Discontinued operations of the Registrant are discussed in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, below.
Earnings per share were: 1995 1994 1993 Income applicable to common shareholders before effect of initial application of SFAS 106 and realized investment gains: Continuing operations $ 3.09 $ 2.62 $ 2.31 Discontinued operations .03 .13 .11 Operating income 3.12 2.75 2.42
Income taxes from continuing operations increased $7.7 million, or 6.6%, and $16.8 million, or 16.7%, in 1994. Effective tax rates were 33.0%, 33.9%, and 32.5% in 1995, 1994, and 1993. 1995's effective tax rate decreased because of recoveries and reductions of prior years' taxes. 1994's effective tax rate increased as a result of a reduction in the percentage of tax-favored investments.
Operating income applicable to common shareholders 223.5 200.2 182.0 Net realized investment gains 49.5 39.0 37.3 Income before cumulative effect of change in accounting principle $273.0 $239.2 $219.3
Operating income from all business segments increased $23.3 million, or 11.6%, in 1995 and $18.2 million, or 10.0%, in 1994. Product lines contributing to the increase were: Increase (Decrease) 1995 1994 (In millions) Life Insurance: Individual Life Insurance $ 26.0 $ 2.1 Annuity and Investment Products 10.1 5.0 Group Insurance (6.5) 3.1 29.6 10.2 Communications 1.5 4.7 Other (0.8) 2.1 Subtotal, before discontinued operations 30.3 17.0 Discontinued operations (7.0) 1.2 Total $ 23.3 $ 18.2
Operating income before income taxes 61,617 46,750 38,944 42,549 34,958 Provision for income taxes 20,157 15,277 12,524 11,953 9,702
Operating income $ 41,460 $ 31,473 $ 26,420 $ 30,596 $ 25,256
Operating costs 113,394 120,833 100,100 93,561 92,334 Depreciation and amortization 9,142 10,139 10,757 8,303 9,642 General expenses 4,269 5,297 6,522 3,608 5,046 Total expenses 126,805 136,269 117,379 105,472 107,022
Operating income $ 23,595 $ 21,986 $ 17,335 $ 14,169 $ 10,327
Dividend payments on the $50 million floating rate preferred stock issued to HI also require advance approval prior to October 2, 1996, and all interest payments on the $50 million surplus note held by a JP subsidiary also require advance approval. The first quarter 1996 payments were approved.
During 1995 and 1994, JP sold call options on selected common stock holdings classified as "Available for Sale" to reduce the market risk of these equities and as an additional source of investment returns. Premiums received from these options are applied to reduce the basis of the shares called or are recorded as investment income upon expiry. The Company's Investment Policy
liability values to changes in interest rates. JP monitors the duration of insurance liabilities for comparison to the duration of assets backing the insurance lines. Responsibility for monitoring interest rate risk lies with the Company's Asset/Liability Management Committee, which is made up of Finance, Investment, and Actuarial senior management. This group is charged with continually monitoring and refining the Company's position in an attempt to prudently balance profitability and risk for each insurance line and for the Company in the aggregate.
consolidated financial statements. The statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstance indicate that the carrying amount of an asset may not be recoverable. The statement requires that such assets be carried at the lower of carrying value or fair value, less cost to sell, and that impairment losses resulting from its application be reported in the period in which the recognition criteria are first met. The Company has not yet completed its analysis of the effects, if any, that initial application of SFAS 121 might have on its consolidated financial statements.
March June September December 31 30 30 31 Revenues, including net investment income and realized gains on investments $315,237 $328,862 $381,580 $543,737 Benefits and expenses 238,213 254,658 282,499 413,284 Provision for income taxes 25,152 23,083 33,649 43,565 Income from continuing operations $ 51,872 $ 51,121 $ 65,432 $ 86,888 Discontinued operations, net income taxes 5,133 13,408 0 0 Dividends on preferred stock 0 0 0 857 Net income applicable to common shareholders $ 57,005 $ 64,529 $ 65,432 $ 86,031 Per share of common stock $ .79 $ .90 $ .92 $ 1.21
In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Jefferson-Pilot Corporation and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles.
Income before cumulative effect of change in accounting principle 3.81 3.28 2.91
(331,568) 432,972 - 101,404 - - - 239,237 - - - (83,357) - - - 7,751 - - - (63,438) - (202,125) - (202,125)
- 230,847 - 1,732,543 - - - 273,854 - - - (91,222) - - - (857) - - - 1,046 - - - (53,048) - - - (109) - 295,877 (2,025) 293,852
Debt securities: 		 				 Sales, maturities, calls, redemptions - - 951,899 Purchases - - (1,377,593)
Investments in debt and equity securities: The Company's investments in debt securities include notes, bonds, collateralized mortgage obligations, convertible and other debt instruments, and redeemable preferred stocks. Investments in equity securities include common and nonredeemable preferred stocks.
