FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 2000 Commission file number 1-5955
Jefferson-Pilot Corporation
(Exact name of registrant as specified in its charter)
North Carolina 56-0896180
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 North Greene Street, Greensboro, North Carolina 27401
(Address of principal executive offices) (Zip Code)
(336) 691-3691
(Registrant's telephone number, including area code)
Indicate whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
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Number of shares of common stock outstanding at March 31, 2000 103,096,859
JEFFERSON-PILOT CORPORATION
INDEX
- Page No. -
[S]
Part I. Financial Information
Consolidated Unaudited Condensed Balance Sheets
- March 31, 2000 and December 31, 1999 3
Consolidated Unaudited Condensed Statements of Income
- Three Months ended March 31, 2000 and 1999 4
Consolidated Unaudited Condensed Statements of Cash Flows
- Three Months ended March 31, 2000 and 1999 5
Notes to Consolidated Unaudited Condensed Financial
Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Part II. Other Information 27
Signatures 28
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PART I. FINANCIAL INFORMATION
JEFFERSON-PILOT CORPORATION
CONSOLIDATED UNAUDITED CONDENSED BALANCE SHEETS
(Dollar Amounts in Millions Except Share Information)
March 31 December 31
2000 2000
ASSETS -------- -----------
Investments:
Debt securities available for sale, at
fair value(amortized cost $12,719 and $12,235) $ 12,393 $ 11,831
Debt securities held to maturity, at amortized
cost (fair value $3,089 and $3,259) 3,163 3,351
Equity securities available for sale, at fair
value (cost $88 and $98) 700 737
Mortgage loans on real estate 2,545 2,543
Other investments 1,075 1,074
Cash and cash equivalents 27 62
------ ------
Total cash and investments 19,903 19,598
Accrued investment income 264 266
Due from reinsurers 1,544 1,576
Deferred policy acquisition costs and
value of business acquired 2,038 2,040
Cost in excess of net assets acquired 309 303
Assets held in separate accounts 2,459 2,272
Other assets 444 391
------ ------
Total assets $ 26,961 $ 26,446
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Policy liabilities $ 19,618 $ 19,443
Debt:
Commercial paper and revolving credit borrowings 481 361
Exchangeable Securities and other debt 148 290
Securities sold under repurchase agreements 519 523
Liabilities related to separate accounts 2,459 2,272
Tax liabilities 195 123
Accounts payable, accruals and other liabilities 396 381
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23,816 23,393
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Guaranteed preferred beneficial interest in
subordinated debentures ("Capital Securities") 300 300
------ ------
Stockholders' Equity:
Common stock 130 129
Retained earnings 2,442 2,358
Accumulated other comprehensive income -
net unrealized gains on securities 273 266
------ ------
2,845 2,753
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Total liabilities and stockholders' equity $ 26,961 $ 26,446
====== ======
See Notes to Consolidated Unaudited Condensed Financial Statements
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JEFFERSON-PILOT CORPORATION
CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF INCOME
(In Millions Except Per Share Information)
Three Months Ended
March 31
2000 1999
------ ------
Revenue:
Premiums and other considerations $ 338 $ 241
Net investment income 352 316
Realized investment gains 48 44
Communications sales 53 51
Other 28 18
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Total revenue 820 670
------ ------
Benefits and Expenses:
Insurance and annuity benefits 407 306
Insurance commissions, net of deferrals 32 22
General and administrative expenses, net of deferrals 65 56
Amortization of policy acquistion costs and value
of business acquired 62 49
Communications operations 33 33
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Total benefits and expenses 599 466
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Income before income taxes 221 204
Provision for income taxes 76 71
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Net income 145 133
Dividends on Capital Securities and preferred stock 6 6
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Net income available to common stockholders $ 139 $ 127
====== ======
Net income $ 145 $ 133
Other comprehensive income - change in net unrealized
gains on securities 7 (119)
------ ------
Comprehensive income $ 152 $ 14
====== ======
Average number of shares outstanding 103.2 105.9
====== ======
Net Income Per Share of Common Stock:
Net income available to common stockholders before
realized investment gains, net of income taxes $ 1.04 $ 0.93
Realized investment gains, net of income taxes 0.31 0.27
------ ------
Net income available to common stockholders $ 1.35 $ 1.20
====== ======
Net income available to common stockholders -
assuming dilution $ 1.34 $ 1.19
====== ======
Dividends declared per common share $ 0.37 $ 0.33
====== ======
See Notes to Consolidated Unaudited Condensed Financial Statements
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JEFFERSON-PILOT CORPORATION
CONSOLIDATED UNAUDITED CONDENSED
STATEMENTS OF CASH FLOWS
(In Millions)
Three Months Ended
March 31
2000 1999
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Net cash provided by operations $ 181 $ 215
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Cash Flows from Investing Activities:
Investments sold (purchased), net (243) (275)
Other investing activities (1) (30)
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Net cash used in investing activities (244) (305)
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Cash Flows from Financing Activities:
Policyholder contract deposits, net 587 422
Policyholder contract withdrawals, net (465) (316)
Net short-term borrowings (repayments) (31) 34
Issuance (repurchase) of common shares, net (16) 2
Cash dividends paid (47) (44)
Other financing activities 0 2
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Net cash provided by financing activities 28 100
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Increase(Decrease) in cash and cash equivalents (36) 10
Cash and cash equivalents at beginning of period 62 21
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Cash and cash equivalents at end of period $ 26 $ 31
====== ======
Supplemental Cash Flow Information:
Income taxes paid $ 21 $ 1
====== ======
Interest paid $ 20 $ 12
====== ======
See Notes to Consolidated Unaudited Condensed Financial Statements
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JEFFERSON-PILOT CORPORATION
NOTES TO CONSOLIDATED UNAUDITED CONDENSED FINANCIAL STATEMENTS
(Dollar amounts in millions except per share information)
1. Basis of Presentation
The accompanying consolidated unaudited condensed financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. All significant intercompany accounts and transactions
have been eliminated in consolidation. Operating results for the three
month period ended March 31, 2000 are not necessarily indicative of the
results that may be expected for the year ended December 31, 2000.
Certain prior year amounts have been reclassified to conform with the
current year presentation.
2. Segment Reporting
The Company has five reportable segments which are defined based on the
nature of the products and services offered: Individual Products,
Benefit Partners, Annuity and Investment Products (AIP), Communications,
and Corporate and Other. The Corporate and Other segment includes
activities of the parent company and passive investment affiliates,
surplus of the life insurance subsidiaries not otherwise allocated to
other reportable segments including earnings thereon, and all of the
Company's realized gains and losses. Surplus is allocated to the
Individual Products, Benefit Partners and AIP reportable segments based
on risk-based capital formulae which give consideration to
asset/liability and general business risks, as well as the Company's
strategies for managing those risks. Various distribution channels
and/or product classes related to the Company's life and health
insurance, annuity and investment products have been aggregated in the
Individual Products, Benefit Partners and AIP reporting segments.
The following table summarizes certain financial information regarding
the Company's reportable segments:
March 31 December 31
2000 1999
------ ------
Assets
Individual Products $14,900 $14,493
Benefit Partners 706 606
AIP 7,485 7,443
Communications 214 217
Corporate & Other 3,656 3,687
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Total assets $26,961 $26,446
====== ======
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2. Segment Reporting (continued)
Three Months Ended
March 31
2000 1999
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Revenues
Individual Products $ 423 $ 368
Benefit Partners 128 50
AIP 149 124
Communications 52 51
Corporate & Other 20 33
------ ------
772 626
Realized investment gains,
before tax 48 44
------ ------
Total revenues $ 820 $ 670
====== ======
Reportable segments results and
reconciliation to net income
available to common stockholders:
Individual Products $ 69 $ 59
Benefit Partners 8 6
AIP 21 17
Communications 9 8
Corporate & Other 1 9
------ ------
Total operating income 108 99
Realized investment gains, net
of tax 31 28
------ ------
Net income available to common
stockholders $ 139 $ 127
====== ======
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3. Income Per Share of Common Stock
The following table sets forth the computation of earnings per share and
earnings per share assuming dilution:
Three Months Ended
March 31
2000 1999
------ ------
Numerator:
Net Income $ 145 $ 133
Dividends on Capital
Securities and preferred stock 6 6
------ ------
Numerator for earnings per share
and earnings per share -
assuming dilution - Net income
available to common
stockhodlers $ 139 $ 127
====== ======
Denominator:
Denominator for earnings
per share - weighted-
average shares outstanding 103,154,793 105,924,896
Effect of dilutive
securities:
Employee stock options 787,720 1,178,916
----------- -----------
Denominator for earnings per
share -assuming dilution -
adjusted weighted-average
shares outstanding and
assumed conversions 103,942,513 107,103,802
=========== ===========
Earnings per share $ 1.35 $ 1.20
====== ======
Earnings per share assuming
dilution $ 1.34 $ 1.19
====== ======
4. Contingent Liabilities
JP Life is a defendant in a proposed class action suit, and AH Life is a
defendant in a separate proposed class action suit. Each suit alleges
deceptive practices, fraudulent and negligent misrepresentation and
breach of contract in the sale of certain life insurance policies using
policy illustrations which plaintiffs claim were misleading.
