Item 1. Business.
(a) General Development of Business
Registrant was incorporated under the business laws of the State of North
Carolina in 1968 for the purpose of serving as a holding company with broad
powers to engage in business and to make investments. Registrant's principal
subsidiaries are Jefferson-Pilot Life Insurance Company and Jefferson-Pilot
Communications Company, both of Greensboro, North Carolina. Through these and
other subsidiaries, Registrant is primarily engaged in the business of writing
life insurance, annuity policies, and accident and health insurance, and in
the business of operating radio and television facilities, and producing
sports programming. Further detail is provided in Management's Discussion and
Analysis of Financial Condition and Results of Operation.
Various states, including North Carolina, have enacted insurance holding
company legislation which requires the registration of, and periodic reporting
by, insurance companies licensed to transact business within their respective
jurisdictions and which are controlled by other corporations. Jefferson-Pilot
Life Insurance Company, as a member of an "insurance holding company system",
has registered as such under all applicable state statutes. In many instances,
these statutes require prior approval by state insurance regulators of inter-
corporate transfers of assets (including prior approval of payment of
extraordinary dividends by insurance subsidiaries) within the holding company
system.
On December 30, 1994, Jefferson-Pilot Title Insurance Company, a wholly-
owned subsidiary of Registrant, entered into a reinsurance agreement with a
purchaser to assume the obligations and liabilities of policies in force.
The purchaser subsequently purchased the stock of Jefferson-Pilot Title.
On December 23, 1994, Registrant agreed to sell Jefferson-Pilot Fire and
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Casualty Company, subject to regulatory approval. The Company believes that
closing should occur during the first half of 1995. The operations of these
companies, formerly classified as the "Other Insurance Segment", are disclosed
as "Discontinued Operations" in the accompanying Consolidated Financial
Statements.
(b) Financial Information about Industry Segments
Industry segment information is presented in Note 14, Segment Information
of the Notes to Consolidated Financial Statements, which note is incorporated
herein by reference.
Premiums derived from the principal products and services of Registrant's
continuing insurance subsidiaries and revenues from the Communications segment
for the years ended December 31, 1994, 1993, and 1992 are as follows (in
thousands): 1994 1993 1992 Life insurance segment: Individual life and annuity premiums $ 103,617 $ 106,097 $ 99,459 Group life premiums 69,261 64,313 65,713 Interest-sensitive product considerations 68,793 63,353 57,954 Other considerations 14,566 7,233 7,708
Life premiums and other considerations $ 256,237 $ 240,996 $ 230,834
Accident and health premiums 399,065 386,608 383,552
$ 655,302 $ 627,604 $ 614,386 ========= ========= ========= Communications segment, broadcast and media services revenue $ 172,501 $ 144,961 $ 129,734 ========= ========= =========
(c) Narrative Description of Business
The following is a brief description of the principal wholly-owned
subsidiaries of Registrant with a description of the principal products
provided and services rendered and the markets for, and methods of,
distribution of such products and services.
I-2
INSURANCE COMPANY SUBSIDIARIES
Jefferson-Pilot Life Insurance Company
Jefferson-Pilot Life was organized under the insurance laws of North
Carolina in 1890 and commenced business operations in 1903. It is authorized
to write insurance in 47 states, the District of Columbia, the Virgin Islands,
and Puerto Rico.
The Company is primarily engaged in the writing of whole life, term,
annuity and endowment policies on an individual ordinary basis and group life
and group accident and health insurance policies. Accident and health
insurance is also written on an individual basis. Approximately 12% of the
ordinary life insurance in force is on a participating basis; all group life
is written on a non-participating basis.
Life Insurance. Life policies offered include continuous and limited-pay
life and endowment policies, universal life-type and annuity contracts,
retirement income plans, and level and decreasing term insurance. On most
policies, accidental death and disability benefits are available in the form
of riders. At times, sub-standard risks are accepted at higher premiums. At
December 31, 1994, approximately 4.5% of the ordinary insurance in force,
including reinsurance ceded, was represented by sub-standard risks.
The Company markets its individual products through a general agency type
system utilizing career agents and home service agents, and through Independent
Marketing Organizations (IMO's). IMO's are intermediaries that sell financial
products and services through agents they have recruited. Forty-eight IMO's
have been appointed representing approximately 9,200 life insurance agents.
Group products are marketed through group brokers, career agents, and home
service agents. Individual health products are marketed through all of the
Company's sales forces and brokers.
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The following table sets forth for the years ended December 31, 1994,
1993, and 1992, certain information relating to the life insurance operations
of Jefferson-Pilot Life:
1994 1993 1992
(Percent)
Voluntary terminations to mean amount of life insurance policies in force: Whole life, endowment and term 8.1 8.1 8.9 Group life 6.9 19.4 4.2 Industrial life 2.7 3.1 3.4
Actual to expected mortality: Whole life, endowment and term 46.7 38.4 36.7 Group life 95.2 95.9 90.8 Industrial life 46.4 45.4 45.7
Life insurance underwriting expense (1) to premium income (2): Industrial 82.4 84.9 89.1 Ordinary Life 36.2 34.8 37.0 Annuities 7.2 7.4 7.6 Group life 8.6 11.3 9.5 Group A & H 16.3 15.9 15.2 Other A & H 48.5 44.9 48.0
(1) Underwriting expense consists of commissions, general insurance expenses, insurance taxes (other than income), licenses and fees, and increase in loading on due and deferred premiums. NAIC basis.
(2) Does not include amounts received for supplementary contracts or considerations for deposit administration funds. NAIC basis.
I-4
Accident and Health Insurance. Jefferson-Pilot Life writes a major part
of its accident and health policies on a group basis. Of the individuals
covered during 1994, approximately 93.1% were written on a group basis and
6.9% on an individual basis. Group insurance is generally issued to employers
covering their employees and to associations covering their members.
The following table sets forth certain information on the NAIC basis with
regard to the operating results of the accident and health business of
Jefferson-Pilot Life for the years ended December 31, 1994, 1993, and 1992.
The allocation of net investment income and general expenses to accident and
health business has been made by the management of Jefferson-Pilot Life using
allocation methods believed reasonable.
1994 1993 1992 (In Thousands)
Premium Income: Individual $ 27,607 $ 28,248 $ 25,781 Group 371,458 358,360 357,771 Total $399,065 $386,608 $383,552
Allocated Net Investment Income: Individual $ 3,870 $ 3,564 $ 3,216 Group 27,663 26,982 26,811 Total $ 31,533 $ 30,546 $ 30,027
Claims and Reserve Increase: Individual $ 19,755 $ 17,772 $ 15,895 Group 289,695 288,049 301,955 Total $309,450 $305,821 $317,850
Underwriting Expenses: Individual $ 11,757 $ 11,461 $ 11,164 Group 59,688 55,935 53,218 Total $ 71,445 $ 67,396 $ 64,382
Net Income Before Income Taxes: Individual $( 35) $ 2,579 $ 1,938 Group 49,738 41,358 29,409 Total $ 49,703 $ 43,937 $ 31,347
I-5
The following table sets forth certain underwriting information with
regard to the accident and health business of Jefferson-Pilot Life for the
years ended December 31, 1994, 1993, and 1992, on the NAIC basis:
1994 1993 1992 (In Thousands)
Net premiums written $400,213 $387,084 $383,114 Net premiums earned $399,030 $387,000 $384,677
Ratio of loss and loss adjustment expenses incurred to earned premiums 77.52% 79.11% 82.91% Ratio of underwriting expenses incurred to premiums written 17.87% 17.42% 16.82% Combined loss and expense ratio 95.39% 96.53% 99.73%
Underwriting margins $ 18,170 $ 13,391 $ 1,320
Other Information Regarding Insurance Company Subsidiaries
Regulation. Jefferson-Pilot Life, in common with other insurance
companies, is subject to regulation and supervision in the states in which
it does business. Although the extent of such regulation varies from state
to state, generally the insurance laws establish supervisory agencies with
broad administrative powers relating to the granting and revocation of
licenses to transact business, the licensing of agents, the approval of
the forms of policies used, the form and content of required financial
statements, reserve requirements, and, in general, the conduct of all
insurance activities.
The Company is also required under these laws to file detailed
annual reports with the supervisory agencies in the various states in which
it does business, and its business and accounts are subject to examination
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at any time by such agencies. Under the rules of the National Association
of Insurance Commissioners (NAIC) and the laws of the State of North Carolina,
the Company is examined periodically (usually at three-year intervals) by the
supervisory agencies of one or more of the states in which they do business.
Competition. The insurance subsidiaries of Registrant operate in a highly
competitive field which consists of a large number of stock, mutual, and other
types of insurers. A large number of established insurance companies compete
in the states in which the Companies transact business. Many of these
competing companies are mutual companies, which are considered by some to have
an advantage because of the fact that such companies write participating
policies exclusively, under which profits may inure to the benefit of the
policyholder. Jefferson-Pilot Life provides participating policies which are
believed to be generally competitive with analogous policies offered by mutual
companies.
Employees. As of December 31, 1994, the insurance subsidiaries of the
Registrant employed approximately 3,600 agents and employees, in addition to
the 9,200 IMO agents mentioned previously.
I-7
COMMUNICATIONS COMPANY SUBSIDIARIES
Jefferson-Pilot Communications Company, a wholly-owned subsidiary of
the Registrant, is a corporation organized under the laws of North Carolina.
The principal offices are at 100 North Greene Street in Greensboro, North
Carolina. The Company owns and operates (i) VHF television station WBTV and
radio stations WBT and WBT-FM in Charlotte, North Carolina, (ii) radio
stations WQXI in Atlanta and WSTR-FM in Smyrna, Georgia, (iii) radio stations
KKFN and KYGO-FM in Denver and KYGO and KWMX-FM in Lakewood, Colorado, (iv)
radio stations WAXY in South Miami, WLYF-FM in Miami, and WMXJ-FM in Pompano
Beach, Florida, (v) radio stations KSON and KSON-FM in San Diego, California,
(vi), Jefferson-Pilot Sports, a production and syndication business, and (vii)
Co-Opportunities, a co-op advertising consulting business.
Jefferson-Pilot Communications Company of Virginia, a wholly-owned
subsidiary of Jefferson-Pilot Communications Company, owns and operates
VHF television station WWBT in Richmond, Virginia. WCSC, Inc., is a wholly-
owned subsidiary of Jefferson-Pilot Communications Company that owns and
operates VHF television station WCSC in Charleston, South Carolina.
At December 31, 1994, Jefferson-Pilot Data Services, Inc. was a wholly-
owned subsidiary of Registrant. On February 14, 1995, substantially all of the
assets and operations of Jefferson-Pilot Data Services, Inc. were sold.
Television Operations
The television stations owned and operated by Jefferson-Pilot
Communications Company are WBTV, Charlotte, North Carolina; WWBT, Richmond,
Virginia; and WCSC, Charleston, South Carolina.
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WBTV, Channel 3, Charlotte, is affiliated with CBS under a Network
Affiliation Agreement expiring on December 31, 1998. Absent cancellation by
either party, the Agreement will be renewed for successive two-year periods.
