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, 1995 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, 1995 48,457,231
JEFFERSON-PILOT CORPORATION
INDEX
- Page No. -
Part I. Financial Information
Consolidated Condensed Balance Sheets
- March 31, 1995 and December 31, 1994 3
Consolidated Condensed Statements of Income
- Three Months Ended March 31, 1995 and 1994 4
Consolidated Condensed Statements of Changes
in Retained Earnings
- Three Months Ended March 31, 1995 and 1994 5
Consolidated Condensed Statements of Cash
Flows
- Three Months Ended March 31, 1995 and 1994 6
Notes to Consolidated Condensed Financial
Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II. Other Information 19
Signatures 20
2
PART I. FINANCIAL INFORMATION
JEFFERSON-PILOT CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
March 31 December 31
Assets 1995 1994
(Unaudited) (Note 1)
Cash and investments:
Debt securities available for sale $ 1,697,579 $ 1,606,865
(amortized cost $1,701,945)
Debt securities held to maturity 1,974,413 1,940,046
(fair value $1,903,814)
Equity securities, trading 34,513 0
(cost $32,886)
Equity securities available for sale 726,865 718,023
(cost $251,804)
Mortgage loans 701,456 680,625
Cash and all other investments 362,105 297,884
Accrued investment income 66,938 67,371
Accounts receivable and agents' balances 60,860 64,191
Accounts receivable - reinsurance 30,015 30,036
Property and equipment, net 98,531 100,672
Deferred policy acquisition costs 333,050 329,139
Other assets 308,517 305,484
$ 6,394,842 $ 6,140,336
Liabilities and Stockholders' Equity
Liabilities:
Policy liabilities $ 3,730,816 $ 3,633,763
Income tax liabilities 190,869 122,082
Obligations under repurchase agreements (Note 2) 267,726 266,838
Short-term notes payable 3,100 29,350
Accrued expenses 70,399 82,393
Unearned investment income 4,874 4,959
Other liabilities 286,467 268,408
4,554,251 4,407,793
Stockholders' Equity:
Common stock 60,572 60,564
Retained earnings 1,475,222 1,441,132
Net unrealized gains on securities,
net of income tax effect 304,797 230,847
1,840,591 1,732,543
$ 6,394,842 $ 6,140,336
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
1995 1994
(Unaudited) (Unaudited)
Revenue:
Premiums
Life and annuity $ 44,063 $ 44,207
Accident and health 100,360 96,618
Other considerations 6,741 1,397
Investment income, net of expenses 96,098 92,481
Communications 42,706 42,985
Other income 19,727 17,776
Realized investment gain 5,542 11,784
315,237 307,248
Benefits and Expenses:
Policy benefits 164,996 152,364
Insurance commissions 22,115 15,963
Communications operations 27,807 30,123
General and administrative 30,399 29,894
Taxes, licenses and fees 6,447 6,016
Increase in deferred acquisition costs,
net of amortization ( 13,551) ( 6,294)
238,213 228,066
Income before income taxes 77,024 79,182
Provision for income taxes 25,152 26,783
51,872 52,399
Discontinued operations, net of income
taxes (Note 3) 5,133 1,865
Net income $ 57,005 $ 54,264
Average number of shares
outstanding 48,450,815 49,002,215
Income before gain from sales of investments:
Continuing operations $ 0.97 $ 0.92
Discontinued operations (Note 3) 0.05 0.04
Total 1.02 0.96
Gain from sales of investments, net of income taxes:
Continuing operations 0.10 0.15
Discontinued operations (Note 3) 0.06 0.00
Total 0.16 0.15
Net income per share of common stock $ 1.18 $ 1.11
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
1995 1994
(Unaudited) (Unaudited)
Balance at beginning of period $ 1,441,132 $ 1,339,672
Net income for the period 57,005 54,264
1,498,137 1,393,936
Cash dividends declared ( 23,207) ( 20,909)
Reacquisition of common stock, net 292 ( 32,576)
Balance at end of period $ 1,475,222 $ 1,340,451
See notes to consolidated condensed financial statements.
