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INSURANCE COMPANIES:

Southern Insurance Company, the wholly owned subsidiary
specializing in automobile physical damage coverages, had net
earnings of $89,429.53, compared to a loss of $8,449.14 during
the previous year. Net income before provisions for taxes on
income amounted to $171,429.53, compared to the previous
year's loss of $21,449.14. Net premiums written, after deducting
$536,021 of premiums ceded, decreased $649,078 to $2,764,054.
Net earnings of Industrial Life Insurance Company decreased
$243,370.61 from $598,567.88 for the year ended October 31,

1959 to $355,197.27 for the current year. The decrease in net earnings is the result of an accounting change that has no material effect on consolidated earnings. Net premiums written by this subsidiary increased $728,313 over the previous year.

Satisfactory progress was made in the solicitation of insurance premiums from sources other than the parent company. This division made a substantial contribution to the consolidated net earnings and will be an important factor in the earnings picture in future years.

FEDERAL INCOME TAXES: The government's claim for an additional assessment of federal income tax was settled during the year. The financial statements

for the years involved, used in this report for comparative purposes, have been re-stated to give effect to the settlement, and the 1960 provision for taxes is based on the principles involved in the settlement.

PERSONNEL:

The personnel development program was continued throughout the year with emphasis being placed on the training of employees in the operation of a dual office. Sales discount personnel were indoctrinated in operations of a direct loan office, and direct loan personnel were schooled in sales discount oper ations, at a series of one-week schools held at the home office. At the branch level, on-the-job training was stressed with abundant use of audio-visual training aids and training courses pre

pared by the employee training department. Well trained employees will be available to staff the managerial positions in new combination offices to be opened under the Company's expansion program.

The Company makes an annual contribution of 5% of net profits before taxes to the profit sharing fund for employees. The 1960 contribution was $50,102.76, compared to $38,988.19 in 1959. The employees' noncontributory life insurance program was revised by approximately doubling the amount of insurance in force for each employee.

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PEAT, MARWICH, Mricheta, & Go

BAIKAN 1. PRRAR

The hoard of Direcik
Allied Finance Company

Accountants' Report

We have examined the dnnaptobated balance beat of
Allied Finance Company and auhajdiarios ne of t
bey 11, 1960 and the related statement of earnings
and surplus for the year then ended. We have ale
examined the apparate balance abeta of Smithers In
Aurance Company and of Industrial Life Insuranc
Company as of October 31, 1960. Our esamination
were made in accordance wit henerally acceptin
auditing standards, and motordingly included such

In our opinion, the accompanying

mulated in

went with that of the preceding year,

Dallas, Texas

PRAT, MARWICK, MITCHELL & GO

December 16, 1960

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1960

October 31, 1960

with comparative figures for 1959

1959

Cash

United States Government obligations, at amortized value (market value, $598,003.75) of which
$423,000.00 par value is on deposit with regulatory authorities under statutory requirements.
Notes receivable (including amounts maturing after one year):

Retail installment notes.

Direct installment loans.

Wholesale

$ 7,557,294.17

$ 7,313,681.26

694,626.40

10,114,736.39

607,097.32

21,785,777.36

21,137,599.45

10,900,328.77

3,488,846.37

2,758,346.96

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Fixed assets (at cost), less allowance for depreciation:

Home office property, net of encumbrance, 1960, $401,077.39 (note 3)
Other

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189,415.13

168,443.10

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73326 0-61-pt. 2

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Dealers' and agents' reserves.

Policy reserve and reserve for insurance losses.

Unearned insurance premiums....

Long-term notes payable - nonsubordinated (noncurrent portion):

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4%, maturing annually through 1965.

44%, maturing annually through 1968.

1,600,000.00 2,100,000.00

733,063.61 676,025.67 3,042,051.86

2,000,000.00 2,400,000.00

Total noncurrent portion of long-term notes payable nonsubordinated.

3,700,000.00

4,400,000.00

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5% capital notes, maturing annually through 1970.

6% capital notes, maturing annually through 1975.

6% capital debentures, sinking fund contributions annually through 1972.

Total noncurrent portion of subordinated debt.

Stockholders' equity:

Cumulative preferred stock, $100.00 par value per share (note 4):

5%; authorized and issued 19,617 shares; outstanding, 1960, 19,338 shares.

6%, 1958 Series; authorized and issued 5,000 shares; outstanding, 1960, 4,875 shares.
6%, 1956 Series; authorized, issued and outstanding, 5,000 shares.

Common stock, $5.00 par value per share; 1960, authorized, issued and outstanding.

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Total noncurrent portion of subordinated debt and stockholders' equity.

See accompanying notes to financial statements.

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5,818,918.98

4,948,243.28

Deductions:

Operating expenses

2,749,502.40

Provision for losses (finance operations)

502,673.88

2,574,957.78
396,080.36

Amortization of excess of cost of a finance subsidiary's stock over book value

at date of acquisition.

Amortization of deferred development expense.

2,292.71
9,974.19

3,930.24

Total deductions

3,264,443.18

2,974,968.38

Remainder

2,600,415.80

2,043,871.90

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456,100.00

534,932.10

535,146 54

Finance charges earned on retail installment notes and discount-basis installment loans.
Interest on wholesale and other receivables.

$3,757,140.43

$3,238,567.51

267,539.76

183,422.00

Insurance premium income, less commissions, losses and loss expenses.

1,571,694.43

1,409,606.29

Sundry

222,544.36

116,647.48

Total income

during the development period.. Add deferment of development expenses - excess of new loan office expenses over income

2,554,475.80

1,973,274.90

45,940.00

70,597.00

Earnings from operations before cost of borrowings and taxes on income.

Cost of borrowings:

Interest on short-term notes payable

Interest on long-term debt.

Amortization of debt discount and expense

Total cost of borrowings.

Earnings before taxes on income.

Federal and state taxes on income, estimated (note 2)

Net earnings

1,085,319.22

748,363.07

487,808.43

443,344.46

36,256.05

35,523.74

1,609,383.70

1,227,231.27

991,032.10

816,640.63

281,494.09

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