An estimated 819,000* television homes view WBTV each week within the
Charlotte Television Market, which is ranked as the 28th* television market in
the nation by the Nielsen Station Index. Six other commercial television
stations are licensed to the Charlotte metropolitan area.
WWBT, Channel 12, Richmond, is affiliated with NBC under a Network
Affiliation Agreement expiring August 15, 1995. Absent cancellation by either
party, the Agreement will be renewed for successive two-year periods. An
estimated 459,000* television homes view WWBT each week within the Richmond
Television Market, which is ranked as the 54th* television market in the
nation. Four other commercial television stations are licensed to that market.
WCSC, Channel 5, Charleston, is affiliated with CBS under a Network
Affiliation Agreement expiring on December 31, 1998. Absent cancellation by
either party, the Agreement will be renewed for successive two-year periods.
An estimated 277,000* television homes view WCSC each week within the
Charleston Television Market, which is ranked as the 105th* television market
in the nation. Four other commercial television stations are licensed to
that market.
Radio Operations
Jefferson-Pilot Communications Company owns and operates WBT and WBT-FM
in Charlotte, WQXI in Atlanta, WSTR-FM in Smyrna, KKFN and KYGO-FM in
Denver, KYGO and KWMX-FM in Lakewood (a Denver suburb), KSON and KSON-FM in
San Diego, WAXY in South Miami, WLYF-FM in Miami, and WMXJ-FM in Pompano Beach.
Each of these stations is authorized to operate 24 hours a day, and all
normally operate for the full 24 hours.
*Nielsen Station Index
I-9
Other Information Regarding Communications Companies
Competition. The radio and television stations of Jefferson-Pilot
Communications Company and its subsidiaries, compete for programming,
talent, and revenues with other radio and television stations in their
respective market areas as well as with other advertising and entertainment
media. Jefferson-Pilot Communications Company's non-broadcast divisions
compete with other vendors of similar products and services.
Employees. As of December 31, 1994, Jefferson-Pilot Communications
Company and its subsidiaries employed approximately 665 persons full time.
Federal Regulation. Television and radio broadcasting operations are
subject to the jurisdiction of the Federal Communications Commission ("FCC")
under the Communications Act of 1934 (the "Act"). The Act empowers the FCC,
among other things, to issue, revoke, or modify broadcasting licenses, to
assign frequencies, to determine the locations of stations, to regulate the
apparatus used by stations, to establish areas to be served, to adopt such
regulations as may be necessary to carry out the provisions of the Act, and to
impose certain penalties for violation of such regulations. The Act, and
Regulations issued thereunder, prohibit the transfer of a license, or of
control of a licensee without prior approval of the FCC; restrict in various
ways the common and multiple ownership of broadcast facilities; restrict alien
ownership of licenses; and impose various other strictures on ownership and
operation.
Broadcasting licenses are granted for a period of five years for
television and seven years for radio and, upon application therefor and in the
absence of conflicting applications or adverse claims as to the licensee's
I-10
qualifications or performance, are normally renewed by the FCC for an
additional term. The licenses currently in effect will expire as follows:
WBTV 12/1/96; WBT and WBT-FM 12/1/95; WQXI and WSTR-FM 4/1/96; KYGO AM/FM,
KKFN, and KWMX FM 4/1/97; WAXY, WLYF and WMXJ 2/1/96; KSON-AM/FM 12/1/97;
WWBT 10/1/96; and WCSC 12/1/96.
(d) Foreign Operations
Substantially all of Registrant's and subsidiaries operations are
conducted within the United States.
Item 2.
Item 2. Properties
Registrant utilizes space and personnel of Jefferson-Pilot Life.
Jefferson-Pilot Life owns its home office consisting of a 20-story
building and an adjacent 17-story building. These structures house insurance
operations and provide space for commercial leasing. Jefferson-Pilot Life
also owns a supply and printing facility, a parking deck, and a computer
center, all located on nearby properties. It also owns 233 acres in Guilford
County, North Carolina, formerly home office of Pilot Life Insurance Company,
and an Employees' Club located in north-western Guilford County, with
approximately 500 acres of land surrounding the Club.
Jefferson-Pilot Communications Company owns its radio and television
studios and office buildings in Charlotte, North Carolina. It also owns the
radio studios and office buildings in Denver, Colorado and Miami, Florida.
The radio studios and offices are leased in Atlanta, Georgia and San Diego,
California, as are the television studios and offices in Charleston, South
Carolina. Jefferson-Pilot Communications Company of Virginia owns a television
studio and office building in Richmond, Virginia.
I-11
Item 3.
Item 3. Legal Proceedings
Environmental Proceedings
There are no material administrative proceedings against the Company
involving environmental matters.
Litigation
The Registrant is involved in various claims and lawsuits incidental to
its business. In the opinion of management, the ultimate liability will not
have a material effect on the financial condition of the Company.
Note 17, Commitments and Contingent Liabilities of the Notes to
Consolidated Financial Statements, contains further information and is
incorporated herein by reference.
Item 4.
Item 4. Submission of Matters to a Vote of Securities Holders
None.
Executive Officers of the Registrant
David A. Stonecipher, President and Chief Executive Officer, joined
Jefferson-Pilot Corporation as President-Elect and CEO-Elect in September 1992,
and became President and CEO in March 1993. Prior to September 1992, he was
associated with the Life Insurance Company of Georgia and Southland Life
Insurance Company, and their parent company, GeorgiaUS, having last served as
President and CEO of Life Insurance Company of Georgia and Southland Life
Insurance Company, and President of GeorgiaUS.
Dennis R. Glass, Senior Vice President, Chief Financial Officer and
Treasurer, joined the Registrant in October 1993. From 1991 to October
1993, he was associated with Protective Life Corporation, having last served
as Executive Vice President and CFO of the company. From 1983 to 1991, he was
associated with the Portman Companies, having last served as Executive Vice
President and CFO.
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Kenneth C. Mlekush, Senior Vice President, joined Jefferson-Pilot
Corporation in January 1993. From 1989 through 1992, he was associated with
Southland Life Insurance Company and its parent, GeorgiaUS, last serving as
President and Chief Operating Officer of Southland Life, and Executive Vice
President of GeorgiaUS. E. Jay Yelton, Senior Vice President - Investments,
joined Jefferson-Pilot Corporation in October 1993, and for more than five
years prior thereto was President of the Investment Centre. John D. Hopkins,
Senior Vice President and General Counsel, joined Jefferson-Pilot Corporation
in April 1993, and for more than five years prior thereto was a partner in the
Atlanta law firm of King & Spalding. William E. Blackwell, Executive Vice
President, and C. Randolph Ferguson, Senior Vice President, have served in
various executive capacities with Jefferson-Pilot Corporation over the past
five years.
There are no agreements or understandings between any executive officer
and any other person pursuant to which such executive officer was or is to be
selected as an officer. Executive officers hold office at the will of the
Board, subject to their rights under employment agreements listed as exhibits
to this Form 10-K.
I-13
Part II
Item 5.
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
(a) Market Information
Shares of Jefferson-Pilot Corporation are traded on the New York, Midwest, and Pacific Stock Exchanges under the symbol JP. High and low sales prices for the past three years as reported in the consolidated transactions systems are listed below.
1994 1993 1992 First Quarter 50 - 43 3/8 57 7/8 - 45 1/2 39 1/4 - 33 1/4 Second Quarter 51 3/8 - 46 5/8 57 3/4 - 46 44 - 35 1/2 Third Quarter 55 1/8 - 48 1/4 57 7/8 - 48 5/8 43 - 38 1/2 Fourth Quarter 54 3/4 - 50 3/8 54 - 45 3/4 49 1/2 - 37 1/8
(b) Number of Security Holders
As of March 29, 1995, the Registrant had 10,671 shareholders of record.
(c) Dividend History
1994 1993 1992 1991 1990
Cash dividends paid: $ 81,814 $ 75,986 $ 66,310 $ 56,120 $ 53,139 ======== ======== ======== ======== ======== Cash dividends paid per share:
First Quarter .39 .34 .28 .25 .23 Second Quarter .43 .39 .34 .28 .25 Third Quarter .43 .39 .34 .28 .25 Fourth Quarter .43 .39 .34 .28 .25
Total $ 1.68 $ 1.51 $ 1.30 $ 1.09 $ .98 ======== ======== ======== ======== ========
Dividends to the Registrant from its insurance subsidiaries are subject to state regulation, as more fully described in Item 7.
II-1
Item 6.
Item 6. Selected Financial Data
II-2
Selected Financial Data (continued)
Total assets prior to 1993 were adjusted to reflect the adoption of Financial Accounting Standard (FAS) 113 "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts". The amounts shown for 1992 to 1990 were increased by $20,925,000, $20,176,000, and $19,615,000, respectively, compared to amounts previously reported.
Stockholders' equity was adjusted to reflect adoption of FAS 109 "Accounting for Income Taxes." The amounts shown for 1992 to 1990 were all decreased by $18,555,000 compared to amounts previously reported. Stockholders' equity per share reflects these adjustments also.
Discontinued operations of the Registrant are discussed in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, below.
REVENUE BY SOURCES (In Thousands)
1994 1993 1992 1991 1990 Life and accident and health insurance $1,025,672 $ 986,972 $ 965,862 $ 956,426 $ 946,262 Communications 172,501 144,961 129,734 125,045 127,330 Other 9,211 6,282 4,656 4,570 5,656 Realized investment gains 61,426 54,234 45,726 32,220 28,174 Revenues, continuing operations $1,268,810 $1,192,449 $1,145,978 $1,118,261 $1,107,422
Discontinued operations 64,862 54,175 56,351 55,215 55,191
Total revenues $1,333,672 $1,246,624 $1,202,329 $1,173,476 $1,162,613 ========== ========== ========== ========== ==========
NET INCOME BY SOURCES (In Thousands)
1994 1993 1992 1991 1990 Life and accident and health insurance $ 168,460 $ 158,242 $ 156,588 $ 146,205 $ 128,153 Communications 21,986 17,335 14,169 10,327 10,019 Other 531 ( 1,581) ( 6,544) ( 5,958) ( 5,442) Realized investment gains, net of taxes 38,919 35,565 30,385 21,409 18,657 Net income, continuing operations $ 229,896 $ 209,561 $ 194,598 $ 171,983 $ 151,387
Discontinued operations 9,341 9,720 8,640 3,704 6,250 Accumulated post- retirement benefit obligation, net 0 ( 24,109) 0 0 0
Net income $ 239,237 $ 195,172 $ 203,238 $ 175,687 $ 157,637 ========== ========== ========== ========== ==========
II-3
JEFFERSON-PILOT CORPORATION AND SUBSIDIARIES
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following is management's discussion and analysis of financial condition and results of operations for the three years ended December 31, 1994. It is intended to analyze the results of operations, consolidated financial condition, liquidity and capital resources of Jefferson-Pilot Corporation and consolidated subsidiaries (J-P or Company). The discussion should be read in conjunction with the consolidated financial statements and notes.
