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, 1994 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)
(910) 691-3441
(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 pre-
ceding 12 months and (2) has been subject to such filing requirements for the
past 90 days. Yes x No
Number of shares of common stock outstanding at March 31, 1994 48,751,043
JEFFERSON-PILOT CORPORATION
INDEX
- Page No. -
Part I. Financial Information
Consolidated Condensed Balance Sheets -
March 31, 1994 and December 31, 1993 3
Consolidated Condensed Statements of Income
- Three Months Ended March 31, 1994 and 1993 4
Consolidated Condensed Statements of Changes
in Retained Earnings - Three Months Ended
March 31, 1994 and 1993 5
Consolidated Condensed Statements of Cash
Flows - Three Months Ended March 31, 1994
and 1993 6
Notes to Consolidated Condensed Financial
Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
Part II. Other Information 14
2
PART I. FINANCIAL INFORMATION
JEFFERSON-PILOT CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
March 31 December 31
Assets 1994 1993
Cash and investments:
Debt securities available for sale (Note 2) $ 1,807,683 $ -
Debt securities held to maturity (Note 2) 1,740,927 -
Debt securities - 3,221,878
Equity securities available for sale (Note 2) 831,500 -
Equity securities - 833,440
Cash and all other investments 879,217 893,182
Accrued investment income 64,378 69,327
Accounts receivable and agents'
balances 57,827 60,526
Accounts receivable - reinsurance 25,600 25,793
Property and equipment, net 102,023 98,434
Deferred policy acquisition costs 275,506 277,731
Other assets 171,557 160,310
$ 5,956,218 $ 5,640,621
=========== ===========
Liabilities and Stockholders' Equity
Liabilities:
Policy liabilities $ 3,507,288 $ 3,454,313
Income tax liabilities 218,134 184,295
Obligations under repurchase agreements 217,577 0
Notes payable 20,500 39,700
Accrued expenses 74,460 76,894
Unearned investment income 4,979 5,020
Other liabilities 152,243 147,328
4,195,181 3,907,550
Stockholders' Equity:
Common stock 60,939 61,831
Retained earnings 1,340,451 1,339,672
Net unrealized gains on securities,
net of income tax effect 359,647 331,568
1,761,037 1,733,071
$ 5,956,218 $ 5,640,621
=========== ===========
See notes to consolidated condensed financial statements.
3
JEFFERSON-PILOT CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In Thousands Except Shares Outstanding and Per Share Amounts)
Three Months Ended
March 31
1994 1993
Revenue:
Premiums
Life and annuity $ 44,207 $ 43,307
Accident and health 96,618 97,174
Other considerations 12,522 12,617
Investment income, net of expenses 94,619 90,692
Communications 42,985 36,116
Other income 17,649 16,733
Realized investment gain 11,856 10,077
320,456 306,716
Benefits and Expenses:
Policy benefits 159,666 160,143
Insurance commissions 18,005 15,559
Communications operations 30,123 25,037
General and administrative 31,323 31,130
Taxes, licenses and fees 6,499 6,623
Increase in deferred acquisition
costs, net of amortization ( 6,423) ( 3,687)
239,193 234,805
Income before income taxes 81,263 71,911
Provision for income taxes 26,999 21,976
54,264 49,935
Accumulated post retirement benefit
obligation at 1-1-93 ($37,035 less
deferred income tax of $12,926) 0 ( 24,109)
Net income $ 54,264 $ 25,826
=========== ===========
Average number of shares
outstanding 49,002,215 50,452,318
=========== ===========
Net income before effect of initial
application of SFAS 106 $ 1.11 $ 0.99
Effect of initial application of SFAS 106 0.00 ( 0.48)
Net income per share of common stock 1.11 0.51
=========== ===========
Cash dividends paid per share of
common stock $ 0.39 $ 0.34
=========== ===========
See notes to consolidated condensed financial statements.
4
JEFFERSON-PILOT CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN RETAINED EARNINGS
(In Thousands)
Three Months Ended
March 31
1994 1993
Balance at beginning of period $ 1,339,672 $ 1,270,342
Net income for the period 54,264 25,826
1,393,936 1,296,168
Cash dividends declared ( 20,909) ( 19,682)
Reacquisition of common stock, net ( 32,576) 417
Balance at end of period $ 1,340,451 $ 1,276,903
=========== ===========
See notes to consolidated condensed financial statements.
