While the Company's investment policies have not been designed to maximize realized investment gains, during 1992 and 1993 such gains were much higher than those realized in 1994. In the past two years, dispositions of securities have been caused principally by: (1) calls prior to maturity by issuers, (2) a desire to extend moderately the average life of the portfolio, and (3) the Company's ongoing process of continually monitoring its investments with a view toward maximizing the quality ratings and diversification of its portfolio. In 1994, approximately 64% of total dispositions represented maturities and early calls of existing holdings; for the year 1993 these amounted to approximately 58% of all securities sales and dispositions.
Page No. -------- Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . 23 Consolidated Statements of Income . . . . . . . . . . . . . . . . 25 Consolidated Statements of Preferred Stock and Common Shareholders' Equity . . . . . . . . . . . . . . . . . . 26 Consolidated Statements of Cash Flows . . . . . . . . . . . . . . 27 Notes to Consolidated Financial Statements. . . . . . . . . . . . 28 Report of Independent Accountants . . . . . . . . . . . . . . . . 47
Life Insurance companies domiciled in the United States and qualifying as life insurers for tax purposes are taxed under special provisions of the Internal Revenue Code. As a result of legislation, 1983 and prior years' tax deferred earnings (cumulatively $20.7 at December 31, 1993) credited to the former memorandum policyholders' surplus account" will not be taxed unless they are subsequently distributed to shareholders. The Company does not presently anticipate any distribution or payment of taxes on such earnings in the future.
(n) Earnings Per Share-Consolidated primary earnings per share are based upon the weighted average number of shares outstanding during each year, retroactively adjusted for all stock dividends and splits declared through December 31, 1994. Dividend requirements of $5.1 in 1994, $5.2 in 1993 and $6.0 in 1992 on preferred stock have been considered in per share calculations. The average number of common shares used in 1994, 1993 and 1992 earnings per share calculations reflect the pro forma inclusion of 5,323,170, 5,476,047 and 5,704,688 incremental common shares, respectively, which would be issued upon conversion and/or exercise of dilutive convertible preferred and stock option shares. Fully diluted earnings per share are similarly calculated with the inclusion of substantially all convertible securities and stock options includable for each year; no such data is shown when the calculations are anti-dilutive.
(d) Stock Option Plans-The Corporation has had non-qualified, stock option plans (the 1979, 1985 and 1992 plans) for its key employees and those of its eligible subsidiaries since 1979. The plans provide for the issuance of options for up to 5% of the Old Republic common stock issued and outstanding at any one time. The term of each option is generally 10 years from the date of grant. Under ordinary circumstances, options may be exercised to the extent of 10% of the number of shares covered thereby on and after the date of grant and cumulatively to the extent of an additional 10% on and after each of the first through ninth anniversaries of the date of grant. The Corporation may extend 15 year loans at a prevailing market rate of interest for a portion of the exercise price. Amendments to the plans also enable optionees to, alternatively, exercise their options into Series "G" or Series "G-2" Convertible Preferred Stock. The exercise of options into such Series "G" or Series "G-2" Convertible Preferred stock reduces by 5% the number of equivalent common shares which would have otherwise been obtained from the exercise of options.