5
JEFFERSON-PILOT CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
Three Months Ended
March 31
1995 1994
(Unaudited) (Unaudited)
Cash Flows from Operating Activities:
Net income $ 57,005 $ 54,264
Adjustments to reconcile net income to net
cash provided by operating activities:
Change in policy liabilities 5,480 1,745
Amortization of deferred acquisition costs 10,544 10,552
Deferred policy acquisition costs ( 24,095) ( 16,975)
Trading investments ( 32,886) 0
Gain from sales of investments ( 10,285) ( 11,856)
Other 34,640 34,615
Net cash provided from operations 40,403 72,345
Cash Flows from Investing Activities:
Investments purchased and sold ( 17,006) ( 269,478)
Other investing activities ( 7,121) ( 20,447)
Net cash used by investing activities ( 24,127) ( 289,925)
Cash Flows from Financing Activities:
Net short-term borrowings ( 25,364) 198,377
Cash dividends to stockholders ( 20,781) ( 20,909)
Reacquisition of common stock, net 300 ( 33,468)
Policyholder contract deposits 128,869 81,988
Policyholder contract withdrawals ( 37,296) ( 30,758)
Net cash provided by financing activities 45,728 195,230
Increase (decrease) in cash and cash equivalents 62,004 ( 22,350)
Cash and cash equivalents at beginning of period 22,774 31,563
Cash and cash equivalents at end of period $ 84,778 $ 9,213
Supplemental Cash Flow Information:
Income taxes paid $ 587 $ 10,354
Interest paid on borrowed money $ 3,161 $ 335
See notes to consolidated condensed financial statements.
6
JEFFERSON-PILOT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying consolidated condensed balance sheet as of December 31,
1994 has been derived from the audited consolidated balance sheet as of
that date. The other accompanying consolidated condensed financial
statements of Jefferson-Pilot Corporation and subsidiaries are
unaudited; but, in the opinion of the Company's management, reflect all
adjustments necessary to present fairly the consolidated condensed
balance sheet as of March 31, 1995, the consolidated condensed
statements of income and changes in retained earnings for the three
months ended March 31, 1995 and 1994, and the consolidated condensed
statements of cash flows for the three months ended March 31, 1995 and
1994. Such adjustments consist only of normal recurring accruals and
adjustments.
These consolidated condensed financial statements should be read in
conjunction with the audited consolidated financial statements and
related notes included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1994. Consolidated net income and cash
flows for the interim periods reflected in the accompanying consolidated
condensed financial statements are not necessarily indicative of those
to be expected for the entire fiscal year.
2. Reverse Repurchase Agreements
During the three months ended March 31, 1995, the Company entered into
several reverse repurchase agreements. The agreements involve U.S.
Treasury notes with a fair value of $274,690,000 at March 31, 1995 and
an amortized cost of $265,686,000. The agreements mature at various
dates through July 1995. The maximum amount outstanding during the
period was $264,698,000. As of March 31, 1995, the maximum amount out-
standing with any one party was $229,990,000 with First Boston. The
weighted average interest rate under the agreements approximated 6.3%
for the period.
3. Discontinued Operations
Agreements to sell Jefferson-Pilot Fire and Casualty Company and
Jefferson-Pilot Title Insurance Company were entered into during 1994.
These companies comprise our "other insurance" segment, and their
earnings for all periods shown are labeled "discontinued operations."
7
JEFFERSON-PILOT CORPORATION AND SUBSIDIARIES
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, 1995, changes in financial condition for the three months then
ended and results of operations for the quarter ended March 31, 1995 as
compared to March 31, 1994. This discussion supplements Management's
Discussion and Analysis in Form 10-K for the year ended December 31, 1994. It
should be read in conjunction with the interim financial statements and notes
contained herein.
