<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from _____ to _____
Commission file number 1-8323
CIGNA Corporation
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 06-1059331
- --------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
ONE LIBERTY PLACE, PHILADELPHIA, PA. 19192-1550
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 761-1000
--------------
Not Applicable
-------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
----- -----
As of July 31, 1994, 72,242,348 shares of the issuer's Common Stock
were outstanding.
<PAGE> 2
CIGNA CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income 1
Consolidated Balance Sheets 2
Consolidated Statements of Cash 3
Flows
Notes to Financial Statements 4
Item 2. Management's Discussion and 9
Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 33
SIGNATURE 34
EXHIBIT INDEX 35
</TABLE>
<PAGE> 3
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
CIGNA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(In millions, except per share amounts)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1994 1993 1994 1993
============================================================================================================
<S> <C> <C> <C> <C>
REVENUES
Premiums and fees $ 3,444 $ 3,493 $ 6,810 $ 6,754
Net investment income 968 949 1,960 1,907
Other revenues 103 109 255 233
Realized investment gains 23 12 44 43
---------- ------------ ------------ -----------
Total revenues 4,538 4,563 9,069 8,937
---------- ------------ ------------ -----------
BENEFITS, LOSSES AND EXPENSES
Benefits, losses and settlement expenses 3,156 3,270 6,435 6,498
Policy acquisition expenses 283 278 569 576
Other operating expenses 895 893 1,691 1,701
---------- ------------ ------------ -----------
Total benefits, losses and expenses 4,334 4,441 8,695 8,775
---------- ------------ ------------ -----------
INCOME BEFORE INCOME TAXES 204 122 374 162
---------- ------------ ------------ -----------
Income taxes (benefits):
Current 79 86 133 136
Deferred (10) (52) (8) (108)
---------- ------------ ------------ -----------
Total income taxes 69 34 125 28
---------- ------------ ------------ -----------
NET INCOME 135 88 249 134
Dividends declared (55) (54) (110) (109)
Retained earnings, beginning of period 3,776 3,693 3,717 3,702
- ------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS, END OF PERIOD $ 3,856 $ 3,727 $ 3,856 $ 3,727
- --------------------------------------------------==========================================================
EARNINGS PER SHARE $ 1.86 $ 1.22 $ 3.44 $ 1.86
- --------------------------------------------------==========================================================
DIVIDENDS DECLARED PER SHARE $ 0.76 $ 0.76 $ 1.52 $ 1.52
- --------------------------------------------------==========================================================
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
1
<PAGE> 4
<TABLE>
<CAPTION>
CIGNA CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
As of As of
June 30, December 31,
1994 1993
==================================================================================================================
<S> <C> <C>
ASSETS
Investments:
Fixed maturities: at amortized cost (fair value, $13,178; $13,807) $ 12,671 $ 12,375
Fixed maturities: at fair value (amortized cost, $17,796; $17,618) 17,907 19,380
Equity securities: at fair value (cost, $1,636; $1,626) 1,809 1,849
Mortgage loans 9,861 10,021
Policy loans 4,189 3,663
Real estate 1,797 1,780
Other long-term investments 381 303
Short-term investments 1,103 1,357
------------ ---------------
Total investments 49,718 50,728
Cash and cash equivalents 1,185 1,211
Accrued investment income 755 764
Premiums, accounts and notes receivable 3,854 4,065
Reinsurance recoverables 8,417 8,338
Deferred policy acquisition costs 1,091 1,085
Property and equipment, net 921 930
Deferred income taxes, net 2,148 1,703
Goodwill 1,207 1,262
Other assets 1,152 1,209
Separate account assets 13,874 13,680
- ------------------------------------------------------------------------------------------------------------------
Total $ 84,322 $ 84,975
- -----------------------------------------------------------------------------------===============================
LIABILITIES
Future policy benefits $ 10,249 $ 9,935
Contractholder deposit funds 25,268 25,328
Unpaid claims and claim expenses 19,995 20,144
Unearned premiums 2,620 2,711
------------ ---------------
Total insurance and contractholder liabilities 58,132 58,118
Short-term debt 299 351
Accounts payable, accrued expenses and other liabilities 4,486 4,555
Current income taxes 346 468
Long-term debt 1,379 1,235
Separate account liabilities 13,830 13,673
- ------------------------------------------------------------------------------------------------------------------
Total liabilities 78,472 78,400
- ------------------------------------------------------------------------------------------------------------------
CONTINGENCIES - NOTE 7
SHAREHOLDERS' EQUITY
Common stock (shares issued, 83) 83 83
Additional paid-in capital 2,247 2,222
Net unrealized appreciation - fixed maturities 141 961
Net unrealized appreciation - equity securities 157 211
Net translation of foreign currencies (70) (74)
Retained earnings 3,856 3,717
Less treasury stock, at cost (564) (545)
- ------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 5,850 6,575
- ------------------------------------------------------------------------------------------------------------------
Total $ 84,322 $ 84,975
- -----------------------------------------------------------------------------------===============================
SHAREHOLDERS' EQUITY PER SHARE $ 80.98 $ 91.30
- -----------------------------------------------------------------------------------===============================
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
2
<PAGE> 5
<TABLE>
<CAPTION>
CIGNA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Six Months Ended June 30,
1994 1993
=========================================================================================================
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 249 $ 134
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Insurance liabilities, net of reinsurance recoverables (86) 209
Premiums, accounts and notes receivable 232 98
Accounts payable, accrued expenses, other liabilities and
current income taxes (187) (67)
Deferred income taxes, net (8) (108)
Realized investment gains (44) (43)
Other, net 114 19
--------- ----------
Net cash provided by operating activities 270 242
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from investments sold:
Fixed maturities - held to maturity 12 690
Fixed maturities - available for sale 2,747 -
Mortgage loans 328 424
Equity securities 376 782
Other (primarily short-term investments) 8,909 10,878
Investment maturities and repayments:
Fixed maturities - held to maturity 1,488 1,851
Fixed maturities - available for sale 1,081 -
Mortgage loans 120 93
Investments purchased:
Fixed maturities - held to maturity (1,543) (3,473)
Fixed maturities - available for sale (4,078) -
Mortgage loans (391) (399)
Equity securities (352) (805)
Other (primarily short-term investments) (9,199) (11,308)
Other, net (103) (49)
--------- ----------
Net cash used in investing activities (605) (1,316)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits and interest credited to contractholder deposit funds 2,772 4,027
Withdrawals from contractholder deposit funds (2,458) (2,975)
Net change in commercial paper (32) 28
Issuance of long-term debt 144 327
Repayment of debt (20) (10)
Dividends paid (110) (109)
Other, net 5 4
--------- ----------
Net cash provided by financing activities 301 1,292
--------- ----------
Effect of foreign currency rate changes on cash 8 (8)
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (26) 210
Cash and cash equivalents, beginning of period 1,211 1,011
- --------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 1,185 $ 1,221
- -------------------------------------------------------------------------------=========================
Supplemental Disclosure of Cash Information:
Income taxes paid, net of refunds $ 246 $ 100
Interest paid $ 54 $ 43
- --------------------------------------------------------------------------------------------------------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
3
<PAGE> 6
CIGNA CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1-BASIS OF PRESENTATION
The consolidated financial statements include the accounts of CIGNA Corporation
and all significant subsidiaries (CIGNA). These consolidated financial
statements have been prepared in conformity with generally accepted accounting
principles. Certain reclassifications have been made to conform with the 1994
presentation.
The interim financial statements are unaudited but include all adjustments
(consisting of normal recurring adjustments) necessary, in the opinion of
management, for a fair statement of financial position and results of
operations for the periods reported.
The preparation of interim financial statements necessarily relies heavily on
estimates. This and certain other factors, such as the seasonal nature of
portions of the insurance business as well as competitive and other market
conditions, call for caution in drawing specific conclusions from interim
results.
NOTE 2-NEW ACCOUNTING PRONOUNCEMENTS
In the fourth quarter of 1993, CIGNA implemented Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," which was issued by the Financial Accounting
Standards Board (FASB) in May 1993. SFAS No. 115 requires that debt and equity
securities be classified into different categories and carried at fair value if
they are not classified as held to maturity. SFAS No. 115 does not permit
retroactive application of its provisions. The effect of implementing SFAS No.
115 as of December 31, 1993 resulted in an increase in investment assets of
approximately $1.6 billion and an increase in shareholders' equity of $882
million resulting from the classification of certain fixed maturities
previously carried at amortized cost to available for sale. The increase in
shareholders' equity was net of policyholder share of $307 million and deferred
income taxes of $452 million.
In 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for Impairment
of a Loan," which provides guidance on valuing impaired loans, and must be
implemented by the first quarter of 1995, with the cumulative effect of
implementation included in net income. The FASB has a project underway that
could amend the income recognition provisions of SFAS No. 114. CIGNA has not
determined the timing or effect on results of operations or financial condition
of adopting SFAS No. 114.
4
<PAGE> 7
NOTE 3-INVESTMENT GAINS AND LOSSES
Realized gains and losses on investments, excluding policyholder share, were as
follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(in millions) 1994 1993 1994 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Realized gains (losses):
Fixed maturities $(7) $4 $9 $6
Mortgage loans (11) (11) (11) (29)
Equity securities 13 15 17 58
Real estate 27 (9) 26 (22)
Short-term investments 1 13 3 30
--------- --------- -------- -------
23 12 44 43
Income taxes (benefits) 8 (7) 15 (6)
- -------------------------------------------------------------------------------------------------------------
Net realized gains $15 $19 $29 $49
- ----------------------------------------------------------==================================================
</TABLE>
During the second quarter and six months of 1994, proceeds from sales of
available-for-sale fixed maturities and equities, including policyholder share,
were $1.4 billion and $3.1 billion, respectively. The second quarter sales
resulted in gross gains of $51 million and gross losses of $46 million. The
six month sales resulted in gross gains of $107 million and gross losses of $93
million. In addition, there were no significant amounts of sales or transfers
of fixed maturities classified as held-to-maturity during the first six months
of 1994.
During the second quarter and six months of 1994, Net Unrealized Appreciation -
Fixed Maturities included in Shareholders' Equity, which is net of policyholder
share and deferred income taxes, decreased by approximately $330 million and
$820 million, respectively.
NOTE 4-EARNINGS PER SHARE
Earnings per share were based on net income divided by weighted average common
shares, including common share equivalents, as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(in millions) 1994 1993 1994 1993
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average common shares 72.398 72.040 72.299 71.965
- ---------------------------------------------------===============================================
</TABLE>
There is no significant difference between earnings per share on a primary and
a fully diluted basis.
Common shares held as Treasury shares were 10,813,125 and 10,614,247 as of June
30, 1994 and 1993, respectively.
5
<PAGE> 8
NOTE 5-INCOME TAXES
CIGNA's federal income tax returns are routinely audited by the Internal
Revenue Service (IRS), and provisions are made in the financial statements in
anticipation of the results of these audits. The IRS has substantially
completed audits of the years 1982 through 1988 and has proposed an adjustment
which could result in an assessment of approximately $210 million for those
years. CIGNA is currently contesting in court the issue (such issue does not
exist for years after 1988) giving rise to such proposed adjustment and,
although the outcome is uncertain, management believes that CIGNA should
prevail.
In management's opinion, adequate tax liabilities have been established for all
years.
As of June 30, 1994, CIGNA had tax basis operating loss carryforwards of $304
million.
