##### 



FORM 10-Q   Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934 For Quarter Ended June 30, 2004
    
    Commission file number 1-5955
 Jefferson-Pilot Corporation  North Carolina
    
    
    56-0896180(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)100 North Greene Street, Greensboro, North Carolina
    
    
    27401(Address of principal executive offices)
    
    (Zip Code)
 (336) 691-3000
(Registrants telephone number, including area code) Indicate by check mark 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 preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [   ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes [X] No [   ] Number of shares of common stock outstanding at June 30, 2004
    
    
    136,471,398




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##### 



JEFFERSON-PILOT CORPORATION  
 INDEX - Page No. -Part I.
    
    Financial InformationItem 1.
    
    Consolidated Unaudited Condensed Balance Sheets - June 30, 2004 and December 31, 2003
    
    
    3Consolidated Unaudited Condensed Statements of Income - Three and Six Months ended June 30, 2004 and 2003
    
    
    4Consolidated Unaudited Condensed Statements of Cash Flows - Six Months ended June 30, 2004 and 2003
    
    
    5Notes to Consolidated Unaudited Condensed Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    42Item 4.
    
    Controls and Procedures
    
    
    42Part II.
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    
    43Item 2.
    
    Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
    
    
    43Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    44Signatures
    
    
    
    
    45Exhibit Index,
followed by Exhibits
    
    
    46
  2




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##### 



PART I - FINANCIAL INFORMATION 
 Item 1. Financial Statements JEFFERSON-PILOT
CORPORATION AND SUBSIDIARIES CONSOLIDATED UNAUDITED
CONDENSED BALANCE
SHEETS
 June 30
    
    December 312004
    
    2003(Dollar Amounts inMillions ExceptShare Information)ASSETSInvestments:Debt securities available for sale, at fair value
(amortized cost $18,176 and $16,819)
    
    $
    18,602
    
    
    $
    17,706Debt securities held to maturity, at amortized cost
(fair value $2,649 and $2,918)
    
    
    2,545
    
    
    
    2,752Equity securities available for sale, at fair value
(cost $237 and $304)
    
    
    652
    
    
    
    756Mortgage loans on real estate
    
    
    3,612
    
    
    
    3,472Policy loans
    
    
    844
    
    
    
    869Real estate
    
    
    126
    
    
    
    132Other investments
    
    
    133
    
    
    
    65Total investments
    
    
    26,514
    
    
    
    25,752Cash and cash equivalents
    
    
    69
    
    
    
    72Accrued investment income
    
    
    339
    
    
    
    326Due from reinsurers
    
    
    1,356
    
    
    
    1,340Deferred policy acquisition costs and value
of business acquired
    
    
    2,486
    
    
    
    2,230Goodwill
    
    
    312
    
    
    
    312Assets held in separate accounts
    
    
    2,234
    
    
    
    2,166Other assets
    
    
    686
    
    
    
    498Total assets
    
    $
    33,996
    
    
    $
    32,696LIABILITIES AND STOCKHOLDERS EQUITYPolicy liabilities:Future policy benefits
    
    $
    3,042
    
    
    $
    2,674Policyholder contract deposits
    
    
    21,350
    
    
    
    20,642Dividend accumulations and other policyholder funds on deposit
    
    
    247
    
    
    
    251Policy and contract claims
    
    
    254
    
    
    
    165Other
    
    
    757
    
    
    
    638Total policy liabilities
    
    
    25,650
    
    
    
    24,370Commercial paper borrowings
    
    
    187
    
    
    
    654Obligations
under repurchase agreements
    
    
    509
    
    
    
    401Long-term notes payable
    
    
    600
    
    
    
    Junior subordinated debentures
    
    
    309
    
    
    
    309Currently recoverable income taxes
    
    
    (21
    )
    
    
    (72
    )Deferred income tax liabilities
    
    
    498
    
    
    
    543Liabilities related to separate accounts
    
    
    2,234
    
    
    
    2,166Accounts payable, accruals and other liabilities
    
    
    510
    
    
    
    519Total liabilities
    
    
    30,476
    
    
    
    28,890Stockholders Equity:Common stock and paid in capital, par value $1.25 per share: authorized
350,000,000 shares; issued and outstanding 2004-136,471,398 shares;
2003-140,610,540 shares
    
    
    171
    
    
    
    176Retained earnings
    
    
    2,899
    
    
    
    2,947Accumulated other comprehensive income
    
    
    450
    
    
    
    6833,520
    
    
    
    3,806Total liabilities and stockholders equity
    
    $
    33,996
    
    
    $
    32,696
 See Notes to Consolidated Financial Statements 3




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##### 



JEFFERSON-PILOT
CORPORATION AND SUBSIDIARIES 
 CONSOLIDATED UNAUDITED
CONDENSED STATEMENTS OF INCOME
 Three Months Ended
    
    Six Months EndedJune 30
    
    June 302004
    
    2003
    
    2004
    
    2003(Dollar Amounts in
    
    (Dollar Amounts inMillions Except
    
    Millions ExceptShare Information)
    
    Share Information)Revenue:Premiums and other considerations
    
    $
    352
    
    
    $
    239
    
    
    $
    632
    
    
    $
    470Universal life and investment product charges
    
    
    183
    
    
    
    167
    
    
    
    365
    
    
    
    339Net investment income
    
    
    414
    
    
    
    415
    
    
    
    820
    
    
    
    825Realized investment gains
    
    
    10
    
    
    
    20
    
    
    
    34
    
    
    
    1Communications sales
    
    
    57
    
    
    
    51
    
    
    
    115
    
    
    
    101Broker-dealer concessions and other
    
    
    31
    
    
    
    24
    
    
    
    66
    
    
    
    48Total revenue
    
    
    1,047
    
    
    
    916
    
    
    
    2,032
    
    
    
    1,784Benefits and Expenses:Insurance and annuity benefits
    
    
    585
    
    
    
    504
    
    
    
    1,126
    
    
    
    1,002Insurance commissions, net of deferrals
    
    
    68
    
    
    
    25
    
    
    
    127
    
    
    
    50General and administrative expenses, net of deferrals
    
    
    47
    
    
    
    39
    
    
    
    85
    
    
    
    70Insurance taxes, licenses and fees
    
    
    20
    
    
    
    18
    
    
    
    37
    
    
    
    39Amortization of policy acquisition costs and value of business acquired
    
    
    75
    
    
    
    81
    
    
    
    142
    
    
    
    163Interest expense
    
    
    12
    
    
    
    8
    
    
    
    23
    
    
    
    17Communications operations
    
    
    29
    
    
    
    27
    
    
    
    66
    
    
    
    62Total benefits and expenses
    
    
    836
    
    
    
    702
    
    
    
    1,606
    
    
    
    1,403Income before income taxes and cumulative effect of change in
accounting principle
    
    
    211
    
    
    
    214
    
    
    
    426
    
    
    
    381Income taxes
    
    
    69
    
    
    
    74
    
    
    
    143
    
    
    
    132Income before cumulative effect of change in accounting principle
    
    
    142
    
    
    
    140
    
    
    
    283
    
    
    
    249Cumulative effect of change in accounting for long-duration contracts,
net of taxes
    
    
    
    
    
    
    
    
    
    
    (13
    )
    
    
    Net income
    
    $
    142
    
    
    $
    140
    
    
    $
    270
    
    
    $
    249Average number of shares outstanding
    
    
    138.3
    
    
    
    142.0
    
    
    
    139.5
    
    
    
    142.4Net Income Per Share of Common Stock:Net income
    
    $
    1.03
    
    
    $
    0.99
    
    
    $
    1.94
    
    
    $
    1.75Net income - assuming dilution
    
    $
    1.02
    
    
    $
    0.98
    
    
    $
    1.92
    
    
    $
    1.74Dividends declared per common share
    
    $
    0.380
    
    
    $
    0.330
    
    
    $
    0.710
    
    
    $
    0.633
 See Notes to Consolidated Financial Statements 4




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##### 



JEFFERSON-PILOT CORPORATION 
 CONSOLIDATED UNAUDITED CONDENSED
 STATEMENTS OF CASH FLOWS
 (In Millions)
 Six Months EndedJune 302004
    
    2003Cash Flows from Operating Activities
    
    $
    647
    
    
    $
    208Cash Flows from Investing Activities:Securities and loans purchased, net
    
    
    (1,152
    )
    
    
    (476
    )Other investing activities
    
    
    (106
    )
    
    
    1Net cash used in investing activities
    
    
    (1,258
    )
    
    
    (475
    )Cash Flows from Financing Activities:Policyholder contract deposits
    
    
    1,447
    
    
    
    1,183Policyholder contract withdrawals
    
    
    (762
    )
    
    
    (748
    )Net borrowings (repayments)
    
    
    241
    
    
    
    (48
    )Net repurchase of common shares
    
    
    (227
    )
    
    
    (46
    )Cash dividends paid
    
    
    (99
    )
    
    
    (90
    )Other financing activities
    
    
    8
    
    
    
    1Net cash provided by financing activities
    
    
    608
    
    
    
    252Decrease in cash and cash equivalents
    
    
    (3
    )
    
    
    (15
    )Cash and cash equivalents at beginning of period
    
    
    72
    
    
    
    67Cash and cash equivalents at end of period
    
    $
    69
    
    
    $
    52Supplemental Cash Flow Information:Income taxes (received) paid
    
    $
    (6
    )
    
    $
    167Interest paid
    
    $
    18
    
    
    $
    20
 See Notes to Consolidated Financial Statements 5




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##### 



JEFFERSON-PILOT CORPORATION 
 NOTES TO CONSOLIDATED UNAUDITED CONDENSED FINANCIAL STATEMENTS  1. Basis of Presentation The accompanying consolidated unaudited condensed financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included. All significant intercompany accounts and transactions have
been eliminated in consolidation. Operating results for the six-month period
ended June 30, 2004 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2004. Certain prior year amounts have
been reclassified to conform with the current year presentation. 2. Significant Accounting Policies Stock Based Compensation The Company accounts for stock incentive awards in accordance with APB Opinion
No. 25, Accounting for Stock Issued to Employees, and accordingly, recognizes
no compensation expense for stock option awards to employees or directors when
the option price is not less than the market value of the stock at the date of
award. The Company recognizes expense utilizing the fair value method in
accordance with SFAS 123 for stock options granted to non-employees,
specifically agents. SFAS 123 requires the presentation of pro forma information as if the Company
had accounted for its employee and director stock options granted after
December 31, 1994 under the fair value method of that Statement. 6




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##### 



The following is a reconciliation of reported net income and proforma
information as if the Company had adopted SFAS 123 for its employee and
director stock option awards: Three Months Ended
    
    Six Months EndedJune 30
    
    June 302004
    
    2003
    
    2004
    
    2003Net income, as reported
    
    $
    142
    
    
    $
    140
    
    
    $
    270
    
    
    $
    249Deduct: Total
stock-based employee
compensation expense
determined under fair
value based method for
all awards, net of
related tax effects
    
    
    1
    
    
    
    
    
    
    
    4
    
    
    
    3Pro forma net income
available to common
stockholders
    
    $
    141
    
    
    $
    140
    
    
    $
    266
    
    
    $
    246Earnings per share
available to common
stockholders, as
reported
    
    $
    1.03
    
    
    $
    0.99
    
    
    $
    1.94
    
    
    $
    1.75Pro forma earnings per
share available to
common stockholders
    
    $
    1.02
    
    
    $
    0.99
    
    
    $
    1.90
    
    
    $
    1.73Earnings per share
available to common
stockholders -
assuming dilution, as
reported
    
    $
    1.02
    
    
    $
    0.98
    
    
    $
    1.92
    
    
    $
    1.74Pro forma earnings per
share available to
common stockholders -
assuming dilution
    
    $
    1.01
    
    
    $
    0.98
    
    
    $
    1.89
    
    
    $
    1.72
 Except as described otherwise herein, all significant accounting policies
remain as we described in our Form 10-K for 2003. 3. Segment Reporting The Company has five reportable segments that are defined based on the nature
of the products and services offered: Individual Products, Annuity and
Investment Products (AIP), Benefit Partners, Communications, and Corporate and
Other. The segments remain as we described in our Form 10-K for 2003. The following table summarizes certain financial information regarding the
Companys reportable segments: June 30
    
    December 312004
    
    2003AssetsIndividual Products
    
    $
    18,283
    
    
    $
    17,717AIP
    
    
    10,445
    
    
    
    9,941Benefit Partners
    
    
    1,765
    
    
    
    1,079Communications
    
    
    214
    
    
    
    210Corporate & other
    
    
    3,289
    
    
    
    3,749Total assets
    
    $
    33,996
    
    
    $
    32,696
 7




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##### 



Three Months Ended
    
    Six Months EndedJune 30
    
    June 302004
    
    2003
    
    2004
    
    2003RevenuesIndividual Products
    
    $
    444
    
    
    $
    439
    
    
    $
    888
    
    
    $
    881AIP
    
    
    178
    
    
    
    173
    
    
    
    353
    
    
    
    343Benefit Partners
    
    
    331
    
    
    
    208
    
    
    
    582
    
    
    
    406Communications
    
    
    55
    

    
    
    50
    
    
    
    113
    
    
    
    100Corporate & Other
    
    
    29
    
    
    
    26
    
    
    
    62
    
    
    
    531,037
    
    
    
    896
    
    
    
    1,998
    
    
    
    1,783Realized investment gains, before
taxes
    
    
    10
    
    
    
    20
    
    
    
    34
    
    
    
    1Total revenues
    
    $
    1,047
    
    
    $
    916
    
    
    $
    2,032
    
    
    $
    1,784Reportable segments results and
reconciliation to net income available
to common stockholdersIndividual Products
    
    $
    75
    
    
    $
    74
    
    
    $
    150
    
    
    $
    150AIP
    
    
    20
    
    
    
    22
    
    
    
    39
    
    
    
    43Benefit Partners
    
    
    20
    
    
    
    12
    
    
    
    31
    
    
    
    24Communications
    
    
    13
    
    
    
    12
    
    
    
    24
    
    
    
    19Corporate & Other
    
    
    7
    
    
    
    7
    
    
    
    17
    
    
    
    12Total reportable segment results
    
    
    135
    
    
    
    127
    
    
    
    261
    
    
    
    248Realized investment gains, net of
taxes
    
    
    7
    
    
    
    13
    
    
    
    22
    
    
    
    1Income before cumulative effect of
change in accounting principle
    
    
    142
    
    
    
    140
    
    
    
    283
    
    
    
    249Cumulative effect of change in
accounting principle
    
    
    
    
    
    
    
    
    
    
    (13
    )
    
    
    Net income
    
    $
    142
    
    
    $
    140
    
    
    $
    270
    
    
    $
    249
 8




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##### 



Default charges for Individual, AIP and Benefit Partners were $11, $7, $1 and
$20, $11, $1 for the six months ended June 30, 2004 and 2003. 4. Income from Continuing Operations Per Share of Common Stock The following table sets forth the computation of earnings per share and
earnings per share assuming dilution: Three Months Ended
    