Unspecified compensatory and punitive damages, costs and equitable
relief are sought in each case. While management is unable to make a
meaningful estimate of the amount or range of loss that could result
from an unfavorable outcome in either or both cases, management believes
that it has made appropriate disclosures to policyholders as a matter of
practice, and intends to vigorously defend its position.
In the normal course of business, the Company and its subsidiaries are
parties to various lawsuits. Because of the considerable uncertainties
that exist, the Company cannot predict the outcome of pending or future
litigation. However, management believes that the resolution of pending
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legal proceedings will not have a material adverse effect on the
Company's financial position or liquidity, although it could have a
material adverse effect on the results of operations for a specified
period.
5. Accounting Pronouncements
Effective January 1, 2001, the Company will adopt SFAS 133, "Accounting
for Derivative Instruments and for Hedging Activities". SFAS 133
requires all derivatives to be recorded on the balance sheet and
establishes accounting rules for hedging activities. The effect of the
hedge accounting rules is to offset changes in value or cash flows of
both the hedge and the hedged item in earnings in the same period.
Changes in the fair value of derivatives that do not qualify for hedge
accounting are reported in earnings in the period of the change. Based
on the limited nature of the Company's use of derivatives and hedging
activities, adoption of the pronouncement is not expected to have a
material impact on the Company's financial position or results of
operations.
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JEFFERSON-PILOT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of financial
condition as of March 31, 2000, changes in financial condition for the
three months then ended, and results of operations for the three month
period ended March 31, 2000 as compared to the same period of 1999.
This discussion supplements Management's Discussion and Analysis in Form
10-K for the year ended December 31, 1999, and it should be read in
conjunction with the interim financial statements and notes contained
herein. All dollar amounts are in millions except per share amounts.
Company Profile
The Company has five reportable segments: Individual Products, Benefit
Partners, Annuity and Investment Products (AIP), Communications, and
Corporate and Other. Within the Individual Products segment, JP offers
a wide array of life, annuity, and health insurance products. Benefit
Partners offers group non-medical products such as term life,
disability, and dental insurance to the employer marketplace. AIP
offers both fixed and variable annuities, as well as other investment
products. Various insurance products are currently marketed to
individuals and businesses in the United States. The Company's
principal life insurance subsidiaries are Jefferson-Pilot Life
Insurance Company (JP Life), Alexander Hamilton Life Insurance Company
of America (AH Life), Jefferson Pilot Financial Insurance Company and
its subsidiary, Jefferson Pilot LifeAmerica Insurance Company
(collectively JP Financial), and Guarantee Life Insurance Company
(Guarantee).
Communications operations are conducted by Jefferson-Pilot
Communications Company (JPCC) and consist of radio and television
broadcasting operations located in strategically selected markets in the
Southeastern and Western United States, and sports program production.
Corporate and Other contains the activities of the parent company and
passive investment affiliates, surplus of the life insurance
subsidiaries not allocated to other reportable segments including
earnings thereon, financing expenses on Corporate debt and debt
securities including Capital Securities, and federal and state income
taxes not otherwise allocated to business segments.
In the first quarter 2000, JP's revenues were derived 55% from
Individual Products, 17% from Benefit Partners, 19% from AIP, 7% from
Communications, and 2% from Corporate and Other, excluding realized
gains.
Acquisition Summary
JP's acquisition strategy is designed to deploy capital to enhance core
business growth. The acquisitions focus is to increase distribution,
add products, and provide economies of scale. On December 30, 1999 the
Company acquired Guarantee using the purchase method of accounting.
Therefore reportable segment results of Guarantee are included in the
first quarter of 2000. During the first quarter, Jefferson Pilot
Securities Corporation completed the acquisition of Polaris Financial
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Services and Polaris Advisory Services, a high quality financial
planning broker/dealer that adds 350 registered representatives to
Jefferson Pilot Securities' distribution.
Results of Operations
In the following discussion, "Reportable segment results" and "Total
reportable segment results" include all elements of net income available to
common stockholders except realized gains on sales of investments (realized
investment gains). Realized investment gains, as defined, are net of related
income taxes and amortization of deferred acquisition costs and value of
business acquired. Realized investment gains are included in the
"Corporate and Other" segment. Reportable segment results is the basis
used by management of the Company in assessing the performance of its
business segments. Management believes that Reportable segment results
is relevant and useful information. Gains from sales of investments
arise in majority from its "available for sale" equity and bond
portfolios and may be realized in the sole discretion of management.
Reportable segment results as described above may not be comparable to
similarly titled measures reported by other companies.
The following tables illustrate JP's results before and after the
inclusion of realized investment gains:
Three Months Ended
March 31
2000 1999
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Consolidated Summary of Income
Total reportable segment results (1) $107.5 $ 98.7
Realized investment gains (net of
applicable income taxes) 31.3 28.5
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Net income available to common
stockholders $138.8 $127.2
===== =====
Consolidated Earnings Per Share
Total reportable segment results (1) $ 1.04 $ 0.93
Realized investment gains (net of
applicable income taxes) 0.31 0.27
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Net income available to common
stockholders $ 1.35 $ 1.20
===== =====
Net income available to common
stockholders - assuming dilution $ 1.34 $ 1.19
===== =====
(1) Total reportable segment results includes all elements
of net income available to common stockholders except
realized investment gains.
Net income available to common stockholders increased 9.1% over the
first quarter of 1999. Total reportable segment results increased 8.9%
due to increased profitability in the Individual Products, Benefit
Partners, AIP, and Communications segments. The increase in 2000 also
reflected the deployment of Corporate capital into the more profitable
Individual Products and Benefit Partners segments. The Corporate and
Other segment declined due to financing costs associated with the
Guarantee acquisition and share repurchases and the redeployment of
capital in operating segments. Net realized gains increased 9.8%.
Total reportable segment results per share increased 11.8%, reflecting
the increase in core business earnings and the impact of share
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repurchases in 1999 and 2000. Earnings per share increased 12.5% and
earnings per share assuming dilution increased 12.6% for the same
reasons.
Results by Business Segment
Reportable segments are determined in a manner consistent with the way
management organizes for purposes of making operating decisions and
assessing performance. Invested assets backing insurance liabilities
are assigned to segments in relation to policyholder funds and reserves.
Net deferred acquisition costs incurred, value of business acquired,
reinsurance receivables and communications assets are assigned to the
respective segments where those assets originate. Invested assets are
also assigned to back capital allocated to each segment in relation to
JP's philosophy for managing business risks, reflecting appropriate
conservatism. The remainder of invested and other assets are assigned
to the Corporate and Other segment.
Results by Reportable Segment
Three Months Ended
March 31
2000 1999
------ ------
Individual Products $ 68.3 $ 59.4
Benefit Partners 8.3 5.7
AIP 20.9 17.3
Communications 8.8 8.0
Corporate and Other 1.2 8.3
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Total reportable segment results (1) 107.5 98.7
Net realized investment gains 31.3 28.5
----- -----
Net income available to common
stockholders $138.8 $127.2
===== =====
(1) Total reportable segment results includes all elements
of net income available to common stockholders except
realized investment gains.
Segment Assets
March 31
2000 1999
------ ------
Assets
Individual Products $14,900 $12,553
Benefit Partners 706 394
AIP 7,485 6,504
Communications 214 222
Corporate & other 3,656 4,611
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Total assets $26,961 $24,284
====== ======
A more detailed discussion of Reportable segment results follows.
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Individual Products
The Individual Products distribution system offers a wide array of life
and health insurance products to individuals through a career agency
force, independent agents recruited through independent marketing
organizations and a regional office network, home service agents, and
financial institutions.
Individual Products include traditional life and health products, as
well as universal life (UL) and variable universal life (VUL), together
referred to as UL-type products. The operating cycle for life insurance
products is long-term in nature; therefore, actuarial assumptions are
important to financial reporting for these policies. Traditional
products require the policyholder to pay scheduled premiums over the
life of the coverage. Traditional premium receipts are recognized as
revenues and profits are expected to emerge in relation thereto.