Results of Operations
Jefferson-Pilot Corporation (JP), a holding company, derives its primary
sources of revenue from life insurance operations of Jefferson-Pilot Life
Insurance Company (JP Life), from communications revenues of Jefferson-Pilot
Communications Company (JP Communications) and from investment income on
securities owned by the Corporation. During the fourth quarter of 1994 and
early second quarter of 1995, JP sold two of its subsidiaries, Jefferson-Pilot
Fire & Casualty and Jefferson-Pilot Title Insurance Company. Operating
results of these subsidiaries, net of related income taxes, are reported as
"Discontinued Operations". Also, during the first quarter of 1995, JP sold
the majority of assets of a subsidiary, Jefferson-Pilot Data Services, Inc.
Earnings from this subsidiary were formerly included in the Communications
segment. Investment income on net sale proceeds of these subsidiaries is
included in earnings on investments held in the parent company and reported in
the "Other" category.
Included in Net Income are realized investment gains from sale of investments.
The following table illustrates JP's results before and after the inclusion of
realized investment gains for both Continuing and Discontinued Operations:
Three Months Ended
March 31, 1995 March 31, 1994
Amount Per share Amount Per share
(Amounts in millions, except per share data)
Income before realized
investment gains:
Continuing operations $ 47.0 $ 0.97 $ 45.0 $ 0.92
Discontinued operations 2.2 0.05 1.9 0.04
Operating income $ 49.2 $ 1.02 $ 46.9 $ 0.96
Realized investment gains (net
of applicable income taxes):
Continuing operations $ 4.8 $ 0.10 $ 7.4 $ 0.15
Discontinued operations 3.0 0.06 - -
$ 7.8 $ 0.16 $ 7.4 $ 0.15
Net Income:
Continuing operations $ 51.8 $ 1.07 $ 52.4 $ 1.07
Discontinued operations 5.2 0.11 1.9 0.04
$ 57.0 $ 1.18 $ 54.3 $ 1.11
8
Consolidated Net income increased 5.1% over the prior year's first quarter to
$57.0 million. Income before investment gains (operating income) increased
5.1% to $49.2 million. Operating income from continuing operations was 4.5%
higher at $47.0 million and operating income from discontinued operations
increased 19.7% to $2.2 million.
Investment gains for the first quarter of both years relate primarily to
securities that have been classified as "available for sale" and to sale of
productive assets of JP Data Services. The following table illustrates the
sources of realized gains and (losses):
March 31, 1995 March 31, 1994
(In millions)
Common stocks $ 7.2 $11.5
Bonds and other debt instruments (14.3) 0.3
JP Data Services assets 15.7 -
Other 1.9 -
Subtotal $10.5 $11.8
Less applicable federal and state taxes (2.7) (4.4)
As reported $ 7.8 $ 7.4
The cost and fair value of investments classified as "available for sale"
or "trading securities" were as follows:
March 31, 1995 December 31, 1994
(In millions)
Cost of equity securities classified
as "available for sale" $251.8 $290.4
Fair value $726.9 $718.0
Cost of equity securities classified
as "trading" $32.9 -
Fair value $34.5 -
Amortized cost of "available for sale"
debt securities $1,701.9 $1,692.0
Fair value $1,697.6 $1,606.9
JP has periodically reacquired shares of its stock and issued additional
shares under incentive option programs. Average shares outstanding during
the first quarters of 1995 and 1994 were 48.5 million and 49.0 million. No
shares were reacquired by JP during the first quarter of 1995. Approximately
six thousand shares were issued in satisfaction of exercised stock options
during the first quarter of 1995.
Earnings per share increased 6.3% during the first quarter of 1995, partly
due to improved earnings and partly due to the impact of share repurchases.
Revenues increased 2.6% to $315.2 million over the same quarter of the prior
year. Excluding realized investment gains, revenues increased 4.8% to
$309.7 million. Total premiums, considerations, and other income (excluding
discontinued operations) increased 6.8%. Receipts on universal life and most
annuity products do not flow through income in the year of receipt but are
9
included in the liability for policyholder contract deposits. Policyholder
contract deposits increased 5.0% during the first quarter of 1995 to $1,938
million and 3.3% in 1994 to $1,627 million. Accident and health premiums
increased 3.9% to $100.4 million.