    Six Months EndedJune 30
    
    June 302004
    
    2003
    
    2004
    
    2003Numerator:Net income before cumulative
effect of change in accounting principle
    
    $
    142
    
    
    $
    140
    
    
    $
    283
    
    
    $
    249Cumulative effect of change
in accounting principle, net
of taxes
    
    
    
    
    
    
    
    
    
    
    (13
    )
    
    
    Numerator for earnings per
share and earnings per
share  assuming dilution 
Net income available to
common stockholders
    
    $
    142
    
    
    $
    140
    
    
    $
    270
    
    
    $
    249Denominator:Denominator for earnings per
share  weighted-average
shares outstanding
    
    
    138,286,952
    
    
    
    142,038,270
    
    
    
    139,473,141
    
    
    
    142,419,088Effect of dilutive securities:Stock options
    
    
    1,258,786
    
    
    
    1,017,098
    
    
    
    1,384,368
    
    
    
    937,649Denominator for earnings per
share assuming dilution 
adjusted weighted-average
shares outstanding
    
    
    139,545,738
    
    
    
    143,055,368
    
    
    
    140,857,509
    
    
    
    143,356,737Income before cumulative effect
of change in accounting
principle
    
    $
    1.03
    
    
    $
    0.99
    
    
    $
    2.03
    
    
    $
    1.75Cumulative effect of change in
accounting principle, net of
taxes
    
    
    
    
    
    
    
    
    
    
    (0.09
    )
    
    
    Earnings per share
    
    $
    1.03
    
    
    $
    0.99
    
    
    $
    1.94
    
    
    $
    1.75Income before cumulative effect
of change in accounting
principle
    
    $
    1.02
    
    
    $
    0.98
    
    
    $
    2.01
    
    
    $
    1.74Cumulative effect of change in
accounting principle, net of
taxes
    
    
    
    
    
    
    
    
    
    
    (0.09
    )
    
    
    Earnings per
share  assuming
dilution
    
    $
    1.02
    
    
    $
    0.98
    
    
    $
    1.92
    
    
    $
    1.74
 9




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##### 



5. Contingent Liabilities A life insurance subsidiary is a defendant in a proposed class action suit.
The suit alleges that a predecessor company, decades ago, unfairly
discriminated in the sale of certain small face amount life insurance policies,
and unreasonably priced these policies. Management believes that the life
companys practices have complied with state insurance laws and intends to
vigorously defend the claims asserted. In the normal course of business, the Company and its subsidiaries are parties
to various lawsuits. Because of the considerable uncertainties that exist, the
Company cannot predict the outcome of pending or future litigation. However,
management believes that the resolution of pending legal proceedings will not
have a material adverse effect on the Companys financial position or
liquidity, although it could have a material adverse effect on the results of
operations for a specified period. 6. Accounting Pronouncements FIN 46 The Financial Accounting Standards Board (FASB) has issued Interpretation No.
46 (revised December 2003), Consolidation of Variable Interest Entities, an
Interpretation of Accounting Research Bulletin No. 51(FIN 46). Under FIN 46,
an enterprise consolidates a variable interest entity (VIE), as defined, if the
enterprise absorbs a majority of the VIEs expected losses, receives a majority
of its expected residual returns, or both, as a result of ownership,
contractual or other financial interests in the VIE. Prior to FIN 46, entities
were generally consolidated by an enterprise only when it had a controlling
financial interest through ownership of a majority voting interest in the
entity. In accordance with FIN 46, effective December 31, 2003, the Company
deconsolidated Jefferson Pilot Capital Trust A and Jefferson Pilot Capital
Trust B (the Trusts), VIEs that issued $300 of redeemable preferred securities
in private placement transaction in 1997. All periods presented have been
restated accordingly. The redeemable preferred securities were previously
presented in the Companys financial statements as Capital Securities in the
consolidated balance sheets. Dividends on the Capital Securities were
presented in the consolidated statements of income as a deduction to arrive at
net income available to common stockholders, and as a financing outflow on the
consolidated statements of cash flows. As a result of the deconsolidation of
the Trusts, the consolidated balance sheets now reflect junior subordinated
debentures purchased from the Company by the Trusts in 1997, which had
previously been eliminated in consolidation. Interest expense on the junior
subordinated debentures is presented as interest expense in the consolidated
statements of income and is presented as an operating cash outflow on the
consolidated statements of cash flow. SOP 03-1 In July 2003, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 03-1
Accounting and Reporting by Insurance Enterprises for Certain Nontraditional
Long-Duration Contracts and for Separate Accounts (the SOP or SOP 03-1). The
SOP addresses: (i) separate account presentation; (ii) accounting for an
insurance companys proportionate interest in separate accounts; (iii)
transfers of assets from the general account to a separate account; (iv)
valuation of certain insurance liabilities and policy features such as
guaranteed minimum death benefits and annuitization 10




---



##### 



benefits; and (v) accounting for sales inducements. The SOP was effective
January 1, 2004 and was adopted through an adjustment for the cumulative effect
of a change in accounting principle. Our cumulative effect of adjustment of
$13 related primarily to accounting for sales inducements resident in certain
of our older policies and the establishment of additional policy liabilities
for secondary guarantees contained in our newer products. While we had
previously provided for these items in our financial statements, the SOP
prescribed new methods of valuation. Each of these items was at least
partially offset by adjustments to related balances of deferred acquisition
costs (DAC) or value of business acquired (VOBA), or in the case of sales
inducements, by the establishment of a deferred sales inducement asset. The
gross amount of additional policy liabilities established was approximately $9,
with $0.1 pertaining to guaranteed minimum death benefits on variable universal
life (VUL) products. No additional reserves were necessary related to minimum
guaranteed death benefits on variable annuities (VAs), as our already-existing
policy liabilities (which were less than $1) proved to be adequate under the
new standard with respect to this feature. In addition to the cumulative
effect of adoption, the SOP reduced our income before cumulative effect of
change in accounting principle for the six months ended June 30, 2004 by $2. The Company has policies in force containing two primary types of sales
inducements: 1) day one bonuses on fixed annuities, which are in the form of
either an increased interest rate for a stated period or an additional premium
credit; and 2) persistency-related interest credited bonuses. The fixed
annuity bonuses were previously being capitalized and amortized as a component
of DAC. Thus, there was no cumulative impact upon adoption other than a
balance sheet reclassification of the deferred amount out of DAC into deferred
sales inducements. The persistency-related bonuses were previously expensed on
a pay-as-you-go basis. These bonuses are now accrued over the period in which
the policy must remain in force for the policyholder to qualify for the
inducement. Capitalized sales inducements are amortized using the same
methodology and assumptions used to amortize DAC. The following table rolls
forward our deferred sales inducement asset for the six months ended June 30,
2004. Balance, December 31, 2003
    
    $
    Cumulative
impact of adoption, including $30 reclassified from DAC
    
    
    68Additional amounts deferred
    
    
    6Amortization
    
    
    (4
    )Balance, June 30, 2004
    
    $
    70
 Separate account assets and liabilities represent funds segregated for the
benefit of certain policyholders who bear the investment risk. SOP 03-1 did
not impact our accounting policies with respect to separate accounts, as they
meet the criteria for summary presentation contained in the SOP. Separate
account assets and liabilities are equal and are recorded at fair value.
Policyholder deposits and withdrawals, investment income and related realized
investment gains and losses are excluded from the amounts reported in our
income statement. Fees charged on policyholder deposits are included in
universal life and investment product charges. The policies reported in our
separate accounts are VA and VUL policies. As indicated above, the amounts of
minimum guarantees or other similar benefits related to these policies are
negligible. 11




---



##### 



Implementation and accounting guidance pertaining to the SOP is still evolving.
While we do not expect this additional guidance to affect the amounts we have
reported related to our implementation of the SOP, there is no assurance it
will not. 7. Retirement Benefit Plans The following table illustrates the components of net periodic benefit cost for
our pension plans: Three Months Ended
    
    Six Months EndedJune 30
    
    June 302004
    
    2003
    
    2004
    
    2003Service cost
    
    $
    4
    
    
    $
    3
    
    
    $
    8
    
    
    $
    6Interest cost
    
    
    5
    
    
    
    6
    
    
    
    11
    
    
    
    11Expected return on plan assets
    
    
    (7
    )
    
    
    (7
    )
    
    
    (15
    )
    
    
    (15
    )Amortization of net transition
asset
    
    
    (1
    )
    
    
    (1
    )
    
    
    (1
    )
    
    
    (1
    )Amortization of net (gain) loss
    
    
    1
    
    
    
    (1
    )
    
    
    1
    
    
    
    (1
    )Net periodic benefit cost
    
    $
    2
    
    
    $
    
    
    
    $
    4
    
    
    $
    
 The Company expects to make payments of $1 to $2 during 2004 related to our
nonqualified plans, which are unfunded. Contributions of $1 were made during
the three and six months ended June 30, 2004. Other Postretirement Benefit Plans In December 2003, the Medicare Prescription Drug, Improvement and Modernization
Act (the Act) was signed into law. The Act includes a federal subsidy to
sponsors of retiree health plans that provide a prescription drug benefit that
is at least actuarially equivalent to the benefit to be provided under Medicare
Part D. As of June 30, 2004, we have not recorded any impact of the Act, as we
are still evaluating its provisions and determining whether the benefits
provided by our plan are actuarially equivalent thereto. We do not expect the
impact of the Act to be material to our results of operations or our financial
position. 8. Canada Life Transaction Effective March 1, 2004, we acquired via a reinsurance transaction
substantially all of the in-force U.S. group life, disability and dental
business of The Canada Life Assurance Company, an indirect subsidiary of
Great-West Lifeco Inc. Upon closing, Canada Life ceded, and the Company
assumed, approximately $400 million of policy liabilities. The company also
received assets, primarily cash, to back the liabilities. As a result of the
transaction we initially recorded DAC in the amount of $35 and an intangible
asset of $25 representing the value of the sales force acquired as part of the
transaction. These amounts may be subject to adjustment in the case of any
post-closing adjustments related to the transaction. The DAC will be amortized
over 15 years, representing the premium-paying period of the acquired blocks.
The sales force asset will be amortized over 30 years, representing the period
over which we expect to earn premiums from new sales stemming from the added
distribution capacity. 12




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##### 



Item 2.Managements Discussion and Analysis of Financial Condition
and Results of Operations JEFFERSON-PILOT CORPORATION AND SUBSIDIARIES MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS Managements Discussion and Analysis of Financial Condition and Results of
Operations analyzes the consolidated financial condition, changes in financial
position and results of operations for the three month and six month periods
ended June 30, 2004, as compared to the same periods of 2003, of
Jefferson-Pilot Corporation and consolidated subsidiaries. The discussion
supplements Managements Discussion and Analysis in Form 10-K for the year
ended December 31, 2003, and should be read in conjunction with the interim
financial statements and notes contained herein. All dollar amounts are in
millions except share and per share amounts. Company Profile Overview and Segment Revenues We have five reportable segments: Individual Products, Annuity and Investment
Products (AIP), Benefit Partners, Communications, and Corporate and Other. See
our Form 10-K for an overview of the Company and our reportable segments and a
discussion of key drivers and trends in our businesses. Our reportable segments revenues as a percentage of total revenues, excluding
realized investment gains, were as follows: Three Months Ended
    
    Six Months EndedJune 30
    
    June 302004
    
    2003
    
    2004
    
    2003Individual Products
    
    
    43
    %
    
    
    49
    %
    
    
    44
    %
    
    
    49
    %AIP
    
    
    17
    %
    
    
    19
    %
    
    
    18
    %
    
    
    19
    %Benefit Partners
    
    
    32
    %
    
    
    23
    %
    
    
    29
    %
    
    
    23
    %Communications
    
    
    5
    %
    
    
    6
    %
    
    
    6
    %
    
    
    6
    %Corporate and Other
    
    
    3
    %
    
    
    3
    %
    
    
    3
    %
    
    
    3
    %
 The higher proportion of revenues from Benefit Partners in 2004 reflects the
Canada Life business, discussed later. Update on Critical Accounting Policies Our Form 10-K describes our accounting policies that are critical to the
understanding of our results of operations and our financial position. They
relate to deferred acquisition costs (DAC), value of business acquired (VOBA)
and unearned revenue, assumptions and judgments utilized in determining if
declines in fair values of investments are other-than-temporary, valuation
methods for infrequently traded securities and private placements, and accruals
relating to legal and administrative proceedings. These policies were applied in a consistent manner during the first six months
of 2004. Legal proceedings are discussed in Note 5 to the Consolidated
Condensed Financial Statements. 13




---



##### 



Results of Operations The following tables illustrate our results before and after the cumulative
effect of change in accounting principle: Three Months Ended
    
    Six Months EndedJune 30
    
    June 302004
    
    2003
    
    Change
    
    2004
    
    2003
    
    ChangeConsolidated
Summary of IncomeIncome before
cumulative
effect of
change in
accounting
principle
    
    $
    142.1
    
    
    $
    140.1
    
    
    
    1.4
    %
    
    $
    283.3
    
    
    $
    249.2
    
    
    
    13.7
    %Cumulative
effect of
change in
accounting
principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12.9
    )
    
    
    
    
    
    
    (100.0
    )Net income
    
    $
    142.1
    
    
    $
    140.1
    
    
    
    1.4
    %
    
    $
    270.4
    
    
    $
    249.2
    
    
    
    8.5
    %Consolidated
Earnings Per ShareBasic:Income before
cumulative
effect of
change in
accounting
principle
    
    $
    1.03
    
    
    $
    0.99
    
    
    
    4.0
    %
    
    $
    2.03
    
    
    $
    1.75
    
    
    
    16.0
    %Cumulative
effect of
change in
accounting
principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.09
    )
    
    
    
    
    
    
    (100.0
    )Net income
    
    $
    1.03
    
    
    $
    0.99
    
    
    
    4.0
    %
    
    $
    1.94
    
    
    $
    1.75
    
    
    
    10.9
    %Fully-diluted:Income before
cumulative
effect of
change in
accounting
principle
    
    $
    1.02
    
    
    $
    0.98
    
    
    
    4.1
    %
    
    $
    2.01
    
    
    $
    1.74
    
    
    
    15.5
    %Cumulative
effect of
change in
accounting
principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.09
    )
    
    
    
    
    
    
    (100.0
    )Net income
    
    $
    1.02
    
    
    $
    0.98
    
    
    
    4.1
    %
    
    $
    1.92
    
    
    $
    1.74
    
    
    
    10.3
    %
 Three Months Ended
    
    Six Months EndedJune 30
    
    June 302004
    
    2003
    
    2004
    
    2003Average number of
shares outstanding
    
    
    138,286,952
    
    
    
    142,038,270
    
    
    
    139,473,141
    
    
    
    142,419,088Average number of
shares outstanding
 assuming dilution
    
    
    139,545,738
    
    
    
    143,055,368
    
    
    