Interest-sensitive product (or UL-type product) premiums may vary over
the life of the policy at the discretion of the policyholder and are not
recognized as revenues. Revenues and reportable segment results on these
products arise from mortality, expense and surrender charges to
policyholder fund balances (policy charges). Additionally, JP earns
interest spreads and investment advisory fees on policyholder fund
balances. Reportable segment results for both traditional and UL-type
products also include earnings on required capital.
Segment results were:
Three Months Ended
March 31
2000 1999
----- -----
Life premiums and other
considerations $ 58.3 $ 50.7
U.L. and investment product charges 154.2 135.7
Investment income, net of expenses 208.4 179.9
Other income 2.1 1.2
----- -----
Total revenues 423.0 367.5
----- -----
Policy benefits 235.3 198.1
Expenses 83.3 78.7
----- -----
Total benefits and expenses 318.6 276.8
----- -----
Reportable segment results before
income taxes 104.4 90.7
Provision for income taxes 36.1 31.3
----- -----
Reportable segment results (1) $ 68.3 $ 59.4
===== =====
(1) Reportable segment results include all elements of net
income available to common stockholders except realized
investment gains.
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The following table summarizes key information for Individual Products:
Three Months Ended
March 31
2000 1999
------ ------
Annualized Individual life insurance
sales $ 42.0 $ 40.5
Individual traditional insurance
premium income 57.8 50.2
Average UL policyholder fund balances 8,585.3 7,377.1
Average VUL separate account assets 1,344.0 865.2
Average face amount of insurance
in force - UL-type policies 110,732.4 100,245.1
Average assets - Individual products $ 14,696.2 $ 12,347.5
Individual Products reportable segment results increased $8.9 or 15.0%
over the first quarter 1999, due to growth of the business in force and
the acquisition of Guarantee.
Revenues include traditional insurance premiums, policy charges and
investment income. Individual revenues increased 15.1% to $423.0 over
the first quarter 1999 as a result of the increase in the growth in
average policyholder fund balances. The growth in average fund balances
and separate accounts, which increased 20.5% over the first three months
of 1999, was a result of net policyholder receipts and the acquisition
of Guarantee.
Individual traditional premiums increased 15.1% from the first quarter
1999 due primarily to the acquisition of Guarantee. Policy charges,
which include mortality, expense and surrender charges, improved 13.6%.
The increase in 2000 is primarily a result of a 10.5% growth in the
average face amount of UL-type policies in force.
Net investment income improved $28.5 or 15.8% over the first quarter
1999, following the growth in segment assets. The portfolio yield on
traditional assets increased 5 basis points to 7.79%. The average
investment spread on UL products (calculated in a manner consistent with
Asset Liability Management practices) increased 3 basis points to 1.95%
from the first quarter 1999. In addition to being impacted by portfolio
yields and crediting rates, interest spreads may vary over time due to
competitive strategies and changes in product design.
Policy benefits increased 18.8% from the first quarter 1999 due to
growth of business in force and the Guarantee acquisition. Traditional
policy benefits were 100.0% of premiums in the first quarter 2000 versus
111.1% in the first quarter 1999. Policy benefits on UL-type products
increased to 1.8% of average policyholder funds and separate accounts
versus 1.7% in the first quarter 1999. This increase is the result of
higher mortality offset by lower interest credited as a percentage of
total fund balances and separate accounts. Policy benefits include
interest credited to policyholder accounts on UL-type products, whereas
premium receipts on these products are credited directly to policyholder
accounts and not recorded as revenues.
Total expenses (including the net deferral and amortization of policy
acquisition costs) increased 5.8% from the first quarter 1999 due to the
acquisition of Guarantee Life. Expenses on individual traditional
products were 33.7% of premiums in 2000 versus 30.5% in 1999. For UL-
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type products, expenses as a percentage of policyholder funds and
separate accounts were 0.62% versus 0.75% for the first quarter 1999.
The improvement reflects overall expense management as well as growth in
policyholder funds and separate accounts.
Average Individual Products assets grew 19.0% over the first quarter
1999, due to the Guarantee acquisition, sales of UL-type products, and
growth in existing policyholder funds. The annualized return on average
Individual Products assets was 1.86% versus 1.92% for the first quarter
1999.
Benefit Partners
The Benefit Partners segment offers group non-medical products such as
term life, disability and dental insurance to the employer marketplace.
These non-medical products are marketed primarily through a national
distribution system of regional group offices. These offices develop
business through employee benefit firms, brokers, third party
administrators and other employee benefit providers. Reportable segment
results were:
Three Months Ended
March 31
2000 1999
----- -----
Premiums and other considerations $115.9 $ 42.2
Investment income, net of expenses 12.4 8.1
----- -----
Total revenues 128.3 50.3
----- -----
Policy benefits 84.3 30.8
Expenses 31.3 10.8
----- -----
Total benefits and expenses 115.6 41.6
----- -----
Reportable segment results before
income taxes 12.7 8.7
Provision for income taxes 4.4 3.0
----- -----
Reportable segment results (1) $ 8.3 $ 5.7
===== =====
(1) Reportable segment results includes all elements of net
income available to common stockholders except realized
investment gains.
Benefit Partners reportable segment results increased $2.6 or 45.6% over
the first quarter 1999 as a result of the Guarantee acquisition.
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The following table summarizes key information for Benefit Partners:
Three Months Ended
March 31
2000 1999
------ ------
2000 1999
Life, Disability, and Dental:
Annualized sales $ 38.4 $ 5.8
Loss ratio 73.3% 81.8%
Total expenses, % of premiums and
equivalents 26.3% 17.1%
Average assets $656.1 $415.5
Premium income and equivalents $118.9 $ 63.4
Benefit Partners revenues increased $78.0 or 155.1% over the first
quarter 1999 due to the acquisition of Guarantee, including premium
growth of $74.4 or 181.9%. Including equivalent premiums on self-
insured health policies, premiums increased only 87.5%. The lower
increase in premium and equivalents reflects this segment's exit from
the sale of medical policies. Annualized sales for the core life,
disability, and dental lines of business grew $32.6 over the first
quarter 1999 with the purchase of Guarantee.
During the first quarter 2000, the Company entered into an agreement to
sell a block of Excess Loss policies with an annualized premium of $31.
The transfer of policies will occur on subsequent policy anniversary
dates. It is not expected that the sale of these policies will have a
material impact on reported results for the year.
Policy benefits increased 173.7% over the first quarter 1999 with the
addition of the Guarantee business. The life, disability, and dental
incurred loss ratio improved to 73.3% in the first quarter of 2000,
versus 81.8% in the first quarter 1999. 1999's results were comprised
solely of the JP Life business which has a significantly larger average
policy size than that of Guarantee and is a more mature block of
business. Both of these factors contributed to the higher 1999 loss
ratio.
Total expenses (including the net deferral and amortization of policy
acquisition costs) increased 189.8% over the first quarter 1999 due to
the Guarantee acquisition, partially offset by a decline in expenses
related to a declining book of medical business. As a percentage of
premiums and equivalents, total expenses increased to 26.3% versus 17.1%
for the first quarter 1999 due to the change in average policy size.
Average Benefit Partners assets grew 57.9% over the first quarter 1999
due to the purchase of Guarantee. The annualized return on average
assets of 5.06% declined from 5.49% for the first quarter 1999.
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Annuity and Investment Products
Annuity and Investment Products offers its products through financial
institutions, independent agents, career agents, investment
professionals and broker/dealers. Reportable segments results were:
Three Month Ended
March 31
2000 1999
------ ------
Policy charges, premiums and other
considerations $ 6.2 $ 4.1
Net investment income 116.8 103.4
Other income 25.6 16.7
----- -----
Total revenues 148.6 124.2
----- -----
Policy benefits 81.8 72.3
Expenses 34.5 25.2
----- -----
Total benefits and expenses 116.3 97.5
----- -----
Reportable segment results before
income taxes 32.3 26.7
Provision for income taxes 11.4 9.4
----- -----
Reportable segment results (1) $ 20.9 $ 17.3
===== =====
(1) Reportable segment results includes all elements of net
income available to common stockholders except realized
investment gains.