5
JEFFERSON-PILOT CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
Three Months Ended
March 31
1994 1993
Cash Flows from Operating Activities:
Net income $ 54,264 $ 25,826
Adjustments to reconcile net income to net
cash provided by operating activities:
Change in policy liabilities 1,745 9,474
Amortization of deferred acquisition costs 10,552 10,495
Deferred policy acquisition costs ( 16,975) ( 14,182)
Gain from sales of investments ( 11,856) ( 10,077)
Other 34,615 30,905
Net cash provided from operations 72,345 52,441
Cash Flows from Investing Activities:
Investments purchased and sold ( 269,478) ( 101,849)
Other investing activities ( 20,447) 22,472
Net cash used by investing activities ( 289,925) ( 79,377)
Cash Flows from Financing Activities:
Net short-term borrowings 198,377 0
Cash dividends to stockholders ( 20,909) ( 19,682)
Reacquisition of common stock, net ( 33,468) 441
Policyholder contract deposits 81,988 72,209
Policyholder contract withdrawals ( 30,758) ( 22,389)
Net cash provided by financing activities 195,230 30,579
Increase (decrease) in cash and cash equivalents ( 22,350) 3,643
Cash and cash equivalents at beginning of period 31,563 155,669
Cash and cash equivalents at end of period $ 9,213 $ 159,312
========== ==========
Supplemental Cash Flow Information:
Cash paid during the period for income taxes $ 10,493 $ 15,627
========== =========
See notes to consolidated condensed financial statements.
6
JEFFERSON-PILOT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation
The Company's management believes that the accompanying unaudited
consolidated condensed financial statements contain all of the
adjustments necessary to present fairly the consolidated financial
position of the Company and its subsidiaries as of March 31, 1994 and
December 31, 1993, and their consolidated results of operations and cash
flows for the three month periods ended March 31, 1994 and 1993.
Aside from the adoption of new accounting standards discussed in Notes 2
and 3 below, such adjustments consist only of normal recurring accruals
and adjustments. Consolidated results of operations and cash flows for
the three months ended March 31, 1994 are not necessarily indicative of
the results to be expected for the full year.
2. Adoption of Accounting Standard Affecting Investments
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in Debt
and Equity Securities" (SFAS 115). SFAS 115 applies to equity
securities having readily determinable fair values and to debt
securities. It requires securities under its scope to be classified for
financial reporting purposes as either 1) securities held to maturity
and 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 and stated at fair value with net unrealized gains
and losses included in stockholders' equity.
SFAS 115 establishes criteria for classifying securities as held to
maturity or trading and requires securities not otherwise 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. Whenever an individual security classified as
either held to maturity or available for sale experiences an other-than-
temporary decline in fair value to an amount below amortized cost, SFAS
115 requires an adjustment to the amortized cost of such security with a
corresponding charge to income.
In connection with the adoption of SFAS 115, the Company classified
certain debt securities held as of January 1, 1994 as available for sale
in response to its asset/liability management strategies or other
factors. Prior to adopting SFAS 115, such securities were stated at
amortized cost (reduced by allowances for other-than-temporary declines
in value). The stated amount of debt securities classified as available
for sale was adjusted to aggregate fair value as of January 1, 1994, as
required by SFAS 115. Equity securities held by the parent company as
of January 1, 1994, which were previously stated at the lower of
aggregate cost or market, were classified as available for sale with the
stated amount thereof increased to aggregate market value. As a result
of the SFAS 115 adjustment to the stated amount of available-for-sale
debt securities, the Company reduced deferred policy acquisition costs
by the amount that would have been recognized if net unrealized gains
pertaining to such securities held by Jefferson-Pilot Life Insurance
Company had actually been realized.