    140,857,509
    
    
    
    143,356,737
 The increase in net income for the second quarter of 2004 reflected earnings
growth in the Benefit Partners and Communications segments. This growth was
largely offset by lower realized investment gains net of taxes of $7.2 for the
quarter versus $13.2 in the second quarter of 2003. Individual Products
advanced slightly while AIP and Corporate and Other declined. The increase in
income before 14




---



##### 



cumulative effect of change in accounting principle for the 2004 six months was
attributable to increased earnings in the Benefit Partners, Communications and
Corporate and Other segments. Realized investment gains net of taxes
contributed $21.9 for the first half of 2004 compared to $0.8 in the 2003
period. Benefit Partners results for the quarter and year to date periods were
favorably impacted by earnings from the business added via the Canada Life
transaction, which closed during the first quarter of 2004, and by improved
loss ratios during the second quarter. Communications achieved market share
advancements in 2004 spurring earnings growth. Individual Products and AIP
results were adversely impacted by spread compression for the quarter and year
to date periods due to lower portfolio yields, partially resulting from lower
repayments of mortgage backed securities. The Company adopted SOP 03-1 in the first quarter of 2004. SOP 03-1 created
both a cumulative effect upon adoption as well as a reduction to net income, as
discussed later and in Note 6. Growth in earnings per share was more favorable than the growth in dollar
earnings amounts due to repurchases of 5,368,200 shares during the first half
of 2004, 3,484,000 of which occurred in the second quarter. Share repurchases
during the second half of 2003 also contributed to this growth over the 2003
periods. Results by Business Segment Throughout this Form 10-Q, reportable segment results is defined as net
income before realized investment gains and losses (and cumulative effect of
change in accounting principle, if applicable). Reportable segment results is
a non-GAAP measure. We believe reportable segment results provides relevant
and useful information to investors, as it represents the basis on which we
assess the performance of our business segments. We deem reportable segment
results to be a meaningful measure for this purpose because, except for losses
from other-than-temporary impairments, realized investment gains and losses
occur primarily at our sole discretion. Note that reportable segment results
as described above may not be comparable to similarly titled measures reported
by other companies. We assess profitability by business segment and measure other operating
statistics as detailed in the separate segment discussions that follow. Sales
are one of the statistics we use to track performance. Our sales in the
Individual Products and AIP segments have little immediate impact on revenues
for these two segments as described in the segment discussions below. 15




---



##### 



Results by Reportable Segment Three Months Ended
    
    Six Months EndedJune 30
    
    June 302004
    
    2003
    
    Change
    
    2004
    
    2003
    
    ChangeIndividual Products
    
    $
    75.3
    
    
    $
    74.3
    
    
    
    1.3
    %
    
    $
    150.3
    
    
    $
    150.3
    
    
    
    
    %AIP
    
    
    19.7
    
    
    
    21.6
    
    
    
    (8.8
    )
    
    
    38.8
    
    
    
    42.8
    
    
    
    (9.3
    )Benefit Partners
    
    
    19.6
    
    
    
    12.5
    
    
    
    56.8
    
    
    
    31.1
    
    
    
    24.4
    
    
    
    27.5Communications
    
    
    13.7
    
    
    
    11.5
    
    
    
    19.1
    
    
    
    24.3
    
    
    
    18.6
    
    
    
    30.6Corporate and Other
    
    
    6.6
    
    
    
    7.0
    
    
    
    (5.7
    )
    
    
    16.9
    
    
    
    12.3
    
    
    
    37.4Total reportable
segment results
    
    
    134.9
    
    
    
    126.9
    
    
    
    6.3
    
    
    
    261.4
    
    
    
    248.4
    
    
    
    5.2Realized investment
gains, net of taxes
    
    
    7.2
    
    
    
    13.2
    
    
    
    (45.5
    )
    
    
    21.9
    
    
    
    0.8
    
    
    
    2,637.5Net income before
cumulative effect
of change in
accounting
principle
    
    
    142.1
    
    
    
    140.1
    
    
    
    1.4
    
    
    
    283.3
    
    
    
    249.2
    
    
    
    13.7Cumulative effect
of change in
accounting
principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12.9
    )
    
    
    
    
    
    
    (100.0
    )Net income
    
    $
    142.1
    
    
    $
    140.1
    
    
    
    1.4
    %
    
    $
    270.4
    
    
    $
    249.2
    
    
    
    8.5
    %
 Segment Assets We assign invested assets backing insurance liabilities to our segments in
relation to policyholder funds and reserves. We assign net DAC and VOBA,
reinsurance receivables, communications assets and certain other assets to the
respective segments where those assets originate. We also assign invested
assets to back capital allocated to each segment in relation to our philosophy
for managing business risks, reflecting appropriate conservatism. We assign
the remainder of invested and other assets, including all defaulted securities,
to the Corporate and Other segment. June 302004
    
    2003Individual Products
    
    $
    18,283
    
    
    $
    17,124AIP
    
    
    10,445
    
    
    
    9,487Benefit Partners
    
    
    1,765
    
    
    
    980Communications
    
    
    214
    
    
    
    201Corporate and Other
    
    
    3,289
    
    
    
    3,896Total assets
    
    $
    33,996
    
    
    $
    31,688
 16




---



##### 



Individual Products The Individual Products segment markets individual life insurance policies
primarily through independent general agents, independent national account
marketing firms, and agency building general agents. We also sell products
through home service agents, broker/dealers, banks and other strategic
alliances. Segment results were: Three Months Ended
    
    Six Months EndedJune 30
    
    June 302004
    
    2003
    
    Change
    
    2004
    
    2003
    
    ChangeUL-Type Products:Net investment income
    
    $
    184.5
    
    
    $
    187.8
    
    
    
    (1.8
    )%
    
    $
    368.6
    
    
    $
    372.9
    
    
    
    (1.2
    )%Interest credited to policyholders
    
    
    (125.4
    )
    
    
    (128.6
    )
    
    
    2.5
    
    
    
    (251.1
    )
    
    
    (255.0
    )
    
    
    1.5Interest margin
    
    
    59.1
    
    
    
    59.2
    
    
    
    (0.2
    )
    
    
    117.5
    
    
    
    117.9
    
    
    
    (0.3
    )Product charge revenue:Cost of insurance charges
    
    
    135.8
    
    
    
    123.4
    
    
    
    10.0
    
    
    
    268.4
    
    
    
    248.8
    
    
    
    7.9Expense charges
    
    
    37.8
    
    
    
    32.9
    
    
    
    14.9
    
    
    
    75.2
    
    
    
    68.5
    
    
    
    9.8Surrender charges
    
    
    9.6
    
    
    
    10.0
    
    
    
    (4.0
    )
    
    
    20.6
    
    
    
    20.3
    
    
    
    1.5Total product charge revenue
    
    
    183.2
    
    
    
    166.3
    
    
    
    10.2
    
    
    
    364.2
    
    
    
    337.6
    
    
    
    7.9Death benefits and other
insurance benefits
    
    
    (76.0
    )
    
    
    (66.1
    )
    
    
    (15.0
    )
    
    
    (153.2
    )
    
    
    (137.4
    )
    
    
    (11.5
    )Expenses excluding amortization
of DAC and VOBA
    
    
    (24.5
    )
    
    
    (26.7
    )
    
    
    8.2
    
    
    
    (47.0
    )
    
    
    (50.5
    )
    
    
    6.9Amortization of DAC and VOBA
    
    
    (52.5
    )
    
    
    (40.1
    )
    
    
    (30.9
    )
    
    
    (97.5
    )
    
    
    (81.0
    )
    
    
    (20.4
    )Miscellaneous expense
    
    
    (0.4
    )
    
    
    (1.2
    )
    
    
    66.7
    
    
    
    (0.4
    )
    
    
    (1.2
    )
    
    
    66.7UL-type product income before
taxes
    
    
    88.9
    
    
    
    91.4
    
    
    
    (2.7
    )
    
    
    183.6
    
    
    
    185.4
    
    
    
    (1.0
    )Traditional Products:Premiums and other considerations
    
    
    37.9
    
    
    
    43.2
    
    
    
    (12.3
    )
    
    
    78.1
    
    
    
    87.4
    
    
    
    (10.6
    )Net investment income
    
    
    38.6
    
    
    
    41.2
    
    
    
    (6.3
    )
    
    
    77.1
    
    
    
    83.1
    
    
    
    (7.2
    )Benefits
    
    
    (40.9
    )
    
    
    (51.5
    )
    
    
    20.6
    
    
    
    (88.3
    )
    
    
    (104.8
    )
    
    
    15.7Expenses excluding amortization
of DAC and VOBA
    
    
    (6.6
    )
    
    
    (5.4
    )
    
    
    (22.2
    )
    
    
    (13.8
    )
    
    
    (10.6
    )
    
    
    (30.2
    )Amortization of DAC and VOBA
    
    
    (3.6
    )
    
    
    (4.6
    )
    
    
    21.7
    
    
    
    (7.6
    )
    
    
    (9.3
    )
    
    
    18.3Traditional product income before
taxes
    
    
    25.4
    
    
    
    22.9
    
    
    
    10.9
    
    
    
    45.5
    
    
    
    45.8
    
    
    
    (0.7
    )Total income before income taxes
    
    
    114.3
    
    
    
    114.3
    
    
    
    
    
    
    
    229.1
    
    
    
    231.2
    
    
    
    (0.9
    )Income taxes
    
    
    (39.0
    )
    
    
    (40.0
    )
    
    
    2.5
    
    
    
    (78.8
    )
    
    
    (80.9
    )
    
    
    2.6Reportable segment results
    
    $
    75.3
    
    
    $
    74.3
    
    
    
    1.3
    %
    
    $
    150.3
    
    
    $
    150.3
    
    
    
    
    %
 17




---



##### 



The following table summarizes key data for Individual Products that we believe
are important drivers and indicators of future profitability: Three Months Ended
    
    Six Months EndedJune 30
    
    June 302004
    
    2003
    
    Change
    
    2004
    
    2003
    
    ChangeAnnualized life
insurance premium
sales:Individual Markets
excluding Community
Banks and BOLI
    
    $
    51
    
    
    $
    49
    
    
    
    4.1
    %
    
    $
    100
    
    
    $
    106
    
    
    
    (5.7
    )%Community Banks and
BOLI
    
    $
    3
    
    
    $
    
    
    
    
    100.0
    %
    
    $
    4
    
    
    $
    5
    
    
    
    (20.0
    )%Average UL
policyholder fund
balances
    
    $
    11,074
    
    
    $
    10,508
    
    
    
    5.4
    %
    
    $
    11,006
    
    
    $
    10,430
    
    
    
    5.5
    %Average VUL
separate account
assets
    
    
    1,528
    
    
    
    1,166
    
    
    
    31.0
    
    
    
    1,509
    
    
    
    1,136
    
    
    
    32.8$
    12,602
    
    
    $
    11,674
    
    
    
    7.9
    %
    
    $
    12,515
    
    
    $
    11,566
    
    
    
    8.2
    %Average face amount
of insurance in
force:Total
    
    $
    165,702
    
    
    $
    164,139
    
    
    
    1.0
    %
    
    $
    165,967
    
    
    $
    163,950
    
    
    
    1.2
    %UL-type policies
    
    $
    126,587
    
    
    $
    122,716
    
    
    
    3.2
    %
    
    $
    126,369
    
    
    $
    122,479
    
    
    
    3.2
    %Average assets
    
    $
    18,185
    
    
    $
    16,977
    
    
    
    7.1
    %
    
    $
    18,061
    
    
    $
    16,864
    
    
    
    7.1
    %
 Sales from our Individual markets excluding Community Banks and bank-owned life
insurance (BOLI) were up for the quarter but lagged behind 2003 for the six
months primarily due to record sales levels in the first quarter of 2003. As a
result of new product offerings in 2004 and in the latter part of 2003, sales
were well distributed with no single product comprising more than 25% of sales
for the 2004 periods. Community Banks and BOLI business will vary widely
between periods as we respond to sales opportunities for these single premium
products only when the market accommodates our required returns. Approximately 57% of year to date and 59% of prior year life insurance sales
were attributable to products with secondary guarantee benefits. These
products were priced considering interest, mortality, withdrawal and
termination (lapse) assumptions that are specific to the nature, marketing
focus, and funding pattern for each product. The lapse assumptions we use for
pricing are based on multi-scenario modeling techniques and are lower than the
assumptions we use for non-guaranteed products, particularly when the secondary
guarantee option is in the money. Since guaranteed UL policies are
relatively new to the marketplace, credible experience has yet to emerge
regarding policy and premium persistency; however, our assumptions represent
our best estimate of future experience. Interest margin on UL-type products was essentially flat for the second quarter
and first six months versus 2003, despite lower investment yields, due to
growth in policyholder fund balances and our 18




---



##### 



management of interest spreads. The lower investment yield was primarily due
to the general interest rate environment. We actively manage interest spreads
on our fixed UL-type products in response to changes in investment yields by
adjusting the rates credited to policyholder fund balances while considering
our competitive strategies as well. The average investment spread on fixed UL
products declined 11 basis points to 1.90% for the second quarter compared to
the 2003 quarter and declined 8 basis points to 1.89% for the six months.
During 2003, repayments of mortgage backed securities significantly increased
as a result of continued declines in long-term mortgage rates. Our mortgage
backed securities portfolio is primarily a discount portfolio. We estimate
that repayments in excess of expected levels increased effective investment
yields by 3 and 4 basis points for the second quarter and first six months of
2004 compared to 16 basis points and 13 basis points for the 2003 periods. The
decrease in excess accretion of discount contributed to the decline in
effective investment spreads on fixed UL products. Our ability to manage
interest crediting rates on fixed UL-type products is limited by minimum
guaranteed rates provided in policyholder contracts. Therefore, continued low
general market interest rates may impact future profitability, as the
investment of cash flows at current interest rates reduces our average
portfolio yield. At July 1, 2004 and January 1, 2004, our crediting rates were
approximately 33 and 49 basis points on average in excess of our minimum
guaranteed rates. Policies representing approximately 60% of the UL
policyholder fund balances were at their minimum guaranteed rates. As a result
of increases in general market interest rates and reinvestment out of lower
yielding bonds during the second quarter of 2004, the earned rate on
investments backing our UL blocks declined more slowly to 6.53% versus 6.57%
for the first quarter. By comparison, the similar earned rate was 7.05% for
the second quarter of 2003. However, should new money rates decline or remain
at current levels, it will be more difficult to maintain investment spreads
prospectively. Product charge revenue grew at a rate in excess of the growth in average UL
policyholder fund balances. Expense charge growth is largely a result of
increased amortization of unearned expense charges. Products issued in recent
years are designed to generate more of their revenues from expense charges. We
defer expense charges received in excess of ultimate annual expense charges and
amortize them into income relative to future estimated gross profits. A
reinsurance recapture executed in the third quarter of 2003 is benefiting cost
of insurance charges (COIs) in 2004, via lower premiums ceded. This is
somewhat offset in death benefits by a higher retention of the related death
claims. An increase in the average age of our insureds is also contributing to
growth in COIs, but contributes to increased death benefits as well. Total mortality experience for the quarter was in line with expectations,
however, UL-type death benefits were somewhat higher and traditional death
benefits were somewhat lower. Growth and aging of our blocks contributed to
the increased level of UL-type death benefits and other insurance benefits for
the second quarter and first six months of 2004. UL-type death benefits, net
of reinsurance, per thousand dollars of face amount of insurance in-force were
$0.81 in the 2004 quarter compared to $0.75 in the 2003 quarter and $1.57
compared to $1.54 for the six month periods. UL-type death benefits and other
insurance benefits included $(0.8) for the quarter and $2.3 year to date of
benefits related to SOP 03-1. The lower impact in the second quarter was
attributable to refinements made in assumptions used to calculate reserves for
secondary guarantees; however, the quarterly impact for the second half of 2004
is likely to approximate the first quarter impact. See Note 6 for further
discussion of this accounting principle. Consistent with the trend in recent years, traditional premiums and other
considerations declined from the second quarter and first six months 2003, as
our life insurance sales efforts are currently focused on UL-type products.
Net investment income from our traditional blocks declined period over period
due to lower investment yields, the decreasing size of the block and lower
prepayments of mortgage backed securities. 19