RESULTS OF OPERATIONS
Jefferson-Pilot Corporation is a holding company. Its major subsidiary, Jefferson-Pilot Life Insurance Company (J-P Life), offers a wide range of life, health and annuity products which are sold in the Individual and Group markets. Individual insurance products are offered through career general agents, independent marketing organizations and home service agents. Annuity products are offered through these distribution systems and are sold through financial institutions. J-P Life has experienced substantial growth in its individual life insurance sales, primarily due to the expansion of its independent marketing organization distribution channel. It has also emphasized the sale of single-premium deferred annuities, increasing the sales of this product. Group insurance products are issued to employers covering their employees and to associations covering their members. Jefferson-Pilot Communications Company (J-P Communications) owns and operates three network television and thirteen radio broadcast stations. J-P Communications operations originate from the sale of advertising and other related services through its television and radio stations. J-P's revenues are derived approximately 80% from Life insurance, 13% from Communications and 7% from parent company and other investments.
J-P's Consolidated Net Income was $239.2 million, $195.2 million and $203.2 million in 1994, 1993 and 1992, respectively. 1993's results included a charge of $24.1 million to record the cumulative effect of adopting SFAS 106 "Employers' Accounting for Post Retirement Benefits Other Than Pensions". Excluding the effect of adopting SFAS 106, 1994's Net Income increased 9.1% and 1993's Net Income increased 7.9%. At year-end 1994, J-P had either sold or reached agreement to sell two of its subsidiaries, Jefferson-Pilot Fire & Casualty and Jefferson-Pilot Title Insurance Company. Operating results of these subsidiaries, net of related income taxes, were previously included in the "Other Insurance Segment". For the current report, the results of this segment are segregated as Income from Discontinued Operations. Excluding these results from all years, Net Income increased 9.7% in 1994 and 7.7% in 1993.
II-4
Included in Net Income are realized investment gains from sale of investments. The following table illustrates J-P's results before and after the inclusion of realized investment gains:
1994 1993 1992 (In millions) Income before effect of initial application of SFAS 106 and realized investment gains: Continuing operations $191.0 $174.0 $164.2 Discontinued operations 9.2 8.0 7.0
Operating income 200.2 182.0 171.2
Realized investment gains (net of applicable income taxes):
Continuing operation 38.9 35.6 30.4 Discontinued operations .1 1.7 1.6
39.0 37.3 32.0
SFAS 106 - (24.1) -
Net Income $239.2 $195.2 $203.2 ====== ====== ======
Income before investment gains (operating income) and the initial application of SFAS 106 increased 10.0% in 1994 and 6.3% in 1993. Income from continuing operations was 9.8% higher in 1994 and 6.0% higher in 1993. Income from discontinued operations increased 16.2% in 1994 and 14.3% in 1993.
Investment gains for 1994 relate primarily to securities that have been classified as "available for sale" since the adoption of SFAS 115," Accounting for Certain Investments in Debt and Equity Securities". The following table illustrates the sources of realized gains and (losses) for the last three years:
1994 1993 1992 (In millions)
Common stocks $ 65.7 $ 32.8 $ 40.8 Bonds and other debt instruments (9.5) 16.8 6.8 Other 5.2 4.6 (1.9) Sub-total 61.4 54.2 45.7 Less applicable federal and state taxes (22.4) (16.9) (13.7)
As reported $ 39.0 $ 37.3 $ 32.0 ====== ====== ======
II-5
J-P holds a sizable portfolio of equity securities, which may continue to produce future realized capital gains. J-P also holds a portfolio of debt securities which, beginning in 1994, are partly categorized as "available for sale". The cost and fair value of these "available for sale" portfolios were as follows: 1994 1993 1992 (In millions)
Cost of equity securities held $290.4 $325.7 $332.3 Fair value $718.0 $903.5 $889.5
Amortized cost of "available for sale" debt securities $1,692 N/A N/A Fair value $1,607 N/A N/A
The following table illustrates earnings per share for the years reported: 1994 1993 1992 Income before effect of initial application of SFAS 106 and realized investment gains: Continuing operations $ 3.93 $ 3.46 $ 3.22 Discontinued operations .19 .16 .14 Operating income 4.12 3.62 3.36
Realized investment gains (net of applicable federal and state income taxes): Continuing operations .80 .71 .60 Discontinued operations - .03 .03 .80 .74 .63
SFAS 106 - (.48) -
Net Income $ 4.92 $ 3.88 $ 3.99 ====== ====== ======
J-P has periodically reacquired shares of its stock and issued additional shares under incentive option programs. The following table analyzes changes in the Company's outstanding shares and the average shares outstanding for each year reported:
1994 1993 1992 (In millions)
Shares outstanding, beginning of year 49.5 50.4 51.3 Issued 0.3 0.1 - Purchased (1.3) (1.0) (.9)
Shares outstanding, end of year 48.5 49.5 50.4 ===== ===== =====
Average shares outstanding 48.6 50.3 51.0 ===== ===== =====
II-6
Earnings per share increased 26.8% in 1994 and decreased 2.8% in 1993. Earnings per share excluding the effects of adopting SFAS 106 and net realized investment gains increased 13.8 % in 1994 and 7.7% in 1993, partly due to improved earnings and partly due to the impact of share repurchases. Earnings per share from continuing operations improved 13.6% in 1994 and 7.5% in 1993.
Revenues increased 6.4% to $1,269 million in 1994 and 4.1% to $1,192 million in 1993. Excluding realized investment gains, revenues increased 6.1% in 1994 and 3.5% in 1993. Premiums and considerations (excluding discontinued operations) increased 4.4% in 1994 to $655.3 million and 2.2% in 1993 to $627.6 million. Life premiums and considerations increased 6.3% in 1994 to $256.2 million and 4.4% in 1993 to $241.0 million. The growth in life premiums and considerations is attributable to J-P's successful implementation of its Individual line business plan over the last two years and to increases in Group life contracts in force. The Individual line business plan focuses on improvement in the productivity of J-P's career life agents and on developing new relationships with independent producers. This focus has resulted in growth in premium receipts from traditional products as well as universal life and annuity products exceeding 25% in 1994 and 12% in 1993. Receipts on universal life and most annuity products do not flow through income in the year of receipt but are included in the liability for policyholder contract deposits. Accident and health premiums increased 3.2% in 1994 to $399.1 million and 0.8% in 1993 to $386.6 million. Premium growth for such years was modest due to the Company's emphasis on larger-case self- insured coverages and a moderation in the rate of medical inflation in the most recent two years.
Net investment income, which is included in operating income, grew 4.0% in 1994 to $375.2 million and 2.6% in 1993 to $360.8 million in spite of lower investment yields beginning in 1992 and continuing throughout most of 1994. Such decline is represented by the following table that presents Yield at Cost on bonds and mortgages:
1994 1993 1992
March 31 8.08% 8.95% 9.58% June 30 8.06 8.95 9.52 September 30 8.03 8.58 9.40 December 31 8.10 8.24 9.27
Growth in investment income was achieved by growth in invested assets arising from policyholder contract deposits related to universal life and annuity products. During 1994, these deposits increased 17.2% to $1,846 million, of which annuity funds comprised $1,081 million, an increase of 22.0%. During 1993, policyholder contract deposits increased 14.8% to $1,575 million with annuities increasing 17.8% to $887 million.
Revenues from the Communications segment increased 19.0% in 1994 to $172.5 million and 11.7% in 1993 to $145.0 million due to acquisitions, market share increases and a favorable economic environment. All of these events favorably influenced advertising receipts, the Company's primary component of Communications revenues.
II-7
Total benefits, claims and expenses increased 4.4% in 1994 to $921.2 million and 1.3% in 1993 to $882.0 million. Life benefits and credits to policyholder accounts increased 7.7% in 1994 and 6.0% in 1993, reflecting the growth in life business in force. Accident and health benefits were 1.1% higher in 1994 and 3.8% lower in 1993, indicative of strategic moves as well as moderate growth in medical inflation and utilization. Net life insurance expenses (after deferral of policy acquisition costs) declined 3.1% in 1994 and increased 0.1% in 1993. This result was achieved as the Company improved the economies of its Individual distribution systems. Cost of Communications operations increased 20.7% in 1994 to $120.8 million and 7.0% in 1993 to $100.1 million as a result of acquisitions of television and radio properties as well as costs associated with higher overall revenues. As the result of expense controls, the rate of growth in operating income exceeded the rate of growth in revenues.
Income taxes from continuing operations increased $16.8 million or 16.7% in 1994 and $20.1 million or 24.9% in 1993. Effective tax rates were as follows:
1994 1993 1992 Income taxes as a percent of before-tax income 33.9% 32.5% 29.3%
1994's effective tax rate increased as a result of a reduction in the percentage of tax-favored investments. 1993's effective tax rate increased because of recoveries and reductions of prior years' taxes recorded in 1992, a reduction in the percentage of tax-favored investments and an increase in the federal income tax rate in 1993 from 34% to 35%.
OPERATING EARNINGS BY BUSINESS SEGMENT
J-P's continuing business segments include Life Insurance and Communications. The Other Insurance Segment, included in prior years, is reported as "Discontinued Operations". Operating income of the business segments includes investment income but excludes net realized investment gains. Operating income and losses of the parent company, consolidation entries and net realized investment gains are included in the "other" category. Currently, all corporate capital is allocated to the business segments.
The following table illustrates operating income by segments:
1994 1993 1992 (In millions) Life insurance: Individual $124.2 $117.1 $117.2 Group 44.2 41.1 39.4 168.4 158.2 156.6 Communications 22.0 17.3 14.2 Discontinued operations 9.2 8.0 7.0 Other 0.6 (1.5) (6.6)
Operating income 200.2 182.0 171.2 Net realized investment gains 39.0 37.3 32.0 Income before cumulative effect of change in accounting principle $239.2 $219.3 $203.2 ====== ====== ======
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Operating income from all business segments increased $18.2 million or 10% in 1994 and $10.8 million or 6.3% in 1993. Product lines contributing to the increase were as follows: Incr. (Decr.) 1994 1993 (In millions) Life insurance: Individual $ 7.1 $ (0.1) Group 3.1 1.7 10.2 1.6
Communications 4.7 3.1 Other 2.1 5.1 Sub-total, before discontinued operations 17.0 9.8 Discontinued operations 1.2 1.0 Total $ 18.2 $ 10.8 ====== ======
LIFE INSURANCE
The Life insurance segment is comprised of operations conducted by the Individual and Group distribution systems.