Net investment income, which is included in operating income, grew 3.9% over
the same quarter of the prior year to $96.1 million.
Revenues from the Communications segment declined 0.6% due to the disposal
of JP Data Services operations during the first quarter of 1995.
Total policy benefits and expenses increased 4.4% over the first quarter of
last year to $238.2 million. Life benefits and credits to policyholder
accounts increased 6.4% over the prior year, reflecting the growth in life
business in force. Accident and health benefits including reserve increases
were 10.3% higher in the first quarter of 1995 than in the first quarter of
1994. JP experienced a worsening in morbidity experience during the first
quarter in both conventional health and disability coverages. Net expenses
(after deferral of policy acquisition costs) declined 0.4% as the Company
improved the economies of its Individual distribution systems and increased
the portion of expenses attributable to new business sales. Cost of
Communications operations declined 7.7%, also due to the disposal of
JP Data Services operations.
Income taxes from continuing operations declined $1.6 million or 6.1% over
the same quarter of the prior year. Effective tax rates declined to 32.7%
at March 31, 1995 versus 33.8% at March 31, 1994 due to higher tax bases
than book bases on JP Data Services asset sales.
Operating Earnings by Business Segment
JP's continuing business segments include Life Insurance and Communications.
Operating income of the business segments includes investment income but
excludes net realized investment gains. Operating income and losses of the
parent company, consolidation entries and net realized investment gains are
included in the "other" category. Currently, all corporate capital is
allocated to the business segments.
The following table illustrates operating income by segments:
March 31, 1995 March 31, 1994
(In millions)
Life insurance:
Individual $32.3 $28.1
Group 8.3 10.9
40.6 39.0
Communications 6.6 5.2
Discontinued operations 2.2 1.8
Other (0.2) 0.9
Operating income 49.2 46.9
Net realized investment gains 7.8 7.4
Net income $57.0 $54.3
10
Life Insurance
The Life insurance segment is comprised of operations conducted by the
Individual and Group distribution systems.
Individual Insurance
A summary of this unit's operating results for the first quarter of 1995
and 1994 is as follows:
March 31, 1995 March 31, 1994
(In millions)
Premiums, considerations,
and other income $ 56.1 $ 50.7
Net investment income 82.5 77.4
Total revenues 138.6 128.1
Policy benefits 71.4 67.0
Expenses 19.1 19.8
Total benefits
and expenses 90.5 86.8
Operating income before
income taxes 48.1 41.3
Provision for income
taxes 15.7 13.2
Operating income $ 32.4 $ 28.1
Individual operating income improved 15.3% in the first quarter of 1995 versus
the first quarter of 1994 on the strength of expense efficiencies and
profitable growth of this book of business. As a percentage of Total
revenues, operating income for the Individual unit was 23.4% in 1995,
continuing the profit margin posted for all of 1994, and was 21.9% for the
first quarter of 1994 alone. New first-year life insurance premiums and
receipts for policyholder accounts rose 55.4% while annuity receipts increased
70.2%.
Policy benefits increased 6.5% in 1995's first quarter, reflective of the
growth of business in force. Death benefits in 1995 were 9.3% higher than the
same quarter of the prior year, primarily due to several large death claims;
however, these have not negatively impacted profitability in a material
manner. Expenses improved 3.2% in spite of the growth of the business in
force. The efficiencies were achieved through improved economies in the
Career and Home Service distribution channels, and as a result of the increase
in the proportion of expenses related to new business sales, thus deferred.