---



##### 



Policy benefits on traditional business include death benefits, dividends,
surrenders and changes in reserves, with the most significant being death
benefits. Policy benefits as a percentage of premiums and other considerations
were 107.9% and 113.1% in the second quarter and first six months of 2004
compared to 119.2% and 119.9% in the second quarter and first six months of
2003. The decreases were primarily attributable to favorable mortality
experience during the second quarter of 2004, favorable change in reserves
(driven by lower premiums) and lower policyholder dividends. Total expenses (including the net deferral and amortization of DAC and VOBA)
were as follows: Three Months Ended
    
    Six Months EndedJune 30
    
    June 302004
    
    2003
    
    Change
    
    2004
    
    2003
    
    ChangeCommissions
    
    $
    65.6
    
    
    $
    66.4
    
    
    
    1.2
    %
    
    $
    129.4
    
    
    $
    145.6
    
    
    
    11.1
    %General and
administrative 
acquisition related
    
    
    19.1
    
    
    
    20.9
    
    
    
    8.6
    
    
    
    38.0
    
    
    
    41.8
    
    
    
    9.1General and
administrative 
maintenance related
    
    
    11.3
    
    
    
    11.8
    
    
    
    4.2
    
    
    
    22.2
    
    
    
    21.0
    
    
    
    (5.7
    )Taxes, licenses and fees
    
    
    11.3
    
    
    
    12.5
    
    
    
    9.6
    
    
    
    22.3
    
    
    
    27.4
    
    
    
    18.6Total commissions and
expenses incurred
    
    
    107.3
    
    
    
    111.6
    
    
    
    3.9
    
    
    
    211.9
    
    
    
    235.8
    
    
    
    10.1Less commissions and
expenses capitalized
    
    
    (76.2
    )
    
    
    (79.5
    )
    
    
    (4.2
    )
    
    
    (151.1
    )
    
    
    (174.7
    )
    
    
    (13.5
    )Expenses excluding
amortization of DAC and
VOBA
    
    
    31.1
    
    
    
    32.1
    
    
    
    3.1
    
    
    
    60.8
    
    
    
    61.1
    
    
    
    0.5Amortization of DAC and
VOBA
    
    
    56.1
    
    
    
    44.7
    
    
    
    (25.5
    )
    
    
    105.1
    
    
    
    90.3
    
    
    
    (16.4
    )Total expense
    
    $
    87.2
    
    
    $
    76.8
    
    
    
    (13.5
    )%
    
    $
    165.9
    
    
    $
    151.4
    
    
    
    (9.6
    )%
 Expenses excluding amortization of DAC and VOBA decreased in the second quarter
and first six months of 2004 from the 2003 periods, primarily due to increased
efficiencies realized in our marketing and distribution costs and lower taxes
licenses and fees, stemming from a reduction in our effective premium tax rate.
The expense amounts we capitalize as DAC include first year commissions and
deferrable acquisition expenses. We generally limit our capitalization of
deferrable acquisition expenses to the lower of product specific pricing
allowables or actual deferrable acquisition costs. See further discussion of
DAC and VOBA under the Financial Position section. Growth in our interest
sensitive blocks from recent years sales growth, combined with higher
emergence of gross profits on UL-type products, were the primary contributors
to the increase in the amortization of DAC and VOBA. During the second
quarter, we adjusted our assumptions for interest spreads and lapsation on
certain blocks of business, resulting in a $5.0 reduction in DAC amortization
for the quarter. On a year to date basis, DAC unlocking has had the effect of
reducing DAC amortization by $13.5. DAC unlocking in 2003 reduced DAC
amortization by $7.0 and $10.0 for the second quarter and first six months. The effective income tax rate was lower in 2004 for the quarter and year to
date periods, due primarily to an increase in the dividends received deduction
and to tax favored investments held in the Individual Products portfolio. 20




---



##### 



The growth in average Individual Products assets in 2004 was primarily due to
growth in UL and VUL policyholder fund balances, partially offset by a decline
in assets supporting our traditional block of business. Our financial and operating risks for this segment include, among others,
failure to achieve pricing assumptions for interest margins, mortality,
withdrawals and expenses; variances between actual and underlying assumptions
of DAC and VOBA; changes in taxation or other regulatory changes related to our
products and competing offerings; and the effects of unresolved litigation. We
discuss financial and operating risks in more detail in the Financial Position,
Capital Resources and Liquidity, and Market Risk Exposures sections of this
filing and in our Form 10-K. See Note 6 for further discussion of SOP 03-1,
for which accounting guidance continues to evolve. While we do not expect
additional guidance to affect amounts reported related to our implementation of
the SOP, there is no assurance it will not. Annuity and Investment Products Annuity and Investment Products are marketed through most of the distribution
channels discussed in Individual Products above as well as through financial
institutions, investment professionals and annuity marketing organizations.
Jefferson Pilot Securities Corporation (JPSC) markets primarily variable life
insurance written by our insurance subsidiaries and other carriers, and also
sells other securities and mutual funds. Reportable segment results were: Three Months Ended
    
    Six Months EndedJune 30

    
    
    June 302004
    
    2003
    
    Change
    
    2004
    
    2003
    
    ChangeInvestment
product charges and premiums
    
    $
    3.2
    
    
    $
    2.5
    
    
    
    28.0
    %
    
    $
    5.6
    
    
    $
    4.5
    
    
    
    24.4
    %Net investment income
    
    
    144.7
    
    
    
    147.4
    
    
    
    (1.8
    )
    
    
    288.2
    
    
    
    292.9
    
    
    
    (1.6
    )Broker-dealer
concessions and other
    
    
    29.5
    
    
    
    23.1
    
    
    
    27.7
    
    
    
    58.9
    
    
    
    45.3
    
    
    
    30.0Total revenue
    
    
    177.4
    
    
    
    173.0
    
    
    
    2.5
    
    
    
    352.7
    
    
    
    342.7
    
    
    
    2.9Policy
benefits (including interest
credited)
    
    
    103.7
    
    
    
    103.7
    
    
    
    
    
    
    
    207.3
    
    
    
    207.3
    
    
    
    Insurance expenses
    
    
    15.9
    
    
    
    14.5
    
    
    
    (9.7
    )
    
    
    30.8
    
    
    
    27.6
    
    
    
    (11.6
    )Broker-dealer expenses
    
    
    27.9
    
    
    
    21.6
    
    
    
    (29.2
    )
    
    
    55.4
    
    
    
    41.9
    
    
    
    (32.2
    )Total
benefits and expenses
    
    
    147.5
    
    
    
    139.8
    
    
    
    (5.5
    )
    
    
    293.5
    
    
    
    276.8
    
    
    
    (6.0
    )Income before income
taxes
    
    
    29.9
    
    
    
    33.2
    
    
    
    (9.9
    )
    
    
    59.2
    
    
    
    65.9
    
    
    
    (10.2
    )Income taxes
    
    
    10.2
    
    
    
    11.6
    
    
    
    12.1
    
    
    
    20.4
    
    
    
    23.1
    
    
    
    11.7Reportable segment
results
    
    $
    19.7
    
    
    $
    21.6
    
    
    
    (8.8
    )%
    
    $
    38.8
    
    
    $
    42.8
    
    
    
    (9.3
    )%
 21




---



##### 



The following table summarizes key information for AIP: Three Months Ended
    
    Six Months EndedJune 30
    
    
    
    June 302004
    
    2003
    
    Change
    
    2004
    
    2003
    
    ChangeFixed
annuity premium sales
    
    $
    291
    
    
    $
    132
    
    
    
    120.5
    %
    
    $
    601
    
    
    $
    247
    
    
    
    143.3
    %Variable annuity
premium sales
    
    
    
    
    
    
    1
    
    
    
    (100.0
    )
    
    
    
    
    
    
    2
    
    
    
    (100.0
    )$
    291
    
    
    $
    133
    
    
    
    118.8
    %
    
    $
    601
    
    
    $
    249
    
    
    
    141.4
    %Investment
product sales
    
    $
    1,406
    
    
    $
    663
    
    
    
    112.1
    %
    
    $
    2,730
    
    
    $
    1,278
    
    
    
    113.6
    %Average
policyholder fund
balances
    
    $
    9,128
    
    
    $
    8,319
    
    
    
    9.7
    %
    
    $
    9,002
    
    
    $
    8,280
    
    
    
    8.7
    %Average separate
account
policyholder fund
balances
    
    
    340
    
    
    
    336
    
    
    
    1.2
    
    
    
    345
    
    
    
    336
    
    
    
    2.7$
    9,468
    
    
    $
    8,655
    
    
    
    9.4
    %
    
    $
    9,347
    
    
    $
    8,616
    
    
    
    8.5
    %Average assets
    
    $
    10,369
    
    
    $
    9,449
    
    
    
    9.7
    %
    
    $
    10,243
    
    
    $
    9,427
    
    
    
    8.7
    %Effective
investment spreads
for fixed annuities
    
    
    1.64
    %
    
    
    1.88
    %
    
    
    
    
    
    
    1.67
    %
    
    
    1.89
    %Fixed annuity
surrenders as a
percentage of
beginning fund
balances
    
    
    8.5
    %
    
    
    7.8
    %
    
    
    
    
    
    
    8.8
    %
    
    
    7.9
    %
 Fixed annuity premium sales increased in the second quarter and first six
months of 2004 versus 2003 as a result of the acceptance in the marketplace of
annuities with equity-indexed components. We continue to develop
differentiated annuity products designed to create new distribution
opportunities and strengthen existing marketing relationships. Net investment income growth was lower than the growth in average policyholder
fund balances, due to a decline in investment yields. We estimate that
repayments of mortgage backed securities in excess of expected levels in the
AIP segment increased effective yields by 2 and 4 basis points in the second
quarter and first six months of 2004 versus 24 and 20 basis points in the
second quarter and first six months of 2003. This decrease in excess accretion
of discount accounted for the majority of the decline in effective investment
spreads on fixed annuities. We actively manage spreads on fixed annuity products in response to changes in
our investment portfolio yields by adjusting the interest rates we credit on
annuity policyholder fund balances while considering our competitive
strategies. Effective investment spreads on fixed annuities compressed in the
second quarter and first six months of 2004 versus the 2003 periods due to
lower repayments of mortgage backed securities, general market interest rate
declines and changes in product design. Our 22




---



##### 



recent sales have been weighted toward products with lower guaranteed minimum
rates and lower spread requirements, developed in response to the declining
interest rate environment. Profitability of equity-indexed annuities (EIA),
which comprised over three-fourths of our AIP sales during the second quarter
and first six months of 2004, depends on the management of the purchase price
of derivatives to hedge the index performance of the policies. Our newer
product designs in AIP require lower spreads to achieve targeted returns and
require lower levels of capital to support new sales. These factors, combined
with the current interest rate environment, will likely result in earnings
growth that lags behind growth in average fund balances for a period of time. Our ability to manage interest crediting rates on fixed annuity products is
limited by minimum guaranteed rates provided in policyholder contracts, and
continued low general market interest rates will impact future profitability,
as the investment of cash flows at current interest rates reduces our average
portfolio yield. We have approximately $5.0 billion of fixed annuity
policyholder fund balances with crediting rates that are reset on an annual
basis, and our crediting rates on average were approximately 18 basis points in
excess of our minimum guaranteed rates at June 30, 2004. Approximately $3.6
billion of fixed annuity policyholder fund balances have multi-year guaranteed
rates, of which a portion will begin to reset in the second half of 2004. As
multi-year guarantees expire, policyholders will have the opportunity to renew
their coverages at rates in effect at that time. Our ability to retain these
annuities will be subject to then current competitive conditions. The current
average spread to the minimum underlying guarantee on these products is
approximately 273 basis points. Beginning with the first quarter of 2004 and in accordance with SOP 03-1 (see
Note 6), net deferral and amortization of bonus interest is presented in policy
benefits. Previously, it had been included as a component of DAC and was
included in insurance expenses. Excluding the $2.4 and $4.0 net deferral for
the second quarter and first six months of 2004, policy benefits increased 2.3%
and 1.9%, as growth in average policyholder fund balances was largely offset by
interest crediting rate reductions. The surrender rate in the AIP segment is influenced by many factors such as: 1)
the portion of the business that has low or no remaining surrender charges; 2)
competition from annuity products including those which pay up-front interest
rate bonuses or higher market rates; and 3) rising interest rates that may make
returns available on new annuities or investment products more attractive than
our older annuities. In addition to surrender charge protection against early
surrender, we have added a market value adjustment (MVA) to many of our new
annuity products. The MVA provides a protection from disintermediation in a
rising interest rate environment. As of June 30, 2004, 47% of our fixed
annuity average fund balances were subject to a surrender charge of at least 5%
or a MVA. This compares with 49% as of December 31, 2003. 23




---



##### 



Total expenses (including the net deferral and amortization of DAC and VOBA)
were as follows: Three Months Ended
    
    Six Months EndedJune 30
    
    


    June 302004
    
    2003
    
    Change
    
    2004
    
    2003
    
    ChangeInsurance companies:Commissions
    
    $
    17.6
    
    
    $
    7.0
    
    
    
    (151.4
    )%
    
    $
    36.0
    
    
    $
    13.0
    
    
    
    (176.9
    )%General and administrative
 acquisition related
    
    
    3.5
    
    
    
    2.6
    
    
    
    (34.6
    )
    
    
    6.8
    
    
    
    5.8
    
    
    
    (17.2
    )General and administrative
 maintenance related
    
    
    1.6
    
    
    
    1.6
    
    
    
    
    
    
    
    3.2
    
    
    
    2.8
    
    
    
    (14.3
    )Taxes, licenses and fees
    
    
    0.6
    
    
    