NOTE 6-REINSURANCE
In the normal course of business, CIGNA's insurance subsidiaries enter into
agreements, primarily relating to short-duration contracts, to assume and cede
reinsurance with other insurance companies. Reinsurance is ceded primarily to
limit losses from large exposures and to permit recovery of a portion of direct
losses, although ceded reinsurance does not relieve the originating insurer of
liability. CIGNA evaluates the financial condition of its reinsurers and
monitors concentrations of credit risk arising from similar geographic regions,
activities, or economic characteristics of its reinsurers. Failure of
reinsurers to indemnify CIGNA, as a result of reinsurer insolvencies or
disputes, could result in losses. Allowances have been established for amounts
deemed uncollectible. While future charges for unrecoverable reinsurance may
materially affect results of operations in future periods, such amounts are not
expected to have a material adverse effect on CIGNA's liquidity or financial
condition.
For the second quarter and six months of 1994, premiums and fees were net of
ceded premiums of $487 million and $979 million, respectively. For the second
quarter and six months of 1993, premiums and fees were net of ceded premiums of
$389 million and $944 million, respectively. In addition, benefits, losses and
settlement expenses for the second quarter and six months of 1994 were net of
reinsurance recoveries of $508 million and $1.1 billion, respectively.
Benefits, losses and settlement expenses for the second quarter and six months
of 1993 were net of reinsurance recoveries of $743 million and $1.4 billion,
respectively.
NOTE 7-CONTINGENCIES AND OTHER MATTERS
FINANCIAL GUARANTEES
CIGNA is contingently liable for various financial guarantees provided in the
ordinary course of business. These include guarantees for the repayment of
industrial revenue bonds as well as other debt instruments. Although the
ultimate outcome of any loss contingencies arising from CIGNA's financial
guarantees may materially affect results of operations in future periods, they
are not expected to have a material adverse effect on CIGNA's liquidity or
financial condition.
6
<PAGE> 9
REGULATORY AND INDUSTRY DEVELOPMENTS
CIGNA's businesses are subject to a changing social, economic, legal,
legislative and regulatory environment. Some of the changes include
initiatives to restrict insurance pricing and the application of underwriting
standards; reform health care; restrict investment practices; revise the system
of funding clean-up of environmental damages; expand regulation; and
reinterpret insurance contracts long after the policies were written to provide
coverage unanticipated by CIGNA.
Proposals on national health care reform are under consideration which could
significantly change the way health care is financed and delivered in the
United States. Due to uncertainties associated with the timing and content of
any health care legislation, the effect on CIGNA's future results of
operations, liquidity or financial condition cannot be reasonably estimated at
this time.
Superfund, which was passed in 1980, is subject to re-authorization by Congress
in 1994. Any changes in Superfund's system of allocating responsibility or
funding clean-up costs could affect the liabilities of potentially responsible
parties and insurers. The bill pending before Congress would create a new
Environmental Insurance Resolution Fund program to resolve disputes between
potentially responsible parties and their insurers regarding liability for
cleanup costs for Superfund sites. This proposed program would be financed by
a new excise tax on insurance premiums, the structure of which is unresolved,
but which is expected to raise approximately $8 billion from the insurance
industry over ten years. Due to uncertainties associated with the timing and
content of any Superfund legislation, the effect on CIGNA's future results of
operations, liquidity or financial condition cannot be reasonably estimated at
this time.
The National Association of Insurance Commissioners (NAIC) has developed model
solvency-related guidelines ("risk-based capital" rules) to strengthen solvency
regulation of insurance companies. At June 30, 1994, CIGNA's domestic property
and casualty subsidiaries, in the aggregate, and life insurance subsidiaries
were adequately capitalized under the guidelines. Additional capital resources
for the domestic property and casualty operations are expected to be needed
during 1994, as a result of continued property and casualty losses. CIGNA's
Board of Directors has authorized up to $300 million of additional capital for
these operations in 1994, $100 million of which was contributed during the
second quarter. As the risk-based capital guidelines for property and casualty
insurers become more stringent in future years and depending on the future
results of these operations, additional capital for the property and casualty
subsidiaries may be necessary.
Also, the NAIC is addressing risk-based capital guidelines for health
maintenance organizations (HMOs) and a proposal that would limit the types and
amounts of investment assets that an insurance company can hold. CIGNA cannot
currently predict what effect, if any, such guidelines will have on its future
results of operations, liquidity or financial condition.
7
<PAGE> 10
Unfavorable economic conditions have contributed to an increase in the number
of insurance companies that are impaired or insolvent. This is expected to
result in an increase in mandatory assessments by state guaranty funds of, or
voluntary payments by, solvent insurance companies to cover losses to
policyholders of insolvent or rehabilitated companies. Mandatory assessments,
which are subject to statutory limits, can be partially recovered through a
reduction in future premium taxes in some states. Although future assessments
and payments may materially affect results of operations in future periods,
such amounts are not expected to have a material adverse effect on CIGNA's
liquidity or financial condition.
The eventual effect on CIGNA of the changing environment in which it operates
remains uncertain.
ASBESTOS-RELATED, ENVIRONMENTAL POLLUTION AND OTHER LONG-TERM EXPOSURE CLAIMS
Reserving for asbestos-related, environmental pollution and other long-term
exposure claims is subject to significant uncertainties that are not generally
present for other types of claims, as described in CIGNA's 1993 Form 10-K.
Developed case law and adequate claim history do not exist for such claims.
CIGNA and the insurance industry dispute coverage for the environmental
pollution and some asbestos-related liabilities of their policyholders. In
addition to the coverage lawsuits, CIGNA shares in the expense of defending
underlying litigation against its policyholders. The outcome of the coverage
litigation will assist in the determination of amounts that might be paid in
the future for similar claims. The legal costs associated with these coverage
lawsuits constitute a significant portion of CIGNA's losses for these claims.
Reinsurance for these types of claims may become subject to similar contested
coverage issues.
CIGNA expects that its future results will continue to be adversely affected by
losses and legal expenses for these types of claims. Because of the
significant uncertainties involved and the likelihood that these uncertainties
will not be resolved in the near future, CIGNA is unable to reasonably estimate
the additional losses and expenses and therefore is unable to determine whether
such amounts will be material to its future results of operations, liquidity or
financial condition.
LITIGATION
CIGNA is continuously involved in numerous lawsuits arising, for the most part,
in the ordinary course of business, either as a liability insurer defending
third-party claims brought against its insureds, or as an insurer defending
coverage claims brought against it by its policyholders or other insurers.
A number of state attorneys general and private plaintiffs filed lawsuits
against a number of insurance companies and others, including CIGNA, alleging
violations of federal and state antitrust laws. These cases are currently
being contested in court.
While the outcome of litigation involving CIGNA cannot be determined,
litigation (other than that related to asbestos-related, environmental
pollution and other long-term exposure claims, which is discussed below), net
of reserves and giving effect to reinsurance, is not expected to have a
material effect on CIGNA's future results of operations, liquidity or financial
condition.
CIGNA is involved in lawsuits regarding policy coverage and judicial
interpretation of legal liability for asbestos-related, environmental pollution
and other long-term exposure claims. The lack of developed case law, as
evidenced by the coverage lawsuits, is one of the significant uncertainties
that affects CIGNA's ability to estimate future losses for these types of
claims.
8
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion addresses the financial condition of CIGNA Corporation
(CIGNA) as of June 30, 1994, compared with December 31, 1993, and its results
of operations for the quarter and six months ended June 30, 1994, compared with
the same periods last year. This discussion should be read in conjunction with
the Management's Discussion and Analysis sections included in CIGNA's 1993
Annual Report to Shareholders (pages 14 through 29) and in CIGNA's report on
Form 10-Q for the first quarter of 1994, to which the reader is directed for
additional information. Due to the seasonality of certain aspects of CIGNA's
business, caution should be used in estimating results for the full year based
on interim results of operations.
CIGNA's businesses are subject to a changing social, economic, legal,
legislative and regulatory environment which could adversely affect them.
Some of the changes include initiatives to restrict insurance pricing and the
application of underwriting standards; reform health care; restrict investment
practices; revise the system of funding clean-up of environmental damage;
expand regulation; and reinterpret insurance contracts long after the policies
were written to provide coverage unanticipated by CIGNA. The eventual effect
on CIGNA of the changing environment in which it operates remains uncertain.
For more detailed information on these and other contingencies, see Note 7 to
the Financial Statements. Also, see Note 5 regarding a proposed IRS assessment
of approximately $210 million; CIGNA is currently contesting the issue in court
and management believes that CIGNA should prevail.
In July 1994, Duff & Phelps assigned an initial rating of D-1 (the second
highest of 7 ratings), which it characterizes as "very high", to CIGNA's
commercial paper. In August 1994, Moody's Investors Services (Moody's)
downgraded the ratings of CIGNA's senior and subordinated debt to Baa1 (8th of
19 ratings) and Baa2 (9th of 19), respectively, from A2 and A3, respectively.
Moody's characterizes these ratings as "medium grade". Moody's also reduced
CIGNA's commercial paper rating to Prime-2 (2nd of 4), which is characterized
as "strong", from Prime-1. In addition, Moody's reduced its insurance company
ratings of Connecticut General Life Insurance Company to A1 (5th of 19) from
Aa3 and of CIGNA's property and casualty domestic pool group to Baa1 (8th of
19) from A2. Moody's characterizes the A1 rating as "good" and the Baa1 rating
as "adequate". Moody's actions are not expected to have a material effect on
CIGNA's results of operations, liquidity, or financial condition. Separately,
Standard & Poor's rating of CIGNA's subordinated debt is A- (7th of 22).
During 1993, CIGNA announced restructuring initiatives in the Property and
Casualty segment (both the domestic and international operations) and the
Employee Life and Health Benefits segment. These actions were taken to reduce
operating expenses by the elimination of certain payroll and lease costs in
future years. During the first six months of 1994, CIGNA continued
implementation of the restructuring initiatives and, as of June 30, 1994, there
were no material changes to the costs associated with, or the anticipated
annual savings related to, these initiatives.
In 1993, CIGNA adopted Statement of Financial Accounting Standards (SFAS) No.
115, "Accounting for Investments in Certain Debt and Equity Securities," and
SFAS No. 113, "Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts." See Note 2 to the Financial Statements for a
detailed discussion of recently issued accounting pronouncements and their
effect on CIGNA.
9
<PAGE> 12
CONSOLIDATED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
FINANCIAL SUMMARY Three Months Ended Six Months Ended
June 30, June 30,
(In millions) 1994 1993 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Premiums and fees $3,444 $3,493 $6,810 $6,754
Net investment income 968 949 1,960 1,907
Other revenues 103 109 255 233
Realized investment gains 23 12 44 43
Total revenues 4,538 4,563 9,069 8,937
Benefits and expenses 4,334 4,441 8,695 8,775
Income before taxes 204 122 374 162
Income taxes 69 34 125 28
Net income $135 $88 $249 $134
=====================================================================================================================
Realized investment gains, net of taxes $15 $19 $29 $49
=====================================================================================================================
</TABLE>
CIGNA's 1994 consolidated net income increased 53% and 86% for the second
quarter and six months of 1994 from the same periods last year. Excluding
after-tax realized investment gains, income for the second quarter and six
months of 1994 was $120 million and $220 million, compared with $69 million and
$85 million for the same periods last year. These improvements primarily
reflect significantly higher earnings in the Employee Life and Health Benefits
segment as well as lower losses in the Property and Casualty segment. The six
month increase also reflects a $20 million after-tax gain from the sale of the
California personal automobile and homeowners insurance businesses (California
business) that CIGNA retained from the 1989 sale of the Horace Mann companies.
After-tax realized investment gains for the second quarter and six months of
1994 decreased, compared with the same periods last year, primarily due to
lower gains on sales of equity securities and fixed maturities and a higher
effective tax rate in 1994 than in 1993. Partially offsetting these factors
were higher gains on sales of real estate and decreases in new loss reserves,
primarily for mortgage loan and real estate investments. For additional
information, see Note 3 to the Financial Statements.