Reportable segment results increased 20.8% from the same quarter of last
year. The following table summarizes key information for AIP:
Three Months Ended
March 31
2000 1999
------ ------
Fixed annuity premium receipts $ 238.9 $ 92.1
Variable annuity premium receipts 34.9 27.8
------ ------
273.8 119.9
Average policyholder fund balances $6,196.5 $5,578.5
Average separate account policyholder
fund balances 719.6 533.0
------- -------
$6,916.1 $6,111.5
Investment product sales $ 901.3 $ 548.0
Average assets $7,464.3 $6,500.0
Revenues increased 19.6% over the first quarter of 1999. Annuity
revenues are derived from investment income on segment assets, policy
charges and concession income earned on investment product sales by
Jefferson Pilot Securities Corporation (JPSC), a registered
broker/dealer, and related entities. The increases in revenues are
primarily driven by increases in average policyholder fund balances
including separate accounts which grew 13.2% over the first quarter of
1999. The increase in policyholder fund balances results from new
receipts and interest credited less benefits paid and withdrawals, and
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the Guarantee Acquisition. Fixed annuity receipts increased 159.4% over
the first quarter 1999, due to significant sales increases net of higher
withdrawals as a percentage of beginning fund balances. In total, fixed
and variable annuity receipts increased by 128.4% over the first
quarter of 1999. Fixed annuity surrenders as a percentage of beginning
fund balances increased to 20.4% compared to 13.2% for the first
quarter 1999. The surrender rate in the AIP segment is influenced by
many factors, including the portion of the business that is no longer
subject to surrender charges. JP maintains Asset Liability Management
practices that reflect the characteristics of the AIP liabilities. Due
to the aging of annuity policies in force, especially among acquired
blocks, a higher portion of policyholder funds are outside of the
surrender charge period in 2000 than in 1999. Other income, which
primarily represents concession income earned by JPSC, increased 53.3%
over the first quarter 1999, due to higher sales of the Company's
variable products and others products such as mutual funds.
Total AIP benefits and expenses increased 19.3% over the first quarter
1999 due to the acquisition of Guarantee and growth in average
policyholder fund balances. Annualized policy benefits, which are
mainly comprised of interest credited to policyholder accounts, as a
percentage of average policyholder fund balances were 5.3% compared to
5.2% for the first quarter 1999. The first quarter 2000 percentage is
impacted by a one time $1.5 million after tax reserve decrease which
served to lower the percentage by 0.2%. Effective spreads, which
represent the yield on the investment portfolio less interest credited
to policyholders, adjusted for net deferral of bonus interest and
assuming the same level of assets, were 2.16% and 2.10% in the first
quarter 2000 and 1999. The increase resulted from continued effective
management of spreads and blending of the Guarantee business.
Total AIP expenses increased 36.9% over the first quarter 1999. General
and administrative expenses as a percentage of average invested assets
for fixed annuities were 0.23% for the first quarter 2000 and 1999.
Annualized insurance expenses as a percentage of average policyholder
fund balances including separate accounts were 2.0% and 1.7% for the
first quarter 2000 and 1999. The growth in expenses was primarily due
to commissions related to broker dealer operations, similar to the
increases in other income.
Average AIP assets increased 14.8% over the first quarter 1999. AIP
posted annualized returns on average assets of 1.12% versus 1.06% for
the first quarter 1999.
The combined earnings of the broker-dealer and related entities which
are included in the segment results were $1.7 versus $1.1 for the first
quarter of 1999.
-18-
Communications
JPCC operates television and radio broadcast properties and produces
syndicated sports programming. Reportable segment results were:
Three Months Ended
March 31
2000 1999
---- ----
Communications revenues $53.4 $51.7
Operating costs and expenses 33.3 32.7
---- ----
Broadcast cash flow 20.1 19.0
Depreciation and amortization 2.8 2.9
Corporate general and administrative
expenses 1.4 1.2
Net interest expense 1.1 1.3
---- ----
Reportable segment results before
income taxes 14.8 13.6
Provision for income taxes 6.0 5.6
---- ----
Reportable segment results (1) $ 8.8 $ 8.0
==== ====
(1) Reportable segment results includes all elements
of net income available to common stockholders
except realized investment gains.
Reportable segment results increased 10.0% over the first quarter 1999.
The Company's broadcasting properties continued to benefit from the
generally favorable advertising environment and the strong local
economies in which they operate. Combined revenues for Radio and
Television grew 12.2% over the first quarter 1999. This increase is
primarily attributable to political and national sales, and reflects
strong market positions in the cities in which the communications
segment operates. Radio experienced strong revenue growth in the first
quarter of 2000 and 1999, resulting from increased demand for local
advertising. Television revenues increased over the first quarter 1999
due to refocused efforts in several markets and highly contested
political issues in two of those markets.
Revenue from Sports operations decreased 20.9% from the first quarter
1999, as a result of the disposal of certain entertainment production
operations during the first quarter of 1999.
Broadcast cashflow grew by 5.8% over the first quarter 1999, as a result
of the strong growth of the broadcast revenues, particularly Radio.
Total expenses excluding interest increased 1.9% from the first quarter
1999. Expenses as a percent of Communication revenues for the first
quarter were 70.2% as compared to 71.2% for the first quarter 1999. The
decline is attributable to a change in the mix of business away from
lower margin sports products toward higher margin broadcast business,
and improved expense control.
-19-
Corporate and Other
The following table summarizes operating results for this segment:
Three Months Ended
March 31
2000 1999
------ ------
Earnings on investments $ 30.5 $32.6
Interest expense on debt and
Exchangeable Securities (14.1) (7.5)
Operating expenses (7.6) (4.3)
Federal and state income tax
expense (1.5) (6.4)
----- -----
7.3 14.4
Dividends on Capital Securities (6.1) (6.1)
----- -----
Reportable segment results (1) 1.2 8.3
Realized investment gains, net 31.3 28.5
----- -----
Reportable segment results,
including realized gains $ 32.5 $ 36.8
===== =====
(1) Reportable segment results includes all elements
of net income available to common stockholders
except realized investment gains.
The following table summarizes assets assigned to this segment:
Three Months Ended
March 31
2000 1999
------ ------
Parent company, passive investment
companies and Corporate line
assets of insurance subsidiaries $1,720 $2,145
Unrealized gain (loss) on fixed
interest investments (186) 195
Co-insurance receivables on
acquired blocks 1,256 1,565
Employee benefit plan assets 346 344
Goodwill arising from insurance
acquisitions 265 190
Other 255 172
----- -----
Total $3,656 $4,611
===== =====
Total assets for the Corporate and Other segment decreased 20.7% from
the first quarter 1999. This decline occurred primarily due to
assignment of Corporate capital to other reportable segments, share
repurchases, surrenders of 100% co-insured COLI policies, and changes
in market values of available for sale securities. Unrealized gains and
losses on available for sale equity and fixed income securities are
assigned to this segment. Those values declined $381 from the first
quarter 1999, as a result of increases in market interest rates and
declines in market values of financial services stocks.
Reportable segment results including realized gains declined 11.7% from
the first quarter 1999. Investment earnings decreased 6.4% as capital is
being deployed in other operating segments. Interest expense on debt
and exchangeable securities increased $6.6 over the first quarter 1999
as the level of commercial paper borrowings was increased with the
acquisition of Guarantee, share repurchases, and the January 2000
-20-
redemption of Automatic Convertible Equity Securities (ACES). Operating
expenses increased 76.7% over the first quarter 1999 due to Corporate
initiatives. Federal and state income tax expense includes the tax
benefit of preferred dividends on Capital Securities, which are recorded
gross of related tax effects. The $4.9 decrease in Federal and State
income taxes from the first quarter 1999 primarily reflects the tax
effect of lower Corporate and Other segment pre-tax operating results.
The results of this segment may vary from year to year due to expenses
associated with strategic activities and other corporate initiatives,
income recorded on equity method investments, transfers of assets to and
from business segments as well as refinements in asset assignments and
investment income allocation methodologies to other reportable segments.
Financial Position, Capital Resources And Liquidity
JP's primary resources are investments related to its Individual
Products, Benefit Partners, and AIP segments, properties and other
assets utilized in all segments and investments backing corporate
capital. The Investments section reviews the Company's investment
portfolio and key strategies.
Total assets increased $515 or 1.9% during the first quarter 2000. This
growth resulted from increases in Separate Account assets and
policyholder contract deposits, as well as cash provided by operating
activities. These favorable influences were partially offset by cash
dividends and share repurchases.
The Individual Products, Benefit Partners, and AIP segments defer the
costs of acquiring new business, including commissions, first year bonus
interest, certain costs of underwriting and issuing policies, and agency
office expenses (referred to as DAC). Amounts deferred were $1,116 at
March 31, 2000, an increase of 2.3% over December 31, 1999. The
increase was due to strong sales of UL-type and fixed annuity products,
partially offset by the effect of changes in unrealized gains on
available for sale investments.