    0.4
    
    
    
    (50.0
    )
    
    
    1.2
    
    
    
    0.9
    
    
    
    (33.3
    )Total commissions and
expenses incurred
    
    
    23.3
    
    
    
    11.6
    
    
    
    (100.9
    )
    
    
    47.2
    
    
    
    22.5
    
    
    
    (109.8
    )Less commissions and
expenses capitalized
    
    
    (19.6
    )
    
    
    (9.2
    )
    
    
    113.0
    
    
    
    (40.1
    )
    
    
    (18.5
    )
    
    
    116.8Amortization of DAC and
VOBA
    
    
    12.2
    
    
    
    12.1
    
    
    
    (0.8
    )
    
    
    23.7
    
    
    
    23.6
    
    
    
    (0.4
    )Net expense 
insurance companies
    
    
    15.9
    
    
    
    14.5
    
    
    
    (9.7
    )
    
    
    30.8
    
    
    
    27.6
    
    
    
    (11.6
    )Broker/Dealer:Commissions
    
    
    24.8
    
    
    
    19.1
    
    
    
    (29.8
    )
    
    
    49.6
    
    
    
    37.2
    
    
    
    (33.3
    )Other
    
    
    3.1
    
    
    
    2.5
    
    
    
    (24.0
    )
    
    
    5.8
    
    
    
    4.7
    
    
    
    (23.4
    )Net expense  broker/dealer
    
    
    27.9
    
    
    
    21.6
    
    
    
    (29.2
    )
    
    
    55.4
    
    
    
    41.9
    
    
    
    (32.2
    )Net expense
    
    $
    43.8
    
    
    $
    36.1
    
    
    
    (21.3
    )%
    
    $
    86.2
    
    
    $
    69.5
    
    
    
    (24.0
    )%
 The increase in our insurance companies net expenses was largely attributable
to the SOP 03-1 reclassification of the net deferral of bonus interest to
benefits as discussed above. Commissions, acquisition related general and
administrative expenses and DAC capitalization all increased with the strong
sales increase over the second quarter and first six months of 2003.
Broker/dealer revenues and expenses increased commensurately due to the
improved condition of the equity market versus the second quarter and first six
months of last year. Risks in the annuity business other than those mentioned in our Overview in the
Form 10-K are spread compression; increased lapses when interest rates rise,
particularly in the portion of business subject to low or no surrender charges;
execution risk on EIA hedges; changes in taxation of our products; and
competition from variable annuities or other financial services in an evolving
market for investment products. We discuss these risks in more detail in the
Financial Position, Capital Resources and Liquidity, and Market Risk Exposures
sections of this filing and in our Form 10-K. 24




---



##### 



Benefit Partners The Benefit Partners segment markets products primarily through a national
distribution system of regional group offices. These offices develop business
through employee benefit brokers, third party administrators and other employee
benefit firms. Reportable segment results were: Three Months Ended
    
    Six Months EndedJune 30
    
    
    June 302004
    
    2003
    
    Change
    
    2004
    
    2003
    
    ChangePremiums and other
considerations
    
    $
    307.7
    
    
    $
    191.3
    
    
    
    60.8
    %
    
    $
    540.2
    
    
    $
    373.1
    
    
    
    44.8
    %Net investment income
    
    
    23.2
    
    
    
    16.5
    
    
    
    40.6
    
    
    
    41.6
    
    
    
    32.4
    
    
    
    28.4Total revenues
    
    
    330.9
    
    
    
    207.8
    
    
    
    59.2
    
    
    
    581.8
    
    
    
    405.5
    
    
    
    43.5Policy benefits
    
    
    232.7
    
    
    
    147.8
    
    
    
    (57.4
    )
    
    
    413.1
    
    
    
    285.5
    
    
    
    (44.7
    )Expenses
    
    
    67.9
    
    
    
    40.7
    
    
    
    (66.8
    )
    
    
    120.8
    
    
    
    82.4
    
    
    
    (46.6
    )Total benefits and expenses
    
    
    300.6
    
    
    
    188.5
    
    
    
    (59.5
    )
    
    
    533.9
    
    
    
    367.9
    
    
    
    (45.1
    )Income before income taxes
    
    
    30.3
    
    
    
    19.3
    
    
    
    57.0
    
    
    
    47.9
    
    
    
    37.6
    
    
    
    27.4Income taxes
    
    
    10.7
    
    
    
    6.8
    
    
    
    (57.4
    )
    
    
    16.8
    
    
    
    13.2
    
    
    
    (27.3
    )Reportable segment results
    
    $
    19.6
    
    
    $
    12.5
    
    
    
    56.8
    %
    
    $
    31.1
    
    
    $
    24.4
    
    
    
    27.5
    %
 The following table summarizes key information for Benefit Partners: Three Months Ended
    
    Six Months EndedJune 30
    
    
    June 302004
    
    2003
    
    Change
    
    2004
    
    2003
    
    ChangeLife, Disability
and Dental
annualized sales
    
    $
    48.1
    
    
    $
    39.7
    
    
    
    21.2
    %
    
    $
    102.0
    
    
    $
    112.7
    
    
    
    (9.5
    )%Reportable segment
results:Life
    
    $
    8.3
    
    
    $
    4.2
    
    
    
    97.6
    %
    
    $
    11.8
    
    
    $
    6.7
    
    
    
    76.1
    %Disability
    
    
    10.3
    
    
    
    7.1
    
    
    
    45.1
    
    
    
    17.1
    
    
    
    15.5
    
    
    
    10.3Dental
    
    
    0.5
    
    
    
    1.0
    
    
    
    (50.0
    )
    
    
    1.1
    
    
    
    1.3
    
    
    
    (15.4
    )Other
    
    
    0.5
    
    
    
    0.2
    
    
    
    150.0
    
    
    
    1.1
    
    
    
    0.9
    
    
    
    22.2Total
    
    $
    19.6
    
    
    $
    12.5
    
    
    
    56.8
    %
    
    $
    31.1
    
    
    $
    24.4
    
    
    
    27.5Loss ratios:Life
    
    
    73.0
    %
    
    
    78.5
    %
    
    
    
    
    
    
    75.5
    %
    
    
    80.3
    %Disability
    
    
    71.5
    
    
    
    69.7
    
    
    
    
    
    
    
    72.2
    
    
    
    66.6Dental
    
    
    79.4
    
    
    
    78.0
    
    
    
    
    
    
    
    78.9
    
    
    
    78.9Combined
    
    
    73.2
    %
    
    
    74.7
    %
    
    
    
    
    
    
    74.5
    %
    
    
    74.3
    %Total expenses as a
% of premium income
    
    
    22.1
    %
    
    
    21.4
    %
    
    
    
    
    
    
    22.4
    %
    
    
    22.2
    %Average assets
    
    $
    1,738
    
    
    $
    962
    
    
    
    80.7
    %
    
    $
    1,566
    
    
    $
    945
    
    
    
    65.7
    %
 25




---



##### 



Reportable segment results for Benefit Partners increased substantially
in the second quarter 2004, reflecting both improved loss ratios in our
existing business and about $5 of earnings from the acquired Canada Life
business. Total revenues for Benefit Partners increased over the second quarter and first
six months of 2003 due to the March 1, 2004 acquisition of substantially all of
the group life, disability and dental business of Canada Life (the Canada Life
block) and due to organic growth from sales during 2003 and the first half of
2004. See Note 8 for further discussion of the Canada Life transaction.
Excluding the Canada Life block, premiums and other considerations increased
19.2% and 16.3% over the second quarter and first six months of 2003. Revenue
growth for the second quarter of 2004 over the 2003 quarter included an
increase of $12 related to our Exec-U-Care product that is not expected to
recur over the remainder of 2004. Annualized sales increased over the second
quarter of 2003 primarily due to good sales execution from established sales
reps, and declined from the first six months of 2003 due to the extraordinarily
strong sales results in last years first quarter as well as, across the
industry, continued customer tendency in 2004 to retain existing carriers for
their non-medical coverages. Also, our sales results reflect the actions we
implemented in 2003 and have continued into 2004 in the life line to tighten
certain underwriting rules and strengthen our sales focus on higher margin,
smaller case business. Policy benefits increased in the second quarter and first six months of 2004
over the same periods in 2003, reflecting growth from the acquired Canada Life
business as well as strong organic growth in our business. The second quarter
of 2004 also reflected the non-recurring increase in the Exec-U-Care product
discussed above. Total benefit ratios for combined Life, Disability, and
Dental were down from the second quarter of 2003 and relatively in-line with
the first six months of 2003. Expenses were as follows: Three Months Ended
    
    Six Months EndedJune 30
    
    June 302004
    
    2003
    
    Change
    
    2004
    
    2003
    
    ChangeCommissions
    
    $
    34.7
    
    
    $
    21.6
    
    
    
    (60.6
    )%
    
    $
    61.6
    
    
    $
    42.4
    
    
    
    (45.3
    )%General and administrative
    
    
    29.0
    
    
    
    18.2
    
    
    
    (59.3
    )
    
    
    52.0
    
    
    
    37.7
    
    
    
    (37.9
    )Taxes, licenses and fees
    
    
    7.3
    
    
    
    5.0
    
    
    
    (46.0
    )
    
    
    12.3
    
    
    
    10.3
    
    
    
    (19.4
    )Total commissions and
expenses incurred
    
    
    71.0
    
    
    
    44.8
    
    
    
    (58.5
    )
    
    
    125.9
    
    
    
    90.4
    
    
    
    (39.3
    )Less commissions and
expenses capitalized
    
    
    (9.8
    )
    
    
    (28.9
    )
    
    
    (66.1
    )
    
    
    (18.0
    )
    
    
    (57.2
    )
    
    
    (68.5
    )Amortization of DAC
    
    
    6.7
    
    
    
    24.8
    
    
    
    73.0
    
    
    
    12.9
    
    
    
    49.2
    
    
    
    73.8Total expense
    
    $
    67.9
    
    
    $
    40.7
    
    
    
    (66.8
    )%
    
    $
    120.8
    
    
    $
    82.4
    
    
    
    (46.6
    )%
 Total expense growth for the second quarter and first six months of 2004 was
somewhat elevated due to the impact of expenses from Canada Life integration
activities. The integration expenses are the primary driver of the increase in
the total unit expense ratios for the second quarter and first six months of
2004 relative to the 2003 periods. In the first quarter 2004 we changed our
presentation of commissions, which are paid and expensed on a monthly basis.
In the past, we reflected such commissions as capitalized and fully amortized
each month. We no longer flow these commissions through DAC. This change has
no impact on total expenses or reportable segment results. Risks beyond normal competition that may impact this segment include increased
morbidity risk due to a weak economy that may increase disability claim costs
(an industry-wide phenomenon); continued medical cost inflation that can put
pressure on non-medical benefit premium rates because employers may focus more
on the employers cost of non-medical programs; and mortality risks including 26




---



##### 



concentration risks from acts of terrorism not priced for or
reinsured. We discuss these risks in more detail in the Benefit Partners
section of our Form 10-K. Communications JPCC operates radio and television broadcast properties and produces syndicated
sports programming. Reportable segment results were: Three Months Ended
    
    Six Months EndedJune 30
    
    June 302004
    
    2003
    
    Change
    
    2004
    
    2003
    
    ChangeCommunications revenues (net)
    
    $
    56.5
    
    
    $
    50.7
    
    
    
    11.4
    %
    
    $
    115.0
    
    
    $
    101.2
    
    
    
    13.6
    %Cost of sales
    
    
    7.5
    
    
    
    7.3
    
    
    
    (2.7
    )
    
    
    22.2
    
    
    
    20.7
    
    
    
    (7.2
    )Operating expenses
    
    
    21.8
    
    
    
    20.3
    
    
    
    (7.4
    )
    
    
    43.8
    
    
    
    41.6
    
    
    
    (5.3
    )Broadcast cash flow
    
    
    27.2
    
    
    
    23.1
    
    
    
    17.7
    
    
    
    49.0
    
    
    
    38.9
    
    
    
    26.0Depreciation and amortization
    
    
    2.2
    
    
    
    2.1
    
    
    
    (4.8
    )
    
    
    4.4
    
    
    
    4.2
    
    
    
    (4.8
    )Corporate general and
administrative expenses
    
    
    2.0
    
    
    
    1.2
    
    
    
    (66.7
    )
    
    
    3.6
    
    
    
    2.7
    
    
    
    (33.3
    )Net interest expense
    
    
    0.6
    
    
    
    0.5
    
    
    
    (20.0
    )
    
    
    1.0
    
    
    
    1.1
    
    
    
    9.1Operating revenue before
income taxes
    
    
    22.4
    
    
    
    19.3
    
    
    
    16.1
    
    
    
    40.0
    
    
    
    30.9
    
    
    
    29.4Provision for income taxes
    
    
    8.7
    
    
    
    7.8
    
    
    
    (11.5
    )
    
    
    15.7
    
    
    
    12.3
    
    
    
    (27.6
    )Reportable segment results
    
    $
    13.7
    
    
    $
    11.5
    
    
    
    19.1
    %
    
    $
    24.3
    
    
    $
    18.6
    
    
    
    30.6
    %
 Communications revenues increased 11.4% over the second quarter of 2003 due to
growth in our radio and TV divisions. Sports division revenues were minimal,
reflecting the seasonality of basketball and football programming.
Communications revenues for the first six months of 2004 increased by 13.6%
over 2003 due to growth in all three operating divisions, including Sports.
Combined revenues for Radio and Television increased 11.8% over the second
quarter of 2003 and 11.5% year to date over the prior year due to improved
revenue shares in most markets. Typically, political advertising favorably
impacts television revenues in even numbered years. Political advertising for
Television was $1.1 for the quarter and $2.8 year to date. Excluding the
impact of political, Television revenues increased 5.6% over the second quarter
of 2003 and 7.7% year to date. Broadcast cash flow increased by 17.7% during the second quarter and 26.0% year
to date in 2004 due to increases in revenues combined with effective operating
expense control in all the businesses. Total expenses, excluding interest expense, increased 8.4% over the second
quarter of 2003 and 6.9% year to date. As a percent of communication revenues,
these expenses were 59.3% and 60.9% for the second quarter of 2004 and 2003 and
64.3% and 68.4% year to date. On April 1, 2004, under the option to purchase provision of a lease entered
into in 2003, JPCC acquired the assets and license to broadcast a FM radio
station in San Diego, CA for $18. Risks for this segment include sensitivity to cyclical changes in both the
general economy and the economic strength of local markets, concentration of
our advertising revenues from the automotive industry, the ability to
periodically renew FCC licenses, technological changes and consolidation in the
broadcast industry. We discuss these risks in more detail in the Communications
section of our Form 10-K. 27