11
Group Insurance
A summary of this unit's operations follows:
March 31, 1995 March 31, 1994
(In millions)
Premiums, considerations,
and other income $114.9 $109.3
Net investment income 11.5 10.8
Total revenues 126.4 120.1
Policy benefits 93.6 85.3
Expenses 20.5 18.9
Total benefits
and expenses 114.1 104.2
Operating income before
income taxes 12.3 15.9
Provision for income
taxes 4.0 5.1
Operating income $ 8.3 $ 10.8
Group operating income declined 23.6% in the first quarter of 1995 when
compared to the same quarter of the prior year. As a percentage of Premiums
and other considerations, Operating income for the Group Department was 7.2%
in 1995's first quarter and 9.9% in 1994. Group life results improved 39.7%
to $3.1 million while health and disability results of $5.2 million were 39.7%
or $3.4 million lower as a consequence of profit pressure on JP's conventional
medical markets and worsened experience among disability coverages.
Premiums and equivalents, which include the equivalent premiums on cases
administered by the Group Department on an uninsured basis, increased 3.7% in
1995 as the Company has focused on expanding its managed care capabilities and
nonmedical coverages. Policy benefits including reserve increases on fully-
insured health coverages increased 12.2% while premium income on these same
cases only increased 4.7%. Death benefits in 1995 were 5.0% higher than the
prior year while premium income on life insurance coverages increased 7.3%.
Expenses increased 8.7%. The majority of the increases were attributable to
managed care, network access fees, and other expenses that are passed through
to customers. These increased as a result of more widespread use of managed
care provider networks.
12
Communications
A summary of this unit's operations follows:
March 31, 1995 March 31, 1994
(In millions)
Communications revenues $42.7 $43.0
Operating costs 27.8 30.1
Depreciation and
amortization 1.7 1.5
General expenses 2.5 2.4
Total expenses 32.0 34.0
Operating income before
income taxes 10.7 9.0
Provision for income taxes 4.1 3.8
Operating income $ 6.6 $ 5.2
Operating income from the Communications segment increased 25.6% over the same
quarter of the prior year. Profit improvement was attributable to both radio
and television properties. Recently acquired radio properties experienced
revenue gains and lower promotional costs. Stronger than expected demand in
established television markets also contributed to the improved operating
income.
Revenues for the quarter declined 0.7% from the first quarter of 1994.
Excluding the operations of JP Data Services, communication revenues grew
10.5%. Television, radio, and sports and entertainment contributed to this
growth, improving 13.2%, 8.4% and 7.7% respectively. All three television
properties grew due to strong local and national advertising demand. Radio
growth was also attributable to strong local and national advertising demand
and improvements in recently acquired stations. The majority of the first
quarter growth experienced by sports and entertainment was due to the
acquisition of a motor sports programming operation in the Fall of 1994.
Total expenses declined $2.0 million or 5.9%. Excluding JP Data Services,
Communications expenses increased $3.0 million, or 10.5%. The increase is
primarily attributable to costs associated with the increased revenues and
recently acquired properties. Total expenses and costs of sales, as a
percentage of revenues, remained relatively constant at 78.4% at
March 31, 1995 and 78.3% at March 31, 1994.
On February 14, 1995, substantially all of the assets and the media services
operations of Jefferson-Pilot Data Services, Inc. (JP Data Services) were sold
for aggregate consideration approximating $33 million. The Company recorded a
gain on sale of these assets after taxes of $11.1 million. Net income of JP
Data Services of $1.4 million for the three months ended in 1995 and $0.6
million for 1994 is included in operating income of the Communications
segment. It is expected that income on reinvestment of sale proceeds will be
included in parent company results in the future and that consolidated results
will not be materially affected as a result of the sale.
13
Discontinued Operations
Discontinued operations include the operations of Jefferson-Pilot Fire &
Casualty (JP F & C) and Jefferson-Pilot Title Insurance Company (JP Title).
On December 23, 1994, JP agreed to sell the stock of JP F & C, subject to
regulatory approval. Such approval was subsequently received and closing
occurred on April 3, 1995. Prior to closing, JP F & C paid a dividend in
partial liquidation in the amount of $36.2 million. At closing, the stock of
JP F & C was sold for $55 million. A gain is expected to be reported in the
second quarter financial statements of approximately $10 million, net of
taxes. JP Title was sold during the fourth quarter of 1994.