Value of business acquired (VOBA) represents the actuarially-determined
present value of future gross profits of each business acquired. VOBA
was $922 at March 31, 2000, down 2.9% from year end.
Goodwill (representing the cost of acquired businesses in excess of the
fair value of net assets) was $309 at March 31, 2000 and $303 at
December 31, 1999, with the net increase due to the Polaris acquisition,
which added $8. Goodwill as a percentage of shareholders' equity
declined to 10.9% from 11.0% at December 31, 1999.
Carrying amounts of goodwill, VOBA and DAC are regularly reviewed for
indications of value impairment, with consideration given to the
financial performance of acquired properties, future gross profits of
insurance in force and other factors.
At March 31, 2000 and December 31, 1999, JP had reinsurance receivables
of $1,046 and $1,057 and policy loans of $190 and $192 which are related
to the businesses of AH Life that were coinsured with Household
International (HI) affiliates. HI has provided payment, performance and
capital maintenance guarantees with respect to the balances receivable.
JP regularly evaluates the financial condition of its reinsurers and
monitors concentrations of credit risk related to reinsurance
-21-
activities. No significant credit losses have resulted from reinsurance
activities during 2000 and 1999.
Capital Resources
Stockholders' Equity
JP's capital adequacy is illustrated by the following table:
March 31 December 31
2000 1999
------ ------
Total assets less separate accounts $24,502 $24,174
Total stockholders' equity 2,845 2,753
Ratio of stockholders' equity to
assets 11.6% 11.4%
JP considers existing capital resources to be more than adequate to
support the current level of its business activities. The business plan
places priority on redirecting certain capital resources invested in
bonds and stocks into its core businesses, which would be expected to
produce higher returns over time.
The Individual Products, Benefit Partners and AIP segments are subject
to regulatory constraints. The Company's insurance subsidiaries have
statutory surplus and risk based capital levels well above required
levels. These capital levels together with the rating agencies'
assessments of the Company's business strategies have enabled the life
insurance affiliates to attain the following claims paying ratings:
JP Life AH Life JP Financial Guarantee
A.M. Best A++ A++ A++ A
Standard & Poor's AAA AAA AAA n/a
Duff and Phelps AAA AAA AAA n/a
Debt and Exchangeable Securities
Commercial paper outstanding was $481 and $324 at March 31, 2000 and
1999 with weighted average interest rates of 6.01% and 4.97%. The
increase in commercial paper is due primarily to the replacement of the
ACES with commercial paper as noted below, and share repurchases. The
maximum amount outstanding during the first quarter of 2000 and 1999 was
$505 and $329.
JP has sold U. S. Treasury obligations and collateralized mortgages
under repurchase agreements involving various counterparties, accounted
for as financing arrangements. Proceeds are used to purchase securities
with longer durations as an asset/liability management strategy and to
provide acquisition financing. The maximum amounts outstanding were
$600 and $289 during the first quarter 2000 and 1999. The securities
involved had a fair value and amortized cost of $552 and $553, and $292
and $279, as of March 31, 2000 and 1999.
At March 31, 2000 and December 31, 1999, the Company had $148 and $290
Exchangeable securities and other debt outstanding. This includes $147
and $137 at March 31, 2000 and December 31, 1999 of Mandatorily
-22-
Exchangeable Debt Securities (MEDS) and $152 at December 31, 1999. The
ACES matured on January 21, 2000, and security holders were repaid in
cash using commercial paper proceeds of $146. These matters are more
fully described in Notes 8 and 9 to the financial statements previously
filed with form 10-K and are incorporated by reference. Additionally,
$300 of guaranteed preferred beneficial interest in subordinated
debentures (Capital Securities) remained outstanding at March 31, 2000.
In the fourth quarter 1999, the Company used operating cash flows,
proceeds from commercial paper issues and borrowings under repurchase
agreements to finance the Guarantee acquisition and purchase common
shares outstanding. Certain of those borrowings were made by
subsidiaries. At March 31, 2000 and December 31, 1999 net advances from
subsidiaries were $303 and $329. While the Company has no commitments
for additional financing, additional funds may be borrowed from time to
time to finance acquisitions or share repurchases or for other corporate
purposes.
Liquidity
Liquidity requirements are met primarily by positive cash flows from the
operations of subsidiaries. Overall sources of liquidity are sufficient
to satisfy operating requirements. Primary sources of cash from the
insurance operations are premiums, other insurance considerations,
receipts for policyholder accounts, investment sales and maturities and
investment income. Primary uses of cash include purchases of
investments, payment of insurance benefits, operating expenses,
withdrawals from policyholder accounts, costs related to acquiring new
business, and income taxes. Primary sources of cash from the
Communications operations are revenues from advertising. Primary uses
of cash include payment of agency commissions, cost of sales, operating
expenses and income taxes.
Cash provided by operations was $181 and $215 for the first three months
of 2000 and 1999. The decrease reflects additional acquisition costs as
well as changes in payables from period to period.
Net cash used in investing activities was $244 and $305 for the first
three months of 2000 and 1999, with the decline reflecting lower
investments purchased.
Net cash provided by financing activities was $28 and $100 for the first
three months of 2000 and 1999 with the decrease reflecting a net $65
savings in 2000 repayments versus 1999 short-term borrowings. Cash
inflows from policyholder contract deposits net of withdrawals were $122
and $106 for the first three months of 2000 and 1999. The 2000 increase
is a result of both higher annuity sales netted against higher than
expected withdrawals of annuity funds, and higher UL-type contract
receipts due to the shift from traditional to UL-type business. Net
policyholder receipts in 1999 were lower due to lower annuity sales and
higher annuity withdrawals in a very competitive interest rate
environment.
In order to meet the parent company's dividend payments, debt servicing
obligations and other expenses, internal dividends are received from
subsidiaries. Total internal cash dividends paid to the parent from its
subsidiaries during the first three months were $91 in 2000 and $73 in
1999. JP Life, JPFIC, JPCC and AH Life were the primary sources of
these dividends. The Company's life insurance subsidiaries are subject
to laws in the states of domicile that limit the amount of dividends
that can be paid without the prior approval of the respective State's
Insurance Commissioner. Approximately 87% of the amount of dividends
-23-
planned from life subsidiaries for 2000 will require regulatory
approval. The Company has no reason to believe that such approval will
be withheld.
Cash and cash equivalents were $27 and $62 at March 31, 2000 and
December 31, 1999. Additionally, fixed income and equity securities
held by the parent company and non-regulated subsidiaries were $468 at
March 31, 2000 and $446 at December 31, 1999. These securities, which
include the $147 (at March 31, 2000) of Bank of America Corporation
common stock which supports the Exchangeable Securities, are considered
to be sources of liquidity to support the Company's strategies.
Total debt and equity securities Available for Sale at March 31, 2000
were $13,093.
Investments
JP's strategy for managing the insurance investment portfolio is to
dependably meet pricing assumptions while achieving the highest possible
after-tax returns over the long term. Cash flows are invested primarily
in fixed income securities. The nature and quality of investments held
by insurance subsidiaries must comply with state regulatory
requirements. The Company has a formal investment policy that governs
overall quality and diversification.
JP held the following carrying amounts of investments:
March 31 December 31
2000 1999
------------- --------------
Publicly-issued bonds $12,069 61% $11,943 61%
Privately-placed bonds 3,473 17 3,220 16
Commercial mortgage loans 2,545 13 2,543 13
Common stock 693 3 730 4
Policy loans 912 5 906 5
Preferred stock 20 - 26 -
Real estate 131 1 133 1
Other 33 - 35 -
Cash and equivalents 27 - 62 -
------ --- ------ ---
Total $19,903 100% $19,598 100%
====== === ====== ===
The strategy of identifying market sectors and niches that provide
investment opportunities to meet the portfolios' growth, quality and
yield requirements is expected to continue to result in increasing
percentages of private placements and commercial mortgage loans.
JP's Investment Policy Statement requires an average quality fixed
income portfolio (excluding mortgage loans) of "A" or higher.
Currently, the average quality is "A1". The Policy also imposes limits
on the amount of lower quality investments and requires diversification
by issuer and asset type. The Company monitors "higher risk"
investments for compliance with the Policy 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 foreclosure are carried at the net present
value of expected future cash flows.