7
JEFFERSON-PILOT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
SFAS 115 adoption adjustments as of January 1, 1994 are summarized below
(in thousands):
Debt Equity
Securities Securities Total
Increase in stated amount
of securities $ 106,624 $ 70,104 $ 176,728
Reduction of deferred
policy acquisition costs (15,235) - (15,235)
Increase in deferred
income tax liabilities (31,986) (28,103) (60,089)
Increase in net unrealized
gains, included in
stockholders' equity $ 59,403 $ 42,001 $ 101,404
Aggregate amortized cost, aggregate fair value (stated amount) and gross
unrealized gains and losses pertaining to securities classified as
available for sale as of March 31, 1994 are as follows (in thousands):
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U. S. Treasury
obligations and
direct obligations
of U. S. Government
Corporations $ 764,225 $ 30,354 $ (21,801)$ 772,778
Mortgage-backed
securities issued
by U. S. Government
Corporations 317,275 14,955 (7,653) 324,577
Obligations of states
and political
subdivisions,
including special
revenue obligations 60,949 2,615 (1,005) 62,559
Corporate obligations,
including
collateralized
obligations and
mortgage-backed
securities 585,141 48,868 (12,196) 621,813
Redeemable preferred
stocks 25,561 2,255 (1,860) 25,956
Subtotal, debt
securities $1,753,151 $ 99,047 $ (44,515)$1,807,683
Equity securities 324,437 510,383 (3,320) 831,500
Securities
available
for sale $2,077,588 $ 609,430 $ (47,835)$2,639,183
8
JEFFERSON-PILOT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
Aggregate amortized cost (stated amount), aggregate fair value and gross
unrealized gains and losses pertaining to debt securities classified as
held to maturity as of March 31, 1994 are as follows (in thousands):
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U. S. Treasury
obligations and
direct obligations
of U. S. Government
Corporations $ 21,307 $ 323 $ (708) $ 20,922
Mortgage-backed
securities issued
by U. S. Government
Corporations 463,603 2,337 (24,528) 441,412
Obligations of states
and political
subdivisions,
including special
revenue obligations 33,459 2,295 (683) 35,071
Corporate obligations,
including
collateralized
obligations and
mortgage-backed
securities 1,222,558 18,235 (38,528) 1,202,265
Debt securities
held to
maturity $1,740,927 $ 23,190 $ (64,447) $1,699,670
The effective duration of debt securities classified as available for
sale approximates 4.5 years (5.5 years for debt securities classified as
held to maturity). Proceeds from sales of securities classified as
available for sale totaled $211.2 million for the three months ended
March 31, 1994. Resulting gross realized gains and losses totaled $14.3
million and $3.0 million, respectively. Cost of securities sold was
determined by specific identification. There were no transfers of
securities among classifications during the period and no sales of
securities classified as held to maturity.
A summary of the changes in net unrealized gain on securities (which is
included in the consolidated condensed balance sheets as a separate
component of stockholders' equity) during the three months ended March
31, 1994 follows (in thousands):
9
JEFFERSON-PILOT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
Net Deferred Stockholders'
Unrealized Income Equity
Gains Taxes Component
Balances as of December 31,
1993 on equity securities
held by insurance
subsidiaries $ 507,770 $ (176,202) $ 331,568
Effect of adopting SFAS
115 as of January 1,
1994 161,493 (60,089) 101,404
Decrease during period (116,316) 42,991 (73,325)
Balances as of March 31,
1994 on debt and
equity securities
classified as available
for sale $ 552,947 $ (193,300) $ 359,647
3. Adoption of Accounting Standard Affecting Postretirement Benefits
During the three months ended March 31, 1993, the Company adopted
Statement of Financial Accounting Standards No. 106 "Employers'
Accounting for Postretirement Benefits Other Than Pensions" (SFAS 106).
As permitted by SFAS 106, the Company recognized its initial liability
for postretirement health care and life insurance benefits by means of a
one-time "cumulative effect" charge to income during the first quarter
of 1993. Aside from the one-time charge, adoption of SFAS 106 reduced
consolidated net income for the period by $.01 per share.
4. Reverse Repurchase Agreements
During the three months ended March 31, 1994, the Company entered into
several reverse repurchase agreements. The agreements involve U.S. Treasury
notes with a fair value of $217,545,000 at March 31, 1994, and an
amortized cost of $205,530,000. The agreements mature at various dates
through September, 1994. The maximum amount outstanding during the
period was $252,440,000, with the maximum amounts per significant buyer
totaling $201,770,000 with JP Morgan Securities and $50,670,000 with
NationsBanc Capital Markets. The weighted average interest rate under
the agreements approximated 3.3% for the period.
10
JEFFERSON-PILOT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity
The Company's liquidity requirements are met primarily by cash flows from the
operations of Jefferson-Pilot Life Insurance Company (JPLIFE) and other
consolidated subsidiaries. Primary sources of cash from subsidiary operations
are premiums, other insurance considerations, investment income and
communications revenue. Primary uses of cash in the subsidiaries' operations
include payment of insurance benefits, operating expenses and costs related to
acquiring new insurance business.
