Cigna Group 10-Q 2021-09-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

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 1-38769

Cigna Corporation

(Exact name of registrant as specified in its charter)

900 Cottage Grove Road

Bloomfield, Connecticut 06002

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code (860) 226-6000

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

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 _

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No _

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Yes _

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

As of October 29, 2021, 331,427,775 shares of the issuer’s common stock were outstanding.

Cigna Corporation

TABLE OF CONTENTS

As used herein, “Cigna” or the “Company” refers to one or more of Cigna Corporation and its consolidated

subsidiaries.

Part I. FINANCIAL INFORMATION

a

The accompanying Notes to the Consolidated Financial Statements (unaudited) are an integral part of these statements.

The accompanying Notes to the Consolidated Financial Statements (unaudited) are an integral part of these statements.

Showing the first 8K of 187K characters. Open the full section

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide information to assist you in better understanding and evaluating our financial condition as of September 30, 2021 compared with December 31, 2020 and our results of operations for the three and nine months ended September 30, 2021, compared with the same periods last year and is intended to help you understand the ongoing trends in our business. We encourage you to read this MD&A in conjunction with our Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2020 ("Form 10-K"). In particular, we encourage you to refer to the “Risk Factors” contained in Part I, Item 1A of the 2020 Form 10-K.

Unless otherwise indicated, financial information in this MD&A is presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). See Note 2 to the Consolidated Financial Statements in our 2020 Form 10-K for additional information regarding the Company's significant accounting policies and see Note 2 to the Consolidated Financial Statements in this Form 10-Q for updates to those policies resulting from adopting new accounting guidance, if any. The preparation of interim consolidated financial statements necessarily relies heavily on estimates. This and certain other factors call for caution in estimating full-year results based on interim results of operations. In some of our financial tables in this MD&A, we present either percentage changes or “N/M” when those changes are so large as to become not meaningful. Changes in percentages are expressed in basis points (“bps”).

In this MD&A, our consolidated measures “adjusted income from operations,” earnings per share on that same basis and “adjusted revenues” are not determined in accordance with GAAP and should not be viewed as substitutes for the most directly comparable GAAP measures of “shareholders’ net income,” “earnings per share” and “total revenues.” We also use pre-tax adjusted income from operations and adjusted revenues to measure the results of our segments.

The Company uses "pre-tax adjusted income from operations" and "adjusted revenues" as its principal financial measures of segment operating performance because management believes they best reflect the underlying results of business operations and permit analysis of trends in underlying revenue, expenses and profitability. We define adjusted income from operations as shareholders’ net income (or income before taxes for the segment metric) excluding net realized investment results, amortization of acquired intangible assets and special items. Cigna’s share of certain realized investment results of its joint ventures reported in the International Markets segment using the equity method of accounting are also excluded. Special items are matters that management believes are not representative of the underlying results of operations due to their nature or size. Adjusted income (loss) from operations is measured on an after-tax basis for consolidated results and on a pre-tax basis for segment results. Consolidated adjusted income (loss) from operations is not determined in accordance with GAAP and should not be viewed as a substitute for the most directly comparable GAAP measure, shareholders’ net income. See the below Financial Highlights section for a reconciliation of consolidated adjusted income from operations to shareholders’ net income.

The Company defines adjusted revenues as total revenues excluding the following adjustments: special items and Cigna's share of certain realized investment results of its joint ventures reported in the International Markets segment using the equity method of accounting. Special items are matters that management believes are not representative of the underlying results of operations due to their nature or size. We exclude these items from this measure because management believes they are not indicative of past or future underlying performance of the business. Adjusted revenues is not determined in accordance with GAAP and should not be viewed as a

