issue, the opinion confirmed the Company’s tax reserve calculation
significant change in the level of unrecognized tax benefits specific to and referenced an IRS representation that it would not challenge the
development in ongoing IRS examinations. These changes are not Company’s reserving methodology in future tax years, thereby
expected to have a material impact on shareholders’ net income. providing certainty that the Company may continue to use its current
reserve methodology prospectively. Tax computations for the 2004 tax
The Company classifies net interest expense on uncertain tax
year have been reviewed by the staff of the Joint Committee of
positions and any applicable penalties as a component of income tax
Taxation and the parties are currently awaiting entry of the Tax
expense, but excludes these amounts from the liability for uncertain
Court’s decision, that is expected shortly. On January 9, 2013 the Tax
tax positions. The Company’s liability for net interest and penalties
Court entered its decision on this issue for the 2005 and 2006 tax
was $3 million at December 31, 2012, $2 million at December 31,
years, ordering and deciding that the Company has no tax deficiency.
2011 and $14 million at December 31, 2010. The 2011 decline
included $11 million associated with the completion of the 2007 and The IRS continues to be engaged in its examination of the Company’s
2008 IRS examinations. 2009 and 2010 consolidated federal income tax returns. This review is
expected to be competed in 2013, and is not expected to have a
During the first quarter of 2011, the IRS completed its examination
material impact on shareholder’s net income. The Company conducts
of the Company’s 2007 and 2008 consolidated federal income tax
business in numerous state and foreign jurisdictions, and may be
returns, resulting in an increase to shareholders’ net income of
engaged in multiple audit proceedings at any given time. Generally,
$24 million ($33 million reported in income tax expense, partially
no further state audit activity is expected for tax years prior to 2008,
offset by a $9 million pre-tax charge). The increase in shareholders’
and prior to 2001 for foreign audit activity.
net income included a reduction in net unrecognized tax benefits of
$11 million and a reduction of interest expense of $11 million The American Taxpayer Act of 2012 was signed into law on January 2,
(reported in income tax expense). 2013. This legislation retroactively extended for 2012, as well as for
2013, several otherwise expired corporate tax provisions from which
the Company benefits. Tax benefits specific to extension of these
D. Federal Income Tax Examinations,
provisions for 2012 will be recorded in the first quarter of 2013, and
Litigation and Other Matters
are not expected to have a material impact on shareholder’s net
income.
The Company has had a continuing dispute with the IRS for tax years
2004 through 2006 regarding the appropriate reserve methodology
Employee Incentive Plans
The People Resources Committee (‘‘the Committee’’) of the Board of As explained further in Note 3, in connection with the HealthSpring
Directors awards stock options, restricted stock, deferred stock and, acquisition on January 31, 2012, HealthSpring employees’ awards of
beginning in 2010, strategic performance shares to certain employees. options and restricted shares of HealthSpring stock were rolled over to
To a very limited extent, the Committee has issued common stock Cigna stock options and restricted stock. Unless otherwise indicated,
instead of cash compensation and dividend equivalent rights as part of information in this footnote includes the effect of the HealthSpring
restricted and deferred stock units. The Company issues shares from rollover awards.
Treasury stock for option exercises, awards of restricted stock and
payment of deferred and restricted stock units.
Compensation cost and related tax benefits for these awards were as follows:
(In millions) 2012 2011 2010
Compensation cost $98 $61 $49
Tax benefits $26 $14 $12
The Company had the following number of shares of common stock grant date. Options vest over periods ranging from one to five years
available for award at December 31: 8.4 million in 2012, 11.7 million and expire no later than 10 years from grant date.
in 2011 and 7.5 million in 2010.
Stock options. The Company awards options to purchase the
Company’s common stock at the market price of the stock on the
116 CIGNA CORPORATION - 2012 Form 10-K
NOTE 21