-24-
Carrying amounts of investments categorized as "higher risk" assets
were:
March 31 December 31
2000 1999
------------- --------------
Bonds near or in default $ 1 -% $ 5 -%
Bonds below investment grade 759 3.8 764 3.9
Mortgage loans 60 days
delinquent or in foreclosure - - - -
Mortgage loans restructured 9 0.1 9 0.1
Foreclosed properties - - - -
------ ----- ------ -----
Sub-total, "higher risk assets" 769 3.9 778 4.0
All other investments 19,134 96.1 18,820 96.0
------ ---- ------ -----
Total cash and investments $19,903 100.0% $19,598 100.0%
====== ===== ====== =====
The Policy permits use of derivative financial instruments such as
futures contracts and interest rate swaps in conjunction with specific
direct investments. Actual use of derivative financial instruments has
been limited to managing well-defined interest rate risks. Interest
rate swaps with a notional value of $186 and $186 were open as of March
31, 2000 and December 31, 1999. There have been no terminations of
derivative financial instruments in 2000 or 1999. Potential termination
of these arrangements as of March 31, 2000 under then current interest
rates would result in a potential loss of $2, which would be amortized
over the remaining life of the hedged asset or liability.
Collateralized Mortgage Obligations (CMO's), which are included in debt
securities Available for Sale, were as follows:
March 30 December 31
2000 1999
------ ------
Federal agency issued CMO's $2,601 $2,498
Corporate private-labeled CMO's 1,918 1,838
----- -----
Total $4,519 $4,336
===== =====
The Company's investment strategy with respect to CMO's focuses on
actively-traded, less volatile issues that produce relatively stable
cash flows. The majority of CMO holdings are sequential and planned
amortization class tranches of federal agency issuers. The CMO portfolio
has been constructed with underlying mortgage collateral characteristics
and structure in order to lower cash flow volatility over a range of
interest rate levels.
Market Risk Exposures
With respect to the Company's exposure to market risks, see management's
comments in the 1999 Form 10-K. Management believes that the plus or
minus 100 basis points utilized in the sensitivity analysis in the 1999
Form 10-K continues to reflect reasonably possible near term changes in
interest rates. Additionally, management believes that the 10%
hypothetical decline in the equity market remains reasonably possible in
the near term.
-25-
External Trends And Forward Looking Information
With respect to economic trends, inflation and interest rate risks,
environmental liabilities and the regulatory and legal environment, see
management's comments in the 1999 Form 10-K.
With respect to accounting pronouncements, see Note 5 on page 9, which
is incorporated herein by reference.
Forward-looking information
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward looking statements. Certain information contained
herein or in any other written or oral statements made by or on behalf
of JP are or may be viewed as forward looking. Although the Company has
used appropriate care in developing any such forward looking
information, forward looking information involves risks and
uncertainties that could significantly impact actual results. These
risks and uncertainties include, but are not limited to, the matters
discussed in "Market Risk Exposures", "External Trends and Forward
Looking Information" and other risks detailed from time to time in the
Company's SEC filings; to the risks that JP might fail to successfully
complete strategies for cost reductions, including anticipated expense
savings and operating efficiencies from the integration of Guarantee,
and for growth in sales of products through all distribution channels;
and more generally to: general economic conditions; competitive factors,
including pricing pressures, technological developments, new product
offerings and the emergence of new competitors; interest rate trends and
fluctuations; and changes in federal and state laws and regulations,
including, without limitation, changes in the financial services
industry or tax laws and regulations. The Company undertakes no
obligation to publicly update or revise any forward looking statements,
whether as a result of new information, future developments or
otherwise.
-26-
PART II. OTHER INFORMATION
JEFFERSON-PILOT CORPORATION
Item 1. Legal Proceedings
The registrant is involved in various claims and lawsuits incidental to
and in the ordinary course of its business. In the opinion of
management, the ultimate liability will not have a material effect on
the financial condition or liquidity of the Company, but could have a
material adverse effect on the results of operations for a specified
period.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The following information relates to the registrant's Annual
Meeting of Shareholders held on May 1, 2000.
(b) N/A
(c) The following matters were voted upon at the meeting:
Election of Directors:
Class I Term Votes For Withheld
Edwin B. Borden 3 years 88,898,015 585,969
William H. Cunningham 3 years 88,889,336 594,648
E. S. Melvin 3 years 88,481,493 1,002,491
Donald S. Russell, Jr. 3 years 88,817,739 666,245
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(2)(ii) By-Laws of Jefferson-Pilot Corporation as amended May 1,
2000.
(27) Financial Data Schedule
(b) Reports of Form 8-K
There were none filed during the first quarter of 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JEFFERSON-PILOT CORPORATION
By (Signature) /s/Dennis R. Glass
(Name and Title) Dennis R. Glass, Executive Vice President,
Chief Financial Officer and Treasurer
Date May 12, 2000
By (Signature) /s/Reggie D. Adamson
(Name and Title) Reggie D. Adamson, Senior Vice President - Finance
(Principal Accounting Officer)
Date May 12, 2000
-27-
BY-LAWS
OF
JEFFERSON-PILOT CORPORATION
AS AMENDED TO AND INCLUDING
May 1, 2000
BY-LAWS
OF
JEFFERSON-PILOT CORPORATION
__________________
ARTICLE I
Shareholders
Section 1. Annual Meeting.
The annual meeting of the shareholders shall be held on the first Monday
in May of each year at 10:00 o'clock A.M. local time in effect at the
place of the meeting, at the principal office of the Corporation in
Greensboro, North Carolina, or at such other time and/or at such other
place as shall be fixed by the Board of Directors.
Section 2. Special Meetings.
Special meetings of the shareholders may be called by the Board of
Directors. Only business within the purposes described in the meeting
notice may be conducted at a special meeting, unless this requirement is
deleted from North Carolina law.
Section 3. Notice of Meeting.
At least ten days' notice of a meeting of shareholders shall be given to
each shareholder entitled to vote at the meeting, by mail or express
service to the shareholder's last known address.
Section 4. Voting Rights.
At all meetings of the shareholders, each shareholder entitled to vote
may vote personally or by proxy duly executed in writing by the
shareholder or by a duly authorized attorney-in fact (or in such other
manner as may be permitted under North Carolina law).
Section 5. Quorum.
Except as otherwise provided by law or by the Articles of Incorporation,
a quorum at any meeting of shareholders shall consist of shareholders
representing in person or by proxy a majority of the votes which are
eligible to be cast at the meeting. If no quorum is present, the
meeting may be adjourned from time to time until a quorum is present.
Section 6. Advance Notice of Shareholder Resolutions.
Proposals for shareholder action may be made only by a shareholder
entitled to vote for the election of Directors generally and only if
written notice of such shareholder's intent to make such proposal or
proposals has been given, either by personal delivery or by United
States mail, postage prepaid, to the Secretary of the Corporation not
later than (i) with respect to an annual meeting of shareholders, 90
days in advance of such meeting, and (ii) with respect to a special
meeting of shareholders, the close of business on the seventh day
following the date on which notice of such meeting is given to
shareholders. Each such notice shall set forth: (a) the name and
address of the shareholder who intends to make the proposal or
proposals; (b) a written statement of the shareholder's proposal or
proposals; and (c) a representation that the shareholder is a holder of
record of stock of the Corporation entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to make the
proposal or proposals. The Chairman of the meeting may refuse to
acknowledge the proposal or proposals of any person not made in
compliance with the foregoing procedure. For inclusion in the
Corporation's proxy materials, proposals must meet any earlier deadline
specified in the Corporation's most recent proxy statement or rules of
the Securities and Exchange Commission.
ARTICLE II
Board of Directors
Section 1. General Authority.
The business and affairs of the Corporation shall be managed under the
direction of a Board of Directors consisting of no less than eleven and
no more than fifteen Directors, with the exact number of Directors to be
established from time to time by the Board of Directors.
Section 2. Classes.
The Directors of the Corporation shall be divided into three classes,
designated Class I, Class II and Class III. Each Class shall consist,
as nearly as possible, of one-third of the total number of Directors
consisting of the entire Board of Directors. In the election of
Directors at the 1986 Annual Meeting of Shareholders, the Class I
Directors shall be elected to hold office for a term to expire at the
first annual meeting of shareholders thereafter; the Class II Directors
shall be elected to hold office for a term to expire at the second
annual meeting of shareholders thereafter; and the Class III Directors
shall be elected to hold office for a term to expire at the third annual
meeting of shareholders thereafter, and in the case of each Class, until
their successors are elected and qualified. At each annual meeting of
shareholders held after the 1986 Annual Meeting of Shareholders, the
Directors elected to succeed those whose terms expire shall be
identified as being of the Class as the Directors they succeed and shall
be elected to hold office for a term to expire at the third annual
meeting of the shareholders after their election, and until their
successors are elected and qualified.