The operations of both subsidiaries are segregated as "Discontinued
Operations" in the accompanying financial statements. Operating income
attributable to Discontinued Operations increased 19.7% to $2.2 million for
the first three months of 1995 as compared to 1994. Net realized gains from
sale of securities prior to closing were $3.0 million during the first three
months of 1995, as compared to -0- for the same quarter of the prior year.
It is expected that the reinvestment of net proceeds from sale of these
subsidiaries will replace the operating income included as a component of
Discontinued Operations.
Other
Operating results categorized as "other" include earnings on investments held
in the parent company as reduced by expenses of the corporation. These
results declined to ($0.2) million for the first quarter of 1995 versus $0.9
million for the same period of the prior year due to a decline in income from
options written on equity securities held by the parent company.
CONSOLIDATED FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY
Total assets were $6,395 million at March 31, 1995 and $6,140 million at
December 31, 1994, an increase of $255 million or 4.2%. Primary sources for
asset growth were increases in policyholder contract deposits (primarily
annuities and universal life contracts), increase in fair values of securities
available for sale and cash provided by operating activities. These sources
were offset by cash dividends paid to shareholders and repayment of short-term
borrowings.
JP's Life insurance segment defers the costs of acquiring new business
including commissions, certain costs of underwriting and issuing policies, and
certain agency office expenses. Such amounts deferred were $333.0 million at
March 31, 1995 and $329.1 million at December 31, 1994, an increase of $3.9
million or 1.2%. The increase is primarily related to the incidence of
Individual first year premiums which have grown significantly in recent years,
net of amortization charged to expense and adjustments due to changes in
gross-profit assumptions reflected in the fair values of available for sale
securities. Deferred policy acquisition costs are reviewed periodically to
determine that the unamortized portion does not exceed expected recoverable
amounts.
14
Capital Resources
Consolidated shareholders' equity was $1,841 million at March 31, 1995 and
$1,733 at December 31, 1994, and no long-term debt was outstanding at either
date. Shareholders' equity includes net unrealized gains on securities
available for sale of $304.8 million at March 31, 1995 and $230.8 million at
December 31, 1994. During the first quarter of 1995 and 1994, fair values of
securities classified as available for sale, net of deferred taxes, increased
$74.0 million and $28.0 million.
JP considers existing capital resources to be more than adequate to support
the current level of its business activities. Currently, the Company does not
have any long-term debt outstanding and, while it has made no commitments for
obtaining such financing, limited amounts of long-term debt may be used to
finance acquisitions or for other corporate purposes in the future. Its
capital adequacy is illustrated by the following table:
March 31, 1995 December 31, 1994
(In millions)
Total assets $6,395 $6,140
Total shareholders' equity $1,841 $1,733
Ratio of shareholders' equity
to assets 28.8% 28.2%
The Company's ratio of capital to assets improved during the first quarter of
1995 primarily due to increases in fair values of securities available for
sale.
Liquidity
JP's liquidity requirements are met primarily by cash flows from the
operations of JP Life and other consolidated subsidiaries. The Company has
historically posted positive cash flows from operating activities of its Life
Insurance and Communications segments. Management believes that its overall
sources of liquidity will continue to be sufficient to satisfy its operating
requirements.
Net cash provided by operations as of March 31, 1995 and 1994 was $40.4
million and $72.3 million. Cash flows provided from increases in policyholder
contract deposits were $91.6 million and $51.2 million for the first quarter
of 1995 and 1994. Net (repayments) or borrowings under short-term facilities
and securities sold under repurchase agreements were $(25.4) million and
$198.4 million for the first quarter of 1995 and 1994. These sources of funds
were used to purchase net investments of $24.1 million and $289.9 million, and
to pay dividends to shareholders of $20.8 million and $20.9 million, and to
make net acquisitions of shares outstanding of -0- and $33.5 million during
the first quarter of 1995 and 1994.