Individual Insurance
The Individual Insurance distribution system offers a wide array of life insurance, annuity, health and investment products through a career agency force, independent marketing organizations, home service agents, individual health sales and service offices and financial institutions. A summary of this unit's operating results for each of the years presented is as follows:
1994 1993 1992 1991 1990 (In thousands) Premiums and other considerations $203,736 $196,100 $182,232 $178,244 $175,046 Net investment income 321,097 311,120 304,477 299,234 290,233 Other income 4,352 4,543 4,053 3,076 2,636
Total revenues 529,185 511,763 490,762 480,554 467,915
Policy benefits 275,052 260,598 246,803 245,272 243,226 Expenses 69,581 78,501 81,006 78,802 82,841
Total benefits and expenses 344,633 339,099 327,809 324,074 326,067
Operating income before income taxes 184,552 172,664 162,953 156,480 141,848 Provision for income taxes 60,307 55,528 45,777 43,430 40,722
Operating income $124,245 $117,136 $117,176 $113,050 $101,126 ======== ======== ======== ======== ========
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Individual operating income improved 6.1% in 1994 to $124.2 million. 1993's results were flat at $117.1 million. As a percentage of Total revenues, operating income for the Individual unit was 23.5% in 1994, 22.9% in 1993 and 23.9% in 1992. 1994's results improved on the strength of expense savings. Expenses represented 13.1% of Total revenues in 1994, 15.3% in 1993 and 16.5% in 1992. Expenses also declined in 1993; however, on a comparable basis, 1993 operating income did not improve due to federal income tax refunds and recoveries which were received in 1992. Effective tax rates have increased since 1992, not only because of the federal tax recoveries, but also due to an increase in the statutory rate and the Company's emphasis on fully-taxable securities.
Premiums and other considerations increased 3.9% in 1994 and 7.6% in 1993. Premium receipts on universal life and most annuity contracts are reported as additions to policyholder accounts rather than premium income. 1993's increase is reflective of the Company's business plan which focuses on agent productivity and recruitment of new distribution sources. Policy benefits increased 5.5% in 1994 and 5.6% in 1993, reflective of the growth of business in force. Death benefits in 1994 were 7.5% higher than the prior year at $64.0 million. Mortality experience fluctuates from period to period and the Company does not expect that this experience is indicative of a negative long-term trend. Death benefits for 1993 were up 2.3% to $59.6 million. Expenses improved 11.4% in 1994 and 3.1% in 1993. The efficiencies were achieved through improved economies in the Career and Home Service distribution channels and as a result of the increase in the proportion of expenses related to new business sales, and thus deferred.
Individual premiums and receipts for policyholder accounts are illustrated below:
1994 1993 1992 (In millions)
First year life insurance premiums $ 43.3 $ 29.0 $ 25.4 Renewal and other life insurance premiums 169.2 165.7 162.1 Annuity premiums 250.0 174.7 140.3 Accident and health 27.5 28.3 25.8
$490.0 $397.7 $353.6 ====== ====== ======
First year life insurance premiums grew 49.2% in 1994 and 14.2% in 1993 as the Company's business plan was implemented. Annuity premium receipts were up 43.1% in 1994 and 24.5% in 1993.
Individual life insurance written (as measured by face amount) increased 48.7% in 1994 to $3,706 million and 15.0% in 1993 to $2,492 million. Sales gains were a result of improved productivity in the career agency force and an increase in independent agents contracted, growing to 9,000 agents at the end of 1994 versus 3,500 at the beginning of the year.
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Group Insurance
The Group Department is a Southeastern and Southwestern-focused provider of a wide range of Group insurance products for employers and their employees. It offers conventionally insured and alternatively funded medical benefits, as well as a variety of life, disability income, dental and retirement plans. A summary of this unit's operations follows:
1994 1993 1992 1991 1990 (In thousands) Premiums and other considerations $451,566 $431,504 $432,154 $434,684 $439,152 Net investment income 44,921 43,396 42,588 40,685 37,884 Other income - 308 358 503 1,311 Total revenues 496,487 475,208 475,100 475,872 478,347
Policy benefits 352,810 341,126 350,306 360,577 372,335 Expenses 78,040 73,785 70,112 69,426 68,135 Total benefits and expenses 430,850 414,911 420,418 430,003 440,470
Operating income before income taxes 65,637 60,297 54,682 45,869 37,877 Provision for income taxes 21,422 19,191 15,270 12,714 10,850 Operating income $ 44,215 $ 41,106 $ 39,412 $ 33,155 $ 27,027
Premiums and premium equivalents $748,015 $704,310 $728,795 $686,463 $674,979
Group operating income improved 7.6% in 1994 and 4.3% in 1993. As a percentage of Premiums and other considerations, Operating income for the Group Department was 9.8% in 1994, 9.5% in 1993 and 9.1% in 1992. Group life results have declined over the last two years primarily due to adverse mortality experience while health results have improved, as indicated by the following chart: 1994 1993 1992 (In millions) Operating income: Group life $ 10.4 $ 12.9 $ 18.4 Group health 33.8 28.2 21.0
$ 44.2 $ 41.1 $ 39.4 ====== ====== ====== Premiums and equivalents, which include the equivalent premiums on cases administered by the Group Department on an uninsured basis, increased 6.2% in 1994 as the Company has focused on expanding its managed care capabilities. They declined 3.4% in 1993 as a result of the loss of a large case. Policy benefits on fully-insured coverages increased 3.4% in 1994 but declined 2.6% in 1993. Death benefits in 1994 were 10.6% higher than the prior year at $52.9 million. The Group Department experienced unusually high mortality in 1994, particularly in its large case business. Death benefits for 1993 were up 2.4% to $47.9 million. Expenses increased 5.8% in 1994 and 5.2% in 1993. The majority of the increases were attributable to managed care, network access fees and other expenses that are passed through to customers. These increased as a result of more widespread use of managed care provider networks. II-11
COMMUNICATIONS
Communications operations are conducted by Jefferson-Pilot Communications Company through television and radio broadcast properties as well as production and syndication of sports and entertainment programming. A summary of this unit's operations follows:
1994 1993 1992 1991 1990 (In thousands) Communications revenues $172,501 $144,961 $129,734 $125,045 $127,330
Operating costs 120,833 100,100 93,561 92,334 95,356 Depreciation and amortization 10,139 10,757 8,303 9,642 9,980 General expenses 5,297 6,522 3,608 5,046 5,092 Total expenses 136,269 117,379 105,472 107,022 110,428
Operating income before income taxes 36,232 27,582 24,262 18,023 16,902
Provision for income taxes 14,246 10,247 10,093 7,696 6,883 Operating income $ 21,986 $ 17,335 $ 14,169 $ 10,327 $ 10,019
Operating income from the Communications segment increased 26.8% in 1994 and 22.3% in 1993. 1994's increase is attributable to: market share increases, particularly among radio properties; a favorable sales environment in the broadcast media business; acquisitions in new and existing markets; and increases in sports production business. 1993's increase is also attributable to an improved economic environment and increased market shares.
Revenues improved 19.0% in 1994. J-P Communications' business strategy includes acquisitions of under-performing properties which can be enhanced through management's efforts. Acquisition expenditures of $19.6 million in 1994, $21.6 million in 1993 and $0 in 1992 contributed to the revenue growth as exhibited by the following: 1994 1993 1992 (In millions) Revenues attributable to newly- acquired properties $ 19.2 $ 4.3 - Total segment revenues $172.5 $145.0 $129.7
During 1994, television revenues improved 22.6%, radio 29.9% and sports and entertainment 58.9%. Television improved as a result of acquisition activity, political advertising and improved economic conditions. Radio benefitted from very favorable advertising conditions, acquisitions and improved market shares. The majority of the sports and entertainment increase was related to special programming events occurring during 1994.
1993 revenues improved 11.7% with television increasing 3.0%, radio 20.6% and sports and entertainment 4.9%. Television gains were attributable to acquisitions, partly offset by a decline in political spending from 1992 levels. Radio growth came from improved market shares as well as acquisitions. Stronger collegiate sports revenues contributed to growth in the sports and entertainment business in both 1994 and 1993.
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Total expenses, as a percentage of revenues, improved to 79.0% in 1994 versus 81.0% in 1993 and 81.3% in 1992. This favorable trend resulted from higher sales associated with improved market shares and a strong business environment as well as special sports programming events. The marginal profits on improved sales were more than sufficient to overcome lower margins on recent acquisitions.
Effective tax rates of 39.3% in 1994, 37.1% in 1993 and 41.6% in 1992 were influenced favorably by receivables recorded for refundable Federal income taxes and interest in 1993.
On February 14, 1995, substantially all of the assets and the media services operations of Jefferson-Pilot Data Services, Inc. (J-P DS) were sold for aggregate consideration approximating $33 million. The Company expects to realize an after-tax gain of approximately $11.5 million as a result of the sale. Net income of J-P DS of $2.6 million in 1994, $2.0 million in 1993 and $2.5 million in 1992 is included in operating income of the Communications segment for the years reported. It is expected that income on reinvestment of sale proceeds will be included in parent company results in the future and that consolidated results will not be materially affected as a result of the sale.
DISCONTINUED OPERATIONS AND OTHER
Discontinued operations include the operations of Jefferson-Pilot Fire & Casualty (J-P F & C) and Jefferson-Pilot Title Insurance Company (J-P Title). These subsidiaries formerly comprised the "Other insurance" segment. On December 23, 1994, J-P agreed to sell the stock of J-P F & C, subject to regulatory approval. The Company believes that regulatory approval will be given and that closing will occur during the first half of 1995. At or before closing, it is expected that the Company will receive a dividend in partial liquidation and that the purchaser will subsequently buy the stock of J-P F & C. The amount of the dividend to be received is subject to adjustment through closing. A gain is expected to result from the sale of the stock.
On December 30, 1994, J-P Title entered into a reinsurance agreement with the purchaser to assume the obligations and liabilities of policies in-force. A dividend in partial liquidation was paid to J-P and the purchaser subsequently purchased the stock of J-P Title. A small gain was recorded on the sale of the stock.
The operations of both subsidiaries are segregated as "Discontinued Operations" in the accompanying financial statements. Operating income attributable to Discontinued Operations increased 16.2% in 1994 to $9.2 million and 14.3% in 1993 to $8.0 million. It is expected that the reinvestment of net proceeds from liquidating dividends and sale of these subsidiaries will replace the operating income included as a component of Discontinued Operations.
Other
Operating results categorized as "other" include earnings on investments held in the parent company as reduced by expenses of the corporation. These results improved in 1994 and in 1993 due to a reduction of expenses associated with shareholder litigation and income from options written on equity securities held by the parent company totaling $2.5 million in 1994.
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CONSOLIDATED FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY
J-P's resources are primarily represented by investments related to its Life insurance segment, properties and other assets used in its Life insurance and Communications segments and investments backing corporate capital. The Investments section reviews the Company's investment portfolio and key strategies.
Total assets were $6,140 million and $5,641 million at December 31, 1994 and 1993 - an increase of $500 million or 8.9%. Primary sources for asset growth were increases in policyholder contract deposits (primarily annuities and universal life contracts), proceeds from securities sold under repurchase agreements and cash provided by operating activities. These sources were offset by cash dividends paid to shareholders and net acquisitions of J-P shares outstanding. Asset values were also reduced by declines in the market values of assets held in the "available for sale" category. These declines were the direct result of increases in market interest rate yields.