Section 3. Meetings.
(a) The regular annual meeting of the Board of Directors shall be held
immediately following the annual meeting of shareholders. Other regular
meetings of the Board shall be held on the second Monday in February and
on the first Monday in August and November of each year. The Board by
formal or informal action of the majority thereof may cancel any regular
meeting other than the annual meeting. The Chief Executive Officer may,
and upon written request of a majority of the entire Board shall, change
the date and/or fix the place and time for any regular meeting.
(b) Special meetings of the Board may be called by the Chairman of the
Board, the President or any two Directors.
Section 4. Notice of Meetings.
Written notice shall be given to each Director stating the time and
place of any annual, regular or special meeting of the Board of
Directors. Such notice need not specify the purpose of the meeting,
unless required by North Carolina law, the Articles of Incorporation or
these By-laws. Any such notice shall be deemed timely given if given by
any usual means of communication, including orally or by telephone,
which in the normal course should be received by the Director at least
three business days before the meeting.
Section 5. Informal Meetings and Action by Written Consent.
(a) Any or all Directors may participate in a meeting of the Board of
Directors or any Committee thereof through the use of conference
telephone or any other means of communication by which all Directors
participating in the meeting may simultaneously hear each other during
the meeting.
(b) Any action required or permitted to be taken by the Board of
Directors or any Committee thereof may be taken without a meeting if one
or more written consents thereto are signed by all members of the Board
or Committee either before or after such action and are filed with the
minutes or records of the Board or Committee.
Section 6. Chairman and Vice Chairman.
The Board of Directors shall elect one of the Directors as Chairman of
the Board. The Chairman shall preside at all meetings of shareholders
and of the Board of Directors and shall have such other duties and
authority as the Board of Directors shall prescribe. The Board of
Directors may elect one or more Vice Chairmen of the Board, whose duties
and authority shall be determined by or in a manner specified by the
Board. The Chairman or any Vice Chairman may be removed or replaced by
the Board at any time.
Section 7. Notice of Nominations.
Advance notice of shareholder nominations for the election of Directors
shall be given in the manner provided in Section 10 of this Article II.
Section 8. Filling of Vacancies.
Vacancies on the Board of Directors may be filled by the affirmative
vote of a majority of the remaining Directors then in office, although
less than a quorum or by a sole remaining Director. Any Director
elected in accordance with the preceding sentence shall hold office for
the full term of the Class of Directors in which the vacancy occurred,
and until such Director's successor shall have been elected and
qualified.
Section 9. Removal of Directors.
Any Director, or the entire Board of Directors, may be removed from
office at any time, with or without cause, by the affirmative vote of
the holders of 80% of the outstanding stock of the Corporation. Any
Director may also be removed from office at any time, for cause, by the
vote of a majority of the entire Board of Directors. The provisions of
this Section 9 are subject to the requirements of North Carolina General
Statute 55-27 relating to cumulative voting and shareholder suits until
the same may be repealed.
Section 10. Nominations for Director.
Nominations may be made by the Board of Directors or by a proxy
committee appointed by the Board of Directors or by any shareholder
entitled to vote in the election of Directors generally. However, any
shareholder entitled to vote in the election of Directors generally may
nominate one or more persons for election as Directors at a meeting only
if written notice of such shareholder's intent to make such nomination
or nominations has been given, either by personal delivery or by United
States mail, postage prepaid, to the Secretary of the Corporation not
later than (i) with respect to an election to be held at an annual
meeting of shareholders, 90 days in advance of such meeting, and (ii)
with respect to an election to be held at a special meeting of
shareholders for the election of Directors, the close of business on the
seventh day following the date on which notice of such meeting is first
given to shareholders. Each such notice shall set forth: (a) the name
and address of the shareholder who intends to make the nomination and of
the person or persons to be nominated; (b) a representation that the
shareholder is a holder of record of stock of the Corporation entitled
to vote at such meeting and intends to appear in person or by proxy at
the meeting to nominate the person or persons specified in the notice;
(c) a description of all arrangements or understandings between the
shareholder and each nominee and any other person or persons (naming
such person or persons) pursuant to which the nomination or nominations
are to be made by the shareholder; (d) such other information regarding
each nominee proposed by such shareholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission, had the nominee been nominated, or
intended to be nominated, by the Board of Directors; and (e) the consent
of each nominee to serve as a Director of the Corporation if so elected.
The Chairman of the meeting may refuse to acknowledge the nomination of
any person not made in compliance with the foregoing procedure.
Section 11. Voting Requirement for Certain Amendments.
Notwithstanding any other provisions of law or the Corporation's
Articles of Incorporation or these By-Laws (and notwithstanding the fact
that a lesser percentage may be specified by law, the Articles of
Incorporation or these By-Laws) the affirmative vote of the holders of
80% or more of the outstanding shares of stock of the Corporation shall
be required to amend or repeal, or adopt any provision inconsistent with
or which relates to Sections 1, 2, 7, 8, 9, 10 or 11 of this Article II.
ARTICLE III
Officers
Section 1. Officers.
The officers of the Corporation shall consist of a Chairman of the Board
(if the Board of Directors designates this position as an officer),
President, Secretary, Treasurer and such Executive Vice Presidents,
Senior Vice Presidents, Vice Presidents and other officers as the Board
of Directors may from time to time elect. The Chief Executive Officer
may appoint for a fixed or indeterminate term and may remove at any time
with or without cause, (i) Assistant Secretaries and Assistant
Treasurers and (ii) assistant, associate and other subordinate officers
whose authority and duties shall be specified by, or by a delegee of,
the Chief Executive Officer. Any two or more offices may be held by the
same person, but no individual may act in more than one capacity where
action of two or more officers is required.
Section 2. Election and Removal.
The officers of the Corporation shall be elected by the Board of
Directors and may be removed with or without cause at any time by the
Board, provided however, that such removal shall not affect any written
contractual rights of any such officer.
ARTICLE IV
Duties of Officers
Section 1. Chief Executive Officer and President.
The Board of Directors shall designate the Chairman of the Board or the
President as the Chief Executive Officer, who shall be the principal
executive officer of the Corporation and shall have the authority to
supervise and control the management of the Corporation in accordance
with these By-Laws, subject to the direction of the Board of Directors.
Without limiting the generality of the foregoing, the Chief Executive
Officer shall, in accordance with policies and within any limits set by
the Board of Directors, have authority with respect to developing and
directing the budgets and strategic plans of the Corporation,
determining the employment and (to the extent delegated by the
Compensation Committee) compensation of senior executive personnel and
other employees, developing and directing the Corporation's investment,
product and marketing strategies, determining fundamental aspects of the
Corporation's personnel and employee benefit policies, and developing
and directing the Corporation's capital structure, financing and
significant acquisitions and divestitures. The President, if not the
Chief Executive Officer, shall perform such duties and have such powers
as the Board of Directors or the Chief Executive Officer shall
prescribe.
Section 2. Vice Presidents.
Each Executive Vice President, Senior Vice President and Vice President
shall perform the duties and exercise the powers normally conferred by
statutory and general law and custom upon a vice president of a company
and shall perform such other duties and have such other powers as the
Board of Directors or the Chief Executive Officer shall prescribe.
Section 3. Secretary.
The Secretary shall keep accurate records of the acts and proceedings of
all meetings of shareholders, Directors and Committees thereof and shall
give all notices required by law or by these By-Laws. The Secretary
shall have general charge of the corporate books and records, the stock
transfer books and the corporate seal, shall affix the corporate seal to
any lawfully executed instrument requiring it, and shall sign such
instruments as may require such signature. The Secretary shall perform
all duties incident to the office of Secretary and shall perform such
other duties and have such other powers as shall be prescribed from time
to time by the Board of Directors or the Chief Executive Officer.
Section 4. Treasurer.
The Treasurer shall have custody of all funds belonging to the
Corporation and shall receive, deposit or disburse the same as provided
by law, and subject to such instruction as may be given by the Board
of Directors or the Chief Executive Officer. The Treasurer shall, in
general, perform all duties incident to the office of Treasurer and
shall perform such other duties and have such other powers as shall be
prescribed from time to time by the Board of Directors or the Chief
Executive Officer.
Section 5. Assistant Secretaries and Assistant Treasurers.
The Assistant Secretaries and Assistant Treasurers shall perform such
duties and exercise such powers of those offices as shall be assigned to
them by the Secretary or the Treasurer, respectively, or by the Board of
Directors or the Chief Executive Officer, and shall have the authority
to act in the absence or inability to act of the respective such
officer.