Consolidated revenues for the second quarter and six months of 1994 were
essentially level with the same periods last year. Revenues primarily reflect
higher premiums and fees as well as higher net investment income for the
Employee Life and Health Benefits and Individual Financial Services segments,
and lower premiums and fees for the Property and Casualty segment.
Full year results for 1994 are expected to continue to improve, compared with
1993. However, such improvement could be materially affected by a continued
adverse property and casualty environment, major catastrophes and significant
deterioration in real estate market conditions.
10
<PAGE> 13
EMPLOYEE LIFE AND HEALTH BENEFITS
<TABLE>
<CAPTION>
=====================================================================================================================
FINANCIAL SUMMARY Three Months Ended Six Months Ended
June 30, June 30,
(In millions) 1994 1993 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Premiums and fees $1,891 $1,860 $3,859 $3,688
Net investment income 129 114 257 247
Other revenues 71 71 140 142
Realized investment gains 6 3 14 27
Total revenues 2,097 2,048 4,270 4,104
Benefits and expenses 1,892 1,888 3,877 3,816
Income before taxes 205 160 393 288
Income taxes 69 49 132 85
Net income $136 $111 $261 $203
=====================================================================================================================
Realized investment gains, net of taxes $6 $7 $12 $28
=====================================================================================================================
</TABLE>
Net income for the Employee Life and Health Benefits segment increased 23% for
the second quarter and 29% for the six months of 1994, compared with the same
periods of 1993. Excluding after-tax realized investment gains, income was
$130 million and $249 million for the second quarter and six months of 1994,
compared with $104 million and $175 million for the same periods last year.
The increase for the quarter reflects improvements of $18 million and $8
million in the HMO and indemnity operations, respectively. The six month
increase reflects improvements of $41 million and $33 million in the HMO and
indemnity operations, respectively. The improvement in HMO operations for the
quarter and six months reflects approximately $10 million and $20 million,
respectively, attributable to membership growth with the balance primarily due
to favorable medical cost experience. The improvements in indemnity operations
were attributable to favorable claim experience, reflecting lower medical care
cost inflation, and more favorable morbidity and mortality in the group life
and accident lines of business.
Premiums and fees for the second quarter and six months increased 2% and 5%,
compared with the same periods last year. For the quarter and six months,
premiums and fees for HMOs increased $10 million and $47 million, primarily
reflecting rate increases. Premiums and fees for the indemnity business
increased $21 million for the second quarter resulting from life insurance
business ($61 million) primarily due to new sales, partially offset by a
decline in other indemnity lines ($40 million), primarily due to cancellations
in medical business. Premiums and fees for the indemnity business increased
$124 million for the six months primarily in the life ($87 million) and dental
($33 million) insurance businesses primarily due to new sales. Total HMO
membership increased 21%, compared with June 30, 1993, and 16%, compared with
December 31, 1993. Substantially all the HMO membership growth has been in HMO
alternative funding programs under which the customer assumes all or a portion
of the responsibility for funding claims. Such programs generally have lower
margins than traditional HMO plans. As reflected above, growth in the medical
indemnity business has been constrained by cancellations and increasing
penetration into the indemnity market by prepaid health care providers,
including conversions to CIGNA's HMOs.
11
<PAGE> 14
Management believes that adding premium equivalents to premiums and fees
(adjusted premiums and fees) produces a more meaningful measure of business
volume. Adjusted premiums and fees were $4.2 billion and $8.7 billion for the
second quarter and six months of 1994, compared with $4.4 billion and $8.7
billion for the same periods last year. The decline for the quarter primarily
reflects cancellations in medical indemnity business. Premium equivalents, as
a percentage of total adjusted premiums and fees, were 55% and 58% for the six
months of 1994 and 1993, respectively. Administrative Services Only (ASO)
plans accounted for 45% and 44% of total adjusted premiums and fees for the six
months of 1994 and 1993, respectively.
12
<PAGE> 15
EMPLOYEE RETIREMENT AND SAVINGS BENEFITS
<TABLE>
<CAPTION>
=====================================================================================================================
FINANCIAL SUMMARY Three Months Ended Six Months Ended
June 30, June 30,
(In millions) 1994 1993 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Premiums and fees $46 $62 $89 $111
Net investment income 421 451 871 918
Realized investment gains (losses) 10 (11) 7 (24)
Total revenues 477 502 967 1,005
Benefits and expenses 403 450 825 900
Income before taxes 74 52 142 105
Income taxes 25 16 47 33
Net income $49 $36 $95 $72
=====================================================================================================================
Realized investment gains (losses), net of taxes $5 ($8) $3 ($16)
=====================================================================================================================
</TABLE>
Net income for the Employee Retirement and Savings Benefits segment increased
36% and 32% for the second quarter and six months of 1994, compared with the
same periods of 1993. Excluding after-tax realized investment results, income
was $44 million and $92 million for the second quarter and six months of 1994,
compared with $44 million and $88 million for the same periods last year. The
six month increase primarily reflects improved interest margins on defined
contribution business ($6 million) and higher earnings from an increased asset
base ($2 million), partially offset by higher expenses ($4 million), primarily
for systems upgrades. For the second quarter, the favorable effects of
improved interest margins and an increased asset base were offset by higher
expenses of $3 million.
Premiums and fees decreased 26% and 20% for the second quarter and six months
of 1994, compared with the same periods last year, primarily reflecting lower
annuity premiums. Net investment income declined 7% and 5% for the second
quarter and six months of 1994, compared with the same periods last year,
primarily from lower yields on invested assets.
Assets under management is generally a key determinant of earnings for this
segment. For the six months ended June 30, assets under management and related
activity, including amounts attributable to separate accounts, were as follows:
<TABLE>
<CAPTION>
=====================================================================================================================
(in millions) 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance as of January 1 $34,469 $32,736
Premiums and deposits 1,359 1,427
Investment results 1,283 1,379
Reduction in fair value of assets (1,024) (59)
Customer withdrawals (1,341) (1,724)
Benefit payments and other (1,395) (916)
- ---------------------------------------------------------------------------------------------------------------------
Balance as of June 30 $33,351 $32,843
=====================================================================================================================
</TABLE>
13
<PAGE> 16
Assets under management as of June 30, 1994 decreased by $1.1 billion to $33.4
billion from the balance as of January 1, 1994, reflecting a reduction of $1
billion in the fair value of assets, primarily fixed maturities, resulting from
an increase in interest rates. Approximately 53% and 45% of the premiums and
deposits for 1994 and 1993, respectively, were from new customers. The decline
in investment results for assets under management for the six months ended June
30, 1994, compared with the same period last year, primarily reflects
significantly lower realized gains from the sales of separate account
investment assets. The decline in withdrawals for the six months of 1994,
compared with the same period last year, reflects approximately $600 million of
payments made in 1993 to two large customers under contracts that were
terminated prior to 1993. Asset growth for 1994 could be constrained by
withdrawals and lower deposits resulting from decisions by plan sponsors to
diversify assets and fund management. In addition, further increases in
interest rates may adversely affect assets under management.
14
<PAGE> 17
INDIVIDUAL FINANCIAL SERVICES
<TABLE>
<CAPTION>
=====================================================================================================================
FINANCIAL SUMMARY Three Months Ended Six Months Ended
June 30, June 30,
(In millions) 1994 1993 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Premiums and fees $249 $245 $432 $400
Net investment income 184 150 353 272
Other revenues 17 15 33 29
Realized investment gains (losses) 7 (14) 9 (21)
Total revenues 457 396 827 680
Benefits and expenses 393 370 721 621
Income before taxes 64 26 106 59
Income taxes 23 8 37 19
Net income $41 $18 $69 $40
=====================================================================================================================
Realized investment gains (losses), net of taxes $4 ($8) $6 ($13)
=====================================================================================================================
</TABLE>
Net income for the Individual Financial Services segment for the second quarter
and six months increased 128% and 73%, respectively, compared with the same
periods last year. Excluding after-tax realized investment results, income was
$37 million and $63 million for the second quarter and six months of 1994,
compared with $26 million and $53 million for the same periods last year.
These increases reflect higher earnings from interest-sensitive products of $5
million for the quarter and $8 million for the six months, primarily reflecting
improved interest margins and business growth. In addition, the increases
reflect favorable mortality of $6 million for the quarter and $2 million for
the six months.
Premiums and fees for the second quarter and six months of 1994 increased 2%
and 8% from the same periods of 1993. Net investment income for the second
quarter and six months of 1994 increased 23% and 30%, compared with the same
periods last year. These increases, as well as the increase in benefits and
expenses, reflect growth in business, primarily of interest-sensitive products
(principally corporate-owned life insurance).
15
<PAGE> 18
PROPERTY AND CASUALTY
<TABLE>
<CAPTION>
=====================================================================================================================
FINANCIAL SUMMARY Three Months Ended Six Months Ended
June 30, June 30,
(In millions) 1994 1993 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Premiums and fees $1,258 $1,318 $2,430 $2,540
Net investment income 176 179 370 368
Other revenues 46 52 103 115
Realized investment gains -- 42 22 72
Total revenues 1,480 1,591 2,925 3,095
Benefits and expenses 1,590 1,675 3,167 3,320
Loss before taxes (110) (84) (242) (225)
Income tax benefits (43) (39) (95) (101)
Net loss ($67) ($45) ($147) ($124)
=====================================================================================================================
Realized investment gains, net of taxes $-- $34 $14 $58
=====================================================================================================================
</TABLE>
Property and Casualty segment losses, excluding after-tax realized investment
results, were $67 million and $161 million in the second quarter and six months
of 1994, compared with losses of $79 million and $182 million for the same
periods last year. The decrease in losses primarily reflects lower
underwriting losses.
Underwriting losses were $233 million and $550 million in the second quarter
and six months of 1994, compared with $276 million and $618 million for the
same periods last year. Excluding asbestos and environmental losses (see table
on page 18), underwriting losses for the second quarter and six months of 1994
were $183 million and $433 million, respectively, compared with $239 million
and $508 million for the same periods last year. The decline in underwriting
losses for the second quarter primarily reflects lower losses for the
international business ($31 million); lower self-insurance costs ($42 million)
and lower catastrophe losses, partially offset by reserve strengthening in
several lines. For the six months, lower underwriting losses primarily
resulted from lower losses for the international business ($55 million); a
reduction in operating expenses ($19 million); and lower self-insurance costs
($54 million); partially offset by higher catastrophe losses and reserve
strengthening in several lines. Although underwriting losses declined, they
continue to reflect unfavorable underwriting experience for CIGNA's domestic
business, as well as the adverse effects of the highly competitive pricing
environment.
Catastrophe losses included in underwriting results were $5 million, net of
reinsurance, (before reinsurance, or "gross", $6 million) for the second
quarter of 1994, compared with $15 million (gross, $89 million) for the same
period last year. Through six months, catastrophe losses were $135 million
(gross, $141 million) in 1994, compared with $98 million (gross, $252 million)
for the same period last year. Catastrophe losses for the six months of 1994
include $91 million (gross, $94 million) for the Los Angeles earthquake and $33
million (gross, $35 million) for the severe winter weather. Catastrophe losses
for the six months of 1993 included $42 million (gross, $173 million) and $36
million (gross, $37 million) for the World Trade Center bombing and the East
Coast blizzard, respectively.
16
<PAGE> 19
Premiums and fees for the second quarter and six months of 1994 decreased 5%
and 4% from the same periods of 1993. These declines primarily reflect reduced
premiums of $73 million for the quarter and $136 million for the six months in
CIGNA's domestic commercial business due to price competition, particularly in
the commercial packages and casualty lines. Price competition also resulted in
reduced premiums for workers' compensation coverage ($51 million for the
quarter; $91 million for the six months). The decreases in premiums and fees
were partially offset by growth in international lines of business ($75 million
for the quarter; $141 million for the six months). Domestic premiums and fees
are expected to continue to decrease through 1994 as a result of the above
factors.