J-P's Life insurance segment defers the costs of acquiring new business, including commissions, certain costs of underwriting and issuing policies and certain agency office expenses. Such amounts deferred were $329.1 million and $277.7 million at December 31, 1994 and 1993 - an increase of $51.4 million or 18.5 %. The increase is primarily related to the incidence of Individual first year premiums, which have grown significantly in recent years. Deferred policy acquisition costs are reviewed periodically to determine that the unamortized portion does not exceed expected recoverable amounts.
Goodwill and other intangible assets relate to acquisitions of communication properties and are being amortized over periods ranging from 5 to 40 years, with a dollar-weighted average amortization period of approximately 30 years.
Capital Resources
J-P's financial strength is among the highest of its peer companies. Consolidated shareholders' equity was $1,733 million at December 31, 1994 and 1993 and no long-term debt was outstanding at either date. Shareholders' equity includes net unrealized gains on securities available for sale at December 31, 1994 of $230.8 million and net unrealized gains on equity securities at December 31, 1993 of $331.6 million. The Company adopted SFAS 115 as of January 1, 1994, as more particularly described in Note 2 to the Consolidated Financial Statements. This resulted in a net increase in shareholder's equity on that date of $101.4 million. During 1994, fair values of securities classified as available for sale, net of deferred taxes, decreased by $202.1 million . The net effect on shareholders' equity during the year was a decline of $100.7 million or 5.8% from the December 31, 1993 balance.
J-P considers existing capital resources to be more than adequate to support the current level of its business activities. The Company's business plan places priority on redirecting certain capital resources now invested in bonds and stocks into its core businesses, which businesses would be expected to produce higher returns over time. As part of its plan to effectively use its capital resources, the Company may continue to purchase its own common stock from time to time. Management believes that acquisitions and other strategic
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opportunities can be funded using a prudent balance of capital and debt financing. Currently, the Company does not have any long-term debt outstanding and, while it has made no commitments for obtaining such financing, limited amounts of long-term debt may be used to finance acquisitions or for other corporate purposes in the future. Its capital adequacy is illustrated by the following table:
1994 1993 1992 1991 1990 (In millions)
Total assets $6,140 $5,641 $5,257 $4,945 $4,475
Total shareholders' equity $1,733 $1,733 $1,668 $1,544 $1,334
Ratio of shareholders' equity to assets 28.2% 30.7% 31.7% 31.2% 29.8%
The Company's ratio of capital to assets declined during 1994 due to growth in policyholder contract deposits as well as securities sold under repurchase agreements which are accounted for as financing arrangements.
J-P considers the capital requirements of its business segments in determining the level of capital available for strategic development. The Life insurance segment, which employs the larger level of required capital, is subject to regulatory constraints. Capital employed in J-P Life is measured in accordance with statutory accounting practices (SAP) which differ from generally accepted accounting principles (GAAP), as illustrated by the following analysis:
1994 1993 (In millions)
Statutory capital and surplus at December 31 $ 971.6 $ 945.2 Adjustments: Deferred policy acquisition costs 312.7 272.3 Asset valuation reserves 205.2 263.2 Future policy benefits 103.1 102.4 Fair value adjustment on debt securities (58.5) - Deferred income taxes (96.5) (154.5) All other, net (8.1) 6.5
Shareholders' equity on GAAP basis $1,429.5 $1,435.1 ======== ========
The bases for valuation of GAAP assets and liabilities are described more thoroughly in Note 1 to the Consolidated Financial Statements. J-P Life has not previously ceded business under "surplus relief" reinsurance arrangements nor has statutory capital and surplus been enhanced by any transaction or item that is either (1) not included in GAAP shareholders' equity or (2) eliminated in the preparation of the Company's Consolidated Financial Statements.
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Effective for year-end 1993, the National Association of Insurance Commissioners (NAIC) adopted risk-based capital (RBC) levels for life insurers. RBC requires the maintenance of minimum levels of statutory capital and surplus based on formulas related to investment credit risk, insurance risk, interest rate risk and general business risk. For purposes of determining compliance with this new requirement, J-P Life compares its minimum capital requirement (authorized control level) with adjusted statutory capital (includes statutory capital and surplus, asset valuation reserves and other adjustments). Regulatory authorities require that J-P Life maintain adjusted capital and surplus positions up to twice the authorized control level. The Company currently holds surplus levels substantially in excess of amounts needed to comply with the new requirements.
J-P Life has been assigned the highest ratings by the following agencies:
A.M. Best A++ Standard & Poor's (claims paying) AAA Weiss A+
J-P management believes that the superior ratings assignments are a result of its overall capital position, stability of life insurance earnings, high quality investment portfolio and competitive position within the market.
In managing its capital position, J-P Life measures required capital for each of its major product lines similar to methods utilized by regulatory authorities for risk-based capital requirements. Capital is allocated to product lines in amounts which management believes are prudent and necessary to cover all risks inherent in the book of business. Management also focuses on investment quality and other indications of capital adequacy, such as operating leverage, capital and surplus ratios and the ratio of higher risk assets as a percentage of statutory capital and surplus. Management believes that these ratios are more conservative than those prevailing in the life insurance industry.
Liquidity
J-P's liquidity requirements are met primarily by cash flows from the operations of J-P Life and other consolidated subsidiaries. The Company has historically posted positive cash flows from operating activities of its Life Insurance and Communications segments. Management believes that its overall sources of liquidity will continue to be sufficient to satisfy its operating requirements.
Net cash provided by operations on a consolidated basis was $117.1 million, $160.2 million and $155.9 million for 1994, 1993 and 1992. Cash flows provided from increases in policyholder contract deposits were $270.6 million, $202.6 million, and $167.9 million in 1994, 1993 and 1992. Net proceeds from short-term borrowing and securities sold under repurchase agreements were $256.5 million, $39.7 million and -0- in 1994, 1993 and 1992. These sources of funds were used to purchase net investments of $513.9 million, $399.5 million and $220.8 million; pay dividends to shareholders of $83.4 million, $78.1 million and $69.1 million; and to make net acquisitions of shares outstanding of $55.7 million, $48.9 million and $34.9 million in 1994, 1993 and 1992.
II-16
Primary sources of cash from its Life Insurance segment are premiums, other insurance considerations, receipts for policyholder accounts, investment sales and maturities and investment income. Primary uses of cash include payment of insurance benefits, operating expenses, withdrawals from policyholder accounts, costs related to acquiring new business, income taxes and investment purchases.
Primary sources of cash from the Communications segment are revenues from advertising and sports and entertainment production. Primary uses of cash include payment of agency commissions, cost of sales, operating expenses and income taxes.
Dividends paid to the parent company from its subsidiaries were $128.0 million in 1994, $102.8 million in 1993 and $127.9 million in 1992. J-P Life is the primary source of dividends to the parent company. J-P Life is subject to North Carolina laws which limit the amount of dividends that may be paid without first obtaining the approval of the State's Insurance Commissioner. J-P Life has approximately $97 million available for distribution to the parent company during 1995 without obtaining prior approval.
During 1994 and 1993, the Company utilized uncommitted bank lines of credit to manage parent company cash flows, primarily due to timing differences between receipt of dividends from subsidiaries versus dividends paid to shareholders and purchase of its outstanding shares. The maximum amounts outstanding at any time approximated $90.0 million during 1994 and $40.0 million during 1993. The maximum combined availability of all uncommitted lines as of December 31, 1994 is $375.0 million. Additionally, during 1994 the Company sold U.S. Treasury obligations under repurchase agreements involving various counterparties. Proceeds from such sales were used to purchase securities with longer durations as an asset / liability management strategy. The repurchase agreements were accounted for as a financing arrangement. The maximum amount outstanding during the year approximated the year-end liability of $266.8 million.
Cash and short-term investments on hand were $22.8 million and $34.6 million at December 31, 1994 and 1993. Additionally, debt and equity securities of the parent company with carrying amounts of $188.0 million and $145.3 million at December 31, 1994 and 1993 are considered to be sources of liquidity to support the Company's strategies. Proceeds from the sale of J-P F&C and J-P Data Services of approximately $100 million are expected to increase parent company liquid resources. Total debt and equity securities available for sale at December 31, 1994 are $2,324.9 million.
INVESTMENTS
J-P's strategy for managing its investment portfolio is to dependably meet its pricing assumptions while achieving the highest possible after-tax returns over the long term. Operating structures are in place to require that credit and interest rate risks are prudently managed and that sufficient liquidity is maintained. Management focuses on option-adjusted yields as a measure of anticipated performance and on option-adjusted durations of assets and liabilities as a measure of interest rate risk.
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Cash flows from operations are invested primarily in fixed income securities, including publicly-issued bonds, privately-placed notes and bonds and commercial mortgage loans. The nature and quality of the various types of investments held by insurance subsidiaries must comply with the statutes and regulations imposed by the states in which they are licensed.
J-P held the following carrying amounts of investments at each of the dates reported:
December 31, 1994 % January 1, 1994 % (In millions) Publicly-issued bonds $ 2,564 49 $ 2,461 48 Privately-placed bonds 961 18 840 16 Commercial mortgage loans 681 13 584 11 Common stock 670 13 843 17 Policy loans 206 4 215 4 Preferred stock 69 1 86 2 Real estate 31 1 31 1 Cash, other invested assets 61 1 64 1
Total $ 5,243 100 $ 5,124 100
Privately-placed bonds and commercial mortgage loans have increased as a percentage of invested assets while common stocks have decreased. Near-term strategies include identification of fixed income market sectors and niches that provide investment opportunities to enhance the Company's product flow, quality and yield. The Company anticipates that the recent expansion of private placement and commercial mortgage loan production will continue. The Company will also continue to hold common stock as an investment of corporate capital and surplus to enhance the long-term value of the Company and to provide opportunities for tax efficient portfolio management strategies. However, it is expected that the percentage of common stocks will decline as new cash flows from policyholder account balances are invested in fixed interest securities.
J-P's Investment Policy Statement requires an average quality fixed income portfolio of "A" or higher. Currently, the average quality is "Aa3", excluding mortgage loans. The Policy Statement also imposes limits on the amount of lower quality investments and requires diversification by issuer and asset type. The Company monitors investments which are considered to be "higher risk" for compliance with the Investment Policy Statement and for proper valuation. Securities that experience other than temporary declines in value are adjusted to net realizable values through a charge to earnings. Commercial mortgage loans in default are carried at the net present value of expected future cash flows. Other investments are carried at the lower of cost or net realizable value, as appropriate.