substitute for the most directly comparable GAAP measure, total revenues. See the below Financial Highlights section for a reconciliation of consolidated adjusted revenues to total revenues.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on Cigna’s current expectations and projections about future trends, events and uncertainties. These statements are not historical facts. Forward-looking statements may include, among others, statements concerning future financial or operating performance, including our ability to deliver affordable, personalized and innovative solutions for our customers and clients, including in light of the challenges presented by the COVID-19 pandemic; future growth, business strategy, strategic or operational initiatives; economic, regulatory or competitive environments, particularly with respect to the pace and extent of change in these areas; financing or capital deployment plans and amounts available for future deployment; our prospects for growth in the coming years; strategic transactions, including the sale of our international life, accident and supplemental benefits business; and other statements regarding Cigna’s future beliefs, expectations, plans, intentions, liquidity, cash flows, financial condition or performance. You may identify forward-looking statements by the use of words such as “believe,” “expect,” “plan,” “intend,” “anticipate,” “estimate,” “predict,” “potential,” “may,” “should,” “will” or other words or expressions of similar meaning, although not all forward-looking statements contain such terms.

Forward-looking statements are subject to risks and uncertainties, both known and unknown, that could cause actual results to differ materially from those expressed or implied in forward-looking statements. Such risks and uncertainties include, but are not limited to: our ability to achieve our strategic and operational initiatives; our ability to adapt to changes in an evolving and rapidly changing industry; the scale, scope and duration of the COVID-19 pandemic and its potential impact on our business, operating results, cash flows or financial condition; our ability to compete effectively, differentiate our product

Showing the first 8K of 125K characters. Open the full section

Information responsive to this item is contained under the caption “Market Risk” in Item 2 above, Management’s Discussion and Analysis of Financial Condition and Results of Operations and is incorporated herein by reference.

Based on an evaluation of the effectiveness of Cigna’s disclosure controls and procedures conducted under the supervision and with the participation of Cigna’s management (including Cigna’s Chief Executive Officer and Chief Financial Officer), Cigna's Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, Cigna’s disclosure controls and procedures are effective to ensure that information required to be disclosed by Cigna in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to Cigna’s management, including Cigna’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, Cigna's internal control over financial reporting.

Part II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

The information contained under “Litigation Matters” and “Regulatory Matters” in Note 15 to the Consolidated Financial Statements is incorporated herein by reference. For information regarding legal proceedings terminated during the quarter ended June 30, 2021, refer to Note 15 to the Consolidated Financial Statements contained in Part I of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021.

For information regarding factors that could affect the Company's results of operations, financial condition and liquidity, see the risk factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

The following table provides information about Cigna’s share repurchase activity for the quarter ended September 30, 2021:

*(1)*Includes shares tendered by employees under the Company’s equity compensation plans as follows: 1) payment of taxes on vesting of restricted stock (grants and units) and strategic performance shares and 2) payment of the exercise price and taxes for certain stock options exercised. Employees tendered 2,266 shares in July, 2,124 shares in August and 1,854 shares in September 2021. Amount purchased in August 2021 also reflects the initial delivery of 7.7 million shares pursuant to the ASR agreements discussed in the Liquidity and Capital Resources section of Management's Discussion and Analysis of Financial Condition and Results of Operations in Part I, Item 2. Such repurchase was made pursuant to the Company's share repurchase program described in note (2) below. Average price paid per share for the period August 1-31, 2021 for shares not purchased pursuant to the ASR agreements was $214.11.

*(2)*Additionally, the Company maintains a share repurchase program authorized by the Board of Directors. Under this program, the Company may repurchase shares from time to time, depending on market conditions and alternate uses of capital. The timing and actual number of shares repurchased will depend on a variety of factors, including price, general business and market conditions and alternate uses of capital. The share repurchase program may be effected through Rule 10b5-1 plans, open market purchases, each in compliance with Rule 10b-18 under the Exchange Act, or privately negotiated transactions. The program may be suspended or discontinued at any time and does not have an expiration date. In October 2021, the Board increased repurchase authority by an additional $5 billion. Share repurchase authority was $6.6 billion as of November 3, 2021.

*(3)*Approximate dollar value of shares is as of the last date of the applicable month.