Net investment income for the second quarter and six months of 1994 was
essentially level with the same periods last year primarily reflecting growth
in investment assets of the international life operation and a change in
investment asset mix, offset by lower yields.
RESERVES
CIGNA's reserving methodology and significant issues affecting the estimation
of loss reserves are described in its 1993 Form 10-K.
In summary, property and casualty reserves are an estimate of future amounts
needed to pay claims and related expenses for insured events that have
occurred, including events that have not been reported to CIGNA. The basic
assumption underlying the many standard actuarial and other methods used in the
estimation of property and casualty loss reserves is that past experience is an
appropriate basis for predicting future events. However, current trends and
other factors that would modify past experience also are considered.
Estimating property and casualty reserves is a complex process that relies
heavily on judgment and is subject to uncertainties that are normal, recurring
and inherent. CIGNA revises its estimate of the liability for insured events
of prior years as new data become available.
CIGNA continually attempts to improve its loss estimation process by refining
its ability to analyze loss development patterns, claims payments and other
information, but there remain many reasons for adverse development of estimated
ultimate liabilities. For example, the uncertainties inherent in estimating
losses have grown in the last decade because of changes in social and legal
trends that expand the liability of insureds, establish new liabilities and
reinterpret insurance contracts long after the policies were written to provide
coverage unanticipated by CIGNA. Such changes from past experience
significantly affect the ability of insurers to estimate liabilities for unpaid
losses and related expenses.
In management's judgment, based on known facts and current law, reserves are
appropriate. However, future changes in estimates of CIGNA's liability for
insured events may adversely affect results in future periods.
17
<PAGE> 20
The following table shows the adverse pre-tax effects on CIGNA's results of
operations from insured events of prior years (prior year development) for the
second quarter and six months ended June 30:
<TABLE>
<CAPTION>
====================================================================================================================================
Three Months Ended Six Months Ended
June 30, June 30,
(In millions) 1994 1993 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Asbestos-related $11 12% $18 24% $14 9% $58 37%
Environmental pollution 39 43 19 26 103 65 52 33
Unrecoverable reinsurance 7 8 7 9 15 9 16 10
Other 33 37 30 41 26 17 32 20
- ------------------------------------------------------------------------------------------------------------------------------------
Total $90 100% $74 100% $158 100% $158 100%
====================================================================================================================================
</TABLE>
CIGNA continues to receive asbestos-related, environmental pollution and other
long-term exposure claims asserting a right to recovery under insurance
policies issued by CIGNA.
Standard actuarial methods cannot be used in the estimation of liabilities for
asbestos-related, environmental pollution and certain other long-term exposure
claims because developed case law and adequate history do not exist for such
claims. In addition, CIGNA and the insurance industry are litigating issues
that will ultimately determine, in many cases, whether insurance coverage
exists. Determination that coverage exists would result in the emergence of
additional liabilities. CIGNA has been a major writer of commercial insurance
policies, which are subject to these types of claims.
The majority of CIGNA's losses and legal expenses for asbestos-related,
environmental pollution and other long-term exposure claims arise from its
domestic property and casualty operations. As of June 30, 1994 and December
31, 1993, approximately 1,200 policyholders had outstanding asbestos-related
claims with the domestic operations. CIGNA continues to litigate certain
asbestos-related coverage issues, with 43 lawsuits involving 35 policyholders
pending as of June 30, 1994, compared with 39 lawsuits involving 27
policyholders as of December 31, 1993. It is not possible to determine
CIGNA's potential liability for asbestos-related claims based on the number of
policyholders with claims outstanding. Additional information, which is not
available, would be needed for such determination, including the extent of
coverage, the policyholder's liability for claims tendered to it, the injuries
allegedly sustained by the policyholder's claimants and the number of claims
pending against a policyholder.
The domestic operations had approximately 14,500 environmental pollution files
outstanding at June 30, 1994 and 13,300 at December 31, 1993. A file
represents each policyholder involved at a site, regardless of the number or
type of claims asserted against the policyholder or the number or type of
insurance policies (primary or excess) under which coverage is asserted. CIGNA
disputes coverage for essentially all environmental pollution claims, and is
involved in 505 coverage lawsuits as of June 30, 1994, compared with 493 as of
December 31, 1993. Accordingly, and because of the many unresolved legal and
factual issues related to environmental pollution cases, liabilities for these
types of claims cannot be estimated from the number of environmental pollution
files outstanding.
18
<PAGE> 21
Superfund, which was passed in 1980, is subject to re-authorization by Congress
in 1994. Any changes in Superfund's system of allocating responsibility or
funding clean-up costs could affect the liabilities of potentially responsible
parties and insurers. The bill pending before Congress would create a new
Environmental Insurance Resolution Fund program to resolve disputes between
potentially responsible parties and their insurers regarding liability for
cleanup costs for Superfund sites. This proposed program would be financed by
a new excise tax on insurance premiums, the structure of which is unresolved,
but which is expected to raise approximately $8 billion from the insurance
industry over ten years. Due to uncertainties associated with the timing and
content of any Superfund legislation, the effect on CIGNA's future results of
operations, liquidity or financial condition cannot be reasonably estimated at
this time.
The American Academy of Actuaries has initiated a project to develop standards
for estimating currently unquantifiable liabilities. The project may cover
unreported claims for asbestos-related, environmental pollution and certain
other long-term exposures. Since this project is in its early stages, its
outcome and effect, if any, on CIGNA are not determinable at this time.
For the reasons discussed in Note 16 to the 1993 Financial Statements and in
the 1993 Form 10-K, CIGNA expects that its future results will continue to be
adversely affected by losses and legal expenses for asbestos-related,
environmental pollution and other long-term exposure claims. Because of the
significant uncertainties involved and the likelihood that these uncertainties,
with the exception of Superfund re-authorization, will not be resolved in the
near future, CIGNA is unable to reasonably estimate the additional losses and
expenses for these types of claims and, therefore, is unable to determine
whether such amounts will be material to its future results of operations,
liquidity or financial condition.
Losses for unrecoverable reinsurance are principally due to the failure of
reinsurers to indemnify CIGNA, primarily because of reinsurer insolvencies and
disputes under reinsurance contracts. Reinsurance disputes have increased in
recent years, particularly on larger and more complex claims such as those
related to professional liability, asbestos and London reinsurance market
exposures. Allowances have been established for amounts deemed uncollectible.
While future charges for unrecoverable reinsurance may materially affect
results of operations in future periods, such amounts are not expected to have
a material adverse effect on CIGNA's liquidity or financial condition.
Other prior year development in 1994 was primarily attributable to other
long-term exposures, workers' compensation and reinsurance. In 1993, other
prior year development was primarily attributable to commercial packages,
reinsurance and workers' compensation.
19
<PAGE> 22
OTHER OPERATIONS
Other Operations primarily includes unallocated investment income, expenses and
taxes. Also included in Other Operations are the results of CIGNA's settlement
annuity business and non-insurance operations engaged primarily in investment
and real estate activities. Other Operations also included the California
business until it was sold in the first quarter of 1994, resulting in an
after-tax gain of approximately $20 million.
Net losses for Other Operations were $24 million and $29 million for the second
quarter and six months of 1994, compared with losses of $32 million and $57
million for the same periods last year. After-tax realized investment losses
for the six months of 1994 were $6 million, compared with losses of $8 million
last year. There were no net after-tax realized investment results in the
second quarter of 1994, compared with losses of $6 million in 1993. Excluding
after-tax realized investment results, the decreased loss for the second
quarter primarily reflects lower operating expenses, including lower net
interest expense. In addition, the reduced loss for the six months reflects
the gain on the sale of the California business.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity for CIGNA and its insurance subsidiaries has remained strong as
evidenced by significant amounts of short-term investments and cash and cash
equivalents in the aggregate. Generally, CIGNA has met its operating
requirements by maintaining appropriate levels of liquidity in its investment
portfolio and through utilization of overall positive cash flows.
During 1994, cash and cash equivalents decreased $26 million from $1.2 billion
as of December 31, 1993. This decrease primarily reflects cash used for
investing activities ($605 million), primarily net investment purchases ($502
million); payments of dividends on CIGNA common stock ($110 million); and debt
repayments ($52 million). The decrease in cash flows was partially offset by
the issuance of long-term debt ($144 million); deposits and interest credited,
net of withdrawals, to contractholder deposit funds ($314 million); and cash
flows from operating activities ($270 million), primarily resulting from
earnings and the timing of cash receipts and cash disbursements. Cash flow
from operating activities was constrained by negative cash flow from property
and casualty business of approximately $120 million resulting from operating
losses.
CIGNA's capital resources represent funds available for long-term business
commitments and primarily consist of retained earnings and proceeds from the
issuance of long-term debt and equity securities. CIGNA's financial strength
provides the capacity and flexibility to enable it to raise funds in the
capital markets through the issuance of such securities. CIGNA continues to be
well capitalized, with sufficient borrowing capacity to meet the anticipated
needs of its business.
CIGNA had $1.38 billion of long-term debt outstanding at June 30, 1994,
compared with $1.24 billion at December 31, 1993. This increase primarily
reflects issuance in January 1994 of $100 million of unsecured 6 3/8% Notes due
in 2006. The proceeds from this issue were used for general corporate
purposes. As of June 30, 1994, CIGNA had approximately $850 million remaining
under shelf registration statements that may be issued as debt and equity
securities, depending upon market conditions and CIGNA's capital requirements.
At June 30, 1994, CIGNA's short-term debt, primarily commercial paper, amounted
to $299 million, a decrease of $52 million from December 31, 1993.
20
<PAGE> 23
Additional capital resources for the domestic property and casualty operations
are expected to be needed during 1994, as a result of continued losses.
CIGNA's Board of Directors has authorized up to $300 million of additional
capital for these operations in 1994. Pursuant to this authorization, CIGNA
contributed $100 million of capital in the second quarter. CIGNA is currently
assessing the strategic direction of its property and casualty reinsurance
operations. No determination has been made regarding any future actions. A
determination is expected to be made later in 1994. CIGNA has sufficient
internal resources to meet the expected capital needs of these operations.
21
<PAGE> 24
INVESTMENT ASSETS
<TABLE>
<CAPTION>
====================================================================================================================================
June 30, December 31,
(In millions) 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fixed maturities: at amortized cost $12,671 $12,375
Fixed maturities: at fair value 17,907 19,380
Equity securities 1,809 1,849
Mortgage loans 9,861 10,021
Real estate 1,797 1,780
Other 5,673 5,323
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment assets $49,718 $50,728
====================================================================================================================================
</TABLE>
Additional information regarding CIGNA's investment assets is included in Note
3 to the second quarter 1994 Financial Statements and Notes 1, 3 and 4 to the
1993 Financial Statements as well as the 1993 Form 10-K.
Significant amounts of CIGNA's investment assets are attributable to
experience-rated contracts with policyholders (policyholder contracts).
Approximate percentages of investments attributable to policyholder contracts
were as follows:
<TABLE>
<CAPTION>
====================================================================================================================================
June 30, December 31,
1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fixed maturities 33% 33%
Mortgage loans 58% 59%
Real estate 57% 56%
====================================================================================================================================
</TABLE>
22
<PAGE> 25
FIXED MATURITIES
Investments in fixed maturities (bonds) include publicly traded and private
placement debt securities; mortgage-backed securities, including collateralized
mortgage obligations (CMOs); and redeemable preferred stocks. As of December
31, 1993, CIGNA adopted SFAS No. 115; accordingly, fixed maturities classified
as held to maturity are carried at amortized cost, net of impairments, and
those classified as available for sale are carried at fair value, with
unrealized appreciation or depreciation included in shareholders' equity.