Dividends paid to the parent company from its subsidiaries were $13.0 million
and $7.9 million during the first quarter of 1995 and 1994. JP Life is the
primary source of dividends to the parent company. JP Life is subject to
North Carolina laws which limit the amount of dividends that may be paid
without first obtaining the approval of the State's Insurance Commissioner.
JP Life has approximately $97 million available for distribution to the parent
company during 1995 without obtaining prior approval.
15
During 1994 and the first quarter of 1995, the Company utilized uncommitted
bank lines of credit to manage parent company cash flows, primarily due to
timing differences between receipt of dividends from subsidiaries versus
dividends paid to shareholders and purchase of its outstanding shares. The
maximum amounts outstanding at any time approximated $90.0 million during 1994
and $29.4 million during the first quarter of 1995. The maximum combined
availability of all uncommitted lines as of March 31, 1995 is $375.0 million.
Additionally, during the first quarter of 1994 the Company sold U.S. Treasury
obligations under repurchase agreements involving various counterparties.
Proceeds from such sales were used to purchase securities with longer
durations as an asset/liability management strategy. The repurchase
agreements were accounted for as a financing arrangement. The maximum amount
outstanding including accrued interest during the first quarter of 1995 and
1994 approximated the liability at March 31, 1995 of $267.7 million.
Cash and cash equivalents on hand were $84.8 million at March 31, 1995
and $22.8 million at December 31, 1994. Additionally, debt and equity
securities of the parent company and passive investment subsidiaries with
carrying amounts of $235.1 million and $188.0 million at March 31, 1995 and
December 31, 1994 are considered to be sources of liquidity to support the
Company's strategies. Proceeds from the sale of J-P F & C of approximately
$55 million are expected to increase parent company liquid resources. Total
debt and equity securities available for sale at March 31, 1995 and
December 31, 1994 are $2,424.4 million and $2,324.9 million.
INVESTMENTS
JP's strategy for managing its investment portfolio is to dependably meet its
pricing assumptions while achieving the highest possible after-tax returns
over the long term. Operating structures are in place to require that credit
and interest rate risks are prudently managed and that sufficient liquidity is
maintained.
The Company monitors investments which are considered to be "higher risk" for
compliance with the Investment Policy Statement and for proper valuation.
Securities that experience other than temporary declines in value are adjusted
to net realizable values through a charge to earnings. Commercial mortgage
loans in default are carried at the net present value of expected future cash
flows in accordance with SFAS 114 and SFAS 118.
Carrying amounts of investments categorized as "higher risk" assets were as
follows:
3-31-95 % 12-31-94 %
(In millions)
Bonds near or in default $ - - $ - -
Bonds below investment grade 109.4 2.0 122.3 2.3
Mortgage loans 61 days delinquent
or in foreclosure 0.6 - 0.9 -
Mortgage loans restructured 13.5 0.2 13.5 0.3
Foreclosed properties 6.9 0.1 7.8 0.2
Subtotal, "higher risk assets" 130.4 2.3 144.5 2.8
All other investments 5,366.5 97.7 5,098.9 97.2
Total cash and investments $5,496.9 100.0 $5,243.4 100.0
16
The Company's investment guidelines allow investments in below investment
grade bonds up to a stated percentage of adjusted statutory capital and
surplus, which amount currently approximates $200 million. In making
acquisitions of this nature, the Company attempts to identify well structured
private placements offering enhanced yields. Also, the highest tier of public
non-investment grade bonds which have the potential to be upgraded ("crossover
credits") are considered for acquisition. It is expected that the level of
non-investment grade bonds may increase; however, the Company will continue to
manage its credit risks in a prudent fashion with due regard to regulatory
constraints and efficient utilization of surplus.
