PART II ITEM 8 Financial Statements and Supplementary Data continues to evaluate the permanent investment of foreign earnings for additional jurisdictions. Shareholders’ net income for the year ended December 31, 2012 increased by $37 million related to this method of providing for income taxes including $13 million attributable to the first quarter implementation of this method for the Company’s China and Indonesia operations. Permanent investment of foreign operation earnings has resulted in cumulative unrecognized deferred tax liabilities of $116 million through December 31, 2012. The year-to-date change in the cumulative unrecognized deferred tax liability includes an increase of $10 million associated with unrecorded deferred tax liabilities reported through other comprehensive income. The significant decline in the 2010 valuation allowance primarily reflects the resolution of a disputed federal income tax matter specific to the run-off reinsurance operations. Change in Valuation Allowance B. Deferred Income Taxes Deferred income tax assets and liabilities as of December 31 are shown below. Management believes consolidated taxable income expected to be generated in the future will be sufficient to support realization of the Company’s net deferred tax assets. This determination is based upon the Company’s consistent overall earnings history and future earnings expectations. Other than deferred tax benefits attributable to operating loss carryforwards, there are no time constraints within which the Company’s deferred tax assets must be realized. The Company’s deferred tax asset is net of federal, state, and foreign valuation allowances. The foreign valuation allowance was initially recorded in connection with the Company’s 2011 acquisition of FirstAssist, for which there was a year over year decline of $7 million. This reduction did not impact shareholder’s net income. The valuation allowance reflects management’s assessment that certain deferred tax assets may not be realizable. A reconciliation of unrecognized tax benefits for the years ended December 31 is as follows: C. Uncertain Tax Positions (In millions) 2012 2011 Deferred tax assets Employee and retiree benefit plans $ 765 $ 829 Investments, net 95 108 Other insurance and contractholder liabilities 486 443 Deferred gain on sale of businesses 28 46 Policy acquisition expenses 147 151 Loss carryforwards 9 8 Other accrued liabilities 164 109 Bad debt expense 21 17 Other 33 37 Deferred tax assets before valuation allowance 1,748 1,748 Valuation allowance for deferred tax assets (42) (45) Deferred tax assets, net of valuation allowance 1,706 1,703 Deferred tax liabilities Depreciation and amortization 704 377 Foreign operations, net 147 128 Unrealized appreciation on investments and foreign currency translation 481 395 Total deferred tax liabilities 1,332 900 NET DEFERRED INCOME TAX ASSETS $ 374 $ 803 (In millions) 2012 2011 2010 Balance at January 1, $ 52 $ 177 $ 214 Decrease due to prior year positions (5) (113) (55) Increase due to current year positions 7 7 34 Reduction related to settlements with taxing authorities – (17) (13) Reduction related to lapse of applicable statute of limitations (3) (2) (3) BALANCE AT DECEMBER 31, $ 51 $ 52 $ 177 CIGNA CORPORATION -  2012 Form  10-K 115