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Carrying amounts of investments categorized as "higher risk" assets were as follows at year-end:
1994 % 1993 % (In millions) Bonds near or in default $ - - $ - - Bonds below investment grade 122.3 2.3 100.2 2.0 Mortgage loans 60 days delinquent or in foreclosure 0.9 - 13.3 0.3 Mortgage loans restructured 13.5 0.3 6.4 0.1 Foreclosed properties 7.8 0.2 8.4 0.2 Sub-total, "higher risk assets" 144.5 2.8 128.3 2.6 All other investments 5,098.9 97.2 4,820.1 97.4 Total cash and investments $5,243.4 100.0 $4,948.4 100.0
The Company's investment guidelines allow investments in below investment grade bonds up to a stated percentage of adjusted statutory capital and surplus, which amount currently approximates $200 million. In making acquisitions of this nature, the Company attempts to identify well structured private placements offering enhanced yields. Also, the highest tier of public non-investment grade bonds which have the potential to be upgraded ("crossover credits") are considered for acquisition. It is expected that the level of non-investment grade bonds may increase; however, the Company will continue to manage its credit risks in a prudent fashion with due regard to regulatory constraints and efficient utilization of surplus.
During 1994 and 1993, J-P sold call options on selected common stock holdings classified as available for sale to reduce the price volatility of its equity investments and as an additional source of investment returns. Option premiums received are applied to reduce the basis of the shares called or are recorded as investment income upon expiry. Total option premiums received were $4.9 million in 1994 and $2.4 million in 1993. The Company's Investment Policy Statement authorizes an investment up to $50 million in trading securities shares for the primary purpose of writing covered call options in expectation of enhanced total returns from option premiums, market appreciation and dividends received. The Company has not utilized derivative financial instruments other than mortgage-backed securities (MBS), collateralized mortgage obligations (CMO)and covered call options and has no current plans to do so. As discussed in the Liquidity section, the Company sold securities under repurchase agreements as an asset / liability management strategy.
J-P held the following MBS's and CMO's at the dates reported:
1994 1993 (In millions) Available for sale, at fair value: Federal agency issued CMO's $ 366.8 $ - Corporate private-labeled CMO's 87.0 - Held to maturity at amortized cost: Federal agency issued CMO's 509.7 - Debt securities at amortized cost: Federal agency issued CMO's - 373.7 Corporate private-labeled CMO's - 165.3 Mortgage-backed pass-through securities - 60.6
Total $ 963.5 $ 599.6
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The Company's investment strategy with respect to CMO's focuses on actively- traded, less volatile issues that produce relatively stable cash flows. CMO holdings for the years under report consist predominately of the least volatile Planned Amortization Classes and sequential tranches of federal agency issuers. During 1994, the Company liquidated its holdings of mortgage pass-through securities and reinvested the proceeds into less volatile CMO's with longer durations. Due to the high quality and liquid nature of these investments, the Company believes that the impairment risks associated with these securities are no greater than those applicable to direct agency or corporate issues.
Asset/Liability Management
The asset/liability management process focuses primarily on the management of interest rate risk. One measure of this risk is to compare asset and liability durations. Duration measures the sensitivity of asset and liability values to changes in interest rates. J-P monitors the durations of insurance liabilities for comparison to the durations of assets backing the insurance lines. In 1994, the Company established the Asset/Liability Management Committee, which is made up of Finance, Investment and Actuarial senior management. This group is charged with continually monitoring and refining the Company's position in an attempt to prudently balance profit-ability and risk for each insurance line, and for the Company in the aggregate.
Separate asset portfolios have been established for each insurance line. Various sophisticated modeling and analytical systems are employed in analyzing the assets and liabilities which make up each of these lines. Option-adjusted liability durations have been developed using stochastic actuarial projections of liability cash flows. In addition, the Investment Department's models measure the assets' effective duration, as well as other analytics necessary for portfolio management. The Company also considers the timing of the cash flows arising from the assets and liabilities under different interest rate scenarios. It is the intention of management that option-adjusted durations for interest sensitive portfolios such as universal life and annuities remain very closely matched. A wider tolerance is permissible for the non-interest sensitive (traditional) portfolios. At December 31, 1994, 39.7% of J-P Life's invested assets at amortized cost were held for interest-sensitive portfolios and 60.3% were held for traditional portfolios and corporate capital and surplus.
EXTERNAL TRENDS, ECONOMIC FACTORS AND ACCOUNTING PRONOUNCEMENTS
Inflation and Interest Rate Risks
Reflecting a concern for inflationary pressures in the U.S. economy, the Federal Reserve raised interest rates significantly during 1994. Since J-P's assets and liabilities are largely monetary in nature, the Company's financial position is impacted by changes in the general interest rate environment. Interest rate increases during 1994 contributed to the decrease in unrealized gains on securities available for sale, net of deferred taxes, of $202.1 million during the year. Interest rate changes can affect the Company's net worth either positively or negatively since fixed income securities available for sale are recorded at fair values but corresponding liabilities are not adjusted to fair values.
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The Company's recent growth in assets and liabilities is largely attributable to sales of interest sensitive products. Because J-P earns profits on the basis of investment spreads, changes in interest rates may also affect results of operations. In a rising interest rate environment, competitive pressures may make it difficult for the Company to sustain the spreads on its interest sensitive portfolio of insurance products. Durations of the Company's assets and liabilities may also be adversely impacted by changes in interest rates.
To protect against the negative impact of interest rate risk, J-P focuses on measuring option-adjusted durations of its assets and manages the risk of mismatch between assets and liabilities. The Company also adjusts interest crediting rates on a frequent basis reflecting the yield of its investment portfolio and assumptions for pricing and profitability.
Medical inflation and utilization affects the profitability of health products offered through the Individual and Group distribution systems. In the event that premium rates are not adjusted in anticipation of medical trends, profitability of health insurance products may be adversely affected.
Environmental Liabilities
J-P is exposed to environmental regulation and litigation as a result of ownership of investment real estate, property and casualty and Communications subsidiaries. The Company's actual loss experience has been minimal and exposure to environmental losses is considered by the Company to be insignificant.
Accounting Pronouncements
J-P adopted the provisions of SFAS 115 "Accounting for Certain Investments in Debt and Equity Securities" as of January 1, 1994. This statement applies to equity securities having readily-determinable fair values as well as debt securities and requires classification of securities as either 1) securities held to maturity stated at amortized cost; 2) trading securities at fair value with unrealized gains and losses reflected in income currently; or 3) securities available for sale stated at fair value with unrealized gains and losses, net of deferred income tax effect, included in a separate component of stockholders' equity.
In connection with the adoption of SFAS 115, the Company classified debt securities that it has both the positive intent and ability to hold until maturity as held to maturity. Other debt securities and all holdings of equity securities were classified as available for sale. Approximately 53% (at amortized cost) of the Company's debt securities were classified as available for sale and 47% as held-to-maturity. Debt securities classified as available for sale were adjusted to aggregate fair value as of January 1, 1994. Equity securities held by the parent company, which were previously stated at the lower of aggregate cost or market, were adjusted to market value. Equity securities held by the insurance subsidiaries were stated at market prior to adoption of SFAS 115 and therefore were not adjusted. The adjustment to available for sale debt securities and parent company equity securities increased shareholders' equity by $101.4 million as of January 1, 1994.
II-21
SFAS 114," Accounting by Creditors for Impairment of a Loan" will be effective for the Company's 1995 consolidated financial statements. SFAS 114, as amended by SFAS 118, requires that certain impaired loans be reported at the net present value of expected future cash flows, the loan's observable market price or the fair value of the underlying collateral. Adoption of SFAS 114 is not expected to have a significant effect on the consolidated financial statements for 1995.
Potential Acquisition of Kentucky Central Life Insurance Company
The Kentucky Insurance Commissioner has submitted to the Circuit Court of Franklin County, Kentucky a proposed plan of rehabilitation for Kentucky Central Life Insurance Company, which was seized in February 1993. Under the proposed plan, J-P Life would assume most of Kentucky Central's life insurance and annuity business. Kentucky Central reported statutory basis life reserves and deposit liabilities totaling approximately $1 billion as of December 31, 1993. On August 18, 1994, the Circuit Court entered a final but appealable order that approved the plan. The Circuit Court's order was subsequently appealed by Kentucky Central's stockholders. The outcome of the proposed plan is dependent upon resolution of the appeal of the Circuit Court's order.
II-22
Item 8.
Item 8. Financial Statements and Supplementary Data
MANAGEMENT'S PRESENTATION OF QUARTERLY FINANCIAL DATA
Jefferson-Pilot Corporation and Subsidiaries (In Thousands Except Per Share Information)
March June September December 31 30 30 31 Revenues, including net investment income and realized gains on investments $307,248 $314,466 $ 312,455 $334,640 Benefits and expenses 228,067 228,615 225,892 238,633 Provision for income taxes 26,782 29,569 29,659 31,696
Income from continuing operations $ 52,399 $ 56,282 $ 56,904 $ 64,311 Discontinued operations, net of income taxes 1,865 2,088 1,895 3,493
Net income $ 54,264 $ 58,370 $ 58,799 $ 67,804 ======== ======== ========= ========
Per share $ 1.11 $ 1.20 $ 1.21 $ 1.40 ======== ======== ========= ========
March June September December 31 30 30 31 Revenues, including net investment income and realized gains on investments $293,736 $293,298 $ 289,564 $315,851 Benefits and expenses 224,040 220,846 213,025 224,079 Provision for income taxes 21,779 23,579 26,105 29,436
Income from continuing operations $ 47,917 $ 48,873 $ 50,434 $ 62,336 Discontinued operations, net of income taxes 2,018 3,368 2,040 2,295 Accumulated postretirement benefit obligation, net (24,109) 0 0 0
Net income $ 25,826 $ 52,241 $ 52,474 $ 64,631 ======== ======== ========= ========
Per share $ .51 $ 1.04 $ 1.04 $ 1.30 ======== ======== ========= ========
(continued)
II-23
Item 8. Financial Statements and Supplementary Data (Continued)
MANAGEMENT'S PRESENTATION OF QUARTERLY FINANCIAL DATA
March June September December 31 30 30 31 Revenues, including net investment income and realized gains on investments $286,907 $281,050 $ 285,512 $292,510 Benefits and expenses 219,051 217,168 217,875 216,523 Provision for income taxes 19,864 18,183 21,042 21,675
Income from continuing operations $ 47,992 $ 45,699 $ 46,595 $ 54,312 Discontinued operations, net of income taxes 1,267 2,561 2,465 2,347
Net income $ 49,259 $ 48,260 $ 49,060 $ 56,659 ======== ======== ========= ========
Per share $ .96 $ .94 $ .96 $ 1.12 ======== ======== ========= ========
Financial statements and notes included on pages 36 through 59 of the
Annual Report of Jefferson-Pilot Corporation to its shareholders for the year
ended December 31, 1994, are incorporated herein by reference.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
II-24
Part III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
The information included under the heading "Election of Directors," of
the Registrant's definitive Proxy Statement for the Annual Meeting to be held
on May 1, 1995 (the "Proxy Statement") is incorporated herein by reference.
Executive Officers are described in Part I.
Information under the heading "Security Ownership", of the Proxy
Statement relating to a delinquent filer under Section 16(a) of the Exchange
Act of 1934 is incorporated herein by reference.
Item 11.
Item 11. Executive Compensation
The information included under the heading "Executive Compensation"
of the Proxy Statement is incorporated herein by reference.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information included under the heading "Security Ownership" of
the Proxy Statement is incorporated herein by reference.