---



##### 



Corporate and Other The Corporate and Other segment includes the excess capital of the insurance
subsidiaries, other corporate investments including defaulted securities,
benefit plan net assets, goodwill related to insurance acquisitions, and
corporate debt. This reportable segments results include earnings on invested
excess capital, interest expense related to corporate debt, and operating
expenses that are corporate in nature (such as advertising and charitable and
civic contributions). All net realized investment gains and losses, which
include other-than-temporary impairments of securities, are reported in this
segment. The following table summarizes results for this segment. Prior year amounts
have been restated to conform to the current year presentation for the adoption
of FIN 46, under which, as discussed in Note 2 of our 10-K, we no longer
consolidate two affiliated Capital Trusts. Three Months Ended
    
    Six Months EndedJune 30
    
    June 302004
    
    2003
    
    2004
    
    2003Earnings on investments and other
income
    
    $
    23.0
    
    
    $
    22.4
    
    
    $
    48.9
    
    
    $
    44.2Interest expense on debt
    
    
    (11.7
    )
    
    
    (8.4
    )
    
    
    (22.5
    )
    
    
    (17.2
    )Operating expenses
    
    
    (6.8
    )
    
    
    (6.7
    )
    
    
    (9.8
    )
    
    
    (13.0
    )Income taxes
    
    
    2.1
    
    
    
    (0.3
    )
    
    
    0.3
    
    
    
    (1.7
    )Reportable segment results
    
    
    6.6
    
    
    
    7.0
    
    
    
    16.9
    
    
    
    12.3Realized investment gains, net of taxes
    
    
    7.2
    
    
    
    13.2
    
    
    
    21.9
    
    
    
    0.8Reportable segment results, including
realized gains
    
    $
    13.8
    
    
    $
    20.2
    
    
    $
    38.8
    
    
    $
    13.1
 Earnings on investments and other income increased slightly in the second
quarter of 2004 and improved $4.7 year to date. The year to date increase was
driven by income from a $4.0 settlement from a Bank of America
merger class action suit, an increase in default charges received from the
operating segments, and increased dividends on equity securities, offset by
approximately $2.2 foregone earnings ($1.7 for the second quarter) on capital
transferred to the Benefit Partners segment in connection with the acquisition
of the Canada Life business. Earnings on investments in this segment can
fluctuate based upon opportunistic repurchases of common stock, the amount of
excess capital generated by the operating segments and lost investment income
on bonds defaulted or sold at a loss. Interest expense on debt increased primarily due to the issuance of ten-year
notes on January 27, 2004 at an effective interest rate of 4.77%. This
increase was partially offset by lower short-term interest rates. See Note 8
of our Form 10-K for details of our debt structure and interest costs. Effective tax rates improved in the second quarter and first six months of 2004
versus 2003 due to an increase in the dividends received deduction and other
tax preferred investments. 28




---



##### 



Realized investment gains and losses were as follows: Three Months Ended
    
    Six Months EndedJune 30
    
    June 302004
    
    2003
    
    2004
    
    2003Stock gains
    
    $
    35.1
    
    
    $
    13.8
    
    
    $
    63.6
    
    
    $
    13.8Stock losses
    
    
    (0.6
    )
    
    
    
    
    
    
    (3.0
    )
    
    
    Bond gains
    
    
    7.8
    
    
    
    22.5
    
    
    
    25.5
    
    
    
    36.8Bond losses from sales and calls
    
    
    (22.8
    )
    
    
    (1.9
    )
    
    
    (26.3
    )
    
    
    (4.7
    )Bond losses from writedowns
    
    
    (16.4
    )
    
    
    (12.1
    )
    
    
    (32.3
    )
    
    
    (41.1
    )Other gains and losses (net)
    
    
    2.2
    
    
    
    
    
    
    
    2.2
    
    
    
    (0.6
    )Total pretax gains
    
    
    5.3
    
    
    
    22.3
    
    
    
    29.7
    
    
    
    4.2DAC amortization
    
    
    4.9
    
    
    
    (2.0
    )
    
    
    4.0
    
    
    
    (3.0
    )Income taxes
    
    
    (3.0
    )
    
    
    (7.1
    )
    
    
    (11.8
    )
    
    
    (0.4
    )Realized investment gains, net
of taxes
    
    $
    7.2
    
    
    $
    13.2
    
    
    $
    21.9
    
    
    $
    0.8
 Bond impairments increased in the second quarter, but decreased in the first
six months of 2004 as a result of improvement in the corporate credit
environment. Second quarter write-downs reflected further deterioration among
airline issuers. Bond losses from sales and calls increased $20.9 and $21.6 in
the second quarter and first six months of 2004 compared to 2003, due primarily
to bond swaps in the 2004 second quarterincreased market yields and favorable
tax attributes provided opportunities for sales of lower yielding bonds with
redeployment at higher interest rates. Gains on the sale of Bank of America
stock and of about $50 of the $250 equity portfolio acquired in the second
quarter of 2003 more than offset the losses on these bond sales. We reflect provisions for credit related losses in our estimated gross profits
when calculating DAC and VOBA amortization. As reflected in the preceding
table, we record DAC and VOBA amortization on realized gains and losses on
investments that back UL-type and annuity products. The following table summarizes assets assigned to this segment: June 302004
    
    2003
    
    ChangeParent company, passive investment companies
and Corporate line assets of insurance
subsidiaries
    
    $
    995
    
    
    $
    1,052
    
    
    
    (5.4
    )%Unrealized gain on fixed interest investments
    
    
    291
    
    
    
    867
    
    
    
    (66.4
    )Coinsurance receivables on acquired blocks
    
    
    957
    
    
    
    1,045
    
    
    
    (8.4
    )Employee benefit plan assets
    
    
    379
    
    
    
    344
    
    
    
    10.2Goodwill arising from insurance acquisitions
    
    
    270
    
    
    
    270
    
    
    
    Other
    
    
    397
    
    
    
    318
    
    
    
    24.8Total
    
    $
    3,289
    
    
    $
    3,896
    
    
    
    (15.6
    )%
 Total assets for the Corporate and Other segment decreased primarily as a
result of the decrease in unrealized gains on fixed interest investments and
the transfer to Benefit Partners in connection with the Canada Life
acquisition. A large policy loan repayment was received in the quarter,
reducing coinsurance receivables. Risks for this segment include investment impairments due to continuing
economic weakness or further economic decline, the risk of rising interest
rates on our floating rate debt, the ability to replace existing 29




---



##### 



debt agreements with comparable terms, declines in the values of our
equity securities which would limit our potential for realized gains, general
uncertainty regarding litigation, and the potential for future impairment of
goodwill. Also, as discussed in the Liquidity section, to service our debt and
to pay shareholder dividends, we rely on excess cash flows through dividends
from subsidiaries. Insurance subsidiary dividends depend on regulatory
approval when above certain limits. Financial Position Our primary resources are investments related to our Individual Products, AIP
and Benefit Partners segments, properties and other assets utilized in all
segments and investments backing corporate capital. This section identifies
several items on our balance sheet that are important to the overall
understanding of our financial position. The Investments section reviews our
investment portfolio and key portfolio management strategies. Total assets increased $1.3 billion from year end 2003 due primarily to the
Canada Life acquisition and growth in the insurance blocks, partially offset by
lower unrealized gains. Intangible assets on our balance sheet include DAC, VOBA, deferred sales
inducements, goodwill and FCC licenses. DAC, VOBA and Unearned Revenue Both DAC and VOBA are amortized through expenses as revenues are recognized in
the future. Some of the assumptions regarding future experience that can
affect the carrying value of DAC and VOBA balances include mortality, interest
spreads, lapse rates and policy fees earned. VUL and VA products contain an
additional assumption regarding the rate of growth of the separate account
mutual funds, referred to as the mean reversion assumption. Significant
differences between actual experience and assumptions we use can impact the
carrying balance of DAC and VOBA and therefore produce changes that must be
reflected in earnings. These changes can be positive or negative. See our
Form 10-K for further discussion. The DAC and VOBA balances on our traditional individual and group insurance
products were $307.7 or 11.7% of the gross balances (before adjustments for
unrealized gains and losses) at June 30, 2004, and are generally subject to
little volatility. DAC and VOBA on UL-type products were $1,970.5 or 75.0% of the gross balances
at June 30, 2004, and DAC and VOBA on our annuity products were $348.5 or
13.3%. As discussed under Individual Products, during the second quarter of 2004 we
unlocked our DAC assumptions regarding mortality, withdrawals and interest
spreads on certain blocks of business. In our Form 10-K, we provided
sensitivity analyses of changes in significant assumptions to DAC and VOBA.
Those analyses continue to accurately portray the estimated sensitivity of DAC
and VOBA to the significant underlying assumptions used therein. We also adjust the carrying value of DAC and VOBA to reflect changes in the
unrealized gains and losses in available-for-sale securities backing UL-type
and annuity products, since this impacts the timing of and possible realization
of expected gross profits for these products. Goodwill and Other The status and trends related to goodwill, reinsurance receivables and defined
benefit pension plans were essentially unchanged during the first six months of
2004. See our Form 10-K for further discussion. 30




---



##### 



We completed our annual test of goodwill impairment during the
second quarter of 2004 and concluded that no impairment has occurred. Capital Resources Our capital structure consists of 10-year term notes, floating rate EXtendible
Liquidity Securities® (EXLs), short-term commercial paper, securities sold
under repurchase agreements, long-term junior subordinated debentures, and
stockholders equity. We also have a bank credit agreement backing a portion
of unsecured revolving credit, under which we have the option to borrow at
various interest rates. The agreement, as amended on May 7, 2004, aggregates
$348 which is available until May 2007. The credit agreement principally
supports our issuance of commercial paper. Outstanding commercial paper has various maturities that can be up to 270 days.
If we cannot remarket commercial paper at maturity, we have sufficient
liquidity, consisting of the bank credit agreement, liquid assets, such as
equity securities, and other resources to retire these obligations. The
weighted-average interest rates for commercial paper borrowings outstanding of
$187 and $654 at June 30, 2004 and December 31, 2003 were 1.16% and 1.13%. The
maximum amount outstanding in 2004 after the January issuance of the term debt
and EXLs was $298 and the maximum amount outstanding during 2003 was $656. Our commercial paper is currently rated by two rating agencies. Agency
    
    RatingFitch
    
    F1+Standard & Poors
    
    A1+
 These are the highest ratings that these agencies issue and each has been
affirmed in the past six months. A significant drop in these ratings, while
not anticipated, could cause us to pay higher rates on commercial paper
borrowings or lose access to the commercial paper market. Our insurance subsidiaries have sold collateralized mortgage obligations and
agency debentures under repurchase agreements involving various counterparties,
accounted for as financing arrangements with maturities less than six months.
We use proceeds to purchase securities with longer durations as an
asset/liability management strategy. At June 30, 2004 and December 31, 2003,
repurchase agreements, including accrued interest, were $509 and $401. The
securities involved had a fair value and amortized cost of $531 and $504 at
June 30, 2004 versus $428 and $406 at December 31, 2003. The maximum principal
amount outstanding for the first six months of 2004 was $528 versus $597 for
the year ended December 31, 2003. On January 27, 2004, we issued $300 of 4.75% 10-year term notes and $300 of
EXLs with an initial maturity of February 17, 2005 subject to periodic
extension through 2011. The proceeds from the debt issuances were used to
support the Canada Life acquisition and for other general corporate purposes,
while also rebalancing our mix of fixed and floating rate debt and short and
long term maturities. The 10-year term notes were publicly registered during
the second quarter of 2004. Stockholders equity decreased $286 in 2004 over the yearend amount.
Unrealized gains on available-for-sale securities, which are included as a
component of stockholders equity, decreased $233. The remaining change in
stockholders equity is due to net income, dividends to stockholders, and
common share activity through issuance of shares under our stock option plans
and our share repurchases. Our ratio of stockholders equity to assets
excluding separate accounts was 11.1% and 12.5% at June 30, 2004 and December
31, 2003. 31




---



##### 



During the second quarter and first six months of 2004, we repurchased
3,484,000 and 5,368,200 of our common shares at an average cost of $49.62 and
$51.05. In May 2004, our board refreshed its share repurchase authorization to
5 million shares, with 4.1 million remaining at June 30. Our insurance subsidiaries have statutory surplus and risk based capital levels
well above current regulatory required levels. These capital levels together
with the rating agencies assessments of our business strategies have enabled
our major life insurance affiliates to attain the following claims paying
ratings: JP Life
    
    JPFIC
    
    JPLAA.M. Best
    
    A++
    
    A++
    
    A++Standard & Poors
    
    AAA
    
    AAA
    
    AAAFitch Ratings
    
    AA+
    
    AA+
    
    AA+
 The ratings by A.M. Best and Standard & Poors are currently the highest
available by those rating agencies and have been reaffirmed in 2004, while the
ratings by Fitch Ratings is that agencys second highest rating. A significant
drop in our ratings, while not anticipated, could potentially impact future
sales and/or accelerate surrenders on our business in force. Liquidity We meet liquidity requirements primarily by positive cash flows from the
operations of our subsidiaries. Cash provided by operations in the first six
months of 2004 and 2003 was $647 and $208. The primary driver for the increase
over 2003 related to the Canada Life transaction and lower federal income tax
payments. Net cash used in investing activities was $1,258 and $475 for the first six
months of 2004 and 2003. In 2004, investment purchases increased substantially
due to cash received in the Canada Life transaction and from higher annuity
sales. Cash used in other investing activities increased due to purchases of
affordable housing tax credit securities, acquisition of additional FCC
licenses and an increase in policy loans. Net cash provided by financing activities was $608 and $252 for the first six
months of 2004 and 2003, including cash inflows from policyholder contract
deposits net of withdrawals of $685 and $435, reflecting increased annuity
sales. Stock repurchases increased $181 in the first six months of 2004 over
the prior year period. Net borrowings increased $289 in the first six months
of 2004 over 2003 largely due to the capital assigned to the Canada Life
acquisition. In order to meet the parent companys dividend payments, debt servicing
obligations and other expenses, we rely on dividends from our subsidiaries.
Cash dividends received from subsidiaries by the parent company during the
first six months were $100 and $146 in 2004 and 2003. The lower level of
dividends was in accordance with our capital planning strategies for 2004. Our
life insurance subsidiaries are subject to laws in their states of domicile
that limit the amount of dividends that can be paid without the prior approval
of the respective states insurance regulator. The limits are based in part on
the prior years statutory income and capital, which can be negatively impacted
by bond losses and write downs. Approval of dividends from our life insurance
subsidiaries will depend upon circumstances at the time, but historically our
levels of statutory income and capital have been sufficient to obtain such
approvals. Cash and cash equivalents were $69 and $72 at June 30, 2004 and December 31,
2003. The parent company and non-regulated subsidiaries held equity and fixed
income securities of $649 and $753 at 32