As of June 30, 1994, fixed maturities classified as available for sale had an
aggregate fair value in excess of amortized cost of approximately $111 million,
compared with approximately $1.76 billion as of December 31, 1993. The decline
in unrealized appreciation primarily reflects the upward movement in interest
rates since December 31, 1993.
QUALITY RATINGS
Quality ratings for bonds were as follows (shown as a percentage of bonds):
<TABLE>
<CAPTION>
====================================================================================================================================
June 30, December 31,
1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment grade 93% 94%
Below investment grade:
Available for sale 1 1
Held to maturity 6 5
- ------------------------------------------------------------------------------------------------------------------------------------
Total 100% 100%
====================================================================================================================================
</TABLE>
The quality ratings of CIGNA's below investment grade bonds (BA and below, or
equivalent) are concentrated toward the higher end of the non-investment grade
spectrum. Approximately 35% of below investment grade securities relate to
policyholder contracts.
23
<PAGE> 26
PROBLEM BONDS *
Bonds that are delinquent or restructured as to terms, typically interest rate
and, in certain cases, maturity date, are considered problem bonds. Problem
bonds, including amounts attributable to policyholder contracts, and related
cumulative write-downs were as follows:
<TABLE>
<CAPTION>
====================================================================================================================================
June 30, December 31,
(In millions) 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Delinquent bonds $178 $131
Less cumulative write-downs 62 52
------- -------
116 79
------- -------
Restructured bonds 256 383
Less cumulative write-downs 46 55
------- -------
210 328
- ------------------------------------------------------------------------------------------------------------------------------------
Problem bonds $326 $407
====================================================================================================================================
</TABLE>
POTENTIAL PROBLEM BONDS *
Potential problem bonds are fully current but judged by management to have
certain characteristics that increase the likelihood of problem classification.
Potential problem bonds, including amounts attributable to policyholder
contracts, and related cumulative write-downs and valuation reserves were as
follows:
<TABLE>
<CAPTION>
====================================================================================================================================
June 30, December 31,
(In millions) 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Potential problem bonds $181 $225
Less cumulative write-downs and
valuation reserves 13 11
- ------------------------------------------------------------------------------------------------------------------------------------
Potential problem bonds $168 $214
====================================================================================================================================
</TABLE>
* Bonds in these categories are primarily classified as held to maturity.
24
<PAGE> 27
CUMULATIVE WRITE-DOWNS AND VALUATION RESERVES FOR BONDS
The activity in cumulative write-downs and valuation reserves for bonds during
the six months ended June 30 was as follows:
<TABLE>
<CAPTION>
====================================================================================================================================
1994 1993
-------------------------------------- ----------------------------------------
Policy- Policy-
holder holder
(In millions) Contracts CIGNA Total Contracts CIGNA Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance - January 1 $54 $69 $123 $89 $81 $170
Additions to cumulative
write-downs 12 11 23 7 20 27
Net decrease in valuation
reserves (2) (1) (3) (4) (4) (8)
Charge-offs upon sales,
repayments and other (9) (9) (18) (6) (1) (7)
Transfers to equity securities - - - (22) (21) (43)
- ------------------------------------------------------------------------------------------------------------------------------------
Ending balance - June 30 $55 $70 $125 $64 $75 $139
====================================================================================================================================
</TABLE>
Included in the total ending balances above as of June 30, 1994 and 1993 were
$4 million for bonds no longer classified as problem or potential problem
bonds. As of December 31, 1993, such reserves were $5 million.
The adverse after-tax effect of write-downs and net change in valuation
reserves on CIGNA's net income for the quarter and six months ended June 30,
1994 was $6 million and $7 million, respectively, compared with $5 million and
$11 million for the same periods of 1993.
During 1993 and the first six months of 1994, bonds with a carrying value of
$102 million and $23 million, respectively, were restructured into equity
securities. As of June 30, 1994, CIGNA had cumulative write-downs for equity
securities of $68 million (including $27 million attributable to policyholder
contracts), compared with $78 million (including $39 million attributable to
policyholder contracts) as of December 31, 1993.
25
<PAGE> 28
EFFECT OF NON-ACCRUALS FOR BONDS
Interest income is recognized on problem bonds only when payment is received.
The adverse effect of non-accruals for bonds (in total and by type) on
policyholder contracts and on CIGNA's net income is shown in the following
table:
<TABLE>
<CAPTION>
========================================================================================
Three Months Ended
June 30,
--------------------------------------------------------
1994 1993
------------------------ ---------------------
Policy- Policy-
holder holder
(In millions) Contracts CIGNA Contracts CIGNA
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment
income under
original contract
terms $6 $10 $14 $16
Less net investment
income received 3 3 8 11
------------------------ ---------------------
Forgone investment
income 3 7 6 5
Tax effect - (3) - (2)
- ----------------------------------------------------------------------------------------
Net effect of non-
accruals $3 $4 $6 $3
========================================================================================
Forgone investment
income by type:
Delinquent bonds $2 $4 $1 $1
Restructured bonds 1 3 5 4
------------------------ ---------------------
Forgone investment
income 3 7 6 5
Tax effect - (3) - (2)
- ----------------------------------------------------------------------------------------
Net effect of non-
accruals $3 $4 $6 $3
========================================================================================
</TABLE>
<TABLE>
<CAPTION>
========================================================================================
Six Months Ended
June 30,
-------------------------------------------------------
1994 1993
-------------------- ----------------------------
Policy- Policy-
holder holder
(In millions) Contracts CIGNA Contracts CIGNA
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment
income under
original contract
terms $12 $21 $26 $27
Less net investment
income received 6 8 15 18
-------------------- -----------------------------
Forgone investment
income 6 13 11 9
Tax effect - (5) - (3)
- ----------------------------------------------------------------------------------------
Net effect of non-
accruals $6 $8 $11 $6
========================================================================================
Forgone investment
income by type:
Delinquent bonds $3 $7 $2 $3
Restructured bonds 3 6 9 6
-------------------- -----------------------------
Forgone investment
income 6 13 11 9
Tax effect - (5) - (3)
- ----------------------------------------------------------------------------------------
Net effect of non-
accruals $6 $8 $11 $6
========================================================================================
</TABLE>
26
<PAGE> 29
MORTGAGE LOANS
<TABLE>
<CAPTION>
===============================================================================================================================
June 30, December 31,
1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Mortgage loans (in millions) $9,861 $10,021
By type:
Office buildings 39% 40%
Retail facilities 38 37
Hotels 7 7
Apartment buildings 10 10
Other 6 6
Total 100% 100%
===============================================================================================================================
</TABLE>
CIGNA's investment strategy requires diversification of the mortgage loan
portfolio. This strategy includes guidelines relative to property type,
location, borrower and loan size to reduce its exposure to potential losses.
Continued adverse conditions in real estate markets and more stringent lending
practices by financial institutions have affected scheduled maturities of
mortgage loans. During the first six months of 1994, $674 million of mortgage
loans was scheduled to mature, of which $33 million was paid in full, $182
million was extended at existing loan rates for a weighted average of 14 months
and $373 million was refinanced at current market rates. Mortgage loan
extensions and refinancings are loans in good standing. The remainder of the
scheduled maturities was problem mortgage loans or foreclosure properties,
including $43 million that were restructured and $32 million that were
foreclosed or were in the process of foreclosure. The effect of not receiving
timely cash payments on maturing mortgage loans is not expected to have a
material adverse effect on CIGNA's future results of operations, liquidity or
financial condition.
27
<PAGE> 30
PROBLEM MORTGAGE LOANS
CIGNA's problem mortgage loans include delinquent and restructured mortgage
loans. Delinquent mortgage loans include those on which payment is overdue
generally 60 days or more. Restructured mortgage loans are those whose basic
financial terms have been modified, typically to reduce the interest rate. As
of June 30, 1994, restructured mortgage loans with a carrying value of
approximately $379 million had their original maturity dates extended, with an
average extension of four years. Restructured mortgage loans generated
annualized cash returns averaging approximately 7% as of June 30, 1994.
Problem mortgage loans, including amounts attributable to policyholder
contracts, and related valuation reserves were as follows:
<TABLE>
<CAPTION>
======================================================================================================================
June 30, December 31,
(In millions) 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Delinquent mortgage loans $154 $162
Less valuation reserves 36 32
----------- --------
118 130
----------- --------
Restructured mortgage loans 862 839
Less valuation reserves 100 105
----------- --------
762 734
- ----------------------------------------------------------------------------------------------------------------------
Problem mortgage loans $880 $864
======================================================================================================================
</TABLE>
POTENTIAL PROBLEM MORTGAGE LOANS
Potential problem mortgage loans include: 1) fully current loans that are
judged by management to have certain characteristics that increase the
likelihood of problem classification, 2) fully current loans for which the
borrower has requested restructuring and 3) loans that are 30 to 59 days
delinquent with respect to interest or principal payments. As of June 30,
1994, approximately 87% of potential problem mortgage loans were fully current
under their original terms. Potential problem mortgage loans, including
amounts attributable to policyholder contracts, and related valuation reserves
were as follows:
<TABLE>
<CAPTION>
===============================================================================================================================
June 30, December 31,
(In millions) 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Potential problem mortgage loans before reserves $557 $627
Less reserves 74 79
- -------------------------------------------------------------------------------------------------------------------------------
Potential problem mortgage loans $483 $548
===============================================================================================================================
</TABLE>
28
<PAGE> 31
VALUATION RESERVES FOR MORTGAGE LOANS
The activity in valuation reserves for mortgage loans during the six months
ended June 30 was as follows:
<TABLE>
<CAPTION>
==============================================================================================================================
1994 1993
------------------------------------- --------------------------------------
Policy- Policy-
holder holder
(In millions) Contracts CIGNA Total Contracts CIGNA Total
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance - January 1 $105 $111 $216 $106 $78 $184
Net increase in valuation
reserves 15 9 24 17 30 47
Charge-offs upon sales,
repayments and other (1) (2) (3) (7) (6) (13)
Transfers to real estate (10) (17) (27) (23) (14) (37)
- ------------------------------------------------------------------------------------------------------------------------------
Ending balance - June 30 $109 $101 $210 $93 $88 $181
==============================================================================================================================
</TABLE>
The adverse after-tax effect of the net increase in valuation reserves on
CIGNA's net income was $4 million and $6 million for the second quarter and six
months of 1994, compared with $7 million and $20 million for the same periods
of 1993.
Valuation reserves for mortgage loans include reserves for loans which are
in-substance foreclosures (classified as problem mortgage loans), and such
loans are carried at the fair value of the underlying property. As of June 30,
1994, December 31, 1993 and June 30, 1993, the carrying value of such loans was
$95 million, $17 million and $84 million, respectively, net of valuation
reserves of $32 million, $17 million and $35 million, respectively.