Item 13.
Item 13. Certain Relationships and Related Transactions
The information included under the heading "Compensation Committee
Interlocks and Insider Participation" of the Proxy Statement is incorporated
herein by reference.
III-1
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The response to this portion of Item 14 is submitted as a separate section of this report. (See.) List and Index of Exhibits included on page of this report.
(b) The Registrant filed a report on Form 8-K on November 14, 1994, describing its Amended and Restated Rights Agreement adopted by the Board of Directors on November 7, 1994.
(c) Exhibits are submitted as a separate section of this report. (See.)
(d) Financial Statement Schedules -- The response to this portion of Item 14 is submitted as a separate section of this report. (See .)
Undertakings
For the purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into registrant's Registration Statements on Form S-8 Nos. 2-36778 (filed March 23, 1970) and 2-56410 (filed May 12, 1976) and 33-30530 (filed August 15, 1989), and in outstanding effective registration statements on Form S-16 included in such S-8 filings:
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
IV-1
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
JEFFERSON-PILOT CORPORATION (Registrant)
BY (SIGNATURE) David A. Stonecipher (NAME AND TITLE) David A. Stonecipher, President and Director (Also signing as Principal Executive Officer) DATE March 28, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
BY (SIGNATURE) Dennis R. Glass (NAME AND TITLE) Dennis R. Glass, Senior Vice President and Treasurer (Principal Financial Officer) DATE March 28, 1995
BY (SIGNATURE) Reggie D. Adamson (NAME AND TITLE) Reggie D. Adamson, Senior Vice President, Finance (Principal Accounting Officer) DATE March 28, 1995
BY (SIGNATURE) Thomas M. Belk * (NAME AND TITLE) Thomas M. Belk, Director DATE March 28, 1995
BY (SIGNATURE) William E. Blackwell (NAME AND TITLE) William E. Blackwell, Director DATE March 28, 1995
BY (SIGNATURE) Edwin B. Borden * (NAME AND TITLE) Edwin B. Borden, Director DATE March 28, 1995
BY (SIGNATURE) William H. Cunningham * (NAME AND TITLE) William H. Cunningham, Director DATE March 28, 1995
IV-2
SIGNATURES (continued)
BY (SIGNATURE) C. Randolph Ferguson (NAME AND TITLE) C. Randolph Ferguson, Director DATE March 28, 1995
BY (SIGNATURE) Robert G. Greer * (NAME AND TITLE) Robert G. Greer, Director DATE March 28, 1994
BY (SIGNATURE) A. Linwood Holton, Jr. * (NAME AND TITLE) A. Linwood Holton, Jr., Director DATE March 28, 1995
BY (SIGNATURE) Hugh L. McColl, Jr. * (NAME AND TITLE) Hugh L. McColl, Jr., Director DATE March 28, 1995
BY (SIGNATURE) Charles W. McCoy * (NAME AND TITLE) Charles W. McCoy, Director DATE March 28, 1995
BY (SIGNATURE) E. S. Melvin (NAME AND TITLE) E. S. Melvin, Director DATE March 28, 1995
BY (SIGNATURE) William P. Payne * (NAME AND TITLE) William P. Payne, Director DATE March 28, 1995
BY (SIGNATURE) Donald S. Russell, Jr. * (NAME AND TITLE) Donald S. Russell, Jr., Director DATE March 28, 1995
BY (SIGNATURE) Robert H. Spilman * (NAME AND TITLE) Robert H. Spilman, Chairman DATE March 28, 1995
BY (SIGNATURE) Martha A. Walls * (NAME AND TITLE) Martha A. Walls, Director DATE March 28, 1995
* BY Robert A. Reed Attorney in fact
IV-3
List of Financial Statements and Financial Statement Schedules
Financial Statements: The following consolidated financial statements and independent auditor's report included in the Annual Report of Jefferson-Pilot Corporation to its shareholders for the year ended December 31, 1994 are incorporated herein by reference. With the exception of the aforementioned information and the information incorporated by reference in Items 1 (b), 3, 8 and 14(a) 1 and 2 herein, the 1994 Annual Report to shareholders is not deemed to be filed as part of this report.
Annual Report -Pages-
Consolidated Balance Sheets as of December 31, 1994 and 1993 36 - 37 Consolidated Statements of Income for the Years Ended December 31, 1994, 1993 and 1992 38 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1994, 1993 and 1992 39 Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1993 and 1992 40 Notes to Consolidated Financial Statements 41 - 58 Independent Auditor's Report 59
Financial Statement Schedules: Form 10-K -Pages-
Independent Auditor's Report on Schedules
Schedule I - Summary of Investments - Other Than Investments in Related Parties -
Schedule II - Financial Statements of Jefferson-Pilot Corporation: Condensed Balance Sheets as of December 31, 1994, and 1993 Condensed Statements of Income for the Years Ended December 31, 1994, 1993, and 1992 Condensed Statements of Cash Flows for the Years Ended December 31, 1994, 1993, and 1992 Notes to Condensed Financial Statements -
Schedule III - Supplementary Insurance Information -
Schedule IV - Reinsurance -
List and Index of Exhibits -
All other schedules provided for in the applicable accounting regulations of the Securities and Exchange Commission have been omitted because either they pertain to items which are not applicable or to items which are not signifi- cant or to items for which the required disclosures have been included in the financial statements or notes thereto.
INDEPENDENT AUDITOR'S REPORT ON SCHEDULES
To the Board of Directors Jefferson-Pilot Corporation Greensboro, North Carolina
Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The consolidated supplemental schedules I, II, III, and IV are presented for purposes of complying with the Securities and Exchange Commission's rules and are not a part of the basic consolidated financial statements. These schedules have been subjected to the auditing procedures applied in our audits of the basic consolidated financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole.
As disclosed in the notes to consolidated financial statements, the Company changed its method of accounting for investments in debt and marketable equity securities effective January 1, 1994 by adopting Statement of Financial Accounting Standards (SFAS) No. 115 "Accounting for Certain Investments in Debt and Equity Securities". As also disclosed in the notes to consolidated financial statements, the Company adopted the provisions of SFAS No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions" in 1993.
/s/ McGLADREY & PULLEN, LLP
Greensboro, North Carolina February 7, 1995, except for Note 19 to the consolidated financial statements as to which the date is February 14, 1995
(Continued)
JEFFERSON-PILOT CORPORATION AND SUBSIDIARIES
SCHEDULE I - SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES (CONTINUED)
December 31, 1994
(a) Cost of debt securities is original cost, reduced by repayments and adjusted for amortization of premiums and accrual of discounts. Cost of equity securities is original cost. Cost of mortgage loans on real estate and policy loans represents aggregate outstanding balances. Cost of real estate acquired by foreclosure is the originally capitalized amount, reduced by applicable depreciation. Cost of other real estate held for investment is depreciated original cost.
(b) Differences between amounts reflected in Column B or Column C and amounts at which shown in the consolidated balance sheet reflected in Column D result from the adoption of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." A portion of bonds and debt securities are recorded as investments held to maturity at amortized cost and a portion are recorded as investments available for sale at fair value.
(c) Differences between cost reflected in Column B and amounts at which shown in the consolidated balance sheet reflected in Column D result from valuation allowances and declines in value that are other than temporary.
JEFFERSON-PILOT CORPORATION AND SUBSIDIARIES CONDENSED BALANCE SHEETS OF JEFFERSON-PILOT CORPORATION December 31, 1994 and 1993 SCHEDULE II
ASSETS 1994 1993
Cash and investments (Note 2) Cash and cash equivalents $ 1,864,097 $ 10,174 Short-term investments - 3,065,000 Debt securities available for sale 135,952,327 - Debt securities, at amortized cost - 140,660,581 Equity securities available for sale 52,093,483 - Equity securities, at cost - 4,653,937 Investment in continuing subsidiaries 1,522,393,224 1,512,263,288 Investment in discontinued subsidiaries 65,039,937 93,997,746 Other investments 1,980,599 1,625,729
Total cash and investments 1,779,323,667 1,756,276,455 Amounts due from subsidiaries 8,480,428 38,374,033 Deferred income taxes - 1,225,936 Other assets 11,276,486 10,423,417
$1,799,080,581 $1,806,299,841 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities: Notes payable (Note 3) $ 29,350,000 $ 39,700,000 Payables and accruals 3,556,764 9,443,910 Dividends payable 20,834,000 19,291,000 Income taxes payable 3,824,458 4,794,556 Deferred income tax liabilities 8,972,756 -
Total liabilities 66,537,978 73,229,466
Commitments and contingent liabilities (Note 4)
Stockholders' equity (Notes 2, 5 and 6): Common stock, par value $1.25 per share, authorized 100,000,000 shares; issued 1994 48,450,898 shares; 1993 49,464,495 shares 60,563,623 61,830,619 Retained earnings, including equity in undistributed net income of subsidiaries 1994 $1,318,265,897; 1993 $1,220,151,215 1,441,132,441 1,339,671,590 Net unrealized gains on securities available for sale, less deferred income taxes $121,988,542 230,846,539 - Net unrealized gains on equity securities held by insurance subsidiaries, less deferred income taxes $176,201,659 - 331,568,166
Total stockholders' equity 1,732,542,603 1,733,070,375
$1,799,080,581 $1,806,299,841 ============== ============== See Notes to Condensed Financial Statements.
See Notes to Condensed Financial Statements.
JEFFERSON-PILOT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS OF JEFFERSON-PILOT CORPORATION
SCHEDULE II
Note 1. Basis of Presentation and Significant Accounting Policies
The accompanying financial statements comprise a condensed presentation of the financial position, results of operations, and cash flows of Jefferson-Pilot Corporation (the "Company") on a separate-company basis. These condensed financial statements do not include the accounts of the Company's majority-owned sub- sidiaries, but instead include the Company's investment in those subsidiaries, stated at amounts which are substantially equal to the Company's equity in the subsidiaries' net assets. Therefore the accompanying financial statements are not those of the primary reporting entity. The consolidated financial statements of the Company and its subsidiaries are included in the Jefferson-Pilot Corporation Annual Report to Shareholders for the year ended December 31, 1994.
The Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 115 "Accounting for Certain Investments in Debt and Equity Securities" effective January 1, 1994. SFAS 115 applies to equity securities having readily determinable fair values and to debt securities. Securities under its scope must be classified for financial reporting purposes as either 1) securities held to maturity stated at amortized cost; 2) trading securities stated at fair value with unrealized gains and losses reflected in income; or 3) securities available for sale stated at fair value with net unrealized gains and losses included in a separate component of stockholders' equity, net of deferred income tax effect.
SFAS 115 establishes criteria for classifying debt securities as held to maturity or trading and requires debt securities not other- wise classified to be accounted for as available for sale. Equity securities with readily determinable fair values are required to be classified as either trading or available for sale. Individual securities classified as either held to maturity or available for sale that experience other-than-temporary declines in value to amounts less than amortized cost must be adjusted to a new cost basis, with a corresponding charge to earnings.