Section 6. Facsimile Signatures.
The facsimile signature for any officer may be used in any instance in
which such officer's signature is required or used on any instrument on
behalf of the Corporation.
ARTICLE V.
Capital Stock
Section 1. Stock Certificates.
Each holder of capital stock of the Corporation shall be entitled to a
certificate signed (either manually or in facsimile) by two officers of
the Corporation, namely, the Chairman of the Board (if the Chief
Executive Officer), the President or an Executive or Senior Vice
President and the Secretary or an Assistant Secretary, except as
otherwise provided in the Articles of Incorporation as to any series of
preferred stock.
Section 2. Transfer and Registration.
Transfer of shares evidenced by certificates shall be made on the stock
transfer books of the Corporation upon surrender of the certificates for
the shares sought to be transferred and an assignment of transfer duly
executed by the record holder or a duly authorized agent or legal
representative, with such proof of authenticity of the signature as the
Corporation or its agents may reasonably require. The Board of
Directors shall have the power to make such rules, regulationd and
arrangements as it may deem expedient concerning the issue, transfer,
conversion, replacement and registration of stock certificates of the
Corporation or any direct registration option.
ARTICLE VI
Executive Committee
Section 1. Election and Number.
The Board of Directors shall appoint an Executive Committee which shall
consist of at least five and not more than seven Directors, and shall
appoint the Chairman and may appoint a Vice Chairman of the Committee.
Vacancies occurring on the Committee may be filled by the Board of
Directors.
Section 2. General Powers.
The Executive Committee may exercise all of the powers and authority of
the Board of Directors (except to the extent limited by North Carolina
law) including power and authority in the direction of the management of
the business and affairs of the Corporation. The Committee may elect
its own Secretary (who need not be a member of the Committee).
Section 3. Meetings.
A meeting of the Executive Committee may be called by the Chairman of
the Committee at any time and shall be called by such Chairman upon
written request of any two members of the Committee. All members shall
be given reasonable notice of the time and place of any meeting which,
except in the case of an emergency, shall not be later than the business
day prior to the meeting. Such notice need not specify the purpose of
the meeting.
Section 4. Minutes.
Minutes of all meetings and actions of the Executive Committee shall be
kept and shall be reported to the Board of Directors at or prior to its
next meeting.
Section 5. Quorum and Action.
A majority of the members of the Executive Committee shall constitute a
quorum for the transaction of business. The action of a majority of
members present at a meeting at which a quorum is present shall
constitute the act of the Committee.
ARTICLE VII
Other Committees of the Board
Section 1. Standing Committees.
(a) Number. There shall be five standing Committees of the Board of
Directors: Audit, Compensation, Contributions, Conflict of Interests
and Nominating. At the first meeting of the Board of Directors after
the annual meeting of shareholders, the Nominating Committee shall
recommend and the Board shall appoint the membership and the Chairman of
each such Committee other than the Nominating Committee. All members
shall serve at the pleasure of the Board.
(b) Quorum and Action. A majority of the members of any standing
Committee shall constitute a quorum for the transaction of business.
The action of a majority of members present at a Committee meeting at
which a quorum is present shall constitute the act of the Committee.
(c) Meetings and Minutes. Subject to the foregoing, and unless the
Board shall otherwise determine, each standing Committee shall fix its
rules of procedure. Meetings of a Committee may be held at any time
upon the call of the Chief Executive Officer or the Chairman or any two
members of the Committee. The Chairman of a Committee may designate any
member of the Committee to preside at a meeting in the absence of the
Chairman. Each Committee shall keep minutes of all meetings and actions
which shall be available at all times to Directors. Action taken by a
Committee shall be reported promptly to the Board.
(d) Term of Office. A member of any standing Committee shall hold
office until the next meeting of the Board of Directors following the
annual shareholders meeting or, if earlier, until the member resigns, is
removed by the Board or ceases to be a Director.
(e) Vacancies. Should a vacancy occur on any standing Committee, the
Nominating Committee may recommend (except for a vacancy on the
Nominating Committee) and the Board may fill such vacancy.
Section 2. Audit Committee.
(a) How Constituted. The Audit Committee shall consist of not less
than three nor more than five Directors, each of whom shall meet the
independence and experience requirements of the New York Stock Exchange,
as interpreted in the business judgment of the Board.
(b) Duties. The Audit Committee shall assist the Board of Directors in
oversight of (1) the integrity of the Corporation's financial
statements, (2) the adequacy of internal controls, and (3) the
independence and performance of the Corporation's internal and external
auditors. The Board shall adopt and approve an Audit Committee Charter
which shall set forth the duties of the Committee. The Audit Committee
shall annually reassess the Charter and recommend any changes to the
Board.
Section 3. Compensation Committee.
(a) How Constituted. The Compensation Committee shall consist of not
less than three nor more than five Directors.
(b) Duties. The Compensation Committee shall approve the salaries to
be paid to the senior executive officers, and shall approve the salaries
of all other officers except those the approval of which it delegates to
the Chief Executive Officer or another officer. The Committee shall
review the qualified employee benefit plans maintained by the
Corporation and review all recommendations for changes in any plan which
must be approved by the Board. The Committee shall also administer the
officer incentive plans and determine the awards thereunder.
Section 4. Contributions Committee.
(a) How Constituted. The Contributions Committee shall consist of not
less than three nor more than five Directors.
(b) Duties. The duties of the Contributions Committee shall be to
administer and regulate the contributions practices of the Corporation
and its subsidiaries in accordance with the policy with respect to
charitable contributions adopted by the Board of Directors.
Section 5. Conflict of Interests Committee.
(a) How Constituted. The Conflict of Interests Committee shall consist
of not less than three nor more than five Directors.
(b) Duties. The Conflict of Interests Committee shall initiate
investigations concerning or investigate all complaints concerning
possible conflict of interests involving Directors or officers of the
Corporation and shall recommend to the Board action to be taken to
remove any such conflict of interests and policies or procedures
designed to avoid such conflicts.
Section 6. Nominating Committee.
(a) How Constituted. The Nominating Committee shall consist of not
less than five nor more than seven Directors. The membership and
Chairman of the Committee shall be appointed by the Board of Directors
upon recommendation of the Executive Committee.
(b) Duties. The Nominating Committee shall recommend to the Board
nominees for election as Directors at any meeting of shareholders or to
fill vacancies on the Board. The Nominating Committee shall also
recommend to the Board the composition and the Chairman of all
Committees of the Board other than the Executive and Nominating
Committees, and replacements for Directors who have ceased to be members
of such Committees.
Section 7. Other Committees.
The Board of Directors may by resolution establish such other Committees
of the Board as it may deem advisable and specify the term and authority
of each such Committee.
ARTICLE VIII
Miscellaneous
Section 1. Financial Instruments and Transfers.
All promissory notes, bills, negotiable instruments, checks, bank
drafts, orders for the payment, transfer or withdrawal of funds, and all
other similar instruments of the Corporation shall be signed, executed
or endorsed on behalf of the Corporation under such procedures as may be
established or authorized from time to time by the Board of Directors.
Section 2. Contracts and Other Instruments.
Except as otherwise required by law, the Articles of Incorporation or
these By-Laws, any contracts or other instruments not within the scope
of Section 1 of this Article may be executed on behalf of the
Corporation by such officer(s) of the Corporation as the Board of
Directors may direct. Subject to any restrictions imposed by the Board,
any one or more of the Chairman of the Board (if the Chief Executive
Officer), the President, any Vice President, the Secretary and the
Treasurer of the Corporation may execute bonds, contracts, deeds, leases
and other agreements and instruments on behalf of the Corporation.
Section 3. Seal.
The corporate seal of the Corporation shall consist of two concentric
circles between which is the name of the Corporation and in the center
of which is inscribed SEAL.
Section 4. Waiver of Notice.
Whenever any notice is required to be given to any shareholder or
Director by law, the Articles of Incorporation or these By-Laws, a
written waiver thereof, which need not specify the purpose, signed by
the person entitled to such notice, whether before, at or after the time
stated therein, shall be deemed equivalent to notice. Attendance at a
meeting in person or through voice communication shall constitute a
waiver of notice, unless the person at the beginning of the meeting (or
promptly upon later arrival) objects to holding the meeting or
transacting business at the meeting and, in the case of a Directors'
meeting, does not thereafter vote for or assent to action taken at the
meeting.
Section 5. Fiscal Year.
The fiscal year of the Corporation shall be the calendar year unless the
Board of Directors shall otherwise determine.
-End of By-Laws-