29
<PAGE> 32
EFFECT OF NON-ACCRUALS FOR MORTGAGE LOANS
Interest income is recognized on problem mortgage loans only when payment is
received. The adverse effect of non-accruals for mortgage loans (in total and
by type) on policyholder contracts and on CIGNA's net income is shown in the
following table:
<TABLE>
<CAPTION>
================================================================================================
Three Months Ended
June 30,
----------------------------------------------------------------
1994 1993
-------------------------- -------------------------
Policy- Policy-
holder holder
(In millions) Contracts CIGNA Contracts CIGNA
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment income
under original contract
terms $20 $12 $25 $14
Less net investment
income received 12 8 15 8
-------------------------- -------------------------
Forgone investment income 8 4 10 6
Tax effect - (1) - (3)
- ------------------------------------------------------------------------------------------------
Net effect of non-
accruals $8 $3 $10 $3
================================================================================================
Forgone investment income
by type:
Delinquent mortgage
loans $3 $3 $4 $2
Restructured mortgage
loans 5 1 6 4
-------------------------- -------------------------
Forgone investment income 8 4 10 6
Tax effect - (1) - (3)
- ------------------------------------------------------------------------------------------------
Net effect of non-
accruals $8 $3 $10 $3
================================================================================================
</TABLE>
<TABLE>
<CAPTION>
=====================================================================================================
Six Months Ended
June 30,
--------------------------------------------------------------
1994 1993
--------------------------- -----------------------
Policy- Policy-
holder holder
(In millions) Contracts CIGNA Contracts CIGNA
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment income
under original contract
terms $41 $24 $51 $29
Less net investment
income received 26 15 32 16
--------------------------- -----------------------
Forgone investment income 15 9 19 13
Tax effect - (3) - (5)
- -----------------------------------------------------------------------------------------------------
Net effect of non-
accruals $15 $6 $19 $8
=====================================================================================================
Forgone investment income
by type:
Delinquent mortgage
loans $7 $6 $9 $5
Restructured mortgage
loans 8 3 10 8
--------------------------- -----------------------
Forgone investment income 15 9 19 13
Tax effect - (3) - (5)
- -----------------------------------------------------------------------------------------------------
Net effect of non-
accruals $15 $6 $19 $8
=====================================================================================================
</TABLE>
30
<PAGE> 33
REAL ESTATE
Investment real estate includes real estate held for the production of income
and properties acquired as a result of foreclosure of mortgage loans
(foreclosure properties).
Investment real estate, including amounts attributable to policyholder
contracts, and related cumulative write-downs and valuation reserves were as
follows:
<TABLE>
<CAPTION>
======================================================================================================================
June 30, December 31,
(In millions) 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Foreclosure properties $1,338 $1,289
Less cumulative write-downs 318 301
Less valuation reserves 62 59
--------- ---------
958 929
--------- ---------
Real estate held for the production of income 878 890
Less valuation reserves 39 39
--------- ---------
839 851
- ----------------------------------------------------------------------------------------------------------------------
Investment real estate $1,797 $1,780
======================================================================================================================
</TABLE>
RESERVES FOR REAL ESTATE
The activity in cumulative write-downs and valuation reserves for real estate
during the six months ended June 30 was as follows:
<TABLE>
<CAPTION>
==============================================================================================================================
1994 1993
-------------------------------------- --------------------------------------
Policy- Policy-
holder holder
(In millions) Contracts CIGNA Total Contracts CIGNA Total
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance - January 1 $239 $160 $399 $184 $108 $292
Additions to cumulative
write-downs 8 2 10 12 21 33
Net increase in valuation
reserves 5 4 9 13 3 16
Charge-offs upon sales and
other (21) (5) (26) (8) 8 -
Transfers from mortgage loans 10 17 27 23 14 37
- ------------------------------------------------------------------------------------------------------------------------------
Ending balance - June 30 $241 $178 $419 $224 $154 $378
==============================================================================================================================
</TABLE>
The adverse after-tax effect of write-downs and the net increase in valuation
reserves on CIGNA's net income for the quarter and six months ended June 30,
1994 was $3 million and $4 million, respectively, compared with $6 million and
$15 million for the same periods of 1993.
31
<PAGE> 34
SUMMARY
The adverse effects of non-accruals as well as write-downs and changes in
valuation reserves ("write-downs and reserves") on policyholder contracts and
on CIGNA's net income were as follows:
<TABLE>
<CAPTION>
================================================================================================
Three Months Ended
June 30,
----------------------------------------------------------------
1994 1993
-------------------------- -------------------------
Policy- Policy-
holder holder
(In millions) Contracts CIGNA Contracts CIGNA
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Write-downs and reserves:
Bonds $8 $6 $2 $5
Mortgage loans 7 4 9 7
Real estate 9 3 17 6
- ------------------------------------------------------------------------------------------------
Total $24 $13 $28 $18
================================================================================================
Non-accruals:
Bonds $3 $4 $6 $3
Mortgage loans 8 3 10 3
- ------------------------------------------------------------------------------------------------
Total $11 $7 $16 $6
================================================================================================
</TABLE>
<TABLE>
<CAPTION>
======================================================================================================
Six Months Ended
June 30,
--------------------------------------------------------------
1994 1993
-------------------------- -----------------------
Policy- Policy-
holder holder
(In millions) Contracts CIGNA Contracts CIGNA
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Write-downs and reserves:
Bonds $10 $7 $3 $11
Mortgage loans 15 6 17 20
Real estate 13 4 25 15
- ------------------------------------------------------------------------------------------------------
Total $38 $17 $45 $46
======================================================================================================
Non-accruals:
Bonds $6 $8 $11 $6
Mortgage loans 15 6 19 8
- ------------------------------------------------------------------------------------------------------
Total $21 $14 $30 $14
======================================================================================================
</TABLE>
The effect of adverse economic conditions on certain industry segments and
adverse real estate market conditions is expected to continue, resulting in
additional problem investments and foreclosures. Investments in California and
in office buildings are particularly vulnerable to deterioration. Although
additional non-accruals, write-downs and reserves may materially affect future
results of operations, the amounts and timing cannot be reasonably estimated.
CIGNA currently does not expect such non-accruals, write-downs and reserves to
result in a significant decline in the aggregate carrying value of its assets
or a material adverse effect on its liquidity or financial condition.
32
<PAGE> 35
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) See Exhibit Index.
(b) CIGNA filed a Report on Form 8-K dated August 1, 1994
containing a press release regarding its second
quarter 1994 results.
-33-
<PAGE> 36
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed by the undersigned duly
authorized officer, on its behalf and in the capacity indicated.
CIGNA CORPORATION
By /s/ Gary A. Swords
----------------------
Gary A. Swords
Vice President and
Chief Accounting Officer
Date: August 15, 1994
-34-
<PAGE> 37
Exhibit Index
<TABLE>
<CAPTION>
Method of
Number Description Filing
- ------ ----------- ----------
<S> <C> <C>
10.1 CIGNA Supplemental Pension Filed herewith.
Plan, as amended and restated
effective July 28, 1993
10.2 CIGNA Corporation Filed herewith.
Severance Benefits Plan,
as amended and restated
July 27, 1994
11 Computation of Earnings Filed herewith.
Per Share
12 Computation of Ratio of Filed herewith.
Earnings to Fixed Charges
</TABLE>
-35-
<PAGE> 1
EXHIBIT 10.1
CIGNA SUPPLEMENTAL PENSION PLAN
(Amended and Restated effective July 28, 1993)
WHEREAS, CIGNA Corporation, on its own behalf and on behalf of those of its
subsidiaries and affiliates which participate in the CIGNA Pension Plan,
established the CIGNA Supplemental Pension Plan (the "Plan"), effective January
1, 1983, to provide to eligible employees retirement benefits which would
otherwise be provided by the CIGNA Pension Plan but for certain restrictions on
the benefits payable under the CIGNA Pension Plan;
WHEREAS, This Plan is intended to be an "excess benefit plan" under section
3(36) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and an unfunded plan maintained primarily for the purpose of
providing deferred compensation for a select group of management or highly
compensated employees, within the meaning of section 401(a)(1) of ERISA; and
WHEREAS, CIGNA has amended this Plan from time to time and wishes to amend it
further;
NOW, THEREFORE, CIGNA amends and restates the Plan in its entirety.
ARTICLE I DEFINITIONS
Except as otherwise provided in this document, terms indicated by
capitalized initial letters whenever they appear in the plan shall
have the same definitions in this Plan as in the CIGNA Pension Plan.
Otherwise, the following definitions apply to this Plan:
1.1 "CIGNA" shall mean CIGNA Corporation, a Delaware corporation, or its
successor.
1.2 "Committee" shall mean the Corporate Benefit Plan Committee of CIGNA,
or a successor committee or person designated by CIGNA's Chief
Executive Officer.
1.3 "Company" shall mean CIGNA Corporation and those of its subsidiaries
and affiliates which participate in the CIGNA Pension Plan.
1.4 "Deferred Compensation Plan" shall mean the Deferred Compensation Plan
of CIGNA Corporation, any successor plan, and any similar plans or
arrangements maintained by the Company.
<PAGE> 2
1.5 "Participant" shall mean any Eligible Employee who is eligible to
participate in the Plan but only to the extent that the employee has,
or might in the event of Retirement at his earliest Early Retirement
Date under the Pension Plan have, an Accrued Benefit as defined in
Section 3.01 of the Plan.
1.6 "Pension Plan" shall mean the CIGNA Pension Plan, a defined benefit
pension plan, or its successor plan(s).
1.7 "Rabbi Trust" shall mean a grantor trust, the assets of which will not
be subject to the claims of creditors of the Company, except in the
case of the bankruptcy or insolvency of the Company.
1.8 "Supplemental Pension Benefit" shall mean the benefit payable to a
Plan Participant as described in Article III.
1.9 "Supplemental Post-Retirement Surviving Spouse Benefit" shall mean the
benefit payable to Participant's surviving Spouse as described in
Section 4.3 of the Plan.
1.10 "Supplemental Post-Retirement Survivor Benefit" shall mean the benefit
payable to Participant's contingent survivor as described in Section
4.4 of the Plan.
1.11 "Supplemental Pre-Retirement Surviving Spouse Benefit" shall mean the
benefit payable to Participant's surviving Spouse as described in
Section 4.5 of the Plan.
ARTICLE II ELIGIBILITY
All Eligible Employees of the Company who are participants in the
Pension Plan shall be eligible to participate in this Plan. In no
event shall an employee who is not entitled to benefits under the
Pension Plan be entitled to benefits under this Plan.
ARTICLE III SUPPLEMENTAL PENSION BENEFIT
3.1 Accrual of Benefit
A Participant shall accrue under this Plan a Supplemental Pension
Benefit which shall equal the excess of (a) over (b) where:
(a) is the Accrued Benefit the Participant would have under the
Pension Plan if the Pension Plan were administered without
regard to:
2
<PAGE> 3
(1) the limitations imposed on retirement benefits
pursuant to section 415 of the Code;
(2) the limitation on compensation imposed pursuant to
section 401(a)(17) of the Code; and
(3) the exclusion of compensation deferred under the
Deferred Compensation Plan from the definition of
Eligible Earnings; and
(b) is the Participant's actual Accrued Benefit under the Pension
Plan.
3.2 Vesting
The vesting of a Participant's Supplemental Pension Benefit shall be
subject to the same provisions applicable to the vesting of retirement
benefits under the Pension Plan.
3.3 Calculation of Benefits
The Supplemental Pension Benefit shall be expressed in the form of a
single life annuity payable for the life of the Participant,
commencing at the Participant's Normal Retirement Date. Such benefit
shall be adjusted using the actuarial factors described in the Pension
Plan to reflect the time and form of payment provided to the
Participant.
3.4 Coordination with Other Retirement Benefits
The Supplemental Pension Benefit shall be added to, and treated as
being part of, the benefits payable to a Participant (or a Spouse or a
Beneficiary) under the Pension Plan for the purposes of applying those
provisions of other Company retirement plans, arrangements or
agreements which provisions reduce benefits payable under such plans,
arrangements or agreements by the amount of benefits payable under the
Pension Plan.
3.5 Duration of Accruals
No Participant shall accrue any Supplemental Pension Benefit under
this Plan during any period in which benefit accruals under the
Pension Plan have been suspended or after benefit accruals under the
Pension Plan have ceased.