Cost of acquired businesses in excess of net assets: Prior to 1995, the cost of acquired businesses in excess of net assets included the excess of amounts paid in acquisitions of radio and television properties and electronic data processing operations over the value of identifiable tangible and intangible net assets obtained. Excess of cost over identifiable tangible and intangible net assets obtained in the acquisition of Alexander Hamilton Life Insurance Company and affiliates is included in the December 31, 1995 amount.
Premiums on accident and health insurance are reported as earned, over the contract period. A reserve is provided for the portion of premiums written which relate to unexpired coverage terms.
Future policy benefits: Liabilities for future policy benefits on traditional life and accident and health insurance are computed by the net level premium valuation method based on assumptions about future investment yield, mortality, morbidity and termination. Estimates about future circumstances are based principally on the historical experience of the life insurance subsidiaries and provide for possible unfavorable deviations.
On December 23, 1994, the Company signed a definitive agreement to sell Jefferson-Pilot Fire & Casualty Company (JPF&C) to Southern Guaranty Insurance Company, a subsidiary of Winterthur U. S. Holdings. In preparation for the sale, JPF&C sold a portion of its securities portfolio in the open market and transferred net assets carried at approximately $32 million to its immediate parent company. After regulatory approval, the sale was closed on April 3, 1995 for $55 million in cash. The Company realized a gain of $16.4 million from the disposition of JPF&C, net of income taxes of $4 million.
Individual Annuity Mortality Table and the 1969-71 U. S. Life Tables. For similar AH Life products issued after 1986, mortality assumptions are based on blends of the 1983a and 1979-81 U. S. Life Tables. For AH Life's pre-1993 term insurance policies (pre-1994 for FAHL term policies), mortality assumptions are based on the 1965-70 Basic Table, adjusted for company experience. From 1993 forward (1994 forward), mortality assumptions used in the valuation of AH Life's ("FAHL's") term insurance policies are based on the 1975-80 Basic Table, adjusted for company experience.
The exercise price per share for all options awarded under the Directors' Plan is 100% of the market value per share on the date of award, payable in full upon exercise in cash, shares of the Company's common stock, or a combination of the two. Options awarded under the Directors' Plan terminate ten years from the date of award and are subject to earlier termination under certain circumstances. Any shares subject to an option that expires or terminates unexercised will again be available for option under the Directors' Plan. The Directors' Plan will terminate as to further awards on March 31, 1999.
Capital and surplus/stockholder's equity as of December 31, 1995 $ 281,722 $ 584,194
The rights expire on November 7, 2004 and are redeemable upon action by the Board at a price of $.01 per right at any time before they become exercisable.
Current expense $ 116,123 $ 109,794 $ 108,738 Deferred expense (benefit) 9,326 7,913 (7,841) Income taxes reported with income from continuing operations before cumulative effect of change in accounting principle 125,449 117,707 100,897 Income taxes reported with income discounted discontinued operations 4,089 1,603 1,853 Deferred income tax benefit reported with cumulative effect of change in accounting principle - - (12,926) Aggregate reported income taxes $ 129,538 $ 119,310 $ 89,824
Prior to 1993, the cost of providing postretirement health care and life insurance benefits was recognized in the year paid. In 1993, the Company adopted SFAS 106 Employers' Accounting for Postretirement Benefits Other Than Pensions. SFAS 106 requires accrual of the cost of providing postretirement benefits during the employees' active service periods and covers all postretirement benefits other than pensions that an employer expects to provide to current and former employees. The Company elected to immediately recognize the accumulated obligation for postretirement benefits under SFAS 106, which represents the actuarial present value of future benefits attributable to the service of eligible employees to January 1, 1993. Accordingly, the consolidated statement of income for 1993 includes a charge of $24,109,000, representing initial recognition of the accumulated benefit obligation of $37,035,000, net of deferred tax benefit of $12,926,000.
The following table sets forth the funded status of the Company's postretirement health care and life insurance plans as of December 31, 1995 and 1994 (in thousands):
Accumulated postretirement 								 benefit obligation in excess of plan assets (13,663) (10,600) (9,988) (8,187)
AH Life and FAHL have reinsured with affiliates of Household the PPA, COLI and Affiliated business written prior to the acquisition, all on a coinsurance basis with 100% reinsurance, settled monthly. AH Life is compensated by the reinsurers for administrative services related to the reinsured business. The amount due from reinsurers as reported in the December 31, 1995 consolidated balance sheet includes $1,404,308,000 due from the Household affiliates under these reinsurance agreements.
Cash and cash equivalents: 						 Beginning 8,449 1,771 5,568 Ending $ 2,947 $ 8,449 $ 1,771
The Company's continuing operations are conducted principally through the following business segments:
Depreciation and amortization 						 Life insurance $ 6,125 $ 4,842 $ 4,918 Communications 9,142 10,139 10,757 Corporate and other 652 88 54 Consolidated $ 15,919 $ 15,069 $ 15,729