Primary sources of cash from investing activities are proceeds from maturities
and redemptions of debt securities, proceeds from disposition of securities
that are available for sale in connection with the Company's asset/liability
management strategies and mortgage loan repayments. Uses of cash in investing
activities include reinvestment of proceeds from investment transactions,
investment of proceeds from JPLIFE's policyholder contract deposits and
external financing arrangements, and investment of the excess of net cash
provided by operations over that used to pay dividends and reacquire the
Company's common stock. During the quarter ended March 31, 1994, the Company
entered into securities repurchase agreements under which it received and
invested funds which approximated as much as $252 million at any one time
during the quarter. Transactions related to the securities repurchase
agreements resulted in substantial increases in cash provided by financing
activities and cash used in investing activities for the current period over
the amounts reported for the first quarter of 1993. The Company continued to
utilize an uncommitted bank line of credit established in 1993 in application
of its asset/liability management strategies.
The Company continues to reacquire its own common stock whenever management
considers it prudent. Cash used to reacquire common stock during the quarter
ended March 31, 1994 approximated $33.5 million (713,000 shares).
The market value of bonds classified as below investment grade (rated below
Baa3/BBB-) amounted to $98.9 million at March 31, 1994, compared to $106.6
million at December 31, 1993. Nonperforming mortgage loans totaled $14.9
million at March 31, 1994, compared to $9.8 million at December 31, 1993.
Bonds and mortgage loans representing credit problems continue to fall below
industry averages.
Capital Resources
Consolidated stockholders' equity as of March 31, 1994 amounted to $1.761
billion, compared to $1.733 billion as of December 31, 1993. Effective
January 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115 "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115). The effects of adopting SFAS 115 are discussed in
Note 2 to the consolidated condensed financial statements. Negative
securities market conditions resulting from interest rate increases and other
circumstances resulted in a decline of approximately $116 million ($73 million
11
JEFFERSON-PILOT CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
net of deferred income tax effect) in net unrealized gains on securities
available for sale during the period from January 1, 1994 (date of adoption
of SFAS 115) through March 31, 1994.
The increase in stockholders' equity during the first quarter of 1994 results
from net income of $54.3 million, less dividends to stockholders, the net
cost of reacquiring common stock, and a net $28.1 million increase in
unrealized gains on securities, net of taxes.
Cash dividends approximated $20.9 million in the first quarter of 1994,
compared to $19.7 million for the comparable quarter of 1993. Capital
resource requirements are not expected to restrict future dividend payment
plans.
Results of Operations
First Quarter 1994 Compared to First Quarter 1993
Net income for the first quarter of 1994 was $54.3 million, compared to $49.9
million for the first quarter of 1993. The $49.9 million net income for the
first quarter of 1993 excludes a net charge of $24.1 million as a result of
the Company's adoption of Statement of Financial Accounting Standards 106,
"Accounting for Postretirement Benefits Other Than Pensions." The $24.1
million charge was for the accumulated postretirement benefit obligation at
January 1, 1993.
Earnings from the individual insurance segment totaled $28.1 million, versus
$27.4 million in the first quarter of 1993. Revenues from this segment
increased modestly, while total benefits and expenses were flat as compared
to the first quarter of 1993.
Group earnings increased from $9.4 million a year ago to $10.8 million in the
first quarter of 1994. Group Life insurance earnings were down slightly,
primarily because of adverse mortality experience. Earnings from Group
accident and health business were $8.6 million for the first quarter, an
increase of $1.5 million over the first quarter of 1993. Much of the
improvement in Group accident and health earnings is a result of favorable
claims experience.
Revenue from communications operations was $43.0 million, an increase of 19%
over the first quarter of 1993. Almost 50% of the increased revenue comes
from acquisitions which were made in the latter part of 1993. Communications
operating expenses were in line with the increased revenue. Communications
operations earned $5.2 million for the quarter, as compared to $4.8 million in
the first quarter of last year. Increased earnings from the radio division
contributed significantly to the increased earnings.
Casualty and title earnings declined from $2.0 million a year ago to $1.8
million for the first quarter of 1994. The decline is primarily a result of
lower investment income.
12
JEFFERSON-PILOT CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(continued)
Earnings in the other segment were up substantially due to higher earnings
on longer term bonds and better utilization of other invested assets.
Realized investment gains, net of income taxes, amounted to $7.4 million for
the quarter, up 10.4% from the first quarter of 1993. The gains were derived
primarily from sales of appreciated common stocks. The Company has not
classified any of its securities as trading securities, and there were no
sales of securities designated as "held to maturity" during the first quarter.
13
JEFFERSON-PILOT CORPORATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K - There were no reports on Form 8-K filed for the
three months ended March 31, 1994.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JEFFERSON-PILOT CORPORATION
By (Signature) Dennis R. Glass
(Name and Title) Dennis R. Glass, Treasurer
(Principal Financial Officer)
Date May 12, 1994
14