---



##### 



these dates. We consider the majority of these securities to be a source of
liquidity to support our strategies. Total debt and equity securities available-for-sale at June 30, 2004 and
December 31, 2003 were $19,254 and $18,462. Contractual Obligations During the second quarter of 2004, JPCC announced an agreement in principle
that will give JP Sports and its broadcasting partner television syndication
rights to Atlantic Coast Conference football and basketball games through the
2010 season. While the exact terms of the agreement are still being finalized,
our contractual obligations will increase upon execution of the agreement.
Otherwise, the composition and maturity of our contractual obligations remained
essentially unchanged during the second quarter of 2004. See our first quarter
Form 10-Q and our Form 10-K for greater detail and discussion. Off Balance Sheet Arrangements and Commitments We have no material off balance sheet arrangements of a financing nature. We routinely enter into commitments to extend credit in the form of mortgage
loans and to purchase certain debt instruments in private placement
transactions for our investment portfolio. The fair value of such outstanding
commitments as of June 30, 2004 and December 31, 2003 approximated $201 and
$86. These commitments will be funded through cash flows from operations and
investment maturities. Investments Portfolio Description Our strategy for managing the investment portfolio of our insurance
subsidiaries is to consistently meet pricing assumptions while appropriately
managing credit and interest rate risk. We invest for the long term, and most
of our investments are held until they mature. Our investment portfolio
includes primarily fixed income securities and commercial mortgage loans. The
nature and quality of investments that our insurance subsidiaries hold must
comply with state regulatory requirements. We have established a formal
investment policy, which describes our overall quality and diversification
objectives and limits. Approximately 88% of our portfolio has been designated as available-for-sale
(AFS) and is carried on the balance sheet at fair value. We determine fair
values of our securities, including securities not actively traded, using the
methodology described in the Critical Accounting Policies section of our Form
10-K. Changes in fair values of AFS securities are reflected in other
comprehensive income. The remainder of our portfolio has been designated as
held-to-maturity (HTM). As prescribed by generally accepted accounting
principles, HTM securities are carried at amortized cost, and accordingly there
is a difference between fair value and carrying value for HTM securities. 33




---



##### 



The following table shows the carrying values of our invested assets: June 30
    
    December 312004
    
    2003Publicly-issued bonds
    
    $
    16,039
    
    
    
    60.3
    %
    
    $
    15,823
    
    
    
    61.3
    %Privately-placed bonds
    
    
    5,094
    
    
    
    19.2
    
    
    
    4,621
    
    
    
    17.9Total bonds
    
    
    21,133
    
    
    
    79.5
    
    
    
    20,444
    
    
    
    79.2Redeemable preferred stock
    
    
    14
    
    
    
    
    
    
    
    14
    
    
    
    Total debt securities
    
    
    21,147
    
    
    
    79.5
    
    
    
    20,458
    
    
    
    79.2Mortgage loans on real property
    
    
    3,612
    
    
    
    13.6
    
    
    
    3,472
    
    
    
    13.4Common stock
    
    
    650
    
    
    
    2.4
    
    
    
    754
    
    
    
    2.9Non-redeemable preferred stock
    
    
    2
    
    
    
    
    
    
    
    2
    
    
    
    Policy loans
    
    
    844
    
    
    
    3.2
    
    
    
    869
    
    
    
    3.4Real estate
    
    
    126
    
    
    
    0.5
    
    
    
    132
    
    
    
    0.5Other
    
    
    133
    
    
    
    0.5
    
    
    
    65
    
    
    
    0.3Cash and cash equivalents
    
    
    69
    
    
    
    0.3
    
    
    
    72
    
    
    
    0.3Total
    
    $
    26,583
    
    
    
    100.0
    %
    
    $
    25,824
    
    
    
    100.0
    %
 34




---



##### 



Unrealized Gains and Losses The following table summarizes by category the unrealized gains and losses in
our entire securities portfolios, including common stock and redeemable
preferred stock, as of June 30, 2004: Gross
    
    GrossAmortized
    
    Unrealized
    
    Unrealized
    
    Fair
    
    CarryingCost
    
    Gains
    
    Losses
    
    Value
    
    ValueAvailable-for-sale, carried at fair
value:US Treasury obligations and direct
obligations of US Government
agencies
    
    $
    243
    
    
    $
    14
    
    
    $
    (1
    )
    
    $
    256
    
    
    $
    256Federal agency mortgage backed
securities (including collateralized
mortgage obligations)
    
    
    1,857
    
    
    
    69
    
    
    
    (15
    )
    
    
    1,911
    
    
    
    1,911Obligations of states and political
subdivisions
    
    
    58
    
    
    
    3
    
    
    
    (1
    )
    
    
    60
    
    
    
    60Corporate obligations
    
    
    15,373
    
    
    
    576
    
    
    
    (242
    )
    
    
    15,707
    
    
    
    15,707Corporate private-labeled mortgage
backed securities (including
collateralized mortgage obligations)
    
    
    632
    
    
    
    25
    
    
    
    (3
    )
    
    
    654
    
    
    
    654Redeemable preferred stock
    
    
    13
    
    
    
    1
    
    
    
    
    
    
    
    14
    
    
    
    14Subtotal, debt securities
    
    
    18,176
    
    
    
    688
    
    
    
    (262
    )
    
    
    18,602
    
    
    
    18,602Non-redeemable preferred stock
    
    
    2
    
    
    
    1
    
    
    
    
    
    
    
    3
    
    
    
    3Common stock
    
    
    235
    
    
    
    420
    
    
    
    (6
    )
    
    
    649
    
    
    
    649Securities available-for-sale
    
    
    18,414
    
    
    
    1,109
    
    
    
    (268
    )
    
    
    19,254
    
    
    
    19,254Held-to-maturity, carried at
amortized cost:Obligations of state and political
subdivisions
    
    
    6
    
    
    
    1
    
    
    
    
    
    
    
    7
    
    
    
    6Corporate obligations
    
    
    2,539
    
    
    
    130
    
    
    
    (27
    )
    
    
    2,642
    
    
    
    2,539Debt securities held-to-maturity
    
    
    2,545
    
    
    
    131
    
    
    
    (27
    )
    
    
    2,649
    
    
    
    2,545Total AFS and HTM securities
    
    $
    20,958
    
    
    $
    1,241
    
    
    $
    (295
    )
    
    $
    21,904
    
    
    $
    21,799
 The majority of our unrealized gains and losses can be attributed to changes in
interest rates and market changes in credit spreads. These unrealized gains
and losses do not necessarily represent future gains or losses that will be
realized. Changing conditions related to specific bonds, overall market
interest rates, credit spreads or equity securities markets as well as general
portfolio management decisions might impact values we ultimately realize.
Gross unrealized gains and losses at December 31, 2003 were $1,633 and $(128). 35




---



##### 



The following table shows the diversification of unrealized gains and losses
for our debt securities portfolio across industry sectors as of June 30, 2004: Gross
    
    GrossAmortized
    
    Unrealized
    
    Unrealized
    
    Fair
    
    CarryingCost
    
    Gains
    
    Losses
    
    Value
    
    ValueIndustrialsBasic Materials
    
    $
    952
    
    
    $
    37
    
    
    $
    (16
    )
    
    $
    973
    
    
    $
    974Capital Goods
    
    
    1,288
    
    
    
    54
    
    
    
    (14
    )
    
    
    1,328
    
    
    
    1,314Communications
    
    
    1,221
    
    
    
    53
    
    
    
    (18
    )
    
    
    1,256
    
    
    
    1,246Consumer Cyclical
    
    
    1,063
    
    
    
    41
    
    
    
    (15
    )
    
    
    1,089
    
    
    
    1,083Consumer Noncyclical
    
    
    2,333
    
    
    
    84
    
    
    
    (34
    )
    
    
    2,383
    
    
    
    2,373Energy
    
    
    1,367
    
    
    
    40
    
    
    
    (19
    )
    
    
    1,388
    
    
    
    1,384Technology
    
    
    318
    
    
    
    5
    
    
    
    (5
    )
    
    
    318
    
    
    
    317Transportation
    
    
    759
    
    
    
    47
    
    
    
    (14
    )
    
    
    792
    
    
    
    787Other Industrials
    
    
    750
    
    
    
    33
    
    
    
    (5
    )
    
    
    778
    
    
    
    775Utilities
    
    
    3,837
    
    
    
    161
    
    
    
    (61
    )
    
    
    3,937
    
    
    
    3,908FinancialsBanks
    
    
    2,178
    
    
    
    101
    
    
    
    (31
    )
    
    
    2,248
    
    
    
    2,232Insurance
    
    
    779
    
    
    
    15
    
    
    
    (17
    )
    
    
    777
    
    
    
    774Other Financials
    
    
    1,387
    
    
    
    54
    
    
    
    (22
    )
    
    
    1,419
    
    
    
    1,415Mortgage Backed Securities
(including Commercial
Mortgage Backed
Securities)
    
    
    2,489
    
    
    
    94
    
    
    
    (18
    )
    
    
    2,565
    
    
    
    2,565Total
    
    $
    20,721
    
    
    $
    819
    
    
    $
    (289
    )
    
    $
    21,251
    
    
    $
    21,147
 Credit Risk Management At June 30, 2004, the average quality rating of our bond portfolio was A-
(the Moodys equivalent is A3), which equates to a rating of 1 from the
National Association of Insurance Commissioners Securities Valuation Office
(SVO). We monitor the overall credit quality of our portfolio within internal
investment guidelines. This table describes our debt security portfolio by
credit rating: S&P orSVO
    
    Equivalent
    
    Amortized
    
    Fair
    
    CarryingRating
    
    Designation
    
    Cost
    
    Value
    
    Value
    
    % of Carrying Value1
    
    AAA
    
    $
    2,968
    
    
    $
    3,057
    
    
    $
    3,055
    
    
    
    14.4
    %1
    
    AA
    
    
    1,864
    
    
    
    1,925
    
    
    
    1,914
    
    
    
    9.01
    
    A
    
    
    7,070
    
    
    
    7,279
    
    
    
    7,226
    
    
    
    34.22
    
    BBB
    
    
    7,413
    
    
    
    7,592
    
    
    
    7,546
    
    
    
    35.73
    
    BB
    
    
    749
    
    
    
    752
    
    
    
    759
    
    
    
    3.64
    
    B
    
    
    507
    
    
    
    502
    
    
    
    502
    
    
    
    2.45
    
    CCC and lower
    
    
    113
    
    
    
    107
    
    
    
    108
    
    
    
    0.56
    
    In or near default
    
    
    37
    
    
    
    37
    
    
    
    37
    
    
    
    0.2Total
    
    $
    20,721
    
    
    $
    21,251
    
    
    $
    21,147
    
    
    
    100.0
    %
 Limiting our bond exposure to any one creditor is another way we manage credit
risk. The following table lists our ten largest exposures to an individual
creditor in our bond portfolio as of June 30, 2004. 36




---



##### 



As noted above, the carrying values in the following tables are stated at fair
value for AFS securities and amortized cost for HTM securities. Creditor
    
    Sector
    
    Carrying ValueUnion Bank of Switzerland
    
    Financial Institutions
    
    $
    87Piedmont Natural Gas
    
    Utilities
    
    
    85Weingarten Realty Investors
    
    Financial Institutions
    
    
    85National Rural Utilities
    
    Utilities
    
    
    85HSBC Holdings PLC
    
    Financial Institutions
    
    
    84Goldman Sachs Group
    
    Financial Institutions
    
    
    84Cargill Inc
    
    Consumer, Noncyclical
    
    
    83Wachovia Corp
    
    Financial Institutions
    
    
    83General Electric Corp
    
    Capital Goods
    
    
    82Wells Fargo & Co
    
    Financial Institutions
    
    
    81
 We monitor those securities that are rated below investment grade as to
individual exposures and in comparison to the entire portfolio, as an
additional credit risk management strategy. The following table shows the ten largest below investment grade debt security
exposures by individual issuer at June 30, 2004. Investment grade bonds of
issuers listed below are not included in these values. The gross unrealized
gain or loss shown below is calculated as the difference between the fair value
of the securities and their amortized cost. Gross UnrealizedCreditor
    
    Sector
    
    Amortized Cost
    
    Carrying Value
    
    Gain/(Loss)El Paso Corp
    
    Utilities
    
    $
    47
    
    
    $
    45
    
    
    $
    (3
    )Ahold, Royal
    
    Consumer, Noncyclical
    
    
    41
    
    
    
    42
    
    
    
    1Discovery Communications
    
    Communications
    
    
    40
    
    
    
    40
    
    
    
    1Enterprise Products LP
    
    Utilities
    
    
    40
    
    
    
    40
    
    
    
    (1
    )Nova Chem. Ltd.
    
    Basic Materials
    
    
    37
    
    
    
    37
    
    
    
    (3
    )Rite Aid Corp
    
    Consumer Cyclicals
    
    
    38
    
    
    
    36
    
    
    
    (3
    )Intertape Polymer Group
    
    Capital Goods
    
    
    35
    
    
    
    34
    
    
    
    Thomas & Betts Co
    
    Technology
    
    
    31
    
    
    
    32
    
    
    
    1Williams Cos Inc
    
    Utilities
    
    
    26
    
    
    
    27
    
    
    
    1Homer City Funding LLC
    
    Utilities
    
    
    25
    
    
    
    26
    
    
    
    1
 At June 30, 2004 and December 31, 2003, below investment grade bonds were
$1,397 or 6.6% and $1,452 or 7.1% of the carrying value of the bond portfolio. As noted above, credit risk is inherent in our bond portfolio. We manage this
risk through a structured approach in which we assess the effects of the
changing economic landscape. We devote a significant amount of effort of both
highly specialized, well-trained internal resources and external experts in our
approach to managing credit risk. 37




---



##### 



Impairment Review Our impairment review procedures remained essentially unchanged during the
first six months of 2004. See our Form 10-K for a detailed discussion of our
impairment review procedures. The following table shows the maturity date distribution of our debt securities
in an unrealized loss position at June 30, 2004. The fair values of these
securities could fluctuate over the respective periods to maturity or any sale. Gross UnrealizedAmortized Cost
    
    Fair Value
    
    Losses
    
    Carrying ValueDue in one year or less
    
    $
    24
    
    
    $
    20
    
    
    $
    (4
    )
    
    $
    19Due after one year through five years
    
    
    954
    
    
    
    931
    
    
    
    (23
    )
    
    
    934Due after five years through ten years
    
    
    4,415
    
    
    
    4,273
    
    
    
    (142
    )
    
    
    4,286Due after ten years through twenty years
    
    
    1,673
    
    
    
    1,598
    
    
    
    (75
    )
    
    
    1,609Due after twenty years
    
    
    1,121
    
    
    
    1,079
    
    
    
    (42
    )
    
    
    1,080Amounts not due at a single maturity date
    
    
    75
    
    
    
    72
    
    
    
    (3
    )
    
    
    72Subtotal
    
    
    8,262
    
    
    
    7,973
    
    
    
    (289
    )
    
    
    8,000Redeemable preferred stocks
    
    
    4
    
    
    
    4
    
    
    
    
    
    
    
    4Total
    
    $
    8,266
    
    
    $
    7,977
    
    
    $
    (289
    )
    