In connection with the adoption of SFAS 115, the Company classified its debt and equity securities as available for sale and adjusted their carrying amount to aggregate fair value as of January 1, 1994. Prior to adopting SFAS 115, the Company's debt securities were stated at amortized cost less allowances for declines in value considered to be other than temporary and equity securities held directly by the Company were stated at the lower of aggregate cost or market.
Additional information about accounting policies pertaining to investments and other significant accounting policies applied by the Company and its subsidiaries are as set forth in Note 1 to the
consolidated financial statements of Jefferson-Pilot Corporation and subsidiaries which are included in the Annual Report to Share- holders for the year ended December 31, 1994.
Note 2. Investment Information
The effect of adopting SFAS 115 on the carrying amount of debt and equity securities held directly by the Company and the separate component of stockholders' equity as of January 1, 1994 follows:
Net Unrealized Gains (Losses) Debt Equity Securities Securities Total Effect of adopting SFAS 115 as of January 1, 1994: Increase in stated amount of securities $ 151,607 $ 70,103,916 $ 70,255,523 Increase in deferred income tax liabilities (52,000) (28,102,946) (28,154,946) Increase in net unrealized gains included in stockholders' equity 99,607 42,000,970 42,100,577
Changes during year ended December 31, 1994: Decrease in stated amount of securities (15,593,429) (28,221,111) (43,814,540) Decrease in deferred income tax liabilities 6,151,909 11,815,851 17,967,760
Increase/(Decrease) in net unrealized gains included in stockholders' equity $ (9,341,913) $ 25,595,710 $ 16,253,797 ============ ============ ============
Net unrealized gains on securities available for sale included in the accompanying condensed balance sheet as of December 31, 1994 includes approximately $215 million of net unrealized gains pertaining to securities held by insurance subsidiaries, net of deferred income tax effect of approximately $112 million. Since debt and equity securities held directly by the Company as of December 31, 1993 were stated at amortized cost or cost, as appropriate, related unrealized gains are not reflected in the accompanying condensed balance sheet as of that date.
Debt securities held directly by the Company, stated at fair value of $135,952,327 as of December 31, 1994, had an aggregate amortized cost of approximately $151 million. Such securities consisted primarily of U.S. Treasury obligations maturing in the years 2000 through 2003 with approximately $15 million of gross unrealized holding losses. Equity securities held directly by the Company were stated at market value of $52,093,483 and had aggregate cost approximating $10 million, with approximately $42 million of gross unrealized holding gains.
As of December 31, 1993, debt securities held directly by the Company were stated at amortized cost of $140,660,581 and had aggregate fair value approximating cost. Equity securities held directly by the Company as of December 31, 1993 had aggregate market value approximating $74,758,000, with unrealized holding gains of $70,103,916.
Note 3. Notes Payable
Information about notes payable is contained in Note 5 to the consolidated financial statements of Jefferson-Pilot Corporation and subsidiaries which are included in the Annual Report to Shareholders for the year ended December 31, 1994.
Note 4. Commitments and Contingent Liabilities
Information about commitments and contingent liabilities involving the Company and its subsidiaries is contained in Notes 11, 12 and 17 to the consolidated financial statements of Jefferson-Pilot Corporation and subsidiaries which are included in the Annual Report to Shareholders for the year ended December 31, 1994.
Note 5. Common Stock and Stock Options
Information about common stock and stock options is contained in Notes 7 and 9 to the consolidated financial statements of Jefferson- Pilot Corporation and subsidiaries which are included in the Annual Report to Shareholders for the year ended December 31, 1994.
Note 6. Retained Earnings
Information about certain limitations affecting the amount of dividends that Jefferson-Pilot Life Insurance Company (the Company's largest subsidiary) may pay to the Company without the approval of the Insurance Commissioner of the State of North Carolina is contained in Note 8 to the consolidated financial statements of Jefferson-Pilot Corporation and subsidiaries which are included in the Annual Report to Shareholders for the year ended December 31, 1994.
Note 7. Other Investment Income
Other investment income consists principally of interest on debt securities and dividends on investments in common stocks. Realized investment gains resulted from sales of common stocks in 1994 and from sales of common stocks and dispositions of other investments in 1993.
Note 8. Income Taxes (Benefit)
Income taxes (benefit) as reported in the statements of income differ from the amounts which result from applying the maximum federal income tax rates of 35% in 1994 and 1993 and 34% in 1992 to income before income taxes and equity in undistributed income of subsidiaries. The predominant reason for the difference is elimination of dividends from subsidiaries in arriving at income subject to income taxes. Net deferred income tax liabilities as of December 31, 1994 relate primarily to unrealized gains on securities available for sale. Other asset and liability basis differences resulted in deferred income tax assets approximating $1.2 million as of December 31, 1994 (netted with deferred income tax liabilities) and 1993. The deferred components of income taxes (benefit) was not material in any year presented.
The Company pays the total amount of federal income taxes indicated on its consolidated federal income tax return and collects from subsid- iaries the amounts which the subsidiaries would have paid had they filed separate returns (or pays to them the benefits resulting from including their losses in the return).
Information about untaxed life insurance company income and the status of the Company and its subsidiaries with respect to federal income tax return examinations is contained in Note 10 to the consolidated financial statements of Jefferson-Pilot Corporation and subsidiaries which are included in the Annual Report to Shareholders for the year ended December 31, 1994.
Note 9. Postretirement Benefit Plans
Information about postretirement benefit plans sponsored by the Company and its subsidiaries is contained in Note 11 to the consolidated financial statements of Jefferson-Pilot Corporation and subsidiaries which are included in the Annual Report to Shareholders for the year ended December 31, 1994.
The effect of adopting SFAS 106 "Employers' Accounting for Post- retirement Benefits Other Than Pensions" during 1993 is reflected primarily in equity in undistributed net income of subsidiaries, as are substantially all postretirement benefits expenses.
Note 10. Discontinued Operations and Subsequent Event
Information about discontinued operations, which includes the property and casualty and title insurance subsidiaries that formerly comprised the other insurance business segment reflected in the consolidated financial statements of the Company and its subsidiaries is contained in Note 16 to the consolidated financial statements of Jefferson- Pilot Corporation and subsidiaries which are included in the Annual Report to Shareholders for the year ended December 31, 1994.
On February 14, 1995, substantially all of the assets and the media services operations of Jefferson-Pilot Data Services, Inc. were sold. Information about the sale is included in Note 19 to the consolidated financial statements of Jefferson-Pilot Corporation and subsidiaries which are included in the Annual Report to Shareholders for the year ended December 31, 1994.
(continued)
JEFFERSON-PILOT CORPORATION AND SUBSIDIARIES
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
(continued)
Column A Column G Column H Column I Column J Benefits, Amortization Claims, of Deferred Net Losses and Policy Other Investment Settlement Acquisition Operating Segment Income Expenses Costs Expenses(c)
As of or Year Ended December 31, 1994
Life insurance $375,196,000 $ 627,862,000 $ 22,265,000 $136,585,000 ============ ============== ============ ============
As of or Year Ended December 31, 1993
Life insurance $360,800,000 $ 601,726,000 $ 25,083,000 $138,607,000 ============ ============== ============ ============
As of or Year Ended December 31, 1992
Life insurance $351,721,000 $ 597,111,000 $ 21,757,000 $146,836,000 ============ ============== ============ ============
(a) Balance sheet information for discontinued operations relates to operations classified in prior years as the "other insurance" segment.
(b) Other policy claims and benefits payable include dividend accumulations and other policyholder funds on deposit, policy and contract claims (life and annuity and accident and health), dividends for policyholders, casualty insurance unearned premiums and losses payable and other policy liabilities.
(c) Expenses related to the management and administration of investments have been netted with investment income in the determination of net investment income. Such expenses amounted to $22,917,000 in 1994, $10,897,000 in 1993, and $10,504,000 in 1992.
(continued)
SCHEDULE IV - CONTINUED
(a) Included with life insurance premiums are premiums on ordinary life insurance products and mortality charges on interest- sensitive products.
(b) Percentage of amount assumed to net is computed by dividing the amount in Column D by the amount in Column E.
List and Index of Exhibits
Reference Per Exhibit Table Description of Exhibit -Page-
(2) Plan of acquisition - Life and Health Agreement in Connection with the Rehabilitation of Kentucky Central Life Insurance Company was included in Form 10-Q for the period ended September 30, 1994, and is incorporated herein by reference. -
(3) (i) Articles of Incorporation including amendments thereto that have been approved by shareholders. (Provided as part of the electronic filing.) -
(ii) By laws as currently in effect were included in Form 8-K dated November 14, 1994, and are incorporated herein by reference. -
(4) Amended and Restated Rights Agreement dated November 7, 1994 between Jefferson- Pilot Corporation and First Union National Bank of North Carolina, as Rights Agent, was included in Form 8-K dated November 14, 1994, and is incorporated herein by reference. -
(10) The following contracts and plans:
(i) Employment contract, between the Registrant and David A. Stonecipher, an executive officer of the Registrant, was included in Form 10-K for the year ended December 31, 1992, and is incorporated herein by reference. -
(ii) Employment contract, between the Registrant and Kenneth C. Mlekush, an executive officer of the Registrant, was included in Form 10-K for the year ended December 31, 1992, and is incorporated herein by reference. -
List and Index of Exhibits (continued)
(iii) Employment contract between the Registrant and John D. Hopkins, an executive officer of the Registrant, was included in Form 10-K for the year ended December 31, 1993, and incorporated herein by reference. -
(iv) Employment contract between the Registrant and Dennis R. Glass, an executive officer of the Registrant, was included in Form 10-K for the year ended December 31, 1993, and incorporated herein by reference. -
(v) Employment contract between the Registrant and E. J. Yelton, an executive officer of the Registrant, was included in Form 10-K for the year ended December 31, 1993, and incorporated herein by reference. -
(vi) Long Term Stock Incentive Plan, included as Exhibit 2 to the March 24, 1995 Proxy Statement and incorporated herein by reference. -
(vii) 1995 Non-employee Directors Stock Option Plan, included as Exhibit 3 to the March 24, 1995 Proxy Statement and incorporated herein by reference. -
(viii) Jefferson-Pilot Life Insurance Company Supplemental Benefit Plan and Executive Special Supplemental Benefit Plan. (Provided as part of the electronic filing.) -
(ix) Management Incentive Compensation Plan for Jefferson-Pilot Corporation and its insurance subsidiaries. (Provided as part of the electronic filing.) -
(x) Deferred Fee Plan for Non-Employee Directors. (Provided as part of the electronic filing.) -
(11) Basis For Computation of Per Share Earnings (Provided as part of the electronic filing).
List and Index of Exhibits (continued)
(13) Portion of Annual Report to Shareholders (Provided as part of the electronic filing.) -
(21) Subsidiaries of the Registrant (Provided as part of the electronic filing.) -
(23) Accountant's Consent (Provided as part of the electronic filing.)
(24) Power of Attorney (Provided as part of the electronic filing.) - F- 95
(27) Financial Data Schedule (Provided as part of the electronic filing.)