Amended and Restated By-laws

Effective as of November 2, 2021, as a result of its annual review of its corporate governance practices, the Board of Directors of the Company adopted restated by-laws (the “By-Laws”) in order to, among other things: (1) provide that shareholder meetings may be held by means of remote communication; (2) eliminate the default date for the annual meeting of shareholders; (3) clarify that the Board may postpone, reschedule or cancel any shareholder meeting; (4) clarify the rules of conduct for a shareholder meeting; (5) update the procedural and information requirements for shareholders to submit director nominations and shareholder proposals; (6) provide procedures for shareholder nominations at special meetings of shareholders where directors are to be elected; (7) permit special meetings of the Board to be called on less than 12 hours’ notice if the person calling the meeting deems it to be necessary or appropriate under the circumstances; (8) add provisions allowing the Board to operate with reduced procedural requirements and take other actions during an emergency, disaster or catastrophe; and (9) make certain other updates, clarifications and ministerial and conforming changes.

The foregoing summary does not purport to be a complete description of the By-Laws and is qualified in its entirety by reference to the complete text of the By-Laws, a copy of which is filed herewith as Exhibit 3.1 to this Quarterly Report on Form 10-Q and is incorporated by reference in this Item 5.

Executive Officer Retirements

On September 23, 2021, the Company filed a Form 8-K disclosing the retirements of Matthew G. Manders, President, Government & Solutions, and Timothy C. Wentworth, Chief Executive Officer, Evernorth. On November 3, 2021, the Company and Mr. Manders executed a Retirement Agreement (the “Manders Retirement Agreement”) and agreed to extend Mr. Manders’ retirement date to December 17, 2021. On November 3, 2021, the Company and Mr. Wentworth executed a Retirement Agreement (the “Wentworth Retirement Agreement”) and agreed to extend Mr. Wentworth’s retirement date to February 4, 2022. Effective January 1, 2022, Mr. Wentworth will transition to a non-executive officer role and will continue to provide services on ongoing projects through his retirement date.

Each of the Retirement Agreements include customary confidentiality, non-solicitation, non-competition and non-disparagement provisions. In addition, the agreements provide for benefits, subject to the execution of a Release Agreement, consisting of: (1) the payment of an annual cash incentive for service in 2021 at 100% of their respective annual target; (2) consistent with the terms governing treatment of equity awards upon retirement under the Cigna Long-Term Incentive Plan at the time such awards were made (a) for awards granted prior to December 2020, unexercised and unvested stock options and unvested restricted stock awards will become vested and exercisable upon retirement; (b) for awards granted in February 2021, unvested stock options and unvested restricted stock awards will continue to vest and become exercisable on the originally scheduled vesting dates for those awards; and (c) the payout of previously awarded Strategic Performance Shares (“SPSs”) for the 2019 – 2021, 2020 – 2022, and 2021– 2023 performance periods, prorated based on the number of months that each of Mr. Manders and Mr. Wentworth would have been employed during each 36-month performance period as if their employment continued through December 31, 2021. The estimated aggregate value of these benefits is approximately $8.7 million with respect to Mr. Manders and approximately $13.7 million with respect to Mr. Wentworth, based on a stock price of $218.25 per share, the closing price of Cigna’s common stock on November 3, 2021.

The percentage of actual shares earned and timing of the payment of the SPS awards will be determined by the People Resources Committee of the Board of Directors in accordance with the terms of the Cigna Long-Term Incentive Plan. Stock options awarded under the Cigna Long-Term Incentive Plan will expire at their original term.

Mr. Manders and Mr. Wentworth have each also entered into an Advisory Services Agreement (each, an “Advisory Services Agreement”) with the Company, pursuant to which each will provide advice and counsel to senior management on business planning and strategy. Each will be paid $10,000 per day for each day during which he performs advisory services. The Advisory Services Agreements expire on December 31, 2022.

INDEX TO EXHIBITS

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: November 4, 2021