    $
    8,004
 The following table shows the credit quality of our debt securities with
unrealized losses at June 30, 2004: S&P or Equivalent
    
    
    
    
    
    
    
    
    
    % of
    
    Gross Unrealized
    
    % of GrossSVO Rating
    
    Designation
    
    Amortized Cost
    
    Fair Value
    
    Fair Value
    
    Losses
    
    Unrealized Losses
    
    Carrying Value1
    
    AAA/AA/A
    
    $
    4,588
    
    
    $
    4,444
    
    
    
    55.6
    %
    
    $
    (144
    )
    
    
    49.9
    %
    
    $
    4,4492
    
    BBB
    
    
    2,996
    
    
    
    2,893
    
    
    
    36.3
    
    
    
    (103
    )
    
    
    35.6
    
    
    
    2,9033
    
    BB
    
    
    320
    
    
    
    301
    
    
    
    3.8
    
    
    
    (19
    )
    
    
    6.6
    
    
    
    3104
    
    B
    
    
    261
    
    
    
    246
    
    
    
    3.1
    
    
    
    (15
    )
    
    
    5.2
    
    
    
    2475
    
    CCC and lower
    
    
    91
    
    
    
    84
    
    
    
    1.1
    
    
    
    (7
    )
    
    
    2.4
    
    
    
    856
    
    In or near default
    
    
    10
    
    
    
    9
    
    
    
    0.1
    
    
    
    (1
    )
    
    
    0.3
    
    
    
    10Total
    
    $
    8,266
    
    
    $
    7,977
    
    
    
    100.0
    %
    
    $
    (289
    )
    
    
    100.0
    %
    
    
    8,004
 No individual issuer had an unrealized loss of $10 or greater at June 30, 2004. The following table shows the length of time that individual debt securities
have been in a continuous unrealized loss position: Fair
    
    Gross Unrealized
    
    % of GrossValue
    
    Losses
    
    Unrealized Losses
    
    Carrying ValueMore than 1 year
    
    $
    854
    
    
    $
    (65
    )
    
    
    22.5
    %
    
    $
    8676 months  1 year
    
    
    570
    
    
    
    (29
    )
    
    
    10.0
    
    
    
    575Less than 6 months
    
    
    6,553
    
    
    
    (195
    )
    
    
    67.5
    
    
    
    6,562Total
    
    $
    7,977
    
    
    $
    (289
    )
    
    
    100.0
    %
    
    $
    8,004
 Of the $289 gross unrealized losses on debt securities at June 30, 2004,
approximately $2 was included in our potentially distressed securities list,
but has been on the list for less than twelve months. 38




---



##### 



Information about unrealized gains and losses is subject to rapidly changing
conditions. Securities with unrealized gains and losses will fluctuate, as
will those securities that we have identified as potentially distressed. The
recent volatility of financial markets and an increase in market interest rates
has led to a decrease in unrealized gains and an increase in unrealized losses.
We consider all of the factors discussed earlier when we determine if an
unrealized loss is other-than-temporary, including our ability and intent to
hold the security until the value recovers. If we make the decision to
dispose of a security with an unrealized loss, we will write down the security
to its fair value if we have not sold it by the end of the reporting period. Realized Losses  Write Downs and Sales Realized losses are comprised of both write downs on other-than-temporary
impairments and actual sales of securities. For the second quarter and the six months ended June 30, 2004, we had
other-than-temporary impairments on bonds of $16 and $32 as compared to $12 and
$41 for the same periods of 2003. The larger individual impairments, how they
were measured, the circumstances giving rise to the losses, and the impact
those circumstances have on other material investments we held at the time are
as follows: 2004  o
    
    $12.2 write down on a national passenger airline, due
to overcapacity in the industry, increasing fuel prices, intense
competition from low cost carriers, and the lack of demand for
older aircraft. 2003  o
    
    $5.1 write down on US Generating. This was an
investment in a project finance security in the power generating
industry. The lessee of this facility filed bankruptcy and
rejected this lease. For the second quarter and first six months of 2004, we incurred losses of
$22.8 and $26.3 on sales of securities. There were no individually material
losses on sales of securities during this period. All disposals were in
accordance with established portfolio management strategies and did not
previously meet the criteria for other-than-temporary impairment. Mortgage Backed Securities Mortgage backed securities (including Commercial Mortgage Backed Securities),
all of which are included in debt securities available-for-sale, were as
follows: June 30
    
    December 312004
    
    2003Federal agency issued mortgage backed securities
    
    $
    1,911
    
    
    $
    2,152Corporate private-labeled mortgage backed securities
    
    
    654
    
    
    
    752Total
    
    $
    2,565
    
    
    $
    2,904
 Our investment strategy with respect to our mortgage backed securities (MBS)
portfolio focuses on actively traded issues with less volatile cash flows. The
majority of the MBS holdings are sequential
and planned amortization class tranches of federal agency issuers. The MBS
portfolio has been constructed with underlying mortgage collateral
characteristics and structure in order to mitigate cash flow volatility over a
range of interest rates. 39




---



##### 



We experienced MBS principal payments totaling $338 and $603 in the second
quarter of 2004 and 2003. Our MBS portfolio is primarily a discount portfolio;
therefore, excess principal repayments accelerate the accretion of discount
into income. The excess accretion of discount increased investment income in
the second quarter of 2004 by $1.5 compared to $11.0 in the 2003 period, on a
pre-tax basis. These principal repayments are reinvested at yields that are
lower than our current portfolio yields, producing less investment income going
forward. Our MBS portfolio declined substantially in 2003, and we reinvested
most of the proceeds in investment grade corporate bonds. Mortgage Loans We record mortgage loans on real property net of an allowance for credit
losses. This allowance includes both reserve amounts for specific loans, and a
general reserve that is calculated by review of historical industry loan loss
statistics. We consider future cash flows and the probability of payment when
we calculate our specific loan loss reserve. At June 30, 2004 and December 31,
2003, our allowance for mortgage loan credit losses was $31.6 and $35.5. Derivative Instruments Our investment guidelines permit use of derivative financial instruments such
as futures contracts and interest rate swaps in conjunction with specific
direct investments. Our actual use of derivatives through June 30, 2004 has
been limited to managing well-defined interest rate and equity market risks.
Interest rate swaps utilized in our asset/liability management strategy with a
current notional value of $310 and $348 were open as of June 30, 2004 and
December 31, 2003. The Company also uses interest rate swaps to hedge
prospective bond purchases to back deposits on certain fixed annuity contracts.
This hedging strategy protects the spread between the annuity crediting rate
offered at the time the annuities are sold and the yield on bonds to be
purchased to back those annuity contracts. These interest rate swap contracts
are generally terminated within a month. We also purchase S&P 500 Index®
options in conjunction with our sales of equity indexed annuities. The
reinsurance agreement on the indexed performance of our equity indexed
annuities issued prior to August 1, 2002 remains in force. Market Risk Exposures We believe that the amounts shown in our Form 10-K with respect to interest
rates, changes in spreads over U.S. Treasuries on new investment opportunities,
changes in the yield curve, and equity price risks continue to be
representative of our current sensitivities. As of June 30, 2004, 10-year U.S.
Treasury rates had risen 37 basis points to 4.62% since December 31, 2003. See
further discussion in our Form 10-K regarding the impacts that a changing
interest rate environment has on a single years earnings. While a modest
interest rate increase would initially be unfavorable to our earnings, due to
the near-term impact on our cost of borrowing, such an increase would be
favorable to our earnings over a longer timeframe as higher investment yields
would be incorporated into our investment portfolio and our interest spreads.
Conversely, a sustained period of flat to declining new money rates would
reduce reported earnings due to the effect of minimum rate guarantees in our
insurance products. External Trends and Forward Looking Information With respect to external trends, general economic conditions, interest rate
risks, credit risks, environmental liabilities and the legal environment, see
managements comments in our Form 10-K. 40




---



##### 



Forward Looking Information You should note that this document and our other SEC filings reflect
information that we believe was accurate as of the date the respective
materials were made publicly available. They do not reflect later
developments. As a matter of policy, we do not normally make projections or forecasts of
future events or our performance. When we do, we rely on a safe harbor
provided by the Private Securities Litigation Reform Act of 1995 for statements
that are not historical facts, called forward looking statements. These may
include statements relating to our future actions, sales and product
development efforts, expenses, the outcome of contingencies such as legal
proceedings, or financial performance. Certain information in our SEC filings and in any other written or oral
statements made by us or on our behalf, involves forward looking statements.
We have used appropriate care in developing this information, but any forward
looking statements may turn out to be wrong. They can be affected by
inaccurate assumptions or by known or unknown risks and uncertainties that
could significantly affect our actual results or financial condition. These
risks and uncertainties include among others, general economic conditions
(including the uncertainty as to duration and rate of the current economic
recovery), the impact on the economy from any further terrorist activities or
any US military engagements, and interest rate levels, changes and
fluctuations, all of which can impact our sales, investment portfolios, and
earnings; any failure to complete successfully the integration of our recently
completed group acquisition; competitive factors, including pricing pressures,
technological developments, new product offerings and the emergence of new
competitors; changes in federal and state taxes, changes in the regulation of
the insurance industry or the financial services industry; or changes in other
laws and regulations and their impact; and the various risks discussed earlier. We undertake no obligation to publicly correct or update any forward looking
statements, whether as a result of new information, future developments or
otherwise. You are advised, however, to consult any further disclosures we
make on related subjects in our press releases and filings with the SEC. In
particular, you should read the discussion in the section entitled External
Trends and Forward Looking Information, and other sections it may reference,
in our most recent 10-K report as it may be updated in our subsequent 10-Q and
8-K reports. This discussion covers certain risks, uncertainties and possibly
inaccurate assumptions that could cause our actual results to differ materially
from expected and historical results. Other factors besides those listed there
could also adversely affect our performance. 41




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Item 3. Quantitative and Qualitative Disclosures about Market Risk Information under the heading Market Risk Exposures in Managements
Discussion and Analysis of Financial Condition and Results of Operations is
incorporated herein by reference. 
 Item 4. Controls and Procedures  (a)
    
    We carried out an evaluation, under the supervision and with the
participation of our management, including the Chief Executive Officer
(CEO) and Chief Financial Officer (CFO), of the effectiveness of our
disclosure controls and procedures pursuant to Securities Exchange Act of
1934 (Act) Rule 13a-15. Based on that evaluation, our management,
including our CEO and CFO, concluded, as of the end of the period covered
by this report, that our disclosure controls and procedures were
effective. Disclosure controls and procedures include controls and
procedures designed to ensure that management, including our CEO and CFO,
is alerted to material information required to be disclosed in our filings
under the Act so as to allow timely decisions regarding our disclosures.
In designing and evaluating disclosure controls and procedures, we
recognized that any controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the
desired control objectives, as ours are designed to do.(b)
    
    There have been no changes in our internal controls over financial
reporting identified in connection with the evaluation described in the
above paragraph that occurred during the second quarter 2004 that have
materially affected, or are reasonably likely to materially affect, our
internal controls over financial reporting. 42




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PART II. OTHER INFORMATION 
 Item 1. Legal Proceedings There have been no material developments in the proceedings described in Item 3
of Form 10-K and there are no new material proceedings to report here. 
 Item 2. Changes in
Securities, Use of Proceeds and Issuer Purchases of Equity Securities Issuer Purchases of Equity Securities Total Number ofSharesTotal
    
    
    
    
    
    Purchased as
    
    Maximum NumberNumber of
    
    
    
    
    
    Part of Publicly
    
    of Shares that MayShares
    
    Average Price
    
    Announced
    
    Yet Be PurchasedPeriod
    
    Purchased
    
    Paid per Share
    
    Plans
    
    Under the PlansApril 1-30, 2004
    
    
    100,000
    
    
    $
    49.73
    
    
    
    100,000
    
    
    
    3,015,800May 1-31, 2004
    
    
    2,728,900
    
    
    $
    49.37
    
    
    
    2,728,900
    
    
    
    4,726,100June 1-30, 2004
    
    
    655,100
    
    
    $
    50.63
    
    
    
    655,100
    
    
    
    4,071,000Total for Quarter
    
    
    3,484,000
    
    
    $
    49.62
    
    
    
    3,484,000
 We have an ongoing authorization from our Board of Directors to repurchase
shares of Jefferson Pilots common stock in the open market or in
negotiated transactions. The Board periodically has refreshed this
authorization, to 5.0 million shares on February 9, 2004 and most recently
to 5.0 million shares on May 24, 2004, and in each case we announced the
Boards action in a press release. In addition, two other types of Jefferson Pilot common stock transactions
periodically take place that the SEC staff has suggested be reported here.  1.
    
    A Rabbi Trust buys shares with directors fee deferrals and with
dividends received on shares held in the Trust. This arrangement is
disclosed in our proxy statement. Trust purchases in 2004 were:
February, 412 shares, average price $53.48; March, 339 shares, average
price $54.56; April, 260 shares, average price $53.86; May, 3,360
shares, average price $50.00; and June, 448 shares, average price
$51.17.2.
    
    Under our stock option plans, an optionee may exercise options by
certifying to JP that the optionee owns sufficient JP common shares to
pay the exercise price for the option shares being exercised. We then
issue to the optionee common shares equal to the spread (profit) on the
exercise, less required withholding taxes if the optionee so
designates. The number of shares so used to pay option exercise prices
in 2004 were: January, 721 shares, average price $50.31; and February,
41,400 shares, average price $54.00. 43




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Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. See Exhibit Index on page 46. (b) Reports on Form 8-K:  1.
    
    On April 20, 2004, Jefferson Pilot filed a report on Form 8-K,
which filed under items 5 and 7 the selected press release schedules
issued April 20, 2004, reporting historical quarterly results. The
selected press release schedules were filed as an exhibit to
the
 Form
8-K.2.
    
    On April 27, 2004, Jefferson Pilot filed a report on Form 8-K,
which filed under items 5 and 7 the press release issued April 27,
2004, reporting financial results for the first quarter of 2004. The
press release was filed as an exhibit to the Form 8-K.3.
    
    On June 28, 2004, Jefferson Pilot filed a report on Form 8-K, which
furnished under items 7 and 12 the press release issued June 28, 2004,
reporting financial results for the second quarter of 2004. The press
release was filed as an exhibit to the Form 8-K. 44




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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 CORPORATIONBy (Signature) /s/ Theresa M. Stone (Name and Title)
Theresa M. Stone, Executive Vice President and Chief Financial OfficerDate August 6, 2004By (Signature) /s/ Reggie D. Adamson
(Name and Title)  Reggie D. Adamson, Senior Vice President and Treasurer
                                                            

               Principal Accounting OfficerDate August 6, 2004 45




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EXHIBIT INDEX ExhibitNumber
    
    Description31(i)
    
    
    Certification of Chief Executive Officer pursuant to
Exchange Act Rule 13a-14(a), as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.31(ii)
    
    
    Certification of Chief Financial Officer pursuant to
Exchange Act Rule 13a-14(a), as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.32
    
    
    Certifications of Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
 46