3
<PAGE> 4
ARTICLE IV PAYMENT OF BENEFITS
4.1 Standard Form of Benefits
(a) The Supplemental Pension Benefit under Article III of the Plan
shall be paid to the Participant in the form of a single lump
sum, unless the Committee approves an optional form of payment
under Section 4.2 of the Plan. The amount of the single lump
sum payment shall be the actuarial present value, determined
using the applicable assumptions and methods under the Pension
Plan as of the date of payment, of (1) the Supplemental
Pension Benefit and (2) the Supplemental Post-Retirement
Surviving Spouse Benefit described in Section 4.3 of the Plan,
with both (1) and (2) stated in the form of a single life
annuity.
(b) The single lump sum payment shall be made in the January
following Participant's termination of employment from the
Company or, if later, the January following the year in which
the Participant reaches age fifty-five (55).
4.2 Optional Form of Benefit
(a) Notwithstanding the provisions of Section 4.1, a Participant
may request to receive the Supplemental Pension Benefit in the
same form in which his Pension Plan benefits are distributed.
(b) A Participant's request for payment of the Supplemental
Pension Benefit in this optional form shall be made in writing
to the Plan Administrator. The request must be received by
the Plan Administrator no later than thirteen (13) months
before the date of payment.
The Committee may, in its sole and absolute discretion, waive
the thirteen (13) month requirement set forth above for
Participants whose termination of employment occurs before
January 1, 1995.
(c) The Plan Administrator shall forward any request made under
paragraph 4.2(b) to the Committee, which shall consider any
such request. In determining whether the request should be
granted, the Committee shall consider the Participant's
financial needs, including any other sources of retirement
income, and the needs and financial security of the
Participant's dependents. If the Committee, in its sole and
absolute discretion, determines that the request should be
granted, payment of the Participant's Supplemental Pension
Benefit shall be in the optional form.
4
<PAGE> 5
4.3 Post-Retirement Surviving Spouse Benefits
(a) If a Participant whose Supplemental Pension Benefit is paid in
the optional form under Section 4.2 of the Plan dies after
such payments have commenced and has a surviving Spouse who is
eligible for a surviving Spouse benefit under Article V of the
Pension Plan, then such Spouse shall also be eligible for a
Supplemental Post-Retirement Surviving Spouse Benefit under
this Plan.
(b) The Supplemental Post-Retirement Surviving Spouse Benefit
shall be paid to the eligible Spouse in the form of a single
lump sum payment as soon as practicable after the
Participant's death.
(c) The amount of the Supplemental Surviving Spouse Benefit shall
be equal to the lump sum present value, determined using the
applicable assumptions and methods under the Pension Plan as
of the date of payment, of the excess of (1) over (2) where:
(1) is the post-retirement surviving Spouse benefit which
would be payable to the Spouse under the Pension Plan
if such benefit were computed without regard to the
items listed in Section 3.1 (a)(1), (2) and (3) of
this Plan; and
(2) is the post-retirement surviving Spouse benefit which
is actually payable under the Pension Plan.
(d) No Supplemental Post-Retirement Surviving Spouse Benefit is
available under this Plan if the Participant's Supplemental
Pension Benefit is paid in the standard, single lump sum form
under Section 4.1.
4.4 Other Post-Retirement Survivor Benefits
(a) If a Participant, whose Supplemental Pension Benefit is paid
in the optional form under Section 4.2 of the Plan that
includes a contingent survivor annuity for someone other than
the Participant's surviving Spouse, dies after payments in the
optional form have commenced, then the survivor under the
contingent annuity option shall be eligible for a Supplemental
Post-Retirement Survivor Benefit under this Plan.
(b) The Supplemental Post-Retirement Survivor Benefit shall be
paid to the eligible survivor in the form of a single lump sum
payment as soon as practicable after the Participant's death.
5
<PAGE> 6
(c) The amount of the Supplemental Post-Retirement Survivor
Benefit shall be equal to the lump sum present value,
determined using the applicable assumptions and methods under
the Pension Plan as of the date of payment, of the excess of
(1) over (2) where:
(1) is the post-retirement contingent survivor benefit
which would be payable to the survivor under the
Pension Plan if such benefit were computed without
regard to the items listed in Section 3.1 (a)(1), (2)
and (3) of this Plan; and
(2) is the post-retirement contingent survivor benefit
which is actually payable under the Pension Plan.
(d) No Supplemental Post-Retirement Survivor Benefit is available
under this Plan if the Participant's Supplemental Pension
Benefit is paid in the standard, single lump sum form under
Section 4.1.
4.5 Pre-Retirement Surviving Spouse Benefits
(a) If a Participant who dies before the Supplemental Pension
Benefit payment has been made under Section 4.1 (or before the
date as of which payments have commenced under Section 4.2)
has a surviving Spouse who is eligible for a pre-retirement
surviving Spouse benefit under Article V of the Pension Plan,
then such Spouse shall be eligible for a Supplemental
Pre-Retirement Surviving Spouse Benefit under this Plan.
(b) The Supplemental Pre-Retirement Surviving Spouse Benefit shall
be paid to the eligible spouse in the form of a single lump
sum payable as soon as practicable after the Participant's
death.
(c) The amount of the Supplemental Pre-Retirement Surviving Spouse
Benefit shall be equal to the actuarial present value,
determined using the applicable assumptions and methods under
the Pension Plan as of the date of payment, of the excess of
(1) over (2) where:
(1) is the pre-retirement surviving Spouse benefit which
would be payable to the Spouse under the Pension Plan
if such benefit were computed without regard to the
items listed in Section 3.1 (a)(1), (2) and (3) of
this Plan; and
(2) is the pre-retirement surviving Spouse benefit which
is actually payable under the Pension Plan.
6
<PAGE> 7
4.6 Lump Sum Benefits
(a) At the sole discretion of the Plan Administrator, any benefits
payable pursuant to this Article V which at any time either
(1) have a lump sum present value of less than twenty-five
thousand dollars ($25,000) or (2) result in monthly
installments of less than two hundred fifty dollars ($250)
each may be commuted to a single lump sum payment and paid to
the Participant, Spouse, or Beneficiary as appropriate.
(b) A Participant who is paid a Supplemental Pension Benefit in
the form of a single lump sum under Section 4.1 or this
Section 4.6 and who is later rehired by any Company shall not,
upon subsequent Retirement or other termination of employment,
be entitled to any additional Supplemental Pension Benefit
under this Plan based upon any Credited Service used in the
calculation of the initial Supplemental Pension Benefit
payment. Furthermore, any Credited Service that is or would
be disregarded under the preceding sentence in computing a
Participant's Supplemental Pension Benefit shall also be
disregarded in computing any survivor benefits payable under
Sections 4.3, 4.4 or 4.5 of this Plan after Participant's
reemployment.
4.7 Domestic Relations Orders
An individual shall not qualify for a benefit under this Plan solely
because such individual is entitled to a benefit under the Pension
Plan by reason of a "qualified domestic relations order" (as defined
in Section 206 of ERISA). Benefits under this Plan that would have
been payable hereunder to such individual but for the preceding
sentence shall be paid to those individuals who would have received
benefits under the Pension Plan, if no such qualified domestic
relations order was then in effect.
ARTICLE V FUNDING
5.1 In General
(a) This Plan shall be maintained as an unfunded plan which is not
intended to meet the qualification requirements of section 401
of the Code. All benefits from this Plan shall be payable
solely from the general assets of the Company. No separate or
special fund shall be established and no segregation of assets
shall be made to assure the payment of benefits from this
Plan. A Participant shall have no right, title, or interest
in or
7
<PAGE> 8
to any investments which the Company may make to aid in
meeting its obligations under this Plan.
(b) Nothing contained in this document, and no action taken
pursuant to its provisions, shall create or be construed to
create a trust of any kind, or a fiduciary relationship,
between the Company or the Plan Administrator and a
Participant or any other person. To the extent that any
person acquires a right to receive payments from the Company
pursuant to this Plan, such right shall be no greater than the
right of an unsecured creditor of the Company.
(c) Notwithstanding the above, the benefits payable under this
plan may be funded through a Rabbi Trust.
ARTICLE VI ADMINISTRATION
6.1 Plan Administrator
(a) The Plan shall be administered by a Plan Administrator
appointed by the Committee, or its designee. The Plan
Administrator shall have full power and authority to interpret
the Plan, to prescribe, amend and rescind any rules, forms and
procedures as it deems necessary or appropriate for the proper
administration of the Plan, to make any other determinations
including determinations as to eligibility for, and the amount
of, benefits payable under the Plan, and to take such other
actions as it deems necessary or advisable in carrying out its
duties under the Plan.
(b) All decisions, interpretations and determinations by the Plan
Administrator shall be final and binding on the Company,
Participants and any other persons having or claiming an
interest under this Plan.
6.2 Amendment or Termination
Subject to Section 6.3 of the Plan, CIGNA, through its Board of
Directors, or the People Resources Committee of the Board of Directors
(or a successor committee), may amend or terminate this Plan at any
time, in whole or in part, if it deems such amendment or termination
necessary or desirable. No amendment or termination shall impair or
adversely affect any benefits accrued under the Plan in which the
Participant was vested as of the date of such action.
8
<PAGE> 9
6.3 Change of Control
For a three (3) year period beginning on the effective date of a
Change of Control and with respect to Plan Participants on that date:
(a) the Plan shall not be terminated;
(b) the accrual of Supplemental Pension Benefits by Participants
shall not be stopped, suspended or otherwise adversely
affected;
(c) and the rate at which Supplemental Pension Benefits accrue for
Participants shall not be reduced.
CIGNA reserves the right to amend or eliminate this paragraph 6.3 at
any time prior to a Change of Control.
ARTICLE VII MISCELLANEOUS
7.1 Notices
Each Participant shall be responsible for furnishing the Plan
Administrator with the current and proper address for the mailing of
notices, reports and benefit payments. Any notice required or
permitted to be given shall be deemed given if directed to the person
to whom addressed at such address and mailed by regular United States
mail, first-class and prepaid. If any check mailed to such address is
returned as undeliverable to the addressee, mailing of checks will be
suspended until the Participant or beneficiary furnishes the proper
address.
7.2 Lost Distributees
A benefit shall be deemed forfeited if the Plan Administrator is
unable to locate the Participant or beneficiary to whom payment is
due, after diligent effort for a period of at least two (2) years,
provided, however, that the Plan Administrator shall have the
authority (but not the obligation) to reinstate such benefit upon the
later discovery of a proper payee for such benefit. Mailing of a
notice in writing, by certified or registered mail, to the last known
address of the Participant and to the beneficiaries of such
Participant (if the addresses of such beneficiaries are known to the
Plan Administrator) not less frequently than once each year for the
two-year period shall be considered a diligent effort for this
purpose.
9
<PAGE> 10
7.3 Nonalienation of Benefits
None of the payments, benefits or rights of any Participant or
beneficiary shall be subject to any claim of any creditor, and, in
particular, to the fullest extent permitted by law, all such payments,
benefits and rights shall be free from attachment, garnishment,
trustee's process, or any other legal or equitable process available
to any creditor of such Participant or beneficiary. No Participant or
beneficiary shall have the right to alienate, anticipate, commute,
pledge, encumber or assign any of the benefits or payments which he
may expect to receive, contingently or otherwise, under this Plan,
except the right, to the extent applicable, to designate a beneficiary
or beneficiaries to receive any benefits payable upon the
Participant's death, and to change such beneficiary designations from
time to time by taking such action under the Pension Plan.
7.4 Reliance on Data
The Company, the Plan Administrator and all other persons associated
with the Plan's operation shall have the right to rely on the veracity
and accuracy of any data provided pursuant to, or in respect of, this
Plan or the Pension Plan by the Participant or by any beneficiary,
including representations as to age, health and marital status. Such
representations are binding upon any party seeking to claim a benefit
through a Participant. The Company, the Plan Administrator and all
other persons associated with the Plan's operation are absolved
completely from inquiring into the accuracy or veracity of any such
representation made at any time by a Participant or beneficiary.