During 1994 and the first quarter of 1995, JP sold call options on selected
common stock holdings classified as available for sale to reduce the price
volatility of its equity investments and as an additional source of investment
returns. Option premiums received are applied to reduce the basis of the
shares called or are recorded as investment income upon expiry. Total option
premiums received were $2.9 million and $1.8 million during the first quarter
of 1995 and 1994. The Company's Investment Policy Statement authorizes an
investment up to $50 million in trading securities shares for the primary
purpose of writing covered call options in expectation of enhanced total
returns from option premiums, market appreciation and dividends received.
Balances of portfolios classified as "Trading securities" were $34.5 million
at March 31, 1995 and -0- at December 31, 1994. The Company has not utilized
derivative financial instruments other than collateralized mortgage
obligations (CMO) and covered call options, and has no current plans to do so.
As discussed in the Liquidity section, the Company sold securities under
repurchase agreements as an asset/liability management strategy.
JP held the following CMO's at the dates reported:
3-31-95 12-31-94
(In millions)
Available for sale, at fair value:
Federal agency issued CMO's $ 417.4 $ 366.8
Corporate private-labeled CMO's 120.6 87.0
Held to maturity at amortized cost:
Federal agency issued CMO's 509.9 509.7
Total $1,047.9 $ 963.5
The Company's investment strategy with respect to CMO's focuses on actively-
traded, less volatile issues that produce relatively stable cash flows.
CMO holdings for the years under report consist predominately of the least
volatile Planned Amortization Classes and sequential tranches of federal
agency issuers.
The asset/liability management process focuses primarily on the management of
interest rate risk. JP monitors the durations of insurance liabilities for
comparison to the durations of assets backing the insurance lines. The
Company also considers the timing of the cash flows arising from the assets
and liabilities under different interest rate scenarios. It is the intention
of management that option-adjusted durations for interest sensitive portfolios
such as universal life and annuities remain very closely matched. A wider
tolerance is permissible for the non-interest sensitive (traditional)
portfolios. At March 31, 1995 and December 31, 1994, respectively, 40.5% and
39.7% of JP Life's invested assets at amortized cost were held for interest
sensitive portfolios, and 59.5% and 60.3% were held for traditional portfolios
and corporate capital and surplus.
17
Accounting Pronouncements
SFAS 114," Accounting by Creditors for Impairment of a Loan" is effective for
the Company's 1995 consolidated financial statements. SFAS 114, as amended by
SFAS 118, requires that certain impaired loans be reported at the net present
value of expected future cash flows, the loan's observable market price or the
fair value of the underlying collateral. The Company adopted the provisions
of SFAS 114 of January 1, 1995; however, no significant effect on the
consolidated financial statements resulted from the adoption of SFAS 114.
Potential Acquisition of Kentucky Central Life Insurance Company
The Kentucky Insurance Commissioner has submitted to the Circuit Court of
Franklin County, Kentucky a proposed plan of rehabilitation for Kentucky
Central Life Insurance Company, which was seized in February 1993. Under
the proposed plan, JP Life would acquire most of Kentucky Central's life
insurance business. On August 18, 1994, the Circuit Court approved the plan.
The Circuit Court's order was subsequently appealed by a group of Kentucky
Central's stockholders. On May 11, 1995, the Kentucky Supreme Court
unanimously affirmed the Circuit Court's decision authorizing the sale of
this business to JP Life. A mid-year closing of this acquisition is
expected. Kentucky Central reported statutory basis life reserves and
deposit liabilities totaling approximately $1 billion as of December 31, 1993.
18
PART II. OTHER INFORMATION
JEFFERSON-PILOT CORPORATION
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
(a) Exhibits:
Exhibit No. Page No.
(27) Financial Data Schedule 21
(b) Reports on Form 8-K: There were no reports on Form 8-K filed for the
three months ended March 31, 1995.
19
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) Dennis R. Glass
(Name and Title) Dennis R. Glass, Treasurer
Date May 15, 1995
/s/ Reggie D. Adamson
(Name and Title) Reggie D. Adamson,
Senior Vice President
(Principal Accounting Officer)
Date May 15, 1995
20