7.5 No Contract of Employment
Neither the establishment of the Plan, nor any modification thereof,
nor the creation of any fund, trust or account, nor the payment of any
benefits shall be construed as giving any Participant, or any person
whomsoever, the right to be retained in the service of the Company,
and all Participants and other persons shall remain subject to
discharge to the same extent as if the Plan had never been adopted.
7.6 Effect on Other Plans
Any benefit payable under the Plan shall not be deemed salary or other
compensation for the purpose of computing benefits under any employee
benefit plan or other arrangement of the Company for the benefit of
its employees.
10
<PAGE> 11
7.7 Severability of Provisions
If any provision of the Plan shall be held invalid or unenforceable,
such invalidity or unenforceability shall not affect any other
provisions hereof, and the Plan shall be construed and enforced as if
such provisions had not been included.
7.8 Heirs, Assigns and Personal Representatives
The Plan shall be binding upon the heirs, executors, administrators,
successors and assigns of the parties, including each Participant and
beneficiary, present and future.
7.9 Payments to Minors, Etc.
Any benefit payable to or for the benefit of a minor, an incompetent
person or other person incapable of receipting therefor shall be
deemed paid when paid to such person's guardian or to the party
providing or reasonably appearing to provide for the care of such
person, and such payment shall fully discharge the Company, the Plan
Administrator and all other parties with respect thereto.
7.10 Headings and Captions
The headings and captions herein are provided for reference and
convenience only, shall not be considered part of the Plan, and shall
not be employed in the construction of the Plan.
7.11 Gender and Number
Except where otherwise clearly indicated by context, the masculine and
the neuter shall include the feminine and the neuter, the singular
shall include the plural, and vice-versa.
7.12 Controlling Law
The Plan shall be construed and enforced according to the laws of the
Commonwealth of Pennsylvania, to the extent not preempted by federal
law, which shall otherwise control.
11
<PAGE> 12
IN WITNESS WHEREOF, CIGNA Corporation has caused this Amended
and Restated Plan to be executed by the undersigned officers on the 28th day of
July, 1994, to be effective as of July 28, 1993.
[Corporate Seal]
Attest: CIGNA CORPORATION
/s/Carol J. Ward /s/Donald M. Levinson
- ---------------- ---------------------
Carol J. Ward Donald M. Levinson
Corporate Secretary Executive Vice President
12
<PAGE> 1
EXHIBIT 10.2
CIGNA CORPORATION SEVERANCE BENEFITS PLAN
FOR MEMBERS OF THE EXECUTIVE GROUP
(As Amended and Restated July 27, 1994)
Article 1 -- Definitions.
The following are defined terms wherever they appear in this Plan.
1.1 "CIGNA" means CIGNA Corporation, a Delaware corporation, and
includes its subsidiaries, successors and predecessors.
1.2 "Cause" means conviction of the Participant for a felony
involving fraud or dishonesty directed against CIGNA.
1.3 "Change of Control" means:
(a) A corporation, person or group acting in concert as
described in Section 14(d)(2) of the Securities
Exchange Act of 1934, as amended ("Exchange Act"),
holds or acquires beneficial ownership within the
meaning of Rule 13d-3 promulgated under the Exchange
Act of a number of preferred or common shares of
CIGNA Corporation having voting power which is either
(1) more than 50% of the voting power of the shares
which voted in the election of Directors of CIGNA
Corporation at the shareholders' meeting immediately
preceding such determination, or (2) more than 25% of
the voting power of CIGNA Corporation's outstanding
common shares; or
(b) As a result of a merger or consolidation to which
CIGNA Corporation is a party, either (1) CIGNA
Corporation is not the surviving corporation or (2)
Directors of CIGNA Corporation immediately prior to
the merger or consolidation constitute less than a
majority of the Board of Directors of the surviving
corporation; or
(c) A change occurs in the composition of the Board of
CIGNA Corporation at any time during any consecutive
24 month period such that the "Continuity Directors"
cease for any reason to constitute a majority of the
Board. For purposes of the preceding sentence
"Continuity Directors" shall mean those members of
the Board who either: (1) were directors at the
beginning of such consecutive 24 month period; or (2)
were elected by, or on nomination or recommendation
of, at least a majority (consisting of at least nine
directors) of the Board.
1.4 "Participant" means an employee of CIGNA who meets the
eligibility requirements set forth in Article 2.
- 1 -
<PAGE> 2
1.5 "Plan" means the CIGNA Corporation Severance Benefits Plan
for Members of the Executive Group as it may be amended from
time to time.
1.6 "Severance Period" means the fifty-two (52) week period
immediately following a Participant's Termination of
Employment Date.
1.7 "Subsidiary" means any corporation or unincorporated entity
of which more than 50% of the voting power in the election of
directors, or 50% of any ownership interest, is at the time
directly or indirectly owned, held or controlled by CIGNA
Corporation.
1.8 "Terminated Participant" means a Participant who suffers a
Termination upon a Change of Control.
1.9 "Termination of Employment Date" means the date on which the
Participant's actual employment relationship with CIGNA ends.
1.10 "Termination upon a Change of Control" means the termination
of a Participant's employment with CIGNA upon or within two
(2) years following a Change of Control (i) initiated by
CIGNA or a successor other than a Termination for Cause or
(ii) initiated by an Employee after determining in his
reasonable judgment that there has been a reduction in his
authority, duties, responsibilities or title, any reduction
in his compensation, or any changes caused by CIGNA in his
office location of more than thirty-five (35) miles from its
location on the date of the Change of Control.
Article 2 -- Eligibility
2.1 Subject to the limits in Section 2.3, any person employed by
CIGNA in a position at a Salary Grade Level of 60 or higher
(or an equivalent position) on the date immediately preceding
his or her Termination of Employment Date shall be eligible
for benefits under this Plan.
2.2 Subject to the limits in Section 2.3, any person employed by
CIGNA in a position described in Section 2.1 on the date of a
Change of Control shall, in the event of a Termination upon a
Change of Control, remain eligible for benefits under this
Plan and not under the CIGNA Severance Pay Plan.
2.3 An employee who is party to an individual agreement with
CIGNA which provides severance benefits and who qualifies for
severance benfits under both the agreement and this Plan
shall receive the greater of those severance benefits
provided under the agreement or those provided under this
Plan, but not both.
- 2 -
<PAGE> 3
Article 3 -- Benefits.
3.1 Incorporation of CIGNA Severance Pay Plan Provisions
The provisions of the CIGNA Severance Pay Plan, with the
exception of the exclusions from eligibility of persons in
positions above salary Grade 59 (or their equivalent), as
such plan may be amended from time to time, are incorporated
by reference herein and made part of this Plan, except as set
forth in this Article 3.
3.2 Termination Upon a Change of Control
The provisions of the CIGNA Severance Pay Plan incorporated
above in Section 3.1 into this Plan, shall apply to a
Participant whose employment with CIGNA ends on account of a
Termination upon a Change of Control except as follows:
(a) Instead of Basic Severance Pay under Schedule II, a
Terminated Participant shall receive Basic Severance
Pay equal to his or her base salary rate, stated in
weekly terms, multiplied by four (4) weeks for each
completed year of service attained by the Participant
on his or her Termination of Employment Date except
that the minimum number of weeks shall be fifty-two
(52) and the maximum number of weeks shall be one
hundred four (104). Such Basic Severance Pay shall
be payable in equal bi-weekly installments unless the
Participant elects a lump sum payment.
(b) Supplemental Severance Pay for a Terminated
Participant with a Termination of Employment Date
from May 1 to December 31 shall be computed as under
the CIGNA Severance Pay Plan with the following
changes. Instead of averaging bonuses or making
pro-rata adjustments, the lump sum amount shall equal
the higher of the bonus actually received by the
Terminated Participant for the calendar year
preceding his Termination of Employment Date or the
amount of the annual incentive bonus guideline,
established by the Board for determining appropriate
levels of incentive compensation payments under the
CIGNA Key Management Incentive Bonus Plan, which
guideline was applicable to the Terminated
Participant immediately preceding the Change of
Control.
(c) During the first six months of the Severance Period,
CIGNA will provide a Terminated Participant with
outplacement counseling, office space and secretarial
services.
- 3 -
<PAGE> 4
(d) A Terminated Participant may elect to have CIGNA
provide executive financial planning and tax
preparation services for the calendar year in which
his or her Termination of Employment Date occurs in
accordance with such programs then in effect.
Article 4 -- Administration of the Plan.
4.1 This Plan may be amended, modified or terminated in the sole
and absolute discretion of CIGNA at any time, except after a
Change of Control. For the two-year period following a
Change of Control, no amendment, modification or termination
which would adversely affect any Participant in any manner
may be made.
4.2 Effective Date.
This Plan, as amended and restated, shall be effective July
27, 1994.
IN WITNESS WHEREOF, CIGNA Corporation has caused this Plan to be executed by
the undersigned officer this 28th day of July, 1994, to be effective as of the
date set forth herein.
(Corporate Seal)
Attest: CIGNA CORPORATION
/s/Carol J. Ward /s/Donald M. Levinson
- ---------------- ---------------------
Carol J. Ward Donald M. Levinson
Corporate Secretary Executive Vice President
- 4 -
<PAGE> 1
<TABLE>
<CAPTION>
CIGNA CORPORATION EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
(Dollars in millions, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
=============================================================================================================================
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
NET INCOME AVAILABLE TO
COMMON SHARES $ 135 $ 88 $ 249 $ 134
- ---------------------------------------------------=========================================================================
WEIGHTED AVERAGE SHARES:
Common shares 72,286,013 71,959,794 72,196,784 71,877,160
Common share equivalents applicable
to stock options 111,754 79,944 102,271 87,401
- ----------------------------------------------------------------------------------------------------------------------------
Total 72,397,767 72,039,738 72,299,055 71,964,561
- ---------------------------------------------------=========================================================================
PRIMARY EARNINGS PER SHARE $ 1.86 $ 1.22 $ 3.44 $ 1.86
- ---------------------------------------------------=========================================================================
FULLY DILUTED EARNINGS PER SHARE
NET INCOME AVAILABLE TO
COMMON SHARES:
Net income $ 135 $ 88 $ 249 $ 134
Adjusted for:
Interest expense (net of tax) on
convertible debentures 4 4 7 *
- -----------------------------------------------------------------------------------------------------------------------------
Net income available to common shares $ 139 $ 92 $ 256 $ 134
- ---------------------------------------------------=========================================================================
WEIGHTED AVERAGE SHARES:
Common shares 72,286,013 71,959,794 72,196,784 71,877,160
Common share equivalents applicable
to stock options 178,301 83,603 135,544 89,469
Assumed conversion of convertible debentures 3,626,102 3,626,395 3,626,102 *
- -----------------------------------------------------------------------------------------------------------------------------
Total 76,090,416 75,669,792 75,958,430 71,966,629
- ---------------------------------------------------=========================================================================
FULLY DILUTED
EARNINGS PER SHARE $ 1.83 $ 1.22 $ 3.37 $ 1.86
- ---------------------------------------------------=========================================================================
</TABLE>
* The effect of incremental shares was anti-dilutive. Net income available to
common shares reflects the payment of interest expense on debentures.
<PAGE> 1
<TABLE>
<CAPTION>
CIGNA CORPORATION EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
Six Months Ended
June 30,
1994 1993
=========================================================================================
<S> <C> <C>
Income before income taxes $ 374 $ 162
-------- -------
Fixed charges included in income:
Interest expense 61 60
Interest portion of rental expense 52 52
-------- -------
Total fixed charges included in income 113 112
-------- -------
Income available for fixed charges $ 487 $ 274
- --------------------------------------------------------------===========================
RATIO OF EARNINGS TO FIXED CHARGES 4.3 2.4
- --------------------------------------------------------------===========================
</TABLE>
